Building Products

An increase in DWC driven by shorter supplier payment cycles (DPO), with average inventory and debtor metrics remaining stable.

The Buildings Products sector experienced high activity levels in 2018 driven by the continued growth in construction along the eastern seaboard. Of the companies in our sample, 91% reported an increase in revenue, although only 64% were able to convert this into higher EBITDA. This was in part due to lower margin work on some government-funded infrastructure projects.

In terms of working capital performance, the average DWC of our sampled companies increased by 3.8 days to 63.3 days in 2018. This was driven by shorter supplier payment cycles (DPO 6.0 days lower). Inventory levels (DIO) and customer collection cycles (DSO) remained relatively stable, although we note some significant variances in performance at the individual company level.

Decreasing DPO is not surprising in the context of sector growth during 2018 as participants competed to secure sufficient raw materials to meet demand and were willing to accept shorter terms from their suppliers. Looking behind the numbers we note 55% of the sample experienced increases in inventory days (DIO) which may be an early indicator of oversupply and / or softening demand from the larger construction companies (particularly those involved in the residential market). The ongoing challenge for the sector is to maintain good inventory management through a combination of direct initiatives to improve supply chain efficiencies and to better align product development and purchasing with market demand.

The most material improvements were achieved by Boral and GWA Group. These companies managed to improve DWC by 10.2 days and 6.9 days, respectively. Boral’s success was the result of revenue growth without a material increase in its debtors and inventory (resulting in lower DSO and DIO). This was also attributed to successfully bedding down the Headwaters acquisition (which provided a significant increase in scale).