Backlog, margin increases renew construction, engineering leader optimism

Source: KPMG International, New York

After prolonged economic uncertainty, a majority of executives in the global engineering and construction sector are confident in industry growth prospects, according to the 2013 Global Construction Survey from tax, audit and advisory giant KPMG International.

A general increase in backlogs and margins supports optimism across the industry, with further growth anticipated. Just over 50 percent of 165 C-level executives from the Americas, Europe, Middle East and Africa, plus Asia-Pacific regions said their companies experienced an increase in backlogs of at least 5 percent from 2012 to 2013. While not rising at the same rate as backlogs, margins will either remain stable or increase more than 2 percent in the same period, according to 80 percent of survey respondents.

Americas region executives are most confident, 90 percent forecasting margins as stable or increasing by more than 2 percent. “Our 2013 survey shows the overall outlook in the industry is directionally positive,” affirms Geno Armstrong, global leader of KPMG’s Engineering and Construction practice. “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 of survey respondents expecting growth up to 25 percent. The highest growth is expected in Central and South America, and Africa. Armstrong attributes the growth to “favorable trading conditions in the regions, as well as good prospects for mining, oil and natural gas … The power sector is, without question, presently attracting the most interest. With the increase in economic activity and the hyper-focus on energy security, it stands to reason that many players will see opportunity. Power, as well as water, mining, and other resources will increasingly become a critical priority in this industry.”

Survey respondents most frequently cited government infrastructure plans (66 percent) as the leading driver for growth, followed by global economic (42 percent) and population (38 percent) growth. In the Americas, privatization efforts via public-private partnerships (48 percent) and access to new energy sources such as natural gas or renewables (42 percent) ranked as the leading drivers for growth behind government infrastructure plans (58 percent). 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 of executives. Private-sector financing (43 percent) ranked second among respondents.

KPMG conducted the survey through face-to-face interviews with 165 senior leaders from leading engineering and construction companies in 29 countries worldwide, 20 percent of respondents representing Americas firms.