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Grafton Group plc Investor Day
London Thursday, 7 November 2013
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Gavin Slark Chief Executive Officer
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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.
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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
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Executive Management Team
Gavin Slark CEO Joe Sowton Group Strategic Development Director Charles Rinn Group Financial Controller/ Secretary Jolyon Ingham Group IT Director Jonathan Jennings Group Property Director David Arnold Group CFO Peter Kearney CEO Grafton Merchanting NI Eddie Kelly CEO Grafton Merchanting ROI Mark Kelly CEO Grafton Merchanting GB Chris Cunliffe Chief Executive Selco Declan Ronayne Chief Executive Woodie’s DIY
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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
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1909 - 2013 1909 Established in Dublin
1965 PLC - Listed on Dublin Stock exchange 1985 Michael Chadwick appointed Executive Chairman 1990 Northern Ireland – Builders Merchanting 1994 England – Plumbers Merchanting 1995 England – Builders Merchanting 1998 British Dredging plc 2003 Jacksons 2005 Heiton Group plc 2006 Online retail - Plumbworld 2009 Belgium – Joint Venture 2011 Appointment of Gavin Slark as CEO 2013 Change of Listing Arrangements and Reporting Currency 1909 CPI established over 100 years ago in Dublin to import cement and plaster – evolved into BM Listed on the Dublin Stock Exchange as a PL 1977 One of the first companies in Europe to become computerised 1985 Michael Chadwick appointed Executive Chairman 1990 Entered the Northern Ireland Builders Merchanting market through acquisition of MB 1994 First real venture into Britain through purchase of Bradleys P&H in London – formed Plumbase 1995 Followed by the acquisition of Johnsons of Oxford – formed Builders Merchanting business Buildbase 1998 British Dredging plc acquired – first time an Ire plc acquires a UK plc – Group reaches 100 branches Acquisition of Jacksons brings us to €1bn sales Complete 100th acquisition 2005 Complete takeover of Heiton Group plc the No1 BM and No2 DIY in Ire 2006 Plumbworld – trading locations exceeds 500 2009 Belgium – Joint Venture commences with a bolt-on acquisition – since followed by 6 more + agreement to acquire Mpro 2011 Appointment of Gavin Slark as CEO 2013 Appointment of David Arnold as Group CFO
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Existing Group structure
We are organised with our Group plc HQ in Dublin Ireland – BM + P&H merchanting + DIY UK – Builders merchanting + P&H + Dry Mortar manufacturing + specialist (civils, AI, NDI, bathroom Distribution, Online etc) Belgium – 12x merchanting + 2x RMC
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Our current market positions
Builders Merchanting UK No 3 ROI No 1 Belgium No 3 (No ) Plumbers Merchanting UK No 4 DIY Retailing Dry Mortar Manufacturing UK No 1 We operate in three main markets UK - where we are the 3rd largest Builders merchant, the 4th largest Plumbers merchant and the leading Dry Mortar manufacturer Republic of Ireland – where we are No.1Builders Merchant, Plumbers Merchant and DIY business (DIY only in ROI) Belgium – we are currently the 4th largest but Mpro will elevate us to 1st place in heavyside BM
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2012 revenue by business segment and geography £1.76bn £1.76bn
Revenue by Geographic Area 89% UK 76% €2.17bn €2.17bn £1.76bn £1.76bn Merchanting accounts for close to 90% of Group revenue Retailing around 9% Manufacturing 2% ¾ of revenue comes from the UK 22% Ireland In 2014 Belgium should account for around 5% of Group revenue Ireland 22% 9% Belgium 2% 2%
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Group trading locations
Circa 600 Trading Locations Builders Merchanting Plumbers Merchanting DIY Retailing Manufacturing UK ROI BE Total 260 43 11 314 227 4 - 231 45 9 1 10 496 93 600 We currently trade from circa 600 locations Circa 500 in the UK Just over 90 in Ireland Currently we trade from 11 branches in Belgium +2x RMC plants – increases by 6 in Q1 2014 Headroom to grow in the UK and Belgium
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David Arnold Chief Financial Officer
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Average Daily Like for Like Revenue Growth – 2013*
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 Ten months to 31 October 2013* UK Merchanting (0.6%) 4.2% 4.1% 6.2% Irish Merchanting 2.4% 5.6% 1.1% Irish Retailing (12.3%) 8.5% (1.7%) Manufacturing (10.3%) 8.0% 25.5% 0.7% *Constant currency
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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
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Revenue Ireland revenue peaked at €1,227m (£840m) in 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)
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Group Operating Profit
Group operating margin peaked at 8.3% (2006) Operating margin gradually rebuilt since 2009, largely through self help measures
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ROCE / Capital Turn Increasing focus going forwards
ROCE at 16.1% in 2007 Gradual improvement since 2009
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Net Debt / Gearing Significant reduction in financial leverage
Debt reduced by £250m over 5 years No recourse to shareholders Gearing 17% at June 2013
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Dividend / Dividend Cover
Dividends paid throughout the recession Progressive dividend policy to be maintained 2013 interim dividend increased by 17%
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Grafton’s Strategic Pillars
Economic Growth Operating Margin Capital Turn Organic Growth Revenue
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Revenue Growth Revenue Growth Points Economic Growth Organic Growth
- Exposure to early cycle upturn Organic Growth Implants Multi-specialist Product extension Selco New Formats Greenfield Acquisitions Geography UK infill and consideration of further overseas markets - Extending capabilities Added Value
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Margin Growth Operating Margin Growth Points Operating Leverage
- Inherent operating leverage across our brands Pricing Initiatives Pricing Consistency - Across branches - Sensitive and responsive to customer - Good value, service-led proposition Customer Insight Benchmarking Mix Product - Driving higher margin business and core product range - Focus on highest returns By Customer Implants - Driving contribution to fixed cost Rich vein of opportunity Leveraging across the Group Self Help (Part 2) Cost efficiencies Purchasing
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Increasing Capital Turn
Growth Points Revenue Growth Revenue Growth Capital turn benefits from economic and organic growth plus operating leverage Property Focus Dedicated property team Maximising opportunities within the property portfolio Optimise Working Capital Woodie’s Progressively improve stock turn towards best in class Seasonal stock improvement opportunities Maximise terms from expanded footprint Plumbase Belgium Cash Collect Selco c.85% cash Greater proportion of our customers’ spend Supporting our trade customers with retail proposition Implants Showrooms
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Revenue Growth Revenue a All brands early cycle beneficiaries
Economic uplift a Organic Growth Implants New Formats Greenfield Acquisitions Geography Added Value Grafton NI Grafton RoI Belgium 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
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Margin Growth Operating Margin a
Operating Leverage a Pricing Initiatives Price consistency Customer insight Benchmarking Mix Business/product By Customer Self Help Part 2 Implants Cost efficiency Purchasing Grafton NI Grafton RoI Belgium 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
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Increasing Capital Turn
Revenue Growth a Property Focus Optimise Working Capital Cash collect Selco Implants Showroom Grafton NI Grafton RoI Belgium 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
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Financing Strategy Total Group debt facilities amount to £376m of which £74m was undrawn at 30 June 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
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Eddie Kelly CEO Grafton Merchanting, RoI
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Merchanting RoI Largest Builders Merchant Largest Plumbers Merchant
Largest Steel Stockholder Largest Civils Merchant
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Dublin Area
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Chadwicks Clonmel
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Chadwicks Naas
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Irish Construction Industry
INDUSTRY VALUE €40B Billion € €8B
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Irish Construction Industry
INDUSTRY VALUE Billion € €40B €8B PUBLIC CAPITAL SPEND €9B €3.9B
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250 Independent Merchants operate on turnovers between €1m and €15m.
Builders’ / Plumbers’ Merchants in RoI 250 Independent Merchants operate on turnovers between €1m and €15m.
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Merchanting RoI & the Recession Sales v Costs 2007 2012 Sales €796m
Sales €796m €270m Costs €124m €65m Sales v Costs
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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
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Customer Type
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Product Mix
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House Completions Ireland 1990-2012
Current activity is at an unsustainably low level 25,000 completions is a more realistic level of activity
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Outlook for Irish economy
Recovering Market Conditions Housing RMI Demographics Min 25,000 units needed per annum Young population Government Stimulus New business start-ups Foreign Investment Hotels Incomplete projects Food / Agri CAP changes in 2015
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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
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Selco video presentation
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Joe Sowton Group Strategic Development Director Introduction
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A focussed supplier of construction materials
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 Supplier of construction and related products to trade professionals - residential and commercial RMI sectors Our core BM business operates nationally within the UK, Ireland and Belgium Leading market positions Broad strategy anticipates organic growth + measured new market development
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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 lead not follow Multi-specialist – not generalist Ireland – market leader Selco – unique Strong local management - within Group structure and disciplines High level of branch responsibility - service levels Duel Branding – popular as we developed a recognisable brand
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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 Proud of record Since our UK project started in 1994 Grafton has made over 150 acquisitions Ten years between 1997 and 2006 we averaged 10+ acquisitions a year – doubling in size every 3-years Strong pipeline of targets Headroom to acquire in UK
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GB market consolidation
GB market has undergone a high degree of consolidation Further consolidation is anticipated Grafton is able to acquire without any significant competition issues 2012 (E) GB market consolidated very quickly - major groups increasing share from 30% to 70% since 1994 We anticipate further consolidation Grafton well placed to benefit –only major group with headroom to make sizable BM acquisition
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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 Consolidation driven by top four merchant groups Investment in store development – modernising – wider product range IT platform Gave ability to capture more of our customers wallet + wider appeal Industry professionalised In response to consolidation buying groups have evolved to protect independents
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GB Merchanting Geographical reach 2012 market position
436 branches Geographical reach 2012 2014 expansion focus 2012 – 436 Branches 2012 market position Focus on GB merchanting Analysis of market trends One stop shops Multi Specialist – take more of the wallet Target areas for growth - Wales & south Builders Merchanting No 3 Plumbers Merchanting No 4 Source: Management data
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Over 200 potential UK locations
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 Implants utilise surplus space within existing estate HIREBASE: 100 by the end of 2013 Potential for 150+ SHOWROOMS: New concept consolidates all brands Introduced in 150 branches Plumbase Industrial: New concept trialled this year in London Second branch now operational Potential for up to 30 - stores ELECTRICBASE: ElectricBase is a good example of where we can add value to our estate We acquired a single site independent to bring in skills Developed scalable implant model Now rolling out nationwide – up to 200 Transferrable across businesses and borders 2013 – 100 locations 2014 – 115 locations 2013 – 1st branch in Hayes 25 – 30 potential locations
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Implants GB Merchanting DECORATING IRONMONGERY focus on growth
Increased profile for Buildbase as core business Implants within existing branches utilise surplus space: HireBase Showrooms PlumBase PlumBase Industrial model launched SHOWROOMS
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Over 100 white gap opportunities
GB Merchanting Focus on growth Acquisitions and green field sites Over 100 white gap opportunities GB merchanting market worth £12bn Over 100 white gap opportunities identified - predominately in the SE of England and Wales Grafton well positioned to expand as we emerge from the recession Both organic and acquisitions available
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Trade cash & carry - 36 stores
SELCO is a unique business model in the UK Delivers best in class performance
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Considerable development potential
SELCO Focus on growth 36 BRANCHES Considerable development potential Estimated market size Estimated market size within catchment £4.5bn – we have 6% Good headroom for growth Selco is a key focus for the Group Opportunity to develop alternative formats to widen reach Est. 6% Source: Management estimate
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Irish Merchanting Geographical reach Estimated 2012 market share
43 branches Geographical reach Strong management in Ireland – proven track record Emerging from the unprecedented downturn in good shape Market leader – 6x bigger than nearest competitor - market share is increasing Growth opportunities limited – but we are well placed to benefit from any recovery Main focus category expansion Estimated 2012 market share Builders Merchanting No 1 Plumbers Merchanting No 1 Dublin Providers 5%
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Irish Retail DIY 45 stores Irelands leading DIY retailer
2x as big a B&Q 3 x bigger than Homebase
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Irish Retail DIY Geographical reach 2012 market share
DIY Retailing No 1 DIY retail only in Ireland National coverage New management this year bringing new momentum and fresh ideas Well positioned to benefit from any upturn in the market
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Northern Irish Merchanting
15 branches Geographical reach 2012 Potential Well managed but limited growth available – small market Potential for some infill branches Main growth potential is implant P&H Estimated NI 2012 market share
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EuroMix Dry Mortar UK’s leading Dry Mortar manufacturer and distributor
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EuroMix Geographical reach 2012 dry silo market share
9 Dry Mortar Plants Geographical reach 2012 dry silo market share 2012 Well positioned with commanding 50% market share National coverage from 9 production plants Operationally leveraged - Profits follow volumes – housing increasing Represents around 2% of our existing group UK Dry Mortar Manufacturing No 1
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Transferable skills & knowhow Synergies Experience of growth
Where can we add value? Transferable skills & knowhow Synergies Experience of growth We recognise familiar patterns in unconsolidated markets Three key areas where Grafton can add value to potential targets are: Transferable skills & knowledge bank Synergies Experience of growth
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Considerations and tests
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 CONDUCT EXTENSIVE ANAYSIS SHAREHOLDER VALUE Conduct research and analysis of potential markets
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GRAFTON’S JOINT VENTURE WITH ROUSSEL NV - 2009
Expansion into Belgium GRAFTON’S JOINT VENTURE WITH ROUSSEL NV Joint venture with Roussel in 2009 Grafton 49% Started with €10m turnover
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Why Belgium? Stable market €3 - €3.5bn Unconsolidated Underdeveloped
Excellent quality sites Strong pipeline Ability to gain leading position Stable market We can add value Good quality targets - ability to develop a leading position
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Belgian Market Top 20 merchants 20% market share
Largest BM €80m – next three €70m 600+ independents no large groups JV grown from €10m to €70m since 2009 7 acquisitions YouBuild 4th largest in 2013 – First in 2014 Opportunities for further development
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The YouBuild Family Plumbers Merchant Ready Mix Concrete Tile Showroom
Builders Merchant Plumbers Merchant Ready Mix Concrete Tile Showroom Tile, Kitchen & Bathroom Showroom 10 1 2 Currently we operate from: 10 x BM 1 x P&H and Sanitaryware 2 x RMC plants 5 x Tile showrooms I x Kitchen & bathroom showroom Active in Dry Mortar – 300 silo’s In Wallonia & Flanders 5 1
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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 Renegotiated the terms of JV last year Grafton has a controlling interest – 65% JV now operates in West Flanders Region + small part of Wallonia Family shareholders no longer operational management Grafton expanding outside of JV
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Belgian builders merchants opportunities
BRUSSELS Agreement reached in October subject to competition authority approval Completes Q1 2014 Mpro has 6 outlets in 5 areas Good synergies with YouBuild Grafton now well placed to capitalise on market consolidation Good pipeline Mpro increases management capability in Belgium Mpro 25km catchment YouBuild Mpro
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2012 2014 1st Belgian builders merchanting 4th
Mpro elevates Grafton’s builders merchanting from 4th to 1st place in 2014 Currently 50% bigger than nearest competitor Plenty of headroom for growth
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Summary Key focus on UK growth Well positioned in Ireland
Significant progress in Belgium Potential to develop internationally
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Outlook and Summary Gavin Slark Chief Executive Officer
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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
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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
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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
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Thank you for listening
Questions and answers Thank you for listening
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