Paul Sheffield may be leaving Kier in good shape but the contracting sector as a whole is not entirely out of the woods

Sarah Richardson

As Kier chief executive Paul Sheffield revealed this week that he would step down from his post this summer, he was keen to emphasize that the firm was in “really good shape”.

The argument certainly seems to have been accepted by the City, with Kier’s share price – which remained flat on the news – having risen more than 10% over the last three months. And there’s no denying that when you compare the contractor to where it was when Sheffield took up his post, back in April 2010, things look decidedly rosier.

Under Sheffield’s leadership, the company has increased its group profit by 70%, and made a major play to diversify its business into the services sector with the cannily handled acquisition of May Gurney last July. Meanwhile, the market - which back then was about to be hit with a new government’s cull of public spending - is now steadily improving.

But, as a slew of companies’ results show this week, the contracting sector is unlikely to be entirely out of the woods by the time Sheffield’s successor, current finance director Haydn Mursell, takes the reins.

Galliford Try, reporting a dip in its construction arm’s revenue and profit for the last six months of 2013 this week, said the construction market “continued to be challenging”, even though the pipeline of opportunities was increasing.

Meanwhile, Morgan Sindall’s construction business, which fell into the red this week as a result of writedowns on four problem contracts related to its acquisition of Amec’s construction business in 2007, reported a drop in its underlying margin to just 1% even when the writedowns were taken out. And Ardmore, which posted a 77% drop in pre-tax profit for the year to September 2013, drew attention to the “still relatively difficult market”.

The diversification of Kier’s business that took place under Sheffield’s leadership will no doubt help it to ride out these last waves of the storm, but for many contractors, the next 12 months look set to continue to provide a bumpy ride.

Sheffield himself warned this week that although the market was “without doubt improving”, the continuing margin pressure on contractors risks making them “busy fools”, servicing turnover for little return. With the Office of National Statistics recording that construction output remains more than 12% below its 2007 peak, there is still strong temptation to throw resource at chasing work as it comes to market. But it’s a habit that quickly needs to be broken, if firms are to avoid the risk of prolonging the difficulties they are still facing as a legacy of recession.

Sarah Richardson, editor


Don’t ignore flood warning

News that the government is working with a specialist group of architects and engineers to examine the flooding crisis shows a welcome recognition that longer-term planning is needed to avoid a repeat of the current situation. But, as Chris Wise points out on page 28, tackling flooding is not as complex as some politicians would like us to believe.

The UK is feeling the effects of decades of poor infrastructure planning, in which both individual authorities and national government have ignored existing advice on building in areas at risk of flooding. If this crisis is what was needed to make the issue central to future planning decisions, then it should at least help to protect some of the 250,000 extra homes the Climate Change Committee believes will now be at risk by 2035.

The lesson from history is to make sure that the work of these experts does not gather dust once the crisis has passed - a move which would render it as ineffectual as the work of other engineers and architects who have tried to get the government to see sense in recent years.