Levers of value creation

Travis Perkins’ strategy is centred on four priorities:

  • Accelerate innovation of customer propositions
  • Expand network and intensify use of space
  • Exploit scale advantage
  • Prioritise investments throughout the portfolio

Customer innovation and optimising the branch and store network

  • Improved value
  • Extended range
  • Product development
  • Format renewal
  • Technology enabled
  • Multi-channel
  • TP expansion and modernisation
  • Wickes national footprint
  • Plumbing and Heating format clarity
  • Format renewal
  • Trade parks

Scale advantage

  • Supply chain investment
  • Leverage property capability
  • Group sourcing benefits
  • Shared technology investment

Portfolio management

  • Streamlined central functions
  • Devolved management responsibility
  • Disciplined planning and capital allocation
  • Regular market updates

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Customer Innovation and Optimising the Branch and Store Network

The underpinning activities to improving the customer proposition and improve the network including offering better value, extending range, better availability, format renewal, modernising TP branches and creating national networks in a number of the Group’s businesses are included in the plans for each of the divisions in the following sections.

General Merchanting Division Strategy

Travis Perkins is, and for the foreseeable future will continue to be, the Group’s core business. It is the Group’s largest business by sales, profitability and one of the highest returning businesses operated within the Group.

The business benefits from national coverage with over 640 branches, an efficient lightside central distribution network, access to a range few competitors can match, a modern vehicle delivery fleet and branch managers with an unparalleled relationship with customers. Branch manager incentives are based on return on capital improvements setting the business apart from its competitors which is a key component of Travis Perkins’ market outperformance.

The Chart below sets out the key components of the plan to improve Travis Perkins, combining both sales and profit drivers and investments in enabling infrastructure.

General merchanting division strategy

There is significant scope for network expansion and relocation. Travis Perkins is targeting 5-15 net new branches per annum and to increase the number of Benchmarx Kitchens and Toolhire equipment implants. Furthermore the Group recognises the need to modernise the branch network with plans underway to develop a new branch format, ‘TP 2018’, alongside further development of TP’s multi-channel proposition.

The plans to improve the TP multi-channel offer are set out below:

  Customer experience Infrastructure
1. Where we are now
  • Clean and functional
  • Passive
  • Non-transactional
  • Branch to site delivery for heavyside
  • Branch collection only for lightside
  • Branch acting as call centre
2. Next steps
  • Transactional capability
  • Integration to pricing systems
  • Account management
  • Click and collect
  • Heavyside distribution improvements expanding range and availability
  • Lightside range access from DCs
  • DC direct to site picking
3. Where we will get to
  • Leading online gateway
  • Interactive and social hub
  • Seamless experience across channels
  • Integrated CRM
  • Cross-channel fulfilment for lightside
  • CRM and account management systems development
  • Contact centre coordination

In summary, the Group is confident that Travis Perkins can maintain its market leading position and further drive improvements to the customer proposition and value to shareholders. The targets for improvement are set out as follows:

Measure Current Medium term ambition
Network expansion 645 TP branches 5-15 net new branches p.a.
Like-for-like sales growth outperformance 0-5% 1-4%
Operating margin improvement prospects Sector leading Sustain
Capital expenditure £44m* £40-60m p.a.
Lease adjusted ROCE - Add 200-300bps

*Year ended 31 December 2013

Outperformance through:

  • Local customer relationships
  • Consistent range and range extension
  • Better availability
  • Sourcing and own label development
  • Product knowledge and ease of transactions
  • Format improvements
  • Network and multi-channel development
  • Managed services expansion

Plumbing and Heating Division Strategy

The strategy for the Plumbing and Heating division has three key elements:

  1. Developing clear propositions serving plumbing and heating, bathroom installer and contract customers: The focus on bathroom installers, local plumbers and mid-sized plumbing contractors will provide solid returns through effective pricing and range substitution including through greater penetration of the Group’s ‘iflo’ exclusive ranges.
  2. Intensifying use of space through the Group’s showroom concept and spares implants: The new ‘Endeavour’ showrooms are designed to help tradesmen win new business. New showrooms have been opened in 69 locations and are generating healthy returns. Approximately 40 new showrooms per annum are planned over the medium term.
  3. Developing multi-channel, sustainability and own label product offerings: The acquisition of an online heating equipment distributor gives the P&H division access to growth in the online channel. Furthermore, the division is developing an additional multichannel capability to enable ordering, account management, and online transactions as well as providing enhanced product information tools to its installer network. Further work is underway to enhance the exclusive brands the Group owns including iflo and BOSS and to continue the progress already made in launching ‘Sustainable Building Solutions’ which accesses Government funding for improvements in household energy efficiency

The plan for the P&H division is graphically represented as follows:

Contracts division stretegy

The targets for the division are shown below alongside how the P&H division intends to outcompete in its markets:

Measure Current Medium term ambition
Network expansion 525 branches ~10 net new branches p.a.
Like-for-like sales growth outperformance 0-3% 0-3%
Operating margin improvement prospects - Good
Capital expenditure £11m* £10-20m p.a.
Lease adjusted ROCE - Add 150-250bps

*Year ended 31 December 2013

Outperformance through:

  • Clarity of contracts and installer propositions
  • Enhanced branch pricing tools
  • Sourcing and own label development
  • Spares implants
  • CPS network expansion
  • Endeavour showroom rollout
  • Multi-channel establishment
  • Sustainable solutions growth

Contracts Division Strategy

The Contracts Division was formed on 1 January 2014, bringing together the three businesses that supply products to large construction companies and project contractors. These businesses all track major commercial and infrastructure projects and by bringing them together into one division, this will assist project tracking and selling into major contractors.

The key components of the strategy for the division are set out below:

Contracts division strategy

As with the other divisions, the Group has clear performance targets for the division including increasing the level of capital investment with the ambition of outperforming market peers.

Measure Current Medium term ambition
Network expansion 181 branches 1-2% net new space growth
Like-for-like sales growth outperformance 0-3% 1-3%
Operating margin improvement prospects - Good
Capital expenditure £12m* £10-20m p.a.
Lease adjusted ROCE - Add 200-300bps

*Year ended 31 December 2013

Outperformance through:

  • Deeper product knowledge and customer service
  • Extended ranges
  • Selective network expansion
  • Category expansion
  • Sourcing and own label development

Consumer Division Strategy

The key elements of the consumer division’s strategy are to:

  • Enhance Wickes proposition to tradesmen and serious ‘DIYers’
  • Gain nationwide coverage through Wickes store estate including renewing its store format
  • Expand the Toolstation network through Wickes implants and standalone shops
  • Continue multi-channel development

Wickes’ ambition is to always offer lower prices than its competitors alongside ranges, to include brands that trade and serious DIYers demand, which enable customers to complete any DIY or trade RMI project. Plans are progressing to improve online and in-store availability, improve ranges and enhance the level of customer service. Wickes already has a growing multi-channel business which holds its fair share of the online market, however, the Group believes there is opportunity to further enhance sales through this channel by adding additional ranges.

Wickes plans to continue to expand its network by between 5 and 10 new stores per year.

The early signs from the recent Toolstation store implants in Wickes have also been encouraging. These implants contribute to Wickes rental cost, are driving additional footfall and producing solid returns in their own right for the Toolstation business without increasing the Group’s lease commitments.

The Wickes plan is graphically represented below:

Consumer division strategy

Toolstation is planning to continue to open both Wickes implants and standalone stores with an ambition to open approximately 100 shops in the medium term. Toolstation’s fixed prices, excellent availability, delivery promise and service proposition are resonating strongly with jobbing tradesmen and general DIYers who are not able to negotiate larger volume discounts from trade outlets. The performance of both standalone Toolstation stores and Wickes implants gives the Group confidence to extend the rollout of new shops.

The performance targets for the Consumer division are set out below:

Measure Current Medium term ambition
Network expansion 227 Wickes
108 Tile Giant
143 Toolstation
5-10 net new p.a. implants
~20 p.a.
Like-for-like sales growth outperformance Flat Above market
Operating margin improvement prospects - Good
Capital expenditure £18m* £30-40m p.a.
Lease adjusted ROCE - Add 150-250bps

*Year ended 31 December 2013

Outperformance through:

  • Clearer and sharper pricing
  • Catalogue and online range extension
  • Improved availability in Wickes
  • Format renewal and network expansion
  • Toolstation expansion and implants
  • Tile Giant implants only
  • Driving multi-channel harder

Scale Advantage

One of the key value creation levers is using the Group’s scale to improve efficiency and deliver a better customer proposition.

The Group’s supply chain ambition is to provide branches and customers with easy access to the broadest range of products, reliably, efficiently, safely and on time:

  • Ordering will be made simpler for branches with improved range management tools and automated stock replenishment systems;
  • The Group’s distribution centre (“DC”) footprint will undergo further change, increasing lightside DC capacity and rolling out regional heavyside DCs;
  • Route planning tools and further optimisation of the vehicle fleet will reduce the cost of, and enhance, the local delivery proposition.

The strength of the Group’s balance sheet enables businesses within the Group to access properties they would otherwise find it difficult to occupy. Furthermore, by developing multi-fascia sites, the Group is able to provide opportunities for the Group’s smaller operating businesses to co-locate with the Group’s larger businesses and benefit from greater foot traffic.

The Group is also focused on using its buying scale to source products directly from manufacturers at lower cost and in creating more commonality in product ranges such that it can further consolidate volumes so reducing costs further.

For many years, the Group has benefited from efficient, low-cost IT systems. These systems are approaching the end of their useful life and, therefore, a clear four point strategy has been developed to ensure better IT systems capacity and flexibility in the future.

  • Delivering a common and shared trading platform across the Group’s merchanting businesses;
  • Delivering an appropriate multi-channel presence for each brand making it easier for customers to order, buy and receive delivery;
  • Simplifying back office systems to enable decoupling and enhance efficiency;
  • Increasing system usability and the experience for colleagues and customers so that the Group is easier to do business with.

Portfolio Management

Starting with the Group’s revised approach to managing its portfolio of businesses, the Group has developed a more robust planning approach enabling it to allocate capital to the opportunities which are expected to deliver the most material value for shareholders. Aligned with this approach to managing capital allocation is a revision to the metrics upon which the Group is managed. Future lease-adjusted return on capital will become an increasingly important measure of success as the Group believes it best aligns investment decisions with the ultimate goal of shareholders; their return on equity.

In order to improve lease adjusted return on capital management responsibility for both earnings and capital employed will be devolved further down through the business. This greater accountability and autonomy will be managed and monitored through improved processes for governance. As management in each of the businesses take more control for managing returns, central functions will be streamlined to ensure all teams are closer to the businesses they support and ultimately customers. This revised approach to capital allocation is creating more competition for capital.

Capital expenditure is expected to increase in the medium term to take advantage of development opportunities in the market and will be tiered based upon the risk and return profiles of the various investment opportunities identified. The tiering of capital spend will be managed under four broad headings:

  1. Extending the Group’s leadership: investment in proven businesses and opportunities delivering attractive returns.
  2. Investing to grow: investment in customer propositions to adapt to changing customer needs and cement the Group’s market leading positions.
  3. Infrastructure investment: investment to enable future outperformance.
  4. Divest: where there are better uses for capital to grow or return to shareholders.