Recent research indicates that major building companies in Australia face significant risks of becoming “zombie companies,” largely due to escalating costs and labour shortages. Data from KPMG Australia highlights a worrying rise in ASX-listed “zombie companies,” with figures increasing by 31% in just six months, from 94 in May to 122 now.
A “zombie company” is defined as one that experiences financial strains yet remains solvent and operational. Despite a continued high demand for housing, builders are grappling with profitability challenges stemming from rising expenses and skills shortages. Amanda Coneyworth from KPMG notes that while larger firms may be relatively stable, a surge in challenges is hitting small to medium enterprises hard, with insufficient collaboration amongst subcontractors exacerbating the issues.
The building industry is further strained by broader economic pressures, including supply chain disruptions, rising interest rates, and the winding down of pandemic-related support. Currently, mining strikes the highest among “zombie” company sectors, primarily due to plummeting prices for nickel and lithium.
Despite the gloomy outlook, there is some hope for struggling firms, as anticipated interest rate cuts and new federal laws offering liability protection for directors seeking to restructure may provide a path to recovery. The situation prompts a call for construction businesses to better manage their relationships with subcontractors and lenders to avert disaster.