Construction Product Sales Stabilise Despite Challenging Conditions

Despite the adverse weather conditions in January, construction product sales were broadly flat during the first quarter of 2010 compared to one year earlier, according to the latest Construction Activity Barometer from Ernst and Young and the Construction Products Association. Furthermore, product manufacturers are anticipating growth in sales in the second quarter of 2010. In the Barometer a figure of 50 represents no change in sales compared to a year earlier with below 50 representing a fall in sales. This quarter’s overall result of 51 indicates that conditions for product manufacturers have generally stabilised. However, within this there is a clear difference between the fortunes of heavy and light side manufacturers. Heavy side manufacturers were acutely affected by the adverse weather conditions earlier this year and experienced a further decline in sales with a balance of 48, although this is the most positive result in over two years. Light side manufacturers saw a significant rise in sales with a balance of 57, up from 25 compared to the last quarter, which is the first positive result since the first half of 2008. In addition, both heavy and light side manufacturers envisage a rise in sales during the next quarter with respective balances of 56 and 59. Commenting on the results, Noble Francis, Economics Director for the Construction Products Association said; ‘This latest survey reflects improved conditions for the construction products industry and can be partly attributed to the fiscal stimulus from government during the recession. Looking forward, the rest of 2010 and 2011 are likely to remain extremely challenging for the industry given the threat of sharp cuts in public capital spending. Although there is a clear need to reduce the public deficit, government must ensure that it maintains investment in those areas such as transport, energy, housing and education which are most likely to encourage economic recovery and provide the basis for long term sustainable growth.’ Dominic McAra, a Director in the Ernst & Young’s Construction Products team added; ‘Although the upcoming election and uncertainty of future public infrastructure spending are still making forward planning difficult – it is encouraging to see that manufacturers at least consider that sales volumes are stable. We have seen that a number of companies in the sector have addressed their cost base over the last year to reflect lower sales volumes and are therefore better placed to cope with these lower volumes than this time last year.   ‘Although we suspect there will be more restructuring over the next 12 months – it will perhaps be at a lower level as companies become cautious about endangering future capacity by cutting too deep. ‘The challenge to the sector – without an improvement in sales volumes in the short to medium term – is how it will be able to generate environmental improvements to its products and processes. A scarcity of investment funds may lead to some companies having to make choices about where to concentrate their innovation – possibly at the expense of less core activities. It will be the companies that use scare resources most effectively that will tend to innovate most effectively.’