UK construction companies are set to face difficulties paying off debts as the sector suffers from falling sales and profits, according to a study.


UK construction companies are set to face difficulties paying off debts as the sector suffers from falling sales and profits, according to a study.
 


Over a quarter of businesses in the industry have seen a 20 per cent downturn, or greater, in sales, research by accountancy firm Baker Tilly and Company Watch shows, based on the latest filed accounts of 2,520 companies.
 


The figures show that one in six construction companies with an annual turnover of £5 million to £25 million will struggle in the repayment of any short- to medium-term debt liabilities.
 


Almost one in three small and medium-sized enterprises (SMEs) in the construction sector have seen a 50 per cent decline in their profit before tax.
 


Denis Baker, CEO of financial health rating business Company Watch, says, ‘The fall in revenues and profitability in the construction sector highlights not just the liquidity issues for the struggling companies themselves, but also the deteriorating risk profile for their stakeholders, such as suppliers and clients who need to be proactive in controlling and managing down their exposure to potential failures in the sector.’
 

Mark Wilson, partner at Baker Tilly Restructuring and Recovery, believes that while some businesses in the sector will have the cash reserves to survive, he expects that ‘for a number of players, cash will run out’.
 

‘Rising costs globally in the sector, largely raw materials caused by rising energy prices, are also hitting the profits in this industry much harder than others,’ Wilson adds.
 

Despite this, research shows that liquidity is stronger in the construction industry than for the SME average across all industries in this turnover bracket.