Publication of the Annual Report

RNS Number : 7086B

Travis Perkins PLC

20 April 2012

ANNUAL REPORT 2011

20 April 2012

Travis Perkins plc (the "Company") announces that its Annual Report for the year ended 31 December 2011, and the Notice of Annual General Meeting, are now available on the Company's website - www.travisperkinsplc.com.

Printed copies of these documents will be posted to shareholders on or around 20 April 2012 and in accordance with rule 9.6.1 of the Listing Rules they will shortly be submitted to the National Storage Mechanism.

In accordance with rule 6.3.5 of the Disclosure and Transparency Rules, we set out below the following extracts from the Annual Report in unedited full text. Accordingly, page references in the text below refer to page numbers in the Annual Report.

· Financial Highlights

· Chairman's Statement

· Chief Executive's Review of the Year

· Deputy Chief Executive's Review of the Year

· Finance Director's Review of the Year

· Statement of Director's Responsibilities

· Financial Statements

· Selected Notes to the Financial Statements

The company published its preliminary results on 22 February 2012, the details of which have been republished in this announcement.

This information should be read in conjunction with, and not as a substitute for, reading the full Annual Report and Accounts 2011.

On behalf of the Board:

Geoff Cooper - Chief Executive
Paul Hamden Smith - Finance Director

The Annual General Meeting of the Company will take place at 11.45 a.m. on Tuesday 22 May 2012 at Northampton Rugby Football Club, Franklin's Gardens, Weedon Road, Northampton NN5 5BG.

Enquiries:

Geoff Cooper

Chief Executive

Travis Perkins plc

Tel No: +44 (0)1604 683030

Paul Hampden Smith

Finance Director

Travis Perkins plc

Tel No: +44 (0)1604 683112

David Bick / Mark Longson

Square1 Consulting Ltd

Tel No: +44 (0)207 929 5599

FINANCIAL HIGHLIGHTS

For the year ended 31 December 2011

FINANCIAL HIGHLIGHTS
	· Group revenue up 52% at £4,779m, up 6% on a like-for-like basis
	· Adjusted profit before tax up 37% to £297m
	· Adjusted EPS up 21% to 93.1p
	· Proforma adjusted group operating margin maintained at 6.6%
	· Net debt reduced by £191m to £583m with adjusted net debt to EBITDA of 1.3x (note 37)
	· Total dividend per share up by 33% to 20p, including a final dividend of 13.5p
OPERATING HIGHLIGHTS
	· BSS acquisition synergies realised in 2011 exceeded expectations at £20m · Expected synergies for 2012 increased to £30m
	· BSS integration ahead of schedule
	· Strong like-for-like performance and market share gains
	· ToolStation acquisition completed on 3 January 2012 · 13 ex-Focus stores acquired and trading ahead of expectations
		2011		2010
		£m	%	£m

Revenue		4,779.1	51.6	3,152.8

Adjusted*:
Operating profit (note 5a)		313.2	31.0	239.0
Profit before taxation (note 5b)		296.7	36.9	216.7
Profit after taxation (note 5b)		219.0	39.6	156.9
Adjusted earnings per ordinary share (pence) (note 12b)		93.1	20.6	77.2
Statutory:
Operating profit		290.5	32.2	219.8
Profit before taxation		269.6	37.0	196.8
Profit after taxation		212.4	50.3	141.3
Basic earnings per ordinary share (pence)		90.3	29.7	69.6

Total dividend declared per ordinary share (pence) (note 13)		20.0p	33.3	15.0p

* Throughout this Annual Report the term "adjusted" has been used to signify that the effects of the exceptional items, amortisation of intangible assets and the associated tax impacts have been excluded from the disclosure being made. The term "proforma" when used in this Annual Report signifies that the 2010 comparative has been adjusted to include the effect of BSS for the entire year, not just the post acquisition period. Details of exceptional items are given in notes 5, 10 and 11.

CHAIRMAN'S STATEMENT

For the year ended 31 December 2011

INTRODUCTION

Travis Perkins is the UK's largest distributor of building and construction materials.

Through our various group companies, we aim to offer the widest range of products to our professional and retail customers, providing the highest levels of customer service at competitive prices.

Our organisation model devolves management responsibility close to customers and provides the benefits of innovative and shared central services.

Our businesses are supported by sector leading IT, and a strong people culture based on clear values and leadership behaviours.

We aim to deliver consistent and increasing shareholder value over time.

RESULTS

2011 was a good year for Travis Perkins. Our primary focus was integrating the former BSS businesses into the Group to maximise synergies, but we have also outperformed in the majority of our markets through the continued implementation of self-help initiatives, all this, in spite of the markets in which we operate declining by between 4% and 5%.

Revenue increased by 52% to £4.8bn and our adjusted pre-tax profits rose by 37% to £297m; adjusted earnings per share were up by 21% to 93.1 pence. On a proforma basis, assuming BSS had been owned for all of 2010, adjusted profit before tax was 11% higher, and adjusted earnings per share were up 11%, or 9.0 pence.

We have made excellent progress with our planned BSS financial systems integration and organisational changes, and our synergy project is running ahead of schedule. In 2011, we realised £20m of synergies and we anticipate that we will beat our previously published target of £25m, achieving £30m in 2012.

Strong cash flows and working capital management, which includes £27m from the sale of Buck and Hickman, have reduced debt by £191m to £583m.

On 3 January 2012, the Group exercised its option to acquire the remaining share capital of Toolstation. The company, which sells lightside products through its network of 103 UK based retail stores, a catalogue operation and online, has grown rapidly and profitably in recent years. We welcome our new colleagues to the Group and look forward to their continued success.

DIVIDEND

The Board's stated intention is to reduce the multiple by which dividends are covered by post tax earnings to between 2.5 times and 3.5 times over the medium term from the current cover of 4.7 times. As a step towards meeting that target, the Board is pleased to recommend a final dividend of 13.5 pence per share, payable to shareholders on the register on 4 May 2012, which will give a total dividend for 2011 of 20 pence per share. The proposed 33% increase in dividend over 2010 will result in a cash outflow of £47m.

BOARD OF DIRECTORS

I am delighted that Ruth Anderson joined the Company as a non-executive director in October. She has extensive experience of advising a broad range of companies across many business sectors and so will be of great value to the Board.

As a result of re-organising the Group's operations into four divisions and making other organisational changes, John Carter, who has successfully served as the Group's Chief Operating Officer for the past seven years, was promoted to Deputy Chief Executive on 1 January 2012. I am sure that John will continue to make a very significant contribution to the Group in his new role.

EMPLOYEES

Our engaged and hard working colleagues are critical to our success. Yet again, they have delivered outstanding results for shareholders in difficult circumstances. I should like to thank them, on behalf of the Board, for all their efforts during the year.

OUTLOOK

The markets in which we operate are likely to remain subdued for much of 2012. We expect new house starts and mortgage applications, which are key indicators for our business, to remain relatively flat and public sector expenditure to fall as the government strives to reduce the deficit. Consumer markets are likely to be soft as disposable income is further squeezed.

Our investment in Toolstation will realise full year profits for the first time, the 13 stores acquired from Focus in the summer are trading profitably and our synergy projects will continue to deliver strong benefits. When these projects are taken together with our ongoing initiatives to improve customer service and our careful management of costs, we are confident 2012 will be another year of progress for the Group.

Robert Walker

Chairman

21 February 2012

CHIEF EXECUTIVE'S REVIEW OF THE YEAR

For the year ended 31 December 2011

INTRODUCTION

Over the last dozen years or so the Group has, from its original base in general merchanting, steadily expanded its activities to develop businesses and new distribution channels to serve a greater proportion of the market in the UK. In parallel, we have augmented that strategy with a drive to improve continuously all our businesses so that they become the most attractive supplier in their market segment, and consequently outperform their competitors. Both these initiatives have allowed us to capture economies of scale and synergies through centralisation of common activities and purchasing into highly efficient, low cost and powerful central functions.

Execution of our strategy meant we came into 2011 as the largest supplier of building materials in the UK, having just acquired BSS. During 2011 we have continued to make good progress on all fronts - integrating the BSS acquisition, adding our presence in additional channels and stretching our lead in market outperformance by making a series of improvements in all businesses.

The integration project under the leadership of Norman Bell has progressed well thanks to the very effective work of a team of colleagues drawn from across the Group. Their focus has been to integrate BSS colleagues and businesses into the Group and identify and realise synergies. New operating and financial systems have been developed for our PTS and BSS Industrial businesses, cross brand selling opportunities have been realised, the management team has been strengthened and we have invested in expanding the warehousing facilities at Magna Park in Leicestershire and Chorley in Lancashire.

The first year of the BSS synergy project has exceeded our expectations. The initial target of £8m, for 2011, has been surpassed as we achieved a total of £20m of synergies in 2011 - £15m from purchasing and £5m from overheads. We are on course to deliver £30m in 2012. This is one year earlier than we anticipated, and £5m more than our original 2013 target.

We have continued to take opportunities where they have met our stringent investment criteria and have added around 2.5% to revenue from expansion on an annualised basis. The administration of Focus, a competitor in the DIY market, allowed us to acquire 13 new stores in high priority catchment areas. Also, we have added a new sales channel to the Group by acquiring 25% of a small roofing supplies company based in the North of England. Should our investment prove to be successful then we have the option to acquire the entire company at a future date.

Early in 2012 we completed the acquisition of Toolstation by purchasing the 70% of issued share capital we did not already own. The company has experienced rapid organic growth over the last three years and now trades from 103 outlets as well as strongly via the telephone and the internet. The IT system and multichannel expertise of the Toolstation management makes it a valuable and profitable addition to the Group.

In early February, the OFT contacted us to raise concerns about the acquisition. Given our agreement with Toolstation has created a new and robust competitor in the multi-channel market we are surprised they contacted us. We are in the process of responding to the initial enquiry and are confident that the issue will be satisfactorily resolved.

2011 PERFORMANCE

The success of our business is based upon having strong operational and financial disciplines, tight controls on both margins and costs and allocating capital to ensure that our mature businesses have both the highest operating margin and return on capital in their respective sectors.

Throughout this annual report, consistent with our approach last year, the term "adjusted" has been used to signify that the effects of exceptional items and amortisation of intangible assets have been excluded from the disclosures being made. Details of the exceptional charges are given in the Finance Director's report on page 30. The term "proforma" is also used in this annual report to signify that the current year performance is being compared to 2010 adjusted to reflect the full year performance of the BSS business.

Revenue for 2011 was £4,779m (2010: £3,153m), an increase of £1,626m. Excluding BSS, most of the revenue increase came from our Merchanting division with all businesses and product groups seeing strong growth. Of the 51.6% increase in revenue, like-for-like ("LFL") sales increased by 6.0% with inflation of 4.7% and volumes increasing by 1.3%, whilst BSS accounted for 43.7% and other expansion provided 2.2%. One fewer working day reduced sales by 0.3%. These gains in LFL sales reflect the work we have done to find more ways to improve further the merchanting and retail businesses by continuously improving our offer to customers. Significant progress has been made on customer service, product availability, product presentation and improved sourcing in both divisions.

Adjusted operating profit increased by £74m to £313m (2010: £239m), which resulted in adjusted group operating margin of 6.6%, in line with last year on a proforma basis. Our trading strategies in 2011 have been aimed at maximising operating profits by sustaining our volume outperformance, and using these to drive economies of scale. With market volumes likely to fall slightly in 2012, we aim to modify this stance on a selective basis, , to reflect market trends in order to protect margins as we have done successfully in the past.

Clearly, the inclusion of BSS contributed the major part of the increase in profits - on an adjusted proforma basis. operating profits were up by £11m, an increase of 3.6%. This increase reflects our ability to drive synergies and outperform.

After allowing for a £6m reduction in financing costs, the trend in operating profits was reflected in the £67m rise in adjusted pre-tax profits to £284m (2010: £217m).

Adjusted earnings per share "EPS" increased by 21% to 93.1 pence (2010: 77.2 pence). Again, this mainly reflected the impact of the BSS acquisition. Taking into account synergies, this acquisition has enhanced EPS by 12%, with gains in the non-BSS businesses increasing EPS by 9%.

Our strategy of reducing debt has continued during the year with careful control of working capital and capital investment resulting in a significant cash inflow. By 31 December we had achieved our target net debt of £583m (2010: £774m), and had reduced the ratio of net debt to EBITDA to 1.3 times (2010: 1.9 times).

Markets and our response

The market predictions we made for the year were broadly correct, although the first quarter of last year proved to be better than expected and we, like others, did not foresee the full extent and impact of the Eurozone related uncertainty later in the year. The latter part of the year saw markets slowing as a result of fewer property transactions in the spring and increasing public sector spending cuts.

Our underlying organic strategy has delivered good returns against a background of weak macro indicators and the key indicators that we follow show that the market remains weak. We believe that market volumes for trade are still some 30% below their 2007 peak whilst in retail, the situation is marginally better at minus 25%.

We track a number of key external indicators, but those most closely correlated with our performance have shown little improvement in 2011.

Trade market volumes in 2011 declined by around 3%. Towards the end of the year property transactions, a good lead indicator for our merchanting businesses, were around 11% better than the corresponding period last year, but they remain stubbornly low at around 70 - 80,000 per month compared with 135,000 pre-recession.

According to Government statistics private new house starts in England reached almost 76,000 in the 12 months to September 2011, down by 5% compared with the 12 months to September 2010. This level of activity is substantially below the peak of around 155,000 in 2007 and the estimated current need in Great Britain of 250,000 new houses p.a.

The consumer market was adversely impacted by a combination of low consumer confidence and significant tax increases from April, which reduced household disposable income. Both indicators have fallen during 2011, with consumer confidence continuing on a declining trend. Core market volumes declined by around 5%, but the market for big ticket items contracted by over 10%.

We have seen further falls in competitor capacity in both of our markets, although it was more pronounced in consumer following the closures of Focus and Homeform in mid-year. Although we benefited from our acquisition of 13 Focus stores, the rest of the estate gained very little from either closure as both mainly operated in different markets to Wickes, supplying different customer bases.

DIVISIONS

On 1 January 2012 we reorganised the Group's divisional structure so that the Group now operates through four distinct divisions; general merchanting, specialist merchanting, consumer and plumbing and heating, each managed by a divisional chairman. Combining similar businesses, under common leadership, will ensure that we maximise the benefits from consistently applying best practice.

The following comments are based upon the divisional structure in place during 2011.

Our culture of continuous improvement has driven the business forward again, enabling us to retain our position as the UK's leading provider of building materials.

Merchanting division

Our merchanting division has performed strongly with each of our businesses recording impressive growth and outperforming both national and independent merchants. Sales increased in aggregate by £231m, or 10.9% with LFL sales improving by 9.4%, sales from new branches contributing 2.2% and closures and one less working day reducing sales by 0.7%. Volumes increased by 3.9% supported by higher than expected price inflation of 5.5%. Adjusted operating profit was up 9.4% to £201.8m.

Operating margins fell by 0.2% to 8.6% (2010: 8.8%). Gross margin for the division fell by 0.8% in 2011, due to a combination of mix (direct sales improved diluting the gross margins by 0.4%), limited price investment in the early part of the year and investment in our warehousing infrastructure which reduced margins by 0.4%. However, the ratio of overheads to sales fell by 0.4% due to the operational gearing effect of the fixed element of our cost base and synergies improved profits by 0.2%.

The general merchanting business had a good year with a particularly strong performance in London and the South East. The difficulty of achieving such good results should not be underestimated. They have come about because of skill and effort deployed by Joe Mescall and the general merchanting team. A profit enhancement project has been running since the middle of the year designed to identify those aspects of the business where good practice can be shared, margins can be improved and costs can be driven out.

A greater focus on analysis of customer profitability has yielded positive results. Action has been taken where margin has been falling, whether due to the mix of products being sold, the structure of the customer deals or cost inflation pressure. Improved in-house data interrogation and analysis software and techniques have enabled us to develop plans leading to raised profitability. Another area of focus has been reducing the incidence of stock shrinkage, through improved data availability, which has enabled us to target more rapidly those areas of stock loss and the possible causes.

Further progress has been made on cost control to ensure the general merchanting division goes into a probably tough 2012 with an affordable cost base. Despite increased turnover, like-for-like headcount at the end of the year was in line with last year and a number of initiatives were running to target aspects such as distribution.

The specialist merchanting businesses, operating under the Chairmanship of Arthur Davidson, had a successful year.

Keyline management are working hard to ensure that the business is the first choice supplier for heavy building materials, civils and drainage products with industry leading returns on sales. In 2011 Keyline revenue growth has outperformed the market, LFL sales have increased substantially, particularly in civils and drainage and the UGS business transferred from BSS has been absorbed, generating synergies. New propositions in rail and utilities were launched and the business' Centres of Excellence have been rolled out.

CCF, our specialist distributor of interior building products and insulation has performed strongly during 2011, improving profitability and increasing revenue at a faster rate than the market leader. A number of improvements to the customer experience are being targeted, including greater stock availability, a higher proportion of on-time in-full deliveries and the introduction of a new customer service model, which is currently being piloted.

Benchmarx, our specialist kitchen joinery business, has made good progress during the year. Sales have increased by over 40%, gross margin has improved and 32 new branches have been opened either as standalone sites or as implants into the existing estate. This business is now firmly established in our portfolio and competes effectively with more established players.

The City Plumbing team have performed well in a tough environment increasing like-for-like sales by 4%. Project Endeavour, our initiative aimed at introducing a common showroom template and product matrix to CPS and the general merchanting business, was piloted successfully and is now in place in 11 branches. Plans are in place to roll it out into a further 40 branches during 2012. The heating spares business introduced in 2010 now trades out of 62 sites.

Retail division

Poor consumer confidence and lower levels of disposable income have had a detrimental effect on our retail businesses in 2011. Revenue is up £15m (1.5%) to £1,018m (2010: £1,003m), due to the expansion from new sites which increased sales by 2.9%. Despite having a strong product offering and competitive prices a fall in demand for delivered kitchen and bathroom products caused total LFL delivered sales to fall by 1.4%. Overall volumes fell by 4.3% whilst inflation increased turnover by 2.9%.

Retail division adjusted operating profit fell by £14m to £45m as lower sales and increased overheads in Wickes, due to investment in store expansion and reorganisation costs, outweighed the benefits of an improved gross margin.

We have continued to invest in Wickes, taking the opportunity to acquire 13 new stores from the receiver of Focus for £8m. The locations of the sites has meant these stores are already contributing to profits ahead of our expectations, and leads us to believe that the new branches will be very profitable, which when taken together with the benefits arising from economies of scale, should result in returns well in excess of our cost of capital.

In the expectation that consumer markets will be more difficult in 2012, the Wickes team under Jeremy Bird's guidance have undertaken a detailed review of the Company's cost base. Three stores were closed during the year and just over 200 people left our business as we restructured store operations. This was a difficult process, but as always the store managers undertook it in a professional, but compassionate manner.

Gross margins in Wickes have improved by 1.3% when compared to 2010. However, the investment in initiatives and start-up costs for new stores, combined with reorganisation costs incurred to achieve long-term overhead savings has reduced operating profits by £10m. Consequently the division's operating margins fell by 1.4% to 4.5% (2010: 5.9%).

Tile Giant has consolidated its position in difficult markets with total sales up 9%. Its like-for-like sales outperformed the market leader, so gaining market share. The business now trades from 107 stores a net increase of 6 this year. Under the initial guidance of Mo Iqbal, the Company's founder, and more recently Andy Morrison, Tile Giant has grown to be the second largest specialist tile retailer in the country.

Associate Company

Toolstation performed strongly in 2011. The investment in new stores continued, but the early losses incurred by immature outlets have now been surpassed by the profits of maturing stores with the result that the business moved into profits during the second half. The unique business model together with the skill of management will be a considerable asset to the Group as we seek to expand our multi-channel capabilities.

BSS division

Proforma LFL sales increased by 2.9%. Inflation was 4.5%, but volumes fell by 1.6% even though the expanded British Gas contract, during the last nine months of the year, added 2.4% to volumes. New branches accounted for additional sales of 0.5%, whilst the branches sold at the insistence of the OFT and one fewer working day reduced sales by 3.3%.

Reported revenue has decreased, on a proforma basis, by £22m to £1,436m due to a number of structural changes. In the early part of the year, at the insistence of the OFT, 14 PTS branches were sold. In June the trade of UGS was transferred into our Keyline business and on 30 September the trade and assets of Buck and Hickman were sold to Brammer plc.

On a proforma basis adjusted operating profit, including synergies, increased by 9.5% to £67m (2010: £61m). In advance of establishing the new plumbing and heating division, Paul Tallentire joined us with the intention of becoming its chairman. He has come into the Group at a time of significant change and we are already seeing the benefits of his experience.

2011 was a more challenging year for the domestic business, and PTS in particular, as volumes in the boiler market fell around 15% from 2010 levels when the boiler scrappage scheme was in place. However, in April, the PTS team won a significant contract to supply plumbing and heating materials to British Gas on an exclusive basis. Two of the primary reasons for winning the contract are the outstanding levels of customer service that PTS is able to offer from a countrywide network of sites together with our industry leading on-time in-full delivery capability. Other advances in PTS came in both the spares and renewables offerings.

PTS was named national builders merchant of the year at the Builders Merchanting News awards, a real testament to the commitment of our colleagues.

The BSS Industrial business has performed strongly with sales outperforming the market. Increased volumes, high inflation in the first nine months from rising copper prices, increasing gross margins and good cost control have made 2011 a very successful year, which underlines the strength of the team led by Managing Director Frank Elkins. A particular focus on the drainage business has seen sales grow by over 25% year-on-year with 8 new drainage implants into BSS branches during 2011.

The other businesses in the BSS group are F&P Wholesale, a distributor of plumbing, heating and bathroom products nationally to the independent merchants and Birchwood Price Tools (BPT), which focusses on the wholesale market distributing power tools, hand tools and site equipment. F&P sales have been adversely affected by the boiler market, with like-for-like sales down year-on-year. By contrast, BPT has achieved a significant increase in sales and has been particularly successful in introducing new products, in particular Scruffs work-wear, to the rest of the Travis Perkins Group.

2012 Performance

The year has started satisfactorily with Group LFL sales for the first seven weeks up 1.8%. LFL sales for the general merchanting division have increased by 5.4% and for the specialist merchanting division they are up 3.9%. Delivered sales, on a LFL basis for the retail division (excluding Toolstation since it remains non-LFL until 2013) have decreased by 3.1%, whilst on an ordered basis they are up 0.9%. The addition of Toolstation's own LFL performance would have increased the retail division's ordered LFL sales to 2.7%. Plumbing and heating division LFL sales are up 0.9%.

Investors and lenders

We place great emphasis on good communications with investors, analysts and lenders. In 2011, we expanded our road-shows to encompass large investment funds located on the west coast of America. Approximately 26% of our investor base is located in North America so increased contact with potential new investors from that continent is an important aspect of our investor relations strategy.

In the summer of 2011, with the debt crisis in the Eurozone seemingly worsening, we decided that it would be better to refinance our UK syndicated bank facility early, rather than waiting for the summer of 2012. From the outset of negotiations, it became clear that European banks have become considerably more cautious since we last raised funds in 2008. Even so, thanks to the continued support of many of the banks in our existing syndicate, the Group raised a £550m forward start (from April 2013) revolving credit facility, which secures our funding needs through to 2016. Whilst the cost of this source of capital has increased, it remains an attractive source of funding relative to other sources, and sustains, within prudent financing parameters, an efficient balance sheet for shareholders.

Management

The pace of our development and growth requires our executives to continuously improve their skills and impact in their current roles. It also provides opportunities for them to take up new challenges often providing promotion to new roles. During the year we have continued to strengthen our management team through a combination of promoting top performers within our business and attracting fresh talent from other organisations.

The new appointments have significantly increased our strength in depth and organisational capabilities, particularly in our new Consumer division and our Plumbing and Heating division. These appointments cover all aspects of our business, ranging from specialist areas such as sustainability and multichannel to operational functions.

We have also made changes to the roles of some people on our executive committee. John Carter's promotion has already been covered in the Chairman's statement, but it is worth reiterating the great contribution he has made to the success of the Group. Norman Bell was promoted to the new role of Group Development Director, following his successful running of the BSS integration project alongside John.

Following our reorganisation of the Group into four operating divisions we have been able to appoint Paul Tallentire, who recently joined the Group following a career as a senior executive in a variety of trade businesses, as Divisional Chairman of the Plumbing and Heating division. Jeremy Bird, who previously ran our Wickes business, has been promoted to the new role of Divisional Chairman for the Consumer division.

Joe Mescall and Arthur Davidson continue to lead the remaining two operating divisions as Divisional Chairmen of General Merchanting and Specialist Merchanting respectively.

Opportunities for advancement have also been given to the people who manage a number of our businesses.

Ian Church, who has led the Travis Perkins business in the Midlands with distinction for the last seven years, is now Managing Director, PTS. Simon King, an experienced retail executive from Safeway (now Morrisons), Tesco and Asda (where he was most recently Chief Operations Officer), joins the Group as Managing Director Wickes. Kieran Griffin, a former Keyline and Travis Perkins manager and regional director, who enjoyed success in his first Managing Director role at CCF, has been promoted to Managing Director, Travis Perkins Midlands and North West.

Howard Luft, who was until the end of September the managing director of Buck and Hickman and who was responsible for the successful turnaround and subsequent sale of this business, has re-joined the Group to become Managing Director of CCF.

We are delighted that we have been able to continue to build on our previous success by promoting talented people from inside the Group to their new roles. To achieve a promotion in these circumstances is truly outstanding.

It is also pleasing to know that both the strength of the Group and its prospects are recognised by the new people we have been able to attract to our Group. It is a testament to the success we have achieved, against a backdrop of challenging economic conditions. I am sure that this group of talented individuals will make important contributions to our continued growth.

TRAVIS PERKINS IN THE COMMUNITY

While many aspects of the Group are co-ordinated centrally, corporate social responsibility is one area that remains firmly the responsibility of the individual businesses, particularly when it comes to charitable fundraising and community programmes. In 2011 each of our businesses supported a charity of their choice and undertook a plethora of activities to raise funds. In 2011 through the efforts of the Group's employees, ably supported by customers and suppliers, £1.9m was raised for worthy causes (2010: £1.7m) including £146,217 (2010: £112,083) contributed by the Group.

Given the success of the charity fundraising in terms of motivation and colleague participation, we have also devolved the management of very successful community programmes to individual businesses, moving responsibility away from the centre. Branches are encouraged to fundraise for their business' partner charity and carry out building or repair related work in their local community.

In total, businesses across the Group partner with 14 charities, with many having chosen during 2011 to extend their initial two-year partnership for a further year. In addition, businesses in the former BSS Group have increased their fundraising activities. They have all adopted new charities for 2012 or joined forces with another business or central function to support an existing partnership.

For its work with The Prostate Cancer Charity, Keyline won Best UK Project at the 2011 Business Charity awards. It was declared the company that made the biggest difference to beneficiaries through involvement with a charity project. The company and its colleagues were also highly commended for their partnership with the charity.

The Travis Perkins business adopted the Breast Cancer Campaign and Together for Short Lives as its charities in 2010. Having re-sprayed 12 of its trucks pink in a charity supporting publicity campaign in 2010, the pink theme has continued in 2011. The inaugural 'Travis Pinkins' charity day took place to complement the continued sale of pink products such as wheelbarrows, saws, pencils and tape measures in its branches.

Wickes continued its support for Leukaemia and Lymphoma Research, with colleagues yet again raising over £0.6m for the charity.

Group-wide initiatives include a lottery where colleagues donate £1 a month from their pay, half of which is donated to the partner charities. With 70% of eligible employees now taking part, more than £100,000 has been donated to charity since the launch of the lottery in August 2009.

Strategy

The statements of Mission, Vision, and Values at the front of this annual report set out what we exist to do, the direction we aim to take the Group, and the way in which we believe we should work. The strategy we are following to achieve these aims is designed to maximise over the long term shareholder returns and involves:

· Creation, acquisition and development of businesses that seek to serve all the segments for the distribution of building materials in the UK;

· Continuously improving the customer and supplier proposition in all our businesses to become the highest rated in each segment, as measured by customers, and as tested by seeking to outperform markets on a like-for-like basis;

· Exploit the economies of scale this creates through the centralisation of common activities and common purchasing into low cost, highly efficient and powerful central functions;

· Sustaining an organisational model that devolves authority to operating managers and allows them to compete with the most effective competitors with minimal constraints, but always maintaining very strong controls;

· Operating a performance management system, closely matched to arrangements for incentives, that encourages the right economic behaviour and allows all colleagues to participate in the financial success of the Group;

· Recruiting and developingpeople whose personal characteristics are consistent with a culture of customer sensitivity, continuous improvement and a drive for performance;

The table on page 22 shows how we approach the various dimensions of our strategy, and how it is integrated with our management of risk.

These relatively dry words are easy to write on a page, but require leadership by example, active management and considerable thought in deployment. Senior management's role is to maintain a focus on these strategies. The goal, for each of our mature businesses, is that they achieve the highest operating margin and return on capital of any business operating in their segment.

The particular themes currently being pursued in executing these strategies are;

· Having recently expanded our asset base and considerably accelerated our market outperformance, now prioritise improvements in operating margins;

· Add multi-channel capabilities to our businesses, building on the considerable success achieved via Toolstation and Wickes' multi-channel activities;

· Expand our global sourcing activities, supported by an expansion of own-label products, category management activity and harmonised product specifications across market segments;

· Improve asset turn and lower property costs via new supply chain capabilities, concentration of brands on single sites, development of our owned 'trade parks' and realisation of spare assets through active property management.

Growth prospects for the Group are positive, with gains expected from a recovery of activity in construction markets, further market outperformance, operational leverage from economies of scale and expansion of our branch networks and related activities. Whilst we confidently expect this to provide several years of good growth in financial returns, we believe over the next two or three years we should begin to cautiously, with a low-risk and low-capital approach, explore the prospects for expansion in new markets and activities. Our approach to these trials should not adversely impact the prospects for profits, cash generation and debt reduction.

Our management arrangements are designed to support these themes as well as drive the impact of our programmes of continuous improvement.

Our summary of principal risks and uncertainties is set out on pages 36 and 37. In summary, our performance is closely aligned with the fortunes of the UK construction industry. However, it is also possible that we could suffer from the effects of disintermediation if we do not offer value, match our customer preferences, or improve our proposition. In addition, we are dependent upon maintaining our IT capabilities, purchasing and distributing goods effectively and recruiting and retaining the best people.

OUTLOOK

Our research suggests that market volumes will remain subdued in 2012. We expect trade market volumes to decline responding to the decrease in the number of housing transactions in the first half of 2011 and to the contraction in public sector expenditure, for which we have less than a 20% exposure. The consumer sector is likely to decline by a more substantial amount as consumer confidence remains low, unemployment rises and disposable income remains under pressure.

Against a backdrop of generally weak lead indicators including mortgage approvals, property transactions, consumer confidence and pressure on net disposable income we will further grow revenue by continuously improving our businesses. Although we will continue to target outperformance against the competition on a like-for-like basis, we will actively balance this objective with maintaining gross margins and limiting cost growth. In a weakening market, we judge this slight modification of our trading stance will yield the best outcome in terms of absolute profits and trend of operating margin. In 2012, our priorities will be threefold:

· Leverage our self help initiatives including the incremental return from the 13 ex-Focus stores added in 2011 and the growth in profit from the maturity of the ToolStation stores 100% owned from January 2012;

· Use our strong cash flow to pay down debt (targeting a reduction of £125m for the year), maintain selective expansion investment and increase dividends;

· Continue the successful integration of BSS into the Group by adding trading systems to the already integrated financial systems, whilst working to realise our increased synergy target of £30m for 2012.

We therefore look forward to another year of solid progress in 2012.

Geoff Cooper

Chief Executive

21 February 2012

DEPUTY CHIEF EXECUTIVE'S REVIEW OF THE YEAR

For the year ended 31 December 2011

Introduction

We aim to grow and develop the operating businesses that make Travis Perkins the largest and most economically rewarding provider of building material solutions to anybody in the UK wanting to construct, maintain, improve or repair the built environment. We believe that this will to ensure that we achieve our overall strategy of improving returns for the Group's shareholders. The business model we deploy to execute this strategy is shown on the table on page 29.

In 2011, the approach we have taken to meeting our aims has been to:

· Increase our investment in colleague training and development;

· Improve our health and safety and environmental credentials;

· Make many small improvements throughout our organisation rather than putting all our efforts into large projects;

· Successfully integrate BSS into the Group;

· Concentrate on maximising the benefits from existing initiatives;

· Maximise the purchasing and overhead synergies arising from the acquisition of BSS;

· Target expansion in emerging channels by expanding our newest businesses and seeking opportunities to add new channels in areas that are complementary to our existing businesses.

In developing our business it is important that we do not overlook the influence that our colleagues, customers, suppliers and other stakeholders can have on results. For that reason it is an imperative that we strive to make our work environment a better place to do business.

Operationally we measure our success through a comprehensive "balanced scorecard" of key performance indicators ("KPI"), which are aligned to achieving our strategy:

	2011	2010
Like-for-like revenue growth - Merchanting	9.4%	7.6%
Like-for-like revenue growth - Retail	(1.3)%	0.9%
Like-for-like revenue growth - BSS (proforma)	2.9%	6.2%
Like-for-like revenue outperformance	5.0%	3.5%
Employee retention	87.0%	86.0%
Revenue from expansion	2.0%	2.6%

Environment - see separate report on pages 38 to 42.

Health&safety - see separate report on pages 43 to 44.

people

Engagement

Building colleague engagement is of great importance to the success of our business because committed employees improve performance, which has a positive ripple-down effect on customers. To monitor progress we regularly survey our colleagues to seek their opinions about what is working well and what prevents them from performing at their best and feeling connected.

This year we sought feedback from all of the BSS colleagues who joined the Group late last year and were delighted when the engagement score matched the 60% registered by the rest of the Group in mid 2010. However, to ensure that we remain informed between group-wide surveys, in 2011, we launched an online survey panel called Voice Box intended to test where we are on issues that might influence engagement. All employees were invited to take part, and within weeks, 2,700 had registered.

We also embrace a variety of two-way communication channels to maintain employee involvement and engagement in group activities. These include open forums for employees to ask any questions about the business, colleague liaison forums, employee nominated special achievement awards, and our popular quarterly magazine, The Bridge.

Proof that our inclusive culture works is evidenced by those employees who have been employed by the business for almost their entire working lives. Some employees have given 50 years' continuous service, whilst more than 80 have been with Travis Perkins' companies for more than 40 years.

Training & Development

The primary objectives for the business over the past two years have been to maximise sales opportunities, protect margin and out perform the market. To achieve those targets we needed a learning and development strategy that gave:

· Colleagues the confidence and expert product knowledge to offer the service and advice trade customers expect;

· Managers the leadership skills and commercial acumen to motivate our people and drive results;

· Leaders the creativity and inspiration to set the agenda and facilitate change.

During the year, in support of our strategy, we have undertaken many projects to improve the abilities of colleagues at all levels throughout the Group. These are designed to give them the confidence and skills needed to exercise the authority they are given to compete in the market. The projects included:

· Establishing an executive development group of senior managers with potential for leadership roles, forging a link with Ashridge, the leading management school, to deliver programmes to this group in 2012;

· Delivering leadership and coaching programmes to up-skill our regional directors and their peers;

· Developing job skills and product knowledge expertise amongst branch and store colleagues through sales and service workshops;

· Re-launching, as an apprenticeship scheme, our management training scheme, which many current directors and I went through on originally joining the Group.

The success we have achieved in recent years culminated in our being positioned as a finalist in the HR Excellence Awards 2011 for 'Best learning and development strategy' which confirms that learning and development activity within the Group delivers bottom line business benefits.

Careers and Talent Pipeline

The on-going challenge is to build the capability of the talent pipeline and leverage internal knowledge, skills, networks and experience for the benefit of the Group as a whole. The hard work and abilities of many colleagues have been recognised this year through promotions and new opportunities to work in different parts of the business, but in those cases where we have to seek talent from outside the existing internal talent pool we need to be positioned as an 'employer of choice' among candidates.

During the year we have invested in a new centralised IT recruitment platform to bring more efficiency to our recruitment processes and increase hire quality. To attract the best candidates, we believe we need to offer a rich candidate experience and to let candidates know where they are in the process at all times. Our new system allows us to do this. Furthermore as part of this investment, we have added a bespoke recruitment site that colleagues within our business can use to seek out career opportunities before many of the vacancies are placed on external recruitment sites.

Stay Safe

We have an absolute commitment to continuously improving our health and safety record, which in recent years has resulted in our approach to safety in our business evolving from one which was 'Stay Legal' to one which is now "Stay Safe". In achieving this change, each year, our safety team have developed a large number of initiatives to promote the Stay Safe message.

Driven by the business' desire to progress the Stay Safe journey more quickly and effectively, we have re-aligned our Stay Safe team to our new divisional structure. This will strengthen the awareness and personal ownership of each business board which in turn will accelerate the development of the Stay Safe culture in our branch and store managers. In restructuring the health & safety team we have created:

· Four Stay Safe business partner roles, each supporting one of the four operating divisions;

· A Stay Safe central services team, which is responsible for reviewing and developing health & safety policy, managing incidents, and providing advice and guidance to operational management; and

· A team of Stay Safe training advisors that will support the business by developing and delivering Stay Safe training across all divisions.

Sales and Margin Management

It is our aim to outperform our main markets on a like-for-like basis by communicating and delivering a superior offer to our customers.

Customer service continues to be an area of focus for all colleagues.

One aspect of increasing sales and customer satisfaction is ensuring that our prices are transparent, consistent and understandable to our customers. In our Merchanting brand we are trialling new pricing structures with the intention of rolling them out during 2012. We have also invested in our sales force and focussed them, through incentivisation, on increasing active trading accounts. As a result we opened or reactivated a number of customer accounts during the year.

In 2011 we saw merchanting gross margins come under pressure due to a combination of high input inflation and our own strategy to gain market share. In the early part of the year our actions were supported by investing a proportion of the gains from our sourcing initiatives into prices. However, from quarter 2 onwards, as markets became more difficult we adjusted our stance in favour of achieving a consistent year-on-year gross margin by the end of the year.

The category management team undertook projects to investigate returns on timber and sheet materials. This involves looking at all aspects of product holding, pricing and merchandising. Later in 2012 branches will be able to order and stock timber by specific length.

We have started to benefit from new ranges being cross-sold between BSS businesses and the rest of the Group. A particular success was the introduction into Wickes of the Scruffs work-wear range supplied by Birchwood Price Tools. The new products, which already have proved to be very popular, will be introduced to replace an existing range in the Merchanting division during 2012. Furthermore, we are now piloting tool-hire in BSS Industrial with the intention of rolling it out to more branches later in the year.

Our supply chain operations are wide reaching with many products now sourced direct from global manufacturers. We operate 24 warehouse facilities, covering nearly 3m square feet which supply over 1,800 branches that utilise 2,500 vehicles to deliver product to customers' worksites and homes. Over 1,500 colleagues across the Group now support internal supply chain solutions picking 48,000,000 separate items per annum.

Our customers are rightly becoming ever more demanding, expecting us to provide consistent and timely access to a broad range of products. This provides us with a significant sales and margin opportunity as we can leverage our unique multi brand scale, to improve customer service and reduce costs. Therefore, we continue to invest successfully in our supply chain as a key enabler to our organic growth programme.

Additional focus on our timber and heavyside bulky goods supply chains now allows our smaller branches to access a broader range of products regardless of their space constraints. The implementation of a feeder network from larger branches has improved sheet materials availability by 5% whilst after a year of operation our heavyside consolidation operation in the Northwest now services 110 branches with an extended range of 3,000 products. As a result our branches can consistently promise customers 24 hour delivery for product that would otherwise have come direct from suppliers, on much longer lead times.

Our performance in supply chain has been recognised externally with the team beating many major European retail and merchant businesses to win two prestigious awards in 2011 - the Ligenta European Retail Supply Chain award and Retail Week's Distribution Development Award.

Investment this year focused on further centralisation of our lightside and plumbing & heating product ranges, with an additional 500,000 square foot warehouse facility being added to our Northampton campus. The new site has allowed us to extend the number of centrally stocked products available to branches and so has improved our overall levels of service and product availability. The facility is also an enabler to our commercial team's direct sourcing programme.

As part of our drive to increase direct sourcing we opened a new office in Shanghai to manage the flow of product from factories located in the Far East. Forty colleagues from China and the UK work in Shanghai and Shenzhen to ensure that goods are delivered to our UK warehouses to the right specification, in the correct quantities as efficiently as possible. This has enabled us to capture the margin previously made by the third party distributors and agents.

Although we are now purchasing £450m of goods from approximately 90 factories located in 15 countries across five continents our analysis suggests that as more product is direct sourced we could realise a further £25m of annual profits by 2016. Consequently, we plan to expand further our team in China during the coming year.

The introduction of new product ranges is fundamental to the growth of the business. During 2011 we completely re-launched IFLO our own brand plumbing range. Supported by a new fully priced catalogue, sales have increased 22% year-on-year at the same time as margins have increased. We predict further growth in 2012 when additional ranges and a new pricing structure will be introduced. In addition, we are actively seeking new sales opportunities in areas such as fire protection, renewables, drainage and water recovery.

Our most important project in 2011 has been to deliver the BSS synergies identified at the time of the acquisition. A team comprising colleagues from across the Group exceeded our 2011 expectations of £8m by delivering £15m of purchasing synergies in 2011, and putting in place a process that will lead to our £25m initial target being achieved one year early. In 2012 we will be concentrating on maximising synergies by consolidating purchases where we currently have multiple suppliers.

In BSS we acquired a group that was part way through a project to implement a new operating system throughout the business. Our assessment of the programme resulted in a change of course whereby we will implement new systems into BSS based upon existing group systems. Our IT colleagues have spent most of 2011 rewriting system programmes so that they meet the specific needs of both the BSS and PTS businesses. We have trialled the new systems in seven PTS branches during the year. We plan new systems in PTS to improve the information available to branch managers to enable them to trade better, reduce credit risk and help collect debts more rapidly.

Tight Cost Control AND ASSET MANAGEMENT

In these difficult economic times we have continued to place emphasis on finding ways of improving our efficiency, exploiting the economies of scale delivered by centralising group services and managing our cost base. We have also taken the decision to concentrate on maximising the returns from existing initiatives, rather than investing heavily in new ones. Initiatives where due to market conditions returns were found to be more marginal have been delayed or cancelled.

In Wickes we have changed the store structure by removing some management roles, but at the same time increasing colleague hours, to facilitate a greater focus on customer service. Whilst some colleagues were redeployed into other roles, unfortunately the reorganisation has resulted in some 200 colleagues leaving the business towards the end of the year.

Our delivery fleet based at branches has benefited from further investment in automated delivery planning and scheduling technology, this improves our 'on-time' delivery performance for customers, while reducing vehicle costs by optimising the delivery route.

Our synergy programme was not confined only to product purchases. Through implementing new systems and processes, switching suppliers and combining BSS teams with those in Northampton we achieved almost £5m of overhead synergies during the year.

Improve Return on Capital

Managing stock levels, whilst improving stock availability, is one of the key initiatives being undertaken by the supply chain team. At 30 June, stock levels were higher than we planned due to a combination of holding more stock due to direct sourcing, advance buying due to favourable pre-inflation increase deals with suppliers and increasing sales levels. However, by the year-end we had reduced stock from its peak levels by approximately £50m. Whilst we continue to target additional areas where stock can be reduced without impacting upon availability, we are also investing in pre-price increase deals where appropriate.

We are now trialling stock auto-replenishment in our Wickes business. This will yield working capital and productivity gains and stronger sales through better availability.

External Expansion

The closure of Focus in the first half of the year presented us with a great opportunity to expand selectively our store base in a number of new catchment areas that had previously proved difficult to penetrate. In what was the largest project of its kind ever undertaken by Wickes, a cross-functional team of colleagues responded magnificently to the challenge of engaging 350 new colleagues and opening 13 new stores within four and a half months. The early results, from what was our largest single investment of the year, have exceeded our expectations with all stores trading profitably.

We have continued to leverage our existing estate by seeking opportunities to expand our smaller businesses by establishing implants within our existing merchanting branches. This approach minimises set up costs and improves returns through utilising spare capacity within our network.

· Turnover for toolhire rose 22% in the year. We now trade from 196 toolhire outlets in our merchanting business having opened a further nine during 2011 and we expect to trial our first toolhire outlet within a BSS branch in early 2012 before rolling it out further later in the year.

· Benchmarx opened 27 new implanted outlets in 2011 so we now trade from 84 sites. It is now the third largest business in its sector; and

· We continued to expand our heating spares capability adding a further 44 outlets in PTS branches and 28 outlets in City Plumbing branches. We now operate 244 spares outlets across the Group; a network that has produced exceptional sales growth in this category.

A further 1,268 colleagues joined the group when Toolstation was acquired on 3 January 2012. Toolstation is a multi channel retailer of lightside products, trading from 103 sites in the UK as well as by telephone and through the internet. It has expanded rapidly since 2008 and as more stores have reached trading maturity it is now trading profitably.

Part of our strategy is to increase our presence in emerging channels by investing in new opportunities in markets adjacent to our existing businesses. In 2011, we acquired a 25% stake in Rinus Roofing, a small company selling approximately 2,000 roofing products from seven branches in the north of England.

Outlook

In November, we announced a new divisional structure would be put in place from 1 January 2012. Our plumbing and heating businesses have been brought together to form a new division under the leadership of Paul Tallentire, whilst Toolstation joins our Consumer division bringing with it a multichannel expertise that we can exploit throughout the business.

2011 was a difficult year for companies in our sector, but colleagues throughout the Travis Perkins group responded to the challenges set for them. A lot was achieved, but there remains a lot of potential. All indications are that 2012 will be equally difficult, but I fully expect that the initiatives we are undertaking to improve our business will keep us at the forefront of our sector.

I would like to place on record my sincere thanks to all colleagues across the Group for their outstanding efforts, which have produced, yet again, an industry leading performance.

John Carter

Deputy Chief Executive

21 February 2012

FINANCE DIRECTOR'S REVIEW OF THE YEAR

For the year ended 31 December 2011

FINANCIAL ACHIEVEMENTS

Our principal financial objectives for 2011 were to support the Group's strategy by delivering the synergies anticipated at the time of the BSS acquisition, further reducing group borrowings, managing margins and costs in the face of increasingly difficult markets and ensuring increased profitability by leveraging the investments we made in product service initiatives and branch expansion. This involved:

· Delivering £20m of synergies from the BSS acquisition, which has left us well placed to exceed our original £25m target, with £30m being our new target;

· Reducing net debt by £191m to £583m through a series of initiatives and synergies designed to improve cash flow;

· Increasing adjusted earnings per share on a proforma basis (assuming we owned BSS for all of 2010) by 6%;

· Integrating financial systems following the BSS acquisition.

Furthermore, at a time when financial market liquidity has been severely affected by events in Europe, we have arranged a £550m forward start extension to the Group's UK borrowing facilities which will meet the Group's funding requirements until 2016.

FINANCIAL RESULTS

The Group's overall adjusted operating margin remained flat at 6.6% compared with last year on a proforma basis.

Whilst the operating margins of individual divisions are still strong, there has been a limited amount of erosion during the year in merchanting. The overheads to sales ratio reduced by 0.4% due to the combined impact of good cost control and the operational gearing effect of the fixed element of our cost base and synergy benefits contributed 0.2%. However, these were not enough to prevent merchanting operating margins falling by 0.2% to 8.6% (2010: 8.8%) as gross margins eased 0.8% due to mix (direct to site deliveries grew strongly, so diluting gross margins), input price pressure, investment in warehouse facilities and some investment in market share.

In our retail business, despite a 1.3% gross margin improvement due to a combination of improved purchasing terms, direct sourcing and lower sales incentives, adjusted operating margin fell by 1.4% to 4.5% (2010: 5.9%). This reflects an increase in overheads due to higher marketing spend, the initial costs of opening all of the new stores acquired from Focus and restructuring.

BSS adjusted operating margins including synergies improved by 0.4% to 4.6% (2010: 4.2% on a proforma basis) as the benefits of our synergy programme more than offset the effects of sales mix, which reduced operating margins, due to significantly increased turnover with British Gas from April.

The Group incurred £10m of exceptional operating charges in 2011 (2010: £19m) as a result of integrating BSS into the Group. The charges arose mainly as a result of the on-going programme to integrate BSS colleagues, systems and processes into the Group, although there was a £2m charge due to the closure or disposal of businesses that were determined to be non-core to the Group's operations. After charging the exceptional operating items, operating profit was £291m (2010: £220m).

Despite incurring increased interest charges due to the acquisition of BSS late in 2010, overall net financing costs before exceptional charges have reduced in 2011 by £6m to £17m. Gains on derivatives, mainly one-off, were £7m higher than in 2010 as the Group benefited from revaluing forward currency contracts taken out during the course of the year to fix the exchange rate at which goods sourced in foreign currency will be purchased. In addition, other finance income associated with the pension scheme increased by £6m due to significantly higher asset values at the start of 2011 than 2010. The average interest rate during the year was 3.0% (2010: 3.1%).

Exceptional integration related finance costs of £4m (2010: £1m) were incurred as a result of repaying $125m of BSS private placement notes before their contractual maturity dates.

Profit before tax, after charging £14m (2010: £20m) of exceptional costs and £13m of intangible asset amortisation (2010: £nil), rose by £73m to £270m (2010: £197m).

Excluding the combined tax effect of the exceptional operating and financing costs of £4m (2010: £2m) and an exceptional deferred tax credit of £13m (2010: £2m) caused by the reduction in the corporation tax rate to 25% from April 2012, the tax charge for the period was £74m (2010: £60m), which represents an effective rate of 26.2%, (2010: 27.6%). The reduction from last year reflects the drop in the statutory tax rate during the year.

Basic earnings per share were 30% higher at 90.3 pence (2010: 69.6 pence). Adjusted earnings per share (note 12) were 93.1 pence (2010: 77.2 pence), a 21% increase, which is primarily due to the acquisition of BSS towards the end of 2010. The proforma increase in adjusted EPS was 11%. There is no significant difference between basic and diluted earnings per share.

The following table shows the Group's key financial performance indicators:

	2011	2010	2009	2008
Adjusted operating profit to revenue ratio	6.6%	7.6%	7.7%	8.5%
Group overheads to sales ratio	23.6%	26.7%	26.3%	26.1%
Profit before tax growth / (decline)	37.0%	(7.5)%	45.4%	(44.0)%
Adjusted profit before tax growth / (decline)	36.9%	20.4%	(11.1)%	(22.5)%
Adjusted earnings per share	93.1p	77.2p	75.2p	96.9p
Dividend cover	4.7x	5.1x	-	8.5x
Free cash flow (note 36)	£294m	£278m	£294m	£185m
Adjusted return on capital (note 37)	11.3%	12.2%	10.9%	12.9%
Net debt to adjusted EBITDA (note 38)	1.3x	1.9x	1.5x	2.8x

FINANCIAL CAPITAL MANAGEMENT

Strong financial capital management is a fundamental component of the overall group strategy.

The Directors are committed to the generation of long-term shareholder value, which we believe will be achieved through:

· Increasing the Group's market share via a combination of LFL sales growth and targeted expansion through acquisitions, brown field openings and in-store development;

· Investing in projects and acquisitions where the post-tax return on capital employed exceeds the weighted average cost of capital of the Group by a minimum of 4%;

· Generating sufficient free cash flow to enable the Group to expand its operations whilst funding attractive returns to shareholders, reducing its debt and pension deficit;

· Operating an efficient balance sheet, by structuring sources of capital to minimise the Group's weighted average cost of capital consistent with maintaining an investment grade financial profile. On a lease adjusted basis this would mean a ratio of net debt and operating leases to EBITDAR would be less than three times (31 December 2011 3.4 times);

· Maintaining long-term dividend cover at between two and a half and three and a half times earnings.

The Group maintains a capital structure that is both appropriate to the on-going needs of the business and ensures it remains within the covenant limits that apply to its banking arrangements.

The capital structure is formally reviewed by the Board as part of its annual strategy review, but it is kept under review by me throughout the year. The Company will rebalance its capital structure through raising or repaying debt, issuing equity or paying dividends.

The Group's capital structure is aimed at balancing equity and debt in a way, which comfortably retains the Group's investment grade status, maintains the financial flexibility for business development and optimises the efficiency of its finance costs given that the cost of debt is below the cost of equity. This equates to a maximum Net Debt/EBITDA target of 2.5 times post any acquisition (against 3.0 times bank covenant) with the aim of paying down debt to achieve a 1 times ratio.

The current preferred capital structure of the Group consists of debt, which includes the bank borrowings and the US private placement notes, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings. However, we regularly review the sources of debt available to the Group with the aim of maintaining both diversified sources and diversified maturities.

In addition the Group also utilises operating leases, particularly in respect of properties. At 31 December 2011, the annual rent roll for leased properties was approximately £173m. Our aim is to maintain a ratio approximating to 20% of properties owned, 80% leased

The capital structure of the Group at 31 December comprises:

	2011	2010
	£m	£m
Cash and cash equivalents	(79)	(51)
Bank loans	323	402
US private placement notes	279	366
Loan notes	3	3
Finance leases	20	22
Pension SPV	37	36
Pension fund deficit	34	20
Equity attributable to shareholders	2,108	1,952
Total balance sheet capital employed	2,725	2,750
Operating leases (8x property rentals)	1,408	1,352
Total capital employed	4,133	4,102

LIQUIDITY AND FUNDING

The Group is financed through a combination of unsecured bank borrowings and unsecured guaranteed private placement notes at fixed and floating rates of interest. The Board regularly reviews the facilities available and seeks to maintain them at a level sufficient to facilitate execution of its strategy, whilst ensuring that liquidity headroom will cover possible contingencies.

At 31 December 2011, the Group had committed UK bank facilities of £800m and $400m of $US private placement notes in issue. In addition it had £40m of uncommitted overdraft facilities.

During the year, as part of the continuing integration of BSS into the Group, we repaid $125m of private placement notes issued by BSS in 2006. We also cancelled 3 derivative contracts that were established to hedge against interest and currency movements on those notes. In total, these transactions resulted in a charge to the income statement of £4m, which has been disclosed as an exceptional finance cost.

In December 2011, we signed a new £550m forward start banking agreement with a syndicate of banks. The £550m revolving credit facility, which runs until December 2016, can be drawn from April 2013, the expiry date for the Group's existing £800m facility agreement.

The new agreement will increase the Group's funding costs in line with changes that have occurred in the market since the last financing agreement was signed in 2008. As a result, it is anticipated that the Group will incur additional financing costs of around £4m in 2012.

The first $200m tranche of our private placement notes are due for repayment in early 2013, the remaining $200m being available until 2016. These together with our existing bank facilities provide the Travis Perkins group with the liquidity it requires for the foreseeable future.

The Group is also party to a large number of leases, most of which relate to premises occupied by the Group for trading purposes. Note 31 gives further details about the Group's operating lease commitments.

CONTINUED FOCUS ON DEBT REDUCTION

Careful control of capital investment together with a strong focus on working capital management and integration synergies arising from aligning supplier payment terms meant that net debt was reduced by £191m during the year to £583m. Our net debt to EBITDA ratio continues to fall towards our target of around one times. At 31 December 2011, it was 1.3 times (2010: 1.9 times). Free cash flow for the year was £294m (2010: £278m) (note 36).

Gross capital and investment expenditure totalled £121m. £55m was spent on capital replacements, and £66m on expansion. We believe our culture of undertaking small incremental improvement projects with strict return criteria for each expansion project is a major strength of the Group.

The peak and minimum levels of daily borrowings on a cleared basis during the year ended 31 December 2011 were £949m and £597m respectively (2010: £876m and £551m). The maximum month end cleared borrowings were £867m (2010: £736m). At 31 December 2011, the Group had undrawn committed facilities of £475m (2010: £455m).

PENSION FUND PERFORMANCE

The Travis Perkins' final salary pension scheme started the year with an accounting surplus of £32m, whilst the aggregate gross deficits on the three BSS related defined benefit schemes totalled £60m

During 2011, high quality corporate bond yields have fallen dramatically, which has reduced the discount rate applied to scheme liabilities. This, combined with lower than anticipated returns from investments, particularly equity, has resulted in an actuarial loss of £50m. At 31 December 2011 the combined accounting gross deficit was £46m (2010: £28m).

The triennial valuation of the Travis Perkins scheme for September 2011 is currently being undertaken. Details will be reported in the 2012 annual report.

EXTRACTING VALUE FROM OUR BUSINESS ASSETS

After reviewing the individual businesses acquired with BSS we decided that the Buck and Hickman business was not sufficiently aligned to either the Travis Perkins or the BSS Group core businesses to warrant retaining it in the Group. Accordingly, the trade and assets were sold for £27m on a debt free, cash free basis in September 2011.

Our property team has continued to make an important contribution to group profits by realisinggains from carefully selected property development projects. They achieved their targets for 2011 by generating in excess of £16m of property profits from seven projects, one of the largest of which was at Guildford, which is the second trade park development undertaken by the Group. The proceeds from some deals will not be received until 2012, but £14m was generated during 2011. At the year-end, the carrying value of our freehold and long leasehold property portfolio was £285m (2010: £262m).

CAPITAL EMPLOYED AND BALANCE SHEET

Capital employed at the end of 2011 was £2,108m (2010: £1,952m). The Group's adjusted return on capital for the year was 11.3%, (2010: 12.2%), which continues to be above our pre-tax weighted average cost of capital ("WACC") of 6.9% (2010: 8.1%). Our WACC reduced in 2011 due to lower Gilt yields.

Our balance sheet remains strong with over £2bn of net assets and once again our calculations show there were no impairments to the carrying values of goodwill and other intangible assets. Across the Group, our operating assets continue to be highly cash and profits generative.

During the year, the daily closing share price ranged between 711p and 1,127p. The shares closed the year at a price of 796p, giving a total market value or market capitalisation of £1.9bn. This represented 0.9 times shareholders funds (31 December 2010: 1.3 times).

BSS

During the year, we completed our fair value exercise on the assets acquired in 2010. In total we made adjustments of £48m (before goodwill and intangible write offs) which were principally in respect of aligning policies on stock, debtor and pension scheme valuations, writing off the cost of certain fixed assets and establishing accruals for previously unrecorded liabilities.

After reflecting all fair value adjustments, the final value of goodwill included in the group balance sheet was £345m. In accordance with the requirements of IFRS the balance sheet at 31 December 2010 has been restated to incorporate the additional fair value adjustments identified since that balance sheet was signed on 22 February 2011.

EFFECTIVE FINANCIAL RISK MANAGEMENT

The overall aim of the Group's financial risk management policies is to minimise potential adverse effects on financial performance and net assets. The Group manages the principal financial risks within policies and operating parameters approved by the Board of Directors and does not enter into speculative transactions. Treasury activities, which fall under my day-to-day responsibilities, are managed centrally under a framework of policies and procedures approved by and monitored by the Board.

The Group's policy is to enter into derivative contracts only with members of its UK banking facility syndicate, provided such counterparties meet the minimum rating set out in the Board approved derivative policy.

The Group's hedging policy is to generate its preferred interest rate profile, and so manage its exposure to interest rate fluctuations, through the use of interest rate derivatives. Currently the policy is to maintain between 33% and 75% of drawn borrowings at fixed interest rates.

The Group has entered into a number of interest rate derivatives designed to protect it from fluctuating interest and exchange rates on its borrowings. At the year-end, the Group had £250m of interest rate derivatives fixing interest rates on approximately 38% of the Group's cleared debt. In total 66% of the Group's debt is at fixed interest rates.

The Group settles its currency related trading obligations using a combination of currency purchased at spot rates and currency bought in advance on forward contracts. Its policy is to purchase forward contracts for between 30% and 70% of its anticipated requirements twelve months forward. At 31 December 2011 the nominal value of currency contracts, all of which were $US denominated, was $120m.

To protect itself against adverse currency movements and enable it to achieve its desired interest rate profile, the Group has entered into four cross currency swaps and four forward contracts in respect of its $400m fixed rate guaranteed unsecured notes.

In summary, the key points of our financial risk management strategy are that we:

· Seek to maintain a strong balance sheet;

· Accord top priority to effective cash and working capital management;

· Retain significant liquidity headroom of over £100m in our borrowing facilities and maintain good relationships with our bankers;

· Operate within comfortable margins to our banking covenants:

· the ratio of net debt to EBITDA (earnings before interest, tax and depreciation) has to be lower than 3.0; it was approximately 1.3 at the year-end; and

· The number of times operating profit covers interest charges has to be a least 3.5 times and it was 15 times in 2011.

· Have a conservative hedging policy that reduces the Group's exposure to currency and interest rate fluctuations;

· Serve over 150,000 'live' customer accounts and no single customer accounts for more than 1% of our sales; the bad debt charge in 2011 was 0.6% (2010: 0.6%) of credit sales.

GOING CONCERN

After reviewing the Group's forecasts and risk assessments and making other enquiries, the Directors have formed a judgement at the time of approving the financial statements, that there is a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

In arriving at their opinion the Directors considered the:

· Group's cash flow forecasts and revenue projections;

· Reasonably possible changes in trading performance;

· Committed facilities available to the Group to late 2016 and the covenants thereon;

· Group's robust policy towards liquidity and cash flow management; and

· Group management's ability to successfully manage the principal risks and uncertainties outlined on pages36 and 37during periods of uncertain economic outlook and challenging macro economic conditions.

Paul Hampden Smith

Finance Director

21 February 2012

STATEMENT OF DIRECTORS' RESPONSIBILITIES

For the year ended 31 December 2011

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have also chosen to prepare the Parent Company financial statements under IFRSs as adopted by the EU. Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, International Accounting Standard 1 requires that directors:

· Properly select and apply accounting policies;

· Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

· Provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

· Make an assessment of the Company's ability to continue as a going concern.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement

We confirm that to the best of our knowledge:

· The financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

· The management report, which is incorporated into the directors' report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the Board


Geoff Cooper		Paul Hampden Smith
Chief Executive		Finance Director
21 February 2012

Consolidated income statement

For the year ended 31 December 2011


		2011			2010
	Pre- exceptional items		Exceptional items	Total		Pre- exceptional items	Exceptional items	Total
	£m		£m	£m		£m	£m	£m
Revenue	4,779.1		-	4,779.1		3,152.8	-	3,152.8
Operating profit before amortisation	313.2		(9.8)	303.4		239.0	(19.0)	220.0
Amortisation of intangible assets	(12.9)		-	(12.9)		(0.2)	-	(0.2)
Operating profit	300.3		(9.8)	290.5		238.8	(19.0)	219.8
Finance income	22.4		-	22.4		17.5	-	17.5
Finance costs	(38.9)		(4.4)	(43.3)		(39.8)	(0.7)	(40.5)
Profit before tax	283.8		(14.2)	269.6		216.5	(19.7)	196.8
Tax	(74.5)		17.3	(57.2)		(59.8)	4.3	(55.5)
Profit for the year	209.3		3.1	212.4		156.7	(15.4)	141.3
Earnings per ordinary share
Basic				90.3p				69.6p
Diluted				87.3p				67.2p
Total dividend declared per ordinary share				20.0p				15.0p

All results relate to continuing operations.

Details of exceptional items are given in notes 6 and 9.

Consolidated statement of comprehensive income

For the year ended 31 December 2011

	2011	2010
	£m	£m
Profit for the year	212.4	141.3
Cash flow hedges: Losses arising during the year	(4.6)	(4.4)
Transferred to income statement	2.8	6.8
	(1.8)	2.4
Actuarial (losses) / gains on defined benefit pension schemes	(49.8)	15.9
	(51.6)	18.3
Movement on cash flow hedge cancellation payment	4.2	4.8
Tax relating to components of other comprehensive income	7.1	(6.7)
Other comprehensive (loss) / income for the year	(40.3)	16.4
Total comprehensive income for the year	172.1	157.7

Consolidated balance sheet

As at 31 December 2011

	2011	2010*
	£m	£m
ASSETS
Non-current assets
Property, plant and equipment	562.6	527.1
Goodwill	1,706.2	1,697.8
Other intangible assets	388.9	411.9
Derivative financial instruments	40.3	56.9
Investment property	0.4	0.4
Interest in associates	51.3	45.7
Available-for-sale investments	1.5	1.5
Retirement benefit asset	19.3	31.7
Total non-current assets	2,770.5	2,773.0
Current assets
Inventories	596.0	571.4
Trade and other receivables	743.0	687.2
Derivative financial instruments	3.1	0.1
Assets held for resale	-	2.3
Cash and cash equivalents	78.6	62.9
Total current assets	1,420.7	1,323.9
Total assets	4,191.2	4,096.9

* As required by IFRS 3 the 2010 comparative numbers have been revised to reflect the final fair value adjustments to the assets and liabilities of The BSS Group plc identified since the last annual report.

Consolidated balance sheet (continued)

As at 31 December 2011

	2011	2010
	£m	£m
EQUITY AND LIABILITIES
Capital and reserves
Issued capital	24.4	24.2
Share premium account	480.8	471.5
Merger reserve	326.5	325.9
Revaluation reserve	20.8	21.3
Hedging reserve	(5.1)	(6.9)
Own shares	(75.2)	(83.4)
Accumulated profits	1,335.6	1,199.2
Total equity	2,107.8	1,951.8
Non-current liabilities
Interest bearing loans and borrowings	598.2	760.9
Derivative financial instruments	5.9	4.2
Retirement benefit obligation	65.0	59.6
Long-term provisions	28.9	36.0
Deferred tax liabilities	97.4	110.5
Total non-current liabilities	795.4	971.2
Current liabilities
Interest bearing loans and borrowings	60.3	72.3
Unsecured loan notes	3.3	3.3
Trade and other payables	1,088.3	1,004.5
Derivative financial instruments	-	2.5
Tax liabilities	75.9	36.5
Short-term provisions	60.2	54.8
Total current liabilities	1,288.0	1,173.9
Total liabilities	2,083.4	2,145.1
Total equity and liabilities	4,191.2	4,096.9

The financial statements of Travis Perkins plc, registered number 824821, were approved by the Board of Directors on 21 February 2012 and signed on its behalf by:

Geoff Cooper
Paul Hampden Smith		Directors

Consolidated statement of changes in equity

For the year ended 31 December 2011

	Issued share capital	Share premium account	Merger reserve	Revaluation reserve	Hedging reserve	Own shares	Retained earnings	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2010	20.9	471.2	-	21.3	(12.1)	(83.7)	1,042.8	1,460.4
Profit for the year	-	-	-	-	-	-	141.3	141.3
Cash flow hedge gains	-	-	-	-	2.4	-	-	2.4
Actuarial losses on defined benefit pension schemes	-	-	-	-	-	-	15.9	15.9
Unamortised cash flow hedge cancellation payment	-	-	-	-	4.8	-	-	4.8
Tax relating to comprehensive income	-	-	-	-	(2.0)	-	(4.7)	(6.7)
Total comprehensive income for the year	-	-	-	-	5.2	-	152.5	157.7
Dividends	-	-	-	-	-	-	(10.1)	(10.1)
Issue of share capital	3.3	0.3	325.9	-	-	0.3	(0.3)	329.5
Realisation of revaluation reserve in respect of property disposals	-	-	-	(0.2)	-	-	0.2	-
Difference between depreciation of assets on a historical basis and on a revaluation basis	-	-	-	(0.2)	-	-	0.2	-
Deferred tax rate change	-	-	-	0.4	-	-	-	0.4
Credit to equity for equity-settled share based payments	-	-	-	-	-	-	13.9	13.9
At 31 December 2010	24.2	471.5	325.9	21.3	(6.9)	(83.4)	1,199.2	1,951.8
Profit for the year	-	-	-	-	-	-	212.4	212.4
Cash flow hedge gains	-	-	-	-	(1.8)	-	-	(1.8)
Actuarial losses on defined benefit pension schemes	-	-	-	-	-	-	(49.8)	(49.8)
Unamortised cash flow hedge cancellation payment	-	-	-	-	4.2	-	-	4.2
Tax relating to comprehensive income	-	-	-	-	(0.6)	-	7.7	7.1
Total comprehensive income for the year	-	-	-	-	1.8	-	170.3	172.1
Dividends	-	-	-	-	-	-	(38.8)	(38.8)
Issue of share capital	0.2	9.3	0.6	-	-	8.2	(7.1)	11.2
Realisation of revaluation reserve in respect of property disposals	-	-	-	(1.1)	-	-	1.1	-
Difference between depreciation of assets on a historical basis and on a revaluation basis	-	-	-	(0.3)	-	-	0.3	-
Deferred tax rate change	-	-	-	0.9	-	-	-	0.9
Credit to equity for equity-settled share based payments	-	-	-	-	-	-	10.7	10.7
Foreign exchange differences	-	-	-	-	-	-	(0.1)	(0.1)
At 31 December 2011	24.4	480.8	326.5	20.8	(5.1)	(75.2)	1,335.6	2,107.8

Consolidated cash flow statement

For the year ended 31 December 2011

	2011	2010
	£m	£m
Operating profit before exceptional items	300.3	238.8
Adjustments for:
Depreciation of property, plant and equipment and amortisation	76.8	57.7
Other non cash movements	13.9	8.0
Losses of associate	0.6	2.1
Gain on disposal of property, plant and equipment and investment	(17.6)	(11.3)
Operating cash flows before movements in working capital	374.0	295.3
Increase in inventories	(36.1)	(62.3)
Increase in receivables	(62.0)	(3.2)
Increase in payables	107.1	112.8
Payments on exceptional items	(17.8)	(7.6)
Pension payments in excess of the charge to profits	(20.1)	(52.7)
Cash generated from operations	345.1	282.3
Interest paid	(24.2)	(25.4)
Income taxes paid	(26.3)	(42.4)
Net cash from operating activities	294.6	214.5
Cash flows from investing activities
Interest received	0.7	9.4
Proceeds on disposal of property, plant and equipment and investment	15.0	17.2
Purchases of property, plant and equipment	(109.2)	(52.6)
Interest in associate	(2.3)	(12.5)
Disposal of business (note 16c)	26.9	-
Acquisition of businesses net of cash acquired (note 16)	(9.9)	(294.9)
Net cash used in investing activities	(78.8)	(333.4)
Financing activities
Net proceeds from the issue and sale of share capital	10.6	0.3
Swap cancellation receipt	-	13.7
Payment of finance lease liabilities	(1.6)	(1.3)
Bank facility fees paid	(6.1)	-
Repayment of unsecured loan notes	-	(0.6)
Pension SPV	-	34.7
Decrease in bank loans	(152.2)	(214.1)
Dividends paid	(38.8)	(10.1)
Net cash from financing activities	(188.1)	(177.4)
Net increase / (decrease) in cash and cash equivalents	27.7	(296.3)
Cash and cash equivalents at beginning of year	50.9	347.2
Cash and cash equivalents at end of year	78.6	50.9

Notes

1. The Group's principal accounting policies are set out in the 2010 annual report, which is available on the Company's website www.travisperkinsplc.com. They have been applied consistently in 2011.

2. The proposed final dividend is 13.5 pence (2010: 10 pence) payable on 31 May 2012. The record date is 4 May 2012.

3. The financial information set out in this statement does not constitute the Company's statutory accounts for the years ended 31 December 2011 or 31 December 2010, but is derived from those accounts. Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 will be delivered in due course. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498 (2) or (3) Companies Act 2006. Whilst the financial information included in this announcement has been computed in accordance with International Financial Reporting Standards ("IFRS") this announcement does not itself contain sufficient information to comply with IFRS.

4. This announcement was approved by the Board of Directors on 21 February 2012.

5. It is intended to post the annual report to shareholders on 20 April 2012 and to hold the Annual General Meeting on 22 May 2012. 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 6 April 2012 or will be available through the internet on our website at www.travisperkinsplc.com.

6. Profit

(a) Operating profit

	2011	2010
	£m	£m
Revenue	4,779.1	3,152.8
Cost of sales	(3,355.8)	(2,081.5)
Gross profit	1,423.3	1,071.3
Selling and distribution costs	(882.1)	(675.8)
Administrative expenses	(270.6)	(189.0)
Other operating income	20.5	15.4
Share of results of associate	(0.6)	(2.1)
Operating profit	290.5	219.8
Add back exceptional items	9.8	19.0
Add back amortisation of intangible assets	12.9	0.2
Adjusted operating profit	313.2	239.0

The Group incurred £9.8m of exceptional operating charges in 2011 (2010: £19.0m) as a result of integrating BSS into the Group. The charges arose mainly as a result of the on-going programme to integrate BSS colleagues, systems and processes into the Travis Perkins Group, although there was a £2.2m charge due to the closure or disposal of businesses that were determined to be non-core to the Group's operations.

6. Profit (continued)

To enable readers of the financial statements to obtain a clear understanding of underlying trading, the Directors have shown the exceptional items separately in the group income statement.

(b) Adjusted profit before and after tax

	2011	2010
	£m	£m
Profit before tax	269.6	196.8
Exceptional items	14.2	19.7
Amortisation of intangible assets	12.9	0.2
Adjusted profit before tax	296.7	216.7

Profit after tax	212.4	141.3
Exceptional items	14.2	19.7
Amortisation of intangible assets	12.9	0.2
Tax on exceptional items and amortisation	(7.9)	(1.9)
Effect of reduction in corporation tax rate on deferred tax	(12.6)	(2.4)
Adjusted profit after tax	219.0	156.9

	Merchanting		Retail		Group Pre- BSS		BSS		Eliminations		Group
	2011	2010	2011	2010	2011	2010	2011	2010	2011	2010	2011	2010
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Revenue	2,337.0	2,106.5	1,017.8	1,002.9	3,354.8	3,109.4	1,436.0	43.4	(11.7)	-	4,779.1	3,152.8
Operating profit	195.8	174.1	45.3	58.7	241.1	232.8	50.0	(10.9)	-	-	291.1	221.9
Share of associate losses	-	-	-	-	-	-	-	-	-	-	(0.6)	(2.1)
Amortisation of intangible assets	-	-	-	-	-	-	12.9	0.2	-	-	12.9	0.2
Exceptional items	6.0	10.3	-	0.6	6.0	10.9	3.8	8.1	-	-	9.8	19.0
Adjusted segment result	201.8	184.4	45.3	59.3	247.1	241.6	66.7	(2.6)	-	-	313.2	239.0
Adjusted operating margin	8.6%	8.8%	4.5%	5.9%	7.4%	7.8%	4.6%	(6.0)%	-	-	6.6%	7.6%

Segmental information is shown in note 7.

(d) Taxation

The tax charge includes an exceptional credit of £12.6m (2010: £2.4m) arising from the reduction in the corporation tax rate from 27% to 25% (2010: 28% to 27%) on 1 April 2011. In addition there are exceptional tax credits of £4.7m (2010 £1.9m) arising in respect of exceptional charges to the income statement during the year.

7. Business and geographical segments

	2011
	Merchanting		Retail	BSS	Unallocated	Eliminations	Consolidated
	£m		£m	£m	£m	£m	£m
Revenue	2,337.0		1,017.8	1,436.0	-	(11.7)	4,779.1
Result
Segment result	195.8		45.3	50.0	-	-	291.1

Share of associate losses	-		-	-	(0.6)	-	(0.6)
Finance income	-		-	-	22.4	-	22.4
Finance costs	-		-	-	(43.3)	-	(43.3)
Profit before taxation	195.8		45.3	50.0	(21.5)	-	269.6
Taxation	-		-	-	(57.2)	-	(57.2)
Profit for the year	195.8		45.3	50.0	(78.7)	-	212.4

Segment assets	1,954.4		1,498.8	893.3	192.5	(347.8)	4,191.2
Segment liabilities	(791.1)		(343.7)	(390.2)	(906.2)	347.8	(2083.4)
Consolidated net assets	1,163.3		1,155.1	503.1	(713.7)	-	2,107.8
Exceptional operating costs		6.0	-	3.8	-	-	9.8
Capital expenditure	86.9		17.7	3.5	-	-	108.1
Amortisation	-		-	12.9	-	-	12.9
Depreciation	45.3		13.3	5.3	-	-	63.9

	2010
	Merchanting		Retail	BSS	Unallocated	Eliminations	Consolidated
	£m		£m	£m	£m	£m	£m
Revenue		2,106.5	1,002.9	43.4	-	-	3,152.8
Result
Segment result		174.1	58.7	(10.9)	-	-	221.9

Share of associate losses		-	-	-	(2.1)	-	(2.1)
Finance income		-	-	-	17.5	-	17.5
Finance costs		-	-	-	(40.5)	-	(40.5)
Profit before taxation		174.1	58.7	(10.9)	(25.1)	-	196.8
Taxation		-	-	-	(55.5)	-	(55.5)
Profit for the year		174.1	58.7	(10.9)	(80.6)	-	141.3

Segment assets		1,823.5	1,444.2	963.5	197.3	(331.6)	4,096.9
Segment liabilities		(738.9)	(367.3)	(317.6)	(1,052.9)	331.6	(2,145.1)
Consolidated net assets		1,084.6	1,076.9	645.9	(855.6)	-	1,951.8
Exceptional operating costs		10.3	0.6	8.1	-	-	19.0
Capital expenditure		44.5	7.2	-	0.2	-	51.9
Amortisation		-	-	0.2	-	-	0.2
Depreciation	43.3		13.7	0.5	-	-	57.5

7. Business and geographical segments (continued)

For management purposes, during 2011 the Group was organised into three operating divisions - Merchanting, Retailing and BSS, which operate mainly in the United Kingdom. It is on that basis that we report in the 2011 annual report and accounts.

On 1 January 2012 the Group was reorganised into four divisions, General Merchanting, Specialist Merchanting, Consumer and Plumbing and Heating. In 2012, we will report segmental information on the basis of the new divisional structure.

Segment profit represents the profit earned by each segment without allocation of share of losses of associates, finance income and costs and income tax expense.

Intersegment sales are eliminated.

During 2011 and 2010, other than in respect of fair value adjustments and exceptional charges made in respect of BSS assets, there were no impairment losses or reversals of impairment losses recognised in profit or loss or in equity in any of the reportable segments.

8. Pension schemes

	2011 £m	2010 £m
Gross deficit at 1 January	(27.9)	(43.0)
Liabilities in the BSS schemes at the date of acquisition	-	(59.6)
Service costs charged to the income statement	(7.1)	(5.7)
Other finance income	11.8	6.2
Contributions received by the scheme	27.3	58.3
Actuarial (losses) / gains recognised in the statement of comprehensive income	(49.8)	15.9
Gross deficit at 31 December	(45.7)	(27.9)
Deferred tax	11.4	7.8
Net deficit at 31 December	(34.3)	(20.1)

9. Net finance costs

	2011				2010
	Pre- exceptional items	Exceptional items	Total	Total
	£m	£m	£m	£m
Interest on bank loans and overdrafts*	(26.7)	-	(26.7)	(28.5)
Interest on obligations under finance leases	(1.2)	-	(1.2)	(1.2)
Unwinding of discounts	(5.6)	-	(5.6)	(4.2)
Amortisation of cancellation payment for swaps accounted for as cash flow hedges	(4.2)	-	(4.2)	(4.9)
Other interest	(1.2)	-	(1.2)	(0.2)
Net loss on settlement of private placement	-	(4.4)	(4.4)	-
Net loss on re-measurement of derivatives at fair value	-	-	-	(1.5)
Finance costs	(38.9)	(4.4)	(43.3)	(40.5)
Other finance income - pension scheme	11.8	-	11.8	6.2
Amortisation of cancellation receipt for swap accounted for as fair value hedge	1.1	-	1.1	0.9
Net gain on re-measurement of derivatives at fair value	5.1	-	5.1	-
Interest receivable	4.4	-	4.4	10.4
Finance income	22.4	-	22.4	17.5
Net finance costs	(16.5)	(4.4)	(20.9)	(23.0)
Adjusted interest cover			15.4x	18.9x

*Includes £3.1m (2010: £5.7m) of amortised bank finance charges.

Adjusted interest cover is calculated by dividing, adjusted operating profit of £313.2m (2010: £239.0m) less £1.5m (2010: £1.2m) of specifically excluded IFRS adjustments, by the combined value of interest on bank loans and overdrafts (excluding amortised bank finance charges), unsecured loans, other interest payable and interest receivable, which total £20.3m (2010: £12.6m).

The unwinding of the discounts charge arises principally from the property provisions created in 2008 and the pension SPV.

During 2011 the Group repaid $125m of the BSS unsecured senior notes and terminated the associated derivatives. This resulted in a net loss of £4.4m which is shown as exceptional.

Included within finance costs in 2010 is an exceptional charge of £0.7m arising from the write off of unamortised bank fees in respect of the BSS loan facility which was repaid following the acquisition.

10. Earnings per share

(a) Basic and diluted earnings per share

	2011	2010
Earnings	£m	£m
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the Parent Company	212.4	141.3
Number of shares	No.	No.
Weighted average number of shares for the purposes of basic earnings (2010: pre BSS acquisition share issue)	235,113,837	201,682,453
Issued in connection with the BSS acquisition	37,267	1,444,926
Weighted average number of shares for the purposes of basic earnings per share	235,151,104	203,127,379
Dilutive effect of share options on potential ordinary shares	8,057,058	7,099,195
Weighted average number of ordinary shares for the purposes of diluted earnings per share	243,208,162	210,226,574

At 31 December 2011, 796,390 (2010: 2,450,045) share options had an exercise price in excess of the market value of the shares on that day. As a result, these share options were excluded from the calculation of diluted earnings per share.

(b) Adjusted earnings per share

Adjusted earnings per share are calculated by excluding the effect of the exceptional items and amortisation from earnings.

	2011	2010
	£m	£m
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the Parent Company	212.4	141.3
Exceptional items	14.2	19.7
Amortisation of intangible assets	12.9	0.2
Tax on amortisation	(3.2)	-
Tax on exceptional items	(4.7)	(1.9)
Effect of reduction in corporation tax rate on deferred tax	(12.6)	(2.4)
Adjusted earnings	219.0	156.9
Adjusted earnings per share	93.1p	77.2p

10. Earnings per share (continued)

Number of shares		2010 No.
Weighted average number of shares for the purposes of basic earnings pre BSS acquisition share issue		201,682,453
Issued in connection with the BSS acquisition assumed 1 January 2010		33,068,032
Weighted average number of shares for the purposes of proforma earnings per share		234,750,485

		2010
		£m
Earnings for adjusted earnings per share		156.9
BSS post tax pre acquisition earnings		40.6
Adjusted proforma earnings		197.5
Adjusted proforma earnings per share		84.1p

11. Dividends

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

	2011	2010
	£m	£m
Final dividend for the year ended 31 December 2010 of 10p (2009: nil) per ordinary share	23.5	-
Interim dividend for the year ended 31 December 2011 of 6.5p (2010: 5p) per ordinary share	15.3	10.1
Total dividend recognised during the year	38.8	10.1

The dividends declared for 2011 at 31 December 2011 and for 2010 at 31 December 2010 were as follows:

	2011	2010
	Pence	Pence
Interim paid	6.5	5.0
Final proposed	13.5	10.0
Total dividend for the year	20.0	15.0

The proposed final dividend of 13.5p per ordinary share in respect of the year ended 31 December 2011 was approved by the Board on 21 February 2012.

Adjusted dividend cover of 4.7x (2010: 5.1x) is calculated by dividing adjusted earnings per share (note 10b) of 93.1p (2010: 77.2p) by the total dividend for the year of 20.0p (2010: 15.0p).

12. Free cash flow

	2011	2010
	£m	£m
Net debt at 1 January	(773.6)	(467.2)
Net debt at 31 December	(583.2)	(773.6)
Decrease / (increase) in net debt	190.4	(306.4)
Dividends paid	38.8	10.1
Net cash outflow for expansion capital expenditure	54.4	29.0
Net cash outflow for acquisitions	9.9	294.9
Disposal of businesses	(26.9)	-
Bank fees paid	6.1	-
Amortisation of swap cancellation receipt	(1.1)	(0.9)
Discount unwind on SPV	2.5	1.5
Cash impact of exceptional items	17.8	7.6
Interest in associate	2.3	12.5
Shares issued and sale of own shares	(10.6)	(0.3)
Decrease in fair value of debt	(13.3)	(3.1)
Movement in finance charges netted off bank debt	3.1	5.7
Net debt arising on BSS acquisition	-	174.6
Special pension contributions	20.1	52.6
Free cash flow	293.5	277.8

13. Net debt

	2011	2010
	£m	£m
Net debt at 1 January	(773.6)	(467.2)
Increase / (decrease) in cash and cash equivalents	27.7	(296.3)
Cash flows from debt	153.8	167.6
Decrease in fair value of debt	1.0	3.1
Amortisation of swap cancellation receipt	1.1	1.0
Fair value of BSS loan notes repaid	12.4	-
Discount unwind on SPV	(2.5)	(1.5)
Finance charges netted off bank debt	(3.1)	(5.7)
Net debt arising on acquisition	-	(174.6)
Net debt at 31 December	(583.2)	(773.6)

13. Net debt (continued)

	2011	2010
	£m	£m
Net debt under IFRS	(583.2)	(773.6)
IAS 17 finance leases	20.3	21.9
Unamortised swap cancellation receipt	4.0	5.1
Pension SPV	37.2	-
Fair value on debt acquired	-	12.4
Fair value adjustment to debt	36.6	37.4
Finance charges netted off bank debt	(1.5)	(4.6)
Net debt under covenant calculations	(486.6)	(701.4)

14. Adjusted return on capital

	2011	2010
	£m	£m
Operating profit	290.5	219.8
Amortisation of intangible assets	12.9	0.2
BSS post acquisition operating losses	-	2.6
Exceptional items	9.8	19.0
Adjusted operating profit	313.2	241.6
Opening net assets	1,951.8	1,460.4
Net pension deficit	20.1	31.0
Goodwill written off	92.7	92.7
Net borrowings	773.6	467.2
Exchange adjustment	(52.2)	(40.5)
Opening capital employed	2,786.0	2,010.8
Closing net assets	2,107.8	1,951.8
BSS post acquisition loss before tax	-	2.8
Shares issued in respect of the BSS acquisition	-	(329.2)
Net pension deficit / surplus*	34.3	(23.1)
Goodwill written off	92.7	92.7
Net borrowings	583.2	773.6
Borrowings arising from the BSS acquisition	-	(469.3)
Exchange adjustment	(36.6)	(37.4)
Closing capital employed	2,781.4	1,961.9
Average capital employed	2,783.7	1,986.4
Adjusted return on capital	11.3%	12.2%

* 2010 was adjusted only for the surplus in the Travis Perkins defined benefit scheme.

15. Adjusted earnings before interest, tax and depreciation

	2011 £m	2010 £m
Profit before tax	269.6	196.8
Net finance costs	20.9	23.0
Depreciation and amortisation	76.7	57.7
EBITDA under IFRS	367.2	277.5
Exceptional operating items	9.8	19.0
BSS 2010 pre-acquisition EBITDA	-	71.3
IFRS adjustments not included in covenant calculations	(2.7)	(2.6)
Adjusted EBITDA under covenant calculations	374.3	365.2
Net debt under covenant calculations	486.6	701.4
Adjusted net debt to EBITDA	1.3x	1.9x

16. Acquisitions and disposal of businesses

a) The BSS Group plc

On the 14 December 2010 the Group acquired the entire issued share capital of The BSS Group plc. The acquisition was accounted for using the purchase method of accounting. The acquisition has created the leading plumbing and heating trade and retail distribution business in the UK. Provisional fair values ascribed to identifiable assets as at 31 December 2010 have been adjusted during 2011 and the final fair values acquired are shown in in the table below. The 2010 balance sheet has been amended to show the final fair values acquired.

	2011
	Fair value acquired
Net assets acquired:	£m
Property, plant, equipment and investments	37.6
Identifiable intangible assets	257.7
Derivative financial instruments	14.9
Investments	0.1
Inventories	199.4
Trade and other receivables	311.7
Retirement benefit obligations	(59.6)
Provisions	(7.1)
Trade and other payables and provisions	(246.3)
Current tax liabilities	(0.6)
Deferred and current tax liabilities	(53.9)
Bank overdrafts and loans	(174.6)
	279.3
Goodwill	345.0
Amount payable	624.3
Satisfied by:
Cash	294.5
Equity instruments (closing price on 14 December 2010)	329.8
	624.3

b) Toolstation Limited

On the 3 January 2012, the Group acquired the remaining 70% of the issued share capital of Toolstation Limited for further consideration of £24m. The Group had previously acquired 30% in April 2008 which included an option to buy the remaining 70%. The aggregate consideration following the payment on 3 January is £41m. Future consideration dependent upon future performance and expansion of the business over the period to December 2013 is estimated to be £75.3m. Toolstation net liabilities (including the £37m loan repayable to Travis Perkins) were £28.9m at 31 December 2011.

16. Acquisitions and disposal of businesses (continued)

c) Disposal of businesses

On the 2 September 2011 the Group disposed of its interest in the Buck and Hickman business. The assets and liabilities disposed of and resulting loss on disposal are shown below.

Assets and liabilities						2011 £m
Property, plant and equipment						2.9
Identifiable intangible assets						10.3
Inventories						12.0
Trade and other receivables						23.8
Trade and other payables						(21.4)
Net assets						27.6
Loss on disposal						(0.7)
Total consideration						26.9
Satisfied by cash						26.9

17. Related party transactions

The Group has a related party relationship with its subsidiaries and with its directors. Transactions between group companies, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Company and its subsidiaries are disclosed below. In addition the remuneration, and the details of interests in the share capital of the Company, of the Directors, are provided in the audited part of the remuneration report on pages 56 to 66.

The remuneration of the key management personnel of the Group is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.

	2011 £m	2010 £m
Short term employee benefits	7.3	8.0
Share based payments	4.9	3.0
	12.2	11.0

The Company undertakes the following transactions with its active subsidiaries:

● Providing day-to-day funding from its UK banking facilities;

● Paying interest to members of the Group totalling £6.4m (2010: £3.5m)

● Levying an annual management charge to cover services provided to members of the Group of £6.9m (2010: £6.9m);

● Receiving preference dividends totalling £9.2m (2010: £2.1m)

● Receiving annual dividends totalling £79.1m (2010: £40.3m).

Details of balances outstanding with subsidiary companies are shown in note 19 and on the Balance Sheet on page 77.

There have been no material related party transactions with directors.

Details of transactions with Toolstation are shown in note 18. The Group advanced a total of £2.3m to all the groups associate companies in 2011. Operating transactions with all three associates during the year were not significant.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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