underground

London Underground PPP :London Underground PPP 7 January 2003


Contents :2 Contents The Tube Lines Consortium and the project to manage the Jubilee, Northern and Piccadilly lines 1. What is the project? - The contract - The consortium - The inheritance - Tube Lines’ responsibilities 2. How is the project structured and financed? - Financial and commercial structure - Risk assessment 3. Benefits to Jarvis


1. What is the project? :1. What is the project?


The contract :4 The contract 30 year project to own, manage and upgrade the infrastructure on the Jubilee, Northern and Piccadilly Lines (trains, track, signalling, stations) Equal shares in Tube Lines Holdings Ltd between Bechteland Jarvis. Amey can accede by 30th June 2003 to becomea one-third partner Total programme for first 7.5 years is £4.4bn, of which Opex is £1.5bn. Whole life programme of £14.8bn, of which £6.1bn is Opex Bechtel responsible for Capex. Jarvis and Amey equally responsible for Opex. (If Amey does not accede, then Jarvis 75%, Bechtel 25%)


Tube Lines Consortium :5 Tube Lines Consortium Specialist skills in rail industry including: Track and signal renewals Project and operational management Experience of successful metropolitan capital projects including: Athens, Hong Kong, London, New York, San Francisco and South Korea Experience in business services Three shareholders (Bechtel, Jarvis and Amey)who collectively provide: Flexibility retained on awarding supply contracts - clearly sponsors well qualified to benefit


Current status :6 Current status 1.75 million passengers per day (Monday-Friday) Managed through some of the world’s busiest stations Waterloo 32.6m people per year Leicester Square 28.1m people per year Tottenham Court Road 28.0m people per year Our passengers are carried on 251 trains callingat 129 stations of which we maintain 101 Our trains do around 19m miles of track journeys per year 2,500 Total staff


Tube Lines’ assets :7 Tube Lines’ assets Trains 251 Stations 101 Escalators 220 Lifts 65 Deep Tunnels 98 miles Total Track 212 miles


Performance regime :8 Performance regime Four measures of performance Capex Capability Throughput of trains on the network measured in minutes per journey Opex Availability Disruptions to operations measured in Lost Customer Hours (LCH’s) Ambience Look and feel of the stations and trains measuredin Mystery Shopper Survey (MSS) points Service points Ability to rectify non critical failures measured in points Benchmarks/thresholds set taking account of historic performance


Opex – recent performance :9 Opex – recent performance Availability - ahead of contract target Service points - ahead of contract target Ambience - 5% behind contract target - issue is cleanliness of Piccadilly line trains - detailed programme in place


First 7.5 years :10 First 7.5 years Major upgrade to the Jubilee Line (2009) Major upgrade to the Northern Line (2011) Station modernisation (30) Station refurbishment (67) Lift refurbishment (65) Escalator refurbishment (80) Escalator replacement (48) 60 miles of track will be refurbished 42 miles of track will be renewed 31 Bridges repaired or strengthened 7 miles of earth structures upgraded 11 miles of drainage repaired


Service capacity :11 Service capacity 0 5 10 15 20 25 Piccadilly Line upgrade completed in 2nd 7.5 year period % increase in capacity Northern Line Jubilee Line Piccadilly Line By 2011 By 2009 By 2014


Improving reliability :12 Reducing Lost Customer Hours by 2010 Northern Line Improving reliability Jubilee Line Piccadilly Line 34% 15% 3% 0 10 20 30 40


Building a safer system :13 Building a safer system Replacing 42 miles of track Refurbishing 60 miles of track Introducing a new technology solution to monitor track condition Re-signalling the Jubilee and Northern lines with modern, safe, reliable and proven systems miles


Creating a better environment :14 Creating a better environment Increasing personal security by covering the entire network with CCTV cameras Easing station congestion by improving and replacing escalators and lifts Upgrading 97 of our 101 stations, including new passenger help points, better information systems and new fire protection systems


Tripling capital investment :15 In the first seven and a half years: Tripling capital investment £750m is to be spent on signalling and trains £580m is to be spent on betterand safer stations £230m is to be spent on track replacement and refurbishment


LUL/TfL’s responsibilities :16 LUL/TfL’s responsibilities In summary, while Tube Lines is responsible forthe infrastructure, LUL is responsible for the trainoperations, specifically: Strategy and management of the tube network Setting the priorities for modernisation The operation of train services The safety regime Employment of some 8,000 employees across the network, including all drivers, customer-facing station staff and signalling control staff Any closures of lines and stations for work to be done Ticketing and fares The timetables The zone structure


2. How is the project structured and financed? :2. How is the project structured and financed?


Slide 18 :18 Jarvis Amey Bechtel Initial financial and commercial structure of project Opex management agreement Capex management agreement 50% 50% Equity BridgeLoan LUL ServiceContract Note: If Amey accedes by 30th June 2003, it will become a 1/3 partner in Tube Lines and 50:50 partner with Jarvis in Opex JV Tube Lines (Holdings) Limited Tube Lines Limited Mezzanine Bank debt 100%


Slide 19 :19 Project structure if Amey does not accede 50% 50% 75% 25% Opex management agreement Capex management agreement Equity BridgeLoan LUL ServiceContract Tube Lines (Holdings) Limited Tube Lines Limited Jarvis Bechtel 100% Mezzanine Bank debt


Capital structure :20 Capital structure


Jarvis financial commitment (£90m) :21 Jarvis financial commitment (£90m) Initial share of investment ordinary shares £22.5m loan notes £45.0m £67.5m Funded by Equity Bridge Loan of £67.5m to Tube Lines Holdings(repayable after 5 years) Contingent equity commitment of a further £22.5m The total of £90m is covered by letters of credit procured by Jarvis If Amey accedes, the above amounts reduce by one third


Asset condition :22 Asset condition As contract is output-based, Tube Lines does assumeasset condition risk Very substantial due diligence performed (since 1999), using site inspections and desk top analysis Numerous independent consultants intimately involved in the process LUL grouped assets into five classes and set requirements for proportions of assets to be moved up the hierarchy Protection for catastrophic events, eg tunnel collapse and terrorism


Contractual protection :23 Contractual protection Comprehensive service contract, with flexibility for LUL to amend requirements at periodic review Substantial protection achieved via entrenching key provisions Independent role of Statutory Arbiter(who is a highly respected utility company regulator, Chris Bolt) Statutory Arbiter must maintain the ISC profile that achieved the agreed IRR on the initial equity funding Transport for London Expected to work constructively now project has begun Protection against risks of legal challenges No transfer to TfL until challenge periods elapse


Contingent funding :24 Contingent funding Approved budgets for Capex, Opex and Tube Lines include contingencies which are covered by the project funding Seconding parties are significantly incentivised to avoid overruns Standby funding of £300m in place If standby funding utilised, LUL bound to provide more revenue or reduce obligations, providing Tube Lines conformed to good industry practice No obligation on sponsors to provide any further financial support


Summary :25 Summary Initial structure 50/50 Jarvis and Bechtel Amey may accede by 30 June 2003 Jarvis equity commitment capped Comprehensive knowledge of assets Strong contractual protection Robust funding structure


3. Benefits to Jarvis :3. Benefits to Jarvis


Strategic rationale :27 Strategic rationale Natural extension of existing rail business/expertiseinto London subway Widens client base Creates opportunities for winning futureoutsourcing contracts Step increase in turnover and profits for Jarvis Group


Relevant Jarvis expertise :28 Relevant Jarvis expertise Leading UK rail infrastructure services provider Introduction of Jarvis control centre technology: Fault reporting Response management Staff location CCTV technology - trains, depots, stations On track machine management and innovation Avonwood technology - rail flaw detection Premises management - hard and soft fm Introduction of focused Jarvis management techniques


Widening Jarvis’ client base :29 1998 2002 2004(E) 63% 49% 37% 2004 (E) Based on house brokers’ forecasts Widening Jarvis’ client base Network Rail Other Network Rail revenue as a percentage of total revenue


Outsourcing contract opportunities :30 Outsourcing contract opportunities Tube Lines is committed to competitively tendering alloutsourced works Jarvis expects to compete for:- Track renewals - £230m in first 7.5 years Signalling – installation and maintenance role for conventional systems Track maintenance Facilities management - station and engineering depots, fabric maintenanceand soft services IT - Agilisys are working on new management information systems


Sources of revenue and profit – Jarvis :31 Sources of revenue and profit – Jarvis


Management Agreement :32 Management Agreement Management agreement to support delivery of the Opex programme to defined budgets Expertise and intellectual capital Provision of senior managers on full time secondment Fees include incentives to reduce costs - gain/pain share Annual gross revenue – approximately £8m* * Assumes a 1/3 share


Equity returns :33 Equity returns Consolidation of share of TLH group* revenue and profits Operating return from Tube Lines Limited (but no dividends expected in first 7½ year period) Investment servicing cost covered by project: Interest income from Tube Lines Limited enables TLH to service EBL and mezzanine LC costs largely recovered * Comprises TLH and Tube Lines Limited


P & L impact on Jarvis :34 Year to 31 March 2004 (F) No material impact on year to 31 March 2003(except JV turnover of approximately £45m) Ignores any outsourced work Assumes a 1/3rd share P & L impact on Jarvis


Cash flow and funding impact on Jarvis :35 Cash flow and funding impact on Jarvis Cash Flow Bid costs recovered on financial close Management fees Funding Committed equity funded by equity bridge loan into TLH Committed and contingent equity supported by letters of credit (LC) from Jarvis bankers LC facilities supported by cash collateral £20m on day 1 Progressively thereafter out of project cash flow


Summary :36 Summary Exciting opportunity for Jarvis – well suited toour experience Significant revenues and widening of client base Substantial expected profits and cash flow Upside potential Opportunities for outsourced work in track work, signalling, facilities management and IT


London Underground PPP :London Underground PPP 7 January 2003