MERGE FEVER IN ENGINEERING INDUSTRY
23 February 2002 - NNE A/S

The restructuring of the engineering industry is in full swing at a time when earnings are generally good and order books are full.

The Danish association of engineers (F.R.I.) lost a dozen members in 2001, whereas the number of employees rose by 200 to 8,850. The industry in a nutshell: Business is good, and mergers are booming. Although environmental engineering for example is a problem area due to the discontinuation of public funds, prospects for 2002 are good.

The nine member companies represented in the board of F.R.I. employ 55 per cent of all employees in the industry, and they have an order volume that can employ two thirds of the employees in six months. 'Quite a lot compared to normal conditions in the industry', says John Crederberg, director of F.R.I. The survey comes from a test run of a market trend analysis, which the association will launch among its members.

The high building activity, especially in the metropolis area, means many orders to engineering consultants. But a closer look at the individual companies reveals a large difference in how well they do.

Carl Bro is by far Denmark's largest engineering company with more than 3000 employees. But profit-wise, Carl Bro comes in absolutely last. The second half of 2002 gave a loss of DKK 40 mill before taxation, and 2001 accounts will also show a 2-digit loss, according to president Jesper Rasmussen, due to large provisions for a loss-making IT project and depreciations on IT companies acquired in 1999 – 2000.

'This is not something we are proud of, but 2001 was a difficult year for the whole IT sector, which also affected us' says Jesper Rasmussen, who does add that earnings on the company's core business are satisfactory. Carl Bro is now aiming to slowly but surely increase the company value until the main shareholder, the Swedish investor Bure, withdraws from Carl Bro in 2006 or 2007, when Carl Bro will probably be listed on the stock exchange or sold to an overseas engineering group. We have been given four or five years to consolidate the company, which is rather a long time compared to many other companies' says Jesper Rasmussen.

During this period Carl Bro will primarily strengthen its position in Scandinavia and England, which is likely to lead to acquisitions in Sweden, Norway and England. Activities in Germany are no longer an independent region, but fall under the region of Denmark. In England growth will mainly come from water and environment, where Carl Bro already have a strong position, but it will probably also lead to increased activity in the construction sector in general.

The acquisition of Sycon in November brought Steensen & Warming and Knudsen & Sørensen back in Danish hands. Steensen & Warming, with approx. 120 employees, is being integrated in the large Carl Bro organisation. Knudsen & Sørensen on the other hand is maintained as a separate organisation, acting mainly as consultants within construction in Copenhagen. 'It is a kind of double branding, which Sycon has had good results with in Sweden' Jesper Rasmussen says.

After a financial downer in 1999, Rambøll turned the development during the past two years. Profit ratio passed the magic margin of five per cent in 2001, the company's own minimum goal. Rambøll is divided into the traditional engineering business and independent units within management and IT consultancy, and it is the traditional engineering business that delivers the best results at present. 'But the new units make Rambøll an interesting partner to companies abroad' says managing director Flemming Bligaard Pedersen, who expects Rambøll either this years or in 2003 to make a large acquisition or form an alliance with a foreign company. But it must be a structure that gives Rambøll a dominating influence, the clear statement is.

The large clients are global and expect to be serviced by the same consultants all over the world. As it is extremely resource demanding to build up competitive concepts, Flemming Bligaard Pedersen expects a handful of players to dominate the market of technical consultancy services. Exactly as it happened within accounting companies. 'If we do not follow that development, we are out,' Flemming Bligaard Pedersen states.

The latest financial year results placed Cowi between Carl Bro and Rambøll. As will be the case when Cowi's financial year 2001/02 ends as at 30 April. 'Government intervention within environment and support to Eastern European countries has led to uncertainty, but in respect of earnings we hope for the same level as last year,' managing director Klaus Ostenfeld says.

Cowi's strategy is to be a general engineering company in Denmark, Norway the south of Sweden, Germany and Eastern Europe, and a specialist on a worldwide scale within bridges, tunnels and marine constructions. 'The German market is slow, but with plenty of activity,' Klaus Ostenfeld says.

Just as Rambøll, Cowi wants to lead negotiations on acquisitions or alliances. Profits must go up, but not by means of cost reductions. 'We will not save our way to profits, but engage in profitable projects. And there must be room for a flop among new experiments,' Klaus Ostenfeld says.

For the first time, Novo Nordisk Engineering joins the list of the largest Danish engineering companies brought by the Danish magazine 'Ingeniøren'. NNE specializes in design and execution of facilities for the biotechnological and pharmaceutical industries.

90 per cent of NNE's turnover still comes from the owner Novo Nordisk, but during the past years NNE has expanded its clientele to include many other customers, and it is still a company goal to increase the share of projects outside Novo Nordisk.

Novo Nordisk has however decided that NNE at least in the next five years is so important to the group investment programme that it will not give up the ownership during this period. Based on this decision, Novo Nordisk will still be the largest customer in five years, according to NNE's managing director Hans Ole Voigt.

NNE build facilities for Novo Nordisk all over the world, and to begin with new projects will be found with customers in Denmark.
'The next step will be to enter the Swedish market, with large companies like Pharmacia and Astrazeneca,' Hans Ole Voigt says. NNE is not looking for a permanent partner, but we will find partners from project to project.

NNE was number one in growth in 2001. Turnover increased by 54 per cent to just over DKK one billion, DKK 1,091 million, and profits were more than doubled to DKK 53.6 million, equal to a profit ration of 4.8 per cent. According to Hans Ole Voigt 2002 will also show growth in turnover, but at a more moderate level, and profit ratio will probably increase by a few percentage points. The long-term goal is a profit ratio of 10 per cent.

One way of increasing profits is by reducing the construction time of facilities. Today it usually takes 24 – 36 months to build a factory. In Hillerød NNE are currently building a plant in only 18 months.

The reduction has been achieved by manufacturing production modules in parallel with construction, so they can be installed immediately after buildings have been completed, instead of being welded on the spot.

'It is usually more expensive to build this way, but by postponing the decision to build in connection with a drug development project, the client obtains a better foundation and possibility to enter the market. And that is worth paying extra for,' Hans Ole Voigt says. The goal is to reduce the time from order to completed facility to only 12 months by 2004.

Niras ends its financial year on 30 June. The first six months of the financial year have been better than the same period last year, but managing director Carsten Toft Boesen does expect a lower result than last year, especially due to reductions in governmental development aid. Niras is still successful in Poland, a profitable market for the company, and it is therefore only natural that the strategy is to look for growth in the Baltic region. To approach the Baltic markets, Niras is working on finding a partner or a company to acquire in Finland.

Last year Niras was very close to buying a Finnish company, but an English consultancy company snatched the spoils right under the very noses of the Danes.
'We do off course cooperate with Finnish companies, and the ambitions are still there, but an exact takeover is hardly realistic on a short-term view,' Carsten Toft Boesen says.

During the past ten years, Niras has acquired more than 15 companies and engaged in consultancy services within numerous areas. At Birch & Krogboe, a company of a similar size, managing director Lars Holten Petersen follows the opposite strategy.

The company should only expand by organic growth, and consultancy services are solely focused on building in Denmark.

We may have more money for acquisitions than others, but growth in itself is not a goal, and we have deliberately chosen not to purchase companies,' he says. Especially large factory buildings, first for the production of optical fibres at Lucent Technologies in Brøndby (today OFS Fitel) and now for the biotech company Biogen in Hillerød, have increased activities at Birch & Krogboe.

Birch & Krogboe have several partners on the Biogen project, among others Jacobs Engineering Group, like NNE specializing in the design of biotechnological facilities, and, not in the least, English Arup, whom Birch & Krogboe made a strategic alliance with in 2001. 'We are focused on Denmark and building works. Arup is international and Denmark is only marginally interesting. Therefore it is a good deal for both parties, giving us access to the best methods and technologies worldwide.'

The official accounts for 2001 have not yet been published, but according to Lars Holten Petersen, the profit margin in 2001 was more or less the same as in 2000. And prospects for the future are good.

http://nne.dk/

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