At the end of November, I was kindly invited up to the VEKA facility in Burnley and was shown around their impressive site, and was also given the opportunity to interview Neil Evans, the VEKA UK MD, where we focused on the challenges of 2021, taking over at perhaps the most difficult time, and what we could expect to happen in 2022.
1. 2021 has certainly been a baptism of fire for your first year in charge. How have you navigated VEKA plc through and what would you say was your biggest challenge and achievement?
Back in October 2020 a lot of the things we are seeing now we could see coming, such as raw material challenges. The labour challenges hadn’t really developed like they are now, but we knew what we would be dealing with and the major thing that has happened this year is that the problems we knew about have got worse, whilst the market has grown bigger.
The biggest challenge this year is that it has all come together at the same time. Usually, there is something that has been a constant and reliable point from which to anchor, but this year we haven’t had that. For example, we have had one or two foil issues and, whilst you know things might get tight, you hope you never get to the point where you’re out of stock of something. Ultimately it all depends on demand at the time. We have benefitted from the incredible flexibility of our people, resilient and responsive planning, and a customer base that has largely worked with us along the way. Price Inflation has been a major factor this year, and like others, we have introduced a material surcharge, and thankfully almost all customers have been reasonable about it. There has been some reaction in turning that surcharge into permanent pricing, but most understand the reasons for it. We are not going back to raw material prices of March 2020.
Right now, nobody is in a position where buying power influences raw material prices. Procurement people now are looking to secure products at the prices the current market demands. No more negotiations or at least very few.
The biggest achievement in that context is that we have delivered leading service levels, grown ahead of the market and had the opportunity to demonstrate that our customers can trust us.
2. How has VEKA protected their customers and managed the supply chain situation?
Late last year we decided to step up our use of recycled content. Initially, it was the right thing to do, though it ended up being a critical thing and became a pivotal moment in terms of protecting our supply chain. We also don’t find ourselves with any conflicts with what we do with our materials because we focus on extrusion and lamination of systems for our customers to turn into finished products. Our OTIF has remained above 95% throughout the year, which has meant we haven’t had to put any of our customers on quotas. We try to treat our customers equally from that perspective. Any shortages have been a result of a spike in total and specific demand, rather than a general shortage of any one raw material.
One of the biggest opportunities for the sector is for transparency to come back into the systems companies. If you’re a systems company, offering day one for day three, which ours is, on a 95% success rate, during an unprecedented period is a very good performance. But the missing factor is accessing that information.
Planning is speculative, and the more information we all give each other allows us to plan better. This avoids frustration and in this current market where lead times are longer it should allow us to be more open with companies above in the supply chain and that extra transparency would allow us to adjust our business models and adapt to that.
3. How stable is VEKA?
If you look back at 2019 which is the most reliable year to peg against, no one would have had any idea that COVID was coming. Like everyone else, we had the uncertainty of having to shut everything down and all the operational issues that come with that.
Then, as has been well documented, at the start of the pandemic we had two major customers go bust which of course resulted in some debt and significant loss of future revenues. With that in mind, we had to consult on that and unfortunately, we went through a redundancy process. We originally thought this would be in the region of 85 people but ended up being 25 people. This was still hugely regretful but based on what we knew at the time it was still necessary. You couldn’t get away from the fact that we had lost two major customers. How things change quickly as now the number of people employed at VEKA is higher than pre-pandemic levels.
The beauty of VEKA being a family-owned business is we had their full backing and support. We did get some emergency funding from the VEKA Group, but due to a busy market, we paid this back three years earlier than we thought we would do.
Thanks to a very busy marketplace, great family ownership, good quality customers, a clear focus and no conflicts when it comes to where our best interests lie, VEKA is in a very stable company indeed.
4. Why are prices rising? What is happening to the prices of raw materials?
If I had a list of every raw material we use in front of me, we’d be talking about significant double-digit increases on every single one, with some close to triple-digit!
Resin alone is 60-70% higher than a year ago and still rising. This is happening across all materials and is further compounded by the increasing cost of energy. Taking resin as an example, we expect further acceleration before it potentially levels off and falls. If prices come down, how they come down, whether it’s a smooth process or bumpy, no one knows. Labour costs have also had an impact on prices this year too.
The real impact of the true price to the end-user caused by price increases on profile costs may in its own right be quite small but it’s when you factor everything else in, such as rises in labour, glass, transport and all other factors in other parts of the supply chain, that is how you get to the inflation we have. According to the latest data available to us, a few years ago the average price of a window was around the £500 mark, now it’s more like £700.
5. What would be your one big prediction for 2022?
I think the prediction is don’t expect any significant change. Continue to be alert to more surprises to come. It may not be any easier next year than this year.
One observation we are making is that the sector can’t expect to sustain this level of business throughout 2022. We have a planning assumption that some of the heat in the market will start to go from Q2 of next year, but we also have a raw material assumption that 2022 will continue in the same vein as 2021. So prudent on the financial assumptions yet geared up if development is not as expected.
We also have the arrival of a new variant and we don’t know how that will play out. There are also other factors such as many people still wanting to go away on holiday and spend money on other
things. We have had the benefit of some pent-up demand and millions of people getting holiday refunds over the past 18 months, but that level cannot continue forever.
Some may call us negative for that, but we would rather call it pragmatism and we plan based on what is the most logical path ahead, and then we adapt as needed as we go along.
6. What would you say is the single biggest issue we have to tackle in 2022?
I think it has to be labour shortages. Supply chain management will always be an issue but will sort itself out over time. But as an industry we have said for a very long time we have to tackle the lack of talent we are attracting.
Who wants to work in a factory? Who wants to work as an installer? People may be looking at career changes now. There are other employment opportunities in the economy where people can earn the same, if not more, money and we must compete.
Is the industry actually doing enough to combat the problem?
For me, the answer has to be no. If we were doing enough, we’d be reaping some of the rewards from that work or we would have changed our minds on the issue. At the moment we are not in a place where we can say we have put enough effort into turning it around. It is rare we act as a true collective, how do we rectify that?
VEKA does a lot of work in the local area to attract people to the business and establish itself as a good local employer. Can I say it has driven loads of people through the door? Probably not. But we have to try to do something about it and the work we do builds recognition of the business in the local area.
There’s a whole range of opportunities in this sector, it’s how we can get people to step into them. That is the question.
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