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Quarterly Trend Report
The gap between Buying Prices and Selling Prices opens up
Sales
Twenty-nine per cent of window fabricators increased sales in October to December 2004 compared with the previous three months. Thirty-one per cent saw a drop in sales and 40% reported no change.The difference between the number of companies reporting an increase over those reporting a decrease is the net balance, expressed as a percentage. A positive net balance indicates growth. A net balance of zero implies that little has changed.
Seasonal influences and a nervous economy affected quarter-on-quarter sales with a net -2% of fabricators reporting a fall in the months October to December 2004 compared with the previous three months (chart 1). Across the country few firms in the North (3%) report an increase; the Midlands saw little change and a net -7% of fabricators in the South saw sales drop. Medium-sized fabricators (18%) reported growth but both small (-5%) and large firms (-24%) recorded lower sales.
October - December 2004 sales compared with the previous three months - by size
| SIZE | Increase | Decrease | Same | Total | Base |
| Small | 25% | 31% | 44% | 100% | 55 |
| Medium | 43% | 25% | 32% | 100% | 28 |
| Large | 18% | 41% | 41% | 100% | 17 |
| Total | 29% | 31% | 40% | 100% | 100 |
October - December 2004 sales compared with the previous three months - by area
| AREA | Increase | Decrease | Same | Total | Base |
| South | 22% | 29% | 49% | 100% | 41 |
| Midlands | 30% | 31% | 39% | 100% | 23 |
| North | 36% | 33% | 31% | 100% | 36 |
| Total | 29% | 31% | 40% | 100% | 100 |
A net 19% of fabricators improved sales in the last three months compared with the same period in 2003 (chart 2). More fabricators in the Midlands (31%) and the North (25%) expanded than firms in the South (7%). Medium-sized (39%) and small companies (22%) reported higher sales while large companies fell back (-24%). Looking at business type, a net 26% of retail fabricators grew sales compared with 18% of commercial fabricators.
Mix of Business
Twenty-two per cent of windows and doors produced during this quarter went into conservatories (chart 3).
Stocks
A net 7% of window companies increased stocks compared with three months ago.Employment
A net 5% of companies took on new staff in the last three months (chart 4). Medium-sized firms were the most active (25%) in recruiting.
Orders
Fifteen per cent of fabricators reported fuller order books compared with three months ago (chart 5). A net 28% of fabricators in the North saw a rise in orders compared with 12% in the South. Fabricators in the Midlands reported little change. Both small and medium-sized firms increased orders (13% and 39% respectively) in sharp contrast to large firms, who reported a drop (-18%).
Capacity
Thirty-nine per cent of fabricators are currently working at capacity (chart 6).
Raw materials
Significantly, almost four in five window fabricators reported a rise in the cost of raw materials compared with three months ago (chart 2), almost reaching the peak of a decade ago.
Prices
A net 17% of window fabricators increased their selling prices compared with three months ago (chart 7). Firms in the North and medium-sized companies (25%) were most confident in passing on increased purchase prices.
Price expectations
Just under a net one in two fabricators expect to increase their prices in the next 12 months compared with the previous 12 months. Expectations are strong across fabricators of all sizes and in all regions.
Investment intentions
Overall, a net 7% of fabricators plan to invest in machinery or buildings in the next 12 months compared with the previous 12 months (chart 8). A net 22% of small firms plan to spend more over the period compared with medium or large fabricators, who expect to cut back (-14% and -6% respectively).
Outlook
A net 35% of firms expect improved sales in the next three months compared with the previous three months. The outlook is strongest among fabricators in the North (44%) and the South (39%). Companies of all sizes anticipate better sales over the forthcoming quarter. Commercial and trade (48%) fabricators are most optimistic. A net 21% of retail firms also expect growth.
Sales Expectations
Year-on-year forecasts remain strong, with a net 32% of companies expecting to sell more in the next three months compared with the same period last year but the trend is down (chart 9). A net 42% of fabricators in the North forecast sales growth compared with 34% in the South and 13% in the Midlands.
More medium-sized companies (47%) expect a rise in sales than large or small firms (30% and 26% respectively). More commercial fabricators (41%) anticipate higher sales over the period than retail fabricators (35%) or trade fabricators (26%).
Prospects
Overall, a net 8% of fabricators are more confident now about the overall prospects for the window industry than three months ago (chart 10). Firms in the North (20%) are notably more positive than other regions.Commercial fabricators (35%) are more optimistic than retail (5%) firms, with trade fabricators the most cautious (-7%).
Profitability
Forty-four per cent of fabricators expect higher profits over the next 12 months compared with the last 12 months despite rising raw material prices and the widening gap between that and the number of firms passing on those increases in higher selling prices. Expectations are strong across the board, with fabricators in the South (51%) and medium-sized firms (64%) particularly confident.
Problems
The main problems facing fabricators in the last three months were supplier price rises (59%), price cutting in the market (51%), and margin squeeze (47%).The single biggest problem was supplier price rises, mentioned by 14% of fabricators. However, 19% of firms experienced no problems during the period.
Comment
“The survey findings are more optimistic than expected,” comments Winston Duguid, Director of Bowater Building Products, who sponsor this report. “The direct sell/trade market in southern England undoubtedly tailed off more in December 2004 than usual but early indications are that January 2005 has been in line, or a little better, than January 2004. If one draws a line, North of Birmingham, mid Wales and the Wash, December 2004 was not particularly different in pattern to any other December.“The public sector has had its usual fillip of extra work to be installed before the end of March. This isn't meant to happen so much under 'Best Value' and The Decent Homes Standard but lead times on kitchens and bathrooms are now getting stretched and the monies that have to be spent by the end of March are being re-allocated to window companies that have capacity.
“Looking ahead for the New Year most forecasters see further volume reduction for the direct sell/trade window market, some of which will be mitigated by higher conservatory sales. The Public Sector, on the back of The Decent Home Standard, will grow again this year, possibly by 6% or more. It is the housebuilder sector that has the widest divergence of opinion about prospects. Most major housebuilders are forecasting a year of similar housing completions to 2004 but with a greater emphasis on apartments as opposed to detached houses.
“Supply side issues will be just as important, if not more so than demand issues. Higher oil, and particularly higher ethylene prices, may necessitate more price increases to fabricators and end users in 2005. Falling volumes and higher raw material costs, together with a tight labour market, will put real pressure on survival for the weaker players from extruder to fabricator to installer. Worryingly, the final quarter of 2004 saw some big and old established names fail - the first quarter of 2005 will be tough for company failures. It was always inevitable that when the window industry entered its mature stage a shake-out would happen, and happening it is throughout the supply chain.”
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The Bowater Building Products Report, a quarterly trends survey, is produced by Michael Rigby Associates and sponsored by Bowater Building Products 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. The survey covers a representative sample of 100 window fabricators. Telephone interviews took place between the 4th and the 17th January 2005 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 2005 |
