黑洞社区

Rick Willmott is worried. The group chief executive of Willmott Dixon thinks too many firms, particularly those that are listed, are overplaying how healthy the industry is right now.

A flurry of trading updates put out by the majors in the past few weeks have been littered with upbeat-sounding messages.

Businesses are 鈥減erforming well鈥�, operating margins 鈥渃ontinue to increase鈥� and firms are 鈥渙n track to make further progress鈥�. All this, remember, against the backdrop of one of the deepest - and longest - recessions many can recall. But, still, to borrow one of the phrases that crops up repeatedly in the updates, the message is: 鈥渢hings are progressing well鈥�.

Willmott is not convinced. 鈥淭he plcs are all talking it up,鈥� he says. 鈥淵ou just need to look at the raw figures, it鈥檚 complete baloney. Are they talking it up to shore up their share prices? The last thing I want is the government to get the wrong impression about the industry. I want the government to be thinking it鈥檚 got a real issue with 10% of the economy and needs to do something.鈥�

Citing industry economics data services such as Barbour ABI, he says that in the 12 months to May 2011 workloads across the industry fell 40%.

To support his point, Willmott could point to the turnovers of the major firms in the past year. Of those contractors in last year鈥檚 top 10 by turnover - including Balfour Beatty, Carillion, Laing O鈥橰ourke, Morgan Sindall and Kier - only Balfour Beatty鈥檚 workload has climbed, and that by just 2%. Two years ago, in 2008, its revenue went up 27%.

Another person who is unconvinced by the mood of optimism is Tom Haughey, the chief executive of listed steelwork contractor Severfield-Rowen, whose turnover as recently as 2008 was close to 拢400m but is now 拢267m, a one-third drop.

鈥淲e鈥檙e OK, but the market鈥檚 not,鈥� he says. 鈥淭here are a few bright spots - London, power, the waste-to-energy market, industrial - but everything else is slack or in decline.鈥� His firm鈥檚 statements on the recession have been less cheery than others鈥� - in May it said recovery was 鈥渄istant鈥� - and Haughey, a veteran of the recessions in the eighties and nineties, says this one is the worst. 鈥淚n terms of duration, this one has been the hardest. When it does happen it鈥檚 not going to be a magnificent recovery, it will be gradual.鈥�

Any recovery seems a while off. Earlier this month Noble Francis, economics director at the Construction Products Association, said: 鈥淒espite some positive signs, the overall prospects for the next few years are very poor,鈥� and added: 鈥淚t is vital that government fully grasps the implications of these forecasts.鈥�

Tony Williams, who runs specialist advice firm 黑洞社区 Value, admits that last year he thought 2011 would signal the start of the recovery. But now: 鈥淲e鈥檝e deferred recovery by a couple of years. This is definitely the worst recession I鈥檝e been in.鈥�

Everyone is sensing a hiatus now but usually a government starts spending again 18 months before a general election

Rick Willmott, Willmott Dixon

He is more optimistic about private housebuilding, however, and housebuilders are feeling more chipper than at any other time since the hammerings they took in 2008 and 2009. 鈥淲e鈥檙e encouraged by the improvement in market conditions we鈥檝e seen since the start of 2011,鈥� says Barratt chief executive Mark Clare. 鈥淥ur strategy for recovery is progressing well.鈥�

Kevin Cammack, an analyst with Cenkos Securities, agrees that the housebuilding sector is in a better state than it was a year ago although he points out housebuilders鈥� financial recovery is in part being driven by them replacing old, expensive land with new, cheaper plots.

But, echoing their continuing fears, he says any upturn could be choked off by ongoing mortgage availability problems and interest rate rises, which this month remained at a record low of 0.5%.
鈥淥ver the next five years, the banks鈥� lending patterns will not be as loose as the nineties and the noughties,鈥� he says.

鈥淏ut I think the biggest risk to recovery is interest rates. A quarter percent rise is not that much but it鈥檚 the sentiment - it says buying a house is a more expensive scenario.鈥�

He calls the current climate for housebuilders and contractors a 鈥渙ne step forward, two steps back recovery.鈥� He adds: 鈥淚t鈥檚 volatile, it鈥檚 not predictable, it鈥檚 fragile.鈥�

Graham Cash, the chief executive of Bam Construct UK, says he鈥檚 not sure if the market has stopped falling. 鈥淚t鈥檚 a sort of corrugated bottom. I鈥檝e felt quite positive recently but it can change quite quickly.鈥�

He agrees with the forecasters and reckons another 18 months of pain is heading the industry鈥檚 way. That means more job losses - the June CIPS index said more jobs had been lost in the industry than in any month since January - and firms going to the wall. 鈥淚鈥檓 not a pessimist,鈥� Cash says, 鈥渂ut it鈥檚 going to get tougher before it gets better.鈥�
Most forecasters have identified 2013 as the year when things might start to turn around.

Economist Martin Hewes from Hewes & Associates, who compiled 黑洞社区鈥檚 tables, says: 鈥淲hy 2013? It鈥檚 just that market won鈥檛 be falling any more. The real severity of the public sector cuts is this year and next. The public sector is cutting back massively, the private sector has a lot of debt, real wages are falling because of inflation. There are some real headwinds there. I think we鈥檒l get stability in 2013, possibly.鈥�

For Willmott, 2013 has been pencilled in for historical reasons. 鈥淓veryone is sensing a hiatus now but usually a government starts spending again 18 months before a general election.鈥� Assuming the coalition lasts the full five years, that would mean that by the last quarter of 2013 public sector spending would start to head north.

But some are expecting those economies battered in the same way as the UK鈥檚 to start showing growth more quickly (see box, page 37). Tony Williams at 黑洞社区 Value expects the US to turn quicker than the UK. 鈥淭he government over there hasn鈥檛 cut back to the same degree as it has here.鈥�

Things are certainly looking tough in the UK, but there鈥檚 no need to up sticks and relocate just yet. If a contractor or housebuilder can sit tight for just a couple more years, there could indeed be better times ahead. And this year鈥檚 tables show that some firms at least have got their survival strategy sussed and will make the distance.