Mixed UK market outlook
05 July 2012
UK contractor Taylor Wimpey has issued a confident trading update despite challenging conditions in its domestic market, while Carillion is less optimistic about the country's short-term construction prospects.
On the one hand, support services company Carillion, which also has business divisions in the Middle East and North America, said it was continuing to scale down its UK construction services operations in line with the "shrinking market".
Carillion said, "The size of the UK market continues to reduce, primarily because of the substantial cuts being made by the UK Government to capital investment under its spending plans for the period 2010/2011 to 2014/2015. We therefore continue to re-scale our UK activities by being very selective in terms of the projects for which we bid.
"Over the medium term, we continue to expect new opportunities to come from the UK government's £250 billion (€311 billion), five-year National Infrastructure Plan, of which up to some 70% is to be privately financed."
In contrast, housing developer Taylor Wimpey said the UK market remained stable throughout the first half of the year, and it expected to report improvements across all key financial metrics in its six month results.
The company said, "In the short term, assuming that current stable UK housing market conditions continue, we expect to continue to achieve improved performance period on period and to deliver full year returns in 2012 that are ahead of our cost of capital and in line with our expectations. Should market conditions weaken, our high quality land portfolio, increased order book and strong balance sheet put us in a strong position."
Construction products decline
Meanwhile, on the equipment manufacturing side, the UK Construction Products Association's latest State of Trade survey indicated that product manufacturers suffered from a slowdown in sales in the second quarter and are "extremely concerned" about demand.
Construction Products Association senior economist Kelly Forrest said, "With public sector cutting spending and private sector construction adversely affected by events in the Eurozone, it is unfortunately unsurprising to see product sales affected in the second quarter.
The survey results showed that 25% of heavy equipment manufacturers reported that second quarter sales fell compared with the first quarter, and compared with a year ago. But 20% of light product manufacturers, which tend to be used later in the construction process, said sales continued to rise in the second quarter.
Challenging second half
However, Ms Forrest said the fall in heavy side sales suggested that the second half of the year would become increasingly challenging. Nearly all of the firms responding to the survey expressed concern about the strength of demand over the next 12 months.
"Despite recent falls in oil and commodity prices, cost inflation continues to be a serious issue for product manufacturers." She said that 84% of heavy side firms and 62% of light side firms had reported that costs had continued to rise as long-term contracts had ensured that recent price falls had not fed through yet. She added that the export market was at least continuing to offset subdued domestic demand to some extent.