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Balfour Beatty plans to acquire 50% interest in Gammon in Hong Kong

• Acquisition will significantly strengthen Balfour Beatty’s presence in an attractive market
  
• Gammon
  
  • is market leader in Hong Kong with a vertically integrated business in engineering and building construction
    
  • has a consistently profitable record and substantial cash balances
    
  • has an order book of $HK8 billion and a high-quality long-term customer base
    
  • provides a strong established base to develop as a regional contractor

“With a strong partner who has significant regional presence, we see excellent growth potential.”

Balfour Beatty, the international engineering, construction and services group, announces today that it has signed a memorandum of understanding with Jardine Matheson and Skanska with a view to acquiring Skanska’s 50% interest in Gammon, the leading Hong Kong-based construction company. Jardine Matheson owns the other 50% of the company. Balfour Beatty will pay HK$510 million for Skanska’s interest, subject to detailed due diligence which is expected to be completed during June 2004.

Gammon is a strong, broadly-based construction group, which is the market leader in Hong Kong with an overall market share of approximately 10%. Gammon’s sales in 2003 were approximately HK$6 billion. Over 85% of its business is conducted in Hong Kong. It also has established businesses in China and Singapore. Gammon currently has a confirmed order book of over HK$8 billion. In the period 1999-2003, its profits after tax averaged approximately 2.5% of sales.

Gammon’s main business is in civil engineering, foundation engineering and major building construction. It also owns a number of smaller businesses which support its main contracting activities. Its principal customers are the Hong Kong Government and its agencies; Hongkong Land, a Jardine Matheson associate; the Swire Group; Kowloon Canton Railway Corporation and Mass Transit Railway Corporation.

Commenting on the proposed transaction, Balfour Beatty Chief Executive, Mike Welton, said: “The Group’s strategy is to expand, within its core competences, in geographical markets with good long-term prospects. Gammon is already a leader in its principal market and, with a strong partner in Jardine Matheson who has significant regional presence, we see excellent growth potential.

“Balfour Beatty already has a civil, electrical and mechanical engineering business in Hong Kong with sales of HK$1 billion and understands the market well. This transaction will constitute a step-change in our already successful presence in an attractive market.”

Anthony Nightingale, a director of Jardine Matheson, said: “We are very pleased that Balfour Beatty will be joining us as partners in Gammon. They bring very considerable expertise and share our vision of developing Gammon as a major regional contractor.”

As part of the transaction, Balfour Beatty’s existing Hong Kong business will be merged with Gammon, enhancing Gammon’s civil engineering expertise and adding a powerful electrical and mechanical capability to Gammon’s existing substantial footprint.

ENDS

Enquiries to:
Tim Sharp
Tel: 020 7216 6884
www.balfourbeatty.com

Notes to Editors

1. Balfour Beatty’s recent and current project work in Hong Kong includes:
   
   • The £106 million Lok Ma Chau Rail Terminus on the China/Hong Kong border
     
   • The £220 million Nam Cheong Station
     
   • The £38 million contract to construct the new East Hall at Hong Kong Airport
     
   • Electrical and mechanical projects for the Leighton-Kumagai JV and for China Light and Power worth approaching £50 million.

2. Balfour Beatty announced the sale of its building management controls company, Andover Controls of the US, to Schneider Electric for $403 million last week.

   At that time, Chief Executive, Mike Welton, said: “Balfour Beatty has sustained Andover’s market position in recent years through substantial expenditure on product development and by acquisition. In the last two years there has been accelerating consolidation in the US building controls industry, with many of Andover’s major competitors making acquisitions.

   “Andover, operating as a separate entity in this market, would have become increasingly vulnerable to its major competitors and faced increasingly difficult strategic challenges. In these circumstances, it is clear that Andover’s highest future value to the Balfour Beatty Group is realised through disposal.”