Travis Perkins : PDF, 538KB, opens in a new windowFinal Results

Travis Perkins plc

Audited results for the financial year ended 31 December 2018 Stronger H2 profit performance; well positioned in uncertain market conditions

£m

Revenue

Like-for-like revenue growth(1)

Adjusted operating profit(1)

Adjusted operating profit excluding property profits(1)

Adjusted profit before taxation(1)

Adjusted earnings per share(1)

Net debt(1)

Note	2018	2017	Δ
6,741	6,433	4.8%
4.9%	3.3%	+1.6ppt
6a	375	380	(1.3)%
6a	348	351	(0.9)%
6a	347	343	1.2%
12b	114.5p	110.4p	3.7%
15	(354)	(342)	£(12)m
Dividend per share (pence)	13	47.0p	46.0p	2.2%
Lease adjusted ROCE(2)	16b	10.5%	10.7%	(0.2)ppt
Adjusting items	7	(387)	(41)
Operating (loss) / profit	(22)	327
(Loss) / profit before taxation	(49)	290
Basic (loss) / earnings per share (pence)	12a	(34.4)p	93.1p

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(1)Alternative performance measures are used to provide a guide to underlying performance and details of the calculations can be found in the notes listed

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(2)2017 LAROCE has been restated to reflect goodwill impairment for comparability purposes

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• ● Strong Group revenue growth of 4.8%, and 4.9% on a like-for-like basis

• ● Continued market outperformance in Contracts division and Toolstation

• ● Adjusted operating profit declined by 1.3% while adjusted EPS grew by 3.7%

• ● H2 adjusted operating profit, excluding property profits, grew by 10.7% underpinned by successful cost reduction activities

• ● Adjusting items includes a non-cash impairment of £246m against the goodwill in Wickes in H1 and restructuring costs across the Group

• ● Full-year total dividend increased by 2.2% to 47.0p per share

• ● Good progress has been made on the strategic actions set out in December 2018, including simplification through the removal of the divisional structure above the Merchant businesses

• ● 2019 adjusted operating profit expected to be similar to 2018

John Carter, Chief Executive Officer, commented:

"The Group delivered a solid performance overall in 2018 despite a challenging market backdrop. We took concerted self-help actions during the year, and the benefits of this cost reduction, together with improved trading, drove an improved profit performance in the second half of the year.

In December 2018, we set out our intention to focus on delivering best-in-class service to trade customers and to simplify the Group. To that end, removing the divisional structure within Merchanting will enable an increased focus on customers at a business unit level, speed up decision making and, at the same time, reduce costs.

In the longer term, the Group remains focused on generating sustainable profitable growth for shareholders and we will achieve this by allocating capital and resources to our most advantaged businesses. We are making good progress on the preparation for the disposal of the Plumbing & Heating division, and are seeing an encouraging improvement in trading and good momentum in Wickes.

Whilst we remain positive about the long-term outlook for our end markets, we are planning for uncertain market conditions to continue in the near term. The Group remains focused on self-help actions to underpin performance in the near term, whilst continuing to invest for the future."

Enquiries:

Travis Perkins	Tulchan Communications
Graeme Barnes	David Allchurch
[phone]	[phone]
[e-mail]
Zak Newmark
[phone]
[e-mail]

The Travis Perkins plc management team will be hosting an analyst briefing at 8.30am. The briefing will be webcast live using the details below.

Webcast URL:

https://www.investis-live.com/travis-perkins/5c485586cad1ac0c00c5e9b1/gdos

Conference call participant dial in details:

UK: 020 3936 2999

All other locations: [phone]

Access code: 678776

Cautionary Statement:

This announcement contains "forward-looking statements" with respect to Travis Perkins' financial condition, results of operations and business and details of plans and objectives in respect to these items. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as "anticipates", "aims", "due", "could", "may", "will", "should", "expects", "believes", "seeks", "intends", "plans", "potential", "reasonably possible", "targets", "goal" or "estimates", and words of similar meaning. By their very nature forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, the Principal Risks and Uncertainties disclosed in the Group's Annual Report, changes in the economies and markets in which the Group operates; changes in the legislative, regulatory and competition frameworks in which the Group operates; changes in the capital markets from which the Group raises finance; the impact of legal or other proceedings against or which affect the Group; and changes in interest and exchange rates. All forward-looking statements, made in this announcement or made subsequently, which are attributable to Travis Perkins or any other member of the Group or persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. No assurances can be given that the forward-looking statements in this document will be realised. Subject to compliance with applicable law and regulations, Travis Perkins does not intend to update these forward-looking statements and does not undertake any obligation to do so. Nothing in this document should be regarded as a profits forecast.

Without prejudice to the above:

(a) neither Travis Perkins plc nor any other member of the Group, nor persons acting on their behalf shall otherwise have any liability whatsoever for loss howsoever arising, directly or indirectly, from use of the information contained within this announcement; and

(b) neither Travis Perkins plc nor any other member of the Group, nor persons acting on their behalf makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained within this announcement.

This announcement is current as of 26 February 2019, the date on which it is given. This announcement has not been and will not be updated to reflect any changes since that date.

Past performance of the shares of Travis Perkins plc cannot be relied upon as a guide to the future performance of the shares of Travis Perkins plc.

Summary

The Group produced a solid performance in 2018 against a market backdrop of considerable uncertainty. Sales growth was strong, with overall growth of 4.8% to £6,741m, and growth of 4.9% on a like-for-like basis. Both the Contracts businesses and Toolstation delivered exceptional growth, outperforming their end markets. The successful transformation in Plumbing & Heating delivered significant sales growth, winning market share through the branch network, the wholesale business and through the specialist online businesses. Sales and operating profit improved in the General Merchanting division in H2, and whilst the UK DIY market was particularly challenging due to both macro and competitive pressures, the Wickes business' performance also improved in H2.

Group adjusted operating profit, excluding property profits, declined by 1.3% in the year, with an 11.5% decline in the first half of the year followed by growth of 10.7% in the second half. Operating profit progression in the second half of the year was driven by the improved trading performance and the successful cost reduction actions carried out, primarily in the General Merchanting division and Wickes, which reduced the overhead cost to sales ratio below recent years and helped to mitigate overhead inflationary pressure in the year.

The Group demonstrated good cash generation in 2018, with free cash flow of £340m. Net debt increased modestly by £12m to £354m, primarily due to working capital investment in the year.

The Board recommends a full year dividend of 47.0 pence (2017: 46.0p), reflecting the Board's confidence in the future cash generation and prospects of the Group.

Strategic progress

At a Capital Markets event in December 2018, the Group set out its strategy for the years ahead with two main pillars. The core purpose of the Group will be to deliver best-in-class service to trade customers. Supplying trade customers is the Group's traditional heartland, with the trade markets typically being more resilient and generating higher margins and returns. The second pillar is to focus on simplifying the Group to reduce business complexity, reduce the above-branch cost base and speed up decision making.

Changes to Group structure

Through simplification, the Group expects to achieve cost reduction of £20m-£30m from the above-branch cost base by mid-2020. A number of actions were initiated towards this target in Q4 2018 which will deliver c.£5m of annualised benefits in 2019.

A key component of the simplification of the Group is the removal of the existing divisional structure above the Merchanting businesses which will reduce costs and speed up decision making. Central functions will be streamlined to support businesses directly, enabling branch managers and their teams to provide the best possible service to customers.

The revised structure will alter how the businesses are managed and reported. From 2019, the Group will report under the following segments: Merchanting, Toolstation, Retail and Plumbing & Heating.

New Group reporting structure

The Group's Merchant businesses, which focus on close trade customer relationships and offering customer-specific pricing and product sourcing tailored to local customer demands, will be grouped for reporting purposes, but will be managed as individual businesses, placing decision making as close as possible to the customer.

Toolstation will remain as an autonomous business within the Group. It will be reported separately from the Retail segment to reflect that it is predominantly a fixed price, trade customer business.

Travis Perkins PLC

Retail

Wickes

Tile Giant

Wickes and Tile Giant will be reported as a Retail segment, with a different operating model from the merchant businesses, with fixed ranges, and a fixed, national price framework. The retail businesses primarily target retail consumers, both through traditional methods and increasingly by providing end-to-end Do-It-For-Me services from design to installation, particularly in Kitchens and Bathrooms.

In December 2018, the Group announced its intention to divest the P&H division during the course of 2019, and significant work has been undertaken to separate the P&H businesses from the remainder of the Group. These actions include separation of commercial agreements, creating designated back office support functions and creating a P&H specific version of the existing IT platform. This work should be completed during Q2 2019.

Outlook

The long-term drivers of market growth remain favourable, supported by the on-going requirement for more homes in the UK, and the underinvestment in the repair, maintenance and improvement (RMI) of existing dwellings and infrastructure. In the near-term, however, considerable economic uncertainty remains, which is driving the current mixed backdrop of market lead indicators. Levels of mortgage approvals and housing transactions remain subdued, house price growth is inconsistent across the UK and depressed consumer confidence continues to put pressure on wider retail sales figures across many UK consumer facing markets.

Investments made in the business in recent years have created a market-leading customer proposition which will drive outperformance of the market. In the short-term, the Group is focusing on self-help initiatives which will underpin performance, and position the Group strongly for the future.

At this early stage in the year, and given current market uncertainty, the Group expects adjusted operating profit in 2019 to be similar to 2018. The Group will continue to prioritise investment infuture growth opportunities such as Toolstation, with progress on cost reduction activities mitigating inflationary pressures on rent, rates and wages.

Technical guidance

The Group's technical guidance for 2019 is as follows:

• ● Effective tax rate of 19%

• ● Finance charges similar to 2018

• ● Capital expenditure, excluding freehold property investments, of around £110m to £130m

• ● Property profits of around £20m

• ● Progressive dividend underpinned by strong cash generation

• ● H1 / H2 EBITA split more normalised in 2019

This guidance has been given before the impact of the new lease accounting rules, IFRS 16. For details of the impact of IFRS 16, please refer to note 21.