Private contractor Mace has called the top of the UK property cycle and sees future profit growth from overseas work and ramping up its development business.
The firm said it would not be tempted to bid major projects if client’s return to single-stage, fixed-price tenders as is being expected.
Announcing results for 2017, Mace said it had put its problems of 2016 behind it when construction in the UK fell into loss and had delivered a year of rebuilding.
Revenue for the year remained constant at £1.97bn with profits before tax more than doubling to £23m from a focus on margin and risk management.
“Although our profits are not yet back at pre-2016 levels, we are back on the right track and have worked hard to contain issues which caused problems previously, said chief executive Mark Reynolds.
“Our plans to increase the amount of work we do overseas and become a global exporter of construction services continued to go well with the amount of international work increasing by 29% to £665m.
“Some are suggesting that we are starting to come to the end of the current property cycle in the UK, that is why it is so important that Mace continues to diversify across a variety of sectors and on long-term projects and programmes both in the UK and internationally.”
Until recently, Mace was free of any corporate debt, but based on the success of earlier development projects, it issued a 5-year bond for £160m in March to provide finance for its growing development business, now involved with schemes valued at over £1.8bn.
These bonds are due for repayment by 23 March 2022.
Construction contributed £1.63bn (83%) of group turnover in 2017.
Financed director Dennis Hone added: “The project losses that impacted on our results in 2016 continued to adversely impact our financial results in 2017, as our challenging projects achieved practical completion and commercial negotiations continued during the year.
Looking forward Hone said: “Many commentators are speculating that we are nearing the end of the current property cycle and that this could lead to cheaper prices and more competition in the sector.
“This in turn could lead to more single-stage fixed-price tenders once again being issued by clients.
“We strongly believe this form of procurement and contractual arrangement introduces disproportionate risk for the tier one contractor and their supply chain.
“Our response is to be more selective regarding the schemes we will bid for, ensuring that margin suitably
reflects the risks involved.
“With uncertainty in the economy we believe that no contractor should buy work just to keep the workforce engaged and to supplement short term cash flow nor should there be an acceptance of potentially undeliverable programmes at cheapest cost.”
The Construction business achieved a number of significant construction management appointments over the year and these contributed to an increase in construction employees rising from 1,402 to 1,842.
Consultancy business grew turnover by 17% to £267m in 2017 and increased headcount from 1,987 to 2,511.
Hone said “The conclusion of challenging projects together with an almost full order book for 2018, gives us confidence that we will see a further increase in Mace’s profit before tax in 2018.”
The total number of people Mace employed, including consultants and temporary employees, rose by 13% to 5,726 at year end, with a third of employees now women.
from Construction Enquirer http://www.constructionenquirer.com/2018/06/27/mace-calls-top-of-uk-property-cycle/
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