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Consultants facing widespread redundancies in bleak 2009

Civil engineering consultants face an “Armageddon scenario” of slashed profits and widespread redundancies as the recession begins to bite, analysts have warned.

The grim prediction for the industry emerged as two of the country’s biggest consultants announced major restructuring plans.

This week White Young Green announced that chief executive Lawrie Haynes was leaving the troubled consultant by mutual agreement.

White Young Green has been involved in takeover talks since June and has seen its share price drop by more than 70% in the last year to a four-year low.

In an interim management statement in November it announced plans to save £5M, largely through redundancies.

Shortly before Christmas consultant WSP confirmed it has made 5% of its 10,000-strong global workforce redundant. Many other consultants are understood to be contemplating similar moves as the impact of the collapse of the commercial property market, Transport for London’s spending cuts and the start of the water industry’s cyclical decline take hold.

With less work available across the industry, analyst Numis is predicting that profits will collapse by 50% under its “Armageddon scenario”, driven by a combination of reduced workload and a cut in margins.

“By consultants’ own admission sales could decline by between 10% and 15%. Margins are on average around 7% and they could come off 2% to 3%,” said Numis director Francesca Raleigh.

“If you just do the sums, that would lead to profits halving,” Raleigh insisted that the fall in work available would mean firms would be unable to resist pressure to cut margins.

“All firms are saying they are not going to do work at silly prices, but you have got to keep people busy. The industry simply can’t help itself and will do that.”

Numis’ gloomy prediction is echoed by analyst KBC Peel Hunt, which has cut its profit forecasts for UK-listed consultants by up to 18% and its free cash flow forecasts by as much as 31%.

Numis and KBC both track the fortunes of London Stock Market-listed firms, and both believe that most firms are in a good position to survive, aided by strong balance sheets.

But concerns remain for White Young Green, which has a relatively high net debt of £68M.

“The company has done the right thing, but it has still got to do a lot more on cost reduction, and by that I mean people,” said Raleigh.

WSP is considered to be in a stronger position after acting to protect profits by cutting jobs.

The 500 job cuts have been made following a consultation period which began in November. Up to 120 jobs are going in the UK.

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