Construction sector revenue trending upwards: BDO report
Revenue growth in the construction sector is showing positive signs but economic pressures are still impacting profit margins, according to a recent BDO report.
The BDO Construction Survey 2023 indicates the construction sector is now emerging from the post-pandemic period, which saw it impacted by increasing costs and significant delays caused by inclement weather.
The latest survey indicated that 57 per cent of respondents reported an increase in revenue of more than 10 per cent for the 2023 financial year, compared to the previous financial year.
However, one in five respondents saw a decrease in revenue compared with the previous financial year, with 14 per cent seeing a decrease of 10 per cent or more.
The BDO report said a greater number of projects, and many of higher value, are currently underway as the industry makes use of improved weather conditions to begin clearing the backlog of projects.
This was reflected in the data with the average organisation reporting that 59 per cent of their forecasted revenue for the 2024 financial year was committed revenue.
Despite the continued growth in revenue, there continue to be economic pressures affecting gross profit margins, the report warned.
More than half of all respondents reported a significant decline of more than 10 per cent in net product before income tax in the 2023 financial year.
The average net profit before income tax as a percentage of revenue was 1.77 per cent.
The report also found construction companies are tightening up their balance sheet with an increased focus on cash retention and debt collection.
This may be partly in response to the increased scrutiny faced recently by construction companies following higher levels of insolvencies in the industry.
Over a third of respondents reported that their organisation’s cash flow position is expected to increase over the next 12 months.
Construction companies continue to face challenges with accessing debt funding, the report said, which has been further compounded by the additional pressures placed on construction companies to hold significant retention and working capital balances, due to both upstream and downstream financial constraints.
“Traditional lenders are becoming more stringent about construction companies proving their financial viability prior to the release of funding”, the report said.
“This has led to an increase in debt funding with private credit providers who may have more risk appetite for construction lending, in the current climate.”
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