CAU­TIOUS OP­TI­MISM

IN­DUS­TRY HOPE­FUL DE­SPITE PAY­MENT DE­LAYS IN Q3 2018

Construction Week - - FRONT PAGE -

Pay­ment de­lays are ubiq­ui­tous in the con­struc­tion in­dus­try world­wide, but the Mid­dle East’s engi­neer­ing pro­fes­sion­als have been sig­nif­i­cantly im­pacted by the trend in Q3 2018. Dis­putes, and their res­o­lu­tion, are also a ma­jor con­sid­er­a­tion for top-level ex­ec­u­tives work­ing in Mid­dle East con­struc­tion and re­lated sec­tors.

These are the find­ings of Con­struc­tion Week’s in­au­gu­ral Busi­ness Con­fi­dence Sur­vey, which aims to eval­u­ate mar­ket sen­ti­ment in the con­tract­ing; equip­ment; fa­cil­i­ties man­age­ment (FM); and me­chan­i­cal, elec­tri­cal, and plumb­ing (MEP) sec­tors on a quar­terly ba­sis. The sur­vey’s sim­ple ques­tion­naire has been de­signed by Con­struc­tion Week and its sis­ter ti­tles, PMV Mid­dle East, Fa­cil­i­ties Man­age­ment Mid­dle East, and MEP Mid­dle East with the busy sched­ules of our re­spon­dents in mind.

Each quar­ter, a group of C- and M-level thought-lead­ers, in­vited by the Con­struc­tion Week group’s ed­i­to­rial staff, will share their views on the in­dus­try’s re­cent per­for­mance and fore­see­able fu­ture through the Busi­ness Con­fi­dence Sur­vey. Most im­por­tantly, the study will cap­ture the quar­terly suc­cesses of the wider con­struc­tion mar­ket, as well as guide and ad­vise de­ci­sion-mak­ers in the months to come. In the in­au­gu­ral edi­tion of the study, 60% of the 10 re­spon­dents in­vited to share their views said that de­layed pay­ments had the big­gest im­pact on their busi­nesses in the third quar­ter of 2018, with con­tract dis­putes and lack of skilled labour also af­fect­ing their op­er­a­tions dur­ing the pe­riod.

Barry Lewis, man­ag­ing di­rec­tor of UAE con­tract­ing heavy­weight ALEC, is one of the re­spon­dents that cited pay­ment de­lays as a Q3 busi­ness con­cern. In ad­di­tion, he ex­plained, the “res­o­lu­tion of legacy con­tracts” would im­pact the com­pany in Q4 2018 – a quar­ter dur­ing which the firm’s rev­enue might in­crease, while staff num­bers hold steady. Busi­ness con­di­tions were “bad” in Q3 2018, ac­cord­ing to Lewis, who also noted that the vol­ume of new busi­ness re­duced be­tween Q3 2018 and 2017.

A sim­i­lar sit­u­a­tion ap­pears to be brew­ing in the MEP sec­tor, with the heads of Grif­fin Con­sul­tants, JLW Mid­dle East, and Al Sab­bah Elec­tro-Me­chan­i­cal Com­pany (Semco) all cit­ing pay­ment de­lays as a ma­jor busi­ness chal­lenge in Q3 2018.

How­ever, re­spond­ing to Con­struc­tion Week’s Busi­ness Con­fi­dence Sur­vey – Q3 2018, Sub­hash Prit­mani, chief ex­ec­u­tive of­fi­cer and vice pres­i­dent of Semco, said busi­ness con­di­tions were “good” dur­ing the stud­ied pe­riod. The vol­ume of Semco’s new busi­ness, as well as the num­ber of new pro­ject com­mence­ments, were un­changed be­tween Q2 and Q3, ac­cord­ing to Prit­mani. But while he ex­pected Semco’s rev­enue to in­crease in Q4 2018, Prit­mani also said the num­ber of new pro­ject com­mence­ments was ex­pected to de­crease dur­ing the quar­ter.

Prit­mani cited de­layed pay­ments and con­tract dis­putes as the fac­tors that had the most im­pact on Semco in Q3 2018, adding that the cost of do­ing busi­ness – in­clud­ing the “steep rise in labour costs” – was also a con­sid­er­a­tion for the firm.

Sim­i­larly, Om­nia Halawani, di­rec­tor of Grif­fin Con­sul­tants, said busi­ness was good in Q3 2018, with the com­pany’s vol­ume of new busi­ness in­creas­ing on both a quar­terly and an­nual ba­sis. How­ever, Halawani ex­pected the num­ber of new pro­ject com­mence­ments to de­crease in Q4 2018 – a pe­riod dur­ing which de­layed pay­ments will likely con­tinue to af­fect the MEP con­sul­tancy, ac­cord­ing to Grif­fin’s di­rec­tor.

Ramy Bo­u­farhat, chief oper­at­ing of­fi­cer of JLW Mid­dle East, is one of the three re­spon­dents that cited con­tract dis­putes as a ma­jor busi­ness con­sid­er­a­tion in the last quar­ter. Ac­cord­ing to Bo­u­farhat, a “sub­stan­tial num­ber of pro­ject vari­a­tions with­out prompt de­ter­mi­na­tion” was an­other fac­tor that had a sig­nif­i­cant im­pact on JLW Mid­dle East dur­ing the quar­ter.

The prob­lems of de­layed pay­ments and staffing were echoed by Ra­jesh Ku­mar Kr­ishna, chair­man and CEO of Beaver Gulf Group. Kr­ishna and Semco’s Prit­mani said both fac­tors would con­tinue to im­pact their re­spec­tive busi­nesses in Q4 2018. Beaver Gulf Group’s top boss also said busi­ness con­di­tions were “good” in the past quar­ter, adding that he ex­pected rev­enue to in­crease in Q4 2018, even though the num­ber of new pro­ject an­nounce­ments would likely re­main un­changed.

Aaron Che­hab, chief com­mer­cial of­fi­cer at KBW In­vest­ments, de­scribed busi­ness con­di­tions as “mid­dling” in Q3 2018, adding that the firm’s vol­ume of new busi­ness noted a year-on-year (YoY) in­crease be­tween Q3 2018 and 2017. Che­hab said he ex­pected rev­enue to in­crease in Q4 2018, and cited mar­ket sen­ti­ment as a fac­tor that would im­pact KBW In­vest­ments dur­ing the pe­riod.

Un­sur­pris­ingly, the pay­ment de­lays faced by con­struc­tion con­trac­tors are, in turn, squeez­ing cash flow for equip­ment spe­cial­ists and dis­trib­u­tors in the mar­ket.

Ajit Ku­mar, chief oper­at­ing of­fi­cer at Al Na­boodah Com­mer­cial Group, said the com­pany’s vol­ume of new busi­ness de­creased in Q3 2018 com­pared to the same quar­ter of 2017.

While he ex­pected rev­enue and new pro­ject com­mence­ments to in­crease in Q4 2018, Ku­mar said “de­layed pay­ments and slow de­ci­sion-mak­ing” would af­fect the busi­ness dur­ing the quar­ter. Both these fac­tors, com­bined with poor “busi­ness sen­ti­ments”, had also af­fected in the firm in Q3 2018.

In this en­vi­ron­ment, it is un­der­stand­able that FM com­pa­nies are also fac­ing pay­ment de­lays – af­ter all, real es­tate de­vel­op­ers that award con­struc­tion con­tracts are of­ten also the clients of build­ing man­age­ment firms. Con­se­quently, FM com­pa­nies are as prone to cash flow prob­lems as their con­struc­tion coun­ter­parts, the Q3 2018 sur­vey re­it­er­ated.

Richard Nay­lor, chief ex­ec­u­tive of Cush­man & Wake­field Mid­dle East, de­scribed busi­ness con­di­tions as “bad” in Q3 2018, adding that the com­pany’s vol­ume of new busi­ness de­creased on a YoY ba­sis. The firm’s rev­enue and staff num­bers are ex­pected to stay the same in Q4 2018, Nay­lor said. In his re­sponses, how­ever, he pointed to de­layed pay­ments as the fac­tor hav­ing the great­est im­pact on Cush­man & Wake­field Mid­dle East in Q3, adding that it would con­tinue to have an im­pact in Q4.

Sim­i­lar views were ex­pressed by Khaled Bayad, busi­ness sup­port spe­cial­ist at QBG Fa­cil­i­ties Man­age­ment, who said the FM com­pany’s vol­ume of busi­ness de­creased on a quar­terly and an­nual ba­sis in Q3 2018. Bayad said he ex­pected rev­enue and new busi­ness vol­ume to in­crease in Q4, but cited pay­ment de­lays as the pe­riod’s most de­ci­sive busi­ness fac­tor. Con­tract dis­putes, along with slow pay­ments, also im­pacted QBG Fa­cil­i­ties Man­age­ment in Q3.

One FM com­pany ap­pears to have bucked the trend for the quar­ter, how­ever. Vin­cent Mon­tanet, chief busi­ness de­vel­op­ment of­fi­cer at Cofely Be­six Fa­cil­ity Man­age­ment (CBFM), said busi­ness con­di­tions were “good” in Q3 2018, adding that CBFM’s an­nual and quar­terly busi­ness vol­umes rose dur­ing the pe­riod. Mon­tanet said he ex­pected rev­enue and new pro­ject com­mence­ments to in­crease in Q4, adding that CBFM’s staff num­bers would also likely rise dur­ing the pe­riod. How­ever, he cited client bud­gets as a crit­i­cal fac­tor for the busi­ness in Q4, along­side a lack of skilled labour.

While Q3 might have been a mixed bag for the con­struc­tion, equip­ment, FM, and MEP sec­tors, the fi­nal quar­ter of 2018 is ex­pected to be a pe­riod of growth for the in­dus­try. Eight of the 10 re­spon­dents to the Con­struc­tion Week Busi­ness Con­fi­dence Sur­vey – Q3 2018 said they ex­pected rev­enues to rise in Q4 2018. Con­sid­er­ing that most clients end their fi­nan­cial year in this quar­ter, it is likely that the clo­sure of over­due pay­ments will be pri­ori­tised for the next 100 days – con­trac­tors and equip­ment providers may, as a re­sult, note in­creased in­comes in Q4 2018. Our re­spon­dents also saw Q4 2018 as a promis­ing time in terms of new pro­ject com­mence­ments, with only three pro­fes­sion­als pre­dict­ing that the num­ber of new builds would re­duce dur­ing the pe­riod. Fifty per­cent of re­spon­dents said com­mer­cial and res­i­den­tial projects would drive their busi­nesses for­ward in Q4 2018. Ad­di­tion­ally, 60% of re­spon­dents ex­pected their re­spec­tive staff num­bers to hold steady dur­ing the quar­ter, while 30% be­lieved the size of their work­force would in­crease be­tween Oc­to­ber and De­cem­ber.

De­spite some op­er­a­tional chal­lenges in the mar­ket, lead­ers from the con­tract­ing, equip­ment, FM, and MEP sec­tors see the value of do­ing busi­ness in the Mid­dle East – a re­gion that is work­ing to quickly achieve am­bi­tious tar­gets such as Expo 2020 Dubai, as well as Saudi Vi­sion 2030, Abu Dhabi Eco­nomic Vi­sion 2030, and UAE Vi­sion 2021. As in­di­cated by the par­tic­i­pants in Con­struc­tion Week’s in­au­gu­ral Busi­ness Con­fi­dence Sur­vey, the in­dus­try has much to look for­ward to in Q4 2018.

Cau­tious op­ti­mism: The Mid­dle East’s in­dus­try lead­ers are op­ti­mistic about growth in Q4 2018, de­spite fac­ing pay­ment de­lays in the last three months.

Sur­veyed lead­ers’ rev­enue ex­pec­ta­tions for Q4 2018. A site vis­ual shot as cap­tured by a Sky­catch Viewer.

^ How in­dus­try lead­ers be­lieve staff num­bers will change in Q4 2018.

^ How each in­dus­try leader de­scribed busi­ness con­di­tions in Q3 2018.

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