The impact of Brexit for the construction, brickmaking and ceramic industries
Ellis Davies investigates the aftermath of Brexit in the construction, brickmaking and ceramics industries.
Since the EU referendum in June, talk of Brexit is hard to avoid. The past few months have been a turbulent time for the UK. Amidst fears for the economy and trade, the construction and brickmaking industries are some of the sectors that could face a backlash from the effects of the Brexit vote. The ceramics sector is also looking to the future, with British Ceramics Confederation (BCC) Chief Executive Laura Cohen mentioning the BCC’s prior planning for the referendum result.
There has been a mixed bag of reactions to the Leave vote within construction and brickmaking. Accrington, a town that voted to leave the EU, has become one of the first places to be hit with job losses since the referendum. Brick maker Forterra announced in early July that it would be mothballing its Accrington and Claughton factories because of a potential downturn in construction, despite having recently seen a resurgence (Clay Technology, February 2015, page 14). Forterra has said that excess inventory is the cause of the action, with current economic uncertainty being the reason for the backlog.
Private sector house builders have concluded that, in some cases, there is no need to expand supply for the next six months. An economic downturn could mean a fall in house sales, and companies will not build what they cannot sell. Former head of the civil service, Lord Turnbull, has credited the 2008 financial crisis for the wariness in the construction industry, resulting in the uncertainty regarding house building in the coming months.
Property and construction firms could also potentially experience financial distress in the second half of 2016, according to research carried out by Begbies Traynor (BT). The reports showed that 49,186 business were experiencing financial trouble before the referendum, and predicted a 20% drop in property price following a decision to leave the EU, which could be disastrous for those struggling businesses. The report also sheds light on the London-based businesses in distress that have fallen in number by 5% in the second quarter of 2016.
Taylor Wimpey, one of the UK’s largest house building companies, has claimed that as of July 2016, one month on from the referendum, trading remains in line with normal seasonal patterns. The company posted an increase in pre-tax profit of 12% for the half year to 3 July, with revenue rising 9% to £1.46bln. Another company unfazed by Brexit is Breedon – a UK based aggregate company. Seeing economic uncertainty as an opportunity for further expansion, its latest acquisition, Hope Construction Materials, was completed on 1 August.
Looking specifically at brick makers, Michelmersh Brick Holdings plc posted an increase on its 2015 half-year profit for 2016, with the company ending the half-year ahead of its intake target and a forward order commitment of more than 47 million bricks. Michelmersh stocks stood at 68 on the day of the vote, and at the time of writing sit at 57.25, with a low at 52.00 on 4 July. Despite this drop over the month, Michelmersh feels that it is well positioned to manage any challenges that may emerge in the brick manufacturing and housing industries.
In terms of stocks, companies in both the UK and Europe have experienced fluctuations. Taking two leading brickmakers as an example – Michelmersh and Wienerberger – it is possible to see difference in these changes. On 24 June, Michelmersh’s rate of change (ROT) hit -3.50, falling further to -7.00 on 27 June. In comparison, Wienerberger’s ROT was -1.81 and -4.12 respectively. Although both companies experienced a drop, Wienerberger has recovered comparatively well, while Michelmersh continues to fluctuate in a more erratic fashion.
The BCC has planned for the possibility of Brexit for more than a year according to Cohen, with the topic appearing on every board meeting agenda. Speaking to Clay Technology, Cohen talked of some of the possible dangers to the British ceramics industry. ‘If we were to have a trading relationship with the EU where we had to perhaps revert to World Trade Organisation rules, there would be tariffs of up to 12% for some ceramics. At the moment, there are no tariffs or paperwork for exports to the EU, and that’s important to some of our members.’
Jobs could be on the line as the UK readies itself to withdraw from the EU and the trading safeguards therein. ‘EU tariffs on tiles and tableware protecting UK jobs against Chinese dumping was the result of collective work that we did in Europe’ says Cohen, speculating that departure from the EU would mean an end to these safeguards and pointing out that, ‘There are 6,000 people employed in those sectors. We need to work with Government to find a way to support British manufacturing businesses.’
On conducting a survey of members, BCC found that, post-Brexit, members most wanted energy and climate change discussed with government. Up to 35% of the manufacturing cost of ceramics is energy, making it a key issue in the industry. ‘We see this as an opportunity’, Cohen said, ‘We see it as a way of resetting some of the framework for legislation, while still having to comply with the Climate Change Act. We can change in a way that will encourage firms to invest and develop energy efficient manufacturing technology, installing state-of-the-art equipment, rather than solely penalising.’ In this way the BCC sees Brexit as a chance to make some alteration to the way the industry and Government thinks about talking climate change within the sector.
Upon Theresa May’s appointment as Prime Minister, Cohen wrote to the new PM to brief her on the concerns and needs of BCC members. This letter is primarily split between energy and climate change and trade, highlighting BCC’s belief that it is ‘essential that the emerging UK energy, climate and business taxation policies support the transition to a low-carbon economy whilst also stimulating investment, retaining or creating jobs, increasing productivity and enabling energy-efficient manufacturing at least cost to business.’
Post-Brexit industry looks to be a mixed bag, with financial stress apparently imminent for some. However, many have shed a positive light on the situation, citing plans for development and change in their fields. It is too early to tell exactly what the ramifications will be for construction, brickmaking and ceramics when the UK leaves the EU, but there are, reassuringly, steps being taken by the industries to ensure their continued progression.