Mixed results for road builders when it comes to profits
While workloads continue to increase in the road construction and maintenance sector, profitability has taken a dip for some.
This time last year, the UK’s road building and maintenance contractors appeared to be in robust health. Work was coming through in a steady stream and the largest companies were making good profits – indeed, overall pre-tax profits had risen more than 27% in the previous 12 months. This year, though, while the work is still coming in, the contractors are not finding it quite so easy to turn a profit.
Overall turnover for the 20 largest contractors in the sector has increased by 3.5%, from £2.55bn to £2.64bn in the period 2017/18. Total pre-tax profits, however, fell by 8.2% to £134.6m (2018: £146.7m) reducing the average margin from 5.8% to 5.1%.
Eurovia, the UK arm of the French contractor Vinci registered a pre-tax profit of £22.2m, an impressive 39% improvement on 2016’s pre-tax profit figure of £16m.
Approximately £486m of Eurovia’s 2017 turnover was generated by its own in-house divisions: Eurovia Surfacing, Eurovia Contracting (North), Eurovia Contracting (South), surface-dressing specialist Eurovia Specialist Treatments and asphalt producer Eurovia Roadstone.
The remainder of its revenues accrue from joint ventures with other firms. These include Ringway Jacobs, with the eponymous consulting engineer; South West Highways, a joint venture with Colas; and Bear Scotland, in partnership with Jacobs and Breedon.
Kier Highways is one of the more robust performers in the sector, growing revenues by more than 10% to £473.5m in the year to June 2018 (2017: £428.4m) and growing pre-tax profits by 20% from £28.9m to £34.7m.
Its results were boosted by two three-year extensions worth over £250m a year secured on Highways England Areas 3 and 9, and a six-month extension secured on Areas 6 and 8.
Leading road maintenance specialist FM Conway also grew revenues in the 12 months to March 2018 (up almost 18% to £297.4m) though pre-tax profits almost halved, from £23.5m to £12.2m. “Included in the results are disruption costs of nearly £1m from the inclement weather in February and March, and a charge of £400,000 for restructuring costs,” explains the company.
In September 2017, FM Conway a minority stake in East Anglian road surfacing specialist Toppesfield.
Toppesfield is a strong performer, building revenues in the year to March 2018 by about 33% to £88.6m (2017: £66.4m) and making a pre-tax profit of £3.7m (2017: £3.3m). The company says that its increased turnover is “due to a mix of increased highways framework volumes, a growth in new clients and expanded geographical coverage for project delivery”.
FM Conway says that its new partnership with Toppesfield “will greatly benefit the Group’s ongoing expansion in its aggregates and asphalt business, as well as providing significantly more confidence in Toppesfield’s supply chain”.
Colas grew turnover after seeing revenues dwindle for the previous two years in a row. However, this was at the cost of profitability: pre-tax profit fell by more than 23%, from £9m in 2016 to £6.9m in 2017.
The company says that the increase in turnover was mainly due to “an increase in workload within the highways contracting business which has been successful in winning and delivering new contracts during the year”.
Last year, only one of the 20 leading road-builders (JB Riney) reported an actual loss; this year Riney (still in the red) is joined by two others: Coffey Construction and Scottish contractor WM Donald. The latter reported a pre-tax loss of more than £11m as a consequence of its settlement with HMRC over tax liabilities relating to an employer-financed benefit scheme (EFRBS). The result was a £14m write-down.
All in all, the UK roadbuilding and maintenance sector can hardly be said to be in crisis, but the modest increase in workloads and reduction in profitability for some indicate that it’s not a bed of roses either.
Last autumn Highways England announced £8.7bn-worth of work on the national road network over the next six years – great news for the UK’s civil engineering contractors. But then, just last month, the agency announced that 11 of the 112 schemes on its original 2015-2020 investment programme were being “paused indefinitely” as they no longer represent good value for money.