New figures from Ernst & Young tracking profit warnings from publicly listed firms show that the UK construction and materials sector has now issued more warnings in 2014 than in the whole of 2013.
The accountancy firm said the figures highlight the pricing and competitive pressures now faced by the contract-reliant.
According to Ernst & Young, while the construction sector has continued to recover in 2014, it is by “no means plain sailing”, with parts of the sector under severe margin pressure in spite of – and in some instances because of – the strong recovery.
FTSE Construction & Materials companies issued five profit warnings in the third quarter of 2014, the highest quarterly total since Q2 2012. Nine profit warnings from six companies in the first nine months of 2014 have already put the sector ahead of its total of seven warnings from five businesses in 2013.
Commenting on the figures, Alan Hudson, EY’s head of restructuring for UK & Ireland, said:
“Contractors have found themselves in a ‘perfect storm’ of low-margin legacy contracts and rising costs. During the recession, many contractors priced aggressively in response to competitive pressures and the need to at least to cover their overheads and retain critical mass for better times. These contracts are now coming under severe pressure as labour, materials and subcontractor costs rise, leaving some specialist contractors vulnerable to further shocks and margin pressures.”
Last week construction group Morgan Sindall was the latest in the sector to issue a profits warning.
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