Preliminary Results 2006
Travis Perkins PLC
06 March 2007
TRAVIS PERKINS PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006
REVENUE UP 7.9% TO £2,849M
ADJUSTED OPERATING PROFIT UP 3.7% TO £278M
ADJUSTED PRE TAX PROFIT UP 6.6% TO £220M
NET DEBT REDUCED BY £178M
ADJUSTED EPS UP 9.1%
DIVIDENDS UP 10.0% TO 37.4P PER SHARE
LIKE-FOR-LIKE SALES AHEAD OF MARKET
2006 2005
£m % £m
Revenue 2,848.8 7.9 2,640.8
Adjusted*:
Operating profit (note 6) 278.0 3.7 268.0
Profit before taxation (note 6) 220.3 6.6 206.7
Profit after taxation (note 6) 154.2 9.5 140.8
Basic earnings per ordinary share (note 8)(pence) 127.4 9.1 116.8
Statutory:
Operating profit 289.6 8.1 268.0
Profit before taxation 231.9 12.2 206.7
Profit after taxation 167.0 18.6 140.8
Basic earnings per ordinary share (pence) 137.9 18.1 116.8
Total dividend per ordinary share (note 9)(pence) 37.4 10.0 34.0
*Adjusted results are stated before exceptional property profits of £11.6m
(2005: £nil) and associated tax effects.
Geoff Cooper, Chief Executive, commented:
'In 2006 we made considerable progress in the development and performance of our
business, with financial results ahead of original expectations for the year,
further expansion of our branch network and satisfactory integration of the
Wickes business. All this was achieved in trade and retail markets that, whilst
recovering in line with our expectations, remained challenging for most of the
year.
'Long term prospects for our markets remain good and the gradual recovery we
expected and experienced in 2006 has, we believe, sufficient momentum to deliver
good market growth in both trade and retail markets in the first half of 2007.
Our prospects for the second half of 2007 are sensitive to the current uncertain
outlook for interest rates and the consequent impact on both new and secondary
housing markets.
'Our Group has demonstrated its ability to grow financial performance and expand
its businesses in challenging market conditions. We are confident we can
continue to apply our management skills to successfully navigate our markets and
generate further growth in returns for shareholders.'
Enquiries:
Geoff Cooper, Chief Executive
Paul Hampden Smith, Finance Director
Travis Perkins PLC +44 (0)1604 683 131
David Bick/Mike Feltham
Holborn Public Relations +44 (0)20 7929 5599
Highlights
The Group achieved an excellent set of results in 2006, beating all the main
financial targets anticipated at the outset of the year. We have aggressively
pursued further gains in performance from our like-for-like estate. This has
involved growing sales ahead of market growth, expanding our gross margins and
maintaining tight control of costs. We successfully integrated the Wickes
business, beating all main targets for this project. Despite challenging
market conditions we continued to expand our branch networks and to invest in
stronger Group infrastructure. Cash generation in 2006 was very strong and net
debt has been reduced significantly over the last two years. With improving
market conditions, we have made an encouraging start to 2007 and look forward
with confidence.
Results
Our focus on maximising profits from our existing branch network during
the difficult markets of 2005 and 2006 yielded increased results. During the
year the group made an exceptional property profit of £11.6m which realised
£31.5m of cash receipts. Including the property profit, group operating profit
for the year was £289.6m, excluding it, adjusted group operating profit rose
3.7% to £278m (note 6) from £268m in 2005. Throughout these preliminary results
the term 'adjusted' has been used to signify that the effect of the exceptional
property disposal has been excluded from the disclosure being made.
Group revenue increased by 7.9% to £2,848.8m from £2,640.8m in 2005. The
additional 41 days of trading from Wickes contributed 3.0% of the increase,
like-for-like sales contributed 1.4%, with network expansion accounting for the
remaining 3.5%.
Adjusted Group operating margin was 9.8% compared with 10.1% in 2005 (note 6).
This slight decrease was caused by two factors. The first was the effect of the
additional 41 days trading from Wickes occurring in its weakest seasonal trading
period. The second was the dilutive effect of our continuing branch expansion
programme, where new branches take time to reach sales and profit maturity.
We continued to expand our branch network, albeit at a lower rate than in 2005,
adding new branches to each brand and adding a new business stream to our
portfolio. We passed through the 1,000 branch milestone in June 2006 and to
commemorate this launched a major programme of community projects.
In the merchanting business, sales grew by 6.3% with sales from new branch
openings contributing 3.4% and increased like-for-like sales per working day
contributing 2.9%. This comprised 3.8% of price inflation and a 0.9% decline in
volume. Merchanting adjusted operating margin was down slightly to 11.2%
(note 6).
The integration of Wickes is now substantially and successfully complete, with a
number of retail support functions now integrated with their equivalent function
in the trade division to provide a new Group capability. Additional steps have
been taken to strengthen these functions, which now support all businesses in
the Group, to provide a platform to support further growth.
Like-for-like sales for the full year of Wickes' core products were down 3.5%
and on the same basis showroom sales fell by 0.2%. Overall like-for-like sales
in Wickes were down 3.0% with 2.4% price inflation and a 5.4% volume decrease.
Network expansion added 3.5% to Wickes' sales which in total increased by 0.5%.
Wickes' operating margin (excluding property profits of £4.5m, 2005 £nil)
decreased by 1.5% to 5.9% (note 6) for 2006 of which 0.4% relates to the
additional 41 day trading period. The remainder is explained by property cost
inflation in excess of sales price inflation.
We are pleased to report that we continue to maintain our position of having the
highest operating margin in both merchant and retail sectors, and four out of
our six brands now have 'best in class' operating margins.
With improved operating profit performance and a continued focus on increasing
returns and cash generation, we reduced our group debt by £178m since last year.
Net Group debt is now some £249m lower than the proforma position at the time of
the Wickes acquisition (note 13).
Dividend
The group continues to be highly cash generative. As a result of this and our
confidence in the future prospects of the group, the board is recommending a
final dividend of 25.3 pence per share. Taken together with the interim
dividend of 12.1 pence, this represents a total dividend of 37.4 pence, an
increase of 10.0% on the previous year.
Outlook
Long term prospects for our markets remain good and the gradual recovery we
expected and experienced in 2006 has, we believe, sufficient momentum to deliver
good market growth in both trade and retail markets in the first half of 2007.
Early sales performance in 2007 has been encouraging, with like-for-like
sales in our merchanting division for the first two months ahead by 5.3% and
like-for-like sales for the first 8 weeks trading in retail up by 5.0%.
Much of this positive market performance has been propelled by a healthy housing
market. Although rising consumer confidence and spending has more recently
provided added impetus, particularly in retail, our prospects for the second
half of 2007 are sensitive to the current uncertain outlook for interest rates
and the consequent impact on both new and secondary housing markets.
Our planned development of the Group's businesses and support functions assumes
a continued recovery in both our markets, and we are confident of capitalising
on this growth to make further gains in market share and returns to
shareholders. However, we remain vigilant to the risk that the current recovery
may stall and that, as in 2005, we may need to act swiftly to reduce costs and
curtail the pace with which we build our capabilities and network.
Our focus on driving stronger performance from our like-for-like estate is
paying off, and is making us a tougher competitor in each market in which we
trade. Our expansion is continuing to deliver the benefits of scale. This
approach means we are well positioned to maintain our leadership, having the
'best business with the best operating margin', in each of our markets.
Operational review
In 2006 our priorities were to continue the focus on tight management of costs,
raise our performance on cash generation, outperform on the synergy and buying
gain targets we had set at the time of the Wickes transaction, and execute
trading strategies tailored to each set of market circumstances.
We passed the anniversary of full implementation of the price repositioning of
our trade businesses, which started in the second quarter of 2005 and was fully
implemented by October that year. This allowed us to assess the full year impact
of our trading strategy. We have confirmed that the extra business gained has
generated more contribution than the cost required to fund the price investment.
We have therefore achieved a net return from this initiative. On a month on
month basis our like-for-like revenues are now increasing in line with the
market, and our gross margin is level with the prior year. Over the year as a
whole we grew our like-for-like revenues ahead of the market with consistent
gross margin. These positive achievements in growing revenue were aided by the
initial stages of a programme to segment markets and better target customers.
Our retail business also achieved good revenue performance, growing both
like-for-like and total market share. Whilst our year-on-year comparisons were
slightly flattered by the cessation of a promotional war, our gains were mainly
attributable to a programme of range enhancements and store sales initiatives.
Our non-participation in the promotional war also meant we were able to slightly
increase gross margins over the year.
Gross margins also benefited from an excellent performance on our synergy and
buying gain work following the Wickes transaction. Having set an overall target
for benefits of £35m in the acquisition assumptions, we achieved £78m in 2006,
including overhead reduction and improved buying terms. Our out-performance was
achieved by setting goals for stretched buying gains in addition to the original
list of synergy projects. Projects from this original list contributed £33m in
2006, reflecting the poorer market growth experienced post acquisition.
Both our divisions maintained tight controls over headcount and other costs.
Like-for-like headcount fell, yielding a productivity improvement in both
divisions, with merchanting recording a 5.4% gain and retailing ahead by 10.4%.
Overhead ratios improved in the trade division, and, before property related
increases, also improved in the retail division. The average annual rate of
rental increase experienced on 5 year lease reviews settled in 2006 declined
compared with the rate seen in 2005, supporting our view that rental inflation
will ease.
We raised our targets for cash generation, including new cash-linked elements in
incentive schemes, driving working capital performance harder and constraining
capital expenditure to critical projects or those with a short payback. We also
sought to improve capital efficiency through more active management of our
property portfolio. We have an extensive list of active projects in progress,
involving disposals, relocations, re-developments and co-location of multiple
businesses. In 2006 we realised cash from the initial projects in addition to
selling and leasing back an interest in a small portfolio of freehold properties
with low capital growth characteristics. These properties were sold, using 200
year leases, into a special purpose vehicle in which we retain a 15% equity
interest and certain rights to re-acquire the leasehold of individual sites.
This enables us to enjoy some capital growth should it arise.
Development of the Group
Our six trading brands performed well and took advantage of a gradual
strengthening in both trade and retail markets as the year progressed.
Wickes
Wickes achieved a creditable result against a difficult background of weak
markets in the first half of the year and continued high inflation in
property costs. These factors were mitigated by robust control of our variable
overheads and improvement in our gross margin as a result of improved buying
terms.
The appointment of Jeremy Bird as Wickes new Managing Director represents a
significant internal promotion after his 14 years experience in Wickes and a
successful period developing aspects of our trade business.
We have successfully introduced a number of new products. New products now
account for 15% of our sales each year. The increased number of products
introduced as a result of range reviews since early 2005 continues to help
maintain our like-for-like sales growth at above market rates.
Our initiatives to optimise the use of space within our stores including the
twinning of selective showrooms continue to be successful in achieving above
sector average sales per square foot.
Our new transactional website has been trading for six months and is showing a
rate of growth and profit well beyond our expectations.
At 31 December, we traded from 179 stores, an increase in 3 locations during the
year but a 5% increase in space as a further 3 stores were converted from
Standard to Extra stores. We remain flexible in our store formats according to
both the size and nature of each catchment area.
Travis Perkins
We added a net 26 stores during the year to the Travis Perkins' branch network
and traded from 559 stores at the year end. Around 70% of this expansion was
from brownfield sites, reflecting the relatively attractive returns compared to
acquisitions. Although we temporarily slowed our rate of expansion in 2006 the
quality of these new branches was higher, resulting in overall returns beating
projections. The Travis Perkins brand operates through four geographically
based businesses and represents about 60% of group profits. We are delighted
that each business demonstrated good profit growth with consistent delivery of
improved performance across our estate.
We have achieved increased like-for-like sales growth ahead of the market and
stabilised our strong gross margin percentage following our 2005 pricing
initiatives.
We undertook major branch refurbishments at a number of branches including Hemel
Hempstead, Ramsgate, Glasgow Muirend, Sunbury and Brackmills in 2006 and have 24
projects planned for 2007 with an incremental capital spend relative to 2006 of
around £30m. We also added a net 4 toolhire outlets taking our total to 163 in
the group. Following the appointment of Richard Dey as toolhire director we have
made excellent progress in expanding our network and in centralising our buying
and servicing activities. This has resulted in good profit growth.
Keyline
Our heavyside merchant added 3 branches to its network, finishing the year with
76 branches. Following a detailed profiling of its market, an increased focus
on both depth and breadth of specialist stock range and a concentration on major
civil engineering customers, sales performance has been increasingly successful.
Robust control of Keyline's cost base and continued support of key suppliers has
resulted in another year of improved margins.
City Plumbing
For City Plumbing, 2006 was a year of recovery and consolidation. We improved
the consistency of our pricing and stock range and launched a major sales drive
with large contractors. All remaining branches not yet converted were refitted
to the City Plumbing format from their predecessor brand. A combination of
strong top line growth and an absolute decrease in costs has led to a strong
recovery in profits. We added one new branch and consolidated two small units
during 2006. However, we plan to step up our rate of expansion in 2007,
reflecting our confidence that the business is very much back on track.
CCF
Our dry-lining ceilings and insulation specialist had another excellent year
reflecting the strength of our major contractor relationships. Strong
like-for-like sales and further improvement in margins has resulted in profits
in the fourth year after acquisition being in excess of three times the
pre-acquisition level. After adding two branches in 2006 to end the year at 25
outlets, a further 5 were added in early 2007 following the acquisition of
Passmores, who are based in London.
Benchmarx
Our specialist kitchen and joinery business for the trade made a good start
headed up by Rob Gladwin, previously Wickes Retail Director. The first branch
opened at Croydon in July and overall 6 branches were added in 2006. Benchmarx
serves a market with attractive returns and growth characteristics. We plan to
have 20 branches open by the end of 2007 and we are committed to creating a
business with a significant market share in this sector.
Suppliers
We place great emphasis in developing long term partnerships with our suppliers.
Most of our suppliers hold market leading positions and the scale to both
develop and bring to market new products and either currently or have the
potential to supply all of our brands.
We have continued to review our supply base, following the successful
initiatives in 2005, which extracted the 'quick win' synergies. These mainly
involved initiatives where, amongst our other 6 brands, there was overlap
between product and supplier. In 2006 we focused on major product categories
where there was a potential change of range and/or supplier in one or more
brands.
Our supplier base continues to become more concentrated with the top 25
suppliers representing 42% of our cost of goods sold. In 2007 we will continue
to leverage our strong buying position as market leader in heavyside and timber
products and drive further efficiencies through our small but rapidly expanding
global procurement function.
Senior management
The senior management team was strengthened with a number of significant
appointments including; Carol Kavanagh who joined us from a FTSE 100 company as
Group Human Resources Director; Robin Procter who joined us from a leading
company in an adjacent market as our new Group Supply Chain Director;
Linda Doughty, with a successful career in building materials joined us as Trade
Marketing Director; and Richard Dey joined us from a dedicated plant and tool
hire operator to become our Group Toolhire Director.
From the existing team we promoted two executives to become managing directors;
Jeremy Bird was appointed as Wickes' Managing Director following the planned
retirement of Richard Bird (no relation), and Rob Gladwin became Managing
Director of our newly established Benchmarx business. Both Jeremy and Rob joined
us as board members of Wickes upon acquisition, and are now part of a growing
group of senior executives with both trade and retail experience. They join our
highly regarded group of nine managing directors responsible for driving the
Group's operating profits.
Financial review
To ensure the business is focused upon achievement of targets, a series of key
financial performance indicators are monitored throughout the business. For
2006, where indicated, these measures are stated on an adjusted basis stripping
out the effects of the exceptional property profits:
IFRS IFRS IFRS UK GAAP UK GAAP
2006 2005 2004 2003 2002
Revenue growth 7.9% 44.4% 9.0% 18.4% 10.8%
Adjusted profit before tax
growth (note 6)* 6.6% 0.1% 16.0% 18.9% 23.7%
Profit before tax growth* 12.2% 0.1% 16.0% 18.9% 23.7%
Merchanting adjusted
operating profit to sales
(note 6) 11.2% 11.3% 11.9% 11.4% 11.2%
Adjusted interest cover
(note 7) 4.9x 4.9x 25.9x 21.0x 18.0x
Adjusted return on capital
(note 11) 14.6% 14.8% 25.0% 25.5% 24.0%
Adjusted free cash
generation (note 14) £216.6m £226.1m £150.7m £128.1m £105.6m
Adjusted dividend cover
(note 9) 3.4x 3.4x 4.1x 4.5x 4.7x
*Excludes goodwill amortisation in 2002 to 2003.
The above table reflects the significant purchase of Wickes in 2005.
Adjusted earnings before interest, tax, depreciation and goodwill amortisation
('EBITDA') (as defined in note 12) were £335.7m (2005: £326.9m), an increase of
2.7%.
Total net interest expense (before other finance costs of £0.4m (2005: £3.7m) in
2006 was £57.3m (2005: £57.6m). Whilst like-for like interest charges have
fallen in 2006 as net debt has reduced substantially, the actual cost for 2006
is only £0.3m lower than for 2005 as a result of the effect of a full year's
charge on the borrowings taken out to acquire Wickes on 11 February 2005.
Adjusted interest cover (as defined in note 7) is approximately 4.9 times (2005:
4.9 times).
Adjusted group profit before tax (note 6) was 6.6% ahead of last year at £220.3m
(2005: £206.7m).
The tax charge was £64.9m (28.0%) compared with £65.9m (31.9%) in 2005. The rate
is lower than the UK corporation tax rate of 30% principally because:
•no capital gains tax charge on property sales being included in the
profit and loss account under IFRS as any tax due is rolled over - this
reduces the tax charge by 2.8%;
•non-qualifying property expenditure and other items which are not
allowable for tax - this increases the tax charge by 0.8%.
Profit after tax was £167m an increase of 18.6%. Adjusted profit after tax
(note 5) was £154.2m an increase of £13.4m (9.5%) compared to 2005.
Basic earnings per share was 137.9 pence. Adjusted basic earnings per share
(note 8) was 9.1% higher at 127.4 pence, compared with 116.8 pence in 2005.
Cash flow
Management throughout the group has continued to focus on cash generation during
2006 with a number of working capital initiatives playing an important part in
further reducing debt. In 2006 the Group has generated £323.3m of cash from
operations (2005: £310.8m), an increase of 4.0%. Adjusted free cash flow,
(calculated before exceptional property disposals, expansionary capital
expenditure, special pension contributions and dividends) was £216.6m, down 4.2%
from 2005, which gave an adjusted free cash flow yield of 9% (2005: 13.3%) (note
14). This was due to the timing of interest payments (one additional 6 monthly
payment in 2006). The free cash generated by the group was used in part to fund
expansion capital expenditure of £31.6m (2005: £42.2m) in the existing business
and on new acquisitions, which in total cost £10.9m (2005: £42.5m excluding
Wickes). With a step up in our network expansion plans, new investments in group
infrastructure and reinvestment of the exceptional property disposal proceeds
into freeholds, we anticipate a significant increase in capital expenditure in
2007.
Pensions
The Travis Perkins' defined benefit pension scheme was merged with the Wickes'
final salary scheme on 1 July 2006. At 31 December 2006 the gross deficit of the
combined scheme was £80.8m (31 December 2005 combined gross deficit £142.8m).
The net deficit after allowing for deferred tax was £56.6m (2005: combined net
deficit £99.9m).
The significant improvement in the deficit is the result of improved asset
returns, more favourable corporate bond rates reducing liabilities and £21m of
company contributions in excess of the income statement charge (2005: £26m).
During the year the company has reached agreement with the pension fund trustees
to eliminate the 30 September 2005 deficit over a nine-year period. The scheme
is now 84% funded with the net deficit representing less than 2.5% of the
company's market capitalisation at 31 December 2006.
Equity
Total equity, after deducting the pension scheme deficit at 31 December 2006,
was £933.1m, an increase of £175.1m on 31 December 2005.
The Group's adjusted return on capital in 2006 (note 11) was 14.6% (2005:
14.8%), which is substantially higher than the group's weighted average cost of
capital. The slight reduction is due to the additional period of Wickes
ownership.
At the year-end the share price was 1,984 pence (2005: 1,400 pence) and the
market capitalisation £2.4bn (2005: £1.7bn), representing 2.6 times (2005: 2.2
times) shareholders' funds. During the year the daily closing share price ranged
from 1,372 pence to 1,984 pence.
Properties
The group currently operates from over 1,100 sites of which 375 are freehold or
long leasehold. The carrying value of the group's freehold and long leasehold
property portfolio, which was last revalued in 1999 on an existing use basis,
is £191.4m. As well as being one of the Group's considerable operating strengths
the portfolio gives it the potential to seek further opportunities to enhance
value.
During the year, in line with its stated strategy to release value from its
property portfolio, the Group undertook a transaction which by its magnitude was
exceptional, and sold 35 freehold properties on long leases, for £31.5m after
costs, to an investment vehicle, in which the Group has retained a 15% stake.
The properties, which have been leased back by the Group on 25 year terms, on a
near 6% yield, realised a net profit of £11.6m in 2006. In addition accounting
rules required profits made on the disposal of land of £4.7m to be deferred in
the balance sheet to be amortised over the lives of the long leases.
This was the Group's biggest ever property deal and represented an important
step in implementing its policy of maximising value through the development of
its property portfolio. The company plans to re-invest the proceeds in new and
existing properties as it continues to expand across its six brands. It is
likely that disposals in future years will be on a smaller scale with the
emphasis on driving profits from relocations, part disposals and site
redevelopments.
Goodwill
The net book value of goodwill in the balance sheet is £1,282m. Additions to
goodwill and intangible assets in the year totalled £8.2m.
Capital structure
The Group finances itself through a combination of bank borrowings, fixed rate
unsecured notes, leases and retained profits. Its capital base is structured to
meet the ongoing requirements of the business. As at 31 December 2006 the Group
had net debt of £804.4m (2005: £982.4m) (note 13).
Income Statement
For the year ended 31 December 2006
2006 2005
Notes Non- Identified Total Non- Identified Total
Wickes impact of Wickes impact of
related Wickes related Wickes
(Note below) (Note below)
£m £m £m £m £m £m
Revenue 2,000.3 848.5 2,848.8 1,881.0 759.8 2,640.8
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Adjusted operating
profit (before
exceptional
property profit) 207.4 70.6 278.0 208.3 59.7 268.0
Exceptional
property profit 6 11.6 - 11.6 - - -
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Operating
profit 6 219.0 70.6 289.6 208.3 59.7 268.0
Finance income 7 0.8 1.1 1.9 0.4 - 0.4
Finance costs 7 - (59.6) (59.6) (10.8) (50.9) (61.7)
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Profit before
tax 219.8 12.1 231.9 197.9 8.8 206.7
Tax (63.5) (1.4) (64.9) (61.9) (4.0) (65.9)
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Profit for the
year 156.3 10.7 167.0 136.0 4.8 140.8
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Earnings per
share 8
Basic 137.9p 116.8p
Diluted 136.8p 115.6p
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Total dividend
per ordinary
share 9 37.4p 34.0p
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All results relate to continuing operations.
Note: The column headed 'Identified impact of Wickes' includes the
post-acquisition result of Wickes, together with the synergies that have arisen
from specific integration projects, and the additional finance related costs
incurred by the group as a result of the acquisition (note15)
Statement of recognised income and expense
For the year ended 31 December 2006
2006 2005
£m £m
Actuarial gains and losses on defined benefit pension scheme 41.4 2.4
Gains/(losses) on cash flow hedges 7.9 (5.0)
Tax on items taken to equity (13.7) 10.1
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Net income recognised directly in equity 35.6 7.5
Transferred to income statement on cash flow hedges 0.6 0.5
Tax on items transferred from equity 0.1 (0.1)
Profit for the year 167.0 140.8
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Total recognised income and expense for the year 203.3 148.7
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Balance Sheet
As at 31 December 2006
2006 2005
£m £m
ASSETS
Non-current assets
Property, plant and equipment 426.4 445.2
Goodwill 1,282.0 1,273.8
Other intangible assets 162.5 162.5
Derivative financial instruments 3.8 1.3
Investment property 3.9 4.1
Available-for-sale investments 2.0 -
Deferred tax asset 24.2 42.9
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Total non-current assets 1,904.8 1,929.8
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Current assets
Inventories 294.4 263.2
Trade and other receivables 363.8 322.4
Derivative financial instruments 0.5 -
Cash and cash equivalents 56.3 56.1
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Total current assets 715.0 641.7
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Total assets 2,619.8 2,571.5
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EQUITY AND LIABILITIES
Capital and reserves
Issued capital 12.2 12.1
Share premium account 172.2 165.6
Other reserve 25.3 26.3
Hedging reserve 4.0 (3.2)
Own shares (7.9) (8.1)
Accumulated profits 727.3 565.3
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Total equity 933.1 758.0
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Non-current liabilities
Interest bearing loans and borrowings 763.6 1,027.4
Derivative financial instruments 30.9 -
Retirement benefit obligation 80.8 142.8
Long-term provisions 13.1 13.2
Deferred tax liabilities 71.1 72.6
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Total non-current liabilities 959.5 1,256.0
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Current liabilities
Interest bearing loans and borrowings 89.2 2.9
Unsecured loan notes 7.9 8.2
Derivative financial instruments 0.2 5.1
Trade and other payables 565.2 482.3
Tax liabilities 34.2 33.3
Short-term provisions 30.5 25.7
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Total current liabilities 727.2 557.5
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Total liabilities 1,686.7 1,813.5
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Total equity and liabilities 2,619.8 2,571.5
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The financial statements were approved by the board of directors on 5 March 2007
and signed on its behalf by:
G. I. Cooper )
P. N. Hampden Smith ) Directors
Cash flow statement
For the year ended 31 December 2006
2006 2005
£m £m
Operating profit 289.6 268.0
Adjustments for:
Depreciation and impairment of property, plant and 53.7 54.5
equipment
Other non cash movements 3.8 2.4
(Gain)/loss on disposal of property, plant and
equipment (17.1) 0.7
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Operating cash flows before movements in working
capital 330.0 325.6
(Increase)/decrease in inventories (29.7) 12.4
Increase in receivables (38.9) (1.5)
Increase in payables 82.9 2.8
Cash payments to the pension scheme in excess of the
charge to profits (21.0) (28.5)
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Cash generated from operations 323.3 310.8
Interest paid (59.8) (38.6)
Income taxes paid (57.3) (47.0)
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Net cash from operating activities 206.2 225.2
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Cash flows from investing activities
Interest received 0.8 0.4
Acquisition of shares in unit trust (2.0) -
Proceeds on disposal of property, plant and equipment 38.9 1.4
Purchases of property, plant and equipment (50.4) (71.6)
Acquisition of businesses net of cash acquired (10.9)(1,045.5)
------------------------------------------------------------------------------
Net cash used in investing activities (23.6)(1,115.3)
------------------------------------------------------------------------------
Financing activities
Proceeds from the issue of share capital 6.9 6.4
Purchase of own shares - (8.1)
Payment of finance leases liabilities (2.8) (2.3)
Repayment of unsecured loan notes (0.3) (0.8)
(Decrease)/increase in bank loans (143.7) 872.7
Dividends paid (42.5) (38.6)
------------------------------------------------------------------------------
Net cash from financing activities (182.4) 829.3
------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents 0.2 (60.8)
Cash and cash equivalents at beginning of year 56.1 116.9
------------------------------------------------------------------------------
Cash and cash equivalents at end of year 56.3 56.1
------------------------------------------------------------------------------
Notes to the preliminary announcement
1. The Group's principal accounting policies, as set out in its interim
statement of 31 July 2006, which is available on the company's website
www.travisperkins.co.uk, have been applied consistently.
2. The proposed final dividend of 25.3 pence will be paid on 17 May 2007 to
shareholders registered as members of the company at close of business on
20 April 2007.
3. The financial information above does not constitute the company's statutory
accounts. Statutory accounts for the years ended 31 December 2006 and
31 December 2005 have been reported on without qualification by the
Company's auditors and without reference to S237 (2) or (3) of the Companies
Act 1985. Statutory accounts for the year ended 31 December 2005 have been
delivered to the Registrar of Companies. Whilst the financial information
included in this preliminary announcement has been computed in accordance
with International Financial Reporting Standards ('IFRS') this announcement
does not itself contain sufficient information to comply with IFRS. The
statutory accounts for the year ended 31 December 2006, prepared under IFRS
will be delivered to the Registrar in due course.
4. This announcement was approved by the Board of Directors on 5 March 2007.
5. It is intended to post the annual report to shareholders on 13 April 2007
and to hold the Annual General Meeting on 15 May 2007. Copies of the annual
report prepared in accordance with IFRS will be available from the
Company Secretary, Travis Perkins plc, Lodge Way House, Harlestone Road,
Northampton NN5 7UG from 16 April 2007 or are available through the internet
on our website at www.travisperkins.co.uk
6. Profit
(a) Operating profit
2006 2005
£m £m
Revenue 2,848.8 2,640.8
Cost of sales (1,855.0) (1,723.1)
--------------------------------------------------------------------------
Gross profit 993.8 917.7
Selling and distribution costs (596.3) (540.7)
Administrative expenses (126.6) (110.4)
Other operating income* 18.7 1.4
--------------------------------------------------------------------------
Operating profit 289.6 268.0
--------------------------------------------------------------------------
Exceptional property profit (11.6) -
--------------------------------------------------------------------------
Adjusted operating profit 278.0 268.0
--------------------------------------------------------------------------
* Other operating income includes exceptional property profits of £11.6m
(2005:£nil).
The exceptional property profit, which is exceptional due to the magnitude
of the deal in comparison to other deals undertaken by the group, arises
from the sale of long leasehold interests in 35 properties to an investment
vehicle, in which the company retains a 15% interest. The sale proceeds (net
of costs) were £31.5m and the carrying value of the properties was £15.2m.
The profit of £11.6m reflects the profit deferment in respect of land of
£4.7m in accordance with the requirements of IAS 17.
(b) Adjusted profit before and after tax
2006 2005
£m £m
Profit before tax 231.9 206.7
Exceptional property profit (11.6) -
--------------------------------------------------------------------------
Adjusted profit before tax 220.3 206.7
--------------------------------------------------------------------------
2006 2005
£m £m
Profit after tax 167.0 140.8
Exceptional property profit (11.6) -
Tax effect of exceptional property profit (1.2) -
--------------------------------------------------------------------------
Adjusted profit after tax 154.2 140.8
--------------------------------------------------------------------------
(c) Adjusted operating margin
Group Merchanting Retail
£m £m £m
Revenue 2,848.8 2,000.3 848.5
--------------------------------------------------------------------------
Operating profit 289.6 240.3 54.2
Corporate expenses - (4.8) -
Property profits - - (4.5)
Exceptional property profits (11.6) (11.6) -
--------------------------------------------------------------------------
Adjusted segment result 278.0 223.9 49.7
--------------------------------------------------------------------------
Adjusted operating margin 9.8% 11.2% 5.9%
--------------------------------------------------------------------------
The segmental results for merchanting and retail are shown in note 10.
The retail reduction in operating margin from 2005 of 11.1% is calculated by
deducting the £49.7m shown above from the retail segment result for 2005 of
£55.9m and dividing by £55.9m.
7. Finance costs
2006 2005
£m £m
Interest on bank loans and overdrafts* (55.5) (54.1)
Interest on unsecured loans (0.4) (0.4)
Interest on obligations under finance leases (2.0) (2.0)
Unwinding of discounts in provisions (1.1) (0.9)
Net loss on re-measurement of derivatives at fair value (0.2) (0.6)
--------------------------------------------------------------------------
Interest payable (59.2) (58.0)
Other finance costs - pension schemes (0.4) (3.7)
--------------------------------------------------------------------------
Finance costs (59.6) (61.7)
Net gain on re-measurement of derivatives at fair value 1.1 -
Interest on bank deposits 0.8 0.4
--------------------------------------------------------------------------
Net finance costs (57.7) (61.3)
--------------------------------------------------------------------------
Adjusted interest cover 4.9 4.9
--------------------------------------------------------------------------
*Includes £0.6m (2005 £1.0m) of amortised fees.
Adjusted interest cover is calculated by dividing adjusted operating profit
of £278.0m (2005: £268.0m) by the combined value of interest on bank loans
and overdrafts (excluding amortised fees), unsecured loans, finance leases
and interest on bank deposits, which total £56.5m (2005: £55.1m).
8. Earnings per share
(a) Basic and diluted earnings per share
2006 2005
£m £m
Earnings
Earnings for the purposes of basic and diluted
earnings per share being net profit attributable
to equity holders of the parent 167.0 140.8
---------------------------------------------------------------------------
Number of shares No. No.
Weighted average number of ordinary shares for the
purposes of basic earnings per share 121,060,158 120,542,092
Dilutive effect of share options on potential
ordinary shares 1,054,815 1,205,748
---------------------------------------------------------------------------
Weighted average number of ordinary shares for the
purposes of diluted earnings per share 122,114,973 121,747,840
---------------------------------------------------------------------------
At 31 December 2006, nil (2005: 561,736) share options had an exercise price
in excess of the market value of the shares on that day. As a result they
were excluded from the calculation of diluted earnings per share.
(b) Adjusted earnings per share
Adjusted earnings per share is calculated by excluding the effect of the
exceptional property profit from earnings.
2006 2005
£m £m
Earnings for the purposes of basic and diluted earnings
per share being net profit attributable to equity
holders of the parent 167.0 140.8
Exceptional property profit (11.6) -
Tax on exceptional property profit (1.2) -
--------------------------------------------------------------------------
Earnings for adjusted earnings per share 154.2 140.8
--------------------------------------------------------------------------
Adjusted earnings per share 127.4p 116.8p
--------------------------------------------------------------------------
Adjusted diluted earnings per share 126.3p 115.6p
--------------------------------------------------------------------------
9. Dividends
Amounts were recognised in the financial statements as distributions to
equity shareholders as follows:
2006 2005
£m £m
Final dividend for the year ended 31 December 2005
of 23.0p (2004: 21.0p) per ordinary share 27.8 25.3
Interim dividend for the year ended 31 December 2006
of 12.1p (2005: 11.0p) per ordinary share 14.7 13.3
--------------------------------------------------------------------------
Total dividends recognised during the year 42.5 38.6
--------------------------------------------------------------------------
The proposed final dividend of 25.3p per ordinary share in respect of the
year ending 31 December 2006 was approved by the board on 5 March 2007. As
the final dividend has not yet been approved by shareholders, in accordance
with IFRS, it has not been included in the balance sheet as a liability as
at 31 December 2006.
Adjusted dividend cover of 3.4x (2005: 3.4x) is calculated by dividing
adjusted basic earnings per share (note 8) of 127.4p (2005: 116.8p) by the
total dividends for the year of 37.4p (2005: 34.0p).
10. Business and geographical segments
For management purposes, the group is currently organised into two operating
divisions - Builders Merchanting and DIY Retailing, both of which operate
entirely in the United Kingdom. These divisions are the basis on which the
Group reports its primary segment information. Segment results, assets and
liabilities include items directly attributable to segments as well as those
that can be allocated on a reasonable basis. Unallocated items comprise
mainly interest bearing loans, borrowings and expenses and corporate assets
and expenses. There are no inter-segment sales.
Builders DIY
Merchanting Retailing Eliminations Consolidated
--------------------------------------------------------------------------
2006 2006 2006 2006
£m £m £m £m
Revenue 2,000.3 848.5 - 2,848.8
--------------------------------------------------------------------------
Result
Segment result 240.3 54.2 (0.1) 294.4
--------------------------------------------------------------------------
Unallocated
corporate expenses (4.8)
Net finance
costs (57.7)
--------------------------------------------------------------------------
Profit before
taxation 231.9
Taxation (64.9)
--------------------------------------------------------------------------
Profit for the year 167.0
--------------------------------------------------------------------------
Segment assets 1,256.9 1,232.9 - 2,489.8
Unallocated
corporate assets 136.9
--------------------------------------------------------------------------
Consolidated
total assets 2,626.7
--------------------------------------------------------------------------
Segment
liabilities (454.1) (218.8) - (672.9)
Unallocated
corporate liabilities (1,020.7)
--------------------------------------------------------------------------
Consolidated
total liabilities (1,693.6)
--------------------------------------------------------------------------
Consolidated
net assets 802.8 1,014.1
---------------------------------------------
Capital expenditure 39.8 12.0 51.8
Depreciation 38.0 15.7 53.7
--------------------------------------------------------------------------
10. Business and geographical segments continued
Builders DIY
Merchanting Retailing Eliminations Consolidated
--------------------------------------------------------------------------
2005 2005 2005 2005
£m £m £m £m
Revenue 1,881.0 759.8 - 2,640.8
--------------------------------------------------------------------------
Result
Segment result 213.3 55.9 - 269.2
--------------------------------------------------------------------------
Unallocated
corporate expenses (1.2)
Net finance
costs (61.3)
-------------------------------------------------------------------------
Profit before
taxation 206.7
Taxation (65.9)
-------------------------------------------------------------------------
Profit for the year 140.8
-------------------------------------------------------------------------
Segment assets 1,186.1 1,235.2 - 2,421.3
Unallocated
corporate assets 150.2
-------------------------------------------------------------------------
Consolidated
total assets 2,571.5
-------------------------------------------------------------------------
Segment
liabilities (425.3) (213.5) - (638.8)
Unallocated
corporate liabilities (1,174.7)
-------------------------------------------------------------------------
Consolidated
total liabilities (1,813.5)
-------------------------------------------------------------------------
Consolidated
net assets 760.8 1,021.7
--------------------------------------------
Capital
expenditure 54.1 17.5 71.6
Depreciation 39.4 14.5 53.9
Impairment losses - 0.6 0.6
-------------------------------------------------------------------------
11. Adjusted return on capital
2006 2005
£m £m
Operating profit 289.6 268.0
Exceptional property profit (11.6) -
-------------------------------------------------------------------------
Adjusted operating profit 278.0 268.0
-------------------------------------------------------------------------
Opening net assets 758.0 650.6
Goodwill written off 92.7 92.7
Net borrowings 982.4 30.7
Pension deficit 99.9 89.8
-------------------------------------------------------------------------
Opening capital employed 1,933.0 863.8
Closing net assets 933.1 758.0
Equity impact of exceptional property profit (12.8) -
Goodwill written off 92.7 92.7
Net borrowings 804.4 982.4
Pension deficit 56.6 99.9
-------------------------------------------------------------------------
Closing adjusted capital employed 1,874.0 1,933.0
-------------------------------------------------------------------------
Average adjusted capital employed* 1,903.5 1,812.9
-------------------------------------------------------------------------
Adjusted return on capital 14.6% 14.8%
-------------------------------------------------------------------------
*On 10 February 2005, borrowings and therefore capital employed were
substantially increased. Therefore, average capital employed for 2005 has
been calculated using £863.8m for 41 days and £1,933.0m for 324 days.
12. Adjusted earnings before interest, tax and depreciation
2006 2005
£m £m
Profit before taxation 231.9 206.7
Finance costs 57.7 61.3
Depreciation and impairments 53.7 54.5
-------------------------------------------------------------------------
EBITDA under IFRS 343.3 322.5
Exceptional property profits (11.6) -
Reversal of IFRS effect and for 2005 inclusion
of Wickes' pre-acquisition EBITDA 4.0 4.4
-------------------------------------------------------------------------
Adjusted EBITDA as defined in UK banking agreements 335.7 326.9
-------------------------------------------------------------------------
Net debt under UK GAAP (note 13) 804.9 950.7
-------------------------------------------------------------------------
Adjusted net debt to EBITDA 2.4x 2.9x
-------------------------------------------------------------------------
13. Net debt
(a) Actual
2006 2005
£m £m
Net debt at 1 January (982.4) (30.7)
Increase/(decrease) in cash and cash equivalents 0.2 (60.8)
Cash flows from debt 146.8 (871.9)
Reduction/(increase) in fair value of debt 31.6 (1.3)
Additional finance charges netted off bank debt (0.6) 2.3
Finance leases acquired - (20.0)
--------------------------------------------------------------------------
Actual net debt 31 December (804.4) (982.4)
IAS 17 finance leases 31.5 32.7
Fair value adjustments to debt (30.3) 1.3
Finance charges netted off debt (1.7) (2.3)
--------------------------------------------------------------------------
Net debt under UK GAAP (804.9) (950.7)
--------------------------------------------------------------------------
(b) Proforma net debt reduction
£m
Net debt at 1 January 2004 (30.7)
Debt to acquire Wickes 1,009.7
Finance leases acquired (20.0)
Cash acquired 6.7
-------------------------------------------------------------------------
Proforma net debt at 31 December 2006 (1053.7)
Net debt at 31 December 2006 (804.4)
-------------------------------------------------------------------------
Proforma net debt reduction 249.3
-------------------------------------------------------------------------
14. Adjusted free cash flow
2006 2005
£m £m
Net debt at 1 January (982.4) (30.7)
Net debt at 31 December (804.4) (982.4)
-------------------------------------------------------------------------
Movement in net debt 178.0 (951.7)
Wickes finance leases acquired - 20.0
Dividends 42.5 38.6
Net cash outflow for expansion capital expenditure 31.6 42.2
Net cash outflow for acquisitions and investments 10.9 1,045.5
Net cash outflow for acquisition of investments 2.0 -
Own shares purchased - 8.1
Shares issued (6.9) (6.4)
Movement in fair value of debt and amortisation of
fees (31.0) 1.3
Special pension contributions 21.0 28.5
-------------------------------------------------------------------------
Free cash flow 248.1 226.1
Cash impact of exceptional property profits (31.5) -
-------------------------------------------------------------------------
Adjusted free cash flow 216.6 226.1
-------------------------------------------------------------------------
Adjusted free cash flow yield is calculated by dividing adjusted free cash
flow of £216.6m (2005: £226.1m) by the company's market capitalisation at
31 December of £2.4bn (2005: £1.7bn).
15. Identified impact of Wickes
In the year to 31 December 2006 (2005: 10.5 months to 31 December, Wickes
contributed operating profit of £54.2m and profit before tax of £51.8m
(2005:operating profit £55.9m and profit before tax of £52.7m) to the
Group's profits. In addition to the profit before tax, the Wickes
acquisition contributed £16.4m (2005: £4.7m) of identifiable synergy
benefits (arising from specific integration projects) to the existing
builders merchants business and increased group finance costs by £56.1m
(2005: £48.6m). The total pre-tax identifiable impact of Wickes was £12.1m
(2005: £8.8m) as disclosed in the income statement.
This information is provided by RNS
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