January perspective: Hexstone Group 11 February 2016

A review and preview of the global fastener industry

A wide cross section of global fastener business leaders have contributed their retrospective of 2015 and thoughts on the prospects and challenges for 2016. We asked them to consider not just economic and financial issues but also technology drivers for the fastener industry and to identify priorities for the upcoming year. Here is Hexstone's article:

Hexstone Group
Keith Harrison, chief executive

As a business that operates as a wholesaler in many different sectors within the fastener market, it is fair to say 2015 has given us a variety of outcomes. Overall, the sum total comes out at broadly where we expected to be, but certain sectors remain difficult. Product devaluation has been significant in some materials, leading to reduced revenue, and in many sectors margin pressure has built as the year has unfolded.

At the BIAFD meeting in May, the general view was that 2015 had started well and members were largely optimistic at the prospects for the year. The subsequent meeting in October was more subdued, with many reporting weakening demand and margin pressure. In our commodity spot trade products this has also been our experience. The closing trend for the year in these areas is somewhat downwards, a reflection of a reduction in demand coupled with reduced market prices, which we believe are unsustainable. We have, however, been able to offset much of the impact with stronger trading in branded and value added products.

In looking forward into 2016, we expect demand levels to remain at the more subdued levels of Q2 2015. Having previously stated that current market prices are unsustainable if profitability is to be achieved, we don’t anticipate any changes in terms of improved margins in core commodity products. It will be in other areas that we can expect to make progress to maintain satisfactory returns. Improved returns will be essential to continuing to develop a platform to support the ever increasing requirements of our customers in terms of service levels, technical support, certification, etc, and to satisfy the ever increasing regulatory requirements surrounding the fastener market.

For the wholesaler sector as a whole, the subject of satisfactory returns is an important and pressing issue. We have recently reviewed the published accounts of a number of wholesalers engaged in supplying core, commodity carbon steel products. If we take ourselves and our three main competitors the collective financial performance makes for interesting reading. Total sales for these four has been around GB£105 million for the last four years. The total working capital used is around GB£45 million. Profit before tax is currently averaging around GB£2.5 million, giving a return on sales of below 2.5%, and a return on investment of around 5.5%. For some in this sector, there is no profit at all, and no returns at all. This leaves little room for error when net margins are so small, and little room for manoeuvre when margins come under pressure. Current returns need to improve, as without improvement, changes are inevitable. This is the biggest challenge to be faced by wholesalers for 2016 and beyond.

At Hexstone, in the absence of any real growth in general demand to improve returns, we will continue with our strategy of driving operational efficiency and managing our profit margins. History tells us that the sector as a whole only makes adequate returns when the focus is on margins. Of course, this is not always an easy path in a market where there are reducing levels of loyalty amongst many stockists and merchants, who are also having to respond to pressures from their own customer base. However, the long-term well being of both wholesaler and stockist is dependent on strong and equitable relationships between both. There is a common interest – wholesalers don’t exist without stockist customers, many stockists wouldn’t exist without wholesalers. Such is the structure of our market. All in all, the next few years may be very defining.

Content Director

Will Lowry Content Director t: +44 (0) 1727 743 888

Biog

Will joined Fastener + Fixing Magazine in 2007 and over the last 15 years has experienced every facet of the fastener sector - interviewing key figures within the industry and visiting leading companies and exhibitions around the globe.

Will manages the content strategy across all platforms and is the guardian for the high editorial standards that the Magazine is renowned.