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HA Magazine on the housebuilding industry

Rumours of its demise – one might say – were premature. Despite disappointing figures for the last quarter when arctic weather closed many building sites, and the doom laden predictions of many political pundits, UK housebuilding appears to be staging something of a recovery, with Bovis not only talking up the sector, but restoring its dividend to shareholders for the first time in two years.

Three pence per share, based on a doubling of profits to £18.5 million, and a 13 pence jump in the market price, may not sound too formidable, but taken against the plethora of reverses the industry has seen of late, it is an announcement to celebrate.

As is the fact that there has been an increase in Bovis’ operating margin to 7.2%, supported by strong trading cash inflows during 2010 of £93 million. The group has been successful with land investment in 2010 with the addition of approximately 3,700 high quality consented plots to the land bank at a cost of £203 million.

Approximately 80% of these plots are located in the south of England; while collectively they represent an estimated future revenue of £711 million, and therefore a possible future gross profit potential of £181 million. Significantly, based on current sales prices and current build costs, they will realize an estimated future gross margin of over 25%. Of the plots added to the consented land bank, 822 were delivered through conversion of strategic land. Berkeley Group’s latest interim statement reports that sales reservations for the quarter were up 25% on the same period last year, with forward sales exceeding £800 million.

Collectively (Bovis’ plots) they represent an estimated future revenue of £711 million, and therefore a possible future gross profit potential of £181 million. Significantly, based on current sales prices and current build costs, they will realize an estimated future gross margin of over 25%. Of the plots added to the consented land bank, 822 were delivered through conversion of strategic land.

Echoing the encouraging news from Bovis, L & Q, as a leading RSL has meanwhile announced that the renewal of its Construction and Regeneration Framework Agreement is now in place. The Framework Agreement is worth up to £400 million and covers the delivery of the majority of L&Q’s development programme, excluding Section 106 schemes. It will last for a maximum of four years. Nicholas Cursley, Development Programme Director at L&Q said,”The Framework Agreement facilitates L&Q’s ongoing aim to provide new homes in London and the South of England. In the next four years we expect to build an estimated 7,000 new homes, the majority of which will be procured through this framework.” Interestingly, many of those involved in construction are also raising their game from an environmental perspective. Indeed, Dr Liz Goodwin, CEO for WRAP, reports: “In just over two years the Halving Waste to Landfill Commitment has gone from zero to influencing nearly £38 billion worth of projects.”

To date, 32 of the UK’s largest construction contractors have monitored and reported annual performance for their CD&E waste through the WRAP Waste to Landfill Reporting Portal. The combined figures for the companies show an absolute decrease of 28% in the CD&E waste sent to landfill between 2008 and 2009 – a drop from 3.1 million tonnes in 2008 to 2.2 million tonnes by year end 2009.

Rob Mouser is the Managing Director of snagging specialist Plastic Surgeon and someone who has also recently attracted the attention of the broadsheets’financial writers. He comments:”Plastic Surgeon has seen a strong start to 2011, with some of the biggest names in housebuilding using our services on a regular basis. I believe that this is in part due to increased activity in the housebuilding sector and a sign of a gradual recovery. However, I also think that the housebuilding and construction sectors are finally becoming more aware of the huge amount of waste that is generated on building sites and the money that is wasted as a result. Our fine finishing service is increasingly in demand because we can demonstrate real cost-savings to customers, by carrying out high quality repairs to items that would often otherwise be dumped in landfill.”

It is in fact probable that, rather than reflecting a ‘make do and mend’ response to hard times, that the repair company’s success is proof that construction, and housebuilding in particular, is finally falling in line with the ideals set out by Egan and “Rethinking Construction”.

A large percentage of the companies offering prefabricated or off-site solutions at the recent Ecobuild show in London were reporting they had actually grown their businesses during the recession: winning more work as companies try and cut costs by reducing waste and seeking certainty over expenditure. We know all to well that the Iron Chancellor failed spectacularly to “put an end to boom and bust”, but it does appear that housebuilding is in the process of steady growth, which may well prove more sustainable if boards become more cautious about land purchase and other acquisitions.

Source: HA Magazine, 31-03-2011

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