St Hillers enters administration; were there warning signs?

In case you missed it, property and construction group, St Hilliers has been placed in administration.

This leaves 21 construction projects in limbo with no guarantees that work on multimillion-dollar projects will resume.

While all looked well from the outside (no material credit defaults, court actions, strong credit rating etc.), the financial position was continually deteriorating from the inside.

Were there early warning signs?
Yes, plenty. Going back at least two years.

Here’s the story in 4 pictures:

1. Profitability

Losses are not good, but cash losses are worse. Cash losses or negative EBITDA during the last two financial years was a significant contributor to the demise of the company.

2. Working Capital

Strong liquidity allows companies to pay suppliers on time and negotiate better prices for early payment. In a market where construction material suppliers and subcontracts are calling the shots, slow payment is a recipe for disaster.

3. Equity

Losses erode equity unless fresh capital is injected. A strong equity position provides the financial resources for a company to manage operations and facilitate growth. It also helps speak with financers and obtain debt when needed.

4. Financial Leverage

Financiers want their interest paid on time, the ATO want taxes paid when due and all creditors want payment on the due date. Delays or non-payment create mistrust and inability to leverage further.

Was financial distress foreseeable?
Yes. And our analysis conveyed this for any clients who ran risk assessments on St Hilliers’ over the past 12 months.

Did we have a crystal ball? No, the numbers just spoke.

Why did the collapse come as a surprise to some?
When you are dealing with a seasoned and established contractor such as St Hillers, it’s easy to be lured into a false sense of complacency.

All too often, procurement teams ignore the need to perform ongoing due diligence on their regular suppliers/contractors.

These are turbulent times – especially in the construction space – and things can go wrong quite quickly.

If you would like to understand you options for assessing, reviewing and monitoring your suppliers for symptoms of financial distress, please get in touch.