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🚧 Construction Market Report for April 2022

🚧 Construction Market Report for April 2022

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Good Day, here is the latest data we have covering all of the updates within the construction industry. We have included a section at the start to base out not so much the Tier 1 (Kiers / Balfours) end of things which we will come to later below but more of the normal-sized subcontractor who would stop at a Screwfix and B&Q to pick up materials as not everyone is a billion-pound firm. The below should give you a bit of a snapshot of what's going on throughout the industry.

Here are the Insider’s latest reports and feedback from the UK Construction Market.

Updates from Kingfisher (B&Q and Screwfix)

The update came as Kingfisher (Owners of B&Q and Screwfix) reported full-year sales, with group sales coming in at £13.2bn in the year to January 31 2022. That’s 6.8% up from the £12.3bn it reported a year earlier. Ecommerce sales grew by 5.3% on the previous year – and are 171% ahead of the year before that. Omnichannel engagement, it says, remains high and mobile is its fastest-growing (+11.2 YOY, +301% 2YOY) and largest online channel, accounting for 54% of eCommerce sales. 

 

In the UK and Ireland alone, total sales grew by 13.3% - and 11.8% LFL – over the full year, having grown by 65% LFL in the first quarter – a year on from the pre-pandemic situation – and 3.8% in the second quarter before declining in both the third (-3.5%) and fourth (-2.9%) quarters, compared with lockdown and furlough trading in the previous year. 

 

Pre-tax profits of £1bn after a one-off credit of £58m, were 33.1% up from £756m a year earlier. In the UK and Ireland, retail profit grew by 16.7% to £794m. 

 

B&Q Updates for construction businesses
Image courtesy of B&Q

UK Market Snapshot Data

* Monthly construction output decreased by 0.1% in volume terms in February 2022, which was the first monthly decrease since October 2021; this follows an upwardly revised 1.6% increase in January 2022.

  • Anecdotal evidence from returns received for the Monthly Business Survey for Construction and Allied Trades suggested the storms experienced between 16 and 21 February 2022 resulted in projects being delayed, as more working days were lost on sites and premises than normal for this time of the year.
  • The decrease in monthly construction output in February 2022 came from a decrease in repair and maintenance (0.5%) as new work saw a slight increase of 0.1% in the month.
  • At the sector level, the main contributors to the decline in February 2022 were infrastructure, and non-housing repair and maintenance, which decreased by 2.5% and 0.9% respectively.
  • The level of construction output in February 2022 was 1.1% (£155 million) above the February 2020 pre-coronavirus (COVID-19) level; new work was 3.7% (£354 million) below, while repair and maintenance work was 10.2% (£509 million) above.
  • Despite the monthly decrease, construction output rose 2.4% in the three months to February 2022; this is the strongest growth in the three-month-on-three-month series since June 2021 (4.0%), with similar increases seen in both new work, and repair and maintenance (2.2% and 2.6% respectively).

Merchant Report viewpoint 

I enclose some of the over the counter purchases as opposed to the supplier to supplier data.

Builders' merchant Travis Perkins is among those that have pointed to an uncertain future in the wake of encouraging results from the firm's first three months of trading in 2022.

The company said that the volatile supply of materials had settled by the end of last year, but added that new challenges such as the war in Ukraine and subsequent ripples through global supply chains could “challenge that relative stability”.

Travis Perkins has 700 outlets across its group, which encompasses Tool station.

Commenting on the latest results, it said the increased price of materials accounted for two-thirds of the growth in revenue from its merchanting segment, which increased by 17.9 per cent. In the equivalent three-month period in 2021, the business reported that sales were down 13.6 per cent.

A spokesperson said: “Customer demand remains robust across our end markets with larger customer activity underpinned by the backlog of social and economic infrastructure work and ongoing requirement for new housing.

“SME [small and medium-sized enterprise] customers continue to see healthy order books, including a growing interest in energy-efficiency projects.” 

Travis Perkins' upbeat results came as construction-equipment hire firm HSS also posted strong full-year results for the year to 1 January 2022. Revenue at HSS grew by 21.3 per cent – up from £250.1m in 2020 to £303.3m in 2021. The firm also rebounded into profit after suffering a £29.6m loss in 2020. The latest profit before tax stood at £6.1m. HSS stated that the coming 12 months would see it focus on enhancing its digital capabilities.

Meanwhile, insulation, roofing and commercial interiors supplier SIG Group also reported “significantly higher” earnings expectations, posting UK sales growth of 23 per cent for the first quarter across both its interiors and exteriors divisions.

After annual growth of 24.1% in January, builders’ merchant sales in Great Britain increased by 22.9% in February 2022 compared to 2021. However, just as in January, the strong growth in sales turnover had more to do with rising prices (13.4% price inflation) than selling more products (8.3% volume growth).

While all categories grew their sales turnover in February Landscaping Products (up 33.7% compared to February 2021) rose the most.

Other categories growing by more than a quarter were:

Growth Measure from FEB 22 compared to FEB 21

  • Timber and Joinery Products (+25.6%) 
  • Kitchens & Bathrooms (+25.2%). 
  • Tools (+8.8%) 
  • Workwear & Safety wear (+1.0%) was the smallest risers.

A bit further back now just for comparison from February 2019, before the pandemic, total merchant value sales were up 22.6% in February 2022. All categories sold more, with overall growth driven by the strength of two categories:

Growth Measure from FEB 19 compared to - FEB22

  • Landscaping (+51.1%) 
  • Timber & Joinery Products (+38.3%).
  • Kitchen & Bathrooms (+17.4%), 
  • Heavy Building Materials (+16.5%) 
  • Plumbing, Heating & Electrical (+10.4%) were among the categories that grew more slowly.

Month-on-month total merchant sales were 7.5% up in February 2022 compared to January 2022, with the same number of trading days. All bar three categories sold more including

Growth Measure shows FEB 22 is performing 7.5% better than JAN 22

  • Landscaping (+28.6%), 
  • Kitchens & Bathrooms (+10.6%) 
  • Heavy Building Materials (+7.7%).

MRA Research chief executive Mike Rigby, producer of the monthly report, said:

“February delivered a solid performance for merchants. True, most of the 22.9% headline value growth was driven by price inflation of 13.4%, but in any normal year 8.3% volume growth would be regarded as spectacular. "

It still is, but we have yet to see the full effects of the uncertainty ushered in by the invasion of Ukraine, a secondary kick to price inflation and shortages that follow from the disruption to supply chains, and the impending energy price increases. It’s impossible to forecast how these factors play out in different markets, but my money is still on this strong demand continuing.”

Builders Merchants Federation chief executive John Newcomb said:

"Continued growth is a positive thing to take away for Britain’s builders’ merchants, but with a note of caution around the relative impacts of inflation over volume growth. "
"Current demand is strong and may well continue. However, the rate at which increased energy and raw material costs are driving up prices and the challenges this poses throughout the supply chain down to the end customer remains a concern."

Market Report viewpoint

The latest monthly survey of purchasing managers suggests a continued rise in UK construction but sentiment declining amid inflation and concerns about the economic impact of the war in Ukraine. The degree of confidence about the growth outlook was the weakest since October 2020. 

The headline purchasing managers’ index (PMI) registered 59.1 in March, unchanged from February and still well above the 50.0 no-change mark.

Commercial work was the best-performing segment in March (index at 60.8), with projects restarting amid the roll-back of pandemic restrictions. This sector has seen output growth accelerate for three months in a row and the latest upturn was the strongest since June 2021. By contrast, recoveries in civil engineering (index at 56.3) and residential work (54.9) lost momentum in March.

Total new orders expanded at a robust and accelerated pace in March, with the latest rise the strongest since August 2021. Construction companies typically cited improving tender opportunities and resilient customer demand, despite some reports that economic uncertainty and rising costs had limited new business growth. Mirroring the trend for new orders, input buying rose at the steepest pace since July 2021, driven by a combination of stronger demand and efforts to build stocks where possible.

Capacity constraints, a lack of haulage and ongoing logistics difficulties mean that 33% of the survey panel reported longer lead times for supplies, while only 1% saw any improvement. However, delays are not as bad as they were last summer. Imbalanced supply and demand, alongside escalating energy, fuel and commodity prices, resulted in a sharp rise in average cost burdens in March. The overall rate of input price inflation was the highest for six months.

Concerns about the war in Ukraine, forecasts of severe cost inflation and a less favourable global economic outlook all weighed on constructors' confidence in March. Around 48% of the survey panel still expect a rise in business activity during the year ahead, and only 15% predict a decline. But the balance of positive sentiment was the weakest seen since October 2020.

The PMI survey is conducted by S&P Global, following its acquisition of IHS Markit, in collaboration with the Chartered Institute of Procurement & Supply (CIPS).

Tim Moore, economics director at S&P Global, said:

"Commercial projects helped keep construction growth at its highest level since last summer as clients boosted spending in response to the rollback of pandemic restrictions."

Civil engineering also fared well in March as work on major infrastructure contracts underpinned growth. Residential work found itself in the slow lane, however, as some firms noted that greater caution crept into spending decisions.

"Escalating fuel, energy and commodity prices led to the fastest rise in costs for six months. Intense inflationary pressures appear to have unnerved some construction companies. Business optimism slipped to its lowest since October 2020 on concerns that clients will cut back spending in response to rising prices and heightened economic uncertainty."

CIPS director Duncan Brock said:

"A heartening result in March overall where new order levels were the highest since August last year, but not all the sub-sectors offered an equal contribution to output this month.  

Commercial projects were the most abundant with the strongest rise in almost a year, but the residential building became the laggard of the pack as affordability concerns were a factor in holding back progress, particularly in new housing and refurbishment work.

"The crippling rise in inflation ramped up again as transport and raw materials went up in price. Longer wait times for deliveries were reported by a third of supply chain managers. Construction companies are braced for more disruption on the horizon as a result of the Ukraine conflict. The rise in purchasing demand fed into higher costs for materials already in short supply as energy hikes also impacted on business costs."

"With these severe challenges, it is no surprise that business optimism for the months ahead has been affected and fell to levels last seen in October 2020. The sector is facing a number of roadblocks as levels of job creation were also held back with the ongoing skills shortage and lack of builders."

The findings of the S&P Global/CIPS UK Construction PMI survey were at odds with the findings of other industry analysts, however, the Latest figures from Glenigan show the value of underlying construction work on-site falling 7% in the first quarter of 2022 compared with the previous quarter and 22% on the year. (‘Underlying’ here means not counting contracts worth more than £100m because these have an effect of distorting the real picture.)

The Builders Conference recorded £5.77bn worth of new construction contracts signed in March 2022, which a 5% fall on its total for February, despite February having two fewer workdays this year.

Commenting on the purchasing managers’ survey, Gareth Belsham, director of the national property consultancy and surveyors Naismiths, said:

“The gathering economic storm has yet to fully hit construction. While anxiety about the return of rapid cost inflation has dragged industry confidence down to its lowest level in 17 months, for now construction’s vital signs remain good."

“Demand remains strong, and new orders have now been in positive territory for 22 months in a row. In fact March saw new orders increase at their fastest rate since last August, and builders remain busy across the board – even if housebuilders find themselves in the unfamiliar position of being the slowest growing sector of the industry."

“That said, British builders are braced for a serious shock to their supply chain. At the start of the year Russia and Ukraine together constituted the second-largest steel exporter in the world. With imports from Russia now blocked and Ukrainian production all but halted, UK steel prices are surging."

“The availability and cost of other key building materials like timber are also being severely impacted by the war in Ukraine, and a third of the construction firms polled for the PMI survey reported that delivery times for key materials are getting longer too."

“Nearly half of firms still expect business to improve during the course of 2022, but nevertheless both they and their clients are battening down the hatches as the second wave of post-pandemic inflation approaches.”

Market Overview

A busy start to the year especially for the Tier 1 (Kier, Laing O’Rourke Balfour Beatty Plc, etc) and more Commercial trade areas but with a slight slow down in the domestic market as the big sheds like BQ reporting a bit of a slowdown and we are just waiting for some data from the likes of Selco / Travis who have a good mix of both markets.  Travis, HSS, SIG etc have all reported improved quarterly results.

Production and in-stock level are high and holding but a few areas like the heavy side civil drainage polymers, bricks, roof tiles and the internals like any component-driven or PCBs are in the top 10 of products buyers may want to consider longer-term placement. 

As of the last report, this area always causes concern especially outfits on fixed-price or long term contracts with Suppliers really trying to close down on holding prices for longer than a period of a few days.

The pain being felt is the increase in the energy price increase with major plant being impacted and even reducing or closing down until they can anticipate what the economics and therefore forward sales are negotiated.

There are reports of factories in Spain closing but on the positive, the UK is taking up the lead. Block and Brick had a quieter in the last period compared to last year and this has made Suppliers nervous re holding the stock as said the larger contracts are keeping the figures high and compensating for the domestic market slugging quarter.

The lockdowns in China have not helped.  The shipping maps are heavily marked outside dock and shipping lanes with Container ships waiting to load and unload. There have been signs of activity due to pressure from outside markets but the whole thing just generates an air of scarcity and cost increases. On a positive note we are looking at this recovering and stabilizing over the year.

An area we are picking up on is Paints and Coatings with concern to the UK so do have a chat with your suppliers and manufacturers early to get a more accurate feel of that sector.

Timber is recovering from an onslaught as manufacturing was restricted and now with the Ukraine conflict, these areas of concern are the MDF side and Worktops even kitchens/bathrooms as the melamine element is showing as a stress data point on our screens. This Geographical area is a large provider of materials for the manufacturer of things like OSB so keep an eye on that as well, if you see the lighter wood restricting then it's an early sign and Redwood also. We are also seeing spikes in the metal end of things in the last few days with sanitary ware and ceramics so again please talk to your suppliers.

Way forward

The advice is to press on and be the one with everything in place. We have advised this since COVID and have proven correct with firms becoming stronger, gaining more clients and contracts rather than stalling and holding.

The Client wanting or holding an SME to a fixed price and also the delivery of materials is adding to the pressure. There need to be inroads to an acceptance of what is going on and an understanding from them firstly thats this is not the doing of the Contractor.

It seems after COVID had calmed down then the conflict started, almost to the week and the brief air of hope things would get back to an increased service soon began to again grind to a halt. Then the sanctions started which then stopped the Russian imports into the EU markets and so the EU Suppliers in these affected markets are supplying their own countries first and holding. On top of this Russian ships are being stopped from ports and an increase in customs checks. The shipping labour market is 15% Russian so the sanctions impact them and us.  UK market strength is strong and we will keep you updated every month as usual.

As always, Saint are here to help you navigate your way through. Please speak to your Business Success Manager who is on hand for you at all times.

I hope the above is of interest, until next time, take care.

This article was written for Construction Insider and Saint Financial Group. Saint is a multidisciplinary group based in the UK that helps construction businesses develop and grow. SaintFG offers a range of quality solutions in supporting businesses.

Saint provides the luxury of free business consultancy for all of our clients, call now for your free consultation with a friendly business advisor to discuss your burning questions and put that energy back into your business!

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