Last week Construction News released their annual CN100 of the largest 100 UK contractors.
This time last year when we looked at the annual results things were looking quite good for the sector. Following the fall of Carillion, the construction industry looked like it was finally making some positive changes to its bottom lines.
This year’s results, which primarily uses data from financial accounts ending December 2019, or in some cases to March 2020, is like an eerie prediction of who will come out of this pandemic well and those that will struggle.
The report measures; turnover, pre-tax profit, pre-tax margin, working capital ratio, cash, total borrowing, employee count and average salary and for the first time ever net cash/debt.
But what are the main headlines and how will they affect the market?
To summarise, here are some key facts and figures:
The Top 10 (Ranked by turnover):
- Balfour Beatty
- Kier
- Morgan Sindall
- Interserve (Up 1 from 2019)
- Laing O’Rourke (Up 1 from 2019)
- Galliford Try (Down 2 from 2019)
- ISG (Up 2 from 2019)
- Amey
- Mace (Down 2 from 2019)
- Skanska UK
Cash vs Debt
Across the whole sector, cash is up, and borrowing is down.
There has been an increase of £200m in gross cash on the whole. But this figure varies quite dramatically between the largest companies and the mid-sized contractors. The largest contractors noted a marginal increase in cash, whereas mid-sized contractors showed a £250m increase.
Not only this but borrowing across the board is down. Total borrowing dropped from £2.91bn to £2.62bn.
It seems that the contractor market (as of last December) really had turned over a new leaf when it comes to liquidity.
Whereas in the past, many contractors have focused on revenue growth, with the plcs looking for the big contract award announcements to boost share prices, we are now seeing a shift of focus towards the bottom line and long-term stability.
Unfortunately, with the current climate, it seems unlikely that debt will fall as drastically over the next financial year. But the numbers do give us a pretty good indication of who is in a better position to tackle this period.
Take for example Galliford Try, who’s Net Cash/ Debt figure dropped a staggering £154.8m. Just this week, they have announced a £60m loss and 300 redundancies.
On the other hand, those who have improved this number like Balfour Beatty and Skanska, are the contractors who are seemingly in a better position at the moment.
Obviously, this is a generalisation, and it depends on a great deal of factors, but there is a clear trend here.
An end to creative accounting?
Its not a new phenomenon that some contractors can get a little bit creative when reporting their losses. A problem contract can run for several years, so some more prudent companies will report losses as they arise, others will report them only when they really have to which often coincides with a change of CEO.
With the scrutiny that the market has been under since Carillion let its debts pile up to the point of no return, it looks like many contractors are now being more open with losses as they occur. On average across all 100 companies, pre tax profits dropped by 41% and the number of loss-making firms doubled from four to eight.
While this obviously isn’t good news, the industry needs to re-build it’s image with the city and greater transparency of financial health will aid this.
Despite the analysis of the CN100 coming at a difficult time for the contracting market, the December 2019 and March 2020 accounts do show some really positive changes on the whole for the market. Next years’ league table will show the full impact of covid-19 on the sector, and we expect those with a solid net cash position this year to emerge stronger relative to the market.
You can view the full CN100 here: https://www.constructionnews.co.uk/financial/cn100-2020-the-top-100-uk-contractors-10-09-2020/
What are your expectations for the current financial year?
