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Tryg Garanti: UK Construction Industry Review Q2’23

July 15, 2023
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UK Construction never sits still...

Modern Methods of Construction or Offsite, whichever name you decide – this sector has seen large players delay operations, exit and even fail whilst others have expanded their footprint and continue showing improved trading performances.

UK flagship infrastructure schemes continue being impacted by cost pressures

Despite clear residential sector issues – we still saw plans approved for what will be Wales’ tallest tower block + record investment deal agreed in Northern Ireland

And unfortunately the largest contractor by turnover to fail since Oct/21

Please see attached my latest report…UK Construction never sits still

Mani Singh, Senior Account Manager at Tryg Garanti

Q2’23 Summary

Given build cost + supply chain pressures being experienced, coupled with the drive for a “greener” industry operating model – there is a position for Modern Methods of Construction & its adoption within the industry. Despite the positives outlined in this report – the decision to step back from L&G along with the failure of Ilke make the overall MMC sector view challenging

Before collapsing Ilke said it’s £1bn order book was predominantly made up of affordable homes – meaning another hit to the residential sector whose performance has suffered throughout Q2 as shown by the PMI breakdown graph (bottom-left). Despite sizeable schemes still being signed-off + works continuing at sites around UK – general worries around the sector’s performance & its impact on affordable/social housing have been clear. Concerns for this segment were further fuelled by plans in England to combine current Section 106 + CIL funding into one source – meaning less funding for affordable/social homes. But there are less traditional entrants now looking to support the situation:

Jun/23 – Church of England secured planning permission for 1,087-home development in Lincoln = falls within plans to develop 9k affordable homes on church land after saying 2022 it plans to become national social housing provider

Jun/23 – Prince William released plans of building social housing at his 130k-acr Duchy of Cornwall estate – part of 5yr plan to “end homelessness” through a project from the Royal Foundation he runs with his wife

Rising borrowing costs are one of the key reasons for the UK house-building situation and focus on debt structures are expected to rise when assessing health of UK Industry companies. Despite seeing through the Quarter – it was reported UK Government started making contingency plans for Britain’s biggest water company Thames Water given its fight intensifying to service the £14bn debt levels held. Overall Q2’23 failure numbers vs Q2’22 show a rising pattern (top-left) but more concerning was the whole supply chain feeling the pressures as we saw clients, main contractors + subcontractors all suffer. Key mentions unfortunately to fall during the three-month period:

  • Woking Council became the latest name on growing list of local authorities to file Section 114 Notice meaning effectively bankrupt as large debt levels taken to support overly ambitious schemes in recent years impacted their financial position. Spotlight especially focused on issues around Council’s Victoria-Square development with Northern-Ireland developer Moyallen. The notice also meant concern for various projects overseen by ThamesWey – Council’s dedicated vehicle to work with private partners to meet the authorities self-set climate change targets
  • Most high-profile name seen was Henry Construction Projects which became the largest revenue generating collapse since NMCN in Oct/21. Weeks leading to official announcement 8/Jun saw subcontractors claiming monies owed on jobs, winding-up petitions filed, specialists removing workers from sites + alongside all this the Grp reportedly struggling to progress major projects leading to huge Liquidated Ascertained Damages

Despite Jun/23 level of administrations falling – it is recognised that supply chain impacts following Henry’s failure may play a key role in coming quarters volume of casualties + with a believed £150m of bonds “live” at the time of demise, demand for construction surety/bonds rising as insurance market conditions become tighter

Flagship infrastructure schemes have been impacted further during Q2 due to inflation + build schemes by changing requirements. Jun/23’s PMI showed optimism fall to its lowest since Jan/23 & drop in employment growth. This needs to be recognised as ensuring confidence to the supply chain with project progression is key – from which investment can take place including making the workforce available to meet ambitious targets moving forwards

You can read the UK Construction Industry Review Q2’23 here.

Tryg Garanti is a highly valued Patron’s Circle member of the Association. Please visit their company profile.

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