Private Finance Initiative (PFI) Jason Millett CEO, Bovis Lend Lease UK and PFI
Investor Roadshow UK / US – May 2006 Agenda
1.0 Market attractiveness 2.0 The business 3.0 Target sectors 4.0 Competitive position 5.0 Bidding strategy and selection criteria 6.0 Equity joint venture 7.0 Summary
61 1.0 The PFI market in the UK
Long term Government commitment and budget to improve Britain’s social infrastructure (schools, hospitals) PFI remains the Government’s preferred procurement route for major capex projects. Expect future Governments to remain committed to PFI Difficult 12 months for the overall PFI market with deal flow disrupted by uncertainties in healthcare sector, none of our projects are affected by these delays
62 1.0 Bovis Lend Lease UK: Review of last year
Past year has been good for progress and consolidation of portfolio Two hospitals handed over, significant advances with 3 remaining hospitals Well positioned for new Health schemes… not caught up in the current uncertainties New opportunities in healthcare with Government investment in community hospitals, using Roehampton Hospital as the model Hexham Hospital phase 3 near to financial close, proving it is possible to negotiate variations without bidding
63 1.0 Bovis Lend Lease UK: Review of last year
Lend Lease/Bank of Scotland (BoS) joint venture (JV) launched Financial close of University of Sheffield scheduled for May 2006 First Buildings Schools for the Future (BSF) bid won – Lancashire Schools First waste bid won – Lancashire Waste Recognised benefits of operating assets on a portfolio basis. This offers more flexibility and greater opportunity to bid for new projects Portfolio represents ‘best in class’ projects – a big advantage in future bids Focused on three PFI markets – health, education and waste with additional opportunities in Government accommodation
64 1.0 PFI business income streams and market attractiveness
Typical pre- Type Earning period Current position tax return Design and Construction period (2-5 years) £776m under construction construction fees 6 - 8% £462m preferred bidder Variations during concession £60m to date (includes Hexham period (25-35 years ) phase 3) Equity 14% Post construction period £17.7m operational (typically 25-35 years) £27.4m in construction £20.7m preferred bidder BoS JV enhances potential Opportunities to recycle equity Asset & facilities 5-10 % Post construction period £17.2m per annum operational management (typically 25-35 years) £1.7m per annum preferred bidder 65 2.0 Bovis Lend Lease UK: PFI market
Over 700 deals closed, £46bn capex over past decade PFI remains central to UK Government reform strategy, however significant pressures for the model to change, introducing more flexibility and risk sharing New Government commitment to replace or refurbish every secondary school in England over the next 10-15 years End-to-end integrated approach is a differentiator Significant driver of Bovis Lend Lease backlog
Funds/investment Develop Design and Asset management management construct
66 2.0 Bovis Lend Lease UK PFI: Current UK business
Secured Construction FM Revenue Equity* Status Projects Value Backlog exc. Life cycle £m £m £m Calderdale Hospital 87 33 3.5 Operational Worcester Hospital 83 45 1.1 Operational Hexham Hospital 29 9 0.6 Operational Lincolnshire Schools 20 9 1.3 Operational Newcastle Schools 49 19 1.8 Operational Lambeth Schools 13 5 0.8 Operational Worcester Cork Maritime 31 9 2.2 Operational Hospital Treasury 1 114 32 1.8 Operational Treasury 2 148 30 2.0 Operational Burnley Hospital 27 10 0.9 Operational Roehampton Hospital 55 9 1.7 Operational Romford Hospital 219 2 7.0 In construction Leeds Hospital 175 24 9.9 In construction Manchester Hospital 382 26 10.5 In construction Current bids Hexham phase 3 19 TBA 1.0 Preferred bidder Sheffield University 163 18 8.2 Preferred bidder Romford Hospital Lancashire Waste 200 N/A 7.5 Preferred bidder Lancashire Schools phase 1 80 TBA 4.0 Preferred bidder * Equity disclosed is post BoS Joint Venture 67 2.0 Bovis Lend Lease UK: PFI sectors and anticipated pipeline
Health Education (BSF) Waste Hillingdon South Tyneside North Mersey Stanmore Birmingham Bedfordshire Papworth Sunderland Cheshire Harefield Newham Essex Southend Manchester Norfolk Hatfield Hackney Shropshire Watford Islington Cambridgeshire Whipps Cross Hull Southwark Epsom Lambeth Derbyshire Liverpool Mental Health Liverpool Dorset Royal Liverpool Nottingham Liverpool Children's Middlesborough Leeds Children's Haringay Irish Cancer Centres Salford Wolverhampton Tameside Northern Ireland
68 3.0 Bovis Lend Lease UK: PFI Healthcare – market share
Current analysis (December 2005) of schemes at preferred bidder and financial close (total £9.6bn)
Other 19% Bouygues Skanska 5% 21% AMEC 5%
Taylor Balfour Woodrow Beatty 4% 14%
Equion Bovis Lend 15% Carillion Lease 6% 11%
Bovis Lend Lease currently fourth when measured against preferred bidder and financial close Bovis Lend Lease is second when measured against schemes operational and under construction
Bovis Lend Lease is well placed to win the next round of bids 69 3.0 Bovis Lend Lease UK: Key issues for PFI Health
Current National Health Service (NHS) financial deficit of £790m* Direct impact on NHS trusts having to make redundancies among hospital staff Tougher affordability criteria means new schemes will be more robust and therefore more likely to proceed to programme Concept of community hospitals and primary care provision to be redefined NHS review of acute hospitals likely to create more opportunities in our £200-£300m target market
*(King’s Fund Charitable Healthcare Foundation April 2006)
70 3.0 Bovis Lend Lease UK: PFI Education – market share
Fragmented market – good opportunity for Bovis Lend Lease to establish presence
Others Balfour Beatty 27% 13%
Carillion/Mowlem 12% Interserve 4% Kier Wates 8% 4%
Bouygues Laing O'Rourke 4% 7% Skanska HBG 5% Ame c 6% Hochtief 5% 5%
Above shows deals closed over last 3 years to December 2005 71 3.0 Bovis Lend Lease UK: Key issues for PFI Education
Building Schools for the Future (BSF) is a £1bn per annum programme to rebuild or refurbish every secondary school in England over the next 10-15 years BSF schemes are bigger than previous PFI Education projects Local Education Partnership (LEP) is 80% private sector, 20% public sector LEP controls procurement programme PFI contracts are with the LEP Exclusivity period of up to 15 years LEPs can create additional opportunities for community construction projects Long term partnerships that play to Bovis Lend Lease strengths
72 3.0 Bovis Lend Lease UK: Waste an embryonic PFI market
EU legislation comes into force in April 2010 meaning household waste cannot be incinerated or tipped on landfill sites Significant financial penalties for councils that fail to comply Bovis Lend Lease teamed up with GRD because it has proven technology and experience of the sector Bovis Lend Lease and GRD will benefit from ‘first to the market’ lead on competitors Potential £6 - £7bn UK market over the next 10 years
73 4.0 Competitive position – track record
We have a 45% success rate in bidding PFI projects, typically there are 4 bidders
Pre 2001 2002 2003 2005 2006
65% 60% Moving Aggregate 55% Win Rate 50% 45% 40% 35% 30% WINWIN RATE RATE % % 25% Linear 20% Trend Line 15% 10% 5% 0% 1 6 11 16 21 26 31 36 41
BID BIDNUMBER # Significant portfolio of Health assets Lancashire Schools win establishes us as a market leader in Education Our partnership with GRD gives us a technological lead in the Waste market Developed the flagship Government accommodation scheme for HM Treasury Roehampton gives us a good advantage of community hospitals future model 74 5.0 Bovis Lend Lease UK: PFI Bidding strategy and selection criteria
Aiming to bid 3-5 projects a year Project selection criteria Price – competitiveness Bovis Lend Lease relationships Geographical fit with other projects/group operations Ability to add value Synergies across Lend Lease
Health Education Waste
1 - 2 1 - 2 0 - 1 75 5.0 Bovis Lend Lease UK: PFI Bidding strategy and selection criteria
Our unique selling points Ability to leverage existing relationships (e.g. Liverpool/North Mersey Waste) Lend Lease Group integrated service offering Emerging track record across portfolio – including a number of industry reference sites Gearing Lend Lease/BoS JV equity portfolio enables access to more competitive equity Emerging PPP procurement variants suit Bovis Lend Lease partnership skills Waste – GRD gives us technical edge
76 6.0 Bovis Lend Lease UK: PFI Equity joint venture
Bovis Lend Lease retains an ongoing interest in equity returns from the portfolio through the Lend Lease/BoS joint venture Number of advantages that would not flow on a stand-alone basis - Improved capital efficiency and cost – ability to leverage existing assets with senior debt/portfolio refinancing - Enhanced success fees for new bids - Pooling of project cash reserves - Portfolio impact of size - diversification of risk Consistent with Lend Lease’s business model (development/investment) A key plank in our plan to optimise funding flexibility and strategic capabilities to participate in future PFI market opportunities Meets the public sector’s needs for owner/operator partners for major infrastructure renewal
77 7.0 Summary
The UK PFI market is sustainable and will continue to develop Established business and reputation in the social infrastructure market ‘Best in class’ assets in Health and Education We are structured to take advantage of selected sector opportunities. In Health these include Irish Cancer Centres, Hillingdon and Stanmore hospitals, in Education Birmingham, Salford and Tameside BSF schemes, and North Mersey in Waste BoS deal gives commercial advantages, flexibility and reflects the embedded value of our equity
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