Travis Perkins: Strong Group Revenue Growth

Travis Perkins PLC has reported strong group revenue growth of 4.8%, and 4.9% on a like-for-like basis for 2018. 

● Continued market outperformance in Contracts division and Toolstation
● H2 adjusted operating profit, excluding property profits, grew by 10.7% underpinned by successful cost reduction activities
● Adjusting items includes a non-cash impairment of £246m against the goodwill in Wickes in H1 and restructuring costs across the Group
● Full-year total dividend increased by 2.2% to 47.0p per share
● Good progress has been made on the strategic actions set out in December 2018, including simplification through the removal of the divisional structure above the Merchant businesses
● 2019 adjusted operating profit expected to be similar to 2018

Excerpts from the results publication follow and you can view the full document here.   

The Group produced a solid performance in 2018 against a market backdrop of considerable uncertainty. Sales growth was strong, with overall growth of 4.8% to £6,741m, and growth of 4.9% on a like-for-like basis. Both the Contracts businesses and Toolstation delivered exceptional growth, outperforming their end markets. The successful transformation in Plumbing & Heating delivered significant sales growth, winning market share through the branch network, the wholesale business and through the specialist online businesses. Sales and operating profit improved in the General Merchanting division in H2, and whilst the UK DIY market was particularly challenging due to both macro and competitive pressures, the Wickes business’ performance also improved in H2.

Group adjusted operating profit, excluding property profits, declined by 1.3% in the year, with an 11.5% decline in the first half of the year followed by growth of 10.7% in the second half. Operating profit progression in the second half of the year was driven by the improved trading performance and the successful cost reduction actions carried out, primarily in the General Merchanting division and Wickes, which reduced the overhead cost to sales ratio below recent years and helped to mitigate overhead inflationary pressure in the year. The Group demonstrated good cash generation in 2018, with free cash flow of £340m. Net debt increased modestly by £12m to £354m, primarily due to working capital investment in the year. 

Strategic progress
At a Capital Markets event in December 2018, the Group set out its strategy for the years ahead with two main pillars. The core purpose of the Group will be to deliver best-in-class service to trade customers. Supplying trade customers is the Group’s traditional heartland, with the trade markets typically being more resilient and generating higher margins and returns. The second pillar is to focus on simplifying the Group to reduce business complexity, reduce the above-branch cost base and speed up decision making.

Changes to Group structure
Through simplification, the Group expects to achieve cost reduction of £20m-£30m from the above branch cost base by mid-2020. A number of actions were initiated towards this target in Q4 2018 which will deliver c.£5m of annualised benefits in 2019. A key component of the simplification of the Group is the removal of the existing divisional structure above the Merchanting businesses which will reduce costs and speed up decision making. Central functions will be streamlined to support businesses directly, enabling branch managers and their teams to provide the best possible service to customers. The revised structure will alter how the businesses are managed and reported. From 2019, the Group will report under the following segments: Merchanting, Toolstation, Retail and Plumbing & Heating.

New Group reporting structure
The Group’s Merchant businesses, which focus on close trade customer relationships and offering customer-specific pricing and product sourcing tailored to local customer demands, will be grouped for reporting purposes, but will be managed as individual businesses, placing decision making as close as possible to the customer.

Toolstation will remain as an autonomous business within the Group. It will be reported separately from the Retail segment to reflect that it is predominantly a fixed price, trade customer business. 

Wickes and Tile Giant will be reported as a Retail segment, with a different operating model from the merchant businesses, with fixed ranges, and a fixed, national price framework.

In December 2018, the Group announced its intention to divest the P&H division during the course of 2019, and significant work has been undertaken to separate the P&H businesses from the remainder of the Group. This work should be completed during Q2 2019.

John Carter, Chief Executive Officer, commented:
“The Group delivered a solid performance overall in 2018 despite a challenging market backdrop. We took concerted self-help actions during the year, and the benefits of this cost reduction, together with improved trading, drove an improved profit performance in the second half of the year.

"In December 2018, we set out our intention to focus on delivering best-in-class service to trade customers and to simplify the Group. To that end, removing the divisional structure within Merchanting will enable an increased focus on customers at a business unit level, speed up decision making and, at the same time, reduce costs.

"In the longer term, the Group remains focused on generating sustainable profitable growth for shareholders and we will achieve this by allocating capital and resources to our most advantaged businesses. We are making good progress on the preparation for the disposal of the Plumbing & Heating division, and are seeing an encouraging improvement in trading and good momentum in Wickes.

"Whilst we remain positive about the long-term outlook for our end markets, we are planning for uncertain market conditions to continue in the near term. The Group remains focused on self-help actions to underpin performance in the near term, whilst continuing to invest for the future.”

Source : Travis Perkins Plc

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