While the market is still growing, increasing costs for construction materials and transport weigh on the performance of construction businesses.
- Construction turnover increased in 2017 compared to 2016, and value added growth rose 4.7%. In 2018 2.9% a growth rate is expected. However, the average annual margin in the industry decreased from 28,6% in 2016 to 26,8% in 2017. It is expected that businesses margins will decrease further in the coming months due to a significant price increase for subcontractors, transport and construction materials.
- While competition in the Polish construction market remains high, due to high demand no price wars were observed in 2017. The average revenue-weighted debt ratio in the industry was 78% in 2017, while the level of debt in the construction materials segment is much lower. The willingness of banks to lend to the construction industry is at the same level as with other Polish industries. The risk that funding costs adversely affect businesses financial condition or operational results is limited.
- Payment duration in the industry is 60-90 days on average (in some cases up to 120 days), and the level of non-payment notifications is high, with no major decrease expected in 2018. In 2018 it is expected that construction insolvencies will increase by more than 10%, as the construction market has expanded and the number of active businesses is growing.
- Our current underwriting approach is neutral to restrictive. While the market is still growing, especially in the infrastructure segment, increasing costs (construction materials, transport, price increase for specialist work) weigh on the performance of construction businesses.