Tulchan Communications Graeme Barnes

Transcription

1 Travis Perkins plc Interim results for the six months Trade focused businesses performing well, significant challenges in DIY market Note H1 H1 Change Revenue 3,364 3, % Like-for-like revenue growth (1) 4.2% 2.7% Adjusted operating profit (1) 16a (5.8)% Adjusted operating profit excluding property profits (1) (11.5)% Adjusted profit before taxation (1) 16b (4.6)% Adjusted earnings per share (1) 8b 53.5p 55.8p (4.1)% Net debt (1) 13 (461) (377) (84)m Dividend per share (pence) p 15.5p - Lease adjusted ROCE (2) 16f 10.1% 11.2% (1.1)ppt Adjusting items 2 (286) - Operating (loss)/profit (112) 183 (Loss)/Profit before taxation (123) 168 Basic (loss)/earnings per share (pence) 8a (59.8)p 53.6p (1) Alternative performance measures are used to provide a guide to underlying performance and details of the calculations can be found in the notes listed (2) Lease adjusted ROCE restated for H1 to adjust for the 246m write off of goodwill in Wickes in H1 Highlights Solid revenue growth of 4.4% with like-for-like growth of 4.2%. Good trading performance in the trade focused businesses in General Merchanting, Plumbing & Heating, Contracts and Toolstation. Challenging UK DIY market negatively impacting sales and profitability in Wickes, with significant cost reduction plans underway. Cost reduction plans in progress across the Group with benefits weighted towards H2. Adjusted operating profits decline of 5.8% primarily reflects sales mix, with weaker Kitchen and Bathroom showroom sales in Wickes, and higher operating costs in General Merchanting. Adjusting items include an impairment of 246m against the goodwill in Wickes given the challenging DIY market, and reorganisation costs in the P&H and Wickes businesses. Interim dividend unchanged at 15.5p per share Strong focus on costs given mixed market outlook, with Group EBITA anticipated to be in the lower half of the range of analyst expectations. John Carter Chief Executive Officer said: Our trade focused businesses in General Merchanting, Contracts, Toolstation and Plumbing & Heating achieved good sales growth despite experiencing a volatile first half. These businesses exited the period with encouraging momentum and, supported by a continued focus on cost, they remain on track to deliver modest profit growth for the full year. Our consumer-focused business, Wickes, has had a far more challenging period as weaker consumer spending trends, combined with a difficult competitive environment, have held back profitability. Consequently, the Wickes team is executing a significant cost reduction programme. Whilst these savings will help drive improved profitability through the second half of the year, Wickes profits will be lower than previously expected. 1

2 Against a backdrop of changing market conditions which are expected to continue for the foreseeable future, the Group has commenced a comprehensive review of its business, with a view to driving stronger performance and enhanced value for shareholders in the medium term. Enquiries: Travis Perkins Tulchan Communications Graeme Barnes David Allchurch +44 (0) (0) graeme.barnes@travisperkins.co.uk Zak Newmark +44 (0) zak.newmark@travisperkins.co.uk 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, 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 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 31 July, 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. 2

3 Summary The Group achieved good overall sales growth of 4.4% to 3,364m in the first half of, with like-for-like sales growth of 4.2%. Group adjusted operating profits, excluding property profits, declined by 11.5% to 162m, in part reflecting a change to the overall sales mix between businesses, with very strong growth in Plumbing & Heating, and a significant decline in Wickes. In addition, and as expected, overhead cost inflation in General Merchanting was concentrated in the first half of the year, with the benefits from cost reduction activities weighted to the second half. Given the current mixed market outlook, the Group continues to focus on achieving a good balance between tightly controlling the cost base and maximising efficiency, whilst maintaining the strong trading propositions put in place in recent years. This balance is flexed for different businesses across the Group depending on end market conditions and potential future growth. The Group s cash conversion was lower in H1 than in recent periods, at 72%, due to phasing of working capital flows which are expected to reverse in the second half of the year. This had a corresponding impact on net debt which rose by 119m since December, which is also expected to reverse through H2. The Board has declared a 15.5 pence per share interim dividend, unchanged from. Outlook The long-term drivers of market growth remain favourable, centred on the UK s requirement for more homes and the underinvestment in the repair, maintenance and improvement (RMI) of existing dwellings and infrastructure. The mixed backdrop of market lead indicators has, however, continued since the beginning of, with mortgage approvals and housing transactions broadly flat, inconsistent house price growth across the UK, depressed consumer confidence and continued pressure on wider retail sales figures across many UK consumer facing markets. These factors make it difficult to accurately forecast market volumes in the near-term, although recent trends would indicate that the trade markets are performing more consistently than consumer markets, with UK DIY the most challenged, with weak demand for big ticket purchases in particular. At this stage, the Group sees no evidence to suggest a change to the current market environment through the remainder of. Assuming that current market conditions persist for the balance of the year, expectations for the trade businesses remain unchanged for. Given the first half performance in Wickes in a challenging DIY market, the Group now anticipates that EBITA will be in the lower half of the range of analyst expectations. *As at 30 July the range of market expectations for full-year Group EBITA was 360m to 390m. Business and operational review Against a backdrop of changing market conditions which are expected to continue for the foreseeable future, the Group has commenced a comprehensive review of its business, with a view to driving stronger performance and enhanced value for shareholders over the medium term. The review will focus on defining a simplified Group structure aligned more closely with its core customer base. An update on the conclusions from the review will be provided at a capital markets day in early December. 3

4 Technical guidance The Group s technical guidance for is as follows: Effective tax rate of around 19% Finance charges will be similar to Capital expenditure of around 140m - 160m, excluding investment in freehold property Property profits will be around 25m, with the increase primarily due to achieving better than expected yields on sale and leaseback transactions. Dividend pay-out underpinned by strong cash generation Divisional Review The Group s trade focused businesses in General Merchanting, Contracts, Toolstation and the Plumbing & Heating division, performed well despite volatility in trading conditions through the first half of. The six month period can be split into three distinct time periods. In January and February, performance was encouraging, with both sales volumes and recovery of input cost inflation in line with expectations. The ext period of poor weather through March and April had a significant impact on the Group s end markets, with trade customers unable to work on projects, although this period did provide a mild boost to the Plumbing & Heating division. In May and June, the trade-focused businesses showed a significant recovery in sales, and demonstrated encouraging momentum into the second half of the year. Whilst market trends remain difficult to read, the recent trading performance underpins the Group s confidence in expectations for H2. General Merchanting H1 H1 Change Total revenue 1,065m 1,055m 0.9% Like-for-like growth 0.6% Adjusted operating profit excluding property 86m 97m (11.3)% Adjusted operating margin excluding property 8.1% 9.2% (110)bps LAROCE* 12% 14% (2)ppt Branch network* (7) * Comparison data from The General Merchanting division began the year well with good recovery of input cost inflation, before a difficult period in March and April during a sustained period of inclement weather. Sales recovered in May and June, with volume growth primarily driven by ext range sales through the heavyside range centre network, growth in online sales and strong performance in Tool Hire and Managed Services. Gross margin percentage returned to the level of H1, following the successful recovery of input cost inflation, particularly in core categories such as timber, and tight control of category pricing throughout the half. Adjusted operating profits declined reflecting a higher overhead cost base in the business. This was due to the expected step-up in costs associated with the heavyside range centre network extension to cover all of England and Wales, as well as inflation on rent, rates and salaries that came into effect very early in the year. 4

5 In response to the higher cost base, as previously announced in March, a significant cost action plan was put in place across the division, focussing on maximising efficiency across the business, optimising asset utilisation and tightly managing the overall branch network. These cost reduction activities are expected to deliver benefits of approximately 10m heavily weighted to the second half of with more to come in Plumbing & Heating H1 H1 Change Total revenue 774m 669m 15.7% Like-for-like growth 19.8% Adjusted operating profit excluding property 20m 13m 53.8% Adjusted operating margin excluding property 2.6% 1.9% 70bps LAROCE* 13% 11% 2ppt Branch network* (3) * Comparison data from The Plumbing & Heating transformation programme continues to drive strong results, with likefor-like sales growth of 20% in the half, exceeding expectations. Volume growth has come through all three parts of the business, the online channels, the branch network and the lowermargin wholesale business, particularly in boilers. Encouragingly, this pace of growth was maintained throughout the second quarter. Momentum remains positive into the second half of the year, and there are further opportunities to improve performance through better customer engagement and category extensions, although comparators will become more challenging as the business cycles the start of the improvement plan in. The division is also benefitting from the substantial reduction in the overhead cost base carried out as part of the restructuring process in. Contracts H1 H1 Change Total revenue 718m 675m 6.4% Like-for-like growth 5.1% Adjusted operating profit excluding property profits 43m 41m 4.9% Adjusted operating margin excluding property profits 6.0% 6.1% (10)bps LAROCE* 14% 14% - Branch network* (4) * Comparison data from The businesses in the Contracts division continue to perform strongly, growing ahead of their end markets and taking market share. After a slow start to the year, mainly owing to delayed activity on large construction projects, like-for-like growth rates accelerated throughout the first half, reaching 9.5% for Q2. Adjusted operating profit grew in line with sales, with a modest decline in gross margin driven by the mix of deliveries direct from manufacturer offset by better operating leverage. Actions to drive efficiency through the branch network remain a key priority, including rationalisation of the branch network 5 Keyline branches were closed, consolidated or switched to the Travis Perkins brand with over 90% of sales retained within the business. 5

6 In BSS a programme is underway to streamline processes ahead of the first roll out of the new Merchanting ERP system in early CCF performed well in the period. Consumer H1 H1 Change Total revenue 807m 822m (1.8)% Like-for-like growth (4.2)% Adjusted operating profit excluding property profits 29m 45m (35.6)% Adjusted operating margin excluding property profits 3.6% 5.5% (190)bps LAROCE* 7% 7% - Branch network* * Comparison data from Toolstation The sales trend in Toolstation through the first half of the year was similar to the other trade focussed businesses, with a good start to the year, a weak period in March and April, and strong recovery thereafter. Even with the disruptive backdrop, Toolstation achieved another strong performance with total sales growth of 17.6%, and 10.7% on a like-for-like basis. Sales growth was driven by the continued growth of the store network in the UK, with 22 new stores opened in the half taking the total network to 317. The rollout will continue at pace in the second half. Improvements to the proposition are also driving higher sales density, with front-ofcounter consumables, range improvements focused on trade customers and additional online range extension and the roll out of drop-ship delivery direct from suppliers. As expected, adjusted operating profits in Toolstation were modestly lower because of the level of expansionary cost investment in the business. Opening of new stores and the construction of a third distribution centre, increasing capacity to support 500 stores will benefit future sales and profit growth. The expansion of the Toolstation Europe network continued with further stores in the Netherlands and an extension of the trial in France, with encouraging sales results. Wickes As highlighted at the time of our Q1 trading update, the UK DIY market continues to be challenging, and was badly affected by the inclement weather in March and April. Wickes did not recover as strongly as the trade focused businesses, with consumer sentiment remaining subdued. Whilst core DIY sales recovered modestly, helped by the business s exposure to small trade customers, K&B showroom sales have proven to be weaker, which has significantly impacted sales and profitability. Wickes sales declined by 5.8% in the first half of the year, and by 7.7% on a like-for-like basis. Gross margin was diluted as input cost inflation could not be recovered through pricing due to competitive pressures and an adverse sales mix in the period. Adjusted operating profit declined by 14m. As described in note 2 and 12, the Group has recognised an impairment of 246m in relation to goodwill. In response to the challenging market conditions, the Wickes team has implemented a comprehensive cost reduction plan, building on the activities carried out in Q4. As a direct consequence of these actions the overhead cost base was 9m lower in H1 compared to 6

7 H1, with further benefits to be realised in the second half of the year which are expected to underpin an improved profit trend. Shrinkage has been reduced by 25% by applying an end-toend focus on the supply chain, branch staffing levels are being carefully controlled to match trading volumes, and a significant restructuring was carried out in the head office functions in May, reducing headcount by a third. Central costs Unallocated central costs rose by 3m to 16m for the half, in line with the expectations for the full year. Growth was driven primarily by the investments the Group is making in IT capabilities and digital platforms, in particular the Group s new ERP system for the Merchant businesses. Property The Group continues to recycle its freehold property portfolio to provide the best trading locations for its businesses, whilst managing the level of capital allocated to owning and developing freehold sites. Eight new freehold sites were purchased in H1 at an investment of 36m, with a further 5m of construction costs to develop sites ready for trading. These investments were fully funded in the half by property disposals of 51m, which also generated property profits of 17m. Financial Performance Revenue Group revenue grew by 4.4% in the first half of the year, and by 4.2% on a like-for-like basis with the main drivers being good growth in the Plumbing & Heating and Contracts divisions, partially offset by continuing challenges for the Wickes business. Volume, price and mix analysis Total revenue General Merchanting Plumbing & Heating Contracts Consumer Group Volume (2.3)% 16.5% (0.9)% (6.1)% 0.8% Price and mix 2.9% 3.3% 6.0% 1.9% 3.4% Like-for-like revenue growth Network expansion and acquisitions 0.6% 19.8% 5.1% (4.2)% 4.2% 0.3% (4.1)% 1.2% 2.3% 0.2% Trading days Total revenue growth 0.9% 15.7% 6.3% (1.9)% 4.4% Quarterly like-for-like revenue analysis (see note 16h) Like-for-like revenue growth General Merchanting Plumbing & Heating Contracts Consumer Group Q1 (1.3)% 19.7% 0.9% (4.6)% 3.0% Q2 3.0% 20.1% 9.5% (3.1)% 5.9% H1 0.6% 19.8% 5.1% (4.2)% 4.2% 7

8 New branch and store openings net of closures contributed 0.2% to revenue growth with the expansion of the Toolstation network offset by the branch closures in P&H in. There was no difference in the number of trading days in compared to. The Group maintained a focus on recovering cost price inflation in the first half of, with overall price inflation across the Group of approximately 3%, with the highest increases in the Contracts division where commodity price inflation has had the most concentrated impact. Operating profit and margin H1 H1 General Merchanting (11.3)% Plumbing & Heating % Contracts % Consumer (35.6)% Property % Unallocated costs (16) (13) 23.1% Adjusted operating profit (5.8)% Amortisation of acquired intangibles (5) (7) Impairment of Wickes goodwill (246) - Other adjusting items (40) - Operating (loss)/profit (112) 183 Adjusting items recognised in the period included: An impairment of 246m on the goodwill held against Wickes Adjusting items of 35m in the Plumbing & Heating division covering further optimisation of the branch and supply chain networks Adjusting items of 10m in Wickes covering the costs of the head office restructuring programme and software impairment A pension curtailment gain of 5m relating to the closure of the defined benefit schemes. Adjusted operating margin H1 adjusted operating margin (excluding property profits) General Merchanting Plumbing & Heating Contracts Consumer Group 9.2% 1.9% 6.1% 5.5% 5.7% Change in gross margin 0.0% (0.8)% (0.3)% (2.7)% (1.5)% Margin impact of change in operating costs H1 adjusted operating margin (excluding property profits) (1.1)% 1.5% 0.2% 0.8% 0.6% 8.1% 2.6% 6.0% 3.6% 4.8% The reduction in Group gross margins reflects the change in sales mix across the business, with strong growth in lower margin Plumbing & Heating sales offsetting weakness in higher margin Wickes sales, particularly Kitchens and Bathrooms. Operating costs were carefully controlled, with significant year-on-year improvements in Plumbing & Heating and Consumer, and with the operating cost base in General Merchanting expected to benefit from cost reduction activities in the second half of the year. 8

9 Finance charge Net finance charges, shown in note 6, were 10m (: 16m). Interest costs on borrowings were unchanged from at 11m, with the majority of the Group s debt covered by the two publically traded bonds on fixed interest coupons. The impact of marking-to-market currency forward contracts which remained outstanding at 30 June was to reduce the net finance charge by 3.2m (the impact was to increase the net finance charge by 0.2m). These contracts are used to hedge commercial currency transactions. Taxation The total tax charge for the half year period, excluding the effect of adjusting items, was 32m (: 32m), which represents an effective rate of 19.7% (: 19.2%). This is slightly higher than the standard rate of corporation tax for the year of 19.0% (: 19.25%) applicable to profits in the United Kingdom because the effective rate is inflated by the fall in share price during which has reduced the benefit of the deferred tax asset held on share options, and resulted in a charge to the income statement. The impairment of 246m of goodwill held against the Wickes business has no impact on the current tax charge. Earnings per share Reported earnings per share returned a loss of 59.8p per share for H1 ( earnings per share: 53.6p), primarily due to the 246m write off of goodwill in Wickes. Adjusted earnings per share reduced by 4.1% to 53.5p (: 55.8p). Reconciliation of reported to adjusted earnings H1 H1 Earnings EPS Earnings EPS Basic earnings and EPS attributable to shareholders (149)m (59.8p) 135m 53.6p Adjusting items Plumbing & Heating division transformation 35m 13.8p Wickes restructuring 10m 4.1p Pension curtailment gain (5)m (1.9p) - - Impairment of Wickes goodwill 246m 98.9p - - Amortisation of acquired intangibles 5m 1.8p 7m 2.7p Tax on amortisation of acquired intangibles (1)m (0.4p) (1)m (0.5p) Tax on adjusting items (8)m (3.0p) - - Effect of reduction in corporation tax on deferred tax Adjusted earnings and EPS attributable to shareholders 133m 53.5p 141m 55.8p Dividend The Group s dividend pay-out is underpinned by the on-going strength of cash generation and continued confidence in the Group s outlook over the medium term. The interim dividend will be held unchanged in at pence (H1 : pence) and will be paid on 09 November, at a cash cost of approximately 39m. 9

10 Cash flow and balance sheet Free cash flow The Group generated free cash flow of 128m, at a conversion rate of 72%. () H1 H1 EBITA Depreciation of PPE and other non-cash movements Disposal proceeds in excess of property profits Change in working capital* (100) (54) Maintenance capital expenditure (25) (25) Net interest (1) (2) Tax paid (28) (27) Free cash flow Underlying cash conversion rate 72% 99% *H1 Change in net working capital figure excludes 7m in relation to the development of cloud-based software (H1 : 5m) On a modestly lower earnings figure, the free cash flow generation of 128m was impacted by a higher working capital out flow in the half. This is expected to reverse in the second half of the year. The main driver of the significant increase in trade receivables was the timing of sales during the half. With strong sales growth in May and June, and around 80% of the Group s sales made via customer credit accounts, the phasing of cash receipts is expected to be Q3 weighted. Inventories were broadly flat compared with December, improving stock turnover on modestly higher sales, and reflecting significant cost price inflation. The Group s trade payables position grew in the first half of the year, broadly in line with the growth in Group sales. Maintenance capex, which primarily reflects the purchase and maintenance of specialist fleet vehicles, was 25m, unchanged from and in line with the Group s expectations. The Group s interest and tax payments are in line with. Uses of free cash generated () H1 H1 Free cash flow Investment capex (58) (56) Investments in freehold property (41) (23) Acquisitions 0 (7) Dividends (76) (75) Pensions payments (5) (5) Cash payment in respect of adjusting items (12) (6) Purchase of own shares (44) (9) Other (17) (13) Change in cash/cash equivalents (125) (6) Additional cash contributions to the defined benefit pension schemes above the income statement charge were 5m (: 5m). The cash cost of adjusting items and utilisation of prior year provisions for adjusting items was 12m. There were no acquisitions in the period. The Group moved from issuing new shares for employee share schemes to purchasing shares in the market. The initial set up of this structure required a 44m purchase in the first half of, with modest further purchases in future periods. 10

11 Capital Investments Allocation of capital to support and improve the business continued in. () H1 H1 Maintenance (including vehicles) (25) (25) IT - inc. Merchant ERP / Digital capabilities (24) (24) Growth capex - inc. New stores / store refits (34) (32) Base capital expenditure (83) (81) Freehold property - inc. new freehold sites / existing leases (41) (23) Gross capital expenditure (124) (104) Property disposals Net capital expenditure (73) (54) *IT investments exclude prepayments in relation to the development of cloud-based software of 7m (: 5m) Investments in digital capabilities continued as anticipated, with the main focus being the programme to deliver a new ERP system to support the Group s Merchant businesses. The programme team are gearing up for the first deployment of the system into the BSS business in early The programme will deliver significant benefits, making it easier for our customers to do business with the Group, and making it simpler and more efficient for colleagues to serve customers. Under accounting practices for the cloud based systems, a portion of the IT costs are expensed, leading to the higher unallocated central costs, with the remainder capitalised or treated as a prepayment. Growth capex spend of 34m was similar to ( 32m). A greater proportion of planned capex has already been completed in the first half of, including fitting out three new Wickes stores, three new Travis Perkins branches and completing all of the planned Wickes refits for the year. The expansion of the Toolstation network accelerated, with 22 stores opened in the half, with this pace to be maintained in the second half of the year. Net debt and funding Net debt of 461m at was an increase of 119m from the end of December, reflecting the lower profitability, temporary increase in working capital and the move to purchase shares for employee share schemes in the market as previously described. Details of non-statutory disclosures are shown in note 16. Medium Term Guidance H1 FY Net debt 461m 342m 119m Lease debt 1,540m 1,525m 15m Lease adjusted net debt 2,001m 1,867m 134m Lease adjusted gearing* 47.6% 42.6% 5ppts Fixed charge cover 3.5x 3.1x 3.1x - LA net debt : EBITDAR 2.5x 3.0x 2.7x 0.3x Lease adjusted gearing (note 16g) increased by 5.0ppts to 47.6% because of the higher net debt figure. The Group s fixed charge cover ratio (note 16d) was unchanged at 3.1x. The lease adjusted net debt/ebitdar ratio (note 16c) rose to 3.0x, reflecting higher net debt and lower earnings. 11

12 Principal Risks and Uncertainties The principal risks and uncertainties faced by the Group have been, and are expected to remain, consistent with those described on pages 33 to 39 of the Annual Report and Accounts. Details are provided for inherent risks relating to the changing customer and competitor landscape, colleague recruitment, retention and succession, supplier dependency and disintermediation, unsafe practices resulting in harm to stakeholders, the efficient allocation of capital, business transformation projects, market conditions, Brexit, defined benefit pension scheme funding, data security and the changing regulatory framework. 12

13 Condensed consolidated income statement (unaudited) Year (unaudited) (audited) Revenue 3, , ,433.1 Operating profit before amortisation and adjusting items Adjusting items (note 2) (286.3) - (40.9) Amortisation of acquired intangible assets (4.5) (6.9) (12.3) Operating (loss)/profit (112.1) Share of associates results (1.1) - (2.2) Net finance costs (note 6) (10.2) (15.7) (35.0) (Loss)/profit before tax (123.4) Tax before adjusting items (32.1) (32.2) (63.5) Tax on adjusting items Tax (note 7) (24.5) (32.2) (55.7) (Loss)/profit for the period (147.9) Attributable to: Owners of the Company (148.9) Non-controlling interests (147.9) Earnings per ordinary share (note 8) Basic (59.8p) 53.6p 93.1p Diluted (59.7p) 53.2p 92.2p Total dividend declared per share (note 9) [15.5p] 15.5p 46.0p All results relate to continuing operations. 13

14 Condensed consolidated statement of comprehensive income (unaudited) Year (unaudited) (audited) (Loss)/profit for the period (147.9) Items that will not be reclassified subsequently to profit and loss: Actuarial gains on defined benefit pension schemes Income taxes relating to items not reclassified (14.0) (14.5) (17.1) Other comprehensive income for the period Total comprehensive (loss)/ income for the period (88.2) Attributable to: Owners of the Company (89.2) Non-controlling interests (88.2)

15 Condensed consolidated balance sheet ASSETS As at (unaudited) As at (unaudited) As at (audited) Non-current assets Goodwill 1, , ,539.2 Other intangible assets Property, plant and equipment Interest in associates Investments Retirement benefit asset (note 5) Other receivables Total non-current assets 2, , ,918.5 Current assets Inventories Trade and other receivables 1, , ,130.2 Derivative financial instruments Cash and cash equivalents Total current assets 2, , ,223.3 Total assets 5, , ,

16 Condensed consolidated balance sheet (continued) EQUITY AND LIABILITIES Capital and reserves As at (unaudited) As at (unaudited) As at (audited) Issued capital Share premium account Merger reserve Revaluation reserve Own shares (53.0) (9.0) (15.3) Other reserves (4.9) (4.0) (4.9) Retained earnings 1, , ,958.0 Equity attributable to owners of the Company 2, , ,848.6 Non-controlling interests Total equity 2, , ,860.3 Non-current liabilities Interest bearing loans and borrowings Derivative financial instruments Retirement benefit obligations (note 5) Long-term provisions Deferred tax liabilities Total non-current liabilities Current liabilities Interest bearing loans and borrowings Derivative financial instruments Trade and other payables 1, , ,453.6 Tax liabilities Short-term provisions Total current liabilities 1, , ,558.1 Total liabilities 2, , ,281.5 Total equity and liabilities 5, , ,141.8 The interim condensed financial statements of Travis Perkins plc, registered number , were approved by the Board of Directors on 30 July and signed on its behalf by: John Carter Chief Executive Officer Alan Williams Chief Financial Officer 16

17 Condensed consolidated statement of changes in equity At 1 January (audited) Issued share capital Share premium account Merger reserve Revaluation reserve Own shares Other Retained earnings Total equity before non-controlling interest Noncontrolling interest Total equity (15.3) (4.9) 1, , ,860.3 IFRS 9 adoption (2.4) (2.4) - (2.4) At 1 January (restated) (15.3) (4.9) 1, , ,857.9 Loss for the period (148.9) (148.9) 1.0 (147.9) Other comprehensive income for the period net of tax Total comprehensive income for the period (89.2) (89.2) 1.0 (88.2) Dividends (75.6) (75.6) - (75.6) Dividend equivalent payments (0.5) (0.5) - (0.5) Issue of share capital Purchase of own shares Tax on share based payments (43.6) - - (43.6) - (43.6) (0.1) (0.1) - (0.1) Own shares movement Credit to equity for equity-settled share based payments At (unaudited) (5.9) (53.0) (4.9) 1, , ,

18 Condensed consolidated statement of changes in equity (continued) At 1 January (audited) Issued share capital Share premium account Merger reserve Revaluation reserve Own shares Other Retained earnings Total equity before non-controlling interest Noncontrolling interest Total equity (8.7) - 1, , ,655.6 Profit for the period Other comprehensive income for the period net of tax Total comprehensive income for the period Dividends (74.6) (74.6) - (74.6) Issue of share capital Purchase of own shares Tax on share based payments Options on noncontrolling interest Own shares movement (8.9) - - (8.9) - (8.9) (0.3) (0.3) - (0.3) (4.0) - (4.0) - (4.0) (8.6) Arising on acquisition Foreign exchange Credit to equity for equity-settled share based payments At (unaudited) (9.0) (4.0) 1, , ,

19 Condensed consolidated statement of changes in equity (continued) Issued share capital Share premium account Merger Revaluation reserve reserve Own shares Other Retained Total equity before Noncontrolling earnings non- controlling interest interest Total equity At 1 January (audited) (8.7) , ,655.6 Profit for the year Other comprehensive income for the year net of tax Total comprehensive income for the year Dividends (113.0) (113.0) - (113.0) Issue of share capital Purchase of own shares (19.2) - - (19.2) - (19.2) Realisation of revaluation reserve in respect of property disposals Difference between depreciation of assets on a historical basis and on a revaluation basis (0.8) (0.3) Tax on share based payments Option on non-controlling interest (4.9) - (4.9) - (4.9) Arising on acquisition Foreign exchange Own shares movement (12.6) Credit to equity for equitysettled share based payments At (audited) (15.3) (4.9) 1, , ,

20 Condensed consolidated cash flow statement Operating profit before acquired intangible amortisation and adjusting items Adjustments for: (unaudited) (unaudited) Year (audited) Depreciation of property, plant and equipment Amortisation of internally generated intangibles Other non-cash movements share based payments Other (2.5) Losses of associates Gains on disposal of property, plant and equipment (17.0) (8.9) (30.6) Operating cash flow Decrease / (increase) in inventories (47.0) Increase in receivables (146.4) (104.4) (106.3) Increase in payables Payments on adjusting items (12.3) (6.0) (20.2) Pension payments in excess of the charges to profits (4.6) (5.2) (11.3) Cash generated from operations Interest paid (1.1) (2.6) (27.6) Total income taxes paid (27.8) (27.4) (57.2) Net cash from operating activities Cash flows from investing activities Interest received Proceeds on disposal of property, plant and equipment Development of software (23.1) (19.8) (48.1) Purchases of property, plant and equipment (101.1) (84.3) (179.0) Interests in associates (7.5) (4.9) (11.3) Dividends received Investments Acquisition of businesses net of cash acquired - (6.6) (9.7) Net cash used in investing activities (79.9) (65.1) (133.4) Financing activities Net proceeds from the issue of share capital Movement in finance lease liabilities (2.9) (2.6) (7.0) Shares purchased (43.6) (8.9) (19.2) Decrease in loans, liabilities to pension scheme and loan notes (3.3) (3.2) (3.2) Dividends paid (75.6) (74.8) (113.0) Net cash (outflow) / inflow from financing activities (123.3) (86.3) (127.4) Net (decrease) / increase in cash and cash equivalents (125.3) (5.2) 26.3 Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period

21 1. General information and accounting policies The interim financial statements have been prepared on the historical cost basis, except that derivative financial instruments, available for sale investments and contingent consideration arising from business combinations are stated at their fair value. The condensed interim financial statements include the accounts of the Company and all its subsidiaries ( the Group ). Basis of preparation The financial information for the six months and is unaudited. The June information has been reviewed by KPMG LLP, the Group's auditor, and a copy of their review report appears at the end of this interim report. The June information was also reviewed by KPMG LLP. The financial information for the year does not constitute statutory accounts as defined in section 434 of the Companies Act A copy of the statutory accounts for the year 31 December as prepared under International Financial Reporting Standards as adopted by the EU ( IFRS ) has been delivered to the Registrar of Companies. The auditor s report on those accounts was not qualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain statements under section 498(2) or (3) of the Companies Act The unaudited interim financial statements for the six months have been prepared in accordance with IAS 34 - Interim Financial Reporting and have been prepared on the basis of IFRS. The annual financial statements of the Group are prepared in accordance with IFRS. As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated financial statements for the year, except for the adoption of new and am standards as set out below. The accounting policies adopted by Travis Perkins plc are set out in the full year financial statements, which are available on the Travis Perkins website The Directors are currently of the opinion that the Group s forecasts and projections show that the Group should be able to operate within its current facilities and comply with its banking covenants. The Group is however exposed to a number of significant risks and uncertainties, which could affect the Group s ability to meet management s projections. The Directors believe that the Group has the flexibility to react to changing market conditions and is adequately placed to manage its business risks successfully. After making enquiries, the Directors have formed a judgement that there is a reasonable expectation that the Group has the resources to continue in operational existence for twelve months from the date of signing these interim financial statements. For this reason the interim financial statements have been prepared on a going concern basis. New and am standards adopted by the Group A number of new or am standards became applicable for the current reporting period and the Group had to change its accounting policies and make retrospective adjustments as a result of adopting the following standards: IFRS 9 - Financial Instruments, IFRS 15 - Revenue from Contracts with Customers, and Annual improvements to IFRS cycle The impact of the adoption of these standards and the new accounting policies are disclosed in note 17. Impacts of standards issued but not yet applied by the entity In January 2016 the IASB issued IFRS 16 - Leases and this was endorsed by the European Union in October. It will be effective from 1 January This Standard will have a material effect on the Group because the value of the operating leases it has entered into will be included in the balance sheet in future. The Group has a project team working to determine the effect of this new Standard and implement the processes and systems necessary to comply with its requirements. 21

22 1. General information and accounting policies (continued) Given the complexity of the Standard and the volume of leases, this project has not been completed at the date of these interim financial statements, however based on an analysis of all the Group s material leases the initial estimates are that the implementation of the standard will result in net debt that is comparable to or lower than lease-adjusted net debt as currently disclosed in note 16. The Group plans to apply IFRS 16 - Leases using a modified retrospective approach as described in paragraph C5(b) of the standard. Therefore, the cumulative effect of adopting IFRS 16 - Leases will be recognised as an adjustment to the opening balance of retained earnings at 1 January 2019, with no restatement of comparative information. 2. Adjusting items To enable a reader of the interim financial statements to obtain a clear understanding of the underlying trading, the Directors have presented the items below separately in the income statement. Year Plumbing & Heating division transformation Impairment of Wickes goodwill (note 12) Wickes restructuring and software impairment Pension curtailment gain (note 5) (4.7) In August the Group announced that, following a comprehensive strategic review of the Plumbing & Heating division, it would reduce capacity, integrate the CPS and PTS businesses, overhaul the division s customer proposition and create a dedicated Plumbing & Heating supply chain. In accordance with the Group s accounting policy the total cost of 34.4m (: 40.9m) has been treated as an adjusting item. The adjusting item consisted of the following: 1.2m of property, redundancy and other costs (: 12.0m) associated with the closure of six branches 22.8m of costs (: 19.1m) arising from the separation and rationalisation of the Plumbing & Heating supply chain and the integration of the CPS and PTS businesses. The costs comprised property-related costs, redundancy and reorganisation costs and inventory write-downs and provision adjustments. 10.4m of central and divisional costs (: 9.8m) including people-related, consultancy and other restructuring costs The Wickes restructuring and software impairment cost of 10.3m consists of redundancy and reorganisation costs of 3.8m incurred in respect of the cost-reduction programme announced in May and software impairment costs of 6.5m. The 4.7m pension curtailment gain, recognised as a result of the closure of the Travis Perkins Pensions and Dependants Benefit Scheme and the BSS Defined Benefit Scheme to future accrual, is stated net of 0.5m of associated administrative expenses. 22

23 3. Business segments As required by IFRS 8 - Operating Segments, the operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Operating Decision Maker ( CODM ), which is considered to be the Board of Directors, to assess their performance. All four divisions sell building materials to a wide range of customers, none of which are dominant, and operate almost exclusively in the United Kingdom. Segment profit represents the profit earned by each segment without allocation of certain central costs, finance income and costs and income tax expense. Unallocated segment assets and liabilities comprise financial instruments, current and deferred taxation, cash and borrowings and pension scheme assets and liabilities. General Merchanting Plumbing & Heating Contracts Consumer Unallocated Consolidated Revenue 1, ,364.5 Segment result before amortisation, adjusting (16.0) items and property profits Property profits Segment result before amortisation and adjusting (16.0) items Adjusting charges (4.7) (29.7) - (256.6) - (291.0) Adjusting gains Amortisation of acquired intangible assets - (0.9) (3.0) (0.6) - (4.5) Segment result 88.0 (8.2) 43.8 (219.7) (16.0) (112.1) Share of associates (1.1) (1.1) Finance income Finance costs (14.4) (14.4) Profit / (loss) before taxation 88.0 (8.2) 43.8 (219.7) (27.3) (123.4) Taxation (24.5) (24.5) Profit / (loss) for the period 88.0 (8.2) 43.8 (219.7) (51.8) (147.9) 23

24 3. Business segments (continued) General Plumbing Contracts Consumer Unallocated Consolidated Merchanting & Heating Revenue 1, ,220.8 Segment result before amortisation (13.9) and property profits Property profits Segment result before amortisation (13.9) Amortisation of acquired intangible - (0.5) (4.0) (2.4) - (6.9) assets Segment result (13.9) Finance income Finance costs (16.1) (16.1) Profit / (loss) before taxation (29.6) Taxation (32.2) (32.2) Profit / (loss) for the period (61.8) Year General Plumbing Contracts Consumer Unallocated Consolidated Merchanting & Heating Revenue 2, , , , ,433.1 Segment result before amortisation and (30.9) property profits Property profits Segment result before adjusting items and (30.9) amortisation Adjusting items - (40.9) (40.9) Amortisation of acquired intangible - (1.0) (6.3) (5.0) - (12.3) assets Segment result (3.5) (30.9) Share of associates (2.2) (2.2) Finance income Finance costs (35.7) (35.7) Profit / (loss) before taxation (3.5) (68.1) Taxation (55.7) (55.7) Profit / (loss) for the year (3.5) (123.8)

25 3. Business segments (continued) Segment assets: General Merchanting 1, , ,811.0 Plumbing & Heating Contracts Consumer 1, , ,544.6 Unallocated Total assets 5, , ,141.8 Segment liabilities: General Merchanting (438.3) (415.3) (441.5) Plumbing & Heating (299.7) (299.6) (317.8) Contracts (332.4) (295.9) (323.5) Consumer (479.3) (447.8) (403.6) Unallocated (801.8) (795.0) (795.1) Total liabilities (2,351.5) (2,253.6) (2,281.5) 4. Seasonality The Group s trading operations when assessed on a half yearly basis are mainly unaffected by seasonal factors. In the period to accounted for 50.1% of the Group s annual revenue (2016: 50.1%). 25

26 5. Retirement benefit obligations a) Pension scheme asset / (liability) movement TP Schemes BSS Schemes Group Gross pension asset / (liability) at 1 January 6.6 (25.7) (19.1) Restriction of asset recognised - (9.2) (9.2) Gross asset / (liability) at 1 January 6.6 (34.9) (28.3) Service costs charged to the income statement (3.7) (1.4) (5.1) Curtailment gain Net interest income / (expense) 0.1 (0.3) (0.2) Contributions from sponsoring companies Return on plan assets (excluding amounts included in net interest) (5.3) (0.8) (6.1) Actuarial gains arising from changes in demographic assumptions Actuarial gains arising from changes in financial assumptions Actuarial gains arising from experience adjustments Increase arising from IFRIC 14 restriction - (33.2) (33.2) Gross pension asset / (liability) at 85.0 (30.1) 54.9 Gross actuarial asset Additional liability recognised for minimum funding requirements - (33.2) (33.2) Gross pension asset / (liability) at 85.0 (30.1) 54.9 A curtailment gain has been recognised as a result of the closure of the Travis Perkins Pensions and Dependants Benefit Scheme and the BSS Defined Benefit Scheme to future accrual from 31 August. 26