Chief executive says figure is achievable from 2020
The chief executive of Balfour Beatty has said his firm should be making margins of 5% within three years.
Leo Quinn (pictured), who joined the business at the start of 2015, said the country’s biggest contractor should be hitting that number by 2020.
He said: “Margins are more important to me than growth…I think the industry should not be working for less than a 5% operating margin.”
In its results, the firm said it wanted to hit “industry-standard margins” by the end of next year - which it said meant 2-3% in UK construction - but Quinn said the contractor should set its sights higher for the future.
His comments come as other chief executives also set targets for their own firms in this results season with Morgan Sindall boss John Morgan saying he wants his construction business to hit 2% from a current 0.7% while Galliford Try’s chief Peter Truscott is asking the firm’s construction arm to be hitting margins of 2% by 2021. These currently stand at just 0.4%.
Earlier this year, ISG chief executive Paul Cossell said contractors should be aiming for 5% and admitted that an internal audit at the business had found inefficiencies which would have equated to a 3% improvement in margins.
Quinn, who said he plans to be at the firm for another five years, reckoned that Balfour Beatty would be in a position to start making decent margins soon. “We have to burn off the low-margin contracts first,” he added.
The firm has drawn a line under most of the near 90 problem contracts Quinn inherited when he joined with just nine left to be sorted out. The majority are in the UK and Quinn said: “The root cause was a lack of control and poor assessment of risk.”
He said that the firm now “employs a level of prudence that should have been adopted years ago”.
Commenting on the return to profit, Quinn said: “It’s very comforting to see the largest player in the construction market back in the black.”
Quinn also gave more details on why it pulled out of a deal to build a twin-tower scheme at Nine Elms in south London with the developer – Chinese firm Dalian Wanda – later signing a deal with Multiplex.
He said: “On Nine Elms we got to the point where we couldn’t deliver the building in the timescale they wanted and the cost was higher than they wanted to pay. There wasn’t a meeting of minds.”
Quinn said Balfour Beatty was still interested in high-rise but would only bid for them selectively.
Outside of Hong Kong, where it has revenues of $1bn, Quinn said 98% of the firm’s work is in the UK and US with more than half of its £8.7bn revenue coming from the US.