Grafton Group Plc · LSE:GFTU
Grafton — Investor Day (November 2013)
77 slides from Grafton's investor day presentation, Nov 7, 2013
Slide 1: Grafton Group plc Investor Day
Grafton Group plc Investor Day London Thursday, 7 November 2013
Slide 2: Gavin Slark, Chief Executive Officer
Gavin Slark Chief Executive Officer
Slide 3: Cautionary Statement
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
Slide 4: Agenda
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 • Summ
Slide 5: Executive Management Team
Executive Management Team Gavin Slark CEO Joe Sowton Charles Rinn Jolyon Ingham Jonathan Jennings David Arnold Group Strategic Group Financial Group IT Group Property Group CFO Development Controller/ Secretary Director Director Director Peter Kearney CEO Eddie Kelly CEO Mark Kelly CEO Chris Cunliff
Slide 6: Management Team in attendance
Management Team in attendance Steve Thompstone Peter Kearney Declan Ronayne Managing Director Chief Executive Chief Executive Buildbase Grafton Merchanting NI Woodie’s DIY Andy Williams Kate Tinsley Chris Cunliffe Managing Director Finance Director Chief Executive Plumbase Grafton Merchanting GB Sel
Slide 7: 1909 - 2013
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 Jac
Slide 8: Existing Group structure
Existing Group structure Merchanting Ireland DIY Retailing Builders Merchanting Grafton Group plc UK Plumbers Merchanting Mortar Manufacturing Belgium JV Builders Merchanting JV Manufacturing
Slide 9: Our current market positions
Our current market positions • Builders Merchanting UK No 3 ROI No 1 Belgium No 3 (No 1 - 2014) • Plumbers Merchanting UK No 4 ROI No 1 • DIY Retailing ROI No 1 • Dry Mortar Manufacturing UK No 1
Slide 10: 2012 revenue by business segment and geography
2012 revenue by business segment and geography Revenue by Business Segment Revenue by Geographic Area Merchanting UK 89% 76% £1.76bn €2.17bn £1.76bn €2.17bn Ireland Retailing 22% Manufacturing 9% Belgium 2% 2%
Slide 11: Group trading locations
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 - 45 9 1 - 10 Total 496 93 11 600
Slide 12: David Arnold, Chief Financial Officer
David Arnold Chief Financial Officer
Slide 13: Interim Management Statement
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 Four months to Ten months to 31 October 31 October Q1 Q2 2013 2013* UK Merchanting (0.6%) 4.2% 4.1% 6.2% Irish Merchanting
Slide 14: Interim Management Statement
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
Slide 15: Revenue
Revenue 2,500 • Ireland revenue peaked at €1,227m (£840m) in 2007. 2,000 2012 revenue €487m (£395m) 1,500 Revenue (£ms) • 2012 UK revenue broadly Belgium back to 2007 level Ireland (£1.335bn vs £1.353bn) 1,000 UK • Selco more than doubled revenue over this period 500 (£230m v £112m) • 2012 Belgium r
Slide 16: Group Operating Profit
Group Operating Profit 200 9.0% 8.2% 180 8.0% • Group operating margin peaked at 8.3% (2006) 160 7.0% Operating profit (£m’s) 140 • Operating margin gradually Operating Margin (%) 6.0% rebuilt since 2009, largely 120 through self help measures 5.0% 4.4% 100 180.4 4.0% 3.4% 80 2.7% 3.0% 60 2.4% 92.7
Slide 17: ROCE / Capital Turn
ROCE / Capital Turn 16.1% 2.5 16.0% • Increasing focus going forwards 14.0% 2.0 2.0 1.8 1.8 12.0% 1.7 • ROCE at 16.1% in 1.6 2007 1.5 10.0% 1.5 Capital Turn ROCE (%) 7.6% • Gradual 8.0% improvement 5.9% 1.0 since 2009 6.0% 4.6% 3.8% 4.0% 0.5 1.8% 2.0% 0.0% 0.0 2007 2008 2009 2010 2011 2012 Capital T
Slide 18: Net Debt / Gearing
Net Debt / Gearing 450.0 60% 400.0 52% • Significant reduction in 50% 50% financial leverage 350.0 • Debt reduced by £250m 300.0 40% 35% over 5 years Net debt (£m’s) Gearing (%) 250.0 403.6 414.9 30% 26% • No recourse to 200.0 23% shareholders 286.4 20% 150.0 20% 219.6 • Gearing 17% at June 2013 100
Slide 19: Dividend / Dividend Cover
Dividend / Dividend Cover 16 3.8 4.0 • Dividends paid throughout 14 3.5 the recession 12 3.0 2.6 • Progressive dividend policy 10 2.5 to be maintained Dividend cover (x) 2.3 Dividend (p) 2.1 2.1 8 2.0 15.1 • 2013 interim dividend increased by 17% 6 11.9 1.5 1.1 4 1.0 6.5 6.9 6.0 2 4.5 0.5 0 0.0 2007
Slide 20: Grafton's Strategic Pillars
Grafton’s Pillars Strategic Strategic Pillars Economic Growth Operating Capital Revenue Margin Turn Organic Growth
Slide 21: Revenue Growth
Revenue Growth Revenue Growth Points Economic Economic - Exposure to early cycle upturn Growth Growth Implants - Multi-specialist Organic New Formats - Product extension Growth Greenfield - Selco Geography - UK infill and consideration of further overseas markets Acquisitions Added Value - Extending
Slide 22: Margin Growth
Margin Growth Operating Margin Growth Points Operating Operating - Inherent operating leverage across our brands Leverage Leverage Pricing Consistency - Across branches Pricing Customer Insight - Sensitive and responsive to customer Initiatives Benchmarking - Good value, service-led proposition Prod
Slide 23: Increasing Capital Turn
Increasing Capital Turn Capital Turn Growth Points Revenue Revenue - Capital turn benefits from economic and organic Growth Growth growth plus operating leverage Focus - Dedicated property team Property - Maximising opportunities within the property Optimise portfolio Woodie’s - Progressively improv
Slide 24: Revenue Growth by brand
Revenue Growth Grafton Grafton Revenue NI RoI Belgium Economic uplift a a a a a a a a Organic Implants Growth a a a a New Formats a Greenfield a Acquisitions Geography a a Added Value a • All brands early cycle beneficiaries • Multi-specialist – Hirebase, Plumbase and Electricbase implants are key t
Slide 25: Margin Growth by brand
Margin Growth Grafton Grafton Operating Margin NI RoI Belgium Operating Leverage a a a a a a a a Pricing Price consistency Initiatives a a a a a Customer insight a a a a a Benchmarking a a a a a a a a Mix Business/product a a a By Customer a a a a Self Help Implants Part 2 a a a a Cost efficiency a
Slide 26: Increasing Capital Turn by brand
Increasing Capital Turn Grafton Grafton Capital Turn NI RoI Belgium Revenue Growth a a a a a a a a Property Focus a a a a a a a a Optimise a a a Working Capital a a a Cash collect Selco a Implants a a a Showroom a a • Capital turn of all brands benefits from economic and organic growth plus operatin
Slide 27: Financing Strategy
Financing Strategy £m 300 280 250 260 240 220 179 200 (30 June) 180 152 160 95 140 (30 June) 120 100 80 60 24 40 14 5 20 9 0 Cash 2013 2014 2015 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 •
Slide 28: Eddie Kelly, CEO Grafton Merchanting, RoI
Eddie Kelly CEO Grafton Merchanting, RoI
Slide 29: Merchanting RoI
Merchanting RoI • Largest Builders Merchant • Largest Plumbers Merchant • Largest Steel Stockholder • Largest Civils Merchant
Slide 30: Dublin Area
Dublin Area sq Grafton Group plc 135) q Kilsallaghan [2025] Satellite | WE ‘Applewood Traffic | 4 [R106] _ Malahide Kinsealy- ‘Portmarnock ae, IRS) Northwest Business Park ~ Rosemount Ongar 2 6 fe Village Kilmore ‘ s, : the ia} Suter, hall Arte 25, on na eny North Bull i Island ok {-} c vi Clontarf
Slide 31: Chadwicks Clonmel
Chadwicks Clonmel
Slide 32: Chadwicks Naas
Chadwicks Naas
Slide 33: Irish Construction Industry 2007-2012
Irish Construction Industry 2007-2012 INDUSTRY VALUE €40B 40 35 30 25 Billion € 20 15 10 €8B 5 0 2007 2012
Slide 34: Irish Construction Industry 2007-2012
Irish Construction Industry 2007-2012 INDUSTRY VALUE PUBLIC CAPITAL SPEND €9B €40B 40 35 9 Billion € 30 25 8 20 15 7 10 €8B 5 0 2007 2012 6 Billion € 5 €3.9B 4 3 2 1 0 2007 2012
Slide 35: Builders' / Plumbers' Merchants in RoI
Builders’ / Plumbers’ Merchants in RoI €270m 300 250 200 150 €50m €41m 100 €30m €25m 50 0 GMRoi Heat DPL McMahons Brooks Merchants 250 Independent Merchants operate on turnovers between €1m and €15m.
Slide 36: Merchanting RoI & the Recession
Merchanting RoI & the Recession 800 Sales 700 €796m 600 500 400 300 200 Sales €270m 100 Costs Costs €124m €65m 0 Sales v Costs Sales v Costs 2007 2012
Slide 37: What have we done to improve our bottom line?
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 • Traini
Slide 38: 2012 - Sales by Customer Category
10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 60,000,000 70,000,000 80,000,000 0 CASH SALE SMALL/MEDIUM CONTRACTOR LARGE CONTRACTOR Customer Type SELF-BUILD STEEL PLUMBING/HEATING CONTRACTOR HOUSE BUILDER OTHER DISTRUBITION CIVIL CONTRACTOR PUBLIC BODIES HIRE 2012 - Sales by Customer Catego
Slide 39: Product Mix
Product Mix Hire 2% Ironmongery 9% General BM 37% Steel 10% Timber 18% Plumbing 24%
Slide 40: House Completions Ireland 1990-2012
House Completions Ireland 1990-2012 Current activity is at an unsustainably low level 25,000 completions is a more realistic level of activity
Slide 41: Outlook for Irish economy
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
Slide 42: Outlook for Merchanting RoI
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
Slide 43: Selco video presentation
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Slide 44: Joe Sowton, Group Strategic Development Director
Joe Sowton Group Strategic Development Director
Slide 45: Our Strategy
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
Slide 46: What sets Grafton apart?
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
Slide 47: Grafton's M&A track record
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
Slide 48: GB market consolidation
GB market consolidation 1994 (E) GB market has undergone a high degree of Groups 30% consolidation Independents 70% Further consolidation is anticipated 2012 (E) Grafton is able to acquire without any significant competition issues Groups 70% Independents 30%
Slide 49: Effect of consolidation
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
Slide 50: GB Merchanting branches
GB Merchanting 436 branches Geographical reach 2012 2014 expansion focus 2012 – 436 Branches Wolsley 2012 market position 19% TP (Exc Wickes) Jewson 23% 18% Builders Merchanting No 3 Plumbers Merchanting No 4 Others 29% GMGB 11% Source: Management data
Slide 51: Organic opportunities: Implants
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 150 locations locations Project launched in 2014 2013 – 100 locations 2013 – 1st branch in 2014
Slide 52: Implants
GB Merchanting focus on growth Implants DECORATING IRONMONGERY SHOWROOMS
Slide 53: Acquisitions and green field sites
GB Merchanting Focus on growth Acquisitions and green field sites Over 100 white gap opportunities
Slide 54: Trade cash & carry - 36 stores
Trade cash & carry - 36 stores is Grafton Group plc BUILDERS WAREHOUSE Channe
Slide 55: SELCO: Focus on growth
SELCO Focus on growth 36 BRANCHES Considerable development Estimated market size potential £4.5 bn Est. 6% Source: Management estimate
Slide 56: Irish Merchanting branches
Irish Merchanting 43 branches Geographical reach Grafton – Ireland Merchanting 36% (Min) 200+ Others 53% HeatHeat Merchants Merchants 6% 6% Estimated 2012 market share Builders Merchanting No 1 Plumbers Merchanting No 1 Dublin Dublin Providers 5% Providers 5%
Slide 57: Irish Retail DIY
Irish Retail DIY is amten@aupr 45 stores
Slide 58: Irish Retail DIY
Irish Retail DIY 2012 market share Geographical reach DIY Retailing No 1 100+ Others Woodie’s 29% +40% Homebase 12% B&Q 19%
Slide 59: Northern Irish Merchanting branches
Northern Irish Merchanting 15 branches Geographical reach 2012 Potential Others 34% Murdoch 14% GMNI 20% Haldane Fisher Estimated NI 2012 14% J P Corry market share 18%
Slide 60: EuroMix Dry Mortar
: sis EuroMix Dry Mortar is Grafton Group plc EuroMix CPI cel] EuroMix feted Prom ye Sot Fe ese Mats B, ae ee Ne
Slide 61: EuroMix Geographical reach
EuroMix 9 Dry Mortar Plants Geographical reach 2012 dry silo market share 2012 Others 2% Remix 12% EuroMix Cemex 50% 15% Tarmac 21% UK Dry Mortar Manufacturing No 1
Slide 62: Where can we add value?
Where can we add value? • Transferable skills & knowhow • Synergies • Experience of growth
Slide 63: Considerations and tests
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
Slide 64: Expansion into Belgium
Expansion into Belgium GRAFTON’S JOINT VENTURE WITH ROUSSEL NV - 2009
Slide 65: Why Belgium?
Why Belgium? • Stable market €3 - €3.5bn • Unconsolidated • Underdeveloped • Excellent quality sites • Strong pipeline • Ability to gain leading position
Slide 66: Belgian Market
Belgian Market Estimated 2012 Turnover - Top 10 Belgian Merchants 2012 Estimated Market 140 Share 120 100 4.9% YouBuild 80 & Mpro €m 75.5% 60 40 20 0
Slide 67: The YouBuild Family
The YouBuild Family 10 Builders Merchant 1 Plumbers Merchant 2 Ready Mix Concrete 5 Tile Showroom 1 Tile, Kitchen & Bathroom Showroom
Slide 68: Belgian joint venture repositioning
• 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
Slide 69: Belgian builders merchants opportunities
Belgian builders merchants opportunities BRUSSELS Mpro 25km catchment YouBuild Mpro
Slide 70: Belgian builders merchanting
Belgian builders merchanting 2012 2014 1st 4th
Slide 71: Summary
Summary • Key focus on UK growth • Well positioned in Ireland • Significant progress in Belgium • Potential to develop internationally
Slide 72: Grafton Group plc YouBuild
fad 64 Grafton Group plc _— ‘e8s YouBuild —
Slide 73: Outlook and Summary
Outlook and Summary Gavin Slark Chief Executive Officer
Slide 74: Outlook - UK
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
Slide 75: Outlook - Ireland
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
Slide 76: Summary
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
Slide 77: Questions and answers
Questions and answers Thank you for listening