ARE INDUSTRY STRESSES STARTING TO SHOW?

By NZHJ April 06, 2018 Industry news

Data for February 2018 from CreditWorks shows debt may be down but stresses are growing.

ABOVE: DSO (Days Sales Outstanding) by sector March 2017-Feb 2018. (Source: CreditWorks).

 

February debt down

Says CreditWorks’ Alan Johnston: “Overall debt on our database reduced this month, however more as a result of some clients not getting their figures to us in time to be incorporated in these results.

“Allowing for the missing data, debt levels remained fairly stable between January and February as anticipated, however somewhat down on the high levels of this time last year.”

 

But DSOs increase

Following on from Alan’s comments last month regarding DSOs, he reports a continued increase in the building sectors, virtually across the board. The only sectors that showed any improvement were Glass and Plumbing, but only to a small degree.

While this is no surprise (refer last month’s data) it is “concerning to see that overall DSO on our database did improve, while the building and related sector results generally went the other way.”

 

Are stresses starting to show?

Take the collapses of A1 Homes and Landmark Homes, for no apparent reason. Both had work on their books, and deposits paid for new housing.

Says Alan Johnston: “Like any industry operating in a high-volume, low-margin market, cracks start to appear when pressure builds and we are starting to see this in the case of the building sector.

“While the industry has 5-7 years of strong residential and commercial workloads ahead, it is not without risk. Those with the right experience will be there at the end, but there will be more casualties in the meantime.”

On this basis, expect to see some improvement in next month's figures, although tax requirements in March will continue to dampen improvement in DSO levels.

 

BELOW: Total Debt on CRISworks database to Feb 2018. (Source: CreditWorks).

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