Builders' margins collapse

Martin Laing has earned something of a reputation over the last 18 months for outspoken comments at his company results briefings.

With his analysis of 'lame duck contractors', to a large extent he was only daring to say openly what most people have been thinking privately.

However, there is little doubt such talk has ruffled feathers in the contracting circles. Candour of all kinds has a nasty habit of rebounding. And Peter Costain observed wryly this week: 'He criticises other contractors for bidding below costs and making losses, and then comes in with nothing himself.'

In fact, of the six quoted contractors to report so far in the interim season, Laing's figures are the poorest. The contracting division failed to make any operating profit at all, leaving it in sixth place. (Amec's building and civils division repeated the feat but was baled out by M&E and the combined totals.) Taking interest into account brightens the picture slightly, giving the group 0.6% pre-tax margin, narrowly taking it past struggling Mowlem.

The most important thing this simple comparison shows is how dreadfully depressed are contracting profits - five of the six not even making 1% operating margin.

A striking anomaly of figures is that the companies that have the strongest operating margins are those that have cut back turnover most sharply (thereby increasing the risk they would not cover their overheads).

Amec and Costain both sliced around a fifth from turnover, and Balfour Beatty almost 10%, yet they have achieved margins of 0.6%/1.7%.

The two advancing sales (possibly accepting weaker margins in an attempt to cover overheads) were Mowlem and Wimpey. Operating margins were 0.1%-0.2%.

If they were playing the game to scoop the interest from cashflow, Wimpey at least suceeded in this, notching up an equivalent of 1% of turnover. This was the highest score, pipping even Balfour Beatty.