Quarterly Trend Report

Commercial Fabricators invest to meet Stronger Forecasts

Sales - quarter-on-quarter

Although sales in this quarter are still down on last year, they have improved on the very poor first quarter. A net* 23% of fabricators sold more windows and doors in the last three months (April to June) compared with the previous three months (January to March) (chart 1). The south performed marginally better (net 26%) than the North (23%) or Midlands (19%).

A net 44% of large fabricators and 26% of small firms did notably better than mid-sized companies (4%). The commercial sector (33%) was ahead of trade and retail firms (15%).

*The difference between the percentage of companies reporting an increase over those reporting a decrease is the net balance.

April-June 2005 sales compared with the previous three months - by size

SIZE	Increase	Decrease	Same	Total	Base
Small	46%	19%	35%	100%	57
Medium	37%	33%	30%	100%	27
Large	56%	13%	31%	100%	16
Total	45%	22%	33%	100%	100

April-June 2005 sales compared with the previous three months - by area

AREA	Increase	Decrease	Same	Total	Base
South	50%	24%	26%	100%	42
Midlands	37%	19%	44%	100%	27
North	45%	23%	32%	100%	31
Total	45%	22%	33%	100%	100

Sales - year-on-year

Year-on-Year, a net 9% of fabricators reported lower sales in the last three months compared with the same three months last year (chart 2). Firms in the North (net 6%) sold more over the period contrasting with the Midlands where 41% of fabricators fell back. The South saw no change.

Large fabricators remained strong with a net 25% showing increased sales. But a net 26% of mid-sized fabricators and 11% of small companies saw sales drop. Commercial fabricators did best with 17% reporting better sales.

Mix of Business

A smaller proportion (17%) of windows and doors manufactured went into conservatories this quarter as home owners held back on home improvement spending (chart 3).

Stocks

A net 14% of fabricators reported a fall in stocks compared with three months ago. This picture is similar across fabricators of all sizes and in all regions.

Employment

Across the board few fabricators took on new staff compared with three months ago (chart 4). Mid-sized firms and companies in the Midlands cut back.

Orders

A net 18% of fabricators reported fuller order books compared with three months ago (chart 5). Fabricators in the North (23%) and South (26%) improved orders over the period but the Midlands saw no change. A net 44% of large fabricators increased orders, followed by small firms (19%) but mid-sized companies stayed the same.

Significantly more commercial fabricators (47%) reported higher order volumes than retail companies (7%).

Capacity

Thirty nine per cent of fabricators worked at capacity during April to June (chart 6). This compares with 48% on the same period in 2004.

Raw materials

On balance, nearly half of the fabricators interviewed saw a rise in the purchase cost of materials compared with three months ago (chart 7). This is, however, a drop on previous numbers. Large (67%) and small fabricators (53%) were affected the most, as were firms in the North (58%) and Midlands (50%).

Prices

A net 1% of firms reported a drop in selling prices compared with three months ago (chart 7). Most fabricators saw no change.

Price expectations

However, a net 33% of fabricators expect prices to rise over the next 12 months compared with the previous year. Firms of all sizes and in all regions forecast higher prices.

Investment intentions

A net 13% of fabricators are still planning to invest more on plant and machinery over the next 12 months compared with the last 12 months (chart 8). Significantly more large firms (net 56%) are looking to invest than mid-sized (7%) or small firms (4%). Fabricators across the country expect to spend more over the period.

A net 23% of commercial fabricators plan to invest followed by 10% of retail firms. However, trade fabricators (5%) are looking to cut back.

Outlook

Nearly one in two fabricators predict better sales over the next three months (July to September) compared with the last quarter. Large companies (net 56%) and those in the Midlands (52%) are most optimistic. All sectors are positive, particularly trade fabricators (55%).

One in five fabricators expect to sell more over the next three months compared with the same period of last year (chart 9). Fabricators in the North (net 29%) and small firms (23%) are more positive than other regions or size of firm. Fabricators producing 125-300 windows a week are most expectant, with one in three anticipating year-on-year growth.

More commercial fabricators (net 23%) anticipate better sales than trade or retail companies (10%).

Prospects

Despite difficult conditions, fabricators remain optimistic with a net 7% more confident now about the overall prospects of the window industry than three months ago (chart 10). The North (net 12%) and South (10%) are most optimistic. Large and mid-sized firms (19%) are positive but small companies are holding back.

The commercial sector (net 33%) is positive but trade fabricators (25%) are less confident.

Profitability

A net 13% of fabricators forecast better profits in the next 12 months compared with the previous 12 months. The larger the fabricator, the stronger their expectations.

Three in ten commercial fabricators predict higher profits over the next year, followed by one in ten retail firms. Trade fabricators are more cautious, with a net 5% anticipating a fall.

Problems

More than half of the fabricators interviewed suffered a lack of confidence in the market (56%), low sales volume (55%), price cutting and supplier price rises (54%) and margin squeeze (52%) in the last three months.

The single biggest problem was a lack of sales leads (20%). This contrasts with the last few surveys where supplier price rises was the main concern for fabricators.

Comment

“This quarter's survey reflects the sharp divide between competing companies at present,” comments Winston Duguid, Managing Director of WHS Halo, who sponsor this report. “Despite the retail/trade sectors being down nationally by some 15-20 % in the first half of 2005, some fabricators have managed to buck the trend and actually increased their sales. Local employment, and particularly local housing transactions, are the main influencers on how the local market is performing. The encouraging fact is that even in tough times companies that are determined to grow are proving that they can do so. Yes it is true that some fabricators have simply dropped their prices to gain work - this is a strategy that can only work for a short time. But there are also plenty of examples of how other companies are concentrating on selling the benefits of their Total Offering. In some of these examples fabricators have deliberately changed their profile supplier and moved more up market; changing from a relatively low cost, easily available budget window to a more exclusive profile where there are fewer fabricators competing with a window that commands a premium price over it's budget rivals.

“We are expecting a quarter point rate cut from the Bank of England in August and probably another one before Christmas. This will help a little bit with confidence but the market will not return in any meaningful way until housing transactions pick up again. The earliest realistic timing on this cannot be before April 2006. The new build sector is also suffering from a decline on last year but probably nearer to 10%.This sector is also unlikely to pick up until April 2006. Meanwhile public sector orientated companies should see some pick up in September as RSL's have been slower than expected in allocating their 2005/2006 housing spend.

“Weak demand and rising raw materials, electricity and transport costs will continue to act as the catalyst for consolidation upstream, particularly at Extrusion level. In the mid 1990's a fabricator had a genuine choice of thirty-five extruders; this figure is now only fifteen and by this time next year there is every chance that it will be down to just ten!”

The WHS Halo Report, a quarterly trends survey, is produced by Michael Rigby Associates and sponsored by WHS Halo 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 11th and 19th July 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). For a copy of the full report call Lucia Di Stazio, Michael Rigby Associates 01 453 521 621 © Copyright Michael Rigby Associates 2005