QTPA Member Alert | Public investment builds growth for construction firms (27/3/2012)

IBISWorld Report

Public investment builds growth for construction firms

Commercial and industrial building construction in Australia is expecting a positive turnaround in 2011-12, with revenue estimated to grow by 5.1% after declining over the past three years. This year, commercial and industrial building construction is expected to generate revenue of $15.5 billion, with profits at about $697.5 million. Construction firms have been standing on shaky ground in the past few years due to the retraction of investment from the private sector. However, with the return of confidence in the market and the implementation of the Building the Education Revolution (BER) scheme by the government, the industry has found a new footing.

One company that has bucked the downward trend is Hansen Yuncken, a major player in commercial and industrial construction with a market share of about 2.0%. The company has been expanding nationally and has recently opened a new office in Brisbane to oversee the development of the $90 million Rockhampton Hospital project. The company has also benefited from the BER scheme as it was awarded a $414 million contract from the Department of Education and Training in 2010. Hansen Yuncken’s revenue has grown at an average rate of 14.7% since 2005-06. The company generated $1.2 billion in revenue over 2010-11, compared with $540.9 million in 2006-07, which is impressive growth in an industry with such a high level of competition.

Probuild Constructions is another thriving Australian construction company. Its revenue has grown significantly in the past five years, from $283.4 million in 2005-06 to $741.7 million in 2010-11. The company currently holds an estimated 2.0% market share, and reported revenue growth of 15.2% in 2010-11. Profit has been rising, too, as Probuild reported a 15.6% increase in net profit after tax in 2010-11, to reach a record high of $19.9 million. This growth came from developing apartments and shopping centres, as well as the $117 million Monash University New Horizons project and a $68 million contract for the University of Western Australia’s student accommodation facilities. Last year, the company increased its full-time equivalent employment by 139 people, in line with an increase in assets, anticipating the undertaking of more projects in the next few years.

The positive performances of Hansen Yuncken and Probuild Constructions can be attributed to their focus on servicing the public sector, which benefited from strong counter-cyclical investment over the economic downturn. The BER scheme has successfully acted as a lifeline to the industry, injecting about $16.2 billion into the construction business in Australia between 2009 and 2011. An anticipated upswing in demand for hotels and office buildings in Queensland, northern New South Wales and the Northern Territory in the next few years should provide additional momentum for construction firms.

Now the commercial and industrial building and construction industry is back on its feet, it is expected to keep growing over the next five years. Instead of relying on the public sector, growth will be driven by the private sector as global financial markets recover and funds become more accessible. Demand for hotel, office building and shop construction is forecast to rise, and this will provide a solid foundation for growth in the coming five years.