Contractors at risk from Brexit fallout after margins drop

Contractors are faring far worse than housebuilders in the battle for improved margins and look more vulnerable to any post-EU referendum downturn, Building’s latest Top 150 Contractors and Housebuilders survey has revealed.

With listed contractors due to begin reporting interim results next month – the first since the EU vote – the survey shows the average profit margin of the top 50 contractors fell to just 1.05% last year, down from 1.16% in our previous survey.

More than one-fifth of contractors in the table also reported a loss.

But the results show the profit margins of the top 30 housebuilders hit a healthy average of 14.4%.

The results come amid growing signs construction could be heading for an EU referendum-induced recession. Latest figures from the Office for National Statistics, published last Friday, showed sector output fell 2.1% month-on-month in the run-up to the vote in May (see page 17). Economists have repeatedly warned that uncertainty sparked both before and after the referendum could tip the sector into recession.

Analysts warned the sector’s profit-starved contractors could be ill-prepared for any downturn.

Kevin Cammack, analyst at Cenkos, said contractors were still struggling with the hangover from the last recession in 2008/9.

“Contractors have got nowhere near as far along the recovery path as you’d expect at this stage in the cycle,” he said. “Generally they will look to rebuild their order books first, before then rebuilding margins. Now they’re facing theprospect of order books starting to dry up again.”

In contrast, housebuilders have generally boosted turnover and profitability while reducing their debt burden. Cammack said: “The housebuilders’ ability to combat [any downturn] has probably never been greater.”