Chief Executive's Review
Domestic
Despite the recession the Domestic Division has continued to grow
market share, this growth has been achieved by focusing on
improving customer service, product availability, retaining competitive
terms and having knowledgeable staff that assist our customers
The Domestic Division increased revenue by 3.7% in the financial year against 2008 with like for like revenue decreasing by 1.5%, new branches contributed 4.8% of growth and an additional working day a further 0.4%. The weakening trend in sales in the second quarter of the financial year, caused by a sharp contraction in domestic new build activity, continued into the second half. As the recession took hold the repairs and maintenance market tightened as some end user customers deferred boiler replacement and opted to repair existing facilities. This shift in the marketplace accelerated our decision to acquire our parts partner: Direct Heating Spares.
Total sales in the second half were 1.8% lower than last year and like for like sales were down 5.0% against last year. The primary driver for sales of boilers, radiators, pipes and accessories remains replacement on a repair and maintenance basis of existing housing stock. Despite some marginal loss of volume the core boiler market has continued to hold up well and our boiler sales volume increased by 3.9%.
The Domestic Division has continued to grow market share, this growth has been achieved by focusing on improving customer service, maintaining good product availability, retaining competitive terms and having knowledgeable staff that assist our customers. The Division has increased the number of active customer accounts and we have invested in new products and improved stock efficiency. Being flexible and keeping close to our customers through enhanced service remains key to the success of the Division.
During the year, PTS opened 30 new branches which takes the total number of trading locations across PTS and Spendlove C. Jebb to 307. The new branches continue to add value and variation of the new branch proposition to meet the opportunities offered in local markets has underpinned the solid returns achieved.
Four of the 30 new branches opened in the year were contract branches making six in all. These branches offer commercial sanitaryware and allow the business to take advantage of the strong market demand for these products which was historically dominated by independent merchants. Sales across all contract branches have been strong with contract gains to refurbish schools, hospitals and hotels. The contract branches enter 2009/10 with good order books.
Sales reduction within the new build segment of the market has cost PTS in excess of £35m in lost revenue. This has been primarily due to the curtailment of new building activity in the year. The business has however seen growth in its small installer sales and has secured contract gains to refurbish housing stock and recruited new customers from our competitors. The social housing market continues to hold up and PTS continues to enjoy a strong market position.
The Division has continued to invest in new growth streams which have partly offset contraction in traditional market segments. Renewable technology continues to become a core part of our future strategy.
PTS now supplies a complete range of solar, heat pump and bio mass technology. Sales continue to increase across all sectors including new build and local authority specifications. To this end we opened Aylesford in the year, a 22,000 sq ft branch and warehouse with the ability to distribute across the whole of the south east. Sales for the Group of renewable products have exceeded £10m for the first time in the financial year.
Spare parts continue to deliver excellent growth.
PTS now has 90 locations selling spares and in 2008/09 PTS exceeded its annual sales budget with over £10m of sales. The spares
market, estimated to be in excess of £200m, has strong market dynamics during economic downturns. Contracts recently awarded
give PTS confidence it will continue to take market share and grow in a sector which has considerable growth potential. The acquisition
of Direct Heating Spares Ltd, a leading wholesaler and distributor of spare parts to the heating industry, on 2 April 2009 will further
enhance spares profitability and significantly improve market penetration.
The Domestic Division has worked closely with its supplier base to improve commercial terms and to develop further growth through creating ‘win win’ trading strategies. Gross margin has been enhanced by direct sourcing commodity product from low cost countries which has supported own brand margins.
Spendlove C. Jebb, the Northern Ireland based merchant has had a good year, despite economic difficulties in both the north and south of Ireland.
Like for like sales were 8% up on last year, a new branch was opened at Naas, west of Dublin, taking the total number of branches in Ireland up to seven: six in the north and Naas in the south. We continue to see opportunities to grow share in Ireland despite the market downturn.
F & P distributes heating, plumbing and bathroom products nationally to independent merchants, fire and bathroom showrooms. Our delivery promise of ‘one tomorrow’ means one of anything we sell, delivered within 24 hours, applies across most of the UK and is valued by our customers at a time when many of them have reduced their working capital investment. The core business is distribution of branded boilers complemented by F & P’s own brand, Procombi boilers, which increased volume sales by 26%. A range of own brand bathroom products under the banner of ‘Fresssh’ have been introduced in the last year and sales are well ahead of our expectations. The business currently operates from 10 branches nationally with a new branch opening in Scotland in August 2009.
As markets have tightened in the second half, action has been taken to reduce costs throughout the Division to reflect deteriorating economic conditions. A programme of cost reduction has continued throughout the half with PTS headcount down 7% on last year on a like for like basis. Both PTS and F & P Wholesale enter the new financial year well positioned to meet the challenges of a recessionary market.
Market Drivers
- 1. Steady Market
Boiler and radiator markets steady: 95% sold as replacement
Over the last year we have seen growth in market share for both boilers and radiators. The UK housing stock and the average life of a boiler dictates that on average the UK will supply over 1.4m units per annum. This replacement is driven by the life cycle of the product and not by economics. - 2. Renewables
Focus on renewable energy
The awareness of renewable energy has increased the sales throughput for PTS. Legislation around sustainable codes for housing has resulted in both the new build and social housing market taking advantage of technology to achieve improved SAP ratings where insulation alone is not an option. - 3. Spares
Spares market now worth £200m
PTS continues to develop this market which has the benefit of being counter cyclical. When an appliance fails, the choice to repair is not optional and therefore the market remains buoyant. Since entering the market in 2006 the business has continued to take market share. Double digit sales growth reflects continued gains and an increased number of PTS branches stocking parts and the number of contracts and branches increased as a consequence.