HIGH INDUSTRY DEBT LEVELS NOT A WORRY

By NZHJ June 22, 2021 Industry news

Our latest exclusive data indicate no real increase in risk in and around the hardware channel, despite high levels of ongoing activity making for growing debt levels.

Exclusive to NZ Hardware Journal, the latest data 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:

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

Our last update (posted 27 May) for the April month revealed little risk movement in the four key categories we monitor each month, although Creditworks' CRISworks database was showing a very high level of (slightly) aged debt.

Which direction did risk take in May?

"While debt levels continue to rise," comments CreditWorks' Alan Johnston, "This is more a reflection of the amount of business being done, rather than debt aging."

Although the CRISworks database has reached record levels (over $2.4 billion) of exposure, Alan describes the average DSO (Days Sales Outstanding) as still at a "very acceptable level", just over 41 days (with 30 days being ideal).

He continues: "This too suggests that, while the industry is consuming materials, and building like there is no tomorrow, there is still a strong emphasis on maintaining good payment terms.

"With the timber shortages – and many other products being in short supply – the suppliers tend to hold most of the cards at present, so it is not in the best interests of the tradie to get offside with his supply merchants at this point in time."

In nearly all of the sectors we monitor, risk profiles have remained quite steady.

Even Core Retailing is showing no real signs of deterioration, while movement in the other sectors is all around the lower risk bands, and therefore doesn’t pose a great deal of concern when it comes to risk profiling going forward.

Looking further out, Alan Johnston rounds up the picture thus: "As we go into the winter months, we can expect the debt market to remain steady, and settled,  as is somewhat traditional during this period of the year."

Now see the charts below for a visual explanation of the last three months' risk profiles across our four 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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