Quarterly Trends Report

Overview

“Global economies are forced to play the waiting game yet again, as the impact of the devastating attack on America on the rest of the world unfolds,” says Mike Rigby, whose company produce this survey. “With world economies already unstable, they are not in the best position to react assertively to recent events. Whether consumer confidence will continue to keep the economy afloat is yet to be seen.”

“The co-ordinated 0.5% interest rate cuts initiated by the US Federal reserve quickly following the disaster, has been seen as a positive step and consensus appears to be that losses may not be as bad as was first anticipated. Whilst the growth rate is likely to slow considerably, many are still optimistic about the chances of avoiding a full-blown recession.”

“The housing market is likely to echo this slow-down, but the cut in interest rates should help the situation. Early indications are that it is the top end of the market that will be most affected. With buying activity slowing for about three months prior to the latest events anyway, larger properties are struggling to achieve their asking prices. With consumer confidence again playing a key role, all we can do is wait and see to what degree the market will be affected by recent events.”

Sales

According to this latest quarterly trends report produced by Michael Rigby Associates a net 54% of fabricators recorded increased sales over the months July to September, compared with the previous three months.

A useful way to look at this 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 net balance would be +20%. Reverse the figures and it would be a net –20%. A balance of zero implies that little has changed.

On this basis, the larger the company the more widespread the increase. Firms producing less than fifty frames per week are slightly behind with a net 6% reporting growth.

Contract and trade specialists are ahead with a net 60% and 68% respectively noting improved sales compared with 43% of retail firms.

July-September 2001 sales compared with the previous three months – by size

SIZE	Increase	Decrease	Same	Total	Base
Small	58%	9%	33%	100%	52
Medium	69%	14%	17%	100%	29
Large	74%	5%	21%	100%	19
Total	64%	10%	26%	100%	100

July-September 2001 sales compared with the previous three months – by area

AREA	Increase	Decrease	Same	Total	Base
South	69%	10%	21%	100%	42
Midlands	65%	16%	19%	100%	26
North	56%	6%	38%	100%	32
Total	64%	10%	26%	100%	100

Year-on-year sales are even stronger with a net 66% of companies interviewed recording an increase compared with the same three months last year. More fabricators in the South and Midlands (net 74%) reported growth compared with firms in the North (50%).

Medium companies are ahead with none of those interviewed recording a drop. Looking at weekly output, firms producing in excess of fifty frames per week saw the most widespread increases, whilst firms producing less than fifty frames (net 28%) are slightly behind. The picture is similar across all types of business activity.

Just under one in five fabricators recorded an increase in sales of 20% or more.

Conservatories

Twenty-seven per cent of the companies interviewed produce between 10-20% of their windows and doors for conservatories.

Stocks

A net 26% of outlets reported increased stock levels. Firms in the Midlands net 42% grew stock levels more than any other region. Trade specialists (47%) increased stock levels more than contract and retail specialists. No trade fabricators interviewed reported a fall in stock levels. The picture across size of company is similar.

Employment

A balance of just under three in ten fabricators increased staffing over the three months to September. Small firms were least active.

Orders

A net 55% of fabricators recorded a rise in the volume of orders compared with three months ago. Firms in the South (net 61%) and medium and large outlets (76% and 74% respectively) saw most of the increase.

More trade specialists (net 79%) reported an increase in their orders compared with contract (60%) and retail (45%) firms.

Capacity

Just under 60% of the companies interviewed reported to be working at nominal capacity.

Prices

A net 19% of fabricators interviewed reported an increase in selling prices over the last three months. Firms producing between 125-300 frames per week recorded a decrease in selling prices (-4%) compared with companies producing in excess of 300 frames per week (35%).

Price expectations

Just over one in two outlets expect to increase selling prices in the next twelve months. More medium firms will put up prices (net 62%) than small and large fabricators (52% and 32% respectively).

Outlook

Overall forecasts for sales activity in the next three months are positive with a net 15% of fabricators expecting sales to improve compared with the three months to September. The larger the firm the more widespread the expectation for growth. Companies producing between 125-300 frames per week are the most confident with a net 22% forecasting increased sales.

Commercial fabricators (net 24%) forecast growth compared with trade (5%) and retail (14%) specialists.

Year-on-year expectations are also positive with a net 48% of fabricators interviewed expecting sales in the next three months to increase compared with the same period last year. Expectations are strongest among medium firms (net 69%) compared with small and large fabricators (37% and 47% respectively).

Raw materials

A balance of just over one in three fabricators recorded an increase in the cost of materials. More small firms by number of employee (net 42%) noted a rise in prices than any other size of company. Small companies by weekly production (56%) are also ahead compared with medium and large companies.

Investment intentions

Overall a net 22% of companies interviewed plan to invest in the next twelve months. Regionally and by size of outlet, the picture is similar for planned investment. More trade fabricators (net 42%) are looking to invest over the next year compared with contract companies (28%) and retail firms (10%).

Just less than seven in ten fabricators looking to invest more, plan to spend on buying or updating machinery.

Prospects

Overall the outlook is positive with a net 8% of fabricators more confident now than three months ago. Firms in the North (net 22%) are more bullish than companies in the Midlands and South. Trade fabricators (-2%), outlets in the South (net –5%), and companies producing between 125-300 frames per week (-4%) are less optimistic than they were in the three months ago.

Profitability

A balance of just over one in two fabricators are confident about profits over the next twelve months, compared with the last twelve. Outlets in the Midlands (net 65%) expect profits to increase, with none of those interviewed expecting a drop. This compares with firms in the North and South (53% and 40% respectively).

Problems

Lack of skilled staff, price cutting in the market and margin squeeze continue to be the main concerns for fabricators.

The biggest problem faced by 24% of companies this quarter was again lack of skilled staff. In contrast 13% of firms reported having no problems at all.

Comment

“The September 11th Terrorist attacks and the subsequent strikes on Afghanistan have created enormous uncertainty in the global economy”, says Dr Ron Shakesheff, Chief Executive of Bowater Windows Ltd, whose company sponsored this survey. “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. The next quarter will be important in assessing whether this trend continues.”

“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.”

“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.” “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.”

“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.”

“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.”

“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.”

The Bowater Windows Report, a quarterly trends survey, is produced 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 marketing research, marketing and business improvement for the window and home improvement markets. The survey covers a representative sample of 100 window fabricators. Telephone interviews took place between the 1st and the 5th October 2001 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: Fiona Lund, Michael Rigby Associates. Tel: (01453) 521621