Modular builder bullish despite plummeting profit

Offsite specialist Merit Holdings has insisted its future is “tremendously exciting” despite a huge drop in pre-tax profit in its latest full-year results.

Pre-tax profit at the Northumberland-based firm plunged by 72 per cent from £8.4m to £2.3m in the 12 months to 30 June 2024.

Its turnover fell 8 per cent from £94.3m to £86.6m over the same period.

This resulted in a narrower margin of 2.7 per cent compared with 8.9 per cent in the previous financial year.

Merit said uncertainty linked to political events, including elections in the UK and US last year, caused “a number of delays to the start of certain projects and deferment of others”.

Cash at hand fell from £6.7m to £2.7m. The firm said: “Unexpected delays in contract awards can cause short-term volatility in liquidity.”

Merit paid no dividends compared with £3m in the previous financial year.

It added that earnings before interest, tax, depreciation and amortisation – another measure of corporate profitability – had been affected by a change in accounting processes within the wider group, “which has resulted in profits being reduced in subsidiaries and now shown in [parent company] Merit Group Services’ own results”.

But in the strategic report accompanying the accounts, director Matthew McGrady said: “The future for Merit continues to be tremendously exciting.

“Our pipeline of opportunities is greater than ever and the average size of these potential contracts has risen significantly.”

The firm said its gross margin was “almost 19 per cent” in the latest year, up from under 18 per cent in the prior period.

This growth reflected “improved efficiencies and utilisation within the manufacturing facilities”, said McGrady.

“We would expect this to continue to improve with more added value produced in-house and therefore less reliance on certain subcontractors.”

He added: “Our unique platform [design] continues to gain traction every day across new types of facilities and different industry sectors.

“We believe we will continue to grow at a rapid pace to satisfy demand across all our key markets, not just in the UK but overseas, particularly in the US, Africa and Europe.”

Merit said a “significant” expansion to its second Northumberland factory had been approved, which would give it “capability to deliver annual turnover to around £450m”.

The firm noted that it spent almost £6m in research and development last year and added: “We have considered the feasibility of a third factory to future proof our ambitious growth plans, and this is still being considered both in the UK as well as overseas.”

This confidence stands in stark contrast to the fortunes of the broader offsite industry recently.

Scottish affordable housing specialist Connect Modular appointed administrators in January.

Derby-based modular builder TopHat plunged more than £50m into the red in the year to 31 October 2023 and ceased trading before the end of 2024.

ModPods International appointed administrators last summer after spiralling relocation costs hit its bottom line.

Investor L&G wound down its offsite business in 2023 after years of heavy losses.

Modular specialist Urban Splash House entered administration in May 2022, blaming operating issues at its factory in Alfreton.

Other specialists including Ilke Homes, Mid Group, Eco Modular Buildings and Caledonian Modular have also failed in recent years.