BUILDING fitout specialist Sonica successfully petitioned the High Court for the appointment of Deloitte’s head of restructuring Ken Fennell as interim examiner late on Wednesday.

The business had debts of €9.4m at the end of its last financial year in April 2021, putting it among the smaller businesses to go through an examinership.

Bank debt was small compared to €4.3m owed to trade creditors and €3.6m of credit accruals.

The company cited the knock on effects of the Covid lockdowns including a disputed bill for work done in Germany for a large client for tipping it into the High Court process.

“Unfortunately, due to the knock-on effects of Covid on our international supply partners we have been unexpectedly faced with a large, disputed payment. This issue, which is the subject of litigation in Germany, coupled with recent large-scale investment in the business and Covid impacts have left the cashflow position of the company significantly eroded,” a spokesperson said.

Subject to court approval, management believes Sonica’s cash position, strong project pipeline and projections will allow it to exit examinership swiftly, the spokesperson said.

Sonica was established in 2013 by Donnacha Neary and has revenues of €60m. It has worked on large scale, high-end building fit outs for clients including the Guinness Storehouse, Sherry Fitzgerald, Intercom, Huawei and GlaxoSmithKline.

The most recent accounts for the year to the end of April 2021 show earnings (Ebitda) of €962,000, down from €2.1m a year earlier with activity curtailed as a result of the Covid lockdowns.

Concerns grew on Thursday that efforts to rescue building group Roadbridge may fail, with fears for the future of around 1,000 construction jobs.

Advisors IBI Corporate Finance have been seeking an investor or buyer for Co Limerick-based Roadbridge, best known for work on motorways and other State projects, since last year.

Several sources confirmed that liquidation or receivership, where a bank or other creditor takes control of a business, looked the more likely options for the group, which employs around 1,000 people.

One individual close to the company said late yesterday that there was still a “chance” of a rescue.

Process

However, he acknowledged that, as of Thursday, one or other insolvency process looked the more likely outcome.

Local sources suggested that the company could make an announcement on its future on Friday, but others said that it would wait until next week.

It is understood that professional advisors have argued against the possibility of Roadbridge seeking High Court protection from creditors and appointing an examiner to oversee the business.

That would pave the way for new investment and a likely rescue, but financial analysts maintain that the group may be “too complex” and the risks too high for this to work.

Roadbridge owes an estimated €30 million to €35 million to Bank of Ireland, its main creditor, but also has mounting trade liabilities.

At the same time it has building contracts worth a total of €750 million over the next two-and-a-half to three years. Management hoped this would help attract investment or a buyer.

Roadbridge specialises in large projects worth tens or possibly hundreds of millions of euro each. Insiders say that it has traded on very tight profits, between 1.5 per cent and 2 per cent, leaving little room for error or unforeseen risks.

Projects

The company lost money on several projects, including some in Scotland. Rising energy and building materials costs aggravated its difficulties through last year.

Founded and controlled by the Mulcair family, Roadbridge has operations in Ireland, Britain, Europe and has worked in the Middle East.

It was the joint main contractor on Dublin Airport’s new runway with FCC. The airstrip is now being tested ahead of coming into service this year.

Roadbridge was one of several well-known building companies involved in the construction of the Limerick Tunnel. The company has built motorways, wind farms, factories and data centres around the Republic.

Barry O’Halloran, Irishtimes

 

National annual commercial construction inflation is now rising at the rate of 8.3%, almost double pre-Covid levels, new research by the Society of Chartered Surveyors Ireland (SCSI) has found.

The new SCSI Tender Price Index, which is based on non-residential projects, also shows national construction tender prices rose by 7% in the first half of this year, up 1.3% on the previous six months.

The society claims pent-up demand, supply chain constraints, exceptional increases in materials and labour shortages have all contributed to the upward pressure.

It has also warned that while the index refers only to commercial construction projects, the increases will also impact the delivery of new homes.

“Following the reopening of sites on April 12th it was generally expected tender price inflation would rise as the economic recovery gained momentum,” said Kevin Brady, Chair of the Quantity Surveying Group in the SCSI.

“However, the scale of the increase is much greater than anticipated due to supply chain issues and intense competition internationally for building materials.”

“This has led to exceptional increases in the cost of widely used materials such as steel, timber and insulation products. These increases, coupled with serious labour shortages in the domestic market, have led to unprecedented disruption and the current increase in overall tender price inflation.”

The rate of increase varied considerably across regions between January and June, with the highest rate of 7.8% in Leinster and Connacht/Ulster.

In Munster the rate was 6.3% while the lowest rate of 6% was seen in Dublin.

“The last time we saw comparable rates of tender inflation was in 2000, at the height of the Celtic Tiger,” said Kevin James, Vice President of the SCSI.

“While that highlights the seriousness of the current situation, we believe underlying market conditions are fundamentally different from that era and that as the global recovery gains pace post Covid, the cost of materials should ease.”

“Given they account for up to half of overall delivery costs in some instances, a return to more normalised costs for key construction inputs such as timber, insulation, glazing, piping/ducting and steelwork appears likely and will be very welcome.”

The society also said that it anticipates that as the recovery gains pace and manufacturers build capacity, supply chain bottlenecks will ease.

“While the hope would be that international shipping charges will also come down and that logjams associated with Brexit will be sorted, labour shortages will take longer to address,” said Mr James.

“So, although we expect a correction, it is very difficult at present to predict the extent of it and that is why the overall outlook remains uncertain.”

The index relates to non-residential developments and is based predominately on new build projects with values in excess of € 0.5m.

By Will Goodbody

Business Editor

Brexit, Covid, container shortages and competing global demands are just some of the reasons prices are rising

“Some contractors simply can’t stand over the prices they gave three months ago. They would go out of business if they tried to,” said Conor O’Connell, a Director of the Construction Federation Industry (CFI) Ireland in the Southern Region.

“I don’t know how long the industry can sustain this,” he said. “We get emails into the procurement office each week describing price increases, 3%, 5%, with a big long spiel at the end saying we’re sorry for what’s happening,” he said.

The first question is how does this affect the homeowner. Mr McCarthy believes new mortgage holders are under serious financial pressure to complete projects as contractors struggle to meet costs. “The private individual constructing his own home, the cost of his build, if you rounded it all off, would be up 30% or 40%,” he said.

Project delays

Kevin Brady, a chartered quantity surveyor and chair of the quantity surveyor professional group of the SCSI agrees with an added emphasis on labour shortages contributing to project delays.

“From a homeowners perspective, homeowners should expect a longer period of time to deliver projects because of labour issues at the moment and the pressure placed on the supply chain of material,” said Mr Brady.

Another major issue identified by the society is suppliers unable to commit long term to a commodity’s price.

“Some of the suppliers aren’t holding their price. So there may have been a three month period for holding a price for a larger-scale project in a residential house that has now been reduced down to weeks, that is a concern and in some instances that can be less than weeks,” he said, “that is obviously an issue in the market”.

But what are these materials? And what kind of price increases are resulting from rising inflation as a result of supply constraints?

“PVC, insulation, timber and steel, they’re the four big ones and there’s spin-offs as well,” said Kieran McCarthy, designer and build director of KMC Homes in Co Cork.

“Material costs are a really big proportion of project costs. It really is down between material and labour,” he said. “And it is bleeding off into all forms of construction then, if timber is going up then things like cardboard packaging is going up, there is a whole raft of related industries that might be going up for whatever reason,” he said.

Some of the price increases and the change of speed are eye-watering.

An August report from project managers Turner and Townsend described price increases of 34.2% for reinforced steel while a procurement survey conducted by Sisk group construction company found the price of softwood timber had increased overall by 60% since 2019.

The same report said the length of time to complete a project remained adversely affected by these challenges as well as Covid-19 restrictions with 37.5% of the surveyed contractors reporting that their projects had increased in duration by five or more weeks.

“Lead in times have also dramatically increased in the last six months with the majority of respondents reporting average lead-in times in excess of three to four weeks,” said Mark Kelly, Manager Director Ireland.

• Long delays and price increases have all been flagged in house renovation and residential extension projects by members of the Construction Industry Federation Ireland as well as the Society of Chartered Surveyors Ireland.
• Property service repairs is another sector of the industry that has been challenged by rising material costs. Speaking to the Irish Examiner, Tersus Property Damage Services Ltd Munster area manager Alan Sheehan outlined some of the price increases and project delays experienced in the industry since 2019 for selected parts of the house.
• Conservatories: Labour shortages as much as materials are proving difficult for repairing or refurbishing conservatories. All products, doors, windows, flooring, and handles have all increased with costs increasing up to 20% since 2019. “Overly cautious” builders are quoting higher prices as contingencies for rising material prices, said Mr Sheehan. Delays can be up to six weeks due to labour shortages.
• Kitchens: Costs for repairs and refurbishments have risen between 10% and 15%. Bespoke fittings rather than off-the-shelf kitchen units have longer delays. A stone worktop will add another two-week wait to what can be a 10-week delay. Standardised units are faster to complete. Labour shortages also apply.
• Bathrooms: Costs have not risen as much but labour shortages and materials are still impacting prices on repairs up to 15%. Delays on projects are also leading to delays of four to six weeks. A shortage of tiles and piping is an issue. However bathroom ware such as sinks and baths is available, said Mr Sheehan.
• Increasing costs and longer delays are leaving clients “very frustrated,” said Mr Sheehan as “people we deal with, they are going to be out of their home for an extra week or three months because of all the delays and the lack of labour”, he said.

All of this is happening well ahead of inflation in Ireland which hit 2.8% in the most recent report from the Consumer Price Index (CPI) published by the Central Statistics Office (CSO) The SCSI is reporting the start of some price stabilisation but said how long it lasts is questionable. Mr Brady points to the reliance on imports for construction materials and the risks further shocks to the global supply chain can have on the cost of materials.

There are also risks of delay as Ireland competes against larger importers for construction materials.

“This, in turn, increases the cost of delivery of a home or housing project in a residential setting,” he said.

And that is the big question that hovers over every discussion on construction and housing- housing prices. Between mortgage financing, procuring a site, and funding operational costs, spiralling material prices and extended delays as a result of labour shortages could jeopardise homeowners projects even after mortgage approval.

“It is difficult for any house builder to absorb this level of costs and price increase. When you look at all the cost factors it is very significant,” said CFI’s Mr Connolly.

In the immediate term rising material costs for the construction industry are going to filter into prices, said CFI’s Mr O’Connell “and even into prices later on this year” as profit margins will be affected which in turn poses issues for providers of funding capital.

“A construction builder is a conduit for these prices. In other words, if the price of the raw materials or the price of doing business increases that has to be passed on to the customer,” he said.

Isn’t it all going to settle down eventually though? As global supply improves and market efficiencies resume prior to the Covid-19 pandemic, the SCSI is optimistic that some improvements are coming despite their current concerns.

“The society is concerned but from a society perspective this is going to stabilise, markets are going to settle down and return to some sort of normality possibly within the next 12 months,” said Mr Brady.

The building director of KMC Home’s is also positive that some signs of stability in timber prices are returning.

“Hopefully and with fingers crossed it may begin to level in terms of timber,” said Mr McCarthy.

He has identified a longer-term structural issue that is going to plague the construction industry even further after material costs and the Covid-19 pandemic. Ireland’s shortage of skilled labour in trades.

“How long can it take to find more apprentices to join the ranks?” said Mr McCarthy, “That could take years and years to fix that problem. That is a long term problem and in my view that is a much bigger issue than the material cost increases,” he said.

The SCSI has also come to this conclusion and believe this is impacting every type of construction project from residential building to home renovation.

“Labour shortages are now becoming a big problem for construction projects. Materials and price increases are one part.

“Labour is having a significant effect which in turn could affect the delivery of your 30 or 40-metre extension to your house,” said Mr Brady.

With a government housing programme launched just two weeks ago, aiming to spend €4bn a year aiming to deliver 300,000 homes by the end of 2030, with 33,000 per year being built by 2025, industry figures are still pointing to bureaucratic barriers impeding their construction projects.

A major source of supply constraint on timber according to the CFI is a Department of Agriculture backlog on forestry permits.

Not labour shortages and global supply disruption but administration and regulation undermining the foundations of an industry critical to the economy and quality of life in Ireland.

TUE, 28 SEP 2021 – 21:09 CIARÁN SUNDERLAND

Around 50,000 construction workers will have to down tools for the month under the Government’s new restrictions.

Meanwhile, only essential construction projects and refurbishments are to be permitted until the end of the month under new coronavirus restrictions to be discussed by Cabinet.

The majority of private construction developments are to be halted until the end to the month as part of a plan to stop the rapid spread of Covid-19.