The construction sector has been one the hardest hit during the Covid crisis. Photo / Supplied
The country's leading construction and infrastructure companies are scrambling to reset their businesses in the new world created by the Covid-19 crisis.
Fulton Hogan managing director Cos Bruyn said there was huge uncertainty in the project pipeline across local and central government, and commercial works are significantly down through cancellation of jobs.
"We are still trying to understand the short to medium-term impact on our revenue, and right-size the business. We need to get back on our feet operating business as usual to create certainty for staff and shareholders," Bruyn said.
Fletcher Construction chief executive Peter Reidy's priority over the next six months is re-setting "a forward cost base within an uncertain demand profile".
Also, he wants to secure specialist skills despite the border restriction constraints.
Another company leader said his aims were to define small, achievable goals within this period of uncertainty, maintain productivity and manage cash.
The $40 billion construction sector, employing 10 per cent of the country's workforce, was one the hardest hit during the Covid crisis.
The sector's activity slumped 25.8 per cent — more than double the record fall in national activity of 12.2 per cent — for the June quarter when most of the building stopped during the nationwide Covid lockdown, as it wasn't an essential service.
The country's biggest construction company Fletcher Building is reducing 1500 jobs in New Zealand and Australia as new commercial work is expected to drop 15 per cent and infrastructure 10 per cent.
The Fletcher staff were supported by a $67m wage subsidy, and the company lost immediate development work at Auckland Airport when the $1-5b Domestic Jet Hub alliance project was put on hold in April. The work was the largest commercial project to be cancelled due to Covid.
Earthworks for the new Drury South town centre were also delayed, and developer Stevenson Group had to lay off a small group of fixed-term workers.
Westpac economist Satish Ranchhod predicted that up to 20,000 of the 258,000 building workforce could lose jobs.
The Mood of the Boardroom 2020 survey results were not pretty reading for the construction and infrastructure industry.
Half of the 10 company respondents reported their profit will decrease over the next 12 months and 60 per cent said revenue would decrease.
Only one — a design and engineering consultancy — said its revenue would increase, and two indicated their profits would rise.
Again, half of them reduced staff numbers from 5-15 per cent during the Covid crisis and they expected to downsize even further over the next six months. No-one will increase staff over that period.
Only three of the respondents are planning to authorise more capital expenditure over the next 12 months, compared with last year, and four said they would be reducing capex. However, 60 per cent of the respondents reported they will be spending more on IT.
Six of the companies used the first round of the wage subsidy, while three didn't need it.
The respondents were all in agreement about being "much less optimistic" towards the global economy than they were a year ago, and nine of them felt the same about the New Zealand economy.
However, they kept their chin up about the general business situation in their own industry — five were "slightly less optimistic" and the other five "much less optimistic."
In the survey, the level and quality of government spending, infrastructure constraints and immigration restrictions were three of the leading issues impacting on business confidence in New Zealand.
Health, education and water projects, the national roads upgrade and KiwiRail investment are adding some spark to the revival of the construction and infrastructure sector.
About $9 billion of infrastructure work is in play and the market is growing because of the NZ Transport Agency roads upgrade programme, KiwiRail investment in upgrading tracks and new projects — the Palmerston North freight hub, Picton and CentrePort Wellington upgrades — Auckland Watercare's central interceptor, and the City Rail Link.
Peter Reidy, co-chair of NZ Construction Accord, said all Tier 1 civil firms are recruiting into this space.
But international border restrictions were a significant issue for national infrastructure projects' inability to tap into global markets for specialist technical capability — there is a limited pool of resource in New Zealand.
Local council infrastructure capital spend is normally about $5b and there are concerns in the industry about the level of council capital spending over the next two years due to the Covid impact — with reduced developer contribution and pressure on rates.
Reidy said Auckland Council capital projections had reduced from $900m to $650m, and regional New Zealand still appears to be supporting local civil contractors with projects across urban development, local roads and wastewater. Project growth is heavily concentrated to Auckland and lower North Island, with South Island reducing project activity.
Reidy said commercial building construction is expected to fall from $9-10b a year to about $7b, with consents reducing and projects being delayed.
Developers were holding off hotels and office buildings but the upside was the Government health and education sector, which have pipelines of projects coming to the market over the next two to three years.
"We are starting to see skilled labour look to Australia in 2021 if the pipeline for this part of the market in New Zealand does not lift," said Reidy. He said residential consents were holding but the market was concerned about the trajectory in the early part of next year.
Downer New Zealand, the country's second biggest construction company, lost $1 billion worth of work and had another $500 million worth delayed because of the Covid-19 crisis.
Steve Killeen, Downer NZ chief executive, said the lost work was largely due to cancellations of infrastructure projects in areas most impacted, such as aviation.
Some development projects at Auckland Airport were put on hold.
The delayed work was in areas such as routine road maintenance, commercial building and local authority infrastructure projects. Downer, which bought Hawkins in 2017, maintains about 25,000km of roading network in New Zealand.
Incredibly, Downer has been able to keep its large workforce of 5900 intact. Killeen said Downer was a provider of essential services like telecommunications, power, gas and water and "we had a commitment to help keep New Zealand connected during the lockdown periods.
"This fortunately kept a number of our people in work.
"While we had some employees unable to work, as soon as we could scale back up again, our teams were redeployed across Downer and Hawkins and into other areas.
"Our employee levels remain reasonably consistent with the previous 12 months," Killeen said.
Together, Downer NZ and Hawkins received $41m in wage subsidy. "To help put this in context, our monthly wage bill is in the order of $50m per month and we have fixed costs of about $25m per month," said Killeen.
"I have personally seen the impact the wage subsidy has had on our business and our people, and I am incredibly grateful for the support to keep our people in meaningful employment."
In return, Downer has implemented a training programme with the Ministry of Social Development to help people transition into employment in infrastructure from affected sectors such as tourism and aviation.
Killeen said since June Downer and its sub-contractor network have employed more than 80 people, in regional areas like Gisborne and Nelson as well as in the main cities.
OPINION: Tensions are likely to become more evident next year.