How can businesses operating in the landscape sector protect themselves from increasing uncertainty?

Lessons from the collapse of Land Engineering Scotland.

Johnsons of Whixley: price increases will not necessarily guard against corporate failure
Johnsons of Whixley: price increases will not necessarily guard against corporate failure

The collapse of Land Engineering Scotland into administration at the end of May shows that, despite a buoyant market, longstanding and previously successful companies can get into difficulties.

Land Engineering’s administrators, EY, said the company’s profits were hit by "an increasingly competitive market".

And creditor Johnsons of Whixley's joint managing director Iain Richardson, who describes Land Engineering as "a significant, loyal and longstanding customer" says: "Despite current buoyancy, our industry is often fickle, and very competitive and cost-sensitive."

"We are naturally disappointed and have sympathy for Land Engineering’s management team and loyal workforce. We are fortunate that any losses will be mitigated by credit insurance and as a result the impact on our business in this instance will be minimal."

But he adds: "current economics and the UK’s impending exit from the EU mean we all operate with an air of uncertainty, with envisaged challenges existing just around the corner."

The landscape market has always been competitive, market experts say, but has come under extra pressure since the Brexit vote, which has hit the value of the pound and made buying plant stock and other supplies from the Eurozone more expensive.

In addition, continued austerity has meant that local authority capital projects have further dwindled, leaving commercial landscape contractors with fewer smaller jobs to bid on, while bigger jobs put them in the same playing field as large civil engineering companies which often have both economies of scale and bigger reserves on their side.

Of all the construction trades, landscape is also the one that has to wait the longest to get on-site, which causes problems when the costs shift in the market over time, especially as a main contractor will come to a landscape contractor for a quote before it has even bid for the tender.

Nurseries have to cope with this risk too, often having to price three or four years in advance.
W Crowder & Sons chairman Robert Crowder says: "With the Brexit vote last year and the collapse of the pound, particularly against the euro, costs have gone up and sales and contract prices haven’t. That’s putting a strain along the supply chain.

"The contractors and suppliers need to have more confidence. Demand is much better than it was, and in lots of sectors so I think the industry needs to take confidence in that. Most people I speak to have got really full order books. I think we need to make proper use of the demand while it’s there."

LANDSCAPE MARKET: KEY PRESSURES/SOLUTIONS

Pressures

Uncertainty - Brexit/general election result
Currency
Contract time lag and supply chain management
Minimum wage and other employer costs
Price stagnancy

Solutions

Automation
Price increases
Cost control
Risk mitigation - insurance/'deep market knowledge'
Old-fashioned hard work

Boningale chairman Tim Edwards agrees that "prices are as tight as ever" and optimism is tempered by significant uncertainty.

He adds: "Scotland is different to England. It’s a different market, it feels different and they operate under different conditions. I think we’re all surprisingly buoyant about the state of the market. The level of activity is still surprisingly good but, as ever, there is concern for the future. I'm hoping the election result will somehow generate stability and more optimism.

"We always complain that prices should go up and I think now more than ever it’s obvious that prices should go up. Europe is performing better. Who knows what’s going to happen after the general election, but I think the euro will strengthen against the pound and we are going to have a lower exchange rate for a while.

"European plants are still going to be expensive. There is a threat of tariffs hanging over us with Brexit, and all of that means that prices would go up."

Johnsons of Whixley group accounts director Graham Richardson says price increases are essential, but will not guard against corporate failure. "Living wage and company pension contributions are an ongoing burden for all small businesses and this adds significantly to an already creeping cost base," he adds.

"The government’s promise of a corporation tax reduction is welcome but for many who are only marginally profitable this is scant consolation.

"Unfortunately, costs will rise at a rate far higher than our capacity to increase prices, and survival will be determined by automation, cost control, risk mitigation and old-fashioned hard work." 

On top of the uncertainty provided by a long lead-in time, landscape companies often suffer from project slippage, something some contractors say has been getting worse in recent years. Nurseries can take a significant risk when dealing with landscape contractors.

Edwards says: "The largest ones you can get a sensible credit rating on them. The vast majority you can’t get good quality credit rating. They have heavy exposure. The agencies say give credit of £2,000 and the contractor is coming to us with a £30,000 order. That’s the market that we are in.

"We all end up living permanently with quite difficult commercial decisions."

Edwards says the problem with insurance is that it works on the same commercial data as credit ratings, with insurance firms therefore likely to offer cover for far less money than the available business. And of course it is expensive.

"You have to take commercial decisions, have you got a history with these people, have you done your credit checks? A lot of businesses would think we were mad."

For Graham Richardson "insuring debt is an option, but can be expensive, and usually needs a commitment and resource to operate a watertight system behind it, or the insurers won’t pay. And like all insurers premium is linked to claims history.

"In our own business, we employ a full-time credit controller, utilise credit intelligence software and insure a significant proportion of our debts.

"There is a large percentage of our customers who don’t attract credit insurance, and we have an internal process that identifies trading history, establishes trade references, utilises credit intelligence and then proposes an appropriate credit level. These are ultimately signed off at director level."

Ultimately, even in the modern market there is no substitute for deep market knowledge, thorough research, relationship-building and keeping a cool head.

Despite the problems, there is a lot of positivity in the market, commentators say. "There’s not the doom and gloom that you might have expected," says Edwards. "Most of us are surprisingly bullish."


Have you registered with us yet?

Register now to enjoy more articles and free email bulletins

Sign up now
Already registered?
Sign in

Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus

Read These Next

Sargent's solutions - the benefits of CPD for your business

Sargent's solutions - the benefits of CPD for your business

Continual learning is an essential part of the job and professionals should embed it in their work process, says Alan Sargent.

Blowers, Vacs and Sweepers: pedestrian and tractor-mounted kit

Blowers, Vacs and Sweepers: pedestrian and tractor-mounted kit

These machines offer a step up in power for those tackling bigger clean-up jobs and can help to keep costs down, Sally Drury explains.

Blowers, Vacs and Sweepers: handheld and backpack machines

Blowers, Vacs and Sweepers: handheld and backpack machines

Battery technology is widening choice and petrol models are also improving, Sally Drury reports.


 
Horticulture Jobs
More Horticulture Jobs

Industry Data

An exclusive report for HW subscribers revealing the key development trends, clients and locations for 2017.

Are you a landscape supplier?

Horticulture Week Landscape Project Leads

If so, you should be receiving our new service for Horticulture Week subscribers delivering landscape project leads from live, approved, planning applications across the UK.

Landscape Contracts & Tenders

Products & Kit Resources

BALI National Landscape Awards 2016

Read all about the winning projects in the awards, run in association with Horticulture Week.

Noel Farrer

Founding partner of Farrer Huxley Associates Noel Farrer on landscape and green space
 

Read Noel Farrer