Thu, May 23, 2024 7:31 AM

Construction cashflow warning after projects cancelled


William Woodworth

Construction firms are feeling the pinch after plans for two major Marlborough developments were scrapped.

The cancellation of the combined colleges project and the Port Marlborough redevelopment is impacting the local market.

And an industry expert is warning firms they need to ensure robust cashflow forecasting is in place.

The move comes as the annual BDO New Zealand Construction Sector Report shows construction business leaders are feeling the impact of interest rates, inflation and cost of living.

BDO Marlborough Tasman Managing Director Paul O’Donnell says national trends are reflected regionally, alongside other factors specific to Marlborough.

“The cancellation of both the combined colleges and the port redevelopment has impacted forward workload planning for many firms”, says Paul.

“Also, the 2024 grape harvest has been a lot lighter than many expected, which may cause wine companies to delay planned works due to cashflow concerns.

“Interest rate pressure has also slowed demand for new residential builds, evidenced by a reduction in applications to council for building consents.

“Construction firms would be wise to ensure their cashflow forecasting is robust and take the opportunity to review operating expenses and margins.”

The construction industry is facing challenges as interest rate pressure slows the demand for new builds. Photo: 123RF

The report, ‘Macroeconomic matters: Construction’s next big challenge’ reveals just 37 per cent of the 210 surveyed construction business owners and leaders have felt positive about sector-external economic pressures in the past two weeks.

This is the lowest ranking of all 17 business performance metrics surveyed in the report, with leaders feeling considerably more positive about labour supply and supply chains.

More than two-thirds (67 per cent) of construction business leaders expect inflation to significantly impact their profitability over the coming 12 months.

Almost half think high interest rates will affect profitability.

BDO Construction Sector Leader Nick Innes-Jones says a variety of factors play into that current uncertainty.

“The sector has come off the historic highs of the post-COVID building boom, and now has more stable levels of work.

“Macroeconomic factors, such as high inflation and interest rates … are now the main pressure points for construction businesses.

“Looking at the specific areas of the construction sector, we’re finding it’s the smaller companies that are generally having the issues with forward work due to interest rates and inflation.

“Smaller companies tend not to have the tail of work that larger companies do, so this means they must remain nimble and agile.

“Construction business leaders will be looking to the upcoming Government Budget to provide further certainty around infrastructure spending and project pipelines.”

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