A majority of companies are again reporting worse trading conditions than one year ago, according to BFM's latest State of Trade and Financial Ratios Survey for June 2018.
Looking ahead, there is a lack of confidence amongst furniture manufacturers due to the uncertainties we are facing, and this downbeat view is close to the feeling of February this year when confidence hit a four year low. This is reinforced in the June survey by lower production levels, although there is an expectation of some improvement to come.
On the other hand, the export is doing relatively well, with exports volumes and orders showing an improvement over the last 4 months and the expectations being positive for the future.
With regards to material prices, the ever-rising costs appear to have eased a little if we look across the range of products used in production. However, there are still significant rises for some common items, top of which were board products, and second to board was timber.
A mixed picture emerges when looking at Financial Ratios. The ratio of direct labour and material costs, as a percentage of sales, has reached its highest level since BFM first started the survey at the turn of this decade. The most surprising feature perhaps is the fall in the overhead cost ratio, given that the balance trend survey consistently reports more companies than not reporting it as a rising cost, and with pension scheme auto-enrolment, this would seem to be quite understandable. The 2018 survey results show that the ratio of overheads has fallen by 2% over the past year.
Distribution costs however have risen, and profitability is down. The average net profit across the survey for 2018 was just 4% compared to 6% in 2017.
The results appear to suggest that either overhead costs are rising at a slower pace than other costs, or there has been an effort to reduce overheads in order to maintain margins and offset rises in the costs of distribution and direct labour/materials.
Although 25% of companies reported that they were only at a breakeven position, no company reported making a loss and this is the first time that has happened since the survey’s inception.