Bloomberg News

U.K. Builders From SIG to Marshalls Seen Hampered by Wet Summer

July 12, 2012

SIG Plc (SHI) and Marshalls Plc (MSLH) are among the building-material suppliers that are finding it harder to meet profit targets this year as the U.K.’s wettest summer on record restrains construction.

Activity in the construction and property-renovation industry is currently down about 4 percent to 5 percent amid the inclement weather, said Chris Davies, chief executive officer of Sheffield-based insulation distributor SIG.

“It’s a domino effect,” said Davies in an interview. “We would expect to get quite a lot of displaced work back rather than cancellations but the longer the bad weather goes on, the more later projects become disrupted. It puts pressure on us for the rest of the year to meet our profit target.”

For paving slab maker Marshalls, deluges cut sales by 10 million pounds ($16 million) in the second quarter alone, the company said. Dublin-based Grafton Group Plc (GN5) said July 11 it also suffered. U.K. construction, which accounts for 6 percent of the economy, is already battling a slowdown and cutbacks in government spending. The industry shrank at the fastest pace in 2 1/2 years in June, according to Markit Economics.

“The underlying business is in reasonable shape but we are inevitably being affected by the market conditions out there,” said Marshalls Chief Executive Officer Graham Holden in a phone interview. “The weather just slows everything down.” Marshalls is “determined to make the best of it,” Holden said, when asked about his confidence going forward.

Olympics Disruption

London’s Olympic Games starting July 27 are a mixed blessing, according to construction companies and their suppliers. The 9.3 billion pounds being spent on infrastructure have brought welcome orders, yet road closures and route restrictions to help the 15,000 athletes get to events on time threaten to disrupt projects elsewhere in the capital.

Some sites may grind to a halt for a few months, according to SIG, which derives one-third of its U.K. revenue from the southeast of England. The majority of products are sent directly to building sites, some of which may become difficult to access because of route closures and the designated Olympic lanes.

SIG said it’s budgeting for a lot of clients to defer orders, with the situation settling down in September and back to normal in October.

State Cutbacks

Far outweighing the weather are cutbacks in infrastructure spending, according to an official at the Union of Construction, Allied Trades and Technicians. The government is the largest client to the construction industry and reductions in spending have caused “serious problems,” the official said.

“Cuts in the U.K. to new build public spending are starting to hit now, so although residential is growing slightly and non-residential is broadly stable, the public sector is dragging spend down,” said Charlie Campbell, an analyst at Liberum Capital.

New work for the construction industry declined in June after eight months’ of growth, according to Markit Economics. With additional threats of downpours and localized flooding in parts of the U.K. for the remainder of the week, there’s little respite from the weather ahead.

“At least all this isn’t happening in October or November, so we have a bit of time to try and catch up,” SIG’s Davies said.

To contact the reporter on this story: Eleanor Lawrie in London at elawrie@bloomberg.net

To contact the editors responsible for this story: Andrew Noel at anoel@bloomberg.net; Benedikt Kammel at bkammel@bloomberg.net


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