Metro do Porto: Balfour Beatty Rail Italy.

Greenbush Commuter Line, US: Balfour Beatty Rail Inc.

Ingolstadt to Nuremberg electrification: Balfour Beatty Rail Germany.

Heathrow Terminal 5: Balfour Beatty Rail Projects/Balfour Kilpatrick.

Waterloo and City Line: Balfour Beatty Rail – London Underground Services.

Botniabanan, Sweden: Balfour Beatty Rail International.

Berlin Tunnel: Balfour Beatty Rail Germany.

 

2006 performance

Profit from operations before exceptional items in the rail sector rose by 19% to £38m (2005: £32m). This reflected an excellent recovery in the second half of the year, with good settlements on projects in the UK, Europe and Asia and steady progress on major works, including those for Metronet and BAA.

Review of operations

Balfour Beatty Rail UK

Balfour Beatty Rail Infrastructure Services’ underlying performance was in line with that of the previous year, with similar track renewals workloads for Network Rail. A satisfactory settlement was achieved in respect of work carried out in previous years. Work is undertaken in a very demanding environment and the company has developed a new programme to increase assurance of track quality and reliability. Network Rail has announced its intention to reduce its renewals suppliers from six to four in 2007.

In Balfour Beatty Rail Projects, the major works for the West Coast Main Line were completed, as was the final stage of the Watford-Bletchley infrastructure upgrade. Settlement of these projects is currently in the process of finalisation with Network Rail. Work on the £110m programme to deliver 13 feeder stations and 620 miles of high voltage feeder cable progressed well. The project for the Santiago Metro in Chile was completed and commissioned.

Good progress was made on the track-laying project between Sydney and Brisbane in Australia. The major rail integration project at Heathrow Terminal 5 also proceeded well, with the Piccadilly Line put back into full service on schedule.

In October, Balfour Beatty was awarded the £363m contract by Transport for London to create the new East London Line between Dalston Junction in the north and West Croydon in the south. The project, which is the first of two phases, is due for completion in 2010. The project involves track, signalling, telecommunications and electrification.

The company is currently bidding the €300m project for the track and electrification work for the new Gothard rail tunnel, in conjunction with Balfour Beatty Rail International.

During the course of 2006, a new operating division, Balfour Beatty Rail – London Underground Services, was created from within Balfour Beatty Rail Projects to service the needs of London Underground under the PPP scheme. This organisation made good progress on the LUL track replacement programme in an extremely challenging operating environment.

In the four months to September 2006, BBR-LUS successfully completed the complex upgrade and refurbishment of the Waterloo and City Line. It also continues to increase the efficiency of delivery under the Metronet track renewal contract.

Performance in Balfour Beatty Rail Track Systems improved from the previous year, largely as a result of the acquisition of Edgar Allen, completed in March 2006. Edgar Allen manufactures switches, cast manganese crossings and other rail track products, and augments and broadens Balfour Beatty Rail Track Systems’ product range. The integration of Edgar Allen is well advanced.

Early in 2006, Balfour Beatty Rail Track Systems continued its programme of plant investment, with the installation of new forging machines. Demand under its contracts for the London Underground continued to grow, as did its export sales.

In Balfour Beatty Rail Plant, profits improved after a disappointing performance in 2005. Investment in new high output plant continues and a programme to improve the reliability and availability of the on-track fleet is being implemented.

Contracts for tamping and ballast regulation, won in late 2005, have developed satisfactorily in their early stages.

Balfour Beatty Rail Technologies continued to develop concepts and products aimed at improving network safety and reliability. A number of new UK sites were secured for XiTRACK, a polymer-based stabilisation technology for track and other infrastructure.

Further development work was undertaken on the CGI system, an extension of solid state interlocking signalling particularly relevant to low-speed lines. A new joint venture for signalling technology was progressed with Alstom in the UK, significantly increasing Balfour Beatty’s capability to deliver advanced interlocking signal systems.

Balfour Beatty Rail Germany

In Germany, market conditions were steady, with some further signs of growth as Deutsche Bahn’s investment programme continued to recover. The technically complex Ingolstadt to Nuremberg turnkey electrification project was completed to time and budget, as was the contract in the new Berlin main station to project manage, supply and design the infrastructure for the Berlin tunnel.

During the year, the company won the €40m electrification and power supply contract for the line between Hamburg and Lübeck – the largest electrification project tendered in Germany in 2006.

Following the acquisition of SBB, the specialist signalling contractor, in 2005, the company has formed a signalling co-operation with Bombardier, has had some early successes and is currently bidding on a number of new electronic interlocking signalling projects.

Balfour Beatty Rail Italy

In Italy, the company, as part of the joint venture Saturno, completed the new line from Malpensa to Turin, in time for the Winter Olympics. The Rome- Naples line was successfully tested and commissioned and is now also in full service. This is the first fully radio-signalled line in the world and is seen as an important reference project.

Work is underway on three further major high-speed line projects – Malpensa to Milan, Bologna to Milan and Florence to Bologna, as the ambitious Italian high-speed investment programme continues.

Early in the year, the Metro do Porto project in Portugal was successfully commissioned. It is now fully operational and bonus payments for on-time, on-budget delivery have been secured.

Balfour Beatty Rail International

The operation in Spain continued to progress major mass transit projects in both Madrid and Barcelona. In early 2006, an export project for the electrification work on the Tianjin to Shenyang Line was secured – the latest in a series of projects in China with future tenders submitted.

In Sweden, the second year’s work on the Botniabanan track project was completed on time and budget. The electrification and track modernisation project on the Blekinge coastline is also proceeding satisfactorily.

In Austria, performance was very satisfactory, and the business secured its first ever sub-station project.

In Malaysia, the electrification project for the main North-South line between Rawang and Ipoh made good progress, with the first section of 20 km handed over to the customer at the end of the year.

In Ireland, the electrification project for the Dash system was concluded successfully. Prequalification was achieved for the rail electrification programme in Israel, while the company has, as part of a group of four, bid for the rail equipment contract for the Gothard Rail Tunnel at 57 kilometres, the world’s longest.

Balfour Beatty Rail Inc

Performance in the United States improved significantly, although progress was held back by an unexpectedly adverse settlement on a legacy project completed some years ago in Texas. The signalling contract in Philadelphia, which has been the source of problems, is now performing in line with forecast.

Major project work on the Goldline in California and on the Greenbush commuter line in Boston both progressed well.

The regional services business has performed well. Its customers include the mineral extraction industry in Wyoming and a range of goods and shunting yards on the US heavy freight network. The Class 1 railway companies who operate on this system are beginning to generate some significant projects, for which Balfour Beatty Rail Inc is well placed.

Outlook

We do not expect an upturn in overall spending in our major markets in the short term. However, steady growth in the world rail infrastructure market is predicted for the longer term.

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