BUILDING INDUSTRY FACING TOUGH END OF YEAR?

By NZHJ September 30, 2021 Industry News

Thanks to lockdown, the building industry may well continue to struggle with debt and risk, "at least through to Christmas".

Our regular data series from CreditWorks Data Solutions (www.creditworks.co.nz) assesses the level of credit risk posed by the four business sectors most closely associated with our chosen industry:

  • Hardware, Building & Garden Supplies Retailing
  • Core Retailing
  • Residential Construction
  • Commercial Construction

In our last update (posted 31 August), although the July month's data didn’t strictly indicate it, our commentary suggested that the latest lockdown was likely to have “a significant impact on debt” in coming months.

Indeed, one month later, comments CreditWorks’ Alan Johnston: “The businesses which were previously in the ‘very low risk’ categories are now starting to show payment stress, and we are starting to see average DSO debt age out.”

Given that only a very small proportion of business previously offered a serious risk of failure, there is not much obvious movement in the higher risk band areas.

However negative movement is much more evident in the more populated 0.6-5.5% risk bands, particularly for the Residential Building and Core Retailing sectors (see below for graphical representations).

Alan continues: “This is somewhat to be expected, given what we know of the retail market in general, and more specifically the building sector.

“Current inability to access goods confined within Auckland boundaries, a general lack of available materials and whiteware supplies anywhere, price hikes, and an inability to trade or continue construction during Covid times (remember, for a fair share of August, the country as a whole was under full Level 4 restrictions) all somewhat adds up to a ‘Perfect Storm’.”

In terms of an outlook, says Alan Johnston: “I don’t expect September figures to show any better, in fact I think we will see further deterioration given the country’s biggest market – Auckland – was still in full lockdown throughout this period.

“While the retail sector may well bounce back over the next couple of months, we see the building industry continue to struggle from a debt and risk perspective, at least through to Christmas at this stage.”


 

Now see the charts below for a visual explanation of the last three months’ risk profiles across our four chosen sectors.

The left axis indicates the % of a sector that is at risk. The bottom axis shows the % likelihood of failure over the next 18 months.

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