Builder puts brain before brawn

Most investors still believe British construction is an industry with poor management, stuck in a never-ending slump with endemic over- capacity keeping profitability at rock bottom levels.

Edinburgh-based Morrison Construction, however, is a formidable example of the expression that "when the going gets tough, the tough get going". Since 1989, in anticipation of hard times, the group has transformed its approach. It has abandoned traditional ways of winning work - by making the lowest tenders and then engaging in escalating cost-wars with clients and architects - and, instead, taken a more creative line on projects, while initiating and part-funding them in partnership with its clients, too.

The outcome has been that clients end up spending less for a better result, while Morrison makes more money. It's a more-brain-less-brawn approach. Morrison has about 90 people organised into three and four-person development teams around the country, their skills including marketing, law and finance, property development, value engineering and design.

The teams generate work by developing project ideas and offering clients designed schemes, which may include finance.

Fraser Morrison, the firm's chairman, estimates that it costs between pounds 4m and pounds 5m a year to keep the teams in place. The group operates like a cross between a construction firm and a property developer, and pays great attention to rigorous risk management. In projects akin to property development they pre-let or prefund work to cut risk. And a policy of turning over capital within one year means that they have ended the 1995- 1996 financial year with pounds 18.2m in cash, despite committing over 60 per cent of the pounds 18.6m raised on flotation in October 1995 to finance forthcoming projects.

Back in 1989, Fraser and Gordon Morrison bought back from Charter Consolidated the business originally founded and sold by their father. Sales were about pounds 100m and net assets pounds 1m. But before the flotation, sales had more than doubled, and net assets had leapt up. By March 31 this year, the firm stood at pounds 43m, and can be expected to climb strongly. The proportion of turnover secured on a non-traditional basis has grown from under 20 per cent in 1989 to 65 per cent last year, with a target of 80 per cent by 2000. Margins have trebled to 5.5 per cent in the past two years.

Fraser Morrison expects margins to stabilise at this level, with the focus on expanding turnover, which will be from pounds 230m to pounds 240m in the current year.

Another key measure of their progress is the 40 large-scale projects this year, compared with 30 last year and 20 the year before. The group also has a growing international business; it played an important role in rebuilding Kuwait after the Gulf war and has projects in Russia, including plans to redevelop a former royal palace in St Petersburg as a five-star hotel .

The firm's shift away from public sector work is shown by the way the building and property division has cut its exposure to this type of work from 80 per cent between 1988 and 1989, to under 20 per cent now. The group is, however, suited to the Private Finance Initiative, expected to be an important future source of projects.

Forecasters believe profits may advance to pounds 14m this year and pounds 16m next. In the short-term, earnings per share will only advance modestly from 13.2p to 13.8p, reflecting the large increase in issued share capital. But next year the earnings per share benefits are expected to be greater with an advance to 15.7p.

My hunch is that these numbers are not hugely meaningful in assessing Morrison. Shareholders' funds have risen some 25-fold since 1989 despite a shattering recession, so the management is clearly talented. With a more buoyant operating background through the 1990s and beyond, they should deliver excellent returns for shareholders.

Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific