DJ Travis Perkins: Audited results for the financial year ended 31 December 2018 - Stronger H2 profit performance; well positioned in uncertain market conditions
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Travis Perkins (TPK)
Travis Perkins: Audited results for the financial year ended 31 December 2018 - Stronger
H2 profit performance; well positioned in uncertain market conditions
26-Feb-2019 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information according to
REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
Travis Perkins plc
Audited results for the financial year ended 31 December 2018
Stronger H2 profit performance; well positioned in uncertain market conditions
GBPm Note 2018 2017 -
Revenue 6,741 6,433 4.8%
Like-for-like revenue growth(1) 4.9% 3.3% +1.6ppt
Adjusted operating profit(1) 6a 375 380 (1.3)%
Adjusted operating profit excluding 6a 348 351 (0.9)%
property profits(1)
Adjusted profit before taxation(1) 6a 347 343 1.2%
Adjusted earnings per share(1) 12b 114.5p 110.4p 3.7%
Net debt(1) 15 (354) (342) GBP(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 12a (34.4)p 93.1p
(pence)
(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
(2)2017 LAROCE has been restated to reflect goodwill impairment for comparability purposes
? 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 GBP246m 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
+44 (0) 7469 401819 +44 (0) 207 353 4200
graeme.barnes@travisperkins.co.uk
Zak Newmark
+44 (0) 7384 432560
zak.newmark@travisperkins.co.uk
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 [1]
Conference call participant dial in details:
UK: 020 3936 2999
All other locations: +44 20 3936 2999
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 GBP6,741m, 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 GBP340m. Net
debt increased modestly by GBP12m to GBP354m, 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 GBP20m-GBP30m from the
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DJ Travis Perkins: Audited results for the financial -2-
above-branch cost base by mid-2020. A number of actions were initiated towards this target
in Q4 2018 which will deliver c.GBP5m 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
Merchanting Toolstation Retail Plumbing &
Heating
Travis Keyline Toolstation Wickes City PTS
Perkins Plumb
ing
CCF BSS Tile F&P
Giant wholesale
Benchmarx Specialist
online
businesses
Trade focused businesses Seeking
disposal
in 2019
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 in future 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 GBP110m to GBP130m
- Property profits of around GBP20m
? 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.
Divisional performance
**********************
General Merchanting
FY 2018 FY 2017 Change
Total revenue GBP2,137m GBP2,109m 1.3%
Like-for-like growth 1.4% 1.2%
Adjusted operating profit* GBP179m GBP183m (2.2)%
Adjusted operating margin* 8.4% 8.7% (30)bps
LAROCE** 12% 12% -
Branch network 837 849 (12)
*Divisional adjusted operating profit figures are presented excluding property profits
** LAROCE calculations exclude property profits from the EBITA figure (2017 figure
restated on this basis)
Financial performance
Total revenue grew by 1.3% in the year, and by 1.4% on a like-for-like basis. Growth was
driven by pass through of cost price inflation of 2.8%, offset by a modest decline in
volume. Regionally, the South East was most heavily impacted by the challenging macro
environment, with declining house prices and significantly lower secondary housing
transactions. Volume trends were stronger in the second half of the year following
significant weather impacts on volume in the first half.
Adjusted operating profit declined by 2.2% in the year, but with differing performance
half-on-half. In H1, the business was impacted by an increase in the cost base, driven by
inflation on wages, rent, rates and utilities, and also by investments in the business,
including the additional cost to offer the Heavyside Range Centre service throughout the
TP branch network in England and Wales. In the second half, there was a concerted focus on
controlling and reducing costs, with savings made through greater efficiency in the
distribution network, streamlining central functions and some branch consolidation. These
cost savings, together with the stronger volume trends, drove year on year profit growth
in H2 of 8.1%.
Gross margins were stable across the year, despite stronger growth in sales to large,
lower margin customers, and with the selective price investments in dedicated categories
in 2017 showing a positive impact on volumes. Adjusted operating margin reduced by 30
basis points in the year as a whole, driven by the higher cost base and the impact of
sustained poor weather in H1, offset by a 50bp H2 on H2 improvement in operating margin.
For Benchmarx the market environment was particularly challenging in the first half of the
year, with a tougher macro backdrop and competitor pricing pressure. This pressure eased
in H2, with volumes returning to growth and the strongest ever Big Bang promotional event
in October.
Operational performance
Four new Travis Perkins branches were opened in the year, plus one added through
acquisition, and an additional three Managed Services sites. This was offset by 19
closures, including eight Managed Services sites at the end of fixed term contracts. The
remaining branch closures focused on consolidation of the network as part of on-going
estate management, with smaller branches closed and resources and customer relationships
moved to larger local branches with a very encouraging transfer of sales. Three branches
were refitted to the modern format, with a further four relocated to more optimal trading
sites within their catchments.
The process to devolve more power to branch managers is underway, with initial
communications being well received and work being undertaken to streamline central support
services enabling branch colleagues to spend more time with customers. In addition,
improvements are being made to branch stock ranges, with more products specified for local
customers in the right quantities, particularly for heavy building materials.
Planned changes to the delivery of the extended heavyside range proposition in the South
East are underway, in response to the operational issues at the Tilbury HRC. A combination
of local stock investment and management, together with regional transport planning will
ensure customers retain access to the proposition, and will reduce the cost burden to the
business in the medium term.
Contracts
FY 2018 FY 2017 Change
Total revenue GBP1,472m GBP1,369m 7.5%
Like-for-like growth 7.0% 8.4%
Adjusted operating profit* GBP94m GBP86m 9.3%
Adjusted operating margin* 6.4% 6.3% 10bps
LAROCE** 15% 14% 1ppt
Branch network 164 169 (5)
*Divisional adjusted operating profit figures are presented excluding property profits
** LAROCE calculations exclude property profits from the EBITA figure (2017 figure
restated on this basis)
Financial performance
Strong revenue growth continued in the Contracts division, growing 7.5% in total, and by
7.0% on a like-for-like basis. Sales growth was strong in all three businesses, with price
growth of 4.5% to mitigate input cost inflation and 2.5% volume growth reflecting
continued market share gains. After a difficult start to the year in Q1, with markets
suffering uncertainty following the collapse of Carillion, the division maintained a
strong like-for-like growth rate throughout the remainder of the year.
Adjusted operating profit grew by 9.3% to GBP94m. Gross margin declined modestly in the
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DJ Travis Perkins: Audited results for the financial -3-
year, reflecting a shift in customer mix, with stronger sales growth to larger customers.
This was more than offset by tight control of costs, continued success from on-going
activities to improve efficiency, and operating leverage which improved overall adjusted
operating margin to 6.4%.
At this early stage in the year, whilst the order book for 2019 remains robust, the Group
remains cautious on the outlook for commercial construction, and continues to look out for
any changing dynamics in the market.
LAROCE increased to 15%, driven by higher profitability on a similar capital base.
Operational performance
The Tool Hire business delivered a strong performance in the year as it continues to
mature, with 17% growth in revenue.
Network developments continue in Keyline as the business aims to relocate and consolidate
branches into lower cost sites, and providing fit-for-purpose branches for customers and
colleagues. In 2018, eight branches were closed (including one transferred to the Travis
Perkins brand), with two new, low cost branches opened.
The acquisition of TF Solutions in 2017 added air conditioning systems to the product
range. The business generated outstanding growth of over 30%. A fourth TF Solutions branch
was opened in 2018, and another branch was extended.
The focus on outstanding customer service continued, with a trial in two branches to give
customers transparency of their delivery fulfilment. Feedback was excellent, and further
work will be completed to develop the offering in 2019. A Work Winning initiative is also
in place to make sure we deliver the right service to the right customer, differentiating
customer needs and providing a tailored service that is valued by customers.
A unique, efficient driver bonus scheme was implemented, which has led to a 1% reduction
in diesel usage across the Contracts delivery fleet. This is a significant saving for
businesses where the vast majority of sales are delivered, and sharing the benefits with
drivers has driven a change in culture across the division.
Consumer
FY 2018 FY 2017 Change
Total revenue GBP1,604m GBP1,589m 0.9%
Like-for-like growth (1.3)% 3.0% (4.3)ppt
Adjusted operating profit* GBP69m GBP82m (15.9)%
Adjusted operating margin* 4.3% 5.2% (90)bps
LAROCE** 7% 8% (1)ppt
Branch network*** 712 666 46
*Divisional adjusted operating profit figures are presented excluding property profits
**LAROCE calculations exclude property profits from the EBITA figure (2017 figure restated
on this basis)
***Branch network includes 40 stores relating to Toolstation Europe (2017: 23 stores), an
associate of the Group
Wickes
Financial performance
Wickes revenues declined by 2.5% in 2018, and by 4.4% on a like-for-like basis. The UK DIY
market environment has been extremely challenging, driven by the wider macro environment,
with declining consumer confidence, and through competitive pricing pressure. The first
half was particularly difficult, with poor weather conditions in March and April impacting
the Easter trading period.
The negative sales impact was felt across the business, but with Kitchen & Bathroom (K&B)
showroom sales being hard hit in H1, partially in response to the poor promotional period
in Q4 2017 and also reflecting a challenging retail environment. Delivered K&B sales
reduced by 10% in the first half of the year.
In the second half of the year, K&B "leads activity" strengthened in response to improved
promotional activity in Wickes, and through competitor decisions to exit the design &
install service for end-consumers. This activity began to develop into improved sales in
Q4, and sets the business up well heading into 2019. Selective price investments in
specific core DIY categories, combined with early signs of the competitive price pressure
easing, helped to drive positive sales growth in H2, with an encouraging trend throughout
Q4.
Adjusted operating profit declined by 19% in the year, but this was split between a 39%
decline in H1, followed by 15% growth in H2. This recovery can be attributed mainly to the
level of cost reduction that was achieved in the year, with significant reductions in
central support services, reduction in shrinkage and efficiency gains in the distribution
network, as well as the improved trading in Q4.
Gross margins declined in the year, driven by sales mix, as K&B sales declined more than
core sales in H1, and due to the competitive pricing environment. This was more than
offset in H2 by the cost reduction actions that were undertaken.
Operational performance
The Wickes TradePro scheme was launched 18 months ago, and has been well received by
customers. Giving a 10% discount on all purchases, it is a simple mechanism for customers
to understand, and is improving customer loyalty, helping to support core sales through
2018. In 2019 the digital experience for trade customers will be enhanced, giving access
to the discount for online transactions to drive higher participation.
A further 24 store refits were completed in 2018, bringing the total number of stores in
the modern format to 121. The proportion of Kitchens sold with a full installation service
increased to 54% (up from 44% in 2017), reflecting the high-quality turnkey service
provided to end consumers.
Toolstation UK
Financial performance
Toolstation revenue grew by 18% in 2018, and by 11.4% on a LFL basis. Sales growth was
driven by the continued expansion of the store network, existing stores continuing to
mature, and through the extended ranges available to customers on a next-day basis.
Adjusted operating profit was broadly flat year on year, as anticipated, as additional
volume growth was offset by investment in the higher operating costs associated with the
40 additional stores and a new distribution centre which will support further network
expansion.
Gross margin was unchanged, despite maintaining Toolstation's value leadership position.
Operational performance
An additional 4,000 products were added to the range, with a key focus on trade relevant
ranges, with an extra 58 trade brands added, contributing over GBP25m of additional sales.
The product range available for next-day delivery or dropship was also extended, with
categories including bathrooms, garden sheds and radiators. A trade credit card was
launched in 2018 providing small trade customers with access to up to 116 days of credit
on purchases in Toolstation and other Travis Perkins brands.
Development of IT systems continued, with a new EPOS system implemented in store, and a
new website launched in December 2018, alongside providing 6-day deliveries to customers.
Multichannel transactions increased by over 30%, with strong growth in click and collect,
and the new website has improved conversion rates by >1%.
A third distribution centre was opened, increasing capacity to over 500 stores. 40 new
stores were opened in 2018, including the successful trials of smaller format and high
street concepts, with branch performance in line with expectations.
Toolstation Europe
The expansion of Toolstation Europe continued, with 12 stores opened in the Netherlands
taking the total to 32, and supported by a new distribution centre. Growth characteristics
for both stores and online are extremely encouraging, and mirroring the experience of the
UK business.
A further five stores were added to the network around Lyon in France, bringing the trial
up to 8 in total and developing brand recognition with local trade customers. The Belgian
website continues to develop well, and some trial stores will be added in 2019, to be
serviced from the Dutch distribution centre.
Plumbing & Heating
FY 2018 FY 2017 Change
Total revenue GBP1,528m GBP1,366m 11.9%
Like-for-like growth 16.1% 2.1%
Adjusted operating profit* GBP39m GBP31m 25.8%
Adjusted operating margin* 2.6% 2.3% 30bps
LAROCE** 11% 9% 2ppt
Branch network 377 391 (14)
*Divisional adjusted operating profit figures are presented excluding property profits
** LAROCE calculations exclude property profits from the EBITA figure (2017 figure
restated on this basis)
Financial performance
The transformation programme in the Plumbing & Heating division was highly successful in
2018, generating total revenue growth of 11.9%, and growth of 16.1% on a like-for-like
basis. Growth was strong across the division: through the branch network, wholesale
business and the specialist online businesses.
Adjusted operating profits increased by 25.8% to GBP39m, reflecting both the improved
trading performance and tight control of the cost base, which benefited from the branch
closures carried out in late 2017 and from combining and simplifying management and
support team structures. This improved cost performance offset a modest reduction in gross
margins, primarily driven by change in business mix, with strong wholesale revenues, and
increased promotional activity to underpin the proposition in branches.
LAROCE increased by 2ppt, to 11% reflecting the higher profits on a stable capital base.
Operational performance
Improvements to branch stock range and depth, and increasing product availability through
the supply chain to 98% has improved credibility with customers. A catalogue with 12,000
SKUs was launched, broadening customer awareness of the ranges available, and providing
visible, competitive pricing. A trial to introduce a greater range of electrical products
across 13 branches, reflecting the increasing role of electrical work required within
domestic plumbing projects, was successful, and further implants are planned for 2019.
Bathroom showroom ranges have been modernised and updated across the 240-branch showroom
network, combined with a more focused drive to interact with end customers
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The specialist online businesses continued to grow strongly, particularly the Underfloor
Heating Store, Direct Heating Spares and National Shower Spares businesses. The City
Plumbing online transactional website continues to grow after its launch in July 2017.
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 instance of the existing IT
platform. This work should be completed during Q2 2019.
Central costs
Unallocated central costs remained broadly unchanged in 2018, at GBP33m (2017: GBP31m).
Investment continues in developing the Group's IT capabilities and digital platforms, in
particular the new ERP system for the Merchant businesses.
Property transactions
The Group continues to recycle its freehold property portfolio to provide the best trading
locations for its businesses, whilst managing the level of capital allocated to owning and
developing freehold sites.
Ten new freehold sites were purchased in 2018 at an investment of GBP38m (2017: GBP41m), with
a further GBP10m of construction costs to develop sites ready for trading (2017: GBP20m).
These investments were fully funded in the year by property disposals of GBP98m, which also
generated property profits of GBP27m.
Financial Performance
Revenue
Group revenue grew by 4.8% in 2018, and by 4.9% on a like-for-like basis, primarily driven
by the strong growth in the Plumbing & Heating and Contracts divisions and the Toolstation
business, partially offset by the challenges faced by the Wickes business in the first
nine months of the year.
Volume, price and mix analysis
Total revenue General Plumbing & Contracts Consumer Group
Merchantin Heating
g
Volume (1.4)% 13.3% 2.5% (2.0)% 2.2%
Price and mix 2.8% 2.8% 4.5% 0.7% 2.7%
Like-for-like 1.4% 16.1% 7.0% (1.3)% 4.9%
revenue growth
Network (0.1)% (4.2)% 0.5% 2.2% (0.1)%
expansion and
acquisitions
Total revenue 1.3% 11.9% 7.5% 0.9% 4.8%
growth
The continued expansion of the Toolstation network was offset by branch closures in P&H in
2017. There was no difference in the number of trading days in 2018 compared to 2017. The
Group maintained its stance to recover input cost inflation across the trade-focused
businesses in 2018, with overall price inflation across the Group of 2.7%. The highest
inflation was experienced in the Contracts division where commodity price inflation had
the most concentrated impact, but this tempered over the course of the year.
Pricing in the UK DIY market was extremely competitive through the year, with Wickes
making targeted investments in price in certain categories to drive volume. This was
successful, particularly in core categories in the fourth quarter of the year, but had a
detrimental impact on gross margins. The competitive pressures began to ease towards the
end of 2018 and market pricing became more rational.
Quarterly like-for-like revenue analysis
Like-for-like General Plumbing & Contracts Consumer Group
revenue growth Merchantin Heating
g
Q1 2018 (1.3)% 19.7% 0.9% (4.6)% 3.0%
Q2 2018 3.0% 20.1% 9.5% (3.1)% 5.9%
Q3 2018 1.3% 14.8% 8.9% (4.2)% 4.1%
Q4 2018 2.8% 12.0% 8.8% 5.6% 6.9%
H1 2018 0.6% 19.8% 5.1% (4.2)% 4.2%
H2 2018 2.0% 12.9% 8.9% 1.0% 5.5%
FY 2018 1.4% 16.1% 7.0% (1.3)% 4.9%
The quarterly like-for-like sales trend across the Group shows the impact of the severe
weather in the first quarter, which negatively impacted General Merchanting, Contracts,
Wickes and Toolstation, but supplied a modest boost to P&H.
Operating profit and margin
GBPm 2018 2017 -
General Merchanting 179 183 (2.2)%
Plumbing & Heating 39 31 25.8%
Contracts 94 86 9.3%
Consumer 69 82 (15.9)%
Property 27 29 (6.9)%
Unallocated costs (33) (31) 6.5%
Adjusted operating profit 375 380 (1.3)%
Amortisation of acquired intangibles (10) (12)
Adjusting items (387) (41)
Operating profit / (loss) (22) 327
Adjusting Items
Adjusting items in 2018 were GBP387m, including GBP252m of goodwill impairment in Wickes and
Tile Giant. A full breakdown of adjusting items is included in note 7.
Finance charge
Net finance charges, shown in note 10, were GBP24m (2017: GBP35m). While interest costs on
borrowings were broadly unchanged from 2017 at GBP24m, interest received was higher in the
year at GBP2.4m, reflecting higher rates earned on higher average cash balances, and
interest received on the investment made in Toolstation Europe.
The impact of marking-to-market currency forward contracts outstanding at 31 December 2018
was a gain of GBP1.8m (2017: charge of GBP2.9m). These contracts are used to hedge commercial
currency transactions.
Net interest on the pension deficit decreased by GBP2.3m due to a lower valuation of the
pension liability.
Taxation
The tax charge for the year ended 31 December 2018 including the effect of adjusting items
is GBP34.1m (2017: GBP55.7m). This represents an effective tax rate (ETR) of negative 69.2%
(2017: positive 19.2%).
The tax charge for the year before adjusting items is GBP58.2m (2017: GBP63.5m) giving an
adjusted ETR of 17.3% (standard rate 19%, 2017 actual: 19.2%). The adjusted ETR rate is
lower than the standard rate due to the release during the year of tax provisions held for
uncertain tax positions that have now been agreed with HMRC, partially offset by a reduced
deferred tax asset related to employee share schemes following a decline in the share
price in 2018.
The impairment of goodwill of GBP252.1m included in the financial statements as an adjusting
item does not attract a tax deduction and so does not affect the tax charge for the
period.
Earnings per share
The Group reported a loss after taxation of GBP84m (2017: profit after tax of GBP234m)
resulting in a basic loss per share of 34.4 pence (2017: earnings per share of 93.1
pence). The reduction is primarily due to the impairment of goodwill and intangible assets
in the Wickes business by GBP246m in 2018. There is no significant difference between basic
and diluted basic earnings per share.
Adjusted profit after tax increased by 3.3% to GBP285m (2017: GBP276m) resulting in adjusted
earnings per share (note 12b) increasing by 3.7% to 114.5 pence (2016: 110.4 pence). There
is no significant difference between adjusted basic and adjusted diluted earnings per
share.
Reconciliation of reported to adjusted earnings
2018 2017
GBPm Earnings Earnings
Basic earnings and EPS attributable to (86) 233
shareholders
Plumbing & Heating division transformation 45 41
Restructuring costs 59 -
IT-related impairment charge 16 -
Pension related items 5 -
Loss on disposal of BPT 10
Impairment of Wickes and Tile Giant goodwill 252 -
Adjusting Items 387 41
Amortisation of acquired intangibles 10 12
Tax on amortisation of acquired intangibles (1) (2)
Tax on adjusting items (24) (8)
Effect of reduction in corporation tax on - -
deferred tax
Adjusted earnings and EPS attributable to 286 276
shareholders
Cash flow and balance sheet
Free cash flow
The Group generated good free cash flow of GBP340m, at a cash conversion rate of 91%.
(GBPm) 2018 2017
EBITA 375 380
Depreciation of PPE and other non-cash movements 138 130
Disposal proceeds in excess of property profits 72 83
Change in working capital (107) (54)
Maintenance capital expenditure (57) (48)
Net interest (26) (27)
Tax paid (55) (57)
Free cash flow 340 407
Underlying cash conversion rate 91% 107%
The primary driver of the year-on-year change in cash generation is the increase in net
working capital. Around two-thirds of this difference can be attributed to trade-related
net working capital, with growth in the customer debtor book moving in line with the
growth in sales in the trade-focused merchant businesses, and higher inventory resulting
from stock build activities ahead of the UK leaving the EU at the end of March 2019.
An increase in non-trade related net working capital was primarily driven by higher rebate
receivables, impacted by both higher sales and the phasing of payments over the year end.
The Group has not seen an appreciable change in its bad debt rate year-on-year, which
remains at 0.4% of trade credit sales. There has been some disruption in the construction
industry through the course of 2018, and the Group continues to support customers with
tailored payment plans as required, and remains vigilant for any signs of payment
practices changing over time.
Maintenance capex increased modestly to GBP57m, reflecting the timing of vehicle
replacements across the Group.
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