Andy Milsom, Head of Partner Training & Development at BNP Paribas Leasing Solutions

Andy is an experienced sales and finance professional with over 25 years’ experience in sales aid leasing. Andy is widely recognised as an expert in business finance and has in recent years focused his attention on developing partner sales teams develop an understanding of how businesses secure project financing. His training programme – Finance Unlocked – is a highly rated customisable course and is offered at no cost to partners.

If you’re interested in helping your sales team overcome finance-related hurdles during the selling cycle, please get in touch with Andy on 07966 114 243 or email here.

After a very strong first quarter growth slowed down in the second quarter, before taking off again in Q3 and Q4. Current levels of sales are on par with the levels seen in 2006 and 2008, but the industry is still 20% below the 2007 peak. The troubled markets in Southern Europe and Central and Eastern Europe showed growth at above average levels. As a result, the North-South disparity is gradually becoming less pronounced.

Read the the main findings of the CECE Annual Economic Report 2018 by clicking the link below.

As 2016 comes to a close, it’s time to look ahead and ready your business for the market demands of 2017. We’ve identified five key construction industry trends set to shape the market next year. Advancements in technology and an increased focus on sustainability play a vital role here, pushing construction companies to consider different construction methods and technologies that are smarter and greener than ever before.

1. Smart buildings

As technology rapidly progresses and becomes more affordable, our buildings are becoming more intelligent. Innovations such as the Internet of Things (IoT), are being incorporated into modern building designs to automate certain functions such as energy and water consumption. This use of technology can improve sustainability, efficiency, safety, personalisation, interactivity, and comfort for those who use the facility.

2. Prefabricated buildings

Architects are experimenting with the prefabricated building technique and enjoying some surprising results. This simple, safe and cost effective form doesn’t trade aesthetics for function and its visually appealing designs are attracting private homeowners and the public sector alike.

With new technologies in the construction tool-kit, the modern-day prefabricated home can be built in 24 hours – and built well. This has even reached the attention of the British government as a possible solution to the UK’s housing crisis.

3. 3D printing and BIM modelling

Today’s architectural models are no longer outlined in 2D or made up of cardboard and glue. 3D computer designs that use Building Information Modelling (BIM) are the new standard. These drawings provide a truly visual experience that gives the whole picture from every angle.

As construction industry trends go, it’s becoming an increasingly popular method to view the architectural designs with the specific building systems in place. This way, builders can make sure that the electrical system doesn’t clash with the plumbing and the plumbing won’t clash with the steel work. When all potential problems have been addressed before the foundations have been poured, the jobsite will be easier to manage, field coordination will be simpler and construction can be done faster, safer, cheaper and to a higher standard.

4. Mobile technology for on-site construction management

A construction site that runs like a well-oiled machine will save developers time and money. To help foremen manage their site operations more effectively, mobile-operated, cloud-powered software systems and apps are now available to facilitate easier administration. All field coordination as well as individual people management processes such as timesheets, performance reports and task allocation can be assigned, reviewed, tracked and stored on the go. This means managers can get on with overseeing the critical requirements of the build, rather than getting bogged down in administrative staff management.

5. Going green

‘Green’ buildings use less energy and are thus cheaper to run. This, combined with growing concern for the environment, is driving the trend for more environmentally-friendly buildings. In response, new building regulations have come into effect to harness the power of renewable energy. Earlier this year, San Francisco adopted a law stating that any new buildings under 10 storeys must be built with solar panels. The British government aims to have 4 million solar-powered homes up and running by 2020. Renewable energies are gaining ground in the construction industry for good reason: between April and September this year, solar power generated more electricity than coal power.

Of course, these are just a couple of the construction industry trends already influencing the sector. Urban migration, labour shortages, safety and security are more factors that are set to influence the direction of the industry, and the equipment needs of construction companies.

Deconstructing the NLW

Construction isn’t a breadline industry anymore: demographically speaking, most workers qualify for the increase. Indeed, the 45-49 age range has the most manual construction workers of all. But the industry average across all regions is well in excess of the new minimums. By 2020, it’s entirely likely that most construction workers and companies will be completely unaffected by the National Living Wage.

Construction wage growth is actually double the national average due to sheer demand. Unions lobby for salary hikes on a regular basis: 400,000 construction workers are expected to receive a 2.5% pay rise this year, and a further 2.75% pay rise next year – considerably above the projected inflation of 0.3%.

For the most part, construction salaries are already in excess of the NLW, and the market’s pay rises are often influenced by non-governmental forces. If your business model is robust, you have very little to fear from the national pay rise.

Laying the foundations for success

If construction CEOs are going to worry about their margins, there are bigger fish to fry than the red herring of the NLW. There’s the recent vote to leave the EU, the news that the sector has fallen into recession for the first time in four years, the endemic skills shortages that are pushing up the cost of skilled labour, and other long-term problems that have plagued the sector for decades.  

Productivity, for example, has increased by only 7% over the last twenty years: significantly below manufacturing, services, and the rest of the economy. Wage growth positively influences this metric, but the industry should be actively investing in measurement to identify inefficiencies, as well as training and education to iron them out.

Financial management is also a big issue for the industry: a small firm that wants to expand either has to strain its cashflow or deplete its cash cushion. Outlay on equipment and machinery doesn’t help matters – especially when it needs to be replaced every few years, either due to obsolescence or breakdown. When this expenditure is mitigated by cost-effective monthly leasing agreements, finances immediately become more predictable and more manageable than if the company’s cranes and tunnelling machines were bought outright. The latest, most-up-to-date equipment offers considerable efficiency savings: they may be retailing at a higher price, but leasing models offer greater access to them for cost-conscious customers.

The NLW may well inconvenience some firms, but it is unlikely to pose much of threat to any statistically significant number of them. Construction firms can mitigate what little impact the law will have by focusing instead on improving productivity and smarter financial management.  

Suhale Vorajee
Head of Marketing and Communications
BNP Paribas Leasing Solutions UK

T: 01179 100 895
E: click here

The total turnover of the UK construction sector has jumped another 6% in the last year to £218 billion, * and is now up 20.7% on its £180 billion low during the depths of the recession in 2009-10, according to BNP Paribas Leasing Solutions. The surge in turnover has come from across the housebuilding, commercial property development, and infrastructure sectors.

BNP Paribas Leasing Solutions says that construction companies have dealt with the sudden strain on cash created by the sharp pick-up in orders by making more use of leasing to fund their expansion.

Construction companies increased the amount of finance raised through leasing by 19% in the last year to £1.68 billion *, up from £1.41 billion the previous year.  The capital equipment acquired has enabled them to take on an expanding pipeline of new building projects without straining their cashflow or depleting their cash cushion.

Tristan Watkins, UK country manager for BNP Paribas Leasing Solutions explains that companies that cannot properly finance the expansion needed to deal with a recovery in orders can find themselves vulnerable to sudden cashflow shocks. This is why many insolvency practitioners say that economic recovery can be almost as dangerous to some businesses as a recession.

The construction sector generated £74.6 billion in new build projects orders in 2014, up from £65.4 billion in 2009, illustrating the scale of the expansion in capacity needed.  BNP Paribas Leasing Solution adds that many construction companies had cut capital investment during the economic downturn and now need to replace obsolete equipment and machinery.**

BNP Paribas Leasing Solutions notes that residential construction companies have increased their use of leasing most sharply, up by 52% from £ 17.8 million to £ 27.1 million in the last year.  The turnover of residential construction companies has grown by 21% to £20.3 billion over the same period, from £16.8 billion.

Residential construction companies turnover is expected to increase further as a result of the housing shortage and Government support for first time buyers, such as through the ‘Help to Buy’ scheme and new ‘Help to Buy’ ISAs.

Commercial construction companies have also expanded their use of leasing, up by 47.3% from £261 million to £385 million of finance.

Plant and equipment hire companies, also heavy users of leasing, have increased their use of leasing by 13.4%, up to £513 million in 2014/15, from £456 million in 2013/14.  BNP Paribas Leasing Solutions says that this subsector is a bellwether of the need for more machinery in construction as companies hire equipment when they have multiple projects underway that cannot be resourced internally.

BNP Paribas Leasing Solutions highlights the increased volume of big projects underway nationwide, including; the Battersea Power Station redevelopment;  ‘The Scalpel’ skyscraper in the City;  and the Birmingham Arena Central project which will house HSBC’s new UK retail and business  banking headquarters.

Tristan Watkins, UK country manager for BNP Paribas Leasing Solutions says:

These figures show how important leasing is to the construction sector; it gives firms the flexibility to manage their cash flow during difficult periods, and to scale up their capacity quickly.”

“UK construction firms are now seeing high levels of demand, and need to be able to access the machinery they need to complete projects efficiently.  Leasing is helping them to deliver new homes, new commercial buildings and infrastructure, and ultimately create new jobs.”

Call for clarity on Annual Investment Allowance

BNP Paribas Leasing Solutions adds that many construction companies’ investment plans will be affected by uncertainty over the future size of the Annual Investment Allowance (AIA) tax relief.  This temporarily stands at £500,000, dependent on the equipment bought being on site and ready for use by 31 December.

However, in the March Budget, the Chancellor said that the new AIA limit will not be determined until the Autumn.  This means that any company planning to purchase large or complex equipment will need to place an order now, or risk missing out on tax relief if the new AIA limit is set much lower.

Tristan Watkins adds: 

The construction industry will play a vital part in providing the new housing that all the major parties agree is desperately needed.  For construction businesses to make the investment required to deliver those projects, they need to know what sort of tax environment they will be operating in.  That makes providing clarity on the future of the Annual Investment Allowance an important priority for whatever Government is in place after May.”

BNP Paribas Leasing Solutions explains that the Annual Investment Allowance can be claimed for purchases made through Hire Purchase contracts and certain finance leasing arrangements.  Leasing equipment involves regular fixed costs, helping to ease cash flow, and will not impact on a business’ other credit lines, enabling it to borrow money when needed in the future.

Lease funding can also generally be accessed more quickly than other forms of lending, helping to ensure that that businesses will be able to obtain equipment in time to qualify for this year’s Annual Investment Allowance.

Suhale Vorajee
Head of Marketing and Communications
BNP Paribas Leasing Solutions UK

T: 01179 100 895
E: click here