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Hitting 5% margin: How North Midland's John Homer aims to do it

The £250m-turnover firm’s CEO has shaken up a loss-making division since joining the group a year ago. Now he reveals how ambitious five-year targets will be met.

“I was the school times-tables champion,” says John Homer as he takes me through the North Midland Construction’s balance sheet. “I’m a maths nerd.”

And it’s a good job he is. Since joining the group as chief executive in June last year, Mr Homer has been tasked with one particularly challenging number-crunching exercise.

Despite a 15 per cent rise in group turnover alongside overall operating profit of £2.2m in 2016, the firm’s utilities arm haemorrhaged £2.6m last year – having made a £2.1m operating loss the year before.

However, following major upheaval to address the bottom line, Mr Homer is now leading the Nottinghamshire-based group towards achieving its ambitious target of a 5 per cent operating margin within five years.

Sitting down with Construction News over coffee, he explains how investing in technology, innovation and – most importantly – people is central to the group’s plans to accelerate its business.

Utilities turnaround

North Midland Construction is arguably a very different company from those Mr Homer had been used to.

Having previously held positions at Bam Construction, Galliford Try and most recently Morgan Sindall, he has worked for major contractors for more than 30 years. However, in May 2016, he decided to buck this trend and join the much smaller North Midland Construction as chief executive.

One of the first tasks Mr Homer faced was to drag the group’s underperforming utilities division out of the red. This business – a longstanding part of the business that works mainly in the telecommunications sector – made a £4.7m operating loss in 2015 and 2016 combined.

“Turning numbers like that around is not easy. But there is a massive demand for [utilities] because the country is behind the game in terms of internet connectivity”

According to Mr Homer, the group even considered scrapping the utilities division altogether. “The board was very concerned,” he explains. “They asked, ‘Is this the right thing to be doing? Shall we stop?’”

Mr Homer believed, however, that underlying demand in the sector was strong enough to maintain the utilities business, suggesting its problems were not fundamental – it just needed to a renewed focus. “Turning numbers like that around is not easy. But there is a massive demand for this business because the country is behind the game in terms of internet connectivity.”

The division was put under Mr Homer’s direct leadership and has undergone dramatic changes over the last 12 months. He oversaw an extensive management restructure and set up three units within the division, with each unit run under a leader. According to Mr Homer, this has helped to focus the business.

Beyond the numbers

The division has changed significantly since the shake-up, with around 40 per cent of its current headcount having been hired within the last 12 months. “The group has grown and people have naturally decided to leave through the restructure,” Mr Homer explains. “Some people have retired or decided to leave so we needed to inject new people into the division.”

North Midland Construction Group 3

North Midland Construction Group 3

The firm has seen significant change in personnel over the past 12 months

In his previous role as managing director for the South of England at Morgan Sindall, Mr Homer was part of a 6,000-strong company. North Midland Construction employs just a third as many staff.

Its smaller size, however, was a central reason why he was drawn to the job in the first place. “I enjoyed my time at those companies and my career progressed there. But going to an organisation that is a little bit smaller but has enough substance to be able to make an impact was what attracted me to it.”

“Going to an organisation that is a little bit smaller but has enough substance to be able to make an impact was what attracted me to [North Midland]”

 

The culture of the business was particularly appealing, he adds. “The people here really attracted me into the business. I spent a lot of time working out what the culture of the group was, what I could add to it and where we as a company were going to go.”

Employing the right people not only for the job but for this culture is critical, he continues, with encouraging diversity one way to achieve this. “We want to be diverse and we want the right people. Diversity is about getting more women, people from ethnic backgrounds, people who are resettling from [other] careers, the armed forces, military and ex-offenders into the industry.”

Aiming for 5 per cent

Despite the difficulties experienced in utilities, the group has set itself an ambitious five-year business plan.

It aims to reach a 3 per cent operating margin across the group by 2019 and a 5 per cent margin by 2021, with the figure having stood at 0.9 per cent in 2016. Mr Homer also expects the group’s turnover to double to £500m within five years, from just over £250m in 2016.

North Midland Construction Group 4

North Midland Construction Group 4

Turning around the utilities division is among the group’s priorities

The margin goals are significant. After all, the industry average for the top 100 contractors has remained stubbornly below 3 per cent for some time. Mr Homer emphasises that innovation will be vital to achieve this. “We’re going to be investing in technology, which will give us massive efficiency. We’re going to look at different methods of working, progressing in BIM, and our offsite manufacturing facilities will yield better margins.”

The group has three factory facilities where it is doing its own offsite manufacturing. Although this requires a capital investment commitment, Mr Homer says pumping money into technology will lead to more efficient delivery. “Contractors run businesses on very narrow margins and managing risk carefully. A contractor’s mentality, therefore, is about margins in the short term rather than investing for the longer term.”

“Without a doubt, the way the industry approaches technology and innovation is sluggish”

 

Mr Homer believes this industry-wide focus on getting the best out of slim margins means that committing capital to technology can often take a back seat. “Without a doubt, the way the industry approaches technology and innovation is sluggish,” he says.

“Construction companies don’t do anywhere near enough in applying themselves to be more efficient. But we have to think how we help ourselves by thinking differently. We need to be looking at businesses in the long term and making longer-term business plans – and investing in technology, modern methods of working and [our] people.”

The industry needs to take responsibility for its development instead of looking to government to step in to catalyse change, Mr Homer argues, citing the BIM mandate as an example of where construction lags behind other industries. “You’ll never find another industry or modern disruptive company, such as Uber, where they’ll wait for a customer to mandate a different approach. But the construction industry feels it needs a directive from its customer base to [improve].”

Instead, Mr Homer says the mindset should be the opposite: companies should want to use these technologies for more efficient delivery of projects for customers.

While innovation is high on the agenda, his biggest priority is for North Midland Construction to keep doing what it does best. “We want to be renowned for our delivery, customer service, innovation, and for being a great place to work.

“If we achieve that, then we’ll be happy.”

  • North Midland Construction CEO John Homer 1

    Hitting 5% margin: How North Midland's John Homer aims to do it

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