MAY DEBT LEVELS STILL HIGH

By NZHJ July 11, 2018 Industry news

ABOVE: Total Debt on CRISworks database to May 2018. (Source: CreditWorks).

 

Debt high but why?

Data for May 2018 from CreditWorks Data Solutions still shows overall debt levels at all-time highs, even if they’re a little down on February’s peak (see chart above).

These high debt levels are “no doubt due to the run of bad weather, which sees work activity severely restricted on some sites, resulting in slower than expected building progress,” says CreditWorks’ Alan Johnston.

 

The net effect?

This slowing of work progress in the construction industry obviously has an impact on cash flows.

As a result, adds Alan Johnston: “We’re seeing an easing out of debt aging in pretty much all sectors, other than the Building Material suppliers, which remained steady.

“My concerns would be that retaining a steady materials supply could be at the expense of other sectors which are perhaps not as demanding on payment terms.”

Having said that, the Building Materials sector – with an average DSO of 64 days – is by no means in good shape [see chart below].

Says Alan Johnston: “This time last year, the sector was running at a little over 61 days average, so the weakening payment terms, based on higher volumes, is a bit concerning.

“This is especially the case when compared with other sectors outside the building game, which continue to hold their DSO to a significantly lower average of 46.5 days.”

 

Additional perspective

With CreditWorks having recently been approached by MBIE to assist in credit qualifying developers, builders and subcontractors who have applied to become part of the Kiwibuild programme, Alan Johnston adds another perspective on the current climate:

“It is going to be important that the payment and risk profiles of those in the building industry who wish to be involved in these builds, maintain a ‘clean sheet’ so to speak, as they will be under scrutiny both at the outset, and during the course of the build via debt performance monitoring.

“They will be expected to display not only a high standard of workmanship but will also need to demonstrate good fiscal skills.”

 

This valuable data can also found first every month in NZ Hardware Journal. Email us to get your own copy.

 

BELOW: DSO (Days Sales Outstanding) by sector June 2017-May 2018. (Source: CreditWorks).

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