Slide 1: Bank of America Merrill Lynch Construction and Building Materials Conference
THE INFRASTRUCTURE BUSINESS Bank of America Merrill Lynch Construction and Building Materials Conference 12 October 2011
Slide 2: Forward-looking statements
Forward-looking statements This announcement may include certain forward-looking statements, beliefs or opinions, including statements with respect to Balfour Beatty plc’s business, financial condition and results of operations. These forward-looking statements can be identified by the use of forwar
Slide 3: Duncan Magrath, Chief Financial Officer
Duncan Magrath Chief Financial Officer
Slide 4: Agenda
Agenda Overview Growth dynamics Margin drivers Financial targets
Slide 5: The natural partner for owners and operators of complex and critical assets
The natural partner for owners and operators of complex and critical assets
Slide 6: Focused on complex and critical assets
Focused on complex and critical assets Social infrastructure Civil infrastructure – Health – Transportation – Education • Road, rail, aviation, ports – Data centres – Power – Military facilities – Water – Building assets – Communications Other FM Road Building (Commercial) Defence Social Rail ho
Slide 7: Core skills make us the natural partner
Core skills make us the natural partner Infrastructure Transport - Power - Water - Complex buildings Asset knowledge Managing complex customers Integrator capability Local knowledge
Slide 8: A significant global infrastructure business
A significant global infrastructure business Vinci Hochtief ACS Balfour Beatty Skanska Bechtel URS AECOM CH2M Fluor Jacobs 0 5 10 15 20 25 30 £ billion p.a. Infrastructure Industrial Other Infrastructure represents infrastructure and commercial building revenue. Source: Engineering News Record
Slide 9: Global infrastructure market is expected to be £20+ trillion over 2010-20
Global infrastructure market is expected to be £20+ trillion over 2010-20 5.5 4.0% 3.0 3.5% 1.5 14.0% 10.0 10.5 9.5% 2.0 12.5% Size of market over 2010-20, £trillion Growth p.a. Source: Global insight
Slide 10: Growing international reach
Growing international reach % of group Design Construct Maintain Finance revenue Prog.manage Upgrade Operate Develop UK 2 33 14 6 USA 9 19 nm 1 ROW 5 11 nm nm Based on HY 2011 revenue
Slide 11: Diversified end-market exposure
Diversified end-market exposure Business Design Construct Maintain Finance by vertical Prog. manage Upgrade Operate Develop market1 UK Power Transportation Transportation Transportation Building Building Health,Education USA Transportation Building Power Military housing Military housing ROW Various
Slide 12: Growth dynamics
Growth dynamics Infrastructure spending Power investment Growth markets
Slide 13: Government spending in the UK
Government spending in the UK Public expenditure cuts in place % of Design Construct Maintain Finance group Prog.mang Upgrade Operate Develop since CSR in October 2010 revenue UK 2 33 14 6 c.30-40% reduction is being phased in over 2-3 years USA 9 19 nm 1 Impact already seen in the market ROW
Slide 14: Transportation spending in the US
Transportation spending in the US Almost 10% of our group Business Design Construct Maintain Finance by vertical Prog. mang Upgrade Operate Develop revenue comes from market1 UK Power Transportation Transportation Transportation designing and managing the Building Building Health,Education constru
Slide 15: Extensions rather than re-authorisation
Extensions rather than re-authorisation Professional services revenue growth impacted by the delay in the re- authorisation of a six-year Transportation Bill US Transportation Contract Revenue including Direct Expense TEA-21 legislation passes June 9, 1998. Goes from 1998 to 2003 SAFETEA-LU 2005 s
Slide 16: Majority of spending comes from local sources
Majority of spending comes from local sources State and Local government Federal outlays revenue US$2,660bn1 Other 6% – Source of revenue 18% Federal funding, Net interest National 5% defense 82% own sources Veterans' 20% benefits 4% States and Local governments’ Transportation 3% transportation
Slide 17: Different ways of funding
Different ways of funding State finances are constrained by lack of tax revenue – Mixed picture from state to state States are looking to different ways of funding – Over 80% of state and local referenda were approved by voters in November 2010 – Proposal to allow increased tolling on existing i
Slide 18: Federal spending in construction
Federal spending in construction Majority of our US Business Design Construct Maintain Finance by vertical Prog. mang Upgrade Operate Develop construction business is in market1 UK Power Transportation Transportation Transportation buildings Building Building Health,Education USA Transportation Bu
Slide 19: Power investment
Power investment Power capability runs throughout the Group – Design – Construct – Maintain – Finance Group is technology-agnostic – Traditional coal and gas – Nuclear – Offshore
Slide 20: Focus areas in the power supply chain
Focus areas in the power supply chain Fuel / Mining Generation Transmission Substation Distribution Consumer (Commercial/ Residential) Infrastructure Investments Professional Services Construction Services Support Services Carbon Capture Infrastructure Investments & Storage (CCS) Professional Servic
Slide 21: Need for change
Need for change Existing generation capacity New generation 80GW of generating plant £75bn to 2020* 20GW to be retired before 2020 Offshore Wind, Nuclear and Gas 5% of electricity from renewables Transmission and distribution Population and consumption £35bn to 2020* 2011: 60 million (375TWh/a) Offs
Slide 22: Offshore wind power
Offshore wind power Significant political support as UK Government seeks to secure power supply and meet carbon targets Market pull for competent, credible, game-changing players Biggest investor in the OFTO regime with two assets (Greater Gabbard and Thanet) Active in the maintenance of off
Slide 23: Nuclear power
Nuclear power Hinkley Point new nuclear station with two generating units in Somerset One of eight UK sites in the National Policy Statement Public consultation completed in August 2011 EDF Energy intends to submit its application to the Infrastructure Planning Commission later in 2011 Bal
Slide 24: International power
International power Transmission and distribution 2010-35 global market c. $85bn p.a. in transmission and c. $190bn p.a. in distribution, with increasing levels of outsourcing Balfour Beatty is a leading provider • Parsons Brinckerhoff • Balfour Beatty Utility Solutions • Market drivers • Econom
Slide 25: Growth markets
Growth markets Active JVs in Hong Kong, % of Design Construct Maintain Finance group Prog.mang Upgrade Operate Develop Indonesia and the Middle East revenue UK 2 33 14 6 Professional services generate revenue in c.70 countries and USA 9 19 nm 1 offer a route into growth markets ROW 5 11 nm nm
Slide 26: Growth in India
Growth in India BB India opened on 10 October 2011 Adds to professional services presence – 205 employees – Regional offices in New Delhi and Bangalore – Six site offices Signed MOU with Tata on 11 October 2011 – To jointly identify and pursue infrastructure opportunities in India and sub Saha
Slide 27: Margin drivers
Margin drivers Efficiency and cost reduction Economies of scale Generating income from PPP portfolio
Slide 28: Efficiency and cost reduction
Efficiency and cost reduction Launched cost reduction programme in the UK in August 2010 – Target £30m of savings by 2013 Flexible cost structure in construction due to prime contractor model Aligning cost base to lower volume in UK Professional Services Work streams underway to increase bil
Slide 29: Economies of scale
Economies of scale Support Services is highest organic growth segment Steady growth in activity – Large integrated contracts – Local government outsourcing – Energy sector Economies of scale to come through with growth Profits held back in the short term – Mobilisation costs impact the early
Slide 30: Generating income from PPP portfolio
Generating income from PPP portfolio Developer model announced in November 2010 – Selective and sequential disposal of assets - disposal of £200 - £300m value over next 4/5 years – Probable gains totalling £20-25m pa, 3p per share pa – Generate re-investment opportunities plus enhanced cash flow -
Slide 31: Group’s financial targets
Group’s financial targets 5-year profit growth prospects Direction of margin* Share in movement over 5 Group in 5 Organic Acquisition Margin* effects years years + utilisation Professional Services ++ ++ + collaboration Increase to 6% to 7% 30% + EPC contracting + cost effectiveness 2.8%, stable Con
Slide 32: Conclusion
Conclusion Significant challenges in our markets We are confident of making progress in 2011 Looking further out, we will continue to manage the business on the basis that conditions will remain tough Our strategy will stand us in good stead We expect recovery in our markets in the medium
Slide 33: Balfour Beatty
Balfour Beatty