Engineer is latest firm to consider consolidation as public sector cuts force profit warning

WSP chief executive Chris Cole has revealed that the £700m-turnover structural engineer would be open to a merger deal as well as a series of bolt-on acquisitions.

Cole said expansion remained the key to survival and said WSP had a growth plan to increase the firm’s turnover to £1bn over the next three years.

The news comes as WSP issued a profit warning this week, and follows growing pressure on consultants both to cope with the recession and to expand to compete with larger players. EC Harris last week admitted it had been talking to other companies over a possible merger.

Cole described WSP as “a consolidator”. He said: “The way we grow is generally through acquisitions. We will continue to grow in this way. When you get to a certain size, you have to find growth. That’s non-negotiable. You either do it through bolt-on acquisitions or through one transaction - so a consolidation.”

On whether there were any immediate plans in the offing, Cole said WSP was “always in talks with people we might like to consolidate with” but added this didn’t necessarily mean in relation to a “meaningful transaction”.

WSP operates in 35 countries out of 200 offices and relies on overseas work for 70% of its overall turnover. However, following this week’s profit warning, which included a £5m write-off for lost work in Libya, it is to undergo a £4m restructure, which Cole said would not alter the group’s expansion strategy: “The minor 10% adjustment to our performance this year relates to the dramatic decline in the available work in transportation in the public sector. Elsewhere within the group we are proceeding in line with expectations. Therefore this temporary, isolated event does not deflect from our group-wide international strategic plan.”

The transport sector accounts for around half of WSP’s revenue. Formed in 1969, WSP has a strong track record of being acquisitive and it now employs around 10,000 people.

What the warning means

How serious is WSP’s profit warning? The short answer is not as bad as the shellacking its share price suffered suggests.

First, the firm’s Libyan problems are country specific and as such unlikely to have any long-term impact. And second, the fall in public transport spending, although large at 30%, is hardly fatal.

A City insider said: “The fall in UK transport revenue is worrying but all that is happening is a big client is doing less work. Cash flow is slowing but it’s not stopping, and don’t forget the client is reliable, there is no problem with payments here.

“In the absence of private sector work filling the gap, WSP may have to address its overheads and downsize its workforce and overall costs, but I doubt they are on anything akin to a slippery road to ruin yet.”

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