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Fri April 03 2020

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Construction profit warnings spike amid sector recession

3 Mar Profit warnings issued by UK listed businesses in the FTSE construction & materials sector in 2019 more than doubled year-on-year, according to a big accountancy firm.

Ernst & Young’s latest Quarterly Profit Warnings Report shows that 18 profit warnings were issued by listed companies in the construction & materials sector in 2019, compared to eight in 2018.

Not since the 19 profit warnings issued in 2012 has the sector been so under pressure.

In 2019 28% of companies in the FTSE construction & materials sector issued warnings.

Richard Harrison, financial restructuring director at EY, said: “2019 was an exceptionally testing year for the construction sector, with economic and political uncertainty contributing to a wave of contract delays and cancellations. Although the UK economy overall didn’t fall into recession, arguably the construction sector did.”

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Ian Marson, head of construction in EY’s Transaction Advisory business, said: “Contractors in the construction and support services sectors have faced untold headwinds since as far back as 2009, without any breathing space to fully recover. In recent years political uncertainty has added to that pressure for companies in this low-margin sector.

“Indeed, in the next 12 months, we expect to see more large players in the market grapple with meeting their banking covenants, refinancing, changes in the availability of skilled labour, and possible new trade tariffs. In the short term, companies need to ensure they return to health through careful contract selection, turning down lower profit contracts and focusing on specialist areas where they can reliably achieve higher margins.

“However, outside this immediate horizon, there is a fundamental need for construction firms to innovate and use technology, automation and data to disrupt the status quo and drive real and sustainable changes in profitability.”

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