Scarcity of trained labour a huge challenge: Access Engineering MD

This is the 13th of the Mirror Business-Colombo Stock Exchange (CSE) interview series, featuring top executives of the S&P SL20 companies. Here, Access Engineering PLC Managing Director Christopher Joshua talks about Access Group’s performance, future plans and industry growth prospects.

What are the key milestones that Access has achieved so far in 2017? 
In 2016-17 we recorded the highest ever turnover and profit of Rs. 14.7 billion and Rs. 2.6 billion at company level since inception. In terms of significant investments we invested over Rs. 2.5 bn in Harbour Village (Pvt.) Ltd (Joint Venture with China Harbour Engineering Company Ltd and Mustafa Singapore Pte Ltd) on a mixed development project consisting of approximately 990 apartments and approximately 150,000 commercial space in downtown Colombo.

We also commenced our first apartment development project (50 percent Joint Venture), Capital Heights Rajagiriya consisting of 242 luxury apartments and commenced commercial operations of Access Tower II on 1st August 2017, a 30 story A – Grade office complex in the CBD of Colombo 02. The building was 100 percent leased even prior to the completion of construction. We also commenced construction of Section 2 of the Central Expressway (CEP) with a consortium of local contractors.

While building on its original strengths the company has ventured into new projects and services over the years. What growth initiatives can be expected in the medium to long term? 
We will continue to further consolidate and expand our core business of value engineering. We see growth potential in the infrastructure development sphere in the medium to long term both in the public and private sector. 

We are further enhancing our capacities in the construction material segment. We see growing demand in this segment as a result of the construction growth, both in the city and the provinces. 
Our forward integration into the property development segment has begun to pay good dividends where Access Tower 2 was fully leased out prior to completion.  We see good potential in the other 2 property development projects namely Capital Heights and Harbour Village, considering the excellent location of the property and the value proposition offered to potential customers.  

Our growth and expansion in the local market where there has been significant demand for our resources, has not permitted us to venture into overseas markets, since our successfully completed project in Papua New Guinea. However, our international partners have requested our participation with them in projects in the East African Region where we are currently pursuing opportunities for construction of bridges and flyovers and the supply of construction material.

Our associate company ZPMC Lanka Limited (Joint Venture with Shanghai Zhenhua Heavy Industries Company Ltd) which is in the mechanical engineering field has expanded their business to more new overseas market including the Middle East and Pakistan and currently under discussion on providing their services to Ports in South America. 

In your opinion, what challenges do you anticipate in the civil engineering and construction industry?
The industry at-large is experiencing constrains in obtaining raw material such as sand, soil, rock, etc., required for construction and constrains and delays in providing funding for major infrastructure development projects with limited investment and interest in development models such as PPPs and BOT. 

The scarcity of vocationally trained labour with necessary skills for current day work requirements are a further challenge. The introduction of new taxes such as NBT and the new Income Tax rate on construction of 28 percent which will come into effect from 1st April 2018 is also set to offer new challenges to the industry. 

Could you elaborate on how the industry could evolve to better serve the modern demands of infrastructure development in Sri Lanka? 
Introduction of efficient and cost-effective construction material and methods (examples: Post tension at Access Tower 2, diaphragm wall at ITC and now at Odel and Havelock City, etc.) will make a positive impact to the industry going forward.

In terms of the labour force, assistance in developing curriculums and training for vocations in demand such as carpentry, bar bending, masonry and welding would be beneficial. At present we have developed our own curriculum and carry out our own training and development programs at Access Engineering, but a broader, industry-wide effort is required. 

Progress in pursing Public/Private partnership projects is important when considering the way forward for the industry. We have already commenced a PPP project with the UDA for public housing, which is currently being very successfully implemented. Similar projects across the board would help the industry and facilitate economic development. 

Focusing on the shareholder, what efforts and initiatives are you taking to drive shareholder value? 
Since listing in 2012 our performance has been consistent and our growth has been above the industry average.  Our annualized year on year growth for the past 6 years has been 13 percent on the top line and 11 percent on the bottom line at company level. 

This has been possible through the practice of value engineering, continuous strive to introduce new construction technologies and methods, prudent management and better utilization of resources. We have consistently increased the net asset value per share of our company from Rs. 10.53 in 2011/2012 to Rs. 18.84 in 2016/17. 

We have maintained our primary focus on developing our core business whilst diversifying into other business areas which has direct synergies to the core business.  This is with the exception of our investment in Sathosa Motors PLC in 2012.  Sathosa Motors has made significant growth both in top and bottom lines since our investment in this business. We continue to be the most accredited and awarded business in the construction industry and have also constantly been recognized to be among the top 30 listed entities in Sri Lanka. 

Since listing, we have consistently paid good dividends to our shareholders amounting to 40-50 percent of the company’s earnings. In 2016-17 the total dividend declared to shareholders amounted to Rs. 1.2 billion, the highest ever since incorporation. Our investments in tax free ventures will make significant contributions to maintain our profitability levels considering the effect the business may face due to the increase in the corporate tax rate.

How has listing on the CSE been beneficial to Access? 
We were able to raise Rs. 5 billion through a private placement and an IPO that was well accepted by investors in 2011 and 2012. This new capital helped us to retire some of our borrowings while largely helping us to build capacity in our core business.

Listing on CSE has helped us to transform the company from a privately held enterprise to one that has over 6,500 shareholders currently. 

Thus our ownership was broad based. We have been able to attract a number of local and foreign institutional investors who have been anchor shareholders over the years. Their interest and scrutiny of our business has encouraged and helped us to further improve our performance. Listing also helped us to take advantage of macro-economic conditions that were favorable to us. For example in 2015 we were able to issue debentures with a total value of Rs. 5 billion in order to take advantage of the low interest environment that was prevalent. 

Our reporting and governance structures further strengthened after we became a public quoted company. Listing on CSE has had a positive impact on our corporate reputation and branding over the years and has also assisted us in attracting leading personalities to join our Board as Non-Executive Directors, sharing their broad based knowledge to develop our business.

Finally, what is your message to the shareholders of the company and also touch on the investment case for the company?
The construction sector has accounted for almost 30 percent of the industry sector of the GDP in 2016. It has also created approximately 7-8 percent of the total employment in the country continuously over the years. Similarly the growth of this sector has outperformed the overall GDP growth continuously. 

The outlook of the industry too looks optimistic with many development projects currently taking place and in the pipeline both from the private and public sector. Hence AEL share offers an opportunity for shareholders to be a direct beneficiary of this growth agenda.

The investment fundamentals of our company are very strong with attractive price to earnings ratios and price to book ratios. Except for few years we have consistently outperformed the market both the ASPI & S&P SL 20. Our business pays very good dividends to our shareholders whilst at the same time, increasing the net assets per share.