DSO 0.4 ⇓

DIO 1.4 ⇓

DPO 4.5 ⇑

DWC 4.4 ⇓

A shortening of the net working capital cycle by 4.4 days in 2021, driven by an increase in DPO and a decrease in DIO.

The Building Products sector experienced a significant uptick in activity in 2021. This was reflected in the building approvals for new apartments, townhouses and semi-detached homes, which reached levels in June 2021 that were 52% higher than June 2020. Interestingly, the months with peak approvals were March, April and May 2021, highlighting the extent of the recovery from H2 2020 when the effects of the first wave of COVID were being felt across the sector.

The sector has been supported indirectly by the Government’s HomeBuilder stimulus, increased infrastructure investment, and low interest rates. This contributed to revenue increasing for 70% of our sampled companies in 2021 (relative to 2020). Revenue in H2 2021 was 8.9% and 14.1% higher than H1 2021 and H2 2020, respectively.

In terms of working capital performance, the average DWC of our sampled companies decreased by 4.4 days to 67.9 days in 2021. This was driven by longer supplier payment cycles (DPO up 4.5 days), a reversal from the previous year when participants were paying more quickly to secure raw materials (particularly during H2 2020). The average DPO of 57.4 days in 2021 was back in line with the average DPO for the last four years, highlighting the exceptional circumstances in 2020.

Effective inventory and debtor management is often the key differentiator in the Building Products sector. This was further highlighted in 2021 as 50% of our sampled companies reduced DIO whilst average customer collections (DSO) remained broadly in line with 2020 metrics. Average DIO for our sampled companies fell by 1.4 days to 81.2 days in 2021, continuing the trend over recent years. However, of even greater significance was the average DIO in H2 2021, which was not only lower than H1 2021, but 4.1 days lower than H2 2020 and 10.3 days lower than H1 2020. Whilst this was initially attributed to participants looking to destock as a way of managing cash flow during COVID, it has shifted to management teams having restricted access to new stock as activity picked up during H2 2021 and supply issues impacted many operators.

This issue has been widely reported and is expected to continue to have an impact during 2022 as COVID restrictions and huge demand in larger economies puts pressure on global supply chains, shipping and ports.

Our comparative benchmarking shows that, like Australian businesses, international Buildings Products companies carry a high working capital load, however the Australian sample appears more efficient at billings and collections management.

“Trading cash flow solid on tight working capital management; inventory focus to meet higher activity levels & supply challenges.”

Fletcher Building Limited
Investor Presentation Full Year Results to 30 June 2021


COVID-19 Impact

Net working capital performance

Cash Impact ($'m)*

*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).

Building Products - Financial Year
Days 2020 2021 Change
DSO 53.4 53.0 (0.4)
DIO 82.6 81.2 (1.4)
DPO 52.9 57.4 4.5
DWC 72.3 67.9 (4.4)
Building Products - Half Year
Days H1 2021 H2 2021 Change
DSO 50.6 51.7 1.1
DIO 81.7 79.3 (2.4)
DPO 58.7 56.2 (2.5)
DWC 64.8 66.1 1.3
Best & Worst
Days Best Worst Spread
DSO 35.8 84.2 48.4
DIO 43.0 126.6 83.6
DPO 85.3 31.8 (53.5)
DWC 42.0 111.9 69.9
International Benchmarking
Days AU Asia EU US
DSO 53.0 76.2 57.7 60.0
DIO 81.2 67.8 93.0 81.2
DPO 57.4 73.0 88.7 69.5
DWC 67.9 72.2 58.1 70.3