Seddon Group slipped into the red last year, amid supply chain problems and inflation issues linked to fixed-price contracts.
A 27 per cent fall in revenue to £153.9m contributed to a pre-tax loss of £13m for the year ending 31 December 2022, compared with a pre-tax profit of £8.6m in 2021, according to the firm’s latest annual report.
The Bolton-based group’s construction division, which accounted for 97 per cent of group revenue, saw its turnover drop by 10 per cent to £149.8m.
The firm attributed its pre-tax loss primarily to fixed-price contracts worth a total of more than £100m and with a duration of 18 months to three years, which had been signed before the full-scale Russian invasion of Ukraine in February 2022.
“Our supply chain has been unable to deliver within the original budget and we have therefore been faced with a combination of supply chain failures and significantly increased costs,” Seddon Group stated.
While the annual report described a strong pipeline of work last year, it acknowledged “many delays in moving projects forward to the construction phase”, given supply chain uncertainty and volatility from high inflation and interest rates.
Chief executive Jonathan Seddon told Construction News: “We know that a lot of the appraisals for development sites are no longer valid and, as a result, we are seeing many clients trying to gain additional funding.”
Referring to the fixed-price contracts, he said: “Had we known the increase of inflation that was on the horizon and the challenges this would bring to getting that work to site, it is likely we wouldn’t have entered into many of those contracts.”
He added that the 2022 loss incorporated any foreseeable losses for 2023, as the firm had reviewed each contract at the end of last year. Since spring 2022, a fluctuation clause has been included in all contracts where the firm deems there is an inflation risk.
“We have always found our customers to be pragmatic, with the understanding that inflation is real, and this has allowed us to come to a sensible and fair solution,” he noted. “Fortunately, Seddon is robust enough to adapt when faced with volatile and uncertain environments.”
The chief executive added that diversification within Seddon’s construction business – into maintenance, painting, retrofit, decarbonisation and mechanical and electrical services – helped to soften the financial blow last year. “We have moved away from large-scale (£5m-£10m) design-and-build capex projects,” he said. “Our pipeline is strong and we’re looking forward to 2024.”
The annual report described a stable outlook with approximately 98 per cent of its target order book secured for 2023.
At the end of 2022, the group had cash of £11.6m and access to £3m of undrawn bank loans. Its cash level was lower than the 2021 figure of £15.9m, but the group stated that it should still be able to invest in commercial property schemes.
Jonathan Seddon added: “While there are still challenges ahead for 2023 as we continue to experience supply chain failure and unknowns when it comes to inflation, we are still confident this year will show a profit.”
|Seddon Group financial results 2021-22|
|Pre-tax profit (loss)||(£13m)||£8.6m|
|Cash at hand||£11.6m||£15.9m|