Irish Window Market Quarterly Trends report

Fabricators’ sales pick up in the second quarter

Overview

“The global economy is gradually recovering,” writes Mike Rigby, whose company produced this survey. The USA is leading the way, growing at close to 5% pa in the second quarter of the year, faster than expected. With presidential elections in 2004 President Bush will do all he can to create a feeling of consumer well being, enough to get re-elected.

“Japan showed signs of life, and China and Eastern Europe – the new tiger economies - are growing fast. News from the Eurozone is mixed. Forward indicators are more encouraging but output fell in Germany, Italy and the Netherlands, for two quarters in row.

“In the UK growth slowed in 2003 but retail sales were up 4.5% in the three month to July. Business investment declined, but house prices are moderating not collapsing, as some had feared. Mortgage lending is booming with homeowners investing in home improvements.

“With strong growth in the US – the powerhouse of the world economy - recovery may be in sight for the Ireland. Although trade and production was down in May and June, housing is strong. House prices rose by just over 15% nationally in the 12 months to the end of July. Irish employment grew by 1.5% in the early months of 2003, but total unemployment is expected to rise this year. In the short term the outlook is uncertain but the economy is still growing and resilient. With the US forging ahead Ireland should return to stronger growth in 2004.”

Sales

Forty seven percent of window and door fabricators recorded an increase in sales in the last three months compared with the previous three months. Eighteen percent saw sales drop and thirty-five percent stayed the same.

A useful way to look at this is by the net balance of fabricators reporting either way. The difference between the number of companies reporting an increase over those reporting a decrease is the net balance, expressed as an percentage. A positive net balance indicates growth, a net balance of zero implies little has changed.

On this basis, sales were up on the previous three months with a net 29% of fabricators reporting increases in April to June. Large and medium sized companies did better than small firms (64% and 50% respectively) - chart 1.

Companies producing more than 700 frames a week (83%) and those producing 125-700 frames a week (50%) recorded the strongest sales. Regionally, firms in Ulster (36%) were just ahead of Munster (33%). Leinster (25%) and Connaught (18%) lagged behind. Commercial and trade companies (43% and 41%) saw more action than retail firms (17%).

April-June 2003 sales compared with the previous three months by size of firm

SIZE(by no. of employee)	Increase	Decrease	Same	Total	Base
Small (1-9)	38%	21%	41%	100%	48
Small-Medium (10-19)	48%	21%	31%	100%	29
Medium (20-49)	58%	8%	34%	100%	12
Large (over 50)	73%	9%	18%	100%	11
Total	47%	18%	35%	100%	100

April-June 2003 sales compared with the previous three months by region

AREA	Increase	Decrease	Same	Total	Base
Ulster	52%	16%	32%	100%	25
Munster	46%	13%	41%	100%	24
Leinster	47%	23%	30%	100%	40
Connaught	36%	18%	46%	100%	11
Total	47%	18%	35%	100%	100

Compared with the same three months last year the picture is different where only a net 1% of those we spoke to increased sales. Small and small-medium firms fell back (-6% and -17%) in contrast to medium and large companies (42% and 36%) who recorded increases. Looking at weekly production, firms who produce less than 50 frames a week recorded a drop (-11%). This compares to fabricators making 300-700 frames a week (17%) and fabricators of more than 700 frames a week (50%) who expanded. Ulster and Connaught (24% and 18%) were ahead of Munster and Leinster (-4% and -15%) where sales dropped year-on-year.

Employment

Fabricators took on more staff (4%) in April-June compared with the previous three months (chart 2). Both large and small firms employed more people, but medium sized fabricators cut back. Trade fabricators also cut numbers.

Capacity

Just under half the fabricators we interviewed are working at capacity (chart 3).

Prices

A net 7% of fabricators increased prices compared with three months ago. The picture is split with small companies (15%) and medium sized firms putting up prices. Large firms held theirs. All regions hiked their prices except Leinster (-5%) where they fell. Large companies and trade specialists dropped their prices (chart 4).

Raw Materials

The small increase in fabricators’ selling prices is not reflected in the cost they paid for their materials in the last three months. Just under two in five firms recorded higher purchase costs compared with the previous three months. More small and large companies recorded higher costs (42% and 46%). And more fabricators in Leinster (50%) saw buyinh prices go up (chart 4).

Price Expectations

A net 32% of fabricators expect to put up their prices in the next 12 months compared with the previous 12 months. The picture is similar for all company sizes, fabricator type and regions.

Installed Value

Just under half the fabricators who install achieved less than 10,000 Euro a week per fitting team (chart 5).

Outlook

Despite difficult trading in the last two years a net one in four firms expect to sell more in the next three months compared with the previous three. Medium and large fabricators (58% and 45%) have the highest expectations. Fabricators in Ulster are the most positive with a net 60% expecting improved sales in the next three months. No change is expected in Connaught. Fabricators who produce 125-300 frames expect to outperform others. Commercial fabricators (46%) have higher expectations than trade (29%) and retail fabricators (13%) - see chart 6.

Just under one in ten expect sales to pick up in the next 12 months compared with the previous 12 months. Large companies (64%) have higher expectations than medium (25%) and small-medium firms (10%). Small companies expect sales to drop. Fabricators in Ulster (56%) and Munster (25%) forecast growth but Leinster (-25%) and Connaught (-9%) expect lower sales in the next 12 months. The higher the weekly production the higher fabricators’ sales expectations are. Trade (53%) and commercial (14%) fabricators remain positive in contrast to retail fabricators (-9%) who forecast weaker sales in the next 12 months.

Investment

A net one in twenty of the fabricators we spoke to plan to invest in plant and machinery in the next 12 months (chart 7).

Market Prospects

Confidence has slipped with a net -1% less positive in their outlook than three months ago. Small fabricators are not at all confident (-21%). Ulster is still positive but Munster expects no change and companies in Leinster and Connaught expect things to get worse. The higher the weekly production of frames the more positive fabricators are in their outlook. Retail fabricators expect more difficult trading.

Profitability

Nevertheless a net 5% of firms expect their profits to grow in the next 12 months compared with the previous 12 months. Medium and large firms (50% and 45% respectively) expect profits to pick up compared with small (-8%) and small-medium sized firms (-7%) who expect their profits to drop. The higher the weekly production of frames the higher expectations are for profits. Retail fabricators take a gloomier view than commercial or trade specialists.

Problems

Margin squeeze, price cutting and poor profitability were the main problems in the last three months.

The single biggest problem was price cutting.

Comment

Nicholas Cotter, Managing Director of National Profiles, distributor of the WHS Halo windows system in Ireland, and joint sponsors of this survey, comments: “Ireland may have lost its reputation as a Tiger economy, but it is growing faster than most of its neighbours and it has weathered the global economic storm of the last two years. There are still concerns, over unemployment and overheating in the housing market, but it has emerged far healthier than many predicted. Most importantly it is well placed to benefit from the expected global recovery.

“Sudden changes of direction can be hard to manage. When the recovery does kick in fabricators need to be prepared. They will need the very best support from their suppliers to take full advantage. When homeowners are in a mood to buy, delays, out of stocks, and ordering errors can lose business to competitors. Are you in shape and ready for an upturn?”

Sam Kennedy, Marketing Director of WHS Halo who co-sponsor this survey, reflects: “Quality, price and good service are key factors in selling to the public, but energy efficiency is becoming more important in the marketing mix. With changes to Part L of the Building Regulations in force from July for replacement windows, and Part F in Northern Ireland already in operation, the public is becoming aware of the environmental need for energy saving in the home and the benefits in terms of lower fuel bills.

“But selling to the consumer demands an appeal to the heart as well as to the head. Wants not needs carry more weight in the purchasing decision. Differentiation and desire make the difference between just getting by and success. If your windows look much the same as other windows, and do what other windows do why are you surprised if homeowners focus their attention on price? Windows with built in looks and performance will always have the drop on those that may perform adequately but, quite frankly, have all the sex appeal of the back of a bus.“

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 specialises in marketing research, PR and marketing in the window and home improvements markets. The survey covers a representative sample of 100 window fabricators. Telephone interviews took place in July 2003 across a balanced spread of size of firm, geographical area and type of firm. Numbers employed was used as an indication of company size. The categories are small (1-9 employees), small-medium (10-19), medium (20-49) and large (over 50 employees) Further information: Kirsten Storgaard, Michael Rigby Associates (01453) 521621 © Copyright Michael Rigby Associates 2003