Finance View from Jim Thompson

August 18, 2022

Jim Thompson, Group Finance Director of Hayfield, and a Chartered Accountant, reflects on the challenges and opportunities facing SME housebuilders regarding supply chains, escalating costs, product availability, and delivery.

It is over a year since the Suez Canal was blocked for six days, but the impact on global supply chains was catastrophic. It couldn’t have come at a worse time for the housebuilding industry, as the Covid-19 pandemic and Brexit were already creating labour shortages and availability issues for raw materials and many essential building and interior products. Consequently, there were less than 175,000 new homes built in the UK last year, while the Government target was 300,000.

Fast forward to today and soaring inflation, rapidly rising costs, extended lead times, deliverability issues, and other supply chain implications are still a major factor constraining growth for housebuilders – particularly SMEs.   

The cost of raw materials in the UK is expected to more than treble in 2022, according to the Building Cost Information Service (BCIS) Materials Cost Index. The figure had already increased significantly during the height of the pandemic, rising from -0.9 in 2020 to 4.8% in 2021. The BCIS Materials Cost Index is now forecasted to reach 15% by the end of this year, which is having an unprecedented impact on financial budgeting and cost overruns across the industry.

The BCIS Index helps with forecasting and tendering for new projects, but the continued impact of Russia’s invasion of Ukraine - which has contributed to the significant recent energy price hikes - means it is challenging to maintain long term cost visibility. The material prices that were stabilising at the very start of the year have been rising in a volatile way since late February. Any product which has high energy costs due to manufacturing, processing, and transportation is impacting budget delivery. 

Aside from the cost of energy and fuel, after China, Ukraine and Russia are the world’s second and third largest steel exporters. In 2020, the two countries accounted for over 70 million metric tonnes of steel supply. The global availability of iron, nickel, chemical products, and timber is also impacted by the prolonged unrest. Across the construction industry - yet again - material and component availability is decreasing and lead times are extending.

Meanwhile, the specification that goes into Hayfield’s zero carbon ready homes is markedly different from the volume PLC housebuilders. Many of our house types are over 2,000 sq ft, and across our current project portfolio, our average house design is approximately 1,400 sq ft. While we are as focused on achieving CML sign-off as any of our peers, Hayfield’s reputation is built on quality, craftsmanship and bespoke detailing. In the current climate, this is creating supply and deliverability risks that the business continues to proactively manage.

For instance, we use bespoke internal doors designed to our exacting specification. The high-end appliances we install as standard are currently on extended lead times due to the manufacture of the component parts. And the historic nature of the semi-rural and edge of town settings we are active in, require us to use handmade bricks, stocks, or local stone, some of which need to be pre-ordered six months in advance.

Despite the challenges of 2021, we virtually doubled Hayfield’s turnover to close to £100m. With the target for this year being set at £150m, we have taken the opportunity to strengthen the senior team and strategically separate our Commercial team. We now have a dedicated Procurement and Supply Chain Department, that works alongside the Commercial Department. As a dynamic business, we are now in a position where we can look to expand our supply chain.

We already have a partnership framework in place with Daikin; a leading manufacturer of the air source heat pumps we install into every home. Our relationship with Daikin has been ongoing and growing for the past three years, which has enabled us to negotiate preferential terms and distribution agreements. We also have a partnership framework and agreed KPIs with Marley for the supply of roof tiles. ROCA Laufen is another business we have worked with for over five years, and there is much comfort being able to rely on our working relationship, as well as dealing with a global organisation.  

As this business continues to grow at pace, it is imperative that we supplement our established supply chain with more local and national supply partners who match our core values, and who value our custom. While the majority of Hayfield’s kitchens were from one supplier until recently, we are now working with three kitchen manufacturers to ensure our deliverability and customer care expectations are met.  

In line with the parameters of our ESG strategy, we are keen to forge new relationships with companies that can offer the quality, sustainability credentials, and supply certainty that Hayfield requires. We are enjoying the national profile that comes with being the WhatHouse? Housebuilder of the Year, and we are also the UK housebuilder with the greatest following on both Instagram and TikTok. Now is the time for us to partner with more companies that match our values and can offer brand synergy, combined with deliverability and commerciality.