Latest Results

Chief Executive Officer’s review

2024 was another challenging year for the Group and the industry. The UK economy has continued to feel the impact of high interest rates and the after-effects of double-digit inflation, and the Government’s Budget did not inspire confidence for either businesses or consumers.  We have also faced headwinds such as rising business rates, while the introduction and subsequent deferral of the Clean Heat Market Mechanism (CHMM) substantially disrupted the boiler market, which is key for the Plumbing and Heating division.

In this environment, we have focused on positioning the business to outperform as the market recovers. The downturn has reinforced the importance of investing in our customer proposition, focusing even more on retaining and engaging our colleagues, and being measured in our actions.  While we are rigorous about managing our cost base, we will not cut costs at the expense of customer service, which is key to the way we compete and helps to protect our margins.  The market environment has also demonstrated that our devolved divisional structure works very well, with small teams who are highly motivated to perform and have ownership of their results.

Performance

Group revenue was £436.7 million in FY24, down 5.6% on the £462.6 million we achieved in FY23, which was a record year.

Our Merchanting business recovered well after a tough first half and delivered Like-for-Like (‘LFL’) growth in the second six months of the year, and particularly in the last quarter.  Specialist businesses A.W. Lumb and Advance Roofing had strong years.  Conditions for P&H were very challenging and its revenue declined by over 10%, in line with the wider boiler market. The CHMM had a major impact and we still do not have complete clarity about the Government’s strategy for the energy transition.  Even so, there is no doubt that clean heating products are gaining traction and we have begun to tilt our business to take advantage of this opportunity (see the strategy section below).  Reflecting this, renewables revenue in P&H grew by 99%, to more than £5.5 million.

Adjusted EBITDA including property gains was 16.5% lower at £22.4 million (FY23: £26.8 million), with the adjusted EBITDA margin down 0.7 percentage points to 5.1% (FY23: 5.8%).  This reflects market conditions, lower volumes and the mix of products sold in the year.  Adjusted EBITDA excluding property gains was £20.6 million (2023: £26.6 million). We remain confident of increasing our EBITDA margin over the medium term and have several levers to do so, including operational leverage, growing our higher‑margin product lines, continued improvements to our productivity and efficiency and further accretive acquisitions.

The business remained soundly financed, with net debt at the year-end of £32.4 million (31 December 2023: £28.5 million).  We have significant liquidity, with headroom of £52.3 million in our facilities and £10.3 million of available cash as at 31 December 2024.  Nevertheless, lower profitability in FY24 reduced our operating cash flow, and the Board and management have been highly focused on maintaining our balance sheet strength, while making appropriate investments in our 3Ps of people, plant and premises, to support our customer proposition. In H1 FY25, the Company completed a sale and leaseback of four properties from which the Merchanting division operates for a cash consideration of £13.1 million.  The proceeds of the property sale have significantly reduced the Group’s net debt position and resulted in a gain of £2.0 million.

Strategy

We continued to implement our strategy in FY24, while remaining flexible and adjusting our approach to the prevailing market conditions. Our strategic aim is to deliver margin‑accretive growth by opening new branches, extending our product range and expanding our digital revenues, through carefully targeted capital expenditure.

We also acquire businesses that add to our geographical presence and product range.  While a tough market can create more acquisition opportunities, we have been very disciplined in this respect, in part because we are wary of buying businesses with declining earnings in a falling market.  During 2024, we acquired Ultimate Renewables Supplies, a rapidly growing business for an initial consideration of £0.6 million.

New branches

We expanded our geographical presence in FY24, with Ultimate Renewables Supplies adding one branch in Bicester to P&H’s network.  We also opened a new George Lines site in Maidstone just after the end of the year and continue to look for further locations for this business, as well as for specialist Merchanting businesses such as Advance Roofing and A.W. Lumb, with the latter having opened a new branch in Mansfield in April 2025. Opening Mr Central Heating branches also remains part of our plans.

However, market conditions and the time it takes for new branches to reach profitability meant it was sensible to pause this rollout in FY24, and we intend to resume it when the market recovers.

Product range extension

P&H signed a number of important distribution agreements in FY24, including exclusive arrangements with Navien, the world’s largest boiler manufacturer, and Clivet, which produces air source heat pumps (AHSP). The relationship with Clivet, along with our purchase of Ultimate Renewables Supplies, shows our clear intent to grow in the renewables market.  Our new agreement with Termo Teknik adds radiators to APP’s range, which are a natural fit and will help us to grow non-boiler revenues.

Ultimate Renewables Supplies generates revenue from renewable product sales and from providing associated services, such as design and commissioning.  We are always focused on adding value for our customer and the end-consumer, whether through organic innovation or acquisitions, and we will look to increase our service offering over time.

In Merchanting, we are developing a core product range for our Lords and Hevey brands, to provide consistency across branches and online, drive sales and improve our stock management.  We will work with our suppliers to fill gaps in the range and continue to build mutually beneficial relationships.

We are also leveraging our specialist products, such as roofing, civils and drylining, by focusing on synergy sales across our Merchanting businesses.

Digital capabilities

Digital channels are an important growth driver for us. APP launched a customer portal in FY24, providing visibility of real-time stock levels, to their own terms and conditions, and place orders 24/7.  The division is also exploring the use of chatbots and AI to rapidly answer customer questions, such as advising on the right boiler specification for a particular house.

Merchanting has strengthened its marketing and digital team with experienced hires, including expertise in digital marketing, and developed plans to further improve the functionality of our websites and enhance the customer journey.

One of our challenges is to continually improve our productivity and efficiency, and technology has a key role to play. The transition to a new ERP system in P&H is starting to deliver benefits, including underpinning further developments such as click-and-collect functionality and electronic proof of delivery.  Another major initiative is an in-cab system, which combines telematics and AI-enabled cameras to track driver behaviour. This improves safety and efficiency and reduces fuel consumption, along with the associated carbon emissions.

Our 3Ps – people, plant and premises

Our colleagues have always been fundamental to the business and I want to thank them all for their hard work and focus on delivering for our customers.  The UK’s labour force has reduced in recent years and this makes it more important than ever that we retain our people and bring in new talent, such as our apprentices.

We made several changes to our senior team in FY24. In addition to appointing Stuart Kilpatrick as CFO, as outlined in last year’s report, we recruited Steve Durdant‑Hollamby to lead Merchanting as COO, while Neil Lake now heads up P&H, having joined the Group in 2022 when we acquired the DH&P businesses he founded.  Both Steve and Neil have substantial experience of their respective industries and make natural partners for me, with their operational focus allowing me to spend more time on strategic matters.  We now have a very strong Operating Board, which also includes Anne Prince, our Group HR Director.

We continue to invest in our branches, including complete refurbishments of the Alloway Timber sites we acquired last year and expanding the capacity of two A.W. Lumb branches.  We also moved a Condell branch from the site it shared with Lords in Kings Langley, to nearby Hemel Hempstead, to give both businesses the room they need to grow.

Outlook

The economic environment at the start of 2025 is not conducive to growth.  While end-consumers should be well placed after a period of significant wage increases, much depends on the timing and scale of interest rate cuts. There are signs of an improving construction market, which should support an improvement in the repair, maintenance and improvement (RMI) sector, but this is not generally expected before the end of 2025.  Like all UK businesses, we also face increased costs in 2025 in relation to employer’s National Insurance, business rates and the minimum wage, which amount to around £1.0 million for us annually.

We therefore continue to focus on what is within our control: managing costs, driving efficiencies, reducing debt and pragmatically supporting strategic initiatives to deliver organic and acquisitive growth.  We believe this puts us in a strong position for the anticipated recovery in the construction market, with the Group’s operational gearing meaning rising volumes will produce a greater increase in profits.

In addition, we will look for opportunities to continue our M&A strategy, focused on specialist, independent businesses that can broaden our product range or geographic reach in highly fragmented markets.  There is still significant scope for consolidation, given our reputation as an acquirer of choice in the market.

Shanker Patel
Chief Executive Officer
7 May 2025