Revenue Increases; LFL Sales Decline At Toolstation

Travis Perkins plc, a leading partner to the construction industry, announces its full year results for the year to 31 December 2022, advising of a resilient trading performance in rapidly changing market conditions.

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Toolstation

Overall, 2022 proved a challenging year for Toolstation as financial performance reflected further significant investment in network and distribution capabilities to build the business for the future alongside lower DIY-related volumes following exceptional sales during the pandemic.  Performance improved through the year with revenue growth in H2 of 8.9% compared to a fall of (4.6%) in H1. 

UK adjusted operating profit fell to £21m given the volume impact, continued infrastructure investment and overhead inflationary pressures. Toolstation will continue to focus its propositional development on the trade customer base given the higher frequency of orders, larger basket size and better product mix which provide a more predictable revenue stream and a larger market opportunity.

A further 33 branches were added to the UK network during 2022 taking the total to 563. Reflecting macroeconomic conditions, the pace of rollout was slowed and this will also be the case in 2023 with around 10 new branches planned to open. Having opened 268 new branches since 2017, only around half of the network is mature and, with new branches continuing to perform at least in line with mature cohorts, these branches have the potential to add over £300m of revenue over the next five years.

The Group has invested £28m to date (£17m in 2022) in a new c. 500,000 square foot distribution centre in Pineham, Northamptonshire which incorporates automation technology and will initially provide the capability to fulfil direct to customer orders. The facility is due to be fully operational by the second half of 2023 and is an important strategic investment both to support revenue growth and increase operational efficiency.

The European business saw very similar dynamics in terms of both revenue and operating profit performance. Benelux continues to progress well and, with 27 further branches added to take the total to 113, is approaching the “critical mass” required to take the business into profitability. During the year the Group also invested in a second distribution facility in the Netherlands with around 200,000 square feet of capacity which will provide the capability to build the network out to around 250 branches. In France, where sales grew by 50%, 8 new branches were added to take the total to 45 as the business continues to refine the customer service proposition alongside optimising the choice of location and local market plans.

With the European business investing for the future and also experiencing similar volume dynamics as the UK, losses for the year were £30m. A similar outcome is expected in 2023 although this will reflect narrowing losses in the Netherlands and the impact of increased investment in France and Belgium.

Central costs

Central costs reduced by £3m year-on-year due principally to lower management incentive payments.

Property

The Group generated a property profit of £25m in the year, in line with the long run average, with £12m of cash proceeds. The majority of the profit relates to a site sold in Cambridge for which consideration of £22m is deferred to 2023 / 24.

For 2023 the Group expects property profits of around £20m with cash receipts in excess of that figure.

Building for better

Recognising the impact that the sharply increasing cost of living in the UK had on colleagues, the Group offered financial wellbeing advice and support and additional benefits where possible as well as maintaining a strong focus on building a safety culture where everyone returns home safe and well every day.

Looking externally, in 2022 the Group undertook an in-depth ESG materiality assessment, engaging with stakeholders to deepen the Group’s understanding of the ESG issues that matter most to a range of different audiences. While the assessment confirmed that the focus areas within the previous framework remain relevant, it demonstrated that carbon is the principal issue for stakeholders, making it the Group’s sustainability priority moving forwards.

In 2021, the Group set out targets for reduction in Scope 1, 2 and 3 carbon that were approved by the Science-Based Target initiative (“SBTi”) as being in line with a 1.5˚ pathway as below:

• A commitment to reduce Scope 1 and 2 carbon (relating to the Group’s fleet and estate) by 80% by 2035, offsetting any remaining emissions thereafter
• On Scope 3, which represents 99% of the Group’s footprint, targeting a 63% carbon reduction in the Group’s supply chain emissions by 2035, primarily focused on purchased goods and services (manufactured carbon) and the in-use emissions of goods sold

Further information, including the Group’s roadmaps to 2035 for scopes 1, 2 and 3, can be found on its corporate website (https://www.travisperkinsplc.co.uk).

With regards to progress on carbon reduction during the year, the Group made excellent progress with Scope 1 & 2 footprint reduced by 34%, which is a 35% reduction against the 2020 baseline. Scope 3 carbon reduced by 2% year-on-year and 54% of product spend was with suppliers who are engaged on carbon.

The Group set interim targets for 2027 during the year with plans in place to reduce carbon by 40% across the Group’s property portfolio and by 27% across the Group’s fleet, both against the 2020 baseline.

The Group has also set out an ambitious target to upskill both its people and those across the wider sector in Green and Future skills with 10,000 graduated apprentices by 2030. During the year the Group saw its 1,000th apprentice graduate and, as part of the overall programme, is now the Early Careers and Apprenticeship provider to the Builders Merchant Federation with 340 people from outside the Group enrolled on a Travis Perkins delivered apprenticeship.

Financial Performance

Revenue analysis

As revenue comparatives normalised post the impacts of the pandemic, the Merchanting business and Toolstation saw contrasting dynamics though 2022.

The Merchanting business saw robust overall revenue growth driven by price inflation which accelerated rapidly through the year before slightly moderating in the fourth quarter. With the Merchanting pricing model largely based around the pass through of materials cost price inflation, as manufacturer increases picked up from the second quarter onward (due primarily to energy cost increases), this fed through into sales price inflation as the Merchant businesses passed through these increases in a disciplined manner.

Overall volumes weakened sequentially throughout the year, notably in the smaller customer segment of the private domestic RMI market, with the impact of inflation, normalisation of comparatives from a very strong market in 2021 and concerns over project affordability weighing on sentiment.

Toolstation experienced significant volume decline in the first half as the business cycled pandemic impacted comparatives before returning to solid revenue growth in the second half with volumes broadly flat. Whilst the impact of materials cost inflation was not as pronounced on lightside products as on heavyside, inflation was still notable at around 9%. The Toolstation team have had to carefully balance the requirement to recover materials cost inflation with the desire to maintain value leadership with recent performance demonstrating that this has been managed well.

Merchanting revenue was 14% ahead of 2019 levels. Taking into account the reduction in space due to the 2020 restructuring and three-year cumulative inflation, Merchanting volumes were broadly in line with 2019. Toolstation revenues are around 74% ahead of 2019. On a similar basis and adjusting for the impact of consolidating Toolstation Europe, volumes are around 45% higher than 2019.

Volume, price and mix analysis

Nick Roberts, Chief Executive Officer, commented:

“The Group delivered a resilient trading performance in 2022 which is testament to the capability of our colleagues and the strength of our market leading propositions. I would like to thank our teams for their hard work throughout the year and their flexibility to meet customer needs amidst rapidly changing market dynamics.

In the second half of the year we made some difficult decisions in response to the weaker trading environment and we continue to be watchful of market trends, working closely with our customers and suppliers to stay on the front foot. Investment continues in our strategic growth programmes including selectively exploring new destination branches for the Travis Perkins General Merchant, rolling out Toolstation in both the UK and Europe and investing in growing our value-added services, notably Hire, Benchmarx kitchens and our Staircraft business, always being mindful to flex the pace of the programme to reflect market conditions.

Whilst it is early in the year and macroeconomic uncertainty remains, the combination of our diverse end market exposure, appropriate cost actions and further market share gains driven by continued strategy execution, will enable the Group to deliver another resilient trading performance in the year ahead.

As a market-leading distributor of building materials products, we continue to benefit from long-term strategic growth drivers in our markets including new environmental and safety legislation and commitments from both public and private sector customers to deliver against net zero targets. We are committed to being at the forefront of both decarbonising the construction industry alongside developing the next generation of talent to create value for all of our stakeholders.”

Source : Travis Perkins PLC

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