Presentation - Grafton Group plc

Grafton Group plc
Investor Day
London
Thursday, 7 November 2013
Gavin Slark
Chief Executive Officer
Cautionary Statement
Certain statements made in this presentation are forward-looking statements. Such statements are
based on current expectations and are subject to a number of risks and uncertainties that could
cause actual events or results to differ materially from those expressed or implied by these forward
looking statements. They appear in a number of places throughout this presentation and include
statements regarding the intentions, beliefs or current expectations of Directors and senior
management concerning, amongst other things, the results of operations, financial condition,
liquidity, prospects, growth, strategies and the businesses operated by the Group. The Directors
and senior management do not undertake any obligation to update or revise any forward-looking
statements, whether as a result of new information, future developments or otherwise.
Agenda
•
Welcome and Overview
Gavin Slark, Group CEO
•
Strategic Financial Overview
David Arnold, Group CFO
•
Irish Merchanting
Eddie Kelly, CEO Grafton Merchanting ROI
•
Selco
Chris Cunliffe, CEO Selco
Video presentation
•
Development Strategy
Joe Sowton, Group Strategic Development
Director
•
Summary
Gavin Slark
•
Questions and Answers
Gavin Slark, David Arnold
Lunch with Management Team
Executive Management Team
Gavin Slark
CEO
David Arnold
Group CFO
Charles Rinn
Group Financial
Controller/ Secretary
Peter Kearney CEO
Grafton
Merchanting NI
Eddie Kelly CEO
Grafton
Merchanting ROI
Jolyon Ingham
Group IT
Director
Joe Sowton
Group Strategic
Development
Director
Jonathan Jennings
Group Property
Director
Mark Kelly CEO
Grafton
Merchanting GB
Chris Cunliffe
Chief Executive
Selco
Declan Ronayne
Chief Executive
Woodie’s DIY
Management Team in attendance
Steve Thompstone
Managing Director
Buildbase
Peter Kearney
Chief Executive
Grafton Merchanting NI
Declan Ronayne
Chief Executive
Woodie’s DIY
Andy Williams
Managing Director
Plumbase
Kate Tinsley
Finance Director
Grafton Merchanting GB
Chris Cunliffe
Chief Executive
Selco
Charles Rinn
Group Financial
Controller / Secretary
Joe Sowton
Group Strategic
Development Director
Eddie Kelly CEO
Grafton
Merchanting ROI
Larry Dale
Chief Executive
EuroMix
1909 - 2013
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1909
1965
1985
1990
1994
1995
1998
2003
2005
2006
2009
2011
2013
Established in Dublin
PLC - Listed on Dublin Stock exchange
Michael Chadwick appointed Executive Chairman
Northern Ireland – Builders Merchanting
England – Plumbers Merchanting
England – Builders Merchanting
British Dredging plc
Jacksons
Heiton Group plc
Online retail - Plumbworld
Belgium – Joint Venture
Appointment of Gavin Slark as CEO
Change of Listing Arrangements and Reporting Currency
Existing Group structure
Merchanting
Ireland
DIY Retailing
Builders Merchanting
Grafton Group plc
UK
Plumbers Merchanting
Mortar Manufacturing
Belgium
JV Builders Merchanting
JV Manufacturing
Our current market positions
•
Builders Merchanting
UK
ROI
Belgium
•
Plumbers Merchanting
UK
ROI
•
No 4
No 1
DIY Retailing
ROI
•
No 3
No 1
No 3
No 1
Dry Mortar Manufacturing
UK
No 1
(No 1 - 2014)
2012 revenue by business
segment and geography
Revenue by Business Segment
Merchanting
89%
Revenue by Geographic Area
UK
76%
£1.76bn
€2.17bn
£1.76bn
€2.17bn
Ireland
22%
Retailing
Manufacturing
2%
9%
Belgium
2%
Group trading locations
Circa 600 Trading Locations
Builders Merchanting
Plumbers Merchanting
DIY Retailing
Manufacturing
Total
UK
ROI
BE
Total
260
43
11
314
227
4
-
231
-
45
-
45
9
1
-
10
496
93
11
600
David Arnold
Chief Financial Officer
Interim Management Statement
Revenue for the 10 months to 31 October was up 7.4% to £1.6 bn (Oct 2012: £1.49bn)
Average Daily Like for Like Revenue Growth – 2013*
Total Revenue
Q1
Q2
Four months to
31 October
2013
(0.6%)
4.2%
4.1%
6.2%
2.4%
(0.6%)
5.6%
1.1%
Irish Retailing
(12.3%)
8.5%
4.1%
(1.7%)
Manufacturing
(10.3%)
8.0%
25.5%
0.7%
UK Merchanting
Irish Merchanting
*Constant currency
Ten months to
31 October
2013*
Interim Management Statement
UK
•
Housing market is benefitting from Government backed initiatives
•
Confidence slowly but surely returning
•
Positive, though lagged, effect on Grafton as housing transactions and household
spending on RMI increases
Ireland
•
Consumer confidence has improved and the Merchanting and DIY markets have
stabilised at very low levels of activity
Revenue
2,500
•
Ireland revenue peaked at
€1,227m (£840m) in 2007.
2012 revenue €487m
(£395m)
•
2012 UK revenue broadly
back to 2007 level
(£1.335bn vs £1.353bn)
•
Selco more than doubled
revenue over this period
(£230m v £112m)
•
2012 Belgium revenue
€38m (£31m)
Revenue (£ms)
2,000
1,500
Belgium
Ireland
1,000
UK
500
0
2007
2008
2009
2010
2011
2012
Group Operating Profit
200
9.0%
8.2%
180
8.0%
Group operating margin
peaked at 8.3% (2006)
•
Operating margin gradually
rebuilt since 2009, largely
through self help measures
7.0%
140
6.0%
120
5.0%
4.4%
100
180.4
3.4%
80
2.4%
60
2.7%
3.0%
92.7
40
4.0%
2.0%
1.2%
41.5
20
47.5
59.1
1.0%
21.3
0
0.0%
2007
2008
2009
2010
2011
2012
Operating Margin (%)
Operating profit (£m’s)
160
•
ROCE / Capital Turn
2.5
16.1%
16.0%
14.0%
2.0
1.8
1.7
12.0%
1.6
1.5
10.0%
7.6%
5.9%
6.0%
1.0
4.6%
3.8%
4.0%
0.5
1.8%
2.0%
0.0%
0.0
2008
2009
Capital Turn
2010
ROCE
2011
2012
Capital Turn
ROCE (%)
1.5
2007
Increasing focus
going forwards
•
ROCE at 16.1% in
2007
•
Gradual
improvement
since 2009
2.0
1.8
8.0%
•
Net Debt / Gearing
450.0
400.0
60%
52%
50%
•
Significant reduction in
financial leverage
•
Debt reduced by £250m
over 5 years
•
No recourse to
shareholders
•
Gearing 17% at June 2013
50%
350.0
40%
35%
250.0
403.6
414.9
30%
26%
200.0
23%
20%
286.4
150.0
Gearing (%)
Net debt (£m’s)
300.0
20%
219.6
100.0
188.7
164.9
50.0
0.0
10%
0%
2007
2008
2009
2010
2011
2012
Dividend / Dividend Cover
16
4.0
3.8
14
3.5
12
3.0
10
2.3
2.1
8
2.1
2.0
15.1
6
2.5
1.5
11.9
1.1
4
6.0
6.5
6.9
4.5
2
1.0
0.5
0
0.0
2007
2008
2009
2010
2011
2012
Dividend cover (x)
Dividend (p)
2.6
•
Dividends paid throughout
the recession
•
Progressive dividend policy
to be maintained
•
2013 interim dividend
increased by 17%
Grafton’s Pillars
Strategic Pillars
Strategic
Economic
Growth
Revenue
Organic
Growth
Operating
Margin
Capital
Turn
Revenue Growth
Revenue
Growth Points
Economic
Growth
Economic
Growth
- Exposure to early cycle upturn
Implants
- Multi-specialist
Organic
Growth
New Formats
Greenfield
Geography
Acquisitions
Added Value
- Product extension
- Selco
- UK infill and consideration of further overseas
markets
- Extending capabilities
Margin Growth
Operating Margin
Growth Points
Operating
Leverage
Operating
Leverage
Pricing
Initiatives
Pricing Consistency
Customer Insight
Benchmarking
Product
Mix
By Customer
Implants
Self Help
(Part 2)
Cost efficiencies
Purchasing
- Inherent operating leverage across our brands
- Across branches
- Sensitive and responsive to customer
- Good value, service-led proposition
- Driving higher margin business and core product
range
- Focus on highest returns
- Driving contribution to fixed cost
- Rich vein of opportunity
- Leveraging across the Group
Increasing Capital Turn
Capital Turn
Growth Points
Revenue
Growth
Revenue
Growth
Focus
Property
Optimise
Working
Capital
- Dedicated property team
- Maximising opportunities within the property
portfolio
Woodie’s
- Progressively improve stock turn towards best in class
Plumbase
- Seasonal stock improvement opportunities
Belgium
Selco
Cash Collect
- Capital turn benefits from economic and organic
growth plus operating leverage
- Maximise terms from expanded footprint
- c.85% cash
Implants
- Greater proportion of our customers’ spend
Showrooms
- Supporting our trade customers with retail
proposition
Revenue Growth
Revenue
Economic
uplift
Organic
Growth
Implants
a
a
a
a
a
a
New Formats
Grafton
RoI
a
a
Belgium
a
a
a
a
a
Greenfield
Acquisitions
Grafton
NI
a
Geography
a
Added Value
a
a
•
All brands early cycle beneficiaries
•
Multi-specialist – Hirebase, Plumbase and Electricbase implants are key tools for driving revenue
growth
•
Plumbase Industrial – new format, experienced team
•
New sites and trial formats for Selco
•
Selective M&A activity will increase market share of Buildbase and our Belgium business
Margin Growth
Operating Margin
Operating
Leverage
Pricing
Initiatives
Mix
Self Help
Part 2
a
Grafton
NI
Grafton
RoI
a
a
Belgium
a
a
Price consistency
a
a
a
a
a
Customer insight
a
a
a
a
a
Benchmarking
a
a
a
a
Business/product
a
By Customer
a
a
Implants
a
a
a
Cost efficiency
a
a
a
a
a
a
a
a
Purchasing
a
a
a
a
a
a
a
a
a
a
a
a
a
a
a
a
a
a
a
a
•
All brands benefit from operating leverage
•
Pricing and mix improvements underpin gross margin opportunities
•
Self Help Part 2 – Fundamental restructuring concluded but ongoing initiatives within brands and
across the Group
Increasing Capital Turn
Capital Turn
Revenue
Growth
Property
Grafton
RoI
Belgium
a
a
a
a
a
a
a
a
Focus
a
a
a
a
a
a
a
a
Optimise
a
Working
Capital
Cash collect
Grafton
NI
a
a
Selco
a
a
a
a
Implants
a
a
Showroom
a
a
a
•
Capital turn of all brands benefits from economic and organic growth plus operating leverage
•
As at Dec 2012, freehold and long leasehold property totalled £375m plus £14m held for resale
•
Specific targets for working capital reduction – opportunity to liberate cash/reinvest in core range
Financing Strategy
£m
300
280
260
240
220
200
180
160
140
120
100
80
60
40
20
0
250
179
(30 June)
152
95
(30 June)
24
9
Cash
2013
2014
14
2015
5
2016
2017+
• Total Group debt facilities amount to £376m of which £74m was undrawn at
30 June 2013. Undrawn facilities increased to £117m in August 2013
• In August 2013 Ulster Bank’s £73m term facility extended out just over two years to 2016
• Weighted average maturity profile of three years – objective to extend maturity and diversify
funding sources
Eddie Kelly
CEO
Grafton Merchanting, RoI
Merchanting RoI
• Largest Builders Merchant
• Largest Plumbers Merchant
• Largest Steel Stockholder
• Largest Civils Merchant
Dublin Area
Chadwicks Clonmel
Chadwicks Naas
Irish Construction Industry
2007-2012
€40B
INDUSTRY VALUE
40
35
30
25
Billion €
20
15
€8B
10
5
0
2007
2012
Irish Construction Industry
2007-2012
€9B
INDUSTRY VALUE
PUBLIC CAPITAL SPEND
€40B
40
35
9
Billion €
8
7
30
25
20
15
€8B
10
5
0
2007
6
Billion €
5
€3.9B
4
3
2
1
0
2007
2012
2012
Builders’ / Plumbers’
Merchants in RoI
€270m
300
250
200
150
€50m
100
€41m
€30m
€25m
50
0
GMRoi
Heat
Merchants
DPL
McMahons
Brooks
250 Independent Merchants operate on turnovers between €1m and €15m.
Merchanting RoI &
the Recession
800
700
Sales
€796m
600
500
400
300
Sales
€270m
200
100
0
Costs
€124m
Sales v Costs
2007
Costs
€65m
Sales v Costs
2012
What have we done to improve
our bottom line?
• Cost control
•
•
Costs reduced from €124m to €62m
Payroll, bought-in services, rent
• Margin management
•
•
•
IT tools
Product mix
Gap between Grafton and others 3 to 5 points
• Remodelled the business
•
•
•
“Branch of the Future”
Cash & Collect
Training
• Purchasing policy
•
•
Supplier consolidation
Improved terms
• Cash management
•
•
•
Stocks
Debtors
Cash sales
INTER-COMPANY
HIRE
PUBLIC BODIES
CIVIL CONTRACTOR
DISTRUBITION
OTHER
HOUSE BUILDER
80,000,000
PLUMBING/HEATING
CONTRACTOR
STEEL
SELF-BUILD
LARGE
CONTRACTOR
SMALL/MEDIUM
CONTRACTOR
CASH SALE
Customer Type
2012 - Sales by Customer Category
70,000,000
60,000,000
50,000,000
40,000,000
30,000,000
20,000,000
10,000,000
0
Product Mix
Hire 2%
General BM
37%
Ironmongery 9%
Steel 10%
Timber
18%
Plumbing 24%
House Completions
Ireland 1990-2012
Current activity is at an unsustainably low level
25,000 completions is a more realistic level of activity
Outlook for Irish economy
• Recovering Market Conditions
• Housing
• RMI
• Demographics
• Min 25,000 units needed per annum
• Young population
• Government Stimulus
• RMI
• New business start-ups
• Foreign Investment
• Hotels
• Incomplete projects
• Food / Agri
• CAP changes in 2015
Outlook for Merchanting RoI
• Rebuilding Profitability
• Progress from 2010
• Further progress expected in 2014
• Increased Market-share
• Plumbing
• Geographical
• Maximising our strength
• Financial weakness of Independents
• Scale of Grafton v others
Selco video presentation
Joe Sowton
Group Strategic
Development Director
Our Strategy
•
•
•
•
•
A focussed supplier of construction materials
Active in the UK, Ireland and Belgium
Our reputation is built on service
Market leading positions
To expand both organically and into new markets
What sets Grafton apart?
•
•
•
•
•
•
•
We aim to lead not follow the market
‘Multi specialist’ stores
Market leader in Ireland
Selco – unique model
Strong local management
Group structure and disciplines
High service levels
Grafton’s M&A track record
• Over 150 acquisitions since 1994
• Averaged over 10 acquisitions a year for 10 years
• Doubled in size every three years between 1997 & 2006
• Strong pipeline of potential targets
• Unique market positioning & development opportunity
GB market consolidation
1994 (E)
GB market has undergone a high degree of
Groups
30%
consolidation
Independents
70%
Further consolidation is anticipated
2012 (E)
Groups
70%
Independents
30%
Grafton is able to acquire without any
significant competition issues
Effect of consolidation
•
•
•
•
•
•
•
Rapid growth of largest Groups
Modern efficient outlets
IT transforms efficiency and communication
Wider range of products and services
Retail custom encouraged
Industry professionalised
Buying groups evolved
GB Merchanting
436 branches
Geographical reach
2012
2014 expansion focus
2012 – 436 Branches
Wolsley
19%
2012 market position
Builders Merchanting No 3
Plumbers Merchanting No 4
TP (Exc Wickes)
23%
Jewson
18%
Others
29%
GMGB
11%
Source: Management data
GB Merchanting
focus on growth
Organic opportunities Implants
Estate optimisation identified to deliver substantial additional sales over time
generated through implants:-
Showrooms
Over 200 potential UK
locations
150 locations
Project launched in 2014
2013 – 100 locations
2014 – 115 locations
2013 – 1st branch in
Hayes
25 – 30 potential locations
GB Merchanting
focus on growth
Implants
DECORATING
IRONMONGERY
SHOWROOMS
GB Merchanting
Focus on growth
Acquisitions and green field sites
Over 100 white gap opportunities
Trade cash & carry - 36 stores
SELCO
Focus on growth
36 BRANCHES
Estimated market size
£4.5 bn
Est. 6%
Source: Management estimate
Considerable development
potential
Irish Merchanting
43 branches
Geographical reach
Grafton –
Ireland
Merchanting
36% (Min)
200+ Others
53%
HeatHeat
Merchants
Merchants 6%
6%
Dublin
Dublin
Providers 5%
Providers 5%
Estimated 2012 market share
Builders Merchanting No 1
Plumbers Merchanting No 1
Irish Retail DIY
45 stores
Irish Retail DIY
2012 market share
DIY Retailing
No 1
100+ Others
29%
Woodie’s
+40%
Homebase
12%
B&Q
19%
Geographical reach
Northern Irish Merchanting
15 branches
Geographical reach
2012
Potential
Others
34%
Murdoch
14%
GMNI
20%
Haldane Fisher
14%
J P Corry
18%
Estimated NI 2012
market share
EuroMix Dry Mortar
EuroMix
9 Dry Mortar Plants
Geographical reach
2012 dry silo market share
Others 2%
Remix
12%
EuroMix
50%
Cemex
15%
Tarmac
21%
UK Dry Mortar Manufacturing No 1
2012
Where can we add value?
• Transferable skills & knowhow
• Synergies
• Experience of growth
Considerations and tests
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Ability to deliver shareholder value
Construction output
Market size: RMI housing & non-housing / commercial
GDP per capita & CAGR
Housing starts
Age of housing stock
Population trends
Unemployment trends
Ease of doing business
Risk analysis
Expansion into Belgium
GRAFTON’S JOINT VENTURE WITH
ROUSSEL NV - 2009
Why Belgium?
•
Stable market €3 - €3.5bn
•
Unconsolidated
•
Underdeveloped
•
Excellent quality sites
•
Strong pipeline
•
Ability to gain leading position
Belgian Market
Estimated 2012 Turnover - Top 10 Belgian Merchants
140
120
2012 Estimated Market
Share
100
€m
80
60
40
20
0
75.5%
4.9%
YouBuild
& Mpro
The YouBuild Family
10
Builders Merchant
1
Plumbers Merchant
2
Ready Mix Concrete
5
Tile Showroom
1
Tile, Kitchen & Bathroom Showroom
•
•
•
•
•
JV successfully repositioned in 2012
Grafton now has control
JV area redefined mainly within an area of West Flanders
Family shareholders no longer operational management
Supplier renegotiations successfully completed following exit
from buying group
• 2013 – introduced uniform IT platform across group
• Grafton at liberty to develop outside of the JV in Belgium
Belgian builders merchants
opportunities
BRUSSELS
Mpro 25km
catchment
YouBuild
Mpro
Belgian builders merchanting
2012
2014
1st
4th
Summary
•
Key focus on UK growth
•
Well positioned in Ireland
•
Significant progress in Belgium
•
Potential to develop internationally
Outlook and Summary
Gavin Slark
Chief Executive Officer
Outlook - UK
• Economy growing at moderate rate as recovery takes hold
• Clear signs that the housing market has strengthened
• Improving trend in housing transactions and mortgage approvals
• Economic and housing market backdrop supportive of increase in RMI
volumes in merchanting market
• Internal developments also providing a platform for growth
• Government help to buy measures will benefit the Group but we
anticipate a time delay
Outlook - Ireland
•
Domestic economy starting to stabilise – after contracting for five years
•
Downturn in housing construction bottoming out
•
House price stabilisation expected to become more broadly based
geographically
•
Housing transactions and mortgage approvals coming off a low base
Summary
•
Grafton has managed the recession well
•
Experienced Executive management team now in place
•
Significant potential for organic growth
•
UK acquisition opportunities
•
Scope for further international development
Questions and answers
Thank you for listening