Chief Executive's Review
Industrial
The Division continues to outperform the market and to build on
its reputation for service, reliability and technical expertise
The Industrial Division has had a good year. Like for like revenue increased by 3.9% (2008: 12.9% growth) with operating profit increasing by 17.1%, the operating margin increased to 8.4% (2008: 7.4%). Sales growth slowed in the second half of the year, as expected, with like for like revenue flat, against first half growth of 7.6%. Sales volume growth has been sustained throughout the financial year but price deflation on copper and steel in the second half has slowed momentum.
The Division continues to outperform the market and to build on its reputation for service, reliability and technical expertise. Major project work remains key to the Division's success, capitalising on investment in health, education and infrastructure projects both public and private. The Division benefits from its national distribution capability, from investment in stock, with experienced management maintaining strong customer relationships.
Many of our customers have strong order books and although we recognise that secure funding is key to maintaining the flow of new project work we are encouraged by the level of new contract business that is being secured. Olympics related business has commenced and we continue to build revenue beyond our market leading position in the heating and ventilation sector.
The Division has continued to expand its added value offering in technical and support services through its own brands.
A major investment has gone into Manor Plastics with a new logistical platform being put into Magna Park which provides a next day service direct to the customer for all industrial plastic products, both fittings and tube. AMS Pumps was awarded, for the second year running, ‘Pumps Distributor of the Year’ and was recognised for the work completed on energy surveys that help our clients to reduce their energy requirements by replacing inefficient pumps.
Ongoing repair and maintenance work continues
to grow in importance, sales focus has been improved and work completed to drive sales of controls and heating spares through the launch
of our Havelock website complemented with dedicated sales focus. This trading platform has been well received by our customers and
supports sales growth on the Havelock brand. This sales initiative, not only provides full technical details of all stocked parts,
but also allows orders to be placed and card purchases to be accepted over the web.
Further investment has been made in our branch network with the opening of the first new Industrial branch in 10 years in Portsmouth. We are encouraged by customer reaction in the local market and are reviewing the opportunities to open additional branches with variation in the proposition to fit with local needs.
A number of new sectors have been targeted. The Industrial Division recognises the need to diversify and a number of opportunities are being pursued that offer new revenue potential.
Major investment is being undertaken under the Asset Management Programme (‘AMP’) to improve water treatment and environmental standards in the water industry. The Division is well positioned to support major investment in capital works and has been successful in securing a number of framework agreements with tier one contractors working in the sector.
In addition, above ground drainage is a £200m market that offers considerable growth potential for the industrial Division. A new ‘implant’ branch has been opened within existing Industrial premises at Chessington, west of London. Early results are encouraging, necessary expertise has been acquired and a further five ‘implant’ branches are being opened in the first half of the new financial year.
The Division continues to seek to improve the breadth and quality of earnings. The current pipeline of work remains strong but the inherent risks are recognised in the need for our customers to have secure funding. Diversification into new market sectors is being pursued aggressively to improve the mix of sales and the spread of funding sources recognising that Government sourced finance will in due course be significantly reduced.
Market Drivers
- 1. Infrastructure
Continued spend in project work
Crossrail, BSF, Heathrow, MOD accommodation, hospitals and prisons: all these and more provide huge opportunities - 2. Drainage Market
Entry in market with steady increase in sales
BSS has developed a new offering for a market worth in excess of £200m (above ground). Driving for significant growth and expansion into this market - 3. Alternative sectors
Focus on marine, water and food industries
AMP5 releases £19bn committed to invest in water treatment. BSS has core ranges and technical expertise to capitalise on this opportunity