The Billion Dollar Balancing Act: Hutchinson Builders

Started in 1912 with a handful of tradesmen, Hutchies now turns over billions yet remains fiercely private and family-owned. Behind the cranes and concrete is a masterclass in cash discipline: a company that proves endurance in construction isn’t about chasing the next boom, but surviving every bust.

If you’ve spent any time in Brisbane in the last hundred years or so you will probably have seen a Hutchinson Builders banner in the skyline:

Hutchies' construction site: West Village development in West End, Brisbane, Queensland

Hutchies is one of only four Brisbane-based construction companies that have been around for more than 100 years:

• Woollam Constructions (1884)

• Hutchinson Builders (1912)

• Wiley (1918)

• Clarke Services Group (1919)

All four are privately owned businesses, so their finances are not publicly shared - HOWEVER to be one of only 4 building firms in Queensland still alive since the early 1900s, It’s a huge achievement to still be operating for over a century. These four have more bettered the odds in surviving many economic downturns including:

• World War I and the post-war recession

• the Great Depression

• World War II

• 1961 recession

• mid-1970s recession

• 1982-83 recession

• 1990s recession

• 2008-2009 Global Financial Crisis

• 2020-21 COVID shock

A Century of Profitability: Hutchinson Builders

Let’s be honest here, the construction industry is a tough one. Construction has the highest rate of insolvency of any Australian industry right now. For example: in FY2023–24, >11,000 Australian companies entered external administration and construction made up 27% of them.

So to survive that long you must be doing something right. But what?

This top 4 are all private businesses, which means we can’t know how profitable they have been, except for those that choose to share publicly.

Hutchies does - it publishes audited financials and shares data in its newsletters (so top marks for transparency there) - so today we’re going to examine them to figure out their secret sauce.

Trends

Over roughly 20 years of published financials we can see that Hutchies has grown like crazy in top line and balance sheet strength, but the last 5–7 years show squeezed margins and very tight working-capital management.

Revenue & Gross Profit

Hutchies’ Group turnover has climbed from around $1 billion in FY11 to $1.2b in FY12 - a tidy 20% increase - trending to $1.6b in FY16, then continuing all the way to ~$3.3b to $3.4b in FY24 and FY25.

That’s a long-term CAGR of over 7% - showing a very strong lon-run growth story, fueled by national expansion and sector diversification.

The downside is that Gross Margins have become heavily compressed over that time.

Back in FY21 Gross Profit was $70.7m on revenue of $2.67b (a 2.6% margin), but by FY24 was only 26.4m on $3.3b of construction revenue - that’s well under 1%.

So while the good news expansion story is scale and market position, while the bad news is that the (now much larger) business is working much harder for each dollar of margin than they were pre-COVID.

Net Profit

Mid-2010s Hutchies newsletters mention $35-45m pre-tax profit on $1.45-1.6b turnover, implying stable but low single-digit net margins.

In FY21 they earnt $39.3m before-tax Profit on $2.67b turnover (1.47%), however profits fell sharplyy during the post-COVID material cost crunch - media and Hutchies’ own FY24 accounts point to before-tax Profit of only ~$6m, continuing the decline seen in FY23.

FY25 is a clear bright sport: $46.4m pre-tax profit on $3.34b revenue is a definite improvement (in fact it’s the first time in seven years they say they’re in the black on construction revenue alone), but even then management noted that $16m of that profit is from rents and interest, plus despite achieving a Net Margin of 1.5% they’ve missed their own profit target for they year by a whole 1% (aka ~$30m).

So the Net Profit trend is: long term profitability fluctuates but remains positive, although the last cycle has been volatile and margin-thin, with FY25 looking like the potential start of a recovery, rather than a new high.

Cash

On the positive side, Hutchies has spent most of the past 20 years building a formidable cash buffer. In FY12 they described themselves as debt-free with a $200m Balance Sheet.

By FY21 the group had over $300m in cash, edging up to $410m (FY23), $501m (FY24, and $566m (FY25).

Operating cashflows have been strong during the recent recovery phase: FY23 and FY24 generted $121.5m and $99.1m respectively from operations, after a much weaker FY21. This liquidity lets them keep paying employees and subcontractors (more on this later) even when clients are slow payers or default, something the chairman has highlighted publicly.

This large war chest helps compensate for very slim operating margins during tough times - and when you’re turning over billions on wafer thin net margins you definitely rely on having deep pockets to survive until the market turns around.

Debtor Days, Creditor Days and WIP

Hutchies doesn’t publish formal Debtor Days data (the average length of time it takes customers to pay), but we can infer them from the Balance Sheet.

In FY24 Trade Debtors were $92.4m against construction revenue of $3.3b, which implies roughly 10 days to convert invoices into cash. If this was a SME construction business that would be insanely good! But in reality probably reflects the contract arrangements including progress claims. Still - if you’re not all over invoicing and debtor followup, you’ll never get anywhere near that level of cash conversion from customer invoices.

The year before was $107.9m on $3.12b = roughly 13 days. That’s a good trend - they’ve shortened the average time between invoicing and cash collection in recent years.

On the supplier side, FY24 Trade Creditors of $251.2m against construction costs of $3.3m translate to about 28 Creditor Days, down slightly from low 30s a year earlier. That suggests they’re not stretching payables excessively - which is consistent with their narrative of looking after subbies (and materials supplliers) - meaning they’re not using their suppliers as a form of free financing.

For Work In Progress (WIP) / contract assets, the pattern is also constructive. Net contract assets (project expenditure including profit less progress billings) dropped from $114m in FY21 to $140m in FY23 and then sharply down to $40m in FY24, which calculates as only a few days worth of sales. In practical terms that’s a good trend - it means less cash is tied up in

under-billed work, tighter billing and a cleaner position going into the next invoicing cycle.

The flip side is that this is probably as good as Hutchies’ Working capital management can hget. With Debtor Days, Creditor Days and WIP days all kept relatively short, there’s limited further room (or need) to improve funding by squeezing working capital. The extension of this is that future improvements in cashflows are going to have to come from better project margins and not Balance Sheet improvement.

So what has it taken for Hutchies to survive for more than a century?

Hutchinson Builders are well known for having a large workforce for their projects - they’ll subcontract work where they need to but maintaining crews capable of being deployed to worksites across South East Queensland give them a flexibility that other builders don’t have.

This does add a management layer (and cost) in the group but it also helps minimise disruptions when many large projects are competing for skilled tradespeople - something anybody who tried to find a subcontractor during the Queen’s Wharf development will recognise.

A couple of years ago I listened to Scott Hutchinson talk about this very topic - he acknowledged the cost associated with retaining skilled workers during times of scarcity & high demand, but he saw it as part of the long-term viability of his family’s business. In his words, “the market always turns, we just need to be there when it does”.

Also worth highlighting is the decision to install non-family executives into the business. While it’s still family-owned, bringing in external management over the past decade has been crucial to ensure that the business kept growing without being distracted by handovers from one family leader to the next generation. That leadership transition shouldn’t be a problem but some/many family businesses can struggle with the impact of “handing over the reigns”.

Then there’s the long-term financial strategy we’ve analysed above. It’s one that completely matches Hutchies’ long-term view of the market it operates in - always in demand, and yet cyclical.

Surviving for a hundred years in that environment means making sure you manage the most important resources (which are the scarcest ones that are difficult to easily replace) well, so they are available to be deployed when the market turns positive again.

Those important resources are People and Cash.

Caveats, Caveats, Caveats

Hutchinson Builders is a privately-owned group. It publishes some financial data - this does in some years include audited financial reports, however: this data may not always reflect all aspects of Hutchies related entities, which could change what the published data means.

Thankfully, this is a blog and not financial advice - nobody’s relying on this to make specific decisions about spending money in their own businesses … but it’s an interesting case study.

Multimedia Resources

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