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Mace’s profit doubles in ‘year of rebuilding’

Mace’s pre-tax profit more than doubled to £23m in 2017 as its problem jobs wound down.

The profit was more than double the £10.7m Mace reported for the previous year, but still below the £36.2m the company made in 2015.

Chief executive Mark Reynolds (pictured) called 2017 a “year of rebuilding”.

“Although our profits are not yet back at pre-2016 levels, we are back on the right track and have worked hard to contain issues which caused problems previously,” he said.

Mace’s profit in 2016 was hit by losses on Landsec’s £2.2bn Nova scheme in Victoria and the £170m Highpoint Tower in Elephant and Castle.

Group finance director Dennis Hone said some problem jobs had “continued to adversely impact” returns in 2017, but pre-tax profit for 2018 would be higher now that the jobs had been concluded.

Revenue for the year to 31 December 2017 was broadly flat at £1.97bn, which put the company’s pre-tax margin at 0.6 per cent.

Mace’s debt position increased from £4.9m to £177m over the year as the company issued a £160m bond in March to fund the expansion of its development arm, which mainly focuses on student accommodation projects.

A spokesman for the company said securing the five-year bond was a vote of confidence in the company’s performance, balance sheet and its future plans.

The 2017 accounts also revealed that CEO Mr Reynolds and consultancy chief operating officer Mark Holmes lent the company £15.9m in January 2017 so it could move on a development opportunity before the bond was issued.

Mace’s development arm is currently working on student accommodation schemes in Cardiff and Exeter and has acquired a new site in Sheffield.

Revenue for the development business was flat at £16.8m, but it added significantly to the firm’s work in progress, which increased from £22.5m to £108m on the balance sheet.

The company expects debt to peak at around £300m by 2019 as it takes on additional finance on a scheme-by-scheme basis.

Along with more development work, Mace also plans to expand its overseas operations.

The company has targeted turnover of £2.2bn by 2022 with a 2.5 per cent margin as part of a new strategy put in place last December, with much of this growth expected to come from international work.

Work outside the UK currently accounts for around 29 per cent of the company’s turnover, with data centres in Europe providing a significant source of revenue.

Mr Hone said doing more work overseas was “a natural hedge against changing market conditions”.

North America, Australia and India are Mace’s main target markets, but the firm explicitly distanced its expansion plans from the course followed by Carillion.

Mr Hone said Mace had no PFI jobs and its international construction activities “are focused in jurisdictions that adhere to normal contractual payment terms and obligations”.

He also warned against clients pushing too much risk onto contractors amid speculation that more jobs will be single-stage fixed-price tenders if the market tightens.

Mr Hone said Mace would respond by being “more selective regarding the schemes we will bid for, ensuring that margin suitably reflects the risks involved”.

There was also recognition of the need for good supply chain relationships, with Mr Hone saying the company supported prompt payment, although its average time to pay increased slightly in the year from 42 days to 45 days.

Mace recently overhauled its structure, reducing its construction divisons from 10 to six.

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