Final Results
Travis Perkins PLC
08 March 2004
Strictly embargoed until: 07.00 Monday 8 March 2004
Travis Perkins plc
PRE-TAX PROFIT UP 18.2 PER CENT TO £162.7 MILLION
OPERATING PROFIT BEFORE AMORTISATION OF GOODWILL*
UP 21.0 PER CENT AT £191.4 MILLION
DIVIDENDS UP 25.1 PER CENT AT 24.4 PENCE
2003 2002 Increase
£m £m %
Turnover 1,678.3 1,417.5 18.4
Operating profit before amortisation of goodwill* 191.4 158.2 21.0
Profit before taxation 162.7 137.6 18.2
Profit after taxation 108.9 91.8 18.6
Basic earnings per ordinary share 96.5p 81.9p 17.8
Adjusted earnings per ordinary share before
amortisation of goodwill and profit on sale
of properties (Note 14) 110.0p 91.6p 20.1
Final dividend per ordinary share 16.8p 13.4p 25.4
Total dividend per ordinary share 24.4p 19.5p 25.1
* See details of goodwill amortisation in the profit and loss account on page 9.
Frank McKay, chief executive, said:
'We are delighted with the 2003 results which were achieved on the back of
excellent acquisition and organic growth. We have made a positive start to 2004
and given reasonable market conditions are well placed to make further progress
in the current year. Growth will come from recent as well as new acquisitions
combined with the further expansion of brownfield developments and still greater
operating efficiencies.'
Enquiries: Frank McKay Paul Hampden Smith
Chief Executive Finance Director
Tel: 07712 878 700 (mobile) Tel: 07712 878 242 (mobile)
Issued on behalf of Travis Perkins plc by Tavistock Communications Limited
(contact: Keith Payne, Tel: 020 7920 3150).
Chairman's Statement
RESULTS
I am pleased to report pre-tax profits for the year ended 31 December 2003 of
£162.7 million, an increase of 18.2 per cent over the £137.6 million earned in
2002. Turnover at £1,678.3 million was 18.4 per cent ahead of the previous
year. Operating profit, before goodwill amortisation of £15.3 million (2002:
£12.1 million), was £191.4 million, compared with £158.2 million in 2002, an
increase of 21 per cent.
Basic earnings per share were up 17.8 per cent at 96.5 pence, compared with 81.9
pence in 2002. Adjusted earnings per share, (prior to amortisation of goodwill
and excluding profit from the sale of surplus properties) rose 20.1 per cent to
110.0 pence from 91.6 pence.
DIVIDEND
At the half year the board indicated its intention to increase the final
dividend to reflect the cash generative nature of the business and its
confidence in the future prospects of the company. As a result of the company's
continued progress, the board is recommending a final dividend of 16.8 pence per
share, an increase of 25.4 per cent on the final dividend of 13.4 pence for
2002. Together with the interim dividend of 7.6 pence, this would give a total
annual dividend of 24.4 pence per share, up 25.1 per cent on the previous year.
BOARD OF DIRECTORS
Chris Bunker joined the board as a non-executive director on 14 January 2004.
He is currently the group finance director of Thames Water and brings to the
company a wealth of financial experience gained from working in other major UK
public companies. He was appointed to the Audit Committee on 12 February 2004
and will take over the Chairmanship from Michael Dearden on 29 April 2004.
CORPORATE GOVERNANCE
During the year the group board has continued to review actively all of the
major areas of risk to the company. Further details of the governance controls
can be found under the corporate governance section of the annual report and
accounts.
OUTLOOK
We are delighted with the 2003 results which were achieved on the back of
excellent acquisition and organic growth. We have made a positive start to 2004
and given reasonable market conditions are well placed to make further progress
in the current year. Growth will come from recent as well as new acquisitions
combined with the further expansion of brownfield developments and still greater
operating efficiencies.
T. E. P. STEVENSON
Chief Executive's Review
RESULTS
The past year has been one of further strong growth for the company. Operating
profit before amortisation of goodwill of £15.3 million (2002: £12.1 million)
rose 21.0 per cent to £191.4 million from £158.2 million in 2002. Turnover
increased by 18.4 per cent to £1,678.3 million from £1,417.5 million. Sales
growth was driven by continued investment in the acquisition of independent
merchants, in new brownfield sites and, significantly, in the acquisition of the
Jayhard and B&G plumbing and heating businesses. Group like for like sales were
up 4 per cent.
The overall operating margin before goodwill amortisation for the year improved
again, from 11.2 per cent to 11.4 per cent, reflecting further progress on a
variety of continuous improvement initiatives. This increase was achieved
despite continued pressure on overheads, particularly in relation to pension,
employment and distribution costs.
The 101 branches acquired in 1999 with the acquisition of Keyline all made
further progress, as did the original Sharpe & Fisher and Broomby branches. The
City Plumbing ('CPS') and Commercial Ceiling Factors ('CCF') businesses
performed better than expected, helped by strong procurement gains, economies of
scale derived from being part of the Travis Perkins group and the demanding
achievement targets in place throughout the group. Overall gross profit as a
percentage of sales improved further on a like-for-like basis.
DEVELOPMENTS
The two major developments of the year were the acquisitions of Jayhard and B&G.
Jayhard was acquired on 1 August for an enterprise value (see note 13) of £26.5
million, adding 53 plumbing and heating branches to the group. B&G was acquired
on 1 October for £23.5 million, bringing in a further 12 plumbing and heating
branches, located mainly in South London and Surrey.
These two acquisitions strengthened significantly our presence in this important
sector of the building materials market. Further acquisitions together with
brownfield openings brought our specialist network of plumbing and heating
branches to 164 by the year-end.
The integration of both Jayhard and B&G is proceeding smoothly and the enlarged
business is performing ahead of expectations.
The acquisition of 18 mixed merchant branches targeted at gaps in our geographic
coverage continued in parallel with the larger acquisitions and added in total a
further 83 outlets to the Travis Perkins branch network. The total amount spent
on acquisitions was £72.3 million.
We also opened 8 all-purpose brownfield branches at Daventry, Coventry,
Portsmouth, Bodmin, Tewkesbury, Redhill, Bury St. Edmunds and Marlborough and 9
CPS branches at Chester, Exeter, Letchworth, Dumfries, Aberdeen, Kings Lynn,
Portsmouth, Chepstow and Falkirk. Tool hire facilities were introduced to a
further 3 branches, bringing the total number offering this service to 151.
By the end of 2003 the Travis Perkins group was trading from a total of 700
branches.
BRANCH IMPROVEMENTS
We continued to invest in the branch network with the aim of providing an ever
improving service to our customers. During the year major redevelopments took
place at Walsall, Leamington, Bury St. Edmunds, Halifax, Scunthorpe, Accrington,
Warrington, Camerton, Reading and Alexandra Palace.
The upgrading of Keyline branches continued with major refurbishments at
Atherton, Bradford and Stoke. Investment in 2002 to improve the lightside,
timber and forest product offer of a number of Keyline branches is now
delivering increased sales.
Measures to improve the efficiency of our timber milling operations, including
most recently in Gloucester, should be reflected this year in both increased
product availability and an improved quality of supply to our branches.
The landscaping centres have continued to perform well, as have our own branded
sales with the addition of new products to the range.
The integration of the DW Archer branches under the existing Travis Perkins
regional management structure has produced a substantially improved performance
for these branches compared with the previous year.
INFORMATION TECHNOLOGY
As part of an ongoing programme to enhance customer service, particularly at the
trade counter, significant software upgrades were installed, resulting in more
flexible sales order processing and faster point of sale operations.
Further improvements were also made to our administrative systems. By the end
of 2003 more than 70 per cent of all purchase invoices and over 30 per cent of
purchase orders were handled electronically.
CUSTOMER SERVICE
The new programme of continuous improvement introduced in 2002 had been
implemented in all branches by early 2003. It includes constant monitoring of a
series of seven key performance indicators derived from data captured by our
information systems. This data is analysed and presented monthly and all
branches are ranked according to their overall performance. Management focus on
these key indicators has produced an improvement in performance during the year
and we are confident that further progress can be made in 2004.
HEALTH AND SAFETY
The company is committed to achieving and maintaining high standards in health
and safety, as evidenced by accident frequency rates falling by more than 30 per
cent. Our health and safety practices and procedures are now well established
throughout the business. These encompass training and development and the
widespread use of personal protective equipment, as well as ongoing measurement
and review. All are regular features of our disciplined approach to this
important issue.
Modifications to our commercial vehicle and forklift designs, together with the
introduction of traffic management systems in our larger branches, are further
proof of our determination to make Travis Perkins an even safer place in which
to work.
ENVIRONMENT
Our environmental management system accreditation to ISO 14001 was maintained
during the year. Good progress has been made in reducing adverse impact on the
environment, in particular in the areas of waste management, volatile organic
compound emissions and CO2 emissions.
Timber procurement has been a major focus of attention and we have increased
further the percentage of products procured from sources certified to recognised
forestry standards. In particular, we have introduced a number of hardwood
plywood and solid hardwood products certified to Forest Stewardship Council ('
FSC') standards. Chain of custody accreditation for both FSC and the Programme
for the Endorsement of Forest Certification ('PEFC') schemes was achieved for
more than 110 branches by the end of 2003 and more branches will be added during
2004.
FUTURE EXPANSION
We see significant additional scope for profitable growth through the
acquisition of regional groups, independent merchants, the further expansion of
brownfield site developments and the greater efficiencies generated by our
ongoing improvement programmes. We made good progress again during 2003 and
remain confident that our proven strategy will provide further growth in the
future.
STAFF
On behalf of the board, I would like to thank all our employees for their
contribution to the success of the company during 2003.
F. J. McKAY
Finance Director's Report
RESULTS
Pre-tax profits were £162.7 million (2002: £137.6 million) after charging
goodwill amortisation of £15.3 million (2002: £12.1 million).
Pre-tax profits before goodwill amortisation of £15.3 million (2002: £12.1
million) and property profits of £nil (2002: £1.2 million) were £178 million
(2002: £148.5 million), an increase of 19.9 per cent. Earnings before interest,
tax, depreciation and goodwill amortisation ('EBITDA') (as defined in note 11)
were £218.3 million (2002: £180.1 million), an increase of 21.2 per cent.
Net interest payable for the year was £9.1 million compared with £8.9 million in
2002.
The tax charge was £53.8 million (33.1 per cent) compared with £45.8 million
(33.3 per cent) in 2002. The rate is higher than the UK corporation tax rate of
30 per cent principally because the effect of claiming a statutory deduction for
share options exercised during the year is more than offset by goodwill
amortisation and certain expenditure, which does not qualify for tax relief.
The effective tax rate, after adjusting for property profits and goodwill
amortisation, was 30.2 per cent (2002: 30.8 per cent).
CASH FLOW
As a result of higher profits and strong working capital management during 2003,
operating cash flow was £230.8 million, an increase of £51 million or 28.4 per
cent on 2002.
Like-for-like free cash flow (as defined in note 8) for the year was £136.2
million (2002: £128.1 million). The free cash generated by the group was used
substantially to fund capital expenditure on the existing business and new
acquisitions, which in total cost £119.2 million (2002: £143.9 million).
NET DEBT AND BORROWING FACILITIES
In 2003 the group repaid a further £25 million of the term loan used to purchase
Keyline in 1999. Net debt at the year-end was £128.5 million (2002: £159.7
million), which represents a gearing level (as defined in note 12) of 26.9 per
cent (2002: 40.4 per cent). Borrowings include £12.2 million (2002: £14.1
million) of unsecured loan notes, which are redeemable at six monthly intervals
ending in June 2015.
The group has £200 million of committed facilities, comprising a £75 million
term loan repayable in April 2004, a £50 million loan due for repayment in
November 2005, a £25 million loan repayable by instalments between 2004 and 2007
and a £50 million revolving syndicated credit facility available until April
2004. It has overdraft facilities of £54 million. At the year end the group had
unutilised committed facilities of £50 million and unused overdraft facilities
of £54 million. With the expiry of the interest rate swap in November 2003, all
of the group's borrowings are at variable rates.
The group is highly cash generative. As a result it does not currently require
significant long-term borrowings to fund its operations. In April 2004, when
the final tranche of the term loan is repaid and the revolving credit facility
expires, it is likely that additional bilateral facilities will be obtained.
Interest cover, before goodwill amortisation (as defined in note 9) is
approximately 21 times (2002: 18 times), well within our borrowing covenants.
PENSIONS
Whilst the recent improvements in world stock markets have boosted investment
returns and so, together with higher funding, have increased the underlying
pension scheme assets, the weakness in corporate bond yields, and the rise in
anticipated inflation has caused a compensating increase in the discounted value
of scheme liabilities. As a result the pension scheme gross funding deficit has
reduced during the year by only £0.9 million to £121.6 million. At 31 December
2003 the net deficit, after allowing for deferred tax, was £85.1 million
compared with £85.8 million at 31 December 2002.
SHAREHOLDERS' FUNDS
Total equity shareholders' funds, after deducting the pension scheme deficit at
31 December 2003, were £477 million, an increase of £81.6 million on 31 December
2002.
The return on equity shareholders' funds before taxation (as defined in note 10)
increased to 29.3 per cent in 2003 from 29 per cent in 2002. This level of
return, after tax, was substantially higher than the group's weighted average
cost of capital.
At the year-end the share price was 1,278 pence (2002: 1,005 pence) and the
market capitalisation £1,449 million (2002: £1,132 million), representing 3.0
times (2002: 2.9 times) shareholders' funds.
GOODWILL
The net book value of goodwill in the balance sheet is £285.7 million, which is
being amortised over 20 years. Additions to goodwill in the year totalled £51.1
million.
TREASURY RISK MANAGEMENT
Treasury activities are managed centrally under a framework of policies and
procedures approved and monitored by the board. The objectives are to protect
the assets of the group and to identify and then manage financial risk. In
applying its policies, the group will utilise derivative instruments, but only
for risk management purposes.
The principal risk facing the group is an exposure to interest rate
fluctuations. The group is not exposed to significant foreign exchange risk as
most purchases are invoiced in sterling. These risks are described further
below:
INTEREST RATE RISK
The group finances its operations through a mixture of retained profits, bank
borrowings and loan notes. The group borrows at floating rates and, where
necessary, uses interest rate swaps into fixed rates to generate the preferred
interest rate profile and to manage its exposure to interest rate fluctuations.
CURRENCY RISK
The group usually buys currency at spot rates. While this was the situation
during 2003, forward contracts may be purchased where appropriate.
LIQUIDITY RISK
The group's policy has been to ensure that it has committed borrowing facilities
in place in excess of its peak forecast gross borrowings for at least the next
twelve months. The current refinancing is discussed above under Net Debt and
Borrowing Facilities.
P. N. HAMPDEN SMITH
Consolidated Profit and Loss Account
Existing Acquisitions 2003 2002
Operations Total
£m £m £m £m
Turnover 1,644.6 33.7 1,678.3 1,417.5
Operating profit before
amortisation of goodwill 190.2 1.2 191.4 158.2
Amortisation of goodwill (15.3) - (15.3) (12.1)
Operating profit after
amortisation of goodwill 174.9 1.2 176.1 146.1
Profit on sale of properties - - - 1.2
Profit on ordinary activities
before interest and taxation 174.9 1.2 176.1 147.3
Net interest payable (9.1) (8.9)
Other finance costs (4.3) (0.8)
Profit on ordinary activities
before taxation 162.7 137.6
Tax on profit on ordinary activities (53.8) (45.8)
Profit on ordinary activities
after taxation 108.9 91.8
Equity dividends paid and proposed (27.6) (21.9)
Retained profit transferred
to reserves 81.3 69.9
Earnings per ordinary share
Basic 96.5p 81.9p
Diluted 95.2p 80.7p
Adjusted 110.0p 91.6p
Dividend per ordinary share 24.4p 19.5p
All results relate to continuing activities. The results disclosed in the group
profit and loss account are not materially different from the results on an
unmodified historical cost basis.
Consolidated Balance Sheet
2003 2002
Fixed assets £m £m
Tangible assets 284.7 258.2
Intangible assets - goodwill 285.7 249.9
Investments 4.3 4.6
574.7 512.7
Current assets
Stocks 178.1 152.1
Debtors 265.4 250.4
Properties held for resale 0.2 1.0
Short term investments - cash deposits 27.5 30.0
Cash at bank and in hand 6.4 -
477.6 433.5
Creditors: amounts falling due within one year (400.0) (300.6)
Net current assets 77.6 132.9
Total assets less current liabilities 652.3 645.6
Creditors: amounts falling due after more than one year (70.1) (150.3)
Provisions for liabilities and charges (20.1) (14.1)
Net assets excluding pension deficit 562.1 481.2
Pension deficit (85.1) (85.8)
Net assets including pension deficit 477.0 395.4
Capital and reserves
Called up share capital 11.3 11.3
Share premium account 69.4 65.7
Revaluation reserves 30.6 31.2
Profit and loss account 365.7 287.2
Total equity shareholders' funds 477.0 395.4
Consolidated Cash Flow Statement
2003 2002
£m £m
Net cash inflow from operating activities 230.8 179.8
Returns on investments and servicing of finance
Interest received 0.7 0.7
Interest paid (10.0) (9.0)
Net cash outflow for returns on
investments and servicing of finance (9.3) (8.3)
Taxation
UK corporation tax paid (50.9) (42.7)
Capital expenditure and financial investment
Purchase of tangible fixed assets (49.4) (35.4)
Receipts from sales of tangible fixed assets 2.5 3.0
Receipts from sale of own shares held - 0.8
Net cash outflow for capital expenditure
and financial investment (46.9) (31.6)
Acquisitions
Purchase of business undertakings (73.0) (103.3)
Net cash/(overdrafts) acquired with business
undertakings 0.7 (8.2)
Net cash outflow for acquisitions (72.3) (111.5)
Equity dividends paid (23.7) (20.0)
Cash inflow/(outflow) before use of liquid
resources and financing 27.7 (34.3)
Management of liquid resources
Cash inflow from/(outflow to) short term deposits 2.5 (30.0)
Financing
Issue of ordinary share capital 3.5 2.8
New bank loans - 50.0
Repayment of bank loans (25.0) (25.0)
Repayment of unsecured loan notes (1.9) (0.7)
Capital element of finance lease rentals (0.1) -
Net cash (outflow to)/inflow from financing (23.5) 27.1
Increase/(decrease) in cash in the year 6.7 (37.2)
Reconciliation of Movements in Equity Shareholders' Funds
2003 2002
£m £m
Equity shareholder's funds at 1 January 395.4 386.8
Profit attributable to shareholders of the company 108.9 91.8
Dividends (27.6) (21.9)
Retained profit transferred to reserves 81.3 69.9
New share capital subscribed 3.5 2.8
Unrealised (loss)/surplus on revaluation of investment
properties (0.3) 0.1
Actuarial gains and losses (net of deferred tax) (2.9) (64.2)
Net increase in shareholders' funds 81.6 8.6
Equity shareholders' funds at 31 December 477.0 395.4
Statement of Total Recognised Gains and Losses
2003 2002
£m £m
Profit attributable to shareholders of the company 108.9 91.8
Actuarial gains and losses recognised in the pension scheme (2.7) (91.2)
Deferred tax on pension deficit (0.2) 27.0
Unrealised (loss)/surplus on revaluation of investment
properties (0.3) 0.1
Total gains recognised since last annual report 105.7 27.7
Analysis of Actuarial Gains and Losses Included in the
Statement of Total Recognised Gains and Losses
2003 2002
£m £m
Difference between actual and expected return on
scheme assets 14.7 (43.1)
Experience gains and losses arising on scheme liabilities 0.1 (15.4)
Effects of changes in assumptions underlying the present
value of scheme liabilities (17.5) (32.7)
Total actuarial gains and losses recognised in the
statement of total recognised gains and losses (2.7) (91.2)
Reconciliation of Operating Profit to
Net Cash Inflow from Operating Activities
2003 2002
£m £m
Operating profit after amortisation of goodwill 176.1 146.1
Depreciation charges 26.9 21.9
Amortisation of goodwill 15.3 12.1
Loss on sale of fixed assets - 0.3
Increase in stocks (10.8) (0.9)
(Increase)/decrease in debtors (0.4) 4.2
Increase/(decrease) in creditors 23.7 (3.9)
Net cash inflow from operating activities 230.8 179.8
Reconciliation of Net Cash Flow to Movement in Net Debt
2003 2002
£m £m
Increase/(decrease) in cash in year 6.7 (37.2)
Cash outflow to repay/(inflow from) debt 27.0 (24.3)
Cash (inflow from)/outflow to (decrease)/increase
liquid resources (2.5) 30.0
Change in net debt resulting from cash flows 31.2 (31.5)
Non-cash changes - (2.1)
Movement in net debt in the year 31.2 (33.6)
Net debt at 1 January (159.7) (126.1)
Net debt at 31 December (128.5) (159.7)
Notes:
1. The accounting policies used are consistent with those stated in the
financial statements of the group for the year ended 31 December 2002.
2. These statements are not statutory accounts within the meaning of s240
of the Companies Act 1985.
3. The results for the year ended 31 December 2002 are taken from the
Group's statutory accounts, which carry an unqualified auditors' report and
have been filed with the Registrar of Companies.
4. Statutory accounts, which are unqualified, for the year ended 31 December
2003 will be delivered to the Registrar of Companies in due course.
5. The statutory accounts for both the year ended 31 December 2003 and year
ended 31 December 2002 did not contain a statement under s237 (2) or (3) of
the Companies Act 1985.
6. An interim dividend of 7.6 pence was paid to shareholders on 31 October
2003. The proposed final dividend of 16.8 pence will be paid on 17 May 2004
to shareholders on the register at 23 April 2004.
7. It is intended to post the Report and Accounts on 19 March 2004 and to
hold the Annual General Meeting on 28 April 2004.
8. Like for like free cash flow is derived by taking the increment on net
debt during the year and adding back net capital expenditure and cash flow on
acquisitions, both as shown in the cash flow statement, and deducting an
adjustment of £14.2 million (2002: adding £16.6m) in respect of creditors paid
in advance of their normal date.
9. Interest cover is calculated by dividing operating profit before
amortisation of goodwill by the net interest payable.
10.Return on equity is calculated by dividing profit before tax and goodwill
amortisation by average net assets (after adding back total goodwill
amortised to profits, goodwill previously written off to reserves and the
pension scheme deficit).
11.EBITDA is operating profit before goodwill amortisation plus depreciation
of £26.9 million (2002: £21.9 million).
12.Gearing is calculated by dividing net debt by shareholders' funds.
13.Enterprise value is the consideration paid to the vendor of a business
adjusted to a debt free basis.
14.Adjusted earnings per share is basic earnings per share of 96.5 pence
(2002: 81.9 pence) increased by adding back the effect of goodwill
amortisation of 13.5 pence (2002: 10.8 pence) and deducting the effect of
property profits of nil pence (2002: 1.1 pence).
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