Andrew Hore discusses the UK Quoted companies which offer engineering, consultancy and services to the nuclear industry
First published in InFocus: Nuclear, a supplement to Cleantech magazine January/February 2008. Copyright Cleantech Investor 2008
There is no real nuclear sector on the London market, with British Energy one of only two companies focused on the nuclear industry. The other is International Nuclear Solutions, which is selling its business to engineering group, Babcock International. There are a large number of companies with exposure to the nuclear sector, but it is a small proportion of most of their businesses.
For example, technical support staff providers, Morson International and Matchtech Group, earn significant revenues from supplying staff to the nuclear industry. Construction companies, Balfour Beatty, AMEC and Costain, and services companies including Capita, Serco and WS Atkins are all involved with facilities management type projects in the nuclear sector. Engineers such as Weir and FKI supply parts for nuclear stations, while Ultra Electronics produces nuclear reactor control and instrumentation systems. Carlisle-based Carr’s Milling Industries’ engineering division supplies remote handling manipulators and pressure vessels for nuclear facilities. Ship operator and marine support services company James Fisher, which is based in Cumbria, has diversified into decommissioning services.
Electro-optics company Gooch & Housego does not have much exposure to the nuclear sector currently, but it could become important if nuclear fusion is developed. It supplies very large aperture crystals for the world's biggest laser systems being constructed for nuclear fusion research in the US.
There are a few companies whose nuclear operations will become a more significant part of their businesses.
Fully listed VT Group is better known as shipbuilder Vosper Thorneycroft, but in recent years it has been moving into support services and training. The group’s latest acquisition has taken it into the nuclear sector. British Nuclear Group Project Services (BNGPS) was acquired from British Nuclear Fuels for an initial £45 million with a potential performance-related payment of up to £30 million.
The business is a tier two contractor which provides services and products to nuclear facility operators in the UK and overseas. It is working on 14 of the Nuclear Decommissioning Authority’s 20 nuclear sites as well as at Sellafield. Services provided include nuclear clean up, specialist engineering and technical solutions, instrumentation and detection, as well as specialist waste management. The market for nuclear decommissioning is worth £1 billion per year. VT, which is already involved in waste management and recycling, believes that its project management and engineering expertise, as well as experience in dealing with the Government as a customer, will help the business to grow. The underlying operating profit of BNGPS was £6.4 million in the year to March 2007. That represents less than 10% of the enlarged group’s likely operating profits, but there is scope for strong growth in this area. Longer-term it will benefit from the decommissioning and new build programmes around the world.
Babcock’s civil and military nuclear activities are now part of its marine division. This is the largest contributor to the group’s operating profits, although most are likely to come from the naval dockyard operations.
In January Babcock’s subsidiary, Alstec, was awarded a contract by British Energy to provide support for seven advanced gas reactor (AGR) power stations. The contract is expected to be worth more than £70 million for work starting in April 2008 running through until 2012, and it could be extended to 2020. The company will supply specialist fuel route and reactor protection system engineering services. This puts it in a strong position to win work for new nuclear power stations.
Alstec was acquired in May 2006 and a year later Babcock bid for AIM-quoted International Nuclear Solutions, whose nuclear engineering and consultancy services
business was seen as helping to widen the services Babcock could provide to customers. However, many INS shareholders did not take up the 63p per share offer so, although Babcock secured a majority stake, it could not take full control of the company. In January Babcock agreed to acquire the business of INS and this deal is subject to the seller’s shareholders’ agreement.
AIM-quoted Redhall Group provides nuclear and engineering services as well as specialist manufacturing. In the year to September 2007, nuclear services, which include nuclear engineering and design services, tripled their operating profit to £1.2 million, which was nearly one-third of group profits. That underestimates the contribution from the nuclear sector because the manufacturing operations supply specialist containers and equipment for Sellafield and other nuclear facilities. In fact Redhall says that it has won business because it can also offer manufacturing capability.
Redhall is in a strong position both to benefit from the £73 billion that the Nuclear Decommissioning Authority will have to spend in the future, as well as to take advantage of new nuclear facilities. The company, whose management says that UK energy policy will drive future strategy, is actively looking for acquisitions in the nuclear sector.
AIM-quoted Renew is primarily known as a construction company: it used to be called YJ Lovell - but that was a very low margin operation. The company is focusing its growth on specialist engineering which includes nuclear, land remediation and the water infrastructure and services market.
Renew’s subsidiary, Shepley Engineers, is the largest mechanical and electrical contractor at Sellafield with a workforce in excess of 400 people. It provides support to existing assets as well as being involved in decommissioning redundant facilities. During 2007 Shepley was awarded four long-term framework agreements at Sellafield, the most important of which is worth in excess of £25 million over the next two years and includes an option for a two year extension. Renew is looking to expand its nuclear activities organically and through acquisitions.
Renew is aiming for revenues in excess of £500 million (£348 million currently) and operating margins of 2.5% (at present just over 1.4%) in 2010. It would like to see specialist engineering contributing one-third of those revenues, which explains the hoped-for improvement in margins.