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Tue November 13 2018

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Despite slowing growth, construction's profits continue to rise

23 Oct An analysis of the accounts of more than 1700 construction companies has shown that average annual profit before tax has grown from 11.5% to 17.1% over the last three years

The construction firms delivered a 40% increase in dividends and a 38.5% increase in retained profits since 2015.

Gross profit margins have grown by a steady 0.5% a year, while annual turnover growth has slowed from 7.6% to 6.7%.

The study was conducted by accountancy firm MHA using company accounts information from 2015 to 2018 published by credit reporting agency Experian, for 1,708 construction firms in England, Scotland and Wales with an annual turnover of between £5m and £230m.

Despite the slowdown in turnover growth, incomes rose 14.8% over the three-year period across all sizes of construction firms in the report. Average gross profit margins grew a total of 1% over the same period across all sizes of firms; smaller firms seeing a marginally higher rate of gross profit margin growth.

Most companies saw declining turnover growth over the three-year period. The only two groups bucking this trend were companies with turnovers of £5m-£10m and £100m-£150m. However, given inflationary pressures on labour and construction material costs, any real-term growth from comparatively low turnover increases will be limited, the authors said.

MHA’s analysis of the Experian company data showed either very modest growth or slight reductions in executive salaries in the sector, with firms in the £10m-£150m turnover brackets showing a slight decline in senior pay in the most recent year of accounts. The largest salary rises were recorded in the £150m-£200m turnover bracket; the smallest and largest groups (turnover of £5m-£10m and over £200m) recorded only small increases in directors’ remuneration.

Average employee numbers of the firms analysed has dipped from 125 to 123 over the past three years. MHA seemed reluctant to attribute this to improved efficiency, instead describing it as “one of the potentially more concerning indicators in the data”.

Robert Dowling, head of construction and real estate at MHA, said: “Britain’s construction industry has traditionally been seen as a bell-weather for the wider economy, and there are some worrying trends in this report. Falling turnover growth coupled with flat or declining employment levels may well slow or even reverse the upward trend in profitability in the coming months.

“Whilst there remain some positive markers for the sector in the report, the prevailing sense is that the continuing uncertainty in the UK economy is affecting business confidence in the construction industry.”

MPU

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