ERM’s best year, best week ever
28-Oct-08
Liz Trew talks to ERM’s UK business development director Tom Woollard
If any brand is synonymous with environmental consultancy, it must surely be ERM – or Environmental Resources Management. The company, which is partly owned by private equity firm Bridgepoint and partly owned by ERM management and employees, is also one of the few players in the sector that can boast a truly global presence, with 145 offices spread across 41 countries and over 3,500 staff. The most recent financial year (for the twelve months ending 31 March 2008) saw ERM’s strongest performance to date, with earnings increasing by 23% and revenues up by 19%.
During the past year ERM has continued to build its capacity around the world, opening 13 new offices including establishing a first presence in Romania and Alaska, as well as strengthening its network in Africa, North America, UK, Germany and Malaysia. It is the sharing of opportunities and knowledge on an international scale that has been one of the key contributors to ERM’s record-breaking financial results, according to UK business development director Tom Woollard.
ERM in the UK along with the US are the two biggest global business operations. “We have over 350 people in UK, equivalent to 10% of the total ERM group,” says Woollard. “But what’s interesting is the interconnection between the ERM businesses globally. I suspect that similar to other environmental consultancies, the UK tends to be a sparking point for innovation, so if there is a new service emerging in climate change, sustainable development or energy reduction for example, the creativity and conceptualising of it will often happen in the UK.”
A case in point is ERM’s work in the renewables sector. “In the UK, we’ve been working on wind farms for 30 years since they first started building them, including environmental impact assessment, advice on siting, etc – but our US colleagues had never done a single wind project until eighteen months ago,” Woollard explains. “A few of our key people from UK went over to the US and ran a couple of seminars to share knowledge. Our US offices have now done about 200 wind farm projects – worth millions of dollars.”
He points out that there are fundamental differences between ERM in the US and ERM in UK due to their different origins. “In the US, the business grew very much out of an engineering and brownfield background, while ERM in the UK has always been more about strategy and cutting-edge thinking. Hence, the UK has often provided intellectual leadership for the group as a whole.”
IT systems
In a bid to further enhance global cooperation and collaboration, ERM’s internal IT systems have undergone a complete overhaul during the last couple of years, culminating in the launch of a new intranet or “global knowledge sharing platform” called Minerva in May 2007. “Minerva has made a big difference to the way ERM works,” says Tom Woollard. “The system makes it much easier for offices to access ERM expertise from other parts of the world.”
He adds: “The global networking and data sharing system means, for example, that if we’re doing something for BT in the UK, the team can quickly get themselves up to speed on work that’s been done for BT overseas…It’s essential for continuity of service to global clients.” And he believes it is a key differentiator for ERM. “Our consultancy competitors are at different stages in terms of IT development – some do it incredibly well, others are middle ranking and some don’t seem to have a clue.”
At the same time, Woollard acknowledges that the IT systems for sharing international project and client data still may not be as far advanced as the systems employed by the leading management consultants. “When people come to ERM from our competitors [environmental consultancies] they are often surprised about how fantastic our IT systems are, but others who say it’s pretty clunky tend to be from a management consultancy background.”
Marketing effort
What also sets the consultancy apart from its UK sector competitors, according to Woollard, is that ERM makes a huge effort to engage with clients outside of projects “to understand where our markets are heading.” He has had personal involvement with some 30 client-facing events during his two years heading the marketing and business development function. Other crucial marketing tools include ERM’s quarterly topical surveys and ‘how to…’ business guides which essentially provide free advice on the latest burning issues, most recently on ‘energy efficiency and climate change’, ‘effective EHS risk assessment’ and ‘measuring your carbon footprint’.
“The ‘how to…’ guides are very different to what our competitors are doing,” states Woollard. “In fact, they provide enough information for companies to go and do the work themselves. But our hope is of course that they bring in an ERM consultant during the process. The carbon footprint edition went out to at least 1,500 EHS managers in our key client firms and many of them reprinted copies for their colleagues. These ‘how to…’ guides have also been translated into Chinese and Japanese.”
ERM clearly devotes a lot of time and effort to thinking about the market, its competitors, service areas and clients. “We want to know what our clients are going to be buying and what they’re not going to be buying. We’re forever trying to find detailed accurate information on our marketplace to use and inform our business decision-making. We’re constantly asking ourselves which new services do we really need to support and push out into the marketplace and grow, which are maturing, which are declining and which do we really need to reinvent?” Woollard tells Environment Analyst.
Services
In terms of service provision, ERM aims to stay the cutting edge of high-end corporate environmental strategy. Tom Woollard says: “There is a great tranche of traditional services like audit, which won’t go away and are really important to us in terms of revenue year-in, year-out, but they become commoditised after a time. ERM has been extremely creative and innovative in developing new service areas particularly in climate change and energy efficiency which are at a premium. Whilst the traditional services provide us with guaranteed streams of work, we are determined to stay ahead of the curve and invest in new and emerging services.”
Tom Woollard sees the environmental consultancy market and ERM’s activities split between three core strands. Firstly, there is the technical advice and provision of defined services such as auditing, site assessment and COMAH (control of major accident hazards) studies, when companies do not have the specialist expertise in-house. This accounts for around 70% of ERM’s UK business. Secondly, there is strategic thinking “when companies are wanting to know what’s best practice and benchmark their activities against others in their industry. Or it may be more of a political appointment, where they already know what to do but need a consultant to come in and present it in the right way to persuade the board,” says Woollard. Strategic appointments represent up to 20% of ERM’s work in the UK, he says.
The third element is “pure legwork” where consultants are seconded to client firms when they simply don’t have enough resources to undertake day-to-day environmental management activities. Secondments account for less than 10% of ERM’s workload.
Globally, contaminated site management remains the largest discipline for the consultancy, representing approximately one third of global revenues, but growth in this area was slower than the overall business at around 7% (see table 1 below). The increasing provision of risk and climate change services resulted in ERM’s strategic advice practice growing by 29% in the last financial year to account for 9% of the $639 million (£402 million) gross worldwide turnover. The impact assessment and planning practice also experienced a similar level of growth (+28%), contributing 17% of the total business.
A crucial driving force in the impact assessment arena has been rising prices in the commodity markets, as a result of which oil and gas and other natural resource clients are reported to be reopening facilities and exploring increasingly remote and potentially hostile locations, particularly in developing countries. “ERM has been extremely active in stakeholder engagement activities for large oil and gas development projects,” says Tom Woollard. “Before even entering a country such as Sri Lanka or Kazakhstan to undertake an environmental and social impact assessment, our clients come to ERM for advice on who are the major NGOs, who are the powerful decision-makers and how is lobbying done. ERM has also been engaged in a lot of resettlement work, including facilitating negotiations between our clients and governments in order to help resettle people and communities impacted by major developments.” Going forward, an increasing proportion of ERM’s work is expected to be in support of energy and mining companies.
Performance
Operationally, the strongest growth was in ERM’s businesses in Europe, Middle East and Africa (EMEA) and Asia Pacific, where trading profit grew by 30% and 28% respectively (see table 2 below). According to ERM’s annual report, “this was achieved by continuing to provide services for multinationals across these regions as well as delivering more projects for domestic firms.” Given that total operating profit grew faster than net revenues, the global operating (pre-tax) margin rose to above 13%.
Table 1 ERM – global sales by practice
[Financial years ending 31 March 2006 (FY 2006) to 31 March 2008 (FY 2008)]
| % | FY2006 | FY2007 | FY2008 |
| Contaminated site management | 39 | 37 | 33 |
| Compliance assurance | 30 | 29 | 28 |
| Impact assessment & planning | 14 | 15 | 17 |
| M&A advisory services | 10 | 12 | 13 |
| Strategic advice | 7 | 7 | 9 |
| Total (gross revenues) | 100% ($474.4m) | 100% ($533.1m) | 100% ($638.5m) |
Table 2 ERM financial summary
[Financial years ending 31 March 2004 (FY 2004) to 31 March 2008 (FY 2008)]
| US$m | FY 2004 | FY2005 | FY2006 | FY2007 | FY2008 |
| Gross revenues | 379.2 | 425.4 | 474.4 | 533.1 | 638.5 |
| Net revenues1 | |||||
| EMEA2 | 75.4 | 83.1 | 85.4 | 107.1 | 141.6 |
| Asia Pacific | 36.5 | 40.8 | 46.3 | 52.1 | 64.1 |
| Latin America & Caribbean | 13.0 | 19.1 | 22.3 | 20.9 | 27.6 |
| North America | 133.2 | 144.9 | 156.0 | 175.1 | 202.9 |
| Niche businesses | - | - | 6.3 | 7.1 | 9.5 |
| Total net revenues | 258.1 | 287.9 | 316.8 | 362.3 | 445.7 |
| % growth - actual | 13% | 12% | 10% | 14% | 23% |
| % growth - constant currency4 | - | - | - | - | 19% |
| Trading EBITA5 | |||||
| EMEA2 | 7.4 | 7.1 | 9.8 | 12.4 | 16.1 |
| Asia Pacific | 4.4 | 5.6 | 6.7 | 8.6 | 11.0 |
| Latin America & Caribbean | 2.2 | 2.7 | 2.8 | (0.9) | 3.1 |
| North America | 20.1 | 22.6 | 22.9 | 25.1 | 26.9 |
| Niche businesses5 | - | - | 1.0 | 1.4 | 1.6 |
| Total trading EBITA6 | 34.1 | 38.0 | 43.2 | 46.6 | 58.7 |
| % growth - actual | 13% | 11% | 14% | 8% | 26% |
| % growth - constant currency4 | - | - | - | - | 23% |
1Net revenues – fees earned from consulting, i.e. gross revenues less external project costs
2EMEA – Europe, Middle East & Africa
3Niche businesses are split out separately from FY2006 onwards
4All FY2008 average rates
5Niche business include EHS information systems, and certification and verification services
6EBITA – earnings before interest, tax and amortisation of goodwill
“It’s impossible to pinpoint any single ingredient as being the key to ERM’s success,” says Tom Woollard. “But what has been important is our key client programme, which recognises that 80% of ERM’s business comes from 20% of our clients, most of which are Global Fortune 500 firms. Other factors include globalisation of the business (including enhanced systems facilitating better collaboration and connectivity), staff incentivisation (the international work opportunities, partnership model and ‘partner-in-training’ programme) and also externally getting out there to the marketplace and doing more frontline marketing.
“Then there’s the political front creating huge interest in the environmental agenda among our client firms. Up until the global economic meltdown never before have we seen such a huge interest in the environment.” Focussing on the domestic business, Tom Woollard confirms that the UK contributed approximately £40 million to ERM’s worldwide sales in FY2007/08, growing by around 15%, with even higher growth in operating profits mirroring the global situation. The UK operating profitability margin is around 15%. “We’ve experienced good growth in the UK over the last three years,” says Woollard, “while elsewhere in Europe tends to fluctuate more because they are smaller offices.”
One of the UK business’ main strengths is that it works all over the world. Woollard estimates that work done outside the UK – whether for domestic or overseas clients – accounts for around 15-20% of the fees earned. But there were also “certain surprises” last year, in terms of the workload. “We did a lot of very large impact assessments. And I remember five years ago people were saying impact assessment is dead, but we had some extremely large infrastructure impact assessments and lots of wind farms that really helped our results. All the auditing, compliance and M&A programmes were also very good last year. And site remediation was still strong – and these are all core service areas for ERM.”
Climate change work for ERM in the UK doubled from £1.5 million to £3 million, but Woollard adds that “because it started from a small base it doesn’t have the same impact on overall results as our audit teams putting on another 10 or 15% growth.” The climate change team consists of twelve consultants, which perhaps seems surprisingly few compared to the claimed number of climate professionals working for certain rival consultancies, but the annual turnover per head in ERM’s climate change business speaks for itself (£250,000).
What crisis?
The first six months of the current year (1 April to 30 September 2008) have looked equally promising for ERM in the UK. Tom Woollard elaborates: “We’ve set ourselves a target of 18% revenue growth for this current financial year over the last. We are able to track our sales incredibly closely week by week and we’re on target to achieve this level of growth, which is quite incredible given the credit crunch and economic fallout.”
However, he admits that “one or two more anecdotal signs are beginning to appear” to indicate a slowdown. “We’re not doing as much M&A work, but it hasn’t completely disappeared. Companies are still buying and selling each other, and there are good deals to be had – although there are more trade sales and less private equity. We’ve got less big impact assessments and a lot of smaller ones which maybe a sign of clients delaying the really big ones. Also site investigation, remediation and anything to do with property is being delayed – the project, the payment, everything. But at the front end in terms of sales, what we’re writing proposals for now and what we’re planning to write proposals for in the coming weeks, they’re still all coming at the right rate [to meet our target].”
In fact, ERM’s UK business achieved its highest ever weekly revenues in September this year, the week before Environment Analyst spoke to Woollard. But it could be a very different story over the next few months. “Frankly, I think its going to be the next three months between now and Christmas that are really going to be telling for ERM and the industry as a whole,” Woollard states. “But I think we at ERM are being realistic, if slightly optimistic, in our outlook.”
Future growth
In terms of financial performance, ERM must feel the pressure of meeting the expectations of its private equity partner. But it is interesting that it has elected not to go down the acquisition route like so many other large consultancies with private equity backing or those in the public markets. Recent year-on-year growth has been almost exclusively organic, with global staff numbers growing by 13% in FY2007/08. “It can be very complicated to make the acquisitive growth model work because this business is all about the people,” says Tom Woollard. “ERM prefers to bring in new people as partners instead. Our global expansion has come from doing interesting projects around the world for multinational clients. ERM doesn’t just go into a new country cold – it goes on the back of project experience and through forming relationships with local consultancy partners. That’s how we’ve grown in India and China.”
Last year, ERM achieved the accolade of becoming the first foreign-invested consultancy in China to be issued with a ‘class A’ Environmental Impact Assessment (EIA) license by the State Environmental Protection Administration. The license allows ERM to join an elite league of China’s premier environmental organisations and provides unrestricted access for ERM to carry out EIAs for the country’s major development projects. ERM now has four offices in China.
“ERM hasn’t been under pressure from Bridgepoint to make more acquisitions, although it is under pressure to grow tremendously," says Tom Woollard. "But because ERM has such a good global spread, they see huge potential for further growth in places such as China, India, Brazil and Russia, so ERM hasn’t had to do a mass of acquisitions." Going forward, ERM will possibly need to do one or two more, he concedes.
History of ERM
2008 Office opens in Panama – ERM now has permanent operations in 41 countries
2007 Office opens in Romania
2006 New Zealand office opens
2005 Secondary management buy out backed by Bridgepoint valuing ERM at $535m
2005 Expanded operations in Russia and United Arab Emirates
2004 Expanded operations in South Africa, Canada, and Hawaii
2003 Acquired Ecobe in South Africa and opened Canadian office
2002 Acquired Enverdant and created ERM Information Solutions
2001 Management buy-out of retiring partners supported by private equity firm 3i
2000 Acquired transport risk consultancy in UK and Hong Kong
1999 ERM Inc and ERM International restructure to become a global operation
1996 Acquired Dell Engineering in the US and Panzardi in Puerto Rico
1994 Acquired Mitchell McCotter in Australia
1987 ERL, with operations in UK, Hong Kong, Italy and Bahrain and revenues of $5m, merges with ERM, with operations in North America and revenues of $50m
1977 ERM founded in Philadelphia, US
1971 ERL founded in London, UK
Further Information
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