Morgan Sindall boss doubts whether industry margins can ever get to 5%

Morgan Sindall chief executive John Morgan has poured cold water on hopes that contractors could see margins hit 5% in the future.

Last month, Building’s Top 150 contractors and housebuilders survey revealed that margins at the top 50 contractors had increased to 1.78% - from just the 1.05% recorded in last year’s survey – but still some way short of the figures a number of contractors have set themselves.

Both Balfour Beatty and ISG have said that margins of 5% are achievable in the long run with Balfour Beatty boss Leo Quinn saying the figure can be met by 2020.

But Morgan (pictured), who has held the top spot at the £2.6bn business since 1994, said 5% was a “long way away” for firms.

Speaking as Morgan Sindall announced a 50% hike in half year profit to £23.1m yesterday, Morgan said the 2% figure he has set his construction business was “very realistic” and added: “From our past experience, 5% is a very, very long way away. If we could [get 5%] it would make the business very, very exciting.”

The firm’s construction and infrastructure arm saw margins hit 1.1% in the first six months of this year – up from 0.5% on the same period in 2016 with Morgan saying that margins of 2% for construction and 2.5% for infrastructure were achievable over the next four years.

Morgan, who said the firm wanted to grow its business organically and was not interested in bolt-on acquisitions, said the business had “learnt a lot” from a number of problem jobs in the London building market as well as the two loss-making schemes at Faslane in Scotland that it inherited with its deal to snap up Amec’s construction and civils arm nine years ago.

He said the firm had derisked its construction arm by focusing on jobs it can actually deliver as well as steering clear of jobs with risky contract terms. “We are looking at margin growth not turnover,” he added.