In January, Hallbury Homes became the first major construction company in Australia to fold, highlighting pressures in Australia’s construction industry, following crises at major firms ProBuild and Metricon. Hallbury Homes filed for bankruptcy on 4 January owing about $7 million to creditors.
The construction industry employs more people than any other industry in Australia and generates more than $360 billion in revenue, producing approximately 9 per cent of Australia’s gross domestic product (GDP).
Most of the construction companies surveyed for the BDO report have operations in the commercial, industrial, and residential sub-sectors and on average have 104 full-time employees.
While most of Australia’s construction businesses are either sole traders or very small (employing less than 20 people), the range of organisations surveyed for this report ranged from 10–250 full-time employees. All the organisations surveyed reported revenues of less than $500 million in the financial year 2022.
The BDO report found that construction companies across Australia are experiencing significant challenges driven by inclement weather conditions impacting construction activity, labour shortages, and rising inflation.
Additionally, it was revealed that 60 per cent of companies surveyed reported an increase in revenue of more than 10 per cent compared to the previous financial year.
Meanwhile, net profit before income tax (NPBT) significantly declined across the majority of companies surveyed likely due to the supply chain and pricing challenges that the industry currently faces.
Like many other sectors, the top business priority for most construction businesses is to attract, recruit, and retain employees and the top cause for staff attrition is remuneration.
This competition for talent has also increased the cost of labour that has adversely affected the bottom line of all businesses.
Only 22 per cent of surveyed participants reported a financial loss due to subcontractor or supplier insolvency in the 12 months preceding the 2022 survey compared to the 2020 survey where a loss was incurred among 40 per cent of participants.
This indicates that construction companies have been more mindful of the risk of insolvencies in subcontractors since the pandemic. Additionally, 56 per cent of surveyed participants reported that there had been some or greater demand by subcontractors seeking shorter payment terms compared to the previous 12 months.
This indicates that the subcontractors are feeling the pressures of the pandemic and managing their cash flows carefully. Not surprisingly, all survey participants reported that there had been negative impacts on profits in the last 12 months resulting from intensified competition and supply chain issues.
COVID-19 has also caused labour shortages and disruptions to the global supply chain that in turn has caused increases in material costs and delays in receiving raw materials.
The rise in the costs has been felt across all areas from fuel, freight to electricity but has seen a particular rise in timber and metal material costs over the past quarter.
The report found the industry still has a projected annual growth rate of 2.4 per cent in the next five years.
