Growth in Galliford Try’s construction business will flatten as the group focuses on margins, the division’s chief executive Bill Hocking has told CN.
Results for the last financial year showed the building and infrastructure business increased turnover from £1.53bn to £1.69bn for the year to 30 June, while operating losses were reduced from £88.8m to £29.1m.
Mr Hocking (pictured) told Construction News he was not looking to grow the business further.
“I’m quite happy with that. I’m quite happy to have a business that is £1.7bn,” he said.
The construction business has a revenue target of £1.8bn by 2021, which would effectively mean revenue increasing only in line with forecast inflation.
“We’re plenty big enough,” Mr Hocking said. “We don’t need to chase volume; we need to improve the bottom line.”
Galliford Try’s construction business has reported operating losses in its last two financial years, mainly due to the Aberdeen Western Peripheral Route project.
Mr Hocking said: “Aberdeen has overshadowed us for years now – one project – and it undermines a great performance in much of the rest of the business.”
CN revealed last month that remedial works worth “single-digit millions” were required on the Don River Bridge, the last major element of the Aberdeen bypass to be completed.
“Some of the stretching ducts were misaligned and we had to break out the concrete panels to realign those ducts before we stress the bridge,” Mr Hocking said.
“But we’ve got the technical cure for it, and it’s pretty straightforward stuff; it just takes a bit of time.”
The division’s order book dropped in Galliford’s latest results from £3.6bn to £3.3bn, which Mr Hocking said was due to the business being “far more picky” about the jobs it takes on.
“We turn away a lot more projects now than we used to and what we’ve seen is we’ve been more profitable as a result,” he said.
Higher profitability has been achieved through tighter bid approval criteria to identify “red flags” that could cause problems, he added.
These include major fixed-price, lump-sum contracts like the AWPR, contracts with onerous terms, and contracts that demand hard-to-guarantee performance such as building energy consumption.
Around 85 per cent of the construction division’s work is now with repeat clients, particularly on public sector frameworks for schools, health and defence.
With the AWPR due to be finished soon, Mr Hocking said he was hopeful the construction division will report a non-underlying profit for the current financial year and is targeting an operating margin of more than 2 per cent by 2021.
“I will be personally very disappointed if it’s not above two-and-a-half,” he added.
However, he did not believe 5 per cent margins for tier ones were realistic in the medium term, in contrast to a number of contractor bosses.
“Five per cent is a good aspiration, but the structure of the construction industry in the UK doesn’t help us towards that,” he said.
Barriers to entry were “not as high as they could be” for new competitors, Mr Hocking said, meaning that firms had to work harder to offer clients a different service.
“What we have to do as tier one contractors is differentiate in what we offer through our people, our processes, our track record, our ability to value-engineer projects and so on,” he said.