MHA Construction Sector Report

The term unprecedented may be overused, but the global response to COVID-19 has been unlike anything we have seen in recent times. And the impact on the UK construction industry has been no different.

This summer, the MHA Construction team interviewed 100 clients from across the UK to discover how they’re coping not only with COVID, but other key areas including funding, recruitment and technology.

The Spring Budget in March 2020, delivered by newly appointed Chancellor Rishi Sunak, was just the start of government support for businesses. The strict national lockdown followed shortly thereafter, the effects of which we are still feeling today and no doubt we will continue to feel for some time to come. The recently delivered Winter Economy Plan offered some further support, but whether it will be enough is yet to be seen.

Some construction companies are reporting their busiest ever periods and yet many have seen huge threats to their business models, their customers and their very existence. The results of the Report show a stark divide in today’s construction sector, between those who were able to capitalise on the opportunities presented and those who struggled to finance their way through lockdown. Will the Government’s ambitious infrastructure plans be enough?

Key highlights

Strong start to the year

The industry entered 2020 with strong balance sheets, increased turnover (8.3%) and low debt risk. The largest businesses saw the greatest increase in revenue from the previous year.

COVID-19 divide

The industry is evenly split between businesses with a substantial or critical impact due to COVID-19 (54%), and those with little to no impact (46%).

Build, build, build

The Government’s plans to ‘build, build, build’ is encouraging for civil infrastructure projects. More than half of respondents said infrastructure spending should be the Government’s top priority for the sector.

Employment support

Furlough is the word of the year for 2020, with more than 80% of construction businesses taking advantage of the Coronavirus Job Retention Scheme, and a further 70% of those retaining all staff.

The future looks green

Nearly two-thirds of respondents are either planning or considering implementing green technology in the next 12 months.

What happens next?

Nearly 4 out of 5 respondents said the single biggest factor holding back growth was economic volatility. With the wind down of Government support, and Brexit on the horizon, uncertainty is holding the industry back.

COVID-19

The impact of COVID-19 upon the sector was particularly untimely. Only months before, the government had announced notice of significant infrastructure investments. The sector was primed for a sweet spot of both private and public led contracts to assuage concerns over the potential impact of Brexit.

Respondents to our survey highlighted the split between business which have fared well through COVID-19, and those which have suffered, with 44% citing this as ‘minimal’ compared to 49% who see a ‘substantial’ impact.

The short term legacy of COVID-19 is generating a background of reduced productivity, increased operating costs, intensified contractual wrangling and deferred contract payments, all undoubtedly causing greater risk in sector operations and forcing management to be both diligent and agile in all areas.

A greater concern however may be future planning in dealing with a wider chasm of the unknown; namely orderbook deferral, future contract terms and the going concern status of main contractors.

So, we come full circle to government promises. It appears critical they are swiftly delivered, engendering confidence within the sector and across all regions, to ‘level up’ the sector’s COVID-19 recovery.

Looking forward

The COVID-19 pandemic has had a significant effect on all economic activity in the UK and across the world. With the construction sector being a traditional bellwether for the economic cycle in general, the

results of our recent survey are all the more insightful.

Less than a third of our respondents indicated that there would be any significant capital investment in their businesses within the next 12 months, with a further 20% unsure.

With nearly 60% of respondents expecting no revenue growth within 12 months and 60% of businesses not expecting profitability to return to pre-COVID-19 levels for at least 6 months, it’s no surprise that investment decisions are being postponed.

In fact, the single biggest factor holding back growth was economic volatility, with 76% of respondents saying this was the largest factor. This has a massive knock on-effect for the sector as other factors are tangentially affected by this uncertainty – labour supply, material and supply chain security, and of course the financial security of funding lines.

Find out more

To find out more, download the full MHA Construction Sector Report. The Report looks at the state of the construction sector going into the COVID pandemic, analyses how the sector is responding to current challenges, and anticipates the way forward for the industry.

Visit www.carpenterbox.com/construction-report to download your copy.