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The future is all in order

Most of the major firms have order books that will keep them ticking over for years, reports Alasdair Reisner

You don’t need the vogue for sustainability, not to mention some pretty horrific spikes in energy prices, to know that having a little bit of insulation can be the best protection against inclement weather.

While the Energy Savings Trust is trying to convince consumers of the benefits of filling their lofts with mattresses of mineral wool to keep the heat in, the construction industry has also been taking steps to insulate itself against any cold winds blowing through the sector.

It is easy to get caught up in the hysteria associated with plummeting equity prices and the turmoil in the housing sector, giving rise to fears that the contracting sector will be the next to get clobbered.

But research carried out by Construction News suggests that this may not be the case, and that some of the industry’s biggest names are in fact more insulated than a site manager wearing three winter coats.

While the annual reports published by each of the top 100 firms can only give a picture of how the firms performed in the past, they are often accompanied by forecasts for the future and details of firms’ forward order books.

These details reveal that, even if inquiries and orders at these firms fall off a cliff tomorrow, they would still have significant order books for months and, in most cases, years to come.

Forward orders

Take Carillion as an example. With an annual group turnover last year of £3.3 billion (and nearer £4 billion if its joint ventures are taken into account) the firm certainly has a big, and hungry, engine that needs to be constantly fed to keep it ticking over.

But just as the firm has grown rapidly in the last few years, drawing in first Mowlem then Alfred McAlpine, so have its order books. A bullish trading update at the end of June not only confirmed strong performance across the group, it also revealed its expectations that by mid-year its order book would be around £20 billion. That equates to more than six years’ group turnover in orders to fulfil.

While the figures for some of Carillion’s rivals show shorter work pipelines – whether due to the way they record work in their pipeline or simply because they have fewer deals tied up – the fact remains that all of those firms looked at have more than 12 months’ worth of work, in value terms, in their back pocket already.

And anecdotal evidence from those contacted by Construction News suggests that this picture is repeated at firms throughout the top 100. All of a sudden the credit crunch wolf seems to be receding from the door. Recent years have certainly been kind to some firms that are making their debut entry into the Top 100. Just as The Landmark, a 140 m residential tower near Canary Wharf has spent the year rising rapidly from the Docklands soil, so too have the revenues of J Reddington, the scheme’s concrete contractor.

A year ago the firm was pulling in a perfectly respectable £67 million from its activities. A year later and it has been pitched into the major league, with a turnover of more than £137 million. Its growth in percentage terms is topped only by another firm working in the Docklands – Canary Wharf Contractors has returned to the list with revenues of £153 million, having previously slumped to £70 million.

Impressive results

With the office and high-rise residential market looking tougher this year it may be that these firms struggle to repeat this performance next year, but the results are impressive nonetheless.

While such explosive growth is relatively common among smaller firms, where a single major deal can make a huge difference to the numbers, recognition should be given to Sir Robert McAlpine.

While other major firms such as Balfour Beatty, Morgan Sindall and Galliford Try all reported hefty rises in turnover last year, these uplifts were aided by acquisition.

Sales at ‘Concrete Bob’, meanwhile, ballooned from £1.25 billion to £1.82 billion, a rise of 45 per cent, purely on the back of the oldfashioned idea of going out and winning work. And lots of it.

By the end of 2007, the firm had finished a host of major projects, including the Princesshay shopping centre in Exeter and Chill Factor E ski centre in Manchester, while also looking to the future with the start of work on the 2012 Olympic stadium.

Its advances into the wind power sector also now look well placed to keep the business topped up with orders for the foreseeable future.

If the cold winds are blowing round the construction industry, they seem to be doing Sir Robert McAlpine some good.

Profit boost

Another firm whose results suggest that it hasn’t been hit too hard by the downturn is GB Building Solutions. This slightly awkward moniker came about after MJ Gleeson, which sold the business to its current owner, took back the rights to the family name earlier this year.

They may now wish they hadn’t done so, hoping that some of the shine from a whopping 733 per cent boost in profits at GB Building Solutions might have rubbed off on them.

Chairman Martin Smout can be rightly proud of turning the business round to become one of the success stories of the 2008 Top 100 list.

And finally a word about another of the new entries to the list. City Building (Glasgow) is a name that many in the industry may not recognise. But, having formed as a limited liability partnership in 2006 from Glasgow City Council’s building services unit, the firm has proved itself as a contractor in its own right, chasing work from both the public and private sector. Its £175 million turnover makes it one of the largest contractors in Scotland, and secures its place among the majors of the UK’s construction industry.