Companies supplying building products will continue to have restricted access to new stock in 2022 with no end in sight for global supply chain issues.
The building products sector experienced a significant uptick in activity in 2021. This was reflected in building approvals and supported by the government’s HomeBuilder stimulus.
According to the latest Working Capital Report 2021 from McGrathNicol, there are huge growth opportunities for Australian businesses in 2022 but this recovery will not be the same as the first emergence from COVID.
While building products had a good year the construction & engineering sector contracted significantly in 2021 with average revenue declining 21.7 per cent.
The McGrathNicol report measures the working capital performance of 24 companies in the construction and building product sectors (137 ASX listed companies in total).
“Just over half of the sample experienced a fall in revenue of 10 per cent or more compared to 2020,” the report said.
However, there was a slight recovery in revenue and earnings during the second half of 2021.
McGrathNicol Advisory partner, Jason Ireland, said continued easing of travel and other restrictions will promote an uplift in trading activity across most sectors in 2022.
“However, a key challenge for businesses will be managing working capital effectively so that they are set up to take advantage of the growth opportunities,” he said.
“Australia is emerging from the second wave of COVID later than other western economies.
“The demand from Europe and the US is placing strain on supply chains that had not fully recovered.”
Ireland said operators in these regions are also paying more for supply, increasing costs across the supply chain, which are not just contained to the well-publicised shipping price rises.
“Our international benchmarking shows that Australian businesses typically hold close 1.4x the inventory of their US, EU, and Asian counterparts,” he said.
“They may not be afforded the same luxury in 2022.”
Ireland said managing working capital will be harder in 2022 so it needs to be given the appropriate level of airtime with senior management and the Board, in the same way that strategy and safety are key pillars of any successful business.
He said the focus needs to be on integrated forecasting and options to diversify supply.
“Businesses that establish working groups dedicated to cash and working capital management and implement effective processes are more likely to get it right,” he said.