Keylite Comment: Q2 2023

Activity levels in the second quarter confirmed the slow year we predicted at the start and were only a little improved on the first quarter, which is normally seasonally quieter.

All the data points to consumer confidence being low, and people understandably opting to keep any pounds they have left in their pocket, safe in their pocket.  Inflation remains stubbornly high, and its impact on interest rates and therefore the cost of borrowing for home improvement or a new home purchase has significantly reduced demand. This too is in line with industry expectations.

For manufacturers, low market demand has been combined with merchants reducing their own stock levels to release cash.  At Keylite, we have been supporting customers to optimise their ranges and ensure they are best placed to serve shifting demand.  Allied to an agile logistics model and our own extensive stock holding, we can ensure that lower volume items and make-to-order specials can be delivered to stockist partners quickly when required.

Lower volume results in more material supply, but the whole supply chain has a level of overheads to absorb if we are to remain capable of the growth and flexibility required to deliver the volume of homes the country will require in the future.

Similarly, wage inflation expectation in the supply chain will be significant while inflation remains high and unemployment levels remain low.  In Poland, where we employ most of our workforce, the statutory minimum wage will rise again by some 20% from January 2024.  We continue to automate processes in an attempt to offset as much of the increased cost as possible, but when these higher labour costs are amplified by a weaker pound it translates into a major pressure on margin, so price increases next year will be unavoidable.

There are signs of improvement in both inflation and cost of borrowing, but in the absence of significant stimulus we don’t expect major improvements this year.  Our teams are remaining positive and will continue to work hard to win orders and back sell through our stockists, as always.

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