Results 2020 : Chief Executive’s Report
24/3/21 : Demonstrating Ambition – Setting Attainable Growth Targets
It is my pleasure to reflect on 2020, a year like no other. I feel a great sense of pride in what we have achieved. We faced challenges as our business operations and supply chains were disrupted and normal work routines and social structures were interrupted. However, we have stayed focused and demonstrated that the business is strong, resilient, and capable of delivering for all our stakeholders whatever the circumstances. None of this would have been possible without the dedicated contributions of our employees all of which have played their part and without whom we would not have been able to navigate this challenging year, our people remain one of the unique factors that we have at TClarke.
2020 Apprentice Intake Underlines our Positive Outlook
Across the UK we welcomed 22 new apprentices to our business – making the decision to do so during the height of uncertainty in the first lockdown – when it would have been very easy indeed to do otherwise. This continued investment in new talent ensures we can repeat our successes in the years to come.
Ambitious Business Plan to Deliver £500m Annual Revenue
As we enter 2021 the Board has set itself an ambitious strategically backed three-year plan to deliver £500m annual revenues supported by a year end record forward order book of £456m: £288m for 2021 and £168m for 2022 and beyond. The growth in our order book is an important step in our plan to deliver growing revenue targets whilst maintaining margins and continuing to reward our shareholders.
As a UK wide, specialist engineering company with market leading capabilities we focus in five key sectors:
• Residential and Hotels
• Facilities Management
• Engineering Services
Our strategy for growth is very straightforward, a business led by people empowered to deliver. Building upon long term relationships, leading to continuous repeat business which is as close to achieving reoccurring revenues as is possible in our markets.
Being focused on excellence in delivery enables us with confidence to be ambitious in setting this revenue target for the Group. The five sectors we focus on are made up of our established business strengths to which we have supplemented with additional skill sets to ensure we can offer the complete engineered solution whatever the project, delivered in the most effective and advantageous way using the best technologies.
Expanded Potential Market Creates Headroom for Growth
Our growth potential is a result of previous investments in our offering and in the business as a whole, the broader opportunities available to TClarke are now permanently greater. The mechanical division of our Engineering Services has doubled its revenues in recent years with the flagship project KGX1 at Kings Cross well underway. At completion over 70% of the project will have been designed and prefabricated off site. Our technology business is already contributing 14% of turnover.
The range of potential packages available to TClarke within a major project has grown significantly and with the business less dependent on the traditional contracting sectors, by way of illustration providing 1.275 million sq ft of flexible workspace the recently completed 22 Bishopsgate project offers a clear picture of this effect and shows the sensible additional headroom we can grow into going forward.
Five Strong Sectors – Growth Opportunities
Our potential for growth to meet our ambitions is clear. The opportunities before us are of a considerable scale led by an effective Group which, fit our high-quality engineering skillset. We illustrate some examples below.
We are extremely well positioned in the key growth sector of healthcare. This sector requires complex, technical engineering solutions and in 2020 we secured further projects to underpin our capacities.
Our selection for £40m of healthcare packages in the South West is one of the very first to be announced from the Government’s £3.7bn ten-year, Health Infrastructure Plan, is a major success for the business. We know that we are one of a handful of UK companies with the scale and skillset to deliver these projects.
As our healthcare teams engage with the NHS at national level, we also hold four strategic advantages:
1) 70% Offsite Manufacture Target – The NHS target of using modern construction methods in the HIP projects is heavily focused on offsite manufacture. Our in house DfMA (Design for Manufacturing and Assembly) capability is therefore of huge importance.
2) Smart and Digital Buildings – Our exclusive partnerships with leading smart buildings software providers, gives us the potential to be a clear industry leader in smart hospitals – once again this represents a major advantage for us.
3) Net Zero Carbon Target – The Government pledge to achieve this target by 2050 means that all these hospitals will need to achieve net zero or be a long way down the road in doing so. Our current work on the most technically advanced large scale Passivhaus (low energy) project in the country in Exeter is therefore another major advantage.
4) Adaptability for Future – Taken together, our longevity in healthcare construction, current leadership in smart and sustainable large buildings, and overall group demonstration of innovation in the sector provide a very strong and under this heading too.
As well as the vast potential of healthcare, we are also very strong in education. We have delivered 49 projects in this sector in 2020 (previously on the EFA, and now the ESFA Framework) and have secured a further 25 projects commencing in 2021.
Our confidence for future opportunities was bolstered with the government’s announcement for a further £1bn funding for a further round of 50 schools for the medium term.
Residential and Hotels
Our Scotland team reported highly buoyant residential markets in 2020, with a record 2,500 new homes already secured for 2021. They went on to win their largest residential project ever – a first phase of 170 new homes – at the 1,000 home £250m Northbridge development. One of the direct benefits of increased agility is our confidence within the regional residential markets where the work of our regional teams has shown we can deliver large scale residential successfully from every point of view. As a result, the group is actively evaluating large scale residential opportunities across the UK with our long-term house building partners in areas we currently under-serve.
The Group is immensely proud of the range and calibre of hotel projects we are involved with, current landmark schemes include The Peninsula Hotel at Hyde Park Corner and the Pan Pacific Hotel, in the City of London. For future opportunities in London, 19 hotel schemes with 2,891 rooms are under development for 2022 and another 37 are in the pipeline for 2023, bringing an extra 6,993 rooms.
We provide market-leading in-house Facilities Management (FM) expertise in a complete range of mechanical and electrical specialisms from chilled water systems and BMS controls to fire safety systems and air handling plants. Our in-house teams provide preventative services to address legislation, manufacturer recommendations, best practice and specific client needs. We also provide 24/7 call-out services nationwide.
FM delivers sustainable reoccurring revenues and margins with minimal risks. FM also allows us to leverage the power of our Group-wide, directly employed expert resource to deliver a unique range of specialist M&E services for the FM industry.
Our core Engineering Services has won major new London landmark office projects including:
• 8 Bishopsgate, City of London
• Bankside Yards, Southwark
• Facebook, Kings Cross
• Gateway Central, White City
• Ruskin Square, Croydon
A key part of our strong performance across all sectors has been our advanced offsite DfMA manufacturing facility at Stansted. This capability and expertise in prefabricating and modularising large Engineering Services of all kinds for precision installation within a building, is increasingly the key to our winning and delivering major projects – it has become exactly the strategic advantage we hoped it would be.
Outside of London the news has been just as encouraging. Having identified the North West as a strong market for our Engineering Services offering and setting up in Liverpool and Manchester, in 2020 we won our first major project – the £3.5m Royal College of Physicians, in Liverpool.
In the South West we are underway with Britain’s most advanced and ambitious large scale Passivhaus development – St Sidwell’s Leisure Centre, Exeter – whilst in parallel resource and engineering expertise helped design and deliver the Exeter NHS Nightingale hospital in just six weeks. Just a couple of examples highlighting our regional engineering expertise, quality work and resource scale.
The opportunity is just as exciting in data centres. This is a worldwide growth sector.
Data consumption is ever increasing, and we forecast a decade long boom in the requirement of data centre capacity ahead of us to deliver the fully digital world we are moving into, driven by enterprise cloud and software utilities, office productivity and file storage as well as e-commerce, social networking, streaming video services, gaming, and mobile apps.
The engineering of data centre requires specialists’ skills which we possess to not only deliver complex designs but to demanding timescales. Moreover, our strengthening relationships with some of the biggest hyperscalers in the global industry will ensure we have the ability to secure the most high-profile schemes.
This growth of opportunity within the UK data centre market means that there is more potential for us here than we reported last year, whilst continuing to actively evaluate options in Europe, alongside our global partners.
Market data shows 39 current large data centre projects in the UK with a construction value of £1.35bn. TClarke currently has live opportunities on four significant schemes in the South East.
The feedback from many of our customers is that the levels of corporate governance, risk management and transparency that come with our public listing and the ‘TClarke Way’ of working are also of considerable competitive value. This is a significant factor in the selection process – particularly for the major projects we target.
Outlook and Summary
In summary having secured such a strong order book at this early stage of the year gives the Board strong confidence for the year ahead. Following a slightly slower start we expect revenues and profit to build rapidly throughout the course of the second half of the year as our recently secured projects gain momentum.
We remain focused on delivering results for all our stakeholders and have the capacity and depth of expertise to expand to successfully meet our ambitious goal of £500m revenues, 2021 marks an exciting new chapter in the evolution of TClarke.
Group Chief Executive Officer
24th March 2021