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Oh dear. Just when we thought construction had shaken off the worst of the troublesome 鈥榣egacy鈥� contracts from the recession, the past year showed that many of the industry鈥檚 big names still have plenty of issues to work through.

At first glance, the picture does not look too bad. Total revenue for all firms in the was up 7.6% to 拢74.3bn (拢69.1bn).

However, collective pre-tax profit dropped 4.1% to 拢1.1bn (拢1.2bn), and the margin also fell, from 1.7% to 1.5%.

Some 34 firms recorded falls in turnover, 12 dropped into the red, and another 28 saw their profit fall.

And it鈥檚 at the top of the table where the biggest and most alarming casualties are found.

Balfour Beatty has squeezed back into the black with a slender 拢8m profit 鈥� a wafer thin margin of just 0.1% - after its annus horribilis a year ago which led to a loss of 拢199m.

This time round it鈥檚 Laing O鈥橰ourke that is ranked bottom of the table on profit thanks to a 拢245.6m loss. And many other big names fare little better, with Interserve (ranked , Amey (, Mitie () and Kier () not far behind the loss-making Laing O鈥橰ourke.

But first to Balfour Beatty. Chief executive Leo Quinn, like all incoming bosses who answer a crisis call, wisely turned all the skeletons out of the closet after his appointment in late 2014. He then launched his 鈥楤uild to Last鈥� plan in a bid to turn the business around. That didn鈥檛 help last year鈥檚 results, but this time round Quinn can justifiably claim that his strategy is working now and his company 鈥� the UK鈥檚 biggest construction group 鈥� has returned to profitability.

The firm posted only a marginal increase in turnover, up 2.8% to 拢8.7bn (拢8.4bn), but Quinn is concentrating, wisely, on margin over growth. Balfour鈥檚 UK construction business returned an underlying profit from operations in the second half of the year and the situation continued to improve in its 2017 interims with revenue for the first half of this year up 6% to 拢4.2bn and a pre-tax profit of 拢12m.

Quinn said: 鈥淭hese results demonstrate the transformation being driven by focusing Balfour Beatty relentlessly on its chosen markets and capabilities. Profitability is rising, backed by positive cash flow from operations. Under stronger leadership and much improved bidding disciplines, the businesses are booking new orders at improved margins and reduced risk.

鈥淭he transformation of Balfour Beatty is well underway. We have returned the group to profit and significantly exceeded our Build to Last phase one targets.鈥�

The company is now into Build to Last phase two 鈥� a 24-month period to the end of 2018 鈥� when Quinn expects its UK construction business to be making 鈥渋ndustry standard鈥� operating margins of between 2% and 3%.

If Balfour Beatty is now out of the woods, then Carillion has just entered them. The firm鈥檚 full year results were, admittedly, not at all bad: revenue was up 13.7% to 拢5.2bn (拢4.6bn) though profit dipped 5.4% to 拢146.7m (拢155.1m).

But then came July鈥檚 bombshell. Chief executive Richard Howson stepped down after the company announced an expected contract provision of 拢845m was required to cover problem projects.

The size of the provision threatens to capsize Carillion鈥檚 construction operation completely, which reported revenue of 拢2.2bn in 2016. In last year鈥檚 Top 100, we noted how the firm鈥檚 decision to downsize its construction business by one third during the recession had seemed a judicious one when compared to Balfour Beatty鈥檚 travails. But that didn鈥檛 take into account the scale of the problems affecting some of its contracts. Some 拢375m of the provision relates to the UK business, chiefly three public-private partnership (PPP) schemes.

Philip Green, non-executive chairman, said the board was undertaking a 鈥渃omprehensive programme of measures... aimed at generating significant cashflow in the short-term [and] a thorough review of the business and the capital structure.鈥�

On an interim basis, Carillion will be led by Keith Cochrane, a former Weir Group chief executive. But at the time of writing, it looks as if the firm will need a super-charged 鈥楤uild to Last鈥� of its own just to survive.

Kier sits third in the thanks to last year鈥檚 impressive 28.5% increase in turnover to 拢4.2bn (拢3.3bn). But the group鈥檚 usually reliable business model dived into the red to the tune of 拢15.4m (2015: 拢39.5m profit).

The firm blamed the loss on a 拢35.6m provision for problems in its Environmental Services business and 拢23.1m for the closure of Caribbean operations, plus the ongoing integration of the Mouchel business it acquired two years ago. In its interims in June this year, Kier said this reorganisation would result in a charge of some 拢73m in its next full year results, though its underlying profit would be 鈥渋n line with expectations鈥�.

Kier has also been troubled by a loss-making waste-to-energy joint venture, Biogen, in which it sold its stake during April 2017. But Kier鈥檚 problems in this sector are nothing compared with those of Interserve.

In February, Interserve announced a 拢160m charge, the cost of exiting the waste-to-energy sector, having had its contract on the much-delayed Glasgow Recycling & Renewable Energy project terminated by client Viridor in November 2016. The day before the contract was terminated chief executive Adrian Ringrose announced he would be stepping down in 2017.

The problems over the Glasgow waste-to-energy project resulted in Interserve posting a 拢76.4m loss last year (2015: 拢79.5m) though revenue increased 15% to 拢3.6bn (拢3.2bn).

The firm鈥檚 construction operation, which accounts for 拢1.4bn of turnover, caused further headaches for Ringrose. It dived 拢2m into the red in the first half of 2017 (2016 H1: 拢4.5m profit) on revenue of 拢536.2m (拢468.3m).

Ringrose said: 鈥淚n construction, the continuation of a long period of challenging market conditions, coupled with areas of underperformance in operational delivery, resulted in a small loss for the division. We expect the restructuring and cost reduction measures we have taken in recent months to benefit the division鈥檚 performance during the second half of the year."

On 1st September, Ringrose handed over the reins to his replacement Debbie White, former chief executive of facilities management company Sodexo.

Morgan Sindall bounced back into the black in 2016, posting a profit of 拢43.9m (2015: 拢14.8m loss) on turnover up 7.4% at 拢2,561.6 (拢2,384.7m).

The group鈥檚 construction arm continues to struggle with profitability, with a margin of just 0.7%, but that was compensated for by strong performances in its fit-out businesses Overbury and Morgan Lovell, which recorded a 4.3% margin, and Partnership Housing where the margin was 3.1%.

With first-half profit for 2017 up 45% at 拢23.5m, chief executive John Morgan expects full year results to be 鈥渟ignificantly ahead of previous expectations鈥�.

Amey experienced a disappointing 2016, posting a pre-tax loss of 拢43.9m (2015: 拢23.6m profit), mostly due to a 拢77m loss from its highways business. Group turnover was flat at just over 拢2.5bn.

In March the firm appointed a new chief executive, Andy Milner, who launched a cost-cutting drive. Milner said in a statement that 2016 had been a challenging year, 鈥渂ut we have created a stable platform with improved transparent, accountability and performance, increasing our opportunity for future growth and success鈥�.

础尘别测鈥檚 highways business, which made an operating loss of 拢70.2m before exceptional items on 拢542m of revenue, has been reorganised with local authority and national road works now serviced by the same division.

Laing O鈥橰ourke鈥檚 fall from grace was partly down to the investment made in its much-vaunted 鈥渄esign for manufacturing and engineering鈥� (DfMA) strategy.

The firm鈥檚 huge loss for the year to 31st March 2016 was faced head-on by chairman Ray O鈥橰ourke. He said: 鈥淚t is with humility that I have to report our first loss in 15 years of trading as Laing O鈥橰ourke. The genesis of this deterioration in profitability is rooted in the fact that coming out of a recession that had a negative impact over some six years (2009-14), it would have been difficult to avoid the severe headwinds our industry has endured through this period, which drove margins down to painful levels, alongside revenue reductions.鈥�

O鈥橰ourke said the post-2010 austerity measures introduced by the UK government 鈥渉ad a big impact鈥� on the firm鈥檚 forward order book in health, education and military accommodation, on which he based his investment decision in the company鈥檚 DfMA manufacturing facility at Steetley, Nottinghamshire.

Laing O鈥橰ourke鈥檚 UK business made a pre-tax loss of 拢141.3m on turnover of just over 拢1.1bn, with 拢26.6m in exceptional costs on contracts involving its offsite prefabrication plant, although losses were down on the three 鈥榝irst generation鈥� DfMA contracts which had led to write downs of 拢34.2m in the previous year.

O鈥橰ourke said the company was set to return to profit for the year to March 2017 on anticipated revenue of 拢3bn.

He added: 鈥淲e have continued to invest in our people, manufacturing, digital technology and engineering excellence, based on our firm belief that this is the future; I am pleased to say we continue to believe in this strategy.鈥�

Galliford Try, despite turning in the best performance and margin in the top 10 this year, has recently been hit by substantial costs on legacy contracts in similar fashion (though not on the same scale) as Carillion.

In May, the firm announced it faced 拢98m of non-recurring costs, 80% of which relates to its share in two major infrastructure joint venture projects in Scotland 鈥� the 拢790m Queensferry Crossing and the 拢550m Aberdeen Western Peripheral Route.

Chief executive Peter Truscott said: "The impact of the legacy projects in construction, in particular the two large infrastructure projects, is regrettable. However, Galliford Try is no longer undertaking large infrastructure jobs on fixed price contracts. There are no other similarly procured major projects in our current portfolio and we are encouraged by the performance of the underlying portfolio of newer work.鈥�

Galliford Try鈥檚 profit was up 18.4% to 拢135m (拢114m) in the 12 months to 30th June 2016 with revenue rising 6.2% to nearly 拢2.5bn (拢2.3bn). Significantly, this yielded a margin of 5.4% (4.9%).

Despite the legacy problem contracts, Truscott said he expected to deliver 鈥渁 strong performance over the full year鈥� when the firm鈥檚 next results are unveiled.

Mitie is included in this year鈥檚 Top 100 despite having exited contracting a year ago, in theory to stay on the more reliable terrain of support services. Despite this, the company has found the going pretty hard even in this supposedly less volatile sector. For the year to 31st March 2017, the firm announced a 拢42.9m loss (year to March 2016: 拢96m profit) on turnover down 2.7% at 拢2.1bn (拢2.2bn).

Mitie has announced a major cost-cutting drive, making 3,000 of its nearly 60,000 strong workforce redundant in the 12 months to March.

Meanwhile, the auditing of the outsourcing firm鈥檚 results by Deloitte is to be probed by the UK's accountancy watchdog, the Financial Reporting Council.

Completing the top 10 is Mace, which was not immune to the problems plaguing its peers.

Pre-tax profit was just 拢10.7m in 2016, down 70% from 拢36.2m the year before, though turnover was up 12.7% at 拢2bn (拢1.8bn).

Mace executive chairman Stephen Pycroft said that 2016 had been a 鈥渃hallenging鈥� year. 鈥淎 small number of our projects were, for a variety of reasons, harder to deliver than first envisaged,鈥� he said. Problems included, 鈥渉igh risk projects, incomplete designs and a reliance on the performance of our construction partners鈥�, he added.

Pycroft said: 鈥�2016 has taught us some very valuable lessons and as a result, we have put in place additional measures to prevent these problems happening again.鈥�

Most of the other majors produced steadier financial performances during 2016 in contrast to their much larger rivals.

Skanska grew revenue 21.3% to 拢1.7bn (拢1.4bn), though profit 鈥� which it is reporting in the UK as an operating figure 鈥� slid to 拢35.1m (拢42.1m).

Costain鈥檚 turnover was up 31.2% to 拢1.7bn (拢1.3bn), with profit climbing to 拢30.9m (拢26m).

Wates, in its first full year results since acquiring Shepherd Construction, grew revenue more than a quarter to pass 拢1.5bn (拢1.2m), with profit growing by a similar amount to 拢35.5m (拢28.1m).

Willmott Dixon experienced a disappointing dip in turnover to 拢1.2bn, down 7.6% on the preceding year, though its profit recovered substantially to 拢31.1m from just 拢4.4m in 2015.

BAM Construct went past the 拢1bn turnover mark, and more than doubled turnover to 拢26.2m.

The two major Australian-owned contractors that operate in the UK both had good years. Multiplex, which has dropped the Brookfield part of its name, posted revenue of just over 拢1bn, a two-thirds increase on the previous year, though profit was down more than a fifth at 拢16m. Lendlease鈥檚 revenue also surged, by 71.3% to 拢898.7m, while profit rose to 拢66.7m after the disappointing 拢5.5m reported in the previous period.

Vinci and Sir Robert McAlpine both recovered from the losses made in 2016. Vinci returned a 拢2.8m profit on turnover of 拢931.7m after losing 拢69.4m the year before; Sir Robert McAlpine made a 拢10.2m profit on 拢869.6m of revenue, having lost 拢35.7m in 2016.

The financial strife in this year鈥檚 table was largely confined to the big boys, though a handful of the medium-sized players also ended up in the red.

John Sisk made a pre-tax loss of 拢17.9m, despite growing revenue 22% to 拢419.4m. The 2016 results for Bouygues UK have not yet been filed, but its figures for the previous year show a 拢19.4m loss on turnover of 拢349.6m. Byrne Group, which has experienced problems with its fit-out arm Chorus, reported a loss of 拢11.9m on 拢329.4m of turnover.

Diversification 鈥� the share of revenue in the UK鈥檚 biggest construction groups

Construction companies are rarely purely contracting operations. Most of the top players have within their groups various different operating businesses which they have bought and sold fairly regularly over the past two to three decades, usually according to the whim of the market.

In the early 鈥�90s, development was the fashion, though now only Kier, Galliford Try and Morgan Sindall have property businesses. Kier and Galliford Try are also the only major players to hang on to a house-building business; the UK鈥檚 top private house-builders are now mainly standalone operations.

Come the new millennium and support services became the fashionable option for those wanting to diversify. It was a trend driven largely by the requirements of bidding for PFI projects.

Support services also offered steadier margins, usually around the 4% mark, compared to the more volatile construction industry. That partly explains why most of the big players have hung on to their facilities-management arms. Another factor was the perceived benefit of being classified on the stock market under 鈥榮upport services鈥� rather than 鈥榗onstruction鈥�, which is the case with Carillion, Interserve and Mitie. The latter has now almost completely wound down its contracting business.

During the past 10 years some construction groups began expanding their design and engineering capabilities, notably Balfour Beatty with its acquisition of Parsons Brinckerhoff in 2009. The idea was to provide a 鈥榦ne stop shop鈥� to serve all of a client鈥檚 built environment needs. That era came to an end when Balfour sold Parsons Brinckerhoff to consultant WSP, though it was briefly courted by Carillion which said it saw value in the 鈥榓ll under one roof鈥� approach.

So why, particularly in view of the slim margins offered by construction (discussed in the Revenue & Profit box), does contracting still have appeal in construction鈥檚 boardrooms?

The big attraction of the business is the up-front cash it provides. Unlike, for example, support services where the money is paid out over the term of the deal, construction provides contractors with most of the cash up front. This enables the likes of Kier and Galliford Try to move money across into their house-building and development arms, where profit returns are greater, and top up the overall group margin. It鈥檚 not a bad model. But after the troubles that have affected the UK鈥檚 top contractors in this past year or so, a few firms may be reviewing their strategies.

Margin call 鈥� how much profit can contractors realistically expect?

The low margins of the construction industry have long vexed its bosses.

Historically, contracting operations have rarely done better than 2%, and often much, much less. Construction groups have looked to other subsidiary businesses to provide an overall boost to profit and margin, usually house-building, development, support services, design, plant hire or a combination of all or some of them.

In this year鈥檚 table, the margins do not make for pretty reading. The overall figure stands at 1.5%, down from 1.7% last year, and certainly not showing the post-recession boost that may have been expected as contractors flush out 鈥榣egacy鈥� problem contracts.

However, the situation gets even uglier with scrutiny of the top 10. With half of these firms in the red, they posted a collective pre-tax loss of 拢79.9m, on total revenue of 拢36.1bn.

As with last year, when Balfour Beatty鈥檚 拢199m deficit cast a big red shadow over the top of the table, this time round another major player 鈥� Laing O鈥橰ourke 鈥� has posted a huge loss of some 拢245.6m. Interserve, Amey, Kier and Mitie all dived into the red, while problem contracts at 海角社区app slashed its profit by 70% to 拢10.7m.

And next year, the full impact of the 拢845m of provisions that Carillion announced last month will have damaging effect on the industry鈥檚 overall margin.

Meanwhile, in the background, construction industry output is starting to fall, while rising inflation and input costs threaten to erode what little margin there is.

Against this backdrop, there have been some surprisingly ambitious noises from contractor bosses about increasing their margins.

An emboldened Balfour Beatty CEO Leo Quinn, with wind in his sails after putting the company back in the black, is aiming for a margin of up to 3% next year. A number of firms are even talking bullishly about pushing for a 5% margin.

Interestingly, Morgan Sindall chief executive John Morgan, has set a 鈥渕edium-term target鈥� for his construction business of 2%. Morgan has been on the firm鈥檚 board since 1994, so it might be safe to assume that he knows a thing or two about what a realistic construction margin is.聽

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