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.

Industry Change

DSO

-3.2

DIO

6.5

DPO

2.0

DWC

-1.7

VIEW REPORT
  • Net working capital performance

  • Sector outlook

Reduction in DWC, with significant variances in performance at the company level (noting that almost half of the sample reported DWC movement of a week or more).

Looking forward

  • Decrease inventory balances (to shift the burden of holding inventory along the supply chain).

  • Focus on customer and supplier management as lower housing approvals slow demand.

  • Review supplier terms and the extent to which these can be increased (without putting pressure on quality / supply).

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

Other industry sectors

Agriculture

Construction & Engineering

Food & Beverage

Mining & Resources

Retail

Transport & Logistics

Cash Forecasting - Better Practice

Birdseye view of people walking down spiral stairs

Payment Times Reporting Scheme in Focus

  • Report summary & findings

  • Report authors

Download the 'Summary & Insights' and 'Basis of Preparations & Findings' extracts to learn valuable insights into effective working capital management.