Preliminary Results 2008

RNS Number : 5574N

Travis Perkins PLC

19 February 2009

 



TRAVIS PERKINS PLC 

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008

FINANCIAL HIGHLIGHTS
	FREE CASH FLOW* UP 43%
	GROSS OPERATING COST SAVINGS OF £73M (8%) ACHIEVED
	GROUP REVENUE MAINTAINED AT £3,179M
	ADJUSTED OPERATING PROFIT DOWN 15% to £272M
	ADJUSTED EPS DOWN 18% TO 123P
	BASIC EPS DOWN 43% AFTER EXCEPTIONAL ITEMS OF £56M
OPERATING HIGHLIGHTS
	LIKE-FOR-LIKE HEADCOUNT REDUCED BY 16%
	OPERATING FOCUS SHIFTED TO COST AND DEBT REDUCTION
	GAINS CONTINUE IN BOTH TOTAL AND LIKE-FOR-LIKE MARKET SHARE
	TRADE BUSINESSES RATED TOP AMONGST NATIONAL MERCHANTS
	Wickes RETAINS top SLOT IN consumer surveys of DIY stores

	2008		2007
	£m	%	£m
Revenue	3,178.6	(0.3)	3,186.7
Adjusted**:
Operating profit (note 6)	271.5	(15.1)	319.9
Profit before taxation (note 6)	202.5	(22.5)	261.4
Profit after taxation (note 6)	143.9	(20.5)	181.1
Basic earnings per ordinary share (pence) (note 9)	123.0	(17.9)	149.8
Statutory:
Operating profit	215.3	(32.7)	319.9
Profit before taxation	146.3	(44.0)	261.4
Profit after taxation	101.9	(45.0)	185.3
Basic earnings per ordinary share (pence)	87.1	(43.2)	153.3
Total dividend declared per ordinary share (pence) (note 10)	14.5	(67.7)	44.9

* Note 15

** During 2008 the Group incurred an exceptional charge of £56.2m associated with the severe downturn in construction markets (note 6). During 2007 the Group recognised an exceptional deferred tax credit of £4.2m arising from the reduction in the corporation tax rate to 28% (note 8). Throughout these preliminary results the term 'adjusted' has been used to signify that these exceptional items have been excluded from the disclosures being made.

Geoff Cooper, Chief Executive, commented:

'We took early action in 2008 to deal with the increasingly tough trading environment and have set our business ready to manage continuing difficult market conditions in 2009.

'Our businesses continue to outperform competitors. In 2008 our divisions grew market share on a like-for-like basis and continue to record leading operating margins in each market segment - a particular advantage at this stage of the cycle. A number of competitors have already closed outlets and we expect further sector rationalisation, improving our prospects for continued like-for-like market share gains.

'Based on current forecasts, and with cost and debt reduction plans already in place and lower interest rates, we aim to reduce covenantable net debt by a further £125 million in 2009.

'We have already taken decisive action, and stand ready to take further steps if necessary. We believe our approach will produce the best outcome for shareholders in this unusually challenging economic environment.'

Enquiries:
Geoff Cooper, Chief Executive
Paul Hampden Smith, Finance Director
Travis Perkins PLC	[phone]
David Bick/Mike Feltham/Mark Longson
Square1 Consulting Limited	[phone]

Summary    In response to the worsening of economic conditions during 2008, the Group changed its operational plans and priorities very significantly. We had anticipated, and warned shareholders about, a probable downturn in construction markets and had prepared contingency plans from the latter part of 2007. However, the speed and severity of the change in conditions meant that we implemented those contingency plans more rapidly, and to a greater extent, than previously expected. 

Our previous priorities - each successfully pursued - were to drive market-leading like-for-like ('LFL') sales growth and operating margin performance from each of our businesses; expand our branch networks; and enter adjacent channels for the distribution of construction materials. These priorities evolved, as construction markets slowed rapidly during 2008, into cost and debt reduction whilst maintaining our market leading LFL performance.

Financial Performance Declining market conditions were reflected in the Group's financial results in 2008.  

For 2008, Group revenue was down very slightly to £3,178.6m (2007: £3,186.7m), with adjusted operating profit down 15.1% to £271.5m (2007: £319.9m), adjusted profit before tax down 22.5% to £202.5m (2007: £261.4m), and adjusted earnings per share down by 17.9% to 123.0 pence (2007: 149.8 pence). The revenue decrease of 0.3% comprised a decline of 4.5% in like-for-like sales, with network expansion accounting for growth of 4.2%.

Adjusted group operating margin fell by 1.5% to 8.5% (2007: 10.0%) (note 6c). This primarily reflects the loss of overhead recovery from declining LFL sales. Whilst variable costs have been cut back in line with falling activity levels, and some significant fixed costs, both in branches and central functions have been eliminated, a proportion of the Group's costs - such as branch rents - are both unavoidable and fixed.

As a result of actions taken to deal with the reduction in construction activity the Group has incurred an exceptional charge of £56.2m. These actions include a restructuring of some businesses and functions, and a programme of headcount reduction across the Group. The cash element of re-organisation costs associated with these actions is £8.5m, with the remainder of the exceptional charge mainly representing increased provisions for future lease obligations and related costs. Operating profit, after deducting exceptional items of £56.2m, was £215.3m (2007: £319.9m)

Group underlying net debt used for covenantable purposes fell by £14.9m (note 14), despite a net outflow of £125.9m on capital expenditure. Covenantable net debt is calculated after eliminating the £80.2m impact of an exchange rate movement that is offset by an equal and opposite debit balance in fixed assets. The improvement in covenantable net debt was achieved despite very significant pressures on our customers at the year-end which caused a 3-day deterioration in outstanding debtor balances. Overall, this reduction in net debt was boosted by an inflow of £23.1m from targeted working capital reductions, mainly driven by our supply chain projects. Reported net debt was £1,017.4m.

The £125.9m net outflow on capital and acquisition expenditure, comprised £97.0m spent on expanding the Group and £43.8m on maintenance capital items less £14.9m of asset disposal proceeds. Since most work on new expansion opportunities was halted from early in the year, the majority of this expenditure related to deals agreed in late 2007 and early 2008. 

More importantly, our average net debt position over the year was tightly controlled against daily targets. This helped us mitigate the impact on interest charges of the volatility in LIBOR rates experienced throughout the year. However, with pressure on operating profit, interest cover for the year as calculated for covenant purposes was 4.3 times compared to 5.4 times in 2007. The net debt to EBITDA covenant, which is not affected by exchange rate movement, was 2.8 times compared to 2.5 times for 2007. In both cases our covenant test level is 3.5 times. We therefore remain in compliance with our lending agreements and expect to do so throughout 2009.

Liquidity headroom was increased during 2008 through a refinancing of the Group's UK bank debt, which secured a new committed £1bn, 5 year facility in April. Strong cash generation and plans to continue conserving cash have reduced management's estimate of the Group's future borrowing requirements, with the new facility £200m lower than the original facility it replaced.

Prevailing market conditions at the time of the refinancing resulted in the margin over LIBOR applied to the Group's borrowings by the syndicated banks more than doubling. Additionally, the Group had to pay £14.7m in facility arrangement fees to the banks, which are being amortised through finance charges over the period the facility is available. 

Liquidity headroom is expected to remain high, with facility repayments due to be repaid in six £35m tranches each half year, commencing April 2010, with the balance falling due in April 2013.

Outlook    The speed and scale of the impact of the turmoil emanating from financial markets has been greater than the expectations of most commentators, and 2009 is likely to prove a very tough year for all participants in the construction sector. We see little prospect of a return to market growth this year, and limited prospects for a return to growth in 2010.

Whilst the long-term prospects for growth in our markets remain positive, the short and medium term outlook is sensitive to recessionary influences. Our revenue sources are well balanced, with our businesses serving a diverse range of customers performing a wide variety of construction work. We monitor about 20 criteria that indicate the likely strength of purchasing activity for construction materials. Generally, trends for spending in our markets lag these indicators by some 6 to 9 months. The current downturn has followed this pattern, with market trends in the merchant and home improvement market first reacting in the spring of 2008 to the significant shift in housing market activity which occurred from October 2007.

Most of the criteria we monitor showed a sharp fall in activity levels through the first 3 quarters of 2008, followed by some stabilisation of activity, albeit at a very low level. Were the established relationship between these criteria and our markets to be repeated, our markets might be expected to see a similar stabilisation, again at a low level, by the middle of 2009. However, two significant reservations must be applied to any forward view of our markets; firstly, the unprecedented nature of the current economic turmoil led by a sudden withdrawal of credit and now involving an increase in unemployment means that well established economic relationships are less reliable; and secondly the level at which our markets stabilise is difficult to forecast whilst we are currently experiencing an expected fall in purchasing activity by customers.

Based on our analysis of previous recessions in our sector and our monitoring of lead indicators, we estimate that volumes purchased in our markets will fall by some 25% from a peak in early 2008, with the trough being reached by the third quarter of 2009. With inflation, market share gains, maturing performance from recently opened stores and full year effects, our annual revenue for 2009, compared to 2008, is expected to decline by less than our peak to trough estimated decline of 25%. 

Our early sales performance in 2009 reflects these trends, with, LFL sales per trading day in our merchanting division for January down by 15.8% and LFL sales in retail for the first five weeks of 2009, on a delivered basis, down by 12.2%. We are continuing to outperform our markets, aided in particular by competitor closures and the success of Wickes new marketing strategy, which uses TV and radio advertising rather than direct marketing. This has contributed to a strong start to the year for our showroom category in Wickes, and on an ordered basis Wickes' overall LFL sales are up by 1.5%. Meaningful interpretation of February sales trends has not been possible due to the effect of adverse weather conditions on construction activity.

In this scenario, with cost reduction plans already in place, an expected net £20 million inflow from working capital, capital expenditure falling by £80 million, anticipated income from property realisations and lower interest rates, we are targeting a reduction in covenantable net debt of at least £125m in 2009. Should trading conditions worsen from our forecasts, we will implement more aggressive contingency plans to further reduce costs and release cash with the aim of achieving our target for debt reduction. 

Subject to these assumptions and contingency plans proving reliable, we have sufficient capital to manage the Group through the downturn, as described in the Financial Review set out below. However, given the increased economic volatility, we are closely monitoring trading trends, and are continuously updating plans for, and evaluation of, options for protecting the Group's capital position.

We believe that the most efficient companies will emerge from this severe downturn in a relatively stronger position. We fully intend to be one of those companies and to evaluate attractive market opportunities which might present themselves.  

In view of the continuing difficulties in our sector, the board is recommending a suspension of the final dividend. The interim dividend of 14.5 pence was paid to shareholders in November 2008. The board expects to recommend a resumption of dividend payments once earnings prospects for the Group are more positive.

We have already taken decisive action, and stand ready to take further steps, if necessary. Our actions are aimed at cutting costs and conserving cash to mitigate the effect of the difficult market and to protect the Group's capital position whilst safeguarding the Group's core strengths. We believe this stance will produce the best outcome for shareholders in this unusually challenging economic environment.

Strategy    In last year's report to shareholders, we set out the progress we made on our strategic priorities. These priorities were set and selected to pursue our strategy of out-performing our markets on a like-for-like basis, expanding our networks and entering adjacent channels for the supply of building materials. 

Whilst we have outperformed our markets and expect to continue to do so, we have, as noted above, suspended almost all our expansion activity and have postponed any further moves into adjacent channels. Given the conditions we face in our markets and in the wider economy, we believe our current strategy is very clear - maximise revenues from our existing assets, cut costs, and generate cash. This, together with the fall in interest rates, will enable us to reduce debt further and retain the support of our debt providers by maintaining the biggest possible margin of safety on our covenants. All our management and resources are focussed on these priorities.

Until we can see signs of a recovery in our markets, we do not think it worthwhile to comment on, or further develop, our longer-term strategies. There will come a time when such a review and report to shareholders will be appropriate, but that time is difficult to determine in present conditions. 

Our businesses have strong brands, experienced management teams and market leading financial performance. Longer-term growth prospects for our markets remain positive. These strengths mean we remain confident of our ability to trade through the present difficult environment and to position the Group to take advantage of further opportunities we believe will arise when our sector returns to growth.

Managing Through The Downturn    Given the poor short and medium term outlook for our markets we have taken action in 2008 across the Group to deal with anticipated tough trading conditions continuing into 2009. We also retain a number of contingency plans should it be necessary to take further action in response to the downside scenarios we have analysed.

Led by John Carter, our Chief Operating Officer, the actions we have taken comprise; cost reduction; working capital efficiency; enhanced management focus; targeting market share gains; gross margin protection; property realisations; and reduced capital expenditure.

Cost Reduction    Action has already been taken to rein back discretionary costs, cut variable costs to a level capable of handling anticipated 2009 volumes (cuts here were deliberately timed with the lull in building activity over the winter months to enable us to take this early action without compromising service), and to streamline fixed elements of cost, such as central functions and management structures. 

Variable costs comprise approximately 40% of our total cost base, with the largest elements being people and transport. During the first half of 2008 we were successful in not replacing leavers to enable us to achieve the required level of headcount reduction. This enabled us to maintain productivity ratios as LFL sales fell. However, the sharp steps down in activity we saw in the second half and our prediction of a continuing contraction of our markets in 2009 prompted us to set our staffing at a level consistent with lower expected revenues in 2009. Total headcount has been reduced in both businesses and central functions and is now over 1,900 full time equivalents (14%) lower than in January 2008. After allowing for an extra 600 people added in new branches, the LFL fall in full time equivalents was 2,500, a reduction of 16%. Our transport fleet has also reduced by 14%, with over 300 vehicles eliminated. Some of these vehicles are available for redeployment, thereby reducing capital expenditure requirements in the next two years.

Working Capital Efficiency    Management of our efficient working capital ratios became increasingly difficult in 2008 as both suppliers and customers sought to conserve cash. Despite this, we reduced working capital by £23m compared with the end of 2007. Our supply chain projects delivered some £34m of cash savings in 2008 from stock reductions, whilst at the same time improving product availability. 

Additional resources have been allocated to the collection of trade debts in an environment where an increased number of building contractors are struggling to survive. Whilst we have increased the attention given to this aspect of our business, we expect a further deterioration in both debtor days outstanding and our bad debt ratio in 2009. Debtor days outstanding increased by 3 days in 2008.

We enjoy very close and long-standing relationships with our suppliers and work actively to support development of their business plans. Whilst we are conscious of possible restrictions in the availability of trade credit insurance for our sector, we do not anticipate this impacting the terms on which we trade with our suppliers. 

Taken together, the above actions are expected to enable us to maintain our working capital ratios. With a falling market and sales volume, cash generation from working capital will significantly contribute to our target of a £125m reduction in covenantable net debt in 2009.

Further Cost and Cash Actions        Whilst we have already taken sufficient actions to deal with our forecast for falling volumes into 2009, we retain the flexibility to take action in response to various alternative scenarios. We expect to be able to flex our variable costs in line with variations from forecast volumes handled. The inflation rate on fixed costs, particularly rents, is falling sharply. We have also developed plans to reduce debt and fixed costs further should the need arise. In 2009 a number of projects will complete, including projects aimed at reducing fuel costs through vehicle tracking technology, waste costs through greater separation and recycling, and energy costs through better improved management information and monitoring. 

The work we have completed on working capital management has reduced the working capital investment we carry into 2009, which we expect to further improve by £20m as more projects complete.

Management Focus    We have now halted all non-capital development projects, such as technology developments, except those with an attractive short-term cash return. All management resources are now dedicated to 'the day job'. This has increased the time and attention available for developing sales, servicing customer requirements and maintaining our offer at the highest possible standards. It has also enabled us to reduce management resources, both in our central functions and in our businesses.

Market Share Gains    The strength of our offer in all our businesses continues to drive LFL growth rates that are superior to their markets. This has been further supported by sales gains from competitor closures and the withdrawal of credit insurance from some merchant competitors. All these factors will remain in 2009, and we expect our overall trend of out-performing the market to continue.

We have also enjoyed considerable success in targeting contractors working in segments of the construction market that have continued to grow, and that show good medium-term prospects. In particular, many more social housing landlords and their contractors are seeking to outsource their stores operations and our public sector stores business continues to win the majority of bids it enters. Prospects for this and similar sectors have been further boosted by recent government announcements about investing in public sector buildings and infrastructure as part of its economic stimulus package.

Gross Margin Protection        As the contraction in our market has deepened, we have experienced the normal pressure on margins caused by some merchants delaying the introduction of price rises, and by some retailers seeking to support volumes through heavily advertised price promotions. Despite this we have been able to increase gross margins in 2008 by 0.2% through the organisation of our commercial relationships, the extension of our global sourcing activities, and the introduction of new IT based pricing tools in our trade branches. 

These initiatives leave us well placed to compensate for the further market originated margin pressure we expect to experience in 2009. Our global sourcing activities are now capable of significant expansion following our investment in expanded central distribution facilities, and more effective use of our pricing tools is planned. Falling commodity prices and intensifying competition amongst far eastern exporters are expected to compensate for Sterling weakness compared to 2008. Our relationship with key suppliers puts us in a good position to deal with what we expect to be continued high cost and price inflation, due in part to Sterling's recent weakness. We anticipate there will be some commodity categories where we may see some price deflation. In these cases we are in a strong position to benefit from any such reductions in price due to our tactical buying initiatives. However, the full year effect of strong cost and price inflation across our ranges seen in 2008 is likely to underpin continued overall high inflation in 2009. 

Property Realisations    Since late 2005 we have pursued a programme of active management of our property portfolio to maximise value generated from each site. That programme has involved, on a site-by-site basis, sales of surplus land, relocations of trading sites to less valuable locations, establishment of a special purpose vehicle to raise capital from low capital growth properties via partial sale and leaseback, and the purchase of a limited number of freeholds to maintain the overall quality of our estate. Our portfolio retains excellent defensive characteristics as we manage through the downturn, comprising 351 freehold and 57 long leasehold properties in a total estate of 1,307 properties.

The current book value, established from a 1999 valuation exercise plus subsequent additions at cost, is £257m, an increase of £15m over the value at the end of 2007. At the same time as improving the quality of the estate, we have been able to generate £49.5m of cash and £28.7m contribution to operating profit over the last three years via 22 projects involving 56 properties. 

We have 24 projects under active development, covering 41 properties. Whilst the current restriction of funding to property developers has reduced our targets for 2009, we still remain optimistic we will exceed the average annual cash raised from the programme to date. A number of projects involve counterparties such as discount food retailers who, despite economic conditions, have sustained expansion plans and available funds. 

Reduced Capital Expenditure    We have eliminated all but the most essential capital projects and lengthened the current replacement cycle for all classes of asset. This, together with our mothballing of delivery vehicles withdrawn from trade branches in 2008, will substantially reduce capital expenditure in 2009, which we have targeted at £37m. Expenditure at broadly this level is sustainable for two to three years, following which, with our depreciation charge at just over £60 million, an increase would be expected.

We are continuing to expand our tile retail business since each new branch continues to produce a very quick cash payback, and we will continue to provide funding to ToolStation to support its expansion, subject to it meeting performance conditions incorporated in our acquisition agreement. Aside from these developments, very few new branches will be added to our network in 2009.

Divisional Review    As 2008 progressed, our markets began to experience falling volume and, as expected, competition intensified, with a related deterioration in pricing conditions. Despite this, our work to protect gross margin meant the Group was able to more than offset the market pricing pressure.

Our trade division continued its work to ensure we offer superior services and products to customers. Our research continues to indicate the success of this strategy, with our trade branches rated as a preferred source of building materials in 12 out of the top 13 criteria used by customers when selecting a merchant. Although much new development work in 2008 on continuous improvement of our trade offer was curtailed in view of the present difficult market, we made good progress in improving product availability and service standards. This superior offer was used by our sales and marketing teams as a platform to launch targeted marketing initiatives, particularly in market segments that continued to grow in 2008, and we achieved good sales gains from new accounts without sacrificing gross margin.

Trade division sales fell by 0.7% with sales from new branch openings contributing 3.5% and LFL sales falling by 4.2%. The latter comprised 6.4% of price inflation offset by a 10.6% decline in volume. Both general and specialist merchanting performed ahead of their respective markets, with LFL sales per working day down by 4.1% in general merchanting and 4.3% in specialist merchanting. We estimate that our trade businesses have continued to record sales some 2% ahead of market rates.

Our retail businesses also achieved creditable revenue performance, growing both like-for-like and total market share for much of the year. The Wickes and Tile Giant value-for-money positioning in the home improvement market has become more attractive as consumers have found their discretionary purchasing power eroded. We have maintained the more competitive price position of our product ranges, and continue to attract customers in greater numbers.

LFL sales for the full year of Wickes' core products were down by 4.8% and on the same basis showroom sales fell by 8.1%. Tile Giant LFL sales were up by 5.5%. Our showroom business was disrupted towards the end of the year by two significant events; stock liquidation from the administration and closure of a major kitchen and bathroom competitor; and the administration and closure of our supplier of conservatories. Overall LFL sales in the retail division were down 5.3% with 1.7% price inflation and a 7.0% volume decrease.  Network expansion added 6.2% to retail sales which in total increased by 0.9%. Retail division operating margin decreased by 156 basis points to 5.11% (note 6c) for 2008.

Constrained Expansion and Development  Over the last 3 years we have broadened our revenue sources, entered a few selected new adjacent markets and channels and also added 240 branches to our existing businesses. However, our stance on expansion changed significantly in early 2008. Apart from deals agreed in late 2007 or the first few weeks of 2008, virtually all expansion activity has been halted. This meant we added 75 new branches in the first half-year, but only 23 new branches in the second half. 

Organisational Capabilities   Over the previous 3 years, we have supported the development and expansion of the Group with the implementation of a wide range of development projects and new initiatives, with a strengthening of our senior management team and the creation by consolidation of some new central functions - for example the creation of a new Group IT function via the merger of the former Travis Perkins and Wickes IT functions. During 2008 our stance on these developments changed. 

Most new development projects, except those with a rapid cash payback, have been postponed. Many new functions have been reduced in size and cost so they support only essential activity. One central function has been disbanded all together. Some external services have been in-sourced as a preferred alternative to making our people redundant and losing key skills. Some management teams in businesses and central functions have been reduced in size.

These changes have affected every business, department and level of the Group, including senior management. Starting 4 years ago we built on the Group's outstanding merchanting senior management capability via managers joining from acquired businesses, the addition of a number of external appointments, and internal promotions. A significant proportion of our management at every level have experienced a recession in our sector before, and are well equipped to take action as appropriate to manage their branches, departments and businesses. 

This work also helped us build and strengthen our central management functions, which have been the source of many of the synergy benefits and initiatives that have enabled our business teams to deliver a market leading performance. The high quality and experienced senior management group were organised in 2007 into 3 divisions (general merchanting, specialist merchanting and retailing), together with a streamlined senior management structure for central functions, to add focus to our continuous improvement programmes. To further strengthen our management arrangements, Robin Procter, our Supply Chain Director will join the Group's Executive Committee, following the considerable success of projects to improve supply chain performance, lower costs, and reduce working capital.

Throughout the Group, colleague retention and experience is monitored as a key target. We believe that a significant part of our superior performance in each market can be directly linked to the better retention and quality of our people and management at every level. The recession has caused an increased rate of senior management turnover amongst a number of our competitors, and our senior management have reported an increased frequency of approaches. Whilst it is not unusual for our managers to be sought after, this increased attention has meant that unusually in 2008 we experienced some undesirable turnover amongst this group, with 17 of our 110-strong senior management group leaving the business. Whilst 11 of these departures were linked to our cost saving programmes or retirements, 3 leavers joined competitors and 3 left for other reasons.

The action we have taken to deal with the contraction in our markets has increased the demands on our people. We are, as evidenced by our superior cost ratios and operating margins, an effective and efficient organisation. The effect of seeking to reduce fixed costs in line with sales trends whilst continuing to run a base level of service has manifested itself in an increased and more diverse workload for many of our people.

Investor Relations    Our share price ended the year some 72% lower than at the beginning of the year compared to a decline in the FTSE 250 index of 40%. 2008 proved to be a trying year for shareholders, and there has naturally been much debate, internally and amongst our advisors, about the underlying causes of the disproportionate movement in our share price.

Regular feedback about investors' views is gathered after our scheduled meetings by brokers and occasionally by the Company Chairman. In addition, in 2008, we engaged an independent consultant to research investor's views and then reviewed the outcome of this research with the Board. From this work a number of clear views emerged, with shareholders very supportive of the Group's strategy, relative performance and management capabilities. Unfortunately, with the Group's activities involved in two currently unloved sectors - construction and retailing - and with a balance sheet that until the present crisis was regarded as suitably efficient, there has been little buying support for the shares, and hence the relative underperformance. The fall in the share price relative to the prospects for long-term generation of value for shareholders prompted a number of long-term 'value funds' to take a position in our stock. Many of these funds emanate from North America, and by the end of 2008 we estimate that 26% of the register was represented by institutional investors from that region.

In contrast, deepening poor economic forecasts for our sectors attracted the interest of short sellers, as indicated by the proportion of our stock on loan. This rose through 2008 from a previous long run average of around 3 to 4% to over 10% for much of the year. At the year-end stock on loan was 10%. Management's policy, as long term holders of Travis Perkins shares, is not to meet with any institution that is known to hold a short position in our equity. Unfortunately, information about short positions is difficult to find.

Financial Review    To ensure the business is focused upon achievement of appropriate targets, a series of key financial performance indicators are monitored throughout the business. For 2008, where indicated, these measures are stated on an adjusted basis stripping out the effects of the exceptional reorganisation costs and in 2007, where indicated, the exceptional deferred tax credit.

Results

	2008	2007	2006	2005
Revenue (decline) / growth	(0.3)%	11.9%	7.9%	44.4%
Like-for-like revenue (decline) / growth	(4.5)%	8.1%	1.4%	(0.9)%
Adjusted operating profit to sales ratio	8.5%	10.0%	9.8%	10.1%
Profit before tax (decline) / growth	(44.0)%	12.7%	12.2%	0.1%
Adjusted profit before tax (decline) / growth	(22.5)%	18.7%	6.6%	0.1%
Net debt to adjusted EDITDA	2.8x	2.5x	2.4x	2.9x
Adjusted interest cover (note 7)	4.3x	5.4x	4.9x	4.9x
Adjusted return on capital (note 12)	12.9%	15.9%	14.6%	14.8%
Adjusted free cash flow (note 15)	£185.3m	£157.8m	£216.6m	£226.1m
Adjusted dividend cover (note 10)	8.5x	3.3x	3.4x	3.4x

As a result of the economic downturn the Group has taken steps to reduce its overhead base by challenging all areas of expenditure. A combination of reducing headcount, virtually stopping business expansion, eliminating marginal activities and challenging suppliers to be more cost effective has been successful, but it has resulted in the Group incurring some significant one-off charges. In addition, the slowdown in the property market means that there is considerably less opportunity to sublet the Group's empty trading properties, a situation which may exist for many years. Accordingly it is likely that the Group will have to pay significant property running costs in respect of these properties for many years longer than previously anticipated.  

Therefore, to enable readers of the financial statements to obtain a clear understanding of underlying trading, the Directors have shown separately the exceptional level of spend in the group income statement. The total charge of £56.2m includes a cost of redundancy and re-organisation (£10.5m), onerous property lease provisions (£39.5m) and asset write offs (£6.2m). 

Adjusted earnings before interest, tax, depreciation and goodwill amortisation ('EBITDA') (note 13) were £330.3m (2007: £373.0m), a decrease of 11.4%.

With turmoil in the financial markets pushing 6 month LIBOR rates up as high as 6.40% during the year and causing the margin on the Company's new £1bn facility to be more than double that on the previous facility, it is not surprising that total net interest expense, before other finance income of £4.8m (2007: £3.3m) and £6.3m of derivative mark to market losses (2007: £0.3m gains), was £5.4m higher than last year at £67.5m (2007: £62.1m). Adjusted interest cover (note 7), is approximately 4.3 times (2007: 5.4 times).

Adjusted group profit before tax (note 6b) was £58.9m or 22.5% lower than last year at £202.5m (2007: £261.4m).

The adjusted tax charge (before tax in respect of the exceptional items credit) was £58.6m (28.9%) compared with £80.3m (30.7%) in 2007. The rate is higher than the UK corporation tax rate principally because of non-qualifying property expenditure and other items which are not allowable for tax.

Profit after tax was £101.9m, a decrease of 45.0%. Adjusted profit after tax (note 6b) was £143.9m, a decrease of £37.2m (20.5%) compared to 2007.

Basic earnings per share was 87.1 pence. Adjusted basic earnings per share (note 9b) was 17.9% lower at 123.0 pence, compared with 149.8 pence in 2007.  

Cash Flow  Despite recording lower adjusted operating profits, good working capital control has resulted in the Group generating £337.6m of adjusted cash from operations (2007: £331.9m, after adjustment for week 53 supplier payments of £28m), an increase of 1.7%. Adjusted free cash flow, (calculated before, expansionary capital expenditure, special pension contributions, exceptional reorganisation costs and dividends) was £185.3m (note 15), 17.4% higher than for 2007 (after adding back the 53rd week extra supplier payment run made in 2007).  

The free cash generated by the Group was used in part to fund expansion capital expenditure of £53.5m (2007: £82.2m) in the existing business, new acquisitions of £22.5m (2007: £47.2m before loan notes issued of £8m), investments of £0.3m (2007: £nil) and interests in associates of £20.7m (2007: £nil).

Pensions  At 31 December 2008 the gross deficit of the pension scheme was £69.9m (31 December 2007: gross deficit £16.0m). The net deficit after allowing for deferred tax was £50.4m (2007: net deficit £11.5m).

As equity markets fell during 2008, asset values reduced and so by the year-end the scheme deficit increased by £121m. The deficit was increased by a further £19m due to the net effect of interest on scheme liabilities and scheme experience gains. However, the yield on the index of AA corporate bonds with a maturity greater than 15 years had risen by 40 basis points by 31 December 2008, increasing the liability discount rate to 6.20% and so reducing the value of scheme liabilities, and the deficit, by £44m. The deficit also fell due to a £30m benefit from of a 0.4% lower inflation assumption and also due to £12m of company funding in excess of the current pension service cost.  

The scheme is now 86% funded (2007: 97%) with the net deficit representing approximately 12% (2007: 1%) of the Company's market capitalisation at 31 December 2008.

The triennial actuarial valuation of the scheme, due as at 30 September 2008, is in progress. The directors are currently discussing the Actuary's initial findings with the Trustees of the scheme.  

Equity  Total equity at 31 December 2008 was £1,018.2m. The decrease of £18.7m compared to 31 December 2007 was the result of retained profits for the year being lower than the aggregate of actuarial losses in the pension scheme and losses incurred on cash flow hedges as a result of interest rate movements.

The Group's adjusted return on capital in 2008 (note 12) was 12.9% (2007: 15.9%), which remains higher than the Group's weighted average cost of capital.  

At the year-end the share price was 340 pence (2007: 1,204 pence) and the market capitalisation £0.4bn (2007: £1.5bn), representing 0.4 times (2007: 1.4 times) shareholders' funds. During the year the daily closing share price ranged from 1,191 pence to 223 pence.

Goodwill and Other Intangibles   At the year-end, a series of tests were undertaken to determine whether there had been any impairment to the balance sheet carrying values of goodwill and other intangible assets. The key assumptions behind the calculations are as follows:

• cash flow forecasts which were derived from the most recent financial budgets and plans for the three years ending 2011, which were approved by the directors. Cash flows for the following two years are extrapolated from cash flows for 2011 using similar assumptions to those applied to 2011;

• the weighted average cost of capital ('WACC') of the Group of 7.5%;

• long-term forecast growth rates of 2.5% in line with the average long-term GDP growth trend applied from 2014 onwards.

In summary, the tests indicated that, despite the weak markets currently being experienced, the value of discounted future cash flows meant it remained appropriate not to write off any of the goodwill previously acquired by the Group.  

On the basis of the assumptions stated above, the calculations show that for there to be no impairment in Wickes related goodwill, the minimum operating profit in 2013 would need to be £41m, which compares to £46m for 2008.  

Whilst the Directors consider that their assumptions are realistic, it is possible an impairment would be identified if any of the above key assumptions were changed significantly.  

After additions of £21.7m during the year, the net book value of goodwill and other intangibles in the balance sheet is £1,513.9m (2007: £1,492.2m).  

Going Concern  The Directors, in their consideration of going concern, have reviewed the Group's future cash forecasts and revenue projections, which they believe are based on prudent market data and past experience and believe, based on those forecasts and projections, that it is appropriate to prepare the financial statements of the Group on the going concern basis.

Management is currently of the opinion that the Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within its current facilities and comply with its banking covenants. In arriving at their conclusion that the Group has adequate financial resources, the Directors were mindful that the Group has a robust policy towards liquidity and cash flow management and that it is financed through £1.2bn of facilities committed to 2013.

A breach of the one or more of the covenants could result in the Group's debt becoming immediately repayable. Whilst this circumstance is currently not envisaged, the Group is subject to a number of significant risks and uncertainties which arise as a result of the current economic environment. In determining that the Group is a going concern, they have been considered by the Board of Directors, which has determined that they currently do not represent a significant threat to the Group. The most significant are:

• Whilst the Directors have considered reasonable changes in market conditions and competitive pressures, in the current environment a further significant downturn could impact group sales and margins to a greater extent than they have currently envisaged;

• Product availability and product price inflation are always potential issues although the Group is not significantly exposed to any one supplier or product type. The ability to pass on price increases to customers is affected by competitor activity and the economic climate. An inability to raise selling prices could reduce margins.

Any restrictions on third party credit insurance available to suppliers could result in them reducing their own credit exposure to the Group. If this were to occur, it could adversely impact the Group's working capital and therefore its debt levels.

• Credit risk, which is heightened as a result of difficulties that might be faced by some of the Group's account customers in the current climate and also because of credit risks associated with other counterparties, such as banks, with which the Group has dealings;

• Interest rate and currency movements present a risk to the Group. They are significantly reduced through the use of interest rate and cross currency derivatives and currency forward contracts. However, with significant values of goods imported directly by the Group or indirectly through distributors, adverse movements in Sterling could, to the extent they cannot be passed on to customers, affect profitability.

• Liquidity risks are greater because of the difficulties within the banking sector, although the Group has £1.2bn of facilities committed until 2013 which provides it with sufficient headroom for the foreseeable future;

• The Group has a defined benefit pension scheme which has an accounting deficit at 31 December 2008 of £70m. The Group currently has arrangements in place to eliminate the deficit over a period of 8 years. Any deterioration in the scheme's funding position could impact the Group's liquidity.

Should a covenant breach become likely, the Group would enter into negotiations with its debt providers which could result in it accepting higher financing costs or being forced into actions, such as raising equity, or a significant sale and leaseback, which ordinarily it would not contemplate. It is the current expectation of the Directors that this would be achievable. 

The Directors believe that the Group is adequately placed to manage its business risks successfully despite the current uncertain economic outlook and challenging macro economic conditions. As noted above, in the 'Managing Through the Downturn section', during 2008 additional measures have been taken to safeguard cash and cost reduction programs and working capital arrangement policies have been put in place which will continue in 2009. The Directors consider that the Group has the flexibility to react to changing market conditions as a substantial proportion of the Group's costs are variable or discretionary and can be reduced or increased in line with the needs of the business. Actions available to management include further headcount reductions, supply chain improvements and additional working capital savings.

A review of the Group's business activities, together with the factors likely to affect its future development, performance and position are set out above, in particular in the 'Outlook' section. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are shown in the balance sheet, cash flow statement and accompanying notes to this press release.  

 Consolidated income statement

 For the year ended 31 December 2008

		2008	2008	2008		2007	2007	2007
		£m	£m	£m		£m	£m	£m
		Pre- exceptional items	Exceptional items (Note 6)	Total		Pre- exceptional items	Exceptional items (Note 8)	Total
Revenue		3,178.6	-	3,178.6		3,186.7	-	3,186.7
Operating profit	6	271.5	(56.2)	215.3		319.9	-	319.9
Finance income	7	7.7	-	7.7		3.7	-	3.7
Finance costs	7	(76.7)	-	(76.7)		(62.2)	-	(62.2)
Profit / (loss) before tax		202.5	(56.2)	146.3		261.4	-	261.4
Tax	8	(58.6)	14.2	(44.4)		(80.3)	4.2	(76.1)
Profit / (loss) for the year		143.9	(42.0)	101.9		181.1	4.2	185.3
Earnings per ordinary share	9
Basic				87.1p				153.3p
Diluted				86.1p				151.9p
Total dividend declared per ordinary share	10			14.5p				44.9p

All results relate to continuing operations.

Consolidated statement of recognised income and expense 

For the year ended 31 December 2008

	2008 £m	2007 £m
Actuarial gains and losses on defined benefit pension scheme	(70.3)	51.9
Gains on cash flow hedges	(17.1)	0.4
Tax on items taken to equity	19.6	(15.7)
Net (expense) / income recognised directly in equity	(67.8)	36.6
Transferred to income statement on cash flow hedges	(3.6)	(1.4)
Tax on items transferred from equity	-	0.4
Profit for the year	101.9	185.3
Total recognised income and expense for the year	30.5	220.9

Consolidated movement in equity 

For the year ended 31 December 2008

	2008 £m	2007 £m
Opening equity	1,036.9	933.1
Shares issued	0.6	6.8
Own shares	-	(76.0)
Total recognised income and expense for the year	30.5	220.9
Share options	2.7	0.2
Dividends paid	(52.5)	(48.1)
Closing equity	1,018.2	1,036.9

Consolidated balance sheet As at 31 December 2008

		2008 £m	2007 £m
ASSETS
Non-current assets
Property, plant and equipment		534.5	505.0
Goodwill		1,351.4	1,329.7
Other intangible assets		162.5	162.5
Interests in associates		19.6	-
Derivative financial instruments		80.3	3.0
Investment property		3.4	3.5
Available-for-sale investments		2.0	2.0
Deferred tax asset		19.5	4.5
Total non-current assets		2,173.2	2,010.2
Current assets
Inventories		321.9	330.2
Trade and other receivables		386.2	421.9
Derivative financial instruments		2.4	0.7
Cash and cash equivalents		7.7	26.3
Total current assets		718.2	779.1
Total assets		2,891.4	2,789.3

Consolidated balance sheet (continued) As at 31 December 2008

		2008 £m	2007 £m
EQUITY AND LIABILITIES
Capital and reserves
Issued capital		12.3	12.3
Share premium account		179.5	178.9
Other reserve		23.8	24.2
Hedging reserve		(17.8)	2.9
Own shares		(83.7)	(83.9)
Accumulated profits		904.1	902.5
Total equity		1,018.2	1,036.9
Non-current liabilities
Interest bearing loans and borrowings		1,007.3	863.9
Derivative financial instruments		25.8	29.8
Retirement benefit obligation		69.9	16.0
Long-term provisions		47.8	13.7
Deferred tax liabilities		74.7	75.3
Total non-current liabilities		1,225.5	998.7
Current liabilities
Interest bearing loans and borrowings		13.9	88.0
Unsecured loan notes		3.9	15.4
Trade and other payables		582.2	585.0
Tax liabilities		9.1	32.3
Short-term provisions		38.6	33.0
Total current liabilities		647.7	753.7
Total liabilities		1,873.2	1,752.4
Total equity and liabilities		2,891.4	2,789.3

The financial statements were approved by the Board of Directors on 18 February 2009 and signed on its behalf by:

G. I. Cooper	)
P. N. Hampden Smith	) Directors

Consolidated cash flow statement For the year ended 31 December 2008

		2008	2007
		£m	£m
Operating profit		271.5	319.9
Adjustments for:
Depreciation and impairment of property, plant and equipment		63.0	56.3
Other non cash movements		4.6	3.7
Losses of associate		1.4	-
Gain on disposal of property, plant and equipment		(6.0)	(7.6)
Operating cash flows before movements in working capital		334.5	372.3
Decrease / (increase) in inventories		13.3	(30.1)
Decrease / (increase) in receivables		32.3	(39.8)
(Decrease) / increase in payables		(22.5)	11.1
Cash payments on exceptional items		(8.5)	-
Cash payments to the pension scheme in excess of the charge to profits		(11.5)	(9.6)
Cash generated from operations		337.6	303.9
Interest paid		(63.0)	(72.7)
Income taxes paid		(66.0)	(74.5)
Net cash from operating activities		208.6	156.7
Cash flows from investing activities
Interest received		0.3	0.2
Acquisition of shares in unit trust		(0.3)	-
Proceeds on disposal of property, plant and equipment		14.9	4.8
Interest in associate		(20.7)	-
Purchases of property, plant and equipment		(97.3)	(123.7)
Acquisition of businesses net of cash acquired		(22.5)	(47.2)
Net cash used in investing activities		(125.6)	(165.9)
Financing activities
Proceeds from the issue of share capital		0.6	6.8
Purchase of own shares		-	(76.0)
Bank facility finance charges		(14.7)	-
Payment of finance leases liabilities		(2.1)	(1.9)
Repayment of unsecured loan notes		(11.5)	(0.2)
(Decrease) / increase in bank loans		(33.7)	98.6
Dividends paid		(52.5)	(48.1)
Net cash from financing activities		(113.9)	(20.8)
Net decrease in cash and cash equivalents		(30.9)	(30.0)
Cash and cash equivalents at beginning of year		26.3	56.3
Cash and cash equivalents at end of year		(4.6)	26.3

Notes to the preliminary announcement

1.	The Group's principal accounting policies, as set out in the 2007 annual report, which is available on the Company's website www.travisperkinsplc.com, have been applied consistently.
2.	The proposed final dividend is nil pence (2007: 30.4 pence).
3.	The financial information above does not constitute the Company's statutory accounts. Statutory accounts for the years ended 31 December 2008 and 31 December 2007 have been reported on without qualification or drawing attention to any matters by way of emphasis 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 2007 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 2008, prepared under IFRS will be delivered to the Registrar in due course.
4.	This announcement was approved by the Board of Directors on 18 February 2009.
5.	It is intended to post the annual report to shareholders on 17 April 2009 and to hold the Annual General Meeting on 21st May 2009. 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 17 April 2009 or will be available through the internet on our website at www.travisperkinsplc.com

6.    Profit

(a) Operating profit

	2008	2007
	£m	£m
Revenue	3,178.6	3,186.7
Cost of sales	(2,080.3)	(2,087.3)
Gross profit	1,098.3	1,099.4
Selling and distribution costs	(728.1)	(649.1)
Administrative expenses	(164.7)	(141.8)
Share of losses of associate	(1.4)	-
Other operating income	11.2	11.4
Operating profit	215.3	319.9
Exceptional items	56.2	-
Adjusted operating profit	271.5	319.9

As a result of the economic downturn the Group has taken steps to reduce its overhead base by challenging all areas of expenditure. A combination of reducing headcount, virtually stopping business expansion, eliminating marginal activities and challenging suppliers to be more cost effective has been successful, but it has resulted in the Group incurring some significant one-off charges. In addition, the slowdown in the property market means that there is considerably less opportunity to sublet the Group's empty trading properties, a situation which may exist for many years. Accordingly it is likely that the Group will have to pay significant property running costs in respect of these properties for longer than previously anticipated.  

6.    Profit (continued)

Therefore, to enable readers of the financial statements to obtain a clear understanding of underlying trading, the Directors have shown separately the exceptional level of spend in the Group income statement. The total charge of £56.2m includes a cost of redundancy and re-organisation (£10.5m), onerous property lease provisions (£39.5m) and asset write offs (£6.2m). 

(b) Adjusted profit before and after tax

	2008	2007
	£m	£m
Profit before tax	146.3	261.4
Exceptional items	56.2	-
Adjusted profit before tax	202.5	261.4

	2008	2007
	£m	£m
Profit after tax	101.9	185.3
Exceptional items	56.2	-
Tax effect of exceptional items	(14.2)	-
Exceptional deferred tax credit	-	(4.2)
Adjusted profit after tax	143.9	181.1

(c) Operating margin

	Merchanting		Retail		Group
	£m	£m	£m	£m	£m	£m
	2008	2007	2008	2007	2008	2007
Revenue	2,237.9	2,254.2	940.7	932.5	3,178.6	3,186.7
Operating profit	206.5	257.7	10.2	62.2	216.7	319.9
Share of associate losses	-	-	-	-	(1.4)	-
Exceptional items	18.3	-	37.9	-	56.2	-
Adjusted segment result	224.8	257.7	48.1	62.2	271.5	319.9
Adjusted operating margin	10.05%	11.43%	5.11%	6.67%	8.54%	10.04%

The segmental results for merchanting and retail are shown in note 11.  

7.    Net finance costs

	2008	2007
	£m	£m
Interest on bank loans and overdrafts*	(64.6)	(58.6)
Interest on unsecured loans	(0.2)	(0.5)
Interest on obligations under finance leases	(1.6)	(1.9)
Unwinding of discounts in provisions	(1.6)	(1.2)
Net loss on re-measurement of derivatives at fair value	(8.7)	-
Finance costs	(76.7)	(62.2)
Net gain on re-measurement of derivatives at fair value	2.4	0.3
Other finance income - pension scheme	4.8	3.3
Interest on bank deposits	0.5	0.1
Finance income	7.7	3.7
Net finance costs	(69.0)	(58.5)
Adjusted interest cover	4.3x	5.4x

*Includes £2.2m (2007 £1.7m) of amortised bank finance charges.

Adjusted interest cover is calculated by dividing adjusted operating profit of £268.7m (operating profit of £271.5m less £3.8m of IFRS adjustments) by the combined value of interest on bank loans and overdrafts (excluding amortised bank finance charges), unsecured loans, and interest on bank deposits, which total £62.1m.  The comparative for interest cover is calculated using the calculation set out in the previous loan facility agreement. The calculation set out in the new facility agreement would give a comparative adjusted interest total of £57.3m, adjusted operating profit of £319.9m, and consequently cover of 5.6x.

8.    Tax

On 26 June 2007 the House of Commons approved the Finance Bill which reduced the UK standard rate of Corporation tax from 30% to 28% with effect from 1 April 2008. The reduction in rate resulted in an exceptional deferred tax credit of £4.2m in the 2007 current year charge.

9.    Earnings per share

(a) Basic and diluted earnings per share

	2008		2007
	£m		£m
Earnings
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent	101.9		185.3
Number of shares	No.		No.
Weighted average number of ordinary shares for the purposes of basic earnings per share	117,004,114		120,839,499
Dilutive effect of share options on potential ordinary shares	1,352,096		1,109,765
Weighted average number of ordinary shares for the purposes of diluted earnings per share	118,356,210		121,949,264

At 31 December 2008, 4,680,005 (2007: 3,254,859) share options had an exercise price in excess of the market value of the shares on that day. As a result, for 2008 these share options were excluded from the calculation of diluted earnings per share.

(b) Adjusted earnings per share

Adjusted earnings per share are calculated by excluding the effect of the exceptional items shown below.

	2008		2007
	£m		£m
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent	101.9		185.3
Exceptional items	56.2		-
Tax on exceptional items	(14.2)		-
Exceptional deferred tax credit	-		(4.2)
Earnings for adjusted earnings per share	143.9		181.1
Adjusted basic earnings per share	123.0p		149.8p
Adjusted diluted earnings per share	121.6p		148.4p

10.    Dividend

Amounts were recognised in the financial statements as distributions to equity shareholders as follows:

	2008		2007
	£m		£m
Final dividend for the year ended 31 December 2007 of 30.4p (2006: 25.3p) per ordinary share	35.5		30.8
Interim dividend for the year ended 31 December 2008 of 14.5p (2007: 14.5p) per ordinary share	17.0		17.3
Total dividends recognised during the year	52.5		48.1

The dividend for 2008 at 31 December 2008 and for 2007 at 31 December 2007 were as follows:

	2008	2007
	Pence	Pence
Interim paid	14.5	14.5
Final proposed	-	30.4
Total dividend for the year	14.5	44.9

The proposed final dividend of nil p per ordinary share in respect of the year ending 31 December 2008 was approved by the board on 18 February 2009.  

Adjusted dividend cover of 8.5x (2007: 3.3x) is calculated by dividing adjusted basic earnings per share (note 9) of 123.0p (2007: 149.8p) by the total dividends for the year of 14.5p (2007: 44.9p).

11.     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. As the Group's operations are entirely UK based, the Group does not present any secondary segmental 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 Merchanting	Retail	Consolidated
	2008	2008	2008
	£m	£m	£m
Revenue	2,237.9	940.7	3,178.6
Result
Segment result	206.5	10.2	216.7
Share of associate losses			(1.4)
Net finance costs			(69.0)
Profit before taxation			146.3
Taxation			(44.4)
Profit for the year			101.9
Segment assets	1,298.5	1,345.6	2,644.1
Unallocated corporate assets			247.3
Consolidated total assets			2,891.4
Segment liabilities	(546.8)	(185.9)	(732.7)
Unallocated corporate liabilities			(1,140.5)
Consolidated total liabilities			(1,873.2)
Consolidated net assets	751.7	1,159.7
Capital expenditure	82.6	15.9	98.5
Depreciation	47.4	15.6	63.0

11.    Business and geographical segments (continued)

	Builders Merchanting	Retail	Consolidated
	2007	2007	2007
	£m	£m	£m
Revenue	2,254.2	932.5	3,186.7
Result
Segment result	257.7	62.2	319.9
Net finance costs			(58.5)
Profit before taxation			261.4
Taxation			(76.1)
Profit for the year			185.3
Segment assets	1,382.6	1,305.9	2,688.5
Unallocated corporate assets			100.8
Consolidated total assets			2,789.3
Segment liabilities	(435.7)	(242.0)	(677.7)
Unallocated corporate liabilities			(1,074.7)
Consolidated total liabilities			(1,752.4)
Consolidated net assets	946.9	1,063.9
Capital expenditure	115.5	24.1	139.6
Depreciation	40.7	15.6	56.3

12.    Adjusted return on capital

	2008	2007
	£m	£m
Operating profit	215.3	319.9
Exceptional items	56.2	-
Adjusted operating profit	271.5	319.9
Opening net assets	1,036.9	920.3
Goodwill written off	92.7	92.7
Net borrowings	941.0	804.4
Exchange adjustment	27.9	30.3
Pension deficit	11.5	56.6
Opening capital employed	2,110.0	1,904.3
Closing net assets	1,018.2	1,036.9
Goodwill written off	92.7	92.7
Net borrowings	1,017.4	941.0
Exchange adjustment	(80.2)	27.9
Pension deficit	50.4	11.5
Closing capital employed	2,098.5	2,110.0
Average capital employed	2,104.2	2,007.2
Adjusted return on capital	12.9%	15.9%

The calculation of capital employed has been amended to exclude exchange adjustments arising on debt with a result that the return on capital employed for 2007 has been restated. 

13.    Adjusted earnings before interest, tax and depreciation

	2008	2007
	£m	£m
Profit before taxation	146.3	261.4
Net finance costs	69.0	58.5
Depreciation and impairments	63.0	56.3
EBITDA under IFRS	278.3	376.2
Exceptional items	56.2	-
Reversal of IRFS effect	(4.2)	2.8
Adjusted EBITDA under covenant calculations	330.3	379.0
Net debt under covenant calculations	925.2	940.1
Adjusted net debt to EBITDA	2.80x	2.48x

The comparative for net debt to EBITDA is calculated using the calculation set out in the previous loan facility agreement. The calculation set out in the new facility agreement would give a comparative adjusted EBITDA of £373.0m and consequently a ratio of 2.52x.

14.    Net debt

	2008	2007
	£m	£m
Net debt at 1 January	(941.0)	(804.4)
Decrease in cash and cash equivalents	(30.9)	(30.0)
Cash flows from debt	47.3	(96.5)
Increase in fair value of debt	(108.2)	(2.3)
Lease surrender	2.9	1.6
Finance charges netted off bank debt	12.5	(1.7)
Loan notes issued	-	(7.7)
Actual net debt 31 December	(1,017.4)	(941.0)
IAS 17 finance leases	24.5	28.8
Fair value adjustments to debt	80.2	(27.9)
Finance charges netted off debt	(12.5)	-
Net debt under covenant calculations	(925.2)	(940.1)

15.    Adjusted free cash flow

	2008	2007
	£m	£m
Net debt at 1 January	(941.0)	(804.4)
Net debt at 31 December	(1,017.4)	(941.0)
Increase in net debt	(76.4)	(136.6)
Dividends	52.5	48.1
Net cash outflow for expansion capital expenditure	53.5	82.2
Net cash outflow for acquisitions	22.5	47.2
Net cash outflow for acquisition of investments	0.3	-
Own shares purchased	-	76.0
Cash impact of exceptional items	8.5	-
Interest in associate	20.7	-
Shares issued	(0.6)	(6.8)
Movement in fair value of debt	108.2	2.4
Movement in finance charges netted off bank debt	(12.5)	1.6
Loan note issued	-	7.7
Lease surrendered	(2.9)	(1.6)
Special pension contributions	11.5	9.6
Free cash flow	185.3	129.8
Additional payment run on 53rd Monday	-	28.0
Adjusted free cash flow	185.3	157.8

 

END

 

 

FR CKFKDNBKBQBD