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Engineering consultants still looking abroad but UK outlook improving

As the government attempts to bring the UK’s infrastructure up to the level of nations across the globe, engineering consultants are well placed to benefit in the medium term.

The World Economic Forum ranked the quality of the UK’s infrastructure in 2012/13 as inferior to countries including Barbados, South Korea and Spain.

Unsurprisingly, the government appears to be taking steps to rectify the UK’s deficiencies with a major focus on rail and road building, meaning transport is predictably an area of focus for engineering consultants.

Hyder Consulting UK managing director Graham Reid says the company targets clients that it thinks will have money to spend in the long term, and it needs to do that early.

“We will know what work is coming from the Highways Agency and Network Rail and will position ourselves quite a bit in advance,” he says.

The majority of major engineering consultants will take a similar view, with rail and road spending set to increase from 2015, while clarity on the future of the Highways Agency should lead to a more detailed pipeline of work.

Sectoral disparities

Mott MacDonald chairman Keith Howells says there are signs of improvement across the UK generally, but that the outlook varies from sector to sector.

Although he admits highways “hasn’t really got going for us yet”, he says there will be a lot of work there from 2015, though the sector has been “challenging”.

“I think [improving conditions] are very sector-based. We have seen improvement in rail”

Keith Howells, Mott MacDonald

Highways work remains a strategic area of focus, with Mott MacDonald continuing to bid for asset support contracts - several of which have been hit by delays - in a joint venture with Balfour Beatty.

“I think [improving conditions] are very sector-based. We have seen improvement in rail,” Mr Howells says.

“Network Rail is definitely spending more money, and we are heavily involved in Crossrail, High Speed 2 and busy at Heathrow.”

But these increasingly positive sentiments do not translate to all sectors. Buildings remain tough.

WSP UK managing director Mark Naysmith says that even where there are strong markets, such as commercial and residential in London and the South-east, competition is fierce and will become more so.

He adds that there will be a move away from consultancies “taking on high-risk contract work” and expects the flurry of mergers and acquisitions in the sector to continue in line with consultancies’ shift to the international market.

Acquisitions activity

Mr Reid says Hyder expects to be active in mergers and acquisitions. “We are looking to grow through new acquisitions into areas where we are not there, areas where there would be significant growth,” he says.

Among Hyder’s target sectors for growth is new nuclear and the energy market more generally, which is still being pinpointed as a huge opportunity for the industry, despite delays to nuclear and electricity market reform.

Mergers and acquisitions between major firms in 2012 have had an impact on this year’s table of top 10 engineering consultancy firms, including the £278m merger between WSP and Genivar, which has seen the firms double employee numbers to 15,000 and boost growth on several levels.

CH2M Hill’s acquisition of Halcrow has resulted in the firm increasing its number of UK employees, with the company’s management now fully integrated under the US parent’s board.

The firm’s divisional president Jacqueline Hinman told Construction News earlier this year that it would target areas such as defence, nuclear and power, where the margins are often greatest.

She added that CH2M Hill wanted to move into markets in which it is traditionally strong worldwide, but that are less mature in the UK.

Rebranding has seen Capita Symonds become Capita, and the firm is chasing the new £400m private sector partner role for the Ministry of Defence as one of its priorities, in joint venture with URS and PA Consulting.

Strong performances

Jacobs has demonstrated impressive growth, according to its latest filed accounts, with pre-tax profit up £20m year on year to £24.3m during the 12 months to
30 September 2012, in line with the increase in its turnover of 12.1 per cent.

Top of the table is Aecom, which says that in the UK, 35 per cent of its turnover will be from overseas projects. The company will be opening news offices in Cardiff and Norwich this autumn.

“Consultancies are already increasingly looking overseas to bolster their books”

Mark Naysmith, WSP UK

Atkins has seen group turnover and pre-tax profit fall year on year. In the UK, however, it posted a 10 per cent rise in operating profits (£56.6m) and a 6.3 per cent margin for the year to 31 March 2013.

The company pointed to spending in the water and rail sectors as a positive, but said it has an “ongoing focus on driving operational efficiency through cost reductions and through supplementing skills with niche acquisitions where appropriate”.

Atkins’ disposals have been of interest, notably the decision to sell its highways operation and maintenance business to Skanska for £18m in February, and the disposal to Moss & Associates of Peter Brown, its US construction management at risk business, in a deal which saw Atkins pay cash of £2.6m.

Atkins chief executive Uwe Krueger explains that the disposals are due to its strategy of optimising its portfolio of businesses.

Mr Howells says the Skanska sale was a smart move, after Atkins “went into all sorts of things” around a decade ago and has now started to retreat from areas it may have seen as “low margin but with good cashflow”.

Overseas prospects

Internationally, companies are divided over where they see opportunities, with Mr Howells anticipating that Canada will see a slowdown in the medium term having “maybe peaked”, though companies are still looking to the Middle East for opportunities, with Qatar among the priorities.

Mr Naysmith says that in terms of where the work is likely to be, “consultancies are already increasingly looking overseas to bolster their books” and he predicts this will continue in the near term.

The industry should expect to see more sales, more mergers and more acquisitions in the short to medium term, and a continuing focus among leading firms on international markets.

But with lucrative new jobs and markets such as HS2, the Thames Tideway Tunnel, shale gas and new nuclear around the corner, the UK market will become increasingly competitive as firms start to see growth at home.

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