The BWF’s Joinery State of Trade Survey Q2 2016 indicated that sales performances for BWF members remain healthy but the joinery industry remains circumspect over the long term outlook and manufacturing investment opportunities in the wake of the Brexit decision.
BWF Policy & Communications Executive Matt Mahony commented on the state of the joinery industry:
“With Q2 ending shortly after the EU referendum, you would expect there to be little immediate impact of the Referendum result on sales and quarterly reporting, and this appears to be the case. Where we have seen an impact is in a lowering of expectations since Q1 for the year ahead in terms of sales volumes and investment in manufacturing equipment. In addition to this, we see that exchange rates have been noted as a significant inflationary factor for unit costs for the first time.
"Uncertainty may have been a recurrent theme through what can almost be termed a ‘lost decade’ for construction, but it is important to remember that product manufacturers' sales have continued to grow comfortably in Q2 – an increase for the thirteenth consecutive quarter according to the CPA - suggesting that construction activity has so far remained resilient to growing uncertainty in the run-up to the EU referendum. BWF will be keeping its members informed as the nature and consequences of the United Kingdom’s extraction from the EU become more apparent.
“Anecdotal evidence from the surveyed BWF members indicated that ‘Brexit’ related factors such as an increase in the relative cost of goods from Europe and fears of a possible construction slowdown are beginning to factor into decision-making and strategic investment. Private housing is a major market for members, particularly in the South East, and although this sector could be prone to volatility in the future, we would urge BWF members to be circumspect where appropriate but also to look at the risks and opportunities as objectively as possible.”
Key points from the BWF Joinery State of Trade Survey Q2 2016 include:
- A balance of 59% of joinery companies reported an increase in sales volumes for Q2 2016 from the previous quarter. This follows on from 43% of joinery companies reporting an increase in sales volumes in Q1 2016 from Q4 2015. Sales volumes results showed a balance of 47% of respondents reporting an increase over the past year.
- Manufacturers were confident that sales volumes would improve in the next quarter, with a balance of 53% predicting an increase for Q3 2016, and a balance of 40% predicting an increase over the next year, down from the 68% expecting a yearly increase in the Q1 survey.
- Capacity utilisation has dipped slightly with 66% of companies running at over 70% capacity for the last quarter (down from 75%), and 63% expecting to use over 70% capacity for the next quarter and the next year.
- 31% of companies reported a current order book of future work extending beyond 3 months – up 5% from the previous quarter - with 47% now saying that their order book extended from between 1 and 3 months.
- Demand was listed as the most likely constraint on output over the next year by 38% of respondents – no change from the Q1 results. Capacity and labour availability and came next, with 22% and 19% of respondents feeling that they were most likely to constrain output.
- Over half (53%) of respondents on balance reported increasing their labour force in the last year, with 38% of respondents anticipating increased labour force over the next year. A balance of 56% of respondents had encountered higher labour costs over the previous year and 59% on balance expected an increase in the coming year.
- Wages/salaries increases were noted as an inflationary factor for unit costs for 74% of respondents on balance, with raw material costs (59%) the next inflationary factor listed. Exchange rates were a factor for 28% of respondents – up from 5% in Q1.
- 20% on balance indicated an increased impact through energy costs and 28% of respondents on balance reported an inflationary impact in unit costs through lower fuel costs, which had previously had a deflationary effect.
- Investment in product improvement had been increased by 63% of companies on balance over the past year, with a balance of 50% to boost investment over the next year.
- Investment in manufacturing equipment spending had been increased by 53% of companies on balance over the past year, with a balance of 34% to boost investment over the next year – down from 64% in the previous survey.
The Construction Product Association's latest State of Trade Survey reports continued growth in sales of construction products in the second quarter of 2016. Sales increased for a thirteenth consecutive quarter, but manufacturers displayed a growing pessimism about prospects for the coming year ahead, even though 75% of responses were received prior to the EU referendum.
Rebecca Larkin, CPA Senior Economist, said: "Construction product manufacturers' sales growth strengthened in Q2, suggesting that construction activity remained resilient against a backdrop of growing uncertainty in the run-up to the EU referendum at the end of the quarter.
"Compared to the first quarter of 2016, a balance of 52% of heavy side firms reported a rise in sales in Q2. This was the highest balance in a year and increased from 31% in Q1. On the light side, 38% of firms reported a rise in quarterly sales in Q2, up from 13% in Q1.
"However, pessimism prevailed in manufacturers' views for the months ahead, even with the majority of responses coming in before the existing economic uncertainty intensified following the referendum result. For heavy side manufacturers, sentiment was the lowest in three years and 13% of those firms anticipated a fall in sales in Q3. Among manufacturing firms on the light side, forward-looking sales expectations were the weakest since the financial crisis, with a downturn anticipated for the first time in six years.
"Sterling depreciated 8.4% against the Euro in Q2 compared to a year earlier, which may be one favourable side effect linked to the economic uncertainty pre- and post-referendum for product manufacturers that export to Europe. The majority (60%) of firms on both the heavy and light side anticipate an increase in overseas sales over the coming year".
Key survey findings include:
- A balance of 52% of heavy side firms and 31% of light side firms reported that construction product sales rose in the second quarter of 2016 compared with Q1
- On an annual basis, sales rose for 57% of heavy side firms, but no firms on the light side, on balance
- On balance, 13% of heavy side manufacturers anticipated a fall in sales in Q3, the lowest balance since 2012 Q4
- On the light side, a zero balance was recorded for expectations in Q3, whilst 14% expected a decline in product sales over the next 12 months
- 60% of firms on both the heavy and light side anticipated an increase in export sales over the next year
- Annual cost increases were reported by 41% of heavy side manufacturers and 29% of those on the light side