COMMERCIAL SECTOR “VULNERABLE”?

By NZHJ September 07, 2018 Industry news

Stats for July show both good growth and some weakness in the market but CreditWorks' July data indicates a “vulnerable” commercial sector.

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

 

Debt levels staying high

Debt levels remain at record highs for the time of the year, according to the latest data for July 2018 from CreditWorks Data Solutions (www.creditworks.co.nz).

Partly explaining this is the amount of residential work being affected by the heavy rainfalls being experienced in many areas, so sales and borrowings are lower than we would normally see in the summer months, says CreditWorks’ GM, Alan Johnston.

 

Commercial construction squeeze

Following the receivership of Ebert Construction at the end of July, there has been a lot of well documented concern about the state of the commercial sector.

Alan Johnston agrees: “The enquiry level on our database is at an unprecedented high. Many organisations and institutions are concerned about debt exposure to their members, and the Ebert situation has re-affirmed to the market that no one is bullet-proof.

“A lot more notice is being taken of payment profiles for all the main players in the industry – not just the smaller guys, as may have been the case in the past.”

 

A “very vulnerable time”

Asked to summarise his outlook, Alan Johnston pulls no punches when he says: “It is a very vulnerable time for the construction sector, and more business failures are expected in coming months, with most vulnerability in the commercial sector.”

 

DSO “steady as she goes”

As a result, debt levels are being watched closely, which is reflected in the DSO figures for the month (see top chart opposite). Most sectors maintained a “steady as she goes” position, with the only real deterioration apparent in the roofing sector.

In contrast, the supporting Building sector (merchants in smaller sectors) did improve, although, as mentioned, overall there was little change in DSO.

“Expect more of the same through August,” says Alan Johnston.

 

BELOW: DSO (Days Sales Outstanding) by sector, August 2017-July 2018. (Source: CreditWorks).

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