Consulting engineering firms surprise
CONSULTING engineering firms grew in terms of both profitability and employment in the first half of the year. An increasing number of firms, however, are expecting profits to decline.
Firms expecting receding profits increased to 63 percent in the first half of this year from 54 percent in the second half of last year, according to the latest biannual economic capacity survey by Consulting Engineers South Africa (Cesa).
“This is a significant increase and clearly points to an industry under higher levels of financial distress,” the survey’s report said.
It said profitability unexpectedly improved to an average of 14.4 percent in the first half of the year from 12.2 percent and 13.7 percent in the previous two surveys. Employment increased by 4 percent in the first six months following three consecutive survey periods of contraction.
It estimated an employment increase by about 2 percent to about 23 838 jobs in the first half of the year, compared with the same period last year.
The number of firms looking for engineers increased to almost 70 percent from 48 percent before.
“There is increased demand for technologists and other technical staff, where 68 percent and 51 percent of respondents reported the desire to increase staff. This is well above the average over the last four surveys of 34 percent and 18 percent,” the report said.
Fee earnings also surprised on the upside, increasing by about 1.2 percent compared with an expected decrease of 3 to 5 percent.
Cesa said it was probable that earnings had reached “an upper turning point with a softer growth outlook in the medium term” considering the trends in industry indicators reported by firms.
More projects
Wally Mayne, Cesa’s acting chief executive, said the trends were encouraging, especially regarding growth in profitability and staff employment within Cesa’s member firms.
“However, we believe the trends would be better if more projects are brought on stream by the government, which will accelerate infrastructure delivery, reduce unemployment and provide the much-needed training and experience our graduates desperately need,” he said.
Firms largely continued to report keen to fierce competition in tendering despite some level of moderation from a peak of 96 percent in June 2013 to 85 percent by December 2014. The survey report said this was above the average of about 80 percent during 2007/08.
On average 55 percent of firms reported that tendering competition was fierce in the first half of the year compared with 53 percent in the previous survey.
Payment remained a serious issue though, with fees outstanding for longer than 90 days as a percentage of total estimated income, including late payments, increasing marginally to 24.5 percent in the first half of this year from 24 percent in the previous survey.
Industry challenges included regulation issues, with procurement based on price and broad-based black economic empowerment resulting in its being largely price driven; unrealistic tendering fees; fraud and corruption; and unlocking greater private sector participation to fast track delivery.