Our regular data series, which we provide to the New Zealand Hardware Journal, assesses the level of credit risk posed by the four business sectors most closely associated with the Construction & Hardware industry:

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

Below is the New Zealand Hardware Journal’s commentary:

In our last post (2 August – find it here), the June month’s data continued to show good cashflow and payment profiles, somewhat flying in the face of all the negative forecasts around the construction sector.

Jumping now to August, CreditWorks’ latest real-world risk data reveals an interesting mixed bag.

First, it is evident that there is increased risk appearing around Core Retailing, particularly in the 20-40% likelihood of failure category (scroll down for the graphic).

“While still reasonably slight, the adverse movement is becoming noticeable,” comments CreditWorks’ Alan Johnston.

Similarly, in the Hardware / Building / Garden Retailing sector, there is now more discernible evidence of greater risk around the 40-80% likelihood of failure category.

“It is a bit worrying at this level. There is a clear deterioration in this sector which will need to be watched closely over coming months,” warns Alan.

Commercial Construction shows a similar pattern and the August risk in the 40-80% category is now four times more than in June.

Clearly cost of living and inflationary issues are big factors in these results.

The good news?

“Residential Construction is still in a strong position,” says Alan, “with volume of work, and good cashflow ensuring there is no risk deterioration in this sector.

“CreditWorks’ data, and our latest insights into this sector show that risk and debt aging is the lowest in the sectors we monitor.

“Indeed, the ‘headwinds’ in the Residential sector are reducing all the time, and are starting to resemble more of a ‘breeze’ every day,” he concludes.

We hope to share more in-depth information around CreditWorks’ unfashionably optimistic outlook for the Residential Construction sector online soon and in the next edition of NZ Hardware Journal.

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.

Our regular data series, which we provide to the New Zealand Hardware Journal, assesses the level of credit risk posed by the four business sectors most closely associated with the Construction & Hardware industry:

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

Below is the New Zealand Hardware Journal’s commentary:

In our last Statswatch post (27 June – find it here), the May month’s data continued to show improvement in the risk profiles of our four business sectors, although CreditWorks’ Alan Johnston again underlined the need for vigilance when it comes to risk management.

June’s risk data indicates more of the same and supports CreditWorks’ findings around payment profiles, which Alan describes as “quite strong.”

He continues: “Despite all the negative forecasts and current issues facing the commercial sector in general, and construction in particular, we are still seeing good cashflow and payment profiles for the key industries we cover.

“Feedback on collection activity with most of our suppliers indicates good payment profiles,” he says.

In response to negative forecasts for the medium to long-term future of the building industry, Alan Johnston qualifies; “While there is just cause to be concerned with rising material and living costs, labour shortages, and product supply, we are still seeing record consent figures and activity which is up on the same time last year.”

To the positive, although consent figures don’t necessarily equate to builds, positive signs for the construction market include action around plasterboard supply, the re-opening of our borders (which may help with labour supply), and reports of solid forward work for the next 9-12 months.

Current builds are however taking longer to complete and, while sales were down approximately 8% in June compared with May, the extreme weather issues being experienced around the country will account for some of this.

Alan Johnston concludes: “It’s not all doom and gloom for the commercial sectors, although that word – vigilance – continues to need to be applied.

“We are still seeing liquidations across the board however our investigations tell us that: (a) many of these are solvent liquidations, with no need for liquidator intervention; and (b) the most recent incidences (eg Compass Homes) relate to problems going back some time.

“So, while the industry, in general, is still trucking along quite well in most instances, it is important to be able to identify the good from the bad, and regular monitoring is recommended.”

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.

Our regular data series, which we provide to the New Zealand Hardware Journal, assesses the level of credit risk posed by the four business sectors most closely associated with the Construction & Hardware industry:

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

Below is the New Zealand Hardware Journal’s commentary:

In our last post, the April month’s data continued to show improvement in the risk profiles of our four business sectors, although CreditWorks’ Alan Johnston again underlined the need for vigilance when it comes to risk management.

May’s data suggests more of the same.

However, having said this, in late June CreditWorks is also reporting an increase in 60-90 day debt levels.

In the last month alone, reports Alan Johnston, debt exposure in 60 days has increased by 25%, and debt levels at 90 days have increased by 33%, or by $35 million in dollar terms.

This has also contributed to CreditWorks’ overall database currently seeing the highest levels of debt in its 20-year history.

“There is no doubt there is stress in all sectors of the market, with cost of living making a significant impact on debt repayment ability,” says Alan Johnston.

“While there appears to be considerable work currently in the building sector, a lot of building companies are struggling to finish work within reasonable timeframes, due to material shortages, supply lines, and access to progress payments.”

No coincidence then that a number of larger building franchises are predicting a major slowdown in the future, with forward bookings 12 months out looking bleak.

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.

Our regular data series, which we provide to the New Zealand Hardware Journal, assesses the level of credit risk posed by the four business sectors most closely associated with the Construction & Hardware industry:

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

Below is the New Zealand Hardware Journal’s commentary:

Looking at the wider picture this month, armed with April’s data (see the charts below) and the knowledge that well over 200 construction companies are currently in liquidation – 96 so far this year alone – CreditWorks’ Alan Johnston reiterates the need for risk management to be right at the forefront of any business manager’s mind right now.

The latest building company to fail is Oceanside Homes in Tauranga, leaving suppliers and subbies out of pocket by at least $500,000.

“Should have seen it coming” is a common response after the event.

But Alan Johnston says there are warning signs that may help prevent potential creditors being caught out by situations like Oceanside’s.

They include the history of the company (Oceanside for example had only been going for a little over three years), director resignations, recent extensions of payment terms, and the state of the company’s DSO.

“As we know, the building industry is in the middle of a perfect storm at present, so we haven’t seen the end of these issues,” says Alan. “So merchants and credit suppliers must be vigilant at these times.

“Before you do business with a contractor, check them out thoroughly, or if it is someone who is on your books already, monitor their ongoing activity and credit exposure in the marketplace – circumstances may change, and not necessarily through their own actions.”

In this respect, CreditWorks has launched its CheckMate Credit Report tool. Available as a simple check on any New Zealand company, CheckMate should be of particular interest not only to sub-contractors but also those who are engaging the services of builders and other contractors.

CheckMate reports will show the company credit score, and the likelihood of failure in the next 18 months (as per our regular sector snapshots shown on these pages), as well as a raft of other useful information points, so it’s a cheap investment that may provide some peace of mind. Learn more about CheckMate here.

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.

Our regular data series, which we provide to the New Zealand Hardware Journal, assesses the level of credit risk posed by the four business sectors most closely associated with the Construction & Hardware industry:

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

Below is the New Zealand Hardware Journal’s commentary:

Looking at the wider picture this month, it is interesting to see improvement in most but not all of these risk profiles from the same time last year.

From the perspective of accounts with a greater than 5% likelihood of failure in the next 18 months, Core Retailing currently carries the greatest risk with 18.5% of all debt exposure for the sector falling into this category (see chart below for more detail).

“Given the nature of the retail debt market, it is not surprising,” qualifies CreditWorks’ Alan Johnston. “Nevertheless, this risk band has almost halved in the last 12 months, down from 37.7% this time last year.”

The Hardware & Garden Retailing sector has also improved, from 3.6% to 3.4% of all exposure in this category, with Residential Construction too having halved its risk from 6.2% to 3.1% and continuing to show the lowest percentage representing a failure risk of over 5% (see the charts below for more detail).

However, Commercial Construction continues to be a concern as the only sector whose position has deteriorated over the last 12 months, now registering a 9.5% result in March, against 9.3% this time last year (see chart below for more detail).

In this respect, Alan Johnston says: “While in percentage terms, it may seem that the Core Retailing sector is at greater risk, it must be remembered that retail accounts are generally of much greater number, with risk generally spread over thousands of accounts, and usually small in exposure per account.

“In comparison, the Commercial Construction sector is made up of a far smaller number of players, with each carrying debt of much higher levels.

“So, to have 9.5% of the Commercial Construction sector representing a risk of greater than 5% failure would represent a much greater loss per company, should they ‘fall over’, so to speak.”

The charts are 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.

Our regular data series, which we provide to the New Zealand Hardware Journal, assesses the level of credit risk posed by the four business sectors most closely associated with the Construction & Hardware industry:

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

Below is the New Zealand Hardware Journal’s commentary:

While our last update, reporting on January 2022, showed a noticeable risk increase across all four sectors and raised the expectation of further deterioration, February’s data show relatively negligible month-by-month movement in the higher risk bands, with any adverse movement more focused in the lower risk bands.

Indeed, says CreditWorks’ Alan Johnston: “Considerably more debt sits at present under the Current, and Current + 1, payment profiles, compared to this time last year – which is a good thing.

“This is probably a reflection of supply constraints in the market and the need / desire to keep suppliers happy, so where possible, the supply lines remain open.”

However, he adds: “We are still seeing strain in the Commercial Construction sector where currently the level of risk in the higher risk bands (20-80%) has increased threefold since February last year, from 0.5% to 1.4%.

“While still at manageable levels, the trend in this area does warrant concern and is worth monitoring over the coming months.”

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.

Our regular data series, which we provide to the New Zealand Hardware Journal, assesses the level of credit risk posed by the four business sectors most closely associated with the Construction & Hardware industry:

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

Below is the New Zealand Hardware Journal’s commentary:

Our last update, reporting on October-December (posted 20 January), showed slight end-of-year risk increases for the Residential and Commercial Construction sectors.

Now, armed with January 2022 data, we can clearly see a noticeable risk increase across all four sectors, particularly in the 5-10% likelihood of failure risk bands (see graphs below).

CreditWorks’ Alan Johnston comments: “As earlier identified, we are in the middle of the toughest period of the year where debt becomes harder to recover.

“Aligned with the obvious problems of Christmas, and meeting tax, the building industry in particular is suffering with supply issues, as is well known, and this is slowing up construction in many cases, and in turn progress payments.

“Without product, the build can’t be progressed, the progress payment can’t be made, and the supplier can’t get paid.”

Looking forward now, says Alan: “February is already showing signs of stress, and we have seen several well-publicised business failures this month, as is usual for February – remember, this is the toughest collection month, and the month where traditionally there are the most company liquidations.

“So I expect to see further deterioration,  represented by higher risk levels, in next month’s figures.”

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.

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

Below is the New Zealand Hardware Journal’s commentary:

Our last update, reporting on the October month (posted 25 November), raised the likelihood of further stress in building sector cash flows.

And, with the ongoing and well-documented supply, pricing and staffing issues facing all businesses at present – particularly those in the building sector – it is therefore interesting to see what effect, if any, these issues are having on the merchants and retailers from a debt perspective.

Armed now with November and December 2021 data, CreditWorks’ Alan Johnston is happy to pass on that CreditWorks has been receiving “only good reports” regarding debt payment in the sectors we monitor, and that “Despite the issues referred to above, November was the highest sales month for the building trade in history!

“That said,” continues Alan, “it is evident that with the uncertainty surrounding future supply lines, many building companies are taking the opportunity to order in advance, and stockpile product where possible, due to anticipated demand.”

Across the Core Retailing and Hardware, Building & Garden Supplies Retailing sectors there has been little movement in debt risk over the last three months.

If anything, risk has reduced slightly.

However, in the Residential and Commercial Construction sectors that we monitor (see the first two charts below), we are seeing slight increases in risk in the higher risk bands (20-80%).

In this respect, adds Alan Johnston: “Those who have been feeling the debt pressure over recent months will find it tough going forward, since the January to March period is known as the most difficult period with respect to collecting debt.”

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.