Slide 1: The Infrastructure Company Investor Seminar
The Infrastructure Company INVESTOR SEMINAR 30 NOVEMBER 2010 This presentation was edited from its original on 17 December 2010 for certain US regulatory reasons. The edited section is clearly marked in the document.
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: Ian Tyler, Chief Executive
Balfour Beatty 7 lan Tyler Chief Executive
Slide 4: Agenda
Agenda Infrastructure markets Peter Zinkin Revenue by Sector Business model Andrew McNaughton Infrastructure investments Anthony Rabin Break Financial implications Duncan Magrath Conclusion Ian Tyler Q&A The infrastructure company 3
Slide 5: Defining core skills: Infrastructure
Defining core skills Infrastructure Transport - Power - Water - Complex buildings Technical expertise Complex customers Integrator capability Local knowledge Reliability Quality Knowledge Safety The infrastructure company 4
Slide 6: Defining core skills
Defining core skills Developed Economies Emerging Economies The infrastructure company 5
Slide 7: Addressing the infrastructure market
Addressing the infrastructure market Develop Plan Procure Renew Invest Design Construct Maintain Operate Manage Commission Support Generating a whole greater than the parts The infrastructure company 6
Slide 8: Value creation
Value creation Proven track record of growth Leveraging knowledge across the Group Providing integrated capability to customers The infrastructure company 7
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Slide 10: Peter Zinkin
Peter Zinkin Planning and Development Director
Slide 11: Outline of presentation
Outline of presentation What is infrastructure and which markets are we going to discuss The global infrastructure market outlook Infrastructure and GDP – the virtuous circle Infrastructure demand is relatively stable Infrastructure trends in developed and emerging economies UK short term outlook af
Slide 12: What is infrastructure and which markets are we going to discuss today?
What is infrastructure and which markets are we going to discuss today? Civil infrastructure Developed economies – Transportation – United Kingdom • Road, rail, aviation, ports – United States of America – Power – Canada – Water Emerging economies – Communications – India Social infrastructure – Chi
Slide 13: Balfour Beatty – proposition 1
Balfour Beatty – proposition 1 Infrastructure will remain a strong and stable global market which we are confident will grow The infrastructure company 12
Slide 14: The global infrastructure market is expected to be £20+ trillion over 2010-20
The 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 The infrastructure company 13
Slide 15: Infrastructure and GDP - the virtuous circle
Infrastructure and GDP - the virtuous circle Supply Side Demand Side Infrastructure investment Higher demand: Raises productivity Long supply chains Removes bottlenecks High labour intensity Creates new markets High consumption rates Infrastructure GDP investment The infrastructure company 14
Slide 16: Infrastructure and GDP are highly correlated
Infrastructure and GDP are highly correlated Investment Growth China India Source: World Bank. Figures are for 1960-2008 and based on US $ at PPP. The infrastructure company 15 Investment is Gross Fixed Capital Formation.
Slide 17: Infrastructure investment has a higher economic multiplier effect
Demand side: infrastructure investment has a higher economic multiplier effect than non-infrastructure expenditure and so has greater economic leverage Source: UK data – ONS; USA data – US Bureau of Economic Analysis The infrastructure company 16
Slide 18: Infrastructure demand is very stable over prolonged periods... in the USA
Infrastructure demand is very stable over prolonged periods of time... in the USA USA Construction Market 1980 - 2009 GDP 6% 5% 4% Housing 3% 2% Civil Infrastructure 1% 0% 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Source: US Census Bureau The infrastructure company 1
Slide 19: Infrastructure demand is very stable… also in the UK
Infrastructure demand is very stable over prolonged periods of time… also in the UK UK Construction Output 1980 - 2009 GDP Building (private) Housing Civil Infrastructure Source: ONS The infrastructure company 18
Slide 20: Balfour Beatty – proposition 2
Balfour Beatty – proposition 2 Infrastructure will remain a strong and stable global market which we are confident will grow Emerging economies will become increasingly important to us as Infrastructure growth in emerging economies will be even higher than the GDP growth The infrastructure company 1
Slide 21: What drives infra investment in developed and emerging economies
What drives infra investment in developed and emerging economies Economic growth - International trade - Demographics Sustainability Urbanisation Infrastructure renewal Increasing GDP/head Source: World Bank. Smoothed moving average. The infrastructure company 20 Investment is Gross Fixed Capital Fo
Slide 22: In developed economies start of renewal of 40+ year old infrastructure
In developed economies start of renewal of 40+ year old infrastructure can be seen after 2000 Post WWII boom: construction of new infra Post 1980 spending Post 2000 uptick – reduced creating backlog catch-up backlog of renewals Source: UK-ONS; USA-US Census Bureau; Canada-Statistics Canada The infra
Slide 23: In emerging economies investment in civil infrastructure is accelerating
In emerging economies investment in civil infrastructure is accelerating Civil infrastructure GDP % - India Source: Balfour Beatty analysis The infrastructure company 22
Slide 24: Pattern of social and civil infra differs between developed and emerging economies
Pattern of social and civil infra is different between developed and emerging economies Developed Economy (UK) Emerging Economy (India) Civil infrastructure Social infrastructure ~1.5% of GDP ~3.0% of GDP Social infrastructure Civil infrastructure Source UK-ONS; India - Balfour Beatty research The i
Slide 25: Balfour Beatty – proposition 3
Balfour Beatty – proposition 3 Infrastructure will remain a strong and stable global market which we are confident will grow Emerging economies will become increasingly important to us as infrastructure growth in emerging economies will be even higher than the GDP growth The impact of the CSR on ove
Slide 26: UK infrastructure outlook in the short term is mixed
UK infrastructure outlook in the short term is mixed, with social expected to fall and civil to rise Infrastructure spend as % of GDP Social Civil Source: ONS The infrastructure company 25
Slide 27: UK infrastructure trends (GDP%)
UK infrastructure trends (GDP%) GDP Health Education Source: ONS The infrastructure company 26
Slide 28: Social infrastructure investment in the UK had risen to unsustainable levels after 1997
Social infrastructure investment in the UK had risen to unsustainable levels after 1997 Social infrastructure as percentage of all infrastructure 70% 60% 50% 40% 30% 20% 10% 0% 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 UK USA Canada Source: UK-ONS; USA-US Census Bureau; Canada
Slide 29: Social infrastructure spending will fall but remain above historical levels
Although social infrastructure spending will fall it is still expected to remain at substantially above historical levels Education Health GDP GDP 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2010—2014: 2010—2014: Forecast period Forecast period
Slide 30: UK civil infrastructure is expected to be a strong market
UK civil infrastructure is expected to be a strong market, particularly in power sector 2005/06 – 2009/10 2010/11 – 2014/15 Water Comms £28bn Waste Water £34bn Comms £8bn £27bn £35bn Waste £2bn Total Total £186bn £150bn Power Power £57bn Transport £29bn Transport £54bn ~£60bn Source: HM Treasury, 20
Slide 31: Balfour Beatty – propositions
Balfour Beatty – propositions Infrastructure will remain a strong and stable global market which we are confident will grow Emerging economies will become increasingly important to us as infrastructure growth in emerging economies will be even higher than the GDP growth The impact of the CSR on over
Slide 32: Andrew McNaughton
Andrew McNaughton Chief Operating Officer
Slide 33: Balfour Beatty is an infrastructure company
Balfour Beatty is an infrastructure company ROW USA UK Focused on civil and social infrastructure Diverse market sectors and geographies The infrastructure company 32
Slide 34: Four elements are at the heart of the Balfour Beatty offering
Four elements are at the heart of the Balfour Beatty offering Operational excellence Technical Local Knowledge Operational excellence Operational excellence Expertise Infrastructure Market Complex Integrator Customers Operational excellence The infrastructure company 33
Slide 35: Capabilities address all aspects of the infrastructure market
Balfour Beatty capabilities address all aspects of the infrastructure market…… Develop Plan Procure Renew Invest Design Construct Maintain Operate Manage Commission Support The infrastructure company 34
Slide 36: Four elements are at the heart of the Balfour Beatty offering
Four elements are at the heart of the Balfour Beatty offering Operational excellence Technical Local Knowledge Operational excellence Operational excellence Expertise Infrastructure Market Complex Integrator Customers Operational excellence The infrastructure company 35
Slide 37: Differentiation enhanced by local presence across the world
This differentiation is enhanced by our local presence across the world The infrastructure company 36
Slide 38: Four elements are at the heart of the Balfour Beatty offering
Four elements are at the heart of the Balfour Beatty offering Operational excellence Technical Local Knowledge Operational excellence Operational excellence Expertise Infrastructure Market Complex Integrator Customers Operational excellence The infrastructure company 37
Slide 39: Four elements are at the heart of the Balfour Beatty offering
Four elements are at the heart of the Balfour Beatty offering Operational excellence Technical Local Knowledge Operational excellence Operational excellence Expertise Infrastructure Market Complex Integrator Customers Operational excellence The infrastructure company 38
Slide 40: The combination differentiates Balfour Beatty on large complex projects
The combination differentiates Balfour Beatty - especially on large complex projects Denver RTD M25 DBFO Client: Denver Regional Transport Client: Highways Agency $7b - 29 year DBM contract £6.2b - 30 year DBFO contract Rail USA: project lead and track BB Capital: financing (via Connect Plus) PB: sy
Slide 41: BB Strategic Positioning
BB Strategic Positioning Balfour Beatty
Slide 42: Players approach the global infrastructure market from different starting points
Players are approaching the global infrastructure market from different starting points Construction Europe Construction USA Vinci Kiewit Hochtief Tutor Perini Skanska Walsh Global Professional Infrastructure Market Engineering & Services ~ £20+ trillion Construction 2010-20 URS Bechtel AECOM Fluor
Slide 43: Balfour Beatty is in the top echelon of global infrastructure players
Balfour Beatty is in the top echelon of global infrastructure players Source: Engineering News Record The infrastructure company 42
Slide 44: Global infrastructure players have a range of capabilities and coverage
Global infrastructure players have a range of capabilities and international coverage Infrastructure Sectors Geographies Transport ROW JEC – Jacobs BCL – Bechtel FLR – Fluor VNC – Vinci SKA – Skanka JEC HCT HCT – Hochtief WAL ACM BCL ACM – AECOM VNC URS WAL – Walsh BCL BB KWT KWT – Kiewit HCT CH2M T
Slide 45: Balfour Beatty is larger than its global PS peers
Balfour Beatty is larger than its global PS peers and it has broader geographical coverage than most Source: Engineering News Record and company financial statements The infrastructure company 44
Slide 46: Greater focus on infrastructure than leading global E&C players
Balfour Beatty has a greater focus on infrastructure than the leading global E&C players Source: Engineering News Record and company financial statements The infrastructure company 45
Slide 47: USA construction players are focused on the USA
USA construction players are focused on the USA and have narrower capabilities than Balfour Beatty Source: ENR and company financial statements The infrastructure company 46
Slide 48: European construction players have scale but lack a PS capability
European construction players have scale, geographical spread and PPP skills but in general lack a PS capability Source: ENR and company financial statements The infrastructure company 47
Slide 49: A distinct combination of attributes that differentiate it from peers
Balfour Beatty has a distinct combination of attributes that differentiate it from its peers Scale International reach Infrastructure focus Professional services expertise PPP and infrastructure investment skills The infrastructure company 48
Slide 50: The global infrastructure market is expected to be £20+ trillion over 2010-20
The 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 The infrastructure company 49
Slide 51: Developed economies
Developed economies Mature assets Sophisticated and regulated Integration capability procurement environment Whole life and operating In depth understanding of costs a consideration local supply chain Large complex projects and programmes Support services and understanding of operational Backlog of
Slide 52: Emerging economies
Emerging economies Enormous need for new infrastructure Customers and procurement Planning generally less sophisticated Technical expertise Business environment can be challenging Programme management Deficit of local skills - local PPP expertise players typically focused largely on construction Fin
Slide 53: Concluding remarks
Concluding remarks Balfour Beatty has multiple capabilities that it can bring together for complex customers: – Technical expertise – Local presence – Integration capability Balfour Beatty has scale Balfour Beatty has global coverage, with access to both developed and emerging economies The infrastr
Slide 54: Anthony Rabin
Anthony Rabin Deputy Chief Executive
Slide 55: The Investments Agenda
The Investments Agenda Our existing business – an update Evolution of our investment strategy Our future markets – a selection An Infrastructure Funds Management business The infrastructure company 54
Slide 56: Services across the entire infrastructure lifecycle
Services across the entire infrastructure lifecycle Develop Plan Procure Renew Invest Design Construct Maintain Operate Manage Commission Support Investments is key to our infrastructure value creation The infrastructure company 55
Slide 57: A substantial portfolio
A substantial portfolio 120 Annual UK equity committed and invested (£m) 100 80 5 60 1 40 £624m 20 4 0 3 1997 1999 2001 2003 2005 2007 2009 2011 later 2 Equity committed Equity invested Equity Cash Directors’ 2010 H1 Committed Invested Valuation Total PPP capital values by sector £497m £357m £624m 1
Slide 58: A leading UK PPP market position
A leading UK PPP market position Total original Projects in which BB BB Market Typical BB Sector project capex £m holds equity £m share Equity Hospitals 11,933 1,898 16% 50% PFI Schools (over £20m) 5,732 712 12% 50% BSF (PFI content only) 3,771 651 17% 80% 50% roads Infrastructure without LU PFI’s 8
Slide 59: 2010 – An excellent UK performance
2010 – An excellent UK performance Year end Year end To date 2010 2011 Bids - Won 10* - In progress 19** Phase 2 BSF 3 Equity £90m Construction Value £665m FM Value £370m Disposals AES / ERI Discount rate 7% * BSF 4, Street Lighting 3, Blue Light 1, Roads 1, OFTO 1 ** Waste 4, Hospitals 4, Blue Ligh
Slide 60: An evolving investment strategy
An evolving investment strategy Mature business – realise value Retention of people and business – long term client relationships 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-investme
Slide 61: Investments – the developer model
Investments – the developer model Balfour Beatty will continue to be a substantial global investor in privately financed infrastructure Increasingly act as a developer – Greater emphasis on post construction disposals / minority stakes – Fees on financial close Boost to earnings – Gains on disposal
Slide 62: UK PFI – Future market still has potential
UK PFI – Future market still has potential Deficit reduction – CSR Political ambivalence on PPP – abandonment of PPP Credits BUT – post election positive departmental statements – Transport, Health, DfE, MoJ Increasing complexity – income risk Possible future 3-year PPP market c.£5 bn The infrastruc
Slide 63: Significant Canadian PPP opportunities
Significant Canadian PPP opportunities The infrastructure company 62
Slide 64: UK Offshore wind – a new opportunity
UK Offshore wind – a new opportunity The infrastructure company 63
Slide 65: Infrastructure Funds Management
Infrastructure Funds Management This presentation was edited from its original on 17 December 2010 for certain US regulatory reasons. The infrastructure company 64
Slide 66: The Investment Agenda: A summary
The Investment Agenda A summary High quality PFI and other greenfield investment opportunities Changing the shape of the UK portfolio – selective disposals – release of cash Greater emphasis on development activities Establishment of Funds Management business expands income generation potential The
Slide 67: Break
Break WEBCAST WILL RESUME AT 16.00PM
Slide 68: Duncan Magrath
Duncan Magrath Group Finance Director
Slide 69: Contents
Contents Review of past performance Factors affecting future performance – Infrastructure Investments strategy – Impact of acquisitions – Margin performance Change in the shape of the Group over the next five years Summary The infrastructure company 68
Slide 70: Historic double digit earnings and dividend growth
Historic double digit earnings and dividend growth Growth from 2005 to 2009 in PBT has been 23% pa through a mixture of acquisitions and organic growth Excluding PB, cumulative net acquisition spend of c. £750m up to end 2009, with a return of 14% - 15% pa including subsequent growth Growth in adjus
Slide 71: Strong balance sheet
Strong balance sheet £m June 2010 Net cash (excluding PPP) 500 Net current liabilities (937) Infrastructure investments† 343 Retirement benefit obligations (net of tax) (451) Goodwill and intangibles 1,462 Other – net non-current assets 81 998 † Investments in JVs and associates and wholly-owned PPP
Slide 72: Earnings and dividends from infrastructure developer model
Earnings and dividends from infrastructure “developer” model Regular stream of disposals generating: – £200m-£300m value over next 4-5 years – disposal gains of £20m pa From 1 January 2011 disposal gains to be treated as part of adjusted profit before tax, and in the base for dividend calculation Th
Slide 73: Continuing positive cash generation
Continuing positive cash generation Profitable business performance including regular investments disposal programme Cash inflow from growth in construction business can fund Growing dividends Pension deficit payments and Allow for acquisition programme The infrastructure company 72
Slide 74: Strong underlying cashflows allow scope for selective acquisitions
Strong underlying cashflows continue to allow scope for selective acquisitions Over 5 years there is scope to increase dividends and potentially to fund £500m – £700m of selective strategic acquisitions Note: In 2006 payment of interim dividend was accelerated so in that year two interims and one fi
Slide 75: Acquisition programme weighted towards Professional Services and overseas
Acquisition programme weighted towards Professional Services and overseas Targeting to double the profits earned from our Professional Services business Continuing to expand our Construction Services business, principally outside UK Where needed, acquiring additional skill-sets for our Support Servi
Slide 76: Improving profit margins
Improving profit margins* Direction of margin 2009 Margin effects movement over 5 yrs + utilisation Professional Services 4.5%† + collaboration Increase to 6% to 7% + EPC contracting + cost effectiveness Construction Services 2.8% +/- operational delivery Stable +/- mix effect + scale benefits/cost
Slide 77: Growth expectations
Growth expectations 5 year profit growth prospects Organic Acquisition Professional Services ++ ++ Construction Services + + Support Services +++ + Over the medium term our organic growth should exceed growth in infrastructure markets and be supplemented by growth from selective strategic acquisitio
Slide 78: Increasing proportion of profit from Professional Services
Increasing proportion of profit from Professional Services Currently In 5 years Investments Investments Support Support Construction Services 10% Services 10% Services 15% Organic 15% 45% 50% Acquisition 25% Margin Performance 30% Professional Construction Professional Services Services Services If
Slide 79: Consistent growth in dividends
Consistent growth in dividends Historic performance Future performance Growth in adjusted EPS 13% pa Earnings growth including gain on sale of Growth in dividends 14% pa investments will drive dividend growth Average dividend cover 3.0x Scope for reducing dividend cover The infrastructure company 78
Slide 80: Summary
Summary Investments disposals will generate cash to re-invest in business, and a regular stream of disposal profit to further drive earnings and dividends Group margins will improve through performance of Professional Services, focus on cost efficiency and mix of business Continuing cash generation
Slide 81: Ian Tyler, Chief Executive
Balfour Beatty 7 lan Tyler Chief Executive
Slide 82: Fundamentals of our business
Fundamentals of our business Global scale Infrastructure focus Breadth of capabilities Core skills to leverage those capabilities The infrastructure company 81
Slide 83: Infrastructure markets
Infrastructure markets Growing need to renew post-war infrastructure in developed markets where we have market-leading positions Shift in the UK from social infrastructure to civil infrastructure Fastest growth expected in emerging markets which we will access through our project development and pro
Slide 84: Potential value over the next five years
Potential value over the next five years Growth, particularly in Professional and Support services Strong cash generation supports capacity for £500-700 million of acquisitions Group margin expansion to 3.5-4% Realising value from infrastructure assets through regular disposals: the ‘developer model
Slide 85: Returns to shareholders
Returns to shareholders Progressive dividend policy Incremental dividends from the ‘developer model’ approach to infrastructure assets The infrastructure company 84
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