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Demolition contractors win more work... but make less money

14 May 21 Concerns over Brexit – and now Covid-19 – continue to preoccupy UK construction specialists and the demolition sector is no exception. David Taylor reports

Last year’s analysis of the top 20 UK demolition specialists painted a picture of a sector in the doldrums. Overall revenues had grown by an unremarkable 6% while pre-tax profits had slipped by 7%. 

Nothing dramatic, but after a very strong performance the previous year, the figures looked decidedly lacklustre.

This year, the position has changed noticeably. The top 20 demolition companies appear to be a lot busier: total revenue has grown by more than 19% to £1.3bn (2020: £1.1bn). But profitability has taken a dive.

This article was first published in the May 2021 issue of The Construction Index magazine. Sign up online.

The same 20 contractors last year registered total pre-tax profits of £61.6m; this year, that figure has slumped by more than 30% to £42.8m.

Is Covid-19 to blame? Unlikely. Although the accounting periods of half of the companies listed here extend into the post-lockdown period from the end of March 2020 onwards, there’s no clear pattern to suggest that the pandemic has had much impact – at least, not yet.

‘Brexit uncertainty’ is a more frequently-cited factor in any difficult trading conditions experienced – as it has been ever since the referendum in 2016.

Keltbray, still very much the dominant player in the sector, notes that “lack of clarity and timescale on Brexit is an increasing cause of uncertainty and therefore a dampener on the market and growth overall in the UK”. 

Despite this, the company saw turnover surge ahead in the 12 months to October 2019, its most recent accounting period. Revenues were up 41.1% to £563.4m (2018: £399.3m).

For the past couple of years, Keltbray has been pursuing a policy of diversification “both sectorally and geographically” while maintaining a focus on its core UK markets.

The company is currently active in both Canada and Australia, mainly in the rail infrastructure sector, and is actively pursuing more work in the power, health, transport and residential sectors at home.

Despite the robust turnover figure, Keltbray’s pre-tax profit fell by around 40% from £17.8m to £10.6m in 2019. The company says that gross margins suffered “as a result of lower margins across a number of the UK business units due to a combination of tightening markets and operational delivery issues”. The economic outlook remains uncertain while “market conditions remain challenging and pricing levels are very competitive”.

Second-placed Erith Contractors, whose latest accounts are for the year to September 2020, agrees that the market “remains highly competitive” and the economic climate “challenging”. Having said that, the company recorded a 15.4% growth in turnover to £203.2m (2019: £176.1m) and an increase in pre-tax profits from £5.8m to £6.7m.

With its latest accounting period including a full six months of Covid disruption, Erith says that although many sites had to close for a period during the first lockdown in March, with 16% of the workforce furloughed, all sites soon reopened and completion dates are not expected to be significantly delayed.

A strong forward order book allowed Erith to maintain its forecast growth in turnover, “and at this stage the impact on our business and results is minimal,” it confirms.

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Brown and Mason – a big name in the UK demolition industry and generally regarded as one of the top five – finds itself at number 15 on the list of top 20 demolition specialists this year. Brown and Mason Group’s turnover for the year ended 30th April 2020 was £15.5m – way outside the top five. But its turnover the previous year was far, far smaller: a paltry £174,000. 

So what’s going on?

Last September Brown and Mason Ltd, a £50m-a-year business owned by Terry Brown, called in Cornerstone Business Recovery to act as administrator. Sister company Brown and Mason Holdings was also put into administration. 

But Brown and Mason continued to trade as if nothing had happened. In fact in January 2020, nine months before Brown and Mason Ltd went into administration, its entire assets, contracts and order book were transferred to Brown and Mason Group, formerly known as Brown and Mason Plant Hire, which is run by managing director Nick Brown, son of Terry.

Nick Brown told TCI Magazine that, as a third-generation family-owned firm, Brown and Mason comprised a number of businesses, all with similar names. “In the end there were eight different companies owned by different family members,” he explained. “I ended up owning Brown and Mason Group with my brothers Richard and Lee.”

He explained: “In 2019 my father decided he wanted to retire so all of Brown and Mason Ltd’s contracts were novated over to us.” The aim was to make the transition as smooth and as low-key as possible, said Brown. Clients were all aware of the changes, no jobs were lost and no creditors were out of pocket.

“We transferred the business on 9th January 2020 but our year-end is April, so the current figure shows a turnover of £15m – but that’s just one quarter,” continued Brown. “We’re a £50m - £60m turnover business but we’ve effectively lost a whole quarter this year due to Covid and our turnover for 2020/21 will be around £40m,” he added.

A rather more transparent change of ownership occurred in July 2020 when concrete frame specialist Morrisroe acquired a controlling share of well-known demolition contractor Cantillon.

The acquisition marked a milestone in Morrisroe’s quest to create a turnkey business by adding a “full demolition and basement box” capability to its concrete frame expertise. 

Morrisroe has been on the look-out for acquisitions that would add value to its portfolio for some time. A couple of years ago it was tipped to buy leading piling specialist Cementation Skanska but the deal fell through in January 2019, apparently because Morrisroe thought the £55m asking price was too steep.

In May 2019 Morrisroe bought GSS Piling & Geostructural Solutions instead and Skanska decided to hang on to Cementation.

Cantillon’s latest accounts are for the year to June 2019 and show turnover of £37.2m almost unchanged from the previous year. Pre-tax profit grew, however, from £3.1m to £5m. 

This article was first published in the May 2021 issue of The Construction Index magazine. Sign up online.

The biggest pre-tax profit figure on this year’s top 20 table comes from DSM Demolition which notched up a pre-tax profit figure of £11m on turnover of £38.5m – a margin of almost 29%. 

Family-owned DSM Demolition was sold to a management team backed by investor Metric Capital Partners in 2017 and merged with its sister company, brownfield land developer St Francis Group, to create a single entity.

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