the creation and care of essential assets - investis...

The creation and care of essential assets

Balfour Beatty Capital is a market leading investor in essential infrastructure assets.

Balfour Beatty Capital is one of the largest UK private sector investors in healthcare, education, roads and infrastructure. As at 31st December 2005 Balfour Beatty Capital had committed equity investments approaching £300 million in 22 projects around the UK.

Part of Balfour Beatty plc, a world-class engineering, construction and services group, Balfour Beatty Capital has a broad range of infrastructure investment skills from project promotion and development through to financing, project execution and long-term asset management and operations.

Balfour Beatty Capital was originally established in the mid 1990s, following the creation of the UK Government’s Private Finance Initiative (commonly referred to as PFI) which provides a means for the private sector to invest in assets traditionally funded by the public sector. Now a major investor in PFI, Balfour Beatty Capital is committed to further increasing its UK PFI investment base and to pursuing markets both in PFI and non-PFI infrastructure investments.

Balfour Beatty Capital has offices in London and across the UK. The company is expanding into Public Private Partnership (PPP) and PFI markets in the United States, Germany, Hong Kong and Singapore.

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As a market leading PFI investor, Balfour Beatty Capital’s intention is to grow its investment base with both PFI and non-PFI projects.

In the UK, PFI remains an important component of public sector procurement. Balfour Beatty Capital sees signifi cant opportunity to grow in its existing markets of healthcare, education, roads and infrastructure and to developin new market areas.

In the UK, Government remains committed to PFI as the preferred method of providing healthcare schemes as part of its broader modernisation programme. In schools, the Building Schools for the Future initiative provides new opportunities that are well suited to our business. In roads, a number of schemes are expected to come to market over the coming years including major road widening schemes. In infrastructure, there are more limited opportunities in PFI but we see signifi cant potential in the growing non-PFI infrastructure investment market.

In addition to its existing domestic activities, Balfour Beatty Capital is growing its business to develop into new markets, both in the UK andabroad, particularly where the skills base of other Balfour Beatty Group companies can provide competitive advantage.

Future growth

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Balfour Beatty Capital has been at the forefront of the development of UK PFI since its inception in the mid 1990s and has consistently retained its position as one of the leaders in its chosen markets.

This leadership position has come from the breadth and depth of experience generated within the company and can be attributed to the following key factors:

Focus: Balfour Beatty Capital is highly selective in the projects it pursues. We choose only those projects where our skills base and experience make us highly competitive.

People and skills: Balfour Beatty Capital has one of the largest dedicated PFI teams in the UK. We have the expertise and capabilities to structure, deliver, operate and manage a wide range of privately financed infrastructure assets. With the company’s increasing involvement in non-PFI investment opportunities, our skills base and capabilities will grow considerably.

Innovation: A key aspect of Balfour Beatty Capital’s success has been its ability to continually innovate across the full range of its activities.

Complexity: Balfour Beatty Capital has a track record of structuring, leading and delivering projects from small project finance transactions to the largest, most complex projects such as the London Underground PPP.

Group capability: As a part of Balfour Beatty plc, Balfour Beatty Capital has access to the wider engineering, construction, operations and management capabilities across the Balfour Beatty Group.

Long-term partner: Balfour Beatty Capital is a long-term investor in privately funded projects. Our strategy is to continue to hold a substantial shareholding in our projects and to make an ongoing contribution to the management of our concessions.

Success factors

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Since Balfour Beatty Capital was established in 1996, Balfour Beatty’s PPP/PFI concession portfolio has grown to become a significant part of the Balfour Beatty Group’s business and a major contributor to shareholder value.

Operational performance

Committed equity at 31st December 2005

Balfour Beatty’s total committed equity and subordinated debt has grown from £57 million over 10 projects at 31st December 2000, to £283 million across 22 projects at 31st December 2005, representing growth of almost 400% over 5 years.

Balfour Beatty Capital is currently preferred bidder on Pinderfields and Pontefract Hospitals, Northern Batched Hospitals and Derby Street Lighting.

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Profit before tax for the year ended 31st December 2005

The significant growth in the Balfour Beatty Capital PPP/PFI investment portfolio has resulted in a corresponding growth in Balfour Beatty Capital’s contribution to profits. of the Balfour Beatty Group. For the year ended 31st December 2005, Balfour Beatty Capital made a contribution to Balfour Beatty Group profits of £33.1 million (excludes an exceptional gain on sale of £5.7 million).

Note: In line with the Balfour Beatty Group consolidated accounts, the chart includes Balfour Beatty’s share of joint ventures and associated after tax results.

Cumulative cash received from concessions as at 31st December 2005

The significant growth in committed equity and profits has resulted in corresponding growth in the cash received from the PPP/PFI portfolio. Cumulative shareholder cash distributions to the Balfour Beatty Group as at 31st December 2005 were £113 million.

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Balfour Beatty Capital’s existing investment activities are in four marketsectors - healthcare, education, roads and infrastructure. Within each sectorBalfour Beatty Capital operates through established brand identities.

Consort Healthcare is a leading provider of healthcare facilities from medium size regional hospitals to major acute facilities.

Transform Schools provides primary and secondary education facilities to a wide range of local education authorities in the UK.

Connect Roads is one of the UK’s largest private sector road operators from dual three and dual two lane motorways, to major trunk roads and major streetlighting projects.

The company has investments in a broad range of infrastructure related projects from power generation, power supply, rail mass transit and waste water.

Existing concessions

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“In Blackburn, the Trust team and Consort have formed an honest and effective relationship through transition; from procurement to construction and this bodes well for the operational phase of the contract.”

Jackie Hadwen, Project Manager, East Lancashire NHS Trust 12

Creating and caring for essential healthcare facilities

Balfour Beatty Capital’s healthcare projects are managed through ConsortHealthcare. We provide fi rst class hospital facilities which enable healthcareprofessionals to concentrate on delivering modern clinical services.

Our team links design, operation and maintenance to minimise disruption and ensure thata positive environment for staff and patients is maintained both during the delivery and the operation of the hospital building.

We are sensitive to the ever-increasing pace of change within the NHS. Effective deliveryof clinical services is often dependent upon creating facilities that can accommodate change. Flexibility is a critical part of our design, planning, build and management processes.

By listening to both the Trust and hospital staff we aim to understand individual healthcare models and provide a logical and relevant solution to simplify the patient care process.

We are fully committed to our role as part of the extended healthcare team. Withthis in mind, we work in partnership with NHS Trusts to modernise healthcare throughthe provision of outstanding new hospital facilities and effective, patient-focusedsupport services.

Current concessions:

• Birmingham New Hospitals

• Queens Park Hospital, Blackburn

• Royal Infi rmary of Edinburgh

• University Hospital North Durham

• University College London Hospital*

At preferred bidder stage are:

• Northern Batched Hospitals, Salford, Tameside General Hospital

• Pinderfi elds and Pontefract Hospitals

* This is a partnership project and not under Consort Healthcare

Consort Healthcare

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“Consort were incredibly helpful to us all; especially to me, as a manager on abrand new site. Any problem we had, we went to Consort and they sorted it out.”

Kathryn Stewart, Superintendent Radiologist, Royal Infi rmary of Edinburgh

Concession company Project Total debt and Duration Construction Invested to Committed post equity funding Shareholding Financial close (years) completion 31/12/2005 31/12/2005

Consort Healthcare District general hospital £90m 50% March 1998 30 2001 £7m -(Durham) Ltd

Consort Healthcare Teaching hospital and £220m 73.9% August 1998 30 2003 £40m -(Edinburgh Royal Infi rmary) Ltd medical school

Consort Healthcare District general hospital £116m 50% July 2003 38 2006 £3m £3m(Blackburn) Ltd

Consort Healthcare Teaching hospital and £626m 40% June 2006 40 2011 - £23m(Birmingham) Ltd mental health facilities

Health Management University College London £282m 33.3% July 2000 40 2008 £9m -(UCLH) Ltd teaching hospital

£59m £26m

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Equity and subordinated debt

Creating and caring for essential healthcare facilities

We create hospitals that everyone can be proud of, developing an environment that is conducive to successful patient outcomes and promotes a sense of well being for staff.

The Consort Healthcare team has considerable experience and expertise, much of which is gained from working within the healthcare sector itself. Throughout our organisation there are many staff with signifi cant years of NHS management experience. All of our operational hospitals have been completed on time and on budget with high availability and excellent service levels.

As well as playing a key role in the community, we believe that hospitals are also a community within themselves. As part of our commitment to the hospitals with which we are involved, we actively promote initiatives that are benefi cial to both staff and patients.At University Hospital of North Durham, Consort Healthcare has worked in partnership with the Trust to create a sustainable Arts for Health programme.

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“The secret of the success of the project to date has been the closeness withwhich Transform Schools has worked with ourselves, but more importantly, the staff inschools and the pupils themselves.”

Andrew Bedford, Acting Director of Education, Rotherham Council16

Creating and caring for inspirational learning environments

Balfour Beatty Capital’s schools schemes are managed by Transform Schools,one of the largest providers of school education facilities in the UK.

Our design teams have in depth knowledge of the issues involved in the deliveryof educational facilities, combined with extensive experience of working with theDepartment for Education and Skills (DfES) and local education authorities.

We understand the need for fl exibility resulting from the dynamic nature of thecurriculum, changing teaching methods and the integration of information technology.

Our construction team has a wealth of experience in grouped schools projects, and,in consultation with each school and the education authority, develops a construction programme which is integrated with school activities to minimise disruption. Our team works closely with school representatives and the council to promote the security and safety awareness of all schools users.

Transform Schools works in partnership with local authorities to improve educational attainment through the design, building and management of inspirationallearning environments.


• Bassetlaw Schools

• Birmingham Schools

• North Lanarkshire Schools

• Rotherham Schools

• Stoke Schools

Transform Schools

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“Learning’s better, you’ve got better classrooms that just make you want to go to classes.”

Jamie Storey, Year 8 pupil, Clifton A Community Arts School


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Transform Schools Grouped schools project £74m 50% October 2000 25 2005 - £5m(Stoke) Ltd in Stoke on Trent

Transform Schools Grouped schools project £113m 50% June 2003 31 2006 - £5m(Rotherham) Ltd in Rotherham

Transform Schools Grouped schools project £140m 50% June 2005 32 2008 - £8m(North Lanarkshire) Ltd in North Lanarkshire

Transform Schools Grouped schools project £90m 50% March 2006 33 2009 - £4m(Birmingham) Ltd in Birmingham

Transform Schools Grouped schools project £127m 50% July 2005 27 2007 - £8m(Bassetlaw) Ltd in Bassetlaw, Nottinghamshire

£30m

Creating and caring for inspirational learning environments

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Transform Schools has an excellent track record of completing schools on time and budget and subsequently achieving high standards of operational availability and service levels.

We emphasise the importance of placing schools at the heart of their communities, because we recognise that schools serve not only as educational centres, but also as beacons for local social cohesion and regeneration strategies. Our approach is always tailored to each project’s unique requirements.

Our experience in education projects demonstrates that Transform Schools can help raise community morale, generate local employment opportunities and act as a catalyst for urban regeneration. Signifi cant impacts can be made at neighbourhood level simply by making facilities available to local people in ways which are affordable, accessible and appropriate.

Transform Schools promotes a number of local initiatives such as community football programmes, art competitions for pupils and a Love My School competition aimed at eliminating litter, vandalism and graffi ti.

“Connect have been great, providing extra staff to control traffi c outside the school,even in the blistering heat.”

Caroline Doyle, Kilmington Primary School A30/A3520

Creating and caring for safe, effi cient highways

Balfour Beatty Capital is a signifi cant investor in highways and streetlightingfacilities under the UK Private Finance Initiative.

Our expertise ranges from initial planning and design, feasibility and environmentalstudies, through to construction and ongoing maintenance.

We have been extremely successful in meeting the aspirations of our partners. The substantial benefi ts achieved include; increased traffi c capacity to assist with predicted growth, road users are better informed through improved signage and road safety isgreatly improved.

We pride ourselves on being responsive to the differing needs of our customers,from the daily commuter to the holiday maker, the general motorist to the localresident, as well as parish councils and other community groups. To achieve this weliaise closely with the police, local authorities and local councils. Together we hold community meetings, undertake ‘letter drops’ and operate dedicated project helplinesto ensure a rapid and coordinated response to queries.


• Connect A30/A35

• Connect A50

• Connect M1-A1

• Connect M77/Glasgow Southern Orbital (GSO)

• Connect Roads Sunderland

• Connect Roads South Tyneside

At preferred bidder stage is:

• Connect Roads Derby

Connect Roads

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“The environment is constantly changing so we continue to develop our skillsto cope with these changes.”

Andy Beauchamp, Director of Operations, Connect Roads



Connect M1-A1 Ltd M1-A1 £290m 50% March 1996 30 1999 £14m - 30km road

Connect A50 Ltd A50 £42m 85% May 1996 30 1998 £6m - 57km road

Connect A30/A35 Ltd A30/A35 £127m 85% July 1996 30 2000 £20m - 102km road

Connect M77/GSO plc M77/GSO £167m 85% May 2003 32 2005 £16m - 25km road

Connect Roads Sunderland Ltd Street lighting £27m 100% August 2003 25 2008 - £3m apparatus in Sunderland

Connect Roads Street lighting £28m 100% December 2005 25 2010 - £2mSouth Tyneside Ltd apparatus in South Tyneside

£56m £5m

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Creating and caring for safe, effi cient highways

Balfour Beatty Capital’s highways schemes are managed through Connect Roads.

Working closely with all partners, Connect Roads aims to ensure that all interested parties are kept up to date with the latest information and that highway users are also well informed. By effectively communicating plans for potential road closures, diversions and speed restrictions, disruption is minimised for the local community and users.

Ensuring that new roads are integrated into the existing landscapes is a fundamental part ofthe approach to route design. To alleviate impacts, our designs incorporate environmental andlandscaping mitigation measures as well as a range of environmental benefi ts and enhancements.

Maintenance responsibilities vary between projects but typically encompass the routine activities of minor repairs, cleaning, winter maintenance and grass cutting, but also planning and executing major periodic lifecycle reconstruction and resurfacing.

We view our highways as essential assets and maintain them to consistently high standards. Our success is measured against a wide range of factors and the results are published in project specifi c annual reports.

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“An effective partnering forum has been utilised which has provided an integrated solution, allowing the client, concessionaires, constructor and operator to contributeand to have their requirements satisfied.”

Dominic Gallagher, General Manager, Aberdeen Waste Water Scheme24

Creating and caring for essential infrastructure assets

Balfour Beatty Capital is a leader in developing and investing ininfrastructure projects.

We specialise in delivering major transportation systems, tunnels, bridges, water and power schemes. We are able to structure and deliver these essential assets by providing a fully integrated, total service solution with our partner companies within the Balfour Beatty Group and, when necessary, by creating strategic partnerships with other quality organisations.

Balfour Beatty Capital is a 20% investor in Metronet, the consortium responsible for upgrading and modernising two thirds of the London Underground network. Working in partnership with London Underground, Metronet will be upgrading 9 of the network’s 12 lines and delivering£19 billion of capital investment during its 30 year concession period.

Balfour Beatty Capital’s other infrastructure investments range from the supply of power, waste water to power generation. Balfour Beatty Capital sees an increasing opportunity to invest in non-PFI infrastructure assets such as airports, toll roads and other asset intensive industries where Balfour Beatty Capital’s considerable development and asset management skills give it competitive advantage.

Our current PFI projects:

• London Underground transportation system (Metronet)

• London Underground power systems project (Powerlink)

• Aberdeen Waste Water Scheme

Other non PFI projects:

• Barking Power Station

Infrastructure Projects

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“Every project starts with gaining a full understanding of our customers’unique needs.”

Stewart Orrell, Head of Infrastructure, Balfour Beatty Capital



Metronet Rail BCV Ltd London Underground £1,783m 20% April 2003 30 2033 £14m £21m modernisation

Metronet Rail SSL Ltd London Underground £2,108m 20% April 2003 30 2033 £13m £22m modernisation

Aberdeen Environmental Wastewater treatment £92m 45% May 2000 30 2002 £3m -Services Ltd in North East Scotland

EDF Energy Powerlink Ltd/ London Underground £184m 10%/25% August 1998 30 2006 £4m £3mPower Asset Development power systemCompany Ltd

£34m £46m

Non PFI projects

Barking Power Station Power station £689m 25.5% March 1992 n/a 1995 £22m -

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Creating and caring for essential infrastructure assets

We focus on projects where we can best deliver and manage each asset over its whole life.

We have experience and skills in many of the key areas of project development:

• Whole life cost predictive techniques• Benchmarking and performance techniques• Sustainability• Risk management principles• Programming and project management• Service integration and coordination• Innovative fi nancing solutions

We are a committed long term investor and see life cycle asset management skills as a key aspect in delivering the optimal return for our investors.

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Risk assessment and risk management are a fundamental aspect of Balfour Beatty Capital’s activities and as such are an area of significant expertise within the company.

Under UK PFI, public sector organisations award contracts to private sector companies or organisations to build and then operate public infrastructure projects over a long period of time. Both parties sign a Project Agreement which, importantly, seeks to make the private sector supplier responsible for any risks associated with the seamless delivery of the different elements of the project.

Throughout the life of a concession contract the project company is responsible for delivering the scheme and the associated services. Key to the success of a project is the ability to structure the economics of the concession such that the future revenues and costs are highly predictable, thus minimising and mitigating risk.

In a typical PFI project, the major risks borne by the private sector are:

• Completing the initial construction works on time and on budget. • Meeting the annual budget for operating costs, subject to increases only for RPI. • Providing a quality service in operation, with deductions possible from the annual fee in the event of falling below the expected standard.

• Maintaining the infrastructure in a fit state over the period of the contract and handing back the asset at the end of the contract with no maintenance or renewals backlog.

• Meeting changing regulations and legislation such as health and safety, environmental and employment.

Risk analysis

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Total equity committed by sector £283m

1. Connect Roads (6 projects) £61m

2. Consort Healthcare (7 projects) £112m

3. Transform Schools (5 projects) £30m

4. Metronet (2 projects) £70m

5. Other (2 projects) £10m

Cash invested by December 2005 £149m






Balfour Beatty’s PFI concession portfolio has grown in recent years to become a very significant part of the Group’s business and a major driver of shareholder value.

At 31st December 2005, Balfour Beatty had total committed equity and subordinated debt of £283 million across 22 projects, four of which were at preferred bidder stage. At that date, £149 million had already been invested. The remaining £134 million is to be invested over the next six years.

Our portfolio

Directors’ valuation

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At 31st December 2005, the Balfour Beatty plc Directors’ valuation of the portfolio stood at £289 million, at a weighted average, post-tax nominal discount rate of 8.2%. This compares with £243 million at the end of 2004.

2005 Valuation

Value by sector £289m






Value by phase £289m

1. Operations £243m

2. Metronet £33m

3. Preferred bidder £7m

4. Construction £6m

Porfolio valuation: December 2005

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Delivers engineering excellence through cost-efficient, value-for-money, customer focused solutions from minor works through to major infrastructure projects.

Undertakes new build and refurbishment projects throughout all areas of the market with established partnership agreements in place in both the public and private sectors.

One of the UK’s largest and most established mechanical and electrical services and power systems contractors, providing quality and performance worldwide.

Delivers construction and property services, including design and build, refurbishment and fit-out, to both public and private sector customers. Through various procurement models, the company develops long-term sustainable relationships in specific sectors including social housing, health, education, interior solutions, airports, defence, telecoms and heritage.

Specialises in power transmission and distribution networks for the power supply industry and industrial customers.

Manages and supplies a full range of business support services to clients in the public and private sectors.

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Our Balfour Beatty Group delivery partners

A dedicated professional services company integrating the experience and skills of contractors and consultants to deliver infrastructure schemes from concept and assembly through construction to operating and maintenance.

Serves the US market for civil and specialist engineering construction with a particular emphasis on highways, bridges and interchanges.

An international leader in rail engineering projects active in Europe, North and South America and Asia and the UK’s largest rail engineering and services provider. Balfour Beatty Rail service the full range of rail infrastructure activities from high-speed rail to mass rapid transit, covering intercity, rural and commuter routes, for both public and private railways.

Part of the Balfour Beatty group and one of the UK’s leading asset management and maintenance providers working predominantly in the highways sector with both local authorities and the Highways Agency to achieve their evolving objectives and maintenance management.

A market leader in civil engineering, building, construction, foundation work and related disciplines in Hong Kong. It also has established businesses in China and Singapore.*

*Gammon is a partnership company between Balfour Beatty and Jardines.

Provides expertise in mechanical and electrical building engineering services. The company carries out the design, supply, installation and commissioning of services for all types of commercial, industrial and public sector buildings.

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For more information, please telephone us on 020 7121 3700.

Contacts

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