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How to avoid being the next Carillion

Tom Fitzpatrick

This year’s CN100 shows an industry that is split between those who are specialists in their field and making a proper margin, and those who are struggling with fragile balance sheets and highly leveraged business models.

The gulf between the top 10 and the rest continues to widen, but not in the sense the big players would want.

According to our analysis of their most recent accounts (before the 20 August cut-off date), average margins at the UK’s top 10 contractors have fallen for a fifth successive year to -0.9 per cent.

More than 80 per cent of the top 100 contractors’ debt is concentrated among the UK’s 10 largest firms, with five of the top 10 increasing their borrowing by £100m or more in their last financial year.

But there are more positive trends within the top 100, with many cutting shareholder dividends and shoring up their balance sheets by banking extra cash. 

Is this a response to the recent turbulence among leading firms? As well as Carillion, notable companies to have exited the CN100 due to financial collapse include Lagan Construction Group and Lakesmere.

The Carillion experience has taught us that the numbers can be misleading. Having reported the largest pre-tax profit in the 2017 CN100, Carillion collapsed months later.

That’s why we’ve taken a closer look at cash, leverage and return on capital employed in this year’s report (with more to be published online over the subsequent weeks).

In a preview of 2018 published last December, I wrote: “Carillion aside, I can see 2018 being difficult for tier ones and would not be surprised to see a high-profile failure or two, perhaps among companies exposed to the commercial sector, or firms with non-UK parent groups shrinking their UK businesses.”

Nothing from this year’s CN100 convinces me otherwise. 

No one wants to see big companies go under. Whether you liked or loathed Carillion and what you’ve heard about their mismanagement on the pages of CN, its collapse left a trail of destruction and forced good people out of work, apprenticeships and livelihoods.

From this year’s investigation into the financial health of contractors, there are clear trends that show many are trading more responsibly.

The more fleet of foot, particularly in the £300m-£500m turnover bracket, are achieving the kind of margins the big players continue to dream about.

As work ramps up to get jobs completed pre-Brexit and developers hover over the stop/start buttons on new projects, our report shows where you should look for more sustainable business models.

This industry must continue to prioritise innovation and finding new ways to build better. 

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