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GSF 2018 Analysis: Holding stable

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In the past 12 months the market has held its own with some gains, but there are still widespread concerns over the impact of Brexit, skills and HS2 on the industry in the coming year.

Major mergers, the collapse of Carillion and project delays seem to sum up the last 12 months, which might give the impression that the market is in a downturn. However, despite the challenges, which include Brexit uncertainty, the results of the 2018 Geotechnical Services File (GSF) suggest that the ground engineering market has held its own with some businesses reporting growth.

The combined turnover of the top 100 geotechnical businesses reported in this year’s GSF reached £1.55bn, which is up slightly on figures for last year, which is good, especially with market changes resulting in a few large names missing. Rather than it being the biggest companies that have seen growth, it is lower down the rankings where the gains have been made – companies needed a turnover of more than £1.3M to make the top 100 this year, compared to £0.9M in 2017.

Cementation Skanska, which owner Skanska put up for sale in May this year, takes the top spot in the 2018 rankings with a turnover of £83M, which moved it up from fourth place last year. However, Van Elle declined to take part in the survey this year and, based on its latest full-year results of £103.9M, it would have taken the top position, up from second place last year.

The current uncertain economic climate is resulting in more clients delaying the start of projects

Last year’s top company, Balfour Beatty Ground Engineering, has dropped to second place with a turnover of £79.9M. Fugro maintained third position, although its revenues dropped slightly to £78M. Roger Bullivant took fourth place with a turnover of £75.5M, which is similar to the figure reported in 2016 when the business last participated in the GSF and positioned the company third.

Bam Ritchies is one of the few major players to report growth in the last 12 months and its revenues of £75M, up from £65.5M in 2017, moved it from seventh place last year to fifth in 2018. Bachy Soletanche, which has previously taken the top spot, saw a return to form with turnover growing from £60M in 2017 to £71M this year to move up from eighth place to sixth.

Keltbray also recorded a small gain but not enough to maintain 2017’s sixth place and its £70M turnover puts it in seventh place this year.

Keller has stayed steady at £60M to retain eighth place. Expanded also maintained revenues at £55M but saw its position change from 11th place last year to ninth in 2018. Bauer Technologies also had a good year with a jump in revenues from £20M to £36M in 2018 to move the company up from 18th place to 10th.

One of the most significant changes in the rankings is the lack of consultants in the top 20 with Atkins being a notable absence as it was unable to submit financial figures following its acquisition by SNC Lavalin in July last year. Jacobs also appears to have only submitted its own figures and not included those of CH2M, which it acquired at the end of 2017, and whose name has disappeared from the GSF listings.

Full details of mergers and acquisitions – as well as the drivers, including the influence of the Carillion collapse – are covered in our GSF consolidation and changes article.

Market issues

The data gathered for this year’s GSF clearly shows changing trends in the market, but the headline figures don’t reveal the detail of the drivers for this change. “The last 12 months has witnessed a stiffening of the market, with the uncertainties of us leaving the European Union weighing down on mid- to long-term investment decisions,” says Keller managing director Jim De Waele. “From Keller’s perspective, the volume of work has remained similar to 2017, but margins have been squeezed.”

Bachy Soletanche managing director Chris Merridew adds: “The last 12 months have been challenging for the non-housing market. Ther ehas been uncertainty in the private market both in developing new projects and in committing to start jobs which have been progressed to construction stage. Public projects have progressed, but these have been largely major schemes which have limited opportunity for the widermarket.”

Keltbray managing director for piling Stuart Norman says the start of the year was quiet but the market is now picking up. “We are starting to see projects first discussed at the start of the year come through,” he says. “Lots of clients have several rounds of bidding that leads to aslower start on projects and theindustry has lost some momentum.”The type of project has also been a factor in whether 2018 is a good, bad or indifferent year for businesses.

Securing work at sensible margins and getting paid have been major issues for us. Overdue debt  increased four-fold at the turn of the year

RSK divisional director for geoscience and engineering GeorgeTuckwell says: “It has been relatively buoyant for us, partly because of some ongoing large infrastructure projects. Other project types have been more up and down, with more work around in recent months.”

Soletanche Bachy UK group managing director and chairman of the Federation of Piling Specialists Phil Hines adds: “The current uncertain economic climate is resulting in more clients delaying thestart of projects, particularly in thecommercial sector and in the London housing market. Outside of London the housing market remains relatively buoyant and the government’s commitment to infrastructure spending should see these sectors continue to provide opportunities going forward.”

workload predictions

workload predictions

Competition has also been a factor in the changing structures of the market. “The market has become very competitive,” says Norman. “We are now seeing clients’ tender lists being much longer – it is not unusual to see 10, 12 or even 15 companies on a tender list – and more companies have focused on innovation so it is harder to stand out. Clients are focused more on the bottom line than ever.”

The scale of projects coming onto the market has also been smaller, with uncertainty around some major projects adding further woe. According to the GSF respondents, margins and risk are a real issue for the industry with 45% of respondents reporting small margins as a significant concern and 33% saying that risk transfer was also a big problem.

“Securing work at sensible marginsand getting paid have been major issues for us,” says Socotec managing director of geotechnical services Philip Ball. “Overdue debt increased four-fold at the turn of the year.”

Tuckwell has experienced similar problems. “There has been continued downward pressure on rates, and an undervaluing of ground investigation in the overall project,” he says. “Getting paid on time has been an issue, particularly by principal contractors and government agencies.”

A year ago, GSF respondents were expecting 2018 to be a year of consolidation with markets remaining static, which has been largely borne out by this year’s survey, but the anticipation was that 2019 would be a boom year with the prospect of HS2 getting underway. News that notice to proceed on HS2 civils contracts has been pushed back from this November this year to June 2019 due to the need to reduce costs, means that the hopes are now shifting to 2020.

uk regions see growth

uk regions see growth

Norman says: “Delays on HS2 will affect the sector. The growth expected in 2019 will now be delayed to 2020.” De Waele adds: “Looking ahead we anticipate that the next 12 months will be similar to this year, but beyond that then HS2 will provide a much-needed fillip.”

However, he believes that HS2 will have a wider benefit for the industry. “Even if contractors are not directly involved in HS2, we would expect that the reduction in capacity will result in improved prices,” he explains. “Customers wanting geotechnical services in the second half of 2019 should take note and be prepared to involve their supply chain earlier than is typical.

”For the first time in five years there has been an increase in the number of GSF respondents expecting workloads to fall in the next 12 months with 6% expecting a decline by up to 20%, compared to just 1% or 2% of respondents in recent years. Nonetheless, 58% of respondents are expecting workloads to increase. Most of those expecting workloads to grow by around 10% (35% of respondents), while 12% of respondents are expecting 20% growth, 8% forecast 30% growth and 3% expect gains of 40% or more.

The growth looks set to be spread across all UK regions with more respondents expecting growth in all regions compared to those predicting a decline. The biggest growth areas, in order of gains, are expected to be the Midlands, London, north-west England, south-east England, southern England and northern England with more than 25% of respondents expecting growth in these areas.

When it comes to the market sectors that will drive this growth,r etail is the only sector where more respondents expect a fall in business compared to those expecting growth.The biggest gains are forecast (in order of growth) to be in the rail, road, power, housing (public and private) and aviation sectors. Nonetheless, Brexit is also continuing to cause nervousness in the investment market. Ball says:“We don’t expect to see the impact of uncertainty around Brexit resolved until 2020.”

international see growth

international see growth

Tuckwell agrees: “Once Brexit is complete and there is some stability, we are hoping confidence will grow. As it stands, uncertainty is affecting investment in construction projects. It is also a risk to the availability of skilled workers in ground investigation and geotechnical consultancy.”

While political issues are making it challenging to understand theupcoming project pipeline, there is another issue that is within the control of the sector that will drive change in the next year and beyond –innovation and the need for change.“

It is a very conservative industry,” says Tuckwell. “Changes that areneeded are around innovation in improving safety, mitigating risk of unforeseen ground conditions and reducing overall project costs. For some larger high-profile projects there has been an increase in demand for higher tech investigation and testing techniques.“

Innovation is being talked about a lot more, but change will only be driven by clients requiring more than lip service. This has started to be the case where foreign investment is backing the project and where it is recognised that build costs can be reduced if ground risks are better understood.”

Norman also believes that the benefits of innovation will come to the fore over the next 12 months.“ Companies that have spent the last six or seven years looking to improve will start to see returns on their investment as it will differentiate them within the current competitiveness,” he says.

While 2019 may not be the boom year many hoped for, growth will still come, just later than expected. Major project delays and continued Brexit uncertainty mean that many are expecting next year to be similar to this year in terms of market performance and industry challenges. The number of mergers and acquisitions – with expectation of more to come (see box p16) – does beg the question as to which names will make the 2019 GSF ranking.

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