Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to a newer version or another browser.

Your browser appears to have cookies disabled. For the best experience of this website, please enable cookies in your browser

We'll assume we have your consent to use cookies, for example so you won't need to log in each time you visit our site.
Learn more

Neville Simms Now for the premier division

ANALYSIS; The opportunity to turn at least a handful of our best organisations into reliable investment grade companies must be grasped, with the best major contractors leading the way.

In my column in early January this year I wrote that 1998 had been a year during which much was written about restructuring and consolidation but little delivered. However, I did also suggest there was now a greater understanding of the underlying value of the businesses in our industry and how that value might be released. I was, of course, writing just before I announced the separation of Tarmac's Heavy Building Materials and Construction Services businesses, a move which has just that objective of releasing value.

So what has happened in the last six months?

The City has perhaps begun to recognise the value of construction materials businesses, as measured by the FTSE Construction and Building Materials Index, which had grown 29% by 2 July, compared with an increase of 10% in the FTSE100 and 13% in the All Share.

This is partly, I suggest, a reflection of the better full year results that many in the industry reported for 1998. There is also the benign near term outlook for the UK economy and an indication that the industry is bringing the narrower focus to its activities that the City believes is necessary to produce improving and more reliable returns - as highlighted by Tarmac's decision to split.

It also recognises that there are entrepreneurs who consider the sector undervalued, as demonstrated by Brunswick Developments' attempted coup for Alfred McAlpine and rumours of what appears to be a management buyout at Try Group and its return to private ownership. These people can see an opportunity to make a return on their investment and the market should take note.

But what can we do to continue this trend of making the industry a more attractive investment?

As well as improving the transparency of our reporting, as I suggested in my last column, consolidation, refocusing and restructuring must continue. Which means that if you are a big contractor in the UK, you must get bigger and better.

The top five players in the UK building materials industry hold a market share of nearly 70% with the largest holding 25%, while no contractor has more than a 5% share and it is very difficult to influence the market from that position. It also means, on a European and international scale, that even the largest UK contractors are relatively small.

So, while continuing to focus on improving operating efficiency, increasing quality, encouraging innovation and satisfying our clients, and all with less environmental impact, we must also continue to pursue mergers, acquisitions, strategic alliances and the like, both domestically and internationally. There is no alternative if we are to create some genuinely successful 'national champions' who have more efficient and reliably profitable businesses in the home market and real growth potential internationally.

In recent years the City has demonstrated its dislike for our sector. Now I sense a change of heart, and the opportunity to turn at least a handful of our best organisations into reliable investment grade companies must be grasped, with the best major contractors leading the way.

If we don't do it ourselves I am sure there are others who will attempt to do it for us. A key focus for the new management team at Carillion, as we move forward as an independent business aimed at generating real growth in shareholder value, will be to continue to lead the process of change which the UK construction industry still so badly needs.

Neville Simms is chief executive of Carillion

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Please note comments made online may also be published in the print edition of New Civil Engineer. Links may be included in your comments but HTML is not permitted.