3Rd September 2020 Construction Update 780 Px Web Banner

Steady fall in number of firms reporting decreased turnover, compared to same time last year

CONSTRUCTION

  • BCIS’ latest Business Impact of COVID-19 Survey results show that in the two weeks between 27th July and 9th August, 46% of the 464 construction firms surveyed reported that their turnover was lower in the period compared to that was normally expected for this time of year. However, the overall trend shows a steady fall in the number of firms reporting a decrease in business turnover and a fairly steady increase in the proportion of firms reporting that turnover has either increased or has not been affected when compared to the same two week period in the previous year.
3Rd September Graphs For Web
  • Construction firms have claimed almost 10% of the £30.9bn that the Government has paid through its Job Retention Scheme up to 31st July 2020. HMRC data shows that out of 20 different sectors construction is ranked fourth in terms of receiving the most Government subsidy through the scheme. According to the ONS, around 9% of UK construction workers are still furloughed. 63% of workers are reportedly back at their usual workplace while a further 23% are working remotely. The findings come amid large job losses seen across the construction sector in recent months, with more than 7,000 workers having been laid off.
  • A new report called ‘COVID-19 and construction: Early lessons for a new normal?’ has warned that there is a risk of drifting back to “business as usual” as COVID-19 restrictions are eased and commercial pressure start to bite. The report espouses a ‘lessons learned’ review to ensure that positive changes are captured and embedded. The crisis has presented the industry with a number of opportunities, particularly around workflow, quality of work and productivity. The report suggests that some changes introduced over the past few months have improved innovation and productivity, as well as health and safety but that such improvements have come at the expense of programme pace.
  • The campaign group ‘Rights: Community: Action’ (RCA) has issued a pre-action letter to the Government threatening legal action unless it suspends its plans for introducing new permitted development (PD) rights. New PD rights, which were announced in July, would give building owners the right in principle to extend houses upwards and to demolish and rebuild commercial premises as housing without planning permission. The pre-action letter said that the potential claim would be made on the basis that the Government had failed to take account of consultation responses over the policy or its own expert advice.
  • Atkins Global has published a report (Infrastructure Insights: COVID Impact and Recovery) indicating that two-thirds (68%) of infrastructure businesses believe workloads won’t return to pre-COVID levels until Q4 2021. Other interesting findings from the report include:
    • 95% of senior decision makers believe that digital innovation will be increasingly important after the COVID-19 crisis
    • 76% of respondents believe that the sector won’t emerge from COVID-19 in the same form
    • 65% of senior decision makers would like to see the Government provide a clear roadmap to help the sector with the recovery
    • Only 3% believe that their organisations are not well prepared for recovery
  • The Construction Leadership Council (CLC) has launched a new taskforce that will advise the Government on how to protect the construction industry after the Brexit transition period ends on 31st December. The Brexit Working Group will also publish a series of impact reports and host a series of online seminars explaining the changes that firms will need to make in the event of no deal. The advice given by the group will prepare business for what will happen in four key areas: the movement of people, the movement of goods and materials, standards and alignment and also data adequacy/flow.


CONTRACTOR NEWS

  • COVID-19 has been blamed for a nine month delay to the Thames Tideway project. The 25km “super sewer” being built under a Bam, Balfour and Morgan Sindall joint venture will now not be ready until the first half of 2025 according to a recent investor update. COVID-19 meant that work ground to a halt earlier in the year, with the project going from 21 active sites down to three and from 1,715 workers on site in mid-March to a low of 150 before all sites were up and running again at the end of May. The cost of the project has also risen, with the latest update stating that “The approved revised forecast adds £233m to the previous forecast, taking the estimated project cost to £4.133bn.”
  • Gatwick Airport has put its £180m Pier 6 expansion project (which was being delivered by Bechtel) on hold after its passenger numbers fell by 66% in the first half of 2020. The programme is likely to be mothballed until 2022 in line with anticipated airline growth and upgauging of airline fleets. Gatwick Airport said that following the impact of COVID-19, “Over half of the projects already in delivery have been stopped, with only operationally critical projects continuing or those that are near to completion.” However, the airport operator said it would still press ahead with work to submit a planning application to bring its existing standby runway into routine use as a longer term solution to raising capacity.
  • Plans for a new £1bn AHMM-designed R&D centre in King’s Cross have gone out to consultation, with construction expected to start next year if approved. Merck’s new London pharmaceutical research hub will specialise in developing life-saving medicines and “breakthrough” research on diseases associated with aging. The 10-storey building will include a new entrance to the tube network in its lower ground floor and its upper storeys will feature a ‘biophillic’ facade adorned with plants and greenery.
  • Bouygues construction business reported a current operating loss of €437m in first-half 2020, versus a current operating profit of €72m a year earlier. Although sales were down 19% over the six-month period (entirely attributable to COVID-19), the firm noted that its construction backlog is at a record level – €35.7bn, up 6% year-on-year – and the group expects to return to ‘significant profitability’ in the second half of 2020, although this will still be down on 2019’s numbers. Chairman and CEO Martin Bouygues said:

“The long-term trends on which the group relies remain buoyant, despite the current crisis. After a challenging first half of the year, our fundamentals and our strategy should enable us to return to growth in all three sectors of activity.”

  • Sheffield based contractor Henry Boot also blamed COVID-19 for sharp drops in both turnover and profit in its latest half year results. Revenue was slashed from £189m to £108.7m and profit plummeted from £24.1m to £7.2m compared with the first six months of 2019. However, the firm said that it has an agile recovery plan, a robust balance sheet and noted that its productivity levels stand at nearly 90% of planned activity levels that were in place pre-COVID-19. The contractor anticipates a reduction in private sector opportunities later on in the year which may lead to a risk of tightening margins in the short term. Accordingly, the firm is looking to undertake restructuring plans within its construction division.


COMMODITIES & MATERIALS

  • The Competition and Markets Authority (CMA) has warned that Breedon’s planned £178m acquisition of around 100 Cemex sites could result in lower quality building materials and higher prices. In its phase one investigation the watchdog said:

“[the] deal gives rise to competition concerns in relation to the supply of ready-mixed concrete, non-specialist aggregates or asphalt in 15 local markets across the UK.”

In these local markets the two businesses have a large presence and compete closely, with limited competition from other suppliers. Colin Raftery, senior director at the CMA commented: “While sufficient competition will remain in most areas, we are concerned that the deal could result in high prices and lower quality products in some areas where Breedon wouldn’t face sufficient competition.”

  • The Global Cement and Concrete Association (GCCA) – a group of the world’s leading producers of cement and concrete – has announced a ‘2050 Climate Ambition’ aimed at tackling climate change and achieving a carbon neutral future. GCCA aspires to drive down the CO2 footprint of the world's most used man-made product, with an aspiration to deliver society with carbon neutral concrete by 2050. The statement identifies the essential levers that will be required to achieve carbon neutral concrete, including reducing and eliminating energy-related emissions, reducing process emissions through new technologies and deployment of carbon capture, more efficient use of concrete, reuse and recycling of concrete and buildings and harnessing concrete's ability to absorb and store carbon from the atmosphere.
  • Lumber prices have hit a record high after demand surged as homeworking spurred a wave of home improvement and renovation projects. With inventories low and demand so high prices have soared 119% so far this year to $887 (£653) per thousand board feet. Builders’ merchants have struggled to keep warehouses stocked due to mill closures in April and May, causing a slowdown in production.


UK ECONOMY

  • BoE Governor Andrew Bailey has said the bank has “ample firepower” to fight the coronavirus crisis, refuting the view that central banks, with little space to cut interest rates (currently at 0.1%), lacked ammunition to fight off recession. In August the BoE introduced new guidance, stating that it would not tighten monetary policy until there was clear evidence of inflation returning sustainably to target. The MPC has also made it clear that negative interest rates are “in the toolbox”, albeit unlikely to be used in the immediate future. Longer term, Mr Bailey suggested that it might be necessary for the BoE to start unwinding its bond-buying programme (ie quantitative easing) before it raised interest rates.
  • 2)A new average of independent forecasts by City of London economists suggests that UK GDP is set to rise 14.3% in the third quarter, reversing 55% of the 20.4% drop in output in Q2 2020. New data on consumer spending points to a record-breaking economic recovery in Q3 with total consumer spending during the first two weeks of August exceeding the same period one year earlier. The predicted GDP growth in Q3 would likely see the UK move from the bottom of the G7 performance table in the second quarter to the top in the third.


GLOBAL ECONOMY

  • The Eurozone slid into deflation for the first time in four years as headline consumer price inflation (CPI) fell to -0.2% in August. Annual price growth in services also fell to an all-time low of 0.7% in August. Deflation hit 12 of the 19 Eurozone countries in August, including Germany, Italy, Spain, Portugal and Greece. If inflation remains very low the European Central Bank may decide to increase support by extending its crisis-response and asset purchase programme. The ECB is also widely expected to lower its forecast for inflation to reach 1.3% by 2022 – well below its core target of just below 2%.
  • China’s economic recovery continues to gather pace with the official gauge tracking the country’s service sector beating expectations in August. The PMI for services rose to 55.2 from 54.2 in July according to the National Bureau of Statistics, and the country’s manufacturing PMI, although dropping slightly from a month earlier, has stabilised within expansionary territory. A number of additional indicators also suggest China’s economy strengthened in August, with the stock market, business confidence and home sales all improving. Although the recovery of demand appears to be slower than that of production, many economists believe it’s unlikely that policymakers will roll out large stimulus measures over the rest of the year.