WET News

LEADERS 2018 5 still worthy of interest for the investor despite the tight regulatory climate and political risks related to nationalisation. Other notable pieces of M&A activity during the year were Kier's acquisition of McNicholas, which added considerably to Kier's turnover and utilities order book, and Murphy's purchase of AECOM Design & Build Ireland, which has strengthened the former's presence in the Emerald Isle. Cyclical effects When considering the figures in the Leaders database it is important to note that the industry is characterised by sudden and unpredictable changes in sales, profits and trading ratios. This is in large part due to the long-term nature of the business: a company that wins a major contract might expect to then invest heavily in that contract for the next few years (thus depressing profit performance) before reaping the benefits in terms of a profits jump as the contract comes to a conclusion. With this in mind, a look at the graph below clearly shows how productivity and sales are trending upwards while assets decrease – but don't be surprised to see this position reverse next year as greater certainty emerges around the 2019 price The Leaders exclusive index illustrates contractors' total combined sales, net assets and productivity patterns for the five years from 2011 TOP 10 THE LEADERS: COMBINED FIGURES Turnover £m Balfour Beatty 6923.0 Amec 5440.0 Kier Group 4128.8 Morgan Sindall 2561.6 Amey 2119.6 Mace 1965.8 Skanska UK 1650.6 Costain 1573.7 Laing O'Rourke 1468.5 Interserve Construction 1043.2 Operating profit £m Kier Group 48.2 Morgan Sindall 47.4 Mott MacDonald 35.4 Costain 34.9 Morrison Utility Services 23.7 Skanska UK 22.6 J Murphy & Sons 15.4 Bam Nuttall 12.7 Mace 9.4 Lanes 8.7 Return on capital % Interserve Construction 148.2 Costain 31.0 Stonbury 30.2 George Leslie 28.7 Stantec 26.7 Barhale 22.9 Lanes 22.6 Black & Veatch 22.5 Trant Engineering 20.4 Mace 17.5 Gross margin % J. Murphy & Sons 50.5 Mott MacDonald 38.1 Stantec 34.4 Stonbury 31.4 Lanes 28.5 North Midland Construction 27.0 George Leslie 24.6 Veolia 21.1 Amec 10.8 Black & Veatch 10.6 Sales/employee £k AECOM Design Build 710.6 Dawnus 504.4 Mace 443.7 Interserve Construction 441.5 Morgan Sindall 428.2 Volkerstevin 391.0 Costain 375.6 Galliford Try 368.4 Balfour Beatty 308.4 George Leslie 298.5 review and associated business plans. Looking forward to the next AMP period, direct procurement for customers (DPC) is a reform being introduced by Ofwat that will mean teams in charge of the biggest projects – initially those worth £100 million or more – will be empowered to procure contracts and suppliers independently rather than having to operate through water company frameworks. This will be welcomed by many in the contractor community as a move that opens up competition and provides greater openness for a large parcels of work, although existing incumbents in the frameworks of the larger water companies may be less thrilled by the development. More generally, traditional built infrastructure solutions will be expected to prove their worth against smart technology and market-led Totex approaches, and contractors and other companies serving the water industry will benefit from having more strings to their bow than simply pouring concrete. The strategic repositioning of several companies highlighted in the following pages reflects this trend, and shows how specialisation and its opposite, diversification, can be effective strategies when faced with macro-economic challenges to long-established business models. FIVE-YEAR INDUSTRY TREND 140 120 100 80 60 Sales Net assets Sales/employee 11/12 12/13 13/14 14/15 15/16 THE NUMBERS 2012/13 2013/14 2014/15 2015/16 2016/17 % change Sales £m 28766.286 29705.2066 30874.051 33858.729 35364.966 4 Net assets £m 5666.629 5179.097 6603.938 5778.434 4751.96 (18) Sales/employee 191.9898934 205.5094528 216.0 220.3329056 245.3836755 11

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