Travis Perkins Posts Resilient Trading Performance In 2022

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.

Click here for Toolstation performance. 

Financial Highlights

• Robust revenue growth of 8.9% with elevated levels of materials cost inflation diligently managed
• Adjusted operating profit of £295m, impacted principally by lower year-on-year property profits and a £15m charge related to restructuring activities in Q4
• Adjusted earnings per share of 94.6p with lower operating profit partially offset by reduced share count
• Proactive cost actions to deliver benefits of around £25m in 2023
• Good cash conversion at 67%; lease-adjusted leverage (net debt / EBITDA) of 1.8x remains comfortably within target range
• Total ordinary dividend increased to 39.0 pence per share (2021: 38.0 pence per share)

Operational Highlights

• Solid performance in the Travis Perkins General Merchant, with further share gains, driven by focus on enhancement of digital capability and expansion of value-added services primarily across Hire, Benchmarx kitchens and Managed Services
• Continued strong performance from the Group’s specialist distributors – BSS, Keyline and CCF. Staircraft now integrated and enhancing the Group’s housebuilder proposition.
• Toolstation returned to good growth in H2 after tough prior year comparatives in H1. Significant investment in expanding infrastructure across both the UK and Europe.
• Positive progress towards sustainability targets, notably a 34% reduction in Scope 1 & 2 carbon emissions during the year 

(1) Alternative performance measures are used to describe the Group’s performance. Details of calculations can be found in the notes listed.

* For continuing businesses only. The Retail and Plumbing & Heating segments are treated as discontinued operations.

Segmental performance

Merchanting

* Excluding property profits

The Merchanting segment delivered a robust performance overall with revenue up by 10.3% and growth in operating profit** of 2.8% to £329m.  After significant price increases during 2021, driven by a rapid post-pandemic recovery in demand, price inflation continued to accelerate through 2022 before moderating slightly in the fourth quarter. Increases were mainly driven by manufacturers passing through rising energy costs with prices increasing by around 15% in H1, rising to around 17% in H2. The Merchanting businesses have again managed these challenges well through proactive engagement with customers and providing transparency.

Since 2018, the significant programme of work to evolve the customer proposition and empower the branch teams has delivered strong financial benefits. Supported by a rationalisation of the network and much improved data to aid in-branch decision making, operating profit has grown by 18%**, £95m of capital has been removed and ROCE has moved forward by 280 bps**. The Group is confident in its ability to make further progress on these metrics.

From an end-market perspective, the Merchanting segment benefits from broad exposure providing a degree of insulation from volatility in any one end market. 

The Private domestic RMI market represents approximately 35% of Merchanting revenue and is primarily serviced by the Group’s General Merchant business working with smaller trade customers.  Following a strong start to the year, volume performance weakened against a tough comparator period and this was exacerbated in the second half by high levels of materials inflation and increasing macroeconomic uncertainty, leading to home-owners delaying or reducing the scope of improvement work. The challenging backdrop seen in the second half of the year is expected to continue into 2023. 

For the smaller trade customer the focus remains on the core elements of service. For account customers the number of managed accounts has been increased and for non-account customers, who are more transient in nature, further improvements have been made to ensure transparent and consistent pricing, complemented by the right range and depth of stock in branch. These improvements have been backed up by further investments in our hire fleet and sales team, driving increased penetration, and in our digital proposition. 

The private domestic new-build market represents approximately 19% of Merchanting revenue and is primarily serviced by Keyline, CCF and Staircraft working with national and regional housebuilders.  The businesses engage at different stages of the build process with Keyline typically first on site and CCF and Staircraft delivering at a later stage of the process.  While the housing market slowed later in H2, this did not feed through notably into volumes as completions continued but is expected to be seen in 2023 with new housing starts currently forecast to slow. 

Within this sector, the Group continues to enjoy long standing partnerships with the major national housebuilders and to focus growth initiatives on the regional housebuilder market where the introduction of Staircraft and the development of the Benchmarx proposition are providing customers with innovative solutions to reduce waste, complexity and the need for specialist labour. CCF and Keyline continue to enhance their proposition in this market by using newly developed data and delivery management capability to provide data on embodied carbon which is helping customers to address changing preferences, manage projects more effectively and win work. 

The commercial and industrial market represents approximately 22% of Merchanting revenue and incorporates new build and refurbishment activity across offices, warehouses, multi occupancy and student accommodation alongside industrial maintenance.  The market is primarily serviced by the Group’s BSS and CCF businesses. This sector held up well during the year with a post-pandemic backlog of work remaining and an increasing requirement for logistics space and office remodelling, a trend that is expected to continue.    

The public sector market represents approximately 24% of Merchanting revenue and covers projects across infrastructure, public assets such as schools, hospitals and prisons, and social housing maintenance.  The market is primarily serviced by the Group’s BSS, Keyline and Travis Perkins Managed Services businesses. Demand remained robust in this market throughout the year with ongoing government backing for investment in public buildings and infrastructure alongside the continued catch up in social housing maintenance and the impact of tighter legislation on social housing standards. These factors are expected to continue to support demand into next year.

Adjusted operating margin** reduced by (60)bps as a result of the dilutive effect of very high levels of inflation on the gross margin percentage and also a shift in customer mix towards larger accounts where gross margins are lower. Although the Merchant businesses experienced high levels of overhead inflation, with significant increases in payroll, utility and fuel costs leading to overall overhead inflation of around 7%, this was proactively managed and the cost to serve percentage remained in line with prior year.

** Excluding £15m restructuring charge in 2022

For Toolstation performance, click here.

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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