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

Regulated Industries segmental review

We brought you resevoirs...

...now we’re managing and operating the water supply to lower costs for consumers

Regulated Industries revenue has reduced by £5.1m compared with the previous year. A number of factors have caused this decline: lower volumes in the rail sector (circa £5.0m) with the completion of the Jubilee Line upgrade project, slow down in the Abu Dhabi market, decline in the ground engineering and environment business in line with the Highways segment decline, and fewer major projects relating to water asset management. Also, the workload relating to AMP5 has been slower than expected during the year.

Underlying operating margins also fell as pricing on framework contracts became very competitive. Consequently the operating margin in this segment fell to 2.4% (2010: 3.3%).

In Regulated Industries, our workload with the water companies continues to increase as the water industry’s capital programmes for 2010-2015 (forming Asset Management Plan 5 (AMP5)) progress through feasibility and design stages. Our environment teams also work closely with the Highways business and therefore have been scaled back in line with the reductions in that market.

We are working for most UK water companies through our various AMP5 water company frameworks and continue to be a major provider in this field. Our activities cover capital design, asset management and operations. A key highlight has been helping Thames Water to meet its stringent leakage target in demanding conditions.

The energy and insurance business has continued to trade well despite the economic backdrop and has recently been appointed on the G35 Framework for National Grid. Energy’s largest project for National Grid, the Critical National Infrastructure project, has seen the civil engineering team double in size to meetworkload requirements.

The rail business saw a reduction in turnover from prior years with a resultant fall in underlying profit due to fewer major projects being undertaken. Since 31 July 2011, the rail and the pipeline design businesses have been sold (in October 2011). The turnover of these two businesses for 2011 was £16.3m, with a combined operating profit of £0.1m.

The engineering and environment business has won some significant external commissions in the last year, notably providing Scottish and Southern Energy and the Oil and Pipeline Agency with environmental services, and a huge increase in the workload of the Thames Tideway Land Referencing project. These three projects will provide revenue of £3m. The business has also been appointed to the Homes and Community Agency multidisciplinary framework.

In the Middle East, performance is stable, although the Abu Dhabi market remains flat. We are increasingly confident in the prospects for our business in the Middle East, building on our strong relationships and capabilities.

Market overview and outlook

Following the disposal of Mouchel’s rail and pipeline design businesses after the year end, our Regulated Industries division will focus on the water (operations and consulting) and energy markets, as well as other specialist areas such geotechnical and environmental services.

In the water business, we are now setting our sights on the water industry’s investment programme for the period 2015-2020 (AMP6) and developing relationships that will enable success in 2015 and beyond.

Our operational opportunities continue to come to market, where we are a leading provider of leakage and metering services. Changes in legislation provide significant opportunity for work on private drains and sewers, which came into water company ownership in October 2011. Smart metering provides opportunities for our operations division through the programme of making ‘smart’ 53 million gas and electric meters across the country by 2020.

Mouchel’s ability to work across the supply chain, together with our technical capability, will enable us to offer a compelling proposition to energy retailers. We are actively engaging the industry and expect to be tendering opportunities soon.

We are also pursuing international opportunities, especially on the back of the Downer relationship in Australasia. Early indications show that there is an attractive operations and maintenance market that would benefit from the combined skills of the two companies.

In engineering and environment, we have developed an integrated business that delivers multi-disciplinary schemes in a sustainable manner. There are significant opportunities in the pipeline, such as land referencing for the proposed high-speed rail link between London and the Midlands (HS2) and continued work on Thames Tideway, as well as opportunities with Eirgrid in Ireland. This underlines our strategy of external growth in this market, where we have traditionally serviced our Highways partners.

Volumes in the near term are subject to some uncertainty as customers delay spend from one period to the next and margins continue to come under pressure.

Results