Supply and cost concerns linger but big guns reflect positive sentiment.
The concrete sector has been overshadowed by the demise of PC Harrington Contractors.
The company called in the administrators in April, just as the sector appeared to be shrugging off the worst of the recession. Of the big names, Carey, J Reddington and Masterson all enjoyed growth in revenue and pre-tax profit in their latest results.
Yet PC Harrington’s failure has led some in the sector to question its recovery. The collapsed firm’s last annual report, which revealed a loss of £4.1m on revenue of £64.7m, cites familiar issues: input cost hikes, along with problem contracts signed during the recession that over-ran.
At PJ Carey - the concrete frame arms of the Carey Group - the situation looks much more positive. The firm’s revenue rose to £184.6m in 2013/14 from £159.3m the previous year, with profit before tax of £4.3m compared with a loss of £4.1m previously.
“With the upturn in market conditions, further sustainable growth should be realised,” says chairman John Carey.
“With our sector starting to recover, we have seen an increase in demand for both labour and staff resources”
Michael Byrne, Byrne Brothers
At Byrne Brothers, turnover dipped to £110.6m for the 12 months to 31 May 2014 compared with £123.9m in its previous year, though profit before tax grew to £1.6m from £500,000.
“New work which started in Q3 and Q4 has made a major contribution to profitability,” says director Michael Byrne.
“This trend looks set to continue. London is seeing the largest increase in potential work. We forecast an increase in turnover to £150m for the next financial year.”
But he warns: “With our sector starting to recover, we have seen an increase in demand for both labour and staff resources.”
Cautious on costs
At J Reddington, turnover rose to £133.9m for 2013 from £118.9m in 2012, with pre-tax profit climbing to £2.6m from £2.1m.
But a company director remains cautious: “The level of profitability was negatively affected by cost price inflation within labour costs and material prices.”
Masterson recorded a 30 per cent rise in revenue to £109.5m for the year to 31 August 2014. However, chairman Michael Masterson says: “Pricing remained challenging in a very competitive market and costs continue to rise.”
So, while balance sheets have improved, underlying concerns remain. Concrete prices rose steadily during 2014, with growth of 1.5 per cent in Q2, 4 per cent in Q3 and 6 per cent in Q4, according to Gardiner & Theobald.
Upward pressure is likely to continue, even with a fall in energy prices. Jerry McLaughlin of the Mineral Products Association says its members are concerned over transport costs, including driver shortages, as well as aggregates reserves, in particular sand and gravel.
“Only half of the reserves have been replaced in the last 10 years by new planning consents,” he says. “We’re still waiting to see how the ‘localism’ agenda affects planning for minerals.”
Other materials in short supply are pulverised fuel ash (PFA) and ground granulated blast furnace slag (GGBS), prized both for its technical and environmental benefits in concrete. Contractors have reported long lead-in times for cement using either product.
“Volumes are likely to continue at that level for the next few years, with big developments still in the pipeline, such as Nine Elms”
Jerry McLaughlin, MPA
“In the past, there have been seasonal fluctuations in supply of PFA and GGBS,” Mr McLaughlin says. “But as coal-fired power stations are phased out, this may become more of a constant.”
Growing demand will also put pressure on producers.The MPA is forecasting 3-4 per cent volume increases for each of the next four years.
From a geographical perspective, London still dominates, particularly in residential. MPA figures show the capital’s concrete market is 25 per cent larger in volume terms than pre-recession levels, hitting growth of 15 per cent in each of the last two years - double the national average.
“Volumes are likely to continue at that level for the next few years, with big developments still in the pipeline, such as Nine Elms,” Mr McLaughlin says.
“We are seeing signs of improvement in sectors such as commercial and infrastructure, and a recovery outside of London. If work on big projects like Hinkley [Point C] gets under way, the growth will accelerate.”
The future looks broadly positive in terms of workload, but after PC Harrington’s collapse, questions remain over problem contracts and their potential impact on the sector.