North Midland is planning to carry out more work directly to achieve higher margins, its chief executive John Homer has told Construction News.
Mr Homer said his company wanted to “break the mould” of contractors making low profits by achieving a 5 per cent margin by 2022.
“We’ve got to break this mindset that main contractors just manage subcontractors,” he said.
Mr Homer added that the company will do more offsite construction and invest further in the area, with four factories supporting its operations at present.
North Midland plans to increase its direct labour force from the 600 currently on its books, while also boosting the capacity of its design operation from its existing team of 150.
The chief executive was speaking to CN following the announcement of his firm’s results for the six months to 30 June 2018, which saw pre-tax profit more than double year on year from £1.2m to £2.5m.
Turnover was up almost 20 per cent to £160.9m, compared with £135.2m in the same period of 2017, leaving North Midland with a pre-tax margin of 1.6 per cent.
Mr Homer said the company had achieved growth without sacrificing margin by being “cautious”.
“We are quite prudent in the way we take on new business and choose customers and projects,” he said.
Mr Homer is targeting a further 20 per cent increase in revenue for 2019, providing the company can continue to find “the right people to deliver the work”.
“We want to grow sustainably, very cautiously, maintaining delivery for our customers and the margins will come with it,” he added.
The company is targeting framework contracts, two-stage tenders and negotiated work to achieve this growth.
“Very little of our work is single-stage lump-sum bidding,” he said.
“I don’t know who is doing that these day, but I hope they’re properly assessing it.”
North Midland pointed to an increase in its cash reserves since last June, which have gone from £7.9m to £18.9m in its latest accounts.
Mr Homer said getting cash in was crucial in the current market and had helped the company’s supply chain as well.
“We’re focusing on making sure we’re getting paid and in turn making sure we pay our supply chain on time,” Mr Homer said.
He added that the average time to pay contractors was 43 days, which differs from the 55 days the company reported on the government payment practices portal.
Mr Homer said this was because the government measure did not take into account the value of contracts.
Smaller suppliers can have problems submitting the correct paperwork that can delay payment, pushing up the average time to pay on the government’s measure, Mr Homer said.
The North Midland boss said he wanted to see the value of invoices processed on time included in the government’s criteria instead of just the volume.
“If you look at our accounts we do that and we pride ourselves on that,” he added.