The fall of the construction activity that has been recorded in the last year has hit companies in the sector hard. One of them is Ferrumleader in the sanitary ware market, which suffered a sharp drop in sales and profits in the annual fiscal year that ended on June 30, according to the report submitted to the National Securities Commission.
The company highlighted that in the second half of 2023, construction activity took place during the electoral campaign period, “marked by a commercial greed higher than in the first half of 2023.” This is explained, he said, “by the acceleration of inflation, movements in the dollar exchange rate and the rise in interest rates, generating strong price increases.”
“In this context, the economic actors in the sector focused mainly on accumulating inventories as a reserve of value and on closing works”he explained.
But the sharpest decline in activity was registered from December 2023, with the change of Government. From then on, “a strong market retraction began to be observed, which became more pronounced in the following months.”
“During the first half of 2024, there was a significant contraction in the construction value chain, which, in the opinion of some economists, the third largest drop in the last thirty yearscomparable to the crisis of late 2001 and early 2002,” added the Ferrum report.
“In light of the sharp drop in turnover caused by the decline in economic activity, operating and structural expense levels were adjusted to cope with this new scenario. The recessionary scenario affected shipments of sanitary fixtures and accessories, which decreased compared to the previous year, mainly in the second half of the year,” he added.
Impact of the recession on balance sheets
Translated into numbers, the impact of this adverse context on Ferrum’s results was as follows:
The sales revenue consolidated as of June 30, 2024 amounted to $109,572.5 million compared to $150,157.8 million of the previous year, both values expressed in homogeneous currency at the closing date. Thus, the drop was 27%reflecting the significant drop in the level of activity mainly in the second half of the year.
The gross profit consolidated amounted to $45,598.7 million, representing 41.6% of sales revenue, recording a drop of 37.4% compared to the previous year, as a result of the higher impact of costs due to the drop in sales revenue, partially offset by productivity improvements in industrial processes.
The bills Administration, marketing and other net operating income (expenses) amounted to $32,811.0 million, compared to $39,064.4 million in the previous year, both values expressed in constant currency. The decrease was 16.0%.
The consolidated operating profit amounted to $12,787.7 million, representing 11.7% of sales revenue, compared to $33,748.2 million in the previous year, both values expressed in homogeneous currency, reflecting a 62.1% drop compared to the previous year.
The net financial results (including the result from exposure to changes in the purchasing power of the currency) amounted to a negative result of $12,427.6 million, compared to $2,215.9 million in the previous year, both values expressed in homogeneous currency, mainly due to the higher financial cost due to the increase in short-term financing.
He consolidated comprehensive income of the exercise amounted to $4,574.1 million, which represents 4.2% of sales revenue, being 73.1% lower to the previous year, reflecting the abrupt decline in the level of activity mentioned above.
The three factors that brought down the construction industry
- The reduction in private works: This includes new projects and renovation works, affected by economic uncertainty, the decrease in purchasing power, the increase in construction costs in dollars and a low value of properties in dollars, making construction projects very unattractive for real estate developers,
- The decrease in public works: In the context of the government’s zero deficit and drastic reduction in public spending, a large part of the public works planned and even started were suspended, severely affecting the provincial economies.
- Adjusting distributors’ inventories: During the first six months of 2024, they chose to consume their inventories and not replenish them in order to reduce stocks and adapt to the new economic scenario.
Ferrum bets on a change of expectations
Despite the adverse context, the qualitative report accompanying Ferrum’s results tables highlights that its expectations are positive.
“The measures of the National Government with the objective of reorganizing the macroeconomic variables, reducing the level of inflation, decreasing the cost of financing and recovering the level of reserves of the BCRA, generates a positive change in expectations for the medium term,” he says.
And he highlights: “Although during the first half of 2024 we have seen an abrupt drop in economic activity, with March being the lowest point, where the construction sector has been one of the most affected, has slowly been recovering in the following months “constantly.”
The report lists as favorable aspects “the greater supply of mortgage loans, the promotion of investments through the Large Investment Incentive Regime (RIGI) and the recovery of property values.” It considers that “these are elements that should motorize and strengthen again the growth of this sector.”
Source: Ambito
David William is a talented author who has made a name for himself in the world of writing. He is a professional author who writes on a wide range of topics, from general interest to opinion news. David is currently working as a writer at 24 hours worlds where he brings his unique perspective and in-depth research to his articles, making them both informative and engaging.
