Quarterly Trend Report

Spring brings signs of a recovery in Window & Door sales.

Sales - quarter-on-quarter

The first quarter of 2006 brought an upturn with a net* 21% of fabricators reporting a rise in window and door sales in the last three months (January to March 2006) compared with the previous three months (October to December 2005) - see chart 1.

The larger the firm, the more widespread the recovery. Companies in the Midlands and North (net 25%) were ahead of those in the South (15%).

More trade fabricators (32%) increased sales than commercial (17%) or retail firms (11%).

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

January - March 2006 sales compared with the previous three months - by size

SIZE	Increase	Decrease	Same	Total	Base
Small	39%	24%	37%	100%	59
Medium	46%	23%	31%	100%	26
Large	53%	13%	34%	100%	15
Total	43%	22%	35%	100%	100

January - March 2006 sales compared with the previous three months - by area

AREA	Increase	Decrease	Same	Total	Base
South	40%	25%	35%	100%	40
Midlands	47%	21%	32%	100%	28
North	44%	19%	37%	100%	32
Total	43%	22%	35%	100%	100

Sales - year-on-year

Sales are also better than the same period in 2005, which was a particularly poor quarter. A net 22% of fabricators sold more in the last three months compared with the same three months last year (chart 2). This is similar across the country.

Large companies (net 47%), mid-sized firms (35%) and retail fabricators (37%) recovered more than others.

Of those reporting increases, significantly 39% of firms reported rises of 20% or more.

Stocks

A net 15% of fabricators increased stock levels compared with three months ago.

More mid-sized companies (31%) and fabricators in the North (28%) recorded an increase in stocks than any other company size or region.

While trade fabricators (34%) built up stocks, retail firms reported no change and commercial companies (4%) cut back.

Employment

Despite the recovery, firms are cautious with a net of 2% of firms taking on more staff compared with three months ago (chart 3). Mid-sized firms (12%), the Midlands (11%) and retail fabricators (19%) recruited the most.

Small firms (2%), those in the North (3%) and trade fabricators (10%) cut back.

Orders

Orders are up with a net 37% of firms improving compared with three months ago (chart 4).

More mid-sized fabricators (58%), companies in the Midlands (46%) and retail firms (45%) saw an increase in orders than other sizes, regions or sectors.

Capacity

However, despite improvements in sales and orders, only 29% of fabricators are currently working at capacity (chart 5).

Raw materials

A net 73% of fabricators reported a rise in costs compared with three months ago (chart 6).

This is broadly reflected across companies of all sizes and in all regions and across all sectors.

Prices

Overall, a net 6% of fabricators dropped prices as they fought for volume, widening the gap further against purchase costs (chart 6). This is similar across firms of all sizes. More fabricators in the South (20%) and commercial firms (17%) cut prices than any other region or sector.

Price expectations

However, in an effort to recoup higher costs, a net 27% of fabricators expect to raise prices in the next 12 months compared with the previous 12 months.

Both small (31%) and large firms (27%) are more likely to revise prices compared with mid-sized companies (19%). More fabricators in the North (38%) expect to put up prices than in the South (23%) or Midlands (21%).

Commercial fabricators (46%) look more certain to increase prices than retail (30%) or trade (15%) firms.

Investment intentions

Despite surplus capacity in the market a balance of 17% of fabricators expect to invest more on plant and machinery in the next 12 months compared with the previous 12 months (chart 7).

Mid-sized and large companies (net 22%), fabricators in the South (23%) and trade firms (27%) are most positive for future investment.

Outlook

Looking ahead, expectations are strengthening for the next quarter. A net 74% of firms forecast a rise in sales in April to June 2006 compared with January to March 2006. Across the board, few firms anticipate selling less.

A net 54% of fabricators also expect to sell more windows over the next three months compared with the same period in 2005 (chart 8). Firms in the South (net 65%) and retail fabricators (63%) are most bullish.

Prospects

On balance 27% of fabricators are more optimistic now about the overall prospects for the window industry than three months ago (chart 9).

Mid-sized firms (35%), the South (40%) and commercial fabricators (33%) are most positive.

The recovery in fabricator confidence is based on a perception that the market is picking up together with seasonal influences.

Profitability

With sales recovering and stronger expectations of growth, it is not surprising that a net 43% of fabricators forecast better profits over the next 12 months compared with the previous 12 months. Expectations are strongest among mid-sized firms (50%) and fabricators in the South (50%) and North (47%).

Trade fabricators (46%) are more positive than commercial (38%) or retail firms (37%).

Problems

Price cutting in the market (63%), low sales volume (56%) and supplier price rises (56%) were the three main problems facing fabricators in the last three months.

Price cutting is also the single biggest problem facing fabricators, mentioned by 23% of respondents.

Comment

"The optimism of this survey is encouraging with many people reporting a better start to 2006 than had been predicted," comments Winston Duguid, Managing Director of WHS Halo, who sponsor this report. "There is some return in confidence but it is still very variable by company and by area; housing transactions have been above last year's dire levels and this in itself will help all home improvement sales."

"Public Sector demand is still depressed in southern England and Scotland but northern England does seem to be now bearing the fruits of the recent Decent Homes Standard and other monies. Housebuilding appears to be moving marginally ahead of last year."

"Although overall demand is better than expected it is still below the levels of 2003 and 2004 and that is having its inevitable impact on the industry sector. But in addition the PVC-U industry faces two other tough challenges. Firstly the price of oil has now risen to over $70 per barrel and many commentators believe it will go higher on the basis of global demand and Middle East/Nigerian political concerns. Many extruders' prices to fabricators are based on an oil price of $25 per barrel and those extruders are currently losing heavy amounts of money, threatening their investment and in some cases, survival. Secondly the environment is now centre stage in political and governmental circles. The emphasis on sustainable development is not a fad - it is a permanent change in thinking and will have a dramatic effect on building products. The ODPM's new code for sustainable homes is a clear marker for how things are going to develop. Timber is the short term beneficiary but a number of serious environmentalists are becoming more attracted to PVC and it recyclability. You cannot recycle a timber window but both PVC-U and aluminium can be. The house building and public sectors will become more and more dominated by the sustainability agenda as 2006 progresses."

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 6th and 19th April 2006 across a balanced spread of size of firm, geographical area and type of fabricator. For survey details or a copy of the full report call Lucia Di Stazio, Michael Rigby Associates 01 453 521 621. © Copyright Michael Rigby Associates 2006