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Global construction revenues grew, while market capitalization fell in 2018: Deloitte Global report

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NEW YORK, NY, 10 July 2019–The world’s 100 largest construction companies generated revenues of over USD 1.393 trillion in 2018, an increase of 10 percent from the year prior, according to Deloitte Global’s annual Global Powers of Construction (GPoC) report. The report analyzes the worldwide construction industry and examines the strategies and performance of the top listed construction companies in 2018.

“Construction revenues continued to climb in 2018, though there was some underlying instability and a dip in market capitalization due to fears of a global slowdown,” says Javier Parada, Deloitte Global Engineering and Construction leader. “As we look ahead, the long-term forecast remains positive, and eight construction markets—China, the US, India, Indonesia, the UK, Mexico, Canada and Nigeria—are expected to account for 70 percent of all global growth in construction until 2030.”

Chinese companies continue to dominate the Top 100 ranking in terms of revenue, while other Asian players, mainly from Japan and South Korea, along with companies from the US, France, and Spain also have a significant presence in the industry ranking.

The predominance of Chinese companies is mainly due to the size of the Chinese construction market, as international sales by Asian companies are lower than other top companies, as a percentage of total sales. European construction companies are the most international construction players, with the top five companies in international sales based in Europe.

The financial performance of top construction companies was uneven in 2018. While sales and profitability increased, indebtedness also grew, and their performance in the stock market was weaker. The global economy is expected to expand within 2.5-3 percent per year between 2018 and 2022, and the construction industry is projected to grow 3.6 percent per year in the same period, with estimated revenue of USD 15 trillion by 2025.

Additional findings of the report include key financial indicators of construction companies and strategies they have undertaken to differentiate themselves in a market which continues to be fiercely competitive:

  • Top-ranked companies: Among the top 100 companies, 74 recorded an increase in sales in US dollars, with 45 recording double-digit increases. By geography, the largest construction companies were based in China (41 percent of total revenues), Europe (26 percent), Japan (13 percent), the US (9 percent), and South Korea (7 percent).
  • Market capitalization falls: The aggregate market capitalization of the top 30 construction companies at the end of 2018 was down 8 percent from the 2017 figure. Volatile markets throughout the year and a decline in Q4 caused the drop. This can be explained by investors’ risk aversion on the back of fears of a global economic slowdown and concerns over trade wars and political uncertainty.
  • Portfolio diversification: Many companies within the construction industry are diversifying their portfolio of business services to achieve sustainable growth and to increase the typically narrow margins of construction projects. Non-construction activities performed by the top construction companies are characterized by high operating margins, but higher diversification usually leads to higher indebtedness. In 2018, the top 30 companies generated 21.7 percent of revenues from non-construction activities.
  • Internationalization: Foreign growth opportunities continue to be a strategic imperative of construction groups. As of today, the top construction companies recorded 21 percent of total revenue beyond domestic markets, and international income represents 36 percent of sales. By geography, European (57 percent) and US-based (24 percent) construction companies were the most internationalized. However, internationalization strategies introduce additional risks that could negatively affect the traditionally narrow margins of construction activity, as well as the cash flows obtained from operating activities. Based on an analysis of the level of internationalization and construction margins achieved by the top 30 companies, most of the companies that have a significant portion of sales coming from activities abroad reported lower average construction earnings in 2018 than the companies who focused primarily on their domestic markets.

The Deloitte Global Report includes a section on shaping sector trends. Although construction has been considered a traditional industry with one of the lowest productivity gains over the last 30 years, several key trends have emerged over the last few years which will be key in shaping the future of the industry:

  • Innovation: New materials, standardization and the application of digital and advanced technologies are potential industry disruptors.
  • Competitive dynamics and margin improvement: It is essential for contractors to be proactive in managing processes and operation and to “industrialize” the construction activity in order to survive in a very competitive environment.
  • Internationalization: Those firms that are able to adapt their local business models to new markets and environments will likely be the winners.
  • Compliance, regulation and transparency: There is an urgent need to enhance compliance practices within the industry, reshape contracting and regulation and increase transparency across the board.
  • Sustainability: Sustainability is becoming a requirement and firms must be able to introduce improvements in a cost-effective way.

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Steve Dutton
Deloitte Global Communications
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