How many main contractors have a margin of 5 per cent?
Not many, if recent interviews and results are much to go by.
In fact, 5 per cent seems to be the benchmark that chief executives at main contractors are aiming for – among them North Midland Construction’s John Homer, as well as Ray O’Rourke, Balfour Beatty’s Leo Quinn and Paul Cossell of ISG.
Others, meanwhile, may be being aiming for more modest targets, including Morgan Sindall chief executive John Morgan, who told CN yesterday his firm was looking at “more normalised margins of 2 per cent” in construction.
Our upcoming CN100 – which includes the industry’s leading contractors ranked by turnover – will show that main contractors still have some way to go to achieve those 5 per cent targets (keep an eye on your inbox on 23 August).
Meanwhile, today’s CN Specialists Index shows that subcontractors are already nearly there.
The Index, which covers the top 10 contractors across seven different sectors, shows that the combined top 70 firms have a turnover of nearly £9bn and an average pre-tax margin of 4.7 per cent.
That’s a significant improvement from last year’s Index where the average margin was 3 per cent – and that’s still a figure many main contractors would be envious of.
Across the sectors, there are more eye-catching margins; the demolition top 10 has an average margin of 8.9 per cent with three firms having a pre-tax margin of more than 10 per cent (and one, DSM, posting a thoroughly impressive margin of 35.7 per cent).
Steel firms on average reported a pre-tax margin of 5.7 per cent, while the scaffolding top 10 saw its average margin grow to 5.5 per cent.
So how have specialist contractors done it, while main contractors continue to struggle?
First it’s important to note that the results reflect primarily 2016 and early 2017, when many order books remained jam-packed and cost increases hadn’t started to eat into bottom lines.
Many subcontractors have also become increasingly selective about the work they bid for, with some, including fourth-placed building envelope firm FK Group, only working with a core set of clients to minimise risk and maximise returns.
Others, including ground engineering’s third-placed firm Bachy Soletanche, have expanded regionally, focusing more on booming markets outside the traditional London hotspots.
And for others, like M&E specialist SPIE, an increasing focus has been on engaging directly with clients as a tier one and shedding the role of a tier-two firm altogether.
However it’s been done, the Specialists Index is a clear sign that subcontractors are making hay while the sun shines – but it’s not without its caveats.
Many of the industry’s leading specialists interviewed in this year’s Index have begun to sound a note of caution around the number of tenders coming through, while others noted a definite slowdown in projects in the latter half of last year and early in 2017, which may impact upcoming results.
But for now, subcontractors are reaping the benefits of increased selectivity and a booming market, with margins that main contractors would be envious of.
A special evening
Construction News Specialists Awards are back for their 14th year to celebrate the outstanding achievements of the very best specialist contractors in the UK – the only national awards to do so.
Deadline for entering is 22 September – so have a look and get your nomination in now.