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The growing importance of cash


ONE RESULT of the mixed bag of results and announcements from the major quoted groups in recent weeks is likely to be a growing focus on cash as a measuring rod for the success of larger contractors.

This week's news from Mowlem that it seems to be following others' example and taking a more prudent approach to income recognition from contracts will have the net effect of wiping £70 million from its balance sheet ? quite a sum for a company which last reported net assets of just £187 million. Details of Mowlem's changes at this stage are sketchy but the fact that no interim dividend is to be paid and that the company 'continues to reassess its current strategy' suggests that the issues are not purely historical.

Mowlem seems to have had no problem winning new work and it has maintained a strong order book ? currently £2.3 billion ? over recent months, while the new management team has been unveiling write-downs and a restructuring.

But, whatever the reported results, the clearest signal that all was not well with Mowlem came with final results last March, which showed a net cash outf low of £36 million.

In contrast to Mowlem, results from Kier Group showed a contractor which is succeeding in both winning work and generating cash and profits from it. The group reported a 43 per cent rise in pretax profits as well as net cash of £58.1 million.

Part of this sparkling performance is due to Kier's thriving regional construction business which has helped the group's construction division take over from its homes operation as the largest source of pre-tax profits.

Kier Regional has prospered by taking on short term contracts, averaging £2.6 million, which offer lower risk, particularly against rising building costs.

To judge from the cash balances at Kier Regional ? which rose by £36 million to £205 million ? it also manages to get paid promptly.