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Carillion’s demise has understandably put the business models of the other larger contracting groups under scrutiny recently, both in the City and in Whitehall. But the latest financial results from the major quoted construction companies suggests that their fortunes are continuing to improve as they take advantage of some promising markets - particularly on UK infrastructure- and keep a lid on borrowings.

Recent results from Balfour Beatty, Morgan Sindall and Kier all show that their UK order books are in good shape and margins – whilst still lean - are improving as they become more selective. All three also showed strong balance sheets and healthy levels of net cash.

Having moved back into the black with profits of £16 million last year, from a loss of £65 million previously, Balfour Beatty’s UK construction arm is on target to improve margins to 2-3% by the end of 2018. Meanwhile, Morgan Sindall more than doubled margins at its construction & infrastructure arm to 1.5% during 2017 and its infrastructure margin reached 2.2% in the second half.

The buoyant infrastructure sector – the Glenigan Index shows civil engineering starts in the quarter to February were 5% higher than a year ago - is a key factor behind the majors’ improving performance. Balfour Beatty is working on three major Crossrail projects, a 6km section of the Thames Tideway Tunnel and has made significant progress on the UK’s largest road project on the A14 in Cambs where it has taken on Carillion’s share. Overall, Balfour’s UK order book rose by 17% to £2.7 billion helped by its major projects arm winning a four year tunnelling and marine works package for Hinkley Point C. Moreover, the group’s order book has yet to include £2.5 billion of work on High Speed 2 for two major civils packages which it has won in joint venture with VINCI.

Meanwhile, Morgan Sindall has boosted its infrastructure order book, which is focused on highways, rail, aviation, nuclear, energy and water, by 6% to £1,377m. The group has won two Highways England Smart Motorway upgrade contracts on the M62 and M27 (worth £300 million in jv) and its first project under Transport for London's £500m Civils Projects framework.

2018 has started well for Kier with a robust level of contract starts and it is encouraged by Network Rail’s CP6 programmes. Kier is working on two of the seven High Speed 2 civil engineering packages which are performing well; as are the Smart Motorway schemes where it had been working in joint venture with Carillion. After winning work worth £1.1 billion (£700 million on frameworks) since last June, Kier’s construction and infrastructure order book has risen by 12% to £4.7 billion. Although margins dipped to 1.8% due to the closure of its Hong Kong and Caribbean operations, it expects them to improve in the current half.

Across regional and building markets, the major groups are increasingly selective. Balfour Beatty cut the number of live projects at its regional business from over 400 two years ago to just 225 by last December. To achieve better pricing and reduce risk, it now focuses on a smaller number of larger contracts, with fewer jobs under £5 million. It is also pursuing fewer fixed price contracts and more target cost contracts and framework agreements which come with early contractor involvement (ECI).

Similarly, Morgan Sindall’s more selective approach meant its construction order book fell by 19% to £478m last year. The company is winning more negotiated work, through frameworks or two-stage bidding procurement and only 7% through competitive tender.

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