The tax liabilities for most turnover brackets remained stable with £150-200m seeing a slight decline of 5% from 2017/18 to 2018/19. Although the industry is still growing, there is a clear overall trend across all groups of an industry slowdown.
There has been a slight turnover increase year on year across the industry for the past three years, barring a consistent decline for £200m+ businesses. Turnover has increased 14.1% over the past two years (16/17 to 18/19) 5.3% was reported in (17/18 to 18/19) showing a slowdown in growth. Larger businesses over £200m have seen a 16.3 % decrease in turnover over the past two years and have been the hardest hit. These Larger businesses have turnover which is dependent on timing, size of the contract and the fact that projects are non-recurring.
Gross Profit Margin
Despite significant falls in sales growth, profit margins have remained relatively static with overall averages for the industry declining slightly year on year. Smaller companies under £25m have demonstrated the highest gross profit margins, ranging between 20-25%. This drops as low as 14.4% for businesses in the £100-150m range, although the figures pick up again for the £150m+ businesses. The only group to show a marginal increase in their gross profit margin over the past 12 months was £10-25m (0.9%). All companies across the remaining turnover brackets experienced a slight decline, highlighting that the post Carillion resolution to improve profitability rather than chase turnover seems to have taken root across the board.
Growth in Total Sales
Companies across all turnover brackets have seen a decline in sales growth, with the largest companies actually contracting over the past two years. These figures demonstrate diminishing work opportunities. This can be attributed to Brexit uncertainty but is also a reflection of the lack of demand for construction services generally we have seen in the last 12–18 months. Although the industry is still growing, there is a clear overall trend across all groups of an industry slowdown. Commentators have referred to this for some time and the lack of new infrastructure projects and major developments have contributed. Brexit has also depressed enthusiasm for speculative builds.
The £200m+ bracket had significantly higher tax liabilities, which corresponds with the PBT trend identified above. The tax liabilities for all other turnover brackets remained relatively stable with £150-200m seeing a slight decline of 5% from 2017/18 to 2018/19.
Profit Before Tax
Smaller companies had a slightly higher Profit Before Tax (PBT), although almost all sizes showed a decline this year – the largest decline being £200m+ dropping from 46 to 26.3m. However, these figures confirm earlier trends of static or declining growth, with declining PBT figurers across almost all turnover brackets. £5-10m and £10-15m businesses saw a 6% and 23% increase in PBT from 2017/18 to 2018/19 respectively, although these are still lower figures than two years ago. For the £200m+ turnover companies lower turnover and reduced margins inevitably means lower PBT. Companies in this group will undoubtedly try to reduce overheads but this tends to be difficult in the short term as certain costs will be fixed in nature. Labour tends to be the easiest cost to cut.
Please read the full report here: 2019 MHA UK Construction Sector Report
If you would like to discuss any of the issues raised in more detail or if you would like to speak with a member of our Construction & Real Estate team about how we can help, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with your local representative.