Business review

Segmental performance

Overall Atkins' UK business performed  in line with our expectations, navigating  difficult market and economic conditions.
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United Kingdom

9,640

People employed in the United Kingdom

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£926.5m

Revenue

Performance
Overall our UK business performed in line with our expectations, successfully navigating difficult market conditions. The UK Government's spending review in October 2010 removed some of the market uncertainty and confirmed our expectation that public sector spending will remain tight while the budget deficit is addressed. We have seen mixed performance during the year across the range of markets served and have reduced staff numbers by 7% as we have flexed our resource levels to meet anticipated demand.

Business model
This operating segment consists of businesses that are primarily focused on the UK market where we plan, design and enable our clients' capital programmes in and around the built environment. Our business is that of a technical consultancy, and we provide advice and engineering design for public and private sector clients. The multidisciplinary nature of our skills allows us to draw on expertise from across the business to deliver complex projects both in the UK and in support of our other businesses overseas.

Strategy
We have identified that material growth in this segment will be difficult in the near term and therefore our focus remains on managing headcount to meet the anticipated market demand for our services, driving efficiency in our operations through cost reductions, and supplementing skills with niche acquisitions where appropriate. We continue to invest in developing our people, focusing on quality, technical excellence and innovation.

Business drivers
The economic environment significantly affects the opportunities available to the business, although our diversified business provides some resilience to market fluctuations. We are the market leader in UK engineering consultancy, with preeminent rankings in the roads, rail and defence sectors1.

The outcome of the UK Government's spending review and the recent Strategic Defence and Security Review were largely as expected. The rail industry value for money study by Sir Roy McNulty will influence the future shape of the industry and we consider his recommendations a positive step.

Operations
Our design and engineering business, employing around 1,000 staff had a year of change both in terms of its external market and some internal reshaping. However, it closed the year strongly with a continued focus on delivery of projects with clients such as the Olympic Delivery Authority and the London Organising Committee of the Olympic and Paralympic Games, in our role as the official engineering design services provider for the London 2012 Olympic and Paralympic Games. This multiple award-winning project is an excellent example of the depth of multidisciplinary expertise within the Group. Our resources in the UK in this business also play an integral role providing agile design management and technical capability to assist in the delivery of projects in a number of our overseas markets.

Our highways and transportation business contracted during the year following exceptionally strong work volumes in 2009/10, where fiscal stimulus packages buoyed the market, together with higher design revenue from major design commissions such as the M25 widening. Delays and cancellations of schemes for the Highways Agency and tightening of local authority and central government budgets significantly impacted the business and led to a reduction in headcount, with staff numbers closing the year at around 2,500. This also suppressed margins as the costs of right-sizing the business were taken in-year. The highway services market was more stable for us as a result of our portfolio of existing longer term contracts, the first of which will be subject to tender in 2013. The Department for Transport's announcement of additional funding for highway repairs is welcome news and we anticipate that this will bring around £10m of revenue to our highways business.

We have been appointed to all four of the Highways Agency Professional Support Frameworks; a notable achievement that creates a strong platform for this business.

Our design work for the widening of the M25 is almost complete, with the first sections fully open to traffic, keeping the overall programme below budgeted cost and on track to complete in time for the London 2012 Olympic and Paralympic Games. The related 30-year operation and maintenance joint venture contract is progressing in line with expectations.

The joint venture, which comprises Balfour Beatty (52.5%), Egis (15%) and Atkins (32.5%), provides services in network management, asset inspection, traffic management, tunnel operations, incident management and routine and winter maintenance for the entire M25, over a distance of 250 miles.

Our rail business of around 1,400 staff continue to deliver complex design solutions on major rail upgrade schemes, predominantly for Network Rail. The business had a challenging year with margins under pressure as this well funded market attracted significant competition, particularly in the civils business.

We have largely completed the highly complex resignalling of the North London Line, a project that reinforces Atkins' ability to successfully and reliably deliver complex projects. The Newport resignalling project has progressed well during the year, with the key May deadlines completed to programme.

Our water and environment business of around 1,400 staff is seeing an improving volume of work as the latest five-year regulatory Asset Management Programme (AMP5) takes effect. Although some clients were initially slow to release work due to the wider economic situation, there is a substantial programme of investment required by the industry to meet the UK regulator's settlement and work is now starting to flow. Our geotechnical, environmental and planning businesses continue to support large projects such as Crossrail and the London 2012 Olympic and Paralympic Games.

Our defence, aerospace and communications businesses have performed well during the year. Around 900 staff focus on high-technology industries, predominantly in the UK, Europe and the Middle East. Our aerospace business performed strongly during the year and we continue to expand our offering and geographic footprint with clients such as Airbus and Rolls Royce. Communications and security remain strong market segments for our skills and capabilities both in the UK and the Middle East. In defence, the decision to cease the Hydrus design project necessitated some headcount reductions. However, demand for core capabilities in this sector remains strong and we enter the new financial year in a stable position.

Our management consultancy business performed well, improving on its strong position in the UK security and intelligence market. We managed to navigate difficult conditions in the wider public sector to continue the strong performance of recent years and we finished the year winning the BAA IT outsource contract in partnership with Capgemini, leveraging our position in aviation.

Faithful+Gould provides project and cost management services to a wide range of clients across the public and private sectors and continues to operate in a challenging market driven by tight UK Government spending. There has been some slowdown in public sector opportunities, although we have balanced this with wins, mainly in the higher education sector, for new residential and teaching space. We have strengthened our presence in the water sector with an appointment on the Welsh Water framework and in the energy sector with further work for EDF. We had a number of other notable private sector wins, including GlaxoSmithKline, Lloyds Banking Group, Tesco, and Coca-Cola Enterprises. Our work with the government continues, with much of it coming through the Office of Government Commerce (OGC) framework.

Our asset management business provides independent property asset management services to a number of private sector clients and to public sector organisations, including law and order, education, health and defence. The business has performed well in the period with the satisfactory resolution of market testing challenges on a number of its contracts.

People
We rely on our professionally qualified, highly skilled, and experienced staff, both in the UK and in Bangalore to work together to deliver multidisciplinary design projects. They are essential to delivering the highest quality product for our clients and as such we have continued to invest in their development and training despite the tough economic conditions.

Outlook
The outlook for the UK is stable. We have a solid, diversified platform to navigate short term market challenges and a breadth of quality expertise that will help us exploit opportunities when growth returns in the medium term. We have good positions in some well funded markets. Work in hand is broadly consistent with the same time last year and we enter the new financial year with confidence in our ability to navigate what remains a difficult market. Further, our depth and breadth of expertise in the UK is essential to supporting projects in a number of our overseas businesses.