Balfour Beatty plc Annual Report and Accounts 2012, Notice of 2013 Annual General Meeting and Class Meeting of Preference Shareholders, Forms of Proxy and Notice of availability of documents
Pursuant to Listing Rule 9.6.1, copies of the following documents have been submitted to the UK Listing Authority (the "UKLA"), and will shortly be available for inspection at the UKLA's Document Viewing Facility, via the National Storage Mechanism, which is located at http://www.hemscott.com/nsm.do:
· The Company's Annual Report and Accounts for the year ended 31 December 2012 (Annual Report 2012);
· The Notice of 2013 Annual General Meeting ("AGM") and Class Meeting of Preference Shareholders ("Class Meeting");
· Forms of Proxy for AGM and Class Meeting; and
· Notice of availability of Annual Report 2012 and Notice of AGM and Class Meeting.
Copies of the Annual Report 2012, the Notice of 2013 AGM and Class Meeting can also be viewed on the Company's website, www.balfourbeatty.com.
The printed Annual Report 2012, the Notice of 2013 AGM and Class Meeting and the relevant Form of Proxy have now been sent to those shareholders who have elected to continue to receive paper copies. Shareholders who have not elected to continue to receive paper copies have been sent the relevant Form of Proxy and a Notice of availability of the Annual Report 2012 and Notice of AGM and Class Meeting.
The Independent Auditor's Report on the financial statements of the Company for the year ended 31 December 2012, which comprise the Group and Company income statements, the Group and Company statements of comprehensive income, the Group and Company statements of financial position, the Group and Company statements of changes in equity, the Group and Company statements of cash flows, and the related Notes 1 to 38, is set out in full on page 98 of the Annual Report 2012.
The Annual Report 2012 submitted to the UKLA today also contains information regarding the Company's principal risks.
This material should be read in conjunction with, and is not a substitute for, the full Annual Report 2012. Page and note references in the text below refer to page numbers in the Annual Report 2012.
Principal risks
During 2012, most of our businesses performed well and in line with expectations. However, our construction businesses in the UK and US experienced difficult trading conditions which are likely to continue into 2013. In the UK, reduced private spending, depressed private sector investment in commercial building and delays in government backed projects shifted our construction business mix towards less complex and lower margin projects. In the US, the construction market is now expected to recover later than previously expected.
These trends will continue into 2013, and the steps we have taken in response will increase the importance of effective risk management. As we reshape the organisation to deliver our combined capabilities across our target growth sectors, we must ensure that we do not inadvertently import additional risk. The Board believes that our established risk management and internal control systems will help us to identify such risks and respond in a timely manner.
Operating in many different business environments and territories inevitably entails risks and uncertainties that are not necessarily within our control. Although we cannot eliminate such risks and uncertainties completely, we have established risk management and internal control systems and procedures to manage their impact.
We also face significant risks and uncertainties that are common to many companies - including financial and treasury risks, IT and information security risks, and the management of pension liabilities, which are significant. We have established controls and systems to manage such risks.
The principal risks that could adversely impact our profitability and ability to achieve our strategic objectives are set out below and on pages 60 to 61. While the risks themselves have not changed since last year, the Board's assessment of their likelihood and potential impact has changed and steps have been taken to strengthen, as appropriate, the mitigations in place.
Economic environment |
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Risk The continued effect of the global economic downturn may cause our clients to postpone or reduce existing or future projects. |
Impact Any significant changes in the level or timing of client spending or investment plans could adversely impact our future order book. Such changes could arise from changes in government policy or clients' failure to secure financing for future projects. |
Mitigation The Group's strategy to focus on the more resilient and stable infrastructure markets (be they geographies or market sectors) will further mitigate this risk. The effect of spending changes in any one market is mitigated by our broad exposure to infrastructure markets across the globe and the continued need for infrastructure spending. |
Change in 2012 The challenging economic environment in some of our main geographies has continued to depress spending by governments and other clients and has increased competitive intensity which in turn has put pressure on margins. |
Failure of a client, including any government or public sector body, could result in non-collection of amounts owed. |
The financial solvency and strength of counterparties is always considered before contracts are signed and is a specific focus in the current economic climate. During the life of a contract such assessments are updated and reviewed whenever possible. We seek to ensure that we are not over reliant on any one counterparty. |
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Failure of a subcontractor or supplier would result in the Group having to find a replacement or undertaking the task itself. This could result in delays and additional costs. |
We aim to develop long term relationships with key subcontractors, working closely with them to understand their operations. We develop contingency plans to address subcontractor failure, and also obtain project retentions, bonds and/or letters of credit from subcontractors, where appropriate, to mitigate the impact of any insolvency. |
Expansion into new territories and by acquisition |
Risk In pursuit of our strategic objectives, we will seek to enter new territories and continue to make acquisitions. This has the potential to expose the Group to risks that it may not have encountered before. |
Impact Failure to identify, understand and evaluate the risks of conducting business in a new territory could lead to significant financial loss and reputational damage. |
Mitigation As part of the decision making process before entering a new territory, we undertake a detailed country risk assessment. This will consider and assess the prevailing economic, political, regulatory, ethical, health, safety and sustainability conditions to ensure that we can operate there in line with our own values and standards. |
Change in 2012 No change. |
Failure to realise the expected benefits from acquisitions and to integrate acquired businesses successfully into the Group's processes could result in an adverse impact on our strategic objectives, future prospects, financial conditions and profitability. |
We undertake detailed due diligence on all potential acquisitions to ensure that all aspects of their business align with ours. In many cases we have worked with these businesses before. In addition, we prepare valuation models on all potential acquisitions, drawing on both internal and external resources. Due diligence includes an assessment of our ability to integrate the acquired businesses successfully into the Group. When a business is acquired, we develop detailed integration plans and monitor them to ensure the business is successfully assimilated into the Group and its internal control framework. |
Legal and regulatory |
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Risk We operate in diverse territories and our businesses are subject to a variety of complex, demanding and evolving legal, tax and regulatory requirements. Change in 2012 No change. |
Impact A breach of local laws and regulations could lead to legal proceedings, investigations or disputes resulting in business disruption ranging from additional project costs to potential debarment and reputational damage. |
Mitigation We monitor and respond to legal and regulatory developments in the territories where we operate. We consider the local legal and regulatory framework as part of any Group decision to conduct business in a new country. |
Business conduct |
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Risk We operate in various international markets with partners and supply chains that may present business conduct related risks involving, for example, fraud, bribery or corruption. Change in 2012 No change. |
Impact Failure by the Group and its employees to observe the highest standards of integrity and conduct in dealing with clients, suppliers and other stakeholders could result in civil and/or criminal penalties, debarment and reputational damage. |
Mitigation Throughout the Group we take a rigorous approach to assessing and addressing corruption risks. We have a variety of programmes to promote compliance with our Code of Conduct and in areas such as competition and data protection law. Each operating company has a compliance officer responsible for the application and monitoring of these programmes. |
People |
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Risk Our inability to recruit and retain the best management and employees who have the appropriate competencies and also share our values and behaviours may hamper our growth prospects. Change in 2012 No change. |
Impact Failure to recruit and retain appropriately skilled people could harm our ability to deliver specific contracts and our future growth. |
Mitigation We measure all potential recruits for key roles in the organisation against a competency and leadership framework. Divisions and their operating companies undertake organisation and people reviews to review the roles, competencies, performance and potential of personnel. We have a well developed succession planning process to identify and develop high potential personnel to fill key roles. These plans are reviewed regularly and discussed at all levels within the organisation and by the Board. We have appropriate remuneration and incentive packages to help us attract and retain key employees. |
Bidding |
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Risk Through our operating companies we seek to win work through a large number of bids each year. In some cases we bid in joint venture with carefully selected partners, especially where we want to augment our expertise or knowledge of the territory. We also invest in PPP and infrastructure investments, where success depends on a number of assumptions, made, at the time of investment, on future revenues and costs. |
Impact Failure to estimate accurately the risks, costs, impact of inflation and contractual terms and how best to manage them could diminish the profitability of contracts. |
Mitigation All bids are subject to rigorous estimating and tendering processes within a defined framework. We have defined delegated authority levels for approving all tenders and infrastructure investments. All major and significant contracts above those authority levels are subject to Group review and approval by the Group Tender and Investment Committee (GTIC). |
Change in 2012 No change. |
In the event of a disagreement with, or failure of, or poor delivery performance of a joint venture partner, we could face financial and reputational risks. |
Before entering into a joint venture agreement we have procedures for reviewing the relevant skills, experience, resources and values of joint venture partners to understand how they complement ours. We monitor the performance of joint ventures and joint venture partners throughout the life of the project. |
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If any of the assumptions behind investment decisions prove incorrect, the profitability of those investments could be reduced. |
Investment appraisals are performed and reviewed by experienced professionals. We analyse the risks associated with revenues and costs and, where appropriate, establish contractual and other risk mitigations. |
Project execution |
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Risk We work on complex design, engineering, construction, facilities management and asset management projects. If we fail to deliver these on time and to clients' requirements, we face the risk of financial loss, claims and reputational damage. Successful delivery of many of these projects depends on the combined availability and effective management of subcontractors and other service providers. |
Impact Failure to manage or deliver against contracted customer requirements on time and to an appropriate quality could result in issues such as contract disputes, rejected claims, design issues, cost overruns or failure to achieve customer savings - which harm our profitability and reputation. |
Mitigation Each operating company has defined operating procedures to address the risks inherent in project delivery. In addition, the Group risk management framework aids identification of specific risks on projects and the mitigating actions required. Projects are subject to management review at all levels to monitor progress and to review steps put in place to address specific risks identified on those projects. |
Change in 2012 Increased incidence of subcontractor failure or default could affect the successful execution of projects. |
A subcontractor's failure to perform to an appropriate standard and quality could cause project delays, reduce our ability to meet contractual commitments and harm our reputation. |
We aim to develop long term relationships with a number of key subcontractors without becoming overreliant on any one. As part of our selection criteria we seek to partner with subcontractors and suppliers who share our values. |
Health, safety and sustainability |
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Risk We work on significant, complex and potentially hazardous projects which require continuous monitoring and management of health and safety risks. Through our activities we can impact either positively or adversely the world in which we operate and the communities with which we come into contact. Change in 2012 No change. |
Impact Failure to manage these risks could expose our people or the public to injury/harm and the Group to significant potential liabilities and reputational damage. |
Mitigation We have detailed health and safety policies and procedures to minimise such risks. These are reviewed and monitored by operating companies, divisional management and external verification bodies. Each operating company has experienced health and safety professionals who provide advice and support and undertake regular reviews. A Safety Executive committee meets regularly throughout the year to develop a consistent approach to health and safety best practice. |
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Failure to address these risks and to execute projects sustainably could result in significant potential liabilities, reputational damage and inability to win future work. |
Our sustainability strategy covers our operations until 2020 in terms of profitable markets, healthy communities and environmental limits. Sustainability issues such as climate change adaption are considered in risk management activities at operating company as well as project level. |
