Labour shortages and razor sharp margins see builders profits plunge

The combined profit of Australia’s top 12 private builders has halved despite revenues rising. See the list of who made the most, and the least, in 2022.

The country’s largest private construction companies have seen a major slide in profits despite total revenues rising almost 10 per cent to $14.2bn in the last 12 months, filings with the regulator show.

With labour shortages and supply chain difficulties affecting operations, the combined profit of 12 major builders fell more than 50 per cent to $122.4m, according to analysis of financial documents.

For 2021 the same group of 12 builders recorded profits of about $255.6m.

Of the dozen companies, only two civil construction-focused groups recorded a profit increase.

One, Brisbane’s BMD Group, owned by the Power family, recorded a 130 per cent increase in profits for the 12 months to the end of June to $39.5m – paying $8.5m in dividends, compared to $9m for the previous financial year.

Sydney’s Georgiou Group – which is co-building the $494m M12 Motorway (West) – increased its profit by 32 per cent to $15.6m in a result that included a $300m boost in revenue to $926m.

Conversely those recording the largest profit plunges were Victoria’s Kane Constructions, which fell 96 per cent to $1.3m compared to $36.8m in the previous financial year. Revenues fell 12 per cent to $803m, although the company still paid a $14.8m dividend for the 12 months to the end of June.

Perth’s BGC recorded a loss of $41.6m compared to a loss of $3.3m for the previous 12 months – despite revenues rising 20 per cent to $1bn in the financial year. 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,” the BGC filings read. The company was put up for sale through Macquarie by the family of the late Len Buckeridge, who died in 2014. It was taken off the market in August “due to challenging market conditions”, the filings read.

The accounts show BGC increased its credit lines of $26.2m to $83m with an extended term to October 2023, with changes to its covenants and security arrangements, “namely the establishment of direct property mortgages”.

Tim Reardon, the Housing Industry Association’s chief economist, said most builders have a large pipeline of projects to complete in 2023, although that work will dry up the following year.

“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,” he said.

“We’ve seen new home sales slump quite significantly in the last three months and that will flow through to work on 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 per cent increase that we saw in 2022 which will make it easier for builders.”

BMD Group, founded by Mick Power, was one of only two civil construction-focused groups that recorded a profit increase.

Mr Reardon said the most significant improvement in profitability will come as the “bubble of work” ends and build times contract to less than 12 months.

With rain events and labour and material shortages, housing build times have over the past couple of years blown out to well over 12 months while it is typically between seven to nine months.

“When they get through this enormous pipeline of work we will see build times shorten which will improve profitability,” Mr 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.”

Built Constructions, which is now developing the $1.4bn Atlassian headquarters in Sydney, had a slight fall in profit – from $34.1m to $33.9m – in the year to June 30 despite a 20 per cent rise in revenues to $1.8bn in the period.

However, the country’s second-largest private construction group, Hutchinson Builders, recorded a $21.1m profit, 23 per cent down from the previous year.

Hutchinsons chairman Scott Hutchinson says he expects difficult conditions to continue in 2023.

Scott Hutchinson, the company’s chairman, said it was a tough year and he expected it to continue in 2023.

“It’s been very hard work and we’ve just had to battle it out,” he said. “We haven’t had a good year since 2017. What’s killing us is the rain and the fact that we can’t get materials and labour. It is not sustainable and that is why so many of us are going broke. We’re hoping 2024 will be better.”

Mr Hutchinson said the shareholders of the business, including his own family, took very little out of the business in dividends. The company, which employs almost 1600 people, reported a fully franked dividend of only $197,241.

Other results lodged with the Australian Securities and Investments Commission came from FDC Group – specialising in large office fit-outs and recently completed the first stage of a major retirement living community near Brisbane – which reported a 63 per cent fall in profit to $17.2m in the year to June 30, down from $46.2m in the previous year. Revenues, however, rose in that time from $1.06bn to $1.15bn.

Profits at ADCO Constructions fell 54 per cent to $10.4m, despite a 36 per cent increase in revenue to $1.2bn. However shareholders received $14m in dividends over the 12 months Sydney-based AW Edwards’ profit plunged 50 per cent to $8.1m in the year to the end of December 2021 and SHAPE Australia’s profit fell 35 per cent to $7.9m to June 30 and it halved its dividend for the year to $5.9m.

Richard Crookes Construction’s profit was 66 per cent lower at $7.1m and it paid out $2m in dividends compared to $15.8m the previous year while Schiavello Group’s profit was 82 per cent down at $1.9m while revenue slumped 16 per cent to $577m.

An artist’s impression of Built’s $1.4bn Atlassian HQ tower in Sydney.

Russ Stephens, the co-founder of the Association of Professional Builders, said interest rate rises has seen housing demand soften.

“A majority of our members are fully booked so it won’t impact this year in the short-term,” he said. “The sales process in residential construction can take between three and 12 months depending on the complexity of the design. The effect of those initial inquiries softening up is like a delayed impact in terms of construction work in 2024.

“Margins will slowly improve but the danger is as the market starts to soften, builders will have to be better at marketing which has almost been forgotten skills now in a market which had such strong demand.”

Mr Stephens said some of the biggest names in the industry would find themselves in trouble in 2023.

“Those large building companies that had contracts signed and could not start building straight away saw the costs of construction go up in 2022 and they would have lost a lot of money on those jobs,” he said.

“Once the cash inflows start to slow down those companies will find themselves in trouble.”

Originally published as Labour shortages and razor sharp margins see builders profits plunge