Building Products
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Reduction in average DWC driven by lower average DSO and higher average DPO, despite a material increase in inventory holdings.
According to the Producer Price Index (PPI) for the Construction sector, input prices stabilised in FY24 with the PPI increasing by just 1.1% compared to a 7.4% increase in FY23. This was driven by a fall in steel prices and lower demand for new housing construction more generally. Despite the market pressures, 73% of our sampled Building Products companies recorded an increase in revenue and 73% of the sample achieved increased margins. However, high labour costs and other overheads meant that only 45% of the sample achieved an uplift in EBITDA margins relative to FY23.
From a working capital perspective, average DWC decreased by 1.7 days to 91.3 days as the sampled companies (on average) were able to collect from customers 3.2 days more quickly (lower DSO) and paid suppliers 2 days more slowly (higher DPO). Whilst the average movement in DWC was relatively small, there were some significant variances in performance noted at the individual company level with over half the sample experiencing movements in DWC of a week or more.
Close to 40% of the sample were able to reduce DSO and increase DPO, which provided a compounding benefit from a cash flow perspective and assisted with the management of higher inventory levels. Average DIO increased by 6.5 days to 117.9 days (or close to four months of inventory holdings). This followed a material reduction in inventory holdings during FY23 and highlights the importance of ongoing and effective inventory management for participants in the sector.
Our analysis of international metrics showed that the average DWC for our Australian sample was lower than their counterparts in Asia and Europe due to lower average DIO, however it was higher than the US sample, where companies held materially lower inventory.
Looking ahead, a further easing in demand as a result of lower housing approvals in FY24 is expected to intensify the attention on working capital management during FY25.
Net working capital performance
Sector outlook
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Financial Year
Days | 2023 | 2024 | Change |
|---|---|---|---|
DSO | 56.9 | 53.7 | (3.2) |
DIO | 111.4 | 117.9 | 6.5 |
DPO | 55.3 | 57.3 | 2.0 |
DWC | 93.0 | 91.3 | (1.7) |
Best & Worst
Days | Best | Worst | Spread |
|---|---|---|---|
DSO | 29.0 | 101.6 | 72.6 |
DIO | 50.2 | 190.9 | 140.7 |
DPO | 103.7 | 21.6 | (82.1) |
DWC | 37.0 | 130.5 | 93.5 |
International Benchmarking
Days | Asia | EU | US |
|---|---|---|---|
DSO | 81.6 | 52.4 | 59.8 |
DIO | 118.7 | 176.8 | 87.2 |
DPO | 68.6 | 92.0 | 62.3 |
DWC | 118.4 | 101.0 | 79.6 |
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