Annual Report & Accounts 2010

Domestic Division

Delivering growth
in a challenging market

The Domestic Division increased revenue by 5.2% in the financial year against 2009 with like for like revenue increasing by 0.8%, new branches contributed 4.4% growth and Direct Heating Spares a further 0.4%. Total sales in the second half were 11.2% higher than last year and like for like sales were up 5.3% against last year following a 4.3% decrease in the first half. The strengthening trend in sales in the second half of the financial year reflects: the beneficial impact of early cycle economic recovery; market share gains through improved sales effectiveness; a sustained period of cold weather; and some stimulus from the Boiler Scrappage Scheme.

The primary driver for sales of boilers, radiators, pipes and accessories remains replacement on a repair and maintenance basis of existing housing stock. The core boiler market has continued to hold up well and our boiler sales volume increased by 6.3%. The Domestic Division continued to grow market share with new revenue initiatives in spares and renewables contributing to the growth achieved.

The new build market remained challenging with completions down year on year, however in the last six months of the financial year house builders opened sites and started to increase build programmes again. As a result of this, PTS increased turnover in this area by £11.5m to £26.9m, an increase of 75% on the previous year as we take advantage of this early cycle recovery. PTS has increased its market share by securing trade terms with a number of national house builders. Social and affordable housing has also contributed as we increased the number of framework agreements we are involved in.

During the year, PTS opened 15 new branches which takes the total number of trading locations to 322 there were no branch closures. The new branches continue to add value with variation to the proposition offered to meet the needs of local markets. This flexibility underpins the solid returns achieved. Our customer base continues to grow as does our national spread with in excess of 400 PTS branches targeted.

Renewable sales in the year were £16.1m, up 124% on the prior year. Awareness and understanding of renewable technology continues to increase at pace. PTS is supplying solar, heat pumps and biomass technology through its commercial branches which provide national distribution coverage. Further contracts have been won and the Division is benefiting from the investment made in stock, infrastructure and specialist staff. Renewable technology continues to be a core part of our future growth strategy and we remain confident that renewables offer significant growth potential.

Spendlove C. Jebb the Northern Ireland based merchant has continued to gain market share in a difficult economic climate. In 2009/10, Jebbs increased sales and remained profitable.

Direct Heating Spares ('DHS') was acquired in April 2009 for a consideration of £6.2m. The spares market, has strong growth dynamics and DHS has had an excellent first year under Group ownership performing ahead of expectations and achieving a ROCE of 35%. Around 80% of DHS sales are through PTS' 129 spares branches. DHS has achieved contract gains, is broadening its product offer and has recruited several major customers. In April 2010 DHS moved to working seven days a week with an overnight next day delivery service. Further new revenue is targeted and we are confident that the DHS acquisition in partnership with PTS and F & P, offers substantial new growth for the Group.

F & P Wholesale ('F & P') distributes plumbing, heating and bathroom products nationally to independent merchants, fire and bathroom showrooms. Through a network of 11 branches, the latest opened in Scotland in August 2009, we provide a national service with next day delivery of leading brands. This 'one tomorrow' service enhanced by our competitive prices on own branded Pro and Fresssh products leads to a highly competitive model serving the independent trade. The core business is distribution of branded boilers complemented by F & P's own brand, Procombi boilers, which increased volume sales by 200%. F & P has had a good year with like for like sales up 2.9% and a strong second half with like for like revenue up 8.7% on 2009. F & P continues to benefit from scale advantage.

We believe the Domestic Division is well positioned for growth in 2010/11 with the pricing environment and broader economic outlook expected to improve.