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NG Bailey back in profit despite ‘cut-throat’ market

NG Bailey has returned to profit in 2013/14 despite a construction market its chief executive has described as “cut-throat”.

David Hurcomb told Construction News that getting through the downturn represented an achievement in itself, as the M&E sector remained “very tough” with it proving “difficult to make any margin in 2013/14”.

“We have not seen margins go up at all yet. We’re still bidding at just about covering our overheads.

“The South and London is busier and a lot of competitors have come into the market who are taking work and taking the risk. It is cut-throat, but there is no more margin.”

Margin pressure would continue for at least the next 18 months, he said.

Mr Hurcomb was speaking to Construction News as NG Bailey revealed that pre-tax profits post-exceptional items had recovered to £6.9m in 2013/14, compared with a pre-tax loss of £10.1m in 2012/13.

Underlying pre-tax profits (pre-exceptional items) were up by 609 per cent to £7.8m* in the year ending 28 February 2014, compared with £1.1m the previous year.

“If you look at those that have been trying to grow throughout the recession, they have had large write-offs on contracts – Balfour Beatty Engineering Services had massive write-offs”

David Hurcomb, NG Bailey

In its 2012/13 results, the contractor had been hit by restructure costs of more than £5m and a £6.1m hit on two contracts.

Turnover in 2013/14 was down 10 per cent to £379.8m from £421.6m in 2012/13 (when it had fallen 8 per cent from £458.6m), which Mr Hurcomb said was down to difficulties in the construction sector.

In the year, turnover were down 33 per cent in the building construction market but up 17 per cent in infrastructure and 10 per cent in services.

Mr Hurcomb admitted that turnover was “a bit lower than we would like”, but said the firm had deliberately reduced its exposure to the construction sector while investing in new sectors such as energy.

“We have managed turnover down in the recession by being selective, because we felt that the risks need to be worth the rewards.

“If you look at those that have been trying to grow throughout the recession, they have had large write-offs on contracts. Just getting though [the downturn] will be an achievement.”

NG Bailey’s portfolio of work is balanced across the country between the “sluggish” North and “overheated” South, he said.

Mr Hurcomb said NG Bailey would not “chase sales” by buying work in the South, and would instead “grow London very carefully” over the next three to five years.

Its secured forward order book at the year-end was worth £550m, up 32 per cent on the previous year, driven by growth in IT and facilities services.

The firm’s strategy is to diversify the business so it comprises a third in construction, a third in infrastructure (including nuclear energy and industrial) and a third in facilities services and IT, which Mr Hurcomb said it will achieve within two to three years.

“Ideally we would want to work with customers who want to engage early and who understand the benefits of the offsite approach”

David Hurcomb, NG Bailey

“We have done very well in growing rail and services,” he said. “We want to grow nuclear and we want to build construction back up with selected partners.”

Its energy business launched in 2013/14 and is expected to contribute to the firm’s growth this year. It has won a five-year deal with supermarket Morrisons to bring energy savings to its 500-store estate.

Construction News understands NG Bailey is currently bidding for a package of work on Hinkley Point C in a joint venture with Balfour Beatty.

NG Bailey will continue to work selectively for main contractors in the building construction sector.

“Ideally we would want to work with customers who want to engage early and who understand the benefits of the offsite approach,” Mr Hurcomb said.

“We will focus on larger, more technical projects and large M&E infrastructure.”

The firm’s average number of employees fell by around 100 to 2,626 in 2013/14, down from 2,721 the previous year.

Mr Hurcomb admitted that NG Bailey had had to reduce its overall number of employees significantly over the past five years, but that it had continued to invest in young people through its apprenticeship programme.

“There is a skills shortage. A lot of people left the industry and it will take time to get them back, if they come back.

“We are okay for now, but if we want to grow, where are those people going to come from?”

NG Bailey reduced overheads by £3.1m in the year, giving a total reduction in administration costs of a third since 2010.

Its net assets were £84m at the year-end, with cash and liquid investments worth more than £80m and no external borrowings.

*This article has been amended. It originally said there had been a 16.4 per cent increase in pre-tax profit to £7.8m

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