Interim Results
Travis Perkins PLC
05 September 2005
5 September 2005
TRAVIS PERKINS PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2005
Highlights
• Acquisition of Wickes, a leading UK DIY retailer
• Overall benefits from programme to integrate Wickes running ahead of
expectations
• Solid profit performance in tougher markets with operating profit up
29% to £137m
• Like for like free cash flow up 22% to £104m
• Interim dividend increased by 16% to 11.0p per share
• Record number of new branches added in the first half and now trading
from 972 locations in the UK
Geoff Cooper, Chief Executive, said:
'The group has achieved a solid performance in tougher markets and made good
progress in integrating the Wickes business. Our merchanting business is
performing well and our retail business is beginning to gain market share.
While we anticipate that trading will remain challenging, we are confident that
the group will make further progress.'
Enquiries:
Geoff Cooper, Chief Executive
Paul Hampden Smith, Finance Director
Travis Perkins plc +44 (0) 1604 683131
David Bick/Trevor Phillips
Holborn Public Relations +44 (0) 207 929 5599
Interim Results 2005
6 Months 6 Months Increase
30 June 30 June
2005 2004
£m £m %
Turnover 1,291.2 913.6 41.3
Operating profit 137.4 106.5 29.0
Profit before taxation 110.0 100.6 9.3
Profit after taxation 74.5 68.8 8.3
Like-for-like free cash flow (note 15) 104.2 85.7 21.6
Basic earnings per ordinary share 61.8p 60.6p 2.0
Diluted earnings per ordinary share 61.0p 59.6p 2.3
Interim dividend per share 11.0p 9.5p 15.8
Financial Performance
Good progress has been made across the group, as enlarged by the Wickes
acquisition, in what has proved to be a more difficult market than the group has
experienced for some years. The benefits being delivered from the integration
of Wickes are running ahead of plan.
Overall group turnover was up by 41.3% to £1,291.2 million, with 38.6%
contributed by the acquisition of Wickes. Operating profit was £137.4 million,
compared with £106.5 million in 2004, an increase of 29% and profit before tax
at £110 million was up by 9.3%.
Our operating margin was 10.6% compared to 11.7% in the first half of 2004,
reflecting the structural changes following the incorporation of Wickes in the
group's results for the first time (0.7%) and acceleration of our brown field
branch opening programme (0.2%). Turnover and profit before tax in the
non-Wickes related operations were £938.5 million and £101.6 million
respectively and in respect of the Wickes acquisition £352.7 million and £8.4
million respectively.
The results are presented for the first time under International Financial
Reporting Standards ('IFRS'). Profit before taxation is £5.1 million lower under
IFRS than UK GAAP (excluding the effect of goodwill amortisation). A provision
of £3.0 million for outstanding holiday entitlement at June 30, and the £1.3
million cost of share option schemes are the major components of the difference.
Basic earnings per share were up 2.0% at 61.8 pence, compared with 60.6 pence in
2004.
Operating cash flows before movements in working capital at £165.4 million were
again very strong and 32.9% higher than in the first half of 2004.
Like-for-like free cash flow (as shown note 15) was up 21.6% at £104.2 million
against £85.7 million in 2004.
In addition to the outlay on Wickes, cash outflow on expansion capital
expenditure and acquisitions amounted to £39.1 million in the period compared to
£35.1 million last year. Interest cover remained robust at 5.7 times for the six
months to June.
The Wickes acquisition increased proforma bank debt (as shown in note 13) at 31
December 2004, by £1,004.1 million, and the adoption of IAS 17 increased finance
lease debt by a further £20 million. After allowing for these, our strong cash
flows have reduced debt by £40.9 million over the six months to the end of June
2005.
Equity increased by £41.4 million during the first half to £692.0 million.
Gearing reduced from a proforma level of 156.9% (as shown in note 13) at 31
December 2004 to 142.6% (as shown on note 12) at 30 June 2005. Our return on
equity in the period (as shown in note 17) was 25.2% compared to 29.2% for the
year ended 31 December 2004.
The board is increasing the interim dividend by 15.8% from 9.5p per share to
11.0p per share, reflecting its continued confidence in the future prospects of
the company.
Markets
Underlying drivers of long-term growth in our markets remain strong. Demand for
new dwellings continues to run ahead of current supply, with a 2005 forecast of
183,000 completions, some 90,000 short of the estimated annual requirement.
Government surveys of the backlog of investment in public sector infrastructure
such as schools and hospitals, including repairs and new builds, indicates
significant extra investment is still required. The estimates of 'non-decent'
homes provided by local authorities and social housing schemes that require
repair ranges between 1.2 and 2.2 million. Similarly, surveys of the state of
dilapidation in private housing indicate over 30 per cent of homes require
renovation. By early 2006 we expect to see the beneficial effect of
infrastructure investment related to the 2012 London Olympics, estimated to
contribute between half and one percent annually to the national construction
market.
During the first half, those elements of our markets related to government and
commercial projects remained robust. However, the weakness in consumer spending
experienced after the post-Christmas sales season particularly affected the home
improvement market, with a sharp decline experienced in February exacerbated by
the poor weather. Trading has remained fragile and those elements of our
business directly serving retail customers - for example in Wickes and in
showrooms in our merchant outlets - have not achieved expected volumes of
activity.
In contrast, activity in the trade related parts of our business, including
approximately one-third of Wickes activity, which is represented by trade
customers, continued at satisfactory levels through the first quarter. We
subsequently saw a small dip in trade market activity in the second quarter.
Activity in trade markets has remained steady at this slightly lower level, with
little perceptible change in levels of customer confidence.
We have also experienced an acceleration in product cost inflation to an average
of 4.8% in the merchant business, as manufacturers seek to compensate for the
recent sharp increase in input costs. This has particularly affected metal
products, cement, and oil-based products such as plastic drainage.
Capacity in both the merchant and retail sectors of the building materials
distribution market has continued to expand. We estimate the annual rate of
expansion for 2005 at 4.2% overall in merchanting, with the greatest increase in
plumbing and heating, and 5.3% in home improvement retailing. Our own rate of
expansion in merchanting is in line with the market rate.
Trading
Like-for-like turnover per working day was down by 0.5%, with an increase of
1.6% in the Travis Perkins' builders merchant business and a decrease of 4.1% in
the specialist merchanting division (when combined defined as 'Non-Wickes
related' or 'existing business'). This mainly reflected tough trading conditions
in the plumbing and heating market.
Like-for-like turnover in Wickes' core business (representing 83% of its
turnover) in the 26 weeks to June 26, 2005 was down by 4.2%, whilst turnover in
its showroom business was down by 8.4%. Overall Wickes like-for-like turnover
was lower by 4.9%. The result in the showroom category reflected both reduced
consumer spending on 'big ticket' items within home improvement and the entry of
new competitors.
The lower levels of activity in both the retail and trade segments of the
repair, maintenance and improvement ('RMI') market were not fully compensated
for by government and commercial sectors. Our managers responded to the more
challenging conditions and managed successfully to maintain trading margins,
principally through improved mix, notwithstanding the impact of increased
product inflation.
Product cost inflation also eased deflationary pressures in the retail market as
home improvement retailers sought to offset lower volumes with higher margins.
Wickes also reined back expenditure on planned marketing and brand building
activity in response to consumers' unwillingness to maintain spending levels.
Recent data shows Wickes gaining market share slightly on a like-for-like basis.
This supports our view that the Wickes proposition has enduring appeal to home
improvers, and is less susceptible to seasonal and fashion-related trends than
its competitors.
Against the background of a tough trading environment, our businesses reduced
costs, tightened controls on discretionary expenditures and took steps to
improve productivity. Group like-for-like sales per employee increased by 451
compared to the first half last year, with like-for-like numbers employed over
the period falling by 451 (4.7%) in the merchanting businesses and by 284 (6.1%)
in the retail business.
These actions have enabled us to mitigate much of the effect of the lower than
anticipated volumes traded.
Business integration and expansion
The acquisition of the home improvement retailer, Wickes, was completed in
February, adding a significant new channel to the group's building materials
distribution business, which now comprises eight distinct operations serving
over 190,000 trade customers and millions of consumers.
Following the acquisition, a major integration programme was launched to pursue
the synergies identified from the combination of the Wickes' retail business
with the merchanting businesses of Travis Perkins. The bulk of this work
involves teams of executives from Wickes and Travis Perkins implementing a
series of projects together to achieve lower costs in both goods-for-resale and
bought in goods and services. At the same time, each team of executives was
tasked with achieving a further set of stretched targets to build a contingency
against possible price pressure in our markets and improve the overall
resilience of the programme.
The overall benefits achieved from the programme are running ahead of our
original expectations and, despite lower than anticipated base volumes in both
retailing and merchanting, we expect to beat our targets for benefits from this
work for both 2005 and 2006.
In addition to 171 Wickes' branches, the group added 37 new branches to its
merchanting operations, comprising 9 acquisitions and 28 brown field openings
ahead of the record level achieved in the first half last year. Of these, 28
new branches were in the Travis Perkins builders merchant division, with 8
branches added to the specialist merchanting businesses and 1 to the retail
division.
Our potential deal flow remains strong, and we expect to exceed the full year
2004 total of 51 net new branches in the merchanting division. Since the end of
June we have added a further 15 new branches to all our businesses and we now
trade from 972 locations in the UK.
Given current market conditions, an increasing number of independent merchants
are seeking to sell. Our regular post-investment audits continue to show that
our new branches exceed the predicted financial performance made at the time of
acquisition or opening, making a positive impact on overall return on capital.
Management and Organisation
Following the acquisition of Wickes, we have implemented a series of changes to
our management arrangements and strengthened our management capabilities. A new
executive committee of the board has been constituted, comprising the executive
directors together with selected managing directors from the group's eight
businesses and central functions. The executive committee formalises
pre-existing arrangements and facilitates more effective management of the wider
span of activities now represented in the group. In addition, the Wickes' board
members have joined the pre-existing group trading board.
We have strengthened our property management through the appointment of Martin
Meech as Group Property Director, who joins us in September from a FTSE 100
retailer. This will help us in an important aspect of our plans for the further
development of the group through network expansion. We replaced the head of our
plumbing and heating business with John Frost, the Managing Director responsible
for building our highly successful Travis Perkins business in the South West.
Norman Bell an external appointee with experience in both the trade and retail
sectors, including a brief period at Wickes, has taken over responsibility for
the South West.
Outlook
The group has improved considerably its potential to grow in the UK building
materials distribution market through a combination of acquisitions and brown
field openings. We intend to maintain the increased pace of branch expansion,
increasing our ability to compete through scale advantages, and growing group
returns. The strength of our current pipeline, for both new merchant outlets and
retail sites, gives us confidence we will meet our business expansion targets.
The excellent progress made on the integration of Wickes and on achieving our
stretched targets for benefits will help us cope with the adverse effects of the
downturn in consumer sentiment. We aim to drive further improvements in
performance and to this end we have accelerated integration of back office and
other functions at Wickes with their counterparts at Travis Perkins. We are also
taking steps to improve the attractiveness of the Wickes' proposition.
We expect the tougher trading environment experienced in recent months to
continue for the remainder of the year. Since the end of the first half-year,
the merchanting market has been stable and the trend of our like-for-like sales
per working day in July and August improved slightly to minus 0.1%. However,
the UK retail environment has experienced a tough summer, with the DIY sector
suffering more than most other non-food sectors. Our retail like-for-like sales
per working day in July and August down 7.4% on last year in the core business.
The recent cut in interest rates, although helpful, has not resulted in a
significant change in sentiment. Further reductions in borrowing costs and in
other pressures on disposable incomes are likely to be necessary before the
group can expect stronger markets in 2006.
With anticipated lower volume growth, we have taken early action to cut costs,
reduce headcount, and to build on our traditional strengths to serve customers
better. Looking beyond 2005, we intend to continue this approach to drive
further improvements in performance so as to combat anticipated market
conditions and deal with impending cost pressures, particularly in energy, fuel
and pensions.
Our executive teams have managed the challenging conditions well and this gives
us confidence that, as we leverage our increased scale we can continue to grow
profits and return on capital.
Consolidated income statement
Non- Wickes Impact of Six months Six months Year.
Related Wickes 30 June 2005 30 June 31 Dec.
£m Total 2004 2004.
(Note Below) (Reviewed) (Reviewed) (Audited)
(Restated) (Restated)
Revenue 938.5 352.7 1,291.2 913.6 1,828.6
Operating profit 106.2 31.2 137.4 106.5 217.7
Finance costs (Note 4) (4.6) (22.8) (27.4) (5.9) (11.2)
Profit before taxation 101.6 8.4 110.0 100.6 206.5
Income tax expense (Note 5) (32.3) (3.2) (35.5) (31.8) (64.4)
Retained profit transferred
to reserves 69.3 5.2 74.5 68.8 142.1
Earnings per ordinary share
(Note 6)
Basic 61.8p 60.6p 124.4p
Diluted 61.0p 59.6p 123.0p
Proposed dividend per ordinary share 11.0p 9.5p 30.5p
(Note 7)
All results relate to continuing operations.
Note
The column headed 'Impact of Wickes' includes the post acquisition result of
Wickes, together with the synergies that have arisen, and the additional finance
costs incurred by the group, as a result of the acquisition.
Statement of recognised income and expense
Six months 30 Six months Year
June 30 June 31 Dec
2005 2004 2004
(Reviewed) (Reviewed) (Audited)
£m (Restated) (Restated)
Actuarial gains and losses on defined benefit pension (8.6) 10.8 (32.5)
scheme
Deferred tax on pension deficit 1.7 (4.8) 2.0
Net income recognised directly in equity (6.9) 6.0 (30.5)
Profit for the period 74.5 68.8 142.1
Total recognised income and expense for the period 67.6 74.8 111.6
Consolidated balance sheet
As at As at As at
30 June 30 June 31 Dec
£m 2005 2004 2004
(Reviewed) (Reviewed) (Audited)
(Restated) (Restated)
ASSETS
Non-current assets
Property, plant and equipment 452.3 320.9 340.7
Goodwill 1,239.2 294.1 304.8
Other intangible assets 162.5 - -
Investment property 4.0 4.2 4.2
Deferred tax asset 53.8 31.7 38.5
Total non-current assets 1,911.8 650.9 688.2
Current assets
Inventories 277.2 184.6 200.6
Trade and other receivables 361.8 308.6 287.8
Cash and cash equivalents 26.1 33.9 116.9
Total current assets 665.1 527.1 605.3
Total assets 2,576.9 1,178.0 1,293.5
Consolidated balance sheet (continued)
£m As at As at As at
30 June 30 June 31 Dec
2005 2004 2004
(Reviewed) (Reviewed) (Audited)
(Restated) (Restated)
EQUITY AND LIABILITIES
Capital and reserves
Issued capital 12.1 11.3 12.1
Share premium account 161.8 70.0 159.2
Revaluation reserves 26.5 27.1 26.7
Hedging reserve (5.3) - -
Accumulated profits 496.9 424.1 452.6
Total equity 692.0 532.5 650.6
Non-current liabilities
Interest bearing loans and borrowings 1,025.8 142.9 137.8
Deferred tax liabilities 79.0 28.6 38.3
Retirement benefit obligation 179.5 105.7 128.3
Long-term provisions 7.6 - -
Total non-current liabilities 1,291.9 277.2 304.4
Current liabilities
Trade and other payables 490.3 293.7 272.5
Tax liabilities 61.2 51.5 43.5
Interest bearing loans and borrowings 5.3 1.2 0.8
Unsecured loan notes 8.9 10.6 9.0
Short-term provisions 27.3 11.3 12.7
Total current liabilities 593.0 368.3 338.5
Total liabilities 1,884.9 645.5 642.9
Total equity and liabilities 2,576.9 1,178.0 1,293.5
The interim financial statements were approved by the board of directors on 2
September 2005.
Signed on behalf of the board of directors.
G. I. Cooper )
P. N. Hampden Smith ) Directors
Consolidated cash flow statement
Six months Six months Year
30 June 30 June 31 Dec
£m 2005 2004 2004
(Reviewed) Restated Restated
(Reviewed) (Audited)
Operating profit 137.4 106.5 217.7
Adjustments for:
Depreciation of property, plant and equipment 26.8 16.0 33.1
Other non cash movements 1.3 2.3 (0.3)
Gain on disposal of property, plant and equipment (0.1) (0.3) (0.2)
Operating cash flows before movements in working capital 165.4 124.5 250.3
Increase in inventories (3.9) (2.3) (15.7)
Increase in receivables (44.0) (37.8) (14.3)
Increase in payables 42.0 49.7 28.4
Additional cash payments to the pension scheme (1.5) (5.1) (25.8)
Cash generated from operations 158.0 129.0 222.9
Interest paid (14.7) (3.6) (8.5)
Income taxes paid (26.7) (26.9) (54.2)
Net cash from operating activities 116.6 98.5 160.2
Cash flows for investing activities
Interest received 0.2 0.2 0.5
Proceeds on disposal of property, plant and equipment 3.1 1.3 2.2
Purchase of property, plant and equipment (39.7) (33.5) (67.3)
Acquisition of businesses net of cash acquired (1,020.7) (21.0) (39.0)
Net cash used in investing activities (1,057.1) (53.0) (103.6)
Financing activities
Proceeds from issuance of share capital 2.6 0.6 90.6
Dividends paid (25.3) (19.0) (30.0)
Payments of finance leases liabilities (1.1) (0.5) (1.0)
Repayment of unsecured loan notes (0.1) (1.6) (3.2)
Increase/(decrease) in bank loans 873.6 (25.0) (30.0)
Net cash from/(used in) financing activities 849.7 (45.5) 26.4
Net (decrease)/increase in cash and cash equivalents (90.8) - 83.0
Cash and cash equivalents at beginning of period 116.9 33.9 33.9
Cash and cash equivalents at end of period 26.1 33.9 116.9
Notes to the interim financial statements
1 General information and accounting policies
Basis of preparation
From 2005 the group will prepare its consolidated accounts in accordance with
International Financial Reporting Standards ('IFRS') as adopted for use in the
European Union. The group's first IFRS based results are its interim results for
the six months ended 30 June 2005 and the first Annual Report under IFRS will be
for the year ending 31 December 2005. As a result, the comparative amounts
included in these Interim Financial Statements that are shown in the
consolidated balance sheet, consolidated income statement and statement of
recognised income and expense have been restated under IFRS from the UK
Financial Reporting Standard ('UK GAAP') values originally published by the
group.
Reconciliations of the group's UK GAAP balance sheets to its preliminary IFRS
balance sheets at 1 January 2004 ('the opening balance sheet'), 30 June 2004 and
31 December 2004 together with reconciliations of the group's UK GAAP profit and
loss accounts to its preliminary IFRS income statement for the six months to 30
June 2004 and year to 31 December 2004 are shown in note 11. These preliminary
IFRS financial statements will form the basis of the comparative information in
the group's first IFRS Annual Report.
IFRS are subject to continuing review and amendment by the International
Accounting Standards Board ('IASB') and subsequent endorsement by the European
Commission and, therefore, are subject to change. Therefore, in determining the
group's IFRS accounting policies, the Board of Directors has used its best
endeavours in making assumptions about those IFRS expected to be effective or
available for adoption when the first IFRS annual financial statements are
prepared for the year ending 31 December 2005. In particular, the Directors have
assumed that the European Commission will endorse the amendment to IAS 19 '
Employee Benefits' - Actuarial Gains and Losses, Group Plans and Disclosures
issued by the International Accounting Standards Board in December 2004. In
addition, the Directors have taken advantage of the exemption available under
IFRS 1 to only apply IAS 32 'Financial Instruments: Disclosure and Presentation'
and IAS 39 'Financial Instruments: Recognition and Measurement' from 1 January
2005. As the accounting policies used to prepare the Interim Financial
Statement may need to be updated for any subsequent amendment to IFRS required
for first time adoption, or any new IFRS the group may elect to adopt early, it
is possible that the preliminary opening balance sheet and IFRS comparatives may
require adjustment before being finalised.
The Interim Financial Statements have been prepared on the historic cost basis,
except that derivative financial instruments are stated at their fair value.
The consolidated Interim Financial Statements include the accounts of the
company and all its subsidiaries.
The financial information for the six months ended 30 June 2005 and 30 June 2004
is unaudited and does not constitute statutory accounts as defined in section
240 of the Companies Act 1985. This information has been reviewed by Deloitte &
Touche LLP, the group's auditors, and a copy of their review report appears on
the last page* of this Interim Report. A copy of the statutory accounts for the
year ended 31 December 2004 as prepared under UK GAAP has been delivered to the
Registrar of Companies. The auditors' report on those accounts was unqualified.
The principal accounting policies applied in preparing the Interim Financial
Statement are set out below:
Revenue recognition
Revenue is recognised when goods or services are received by the customer and
the risks and rewards of ownership have passed to them. Revenue is measured at
the fair value of consideration received or receivable and represents amounts
receivable for goods and services provided in the normal course of business, net
of discounts and value added tax.
Business combinations
All business combinations are accounted for using the purchase method. In
accordance with the transitional provisions of IFRS 1, the basis of accounting
for pre-transition (1 January 2004) combinations under UK GAAP has not been
revisited. The initial carrying amount of assets and liabilities acquired in
such business combinations is deemed to be equivalent to cost.
The cost of an acquisition represents the cash value of the consideration and/or
the fair value of the shares issued on the date the offer became unconditional,
plus expenses. At the date of the acquisition an assessment is made of the fair
value of the net assets. It is this fair value, which is incorporated into the
consolidated accounts.
Goodwill
Goodwill represents the excess of the cost of acquisition over the share of the
fair value of identifiable net assets (including intangible assets) of a
business or a subsidiary at the date of acquisition. In accordance with IFRS 3,
with effect from 1 January 2004, goodwill allocated to cash generating units is
not amortised, but is reviewed annually for impairment and as such is stated in
the balance sheet at cost less any provision for impairment in value.
Intangible assets
Intangible assets identified as part of the assets of an acquired business are
capitalised separately from goodwill if the fair value can be measured reliably
on initial recognition. Intangible assets are amortised to the consolidated
income statement on a straight-line basis over a maximum of 20 years except
where they are considered to have an indefinite useful life. In the latter
instance they are reviewed annually for impairment.
Notes to the interim financial statements
Property, plant and equipment
Property, plant and equipment is stated at cost or deemed cost less accumulated
depreciation and any impairment in value. Assets are depreciated to their
estimated residual value on a straight-line basis over their estimated useful
lives as follows:
• Buildings - 50 years or if lower, the estimated useful life of the
building or the life of the lease.
• Plant and equipment - 4 to 10 years.
• Land is not depreciated.
Assets held under finance leases are depreciated over their expected useful
lives on the same basis as owned assets, or where shorter the term of the lease.
Properties held for resale
Properties held for resale are surplus to the group's requirements and are
transferred to current assets and shown at the lower of cost and net realisable
value. The appropriate transfer from revaluation reserves is offset against the
value transferred from fixed assets. Profits on the sale of properties are
calculated by deducting the amounts at which they were stated in the balance
sheet from the sale proceeds net of expenses.
Investment properties
Investment properties are properties held to earn rental income and are stated
at cost less depreciation. Properties are depreciated to their estimated
residual value on a straight-line basis over their estimated useful lives, up to
a maximum of 50 years.
Rental income from investment property is recognised in the income statement on
a straight-line basis over the term of the lease.
Leases
Finance leases, which transfer to the group substantially all the risks and
benefits incidental to ownership of the leased item, are capitalised at the
inception of the lease at the fair value of the leased asset or, if lower, at
the present value of the minimum lease payments. Lease payments are apportioned
between the finance charges and reduction of the lease liability so as to
achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are charged directly against income. Capitalised leased assets
are depreciated over the shorter of the estimated useful life of the asset or
the lease term. Leases where the lessor retains substantially all the risks and
benefits of ownership of the asset are classified as operating leases.
Operating lease rental payments are recognised as an expense in the income
statement on a straight-line basis over the lease term.
Impairment
The carrying amounts of the group's assets other than inventories are reviewed
at each balance sheet date to determine whether there is any indication of
impairment. If such an indication exists, the asset's recoverable amount is
estimated and compared to its carrying value. Where the carrying value exceeds
the recoverable amount a provision for the impairment loss is established with a
charge being made to the income statement.
For goodwill and intangible assets that have an indefinite useful life the
recoverable amount is estimated at each annual balance sheet date.
Impairment losses recognised in respect of cash generating units ('CGU') are
allocated first to reduce the carrying amount of any goodwill allocated to the
CGU and then to reduce the carrying amount of the other assets in the unit on a
pro-rata basis.
Goodwill was tested for impairment at the date of transition to IFRS, 1 January
2004, even though no indication of impairment existed.
Inventories
Inventories are stated at the lower of cost and net realisable value. Net
realisable value is the estimated selling price less the estimated costs of
disposal.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with an
original maturity of three months or less. Bank overdrafts that are repayable
on demand and short term draw downs of the revolving credit facility which form
an integral part of the group's cash management are included as a component of
cash and cash equivalents for the purposes of the statement of cash flows.
Arrangement fees
Costs associated with arranging a bank facility are recognised in the income
statement over the life of the facility.
Notes to the interim financial statements
Derivative financial instruments
The group uses derivative financial instruments to hedge its exposure to
interest rate risks arising from financing activities. The group does not enter
into speculative financial instruments. In accordance with its treasury policy,
the group does not hold or issue derivative financial instruments for trading
purposes.
Derivative financial instruments are recognised initially at cost. Subsequent to
initial recognition, derivative financial instruments are stated at fair value.
The fair value of interest rate derivatives is the estimated amount the group
would receive or pay to terminate the derivative at the balance sheet date,
taking into account current interest rates and the current creditworthiness of
the swap counterparties.
Where conditions for hedge accounting are met the portion of the gains or losses
on the hedging instrument that are determined to be an effective hedge are
recognised directly in equity and the ineffective portion is recognised in the
income statement. The gains or losses that are recognised in equity are
transferred to the income statement in the same period in which the hedged firm
commitment affects the income statement.
For derivatives that do not qualify for hedge accounting, any gains or losses
arising from changes in fair value are taken directly to the income statement.
Derivatives embedded in commercial contracts are treated as separate derivatives
when their risks and characteristics are not closely related to those of the
underlying contracts, with unrealised gains or losses being reported in the
income statement.
Taxation
The tax expense represents the sum of the tax currently payable and the deferred
tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from net profit as reported in the income statement because it
excludes items of income and expense that are taxable or deductible in other
years and it further excludes items which are never taxable or deductible. The
group's liability for current tax is calculated using tax rates that have been
enacted or substantially enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary differences
can be utilised. Such assets and liabilities are not recognised if the temporary
difference arises from goodwill or from the initial recognition (other than in a
business combination) of other assets and liabilities in a transaction that
affects neither the tax profit nor the accounting profit.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset realised. Deferred tax is
charged or credited in the income statement, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also
dealt with in equity.
Pensions and other post-employment benefits
For defined benefit schemes, operating profit is charged with the cost of
providing pension benefits earned by employees in the period. The expected
return on pension scheme assets less the interest on pension scheme liabilities
is shown as a finance cost within the income statement.
Actuarial gains and losses arising in the period from the difference between
actual and expected returns on pension scheme assets, experience gains and
losses on pension scheme liabilities and the effects of changes in demographics
and financial assumptions are included in the statement of recognised income and
expense.
Recoverable pension scheme surpluses and pension scheme deficits and the
associated deferred tax balances are recognised in full in the period in which
they occur and are included in the balance sheet.
Obligations for contributions to defined contribution pension plans are
recognised as an expense in the income statement as incurred.
Employee share incentive plan
The group issues equity-settled share-based payments to certain employees
(Executive share options and Save As You Earn), which do not include market
related conditions. These payments are measured at fair value at the date of
grant by use of the Black Scholes model taking into account the terms and
conditions upon which the options were granted. The cost of equity settled
awards is recognised on a straight-line basis over the vesting period, based on
the group's estimate of the number of shares that will eventually vest. No cost
is recognised for awards that do not ultimately vest.
Provisions
A provision is recognised in the balance sheet when the group has a present
legal or constructive obligation as a result of a past event, and it is probable
that an outflow of economic benefits will be required to settle the obligation.
Dividends
Dividends proposed by the board of directors and unpaid at the period end are
not recognised in the financial statements until they have been approved by
shareholders at the Annual General Meeting.
Notes to the interim financial statements
2 Business segments
For management purposes, the group is currently organised into two operating
divisions - Builders Merchanting and DIY Retailing. These divisions are the
basis on which the group reports its primary segment information. Segment
information about these businesses for the six months ended 30 June 2005 is
presented below.
Builders DIY Retailing Eliminations Consolidated
Merchanting
£m
Revenue 938.5 352.7 - 1,291.2
Result
Segment result 107.0 31.2 - 138.2
Unallocated corporate expenses (0.8)
Finance costs (27.4)
Profit before taxation 110.0
Taxation (35.5)
Net profit 74.5
There are no inter-segment sales or charges.
Other information
Segment assets 1,233.1 1,316.9 - 2,550.0
Unallocated corporate assets 26.9
Consolidated total assets 2,576.9
Segment liabilities (503.4) (298.8) - (802.2)
Unallocated corporate (1,082.7)
liabilities
Consolidated total liabilities (1,884.9)
Consolidated net assets 729.7 1,018.1
Capital expenditure 30.9 8.8 39.7
Depreciation 18.9 7.9 26.8
Notes to the interim financial statements
3 Pension scheme
Builders Merchanting
£m DIY Retailing Total
Gross deficit 1 January 2005 (128.3) - (128.3)
Deficit at date of acquisition - (45.4) (45.4)
Current service costs (6.0) - (6.0)
Contributions 11.0 - 11.0
Other finance costs (1.6) (0.6) (2.2)
Actuarial (loss)/gain - corporate bond yields (27.0) (0.3) (27.3)
- return on assets 10.4 1.2 11.6
- other 6.6 0.5 7.1
Gross deficit at 30 June 2005 (134.9) (44.6) (179.5)
Deferred tax asset 40.4 13.4 53.8
Net deficit at 30 June 2005 (94.5) (31.2) (125.7)
4 Finance costs
Six months Six months Year
£m 30 June 30 June 31 Dec
2005 2004 2004
Loan and other bank interest 23.9 4.1 8.4
Finance lease charges 1.3 - -
Other finance costs - pension schemes 2.2 1.8 2.8
27.4 5.9 11.2
Interest cover (times) 5.7 26.0 25.9
Interest cover is calculated by dividing operating profit by loan and other
bank interest.
5 Income tax expense
Six months Six months Year
£m 30 June 30 June 31 Dec
2005 2004 2004
Current tax:
UK corporation tax - current year 36.0 30.5 54.3
- prior year - - 0.9
36.0 30.5 55.2
Deferred tax:
- current year (0.5) 1.3 10.1
- prior year - - (0.9)
Total deferred tax (0.5) 1.3 9.2
Total tax charge 35.5 31.8 64.4
Tax for the interim period is charged at 32.3% (Year to 31 December 2004:
31.2%), representing the best estimate of the weighted average annual
corporation tax rate expected for the full financial year.
Notes to the interim financial statements
6 Earnings per share
Six months Six months Year
£m 30 June 30 June 31 Dec
2005 2004 2004
Earnings
Earnings for the purposes of basic and diluted 74.5 68.8 142.1
earnings per share being net profit attributable to
equity holders of the parent
Number of shares
Weighted average number of ordinary shares for the 120,657,659 113,452,820
purposes of basic earnings per share
114,232,096
Dilutive effect of share options on potential 1,538,168 2,023,619
ordinary shares
1,322,132
Weighted average number of ordinary shares for the 122,195,827 115,476,439 115,554,228
purposes of diluted earnings per share
7 Dividends
Amounts were recognised in the financial statements as distributions to equity
shareholders in the following periods:
Six months Six months Year
£m 30 June 30 June 31 Dec
2005 2004 2004
Final dividend for the year ended 31 December 25.3 19.0
2004 of 21.0 pence (2003: 16.8 pence) per ordinary
share 19.0
Interim dividend for the year ended 31 - -
December 2004 of 9.5 pence per ordinary share 11.0
The proposed interim dividend of 11 pence per ordinary share in respect of the
year ending 31 December 2005 was approved by the Board on 2 September 2005 and
in accordance with IFRS has not been included as a liability as at 30 June 2005.
8 Bank overdrafts and loans
On completion of the acquisition of Wickes Limited on 11 February 2005, a new
five-year facility comprising a £500 million term loan and a £700 million
revolving credit facility was partly drawn. At 30 June 2005 the group had the
following bank facilities available:
30 June 30 June 31 Dec
£m 2005 2004 2004
Drawn facilities
5 year term loan 500.0 - -
5 year revolving credit facility 500.0 - -
Bilateral loans - 125.0 120.0
1,000.0 125.0 120.0
Undrawn facilities
5 year term loan - - 500.0
5 year revolving credit facility 200.0 - 700.0
Bank overdrafts 25.0 54.0 54.0
364 day uncommitted facilities - 78.0 78.0
225.0 132.0 1,332.0
Notes to the interim financial statements
9 Share capital
Authorised Allotted
Ordinary shares of 10p No. £m No. £m
At 1 January 2005 135,000,000 13.5 120,519,379 12.1
Allotted under share option schemes - - 290,692 -
At 30 June 2005 135,000,000 13.5 120,810,071 12.1
10 Acquisition of businesses
On 11 February 2005, the group acquired 100% of the issued share capital of
Wickes Limited for cash consideration of £1,010.8 million. This transaction has
been accounted for by the purchase method of accounting.
Wickes fair value table
£m IFRS book value Provisional Provisional fair
fair value value
adjustments
Net assets acquired
Property plant and equipment 105.4 (6.0) 99.4
Inventories 69.4 0.4 69.8
Trade and other receivables 27.6 (1.7) 25.9
Cash and cash equivalents 6.7 - 6.7
Trade and other payables (190.1) (11.5) (201.6)
Retirement benefit obligations (12.1) (19.7) (31.8)
Tax liabilities (0.6) 4.9 4.3
6.3 (33.6) (27.3)
Other intangible assets (net of deferred tax) 113.7
Goodwill 917.5
Costs not charged to goodwill 6.9
1,010.8
Satisfied by:
Cash 994.3
Directly attributable costs included in goodwill 9.6
1,003.9
Directly attributable costs not included in 6.9
goodwill
1,010.8
The net amount paid after deducting £6.7m of cash in Wickes at the date of
acquisition was £1,004.1m.
In addition during the period the group has acquired 7 new businesses with 9
branches for a combined value of £23.5m (after adjusting for cash acquired at
the date of acquisition) which resulted in goodwill of £16.9m.
Notes to the interim financial statements
11 Explanation of transition to IFRS
The reconciliations of equity at 1 January 2004 (date of transition to IFRS), at
31 December 2004 (date of last UK GAAP financial statements) and at 30 June 2004
have been included below to enable a comparison of the 2005 published interim
figures with those published in the corresponding period of the previous
financial year. In addition, there is also the reconciliation of the UK GAAP
profit for the year ended 31 December 2004 and six months ended 30 June 2004 to
the profit restated under IFRS.
The significant changes as a result of the transition to IFRS and of adopting
the IFRS group accounting policies are described below.
IFRS 2 Share-based payments
In accordance with IFRS 2, the group has recognised a charge reflecting the fair
value of outstanding share options granted to employees since 7 November 2002.
The fair value has been calculated using the Black Scholes valuation model and
is charged to profit over the relevant option vesting period, adjusted to
reflect actual and expected levels of vesting. The impact of this change has
been a charge of £1.4m to operating profit for the year to 31 December 2004 and
of £0.7m for the six months to 30 June 2004.
IFRS 3 Business combinations
IFRS 3 prohibits the amortisation of goodwill. The standard requires goodwill to
be carried at cost less impairment. Impairment reviews should be carried out
annually and also when there are indications that the carrying value may not be
recoverable. As permitted by IFRS 1, the Group has chosen to apply IFRS 3
prospectively from 1 January 2004, the date of transition, and has chosen not to
restate previous business combinations. Therefore, goodwill is stated in the
opening balance sheet at 1 January 2004 at its UK GAAP carrying value of £285.7m
with the subsequent 2004 amortisation being reversed. The impact on operating
profit is a credit of £17.4m for the year ended 31 December 2004 and a credit of
£8.5m for the six months ended 30 June 2004.
IAS 12 Income taxes
IAS 12 requires entities to calculate deferred taxation based on temporary
differences, which are defined as the difference between the carrying amount of
assets/liabilities and their tax base. As a result, the group has provided an
additional £19.1m of deferred tax liabilities in its opening balance sheet,
£16.7m at 30 June 2004 and £18.8m at 31 December 2004 that were not required
under UK GAAP. These arise from the potential tax gains on the revaluation of
fixed assets, on certain acquired buildings that do not qualify for industrial
building allowances and from the effect of implementing IFRS 2. Where required,
deferred tax has been provided on all other IFRS adjustments.
IAS 16 Property, plant and equipment
In accordance with IFRS 1, the group has elected, where appropriate, to use the
revaluation carrying amount of certain properties as the 'deemed cost' on
transition to IFRS.
IAS 17 Leases
Under IAS 17, a lease is classified as a finance lease if it transfers
substantially all the risks and rewards of ownership to the lessee. Assets held
under finance leases and the related lease obligations are recorded in the
balance sheet at the lower of the fair value of the property and the present
value of the minimum lease payments at inception of the leases. The impact of
the new standard means that a number of property leases will now be capitalised.
This has resulted in an increase to fixed assets of £14.4m and creditors of
£18.5m giving a net decrease to net assets of £4.1m and a credit of £1.0m to
operating profit for the year to 31 December 2004, with a decrease to net assets
of £4.2m and a credit of £0.5m to operating profit (£0.1m to profit before tax)
for the six months to 30 June 2004.
IAS 19 Employee benefits
As the group has an obligation to its employees to pay accrued holiday
entitlement, IAS 19 requires it to accrue for holidays earned by its employees,
but not taken by the balance sheet date. Whilst the holiday pay year is
co-terminus with the statutory year-end, at the half-year employees have earned
but not taken holidays. Therefore, whilst it is expected that the accrual in the
Interim Financial Statements will be broadly similar in magnitude each year,
there is a balance sheet movement and income statement impact between the first
and second half of the financial year. This has resulted in a charge of £2.5m
to operating profit for the six months ended 30 June 2004, which has been
reversed in the second half.
IAS 37 Provisions
Under IAS 37, a provision should only be recognised when there is a present
legal or constructive obligation to transfer resources. For Travis Perkins plc,
no such obligation to pay a dividend exists until the shareholders give formal
approval to the proposed dividend at the annual general meeting. Therefore under
IFRS, the group will no longer accrue unapproved dividends at period ends. This
has resulted in an increase in net assets of £19.0m at 1 January 2004, the
opening balance sheet date, £10.8m at 30 June 2004 and £25.3m at 31 December
2004.
Notes to the interim financial statements
11 Explanation of transition to IFRS (continued)
IAS 32 Financial instruments: Disclosure and presentation and IAS 39 Financial
instruments: Recognition and measurement
The group has elected not apply IAS 32 and IAS 39 to periods ended on or prior
to 31 December 2004. The group has not identified any significant adjustments
would be required to prior periods if IAS 32 and IAS 39 were applied
retrospectively.
IAS 40 Investment properties
IAS 40 allows the group to recognise investment properties at cost and
depreciate them over their estimated useful lives or at fair value. The group
has chosen to adopt the cost model with the result that operating profits for
the year ended 31 December 2004 were reduced by £0.1m (6 months ended 30 June
2004 £0.1m). The carrying value of investment properties at 31 December 2004
was increased by £0.3m to £4.2m after depreciation.
In accordance with the transitional rules set out in IFRS 1 the cost of
investment properties held at 1 January 2004 is deemed to be the same as the
fair value of the properties at the date.
Reconciliations
The following tables reconcile the previously reported UK GAAP numbers with
those now prepared under IFRS.
Reconciliation of UK GAAP profit to IFRS profit for the six months ended 30 June
2004
UK GAAP Effect of IFRS
transition to IFRS
£m
Revenue 913.6 - 913.6
Operating profit 100.8 5.7 106.5
Finance costs (5.5) (0.4) (5.9)
Profit before taxation 95.3 5.3 100.6
Tax expense (31.4) (0.4) (31.8)
Net profit 63.9 4.9 68.8
Basic earnings per share 56.3p 4.3p 60.6p
Diluted earnings per share 55.3p 4.3p 59.6p
Adjusted earnings per share (earnings before 63.8p (3.2)p 60.6p
goodwill amortisation)
Reconciliation of UK GAAP profit to IFRS profit for the year ended 31 December
2004
UK GAAP Effect of IFRS
transition to IFRS
£m
Revenue 1,828.6 - 1,828.6
Operating profit 200.8 16.9 217.7
Finance costs (10.4) (0.8) (11.2)
Profit before taxation 190.4 16.1 206.5
Tax expense (60.3) (4.1) (64.4)
Net profit 130.1 12.0 142.1
Basic earnings per share 113.9p 10.5p 124.4p
Diluted earnings per share 112.6p 10.4p 123.0p
Adjusted earnings per share (earnings before 129.1p (6.7)p 124.4p
goodwill amortisation)
Notes to the interim financial statements
11 Explanation of transition to IFRS (continued)
Reconciliation of UK GAAP equity shareholders' funds to IFRS equity
shareholders' funds
At 1 January 2004 At 31 December 2004
UK GAAP Effect of IFRS UK GAAP Effect of IFRS
transition to transition to
£m IFRS IFRS
Property, plant and 284.7 15.1 299.8 326.3 14.4 340.7
equipment
Goodwill 285.7 - 285.7 287.4 17.4 304.8
Investment property 4.3 - 4.3 3.9 0.3 4.2
Deferred tax asset - 36.5 36.5 - 38.5 38.5
Total non-current assets 574.7 51.6 626.3 617.6 70.6 688.2
Inventories 178.1 - 178.1 200.6 - 200.6
Trade and other receivables 265.6 - 265.6 287.8 - 287.8
Cash and cash equivalents 33.9 - 33.9 116.9 - 116.9
Total current assets 477.6 - 477.6 605.3 - 605.3
Total assets 1,052.3 51.6 1,103.9 1,222.9 70.6 1,293.5
Issued capital 11.3 - 11.3 12.1 - 12.1
Share premium account 69.4 - 69.4 159.2 - 159.2
Revaluation reserve 30.6 (3.5) 27.1 29.8 (3.1) 26.7
Accumulated profits 365.7 (0.9) 364.8 429.4 23.2 452.6
Total equity 477.0 (4.4) 472.6 630.5 20.1 650.6
Interest bearing loans and 150.0 18.3 168.3 120.0 17.8 137.8
borrowings
Deferred tax liability 10.2 19.1 29.3 19.5 18.8 38.3
Employee benefits 85.1 36.5 121.6 89.8 38.5 128.3
Total non-current 245.3 73.9 319.2 229.3 75.1 304.4
liabilities
Trade and other payables 264.4 (19.0) 245.4 297.8 (25.3) 272.5
Current tax liability 43.3 - 43.3 43.5 - 43.5
Interest bearing loans and 0.2 1.1 1.3 0.1 0.7 0.8
borrowings
Unsecured loan notes 12.2 - 12.2 9.0 - 9.0
Short-term provisions 9.9 - 9.9 12.7 - 12.7
Total current liabilities 330.0 (17.9) 312.1 363.1 (24.6) 338.5
Total liabilities 575.3 56.0 631.3 592.4 50.5 642.9
Total equity and liabilities 1,052.3 51.6 1,103.9 1,222.9 70.6 1,293.5
Notes to the interim financial statements
11 Explanation of transition to IFRS (continued)
Reconciliation of UK GAAP equity shareholders' funds to IFRS equity
shareholders' funds as at 30 June 2004
UK GAAP Effect of IFRS
transition to
£m IFRS
Property, plant and equipment 306.1 14.8 320.9
Goodwill 285.6 8.5 294.1
Investment property 4.3 (0.1) 4.2
Deferred tax asset - 31.7 31.7
Total non-current assets 596.0 54.9 650.9
Inventories 184.6 - 184.6
Trade and other receivables 308.6 - 308.6
Cash and cash equivalents 33.9 - 33.9
Total current assets 527.1 - 527.1
Total assets 1,123.1 54.9 1,178.0
Issued capital 11.3 - 11.3
Share premium account 70.0 - 70.0
Revaluation reserve 30.6 (3.5) 27.1
Accumulated profits 424.8 (0.7) 424.1
Total equity 536.7 (4.2) 532.5
Interest bearing loans and borrowings 125.0 17.9 142.9
Deferred tax liability 11.9 16.7 28.6
Employee benefits 74.0 31.7 105.7
Total non-current liabilities 210.9 66.3 277.2
Trade and other payables 302.0 (8.3) 293.7
Current tax liability 51.5 - 51.5
Interest bearing loans and borrowings 0.1 1.1 1.2
Unsecured loan notes 10.6 - 10.6
Short-term provisions 11.3 - 11.3
Total current liabilities 375.5 (7.2) 368.3
Total liabilities 586.4 59.1 645.5
Total equity and liabilities 1,123.1 54.9 1,178.0
12 Gearing
£m 30 June 30 June 2004 31 Dec
2005 2004
Net debt (1,013.9) (120.8) (30.7)
IAS 17 Finance leases 33.3 19.0 18.5
Finance charges netted off bank debt (6.5) - -
Adjusted net debt (987.1) (101.8) (12.2)
Total equity 692.0 532.5 650.6
Gearing (adjusted net debt divided by total 19.1% 1.9%
equity) 142.6%
Notes to the interim financial statements
13 31 December 2004 proforma net debt and proforma gearing
£m
Net debt at 31 December 2004 (30.7)
Debt to acquire Wickes (Note 10) (1,010.8)
Finance leases acquired (20.0)
Cash acquired 6.7
Proforma net debt at 31 December 2004 (1,054.8)
Net debt at 30 June 2005 (1,013.9)
Net debt reduction in 2005 40.9
Proforma net debt at 31 December 2004 (1,054.8)
IAS 17 finance leases 33.7
Adjusted net debt (1,021.1)
Total equity 650.6
Proforma gearing 156.9%
14 Reconciliation of movement in cash and cash equivalents to net debt
£m 30 June 30 June 31 Dec
2005 2004 2004
Net debt at 1 January (30.7) (147.9) (147.9)
(Decrease) / increase in cash and cash equivalents (90.8) - 83.0
Cash flows from debt (872.0) 27.1 34.2
Amortisation of finance charges (0.4) - -
Finance leases acquired (20.0) - -
Net debt at 30 June / 31 December (1,013.9) (120.8) (30.7)
15 Like-for-like free cash flow
Six months Six months
Year
£m 30 June 30 June 2004
31 Dec
2005
2004
Net debt at 1 January (30.7) (147.9) (147.9)
Net debt at 30 June / 31 December (1,013.9) (120.8) (30.7)
Movement in net debt (983.2) 27.1 117.2
Wickes finance leases acquired 20.0 - -
Dividends 25.3 19.0 30.0
Net cash outflow for expansion capital expenditure 22.5 14.1 29.3
Net cash outflow for acquisitions 1,020.7 21.0 39.0
Shares issued (2.6) (0.6) (90.6)
Special pension contributions 1.5 5.1 25.8
Like-for-like free cash flow 104.2 85.7 150.7
Notes to the interim financial statements
16 Reconciliation of UK GAAP profit to IFRS profit for the six months
ended 30 June 2005
UK GAAP Effect of IFRS IFRS
£m
Revenue 1,291.2 1,291.2
-
Operating profit before amortisation and impairment 141.0 (3.6) 137.4
charges
Amortisation and impairment of intangibles (28.9) 28.9 -
Operating profit 112.1 25.3 137.4
Finance costs (25.9) (1.5) (27.4)
Profit before taxation 86.2 23.8 110.0
Tax expense (36.2) 0.7 (35.5)
Net profit 50.0 24.5 74.5
Basic earnings per share 41.5p 20.3p 61.8p
Diluted earnings per share 41.0p 20.0p 61.0p
Adjusted earnings per share (earnings before goodwill 65.4p (3.6)p 61.8p
amortisation)
17 Return on equity
Return on equity, as referred to in the chairman's statement, is derived as
follows:
£m 30 June 30 June 31 Dec
2005 2004 2004
Profit before taxation 110.0 100.6 206.5
Closing equity 692.0 532.5 650.6
Net pension deficit 125.7 74.0 89.8
Closing goodwill written off 92.7 92.7 92.7
910.4 699.2 833.1
Opening equity 650.6 472.6 472.6
Net pension deficit 89.8 85.1 85.1
Opening goodwill written off 92.7 92.7 92.7
833.1 650.4 650.4
Average net assets* 871.8 674.8 707.8
Return on equity 25.2% 29.8% 29.2%
*Due to the £75.5 million share issue in December 2004, a weighted average net
assets value has been used to calculate the average net assets for the year
ended 31 December 2004.
Independent Review Report to Travis Perkins plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2005 which comprises the income statement, the
balance sheet, the cash flow statement, the statement of recognised income and
expense and related notes 1 to 17. We have read the other information contained
in the interim report and considered whether it contains any apparent
misstatements or material inconsistencies with the financial information.
This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
International Financial Reporting Standards
As disclosed in note 1, the next annual financial statements of the group will
be prepared in accordance with International Financial Reporting Standards as
adopted for use in the EU. Accordingly, the interim report has been prepared in
accordance with the recognition and measurement criteria of IFRS and the
disclosure requirements of the Listing Rules. The accounting policies are
consistent with those that the directors intend to use in the annual financial
statements. There is, however, a possibility that the directors may determine
that some changes to these policies are necessary when preparing the full annual
financial statements for the first time in accordance with IFRSs as adopted for
use in the EU. This is because, as disclosed in note 1, the directors have
anticipated that the European Commission will endorse the amendment to IAS 19 '
Employee Benefits' - Actuarial Gains and Losses, Group Plans and Disclosures
issued by the International Accounting Standards Board in December 2004.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with International Standards on Auditing (UK and
Ireland) and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2005.
Deloitte & Touche LLP
Chartered Accountants and Registered Auditors
Birmingham
2 September 2005
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