Preliminary observations of the pandemic’s impact on professional contractors show the expected financial blow, but they also show signs of resilience. This will be necessary because companies are already dealing with major new challenges.

The latest report by top experts from seven industries in the UK shows how obvious the industry has been affected by the pandemic. During the first blockade, the suspension of activities at many sites gave way to resumption of work, although output was often lower due to social distancing and other disturbances. The contractor was also struggling due to delays in the start of the project.

All of this has led to a decline in revenue in five of our seven departments, which include concrete, demolition, envelope structure, ground engineering, electrical and mechanical, scaffolding, and steel. Among the 70 companies analyzed, nearly two-thirds of the companies had a decline in revenue.

The broad impact on turnover may not come as a surprise. However, the analysis of Construction News found that the decline was not uniform, and certain industries were hit more severely than others. In addition, the impact on profitability does not seem to be as severe as initially feared. Experts in the industry have demonstrated extraordinary financial flexibility. However, after a turbulent year, they began to dust off, and many people are already facing new challenges.

Entering 2020, many contractors hope that their work will improve after the decisive 2019 general election results, but they are cautious about the potential negative impact of Britain’s withdrawal from the European Union. Helen Gawor, director of strategy at GKR Scaffolding, said the company lowered its revenue target during the preparation period: “We expected this year to be a difficult year, but we didn’t realize how difficult it was.”

As reported in last year's index, experts have been building cash reserves for 2020, which provide some cushion when income falls due to the pandemic.

The scaffolding and building envelope industries were the hardest hit, with median income falling by 23% and 13%, respectively.

The reduction in revenue resulted in a foreseeable hit to profitability, as contractors found it more difficult to pay their fixed costs. Each of the seven industries reported a decline in the median pre-tax profit margin.

Ground engineering saw the largest decline, with the median profit margin falling by 1.9 percentage points, from 1.6% in the index last year to -0.3%. In addition to the largest decline, it is also the only industry with a negative median profit margin. This reflects the relatively high fixed costs of experts due to the value of the equipment and machinery they lease.

The envelope and steel industries saw the smallest decline in profitability, and the median profit margin of each industry fell by 0.2 percentage points.

Even more encouraging is the general increase in liquidity. Of the 70 companies we analyzed, 55% of the companies had increased bank deposits at the end of the most recent fiscal year. The timely payment of customers, the government's vacation plan and the overall tightening of cash management are all factors that increase cash levels and strengthen the balance sheet.

This kind of liquidity can provide an important buffer for companies in the recovery process.

Peter O'Brien, managing director of foundation engineering expert O'Brien Contractors, said that the rebound after the first blockade did not continue to be strong. The lack of new jobs at the end of 2020 is worrying. "Starting from September 2020, new projects or new consultations have not been launched at all," he said. He added that surveys have increased in 2021, but he pointed out that it will take time to turn surveys into actual projects.

The recovery in 2021 brings new challenges around the availability of materials and labor. When the pandemic first broke out in the spring of 2020, one of the consequences was the cessation of production by material suppliers. Like the contractors they provided, they resumed production as the blockade eased and work resumed. But there is a problem: a construction site can be remobilized in two weeks or less, but it will take longer to restart the production facility and bring it to full capacity.

As construction restarted, material inventories were exhausted and suppliers had to catch up. This situation is happening in construction markets around the world, allowing British buyers to compete with buyers from China, the United States and other countries for global trade materials such as wood and plastics.

"To some extent, we expected this to be a difficult year, but we didn't realize how difficult it was."

Material shortages and the resulting inflation have been plagued by 2021. "Material prices seem to increase every week," O'Brien commented. As of September 2021, the price of building materials has increased by more than 23% year-on-year. This has brought severe challenges to industries that have just regained their feet after the COVID-19 outbreak.

Companies that had to completely reconsider their work in the field due to social distancing are now also having to reassess how they get jobs. Adam McDonald, managing director of Skanska Rashleigh Weatherfoil, said: "Conversations about the design cycle from the beginning are essential to determine where we may need to pre-order to get the right materials or to find alternative materials when possible."

Adding to the operational challenge is the difficulty of ensuring worker safety. Alastair Smyth, Managing Director of Byrne Bros, said: "As immigrants return to Eastern Europe, there are fewer and fewer people in this group, so the competition is fierce."

In August 2021, there were 43,000 vacancies in the industry, the highest number since records began in 2001.

Skanska RW's McDonald's expects the market to remain "turbulent" next year. But he added that new opportunities are emerging.

Bjorn Bigley, managing director of Careys, agreed and emphasized the growing demand for "super factories" to produce electric car batteries. He said that the term was relatively unheard of 18 months ago, but now many projects are advancing hundreds of millions of construction contracts.

In addition, as the pace of achieving net zero emissions accelerates, the industry is seeing progress in decarbonization. Smyth of Byrne Bros said that although there is no option for zero-carbon concrete, products that reduce embodied carbon by 60% are emerging. "These are game-changing levels," he said.

The immediate devastation of the pandemic may have subsided, but its effects still exist. Since the suspension of production in the spring of 2020, longer delivery times and higher material costs have been plagued the entire industry, which is expected to continue until 2022. Professional contractors will need to work closely with the supply chain to cope with this short-term pressure, while also coping with the long-term challenges of training and recruiting more people to cope with labor shortages and decarbonizing operations.

What the industry’s largest experts demonstrated in exceptionally difficult times is extraordinary resilience. GKR's Gawor said: "It is very difficult at the moment, but if we do know one thing, it is that the vast majority of companies in our industry are very resilient."

After overcoming the worst pandemic we hope, they must now meet new challenges.

All data in this year's index comes from company accounts submitted before October 22, 2021

Marked as: CN Expert Index 2021

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