After prolonged economic uncertainty, a majority of companies in the global engineering and construction sector have renewed confidence in the growth prospects for the industry, according to KPMG International's 2013 Global Construction Survey: Ready for the Next Big Wave. The Australian industry was overall more cautious in its outlook than its global peers, becoming more positive in the medium term.
A general increase in work pipelines and margins is giving cause for optimism across the global industry. Domestically, there is a growing divide between smaller and larger companies regarding pipelines, with large Australian contractors’ pipelines decreasing over the previous year, and smaller Australian contractors faring better.
While profit margins globally and domestically were stable, Australian contractors were more positive on medium term margin prospects – with 73 percent of respondents anticipating stable or slightly increased margins in the medium term. This supports the improving medium-term outlook by the Australia industry. Notably, foreign contractors are emerging as a key source of pricing tension for Australia’s larger contractors.
"Last year we predicted that margin squeeze would hurt small contractors – and this has proven to be the case, with a number of these companies closing their doors. Australian pipeline trends are lagging their international peers, with 45 percent of Australian contractors failing to replenish their forward order books and experiencing a reduction of 5 percent or more in pipelines. Most impact has been felt by large contractors. On the other hand, 60 percent of smaller Australian contractors experienced pipeline growth greater than 5 percent," said KPMG Australia’s Head of Property, Steve Gatt.
"This year, the tide is turning. Australian contractors who have survived the GFC are demonstrating a much more positive mood. This sentiment is beginning to materialise, as evidenced by rebounding residential markets," said Mr Gatt.
Australian contractors concerns regarding skilled resources supply have also eased.
“This contrasts strongly with our previous survey, where access to skilled resources was seen as a significant risk of doing business. Australian contractors are confident of capturing talent from the mining sector, as these resources start to become available,” said Mr Gatt.
Globally and locally, government infrastructure plans remained the leading driver for growth in the sector. Population growth and global economic growth were also considered key market drivers impacting the construction industry going forward.
Even with resurging optimism, many companies maintained a balanced view on what the likely obstacles to growth might be, with budget deficits and public funding shortages being the overwhelming factor, according to the majority.
Power and energy have emerged as the dominant growth sectors globally. Australia expects a significant shift in growth to these sectors, flowing from a reduced reliance on mining. Rail, roads and bridge sectors generated greater focus globally.
As companies ramp up for growth, an overwhelming majority say that their risk management programs have improved project performance.
"Risk management has added greater sophistication to bidding and pre-contracting, reflected by improved pricing of risk and pushback on onerous contractual issues. However, there is still some way to go on this journey. Globally, a majority of respondents claim the existence of underperforming projects due to project delays, poor estimating practices and failed risk management," said Mr Gatt.
There is a growing divergence in strategies for growth. Global contractors are increasingly focused on expansion into new geographies; in sharp contrast Australian contractors are focused on new industry sectors within its borders.
"The power sector is, without question, attracting the most interest," said Mr Gatt. "With the increase in economic activity and the intense focus on energy security, it stands to reason that many players will see opportunity in this area. Power as well as water will increasingly become critical priorities for the industry," concluded Mr Gatt.
Ready for the Next Big Wave is a KPMG International survey conducted in mid 2013 through face-to-face interviews with 165 senior leaders – many of them Chief Executive Officers – from leading engineering and construction companies in 29 countries worldwide. Respondent representation was spread across the Americas (19 percent); Europe, Middle East and Africa (52 percent); and Asia Pacific (28 percent). Respondent companies’ turnover ranged from less than US$250 million to more than US$5 billion, with a mix of operations from global through regional to purely domestic.