The Bowater Windows Report - Annual Review

2001 - Good Year but optimism blown away

Quarter-on-quarter sales

Just under one in two fabricators increased sales throughout the 12 months to September 2001. The last 6 months were stronger.

A useful way to look at the results is by the net balance of fabricators reporting either way. If, for example, 60% of fabricators saw an increase in sales and 40% a decrease, the outcome would be a net balance of +20%. A net balance around zero implies that little has changed.

On this basis, sales were strongest in the South (net 60%) in July-September. Companies in the Midlands and North saw sales peak in April-June, 64% and 59% respectively.

Small firms and companies producing less than 50 frames a week enjoyed the most widespread increases in April-June. Large companies and those producing 300+ frames a week recorded the strongest quarter-on-quarter growth in July-September.

Trade fabricators saw a continuous upward trend throughout the 12 months, from a net 14% in October-December to end the 12 months with 68% increasing sales.

Year-on-year sales

Growth continued from October 2000 to June 2001 and the 12 months ended with a healthy 66% increasing sales on the previous year.

Throughout the country, companies of all sizes, by number of employees and weekly production of frames, saw sales peak in April-June.

Commercial & trade fabricators and those with a mix of business also saw sales peak in the period. Retail fabricators were stronger in July-September.

Stock

Stock levels continued to increase from October to June then ended the year at the same level as that of June's, with one in four fabricators reporting increased levels. The unexpected strong growth in the first 6 months virtually emptied stocks with fabricators trying to respond to demand.

Medium sized companies reduced stock in October-December as did firms making less than 50 frames a week in January-March.

The highest stock levels were held by those in the Midlands in July-September and medium sized companies in May-June. Trade fabricators saw their highest stock levels at the end of the 12 month period.

Employment

Employment remained steady throughout the 12 months. All regions saw numbers employed increase from October-June, then slow in July-September.

Medium sized firms ended the year on a high (net 59%) compared to small companies (8%). Large companies saw lower numbers in October-December (10%), with a peak in April-June (65%).

A net 67% of trade fabricators took on more staff in April-June but recruitment slowed towards the end of the 12 months.

Orders

October 2000 to July 2001 saw a steady increase in orders, slowing slightly in August but ending the 12 month period with a net 55% reporting orders up.

Trade fabricators and those in the South continued to grow sales throughout the 12 months. The North and Midlands saw more mixed results.

The South ended the period ahead of others, a net 69% of firms as did medium sized companies 76%, and trade fabricators 79%.

Capacity

Historically, companies have lots of spare capacity, and 2001 is no exception. But just over one in two companies overall achieved full capacity through the year, a significant indication of the strength of demand.

Companies working at full capacity went from a net 40% in October-December to end the year at 59%.

Commercial fabricators ended the year ahead of others (68%) with full utilisation.

Selling Prices

Selling prices increased during the period October 2000-June 2001 and ended the year with just under one in five fabricators hiking prices. Prices went up most in April-June where a net 22% of fabricators put up their prices.

Companies producing 50-125 frames a week dropped prices in October-December 2000 as did those making 125-300 frames a week in July-September 2001. A net 39% of medium sized companies increased prices in April-June.

Price expectations

The number of companies expecting to increase selling prices remained steady in the 12 months. But expectations were highest in October-December 2000 and July-September 2001.

Companies in the Midlands, medium sized firms, those producing 50-125 frames a week and retail fabricators ended the period with the strongest expectations.

Purchase costs

Raw material costs started on a high in October-December with a net 51% of fabricators reporting increases on the previous year. This dropped in January-March (32%) then increased marginally over the remaining months.

Investment intentions

Investment intentions remained steady and strong throughout the year.

Companies in the North forecast more investment spending in October-December (44%) easing to 16% in July-September. Large firms' intentions weakened, from 38% in October-December, to 16% in July-September. By September trade fabricators were expecting most investment spending.

Profitability expectations

The number of fabricators expecting better profits in the next 12 months remained high throughout the year.

Fabricators in the Midlands, large companies, commercial specialists and firms producing 300+ frames a week ended the 12 months on the most optimistic note.

Outlook

Fabricators' optimism declined marginally over the period from October 00 (net 44%) to June (35%), then dropped sharply in July-September (8%) following the New York terrorist attacks.

Overview

<%=ldquo%>The September 11th Terrorist attacks and the subsequent strikes on Afghanistan have created enormous uncertainty in the global economy<%=rdquo%>, says Dr Ron Shakesheff, Chief Executive of Bowater Windows Ltd, whose company sponsors the Quarterly Trends Survey. <%=ldquo%>The initial impact in the UK appears to have been muted, with most window companies remaining busy. The quick response of the World Wide banking community in reducing interest rates, the continuing strength of the housing market and possibly greater emphasis on the home in troubled times, are the likely reasons why sales have held up.<%=rdquo%>

<%=ldquo%>In to Europe the overall market remains generally depressed, mainly as a result of a continued decline in Germany, which has had a knock on effect on neighbouring countries. High interest rates, high levels of unemployment and lack of finance have reduced sales in Poland although there is still a very high potential for window replacements. Czechia appears to be the most stable market this year and other less developed Eastern European markets are growing strongly from a low base. However, these countries are most vulnerable to a downturn in World markets.<%=rdquo%>

<%=ldquo%>Closer to home, the key problem for the industry appears to be lack of fabrication and in particular installation capacity rather than orders. The Direct Sell market appears to have bounced back led by Conservatories, which are exceeding even the more optimistic forecast for growth. Window sales also appear, at least for the moment, to have weathered the problems caused by market saturation, with clear signs that smarter operators are realising the potential of replacing the replacements.<%=rdquo%>

<%=ldquo%>The Public Sector market as expected is buoyant as a result of increased Government expenditure on Public Services. Given recent events, it has to be questioned whether this level can be maintained, but there are sufficient contracts in the pipeline at least for the immediate future. Housing stock transfers continue apace and Best Value and genuine partnering are becoming more commonplace, particularly in Southern England.<%=rdquo%>

<%=ldquo%>The New Build market has been more robust than forecast helped by rapidly increasing house prices, although these may now have tailed off. PVC-u has continued to gain market share, partly driven by customer demand, but also recognition by builders of the benefits of PVC-u windows both aesthetically and on thermal efficiency grounds.<%=rdquo%>

<%=ldquo%>Implementation of Part L in England and Part J in Scotland is rapidly approaching with much more awareness of its implications by fabricators. Most concern is about the policing of the legislation, minimising the risk that 'cowboys' avoid these obligations and under price contracts. Schemes such as the GGF WISA will hopefully prevent this happening.<%=rdquo%>

<%=ldquo%>Activity in mergers and acquisitions has been high over the last few months enabling companies to gain an insight into the potential value of their businesses. From the published figures, valuations of trade fabricators have been relatively high and acquirers appear more optimistic about the future of the UK window market than the existing owners or industry 'Gurus'. If this trend continues, the expected consolidation of the industry could accelerate with even larger grouping emerging. Hopefully we can avoid the German experience where consolidation failed to improve industry profitability.<%=rdquo%>

The Bowater Windows report is produced for The Blue Book by Michael Rigby Associates, and sponsored by Bowater Windows Ltd in conjunction with Fabrication and Glazing Industries. The aim is to keep a finger on the market pulse, and to monitor fabricators' views and expectations of market movements. Michael Rigby Associates is a management consultancy specialising in fact-based marketing, PR, research and performance improvement for the window and home improvement markets. The four Quarterly Trends surveys upon which this annual overview is based each cover a representative sample of 100 window fabricators. For each survey, telephone interviews took place across a balanced spread of size of firm, geographical area and type of fabricator. Numbers employed was used as an indication of company size. The categories are small (1-19 employees), medium (20-49) and large (over 50 employees). © Copyright Michael Rigby Associates, 2001 Further information: Mike Rigby, Michael Rigby Associates (01453) 521621