Summary Directors' report
Dividends
The Directors recommend a final dividend on ordinary shares of 7.7p (net) per ordinary share making, with the interim dividend of 5.1p, a total dividend for 2008 of 12.8p (net). Preference dividends totalling 10.75p (gross) per preference share have been paid for 2008. The dividend reinvestment plan (DRIP) continues to be offered.
Share capital and major shareholders
During the year to 31 December 2008 no ordinary shares were repurchased for cancellation and 300,017 preference shares (representing 0.27% of the preference share capital) were repurchased for cancellation for a total consideration of £407,337 at an average price of 135.8p. Purchases of shares are only made after careful consideration by the Directors, having taken into account market conditions prevailing at the time, the investment needs of the Company and its overall financial position. 1,286,053 ordinary shares were issued following the exercise of options held under the Company's savings-related share option scheme and 334,927 ordinary shares were issued following the exercise of options held under the Company's executive share option schemes
On 15 May 2008, a total of 43,320,411 new ordinary shares in the Company were placed with institutions at a price of 430p per ordinary share raising £182m after issue costs. This placing represented an increase of approximately (but less than) 10% of the issued ordinary share capital. These placing shares were issued fully paid and ranked pari passu in all respects with the existing ordinary shares.
At 31 December 2008, the Directors had authority, under the shareholders' resolutions approved at the AGM and separate Class meeting held in May 2008, to purchase through the market 43,314,839 ordinary shares and 16,775,968 preference shares at prices set out in those resolutions. This authority expires at the conclusion of the separate Class meeting which will follow the 2009 AGM.
As at 4 March 2009, the Company had been notified in accordance with the Disclosure and Transparency Rules of the Financial Services Authority of the following interests in its ordinary share capital:
| Number of ordinary shares held | Percentage of ordinary shares held | |||||||
| Standard Life Investments Limited | 42,849,463 | 8.96% | ||||||
| Lloyds Banking Group plc | 33,370,340 | 6.98% | ||||||
| Legal & General Group plc | 32,807,704 | 6.86% | ||||||
| Prudential plc | 25,285,102 | 5.28% | ||||||
| Schroder Investment Management Limited | 22,057,637 | 4.61% | ||||||
Corporate governance and the Combined Code
Overview
The Company is committed to high standards of corporate governance. The UK Listing Authority requires listed companies to disclose, in relation to Section 1 of the Combined Code issued by the Financial Reporting Council which is appended to the UK Listing Rules, how they have applied its principles and whether they have complied with its provisions through the accounting period. The Company has complied with the requirements of the UK Listing Authority relating to the provisions of the Combined Code throughout the accounting period other than in two respects:
(i) Code provision C.3.1 – The chairman of the Audit Committee: following Steve Marshall's appointment as Chairman of the Company, the Board decided that he should continue as chairman of the Audit Committee temporarily pending the appointment of a successor. Graham Roberts was appointed non-executive Director on 1 January 2009 and he will assume the chairmanship of the Audit Committee on 5 March 2009.
(ii) Code provision C.3.4 – Whistleblowing arrangements: the effectiveness of the Group's whistleblowing procedures is kept under review by the Business Practices Committee (BPC) and not by the Audit Committee. The principal reason for this is that the BPC, in particular, focuses on the Company's business conduct, its ethics and values and whistleblowing is an integral element within this overall remit. In addition, from the Company's experience, whistleblowing-type complaints often relate to non-financial matters and, in particular, employment issues.
Honorary President
Viscount Weir is Honorary President of the Company, having been appointed to this position in May 2003, following his retirement as Chairman.
Chairman
Steve Marshall became Chairman in May 2008, having joined the Board in November 2005. Steve Marshall spends an average of two days per week on the business of the Company. He has other commitments as non-executive chairman of Delta plc and as a non-executive director of Southern Water. The Board considers that these other commitments are not of such a nature as to hinder his activities as Chairman of the Company or Committees.
The Board
The Board currently comprises 12 Directors, of whom seven, including the Chairman, are non-executive. The Directors believe that the Board continues to include an appropriate balance of skills and retains the ability to provide effective leadership to the Group.
Sir David John and Hans Christoph von Rohr retired from the Board on 15 May 2008 and 9 September 2008 respectively and Hubertus Krossa was appointed as a non-executive Director on 9 September 2008. Andrew McNaughton was appointed Chief Operating Officer and an executive Director on 1 January 2009. Graham Roberts was appointed as a non-executive Director with effect from the same date. Throughout 2008, the Chief Executive was Ian Tyler and the Senior Independent Director was Robert Walvis.
The Board operates both formally, through Board and Board Committee meetings, and informally through regular contact between Directors as required. Decisions on a list of specific matters, including the approval of financial statements, major tenders and capital expenditure and most acquisitions and disposals, are reserved to the Board or Board Committees. Matters falling outside the list are delegated to management. The list of these reserved matters is reviewed by the Board from time to time, most recently in October 2008. The terms of reference of the principal Board Committees and the reserved matters are displayed on the website: www.balfourbeatty.com
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| Audit Committee | Remuneration Committee | Nomination Committee | Business Practice Committee | Group Tender and Investment Committee | Finance and General Purpose Committee | |
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Directors
Brief biographical details of the Directors, are given on the Board of Directors page.
Non-executive Directors are appointed for specific three-year terms and it is part of the terms of reference of the Nomination Committee, to review all appointments of non-executive Directors at three-year intervals, or as near to that as is practicable and make recommendations to the Board accordingly.
The Board considers that all the non-executive Directors continue to be independent.
Rotation of Directors, election and re-election
Steve Marshall, Ian Tyler and Peter Zinkin are due to retire by rotation as Directors at the 2009 AGM and, being eligible, offer themselves for re-election. Hubertus Krossa, Andrew McNaughton and Graham Roberts, who have been appointed to the Board since the date of the last AGM, will offer themselves for election in accordance with the Company’s Articles of Association.
Evaluation
Formal evaluation of the performance of the Board and of the principal Board Committees, as well as individual assessments of the Directors, are normally carried out by an external consultant tri-annually, with internal assessments carried out in the intervening two years. The last external evaluation was completed in October 2007. Following Steve Marshall's appointment as Chairman in May 2008, an internal evaluation process comprising an assessment questionnaire, commenced in January 2009. As a result of the feedback, the Board has concluded that both it and the Directors operate effectively.
Risk management
The Board takes ultimate responsibility for the Group's systems of risk management and internal control and reviews their effectiveness. As for previous years, the Board has continued to assess the effectiveness of the risk management processes and internal controls during 2008 and to the date of this report. Such assessment is based on reports made to the Board, the Audit Committee and the Business Practices Committee, including:
- the results of internal audit's reviews of internal financial controls;
- a Group-wide certification that effective internal controls had been maintained, or, where any significant non-compliance or breakdown had occurred with or without loss, the status of corrective action; and
- a paper prepared by management on the nature, extent and mitigation of significant risks and on the systems of internal controls.
The Group's systems and controls are designed to ensure that the Group's exposure to significant risk is properly managed, but the Board recognises that any system of internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. In addition, not all the material joint ventures in which the Group is involved are treated, for these purposes, as part of the Group. Where they are not, systems of internal control are applied as agreed between the parties to the venture.
Central to the Group's systems of internal control are its processes and framework for risk management. These accord with the revised Turnbull Guidance on internal controls and were in place throughout the year and up to the date of signing this report.
The Group's systems of internal control operate through a number of different processes, some of which are interlinked. These include:
- the annual review of the strategy and plans of each operating company and of the Group as a whole in order to identify, inter alia, the risks to the Group's achievement of its overall objectives and, where appropriate, any relevant mitigating actions;
- monthly financial reporting against budgets and the review of results and forecasts by executive Directors and line management, including particular areas of business or project risk. This is used to update both management's understanding of the environment in which the Group operates and the methods used to mitigate and control the risks identified;
- individual tender and project review procedures commencing at operating company level and progressing to Board Committee level if value, or perceived exposure, breaches certain thresholds;
- regular reporting, monitoring and review of health, safety and environmental matters;
- the review and authorisation of proposed investment, divestment and capital expenditure through the Board’s Committees and the Board itself;
- the review of specific material areas of Group-wide risk and the formulation and monitoring of risk mitigating actions;
- the formulation and review of properly documented policies and procedures, updated through the free and regular flow of information to address the changing risks of the business;
- specific policies set out in the Group Finance Manual, covering the financial management of the Group, including arrangements with the Group's bankers and bond providers, controls on foreign exchange dealings and management of currency and interest rate exposures, insurance, capital expenditure procedures, application of accounting policies and financial controls;
- a Group-wide risk management framework which is applied to all functions in the Group, whether operational, financial or support. Under it, the key risks facing each part of the Group are regularly reviewed and assessed, together with the steps taken to avoid or mitigate those risks. The results of those reviews are placed on risk registers and, where necessary, specific action plans are developed;
- reviews and tests by the internal audit team of critical business financial processes and controls and spot checks in areas of perceived high business risk; and
- the Group's whistleblowing policy.
Following an internal reorganisation at the end of 2008, the separate roles of Group Risk Management and Internal Audit were amalgamated under a Head of Group Risk Management and Assurance, who is responsible for developing a comprehensive framework of assurance (including internal audit) and co-ordinating the risk management activities across the Group.
No significant failings or weaknesses have been identified by the Board in carrying out its review of the effectiveness of the risk management and internal control systems.
Annual General Meeting
The business to be put to the AGM is set out in the separate circular to shareholders. Steve Marshall and the other chairmen of the Board Committees will be available at the AGM to answer any questions arising from their work. The Board continues to regard the AGM as an important occasion on which to communicate with shareholders. Shareholders may put questions in advance of the AGM by writing to the Company Secretary.
is a registered trade mark of Balfour Beatty plc.