Quarterly Trend Report

Fabricators' expectations remain positive

Sales

Fifty per cent of window fabricators increased sales in July to September compared with the previous three months. Twelve per cent saw sales drop and 38% 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.

On this basis, a net 38% of firms improved sales in the last three months. Increases were reported across all sizes and types of fabricator. Regionally, more fabricators in the North (62%) and South (38%) saw growth than firms in the Midlands (4%).

July - September 2004 sales compared with the previous three months - by size

SIZE	Increase	Decrease	Same	Total	Base
Small	44%	14%	42%	100%	55
Medium	58%	14%	28%	100%	29
Large	56%	0%	44%	100%	16
Total	50%	12%	38%	100%	100

July - September 2004 sales compared with the previous three months - by area

AREA	Increase	Decrease	Same	Total	Base
South	46%	8%	46%	100%	37
Midlands	31%	27%	42%	100%	26
North	68%	5%	27%	100%	37
Total	50%	12%	38%	100%	100

A net 21% of fabricators improved sales in the last three months compared with the same period last year (chart 2). More large firms (50%) reported growth than medium-sized (24%) and small firms (11%). Fabricators in the North saw most widespread growth (60%), contrasting with the Midlands where sales fell back (-4%). Firms in the South saw little change.

Looking at business type, a net 41% of commercial fabricators grew sales compared with 14% of trade or retail fabricators.

Mix of Business

Twenty per cent of windows and doors produced during the quarter went into conservatories.

Stocks

A net 18% of window companies increased stocks compared with three months ago. More commercial (24%) and retail (21%) companies increased stock levels than trade (8%) fabricators.

Employment

A net 11% of companies took on new employees in the last three months, with commercial fabricators being the most active.

Orders

A net 28% of fabricators reported fuller order books compared with three months ago. Notably more large fabricators (63%) increased orders than medium-sized and small firms (38% and 13% respectively). A net 57% of fabricators in the North saw a rise in orders compared with 24% in the South. Fabricators in the Midlands noted a drop (-8%).

More commercial fabricators (59%) increased orders than trade or retail fabricators.

Capacity

Fifty-five per cent of fabricators are currently working at capacity.

Prices

A net 13% of window fabricators increased prices compared with three months ago (chart 7). The picture is similar across the country. By size, notably more large firms (25%) put up prices than small or medium-sized firms (10%).

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 strongest among fabricators in the South (57%), large firms (63%) and commercial fabricators (65%).

Raw materials

A net 69% of companies reported an increase in the cost of raw materials compared with three months ago (chart 2). More medium-sized fabricators (83%) and firms in the South (76%) saw costs rise. Trade and retail fabricators were also affected (73%).

Investment intentions

Overall, a net 27% of fabricators plan to invest in machinery or buildings in the next 12 months compared with the previous 12 months. A net 38% of firms in the North plan to invest more, compared with 27% in the Midlands and 16% in the South. The likelihood of investment over the next 12 months increases with the size of firm.

Outlook

A net 30% of firms expect an increase in sales in the next three months compared with the previous three months. The outlook is strongest among fabricators in the South (46%), followed by the Midlands (23%). Significantly more small and medium-sized firms (34%) forecast better sales over the period than large firms (13%).

Commercial (41%) and trade (39%) fabricators are more positive than retail (25%) fabricators.

Sales Expectations

Year-on-year forecasts are also strong, with a net 33% of companies expecting to sell more in the next 3 months compared with the same period last year (chart 9). A net 57% of fabricators in the North expect sales growth compared with the South (22%) and Midlands (15%).

More large companies (50%) forecast a rise in sales than medium and small firms (35% and 27% respectively). Firms producing 125-300 frames per week (59%) are most positive. Significantly more commercial fabricators (71%) anticipate better sales over the period than trade or retail fabricators (23%).

Prospects

Overall, a net 14% of fabricators are more confident now than three months ago. Fabricators in the North (27%) are notably more positive than other regions. Firms with a weekly production of 50-125 frames (31%) are most confident.

Trade fabricators (31%) are more optimistic than commercial (12%) or retail (8%) firms.

Profitability

Just over a net one in two fabricators expect higher profits over the next 12 months compared with the last 12 months. Expectations are strong across the board, with fabricators in the North (62%) and trade fabricators (69%) particularly confident.

Problems

The main problems facing fabricators in the last three months were price cutting in the market (21%), supplier price rises (23%) and lack of skilled staff (20%).

The single biggest problem was lack of skilled staff, mentioned by 12% of fabricators. However, 40% of firms experienced no problems during the period.

Comment

“September saw a change in fortunes for much of the window industry,” comments Winston Duguid, Director of Bowater Building Products, who sponsor this report.

“Whilst July and August stuttered along following Euro 2004, demand picked up strongly when the country returned from its holidays. The survey shows the strength of the commercial fabricators. As forecasted three months ago, those fabricators who have a serious position in the public sector are now at full capacity and will be until April 2005. As with kitchens and bathrooms, the Decent Homes Standard is the driver. Full capacity and rising costs, notably installation costs, must result in an increase in prices for this sector where margins are simply too tight to cover the inevitable delays that occur in timings of projects.

“In the house building sector there are signs that some of the major players are already cutting back their plans for 2005. At a time when the Government and the Barker Review is making it clear that we need to increase the number of new dwellings per year, dramatically, some house builders are slowing the number of new starts in order to hold on to their existing land banks for longer.

“The window industry is used to coping with fluctuations in demand. What it is not used to is what is happening on raw materials. It was late 1994 and early 1995 that we last saw raw materials rocketing as they currently are. The worry is that the structure of the global economy is now very different. Both China and India are growing rapidly and whatever action is taken now to improve supply of raw materials will have a lag of several years. High raw material costs, and in some cases shortages, will be a feature of our industry through 2005 and 2006, at least.”

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 1st and the 6th October 2004 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 2004 Full report: Al Hidden, Michael Rigby Associates (01453) 521621