Builders merchants group Travis Perkins believe that rationalisation in the builders merchant market could help them gain market share, says chairman Tim Stevenson in the Annual Report for the year ended December 31 2008, published today.
“A number of competitors have already closed branches and some have exited the sector altogether. We expect further rationalisation to take place over the next year, improving our prospects for further like-for-like market share gains from our estate.”
He continues: “However, outperforming competitors and enjoying the benefits of sector rationalisation will not, in themselves, be sufficient to safeguard shareholder returns. We have already taken decisive action, and stand ready to take further steps if necessary. Our actions are aimed at cutting costs and conserving cash to mitigate the effects of the difficult market and to protect the Group’s capital structure whilst safeguarding core strengths. We believe this stance will produce the best outcome for shareholders in this unusually challenging economic environment.”
In the same report, chief executive Geoff Cooper highlights the 20 criteria that the group monitors to indicate the likely strength of the market: including indicators for housing (for example, mortgage approvals), commercial and public sector new build (architects’ enquiries) and consumer markets (propensity to spend on ‘big ticket’ items).
“Generally, trends for spending in our markets react some six to nine months after a change is detected amongst these criteria. The current downturn has followed this pattern, with market trends in the merchant and home improvement markets first reacting in the spring of 2008 to the significant shift in housing market activity which occurred from October 2007.
“Most of the criteria we monitor showed a sharp fall in activity levels through the first 3 quarters of 2008, followed by some stabilisation of activity, albeit at a very low level. Were the established pattern of lag between these criteria and our markets to be repeated, our markets might be expected to see a similar stabilisation, again at a low level, by the middle of 2009.
“However, two significant reservations that must be applied to any forward view of our markets; firstly, the unprecedented nature of the current economic turmoil led by a sudden withdrawal of credit and now involving an increase in unemployment means that well established economic relationships are less reliable; and secondly the level at which our markets stabilise is difficult to forecast whilst we are currently experiencing a rapid fall in purchasing activity by customers.
“Our early sales performance in 2009 reflects these trends, with, LFL sales per trading day in our merchanting division for January down by 15.8% and LFL sales for retail for the first five weeks of 2009, on a delivered basis, down by 12.2%.
“We are continuing to outperform our markets, aided in particular by competitor closures and the success of Wickes new marketing strategy, which uses TV and radio advertising rather than direct marketing. This has contributed to a strong start to the year for our showroom category sales through Wickes, and on an ordered basis Wickes’ overall LFL sales are up by 1.5%.
“Based on our analysis of previous recessions in our sector and our monitoring of lead indicators, we estimate that volumes purchased in our markets will fall by some 25% from a peak in early 2008, with the trough being reached by the third quarter of 2009. With inflation, market share gains, maturing performance from recently opened stores and full year effects, our annual revenues for 2009, compared to 2008, are expected to decline by less than our peak to trough estimated decline of 25%.”
During the year, the group added a net 30 sites to the Travis Perkins brand making 611 trading branches by the year end, four branches to the Keyline network to bring the total to 83, seven net branches to City Plumbing Supplies, making 196 locations in all and four new branches were added to Benchmarx, the specialist joinery business.