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
+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
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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