Travis Perkins : sites/travis perkins/files/2022 03/2021 final results 01.pdf

Travis Perkins plc

Full year results for the year ended 31 December 2021

A year of significant strategic and operational progress building a strong platform for

future growth

Highlights

• Successfully refocused the organisation around the Group's ambition to become the leading partner to the construction industry
• Completed portfolio actions with Wickes demerged and Plumbing & Heating (P&H) business sold
• Strong revenue performance driven by enhanced customer proposition and robust recovery in key market segments. Like-for-like revenue grew by 25.4% and was 14.4% ahead of 2019*
• Adjusted operating profit of £353m (inclusive of £49m of property profits) (2020: £128m inclusive of property profits of £9m), 19% ahead of 2019*
• Excellent performance in Merchanting resulting from volume growth, improved operational focus and a streamlined cost base
• Another strong year for Toolstation with the UK rollout accelerated and scale building in Europe
• Total ordinary dividend of 38.0 pence per share. P&H net sale proceeds returned to shareholders in full via a 35.0 pence per share special dividend and ongoing buyback programme which has today been extended to £240m
• Continued progress towards sustainability goals with Scope 1 & 2 and new Scope 3 carbon targets approved by the Science-Based Target initiative ("SBTi") as being in line with a 1.5˚ pathway and over 1,300 colleagues enrolled onto apprenticeships or Kickstart programmes

£m (unless otherwise stated)	Note	2021	2020*	Change
Revenue		4,587	3,698	24.0%
Like-for-like revenue growth¹	6	25.4%	(10.0)%
Adjusted operating profit¹	7a	353	128	175.8%
Adjusted earnings per share¹	15b	107.3p	21.0p	411.0%
Adjusted ROCE¹	18	14.1%	5.3%	8.8ppt
Adjusted ROCE excluding property profits¹		12.1%	4.9%	7.2ppt
Net debt / adjusted EBITDA¹	19	1.2x	2.0x	0.8x
Ordinary dividend per share	14	38.0p	n/a
Operating profit		349	26
Total profit / (loss) after tax		241	(35)
Basic earnings / (loss) per share	15a	103.9p	(14.3)p

1. Alternative performance measures are used to describe the Group's performance. Details of calculations can be found in the notes listed.

* For continuing businesses only. The Retail and Plumbing & Heating segments are treated as discontinued operations.

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Nick Roberts, Chief Executive Officer, commented:

"2021 has been a year of significant operational and strategic progress for the Group, completing our portfolio actions and subsequently setting out our ambition to be the leading partner to the construction industry. Whilst the rapidly recovering market created challenges around inflation and product availability, we have navigated them well to deliver an outstanding financial performance, enabled once again by the hard work of our fantastic colleagues.

The Group has built a strong platform for growth and, given robust end market demand and a positive start to the new year, we remain confident of making further progress in 2022. We continue to develop new capabilities to complement our market leading positions and we see exciting opportunities in both new and adjacent markets, driven by our desire to be at the forefront of delivering change and decarbonisation within our industry. The long-term fundamentals of our end markets continue to be robust and the Group is well placed to invest in growth opportunities to create value for all of our stakeholders."

Analyst Presentation

Management are hosting a results presentation at 8.30am. For details of the event please contact the Travis Perkins Investor Relations team as below. The presentation will also be available via a webcast - please register at the following link:

https://webcasting.brrmedia.co.uk/broadcast/61f91137d0a01d0d75c3c623

Enquiries:
Travis Perkins	Powerscourt
Matt Worster	James White
[phone]	[phone]
[e-mail]	[e-mail]
Heinrich Richter
[phone]
[e-mail]

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 and as updated in this statement, 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:

1. 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 the use of the information contained within this announcement; and
2. 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 1st March 2022, 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.

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Summary

The Group has made excellent progress during the year at both a strategic and operational level. The business has been dramatically simplified and the Group has laid out its new ambition, to be the leading partner to the construction industry. The decisive actions taken in 2020 to refocus the business and improve operational capability, combined with the portfolio rationalisation in 2021, have created a platform for the Group to drive growth, generate cash and deliver enhanced shareholder returns.

2021 Performance

The Group delivered a strong performance in 2021 with revenue of £4,587m, up 24.0% versus 2020 and 10.6% ahead of 2019*. This performance reflects the extensive work undertaken to enhance the customer proposition, through investment in network capacity and technological capability, coupled with the robust recovery in both the RMI and new house building markets.

Actions taken to restructure the business and improve operational effectiveness, coupled with disciplined management of increasing inflation and product availability challenges, enabled the business to increase overall operating margin in continuing businesses by 60bps vs 2019 and deliver an adjusted operating profit of £353m, 19% ahead of 2019*.

Strategic development

During the first half of the year, the Group completed its stated portfolio actions. The demerger of Wickes was successfully completed in April, shortly followed by the sale of the Plumbing & Heating business in late May to an affiliate of H.I.G. Capital, a leading global alternative investment firm, for an enterprise value of £325m, with the proceeds returned to shareholders.

In September, the Group held a Capital Markets Update to set out its ambition to become the leading partner to the construction industry. The pace of change within the construction industry and the need for investment to address sustainability challenges in the UK's built environment are both significant which creates opportunities for the Group to use its considerable assets and capabilities to do more for its customers; providing services, equipment and expertise in addition to remaining the largest distributor of building materials to the trade.

Within the Group's portfolio of market-leading businesses, the focus is on deepening customer relationships by providing simple, convenient ways to transact through our branch or digital channels and elevating customer relationships by delivering value-added services that directly address customer challenges and remove costs and complexity.

Furthermore, the Group is enhancing collaboration between its businesses to provide even more convenience to customers, while introducing new capabilities to help them navigate changes to the construction process. The acquisition of Staircraft in late 2021, a leader in technology and design-led timber engineering, is a significant step on our journey towards providing innovative solutions to remove cost and complexity from our customers' projects.

* For continuing businesses only. The Retail and Plumbing & Heating segments are treated as discontinued operations.

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Capital Structure and shareholder returns

The Group's balance sheet has been transformed by a combination of strong financial performance and portfolio actions with net debt under IFRS 16 reducing from £1,788m (2.5x adjusted EBITDA) at the end of 2019 to £605m (1.2x adjusted EBITDA) at the end of 2021 or 1.5x EBITDA on a pro-forma basis when adjusting for proceeds from the Plumbing & Heating disposal still to be returned via share buybacks.

These actions have enabled the Group to set a medium term leverage target (on an IFRS 16 basis) of 1.5x - 2.0x net debt / adjusted EBITDA (on a rolling 12 months basis). This target range is consistent with investment grade credit metrics. Given the cash generative nature of the business, the Group's strong balance sheet provides the flexibility for the Group to invest in attractive opportunities that open up new or adjacent markets, such as the recent acquisition of Staircraft or the expansion of TF Solutions, at the same time as creating capacity to return surplus capital to shareholders when at the lower end of this target range.

The strong performance during 2021 and the strength of the Group's balance sheet enabled the Board to reinstate the ordinary dividend in August with an interim dividend of 12.0 pence per share. The Group has set out a policy of distributing between 30% and 40% of full year adjusted earnings as a regular dividend and is today proposing a final dividend of 26.0 pence per share.

Following the sale of the Plumbing and Heating business, £78m of the net proceeds was returned directly to shareholders via a 35.0 pence per share special dividend. The balance of the net proceeds are being returned to shareholders via a share buyback programme. The programme of £170m is now largely complete (31 December 2021 £70m) and today it has been extended by a further £70m to £240m, which will complete the programme.

Outlook

The strong performance of the Group's end markets has demonstrated the importance of the construction sector to the UK economy. The rapid recovery of demand has led to well- documented challenges, particularly with respect to inflation and product availability, and the Group's businesses have demonstrated their ability to manage these effectively.

Although macroeconomic uncertainties remain, the Group's lead indicators for the year ahead are encouraging with improved levels of housing transactions, the continued move to hybrid working arrangements and year-on-year growth in new housing developments expected to support volumes in the Group's core trade markets. Given robust end market demand and a positive start to the new year, the Group remains confident of making further progress in 2022.

Over the longer term, the requirement to expand and decarbonise the UK housing stock offers significant growth opportunities for the Group. Government policy remains supportive across all sectors, recognising the essential role that construction will play in delivering a sustainable UK economy.

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Technical guidance

The Group's technical guidance for 2022 is as follows:

• Effective tax rate of 20%
• Base capital expenditure of around £140m, inclusive of £15m on the new Toolstation lightside direct fulfilment centre in Northampton (see below)
• Property profits of around £25m

FTSE Russell ICB Reclassification

As a result of the significant changes to the Group's portfolio and end market exposure during 2021, Travis Perkins plc's Industry Classification Benchmark (ICB) has been revised to 50205010

• Industrial Suppliers. This change was effective from the start of 2022.

Segmental performance

Merchanting

	2021	2020	Change
Total revenue	£3,826m	£3,065m	24.8%
Adjusted operating profit*	£320m	£152m	110.5%
Adjusted operating margin		5.0%	340bps
8.4%
ROCE		7.3%	8.3ppt
15.6%
Branch network		846	14
860

* Excluding property profits

The Merchanting businesses delivered an excellent performance, led by the rejuvenated Travis Perkins General Merchant and complemented by record profit delivery in both BSS and Keyline. Underpinning this strong operational delivery was the robust recovery in domestic RMI demand and new housebuilding, alongside continued investment in UK infrastructure. Overall Merchanting revenue was up 24.8% versus 2020, where trading was significantly affected by the pandemic, and 3.3% ahead of 2019. Factoring in the 2020 branch closure programme, like-for-like revenue growth was 28.2% and 11.9% when compared to 2019.

The robust sales performance, combined with solid gross margins and cost benefits from the restructuring programme, delivered an adjusted operating profit of £320m, up 13% versus 2019, and an operating margin of 8.4%, some 70bps ahead of 2019. Operating margin benefitted from around 40 bps of inflation gains in stock given the high input cost inflation experienced. These are not expected to repeat in 2022.

Price inflation accelerated through the year, with prices increasing by around 4% in H1, rising to around 13% in H2, driven by shortages of product as the pace of demand recovery outstripped the rebuilding of manufacturing capacity. The Merchanting businesses have managed these challenges extremely well, utilising the Group's extensive supply chain expertise to maximise product availability and providing transparency on pricing to customers.

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