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Consultants look to infrastructure and energy for growth

Engineering consultants are increasingly looking overseas to supplement falling UK income, but in sectors like rail and power, there is still comfort to be found at home.

The top 10 engineering consultants table shows little change from last year, albeit URS’ takeover of Scott Wilson now means that URS includes consolidated revenue from all parts of its businesses in or managed from the UK.

Click on table to enlarge

Top 10 engineering consultants crop

This sees URS jump to fourth on the table, among heavy-hitters Atkins, Mott MacDonald and Arup, all of whom recorded increased turnover. Atkins was, however, unique among the four in that it recorded growth in pre-tax profit of 48.9 per cent to more than £135 million.

Mouchel drops a place, having generated more column inches than most in the past year, with changes in leadership, office closures and RBS, Lloyds Banking Group and Barclays taking control of the newly formed MRBL Ltd following its administration.

Mergers and acquisitions have been buoyant in the sector, with consultants expecting the trend to continue in the short term.

Atkins bought consultancy Technical Services Scotland for £785,000 from RWE npower’s Bellshill Technical Services group, while it also picked up Pöyry’s oil and gas business for more than £15m in June of 2011.

Mott MacDonald bought Mouchel Energy in October 2011 for an initial outlay of £2.55m, a move that will start to see real dividends in the coming months, says Mott MacDonald group strategic development director Kevin Stovell.

He says the purchase “filled a hole” for the consultant in the UK in oil and gas and is important for acquiring gas transmission distribution engineering skills that it can use internationally, as well as strengthening existing relationships with high-profile clients such as National Grid.

Mr Stovell says he expects the M&A trend to continue in the sector and says he wouldn’t rule out Mott MacDonald seeking to merge with another one or two employee-owned consultancies.

“I can’t see what is going to stop this M&A trend. It might slow down over time among those companies buying most strongly if the people they have bought don’t work out,” he says.

He insists the firm is keeping an eye on the market and has had conversations with companies, but that it would be “employee-owned firms with similar market interests” that would be most attractive.

Overseas battle

Mott MacDonald targets about 35 per cent of its work in the UK, but while it’s facing an increasingly tight battle for work at home with competition high among consultants, shifts in spending abroad are also resulting in an increasing battle for work.

Mr Stovell says: “There is much more competition, not just in the UK. The Middle East is becoming more competitive because firms are coming into the market that haven’t been there previously and we are seeing contract terms that are just not attractive to us.

“We are seeing lower margins than before, but those were in exceptionally good times and this is just normal. But even in the Middle East, the money has moved around and is in Qatar and Saudi Arabia now so [consultants] are having to move around as well.”

One merger that has yet to see results - after only being completed last month - but will have an effect on the market in the coming year is Genivar’s £278m buyout of WSP UK.

The engineering and design consultancies will form a company with a combined revenue of £1.1 billion and 14,500 employees working in 300 offices.

WSP UK deputy managing director Mark Naysmith says that in the UK, 2011 had been a challenging year for the first half, particularly in civils as highways work dried up, but the second half was stronger, with a particular boost from the rail sector.

Mr Naysmith says the business has seen a lot of front-end planning work, but the building market is slow, including a “long four years [in recession] for very little new-build residential”.

WSP UK’s strategy is to maintain the core of the highways team, despite reshaping the business
in recent years, with average employee numbers down by almost 200 in the latest results.

Mr Naysmith says highways work will pick up, but the firm is in a good position in rail, where it has grown consistently over the past five years. While it has yet to pick up High Speed 2 work from its engineering framework, it hopes to secure a first deal soon.

Nuclear option

Firms will also be looking to the nuclear sector, with Arup and Jacobs among those already winning work with EDF and NuGen, but the associated infrastructure alongside the main reactor cores will be a lucrative field for years to come and is an area WSP UK will watch closely.

“We don’t have the track record [to support bidding for reactor work] but our strategy is to support the associated infrastructure,” says Mr Naysmith.

“We will position ourselves for buildings and infrastructure associated with new nuclear plants and will be aligning ourselves with contractors.”

Consultants are reporting shifts in relationships with contractors too, with one managing director telling CN that the amount of work his firm is winning directly from contractors, rather than clients, has increased significantly in recent years.

The renewables sector is expected to be lucrative in the next few years, with firms looking to Scotland for work as it aims to provide 100 per cent of its energy needs through renewable sources by 2020, while offshore wind is seeing increasing government support and foreign investment.

But target markets such as rail and power are already becoming increasingly competitive, with work on Crossrail ongoing, HS2 upping its consultant recruitment and the government’s £9.4bn rail investment from 2014 to 2019.

Firms are expected to continue targeting more work abroad in the short term, with WSP UK looking to double global activity to 30 per cent of its business, and the likes of Arup and Atkins continuing to secure lucrative deals.

All eyes will be on Mouchel as well, as the troubled firm looks to recover its strength with its lenders as its owners, a deal its chief executive Grant Rumbles said secured the “long-term future of the business”.

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