The Bowater Windows Report - Annual Review

2002 - Still going strong - but for how long?

Quarter-on-quarter sales

Overall just over four in ten fabricators increased sales throughout the 12 months to September 2002. The last 3 months were strongest.

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 in the South peaked in July-September (44%). The Midlands saw strongest sales in October-December (71%) and sales in the North peaked in January-March (63%).

Overall for the year the Midlands (58%) were ahead of the North (38%) and the South (34%).

Small and medium size companies and firms producing less than 50 frames a week benefited most from increased sales in July-September. Large companies saw strongest sales in the first quarter of 2002.

Overall for the year, medium size companies (47%) were ahead of small (40%) and large (39%).

Commercial, trade & retail firms all ended the period on a high (net 56%, 53% and 51%). The picture was different for those with a mix of business. They recorded high sales in October-December and January-March (88% and 83%) but growth slowed in the last two quarters (14% and 29%).

Year-on-year sales

Year-on-year growth was strong throughout the period starting with a healthy net 67% of fabricators recording growth in October-December, ending the 12 months with net 56% recording increases on the previous year.

The South (69%) and Midlands (75%) recorded strongest increases in October-December. The North did best in January-March. Small companies were strongest in October-December (68%). But medium and large firms had higher sales in January-March. Retail fabricators and those with a mix of business started the period on a high note but slipped back. Trade fabricators ended the period with most improved sales.

Overall for the year, firms in the Midlands, medium size companies and those producing more than 125 frames a week recorded strongest year-on-year sales.

Stock

Stock levels grew from October-December and continued to grow at a higher rate from January-June. A net 26% of fabricators recorded increased stocks at the end of the year.

Trade fabricators continued to build stocks and saw their highest stock levels at the end of the 12 months period with a net 38% recording higher stocks.

Employment

The number of people employed grew from October-March, eased in April-June and picked up at the end of the 12 months. But employment levels did not change significant throughout the 12 months.

Orders

The number of fabricators recording increased orders grew from October-March, eased in April-June but ended the 12 months with a net 53% of fabricators reporting increases.

Fabricators in the Midlands, large firms, trade fabricators and those producing 300-700 frames a week ended the year with busier order books than others.

Overall for the year, firms in the Midlands and medium size fabricators outperformed others.

Capacity

Fabricators who reported working at capacity went from 39% in October-December to 44% in January-March. This eased off to 39% in April-June but ended the year with 51% working at full utilisation. Overall for the year, an average of 43% of fabricators worked to capacity.

Selling Prices

Fabricators increased prices in the first two quarters (net 14% and 38%) compared with the previous 3 months. In April-June, 33% hiked prices and a the end of the 12 months, 38% of fabricators put up their selling prices. This pattern indicates fabricators' confidence in the market.

Price expectations

The number of firms expecting to hike selling prices in the next 12 months compared with the previous 12 increased in the first six months (59% and 75%). In April-June, 50% expected to increase prices and at the end of the year, 46% of fabricators expected to increase their prices year-on-year.

Retail and small companies, those producing less than 50 frames a week, and firms in the South ended the year with the strongest expectations.

Purchase costs

The cost of raw materials increased from October-March. The rate of increases slowed slightly in April-June and ended with 51% of fabricators recording increased prices in July-September.

Overall, companies in the South reported slightly higher increases in costs than elsewhere. More large companies noted lower purchase costs than small and medium size firms.

Investment intentions

Investment intentions remained steady throughout the year. Expectations were highest in January-March and lowest in April-June. Throughout the year more firms in the Midlands expected to invest. Also small and large companies (net 33%) had higher investment intentions compared with medium size companies. More commercial and trade fabricators had higher expectations over the year, than other types of fabricators.

Profitability expectations

The number of fabricators expecting higher profits in the next 12 months stayed high throughout the year and ended the period with a net 63% expecting increases.

Firms in the Midlands, large companies, those producing 300-700 frames a week and trade fabricators ended the period on the most confident note.

Outlook

Optimism remained steady in the first six months (33%), eased to 23% in April-Jan and ended the 12 months with a net 19% of firms with a brighter outlook.

Overview

“The window industry projection for 2003 is a tougher call than usual because of major conflicting influences” comments Winston Duguid, Managing Director of the UK Commercial Division of Bowater Windows, whose company sponsor this report.

“The British window market is worth about 13 million units per annum; the public and housebuilding sectors account for roughly 3 million of these but the vast majority of the other ten million (six million), go to the consumer. It's this sector which is the most difficult to call for the next year particularly given the recent publication of Robert Palmer's annual report that is looking at a 4% decline in direct sell windows this year followed by a further 6% volume decline in 2003. Although the report shows growth in conservatories in both years it will not compensate for the loss of the direct sell window market. The premise is that we have hit saturation and getting to the remaining non replaced windows is going to be increasingly difficult because of the type of properties in which they may be installed. There is no doubting the logic but the rate of decline is open to question particularly as 20% of replacement windows are installed within a year of the consumer moving home and there are no signs of slowdown in housing transactions at present.

“Saturation is one issue but the international climate is another major worry. There is a clear precedent for what happens to consumer confidence and oil prices when the U.S. intervenes militarily in the Middle East/Gulf with what happened in November 1990; the short term effects were unpalatable then and they are likely to be unpalatable again. Clearly we need to be cautious on our market assumptions for next year but that does not mean sitting on our laurels and doing nothing. Declining markets usually offer good profit opportunities and the weakest usually fall out the quickest. These are already clear signs that the smarter operators are preparing themselves with a combination of actions including repositioning of their companies and how they market - branding and following a consistent brand image in the supply chain has never been more important.

“Whilst there are undoubtedly major issues to be faced for those dealing with the consumer, the prospects in the public sector are undoubtedly improving. The housing stock transfers, with the notable exception of Birmingham, are gathering pace offering real opportunities for those that understand and want to embrace Partnering and Best Value. The contractual commitments are more long term and very performance based but the hopes of Egan are beginning to be realised with more effective relationships and installations. The housebuilding sector is also changing but here the different heritages of the window industry and housebuilders are making it harder for both parties to understand and meet each other's needs and expectations.”

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). © Michael Rigby Associates 2003 Further information: Mike Rigby, Michael Rigby Associates (01453 521621)