Kier chief executive Haydn Mursell has said he expects to see “significant” consolidation in the UK construction market within the next two years.
Speaking to Construction News after his firm recorded an impressive set of 2014/15 financial results, Mr Mursell said that the number of top firms would start to shrink in the near future.
“Whenever you’ve got a fragmented market generating low margins then consolidation is a natural consequence,” he said.
“We’ve seen headlines about the Chinese being interested in Balfour [Beatty] for example; I think that’s the beginning of signs that consolidation will start to occur.”
“In the last 15 years we’ve seen 20 players drop to maybe ten. I think you’ll continue to see consolidation and Kier is very well placed in that.”
When asked if any major deals might be done in the coming year, Mr Mursell said: “I would expect to see something more significant over the next 24 months.”
The Kier CEO’s remarks came just a month after a report from EY, shared exclusively with Construction News, projected that the number of top tier contractors in the UK would halve over the next five years as firms merged or were bought by businesses based overseas.
Although Mr Mursell was cool on the suggestion that Kier would look for merger opportunities itself in the short term, he said the group was “very well placed” if consolidation did begin to take place.
Over the past two years, the group has bought May Gurney and Mouchel in deals totalling close to £1bn. But Mr Mursell said Kier now had “enough organic horsepower to see us develop nicely over the next year or two.”
In its full-year financial results, Kier posted turnover of £3.4bn and a pre-tax profit of £39.4m, both significant improvements on the previous year.
Its construction business also grew turnover £1.7bn, with profit margin in the division up to 2.2 per cent.
Mr Mursell said he expected Kier’s construction profit margin to reach 2.5 per cent by 2020, helped by the increasing diversification of the construction business internationally and into UK infrastructure.
“Over the next five years we expect to see international and infrastructure grow at a greater rate than UK building,” he told Construction News. “Those two areas have higher margins than UK building so the margin will increase to 2.5 per cent.”
He added that Kier would look to bid for work on more new nuclear projects, such as Hitachi’s proposed Wylfa Newydd plant and EDF’s planned Sizewell C development, having landed site preparation work on the French client’s Hinkley Point C plant in a joint venture with Bam Nuttal.
Mr Mursell admitted the JV had “gone into tick over mode” at Hinkley but said work would “ramp up again” once an expected investment decision is made next month.
Overall, he anticipated that work on new nuclear could be worth up to £200m a year to the firm annually.
Kier has also formed a JV with Carillion and Eiffage to bid for HS2 work, with Mr Mursell saying it was likely to go for “a number of parts” of the high-speed link once procurement begins.