Monday, December 23, 2024

Ferrovial UK MD seeks long-term government infrastructure plan as major projects not arising | New Civil Engineer

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A long-term infrastructure plan from government that “transcends the five year parliamentary cycle” and brings major projects back onto the UK’s horizon is being sought by Ferrovial Construction UK managing director Karl Goose.

He told NCE that the business is “apolitical” but described the need for a “long-term concrete plan that people can get behind [so] we can invest in our young talent”. This seems to be along the lines of the Labour Party’s manifesto promises of a 10-year infrastructure strategy and a new body called Skills England.

Karl Goose is managing director of Ferrovial Construction UK

Goose was discussing this in the context of Ferrovial Construction UK’s annual results for the year ended 31 December 2023, which show that it achieved record revenues of £527M – an increase of 7% on the previous year and the first time it has topped £500M. However, the business is looking to grow further.

The last year of growth has been driven by live projects throughout 2023, according to the company. Goose pointed to its work on Tideway, Silvertown Tunnel, High Speed 2 (HS2), Norwich Western Link Road and Heathrow’s H7 framework.

However, Ferrovial UK’s year-end order book is at £648M, down from £795M at the end of 2022. “It’s fair to say that the large, complex projects that we’re renowned for, like the Northern Line extension and Crossrail, are not on the horizon any time soon,” Goose said. “Whilst I would always want a larger order book, I’m not overly concerned.”

He is understandably proud of Ferrovial’s work on major projects. He highlighted that the Flo joint venture – comprising Ferrovial and Laing O’Rourke – was the first to complete its construction on Tideway, delivering the 12.5km central section of London’s new super sewer. This followed on from delivering the Northern Line extension on time (again in a JV with Laing) and delivering the first complete Crossrail station at Farringdon (in a JV with Bam and Kier).

This delivery record is continuing with Silvertown Tunnel, the new twin-bore road tunnel under the Thames in central London, which Ferrovial is building alongside Bam and SK Ecoplant as Riverlinx CJV.

“Silvertown is going to be completed on or before the due contractual completion date, which is great news,” Goose said. “[The industry is] always gets bad press about projects overrunning, cost control, but I think we’ve been very successful in delivering for our clients.”

In the company’s 2022 year-end results, it reported a -£30M operating profit which it tied to complications with the Silvertown Tunnel project. This project is being delivered through a public private partnership (PPP) contract, which means the private firms delivering it take on the costs and have it recouped when it comes into use. However, this also means the private entities take on most of the risk.

“It’s a lump sum fixed price PPP and not all contractors can or want to deliver those sorts of projects,” Goose said. “Ferrovial’s Group model is we have an investment arm, which is Cintra, and then we have the delivery arm which is Ferrovial Construction, and that’s very successful operating around the world.

“It was just very unfortunate that we were delivering [the Silvertown Tunnel] contract in the middle of the biggest inflation increase since the Second World War – we’re looking at 40%+ average inflation increase on prices, we had the Ukraine war, which is obviously still ongoing unfortunately, and that’s compounded to hit the bottom line.”

However, he remains pleased with the “fantastic job” being done on the project. “Production is going super well,” he said. “The results at Silvertown, while they are still in that position, they are improving.

“I think that’s as good a news story as we can have and I think the client [Transport for London] is really, really pleased.”

Ferrovial Construction UK also puts its smaller order book down to a “disciplined and selective approach to tendering”.

“We’re not going to buy a job – that’s my mantra,” Goose said. “Long-term it’s not financially viable for a business to do that.

“We did envisage this [slow down in contracts] as part of the strategy and this is why we’ve tried to insulate ourselves a little bit.”

Part of this strategy is to increase its presence in Ireland. “We’ve been very successful in Ireland for many, many years, until the global recession hit circa 2010,” Goose said. “We’ve gone back to Ireland now, we’ve got two strong partners and a huge order book coming in. So we’ve got a team that’s worked in Ireland for a very long time and I think we’ve got all the skills sets there to make a successful comeback.”

As there is a lack of major public projects forthcoming in the UK, Goose said Ferrovial is “having to look to diversify”. It has identified water and power as growth sectors in the UK that it intends to enter.

“We have a very successful water business called Cadagua based in Madrid and the Middle East and it has a subsidiary in America called Pepper Lawson,” he said. “We are leveraging its performance and our long-term UK performance to enter the water market here.

“Obviously we are going to walk before we run, so we’re going to target a sensible scheme and see how we progress.”

It’s a similar situation with power. “Ferrovial has created a standalone energy business [Ferrovial Power Infrastructure] that has been operating for a number of years now,” Goose said. “We are leveraging its experience along with our UK skill set to target energy in the UK.”

Goose said these moves mean Ferrovial is “well insulated for the future”, but he added “obviously I would like a long-term infrastructure plan we could all get behind”.

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