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AMA RESEARCH MARKET REPORT : The UK Civil Engineering Market Report 2003

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BRIEF DESCRIPTION

Covering the period 1995-2006, this report analyses the UK market for civil engineering in terms of historic market value, market structure and trends, and forecast market size. The report identifies key civil engineering companies, and addresses the development of the market, key issues influencing change and the role of the consultant engineer.

The report covers:-

UK Construction Market - Value by output by sector, new orders, key trends and influences, future prospects

UK Civil Engineering Market - Market structure, output mix by sector, number of firms by employees, key company projects / analysis, key influences, PFI/PPP issues, future prospects.

End-use Sectors - analysis of output by sector, ie Roads, Rail, Water, Electricity, etc. Investment plans by sector to 2011 - proposed / current projects in each end-use sector.

Future Prospects - Analysis of key issues likely to impact on future prospects, proposed public expenditure by end use sector to 2011.

The Civil Engineering sector has changed substantially in recent years, driven by the shift to PFI and outsourcing generally. This unique report focuses on the civil engineering companies or operations of larger concerns which undertake civil engineering activities. The analysis illustrates how these organisations, and the industry generally, have changed to meet the challenges of an evolving environment.

Areas of particular interest:-

Detailed analysis of the structure and changing nature of the Civil Engineers market.

Comprehensive analysis of key influences - PFI/PPP, regulatory, design and build, fast track etc

Detailed analysis of each end-use sector - key projects & companies involved

Competitor Analysis - key companies' activity, turnover, profit & their major projects

Key areas of coverage in the report include:-

UK CONSTRUCTION MARKET

Value of output by sector to 2002

Value of new orders obtained by contractors to 2002

New work output - domestic and non-domestic to 2002

Output by Housing, infrastructure, public non-housing, private industrial, private commercial

Key market influences on UK Construction market and Civil Engineering.

CIVIL ENGINEERING MARKET

Market definition, background, structure, number of firms by employee size

Infrastructure output by value - key trends, influences. Impact of Public Private Partnerships and PFI.

Output mix - Private Vs Public sector, Future Trends and Prospects

Major changes in the industry - Design & Build, Fast Track, Partnering & Framework Agreements

Regulatory Issues, "Rethinking Construction" - analysis & comment

Consulting engineers - output by sector by value - buildings, transport, water, infrastructure, energy, environmental etc.

KEY END-USE SECTORS FOR CIVIL ENGINEERING INDUSTRY

Construction output by end-use sector

Share by end-use sector - roads, rail, water, sewage, electricity, harbours

Detailed analysis of each end-use sector - expenditure 1991-2011.

Expenditure split - private Vs public 2002-2011

Public investment plans by sector to 2011

Proposed / current project listing in each end-use sector

THE CIVIL ENGINEERING COMPANIES

Total number of companies involved in UK construction market by type - general builders, building & civil engineering contractors, non-residential building, house building, civil engineers.

Civil engineer contractors by number of employees.

Top 40 construction companies - turnover & profit / loss analysis.

Leading FM companies in PFI with construction origins

Ongoing / recent activities / project listing for AMEC, AWG Companies, Balfour Beatty, Carillion, John Laing, Alfred McAlpine, Morgan EST, WS Atkins.

EXECUTIVE SUMMARY

The UK construction industry is an important sector of the economy accounting for around 8% of GDP. The sector employs 1.4 million civil engineers, contractors, and component and product manufacturers.

The construction market experienced a severe recession during the early 1990s followed by a steady recovery in the late 1990s, and most forecasters consider that the market will be relatively healthy through to 2005, providing the Government continue with their current expenditure plans.

Construction output in 2002, according to DTI Statistics, rose by 12% by value over 2001. Similarly, orders for new work grew by 13% overall in 2002, though Q1 2003 figures indicated a small decline of -1% over the corresponding period in 2002.

Following a relatively flat period in the late-1990s, output for new work has grown by over 25% between 2000-02, with roads and rail the key growth areas increasing by 67% and 127% respectively.

There is likely to be a greater level of road building in the next few years, and possibly increases in expenditure on the rail infrastructure, but the Government has a higher priority in Health and Education, so if there are cut backs in capital expenditure due to a downturn in the economy or change of government, then transport will probably be affected first.

For several decades, investment in the infrastructure has remained far down the political agenda to effectively compete against health and education for limited public funds. The creation of a better, more sustainable urban and rural environment is still largely a political aspiration, and how much the Government spends on infrastructure is a key factor influencing the future of the construction industry.

The Construction Industry in its traditional form was adversarial and not as effective as it could be; the market was very competitive, tendered prices were very low, and construction companies found it difficult to make reasonable returns. The advent of the Government's policy to raise capital in the private sector, rather than through taxation, allowed construction companies to participate on a partnership basis with their financial backers and central and local government as the major clients.

The emergence of PFI/PPP is possibly the most significant change in the Construction and Civil Engineering industry for many years. The Government's commitment to PPPs is based on the fact that neither central nor local government in isolation will be able to finance all the investment needed in the country's public sector infrastructure within a reasonably short timescale.

The Public Utilities and other large organisations have also entered into Partnering and Framework agreements in many areas of their operations, and the maintenance of structures, and provision of utility infrastructure is widely provided under this type of arrangement.

The role of Consulting Engineers has changed substantially over the last 10-15 years, as they were unable to remain engineering consultants who developed the plans for the client, and most often supervised the schemes. The advent of both Design and Build and PPP/PFI has undermined their traditional role, and most have entered into a wider field of activities.

Growth in construction output is expected to slow significantly in the next 2 years before picking up again in 2005. A sharp decline in private sector investment over the next 2 years will reduce output growth to around 3.7% in 2003 and just 0.6% in 2004, before it begins to pick up in 2005 when the industry is expected to grow by 1.3%. The forecasts suggest that public sector expenditure on construction will grow at nearly 5% per annum over the next 3 years at a time when private sector investment is declining.

Public sector investment is expected to remain strong given the long horizon to many of the Government's plans. Transport is a major issue at present and the Government claim that they have embarked on a programme to reverse the decline of many decades. Following that review, the overall total of public and private funding over the 10 Year Plan period is £181 billion.

Having increased in the late 1980s, investment in roads remained steady during the mid-1990s. It has since fallen, and although increasing in 2000/02, was still nearly 25 per cent below the level of the mid-1980s. Private investment in road infrastructure has continued to remain a relatively small proportion of total investment. In the late 1990s, it had risen to account for 9% of total road infrastructure investment, mainly because of a number of large Design Build Finance Operate schemes, but by 2000/01 the share had fallen back to just over 1% of total investment.

The rail industry has been an area of steady decline for many years. The rail network is, like roads, subject to a 10 year development programme, as part of the 10 year transport plan announced by the Government in December 2002, which followed the Strategic Rail plans announced last February. Railway expenditure is now estimated to be £33 billion, compared to £29 billion 18 months before, to achieve real and sustained improvements to services.

The UK water industry consists of 10 Utility companies who provide Water and Sewerage services nationally and 18 Regional companies who just provide water. The UK supplies 18 billion litres of water and disposes of some 4,000 tonnes of sewerage sludge every day, manages over 600,000km of water mains and sewers, employing around 40,000 people, plus a similar number of private contractors. It has a combined annual turnover of £7 billion, fixed assets valued at £200 billion and an average annual investment of £3.5 billion per year.

Ofwat noted in a recent report that capital investment has dipped during the last few years, and would like the water companies to establish capital programmes up to 2005-06 to avoid any reoccurrence.

The Government has issued a White Paper on energy in February 2003 and appears to be committed to an expansion in renewable energy. The recent crisis at British Energy confirmed that the energy industry is in critical state. The UK's reliance on imported gas as the primary fuel is growing and many generators, including the fledgling businesses in the renewable market, are being driven out of business by falling prices. It is probable that the Government's target of generating 10% of electricity using renewable sources by 2010 will not be achieved.

The structure of the civil engineering contracting market has changed considerably in recent years, reflecting a combination of restructuring and diversification among many leading contractors. Leading contractors include Balfour Beatty, AMEC, Morgan Sindall, Bovis Lend Lease, Sir Robert McAlpine, Taylor Woodrow etc, all with wide-ranging interests in infrastructure, PFI/PPP and FM activities.

COMPANIES COVERED

Bowmer & Kirkland, Carillion, Clancy Docwra, Costains, Daniel Contractors, Dean & Dyball, Dew Pitchmastic, Edmund Nuttall, Fitzpatrick, Galliford Try, MJ Gleeson, Henry Boot, HBG Construction, Kajima Europe, Interserve, J Breheny, Kier, Jarvis, John Laing, Miller Group, Morgan Sindall, Murphy Group, O'Rourke, Shepherd Building Group, Skanska, Taylor Woodrow, Vinci, Wates, Willmott Dixon, WSP Group.

TABLE OF CONTENTS

DIAGRAMS

TABLES & CHARTS

TABLE 1 INFRASTRUCTURE OUTPUT - NEW WORK 1997-2002 BY VALUE (£M) 8

CHART 2 INTEREST RATES AND INFLATION (RPI) FROM 1990-2005 14

CHART 3 PDI & SAVINGS RATIO 1980-2005 16

TABLE 4 EXCHANGE RATE FLUCTUATIONS 1997-2003 - DM, DOLLARS, AND THE ECU TO THE POUND STERLING, SPOT RATES 18

CHART 5 VALUE OF CONSTRUCTION OUTPUT NEW WORK 1990-2002 (£ BILLION) 20

TABLE 6 CONSTRUCTION NEW WORK OUTPUT BY SECTOR 1992-2002 (£ BILLION) AT CURRENT PRICES 21

TABLE 7 NEW ORDERS OBTAINED BY CONTRACTORS 1990-2002 - CURRENT PRICES (£ MILLION) 25

CHART 8 CONSTRUCTION MARKET NEW ORDERS VALUE 1990-2001 - £ BN CONSTANT (1995) PRICES 27

TABLE 9 UK INFRASTRUCTURE MARKET - OUTPUT BY VALUE, 1997-2002 (£ MILLIONS AT CURRENT PRICES) 29

CHART 10 INFRASTRUCTURE OUTPUT - MIX BETWEEN PRIVATE/PUBLIC SECTOR 2002 SHARE BY VALUE 31

TABLE 11 INFRASTRUCTURE MARKET - OUTPUT BY VALUE 2001-2006 (£M AT CURRENT PRICES) 32

TABLE 12 CONSTRUCTION ANNUAL STATISTICS - FIRMS INVOLVED IN CIVIL ENGINEERING 35

TABLE 13 CONSULTING ENGINEERS WORK LOAD BY SECTOR 1999-2000 (£M) 48

TABLE 14 CONSULTING ENGINEERS WORK BY PUBLIC/PRIVATE SECTOR - 1999/2000 49

TABLE 15 INFRASTRUCTURE SECTOR - CONSTRUCTION OUTPUT BY SECTOR, (£M AT CURRENT PRICES) 1999/2002 52

CHART 16 INFRASTRUCTURE OUTPUT - % SHARE BY SECTOR - 2002 53

CHART 17 TOTAL TRANSPORT SPENDING - ORIGINAL VS LATEST PLAN - 1991-2010 54

TABLE18 TOTAL TRANSPORT EXPENDITURE - SPLIT BY PRIVATE/PUBLIC SECTOR 2001/02-2010/11 (£ BILLION) 55

TABLE 19 CONTRACTORS OUTPUT-PUBLIC AND PRIVATE SECTOR AT CURRENT PRICES 1980-2001 56

TREND 20 GB INVESTMENT IN ROAD INFRASTRUCTURE - 1985/86 - 2000/01 60

TABLE 21 INVESTMENT IN RAIL INFRASTRUCTURE - GREAT BRITAIN 1987-2002 62

TABLE 22 LIGHT RAIL SHARE 67

TABLE 23 TOTAL PASSENGER JOURNEYS ON LIGHT RAIL SYSTEMS 1191-2001 67

TABLE 24 TOTAL ROUTE LENGTH OF LONDON LIGHT RAIL SYSTEMS 1191-2001 68

TABLE 25 WATER INDUSTRY TURNOVER 1997/8-2001/02 (£M) 73

TABLE 26 GROSS CAPITAL INVESTMENT BY SERVICE 1997-8 TO 2001-02 74

TABLE 27 GROSS CAPITAL EXPENDITURE BY PURPOSE CATEGORY 1997-2002 75

TABLE 28 GROSS CAPITAL INVESTMENT BY SERVICE AREA-INDUSTRY 1997-2002 76

TABLE 29 GROSS CAPITAL INVESTMENT BY SERVICE 2001-02 BY COMPANY 77

TABLE 30 INVESTMENT BY WATER COMPANIES BY SERVICE SECTOR 78

TABLE 31 CAPITAL AND MAINTENANCE EXPENDITURE 1981-2005 80

TABLE 32 ENERGY CONSUMPTION IN 2002 UK BY SECTOR 85

TABLE33 PRIMARY ENERGY DEMAND IN UK 2002 86

TABLE 34 COMPANIES INVOLVED IN CONSTRUCTION 1991/2001 90

TABLE 35 CIVIL ENGINEERING CONTRACTORS - BY NUMBER OF EMPLOYEES 2001 91

TABLE 36 TOP CONSTRUCTION COMPANIES INVOLVED WITH CIVIL ENGINEERING 93

TABLE 37 LEADING FM COMPANIES IN PFI WITH ORIGINS IN CONSTRUCTION OR ENGINEERING 95

TABLE 38 KEY PFI/PPP PROJECTS FEATURING AMEC 97

TABLE 39 KEY PFI/PPP PROJECTS FEATURING AWG COMPANIES 99

TABLE 40 KEY PFI/PPP PROJECTS FEATURING BALFOUR BEATTY COMPANIES 102

TABLE 41 KEY PFI/PPP PROJECTS FEATURING CARILLION COMPANIES 105

TABLE 42 KEY PFI/PPP PROJECTS FEATURING JOHN LAING COMPANIES 111

TABLE 43 KEY PFI/PPP PROJECTS FEATURING ALFRED MCALPINE COMPANIES 113

TABLE 44 KEY PFI/PPP PROJECTS FEATURING MORGAN EST 114

TABLE 45 KEY PFI/PPP PROJECTS FEATURING WS ATKINS COMPANIES 119

Text © 2003 AMA Research

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Last updated by Amanda Porteous February 2004