Construction profit warnings hit new high

Accountancy firm EY monitors all the statements put out London Stock Exchange listed companies. The FTSE Construction & Materials sector issued a record 33 profit warnings in 2020.

We have previously reported that there were 28 profit warnings in the sector in the first nine months of 2020. The latest EY Profit Warnings Report reveals that there were a further five warnings in the final quarter.

The total of 33 for 2020 was the highest for the sector in more than 20 years of EY analysis, and was significantly higher than the 19 warnings issued in 2008 and again in 2012, which were the previous worst years.

EY’s data also show that FTSE Construction & Materials is among the top five sectors for the number of companies issuing multiple profit warnings – an indicator of increased insolvency risk. In 2020, five companies in the sector issued more than three profit warnings within 12 months. The only sectors more wobbly were Travel & Leisure and Retail where, respectively, nine and eight companies issued more than three warnings. Typically, one in five companies fall into administration within 12 months of a third profit warning.

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Ian Marson, EY-Parthenon UK&I Construction leader, said: “The record number of profit warnings disguises the uneven performance of Construction & Materials companies in 2020. Businesses serving the infrastructure and residential sub-sectors benefited from continued demand and were able to remain resilient in the face of the pandemic. This contrasts with the significant decrease in demand for new office and retail developments which affected the commercial side of the sector.

“We expect these trends to continue in the short-term and, as a result, construction companies with more exposure to the commercial market are likely to face a more diminished pipeline of projects. Smaller firms, which are less resilient to cashflow challenges, will be the ones most at risk of insolvency.”

Across all UK listed companies, there were a total of 583 profit warnings issued in 2020, which was 15% higher than the previous record of 506 reached in 2001. Sixty-two UK listed companies issued at least their third profit warning in 2020, almost double that of 2019 when there were 32, and double the 31 recorded in 2018.

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