735427 01-covers_Icon 16/4/04 4:47 pm Page OC1 Alfred McAlpineAlfred plc Alfred McAlpine plc Annual Report & Accounts 2003 Annual Report&Accounts2003 735427 01-covers_Icon 16/4/04 4:47 pm Page IC2 Alfred McAlpine plc | Annual Report & Accounts 2003 Financial highlights Financial highlights " Pre-tax profits* up 20% to £36.2m " Earnings per share* up 38% to 28.6p " Turnover up 13% to £868.5m (2002: £768.3m) " Total dividend up 10% to 11.0p " Net cash of £62.0m (2002: £114.1m) " Order book up 15% to £3.0bn Turnover Profit before tax* Dividend £868.5m £36.2m 11.0 pence 1,000 50 12.5 868.5 11.0 800 768.3 40 10.0 10.0 10.0 36.2 600 554.0 30 30.2 7.5 23.3 400 20 5.0 200 10 2.5 0 0 0.0 2003 2003 2003 2002 2002 2002 2001 2001 2001 Turnover £m Profit before tax* £m Dividend pence * Before goodwill amortisation. The Group’s statutory profit before tax of £30.6m and earnings per share of 22.3p are after charging £5.6m in respect of goodwill amortisation. Cover images McAlpine creates, manages and services Ross Latham buildings and infrastructure. Graduate Trainee | McAlpine Infrastructure Services We design, build, maintain and renew Joanne Yoker transport and utility infrastructures. We HR Manager | McAlpine Business Services create and manage buildings, and deliver Andrea Place support services within them. Customer Services Manager | McAlpine Infrastructure Services We are a service business, with a diverse John Reid range of people and capabilities. The Managing Director Water Services | McAlpine Infrastructure Services McAlpine people featured on this cover are: Terry O’Connor Regional Managing Director | McAlpine Capital Projects Jim Livingstone Account Director | McAlpine Business Services 735427 pp02-pp03 6/4/04 12:36 pm Page 2 Alfred McAlpine plc | Annual Report & Accounts 2003 02 Chairman’s statement Chairman’s statement Alfred McAlpine is well positioned in large and growing markets which are underpinned by major structural trends in the UK economy. Our business is now characterised by visible, lower-risk, longer-term earnings. The transformation of Alfred McAlpine into a balanced service business is We invested £15m in bolt-on acquisitions and spent £9.6m buying back our now complete. During 2003 we generated two thirds of our earnings from own shares during 2003. Both of these programmes will continue in 2004. our support services activities. Dividends To achieve this transformation we acquired seven businesses in the three As a reflection of the progress being made in the business, and in line with years to the end of last year. They are fully integrated and I am pleased our progressive policy, the final dividend for the year has been increased by to report strong performance from them in 2003. 10% to 6.5p, taking our total dividend for the year to 11.0p, also up 10% (2002: 10.0p). The Board OUR ORDER BOOK HAS INCREASED TO £3.0bn As planned, and highlighted in previous announcements, I became (£2.6bn IN 2002) BUT, MORE SIGNIFICANTLY, WE Non-Executive Chairman on 10th August, 2003 and Ian Grice succeeded NOW HAVE AGREED REVENUE STREAMS me as Group Chief Executive. Ian has played a key role in the transformation of McAlpine over the last three years and under his leadership I fully expect STRETCHING OUT BEYOND 2010, IN CONTRAST the Company to enjoy a period of strong growth and profitability. TO THE SHORT-TERM PROFILE WHICH USED TO BE A FEATURE OF OUR BUSINESS. As announced at the Annual General Meeting and in our interim report, Andrew Robb retired as a Non-Executive Director on 22nd May, 2003. Andrew made a valuable contribution during his time on our Board and, on behalf of all of the Directors, I would like to record our thanks to him. As planned, the re-shaping of McAlpine has reduced our exposure to Robert Hough and Philip Swatman both joined the Board as contracting risk, generated robust and visible long-term revenue streams, Non-Executive Directors on 13th March, 2003. and positioned us in good growth markets. On 30th October, Dominic Lavelle succeeded Jeff Hume as Group Finance Our order book has increased to £3.0bn (£2.6bn in 2002) but, more Director. On behalf of our Board, I would like to record my thanks significantly, we now have agreed revenue streams stretching out beyond to Jeff for the positive contribution he made as a Director of McAlpine. 2010, in contrast to the short-term profile which used to be a feature of our business. Finally, Peter Carolan joined the Board on 11th March, 2004. Peter is Managing Director of McAlpine Infrastructure Services. As a result of the changes we have made, we now have a robust business with excellent prospects. This is reflected in another year of strong earnings Prospects growth. As we have reshaped our business, we have maintained our focus on the built environment. All the services we provide relate to the built Financial Results environment, and are based on our deep knowledge and understanding Group profit rose by 20% to £36.2m (2002: £30.2m) before tax and of buildings and infrastructure. goodwill amortisation (PBTA). Turnover grew by 13% to £868.5m (2002: £768.3m). The increase in profit, together with our share buy-back This focus provides two structural growth opportunities for McAlpine – programme and a reduced tax rate combined to increase earnings per the renewal of the UK’s infrastructure and the continuing trend for major share, before goodwill amortisation, by 38% to 28.6p (2002: 20.7p). organisations to outsource support services. As a result of acquisition costs, our share buy-back programme, investment We are all aware of the importance of our transport and utility networks in PFI schemes, and the expected unwinding of cash and increase in working to the economy, and of the pressing need to upgrade our schools and capital requirements, our net cash position at the year end was £62.0m hospitals. Led by the Government and the utility companies, major (2002: £114.1m). investment programmes are in place in each of these areas. 735427 pp02-pp03 6/4/04 12:36 pm Page 3 Alfred McAlpine plc | Annual Report & Accounts 2003 Chairman’s statement | continued 03 McAlpine is already heavily involved in these programmes through our utility renewal and maintenance services, transport construction and maintenance activities, and PFI schemes in the highways, health and education sectors. We expect investment in the UK’s infrastructure to remain at robust levels for the remainder of the decade and our business is well positioned to benefit from this. As they concentrate on their core business, major public and private sector organisations are continuing to outsource support services. This trend is now well established and continues to provide a platform for strong growth in our business. Outsourcing is also developing rapidly in the utilities sector, where the major operators are seeking partners to handle broader aspects of their infrastructure renewal and maintenance activities. The provision of complex technical support services lies at the heart of our outsourcing activities. We focus on working with clients who have sophisticated infrastructures which provide critical support to their core operations. These infrastructures must be well managed and maintained, and our clients understand the false economy of under-funding these activities. Alfred McAlpine is well positioned in growth markets and is focused on working with clients who value our high quality services. It has a strong executive team, skilled and enthusiastic people and a sound financial position. Two thirds of our activities are in support services, offering longer-term, lower-risk earnings and the prospects of double digit growth. Looking forward, I am confident that we will continue to make good progress, which will enable us to create further value for our shareholders. Oliver Whitehead Chairman 735427 pp04-pp05 6/4/04 12:39 pm Page 4 Alfred McAlpine plc | Annual Report & Accounts 2003 04 Group Chief Executive’s review Group Chief Executive’s review Our business is in good shape. We have a focused strategy, a clear and robust operating structure, and strong management teams. Following the disposal of the Homes business in 2001 and a period of The new identity and branding strategy consolidates the majority of our significant acquisition activity, we have re-shaped our operating structure and operations under the McAlpine brand. It was introduced in October 2003 introduced a new corporate identity and branding strategy to update our and has received a positive reaction both within the Company and from position in the markets in which we operate. Both of these developments our clients. have been instrumental in building the growth momentum in our business and have contributed to another successful year for Alfred McAlpine. Trading Overview I am pleased to be able to report strong performance in 2003 from New Operating Structure our three principal business streams. At the start of 2003 we re-organised and created three principal business streams, each with a clear and distinct focus: Business Services delivered a 67% rise in turnover and a 64% increase in " Business Services profit before tax and amortisation (PBTA) contribution. Turnover rose to " Capital Projects £210.6m (2002: £126.0m) and PBTA to £12.8m (2002: £7.8m) to provide " Infrastructure Services a consistently strong PBTA margin of 6.1% (2002: 6.2%). These impressive results were achieved through strong organic growth, full-year contributions Business Services combines the Stiell Facilities, Stiell Networks and Inframan from Stiell and Inframan (acquired in March and December 2002 acquisitions made in 2002 with our plant and vehicle services business.