annual report and financial statements 2009

 

Business review

OPERATIONS REVIEW

ROAD LINK A69

Road Link A69 traded in line with expectations throughout the year and continues to be very cash generative as the initial road investment depreciates. We see this activity as a core element of our business portfolio and remain confident it will continue to reward us with a regular, growing return on our investment through the remainder of the concession period.

HGV traffic volumes using the A69 reduced in 2009 but income levels remained unaffected as, for some years now, HGV traffic has exceeded the contract threshold producing no income on the excess numbers. Passenger vehicle numbers were up in the year although we benefit from this at a lower rate than HGVs. The reimbursement rate used by the Highways Agency is calculated on a 'weighted' version of the price adjustment formula used to calculate cost movements in civil engineering works. This year, as the oil price and construction costs have declined, we witnessed a marginal reduction in our concession income rates. Looking forward, recent increases in the oil price and more stable construction prices are likely to result in some improvement in the position. The bad weather experienced at the end of 2009 and early 2010 will undoubtedly reduce traffic volumes and income but we have a fixed price gritting contract on the route which takes on the bad weather risk and therefore we will not face any additional costs.

During the year agreement was reached with the Highways Agency regarding payment for the future maintenance of the improvement works completed by them within the last five years. This, together with the introduction of a new 'Routine and Winter Services Code', will result in us receiving additional income during the balance of the concession period running to 2026.