Building confidence softens

Construction and development will be under pressure for the coming year as the sector recovers from the slump of the past few years, experts say.

This will be a dampener on participants such as Lend Lease and Leighton Holdings, among others, in listed and unlisted investments.

In its first-quarter update on Monday, Leighton Holdings said it returned to an after-tax profit of $123 million, compared with an $80 million loss in the previous corresponding period - (this included profit writebacks on Airport Link and Victorian Desalination Plant).

But the one area of weakness was the drop in work in hand (WIH), down from $43.5 billion at December 31, 2012, to $42.2 billion as of March 31, 2013.

Management said there had been a "softening in the overall level of contract awards in construction and contract mining". The managers also said Leighton aimed to improve the closing margins on new work through bid discipline and cost cuts.

Analysts at JP Morgan said with the Australian engineering construction peak likely to occur this year they believed competitive pressures would build on margins.

Concern about margin pressure comes as the national construction sector hit a seven-month low in April with poorer industry conditions.

The latest Australian Industry Group/Housing Industry Association Australian Performance of Construction Index was down 3.8 points at 35.2 in the month (readings below 50 indicate a contraction in the industry, with the distance from 50 indicative of the strength of the decline).

The report said construction activity was weaker in April at 34.7 and employment fell 9.4 points to 29.8, the weakest reading in the 7½ years since the survey began. New orders (37.7) and deliveries from suppliers (40.4) were also lower. None of the four main construction sub-sectors expanded in the month.

Director of public policy at the Australian Industry Group, Peter Burn, said the decline in April was a setback to an industry already under intense pressure.