Marching to recovery

Published:  21 March, 2011

The year ahead predictions: Confidence in the construction sector is still low, but firms are more optimistic for turnover and profits in 2011.

This report was first published in Builders' Merchants News December 2010/January 2011 issue.

Mixed messages are coming from the industry, but one theme permeates all sectors: construction businesses expect to see improvements in turnover and gross profits in 2011.

In its latest report, the CBI said ‘the pace of economic recovery could slow quite markedly in the first few months of 2011. The VAT increase will be taking effect, and the construction sector will start to feel the pain of public spending cuts. The positive impact of the inventory cycle may also start to wane, with com-
panies having gone some way to refilling the stock pipelines that had been run down so sharply in the recession’.

However, the CBI forecasts suggest that growth in private sector investment and trade will start to pick up in the second half of the year, and continue into 2012.

That would bring GDP growth of 2% in 2011 and 2.4% the year after – just enough to keep unemployment under control and the public
finances on track.

The Construction Products Association paints a darker picture of events. Recovery in construction output experienced by the industry during much of 2010 will stall in 2011, according to its forecasts, with real growth not  expected until 2013.

Michael Ankers, the CPA’s chief executive, (shown left) says: “Although private sector construction is forecast to grow by 5% during the next two years, construction work from the public sector is expected to fall by 17%.

“By 2013, however, we expect to see strong growth in the commercial sector, combined with increasing construction activity related to housing, rail schemes and the development of energy infrastructure, leading to a recovery in construction output at the end of our forecast period.”

The big question in everyone’s mind is whether the RMI market – the mainstay of many merchants –  will keep pace. And, there is the added burden of the 2.5% increase in VAT.

The Builders’ Merchants Federation has been actively campaigning for a reduction in VAT on energy-saving construction or refurbishment projects – more a carrot than a stick approach, says Terry Parker, the Federation’s chairman (shown right).

Training for the future is always vital and 2011 will see the BMF launching its online Training Campus. It will replace the majority of the MOLs which have become increasingly expensive.

“The two most subscribed courses – customer care and health and safety – have
already been completely re-written. They will eventually become an online module. At present they are being launched as a marked paper module, with the added bonus that the health and safety module has received Institute of Safety and Health accreditation,” Mr Parker relates.

There is also growing demand for the BMF Apprentice Scheme, says Mr Parker.

Currently, BMF has around 200 merchant staff on its books. There are some age restrictions in
Scotland and for some larger companies, who now have to contribute towards the cost of this training. For a typical BMF member, however, the scheme is free.

Six regional training groups are operating across the UK. More will be added during 2011. The BMF organises training courses regionally, so local members can typically send one or two people each to the course. “Our smaller members would not have enough people to afford to hold in-house training,” Mr Parker explains. “And, they would not be able to send people to our headquarters in London.

“That is why we have built up groups of local merchants who will send one or two people each to a local venue where we will run a course that is of interest to them. We survey our members first to find out what the topics in that area are required and provided we get the right numbers we will run a course.”

BMF is also actively promoting the Green Deal, whereby at a local level, many households and businesses will be able to improve the energy efficiency of their properties without consuming so much energy and wasting so much money.

“We have spoken to government about it and are arranging a presentation by the government department involved for some of our larger merchant members in a couple of months’ time.

“Whatever information we get from this meeting, it will be relayed to all of our members following the presentation, as we cannot bring everyone to this event.”

Mr Parker says he was encouraged by the recent announcement by David Cameron about the businesses he sees leading the country out of recession. These included energy savings, which will have an impact on merchants.

“MPs don’t think about builders’ merchants being an integral part of the supply chain,” says Mr Parker.

“We have had some success, however, in persuading MPs to visit merchants. To-date, around 20 MPs have been to sites and we are gradually getting them to understand what we do, the part we play – buying materials, holding stock, delivering to site, providing credit and giving information,” Mr Parker says.

BMF policy manager, Brett Amphlett has been kept busy identifying the right MP or MP-in-waiting – people who have some time and who want to be seen to be doing something. “Brett works out the best match for MP and merchant. In five years’ time we hope the entire cabinet will have visited a merchant,” says Mr Parker.

During John Major’s years in government, Mr Parker says he was fortunate the then Prime Minister wanted to visit a local merchant as a customer. “Now, we have to find a merchant who could sell something to David Cameron!” he says.

“Most members have reorganised themselves and have become more efficient while coping with largely smaller staffing numbers,” says Mr Parker. “Profit margins are starting to come back and the little increase in trade in the last half year has been helpful, but I don’t think anyone is gearing up for a boom time.

“There are many unknowns with all the cuts that are to be made and the knock-on effect that these cuts will have. It is all interlinked and it is hard to know whether there is enough growth coming to counteract the things that will be cut back.

“Government and local authorities are not good at cutting numbers of civil servants. They fare better at cutting capital expenditure,” he says. And that will have an impact on construction. He believes that “merchants will find traditional competitors for a particular order will change. Big builders will go for small jobs if there are no large ones available. During the last recession, one major contractor was even seen undertaking house extensions in order to keep its team employed’, he comments.

Mr Parker believes some companies may even switch markets if work in their sector dries up. The good news is that BMF’s returns are showing a marked improvement in merchant efficiency. “Merchants are better placed to cope with downturn or lack of growth than they were a couple of years ago,” he says.

“If you look at 2008, merchants were highly staffed and understandably not well prepared for a very sudden downturn. Now that they are in much better shape. The only problem would be a sudden large upturn in business,” he warns. It is sudden growth that takes most businesses down, particularly those who don’t have the financial backup, like merchants’ small contractors or installer customers.”

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