This year’s CN Specialists Index presents a complex narrative of rising revenues but shrinking profit margins in the construction sector’s specialisms.
- The seven specialisms in focus show a 20% increase in total revenue from 2022, reaching a record £9.89bn.
- Despite positive revenue trends, the industry faces challenges with a declining average margin of 3%, reflecting past economic struggles.
- Key sectors like concrete and demolition have improved their profit margins, while others like M&E and envelope face financial setbacks.
- Specialists are under pressure from ongoing material inflation and contract valuation reductions by main contractors.
The latest CN Specialists Index highlights a significant boost in revenue figures for the construction sector, with a collective turnover of £9.89bn. This marks a notable 20% rise compared to the 2022 index, offering a stark contrast to the challenges faced in 2021 during the pandemic. All seven sectors, including concrete, demolition, and ground engineering, observed growth in revenue, yet these figures don’t tell the whole story.
While revenue flourished, the average profit margin tells a different tale. The average margin across all specialisms stands at 3%, a slight dip from the previous year and remarkably low when compared to pre-pandemic standards. Rebecca Larkin of the Construction Products Association noted extreme price inflations in crucial materials like metals and timber, affecting sectors such as envelope and scaffolding. Moreover, scaffolding emerged as the sector with the best margin performance, marking a modest 5% despite these pressures.
Concrete specialists notably transformed their performance, bouncing back from being the worst-performing sector last year to achieving a median margin of 3.9%. However, M&E firms suffered a cumulative pre-tax loss of £13.8m, attributed largely to contract delays and material price increases, as stated by Kelly Boorman of RSM. The envelope sector remains under duress, grappling with financial losses and high insurance premiums linked to cladding remediation projects.
Despite the significant growth in turnover, the total pre-tax profit declined by 8% across the board. However, this figure remains a 22% improvement over 2021’s figures. Ground engineering led the sectors with a 42% profit increase, while demolition saw profits soar by 90%. Yet, envelope specialists faced a severe downturn with a total pre-tax loss of £21.1m, as they navigate complex cladding remediation requirements under the Building Safety Act.
The construction sector’s specialists continue to face relentless financial pressures. Instances like Michael J Lonsdale entering administration exemplify the industry’s strain. Furthermore, companies like Vistry are reportedly seeking notable cost reductions from subcontractors, indicating a broader trend of financial compression. Both Boorman and Larkin signal that specialists must focus on protecting their margins amid low economic growth and rising energy costs, urging strategic adjustments to sustain performance.
The CN Specialists Index 2023 underscores a challenging yet resilient landscape, urging strategic adaptation in construction specialisms.
