Sales up but margins shredded

Sales up but margins shredded

The latest New Zealand Manufacturers and Exporters Association (NZMEA) Survey of Business Conditions completed during October 2010, shows total sales in September 2010 increased 23% (export sales increased by 16% with domestic sales increasing 28%) on September 2009.

The NZMEA survey sample this month covered NZ$432m in annualised sales, with an export content of 35%.

Net confidence dropped to -11, down from the 40 result reported last month.

The current performance index (a combination of profitability and cash flow) is at 99.5, down from 107.5 in August, the change index (capacity utilisation, staff levels, orders and inventories) remained at 100, and the forecast index (investment, sales, profitability and staff) is at 103.5, down on August's result of 104.75. Anything less than 100 indicates a contraction.

Constraints reported were 78% markets, 11% capital and 11% skilled staff

Staff numbers for September increased year on year by 6%.

“Sales numbers have continued to grow this month despite toughening trading conditions,” says NZMEA Chief Executive John Walley. “Sales volumes are slowly increasing, but respondents have reported difficulty in converting interest into sales due to the uncertain environment.”

“This difficulty and increasing concerns about the currency moving ever higher have seen the confidence rating turn negative for the first time in 2010.”

“Growth depends on patchy market strength and margins on the lottery of currency movements. Manufacturers buying materials in US dollars and selling to Australia are doing well at the moment, but anyone selling in US dollars and Euros is having a really tough time.”

“Skill shortages are starting to reappear with hands on engineers and software developers hard to recruit. There is the potential for these to get much worse with the Government removing 55 million dollars of apprentice training. If these funding cuts to the trades are persistent, expect to see serious shortages in five years or so.”

“The major difficulty for export investment remains the high currency. While other export dependent nations seem ready to try any measure to maintain the international competitiveness of their currency. New Zealand perpetuates the myth that nothing can be done.”

A recent comment from BERL in their Monthly Monitor sums up the situation:
“When countries as small as Mauritius are intervening to stabilise their exchange rate and are being complimented on it by the IMF, one wonders why the New Zealand authorities think it is beyond them.”

“The argument that nothing can be done is an abdication of responsibility; the damage that the exchange rate is doing to our tradeable sector is irrevocable.”

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