Parts of this year’s CN100 analysis make for tough reading.
The UK’s 25 largest contractors by turnover have barely broken even, posting an average pre-tax margin of 0.2 per cent in their most recent accounts.
Even more worryingly, the average margin for the top 10 has fallen further: -0.9 per cent in the latest accounts, compared to 0.5 per cent in last year’s findings.
Market conditions for the biggest firms have become increasingly tough over the past five years, with tier ones weathering a particularly harsh storm.
But the same cannot be said for a separate band of contractors.
There are 16 contractors turning over £300m-£500m in the UK, and it appears they are sitting in a particularly sweet spot in the industry.
These companies are prospering, making a median pre-tax margin of 4 per cent. This marks a substantial jump from the 1.9 per cent made last year across this same turnover bracket.
Although each company in this band is different and operate in different sectors, the health of these contractors is stable and their balance sheets strong compared with larger competitors.
With this in mind, it is unsurprising that tier two Keltbray has said it is reluctant to step over the £500m turnover line and enter into the tier one space.
Its deputy chief executive John Keehan said: “We don’t want to work in that space.
“We do occasionally, if a client wants us to. In some cases, we’re asked to do work on a tier one basis. But usually, we would prefer to stay within the specialist subcontracting.”
In contrast, many tier one plcs have a mindset in place to become bigger and grow revenue to appease shareholders, Applied Value analyst Stephen Rawlinson says.
But, tier ones beware.
Carillion has shown that there is no safety in believing you can become too big to fail.
Taking heed from these smaller, more versatile tier twos may offer valuable insight into how to improve the tier one main contracting model – which from our CN100 analysis, is shown to be becoming increasingly unsustainable.
Indeed, it looks like there is safety in numbers: the £300m-£500m band to be exact.