Building blow as Scotland trails UK for growth

Scotland's construction sector is looking shaky with its performance lagging well behind the rest of the UK, according to a new study.

Study by Henderson Loggie examined more than 1,700 construction businesses. Picture: Rui Vieira/PA Wire

The report, published by accountancy firm Henderson Loggie, points to rising costs, difficulties in securing high margin work and access to traditional forms of lending as some of the key challenges facing building firms.

Experts examined operating and accounts data from more than 1,700 construction companies with operations across Britain, including 157 Scottish firms.

The study reveals that firms in Scotland have grown at a slower rate than those south of the Border over the past three years.

Despite the challenges of rising costs and market uncertainty, turnover increased by 14.8 per cent on average. However, north of the Border that growth was pegged at an average of 8.4 per cent. Scottish companies with turnover of less than £100 million have experienced, on average, a 19.2 per cent decrease in profit before tax and appear to be struggling more than firms of the same size nationally, Henderson Loggie noted.

Those with a turnover of between £5m and £10m have been hit the hardest and show a 66.6 per cent reduction in profit before tax over the last three years, compared to a 5.3 per cent increase nationally.

Gross profit margin percentage in Scotland has increased from 16.54 per cent to 17.25 per cent over the period, where nationally it has grown from 18 per cent to 20 per cent, on average.

However, it appears that margins are being squeezed for larger Scottish companies which showed a gross profit margin decrease from 8.46 per cent to 7.61 per cent, not reflected at national level where the largest companies’ result has remained stable over the three years.

Shona Campbell, director of business recovery and insolvency at Henderson Loggie said: “City region deals and large-scale road and infrastructure projects have underpinned sector performance in Scotland over the past five years, yet this report, together with the latest Scottish insolvency statistics from the Accountant in Bankruptcy which show a rising trend in corporate insolvencies, presents a mixed tale.

“It’s a difficult market and businesses that chase revenue yet ignore their cash flow position could easily become one of next year’s insolvency statistics.

“Despite the challenges facing construction, there are opportunities; the industry is ripe for disruption.”

Blair Davidson, head of property and construction, added: “It’s encouraging to see some positive headline results for the construction sector but the industry continues to face a number of challenges, in particular skills shortages which remain a key barrier to growth. Sector employee numbers in Scotland have decreased by 5.7 per cent on average, compared to 1.6 per cent across Britain.”