Pace of collapses eases for second consecutive month

After another year-on-year fall in failures in March, can the construction industry see light at the end of the tunnel?

The downward trend in construction company failures continued in March, with 29 collapses compared with 38 in the same month in 2023.

The March fall of 24 per cent followed a 20 per cent year-on-year drop in administrations in February.

Data from Creditsafe also shows that 79 businesses went under in the first quarter of this year, four fewer than in the first three months of 2023.

More than a third (10) of the firms in the March casualty list employed two or fewer staff below director level.

However, four failed firms – Alucraft Systems, Hiretest, Surgo Construction and Wooldridge Contractors – were large enough to file turnover and profit figures with Companies House.

Clarison Group subsidiary Alucraft appointed administrators from PricewaterhouseCoopers on 18 March, four days after after it filed a notice of intention (NOI) to go under.

The Tamworth-based firm was working on the £505m Everton Stadium job (pictured) at Bramley-Moore Dock, where it was hired by main contractor Laing O’Rourke to deliver aluminium rainscreen, composite cladding and curtain walling.

This was Alucraft’s biggest job to date but the company was ailing financially.

In a statement announcing its NOI, the firm said: “Sadly, the company has experienced an extremely challenging trading environment in the UK over the past few years and despite considerable investment has not been able to trade profitably.”

In its most recent accounts filed at Companies House, for the year ending December 31 2022, it reported turnover of £18.7m, compared with £14.9m a year previously.

But pre-tax losses jumped from £2.4m to £5.7m as cost of sales rose from £12.7m to £16.1m.

The firm owed creditors £13.1m repayable within 12 months, more than double the previous year’s £6.2m.

The three other Clarison businesses – Alucraft Ltd (Ireland), William Cox Ltd (Ireland) and EAG Ltd (UK) – remain solvent.

Administrators from FRP Advisory took control of regional contractor Surgo Construction on 14 March, with all staff made redundant.

The Newcastle-based contractor had been trading since 1928 when it was established as Ralph Bowey & Son Ltd.

It posted turnover of £14.4m and employed a monthly average of 66 workers, according to its most recently published financial accounts, for the year ending 31 October 2022.

According to its website, Surgo had worked on small-to-medium value projects (£3m to more than £20m), primarily in the North East of England. Sectors included education, commercial, healthcare, leisure and retail.

Watford-based groundworks and reinforced concrete frame specialist Hiretest Ltd called in administrators from Leonard Curtis on 11 March after filing an NOI earlier in the month. The firm worked on multiple projects with Readie Construction, which collapsed in February owing £24.8m to its supply-chain partners.

In its most recent accounts, Hiretest turned over £28.1m in the year ending 31 May 2022, marking a 67 per cent increase on the previous year’s £16.8m. However, in the accounts it noted the effects of the Covid pandemic, Brexit and labour, fuel and materials costs, which “combined to produce a difficult trading period”.

One major fixed-price contract agreed before the pandemic had “especially badly affected” Hiretest, and as a result its pre-tax profit plummeted from £268,478 to £23,157.

Fellow groundworks firm Wooldridge Contractors Ltd turned over £23.3m in its most recent accounts, covering the year ending 31 January 2022, compared with £16m the year before. Pre-tax profit also grew from £1m to £1.7m.

Its directors said the performance was in line with pre-Covid levels and added that the Bagshot-based firm had secured £25m in additional groundworks orders for 2023.

However, the firm still anticipated making a loss “due to the high levels of inflation on material and other costs”, and last October it extended its accounting period from 31 January to 30 April 2023.

Sister firm Wooldridge Ecotec went into liquidation in February and on 1 March, Wooldridge Contractors called in administrators from Quantuma Advisory.

Quantuma is also overseeing the affairs of Wooldridge Developments, which went into administration 4 March. Both firms have a director in common (Charles Wooldridge, who was also a director of Wooldridge Ecotec).

Cautious optimism

With administrations down for February and March on a year-on-year basis, is there light at the end of the tunnel for the beleaguered construction sector? Not necessarily, according to Andrew Taylor, Shakespeare Martineau partner and head of restructuring.

“There are still serious issues in the geopolitical landscape and the cost of doing business remains high,” he told CN. “Saying that, energy costs are coming down a bit now, and there are signs of easing inflationary pressure with a potential cut in June on the base [interest] rate.”

More specifically for a recovery in the supply chain, Taylor identified the need to unlock planning logjams and “get some more housing stock coming through”.

He concluded: “I’d be cautiously optimistic, but I wouldn’t say we’re necessarily out of the woods yet. I think there’s still a lot of pressure on construction companies.

Some of the more resilient ones have survived until now and if that can continue for the next few months, they’ll probably have weathered the worst of the storm. But I still think there’s significant economic headwinds for construction companies to navigate.”

Taylor’s opinion was echoed by Rebecca Larkin, head of construction research at the Construction Products Association.

“Administrations and insolvencies continue to reflect construction being in the midst of a notable downturn in the key drivers of activity, namely new house building and RM&I (repairs, maintenance and improvement), as well as a slowdown in industrial new build,” she said.

Larkin added: “The tide may be turning as we’re through the worst of cost inflation and the peak of interest rate rises, but contractors are still having to contend with costs that are significantly higher than a few years ago.”