DSO 14.7 ⇓

DIO 0.7 ⇑

DPO 11.6 ⇓

DWC 6.1 ⇓

In a reversal of recent trends, lower DSO has driven a reduction in average DWC and allowed faster payments to suppliers.

COVID-19 impacted the Construction & Engineering sector through lower productivity and higher input prices as a result of local and international supply delays, lockdowns and border closures. This was evidenced by the Performance of Construction Index (PCI) falling to its lowest level on record (21.6) in April 2020.

Of our sample, 60% experienced a fall in revenue and 80% reported lower EBITDA in H2 (compared to H1). Notwithstanding this, average margins held up across the year and were broadly in line with last year.

Despite the challenging operating conditions, the average DWC of our sampled companies fell by 6.1 days to 46.7 days in 2020, releasing $983 million in cash, with over 70% showing improvement. This was driven by a 14.7 day reduction in DSO to 61.4 days. Whilst we have noted a general trend over recent years of DSO drifting upward, this trend was reversed in 2020 as management teams focused on shortening billing and collection cycles.

The improvement in DSO was largely delivered in H1, which provided somewhat of a cash buffer at the onset of COVID-19 and provided our sampled companies with some flexibility to manage their supply chains during H2. Two thirds of sampled companies that collected more quickly from their customers also paid their suppliers faster with average DPO falling by 11.6 days across the year. In contrast to DSO, the majority of the change happened in H2 as companies paid more quickly, perhaps to support suppliers. The ability to pay suppliers more quickly was also supported by the sector being a major beneficiary of Government stimulus, including HomeBuilder and JobKeeper.

From an international perspective, the average DWC of our sampled companies was c.3 weeks shorter than for their EU and US counterparts, and c.6 weeks shorter than for their Asian counterparts.

Looking forward, activity levels across the sector appear to be recovering with the PCI increasing to 45.2 in September 2020. However, expectations are that competition for new work will intensify (reducing margins) and cash flow will come under pressure as subsidies are wound back, suppliers require more support, and/or lenders tighten finance. This reinforces the need for contracting, billing and collection processes to be very efficient to reduce the likelihood of liquidity pressure.

“…a strong operating result for the year and improved working capital management, through increased efficiency in the conversion of direct labour costs to debtors then customer receipts.”

Directors’ Report
Cardno Limited
FY20 Annual Report


COVID-19 Impact


Cash Impact*

*A positive cash impact is a “release” of cash from working capital (improvement). A negative cash impact is additional cash invested or “locked up” in working capital (deterioration).

Construction & Engineering - Financial Year
Days 2019 2020 Change
DSO 76.1 61.4 (14.7)
DIO 36.0 36.7 0.7
DPO 71.9 60.3 (11.6)
DWC 52.8 46.7 (6.1)
Construction & Engineering - Half Year
Days H1 2020 H2 2020 Change
DSO 65.5 63.6 (1.9)
DIO 35.2 36.8 1.6
DPO 68.4 62.2 (6.2)
DWC 41.7 48.4 6.7
Best & Worst
Days Best Worst Spread
DSO 25.3 104.9 79.6
DIO - 173.6 173.6
DPO 186.1 19.4 (166.7)
DWC 4.4 143.3 138.9
International Benchmarking
Days Asia EU US
DSO 125.4 69.7 81.2
DIO 53.1 84.9 44.4
DPO 91.3 88.2 54.1
DWC 87.4 70.4 71.2