With the economic seasons becoming increasingly accelerated, I haven't been able to escape headlines and general insights analysing the levels of insolvency. I can’t quite tell if the statements are based on actual patterns and data over a significant period of time, or just the opinion of the day.
The latest trend seems to be a focus on the challenges the UK construction sector is facing. Insolvency statistics for April 23 showed 28 firms going into Administration. We have seen a slight uptick in construction companies seeking our expertise in recent months and, this week, an article in the Times also highlighted the challenges home improvement companies are facing. More specifically Marshall, a FTSE 250 company who has seen its revenues drop 14% for Q1, causing a drop in their share price from 800p pre pandemic to 276p this week.
Challenges are essential to any business growth.
Think of a world where there is no real challenge to our everyday life. Whilst that would bring about some comfort and control, it could see us underperform. Challenge is how we learn new skills, new approaches and, most importantly, opens us up to new ways of thinking.
One of the biggest issues facing companies in the construction sector is the cost of inflation in labour and materials. My father recently had a large wooden shed built to house his new tractor – a retirement gift for himself. It was with great pain he told me the local builder had to charge three times the amount for the wood than in previous years. Materials are high, as are labour costs, and then you add in market attitude. People are simply spending less on home improvements. Interest rates are a contributing factor to this, but interest rates are increased for that very reason - to help bring demand under control in the hope of reducing inflation.
In its statement to the market, Marshall said it had been hit by the housebuilding crisis, with construction starts down 22 per cent year on year, and the “tough market conditions” surrounding “the more discretionary elements of private housing repair maintenance and improvement”.
It blamed “reduced demand in the wake of the mini budget, the consequential sharp rise in mortgage rates and the end of Help to Buy [the taxpayer-subsided home buying scheme]”.
Stephen Rawlinson, an independent analyst of the sector, said that the news should be setting off alarms. Not least because the decline was far worse than previously reported by the sector and came from a company like Marshalls, which is regarded as well led by its chief executive, Martyn Coffey, and considered a master of communication within the City.
So how do sectors such as construction deal with, and better predict, their challenges?
Planning ahead, having a good management team around the board and the business owners, and being consistent in your approach are all good basic methods of cutting through more turbulent times. This arguably involves a lower risk/reward ratio, but does help with longevity. Everyone will be different in their outlook.
Our experience shows that it is often the most simple tools that get forgotten about by the time a director sits in front of us asking for our expertise and advice.
When we look at the case of Marshall, it’s a really good example of the fine balance between what can be controlled and what ultimately can’t. If the government decides to end the Help to Buy scheme and leaving home builders without that revenue, its hard to replace or pivot in a manner that plugs the gap. This in many ways is another lesson in managing what can controlled, with the best level of efficiency, and organisational planning, as possible.
Start taking early advice.
A sensible approach for the board would be to start taking advice at an early stage from a firm of specialists such as ourselves, and to start doing it now. Contingency plan and look at debt restructuring if appropriate, and understand the direction of travel. Ensure credit control is monitoring patterns within customer payments, review workplace retention and attitude amongst staff. Why? Because there is solid data showing that companies have had declining profits for several years, and simply waiting before they start to seek help and look to change is not enough. This is not a unique problem, just a human one.
Stephen Rawlinson, an independent analyst of the sector, said that the news should be setting off alarms, not least because the decline was far worse than previously reported by the sector and came from a company like Marshalls, which is regarded as well led by its chief executive, Martyn Coffey.