Reviewing Engineering News-Record’s top 30 contractors

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ENR’s top 30 contractors report total revenue of US$775b, nearly 10% of global construction output, deploy US$1t of assets and employ almost two million people. In FY16, their performance was better than FY15 and, in some aspects better, than FY14 as well.

Chinese contractors continue their dominance, as the top three contractors are all Chinese. The geographical distribution is shown below.

EY - Geographical distribution of the top 30 contractors

In FY16, combined revenue growth of the top 30 exceeded their income growth. Over the last three years, the revenue growth of the top 30 was on average 3%, slightly below the world economic growth figures as shown by the International Monetary Fund. However, the contractors with high exposure to the oil and gas markets continue to post lower growth.

The leading 10 contractors continued their dominance in FY16 as well, with little or no change in their rankings. The Chinese companies, China Railway Group, China Railway Construction Corp Ltd. and China Communications Construction Co., Ltd., remained at the top of list.

The average international revenue as a percentage of total revenue for the top 30 remained with 46% unchanged compared to prior years. South Korean contractors have been witnessing a steady drop in overseas orders. Their international orders were at a 10-year low in FY16 and a year-on-year drop of 39%, mainly because orders from their main international markets in the Middle East and Asia saw a downward trend.

The top 30 have been gradually reducing their debt levels and increasing their capital base, lowering their gearing ratio in FY16.

EY - Debt position of the top 30 contractors

Japanese contractors were the ones that reduced their debt levels most significantly. Nationwide, 58% of the listed companies in Japan became debt free by the end of 2016. Of these companies, construction players even witnessed a major increase in net cash. In our review, European contractors have also seen a reduction in their net debt over the years in our study.

Return on equity for the top 30 increased to 10.6% in FY16 from a marginal 6.9% in FY15. Return on total assets remained as low as 2%. On average, it takes almost five months to get paid by a contractor.

The full cash conversion cycle stands at a month’s time for revenues to convert to cash after paying creditors. European construction companies in the study have a negative cash conversion cycle. This implies that they collect outstanding receivables much earlier than they make payment to their creditors.

EY - Average cash conversion days FY14–FY16

From an efficiency perspective, we note a return on working capital of 46%, which is consistent with FY15. Asset turnover stands at around 1 in all of the three years under review, confirming that the engineering and construction industry is very capital intensive.

From a technology perspective, all the top 30 have been quite actively deploying technologies, such as green concrete, lean construction, Building Information Modeling (BIM), drones, etc., to harness the benefits of operational efficiency and cost effectiveness. However, perhaps due to the already thin margins in the construction industry, technology investment remains, with the exception of the Chinese companies, well below 1% of total revenues. In fact, our review of the top 30 global contractors shows that US and European contractors spend close to .1% in contrast to Asian contractors, which spend well above 1%.

Employee productivity also remained low (on a weighted basis, less than US$ 400,000 per employee) when compared to other sectors, confirming the widespread message that, in the engineering and construction sector, productivity remains behind.

Other areas investigated reveal that effective tax rates remain high, standing on average at near nominal tax rates. Also, carbon emission rates are decreasing for almost all contractors that report this metric.


EY - Reviewing Engineering News-Record’s top 30 contractors Please see the full report for more details.