The Gl@zine Blogsite

Financial Forecast 2008

A Word Of Warning From Sash - Buyers Beware!

The New Year is a time for forward planning and a fresh start for all, but as anticipated 2008 was forecast to be a turbulent time for the window industry, and true to form those companies ignoring the warning signs have finally fallen prey to the harsh market conditions faced by all...seeing some of the industry's biggest players commence the New Year in a state of turmoil, with many going into receivership! This is a long time over due.

Receivership, liquidation, administration... not news, but an inevitable fact that has just been overlooked despite the warning signs being there all along! It has been written on the cards for quite sometime now, that companies operating in the window industry will face their most challenging term in business, but yet many decided to do nothing about it other than to make impractical, greed driven price reductions in a bid to remain competitive...it was only a matter of time. And those major players that have run their businesses into the ground only have themselves to blame.

This should be a stark warning to the whole industry and for those that made the choice to buy from such companies deserve to feel the financial bite too for even entertaining the idea of conducting business with such unsustainable operations. People buying window, door and conservatory products shouldn't be going on price alone, but should be looking at a company's reputation and longevity within the market...that will tell you more about how well the company is performing. It is all too easy to fall into the trap of lowering prices to try and keep a competitive edge; it is a false economy that will end up being detrimental to any business in the long run. This has finally been proven in its abundance and couldn't have come at a better time!

As a UK market leader Sash has secured a strong stance within the industry because of our ongoing commitment to diversification and continual market manipulation. We are governed by the same forces as any other business in operation within our industry, but where we differ is that we realistically price our products and services, delivering the best package in the market place. Our order books for 2008 speak for themselves!

We have worked long and hard at reading the market and making forecasts as to where it is going, and from this we have avoided costly mistakes and really prepared our operations for a new era of business. Our customers have not been tempted away by so called bargain basement offers, because they know that if they scratch a bit deeper all is not what it seems.

For too long now this industry has been let down by those companies that have cut corners in order to make a quick, short-term profit, effecting those among us that actually care what path the industry is going down and who are in business for the long haul. They say what goes around comes around and this is a prime example of the industry saying good riddance to bad business practices...and if these so called businesses continue to fall, 2008 is set to be another great year!

Dave Ruzicka, Joint Managing Director, Sash UK

Door Energy Ratings

Door Energy Ratings

As the UK’s leading composite door manufacturer, we are delighted to learn that a Door Energy Ratings scheme is to be introduced next year. Such a scheme can only have a positive impact on the door industry. You only have to look at the introduction of Window Energy Ratings (WERs) to see what a success they have been.

It will give fabricators and installers an extra selling point to differentiate themselves from the competition by offering doors with different energy ratings to suit their customers’ requirements. With so many similar doors available, Door Energy Ratings (DERs), or whatever the British Fenestration Ratings Council (BFRC) decides to call them, will provide better options and more choice to customers.

For companies tendering for social housing work it will allow them to offer a door which meets the specifications of the Decent Home Standard.

The scheme should lead to more innovative products being introduced as door manufacturers and fabricators look for ways to achieve better ratings. Sceptics may say the scheme will not take-off. It may not grow as quickly as WERs initially, but I believe the scheme will help the industry grow in a difficult year. We look forward to putting our own door through testing.

Mark Simm
Sales Director
Rockdoor

Black Doors

Problems with Black Doors

Homeowners love black doors, and will buy them when they are offered. But black has been a problem for manufacturers for years because foils previously used were too thin and were affected badly by the British climate causing cracking, bending, warping and failure as the temperature fluctuated, so few offered them. Now everybody seems to be offering black composite doors. How many of these black composite doors will stand up to the weather and last?

We wouldn't supply black doors for years as we didn't feel comfortable offering a door with a high risk of failing. But now we have confidence to supply what we believe is the first reliable black door to the market.

Using exclusive Heat Shield technology we know our black doors won't suffer the problems of the past. With a higher Vicat softening point of the virgin PVC substrate together with much lower heat absorption, Heat Shield can reflect up to 80% of the Near Infrared (NIR) proportion of sunlight, significantly reducing surface heating.

Heat Shield outperforms any other foil on the market so our customers can sell a homeowner a black door which looks good and stays looking good whatever the weather throws at it. And because Heat Shield is up to 12 times thicker than other foils, it's also more durable and less prone to knocks and scratches in everyday use.

Other industries have suffered quality problems in the past. If one manufacturer has a problem it is bad. But if a group of manufacturers suffer the same problem the whole industry can be tarnished. To continue sustainable growth of the composite door market, we need to be able to supply installers with products which truly last. Let's keep quality at the forefront so our industry can grow as it should.

Yours Sincerely
Mark Simm
Sales Director
Rockdoor

Energy Saving Trust

Energy Saving Trust Lacklustre?

I had wondered why the Energy Saving Trust, the organisation charged with delivering and promoting energy efficiency, appeared so lacklustre in its support of energy rated windows. At a recent meeting with EST, charged with compliance of the proper use of the energy saving recommended (ESR) logo - the blue swing tag – they confirmed to me that it's only the products that are important to EST not their installation.

Indeed there is a fundamental obstacle for installers selling energy rated windows to the consumer: they are prohibited from using the swing tag logo in conjunction with their name. Installers cannot be licensed to use the logo, because ‘installations’ aren’t covered in the wording of the ESR document. The license only covers manufacturers, retailers, and suppliers. The explanation is that installation is not part of the EST brief from DEFRA, its principal funding authority.

Approved manufacturers can produce brochures with the swing tag logo for customers’ use, just as Masterframe provides a Bygone Collection brochure for its approved retailers; it’s an immensely valuable marketing tool.

EST considers an installer’s use of a manufacturer’s brochure, far more preferable to brochures produced by installers themselves, let alone the industry tradition of allowing product brochures to be over-stamped by the installers, which is illegal under the terms of the EST scheme rules.

It gets even more complicated, as some manufacturers (who also install) can use the logo, but not in connection with installed products (even those with EST certification). Again it’s against the terms of the trade mark. This may seem petty but the EST is required to prosecute offenders who use the trade mark (the EST swing tag logo) without permission.

Until the EST has an installer approved endorsement scheme, manufacturers must lead the way, publicising their products and promoting energy saving recommended windows to homeowners. This raises the importance of approved networks like Bygone and Network Veka etc for controlled distribution of certified products, whilst the public remains largely uneducated and confused about the benefits of certified energy efficient products and the impact on climate change that windows such as ours will make.

I do have some sympathy with EST. However, as their life is dictated by the scheme rules, and DEFRA seems unwilling to promote (or fund) an installers registration scheme, surely the public should be told just how beneficial energy efficient product are (especially when they can save all the heat lost through windows), irrespective of whether they’ve made them or not?

Alan Burgess
Masterframe Windows Ltd
GO5 & GO7 Energy Efficiency Award Winner

Comment on this?

Conservatory Market

Conservatory Market Looks Good

Consumers may tighten their purse strings in the coming months following the sub prime credit crisis and a slowing housing market. But there's still a lot of potential in the conservatory market. And it doesn't mean that when looking for a conservatory, a homeowner won't see beyond the price tag. If he's made the decision to buy a conservatory, he wants the right one for him and his property. Installers don't have to cut their margins unrealistically to get sales. What they can do is offer alternatives and advice on conservatory options so that the buyer's confident he'll get the right conservatory with them.

Conservatories are top of homeowners' wish lists. We can help keep conservatories on top by selling what homeowners actually want and not simply slashing prices. Though a low price tag is attractive to a potential buyer it may mean they end up with a conservatory they don't want.

When imagining their new conservatory, homeowners don't want a room that's too hot in the summer and too cold in the winter. But often they don't know that's what they're getting if they buy a cheap plastic-roofed conservatory. With no informed guidance homeowners may choose the 'wrong' type for them. An installer can give the best service possible by informing homeowners of the problems, benefits and cost of the alternatives available.

Offering alternatives will also benefit installer's profits. They'll get better margins on more expensive options, for example, self-cleaning glass roofs. Each homeowner has a different need and budget. If installers offer the right advice they'll have happy customers, leading to more recommendations and referrals which are invaluable to every business.

Yours sincerely

Martin Randall
Chairman of Crystal Direct
Comment on this article?

EU Legislation

Hi everyone, just a quick note from the moderator here: the trouble with long posts such as these is that the 'Comments' link is a long way down (ie at the bottom) - but there again, the idea is that you read it all before you comment anyway! If you want to jump straight in to comment, this will take you straight to the comments page, but you still have to scroll down to the bottom for the comment box (but newest comments get displayed on top!):

[Comments]

SAM KENNEDY, SPECTUS WINDOW SYSTEMS: Most of the discussion we've had today has been, shall we say, a little bit insular. We talked about the UK a lot of the time. There are a lot of European companies in here and one of the areas that we wanted to add on to the end was on EU legislation. We've subtitled this “Muddled and red tape”. Now, who would be better to unbundle that red tape than Giles? Can you give us an update on this, please?

GILES WILLSON, BFRC & GGF: It's very interesting today. We've spoken a lot about regulation and building regulation and how we can use that, and we have said that by enforcement it has risen again with FENSA and Part L and safety glazing. There have been a lot of positives about regulation. This is EU legislation and European standards.

Just to give you an outline, as you should be aware, Construction Products Directive led to a whole load of European standards being developed. For the last 15 to 20 years, I think, we've been working on these. It's taken a huge time to come to maturity. A lot of these are published, are mandatory and are working today. However, when I speak to many people, especially those that are further along the process installing windows, and I say glass comes under CE marking, units are under CE marking, they look completely amazed. They have absolutely no idea at all that they're European standards. I know Pilkingtons and all the other glass manufacturers have had loads of testing. They do declarations. You'll see the new European standards. You’ve got unit makers: all unit makers should have the product tested and do declarations.

There is confusion in the UK, mainly by the way we interpreted the CPD for the regulations. We don’t make it mandatory that you CE mark your product. You have to comply with the regulations but you don’t actually CE mark your product. We’re not going to go into a debate why, but it has caused some confusion. The other key thing as well is if you did CE mark your products - and most people will do on a voluntary basis because they’ve done all the work, they’ve done the testing - it's always emphasised it is not a quality mark. It just shows compliance with the essential requirements of the regulations. Some people are thinking why, what's this all about, and I think it’s legislation, muddle and red tape.

Finally, I've mentioned glass units. Windows from 1 February 2009, CE marking for all windows and doors. That will be implemented by then. So, industry has got to get everything in place ready for that. A lot of companies have gone over the time periods, but they’ve been able to because of enforcement or, more to the point, lack of enforcement. Who’s enforcing all this CE marking? Trading Standards? They're the people who have been appointed by the UK government to enforce CE marking. Now, I've spoken to Trading Standards officers. Insulated glass units - how many people get killed by that unit sitting in the window if it's not got the CE mark on it? Their priorities are for totally different areas; in the press recently with toys coming out of China, a classic example. They will concentrate on that. They’ll look at food, they look at weights and measures.

So, I think the confusion and the red tape and the muddle is we've all got to change. We do all this which is slightly different. Someone will ask me a specific question, “What do I have to do?” I say, “Well, you can do this or you can go down this”. There isn’t a black and white answer what you have to do because it's legislation and there's only one way you know if you are compliant and that’s when you go in a court of law. So you get the best advice, which is can you demonstrate your product complies with the essential requirements, i.e. go and do your own testing. “Well, do I have to?” “Well, if you're happy with someone else’s results and that reflects yours, fine, you can place it on the market.”

There's all these confusing matters and I know Tom particularly has had a huge amount to do, trying to get things approved and regulated because he has some very specialist products, fire resistant glazing, trying to sell them across Europe. CE marking should mean that you’ve got one single market. That’s what we’re trying to achieve: one set of standards, one market, have it tested in one place and you’ve got a bigger market to sell. Sounds like a perfect world. It doesn’t always work like that because of different regulations, and when it comes to windows, by 2009 the European standard is 14351 and that’s a list of characteristics, certain requirements for the UK market. It's the same standard, same test methods across Europe, but the requirements in Germany, France, UK, Greece are all totally different. You could have your window tested, but you’ve then got to see if it complies with France or complies with Greece, so we haven’t actually made one single market.

MARTIN ALTHORPE, BPF WINDOW GROUP: It's not a standard either, is it? It's just a common method of denoting performance?

GILES WILLSON: Correct. So you can compare, and I think that’s really what it tried to do. In all fairness, when work started on windows, you look at the windows in the UK, you look at the windows in Germany, they're different looking. Continental windows are different. Now, do we change all of our windows to be of German appearance? One solution and it could be done. So how do you make a comparison? But then areas which have worked particularly well for CE marking I think are your glass products because they are sold across the whole of Europe and that has worked well. So glass you're buying in the UK, in Germany and France, it's all been tested and it's one market and I think for manufacturers it has been easier. But you get to units, a bit more complicated; you get to windows, even more complicated.

MARTIN ALTHORPE: Where are we up to with redoing 6375 so that it sort of reflects the 14351?

GILES WILLSON: That’s in a draft stage. For people who may not be aware - and I don’t want to make this a technical meeting - that’s the UK implementation series of documents so you’d know how to work a European standard in the UK. We’re trying to write some documents which will make it easier for the UK market.

MARTIN ALTHORPE: And they are standards? They call it minimum levels.

GILES WILLSON: They are standards. They are British standards, yes. They will have a series of classes and what is usual for the UK market. Because if you’ve got one characteristic, and it doesn’t matter if it's for thermal performance, security, and there's five classes, which one do you use for the UK, class one or class five?

MARTIN ALTHORPE: What does the security standard go up to, class eight? I think we might joke about class eight because I think it goes to class seven. But that standard would be suitable for something like a bank vault.

GILES WILLSON: It was designed for that.

MARTIN ALTHORPE: Yes, you have the new intervention tests and you use a crow bar, screw drivers. Well, this level actually allows you to use mains powered angle grinders and things like that.

GILES WILLSON: You’ve got angle grinders and all sorts.

MARTIN ALTHORPE: We joke about level nine on a presentation, put level nine and you’ve got a picture of a tank or rocket propelled grenades or something like that.

GILES WILLSON: Yes, that’s exactly right. But then that’s the security standard for all applications. There’s certain houses which have got some very expensive contents and will need to have very secure windows, and I know there's a niche marketplace for that where you do have thick laminated glass and you need to have that to get any insurance.

SAM KENNEDY: Is all of this information coming through to the manufacturer?

MARTIN ALTHORPE: In actual fact, I can remember standing up at a seminar in Northampton, how long ago was it? It wasn’t last year, was it the year before?

GILES WILLSON: No, no three years ago.

MARTIN ALTHORPE: Three years ago, on 14351. We were talking about it. It was an industry seminar three years ago and as a company we did customer seminars around about the same time. The problem with these things and the slow grind of this process is that you tell people about something and it doesn’t happen. It's not that it's not happening, it is, but it just takes so long and we’ll have to do it all again. We've already tried to educate people once.

GILES WILLSON: It's been a continual programme of trying to educate. Items have gone into trade press. Martin mentioned the seminar which was held in Northampton. I spoke at that seminar, I’ve spoken at other seminars. When is it actually really going to happen? I think that the investment required, sometimes people are starting to prepare but they're thinking, “Well, I don’t want to go too far because it may never, ever happen and why do I need to do that?”

NIGEL RICHMOND, FENSA & BOWATER BUILDING PRODUCTS: In answer to Sam’s question, though, the GGF is disseminating it to all of its members regularly in newsletters and briefings, etc. To the industry at large I think the GGF is also, by virtue of press articles and that, making people aware but not in as much detail as you would do from a membership point. I would suggest, Sam, that there's an awful lot out there that it will be new.

MARTIN ALTHORPE: BPF has a monthly newsletter. The window group has a monthly newsletter which Paul (Jervis) writes and he’s continually updating people on that.

NIGEL RICHMOND: We probably don’t get to everybody. If there's 9,400 FENSA members, between the two of us we’ll get to 500 of them. It’s crazy. Even though on a Pareto concept that’s probably 60% of the whole industry, but it's 40% --

MALE SPEAKER: You don’t get to us, for example, and some of these things could have repercussions.

GILES WILLSON: Again, as a trade association we've disseminated press articles but it’s really for membership. That’s who I'm trying to educate. That’s who funds my wages because I've got to keep them on board. This is one of the hard things and, again, it comes from government for that implementation. They haven’t come to any of the trade associations and said, “Here’s some money. We’ll pay you to educate the industry”. So, who’s meant to be doing that? It's a bit of a vicious circle. Who’s meant to be doing that education? We do do it for the good of the industry and it goes by word of mouth and by magazines and the seminars. I know the seminars we have run and other trade associations and other bodies have run have been advertised in the trade press and they’re open, so you don’t have to be a member of the Trade Association to attend any of these, but you have to pay to attend like most events.

SAM KENNEDY: One of the other areas that we wanted to try and put in, and we started it earlier on, James, was on the effects of growing imports and how that, obviously, impacts on people like yourself and impacts on the manufacturers as well. Do we feel that that is an important item and is that on the agenda for manufacturing in the future?

JAMES HURST, WINKHAUS: It's hard for me to say how important it is, but it's definitely happening. I think this is the tip of the iceberg, but one of the things we’re seeing is customers of Winkhaus in Poland and Germany and Ukraine are making windows to sell into the UK and are using our UKAS-approved test laboratory, which we have in the UK, to get accreditation to Secured by Design in order to sell, which tells me that they are looking at social housing contracts mainly. I think that’s their main reason. But I perceive some of them have been selling in the UK without any kind of certification other than the fact, “Hey, it's German; therefore, it must be great”. I haven’t got a feel for numbers except to say this year we've probably had half a dozen different companies coming through the test laboratory.

SAM KENNEDY: On your side of the business as well, Peter, I know that Millenco at one time had a factory just outside Hong Kong?

PETER HUNT, MILLENCO: Yes, we source product from China. One of the things that we’re finding is that we design and redesign product to standards and 50% of our customer base isn’t even interested in those standards, not at all. So it doesn’t matter whether I'm bringing a product in from overseas or the UK, it doesn’t matter whether it's standard or whatever, most of the customer base are not educated enough to know what the standards are. But for the stuff coming in from overseas, that’s not going to go away.

JAMES HURST: The quality is getting better, I think, to be honest.

PETER HUNT: Transportation is getting better, the speed of stuff coming in, and once China is finished as a source it will move on to another part of the world. I think we’re already looking at other areas.

SAM KENNEDY: On the machinery side, Phil, that’s always been that way anyway, hasn’t it? Most of your machinery has been imported, is that right?

PHIL HEAVEY, ELUMATEC: Most of our equipment comes from Germany, yes. We know of German companies that are making windows, doors, who will ship them over to the UK. I find it amazing really, but anyway, it has been happening and I'm sure it will continue.

SAM KENNEDY: On software, Windowmaker, I seem to remember, didn’t you have a lot of your software made in India at one time?

GORONWY JONES, WINDOWMAKER: We have 65 people in India, so that’s our core development team. The design is still done in the UK, but we couldn’t conceive of working without it. It's got a larger skills base and I'd say higher skills, actually. Obviously they need teaching about the industry and the costs are a tenth. Also, amongst our customers, we’ve sold Windowmaker now in 66 countries. We are seeing a lot more interest in cross-border trading. I've just visited an Australian customer who buys in either complete windows or components from Malaysia and needed some adjustments to the software to perfectly suit that process. We have Polish manufacturers who are making windows for French customers. A lot of these ones are explored; sometimes they work, sometimes they don’t quite work because maybe the quality is not initially up to scratch or people look at selling to the UK and then they realise they don’t know how to make reverse welded windows. But the fact that they don’t know today doesn’t mean they won’t know tomorrow, and it's going to come. I visited a Chinese manufacturer who says it costs him $10 per window to ship across to the States. It takes six weeks, but if it's a commercial project where people can wait and you have this choice between a cheap price or fast, some people will go for the cheap. I don’t think there's going to be any long-term quality issues. They’ve been buying European machinery. A lot of them are European profile systems.

SAM KENNEDY: I think the underlying question on this one was it’s happening and it's part of globalisation; is it a worry to the industry itself, is it a negative to the industry or is it a positive from the manufacturing point of view?

NIGEL RICHMOND: I think it’s a serious worry, I really do. It starts with components. Components have always been easy. It's progressing to windows. It's progressing to sealed units. You’re flooded with sealed units. You can buy sealed units from any Eastern European country now and they will ship them over here. Glass will come over here. I guess the danger is that eventually profile will come in from there. You think it's a capital-intensive industry so what big advantages do they have on profile, but they seem to be able to get cheaper resin. How do they get cheaper resin? I don’t know. Their wage costs are fantastically lower than ours. They seem to be able to copy machines. Whether they were Cincinnatis or Battenfelds, suddenly they’ve got a Chinese brand on them. They copy tools. They're not originators but everything is copied there. A half a million pound extrusion line over here suddenly becomes a £50,000 extrusion line over there. You add it all up, £200 a tonne cheaper resin, cheaper machinery, cheaper tools, cheaper labour and, as we said, the transport cost doesn’t seem to be a big issue any more. They seem to be able to ship stuff halfway round the world for a fraction of the cost.

So, is it a threat? I think it is. I don’t know how we fight it, but I think ultimately the only thing that takes it away from being a threat is that their domestic demand is so great that they just keep filling their own demand and there's not enough volume to go overseas, but ultimately it's got to be seen across the whole spectrum.

WOLFGANG GORNER, REHAU: It's one that we’ve looked at quite closely because from the UK we also look after the Scandinavian market. If I look at Denmark, for instance, the Danish market has been absolutely destroyed by Eastern European imports. I'm talking finished windows now. I forget what the figures are, but we are talking very high percentages of product coming in from Eastern Europe. I think the one thing that is a threat in the UK, I don’t think so much so on the finished window, but I think on componentry, and possibly glass, but the one saving grace for us is going back to the unregulated, unstructured, unsophisticated market is actually our saviour. The fact is the average installer is so used to such a quick turnaround time on a window and they make so many mistakes in terms of measuring, etc, nobody from overseas can cope. I've actually had Polish companies inquiring of us, “Can we buy profile, take it over to Poland, make windows, ship it back?” As soon as you tell them what the average lead time is for trade windows in the UK, forget it, they can't compete so long as we have those very short lead times and I don’t see any sign of that changing.

For new build, there's danger there, but even then again on new build things change on site, things need to be altered and these guys can't turn around windows in a short lead time. You’re talking about something that even from Eastern Europe is stuck on a lorry for a few days, and the local companies are always going to be able to offer a level of service that somebody from overseas cannot do. If you’re talking about something which is so standard - size doesn’t vary, specification doesn’t vary - yes, commodity products, but our window products on the whole tend not to be. Each job is slightly different.

SAM KENNEDY: Are there any more comments on that?

ALAN BURGESS, MASTERFRAME WINDOWS: I think another saviour may well be your green footprint, your carbon footprint. If you start saying to people, “Well, value proposition, yes, but it's coming from China and it's this and it's that and it's on there”, whereas we are fortunate that our glass manufacturer is in the same town as we are. It's a fairly short footprint. I don’t think we should underestimate the fact that that’s an advantage and if we just forget about it or think lowly of it we’ll never use it, but it really is becoming an issue.

SAM KENNEDY: Do you want to have a quick word, Richard?

RICHARD SCHWARZ, THE GLAZINE: It has been a very interesting day, I think, and I hope everybody has got something out of it. What I have picked up very much is we’re proud of our industry but have become a bit complacent, I suppose. Certainly it is a bit of a shock that training is such an issue everywhere. We do stuff in the kitchen and bathroom market as well. They’ve only just got around to putting a lot of training in place, like the BMA has set up the Bathroom Academy to train on bathroom installation, and the ex-chairman of the KBSA has gone off to set up a structured training programme. I vaguely remember this all happening in the glazing industry years ago. We were talking about it earlier that Spectus had a registered installer scheme and there have been these things, but I suppose they're internal programmes, a lot of these things, and there's nothing industry-wide. The NVQ things are just badges to put on the wall and not really training schemes, are they? When you look at the kind of people that turn up to my house to try and sell me double glazing - we’ve got single timber windows in the front because they're leaded and they look nice - it obviously attracts everybody and we get about three a week. They're scruffy, they're rude, they're ignorant and somebody’s employed these people to try and sell me £10,000 worth of double glazing. There's a need for it but how we move forward from this I don’t know. It is something that needs to be addressed, but then you’d think that companies would naturally want to address that themselves anyway. I don’t know why we need to sit round and decide it. It just seems to be part of normal business practice to get more sales.

It's been an interesting day and it's raised a lot of questions. Hopefully, we’ll all tune into The Glazine in the next few weeks to see the results of what we published. Thanks to Sam and Mike particularly for bringing it all together and thanks obviously to everybody for turning up.

SAM KENNEDY: Thanks, Richard. Just to sum up as well, we've run the whole gamut of different discussion pieces here, whether it be training, whether it be the professionalism of getting professionals into the business itself, whether it be the badge of honour that Nigel was talking about. Somebody asked me last night, in fact, “What's your objective for the meeting itself?” Really, the objective for this meeting itself was - and I started off by saying - there is loads of suspicion and distrust in the industry itself. My objective was to get people to sit down and actually work together for the industry because a lot of us have been in this industry a long time and it's been very good to us and it would be a real pity that we let this industry wither on the vine because of unprofessionalism. We are a little bit down in some areas, but there are amazing opportunities within the industry itself. It's not a crisis. There are loads of opportunities there.

I started off this session with a quotation and I'll finish off with a quotation as well. This is from another Kennedy, J F Kennedy. He is one that escaped the double glazing industry. It says, “Without the strength to endure the crisis, one will not see the opportunity within. It's within the process of the endurance that opportunity reveals itself”.

Today I think the debate has been of a high standard. Hopefully, we can move on from this and really build on it. I’d just like to thank everybody here for taking the time out of their busy schedules and contributing to the debate, so thank you very much.

Greener Homes MOT Scheme

Greener Homes 'MOT' Scheme!

I noticed this with interest [in last week's Glazine Leader comment]

The much hyped Green Homes 'MOT' Scheme was finally announced at the beginning of this week, but - surprise, surprise - there is yet again no specific mention of double glazing, although the old stalwarts loft insulation and cavity wall insulation are trotted out, as if there is a house standing in this country that doesn't already have both.

Actually many thousands of houses do not have both, in fact it is impossible for them so to do. You can only have cavity wall insulation if the property has a cavity wall.

Cavity walls only started in 1940s.

A question for the industry how to improve the wall insulation on solid walls, without intrusive internal work?

Kind regards

Malcolm Jennings Dip GAI
Product Development Director
Frank Allart & Company Ltd
Web: http://www.allart.co.uk

Industry Debate 5 - Conservatories

SAM KENNEDY, SPECTUS WINDOW SYSTEMS: If I could take the debate slightly further on as well and talk about the advantages, as Wolfgang talked about, of bringing more professionalism into the market itself. Alan has obviously gone down that route with the investment he has, not only in the product he has but also in the people, so they are improving sales at that level. If we drag that through on to conservatories now, it's always been an aspirational sell. Is that how the market is at the moment, Grahame?

GRAHAME HALL, ULTRAFRAME: As most of you know, I'm pretty new into the industry, but my assessment thus far would be that it's a bit like some of the lies that we’ve been talking about elsewhere. We sell white plastic boxes that are too hot in the summer and too cold in the winter. It's not a satisfying product. I think until we get real about that we’re just kidding ourselves, we’re seriously kidding ourselves that we've got a good product. We sell cheap space, we sell easily acquirable space, but do we have a good product? No, we’re a mile off.

I suppose the acid test is that on the back of our house when we moved in there was a white plastic box that was 15 years old. You know what? It looks like the white plastic boxes you can buy now. I don’t know many other products that look very similar to ones from 15 years ago. Cars are different, computers are different, televisions are different. We’re in a ditch. I've used that phrase a few times. The conservatory market is completely in a ditch. It's just screwed itself. It's got itself to a point where it’s just beating itself up. Prices have dropped and dropped. It's got a value proposition that is just too low. When people see a conservatory for £4,000 or £5,000, it's too cheap. It doesn’t stand for anything, it doesn’t have any value.

As a result of that, you look at the macro economics and you say house prices might be settling down. The cost of moving is average £24,000 these days; that’s just in stamp duty. The average spend on a conservatory is about £12,000. We’re not hitting the right spot. If somebody wants to put light and space on the back of a house, which is fundamentally what a conservatory is, what are the choices? They either go for a cheap white plastic box which is completely unaspirational - they were very aspirational 20 years ago but they're not now - or you go and spend 60, 70, some unknown number, on a house extension. Those are your two choices. In the middle there's very, very little. They’ll buy an Amdega conservatory. That’s a snob brand. That’s not a value for money proposition. People like Amdega because they like to tell their mates they’ve got an Amdega conservatory, like they tell their mates they’ve got a Smallbone kitchen. It's not a genuine value purchase, so it will only ever appeal to a small part of the market.

So, I'm actually quite excited about the future of conservatories, but I don’t see them in white plastic and that might not be what you guys want to hear. I think unless we get out of that space we’re going nowhere and I think all that will happen is that we’ll all just beat each other up and offer a poorer and poorer quality product.

One of the biggest innovations has been glass. I'm being a tad cynical, but I think there are some important points in terms of how we go forward. The move from polycarbonate to glass and particularly to active blue has been a huge, huge move forward. I don’t think that’s been properly sold by the industry. The benefits of that isn’t really clear, but I think we've got to start being much more modern and get the wow factor back into our products. Somebody used the expression before saying, “Right for the house, I’m going to buy it because it's right for the house”. There aren’t many products people can get that are right for the house. There are a very, very small number of tiny joiners, people who will do odd jobs, but they're not well engineered and they don’t provide good value, so I think we’re stuck in a hole.

MIKE JACKSON, THE BURNDEN GROUP: Probably for the first time round the table actually somebody from Burnden will agree with somebody from Ultraframe! I think Grahame is 100% right. We sell plastic boxes, plastic roofs. There's not a lot of sophistication to it. I think it's come on as far as it can as far as a conservatory roof is concerned. If a consumer would look at a roof and compare one roof to another it’s much of a muchness to your product now. We've got to do a lot. There's a huge market for home improvement, for extensions. Now, whether that be a conservatory or an extension or a sort of a hybrid version I think that’s what we've got to look at. I think we've got to be a lot more imaginative in our design and it's about time we realise that. There's still going to be sold a lot of white plastic, you'll never get away from that, but we've got to use it in a different way. Glass, again, it's done a lot for our business in the last year. It's been a struggle anyway, the conservatory industry is a struggle, there's no two ways about it, but glass has done really well for us, thanks a lot to Pilkingtons, I must admit, with their advertising and market awareness. Luckily they’ve got the budget to be able to do that, but I think it's certainly helped.

RON HAMILTON, PILKINGTON: Let's be very clear about that. There was a massive discussion around that because we go back to the times of self-cleaning glass, if you couldn’t sell that and what a margin you would make. Taking the comment that was made before, in the initial strategy we found that the guy in the house was actually selling against active because it's actually easier for him to just take two panes and take his commission and walk out the door. For the first time in a long, long time Pilkington has decided to go directly to the consumer to actually use the credibility or the perceived credibility. We believe that Pilkington has a value in a name, so Pilkington, this is a name actually you can trust and actually active does work, so let's convince the consumer that that’s the case and do a draw through on that.

MIKE JACKSON: I think the pull through has been good. Pilkington is a recognised brand name. It's one of the few in our industry which is recognised, so we’ve benefited from your branding as an industry. That’s definitely helped, but that’s just one of the areas. We need to look at other areas as well.

SAM KENNEDY: Are there opportunities on conservatories? I just wonder. Again, you’ve come into it with a fresh look at it, Grahame, because you haven’t really been in it, but you made the point of having these white boxes and Michael earlier on talked about having a white box where you couldn’t get a chair into it because we’re selling it in flat packs. Is there a replacement opportunity there?

GRAHAME HALL: I think the market’s a bit stuck because there's nothing to improve to at the moment. So, “I have one of these, I'll go and look and the new ones look exactly the same as the old ones, so why should I bother? I'll spend my money on something else”. I think there's a huge replacement opportunity in time because quite a number of these conservatories have been around for some considerable time now, but we've got to give them something that’s different to what already exists.

The Ultraframe story is pretty well documented, but whenever a market and a company starts to go off the growth curve, then they tend to start doing things that, perhaps, aren’t always in the best long-term interests of the marketplace. One of those is you're dealing with tiny, tiny roof manufacturers or installers that can't actually add any value and your routes to market get all muddled up. We are in a very uncomfortable place because that’s what had to be done for Ultraframe to survive.

KEVIN HILL, JOHN FREDERICKS: Isn’t that an interesting point you’ve just made there? Again, maybe I'm completely wrong and I'm sure with the esteemed audience I'll be put right, but the whole notion of a conservatory to the home owner is that it is a space and you’ve got additional space or cheap space, affordable space, but the way that we get to market is not on a conservatory. You're roof people. You don’t sell conservatories.

GRAHAME HALL: Absolutely. I was going to come on to that.

KEVIN HILL: Our customers don’t sell conservatories. We sell frames that go into it. So you’ve got so many people with so many different skill sets, which we've already discussed today, that are not reaching the mark, is it any wonder we've got ourselves into a bit of a pickle, whereas the guys from Amdega - incidentally both Amdega and Smallbone were owned by the same company, Williams Holdings - were actually integrated into the supply trade. So, there might be some snob value there on the back of the colour supplement, but what happens is you’ve got a turnkey approach to it.

GRAHAME HALL: I'm just saying it's not a value for money product. I'm not saying it hasn’t got a place because I think it has. This is a public meeting and it would be very, very silly of me to do a Ratner here.

KEVIN HILL: I wasn’t suggesting you were, by the way.

GRAHAME HALL: There's a difference in the way Amdega go to market and we currently go to market, and I think that limits in some respects the opportunities that we can exploit, but I'm not going to talk about it broadly in this arena.

NIGEL RICHMOND, FENSA & BOWATER BUILDING PRODUCTS: There's been a massive change and I think you're being a bit harsh. I think the conservatory product has come on in leaps and bounds over the last ten years.

GRAHAME HALL: I'm sure it has but it's still rubbish.

NIGEL RICHMOND: No, I think you're being a bit harsh. I think if we look at it from a roof point of view, the frame side of it has moved on. Now, the bulk of conservatories were sold via Wickes, B&Q and all of the sheds. They have virtually stopped selling them. I accept and I think the product that went through those channels didn’t do us any favours, but the product has shifted away from those sheds now. Every window company wants to call itself a conservatory company now because it sort of raises its image. The specialists have always been there as well and, sure, Amdega can add on £10,000 to £15,000 just for the brand. Funnily enough, I think their conservatory is worse than a PVC conservatory because they’ve never been able to get the timber part of it correct. But it's a product that’s moved on. It can move further.

GRAHAME HALL: I think the shed product I completely agree with you. That was a bad route taken.

NIGEL RICHMOND: We are working for one shed now. They’ve asked us to do a rectification programme for them - I won’t quote names - and we’re doing a rectification programme for them on their screamers, as they would call it, where they’ve got real problems. So far they’ve given us about a hundred and something to rectify, of which nearly half we've had to totally rebuild.

DAVID RUZICKA, SASH UK: But, Grahame, don’t you think one of the problems, again, with the conservatory sector is that the systems companies, the roof component companies, you don’t see loads of Amdega people all over the place, but you see loads of Ultraframe people?

GRAHAME HALL: Absolutely, that’s the point I was making, that you get yourself into an uncomfortable place where your distribution doesn’t work for you because it's not concentrated enough.

ALAN BURGESS, MASTERFRAME WINDOWS: I would also add into it, though, that you made the comment about the Amdega conservatory at £60,000, £70,000 isn’t good value. If you're looking at things from a cost plus - and I'm afraid the PVC industry has done that all the time from the very first software that you ever had - why you go cost plus to make a top-hang fix when the same material is in a top-top fix-fix side-hung, it’s going to take you more time to make than the other. But to the person who’s buying it, that may be fantastic good value and that’s the thing. We’re all looking at it from the blinkered, “We make it for this and we sell it for that and can we afford it?” Get off that, find out what the value is to the person who’s buying it.

GRAHAME HALL: Absolutely, no, I agree with you, and my point was really around the fact that we will quite happily spend £25,000 of dead money to move, but we haven’t got a product around the £25,000 to £30,000 mark which is aspirational and we should have.

NIGEL RICHMOND: The number one aspirational product still for a housewife is a conservatory.

GRAHAME HALL: We should have something and it's shame on us because Amdega do sell their conservatories for £60,000 and £70,000 and £80,000 and they do it in exactly the way you describe it. It's seen as good value, it's within that space, but it’ll never be a volume product because it's just simply too small a market.

NIGEL RICHMOND: Is it about volume or is it about profit?

GRAHAME HALL: No, it's not, it's about value. If you take Ryanair’s model of air travel, what we've got with Amdega is BA. What Ryanair have done by squeezing out and making a value for money offer has made the market for air travel much, much bigger. I think you can do the same with conservatories. I'm not talking of volume gain necessarily, what I'm saying is somewhere between a cheap, white plastic box and Amdega lies a number of other answers, and that’s the challenge for the conservatory industry going forward.

MICHAEL NAGLE, PROFITMAKER: To get that across now you're thinking like that, that needs a combination between the roof manufacturers and the glass companies, so a combination advertising from Pilkingtons and frames pitched at exactly what he's said, the customer’s mind, “I want a £40,000 extension on the back of my house”.

GRAHAME HALL: Absolutely.

MICHAEL NAGLE: But it has to come from that kind of high level advocate and where do you get one? Through the VEKA network or through whatever.

GRAHAME HALL: Only if it's white plastic.

MICHAEL NAGLE: Well, it can be coloured. I suggest you do a colour.

GRAHAME HALL: My point is it might not be plastic.

MICHAEL NAGLE: That’s the route it has to go.

NIGEL RICHMOND: David, how many of your frames end up underneath a conservatory roof?

DAVID RUZICKA: Probably I would say only about 20% of them.

NIGEL RICHMOND: Only 20%? I heard yesterday the figure within industry was 27% of frames. We were just talking about how difficult the window market is. Where would we be if the conservatory market hadn’t come along? Even in its current depressed state the conservatory market provides an awful lot of frames to go underneath those roofs.

MICHAEL NAGLE: We’re still talking about frames. What about contribution?

NIGEL RICHMOND: Well, Amdega was bust two years ago.

GRAHAME HALL: If I can phrase a financial challenge, which is really the problem I'm trying to solve and I guess other people in the sector are trying to solve. If I sell a conservatory roof I get about £1,000 of that £12,000 total install cost. If I sell it as components I get about £500. Now, my challenge isn’t to sell more roofs, my challenge is to get more value for every one that I sell. I don’t have to make the market any bigger to do that, I just have to start to offer better value. So, that’s how I'm going to measure my business and I suspect that’s how these guys are going to start measuring theirs. You can't actually go and sell another 10,000 roofs, they're not there, but if you can up your average price per roof then you start making more profit.

SAM KENNEDY: Wolfgang, were you going to make a point there?

WOLFGANG GORNER, REHAU: I was just saying we've basically come full circle because we’re back to the same issue that we had with the window industry, which is we’re giving product away left, right and centre. The conservatory product, yes, has got its flaws but, yes, I also agree that for the householder, particularly now the 30-something who needs extra space in the house, it's quick and easy. I was in Scotland yesterday reading the Daily Record, looking at the adverts at the back, and it's a standard £5,000 to £6,000 conservatory, that’s what the industry is doing to itself.

MIKE RIGBY: I think it's worse than that. Again, this echoes whoever said that it's not the consumer, Mrs Jones or Mrs Brown that’s holding things back. When the conservatory is sold, for every pound that the conservatory company gets paid, the consumer spends more than £2 extra doing other things because it's a real splurge opportunity. Whilst the conservatory has been increasingly sold on very competitive bases, the rest of it is actually spent freely and it's always been a joke about how much has been spent on blinds, etc, but it's everything else. It's not just inside, it's outside as well. They're going to spend it on paving and so on. So, it's a real opportunity for pleasure and happiness and all that the industry has been selling is the basic structure for somebody else to go and pick up all that added value, which seems daft to me.

KEVIN HILL: You ask the question of those people, which some of those are our customers and I guess there are some of yours as well there, you say, “Why don’t you go for the value adds, the blinds, the furniture, the under-floor heating or the cooling systems or the heat recovery systems?” “It's too much hassle.” Where do you go with that kind of mentality?

DAVID RUZICKA: It comes back to what we said earlier that you have non-professional people selling your products. The other thing that they’ll come up with is they’ll say, “I didn’t want to put that into the equation because I just wanted the deal for the conservatory and I didn’t want to put them off by trying to get the blind business and what have you”. This is because we have poor people. We don’t employ them, a lot of them, they’re commission only, and I have to ask why are they commission only? What are you going to get turning up for an interview for commission only? We’re asking them to sell an upmarket product, dare I say it, even to put some design into that product, yes, and commission only?

WOLFGANG GORNER: It's a bit like these adverts you see on the street side, “Do you want to earn some extra cash?” That’s basically what it is.

DAVID RUZICKA: Exactly. Then we ask why we have bad salespeople. Because that’s what we’re asking for. We’re actually advertising for the worst people to come and work for us. You’ve got a few who have been very, very successful in direct sales, but the majority of them are people who are not capable of doing it, that’s why they end up working for this industry.

WOLFGANG GORNER: It's a sad indictment, isn’t it?

ALAN BURGESS: Actually I think it's not quite that bad. I think going back a few years double-glazing was really, really all about pressure on the night. Thankfully, you look at Watchdog, most of them now are selling beds for the elderly or whatever. So, I do think that we’ve got a better industry than we had 15 years ago.

DAVID RUZICKA: Really? You obviously don’t get BOGOF then on your TV, buy one get one free. Have you seen the advert? My God, that has got to be ...

ALAN BURGESS: There are exceptions, but I think on the whole it's got to be a better industry than what it was.

DAVID RUZICKA: Yes, but I still don’t see the sales people are better.

WOLFGANG GORNER: That’s what people see, though. That's a very valid point, that. That’s the one company that does national advertising --

GRAHAME HALL: Yes, and they are desperate, aren’t they?

WOLFGANG GORNER: Absolutely, yes, but that’s what we are. I'm sorry, I'm going to say this now, but if you want to have a conversation stopper as I had yesterday coming back on the plane from Glasgow, and you’ve got somebody sat next to you who you don’t really want to talk to, the best thing to say when they say, “What do you work in?” is say, “Double glazing”. That kills it.

DAVID RUZICKA: He feels for his wallet first!

WOLFGANG GORNER: No, it's true, it is.

MIKE JACKSON, THE BURNDEN GROUP: The insurance industry was the same, wasn’t it, 10 or 15 years ago, unregulated with the sales people. Now it's regulated and you have to have professionally trained sales people in insurance.

DAVID RUZICKA: It's all sales training which brought about that transformation and getting rid of the commission only guys because the commission only guys don’t exist in insurance.

MALE SPEAKER: Well, the nickname for Allied Dunbar was “Allied Crowbar”.

DAVID RUZICKA: But that is a big factor for a lot of the industry. There are people sat round here and obviously yourself who are successful sales people and what have you, but the majority of us would deal with people who have no idea of what they're selling, no idea how to design a conservatory, no idea even how to order one from me. You get a sketch with a few sizes on the thing and they go, “Can they have that next week?” I go, “What do you mean?” Monday to Friday they want you to turn a conservatory round for them, and I go, “Well, base, have we done a base?” “Yes, we’ll get round that, don’t worry about that.” The whole thing is totally unprofessional. But you look at them and you say, “Well, what sort of design is it going on?” “Oh, it’ll be all right, just a couple of openers outside, couple of openers outside, put his doors there.”

KEVIN HILL: Then they get mad with you when you say, “You can have it within a five-day turnaround”. “Good God, five days!” Like you're the only people making frames for them. The reason why we have that, we build in so much - you could argue cost, downtime, whatever it is - from actually getting a fax to putting it into production because we go back so many times to the customer and get them to sign it off before we start cutting anything. That is a cost to the industry that ought not to exist.

DAVID RUZICKA: Just before I came away yesterday, one of them - and we refused to make it because we only make to within what we feel are the right tolerances - for a conservatory it was 3.7 metres long by 16.70 high, which he wanted making in one frame. Now, forgive me if anybody does make those in one frame, but you shouldn’t. This is going into a conservatory and this has come from a very, very well respected company, and that’s purely because the salesman doesn’t know what he's selling. I said to him, “Sorry, I am not going to manufacture it”. “Oh, I'll go and get it from so and so then” and he will.

MALE SPEAKER: Somebody else will manufacture it.

MICHAEL NAGLE: I presume they order all these on fag packets?

MALE SPEAKER: Since the smoking ban it’s been a bit hard!

DAVID RUZICKA: Certainly if you're going to try and kick something off, I think training for sales people and an industry that, as I say, didn’t employ commission only ones would be an excellent way to kick this thing off because no matter what we say here and what we do with upgrading the product, if we haven’t got the right person selling it at the end of the day, we’re going to end up with a fantastic product sold at the lowest bottom market price.

NIGEL RICHMOND: I guess the one thing that may well force that through is if in the next round of building regulations conservatories come under building regulation control.

MARTIN ALTHORPE, BPF: There's whispers again, isn’t there?

NIGEL RICHMOND: Well, they put it off. Then they said this year, next year, then they put it back and then they said there were no plans and then all of a sudden it's come forward from no plans to, “Oh, well, we might consider it in the next building regulation”.

MARTIN ALTHORPE: Well, it's interesting, isn’t it, because when they came up with it, though, originally, they said, “We want to introduce building regulations for conservatories”, the industry went, “Oh, you can't do that”. It is what we are talking about now. “You can't do that because it will destroy the industry, it will reduce the volume.” We spent a huge amount of time defending our position and rejecting that idea and what we are probably talking about now is that that might have been a good idea.

DAVID RUZICKA: I think it is.

NIGEL RICHMOND: That’s presuming you can get things through building regulations within a reasonable period of time to actually process the order. Our average process at the moment for anything that goes through building regulations is a minimum of nine months.

GILES WILLSON, BFRC & GGF: The other problem with building regulations is you can have a written building regulation but if it's controlled by building control, one council to another council to another council, three different sets of rules, and that’s what makes it really hard. No matter how good you’ve trained your sales guy, put everything in, if you’ve got different rules for different counties ...

DAVID RUZICKA: Yes, but that’s not really a problem if you’ve got a system in place that works. I supply I don’t know how many conservatories and large span buildings to America, to probably six or seven different states, and every state does have its own ...

GILES WILLSON: No, I don’t mind if it's different rules if you know what the rules are, but it’s if you’ve got one set of rules interpreted by different councils. It's completely fine if you’ve got different sets of rules between England and Scotland, for example, where there are different sets of rules, live with that, fine, you know what the rules are, you can quote, manufacture, that’s okay, but when you're looking at between Coventry and Northampton, very close, both of them, two different counties, two different building controls, two different sets of rules.

MARTIN ALTHORPE: There is a way of getting type approval for generic designs and things, though, isn’t there, which you can use?

TOM RITCHIE, CGI: Sam, rather than reinvent the wheel, the most successful membership scheme in the history of the glass business I would suggest is FENSA. Does Nigel or Giles think there's any way that this sort of training could be launched and even funded?

NIGEL RICHMOND: Conservatories don’t come under FENSA for a start.

TOM RITCHIE: Well, maybe one day it will.

NIGEL RICHMOND: It could do, yes, but I think it’s a self-assessment scheme, isn’t it, because building controls, if it does go under building controls, they can’t cope. There’s no way they’ll cope with that as well. So you'll be looking for some sort of a self-assessment scheme.

TOM RITCHIE: But if you're looking for a medium to put this training in place you’ve got the membership.

NIGEL RICHMOND: We put a proposal together two years ago now and it would have covered that and it would have been a three-stage inspection virtually, obviously, from foundations through to walls and then through to the roof and, of course, you would have needed training into that area. So, yes, I think it would have worked if such a scheme had come in, and that’s one, because you’ve got legislation behind you, because it becomes mandatory, you can get that enforced and through there, but without that backing I think there's not much chance for that.

MARTIN ALTHORPE: There was discussion, wasn’t there, with the FENSA scheme? It had to be implemented quickly and it actually does a really good job, but compare it with something like the CORGI scheme. It doesn’t bear any comparison, really, does it, because the CORGI scheme suggests if somebody is a CORGI installer that they’ve been through some kind of training and they’ve reached some kind of competence level, whereas with FENSA ...

NIGEL RICHMOND: Well, CORGI was in place before and a very successful scheme.

MARTIN ALTHORPE: Yes, I know that. I do realise.

NIGEL RICHMOND: The danger is that FENSA is a victim of its own success because everybody out there wants a badge. Some badges are very difficult to get hold of. The FENSA badge isn’t difficult to get hold of, so that’s why everybody suddenly grabs it and they go round and all their advertising says, “I'm FENSA”, which means nothing. It's not an approval system, it's not a guarantee of quality.

MARTIN ALTHORPE: What's the progress on the Trust Mark because that takes things a little bit further.

NIGEL RICHMOND: Well, Trust Mark is the son of something else and the son of something else and the son of something else. It's at least the fourth generation, and each time I think the government has been very, very keen to make it a success and the previous three have failed. So, this time the government are very keen to make it a success. So, why does it make it a success? It makes it easier and easier to become a member of Trust Mark and all the time it's going to become easier and easier to become a member of Trust Mark and the levels are not going to be as high as they should be, and it is now becoming quite easy to become a member of Trust Mark.

KEVIN HILL: I think the CORGI thing is interesting as well and the ACOPs. Having worked in that industry as well, it's looked upon as a pretty good model for having approved installation done when these people are dealing with a homeowner. What's happening within that sector now is that lots of people who are of a certain age in the plumbing and heating trade are not paying the money to get the necessary ACOPs training, so you find fewer and fewer people are actually qualified to fit gas appliances. They’ll come in and they’ll sort your sink out, they’ll come in and do a bit of shower work, they’ll do the toilet, they’ll do all that sort of stuff, but when it comes to connecting gas anywhere, they don’t have the accreditation because they've not paid the money, they think it's an affront to go on a training course because they did their apprenticeship and their City and Guilds and, “Why should I? I'm a 50-year-old or 55-year-old proud man. I know how to fit gas. I'm not going to spend £1,000 to £1,500 of my money to have some suit tell me what to do”. There’s a real problem there now and it's getting worse because there are fewer and fewer people who will be able to come and connect gas to your house.

The government has tried to address that by throwing some money at it, which is really part of the government’s new deal which said, “If we can fund 6 months’ worth of training for people who have been on the dole for 12 months, will that help the paucity of numbers in this field?” The industry said, “No, because six months is no good whatsoever”. So, we’re not the only industry with issues at the installation end when it comes to accreditation and having proper skills in place, and CORGI was just about bankrolled by a monopoly, which is British Gas after it was privatised and prior to that as well. I'm sorry to keep coming back to your organisation, but the closest we have to that in the industry is Pilkington, who did and does throw a lot of money at GGF and industry bodies to ensure that there is --

RICHARD SCHWARZ, THE GLAZINE: Well, it doesn’t throw it!

KEVIN HILL: I didn’t mean the word pejoratively.

RON HAMILTON: No, it's nice to hear and it is a good position for us because I think everybody in the room knows the right thing to do for the industry but it has to contribute to a bottom line, doesn’t it? Certainly within the GGF - and FENSA was embryonic from the GGF in how it grew up - there was a need. We’ve touched on legislation a number of times. The driver with CORGI, presumably, and within our own, the Part L, and the changes in the industry, has been the legislation. Actually, it's a credit to the industry that with Part L the compliance was so high because there was a great deal of doubt with Part L that anybody would bother with it because of the number of people that were in the white vans, but comply we did. I believe that most of the industry saw benefit from Part L in terms of opportunities to add value.

Just to comment on the cold box in winter and the hot box in summer, of course there are glass products that address that issue if you choose to take the opportunity and pay the money for them.

GRAHAME HALL: But there are not much of them in the market price, that’s the problem. That’s only the new product and the problem that we have is we don’t sell that difference. So, we don’t sell that so people go and they look exactly the same as the ones that they brought last time. It’s got a glass roof, yes, okay, so it's not noisy when it rains, big deal. The temperature thing’s really, really hard to be believable upon and given the industry’s got a reputation for over-selling it's a tough one.

ALAN BURGESS: But, Grahame, that’s your job.

GRAHAME HALL: I know, absolutely. I'm not shying away from that, absolutely not. That is completely my job.

ALAN BURGESS: Educate the buyer so they become knowledgeable and understand that investing in what you're going to do is well worth the extra.

GRAHAME HALL: All I will say on that is watch this space, that’s exactly where we are, but it's something that historically hasn’t been done.

KEVIN HILL: Is that because you as a business have been a system supplier in there as opposed to the supplier of a complete piece of kit?

GRAHAME HALL: I think that’s been part of the problem that it's been regarded as a business-to-business brand where in reality what he needs to do is what Pilkington are doing on a smaller scale, which is you’ve got to step into the consumer arena and make a point and then hopefully that starts to pull it through in a better way.

KEVIN HILL: A company that’s not here could argue they’ve already done that, haven’t they? As Synseal would say, ask for it by name. They are selling not roofs there but conservatories, aren’t they?

MICHAEL NAGLE: If you consider what Ultraframe did, you are now saying at £500 to £1,000 you're actually just selling a profile and bits and pieces, but you guys --

GRAHAME HALL: Most of what we sell is aluminium, not PVC.

MICHAEL NAGLE: Yes, okay, but you guys spent millions in research and patents and everything that you hold, you revolutionised the whole roof, and now you're talking as if it's only a £500 kit or £1,000 kit.

GRAHAME HALL: Exactly.

MICHAEL NAGLE: So, you definitely need to be tying up with Pilkington and have this media-type image for your product.

GRAHAME HALL: Exactly, and as Mike said, the whole thing has been sold too cheap. In terms of being able to put research and development behind that, we are getting to the stage - and we are going to do it because I don’t think we will find another route out - where you could just as easily put a line through it and then that whole sector will not develop unless someone does it on a niche basis.

NIGEL RICHMOND: Because you weren’t making that investment when you had a slightly higher bottom line as well, so it's harder to do it now.

SAM KENNEDY: Shall we have a break there? A quick cup of tea and then the last session we’re just going to throw some European legislation in.

Growth Markets, Opportunities and Climate Change

SAM KENNEDY, SPECTUS WINDOW SYSTEMS: We’ve dealt obviously with consolidation and the effect of that in the market itself. There are the negatives on that side. One of the areas that we really would like to look at as an industry as well are the growth opportunities. I believe there are quite a few out there. I just wonder, from an industry point of view, where we feel the new opportunities are going to be in the future. Would somebody like to open up on that one?

GORONWY JONES, WINDOWMAKER: Well, you have climate change next which, I think, leads to opportunities because people in warmer climates have different types of windows, either for keeping cooler or for keeping flies out. I have read something predicting the number of flies in the UK is going to double, so I would think there are good opportunities for bi-folds or sliding windows with fly screens incorporated, even for roller shutters. Not a lot of people realise roller shutters are not just for protection but they can be left slightly ajar at night so you can leave your window wide open and not let the flies come in. I think climate change definitely brings some opportunities.

SAM KENNEDY: All right. That’s really coming from climate change itself, looking at those products. What is the feel around the table on that one?

DAVID RUZICKA, SASH UK: With regard to climate change?

GORONWY JONES: With people buying different products if the climate is warmer and there are more flies. If one looks at other countries that are that bit warmer, they sell different styles of windows.

MICHAEL NAGLE, PROFITMAKER: Mosquitoes. I think on the continent you have to have fly screens in.

DAVID RUZICKA: Yes, it’s something we’ve looked at actually, the fly screen situation. I really don’t want to say this, but I had a look at a product and the fly screen was actually more expensive than the window that I was putting it on. So I thought, “We have a slight problem there”. But, no, I actually think fly screens are going to be something that again we should be developing, or as Richard keeps pointing out, blame everything on to the systems companies. It’s where the industry is led, I think, actually from these systems companies. I think it’s a brilliant idea. A bit like Mike was saying, that we maybe have something that’s designed and built in for modern day windows to have these on and not just as an add-on. It’s almost like SatNav that your car comes with standard now. It may be something that we look at as an industry. I think it’s a good opportunity.

We do look at lots of other different products. We’re just looking at banking and fencing products, as some of you are already aware. You’ve maybe seen some of our advertising that we’re doing, which is a great add-on to some of the maintenance-free products that we’re already selling out there. So there are some opportunities. It’s just that we’re trying not to over-develop the market at this moment in time so we can keep the pricing much better.

SAM KENNEDY: Going back to Alan again, I know Alan’s business quite well, but you started off with a niche product, you’ve stuck with that niche product itself. Where do you see yourself getting the growth from in the future?

ALAN BURGESS, MASTERFRAME: We’re not doing anything on fly screens, either! It’s got to be a huge opportunity. Climate change is affecting us, every single one of us. It is going to change the way in which products get sold in the UK, simple. When someone says it can’t be done you look at it and go, “Well, it can be done but it’s going to be more expensive”. Our standard pricing has hugely increased from two or three years ago and that’s just because we’ve included all the bits that you can possibly think of to put on to a window. Not every single window sells at those prices but there is a huge chunk of people that want to have something which is right for their home. They’re just not interested in - forgive me - white shiny plastic. They just don’t want white shiny plastic. Whether you can get an extra £100 a window for that glass or an extra £50 a window for an energy rating, but you either look at it and go, “This is doom and gloom”, or, “Hey, there’s an opportunity” and you’ve just got to market yourself in terms of - you have these opportunities that present themselves; what do we have to do differently to sell and get the reward for that investment?

SAM KENNEDY: So we’re saying don’t change the product, change the way we sell it, is that what we’re saying?

ALAN BURGESS: It comes back to the whole perception thing.

MICHAEL NAGLE: If you look at the white and the wood grain in those, I think the PVC guys need to look at that seriously.

ALAN BURGESS: I think you’ve gone down that route recently, haven’t you?

KEVIN HILL, JOHN FREDERICKS: Yes, and we have launched a range of foil products that are different from mahogany and cherry wood and I think it’s opened up new business to us. It’s not revolutionary. I was saying to Alan I think there’s a great opportunity in not a very crowded market area to make some good money. One of the debates around our board table was how long is that margin going to last before somebody comes in and ruins it?

ALAN BURGESS: Do you have exclusivity on that product as well?

KEVIN HILL: No. No, we don’t. I think it’s very difficult when you’re dealing with a profile company and a foiling company to say, “Can we have exclusivity on that?” because what is “that” that makes it so exclusive? It’s not that much of a different product to enable people to give you that exclusivity.

ALAN BURGESS: Do you have a finite period of time to make the most of that opportunity?

KEVIN HILL: No. We don’t have the luxury of that either. Competition is competition. People are going to either follow on or do something but we need to establish a market position and defend it with the usual ways of doing it: product quality, service and hopefully price being the last of them. But we won’t start a war.

ALAN BURGESS: No, exactly, we’ve had conversations just now about it. Take a foil product. If it became a standard within the industry that we no longer have white shiny plastic but we now have a foil product, are we all going to fight and bring it all back down to casement prices because it’s now the standard but it’s given away this extra that we’ve marketed, or are we going to bring the prices up because actually they were better value? Until people get their head round how can we ethically and morally charge the right price to get our investment back on the costs and things, whether it’s been glass or product improvement, until that happens you’re going to have people saying, “Yes, okay, if that’s £10 cheaper than that one we’ll ...”

KEVIN HILL: I think that’s a huge deal because it must make you guys wince or cry in your beer when you see direct sale companies offering self-cleaning glass, free. If these guys don’t control it at that level, with the best will in the world, in a fragmented, unconsolidated market like ours - excuse the phrase - we’re urinating in the wind.

RON HAMILTON, PILKINGTON: The difficulty that I have is why the lowest common denominator, the rest of the market, the rest of the suppliers, move to that.

KEVIN HILL: Yes, straight away.

RON HAMILTON: Because, in the end, they are small and they shouldn’t really be able to extort a marketplace.

MICHAEL NAGLE: But they did. Isn’t that how the PVC resi door ended up where it is? Buy five windows and get the door free.

KEVIN HILL: Is the composite door going to be the next one? I don’t know. We’ve all seen a few adverts, haven’t we? I don’t know. You tell me.

MICHAEL NAGLE: Can you stop these guys advertising?

RON HAMILTON: Maybe I don’t understand the market enough, I would accept that, but I just don’t know how big they are. I’m sure they can grow to a size but the natural tendency is to react to the giveaway and match that. I’m just questioning that conceptually, that’s all.

MICHAEL NAGLE: Yes, but surely what they’re doing is misleading. Could you not say under the Sales of Goods Act, “We don’t want you doing our product and say it’s free because it’s very expensive for us to do and you’re misleading the public”?

KEVIN HILL: The whole industry, not just this industry, it’s every industry, everybody. It’s always free. It’s a pull on to the consumer.

MICHAEL NAGLE: Yes, but the point that they’re making here is it has no value. If they give it away free then he’s trying to sell at an extra ...

RON HAMILTON: But you’ve got a fantastic product and you move into “pound stretcher, buy one, get one free” mentality and you’re just in the wrong industry if you’re doing that.

JAMES HURST, WINKHAUS: But we’re only going to change that behaviour by doing something, and I think Mike had it right earlier this morning when he said training. If they offered free training or whatever to every window company, maybe most window companies would send someone along and they’d come away with a bit more of an idea how to sell the product. We would be delighted to support that initiative.

MICHAEL NAGLE: What would it cost to do, between the extruders and the profilers, to set up a college or set up training? I’d be amazed. I’d say a whole lot of guys would go on it.

WOLFGANG GORNER, REHAU: It doesn’t cost big bucks and we as a company, in fact, are offering now sales training to customers. The biggest issue in this industry - and you touched on it, Alan - is this industry just wants to sell miles and miles of white plastic. I’m talking now about the people who sell to the end consumer. Let’s leave the commercial market to one side, but the people who sell to Mr and Mrs Jones in their living room, it’s a fairly unsophisticated market and you can give them as much choice as possible and they go down route one, which is lots and lots of white plastic, lowest common denominator. If you look at it, the biggest thing that is lacking in the industry is professionalism. Sorry if I say that, but sales training.

MICHAEL NAGLE: That’s what we were saying this morning, training, yes, the whole gamut.

WOLFGANG GORNER: There are companies out there who offer very, very good retail and trade sales training. We as a company have said, “Fine, we’re prepared to put our money where our mouth is and prepared to invest in our customers because if they can sell better we can command a slightly higher price”. The thing that worries me is we can have lots of ideas around this table in terms of new products, new markets, but unless you change the people who are selling in the living room on whatever evening of the week it is, it’s dead in the water.

RICHARD SCHWARZ, THE GLAZINE: Isn’t it also about the product itself having a value because everybody’s got double glazing now so the double glazing itself is history, isn’t it?

WOLFGANG GORNER: There are plenty of products out there with value and the UK consumer is probably one of the most sophisticated consumers in the world. The problem, however, is we are not selling these products to the end consumer, and where they are they’re not being sold correctly, such as glass being offered. It’s ridiculous. Look at BMW, they don’t go and sell you a 3-Series at Ford Mondeo prices. What’s that frightening statistic that is bandied around that there are more 3-Series BMWs sold in this country than Ford Mondeos? That makes you sit up and think, “Hang on a minute, people are prepared to pay”, but they have to be sold to correctly. Unfortunately, the infrastructure of the industry is not there. It’s a shame all the profile companies aren’t here, but if you look at the structure of your customers it’s incredibly fragmented and those who sell professionally are streets ahead of those who don’t. There are products there and there are products that we could pull in from the rest of Europe that could be marketed in the UK. But the market at this present moment is not ready, in my opinion, to actually do anything with it.

RICHARD SCHWARZ: Isn’t that where the climate change and the energy ratings could be a driver for growth in terms of making the householder want energy products?

WOLFGANG GORNER: We talked about climate change and we talked about fly screens. Climate change actually will encompass extremes of weather. On the one hand, you are going to have very hot summers but you can also, on the flipside, have very cold winters, so you need products that can cope with both extremes. But let’s be honest, you have companies out there now who are giving away energy efficient windows. I was with a customer in Scotland yesterday who’s talking, “Well, my standard window is going to be a B”. “Are you going to get a premium for it?” “No.” “What planet are you on?” So, already the danger there is they’re grabbing anything that they see and, “What can I do with it?” You experience it on the glass side as well.

SAM KENNEDY: Peter, just bringing you into it, is this happening on the hardware side as well? Do you find that that’s happening on that side?

PETER HUNT, MILLENCO: Yes, for sure. The products coming in from China and Taiwan are just depressing the UK prices and unfortunately it’s one of those opportunities that the only way you can compete is to actually get on a plane yourself. We’ve had to start importing product from China, whereas everything was sourced in UK. We’ve had to go to China to bring the product over with all the problems that that gets you on your stocking and your delivery performances. But if you can’t do that then you’re not in the marketplace.

SAM KENNEDY: Do you find the same? Are a lot of your products still made in continental Europe?

JAMES HURST: Yes, everything is made in Germany and some assembly is done in Poland and that’s it. We can’t compete with China on price so we have to do other things. We’ve talked about it all, service. We also have a very wide range of stuff so someone can start at the bottom of the range with us and they will definitely be able to buy that cheaper. But then they can upgrade with the same preparation in the door or just by modifying the product to give them other things, which is leading, actually, on to something I was going to say. Another big opportunity I think is the ageing population, with money, and the DDA Act has brought in all sorts of opportunities for improving the value of a door particularly, but also windows, and making it easier to operate. You were saying earlier, David, about press button switch. We can do that now but because no one has the capability to create the market, apart from the small efforts we’re doing, it’s very hard to grow the volumes to a stage where you can bring the price down. But it’s all possible, technically, and we are doing it in a small way at the moment.

ALAN BURGESS: But is that your fault for not educating the client?

JAMES HURST: Yes.

ALAN BURGESS: Or is it the installer’s fault for not educating the client, or is it the fabricator/manufacturer’s fault for not educating the client?

JAMES HURST: My marketing budget is really small. I use what I can to try to develop ideas, and actually we have some very good customers who buy into the idea and help us to develop it as well. We actually found our customers are the best marketing tool once we’ve persuaded them, but it takes time and they have to be able to make that leap of faith and have the margins to do it as well. But there is an awful lot of technology that’s available in the world now which we are not applying to this industry because of the money side, the profit issue, I think. It’s not because we’re stupid.

NIGEL RICHMOND, FENSA & BOWATER BUILDING PRODUCTS: I think there’s a bit more on security as well. We’ve pushed security several years ago and the problem came that there was a demand for it, there were a lot of people saying, “Yes, as well as wanting this and that, I want more security in my house”, but the problem with some of our fabricators and some of our manufacturers was that they thought they were selling the most secure window anyway and all the features that they were trying to sell on to their customers was secured by design, various security standards. So, therefore, how do you then go and say, “Well, you also need a security system on top of that as well”? It’s got some legs but they’ve faded away two or three years ago. I think Siegenia were pushing one of either Glassex or Interbuild who had an “all electronic, turn the front key, shoot bolts everywhere” sort of thing, and that was really hot but it just died a death.

JAMES HURST: Yes, because everyone, every managing director of every manufacturing company, wants one for his house and that’s the only one you ever sell!

GORONWY JONES: Just an aside, combining the fly screens and the security, I’ve just come back from Australia and security doors are very big business there, which are ones that are physically secure but can let the air blow through on hot summer days.

SAM KENNEDY: Has there been a reason for that? Has somebody been promoting security doors?

GORONWY JONES: I don’t know that level of detail. I know that one of our customers is a specialist manufacturer of them who does some subcontract work for the other window companies.

MARTIN ALTHORPE, BPF WINDOW GROUP: It’s interesting we’re talking about new products and new ideas, new concepts, and yet, at the same time, just earlier we were talking about a fantastic new product that’s come in that people just give away. So, why do we think that if it includes a fly screen in a product that anybody is actually going to want to pay for it? You didn’t.

DAVID RUZICKA: They won’t.

MARTIN ALTHORPE: That £80-odd fly screen, that’s probably the real price of a fly screen. Your £70 window might not really be the real price of a window. You should be charging a lot more. The fly screen guy might have got it right; you’ve got it wrong. What about that?

TOM RITCHIE, CGI: Sam, you don’t think the elephant in the room, to use that expression - if everyone knows what it means - is that this particular segment of the window business has been one that’s always allowed the salesman in the living room to be the driver of what deal is done?

SAM KENNEDY: Yes.

TOM RITCHIE: That’s the elephant in the room. I think if you go into the curtain wall business, it’s the most expensive curtain walls that you will sell to Norman Foster for their jobs in London. Not the cheapest. It will be the features, the benefits, the type of glass and everything. As some of you might know, I’m a little bit aside from this particular business. I’ve been in the glass business many, many years but I’m a little bit not involved in this particular segment of the market and it astonishes me the doom and gloom. I think what you’re talking about is the manufacturer, the fabricators as you’re calling them, can’t turn a shilling. That’s because, guys, you’ve given up the control of the pricing to your sales guys.

MARTIN ALTHORPE: Absolutely correct.

TOM RITCHIE: That was always the case. You didn’t care as long as you kept the volumes up. I’m going back now to the Coldshield days, that’s how far back I go, Lenny Morris days, when as long as the 30% deposit was covering the material costs everyone was happy, and as long as the sales volume line was going up, and we all know the story. In any selling industry, if you don’t control what price the sales guys are selling it at, how can you get a margin? Just take that power back. It’s a huge job but you’ve got to start somewhere. Don’t let them sell it for £800. Just don’t give them the power to sign up on that basis.

JAMES HURST: But be prepared to live with the volume fall.

TOM RITCHIE: Maybe, maybe. We’re all skating around about why’s it happening? Everyone in this room who either has customers or themselves who are selling directly, the guys who know, they’ve made the call, they’re there for the evening, they’re a commission only guy, he doesn’t give a monkeys whether he’s getting his 15% on £1,000 or on £900. It matters very little to him, but that’s a hell of a lot to you because that £100 is your margin.

MICHAEL NAGLE: You’re promoting Profitmaker software very well! You shouldn’t take an order without looking at the contribution, end of story. But nobody does it.

SAM KENNEDY: Somebody made a comment to me the other night there that a lot of the people who were in the industry in the 1980s and the 1990s in the halcyon days, people who made a lot of good money in those days, who were probably consummate salesmen but very much direct salesmen, they’ve all moved on and what’s replaced them is people who are untrained. One of the other things I was going to try and bring up is the way that we get leads as well. The fact that legislation is acting against us with regard to telephone calling, Zenith used to make, what was it, 500,000 calls a week, a month?

NIGEL RICHMOND: A month.

SAM KENNEDY: Of course, that’s disappeared now. They were trained salesmen, weren’t they? Has that disappeared in the industry?

ALAN BURGESS: It’s not just the window industry. It’s throughout building products. If you look now at the big, what we call the blue chip companies, how many of them actually bring somebody in at grass roots level and actually train them and invest in them? They don’t. We as a company are as guilty as anybody. You look for somebody who’s got the requisite skills. But the level of experience is falling all the time. It’s not just windows. It’s everywhere you look.

NIGEL RICHMOND: I think, speaking from personal experience, we do an awful lot of training at manufacturing level, even in the processing level as well, but perhaps the area that’s come over today - and you cycle your mind that, yes, actually, maybe that is the area we don’t do - is sales training. That really is the area that’s probably the weakest of all of our training regimes.

ALAN BURGESS: It is.

MICHAEL NAGLE: And technical knowledge.

NIGEL RICHMOND: I can only speak from personal experience. I think we’re not bad on that, but certainly the sales, if you were to go across all the disciplines, that would be the one area where you probably spend least on your training.

GORONWY JONES: There’s sales training; there’s also the training on costing and pricing. Who does it? The profile company? Machinery company? Software company? It’s not clear. It often falls between the stools. Generally there are two ways of pricing windows: cost plus or some price list and some formula. Cost plus, we need to have the right costs.

DAVID RUZICKA: No, you need to have the right “plus”!

WOLFGANG GORNER: If you’ve got both, you’re flying.

GORONWY JONES: We have a German customer. He calculates labour costs for 50 different operations in his factory. Nobody in the UK comes remotely close to that. The UK is slightly better than China; it just does it in square meterage. But it’s totally haphazard and if it’s based on a price list it’s, “Take a competitor’s price list, knock 5% off”, or somebody is given a formula from somewhere and they implement it. They haven’t got a clue whether it makes sense. Then they have to adapt it for the fact that it has to handle one-off designs. I could give loads of examples of the random ways in which people price windows. I once found a manufacturer where if they made the windows slightly wider and higher it became 40% cheaper. Mark-up structures where you mark up design 10 by 150% but design 11 by 180% and you trace it back to something that happened 15 years ago. It would be helpful to actually try and decide who should fill that gap. Who should do that training on how to do costing and, having done your costing, how to do pricing?

ALAN BURGESS: This is a freebie for all of you: because it’s a special product that we manufacture, I won’t bore you with the detail, but the average guy who sells one of our windows is very unfamiliar with sash windows, “Oh, I haven’t sold one of those for a while”. He dreads the questions that are going to come to him because, “I can’t remember whether it’s got double glazing” or, “I don’t know the technical detail of it”, but we’re expecting a trade installer to be educated on our product. Every other day of the week he’s out selling his doors, casements, conservatories. Once a month or once every three months he’s trying to sell a sash window and the pitch would go, “Well, I brought you two windows. The one on the right is the Masterframe one with all those bells and whistles and the BBA ... and the one on the left is also a white shiny plastic window but it’s half the price”. I might be doing some people a disservice but that’s the level of the pitch and he’s hoping to God there aren’t any questions. Which one are you going to buy? “Well, if that’s all you’re communicating, I’ll have the one on the left because it’s half the price”.

The point we were making earlier about the presentation of quotations, we offer our trade customers what we call our twin pack. We already do a very nice, fully documented quotation pack to the installer. But that’s for his use to make sure the specifications are right. Because we’re already doing that, we give the opportunity, if somebody wants it, to have a twin pack which is a pack identical to the quotation, so it has all the pretty pictures, sizes, specifications, it’s a mirror image, it just doesn’t have any prices on it, coupled with a glossary of terms, and the glossary of terms are all the things I want to communicate: baffles, limit stops, tilt restrictor arms and the reason why they’re important, so that that person then can present that. They just have to say, covering letter, “You can have all of this for that price”. That way you are communicating to the end user your value proposition. You don’t get them all, but at least there’s then a conversation and as a spin-off, because we haven’t actually sent anyone away to a college to get trained, most of the reps go, “Oh, this is really good, I’m going to keep the first one to myself because now I know all the things that are different between these windows and somebody else’s windows”. I promise you it’s changed our conversion rates immensely because you’re getting your value across. I’m not saying you’re bypassing the installer, but you’re helping the installer become more confident and ask for more money so that they’re happy and we’re happy.

MIKE RIGBY, MRA: I think the solution you’ve followed is one that other industries faced with similar problems of lack of control have also implemented. Think back to the car industry, it was in absolutely terrible shape, not just the cars themselves but the way of selling. It was a complete shambles at the level of the dealer. One by one most of the car manufacturers took control of absolutely everything. They just worked on the assumption that if they left it to them their margins would be cut to shreds and their complaints levels would be sky high, which they were. They still have a lot of problems but they’ve closed it down by training, by systems, by software, you name it, they’ve closed it down and held on to the way the product is marketed as well.

I think training is part of the answer, control is another one, but actually the way the product has been marketed for a long, long time has been completely left to people’s devices and I think when you do that you get glass given away free. In the early days, of course, they were making good margins on the product so what the hell, “Here’s the come-on, and I’ll make the money anyway”. They did it with hardware, with shoot bolts, this was going to save the day with security, and plastic product given away. Now they’re giving away Activ. It’s going to repeat itself and I think one of the difficulties is it’s not easy. You have to go to considerable lengths - and Alan has talked about some of those lengths - to control how it’s sold and how it’s marketed. I think unless the industry actually reaches down, individually or collectively, things are going to repeat themselves because why would they change?

MICHAEL NAGLE: As I said, the simple answer is if every company had a proper costing system and every order that landed on their desk, before it went into the system they did a contribution report on it, and all you have to say is, “We’re making nothing, we’ve no profit on it”, what’s so difficult about that? Then the free offers and all those things don’t exist. Very few of the companies in the UK are doing that.

JAMES HURST: Because they can’t contemplate not having the number of frames, the turnover. Their turnover ledger, not profit ledger.

MICHAEL NAGLE: Yes, and that’s a fact. It’s an absolute fact. As big as your companies are, that’s a simple fact.

DAVID RUZICKA: I guarantee that the number of people that will come up to you, as manufacturers in our industry, and always ask you the question, “How many window frames are you making?” You go, “2,500”. They go, “That’s brilliant”. I go, “How do you know that’s brilliant? We might be making nothing. Why don’t you ask me how much profit I’m making?” In America what they do is they’ll ask you, “How much profit are you making? What is your bottom line?” It doesn’t matter how many you make, it’s what your bottom line is. But that is exactly, again, one of the symptoms of our industry, it is all related to volume. Again, I come back to saying this is being pushed by the systems companies to generate bigger volume.

I agree with Mike’s analogy of the car industry. The car industry did go through a period - and I agree it’s not out of it yet - but what it did realise is that, first of all, to sell your product you need the right person to sell it. If you want to be a BMW dealer you’d better come to the table with a decent budget, decent business plan, otherwise you’re not going to get it. You’re not going to sell BMWs out the back of some shed, out of some pokey drive. You’ve got to commit. In our industry, you don’t have to commit, you just have to turn up and basically make a few windows. They then started to take out the fact that there weren’t the big margins in there for the guy to actually give away any more. The other thing that they did is they stopped saturating an area with the same people selling the same product. Again, I come back to systems companies.

MARTIN ALTHORPE: How does your analogy work? In your analogy who is BMW? Is it the systems company or is it the fabricator?

DAVID RUZICKA: No, I see that as the systems company.

MARTIN ALTHORPE: Oh, I see that as the fabricator. I think the systems companies don’t make anything. They supply you with parts. You make the BMW.

DAVID RUZICKA: Yes, true.

MARTIN ALTHORPE: You make the BMW. The installers are the showrooms and the dealers. The sales guys are the installers. I think that’s where the problem is.

DAVID RUZICKA: You could be right.

MICHAEL NAGLE: Martin, you’re absolutely right because the order as it lands from the installer is not checked for contribution as it hits the production plant and it’s made. If you don’t make money before it lands, you can’t make money after the event.

ALAN BURGESS: But the other interesting thing on the analogy is the car plant, BMW, how many price rises do they have a year? Have you ever tried going back and saying, “Well, can I ...?” “No, no, that was before the price rise.” Every six months certainly, but two or three times a year you get a price increase. Okay, they might put some more goodies in it, the free glass, this, that and the other, but they are putting on more money.

WOLFGANG GORNER: It also works the other way because about a third of our business worldwide goes into automotive, and Ford will turn round and say, “If you want to keep that part, we want a 3% price reduction now” and you can’t argue about it. Well, if you do, you lose the business; it’s as simple as that.

MARTIN ALTHORPE: The thing as well when you’re talking about cars, Gareth was saying actually he’d like to run a sweep the next time we have one of those meetings about how long it takes for somebody to compare our industry to the car industry. We always end up talking about cars.

What we have to be conscious of is if we take the analogy of you’re the BMW and you’re the installers or the showrooms, we’re 20-odd people sat around here talking about what should happen. I think FENSA has 9,400 installers. We’d better start thinking about how we’re going to influence those guys because there’s an awful big volume of people there and if we’re not careful, we’re not talking about survival of the fittest, we’re talking about mass extinction and start again, like the timber industry because that’s actually what happened. So, it’s going to take more than 20 people sat around a table talking about it, a lot more.

TOM RITCHIE: Yes, but there’s no alternative.

MARTIN ALTHORPE: There isn’t. So how do we do it?

TOM RITCHIE: You were talking there about having cost plus. Tell me, just from those of you who are still involved, do they still take the deposit on the night?

MARTIN ALTHORPE: Yes.

TOM RITCHIE: They do? Well, that’s the second elephant in the room because when the sales guy comes in and he gives you this order that you don’t like the price of, he then gives you a cheque for £1,000, what do you do, send the cheque back?

MICHAEL NAGLE: You should send it back, yes.

TOM RITCHIE: That’s what you should do.

GORONWY JONES: Yes, that’s what we do.

TOM RITCHIE: That’s what people don’t do. I would suggest most people don’t do. The fact is your cost base, to get into the retail business, you should be talking about a mark-up of something like 100%.

MICHAEL NAGLE: It’s about 130% if you’re in the retail business.

TOM RITCHIE: Because you’re going to take 15% off the top of that for the commissions and so on. You have advertising, the cost of the lead. How many people are actually doing that costing?

MICHAEL NAGLE: Not only that, if your sales guys are operating like that, they should be on a commission based on the contribution, not on the sales price.

TOM RITCHIE: Yes, but that might get a bit unwieldy. You need something that works.

MICHAEL NAGLE: But you can do that.

TOM RITCHIE: If the price is higher it doesn’t really matter.

MICHAEL NAGLE: But you can do that.

GORONWY JONES: That can work as long as you have computers.

MICHAEL NAGLE: You can do that, but when you stop the orders where they’re undersold, that will be the big start. One of the difficulties in the industry over the years is that people had price books when they started off years ago in the early 1980s. They copied it from Anglian or they copied it from somebody else and they didn’t understand about costs and they got software to put in that just reproduced the price book. They didn’t want to know about cost plus, and when you told them about cost plus nobody had the bottle to stop it. That’s really what it is. So, if you turn around and make a decision from here, say somebody like Sash does, and you ran a contribution report on every single product that you produce tomorrow and had it on your desk first thing tomorrow and said, “Stop that, stop that, stop that” just because it’s coming out of your pocket now instead of somebody else’s, that would make a big difference.

DAVID RUZICKA: All our processes do before any window hits the factory.

MICHAEL NAGLE: Yes. That’s what’s needed.

DAVID RUZICKA: Sometimes I get our guys walking in and they’ll try and say a sales guy has done a deal on this particular product and it is below our levels so it gets stopped before we actually put it into production.

MICHAEL NAGLE: Yes, but there’s a difference there between what’s set as a level and a contribution report. What most guys don’t see is that contribution report which should be run instantly. You go into any company, they’ll all tell you about the discount off the price list. Who tells you about the margin on the cost? No one. It’s all over the same, Ireland, it’s everywhere the same.

MARTIN ALTHORPE: I think we’re all in agreement that the biggest single ingredient that we could bring to the industry is to bring more professionalism into it. The big question is how we do that.

MICHAEL NAGLE: Is it possible - I don’t know how FENSA work or somebody that’s a neutral body as opposed to Rehau or Spectus - that they have buildings that they could run courses in?

MARTIN ALTHORPE: FENSA do training seminars for the technicality of installation, don’t they, and compliance with regulations?

NIGEL RICHMOND: That’s purely building regulation compliance.

MARTIN ALTHORPE: Yes.

NIGEL RICHMOND: FENSA is authorised by government so it has a remit which it must stay within as well. It’s not a commercial body as such, but I guess somebody like the GGF or the BPF could do those as well. But I would suggest the take-up would be pretty low and has been pretty low when we have done these. The FENSA training, because it’s been mandatory and been backed by government, has been fantastic. Getting back to your legislation again, it’s a lot easier to do that when you’ve got a huge great stick to wield.

WOLFGANG GORNER: You have to ask yourself what’s in it for the installer. There’s no motivation for them.

MARTIN ALTHORPE: Yes, what’s in it for them? What’s the penalty of not going?

WOLFGANG GORNER: There isn’t.

MARTIN ALTHORPE: That’s your point. It’s just too easy.

NIGEL RICHMOND: I don’t know Dave’s business, but Sash, I presume you supply to a whole lot of these installer guys. So, in conjunction with your profile supplier, these guys would have to go and spend one day a month or one day as they came on board, go to recognised training where they could learn about new product, what you were talking about, bringing new product on to the market. It’s a totally different thing to send a leaflet to some company than have somebody go along and you’ve got 50 guys in a class and you send one of your guys and explain how this new product works. So, it’s a matter of getting the information on to the table.

MICHAEL NAGLE: A good example is when we put our stuff into a company, I say it’s critical that the MD sees the result. “It’s important, guys, when you put it in that he mustn’t look like an idiot when he goes down on the floor. He should be able to pick up anything and it should be so clear to him that the dates are wrong, this should have been delivered two days ago, and it should be absolutely idiot-proof.” That’s what you need in relation to training.

WOLFGANG GORNER: A possible way forward is if you were to get all the system companies in the UK to sign up to a scheme which could be administered by somebody like the British Plastics Federation but something that could be marketed to the end consumer. So it would mean something with accreditation. Charge a levy on the product, and that levy goes towards training of the customers.

MICHAEL NAGLE: You have an advantage in that at the moment because Sam said earlier there were 40 extruders and now there are only 14. So, it’s a more controllable problem, isn’t it?

WOLFGANG GORNER: It is, but if the industry does something together. As I said, we’re prepared and we’ve started now paying for some of our customers to go on to have sales training, as one example. There is a lot of other business advice that we can give, but it’s a drop in the ocean. All the hard work you do on one customer is ruined because you’ve got half a dozen idiots down the road who will go and do something different. It’s trying to find some way whereby the whole industry could pull together. I’m wondering whether the group needs to operate some form of central fund which is then used for training, which will be a long, drawn-out affair and will take several years to pull the industry. But if we don’t do something now, again, I repeat, all the good ideas that we bring to the table in terms of products and new markets, we might as well forget about it and just carry on selling metres of white plastic.

MARTIN ALTHORPE: The British Plastics Federation this year has carried out a number of seminars around the country about sustainability involving various people doing presentations aimed at specifiers, really, about educating specifiers. I think next year there’s going to be a question of what is the British Plastics Federation going to do next year? I definitely think that it should be aiming at installers and raising the competence level of installers. The British Plastics Federation Code for Survey and Installation is being transferred to the British Standard by BSI. That will be something that people can get accredited to and I think it’s a good idea, but there has to be some value for the installer in it. There has to be some badge, something that says, “Yes, I’m better than the man down the road because ...” The thing is that’s not going to be something that’s going to take a small contribution. It’s something that will take a very high contribution. The seminars this year have cost £50,000 all in. There have been five of them. The British Woodworking Federation “Wood. for good” scheme spends about £2 million to £3 million a year, something like that.

MIKE RIGBY: £3 million, and they have been doing it for about six years.

MARTIN ALTHORPE: That’s the level. That’s the scale.

MIKE RIGBY: A lot of money and they put a lot of thought into it and the timber industry had to get down to a very low level before they actually got their act together and came back.

MARTIN ALTHORPE: This is the thing. If we don’t get our act together we’ll get down to that low level.

MICHAEL NAGLE: What’s interesting about that is that it was the plastics industry that pushed the wooden industry down to that level. They have come back fighting and they’ve beaten you guys at your own game because of the retained intelligence that they had. Fundamentally what I said earlier, a guy has to serve five years of time to work in the wood industry. Here it’s two minutes. In fact, he can be a window company, go bust, have screwed you for £10,000, and you’ll set him up tomorrow and give him a loan of machinery and you’ll run an advertising budget for him!

MARTIN ALTHORPE: You could provide the software!

MICHAEL NAGLE: Yes. I thought they were all in Ireland but there’s a few over here as well!

MARTIN ALTHORPE: And you encourage them to do it.

MIKE RIGBY: Isn’t it the case, though, that Wolfgang’s idea is combined in some form so you have more momentum. Round the table we also have the rest of the window; we have glass and hardware. Michael has already reminded us that the number of systems companies is shrinking. So if the industry is actually going to fight its way out of this and really make a change, it really has to look at and take a lesson from the timber guys and say, “Right, we’re making a commitment for so many years, we are going to put in sensible money”, and then you have to look sensibly at the amount of money, who’s got it and how you can share it out. My feeling would be if you just dump it on the systems companies’ doorstep, then it’s going to end up with not enough firepower, it will be a token gesture.

WOLFGANG GORNER: I think it’s got to be all-encompassing in some form. I looked towards the warranty side because our experience is - and I’ll be interested to see how it is from the Spectus side - the end consumer sees our name on the window. If anything goes wrong they phone Rehau. They don’t phone the window company that’s put it in. I don’t know if it’s the same with you guys.

ALAN BURGESS: To an extent, yes.

WOLFGANG GORNER: Because, let’s be honest, anybody can go out there and buy a Rehau window and put it in, and the vast majority of the end consumers think that we underwrite, warranty, authorise - whatever you want to say - that practice. It’s awful when you’re in the position, as I’ve been in before, where you’re writing a letter to somebody to say, “I’m sorry, it’s not actually our responsibility because we don’t accredit who fits our windows”. But if the industry were to be able to say if you buy a window product, whether it is a standard casement, vertical slider, whatever, through a recognised route, you’ve got the system house standing behind it, you’ve got the glass company standing behind it, you’ve got the hardware company standing behind it, you’ve got the fabricator, and it’s a centrally administered, recognised warranty that can be marketed, that people can recognise the benefits. It immediately cuts out all the cowboys in the industry because they can’t offer this.

I go back to the point that the UK consumer is very sophisticated. If they recognise that there is something of value there, they’re immediately going to ask the question, “Well, is that the situation with FENSA? Is it FENSA approved?” You’re already creating that differentiation which doesn’t exist at the moment. If we could do that as an industry, in my opinion that would be the biggest fundamental change that you could do within the UK market.

ALAN BURGESS: We have taken that on board and we have made that commitment on two levels. We’re talking about education, and rather than sending somebody away to a college we are sponsoring all of our Bygone Preferred Installers to go on to an NVQ for installation because it sets them apart from the one who is going to fit it cheap. They feel locked into us, they feel much more valued, they’re much more knowledgeable and a more professional company. The point we made earlier today was that we have to change the image from being a double-glazing industry to being professional replacement window installation companies. That’s chalk and cheese; that’s huge. Our commitment to anybody buying a Bygone Preferred Installer window is, “If, for whatever reason, that installer lets you down, we’ll appoint somebody else. If they don’t do a good job for you, we will give you back your deposit”. We actually haven’t had the deposit ourselves, but I want that customer to be totally 100% confident that they’re not going to get shafted. They’re going to get looked after and for that they pay a premium. We’re not being clever and working out how many we’re going to do. It’s just a commitment. What would you do anyway? If you’re a decent company you would go and sort out that customer anyway. If you’re going to do it, why don’t you market the thing and make it an advantage?

This is partly the issue of pinking; we haven’t spoken about that this year. I don’t know what other people’s experiences have been, but it really, really miffs me when extruders will perhaps hide behind, “Well, we want to offer a coating service”. That’s actually not what the retail customer wants because the retail customer is seven years into their ten-year guarantee and they want a ten-year guarantee and you’ve only got a three-year warranty left. No. What they really want is the peace of mind that it’s never going to reoccur. “Will you give me a new ten-year guarantee?” and you’re not able to. Replace the windows and they think, “Wow”, and they go talk to somebody else. Maybe I’m in a very luxurious position of being able to charge better prices than casement guys, but it is this mentality. Unless each of us are going to step up to the mark and say, “Yes, that’s the right thing to do. It’s my own company, it’s my family business. I haven’t got VCs, I haven’t got other people, I haven’t got shareholders, so I’m in a very, very fortunate position”. But doing it right will carry you forward.

JAMES HURST: Alan is very lucky there and also very successful because he can control his market. What we have been talking about is controlling the uncontrollable. I agree with everything Wolfgang said and that is a good idea and we’d be very happy to put a levy on our products if that was the way to go. But he’s wrong in one respect because only 10% of the customers ring Rehau. The other 90% ring the hardware companies.

WOLFGANG GORNER: It just feels like it!

JAMES HURST: We’re the ones, “Your bloody door, your lock is rubbish” and so on, and I’m afraid nine times out of ten, isn’t it, Peter, we go there and we find there’s something wrong with the installation or whatever.

ALAN BURGESS: Excuse me, that’s because the installers are riding on your name. They’re not buying. The retail customer isn’t buying an ABC Window Company; they’re buying a Rehau product. They’re buying whatever door lock because nobody has branded themselves. It’s not even a Masterframe product, it’s a Bygone product. So, unless you get that branding, if it’s a Sash product, you’ve got to come back to Sash as the manufacturer.

JAMES HURST: That’s why we have to help everybody create a brand which says, “I’m a professional window replacement operative” or whatever, or not, and that’s it.

MARTIN ALTHORPE: What if it was Network VEKA because that’s the closest thing to what we’ve been talking about. What’s your experience with that?

DAVID RUZICKA: It’s very, very similar. Network, for those of you who don’t know, has been going now ten years, I think, since we first started off. I’m a director of Network VEKA, by the way. It was in a room very similar to this with a bunch of guys who all had different ideas but collectively were annoyed with always competing with a similar sort of product but with inferior companies undercutting them on price.

The problem with any organisation - and I have to be careful what I say about Network - is you need to be totally independent. That independence is sometimes difficult to attain when it’s funded by a systems company. If you lay a set of rules down you have to implement those rules, and if somebody breaks them you have to be strong enough, no matter how big that company is, to turn round and say, “We’re going to lose volume on the extrusion and somebody’s going to lose volume on hardware” and you’ve got to be strong to implement them.

So, for me, Network is probably the nearest thing to what you guys are actually talking about. It does work. There’s training. We inspect installations randomly to make sure. We do kick people out. But my argument is we don’t make enough song and dance about the ones that we kick out, so nobody ever sees them going. So, people go, “Okay, I know you tell us that you kick people out, but I haven’t seen anything”. I say it should be in the press, he’s out and that’s it. But you’ve got to be strong. You’ve got to have dedicated people and it’s got to be run independently.

Because some of the directors are from manufacturing, some are from the retail, some are from the extrusion company, you have to turn up at that meeting with your Network VEKA hat on and not your own company hat on because there are different things that you discuss there that probably your company doesn’t actually like. But Network does work. It gives that guarantee to the consumer if anything goes wrong. If that guy isn’t there for whatever reason - even if he retires, he doesn’t have to go bust - that’s the unique thing with Network, if the guy decides he wants to start doing kitchens instead of windows, there’s somebody there to pick the warranty problem up.

The hardware people then came to the table probably five years ago and we started to talk about a real ten-year product warranty, not, “Yes, it is but that bit’s not covered”, because I said, “I don’t want that. What I want is if I buy that from you and you tell me it’s covered for ten years, I want it covered for ten years”. So, I have to say that the hardware people stepped up to it and said, “Fine”. Then we started getting issues where if it is a hardware problem what happens then? Do you go and fix it at your cost when it’s not your fault? Then Network got them to eventually agree that there would be a fee paid and there’s a maintenance thing in there. It does do a lot of good things and that’s, as I say, similar to what you guys are talking about here.

ALAN BURGESS: Is that the future of the industry? Is the Network VEKA model the future for the industry?

MICHAEL NAGLE: Can I suggest an alternative to you now, going back 10 or 15 years ago? In 1980 I introduced into Ireland a maintenance agreement and shelved the ten-year guarantee and said the ten-year guarantee crucified this industry because of what went on. In that maintenance agreement the guy paid an annual charge for somebody to come out and visit the house and was all hooked to the software, but everything was fixed free. So, in that visit that cost £30 or £40 or whatever it was at the time, they had the handles, they had the gear, they replaced everything and they did it on an annual basis. So, over ten years it would have cost maybe £300. It was a small cost and I tried to get the whole industry in Ireland to do it and the only company I could get to do it was Fairco in the north. But the software did automatic billing, everything else, and there was a huge uptake.

DAVID RUZICKA: Again, that’s something that Network does. We actually mail the consumer as Network. We offer a maintenance yearly check-up on their product. We actually mail the consumer after the installer has been and installed, and we do an independent questionnaire which comes back to Network. It’s then formulated and it’s then sent out as a score chart to the installer and it tells him how he’s ranked. Every year we hold the awards for the company that’s achieved the highest overall ratings throughout the year. They actually use that as a sales tool because, “Look, this is independently assessed. This is my score of ...” “Did the salesman do what he was asked to do? Did the installers do it? Did they tidy up?” and what have you. They can show that and say, “That’s not me saying my company is good. This is Network as an independent organisation”. So maybe it is something that we should look at.

MICHAEL NAGLE: The beauty about the maintenance agreement was anybody could pick it up. You could pick it up. It was a controlled cost. You had the information of the job. It was standard all across the whole system. It wasn’t expensive, but it stopped the lie, because the ten-year guarantee was another lie in this industry. Absolutely, there’s no doubt, it still is.

SAM KENNEDY: You mentioned, Alan, is that the route? You’ve got, shall we say, a slightly similar system as well with the Bygone installers. They’re independent, aren’t they?

ALAN BURGESS: Yes.

SAM KENNEDY: They’re independent but you do all the training for them?

ALAN BURGESS: Yes. Make no bones about it, we’ve copied the Network VEKA system as far as we can. We only have 50 installers. You have significantly more than that. You have a bigger budget than we have. Ultimately, selfishly, we can’t control the trade. They’re fickle. Maybe they’ll buy from me; maybe they’ll buy from somebody else. The only way that we can have good repeat business that your fax goes and there’s another casement order, the only way we can get the security is by tying in a network of organisations. By that, we have held seminars at Cranfield two or three times a year, sales training, professional bodies, we’ve had GGF, we’ve had Secured by Design people down. We want to train them because my future, my livelihood, depends on how well they can sell my product. From there, the whole installation competency has developed and what would you do in a warranty. There’s my brochure there and at the back of it, it says, “If anything goes wrong it’s down to me”. Yes, we have also kicked people off. We don’t make a big song and dance of it, but there are formal contracts. I do genuinely, passionately believe it is the way forward for reputable replacement window installers.

RICHARD SCHWARZ: So is Network VEKA working for Sash?

DAVID RUZICKA: Sorry, I don’t get that one, Richard.

RICHARD SCHWARZ: Well, I mean you’ve been very downbeat about the business.

DAVID RUZICKA: No. When I get downbeat and annoyed about certain things, it’s sectors of our industry. Just so that you understand, we have our trade side to our industry, we have our commercial side, we have our new build side, we have our timber kit side, we have fencing and decking. We have lots of divisions. It's the main core. My Network VEKA people don’t screw me like the non-Network VEKA people do. Because to people that are not in Network I only give a five-year product warranty; to people that are in Network I give a ten-year product warranty. There are lots of sales things, sales training courses that we run and what have you, that the other people that don’t want to join don’t get to. Now, the other people will say, “I’ll join if you give me it” and I say, “Why should I give you it? It’s a benefit. You're going to get more business from it. Why should I give you that?” So, of our trade customers, probably about 40% of them will be Network people and the other 60% at this moment in time don’t see the benefit of joining.

Market Structure: Consolidation, Exits and Implications

Hi everyone, just a quick note from the moderator here: the trouble with long posts such as these is that the 'Comments' link is a long way down (ie at the bottom) - but there again, the idea is that you read it all before you comment anyway! If you want to jump straight in to comment, this will take you straight to the comments page, but you still have to scroll down to the bottom for the comment box (but newest comments get displayed on top!):

[Comments]

SAM KENNEDY, SPECTUS WINDOW SYSTEMS: Welcome back. We touched on market structure very briefly before the break. One of the elements of the next session is consolidation itself. If you look at it from purely an extrusion point of view going back into the mid-1990s there were about 40 different extrusion systems in the UK. That has come down to about 14 at the moment, Mike?

MIKE RIGBY, MRA: Something like that.

SAM KENNEDY: We feel that that would, in fact, consolidate into about eight. Now, that is just on the extrusion side. If we take the machinery side we have quite a significant consolidation on that side as well, and on to hardware and even software as well, Goronwy, because I can remember you back in the 1980s and you were probably the only software company out there.

GORONWY JONES, WINDOWMAKER: We never had it so easy!

[Comment on this?]

SAM KENNEDY: Suddenly we have got this consolidation. The question we ask ourselves is, is that just standard practice or is it just a factor in the industry that we are in and what effect does it have on us looking at the future, certainly from an investment point of view? Would anyone like to open on that one?

MIKE RIGBY: I think people tend to have in mind that consolidation does not happen, does not happen, and then happens very quickly and then it is over and you get on to new life. If I go back to the paint industry where I spent quite some time, I joined what was known as a mature industry and there were a handful of players there. That was consolidated. But it is actually still consolidating, so consolidation can take decades and decades and you can end up with two or three players and they can corner the market.

So I think people are imagining, when I listen into some conversations, that it happens relatively quickly with quite a bit of blood on the floor sometimes, then it is over and you’re into a new world. But, this new world we may be entering could last quite a long time, so we need to know how we can behave and run sustainable businesses in an industry which is consolidated.

NIGEL RICHMOND, FENSA & BOWATER BUILDING PRODUCTS: It’s interesting you mentioned earlier that there were no PLCs around this room. Well, they were virtually all PLCs a few years ago and most of them were PLCs who were conglomerates; who decided to become specialists and they didn’t specialise in building products so a lot of them sold off the building products. So that brought into the industry not just at the extrusions level but often at the fabricator levels a lot of venture capitalists. The first thing a venture capitalist asks when it buys a business is when can it sell it. A venture capitalist can sell to other venture capitalists but they don’t always do that. Eventually it’s going to come to a consolidation and the venture capitalist is going to sell to another trade buyer, which inevitably is going to lead to consolidation.

There are economies of scale through lots of consolidations, and even when you look at some of the businesses on the continent, some of the UK businesses are still quite small compared to some of the continental businesses. So I think it is inevitable, partly through the ownership structure, partly through the economies of scale and partly from a mature market, that consolidation both in fabrication and extrusion systems will continue.

[Comment on this?]

SAM KENNEDY: Alex, you talked quite a bit about windows and I know that you’ve briefly been talking about the machinery side during the break. That is quite a phenomenal consolidation as well. If you look at what the packages were back in the halcyon years and what we are now, how does that affect you?

ALEX MAIN, PROMAC: It has a significant effect on our business. Probably about three or four years ago the number of orders we were taking was significant. They have decreased now but the order value has increased because of the consolidation that is starting to affect the business. I’ve detected a little bit of doom and gloom around the table earlier, but there are some players in the market have made major investment in automated equipment, pretty much from a flying start, that are making head roads into it, but a good contribution to profits and they are coming back to us for the bigger orders.

I touched on it earlier. As a company - and I am sure that other people in the industry - we believe that there is going to be a fallout which will help us focus on the bigger customers and bring them into a more professional arena, but they are not at the moment. Like I said before, virtually everyone around this table, from a fabrication point of view, is where they can be. There is probably a little bit more that we can go to, but there is that middle ground that have got a big decision to make: do we stay in it or do we come out and look at these guys, who then have to make the second or third level of investment, which is obviously hopefully going to involve ourselves. I feel that is where the machinery market is going. We are being hit by the Far East. We are over there now; we are doing our own thing over there. It is at an early stage, but we see that as being a further threat certainly to our side of the business.

GORONWY JONES: Every industry consolidates and it is just natural that this one does, but I think it can take very many forms. Just this week we have been working with Martin on a customer in Ireland where six or seven smallish fabricators came together, stopped fabricating, made one joint company which fabricates for all of them, and they all resorted to selling. So, consolidation isn’t just big company buying smaller company.

Ourselves, we are also involved in the Far East. We have just done a partnership with a Chinese software house, a subsidiary of a machinery company, who have already sold 2,000 copies of their own software where they were roughly trying to copy our product but they are now agreeing to sell our product at the high end because they cannot have that level of functionality. Is that consolidation? Sort of, but it takes many forms.

[Comment on this?]

SAM KENNEDY: Your side, Phil, again on the machinery side, does it follow very much the same as ours?

PHIL HEAVEY, ELUMATEC: Yes, very much. We see that the business has changed from the small start-up packages, late 1970s/early 1980s, and now the main investment in machinery is CNC, automated lines, and that is how we would see it in the future, definitely. The more consolidation that happens, the bigger the companies, the more automated lines we hope that they need.

DAVID RUZICKA, SASH UK: Do you think that machinery is there to increase profit or to manufacture cheaper?

ALEX MAIN: I think it is becoming a combination of both. I think now, you know yourself, you’ve got the machines that you can see will improve efficiencies, reduce the wastage, etc. It is a fact where the levels are. We might disagree on what the percentage is, but it is a fact that that will improve your business and to a lot of people it will enable them to sell cheaper, but is that necessarily the right thing?

DAVID RUZICKA: I agree.

ALEX MAIN: You should be making more margin on what you are making more efficiently.

DAVID RUZICKA: I think everybody around the table would like to make more margin, but unfortunately there is always somebody around the corner, whether it’s another systems company that will come in or whether it is another fabricator that is going to come in, that will undercut you.

ALEX MAIN: But I strongly believe that within the next 12 to 18 months a lot of that will be gone, if you can hang around.

DAVID RUZICKA: That is the key because it’s not just that middle ground, is it? There are some large fabricators out there that are struggling. I’ll be honest. As I say, we had a bad year last year, and if we had not been a pretty strong company I don’t know what we would have done. I talk to a lot of fabricators around there and I was having a conversation just outside and I will bet you now, 50% of all fabricators, if you offered them a deal to exit today, would bite your hand off. That is just another nail in our coffin as an industry.

I am proud of what I do. I am proud of what I have built up over 20-odd years, but the problem is our industry wants out and there are major reasons why these people that have been in, invested heavily, seen the good times, there are many, many reasons now that they want out. We should be looking at those reasons that they want out and try to make it an industry that people do want to get into and can make money from.

ALEX MAIN: Do you think the amount of PVC windows that need to be manufactured over a period of time would equate to the 50% drop? If you say 50% dropped out tomorrow, there’s 50% more windows to be made by everyone else, isn’t there?

DAVID RUZICKA: Well, there is, but again it is not people sat around this table, but I know there are systems companies out there that are saying, “Okay, when these big guys drop off, leaving us with a massive, massive debt as well, what we will do is because we cannot sustain another big debt like that, we will go and set these guys on that can just manufacture 40 windows a week”, and it is just perpetuating itself all the time. So, yes, some of the big guys drop out, but then we are bringing them in right down at the bottom end and unfortunately they do more harm to our industry than they do good. It is an easy sell to say to a guy, “Well, I tell you what, get yourself a little unit down the road and start manufacturing”. It is just short term; it is suicide. I was saying that if you tried to do this (debate) ten years ago, get these people sat around this table ten years ago, no chance.

The reason that everybody is sat around here is we know we are coming to the end of that road. This is not doom and gloom; this is fact. That is why people are sat around here. I take my hat off to the guys at the top there for organising this. I think it has been a long time coming. I just hope now that we do something from this because talk is cheap; walking the talk is a different thing altogether. I know we are going to go on from here and do more of these meetings and hopefully I will get invited back. I just hope we can do something from it.

So, I don’t want people to think I am just here as a messenger of death; I am not. I am a realistic business person and I know we have got to do things. I want to work with the likes of Ultraframe, Spectus and the VEKAs, the machinery people out there. I want to invest. I am a businessman. But in all honesty, if I am talking to shareholders today and I say to them, “I want another £5 million to invest in a new facility and put some kit in” they are going to look at me as though I am stupid, seriously. These are guys who’ve been in the industry for a long, long time, so I honestly don’t know where we go, but I think probably today is maybe a start.

[Comment on this?]

SAM KENNEDY: We will be touching on conservatories later but, Mike, do you share those views with regard to consolidation in your particular market sector?

MIKE JACKSON, THE BURNDEN GROUP: If we look at conservatories - which is all I can talk about really, rather than windows - I think we all have to accept that there is no generic growth within the market. I don’t know if Mike has done a report this year, but I cannot see it (growth) and I don’t know if anybody would disagree with me, but it has come to a stage where business is very tough. For us to be able to compete in the future we are going to have to consolidate as a business, and I think the industry is going to have to consolidate as well. I also feel that what we sell is too cheap. That is our fault; it is everybody’s fault, really. We have driven the prices down and they cannot go any lower. We have to look at prices and look at value-added within our product offering.

As a business, I feel that we have all the components to go forward, and I still think it is a large business. I don’t think it is the end of the road by any means, and I think there is a bright future, but I think we all have to look at what we do, and diversity, I think, is key to what we are doing. When I joined Burnden nearly three years ago all they did was extrude product. We cannot do that any more. You just cannot survive by extruding product; you have to look at all routes to market, all avenues. You have to think fairly laterally these days and what we need is more thought about product offerings and routes to market.

SAM KENNEDY: Alan, again you at a very early stage took the decision to go down the route of a niche market, and very successfully, but of course when you are successful at a product people tend to copy it or emulate it. We are talking about consolidation, but consolidation and differentiation are probably alike in themselves?

ALAN BURGESS, MASTERFRAME: I have no problem with competition, bring it on. The one thing that specialisation does is it makes you really, really good at one product and you have got to put the investment in because otherwise you are just nobody. Because when you make sausages you have got to make really good sausages because there is nothing else on the plate.

I think the issue for me is more of the question of consolidation. Is it a good thing to have fabricators being owned by extrusion companies and the installers that are going to be captive? Where dealerships kind of came and went, where is the place for the independent? Is the future going to be independent, professional replacement window installers, independent, professional fabricating units and independent extruders, or is the future going to be an extruder that has also the VCs driving the return and must have this return on capital? Any ethics go out of the window and they just turn around and go, “We need to go straight to the installation”. So, suddenly you have got that vertical integration. Where does that leave the independent?

[Comment on this?]

SAM KENNEDY: It is an interesting point actually because if you imagine how the industry started on direct sell, the Zeniths and the Anglians, etc, we have always tended as an industry on manufacturing to keep our distance between extrusion, machinery, all the way through to fabrication, independent fabricators. Is it the time now to look at some sort of consolidation on a vertical basis? Is that something that appeals to anybody in the room?

TOM RITCHIE, CGI: It’s a risk. If you look at the sort of models in the glass industry, which we are very near to, there is a process with glass and I can really associate myself with the fabricators and as an independent fabricator. I think one of the risks that you have in consolidation of the provider of the raw material - float in our case or raw glass - is that there is a risk if there are too few of them. You have always got to have the competitive edge there and there have been times in the last year - and I have to be careful now about the recorded minutes - when for some people in this industry, especially the independents, things have got very difficult where raw glass price increases across the world. I am not pointing at Ron here, who is a good friend of mine, but raw glass prices have been going up with no reflected ability for that to be passed on to the market.

If you take one step on from that, if these raw material makers are also integrated and they are selling to their own companies and to the independents, there is a potential there to do a lot of damage by favouring the integrated route. So, it is something to be considered. I don’t know if 14 extruders is too many or too few, but I don’t think you want to get in a situation where there is two or three. To some extent you have got to balance the economies of scale with the potential problems that that can give you for especially the independent processors in the marketplace, especially if you get into a situation of supply shortage.

RON HAMILTON, PILKINGTON: I think I should comment on that, from a company that has just been consolidated! Pilkington has been taken over by a Japanese company which I guess to Pilkington would have been unheard of. Tom talked about the investment that is required within the industry to stay at the leading edge and we know it is a capital-intensive industry.

We know that all our raw material suppliers’ prices are escalating for all the reasons. The industry went through a very interesting phase, probably in the 1990s. What they did was screwed down all the suppliers, really took them down, and you had to do it to survive. So the issue of survival is absolutely at the forefront here and it’s a common theme for all of us because there seems to be a perception that big organisations, it is easy. Actually, when you’re elected by shareholders and you’ve got a chief executive that needs to deliver every few months, it is not easy at all. So, the same challenges are there in the large organisation as there are in the small; maybe a bit more weight.

So, what happened is the raw material prices were driven down and it was really hard negotiation. We had extensive suppliers into the automotive industry, extensive consolidation has taken place there, and we used their models. But in the end your suppliers say to you, “Well, I need to reinvest now so you have a choice. You either buy from me at this price and have open book. There’s my books. There is the customer investment. There is the return. These are our working practices. Either invest in this or I don’t supply you because we’ll go out of business”. We have had several of our suppliers decide to walk away from us.

Now, this is to our industry, but believe me it’s a common theme across the piece. So the industry has to do things. What does it do? It started with the raw materials cost because it’s obviously energy intensive there, and then we get the energy surcharge lumped into the cost of the materials that are used to fire the furnaces. Do we say, “Oh, you do not survive, you go under”? No, I guarantee you everybody in this room actually wants glass in their window because it is quite fundamental, isn’t it? We can talk about the properties that you can have within the glass, but you need glass. We need to survive. To survive there is a level of profitability that is acceptable to the organisation.

So, yes, price rises have in the recent past been pushed through. But without that there won’t be any investment in research and development to actually enable the new products to come. In the 1990s or 1980s who would have thought that you could have a glass that would help to clean itself? It was something that had value that you can sell. Who would have thought about the noise properties that we can actually build into window frames? The benefits in terms of solar gain and heat loss from buildings, and a whole new generation of products which are associated with photovoltaic cells. We talk about installations; in Europe there are kilometres of solar cells being installed in a square area, a whole new field for glass. So, I actually don’t make any excuse at all for what the glass manufacturers have done from my own company’s point of view.

The challenge for the industry, I believe, is to learn how to pass on the opportunities rather than just soaking it up and thinking you will survive without understanding your own costs. We talk about the ability to leave the industry and then start again, which is a real issue down at the ground floor, the legislation that allows that to take place, but until we understand the value of our products, which are wonderful, the value to the consumer, which is absolutely massive, and also the value to the government because we talk about sustainability and actually, if you converted our window stock into category A windows, there is something like 15 billion tonnes or million tonnes of carbon we could actually take out for UK PLC, which again stops energy being generated.

So, there needs to be maturity about how we handle it, without sounding like being patronising, because people in this room actually run very successful businesses. But there needs to be recognition that you do it for a benefit and sustainability is all about in here and planning for the next 10, 15, 25 or 50 years.

[Comment on this?]

SAM KENNEDY: Michael, as you said, you have been in the industry 37 years?

MICHAEL NAGLE, PROFITMAKER: If you listen to what everybody is saying here, where? Why are your companies successful and you are screwing down the prices? You think about what you said. You’ve invested in intelligence, research, development, bringing new products; that is fundamentally what you’ve done. You’ve taken all the waste out of it; you’ve forced your suppliers to take the waste; they’ve come back to you now that you’re open book. So you are now what I call a classic business model: you are now ready to run for the next 20 to 30 years. It is soundly based, it is based on good intelligence; I don’t think our industry can say the same about itself.

RON HAMILTON: Just to add to that in terms of our training - and again it sounds like I am trumpet blowing - our apprentice won the apprentice of the year this current year. So embedded within that is training the people to understand the realities of life. I would imagine that there could have been scenarios where people would be apologetic about the price. It is actually not the price; it is the value that you provide to your customer. That is incidental.

MICHAEL NAGLE: I think that is essential. If out of this meeting could come today - and the future meetings - that the industry would put more money into education within its system, whether it was supported by the extruders, just for example, say there was notionally a college you could send guys to, I am sure there is not one window company in the UK that wouldn’t send guys off for a week’s training. Not one. I guarantee it. They’d go, whatever the cost, and that would start changing this industry fundamentally, and that is the kind of step you need to take, I believe, but it is a big brave step to take.

SAM KENNEDY: Just on software itself, over the years - and the industry started off with very small manufacturers - has there been an exit of these small people and do the software companies still support the fact that if somebody is going to set up to do 40 or 50 frames a week you will still have some software program to help?

MICHAEL NAGLE: What has happened there is originally when we started building software for the systems in the early 1980s, Goronwy’s company was the only other one in the UK. We were doing it independently in Ireland. You were selling guys systems. It was all based about knowledge and intelligence. That industry has moved now in the last 10 or 15 years to profile suppliers, giving a disc, into the guy’s computer and that is what software is all about. No retained intelligence. All that it did was the breakdowns and quoting sizes. You were dealing with people then when you went to the company, if they were poorly educated, they were just pressing buttons. Everywhere you turn in the industry I think that is what you’re missing. It is the key element that is missing.

GORONWY JONES: I have got details of over 300 software companies that have targeted this industry over the years I have been active, which is 30 now, and a lot of those have gone and a lot of it is we, like everybody else, have had to make commodities off our low-end solutions. There is always the pressure for those low-end solutions to do more. So, yes, you have a start-up fabricator and he gets cutting sizes and glass sizes and then you get into costings. Oh, but we can’t do costings because we don’t know his labour times. Oh, but he wants costings. So, okay, we give him costings but he doesn’t actually get the consultancy to do it properly.

So, what is happening is, yes, there is still some activity at that end, but the price point is such that you are not giving the degree of handholding that used to be given and, for example, those companies will not probably be costing their labour properly, and maybe that is why they will price so low.

I think on the earlier topic about vertical integration and so on, I think there will be less supplier loyalty in the future and I think software will be a reason for it. We have just introduced into Windowmaker the facility for customers to store multiple sealed unit price lists. It is not our idea, but the customer is asking for it. Clearly, they can then take a contract and they can, say, price it on this supplier or that supplier or that supplier, compare the lead times and go for the cheapest or the fastest, whatever, they have more information. Yes, sadly that will put more pressure on the suppliers, but it will probably also give opportunities for the suppliers who can be innovative enough to price accordingly. You try and book a British Airways flight now and you wait an hour and the price goes up. Well, maybe the same will start happening with window prices.

[Comment on this?]

SAM KENNEDY: An interesting concept.

DAVID RUZICKA: I look forward to that!

SAM KENNEDY: The industry itself, going back to a comment you made as well about the people selling it in the end had no trading, and Michael’s raised training as part of the intelligence process in trying to sell these products, but are we fooling ourselves in the fact that this industry has always been a custom industry, hasn’t it? Every window you produce has really just been custom manufactured to fit a particular window orifice. Therefore, will we always have the 40-50 frame a week manufacturer because it is so simple and it pays the food bills, etc, but they have no real idea or no real investment plans for the future?

DAVID RUZICKA: I think that is a question we should ask you.

GORONWY JONES: If I take my previous bit about software comparing, software will also compare make or buy decisions, and I think in that situation logically it is always going to come up with by being cheaper for that size of organisation. So personally I don’t see a future for the 40-50 frame a week type of case.

NIGEL RICHMOND: There are lifestyle businesses out there. There are people who are content. That is their lifestyle. Their son works in the business; when they retire their son will take it over or whatever. There are probably hundreds of those people still in existence and they will continue.

DAVID RUZICKA: We said this last year. I’ve probably talked to people doing 250 windows a week who actually are saying that they find it difficult to compete at 250 windows. I think when you get down to the smaller number it is more of a cottage sort of business. Maybe he is going to specialise in certain products that the large manufacturer doesn’t want to do at the end of the day. So, you will always get those. I don’t mind the small guys being about because we all start off somewhere. We don’t all start at the top end.

What I do have a problem with is that we need to have a structure pricing-wise that is sensible for all the industry, and that is how it has got to be. Unfortunately today it is not. We are trying to find some new markets and new builds in various areas, and you are coming across the same situations that we have with our trade people because we are selling a basic window, is that it all comes down to the bottom line. The new build people, you talk to them, you try to add value in there, “Wouldn’t you like this style of window, the interesting colours, whatever?” and the guy says, “No, what I want is something that is just fit for purpose”. That’s all; it just has to do the job. Until we set those standards higher or legislation sets those standards higher, they will not move the bar at this moment in time. So, I don’t know.

ALAN BURGESS: I was just going to say, I think if everybody is stuck on price and nobody is going to move on price, we are going to maintain equilibrium. You can’t think we are going to have anything different if you all stay by what you do, and I really do challenge the question on price. The conversation we have with our installers is trying to get them to understand. We all want to buy cheaper. There is one part of you, the accountant’s part of you, that says if you can buy that a little bit cheaper then you are going to make more margin, great. But it is all about the price that you are getting.

The point that we try and communicate with our installers is if you cut your prices by 5% in order to get a deal, most businesses have got to get 33% more business to make the same amount of cash. If you put your prices up by 5% you can lose 25% of your custom and still make the same amount of money. Now, as business people out here we can go, “Well, you might have the numbers wrong. Let me just work that out”. Go back, work it out, it works. But that message doesn’t seem to get across to the installers because somebody has got a special offer, we will shift it over there, and if it just stays on price I don’t think it is a very rosy future.

DAVID RUZICKA: I totally agree. I have always said, and I am sure you are all the same, we really want to have partners, suppliers, whatever you call them, I want whoever supplies me to make profit because he is going to stay in business and he is going to invest and we are going to have a good relationship. I want to make a profit to do exactly the same. I expect the guy that I sell to to make profit. I don’t want him working for nothing because if he is working for nothing he is going to go bust. We have all got to do it, but it comes back to what someone earlier: we have got to train these people. We have the white van man turn up in one shape or form talking to you about some machinery. Grahame’s comment last night about in our industry it is almost a badge of honour to go bust. We go, “He went bust for 2 million. He was supplying us, but I’ll supply in cash”, but does that get rid of the problem? No, it does not. You not giving him any credit doesn’t actually stop the guy from going out there and doing exactly the same again. Systems companies are exactly the same. I had two guys went bust on me last year. I tried to set a deal up, and it was Grahame again saying because you’re not making money you try and work through debt, whereas if you’d been making profit before you’d go, “Phew, that hurt, but let’s move on”. What you try and do now is you try and talk to these crooks, don’t you, and go, “Look, any chance that if I keep supplying you, you will pay me a little bit back?” You are almost begging for your money, aren’t you? This guy has had it off. We look at these people and the systems companies still supply them, conservatory companies still supply them, machinery people, software people, we all do it. You’ll be sat around this table going, “What’s the problem”. That is our problem.

[Comment on this?]

MICHAEL NAGLE: Ease of entry. What other industry could you do it in?

DAVID RUZICKA: That is what I am saying. But we are all sat here --

MICHAEL NAGLE: Stick your hand in their pocket again and have another go.

DAVID RUZICKA: Well, what I was saying to you is these two guys took me for a large amount of money, two different companies. I tried to set the deal up with them to sort of work their way through. It was never going to work; I got a bad feel for it. They actually went back to XXX and XXX recommended two other fabricators to supply them. When I went back and said, “Guys, what are you doing?” They said, “Well, you know, he’s been around the industry for a lot of years. Maybe he’s just had a bad time”. I said, “He’s having a bad time? I can tell you how bad it is for me”.

So, it is at all levels. I take your comment earlier about getting the consumer to understand what we are selling as a product, but unless we do it right from top extrusion level down, “I want you to make money, I want me to make money, and I want the installer to make money”, and somehow we have got to get that rhythm in there that people are making money. Make money, we invest. Without money ... I remember some years ago that extrusion companies had R&D departments which were quite well staffed. I bet there are not many of them nowadays - well, with the exception - and that is just another problem that we have as an industry.

MIKE RIGBY: But I think some of these problems are addressed because it is a point in time in the development. A good deal of the problems are to do with the structure at this point in time. If you look at different levels within the industry, you might look at the level of PVC raw material suppliers and say maybe there are too few of them. If you look at system companies, maybe there are still too many of them. When you come down to fabricators you have got to look at different levels because I do agree that at the bottom end I can’t see those guys going away because there is a pride in, “I make windows. I might not make many windows, but I make windows. I might not make a lot of money at it, but that is me”.

I think if you look at the systems companies, I see the same thing. I see an urgent need to invest in a lot of product. We were having an interesting conversation out there about some of the things that prompt me to buy a new car. You look at all the things, this is built in, that is built in, you can lock it from a distance, unlock it from a distance, boot flips up, all the rest of it. It does everything, absolutely everything, sound, vision, you name it, it does it, and it is safe. If you go back 20 years, you had cars which were absolutely clapped out, breaking down, they couldn’t even do the basics. They certainly didn’t have much in the way of add-ons, but consistently over that time the (auto) industry has been investing in development to make people say, “Blimey, I want that. I am going to shell out for that. How do I pay for it?” “Fine, sign here.” People want it and they want to refresh it and so on.

If you look at windows a part of it is the structural stuff, window energy ratings and so on. Part of it is, “Blimey, I would love that. I would like that.” There are actually things around which might make people think about it, but they are not available in windows at the moment; you are not selling them.

So, when I look at structure I could see a need for more, whether it is through consolidation, through mergers, acquisitions or something, or whether it is a combination, whether it is a common standard for new things or something like that. Not ones that are forced upon us, but to make people want it. So, that is one thing you might like to comment on.

People are talking about mega fabricators. Are we going to see lots of 10,000 a week? I don’t know whether that makes sense or not.

[Comment on this?]

SAM KENNEDY: It is interesting as well, I was going to throw this one back to Michael again, because two of the big mega fabricators are in Ireland. Is there a reason for that, why it should start over there, a different way of approaching the market?

MICHAEL NAGLE: One of them is a £1 unlimited company. You can’t really find out anything about them, but they were located on the borders of a certain county. It was a Gaelic speaking area where they spoke only Irish. They got a bit of machinery incentive investment originally. They have gone all the way back. They own the forest in Africa, right up, they extrude, they do everything. You can’t really find anything about them, but their whole model was built on price. Also where they scored heavily was whether the guy wanted PVC, hardwood, softwood, it didn’t matter, the guy was there to take the order. There was no issue relative to the material type, so that is why they are successful in that sense. Now, whether their quality is good I am not going to comment on, but if you look at this market here, going back to the structure of it, you keep mentioning, David, there about the price. You don’t have that conversation in relation to wood windows. Wood windows have been pitched into the market at a much higher price. Those window companies don’t go bust the way they do. They can’t go back to the timber suppliers and do the same things that you see going on in PVC.

So, the PVC industry has a peculiarity, a structural flaw in it, because it was built to extrude and then all the segments are in place, again going back to what we were saying about poorly educated. The only way you can change that, if the answer is to get the price up, somehow or another you have got to go away from here and pretend that your PVC window is a wooden window and then your price will jump up, and that is your problem.

ALAN BURGESS: Can I wholeheartedly support that because I think part of the issue is the language that we use. We call ourselves fabricators. It has been used a dozen times this morning already. Can I just ask a question? Who else fabricates things? The only people I can think of are thieves because they fabricate the evidence. They fabricate something; it suggests it is artificial. Something which is fabricated is not the real thing. We do not fabricate anything. We manufacture and, like you, David, I am very proud of the company. We are manufacturers of the finest sash window that there is in the UK. It is because of the perception out there in the general public that somehow a plastic window is the cheap alternative to the real thing. We have got to change that.

MICHAEL NAGLE: One way of changing it is ironically to stop selling white PVC windows. If a deal could be done tomorrow with the profile suppliers that they were all foil-based, they were all colour-based - hear me out - so they were landed on the market and you could then turn round, “No”, then the argument would disappear. Now you’ve suddenly got your price way up there. You’re shaking your head there, Dave, and the reason you are is you’re not going to sell the difference. It is the cooked sausage you would be selling, not the sizzle.

DAVID RUZICKA: No. I am just thinking of stocking implications at this moment in time.

MICHAEL NAGLE: We can sort that out with software. We have been saying that for years.

DAVID RUZICKA: I will tell you what I am thinking, though, because one of the things we are looking at is that we may well go back to our old roots. We used to be joinery manufacturers. We used to actually build small developments, so our background is builders. We are currently looking at going back, or possibly setting up a new side to our business, which would be an aluminium timber-clad style of window, which gives us something sexy and nice to sell to our customers.

When I was working for Anglian some 30-odd years ago, when we’d sold a customer a full house of windows we would actually say to them, “Look, here is an amount of money. Have a cheese and wine party and show your neighbours the windows”. You would not dream of suggesting that today to a consumer to go and show PVC windows. They would look at you as though you were nutty because, I have to tell you, I think a PVC window is so boring it is beyond belief. It has nothing that I can find sexy at all in it. Vertical sliders, I find those very, very nice windows, but I honestly think our PVC product is crap. It has nothing to it. We were talking again outside and saying, “Why don’t we have remote control locking windows that when you set the alarm, remote control, lock all your windows at the same time?” Why as an industry are we not delivering?

JAMES HURST, WINKHAUS: No, you can. You can do that today, but no one will pay the £200 or £150 or whatever, and who would actually install it to make sure it worked? The window fabricator, electrician and so on, we are not structured for that.

MICHAEL NAGLE: Training and education.

[Comment on this?]

JAMES HURST: Absolutely.

MICHAEL NAGLE: I spend six months of the year in Spain and the PVC industry down there, they are selling their PVC at a premium of 30% on top of aluminium.

JAMES HURST: But the aluminium is very different there.

DAVID RUZICKA: Yes, it is actually. We have the same situation where we do actually sell a very nice sexy window to our American buddies in America and they love the fact of the PVC. It almost reminds me of 30 years ago when we actually sold this product here. The Americans actually love it and are willing to pay a good premium for it because it is way above anything that they have got in their marketplace at this moment in time. But as I say, here, today, that PVC window is degraded.

JAMES HURST: This price thing is very interesting. About six years ago I met a German fabricator - manufacturer of windows - and his father and his father before him had been doing it. He had been going really gang busters because the east of Germany was demanding windows right, left and centre, and then suddenly the Germans pulled the plug on it and the market was dying and everybody knew about it. I said, “What are you going to do?” He said, “Well, I am going to put my prices up”, and I said, “Really?” He said, “Yes, because I need to make a profit”. I went away thinking he was a mad man, but I met him a couple of years ago and he is doing fine, and I am actually going to meet him again next week.

What he did was he realised that if the market is all disappearing in one direction, if you disappear in the other you might end up winning. What he said to me the second time I met him was, “Yes, I put my prices up and yes, I lost a lot of volume …”, exactly as you said, Alan, “… but the customers that I kept were the ones who appreciated the value that I give them”. Windows were in his blood when he was born and this is the long-term view that they have quite often in the continent, which we do not really have all that often in the UK, I think, sadly.

[Comment on this?]

SAM KENNEDY: We touched on consolidation earlier on as well and we are into differentiation within itself. From an extrusion point of view I keep using the word “convergence” because all of the systems are converged and they all look similar. I think we would all be struggling if we had different windows on a wall just to figure out which one was which, but I was interested to know, certainly from the new build side, Alan, we were talking about differentiations here and Michael has got quite a radical view of it - make everything wood grain - but how do you get your differentiation across in the market?

ALAN TREVETHAN, K-BAN: About what we do at K-Ban?

SAM KENNEDY: Yes, with you at K-Ban.

ALAN TREVETHAN: Well, I have been in PVC into the new build for 12 years, since it really started, and to me it is about service. Because we don’t see ourselves selling windows, we see ourselves selling a service. We are actually providing a service. If you look at some of the other suppliers into the new build, the people that fit the plumbing and heating are plumbers; they are not the manufacturers of the boilers and the radiators. The builder will go to the plumber that he believes will do the job and provide the service and have the guys turn up on time and service them if there is a problem afterwards. That is the way we treat it. We say we will work with your site managers to differentiate ourselves by the service we give those guys, and we take it upon ourselves to actually plan their work for them. So, we visit their sites on a regular basis, but we don’t do it by telephone. We actually go and walk the site and see what is going on. I think whilst ten years ago we got a premium for that, now all we get is the phone call to tell us how much we have to drop our prices to keep the business, but at least we get the telephone call. So, that is where the market has gone in the new build.

DAVID RUZICKA: Yes, I totally agree with that.

ALAN TREVETHAN: Because there are so many people who will always undercut. I have to be a bit careful of what I say. The buyer is under an awful lot of pressure to reduce the build cost all the time. It is not easy to go in and tell your financial director or your managing director or even your construction director that you want to spend £10,000 more on a site to have these people do the windows versus those people when the product itself is no different, or it is perceived to be no different. When you actually boil it down to the cost per house it might only be £50. Now, you go to the site manager and say, “Do you think your company should spend £50 a house to use us rather than XYZ?” I know the answer but he is not making that decision.

So, I think there is another issue I would mention on market structure in the new build. I think when you talk about consolidation in our industry, obviously the new build market, particularly at the higher levels, have gone through an awful lot of consolidation over the last four or five years to the fact that I am not exactly sure of the numbers but I suspect that the top three house builders now build probably 50% of the UK houses, something in that region. The one thing that brings is that they will not be able to do a single deal with any of you guys, probably because you will not want to do the deal because you will not want that much volume on an annual contract that could go away next year or that you have to fight for, and the price is only going to go one way. I suspect that the consolidation in that market is actually going to lead to more opportunity for the smaller local supplier of the service. Now, whether that is a fabricator who also fits, whether it is like ourselves, a specialist installer who buys in, or whether it is a completely vertically integrated company I do not know because at the end of the day I don’t think the house builder will care because I think it will become slightly more about actually having that window turn up on time and less about the last penny in it. You still have to be very, very close, but I think service will start to become more important here.

GRAHAME HALL, ULTRAFRAME: Sam, one aspect of consolidation we’ve not talked about is the role of distribution, and probably specifically SIG. Some of you may be aware that in my previous life I ran a chain of merchants. So I have sat as a manufacturer and as a distributor, and I think you just touched on new house build there. I can see increasingly that the supplier of new houses could be a distributor and I think that is going to drive a huge amount of consolidation. They suddenly become much more important. You only have to look at builders’ merchants. You go back ten years ago, the main three players had about 35% of the market. Now the main four players - because Grafton have now come in as a major player - have nearly 70% of that market. That has completely changed, and anybody who supplies into that builders’ merchant sector will know how it has completely changed the way that business operates. I just wonder if SIG and there might be one or two of the other merchants - because they are a bit like sheep if somebody sees an opportunity - whether that is going to be a big aspect in terms of driving consolidation because suddenly it is going to be much harder for small fabricators to be able to scale up, and that will in itself change the way we do business.

SAM KENNEDY: Kevin, you have got some, shall we say, history with SIG?

KEVIN HILL, JOHN FREDERICKS: Yes, in my previous life I was a supplier to them. I am talking specifically windows now. If you think about what SIG does as a business, or did do as a business before it got involved in building plastics, it supplied builders’ merchants and it supplied local guys who installed and fitted basically insulation and plasterboard. But if you broaden that out to private RMI distribution of building products, when you think about buying things for your own home the only place where you would go or where your plumber or your builder or your contractor goes is to a distributor. When it comes to windows it doesn’t exist, and I think there is a huge opportunity for SIG to clear up on that. It is doing it with Window Fitters Mate, and we’re a supplier in there from a strategic point of view because to be an early adopter in there we are going to be shifting frames into that nascent distribution arena.

I think it will be very difficult for the traditional builders’ merchants to do that in the same way that SIG do because I think they shift SKUs; they shift boxes, they have got a computer system that says that if you want a valve for a combination boiler, you might be talking double Dutch but plug it in the computer and it comes up with a 10-digit SKU and the guy goes and picks it off the shelf. You can’t do that with a window in private RMI because they are all different. There are no standard sizes and I think that is the niche opportunity: USP for WFM/SIG in window distribution. Whether anybody else will see that and jump on the bandwagon remains to be seen. I think St Gobain would possibly be the next likely company to do that for the simple reason that it is very good at setting up sub-branches within the distribution sector, for example, Minster is their specialist insulation distributor. They could not sell insulation through Jewsons because it was a timber merchant, for example. So, they have got previous experience in doing that and I think when Wolseley Group and other people see what SIG are doing at building plastics and in windows they may decide to have some bright MBA have a look at it, but I do not think it is on their radar at the minute.

GRAHAME HALL: No, I would agree with that. I think it is an extra factor and certainly what I think SIG have already started to understand is there is an opportunity there and I think their ambitions in that area will accelerate. I think that will impact on the fabrication network because they need to make their minds up whether they are going to take on some of that fabrication because they have other manufacturing businesses. You could say, “Oh, no, SIG is a distribution business”, but I do not think it is as simple as that. They could conceivably start to consolidate and become super fabricators and then zip things into there. That would make quite an interesting scenario.

KEVIN HILL: If you imagine what a large distributor of window frames might do in that area, basically it does the work of the 40 to 50-frame fabricator, and it claims it does it better because it has got what? It has got economies of scale, it has got quality control by smacking its large suppliers over the head, and it has the locality and the buying power to be able to out-perform and out-price the 30 to 50-frame-a-week fabricator in that local area. I think there are plenty of conurbations in the UK where SIG/WFM do not have branches, and I think basically they look at a map and see who are the 40 to 50-frame fabricators in that conurbation, we can do it better with our portfolio of products that are on the shelf, we have premium products, loss leader products, and it is a very, very simple model and I think their growth is amazing. They bought WFM, which had 23 branches. They are going to be at 50 by the year end.

Now, at the minute I think what is interesting is you have a conversation with these guys - they probably will not talk to me after this - I don’t know how many people get involved with SIG as a business or WFM, but it is not hitting the radar of lots of people.

GRAHAME HALL: It certainly is falling under the radar at the moment.

KEVIN HILL: It is, and I don’t think SIG know it’s under the radar to that extent either because they are busy doing this but they’re thinking, “How come we have this bit to ourselves?”

[Comment on this?]

SAM KENNEDY: Just to finish up on this section, does anybody else want to make comments with regard to consolidation in itself, the industry?

KEVIN HILL: I just have one point. We mentioned earlier about the involvement in the VCs in the sector at systems level and at window manufacturer level. It seems to me again being quite new to the industry that we are now into a phase. I don’t know if it is the second or third phase. I don’t know how many phases there will be. But the first phase seemed to me you had the guys in Masco coming along looking at it, a huge American conglomerate; Therma-Tru, part of Global Brands, are involved in the UK as well. Then the VCs piled in sort of late 1990s/early 2000. That I suspect for all of them was not a happy or as fulfilling an experience as they first thought in that period, and some of these funds are looking to wind up over the next two to three years, so how they exit will be interesting. We are VC-owned so we have a vested interest in that.

When you have a look at what is happening in the States, and you mentioned that there, a lot of the window manufacturing companies are consolidating both in terms of taking smaller, inefficient businesses out, but horizontally as well. You are seeing businesses that were traditionally timber buying aluminium and buying PVC. You are seeing Global Brands, which owns Therma-Tru, buying a PVC window company called Simonton in the USA. You are seeing Therma-Tru in the UK with a door business. Is it going to buy a trade fabricator in Europe? Where is it going to go? You see Masco are probably not having a great period, I do not know, but has that worked for them? I don’t know.

So, the key thing for me is not the 40 to 50-a-week fabricator and what is happening there. It is at one end who is going to be the next consolidators because private equity is looking in the other direction. I think with the exception of two wealthy entrepreneurs, Jim Rawson and Brian Kennedy, nobody else seems to have an appetite for that. Huge trade buyers in other building products industries which you have seen the past - the Lafarges, the Blue Circles - all those people who’ve come together in building products, they don’t exist in this industry to that extent, certainly at fabrication level. So, who is going to do it? My personal view is there is a great opportunity for a number of fabricators at that level to do it. Interesting who will provide the venture capital in its broadest sense to allow those businesses to that, because I don’t think traditional private equity will probably stick its hand in its pocket.

SAM KENNEDY: Thank you for that, Kevin. We will break for lunch now and get on to the other subjects later on. Thank you.