Alarm bells should be ringing for insolvency practitioners and construction company owners as a big increase in profit warnings potentially predict a much higher number of insolvencies in the construction sector down the line.
Twice as many profit warnings were issued by FTSE construction and material companies in the first half of 2018 as in the same period of 2017, according to Ernst & Young’s Profit Warnings Stress Index.
Four companies issued a total of six profit warnings in the first six months of the year.
By the same point in 2017 there had been three profit warnings, which went on to hit seven for the whole year.
Given the bad weather in Q1 and the difficulties faced by other sectors, the construction industry’s performance looked okay but output figures from the Office for National Statistics showed big falls in the value of construction work during the first half of 2018. Which many attributed to snow disruption in the first quarter.
However, analysis found that only one out of the six of profit warnings from FTSE construction firms attributed the under-performance to poor weather. In contrast, delays to work and general economic uncertainty were cited in four of the industry warnings.
EY construction leader Ian Marson said: “With the outlook in question, it feels like a good time to take stock and think about how construction companies can improve resilience and meet the challenges that lie ahead.”
The governments £420m construction sector deal presented an opportunity to improve industry productivity, and that greater collaboration on large infrastructure projects was helping reduce contract disputes.
A lack of public spending and infrastructure project starts was also putting pressure on construction companies, EY said.
It cited the Infrastructure Projects Authority’s report for the year to April 2018 that showed 18 new projects had been added to the government’s Major Projects Portfolio, which was down 50 per cent on the previous year.
It could follow from the performance results so far in 2018 that construction insolvencies are due to rise further. If this is the case CRS, the construction debt recovery specialists, work with our in-house quantity surveyors to provide comprehensive reports on the likely recoveries that can be expected from a struggling company or one that is facing a formal insolvency procedure.
If you would like any advice with regards to a company facing financial difficulty in the construction sector please don’t delay to call us on 0114 236 1884
Tim Shore
Managing Director – The CRS Group