NEWS EXTRA THE BIGGER PICTURE
Tom Diplock, Partner at L.E.K Consulting, took an overall view of the market, and came up with some interesting take-aways for delegates.
THE FACT THAT the market is challenging is no surprise, according to Tom Diplock, partner at L.E.K Consulting, who told the BMF Conference delegates that the industry is experiencing a fairly uncertain set of trends and themes. “That’s both in the short term and the long term. This has not been helped by the prolonged length of high inflation both in terms of cost of building materials but also the impact of broader inflation on demand and confidence,” he said. There are varying market forecasts, Diplock continued, but key at the moment is that there is a 15% decrease on new house building, and probably between 5-10% on residential RMI work, which, until now, he added, had been the poster child for growth in the sector.
“Infrastructure is another big question, and who knows where we are heading with the current government in terms of investment decisions.”
However, Diplock also pointed out that, when compared with other markets, such as Germany, the UK is still not doing too badly. “I think next year is probably the year of stabilisation. Then
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modest growth could follow the year after. Realistically 2025-2026 are the years to be hopeful for.” He said that while residential rebuild is down, the country has had a target of building 300,000 homes a year for as long as anyone can remember, yet it’s not been achieved since the late 1970s. “One thing I would say is that to achieve it we need a structural supply chain change.” He continued: “Repair
maintenance and improvement, is something that is close not just to the heart of the BMF members but this industry as a whole, and there are reasons to be cheerful here. Household savings shows that consumers have the money and once consumer confidence returns, assuming house prices stabilise actually, we will see the sector recover once things are calmer.”
Diplock then turned to the question of private equity funding, and its recent influx of investment in the merchant sector. “Historically, private equity has shied away from the construction sector.
“What is interesting about the merchant market is that the stability is attractive to
private equity, there is always an underlying demand.”
He explained that the merchant sector has a few aspects that are currently attractive to private equity, namely: consolidation opportunities, digitalisation opportunities, pricing discipline and pricing levers, target range extension opportunities. “Broadly, a number of those things have been behind a lot of the investment. There has been some snowballing affect and some of them are just following the herd. The way these decisions are made is through an investment committee, who will look at these funds and will look at what others are doing. If no one has invested in a sector, the first question is why is no one else doing this? Then once a couple of firms have invested, momentum starts to build and I think this is what we have seen over the last few years.”
One major opportunity for the sector remains in the area of sustainability, Diplock said. “Rishi hasn’t do anyone any favours lately, but I think now is the time to hold our nerve, because I think there is a commercial opportunity here. This sector is key to solving
global sustainability and emissions. “The supply chain is where a lot of the action happens, this can be to do with whether the products themselves are sustainable, or whether they are made more sustainably. Then there’s the issue of how recyclable both the packaging and the product is.” He added that the circular economy has seen huge strides in making closed cycle loops. “I think this will be critical for the sector as a whole. 70% of contractors said sustainability was a top three priority, and when you look at younger contractors or large firms that rose to over 80%. “That said, barriers do exist. The top two were that the product is too expensive, or there is not enough environmental impact. Then came issues around awareness amongst the contractor base, followed by and the next is aesthetics.”
Avoiding the perceived risks associated with greenwashing, and being able to explain the actual bnefits the product is offering will be key, Diplock said. “There is a clear and obvious societal benefit, but, also, now is a good opportunity to make sure your company is at the forefront.”
BMJ
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