In Focus Commercial Credit


When are we ever going to learn?


It appears that some of the habits from the bad old days of the construction sector are starting to re-emerge


Brian Lewis Credit manager, Hanson UK brian.lewis@hanson.biz


So, Brexit will happen, HS2 seems more than a pipedream, yet major players in the construction sector are stuck with balance- sheet issues blamed on ‘legacy’ contracts dotted around the globe. Economies of scale are a good idea for


anyone, provided they are implemented and then operated properly. This applies to any size of business. One thing that is apparent, in any of the


names that come to mind or you wish to mention, is that the old saying of ‘turnover is vanity, profit is sanity’ seems to have been parked, and the second motto that ‘cash is king’ has been rendered redundant.


After the crisis Following the financial crisis, we witnessed increased and improved productivity. Major contractors seemed to see the value in their supply chain. This included the sub-contractors and the


skills they brought to a project, and they started treating these service providers (for want of a better description) better than in the early part of the century, accepting increasing cost and paying earlier or, at least, to terms. We now see a scrabble for work and prices


being driven down by main contractors. In turn, we are seeing skills shortages in


the market, and then reducing margins to the service providers, as they are pushed to reduce costs. There are also loss-making contracts; only the most recent of which being Ferrovial’s


April 2018


£48m loss on their contract for the M8 in Scotland, and their resulting expectation that suppliers and contractors will share their pain and accept reduced final-account agreements.


Margins and cash balances Having been through the recent year-end reporting season, it is notable, from the large number of accounts that I have reviewed, two major factors are affecting my customer base: l Reduced margins. l Cash-balance erosion. In turn, these factors have placed cashflow


pressure on the supply chain by means of the resulting requests to extend payment terms and payment times, as well as an inability to pay and, therefore, a need to request to pay by instalments. Or, even worse still, we can see lower than


expected payment values, coupled with spurious disputes to delay payment in full. These then create more work and overhead cost because they need to be handled and, eventually, rejected. Too many would-be investors will look at


We are seeing skills shortages in the market and then reducing margins to the service providers, as they are pushed to reduce costs


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the profit-and-loss account of their target, when they should also be considering the cash holding of the business, as part of that investment decision is the frequency and value of dividend payments. But, as we saw with Carillion, they can


pay dividends to the detriment of the business and create a lack of financing for future projects and investments. CCR


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