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GSF 2013: Market analysis

Demand certainly seems to be returning to the geotechnics market, but tight margins and recruitment issues are still presenting a challenge to many companies in the sector

This time last year many respondents to GE’s annual Geotechnical Services File (GSF) raised concerns about what would happen to the market when demand from Crossrail started to wane. Twelve months on and the sector is reaching that point, but it seems that demand from other infrastructure projects, as well as the residential and industrial markets, is ready to take up the slack, and some.

The picture is certainly far rosier than any dared to imagine this time last year, but there are still some concerns about whether the recovery is going to be sustained in the long term. There is also the problem of margins – many are reporting increasing order books but until more ground engineering companies become busy enough to turn away work, clients will still be getting very good value out of the geotechnics business.

Another issue that is of concern to many in trying to meet the increasing demand for ground engineering services is matching it with skilled staff.

Market gains

The recovery in the market is well-illustrated by the combined turnover of the top 35 companies in the turnover rankings – this year the businesses generated combined sales of £988M, up from £880M last year and well above the market low of £661M seen in 2011. If current market expectations play out over the next 12 months it is possible that the turnover of the top 35 business could equal or exceed the £1,119M recorded in the 2009 GSF before the impact of the recession started to bite.

The beneficial effect of Crossrail on the ground engineering market can be clearly seen in the positions of the top 10 businesses. With a rise in revenues from £55M last year to £90M this year, Cementation Skanska has moved up from fourth place to claim the top position in the 2013 GSF. Balfour Beatty Ground Engineering has retained its number two slot and seen sales increase from £65M to £83M.

This year’s third and fourth places are taken by sister companies Bachy Soletanche and Roger Bullivant, respectively, which have broadly maintained turnover between 2012 and 2013 but have slipped from the top two slots as a result of Cementation and BBGE’s gains.

URS is one of the other big gainers, moving up from ninth place last year to fifth place with a jump in revenues from £37M to £61.46M. Van Elle has been pushed down to 11th position by a new entry to the GSF by Fugro Seacore which recorded revenues of £44.2M. The other positions in the top 10 are taken by Fugro Geoconsulting in sixth place, Expanded Geotechnical and Keller in joint seventh place and Bam Ritchies at number 10 in the rankings.

Positive results

“The last 12 months have been difficult but there is a marked increase in demand this year and we hope it will be long-lived in 2014, however, there is no certainty of what the next year will look like,” says BBGE managing director Malcolm O’Sullivan.

“We are seeing strong growth in the energy market, especially internationally. UK infrastructure is also coming back with work coming through for both rail and highways.”

David French, Atkins

“The growth seen so far this year has been a surprise,” adds Roger Bullivant managing director Julian Gatward. “We expected 2013 to be much like 2012 with little change but we have seen the number of projects in hand grow continuously since March this year.

“Originally we had anticipated 2013 and 2014 being flat and the market not picking up until 2015.

“One of the biggest changes in 2013 has been in the housing market with new starts increasing dramatically over the last five months.”

Growth sectors

Cementation managing director Martin Pedley has also noticed improvements in the market this year: “There has very much been a two-speed market in the last 18 months with major infrastructure projects creating demand in London, but the market has been challenging regionally. But we are starting to see shoots of recovery outside the south-east.”

Despite the recovery, O’Sullivan called for the industry to pull together over prices: “Margins are still being squeezed and it is very cut-throat. We need to demand a fair price for our work and not just go for turnover.”

Growth forecast

For the first time in the last five years, respondents to the GSF are not expecting workload to decrease in the next 12 months and more than half are expecting levels to grow during that period.

Housing is expected to continue to drive the ground engineering market over the next year but other big growth areas over the next 12 months, according to the GSF survey, will be in the power and rail sectors.

O’Sullivan reports that BBGE is seeing a lot of activity in the energy market, especially for wind farms and ports to deliver the offshore infrastructure. “We have also had some success in the rail market and expect further growth,” he says.

“We are seeing strong growth in the energy market, especially internationally,” says Atkins geotechnical engineering network chair David French. “UK infrastructure is also coming back with work coming through for both rail and highways. The growth started first in London and the south east but is now spreading out towards the regions more.”

“The growth seen so far this year has been a surprise. We expected 2013 to be much like 2012 with little change but we have seen the number of projects in hand grow continuously since March this year.”

Julian Gatward, Roger Bullivant

Pedley also believes that there are a number of major projects on the horizon which will further bolster the market. “We are already working on the Victoria Circle scheme with BBGE but work at Battersea, the Northern Line extension and Chelsea Barracks could also help to fill the Crossrail gap,” he said. “Nonetheless, geotechnical projects generally have short lead in periods so there is less visibility about what lies ahead but there are real signs that the market is recovering.”

URS director of geoservices and mining John Holden adds: “Major new UK projects such as the Mersey Gateway Bridge Crossing and Bank Station Capacity Upgrade, both of which we’re involved in, will have a positive impact on our industry.”

The other potential boost for the geotechnical market is HS2. While the benefits of HS2 are still being debated, it is likely that the preliminary work, such as site investigation for the scheme, will push ahead to ensure the engineering feasibility of the scheme is not in question. This could also provide a significant lift to the UK ground investigation market, but the fragmented nature of the sector and the impact of the last five years of economic downturn, mean that the sector may not have the capacity to meet the demand.

workload prediction

LBH Wembley director Seamus Lefroy Brooks has suggested that site investigation costs would be in the region of 0.15% of the overall project costs, so given that the value has been recently been revised up to £32bn, the site investigation work could be worth around £140M. “I think it could easily exceed the present capacity of the top ten contractors, but there must be a good deal of kit that has been moth-balled over the last few years,” he said.

Nonetheless, Geotechnical Engineering director Neil Parry adds that finding skilled site workers and reporting staff would still be a challenge.

While there are still a lot of variables in the market, the general trend is an improving one. “I’ve worked through several recessions before and I think we are now definitely seeing the construction cycle coming round to growth again,” concludes French.

Holden also expects the market to continue improving: “We’ve seen an increase in due diligence reviews for mergers and acquisitions, which bodes well for our industry in the year ahead.”



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