Most specialist contractors have experienced better fortunes post-pandemic, but concerns loom due to new challenges.
- Emerging from the pandemic, revenue and profit margins for UK specialists neared pre-lockdown levels, but the economic future looks uncertain.
- The cost inflation, yet to be reflected in accounts, poses significant risks for the construction sector amidst an economic slowdown.
- Revenue increased to £8.23bn in 2021 from £7.93bn in the previous year, despite remaining below the £8.73bn level seen in 2020.
- Scaffolding delivered the highest margins in 2021, while the concrete sector struggled with decreased profitability.
Coming out of the pandemic, the leading specialist contractors in the UK construction sector saw an improvement in their financial performance. Data from the Construction News Specialists Index indicates a recovery in turnover and profit margins close to the levels observed before the COVID-19 lockdowns severely impacted the economy. However, recent developments such as Russia’s invasion of Ukraine have introduced fresh challenges, potentially impacting future stability.
The 2022 index shows an aggregate revenue of £8.23bn across the 70 companies tracked, up from last year’s £7.93bn. Despite this rise, the turnover remains £500m below the 2020 index’s figures, marking this the lowest since 2016, save for the previous year. Rebecca Larkin, a senior economist at the Construction Products Association, commented on the two-tier nature of 2021, where initial recovery was met with later cost inflation concerns.
Although pre-tax profit margins have seen an uptick in most specialisms, particularly in scaffolding which displayed a 6.6% margin, they remain narrow by historical standards. The median pre-tax margin improved from 2.6% to 2.9%. Meanwhile, concrete and steel sectors reported diminished margins of 1.15% and 4.5%, respectively. Simon Rawlinson of Arcadis highlighted scaffolding’s resilience in managing inflation through effective client cost pass-through.
Despite aggregate profitability, the envelope sector fell into loss while M&E sectors returned to profitability. Ben Harwood from Naismiths anticipates a decrease in inflation rates, which could benefit specialists. However, he advises caution against fixed-price contracts due to the potential for rising costs, suggesting such contracts could hinder future growth and stability.
The construction industry continues to face low margins and emerging economic risks. Larkin warns that the full impact of cost inflation and economic slowdown is yet to be realized in specialist sectors, implying future challenges. Only one company of the 70, O’Keefe, has experienced administration, indicating ongoing resilience but also highlighting the sector’s vulnerability.
The specialist construction sector shows resilience amidst recovery, yet faces looming economic uncertainties.
