Slide 1: Chief Executive's opening remarks
Chief Executive’s opening remarks Ian Tyler Chief Executive
Slide 2: Agenda
Agenda □ Plenary presentations □ Tea break □ Break-out sessions □ Closing remarks □ Q&A 2
Slide 3: Trading
Trading □ No new information on trading □ Most of the Group’s businesses are performing well and in line with our expectations □ Construction business more mixed ● Stable in the US; market recovery delayed ● Volumes continuing to deteriorate in the UK, impacting margins ● 2013 a difficult year for t
Slide 4: Mitigating actions
Mitigating actions □ Actions to-date ● Focusing the group on less cyclical markets ● Phases 1 and 2 of cost efficiency programme underway □ What more can we do? ● Focus on risk management and pricing control ● Scope for adjusting the current cost efficiency programme 4
Slide 5: Rail business
Rail business □ Structural problems in the Rail business ● Volumes becoming critically low in Italy and Spain ● Progressive commoditisation of some of the work we do in the UK and Germany □ Actions ● Redefine business, focus on value and withdraw from areas where we can’t differentiate ● Focus on th
Slide 6: Capital allocation: Balance sheet
Capital allocation Balance sheet □ A strong balance sheet is a pre-requisite in our sector □ Monetisable assets broadly balance negative working capital ● PPP/PFI portfolio and cash vs. negative working capital □ Hence, investable capital is: ● Any excess of monetisable assets over negative working
Slide 7: Capital allocation: Investments portfolio
Capital allocation Investments portfolio Original disposal Factors to take Accelerated disposal programme into account programme □ Sell £200-300m of □ Maximising value □ Disposal of £200m mature assets over of Directors’ value □ Macro factors such four to five years over the next three as long-term
Slide 8: Capital allocation: Moving capital into verticals and growth markets
Capital allocation Moving capital into verticals and growth markets □ Developed and broadened skills in home markets ● Construction delivery, support services and investment capability □ Acquired PB’s design and programme management capability □ Infrastructure owners in search of a more effective ou
Slide 9: Agenda
Agenda Andrew McNaughton Deputy CEO and COO
Slide 10: Agenda
Agenda □ Plenary presentations ● Chief Executive’s opening remarks ● Infrastructure is a good place to be ● Seizing growth opportunities ● Accessing growth markets and resource economies ● Realising sustainable returns from investments □ Tea break □ Break-out sessions □ Closing remarks and Q&A 10
Slide 11: Infrastructure is a good place to be
Infrastructure is a good place to be Peter Zinkin Planning & Development Director
Slide 12: Infrastructure is a good place to be
Infrastructure is a good place to be □ Infrastructure markets are relatively resilient □ Sustainable economic growth requires infrastructure investment □ In developed economies, investment will be driven by aging infrastructure and the sustainability/carbon agenda □ In emerging economies, investment
Slide 13: Infrastructure markets are relatively resilient
Infrastructure markets are relatively resilient UK construction output US construction output £35bn £400bn £30bn £300bn £25bn £20bn £200bn £15bn £10bn £100bn £5bn £0bn £0bn 2002 2004 2006 2008 2010 2012F 2014F 2002 2004 2006 2008 2010 2012F 2014F 2016F Power, Transport & Water Private Building Power
Slide 14: Infrastructure is a prerequisite to growth
Infrastructure is a prerequisite to growth Real GFCF v Real GDP CAGR 1990-2011 14% China 12% 10% GFCF CAGR India 8% 6% Australia South Africa Indonesia 4% Brazil Canada* 2% United States* United Kingdom 0% 0% 2% 4% 6% 8% 10% 12% GDP CAGR Source: World Bank GFCF: Gross Fixed Capital Formation; *GFCF
Slide 15: Drivers in developed economies
Drivers in developed economies UK power T&D capex □ Aging infrastructure – 2500 £m (97/98 Prices) 2000 much of it constructed 1500 in 1960s and 1970s 1000 500 □ Sustainability and the 0 1950 1970 1990 2010 2030 carbon agenda e.g. power Actual capex Capexfor Capex if asset lifeon replace = 40yr 40 ye
Slide 16: Drivers in emerging economies
Drivers in emerging economies Development metrics Urbanisation trends Electricity Population using 100% +11m consumption improved sanitation Passenger cars people (MWh per head facilities (per thousand 80% per year) (%) people) 60% 40% 5.7 100 460 4.5 79 79 +600m 20% 2.2 0.6 34 178 people 110 12 0%
Slide 17: Infrastructure investment in emerging economies is accelerating
Infrastructure investment in emerging economies is accelerating Construction output mix % Infrastructure as GDP % 3% Commercial & Industrial 2% Social Infrastructure 1% Economic Infrastructure 0% 1990 1993 1996 1999 2002 2005 2008 2011 UK India India United Kingdom Source: ONS; India – BB estimate S
Slide 18: Differential growth will move infrastructure investment to emerging economies
This differential growth will move the balance of infrastructure investment to emerging economies Global infrastructure spending 2010 2025 Transport Power Water Total Total Transport Power Water Total Total Developed Markets (OECD) Emerging Markets (Non-OECD) Source: Global Insight, IEA, BB estimate
Slide 19: There will be a halo effect on resource economies
There will be a halo effect on resource economies Construction output as GDP% 1986-2011 4% Canadian economic Economic infrastructure Infrastructure Australian AustralianEconomic economic Infrastructure infrastructure 3% Australian Oil, Gas and Mining 2% 1% 0% 1986 1988 1990 1992 1994 1996 1998 2000
Slide 20: Financing infrastructure investment
Financing infrastructure investment US PPP projects closed/live India National Development Plans Number of projects Private Sector Participation 10 60% 8 50% 40% 6 30% 4 20% 2 10% 0 0% 2000 2002 2004 2006 2008 2010 2012 10th Plan 11th Plan 12th Plan (Forecast) Source: Infra Americas Source: India Pl
Slide 21: Long-term view of infrastructure market
Long-term view of infrastructure market □ Large, sustainable market in transport, power and water □ Positive long-term drivers in developed, emerging and resource economies □ In shorter term more spending on power and energy □ In longer term, spending will move to transport and water □ Emerging mark
Slide 22: Intensifying our focus on emerging and resource economies
We are intensifying our focus on emerging and resource economies Construction output in target countries Selection basis Canada Economic infrastructure UK Social infrastructure £38bn □ Market size Other building £17bn □ Growth (long term) □ Procurement □ Resource exposure □ Ethics □ Safety India □ C
Slide 23: Reinforcing position in transport, power, water verticals
We are progressively reinforcing our position in specific verticals – transport, power, water Global market sizes by sector Selection basis £710bn □ Relevance to selected Ports Aviation country markets Rail □ Leverage Group asset £440bn knowledge globally Transmission £360bn □ Possibility of early D
Slide 24: Infrastructure is a good place to be
Infrastructure is a good place to be □ Infrastructure markets are relatively resilient □ Sustainable economic growth requires infrastructure investment □ In developed economies, investment will be driven by aging infrastructure and the sustainability/carbon agenda □ In emerging economies, investment
Slide 25: Seizing growth opportunities
Seizing growth opportunities Andrew McNaughton Deputy CEO and COO
Slide 26: Leveraging three key strengths in target markets
Our strategy: Leveraging three key strengths in target markets for incremental growth Hong Kong/ UK US SE Asia GCC □ Local presence in multiple geographies Transport (Rail, Roads, Aviation) Complex private building Social infrastructure □ End-to-end asset knowledge Mining Power Water □ Investor/ dev
Slide 27: Local presence
Local presence Closer to customers and markets □ Aligned with local □ Closer to clients customers □ Fully harnessing and □ Embedded in and developing the local committed to our supply chain communities □ Better able to manage □ Connected to the local risk supply chain 27
Slide 28: Building deep-rooted local businesses
Building deep-rooted local businesses Canada Employees UK Hong Kong c.350 Employees Employees >30,000 >5,000 UAE & GCC US Employees Indonesia Employees >14,000 Employees >10,000 India c.200 Employees Brazil c.300 Employees Established 5 Geographies S. Africa Aus. / N.Z Target Geographies Employees E
Slide 29: End-to-end asset knowledge
End-to-end asset knowledge Stronger engagement, better solutions □ Strategic relationships □ Early identification of and early engagement opportunities with clients □ Shaping and creating □ Design informed by projects; bringing construction and operation opportunities to life insight (and vice versa
Slide 30: Global expertise across the whole asset lifecycle
Global expertise across the whole asset lifecycle Balfour Beatty Revenue, 2011 (£m) Total: £5.6bn Rail Roads Aviation Power Water (1968) (1887) (333) (922) (460) □ Global verticals link Professional all parts of the Group Services active in a given sector for: ● Knowledge flow, Construction speciali
Slide 31: A leading global player in economic infrastructure
A leading global player in economic infrastructure Economic Infrastructure Revenue (£bn) VINCI 18.9 Bouygues 11.4 Grupo ACS 9.3 Eiffage 6.5 FCC 6.3 Bechtel 6.0 Top 15 Strabag 5.3 Balfour BalfourBeatty Beatty 5.2 Norberto Odebrecht 4.8 Kiewit 3.7 Skanska 3.5 Royal BAM Group 3.2 OHL 3.1 Sacyr Valleher
Slide 32: A distinctive combination of strengths
A distinctive combination of strengths Example Develop Design Delivery O&M Breadth & Approx. competitors Invest Manage depth of number of across local offices disciplines presence Balfour Beatty c.390 Bechtel - c.40 Fluor - c.60 Vinci - c.200 Hochtief -
Slide 33: Transport: strong growth drivers
Transport Transport: strong growth drivers Transport Market 2011 £710bn Airports, £30bn Growth Drivers □ Evolving procurement Ports Ports, £50bn Emerging markets: ● Increase in design-build Aviation • Population and and PPP Rail, £100bn economic growth Rail • Capacity constraints ● Greater outsourci
Slide 34: A leading player in Transport
Transport A leading player in Transport Transport Revenue (£bn) VINCI 14.6 Bouygues 9.9 FCC 5.1 Grupo ACS 4.4 Strabag 4.4 Balfour Beatty Balfour Beatty 3.9 Eiffage 3.7 Norberto Odebrecht 3.3 Royal BAM Group 3.2 OHL 2.9 Skanska 2.7 Bechtel 2.6 Ferrovial Agroman 2.4 Taisei 2.3 Sacyr Vallehermoso 2.1 N
Slide 35: Group approach: leverage our strengths in major projects
Transport Group approach: leverage our strengths in major projects □ Home markets: full service offering ● Target projects where asset knowledge and expertise are valued □ Growth geographies: professional services-led with selective delivery risk ● Add global asset knowledge and world-class delivery
Slide 36: Strategies in Roads, Rail and Aviation
Transport Strategies in Roads, Rail and Aviation Roads Rail Aviation □ Continue targeting □ Address issues in □ Continue exploiting integrated and/ or European Rail integrated and/ or complex projects in complex opportunities □ Continue targeting UK and US in UK and Hong Kong integrated/ complex □ S
Slide 37: Transport strategy in action
Transport Transport strategy in action F-BANE QATAR LOCAL ROADS RE-SIGNALLING AND DRAINAGE £320M £104M DALLAS HORSESHOE £500M 37
Slide 38: Power: a large and sustainable market
Power Power: a large and sustainable market Global Power Market □ Drivers: carbon agenda, asset £440bn 2430GW retirements, economic and Transmission population growth Renewables 960GW Distribution □ Growth hotspots Nuclear 100GW ● Generation – gas and Gas renewables, possibly other 550GW ● Transmiss
Slide 39: A solid base to build on
Power A solid base to build on Leading players in Power Professional Services □ Top 10 player in professional services Firm Rev (£m) □ Leading player in 1 Bechtel 909 Transmission delivery 2 Black & Veatch 411 ● Number 1 in the UK 3 AMEC 365 □ Generation EPC capabilities 4 SNC-Lavelin 359 in the US
Slide 40: Strategy: harness local presence, global knowledge
Power Strategy: harness local presence, global knowledge □ Harness local professional services presence with global engineering and procurement capabilities □ Extend relationships with international Power clients □ Increased involvement in PPP and concessions □ 3-pronged generation strategy ● Reinfo
Slide 41: Good progress in mining and water
Water, Mining Good progress in mining and water □ Water ● Strong in UK ● Significant and growing in US (Frucon acquisition 2011) ● Leveraging enhanced capabilities across US ● Bringing skills into target growth markets, particularly Australia □ Mining ● Leveraging presence in Australia, South Africa
Slide 42: Summary
Summary □ Key strengths are local presence, asset knowledge and investment capability □ The breadth and depth of our business in core infrastructure markets differentiate us □ Harnessing the strengths of the Group provides significant opportunities in both mature and growth economies 42
Slide 43: Accessing growth markets and resource economies
Accessing growth markets and resource economies George Pierson CEO, Professional Services
Slide 44: Our target geographies
Our target geographies Large markets with strong growth prospects Construction output in target countries Selection basis Canada Economic infrastructure UK Social infrastructure £38bn □ Large markets Other building £17bn □ Economic infrastructure predominates □ Strong long-term growth drivers India
Slide 45: Our strategy: Professional services platform and delivery risk
Our strategy Professional services platform and delivery risk ESTABLISH ADD AND ADD FULLY EXPLOIT COUNTRY MGT & EXPAND SELECTIVE MARKET ENTRY STRATEGY PS PLATFORM DELIVERY RISK OPPORTUNITY Australia >3,000 people Canada c.350 people South Africa c.300 people India c.300 people Brazil 5 people 45
Slide 46: Australia/New Zealand
ANZ Australia/New Zealand Strong drivers and favourable procurement Current position Market overview □ Major presence through □ £38bn market acquiring PB in 2009 □ Strong growth since 1990s, □ 3,000 people large pipeline of work □ Top 5 in professional □ Resources sector services: 2,500 people on da
Slide 47: Already seeing results
ANZ Already seeing results Progress to date MELBOURNE □ Rail REGIONAL RAIL LINK ● Melbourne RRL (Australia) □ Power Transmission ● JV with UGL □ Power Generation ● Karratha ● Te Mihi 47
Slide 48: Taking delivery risk in target verticals
ANZ Taking delivery risk in target verticals Future opportunities GREENBANK □ Further opportunities in TRANSMISSION LINE power (Australia) □ Development opportunities in WTE and renewables □ Asset management in roads and water □ End-to-end services to mining customers □ Rail 48
Slide 49: Professional Services platform creates opportunities in Canada
Canada Professional Services platform creates opportunities in Canada Market overview Current position □ £38bn market □ Approximately 350 people □ Growth resilient, driven by □ Halsall acquired in 2010 population & economic □ Professional services growth, environmental platform to import transport d
Slide 50: Importing Transport skills
Canada Importing Transport skills Further opportunities from adding delivery risk Progress to date Future opportunities □ Buildings professional □ Power Generation EPC service business acting □ Rail delivery projects as a platform ● Transit □ Broadened professional ● Potentially O&M services offer i
Slide 51: Our other target geographies
RSA, India, Brazil Our other target geographies South Africa India Brazil □ 300 people in professional □ 300 people in professional □ Established local office services; focus on power services in 2012 □ Drivers – infrastructure □ JV with Tata to deliver □ Drivers - Growth shortage, political urban i
Slide 52: Acquisitions: creating a platform for growth
Acquisitions: creating a platform for growth □ Australia, New Zealand, South Africa and Canada ● Platform for growth from PB and Halsall ● Now being leveraged organically, drawing on global capabilities ● Select acquisitions will accelerate growth in our chosen verticals □ Brazil ● Requires joint ve
Slide 53: Summary
Summary □ Targeting five geographies for international expansion □ Our strategy is to leverage our strong professional services platform and selectively add capability to manage delivery risk □ Our approach is already yielding results and we see a strong pipeline of future opportunities □ Acquisitio
Slide 54: Realising sustainable returns from investments
Realising sustainable returns from investments Ian Rylatt CEO, Balfour Beatty Investments
Slide 55: Investments: business objectives
Investments Business objectives □ To invest in projects utilising our investment skills and expertise to benefit the growth and development of the Group □ Support business opportunities within the new <Verticals= □ Diversify our investment activity into new sectors and regions □ Respond to changing
Slide 56: Disposal strategy
Disposal strategy Announced in 2010 □ Realise value from mature assets □ Realise cash to fund future business development □ Selective and sequential disposal of assets - disposal of £200m - £300m of value from 2011 to 2015 □ Probable gains totalling £20-25m pa □ The investment business to be cash po
Slide 57: Disposals programme performance to date
Disposals programme Performance to date £m 2011 H1 2012 Total disposals Cash proceeds 28 84 112 Profit on disposal 20 52 72 Directors’ valuation over the period increased from £671m to £711m 57
Slide 58: Directors' valuation movements
Directors’ valuation movements Directors’ valuation 31st December 2010 £671m Increases Investments made £91m Unwind of the discount £101m New wins £32m Performance changes in the projects £11m Decreases Distributions taken £112m Disposals £83m Directors’ valuation 31st June 2012 £711m 58
Slide 59: Cash movements
Cash movements Jan 2011 – June 2012 Investments made ( £91m) Distributions taken £112m £21m Disposal proceeds £112m Net cash generated £133m 59
Slide 60: A diverse portfolio
A diverse portfolio Directors’ valuation £711m 30 June 2012 £m Roads 13 projects 187 Schools 252 13 projects Military Housing 21 projects 45 Hospitals 71 7 projects 156 Other 9 projects 60
Slide 61: Portfolio maturity
Portfolio maturity Directors’ valuation £711m 30 June 2012 £m Less than one year post investment 267 308 1-3 years post investment 3+ years post investment 136 61
Slide 62: Portfolio characteristics
Portfolio characteristics □ £308m – Less than one year post final investment ● Generally in a <lock-in= period where equity cannot be sold □ £136m – 1-3 years from investment ● Generally still adding value to projects □ £267m – 3+ years from investment ● c£100m US projects with ongoing value additio
Slide 63: Disposal considerations
Disposal considerations □ Maximise the value of our assets □ Dispose of assets where value has been maximised □ Hold assets where there is a strategic benefit or we can capture additional downstream value □ Additional considerations ● Operational efficiencies ● Market considerations ● Asset performa
Slide 64: Expanding portfolio with no wins or disposals
Expanding portfolio with no wins or disposals Directors’ valuation £m 1,000 800 600 400 200 0 2011 2012 2013 2014 2015 2016 2017 64
Slide 65: Opportunities for future wins
Opportunities for future wins □ Active UK market ● PPP opportunities (e.g. Priority schools programme) ● Non-PPP opportunities □ Market growth in the US □ Opportunities in Group’s target geographies ● Immediate – Canada, India, Australia ● Future – Brazil □ Investment opportunities in industry verti
Slide 66: UK bidding
UK bidding Bid Progress PFI and NPD Gloucestershire Waste Preferred Bidder, target close end 2012 Kilmarnock FE College One of three, interim bid end 2012 Royal National Orthopaedic One of two, interim bid submitted Stoke Extra Care One of three, interim bid submitted M8 One of four, detailed bid en
Slide 67: US and Canada bidding
US and Canada bidding Bid Progress PPP Capital US – Juvenile Detention Center, Puerto Rico One of four, awaiting RFP, final bid June 2013 Canada – North Island Hospitals One of three, RFP Q1 2013, final bid Q2 2013 Non-PPP Communities – Northern Group Preferred Bidder, target close Q3 2013 Communiti
Slide 68: Portfolio significantly larger with potential wins
Portfolio significantly larger with potential wins Directors’ valuation £m 1,200 1,000 800 600 400 200 0 2011 2012 2013 2014 2015 2016 2017 Existing Potential wins 68
Slide 69: Accelerated disposal model
Accelerated disposal model Directors’ valuation £m 800 600 400 200 0 2011 2012 2013 2014 2015 2016 2017 Net of disposals Potential wins Assumed disposal profits of c.£40m p.a. until 2015 and £30m thereafter 69
Slide 70: Effect of disposals on operating profit
Effect of disposals on operating profit Profit £m 120 100 80 60 40 20 0 2012 2013 2014 2015 2016 2017 2018 Profit before disposals Profits after disposals Operating profit includes potential wins 70
Slide 71: Summary
Summary □ Continuing investment opportunities in existing markets □ Accessing infrastructure investment opportunities in new markets □ Continuing realisation of value through disposals □ £200m of Directors’ valuation over the next three years generating a total disposal profit of circa £40m p.a. □ S
Slide 72: Concluding remarks
Concluding remarks Andrew McNaughton Deputy CEO and COO
Slide 73: On track to deliver strategy in the medium term
On track to deliver strategy in the medium term Shifting our business to less cyclical, more Infrastructure is a resilient economic infrastructure markets >70% good place to be Share of economic infrastructure in order book up medium from 43% to 59%1 term Achieving superior margin through Seizing gr
Slide 74: Forward-looking statements
Forward-looking statements This presentation 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 forwa