Impact of Russia/Ukraine on the Window Casing Industry
Read time: 4 minutes
The Russian-Ukraine war has struck a blow to Profine, a leading German manufacturer of window profiles — the casings surrounding new windows and doors — made from polyvinyl chloride (PVC). In Europe, about 75 million profiles each year are sold to homebuilders and to home renovators, with annual market growth between 3% and 5% over the past five years if the impact of the pandemic is set aside.
With annual revenue of about €900 million and usage of about 250 million tons of PVC, Profine is a market leader in Europe, with manufacturing facilities in Germany, the U.K., France, Italy, Russia, and Ukraine, as well as in the U.S., India, and China.
Most of the company’s sales come from Central and Western Europe, with Russia its second-largest single market, accounting for about 8% of revenue. Half the output of Profine’s two factories in Russia — one near Moscow and one in Russia’s Far East — is sold domestically, the other half to countries that were formerly part of the Soviet Union. Much of the output of the company’s relatively small factory in Ukraine had been exported to Russia.
Operations in Ukraine and Russia
The impact on Profine of the West’s sanctions on Russia in the wake of its invasion of Ukraine will be severe. Knowing the company’s current management and ownership, it’s likely the company will do everything it can to keep operating in Ukraine and in Russia. The war and its sanctions, however, make that course very difficult. At some point a decision probably will have to be made to stop operations in the two countries because it will be difficult, if not impossible, to send in new material.
In addition, there is the question of getting money in to finance operations and then getting money out. Until the sanctions, everything had been sold in euros. Now, business in Russia must be conducted in rubles, the value of which is questionable. It is likely, therefore, that the company’s operations in Russia and Ukraine will grind to a halt.
Since all Western window profile players in Russia are in the same boat, the only relative advantage in all this will accrue to Russian companies. Until the war, the biggest European manufacturer in Russia was Germany’s Veka, which is probably 50% bigger than Profine. After Profine is Belgium’s Deceuninck, followed by three German companies — Aluplast, Rehau, and Schuco — and France’s Alphacan.
Impact of Wartime Energy Prices
If ending operations in Russia and Ukraine weren’t damaging enough for these producers, there is the additional pain caused by the war’s impact on energy prices. The industry’s chief raw material, PVC, is produced from oil, and its price has shot up by 50% to 75% over the last 18 months — if supply can be obtained. What’s more, window profiles are heavy, and transportation is expensive. For that reason, transporting the product more than 700 or 800 kilometres has never been economic. But transportation costs are rising due to higher fuel prices, making shipping even more expensive.
Passing on Costs to Customers
Window profile manufacturers have been able to pass along their rising costs to some degree, but there have been lags between the rise in input costs and prices charged customers for finished goods. That translates into two to six months, and sometimes up to a year, of running behind rising costs for raw materials and shipping. That lag will be reflected in lower operating results for quite some time.
Carbon Reduction Impact
While not as pressing a problem, there is also Europe’s increasing interest in carbon reduction and limiting the environmental impact of carbon-based products. The industry’s reliance on PVC means it must step up its efforts at recycling.
Over the longer term, and with stepped-up efforts in research, the industry will be able to boost recycling and become more energy efficient. Because demand is likely to remain strong for window profiles that are energy efficient and ecologically sound and can help reduce interior noise, the long-term outlook is bright — for the industry generally and for Profine in particular. The short- and medium-term outlook, however, is likely to be challenging.
About Frank Pohl
Frank Pohl is a member of the supervisory board at Kaufmann Systems. Previously, he was Chairman and is currently serving on the board of Duo Plast. He was also Chief Executive Officer of Gonvarri Material Handling. Earlier in his career he served as Chairman of Bruynzeel Storage Systems, a member of the executive board at Huppe, and Chief Executive Officer of Profine.
This article is adapted from the GLG teleconference “Profine: Impact of Russian Invasion of Ukraine.” If you would like to speak with experts like Frank Pohl, or any of our approximately 1 million Network Members, please contact us.