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Thu September 24 2020

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Accountants say major contractors are getting weaker

19 Sep 14 An analysis of the largest UK construction contractors indicates that the financial position of many of them remains weak, with cash balances and margins down.

The report by accountants from KPMG, called Construction Barometer: Recovery in Sight?, analysed the operating margins, cash balances and order books of 14 major contractors from 2007 through to 2013.  It found that net cash balances declined in 2013 and are now close to half their 2010 peak.

Cash generated from operations has all but dried up since 2010 and cash balances have been increasingly supported by significant sale of assets.

Operating margins in construction continue to be squeezed, falling from an average of 2.8% across the 14 companies analysed to just 1.2% in 2013

Order books tell a slightly more optimistic story from margins and cash, however, reporting growth from 2012 to 2013.

Richard Threlfall, KPMG’s UK head of infrastructure, building and construction, said: “Construction contractors have been struggling with some of the most difficult market conditions ever encountered and even now – with all evidence pointing to sustained recovery – the industry faces real profitability challenges.

“Current margin and cash levels are unsustainable. With subcontractor rate increases and labour market shortages largely outside of contractors’ control, it is critical they continue to focus on improving their own efficiency.

“The industry can though take heart from the first signs of a recovery in order books. Ultimately, we believe contractors need to hang on until supply and demand for subcontractors and labour come back into balance, which we predict is still a year off. With good forward planning, strong businesses should be investing now in their supply chain and technology to take advantage of the £45 billion a year tidal wave of future work.”

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