Business Sector Updates
Banking
Builder merchant sector – sales volumes continue to slow.
Manufacturing sector – generally, business remains strong, with cost increases being passed on down the value chain.
China – some nervousness building with clients heavily exposed to Chinese imports, in the event of a major incident in Taiwan.
Independent school sector – scenario planning to understand likely impact of VAT on school fees in the event of a change in government.
Shipping costs – container process now back to near ‘normal’.
Base rate rises – leading to clients with surplus funds repaying debt ahead of schedule. Debt servicing for commercial loans now being tested at 5% base rate to ensure affordability.
Defence & Security
The first quarter tends always to be slow for the Defence sector, as MOD re-organises the new FY finances. The ongoing conflict in Ukraine has continued to create activity, so many companies are benefitting from the associated orders. As predicted in the last sector update, we are now hearing rumours of a slow down in appetite to fund the military activities in Ukraine, and the focus, I suspect, will soon start to shift towards reconstruction and regeneration planning, as the country faces generations of work – circa 14 million people (mainly women and children) have left Ukraine – where are they going to live if they return? The country is heavily contaminated, with everything from chemicals to unexploded ordnance – the identification, marking, securing and clearing of which creates huge opportunity for the broader Security sector. The UK Government is in the process of re-building relationships with Ukraine’s ministers, so UK industry may benefit from future contracts. This potentially affects many sectors including defence, Security, Agriculture, Energy and infrastructure.
Education
NMITE: – Focus remains on student recruitment across all programmes. Also looking at support on our Springboard Course – aimed at career shifters (graduates and/or apprentices they have completed their apprenticeship). Exciting news with the MTC@NMITE partnership, in which we hope to have MTC situated in the Skylon Campus within the next 2 months. Intended ambition to support SME’s primarily.
HE as a sector – faces difficulties as others do with cost of living crisis, governments agendas etc.
Food & Drink
Hospitality is now seeing the normal seasonal sales uplift as we move into the Summer months, with restaurants and public houses becoming busier. The succession of bank holidays has also had a positive effect. However, cost pressure and staffing remain a key focus. Several large national restaurant and pub chains continue to reduce their number of outlets by offloading unprofitable sites. The consumer demand for quality, sustainable and perceived ‘craft’ drinks products continues to grow. With consumers continuing to move away from ‘bulk’ brands and looking for perceived better quality niche products.
The alcoholic duty changes scheduled for 1st August will have an effect on what producers offer in the future – with significant duty benefits available at lower ABV%s – especially at levels less than 3.5% ABV. These changes will effect all producers and there are real benefits for smaller producers, which may enable them to become a little more price competitive against larger, national brands. As ever the sector is hoping for a good Summer weather wise, which will help to support the current seasonal uplift.
Legal Services
Generally, the legal market remains strong, in the last quarter, we saw a slight slow-down as regards new instructions in some area compared to the previous quarter but that aligns with our experience during previous periods of uncertainty. This quarter has started strongly, however, with increased new instructions across various legal disciplines and a feeling that clients are ‘getting on with it’ despite continuing uncertainty. From a corporate perspective, while interest rate rises are resulting in business transactions taking longer to get going due to pressures on external funding, those business clients with cash on hand have continued to be busy across all sectors of the market.
One of the biggest ongoing challenges facing the legal sector, like all businesses, continues to be recruitment and retention of talent in a hard recruitment market. Again, however, we are seeing really positive engagement from staff across all areas and recruitment levels, whilst still extremely fast paced and competitive, are increasing.
Clients themselves are continuing to experience staffing issues. Absenteeism remains high across all sectors we deal with, which is putting significant pressure on businesses from an operational perspective. – with a significant amount of mental health related absences continuing to be seen. Businesses also have far more people working to alternative working arrangements, including remote working and part-time employment, with the number of new appointments being on a part-time basis, being higher than ever (as reported in the national press). That potentially evidences the ‘great readjustment’ we have spoken about before – with employees reassessing their work/life balance and adjusting their priorities in opting to work part time In some instances, it might also be evidence of employers reassessing their needs and scaling down their new full time work opportunities as a cost saving measure, although, in our experience, the requirement for part-time work appears to be being driven more by employees than employers, at present.
Manufacturing
No recession, but growth is very subdued, we find that our supply chain are still increasing prices, steel, aluminium has stabilised but all other commodities continue to rise. Couple this with exorbitant rent and business rate increases and it has been an uneasy start to the year. International markets are also feeling the pinch and many of the large scale projects have either been shelved or put on hold until inflation returns to more normal levels.
Q2 has brought a strong start, but this is mainly in the Export market. The UK construction industry are still coming to terms with ongoing material, labour, energy, supply chain disruption that is continuing to hold back activity. Payment terms are still a cause for concern, companies are less willing to pay up front (Pro-Forma) or even stick to the agreed credit terms, companies are being forced into administration and we need to be extremely vigilant in the market. Our order book remains strong, and we continue to invest in our workforce to maintain our position in the market.
Sports and Leisure
After having had three extremely good years a dose of reality has set in this year. So far in 2023 our turnover is down by 14% in the UK and 18% at our US warehouse. However in comparison to the last ‘normal’ year pre-covid our turnover is still appreciably ahead. We are also having to monitor the amount of credit we allow retailers, particularly our online retailers who in some cases are struggling badly. One of our online retailers who spent around £1m with us last year has gone into receivership owing us a large amount of money. Hopefully we can recover some of our stock but it will still leave a large amount we will have to write off.
Having said that, we sell to over 800 retailers in the UK most of whom are trading well. However they are stock heavy ad ordering only what they need. The one bright spot is that shipping rates have now dropped to below the pre-covid levels having gone as high as $20,000 per container. So provided our competitors do not start to have a price-war, our profitability should be good. We are also finding that our overseas suppliers have plenty of capacity as demand is soft around the world.
Having no problems in recruiting warehouse staff over the last few years, we are now finding that we are struggling to fill vacancies. It would appear that the cost of living problems are having an effect on our business as I’m sure it is on most wholesale/retail businesses.
Sustainability
Renewable energy installs continue in the UK and indeed the world at a record breaking pace. Quarter one in the UK saw the highest roof mount installation rates on record. This is driven by several key factors. Firstly, climate change is increasingly on Business and homeowners’ minds and a desire to help in the journey to reduce carbon and for some enterprises a requirement from their customers. Secondly and a huge driver is the effect of international energy markets since the Russian invasion. It made sense to generate your own power before this price hike, but now more so than ever. Energy process have settled somewhat in the international and UK market, but still most businesses are facing energy prices that are double the historic norm. This pricing is expected to remain at these sorts of levels. Thirdly, geopolitics – driven by the war and wider unsettling politics, nations are pushing the energy security agenda, and this again is leading to a strong national level increase in renewables.
Steadying this demand has increasingly been grid restraints that is being more recognised now by government and in the energy news of late. Secondly the availability of supply and installers to fit. Registered installer numbers are rising rapidly and for all interested this is something to consider in selecting a supplier.
On a personal Caplor note – we are celebrating 100 years of family business this year with a week of open days (5th – 8th June) and welcome you and your networks to attend any or all of the days. We have a wide range of external speakers and exhibitors during the week plus the Caplor team and an opportunity to explore what we do here. The commercial day is Thursday 8th June 10-4.
Transport & Logistics *
Fuel: Our last delivery of 36000 litres was at 102.84p + VAT so roughly equivalent to £1.23. End of April was £1.31. Historically we would never see a gap bigger than 10p between our purchase and retail. Sometimes on parity. How we can still be seeing £1.50 and higher at the pumps is scandalous.
Volumes: Recession, what recession! Healthily bobbing along at pre-pandemic levels. Some customers up and some down so balancing out. Tough environment from a margin point of view as we have not passed on all our cost increases. Five bank holidays in two months is painful.
People: HGV mechanics remain the biggest area of shortage which is affecting availability and performance at dealers.
Fleet: The 2nd hand market has softened and new trucks are arriving when promised. We recently sold some old 18t lorries which, in the past, might have headed to East Africa but I understand that they will be finding a new life in Ukraine.
Ports: No delays being experienced at the major ports but with 3 to 21 days at some of the smaller ports.
Environment: Many of the major truck manufacturers have now launched electric HGVs, mainly around the 7.5t to 18trange. New British firm TEVVA has now got type approval for their 7.5t truck and, together with their hydrogen product, aim to produce 1000 vehicles annually., by the end of the year. So definitely moving in the right direction, but to put this in context there are around 40000 new truck sales a year in the UK and there is still no viable solution yet for 44t long distance.
Safety: There were 18 HGV deaths in 2022 which was a 20% reduction from the previous but we are still behind Western Europe. ABE’s newest vehicles, around 35% of the fleet, are fitted with adaptive cruise control and lane departure warning systems which, I’m sure will make a difference.
Facilities: UK are behind the continent in terms of the quality, availability and value of overnight parking with an estimated shortage of 4000 spaces every night. This leads to drivers parking in lay-bys and on industrial estates without proper facilities. MOTO, the largest provider has no served, sit down food offerings. There are many organisations that wish to set up lorry parks but are being thwarted by local council planning issues.