WET News

4 Leaders 2016 The LeADeRS 2016 Profits rise but contractors are still investing The Leaders 2016 index reveals contractor net assets have risen but the return on capital is still under pressure. Maureen Gaines reports. future growth rather than taking the profit. Sales show steady growth but the return on capital is still under pressure, another indication of continued investment. As the industry tends to run on major contracts that take more than a year to come to fruition, it is likely that contractors have been investing in new post-recession projects which have been generating costs, but which will take another year or more to deliver profits. In compiling The Leaders 2016 we have taken the top Tier 1, 2, and 3 contractors and profiled each company in turn, and including accounts for the past three years*. Yet again, the water sector is dominated by the impact of a five-year regulatory cycle. And where a year ago there was optimism that the peaks and troughs could be smoothed out in the transition from AMP5 to AMP6 this has been replaced by contractors despairing of the slow start of AMP6. Some say it has been the worst start to an AMP cycle since privatisation nearly 30 years ago. Inefficient There does not seem to a single reason behind the slow start but rather a ra„ of issues including water company restructures, totex and the introduction of ODIs. But it does seem that where water companies have changed their business models for AMP6 and beyond, then project starts have been affected. There is a belief that the AMP cycle is hugely inefficient where the supply chain loses people and momentum. Contractors now have four years in which to deliver a five-year programme, and there are concerns this will "exaggerate the peak" that will come and the problems it will bring. It is worth noting that come AMP7 only three water companies – Severn Trent, Yorkshire and South West Water, will be going out to the market with frameworks. The others all awarded frameworks covering AMP6, 7 and, in some cases, 8. There is likely to be intense competition for these. In the meantime, one-off projects are key targets to bolster the coffers. Risk management and sustainable growth also to have appeared on contractors' radars. Some are steering well clear of taking on any unnecessary risk. This could be because some construction companies have reported problems with legacy contracts or loss- making contracts. One company to be affected by loss- making contracts in the water sector, and a major casualty, was Imtech Water, Waste T otal combined contractor sales have continued to rise, albeit slightly, from £29.62bn to £30.8bn. Having seen a dramatic fall in net profit in The Leaders last year, there has been a slight increase this time round from £602M to £607.1M. This is according to The Leaders 2016 Index, an exclusive guide that offers an insight into how the leading civil and process engineering companies serving the UK water sector are performing in a very competitive market place based on their financial performance between 2010 and 2014. Net profit, which amounted to £1.5bn in 2012, has remained low while net assets have risen, perhaps indicating a continuation of contractor investment for "Severn Trent, Yorkshire and South West Water will be going out to the market with frameworks. ere is likely to be intense com- petition for these. In the meantime, one-off projects are key targets to bolster the coffers"

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