2014-15 Annual Review

Applying CD&R’s distribution expertise to the highly fragmented, non-discretionary reroofing market and revitalizing the growth focus in a business with substantial footprint expansion opportunities

RSG is a market-leading roofing distributor that has top-3 positions in markets representing ~90% of its revenue. The company benefits from strong recurring demand related to reroofing activity, and it generates strong and consistent margins and cash flow. CD&R is driving a renewed focus on growth, both organically and through accretive acquisitions in existing and complementary markets. In addition, the Firm is leveraging its experience in distribution to improve profitability through operating initiatives and best practices it has

successfully executed in related investments, including new compensation and incentive structures, strategic pricing implementation, supply chain discipline, purchasing consolidation and improved financial and operating tools for management.

Company Profile

Roofing Supply Group (“RSG”) is a leading distributor of residential and nonresidential roofing materials in the United States. With 2014 revenue of $1.1 billion and over 20,000 SKUs, RSG offers an extensive offering of branded roofing materials and related accessories to the residential and commercial roofing markets. Products include shingles, single-ply roofing, metal roofing, roll roofing, insulation, slate and tiles, nails and fasteners, cements and coatings and other

complementary building materials. Approximately 80% of the company’s revenue is driven by reroofing activity, which tends to be more stable than new construction because reroofing is generally considered a non-discretionary expenditure.

RSG’s branch-based operating model includes 76 locations in 24 states throughout the West, Rocky Mountain, Northwest, Southwest, Southeast and Midwest regions of the United States. The company owns and centrally manages a specialized fleet of over 300 delivery trucks, 100 rooftop loading conveyors, 350 forklifts and 150 trailers. It serves a diverse and highly fragmented customer base that includes over 9,000 contractors, home builders, retail customers, building owners and other re-sellers, with no single customer accounting for more than 2% of sales.

Transaction Background

The Firm spent several years studying the roofing industry prior to the 2012 acquisition of RSG through an exclusive, non-auction sale process. CD&R was attracted to the stability of industry demand (due to reroofing activity), its diverse customer base, the highly fragmented industry structure and related consolidation opportunities and the strong and consistent margins and cash flow metrics produced by distributors in the industry. In addition to meeting the seller’s valuation expectations, CD&R was selected to enter exclusive negotiations to acquire the business in large part based on the Firm’s distribution expertise, industrial and building products knowledge, consistent expression of interest in the business over time and ability to complete diligence and execute the transaction on an accelerated timeline.

CD&R Fund VIII acquired RSG in May 2012 for approximately $707 million or 7.5x LTM EBITDA. This valuation multiple compared favorably to other industrial and roofing distributors and precedent transactions in the industry. It was somewhat understated because trailing LTM revenue and EBITDA were inflated by high volume and pricing from unusually strong storm activity the prior year, but it also did not adjust for tax benefits conveyed to RSG in the transaction.

Value-Building Initiatives

The RSG management team and CD&R have identified several initiatives to improve top-line growth, profitability and efficiency:

• Sales and Growth Initiatives: Targeting sales to large strategic accounts that can leverage the full RSG footprint (strategic account sales of $90 million in 2014, up +50% y-o-y, and estimated incremental long-term EBITDA contribution of $3-8 million). Implementing regular sales and marketing training programs as well as targeted “blitzes” to accelerate growth.
• Strategic Footprint Growth Opportunities: Identifying attractive markets and branch manager talent for greenfield expansion and seeking accretive acquisitions in existing and complementary markets.
• Gross Margin Improvement: Extending strategic pricing capabilities and knowledge throughout the branch network. Implementing vendor mix management metrics and incentives to encourage shift

• in purchasing behaviors to maximize volume rebates and sales from high-margin suppliers. Focusing on inbound and outbound freight optimization including implementation of GPS system to improve fleet utilization. Launched private label program in early 2014 and rolling it out to additional product categories in 2015
• Operating Expense Reduction: Streamlining both corporate and field expenses / headcount - significant progress in 2014, but still more opportunity to improve. Ongoing centralization and optimization of field administration (e.g., payables management).
• Working Capital Management: Driving reduction in accounts receivable collections by introducing targets by branch. Optimizing inventory management through improved demand forecasting processes, including more detailed planning by key product groups (e.g., shingles, single-ply roofing)

Looking Forward

Reroofing activity continues to provide a foundation of recurring revenue, though activity is still below historical levels with total Asphalt Roofing Manufacturers Association (ARMA) squares down ~15% from the 17-year average. Management expects to capitalize on the continued recovery of new residential and non-residential construction markets. At the same time, RSG continues to seek accretive acquisition opportunities in its fragmented industry and to identify attractive markets for greenfield expansion. The Company is currently targeting an additional 5-10 greenfields in 2015. In addition, Management believes that the recent field restructuring should help drive profitable sales growth by streamlining the geographic structure and enhancing regional oversight.