01 Feb 2019
Merchants’ Mixed Performance In Q4 2018
Total Builders Merchants fourth quarter sales were a respectable 3.1% higher than in Q4 2017 but look closer and things were less encouraging. The quarter started well, with October sales up 6.8% year-on-year. However November only grew by 0.8% and, as this latest report shows, December was only 1.0% higher than December 2017. Factor in inflation and volumes will have been lower.
The economy is losing momentum, with 2018 growing at its slowest annual rate for six years (ONS). Contributory factors were lower factory output, car production and weaker construction. NHBC new home registrations in 2018 were broadly flat, whilst numbers moving house have fallen. Fewer movers impacts on RMI, with a consequent fall in replacement kitchens, bathrooms, windows, re-decoration and refurbishment work.
The elephant in the room is, of course, Brexit. Nearly two years after Article 50 was triggered and a little over a month to go before the UK’s departure date we remain in a state of limbo. It’s hardly surprising that investment by businesses and home-owners has slowed.
Timber & Joinery Products had a strong fourth quarter, finishing 6.1% ahead of Q4 2017. Landscaping (+5.2%), Plumbing Heating & Electrical (+4.4%) and Decorating (+4.1%) also out-performed merchants generally. Seven categories did less well, including Heavy Building Materials (1.9%) and Kitchens & Bathrooms (-0.9%).
Quarter 4 sales are generally lower than Quarter 3 and Total Builders Merchants average daily sales were down 4.9%. However two categories strongly bucked the trend, with Workwear & Safetywear up 17.7% and seasonal category Plumbing Heating & Electrical 16.6% higher. The fourth quarter Builders Merchant Building Index was 110.6. Plumbing Heating & Electrical did best (128.1) and ten of the twelve categories exceeded 100.
Last 12 months
Total sales in 2018 were 3.8% higher than in 2017. Four categories did better, led by Plumbing Heating & Electrical (+7.1%), with Timber & Joinery Products (+7.0%) just behind. Six categories grew more slowly, including Kitchens & Bathrooms (+2.7%) and Heavy Building Materials (+2.5%).
Commenting on the results, John Newcomb BMF CEO said:
As the deadline for the UK to leave the EU draws ever closer, the uncertainty that surrounds the terms of our departure – in particular, the terms relating to how the UK will trade with Europe post-Brexit – is not helping the construction sector. As you will read in this report, the year ended on a subdued note for builders’ merchants’ sales, but what is happening in the wider construction world?
The latest Government figures for the end of last year confirmed construction output overall fell by 0.3% in the fourth quarter. Other key indicators show the loss of momentum is more profound in some sectors than others. The Construction Products Association (CPA) found main building contractors, specialist contractors and civil engineering contractors all reporting lower output, new orders and enquiries in Q4, with reduced activity in sectors such as high-end residential, commercial offices and industrial factories. Conversely 25% of SME builders reported an increase in workloads.
The Federation of Master Builders’ (FMB) Q4 State of Trade Survey confirmed that workloads, enquiries and employment amongst SME construction firms remained in positive territory. Set against that, nearly two-thirds of SME firms reported difficulties in hiring skilled labour and almost 90% expected material prices to increase in the next six months.
Interestingly, the CPA Construction Trade Survey also found that 55% of heavy side manufacturers and 21% of light side manufacturers reported increased sales in Q4 2018, which may indicate a degree of pre-Brexit stockpiling.
No-one is starting 2019 awash with confidence but there are pockets of optimism. For example, both CPA and FMB report regional variations in activity with areas outside of the South East of England appearing more buoyant. While there is certainly no room for complacency, continued growth within the builders’ merchants’ core customer base of SME builders is encouraging news – and we will watch with interest to see if this is maintained as we progress beyond Brexit in 2019.
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