The NG Bailey and Balfour Beatty joint venture that won a lucrative contract on EDF’s Hinkley Point C nuclear plant could target new work in the sector for the next three decades.
Speaking to Construction News, NG Bailey chief executive David Hurcomb said new nuclear was one of three major new sectors that the firm was targeting - along with energy and data centres - and that the new JV would be “in a good position” to take advantage of a “multi-billion pound” pipeline.
“We see these as the big growth sectors over the next 20-30 years,” Mr Hurcomb said, adding that the company had been investing up to £3m a year over the past four years in expanding into new areas of work.
Last month, the NG Bailey and Balfour Beatty JV was named as preferred bidder on a £460m electrical installation contract at Hinkley Point.
“I estimate there will be nuclear new build being done for the next 25 years so our investment needs to be looked at in that context,” he added. “Our JV is in a good position and we want to be involved in a significant part of the delivery of that programme.
“We are targeting quite a few more nuclear power stations with that joint venture. In the UK alone, there’s probably approaching 10 sites that have got nuclear licences for development so the potential is enormous.
“For NG Bailey, it’s a multi-billion pound opportunity over that period.”
Mr Hurcomb said there were more packages of work that the JV will target at Hinkley, potentially growing the current £460m value of its contract with EDF.
He said the work could see NG Bailey’s headcount rise by as much as 500 staff, the equivalent of a 20 per cent increase.
The firm’s overall nuclear business could grow to comprise up to 15 per cent of overall turnover.
Mr Hurcomb was speaking after NG Bailey revealed a positive set of financial results this week.
Underlying operating profit for the contractor was 43 per cent up in the 12 months to 27 February, rising to £3m.
Turnover was down 4 per cent to £365m, while pre-tax profit was down almost 40 per cent from £6.9m in 2013/14 to £4.2m, although this was down to a reduction in net profit from investments, according to the chief executive.
NG Bailey’s profit margin was “not quite notching 1 per cent”, according to Mr Hurcomb, who admitted the performance “was not great”.
He added that the company would look to achieve a margin of between 2 and 3 per cent in the short term, but warned that some sections of the market were still bidding on work at dangerously low margins.
Mr Hurcomb said this was why NG Bailey had reduced its exposure in M&E construction work by diversifying its business into the facilities and infrastructure sectors.
“We’ve been very selective over the last few years [on building construction work], he said. “The margins are very tight and there’s an awful lot of risky low-margin work.
“We’re not going to give up on building construction, we just don’t want it to be 100 per cent of what we do as it’s a volatile, cyclical market; it’s good in the good times, but when it’s bad it’s very, very bad.”
He said he expected to see more consolidation, particularly among contractors that have become over-exposed in low-margin work, especially in London.
“I think there’s still quite a bit of pain to come from some out there who have bought massive amounts of work and have to deliver it in a market with increased labour costs and capacity issues,” he continued. “The market is very challenging and London is a case in point.”
On infrastructure projects away from nuclear, Mr Hurcomb said he would expect to see NG Bailey land work on HS2 and on the expansion of London’s airport capacity, but urged the government to act quickly on the location of the capital’s next runway.
“Making a decision on the runways for London is something they just need to get on with,” he said.
“As a country, we could do with making our minds up more quickly; we tend to dither.”