Contractors have been urged improve their balance sheets and “restore trust” in the construction business, according to industry figures responding to CN100 2018 findings.
Executives from across the construction industry have warned that the largest firms must strengthen their financial position ahead of any potential economic turbulence caused by Brexit.
Leaders from across the market were responding the the release of this year’s CN100 analysis, which showed margins at the top-10 firms fell for the fifth successive year to -0.9 per cent, while revenue increased 5.6 per cent.
“It is worrying that so many of the largest contractors in our industry have weak balance sheets”, said Wates strategy director and managing director of government affairs Steve Beechey.
“Given that we are entering potentially turbulent market conditions created by Brexit and the economic cycle this could lead to significant disruption.
“Since the Carillion collapse our industry needs to restore trust with the public and strong, stable businesses with effective governance are needed to do this,” he added.
VolkerWessels UK chief executive Alan Robertson called for greater consistency in performance as a way of improving construction firm’s finances.
“Against a backdrop of the all-too-frequent rollercoaster of financial underperformance and mismanagement, we need to ensure that our industry delivers consistently for all stakeholders,” the CEO said.
“We must bring to an end the destruction of shareholder value, the misery being caused to our supply chain, and personal career hardship for employees.
“Main contractors talk about aspirational targets heading towards 5 per cent operating margins, but, if we are to deliver this, we must first focus on consistency of performance – enough of these legacy contracts, exceptional losses, restructuring costs, down-sizing initiatives and management restructuring.”
O’Keefe Group managing director Lee Horsley said his firm was feeling the effects of working with cash-strapped main contractors.
“Working with indebted tier one contractors means their cashflow will be tested and may be passed down their supply chain.
“Cashflow remains the lifeblood of the construction industry and a strong balance sheet with good cash reserves is essential for tier two contractors who do not have the same borrowing power.”
Mr Horsley said he was anticipating the cautious approach would continue over the next year and half as market conditions remained tough.
“Reputation in construction businesses is even more fragile after Grenfell, exacerbated by recent high-profile projects running into delays,” he said.
“[There are] question marks over the ease of planning in London, leading to developers reducing their build rates, and uncertainty around Brexit, which means that clients may be unwilling to speculate in the current environment.
“Hence, a cautious approach toward cash management, growth and winning work will be key for the next 12 to 18 months.”
Speaking to Construction News this morning, Robertson Group executive chairman Bill Robertson (pictured) said he believed the larger companies were moving to address the financial challenges revealed in today’s CN100 findings.
“There has been a facing up to the poor trading with the big numbers, low margins,” he said.
“Losses are probably being taken to redress that at this point in time, which will be showing up in their figures. What I believe will come of that is there will be better figures for these companies going forward.
“The industry’s got a credibility issue and lots of the better companies are addressing that,” Mr Robertson added.