Construction companies see profits tumble

Australia’s largest private construction companies have seen their profits tumble despite total revenues rising almost 10% to $14.2 billion over the last 12 months, according to regulatory filings.

Supply chain issues and labour shortages have driven the combined profits of 12 major builders down more than 50% to $122.4 million, The Australian reported.

For 2021, the same 12 builders reported combined profits of about $255.6 million.

Of the 12 companies, only two civil construction-focused firms posted an increase in profits, according to The Australian. Brisbane-based BMD Group recorded a 130% profit increase for the 12 months to the end of June to $39.5 million. Sydney-headquartered Georgiou Group saw profits rise 32% to $15.6 million.

The company posting the largest slide in profits was Victoria’s Kane Construction, which saw profits tumble 96% to $1.3 million, compared to $36.8 million in the previous financial year. The company’s revenue fell 12% to $803 million.

Perth-based BCG posted a loss of $41.6 million, compared to a loss of $3.3 million for the previous 12 months – despite a 20% rise in revenues to $1 billion.

The operating losses were “mainly driven by residential and commercial construction performance owing to supply chain disruptions and cost escalations, together with significant sales process and one-off business improvement costs,” BCG’s regulatory filing said.

The company was put up for sale through Macquarie, but was taken off the market in August “due to challenging financial conditions,” the filing said.

Tim Reardon, chief economist for the Housing Industry Association, told The Australian that while most builders have a large pipeline of projects to complete this year, that work will dwindle in 2024.

“The amount of work that’s coming into the pipeline has slowed very sharply and the rise in the cash rate will see this building boom come to an end,” Reardon said. “We’ve seen new home sales slump quite significantly in the last three months and that will flow through to work in the ground in late 2023. While we’re expecting to see the cost of materials rise faster than the CPI, it will be significantly slower than the 20% increase that we saw in 2022, which will make it easier for builders.”

Reardon said the most significant improvement in profitability for construction companies will come when building times fall to less than 12 months.

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While housing build times are typically between seven and nine months, rain events and labour and material shortages have seen them skyrocket to well over a year, The Australian reported.

“When they get through this enormous pipeline of work, we will see build times shorten, which will improve profitability,” Reardon said. “Those who get through this cycle will have improved their efficiency and they will finish more homes and get their final completion payments, which will further improve their profitability.”

The shortages of labour and materials have caused many construction companies to collapse over the last 18 months. Last week, Melbourne-based Hallbury Homes became the sector’s first casualty of 2023 as it went into voluntary administration.

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