Health warning hung on Britain's biggest contractors
Despite strong profits growth in the past year, four of Britain's seven biggest construction contractors are at risk of financial collapse, analysts have warned.
Financial analytics firm Company Watch has put a health warning on Galliford Try, Kier, Morgan Sindall and Balfour Beatty.
Some other big names also come out alarming badly on Company Watch’s H-Score health rating.
Willmott Dixon, Renew, Morrison Utility Services, John Sisk, United Living Group, Vinci UK and City Building (Glasgow) are all in the danger zone.
Company Watch has analysed published financial information of the companies and taken measurements according to profitability, net worth and funding. The result is a marked out of 100. Any score below 50 indicates financial weakness and companies scoring below 25 are considered to be in the warning area.
Company Watch has given Galliford Try and Morgan Sindall an H-score of 15 this year. Balfour Beatty ranks slightly higher but with an H-score of 20 is still within the danger zone. Kier rates just 10 out of 100.
Also in the danger zone is Willmott Dixon, which Company Watch gives an H-Score of 21.
Best perfomers of the majors are Skanska (H-Score of 76), Amey (55), Costain (54) and Interserve (51)
Not all companies in the warning area will fail, Company Watch makes clear, but of the companies that do fail, the vast majority were in the Company Watch warning area prior to collapse.
The low ratings of Kier and Galliford Try largely reflect debt that they have taken on in recent years to fund major acquisitions; Kier has bought May Gurney and Mouchel and had debt of £435m at the end of its last financial year; Galliford Try bought Miller Construction and Shepherd Homes and ended the year with £182m debt.
Both companies have been in Company Watch’s danger zone since 2013. Two years ago Kier chief executive Haydn Mursell said that Company Watch’s analysis was “far from reflective of Kier’s actual operational health or financial performance”.
Galliford Try's rating comes despite a strong headline performance; it made a sector-busting 4.9% margin on turnover up 33% to nearly £2.35bn last year.
Morgan Sindall was the only one of the three to make a loss last year, losing £14.8m before tax on £2.38bn turnover, thanks only to legacy Faslane contracts inherited from Amec.
To see more analysis of the UK Top 100 construction contractors, click here for the September 2016 issue of The Construction Index magazine.
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This article was published on 12 Sep 2016 (last updated on 15 Sep 2016).