An analysis of the profit margins among the UK’s 14 largest contractors suggests an urgent need for further cost efficiency and restructuring, consultant KPMG has warned.
It says current cost cutting may not be enough to offset the ongoing acute reduction in the volume of work available.
Contrary to popular perception, the UK construction industry held out well during the first three years of the recession and only succumbed to sustained margin erosion from 2010 onwards, according to KPMG’s Construction Barometer report, "Margins under pressure".
The report shows that between 2007 and 2010 margins were actually on the rise, and suggests this could be due to construction divisions successfully cutting costs faster than revenues were falling. But the crunch came in 2010 when most of the remaining contracts won before the recession finished.Â
"Unless action is taken now the thin margins of 2007 will seem generous by comparison to what the industry may be facing," said Richard Threlfall, KPMG’s head of infrastructure, building and construction. "Just a quick look at the development of margins in the last two years confirms the urgent need for further cost efficiency and restructuring across the industry."
Meanwhile, latest figures from accountant PwC show there were 5,580 construction insolvencies across the UK since the start of 2011, a rate of 53 a week.
The number of insolvencies did fall during the last three months of 2012 with 12% fewer than the previous quarter, but PwC expect the rate to increase and peak during the first half of 2013.
