Cash position and margins unsustainable for the construction industry

Cash position and margins unsustainable for the c...

Supply and demand for subcontractors and labour to come into balance is still a year off, according to KPMG

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Analysis of the largest UK construction contractors indicates that despite greater deal-flow, the financial position of many contractors remains weak, with cash balances and margins down, according to a report published today by KPMG.

The report "Construction Barometer: Recovery in Sight?" analyses the operating margins, cash balances and order books of 14 Tier 1 contractors from 2007 through to 2013.  The detailed analysis revealed:

  • Net cash balances declined in 2013 and are now close to half their 2010 peak
  • As cash generated from operations have all but dried up since 2010, cash balances have been increasingly supported by significant sale of assets
  • Operating margins in construction continue to be squeezed. From a high of 2.8% across the industry in 2010, operating margins have fallen to an average of just 1.2% in 2013
  • Persistent inflation in sub-contractor markets suggests that the negative pressure on margins is unlikely to ease off any time soon. This position is further highlighted by the several profit warnings issued in the first half of 2014
  • Order books tell a slightly more optimistic story from margins and cash, however, reporting growth from 2012 to 2013
  • The UK government’s infrastructure spend indicates that there is plenty yet to come with over £116 billion committed to over 1,886 projects.

Richard Threlfall, KPMG’s UK Head of Infrastructure, Building and Construction said: “Construction contractors have been struggling with some of the most difficult market conditions ever encountered and even now – with all evidence pointing to sustained recovery – the industry faces real profitability challenges.

“Current margin and cash levels are unsustainable. With subcontractor rate increases and labour market shortages largely outside of contractors’ control, it is critical they continue to focus on improving their own efficiency.

“The industry can though take heart from the first signs of a recovery in order books. 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.”


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Media enquiries:

Nahidur Rahman, KPMG Press Office

T: +44 (0)207 694 8812

M: +44 (0)7881 916 975


KPMG Press Office: +44 (0)20 7694 8773


Notes to Editors:

About the Construction Barometer

The ‘Construction Barometer: Recovery in Sight?’ is an analysis of the operating margins, cash balances and order books of 14 Tier 1 contractors from 2007 through to 2013.

About KPMG

KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with approximately 11,500 partners and staff.  The UK firm recorded a turnover of £1.8 billion in the year ended September 2013. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 155,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  Each KPMG firm is a legally distinct and separate entity and describes itself as such.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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