Construction and Trade Sector Hope for Better Year

Media Release: August 23, 2012

Construction and Trade Sector Hope for Stronger Performance After Difficult Year.

Businesses in the construction and trade sector are hoping things turn around after they posted the biggest revenue losses of any sector over the last year, a new survey reports.

According to the results of the latest MYOB Business Monitor, a regular survey of over 1000 small to medium enterprises, a net 17% of all construction and trade businesses reported revenue losses over the last 12 months.

These losses came despite strong results from the Christchurch region, where a net 56% of businesses in the industry reported an increase in revenue.

MYOB general manager, Julian Smith, says the survey shows how weak construction sector demand is in other parts of the country

“Despite significant growth in Christchurch as a result of the fledgling rebuild, demand for new buildings was so weak throughout the rest of the country that nationwide the industry saw a large net revenue loss. With the economy still struggling, and earthquake strengthening becoming a priority, there was much less interest in major new building projects over the last 12 months.”

While Christchurch performed well, businesses in the other main centres struggled. A net 24% of all construction and trade businesses in Wellington and a net 19% of those businesses in Auckland reported falling revenue over the last 12 months.

These poor results were also driven by pressure from rising business costs, with fuel prices in particular putting the squeeze on profitability. 48% of businesses in the sector were reporting either “quite a lot” or “extreme” pressure on their profitability from the cost of fuel. Meeting tax obligations was also placing “quite a lot” or “extreme” pressure on 35% of the sector, while cash flow was a key pressure for 34%.

“What these numbers show is that with the economy still sluggish, demand low, and business costs rising, businesses in the sector are living quite close to their margins – meaning they will be working exceptionally hard to maintain profitability,” said Julian Smith. “Interestingly, 32% of businesses in the sector cited timing of customer payments as a key pressure on their business – this is a perennial problem for an industry that is often paid by progress, but with the market tight, getting paid has become difficult.”

Things were looking up over the next few months however, as many construction and trade businesses were reporting higher than usual levels of work in the pipeline.

39% of all businesses in the sector are reporting more work than usual on in the next 3 months – the highest levels of pipeline work of any industry alongside warehousing and transport.

Encouraged by this, the sector was optimistic that the coming year would be an improvement on the last 12 months, with a net 19% of businesses expecting their revenue to increase over the year ahead.

“It’s very encouraging to see our construction and trade sector optimistic that things will turn around,” says Julian Smith. “Construction is often looked at as one of the key sectors which could drive a long term economic recovery, and a vital indicator of our economic health, so positive revenue expectations are a good sign that things may be improving.”

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