Construction & Engineering

Working capital performance weakened in FY26 as slower collections were only partially offset by extended supplier payment terms.

Following a modest recovery in FY25, FY26 results were mixed across the Construction & Engineering sector. Revenue increased for 71% of sampled companies, reflecting continued demand in energy, defence and data centre projects. However, this growth did not consistently translate into stronger returns, with only 65% of sampled companies improving gross margins and 59% improving EBITDA margins. The gap between revenue growth and margin improvement highlights continued pressure from delivery costs, overheads and contract complexity, with disciplined project selection and execution remaining critical.

From a working capital perspective, average DWC increased by 2.1 days to 53.0 days, with 47% of sampled companies improving on FY25. The deterioration was primarily driven by a 4.9 day increase in DSO to 69.8 days, reflecting higher receivables and uncertified claims as project activity expanded. Operators were able to offset much of this increase through a 3.1 day extension in DPO to 62.1 days, partially mitigating the cash flow impact of slower customer collections. This represents the highest DPO level since FY19 and highlights a growing reliance on supplier credit to support working capital requirements.

More than half of sampled companies (53%) continued to exhibit a structural working capital funding gap, where suppliers were paid more quickly than collections were received. This reinforces the importance of disciplined billing, claims management and collection processes, particularly as project scale and complexity continue to increase.

Average DWC sits below all three international benchmarks, at less than half the level observed in Asia, and slightly below Europe and the US. This reflects a materially faster cash conversion cycle, with DSO significantly lower than international peers.

Looking ahead to FY27, project execution and cash conversion are likely to remain key management priorities. While investment across defence infrastructure and the energy transition should continue to support demand, increasing project scale, complex contracting structures and growing claims balances may place further pressure on working capital and operating cash flow.