Industry faces a crisis of credibility with the City, Tarmac chief executive tells construction bosses.
Tarmac chief executive Sir Neville Simms has warned that contractors may have to buy back their shares and turn themselves into private firms if they cannot rebuild the confidence of investors.

Speaking at the private ING Barings Building Industry Seminar last Thursday, he told 150 executives that leaving the stock market could be the only response to poorly-performing share prices unless contractors convinced the City that the risks and rewards were worth it.

In a speech entitled Contractors – Past, Present and Future he said if firms were unable to show that they could produce attractive returns "within a reasonable time frame, in benign economic conditions, then I believe it may be necessary to go full circle and return most contractors to private ownership".

Sir Neville said the stock market was suspicious of contractors, adding that more transparency was essential. Major contractors had to adopt a new approach, perhaps based on the banking industry's, and disclose more information about types of contract to the market.

Sir Neville said that whereas the City believed contractors were highly vulnerable to contract problems, firms were adept at running low-margin projects.

He also called on contractors to present details of their monthly balances to give investors better clues on profitability.

He said too many firms massaged half-year figures in order to avoid giving a reliable impression of their performance.

But Sir Neville said contractors need not apologise to the City for working in a low-margin sector because this did not necessarily mean they could not make consistent returns.

Retailers worked in a similar environment to contractors and did not suffer the same low share prices.

Low margins did not have to be a problem for contractors because construction did not demand much in the way of resources other than staff, Sir Neville added.

He said other industries, where major investment was regularly needed in stock and plant, had to make far higher margins.

Sir Neville, who is working on a demerger of Tarmac's construction and materials businesses, repeated his call for mergers to create two or three leading UK contractors. He said these mergers would be in the long-term interests of the firms involved in international markets.

  • Speaking at the same seminar, Tony Pidgley, managing director of housebuilder Berkeley Group, said housebuilders had to accept that they could no longer build rows and rows of identical homes.

He said consumers were far more discerning and housebuilders would have to work harder on distinctive designs. They would also have to use their imagination more to build on inner-city, brownfield sites.