Due to its deeper pockets, Hutchinson Builders is adamant it can survive a massive downturn in profits.
Revelations that the Brisbane-based construction giant’s net profits tumbled by around 93% (for financial year 2023), follow on the heels of two more industry casualties in as many days – taking the number of construction companies to have collapsed this year well in excess of 600.
Earlier this week Sydney-based construction, design and refurbishment company National Projects & Maintenance (NPM), which was responsible for projects across Brisbane, NSW, Victoria, WA, the ACT and South Australia, closed its doors.
Only a few days earlier, high-end residential builder, Dome Building Projects, put itself into liquidation after struggling to repay loan commitments needed to keep the company afloat.
Latest figures from ASIC suggest construction accounts for around a third (31%) of all company failures since 1 July 2023.
Cost containment
Ironically, while construction booms should present ‘golden days’ for builders, Hutchinson says very often the exact opposite is true, with costs outstripping revenue on the back of rising costs of labour, products and services.
Unlike many of its cohorts that have struggled with a cocktail of headwinds, including rising costs and difficulties hiring tradies, Hutchinson’s chairman Scott Hutchinson (pictured) reassured the market the company – the country’s second-largest private building firm – has a sufficient cash buffer to continue trading.
To put rising costs in context, Hutchinson’s net profit swan-dived despite revenue increasing by around $500 million to $3.12 billion.
A snapshot of Hutchinson’s results for the year to June highlights the nature of the problem:
- Revenue jumped 17% to $3.1 billion
- Costs rose almost 19% to $3.1 billion
- Gross profit margin slumped to $36.3 million from $63.2 million
- The gross margin halved to 1.2% from 2.4%
Equally noteworthy, Hutchinson’s result revealed that the value of cash contained within bank accounts – under Queensland’s project bank account system – designed to protect payments received for payment to contractors, rose to $71 million over the last financial year, up $3.4 million from the financial year prior.
All that glitters
While the company has experienced pressure points across the entire business, Hutchinson attributed much of the pain to the building frenzy experienced in and around the Gold Coast in 2021, which drove costs higher.
“It was that boom out of Goldie that killed us… it sounds counterintuitive but in construction when turnover goes up profit can go down because you are caught in these fixed-price contracts,” Hutchinson told media.
“It’s terrible out there… we did not make much money this year and next year we may scramble into the black – the problem is that building costs have gone up 30-40 per cent in the past year.”
Beyond the Gold Coast, residential projects in Brisbane that Hutchinson struggled with include developer Stockwell’s 124-unit mixed-use Croft & Cremorne in South Brisbane and JGL Properties’ 14-unit Thornton in Kangaroo Point.
More pain to come
Hutchinson can’t see any immediate improvement in trading conditions.
He suspects ongoing difficulties meeting obligations will add to the avalanche of collapses already experienced within the industry this year.
To minimise the company’s reliance on subcontractors and keep high-rise projects on time, the company plans to continue expanding its in-house team of 100-plus concrete form workers – many of whom previously worked for subcontractors that collapsed.
