Travis Perkins is a leading Public Limited Company in the builders’ merchant and home improvement markets across the UK and Ireland (Annual Report, 2013). The Group became one of the FTSE 100 companies for the first time in June 2013(Annual Report, 2013).
The originator of Travis Perkins, which can be traced back to 1797, is the Benjamin Ingram company trading as joiners and carpenters(Travis Perkins, 2014). During the last 200 years, Travis Perkins became a Public Limited Company though mergers and acquisitions in 1988 (Travis Perkins, 2014). The headquarter is in Northampton, the United Kingdom employing 21,937 people as of December 31, 2013 (Travis Perkins, 2014).
Now The Group is the UK’s largest product supplier in the building and construction market operating 17 businesses with 14 brands and over 1,900 branches (Annual Report, 2013). Travis Perkins offers a wide range of products and services such as general building materials, kitchens and joinery products, building and decorative materials and plumbing and heating products (Travis Perkins, 2014).
Over the last few years, Travis Perkins has acquired several companies to extend its business and seize the opportunity to enhance its growth as a result of the rising economic recovery(Annual Report, 2013). The strategy objectives of the Group has recently centralized on the consolidation of the shareholder value. Therefore, Travis Perkins realigned the divisional structure into four segments General Merchanting, Specialist Merchanting, Consumer and Plumbing and Heating (Annual Report, 2013). At the meantime, Travis Perkins has a big movement in the Board of Directors as the Chief Financial Officer, non-executive board directors and the Chief Executive are all newly appointed(Annual Report, 2013).
This report will evaluate the performance of Travis Perkins from strategic directions, financial statement performance and stock market performance three aspects.
The strategic direction of a company should be based on the environment it operates. Therefore, the strategic analysis is divided into three parts from macro environment, particular industry and the strategies of the company.
This part will analyze the macro-environmental forces that may impact Travis Perkins using PESTEL analysis. It is extremely necessary for companies to identify the external and broad environment in which they are operating to make changes to their long term strategies to adjust with the external environment changes.
The Government-funded Construction Pipeline, released in November 2012, has encouraged the industry where Travis Perkins operates (Key Note, 2013). However, it will lead to the reduction of government expenditure on construction (Key Note, 2013). Moreover, the government austerity measures restrict the public expenditures on construction for the few following years (Key Note, 2013). As a result, the decrease of construction output will have adverse effects on the builders’ merchant and home improvement markets. Travis perkins need to be aware of it as a threat to the business.
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Due to the depressed activity across the construction industry, the UK government took action to re-boost the housing stock and increase the transactions in the housing market by generating several initiatives such as the Help-to-buy scheme in 2013 (Key Note, 2013). The funding pledged by the government has helped tenants to credit borrowing aiming at increasing the demand for new housing and secondary housing transactions (Annual report, 2013). As the supplier to the construction industry, Travis Perkins definitely gained sales through the supply of the building materials to the construction industry or the increasing demand of the consumer products (Key Note, 2013).
During the last several years, the recession in UK has been largely affected by the global financial crisis in 2008. The adverse economic climate definitely affected the builders’ merchant and home improvement markets and construction industry. ‘Although growth has been recorded following the UK’s exit from recession, growth in the UK economy remained depressed in 2012 —largely due to continued financial turbulence across Europe — pushing construction output back into negative growth’ (Key Note, 2013).The declining in Gross Domestic Product (GDP) in UK demonstrates a drop of confidence towards corporate sectors(Key Note, 2013). Thus the market of builders’ merchant and home improvement will be affected adversely due to the decreasing capital invested in construction industry (Key Note, 2013).
The high inflation rate and unemployment rate both push the pressures on businesses and make it far more costly to purchase housing (Key Note, 2013).
However, Travis Perkins has been through a slight recovery from the UK economy in 2013 (Annual report, 2013).
The rising energy costs has increased the costs in builders’ merchant and home improvement markets in recently years(Key Note, 2013). The cost control should be considered by the Travis Perkins.
The changing in customers’ buying behaviour has been more and more diversified (Annual report, 2013). The transparency of price is highly demanded by end-users (Annual report, 2013). The fixed price is more valued and the demand of better service and price (Annual report, 2013). Travis Perkins faces several challenges to change its pricing models to gain customers loyalty.
Chart 1 Changes in buying behaviour(Annual report, 2013)
Household disposable income has increased but still not enough to stimulate consumers to invest on new building products (Key Note, 2013). Therefore, Travis Perkins needs a long time to recover from the financial crisis since the market will respond a time lag as a trend (Key Note, 2013).
With a steady growth in UK resident population, it shows promising outlook of the construction industry and its suppliers in which the market Travis Perkins operates is a growing perspective in the long term view (Key Note, 2013).
The need for online penetration is higher and higher in the future according to the industry forecasts of the DIY and building products markets (Annual report, 2013).
Chart 2 UK building products online market (Annual report, 2013)
Chart 3 UK DIY and gardening online penetration (Annual report, 2013)
‘In recent years, there has been an upsurge in the use of prefabricated structures and modular building techniques’ (Key Note, 2013). These techniques can make a big change to the demand for new and proper materials and components (Key Note, 2013).Travis Perkins can consider the cooperation with the top and bottom line businesses in the builders’ merchant and home improvement markets.
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The sustainability practices have made it a compulsory issue to minimize the damage to the environment (Key Note, 2013). The 2008 Climate Change Act also established a requirement to the reduction of greenhouse gas (Key Note, 2013). ‘In the construction industry, numerous initiatives — such as Zero Carbon Homes and the Government’s flagship environmental initiative the Green Deal — have been implemented in order to encourage uptake of energy-efficient improvements in existing buildings and to reduce emissions from new builds’ (Key Note, 2013). Thus Travis Perkins should be concerned to all these issues which will increase the demand for repair ,maintenance and improvement work and certain types of emerging materials (Key Note, 2013).
The Building Regulations of construction technical standards need to be concerned and Travis Perkins can seize the opportunities to research energy efficient and sustainable building materials to make an advantage among competitors (Key Note, 2013).
The EU Timber Regulation (EUTR) has come into force in March 2013. The regulations prohibit the operators to produce timber from illegally harvested timber (Key Note, 2013). Although the regulations may deteriorate some of the timber and joinery business. In reality, the UK market has reached the requirements of the regulation which ‘will serve to create a more competitive European market, reducing any advantage companies may gain from the use of illegal timber through proportionate and dissuasive penalties’ (Key Note, 2013).
The builders’ merchant and home improvement markets experienced significantly fluctuations over the last few years due to the UK economic recession and uncertainty in construction industry (Key Note, 2013).
UK suppliers of building materials also have extended their businesses across numerous overseas markets, especially in Europe (Key Note, 2013).
‘The total UK construction and home improvement materials market is worth approximately ¿¡64bn’ (Annual Report, 2013). The addressable trade market of Travis Perkins is ¿¡33bn as the largest in the UK (Annual Report, 2013).
Chart 4 Building materials market (Annual Report, 2013).
The construction industry and repair ,maintenance and improvement sector in UK has a significant demand for a wide range of building materials, components and products (Key Note, 2013).Builders’ merchant and home improvement markets mainly rely on the construction industry and do-it-yourself (DIY) market as well (Key Note, 2013).
In order to evaluate the forces which determine the industry competitiveness, the following will be analyzed by Porter’s Five Forces Model.
The threat of new entrants into the industry is low. Since there is insubstantial probability of emergence of new competition for Travis Perkins. Significant amount of capital investment and expertise are required to manage as a UK nationwide builder merchant in the mature market (Annual Report, 2013). The multi-channel capabilities of supply and distribution and economies of scale are also the potentials to enter into the market (Annual Report, 2013).
The threat of substitute products and services is low as the demand for building materials and components offered by Travis Perkins is not easily substituted by other merchants since it enables customers to access a wide range of building material product categories (Annual Report, 2013). Moreover, a variety of own brand products are available as the supplement of the branded goods (Annual Report, 2013).
The bargaining power of Travis Perkins buyers is strong, as the competition is fierce and there is a wide choice of suppliers of building materials offered by global merchants, as well as, small local producers (Annual Report, 2013). The small private buyers like end users have no pressure on Travis Perkins (Annual Report, 2013). Large retailers, construction merchants and public sector buying groups have bargaining power because they may choose manufacturers directly (Annual Report, 2013).
Suppliers of Travis Perkins possess a substantial bargaining power as the manufacturers may distribute the products directly with the end users (Annual Report, 2013). The switching costs are really high and the integration forward by the manufacture may provide a higher prices of the products. The Group relies on overseas factories more and more to expand its business to reduce the reliance on certain suppliers (Annual Report, 2013). The Group has invested capitals to its own brand product by generating direct sourcing capability advantages (Annual Report, 2013).
A great many small scale companies make up the UK builders’ merchants market offering a variety of products and services to the nationwide markets (Annual Report, 2013). The competition from timber merchants, plumber merchants, electrical wholesalers and similar businesses is definitely a threat for the Travis Perkins. However, Travis Perkins is the market leader in the builders’ merchant market in the UK currently (Annual Report, 2013). The turnover of the Group’s largest national competitor generates less than half of the turnover in the Group’s addressable markets (Annual Report, 2013). The wide range of products and branches across the UK has made it an advantage that few competitors can catch up.
Travis Perkins has reviewed its strategy to make it a better option to achieve its Mission (Appendix 7.1) in December 2013 due to the improving economy and the changes of the Board (Annual Report, 2013).
The new strategy (Appendix 7.2) aimed to increase the capital investment to enhance the existing market revenues and earnings and increase the quality of the services to satisfy customers and improve the shareholders returns (Annual Report, 2013). The realigned divisional structure (Appendix 7.3) and the expansion (Appendix 7.3) of each division also played a significant role in delivering the objectives of the strategy.
The portfolio management of the capital investment has made a competitive advantage for Travis Perkins to provide almost all the types of building products and services to the construction market. The management of the capital invested make it a better use to create of the shareholder value. In recent years, the acquisitions made all aim to expand in new and complementary business areas which demonstrates Travis Perkins’s intention to invest capital in promising market (Annual Report, 2013). Scale advantage has make an efficient supply chain to gain customer loyalty. The Group also benefit from economies of scale in lower costs and shared IT systems. All these issues bring a cost efficiency and better relationship with colleagues and customers which will make the Group more attractive to do business with. The customer innovation improve the customer satisfaction and make it a better buying action.
However, compared with other competitors, Travis Perkins narrows its activities in UK and Ireland to limit the expansion and opportunities in emerging markets. For example, Wolseley PLC operates in six geographic areas to make business as a local standardized core process to gain market share.However, in the UK market, Wolseley is not the largest operator, Wolseley has much more sales and returns in other markets. In addition, Wolseley makes their businesses at a higher return by bottom-up detailed resource allocation to grow faster than the competition. It is more efficient for trade distributor.
Source: Google finance¼Œ2014
Source: Google finance¼Œ2014
Source: Google finance¼Œ2014
Source: Google finance¼Œ2014
Source: Google finance¼Œ2014
Travis Perkins has a wide range portfolio of businesses to enable it capture broad customer base from end users and large construction merchants and increase its growth from all markets. The Group also operates a strong business model with long term relationships with its suppliers and customers. The expansion will not influence the cost of the company since the business model gives the flexibility and cost efficiency. Even the economic downturn has effected all the business, the financial performance of Travis Perkins is still in steady growth. The strong financial results will provide Travis Perkins a financial flexibility in capital expansion.
As mentioned above, the operations are concentrated mainly in UK which limits the opportunities to invest and makes it a higher business risk than other competitors. Travis Perkins will rely more on the demand and condition of the market in UK not like other competitors with more flexibility in the market.
Fortunately, the economy and construction in UK lead to the fluctuations and uncertainties over last few years but the outlook is positive where Travis Perkins can seize the opportunities to expand revenues and create shareholders value. Recently, the online penetration in retail has experienced a high growth. In the building materials market, the level of penetration is expected to increase which is a great opportunity.
Travis Perkins faces many local or other national operators in turn the competitive pressure may lead to reduction in price definitely resulting the profits and expansion. Further more, the change of customer buying behavior ,integration of manufacturers and customer transition from distributor to manufacturer will largely affect Travis Perkins’ business performance.
Through the entire analysis, Travis Perkins has a improving outlook in 2014 due to the market condition. The company will benefit from the construction and DIY emerging market which will recover for the next few years according to the forecasts.
However, there still exists uncertainties in housing and construction. It is just the beginning of the recovery and there is a time lag from builders’ merchant and home improvement markets.
I strongly recommend to wait till 2014 year end for investors who want to buy Travis Perkins shares now. It will show a clear trend of the increasing of the shares for some time.
Google Finance. 2014.Travis Perkins plc. [Online]. [Accessed 22 April 2014].Available from :
Travis Perkins. 2014.History. [Online]. [Accessed 22 April 2014].Available from : http://www.travisperkinsplc.co.uk/about-us/history
Travis Perkins. 2014.Strategy. [Online]. [Accessed 22 April 2014].Available from : http://ir.travisperkinsplc.co.uk/strategy.aspx
‘Continue to deliver better returns by putting in place and growing the best businesses, with outstanding people providing comprehensive building material solutions to everyone, creating, maintaining, repairing and improving the built environment… helping to build Britain.’ (Annual report, 2013).
7.2 The Strategy of Travis perkins
(Capital Markets Day, 2013)
7.3 Divisional structure of Travis perkins
(Annual report, 2013)
(Capital Markets Day, 2013)
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