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Piling firms in the doldrums

1 Jul 20 The most recent financial statements from the UK’s biggest piling specialists tell a bleak story, with turnover down and profits tumbling. David Taylor reports

Two years ago, the 20 biggest piling contractors in the UK boasted a combined turnover of more than £1bn and pre-tax profits totalling £62.9m between them. 

Over the following 24 months that aggregate turnover figure has slipped back and now stands at £831.8m. Far worse, though, is the pre-tax profit figure which has tumbled catastrophically and now stands at £26.8m, down almost 60% in one year.

Twelve of the 20 companies in our selection saw turnover shrink in 2018/19 and 14 saw reduced pre-tax profits. Of these, five made losses before tax.

This article was first published in the June 2020 issue of The Construction Index MagazineSign up online

As in every month since the Brexit referendum four years ago, the UK’s torturous attempt to disentangle itself from the European Union – or more accurately, the uncertainty that this created – is widely cited as a major factor in the reduced workloads. It doesn’t explain the sector’s lack of profitability, though.

Laing O’Rourke subsidiary Expanded is the biggest player in the sector by turnover. Indeed, Expanded was one of relatively few to see a significant increase in revenues in the year to 31st March 2019. Turnover was up 21% to £244.8m (2018: £203.1m). Two years ago, though, the business reported a turnover of £284.3m.

Despite the increased turnover, Expanded made a pre-tax loss of £1.2m (2018: £1.6m), and is the biggest loss-maker among the top 20 piling firms.

Click on image to enlarge
Click on image to enlarge

In second place on the table is Van Elle with turnover, for the 12 months to 30th April 2019, of £88.5m (down 15% from the previous year’s £103.9m). Profit was also down, from £9.2m in 2017/18 to £4m last year, but it’s still the third-best pre-tax profit result on the table.

The company said “a general slowdown in construction activity and uncertainties around investment decisions” had affected its performance, exacerbated by “operational weaknesses in the general piling division in Q3”. In response, Van Elle carried out a review of operations and has taken steps – including changes to the leadership team and streamlining divisional structures – to improve its performance.

Bachy Soletanche also vowed to “take the necessary action in reducing the cost base” to address a fall in pre-tax profits from £5.7m in 2017 to £1.4m in 2018. Its financial statement for 2019 isn’t due until September this year, but the company clearly wasn’t expecting a significant improvement: “Economic conditions have deteriorated in 2018 and the market has remained very competitive,” it said. 

In February 2019, following a review of the group structure, Bachy decided to merge its Westpile subsidiary with the main Bachy Soletanche business to simplify its operating structure and improve efficiency. There was already significant overlap in terms of client base, techniques and geographic operating activity. 

In common with many other companies during 2018, the economic uncertainty created by the Brexit vote had reduced workflow during the year, said Bachy. Though the company said it was unsure exactly what impact Brexit would have, it believed that HS2 would “provide significant demand in the key market in which the company operates”.

Bauer’s results are for the year ending December 2019 – a year the company said had been “very difficult” with “most companies in the company’s field reporting reduced turnover”. In its annual strategic report, Bauer said that the company’s directors were “pleased with the result but dissatisfied with the level of turnover”. Who wouldn’t be, if their annual turnover plummeted by 65%, from £48.2m to £16.8m?

Despite the drop in revenue, Bauer managed to turn in a pre-tax profit of £5.1m which, although about 34% down on 2018 (£7.7m), is still the second-best of all 20 firms on this year’s table.

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In stark contrast to most contractors in the piling sector, VolkerGround Engineering (VGE) saw a significant increase in turnover in 2018, up from £11.6m in 2017 to £19m – a 64% increase. The company made a £1m pre-tax profit on its increased turnover. 

Part of the Dutch-owned VolkerWessels group, VGE carries out a lot of work for, and in collaboration with, other group companies. One of the highlights of 2018 was the purchase – by a sister company – of two new dual-purpose concrete piling rigs, which “have increased the VGE product range in terms of concrete bored piling techniques and pile sizes”.

The two rigs “offer VGE a unique position of being able to install both CFA and rotary bored piles on the same site without having to mobilise a second piling rig”, the company explained. And this helped it win a major contract on the M20 motorway, it added.

Dawson-WAM also grew turnover in 2018, from £21.9m to £32.2m – an increase of almost 50%. “The Group’s turnover has benefitted from several contracts that were delayed from 2017 and only started in the current year,” the company explained.

 This time last year, Cementation Skanska was in limbo. Its parent company wanted rid of it, but a deal it had negotiated with concrete frame contractor Morrisroe fell through in January 2019 – apparently because Morrisroe thought the £55m asking price was too steep.

The business remained up for sale until July last year when Skanska had a change of heart and took it off the market. “We have been clear that we would only sell Cementation Skanska if we found the right buyer at the right price,” explained chief executive Gregor Craig.

“That means a buyer whose values and culture were aligned to Skanska’s and which was willing to pay what we considered to be the right price for a world-class business.

“After going to the market and talking to a lot of interested parties, we have not been able to reach agreement with an appropriate buyer,” concluded Craig.

Given the current downward trajectory of this specialist sector, Skanska could be forgiven for having wanted to get out of piling and ground engineering and focus on more profitable activities. That Cementation’s 2018 pre-tax profit figure is the best of all the 20 firms in our selection therefore seems ironic. The business recorded a £12.2m pre-tax profit in 2018 (2017: £7.5m) on turnover of £62.4m (2017: £68.8m), a margin of 19.6%.

Assessing its performance during 2018, Cementation said: “Uncertainty has prevailed in the commercial markets with investments stalling for periods of time. There are some signs however that investors are starting construction, encouraged by future demand for commercial office space.” 

It might have looked like that at the start of 2019 but today, after months of lockdown and enforced working-from-home, that supposed future demand might well evaporate as employers re-think their need for conventional office accommodation.

In their annual financial statements, companies traditionally outline what their directors see as the main risks and uncertainties likely to affect future business performance. These are usually fairly predictable: competitive pressure, inflation and currency fluctuations, bad debts, disputes and, for the past few years, Brexit of course. 

None has ever added “global pandemic” to the list. But we’ll be seeing plenty of that when companies start filing their financial statements for the current year.

This article was first published in the June 2020 issue of The Construction Index Magazine 

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