Post year end acquisition We expect the renewables market for construction materials to show growth ahead of market averages for some time, as consumers become better informed <strong>and</strong> invest to reduce their energy costs whilst improving carbon generated. On 30 January we acquired the renewable energy distribution specialists, Solfex Energy Systems (‘Solfex’), a company that in December 2012 was listed as the UK’s fifth fastest growing private company in the Sunday Times Virgin Fast Track 100. Solfex uses its distribution platform to integrate <strong>and</strong> supply components to the UK’s renewable companies <strong>and</strong> provides a value-added service to customers through comprehensive technical <strong>and</strong> customer support. It is a valuable addition to the Plumbing <strong>and</strong> Heating Division of our Group. Our strategy of offering our customers an integrated approach to energy efficient building will be greatly enhanced by the market leading proposition created by the Solfex team. 2013 performance It is difficult to draw any conclusions from the first few weeks of trading because the January 2012 comparator was quite strong whilst 2013 has seen a continuation of the poor weather conditions experienced in 2012. Overall group LFL sales, on a delivered basis, for the first seven weeks were down 5.1%. General Specialist Plumbing Merchanting Merchanting Consumer & Heating Total % % % % % (4.5) 2.0 (7.6) (5.4) (5.1) We view underlying like-for-like sales in February as broadly flat. Outlook Our like-for-like sales in quarter 4 of 2012 showed an improving trend on the two previous quarters in most of our businesses making it difficult to read for signals of underlying activity. Accordingly, we look to medium term indicators to plan our resource levels for 2013 <strong>and</strong> beyond. In the short term, trends will be volatile; we currently anticipate that our markets will be stronger in the second quarter, mainly due to a relatively weak comparator in 2012 <strong>and</strong> potential recovery from low activity levels expected in first three months of this year. Whilst this suggests difficult conditions will remain in the first half year, there are reasons to be more optimistic about the second half. The recent rise in mortgage <strong>and</strong> housing transaction activity should feed into improved volumes in the market by the second half of the year. In the public sector market, the huge potential spending on various infrastructure programmes announced by the government should begin to gradually show in real activity on (<strong>and</strong> in) the ground. Overall we believe that market volumes for 2013 are likely to be lower than 2012, but the rate of decrease will be smaller than last year at around 1% to 2%. Inflation is likely to stay low with early indications suggesting it will be around 1% to 2% for the second year running. Since the financial crisis in 2008, the term ‘roller coaster’ could fairly be applied to the gradient of annual <strong>and</strong> monthly change in our markets. Five years later, we have yet to experience a flatter track, <strong>and</strong> we wait for evidence of a steady recovery from the current unsustainably low levels of activity. We have an excellent track-record of matching our margin <strong>and</strong> costs to the prevailing market conditions, <strong>and</strong> we judge our cautious stance to be appropriate. However, we shall be monitoring lead indicators carefully, <strong>and</strong> expect that our next change will be to a more expansionary stance in volume. We plan to combine this with a restrained approach to costs, so as to benefit from overhead gearing <strong>and</strong> further improve operating margins. We anticipate increasing expenditure only for unavoidable inflation <strong>and</strong> pension increases <strong>and</strong> subject to satisfactory trading continuing, we plan to invest further in pursuing our multichannel strategy. Whilst, for most of our businesses, our operating margins remain ahead of our competitors, the ‘trough’ levels of market activity are consistent with, against recent history, operating margins, which we regard as unsatisfactory for three of our four divisions. For Specialist, P&H <strong>and</strong> Consumer divisions a combination of self help initiatives <strong>and</strong> a recovering market should deliver steady growth in operating margins. For Travis Perkins, investments in improvements to the proposition will be applied to increasing market share on a LFL basis, whilst sustaining operating margins. So in summary, we think the performance of our markets in 2013 may begin to turn, but it will be mainly through our own endeavours to outperform our competition <strong>and</strong> manage our operating margin that the Group will be driven forward. Geoff Cooper Chief Executive Cain Doolan, Manager, BSS Industrial, Reading 28
T R A V I S P E R K I N S A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 2 REPORTS 29