Weakness in the construction sector was cited as one of the main reasons for the UK dipping back into recession earlier this year. Insolvencies among suppliers to the construction industry show no signs of abating, and in the last few months, the SFP Group has been appointed Administrator to no less than 10 companies that have failed, either as the result of a direct connection to the construction sector (i.e. building companies, contractors, etc) or from providing products or services within the construction supply chain.
The most recent of these was Pulse Fixings Limited, which supplied a wide variety of fixings and consumables – including the Power Fasteners range of gas nailers and fixings – across the UK construction industry from its base in Croydon, just south of London. Despite a substantial annual turnover of around £1.6 million the company had run up debts in excess of £300,000, and so SFP’s Simon and Daniel Plant – both licensed members of the Insolvency Practitioners’ Association – were appointed Joint Administrators on 26th September.
It was not long after this appointment that the latest construction figures from the Office for National Statistics confirmed a widespread decline in construction activity for a fifth consecutive quarter, with output 11.3 percent lower than it was a year ago and now at its lowest level since the second quarter of 1999. Building contractors reported that in Q3 2012, output had dropped by 27 percent in the commercial sector and 29 percent in the industrial sector, as well as a decrease of 38 percent in new public housing.
Moreover, a Construction Products Association (CPA) ‘State of Trade’ survey showed that product manufacturers were also suffering from a slowdown in both sales and exports in Q3 2012, with problems for the sector exacerbated by the impact of cost inflation. According to Noble Francis, Economics Director for the CPA, light side manufacturers had until recently enjoyed growth in export sales that was offsetting the lack of domestic demand: “Yet export sales fell during the third quarter, adversely affected by Eurozone uncertainty and global economic slowdown.
“As a result, both heavy and light side manufacturers reported that they had reduced employment during the third quarter,” he continues, “and, furthermore, with the construction sector anticipated to fall sharply over the next 18 months, it is unsurprising that product manufacturers reported that they anticipated that employment would fall further in the next year.”
According to Simon Plant, partner at SFP, the construction sector is over-saturated, with too many suppliers chasing too little business: “In recent months, we have also been appointed to the Administrations of 5 Star Windows and Conservatories, a door and window manufacturer; JDW Systems, yet another window manufacturer; Specialist Engineering Contracts, an industrial contractor specialising in mechanical and electrical engineering; and WF Utilities and Groundworks, an engineering firm in the water industry. This trend of appointments speaks for itself as regards the current health of the industry.”
The CPA has expressed concern about future growth in the construction industry as a whole, and predicted that the outlook may not improve until 2014. Noble says that Q3 was the first time that a decline was experienced across all sectors in the construction industry: “Whilst public sector construction activity has been falling for some time as a result of the Government’s cuts, private sector activity is also now falling sharply. On top of this bad news, infrastructure work declined in Q3, which is extremely concerning given the number of recent announcements from Government aimed at stimulating infrastructure activity.”
Julia Evans, Chief Executive of the National Federation of Builders (NFB), adds that these figures are a reminder that while the rest of the UK economy is showing tentative signs of growth, the Government should not take its eye off the ball with regards to construction: “The Government’s moves to streamline and speed up planning, fast track and fund infrastructure and fund more house building will not yield immediate results, but they are the building blocks necessary to ensure a sustainable recovery for construction.
“The more immediate consideration for Government is to continue to ensure that access to finance for small- and medium-sized businesses remains a high priority,” she concludes.