A general increase in backlogs and margins is giving cause for optimism across the industry, with further growth anticipated. Just over 50 percent of 165 mostly C-level respondents from the Americas; Europe, Middle East and Africa (EMEA); and Asia-Pacific (AsPac) regions say their companies experienced an increase in backlogs of at least 5 percent in the period from 2012 to 2013. Moreover, though margins are not rising at the same rate as backlogs, 80 percent say their margins will either remain stable or increase more than 2 percent in the same period.
Not surprisingly, Americas have the highest confidence for growth with 90 percent forecasting margins as stable or increasing by more than 2 percent. By contrast, 28 percent of companies in the AsPac region see margins decreasing below 2 percent
“Our 2013 survey shows the overall outlook in the industry is directionally positive,” said Geno Armstrong, Global Chair, Engineering & Construction and a principal with KPMG in the US. “A higher level of confidence in the Americas, demonstrated by large margin growth, is an indication of greater efficiency and cost management.”
Looking at growth forecasts for 2013, optimism pervades, with 64 percent expecting growth up to 25 percent, while 23 percent see growth edging at zero percent or less. The highest growth is expected in Central and South America, and Africa. Mr. Armstrong attributes the growth to favorable trading conditions in the regions, as well as good prospects for mining, oil and natural gas in certain parts. Respondents in Australia, the Middle East and the UK forecast the least amount of optimism in 2013. And overall, companies with revenues above $5 billion see the greatest potential for growth.
Drivers and Barriers to Growth
Government infrastructure plans still remain the leading driver for growth in the sector overall according to 66 percent of respondents, followed by global economic growth (42 percent), and population growth (38 percent).
In the Americas, privatization efforts via public-private partnerships (48 percent) ranked as the second-leading driver for growth behind government infrastructure plans (58 percent) followed by access to new energy sources, such as natural gas or renewables (42 percent). In the burgeoning economies of the AsPac region, not surprisingly, population growth (49 percent) and urbanization (47 percent) were the second and third drivers, respectively.
Nearly two-thirds (63 percent) say that it will be between 2 to 5 years for market drivers to have a positive impact on the industry. One out of five predicts it will be less than 2 years.
Even with resurging optimism, many companies maintain 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 72 percent. Private-sector financing ranked second (43 percent) among respondents.
As companies ramp up for growth, an overwhelming majority (93 percent) say that their risk management programs have improved project performance. Yet, over three quarters of respondents claim the existence of underperforming projects due to project delays, poor estimating practices and failed risk management processes.
Expansion Plans – New Geographies and Sectors
In anticipation of continued growth, 47 percent of respondents say their companies are making plans for international expansion into new regions. Africa (35 percent), US/Canada (28 percent), and the Middle East (22 percent) are the leading regions for expansion.
Entering new sub-sectors of the industry is also in the works for 44 percent of respondents, with the power sector (54 percent) leading the list, followed by water-related activities (28 percent) and mining (27 percent).
“The power sector is, without question, presently attracting the most interest,” said Mr. Armstrong. “With the increase in economic activity and the hyper-focus on energy security, it stands to reason that many players will see opportunity in this area. Power as well as water, mining, and other resources will increasingly become a critical priority of the business agenda in this industry.”
About the survey
Ready for the Next Big Wave? is a KPMG International survey conducted in early 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.
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About KPMG International
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 156 countries and have 152,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.