A new engineering services sector survey showed that 73% of businesses expect their turnover to fall in the second quarter of 2020, compared to the first quarter.
Looking further ahead to the third quarter of 2020, a similar number of businesses expect turnover to fall (compared to the start of February 2020 – selected as a reference point before significant coronavirus impact). Of these, almost one in four businesses expect a fall in turnover of 50% or more.
These figures are the biggest ever anticipated drop in turnover since the sector business survey began, over a decade ago. One in 20 respondents reported that by the end of Q3 this year, their business ‘may not be viable’, while a further 10% said they were unsure about viability.
In the current circumstances, many potential survey respondents may have been on furlough, restricted from working or not trading. However, 15% of respondents said they expect their businesses to grow by the end of Q3, with a further 70% expecting their businesses to be viable, with turnover either reducing or holding on.
ECA CEO Steve Bratt said, “Although construction has continued to operate through the crisis, at least in part, it is no surprise to see the reductions in turnover and the challenges to business in remaining viable. However, the figures also demonstrate our sector’s resilience and importance and we shouldn’t forget that in the medium and longer term many of the challenges we face as a nation will provide growth opportunities.”
ECA director of legal and business Rob Driscoll commented, “Given the cliff edge drop in work since Covid-19 hit the UK and the safety measures required for business continuity, the negative impact on productivity rates in engineering services is unsurprising.
“However, the sector’s unique position within both construction and facilities management has always demonstrated a resilient ability to bounce back. ECA is perfectly positioned to provide a plethora of knowledge, tools and support to enable contractors to weather the economic storm of the coronavirus.”
In terms of the impact on jobs at the end of Q3 (compared to the start of February), half of businesses who responded expect to have broadly the same number of direct employees. Furthermore, 67% of businesses expect wages to be broadly the same, although 17% expect wages to fall.
BESA director of legal and commercial Debbie Petford also said, “These statistics show the unprecedented damage that this crisis has inflicted on our sector. Despite so many businesses struggling to survive through no fault of their own, it is encouraging to see how resilient the vast majority of the sector is.”
“Government have demonstrated its continued support for businesses throughout this crisis and this should be complemented by industry playing its part too. It is critical businesses work together in a collaborative spirit with their supply chain, and it is encouraging to see these principles reflected in the new CLC Contractual Best Practice Guidance and the RICS Conflict Avoidance Pledge, proving the industry can work together in these challenging times.”
SELECT managing director Alan Wilson added, “The expected fall in turnover is worrying for the sector, which is why it’s vital for us all to work together during return, restart and beyond. We all have a part to play to ensure cashflow is maintained to help those most severely impacted by lockdown.”
The use of subcontractors has fallen in the short-term, and employers expect this to continue. In Q1 of this year, some 22% of respondents said they were using fewer subcontractors than in Q4 2019. Looking ahead, 61% of businesses using subcontractors expect to use less at the end of Q3, compared to the start of February.
All four trade bodies are providing information and advice to support safety and business recovery in the months ahead.