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Tryg Garanti: UK Construction Industry Review Q1’23

April 16, 2023
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Tryg Garanti's review on the events & key themes in the opening Quarter of 2023. UK Construction never sits still.

The Q1’23 story…if someone asked what’s going on in the UK Construction Industry – there is more to it than just quoting numbers and statistics…please see review on the events & key themes in the opening Quarter of 2023. UK Construction never sits still

-– Mani Singh, Senior Account Manager at Tryg Garanti

Q1’23 Summary

The Glenigan Index showed construction starts during Q1’23 -volume of work beginning on site -at the lowest quarterly return in 10yrs. This Index discounts schemes +£100m in value & adjusts for seasonal fluctuations to provide a more reliable result. It is recognised by many that figures such as this –which sit alongside other concerning Industry stats –are not surprising given challenges seen + outlined within this review

The impacts of these pressures being experienced have resulted in unfortunate failures –the below outlining one of the names for each month this Quarter within Creditsafe’s results which is graphically presented on the left:

  • JAN/23 –S & I GROUNDWORKS, ENGLAND, WEST-MIDLANDS = cited impacts of Covid-19 pandemic, war in Ukraine, cashflow pressure caused by cost inflation + increased competition for key staff as reasons for its financial difficulties. According to its website the Burton-on-Trent based business worked on projects with leading housebuilders including Barratt Homes, Crest Nicholson, Vistry + Gleeson
  • FEB/23 –TOLENT PLC, ENGLAND, NORTH-EAST = administrators said Grp been “battling severe headwinds” including rising costs, labour shortages + failures within their supply chain “all of which unfortunately resulted in one of its major contracts becoming loss-making“ which is the £85.5m Milburngate development in Durham. These losses were said to have “profound impact on Working Capital” of Grp which with FYE’12/21 consolidated turnover £198m placed it 67th in CNPLUS’s Top 100 UK contractors table 2022
  • MAR/23 –JESSELLA LTD, ENGLAND, EAST OF ENGLAND = specialised in facade contracts up to £15m having worked on number of major residential jobs across London + South-East regions. Within the latest FYE’03/22 filed in Dec/22 the firm recognized its projects impacted by “inflationary increases in staff & materials costs” + struggled with “increased use of subcontractors to help fulfil contracts

One common theme for these failures is cost rises –also behind the weakest sub-sector performance within Q1’s PMI breakdown (left) in House-Building as “respondents cited fewer tender opportunities as rising borrowing costs + subsequent slowdown in new projects”. Despite the weak residential performance its worth noting Mar/23’s PMI showing further uplift in total new work received by construction companies with rate of rise the 2nd-fastest since Jul/22. This ties in with comments within Construction Leadership Council’s latest product availability statement where the Grp said construction firms had dealt with Q1’23 demand higher vs predicted at close of 2022

Large funds were announced by UK Government during Q1 to support energy efficiency drives to Local Authorities + Housing Associations across England. Alongside this -further support through Public Sector Decarbonisation Scheme to focus on buildings such as schools + hospitals. As shown throughout this report –clear focus is being placed on energy & sustainability with Commercial sector showing enhanced offerings to projects this Quarter

But the key will be decision making & policies. In Mar/23 a Victorian Society director said “existing tax regime includes 0% VAT on demolition & rebuild vs 20% VAT on Repair & Maintenance = perverse incentive for landowners + developers”. Industry operators need the business model to support their cash-flows not weaken them. And finally, commitments to infrastructure are key to ensure the current leading sub-sector Civil Engineering continues its growth, monies flow through supply-chains + confidence provided to allow positive business decisions

You can read the UK Construction Industry Review Q1’23 here.

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

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