alfred mcalpine plc annual report & accounts...

Alfred McAlpine plc Annual Report & Accounts 2003

Alfred M

cAlpine plc

Annual Report &

Accounts 2003

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£868.5m £36.2m 11.0 pence

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

2001

2002

2003

Turnover £m

0

200

400

600

800

1,000

768.3

554.0

868.5868.5

2001

2002

2003

Profit before tax* £m

0

10

20

30

40

50

30.2

23.3

36.236.2

2001

2002

2003

Dividend pence

0.0

2.5

5.0

7.5

10.0

12.5

10.010.0

11.011.0

Alfred McAlpine plc | Annual Report & Accounts 2003Financial highlights

* Before goodwill amortisation. The Group’sstatutory profit before tax of £30.6m andearnings per share of 22.3p are after charging£5.6m in respect of goodwill amortisation.

Cover imagesMcAlpine creates, manages and servicesbuildings and infrastructure.

We design, build, maintain and renewtransport and utility infrastructures. Wecreate and manage buildings, and deliversupport services within them.

We are a service business, with a diverserange of people and capabilities. TheMcAlpine people featured on this coverare:

Ross LathamGraduate Trainee | McAlpine Infrastructure Services

Joanne YokerHR Manager | McAlpine Business Services

Andrea PlaceCustomer Services Manager | McAlpine Infrastructure Services

John ReidManaging Director Water Services | McAlpine Infrastructure Services

Terry O’ConnorRegional Managing Director | McAlpine Capital Projects

Jim LivingstoneAccount Director | McAlpine Business Services

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02 Alfred McAlpine plc | Annual Report & Accounts 2003Chairman’s statement

The transformation of Alfred McAlpine into a balanced service business isnow complete. During 2003 we generated two thirds of our earnings fromour support services activities.

To achieve this transformation we acquired seven businesses in the threeyears to the end of last year. They are fully integrated and I am pleased to report strong performance from them in 2003.

As planned, the re-shaping of McAlpine has reduced our exposure tocontracting risk, generated robust and visible long-term revenue streams,and positioned us in good growth markets.

Our order book has increased to £3.0bn (£2.6bn in 2002) but, moresignificantly, we now have agreed revenue streams stretching out beyond2010, in contrast to the short-term profile which used to be a feature of our business.

As a result of the changes we have made, we now have a robust businesswith excellent prospects. This is reflected in another year of strong earningsgrowth.

Financial ResultsGroup profit rose by 20% to £36.2m (2002: £30.2m) before tax andgoodwill amortisation (PBTA). Turnover grew by 13% to £868.5m (2002:£768.3m). The increase in profit, together with our share buy-backprogramme and a reduced tax rate combined to increase earnings per share, before goodwill amortisation, by 38% to 28.6p (2002: 20.7p).

As a result of acquisition costs, our share buy-back programme, investment in PFI schemes, and the expected unwinding of cash and increase in workingcapital requirements, our net cash position at the year end was £62.0m(2002: £114.1m).

We invested £15m in bolt-on acquisitions and spent £9.6m buying back ourown shares during 2003. Both of these programmes will continue in 2004.

DividendsAs a reflection of the progress being made in the business, and in line withour progressive policy, the final dividend for the year has been increased by10% to 6.5p, taking our total dividend for the year to 11.0p, also up 10%(2002: 10.0p).

The BoardAs planned, and highlighted in previous announcements, I became Non-Executive Chairman on 10th August, 2003 and Ian Grice succeeded me as Group Chief Executive. Ian has played a key role in the transformationof McAlpine over the last three years and under his leadership I fully expectthe Company to enjoy a period of strong growth and profitability.

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.Robert Hough and Philip Swatman both joined the Board as Non-Executive Directors on 13th March, 2003.

On 30th October, Dominic Lavelle succeeded Jeff Hume as Group FinanceDirector. On behalf of our Board, I would like to record my thanks to Jeff for the positive contribution he made as a Director of McAlpine.

Finally, Peter Carolan joined the Board on 11th March, 2004. Peteris Managing Director of McAlpine Infrastructure Services.

ProspectsAs we have reshaped our business, we have maintained our focus onthe built environment. All the services we provide relate to the builtenvironment, and are based on our deep knowledge and understanding of buildings and infrastructure.

This focus provides two structural growth opportunities for McAlpine – the renewal of the UK’s infrastructure and the continuing trend for majororganisations to outsource support services.

We are all aware of the importance of our transport and utility networks to the economy, and of the pressing need to upgrade our schools andhospitals. Led by the Government and the utility companies, majorinvestment programmes are in place in each of these areas.

Alfred McAlpine is well positioned in large and growing markets which areunderpinned by major structural trends in the UK economy. Our business is now characterised by visible, lower-risk, longer-term earnings.

Chairman’s statement

OUR ORDER BOOK HAS INCREASED TO £3.0bn(£2.6bn IN 2002) BUT, MORE SIGNIFICANTLY, WENOW HAVE AGREED REVENUE STREAMSSTRETCHING OUT BEYOND 2010, IN CONTRASTTO THE SHORT-TERM PROFILE WHICH USED TOBE A FEATURE OF OUR BUSINESS.

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03Alfred McAlpine plc | Annual Report & Accounts 2003Chairman’s statement | continued

McAlpine is already heavily involved in these programmes through our utilityrenewal and maintenance services, transport construction and maintenanceactivities, and PFI schemes in the highways, health and education sectors. We expect investment in the UK’s infrastructure to remain at robust levelsfor the remainder of the decade and our business is well positioned tobenefit from this.

As they concentrate on their core business, major public and private sectororganisations are continuing to outsource support services. This trend is nowwell established and continues to provide a platform for strong growth inour business.

Outsourcing is also developing rapidly in the utilities sector, where the major operators are seeking partners to handle broader aspects of theirinfrastructure 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 havesophisticated infrastructures which provide critical support to their coreoperations. These infrastructures must be well managed and maintained, andour clients understand the false economy of under-funding these activities.

Alfred McAlpine is well positioned in growth markets and is focused onworking with clients who value our high quality services. It has a strongexecutive 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 goodprogress, which will enable us to create further value for our shareholders.

Oliver WhiteheadChairman

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Our business is in good shape. We have a focused strategy, a clear and robust operating structure, and strong management teams.

04 Alfred McAlpine plc | Annual Report & Accounts 2003Group Chief Executive’s review

Following the disposal of the Homes business in 2001 and a period ofsignificant acquisition activity, we have re-shaped our operating structure andintroduced a new corporate identity and branding strategy to update ourposition in the markets in which we operate. Both of these developmentshave been instrumental in building the growth momentum in our businessand have contributed to another successful year for Alfred McAlpine.

New Operating StructureAt the start of 2003 we re-organised and created three principal businessstreams, each with a clear and distinct focus:" Business Services" Capital Projects" Infrastructure Services

Business Services combines the Stiell Facilities, Stiell Networks and Inframanacquisitions made in 2002 with our plant and vehicle services business. BusinessServices is focused on providing outsourced services to major public and privatesector organisations. It has strong capability in managing and maintainingbuildings, IT infrastructures, and other business assets such as vehicles andplant. In June 2003 we acquired AIMS Group Services, a specialist advisorytraining and technical services business focused on workplace complianceissues. This now operates within Business Services.

Capital Projects comprises our long-standing Civil Engineering and SpecialProjects operations. Civil Engineering provides design and build servicesprimarily in the highways, rail, water and airports sectors and Special Projectsis involved in the development, design and build of new facilities in thecommercial, education, health and leisure sectors.

Infrastructure Services has been created around our Kennedy, Ryan andEastern Contracting acquisitions and also includes our long-term highwaysmaintenance activities. It concentrates on providing renewal andmaintenance services across all utility sectors – gas, electricity, water andtelecommunications – and in the highways sector.

Our Project Investments business continues to operate as a specialist unitfocusing on the PFI and PPP market. It holds and manages our equityinvestments and works closely with all of our operating businesses toprovide integrated solutions.

Our Slate quarrying, manufacturing and marketing operation, based inNorth Wales, continues to operate successfully as a separate business.

Corporate Identity and Branding During 2003, we developed and introduced a new corporate identity andbranding strategy. Our old identity had served us for over 20 years but wasseen as dated and not suited to our new focus as a service business.Additionally, following our acquisition programme we were operating underseveral different brand names.

The new identity and branding strategy consolidates the majority of ouroperations under the McAlpine brand. It was introduced in October 2003and has received a positive reaction both within the Company and fromour clients.

Trading OverviewI am pleased to be able to report strong performance in 2003 fromour three principal business streams.

Business Services delivered a 67% rise in turnover and a 64% increase inprofit before tax and amortisation (PBTA) contribution. Turnover rose to£210.6m (2002: £126.0m) and PBTA to £12.8m (2002: £7.8m) to providea consistently strong PBTA margin of 6.1% (2002: 6.2%). These impressiveresults were achieved through strong organic growth, full-year contributionsfrom Stiell and Inframan (acquired in March and December 2002respectively) and a seven month contribution from AIMS (acquired for£15.0m in June 2003).

As we have stated for a number of years, our focus in Capital Projects is on profitability not volume. The business experienced a slower thananticipated start to several secured projects and, as previously indicated, the consequence has been a reduction in volumes. Turnover was £329.9m(2002: £363.8m) and PBTA was £16.5m (2002: £20.6m). However, thisbusiness still achieved a 5% PBTA margin in line with our Group target.

Infrastructure Services grew PBTA by 18% to £13.7m (2002: £11.6m)on turnover up 19% to £304.3m (2002: £255.8m). PBTA margin wasmaintained at 4.5%. These results benefited from a full-year contributionfrom Eastern Contracting (acquired in September 2002). Now that the Ryan(acquired in November 2001) and Eastern Contracting acquisitions have beenfully integrated, our medium-term margin is expected to meet our 5% target.

Safety, Health and EnvironmentOur Accident Frequency Rate (AFR) has fallen for the fifth consecutive year.For 2003, it was 0.27 which represents a 33% improvement over the lastfive years.

This is a testament to the rigorous safety management systems andprocedures and the strong safety culture we have developed withinMcAlpine.

Because safety, health and sustainability issues are a central part of ourbusiness operations and are of major importance to our clients, we havedecided this year to integrate our reporting on these matters with ouroverall business reporting.

Summary information on our safety, health and environmental performancehas been included in this Report and the accompanying Business Review for 2003.

Group Chief Executive’s review

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05Alfred McAlpine plc | Annual Report & Accounts 2003Group Chief Executive’s review | continued

In addition, a full Safety, Health and Environment Report has been publishedon our website www.mcalpineplc.com/she. This enables us to publish muchgreater detail on these critical issues than previously.

People, Partnership, Performance

The value we deliver to our clients comes directly from the skills andcreativity of our people. During 2003, we have continued to enhanceGenesis, our culture development programme, with a particular focus onbuilding our service performance. In parallel we have carried out a majorstrengthening of our HR policies to ensure we have a positive operatingframework which supports our business goals.

In line with the launch of our new corporate identity, we have enhanced ouremployee communications programmes. We carry out an employee surveyevery November and it is very pleasing to report that 80% (up from 76% in2002) of our people are ‘Satisfied or Very Satisfied’ working at McAlpine.

McAlpine has been a long-term supporter of partnering as a businessapproach that creates additional value for clients and suppliers. During 2003we have launched a number of client and supplier partnering initiatives andthese are detailed in this Report and the accompanying Business Review.

Our business culture emphasises the critical importance of delivering results– for our clients, for our people, for the environment, and for ourshareholders.

We manage our performance through a robust business planning andreporting process and our personnel development and appraisal systems.This ensures that we maintain tight operational and commercial controlsthroughout our business.

We are proud of what we have achieved at McAlpine over the last threeyears. We have re-shaped our business and positioned it in growth marketsthat provide substantial opportunities for generating visible, long-term,low-risk revenue streams. We are completely focused on ensuring thatthis progress is continued in 2004 and beyond.

Ian GriceGroup Chief Executive

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06 Alfred McAlpine plc | Annual Report & Accounts 2003Operating and financial review

Operating and financial review

THE AIMS ACQUISITION MEANS THAT BUSINESSSERVICES CAN NOW PROVIDE WORKPLACECOMPLIANCE SERVICES IN AREAS LIKE HEALTHAND SAFETY AND DISABILITY DISCRIMINATION.

OUR OPERATIONS ARE DELIVERED THROUGHTHREE PRINCIPAL BUSINESS STREAMS – BUSINESS SERVICES, CAPITAL PROJECTS AND INFRASTRUCTURE SERVICES.

01 Business Services now provides airportsupport services in the commercial anddefence sectors.

02 During 2003, Business Services secureda major new FM contract with Shell inLondon.

03 The acquisition of AIMS means BusinessServices can now offer comprehensiveworkplace compliance services.

Business reviewMcAlpine Business ServicesOperating throughout the UK,McAlpine Business Servicesemploys some 2,500 people andprovides outsourced managementof buildings, IT infrastructures,vehicle fleets and heavy plant.

Strong organic businessdevelopment and two acquisitions– Inframan and AIMS – helpedsecure growth in 2003.

The Inframan acquisition movedBusiness Services into the publicsector facilities managementmarket and this has led tosignificant new contracts in thedefence, health and educationmarkets.

The AIMS acquisition means thatBusiness Services can now providea range of workplace complianceservices in areas like health andsafety and disability discrimination.This complements its facilitiesmanagement activities, andthe increasing level of consultancyactivity within the business willhave a beneficial impact on marginperformance in the future.

During the year, significant newfacilities management and IT orderswere secured with the Londonsolicitors Ashurst, Coventry CityCouncil, Derby County Council,Powergen and Shell. In parallel,the business extended its contractswith Abbey, Airbus, HBoS andNorth Lanarkshire Council.

Underlying margins remain robustas the business increasingly benefitsfrom scale efficiencies. It continuesto avoid commodity markets withinthe business services sector likesecurity and cleaning, and focuseson managing complex technicalsupport services for clients withbusiness critical systems.

As part of the McAlpinere-branding in October 2003, theStiell, AMPL and Inframan brandswere eliminated. These businessesall adopted the new McAlpinebrand.

With its growing capability across arange of sectors and the continuedstrength of the UK outsourcingmarket, Business Services is set forsignificant long-term growth. Aswell as delivering strong organicexpansion, this business willcontinue to pursue appropriate bolt-on acquisitions.

0303

01

02

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07Alfred McAlpine plc | Annual Report & Accounts 2003Operating and financial review | continued

IN LINE WITH THE REST OF McALPINE, CAPITALPROJECTS IS FOCUSED ON DEVELOPING LONG-TERM RELATIONSHIPS WITH ITS CLIENTS.

04 The New Tredegar RegenerationScheme – creating schools and publicamenities in South Wales.

05 The M6 Toll road north of Birmingham– completed six weeks ahead ofschedule.

McAlpine Capital ProjectsOperating throughout the UK,McAlpine Capital Projects employsnearly 1,000 people and providesoutsourced services for thedevelopment, design andconstruction of a wide range ofpublic and private sector assets.

Major new contracts have beensecured, providing a strong orderbook going forward. These includenew environmental facilities forAstraZeneca in Avonmouth, theNew Tredegar Regeneration Scheme in South Wales, thewidening of the M60 inManchester, and the A419Blunsdon Bypass near Swindon.

In the PFI market, working withour Project Investments team,Capital Projects secured contractsfor the construction of new

facilities at Addenbrooke’s Hospitalin Cambridge and the upgradingof the A1 to motorway standard,between Darrington and Dishforthin Yorkshire.

In line with the rest of McAlpine,Capital Projects is focused ondeveloping long-term relationshipswith its clients. This is typified by theten-year Great Western Earthworksand Structures PartneringAgreement (GWESPA) establishedwith Network Rail. This is now in itssecond year and performing well.

Further progress was madethrough the creation of theScottish Water Solutions jointventure. Alongside ourInfrastructure and Business Servicesoperations, Capital Projects will beinvolved in the delivery of the assetinvestment programme that this

joint venture has been set up tomanage. This will provide a robustincome stream for up to four years,and is a good example of how ourdifferent businesses are combiningto win new work.

2003 also saw the completion,ahead of schedule, of the UK’s firstprivate toll motorway, aroundBirmingham. This was deliveredthrough the CAMBBA joint ventureinvolving Carillion, AlfredMcAlpine, Balfour Beatty andAmec. Other notable projectswhich completed in the yearincluded the A1033 Hedon Roadimprovement scheme in Hull andthe A46 Newark to Lincoln upgrade.

Along with other McAlpinebusinesses, Capital Projects is

heavily involved in the renewal anddevelopment of the UK’s publicinfrastructure and is set to benefitfrom the strong future spendprogrammes of the Governmentand the utilities sector.

McAlpine InfrastructureServicesWorking for the majority of utilitycompanies in gas, water, electricityand telecommunications, as wellas local authorities and theHighways Agency, McAlpineInfrastructure Services has nationalcoverage and a skilled workforceof over 4,000.

Through a variety of sector-focusedbusinesses, Infrastructure Servicesis involved in a broad range ofactivities including multi-utility

04

05

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08 Alfred McAlpine plc | Annual Report & Accounts 2003Operating and financial review | continued

06 East Leake Schools – funded, designed,built and maintained by McAlpine.

07 Highways maintenance in Suffolk.

connections, major utilityreplacement and rehabilitation,traffic management, highwaysmaintenance and street lighting.

Following the acquisitions of Ryanin 2001 and Eastern Contracting in 2002, Infrastructure Servicescontinues to pursue bolt-onacquisitions. After the year end, in February 2004, we acquired UKPower, a specialist overhead linebusiness operating throughout theUK and the Republic of Ireland, for £5.2m.

2003 also saw the creation ofScottish Water Solutions, a jointventure involving Scottish Waterand two industry consortia.McAlpine is a member of one ofthese consortia – Stirling Water.This joint venture will implementScottish Water’s Asset Delivery

Programme over the next fewyears. Capital Projects and BusinessServices will also be involved in thismajor programme.

Infrastructure Services’ focus ondeveloping strong clientrelationships has resulted in itsuccessfully retaining or extendingmany of its contracts in 2003.

Other significant contract awardsduring the year include a seven-year highways maintenancecontract with Suffolk CountyCouncil, a three-year renewal ofour cabling support contract withScottish Power, extensions to ourcontracts with East MidlandsElectricity and RochdaleMetropolitan Borough Council, and

a major new two-year frameworkcontract with the Electricity SupplyBoard in the Republic of Ireland.

In February 2002, we establishedCore Utility Solutions, a jointventure with Scottish Power. Thisbusiness provides multi-utilityconnection services and is fastbecoming a leading player in thisgrowth market.

Infrastructure Services will continueto develop its portfolio of servicesthrough organic growth and bolt-on acquisitions, seeking to offer itsclients a full service proposition.With a focus on higher-marginactivities, we aim to achievesignificant growth while improvingour overall margins.

INFRASTRUCTURE SERVICES’ FOCUS ONDEVELOPING STRONG CLIENT RELATIONSHIPSHAS RESULTED IN IT SUCCESSFULLY RETAININGOR EXTENDING MANY OF ITS CONTRACTS IN 2003.

06

07 07

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McAlpine Project InvestmentsMcAlpine Project Investments isboth the custodian of ourinvestments in PFI projects and the principal bidding vehicle for PFI schemes.

The current portfolio comprises fourmajor highways projects, fourhospitals, two schools and one civicbuilding project. Of these schemes,five are operational and deliveringrevenue, three are due to becomeoperational during 2004 and twoare at preferred bidder stage. During2003 two projects, Conwy Schools

08 As part of Stirling Water, McAlpine is involved in implementing ScottishWater’s Asset Delivery Programme.

09 Penryhn Heather Blue slate on theQueen’s Park Estate in West London.

and A1(M) Dishforth to Darrington,reached financial close, andpreferred bidder status was achievedon Addenbrooke’s Hospital inCambridge.

The portfolio is performing well,ensuring stable long-term incomeover the concession periods whichrange from 25 to 33 years.

McAlpine’s PFI activities havebenefited directly from a numberof the acquisitions made by theGroup in 2002 and 2003. Thesehave increased the depth and

range of capabilities across theCompany. This has substantiallystrengthened our service offering,particularly in the health andeducation sectors.

SlateBased in North Wales, Slate employs370 people and is the UK’s leadingslate producer. It manufacturesnatural slate roofing and other slate products for building andarchitectural applications.

Slate has been highly successful intargeting the high-margin repairand refurbishment sector within theUK roofing market. During 2003,the business has also benefitedfrom strong margin growth in ouremerging architectural slateoperations and in our expandingaggregates business.

Slate’s order book continued toexpand during 2003, closing theyear at almost twice the levelsachieved in 2002. Its roofingbusiness will continue to benefitfrom a strong position in amature market. Demand forarchitectural products forprominent, high value projects

will maintain steady growth andaggregates sales will benefit fromthe higher volumes achievablewithin its increased market territory.

Web LinksMcAlpine Business Serviceswww.mcalpineplc.com/mbs

McAlpine Capital Projectswww.mcalpineplc.com/cp

McAlpine Infrastructure Serviceswww.mcalpineplc.com/mis

McAlpine Project Investmentswww.mcalpineplc.com/pi

McAlpine Slatewww.mcalpineplc.com/slate

09

08

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Financial reviewResultsOur 2003 results demonstrate theachievement made in deliveringsignificant organic growth from ourmajor acquisitions in 2001 and2002, and the successful integrationof subsequent bolt-on acquisitions.

Overall, Alfred McAlpine’soperating profit of £29.7m showsa 16% increase over the £25.6mreported for 2002.

Profit before tax and amortisation(PBTA) increased by 20% to£36.2m (2002: £30.2m). Onturnover up 13% to £868.5m, thisrepresents a PBTA margin of 4.2%,an 8% year-on-year improvementin profitability (2002: 3.9%).

Our tax charge continues tobenefit from prudent provisioningand tax losses brought forward. An effective rate of tax for 2003 of 20% (2002: 26%) comparesfavourably to the UK standard rateof 30%. A favourable effective rateof tax will continue for the nextfew years.

The growth in profits, the £9.6mspent on buying back shares in theyear and a tax rate below lastyear’s, combined to increaseearnings per share, before goodwillamortisation, by 38% to 28.6p(2002: 20.7p). The 10% increase inthe total dividend to 11.0p iscovered 2.6 times, up from2.1 times in 2002.

GoodwillThe net goodwill amortisationcharge of £5.6m in 2003 hasdecreased from the £6.2m chargefor 2002. In accordance with UKGAAP, the £2.2m negative goodwillon the acquisition of Inframan in2002 has been credited to thegoodwill amortisation charge in2003. The underlying amortisationcharge of £7.8m, reflects a fullyear’s charge for the 2002acquisitions and the 2003acquisition of AIMS Group Services.

Segmental ProfitsAs expected, our services-ledbusinesses continue the growthin profits.

The Business Services PBTAcontribution in 2003 increased by64% to £12.8m (2002: £7.8m).Although 2003 included the Stiellbusinesses for a full 12 monthsas opposed to ten in 2002, theincrease in profits is due to thesignificant organic growth in thebusiness since the acquisition ofStiell in 2002, and maidencontributions from the Inframanand AIMS acquisitions. On turnoverup 67% at £210.6m (2002:£126.0m), profitability remainsstrong with a PBTA margin of6.1% (2002: 6.2%).

As stated for a number of years now, our focus for theCapital Projects business is upon profitability not volume.Turnover for 2003 was £329.9m

(2002: £363.8m) and PBTA was£16.5m (2002: £20.6m). At 5.0%,PBTA margin meets the Groupprofitability target.

The Infrastructure Services businessgrew PBTA by 18% to £13.7m(2002: £11.6m), on turnover up19% to £304.3m (2002: £255.8m).This resulted in PBTA margin beingmaintained at 4.5%. Now that thisbusiness has integrated its tworecent acquisitions, margins areexpected to climb up to the 5%target range in the medium term.

Share of profits from our PFIactivities rose by 21% to £4.0m(2002: £3.3m). Our £16.3m PFIinvestment comprises our originalnet equity investments of £14.9mplus our share of net earnings. Ouroutstanding equity commitment isa further £14.6m, including £4.4mat preferred bidder stage.

During the year, we reachedfinancial close on the ConwySchools and A1(M) Darrington toDishforth PFI projects and becamepreferred bidder on theAddenbrooke’s Hospital scheme.

Improved productivity in our Slatebusiness and the growing sales ofsecondary aggregates led to animpressive 19% growth inprofitability in our Slate business.Turnover rose to £21.7m (2002:£20.8m) and profits to £3.2m(2002: £2.7m).

2001

2002

2003

Dividend pence

0.0

2.5

5.0

7.5

10.0

12.5

10.010.0

11.011.0

* Before goodwill amortisation.

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The associate company Core UtilitySolutions has increased itscontribution to Group profits from£0.5m in 2002 to £1.5m in 2003.This joint venture with ScottishPower continues to make a goodcontribution to Group profits.

Centre and other corporateoperating costs have fallen from£13.6m in 2002 to £13.2m in 2003.

At the time of the interimannouncement, we set out detailsof the closure of the McAlpinefinal salary pension plan and itsreplacement with a definedcontribution plan. To ensure thefinal salary plan remains adequatelyfunded, the Group committed itselfto a total contribution approaching£4m on an annual basis. As thistop-up contribution commenced inAugust 2003, the impact for theyear was £1.7m.

Balance SheetThe balance sheet as at31st December, 2003 hasshareholders’ funds of £315.7m.Included in this balance is goodwillof £143.9m, up £13.6m on 2002due to the goodwill acquired withAIMS Group Services in 2003, thereversal of the negative goodwillthat arose from the Inframanacquisition in 2002 andadjustments to the goodwill on theacquisitions of Stiell and EasternContracting. Shareholders’ fundsalso include £18.1m, net of tax, inpension balances.

The other key balance to note isinvestments in PFI joint venturesincreasing by £2.9m to £16.3m(2002: £13.4m) during 2003, dueto further investment and ourshare of profits.

During the year, IAS 19 wasreleased, which proposedaccounting for pensions by way ofa mixture of FRS 17 and SSAP 24.The current draft of the standardproposes calculating the net deficitin accordance with FRS 17.However, it adopts a version of thespreading technique of the liabilityfrom SSAP 24. At 31st December,2003, there was an FRS 17shortfall in both of the McAlpinedefined benefit schemes totalling£58.0m (net of tax) (2002:£50.4m), compared to a £18.1mSSAP 24 pension prepayment, aftertaking deferred taxation intoaccount.

Cash FlowThe Group’s net cash as at31st December, 2003 was £62.0m(2002: £114.1m). This movementis a result of spending £13.7m onthe acquisition of AIMS, £9.6m onshare buy backs, corporation tax of£9.0m, total dividends of £10.8mand a £1.7m net receipt from PFIprojects and associatedundertakings. The expectedunwinding of significant advancereceipts on major capital projects,and working capital investment inthe growth of our InfrastructureServices operations, further reducedcash flow.

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Human resources reviewIn our annual employee survey,conducted in November 2003,overall employee satisfaction atMcAlpine rose to 80% (2002:76%). This is significantly ahead of the UK norm of 69% (source:MORI).

Our employees’ commitment tothe Company was alsodemonstrated in August 2003,when an invitation to participate inthe all-employee savings-relatedshare option scheme was heavilyover-subscribed.

We have been working on thedevelopment of a positive culturewithin McAlpine for some time,and it is encouraging to see this investment produce results like these.

As we have re-shaped McAlpine as a service business, we haveincreased our investment in our HR infrastructure and, in additionto our focus on culture, we haveconcentrated on the developmentof our employment policies,employee communications, andtraining and development activities.

SINCE 1996, McALPINE’S CULTURE DEVELOPMENTACTIVITIES HAVE BEEN CHANNELLED THROUGHOUR GENESIS PROGRAMME. THIS CONCENTRATESON VALUES, LEADERSHIP AND SERVICE AND HASHELPED THE COMPANY EMBRACE A POSITIVEAND PEOPLE-FOCUSED CULTURE.

STAFF SATISFACTION AT McALPINE – THE PERCENTAGE OF EMPLOYEES WHO SAIDTHAT THEY ARE ‘SATISFIED OR VERY SATISFIED’WORKING FOR McALPINE.

100

80

60

40

20

0

2002

2003

8076

1010

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Since 1996, McAlpine’s culturedevelopment activities have beenchannelled through our Genesisprogramme. This concentrates onvalues, leadership and service andhas helped the Company embrace apositive and people-focused culture.

During 2003, Genesis evolved tofocus more strongly on customerservice. This recognises theprogress we have already made inbuilding a strong culture withinour business – and the criticalimportance of high-qualitycustomer service in our markets.

In parallel, 2003 has seen a majorreview and overhaul of ouremployment policies, to providea supportive operating frameworkand embed clear and positivepolicies in areas such as safety,diversity, equal opportunities andwhistle-blowing.

Effective inter-personalcommunication is a central elementof our culture and a major focusof our skills and leadershipdevelopment activities. This issupported by a broad employeecommunications programme.

In line with the launch of ournew branding in October 2003,we upgraded our Companymagazine (Insight) and introduceda new Intranet. At the same timewe established a Group ChiefExecutive Roadshow which visitsour major offices and sites. Thishas been well-received and will berepeated in 2004.

This programme supplements ourformal staff briefings, which takeplace in the Spring of each yearand deliver a presentation of ourresults for the previous year andour future goals and strategies.

10 Our network of utilities training centresdelivered over 500 NVQs in 2003.

11 As part of the launch of our newidentity, we upgraded our Companymagazine and ran a Group ChiefExecutive Roadshow.

Additionally, we operate a monthlyteam-briefing process thatcascades information throughoutthe organisation. In our operatingbusinesses, we hold tool-boxtalks before commencing work,where teams review work plannedfor the day and developappropriate approaches to anyissues and risks identified.

Our businesses operate skills and management developmentprogrammes customised to their markets and businessrequirements. We have 70apprentices and a broad range of skills and managementdevelopment programmes in place.

During 2003, notable progress has been made in InfrastructureServices. Through its network oftraining centres in Manchester,Yorkshire, Hamilton and Mayo, it delivered over 500 NVQs andnearly 14,000 days’ training, muchof it for our own employees, butwith an increasing element for our customers’ employees.

We plan to open a new trainingcentre in southern England during2004.

DURING 2003, NOTABLE PROGRESS HAS BEENMADE IN INFRASTRUCTURE SERVICES. THROUGHITS NETWORK OF TRAINING CENTRES, ITDELIVERED OVER 500 NVQS AND NEARLY14,000 DAYS’ TRAINING.

1111

735427 pp12-pp17 6/4/04 12:47 pm Page 13


Safety, health andenvironment reviewWe are pleased to report that ourAccident Frequency Rate (AFR) hasfallen for the fifth consecutive year.For 2003 it was 0.27 whichrepresents a 33% improvementover the past five years.

Our Civil Engineering operation, part of Capital Projects, achieved an AFR of 0.08* compared to aconstruction industry average of0.54. This is an outstandingachievement by any standards. It isall the more creditable since the civilengineering industry traditionallyreturns a higher rate of accidentscompared to the activitiesundertaken in our other markets.

This gives us confidence that ourambition over the next few years ofreturning a figure of less than 0.1in all our businesses is achievable.

Apart from the real benefit ofavoiding the personal misery thataccompanies an injury at work,there will be increasing benefits tothe business in terms of reducedcosts and increased efficiency.

The management of safety, health and environment is de-centralisedthrough each of the businessstreams – operating within aGroup framework. Each businessstream has its own safety, healthand environmental policies andpublishes its own procedures.Compliance is assured through a rigorous system of audit andeach business stream reviewssafety, health and environmentalperformance both internallyand with the Group on amonthly basis.

The managing directors of eachof the business streams report

* Excludes joint ventures.

AFR performance across the Group 2003

Business Services 0.20

Capital Projects* 0.11

Infrastructure Services 0.39

Slate 0.47

Overall 0.27

0.4

0.3

0.2

0.1

0.0AFR IMPROVEMENT OVER THE LAST FIVE YEARS

1999

2000

2001

2002

2003

0.270.28

0.330.35

0.4

12

735427 pp12-pp17 6/4/04 12:47 pm Page 14


on progress at a twice-yearlyreview attended by the GroupChief Executive and the seniorexecutive team.

Centrally, the Policy and ComplianceUnit oversees the development ofpolicy, standards and targets. It alsomonitors ongoing safety, healthand environmental performancethroughout the Group.

A key success during the year wasthe achievement of third partycertification for all operationalbusinesses to OHSAS 18001,

the management standard forOccupational Health and Safety.

In addition, nearly all McAlpinebusinesses have gained third partycertification to ISO 14001, theInternational Standard forEnvironmental ManagementSystems. It is anticipated thatfull certification will be achievedby the end of 2004.

We are also pleased that ourpolicies on safety, health andenvironment have contributed to ourcontinued inclusion in FTSE4Good,

the financial index for companiesthat meet globally recognisedcorporate responsibility standards.

During 2003, we participated in theEIRIS Social and EnvironmentalSurvey and the Business in theEnvironment Index of CorporateEnvironmental Engagement.

In 2003, we extended themeasurement of key environmentalperformance indicators, havingundertaken a pilot in 2002. Thework aims to identify performancein specific areas such as CO2

emissions, in order to work towardsthe introduction of resourcereduction measures and improvedwaste management measures,where feasible.

All of the safety, health andenvironment information givenin this section, including theperformance indicators againstannual targets, is independentlyverified by WSP Environmental, partof WSP Group Plc, for our annualSafety, Health and EnvironmentReport. For comprehensive data onour environmental and socialaccountability performance, please refer to our websitewww.mcalpineplc.com/she.

We believe that there is no short cut to bringing about these annualimprovements. Many factors arerequired in both the managementsystems and the corporate cultureto bring about consistentimprovement. A patient build-up of procedures, training andknowledge, along with the ability toplace trust in our workforce, clearlyplay an important part. In turn, allof this would not be sustainablewithout a commitment from thesenior management across all ourbusinesses and our policy ofkeeping everyone involved.

Going forward, our principalobjective is for all McAlpinebusinesses to build on thefoundations of behavioural safetythat have been set over the last twoyears. Following a safety, health andenvironmental review, held inDecember 2003, each businessstream has undertaken to developappropriate behavioural trainingand implementation programmesduring 2004.

MANAGEMENT OF HEALTH AND SAFETY ANDENVIRONMENT IS DE-CENTRALISED THROUGHEACH OF THE BUSINESS STREAMS. EACHBUSINESS STREAM HAS ITS OWN SAFETY,HEALTH AND ENVIRONMENTAL POLICIES ANDPUBLISHES ITS OWN PROCEDURES.

12 The construction of a bypass on theA350 for Wiltshire County Councilinvolved several environmentalmitigation measures including a riverdiversion and sustainable drainagesystem.

13 As part of Infrastructure Services’ workwith Rochdale Metropolitan BoroughCouncil on a long-term highway

maintenance scheme, we haveestablished a waste managementprogramme.

14 McAlpine is working for theEnvironment Agency on a floodalleviation scheme at the River Quaggyin London, which will create a newdipping pond for local school children.14

13

735427 pp12-pp17 6/4/04 12:47 pm Page 15


Strategic reviewAlfred McAlpine is now a servicebusiness with a strong focus onthe built environment.

Our people share a deepknowledge of the built environmentand our businesses deliver supportthrough the entire life cycle ofbuildings and infrastructure – weprovide advisory services, wedevelop and finance buildings andinfrastructure, we design and buildthem, and we manage andmaintain them.

This tight focus means ourbusinesses gain competitiveadvantage and achieve operatingefficiencies through joint-servicedelivery and the sharing and transferof resources, knowledge, processes,systems and management capability.

In the short to medium term,our focus on services for the builtenvironment will be central to ourstrategy. We understand the builtenvironment in all its aspects. Weknow how to deliver services relatedto the built environment. We knowhow to manage the associatedrisks. We know how the marketsfor these services work, and weknow how to win work, deliverhigh value services and make astrong return in these markets.

Our understanding of buildings andinfrastructure and our strong,positive culture provide the basisfor our competitive success. Werecognised many years ago that ourtransition from contractor to servicebusiness would require a parallelcultural transformation. ThroughGenesis, a change programme,McAlpine has embraced a positiveculture focused on people,partnership and performance. Thisis what underpins our ability tobuild enduring relationships withour clients.

In the medium term, our strongservice culture and growing servicecapability will provide a platform forthe continuing development of ourbusiness.

Our growth strategy is built aroundtwo major structural trends in the UK economy – the upgrading of our ageing public infrastructure, and the prevailing desire amongstlarge public and private sectororganisations to outsourcesupport services.

Both of these trends provide adiverse range of opportunities anda platform for generating longer-term, lower-risk earning streams.

Our Business Services operationis focused on the market foroutsourced support services and isa leading player in the UK facilitiesmanagement market (themanagement and maintenance of buildings and the provision ofsupport services within buildings).

The UK business services marketcontinues to enjoy robust doubledigit growth and the supplier baseserving this market remains highlyfragmented. Strong growth,combined with appropriate marketsegmentation and targetingstrategies, mean that the largerplayers can largely avoid head-to-head competition and still achievestrong growth rates.

Our Capital Projects business isheavily involved in the design andbuild of schools, hospitals andhighways – working closely withour Project Investments businessin the PFI/PPP market. We continueto see a strong flow ofopportunities from these markets.

Capital Projects also operates in theprivate sector and is experiencingincreasingly positive responses to itssolutions-led approach from clientsand developers. This is leading togrowing levels of repeat business.

15

735427 pp12-pp17 6/4/04 12:47 pm Page 16


Our Infrastructure Services businessis a leading player in the utilitiesrenewal and maintenance market,operating in all sectors – gas,electricity, water andtelecommunications. Additionally,it has a thriving highwaysmaintenance business.

As both utilities and local authoritiescontinue to search for ways tooutsource many of their in-houseactivities and increase efficiency intheir operations, we expect to see a strong flow of opportunities in this sector.

Within our focus on services for thebuilt environment, we operate in arange of markets and provide abroad range of individual services.We are not at risk from over-exposure to one particular marketor service, with no sector or activityaccounting for more than 20% ofour earnings.

Across all of our activities high levelsof non-discretionary spend providea level of protection against short-term economic downturn. Failure in the systems and technologies wesupport can potentially result inmajor disruption of our clients’business operations. They recognisethis and consequently are

committed to continuingmaintenance programmes,regardless of economic conditions.

In summary, Alfred McAlpine has arobust forward strategy and strongstrategic position. We gaincompetitive advantage from ourdeep knowledge of the builtenvironment, our unique servicerange and our strong positiveculture. We are not over-exposed toany market, client or service area.Our growing service capabilityprovides a strong platform forfuture business development, andtwo major structural opportunities –infrastructure renewal andoutsourcing – underpin our growthprospects.

ALFRED McALPINE HAS A ROBUST FORWARDSTRATEGY AND STRONG STRATEGIC POSITION.WE GAIN COMPETITIVE ADVANTAGE FROM OURDEEP KNOWLEDGE OF THE BUILT ENVIRONMENT,OUR UNIQUE SERVICE RANGE, AND OUR STRONG POSITIVE CULTURE.

15 McAlpine has a deep understanding of the built environment.

16 McAlpine is now a service business with a strong customer-focused culture.

17 In all our activities we focus on supporting business critical technologiesrather than delivering commodityservices.16 17

735427 pp12-pp17 6/4/04 12:47 pm Page 17

18 Alfred McAlpine plc | Annual Report & Accounts 2003Directors, senior executives and advisors

02 030104

05

Directors, senior executives and advisors

01 Ian Grice | Group Chief Executive °+Appointed to the Board in September 1995 and became Group Chief Executive inAugust 2003. A Chartered Engineer, previously with John Mowlem & Co PLC from1981, holding various positions including Director of John Mowlem ConstructionPLC and Chairman and Managing Director of Mowlem Facilities Management.Age 50.

02 Dominic Lavelle | Group Finance Director °Appointed in October 2003. A civil engineering graduate who qualified as aChartered Accountant with Arthur Andersen in 1989. Formerly Finance Director ofAllders plc and Finance Director and Company Secretary of Oasis Stores Plc, havingheld senior roles in other public companies. Age 41.

03 Matt Swan | Managing Director Capital Projects °Joined the Company in May 2002 and appointed to the Board in August 2002.Formerly Managing Director of Alfred McAlpine Homes East Midlands, prior to whichhe held senior positions at The Berkeley Group plc and Crest Nicholson PLC. Age 40.

04 Oliver Whitehead CBE | Non-Executive Chairman °Appointed to the Board as Group Chief Executive in May 1993 and became Chairmanin May 2002. Formerly Group Chief Executive of Babcock International PLC, he wasprior to that a Director of AMEC plc. From 1963 to 1986 he held various positions inJohn Laing PLC, including that of Executive Director. Age 62.

05 Christopher Collins | Non-Executive Director °*#Appointed in September 2000. A Chartered Accountant who joined Hanson PLC in 1989,was Director of Corporate Development from 1991 to 1995 and has been Chairman since1998. Also a non-executive Director of Old Mutual plc, The Go-Ahead Group plc andChairman of Forth Ports PLC. Age 64.

06 Robert Hough DL | Non-Executive Director °*Appointed in March 2003. Qualified as a solicitor, and for 15 years a partner in a major commercial firm, prior to becoming Executive Deputy Chairman of Peel Holdings p.l.c. from 1989 to 2002. He is currently Non-Executive DeputyChairman of Peel Holdings p.l.c. and QA plc, a Non-Executive Director of Shiloh PLC and the Cheshire Building Society, and Chairman of New East Manchester Limited. Age 58.

735427 pp18-pp19 6/4/04 12:51 pm Page 18

19Alfred McAlpine plc | Annual Report & Accounts 2003Directors, senior executives and advisors

° Director of Alfred McAlpine plc+ Executive Director, member of Nomination

Committee* Independent Directors who are also

members of the Audit, Nomination andRemuneration Committees

# Chairman of the Nomination andRemuneration Committees and Senior Non-Executive Director

† Chairman of the Audit Committee

Registered and Group head officeKinnaird House, 1 Pall Mall East, London SW1Y 5AZ

Company registration number 1367044

Website www.mcalpineplc.com

Auditors PricewaterhouseCoopers LLP, 1 Embankment Place, London WC2N 6RH

Stockbrokers and Financial AdvisorsCazenove & Co. Ltd

BankersHSBC Bank PLC, Lloyds TSB Bank plc, TheRoyal Bank of Scotland, Allied Irish Bank plc,Clydesdale Bank PLC

Principal solicitors Ashurst

06

07

100809

07 Philip Swatman | Non-Executive Director °*†Appointed in March 2003. A Chartered Accountant, who trained with KPMG andworked for the National Enterprise Board before joining N M Rothschild & Sons Limitedin 1979, where he became a Director in 1986. After a short spell as Director and Head of Corporate Development at Chase Property Holdings PLC, he returned to Rothschilds,became a Managing Director in 1996 and subsequently became Co-Head of InvestmentBanking. He is currently Vice Chairman, Investment Banking and a member of the Boardof N M Rothschild & Sons Limited. Age 54.

08 Bill Allan | Managing Director Business ServicesJoined E J Stiell Group as an apprentice in 1976, and became Managing Director in1995. He oversaw the transformation of Stiell into a leading facilities managementbusiness, and since its acquisition by Alfred McAlpine in 2002 has been responsible for its evolution into Business Services. Age 43.

09 Peter Carolan | Managing Director Infrastructure Services ºAppointed to the Board on 11th March, 2004. Joined Kennedy Construction GroupLimited in 1985, becoming Joint Managing Director in 1996 and led a managementbuy-out in 1997. Since the acquisition of Kennedy by Alfred McAlpine in 2001, he hasbeen responsible for developing Infrastructure Services. Age 39.

10 Garry Forster | Group Company SecretaryA Chartered Secretary who joined the Group in November 1993. He has held similar positions with Parkfield Group PLC and Continental UK Limited. Age 47.

735427 pp18-pp19 6/4/04 12:52 pm Page 19

20 Alfred McAlpine plc | Annual Report & Accounts 2003Contents of financial section

21 Report of the Directors

23 Remuneration report

28 Corporate governance

31 Report of the auditors

32 Group profit and loss account

34 Group balance sheet

35 Statement of total recognisedgain and losses

35 Reconciliation of movements inshareholders’ funds

36 Group cash flow statement

37 Company balance sheet

38 Accounting policies

39 Notes to the accounts

39 Segmental analysis

40 Statutory information

41 Group interest

41 Exceptional item

41 Profit on ordinary activitiesbefore taxation

42 Taxation on ordinary activities

43 Employees and Directors

43 Dividends

43 Earnings per share

44 Intangible fixed assets

44 Tangible fixed assets

45 Operating lease commitments

45 Capital commitments

46 Fixed asset – investments

46 Joint ventures

47 Stocks

48 Debtors

48 Creditors

49 Provisions for liabilities andcharges

50 Share capital

50 Committed but unissued sharecapital

51 Reserves

52 Financial instruments

53 Reconciliation of operatingprofits to net cashflow fromoperating activities

54 Analysis of Group net cash

54 Acquisitions

55 Parent company

55 Related party transactions

56 Pension costs

58 Contingent liabilities

59 Principal subsidiary undertakings,joint ventures and associates

59 Five year summary

60 Shareholder information

735427 pp20-pp20 6/4/04 12:57 pm Page 20

21Alfred McAlpine plc | Annual Report & Accounts 2003Report of the Directors

The Directors present their Annual Report and the audited accounts for the year ended 31st December, 2003.

Principal ActivitiesThe Group provides infrastructure, construction and business services, principally in the UK. The operations of the Group are reviewed on pages 6 to 17of this report.

Profits and DividendsThe Group profit for the year attributable to shareholders amounted to £22.8m (2002: £14.4m) after tax and goodwill.

The Directors recommend the payment of a final dividend of 6.5p per ordinary share which, together with the interim dividend of 4.5p already paid, makes a total of 11p per ordinary share for the financial year. If approved at the Annual General Meeting (‘AGM’) to be held on 20th May, 2004, the final dividend will be paid on 28th May, 2004 to those shareholders on the register at close of business on 7th May, 2004.

After provision for these ordinary dividends and dividends of £0.4m paid to preference shareholders, the retained profit of £11.5m (2002: £3.6m) has been transferred to reserves.

Post Balance Sheet EventOn 6th February, 2004, the Group acquired the entire issued share capital of UK Power Construction Limited for a total cash consideration of £5.2m.

Substantial InterestsAt 22nd March, 2004, the following interests in 3% or more of the Company’s ordinary share capital had been notified to the Company:

Number of shares Percentage held%

Fidelity International Limited 5,262,986 5.13Zurich Financial Services 5,105,000 4.98Aviva plc 4,185,713 4.08Legal & General Group Plc 3,538,268 3.45Standard Life Investments 3,159,675 3.08

DirectorsPresent members of the Board are shown on pages 18 and 19.

Mr R E Hough and Mr P H Swatman were appointed as Non-Executive Directors on 13th March, 2003. Mr A M Robb retired as a Non-Executive Directoron 22nd May, 2003 and Mr J Hume resigned as a Director on 30th October, 2003. Mr D Lavelle was appointed as a Director on 30th October, 2003.With the exception of Mr P V Carolan, who was not appointed until after the year end, the other Directors served throughout the year. Mr I M Grice wasappointed Group Chief Executive on 10th August, 2003, and since that date Mr G O Whitehead has served as Non-Executive Chairman.

In accordance with the Company’s Articles of Association, Mr Whitehead and Mr M D Swan retire by rotation and, being eligible, offer themselves for re-election. Mr Lavelle, having been appointed by the Board during the year, offers himself for re-appointment, as does Mr Carolan, who was appointedby the Board on 11th March, 2004.

Details of the Service Contracts of the Directors standing for re-election or re-appointment appear in the remuneration report on page 25.

None of the Directors had a beneficial interest in any contract or arrangement of significance to which the Company or any of its subsidiaries was a party during the year.

Details of the Directors’ interests in shares in the Company appear in the remuneration report on pages 23 to 27.

The Group maintains Directors’ and Officers’ liability insurance.

Related Party TransactionsDetails of transactions with related parties undertaken by the Group during the year are disclosed in note 28 on page 55.

EmployeesIt is the Group’s policy to communicate with and involve employees on matters affecting their interests at work, and inform them of the performance of the business. Further details of the Group’s policy on this can be found in the Human resources review on pages 12 and 13.

It is also Group policy to treat all employees and potential employees equally and to give full consideration to suitable applications for employment from disabled persons, where they have the necessary abilities and skills for the position, and wherever possible to re-train employees who becomedisabled, so that they can continue their employment in another position.

The Company operates an all-employee savings-related share option scheme, the principal aim of which is to encourage eligible employees to purchaseshares in the Company. On 6th August, 2003, invitations to participate in this scheme were issued to all UK employees who had joined the Group on orbefore 1st May, 2003. Options over a total of 2,583,832 shares were granted to 1,788 participants on 27th August, 2003. At 31st December, 2003 therewere 1,800 (2002: 315) employees participating in this scheme, full details of which are set out in note 21 on page 50.

Report of the Directors

735427 pp21-pp22 6/4/04 12:58 pm Page 21

22 Alfred McAlpine plc | Annual Report & Accounts 2003Report of the Directors | continued

DonationsCharitable donations of £36,000 (2002: £56,106) were made during the year. These included: £10,000 to Crisis at Christmas; £9,000 to CRASH; and£4,000 to The Lighthouse Club – these latter two donations were to charities directly associated with the construction industry; and donations rangingfrom £25 to £2,000 were also made to a wide variety of other charities. No political donations were made.

Share CapitalOn 25th June, 2003, 507,324 shares were allotted as part-consideration for the acquisition of AIMS Group Services Limited. Since the last AGM, no otheroffer has been made or agreement entered into which would require shares to be issued, other than in connection with the Executive Share OptionSchemes, the Savings Related Share Option Scheme and the Restricted Share Plan.

During the year, 350,000 ordinary shares were purchased by the Trustee of the Alfred McAlpine Employee Benefit Trust for a total net considerationof £938,750 (nominal value £87,500). A further 1,269,880 shares were subscribed for at par by the Trustee and allotted on 4th December, 2003. At 31st December, 2003, the Trustee held 2,450,340 ordinary shares, being approximately 2.39% of the Company’s issued ordinary share capital.

At 31st December, 2003, the authority granted at the AGM held on 22nd May, 2003 to enable the Company to purchase up to 10,323,490 ordinaryshares, representing 10% of its then issued ordinary share capital, was still valid. During the year, 3,555,000 ordinary shares with a nominal value of£888,750 and representing 3.5% of the Company’s issued ordinary share capital as at 22nd May, 2003 were purchased for an aggregate netconsideration of £9,537,800 and subsequently cancelled under this authority. The authority expires at the conclusion of the AGM to be held on20th May, 2004, and a resolution to renew the authority in full will be put to shareholders at that meeting.

AuditorsPricewaterhouseCoopers LLP have confirmed their willingness to continue in office, and a resolution concerning their re-appointment and remunerationwill be proposed at the AGM.

Supplier Payment PolicyIt is the policy of both the Company and the Group to make payment on their standard terms to suppliers unless alternative terms are agreed. The Company and the Group both seek to abide by these payment terms, provided that they are satisfied that the supplier has complied with the agreed terms and conditions. The Company’s average creditor days during the year were 30 (2002: 33).

Annual General MeetingThe AGM of the Company will be held in the Redgrave Suite at the Barbican Centre, Silk Street, London EC2 on 20th May, 2004 at 12 noon.

Full details of the business of the meeting, together with an explanatory note on the resolutions proposed, are contained in the enclosed Notice of Meeting.

By Order of the Board

G J ForsterGroup Company Secretary22nd March, 2004

735427 pp21-pp22 6/4/04 12:58 pm Page 22

23Alfred McAlpine plc | Annual Report & Accounts 2003Remuneration report

The auditable part of the remuneration report is set out on pages 26 to 27.

INFORMATION NOT SUBJECT TO AUDITMembership and Constitution of the Remuneration CommitteeThe Remuneration Committee, comprising the Non-Executive Directors (Mr C D Collins, Mr R E Hough, Mr P H Swatman and, until his retirement on22nd May, 2003, Mr A M Robb), makes recommendations to the Board on the Company’s overall framework for the remuneration of Executive Directorsand certain key senior executives, and also determines their individual remuneration packages (including pension rights and compensation payments).The Committee consults the Group Chief Executive on the remuneration of the Executive Directors and senior executives, and is assisted by the GroupCompany Secretary. Inbucon-Meis Limited act as advisor to the Committee and also, when required, to the Company in respect of executiveremuneration and share schemes. Mercer Human Resources Consulting Limited advise the Company on pension matters. Inbucon-Meis and Mercer do not provide other services to the Group and neither the Committee nor the Company is aware of any conflict of interest.

ComplianceThe Committee is constituted and operates in accordance with the provisions of the Combined Code, as adopted by the UK Listing Authority andannexed to the Listing Rules (‘the Code’). In preparing this report the Board has complied with the provisions of the Code.

Executive Remuneration Policy and StructureThe Group’s aim is to provide remuneration packages that are sufficient to attract, motivate and retain Executive Directors of a high calibre. To this end,surveys and external advice are instrumental in the annual review of salary and benefits packages. The Committee believes that base salary and benefitsfor Executive Directors should represent a fair return for employment, but that the total reward for Executive Directors should be derived substantiallyfrom the performance-related elements of the remuneration package (annual bonus and Restricted Share Plan awards).

Performance-related elements form a significant proportion of the Executive Directors’ total remuneration packages, aligning their interests with thoseof the shareholders and providing incentives for performance. In designing schemes for performance-related remuneration, the Committee follows theprovisions of the Code. Due consideration is given to performance relative to comparable companies.

There have been no amendments to the terms and conditions of any entitlement of a Director under the long-term incentive scheme (the RestrictedShare Plan) during the year.

Performance ChartThe chart below compares the growth in value of £100 invested in ordinary shares in Alfred McAlpine plc on 1st January, 1999 with the performanceof a similar investment in the shares of the constituents of the FTSE Construction and Building Materials Index and the FTSE Support Services Index.The Directors are of the view that these constitute a relevant broad equity market index.

Basic SalaryThe salary of each Executive Director is determined by the Committee, taking into account his personal performance and the prevailing rates in theemployment market for executives of comparable status, responsibility, skill and position in other companies. When determining Directors’ salariesthe Committee is always sensitive to pay and employment conditions throughout the Group. Independent remuneration surveys are commissionedwhen required to substantiate salary levels.

Annual BonusThe Committee determines annual bonuses on the basis of improvement over the prior year. Potential bonus for the Executive Directors is based on profitbefore tax and amortisation compared with target. This is relevant, stretching and designed to enhance the business. The maximum bonus achievable is50% of salary. The Committee reviews the targets for the Executive Directors annually.

Pensions PolicyWith effect from 31st July, 2003, the Alfred McAlpine Pension Plan (‘the Pension Plan’) was closed to new entrants. Members of this final salary PensionPlan as at that date retain the link to pensionable salary at their eventual date of leaving in respect of service up to 31st July, 2003, but have ceased toaccrue benefits within the Pension Plan in respect of service after 31st July, 2003. During 2003, the Group contributed £5.2m (2002: £4.5m) to thePension Plan, and from 1st January, 2004, it will make an index-linked contribution to the Pension Plan of £3.85m per annum. Employee contributionsinto the Pension Plan ceased with effect from 1st August, 2003.

On 1st August, 2003, the Company introduced the McAlpine 2003 Pension Plan (‘the 2003 Pension Plan’), which is a contracted-in defined contributionpension arrangement. The 2003 Pension Plan is operated on behalf of the Company by Eagle Star and is subject to the Stakeholder Pensions regulations.The minimum employee contribution is 3% of basic salary. Employees may elect to pay additional contributions, some of which will be matched by theCompany, depending on the grade of the employee.

50

100

150

200

250

300

350

31/12/9901/01/99 31/12/01 31/12/0231/12/00 31/12/03

x

x

xx

x x

Alfred McAlpine plc

FTSE Construction and Building Materials

FTSE Support Services

Cumulative total shareholder return %

x

Remuneration report

735427 pp23-pp27 6/4/04 12:59 pm Page 23

24 Alfred McAlpine plc | Annual Report & Accounts 2003Remuneration report | continued

The average Company contribution equates to 5.3% of basic salary (£1.79m for the five month period). Life assurance cover of four times basic salary isprovided to members of the 2003 Pension Plan, whilst in service with the Group. Dependants’ pensions are provided on a member’s death in service or inretirement. In addition, former members of the final salary Pension Plan are currently provided with a further life assurance cover of two times basicsalary, on death in service, which must be used to provide a dependant’s pension.

All pension benefits are subject to Inland Revenue limits. It is the Group’s policy to provide those executives who joined the Company after May 1989,and who are subject to the earnings cap (£99,000 in the 2003/04 tax year), with appropriate pension benefits outside the pension arrangements outlinedabove in relation to that part of their salary which exceeds the cap. Executive Directors retire at age 62.

The Remuneration Committee takes into consideration the impact of basic salary increases upon pension and associated employment costs.

Share SchemesThe Company currently operates the Alfred McAlpine Executive Share Option Scheme 2000 (‘the ESOS 2000’) and the Alfred McAlpine plc Restricted SharePlan (‘the Restricted Share Plan’), both of which are performance-related. The ESOS 2000 replaced the Alfred McAlpine Executive Share Option Scheme(1991) (‘the ESOS 1991’), under which a number of options are still outstanding, the final grant having been made in April 2000.

The Group also operates an all-employee share scheme, the Alfred McAlpine Savings Related Share Option Scheme 1998, further details of which may be found in note 21 on page 50.

There are no plans to grant discretionary options to Executive Directors who receive awards under the Restricted Share Plan.

The Restricted Share PlanThe Restricted Share Plan was approved by shareholders on 22nd May, 1996 and no initial awards may be made after the tenth anniversary of itsadoption. Restricted Share Plan awards are subject to performance conditions intended to link participants’ interests with those of the shareholders byencouraging an increase in the total shareholder return (‘TSR’) of the Group relative to a peer group of companies and also in the long-term earnings per share (‘EPS’) of the Group.

The Committee believes that TSR and EPS are appropriate performance measurements, being two key long-term indicators of a company’s success. It is the current intention of the Committee that these performance measurements continue to apply.

Awards made under the terms of the Restricted Share Plan represent a conditional right to receive ordinary shares in the Company, provided that theCompany achieves specific performance criteria and the participant remains in the Group’s employment. The maximum value (based on market value at date of award) of shares over which an initial award may be made to a participant in any year may not exceed 50% of salary. Typically, initial awardsare made each year following the preliminary announcement of the full-year results. Initial awards may be made at other times, when the Committeebelieves them to be justified.

The performance criterion currently used to determine the vesting of the initial awards is TSR, which is calculated by taking the percentage increase in the average mid-market ordinary share price of the Company for the three-year period from the date of award, plus the value of the reinvesteddividends. The Company’s performance is then measured against that of a peer group of companies, the majority of which are direct competitors. As shown below, the peer group was amended following the sale of the Homes business on 1st October, 2001.

Original comparator companies (to 2001):

AMEC p.l.c. Costain Group PLC Montpellier Group Plc Taylor Woodrow plcBeazer Group Plc* Interserve Plc Morrison Construction Group plc* Wainhomes*Birse Group plc Kier Group plc Persimmon plc Westbury plcBryant Group plc* John Laing plc Speedy Hire plc George Wimpey PLC* Beazer Group Plc, Bryant Group plc, Morrison Construction Group plc and Wainhomes were all taken over after the start of the performance periods for the Restricted Share Plan

awards. Wainhomes is not included as a comparator company for awards made after 1999.

Current comparator companies (2002 onwards):

Amey plc* Birse Group plc Interserve Plc MITIE Group PLC W S Atkins plc Costain Group PLC Jarvis plc Morgan Sindall plcBalfour Beatty plc Galliford Try plc Kier Group plc Serco Group plc* Amey plc ceased to be listed on the London Stock Exchange on 26th June, 2003, following its acquisition by Ferrovial Servicios SA.

Vesting may take place from the third anniversary of the initial award date. No awards vest if the Company’s performance is below the 50th percentile.Vesting starts at the 50th percentile, and 100% of the initial award can vest at the 40th percentile. Vesting is on a straight-line basis between the 50th andthe 40th percentile. If the Company’s performance exceeds the 40th percentile, the number of shares represented by the award increases on a proportionatebasis, so that at the 1st percentile 150% of the number of shares under the initial award may vest. These additional rights are known as exceptionalperformance awards. The rules allow for re-testing between the third and seventh anniversaries of the initial award date. Vesting may be deferred for afurther period of three years in the Alfred McAlpine Employee Benefit Trust (the Employee Benefit Trust). At the end of this deferral period, the deferredawards may be matched on a one-for-one basis subject to satisfaction of a further performance target. This second performance target requires the growthin EPS of the Company to exceed the growth in RPI by 9% or more over the three-year deferral period.

The Trustee of the Employee Benefit Trust has waived its entitlement to dividends. Where a participant has elected to defer vesting, the Company makesdiscretionary cash payments to the participant, which are equivalent to the dividends that would normally be payable on the number of sharescorresponding to the award.

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25Alfred McAlpine plc | Annual Report & Accounts 2003Remuneration report | continued

‘ESOS 2000’ Executive Share Option SchemeSenior executives are granted discretionary options over ordinary shares in the Company, at the market price prevailing at the date of grant. Theperformance condition for the ESOS 2000 requires the Company’s earnings per share growth to exceed the growth in the Retail Price Index (RPI) bynot less than 3% per annum over a rolling three-year period in order for the options to be exercised. The Committee believes that this performancecondition is appropriate and sufficiently demanding.

Directors’ Service Agreements and ContractsWhen appointing new Executive Directors, the Committee considers it appropriate to offer a one-year service agreement. When Mr Grice assumed hisnew role as Group Chief Executive, the Committee considered it appropriate to offer him an initial two-year service agreement, reducing to a rollingone-year agreement on 10th August, 2004. Details of the Executive Directors’ service agreements are set out below:

Effective date Unexpired Notice period Notice periodExecutive Directors of contract term by Company by Director

I M Grice 10/08/03 17 months 17 months 12 monthsP V Carolan 11/03/04 12 months 12 months 12 monthsD Lavelle 30/10/03 12 months 12 months 12 monthsM D Swan 01/05/02 12 months 12 months 12 months

The service agreements for the Executive Directors contain a provision allowing either party to terminate the agreement with immediate effect duringthe period of 90 days following a change of control of the Company, whereupon a predetermined amount shall be payable to the Director. There areno other provisions for compensation on early termination. Mr Grice, Mr Carolan, Mr Lavelle and Mr Swan each have a retirement age of 62.

Brief details of the contracts between the Company and the Non-Executive Directors are set out below. There are no provisions for compensation onearly termination of these contracts.

Effective date Unexpired Notice period Notice periodNon-Executive Directors of contract term by Company by Director

C D Collins 07/09/03 30 months 6 months 6 monthsR E Hough 13/03/03 24 months 6 months 6 monthsP H Swatman 13/03/03 24 months 6 months 6 monthsG O Whitehead (Chairman)(i) 10/08/03 29 months 12 months 12 months

(i) The Company provides certain benefits for Mr Whitehead (private medical insurance, life insurance, disability insurance, fully-expensed car and pension contributions) that are notprovided to the other Non-Executive Directors.

Directors’ InterestsDirectors and all senior executives are encouraged to accumulate a shareholding broadly equivalent to one year’s salary and to retain their shares afterexercising share options or after vesting under the Restricted Share Plan, subject to the need to fund the acquisition of the shares and any associated taxliability.

The beneficial interests of the Directors and their immediate families in the share capital of the Company at 31st December, 2003 were as follows:

Executive share Restricted Share Savings-relatedOrdinary shares options Plan awards share options Preference shares

2003 2002 2003 2002 2003 2002 2003 2002 2003 2002

C D Collins 30,000 30,000 – – – – – – – –I M Grice 203,220 20,421 – – 268,652 371,215 4,442 14,870 – –R E Hough(i) 750 750 – – – – – – 2,000 2,000D Lavelle(i) 5,000 – – – 35,000 – – – – –M D Swan 3,500 – – – 76,111 35,000 – – – –P H Swatman(i) – – – – – – – – – –G O Whitehead 470,039 198,811 120,000 255,968 312,276 599,579 – – – –

(i) The interests of Mr Hough, Mr Swatman and Mr Lavelle are stated as at date of appointment and as at the year end.

The Alfred McAlpine Employee Benefit Trust was established in 1998 and may benefit employees, including the Executive Directors, of the Company.The Trust is able to subscribe for or purchase shares to fulfil obligations under any of the Company’s share schemes. The Trustee is Mourant and CoTrustees Limited, based in the Channel Islands. As at 31st December, 2003 the Trust held 2,450,340 ordinary shares in the Company. As potentialbeneficiaries, the Executive Directors are each deemed to have a beneficial interest in all of the shares held in the Trust.

At the date of his appointment, Mr Carolan’s interest in shares in the Company comprised 301,844 ordinary shares and 77,030 initial awards underthe Restricted Share Plan.

There have been no changes in Directors’ interests between the year end (31st December, 2003) and 22nd March, 2004 save that Mr R E Houghpurchased 4,250 ordinary shares on 12th March, 2004 taking his total holding to 5,000 ordinary shares.

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26 Alfred McAlpine plc | Annual Report & Accounts 2003Remuneration report | continued

INFORMATION SUBJECT TO AUDITThe auditable part of the remuneration report (as defined in Part 3, Schedule 7A to the Companies Act 1985) is contained in the following tables andaccompanying notes.

The Executive Directors are eligible for various taxable benefits, which include a fully expensed company car, membership of private medical schemesand life assurance premiums in respect of salary above the earnings cap.

Directors’ Remuneration for the Year Ended 31st December, 2003 Defined Contribution Pension Plans(including FURBS)

Tax onPayments FURBS Total

Salaries/ to former Taxable Pension(i) Company pension Companyfees Director benefits Bonus supplement Total Total contributions benefits cost

2003 2003 2003 2003 2003 2003 2002 2003 2003 2002£000 £000 £000 £000 £000 £000 £000 £ £ £

Executive DirectorsI M Grice(ii) 251 – 19 150 43 463 297 75,489 43,451 69,875D Lavelle(iii) 37 – 2 18 7 64 – – – –M D Swan 185 – 16 93 47 341 118 23,333 – –G O Whitehead

(as Chief Executive)(ii) 238 – 17 120 – 375 507 59,909 23,568 99,280(as Chairman) 77 – 9 – – 86 38 95,000 38,950 –

Non-Executive DirectorsC D Collins 27 – – – – 27 27 – – –R E Hough(iv) 22 – – – – 22 – – – –P H Swatman(iv) 22 – – – – 22 – – – –

Former DirectorsJ Hume(v) 183 55 25 92 – 355 296 43,637 29,128 78,090A M Robb(vi) 13 – – – – 13 32 – – –

Total Board 2003 1,055 55 88 473 97 1,768 – 297,368 135,097 –

Total Board 2002(including former Directors) 1,067 0 89 260 33 – 1,449 – – 247,245

(i) Neither Mr Lavelle nor Mr Swan has a FURBS. The Company makes a supplementary payment to each of them, enabling them to make their own provision for pension in respect ofsalary above the earnings cap.

(ii) Mr Grice became Group Chief Executive on 10th August, 2003 as successor to Mr Whitehead.(iii) Appointed 30th October, 2003.(iv) Appointed 13th March, 2003.(v) Mr Hume resigned as a Director on 30th October, 2003. In mitigation of Mr Hume’s contractual entitlement to two years’ notice under the terms of his service agreement dated

1st October, 1998, the Committee agreed it was appropriate to continue payment of salary and benefits to Mr Hume on a month by month basis. In the event that Mr Humecommences employment elsewhere prior to the expiry of his two-year notice period on 30th October, 2005, the Company will make a lump sum payment to Mr Hume equivalentto 50% of the salary and benefits then outstanding under his notice period.

(vi) Retired 22nd May, 2003.

Directors’ Pension Arrangements for the Year Ended 31st December, 2003With effect from 31st July, 2003, the Directors ceased to accrue defined benefit pensions with the McAlpine final salary plan since it was closed forfuture benefit accrual. In common with other members of that plan, the Directors continue to retain the link to pensionable salary at their eventual dateof leaving in respect of service accrued up to 31st July, 2003, subject to appropriate Inland Revenue limits.

Defined Benefit Plan

(1) (2) (3) (4) (5) (6) (7)Value of Transfer Transfer

Gross increase Increase in Total net increase Total change value of value ofin accrued accrued accrued in accrued in transfer accrued accrued

pension during pension net pension at pension over value during pension at pension atAge the year of inflation 31/12/03 the year the year 31/12/03 31/12/02

nearest £ £ £ £ £ £ £

I M Grice 51 1,577 1,307 17,417 6,198 20,596 170,436 143,248J Hume (resigned 30th October, 2003) 51 1,463 1,298 11,183 6,377 15,274 110,227 88,536M D Swan 40 1,466 1,439 3,077 5,509 6,557 17,843 8,451

The values of accrued pension in columns (6) and (7) have been calculated in accordance with version 9.0 of guidance note GN 11 issued by the actuarial profession.The value of the net increase in column (4) represents the incremental value to the Director of his service during the year, calculated on the assumption that service terminated at the yearend. It is based on the accrued pension increase in column (2) and allows for the deduction of the Director’s contribution.The change in the value of accrued pension in column (5) includes the effect of fluctuations in the transfer value due to factors beyond the control of the Company and Directors, such asstock market movements. It is calculated after deducting the Director’s contribution.Voluntary contributions paid by Directors and resulting benefits are not shown.Increases in Mr Hume’s pension are stated as at the date of his resignation as a Director.

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27Alfred McAlpine plc | Annual Report & Accounts 2003Remuneration report | continued

Share OptionsThe only options over ordinary shares that were held by Directors during the year were as follows:

Alfred McAlpine Savings Related Share Option Scheme 1998* and Alfred McAlpine Executive Share Option Scheme (1991)†

ValueDate of Exercise Exercised Lapsed Share price Date of of gain

grant Price As at 01/01/03 in year in year As at 31/12/03 at exercise exercise £

I M Grice 30/07/98* 116.0p 14,870 14,870 – – 277.5p 04/12/03 24,01527/08/03* 228.0p – – – 4,442 – – –

J Hume(i) 20/04/00* 158.0p 6,131 6,131 – – 275.5p 01/07/03 7,20427/08/03* 228.0p – – – 2,580 – – –

G O Whitehead 10/05/93† 183.9p 135,968 135,968 – – 249p 08/05/03 88,51512/04/95† 147.0p 120,000 – – 120,000 – – –

* Savings-related share options are normally exercisable during the six-month period following completion of a three-year or five-year savings contract.† These options are granted for nil consideration and, subject to the Company achieving specific performance targets, are exercisable between three and ten years from the date of grant.(i) Mr Hume’s options are shown as at 1st January, 2003 and as at the date of his resignation as a Director.

The market price of an ordinary share of 25p in the Company at 31st December, 2003 was 294.25p (31st December, 2002: 241.5p) and the highest andlowest market prices during the year were 322.5p and 177.5p.

Restricted Share Plan Directors held awards over ordinary shares as follows:

Initial Awards At 1st January, 2003 At 31st December, 2003

Outstanding Number Number of Value Outstanding Initial of Awards Matching of shares Initial

Awards and Deferred satisfying Shares actually Awards and Deferred Market value Number Exceptional Awards vesting awarded vesting Exceptional Awards

Date at date of Initial Performance held criteria during during during year Performance held of award of award Awards Awards in EBT(i) the year the year £ Awards in EBT(i)

I M Grice 17/07/97 135.00p 110,000 5,731 157,300 157,300 157,300 878,520(ii) 5,731 –29/10/97 139.00p 25,000 – 37,052 35,750 35,750 199,664(ii) – 1,30213/05/98 167.76p 25,000 – 32,812 – – – – 32,81212/04/99 171.05p 25,000 – 37,500 – – – – 37,50027/04/00 188.00p 46,250 69,375 – 62,598 – – 6,777 62,59822/03/01 280.50p 35,651 53,477 – – – – 53,477 –23/04/02 436.10p 24,650 36,975 – – – – 36,975 –16/05/03 245.10p 50,222 – – – – – 75,333 –11/09/03 309.40p 23,917 – – – – – 35,875 –

J Hume(iii) 02/12/98 134.45p 35,000 – 52,500 – – – – 52,50012/04/99 171.05p 25,000 – 37,500 – – – – 37,50027/04/00 188.00p 46,250 69,375 – 62,598 – – 6,777 62,59822/03/01 280.50p 34,759 52,139 – – – – 52,139 –23/04/02 436.10p 24,077 36,116 – – – – 36,116 –16/05/03 245.10p 48,889 – – – – – 73,333 –

D Lavelle 04/12/03 280.70p 35,000 – – – – – 52,500 –

M D Swan 23/04/02 436.10p 35,000 52,500 – – – – 52,500 –16/05/03 245.10p 41,111 – – – – – 61,666 –

G O Whitehead 03/10/96 140.00p 50,000 – 9,165 – – – – 9,16517/07/97 135.00p 190,000 9,899 275,101 271,700 271,700 1,517,444(ii) 9,899 3,40129/10/97 139.00p 30,000 – 45,000 42,900 42,900 239,597(ii) – 2,10013/05/98 167.76p 30,000 – 45,000 – – – – 45,00012/04/99 171.05p 30,000 – 45,000 – – – – 45,00027/04/00 188.00p 78,750 118,125 – 106,587 – – 11,538 106,58722/03/01 280.50p 59,715 89,572 – – – – 89,572 –23/04/02 436.10p 41,848 62,772 – – – – 62,772 –

(i) Deferred Awards may be eligible for matching under the rules of the Restricted Share Plan.(ii) The date of vesting was 4th December, 2003, and the opening mid-market price of an ordinary share on that date was 279.25p. (iii) Mr Hume’s awards are shown as at 1st January, 2003 and as at the date of his resignation.

This report has been approved by the Board of Directors and has been signed on behalf of the Board by

G J Forster, Group Company Secretary22nd March, 2004

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28 Alfred McAlpine plc | Annual Report & Accounts 2003Corporate governance

Corporate governance

ComplianceThe Board supports and, except as noted below, ensures that the Company complies with the principles of good governance and code of best practice containedin Section 1 of the Combined Code as adopted by the UK Listing Authority and annexed to the Listing Rules (‘the Code’)." Between 1st January, 2003 and March 2003, when two new independent Non-Executive Directors were appointed, the Audit Committee comprised two

independent Non-Executive Directors." As previously explained, the roles of Chairman and Group Chief Executive were temporarily combined between May 2002 and August 2003." At the date of this report, Mr I M Grice’s contract as Group Chief Executive is terminable on 17 months’ notice, reducing to 12 months after 10th August, 2004.

ApplicationThe BoardThe Chairman is responsible for ensuring the effectiveness of the Board and proper communication with shareholders. The Group Chief Executive is responsible forimplementing strategy and ensuring the effectiveness of the executive functions.

The composition and effectiveness of the Board has been reviewed in the light of the transformation and re-positioning of the Group accomplished since the endof 2001. The three Directors who joined the Board during 2003 have all undergone an induction process designed to familiarise them with the Group’s activitiesand to introduce them to key senior executives within each business stream. A formal evaluation of the performance of the Board and its Committees, includingindividual members, will be carried out during the course of 2004 and annually thereafter, and will form the basis for determining whether any further trainingand/or appointments might be appropriate.

Board meetingsSeven regular Board meetings were held during the year, with all Directors attending each meeting. A number of matters are reserved for the Board’s formal approval,including major capital expenditure, treasury and dividend policy, overall Group strategy and all Group budgets and plans. The list of matters is reviewed annually.

Group Executive CommitteeThe Group Chief Executive, the Group Finance Director, the Group Company Secretary, the Managing Directors of the three principal business streams, the HRDirector and the Communications Director comprise a Group Executive Committee which meets 11 times a year to deal with all executive business of the Groupnot specifically reserved to the Board or its other committees. It is responsible for the ongoing management and monitoring of the Group’s system of internalcontrol. Additional meetings are held to discuss specific issues.

Audit CommitteeThe Audit Committee is formally constituted with written terms of reference which are reviewed regularly. The Committee comprises the three independentNon-Executive Directors, and is chaired by Mr P H Swatman, who is appropriately qualified and has extensive and current relevant expertise. All three membersof the Committee hold recognised and relevant professional qualifications.

The Committee meets on average three times a year (four times during 2003), with the Chairman, Executive Directors, the Group’s corporate audit function andthe external auditors also in attendance. Each meeting also provides the opportunity for discussions between the Non-Executive Directors and the externalauditors, from which the Executive Directors are excluded. The chairman of the Committee reports to the full Board on matters discussed at each Audit Committeemeeting.

The Committee oversees the work of the Group’s corporate audit function, formally reviewing the remit and scope of its plans in advance to ensure that thenecessary authority and resources are available. The Committee reviews the conclusions of the corporate audit function, paying particular attention to theeffectiveness of the Group’s system of internal controls (details of which are set out on pages 29 and 30). The Group’s whistle-blowing policy was reviewed andrevised in January 2004.

The Committee also reviews the scope, result and cost-effectiveness of the external audit and the independence and objectivity of the external auditors.Details of non-audit services provided by PricewaterhouseCoopers to the Group during 2003 are set out in note 5 on page 41. Such work is only awarded toPricewaterhouseCoopers following careful assessment of: their expertise relative to that of other potential service providers; the value for money offered;and assurances that, individually or cumulatively with any other factors, the independence of PricewaterhouseCoopers is not at risk of compromise.

Remuneration CommitteeThe Remuneration Committee is formally constituted with written terms of reference which are reviewed regularly. It is chaired by Mr C D Collins and comprises theNon-Executive Directors. The Committee meets on average three times a year (three times during 2003) and is responsible for determining the remunerationpackages of the Executive Directors and certain key senior executives.

Nomination CommitteeThe Nomination Committee is formally constituted with written terms of reference which are reviewed regularly. It is chaired by Mr C D Collins, and comprises theNon-Executive Directors and the Group Chief Executive. The Committee meets on an ad hoc basis and nominates candidates for appointment and re-appointmentto the Board. Appointments and re-appointments are made by the full Board.

During 2003, two new Non-Executive Directors and a new Group Finance Director were appointed to the Board, and it was also decided that Mr I M Grice shouldbecome Group Chief Executive. In each of these four instances, the Committee retained the services of external consultants to shortlist candidates for interview bythe Committee, which then recommended its preferred candidate to the full Board.

Routine Business CommitteeThe Routine Business Committee is formally constituted and comprises two Directors (one of whom shall be either the Group Chief Executive or the Group FinanceDirector) and the Group Company Secretary. The Committee deals with routine administrative and banking matters arising between Board meetings, in additionto matters that have been approved in principle by the Board and do not warrant specific sub-committees.

Non-Executive DirectorsThe Non-Executive Directors are appointed by the Board, on the recommendation of the Nomination Committee, for specified terms. They are subject to periodicre-election by shareholders and statutory provisions regarding removal.

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29Alfred McAlpine plc | Annual Report & Accounts 2003Corporate governance | continued

Mr G O Whitehead assumed the role of Non-Executive Chairman on 10th August, 2003, when Mr I M Grice took over as Group Chief Executive. There are clearchannels of communication between the Non-Executive Directors and the Chairman, providing opportunities for private discussion outside Board meetings.

During 2003, the number of independent Non-Executive Directors was increased from two to three, all of whom have significant external commercial experience,and bring strong independent advice and judgement to the Board. The Directors are of the opinion that, with the exception of Mr Whitehead, each of theNon-Executive Directors is independent of the Company’s management and free from any restraint that could materially interfere with the exercise of his judgement.

The re-appointment of a Non-Executive Director is a matter for consideration by the Nomination Committee and agreement by the Board. Mr C D Collins wasappointed in September 2000, and, in recognition of the contribution he has made since that date, it was agreed that he should be invited to serve for a furtherterm of three years. Mr Collins has also succeeded Mr A M Robb as the Senior Independent Non-Executive Director.

The remuneration of the Non-Executive Directors takes the form of an annual fee, which is set by the Board in line with market levels for the role undertaken.As Chairman, Mr Whitehead is the only Non-Executive Director for whom pension and other benefits are provided by the Company. Non-Executive Directors arenot entitled to participate in any bonus scheme or to receive options or awards under any of the Company’s share schemes.

Re-electionThe Company’s Articles of Association direct that all of the Directors submit themselves for re-appointment at the first AGM after their appointment and at leastevery three years thereafter. Although the Articles allow the Group Chief Executive to be excluded from this requirement, the Board has determined that allDirectors shall comply with the Code.

The Secretary and independent adviceAll Directors have access to the advice and services of the Group Company Secretary, who is responsible to the Directors for ensuring that Board procedures arefollowed and applicable rules and regulations complied with.

The Directors consider that it is reasonable for any Director who wishes to seek independent legal advice to consult the Company, before advice is sought andany costs are incurred by the Group.

Relations with shareholdersThe Group encourages two-way communications with its institutional and private investors. Each year, the Group Chief Executive and other Executive Directorsattend a number of meetings with analysts, shareholders and private client brokers. Mr Hough and Mr Swatman both attended the AGM in May 2003. TheCompany will endeavour to accommodate any major shareholder wishing to have a meeting with the Non-Executive Directors. Analysts’ reports are circulated tothe Board, and the Chairman and the Executive Directors make a report to the Board following meetings with analysts. All queries from shareholders are dealtwith in a timely manner, with Welcome Packs being sent to new shareholders.

Accountability and AuditDirectors’ responsibilitiesThe following statement, which should be read in conjunction with the report of the auditors set out on page 31, is made with a view to distinguishing forshareholders the respective responsibilities of the Directors and of the auditors in relation to the accounts: “The Directors are required by UK company law toprepare accounts which give a true and fair view of the state of affairs of the Company and of the Group at the end of the financial year and of the profit or lossof the Group for the financial year then ended. The Directors are also responsible for maintaining adequate accounting records and for taking reasonable steps tosafeguard the assets of the Group and detect irregularities and fraud.

The Directors confirm that in preparing the Group’s accounts appropriate policies have been consistently applied and applicable accounting standards compliedwith. Further, in all material respects the accounts are supported by prudent judgements and estimates made by reference to information available at the timeof their preparation.”

The Directors are also responsible for the integrity and maintenance of the Group’s websites. The Group financial statements are published on the Group’s mainwebsite, and follow United Kingdom guidance as regards preparation and dissemination. The requirements in other jurisdictions may differ.

All Directors bring independent judgement to bear on their deliberations concerning strategy and performance. The Directors are satisfied that throughout theperiod they have had access to sufficient information to enable them to make proper decisions in a timely manner, and the Chairman has ensured that all Directorswere kept properly briefed.

Going concernAfter reviewing current performance and detailed forecasts and taking into account available bank facilities and making further enquiries as consideredappropriate, the Directors are satisfied that the Company and Group have adequate resources to enable them to continue in business for the foreseeable future.Accordingly, the accounts which appear on pages 32 to 58 have been prepared on a going concern basis.

Internal controlThe Group has fully complied with provision C.2.1 of the Code throughout the financial year to 31st December, 2003 and up to the date of approval of theAnnual Report and Accounts. In accordance with the Guidance on Internal Control, a process has been established, and is ongoing, for identifying, evaluating andmanaging the significant risks faced by the Group. The Board acknowledges its responsibility for maintaining a sound system of internal control relating tooperational, financial and compliance controls and risk management, in order to safeguard the shareholders’ investment and the Company’s assets, and hasregularly reviewed the effectiveness thereof. Such a system, however, is designed to manage and meet the Group’s particular needs and mitigate the risks to whichit is exposed, rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against materialmis-statement or loss.

The Group has a control environment, with policies, processes and codes of conduct that are designed to identify, manage and mitigate risk across a wide rangeof business activities. As new procedures and working practices are adopted, risk factors are considered and appropriate internal controls are embedded into theGroup’s management systems wherever possible.

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30 Alfred McAlpine plc | Annual Report & Accounts 2003Corporate governance | continued

The key components of the Group’s system of internal control are:" The Policy and Compliance Unit, which reports to the Group Chief Executive, with the objective of monitoring and improving the safety, health and

environmental record of the Group." A system of self-assessment whereby each business and business unit within the Group addresses on a comprehensive basis the approach to controlling

business risks." A Group-level review carried out by the Group Executive Committee to identify the major risks facing the Group and to develop and implement appropriate

initiatives to manage those risks. As an integral part of the Committee’s regular meetings, assessment is made of the progress against objectives, changesto operational risk, adequacy of control and handling of any problems which arise from such reviews.

" The identification by the Board of a list of key risks faced both by its businesses and the Group overall. Advised by the Audit Committee, the Board hasconsidered the extent to which the measures taken by the Group address those risks.

" An established management structure for the major operating businesses, with short lines of communication to the Group Chief Executive, Group FinanceDirector and Group Company Secretary.

" Delegation within the framework of the Group Policy Manual of clearly defined responsibilities and procedures, with authorisation limits set at appropriatelevels for the maintenance of effective controls across the whole Group.

" The Corporate Audit Department, which reports regularly to the Audit Committee and the Group Finance Director on compliance with procedures, authoritylimits and on the effectiveness of the risk management strategies of the major businesses, such that the principal areas of business risk and exposure areidentified, evaluated and mitigated. The Corporate Audit Department is also involved in overseeing a system of peer reviews involving internal audit of businessunits by other operational staff.

" A comprehensive financial reporting system of annual budgets, periodic forecasts and detailed monthly reporting, together with weekly cash reporting. Budgetsand forecasts are reviewed and approved by the Board.

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31Alfred McAlpine plc | Annual Report & Accounts 2003Report of the auditors

Independent Auditors’ Report to the Members of Alfred McAlpine plcWe have audited the financial statements which comprise the Group profit and loss account, the balance sheets, the Group cash flow statement, thestatement of total recognised gains and losses, the related notes which have been prepared under the historical cost convention and the accountingpolicies set out in the statement of accounting policies. We have also audited the disclosures required by Part 3 of Schedule 7A to the Companies Act1985 contained in the remuneration report (‘the auditable part’).

Respective Responsibilities of Directors and AuditorsThe Directors’ responsibilities for preparing the Annual Report and the financial statements in accordance with applicable United Kingdom law andaccounting standards are set out in the statement of Directors’ responsibilities on page 29. The Directors are also responsible for preparing the Directors’remuneration report.

Our responsibility is to audit the financial statements and the auditable part of the remuneration report in accordance with relevant legal and regulatoryrequirements and United Kingdom Auditing Standards issued by the Auditing Practices Board. This report, including the opinion, has been prepared forand only for the Company’s members as a body in accordance with Section 235 of the Companies Act 1985 and for no other purpose. We do not, ingiving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands itmay come save where expressly agreed by our prior consent in writing.

We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the auditable partof the remuneration report have been properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the report of theDirectors is not consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received all the information andexplanations we require for our audit, or if information specified by law regarding Directors’ remuneration and transactions is not disclosed.

We read the other information contained in the Annual Report and Accounts and consider the implications for our report if we become aware of anyapparent mis-statements or material inconsistencies with the financial statements. The other information comprises only the report of the Directors, theunaudited part of the remuneration report, the Chairman’s statement, the Group Chief Executive’s review, the operating and financial review, thecorporate governance statement, the five-year summary and the list of principal subsidiary undertakings, joint ventures and associates.

We review whether the corporate governance statement reflects the Company’s compliance with the seven provisions of the Combined Code specifiedfor our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board’sstatements on internal control cover all risks and controls, or to form an opinion on the effectiveness of the Company’s or Group’s corporate governanceprocedures or its risk and control procedures.

Basis of Audit OpinionWe conducted our audit in accordance with auditing standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, ofevidence relevant to the amounts and disclosures in the financial statements and the auditable part of the Directors’ remuneration report. It also includesan assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether theaccounting policies are appropriate to the Company’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the financial statements and the auditable part of the remuneration report are free from materialmisstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentationof information in the financial statements.

OpinionIn our opinion:" the financial statements give a true and fair view of the state of affairs of the Company and the Group at 31st December, 2003 and the profit

and cash flows of the Group for the year then ended;" the financial statements have been properly prepared in accordance with the Companies Act 1985; and" those parts of the remuneration report required by Part 3 of Schedule 7A to the Companies Act 1985 have been properly prepared in accordance

with the Companies Act 1985.

PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors1 Embankment Place, London WC2N 6RH 22nd March, 2004

Report of the auditors

735427 pp31-pp32 6/4/04 1:04 pm Page 31

32 Alfred McAlpine plc | Annual Report & Accounts 2003Group profit and loss account

Year ended 31st December, 2003 2003 2003 2003

Continuing Goodwilloperations amortisation Total

Notes £m £m £m

TurnoverGroup and share of joint venturesContinuing operations 878.7 – 878.7

Acquired operations 7.4 – 7.4

886.1 – 886.1

Less: Share of joint ventures’ turnover (17.6) – (17.6)

Group turnover 1, 2 868.5 – 868.5

Group operating profit

Continuing operations 28.4 (5.2) 23.2Acquired operations 1.3 (0.4) 0.9

29.7 (5.6) 24.1

Share of operating profit in joint ventures and associated undertakings 1 14.2 – 14.2

Total including joint ventures and associated undertakings 43.9 (5.6) 38.3

Net interest payableGroup 3 1.0 – 1.0Share of joint ventures 1 (8.7) – (8.7)

(7.7) – (7.7)

Profit on ordinary activities before taxation 5 36.2 (5.6) 30.6

Taxation on ordinary activities 6 (7.1) (0.7) (7.8)

Profit on ordinary activities after taxation 29.1 (6.3) 22.8

Dividends (including non-equity) 8 (11.3)

Transfer to reserves 22 11.5

Earnings per ordinary shareAdjusted – before goodwill 9 28.6p 28.6pBasic 9 22.3pDiluted 9 21.6pDividend per ordinary share 8 11.0p

There is no material difference between the results as shown in the profit and loss account and the results on an unmodified historical cost basis.

Group profit and loss account 2003

735427 pp31-pp32 6/4/04 1:04 pm Page 32

33Alfred McAlpine plc | Annual Report & Accounts 2003Group profit and loss account | continued

Group profit and loss account 2002

Year ended 31st December, 2002 2002 2002 2002 2002 2002Total

Continuing Goodwill continuing Discontinuedoperations amortisation operations operations Total

Notes £m £m £m £m £m

TurnoverGroup and share of joint venturesContinuing operations 783.8 – 783.8 – 783.8

Less: Share of joint ventures’ turnover (15.5) – (15.5) – (15.5)

Group turnover 1, 2 768.3 – 768.3 – 768.3

Group operating profit 25.6 (6.2) 19.4 – 19.4

Share of operating profit in joint ventures andassociated undertakings 1 10.1 – 10.1 – 10.1

Total including joint ventures and associated undertakings 35.7 (6.2) 29.5 – 29.5

Costs of terminationBusiness termination costs 4 – – – (9.2) (9.2)Utilisation of prior year provisions 4 – – – 6.9 6.9

Profit on ordinary activities before interest 35.7 (6.2) 29.5 (2.3) 27.2

Net interest payableGroup 3 0.8 – 0.8 – 0.8Share of joint ventures 1 (6.3) – (6.3) – (6.3)

(5.5) – (5.5) – (5.5)

Profit on ordinary activities before taxation 5 30.2 (6.2) 24.0 (2.3) 21.7

Taxation on ordinary activities 6 (8.0) – (8.0) 0.7 (7.3)

Profit on ordinary activities after taxation 22.2 (6.2) 16.0 (1.6) 14.4

Dividends (including non-equity) 8 (10.8)

Transfer to reserves 3.6

Earnings per ordinary shareAdjusted – before goodwill and exceptional items 9 20.7p 20.7pBasic 9 13.3pDiluted 9 12.8pDividend per ordinary share 8 10.0p

735427 pp33-pp34 6/4/04 1:05 pm Page 33

34 Alfred McAlpine plc | Annual Report & Accounts 2003Group balance sheet

at 31st December, 2003 2003 2003 2002 2002Notes £m £m £m £m

Fixed assetsIntangible assets

Goodwill 10 143.9 132.5Negative goodwill 10 – (2.2)

143.9 130.3Tangible assets 11 52.9 45.8Investments in joint ventures: 15

Share of gross assets 250.8 128.4Share of gross liabilities (239.5) (118.7)

14 11.3 9.7Loans to joint ventures 14 5.0 3.7

16.3 13.4Investments in associates 14 3.2 3.8

216.3 193.3

Current assetsStocks 16 24.2 22.8Debtors: due within one year 17 227.2 187.7Debtors: due after one year 17 41.6 42.3Cash at bank and in hand 23, 25 72.5 122.6

365.5 375.4Creditors: amounts falling due within one yearBorrowings 18 (7.7) (1.9)Other creditors 18 (236.6) (231.0)

(244.3) (232.9)

Net current assets 121.2 142.5

Total assets less current liabilities 337.5 335.8

Creditors: amounts falling due after more than one yearBorrowings 18 (2.8) (6.6)Other creditors 18 (7.9) (6.8)

(10.7) (13.4)Provisions for liabilities and charges 19 (11.1) (13.1)

(21.8) (26.5)

Net assets 315.7 309.3

Capital and reservesCalled up share capital 20 30.1 30.3Share premium 22 140.5 138.0Revaluation reserve 22 0.6 0.6Other reserves 22 7.6 6.8Profit and loss account 22 136.9 133.6

Shareholders’ funds (including £4.5m relating to non equity interests) 315.7 309.3

The notes on pages 39 to 58 form part of these accounts.These accounts were approved by the Board on 22nd March, 2004

I M Grice D LavelleGroup Chief Executive Group Finance Director

Group balance sheet

735427 pp33-pp34 6/4/04 1:05 pm Page 34

35Alfred McAlpine plc | Annual Report & Accounts 2003Statement of total recognised gains and losses

for the year ended 31st December, 2003 2003 2002Notes £m £m

Profit for the financial year 22.8 14.4Movement in translation of foreign currency investments 22 (0.7) (0.1)

Total recognised gains relating to the year 22.1 14.3

Reconciliation of movements in shareholders’ funds

for the year ended 31st December, 2003 2003 2002Notes £m £m

Profit for the financial year 22.8 14.4Dividends 8 (11.3) (10.8)

11.5 3.6

Shares issued 20 5.2 12.8Shares cancelled 20 (9.6) (23.4)Movement in translation of foreign currency investments 22 (0.7) (0.1)

Net increase/(decrease) in shareholders’ funds 6.4 (7.1)Opening shareholders’ funds 309.3 316.4

Closing shareholders’ funds 315.7 309.3

The notes on pages 39 to 58 form part of these accounts.

Statement of total recognised gains and losses

735427 pp35-pp37 6/4/04 1:07 pm Page 35

36 Alfred McAlpine plc | Annual Report & Accounts 2003Group cash flow statement

for the year ended 31st December, 2003 2003 2003 2002 2002Notes £m £m £m £m

Operating activitiesNet cash (outflow)/inflow from operating activities 24 (1.5) 26.6Building division termination costs paid (1.9) (16.8)

(3.4) 9.8

Dividends received from joint ventures and associates 1.1 0.8

Returns on investments and servicing of financeInterest received 2.4 2.9Interest paid (1.1) (1.8)Interest element of finance lease payments (0.3) (0.3)Non-equity dividends (0.4) (0.4)

0.6 0.4Taxation paid (9.0) (6.8)

Capital expenditure and financial investmentPurchase of tangible fixed assets (16.2) (11.8)Sale of tangible fixed assets 5.9 1.8

(10.3) (10.0)Acquisitions and disposalsCash consideration paid for subsidiary undertakings (7.7) (84.6)Net overdrafts acquired with subsidiary undertakings (0.1) (1.3)(Costs paid)/net proceeds on disposal of subsidiary undertakings (0.9) 260.2Net cash received from/(invested in) joint ventures and associates 0.6 (3.3)

(8.1) 171.0Equity dividends paid (10.4) (10.6)

Cash (outflow)/inflow before management of liquid resources and financing (39.5) 154.6

Management of liquid resourcesDecrease/(increase) in short-term bank deposits 48.1 (68.8)

FinancingIssue of ordinary shares 1.9 0.5Purchase of ordinary shares (9.6) (23.4)Capital element of finance lease payments (1.2) (2.0)Repayment of debt acquired (5.9) (6.4)Decrease in debt (0.7) (48.5)

(15.5) (79.8)

(Decrease)/increase in cash in the year 25 (6.9) 6.0

Reconciliation of net cash flow to movement in net cash(Decrease)/increase in cash in the year (6.9) 6.0Borrowings net of overdrafts acquired with subsidiary undertakings (5.9) (6.4)Decrease in debt 9.0 55.0(Decrease)/increase in liquid resources (48.1) 68.8(Increase)/decrease in finance leases (0.9) 1.2Decrease/(increase) in loan notes 0.7 (1.0)

(Decrease)/increase in net cash in the year (52.1) 123.6

Opening net cash/(debt) at 1st January 25 114.1 (9.5)

Closing net cash at 31st December 25 62.0 114.1

The notes on pages 39 to 58 form part of these accounts.

Group cash flow statement

735427 pp35-pp37 6/4/04 1:07 pm Page 36

37Alfred McAlpine plc | Annual Report & Accounts 2003Company balance sheet

at 31st December, 2003 2003 2003 2002 2002Notes £m £m £m £m

Fixed assetsTangible assets 11 7.4 2.5Investments 14 407.9 397.8

415.3 400.3

Current assetsDebtors: due within one year 17 202.0 230.2Debtors: due after one year 17 32.3 32.3Cash at bank and in hand – –

234.3 262.5Creditors: amounts falling due within one yearBorrowings 18 (2.7) (0.7)Other creditors 18 (262.8) (271.0)

(265.5) (271.7)

Net current liabilities (31.2) (9.2)

Total assets less current liabilities 384.1 391.1

Creditors: amounts falling due after more than one yearBorrowings 18 – (1.0)Other creditors 18 – –

– (1.0)Provisions for liabilities and charges 19 (6.4) (6.8)

(6.4) (7.8)

Net assets 377.7 383.3

Capital and reservesCalled up share capital 20 30.1 30.3Share premium 22 140.5 138.0Other reserves 22 156.9 156.0Profit and loss account 22 50.2 59.0

Shareholders’ funds (including £4.5m relating to non equity interests) 27 377.7 383.3

The notes on pages 39 to 58 form part of these accounts.These accounts were approved by the Board on 22nd March, 2004.

I M Grice D LavelleGroup Chief Executive Group Finance Director

Company balance sheet

735427 pp35-pp37 6/4/04 1:07 pm Page 37

38 Alfred McAlpine plc | Annual Report & Accounts 2003Accounting policies

Basis of Accounting and ConsolidationThe Group accounts are prepared on the historical cost basis except for the revaluation of certain tangible fixed assets and include the financial statements of the Company and all of its subsidiary undertakings made up to 31st December, together with the Group’s share of the results up to 31st December of:

i) Joint venturesA joint venture is an entity in which the Group holds a long-term interest and which is jointly controlled by the Group and one or more other venturers under a contractual arrangement. The results of joint ventures are accounted for using the gross equity method of accounting.

ii) AssociatesAn associate is an entity in which the Group holds a long-term interest and over whose operating and financial policies the Group exercises a significantinfluence. The results of associates are accounted for using the equity method of accounting in accordance with FRS 9.

iii) Joint arrangements that are not entitiesThe Group has certain contractual arrangements with other participants to engage in joint activities that do not create an entity carrying on a trade or businessof its own. The Group includes its share of assets, liabilities and cash flows in such joint arrangements, measured in accordance with the terms of eacharrangement, which is usually pro-rata to the Group’s interest in the risks in the joint arrangement.

Any subsidiary undertakings, joint ventures, associates and joint arrangements that are not entities sold or acquired during the year are included up to, or from,the dates of change of control.

Turnover and Profit RecognitionTurnover comprises the value of work performed, goods sold and services provided outside the Group excluding Value Added Tax. Amounts in respect of contractsincluded in turnover, net of payments received on account, are shown in debtors as amounts recoverable on contracts. Cash received in excess of the value ofwork done is shown in creditors as payments on account. An appropriate proportion of the anticipated contract profit is recognised in the profit and loss account.Provision is made for anticipated contract losses. Pre-contract costs incurred before it is virtually certain that a contract will be awarded are charged to the profitand loss account. Once virtually certain of contract award, costs are held as amounts recoverable on contracts and form part of the accounting for the contract as a whole. Turnover in respect of land sales is recognised on the exchange of unconditional contracts.

DepreciationDepreciation, based on estimated useful lives, is charged on a straight line basis as follows: freehold properties – 2% per annum; leasehold properties – over thelease term; plant and equipment – at rates between 10% and 33% per annum. Slate reserves (minerals) are depreciated by reference to production, where thequarry life is less than ten years.

StocksStock and work in progress, including land held for and in the course of development, is valued at the lower of cost and net realisable value. Cost includes, where appropriate, labour and production overheads.

Deferred TaxationFull provision is made at anticipated rates for taxation deferred as a result of the pensions prepayment, accelerated capital allowances and other timing differences.No provision is made for UK or overseas taxation that might become payable on the remittance of profits from overseas.

Rates of ExchangeProfit and loss accounts of overseas subsidiaries are translated into sterling at average rates of exchange for the year. Assets and liabilities are translated intosterling at the closing rate of exchange. The difference arising from the re-translation at the closing rate of the opening net assets and the retained profitsand losses for the current year, is taken to reserves.

Financial InstrumentsForeign currency assets and liabilities covered by forward contracts are translated at the contract rates of exchange. Other assets and liabilities in foreign currenciesare translated at closing rates.

PensionsThe Group operates six main defined contribution pension schemes. The contributions paid by the Group and the employees are invested within the individualpension funds in the month following the month of deduction. The employer contribution rates are determined by reference to an age, service or grade relatedscale or are at a fixed, level percentage. The amount contributed by the Group is charged to the profit and loss account as the contributions fall due.

The Group also operates a defined benefit pension scheme, which is closed to future service accrual, and participates in the Electricity Supply Pension Scheme(ESPS). Both of these schemes are administered by trustees, the funds being independent of the Group’s finances and not included in the Group accounts. Eachscheme is valued by an independent actuary at least every three years, and funded by contributions from the Company at rates determined on the advice of theactuary. Contributions to the schemes are charged to the profit and loss account so as to spread the cost of pensions over employees’ service lives within theGroup. Employees also contribute to the ESPS.

Leases and Hire Purchase ContractsRentals under operating leases are charged to the profit and loss account on a straight line basis over the lease term. Assets held under finance leases and hirepurchase contracts are included in fixed assets and capital elements of the commitments are shown as obligations under finance leases and hire purchasecontracts. Payments are treated as consisting of capital and interest elements. The capital element is applied to reduce the outstanding obligations and the interestelement is charged against profit in proportion to the reducing capital element outstanding. Assets held under finance leases are depreciated over the shorter ofthe lease terms and their useful lives. Operating lease income is credited to the profit and loss account as it is earned.

Purchased GoodwillGoodwill represents the excess of the fair value of the purchase consideration for shares in subsidiary undertakings, joint ventures and associates over the fair valueto the Group of the net assets acquired.

i) To 31st December, 1997: Goodwill was written off to reserves in the year of acquisition. The profit or loss on the disposal of a business acquired before31st December, 1997 takes into account the attributable value of purchased goodwill relating to that business.

ii) From 1st January, 1998: Goodwill has been recognised within fixed assets in the year in which it arises and amortised on a straight line basis over its usefuleconomic life.

Negative goodwill represents the excess of the fair value to the Group of net assets acquired over the fair value of purchase consideration and is amortised overthe periods in which the underlying assets to which it relates are recovered.

Accounting policies

735427 pp38-pp43 6/4/04 1:08 pm Page 38

39Alfred McAlpine plc | Annual Report & Accounts 2003Notes to the accounts

1. Segmental AnalysisTurnover 2003 2002

£m £m

Continuing operationsMcAlpine Business Services(i) 210.6 126.0McAlpine Capital Projects 329.9 363.8McAlpine Infrastructure Services 304.3 255.8Centre and other businesses 23.7 22.7

Group 868.5 768.3

2003 2002Profit £m £m

Continuing operationsMcAlpine Business Services(i) 12.8 8.1McAlpine Capital Projects 14.0 17.0McAlpine Infrastructure Services 12.9 11.4Centre and other businesses (10.0) (10.9)

Group 29.7 25.6

Net interest 1.0 0.8

30.7 26.4

McAlpine Project Investments (joint ventures)Share of operating profit 12.7 9.6Share of interest payable (8.7) (6.3)

4.0 3.3

McAlpine Infrastructure Services (associates) 1.5 0.5

Profit before goodwill and tax 36.2 30.2

Goodwill amortisationMcAlpine Business Services (1.7) (2.9)McAlpine Infrastructure Services (3.9) (3.3)

Discontinued operationsBusiness termination costs – (2.3)

Profit before tax 30.6 21.7

(i) McAlpine Business Services includes turnover of £7.4m and operating profit before goodwill amortisation of £1.3m in respect of operations acquired during the year. Operating profitafter goodwill amortisation is £0.9m.

Notes to the accounts

735427 pp38-pp43 6/4/04 1:08 pm Page 39

40 Alfred McAlpine plc | Annual Report & Accounts 2003Notes to the accounts | continued

1. Segmental Analysis continuedNet operating assets 2003 2002

£m £m

Continuing operationsMcAlpine Business Services 40.5 25.4McAlpine Capital Projects (14.4) (42.0)McAlpine Infrastructure Services 25.0 18.8Centre and other businesses 76.3 81.8

127.4 84.0

GoodwillMcAlpine Business Services 80.8 64.3McAlpine Infrastructure Services 63.1 66.0

271.3 214.3

Net operating assets exclude provisions for liabilities and charges of £11.1m (2002: £13.1m), net cash of £62.0m (2002: £114.1m) and dividends payableof £6.5m (2002: £6.1m) which have not been allocated to operations.

2003 2002Group turnover analysed by geographical area of origin (which does not differ materially from destination): £m £m

UK 859.3 755.2Rest of the World 9.2 13.1

868.5 768.3

2. Statutory Information 2003 2003 2003 2002Continuing Acquisitions Total Total

£m £m £m £m

Turnover 861.1 7.4 868.5 768.3Cost of sales (758.6) (3.4) (762.0) (675.4)

Gross profit 102.5 4.0 106.5 92.9Distribution costs (0.1) – (0.1) (0.2)Administrative expenses (including goodwill) (79.2) (3.1) (82.3) (73.3)

Group operating profit after goodwill 23.2 0.9 24.1 19.4

Group operating profit before goodwill 28.4 1.3 29.7 25.6

Group operating profit is stated before the share of operating profit in joint ventures and associates and after the amortisation of goodwill of £5.6m (2002: £6.2m).

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41Alfred McAlpine plc | Annual Report & Accounts 2003Notes to the accounts | continued

3. Group Interest 2003 2002£m £m

Interest payable on bank loans and overdrafts (0.9) (0.3)Finance charges payable under finance leases and hire purchase contracts (0.3) (0.3)Other interest payable (0.1) (1.4)Unwinding of discount on provisions (0.1) (0.1)

Interest payable (1.4) (2.1)Interest receivable 2.4 2.9

1.0 0.8

4. Exceptional Item 2003 2002£m £m

Building division termination costs:Cost of resolving old contract dispute – (18.2)Less: Amounts provided – 6.9

Amounts previously contributed by insurers – 7.6Other amounts accrued – 1.4

Exceptional charge – (2.3)

On 21st January, 2003 the Group reached a settlement of an old disputed contract which had been entered into by the former open tender buildingbusiness in 1989. The financial effect of this settlement was reflected in the 2002 financial statements. Amounts previously contributed by insurers and otheramounts accrued in respect of other costs were held within Centre.

5. Profit on Ordinary Activities Before Taxation 2003 2002is stated after charging/(crediting): £m £m

Staff costs (see note 7) 220.4 178.1Depreciation of tangible fixed assets

own assets 7.9 6.5assets held under finance leases and hire purchase obligations 0.5 0.6

Amortisation of goodwill 5.6 6.2Hire of plant and machinery 29.5 39.1Rentals under operating leases

plant and machinery 7.6 9.1other 4.9 5.5

Auditors’ remuneration – audit fees(i) 0.5 0.4Profit on disposal of fixed assets (2.6) (0.5)Operating lease income (29.5) (22.9)

(i) Included in the auditors’ remuneration figure above are fees incurred by Alfred McAlpine plc of £0.1m (2002: £0.1m) relating to the audit of the Company. Fees payable toPricewaterhouseCoopers LLP for non-audit services in 2003 were £0.8m (2002: £0.7m), including £0.3m in respect of due diligence and corporate finance work carried out inconnection with the acquisition of AIMS Group Services Limited and fees of £0.5m for taxation advice and compliance work.

735427 pp38-pp43 6/4/04 1:08 pm Page 41


6. Taxation on Ordinary ActivitiesAnalysis of charge in the year 2003 2002

£m £m

UK taxationCorporate tax at 30% (2002: 30%) 9.4 6.7Double tax relief (0.4) (0.1)Adjustment in respect of prior periods (3.4) 0.4Share of joint ventures’ and associates’ tax 1.4 1.0

7.0 8.0OverseasCorporate tax 1.0 0.6

Total current tax 8.0 8.6

Deferred taxCharge for the year (0.3) (0.8)Adjustment in respect of prior periods 0.1 (0.5)

Total deferred tax (0.2) (1.3)

Taxation charge for the year 7.8 7.3

The current tax charge for the year is lower (2002: higher) than the standard rate of corporation tax in the UK (30%). The differences are explained below:

2003 2002£m £m

Profit on ordinary activities before tax 30.6 21.7Profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 30% (2002: 30%) 9.2 6.5

Effects of:Amortisation of goodwill from continuing operations 2.3 1.8Expenses not deductible for tax purposes (0.4) 0.7Accelerated capital allowances and other timing differences 0.6 (0.9)Adjustments to tax in respect of prior periods (3.4) 0.4Higher rates of tax on overseas activities and DTR – 0.1Utilisation of prior year losses (0.3) –

Current tax charge for the year 8.0 8.6

The Group has an unrecognised deferred tax asset of £1.7m (2002: £1.7m) in respect of ACT recoverable which may affect future tax charges.

735427 pp38-pp43 6/4/04 1:08 pm Page 42


7. Employees and Directors 2003 2002a) Employee costs during the year, including Directors: £m £m

Wages and salaries 192.6 157.6Social security costs 19.5 15.2Other pension costs (see note 29) 8.3 5.3

220.4 178.1

2003 2002b) Average number employed during the year, including Directors: Number Number

Production 4,948 4,476Sales and distribution 18 18Administration and services 2,828 1,982

7,794 6,476

c) Directors’ emoluments An analysis of individual Directors’ emoluments and pension entitlements (including those of the highest paid Director) and their interests in the sharecapital of the Company is contained in the remuneration report on pages 23 to 27.

8. Dividends 2003 2002£m £m

Ordinary sharesInterim of 4.5p (2002: 4.1p) paid on 31st October, 2003 4.4 4.5Final of 6.5p (2002: 5.9p) payable on 28th May, 2004 6.5 5.9

10.9 10.4Preference shares 0.4 0.4

11.3 10.8

The Trustee of the Alfred McAlpine Employee Benefit Trust has waived its right to receive any dividends (except for 0.001p per share) in respect of sharesheld in the Trust.

9. Earnings Per Share 2003 2002£m £m

Profit after tax 22.8 14.4Preference dividend (0.4) (0.4)

Basic earnings 22.4 14.0Goodwill 6.3 6.2Exceptional loss before tax – 2.3Taxation credit on exceptional loss – (0.7)

Adjusted earnings 28.7 21.8

Adjusted earnings per share of 28.6p (2002: 20.7p) is calculated by dividing the earnings excluding exceptional items and goodwill amortisation of£28.7m by the weighted average number of ordinary shares in issue during the year of 100,274,258 (2002: 105,517,769).

Basic earnings per share of 22.3p (2002: 13.3p) is calculated by dividing the earnings of £22.4m attributable to ordinary shareholders by the weightedaverage number of ordinary shares in issue during the year of 100,274,258 (2002: 105,517,769).

Diluted earnings per share of 21.6p (2002: 12.8p) is calculated by dividing the earnings of £22.4m attributable to ordinary shareholders by the weightedaverage number of shares in issue increased to assume conversion of all dilutive potential ordinary shares totalling 3,227,483 (2002: 3,900,863).

735427 pp38-pp43 6/4/04 1:08 pm Page 43


10. Intangible Fixed Assets NegativeGoodwill goodwill Total

Group £m £m £m

CostAt 1st January, 2003 141.6 (2.2) 139.4Additions during the year (see note 26) 13.6 – 13.6Revisions (see note 26) 5.6 – 5.6

At 31st December, 2003 160.8 (2.2) 158.6

AmortisationAt 1st January, 2003 9.1 – 9.1Charge/(credit) for the year 7.8 (2.2) 5.6

At 31st December, 2003 16.9 (2.2) 14.7

Net book amount at 31st December, 2002 132.5 (2.2) 130.3

Net book amount at 31st December, 2003 143.9 – 143.9

11. Tangible Fixed Assets Plant and Land andequipment buildings Minerals Total

Group £m £m £m £m

Cost or valuationAs at 1st January, 2003 52.9 20.9 9.9 83.7Additions 15.2 0.8 2.4 18.4Acquisitions 0.4 0.1 – 0.5Disposals (11.7) (1.0) – (12.7)

At 31st December, 2003 56.8 20.8 12.3 89.9

DepreciationAs at 1st January, 2003 32.2 3.8 1.9 37.9Provided in the year 6.9 0.7 0.8 8.4Disposals (9.2) (0.1) – (9.3)

At 31st December, 2003 29.9 4.4 2.7 37.0

Net book value at 31st December, 2002 20.7 17.1 8.0 45.8

Net book value at 31st December, 2003 26.9 16.4 9.6 52.9

Land andbuildings Minerals

£m £m

The net book value comprises:Freehold 8.4 8.7Long leasehold 7.3 –Short leasehold 0.7 0.9

16.4 9.6

The gross book value of land and buildings represents £18.5m (2002: £19.1m) at cost and £2.3m (2002: £1.8m) at 1993 valuation. The transitional provisions of FRS 15 were followed, whereby this valuation does not need to be updated. The historic cost of land and buildings amounted to £20.3m (2002: £20.3m) and accumulated depreciation based thereon would be £4.3m (2002: £3.7m).

735427 pp44-pp47 6/4/04 1:08 pm Page 44


11. Tangible Fixed Assets continuedIncluded in the amounts for plant and equipment above are the following amounts relating to leased assets and assets acquired under hire purchase contracts.

2003 2002£m £m

Cost 7.3 6.0Accumulated depreciation (3.5) (3.4)

3.8 2.6

Land and Plant andbuildings equipment Total

Company £m £m £m

CostAt 1st January, 2003 2.0 0.9 2.9Additions – 4.0 4.0Transfers – 1.9 1.9Disposals – (0.2) (0.2)

At 31st December, 2003 2.0 6.6 8.6

Accumulated depreciationAt 1st January, 2003 0.1 0.3 0.4Provided during the year 0.1 0.6 0.7Transfers – 0.3 0.3Disposals – (0.2) (0.2)

At 31st December, 2003 0.2 1.0 1.2

Net book value at 31st December, 2002 1.9 0.6 2.5

Net book value at 31st December, 2003 1.8 5.6 7.4

Land andbuildings

£m

The net book value comprises:Freehold 0.5Long leasehold 1.3

1.8

12. Operating Lease Commitments Land and Land andbuildings Other buildings Other

The minimum annual commitments at 31st December, 2003 2003 2003 2002 2002under non-cancellable operating leases are as follows: £m £m £m £m

Leases which expire:Within one year 0.5 9.1 0.4 4.3Within two and five years 2.3 18.0 2.5 5.8Over five years 3.1 0.4 2.8 0.1

5.9 27.5 5.7 10.2

13. Capital Commitments 2003 2002£m £m

Contracted for but not provided – 1.0

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14. Fixed Asset – Investments Group Group Company Company2003 2002 2003 2002

£m £m £m £m

Shares in Group undertakingsAt 1st January – – 392.2 304.4Additions – – 8.9 87.8Revaluations – – – 9.5Disposals – – – (9.5)

At 31st December – – 401.1 392.2

Interests in joint venturesShare of net assets at 1st January 9.7 9.2 6.3 –Share of retained profits 2.2 2.2 – –Distributions (0.8) (0.8) – –Additions 0.2 – 0.1 –Transfers – (0.9) – 6.3

Share of net assets at 31st December 11.3 9.7 6.4 6.3

Loans to joint ventures 5.0 3.7 0.4 (0.7)

16.3 13.4 6.8 5.6

Interests in associated undertakingsShare of net assets at 1st January 3.8 – – –Share of retained profits 0.9 0.3 – –Distributions (0.3) – – –Additions 0.5 1.8 – –Disposals (1.7) – – –Acquisitions – 0.8 – –Transfers – 0.9 – –

Share of net assets at 31st December 3.2 3.8 – –

Total fixed asset investments 19.5 17.2 407.9 397.8

The principal subsidiary and joint venture undertakings, all of which are included in the consolidated accounts, are set out on page 59. For the Companythe interest in joint ventures is held at cost.

15. Joint VenturesThe Group has investments in joint ventures established to provide long-term services to Government agencies as part of the Private Finance Initiative (PFI).The Group’s notional share of the net assets of all joint ventures is noted below:

2003 2002Notional share of joint venture balance sheets £m £m

Fixed assets 159.7 75.9Finance receivables 39.5 40.4Current assets 51.6 12.1Liabilities due within one year (15.7) (6.7)Liabilities due after one year (223.8) (112.0)

Net assets 11.3 9.7Net loans to joint ventures 5.0 3.7

Total investment in joint ventures 16.3 13.4

The liabilities of the joint venture investments have no recourse to the Group.

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15. Joint Ventures continuedIncluded in the above is the Group’s share of Road Management Group Limited (RMG) the details of which are separately disclosed below:

Road Management Group2003 2002

Group’s share of profit and loss account £m £m

Turnover 10.8 10.2

Operating profit 8.3 8.7Interest (6.3) (6.4)

Profit before tax 2.0 2.3Tax (0.6) (0.6)

Profit after tax 1.4 1.7

Group’s notional share of balance sheet

Fixed assets 151.9 75.9Current assets 48.1 7.9Liabilities due within one year (14.0) (5.1)Liabilities due after one year (175.5) (68.8)

Net assets 10.5 9.9

The Group has a commitment to invest £9.5m relating to its 25% interest in RMG, including £4.5m in relation to the A13 upgrade in East London and£4.7m in relation to the A1 upgrade to motorway standard between Darrington and Dishforth in North Yorkshire. There is also a commitment to invest£0.7m in other schemes.

All joint venture borrowings are without recourse to the Group.

16. Stocks 2003 2002£m £m

GroupRaw materials 8.0 7.1Plant spares and consumable stores 1.1 1.9Finished goods and goods for resale 6.1 6.0Work in progress 3.4 1.4Other stocks 5.6 6.4

24.2 22.8

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17. Debtors Group Group Company Company2003 2002 2003 2002

£m £m £m £m

Amounts falling due within one yearTrade debtors 64.9 59.3 0.2 0.3Amounts owed by subsidiary undertakings – – 197.2 220.8Prepayments and accrued income 33.1 25.9 0.3 0.3Amounts recoverable on contracts 111.7 82.0 – –Investment in own shares 0.6 0.5 0.6 0.5Other debtors 16.9 20.0 3.7 8.3

227.2 187.7 202.0 230.2

Amounts falling due after more than one yearPension prepayment (see note 29) 32.3 32.3 32.3 32.3Amounts recoverable on contracts 4.8 5.2 – –Other debtors 4.5 4.8 – –

41.6 42.3 32.3 32.3

Investment in own shares as at 31st December, 2003 represents 2,450,340 ordinary shares, with a nominal value of £612,585, held by the Trustee of theAlfred McAlpine Employee Benefit Trust and financed by the Company.

18. Creditors Group Group Company Company2003 2002 2003 2002

£m £m £m £m

Amounts falling due within one year:BorrowingsLoan notes 0.3 – 0.3 –Overdrafts 5.6 0.7 2.4 0.7Finance leases and hire purchase contracts 1.8 1.2 – –

7.7 1.9 2.7 0.7

OtherPayments received on account 17.1 23.9 – –Trade creditors 103.6 88.7 1.3 1.7Amounts owed to subsidiary undertakings – – 250.8 256.0Accruals and deferred income 56.3 73.7 1.9 3.6Taxation and social security 19.8 21.2 1.4 2.6Other creditors 33.3 17.4 0.9 1.0Proposed dividends 6.5 6.1 6.5 6.1

236.6 231.0 262.8 271.0

Amounts falling due after more than one year:BorrowingsBank loans – 3.1 – –Loan notes – 1.0 – 1.0Finance leases and hire purchase contracts 2.8 2.5 – –

2.8 6.6 – 1.0

OtherShortfall on pension schemes acquired 6.5 6.5 – –Other creditors 1.4 0.3 – –

7.9 6.8 – –

At 31st December, 2003 there were no bank loans outstanding under the committed revolving credit facilities which expire in November 2007. All bankborrowings are unsecured.

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19. Provisions for Liabilities and Charges GroupGroup Group discontinued Group Company

deferred property business total deferredtaxation provisions provisions provisions taxation

£m £m £m £m £m

At 1st January, 2003 9.6 1.6 1.9 13.1 6.8Release for the year (0.2) (0.2) – (0.4) (0.4)Unwinding of discount – 0.1 – 0.1 –Amounts utilised – (0.5) (0.3) (0.8) –Transfer to corporation tax creditor (0.9) – – (0.9) –

At 31st December, 2003 8.5 1.0 1.6 11.1 6.4

a) Group deferred taxationProvided Provided

2003 2002£m £m

Net pension prepayment 7.7 7.7Accelerated capital allowances (5.3) (3.5)Short-term timing differences 6.1 5.4

8.5 9.6

At 31st December, 2003 there was an unrecognised deferred tax asset of £1.7m (2002: £1.7m) in respect of ACT recoverable. There would be nounprovided tax liability (2002: £nil) if the Group’s fixed assets were sold at their revalued amounts.

b) Group property provisionsThese relate to onerous property leases which were either acquired with Raine PLC in June 1997 or became surplus as a result of the closure of theold building division. The maximum outstanding period for any of these leases is ten years and the provision is based upon the discounted committedhead lease expenditure offset by committed and estimated sub-lease income.

c) Group discontinued business provisionsThese represent the estimated costs remaining from the Group’s withdrawal from discontinued operations. The amount provided represents the bestestimate of both obligations under completed contracts and other estimated costs.

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20. Share Capital 2003 2002 2003 2002No. 000 No. 000 £m £m

AuthorisedOrdinary shares of 25p each 181,973 181,973 45.5 45.59% cumulative preference shares of £1 each 4,507 4,507 4.5 4.5

50.0 50.0

2003 2002 2003 2002No. 000 No. 000 £m £m

Allotted and fully paidOrdinary shares at beginning of year 103,226 107,311 25.8 26.8Issued during the year 2,884 3,170 0.7 0.8Cancelled during the year (3,555) (7,255) (0.9) (1.8)

Ordinary shares at end of year 102,555 103,226 25.6 25.8

9% cumulative preference shares of £1 each 4,507 4,507 4.5 4.5

30.1 30.3

The preference shares, which represent the only non-equity interest in shareholders’ funds, have the following rights:a) a fixed cumulative preference dividend of 9% per annum payable half yearly on 30th April and 31st October;b) they rank with regard to dividend (including any arrears to the commencement of a winding up) and return on capital in priority to ordinary shares.

On a return of assets on liquidation or reduction in capital, there is a premium entitlement (calculated in accordance with the terms and conditions ofthe Articles of Association) but no further right to participate in the profits or assets;

c) there is no redemption entitlement; andd) where any preference dividend is in arrears, holders are entitled to attend any general meeting, with the right to vote on a show of hands

or by poll, with one vote for each share held.

Consideration received for the 2,884,066 ordinary shares issued during the year was £3,176,092, comprising: £1,265,773 being the fair value of sharesissued in connection with the acquisition of AIMS Group Services Limited; £1,592,849 received upon the exercise of share options; and £317,470subscription monies received from the Trustee of the Alfred McAlpine Employee Benefit Trust.

21. Committed But Unissued Share CapitalOptions over the Company’s ordinary shares outstanding at 31st December, 2003 were as follows:

Alfred McAlpine Executive Share Option Scheme (1991) (‘ESOS 1991’)*Alfred McAlpine Executive Share Option Scheme (2000) (‘ESOS 2000’)#

Date of Grant 12/04/95* 29/10/97* 13/05/98* 18/04/00* 22/03/01# 23/04/02# 03/09/03#

Price 147.0p 134.5p 158.5p 178.0p 280.5p 436.1p 304.5p Total

Directors 120,000 – – – – – – 120,000Employees 10,000 32,000 43,560 205,000 73,071 294,000 310,000 967,631

Total as at 31/12/02 130,000 32,000 43,560 205,000 73,071 294,000 310,000 1,087,631

Ordinarily, options granted under the terms of the ESOS 1991 and the ESOS 2000 are exercisable between three and ten years from the date of grant,subject to the Company achieving specific performance targets.

1998 Savings Related Share Option Scheme

Date of Grant 30/07/98 20/04/00 27/08/03Price 116.0p 158.0p 228.0p

Exercisable from Number Number Number

01/07/03 – 12,873 –01/10/03 57,693 – –01/07/05 – 200,554 –01/11/06 – – 1,344,80401/11/08 – – 1,456,320

57,693 213,427 2,801,124

Savings-related share options are normally exercisable during the six-month period following completion of either a three-year or five-year savings contract.

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21. Committed But Unissued Share Capital continuedRestricted Share Plan

Date of Award 03/10/96 17/07/97 29/10/97 13/05/98 02/12/98 12/04/99 27/04/00 22/03/01 23/04/02 16/05/03 11/09/03 04/12/03Value of each award at 31/12/03 294.25p 294.25p 294.25p 294.25p 294.25p 294.25p 294.25p 294.25p 294.25p 294.25p 294.25p 294.25p Total

Directors† 9,165 3,401 3,402 77,812 – 82,500 169,185 95,366 101,498 91,333 23,917 35,000 692,579Employees 5,498 – 2,357 47,937 52,500 164,250 229,615 319,686 333,480 750,254 10,019 – 1,915,596

14,663 3,401 5,759 125,749 52,500 246,750 398,800 415,052 434,978 841,587 33,936 35,000 2,608,175

Awards made under the Restricted Share Plan normally vest between three and seven years from the date of initial award, subject to the Companyachieving specific performance targets. Participants may elect to defer vesting for a further period of three years, during which the awards are held in the Employee Benefit Trust and may become eligible for matching under the rules of the Plan.

On the occasion of the sale of the Homes business, the Remuneration Committee exercised its discretion by subjecting all outstanding awards to aperformance test as at 1st October, 2001. With the exception of the awards made on 17th July and 29th October, 1997 (which achieved vesting at144.79%), the Company’s performance was measured as achieving 150% maximum vesting at 1st October, 2001. Shares representing the proportion of each award deemed to have tested successfully (calculated by reference to the proportion of the initial three-year test period that had elapsed at 1st October, 2001) are held by the Trustee of the Employee Benefit Trust until such time as the award would normally vest, subject to the participantcontinuing to be employed by the Group.

1. As at 27th April, 2003, the Company’s performance over the three-year period from the date of award ranked fourth in its comparator group, and the proportion of the awards made on 27th April, 2000 that remained to be tested was therefore capable of vesting to 122%. Participants elected todefer vesting of 422,316 shares.

2. The growth in the Company’s earnings per share (after adjustment to reflect the disposal of the Homes business) over the three-year deferral periodending on 17th July, 2003 exceeded the Retail Price Index by more than the requisite 9%. 511,940 shares, together with the corresponding matchingshares, were released to participants on 4th December, 2003.

3. The growth in the Company’s earnings per share (after adjustment to reflect the disposal of the Homes business) over the three-year deferral periodending on 29th October, 2003 exceeded the Retail Price Index by more than the requisite 9%. 123,000 shares, together with the correspondingmatching shares, were released to participants on 4th December, 2003.

† An analysis of Directors’ interests is contained in the remuneration report on pages 23 to 27.

22. Reserves Share Revaluation Other Profit andpremium reserve reserves loss account

Group £m £m £m £m

At 1st January, 2003 138.0 0.6 6.8 133.6Profit retained for the year – – – 11.5Purchase of own shares for cancellation – – 0.9 (9.6)Currency adjustments – – – (0.7)Shares issued 2.5 – – 2.1

At 31st December, 2003 140.5 0.6 7.6 136.9

Share Other Profit andpremium reserves loss account

Company £m £m £m

At 1st January, 2003 138.0 156.0 59.0Loss retained for the year – – (1.3)Purchase of own shares for cancellation – 0.9 (9.6)Shares issued 2.5 – 2.1

At 31st December, 2003 140.5 156.9 50.2

During the year the Group credited the profit and loss reserve with £2.1m relating to the Restricted Share Plan.

Other reserves include a non-distributable Capital Redemption Reserve Fund established in respect of the nominal value of shares repurchased.

Cumulative goodwill arising on the acquisition of subsidiary undertakings prior to 1st January, 1998 (see page 38) of £6.6m (2002: £6.6m) remains written off to reserves.

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23. Financial InstrumentsIt is the Group’s objective to minimise exposure to interest rate, currency and liquidity risk through the use of primary and derivative financial instruments.During the year the Group has addressed these risks principally through the use of primary financial instruments. Formal procedures are in place to coverbanking and other treasury matters. The Group’s policy is not to speculate or trade in financial instruments.

Short-term debtors and creditors Short-term debtors and creditors have been excluded from all the following disclosures, other than the currency risk disclosures.

Fair valuesThe following table provides a comparison by category of the carrying amounts and the fair values of the Group’s financial assets and financial liabilitiesat 31st December, 2003. Where available, market values have been used to determine fair values. Where market values are not available, fair values havebeen calculated by discounting expected cash flows at prevailing interest and exchange rates. Set out below the table is a summary of the methods andassumptions used for each category of financial instrument.

Book value Fair value Book value Fair value2003 2003 2002 2002

£m £m £m £m

Primary financial instruments held or issued to finance the Group’s operations:Short-term borrowings (5.9) (5.9) (0.8) (0.8)Long-term borrowings – – (4.1) (4.1)Preference shares (4.5) (6.2) (4.5) (6.2)Finance leases (4.6) (4.6) (3.6) (3.6)Other financial liabilities (2.4) (2.3) (1.9) (1.4)

(17.4) (19.0) (14.9) (16.1)Short-term deposits 55.2 55.2 103.3 103.3Cash at bank and in hand 17.3 17.3 19.3 19.3Other financial assets 15.3 15.3 14.4 14.4

70.4 68.8 122.1 120.9

Summary of methods and assumptionsThe fair value of the Group’s bank loans approximates to the carrying value reported in the balance sheet as the loans are floating, with payments resetto market rates at intervals of less than one year. The Company’s preference shares are listed on the London Stock Exchange and their fair value is basedon their quoted market price at 31st December, 2003. The fair value of short-term deposits, cash and overdrafts approximates to the carrying amountbecause of the short maturity of these instruments.

The fair value of other financial assets approximates to the carrying amount because of the ongoing trading nature of these items and the effect ofincreasing expected recovery off-setting the effect of discounting. Other financial assets include shared equity debtors of £4.9m (2002: £5.6m), long-termdebtors of £5.4m (2002: £5.2m) and loans to Joint Ventures of £5.0m (2002: £3.7m).

The fair value of other financial liabilities reflects the discounting of the liabilities. Other financial liabilities include the provisions for vacant leaseholdproperties of £1.0m (2002: £1.6m), and long-term creditors of £1.4m (2002: £0.3m).

Profile of financial assetsCash at Short Other Cash at Short Other

bank and term financial bank and term financialTotal in hand deposits assets Total in hand deposits assets2003 2003 2003 2003 2002 2002 2002 2002

Currency £m £m £m £m £m £m £m £m

Sterling 86.1 15.6 55.2 15.3 135.3 17.6 103.3 14.4US dollars 0.7 0.7 – – 0.9 0.9 – –EU currencies 1.0 1.0 – – 0.8 0.8 – –

At 31st December 87.8 17.3 55.2 15.3 137.0 19.3 103.3 14.4

Floating rate 32.6 17.3 – 15.3 33.7 19.3 – 14.4Fixed rate 55.2 – 55.2 – 103.3 – 103.3 –

At 31st December 87.8 17.3 55.2 15.3 137.0 19.3 103.3 14.4

The fixed rate short-term deposits in sterling are placed with banks on a one-month rolling basis and earn interest at between 3.5% and 4.0% perannum. Floating rate cash earns interest based on relevant national LIBOR equivalents.

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23. Financial Instruments continuedInterest rate profile of financial liabilities Financial Financial

Floating Fixed liabilities Floating Fixed liabilitiesrate rate on which rate rate on which

financial financial no interest financial financial no interestTotal liabilities liabilities is paid Total liabilities liabilities is paid2003 2003 2003 2003 2002 2002 2002 2002

Sterling liabilities £m £m £m £m £m £m £m £m

Financial liabilities 12.9 6.9 4.6 1.4 10.4 6.4 3.6 0.4Preference shares 4.5 – 4.5 – 4.5 – 4.5 –

At 31st December 17.4 6.9 9.1 1.4 14.9 6.4 8.1 0.4

All the Group’s creditors falling due within one year (other than bank and other borrowings) are excluded from the above tables either due to theexclusion of short-term items or because they do not meet the definition of a financial liability.

In addition to the above, the Group’s provisions of £1.0m for vacant leasehold properties (note 19) meet the definition of financial liabilities. Thesefinancial liabilities are considered to be floating rate financial liabilities as, in establishing the provisions, the cash flows have been discounted and thediscount rate is re-appraised at each half-yearly reporting date to ensure that it reflects current market assessments of the time value of money and therisks specific to the liability.

The weighted average interest rate for fixed rate liabilities is 6.0%, fixed for a weighted average period of three years. The Company’s fixed rate 9%cumulative preference shares have no redemption date. Floating rate financial liabilities bear interest at rates, based on relevant LIBOR equivalents, whichare fixed in advance for periods up to three months. The weighted average period until maturity of financial liabilities on which no interest is paid is 1.5 years.

Maturity of financial liabilities Other OtherFinance financial Finance financial

Total Debt leases liabilities Total Debt leases liabilities2003 2003 2003 2003 2002 2002 2002 2002

£m £m £m £m £m £m £m £m

Within 1 year, or on demand 8.5 5.9 2.0 0.6 2.6 0.8 1.2 0.6Between 1 and 2 years 3.8 – 2.2 1.7 2.4 – 1.7 0.7Between 2 and 5 years 1.2 – 0.9 0.2 5.8 4.1 1.1 0.6Over five years 4.6 4.5 – 0.1 4.7 4.5 – 0.2

18.1 10.4 5.1 2.6 15.5 9.4 4.0 2.1

Finance charges allocated to future periods (0.7) – (0.5) (0.2) (0.6) – (0.4) (0.2)

At 31st December 17.4 10.4 4.6 2.4 14.9 9.4 3.6 1.9

Debt due after five years includes £4.5m (2002: £4.5m) in respect of the Company’s preference shares.

The undrawn elements of the Group’s committed borrowing facilities at 31st December, 2003 total £105m. These facilities expire in November 2007 andincur commitment fees at fixed contractual rates.

Currency exposuresThere are no significant external monetary assets and liabilities held by Group companies in currencies other than their local currency.

HedgesThere are no significant off balance sheet hedges as at 31st December, 2003.

24. Reconciliation of Operating Profits to Net Cashflow from Operating Activities 2003 2002£m £m

Group operating profit after goodwill amortisation 24.1 19.4Depreciation 8.4 7.1Profit on disposal of tangible fixed assets (2.6) (0.5)Goodwill amortisation 5.6 6.2(Increase)/decrease in stocks (1.9) 8.0(Increase)/decrease in debtors (39.6) 3.9Increase/(decrease) in creditors 5.4 (17.4)Decrease in other provisions (0.9) (0.1)

Net cash flow from operating activities (1.5) 26.6

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25. Analysis of Group Net Cash Acquisitions (excluding Other

At cash and Cash non-cash At01/01/03 overdrafts) flow changes 31/12/03

£m £m £m £m £m

Cash at bank and in hand 19.3 – (2.0) – 17.3Overdrafts (0.7) – (4.9) – (5.6)

18.6 – (6.9) – 11.7

Bank loans (3.1) (5.9) 5.9 3.1 –Loan notes (1.0) – 0.7 – (0.3)Finance leases (3.7) – 1.2 (2.1) (4.6)

(7.8) (5.9) 7.8 1.0 (4.9)

Bank term deposits 103.3 – (48.1) – 55.2

Net cash 114.1 (5.9) (47.2) 1.0 62.0

26. Acquisitionsa) Acquisition of AIMS Group Services LimitedOn 6th June, 2003 the Group acquired AIMS Group Services Limited for a consideration of £9.0m including acquisition costs of £0.6m. The considerationcomprised £7.7m in cash and £1.3m in shares in Alfred McAlpine plc. In addition, net debt of £6.0m was acquired.

The acquisition has been accounted for using the acquisition method of accounting. Goodwill arising on the acquisition is being amortised over a period of 20 years.

From the date of acquisition to 31st December, 2003, AIMS contributed £7.4m to turnover and £1.3m to operating profit and profit before tax.

In its last financial year to 31st March, 2003, AIMS made a profit before tax and amortisation of £1.1m.

The following table sets out the book values of the identifiable assets and liabilities acquired and their fair value to the Group.Fair value

Net assets Fair value to theacquired adjustments Group

£m £m £m

Intangible assets 6.8 (6.8) –Tangible assets 0.5 – 0.5Stock 0.2 – 0.2Debtors 3.1 – 3.1Creditors (2.0) (0.4) (2.4)Net borrowings (6.0) – (6.0)

Net assets acquired 2.6 (7.2) (4.6)Goodwill 13.6

Consideration 9.0

Consideration satisfied by:Shares issued (507,324 ordinary shares at a market value of 249.5p) 1.3Cash 7.7

9.0

The fair value adjustments are to write off unamortised purchased goodwill from previous acquisitions and unamortised finance issue costs.

The fair valuation of net liabilities acquired is provisional and ongoing and will be finalised in the 2004 financial statements.

b) Goodwill on acquisition of Stiell LimitedOn 1st March, 2002 the Group acquired Stiell Limited for £78.3m excluding net debt acquired of £4.9m. At the time of the acquisition an earn-outarrangement was established, the net impact of which has now been estimated at £4.5m. Total consideration for the Stiell Group is therefore adjusted to £82.8m, excluding the net debt acquired. Goodwill acquired on acquisition has been increased to £73.9m (2002: £69.4m).

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26. Acquisitions continuedc) Goodwill on acquisition of Eastern Contracting Holdings BVOn 10th September, 2002, the Group acquired Eastern Contracting Holdings BV, the parent company of Eastern Contracting Limited for £10.6m in cashexcluding net debt acquired of £2.9m. Further fair value adjustments totalling £1.1m relating primarily to lease obligations and debtors in the acquiredbalance sheet have been identified in the hindsight period. The net effect is to increase goodwill acquired by £1.1m to £18.8m.

Provisional Final fairfair value to Revision to value to

the Group fair values the Group2002 2003 2003

£m £m £m

Tangible assets 1.7 – 1.7Stock 0.5 – 0.5Debtors 8.7 (0.3) 8.4Creditors (15.7) (0.8) (16.5)Provisions 0.5 – 0.5Net borrowings (2.8) – (2.8)

(7.1) (1.1) (8.2)Consideration 10.6 – 10.6

Goodwill recognised 17.7 1.1 18.8

d) Acquisition of UK Power Construction LimitedOn 6th February, 2004, the Group acquired UK Power Construction Limited for £5.2m in cash.

27. Parent CompanyAs permitted by Section 230(1) of the Companies Act 1985, the profit and loss account of the Company is not presented as part of the accounts. The parent company profit after tax of £10.5m (2002: £53.3m) is included in the Group profit for the financial year. The reconciliation of movementsin shareholders’ funds is as follows:

2003 2002£m £m

Profit for the financial year 10.0 54.3Dividends (11.3) (10.8)

(1.3) 43.5Gain on the revaluation of subsidiaries – 9.5New shares issued 2.8 0.8Premium on new share capital issued 2.5 12.0Purchase of own shares for cancellation (9.6) (23.4)

Net (decrease)/increase to shareholders’ funds (5.6) 42.4Opening shareholders’ funds 383.3 340.9

Closing shareholders’ funds 377.7 383.3

28. Related Party TransactionsDuring the year the Group entered into the following material transactions with related parties:

Transactions amounting to £33.7m (2002: £29.6m) have been made with joint ventures and associates for provision of labour at cost, plant at normalcommercial rates, recharge of costs incurred and management fees. The Group owed net balances totalling £2.2m (2002: £16.2m owing to the Group)to these joint ventures and associates at the year end. There were no amounts written off in respect of such balances (2002: £nil). In each case, a seniorrepresentative of the Alfred McAlpine Group sits on the Board of the joint venture body.

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29. Pension CostsDefined contribution schemesThe Group operates six main defined contribution pension schemes in the UK. All provide benefits based upon the individual funds available, at retirement, for the purchase of an annuity.

On 1st August, 2003, the Company introduced the McAlpine 2003 Pension Plan (‘the 2003 Pension Plan’), which is a contracted-in defined contributionpension arrangement. The 2003 Pension Plan is operated on behalf of the Company by Eagle Star and is subject to the Stakeholder Pensions regulations.The minimum employee contribution is 3% of basic salary. Employees may elect to pay additional contributions, some of which will be matched by theCompany, depending on the grade of the employee. The average Company contribution equates to 5.3% of basic salary. In aggregate, employercontributions were £1.79m in 2003.

The Alfred McAlpine Utility Services Group Limited Retirement Benefits Scheme received employer contributions in 2003 of £63,027 (2002: £95,599part year). The Alfred McAlpine Utility Services Group Limited Group Personal Pension Plan received employer contributions in 2003 of £464,388(2002: £315,255).

The Stiell Retirement Savings Scheme received employer contributions in 2003 of £277,618 (2002: £366,974). The Stiell Limited Group PersonalPension Plan received employer contributions in 2003 of £142,267 (2002: £119,939).

The Eastern Contracting Limited Group Personal Pension Plan, which was discontinued at 30th November, 2003, received employer contributions in 2003 of £8,942 (2002: £12,045).

Defined benefit schemesThe Group operates a defined benefit pension plan and participates in the Electricity Supply Pension Scheme (‘the ESPS’) in the UK. Both the AlfredMcAlpine Pension Plan (‘the Plan’) and the ESPS provide benefits based on final pensionable salary for eligible employees. The assets are heldseparately from those of the Group and are managed on the Trustees’ behalf by investment managers. Both are funded by contributions from theemployer and investment returns. The rates of contribution are determined by independent qualified actuaries. Employees who are members of theESPS also pay a contribution.

The PlanWith effect from 31st July, 2003, the Plan was closed for future benefit accrual. Members as at that date continue to retain the link to pensionablesalary at their eventual date of leaving in respect of service up to 31st July, 2003. Employee contributions into the Plan ceased with effect from 1stAugust, 2003.

The most recent full valuation of the Plan was at 31st December, 2002 and incorporates the assumption that investment returns will be 2.05% perannum greater than the rate of future salary increases to normal retirement date or earlier death or withdrawal from the Plan and 2.8% greater thanthe rate of increase in present and future pensions.

The actuary reported that the market value of the Plan’s assets at 31st December, 2002 was £189.7m (1999: £236.8m) which was sufficient to cover71% of the benefits that had accrued to members, allowing for future salary projections.

Employer contributions made to the Plan in 2003 were £5.2m (2002: £4.5m) and the charge to the profit and loss account in the year to31st December, 2003 totalled £4.3m (2002: £4.5m). The prepayment of £32.3m remains unchanged. From 1st January, 2004, the Group will make aninflation-linked contribution to the Pension Plan of £3.85m per annum.

The ESPSThe most recent full valuation of the ESPS was at 31st March, 2001 and incorporates the assumption that investment returns will be 2.5% per annumgreater than the rate of future salary increases to normal retirement date or earlier death or withdrawal from the ESPS.

The actuary reported that the smoothed market value of the Alfred McAlpine Group of the ESPS’ assets at 31st March, 2001 was £37.3m, which wassufficient to cover 124% of the benefits that had accrued to members. Employer contributions made to the ESPS in 2003 were £938,962 (2002:£238,901 part year).

Application of FRS 17The following information is given under the transitional provisions of FRS 17, which prescribes a method of valuation, for accounting purposes, thatdiffers widely from both the full actuarial valuation and the methodology as prescribed by regulation of the minimum funding requirement.

FRS 17 gives the present value of pension liabilities by discounting pension commitments, including salary growth, at an AA corporate bond yield andincludes assets at the market value at that date. The FRS 17 value of total liabilities under the Plan and the ESPS at 31st December, 2003 estimated byqualified independent actuaries was £330.7m (2002: £294.4m) and the snapshot market value of assets was £24.78m (2002: £222.4m), giving adeficit as at that specific date of £58.0m (2002: £50.4m) after the related deferred tax asset.

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29. Pension Costs continuedIn calculating the liabilities the following assumptions have been used:

At At At At31/12/03 31/12/03 31/12/02 31/12/02

ESPS The Plan ESPS The Plan%pa %pa %pa %pa

Discount rate 5.4 5.8 5.5 5.6Salary growth 4.3 3.8 3.8 3.3RPI 2.8 2.8 2.3 2.3Increases to pensions in payment 2.9 2.8 2.5 2.3

Deferred pensions are revalued to retirement age in line with the RPI assumptions unless otherwise prescribed by statutory requirements or the rules ofthe Plan and ESPS.

The assets in the Plan and ESPS by proportion, and the expected rates of return were:

ESPS The Plan ESPS The Plan

Long-term Long-term Long-term Long-termrate of return rate of return rate of return rate of return

expected at Value at expected at Value at expected at Value at expected at Value at31/12/03 31/12/03 31/12/03 31/12/03 31/12/02 31/12/02 31/12/02 31/12/02

% £m % £m % £m % £m

Equities 7.9 28.9 6.9 141.5 7.6 24.4 7.0 106.7Corporate bonds 5.3 3.6 5.4 40.1 5.0 3.6 5.5 31.4Cash and gilts 4.8 5.4 4.4 28.3 4.5 3.2 4.5 53.1

Total market value of assets 37.9 209.9 31.2 191.2Present value of scheme liabilities (55.1) (275.6) (39.3) (255.1)

Deficit in the scheme (17.2) (65.7) (8.1) (63.9)Related deferred tax asset 5.2 19.7 2.4 19.2

Net pension shortfall (12.0) (46.0) (5.7) (44.7)

If the aggregate of the above amounts had been recognised in the financial statements, the Group’s net assets and profit and loss reserve at31st December, 2003 would be as follows:

2003 2002Group Group

£m £m

Net assets per balance sheet 314.5 309.3Remove net SSAP 24 pension asset and its associated deferred tax (18.1) (19.9)Include FRS 17 pension liability and its associated deferred tax – the Plan (46.0) (44.7)

– ESPS (12.0) (5.7)

Net assets including FRS 17 pension shortfall 238.4 239.0

2003 2002Group Group

£m £m

Profit and loss reserve per balance sheet 135.8 133.6Remove net SSAP 24 pension asset and its associated deferred tax (18.1) (19.9)Include FRS 17 pension liability and its associated deferred tax – the Plan (46.0) (44.7)

– ESPS (12.0) (5.7)

Profit and loss reserve including FRS 17 pension shortfall 59.7 63.3

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29. Pension Costs continuedAnalysis of the amount that would have been charged to operating profit 2003 2002

£m £m

Current service cost 3.9 4.9Past service cost – –Curtailment cost 0.7 –

Total operating charge 4.6 4.9

Analysis of the amount that would have been charged to other finance income 2003 2002£m £m

Expected return on pension scheme assets 12.9 15.2Interest on pension scheme liabilities (16.2) (15.3)

Net return (3.3) (0.1)

Analysis of the amount that would have been recognised in statement of total recognised gains and losses (STRGL) 2003 2002£m £m

Actual return on assets 29.6 (25.0)Less expected return on assets (12.9) (15.2)

16.7 (40.2)Experience gains and losses on liabilities (10.6) 12.7Changes in assumptions (16.3) (10.6)

Actuarial loss recognised in STRGL (10.2) (38.1)

Movement in deficit during the year 2003 2002£m £m

Deficit at beginning of year (72.0) (25.0)Movements in year:FRS 17 deficit on schemes acquired – (8.4)Current service cost (3.9) (4.9)Curtailment cost (0.7) –Contributions 7.2 4.5Other finance charge (3.3) (0.1)Actuarial loss (10.2) (38.1)

Deficit at end of year (82.9) (72.0)

History of experience gains and losses 2003 2002£m £m

Difference between the experience and actual return on scheme assets 16.7 (40.2)Percentage of scheme assets 7% (18%)

Experience gains and losses on scheme liabilities (10.7) 12.7Percentage of scheme liabilities 3% (4%)

Total amount recognised in statement of total recognised gains and losses (10.3) (38.1)Percentage of scheme liabilities 3% 13%

30. Contingent LiabilitiesThere are contingent liabilities in respect of:a) completed and uncompleted contracts of the Group, its related undertakings and joint ventures; andb) legal or potential claims, the outcome of which cannot at present be foreseen.Appropriate provision has been made in these accounts for all liabilities that are, in the opinion of the Directors, likely to materialise.

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59Alfred McAlpine plc | Annual Report & Accounts 2003Principal subsidiary undertakings

Principal subsidiary undertakings, joint ventures and associates

All undertakings are incorporated in the UK, unless otherwise indicated, and operate mainly in the country of incorporation. The Group’s interest is in equity share capital in all cases and is stated as at 31st December, 2003.

Subsidiary undertaking Principal activity Interest %

Business ServicesMcAlpine Asset Management Limited Provision of plant and site accommodation services 100McAlpine Business Services Limited Facilities management and support services 100McAlpine Business Information Systems Limited IT support services 100

Capital ProjectsAlfred McAlpine Capital Projects Holdings Limited# Holding company 100McAlpine Capital Projects Limited Construction services 100

Infrastructure ServicesMcAlpine Infrastructure Services Limited Utility infrastructure services 100McAlpine Government Services Limited Highway maintenance services 100

Project InvestmentsMcAlpine Project Investments Limited PFI project appraisal and management 100

SlateAlfred McAlpine Slate Limited Slate quarrying and marketing 100Hilltop Slate Inc* Slate quarrying 100

Joint ventures and associates Principal activity Share capital Interest %

Mercia Healthcare (Holdings) Limited Hospital development £1,000 25Road Management Group Limited Holding company £25,335,000 25South Manchester Healthcare (Holdings) Limited Hospital development £1,000 25Core Utility Solutions Limited** Multi-utility connection specialists £1,000,000 49East Leake Schools (Holdings) Limited School development £10,000 50Stirling Water (2003) Limited Water infrastructure £10,000 25

# Owned directly by Alfred McAlpine plc.* Incorporated and operating in the US.** A put and call option exists under which Alfred McAlpine may acquire the remaining 51% of Core Utility Solutions Limited from Scottish Power plc.

Five year summary

2003 2002 2001* 2000 1999£m £m £m £m £m

Turnover 868.5 768.3 859.7 839.5 790.9Profit before taxation, exceptional items and goodwill 36.2 30.2 42.3 60.6 46.9

Exceptional items – (2.3) 20.8 – –Goodwill (5.6) (6.2) (19.2) (0.4) (0.4)Profit before taxation 30.6 21.7 43.9 60.2 46.5

Earnings per shareAdjusted – before goodwill and exceptional items 28.6p 20.7p 29.9p 42.6p 32.4pBasic 22.3p 13.3p 36.8p 42.2p 32.1p

Dividend per share 11.0p 10.0p 10.0p 10.0p 8.8p

* The Group sold its Homes business on 1st October, 2001 for £463m.

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60 Alfred McAlpine plc | Annual Report & Accounts 2003Shareholder information

Financial Calendar

11th March, 2004 Results announcement for yearto 31st December, 2003

5th May, 2004 Ex-dividend date

7th May, 2004 Record date

20th May, 2004 Annual General Meeting

28th May, 2004 Final dividend payment date

29th July, 2004 Interim results announcement

mid August, 2004 Interim report published

Analysis of Holders of Ordinary Shares at 31st December, 2003Number of % of Number of % of

shareholders shareholders shares shares

Range of holdings1 – 1,000 3,801 59.90 1,464,997 1.43

1,001 – 10,000 2,119 33.40 6,151,658 6.0010,001 – 50,000 239 3.77 5,681,324 5.5450,001 – 100,000 57 0.90 4,457,145 4.34

over 100,000 129 2.03 84,800,031 82.69

Total 6,345 100.00 102,555,155 100.00

Types of shareholdersPrivate shareholders 4,973 78.38 13,046,725 12.72Insurance companies 3 0.05 1,287,957 1.26Pension funds 2 0.03 1,501 0.00Nominee companies 1,220 19.23 83,203,404 81.13Limited companies 124 1.95 3,713,702 3.62Banks and bank nominees 2 0.03 433,822 0.42Other institutions 21 0.33 868,044 0.85

Total 6,345 100.00 102,555,155 100.00

Shareholders’ EnquiriesEnquiries relating to matters such as loss of a share certificate, dividendpayments or notification of a change of name or address should bedirected to the Company’s registrars, Lloyds TSB Registrars, TheCauseway, Worthing, West Sussex BN99 6DA. Telephone: 0870 600 3970.Telephone for shareholders with hearing difficulties: 0870 600 3950.Lloyds TSB Registrars also provide a website which enables you to viewup-to-date information about your shareholding in the Company:www.shareview.co.uk

As part of our commitment to shareholders, we are able to send youliterature in the following formats:" large print" braille" audio tapeIf you would like to receive shareholder communications in alternativeformats, please register your name, address, shareholder accountnumber and preferred format with Lloyds TSB Registrars, as above.

Amalgamation of ShareholdingsIf you received more than one copy of this annual report, there may be more than one account in your name on the Company’s register ofmembers. If you would like to amalgamate your holdings, please writeto the Company’s registrars.

Share Price InformationShare price information on Alfred McAlpine plc can be found on page222 of Ceefax or by calling FT Cityline on 0906 843 3316. Calls arecharged at 60p per minute (plus VAT), at all times.

Share Dealing ServiceThe Company operates a low-cost share dealing service, throughCazenove & Co Ltd. Details of the service, and sale and purchase forms, may be obtained by calling 020 7155 5155.

ShareGiftThe Orr Mackintosh Foundation operates a charity share donationscheme (ShareGift) for shareholders with small holdings of shares whosevalue makes it uneconomic to sell them. Details of the scheme can beobtained from the Company’s registrars. Information is also available onthe ShareGift website: www.sharegift.org

Registered and Group Head OfficeKinnaird House1 Pall Mall EastLondon SW1Y 5AZWebsite: www.mcalpineplc.com

Shareholder information

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