Annual Report & Accounts 2010

Industrial Division

Organisation developing at pace
to open up new market opportunities

The Industrial Division has responded well to the challenges of tighter market conditions and slower commercial new build activity. Considerable progress has been made in repositioning the Division to broaden the spread and mix of business to build greater revenue resilience with new growth sectors targeted. The Division continues to win new business and grow market share, its strong strategic position in heating and ventilation is based on a nationwide branch infrastructure, a reputation for service and technical expertise.

Like for like revenue for the Division was down 6.8% on the prior year reflecting the late cycle nature of the Division’s core activity, but performance improved as the year progressed with second half revenue down 4.9%, like for like, against a 9.0% decline in the first half. Core repair and maintenance work has been resilient throughout the financial year and the price environment has improved in the second half with copper inflation a factor.

The Division continues to increase market share. The onsite facility at Stratford supporting the build programme for 2012 Olympics has proved to be of great benefit. We have secured a number of the key stadium and infrastructure projects with our ability to manage timed delivery slots, helping to reduce labour down time and increase project efficiency. BSS Industrial is directly involved in eight projects on the Olympics site, revenue from Olympics work will peak in 2010/11.

Industrial’s share of the repair and maintenance market continues to grow and brands such as Havelock Controls, who supply heating control solutions, and AMS, who supply pumps, have seen good growth during the year.

In order to capitalise on the opportunity that the industrial market presents, particularly in the repair, maintenance and operational sectors, BSS Industrial has restructured the Division and now has an external sales force that is purely responsible for driving growth in this industrial market sector. This provides an excellent platform to sell the specialist brands within the Division and to grow future revenue.

Government funded work in the current financial year has remained solid with a broad spread of projects covering defence, schools, hospitals and prisons. In the short term, we anticipate that this work will remain but that the level of investment beyond 2010 will be curtailed. The urgency to develop new revenue streams in adjacent markets is driven by recognition of significant reduced public sector investment. This reduction has been anticipated and is manageable.

The above ground drainage market is a key area of opportunity. The UK market is substantial and BSS has the potential to establish a major presence in this market. This has led to investment in the opening of two dedicated branches at Canning Town and Bellshill plus a further 16 implant branches across the whole of the UK. The growth in sales in our implant and dedicated branches is extremely encouraging.

We have further augmented this offering by the acquisition of UGS which is an underground specialist business turning over circa £36m through 10 branches across the UK. The below ground drainage market offers BSS considerable scope for growth by providing an opportunity to expand both the product range and national coverage. UGS adds a new customer base to BSS of both civil contractors and builders which provides both UGS and BSS with the ability to share project information and also sell a wider range of products to each others’ customer base.

The Division has identified the water utilities market as offering significant growth potential. The Asset Management Plan (‘AMP5’) has now been approved with £26bn being invested over the next five years into drinking water infrastructure, waste disposal and processing. In order to capitalise on this investment programme, BSS has created a dedicated water distribution centre providing a next day service to all branches on a broader range of carbon steel and API product used predominantly in the water market. The acquisition of UGS also offers opportunities to supply both above and below ground product to this growing market.

The next 12 months is likely to remain a challenging period with an inherent uncertainty over the timing of Government investment reductions. The Division is however well positioned to capture significant market share in new sectors that will help to offset any downturn in its traditional markets.