Despite the greater rise in construction projects, the financial position for many contractors remains weak. According to a new study, supply and demand for subcontractors and labour are still a year off.
The report “Construction Barometer: Recovery in Sight?” published by KPMG analyses the largest UK construction contractors in relation to the operating margins and cash balances from 2007 to 2013.
Cash propositions and margins are not sustainable
The detailed analysis revealed that net balances declined in 2013 and is now close to half its 2010 peak; persistent inflation in subcontractor markets suggests that the negative margins aren’t likely to improve for the foreseeable future. The issue has been backed up by the several profit warnings issued during the first half of 2014.
UK head of infrastructure, building and construction at KPMG, Richard Threlfall, said: “Current margin and cash levels are unsustainable.”
This being said, the government’s infrastructure spend indicates that over £116 billion will be invested on over 1,886 construction projects which could help to boost the current conditions.
The industry faces challenges
Threlfall continued: “Construction contractors have been struggling with some of the most difficult market conditions ever encountered and now – with all the evidence pointing towards sustained recovery – the industry faces real profitability challenges.”
Threlfall also indicates that contractors should focus on improving their own efficiency due to the increase in subcontracting rate as well as the labour market shortages which is currently out of their own control.
A better future ahead?
Threlfall added: “Ultimately, we believe contractors need to hang on until supply and demand for subcontractors and labour come back into balance, which we predict is still a year off.
“With good forward planning, strong businesses should be investing now in their supply chain and technology to take advantage of the £45 billion a year tidal wave of future work.”
Do you think there’s a brighter future ahead for the construction sector? Let us know in the comments section below