Travis Perkins To 'Review Options' For Wickes

Travis Perkins has published the following press release as part of its Capital Markets Update: 

Simplifying our business to improve returns

Highlights

• Focus on our trade customers and drive returns from our advantaged trade businesses
• Simplify the Group and streamline the cost base to drive strong cash flow and earnings momentum
• Intention to divest the Plumbing and Heating Division following successful transformation
• Improve the performance of Wickes to create options to maximise value over the medium term

John Carter, CEO, commented:

“We have developed a clear plan to focus on delivering best-in-class service to our trade customers, and to simplify the Group to reduce complexity, speed up decision making and reduce costs. Our trade businesses hold strong positions in attractive markets, and these initiatives will enable us to concentrate our management time and capital in the highest returning areas.

Our strong balance sheet and free cash flow generation, driven by growing earnings and lower capital expenditure, will underpin our commitment to drive shareholder value and a progressive dividend.”

Today, the Travis Perkins plc management team is hosting a capital markets update in London. There will be no new disclosures on current trading conditions with overall performance consistent with expectations at the time of the third quarter trading update in October. The event will cover the Group’s immediate priorities and ambitions for the future.

Overview

The fundamental long-term growth drivers of the business remain robust, with a continued shortage of housing in the UK and underinvestment in the maintenance and improvement of the existing, ageing, housing stock. In the shorter term, market conditions remain uncertain, impacting secondary housing market transactions and consumer confidence. Against this backdrop, the Group announced in July 2018 that it would undertake a comprehensive review of its business, with a view to driving stronger performance and enhanced value for shareholders over the medium term.

Following a comprehensive review, the Board has concluded that the Group will focus on serving trade customers through advantaged businesses in attractive markets, and will simplify the Group to reduce complexity and cost to drive returns.

Focus on serving trade customers through advantaged businesses

The heritage of the Travis Perkins Group is founded in serving its UK trade customers and this represents the majority of Group activity today, with generalist and specialist merchants continuing to see the largest share of industry growth with returns remaining resilient over time. Whilst trade customers are becoming increasingly demanding of the quality of service they receive, they still place considerable value on a convenient and reliable supply relationship.

The Group will focus on delivering best in class service to trade customers through businesses with clear competitive advantages in their markets. The Group aims to deliver sales growth through market outperformance, building on the momentum in the Contract Merchanting businesses, the continuing strong growth in Toolstation, and a reinvigoration of our market-leading General Merchanting business.

The General Merchanting division is a powerful driver of profitability and cash flows within the Group, and the management team has a clear plan to improve returns through a rebalancing of decision making and an increase in local empowerment of the branch manager and sales teams. There are additional meaningful opportunities to further enhance the growth and returns profile by the effective recycling of capital over the coming years.

In the short term, management will also focus on strengthening the performance of Wickes and capitalising on its clear competitive advantages in the DIY, small trade and Kitchen & Bathroom markets. As it is a predominantly consumer focused business, the Board will also look to review the options for maximising the value of Wickes in the medium term.

Simplifying the Group

The Group will focus on simplifying the business to reduce complexity, speed up decision making and improve agility whilst further reducing the above-branch and distribution cost base. The Group is targeting further annualised cost savings of £20-30m which will be delivered over the next 18 months. This is expected to underpin earnings progression and create a platform from which to drive operating cost leverage going forwards.

Following on from the success of the Plumbing & Heating transformation programme, the Board has concluded that as part of the process of simplification, now is the time to explore the potential sale of the Plumbing & Heating division. This will facilitate more focused management attention and capital deployment on the higher returning areas, and creates further opportunities to simplify the Group and reduce costs.

Expected financial outcomes

The free cash flow generation of the Group is expected to strengthen over the medium term, driven by improving earnings and lower capital expenditure. Future capital investment will be focused on reinvigorating the General Merchanting business, completing the major IT programmes and expanding both the Toolstation UK and Europe businesses.

This strong free cash flow generation will further strengthen the Group’s balance sheet. The Group reconfirms its medium-term target for lease adjusted debt to EBITDAR of 2.5x and will maintain a progressive dividend policy.

Source : Travis Perkins

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