Wates construction pre-tax profit down 48% but turnover holds up
The boss of Wates Group has hailed the firm’s “very solid set of results” for 2012 as he warned that other contractors’ lack of cash is this year’s single biggest industry challenge.
The family-owned group’s pre-tax profit in 2012 was £25.7m, a 36% fall compared with the £40.1m achieved in 2011.
However, Wates said the underlying profit figures were more healthy than this given “two relatively unusual” events: restructuring costs last year of £4.9m and the relatively high £7.2m profit on sale of investments achieved in 2011.
Group turnover meanwhile rose by 7% last year to £1.2bn giving the group a pre-tax profit margin of 2.2% last year compared with 3.6% in 2011.
Wates construction - which includes Living Space, interiors and retail - saw a 48% drop in pre-tax profit from £38.2m to £19.8m during the period.
That included the £4.9m restructuring costs because Wates merged its retail and commercial fit out divisions with the loss of 283 jobs.
Cost savings over the year amounted to £18.5m.
Construction turnover rose slightly during the period to £1.1bn.
Overall, Wates Group’s net assets increased over the year to £70m from £64m while net cash fell slightly to £121m.
In an interview with Building, Wates chairman and chief executive Paul Drechsler said he was pleased by the figures given the very difficult trading conditions in 2012.
“Our margins are at the upper quartile of the industry and we have probably one of the strongest balance sheets in the industry,” he said. “That’s about the financial strength in our business given that we’re fourth generation family-owned and the mission of the company is to pass on a better company to the next generation.”
Drechsler said there had been a continuing “strong” focus on the balance sheet and the group’s cash division.
He said: “At the heart of our strategy is long-term sustainability. We’re going through the most challenging and longest recession for quite some time.
“Revenue growth is important but what’s really important is the margin.”
Drechsler said he expected group revenue to fall over 2013 to between £1bn and £1.1bn.
“I’d be very happy with a revenue fall in this market although in 2014, I think we can already see we’ll have a return to growth.”
Turning to the wider industry, he said that the worsening cash position of major contractors was the “number one issue of 2013”.
He added: “My fear for 2013 is that there will be a significant failure which will affect others.
“It needs…responsible business leaders who understand there is a level of margin which is acceptable to stakeholders and shareholders and a level which is very high risk.”