Good times roll for major project suppliers and service providers, but some starting to struggle

A lackluster end to 2013 has given way to a strong start to the New Year for suppliers and service providers to major industrial projects in Australia and the outlook for the June quarter is bright.

This was according to the latest Projectory Quarterly Survey of Business Expectations.

Nearly 40 per cent of suppliers sand service providers to major projects in Australia reported a lift in sales revenue and profits for the March quarter compared to the previous quarter. However, 30 per cent reported the same performance in sales revenue while 30 per cent reported a fall in sales revenue.

“Ask a supplier or service provider to major projects how business is going and some will say ‘strong’, some ‘okay’ and others that they’re ‘desperate for work’; it really depends on who you talk to. These latest survey results seem to support those diverse experiences,” Projectory publisher and editor-in-chief Jamie Wade said.

WA companies did best in the March quarter with half of those respondents reporting an increase in sales revenue compared to around 40 per cent in New South Wales and Queensland and 35 per cent in Victoria.

Profit was stronger across the board and WA again led the way with 47 per cent reporting a lift in margins compared to Queensland at 40 per cent, New South Wales at 35 per cent and Victoria at 26 per cent.

Manufacturers and professional service providers reported the strongest business performance.

A total of 37 per cent of those that reported revenue up in the March quarter compared to the previous quarter were manufacturers followed by professional services at 20 per cent. However, Tier 2 companies servicing EPCMs such as engineering design houses and civil construction companies are doing it toughest.

A total of 26 per cent of those that reported revenue as down in the March quarter were Tier 2 companies, followed by Tier 3 sub-contractors and Tier 5 material and service suppliers at 14 per cent respectively.

Around half of those surveyed have six months or less work in the pipeline, a quarter – six to 12 months work and a quarter more than 18 months.

“The drop off in business among tier 2 and tier 3 firms is an early sign that engineering construction activity is falling. This is consistent with a recent economic forecast from BIS Shrapnel that engineering construction activity is expected to fall heavily over the next five years,” Wade said.

BIS Shrapnel said civil work done would fall only marginally in 2013-14 to $127 billion. However, aggregate engineering construction work is then expected to slip 11 per cent in 2014-15 and eight per cent in 2015-16 with further falls over each of the subsequent three years.

“By 2017-18 total activity will be 25 per cent below the 2012-13 peak,” the forecaster reported.

According to BIS Shrapnel, the key driver of the downturn in engineering construction work has been the dearth in new private and public sector projects over the past two years as commodity prices fell and Federal and State Governments began to rein in spending on new infrastructure projects.

Outlook

On a positive note those surveyed in the latest Projectory Quarterly Survey of Business Expectations were upbeat about business expectations for the June quarter.

Sales revenue, profits and wage growth were the three areas most expected to increase.

Just over 43 per cent expect revenue up, 43 per cent as the same with only 14 per cent as down. Expectations on profit were on par with revenue.

Non-wage labour costs, selling prices and overtime utilisation were the three areas most expected to remain the same.

Job hires, investment in building and structures and overtime utilization were the three areas most expected to fall.

The survey also revealed that Queensland for the first time in the survey’s history had surpassed Western Australia as the region offering the most opportunity.

The gap between mining and infrastructure as the sectors offering the best prospects for suppliers and service providers in the June quarter was also closing.

About the survey

The latest Projectory Quarterly Survey of Business Expectations canvassed in April 2014 the views of 122 individuals from companies that supply equipment and services to major industrial projects in Australia.

The survey is run by Projectory – an online lead generation service for suppliers and service providers to major industrial projects in Australia.

The core business of those surveyed mainly comprised manufacturers at (28 per cent) followed by professional services (20 per cent); Tier 2 servicing EPCMs – e.g. engineering design, civil construction (12.50 per cent); distributor (11.67 per cent); Tier 3 sub-contractor – servicing EPCMs or Tier 2 firms (10.83 per cent); Tier 5 materials and services supplier to Tier 3 and Tier 4 firms (7.50 per cent); agency (6.67 per cent); EPCM (5.00 per cent); and Tier 4 sub-contractor – servicing Tier 2 and Tier 3 firms (2.50 per cent).

The job types of those surveyed comprised Senior Manager (38.66 per cent), Marketing or sales (33.61 per cent), Product or technical (11.76 per cent), Owner/operator (9.24 per cent) and Administration (6.72 per cent).

Industry sectors served by the companies of those surveyed comprised: mining

(84.17 per cent); oil and gas (68.33 per cent); infrastructure (68.33 per cent); construction – non-residential (59.17 per cent); industrial e.g. factories, refineries; defence (38.33 per cent); and construction – residential (32.50 per cent).

Most of those surveyed were with companies with an annual sales turnover of $10,000,001 to $50m (25.64 per cent); $50.1m to $250m (22.22 per cent); +$250m (19.66 per cent); $5,000,001 to $10m (10.26 per cent); 0 to $1m (9.40 per cent); $2,000,001 to $5m (8.55 per cent); and $1,000,001 to $2m (4.27 per cent).

Full time staff at the companies of those surveyed mainly comprised six to 25 full time staff (59.52 per cent); +1001 (69.23 per cent); 51 to 100 (73.68 per cent); 251 to 500 (87.5 per cent); 1 to 5 (43 per cent); 26 to 50 (57.89 per cent); 101 to 250 (66.67 per cent); and 501 to 1000 (77.78 per cent).

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