Industry calls for clarity on border arrangements and changes to worker permits
- The Construction Products Association’s (CPA) State of Trade Survey - 2020 Q2 has revealed that construction product manufacturers are cautiously predicting an improvement in trading conditions in Q3, with 13% of heavy side firms (ie firms producing structural materials used in the early construction process) and 9% of light side firms (ie firms producing products used later in the construction process) anticipating a rise in sales in the third quarter. Additionally, more than half (53%) of heavy side producers and 50% of those on the light side anticipate increased investment in e-commerce over the next year, in contrast to expectations of reducing investment in structures, such as new factories. Unsurprisingly, the survey also found that 81% of heavy side manufacturers and 68% of light side manufacturers reported a fall in sales compared to Q1.
- For construction firms that continue to trade, the proportion of furloughed construction workers as a percentage of the total workforce continues to fall. According to the ONS, between 29th June and 12th July 2020, construction firms said that on average roughly 17% of their workforce were on furlough (compared to 20.6% in the preceding two-week period). Although the construction sector saw a higher proportion of the workforce furloughed earlier on in the lockdown period, the sector is now on par with ‘All Industries’.
- Recent ONS data shows that 59% of UK construction firms have seen a decrease in turnover compared to what is normally expected for this time of year. Whilst a quarter of survey respondents noted that turnover was 20-50% lower than normal, nearly 27% of firms said turnover had not been affected in the two weeks between 29th June and 12th July 2020 compared to what is normally expected. A separate ONS dataset also showed that the proportion of firms reporting that their cash reserves would last less than three months has remained fairly steady at circa 37%.
- Andy Mitchell, head of the Construction Leadership Council (CLC), has written a letter to the business secretary, Alok Sharma, requesting that the Government:
- Extend the length of temporary worker permits to two years to help avoid a shortage of low-skilled labour supply
- Include key jobs such as labourers, dry liners, asbestos removers and some plant operators in the tier 2 skilled work category
- Provide greater clarity around the likely border arrangements in the event of a no deal with the EU so that businesses can better predict their ability to reliably source and cost construction materials and products originating from the EU
- Provide a clear, long-term direction on what it intends to do in relation to the current standardisation of regulation of products and materials with the EU
Although the Government has announced the creation of UKCA (UK Conformity Assessed) to replace the CE mark, Mitchell said that it would be preferable for construction to reach an agreement that achieved mutual recognition of such standards. Without this, “UK businesses will have to repeatedly test products for different markets, which will add substantial costs and cause delays, damaging UK competitiveness.”
- Details of the Government’s deregulation of the planning process have been published. The new rules, which include a right for developers to demolish vacant office and industrial premises and rebuild them as homes, have been criticised by many including RIBA, the RICS and the Royal Town Planning Institute, who argue that they will lead to significantly worse quality homes being built. The Government said that changes were designed to deliver much-needed new homes and revitalise town centres across England and would cut out unnecessary bureaucracy. However, RIBA president Alan Jones said:
“...further PDRs, including the ability to demolish and rebuild on existing sites — if implemented without significant safeguards—will lock in more unacceptable standard development, the consequences of which we will live with for generations or must rectify later at greater expense”
- Morrisroe, the concrete frame specialist that recently bought a 75% stake in demolition contractor Cantillon, has said that at the height of the lockdown half its jobs stopped resulting in an exceptional drop in turnover between March and June. It added:
“We expect the commercial performance of many projects to be affected by programme delays and some unrecoverable costs.”
However, chief executive Brian Morrisroe expects revenues to improve this year despite the COVID-19 pandemic. He indicated that its order book in this financial year will improve significantly and that sales are expected to be around £150m.
- Wates plans to overhaul its business to focus more on public sector and affordable housing work in the wake of the pandemic. The firm also plans to grow its offsite technology capability and work more with local authorities and housing associations. The rejig has brought a raft of new appointments and will see a new partnership business set up aimed at residential developments for the elderly and key workers. The aim is to focus on ‘turnkey opportunities’ with Wates acting as the developer, offering clients a range of options from buying the development to lease-back arrangements.
- M&E specialist T Clarke has said that turnover in London (its stronghold) fell by 42% in the six months to June 2020. Its interim results revealed that its revenue from London fell to £58m during the period. Overall turnover in the first three months of this year was £70m but collapsed by nearly half to just £36m in Q2 because of the impact of the pandemic. However, chief executive Mark Lawrence said the underlying business was sound and that the firm had improved its net cash position 108% to £7.5m. He added:
“Our order book is strong and we have no shortage of opportunities in Data Centres and Infrastructure. Since the beginning of April we have bid £600m of opportunities.”
- Gregor Craig, UK chief executive of Skanska, said the firm has paused investment into UK commercial developments in response to the deteriorating outlook for the market. Prior to the pandemic, Skanska had planned to do more commercial development in the UK – particularly in London – capitalising on the margins on offer. Although he acknowledged that the UK had become a less attractive market for such investment he confirmed that Skanska still pushing on with its residential development work through its BoKlok modular housing operation.
COMMODITIES & MATERIALS
- Travis Perkins anticipates that its interim results (due September) will show a 20% fall in sales with turnover in the six months to 30th June falling to £2.78bn – down from £3.48bn in the same period last year. The hardest hit parts of its business have been its merchandising and plumbing and heating arms where like-for-like sales dropped 73% and 69% respectively in April, the first full month of lockdown. Toolstation was only part of the group that saw like-for-like sales growth in Q2 (16.5%) thanks to strong DIY sales over the period. Travis Perkins chief executive Nick Roberts said that although the business continues to recover well with good demand from RMI and infrastructure markets offsetting ongoing challenges in the new build and commercial construction sectors:
“...We remain cautious as to the near-term headwinds facing our business and the wider economy, nevertheless the decisive actions we have taken to manage our cost base mean that we are well placed to continue to service our customers, support our colleagues and generate value for our shareholders."
- Iron ore, the steel making commodity, continues to defy predictions for a fall, rising by 19% in 2020 to above $110 a tonne. The price has been driven up on the back of strong demand from China (who appear to have enjoyed a steep V-shaped recovery) as well as supply disruptions in Brazil. In fact, for the first time since 2009 China became a net importer of steel in June, even though domestic output of the commodity reached record levels.
- Despite construction materials shortages, lead times have remained remarkably resilient. According to Building only five trades are reporting increases in lead times (predominantly due to materials availability). Lead times for concrete works, cladding (both natural materials and metal panelised systems), roof finishes (asphalt/membrane), electrical packages and fire detection and voice alarm systems all rose in June but the majority of packages have seen little change in lead times due to ‘reduced availability of working areas balancing out materials and labour shortages’. Most contractors are reportedly experiencing higher levels of enquiries but do not yet see that increasing lead times.
- House prices rose by 1.7% in July compared to the previous month according to a survey by building society Nationwide. House prices were also up year-on-year with an increase of 1.5% in July compared with the same month in 2019. Some pent-up demand has been released after the UK Government’s decision to raise the threshold for stamp duty (meaning that 90% of transactions in England would pay no stamp duty land tax) and the easing of restrictions on home viewings/purchases in May. Robert Gardner, Nationwide’s chief economist said:
“Behavioural shifts may be boosting activity, as people reassess their housing needs and preferences as a result of life in lockdown...”
- A survey by the CBI has found that with fewer available resources due to coronavirus disruption, one in five respondents said they were less prepared for a no-deal EU exit in January. Three-quarters also said they were concerned about a further economic shock from a failure to agree a trade deal with the EU and more than half reported no change in their level of preparedness for Brexit. Negotiations continue, but the EU and UK still disagree over future arrangements for areas such as fisheries, state aid and financial services.
- More than £50bn has been borrowed by British businesses in government-backed debt as the Treasury confirmed that nearly 1.2m businesses had taken bank bailout loans and other debt that were either partly or fully guaranteed by the government. Most of this has been lent through the “bounce back” scheme, which allows very small companies to borrow up to £50,000 with only light checks on their ability to repay. The OBR estimate that up to 405 could default on their loans.
- Eurozone GDP fell 12.1% in Q2 2020 with Spain suffering the biggest hit – an 18.5% fall in GDP in the three months to June. The latest figure takes the total contraction in the first six months of the year to 22%, wiping out all the gains made in the seven years since its last recession. Nicola Nobile from Oxford Economics said, “The Eurozone is not only experiencing a huge shock but also an asymmetric one, with the most vulnerable countries...badly hit”. Economists warn that the recovery across the Eurozone is likely to be both slow and uneven with consumer demand unlikely to return to pre-pandemic levels soon.
- The US economy contracted by 9.5% in Q2 2020 compared with the preceding three months – the largest quarterly contraction in post-war history but slightly smaller than economists had forecast. The BEA said the decline in GDP reflected a slump in personal spending, exports and business investment but noted that data pointed to improving trends late in Q2 in terms of jobs, consumer spending and home sales.
- The Eurozone’s IHS Makit flash purchasing managers’ index rose from 48.3 in June to 55.1 in July – a signal that Europe’s economic recovery is gaining pace. Both services and manufacturing sectors saw an expansion in activity compared with the previous month. Encouragingly, output grew at the fastest rate for just over two years in July as lockdown restrictions eased and economies reopened. Surveys reported that demand is showing signs of reviving which will help curb the pace of job losses in the second half of the year.