Clear divide among construction firms

BLAIR DAVIDSON, DIRECTOR AND HEAD OF PROPERTY AND CONSTRUCTION, MHA HENDERSON LOGGIE

The Covid-19 pandemic has had a significant impact on the construction sector, and it is important for economic recovery that the sector gets back up and running to full capacity as quickly and as safely as possible.

The findings of the latest UK MHA Construction Sector Report shows a stark divide between those who were able to capitalise on the opportunities presented by Covid-19, and those who struggled to finance their way through lockdown.

Going into Covid-19, the sector appeared to be in a good state of health, notwithstanding the concerns and uncertainties surrounding Brexit.

As a whole, turnover in the construction industry increased year on year, however, profitability levels on average were dented with a slight reduction in both gross profit and net profit levels.

In terms of growth over the last year measured by turnover, there was a clear divide based on the size of the business.

Businesses with a turnover of up to £ 10 million reported a significant reduction in activity compared to the largest of the construction firms, with turnover in excess of £200m experiencing a surge.

Businesses in the turnover range of between £25m to £150m h av e achieved good growth.

Although the smaller firms have experienced less activity year on year, they have remained profitable.

The same can’t be said for the largest of the businesses sampled where the bottom-line profitability has moved from a slight profit last year to losses.

Those companies with the largest exposure to the sector have suffered due to a potential lack of consumer confidence, Brexit and external costs.

Scotland has managed to maintain plenty of activity across both residential and commercial environments, with new projects being approved regularly.

The housing ma r ke t remains very buoyant, with local businesses able to sell their plots off plan.

The challenges remain the same as pre-Covid-19, mobilising the local councils and getting planning permission through for new development sites.

T he remote working capabilities of the councils is making this even more of a challenge at present.

Since Covid-19 kicked in, the main challenge for the sector is availability of materials.

There seems to be a real shortage which can vary from product to product on a weekly basis.

When materials become available, they are being snapped up as people look to try to secure their supply chain and avoid downtime on site.

Those with sufficient cash flow and storage facilities are probably benefiting most as they can buy in bulk and store it.

Material prices have increased in line with demand and with many houses being bought off plan at an agreed price, these inflated prices may impact future margins when the houses are built.

Controlling overheads and maintaining liquidity will be key to avoiding disasters for the sector.

Businesses have been taking on debt to try to get through the crisis, as you would expect, and the vast majority have adapted well to the many challenges of social distancing, but the coming months will really test the resilience of the sector.

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DECLINE: Construction firms with annual sales of under £10 million reported a reduction in activity.