TEXT-Fitch:EMEA contractors chase higher margins in emerging markets
(The following statement was released by the rating agency)
Dec 12 - European engineering and construction companies will need to manage the higher execution risk of projects in emerging markets in the next year if they are to continue to benefit from the low cost of working in these regions.
Fitch-rated issuers have been able to push aggregate margins back to pre-credit crisis levels due to the flexible cost base and use of local subcontractors to provide more capital intensive phases of a project. Organic growth will continue into 2013 if demand holds.
Long-term infrastructure growth is likely to continue in selective Eastern European countries, Russia, Brazil, Mexico and the oil rich MENA region. The aggregate order book is now about 65% focused outside of domestic markets compared to 55% in 2010.
OHL, Abengoa, and Ferrovial have led the way in transforming their business models from domestic to internationally-focused contractors with strong concession portfolios. Fitch expects other contractors to follow given slowing domestic markets.
Stronger rated issuers now have enough surplus cash to increase capex and make acquisitions. The focus will be on international bolt-on acquisitions and greenfield concession assets. This will be the first increase in spending since 2007, but is likely to remain below pre-crisis levels into 2014.
For the full analysis, see 2013 Outlook: EMEA Engineering & Construction at www.fitchratings.com.
Link to Fitch Ratings' Report: 2013 Outlook: EMEA Engineering and Construction
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