Quarterly Trends Report

Overview

“The world's largest economy is officially in its first recession for a decade,” says Mike Rigby, whose company produced this survey, “- a recession which started in March. The US economy shrank faster in the 3 months to September than it has since the recession of 1990-91.”

“Activity is expected to continue to decline until end of the year and outlook beyond that is uncertain. But optimism is growing. With the average US recession lasting 11 months economists are expecting the recovery to begin at the start of next year.”

“But serious risks remain for the US economy with depressed exports threatened as markets in Europe and Asia slip into recession. Also consumer spending, unemployment and the housing market are under a dark cloud at the moment.”

“For once though, the UK is a star, apparently defying the economic slowdown in the rest of the world. The Chancellor's recent upbeat forecast on Britain's economy, in which he defies fears over the impact on Britain of the recession in the United States, and predicts a rapid economic recovery by next year, leaves way for optimism.”

“Retail sales were unexpectedly high in November and consumers continue to spend enthusiastically in the run-up to Christmas. The housing market also shrugged off global recession and jumped 2% in November, bringing the annual housing inflation up to 11.5% according to the Halifax.” “But the building industry is feeling the chill as projects are put on hold and jobs are cut. The increase in Government spending is providing some support though with increased orders for school building, roads and hospitals.”

“The Monetary Policy Committee decided to leave rates at 4% in December following the bold half-point cut in November. This decision did not surprise many, but has fuelled speculation that interest rates have now gone as low as they are going to get. The next move by the Bank is likely to be a rise in rates next summer as soon as the world economy begins to recover, but for now the Bank is likely to proceed with care.”

Highlights This Quarter

• A net 18% of builders' merchants recorded higher cement sales during the three months September to November compared with the previous quarter.
• Compared with the previous three months a net 23% of large and medium sized outlets (21%) were ahead of small outlets (11%).
• Compared with the previous three months, branches in the Midlands (net 35%) and the South (26%) outperformed merchants in Scotland (6%). Merchants in the North slipped with a net -11% seeing sales fall quarter-on-quarter.
• Year-on-year sales were more positive with a net 50% of all builders' merchants experiencing growth in cement sales over the period.
• Year-on-year, outlets in the Midlands (net 58%) and the South (53%) were, again, the most positive but outlets in the North (42%) and Scotland (41%) also saw sales growth.
• Looking ahead, a net -43% of builders' merchants are expecting a decrease in cement sales over the next three months except in the North where a net 25% of merchants are expecting growth over the period.

Cement Sales - Overall Trends

Thirty four per cent of builders' merchant outlets reported an increase in cement sales in the period September to November 2001 compared with the previous three months. Sixteen per cent of outlets recorded a drop and 50% stayed the same.

A useful way to look at the results is by the net balance of merchants reporting either way. If, for example, 60% of merchants saw an increase in sales and 40% a decrease, the outcome would be a net balance of +20%. A net balance of zero implies that little has changed.

On this basis, a net 18% of builders' merchants recorded higher cement sales during the three months September to November compared with the previous quarter. As you can see from chart 1, this is quite high for this time of year.

National chain branches were ahead of Independent outlets with a net 35% and 7% reporting growth respectively.

Year-on-year sales were more positive with a net 50% of all builders' merchants experiencing growth in cement sales over the period. In contrast with quarter on quarter sales, more Independents (net 57%) recorded growth than National merchant branches.

Just under eight in ten merchants attributed their growth to an increase in sales to general builders. More than half said it was due to increased sales to small jobbing builders and tradesmen.

Sales by Size of Merchant

Compared with the previous three months a net 23% of large and medium sized outlets (21%) were ahead of small outlets (11%). Compared with the previous 12 months, large merchants (net 55%) experienced the most widespread increases but small and medium sized outlets also did well (53% and 45% respectively).

September - November Cement sales volume compared with the previous three months by size of outlet

SIZE OF OUTLET	Increase	Decrease	Same	Total	Base
Small	31%	19%	50%	100%	36
Medium	36%	14%	50%	100%	42
Large	36%	14%	50%	100%	22
Total	34%	16%	50%	100%	100

September - November Cement sales volume compared with the same three months of last year by size of outlet

SIZE OF OUTLET	Increase	Decrease	Same	Total	Base
Small	67%	14%	19%	100%	36
Medium	62%	17%	21%	100%	42
Large	68%	14%	18%	100%	22
Total	65%	15%	20%	100%	100

Sales by Tonnage

Compared with the previous three months merchants selling between 300 and 1000 tonnes of cement per annum through a single outlet saw the most widespread sales growth (a net 27%). Branches selling more than 1000 tonnes (a net 16%) were close behind but the picture was mixed in branches selling less than 300 tonnes where the same number of branches reported increases as decreases.

Year-on-year comparisons were similar with all outlets reporting higher cement sales over the period.

Sales by Region

Compared with the previous three months, branches in the Midlands (net 35%) and the South (26%) outperformed merchants in Scotland (6%). Merchants in the North slipped with a net -11% seeing sales fall quarter-on-quarter. Year-on-year, outlets in the Midlands (net 58%) and the South (53%) were, again, the most positive but outlets in the North (42%) and Scotland (41%) also saw sales growth.

September - November Cement sales volume compared with the previous three months by area

AREA	Increase	Decrease	Same	Total	Base
South	37%	11%	52%	100%	38
Midlands	42%	8%	50%	100%	26
North	21%	32%	47%	100%	19
Scotland	29%	24%	47%	100%	17
Total	34%	16%	50%	100%	100

September - November Cement sales volume compared with the same three months of last year by area

AREA	Increase	Decrease	Same	Total	Base
South	68%	16%	16%	100%	38
Midlands	69%	12%	19%	100%	26
North	63%	21%	16%	100%	19
Scotland	53%	12%	35%	100%	17
Total	66%	10%	24%	100%	100

September - November Merchant Sales Volume of Cement by Customer Type and Region

	House builders	General Builders	Tradesmen	DIY	Total
South	12%	55%	18%	15%	100%
Midlands	20%	49%	18%	13%	100%
North	27%	28%	20%	25%	100%
Scotland	28%	32%	20%	20%	100%

Product mix

More than eight out of ten merchants interviewed sell Ordinary Portland Cement. More than seven out of ten sell air-entrained and less than four out of ten outlets sell masonry cement.

Types of cement product sold by outlet size

	Small	Medium	Large	All
Ordinary Portland	83%	79%	82%	81%
General Purpose Air Entrained	64%	81%	77%	74%
Masonry	17%	41%	59%	36%
Other	39%	50%	68%	50%

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“As we move into 2002 we are optimistic for our company's prospects. Whilst I am aware there are changes ahead, such as the introduction of the Euro next year, I'm hoping we won't be affected too much as we don't often trade abroad. The only problem I can foresee is if the Euro changes exchange rates and forces price rises in the industry that will eventually be passed on to the customer.”

“So far our company has escaped any knock on effects of the troubles this year, making us optimistic for next year. We already have orders from tradesmen for up to April, so as long as our customers are optimistic, so are we.”

“Our business comes from word of mouth, adverts on our lorries, regular adverts in the yellow pages and sponsorship of local football teams. These methods have ensured our sustained relationship with the local community.”

Mr Douglas Stuart, Manager
Keith Builders Merchants Ltd, Forres, Morayshire.

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Quarterly sales forecasts

Looking ahead, a net -43% of builders' merchants expect a decrease in cement sales over the next three months except in the North where a net 25% of merchants are expecting growth over the period. Chart 4 shows that this is a strong seasonal trend.

Year-on-Year sales forecasts

Year-on-year sales forecasts are more positive with a net 47% of merchants expecting an increase in cement sales over the next three months compared with the same three months of last year.

Large outlets (net 59%) have the highest expectations with medium sized outlets (50%) and small outlets (37%).

Merchant confidence is strong throughout most of the country. Outlets in the Midlands (net 58%), the South (50%) and the North (47%) have the strongest expectations but builders' merchants in Scotland (24%) are also positive.

More than nine in ten merchants forecasting higher cement sales expect the growth to come from sales to general builders.

Looking much further ahead, over the next five years, a net 68% of builders' merchants are expecting higher sales. An expansion in new building work was mentioned most frequently as the reason for these expectations.

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“Economic factors have certainly not been on our side this year, and events such as foot and mouth have had a knock on effect. Looking forward to next year, things look set to stay the same. The new taxes coming in place at the beginning of 2002 will certainly not help the difficult times.”

“Whilst the area as a whole is struggling as a result of the September attacks and the talks of recession, we are pleased to say that we are holding our own. Word of mouth ensures our good service brings back more business. We are also actively trying to attract new business all the time. Keeping our ears to the ground, if we hear of any new developments, in the area, we target them for business. The company as a whole also sends out fliers three to four times a year, to keep our name in the forefront of peoples' minds.”

Mr M.R. Douglas, Sales Estimator
Keyline Builders Merchants Ltd, Borders

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Price forecasts

More than seven in ten builders' merchants expect to increase their selling prices over the next twelve months compared with the previous twelve (see chart 6).

More than nine out of ten though attribute this increase to passing on supplier price rises. Just under two in ten outlets said they were looking to improve margins and profitability.

Prospects

Overall a net 20% of builders' merchants view the prospects for the cement market more positively compared with three months ago.

A net 26% of large merchants are more confident than small (20%) and medium sized outlets (17%). Outlets in the South (net 26%) and Scotland (24%) are more optimistic than merchants in the North and the Midlands (16% and 12% respectively). National chain branches (23%) are more confident than Independent merchants (18%).

The main reasons for continued confidence are an increase in building work and the general market trend.

Problems

Of those merchants experiencing problems more than one in two highlighted continuing price cutting.

Internet usage

Twenty two per cent of builders' merchants now say they use the Internet on a daily basis and 8% say they use it weekly. Nine per cent of merchants use it rarely and 61% say they never use it.

Thirteen per cent of outlets use the Internet to place orders with their suppliers. One in three outlets say they can accept orders via their website.

Comment

“Few people in the building industry would argue against the need for a major house building programme,” comments Derek Mayhew, marketing manager of Castle Cement who sponsor this survey. “But meeting the Government's estimated need for 3.8 million additional homes in the next fifteen years would require massive growth in the current house building programme compared to current levels. Growth on this scale cannot happen overnight. Companies at all levels in the supply chain will need to gear up for such an expansion. This will not happen until they see how and where such building can take place.”

“One of Labour's goals has been to push Brownfield development for 60% of all new build. Developers are required to search for urban sites before even applying for Greenfield planning permission, and the Government has the right to veto rural development of more than 150 homes. There are high levels of tax credits currently available for cleaning up contaminated land. But it can be difficult to get planning permission for Brownfield sites due to complaints from local authorities and residents. Such sites are often plentiful in deprived areas where crime is high, which naturally affects demand.”

“Proposals to put VAT on Greenfield sites could result in builders increasing house prices rather than opting for Brownfield areas. An environmental impact fee has been suggested in the past but this also has disadvantages.”

“Greenfield land isn't actually that scarce, and with a decline in farming over the last 10 years more land is becoming available. The Brownfield-Greenfield debate has slipped off the media agenda in the last 12 months, but it is still a major issue for the industry. Part of the answer lies in improvements to the planning system. A speedy and effective solution would have a significant long-term impact on the future of the industry and the nation. Not getting to grips with it quickly could hamper growth of the industry and the needs of the nation.”

The Castle Cement Report, a quarterly trends survey, is produced by Michael Rigby Associates, and sponsored by Castle Cement Ltd in conjunction with Builders' Merchants News. The aim is to keep a finger on the market pulse, and to monitor merchants' views and expectations of market movements in cement products. Michael Rigby Associates specialises in research based marketing and consultancy for the home improvement, building materials and window markets in the UK and Europe. The survey covers a representative sample of 100 builders' merchant outlets. Telephone interviews took place between the 5th and 7th December 2001 across a balanced spread of size and type of merchant and geographical area. Numbers employed was used as an indication of size. The size categories of merchant outlets are small (1-9 employees), medium (10-25 employees) and large (over 25 employees). Further information: Tom Rigby, Michael Rigby Associates, tel: (01453) 521621. Castle Cement Website: www.castlecement.co.uk.