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Green Shoots?

Many had high hopes that 2012 would herald a return to growth for the UK construction industry, but the situation has remained challenging despite a number of major projects helping to boost revenues generated by geotechnics. Claire Symes looks developments over the last 12 months and what’s in store for the coming year.

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When the recession started to bite in 2008 few could have predicted how fast the impact would be felt or for how long the downturn would last.

It is the unpredictability of the economic climate that is still proving challenging four years on, making it difficult for businesses to plan for the future.

The start of major projects such as Crossrail, the Lee Tunnel, new Forth road crossing and the London Power Tunnels over the last 12 to 18 months has undoubtedly given the ground engineering sector a lift.

But many of the respondents to this year’s Geotechnical Services File (GSF) survey say the schemes coming up for tender are very regionalised, too centred on
infrastructure and often at the complicated end of the spectrum. They also say there are just not enough small to medium sized contracts to go round.

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Headline figures

The revenues generated by the top 100 firms listed in the GSF make the sector appear to be pretty healthy. In 2009, the top 35 companies in ground engineering generated a combined turnover of £1.119bn, but this had dropped to £869.3M in 2010 and then just £661.4M in 2011.

Figures collated for this year’s GSF show that revenues have grown to £880.4M. On face value this may appear to be good news but many are concerned that the figures are the result of the “Crossrail effect” rather than a real return to longterm growth.

“The hangover after the party of Crossrail is the biggest issue facing the industry but whether it will come in a year or two years’ time it is hard to say,” says Keller managing director Jim De Waele.

Some of the changes in the industry also have to be taken into consideration when analysing the headline figures - last year neither Roger Bullivant nor Bachy Soletanche submitted financial details as the 2011 GSF coincided with the latter’s takeover of the former, so the 2011 top 35 was down around £120M.

This year Bachy Soletanche returned to the number one spot with a turnover of £89.4M last year, which is up from £65M recorded in the previous 12 months.

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Balfour Beatty Ground Engineering - last year’s number one in Bachy’s absence - shares second place with Roger Bullivant with a turnover of £65M.

Expanded Piling has been renamed as Expanded Geotechnical since the last GSF and is the UK’s fourth largest ground engineering firm with revenues of £56M, up from £40M recorded in the 2011 GSF.

Cementation Skanska has fallen from third place in 2011 to fifth place this year, but its revenues have risen from £40M to £55.3M.

The remaining places in the top 10 are taken by Keller, Fugro consulting, Bam Ritchies, URS and Van Elle respectively, with all recording rising sales - some by up to £10M apiece.

Among the other changes in the past 12 months, URS has dropped the Scott Wilson name, and once big names like Carillion and May Gurney have pulled out of the piling industry, but others, such as Keltbray, have entered the fray.

Market forces

Major projects such as Crossrail, the Victoria Station Upgrade, Lee Tunnel, London Power Tunnels and the second Forth road crossing are helping to keep the ground engineering sector busy. But there is still concern about workload coming from outside of major infrastructure schemes.

“Workload at the moment is very much led by big infrastructure projects, but commercial is starting to wave its beautiful head and looks promising for the future,” says a Bachy Soletanche spokesman. “The industry needs something after Crossrail.”

According to Balfour Beatty Ground Engineering engineering manager Mark Pennington, there are plenty of projects being put out to tender, but it is taking a lot more work to secure them than before.

“Many of the schemes we are seeing are complicated ones that need a higher level of resources just to win them and also to value everything down,” he says. “So there is a lot around, but it is all at the challenging end of the spectrum and this needs to be balanced with the more bread and butter piling projects and this is currently missing from the market.

“Some of it does come down to the fact that ground engineering companies are willing to accept a higher risk profile these days and some of the projects currently being put out to tender used to fall into the ‘too difficult’ category before.”

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With many firms chasing a smaller pool of work, margins are being put under pressure.

“Margins are still an issue and anyone letting piling contracts at the moment is getting a very good deal. You can win or lose a job by 1% these days,” says Bachy’s spokesman.

Soil Engineering business development manager Natalie Fennell adds: “Margins are being squeezed and we are getting lots of requests for best and final offers. This presents us with a major challenge as we want to maintain the quality of our service, not cut corners.”

Return on investment is also a factor in whether work is awarded or not.

One ground engineering professional told GE that clients’ confidence is highly variable and is hard to predict from one month to the next.

“The market is patchy and subject to yo-yoing,” he says. De Waele adds: “The Euro crisis is dominating decisions about whether to invest or not. The money is out there but there is not the certainty that people need in order to commit.”

Prospects for 2013

Although there is concern about where the bulk of work will come from post-Crossrail, the industry seems relatively confident that current workloads will be maintained.

According to the GSF survey, only 7% of respondents expect workloads to decrease next year, compared with 10% in 2011. Around a third of respondents also expect staff levels to rise in the next year but the other change expected is a move back to a more national, less London-centric market.

“The key projects for the industry have been Crossrail and the Olympics, which has seen a restructuring to focus skills on the south east,” says Cementation Skanska director John Chick.

“This is not a bad thing but I think through 2013 and 2014 the challenge will be to redistribute these skills nationally. There is potential in the north and north east for the future but London will probably continue to be the most important market for a while.”

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According to the survey results, power, rail and private housing are expected to offer the best prospects in the coming year with public housing, water and commercial expected to also offer good potential.

“Next year will be challenging but there is no need for doom and gloom,” says Chick. “I expect the market to become more positive towards the end of next year and through 2014. I am not expecting huge growth but there will be growth.”

De Waele agrees about the challenges ahead and adds: “Businesses need to be agile to survive. There are no givens anymore but it is an interesting time in the business and there are opportunities out there.”

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