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The WHS Halo Windows Report

Supplier price rises fail to dent confidence

Sales – quarter-on-quarter

The positive start to the year continues into the second quarter of 2007 with a net* 46% of window fabricators (the difference between 57% who sold more windows and doors and 11% who sold less) reporting an increase in sales of windows and doors in the last three months (April to June) compared with the previous three months (January to March) – chart 1.

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

Large firms (net 75%) led the way but mid-sized (54%) and small fabricators (31%) also saw growth. Fabricators across the country did well.

Trade (net 59%) and commercial (43%) companies were ahead of retail firms (20%).

April – June 2007 sales compared with the previous three months – by size
SIZEIncreaseDecreaseSameTotalBase
Small46%15%39%100%54
Medium62%8%30%100%26
Large80%5%15%100%20
Total57%11%32%100%100
April – June 2007 sales compared with the previous three months – by area
AREAIncreaseDecreaseSameTotalBase
South59%6%35%100%34
Midlands50%13%37%100%30
North61%14%25%100%36
Total57%11%32%100%100

Sales – year-on-year

Year-on-year a balance of 27% of fabricators also sold more windows and doors in April to June 2007 compared with April to June 2006, but growth has weakened from the first quarter (chart 2). Large and mid-sized firms (net 65% and 39% respectively) did significantly better than small companies (7%). Again, fabricators across the country saw an improvement.

More commercial and trade fabricators (net 36%) increased sales than retail firms (12%).

Stocks

Overall, a net 17% of fabricators increased stock levels compared with three months ago.

Employment

On balance 13% of fabricators took on more staff compared with three months ago (chart 3). Large and mid-sized companies (net 25%) were more active at recruiting than small firms (4%). Significantly more fabricators in the Midlands (net 30%) increased staffing levels than those in the South (9%) or North (3%).

Orders

Orders are up with a net 30% of firms reporting fuller books compared with three months ago (chart 4). More large (net 60%) and mid-sized firms (39%) increased orders than small companies (15%). Fabricators across the country saw a rise in orders.

Capacity

Thirty-nine per cent of fabricators now say they are working at capacity (chart 5).

Raw materials

A net 67% of fabricators reported a rise in purchase costs of materials compared with three months ago (chart 6).

Prices

Similar to last quarter’s survey, a balance of 7% of fabricators increased prices compared with three months ago (chart 6). However small firms reported no change as did commercial and retail fabricators.

Price expectations

A net 27% of fabricators expect to put up prices over the next 12 months compared with the previous 12 months. This is mirrored across companies of all sizes. More fabricators in the South (net 41%) and North (25%) expect to raise prices than those in the Midlands (13%).

Investment intentions

On balance 15% of fabricators expect to increase spending on new plant and machinery over the next 12 months compared with the previous 12 months (chart 7).

Outlook

Just over a balance of three in ten fabricators expect to sell more windows and doors in July to September 2007 compared with April to June 2007. Mid-sized firms (net 50%) are more positive than large (30%) or small companies (26%). Fabricators across the country and in all sectors forecast growth.

A balance of just under four in ten fabricators also anticipate better sales compared with the same three months of last year (chart 8). Mid-sized firms (net 62%) and companies in the Midlands (50%) are most positive. More commercial and trade fabricators (45%) forecast growth than retail firms (20%).

Prospects

On balance, 5% of fabricators are more confident now about the overall prospects for the window industry compared with three months ago (chart 9). This is similar across all regions but varies greatly by size and type of firm.

Mid-sized (net 31%) and large fabricators (15%) are bullish compared with 11% of small companies who are less confident. A net 29% of commercial firms are upbeat about prospects compared with a balance of just 3% of trade fabricators. A net 16% of retail companies are less certain.

Profitability

A net 25% of fabricators expect profits to increase over the next 12 months compared with the previous 12 months. Expectations are similar across the country. Mid-sized (net 52%) and large companies (35%) are most positive for profit growth compared with just 9% of small firms.

More commercial fabricators (net 55%) anticipate better profits over the next 12 months than trade (29%) or retail companies (8%).

Problems

The main problems fabricators experienced in the last three months were supplier price rises (73%), price cutting in the market (64%) and margin squeeze (61%), which is similar to last quarter’s survey.

The single biggest problem for fabricators over the last three months was supplier price rises, mentioned by 20% of respondents.

Comment

“The major resin suppliers into the UK extrusion market are calling the PVC-U rigid window market up 2% in the first half of 2007,” comments Winston Duguid, Managing Director of WHS Halo, who sponsor this report. “With house building about level and the public sector also about level this means there must be growth of around 3% to 4% in the direct sales/trade sector of our market. The quarterly trends survey bears out that the majority of fabricators are experiencing that growth. The other factor that must be remembered is that there are fewer fabricators in business in 2007 than there were in 2006. If the market is up you would expect those remaining in the industry to be up.”

“Fabricators are right to be concerned about cost increases and right to be passing them on in the market place. The glass industry has recently announced another 5-6% of price increases; hardware suppliers are having substantial raw material inflation on zinc, their position complicated by China unexpectedly reducing VAT relief on some exports whilst oil, and it's ethylene derivative, looks like it could be heading for $80 per barrel with the inevitable consequence for UK extruders. Only four of the British based window profile extruders are generating enough profit to pay for the £2m annual investment needed in such a capital intense process. If oil stays in the mid to late $70 per barrel bracket then consolidation amongst extruders could be quite rapid, with others following Polypipe's decision to exit by closure.”

“The outlook for the second half of 2007 is less positive. In addition to raw material inflation the Bank of England's interest rate policy is designed to dampen demand in general and the housing market specifically. Over one million households are due to renegotiate their mortgages in the second half of the year and their monthly payments are destined to rise by nearly one-third from what they were. It will be surprising if demand for all home improvements does not slow as this is exactly what the Bank is seeking to achieve.”

The WHS Halo Report, a quarterly trends survey, is produced by Rigby Research, a division of 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 2nd July - 9th July 2007 across a balanced spread of size of firm, geographical area and type of fabricator. For survey details call Stephanie Bradfield, Rigby Research 01453 521621.

© Rigby Research, 2007

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