Thirty years ago, road construction was largely about new roads to serve what Margaret Thatcher hailed as 鈥渢he great car economy鈥�. Things have changed a bit since then.
Thatcher鈥檚 鈥淩oads for Prosperity鈥� programme, which promised a new and improved road network and billions of pounds-worth of work for civil engineering contractors, fizzled out along with her premiership and while subsequent governments also promised massive investment, road construction today is mostly about the maintenance and improvement of the existing network.
That is not to say that road construction is not a major sector. It is currently estimated to be worth anything between 拢8bn and 拢10bn a year and has more than 4,000 businesses active in the sector. Accounting for a big chunk of this workload are the big infrastructure contractors such as Balfour Beatty, Costain, Skanska and (until the beginning of this year) Carillion.
However, our analysis is based on the financial performance of those companies that specialise in highways contracting, excluding other multi-disciplinary civil engineering firms that do not report their roads work separately.
The picture that emerges from our sample of 20 roads contractors is of a sector that continues to prosper, despite the uncertainty of the Brexit negotiations and never-ending talk of a decline in construction output.
Admittedly, net turnover increased by a relatively small margin during the past year 鈥� up a slender 4.4% to 拢2.4bn from 拢2.3bn in 2017. Seven of our top 20 contractors saw workloads decrease over the year.
But net pre-tax profit leapt by almost 30% to 拢125.6m, suggesting that contractors are working more efficiently than ever 鈥� even if, again, seven companies recorded a fall in profits. Only one of them 鈥� JB Riney 鈥� made a loss and the average profit margin was 4.3%, compared to 3.3% the year before.
The biggest roads contractor by turnover in our table is Eurovia, the UK arm of the French-owned Vinci operation. The group includes numerous operating subsidiaries and joint ventures, and we have included their results in the Eurovia figures.
In the 12 months to 31st December 2016, Eurovia grew turnover by 4.4% 鈥� our sample average 鈥� to 拢735m. Around 拢238m of this is Eurovia鈥檚 share of its various joint ventures with other contractors.
Ringway, Eurovia鈥檚 term maintenance business, 鈥渕oved into a positive profitable and sustainable position鈥� following lacklustre performance the previous year, said chief executive Scott Wardrop. Bill Taylor, Ringway鈥檚 managing director, sadly died in October 2016 after being diagnosed with cancer the previous year. He was replaced by Mike Notman.
Kier Highways, now incorporating the business of consultant Mouchel which it acquired in 2015, once again took the number two position on our table with turnover of 拢428.4m, up almost 10% on the previous year鈥檚 figure of 拢389.9m. This increase was mainly due to a greater amount of scheme-related capital works being completed compared to the previous year, the company said.
However, Kier was one of the seven contractors who bucked the trend and saw profits fall in the latest year. The company attributed this to two factors: 鈥渋ncreased administrative expenses of 拢5m as the company invests in its infrastructure to support the future growth aspirations of the company鈥� and 鈥渢he change of revenue mix arising from the increase in schemes-related capital works which are delivered predominantly through the supply chain鈥�. Nevertheless, Kier Highways鈥� 拢28.9m pre-tax profit was still the largest of all 20 firms on our table.
Third-placed FM Conway, a leading road maintenance contractor, put in a creditable performance in the year to April 2017. Turnover increased only about 2% to 拢252.5m but profit was up by a third at 拢23.5m. FM Conway said that its net operating margin of 10% was 鈥渢he result of the settlement of contracts claims, the investment in our own bitumen facility and state-of-the-art asphalt facilities which benefit from lower operating costs鈥�. The company continues to invest, spending 拢13m last year on new plant and a polymer-modified bitumen production facility.
Colas was the biggest of the seven contractors that saw revenues fall last year. And this was the second year in a row. During 2016, Colas recorded a turnover of 拢221.4m, down almost 14% compared with 2015鈥檚 figure of 拢256.7m which was, in turn, 3% less than the 拢264m of revenue earned in 2014.
Chief executive Lee Rushbrooke admitted that 2016 had been a 鈥渃hallenging鈥� year for the company and that the decline in revenue was 鈥渕ostly due to many public clients having reduced levels of spending through their revenue budgets as well as the ongoing challenge for the company of securing contracts in a very competitive market鈥�.
This is a familiar refrain 鈥� several other contractors also note a reduction in the amount being spent by local authorities on road maintenance. Eurovia鈥檚 Scott Wardrop also commented that 鈥渨orryingly, we are seeing many public clients reducing maintenance due to significant reduction in their revenue budgets鈥�.
The only contractor to record a pre-tax loss in the 2016/17 period was Birmingham-based JB Riney, which lost 拢254,000 in the year to April 2017 (2016: 拢600,000 profit). 鈥淭he company had a challenging end to the year following the death of its long-standing managing director, Mr JB Riney MBE in December 2016 and the reported profits suffered as a result,鈥� the company said in a statement.
The sad loss of its managing director marked a turning point for the company and in May last year the company was bought out by materials giant Tarmac, which was apparently anxious to get a foothold in the London market where other contractors, notably FM Conway, have been able to secure a succession of road maintenance contracts.
Infrastructure investment is dictated by public sector spending policy and while local authority road maintenance budgets have been falling in recent years, the crumbling highways network led to an outcry from road users and safety campaigners earlier this year. The RAC recently declared that 10% of the road network is in a poor condition.
Whether local authorities can find more money for local roads is a moot point, but the government鈥檚 Road Investment Strategy is expected to maintain spending on the motorway and major roads network through to 2025.
This article was first published in the May 2018 issue of 萝莉原创 magazine, which you can read for free at
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