The NCE Contractors File 2002 reveals a new order in UK contracting. Mark Hansford reports on who's up and who's down.
The UK Top 20
Congratulations to Carillion, which turned over the most in 2001 to head the list in UK civil engineering for the first time.
The news will come as welcome relief for the firm which, along with other contractors involved in major outsourcing contracts, has in recent weeks been hit by a plunge in share price.
Only last week Carillion shares dropped to 140p - compared to a 12 month high of 231p - after the firm announced that it was to start accounting for the cost of negotiating privately financed infrastructure projects.
It said the change would knock £12M off operating profits over the next two years.
However, in terms of turnover the firm remains on a very strong footing, with steady growth over the past two years lifting its UK civil engineering turnover from £410M in 1999 to £537M in 2001.
This growth has eased Carillion clear of the chasing pack, which is now led by Mowlem after an exceptional 2001 saw turnover increase by 45% on 2000 to £482M. Skanska remains third, bouncing back from a poor 2000 by upping turnover by 39% to £450M.
All of which leaves perennial champion Balfour Beatty floundering in fourth spot. A poor 2000, where civils turnover fell 27%, has been followed by an equally disappointing 2001.
Turnover is now at £418M, 17% down on 2001, and a massive 40% down on 2000.
Edmund Nuttall climbs two places to fifth by virtue of a 29% increase in turnover to £335.5M.
A similar performance next year could see the firm rise further to fourth.
Other big winners this year include Tarmac National Contracting, which through its £200M specialist road surfacing operation is ranked eighth in the main contracting table. Overall turnover has increased five-fold from £50M last year to £250M.
Almost as impressive is the performance of Jackson Civil Engineering, another roads expert, which by increasing its civils turnover from £65M to £220M rises from 25th to 12th.
Dean & Dyball will also be pleased, more than doubling turnover to £121M to move from 36th to 17th.
This year the 126 firms listed in the NCE Contractors File generated a combined civils turnover in 2001 of £9.4bn, equating to £74M per firm. In last year's file, the 117 firms listed generated £64bn, or £55M per firm. By any standard this is significant growth.
Last year, the Top 20 firms accounted for turnover of £4.4bn, 68% of the total. The Top 10 alone reaped £3.1bn, just under 50% of the total earned.
This year, however, sees turnover distributed further down the field. The Top 20 firms brought in just under £5bn, 53% of the total. The Top 10 earned £3.4bn, broadly comparable to last year's figure and just 37% of the total earned.
There are even signs this year that the very biggest firms are coming back into the pack. The Top Five make up just 24% of the total turnover compared to 30% a year earlier, while the Top Three make up 15% of turnover against 20% last year.
This is not to say that the top firms are not growing: civils turnover among the Top 20 firms is up 14%, with the promise of much more. The Top 20 lay claim to a massive £7.4bn of work in hand, up almost 40% on last year's £5.4bn estimate.
Certainly, the general trend among the Top 20 is upwards.
Just three firms saw civils turnovers decrease this year - Balfour Beatty, Morrison and Alfred McAlpine - against five last year. Half saw increases in turnovers of 20% or more, with several spectacular hikes pushing the average increase above 50%.
There can be little doubt that these dramatically boosted turnovers reflect both a buoyant market - particularly in road and rail - and the increasing amounts of work being carried out in joint venture and frameworks.
The firm with the biggest fall in turnover in the Top 20, Balfour Beatty, carries out most work as a traditional contractor; 57% of its turnover is earned this way. The other two contractors with a fall in turnover - Morrison and Alfred McAlpine - also rely heavily on traditional and design and build contracting - 50% and 49% of turnovers respectively.
The new number one, Carillion, meanwhile, earned just 21% of its money this way, with 58% coming from frameworks. Ringway has also profited from frameworks, with the 80% contribution of this income boosting turnover by 23% to £222M.
Both fast-climbing Mowlem and Skanska - the new number two and three respectively - use a balance between traditional contracting, design and build, joint ventures and frameworks.
Mowlem earned just 5% of its turnover from frameworks, with 30% from traditional, 30% from design and build, and 20% from joint ventures. Skanska is similar, with 7% coming from frameworks, 16% from joint ventures, 8% from traditional and 29% from design and build.
Despite the rise in frameworking, margins remain as tight as ever, and the larger firms continue to be tight-lipped about disclosing them. This year's Top 20 had to make do with an average profit margin of 3.0%, slightly down on the 3.4% last year.
Skanska was the only firm in the Top 7 prepared to reveal its civil engineering margin, a typical 2.7%. Further down the list, good margins were achieved by Alfred McAlpine with 4%, and Jackson Civil Engineering with 7.1%.
The year ahead
Despite bulging order books among the Top 20, the overall feeling for the coming two years seems to be one of caution.
Three quarters of firms predict that turnover will increase by 20% or less over the next two years. The Top 10 firms are more cautious still, with none expecting turnovers to increase more than 10%.
Last year, 59% felt that increases in turnover would be 20%, with 21% expecting rises of 31% or more. This year just 15% make a 30% plus prediction.
There is positive news regarding margins. Sixteen percent of firms do not expect to reach this year's Top 20 average of 3%, but almost half believe margins will reach 5%. Just 37% of firms are targeting margins in excess of 5%, compared to almost half last year.
One sector stands out above all others in this year's Contractors File: roads. Civils turnover from road building and maintenance in 2001 was almost twice that of its nearest rival, rail. And it should be more of the same next year, with roads four percentage points clear of water/wastewater and buildings as an area identified as likely to show growth.
All of which should make happy reading for roads specialists Ringway and Tarmac, which top the rankings in roads with turnovers of £220M and £200M respectively.
Rail returns as the second biggest sector in 2001, with the very public problems in Britain's rail network over the last two years translating into a 50% increase in turnover. Good news for Carillion and Balfour Beatty, the UK's two biggest players in rail with turnovers of £278M and £248M. Jarvis Rail again did not supply information for the File.
Rail takes second place after several years of trailing behind water and wastewater, which this year saw turnover dip slightly, dropping it to third. The cyclical nature of workload in the water industry is evidently to blame, as it remains the second favoured growth area. Relief then for Morrison Construction and Morgan Est (formerly Miller), the top two in water/ wastewater with turnovers of £150M and £84M.
The big boom market this year was telecommunications, with turnover up nearly 4.5 times on last year. Few firms rate it as an area of growth, yet this year it generated more turnover than civils building work (5th) and power and energy (6th) combined, to storm into fourth spot.
This is excellent news for Skanska and Morrison, the leaders with turnovers of £32.9M and £30M respectively in this growing sector.
Buildings settles in fifth place with another year of steady growth, and it remains a strong favourite for further growth in the coming years. This was a bad year for power and energy however, with a dip in turnover of 32% on last year dropping it to sixth position. However, confidence remains strong for growth in the next two years, alongside coastal & flood defences, waste, airports and defence.
Overseas Singapore was the place to be contracting in 2001, comfortably earning the UK based contractors entering the File more than work in the rest of the world put together. Australia, along with Ireland, Canada and Hong Kong, were also good money-spinners.
But the presence of UK firms globally appears to have dwindled from its heyday in the late eighties and early nineties, with many of the big names of UK contracting operating overseas through subsidiaries or parent companies.
Just Balfour Beatty and Mowlem, with civil engineering turnovers of £659M and £197M, can claim to have a major presence overseas. Yet their positions are growing rapidly, with both firms doubling their turnovers from a year ago. They also have strong order books:
Balfour Beatty at almost £1bn and Mowlem at £270M.
Kier takes third spot with a turnover of £98M, steadily up 13% on last year, and with £200M in hand for next year. Edmund Nuttall (£46.5M) and Fitzpatrick (£20M) round out the top five.
Coastal, flood defence and irrigation is where most work was done in 2001, with a £660M turnover, £200M clear of the next biggest market, airports. Rail takes third spot just ahead of roads, markets worth a combined £666M. Buildings completes the Top Five.
Opinion is largely divided over where the growth over the next two years will be, with buildings, rail, water/wastewater, ports and harbours, coastal/flood defence/irrigation and geotechnics all equally favoured. However, overseas, as in the UK, roads stands out as the place to be.
Contractor of the Year Awards
For the first time this year the NCE Contractors File 2002 has singled out the firms whose financial performance in the year 2001/02 was truly exceptional, with the introduction of the NCE Contractor of the Year Awards.
Awards are made in three categories - large contractor, medium contractor, and specialist contractor - and assess firms on the basis of growth in turnover, profit margin, and earnings per employee.
NCE Large Contractor of the Year 2002 is Skanska, thanks to solid turnover, growth and profit margins, and effective use of its 1,755 strong permanent workforce. Exceptional turnover growth made Mowlem a close second, with good turnover growth also leaving Edmund Nuttall and Ringway well placed.
NCE Medium Contractor of the Year 2002 is Galliford Try, thanks to a good all-round performance, but competition was fierce in this packed category for firms with a civils turnover below £200M.
Costain, Dean & Dyball, Kier, and Clancy Docwra all were close to snatching the prize.
NCE Specialist Contractor of the Year 2002 is TJ Brent. Based in Cornwall, in the last year Brent has more than doubled turnover to £64M, increased profits from £0.2M to £0.9M, and increased its workforce from 390 to 900. Challenging for the top spot were Brett, CAN, Dew Pitchmastic and CJ Pryor, with Brett only undone by its profit figures after increasing turnover from £3.5M to £17.4M.