Construction firms outline coping strategies
At a recent Macquarie Group CEO construction conference held in Johannesburg, construction and engineering companies detailed their strategies to cope with difficult infrastructure markets.
Many have reported declining profits in the last few years, mainly as a result of the global financial crisis. But markets have gone from bad to worse on the global mining commodities rout and a worsening slump in demand for steel products used in infrastructure.
This has seen the market capitalisation of many JSE-listed infrastructure groups drop precipitously, including for major companies with attractive price-earnings multiples such as Murray & Roberts and Aveng.
Murray & Roberts said in its presentation to the conference that it was pursuing a new strategic future to 2020. This would see it become a diverse international engineering and construction group focused on natural resources markets.
"By 2020, we aim to be a leading diversified international project engineering, procurement and construction group in selected natural resources sectors and supporting infrastructure," the group said.
Strategic priorities include resolving historical claims in respect of Gautrain tunnel water ingress and a contract to build a concourse at Dubai international airport.
The group also said it would diversify its business model into higher margin sectors, including boosting engineering, procurement and construction, and also project management capabilities.
WBHO said that it did not foresee major changes in 2016 and 2017. It said roads and earthworks margins in SA were under pressure and that a lack of civil engineering activity was a concern. But the country’s electricity crisis was creating further opportunities in the energy sector and that building order books were healthy through financial 2017.
In the rest of Africa, building opportunities were still available, it said, but mining work was limited. Gas infrastructure projects in Mozambique had been pushed out by six to twelve months, and infrastructure activity in Botswana was declining. In its key Australian markets, the building order book remained at record levels.
WHBO said the repositioning of its civil engineering business away from a subdued mining sector was on track.
Construction group Basil Read said it had completed its organisational restructuring of the company into divisions, instead of subsidiaries. This would give it more cost-effective common administrative and management structures.
It had disposed of non-core businesses, and would concentrate on the resolution of legacy claims as management focused on strategic and operational issues in competitive markets.
Source: BusinessDay Live