Quarterly Trend Report

Window & door sales hit winter blues but fabricators remain confident.

Sales - quarter-on-quarter

The unusual seasonal influences working on a weaker market hit sales of windows and doors in the final quarter of 2005. A net* 11% of fabricators sold less in the last three months (October - December) compared with the previous three months (July - September) - see chart 1. Large firms (6%) and companies in the South (8%) did best, selling more over the period. Mid-sized firms (48%) and fabricators in the North (26%) and Midlands (21%) reported a decline.

A net 14% of Trade fabricators increased sales, but for Retail (19%) and Commercial companies (12%) sales fell.

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

October - December 2005 sales compared with the previous three months - by size

SIZE	Increase	Decrease	Same	Total	Base
Small	28%	28%	44%	100%	58
Medium	16%	64%	20%	100%	25
Large	47%	41%	12%	100%	17
Total	28%	39%	33%	100%	100

October - December 2005 sales compared with the previous three months - by area

AREA	Increase	Decrease	Same	Total	Base
South	35%	27%	38%	100%	40
Midlands	24%	45%	31%	100%	29
North	23%	48%	29%	100%	31
Total	28%	39%	33%	100%	100

Sales - year-on-year

Sales are also down on the same period in 2004. A net 7% of fabricators sold less in the last three months compared with the same three months last year (chart 2). As with quarter-on-quarter, large firms did best with a net 12% reporting growth. Mid-sized firms (32%) were most affected. Chart 1 clearly shows the similarities with the recession in 1992, a period of great difficulty for the home improvement industry.

Fabricators in the South saw no change, but a balance of 13% of firms in the North and 10% in the Midlands sold fewer windows. Commercial and Trade fabricators also saw no change but a net 16% of retail firms sold less.

Stocks

A net 14% of fabricators cut stocks compared with three months ago. More mid-sized (28%) and large firms (24%) and companies in the Midlands (28%) recorded a drop than any other size or region.

Employment

As in last quarter's survey, fewer fabricators took on new staff compared with three months ago (chart 3). Overall a net 12% of firms cut staff. Cut backs were greatest among large (24%) and mid-sized firms (20%) and companies in the Midlands (24%).

Commercial fabricators reported little change but both Trade (7%) and Retail firms (21%) shed people.

Orders

A net 11% of fabricators reported fewer orders compared with three months ago (chart 4). Mid-sized firms (36%) and fabricators in the North (26%) and Midlands (21%) were hardest hit.

A net 28% of Commercial fabricators saw more orders but demand was weaker for Trade and Retail firms (net 26% and 23% respectively).

Capacity

Just 29% of fabricators worked at capacity during October to December (chart 5).

Raw materials

On balance, just over one in two fabricators reported higher costs of materials compared with three months ago (chart 6). Small firms (59%) and companies in the Midlands (62%) were most affected.

Prices

Overall, a net 6% of fabricators dropped prices, widening the gap further between purchase costs and selling prices (chart 6). This is similar across firms of all sizes and types and in all regions.

Price expectations

However, a net 32% of fabricators expect to increase prices in the next 12 months compared with the previous 12 months. This may however relate more to an expectation that buying prices will rise and the need to pass those prices on. Expectations are similar across all sizes of firm an in all regions. By business type, significantly fewer Trade fabricators (7%) are looking to raise prices than Commercial (40%) or Retail (35%) firms.

Investment intentions

On balance, fabricators are postponing their plans for investment on plant and machinery over the next 12 months compared with the previous 12 months (chart 7). Large (6%) and small firms (2%), and fabricators in the South (8%) and North (6%) plan to spend more. But Mid-sized firms (8%) and companies in the Midlands (17%) expect to cut back.

Whilst Commercial fabricators (8%) are positive about future investment on plant and machinery, Retail (2%) and Trade (14%) firms are looking to spend less.

Outlook

Depsite poor sales in the last quarter, expectations have bounced back and fabricators are positive about the next three months. A net 26% of firms expect to sell more windows and doors in January to March 2006 compared with October to December 2005. The larger the firm the better they expect to do. Across the country, a net 38% of fabricators anticipate higher sales compared with a net 25% of firms in the South and 17% of companies in the North.

Similarly a net 28% of fabricators expect to sell more over the next three months compared with the same period in 2005 (chart 8). Larger firms are most bullish. Fabricators in the South (35%) and North (29%) are more positive than companies in the Midlands (17%).

Prospects

On balance a net 1% of fabricators are more confident now about the overall prospects of the window industry than three months ago (chart 9). In the main, fabricators remain cautiously neutral.

Profitability

A balance of just over a third of fabricators forecast better profits in the next 12 months compared with the previous 12 months. Expectations are strongest in large firms, (71%) and the Midlands (41%) and the North (39%).

Trade fabricators (50%) ar notably more positive about improving profits in the coming year than Commercial (36%) or Retail firms (28%).

Problems

Lack of confidence in the market and price cutting (59%), supplier price rises (52%) and low sales volume (51%) were the three main problems facing fabricators in the last three months.

But the single biggest problem affecting sales of windows and doors was lack of sales leads (19%).

Comment

“There is no doubt that 2005 was a bad year for all consumer orientated home improvement companies," comments Winston Duguid, Managing Director of WHS Halo, who sponsor this report. "Whether it is kitchens, bathrooms, windows or other products many companies were 10% to 20% below their 2004 numbers. The start of 2006 has been tough but there are some crumbs of comfort and many smarter operators are reporting sales level to last year or in some cases slightly ahead. Leads appear to be better, (although still not good enough) and conversion rates have improved. It would seem that the belief that the next interest rate movement is down coupled with a small increase in housing transactions have combined to create at least a plateau in market performance.

“The financial reporting of housebuilders is showing what a tougher year 2005 was for them (with one or two notable exceptions). This market remains a very regional/local market for the window industry and indications for 2006 are for a similar level to that of 2005. The hardest market to call is that of the Public Sector. The North of England and parts of the Midlands and Wales seem to be pressing ahead with the decent homes initiative. In Southern England, again with one or two notable exceptions, the hiatus in Public Sector procurement seems destined to continue for at least the first half of 2006.

“Whilst some of the new local procurement consortia are focusing purely on price others are taking a more holistic view on social inclusion and environmental concerns. Meeting and understanding the needs of the client, contractor and tenants in the Public Sector has never been more challenging.”

The WHS Halo Report, a quarterly trends survey, is produced by Michael Rigby Associates and sponsored by WHS Halo in conjunction with The Fabricator. 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 3rd and 12th January 2006 across a balanced spread of size of firm, geographical area and type of fabricator. For survey details call Lucia Di Stazio, Michael Rigby Associates 01 453 521 621 © Copyright Michael Rigby Associates 2006