SA’s construction landscape
The 2016 financial year saw a decline in market capitalisation and financial performance. Seven of the nine companies reflected a decrease in market capitalisation. In aggregate for the nine companies analysed, market capitalisation decreased by 3% to R25bn as at 30 June 2016 (R25.9bn as at 30 June 2015). After 30 June there was a market capitalization recovery of 11%.
Integrating risk for performance
Risk management continues to be a vital component of effective management for the construction industry having regard to the recent economic climate and more harsh operating conditions.
The common risks identified by construction companies include monitoring and compliance with the B-BBEE codes; health, safety and environmental sustainability; industrial action; liquidity risk; talent management and staff retention; growth expansion and operational performance; the macro-economic environment; tender risk; and compliance with legislation and regulation.
Improving stakeholder value
The construction industry adds significant value to South Africa and its people. The monetary value received by various stakeholders is often summarised by companies in their value added statements.
- Heavy construction employees represented 77% (2015:83%) of the value created.
- More than 1.38 million people are employed by the construction industry, either on a contract or permanently.
- The state received 11% (2015:9%) of value created in the form of direct taxes. However, the reality is that the state receives significantly more if one takes into account the tax on employee income deducted from employees’ salaries and net indirect taxes like VAT.
Key players in the construction industry have taken steps to review their group structures with a view to streamline their operations into a more consolidated group. However, this requires careful consideration of tax planning. The Income Tax Act contains a number of group roll-over provisions which may assist corporates to restructure and simplify their operations and structures in a tax neutral manner. It should also be noted that the legislation does not prohibit the use of tax loss companies as part of restructuring.
- Revenue declined by 10% from the prior year to R 130 billion.
- Operating expenses also declined, by R17 billion, which is a 12% decrease on the prior year.
- Net profit increased by 161% on the prior year to R 2.9 billion
- Staff costs reduced by 15%on the prior year, indicative of re-sizing activities in the industry.