The rise of the mid-sized contractor

  02 MARCH, 2018
The rise of the mid-sized contractor

Neil Hand, our CEO, explains why the industry should look to the mid-sized contractor to tackle its challenges

Carillion’s downfall needs to mark a huge reformation for the construction sector. I won’t bore you by adding to the wealth of op-eds written about how the fall-out of the business will affect the market over the years to come – although I admit this can’t be understated.

As well as the impact on the supply chain, we need to also be discussing the key question Carillion’s fall has raised around the industry’s margins: are they in any way sustainable?

There’s no doubt that the industry will be challenged like never before in the coming years – particularly in the case of a hard Brexit. While the IHS Markit/CIPS Purchasing Managers Index and ONS output data are crude aggregates that treat our diverse sector as if it were a homogenous entity, and as a result don’t always tell the best story of the sectors’ success, both are charting quarter-on-quarter decline.

There are many areas where underlying growth prospects remain strong. Social housing, which accounts for a significant proportion of Novus’ revenues, continues to invest in development schemes and maintenance cycles. There are also large capital expenditure projects covering new build and refreshing existing assets in hotels, leisure and grocery retail.

But as I say, there are going to be challenges. We’re already seeing materials prices rise – some by as much as 7.5 per cent. Skills, diversity, training, and recruitment will all be affected if we don’t take care of our businesses.
Of course, many of the largest players in the market feel the need to drive down prices in the race to secure mammoth frameworks to comfort shareholders. Not to state the obvious, but this acts to tighten the industry’s margins and creates certain expectations from clients.

Regardless of the market you play in, we all need to be turning this view around. We must get better at demonstrating how our pricing works to clients. We need to be honest in how this affects the long-term viability of the sector, not just their own projects. Even taking in economies of scale, the largest of businesses need to be financially secure and have budgets for training and attracting new blood in the industry – a key pressure point for the industry with Brexit seemingly destined to continue to impact labour.

In the current climate, this comes more naturally when you operate in the sector’s middle tier. You are less exposed to the supply chain risks of SMEs serving the struggling goliaths. But nimbler than the majors, allowing you to focus on areas where workloads are growing or stable.

There are also better opportunities to develop long-term relationships with clients too. Some of our clients have been stung by their own procurement processes when they favour the lowest price. After project failures or contract disputes they’ve retendered and chosen us. By having an up-front approach we’ve been able to develop longer relationships, which of course helps us minimise the amount of cash we need to allocate to new client acquisitions.

It’s for this reason that we’ll likely see mid-sized contractors tackle issues like diversity and attracting new blood quickest. But it’s a lesson that can be learnt by the wider sector. It should be adopting the same push-back on clients in the initial stages. Without this, the entire industry is at risk of continuing the same cycle and Carillion won’t be the last.

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WE ARE PROUD TO ANNOUNCE ANOTHER YEAR OF GROWTH

WE ARE PROUD TO ANNOUNCE ANOTHER YEAR OF GROWTH

We are proud to announce record sales of £155.8m in 2018 (2017: £148.6m) alongside pre-tax profits of £5.536m (2017: £5.441m) reporting five years of unbroken growth. We operate from 27 locations across the UK, with our head office being in Stoke-On-Trent and have earmarked £2m of our profit to support new investment in 2019. Planned projects include several digital transformation initiatives. Being a leading provider of maintenance and construction services to the social housing, university retail and hotel sectors, we are developing solutions that will integrate our IT systems with clients’ estate management software and property databases to automate internal processes. We have stepped up our investment into apprenticeships and trainees last year, employing 91 (2017: 65) and are funding the training of 20 quantity surveyors as we seek to address specific skill gaps in the business and  the wider industry’s talent pool. We employ 1,000 people nationally. To celebrate our fifth birthday in 2018 we delivered a nationwide, community-led campaign called ‘The Big Five’ donating £100,000 in time, labour and materials to support five community projects across the UK. The projects were just five of 340 social value initiatives we led last year, positively impacting 14,659 lives.  Our achievements were recognised in 2018 when we were presented with a National Award for Educational Partnership by Business in the Community (BITC). Earlier this year, we were listed among the top five fastest payers to its supply chain with an average of only 26 days against an industry average of 43 days. Five months into the current financial year, we are targeting further sustainable growth and have 90 per cent of our 2019 turnover target already secured. In February 2019, Alan Nixon was appointed the new Chief Executive Officer. Alan, was an existing member of the board and has worked with us – Novus was a part of Seddon Group until 2013 – for more than 30 years. Commenting on the 2018 financial results, Nixon said: “In a market beset with uncertainty, we had another year to be proud of. We grew revenues and profits sustainably as we achieved our business plan, while significantly strengthening our balance sheet so that we can continue to invest in innovation this year and over the long-term. “Novus, under the guidance of its chairman and fourth generation of the Seddon family, Stuart Seddon, was committed to being a responsible contractor that gave something back to its communities, long before it became a requirement in contract bids. We’re pleased to report strong data on our CSR investment alongside our trading performance.      “Our BITC Award and recent commendation for industry-leading payment practices all stem from our culture, which is rooted in being a family-owned business. Ensuring the principles that stem from this continue to guide how we operate, even as we scale the business, is an important objective for myself and the board.  “Looking ahead, the market remains tight. But, with our customer-centric approach and spend on exciting new digital innovations, we’re well placed to continue on our path of manageable growth.”