WET News

6 Leaders 2014 The LeADeRS 2014 BBUS keeps the work coming in BBUS is performing well, and picking up plenty of AMP6 work. But at group level, a strategy review is planned B alfour Beatty Utility Solu- tions (BBUS) is part of inter- national infrastructure group Balfour Beatty plc, whose revenue of £8.7B meant it topped our Turnover Top 10 for the fourth consecutive year. But while Bal- four Beatty is doing well in the turnover stakes, its profit fell from £277M in 2012 to £187M last year In the water market, the group says it continues to perform well on itsAMP5 contracts. However, while BBUS is doing well, what is happening at group level cannot be ignored. Chief executive Andrew McNaughton quit this month as the group issued a profit warning as its UK construction business expects to make a shortfall this year and the mechanical and electrical engineering division is affected by adverse market conditions. Turnover £M Balfour Beatty 8,745 AMEC 3,974 Morgan Sindall 2,047.1 Kier 1,943 Veolia 1,310.7 AMEY 1,093.6 VINCI 1,056.7 Costain 960 Bam Nuttall 730.1 Interserve 721.5 "In the water sector, we are actively bidding for AMP6 contracts with the major companies with a focus on offering broad solutions..." Balfour Beatty is planning to imple- ment a strategic review that could lead to the sale of its consulting business Parson Brinckerhoff. In a statement, the group said: "Having professional serv- ices and construction capabilities com- bined within one organisation has not delivered material competitive advan- tage for the group." "Therefore, we are examining how best to realise the substantial value of the Parsons Brinckerhoff business." Joint venture As the AMP5 regulatory water cycle draws to a close, the group is working with a number of water companies to manage a smooth transition to the AMP6 cycle without unnecessary changeover disruption. As water companies choose their partners for the next cycle, it has already won a three-way joint venture contract worth a potential £1.5B with Thames Water. While the 23-month early contractor involvement is in Balfour's order book (£10M), the vast majority of its AMP6 work with Thames Water is yet to be booked. Also under AMP6, Yorkshire Water has extended Balfour's existing contract to 2020, which is worth £70M. The company has also been awarded £115M of work as part of Anglian Water's £1.3B investment planned for AMP6. The contract is for five-years, with pos- sible extensions up to 2030, making it one of the longest collaborations in the sector. Balfour Beatty will provide both design and construction services across the whole of Anglian Water's region, which is the largest by geographic area in the UK, stretching from the Hum- ber to the Thames estuary and from Buckinghamshire to the East Coast. Balfour Beatty has been a member of Anglian Water's @one Alliance since 2004, delivering a number of major water projects. In the current AMP period, which began in 2010, this includes a total of 213 schemes with a combined value of £81M. Balfour Beatty's Support Services division includes the group's water activities. The Support Services order book for continuing operations finished last year at £4.1B, down 11% from the previous 12 months (2012: £4.6B). As expected, the order book declined in the power sector as the group had com- pleted the first year of the £1.1B contract with National Grid to upgrade the UK's gas distribution network. Water sector orders also reduced as Balfour Beatty Utility Solutions Park Square, Nerwton Chambers, Chapeltown, Sheffield. www.bbusl.com leaders 2104 7 The Numbers 10 11 12 %ChaNge Sales £M 8,654 8,656 8,745 1 Gross profit £M n/a 989 863 -13 Operating profit £M n/a 192 132 -31 Pre-tax profit £M 292 277 187 -32 Staff 50,195 50,174 49,785 -1 Net assets £M 0 1,065 1,035 -3 The raTIOs 11 12 13 %ChaNge Return on capital % n/a 26 18.1 -31 Gross margin % n/a 11.4 9.9 -14 Operating margin % n/a 2.2 1.5 -32 Net margin % 3.4 3.2 2.1 -33 Sales/employee £K 172.4 172.5 175.7 2 the AMP5 regulatory water cycle nears completion in 2015. Revenue for the year was up 10% at £1.26M, as a result of strong performance in the power sector – up 18% on 2012. Underlying profit from continuing operations increased to £55M (2012: £30M), resulting in an underlying operating margin of 4.3% compared with 2.6% in 2012. There was a particularly strong performance, accompanied by better than expected high volumes in power transmission in the fourth quarter, as well as a small settlement of multi-year commercial issues in the water sector. broader solutions In the near term, Balfour Beatty sees growth coming from the water and local authority sectors. In the water sector, it is "actively bidding" for AMP6 contracts with a number of the major water companies with a focus on offering broader solutions for clients leveraging on its recent success with Thames Water. The continuing outsourcing trend by local government will provide additional growth opportunities for Balfour Beatty Living Places, which increasingly looks to leverage its strong position in the highways and street lighting markets to provide additional complementary services to local authority clients. Balfour Beatty says infrastructure "remains a good place to be". As the global economy begins to strengthen and confidence returns, the long term drivers for infrastructure investment remain positive. Over the next five years alone, the global infrastructure market is estimated to be worth £12 trillion, says the group.

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