Major construction players on the brink of financial failure

Source: SV Partners - www.svpartners.com.au 

03 August 2016

Four of Australia’s big construction industry players are heading towards financial collapse and more than 2600 additional businesses in the sector are facing the same fate, according to an analysis by SV Partners.

The SV Partners August 2016 Commercial Risk Outlook Report shows four large construction companies with annual turn over of more than $100 million are at an extreme risk of financial failure within the next 12 months. Additionally, the analysis revealed a further 35 companies in the industry, with annual turn over between $10 million – $100 million fall within the same high risk category.

The SV Partners Commercial Risk Outlook Report analysis is based on more than 20 million financial records from various sources relating to Australia’s 2.39 million operating businesses. The Report identifies and analyses the sectors and geographical location of businesses facing the risk of immediate financial failure during the next 12 months.

The Report also revealed the construction industry had the highest number of businesses facing financial failure across the country, making it Australia’s most at risk sector.

SV Partners Managing Director Terry van der Velde said the industry is facing pressures like no other thanks to recent softness in the construction space as well as rising labour costs.

“We have seen some improvement across the construction industry in recent months, but that won’t be enough to save many of the businesses already on the brink of financial failure.

“A tight market has seen the establishment of contractual and financial arrangements that severely disfavour construction companies. This has meant these businesses have failed to meet and pay bills in accordance with their contractual obligations, with many facing civil and criminal non-compliance charges.

“This difficulty, combined with rising labour costs, mean that many construction companies are facing unmanageable financial pressure.

“Inadequate cash flow, lack of strategic management and trading losses are the top three contributors to financial failure not only within the construction industry, but across businesses Australia wide,” he said.

Data from the Australian Securities & Investments Commission (ASIC) demonstrated distress in the industry is reflected in insolvency figures. The construction industry recorded the highest number of actual insolvency administrations in ASIC’s Insolvency Statistics Series, with more than 2000 construction businesses entering insolvency during the period from March 2015 to March 2016.

Mr van der Velde said it wasn’t all bad news, advising that many construction businesses are still in the position to turn their financial position around and reassured the industry that a significant percentage of businesses are sitting in the low financial risk spectrum.

“It isn’t all bad news for the construction industry, many businesses in the sector have a strong outlook or are still in a position to turn things around,” he said.

 “To keep their financial health in check, we urge all businesses to prioritise financial issues with respect to the short term impacts on the business and adjust business plans to reflect revised projections.

“Finding opportunities to improve working cash flow and capital as well as stress testing budgets and finances against possible future scenarios are also key to staying in the black and managing financial risk,” he said.

Apart from the construction sector, businesses operating within the professional, scientific and technical services, retail, and accommodation and food services industries are also among the industries with the highest number of businesses most at risk of default within the next 12 months.

The Report’s findings show some 17,681 Australian businesses are at high risk of financial failure over the next 12 months.

You can download the report in full here:http://www.svpartners.com.au/resource-centre/commercial-risk-outlook/commercial-risk-outlook-august

 

Contact

Emma Kerswell BBS 07 3221 6711

 

 

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