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CNinsight100: Specialists feel the pressure

Many major subcontractors report falling turnovers but survive with market shares intact the CNinsight100 reveals.

As with previous years’ figures, there is a huge disparity between the largest and the smallest firms in the scaffolding sector.

Cape Industrial Services has retained its top spot, having increased its turnover in the year to 31 December 2009.
While sales were relatively flat, the same cannot be said of profitability. Despite retaining top spot, Cape moved from a profit of £31.5 million in the 2008 financial year to a loss of £43.7m in 2009.

Losses of this magnitude would be a major threat to a smaller firm, but as part of Cape Plc, the industrial services division is relatively well protected.

Deborah Services performed well and increased its turnover by 42 per cent during its financial year to 30 April 2009.

Deborah is a division of the Irish-listed group, Siteserv, and may have benefited from the support of its larger parent
company during the period.

The concrete contractors’ top 10 has changed from last year in that one of the major players, Lancsville, went into liquidation, owing more than 1,000 creditors over £15 million in total.

This was a case of a company increasing in size too quickly, having seen its turnover nearly double between 2007 and 2008. While previously there were six firms hitting turnover of more than £100m, this has now dropped
to just four.

By far the best performing firms in the sector, when judged by revenue growth, were Byrne Brothers and CJ O’Shea, which increased turnover by 30 per cent and 34 per cent respectively.

These increases could be a reflection of work won previously that is still working its way through, but when judged against the competition their performance really does stand out.

Other concrete specialists have performed well despite reporting falling turnover. The only loss recorded was from
Carey, which lost £9.5m in its financial year to March 2009 - the most recent financial year for which we have full accounts, while every other firm was profitable.

One newcomer to the list this year is MPB Structures, which narrowly missed out on being included last year, while a notable absentee is Heyrod, which saw its turnover more than half in its financial year to March 2009.

Balfour Beatty has retained the top spot in the specialist M&E sector, which it gained last year following the merger of Balfour Kilpatrick and Haden Young.

Balfour Beatty has in fact extended its lead at the top of the table, having increased revenue by £120m in the financial year to February 2010.

It does not, however, disclose profits at the divisional level so it is unclear just how profitable it is compared with its rivals.

The M&E specialists are generally the largest of all the specialist firms and have the biggest turnover figures.
The size of the market in which these firms operate and the variety of work they are involved with ensures a wide spread of firms working on very different projects.

Southern Electric Contracting is a division of Scottish and Southern Energy and mainly performs work on street lighting across the UK, often taking on contracts on a PFI basis.

NG Bailey, on the other hand, performs work across a variety of sectors, including public buildings, commercial, health and education. Figures for Mitie are the most up to date but do not have prior year comparables as there was an internal reclassification of its divisions following the end of its financial year.

SPIE Matthew Hall has the most out of date accounts, as they have not been updated for its financial year ending 31 December 2009.

Rotary has re-entered the table after dropping out last year, having had its accounts updated following its takeover by Australian HVAC specialist, Hastie Group.

The table for the specialist steel sector tells a mixed story for the year. William Hare Group and Cleveland Bridge are the only constituents to have registered an increase in turnover for their respective financial years.

Every other firm in the top 10 saw a fall in turnover, while two fell into the red after reporting losses for the year.
As was the case last year, three firms were significantly larger than the rest and reported turnover above £100m.
Despite seeing falling revenue, Severfield-Rowen is still by far the market leader.

Increases in steel prices earlier in the year put many contractors in a very tough position. Those that had entered into fixed-price contracts when the steel price was at its lowest would have had to take the price hikes on the chin,
rather than pass them on to clients.

Given the slowdown in the construction sector over the past 18 months, this is the last thing the steel contractors need. The steel price is only partially dictated by supply and demand issues in the UK.

Demand for steel from the massive Chinese market has led prices of iron ore and coking coal to double in the past year, while the price of nickel, used in the manufacture of stainless steel, has also increased significantly.

The table next year could see further reductions in both sales and profits, caused by a market which is still weak yet enduring rising prices.

A look at the top 10 list of piling subcontractors shows that the market for these firms has been particularly tough in the past 18 months.

These companies are a leading indicator of future activity, as they are situated at the start of the construction activity curve.

A resumption of development activity, particularly in the commercial sector, would be a big help for these firms.
While there has been talk of a resurgence in commercial developments in the West End and the City of London, there has been little actual activity in this sector.

A number of schemes are planned and several firms are in talks with development partners, such as Land Securities and Canary Wharf Group, on the £350m Walkie Talkie tower in the City, but actual starts on site are
few and far between.

The situation in London looks more positive than in the regions, but activity needs to pick up substantially in the capital before the ripple effects are seen throughout the rest of the UK.

Bachy Soletanche took the top spot this year, following a dramatic fall in turnover at Roger Bullivant, whose turnover has fallen from £127.9m in the 2007 financial year to just £66.1m in the financial year ending 31 December 2009.

Expanded Piling had a very tough year to 31 March 2009, as turnover fell by 58 per cent from £37.6m a year earlier to £15.9m. If the market remains tough and the expected commercial revival does not materialise, then figures could be just as bad for the sector next year.

There hasn’t been much change in the demolition subcontractors list, aside from the fact that all except Coleman have seen a reduction in turnover in their most recent financial results.

Keltbray has remained in top spot following a solid performance, one which actually resulted in an increase in profits to £5.8m in the financial year to 31 October 2009.

Previously, Keltbray had worked on some prestigious projects in London, including the 310 m-high Shard and the 290 m Pinnacle in the City.

Despite a resilient performance in the 2009 financial year, Keltbray directors do not expect to see an improvement in 2010.

Demolition firms are exposed to changes in activity in the sector generally, and as long as activity levels in most sectors remain low, they are unlikely to see a reversal of fortunes.

As Keltbray consolidated its position at the top, those firms behind it appeared to struggle. But each of the top 10 firms remained profitable despite some big falls in turnover.

Erith saw its own turnover fall 43 per cent in its financial year to 30 September 2009, yet remained profitable at the pre-tax level.

The demolition sector is exposed to the early part of the construction cycle in much the same way as piling firms.
As the sector was among the first to experience the recession, the hope is that these firms will be among the first to feel the full effects of the recovery.

Josef Gartner has consolidated its position at the top of the building envelope specialists after a strong year, which saw its turnover rise by 60 per cent to £83.2 million.

Building envelope firms are heavily exposed to sectors which have been growing over the past few years, such as education.

This sector has now come under immediate threat after the abandonment of the £55 billion BSF programme, but work will continue on those BSF projects already started.

The commercial sector is also a major market for the building envelope specialists and has suffered throughout the economic downturn.

While there are signs of life in the London market, this has yet to feed through to actual activity and the regional commercial market will take longer to feel the resulting effects.

The three companies at the top of the specialist table have all boosted turnover in their most recent financial years.
MPG Group reported a solid increase in turnover of 34 per cent despite what it described as a competitive year.

A statement accompanying its results said: “The market for internal services is expected to remain highly competitive in 2010, with clients seeking more value added in a tough economic climate.”

Given the cuts to the BSF programme and the time it will take to see a proper recovery in the commercial market, the environment in which the building envelope specialists operate may remain difficult for some time.

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