2011 year in review

Key performance indicators

Financial headlines

Chairman's statement

Business headlines

Chief Executive overview

Operations and performance

Highways segmental review

Government and Business Services segmental review

Regulated Industries segmental review

Management Consulting segmental review

Financial statements

Highways segmental review

We brought you roads...

...now we’re managing traffic to make your journeys safer and more reliable

Highways revenue reduced by £49m following the 2010 CSR impacts, which removed some uncertainty but confirmed that public sector spending would remain tight. The underlying operating margin in this segment fell by 71.1% compared with the previous year.

The significant reduction in revenue was caused by a number of factors, principally the reduction in technology sales (circa £15m), which was prompted by the cuts in Government spending; the end of the Government fiscal stimulus (circa £10m); cutbacks in discretionary spending within transport planning; and lower fiscal stimulus as a result of the 2010 CSR (circa £24m). The operating margins associated with these activities vary considerably from 7-20%, resulting in a large reduction in underlying operating profit. In addition, further provisions were required on a number of contracts, further eroding operating profit in the year.

Despite this, there has been some success and during the year we continued to deliver the first operational congestion management schemes (Managed Motorways) for the HA on the M6 to the north and east of Birmingham. In addition, we are developing similar schemes on other parts of the M6, and on the M3, M4 and the M60. Our TranServ joint ventures secured extensions to our North West Scotland Operating Company contract and to our City of Westminster contract. Contract extensions have also been secured for our professional services contracts with five local authorities: Shropshire, Wiltshire, London Borough of Southwark, London Borough of Hillingdon, and Bournemouth and Poole. The A11 Thetford Bypass scheme, where we are designers to Birse Civils Ltd, has been given the go-ahead following the 2010 CSR and we have mobilised this contract.

On UK local authority road networks, EnterpriseMouchel has maintained the level of 2009/10 revenues and has extended its contract with the London Borough of Hillingdon.

The new venture in Australia performed according to expectations and contributed revenues of £12m in the year ended 31 July 2011. We have secured all three of the Integrated Service Arrangement (ISA) contracts that we tendered in our joint venture with Downer for Main Roads Western Australia. In New Zealand, for the Transport Agency, we have continued to provide strategic advice and support for the development of a hard-shoulder scheme on State Highway 1 between Ngauranga and Aotea Quay. We are also advising Main Roads Western Australia on a strategy to optimise operation of the highway network adopting a similar approach to Managed Motorways.

Market overview and outlook

We continue to focus on the managed services market, providing visibility of future income streams. Clients are developing new procurement models and contract forms to drive efficiency. In 2012, the HA will introduce its new Asset Support Contract (ASC) to replace both the Managing Agent Contractor (MAC) contracts and elements of the Technology Management and Maintenance Contracts as these come to market; and Transport Scotland is introducing new ‘manage and maintain’ contracts (termed fourth generation or 4G). Transport for London will procure its new contracts by collaborating with the boroughs to reduce overlap and drive scale and efficiency (Transforming London). These should be operational in 2013.

The ASC contracts provide an opportunity for growth; and the procurement process for Area 10 (North West) has now begun. Similarly Operating Company 4G contracts are also under procurement in the north west and south west of Scotland.

Local authorities must cut spending on transport by 28% over the next four years. Whilst these cuts will inevitably filter through (at some level) to the volume of work we are doing with clients, we anticipate anincrease in vertically integrated highway services (MAC type) opportunities, which we undertake through EnterpriseMouchel. In addition to vertical integration, services may also be bundled so that a broader range of services is delivered under one contract. Here, Mouchel retains a competitive edge, due to our ability toprovide a range of services in-house, including ‘back-office’ functions, property management, parking and other civil enforcement duties. Some contracts will still come to market as single-service  professional services, delivered through a long-term arrangement. Again, we have a successful track record of delivering these, for example our network management services in Hertfordshire, Lincolnshire and Leeds.

Our strategy of using our UK-based competence in selected overseas markets has been successful in Australasia and we expect new opportunities to emerge soon. Our DownerMouchel JV holds a market share of around 40% of the Western Australian road network and we are now focusing on other states. We continue to assess other appropriate international markets where our skills will be valued.

We are undertaking a major upgrade of our technology platform used in the traffic support business. This software allows councils to monitor traffic infringement via cameras or hand-held devices used by traffic wardens. The upgrade of the platform and new functionality will cost approximately £1.2m, of which £0.6m has
been spent to 31 July 2011.

Whilst our medium-term prospects look encouraging, we are expecting trading conditions in the short term to be difficult.

Results