Private contractor prospers on healthcare and schools work - and a cautious business strategy
HBG UK this week revealed a 33% hike in pre-tax profit, driven largely by work in education and healthcare and its strong regional network.
Pre-tax profit at the private contractor rose to £24m in the year to 31 December 2005, and HBG achieved margins of 3.1% overall, well above the average for contractors in the UK. Turnover was down 1.4% to £776m, reflecting the firm's improved margins.
Richard Gregory, HBG's chief executive, admitted that the company was not well known for building high-profile projects. He said: "We won't do £200m to £300m projects. Our bread and butter is £15m to £30m schemes, although we do work on projects in the £50m to £100m range. We're not chasing projects."
Last year was the eighth in growth in profits at HBG, no mean feat for a private company that is not under intense pressure from City analysts and shareholders. Gregory said he was hoping to make a 4% margin by 2010.
HBG is owned by the largest contractor in the Netherlands, the Royal BAM Group, but according to Gregory is left to its own devices because the company is performing well.
Unsurprisingly, Gregory is an advocate of the Department of Health's Procure 21 framework. It was one of the 11 contractors selected to be part of the framework when it was established four years ago, and since then only Laing O'Rourke has won more work. HBG has won 20 major projects worth £206m.
Gregory conceded that flow of work has dried up since the DoH drafted in private sector consultancy Symbia to undertake a review of the framework, and since Peter Woolliscroft, the former head of Procure 21, left his job.
"I think they are digesting what the report said, so the past few months they've held back," said Gregory.
We won’t do £200m to £300m projects. Our bread and butter is £15m to £30m jobs
HBG has benefited from its experience of working with the NHS. Last month it was selected for the Welsh Health Authority Framework along with Laing and Interserve. The total value of that deal is £2bn over four years and the benefit it has for the suppliers is that the Welsh trusts are forced to select one of three, unlike Procure 21 where trusts are not obliged to choose any of the firms on the framework.
The company's public sector work extends to the education sector; it has built £1bn of schools in the past five years. It is currently waiting to hear whether it has been selected as preferred bidder for Solihull's Building Schools for the Future programme in the West Midlands.
HBG's highest profile project is the £2.5bn regeneration of King's Cross on behalf of client Argent. "It's like a Terminal 5," said Gregory. "It will be a big part of our workload over the next five years."
HBG has won several town-centre redevelopment projects, including a £76m scheme in Hull and a £71m project in Milton Keynes.
In terms of commercial work it has won a £95m project at the former Marks & Spencer headquarters at 55 Baker Street in central London.
Other opportunities for HBG include the 2012 Olympics. Gregory hopes that his chances of winning work will be helped by HBG's sister company, Nuttall, the civil engineer.
"Hopefully Nuttall will be involved in the decontamination work and we can go in on the back of that. We won't build stadiums, but there should be lots of peripheral opportunities."