Building Products

DSO 5.6 ⇓

DIO 7.5 ⇓

DPO 3.7 ⇓

DWC 7.9 ⇓

A material reduction in DWC driven by shorter collection cycles (lower DSO) and better inventory management (lower DIO).

Despite a softening in residential construction activity, continued government funded infrastructure investment drove growth in the Building Products sector, with 80% of our sample reporting an increase in revenue and EBITDA in 2019. The majority of our sample also reported new acquisitions, divestments, or both.

In terms of working capital performance, average DWC fell by 7.9 days to 75.1 days in 2019. This was driven by a 5.6 day reduction in DSO coupled with a 7.5 day decrease in DIO.

The sector had the second highest working capital load (DWC) of all sampled sectors, driven by large inventory holdings that reflect the nature of activities undertaken by market participants (including wholesale, retail and project work). Customers also typically require quick access to product. That said, those participants supplying into projects do have some leverage by requiring prompt payment for continuity of supply.

Effective inventory management is the key differentiator in the Building Products sector. The mix of raw materials, work in progress and finished goods held means that there is no single “sector answer” to improvement. Instead, a combination of direct initiatives to improve supply chain efficiencies and better align product development with market demands is required. In 2019, 60% of sampled companies were able to reduce DIO. Half of these companies did so by 20 days or more which helps to create a significant competitive advantage for those operators.

Of the sample, 60% reduced DSO. Within that group, two thirds of the companies also reduced DPO, suggesting that the benefit of faster collections was passed on (at least in part) to suppliers. This follows a similar trend to the prior year.

Reliance Worldwide Corporation, CSR and Fletcher Building achieved the most material improvements of the sampled companies in terms of DWC reduction. Fletcher Building delivered a 10.4 day reduction in DWC driven by the improved collection of its debtors. It reported lower DSO in four of its five materials and distribution divisions in 2019 (relative to the prior year).