The other week it was announced that Barnsley-based Euramax was to go into administration, putting at risk more than 200 jobs. The failure was blamed, in part, due to the failure of modular building company Ilke Homes that Euramax supplied to. The collapse of Ilke Homes caused major cash flow problems that the company could not overcome.
Now, it is reported that another modular building company, Lighthouse, is also looking to appoint administrators. This comes as the housing sector remains rocky after a rough 2023 which saw interest rates hammer housing demand and shutter new housing starts around the country.
You won’t have failed to notice also that the fenestration sector is going through it’s own troubles, with a slew of administrations in the past couple of weeks, and The Gazette showing a steady flow of glazing sector related companies hitting the wall since the start of the year.
Although we rightly focus on our own issues in our own sector, the housing and homebuilding markets are one we also need to keep a close eye on this year.
Supply chain cog
A significant portion of our sector supplies windows and doors into the new-build market. And we’re not talking just the major house builders such as Persimmon and Avant. There are a lot of these modular home builders around the UK that have sprung up in recent years. Not so far in the past there was a surge in interest in modular home building and it was touted as a way to deliver homes to the market faster and more efficiently. As a result, new companies appeared and there was a great deal of energy put into this part of house building.
However, as we are all well aware, higher interest rates began to strangle the market. Homeowners began to stay put, house transactions began to fall, house prices began to slide and house builders put a stop to new starts on sites until there were signs of stability again. In short, homes stopped being built. And if you don’t build homes you cannot fit windows and doors into them.
As a result, we are beginning to see a number of casualties in the modular home space, like Ilke Homes, and it looks like more are on the horizon. This is obviously going to be a concern for all the fenestration companies in the supply chain that supply into house builders. Anyone who makes frames, glass and hardware can expect to take a hit from house builders that go bust.
Over the last few years we have all learned, to some degree of pain and stress, how interlinked all parts of our supply chain are. It came under intense pressure in 2021 and 2022 as COVID restrictions lifted and the flood of saved money was released into the market. But we also need to keep an eye on the construction sector as we are a cog into their own supply chain and if they have problems, we’ll have to suffer the splashback from that too.
Killing cash flow
As we know from the failure of Euramax, cash, and indeed cash flow, is king. A relatively stable company could quickly become unstable if one or two of their clients are suddenly unable to pay their bills. In the case of Euramax, it was a rather large sum from a large modular building company. With other house builders seemingly on the brink, suppliers into those companies are going to be watching anxiously as to their fate and what impacts it could have on them.
Cash flow is the lifeblood of any business in any part of the supply chain. If there are delays or unexpected losses in that cash flow, it can cause chaos to businesses, especially small to medium sized enterprises, that rely on consistent flows of money to ensure their own business is able to function. This is one of the reasons why I hate the 30/60/90 day terms that larger construction businesses impose on their suppliers.
You can easily imagine a scenario where a window supplier to a building company is on a 60 day term, but the building company folds before the 60 day term is up and the window company is out of pocket and stands very little chance of seeing that money. The window supplier could end up being down tens of thousands of pounds, even hundreds of thousands, and that puts an immense dent into the available cash they have, as well as their overall profitability and ability to pay wages, tax bills etc. As far as I am concerned, once the work is done, the person/company should be paid. I see the 28/30 day limit as the absolute limit, and none of this 30 days from end of month nonsense, which means invoices issued at the start of a new month get paid at the end of the following month, thus extending it effectively to 60 days.
Companies up and down our sector should probably begin looking at who they are supplying and indeed their own suppliers to ensure that their own cash flows are safe and secure and use this as an opportunity to shore up their own businesses.
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