8th Mar 2006 07:04
Travis Perkins PLC08 March 2006 8 March 2006 TRAVIS PERKINS PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2005 OPERATING PROFIT UP 23.1% AT £268.0M PRE TAX PROFIT AHEAD AT £206.7M DIVIDENDS UP 11.5% TO 34.0P PER SHARE FREE CASH FLOW UP 50.0% TO £226.1M TARGET FOR COMBINED WICKES INTEGRATION SYNERGIES AND BUYING GAINS EXCEEDED RECORD RATE OF EXPANSION IN BRANCH NETWORK 2005 2004 Increase GBP m GBP m % Turnover 2,640.8 1,828.6 44.4 Operating profit 268.0 217.7 23.1 Profit before taxation 206.7 206.5 0.1 Profit after taxation 140.8 142.1 (0.9) Free cash flow (see note 6) 226.1 150.7 50.0 Basic earnings per ordinary share (pence) 116.8 124.4 (6.1) Total dividend per ordinary share (pence) 34.0 30.5 11.5 Geoff Cooper, Chief Executive, commented: "Although 2005 has been more challenging than recent years, our businesses haveperformed well against sector peers and the group has made good progress, bothstrategically and operationally. We now enjoy sector leading operating marginsin both merchanting and DIY retailing. Lead indicators suggest our markets are set to recover gradually from the weakgrowth experienced in 2005. The work we have done to reduce costs and capturesynergy benefits and buying gains leaves us well positioned to benefit from anyimprovement in volumes. We have strengthened our business and look forward with confidence to 2006 andbeyond." Enquiries: Geoff Cooper, Chief ExecutivePaul Hampden Smith, Finance DirectorTravis Perkins PLC +44 (0) 1604 683131 David Bick/Mike FelthamHolborn Public Relations +44 (0) 207 929 5599 Results Compared to the previous long run of many years which saw steady annual marketgrowth, conditions in 2005 were more challenging. In response, our managementteams have focussed on maximising profits from our existing branch network,through cost reduction and productivity improvement, as well as continuing togrow our business through brown field developments and selected acquisitions,including Wickes. The Wickes acquisition is profit enhancing in 2005, reflecting excellentprogress in management integration and above target improvements in procurementand in overhead costs. Overall group turnover increased by 44.4%, to £2,640.8 million from £1,828.6million in 2004 with Wickes contributing 41.6% of the increase. Sales growth of 2.8% in the merchanting business was due to a combination ofsales from new branch openings of 4.1% offset by one less working day, 0.4% andlower like-for-like sales per working day of 0.9% comprising 4.3% of priceinflation and a 5.2% decline in volume. Like-for-like sales in Wickes' core products were down 6.8% whilst showroomsales fell by 13.6%. Overall like-for-like sales in Wickes were down 7.9%. Group operating profit rose 23.1% to £268.0 million from £217.7 million in 2004. Group operating margin was 10.1%, compared to 11.9% for 2004. This reflectsthe dilutive effect of our continued merchanting expansion programme, theinclusion of Wickes - retail margins being traditionally lower than thoseenjoyed by the merchanting industry due to higher overheads - and the effect ofweaker markets. Compared to 2004, merchanting operating margins were 0.6%lower, whilst Wickes saw a fall of 1.4% to 6.8% for the 12 month period to 31December 2005 compared to their underlying pre-acquisition performance in theyear to 31 October 2004. Group profit before tax was just ahead of last year at£206.7 million, reflecting additional finance costs associated with theacquisition of Wickes. The group has also benefited from specific actions designed to generate cashfrom the larger scale of the group's operations, and free cash flow (note 6) wasup by 50% compared to 2004. Considerable progress has been made operationally in 2005; our business is nowsome 50% larger; we have added a record number of new branches and stores;productivity gains have been made in merchanting; the Wickes acquisition, ourlargest ever, has been integrated successfully; and debt, on a proforma basis,(note 7) has been reduced by over £70 million following completion of theacquisition of Wickes. We continue to enjoy sector leading operating margins inmerchanting and have improved Wickes relative performance so that it now enjoysthe highest operating margin amongst its peers. Dividend The group continues to be highly cash generative. As a result of this and ourconfidence in the future prospects of the group, the board is recommending afinal dividend of 23.0 pence per share. Taken together with the interim dividendof 11.0 pence, this represents a total dividend of 34.0 pence, an increase of11.5 per cent on the previous year. Outlook We have made a satisfactory start to 2006 with merchanting volumes ahead ofexpectations. Although there are signs that our markets are likely to recover,we expect the first half year to remain challenging, with any recovery coming inthe second half year. We have recently seen gradually improving trends in lead indicators; consumerconfidence is rising, although continued inflation in non-discretionary livingcosts will mean any recovery in spending by consumers, particularly for homeimprovement projects, will be gradual. The overall housing market shows someimproving trends, although these are not yet well established. We have recently seen a slow down in the expansion of capacity in both DIY andtrade markets. Some competitor DIY stores have closed, and the appetite ofmerchants to expand their networks has waned. This should have a beneficialeffect on the performance of like-for-like stores and branches. In acquiring Wickes, we estimated that the DIY Market would turn down, but notby as much as the eventual out turn. With the prospect of further synergies,attractive operational gearing and expansion potential, and prospects for areturn of normal market growth we are confident of generating attractive returnsfrom this investment. The work we have done to reduce costs and capture synergy benefits and buyinggains leaves us well positioned to benefit from any improvement in volumes inboth merchanting and retailing. Our cash flow remains strong and we expect tocontinue to expand our networks and further reduce our net debt. In 2005 we strengthened our business, both strategically and operationally. Weare approaching the important Easter trading period for both our divisions, andit is too early to change our expectations for the year as a whole. Lookingahead, we expect that improving market conditions will mean that our profitperformance will be stronger in the second half of 2006 than the correspondingperiod in 2005. Operational review Our businesses have performed well in relative terms against sector peers andsignificant progress has been made in the strategic development of the group.We faced two key challenges in 2005; integrating the Wickes acquisition, whichenabled the group to enter a substantial new market for building materials, andcoping with the first decline in trade market volumes since 1990. The integration programme for Wickes has gone well, with all key integrationmilestones and combined targets for synergy and buying gains exceeded. Previously, with strong and rising demand for building materials, the group hadbeen able to increase trading and operating margins whilst growing itslike-for-like turnover below market rates. Early in 2005 we decided to adaptour trading stance to a market with weaker demand. Both consumer confidence and consumer spending were weak throughout 2005reflecting pressure on consumers' disposable incomes as non-discretionaryspending increased and lower mortgage equity withdrawal as house price inflationweakened. In addition, the housing market experienced lower transaction levelsand weaker inflation than in 2004. These trends initially adversely affected retail sales in 2005 and then tradesales from spring onwards, particularly on improvement projects. Turnoverrelated to repair and maintenance activities remained stable. Overall weexperienced stronger performance in those divisions with a higher penetration ofcommercial, industrial and government work, and the weakest in those mostclosely allied to the consumer. In 2005 we focussed our efforts on tight management of cash and costs,achievement of synergy and buying gains and more active management of profitablesales at each of our merchanting and retailing branches. In merchanting, we selectively made a margin investment in some branches andbrought our like-for-like sales growth up to market levels by the end of thethird quarter. This market relative performance has been sustained, our grossmargin is stable, and we are making a net positive profit contribution from thisinvestment. Despite lower like-for-like sales volumes, action on costs hasmeant that productivity increased over the level achieved in 2004. At Wickes, through sharp cost reductions and active management of gross margins,we have improved operating margin to become the highest in the sector. Pricecompetition increased in the fourth quarter in the DIY market, and our marketshare gains made in the first nine months were reversed. We have, however, heldon to our gains in gross margin and yet have maintained our pricing advantageagainst our DIY competitors. This performance reflects the resilience of Wickes'low assortment model and the loyalty it engenders amongst its core customers. Cost reduction gains at Wickes have come primarily from better procurement ofgoods for resale, headcount reductions in stores and a number of back officefunctions and from lowering the cost of bought-in goods and services such asmechanical handling equipment and waste services. The acquisition of Wickes and our continued successful programme of expansion inour merchanting network has meant our revenue base is now about 50% larger thanin 2004. This expansionary growth, a feature of the group's progress over manyyears, adds further scale benefits through improved buying terms and operationalgearing of overheads. This increased scale meant we set an ambitious target,comprising synergies and stretched buying gains, for lowering our cost of goodssold and reducing overhead costs. We exceeded our overall target despite lowerthan anticipated purchase volumes from weaker like-for-like sales trends. In 2005, we took action to reduce headcount across both trade and retaildivisions. Total employees in the merchant divisions reduced on a like-for-likebasis from 9,487 to 9,029 at 31 December 2005 with total employees increasing to9,533 when acquisitions and new brown fields are included. In Wickes there werea total of 4,227 employees at the end of the year, a reduction of 349 from thelevel at the date of the completion of the acquisition. Overall, weaker market conditions meant that like-for-like sales and profitperformance were below our expectations. Management actions helped offset muchof the shortfall in profit contribution, and the group's profits before tax werejust ahead of the prior year. Development of the group Following the gross addition of a record 241 branches (of which 171 isrepresented by the Wickes acquisition) at 31 December 2005 we traded from 5brands across 983 locations. There is significant scope for expansion across all5 brands - 4 in merchanting and 1 in DIY retail. In 2005 we continued the expansion of the 4 brand networks in our merchantingdivision. The Travis Perkins' branch network was expanded during the year with 18 branchesacquired and 25 opened on brown field sites. Two branches were consolidatedduring the year leaving our Travis Perkins' branded network operating from 533branches by the end of the year. In addition, major refurbishment andenhancement programmes were completed at Wycombe, Bristol Clifton, HemelHempstead, Peterborough, Brackmills Distribution Centre in Northampton,Ashton-in-Makerfield and Vauxhall. In the tool hire sector we now have 156units, up from 155 last year. We have recently appointed a senior categorydirector for tool hire and we intend to develop this part of our businessvigorously in future. Within Keyline, our specialist heavy-side merchant, the focus during 2005 hasbeen on both deepening and widening our category focus. In addition we havecontinued to grow the network through the integration of one acquired branch atHaddington near Edinburgh and through the opening of the first two brown fieldsites for this brand at Kilmarnock, and Castle Douglas in the Borders. Twobranches were closed during the year; in both locations the sales weretransferred to other branches, leaving this brand with 73 locations by the endof year. Our City Plumbing Supplies business ("CPS") had a difficult year in 2005following the major programme of re-organisation of the Jayhard and B&Gacquisitions integrated in 2004. During 2005 we changed the management of thedivision and the new team has made good progress with a recovery plan to improvepricing, product range availability and branch administration. Towards the endof the year we took the opportunity to consolidate a number of stores that werein poor locations and 5 branches were closed. In addition we opened 17 new brownfield sites during the year giving a total network of 178 branches for CPS bythe end of 2005. CCF, our dry-lining and insulation specialist business performed very wellduring the year as the market continued to grow and the CCF branches continuedto increase their supply to our generalist merchanting network. During the yearwe opened two new branches at Carlisle and Plymouth and both are performingahead of expectations. We also re-sited our Liverpool branch to larger premiseswith sales and profits improving as a result. We ended the year with a total of23 branches. We made further progress on improving our merchanting operational capability in2005, particularly in productivity, management information and relationshipswith customers. We introduced a substantially improved merchanting management information systemduring 2005 that provides succinct information in a number of key result areas("KRAs") to branch managers as well as to regional and senior management. Thesystem is intranet based and can be interrogated to provide specific informationfor each branch as to the underlying reasons for a particular level ofperformance on each KRA. The measures are monitored continuously and management review all performanceson an exceptions basis every month. KRA's include sales and profit performance,labour and distribution costs, stock levels, trading customer numbers, staffturnover and administration standards. A range of customer service performanceparameters are also included within the new KRA system. During 2005 we commenced a major programme of customer insight research. Thisinitiative will assist us in developing a stronger understanding of the preciserequirements of our wide range of customer segments and will help us to focusour product and service offer to each segment as well as to target growth withthe most attractive segments. Ongoing consolidation in the house building sector has presented us with somegood opportunities for volume gains through our key account relationships. In our retail division we continued, and refined, our branch network expansionand developed initiatives aimed at improving the sales performance and staffproductivity of like-for-like stores. Since the acquisition we converted two stores from the Standard to the Extraformat in Aylesbury and Swansea, and opened five new Standard stores atSalisbury, Lowestoft, Bexhill, Bicester and Wakefield. Wickes was trading from176 stores at the end of 2005, including a total of seven Extras. Takingadvantage of our tool hire merchanting expertise we introduced tool hire inthree Extra stores during the year - the early indications from this newinitiative are encouraging. We have recently introduced more than 1400 additional products into the Wickes'range in the Extra stores through a programme of space optimisation and havealso added significantly to the range breath in the standard stores, removing alimited number of poorer performing product categories without losing thebenefits of our low assortment model. With the acquisition of Wickes we have taken the opportunity to review themajority of our supply base through both the retail and merchanting channelsduring this year. During the integration process we have aligned ourselvesincreasingly with those companies that have the greatest potential to be majorstrategic suppliers to the enlarged group for the long term. At the end of 2005we established a full time QA office in China. Strategy We aim to develop and operate businesses dedicated to meeting the specific needsof distinct customer groups seeking to source all types of building materials inthis country. Our strategy to achieve this aim is designed to generate superiorshareholder returns through the execution of three key programmes: • Continue to drive scale benefits • Seek further gross margin expansion • Drive further productivity and returns on capital With the acquisition of Wickes, Travis Perkins is serving two segments of amarket worth around £28 billion; builders merchants (£12 billion) and DIY (£16billion). Our estimated market share of the trade market is 16% and of DIY is5%. Our overall market share is around 10%. The Travis Perkins' group has a number one position in the supply of heavybuilding materials and timber and forest products and a strong number twoposition in both domestic plumbing and heating and lightside products. The core customer of the trade business is the jobbing builder and contractorrepresenting an estimated 36% of group turnover between Trade and DIY, other DIYcustomers represent 21% and National Housebuilders 10%. In terms of geographic presence, both divisions have their strongest geographicpresence in London and the South East and have pursued an expansion strategyincreasing share in all other regions of Great Britain in recent years. Overall the group has a good spread of business by product, customer type andgeographic region. All our businesses enjoy distinct and strong competitive positioning in theirrespective markets. Our trade businesses offer superior service levels, productquality and availability with flexibility in commercial terms to matchcustomers' requirements. Our retail business, Wickes, operates a low assortmentmodel, where its concentrated stock range drives low operating costs and stronggross margins from a high penetration of own label product. This enables us tooffer the best value for money to DIY consumers. Board of directors Andrew Simon became a non-executive director of the company in February 2006.Following a 23 year career successfully developing a building materialsmanufacturer as its Chief Executive and then Chairman, he has developedconsiderable experience as a non-executive director from a diverse portfolio ofcompanies. Financial review The accounts for 2005 are presented under International Financial ReportingStandards ("IFRS"). As a result the 2004 comparatives have been restated. Acommentary on profits, cash flows and net assets is provided below. To ensure the business is focused upon achievement of targets, a series of keyfinancial performance indicators are monitored throughout the business: IFRS IFRS UK GAAP UK GAAP UK GAAP 2005 2004 2003 2002 2001 Sales growth 44.4% 9.0% 18.4% 10.8% 8.3%Profit before tax growth * 0.1% 16.0% 18.9% 23.7% 24.2%Merchanting operating profit tosales (note 8) 11.3% 11.9% 11.4% 11.2% 10.1%Interest cover 4.9x 25.9x 21.0x 18.0x 12.0xReturn on capital (note 9) 14.4% 25.0% 25.5% 24.0% 21.5%Free cash generation £226.1m £150.7m £128.1m £105.6m £46.7mDividend cover 3.4x 4.1x 4.5x 4.7x 4.4x *Excludes goodwill amortisation in 2001 to 2003. Earnings before interest, tax, depreciation and goodwill amortisation ("EBITDA")were £322.5 million (2004: £251.1 million) (note 10), an increase of 28.4%. Total net interest expense (before other finance costs of £3.7 million (2004:£2.8 million)) in 2005 was £57.6 million (2004: £8.4 million). The rise ininterest expense is attributable to the additional borrowings arising from theacquisition of Wickes. Interest cover is approximately 4.9 times (2004: 25.9times) (see note 12). Group profit before tax was just ahead of last year at £206.7 million (2004:£206.5 million). The tax charge was £65.9 million (31.9%) compared with £64.4 million (31.2%) in2004. The rate is higher than the UK corporation tax rate of 30% principallybecause of the effect of non-qualifying property expenditure and other itemswhich are not allowable for tax. Basic earnings per share were 116.8 pence compared with 124.4 pence in 2004reflecting the impact of the issue of shares in connection with Wickes. IFRS reconciliation to UK GAAP The introduction of IFRS has had a limited impact upon the group's results andnet assets and no impact on its cash flows: £m Profit before tax under 2005 UK GAAP* 210.2Leases - IAS 17 (1.8)Business Combinations - IFRS 3 (1.0)Derivatives - IAS 39 (0.9)Other 0.2 Profit before tax per the accounts under IFRS 206.7 * Excludes goodwill amortisation Cash flow Free cash flow (see note 6), calculated before expansionary capital expenditure,special pension contributions and dividends, was £226.1 million, up 50.0% from2004. The free cash generated by the group was used in part to fund expansioncapital expenditure in the existing business and on new acquisitions, which,excluding Wickes, cost £84.7 million (2004: £68.3 million). Pensions Improved asset returns offset by the effects of falling corporate bond rates and£26.0 million of company contributions in excess of the income statement charge(2004: £25.8 million) has reduced the gross pension scheme deficit for theTravis Perkins final salary scheme at 31 December 2005 to £100.8 million (2004:£128.3 million). The net deficit, after allowing for deferred tax, was £70.5million compared with £89.8 million at 31 December 2004. The company has closedthe scheme to all new employees from 1 February 2006. New employees areoffered a money purchase scheme. In acquiring Wickes, the group adopted the Wickes' final salary scheme, whichwas closed to new members. After a £3.6 million special contribution inSeptember 2005, the gross deficit on the Wickes' scheme at 31 December 2005 was£42.0 million, down by £3.4 million from the date of acquisition. The actuary has recently performed a full valuation of the Travis Perkins' finalsalary scheme as at 30 September 2005 and the directors are now seeking to reachagreement with the Trustees on future contribution rates. It is the company'sintention to apply this approach to the Wickes' scheme and consider merging thetwo schemes in due course. Equity Total equity, after deducting the pension scheme deficit at 31 December 2005,was £758.0 million, an increase of £107.4 million on 31 December 2004. In July 2005 the group's employee share ownership plan purchased 500,000 shares,of nominal value £50,000 for a total consideration of £8.1 million. The group'sequity balances are stated net of these. The shares were acquired through anactively traded market and on an arms length basis to satisfy share optionsunder the group's incentive plans. By 31 December 2005, 5,573 shares had beenre-issued. The group's return on capital in 2005 was 14.4% (2004: 25.0%), which issubstantially higher than the group's weighted average cost of capital (see note9). Goodwill The net book value of goodwill in the balance sheet is £1,273.8 million.Additions to goodwill and intangible assets in the year totalled £1,131.5million of which £1,101.7 million, including £162.5 million in respect of thebrand, related to Wickes. Capital structure As at 31 December 2005 the group had net debt of £982.4 million (2004: £30.7million). On completion of the acquisition of Wickes on 11 February 2005 a new£1.2 billion credit facility was drawn from The Royal Bank of Scotland andBarclays Capital and, with the exception of £25 million of overdraft facilities,all other facilities previously advanced to the group were either repaid orwithdrawn. The new facility was syndicated on 23 March 2005 to an additional 14UK and overseas banks. The facility comprised a £500 million five-year termloan and a five-year £700 million revolving credit facility. Included within thenet debt of the group are £32.7 million of finance leases (2004: £18.6 million)capitalised under IFRS. These primarily relate to finance leases on propertiesfor trading sites. In addition to the property leases the group had £3.6million (2004: £nil) of finance leases associated with plant and equipment. Borrowings also include £8.2 million (2004: £9.0 million) of unsecured loannotes, which are redeemable at six monthly intervals ending in June 2015.Interest on these loan notes is determined at 6 monthly intervals by referenceto LIBOR. £0.8m of loan notes issued during 2002 were settled during the year. During 2005, two amortising interest rate swaps of £180 million and £171.5million respectively and one amortising interest rate floor and one amortisinginterest rate cap of £171.5 million each have been entered into by the group tomanage the interest rates associated with bank borrowings. The interest rate capand floor arrangements act in unison to provide an interest rate "collar" forthe borrowing element. The two interest rate swaps fix the interest rate at4.935% and 4.9575% respectively and the collar derivative operates between afloor of 4.205% and a cap of 5.7%. The group's current hedging policy is tomaintain the profile of borrowings in the approximate ratio of one third to onehalf at fixed interest rates, one third to one sixth within a collar of interestrates and the remainder at variable rates. New borrowing facilities Following the acquisition of Wickes, which was financed from sources in thebanking market in the United Kingdom, the group embarked upon a programme todiversify its debt sources and lengthen the maturity profile of debt repayments.In December 2005, the group raised $400 million through a private placement offixed rate guaranteed unsecured notes (the "Notes") with a broad range of USfinancial institutions. As a result of strong demand for the Notes the group waspleased to raise $150 million more than its initial target. The debt comprisesof $200 million of Notes repayable in 7 years and the remainder in 10 yearsresulting in bullet repayments becoming due in 2013 and 2016. The net proceeds, which were received on 26 January 2006, have been swapped intoSterling at variable rates, and have been used to refinance approximately halfof the group's existing £500 million term loan reducing it to £270 million. Theterm loan is now due to be repaid in four £43.2 million and two £48.6 milliontranches six monthly commencing 30 June 2007, with the final payment due on 10February 2010. The revolving credit facility is available to the group until 10February 2010. As part of the process of reviewing the terms and structure of its debt, thegroup has also reached agreement with its banking syndicate to bring thefinancial covenants on the remaining £970 million of its UK bank facility inline with those on the US private placement, increasing the group's flexibility. The transaction exposes the group to interest rate and currency risks. Toaddress these risks the group entered into five cross currency swaps on 2December 2005. These fix the amounts receivable and payable under the privateplacement to a set Sterling value of £231 million and the interest rate swapsconvert the fixed interest liability to a floating interest rate based upon thesix month LIBOR rate. The overall effective borrowing cost of the group isslightly below 6%. Liquidity As at 31 December 2005 the group had bank borrowings totalling £994 million,consisting of a term loan of £500 million and £494 million of draw down on therevolving credit facility. The peak level of daily borrowings on a clearedbasis in the year to 31 December 2005 was £1,117 million. Throughout the yearthe maximum month end cleared borrowings were £1,036 million. The group's borrowings are subject to covenants set by the lenders that must becomplied with. Covenant compliance is measured semi-annually using financialresults prepared under UK GAAP extant at 31 December 2004. During 2005 therewere no breaches of the covenant limits. The key financial covenants are theratio of net debt to earnings before interest, tax, depreciation andamortisation "EBITDA" and the ratio of earnings before interest, tax andamortisation "EBITA" to net interest. At 31 December 2005 under UK GAAP thegroup achieved net debt to EBITDA of 2.9x and interest cover of 4.9x Income statement For the year ended 31 December 2005 Non - Wickes Identified impact 2005 2004 related of Wickes (Note below) £m £m £m £m Revenue 1,881.0 759.8 2,640.8 1,828.6 Operating profit 208.3 59.7 268.0 217.7 Finance income 0.4 - 0.4 0.5 Finance costs (10.8) (50.9) (61.7) (11.7) Profit before taxation 197.9 8.8 206.7 206.5 Income tax expense (61.9) (4.0) (65.9) (64.4) Profit for the year 136.0 4.8 140.8 142.1 Earnings per ordinary share Basic 116.8p 124.4p Diluted 115.6p 123.0p Total declared dividend per ordinary share 34.0p 30.5p All results relate to continuing operations. Note: The column headed "Identified impact of Wickes" includes thepost-acquisition result of Wickes, together with the synergies that have arisenfrom specific integration projects, and the additional finance related costsincurred by the group as a result of the acquisition. Further details are givenin note 11. Statement of recognised income and expense For the year ended 31 December 2005 2005 2004 £m £m Actuarial gains and losses on defined benefit pension scheme 2.4 (32.5)Losses on cash flow hedges (5.0) -Tax on items taken directly to equity 10.1 2.0 Net income recognised directly in equity 7.5 (30.5)Transferred to income statement on cash flow hedges 0.5 -Tax on items transferred from equity (0.1) -Profit for the year 140.8 142.1 Total recognised income and expense for the year 148.7 111.6 Balance sheet As at 31 December 2005 2005 2004. £m £mASSETSNon-current assetsProperty, plant and equipment 445.2 340.7Goodwill 1,273.8 304.8 Other intangible assets 162.5 -Derivative financial instruments 1.3 -Investment property 4.1 4.2Deferred tax asset 42.9 38.5 Total non-current assets 1,929.8 688.2 Current assetsInventories 263.2 200.6Trade and other receivables 322.4 287.8Cash and cash equivalents 56.1 116.9 Total current assets 641.7 605.3 Total assets 2,571.5 1,293.5 Balance sheet (continued) As at 31 December 2005 2005 2004 £m £mEQUITY AND LIABILITIESCapital and reservesIssued capital 12.1 12.1Share premium account 165.6 159.2Revaluation reserve 26.3 26.7Hedging reserve (3.2) -Own shares (8.1) -Accumulated profits 565.3 452.6 Total equity 758.0 650.6 Non-current liabilitiesInterest bearing loans and borrowings 1,027.4 137.8Retirement benefit obligation 142.8 128.3Long-term provisions 13.2 -Amounts due to subsidiaries - -Deferred tax liabilities 72.6 38.3 Total non-current liabilities 1,256.0 304.4 Current liabilitiesInterest bearing loans and borrowings 2.9 0.8Unsecured loan notes 8.2 9.0Derivative financial instruments 5.1 -Trade and other payables 482.3 293.4Tax liabilities 33.3 22.6Short-term provisions 25.7 12.7 Total current liabilities 557.5 338.5 Total liabilities 1,813.5 642.9 Total equity and liabilities 2,571.5 1,293.5 Cash flow statement For the year ended 31 December 2005 2005 2004 £m £m Operating profit 268.0 217.7Adjustments for: Depreciation of property, plant and equipment 54.5 33.4 Other non cash movements 2.4 (0.3) Loss / (gain) on disposal of property, plant and equipment 0.7 (0.4) Operating cash flows before movements in working capital 325.6 250.4 Decrease/(increase) in inventories 12.4 (15.7) (Increase) in receivables (1.5) (14.3) Increase in payables 2.8 28.3 Cash payments to the pension scheme in excess of the charge to (28.5) (25.8)profits Cash generated from operations 310.8 222.9Interest paid (38.6) (8.5)Income taxes paid (47.0) (54.2) Net cash from operating activities 225.2 160.2 Cash flows from investing activitiesInterest received 0.4 0.5Proceeds on disposal of property, plant and equipment 1.4 2.2Purchases of property, plant and equipment (71.6) (67.3)Acquisition of businesses net of cash acquired (note 29) (1,045.5) (39.0) Net cash used in investing activities (1,115.3) (103.6) Financing activitiesProceeds from the issue of share capital 6.4 90.6Purchase of own shares (8.1) -Payment of finance leases liabilities (2.3) (1.0)Repayment of unsecured loan notes (0.8) (3.2)Increase/(decrease) in bank loans 872.7 (30.0)Dividends paid (38.6) (30.0) Net cash from financing activities 829.3 26.4 Net (decrease)/increase in cash and cash equivalents (60.8) 83.0Cash and cash equivalents at beginning of year 116.9 33.9 Cash and cash equivalents at end of year 56.1 116.9 Notes to the preliminary announcement 1. The group's principal accounting policies, as set out in its interim statement of 5 September 2005, which is available on the company's website www.travisperkins.co.uk, have been applied consistently. 2. The proposed final dividend of 23.0 pence will be paid on 16 May 2006 to shareholders registered as members of the company at close of business on 21 April 2006. 3. The financial information above does not constitute the company's statutory accounts. Statutory accounts for the years ended 31 December 2005 and 31 December 2004 have been reported on without qualification by the company's auditors and without reference to S237 (2) or (3) of the Companies Act 1985. Statutory accounts for the year ended 31 December 2004 have been prepared under UK GAAP and have been delivered to the Registrar of Companies. Whilst the financial information included in this preliminary announcement has been computed in accordance with IFRS this announcement does not itself contain sufficient information to comply with IFRS. The statutory accounts for the year ended 31 December 2005, prepared under IFRS will be delivered to the Registrar in due course. 4. This announcement was approved by the Board of Directors on 7 March 2006. 5. It is intended to post the annual report to shareholders on 21 March 2006 and to hold the Annual General Meeting on 24 April 2006. Copies of the annual report prepared under International Financial Reporting Standards (IFRS) will be available from the Company Secretary, Travis Perkins plc, Lodge Way House, Harlestone Road, Northampton NN5 7UG from 21 March 2006 or are available through the internet on our website at www.travisperkins.co.uk 6. Free cash flow 2005 2004 £m £m Net debt at 1 January (30.7) (147.9)Net debt at 31 December (982.4) (30.7) Movement in net debt (951.7) 117.2Wickes finance leases acquired 20.0 -Dividends 38.6 30.0Net cash outflow for expansion capital expenditure 42.2 29.3Net cash outflow for acquisitions 1,045.5 39.0Own shares purchased 8.1 -Shares issued (6.4) (90.6)Derivative financial instruments included in borrowings 1.3 -Special pension contributions 28.5 25.8 Free cash flow 226.1 150.7 7. Net debt 2005 2004 £m £m Net debt at 1 January (30.7) (147.9)(Decrease) / increase in cash and cash equivalents (60.8) 83.0Cash flows from debt (871.9) 34.2Fair value of derivatives (1.3) -Finance charges netted off bank debt 2.3 -Finance leases acquired (20.0) - Actual net debt 31 December (982.4) (30.7) Debt to acquire Wickes (see Note 29) (1,009.7)Finance leases acquired (20.0)Cash acquired 6.7 Proforma net debt at 31 December 2004 (1,053.7)Net debt at 31 December 2005 (982.4) Net debt reduction in 2005 71.3 8. Business and geographical segments For management purposes, the group is currently organised into two operatingdivisions - Builders Merchanting and DIY Retailing, both of which operateentirely in the United Kingdom. These divisions are the basis on which the groupreports its primary segment information. Segment results, assets and liabilitiesinclude items directly attributable to segments as well as those that can beallocated on a reasonable basis. Unallocated items comprise mainly interestbearing loans, borrowings and expenses and corporate assets and expenses. Thereare no inter-segment sales or charges. Builders DIY retailing Eliminations Consolidated merchanting £m £m £m £m Revenue 1,881.0 759.8 - 2,640.8 ResultSegment result 213.3 55.9 - 269.2 Unallocated corporate expenses (1.2)Net finance costs (61.3) Profit before taxation 206.7Taxation (65.9) Profit for the year 140.8 Segment assets 1,186.1 1,235.2 - 2, 421.3Unallocated corporate assets 150.2 Consolidated total assets 2,571.5 Segment liabilities (425.3) (213.5) - (638.8)Unallocated corporate liabilities (1,174.7) Consolidated total liabilities (1,813.5) Consolidated net assets 760.8 1,021.7 Capital expenditure 54.1 17.5 71.6Depreciation and impairment losses 39.4 15.1 54.5 In 2004 the group had only one segment, builders merchanting. 9. Return on capital 2005 2004 £m £m Operating profit 268.0 217.7 Opening net assets 650.6 478.2Goodwill written off 92.7 92.7Net borrowings 30.7 147.9Pension deficit 128.3 121.6 Opening capital employed 902.3 840.4 Closing net assets 758.0 650.6Goodwill written off 92.7 92.7Net borrowings 982.4 30.7Pension deficit 142.8 128.3 Closing capital employed 1,975.9 902.3 Average capital employed* 1,855.3 871.5 Return on capital employed 14.4% 25.0% *On 10 February 2005, borrowings and therefore capital employed weresubstantially increased. Therefore, average capital employed for 2005 has beencalculated using £902.3 million for 41 days and £1,975.9 million for 324 days. 10. Earnings before interest, tax and depreciation 2005 2004 £m £m Profit before taxation 206.7 206.5Finance costs 61.3 11.2Depreciation and impairments 54.5 33.4 EBITDA under IFRS 322.5 251.1 Adjustments to reverse the IFRS effect and include Wickes pre-acquisition EBITDA 4.4 EBITDA as defined in UK banking agreements 326.9 Net debt under UK GAAP 950.7 Net debt to EBITDA 2.9x 11. Identified impact of Wickes In the ten and a half months to 31 December 2005, Wickes contributed operatingprofit of £55.9 million and profit before tax of £52.7 million to the group's2005 profits. In addition to the profit before tax, the Wickes acquisitioncontributed £4.7 million of identifiable synergy benefits (arising from specificintegration projects) to the existing builders merchants business and increasedgroup finance costs by £48.6 million. The total pre-tax identifiable impact ofWickes was £8.8 million as disclosed in the income statement. 12. Finance costs 2005 2004 £m £m Interest on bank loans and overdrafts (53.1) (7.5)Interest on unsecured loans (0.4) (0.6)Interest on obligations under finance leases (2.0) (0.8)Unwinding of discounts in provisions (0.9) -Net loss on re-measurement of derivatives at fair value (0.6) -Amortisation of issue costs of bank loans (1.0) - Interest payable (58.0) (8.9)Other finance costs - pension schemes (3.7) (2.8) Finance costs (61.7) (11.7)Interest on bank deposits 0.4 0.5 Net finance costs (61.3) (11.2) Interest cover 4.9 25.9 Interest cover is calculated by dividing operating profit of £268.0 million(2004: £217.7 million) by the combined value of interest on bank loans,unsecured loans, finance leases and interest on bank deposits, which total £55.1million (2004: £8.4 million). This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Travis Perkins