Irish Window Market Quarterly Trends report

Ireland Holds On

Overview

"With hindsight, we can see that the turning point for the global economy happened sometime last March, in America's Silicon Valley, when the dot.com bubble burst", says Mike Rigby whose company produced this survey. "The dream turned to dust and valuations came unstuck when payback times moved to infinity. Many thought the mighty powerhouse of the US economy would take it in its stride, but modern economies are built on confidence and investors were rattled. Elsewhere, despite confident denials that somehow this was mainly an American problem, the infection spread to the rest of the world. Japan is in the doldrums, Argentina is in a mess, and Germany is sliding towards recession."

"Despite the storm clouds, Ireland's economy sails on, although more slowly and forecasts show little evidence of dramatic change. Interest rates are unchanged at 4.25%. Inflation is up to 5.2% but is expected to moderate as the Euro appreciates and oil prices fall. Although a new political crisis in the North risks economic fallout the Irish economy has a predicted growth of 6.2% in 2001. This is still the fastest growth in the EU. The number of people employed in Ireland is set to grow by 2% a year between now and 2006. However labour in the window industry is scarce, with some large fabricators having to recruit from Poland, Russia and Lithuania to make up the gaps."

"Bertie Ahern's government has taken measures to cool the housing market, and these measures appeared to bring new house sales to a halt in places over the last few months but there are signs of recovery and renewed interest. The replacement window market continues and commercial windows are strong. The danger is that high levels of indebtedness and the effects of a global shakeout on Irish jobs will cause consumers to take fright and keep their hands in their pockets and postpone discretionary spending. As in the US and the UK this is the key concern, if it happens it could trigger a hard landing."

Sales

Overall a net 39% of fabricators recorded increased sales in the three months April to June compared with the previous three.

A useful way to look at this 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 net balance would be +20%. Reverse the figures and it would be a net -20%. A balance of zero implies that little has changed.

On this basis, companies in Ulster are slightly ahead of other regions with a net 56% recording higher sales, compared with 35% in Munster and Leinster and 23% in Connaught. The larger the company, the more widespread the growth, with twice as many large fabricators recording increases (net 67%) compared with 31% of small firms.

Trade fabricators are also ahead (net 61%) compared with commercial and retail specialists (35% and 36% respectively).

April-June 2001 sales compared with the previous three months by size of firm

SIZE	Increase	Decrease	Same	Total	Base
Small	37%	6%	57%	100%	70
Medium	53%	7%	40%	100%	15
Large	67%	0%	33%	100%	15
Total	44%	5%	51%	100%	100

April-June 2001 sales compared with the previous three months by region

AREA	Increase	Decrease	Same	Total	Base
Ulster	59%	4%	37%	100%	27
Munster	35%	0%	65%	100%	20
Leinster	40%	5%	55%	100%	40
Connaught	39%	15%	46%	100%	13
Total	44%	5%	51%	100%	100

Year-on-year sales are also ahead with a net 37% of fabricators reporting a rise. The picture is similar among fabricators of all sizes. Firms in Ulster and Connaught recorded more widespread growth (net 47%) than other regions. Significantly more trade companies (net 72%) recorded an increase in sales than any other sector in the last three months compared with the same period last year.

A balance of just over one in two fabricators grew sales in the last twelve months compared with the previous twelve. More large firms reported a rise (net 73%) than medium and small companies (net 51%). Fabricators in Connaught saw the most widespread growth (net 77%) with none of those interviewed in the region reporting a drop. Ulster closely followed with a net 67%.

More firms with a weekly production of over 125 frames per week grew sales (net 74%) compared with fabricators producing less than this (46%).

Employment

A balance of just over one in ten fabricators reported an increase in employment levels compared with three months ago. The larger the company the more widespread the increase.

Regionally there was little difference in the number of fabricators recording an increase in staffing (net 18%) although Leinster lagged behind (5%).

Stocks

Overall just under one in ten fabricators raised stock levels. Medium sized fabricators and firms in Ulster reported the most widespread increase in stock levels (net 20% and 26% respectively). Fabricators of other sizes and in other regions recorded little change. More trade specialists grew stock (net 17%) than contract and retail (8% and 7% respectively).

Orders

A net 37% of fabricators recorded fuller order books compared with three months ago. More large firms reported an increase in the volume of orders (net 73%) than small and medium companies (30% and 33% respectively). The larger the firm by weekly output, the fuller the order books compared with three months ago.

Regionally fabricators in Connaught reported the most widespread growth in orders (net 61%). A balance of 50% of trade fabricators recorded a rise in orders compared with a net 34% of contract and retail specialists. Firms in Leinster were the least active (net 20%).

Capacity

Sixty-six per-cent of firms interviewed are working at capacity. The picture is similar across all size of fabricator. Fewer companies in Munster are working at capacity (40%) than other regions (72%).

Prices

A balance of just under two in five fabricators hiked prices compared with three months ago. More small and medium firms increased prices (net 44% and 40% respectively) than large companies (13%). More fabricators in Munster and Leinster (net 50%) reported higher prices compared with 22% of fabricators in Ulster and Connaught. More commercial fabricators achieved higher selling prices than others.

Price Expectations

A net 44% of fabricators interviewed expect to put up their prices in the next twelve months. The picture is broadly similar for all.

More contract and retail specialists (net 46% and 53% respectively) expect to hike prices than trade specialists (17%).

Raw materials

A balance of over three in five fabricators reported an increase in the purchase cost of materials compared with three months ago. Small and medium sized firms (net 67%) recorded the most widespread increases in raw material costs. This compares with a net 36% of large companies. More commercial fabricators reported an increase in the cost of raw materials (net 81%) than trade (39%) or retail (62%).

Outlook

Looking ahead, a balance of more than three in ten fabricators forecast higher sales in the three months to September compared with the last three months. Large firms are more bullish with a net 53% expecting growth compared with small (net 30%) and medium sized companies (20%). By weekly production, expectations are strongest among fabricators producing in excess of 300 frames a week (net 64%).

Firms in the North expect sales to lift more than those in the South with a net 48% of companies in Ulster forecasting improved sales. This compares with a net 32% of firms in Munster and Leinster. Fabricators in Connaught forecast little change.

Overall a net 33% of fabricators are positive in their outlook for the next twelve months compared with the same twelve months of last year. But the picture varies by size and region. Large companies and fabricators in Ulster are the most bullish with a net 60% and 70% respectively expecting sales to grow. Significantly none of those interviewed forecast a drop. In contrast, medium sized firms and fabricators in Connaught are more cautious, foreseeing little change over the next twelve months.

Commercial and trade specialists (net 46% and 50% respectively) are the most confident compared with retail fabricators (23%).

Investment Intentions

A net 17% of firms plan to boost investment spending in the next twelve months. Medium sized companies forecast the most activity (net 53%) compared with large fabricators where a net -13% plan a lesser spend. Fabricators with an output of 300-700 frames a week expect to cut spending over the next twelve months.

Prospects

A balance of two in five fabricators are more confident compared with three months ago, a consistent trend across all types of fabricator in all regions. Commercial specialists are a little more bullish (net 46%) than trade and retail firms (33% and 40% respectively).

Profitability

Just under three in ten fabricators expect to see better profits in the next twelve months compared with the previous twelve. Small and large firms are the most confident (net 29% and 47% respectively). Medium sized companies are less confident (7%).

There is a clear North/South divide on profitability with fabricators in Ulster (net 59%) more positive than companies in Munster (30%) and Leinster (15%). Firms in Connaught see little change. More firms producing between 50-125 and over 300 frames a week (net 50%) expect better profits than others.

Problems

The main problems for firms over the last three months are price cutting, margin squeeze and a lack of skilled staff.

As in our last survey a lack of skilled staff was the single biggest problem for fabricators (net 33%).

Comment

Nicholas Cotter, Managing Director of National Profiles, distributor of the WHS Halo window system in Ireland, and joint sponsors of this survey, comments: "Ireland's economy is still strong, and the replacement window market is healthy. The crucial issue is one of supply, not demand. Recruiting and retaining skilled people remains a challenge, which increasingly demands perseverance and imagination to solve. But as ever in Ireland, obtaining the right product, at the right time is fundamental to survival and success. Your own success depends absolutely on the quality of your supply."

"Maintaining appropriate stocks to support customer growth, responding quickly, with a flexible and reliable service are obvious essentials in a supplier. Equally importantly, fabricators need the support of a supplier who understands both the Irish market and the business of being a fabricator in a fast growing, competitive market."

Sam Kennedy, Marketing Director of WHS Halo who co-sponsor this survey, comments: "In a growing market the ability to supply is crucial, but when demand is strong an attractive, strongly differentiated product can make all the difference between adequate and outstanding margins."

"The new generation of window systems, advanced windows that combine looks and consumer appeal with higher insulation and great energy efficiency, make your product stand out in any 'beauty parade'. Conversion rates, recommendations and referrals will also be higher. And that improvement in sales productivity plus the ability to persuade consumers to pay a little more is what boosts your bottom line."

The National Profiles Quarterly Trend Report is produced by Michael Rigby Associates and sponsored by WHS Halo and National Profiles in conjunction with Window Industries Ireland. 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 marketing research and training programmes for the window and home improvements markets. The survey covers a representative sample of 100 window fabricators. Telephone interviews took place between the 9th and the 26th July 2001 across a balanced spread of size of firm, geographical area and type of firm. Numbers employed was used an indication of company size. The categories are small (1-19 employees), medium (20-49) and large (over 50 employees). Further information: Helen Ahern, Michael Rigby Associates, (01453) 521621.