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SA Construction 4th edition

Highlighting trends in the SA construction industry

South Africa’s construction industry faced a challenging year in 2016 with ongoing pressure on margins, lower revenue and lower order books.


The construction industry, a significant contributor to employment and growth in South Africa, has been in a slump since 2009. The 2016 financial year once again got off to a poor start, with margins under pressure, tight liquidity and decreasing order books.

There has been some improvement in companies’ performance as the year draws to an end, though, with signs of an increase in profitability and market performance.

A promising development for the industry is Government’s infrastructure plan, which aims to address South Africa’s infrastructure needs over the next few years. However, it will require input from and co-ordination with the construction sector for it to be successful.

Following an investigation by the Competition Commission into collusion in the industry, in October 2016 seven of the nine listed construction companies entered into an agreement with Government. This demonstrates their commitment to transformation in the industry in what is undoubtedly a move in the right direction. It is hoped that this agreement will resolve the perceived mistrust between the big construction companies and Government.

While the seven years of weak performance have resulted in weaker construction companies, we nevertheless believe that the industry is well positioned to support the country’s development goals.

Revenue vs Net profit

Our key findings

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%.

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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.

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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.

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Tax Developments

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.

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Financial performance

  • 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.

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Contact us

Andries Rossouw

Andries Rossouw

Africa Energy, Utilities and Resources Leader, PwC South Africa

Tel: +27 (0) 11 797 4060

Deveshnee Naidoo

Deveshnee Naidoo

Engineering and Construction Leader, PwC South Africa

Tel: +27 (0) 11 287 0663

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