March 9, 2009

PricewaterhouseCoopers

Survey finds confidence of Canadian construction and engineering leaders at all-time low

Richard Gilbert

staff writer

CEOs of engineering and construction companies are preparing to make tough decisions to ensure the short-term survival of their businesses, while developing strategies that will lead to long-term success.

PricewaterhouseCoopers (PwC) recently published their annual CEO survey, which found confidence at an all-time low.

“CEOs around the world are retrenching, indeed many claim to be entering survival mode,” said Samuel A. DiPiazza Jr., CEO of PwC International in the foreword to the study.

“Our 12th Annual Global CEO survey shows how the financial crisis shattered short-term confidence. The percentage of CEOs who were very confident about their one-year revenue growth prospects dropped to 21 per cent, the lowest level in six years.”

This is a sharp decline from last year, when 50 per cent of CEOs were very confident.

The pessimism is prevalent across all sectors, geographic areas and levels of economic development.

“Realistically, many engineering and construction companies will struggle over the next year or two,” said Michael Clifford, leader of the PwC Canada, Engineering and Construction Practice.

“Some companies in the residential market may fail in the U.S., Canada, Spain, Ireland and U.K.”

Only 18 per cent of engineering and construction company leaders are very confident that they can increase revenues over the next 12 months, compared to 56 per cent last year.

Furthermore, only 15 per cent of the 80 engineering and construction CEOs interviewed are very confident about revenue growth across the sector over the next three years.

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

According to Clifford, companies experiencing cash flow problems or a lack of new projects may get some relief from both federal and provincial infrastructure spending.

The Federal Budget 2009 allocated $12 billion for infrastructure spending over the next two years.

“Notwithstanding the hope that the infrastructure stimulus will provide to the sector, the marketplace is certainly challenging and engineering and construction CEOs will need to make tough decisions about what actions are required to ensure his or her company’s short-term survival,” explained Clifford.

“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.”

More than half of engineering and construction CEOs see low-cost competition as a serious threat to growth. Their concerns reflect that some companies have been aggressively pricing work, focusing on short-term wins possibly at the detriment of long-term profitability.

“As the sector becomes more financially constrained, there is an increased likelihood of contract disputes,” said the report.

“Such disputes can inflict considerable damage on a company’s brand, tarnishing its reputation with partners and customers alike.”

The report recommends that CEOs try to minimize the danger of getting embroiled in disputes in the long-term by assessing their supply chain risks carefully and choosing subcontractors, who can fulfill obligations.

The report also found that construction and engineering CEOs may be able to develop proactive strategies and take advantage of opportunities in the area of climate change.

“Engineering and construction CEOs are ahead of the pack in terms of recognizing the commercial implication of climate change,” it said.

“Twenty-nine percent believe that threats to the general population and to property due to climate change will have a positive impact on their businesses, compared with 13 percent of CEOs across other industries.”

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