Home Finance & Investments Insolvency Risk In North East Construction Sector On The Level

Insolvency Risk In North East Construction Sector On The Level

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The North East construction sector is continuing to make slow but steady progress against its peers across the UK, according to insolvency and restructuring trade body R3’s latest research.

The proportion of regional businesses in the construction sector with a higher than normal risk of entering insolvency in the next 12 months rose sharply from 29.2% in August 2017 to 43.2% 12 months later.

But over the last eight months, that proportion has held relatively steady, and now stands at 43.9%.

It is also better than the national average for the construction industry of 45.3%, meaning that the North East construction sector has the fifth lowest percentage of companies at higher than usual risk of insolvency out of any region of the UK.

Over the same period, the number of active construction businesses in the region has risen by more than 350, from just over 10,600 last August to almost 11,000 today.

The latest R3 research shows that North East businesses in six of the 11 sectors it monitors are performing better than the national averages for their respective industries.

The North East’s pub and restaurant sectors continue to have the lowest proportion of companies at higher than normal insolvency risk of any region in the UK, while the agriculture and hotel sectors maintain second and third places in their respective lists, and the transport/haulage and technology sectors are in fourth place in theirs.

The overall proportion of all North East companies with an elevated insolvency risk (41.7%) remains lower than the 42.7% figure for the UK as a whole.

R3’s insolvency risk tracker is compiled using Bureau van Dijk’s ‘Fame’ database and measures companies’ balances sheets, director track records and other information to work out their likelihood of survival over the next 12 months.

Andrew Haslam, chair of R3 in the North East and head of specialist business advisory firm FRP Advisory LLP’s Newcastle office, says: “For a long time, until mid-2017, the North East construction sector faced the highest insolvency risk of any of its UK peers, but while progress has been painfully slow at times, the regional situation does seem to have steadied.

“The surge in the construction of new student accommodation shows no signs of stopping, while the government’s drive to build more houses across the region is resulting in a constant stream of planning applications coming forward from developers and housebuilders.

“Add in the continuing flow of investment in leisure industry venues that rarely seems to slow in the North East and there are reasons to feel at least a little optimistic about the construction industry’s prospects for the rest of the year and beyond.

“That said, no-one is pretending that everything in the garden is rosy, and in particular, the much-discussed problems facing many major outsourcing firms have the potential to impact on the fortunes of the sub-contractors with which they work.

“These SMEs – and indeed all firms – need to keep a close watch for problems that could be coming their way, as they can for any business in any sector at any time, and they need to be prepared to take proactive steps to address their problems before small problems turn into significant ones.”