Quarterly Trends Report

Increasing Sales and High Optimism for Fabricators

Sales

Just fewer than one in two fabricators increased sales in the three months to December, compared with the previous three months. Just over two in ten saw a decrease and for three in ten sales stayed the same.

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 a net 25% of companies reported sales up over the period, as seen in chart 1. The further North you travel, the more widespread the increase. More large companies (net 41%) recorded growth compared with small and medium sized firms (26% and 14% respectively).

October-December 2002 sales compared with the previous three months - by size

SIZE	Increase	Decrease	Same	Total	Base
Small	48%	22%	30%	100%	54
Medium	38%	24%	38%	100%	29
Large	65%	23%	12%	100%	17
Total	48%	23%	29%	100%	100

October-December 2002 sales compared with the previous three months - by area

AREA	Increase	Decrease	Same	Total	Base
South	34%	34%	32%	100%	41
Midlands	50%	23%	27%	100%	26
North	64%	9%	27%	100%	33
Total	48%	23%	29%	100%	100

Year-on-year a balance of two in three firms increased sales. The picture is similar across the UK. Large companies again outperformed small and medium sized firms with none of those interviewed reporting a decrease.

Just under 38% of fabricators expanded by 20% or more over the same period last year.

Mix of Business

Just 12% of fabricators sell only windows and doors, as seen in chart 2.

Fifty eight per cent of firms said conservatories accounted for over 20% of their business. Roofline although not so widespread is also being added to companies' portfolios. We'll be keeping an eye on the trend to increasing diversification in future reports.

Stocks

A balance of fewer than one in five companies increased stock levels compared with three months ago. The smaller the fabricator, the more widespread the stockbuild. Trade fabricators (42%) increased stocks more than commercial and retail specialists (5% and 8% respectively).

Employment

A net 17% of fabricators employed more staff in the three months to December compared with the previous three months (chart 3). Companies in the North (33%) were more active than any other region with fabricators in the Midlands least active (4%). The larger the firm, the more active they are as recruiters.

Orders

A balance of three in ten firms reported higher in orders in the last three months of 2002, as seen in chart 4.

Capacity

Forty-six per cent of fabricators interviewed were working at capacity in the quarter, see chart 5.

Prices

A net 20% of fabricators put up prices in the last three months. None of those interviewed reduced prices. Regionally, more firms in the South (27%) put up prices compared with the Midlands and North (15%). The smaller the company the more widespread the hike in prices.

Raw materials

Overall a net 44% of firms had to pay more for their materials in the fourth quarter of 2002 compared with the previous three months, as seen in chart 6. Large companies (net 24%) resisted price increases more effectively than medium and small firms (55% and 44% respectively).

Price expectations

A balance of one in two fabricators interviewed plan to put up prices in the next twelve months compared with the previous twelve. More firms in the South expect to increase prices than the Midlands or North. More small companies are planning to raise prices in 2003 than medium or large fabricators.

Outlook

Overall a net 41% of fabricators expect better sales in the next three months compared with the previous three. A net 61% of firms in the South are positive. Large firms are more bullish (77%) than medium sized firms (45%) or small fabricators (28%).

Year-on-year, just over a net three in five fabricators expect sales to increase. More firms in the Midlands (73%) forecast increased sales but the North (64%) and South (55%) are not far behind.

Investment intentions

A net 14% of fabricators plan to invest in machinery in 2003 compared with last year (chart 7). The picture is similar in the Midlands and North with 24% of companies planning to invest. Firms in the South expect little change. Small fabricators' (9%) plans to invest are more modest than medium and large companies (21% and 18% respectively). More trade and commercial firms (27% and 21% respectively) plan to invest than retail specialists (2%).

Prospects

A balance of 16% of fabricators are more optimistic, as seen in chart 8. The larger the fabricator, the more confident. Only companies producing fewer than fifty frames per week are less confident.

Profitability

A net one in two fabricators expect improved profits in 2003. The North (67%) and large firms (77%) forecast the most widespread improvement. More commercial and trade specialists expect profits to increase than retail fabricators.

Problems

Margin squeeze and price cutting in the market are the main concerns this quarter.

Twenty-seven per cent of fabricators suffer from a lack of skilled staff - their single biggest problem.

Comment

“It's started!” comments Winston Duguid, Managing Director of the UK Commercial Division of Bowater Windows, who sponsors this report. “The long awaited decline in the direct sell sector of the window industry is now beginning to bite in certain pockets of the country. The continued boom in conservatory sales will help to disguise the reality for replacement windows but the facts are becoming clearer. In addition to Robert Palmer one or two more individuals using sophisticated computer programmes are projecting where the decline will occur. In a report issued before Christmas by Anthony Pratt, the conclusions make depressing reading for large and small direct sell companies that do not have good brands and do not understand changes in consumer behaviour.”

“We are all becoming much more 'professional' consumers. Less taken in by sales gimmicks, we increasingly look to buy value rather than the cheapest and are prepared to pay a premium for benefits. And we are getting increasingly touchy about intrusive sales and marketing techniques, particularly the dreaded telesales. Anthony Pratt believes that some of the nationals may respond better to these challenges than the local installer; others believe he is not correct because it is a lot easier to change the direction of a smaller company than a larger one. The starting point is understanding that an organisation wanting to compete in the British direct sell window market of 2006 will need a different skill set than those competing today. Growing sales in a growing market is relatively easy; growing sales in a declining market is a very different proposition.”

“There are also huge changes occurring in the public sector. Much of the delay in public sector home improvements schemes is caused by the conditions the government attached to the extra cash being available for renovation work. Hiving off the dwelling stock by local authorities to housing associations or arms length management companies is key because new landlords are able to attract private finance which local authorities cannot do. The rate of large scale voluntary transfers (LSVTS), started to gain pace in 2002 and now there are some extraordinarily large tenders coming out for renovation work beginning in the local government new year (April).”

“There is already concern in certain quarters that there is not enough window fabrication and installation capacity available for this public sector renaissance. In addition to the difference of performance spec of a public sector window, the procedures and contracts of a public sector window installation are very different to the consumer installation and the business needs to be run very differently. The public sector will be looking to those that have a successful track record in managing public sector contracts, not those looking for an opportunistic turn.”

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 2nd and the 8th January 2003 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). © Michael Rigby Associates, 2003 For further information contact Helen Ahern, Michael Rigby Associates, (01453) 521621.