Quarterly Trends Report

Sales Are Up And Expectations High

Sales

Fewer than three in five fabricators increased sales in the last three months and under one in ten saw a decrease. More than three in ten firms said sales stayed the same.

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 a net 51% of fabricators increased sales in the three months to September compared with the previous three months as seen in chart 1. Firms in the Midlands (60%) did better than those in the North (53%) and South (44%).

A net 60% of medium-sized firms grew with none of those interviewed reporting a decrease. Companies with a weekly output of more than fifty frames recorded higher sales than those producing less than that.

July-September 2002 sales compared with the previous three months - by size

SIZE	Increase	Decrease	Same	Total	Base
Small	58%	10%	32%	100%	52
Medium	60%	0%	40%	100%	25
Large	56%	9%	35%	100%	23
Total	58%	7%	35%	100%	100

July-September 2002 sales compared with the previous three months - by area

AREA	Increase	Decrease	Same	Total	Base
South	52%	7%	41%	100%	43
Midlands	60%	0%	40%	100%	25
North	66%	12%	22%	100%	22
Total	58%	7%	35%	100%	100

Year-on-year a net 56% of fabricators reported an increase in sales in the three months to September compared with the same three months last year. Companies in the North and Midlands (61%) did better than firms in the South (49%). None of those interviewed in the Midlands recorded a drop. More outlets producing between 125-300 frames per week (72%) reported an increase in sales than any other size of fabricator. Trade specialists (71%) recorded higher sales in the last three months than retail (52%) or commercial firms (40%).

Just under 45% of fabricators grew 20% or more over the same period last year.

Conservatories

Thirty eight per cent of companies turn more than 20% of their windows and doors into conservatories this quarter, as seen in chart 2.

Stocks

A balance of 26% of fabricators increased stocks in the three months to September compared with the previous three. Companies in the Midlands and North (36% and 31% respectively) reported more rises compared with those in the South (16%). More small fabricators built up stocks than medium or large firms. Trade specialists (38%) grew stocks compared with retail and commercial companies (20%).

Employment

Overall 26% of firms took on more staff in the last three months compared with the previous three months as seen in chart 3. Companies in the North and Midlands (37%) are more active than fabricators in the South (12%). More large outlets recruited in the period with none of those interviewed shedding labour. The larger the company by weekly production the more widespread the activity. Trade specialists were the most active.

Orders

A balance of just over one in two fabricators recorded an increase in orders in the last three months compared with the three months to June, as seen in chart 4. Firms in the Midlands (72%) had more orders than those in the North (59%) or South (37%). By number of employees the picture is similar across all size of company, but by weekly production the larger the company the more widespread the growth. Trade and retail specialists are ahead of commercial fabricators.

Capacity

A balance of just over one in two companies are working at capacity, as seen in chart 5. Historically this is a high proportion. The smaller the company the more fabricators reported to be working at capacity.

Prices

A balance of 38% of fabricators raised prices in the last three months with none of those interviewed cutting prices. The smaller the company the more widespread the increase.

Raw materials

A balance of one in two fabricators had to pay more for their materials in the three months to September compared with the previous three months, as seen in chart 7. Firms in the South and Midlands (55%) suffered the most widespread increases. The smaller the company the more widespread the increase, with firms producing over 700 frames per week reporting a drop in the cost of their materials. Retail specialists were hit more than commercial or trade companies (44% and 41% respectively).

Price expectations

A net 46% of firms plan to up prices in the next twelve months compared with the previous twelve. The smaller the fabricator the more likely they are to do so. More companies in the South plan to put up their prices than any other region. Retail specialists intend to hike pieces more than trade or commercial firms.

Outlook

A net 32% of fabricators expect sales to increase in the next three months compared with the previous three months. Companies in the North (47%) expect better sales than firms in the Midlands and South. Large fabricators are ahead in their expectations for growth. Outlets producing in excess of 125 frames per week are more positive in their expectations than those producing less than that. Commercial companies' (50%) are stronger than trade (38%) and retail (22%) specialists.

Year-on-year, a net 40% of fabricators have positive expectations for sales in the next three months. Forecasts are stronger in the North and Midlands (44%) than in the South (35%). Significantly more large companies expect better sales than medium and small firms. The larger the company by weekly production, the more widespread the expectation for growth. Trade specialists (56%) are slightly ahead of retail (38%) and commercial firms (25%) in their forecasts.

Prospects

A balance of 19% of fabricators are more confident now than they were three months ago as seen in chart 9. Firms in the North are more bullish than those in the Midlands or South. Companies producing between 300-700 frames per week (50%) are more confident than any other size of fabricator. Retail firms are the least optimistic.

Investment intentions

A net 30% of fabricators plan to spend more on equipment in the next twelve months compared with the previous twelve, as seen in chart 10. Firms in the Midlands (52%) reported the strongest investment plans. Companies producing between 125-300 frames per week are investing to grow while those with an output of more than 700 frames per week have paused investment. Commercial fabricators are ahead of trade and retail specialists in their plans to invest.

Profitability

Overall a net 63% of fabricators expect profits to increase in the next twelve months. Firms in the Midlands and North give the strongest forecasts for increased profits. The larger the outlet the more widespread the expectation of improved profit. Significantly more trade specialists (91%) expect profits to improve than commercial companies (60%) and retail firms (44%).

Problems

Margin squeeze and lack of skilled staff are the main concerns this quarter, along with price cutting in the market.

Thirty three cent of firms were held back by lack of skilled staff - their single biggest problem.

Staff training (31%) and marketing (23%) continue to be the most important issues fabricators expect to face in the next twelve months.

Comment

“It's that time of year when those companies whose financial year is the same as the calendar year are beginning to think about their budgets for 2003 and what assumptions to make," comments Winston Duguid, managing Director of the UK Commercial Division of Bowater Windows, who sponsors this report. "The window industry projection for 2003 is a tougher call than usual because of major conflicting influences.”

“The British window market is worth about 13 million units per annum; the public and housebuilding sectors account for roughly 3 million of these but the vast majority of the other ten million (six million), go to the consumer. It's this sector which is the most difficult to call for the next year particularly given the recent publication of Robert Palmer's annual report that is looking at a 4% decline in direct sell windows this year followed by a further 6% volume decline in 2003. Although Robert is showing growth in conservatories in both years it will not compensate for the loss of the direct sell window market. Robert's premise is that we have hit saturation and getting to the remaining non replaced windows is going to be increasingly difficult because of the type of properties in which they may be installed. There is no doubting the logic but the rate of decline is open to question particularly as 20% of replacement windows are installed within a year of the consumer moving home and there are no signs of slowdown in housing transactions at present.”

“Saturation is one issue but the international climate is another major worry. There is a clear precedent for what happens to consumer confidence and oil prices when the U.S. intervenes militarily in the Middle East/Gulf with what happened in November 1990; the short term effects were unpalatable then and they are likely to be unpalatable again. Clearly we need to be cautious on our market assumptions for next year but that does not mean sitting on our laurels and doing nothing. Declining markets usually offer good profit opportunities and the weakest usually fall out the quickest. These are already clear signs that the smarter operators are preparing themselves with a combination of actions including repositioning of their companies and how they market - branding and following a consistent brand image in the supply chain has never been more important.”

“Whilst there are undoubtedly major issues to be faced for those dealing with the consumer, the prospects in the public sector are undoubtedly improving. The housing stock transfers, with the notable exception of Birmingham, are gathering pace offering real opportunities for those that understand and want to embrace Partnering and Best Value. The contractual commitments are more long term and very performance based but the hopes of Egan are beginning to be realised with more effective relationships and installations. The housebuilding sector is also changing but here the different heritages of the window industry and housebuilders are making it harder for both parties to understand and meet each other's needs and expectations.”

The Bowater Windows Report, a quarterly trends survey, is produced by Michael Rigby Associates and sponsored by Bowater Windows Ltd 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. Michael Rigby Associates is a management consultancy specialising in marketing research, marketing and business improvement for the window and home improvement markets. The survey covers a representative sample of 100 window fabricators. Telephone interviews took place between the 2nd and the 8th October 2002 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). © Michael Rigby Associates, 2002 Further information: Helen Ahern, Michael Rigby Associates (01453) 521621.