Weekly Glenigan Newsletter - 1st June 2010
Welcome to Glenigan's weekly customer newsletter that brings you
comment on major industry developments and news updates from the
past week. Click on the links to read the full story.
Large rise in new home
registrations as government funding is set to be cut
Promotion: Breakfast briefing:
Construction under a coalition government
Featured Region:
Northern Ireland
Featured Sector: Social
Housing
Project News
Contractor awarded street
lighting PFI contract
Contractor awarded for guided
busway
Tenders returned for new surgery
facility
Contractor appointed for £27
million development
Galliford Try consortium bags £300m
Scottish hub
Applications to tender for primary
school
Company News
Billington reports drop in
turnover
Severn Trent profits up
19pc
Seddon Construction turnover dips
4pc
BSS Group turnover holds but profit
drops
Renew turnover drops 19pc
McGee turnover hit by shelved
jobs
How can we
help?
Large rise in new home registrations as government funding is
set to be cut
The number of new home registrations increased substantially
over the three months to April, according to the National
House-Building Council.
New home registrations rose to 31,038 during the three month
period ending in April. This figure, released last week, was a 74%
increase on the previous year. Greater London and the West Midlands
experienced the biggest increases, with registrations rising by
almost three times.
Throughout the UK, private home registrations showed the biggest
growth, more than doubling over the year. Public sector
registrations were 10,500 (just more than half private
registrations), 28% up on last year.
According to Imtiaz Farookhi, chief executive of NHBC, these
figures “show a steady improvement in the number of homes being
built in the UK, indicating that the industry has consolidated and
built on the improved conditions seen over the past months."
These findings echo Glenigan’s own figures, which showed
significant improvements in the residential index over the start of
the year. Indeed, residential project starts in the three months to
April were 35% higher than last year.
Again, the main driver of growth was private housing. Project
starts were 41% higher during the February-April period than the
same time in 2009, and are predicted to continue to grow.
While social housing also increased, by 27%, the outlook for
this sector is not so promising. A period of protracted decline is
expected soon, as government finances dry up. As Imtiaz Farookhi
intimates, "the challenge will be to sustain this growth against
the backdrop of an uncertain environment, as the new coalition
settles in and sets out its strategy for meeting the country's
housing needs."
Indeed, the housing environment is already changing. Around £50m
of funding will be cut from the Kickstart programme, which aims to
revive stalled projects, by the new coalition government. It is
worth considering that residential projects account for over 40% of
all stalled projects in the UK, according to the latest Glenigan
data.
In addition £100m has been cut from the budget for low cost
home-ownership schemes, contributing to the total £230m that has
been taken off the budget of the Homes and Communities Agency.
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Featured region: Northern Ireland
Recent performance
The value of underlying private housing starts was surprisingly
strong during 2008. Project starts rose by 13% last year, boosted
by the £75 million Donegal Quay development. The value of
underlying starts remained firm for much 2009, but the closing
months saw a sharp drop in project starts.
Outside private housing, the industrial sector also saw an
increase in the value of underlying construction starts during 2008
after several small projects commenced in the second half of the
year, and project starts subsequently remained firm last year.
Government funded projects have been a major source of support for
the industry over the last two years. The Government-funded areas
of health, education and community & amenity have all grown
strongly. However, the flow of social housing projects lost
momentum during the second half of 2009, with the value of work
starting on site during the year as a whole 7% down on 2008.
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Prospects
The deteriorating economic environment and the recent dip in
detailed planning approvals will increasingly restrict the flow of
new project starts over the next two years. The value of project
starts during 2009 was boosted by work commencing on the Atlantic
Quarter development. This will drag the year-on-year comparison
lower during 2010. Furthermore government funded projects have been
an important area of support for project starts over the last year;
as elsewhere in the UK, available funding for such projects will
become increasingly scarce over the next two years.
Additionally, having held up surprisingly well, the private
housing sector is expected to fall back over the coming year.
Overall construction starts are expected to slip back 17% this
year, with a further 24% fall in prospect for 2011.
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Featured sector: Social Housing
Recent performance
Data from Glenigan’s leading indicators provides a clear
snapshot of the challenges that lay ahead for the UK construction
industry. During the fourth quarter of 2008, both planning
approvals and starts on site data showed large falls in value
across nearly every construction sector. This weakness persisted
throughout the first half of last year.
Unsurprisingly the private housing and private non-residential
sectors, both highly exposed to the fallout from the credit crunch,
have experienced the largest falls in the lead indicators. The
value of underlying private housing project starts during the first
three months of 2009 was half that of a year earlier. The
year-on-year decline petered out as the year progressed; indeed
project starts during the second half of the year were up slightly
on the same period of 2008. However, this in large part reflects
the severity of the decline during 2008, when developers were faced
with an extremely uncertain economic outlook and avoided committing
to new sites. Despite the recent improvement, the value of
underlying private housing projects starting on site during 2009
was still 22% down on the previous year.
In contrast to the private housing sector, the values of
underlying construction starts for the offices, retail and
industrial sectors remained under pressure throughout 2009,
extending the sharp falls in project starts endured during
2008.
Following a worrying first quarter, sectors heavily dependent
upon Government spending, such as health and education, improved
after the start of the current financial year in April, helped by
the additional funding promised by the Chancellor.
After a strong first quarter performance, the utilities sector
continued to enjoy a sustained flow of utilities projects starts
during 2009. After a dip in 2009’s third quarter, which reflected a
strong performance during the corresponding period of 2008 rather
than a weakening in project starts, new starts jumped 53% in the
fourth quarter when compared to the end of 2008 planning approval
data indicates that project starts could suffer a second blip, but
should remain firm near term.
Shelved projects
Whilst the value of underlying planning approvals has picked up
this year, planning approvals during 2009 were 12% down on a weak
2008. Furthermore planning approvals for industrial projects nearly
halved during the year, while and private housing projects fell 38%
and office and retail approvals dropped by around a third and a
quarter respectively.
The collective value of projects being placed on hold remained
high for much of the 2009, although there are signs that the value
of work being shelved has now started to ease.
Indeed the number of projects reported as being shelved fell
sharply during December, and remained low for the quarter of 2010.
At £2 billion, the value of work put on hold during March,
excluding major schemes of £100 million or more, was well below the
peak in early 2009. Looking at the three months to March, compared
to the same period last year, there was a 44% drop in the value of
projects being put on hold.
Private housing, at 26%, still accounted for the largest
proportion of work being put on hold during the 3 months to April,
while office and industrial projects were also big
contributors.
However, whilst the number of projects being placed on hold is
clearly falling, the immediate fate of existing shelved schemes is
less clear. A pick up last autumn in the number of reactivated
private housing projects appears to have lost momentum, although
the latest round of Kickstart funding may be help boost numbers
over the coming months. Despite the loss in momentum, the sector
still accounted for almost a third of the total reactivations
(whereas only 6% of cancellations). The number and value of
reactivated private non-residential projects picked up during
March, after a similar rise last month. It is worth noting that
July and October were also strong months during 2009 and it is too
early to confirm whether this is the start of a more positive
trend.
Worryingly, the value of frozen projects that have subsequently
been abandoned increased by 74% during the three months to April
compared to the previous three months. However, December had a
particularly low level of cancellations, and this has exaggerated
the effect somewhat..
Office, retail and hotel projects all experienced large rises in
the value of cancelled projects over the last three months,
compared to the same period of 2009. However, these sectors also
saw a significant drop in projects being shelved over the same
period.
The first quarter of the year is an important test of
construction prospects going into 2010 as developers review market
conditions and prioritise the schemes that they will take forward
over the coming months. Conditions in the commercial property
market have strengthened over the last six months and Glenigan is
forecasting a recovery in office project starts during the second
half of 2010. A recovery in the retail market is also
predicted.
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Prospects
Most sectors of the construction industry face challenges on
several fronts. While many demand-related indicators are
recovering, access to bank finance is still limited, although
improving, and on the supply-side, the contractors and suppliers
are faced with heightened competition for the remaining pool of
available work.
More positively, based on projects currently in our database, we
anticipate an uplift in the value of underlying construction starts
over the coming year, albeit from an extremely low base, as private
sector confidence tentatively starts to return.
A further strengthening in residential construction is
anticipated during the year, with first quarter project starts 37%
up on the extremely low levels seen at the start of 2009. According
to Glenigan data, planning approvals for private housing have
stabilised in recent months, albeit at an extremely low level, and
project starts have become increasingly buoyant. The prospects for
private housing construction are clearly closely tied to conditions
in the wider residential housing market. Against a background of
weak, but improving, property transactions, we expect the value of
underlying private housing starts to rise during the course of 2010
as housebuilders seek to capitalise upon a the gradual improvement
in market conditions and purchaser confidence.
UK economic recession has hit the demand for construction
services especially hard. The latest official statistics confirm
the severity of the construction downturn, with industry activity
during 2009 suffering a record year-on-year fall of 11%. Demand is
weak and business sentiment has fallen away considerably over the
last two years. Near term, high vacancy rates and falling rental
levels will continue to depress the office, industrial and retail
sectors. Many businesses remain reluctant to invest in the current
economic climate. Nevertheless, developers are expected to
increasingly ‘cherry pick’ prime development sites. As a
consequence, whilst construction prospects in many of the private
non-residential sectors, offices, industrial and retail, remain
subdued by historic standards, project starts are forecast to
improve over the course of 2010 as economic conditions gradually
brighten.
Sectors heavily dependent upon Government spending, such as
health and education, had a worrying start to 2009. The flow of new
projects subsequently improved with the start of the last financial
year in April 2009, helped by the additional funding promised by
the Chancellor.
However, there was a boost to public sector work which was
funded by bringing forward previously planned Government funding
from current financial year. In addition the new Government needs
to enact longer term reform to bring down the public deficit. The
new coalition government has indicated that containing public
expenditure rather than increasing taxation would be their primary
strategy.
Available public capital funding will be limited over the next
few years and the new Government is likely to be keen to secure
private sector funding for a growing proportion of work. The
prospects for more routine repair and maintenance work, an area
that has grown strongly over the last year, are bleaker. Such work
is typically funded from departments’ and local authorities’
current or revenue budgets and will therefore have to compete
directly with front line services for the limited resources
available.
The civil engineering sectors, infrastructure and utilities, had
been bright spots for the industry. These sectors have been
underpinned by several high value construction starts, most notably
in the rail sector. Whilst the value of underlying infrastructure
starts (that is, projects less than £100 million) slipped back
during 2008 and the first half of last year, this trend was
reversed during the second half of 2009. Despite poor performance
in the first quarter of 2010, civil engineering will remain
relatively resilient through the rest of the year. The value of
underlying construction starts in the utilities sector was buoyed
by the renewable energy sub-sector during 2008 and 2009, a trend we
expect will continue this year. Overall, the value of civil
engineering starts grew by 9% during 2009, primarily on the back of
spending from the rail and energy sub-sectors. Further, albeit
slower, growth is anticipated over the next two years. However,
scheme starts will be vulnerable to the anticipated review of
planned capital expenditure by the Government following the general
election.
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Project News
Contractor awarded street lighting PFI contract
Nottingham City Council has appointed Tay Valley Lighting Ltd (a
wholly-owned subsidiary of Scottish and Southern Energy plc) has
been awarded a contract for the replacement and maintenance of over
40,000 lighting columns and illuminated signs in the city, under
the Private Finance Initiative (PFI). The contract, valued at £120
million, commenced on the 24th May and will last for 25 years.
Project ID: 07480659
Contractor awarded for guided busway
Luton Borough Council has appointed BAM Construct for the
construction of a guided busway scheme in Luton, Bedfordshire. The
£52 million will include a guided busway running special buses
capable to running both on their own track and public roads. Main
line rail stations and airport links will be includes as well as
major and minor road links. works are due to start on site in June
2010.
Project ID: 94223422
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Tenders returned for new surgery facility
Tenders have been returned to clients, University of Bristol for
the construction of a new surgery facility at Langford Veterinary
School, Langford in Bristol. The £4.5 million development will
include clinical facilities for induction, theatres, diagnosis -
x-ray and CT, recovery, intensive care unit. The scheme has been
designed by NVB Architects Ltd.
Project ID: 09326976
Contractor appointed for £27 million development
Warrington Borough Council has appointed Galliford Try
(Northern) Ltd for the construction of a three storey hub building
at Winwick Road, Ordford Park in Warrington. The £27 million
development will include an eight lane swimming pool, teaching
pool, changing facilities, fitness suite, function room, dance
studios, squash and badminton courts, library, community daycare
facilities, creche, 14-19 vocational training facilities and a
cafe. Archial Architects has designed the scheme with SDA
Consulting acting as quantity surveyors. Works are due to start on
site in August 2010.
Project ID: 08531838
Galliford Try consortium bags £300m Scottish hub
A Galliford Try-led consortium has won the race to become the
private sector delivery partner for the £300 million Scottish
Futures Trust's South East community infrastructure hub. As part of
the SPACE consortium with Fulcrum Infrastructure Management and
Davis Langdon Galliford Try will carry out various building
projects for local authorities in the over the next 10 years. The
other teams in the running for the job the first of the SFT's hubs
were Alba Community Partnerships, made up of Cyril Sweett
Investment and Miller, and Robertson Capital Projects. SPACE will
form a hubCo joint venture with the public sector partners in order
to deliver the work. Participants already committed to work within
the South East Territory include the City of Edinburgh, West
Lothian, East Lothian, Midlothian, and Scottish Borders councils as
well as NHS Lothian, NHS Borders, Lothian and Borders Police Board,
and Lothian and Borders Fire & Rescue Service Board. The first
hub project, to get underway later this year, is the £5.7m design
and build of the Drum Brae library and community joint facility in
west Edinburgh.
Project ID: 10122135
Applications to tender for primary school
Sunderland City Council is currently inviting applications to
tenders for a primary school at Village Lane in Washington. The
final date for the receipt of requests to participate is 2nd July
2010. Tenders for the £6.1 million scheme are due to be invited in
August 2010. A planning application has not yet been submitted for
the scheme, but works are expected to start on site on 6th December
2010.
Project ID: 10137824
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Company News
Billington reports drop in turnover
Steel contractor Billington Structures has reported a 6.3 per
cent drop in turnover for 2009 while pre-tax profit increased 13
per cent. Billington¿s turnover for the year to 31 December 2009
totalled £55.7 million compared to £59.5 million in 2008. The
Barnsley-based firm¿s pre-tax profit rose to £4.2 million from £3.7
million. The average weekly tonnes of steel produced during the
year fell to 423 tonnes from 442 tonnes in 2008.
During the year the firm completed the new Royal Shakespeare
Company theatre in Stratford upon Avon as well completing steelwork
for Sir Robert McAlpine on the expansion of Eldon Square shopping
centre in Newcastle City Centre. In accounts filed with Companies
House, the firm said its profit had been boosted by the completion
of a number of jobs won in 2008 on better margins. But the company
is expecting a much poorer performance in 2010 with market
conditions having worsened considerably during 2009 which will
impact on sales and margins.
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Severn Trent profits up 19pc
Severn Trent Water profits were up 19 per cent to £541 million,
before interest and tax, for the year ended 31 March 2010 as it
gets under way on the £2.5 billion AMP5 investment plan. Under the
agreed investment plan for AMP5, it will spend up to £497 million
per year over the next five years. Highlighting the balance between
investing in its services and generating returns for shareholders,
directors said: "Based on the process improvements and investment
Severn Trent water has caried out over the last three years, and
plans in place to deliver efficiencies during AMP5, we are
confident that we can meet the requirements of the Final
etermination, while delivering a sustainable and progressive return
to shareholders." During the year Severn Trent achieved record
levels of energy generation from renewable sources, producing 176
Gigawatt hours (GWh) - over 20 per cent of its electricity use.
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Seddon Construction turnover dips 4pc
Seddon Construction has reported a 4 per cent drop in turnover
for the year ended 31 December 2009. Turnover at the firm fell to
£154.8 million in 2009, down from £161m in the 2008 financial year,
while pre-tax profit was down 10 per cent to £4.5m, compared to £5m
in 2008. The construction business is part of Seddon Group and
accounted for 58 per cent of the combined group's turnover and 46
per cent of the combined group¿s pre tax profit in 2008. The firm
said: "The directors recognise the challenges posed by the current
economic environment and are confident that the group's strong
balance sheet and cash reserves make it well positioned to overcome
these challenges." During 2009 the combined group shed 125
employees, with staff numbers currently around 825.
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BSS Group turnover holds but profit drops
Turnover at BSS Group edged up to £1.35 billion from £1.34
billion for the year to 31 March 2010, but pre-tax profit fell to
£44.2 million from £57.8 million. The distributor of equipment for
the plumbing and heating trades said it had made a strong start to
the new year with the turnover trend improving as the year
progressed with second half turnover up 7.2 per cent to £701.8m.
Group chief executive Gavin Slark said: "BSS has delivered sector
leading results with revenue growth and earnings resilience despite
the toughest year for the economy in more than 70 years. "A robust
balance sheet and strong cash flow has underpinned continued
investment in the business throughout the recession. We remain well
positioned to take advantage of economic recovery. "Quarter four
results were encouraging and the new financial year has got off to
a strong start. "Like for like revenue in the first seven weeks of
the new financial year is 9.7 per cent up on last year."
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Renew turnover drops 19pc
Renew Holdings has revealed a 19 per cent drop in half year
turnover, but said its order book had increased by 31 per cent
giving "confidence for future trading". Renew's turnover for the
six months to 31 March 2010 totalled £138.6 million from £171.6
million the same period a year earlier. Pre-tax profit fell 30 per
cent to £1.6 million from £2.3 million, but the firm's order book
increased by 31 per cent to £289 million as of 31 March 2010
compared to £221 million a year earlier.
The specialist engineering division now accounts for 42 per cent
of the group's turnover Renew finished the period with a net cash
balance of £10.5 million compared to £17.5 million a year earlier.
Chairman Roy Harrison said: "The group is appropriately sized for
the challenging market conditions, has traded satisfactorily and
remains debt free. "The order book has increased since last year
end which gives the board confidence for future trading." Mr
Harrison said the group's strategy remains to increase turnover in
specialist engineering both organically and by acquisition whilst
maintaining margins in the target range of 3 per cent to 4 per
cent. Specialist building sectors will be accessed selectively,
whilst maintaining operating margins of at least 1 per cent, with a
2 per cent target as market conditions improve.
"The medium term objective is to develop a specialist
engineering and construction business with overall operating
profits of over 2 per cent with specialist engineering providing 50
per cent of turnover," said Mr Harrison. Chief executive Brian May
said orders received in the period included £37 million of orders
in the nuclear sector as well as significant social housing and
education awards. Overall 91 per cent of the order book is in
specialist sectors and 71 per cent with repeat clients.
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McGee turnover hit by shelved jobs
Shelved commercial projects cost McGee Group almost 40 per cent
of its forecast turnover last year, according to chairman Ian
Reeves. McGee Group's turnover in the year to 31 May 2009 totalled
£62.8 million, down from £74.1m in the prior year. But the
specialist contractor had been on target to break the £100m mark in
2008/9 before a number of its projects were put on hold or scrapped
altogether. Mr Reeves said: "The turnover drop is a stark fall from
where we were heading. "In April 2008, when we were finalising our
budget for the year ahead, we had projections for a turnover of
about £100m. "As we came through to June and July we had clients
calling us up to say they had to postpone their projects.
"This reached its zenith when Lehman Brothers collapsed. We had
to radically reassess our forward projection." Mr Reeves said a
prime example of a mothballed project hitting McGee's books was
British Land's 225 m-high Cheesegrater skyscraper in the City of
London. McGee was carrying out enabling works when the scheme was
shelved in August 2008. Mr Reeves said he expected turnover in the
current year, ending 31 May 2010, to have dropped even further to
about £50m. This would be roughly the level the firm was at when he
joined in March 2007. But he is expecting to increase turnover by
about 20 per cent in the next 12 months as the firm diversifies
into new markets and the office sector begins to recover. "The
commercial market has picked up a little and we are starting to see
the benefits of people appreciating that we are capable in civils
as well as building," said Mr Reeves. Mr Reeves said McGee's
strategy since 2007 had been to offer a full range of construction
services.
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Breakfast briefing: Construction under a coalition
government
Date: 13th July 2010
Time: 08.00-10.30
Price: FREE
Venue: Manchester Conference
Centre, Weston Building, Sackville Street, Manchester, M1 3BB
George Osborne will unveil the coalition government’s emergency
budget on 22 June. The Treasury and the Bank of England have
advised that cuts could be made immediately without damaging the
UK's overall economic recovery prospects. What will the cuts mean
for the construction industry? Glenigan, Infrastructure Journal and
DeHavilland will examine what the coalition government policies and
emergency budget will mean for the construction industry at this
complimentary breakfast briefing. Join us to gain insight from, and
debate the issues with, leading industry experts.
Why should you attend?
- Assess the impact of government budget cuts on public sector
construction activity;
- Evaluate growth prospects for private sector construction
projects to focus resources and investment strategies;
- Appraise the impact of cuts to quango spending. Construction
quangos including Partnerships for Schools and the Homes and
communities Agency are among the largest spending quangos;
- Put your questions to leading industry experts;
- Network with senior people from the construction industry, its
suppliers and investors; and
- Delegates will receive a free copy of the Glenigan Key Market
Indicators report which retails for £295.
Who should attend?
- Senior executives from contractors and suppliers to the
construction industry; and
- Construction industry financiers.
Speakers
Allan Wilen, economics director, Glenigan, the trusted source of
construction industry market data, analysis and forecasting.
Angus Leslie Melville, editor, Infrastructure Journal, the leading
insight and data service for global infrastructure and project
finance.
Ben Howarth, operations manager, DeHavilland, the leading provider
of UK and EU political intelligence.
Programme
08.00 - 09.00 – Registration, breakfast and networking
09.00 – 09.30 – Allan Wilen, economics director, Glenigan
09.30 – 10.00 – Angus Leslie Melville, editor, Infrastructure
Journal
10.00 – 10.10 – Ben Howarth, operations manager, DeHavilland
10.10 – 10.30 – Q&A
10.30 – Close
Register now
To register simply email graham.newman@glenigan.emap.com
or call 01202 435961. Places are limited so register now for this
free event to avoid disappointment.
Further information
Contact Graham Newman on 01202 435961 or at graham.newman@glenigan.emap.com
For further venue details go to www.manchesterconferencecentre.co.uk
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Allan Wilén, economics director,
Glenigan
Allan joined Glenigan to head the development of the new market
intelligence service for Glenigan subscribers. Allan has over
twenty years of experience analysing and forecasting the UK
construction industry. He was previously Economics Director at the
Construction Products Association and responsible for all economic
aspects of the Association’s activities. This included briefing
members, the media and Government on the commercial implications
for the construction industry of the changing economic environment
and the delivery of the Government’s expenditure plans. Allan was
also responsible for developing the wide range of regular economic
reports published by the Association, including its Construction
Industry Forecasts, which provide members with timely and valuable
market intelligence.
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