Tough times for construction CEOs

Published at 09:55 AM on 03 February 2009

CEOs in the construction industry are significantly less confident about growth prospects, according to PricewaterhouseCoopers latest CEO survey. Only 18% of construction company leaders are very confident that they can increase revenues over the next 12 months, compared with 56% in PwC’s CEO survey last year. Only 15% of the 80 construction CEOs interviewed are very confident about revenue growth across the sector over the next three years.

The sharp drop in confidence stems in large part from the current financial crisis, with over 40% of chief executives extremely concerned that the disruption of the capital markets will impact growth. More than three-quarters of construction CEOs anticipate that the difficulties in the global banking system will increase the cost of finance and restrict access to finance, and around two-thirds also expect it to delay investment plans and curb their growth expectations.

The construction sector has always experienced significant seasonal and project-related headcount variations, and 29% of construction CEOs anticipate reducing headcount this year. Low-cost competition is also a key concern now that some companies are pricing work more aggressively, despite existing low margins, based on the assumption that material prices will fall. The end effect could be more cut-throat competition in some segments as many CEOs focus on short-term wins, possibly at the cost of long-term profitability.

As the sector becomes increasingly financially constrained, contract disputes are also likely to become more common. CEOs who are looking to maintain long-term success need to ensure that contracts are carefully assessed for risk factors throughout the supply chain; careful selection and monitoring of subcontractors who will be able to deliver on their obligations can help reduce the need for costly litigation and risk of financial failure.

Jonathan Hook, global engineering and construction leader, PricewaterhouseCoopers commented:

“Realistically, many construction companies will struggle over the next year or two. Some companies in the residential market may fail in the US, Spain, Ireland and UK. Land and house prices still have further to fall, and banks will need to manage work-outs for debt-laden companies.

“Companies more reliant on infrastructure and public sector projects are currently cushioned by longer term order books and are consequently less affected to date. Many major projects in the sector are long-term ones; as these near completion, or as initial cash advances dry up, cash-flow issues could arise.

“The marketplace is certainly challenging and construction CEOs will need to make tough decisions about what actions are required to ensure his or her company’s short-term survival. However retaining the right skills to deliver long-term business growth is important too, and companies that cut back too far now may struggle to take advantage of the economic recovery, when it occurs.”


Notes to Editors:

For more details or a copy of the report please visit www.pwc.com/ceosurvey 


For more information contact:

Vanessa Shaw
Consumer and Industrial Products & Services PR Manager, PwC 
Tel:020 7212 1002 
Mobile:07989 572 425 

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