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Murphy results: 5 things we learned

It has been a good year at Murphy.

After a difficult 2014, the company returned to profit in 2015 and has built on that further in 2016.

The year to 31 December saw profit increase by nearly 70 per cent, with cash balances hitting £96.9m and its order book breaking the £1bn barrier.

Following the publication of its 2016 business review, Construction News spoke to Murphy chief executive Steve Hollingshead to reflect on the results covering his first full year in charge. Here are the five biggest takeaways.

Back to black

Murphy recorded a pre-tax loss of £9.1m for 2014 – the first loss Murphy had suffered in its history.

Since then, the company has turned it round, posting pre-tax profit of £13.8m for 2015 and increasing this to £23.3m last year.

Mr Hollingshead admitted that part of this profit figure was due to revaluation of the company’s property portfolio, a result of new accounting laws which state these assets have to be represented in accounts.

But he also said the contracting arm had shown improved performance, particularly in ensuring no “bad jobs” had come onto its books.

The Beckton combined heat and power job – the main factor behind that 2014 loss – is now fully completed and handed over to the client.

But while profit was up, turnover has stagnated. This is partly down to its contracts on Crossrail coming to an end, which have totalled £95.5m. There’s also been a slowdown in the firm’s Australian market.

“If you look at the Australian arm, at one stage our joint venture was trading at $1bn annually; we are now at somewhere like $200m,” he said. “That part of the business had to do a lot of right-sizing, which was driven by the fall in oil and gas prices.”

For a company that has ambitions to be a £2bn turnover business by 2025, did this worry Mr Hollingshead?

“I’m still very confident we will hit that mark,” he said. “The scale needs to be at £2bn, if we achieve that a year ahead or a year late that is immaterial quite honestly.”

Acquisitions not off the table

Murphy has made a number of high-profile acquisitions over the past few years.

In the UK, the most significant was the acquisition of Land and Marine in 2013. But the company has also looked further afield.

Murphy has 50 per cent shares in Australian firm Murphy Pipe & Civil and in Canadian business Surerus Murphy. This year also saw the company acquire Aecom’s Irish design-and-build arm, a move to increase its presence in the Irish water market.

And the buying isn’t necessarily going to stop there. “Acquisitions will always be on our radar, we haven’t got a big acquisition agenda but often opportunities come to market that makes sense for us,” Mr Hollingshead said. “We are very clear on what type of acquisitions match our strategy.”

While he would not be drawn on the details of the strategy, the chief executive admitted that his firm would look for similar environments to the ones in which it currently operates. “As a privately owned business, we don’t need to go gung-ho, but it’s important that any region we move into, [that] the social and cultural values and legal structures are similar to the ones we work in at the moment.”

The ‘family man’ with a plan

If there was one thing Mr Hollingshead feels sets Murphy apart from other firms, it is strategy.

The former Laing O’Rourke construction director was a key player in coming up with a growth strategy that saw O’Rourke move from largely a specialist contractor into one of the biggest tier ones in the country. 

“If you look around at the construction industry there aren’t many businesses [that have as] clear a plan as we do – that’s what characterises our business,” he said.

This not only stands Murphy in good stead when trying to achieve its lofty turnover targets, but also in attracting the industry’s top talent.

In total, Mr Hollingshead has recruited 19 recruits from outside the business to his top team since joining in 2015, often taking them from under the noses of their contracting rivals.

“These people have joined because they are all enthusiastic about the plan we have got for the business,” he said. “That’s not me being big-headed, but I think that resonates with the people we recruit.”

Uncertainty bites

Following the election last week, there is one word I have heard more in the past seven days than in the past seven months.

Uncertainty is not good for the construction industry and not good for Murphy, according to Mr Hollingshead.

There are many positives to a direct delivery model. The margins are good – in the case of Murphy close to 4 per cent this year – and there can also be other benefits in terms of training and staff retention.

However, for a company that directly employs the majority of its staff, uncertainty means the company has to think on its feet in terms of how it deploys those people.

Mr Hollingshead said that, while uncertainty will have an impact on when government projects come to market, the company had opportunities elsewhere to offset that.

“This doesn’t mean work has gone away; it means we have to adjust, we are reliant on ongoing revenue and have a big workforce to feed, so as a result we have to flex the machine from one part of the business to the other.”

He did not foresee any job losses – on the contrary, he envisions more people coming into the business as part of the growth plan.

Building a bigger base abroad

While the UK business appears to be going from strength to strength, Murphy has aspirations to grow and diversify its operations abroad.

Mr Hollingshead told CN in an interview last year that Murphy did not want to become a global contractor, but did want to be seen as a good international contractor.

Currently, the company’s business in Australia and Canada has been focused on the oil and gas sector, but he is keen to diversify into other markets.

“We are quite narrow at the moment and we very much focus on oil and gas in both markets, but there is a great opportunity for us in future to start trading in other core sectors of the group in power and water and transportation.”

Might the company be looking to broaden its offering in Ireland as well?

“Ireland is a place we must not forget about,” Mr Hollingshead said. “It has one of the fastest growing economies in Europe and this year with our acquisition we could head towards €100m revenue.”

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