2nd Aug 2016 09:27
LONDON (Alliance News) - Builders' merchant Travis Perkins PLC on Tuesday said there was weaker demand for building supplies in the run up to and following the UK vote on European Union membership.
Travis Perkins warned that it this uncertainty continues, infrastructure spending, new construction, and the repair, maintenance and improvement market all are likely to be hit.
Shares in Travis Perkins were down 3.7% at 1,487.00 pence on Tuesday morning, having fallen 23% since before the referendum outcome was announced.
The FTSE 100-listed group, which runs the Wickes DIY chain along with plumbing and heating and contract merchanting businesses, said pretax profit for the six months to the end of June was GBP175.5 million, up from GBP158.6 million a year earlier. This was driven by a 5.0% increase in revenue to GBP3.11 billion from GBP2.94 billion a year earlier.
Like-for-like annual sales were up 3.1% ,Travis Perkins said, noting that this was particularly "encouraging" given the strong comparative results in the first half a year earlier.
However, in the second quarter, like-for-like sales growth slowed to 2.3% ahead of the same period a year earlier, reflecting stronger comparatives in the second quarter of 2015 and some larger contractors experiencing the effect of project deferrals ahead of the EU referendum.
Travis Perkins said that, whilst the Brexit vote has "reduced certainty in the outlook" for its end markets, it is in a strong position to outperform. The company said the earliest signs from the lead indicators that it tracks have been mixed, noting that it was taking a more cautious stance to end-market demand in the final quarter of 2016 and into 2017.
Travis Perkins noted that in July two-year like-for-like sales growth was below the pace experienced in the second quarter, but it said trading gradually improved throughout the month.
However, Travis Perkins said it is likely to take some time for any clear trends in the key lead indicators of consumer confidence and secondary housing transactions to emerge and, until that point, it will deploy capital in areas that generate strong marginal return. Travis Perkins also noted that it will modify its investment plans in line with market performance.
The company noted that it hedges its direct currency exposures with committed orders hedged for the second half of 2016, but said it also purchases products which have input costs in foreign currencies but which are denominated in sterling.
Travis Perkins said the devaluation of the pound, therefore, is expected to lead to cost price inflation for these products, and said it is considering switching to UK-sourced products, increasing sourcing direct from manufacturers, and passing cost inflation through to customers "where it cannot be avoided".
Travis Perkins said it continued its network expansion during the first half, opening 14 new branches and stores, and added that the modification of its investment plans will not impact its continued investment in Wickes refits and the expansion of high returning businesses such as Toolstation.
The company declared an interim dividend of 15.25 pence per share, up from 14.75p per share a year earlier.
"It is clear that the result of the EU referendum has created significant uncertainty in the outlook for our end markets, and we did experience weaker demand in the run up to and immediately following the referendum," said Chief Executive John Carter.
"We have a proven track record of reacting swiftly to changes in market conditions, and the strength of the group's balance sheet, the competitive advantage we have created through the investments we have made and our ability to flex the cost base leaves us well positioned to continue to win market share and drive shareholder value over the medium term," Carter added.
By Hannah Boland; [email protected]; @Hannaheboland
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