Leading Global Accounting & Advisory Firm BDO have released their third annual New Zealand Construction Survey Report. The Survey is divided into two parts: the state of the sector prior to the impact of Covid-19; and the initial consequences of and responses to the impact of COVID-19. After a tumultuous year, the Survey Report shows a ‘game of halves’ for the industry, with COVID-19 being the ‘half-time’ whistle.
Summarising the survey findings, BDO’s Head of Construction, James MacQueen (MNZIOB), commented:
Up until March, we saw an extended period of growth and the sector was the strongest it had been for a decade. Whilst margins were still tight, they were improving. However, that all changed when the country went into lockdown and when the economy reopened, some construction projects were canceled, and unfortunately, we saw a resurgence of the ‘race to the bottom’ behaviour with some construction firms slashing their gross margins simply to secure enough work to survive. There is still a lot of uncertainty around the pipeline of forward work and 81% of survey respondents identified this as their main area of concern coming out of the crisis.
However, by no means is it all doom and gloom for the sector. Due to the strong performance of the sector prior to Covid-19, most companies still have strong cash positions, with 85 percent of respondents able to pay their creditors within contractual timeframes.
A ‘positive’ effect of Covid-19 has been the increased focus on efficiencies, with 51 percent of those surveyed increasing site efficiencies and 42 percent increasing off-site efficiencies. A key area where efficiencies can be made is with the effective utilisation of project 2 management systems which, when used properly, can be a real game-changer when margins are tight.
As we move towards the ‘final whistleblowing’ at the end of 2020, those who wish to win need to concentrate on the following issues:
- Risk Management
- Retaining a strong team
- Project profitability
- The importance of a strong cash flow.
Key 2020 survey insights include:
- The greatest impact of COVID-19 is uncertainty of work
- 69% of respondents had contracts cancelled or delayed due to COVID-19
- The number 2 concern is falling margins
- 25% plan to reduce staff numbers
- 42% (twice as many) projects with delays over 3 months compared to 2019
- 90% needed to apply for the wage subsidy
- 58% cancelled or delayed salary increases
- Cost from unreasonable transfer of risk increased
- 70% have had a bad experience with an engineer to a contract
- 31% reduced or delayed dividends
- 92% have adequate bonding capacity
- 85% can pay their creditors when due
- The forward work pipeline (pre COVID-19) improved
- Balance sheet resilience is up
- The majority of respondents wish to be compared based on non-price attributes.
Upcoming BDO-led Building Legends Workshop:
Raising financial management capabilities across the construction supply-chain is a key goal of the NZIOB's. To deliver on that, experts from BDO have prepared a six-hour Financial Management workshop that is specifically targeted to businesses that operate within the construction industry. The workshops will be delivered over two half-day sessions, as part of the Carters-sponsored Building Legends programme.