Only larger construction companies have seen growth in the past year, according to accountants and business advisors.
Growth dropped for all companies below the £25-100 million turnover group surveyed and stagnated for the smallest group.
The latest Construction Sector Report crunched the numbers to analyse the financial health of construction companies across North London and Hertfordshire and found some surprising results in a sector facing considerable economic uncertainty.
Larger companies performed well in difficult conditions, seeing increases in both sales and margins, thanks to their ability to pass rising costs on to customers in the form of price increases in material and labour – something that smaller firms were unable to manage.
As of June 2017, employment increased across the sector, but this was only by around 6 per cent overall. Larger firms are the only ones actively recruiting in the current market. Profit before tax for all firms surveyed showed an improvement on the previous year, as turnover increased following higher end consumer pricing.
All but the largest groups in the sector increased short-term borrowing in the past year. This could be due to the considerable increase in director’s remuneration, particularly for the smallest firms, seeing the strongest overall cost pressures. In contrast, larger firms have increased longer-term borrowing as they invest in equipment and take steps to improve working capital in preparation for more uncertainty ahead.
Firms in the construction sector have become more risk-averse, as overall costs increase and project approval becomes more stringent. Companies appear to be working in and seeking new work in sectors with which they are already familiar.
Brendan Sharkey, Head of Construction and Real Estate at MHA MacIntyre Hudson, commented: “Few firms discussed Brexit in their directors’ report. However, it does bring a number of challenges for the short, medium and longer term. The weaker Pound is driving up costs, there is the potential for labour shortages if there are visa and working restrictions, and a shift in global mobility is likely to affect property markets, both commercial and residential.”
“Challenging economic conditions – not just from Brexit, but from across the globe – will make their presence felt in the coming year. There’s never been a more important time to save, improve efficiencies and manage risk wherever possible.”
“Both the challenges and opportunities ahead need to be identified as early as possible and incorporated into constructions companies’ strategic business plans.”
David Johnson, Founding Director of MHA MacIntyre Hudson’s currency partners, Halo Financial, added: “Brexit, the UK economy and ongoing economic developments globally are having a dramatic effect on the construction and real estate sector; not only hitting overall sentiment and confidence, but also having significant financial implications.”
“Sterling’s continued weakness is pushing costs ever higher, with inflationary pressures across the supply chain taking their toll on margins and profitability for firms in the sector. We are seeing companies delaying key investment decisions while awaiting further clarity on what Brexit will mean in practice, as well as a tougher market for investment and funding.”
“This is a crucial time for businesses in real estate and construction to explore savings wherever possible and build robust currency strategies into their business planning.”