The number of construction firms to issue a profit warning in the first half of 2018 has doubled on a year ago, according to new statistics.
A total of six companies listed in the FTSE Construction and Materials category issued a profit warning over the period, according to accountancy firm EY’s latest Profit Warnings report.
It means that the sector is getting close to surpassing the total number of warnings (seven) it issued in 2017 overall.
Just one of the six sector profit warnings in 2018 cited the adverse weather in the early part of the year but four mentioned delayed contracts and uncertainty dragging on demand.
EY pointed to figures from the IHS Market Purchasing Managers’ Index (PMI) that construction rebounded in May and June after the adverse effects of the ‘Beast from the East’ and also highlighted growth at a “moderate pace” in parts of the construction industry outside the residential sector.
However, it also warned that a declining public sector project pipeline was adding to a squeeze on firms, with companies still carrying significant overhead in anticipation of bidding and winning new work that has been slow to materialise. And it noted that according to the Infrastructure and Projects Authority (IPA), 18 new projects joined the government’s Major Project Portfolio in the year to April 2018, the lowest number since the IPA started publishing its annual report 6 years ago and 50% fewer than the previous year.
Ian Marson, construction leader at EY, said: “The last year has been one of growth, but also increased challenge and scrutiny, which has drawn attention to some of the sector’s long-standing structural weaknesses.
“Construction sector growth is notoriously hard to assess at any point – but especially after such a cold and wet winter. We’ll need a few more months of data to know if this represents a trend and it’s important to note that outside of residential construction, parts of the sector are growing, but at a relatively moderate pace.”
“Problem contracts are by far the most common reason for contractor profit warnings and so it’s vital that companies bid selectively for contracts, concentrating on their strengths rather than just seeking to build turnover.
“They also need to apply strong risk management disciplines at the bidding stage to ensure they only take on the right contracts at the right price — and that they ensure that problems are identified and managed quickly.”
