Quarterly Trends Report

Solid start to the year for the windows market

Sales

Just over one in two fabricators increased sales in the three months to March compared with the previous three months. One in five saw sales fall away and one in four 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 32% of companies recorded increased sales in the three months to March (see chart 1). The further North you travel the more widespread the increase. More large firms (net 77%) saw growth compared with small (23%) and medium (13%) sized companies.

January-March 2003 sales compared with the previous three months - by size

SIZE	Increase	Decrease	Same	Total	Base
Small	46%	23%	31%	100%	48
Medium	43%	30%	27%	100%	30
Large	82%	5%	13%	100%	22
Total	53%	21%	26%	100%	100

January-March 2003 sales compared with the previous three months - by area

AREA	Increase	Decrease	Same	Total	Base
South	49%	30%	21%	100%	37
Midlands	54%	15%	31%	100%	26
North	57%	16%	27%	100%	37
Total	53%	21%	26%	100%	100

Year-on-year sales show a balance of one in three companies increasing sales. Fabricators in the North (43%) reported stronger sales than the South and Midlands (both 27%). Large fabricators (55%) outperformed small and medium sized companies.

Thirty five percent of fabricators increased sales by 20% or more compared to the same period last year.

Mix of Business

Conservatories are expected to gain ground over the next couple of years and windows and doors to account for a smaller portion of the mix. At the moment 78% of window fabricators business is windows and doors and 19% conservatories. Looking two years ahead fabricators expect 73% of their volume to come from windows and doors and 24% from conservatories.

Stocks

A net 6% of fabricators increased stock levels compared with the previous three months. Only small fabricators built up stock, medium and large fabricators saw no change.

Employment

A net 14% of firms employed more staff in January-March compared with the previous three months, chart 2. Companies in the Midlands and the North (net 19%) recruited most actively compared with the South (5%). More large fabricators (27%) took on staff than small and medium sized firms (15% and 3% respectively).

Orders

A net 35% of fabricators reported more orders in the last three months compared with the previous three months, as seen in chart 3.

Capacity

A high forty-three per cent of fabricators we spoke to worked at capacity in the quarter (chart 4).

Prices

A net 22% of fabricators put up prices in the last three months. Slightly more companies in the North (27%) put up prices compared to the South (22%) and the Midlands (15%). More small firms hiked their prices (see chart 5).

Raw materials

Overall, a net 39% of companies reported increased costs of materials in the three months to April compared with the previous quarter (chart 5). Companies in the Midlands and large firms were most affected.

Price expectations

A balance of 42% of firms plan to put up prices in the next twelve months compared with the previous year. More fabricators in the Midlands (58%) expect to increase prices. More large and small fabricators (45% and 44%) plan rises than medium sized fabricators.

Outlook

The outlook for the next three months is positive with a net 58% of companies expecting to increase sales compared with the previous three months. Fabricators in the Midlands are the most positive with a net 65% expecting to grow. Medium sized companies (73%) have higher sales expectations than small and large (58% and 36% respectively). More trade fabricators (88%) expect to increase sales compared with retail (61%) and commercial specialists (36%).

Compared with a year ago expectations are also high with a net 48% of firms expecting to increase sales. Fabricators in the Midlands are most optimistic. The larger the company the more they expect to grow.

Investment intentions

A net 8% of fabricators plan to invest in machinery in the next 12 months compared with the previous 12 months (chart 6). More firms in the North plan investment than elsewhere. The picture is split with a net 20% of medium and a net 8% of small companies planning to invest in contrast to large companies where a net -9% plan to decrease investments. More retail fabricators (14%) plan to invest than commercial companies (7%) and trade fabricators who expect no change.

Prospects

A balance of 17% of fabricators are more optimistic (chart 7). Companies in the Midlands are most optimistic. The larger the company the more widespread the confidence. Commercial fabricators are more optimistic than retail fabricators. Trade fabricators stayed the same.

Profitability

A balance of 55% of fabricators expect to improve profits in the next 12 months compared with the previous 12 months. Firms in the Midlands (62%) and large fabricators (64%) are most bullish about profits. More trade fabricators (77%) expect better profits than retail and commercial specialists (51% and 50% respectively).

Problems

Margin squeeze and price cutting were again the main problems for fabricators this quarter. But the single biggest problem identified by fabricators was lack of skilled staff, highlighted by 22% of those we spoke to.

Comment

“With the continental European window market remaining in the doldrums, comments Winston Duguid, Managing Director of the UK Commercial Division of Bowater Windows, who sponsors this report, “the UK market continued to out perform its neighbours. However, the growth of 2002, the consensus amongst UK extruders seems to be a growth of 7% to 8% for the year, was checked by the Gulf War and a wobble in consumer confidence in the first quarter.

“Most direct sell and trade fabricators started January with good order books, boosted by strong conservatory sales and a more resilient than expected replacement window market. Some regions since then have been patchier than others whilst, as has happened before when the consumer sector tightens, the proactive companies who go out to get consumers interested in their product have taken market share from those that have just waited for the consumer to contact them.

“The public sector saw its usual January push for end March completion although the stampede that used to occur at that time of year has changed as more and more housing stock is transferred to registered social landlords. The opportunities for genuine partnering have never been better as the new organisations embrace the advantages of longer term arrangements with key performance indices in place. Not surprisingly some RSL's are having a smoother transfer than others and the larger the transfer stock the more issues that need to be tackled in the transition process. These transfers affect a host of products, not just windows and doors. Capacities are already being stretched in other industries, notably kitchens. The recent groundbreaking 23% pay increase to hundreds of thousands of building workers will have a knock-on effect on installation costs in both the public and private sectors.

“In the housebuilding sector the pay award must hasten the move to assembly off site. Even before its announcement pressure was coming from elsewhere in the persona of the Deputy Prime Minister. The Government is clearly getting agitated at the lack of progress being made in its regeneration programme. The Deputy P.M has called in Sir John Egan to head a review of skills shortages in the construction industry and at a recent British Housing Conference criticised the planning profession as well as the Construction Industry Training Board. Mr Prescott expects one in four houses funded by the Housing Corporation to be assembled off-site by next year adding "we must switch our attention to off site manufacture, which not only cuts building time, but offers better quality and safety”.

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 8th and the 15th April 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 Kirsten Storgaard, Michael Rigby Associates, (01453) 521621.