Sinking construction profitability

Published:  04 September, 2009

UK: The latest Cash Flow and Profit Survey of UK Companies (Q2 2009) from Euler Hermes UK, signals that both profitability and cash flow continued to decrease in the UK construction sector.

The second quarter of 2009 saw another decline in profitability at UK construction firms. Moreover, the pace of reduction accelerated sharply from that seen in Q1. According to the latest data, price discounting was the principal factor impacting negatively on profits, while the competitive environment was also key. Profitability at UK construction firms has now decreased in each of the past six quarters. High raw materials prices also remained a key issue for constructors.

UK construction companies posted a series-record decline in free cash flow during the second quarter, extending the current period of falling cash flow to three quarters. Moreover, the sharp fall in the sector was by far the sharpest of all those monitored by the survey.

Cash flow was hindered by a further rise in payment delays from customers. Payment delays increased at a near survey-record pace in Q2, faster than that seen in the previous quarter.

Despite falling cash flow, construction companies quickened their payments to suppliers over the quarter, the only monitored sector to do so.

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