Rescue missions limit damage as business failures continue downward trend

Construction administrations have continued to fall on a year-by-year basis, according to the latest monthly data from Creditsafe.

October saw 28 firms go under – lower than the 37 recorded in the same month last year but still more than October 2022’s total of 19.

This year, only January and June have shown higher year-on-year administrations compared to 2023.

And the year-to-date total of 257 administrations is 21 per cent lower than January-October 2023.

Almost half of the companies on the October list had three employees or fewer in their most recent accounts, including four firms with no staff below director level.

But six firms were large enough to have to file turnover and profit figures with Companies House.

Three of these companies were bought out of administration. One was rail specialist Linbrooke Services, which suffered from the collapse of Buckingham Group in September 2023. It appointed an administrator from Quantuma Advisory on 16 October but was revived under new ownership a week later.

Sheffield-based Linbrooke reported turnover of £70.6m in its most recent accounts for the year to 31 March 2023, up from £60.6m the previous year. But its pre-tax loss deepened to £1.7m compared to £204,769 the previous year.

The firm employed a monthly average of 306 staff.

Buckingham’s demise occurred after the period covered by the accounts, incurring almost £1m in losses for Linbrooke.

In the accounts report, directors had warned of the “detrimental effect on the financial year to March 2024”. They also referred to “several challenges” with “major public sector clients facing increasing budget constraints”.

In a 9 October statement on the firm’s website, group finance director Simon Noble said that Linbrooke Services would continue to operate in a “‘business as usual’ manner” while active discussions took place with potential buyers.

And in mid-October, the firm was acquired by Keltbray Infrastructure Services Ltd for an undisclosed sum, securing around 140 jobs.

Fit out specialist 08962342 Realisations Limited changed its name from WFC Contractors Limited on 22 October. By then, administrators from Quantuma had successfully concluded a pre-pack sale to construction and aviation firm RW Group.

WFC’s turnover dropped slightly from £46.6m to £44.8m in its most recent accounts for the 2022 calendar year, while pre-tax profit plummeted from £2.8m to £344,144. Directors said that inflation affected the delivery and cost of projects.

The firm employed a monthly average of 48 staff.

Another specialist, glazing firm Oakland Glass, was sold out of administration in October, 18 months after it was acquired by investment firm MGI for an undisclosed sum.

Oakland Glass posted £7.5m in turnover in its most recent accounts, which only covered the seven months from November 2022 to June 2023 after it shortened its accounting period. Directors said the firm’s performance was resilient “in spite of the distractions of the business sale” in February 2023.

However, the firm subsequently suffered from what administrators FRP Advisory described as a “period of trading underperformance, primarily owing to general market softening and reduced gross margin”.

Other factors affecting profitability included “overstaffing, price reductions to win new work and operational inefficiencies from a new production line introduced in early 2024”, they added.

But the administrators were still able to sell the business and its assets to management for £88,613 in a pre-pack transaction.

Outlook

The construction sector’s business model remains “highly fragile” with low margins despite the downward trend in administrations, said Rob Driscoll, director of legal and business at the Electrical Contractors’ Association (ECA).

This is borne out by the latest Insolvency Service data, showing that 4,310 construction firms collapsed into liquidation or administration in the first eight months of the year.

And the 30 October Budget may not help matters, Driscoll said. He told Construction News that some SMEs in the supply chain who employ site labour will be hit by the increase in employers’ National Insurance (NI) contributions, even if the government has taken steps to soften the blow.

“This inflationary cost will add to overheads in a market which is extremely competitive,” he added.

Paul Reidy, commercial banking director at financial services firm Arbuthnot Latham, agreed that higher NI is “likely to increase financial strains on SMEs that are so vital to the [construction] industry and its supply chain”.

He added: “Contractors have typically been operating at very low margins already and this, combined with historic price inflation, raises significant challenges.”

On the other hand, Reidy said the introduction in the Budget of “supportive tax regimes, streamlined planning processes, and revised zoning policies is welcome, and should move the dial on UK housing stock and construction output”.

Driscoll said he remains optimistic about short-term growth, given Budget investment announcements in health, education, housing and clean energy.

But “this may not balance out the short-term inflationary pressures resulting from the fiscal changes [arising from the Budget]”, he said.