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Travis Perkins plc : Full year results for the -4-

03/02/2021 | 02:02am

Gross profit margin was marginally higher year-on-year as a reduction in promotional activity outweighed an unfavourable shift in product mix, principally as a result of the loss of showroom driven business. The significant change in fulfilment methods, with delivery to customer order volumes more than doubling across the year and click and collect volumes increasing by over 450%, increased fulfilment costs. Work is underway to drive efficiencies in distribution overhead given the expectation that digital sales participation will continue to grow over time.

Overheads were impacted by GBP9m of costs directly as a result of the Covid-19 pandemic to ensure customers and colleagues remained safe. The business also had to carry around GBP7m of unproductive labour costs during the first lockdown period, principally relating to Kitchen & Bathroom sales, delivery and installation colleagues.

Following the strong sales performance of Wickes, the decision was taken in December 2020 to repay all government support, which is therefore excluded from the Retail segment results.

With the continued strong performance of the Wickes business and more stable market conditions, the Board has re-commenced the demerger process with a view to completion in Q2 2021.

In September 2020, the Group completed the sale of its Tile Giant business.

** On a calendar year basis. For the 52 weeks to 26th December 2020 Wickes like-for-like sales were +5.0% with Core +18.8% and Kitchens & Bathrooms down (27.8)% Plumbing & Heating (P&H)

                            FY 2020 FY 2019 Change 
Total revenue               GBP1,069m GBP1,465m (27.0)% 
Like-for-like growth        (11.2)% (1.7)%  (9.5)ppt 
Adjusted operating profit*  GBP19m    GBP48m    (60.4)% 
Adjusted operating margin   1.8%    3.3%    (150)bps 
ROCE                        5%      13%     (8)ppt 
Branch network              354     375     (21) 

2019 figures include GBP269m of revenue and GBP7.4m of adjusted operating profit from PF&P wholesale, sold in January 2020.

2020 figures include GBP28m of revenue and GBP0.7m of adjusted operating profit, plus the GBP1.8m profit on sale of the business.

*Segmental adjusted operating profit figures are presented excluding property profits

During the first national lockdown, P&H was the most significantly impacted of the Group's businesses with branches initially being forced to close, customers restricted to essential maintenance work and the subsequent challenges faced by installers who had to adopt a very careful approach to working in domestic properties.

The recovery in the second half of the year has been robust, however, with like-for-like sales up 0.9% driven by strong demand through the branch and showroom network. The new build and social housing sectors have lagged though, as have sales on major contracts.

The performance of the specialist digital businesses - Underfloor Heating Store and Plumbnation - was particularly encouraging with total sales of GBP51m during the year representing 7% growth.

Gross margins were ahead of prior year, with the impact of lower annual volume rebates offset by the shift in sales mix towards smaller installer customers and the business mix change following the sale of the PF&P wholesale business in January.

The combination of encouraging sales, higher gross margin and cost actions led to an operating profit in the second half of GBP27m, some 12.5% ahead of the previous year, which indicates the health of the business. Over the full year, the disruption of the first half led to an operating profit of GBP19m (2019: GBP48m).

It remains the intention of the Group to divest the P&H business when the market conditions are suitable. The Board will continue to focus on implementing strategic actions to improve the remaining Plumbing & Heating business further whilst assessing opportunities to optimise value for shareholders.

Government Assistance

During 2020, in order to mitigate in part the impact of reduced volumes, the Group undertook a number of cost reduction actions and was also able to access government assistance from the Coronavirus Job Retention Scheme during the second quarter of the year while many branches were closed. The Group also utilised Business Rates Relief arrangements throughout 2020 as sales volumes gradually recovered.

Given the surge in DIY demand, having initially made claims under both schemes for the Wickes and Toolstation businesses, the decision was taken in December to repay government assistance to those businesses of GBP46m. Government assistance to the Merchanting and Plumbing and Heating businesses in 2020 totalled approximately GBP74m. No further claims are anticipated under either scheme in 2021. Central costs

Unallocated central costs rose by GBP7m in 2020, driven by GBP15m of stranded costs relating to the separation of Wickes and P&H from the Group as disclosed in March 2020. This increase was partially offset by savings from the restructuring programme and substantially reduced management incentive charges. Property transactions

Given the impact of the pandemic, fewer property transactions were completed in the year than in 2019. After a quiet first half, good progress was made on disposing of surplus freehold assets in the second half of the year, generating GBP11m of property profits for the year as a whole (2019: GBP21m). Significant progress has already been made in exiting both freehold and leasehold sites vacated as part of the restructuring programme announced in June. Financial Performance Revenue analysis

Sales across the Merchanting and P&H businesses were hit hard by the initial lockdown but recovered well through the second half of the year. As described above, Toolstation was able to adapt its business model during lockdown to maintain trade and subsequently to build on those changes to drive exceptional growth during the balance of the year.

Retail was impacted by the closure of Kitchen & Bathroom showrooms during the first lockdown, which account for around one third of sales. The Wickes core business, however, was ideally placed to benefit from the surge in DIY demand and delivered excellent growth from June onwards. Volume, price and mix analysis

Total revenue                                Merchanting Toolstation Retail Plumbing & Heating Group 
Volume                                       (13.4)%     23.6%       5.3%   (15.0)%            (7.2)% 
Price and mix                                (0.6)%      (1.4)%      (0.3)% 3.8%               0.1% 
Like-for-like revenue growth                 (14.0)%     22.2%       5.0%   (11.2)%            (7.1)% 
Network changes and acquisitions / disposals (3.5)%      19.6%       (1.7)% (16.2)%            (4.7)% 
Trading days                                 0.3%        0.3%        0.3%   0.4%               0.3% 
Total revenue growth                         (17.2)%     42.1%       3.6%   (27.0)%            (11.5)% 

At a Group level, price inflation was neutral across the year reflecting a benign input cost environment. There was one extra trading day in the year but the merchant businesses closed earlier than usual in December, as management teams wished to ensure that colleagues could take a longer break after a challenging year. This is reflected in the December like-for-like sales which saw a slight dip after a strong upward trajectory in the second half.

Toolstation total sales include fully consolidated sales from Toolstation Europe from 1 October 2019, partly driving the significant step up in growth between LFL and total sales alongside expansion of the Toolstation network. Conversely, P&H total sales figures were impacted by the disposal of the PF&P Wholesale business in January 2020 and Retail by the sale of Tile Giant in September 2020. Quarterly like-for-like revenue analysis

Like-for-like revenue growth Merchanting Toolstation Retail  Plumbing & Heating Total Group 
Q1 2020                      (8.7)%      9.1%        4.5%    (1.9)%             (3.8)% 
Q2 2020                      (42.8)%     16.5%       (19.8)% (48.4)%            (34.8)% 
Q3 2020                      (3.1)%      25.5%       18.3%   0.4%               3.9% 
Q4 2020                      1.3%        34.7%       20.0%   1.4%               7.7% 
H1 2020                      (25.8)%     12.9%       (8.2)%  (22.8)%            (19.3)% 
H2 2020                      (1.0)%      30.4%       19.6%   0.9%               5.9% 
FY 2020                      (14.0)%     22.2%       5.0%    (11.2)%            (7.1)% Operating profit and margin 

The significant drop in revenue, combined with a predominantly fixed overhead base, negatively impacted on profitability. As outlined above, the Group therefore took swift and appropriate actions to reduce costs, tightly controlling discretionary spend and commencing a restructuring programme in June 2020. As a result, adjusted operating profit for the year was GBP227m (2019: GBP442m).

GBPm                                          FY 2020 FY 2019 Change 
Merchanting                                 152     284     (46.5)% 
Toolstation                                 8       25      (68.0)% 
Retail                                      77      97      (20.6)% 
Plumbing & Heating                          19      48      (60.4)% 
Property                                    11      21      (47.6)% 
Unallocated costs                           (40)    (33)    (21.2)% 
Adjusted operating profit                   227     442     (48.6)% 
Amortisation of acquired intangible assets  (9)     (9) 
Adjusting items                             (140)   (200) 
Operating profit                            77      233 

Adjusting items in 2020 are primarily related to the restructuring programme at a cost of GBP121m. In addition, the Group recognised adjusting items of GBP13m in relation to Wickes store impairments and GBP11m in relation to costs to separate Wickes from the Group ahead of the planned demerger. Further details are provided in note 7.

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