Roy Cokayne
THE CONSTRUCTION industry failed to fulfil the promise evident at the start of the 2014 financial year because of the lack of recovery in the economy, according to PwC.
Andries Rossouw, a partner, said yesterday the year started with promise because of strong order books and the recovery in profit margins for the first time in five years despite adverse findings by the Competition Commission and various challenges to the industry.
However, he said the industry faced a challenging year, fraught with labour unrest, substantial delays on some major construction projects, and setbacks in the economy.
Rossouw was commenting on the second edition of PwC’s “SA Construction” report, which highlights some of the trends in the domestic industry based on the financial results of the leading JSE-listed construction and construction material companies for the year to June.
The common risks identified by companies included risks to growth and expansion; industrial unrest; loss of key skills and expertise; health, safety and environmental sustainability; project execution; transformation, tender risks; credit risk management; and compliance with laws and regulations.
He said the industry remained under pressure from the public and regulators to improve its safety performance, while there was the added risk of non-compliance with the charter, and concerns about the retention of talent and skills shortages.
“Risk management is a vital component of effective management. Companies need to integrate risk and performance management and to evolve risk management to become more predictive to anticipate and plan for negative potential events.”
The report said there were mixed results by the heavy construction and building materials and fixtures companies in their 2014 financial year.
The market capitalisation of 10 companies increased while five experienced a decrease, with the overall market capitalisation of 16 companies analysed declining to R67.4 billion in the year to June from R68.1bn in the previous year.
The market capitalisation of these companies decreased by 1.6 percent to R66.3bn between June and September 30.
However, the report indicated the government’s National Development Plan and its continued commitment to public infrastructure investment of R847bn over the next three years were positive signals for future growth in the industry.
It said actual government construction expenditure last year was R12.7bn below the 2012 forecast and this decrease in anticipated expenditure underlined the challenges experienced by the industry.
There was a 16 percent growth in order books, which was in line with the increase achieved in 2012 after a flat 2013 financial year. The report said the secured order book covered 1.3 times current year revenue, which was a marginal increase on the 1.2 the prior year but well below the 1.5 of 2012.
Rossouw said the retention of key skills for prospective contracts was one of the construction companies’ biggest investments in anticipation of the potential upswing but limited tenders were awarded despite a number of firms reporting very high tender activity.
“Companies have to decide whether they can continue carrying excess staff or whether they need to downsize.”
Group Five last week reported that its profits for the six months to December would be more than 20 percent lower than in the previous corresponding period. The group had embarked on a restructuring and rationalisation process because of a lack of awards in the current period and the group’s focus on not pursuing high levels of revenue with current low market-related margins.