Modest rises in profits and revenues, headcounts and staff turnover increasing, order books growing and a big increase in spending on IT were some of the key headline messages from the latest ACE Benchmarking Report study conducted for the Association for Consultancy and Engineering, the results of which were announced today.
The headline numbers are relatively strong. While infrastructure activity in the UK is up 3.2% year-on-year to an estimated £19.55bn; other forecasts are even more positive for the sector. The Construction Products Association (CPA) is forecasting an impressive 13% jump in infrastructure activity next year to £22.1bn. This would make infrastructure the stand-out construction sector in a year when construction activity in aggregate is estimated to increase by 2.3%. Construction as a whole is forecast to cool o? even further in 2020 with an output increase of only 1.9%, but the CPA is forecasting infrastructure to grow a further 6.8% in 2020.
Looking into what the benchmarking survey highlights about specific industry in?uencers has been revealing. UK firms sharply increased their spending on IT during 2018, possibly a result of the introduction of the GDPR regulations. However, a more positive interpretation would be this is the first indication of digital transformation taking hold.
On client-consultant relationships, a “bad but getting better” assessment seems apt. Debt collection for consultancy and engineer firms in the UK improved slightly with the average debt collection down to 75.4 days’ sales (improving by seven days from a year previously) while a sharp improvement in Europe saw a debt collection period of 70.5 days; lower than the UK average for the first time ever in the history of ACE benchmarking reports.
Alongside other indicators such as rising professional indemnity costs and no improvement in the time spent on settling disputes, this points to little improvement in fair and transparent contracting.
Short-term cycles of investment in infrastructure and uncertainty around the property market was highlighted in the survey, showing the disparity between UK and European consultancy order books at 9.9 months and 12.6 months respectively.
Perhaps the most significant trends in this year’s survey are around how consultancy businesses are adapting and evolving. This is most obvious in the figures around sta? training, with UK fee earners continuing to spend more time on training than they had in earlier years, as well as the encouraging 7.5% increase in UK headcount.
However, the scramble for skilled talent continues to cause problems for many firms and this year’s figures show total UK turnover rates for fee earners increased from 14.2% to 17.7%. This is mirrored in the European sta? turnover figures, with fee earners leaving for all reasons averaging 17.8%. Given this, it is unsurprising that recruitment costs rose by double digits for the industry last year and it is clear that attracting and retaining talent remains a key challenge for the sector.
This year’s benchmarking project shows single-digit growth in revenue (net of sub-contracted costs) for both UK and European markets, levels more muted than in recent years. There has been a welcome rise in profitability, increasing at a faster rate than revenue growth, but profitability continues to track the range of high single digits.
Commenting on the report, ACE chief executive Hannah Vickers said: “This year’s ACE benchmarking project comes at a critical time for our industry. Facing continued political uncertainty in the shape of a still to be defined Brexit, it is increasingly important that we maintain clear sight of industry trends in profitability and productivity and continue to benchmark our collective performance with our peers in the UK and in Europe.
“Whilst there are slightly better profitability margins than many contractors, this is still too marginal a performance to produce the returns our members seek for re-investment, expansion, to embrace the opportunities of digital transformation and to prepare for the next phase of significant growth.”