Road freight: Small enterprises make inroads
The heat has been turned down temporarily on the booming non-building construction industry.
As its name implies, the non-building construction industry engineers infrastructure such as roads, railways, refineries, mines, water supply, telecommunication facilities and smaller on-site work including boilers and heavy machinery. The industry’s major players represent an estimated 25% to 30% of annual industry revenue. These firms mainly rely on lucrative large-scale projects as a source of income. High levels of technical expertise and capacity set them apart from smaller firms who do not have the resources to complete complex projects.
Major players with a proven track record of projects have
managed to stand out and exert industry dominance, winning tenders frequently
in the form of consortiums. By pooling skills, firms increase the
competitiveness of tenders and reduce the risk of being excluded. It is not
unheard of to have more than one subsidiary of a firm being involved in
competing tenders for a project, as in the case of
Vast resources are needed to run large-scale projects. All
four firms are highly geared at between 60% and 70% (total liabilities/total
assets). The current slump in projects has forced firms to look for additional
sources of capital for continued growth. Lend Lease has recently completed a
capital-raising exercise while Bilfinger Berger, the only private company among
the four, will soon be floated on the ASX.
Lend Lease was significantly affected by the economic
downturn, posting a large net loss of $653.6 million primarily due to
writedowns and loss on property asset values. Lend Lease was not alone with
three of the four major players delivering lower profits after tax. Half-yearly
reports on these companies have indicated better results coming into the
current reporting year; but, final year results are unlikely to resemble the
double-digit growth figures of the past.
Despite the dip in profits,
Bilfinger Berger is expected to expand aggressively in the
coming financial year and will be playing catch-up with its German rival with
an imminent IPO exceeding $AUD 1billiion. Currently smallest among the four
major players, the float will provide a competitive platform for Bilfinger
Berger to bid on an increasingly shrinking number of new projects.
IBISWorld forecasts the industry to rebound from 2011-12. Firms will poise themselves for this next period of growth through acquisitions and strategic partnerships.
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