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Tuesday, 19 November 2013

Who's faring best in construction's conga?

It’s difficult to avoid thinking of ground engineer Keller and electrical contractor T Clarke as the front and back end of construction’s pantomime horse: one’s going in one direction before the other gets a chance to catch up. Both issued interim management statements today showing stark contrasts in outlook.

Keller, which digs down, props up and prevents leakage of construction projects from the ground downwards signalled a likely “beat” to analysts’ forecasts for the year to December; “Tommy” Clarke, which wires up buildings when they are nearing completion said trading was “in line” but issued the current war cry of probably every subcontractor in the land, “the b******s aren’t paying us on time” (naturally, in language more befitting a stock market announcement).

By about lunchtime Keller’s share price was up precisely 4.48%, while T Clarke’s was down … precisely 4.48%.

Before other UK practitioners along the construction chain get too excited about Keller unearthing green shoots along with everything else it digs up, the British-based group actually does very little in (or under) these shores and most of its improvements in order intake and margins have been down to self-help rather than benign markets.

But two other announcements today suggest grounds for optimism on a macro level. The RIBA’s Future Trends survey showed architects (who presumably hold the reins of the pantomime horse) reporting that the three months to October showed the first annual increase in workloads since the financial crisis. Workloads for the quarter were up 11% on the same period in 2012.

Meanwhile, hybrid housebuilder-contractor Galliford Try, which represents just about everybody in the middle of - let’s now call it - the construction conga, saw an “encouraging start” to the year to June for both businesses. No surprises from its housebuilding side, given the degree of support lavished on the industry from HM Treasury, but even the construction division had seen a 9% increase in orders, an improving pipeline of opportunities and “margin protection”.

The division also achieved “continuing strong cash management” and there’s the rub for companies later in the cycle and further down the pecking order. Such as Tommy Clarke. Now I have first hand evidence that Galliford Try is among the better eggs within the realm of main contractors in terms of payment (other names regularly make the industry’s anecdotal black book). But even the better payers have to preserve their cash and, with material and labour costs bounding back across the industry, smaller companies, those naturally later in the cycle or further down the supply chain may find themselves on the wrong end of disputes for many months to come.

This post appeared on Building's website 19 November 2013

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