Heating and Ventilating

Sales of construction products continued to rise during the third quarter of 2010, according to the latest Construction Activity Barometer from Ernst and Young and the Construction Products Association (CPA).

'Unfortunately,' said the CPA, 'the buoyancy of the past six months is relative to the depressed state of the industry during 2009 when private sector demand contracted at an unprecedented rate. But the current cautious optimism is unsustainable in the longer term.'
Respondents to the survey warned that recovery is unlikely to be sustained beyond 2010 and expressed concern about the pending Comprehensive Spending Review on October 20. Said the CPA: 'The Emergency Budget confirmed that government capital expenditure will reduce by nearly 40 per cent between 2009/10 and 2013/14. The Association's latest forecast expects that, despite a slight rise in construction output this year, the contraction in capital expenditure will be sufficient to send the industry back into recession in 2011.'
Dominic McAra, a Director in the Ernst & Young's Construction Products team added: 'The summer's optimism reflected a period when a number of companies in the sector achieved better than expected results - although these expectations may have been low based on a tough 2009.
'Caution appears understandable given the announced government capital expenditure cuts, which are likely to hit this sector harder than most. The impact of the cold winters of the last two years is also likely to be front of mind as companies look to the final quarter of the year and to 2011.
'Many companies have managed to generate cash flows during the last two years despite lower profits, as a result of reduced capital expenditure and maximising working capital. At some point this may cease to be sustainable without a longer term impact on business, but it may not be until beyond the winter period that there is confidence to invest. This dilemma will leave companies with a difficult balancing act between their shorter term and longer term needs.'