Last year鈥檚 analysis of the 20 leading piling and ground engineering specialists detected a slowdown in the rate of growth; this year, we can see an actual reversal. For the first time since we began tracking the fortunes of the sector, workloads have fallen.
In 2016/17, the top 20 piling firms notched up a total collective revenue of just over 拢1bn. They have been unable to sustain that, however, and that figure has since fallen back below the 拢1bn threshold 鈥� down 4.3% to 拢961m.
This decline is due in no small part to the poor performance of the sector鈥檚 leading player, Laing O鈥橰ourke subsidiary Expanded. Still by far the largest business in the UK piling sector (and twice the size of its nearest competitor, Van Elle) Expanded saw turnover fall by almost 30%, from 拢284.3m to 拢203.1m, in the 12 months to March 2018.
鈥淭he directors are disappointed with the financial result for the year but expect the company to return to profitability in the future,鈥� said the company in its financial report for 2017/18.
While Expanded is listed as a separate business, its parent company, Laing O鈥橰ourke, doesn鈥檛 like to comment on the performance of specific business units. Instead, the directors 鈥渂elieve that analysis of the company鈥檚 risks should be viewed in the context of the Group鈥�.
Looking at group performance, then, Laing O鈥橰ourke reported a loss of 拢60.6m after tax during the year to March 2018. It was late filing its financial results due to problems refinancing 鈥� provoking fears among clients and staff of a possible Carillion-like crash.
That didn鈥檛 happen and, in fact, the 拢60.6m loss came as a relief after the previous year鈥檚 loss of 拢219.9m.
Laing O鈥橰ourke has not registered a profit for several years. It reported a pre-tax loss of 拢81m in the year to 31st March 2017, a loss of 拢267m in fiscal 2016 and a loss of 拢59m in fiscal 2015.
Expanded, on the other hand, had a good 2016/17 and made a pre-tax profit of 拢10.2m. Exactly what led to the slump in turnover and the 拢1.6m loss in 2017/18 is not clear.
Van Elle, the UK鈥檚 second-largest piling contractor, has also had an interesting
couple of years (for a full commentary, see the feature on page 41 of this issue). But despite boardroom upheavals and shareholder rebellions, the business filed very acceptable financial results for the year ending 30th April 2018.
Turnover was up 10.5% to 拢104m (2017: 拢94.1m) and pre-tax profit remained more or less static at 拢9.2m. In its strategic report, Van Elle admitted that 2017/18 had been a 鈥渄ifficult鈥� year despite a good overall performance in the first half. The collapse of Carillion 鈥� a major client 鈥� and poor weather in early 2018 were the main culprits, said the company.
Another leading contractor with an interesting recent history is Cementation Skanska. Despite being a famous name in the sector with an illustrious track record to commend it, Cementation is not wanted by its parent company and has had difficulty finding anybody willing to take it on.
Skanska put the business up for sale in May 2018 and it is thought to be up for sale still after a deal with concrete frame contractor Morrisroe fell through earlier this year. Morrisroe is understood to have considered the 拢55m asking price to be too high.
Meanwhile, as we report on page 37 of this issue, key Cementation personnel have decided to get out and pursue opportunities with rival contractors. Shane Baker, who ran Cementation鈥檚 London projects is now head of piling at McGee; he is joined by former Cementation colleagues Julian Mansfield and Darren Smallman.
Of course, none of this is discussed in Cementation鈥檚 financial report for the 12 months to 31st December 2018, filed at Companies House in March this year. The company says that it 鈥渃ontinued to invest in the business during the year to ensure that it continues to build upon its place in the piling, foundations and ground engineering market鈥�.
The figures themselves shouldn鈥檛 look too discouraging to any potential buyers: although turnover was down 9.3% to 拢62.4m (2017: 拢68.8) the business recorded pre-tax profits up more than 60% to 拢12.2m (2017: 拢7.5m) 鈥� a pre-tax profit margin of almost 20%.
If it鈥檚 margin you鈥檙e interested in, look no further than Keller UK. With a pre-tax profit of 拢22.6m for the year to 31st December 2017, Keller takes the number one spot for profitability. Pre-tax profit margin is an impressive 34.5%.
There are, of course, exceptional reasons for this. Keller UK (the UK operation of Keller Group, the world鈥檚 biggest piling specialist with an annual turnover of more than 拢2bn) actually registered an operating profit of 拢2m on a turnover of 拢65.5m in 2017. But that was before exceptional items:
鈥淎n exceptional credit of 拢16.7m arose as a further part reversal of a 拢54m exceptional charge taken in 2014 for a contract dispute relating to a project completed in 2008. The project was in connection with the construction of a major warehouse and processing facility in Avonmouth, near Bristol,鈥� explained Keller.
As part of the settlement agreement, Keller subsequently bought the property in May 2016 for 拢65m, selling it for the same price a year later. 鈥淭he sale therefore realised an exceptional profit before cost of 拢8m,鈥� said Keller.
Although growth rates fluctuate in every industry sector due to the interaction of various economic factors, it is seldom that our sector analysis detects an actual reduction in workloads year-on-year.
But in April this year we saw the combined turnover of the top 20 demolition specialists level-off at just over 拢1bn (our figures actually showed a marginal 0.3% reduction) as growth stagnated.
A 4.3% fall in revenues is not marginal, though. Piling contractors are among the first to start work on any project and if they are seeing workloads falter, following trades are likely to feel the effect further down the line.
Contract awards, chronicled every month in this magazine, have been riding high for over a year in defiance of expectations. But as the Builders鈥� Conference CEO Neil Edwards reports in his commentary to this month鈥檚 Contracts League, there are signs of potential storms ahead.
And when activity in the piling and foundations sector starts to fall, it鈥檚 a sign to sit up and take notice.
This article was first published in the聽
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