Balfour Beatty, Carillion, Galliford Try and Morgan Sindall have all seen a drop in orders since the end of 2011, according to research shared exclusively with CN.
The latest order book index, compiled by financial consultancy Grant Thornton, showed a 2.3 per cent decline across the UK’s top 10 listed construction firms to a value of £55.8 billion – the lowest since Q1 2010.
While this reflects a drop in public sector work, analysts have also suggested it is a result of selective bidding by companies in a fiercely competitive marketplace.
By contrast, in the 12 months to December 2011 the index recorded a 2.3 per cent increase in orders across the top 10.
Since then, seven of the top 10 publicly listed companies’ books have either stood still or declined.
Morgan Sindall – which revealed the departure of its chief executive Paul Smith this week as part of its restructure – recorded the biggest drop, down 9 per cent.
Galliford Try and Carillion saw their order books fall by almost 6 per cent. Carillion launched a strategy three years ago to slim down its construction business by a third.
Meanwhile Balfour Beatty, which this week told CN that its restructure will see its supply chain reduced by 5,000, experienced a 3 per cent drop across the group.
Interserve saw its order book increase by 11 per cent, while Costain’s rose by more than 4 per cent and ISG’s rose by little over 1 per cent.
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Commenting on factors affecting the results, Grant Thornton’s partner and head of construction Phil Westerman said local authorities continue to trim budgets, the government is delaying large procurement programmes and tender competition is increasing.
“Even order book values that are supposedly ring-fenced as ‘secured’ have the potential to be revised down given the uncertainty and lack of funding in the sector,” he said.
Mr Westerman said there is a need for greater transparency and consistency on order books, to avoid reporting resulting in “a meaningless figure with limited relation to future revenues, share price or investor confidence”.
ISG chief executive David Lawther told CN that his firm’s order book only includes “committed orders” and work in frameworks allocated over the next six months.
Asked about a detailed breakdown of order books, he said: “It might provide a little more clarity for investors but it’s also a question of sensitive information, and we often have customers who would not want their names revealed, or the value of their projects to be revealed.”
Interserve Construction managing director for building Ian Renhard said its order book growth was due to “pushing hard for key projects” where it has expertise and a focus on regional frameworks.
Mr Renhard said the firm had been calling for “shovel-ready projects all year” with a need “now more need than ever” to have forward visibility for its business and supply chain.
He said lessons need to be drawn from “how to deal with the functional issues surrounding the curtailment of programmes without adequate visibility of the replacement strategy” citing Building Schools for the Future and the Priority School Building Programme as examples.
The order book analysis also showed a lack of correlation between published order book figures and share price growth.
Numis Securities analyst Howard Seymour said the City view is that “winning lots of new work is not necessarily a positive”.
He added: “My view is that major contractors are stressing selectivity and commercial prudence, so order books in this situation are likely to be flat or down.”
Mr Seymour said analysts will tend to be more positive where project wins are not open market tenders, with frameworks generally regarded as positive.
For a major client, notably public sector, “pricing discipline will broadly be more consistent than in the private sector”, he added.
Ernst & Young construction director Adrian Mulea said “key contributory factors” were the “demise of PFI and the delay in the development of a replacement”.
“Some may now be saying ‘enough is enough’ and they won’t necessarily look to ‘buy’ turnover, particularly in view of the medicine they have taken and are taking to reduce costs,” he added.
Me Mulea said firms are also looking at the longer term, such as Morgan Sindall on urban regeneration and nuclear decommissioning, while Balfour Beatty and Carillion are looking overseas.
Commenting on order book transparency, PwC head of construction Jonathan Hook said detailed breakdowns would be commercially sensitive, but suggested companies could profile the order book by year and split out the amount estimated under framework agreements.