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CNinsight100: Top firms widen performance gap

After a tough couple of years for the industry, the 2010 CNinsight100 shows how the largest firms have not only survived, but often thrived in the downturn at the expense of their smallest rivals.

The top firms in the sector have increased turnover and staŽff numbers while the industry as a whole suŽffered an 11 per cent fall in output over 2009 and collectively lost over 200,000 employees.

At the top of the table, Balfour Beatty and Carillion have consolidated their positions at number one and two respectively.

Their increased revenue and profits come at the expense of smaller contractors, which have neither the scale nor
firepower to compete for business.

Both firms have won a number of huge contracts this year, with Balfour Beatty recently securing a £700 million contract to connect oŽ shore transmission towers to the grid. The firm has also been expanding overseas.

International rescue

The top two firms are seeking international expansion as they have both the scale and the ability to extend their reach and take advantage of opportunities in growing markets, counteracting the weak market in the UK.

Balfour Beatty has won work at Fort Worth Airport in Dallas, as well as jobs in Hong Kong through its subsidiary, Gammon.

Carillion has also been active overseas, recently saying it is aiming to add £1 billion in turnover from the Middle East and Canada over the next three years.

The company has had success in the Middle East and completed the high profile Yas Hotel on the site of the Abu Dhabi Formula 1 Grand Prix, while it sees opportunities in PPP projects in Ontario and Alberta, Canada.

The order of the top fi ve in this year’s table is the same as last year, but that masks diŽ erences in performance. Balfour Beatty and Carillion outperformed not only their smaller rivals but many large contractors, which did not
see the revenue and profit growth of the largest two firms.

While maintaining its position at number three, Laing O’Rourke has been downsizing over the past few years and has lost 3,500 employees in the last financial year alone. These jobs were lost primarily in the UK and the Middle East.

Turnover at the firm was down 13 per cent to £3.07bn in the financial year to 31 March 2010, while pre tax profits fell by 41 per cent. The firm blamed “market fractures” for the reduction in turnover.

CNinsight 100 number four Morgan Sindall performed virtually in line with Laing O’Rourke, its turnover also falling by 13 per cent, to £2.2bn, while pre-tax profit fell by 28 per cent to £44.7m.

The company faces another tough year in 2010, as it reported a further decline in turnover for the first half of its 2011 fi nancial year as it took a hit in its construction and infrastructure division ‹sectors that are likely to remain
tough in the immediate future.

Pre-tax profits at Kier, ranked fifth, significantly underperformed the other top fi rms, having fallen by 60 per cent to £24.8m in its financial year ending 30 June 2009.

Its revenue fell by 10 per cent to £2.1bn.Kier reports its figures later this month, the first set of full year results since Paul Sheffield took over from John Dodds as chief executive.

Previously, the firm’s housing division had been a drag on profitability. With the tough housing market, there was a
charge of £44m to write down the value of land and to provide for reorganisation costs.

Overall decline

Collectively, the companies in this year’s CNinsight 100 saw a drop in turnover of 1.3 per cent for their most recent fi nancial years.

Turnover fell from £64.5bn to £63.7bn, while pre tax profi ts fell even further to £1.66bn from £1.75bn a year earlier.
But with the value of work in the construction sector falling during calendar year 2009, the collective turnover and profit figures of the CNinsight 100 represent an outperformance of the market.

At number six in this year’s table, up one place from last year, Interserve’s strong performance reflects the expansion in the facilities management and project services sectors set to continue as the government tries to address the UK’s budget deficit.

Interserve, which reports its revenue in a number of distinct divisions, said in its full year results update it had seen growth in both these parts of its business.

These successes meant it increased turnover, profits, staffŽ numbers and the average salary it pays to employees in 2009 overall.

Interserve also has the highest pre-tax profit margin of the top 10 firms, at 4.7 per cent - reflecting the generally higher profit margins in outsourced services than contracting.

Mitie, ranked eighth, has also benefited, reporting a full year pre-tax profit margin of 4.6 per cent. Not a traditional contracting firm, it provides a number of construction related services, including facilities management, asset management and property management.

As with Interserve, Mitie highlights the trend of good performance among firms operating in these sectors ‹ firms
that are growing both their sales and profi ts in an otherwise tough environment.

With central government and local authorities certain to outsource a wide range of functions, there are significant opportunities for fi rms providing construction, property services, property management and repairs and maintenance. The scale of these opportunities will become clearer after the spending review in October.

Top 100 first-timers

New entrants to this year’s CNinsight 100 include Homeserve, Cofely, Cape Industrial Services, Northstone NI, SGN Contracting, United House and Eaga. Each of these is involved in construction­related services such as planned repair and maintenance, responsive maintenance or delivering infrastructure for utilities.

Including these companies broadens the spread of firms and enables a comparison between respective divisions, as many of the more traditional contracting businesses position themselves to take advantage of a shift in the
market.

Carillion, for example, in consolidating its position in the top two, has been positioning itself towards the support services industry. Its support services division is becoming larger, as is its maintenance division which now represents 14 per cent £2.6bn of its £18.9bn order book, while its UK construction business has targeted a reduction in turnover from £1.8bn in 2009 down to £1.2bn over the next three years.

This year the CNinsight 100 table has separate entries for Bam Construct and Bam Nuttall, since they are two distinct businesses with separate management teams and head offices and produce separate accounts.

The split places Bam Construct 13th in the table, 14 places above Bam Nuttall. But Bam Nuttall is the more
profitable of the two and has pre­tax profit margins more than twice the level of its sibling 3.7 per cent compared with 1.8 per cent respectively.

Individual results of note include Willmott Dixon, which has jumped from 26th to 18th place this year. The firm’s revenue shows very strong growth for a second consecutive year. Its turnover has grown from £380m in its 2007
financial year to £989m in the 2009 financial year growth of 160 per cent.

This has primarily been driven by organic expansion and the firm bringing all its operating subsidiaries under the group umbrella.

Another firm showing strong turnover growth is SPIE Matthew Hall. Its turnover shows growth of £200m but this
reflects the takeover of the Matthew Hall business by SPIE in its 2008 financial year when the accounts of the two businesses were amalgamated.

The latest accounts are those for the 2008 financial year and figures for 2009 are yet to be released to Companies House.

Another turnover increase of note is Teighmore Construction, which did not feature in the top 100 list last year.
Its turnover grew by 347 per cent in the fi nancial year to 31 December 2009 as its activity on the Shard, which it is contracted to build, ramped up.

Trouble at the bottom The pressure on smaller companies is highlighted by the falling turnover reported by all but one firm in the bottom 20 of this year’s index an average fall in turnover of 19.1 per cent compared with last year, in contrast to an average turnover increase of 3.8 per cent for the remaining 80 firms.

This average turnover excludes that for Teighmore Construction, which at 347 per cent would significantly distort the average for the top 80 firms. Firms ranked 81 - 100 cover a wide range of sectors, from mechanical and electrical work to concrete specialists and interior fit­out.

Given the weaker market and scarcity of work compared with just two years ago, smaller jobs in these niche markets have increasingly been targeted by larger firms.

More generally, larger firms have taken every opportunity to diversify and recent results announcements have seen many firms keen to stress their revenues from diverse regions, sectors and geographies.

This diversification has protected them to some degree from being overly exposed to one weak area. Smaller fi rms, on the other hand, are often unable to diversify from either their location or area of expertise because of prohibitive costs or incumbents’ strong client relationships.

Many firms have been seeking to downplay their exposure to the public sector as the market declines signifi cantly in the face of government spending cuts.

ISG, ranked 17th, recently highlighted its increasing exposure to the private sector, which will see the bulk of the
growth in construction over the next four years. ISG stressed that in its next financial year around 80 per cent of its profi ts will come from the private sector.

Morgan Sindall, on the other hand, has said it will focus on areas of public spending likely to be relatively well protected from future cuts. In its annual report for the 2009 financial year it said: “Construction’s focus on sectors
with growth potential such as prisons, airports, defence and rail and its capability to deliver larger projects will help counter the eŸffects of a subdued commercial market and any future public sector spending reductions.”

Examples of companies focusing on one particular region are particularly evident in the housebuilding and commercial sectors.

Most of the recent pick­up in activity has been led by the South­east market, which has held up relatively well. Recent comments from Persimmon suggest that the bulk of its land acquisitions have been biased towards the South­east and the same is true of Bovis and Taylor Wimpey.

In the commercial sector, activity is dominated almost entirely by the London market and this shows no signs of
abating. While activity in the sector is picking up, a number of loans secured on commercial property are in default or breach of covenants.

The recent UK Commercial Property Lending Market report from the Department of Corporate Development ” Faculty of Business and Law at De Montfort University found that £57bn worth ”equivalent to a fifth ”of loans to
the commercial sector are in default or in breach of covenants.

This is from a total of £246bn oaned to the sector and represents a signifi cant risk. With £52.6bn of these loans to
be refi nanced in 2010, it is unsurprising that lending to the sector is still constrained.

This has a˜ ected commercial workloads, but despite this Mace and Sir Robert McAlpine have recently won a number of contracts in the sector.

A further sign that the top 20 contractors are stealing a march on their smaller rivals is their employment levels. They increased the number of people they employ by 4.8 per cent - equivalent to 11,552 people.

This compares with the overall increase in employment numbers of 4 per cent for the 100 constituents of the CNinsight 100.

This increase is buoyed by the inclusion of the new support services and facilities management companies, which traditionally employ large numbers of people.

Homeserve employs more than 3,000 people, while Cape Industrial Services employs more than 4,400. But such a positive employment trend shows the relative strength of not just the top 20 contractors, but the top 100.

Between Q1 2009 and Q1 2010, 234,000 jobs have been lost from the construction sector, according to figures released by the ONS. Smaller fi rms, selfemployed people and possibly workers from overseas have been bearing the brunt of the job losses since the onset of the downturn.

Missing entrants


There are two notable absences from this year’s CNinsight 100 table. Both Lancsville and Jarvis entered liquidation during the year. Jarvis was a victim of poor cash flows and when Network Rail, its largest client, refused to
pay early, its survival was increasingly unlikely.

When Lancsville went into liquidation, around £15m was still owed to trade creditors and a number of items of plant and machinery were missing.

Connaught, which went into administration last week and much of whose business was quickly snapped up by Morgan Sindell, is ranked 26th in this year’s CNinsight 100. Its online profile on CNinsight is constantly updated to refl ect developments.

The construction sector could see further declines over the next 18 months as the full impact of government spending cuts hits home. Next year’s table is likely to show a further widening of the gap between the big
diversified firms and the specialists and subcontractors in a market that could become increasingly less
fragmented.

Click here for more from the CNinsight100

WHAT YOU NEED TO KNOW ABOUT THE CNINSIGHT 100 CONTRACTORS LIST

The tables and statistics featured in the 2010 CNinsight 100 have been compiled using data supplied by Company Search, with additional research by Construction News.

It is based on firms describing themselves as construction companies under standard SIC coding. All figures are accurate to 8 September 2010.

Turnover figures are for group turnover, where applicable, with attempts made to remove turnover from joint ventures, giving an accurate reflection of the performance of the underlying group.

The CNinsight 100 is a list of the 100 largest UK contractors, with figures for specialist firms, consultants and housebuilders reported separately.

Where possible, firms having a proportion of turnover derived from contracting and housebuilding have
had these included separately. In many cases, where multiple UK-based firms are owned by a foreign parent, or where a UK holding company has distinct ownership of a number of subsidiaries, these have
been amalgamated, to provide a total UK turnover figure.

Bam Construct/Nuttall

Figures this year have been split between the two UK subsidiaries of Bam NV, the Dutch parent. Each firm has its own head office and produces its accounts separately. There are also
separate chief executives and senior management teams for each firm. As a result, they are shown as individual companies in this year’s CNinsight 100.

Canary Wharf Contractors

The contracting subsidiary of Canary Wharf Group, which itself is a division of Songbird Plc.

Cape Industrial Services

A large subsidiary of Cape Plc, this firm is heavily involved in the oil, gas and power industry.

Cofely

A subsidiary of GDF Suez, Cofely is a specialist in energy infrastructure, maintenance and project works.

Colas/Bouygues

Figures are taken from the combined results for Colas and Bouygues UK, both of which are UK divisions of
French parent company, Bouygues SA.

Emcor

Constitutes the UK activities of New York Stock Exchange-listed Emcor group.

Forth Holdings

The parent company of M&E services firm Forth Electrical Services.

Headcrown

The group name for a number of contractors including Browns Construction Group, Cruden Group, J F
Finnegan and Gee Construction.

Imtech

An M&E services group which includes firms such as Imtech, Meica and Goodmarriott & Hursthouse.

Keller

Keller has been removed from the CNinsight 100 table this year as the bulk of its turnover is generated
outside the UK. In the first half of its current financial year just 5.6 per cent/£28.1m of its turnover of £497m
came from the UK.

Leadbitter

The UK subsidiary of Heijmans UK, a division of the Dutch firm Heijmans NV.

Miller

Figures are for Miller Construction, rather than the Miller Group. Miller Construction is the contracting
division of the diverse group, which also includes housebuilding among its activities.

Morrison Facility Services

Also known as Morrison Plc, this business is the support services division of Anglian Water Plc.

Northstone NI Ltd

The UK contracting subsidiary of Irish-listed building materials firm, CRH.

Rotary

A UK subsidiary of the Australianlisted HVAC firm Hastie.

SGN Contracting

Owned by Scotia Gas and predominantly lays pipelines and other energy infrastructure.

Sir Robert McAlpine

Figures for Sir Robert McAlpine are those for Newarthill, the official name for the contractor. Turnover for the
most recent financial year shows a steep drop, following the disposal of one of its companies.

Southern Electric Contracting

An operating subsidiary of Scottish and Southern Energy.

Tarmac National Contracting

The contracting arm of building materials firm, Tarmac, which itself is a division of the global mining giant,
Anglo American Plc.

Teighmore Construction

The construction firm tasked with building The Shard. It is owned jointly by The State of Qatar and Sellar, the ultimate developer of The Shard.

Vinci

Figures for Vinci include Vinci Plc, Ringway, the UK operations of Vinci Construction Grands Projets and
Taylor Woodrow. Vinci SA does not consolidate all of its UK operations under one group holding company
and the actual UK-based turnover may be higher than that detailed.
In all, those companies listed contribute UK turnover of around £2 billion to the global group.

Volker Wessels

Figures are for the UK activities of Dutch contractor Volker Wessels. Its UK operations include a number of
subsidiaries, such as Volker Stevin, Fitzpatrick, Laser, Grant Rail and John Crowley. There have now all been brought under the Volker Wessels UK banner.

Click here for more from the CNinsight100

 

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