HOW HAS THE NORTH EAST CONSTRUCTION SECTOR FARED IN THE FIRST HALF OF 2020?

North East construction firms fared better than those in other parts of the country during the first half of 2020, according to a nationwide survey.

The survey of 100 construction companies was conducted by the MHA Association and reveals a stark divide in how construction companies have coped during the COVID-19 crisis.

In the North East, the recent announcement of a £4.5m manufacturing zone on the site of the former SSI steelworks in Redcar, Teesside – and the 9,000 jobs this is likely to create –has provided a boost to the regional economy.

The Government has also announced the North East Local Enterprise Partnership which will receive £47m for ‘shovel ready’ infrastructure projects in the Tyne and Wear region, and can be undertaken before the end of 2021.

Steve Plaskitt, a corporate finance partner at MHA Tait Walker, said: “Both initiatives are the beginning of much-needed investment for the area as part of the ‘levelling up’ process promised by the Government and should be a real boost for local SME contractors.”

He also pointed to the Hadrian Tower being developed by The High Street Group. This is now the largest building to grace Newcastle’s skyline with its 27 storeys.

He said: “The abolition of stamp duty on properties up to the value of £500,000 until March 2021 is helping to stimulate activity within the housing market at the upper end. Although only benefitting schemes that are currently under way.

“At MHA Tait Walker, we are also seeing more opportunities for funders coming through. We are seeing North East businesses increasingly starting to adapt and create alternative business plans, which is in turn attracting private equity to the construction sector.

“In general, construction companies in the North East aren’t seeking additional Government funding and offsite (factory) construction is allowing for better social distancing.”

The national picture, however, reveals that almost half of companies (49%) said the impact of COVID-19 has been substantial. Just four in 10 (44%) said it has had only minimal impact on their business and 5% stated the damage was critical.

The division is also apparent in terms of expectations for the future. Almost a third (32%) said business activity was now back to normal, or nearly back to normal, while 30% believe it will take over a year to return to pre-pandemic levels.

The biggest concern, shared by 61% of respondents, is economic uncertainty. Supply chain disruption also ranked high on the list of worries, mentioned by 45% of respondents. Cash flow was cited as a concern by only 32% of companies surveyed.

This reflects the fact that the industry entered 2020 with strong balance sheets, low debt risk and an increase in turnover of 8.3% from the previous year. In general, larger companies improved their cash flow situation prior to the pandemic to a great degree than smaller companies.

The overwhelming majority of respondents (81%) have made use of the furlough scheme and a large majority of these companies (71%) plan to bring all furloughed staff back. Close to a third (32%) have had to make redundancies.

Over two-thirds of companies surveyed (68%) have used the VAT deferral scheme. However, take up of other schemes was much lower, with only 13% making use of the Coronavirus Business Interruption Loan Scheme (CBILS) and 12% taking advantage of the Bounce Back loan scheme. Only 27% said it was very hard to access government funding, while 47% said it was very easy.

The report covers a number of other topical issues including labour, training and technology and can be downloaded here.

The MHA Association surveyed 100 construction firms between July and August, in addition to conducting a review of 1,950 companies’ operating and accounts data for the 2018/2019 and 2019/2020 filing years to get a picture of the state of the sector pre-COVID-19.

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