Travis Perkins: Interim results for the six -2-

DJ Travis Perkins: Interim results for the six months ended 30 June 2019: Good strategic progress underpinned by strong trading performance

Travis Perkins (TPK) 
Travis Perkins: Interim results for the six months ended 30 June 2019: Good strategic 
progress underpinned by strong trading performance 
 
31-Jul-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 
 
Interim results for the six months ended 30 June 2019 
 
Good strategic progress underpinned by strong trading performance 
 
GBPm                Note H1 2019     H1 2018    H1 2018 Change vs. 
                                                      illustrati 
                                                              ve 
                                                      comparativ 
                               Restated(1) IFRS 16(2)         es 
Revenue                  2,771       2,591      2,591       6.9% 
Like-for-like             8.0%        0.2%       0.2%     7.8ppt 
revenue growth(3) 
Adjusted           17a     195         156        170      14.7% 
operating 
profit(3) 
Adjusted earnings   8b   50.1p       46.3p      41.8p      19.9% 
per share(3) 
ROCE(3)            17f    9.8%       10.5%       9.0%     0.8ppt 
Covenant net        13   (414)       (409) 
debt(3) 
Dividend per         9   15.5p       15.5p 
share 
Operating profit            64       (104) 
/ (loss) 
Total profit /              12       (148) 
(loss) after tax 
Basic earnings      8a    6.9p     (57.2)p 
per share 
 
(1) All figures except for profit after tax restated to exclude the Plumbing & Heating 
division, which has been presented as a discontinuing operation 
 
(2) Figures adjusted on a non-statutory illustrative basis for IFRS 16 - Leases as 
previously reported in May 2019 
 
(3) Alternative performance measures are used to provide a guide to underlying performance. 
Details of calculations can be found in the notes listed 
 
Financial highlights 
 
· Continuing Group revenue increased by 6.9%, and by 8.0% on a like-for-like basis, 
primarily driven by volume growth 
 
· Continuing Group adjusted operating profit increased by 14.7% to GBP195m 
 
· Strong performance across the Group - positive trading in Merchanting demonstrating 
share gains, a strong recovery in Wickes and continued excellent growth in Toolstation 
 
· Adjusting items of GBP127m including a GBP111m asset write off relating to the ERP 
replacement programme 
 
Strategic progress 
 
· Merchant businesses benefitting from simplification and more empowered branch managers 
 
· Process to divest the P&H business ongoing, classified as an asset held for sale 
 
· Decision to demerge Wickes reflecting the Group's focus on advantaged trade businesses 
and the simplification of the Group 
 
· Cost actions delivering improved financial performance 
 
John Carter, Chief Executive Officer, commented: 
 
"I am delighted with the progress the Group has made in executing the strategy set out at 
the capital markets event in December 2018; to focus on our advantaged trade businesses and 
to simplify the Group. The P&H sales process is well underway, and we are today announcing 
our intention to demerge Wickes as a separate business. 
 
This strategic progress has been underpinned by a strong trading period in the first half 
of 2019 albeit against softer trading conditions in H1 2018. Our trade merchanting 
businesses have outperformed their markets, through continued focus on delivering excellent 
customer service, and benefitting from the leaner, lower cost organisation now in place. 
Toolstation continues to deliver excellent growth through proposition improvements and 
network expansion. Wickes has delivered a strong turnaround in volume and profit 
performance, with gains in both core DIY and through the Kitchen & Bathroom showroom. 
 
Whilst our underlying markets remain subdued, the self-help initiatives underway are 
supporting an encouraging improvement in performance and provide a strong platform to drive 
sustainable growth ahead of our markets in the medium term. Despite a cautious outlook for 
the near-term, the Group remains confident in making progress across the year as a whole." 
 
Enquiries: 
 
Travis Perkins                      Tulchan Communications 
Graeme Barnes                       David Allchurch 
[phone]                 [phone] 
[e-mail] 
 
Zak Newmark 
[phone] 
[e-mail] 
 
Cautionary Statement: 
 
This announcement contains "forward-looking statements" with respect to Travis Perkins' 
financial condition, results of operations and business and details of plans and objectives 
in respect to these items. Forward-looking statements are sometimes, but not always, 
identified by their use of a date in the future or such words as "anticipates", "aims", 
"due", "could", "may", "will", "should", "expects", "believes", "seeks", "intends", 
"plans", "potential", "reasonably possible", "targets", "goal" or "estimates", and words of 
similar meaning. By their very nature forward-looking statements are inherently 
unpredictable, speculative and involve risk and uncertainty because they relate to events 
and depend on circumstances that will occur in the future. There are a number of factors 
that could cause actual results and developments to differ materially from those expressed 
or implied by these forward-looking statements. These factors include, but are not limited 
to, the Principal Risks and Uncertainties disclosed in the Group's Annual Report, 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 the 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 31 July 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 has reported its H1 2019 interim results on the following basis: 
 
· The Plumbing & Heating business has been classified as a discontinuing operation due to 
progress with the ongoing sale process. 
 
· The Group is reporting its accounts under IFRS 16 - Leases for the first time, which 
treats all lease obligations as debt, leading to changes in the income statement and 
balance sheet. Illustrative comparatives have been presented as if IFRS 16 were in place 
in 2018. 
 
The Group has had a good start to the year, with revenue of the continuing Group increasing 
 by 6.9% to GBP2,771m, and by 8.0% on a like-for-like basis. Adjusted operating profits, 
  excluding property profits, grew by 18.1% to GBP189m (H1 2018: GBP160m), which reflects 
positive trading in the merchant businesses and a strong recovery in Wickes. Toolstation 
continued to demonstrate excellent sales growth performance, as ongoing investment 
positions the business well for future profit and cash flow growth. Further progress was 
made towards the Group's cost reduction targets, with achieved savings broadly offsetting 
the inflation in the overhead cost base. 
 
The Group continues to generate good cash flow. The Group has changed its definition of 
free cash flow so that it better reflects the operating cash generation of the business as 
it now excludes all freehold property transactions but includes both maintenance and 
 investment capital expenditure. The Group generated GBP40m of free cash flow in the first 
 half of the year, up from GBP21m on the same basis in the first half of 2018. This was 
achieved despite a significant step up in working capital in the first half as the Group 
increased inventory levels in anticipation of the UK's potential exit from the EU in the 
spring. This elevated level has been maintained given the delay to the UK's expected 
departure from the EU. 
 
Adjusted earnings per share (EPS) increased by 19.9% to 50.1p (H1 2018 illustrative 
comparative: 41.8p), driven by the stronger adjusted operating profit generation and a 
lower deferred tax charge in H1 2019. 
 
The Board has declared an interim dividend of 15.5p (2018: 15.5p). 
 
Merchanting ERP programme 
 
The Group announced a delay to its Merchant ERP replacement programme in December 2018 as 
this programme has continued to face significant challenges. As a result, the Group is 
considering whether to implement the various elements of an ERP system as separate items, 
after modernising the Group's core IT architecture. 
 

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A revised approach may incorporate components from the existing project, however under 
 accounting standards the Directors have concluded that the existing assets of GBP111m should 
be written off. 
 
Discontinuing operations 
 
At the Capital Markets Event held in December 2018, the Group announced its intention to 
divest the Plumbing & Heating business during 2019. The Group expects that the divestment 
is likely to be concluded by the end of 2019, and as such the Plumbing & Heating business 
has been classified as an asset held for sale and accounted for as a discontinuing 
operation. 
 
Sales and operating profit for discontinuing operations are excluded from reported adjusted 
operating profit, with profits from discontinuing operations included in total Group 
results after tax. 
 
Strategic progress 
 
At the Capital Markets event in December 2018, the Group laid out its plans for the years 
ahead, with two overarching strategic aims being (i) to focus on best serving trade 
customers, and (ii) to simplify the business to increase agility, speed up decision making 
and enable a leaner cost base. 
 
Focus on Trade 
 
The Group's strategy to focus on advantaged trade businesses is built on the solid 
foundations already in place across the specialist and mixed merchants, with a strong 
culture of operational efficiency and excellent customer service. A number of key 
priorities have been identified to drive sustainable growth across all the Merchanting 
businesses in the medium term, improving market share and best positioning the businesses 
to compete successfully in the future: 
 
· Removal of the divisional structure above the Merchanting businesses, to form a broader 
"Trade Merchanting Organisation", reducing cost and speeding up decision making 
 
· Greater empowerment of branch managers, enabling them to make quicker, more relevant 
decisions on behalf of customers and the Group 
 
· Giving greater autonomy to branches to stock the right products in the right volumes to 
fulfil local customer requirements 
 
· Tailoring the trade proposition to best match specific customer groups, either through 
product categories in the specialist merchants, or to deliver local customer requirements 
in Travis Perkins 
 
· Reducing the administrative burden on branch colleagues by simplifying processes and 
reducing reporting requirements 
 
Toolstation continues to demonstrate excellent growth and, in line with the strategic 
pillar to focus on advantaged trade businesses, it remains a priority for the deployment of 
capital. The Group is accelerating the expansion of the branch network to improve 
convenience, and is further extending the product range including the addition of more 
trade-focused brands. 
 
Simplify the Group 
 
Cost reduction activities 
 
The simplification of the Group, including the removal of the divisional structure over the 
trade merchanting businesses, is enabling the Group to reduce its overall above-branch cost 
  base. The Group remains on plan to achieve the GBP20m-GBP30m of annualised cost reductions by 
mid-2020. 
 
In 2019, the cost base has benefited from the annualisation of cost reduction activities in 
 Wickes and Travis Perkins in 2018, with around GBP15m of cost savings rolling into the first 
half of the year. In addition, actions to achieve further annualised savings from the 
    planned GBP20m-GBP30m of around GBP10m have been completed in the half, with GBP6m of reduction 
included in the H1 2019 results. These savings include operational cost savings relating to 
the closure of the Tilbury range centre and the restructuring and streamlining of head 
office support functions. 
 
As anticipated, these savings have broadly offset inflation pressure in the overhead cost 
base with increases in rent and rates, and growth in salary costs, in part due to the 
increase in the living wage. The Group continues to invest in businesses to drive growth, 
including the continued expansion of Toolstation and extra investment in front line branch 
and sales colleagues in Travis Perkins. 
 
Progress on Plumbing & Heating disposal 
 
The separation of Plumbing & Heating from the Group's other merchanting businesses has 
progressed well, with successful separation of the IT system, including back office and 
finance systems, and separation of commercial agreements which enable the P&H business to 
operate autonomously from the Group. As a result, the Group has initiated a disposal 
process and expects to complete a transaction in 2019. 
 
Proposed Wickes demerger 
 
At the capital markets event in December 2018, the Group announced the intention to 
strengthen the performance of Wickes and to capitalise on its clear competitive advantages 
in the DIY, small trade and Kitchen and Bathroom markets. At the same time the Board 
committed to review the options for maximising the value of Wickes in the medium term. 
 
Since the capital markets update, good progress has been made in strengthening Wickes's 
trading performance, and steps have been taken to provide Wickes with greater autonomy from 
the Travis Perkins group through the separation of its systems and processes. After 
reviewing the options, the Board has determined to demerge Wickes to shareholders as a 
standalone business. 
 
The demerger of Wickes is a key component of the overall Travis Perkins strategy to focus 
on trade customers and to simplify the Group which the Board believes will underpin the 
creation of enhanced value for shareholders. It is expected to complete in H1 2020. 
 
The Board believes that Wickes, under a management team led by David Wood, is well 
positioned to thrive as a stand-alone business. Wickes will have the autonomy to execute on 
its strategy and allocate capital to its customer proposition and growth opportunities with 
a clearer focus. 
 
Outlook 
 
The long term fundamentals of the Group's end markets remain robust, with growing demand 
for housing in the UK, and the continued underinvestment in the repair, maintenance and 
improvement of the existing, aging housing stock. 
 
Whilst the Group demonstrated strong performance in the first half of the year, this was 
against a softer trading period in H1 2018 with strengthening comparators for the remainder 
of 2019. In the short term, the current level of uncertainty along with mixed signals from 
the Group's key lead indicators make it difficult to forecast market conditions. As a 
result, the Group maintains a cautious outlook for the near-term, although remains 
confident in making progress across the year as a whole. 
 
Technical guidance 
 
The Group's technical guidance for 2019 is as follows: 
 
· Effective tax rate of 19% 
 
· Underlying finance charges similar to 2018, with the addition of around GBP55m of 
interest on lease liabilities resulting from the implementation of IFRS 16 - Leases. 
 
· Capital expenditure in 2019 of around GBP110m to GBP130m 
 
· Property profits of around GBP20m (after the application of IFRS 16) 
 
· Progressive dividend underpinned by strong cash generation 
 
Segmental performance 
********************* 
 
Merchanting 
 
                            H1 2019 H1 2018* Change 
Total revenue               GBP1,869m  GBP1,783m   4.8% 
Like-for-like growth           6.4%     2.4% 4.0ppt 
Adjusted operating profit**   GBP140m    GBP133m   5.3% 
Adjusted operating margin**    7.5%     7.5%      - 
ROCE                            12%      11%   1ppt 
Branch network***               996     1001    (5) 
 
*H1 2018 figures used are illustrative comparatives including the impact of IFRS 16 as 
previously disclosed 
 
**Divisional adjusted operating profit figures are presented excluding property profits 
 
***2018 branch network figures for comparison are taken at 31 December 2018 
 
 Total sales in the Merchanting segment grew by 4.8% to GBP1,869m, with growth of 6.4% on a 
like-for-like basis. Across the merchanting sector, strong sales growth in Q1 relative to 
the inclement weather in Q1 2018 was followed by moderating growth in the second quarter, 
driven by both significantly stronger comparatives and a slowing of underlying trade 
markets in June. 
 
Travis Perkins' like-for-like sales grew by 5.2%, demonstrating outperformance of the wider 
merchanting market. This outperformance was driven by a number of factors, including early 
encouraging signs from the initiatives in place to empower branch teams, make branch 
ranging more tailored to specific local customers and to invest selectively in customer 
facing branch and sales teams to improve service levels. 
 
The specialist merchants continued their recent trend of outperforming their markets. CCF 
achieved good sales growth, although this slowed towards the end of the half as supply 
issues on plasterboard restricted the levels of growth in the market. These constraints are 
expected to continue through the second half of 2019 and into 2020. 
 
BSS expanded its reach into the air conditioning market through the recently acquired TF 
Solutions business, with two further branches opened in the first half of 2019, taking the 
total network to five. Keyline is successfully pursuing its strategy to focus on heavy 
civils and drainage categories for large customers, and this has driven further sales 
growth, primarily in the direct delivery of materials. Whilst this product and customer mix 
is typically lower margin, it represents a significant improvement in return on capital, as 
it enables the business to operate from fewer, larger, lower cost branches. 
 
Merchanting adjusted operating profits grew by 5.3%, in line with the growth in revenue. 
Savings from cost reduction activities in Travis Perkins in the second half of 2018 of 
 around GBP10m were annualised in the first half of 2019, in addition to further annualised 
  savings generated as part of the targeted GBP20m-GBP30m cost saving programme. Overall, these 
savings were broadly offset by inflation in the overhead cost base, as well as through cost 
investment in front line branch and sales colleagues which have helped to drive revenue 

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