Strategy Update Travis Perkins 19 th May 2008
1 Reminder - who we are, what we do – John Carter 2 Market Update – Paul Hampden Smith 3 Strategy Update – Geoff Cooper 4 Multi Channel Strategy – John Carter 5 Toolstation - Mark Goddard-Watts 2
3 (Associate) Group structure
+140 years of combined experience in our sector … 4 members of the team were working at TP in the early 1990s recession 4
Our Group mission… Continue to deliver superior returns by...... putting in place and growing great businesses, with outstanding people and operations, providing comprehensive building material solutions, to everyone creating, maintaining, repairing or improving the built environment, ...... helping to build Britain. 5
Our Group vision is… To ensure that anyone in the UK who wants to access any kind of building materials through any form of supply channel will have a Travis Perkins group operation as their first or first alternative choice. 6
Key company facts Turnover 2007 £3,187 m £320m operating profit 2007 Over 15,000 colleagues 2007 Retail Retail 19% Retail 30% 29% Trade Trade 70% Trade 71% 81% 7 brands on 1,125 sites 2007 - % split % split Group sales by customer type 2007 sites by brand Joiners & Tile Giant kitchen fitters 3% 1% Benchmarx Wickes 2% Other DIY Jobbing builders 16% Other trade 9% and contractors 12% 35% Landscape gardener 1% TP 52% CPS Maintenance 17% Serious DIY contractors 9% CCF 3% 3% Dry liners Keyline 4% Housebuilders 7% Ground workers 11% &civil P+H installers engineering and contractors 7 8% 7%
We are expanding our channel and product/market presence Core Civils P+H Drylining & Decorative Kitchens & Tiles materials Insulation joinery Retailing Wickes - Wickes Wickes Wickes Wickes Wickes General TP TP TP TP TP TP TP Merchanting Specialist - Keyline CPS CCF - Benchmarx Tile Giant Direct to site TP TP TP TP TP TP TP Keyline Keyline CPS CCF Benchmarx CPS Direct to Wickes - Wickes Wickes Wickes Wickes Wickes consumer 8
TP operates within markets worth a total of approx. £33bn with a Group market share of 10% Travis Perkins Group Specialist trade categories includes £14.1bn all supply channels addressable •Trade kitchens & joinery TRADE market •Insulation & drylining Current TP core •Ceiling & partitions & trade businesses fire proofing •Heavy + light BM £580m £3bn •Including Keyline, CPS, CCF £130m £1bn - Consumers shopping at merchants £170m Specialist retail category includes all supply channels £1.4bn •Tiles £270m Big 4 DIY DIY •“Retail” formats ~£7bn •Including some capture of smaller All these markets add up to £35bn.. 44% tradesmen (white van man) however there is some overlap… We have to remove “double counting” £16.5bn of c. £2bn to reach our Group addressable market size. 9 Source: Verdict 2008/Internal estimates/Consult GB
1 Reminder - who we are, what we do – John Carter 2 Market Update – Paul Hampden Smith 3 Strategy Update – Geoff Cooper 4 Multi Channel Strategy – John Carter 5 Toolstation – Mark Goddard-Watts 10
Market outlook - our view in February 2008 Economic variable Market Comment February Outlook 2008 RMI output Less sensitive to economic pressures = New housing output Soft housing lead indicators House price inflation ∆ House price growth falls to 0% House transactions Critically sensitive to confidence Consumer spending ∆ Rate of growth declining Consumer confidence Bad news stories Merchanting market Driven by inflation, volume down DIY market Lower inflation, volume down 11
The downturn in Q3 2007 has spread to other sectors… INDICATOR YoY MAY AUG SEP OCT NOV DEC JAN 08 FEB MAR APR MAY SITE VISITORS SITE RESERVATIONS MORTGAGE APPROVALS HOUSING TRANSACTIONS HOUSE PRICE GROWTH = = CONSUMER CONFIDENCE BIG TICKET ITEMS HOUSING EQUITY WITHDRAWAL RETAIL SALES CONSTRUCTION FORECASTS NEW CONSTRUCTION ORDERS = TRADE CUSTOMER = = CONFIDENCE = BALANCE 12
Mortgage approvals have decreased for home movers and first time buyers (FTB) … buy to let approvals (BTL) have been increasing since 2000 CML Mortgage approvals 1,800,000 1,600,000 1,400,000 1,200,000 No of Approvals Total 1,000,000 Home movers FTB 800,000 BTL 600,000 400,000 200,000 - 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year 13
Mortgage approvals have dipped further in the last 3 months 140 120 100 80 Nov 2005 Mar 77,000 2008 60 64,000 40 20 0 2003 2004 2005 2006 2007 2008 Bank of England 14
Housing transactions are at similar levels to 2004/5 and likely to fall further 250 200 150 Feb 2008 116,000 100 Jan 2005 103,000 50 0 2004 2005 2006 2007 2008 SA Property transactions England & Wales 15
Whilst trade customer confidence has improved on the same period in 2006… Purchases of building materials from merchants over the next 2 months CUSTOMER CONFIDENCE SURVEY - PURCHASES OF BUILDING MATERIALS FROM MERCHANTS OVER THE NEXT 2 MONTHS 60.0 2006 2007 2008 50.0 BALANCE OF WEIGHTED % 40.0 30.0 20.0 10.0 0.0 MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY 48.0 47.0 44.3 41.7 43.4 34.7 19.3 31.8 53.8 55.0 53.2 51.3 52.5 45.8 43.5 47.1 43.6 35.7 25.1 28.6 46.8 54.3 51.8 49.7 51.0 TOTAL MONTH 16 Source: TP trade customer confidence
Customer confidence has fallen back on 2007 CUSTOMER SENTIMENT - PURCHASES OF BUILDING MATERIALS FROM MERCHANTS OVER THE NEXT 2 MONTHS - Year on Year Comparison 8.0 6.0 4.0 2.0 Index 0.0 -2.0 -4.0 -6.0 -8.0 May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May 4.5 -1.3 -0.8 5.5 0.2 0.9 5.8 -3.2 -7.0 -0.7 -1.3 -1.6 -1.5 Total Month 17 Source: TP trade customer confidence
Comparison to early 1990s % CHANGE 1989 1990 1991 1992 1993 Construction output 4.7 0.3 (7.3) (4.2) (1.9) New private housing (19.9) (25) (12.9) 0.4 9.3 RMI private housing 7.6 (3.7) (10.6) (9.1) (5.6) Company revenue (6) (4) (10) 1 12 Company volume (8) (6) (12) (1) 10 TP EBITA % of sales 7.8 5.2 2.9 3.2 5.7 2008-9 Scenario YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 Market volume ? ? ? ? ? Extra inflation TP outperformance + + + + + Capacity reduction Trade LFL ? ? ? ? ? 18
The 1990-94 construction recession was preceded by an extraordinary “spike” in housing transactions % change in GDP & construction ouput, 1986-1996 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 GDP Construction output 19
Downturn in early 1990s was reversal of a much stronger growth period than currently happening % change in total construction output less % change in GDP, 1986-2007 8.0% 4.0% 0.0% -4.0% -8.0% 6 8 0 2 4 6 8 0 2 4 6 8 8 9 9 9 9 9 0 0 0 0 9 9 9 9 9 9 9 0 0 0 0 1 1 1 1 1 1 1 2 2 2 2 20
Also true in sub sectors e.g. private housing RMI % change in private housing R&M less % change in GDP, 1986-2007 12.0% 8.0% 4.0% 0.0% -4.0% -8.0% -12.0% 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 8 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 21
Beyond 2009, longer term market trends remain positive • Demographic change – Population growth – Household formation • Consumer trends – Do It For Me vs Do It Yourself • UK housing requirements – Higher numbers of housing completions required +250,000 p.a. – Housing completions mix • Need for more sustainable materials – Code for sustainable homes • Large scale developments – Thames Gateway, London 2012 and subsequent regeneration 22
Capacity growth – growing in merchanting flat in retail 2005 2006 2007 Merchanting - Plumbing & heating 6.0% 2.6% 3.7% -Other 3.0% 3.5% 3.3% Retail 4.0% 0.3% (0.2)% Notes: Merchanting market is revenue capacity expansion. Retail market is space expansion. Source: Company estimates • Trade trends 2008 – National operators are quieter – Some strong regional independents expanding – Early business failures of weak independents • Retail trends 2008 – B&Q – still attempting to cover hard and soft ends of the market – Focus – will do better – Homebase – slowing down openings 23
1 Reminder - who we are, what we do – John Carter 2 Market Update – Paul Hampden Smith 3 Strategy Update – Geoff Cooper 4 Multi Channel Strategy – John Carter 5 Toolstation – Mark Goddard Watts 24
Our strategy since 2005 – what we said we’d do… 1. Outperform market on a like-for-like basis 2. Expand branch network 3. Boost returns on capital 4. Move into adjacent markets 5. Achieve scale benefits 6. Strengthen the organisation 25
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