Galliford Try’s construction boss has said hitting a 5 per cent profit margin would require a “quantum change” in the industry.
Speaking to Construction News following the group’s full-year results today, Bill Hocking said having the ambition of 5 per cent is “fine”, but believes it is not realistic due to the sector’s fragmented nature.
Balfour Beatty boss Leo Quinn told Construction News last month that anything below 5 per cent in the long term would be unsustainable for the industry. Other senior figures have suggested it is a suitable target.
Galliford Try is aiming for a margin of 2 per cent by 2021 in its construction business, after reporting today a full-year profit margin of -5.9 per cent due to problem legacy contracts. On a pre-exceptional basis the firm’s construction margin was zero.
Mr Hocking said: “We have said 2 per cent [as a margin target] – I aim to better that. My personal goal is closer to 3 per cent.
“But to achieve 5 per cent you’d have to see quite a quantum change in the structure of the industry.”
Mr Hocking pointed to the example of France, where a few big players dominate the market. “Generally there are higher margins [in France] as they consume cash. It keeps the competition up and it’s expensive and difficult to get into the industry. It’s the opposite here.”
Asked whether he expected any major M&A in the sector, Mr Hocking said: “There’s always talk, but I’m not aware of anything like that.”
Galliford has been hit by problems on two big infrastructure projects in Scotland – the Aberdeen Western Peripheral Route project, a JV with Balfour Beatty and Carillion, and the Queensferry Crossing, alongside the Forth Road Bridge. The contracts have cost the firm £98m in exceptional costs, leading to a £90.6m full-year pre-tax loss in its construction division.
Mr Hocking said the plan was for “no more large-lump-sum-fixed price infra projects”.
However he said that it will continue to work on public sector projects such as smart motorways, which are done on an early contract involvement.
“The risk profile is dramatically different and they are far more collaborative,” he said.
On Brexit, Mr Hocking said he had yet to see an exodus of EU workers, but admitted: “As we get closer to Brexit we will see a change in the dynamics of the labour market.”
He called on the government to offer EU workers a longer period of grace after Brexit or potentially introduce “some sort of visa arrangement”.
“The government does need to match off its ambition of new infrastructure to support economic growth with the reality that we need a lot of EU labour to help us to do that.”
On the future of the CITB, he predicted it will survive “if it reforms”.
“I support a reformed, efficient CITB,” he added.