The key highlight from the report identified is that every construction business is different, driven by its individual culture and values. There are some organisations that stand out as operating most effectively in their own area of expertise, whether it be safety metrics, staff attrition rates, financial stability or sustainability measures. Speaking to some of these organisations, we understood further that most of these KPIs are driven by top down values, which are embedded right down into the core of each business.
Financially, construction businesses surveyed (pre-COVID-19), suggest a positive outlook for the industry with 75% of participants expecting significant growth in revenues in FY20 when compared with FY19. Specifically the participants are expecting an overall average increase of 23% in FY20 against FY19.
However, interestingly, the diversification of business model is expected to become less broad as organisations forecast forward to focus on the areas that ‘they do best’, which in these surveyed participants is commercial construction, moving away from managed services and residential construction. Profitability of those surveyed is also expected to increase in FY20, but not as consistently with the revenue forecasted, with only 50% of participants expecting net profit before tax in FY20 to increase significantly.
This analysis is interesting as it suggests that the top line revenue is forecasted to increase significantly across the industry in FY20. However, as this is not necessarily reflected in the NPBT or profitability benchmarks at the bottom line, it indicates that there may be some expected leakage of operational expenditure, a squeeze on margins or potentially greater expenditure on one-off strategic projects expected for FY20.
When forecasting to FY21, the survey participants have noted a slight 2% reduction in backlog revenues reflected in their budgeting when compared to the FY20 financial year’s budget. This may be an indication that businesses’ forecasts prudent, given the timing of the survey as there may be more clarity on the FY20 forecasts at this point in time. When forecasting out to 2020, participants are on average expecting increase of in revenue per full-time employee, which is than the anticipated average increase in revenues for 2020. This is following an average increase in employees of 2.7% in the FY19 financial year. What this suggests is that headcount is increasing year on year, and companies are expecting to see efficiencies in the people employed in the coming year and enhanced productiveness. Alternatively, they may be leaning more heavily on contractors and ‘outsourced’ administration staff. Either way, there is a clear shift anticipated for FY20 in the way that construction businesses expect to operate their human capital.
From a strategy perspective, the key business risk for the majority of respondents was a focus on their human capital, particularly retaining quality and skilled staff and providing strong work culture and safe work environment. Whereas the activities that are expected to create most value for the business in the sector were focused on client relationships and mitigating areas of financial losses. Construction companies in FY20 will continue to drive initiatives to improve safety and staff culture. Keeping their people connected to the business and increasing engagement with contractors and employees will be key in retaining quality staff, which is a large challenge for many companies in the industry. In turn, these employees will provide quality services through strong client relationships. People’s safety on construction sites is paramount in an industry that is at a higher risk of OH&S claims. The safe workplace environment drives staff engagement as well as reduces financial losses and risks associated with fines, claims and penalties. The survey participants reported an average lost time injury frequency rate in FY19 of 5.71. When considering the serious lost time injury frequency rate in the 2019 financial year, this dropped to an average of 1.58.
Speaking with some participants on the impact of COVID-19 on their businesses and how they are planning ahead, the sentiment is overall positive whilst acknowledging the challenging shorter-term hurdles ahead. Measures being put in place to minimise the impact of COVID-19 for the economy as a whole and for the safety of their staff are providing some interesting future efficiencies. It has forced the industry look at the way that things are currently done challenging the status quo. Particularly in the area of flexibility. So far, reports are that the industry is rising to the challenge, and anticipate that only future synergies and efficiencies will be the end result.