Summary
¦ Business in 2010 was generally better than expected.
¦ Joiners are expecting trading to be tough this year.
¦ Obtaining finance continues to be difficult.
¦ Rising costs are squeezing margins.
¦ The increase in VAT is expected to impact on RMI in the domestic sector.
As 2010 drew to a close, the joinery sector looked back on a year that was generally better than had been expected. However, as orders slowed in the final quarter uncertainty settled over the outlook for 2011.
“Last year was an awful lot better than people expected,” said British Woodworking Federation (BWF) chief executive Richard Lambert. “Housebuilders in particular had destocked to the point where they had to build something or else they would’ve had nothing to sell. In the middle of the year they really hit the gas and there was a big spurt.”
However, in the last few months the tempo changed again. “There’s a real sense of the horns being drawn in, particularly since the comprehensive spending review. Companies are grateful for what they’ve had but I don’t see a lot of optimism going forward,” said Mr Lambert.
Hopes for spring
One joiner, who supplies both trade and consumers, said business had been up by 20-30% on 2009 but orders, particularly from the trade, had slackened off in the last few months and he expected the first quarter to be testing for everyone.
“We need to get through that and hope the spring might push things on, the economy might be doing better and confidence might return,” he said.
Another had been busy throughout 2010 but he faced the problems of people being slower to pay and credit insurers’ increasing nervousness.
“We’ve had a few bad debts. We’re insured, but there’s always a shortfall,” he said. “The recession finished a lot of people off early. Now those that have ridden it out have used up their cash reserves.”
As a result, he would be more cautious in managing turnover this year. “We’re going to keep our belt tightened and where we can’t get insurance on people or they can’t go over the credit limit we’ll be less flexible. You can’t keep taking risks on people because of credit cover.”
For the BWF, 2010 was probably its worst year for companies going out of business. “We lost 30 companies – that’s 7% of our manufacturing membership,” said Mr Lambert.
Finance
Many companies were living hand to mouth and finance was becoming more difficult, especially for smaller businesses.
”The banks say they’re open for business as usual, they’re interested in lending to people, but the way they want to do it is not feasible. They’re thinking about how they work their model rather than how their model interacts with other people’s,” said Mr Lambert.
While the sector continues to “bump along the bottom”, as one contact put it, the most positive attitude to 2011, from all contacts, was “cautious optimism”.
“I don’t hear anyone saying they are confident,” said Mr Lambert. “They’re quietly optimistic. They think they’ll manage but they’re not gung-ho.”
The effects of the government spending cuts are yet to be felt and the impact of this week’s rise in VAT is another unknown. While the higher tax may not be a factor people consciously consider in their spending decisions, it will reduce their disposable income and Mr Lambert believes it will have a “significant impact” on RMI in the domestic sector.
“People are feeling pinched at the moment and putting another 2.5% on the cost is going to pinch harder,” he said.
Some joinery firms used the pending increase as a sales tack, but uptake was low.
“We didn’t see any great rush of people trying to avoid it,” said one contact. “While it [the increase] is a lot of money, for people who’re spending £2,500 on a window, is it enough to make people change their plans?”
Another factor joinery manufacturers will have to grapple with this year is tighter margins. Sterling is unlikely to strengthen, at least until interest rates rise, and the exchange rate is adding to raw material costs. In addition, companies have faced the rising cost of fuel and wood-based panels.
“Everything is tighter. People are trying to squeeze you down on price and exchange rates are making raw materials more expensive. We’re getting squeezed from the top and the bottom,” said a manufacturer.
Architectural joinery
The architectural sector seems to have been hit harder than other joiners, with one commenting that the only certainty was that 2011 would be “dismal”. This follows a bleak 2010 where reduced enquiry levels and turnover led to 50% of the workforce being laid off.
The company had some “small orders” for the new year but would normally have a much more substantial order book. The contact said some competitors were busy but that was because they were working for “silly prices”.
“They’re cutting their margins so tight they’ll probably find they’ll lose anyway,” he said. “One asked me to help because he was inundated but we can’t do it for the price they’re putting in.”
It was not a practice he condoned as it could undermine the whole industry. “When things do pick up people will still want things done for silly money; it could have a long-term effect.”
