DJ Travis Perkins: Publication of 2018 Annual Report
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Travis Perkins (TPK) Travis Perkins: Publication of 2018 Annual Report 26-Feb-2019 / 16:13 GMT/BST Dissemination of a Regulatory Announcement, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. Publication of the Annual Report 2018 Further to the release of its results announcement this morning, Travis Perkins plc (the "Company") announces that it has today published its Annual Report for the year ended 31 December 2018. The Company's Annual Report 2018 can be viewed on the Company's website - www.travisperkinsplc.co.uk [1] In accordance with rule 9.6.1 of the Listing Rules, copies of the following documents have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM [2] - Annual Report and Accounts 2018; A condensed set of the Company's financial statements and information on important events that have occurred during the year and their impact on the financial statements were included in the Company's announcement. That information together with the information set out below which is extracted from the Annual Report constitute the requirements of Disclosure and Transparency Rule ("DTR") 6.3.5 which is to be communicated via a Regulatory Information Service in unedited full text. This announcement is not a substitute for reading the full Annual Report. Page and note references in the text below refer to page numbers in the Annual Report. To view the preliminary announcement, visit the Company's website: www.travisperkinsplc.co.uk [1] Enquiries: Graeme Barnes Graeme.barnes@travisperkins.co.uk +44 (0) 7469 401819 Helen O'Keefe Helen.okeefe@travisperkins.co.uk +44 (0) 1604 685910 STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES For the year ended 31 December 2018 The Group operates in markets and an industry which by their nature are subject to a number of inherent risks. The Group is able to mitigate those risks by adopting different strategies and by maintaining a strong system of internal control. However, regardless of the approach that is taken, the Group must accept a certain level of risk in order to generate suitable returns for shareholders and for that reason the risk management process is closely aligned to the Group's strategy. The Board has a risk reporting framework that ensures it has visibility of the Group's key risks, the potential impacts on the Group and how and to what extent those risks are mitigated. The Board has assessed its risk appetite, which is set to balance opportunities for growth and business development in areas of potentially higher risk and return, whilst maintaining its reputation, legal and regulatory compliance and high levels of customer service and satisfaction. As part of its risk management process, the principal risks stated in the Group's risk register are reviewed, challenged and updated by the Board and monitored throughout the year. Each operating business within the Group monitors a separate risk register. These risk registers are used to determine strategies adopted by the Group's various businesses to mitigate the identified risks and are embedded in their operating plans. Details of the Group's risk management processes are given in the Corporate Governance report on page 59. In common with most large organisations, the Group is subject to general commercial risks: for example, political and economic developments, changes in the cost of goods for resale, increased competition in its markets and the threat of emerging and disruptive competitors, material failures in the supply chain, failure to secure supply of goods for resale on competitive terms, cyber-security breaches and failure of our IT infrastructure. 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. However, following the announcement in December 2018 that the Group strategy is being refined to achieve greater simplification and 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 acquisition and disposal activity, previously combined with risks associated with business transformation projects, is a key area of focus and heightened risk for the Group and it is now 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 main 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. The nature of risk is that its scope and potential impact will change over time. As such the list below should not be regarded as a comprehensive statement of all potential risks and uncertainties that may manifest in the future. Additional risks and uncertainties that are not presently known to the Directors or which are currently deemed immaterial could also have an adverse effect on the Group's future operating results, financial condition or prospects. The table on pages 36 to 41 sets out, in no particular order, the current principal risks that the Board considers to be material, their potential impacts, the factors that mitigate them and those areas of the businesses' strategies they potentially impact. The inherent risk (before the operation of control) is stated for each risk area together with an indication of the current trend for that risk. CHANGING CUSTOMER AND COMPETITOR LANDSCAPE INHERENT RISK RISK MITIGATION RISK: HIGH DESCRIPTION Changes to market practice are The Group tracked on an ongoing basis and sells and reported to the Board. distributes building TREND: STATIC materials through a The Group continues to build number of multi-channel capabilities that channels. The complement its existing operations number of and provide its customers with the outlets and opportunity to transact with the channels where Group through channels that best building suit their needs. STRATEGY: materials can be purchased continues to grow with new The Group's strategy allows it to Best-in-class competitors use sites flexibly. Alternative service entering the space utilisation models are market. These possible, including maintaining new entrants smaller stores and implanting may operate additional services into existing Focus on business branches. trade models which differ significantly from the The development of new, innovative Advantaged traditional and competitive supply solutions is businesses merchanting, a key strength of the Group. It retail and works closely with customers and online formats suppliers on a programme of from which the continuous improvement designed to Group operates improve its customer proposition. and may take market share. IMPACT: Pricing strategies across the Group are regularly reviewed and where At the same necessary refined to ensure they time, customer remain competitive. Adverse purchasing effect habits continue to evolve with increasing on financial online results transactions. Customers' preference for purchasing Loss of materials market share through a range of supply channels and not just through the Group's traditional competitors may affect the Group's performance and adversely impact the profitability of branch-based operations. Increasing price transparency could lead to a perception that the Group is less price competitive leading to downward pressure on price and margins. COLLEAGUE RECRUITMENT, RETENTION AND SUCCESSION PLANS DO NOT DELIVER THE REQUIRED SKILLS AND EXPERIENCE INHERENT RISK RISK MITIGATION RISK: MEDIUM DESCRIPTION The Group's employment policies and The ability to practices are kept under regular recruit, review. develop, retain and TREND: STATIC motivate suitably Staff engagement and turnover by job qualified type is reported regularly to the staff is an Executive Committee and to the important Board. Succession plans are
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driver of the established for the most senior Group's positions within the Group and these overall are reviewed annually. STRATEGY: performance. The Group may also be exposed to The Group's reward and recognition Best-in-class skills systems are actively managed to service shortages in ensure high levels of employee certain areas engagement. which can result in Focus on salary cost trade pressures. The Salaries and other benefits are availability benchmarked regularly to ensure that of suitably the Group remains competitive and qualified the Group operates incentive Simplifying commercial structures to ensure that high the Group drivers is one performing colleagues are adequately such area of rewarded and retained. focus for the Group, which is critical to the operation A wide range of training programmes of its fleet are in place to encourage staff to meet development, whilst management IMPACT: customer development programmes are available delivery to those identified for more senior expectations. positions. Inability to develop and execute The strength development of the Group's and customer succession proposition is plans underpinned by the quality of people working throughout the Adverse Group, effect on particularly delivery of in customer strategy facing roles. Many of them have worked for Travis Competitive Perkins for disadvantage some considerable time, during which they have gained valuable product and customer knowledge and expertise. The Group faces competition for the best people from other organisations. Ensuring the retention and development of employees and that robust succession plans exist for key positions is important for the Group to deliver on its strategic objectives. SUPPLIER DEPENDENCY, RELATIONSHIP AND DISINTERMEDIATION LEADING TO ADVERSE IMPACTS ON RANGING AND PRICE INHERENT RISK RISK MITIGATION RISK: MEDIUM DESCRIPTION Making decent returns is one of the The Group is Group's cornerstones which requires the largest it to treat both customers and customer to a suppliers fairly. The commercial and number of its financial teams have established TREND: STATIC suppliers. In strong relationships with the some cases, Group's key suppliers and work those closely with them to ensure suppliers are contracts that are beneficial to large enough both parties and the continuity of to cause quality materials. significant supply STRATEGY: difficulties to the Group To spread the risk where possible if they are contracts exist with more than one unable to meet supplier for key products. Best-in-class their supply service obligations due to either economic or The Group has made a significant operational investment in its Far East Focus on factors. infrastructure to support its direct trade sourcing operation which allows the development of own brand products, thereby reducing the reliance on Alternative branded suppliers. The Group has Simplifying sourcing may also adopted a conservative hedging the Group be available, policy to reduce its exposure to but the currency fluctuations. volumes required and Financial the time it strength may take those Comprehensive checks are undertaken suppliers to on the factories manufacturing increase products and the quality and the production suitability of those products before could result they are shipped to the UK. in significant stock-outs for some IMPACT: considerable time leading to poor customer Adverse service. effect on financial result The Group has increased the sourcing of Adverse products from effect on overseas reputation factories. This has increased the Group's exposure to sourcing, quality, trading, warranty and currency issues, which again may lead to an adverse impact on customer service. Manufacturers of building materials sold by the Group may also look to sell their products directly to end customers in the future diminishing the role of distributors such as merchanting and retail distribution businesses. UNSAFE PRACTICES RESULT IN HARM TO COLLEAGUES, CUSTOMERS, SUPPLIERS OR THE PUBLIC INHERENT RISK RISK MITIGATION RISK: MEDIUM DESCRIPTION The Group continues to challenge its Keeping the thinking and approach to improving Group's its safety performance through its colleagues, 'Stay Safe' brand. customers, TREND: STATIC suppliers and the public safe is a Governance of Stay Safe is cornerstone of well-established and designed to the business. promote a continual focus on health The Group and safety. Stay Safe performance is operates over reviewed at all Board meetings, by 2,000 sites, the Executive Committee and by the STRATEGY: many with dedicated Stay Safe Committee, which complex and is chaired by a Non-executive busy yards. It Director. also operates Best-in-class one of the service largest vehicle fleets The Group's regular Divisional in the UK, leadership meetings also focus on distributing performance and continuous Financial heavy and improvement in this area. These strength bulky forums also monitor the achievement materials. of transport-related compliance Poorly requirements, including driver implemented licencing and professional safety competence. practices on site, on the road or at IMPACT: delivery Incidents are monitored, locations investigated and corrective action could result taken to reduce the likelihood of in significant similar incidents in future. Stay Harm to our harm to people Safe assurance reviews are regularly colleagues, which would undertaken at sites by dedicated customers and damage the safety professionals with any the wider Group's resulting improvement actions community reputation and tracked to completion. could impact trading performance. Potential De-risking the Group's operations, legal action, improving health and safety fines and awareness and implementing improved penalties ways of working are at the forefront of the Group's activities. Further information on progress made during 2018 can be found in the Health and Adverse Safety report on pages 47 to 49. effect on financial results Adverse effect on reputation THE GROUP ALLOCATES CAPITAL INEFFICIENTLY OR UNDER INVESTS IN ADVANTAGED BUSINESS AND DOES NOT ACHIEVE DESIRED RETURNS INHERENT RISK RISK MITIGATION RISK: MEDIUM DESCRIPTION Return on capital is one of the The Group Group's key performance indicators operates a as shown on page 19. The Group's number of decision to refine its strategy and different focus on trade customers in the most TREND: STATIC businesses in advantaged businesses will impact the UK which the allocation of capital with more operate in focused management attention and different but capital deployment in areas of complementary higher return. channels. As the Group's
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markets STRATEGY: continue to Responsibility for identifying and develop, it is implementing opportunities to investing to expand, improve or modify the enhance its Group's operations rests with each Focus on existing of the Divisional Boards. Capital is trade businesses and deployed or re-deployed through a to develop new Group-led forum to the propositions strategically-aligned opportunities to better expected to achieve the best return Advantaged serve its on capital. businesses customers. Major projects are kept under review Financial Whilst the to monitor progress and ensure the strength Group operates deployment of capital remains a disciplined appropriate. capital allocation process, there is a risk that Post-implementation reviews are it may be undertaken on all major projects and over-investing returns are monitored on an ongoing IMPACT: in channels basis to ensure that the expected which may returns are achieved and allow the decline or Group to modify its capital that it may allocation when appropriate. Adverse not be effect on allocating financial sufficient results capital to new propositions resulting in sub-optimal returns on capital. BUSINESS TRANSFORMATION AND IMPROVEMENT PROJECTS FAIL TO DELIVER THE EXPECTED BENEFITS, COST MORE OR TAKE LONGER TO IMPLEMENT THAN ANTICIPATED INHERENT RISK RISK MITIGATION RISK: MEDIUM DESCRIPTION All potentially significant projects The Group are subject to detailed undertakes a investigation, assessment and variety of approval prior to commencement. projects TREND: STATIC throughout its business in order to Dedicated teams, including financial generate resource, are allocated to each returns for project, with additional expertise its brought into the Group to supplement shareholders. existing resource when necessary. These projects STRATEGY: include the transformation of the Group's All strategic projects are supported core IT by an appropriate governance Best-in-class systems and structure and are closely monitored service infrastructure by the Executive Committee with , ongoing regular reporting to the Board. development of its supply Advantaged chain businesses operations and Regular communications are its branch and undertaken to keep affected store colleagues informed. networks, and Simplifying the the Group simplification of the Group to speed up decision Financial making and strength reduce costs. By their nature, such strategic projects are IMPACT: often complicated, interlinked and may Adverse require effect on considerable financial resource to results deliver them. As a result, the expected benefits, Adverse timescale for effect on delivery and shareholder costs of value implementation of each project may deviate from those anticipated at their outset. Colleague engagement may be impacted during a period of significant change and cost-focus. UNCERTAINTY CAUSED BY THE UK'S DECISION TO LEAVE THE EUROPEAN UNION INHERENT RISK RISK MITIGATION RISK: HIGH DESCRIPTION It remains too early to determine The result of the full impact of the UK's decision the UK vote to to leave the European Union, but the leave the Board is closely monitoring market European Union conditions and will react TREND: and the accordingly. INCREASING subsequent process to determine the terms of the The Board has undertaken a process withdrawal to assess the known and proximate agreement risks associated with Brexit. This continues to includes assessment of existing risk cause mitigations and actions in progress STRATEGY: considerable and is updated on a regular basis. market uncertainty. It remains Best-in-class difficult to The Board has already taken steps to service predict the reduce some costs, but is carefully economic balancing the current needs of the outlook and business against what may or may not impact to the occur in the future. Financial Group in the strength short-term. The Group continued to The Group continues to invest in the experience business where those investments are significant expected to realise acceptable volatility in returns, but it is prepared to the value of reduce activity levels should market Sterling conditions so dictate. against the principal currencies used to pay Exercises have been undertaken by IMPACT: for imported the divisional leadership teams to goods during assess the level of stock holding 2018. required in each business unit to minimise disruption to customers. A Adverse customer statement is in place and effect on will be reassessed as the terms of financial Future trading the UK's withdrawal are clarified. results relationships Engagement with the Group's key with foreign suppliers is ongoing. markets have yet to be determined and these may Where the cost of goods increases result in due to the exchange rate higher tariffs deteriorating or additional tariffs or duties on and duties, the Group will seek to imports of pass those price increases through construction to its customers, but its ability to products as do so will depend upon market well as conditions at the time. extended lead times on imported supplies or The processes in place around the result in the recruitment and retention of people need to source are set out in the principal risk some products pertaining to such matters on page elsewhere. 36. These risks have the potential to impact the Group significantly. Of less risk to the Group, but potentially significant for its customers, are the significant numbers of non-UK nationals employed in the construction industry and the distribution and logistics markets. If the UK becomes a less attractive place for them to work this could result in labour shortages and consequent salary cost pressures and could change dynamics in our key markets. Whilst significant changes to product standards and legislative requirements more generally are not anticipated in the short-term, they could impact the Group if introduced in the future. The continued uncertainties that surround Brexit mean that a more precise assessment of the impact on the Group's operations is unlikely to be possible until the terms of the withdrawal agreement are confirmed. MARKET CONDITIONS LEADING TO DEMAND UNCERTAINTY INHERENT RISK RISK MITIGATION RISK: HIGH DESCRIPTION The Board conducts an annual review The Group's of strategy, which includes an products are assessment of likely competitor sold to activity, market forecasts and
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businesses, possible future trends in products, TREND: trade channels of distribution and INCREASING professionals customer behaviour. and retail customers for a broad range of end uses in The Group maintains a comprehensive the built tracking system for lead indicators environment. that influence the market for the The Group's consumption of building materials in markets are the UK. cyclical in nature and the performance of STRATEGY: those markets Significant events including those is affected by in the supply chain that may affect general the Group are monitored by the economic Executive Committee and reported to Best-in-class conditions and the Board monthly by the Group CEO. service specific drivers of construction, Renovation, Should market conditions deteriorate Focus on Maintenance then the Board has a range of trade and options dependent upon the severity Improvement of the change. Historically these and DIY have included amending the Group's activity. trading stance, cost reduction, Advantaged These include lowering capital investment and businesses mortgage cutting the dividend. availability and affordability, housing transactions and the timing and nature of IMPACT: government activity to stimulate activity, net Adverse disposable effect on income, house financial price results inflation, consumer confidence, interest rates and unemployment. A significant downturn in economic conditions or alternatively major uncertainty about the future outlook could affect the levels of construction activity in the Group's markets and the confidence levels of the Group's customers, which could reduce their propensity to purchase products and services from the Group's businesses. EXECUTION OF PLANNED DISPOSALS AND POTENTIAL ACQUISITIONS FAILS TO DELIVER THE EXPECTED BENEFITS TO THE EXPECTED COST AND TIMESCALE INHERENT RISK RISK MITIGATION RISK: MEDIUM DESCRIPTION All merger, acquisition and disposal The Group activities are subject to a detailed undertakes appraisal process and ultimate acquisition approval by the Board. and disposal TREND: activity to INCREASING optimise its portfolio of A formal programme of work with businesses and dedicated resource has been put in drive place to support the execution of shareholder the Plumbing & Heating disposal. return. In External expertise and advisors are December 2018, involved as required to support the the Group programme team. STRATEGY: announced its intention to explore the potential All activity of this kind is Focus on divestment of supported by robust governance and trade the Plumbing & monitoring. The Plumbing & Heating Heating programme is closely monitored by a division, as programme Steering Committee, with part of the Executive sponsorship and Advantaged broader representation. There is regular businesses strategy of reporting to the Executive Committee simplifying and Board. the Group. This division Simplifying comprises a the Group number of businesses of varying size which operate Financial on a range of strength systems, some of which are shared with the wider Group. IMPACT: The programme to separate the Plumbing & Heating Adverse businesses for effect on a potential financial sale is results complex with many linkages to Group systems and Adverse processes. The effect on Group has not shareholder undertaken a value restructure and disposal on this scale for some time and it requires careful management. The costs and timescale for the separation may deviate from those originally planned, which could in turn impact the progression of a sale process and the value realised. DATA SECURITY INHERENT RISK RISK MITIGATION RISK: MEDIUM DESCRIPTION The strategic demands of the Incidents of business, the resources available to sophisticated IT, the performance levels of key cyber-crime systems and IT security are kept represent a under review by the Executive TREND: significant Committee, with responsibility for INCREASING and increasing monitoring and maintaining cyber threat to all security delegated to a data businesses security committee. including the Group. A major breach of cyber security Investments in best-of-breed could result solutions are made that continually STRATEGY: in disruption adapt and are updated to mitigate to customer- the risk associated with the most facing, advanced threats and the evolution supplier-facin of Group technology adoption. Best-in-class g and service financial systems through theft Cyber security controls are in place and misuse of to protect IT systems and data Financial confidential including firewalls, virus Strength data, damage protection and penetration testing. to or A programme of risk-oriented reviews manipulation is undertaken to ensure the level of of control around IT systems remains operationally robust. critical data or interruption IMPACT: to IT An IT disaster recovery plan exists services, any together with a business continuity of which may plan. Arrangements are in place for have serious alternative data sites for both Adverse impacts on the trade and consumer businesses. effect Group's Off-site back-up routines are in reputation or place. ability to trade. on financial results Adverse effect on the Group's reputation THE CHANGING REGULATORY FRAMEWORK INCREASES THE RISK OF NON-COMPLIANCE AND FINES INHERENT RISK RISK MITIGATION RISK: MEDIUM DESCRIPTION The Group's in-house legal team is The Group is responsible for monitoring changes subject to a to laws and regulations that affect broad range of the business and is supported by existing and external advisors. TREND: STATIC evolving governance requirements, environmental, The Group has a comprehensive health and framework of policies in place that safety and sets out the ways employees and other laws, suppliers are expected to conduct regulations, themselves. Those expectations are STRATEGY: standards and widely disseminated using a range of best practices methods to ensure colleagues and which affect suppliers understand their the way the responsibilities to comply with the Best-in-class Group operates law and other regulations affecting service and give rise the Group at all times. to significant compliance costs, Focus on potential The Group provides online training trade legal to colleagues in key areas of legal liability for and regulatory compliance, including non-compliance a suite of mandatory training for and potential those that join the Group. During Advantaged limitations on 2018 Group-wide training was businesses the undertaken in respect of GDPR. development of the Group's operations. Simplifying The Executive Committee and the the Group Board regularly monitor compliance with laws and regulations. Financial
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