Raynsford aims to convince top fund managers that contractors can consistently make good profits, and plans to use fresh data gleaned from Movement for Innovation research to substantiate his claims.
The City briefings are the brainchild of Raynsford, Movement for Innovation chief executive Alan Crane and John Hobson of the DETR’s Construction Directorate. Crane and Hobson will join Raynsford in meetings with the City.
The initiative comes in the wake of a dramatic drop in construction stocks in recent months, as the graph below shows.
Crane said the Movement for Innovation’s data on key performance indicators, which is due out in May, will give hard evidence that the industry is improving the predictability of its earnings.
A consultancy has been appointed to identify key players in the Square Mile that the three should have discussions with. Investment magazines, newspapers and business magazines will also be targeted.
“We will be asking people in the City whether they are aware of moves being made in the industry to improve, whether they are aware of the Egan agenda, and so on,” said Crane. He added: “The industry as a whole needs to deliver better margins. Up to now, it’s been a case of, one minute you’re making reasonable margins, the next you’re losing money. And investors don’t want to invest in industries that don’t yield consistent profits.”
Investors don’t want to invest in industries that don’t yield consistent profits
A few firms, including Amec, have already given presentations to analysts, selling the benefits of techniques such as partnering and supply-chain management. However, Crane emphasised that the discussions the government was planning would be wide-ranging and not company-specific.
Crane, Raynsford and Hobson will attempt to convince investors that the fundamentals of construction businesses, such as profit and assets, are now on a sounder footing.
Paul Lester, group managing director of UK construction at Balfour Beatty, welcomed the move. He said: “It is very helpful if someone like Raynsford is pushing it at that level. Anything we can do collectively to get the message across is a good idea.” However, one contractor said: “At the moment, the fundamentals appear to be having virtually no impact on our stock market performance whatsoever.”
Construction shares have fallen sharply over the past 18 months, and some contractors and housebuilders are considering leaving the stock market because raising money for acquisitions is difficult with share prices so low.
Those that want to stay are likely to wait until shares rise before attempting acquisitions, said Jim Armstrong, chairman of Laing’s contracting arm. “The industry is still too fragmented. We would like to be part of consolidation, but you can’t do very much in the current climate. But we are confident that sentiment will change.”
The City briefings plan follows on from the idea of a “City taskforce”, which was promised last April by the Construction Industry Board. This was to be made up of City leading lights who would give views on how construction firms could improve their image. However, the CIB’s initiative has not surfaced and it is unlikely be part of this latest plan.