Strategy Update Travis Perkins 19 th May 2008 1 Reminder - who we - - PDF document

Travis Perkins Strategy Update

19th May 2008

1 Reminder - who we are, what we do – John Carter 2 Market Update – Paul Hampden Smith 3 Strategy Update – Geoff Cooper 4 Multi Channel Strategy – John Carter 5 Toolstation - Mark Goddard-Watts

2

Group structure

(Associate) 3

+140 years of combined experience in our sector … 4 members of the team were working at TP in the early 1990s recession

4

Our Group mission…

Continue to deliver superior returns by...... putting in place and growing great businesses, with outstanding people and operations, providing comprehensive building material solutions, to everyone creating, maintaining, repairing or improving the built environment, ...... helping to build Britain.

5

Our Group vision is…

To ensure that anyone in the UK who wants to access any kind of building materials through any form of supply channel will have a Travis Perkins group operation as their first or first alternative choice.

6

Key company facts

Trade 71% Retail 29%

Turnover 2007 £3,187 m

Trade 81% Retail 19%

£320m operating profit 2007

Trade 70% Retail 30%

Over 15,000 colleagues 2007

Keyline 7% CCF 3% Benchmarx 2% Tile Giant 3% CPS 17% TP 52% Wickes 16%

7 brands on 1,125 sites 2007 - % split sites by brand

Other DIY 9% Joiners & kitchen fitters 1% Other trade 12% Landscape gardener 1% Serious DIY 9% Dry liners 4% Ground workers &civil engineering 8% P+H installers and contractors 7% Housebuilders 11% Maintenance contractors 3% Jobbing builders and contractors 35%

% split Group sales by customer type 2007

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We are expanding our channel and product/market presence

Core materials Civils P+H Drylining & Insulation Decorative Kitchens & joinery Tiles Retailing Wickes

• Wickes

Wickes Wickes Wickes Wickes General Merchanting TP TP TP TP TP TP TP Specialist

• Keyline

CPS CCF

• Benchmarx

Tile Giant Direct to site TP Keyline TP Keyline TP CPS TP CCF TP TP Benchmarx TP CPS Direct to consumer Wickes

• Wickes

Wickes Wickes Wickes Wickes

8

TP operates within markets worth a total of approx. £33bn with a Group market share of 10%

TRADE Current TP core trade businesses

• Heavy + light BM
• Including Keyline,

CPS, CCF Specialist trade categories includes all supply channels

• Trade kitchens & joinery
• Insulation & drylining
• Ceiling & partitions &

fire proofing DIY

• “Retail”

formats

• Including some capture of smaller

tradesmen (white van man)

£16.5bn £14.1bn £3bn £1.4bn

Big 4 DIY ~£7bn

44% Specialist retail category includes all supply channels

• Tiles

£1bn - Consumers shopping at merchants £130m £580m £270m £170m

Source: Verdict 2008/Internal estimates/Consult GB

All these markets add up to £35bn.. however there is some overlap… We have to remove “double counting”

• f c. £2bn to reach our Group

addressable market size.

Travis Perkins Group addressable market

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1 Reminder - who we are, what we do – John Carter 2 Market Update – Paul Hampden Smith 3 Strategy Update – Geoff Cooper 4 Multi Channel Strategy – John Carter 5 Toolstation – Mark Goddard-Watts

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Economic variable

February

Market Comment

Outlook 2008

RMI output

Less sensitive to economic pressures

New housing output

Soft housing lead indicators

House price inflation ∆

House price growth falls to 0%

House transactions

Critically sensitive to confidence

Consumer spending ∆

Rate of growth declining

Consumer confidence

Bad news stories

Merchanting market Driven by inflation, volume down DIY market Lower inflation, volume down

Market outlook - our view in February 2008

=

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The downturn in Q3 2007 has spread to other sectors… =

INDICATOR YoY

MAY AUG SEP OCT NOV DEC JAN 08 FEB MAR APR MAY

SITE VISITORS SITE RESERVATIONS MORTGAGE APPROVALS HOUSING TRANSACTIONS HOUSE PRICE GROWTH CONSUMER CONFIDENCE BIG TICKET ITEMS HOUSING EQUITY WITHDRAWAL RETAIL SALES CONSTRUCTION FORECASTS NEW CONSTRUCTION ORDERS TRADE CUSTOMER CONFIDENCE BALANCE

= = = = =

12

Mortgage approvals have decreased for home movers and first time buyers (FTB) … buy to let approvals (BTL) have been increasing since 2000

CML Mortgage approvals

• 200,000

400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year No of Approvals Total Home movers FTB BTL

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20 40 60 80 100 120 140

2003 2004 2005 2006 2007 2008

Bank of England

Mortgage approvals have dipped further in the last 3 months

Mar 2008 64,000 Nov 2005 77,000

14

50 100 150 200 250

2004 2005 2006 2007 2008

SA Property transactions England & Wales

Housing transactions are at similar levels to 2004/5 and likely to fall further

Jan 2005 103,000

Feb 2008 116,000

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Whilst trade customer confidence has improved on the same period in 2006…

0.0 10.0 20.0 30.0 40.0 50.0 60.0 MONTH BALANCE OF WEIGHTED % TOTAL 48.0 47.0 44.3 41.7 43.4 34.7 19.3 31.8 53.8 55.0 53.2 51.3 52.5 45.8 43.5 47.1 43.6 35.7 25.1 28.6 46.8 54.3 51.8 49.7 51.0 MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY CUSTOMER CONFIDENCE SURVEY - PURCHASES OF BUILDING MATERIALS FROM MERCHANTS OVER THE NEXT 2 MONTHS

2007 2008 2006

Source: TP trade customer confidence

Purchases of building materials from merchants over the next 2 months

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Customer confidence has fallen back on 2007

CUSTOMER SENTIMENT - PURCHASES OF BUILDING MATERIALS FROM MERCHANTS OVER THE NEXT 2 MONTHS - Year on Year Comparison

• 8.0
• 6.0
• 4.0
• 2.0

0.0 2.0 4.0 6.0 8.0 Month Index Total 4.5

• 1.3
• 0.8

5.5 0.2 0.9 5.8

• 3.2
• 7.0
• 0.7
• 1.3
• 1.6
• 1.5

May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Source: TP trade customer confidence 17

Comparison to early 1990s

% CHANGE 1989 1990 1991 1992 1993

Construction output 4.7 0.3 (7.3) (4.2) (1.9) New private housing (19.9) (25) (12.9) 0.4 9.3 RMI private housing 7.6 (3.7) (10.6) (9.1) (5.6) Company revenue (6) (4) (10) 1 12 Company volume (8) (6) (12) (1) 10 TP EBITA % of sales 7.8 5.2 2.9 3.2 5.7 2008-9 Scenario YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 Market volume ? ? ? ? ? Extra inflation

+ + + + +

TP outperformance Capacity reduction Trade LFL ? ? ? ? ?

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The 1990-94 construction recession was preceded by an extraordinary “spike” in housing transactions

% change in GDP & construction ouput, 1986-1996

• 10.0%
• 5.0%

0.0% 5.0% 10.0% 15.0% 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 GDP Construction output

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Downturn in early 1990s was reversal of a much stronger growth period than currently happening

% change in total construction output less % change in GDP, 1986-2007

• 8.0%
• 4.0%

0.0% 4.0% 8.0% 1 9 8 6 1 9 8 8 1 9 9 1 9 9 2 1 9 9 4 1 9 9 6 1 9 9 8 2 2 2 2 4 2 6

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Also true in sub sectors e.g. private housing RMI

% change in private housing R&M less % change in GDP, 1986-2007

• 12.0%
• 8.0%
• 4.0%

0.0% 4.0% 8.0% 12.0% 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 2 1 2 2 2 3 2 4 2 5 2 6 2 7

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• Demographic change

– Population growth – Household formation

• Consumer trends

– Do It For Me vs Do It Yourself

• UK housing requirements

– Higher numbers of housing completions required +250,000 p.a. – Housing completions mix

• Need for more sustainable materials

– Code for sustainable homes

• Large scale developments

– Thames Gateway, London 2012 and subsequent regeneration

Beyond 2009, longer term market trends remain positive

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• Trade trends 2008

– National operators are quieter – Some strong regional independents expanding – Early business failures of weak independents

• Retail trends 2008

– B&Q – still attempting to cover hard and soft ends of the market – Focus – will do better – Homebase – slowing down openings

Capacity growth – growing in merchanting flat in retail

2005 2006 2007 Merchanting

• Plumbing & heating

6.0% 2.6% 3.7%

• Other

3.0% 3.5% 3.3% Retail 4.0% 0.3% (0.2)%

Notes: Merchanting market is revenue capacity expansion. Retail market is space expansion. Source: Company estimates 23

1 Reminder - who we are, what we do – John Carter 2 Market Update – Paul Hampden Smith 3 Strategy Update – Geoff Cooper 4 Multi Channel Strategy – John Carter 5 Toolstation – Mark Goddard Watts

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1. Outperform market on a like-for-like basis 2. Expand branch network 3. Boost returns on capital 4. Move into adjacent markets 5. Achieve scale benefits 6. Strengthen the organisation

Our strategy since 2005 – what we said we’d do…

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Our pursuit of strategic priorities will reflect the tougher market outlook…

2005 Reposition trade business

• n price

Research customer drivers and segmentation Drive inflation into the retail market 2006-2007 Create new customer propositions (“Bullseyes”) Launch c.20 best practice programmes Make Wickes trade “harder”

Goal: continue to outperform on like-for-likes and protect gross margin

2008-2009 Trade pricing optimisation Best practice coalesced on to range, availability & service. Concentrate Wickes range development on core customers

#1 “outperform the market on a like-for-like basis”

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We have been outperforming the market since mid 2006

Travis Perkins Group performance against its markets

TRADE BMF VAR. RETAIL TRADE CPA VAR. 0%

GFK VAR.

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Bullseyes

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# 2 “Expand branch network”

2005 Branches added: 232 (inc Wickes 171) Concentrate on brownfields Goodwill prices too high Capacity overshoot Conserve cash 2006-2007 Branches added: 39 2006 & 103 2007 50% brownfields/50% acquisitions by value Goodwill prices moderating Capacity growth slows Push high return projects

Goals: Achieve strong incremental ROIC and maximise market penetration

2008-2009 Branches added 70 YTD 2008 & ? 2009 Depend on opportunities & value Actively drive goodwill prices down Further capacity contraction Raised return thresholds, new test criteria

Our pursuit of strategic priorities will reflect the tougher market outlook…

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Expansion

Group Branches By Brand

200 400 600 800 1000 1200 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Travis Perkins Keyline CPS (Inc TP P&H) CCF (Inc Atkins) Wickes Benchmarx Tile Giant Keyline acquired June 1999 CCF acquired 01 Oct 2002 CPS acquired 01 July 2002 Wickes acquired 11 Feb 2005 Benchmarx commenced trading 10 July 2006 Tile Giant acquired 15 November 2007 30

Potential Expansion

CPS

191 180

Benchmarx

148 27

Wickes

139 193

Keyline

81 59

Current branches 1,195 Potential branches 970

NB: does not include Toolstation (in which the Group holds a 30% investment).

Travis Perkins

601 196

CCF

34 16

Tile Giant

68 232

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# 3 Boost returns on capital

2006-2007 2006 Property profits: £11.6m

• No. of projects delivered: 43 (35

= SPV) Property cash released: £31.5m 2007 Property profits: £6.4m No of projects delivered: 3 Property cash released: £0.8m Invest in working capital to support the proposition 2005 Re-structured property function Drive working capital for cash

Goals: Exploit fresh property opportunities to maintain a reliable annual contribution from property

Our pursuit of strategic priorities will reflect the tougher market outlook…

2008-2009 Target profits of c. £10m p.a. and cash

• f c. £20m p.a.

Further exploit development potential Use new supply chain capabilities to boost returns by reducing working capital

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2005 2006 2007 Net debt £m 982.4 804.4 941.0 Working capital : sales 3.23% 2.35% 3.88% Property NBV £m 200.1 191.4 241.9

The Group’s ability to generate cash in response to challenging markets is strong…

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# 4 “Move into adjacent markets” Goals: Unlikely to move any further until market outlook improves

Our pursuit of strategic priorities will reflect the tougher market outlook…

2005 2006-7 2008-2009

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# 5 “Achieve scale benefits”

2005 TP/Wickes synergy programme Sales per employee up: Trade +2.0% Retail n/a 2006-2007 TP/Wickes synergy programme New “horizontal” business units – boost gross margin Sales per employee up: Trade +5.1% (‘06) +5.8% (‘07) Retail +7.2% (‘06) +3.3% (‘07)

Goals: Lower input costs to partially compensate for market price pressure

2008-2009 Product input costs re-check Expanded global sourcing Headcount taken out of branches and HO without significant restructuring cost Discretionary expenditure cut “War-readiness”

Our pursuit of strategic priorities will reflect the tougher market outlook…

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# 6 “Strengthen the organisation”

2005 Property Marketing Customer insight TP/Wickes rationalisation Overhead : sales 25.6% 2006-2007 Supply chain HR IT upgrade Health & Safety Overhead : sales 26% (06) 25.7% (07)

Goals: Tighten central cost base and headcount

2008-2009 Continue to invest in:

• IT
• Management

development

Our pursuit of strategic priorities will reflect the tougher market outlook…

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• Maintain outperformance and manage margin…

…demonstrate resilience

• Take advantage of challenging conditions…

…walking away from deals

• Further develop channel strategy…

…done

• Learn Spanish…

…doing

Strategic priorities 2008

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Further develop channel strategy

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Coffee break

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1 Reminder - who we are, what we do – John Carter 2 Market Update – Paul Hampden Smith 3 Strategy Update – Geoff Cooper 4 Multi Channel Strategy – John Carter 5 Toolstation – Mark Goddard-Watts

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The strategy of moving into new channels of distribution is in line with our Group vision…

…to ensure that anyone in the UK who wants to access any kind

• f building materials through any form of supply channel will have

a Travis Perkins group operation as their first or first alternative choice… …because customers are increasingly using diverse channels to

• rder and receive building materials

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Our businesses are already present across many channels and will develop further

Channel Access by Brand

Branch Local Telephone Service Local E-mail Service Central Telephone Service Transactional Website Information Website On-Line Account Management Transactional Catalogue TP Wickes City Plumbing CCF Keyline Tile Giant Toolstation Tools in the Post (CCF) Proposed 2008/2009 Current

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Online market opportunity

On-line Retail Market of £46BN On-Line Product Market of £14BN On-Line DIY Market of £624M Services £32BN Other Products £13.4BN Other DIY £496M Products £14BN DIY £624M Screwfix £120m Wickes £8M

Figures using Verdict UK E-Retail 2007 Report and Cap Gemini e-retail Sales Index 2007 year end report

Online competitors include: Screwfix e-Bay Amazon Tesco Independents B&Q Homebase

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Competitors matrix – who is doing what & how

* Homebase's transactional site is an Argos site skinned green and

• nly sells Argos products

** B&Q’s web site only sells direct from supplier products

Wickes B&Q Homebase Screwfix Selco Toolbox

Core DIY Range Offer ‘Heavyside Product Offer Centralised Core Delivery Heavyside Delivery Showroom Products Showroom Delivery Direct Infrastructure ‘For the Trade’ Branded Products n/a Loyalty Personalised Relationship Systems n/a Trade Account n/a Catalogue Transactional Website ** *

Proposed Current

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• Upgrade technology
• Develop sharper commercial propositions
• Leverage shared infrastructure skills across the Group
• Utilise Toolstation expertise

To execute our strategy we need to;

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• Low risk, high potential e.g. Wickes website
• Big halo effect

– Reinforces overall customer relationship with businesses

Scale of investment

Set up costs (£460k) Revenue (£200k) Capital (£260k) 2006 Profit (£124k) 2007 Profit £85k 2008 Projected profit £1,000k Pay back late 2008

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• Move into net priced online offer
• Branded and own brand product
• More value orientated product

The value of Toolstation

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• The Group is fully committed to leveraging new channels

– Wickes site in profit in short space of time – CPS site will increase market share – Toolstation – Experimenting with new services

• The strategy is flexible

– Short term – Long term

• The infrastructure is adaptable

– Integrate new technology – Add new brands and acquisitions

• The aim is to drive sales and profit across the Group

– Truly multi-channel customer experience – Continue to find new partnerships, acquisitions & new niche and online brands

Summary

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1 Reminder - who we are, what we do – John Carter 2 Market Update – Paul Hampden Smith 3 Strategy Update – Geoff Cooper 4 Multi Channel Strategy – John Carter 5 Toolstation – Mark Goddard Watts

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Mark Goddard-Watts Background

1980 £64k 1987 1988 1989 £100k 1992 1993 1994 £1m 1995 8 staff 1996 1997 1998 1999 £50m 800 Staff 1981 1982 1983 1984 1985 1986 Computer 1990 1991 Screwfix Direct

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Multi Channel Retail

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Adam Keates

Retail Operations

Neil Carroll

Marketing/Buying

Jonathan Burke

IT

Lucy Lynch

Finance

Mark Goddard-Watts

Toolstation Team

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Internet Contact Centre Counter Delivered Collect

• One Catalogue
• One Price
• 100% Stock
• Mix and Match
• Simple Logistics
• Purpose Built

Integrated IT System

Multi Channel Retail

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Internet

IT System

• Development In House
• Open Source Technology
• Reliable and Expandable

Internet Based

Distribution Contact Centre Head Office Servers Counters Suppliers Franchise Management Customers

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IT System

Core Functions

Operations

Stock Distribution Warehouse Management Stock Replenishment Product Management Courier Management Catalogue Generation Online Marketing Personnel Management

Head Office

Real Time Reporting Competitor Monitoring

Ongoing Development Customer

Sales Order Processing Website Customer Management Shop Management Payment Handling

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Overview

• 8,000 sqm
• £2m Stock
• Daily Shop Replenishment
• 1,500 Customer Parcels / Day
• 108 Staff

Bridgwater, Somerset

• IT
• Buying
• Marketing
• Finance & Administration
• 27 Staff

Distribution Centre Head Office

• Order Processing
• Payment Processing
• Customer Services
• 24 Staff

Contact Centre

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Overview Sales Counters

Bridgwater Bristol Manchester Exeter Fareham Yeovil Leeds Tipton 2008 Poole Glasgow Ruislip Brentford

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Sales Counters

Site

• Industrial Building
• 700 sqm
• Easy Access
• Good Parking

Operation

• 7 days per week
• 100% Catalogue Stocked
• Fast Track Collections
• 7 Staff

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Overview

• Price Promise

– One best price for all

• No discounts, negotiation or one off deals

– Price Match Guarantee

• you won’t find it cheaper
• Service Promise

– We aim to be 100% in stock

• Quality Promise

– Good, Better and Best

• Satisfaction Promise

– 30 days no reason, return – 12 month if faulty

Best Service – Best Price – Best Value

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Overview

• 10,000 Products

– Tools, Fixings and Hardware

• 600,000 Customers

– Trade and DIY

• Multiple Channels

– Internet – Catalogue – 12 Toolstation Branches

• 1 Best Price for All

– No Discounts – Everyone Welcome

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Direct Counter

2003 2004 2005 2006 2007

£1m £6m £12m £18m £21m

2008

Growth

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The Netherlands

• Warehouse + Head Office

– Leiderdorp

• 4 Sales Counters

– Leiderdorp – Heerhugowaard – Rotterdam – Nieuwegein

• Trading

– Launched August 2006 – 5,800 Lines – Catalogue – Website – 4 Sales Counters

• Franchise

– Direct Sourcing – Turnover Based Fee – IT System provided by UK

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