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KEY NOTE Builders' Merchants Market Report : June 2004

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This report covers: builders' merchants, heavyside materials, lightside materilas, tool and tool hire, housebuilding, private sector commercial, private sector industrial, construction, bricks and roofing tiles, cement, sand and agravel, imports, exports, DIY stores, key trade associations, retail companies, fast-track building, public non-housing, repair, maintenace and improvement, environmenally suistainable construction, new construction methods, integrated project teams, skills shortage,

Companies covered include: BSS Group, Grafton Group, Saint-Gobain Building Distribution, Travis Perkins, Wolseley, WTB Holdings, Bradfords Building Supplies, EH Smith (Builders Merchants) SIG, Taylor MAxwell & CO., William Wilson,

EXECUTIVE SUMMARY

This Key Note Market Report analyses the UK builders' merchants market, which, in 2003, was estimated to be worth £10.1bn, an increase of 3.5% on 2002. During the past 2 years, growth in the UK construction market has supported a widespread increase in demand for builders' materials through a well-established network of builders' merchants.

The builders' merchants market encompasses sales of heavyside materials, which include cement, bricks, gravel and concrete building blocks; lightside materials, which cover bathroom accessories, ironmongery, heating and plumbing equipment; and tools/tool hire, including power drills, pumps and compressors. The prime market for builders' merchants is the private contractor market, although some sales are made to the general public.

Several factors have affected the market over the past 3 years, including health and safety issues for builders' merchants employees, the contentious issue of the imposition of full rate value-added tax (VAT) on repairs, maintenance and improvements (RMI), consolidation within the industry as three major companies — Wolseley PLC, Saint-Gobain Building Distribution Ltd and Travis Perkins PLC — dominate the market and potential competition in the market from DIY stores. In addition, major issues that affect the construction industry in general — notably the Sustainable Communities Plan and skills shortages — indirectly influence the builders' merchants market.

Consolidation within the builders' merchants market provides a strong infrastructure and has the advantage of offering high levels of investment and human resources. However, this trend produces a challenge for the large number of smaller builders' merchants operating in the market. In order to gain buying power that is even broadly comparable to that of the major players, small companies make purchases through buying groups, although the combined spending power of these groups decreases as smaller companies are taken over by large groups — the past 3 years (2001 to 2003) have seen numerous acquisitions of small and medium-sized builders' merchants. Another issue of concern is the possible threat posed by DIY stores in the small contractor sector of the builders' merchants market. Although these stores do not offer trade conditions, they have considerably longer opening hours. In addition, DIY stores have a high standard of store presentation and packaging.

The builders' merchants market is likely to develop over the next 5 years (2004 to 2008) through further consolidation and increasingly attractive presentation, which will appeal to the wider DIY market. In addition, the Internet will be used more to obtain business in the Eurozone countries. A growing number of products will be specified and sold in accordance with

CE marking and it is possible that new components and types of customer will emerge as new construction techniques are developed. Overall, the builders' merchants market will be influenced by government building plans, interest rate increases and possible difficulties with consumer debt, the latter two factors having a depressing effect on market growth.

TABLE OF CONTENTS

Executive Summary 1

1. Market Definition 7

REPORT COVERAGE 7

MARKET SECTORS 7

Heavyside Materials 7

Lightside Materials 8

Tools and Tool Hire 8

MARKET TRENDS 9

Housebuilding 9

Table 1: New Housing Output in Great Britain by Value

at Current Prices (£m), 2000-2003 9

Housing Starts and Completions 9

Table 2: Housing Starts and Completions in the UK (000),

1998/1999-2002/2003 10

Private Sector Commercial Construction 10

Table 3: Private Sector Commercial Construction Output

in Great Britain by Value at Current Prices (£m), 2000-2003 11

Private Sector Industrial Construction 11

Table 4: Private Sector Industrial Construction Output in

Great Britain by Value at Current Prices (£m), 2000-2003 12

Repair, Maintenance and Improvement 12

Table 5: Repair, Maintenance and Improvement Construction Output in Great Britain by Value at Current Prices

(£m), 2000-2003 12

ECONOMIC TRENDS 13

Population 13

Table 6: UK Resident Population Estimates by Sex

(000), Mid-Years 1998-2002 13

Gross Domestic Product 13

Table 7: UK Gross Domestic Product at Current and Constant 1995 Prices (£m), 1998-2002 14

Inflation 14

Table 8: UK Rate of Inflation (%), 1998-2002 14

Unemployment 15

Table 9: Actual Number of Unemployed

Persons (million), 1998-2002 15

Household Disposable Income 15

Table 10: Average Household Disposable Income

(£), 1998-2002 15

MARKET POSITION 16

The UK 16

Overseas 16

2. Market Size 17

the total market 17

Table 11: Construction Output in Great Britain by Value

at Current Prices (£m), 2000-2003 17

Table 12: The UK Builders' Merchants Market by Value

(£bn), 1999-2003 18

By Market Sector 19

Bricks and Roofing Tiles 19

Table 13: Deliveries and Stocks of Bricks and Concrete

Roofing Tiles in Great Britain by Volume

(billion and million square metres), 1998-2002 19

Cement 20

Table 14: Deliveries and Stocks of Cement in Great Britain

by Volume (million tonnes), 1998-2002 20

Sand and Gravel 20

Table 15: The Sand and Gravel Market† in Great Britain

by Volume (000 tonnes), 1998-2002 20

OVERSEAS TRADE 21

Imports 21

Table 16: UK Imports of Selected Building Materials, Equipment and Components by Value (£000), 1998-2002 21

Exports 22

Table 17: UK Exports of Selected Building Materials, Equipment and Components by Value (£000), 1998-2002 22

3. Industry Background 23

RECENT HISTORY 23

Number of Companies 23

Table 18: Number of UK VAT-Based Enterprises Engaged in the Wholesale of Wood, Construction Materials and Sanitary Equipment by Turnover Sizeband (£000), 2003 24

REGIONAL VARIATIONS IN THE MARKETPLACE 24

Table 19: Regional Variation in the Number of Builders' Merchants Branches, October 2002 25

DISTRIBUTION 25

Table 20: Major Types of Equipment and Materials

Stocked by Builders' Merchants (number of branches and %), October 2002 26

DIY Stores 26

Other Specialist Outlets 27

HOW ROBUST IS THE MARKET? 27

LEGISLATION 28

Aggregate Tax 28

Construction Products Directive 28

Revised Building Regulations 29

KEY TRADE ASSOCIATIONS 29

Association of Building Component Manufacturers Ltd 29

Builders' Merchants Federation 29

Construction Products Association 30

Council of European Producers of Materials for Construction 31

Institute of Builders Merchants 32

European Trade Associations 32

4. Competitor Analysis 33

THE MARKETPLACE 33

MARKET LEADERS 34

BSS Group PLC 34

Company Structure 34

Current and Future Developments 34

Financial Results 34

Grafton Group PLC 35

Company Structure 35

Current and Future Developments 35

Financial Results 35

Saint-Gobain Building Distribution Ltd 36

Company Structure 36

Current and Future Developments 37

Financial Results 37

Travis Perkins PLC 38

Company Structure 38

Current and Recent Developments 38

Financial Results 38

Wolseley PLC 39

Company Structure 39

Current and Future Developments 40

Financial Results 40

WTB Holdings Ltd 40

Company Structure 40

Current and Future Developments 41

Financial Results 41

Other Companies 41

Bradfords Building Supplies Ltd 41

EH Smith (Builders Merchants) Ltd 41

Gibbs & Dandy PLC 41

Heiton Group PLC 42

Ridgeons Ltd 42

Robert Price (Builders Merchants) Ltd 42

SIG PLC 42

Taylor, Maxwell and Co Ltd 43

William Wilson 43

OUTSIDE SUPPLIERS 43

Marketing activity 44

Exhibitions 44

5. Strengths, Weaknesses, Opportunities and Threats 45

STRENGTHS 45

WEAKNESSES 45

OPPORTUNITIES 45

THREATS 46

6. Buying Behaviour 47

PRIVATE CONTRACTORS 47

Table 21: Number of Private Contractors in Great Britain

by Numbers of Employees, 1998-2002 47

Table 22: Private Contractors in Great Britain by Trade (number of employees), 2002 48

Regional Distribution of Private Contractors 49

Table 23: Contractors' Output in Great Britain by Region (£m), 1998-2002 49

7. Current Issues 51

Group Buying and transactions 51

Health and Safety 51

Own-Brand Products 52

VAT on Repair, Maintenance and Improvement Work 52

IT and the Internet 52

Retail Companies 53

Fast-track Building 53

CORPORATE ACTIVITY 53

8. The Global Market 55

THE GLOBAL SCENE 55

The US 55

Table 24: Construction Put in Place in the US by Value

($m), 1995 and 1998-2000 55

Europe 56

Table 25: Construction Activity in the EU — Total Production (ebn and %), 2002 56

Table 26: Construction Activity in the EU — Variation on the Previous Year in Real Terms (%), 2001-2003 58

9. Forecasts 59

THE ECOnOMY 59

CONSTRUCTION FORECASTS 59

Table 27: Forecast Construction Industry Output by Value

(£m at 1995 Constant Prices), 2004-2008 60

Housebuilding 61

Private Sector Commercial and Industrial Construction 61

Public Non-Housing 61

Repair, Maintenance and Improvement 61

FORECASTS 2004 to 2008 61

Table 28: The Forecast UK Builders' Merchants Market by Value (£bn), 2004-2008 62

FUTURE TRENDS 62

Environmentally Sustainable Construction 62

New Construction Methods 62

Integrated Project Teams 62

Skills Shortage 62

Interest Rates and Consumer Debt 63

10. Company Profiles 64

Bss Group Plc 65

Grafton Group plc 67

Saint-gobain Building Distribution Ltd 69

travis Perkins Plc 71

Wolseley PlC 73

11. Further Sources 75

Associations 75

Government Publications 75

Other Sources 76

Bonnier Information Sources 76

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Last updated by Amanda Porteous July 2004