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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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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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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DJ Travis Perkins: Audited results for the financial -5-
Capital investments
(GBPm) 2018 2017
Maintenance (57) (48)
IT (42) (49)
Growth capex (44) (69)
Base capital expenditure (143) (166)
Freehold property (48) (61)
Gross capital expenditure (191) (227)
Property disposals 98 114
Net capital expenditure (93) (113)
The Group continues to make investments to deliver a new ERP system to support the Group's
merchanting businesses. The initial launch of the new platform into the BSS business has
been delayed in order for the scope of the programme to be extended to include a number of
the applications used by the Group's businesses which need to link into the new system.
Reducing the total number of linked applications requires more work in the near-term, and
will extend the overall programme by around one year, but will mitigate significant risk
in the implementation phase of the project.
Growth capex spend of GBP44m was lower than in 2017 (GBP69m), as expected, and reflects a
tighter approach to investing new capital during a period where market volume growth is
weak. Growth capex was focused behind the Group's main investment priorities, in
particular the continued expansion of the Toolstation network in the UK, with a further 40
stores opened. A small number of new Travis Perkins branches were opened, but mainly
focused on relocation or consolidation of existing branches. The refitting of Travis
Perkins branches and Wickes stores continued, albeit at a slower rate.
New property purchases were lower in 2018, with purchases focused on sites that will be
strategically important in the long term. Property disposals continued, with GBP98m received
in the year. The Group has now disposed of the vast majority of its retail sites as the
risk of significant rent inflation in a challenging UK retail environment is low.
Net debt and funding
Net debt of GBP354m at 31 December 2018 was a modest increase of GBP12m from the end of
December 2017, reflecting the good cash generation and tighter control on capital
investment. As at 31 December 2018, the Group's committed funding of GBP1,100m comprised:
- GBP250m guaranteed notes due September 2021, listed on the London Stock Exchange
- GBP300m guaranteed notes due September 2023, listed on the London Stock Exchange
- A revolving credit facility of GBP550m, refinanced in December 2015, which runs until
December 2020, advanced by a syndicate of 8 banks.
As at 31 December 2018, the Group had undrawn committed facilities of GBP550m (2017: GBP550m)
and cash on deposit of GBP190m (2017: GBP215m).
In January 2019, the Group agreed a new revolving credit facility, replacing the previous
GBP550m facility. The new agreement provides committed funding of GBP400m until January 2024
from a syndicate of eight banks, with options in place to extend funding to GBP550m if
required, and two one-year extension options to be exercised in Q1 2020 and Q1 2021. This
refinancing process was completed early in order to remove the potential refinancing risk
surrounding the UK's exit from the EU.
The Group's credit rating, issued by Standard and Poors, was maintained at BB+ stable
following its review in April 2018.
The Group has a policy of funding through floating interest rate facilities owing to the
significant implicit fixed interest charges within its leases. However, owing to the
uncertainty surrounding the UK's decision to leave the EU and historically low fixed
interest rates achieved on its bonds, it took a decision in 2016 to fix all of its
interest rate costs other than the rates it receives through drawings on its revolving
credit facility, which were nil as at 31 December 2018.
The Group's lease debt reduced modestly, down GBP46m from the end of 2017. Overall branch
numbers increased modestly in the year from 2,076 to 2,091; while the Group reduced the
overall number of merchanting branches, the number of Toolstation units grew. These units
are typically smaller with shorter lease terms.
Lease adjusted net debt modestly reduced compared with 31 December 2017 as the lower lease
obligations offset the modestly higher net debt position.
Medium Term 2018 2017 -
Guidance
Net debt GBP354m GBP342m GBP12m
Lease debt GBP1,479 GBP1,525m GBP(46)m
m
Lease adjusted net GBP1,833 GBP1,867m GBP(34)m
debt m
Lease adjusted gearing 43.7% 42.6% 1.1ppt
Fixed charge cover 3.5x 3.2x 3.1x 0.1x
LA net debt: EBITDAR 2.5x 2.7x 2.7x -
Lease adjusted gearing (note 15c) increased by 1.1ppts in 2018 to 43.7%, primarily due to
the write off of goodwill in the Wickes business, which has reduced the lease adjusted
equity through the course of the year.
The Group's fixed charge cover ratio (note 17c) rose to 3.2x, with broadly stable earnings
on a lower interest charge, with broadly stable rent charge. The LA net debt/EBITDAR ratio
(note 17b) was stable year on year, at 2.7x.
Dividend
At the Capital Markets event in December 2018, the Group reiterated its commitment to a
progressive dividend policy which is supported by the Board's confidence in the Group's
expected future cash flow generation. The proposed dividend for the full year 2018 of 47.0
pence (2017: 46.0 pence) results in a 2.2% increase (2017: 2.2% increase).
An interim dividend of 15.5 pence was paid to shareholders in November 2018 at a cost of
GBP38m. If approved, the proposed final dividend of 31.5 pence per share will be paid on 17
May 2019, to shareholders on the register at the close of business on 5 April 2019, the
cash cost of which will be approximately GBP78m.
Pensions
The Group made GBP7m (2017: GBP11m) of additional cash contributions to its defined benefit
schemes in 2018. At 31 December 2018, the combined gross accounting surplus for the
Group's final salary pension schemes was GBP81m (31 December 2017: deficit of GBP28m), which
equated to a net surplus after tax of GBP66m (31 December 2017: net deficit of GBP23m). During
the year, the Group closed its two principal UK Defined Benefit Schemes to future accrual
resulting in a curtailment gain of GBP4.7m as described in the adjusting items note (note
7). The Group also agreed the triennial actuarial reviews as at 30 September 2017 with the
trustees of both schemes resulting in a modest reduction in funding contributions required
over the period to September 2020.
Principal risks and uncertainties
The risk environment in which the Group operates does not remain static. During the year,
the Directors have reviewed the Group's principal risks and have concluded that as the
nature of the business and the environment in which it operates remain broadly the same,
the principal risks it faces are largely unchanged from those listed on pages 33 to 39 of
the 2017 Annual Report and Accounts. However, following the announcement in December 2017
that the Group strategy is being refined to achieve greater simplification and a focus on
serving trade customers through advantaged businesses, activities are underway to reshape
the portfolio with the proposed divestment of the Plumbing & Heating businesses. As a
result, the Directors have concluded that M&A activity, previously combined with risks
associated with business transformation projects, is a key area of focus and heightened
risk for the Group and is described separately. The Directors have also extended the
description of health and safety risk to consider in more detail the transport-related
risk faced by the Group, due to the scale of the fleet it operates and the associated
regulatory and compliance requirements. Finally, the reduction in the deficit for the
Group's two defined benefit schemes, supported by the closure of the schemes to future
accrual in 2018 and a continued focus on liability management, means that the Board no
longer believes that this area represents a principal risk.
Accordingly the 2018 annual report and accounts will report risks under the following
captions: the changing customer and competitor landscape, colleague recruitment, retention
and succession, supplier dependency and disintermediation, unsafe practices that lead to
stakeholders being harmed, the efficient allocation of capital, business transformation
projects, execution of planned M&A and disposals, market conditions, Brexit, data security
and the changing regulatory framework.
Consolidated income statement
For the year ended 31 December 2018
GBPm Note 2018 2017
Revenue 6,740.5 6,433.1
Adjusted operating profit 374.5 380.1
Amortisation of acquired intangible assets (9.5) (12.3)
Adjusting items 7 (386.7) (40.9)
Operating (loss) / profit (21.7) 326.9
Share of associates' results (4.0) (2.2)
Finance income 10 4.2 0.7
Finance costs 10 (27.9) (35.7)
(Loss) / profit before tax (49.4) 289.7
Tax 11 (34.1) (55.7)
(Loss) / profit for the year (83.5) 234.0
Attributable to:
Owners of the Company (85.6) 232.8
Non-controlling interests 2.1 1.2
(83.5) 234.0
(Loss) / profit per ordinary share
Basic 12a (34.4)p 93.1p
Diluted 12a (34.4)p 92.2p
Total dividend declared per ordinary share 13 47.0p 46.0p
All results relate to continuing operations.
Consolidated statement of comprehensive income
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DJ Travis Perkins: Audited results for the financial -6-
For the year ended 31 December 2018
GBPm 2018 2017
(Loss) / profit for the year (83.5) 234.0
Items that will not be reclassified subsequently
to profit and loss:
Actuarial gains on defined benefit pension schemes 102.0 90.8
Income tax relating to other comprehensive income (19.3) (17.1)
Other comprehensive income for the year net of tax 82.7 73.7
Total comprehensive (loss) / income for the year (0.8) 307.7
All other comprehensive income is attributable to the owners of the company.
Consolidated balance sheet
As at 31 December 2018
GBPm 2018 2017
Assets
Non-current assets
Goodwill 1,289.2 1,539.2
Other intangible assets 385.4 387.1
Property, plant and equipment 913.2 932.0
Interest in associates 34.2 20.3
Investments 6.6 9.5
Retirement benefit asset 81.2 -
Other receivables 43.3 30.4
Total non-current assets 2,753.1 2,918.5
Current assets
Inventories 855.3 816.3
Trade and other receivables 1,253.8 1,130.2
Cash and cash equivalents 255.4 276.8
Total current assets 2,364.5 2,223.3
Total assets 5,117.6 5,141.8
Equity and Liabilities
Capital and reserves
Issued share capital 25.2 25.2
Share premium account 545.4 543.4
Merger reserve 326.5 326.5
Revaluation reserve 14.7 15.7
Own shares (47.8) (15.3)
Other reserve (5.6) (4.9)
Retained earnings 1,847.5 1,958.0
Equity attributable to owners of the Company 2,705.9 2,848.6
Non-controlling interests 11.8 11.7
Total equity 2,717.7 2,860.3
Non-current liabilities
Interest bearing loans and borrowings 605.2 612.1
Derivative financial instruments 0.9 4.9
Retirement benefit obligations - 28.3
Deferred tax liabilities 77.8 61.0
Long-term provisions 18.4 17.0
Total non-current liabilities 702.3 723.4
Current liabilities
Interest bearing loans and borrowings 3.8 6.2
Derivative financial instruments 4.7 1.2
Trade and other payables 1,603.2 1,453.6
Tax liabilities 25.9 44.5
Short-term provisions 60.0 52.6
Total current liabilities 1,697.6 1,558.1
Total liabilities 2,399.9 2,281.5
Total equity and liabilities 5,117.6 5,141.8
Consolidated statement of changes in equity
For the year ended 31 December 2017
GBPm Share Share Merger Revaluation Own Other Retained Total Non Total
capit premi reserv reserve shares earnings equity cont equity
al um e before roll
non-con ing
trollin inte
g rest
interes
t
At 1 January 25.1 528.5 326.5 16.8 (8.7) - 1,760.1 2,648.3 7.3 2,655.6
2017
Profit for the - - - - - - 232.8 232.8 1.2 234.0
year
Other - - - - - - 73.7 73.7 - 73.7
comprehensive
income for the
period net of
tax
Total - - - - - - 306.5 306.5 1.2 307.7
comprehensive
income for the
year
Dividends - - - - - - (113.0) (113.0) - (113.0)
Issue of share 0.1 14.9 - - - - - 15.0 - 15.0
capital
Purchase of - - - - (19.2) - - (19.2) - (19.2)
own shares
Adjustments in - - - (1.1) - - 1.1 - - -
respect of
revalued fixed
assets
Equity-settled - - - - - - 15.7 15.7 - 15.7
share-based
payments, net
of tax
Options on - - - - - (4.9) - (4.9) - (4.9)
non-controllin
g interest
Arising on - - - - - - - - 3.2 3.2
acquisition
Foreign - - - - - - 0.2 0.2 - 0.2
exchange
Own shares - - - - 12.6 - (12.6) - - -
movement
At 31 December 25.2 543.4 326.5 15.7 (15.3) (4.9) 1,958.0 2,848.6 11.7 2,860.3
2017
IFRS 9 - - - - - - (2.4) (2.4) - (2.4)
adoption
At 31 December 25.2 543.4 326.5 15.7 (15.3) (4.9) 1,955.6 2,846.2 11.7 2,857.9
2017
(restated)
Consolidated statement of changes in equity (continued)
For the year ended 31 December 2018
GBPm Share Share Merger Revaluation Own Other Retained Total Non Total
capit premi reserv reserve shares earnings equity contr equity
al um e before ollin
non-con g
trollin inter
g est
interes
t
At 31 December 25.2 543.4 326.5 15.7 (15.3) (4.9) 1,955.6 2,846.2 11.7 2,857.9
2017
(restated)
Loss for the - - - - - - (85.6) (85.6) 2.1 (83.5)
year
Other - - - - - - 82.7 82.7 - 82.7
comprehensive
income for the
period net of
tax
Total - - - - - - (2.9) (2.9) 2.1 (0.8)
Comprehensive
(loss) /
income for the
year
Dividends - - - - - - (114.1) (114.1) (2.0) (116.1)
Dividend - - - - - - (0.8) (0.8) - (0.8)
equivalent
payments
Issue of share - 2.0 - - - - - 2.0 - 2.0
capital
Purchase of - - - - (43.4) - - (43.4) - (43.4)
own shares
Adjustments in - - - (1.0) - - 1.0 - - -
respect of
revalued fixed
assets
Equity-settled - - - - - - 19.7 19.7 - 19.7
share-based
payments, net
of tax
Option on - - - - - (0.7) - (0.7) - (0.7)
non-controllin
g interest
Foreign - - - - - - (0.1) (0.1) - (0.1)
exchange
Own shares - - - - 10.9 - (10.9) - - -
movement
At 31 December 25.2 545.4 326.5 14.7 (47.8) (5.6) 1,847.5 2,705.9 11.8 2,717.7
2018
Consolidated cash flow statement
For the year ended 31 December 2018
GBPm 2018 2017
Cash flows from operating activities
Adjusted operating profit 374.5 380.1
Adjustments for:
Depreciation of property, plant and equipment 101.0 102.0
Amortisation of internally-generated intangibles 15.5 12.6
Share-based payments 19.6 15.6
Other non-cash movements 2.1 0.2
Gain on disposal of property, plant and (26.8) (30.6)
equipment
Adjusted operating cash flows 485.9 479.9
Increase in inventories (49.5) (47.0)
Increase in receivables (141.4) (106.3)
Increase in payables 83.8 76.8
Payments in respect of adjusting items (40.6) (20.2)
Pension payments in excess of the income (7.2) (11.3)
statement charge
Cash generated from operations 331.0 371.9
Interest paid (26.2) (27.6)
Current income taxes paid (55.1) (57.2)
Net cash from operating activities 249.7 287.1
Cash flows from investing activities
Interest received 0.7 0.5
Proceeds on disposal of property, plant and 98.4 113.9
equipment
Development of computer software (44.4) (48.1)
Purchases of property, plant and equipment (146.9) (179.0)
Interest in associates (17.6) (11.3)
Dividends received - 0.3
Acquisition of businesses (3.0) (9.7)
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DJ Travis Perkins: Audited results for the financial -7-
Disposal of business 9.0 -
Net cash used in investing activities (103.8) (133.4)
Cash flows from financing activities
Proceeds from the issue of share capital 2.0 15.0
Purchase of own shares (43.4) (19.2)
Repayment of finance lease liabilities (6.5) (7.0)
Payments to pension scheme (3.3) (3.2)
Dividends paid (116.1) (113.0)
Net cash from financing activities (167.3) (127.4)
Net (decrease) / increase in cash and cash (21.4) 26.3
equivalents
Cash and cash equivalents at the beginning of 276.8 250.5
the year
Cash and cash equivalents at the end of year 255.4 276.8
Notes
1) The Group's principal accounting policies are set out in the 2018 Annual Report &
Accounts, which will be made available on the Company's website
(www.travisperkinsplc.co.uk [2]) on 26 February 2019.
2) The proposed final dividend of 31.50 pence (2017: 30.50 pence) is payable on 17 May
2019. The record date is 5 April 2019.
3) The financial information set out above does not constitute the Company's statutory
accounts for the years ended 31 December 2018 or 31 December 2017, but is derived from
those accounts. Statutory accounts for 2017 have been delivered to the Registrar of
Companies and those for 2018 will be delivered in due course. The auditor has reported
on those accounts; their reports were (i) unqualified, (ii) did not include a reference
to any matters to which the auditor drew attention by way of emphasis without qualifying
their reports and (iii) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006. The audit of the statutory accounts for the year ended 31 December
2018 is now complete. Whilst the financial information included in this announcement has
been computed in accordance with International Financial Reporting Standards ("IFRS")
this announcement does not itself contain sufficient information to comply with IFRS.
This announcement was approved by the Board of Directors on 25 February 2019.
4) The 2018 Annual Report & Accounts will be made available on 26 February 2019 on the
Group's website. It is intended to post the Annual Report & Accounts to shareholders on
Wednesday 20 March 2019 and to hold the Annual General Meeting on 8 May 2019. Copies of
the Annual Report & Accounts prepared in accordance with IFRS will be available from the
Company Secretary, Travis Perkins plc, Lodge Way House, Harlestone Road, Northampton NN5
7UG from Wednesday 20 March 2019.
6. Profit
(a) Operating profit
GBPm 2018 2017
Revenue 6,740.5 6,433.1
Cost of sales (4,812.7) (4,527.5)
Gross profit 1,927.8 1,905.6
Selling and distribution costs (1,607.4) (1,239.7)
Administrative expenses (375.0) (374.0)
Profit on disposal of properties 26.8 29.4
Other operating income 6.1 5.6
Operating (loss) / profit (21.7) 326.9
Adjusting items 386.7 40.9
Amortisation of acquired intangible assets 9.5 12.3
Adjusted operating profit 374.5 380.1
Profit on disposal of properties (26.8) (29.4)
Adjusted operating profit before property 347.7 350.7
disposals
(b) Adjusted profit ????
GBPm 2018 2017
(Loss) / profit before tax (49.4) 289.7
Adjusting items 386.7 40.9
Amortisation of acquired intangible assets 9.5 12.3
Adjusted profit before tax 346.8 342.9
Tax (34.1) (55.7)
Tax on adjusting items (24.2) (7.8)
Tax on amortisation of acquired intangible assets (1.6) (2.1)
Adjusted profit after tax 286.9 277.3
7. Adjusting items
GBPm 2018 2017
Plumbing & Heating transformation and disposal 45.3 40.9
preparation
Impairment of Wickes and Tile Giant goodwill 252.1 -
IT-related impairment costs 15.7 -
Restructuring costs 58.4 -
Pension-related items 4.9 -
Loss on disposal of BPT (note 20) 10.3 -
386.7 40.9
P&H transformation and disposal preparation
In August 2017 the Group announced that, following a comprehensive strategic review of the
Plumbing & Heating division, it would reduce capacity, integrate the CPS and PTS
businesses, overhaul the division's customer proposition and create a dedicated Plumbing &
Heating supply chain. In accordance with the Group's accounting policy the total cost of
GBP36.4m (2017: GBP40.9m) has been treated as an adjusting item.
The adjusting item consisted of the following:
? GBP1.2m of property, redundancy and other costs (2017: GBP12.0m) associated with the closure
of six branches
? GBP22.8m of costs (2017: GBP19.1m) arising from the separation and rationalisation of the
Plumbing & Heating supply chain and the integration of the CPS and PTS businesses. The
costs comprised property-related costs, redundancy and reorganisation costs and inventory
write-downs and provision adjustments
? GBP12.4m of central and divisional costs (2017: GBP9.8m) including people-related,
consultancy and other restructuring costs
Further to this, in December 2018 the Group announced its intention to explore the
opportunity to dispose of
the Plumbing & Heating division and has incurred GBP8.9m of related costs, which are
included in this adjusting item. An assessment has been made as to whether the Plumbing &
Heating division meets the criteria in IFRS 5 - Non-current Assets Held for Sale and
Discontinued Operations for classification as held for sale. The Directors concluded that
as at 31 December 2018 the division was not available for immediate sale in its present
condition and accordingly it has not been classified as held for sale.
Impairment of goodwill
During 2018 the Group has recognised an impairment charge in respect of goodwill in Wickes
and Tile Giant, due to lower forecasts than previously expected.
IT-related impairment costs
The intangible fixed asset impairment charge arises from the termination of certain IT
projects in the Wickes business (GBP6.5m) and in the central IT function (GBP2.5m) and the
change arising from two specific components of the Group's ERP project where the
development activities no longer meet the criteria in IAS 38 - Intangible Assets for
capitalisation as development costs (GBP6.7m).
7. Adjusting items (continued)
Restructuring costs
The restructuring charge relates to the cost-reduction programme announced for the Wickes
business in May 2018 and for the wider Group in July 2018.
? GBP16.0m relating to rationalisation of the merchanting supply chain, which includes the
costs of consolidating the Gowerton Road and Mercury Drive distribution hubs,
consolidating the Cardiff Range Centre and Cardiff Timber Centre and closing the Tilbury
Range Centre. The Group has made a claim against the developer in respect of the closure
of the Tilbury Range Centre.
? GBP16.3m of costs relating to the closure of twenty seven branches and a reduction in
support centre headcount in the merchanting businesses. The costs comprised
property-related costs, redundancy costs and inventory write-downs.
? GBP12.8m of redundancy and reorganisation costs in the Wickes business
? GBP13.3m of Group costs, including people-related costs and consultancy
Pension-related items
The GBP4.9m pension-related charge consists of a GBP4.7m curtailment gain recognised as a
result of the closure of the Group's two main defined benefit pension schemes to future
accrual and a GBP9.6m charge for the equalisation of guaranteed minimum pension ("GMP")
benefits between men and women.
8. Operating segments
2018
GBPm General Contracts Consumer Plumbing Unallocated Consolidated
Merchan &
ting Heating
Revenue 2,137.3 1,471.5 1,604.0 1,527.7 - 6,740.5
Segment 152.0 85.7 (187.8) (5.4) (66.2) (21.7)
result
Amortisation - 6.3 2.4 0.8 - 9.5
of acquired
intangible
assets
Adjusting 28.9 5.5 272.3 46.3 33.7 386.7
items
Adjusted 180.9 97.5 86.9 41.7 (32.5) 374.5
segment
result
Less (2.4) (3.9) (17.7) (2.8) - (26.8)
property
profits
Adjusted 178.5 93.6 69.2 38.9 (32.5) 347.7
segment
result
excluding
property
profits
Adjusted 8.5% 6.6% 5.4% 2.7% - 5.6%
operating
margin
Adjusted 8.4% 6.4% 4.3% 2.6% - 5.2%
segment
margin
excluding
property
profits
Lease 1,601.5 680.4 1,824.4 436.3 (74.4) 4,468.2
adjusted
capital
employed
Lease 193.4 100.6 128.1 49.7 (31.0) 440.8
adjusted
operating
profit
excluding
property
profits
Segment 1,848.0 910.3 1,333.9 645.2 380.2 5,117.6
assets
Segment (490.8) (318.9) (458.2) (392.2) (739.8) (2,399.9)
liabilities
Consolidated 1,357.2 591.4 875.7 253.0 (359.6) 2,717.7
net assets
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DJ Travis Perkins: Audited results for the financial -8-
Capital 131.0 12.8 47.1 4.7 1.9 197.5
expenditure
Amortisation - 6.3 2.4 0.8 - 9.5
of acquired
intangible
assets
Depreciation 63.9 14.5 29.1 8.8 0.2 116.5
and
amortisation
of software
8. Operating segments (continued)
2017
GBPm General Contracts Consumer Plumbing Unallocated Consolidated
Merchan &
ting Heating
Revenue 2,109.5 1,369.0 1,589.1 1,365.5 - 6,433.1
Segment 200.6 81.3 79.4 (3.5) (30.9) 326.9
result
Amortisation - 6.3 5.0 1.0 - 12.3
of acquired
intangible
assets
Adjusting - - - 40.9 - 40.9
items
Adjusted 200.6 87.6 84.4 38.4 (30.9) 380.1
segment
result
Less (18.0) (1.9) (1.9) (7.6) - (29.4)
property
profits
Adjusted 182.6 85.7 82.5 30.8 (30.9) 350.7
segment
result
excluding
property
profits
Adjusted 9.5% 6.4% 5.3% 2.8% - 5.9%
operating
margin
Adjusted 8.7% 6.3% 5.2% 2.3% - 5.5%
segment
margin
excluding
property
profits
Lease 1,624.5 671.6 1,827.6 436.7 (107.1) 4,453.3
adjusted
capital
employed
Lease 202.0 93.0 142.4 41.0 (31.0) 447.4
adjusted
operating
profit
excluding
property
profits
Segment 1,811.0 867.2 1,544.6 592.3 326.7 5,141.8
assets
Segment (441.5) (323.5) (403.6) (317.8) (795.1) (2,281.5)
liabilities
Consolidated 1,369.5 543.7 1,141.0 274.5 (468.4) 2,860.3
net assets
Capital 152.9 14.3 57.3 3.6 2.3 230.4
expenditure
Amortisation - 6.3 5.0 1.0 - 12.3
of acquired
intangible
assets
Depreciation 67.5 11.8 26.4 8.8 0.1 114.6
and
amortisation
of software
????????????????????
9. Pension schemes
GBPm 2018 2017
At 1 January actuarial (deficit) / asset (19.1) (127.3)
Additional liability recognised for minimum (9.2) -
funding requirements
(28.3) (127.3)
Current service costs and administrative expenses (6.5) (9.6)
charged to the income statement
Past service costs (4.9) -
Net interest income / (expense) 0.4 (3.1)
Contributions from sponsoring companies 18.5 20.9
Return on plan assets (excluding amounts included (25.8) 80.9
in net interest)
Actuarial gain / (loss) arising from changes in (4.0) 26.8
demographic assumptions
Actuarial gain / (loss) arising from changes in 99.5 (1.1)
financial assumptions
Actuarial gain / (loss) arising from experience 23.1 (6.6)
adjustments
Reduction / (increase) in minimum funding 9.2 (9.2)
requirement liability
Gross pension asset / (liability) at 31 December 81.2 (28.3)
Deferred tax (liability) / asset (15.4) 5.4
Net pension asset / (liability) at 31 December 65.8 (22.9)
10. Net finance costs
(a) Finance costs and finance income
GBPm 2018 2017
Interest on bank loans and overdrafts* (2.7) (4.1)
Interest on sterling bonds (21.0) (21.0)
Interest on obligations under finance leases (0.4) (0.8)
Unwinding of discounts - property provisions (0.2) (0.7)
Unwinding of discounts - pension SPV loan (2.1) (2.4)
Other interest (0.7) (0.7)
Other finance costs - pension scheme (0.8) (3.1)
Net loss on remeasurement of derivatives at fair - (2.9)
value
Finance costs (27.9) (35.7)
Net gain on remeasurement of derivatives at fair 1.8 -
value
Net gain on remeasurement of foreign exchange 0.7 -
Interest receivable 1.7 0.7
Finance income 4.2 0.7
Net finance costs (23.7) (35.0)
10. Net finance costs (continued)
(b) Fixed charge cover interest
GBPm 2018 2017
Interest on bank loans and overdrafts* 2.7 4.1
Interest on sterling bonds 21.0 21.0
Interest on obligations under finance leases 0.4 0.8
Unwinding of discounts - pension SPV loan 2.1 2.4
Fixed charge cover interest charge 26.2 28.3
*Includes GBP1.5m (2017: GBP1.5m) of amortised finance charges.
11. Tax
GBPm 2018 2017
Current tax:
- current year 47.1 57.5
- prior year (10.4) 0.4
Total current tax 36.7 57.9
Deferred tax:
- current year (2.7) (2.5)
- prior year 0.1 0.3
Total deferred tax (2.6) (2.2)
Total tax charge 34.1 55.7
12. Earnings per share
(a) Basic and diluted earnings per share
GBPm 2018 2017
Earnings for the purposes of basic and (85.6) 232.8
diluted earnings per share being net
profit attributable to equity holders of
the Parent Company
Weighted average number of shares for 248,681,183 250,100,896
the purposes of basic earnings per share
Dilutive effect of share options on 345,820 2,468,248
potential ordinary shares
Weighted average number of ordinary 249,027,003 252,569,144
shares for the purposes of diluted
earnings per share
(Loss) / earnings per share (34.4p) 93.1p
Diluted (loss) / earnings per share (34.4p) 92.2p
5,284,836 share options (2017: 978,010 share options) had an exercise price in excess of
the average market value of the shares during the year. As a result, these share options
were excluded from the calculation of diluted earnings per share.
12. Earnings per share (continued)
(b) Adjusted earnings per share
Adjusted earnings per share are calculated by excluding the effect of the adjusting items
and amortisation of acquired intangible assets from earnings.
GBPm 2018 2017
Earnings for the purposes of basic and diluted (85.6) 232.8
earnings per share being net profit attributable
to equity holders of the Parent Company
Adjusting items 386.7 40.9
Amortisation of acquired intangible assets 9.5 12.3
Tax on adjusting items (24.2) (7.8)
Tax on amortisation of acquired intangible assets (1.6) (2.1)
Adjusted earnings 284.8 276.1
Adjusted earnings per share 114.5p 110.4p
Adjusted diluted earnings per share 114.4p 109.3p
13. Dividends
Amounts were recognised in the financial statements as distributions to equity
shareholders as follows:
GBPm 2018 2017
Final dividend for the year ended 31 December 2017 75.6 74.7
of 30.50p (2016: 29.75p) per ordinary share
Interim dividend for the year ended 31 December 2018 38.5 38.3
of 15.50p (2017: 15.50p) per ordinary share
Total dividend recognised during the year 114.1 113.0
The dividends declared for 2018 and for 2017 were as follows:
Pence 2018 2017
Interim paid 15.5 15.5
Final proposed 31.5 30.5
Total dividend for the year 47.0 46.0
The proposed final dividend of 31.50p per ordinary share in respect of the year ended 31
December 2018 was approved by the Board on 25 February 2019. This final dividend of
c.GBP79.4m (2017: GBP76.9m) will be paid on 17 May 2019 to shareholders whose names are on the
Register of Members at the close of business on 5 April 2019.
A dividend reinvestment plan ("DRIP") is available to shareholders who would prefer to
invest their dividends in the shares of the Company. Elections under the DRIP must be made
by close of business on 24 April 2019.
14. Free cash flow
GBPm 2018 2017
Net debt before exchange and fair value (341.5) (377.5)
adjustments at 1 January
Net debt before exchange and fair value (353.6) (341.5)
adjustments at 31 December
Increase in net debt before exchange and fair (12.1) 36.0
value adjustments
Dividends paid 116.1 113.0
Net cash outflow for expansionary capital 134.9 201.5
expenditure and related items*
Net cash outflow for acquisitions 3.0 9.7
Net cashflow for investments - (0.3)
Disposal of business (9.0) -
Amortisation of swap cancellation receipt (3.4) (3.4)
Discount unwind on liability to pension scheme 2.3 2.4
Cash impact of adjusting items 40.6 20.2
Interest in associates 17.6 11.3
Purchase of shares 43.4 19.2
Shares issued (2.0) (15.0)
Movement in finance charges netted off bank debt 1.5 1.5
Special pension contributions 7.2 11.3
Free cash flow 340.1 407.4
*Expansion capital expenditure includes GBPnil (2017: GBP22.1m) in relation to the development
of cloud-based software classified as a non-current prepayment.
15. Net debt and lease-adjusted gearing
(a) Net debt
Balances at 31 December comprise:
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GBPm 2018 2017
Cash and cash equivalents 255.4 276.8
Non-current interest bearing loans and (605.2) (612.1)
borrowings
Current interest bearing loans and borrowings (3.8) (6.2)
Net debt (353.6) (341.5)
Finance leases arising from the implementation 8.0 9.5
of IAS 17 - Leases
Liability to pension scheme 32.8 33.7
Finance charges netted off borrowings (4.0) (5.5)
Net debt under covenant calculations (316.8) (303.8)
15. Net debt and lease-adjusted gearing (continued)
(b) Movement in net debt
The Group
GBPm Cash and Finance Term Sterling Liability Total
cash leases loan bonds to
equivalen and pension
ts revolv scheme
ing
credit
facili
ty and
loan
notes
At 1 January (250.5) 34.5 (3.0) 562.0 34.5 377.5
2017
Cash flow (26.3) (7.0) - - (3.2) (36.5)
Finance - - 0.8 0.7 - 1.5
charges
movement
Amortisation - - - (3.4) - (3.4)
of swap
cancellation
receipt
Discount - - - - 2.4 2.4
unwind on
liability to
pension
scheme
At 1 January (276.8) 27.5 (2.2) 559.3 33.7 341.5
2018
Cash flow 21.4 (6.5) - - 3.3 18.2
Finance - - 0.8 0.7 - 1.5
charges
movement
Amortisation - - - (3.4) - (3.4)
of swap
cancellation
receipt
Discount - - - - (4.2) (4.2)
unwind on
liability to
pension
scheme
31 December (255.4) 21.0 (1.4) 556.6 32.8 353.6
2018
(c) Lease-adjusted gearing
GBPm 2018 2017
Net debt 353.6 341.5
Property operating lease rentals x8 1,479.2 1,524.8
Lease-adjusted net debt 1,832.8 1,866.3
Property operating lease rentals x8 1,479.2 1,524.8
Closing net assets 2,717.7 2,860.3
Lease-adjusted equity 4,196.9 4,385.1
Gearing 43.7% 42.6%
16. Return on capital ratios
(a) Return on capital employed
GBPm 2018 2017
*restated
Operating profit / (loss) (21.7) 326.9
Amortisation of acquired intangible assets 9.5 12.3
Adjusting items 386.7 40.9
Adjusted operating profit 374.5 380.1
Opening net assets 2,860.3 2,655.6
Net pension deficit 22.9 103.2
Net debt before exchange and fair value 341.5 377.5
adjustments
Exchange and fair value adjustment - -
Goodwill amortisation and impairment (252.1) (252.1)
Tax on impairment of goodwill and intangibles - -
Opening capital employed 2,972.6 2,884.2
Closing net assets 2,717.7 2,860.3
Net pension (surplus) / deficit (65.8) 22.9
Net debt 353.6 341.5
Goodwill amortisation and impairment - (252.1)
Closing capital employed 3,005.5 2,972.6
Average capital employed 2,989.0 2,928.4
(b) Lease-adjusted return on capital employed
GBPm 2018 2017
*restated
Adjusted operating profit 374.5 380.1
50% of property operating lease rentals 92.5 95.3
Lease adjusted operating profit 467.0 475.4
Average capital employed 2,989.0 2,928.4
Property operating lease rentals x8 1,479.2 1,524.8
Lease adjusted capital employed 4,468.2 4,453.2
Lease adjusted return on capital employed 10.5% 10.7%
* Goodwill amortisation and impairment restated to include 2018 impairment for
comparability purposes.
17. Leverage ratios
(a) Net debt to adjusted EBITDA
GBPm 2018 2017
(Loss) / profit before tax (49.4) 289.7
Net finance costs 23.7 35.0
Depreciation and amortisation 126.0 126.9
EBITDA 100.3 451.6
Adjusting operating items 386.7 40.9
Adjusted EBITDA under covenant calculations 487.0 492.5
Net debt under covenant calculations 316.8 303.8
Adjusted net debt to EBITDA under covenant 0.65x 0.62x
calculations
(b) Lease adjusted net debt to adjusted EBITDAR
GBPm 2018 2017
Adjusted EBITDA under covenant calculations 487.0 492.5
Share of associates' results 4.0 2.2
Property operating lease rentals net of rent 184.9 190.6
receivable
Adjusted EBITDAR 675.9 685.3
Net debt 353.6 341.5
Property lease rentals x 8 1,479.2 1,524.8
Lease adjusted net debt 1,832.8 1,866.3
Lease adjusted net debt to EBITDAR 2.7x 2.7x
(c) Fixed charge cover
GBPm 2018 2017
Adjusted EBITDAR 675.9 685.3
Property operating lease rentals net of rent 184.9 190.6
receivable
Interest for fixed charge cover calculation 26.2 28.3
211.1 218.9
Fixed charge cover net of rent receivable 3.2x 3.1x
18. Revenue reconciliation and like-for-like sales
Like-for-like sales are a measure of underlying sales performance for two successive
periods. Branches contribute to like-for-like sales once they have been trading for more
than 12 months. Revenue included in like-for-like is for the equivalent times in both
years being compared. When branches close revenue is excluded from the prior year figures
for the months equivalent to the post closure period in the current year.
Network change includes the impact of the disposal of the BPT business of GBP6m.
GBPm General Contracts Consumer Plumbing Consolidated
Merchan &
ting Heating
2017 revenue 2,109.5 1,369.0 1,589.1 1,365.5 6,433.1
Like-for-like 28.8 94.9 (20.7) 210.0 313.0
revenue
2,138.3 1,463.9 1,568.4 1,575.5 6,746.1
Network change (1.0) 7.2 36.0 (47.8) (5.6)
2018 revenue 2,137.3 1,471.1 1,604.4 1,527.7 6,740.5
19. Acquisition of businesses
On 28 September 2018, the Group acquired 100% of the issued share capital of E. East & Son
Limited for total consideration of GBP3.0m, all satisfied by cash. The net assets acquired
totalled GBP0.9m and goodwill of GBP2.1m was recognised as a result of this transaction. ????
On 13 October 2017, the Group acquired 75% of the issued share capital of National Shower
Spares Limited, a leading online retailer of shower spares, for total cash consideration
of GBP2.7m. On 28 April 2017, the Group acquired 77.5% of the issued share capital of TFS
Holdings Limited, an air conditioning and refrigeration distributor, for total cash
consideration of GBP7.8m. All acquisitions were accounted for using the purchase method of
accounting. The net assets acquired totalled GBP2.8m and GBP10.9m of goodwill and a
non-controlling interest of GBP3.2m have been recognised. The goodwill represents the
benefits from forecast growth and the assembled workforces. A non-current liability of
GBP4.9m has been recognised in respect of put options on the non-controlling interests. For
the period from acquisition, the combined revenue and operating profit for the above
acquisitions total GBP12.6m and GBP1.4m respectively. If the acquisitions had been completed
on the first day of 2017, group revenue would have been GBP6,443.5m and group operating
profit for 2017 would have been GBP327.8m.
On 2 January 2019, the Group acquired the remaining 25% of the issued share capital of
National Shower Spares Limited for the total cash consideration of GBP1.3m. This is a
non-adjusting post balance sheet event.
20. Sale of business
On 30 September 2018 the Group sold the trade and assets of Birchwood Price Tools business
for a total cash consideration of GBP9.0m, generating a loss on disposal of GBP10.3m, which
has been disclosed as an adjusting item. Total net assets sold consist of GBP12.5m of
working capital, GBP0.6m of other debtors and other creditors and GBP0.3m of fixed assets. As
a result of the above disposal, GBP5.9m of intangible fixed assets were derecognised.
The disposal is not a discontinued operation under IFRS 5 - Non-current Assets Held for
Sale and Discontinued Operations as the sale of Birchwood Price Tools does not represent
either a separate major line of the Group or a geographical area of operations.
21. Impact of IFRS 16 - Leases
In January 2016 the IASB issued IFRS 16 - Leases and this was endorsed by the European
Union in October 2017. It will be effective from 1 January 2019. This Standard will have a
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