Travis Perkins plc: Full year results for the year to 31 December 2022

28 February 2023

Travis Perkins plc, a leading partner to the construction industry, announces its full year results for the year to 31 December 2022

A resilient trading performance in rapidly changing market conditions

Financial Highlights

• Robust revenue growth of 8.9% with elevated levels of materials cost inflation diligently managed
• Adjusted operating profit of £295m, impacted principally by lower year-on-year property profits and a £15m charge related to restructuring activities in Q4
• Adjusted earnings per share of 94.6p with lower operating profit partially offset by reduced share count
• Proactive cost actions to deliver benefits of around £25m in 2023
• Good cash conversion at 67%; lease-adjusted leverage (net debt / EBITDA) of 1.8x remains comfortably within target range
• Total ordinary dividend increased to 39.0 pence per share (2021: 38.0 pence per share)

Operational Highlights

• Solid performance in the Travis Perkins General Merchant, with further share gains, driven by focus on enhancement of digital capability and expansion of value-added services primarily across Hire, Benchmarx kitchens and Managed Services
• Continued strong performance from the Group’s specialist distributors – BSS, Keyline and CCF. Staircraft now integrated and enhancing the Group’s housebuilder proposition.
• Toolstation returned to good growth in H2 after tough prior year comparatives in H1. Significant investment in expanding infrastructure across both the UK and Europe.
• Positive progress towards sustainability targets, notably a 34% reduction in Scope 1 & 2 carbon emissions during the year

(1) Alternative performance measures are used to describe the Group’s performance. Details of calculations can be found in the notes listed.

* For continuing businesses only. The Retail and Plumbing & Heating segments are treated as discontinued operations.

Nick Roberts, Chief Executive Officer, commented:

“The Group delivered a resilient trading performance in 2022 which is testament to the capability of our colleagues and the strength of our market leading propositions. I would like to thank our teams for their hard work throughout the year and their flexibility to meet customer needs amidst rapidly changing market dynamics.

In the second half of the year we made some difficult decisions in response to the weaker trading environment and we continue to be watchful of market trends, working closely with our customers and suppliers to stay on the front foot. Investment continues in our strategic growth programmes including selectively exploring new destination branches for the Travis Perkins General Merchant, rolling out Toolstation in both the UK and Europe and investing in growing our value-added services, notably Hire, Benchmarx kitchens and our Staircraft business, always being mindful to flex the pace of the programme to reflect market conditions.

Whilst it is early in the year and macroeconomic uncertainty remains, the combination of our diverse end market exposure, appropriate cost actions and further market share gains driven by continued strategy execution, will enable the Group to deliver another resilient trading performance in the year ahead.

As a market-leading distributor of building materials products, we continue to benefit from long-term strategic growth drivers in our markets including new environmental and safety legislation and commitments from both public and private sector customers to deliver against net zero targets. We are committed to being at the forefront of both decarbonising the construction industry alongside developing the next generation of talent to create value for all of our stakeholders.”

Analyst Presentation

Management are hosting a results presentation at 8.30am. For details of the event please contact the Travis Perkins Investor Relations team as below. The presentation will also be available via a listen-only webcast - please register at the following link:

https://stream.brrmedia.co.uk/broadcast/63caa8e1777efd4a8b51373b

Enquiries:

Cautionary Statement:

This announcement contains “forward-looking statements” with respect to Travis Perkins’ financial condition, results of operations and business and details of plans and objectives in respect to these items. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as “anticipates”, “aims”, “due”, “could”, “may”, “will”, “should”, “expects”, “believes”, “seeks”, “intends”, “plans”, “potential”, “reasonably possible”, “targets”, “goal” or “estimates”, and words of similar meaning. By their very nature forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, the Principal Risks and Uncertainties disclosed in the Group’s Annual Report and as updated in this statement, changes in the economies and markets in which the Group operates; changes in the legislative, regulatory and competition frameworks in which the Group operates; changes in the capital markets from which the Group raises finance; the impact of legal or other proceedings against or which affect the Group; and changes in interest and exchange rates. All forward-looking statements, made in this announcement or made subsequently, which are attributable to Travis Perkins or any other member of the Group or persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. No assurances can be given that the forward-looking statements in this document will be realised. Subject to compliance with applicable law and regulations, Travis Perkins does not intend to update these forward-looking statements and does not undertake any obligation to do so. Nothing in this document should be regarded as a profits forecast.

Without prejudice to the above:

(a) neither Travis Perkins plc nor any other member of the Group, nor persons acting on their behalf shall otherwise have any liability whatsoever for loss howsoever arising, directly or indirectly, from the use of the information contained within this announcement; and

(b) neither Travis Perkins plc nor any other member of the Group, nor persons acting on their behalf makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained within this announcement.

This announcement is current as of 28th February 2023, the date on which it is given. This announcement has not been and will not be updated to reflect any changes since that date.

Past performance of the shares of Travis Perkins plc cannot be relied upon as a guide to the future performance of the shares of Travis Perkins plc.

Summary

2022 was a challenging year and the Group adapted well to rapidly changing market conditions, making further progress towards its ambition of being the leading partner to the construction industry. The Group will continue to balance delivery of near-term performance with longer term strategic objectives as it focuses on outperforming its end markets and generating strong cash flow to invest in strategic initiatives and provide attractive returns to shareholders.

2022 Performance

The Group delivered a resilient performance with revenue of £4,995m, up 8.9% versus 2021. The Merchanting businesses delivered further market share gains and Toolstation returned to good growth in the second half of 2022 following tough comparatives in the first half. The Group again demonstrated its ability to recover significant levels of materials cost inflation and continues to benefit from its diverse end market exposure.

While adjusted operating profit of £295m was £(58)m, or (16)%, lower than in 2021, this was predominantly driven by lower year on year property profits (£(24)m) and £(15)m of restructuring charges associated with the Group’s cost reduction actions.  Despite two fewer trading days (impacting operating profit by around £(9)m), the Merchanting segment improved its underlying operating profit performance with further market share gains.  Although second half performance was good, full year operating profit in Toolstation was significantly lower than prior year as the business faced very challenging first half comparatives and continued to invest in its distribution and network capability across both the UK and Europe to underpin future growth.

As outlined in the September 2021 strategic update, the Group is focusing on elevating relationships with customers through the growth of value-added services. This approach is paying dividends with the value-added services representing around 16% of Group revenue.

Maintaining operational agility and discipline in capital allocation

With the expectation of lower levels of activity in the UK construction sector in the year ahead, management implemented a number of cost reduction actions in Q4 2022 to ensure that the Group’s cost base appropriately reflects the trading environment. These actions are expected to deliver around £25m of cost savings in 2023 with the cost to achieve those savings, of around £15m, recognised in 2022.

These actions resulted in the closure of 19 branches in the General Merchant and Benchmarx and a headcount reduction of approximately 400 across those branches and central support functions. These changes represent an acceleration of plans to modernise the business by exiting smaller branches and continuing to invest in larger, more capable, destination branches which incorporate value-added services such as Hire and kitchen showrooms.

The Group also flexed its capital investment programme in the year to reflect the trading environment with spend being around £15m lower than medium term guidance (of £125m p.a.). This prudent approach will continue into 2023 with capital spend anticipated to be c. £25m lower than medium term guidance at around £100m.

Capital structure and shareholder returns

The Group has set a medium-term leverage target of 1.5x – 2.0x net debt / adjusted EBITDA (on an IFRS 16 basis), this target range being consistent with investment grade credit metrics. The Group’s balance sheet remains strong with year-end net debt / adjusted EBITDA in the middle of the target range at 1.8x, leaving the Group well positioned to navigate the current uncertain market conditions.  The current leverage position, together with the cash generative nature of the business, allows the Group scope to continue to invest in driving future growth while also returning surplus capital to shareholders when towards the lower end of this target range.

Given the strong balance sheet position and confidence in the prospects for the Group, the Board has proposed an increase in the dividend to 39.0 pence per share (2021: 38.0 pence per share).

Outlook

Management is mindful of the current macroeconomic uncertainty and, in line with industry forecasts, is planning for a decline in overall market volumes in the mid to high single digit range in 2023. This will vary across end markets with private domestic new-build and RMI more challenged while the commercial, industrial and public sectors are expected to remain more resilient. 

Product cost inflation is expected to moderate into 2023 although Management does not currently expect to see any notable deflation in manufactured products. Management therefore expects to see mid to high single digit percentage product cost inflation overall driven by the rollover of prior year increases and further new increases already announced so far this year.

Whilst the expected market dynamics point to a challenging year ahead, Management continues to anticipate delivering a performance in line with market expectations. The actions taken to create a more agile business, with broad end market exposure, enable management to remain confident in the Group's ability to outperform its markets and deliver attractive returns to shareholders over the medium term.

Technical guidance

The Group’s technical guidance for 2023 is as follows:

• Effective tax rate of 25%
• Base capital expenditure of around £100m
• Property profits of around £20m

Segmental performance

Merchanting

* Excluding property profits

The Merchanting segment delivered a robust performance overall with revenue up by 10.3% and growth in operating profit** of 2.8% to £329m.  After significant price increases during 2021, driven by a rapid post-pandemic recovery in demand, price inflation continued to accelerate through 2022 before moderating slightly in the fourth quarter. Increases were mainly driven by manufacturers passing through rising energy costs with prices increasing by around 15% in H1, rising to around 17% in H2. The Merchanting businesses have again managed these challenges well through proactive engagement with customers and providing transparency.

Since 2018, the significant programme of work to evolve the customer proposition and empower the branch teams has delivered strong financial benefits. Supported by a rationalisation of the network and much improved data to aid in-branch decision making, operating profit has grown by 18%**, £95m of capital has been removed and ROCE has moved forward by 280 bps**. The Group is confident in its ability to make further progress on these metrics.

From an end-market perspective, the Merchanting segment benefits from broad exposure providing a degree of insulation from volatility in any one end market.

The Private domestic RMI market represents approximately 35% of Merchanting revenue and is primarily serviced by the Group’s General Merchant business working with smaller trade customers.  Following a strong start to the year, volume performance weakened against a tough comparator period and this was exacerbated in the second half by high levels of materials inflation and increasing macroeconomic uncertainty, leading to home-owners delaying or reducing the scope of improvement work. The challenging backdrop seen in the second half of the year is expected to continue into 2023.

For the smaller trade customer the focus remains on the core elements of service. For account customers the number of managed accounts has been increased and for non-account customers, who are more transient in nature, further improvements have been made to ensure transparent and consistent pricing, complemented by the right range and depth of stock in branch. These improvements have been backed up by further investments in our hire fleet and sales team, driving increased penetration, and in our digital proposition.

The private domestic new-build market represents approximately 19% of Merchanting revenue and is primarily serviced by Keyline, CCF and Staircraft working with national and regional housebuilders.  The businesses engage at different stages of the build process with Keyline typically first on site and CCF and Staircraft delivering at a later stage of the process.  While the housing market slowed later in H2, this did not feed through notably into volumes as completions continued but is expected to be seen in 2023 with new housing starts currently forecast to slow.

Within this sector, the Group continues to enjoy long standing partnerships with the major national housebuilders and to focus growth initiatives on the regional housebuilder market where the introduction of Staircraft and the development of the Benchmarx proposition are providing customers with innovative solutions to reduce waste, complexity and the need for specialist labour. CCF and Keyline continue to enhance their proposition in this market by using newly developed data and delivery management capability to provide data on embodied carbon which is helping customers to address changing preferences, manage projects more effectively and win work.

The commercial and industrial market represents approximately 22% of Merchanting revenue and incorporates new build and refurbishment activity across offices, warehouses, multi occupancy and student accommodation alongside industrial maintenance.  The market is primarily serviced by the Group’s BSS and CCF businesses. This sector held up well during the year with a post-pandemic backlog of work remaining and an increasing requirement for logistics space and office remodelling, a trend that is expected to continue.   

The public sector market represents approximately 24% of Merchanting revenue and covers projects across infrastructure, public assets such as schools, hospitals and prisons, and social housing maintenance.  The market is primarily serviced by the Group’s BSS, Keyline and Travis Perkins Managed Services businesses. Demand remained robust in this market throughout the year with ongoing government backing for investment in public buildings and infrastructure alongside the continued catch up in social housing maintenance and the impact of tighter legislation on social housing standards. These factors are expected to continue to support demand into next year.

Adjusted operating margin** reduced by (60)bps as a result of the dilutive effect of very high levels of inflation on the gross margin percentage and also a shift in customer mix towards larger accounts where gross margins are lower. Although the Merchant businesses experienced high levels of overhead inflation, with significant increases in payroll, utility and fuel costs leading to overall overhead inflation of around 7%, this was proactively managed and the cost to serve percentage remained in line with prior year.

** Excluding £15m restructuring charge in 2022

Toolstation