Preliminary Results
Travis Perkins PLC
04 March 2008
4 March 2008
TRAVIS PERKINS PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007
FINANCIAL HIGHLIGHTS
• REVENUE UP 11.9% TO £3,187M
• ADJUSTED OPERATING PROFIT UP 15.1% TO £320M
• ADJUSTED OPERATING MARGIN UP 28 BASIS POINTS TO 10.0%
• ADJUSTED PRE TAX PROFIT UP 18.7% TO £261M
• ADJUSTED EPS UP 17.6 % TO 149.8P
• DIVIDEND DECLARED UP 20.1% TO 44.9P PER SHARE
OPERATING HIGHLIGHTS
• ACQUISITION AND EXPANSION CAPEX INVESTMENT STEPPED UP TO £138M
• GAINS MADE IN BOTH TOTAL AND LIKE-FOR-LIKE MARKET SHARE
• WICKES COMES TOP OF CONSUMER SURVEYS OF DIY STORES
2007 2006
£m % £m
Revenue 3,186.7 11.9 2,848.8
Adjusted*:
Operating profit (note 6) 319.9 15.1 278.0
Profit before taxation (note 6) 261.4 18.7 220.3
Profit after taxation (note 6) 181.1 17.4 154.2
Basic earnings per ordinary share (pence) (note 9) 149.8 17.6 127.4
Statutory:
Operating profit 319.9 10.5 289.6
Profit before taxation 261.4 12.7 231.9
Profit after taxation 185.3 11.0 167.0
Basic earnings per ordinary share (pence) 153.3 11.2 137.9
Total dividend declared per ordinary share (pence) 44.9 20.1 37.4
(note 10)
*During the year the Group recognised an exceptional deferred tax credit of
£4.2m (2006: £nil) arising from the reduction in the corporation tax rate to 28%
(note 8). During 2006 the Group made an exceptional property profit of £11.6m
and associated tax effects (note 6). 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:
'The Group achieved strong results in 2007 and accelerated its branch expansion
programme. All of our businesses performed well, with both our trade and retail
divisions growing their like-for-like sales ahead of market growth rates. This
superior performance underlines the attractiveness to customers of our seven
trade and retail brands, and enabled us simultaneously to grow market share and
to expand our operating margin.
'In addition to the gross 75 branches we added to our existing brands during the
year, we entered a new market via the acquisition of Tile Giant, further
implementing our strategy of entering adjacent channels for the distribution of
building materials. Our expansion programme continues to deliver returns ahead
of those predicted at the time of each branch opening and generates good
incremental returns for shareholders.
'With like-for-like performance ahead of market, superior operating margins to
any comparable operator and a full pipeline of opportunities to expand further,
we are well placed to continue our progress in what we expect to be a more
challenging market in 2008.'
Enquiries:
Geoff Cooper, Chief Executive
Paul Hampden Smith, Finance Director
Travis Perkins PLC +44 (0)1604 683 111
David Bick/Mike Feltham/Mark Longson
Square1 Consulting Limited +44 (0)20 7929 5599
Robust Financial Performance
The Group delivered record financial results in 2007, with good progress from
the three key elements of our strategy - driving like-for-like performance,
expanding our branch network and entering adjacent markets.
For 2007, the Group's revenue was up by 11.9% to £3,187m (2006: £2,849m), with
adjusted profit before tax up by 18.7% to £261m (2006: £220m), and adjusted
earnings per share up by 17.6% to 149.8 pence (2006: 127.4 pence). The revenue
increase of 11.9% comprised 8.1% from like-for-like sales, with network
expansion accounting for the remaining 3.8%.
Adjusted Group operating margin grew by 28 basis points to 10.04% (2006: 9.76%)
(note 6c). This increase was achieved primarily through improved management of
our operations and scale benefits, which produced lower overhead ratios and
further labour productivity gains. Competitive conditions both in trade and
retail markets, as always, remained tough and gross margins reduced slightly.
In addition, an accelerated rate of network expansion and launch of Benchmarx,
our trade kitchen and joinery specialist, had a dilutive effect on operating
margin. New branches typically take 6 - 18 months to reach breakeven and we
estimate that without this dilutive effect the operating margin would have been
higher by some 20 basis points. We stepped up the rate of branch network
expansion, adding new branches to each brand and adding a further new business
stream to our portfolio in the form of Tile Giant. As at the end of the year our
network comprised 1,125 branches, and in the first two months of the year has
grown further to 1,166 branches, with 15 branches added in our trade division
and 26 stores added in the retail division.
In the trade division, sales grew by 12.7% with sales from new branch openings
contributing 3.5% and increased like-for-like sales per working day contributing
9.2%. This comprised 5.8% of price inflation and a 3.4% growth in volume. Both
general and specialist merchanting performed well, with like-for-like sales per
working day up by 9.2% in general merchanting and 8.7% in specialist
merchanting. We estimate that our trade businesses are growing their sales some
2% ahead of market growth rates, with market share gains coming equally from
national competitors and independent merchant competitors. Adjusted operating
margin in the trade division was up by 24 basis points to 11.43%, with a strong
performance from the Travis Perkins general merchanting brand - operating margin
for the specialist distribution businesses was lower, reflecting more
competitive conditions in the dry lining and insulation market following the
consolidation of a large proportion of the independent sector over the last two
years.
Like-for-like sales for the full year of Wickes' core products were up by 7.5%
and on the same basis showroom sales fell by 4.6%, reflecting continued weakness
in consumers' willingness to spend on so-called 'big ticket' purchases. Overall
like-for-like sales in Wickes were up 5.5% with 3.8% price inflation and a 1.7%
volume increase. Network expansion, which has been stepped up over the last
year, added 4.3% to Wickes' sales which in total increased by 9.8%. Wickes
increased its market share over the year, with most recently available data
showing an increase in share of the market of major DIY retailers of 1.0% from a
year earlier.
Retail operating margin increased by 28 basis points to 6.67% (note 6c) for
2007, driven mainly by economies of scale following the volume gains from
like-for-like sales growth and space expansion.
We are pleased to report that we continue to maintain our position of having the
highest operating margin in both merchant and retail sectors where we operate.
We invested £174m (including £8m of loan notes issued) on capital expenditure,
including £138m (including loan notes) spent on expanding the Group. We also
loaned £76m to the Group's Employee Share Ownership Trust to purchase shares to
satisfy outstanding share option grants. Tight control of our daily cash
position meant that we reported only marginally higher interest costs despite
these investments and increasingly difficult conditions in the debt capital
markets and a resultant rise in the cost of short-term debt. Interest cover
improved to 5.4 times EBIT (note 7). The timing of certain cash flows at the
year end meant that the final balance sheet showed an increase in net debt to
£941m - and £28m of outflows impacted by timing issues mainly related to
payments to Wickes suppliers on the 53rd Monday of the year which reversed
within 7 days of the end of the year (note 15).
Increased 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 30.4 pence. Taken together with the interim dividend of 14.5
pence, this represents a total dividend of 44.9 pence, an increase of 20.1% on
the previous year.
Improved Resilience
For 2007, we believe the trade market showed strong growth continuing the
recovery started in 2006, whilst the retail market showed a slight improvement.
The well documented turbulence in financial markets and its impact on the
economy, consumers and the construction sector is expected to have an adverse
effect on growth rates in our markets in 2008.
There has been much debate about whether current conditions mirror those seen in
the downturn in our markets in 2005, or whether they bear a closer relationship
to the more severe period of slow down in 1991 to 1993. Whilst no comparison
will produce a perfect match, thus far in the current year our analysis of lead
indicators currently suggests activity levels may bear a greater resemblance to
2005. Both in early 2005 and early 2008, the outlook for the housing market
looked poor, whilst other sources of building material consumption - notably the
repair and maintenance sector - looked more positive. In 1991 - 1993, a
generally worse economic background, with higher interest rates and
unemployment, meant demand weakened across the spectrum of construction and
repair activity. Our customers currently report a shortening of orders on hand,
particularly for new housing construction work. The outlook for repair,
maintenance and improvement work, where we enjoy proportionately higher margins,
remains relatively firmer. Forecasts are, of course, dynamic and the outlook
beyond the next few months remains uncertain.
However, despite this less promising outlook, our business is in better shape to
withstand a more challenging environment. We expect to enjoy better levels of
business activity than our competitors, even if market volumes weaken, since our
trade and retail divisions are both taking like-for-like market share. The
Wickes business has been fully integrated, its management strengthened, its
offer improved and its store formats overhauled and made more productive. In the
last 24 months, we have broadened our revenue sources, entering the trade
kitchen and joinery market and the retail tiling market. The contribution to
profits from expansion of our well established brands is benefiting from the
increased rate of openings started in 2006, whilst our newer brands are expected
to provide greater potential for expansion in later years.
The strengthening of our central functions - such as IT and Supply Chain - is
yielding further sourcing gains and productivity improvements. The active
management of our property assets is expected to contribute increased profits
and cash flows in 2008 and beyond. In addition we will continue to monitor our
lead indicators and deploy the Group's traditional strengths in active cost
control to manage our cost ratios before expected movements in turnover trends.
Outlook
Our early sales performance in 2008 reflects the expected slowing of market
growth, with like-for-like sales in our merchanting division for the first two
months ahead by 5.7% and like-for-like sales for the first 8 weeks trading in
retail up by 0.9% These rates are some 3% to 4% below the like-for-like sales
trends we achieved in the fourth quarter of 2007.
Whilst forecasting market volumes with any accuracy is currently more
challenging, cost inflation in goods-for-resale remains high and will increase
the value of our market, even if it may take some time to establish new prices
at a time when customers' activity levels may be lower than before.
With like-for-like performance ahead of market, superior operating margins to
any comparable operator and a full pipeline of opportunities to expand further,
we are well placed to continue our progress in what we expect to be a more
challenging market in 2008.
Sustained Growth
Longer term trends in our markets, driven by population growth, increasing
household formation, government policies on 'decent homes' and sustainability
have all been strengthened by various announcements and initiatives launched in
2008. Building products provided through our ten businesses and seven brands
(the Travis Perkins brand operating as four geographically defined businesses)
have a major contribution to managing climate change issues. From a benchmarking
exercise conducted by us in 2007, we estimate that the gross margin earned by us
from products having a beneficial environmental impact, less the cost of
complying with new environmental management and reporting is just over £30m. We
aim to continue our work to increase our own environmental performance, and
introduce new products to market in response to planning and end-user demands,
avoiding peripheral products of questionable environmental value - like domestic
windmills - and, over time, improve this contribution.
Our focus on driving stronger performance from our like-for-like estate has
delivered increased profits, 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,
pursuing our aim of having the 'best business with the best operating margin',
in each of our markets.
Operational Delivery
In 2007 our priorities were to improve the customer offer in each of our
businesses, implementing our best practice programmes, to take like-for-like
market share and to strengthen our central functions to build a strong platform
for growth.
Our trade division continued its customer segmentation work and implemented a
series of marketing initiatives, succeeding in increasing our share of spend by
existing customers and converting an increased proportion of prospective
customers. This, combined with significant operational improvements in product
range, stock availability and yard service levels enabled the division to
increase like-for-like sales ahead of market growth rates. Our surveys indicate
an improved perception of our trade branches as a preferred source of building
materials. We intend to continue our work to stretch our lead on these
indicators of customer preference and differentiation.
Our retail business also achieved good revenue performance, growing both
like-for-like and total market share. These gains were mainly attributable to a
continued programme of range enhancements, new store sales initiatives and
improved store standards. This work was recognised in two recent surveys of
customers by independent retail research organisations, which showed Wickes to
be the UK's favourite home improvement retailer - a remarkable result given that
we are geographically under-represented. In addition we successfully launched
the Wickes transactional website with an investment considerably less than for
an average Wickes store. The website achieved breakeven within 12 months and is
now regularly amongst the top 10 stores for weekly takings.
Gross margins in both divisions continued to benefit from our work to
rationalise our supplier base, increase our global sourcing volumes and complete
the few remaining projects from the Wickes synergy programme. However, these
gains were eroded by margin pressure as competitors fought to retain business
against our improved service. Although prices of some commodity products in the
retail market were reduced by one or two competitors, our volumes of these
products grew in line with or above market trend and gross margins decreased
only slightly. Overall, various pricing and promotional initiatives by retail
competitors appears not to have impacted Wickes' sales.
Both our divisions maintained tight controls over headcount and other costs, and
operating cost ratios improved in both divisions - by 38 basis points in trade
and 93 basis points in retail. Whilst colleague numbers inevitably increased as
the Group expanded, productivity improved in both divisions, with merchanting
recording a 6.1% gain and retailing ahead by 3.4%. Furthermore, on five year
lease reviews settled in 2007, the average annual rate of rental increase
experienced continued to decline, supporting our view that rental inflation is
easing.
The 63 basis point improvement in the Group's operating cost ratio was achieved
despite our investing to strengthen central functions to support further growth.
This included building two new data centres in Northampton to run both trade and
retail division systems and provide internal disaster recovery capacity. We
develop most of our software ourselves, which external benchmarking shows gives
us better business effectiveness and lower cost ratios than competitors. The
£14m implementation project for these data centres was completed on time and on
budget by our very experienced IT managers and teams, led by Frank Smith, our
Group IT director.
We continued our programme of improving capital efficiency through more active
management of our property portfolio. From our extensive list of active projects
in progress we exchanged contracts or completed on 3 projects, generating
profits of £6.4m and cash of £0.8m (£5.6m to follow in 2008). Martin Meech, our
Group property director has been responsible for creating this programme of work
and resulting financial benefits following his arrival in 2005, and is pursuing
projects on a further 26 properties. The proportion of freehold or long
leasehold properties in the Group's estate remained broadly level at 33%, with
the net book value of property increasing by £50m to £242m as we reinvested cash
from this programme in properties that we judge to have attractive growth
characteristics.
Loyal People
Our analysis in 2005 identified that performance of our branches, central
functions and businesses is significantly correlated with the stability of our
teams of colleagues. Expertly led by Carol Kavanagh, our Group Human Resources
Director, we have over the last two years introduced a series of measures aimed
at improving the recruitment and retention of colleagues, increasing their
skills and raising their engagement with the business. This work has included
increased investment in long service awards, new training and development
programmes, both for technical and management skills, introduction of a
buy-as-you-earn share scheme and better communication of our save-as-you-earn
scheme. Our colleague retention has steadily improved over this period - in the
trade division it is now up by some 13% over two years to 80%, and it is up by
1.4% in the retail division to 75.5%.
A baseline score for employee engagement was established in 2007 from a survey
conducted anonymously by an independent research company, and we aim to steadily
improve colleague engagement and performance measured from surveys repeated
annually. As a start, we introduced in January 2008 a new incentive scheme for
all colleagues not already members of an existing scheme. Unlike many schemes,
this rewards colleagues for achieving standards of performance partly linked to
customer expectations rather than being linked only to an annual budget or
year-on-year financial performance.
To further support colleagues a new group health and safety department was
established in 2006 with a brief to improve our performance significantly,
building on the excellent work carried out in each of the businesses. In its
first full year, the department was responsible for overhauling our policies,
procedures and reporting systems, and more investment was injected in to health
and safety training. A new health and safety committee of the Plc board has been
established to oversee further progress. In 2007 we saw a continuation of the
favourable trends in accident frequency experienced over the previous two years,
however, the severity of accidents has increased, increasing our resolve to
improve further.
Further Expansion and Development
We added a seventh brand to our portfolio, and took advantage of a gradual
strengthening in both trade and retail markets as the year progressed to expand
our network. All this was achieved whilst maintaining our investment criteria
for all new branches and businesses and, through a post-investment audit
reported to the board, ensuring that the programme of network expansion
continues to achieve results in excess of those predicted at the time the
projects were approved. As the highest margin operator in the market, and with
market conditions likely to exert more pressure on weaker operators, in 2008 we
expect to see an increased supply of opportunities to expand that will meet our
demanding financial criteria.
Wickes
Total retail selling space at Wickes expanded by 6% as a result of launching 6
new stores and re-configuring 3 existing stores. At 31 December, we traded from
185 stores. The re-configuration programme, which involves reclaiming storage
space for use as selling area and the construction of mezzanine floors in stores
with very high sales densities, will continue in 2008. These developments,
together with a strong pipeline of opportunities to introduce Wickes in new
catchments, means that we anticipate the strongest space expansion for Wickes in
2008 since the business was acquired in 2005. The recent Wickes store openings
following our purchase of 7 stores from a home improvement retailer operating in
a different segment of the market are all trading ahead of expectations,
benefiting from the fresh approach to the Wickes offer developed in late 2006.
The strength of the Wickes offer means that its expansion programme will deliver
good incremental returns despite volumes in the home improvement market not yet
recovering to the levels seen in 2004.
Travis Perkins
We added a net 22 sites during the year to the Travis Perkins' branch network
and traded from 581 sites at the year end. Around 44% of new sites were
brownfields, which have relatively attractive returns compared to acquisitions.
We undertook major branch refurbishments at a number of branches including Kings
Lynn Mill, Wigan, Wisbech and Cheam in 2007 and have 3 projects planned for
2008. We also added a gross 10 toolhire outlets taking our total to 164 in the
Group. Travis Perkins is our largest and most prominent brand, and excellent
customer goodwill means that new and expanded branches continue to acquire new
business quickly and have excellent payback and cash flow characteristics.
Despite having a network approaching 600 branches, we still have significant
expansion potential for the Travis Perkins brand in the UK. Our relatively
greater efficiency and operating margin means we have good opportunities to
acquire selectively good merchanting businesses and create value. As markets
become more challenging in 2008, we expect more owners to sell. With many owners
considering a sale following the changes to the capital gains tax regime, we are
looking for a softening in goodwill prices in the coming months.
Keyline
Our heavyside merchant added 3 branches to its network, finishing the year with
79 branches. In 2006 we introduced programmes to increase focus on both depth
and breadth of specialist stock range and a concentrate on major civil
engineering customers. This programme continued in 2007, with 7 branches being
re-configured to take new ranges. Following the appointment of a new managing
director with a background in construction this work will continue in 2008 and
further new branches will be added where market opportunities arise.
City Plumbing Supplies
Following its steady recovery from trading difficulties experience in 2005, City
Plumbing Supplies re-started its expansion programme in 2007 and 12 new branches
were added, bringing the total trading at the end of the year to 189. All
remaining branches not yet converted were refitted to the City Plumbing format
from their predecessor brand. Our business is aimed at serving the needs of
contractors and jobbing plumbers in the repair and refurbishment sector of the
market, for whom branch location is crucial. We plan to continue our rate of
expansion in 2008, reflecting our confidence in this business.
CCF
Our dry-lining ceilings and insulation specialist had a very busy year, with 2
new brownfield openings and the acquisition of a further 7 new branches via the
acquisition of 2 excellent regional operators. The CCF business operated from 34
branches at the end of the year. CCF's market is now very largely held in the
hands of major national or international distributors who have recently invested
in the sector, and with only few suppliers of the key products, competitive
conditions remained very tight. Despite this, CCF's 'one-stop shop' offer to
contractors means it enjoys a good reputation and new branches deliver good
returns. We aim to expand the CCF network further in 2008.
Benchmarx
Following the good start made in 2006 by Benchmarx, our specialist kitchen and
joinery business for the trade, a further 19 branches were added in 2007,
bringing the total trading up to 25. Benchmarx serves a market with attractive
returns and growth characteristics and our offer has scored very highly with our
new customers in this market. We plan further branch openings in 2008 and we are
committed to creating a business with a significant market share in this sector.
Tile Giant
We entered the retail tile market in November via the acquisition of Tile Giant,
a 29 store chain operating mainly in the Midlands. With existing revenues from
tile products approaching £45m through our existing brands, we are confident of
achieving good synergies through improved buying terms. The tile market is
expected to show good growth and we see an excellent opportunity to win a
significant market share and help consolidate the sector, under the leadership
of Mo Iqbal, Tile Giant's managing director and founder. Today we are announcing
the acquisition of Tile Magic, a 17 branch chain operating in London and the
South East, and we have a good pipeline of further opportunities to expand.
Suppliers
Having increased our supplier base through the acquisition of Wickes in 2005, we
have steadily been rationalising numbers and establishing partnerships where we
can develop long-term relationships with selected suppliers. We seek
relationships with those suppliers who hold market leading positions and who
have the scale to both develop and bring to market new products and who either
currently supply or have the potential to supply all of our brands.
This policy of rationalisation meant that in 2007 the top 25 suppliers
represented 47% of our cost of goods sold. We also made significant progress on
our global sourcing programme, where we seek to establish a direct line of
supply with producers in low cost economies for products where branding is not a
key purchasing criteria for our customers. We have strengthened our quality
assurance and shipping capabilities and in 2008 will expand storage capacity in
the UK.
Senior management
To support our continued growth, the operations side of the Group, led by John
Carter our Chief Operating Officer, was re-organised in 2007 with the creation
of positions for three divisional chairmen for three collections of businesses -
general merchanting, specialist merchanting, and retailing. Joe Mescall, an
outstanding managing director for two of our general merchanting businesses
during a distinguished 35 year career with the Group became divisional chairman
for general merchanting. Arthur Davidson, having managed Keyline with a sure
touch since its acquisition in 1999 - a period during which Keyline's profits
more than doubled - and chaired CCF since 2004, became divisional chairman for
specialist merchanting. Arthur and Joe join Jeremy Bird, who in only his first
year as managing director for Wickes has seen the brand catapulted to the top of
customers' lists for their favourite home improvement retailer and overseen a
23% rise in profits, before property gains, as members of the Group's Executive
Committee.
Following these appointments, Andrew Harrison, who, as managing director
established CCF as a new business in the Group whilst its profits doubled over
his four years in that role, moved to become managing director of Benchmarx, to
help us exploit the significant opportunity presented by our entry in to this
market. Also, Phil Gransden was promoted within the board of our Travis Perkins
business in the South East to become its managing director. Phil is a further
example of the Group's excellent management trainee scheme providing future
senior managers. Whilst many of the Group's operating managers - including our
Chief Operating Officer, John Carter, come from this source, balance of
experience is maintained by sourcing around a third of our senior managers from
outside the Group. In 2008, Phil Atkinson, with a background in the construction
sector, joined us as managing director of Keyline. Phil's sector experience will
enable him to lead effectively Keyline's initiative to position itself as the
supplier of choice in heavy building products to major civil engineering
contractors and ground workers. Turnover of senior managers is relatively low,
and not many leave the Group. When, occasionally they do, we wish them well in
their careers and look forward to welcoming them back to our business in the not
too distant future.
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 2007, where indicated, these measures are stated on an adjusted
basis stripping out the effects of the exceptional deferred tax credit and in
2006, where indicated, the exceptional property profits.
2007 2006 2005 2004
Revenue growth 11.9% 7.9% 44.4% 9.0%
Adjusted profit before tax growth 18.7% 6.6% 0.1% 16.0%
Profit before tax growth 12.7% 12.2% 0.1% 16.0%
Merchanting adjusted operating 11.4% 11.2% 11.3% 11.9%
profit to sales
Adjusted interest cover (note 7) 5.4x 4.9x 4.9x 25.9x
Adjusted return on capital (note 12) 16.2% 14.6% 14.8% 25.0%
Adjusted free cash flow (note 15) £157.8m £216.6m £226.1m £150.7m
Adjusted dividend cover (note 10) 3.3x 3.4x 3.4x 4.1x
The above table reflects the significant purchase of Wickes in 2005.
Adjusted earnings before interest, tax, depreciation and goodwill amortisation
('EBITDA') (note 13) were £379m (2006: £335.7m), an increase of 12.9%.
Higher debt levels, which have resulted from a significant increase of £142m in
capital expenditure and a £76m share acquisition programme by our Employee Share
Ownership Trust, combined with higher interest rates, have resulted in an
increase in total net interest expense (before other finance income of £3.3m
(2006: cost £0.4m) up to £61.8m (2006: £57.3m). Adjusted interest cover (note 7)
is approximately 5.4 times (2006: 4.9 times).
Adjusted group profit before tax (note 6) was 18.7% ahead of last year at
£261.4m (2006: £220.3m).
On 26 June 2007 the House of Commons approved the Finance Bill which reduces the
UK standard rate of Corporation tax from 30% to 28% with effect from 1 April
2008. The reduction in rate results in an exceptional deferred tax credit of
£4.2m in the current year tax charge.
The adjusted tax charge (before the tax credit) was £80.3m (30.7%) compared with
£64.9m (28.0%) in 2006. In 2006 the rate was reduced by 2.8% by property profits
not chargeable to tax. The rate for 2007 is higher than the UK corporation tax
rate of 30% principally because of non-qualifying property expenditure and other
items which are not allowable for tax.
Profit after tax was £185.3m an increase of 11.0%. Adjusted profit after tax
(note 6) was £181.1m an increase of £26.9m (17.4%) compared to 2006.
Basic earnings per share was 153.3 pence. Adjusted basic earnings per share
(note 9) was 17.6% higher at 149.8 pence, compared with 127.4 pence in 2006.
Cash flow
In addition to the substantial investments in business development described
above, debt at 31 December 2007 was increased temporarily by £28m as a result of
£28m of payments made to Wickes suppliers on the 53rd Monday of the year.
Despite this and a higher level of trade and rebate debtors, the group has
generated £304m of cash from operations (2006: £323m), a decrease of 6.0%.
Adjusted free cash flow, (calculated before exceptional property disposals, the
extra Wickes supplier payment run, expansionary capital expenditure, special
pension contributions and dividends) (note 15) was £157.8m, 27.1% lower than
2006. As a result of the turbulence in credit markets increasing LIBOR rates,
the group rolled its debt, and therefore paid interest, on a weekly rather than
6 monthly basis for most of the second half of the year. As a result, when
combined with the effect of higher debt and higher interest rates, interest
payments were £13.5m higher in 2007, than in 2006.
We indicated last year that we intended to increase capital expenditure
significantly to grow the Group's brands. The free cash generated by the Group
was used in part to fund expansion capital expenditure of £82.2m (2006: £31.6m)
in the existing business and in part on new acquisitions, which in total cost
£47.2m (2006: £10.9m) plus loan notes issued to a value of £8m.
Pensions
At 31 December 2007 the gross deficit of the scheme was £16m (31 December 2006:
gross deficit £80.8m). The net deficit after allowing for deferred tax was
£11.5m (2006: net deficit £56.6m).
The significant improvement in the deficit is the result of improved asset
returns, higher corporate bond rates reducing liabilities and £9.6m of company
contributions in excess of the income statement charge (2006: £21m).
The scheme is now 97% funded with the net deficit representing less than 1.0% of
the Company's market capitalisation at 31 December 2007.
Equity
Total equity, after deducting the pension scheme deficit at 31 December 2007,
was £1,036.9m, an increase of £103.8m on 31 December 2006.
During the year, through its Employee Share Ownership Trust, the Group acquired
5.2m shares in the Company at an average cost of 14.56p per share. The shares
were acquired for future settlement of share options and share save grants made
to employees of the Group.
The Group's adjusted return on capital in 2007 (note 12) was 16.2% (2006:
14.6%), which is substantially higher than the Group's weighted average cost of
capital.
At the year-end the share price was 1,204 pence (2006: 1,984 pence) and the
market capitalisation £1.5bn (2006: £2.4bn), representing 1.4 times (2006: 2.6
times) shareholders' funds. During the year the daily closing share price ranged
from 1,180 pence to 2,121 pence.
Properties
The carrying value of the Group's 347 freehold and 55 long leasehold property
portfolio, which was last revalued in 1999 on an existing use basis, is £242m.
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.
Goodwill
The net book value of goodwill and other intangibles in the balance sheet is
£1,492m (2006: £1,445m). Additions to goodwill and intangible assets in the year
totalled £47m.
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 2007 the Group
had net debt of £941m (2006: £804m) (note 14).
Consolidated income statement For the year ended 31 December 2007
2007 2006
£m £m
Revenue 3,186.7 2,848.8
____________________________________________________________________________
Operating profit (before exceptional 319.9 278.0
property profit)
Exceptional property profit 6 - 11.6
____________________________________________________________________________
Operating profit 6 319.9 289.6
Finance income 7 3.7 1.9
Finance costs 7 (62.2) (59.6)
____________________________________________________________________________
Profit before tax 261.4 231.9
Tax (before exceptional deferred tax credit) (80.3) (64.9)
Exceptional deferred tax credit 8 4.2 -
____________________________________________________________________________
Tax (76.1) (64.9)
____________________________________________________________________________
Profit for the year 185.3 167.0
____________________________________________________________________________
Earnings per ordinary share 9
Basic 153.3p 137.9p
Diluted 151.9p 136.8p
____________________________________________________________________________
Total dividend declared per ordinary share 10 44.9p 37.4p
____________________________________________________________________________
All results relate to continuing operations.
Consolidated statement of recognised income and expense
For the year ended 31 December 2007
2007 2006
£m £m
Actuarial gains and losses on defined benefit pension 51.9 41.4
scheme
Gains on cash flow hedges 0.4 7.9
Tax on items taken to equity (15.7) (13.7)
____________________________________________________________________________
Net income recognised directly in equity 36.6 35.6
Transferred to income statement on cash flow hedges (1.4) 0.6
Tax on items transferred from equity 0.4 0.1
Profit for the year 185.3 167.0
____________________________________________________________________________
Total recognised income and expense for the year 220.9 203.3
____________________________________________________________________________
Consolidated movement in equity
For the year ended 31 December 2007
2007 2006
£m £m
Opening equity 933.1 758.0
Shares issued 6.8 6.7
Own shares (76.0) 0.2
Total recognised income and expense for the year 220.9 203.3
Share options 0.2 7.4
Dividends paid (48.1) (42.5)
____________________________________________________________________________
Closing equity 1,036.9 933.1
____________________________________________________________________________
Consolidated balance sheet As at 31 December 2007
2007 2006
£m £m
ASSETS
Non-current assets
Property, plant and equipment 505.0 426.4
Goodwill 1,329.7 1,282.0
Other intangible assets 162.5 162.5
Derivative financial instruments 3.0 3.8
Investment property 3.5 3.9
Available-for-sale investments 2.0 2.0
Deferred tax asset 4.5 24.2
____________________________________________________________________________
Total non-current assets 2,010.2 1,904.8
____________________________________________________________________________
Current assets
Inventories 330.2 294.4
Trade and other receivables 421.9 363.8
Derivative financial instruments 0.7 0.5
Cash and cash equivalents 26.3 56.3
____________________________________________________________________________
Total current assets 779.1 715.0
____________________________________________________________________________
Total assets 2,789.3 2,619.8
____________________________________________________________________________
Consolidated balance sheet (continued) As at 31 December 2007
2007 2006
£m £m
EQUITY AND LIABILITIES
Capital and reserves
Issued capital 12.3 12.2
Share premium account 178.9 172.2
Other reserve 24.2 25.3
Hedging reserve 2.9 4.0
Own shares (83.9) (7.9)
Accumulated profits 902.5 727.3
____________________________________________________________________________
Total equity 1,036.9 933.1
____________________________________________________________________________
Non-current liabilities
Interest bearing loans and borrowings 863.9 763.6
Derivative financial instruments 29.8 30.9
Retirement benefit obligation 16.0 80.8
Long-term provisions 13.7 13.1
Deferred tax liabilities 75.3 71.1
____________________________________________________________________________
Total non-current liabilities 998.7 959.5
____________________________________________________________________________
Current liabilities
Interest bearing loans and borrowings 88.0 89.2
Unsecured loan notes 15.4 7.9
Derivative financial instruments - 0.2
Trade and other payables 585.0 565.2
Tax liabilities 32.3 34.2
Short-term provisions 33.0 30.5
____________________________________________________________________________
Total current liabilities 753.7 727.2
____________________________________________________________________________
Total liabilities 1,752.4 1,686.7
____________________________________________________________________________
Total equity and liabilities 2,789.3 2,619.8
____________________________________________________________________________
The financial statements were approved by the Board of Directors on 3 March 2008
and signed on its behalf by:
G. I. Cooper )
P. N. Hampden Smith ) Directors
Consolidated cash flow statement For the year ended 31 December 2007
2007 2006
£m £m
Operating profit 319.9 289.6
Adjustments for:
Depreciation and impairment of property, plant 56.3 53.7
and equipment
Other non cash movements 3.7 3.8
Gain on disposal of property, plant and equipment (7.6) (17.1)
____________________________________________________________________________
Operating cash flows before movements in working
capital 372.3 330.0
Increase in inventories (30.1) (29.7)
Increase in receivables (39.8) (38.9)
Increase in payables 11.1 82.9
Cash payments to the pension scheme in excess of
the charge to profits (9.6) (21.0)
____________________________________________________________________________
Cash generated from operations 303.9 323.3
Interest paid (72.7) (59.8)
Income taxes paid (74.5) (57.3)
____________________________________________________________________________
Net cash from operating activities 156.7 206.2
____________________________________________________________________________
Cash flows from investing activities
Interest received 0.2 0.8
Acquisition of shares in unit trust - (2.0)
Proceeds on disposal of property, plant and equipment 4.8 38.9
Purchases of property, plant and equipment (123.7) (50.4)
Acquisition of businesses net of cash acquired (47.2) (10.9)
____________________________________________________________________________
Net cash used in investing activities (165.9) (23.6)
____________________________________________________________________________
Financing activities
Proceeds from the issue of share capital 6.8 6.9
Purchase of own shares (76.0) -
Payment of finance leases liabilities (1.9) (2.8)
Repayment of unsecured loan notes (0.2) (0.3)
Increase / (decrease) increase in bank loans 98.6 (143.7)
Dividends paid (48.1) (42.5)
____________________________________________________________________________
Net cash from financing activities (20.8) (182.4)
____________________________________________________________________________
Net (decrease) / increase in cash and cash equivalents (30.0) 0.2
Cash and cash equivalents at beginning of year 56.3 56.1
____________________________________________________________________________
Cash and cash equivalents at end of year 26.3 56.3
____________________________________________________________________________
Notes to the preliminary announcement
1. The Group's principal accounting policies, as set out in its interim
statement of 31 July 2007, which is available on the Company's
website www.travisperkins.co.uk, have been applied consistently.
2. The proposed final dividend of 30.4 pence will be paid on 15 May 2008 to
shareholders registered as members of the Company at close of
business on 18 April 2008.
3. The financial information above does not constitute the Company's statutory
accounts. Statutory accounts for the years ended 31 December 2007 and
31 December 2006 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 2006 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 2007, prepared under IFRS
will be delivered to the Registrar in due course.
4. This announcement was approved by the Board of Directors on 3 March 2008.
5. It is intended to post the annual report to shareholders on
10 April 2008 and to hold the Annual General Meeting on 13 May 2008. 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 10 April 2008 or will be available through the
internet on our website at www.travisperkins.co.uk
6. Profit
(a) Operating profit
2007 2006
£m £m
Revenue 3,186.7 2,848.8
Cost of sales (2,087.3) (1,855.0)
________________________________________________________________________
Gross profit 1,099.4 993.8
Selling and distribution costs (649.1) (596.3)
Administrative expenses (141.8) (126.6)
Other operating income* 11.4 18.7
________________________________________________________________________
Operating profit 319.9 289.6
Exceptional property profit - (11.6)
________________________________________________________________________
Adjusted operating profit 319.9 278.0
________________________________________________________________________
* Other operating income includes exceptional property profits of £nil
(2006: £11.6m).
The exceptional property profit in 2006, which was exceptional due to the
magnitude of the deal in comparison to other deals undertaken by the Group,
arose 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 reflected a profit deferment in respect of
land of £4.7m in accordance with the requirements of IAS 17.
6. Profit (continued)
(b) Adjusted profit before and after tax
2007 2006
£m £m
Profit before tax 261.4 231.9
Exceptional property profit - (11.6)
________________________________________________________________________
Adjusted profit before tax 261.4 220.3
________________________________________________________________________
2007 2006
£m £m
Profit after tax 185.3 167.0
Exceptional property profit - (11.6)
Tax effect of exceptional property profit - (1.2)
Exceptional deferred tax credit (4.2) -
________________________________________________________________________
Adjusted profit after tax 181.1 154.2
________________________________________________________________________
(c) Operating margin
Merchanting Retail Group
£m £m £m £m £m £m
2007 2006 2007 2006 2007 2006
Revenue 2,254.2 2,000.3 932.5 848.5 3,186.7 2,848.8
__________________________________________________________________________
Operating profit 260.3 240.3 62.2 54.2 322.5 294.5
Corporate expenses (2.6) (4.8) - - (2.6) (4.8)
Corporate eliminations - - - - - (0.1)
Exceptional property - (11.6) - - - (11.6)
profits
__________________________________________________________________________
Adjusted segment 257.7 223.9 62.2 54.2 319.9 278.0
result
__________________________________________________________________________
Adjusted operating 11.43% 11.19% 6.67% 6.39% 10.04% 9.76%
margin
__________________________________________________________________________
The segmental results for merchanting and retail are shown in note 11.
7. Finance costs
2007 2006
£m £m
Interest on bank loans and overdrafts* (58.6) (55.5)
Interest on unsecured loans (0.5) (0.4)
Interest on obligations under finance leases (1.9) (2.0)
Unwinding of discounts in provisions (1.2) (1.1)
Net loss on re-measurement of derivatives at fair - (0.2)
value
________________________________________________________________________
Interest payable (62.2) (59.2)
Other finance costs - pension scheme - (0.4)
________________________________________________________________________
Finance costs (62.2) (59.6)
Net gain on re-measurement of derivatives at fair 0.3 1.1
value
Other finance income - pension scheme 3.3 -
Interest on bank deposits 0.1 0.8
________________________________________________________________________
Net finance costs (58.5) (57.7)
________________________________________________________________________
Adjusted interest cover 5.4x 4.9x
________________________________________________________________________
*Includes £1.7m (2006 £0.6m) of amortised fees.
Adjusted interest cover is calculated by dividing adjusted operating profit
of £319.9m (2006: £278.0m) 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 £59.2m (2006: £56.5m).
8. Tax
On 26 June 2007 the House of Commons approved the Finance Bill which reduces
the UK standard rate of Corporation tax from 30% to 28% with effect from
1 April 2008. The reduction in rate results in an exceptional deferred tax
credit of £4.2m in the current year charge.
9. Earnings per share
(a) Basic and diluted earnings per share
2007 2006
£m £m
Earnings
Earnings for the purposes of basic and 185.3 167.0
diluted earnings per share being net
profit attributable to equity holders of
the parent
________________________________________________________________________
Number of shares No. No.
Weighted average number of ordinary 120,839,499 121,060,158
shares for the purposes of basic
earnings per share
Dilutive effect of share options on 1,109,765 1,054,815
potential ordinary shares
________________________________________________________________________
Weighted average number of ordinary 121,949,264 122,114,973
shares for the purposes of diluted
earnings per share
________________________________________________________________________
At 31 December 2007, 3,254,859 (2006: nil) share options had an exercise
price in excess of the market value of the shares on that day. As a result,
for 2007 these share options were excluded from the calculation of diluted
earnings per share.
9. Earnings per share (continued)
(b) Adjusted earnings per share
Adjusted earnings per share is calculated by excluding the effect of the
exceptional tax credit in 2007 and the exceptional property profit in 2006
from earnings.
2007 2006
£m £m
Earnings for the purposes of basic and 185.3 167.0
diluted earnings per share being net profit
attributable to equity holders of the parent
Exceptional property profit - (11.6)
Tax on exceptional property profit - (1.2)
Exceptional deferred tax credit (4.2) -
________________________________________________________________________
Earnings for adjusted earnings per share 181.1 154.2
________________________________________________________________________
Adjusted basic earnings per share 149.8p 127.4p
________________________________________________________________________
Adjusted diluted earnings per share 148.4p 126.3p
________________________________________________________________________
10. Dividend
Amounts were recognised in the financial statements as distributions to
equity shareholders as follows:
2007 2006
£m £m
Final dividend for the year ended 31 December 30.8 27.8
2006 of 25.3p (2005: 23.0p) per ordinary share
Interim dividend for the year ended 31 December 17.3 14.7
2007 of 14.5p (2006: 12.1p) per ordinary share
________________________________________________________________________
Total dividends recognised during the year 48.1 42.5
________________________________________________________________________
The dividend for 2007 at 31 December 2007 and for 2006 at 31 December 2006
were as follows:
2007 2006
Pence Pence
Interim paid 14.5 12.1
Final proposed 30.4 25.3
________________________________________________________________________
Total dividend for the year 44.9 37.4
________________________________________________________________________
The proposed final dividend of 30.4p per ordinary share in respect of the
year ending 31 December 2007 was approved by the board on 3 March 2008. 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 2007. It will be paid on 15 May to shareholders on the
register on 18 April 2008.
Adjusted dividend cover of 3.3x (2006: 3.4x) is calculated by dividing
adjusted basic earnings per share (note 9) of 149.8p (2006: 127.4p) by the
total dividends for the year of 44.9p (2006: 37.4p).
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 DIY Retailing Eliminations Consolidated
Merchanting
________________________________________________________________________
2007 2007 2007 2007
£m £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 261.4
taxation
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 2,789.3
total assets
________________________________________________________________________
Segment (435.7) (242.0) - (677.7)
liabilities
Unallocated (1,074.7)
corporate
liabilities
________________________________________________________________________
Consolidated (1,752.4)
total liabilities
________________________________________________________________________
Consolidated net 946.9 1,063.9
assets
____________________________________________
Capital 115.5 24.1 139.6
expenditure
Depreciation 40.7 15.6 56.3
________________________________________________________________________
11. Business and geographical segments (continued)
Builders DIY Retailing Eliminations Consolidated
Merchanting
2006 2006 2006 2006
£m £m £m £m
Revenue 2,000.3 848.5 - 2,848.8
________________________________________________________________________
Result
Segment result 235.5 54.2 (0.1) 289.6
___________________________________________________________
Net finance costs (57.7)
________________________________________________________________________
Profit before 231.9
taxation
Taxation (64.9)
________________________________________________________________________
Profit for the 167.0
year
________________________________________________________________________
Segment assets 1,256.9 1,232.9 - 2,489.8
Unallocated 130.0
corporate assets
________________________________________________________________________
Consolidated 2,619.8
total assets
________________________________________________________________________
Segment (454.1) (218.8) - (672.9)
liabilities
Unallocated (1,013.8)
corporate
liabilities
________________________________________________________________________
Consolidated (1,686.7)
total liabilities
________________________________________________________________________
Consolidated net 802.8 1,014.1
assets
___________________________________________
Capital 39.8 12.0 51.8
expenditure
Depreciation 38.0 15.7 53.7
________________________________________________________________________
12. Adjusted return on capital
2007 2006
£m £m
Operating profit 319.9 289.6
Exceptional property profit - (11.6)
________________________________________________________________________
Adjusted operating profit 319.9 278.0
________________________________________________________________________
Opening net assets 920.3 758.0
Goodwill written off 92.7 92.7
Net borrowings 804.4 982.4
Pension deficit 56.6 99.9
________________________________________________________________________
Opening capital employed 1,874.0 1,933.0
Closing net assets 1,036.9 933.1
Equity impact of exceptional property profit - (12.8)
Goodwill written off 92.7 92.7
Net borrowings 941.0 804.4
Pension deficit 11.5 56.6
________________________________________________________________________
Closing adjusted capital employed 2,082.1 1,874.0
________________________________________________________________________
Average adjusted capital employed 1,978.1 1,903.5
________________________________________________________________________
Adjusted return on capital 16.2% 14.6%
________________________________________________________________________
13. Adjusted earnings before interest, tax and depreciation
2007 2006
£m £m
Profit before taxation 261.4 231.9
Finance costs 58.5 57.7
Depreciation and impairments 56.3 53.7
________________________________________________________________________
EBITDA under IFRS 376.2 343.3
Exceptional property profits - (11.6)
Reversal of IFRS effect 2.8 4.0
________________________________________________________________________
Adjusted EBITDA as defined in UK banking agreements 379.0 335.7
________________________________________________________________________
Net debt under 2004 UK GAAP (note 14) 940.1 804.9
________________________________________________________________________
Adjusted net debt to EBITDA 2.48x 2.40x
________________________________________________________________________
14. Net debt
2007 2006
£m £m
Net debt at 1 January (804.4) (982.4)
(Decrease) / increase in cash and cash equivalents (30.0) 0.2
Cash flows from debt (96.5) 146.8
(Increase) / reduction in fair value of debt (2.3) 31.6
Lease surrender 1.6 -
Additional finance charges netted off bank debt (1.7) (0.6)
Loan notes issued (7.7) -
________________________________________________________________________
Actual net debt 31 December (941.0) (804.4)
IAS 17 finance leases 28.8 31.5
Fair value adjustments to debt (27.9) (30.3)
Finance charges netted off debt - (1.7)
________________________________________________________________________
Net debt under 2004 UK GAAP (940.1) (804.9)
________________________________________________________________________
15. Adjusted free cash flow
2007 2006
£m £m
Net debt at 1 January (804.4) (982.4)
Net debt at 31 December (941.0) (804.4)
________________________________________________________________________
(Increase) / decrease in net debt (136.6) 178.0
Dividends 48.1 42.5
Net cash outflow for expansion capital expenditure 82.2 31.6
Net cash outflow for acquisitions 47.2 10.9
Net cash outflow for acquisition of investments - 2.0
Own shares purchased 76.0 -
Shares issued (6.8) (6.9)
Non cash movements 10.1 (31.0)
Special pension contributions 9.6 21.0
________________________________________________________________________
Free cash flow 129.8 248.1
Additional payment run on 53rd Monday 28.0 -
Cash impact of exceptional property profits - (31.5)
________________________________________________________________________
Adjusted free cash flow 157.8 216.6
________________________________________________________________________
- ENDS -
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