6th Mar 2007 07:05
Travis Perkins PLC06 March 2007 TRAVIS PERKINS PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006 REVENUE UP 7.9% TO £2,849M ADJUSTED OPERATING PROFIT UP 3.7% TO £278M ADJUSTED PRE TAX PROFIT UP 6.6% TO £220M NET DEBT REDUCED BY £178M ADJUSTED EPS UP 9.1% DIVIDENDS UP 10.0% TO 37.4P PER SHARE LIKE-FOR-LIKE SALES AHEAD OF MARKET 2006 2005 £m % £m Revenue 2,848.8 7.9 2,640.8 Adjusted*: Operating profit (note 6) 278.0 3.7 268.0 Profit before taxation (note 6) 220.3 6.6 206.7 Profit after taxation (note 6) 154.2 9.5 140.8 Basic earnings per ordinary share (note 8)(pence) 127.4 9.1 116.8 Statutory: Operating profit 289.6 8.1 268.0 Profit before taxation 231.9 12.2 206.7 Profit after taxation 167.0 18.6 140.8 Basic earnings per ordinary share (pence) 137.9 18.1 116.8 Total dividend per ordinary share (note 9)(pence) 37.4 10.0 34.0 *Adjusted results are stated before exceptional property profits of £11.6m (2005: £nil) and associated tax effects. Geoff Cooper, Chief Executive, commented: "In 2006 we made considerable progress in the development and performance of ourbusiness, with financial results ahead of original expectations for the year,further expansion of our branch network and satisfactory integration of theWickes business. All this was achieved in trade and retail markets that, whilstrecovering in line with our expectations, remained challenging for most of theyear. "Long term prospects for our markets remain good and the gradual recovery weexpected and experienced in 2006 has, we believe, sufficient momentum to delivergood market growth in both trade and retail markets in the first half of 2007.Our prospects for the second half of 2007 are sensitive to the current uncertainoutlook for interest rates and the consequent impact on both new and secondaryhousing markets. "Our Group has demonstrated its ability to grow financial performance and expandits businesses in challenging market conditions. We are confident we cancontinue to apply our management skills to successfully navigate our markets andgenerate further growth in returns for shareholders." Enquiries: Geoff Cooper, Chief ExecutivePaul Hampden Smith, Finance DirectorTravis Perkins PLC +44 (0)1604 683 131 David Bick/Mike FelthamHolborn Public Relations +44 (0)20 7929 5599 Highlights The Group achieved an excellent set of results in 2006, beating all the mainfinancial targets anticipated at the outset of the year. We have aggressively pursued further gains in performance from our like-for-like estate. This has involved growing sales ahead of market growth, expanding our gross margins and maintaining tight control of costs. We successfully integrated the Wickes business, beating all main targets for this project. Despite challengingmarket conditions we continued to expand our branch networks and to invest instronger Group infrastructure. Cash generation in 2006 was very strong and netdebt has been reduced significantly over the last two years. With improvingmarket conditions, we have made an encouraging start to 2007 and look forwardwith confidence. Results Our focus on maximising profits from our existing branch network duringthe difficult markets of 2005 and 2006 yielded increased results. During theyear the group made an exceptional property profit of £11.6m which realised£31.5m of cash receipts. Including the property profit, group operating profitfor the year was £289.6m, excluding it, adjusted group operating profit rose3.7% to £278m (note 6) from £268m in 2005. Throughout these preliminary resultsthe term "adjusted" has been used to signify that the effect of the exceptionalproperty disposal has been excluded from the disclosure being made. Group revenue increased by 7.9% to £2,848.8m from £2,640.8m in 2005. Theadditional 41 days of trading from Wickes contributed 3.0% of the increase,like-for-like sales contributed 1.4%, with network expansion accounting for theremaining 3.5%. Adjusted Group operating margin was 9.8% compared with 10.1% in 2005 (note 6).This slight decrease was caused by two factors. The first was the effect of theadditional 41 days trading from Wickes occurring in its weakest seasonal tradingperiod. The second was the dilutive effect of our continuing branch expansionprogramme, where new branches take time to reach sales and profit maturity. We continued to expand our branch network, albeit at a lower rate than in 2005,adding new branches to each brand and adding a new business stream to ourportfolio. We passed through the 1,000 branch milestone in June 2006 and tocommemorate this launched a major programme of community projects. In the merchanting business, sales grew by 6.3% with sales from new branchopenings contributing 3.4% and increased like-for-like sales per working daycontributing 2.9%. This comprised 3.8% of price inflation and a 0.9% decline involume. Merchanting adjusted operating margin was down slightly to 11.2%(note 6). The integration of Wickes is now substantially and successfully complete, with anumber of retail support functions now integrated with their equivalent functionin the trade division to provide a new Group capability. Additional steps havebeen taken to strengthen these functions, which now support all businesses inthe Group, to provide a platform to support further growth. Like-for-like sales for the full year of Wickes' core products were down 3.5%and on the same basis showroom sales fell by 0.2%. Overall like-for-like salesin Wickes were down 3.0% with 2.4% price inflation and a 5.4% volume decrease.Network expansion added 3.5% to Wickes' sales which in total increased by 0.5%. Wickes' operating margin (excluding property profits of £4.5m, 2005 £nil)decreased by 1.5% to 5.9% (note 6) for 2006 of which 0.4% relates to theadditional 41 day trading period. The remainder is explained by property costinflation in excess of sales price inflation. We are pleased to report that we continue to maintain our position of having thehighest operating margin in both merchant and retail sectors, and four out ofour six brands now have "best in class" operating margins. With improved operating profit performance and a continued focus on increasingreturns and cash generation, we reduced our group debt by £178m since last year.Net Group debt is now some £249m lower than the proforma position at the time ofthe Wickes acquisition (note 13). Dividend The group continues to be highly cash generative. As a result of this and our confidence in the future prospects of the group, the board is recommending a final dividend of 25.3 pence per share. Taken together with the interim dividend of 12.1 pence, this represents a total dividend of 37.4 pence, an increase of 10.0% on the previous year. Outlook Long term prospects for our markets remain good and the gradual recovery we expected and experienced in 2006 has, we believe, sufficient momentum to delivergood market growth in both trade and retail markets in the first half of 2007. Early sales performance in 2007 has been encouraging, with like-for-likesales in our merchanting division for the first two months ahead by 5.3% andlike-for-like sales for the first 8 weeks trading in retail up by 5.0%. Much of this positive market performance has been propelled by a healthy housingmarket. Although rising consumer confidence and spending has more recentlyprovided added impetus, particularly in retail, our prospects for the secondhalf of 2007 are sensitive to the current uncertain outlook for interest ratesand the consequent impact on both new and secondary housing markets. Our planned development of the Group's businesses and support functions assumesa continued recovery in both our markets, and we are confident of capitalisingon this growth to make further gains in market share and returns toshareholders. However, we remain vigilant to the risk that the current recoverymay stall and that, as in 2005, we may need to act swiftly to reduce costs andcurtail the pace with which we build our capabilities and network. Our focus on driving stronger performance from our like-for-like estate ispaying off, and is making us a tougher competitor in each market in which wetrade. Our expansion is continuing to deliver the benefits of scale. Thisapproach means we are well positioned to maintain our leadership, having the"best business with the best operating margin", in each of our markets. Operational review In 2006 our priorities were to continue the focus on tight management of costs, raise our performance on cash generation, outperform on the synergy and buying gain targets we had set at the time of the Wickes transaction, and execute trading strategies tailored to each set of market circumstances. We passed the anniversary of full implementation of the price repositioning ofour trade businesses, which started in the second quarter of 2005 and was fullyimplemented by October that year. This allowed us to assess the full year impactof our trading strategy. We have confirmed that the extra business gained hasgenerated more contribution than the cost required to fund the price investment.We have therefore achieved a net return from this initiative. On a month onmonth basis our like-for-like revenues are now increasing in line with themarket, and our gross margin is level with the prior year. Over the year as awhole we grew our like-for-like revenues ahead of the market with consistentgross margin. These positive achievements in growing revenue were aided by theinitial stages of a programme to segment markets and better target customers. Our retail business also achieved good revenue performance, growing bothlike-for-like and total market share. Whilst our year-on-year comparisons wereslightly flattered by the cessation of a promotional war, our gains were mainlyattributable to a programme of range enhancements and store sales initiatives.Our non-participation in the promotional war also meant we were able to slightlyincrease gross margins over the year. Gross margins also benefited from an excellent performance on our synergy andbuying gain work following the Wickes transaction. Having set an overall targetfor benefits of £35m in the acquisition assumptions, we achieved £78m in 2006,including overhead reduction and improved buying terms. Our out-performance wasachieved by setting goals for stretched buying gains in addition to the originallist of synergy projects. Projects from this original list contributed £33m in2006, reflecting the poorer market growth experienced post acquisition. Both our divisions maintained tight controls over headcount and other costs.Like-for-like headcount fell, yielding a productivity improvement in bothdivisions, with merchanting recording a 5.4% gain and retailing ahead by 10.4%.Overhead ratios improved in the trade division, and, before property relatedincreases, also improved in the retail division. The average annual rate ofrental increase experienced on 5 year lease reviews settled in 2006 declinedcompared with the rate seen in 2005, supporting our view that rental inflationwill ease. We raised our targets for cash generation, including new cash-linked elements inincentive schemes, driving working capital performance harder and constrainingcapital expenditure to critical projects or those with a short payback. We alsosought to improve capital efficiency through more active management of ourproperty portfolio. We have an extensive list of active projects in progress,involving disposals, relocations, re-developments and co-location of multiplebusinesses. In 2006 we realised cash from the initial projects in addition toselling and leasing back an interest in a small portfolio of freehold propertieswith low capital growth characteristics. These properties were sold, using 200year leases, into a special purpose vehicle in which we retain a 15% equityinterest and certain rights to re-acquire the leasehold of individual sites.This enables us to enjoy some capital growth should it arise. Development of the Group Our six trading brands performed well and took advantage of a gradual strengthening in both trade and retail markets as the year progressed. Wickes Wickes achieved a creditable result against a difficult background of weak markets in the first half of the year and continued high inflation inproperty costs. These factors were mitigated by robust control of our variableoverheads and improvement in our gross margin as a result of improved buyingterms. The appointment of Jeremy Bird as Wickes new Managing Director represents asignificant internal promotion after his 14 years experience in Wickes and asuccessful period developing aspects of our trade business. We have successfully introduced a number of new products. New products nowaccount for 15% of our sales each year. The increased number of productsintroduced as a result of range reviews since early 2005 continues to helpmaintain our like-for-like sales growth at above market rates. Our initiatives to optimise the use of space within our stores including thetwinning of selective showrooms continue to be successful in achieving abovesector average sales per square foot. Our new transactional website has been trading for six months and is showing arate of growth and profit well beyond our expectations. At 31 December, we traded from 179 stores, an increase in 3 locations during theyear but a 5% increase in space as a further 3 stores were converted fromStandard to Extra stores. We remain flexible in our store formats according toboth the size and nature of each catchment area. Travis Perkins We added a net 26 stores during the year to the Travis Perkins' branch networkand traded from 559 stores at the year end. Around 70% of this expansion was from brownfield sites, reflecting the relatively attractive returns compared to acquisitions. Although we temporarily slowed our rate of expansion in 2006 the quality of these new branches was higher, resulting in overall returns beating projections. The Travis Perkins brand operates through four geographically based businesses and represents about 60% of group profits. We are delighted that each business demonstrated good profit growth with consistent delivery of improved performance across our estate. We have achieved increased like-for-like sales growth ahead of the market andstabilised our strong gross margin percentage following our 2005 pricinginitiatives. We undertook major branch refurbishments at a number of branches including HemelHempstead, Ramsgate, Glasgow Muirend, Sunbury and Brackmills in 2006 and have 24projects planned for 2007 with an incremental capital spend relative to 2006 ofaround £30m. We also added a net 4 toolhire outlets taking our total to 163 inthe group. Following the appointment of Richard Dey as toolhire director we havemade excellent progress in expanding our network and in centralising our buyingand servicing activities. This has resulted in good profit growth. Keyline Our heavyside merchant added 3 branches to its network, finishing the year with 76 branches. Following a detailed profiling of its market, an increased focus on both depth and breadth of specialist stock range and a concentration on majorcivil engineering customers, sales performance has been increasingly successful.Robust control of Keyline's cost base and continued support of key suppliers hasresulted in another year of improved margins. City Plumbing For City Plumbing, 2006 was a year of recovery and consolidation. We improved the consistency of our pricing and stock range and launched a major sales drive with large contractors. All remaining branches not yet converted were refitted to the City Plumbing format from their predecessor brand. A combination of strong top line growth and an absolute decrease in costs has led to a strong recovery in profits. We added one new branch and consolidated two small units during 2006. However, we plan to step up our rate of expansion in 2007, reflecting our confidence that the business is very much back on track. CCF Our dry-lining ceilings and insulation specialist had another excellent yearreflecting the strength of our major contractor relationships. Stronglike-for-like sales and further improvement in margins has resulted in profitsin the fourth year after acquisition being in excess of three times thepre-acquisition level. After adding two branches in 2006 to end the year at 25outlets, a further 5 were added in early 2007 following the acquisition ofPassmores, who are based in London. Benchmarx Our specialist kitchen and joinery business for the trade made a good start headed up by Rob Gladwin, previously Wickes Retail Director. The first branch opened at Croydon in July and overall 6 branches were added in 2006. Benchmarx serves a market with attractive returns and growth characteristics. We plan to have 20 branches open by the end of 2007 and we are committed to creating a business with a significant market share in this sector. Suppliers We place great emphasis in developing long term partnerships with our suppliers. Most of our suppliers hold market leading positions and the scale to both develop and bring to market new products and either currently or have thepotential to supply all of our brands. We have continued to review our supply base, following the successfulinitiatives in 2005, which extracted the "quick win" synergies. These mainlyinvolved initiatives where, amongst our other 6 brands, there was overlapbetween product and supplier. In 2006 we focused on major product categorieswhere there was a potential change of range and/or supplier in one or morebrands. Our supplier base continues to become more concentrated with the top 25suppliers representing 42% of our cost of goods sold. In 2007 we will continueto leverage our strong buying position as market leader in heavyside and timberproducts and drive further efficiencies through our small but rapidly expandingglobal procurement function. Senior management The senior management team was strengthened with a number of significant appointments including; Carol Kavanagh who joined us from a FTSE 100 company as Group Human Resources Director; Robin Procter who joined us from a leading company in an adjacent market as our new Group Supply Chain Director;Linda Doughty, with a successful career in building materials joined us as TradeMarketing Director; and Richard Dey joined us from a dedicated plant and toolhire operator to become our Group Toolhire Director. From the existing team we promoted two executives to become managing directors;Jeremy Bird was appointed as Wickes' Managing Director following the plannedretirement of Richard Bird (no relation), and Rob Gladwin became ManagingDirector of our newly established Benchmarx business. Both Jeremy and Rob joinedus as board members of Wickes upon acquisition, and are now part of a growinggroup of senior executives with both trade and retail experience. They join ourhighly regarded group of nine managing directors responsible for driving theGroup's operating profits. Financial review To ensure the business is focused upon achievement of targets, a series of key financial performance indicators are monitored throughout the business. For 2006, where indicated, these measures are stated on an adjusted basis strippingout the effects of the exceptional property profits: IFRS IFRS IFRS UK GAAP UK GAAP 2006 2005 2004 2003 2002Revenue growth 7.9% 44.4% 9.0% 18.4% 10.8%Adjusted profit before tax growth (note 6)* 6.6% 0.1% 16.0% 18.9% 23.7%Profit before tax growth* 12.2% 0.1% 16.0% 18.9% 23.7%Merchanting adjusted operating profit to sales (note 6) 11.2% 11.3% 11.9% 11.4% 11.2%Adjusted interest cover (note 7) 4.9x 4.9x 25.9x 21.0x 18.0xAdjusted return on capital (note 11) 14.6% 14.8% 25.0% 25.5% 24.0%Adjusted free cash generation (note 14) £216.6m £226.1m £150.7m £128.1m £105.6mAdjusted dividend cover (note 9) 3.4x 3.4x 4.1x 4.5x 4.7x *Excludes goodwill amortisation in 2002 to 2003. The above table reflects the significant purchase of Wickes in 2005. Adjusted earnings before interest, tax, depreciation and goodwill amortisation("EBITDA") (as defined in note 12) were £335.7m (2005: £326.9m), an increase of2.7%. Total net interest expense (before other finance costs of £0.4m (2005: £3.7m) in2006 was £57.3m (2005: £57.6m). Whilst like-for like interest charges havefallen in 2006 as net debt has reduced substantially, the actual cost for 2006is only £0.3m lower than for 2005 as a result of the effect of a full year'scharge on the borrowings taken out to acquire Wickes on 11 February 2005.Adjusted interest cover (as defined in note 7) is approximately 4.9 times (2005:4.9 times). Adjusted group profit before tax (note 6) was 6.6% ahead of last year at £220.3m(2005: £206.7m). The tax charge was £64.9m (28.0%) compared with £65.9m (31.9%) in 2005. The rateis lower than the UK corporation tax rate of 30% principally because: •no capital gains tax charge on property sales being included in the profit and loss account under IFRS as any tax due is rolled over - this reduces the tax charge by 2.8%; •non-qualifying property expenditure and other items which are not allowable for tax - this increases the tax charge by 0.8%. Profit after tax was £167m an increase of 18.6%. Adjusted profit after tax (note 5) was £154.2m an increase of £13.4m (9.5%) compared to 2005. Basic earnings per share was 137.9 pence. Adjusted basic earnings per share(note 8) was 9.1% higher at 127.4 pence, compared with 116.8 pence in 2005. Cash flow Management throughout the group has continued to focus on cash generation during2006 with a number of working capital initiatives playing an important part in further reducing debt. In 2006 the Group has generated £323.3m of cash from operations (2005: £310.8m), an increase of 4.0%. Adjusted free cash flow, (calculated before exceptional property disposals, expansionary capitalexpenditure, special pension contributions and dividends) was £216.6m, down 4.2%from 2005, which gave an adjusted free cash flow yield of 9% (2005: 13.3%) (note14). This was due to the timing of interest payments (one additional 6 monthlypayment in 2006). The free cash generated by the group was used in part to fundexpansion capital expenditure of £31.6m (2005: £42.2m) in the existing businessand on new acquisitions, which in total cost £10.9m (2005: £42.5m excludingWickes). With a step up in our network expansion plans, new investments in groupinfrastructure and reinvestment of the exceptional property disposal proceedsinto freeholds, we anticipate a significant increase in capital expenditure in2007. Pensions The Travis Perkins' defined benefit pension scheme was merged with the Wickes'final salary scheme on 1 July 2006. At 31 December 2006 the gross deficit of thecombined scheme was £80.8m (31 December 2005 combined gross deficit £142.8m). The net deficit after allowing for deferred tax was £56.6m (2005: combined net deficit £99.9m). The significant improvement in the deficit is the result of improved assetreturns, more favourable corporate bond rates reducing liabilities and £21m ofcompany contributions in excess of the income statement charge (2005: £26m). During the year the company has reached agreement with the pension fund trusteesto eliminate the 30 September 2005 deficit over a nine-year period. The schemeis now 84% funded with the net deficit representing less than 2.5% of thecompany's market capitalisation at 31 December 2006. Equity Total equity, after deducting the pension scheme deficit at 31 December 2006, was £933.1m, an increase of £175.1m on 31 December 2005. The Group's adjusted return on capital in 2006 (note 11) was 14.6% (2005:14.8%), which is substantially higher than the group's weighted average cost ofcapital. The slight reduction is due to the additional period of Wickesownership. At the year-end the share price was 1,984 pence (2005: 1,400 pence) and themarket capitalisation £2.4bn (2005: £1.7bn), representing 2.6 times (2005: 2.2times) shareholders' funds. During the year the daily closing share price rangedfrom 1,372 pence to 1,984 pence. Properties The group currently operates from over 1,100 sites of which 375 are freehold or long leasehold. The carrying value of the group's freehold and long leasehold property portfolio, which was last revalued in 1999 on an existing use basis, is £191.4m. As well as being one of the Group's considerable operating strengthsthe portfolio gives it the potential to seek further opportunities to enhance value. During the year, in line with its stated strategy to release value from itsproperty portfolio, the Group undertook a transaction which by its magnitude wasexceptional, and sold 35 freehold properties on long leases, for £31.5m aftercosts, to an investment vehicle, in which the Group has retained a 15% stake.The properties, which have been leased back by the Group on 25 year terms, on anear 6% yield, realised a net profit of £11.6m in 2006. In addition accountingrules required profits made on the disposal of land of £4.7m to be deferred inthe balance sheet to be amortised over the lives of the long leases. This was the Group's biggest ever property deal and represented an importantstep in implementing its policy of maximising value through the development ofits property portfolio. The company plans to re-invest the proceeds in new andexisting properties as it continues to expand across its six brands. It islikely that disposals in future years will be on a smaller scale with theemphasis on driving profits from relocations, part disposals and siteredevelopments. Goodwill The net book value of goodwill in the balance sheet is £1,282m. Additions to goodwill and intangible assets in the year totalled £8.2m. Capital structure The Group finances itself through a combination of bank borrowings, fixed rate unsecured notes, leases and retained profits. Its capital base is structured to meet the ongoing requirements of the business. As at 31 December 2006 the Group had net debt of £804.4m (2005: £982.4m) (note 13). Income StatementFor the year ended 31 December 2006 2006 2005 Notes Non- Identified Total Non- Identified Total Wickes impact of Wickes impact of related Wickes related Wickes (Note below) (Note below) £m £m £m £m £m £m Revenue 2,000.3 848.5 2,848.8 1,881.0 759.8 2,640.8-------------------------------------------------------------------------------Adjusted operating profit (before exceptional property profit) 207.4 70.6 278.0 208.3 59.7 268.0 Exceptional property profit 6 11.6 - 11.6 - - --------------------------------------------------------------------------------Operating profit 6 219.0 70.6 289.6 208.3 59.7 268.0 Finance income 7 0.8 1.1 1.9 0.4 - 0.4 Finance costs 7 - (59.6) (59.6) (10.8) (50.9) (61.7)-------------------------------------------------------------------------------Profit before tax 219.8 12.1 231.9 197.9 8.8 206.7 Tax (63.5) (1.4) (64.9) (61.9) (4.0) (65.9)-------------------------------------------------------------------------------Profit for the year 156.3 10.7 167.0 136.0 4.8 140.8-------------------------------------------------------------------------------Earnings per share 8 Basic 137.9p 116.8p Diluted 136.8p 115.6p-------------------------------------------------------------------------------Total dividend per ordinary share 9 37.4p 34.0p------------------------------------------------------------------------------- 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 (note15) Statement of recognised income and expenseFor the year ended 31 December 2006 2006 2005 £m £mActuarial gains and losses on defined benefit pension scheme 41.4 2.4Gains/(losses) on cash flow hedges 7.9 (5.0)Tax on items taken to equity (13.7) 10.1------------------------------------------------------------------------------Net income recognised directly in equity 35.6 7.5Transferred to income statement on cash flow hedges 0.6 0.5Tax on items transferred from equity 0.1 (0.1)Profit for the year 167.0 140.8------------------------------------------------------------------------------Total recognised income and expense for the year 203.3 148.7------------------------------------------------------------------------------ Balance SheetAs at 31 December 2006 2006 2005 £m £mASSETSNon-current assetsProperty, plant and equipment 426.4 445.2Goodwill 1,282.0 1,273.8Other intangible assets 162.5 162.5Derivative financial instruments 3.8 1.3Investment property 3.9 4.1Available-for-sale investments 2.0 -Deferred tax asset 24.2 42.9------------------------------------------------------------------------------Total non-current assets 1,904.8 1,929.8------------------------------------------------------------------------------ Current assetsInventories 294.4 263.2Trade and other receivables 363.8 322.4Derivative financial instruments 0.5 -Cash and cash equivalents 56.3 56.1------------------------------------------------------------------------------Total current assets 715.0 641.7------------------------------------------------------------------------------Total assets 2,619.8 2,571.5------------------------------------------------------------------------------ EQUITY AND LIABILITIESCapital and reservesIssued capital 12.2 12.1Share premium account 172.2 165.6Other reserve 25.3 26.3Hedging reserve 4.0 (3.2)Own shares (7.9) (8.1)Accumulated profits 727.3 565.3------------------------------------------------------------------------------Total equity 933.1 758.0------------------------------------------------------------------------------Non-current liabilitiesInterest bearing loans and borrowings 763.6 1,027.4Derivative financial instruments 30.9 -Retirement benefit obligation 80.8 142.8Long-term provisions 13.1 13.2Deferred tax liabilities 71.1 72.6------------------------------------------------------------------------------Total non-current liabilities 959.5 1,256.0------------------------------------------------------------------------------Current liabilitiesInterest bearing loans and borrowings 89.2 2.9Unsecured loan notes 7.9 8.2Derivative financial instruments 0.2 5.1Trade and other payables 565.2 482.3Tax liabilities 34.2 33.3Short-term provisions 30.5 25.7------------------------------------------------------------------------------Total current liabilities 727.2 557.5------------------------------------------------------------------------------Total liabilities 1,686.7 1,813.5------------------------------------------------------------------------------Total equity and liabilities 2,619.8 2,571.5------------------------------------------------------------------------------ The financial statements were approved by the board of directors on 5 March 2007and signed on its behalf by: G. I. Cooper )P. N. Hampden Smith ) Directors Cash flow statementFor the year ended 31 December 2006 2006 2005 £m £m Operating profit 289.6 268.0Adjustments for:Depreciation and impairment of property, plant and 53.7 54.5 equipmentOther non cash movements 3.8 2.4(Gain)/loss on disposal of property, plant and equipment (17.1) 0.7-------------------------------------------------------------------------------Operating cash flows before movements in working capital 330.0 325.6(Increase)/decrease in inventories (29.7) 12.4Increase in receivables (38.9) (1.5)Increase in payables 82.9 2.8Cash payments to the pension scheme in excess of the charge to profits (21.0) (28.5)-------------------------------------------------------------------------------Cash generated from operations 323.3 310.8Interest paid (59.8) (38.6)Income taxes paid (57.3) (47.0)------------------------------------------------------------------------------Net cash from operating activities 206.2 225.2------------------------------------------------------------------------------Cash flows from investing activitiesInterest received 0.8 0.4Acquisition of shares in unit trust (2.0) -Proceeds on disposal of property, plant and equipment 38.9 1.4Purchases of property, plant and equipment (50.4) (71.6)Acquisition of businesses net of cash acquired (10.9)(1,045.5)------------------------------------------------------------------------------Net cash used in investing activities (23.6)(1,115.3)------------------------------------------------------------------------------Financing activitiesProceeds from the issue of share capital 6.9 6.4Purchase of own shares - (8.1)Payment of finance leases liabilities (2.8) (2.3)Repayment of unsecured loan notes (0.3) (0.8)(Decrease)/increase in bank loans (143.7) 872.7Dividends paid (42.5) (38.6)------------------------------------------------------------------------------Net cash from financing activities (182.4) 829.3------------------------------------------------------------------------------Net increase/(decrease) in cash and cash equivalents 0.2 (60.8)Cash and cash equivalents at beginning of year 56.1 116.9------------------------------------------------------------------------------Cash and cash equivalents at end of year 56.3 56.1------------------------------------------------------------------------------ Notes to the preliminary announcement 1. The Group's principal accounting policies, as set out in its interim statement of 31 July 2006, which is available on the company's website www.travisperkins.co.uk, have been applied consistently. 2. The proposed final dividend of 25.3 pence will be paid on 17 May 2007 to shareholders registered as members of the company at close of business on 20 April 2007. 3. The financial information above does not constitute the company's statutory accounts. Statutory accounts for the years ended 31 December 2006 and 31 December 2005 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 2005 have been delivered to the Registrar of Companies. Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards ("IFRS") this announcement does not itself contain sufficient information to comply with IFRS. The statutory accounts for the year ended 31 December 2006, prepared under IFRS will be delivered to the Registrar in due course. 4. This announcement was approved by the Board of Directors on 5 March 2007. 5. It is intended to post the annual report to shareholders on 13 April 2007 and to hold the Annual General Meeting on 15 May 2007. Copies of the annual report prepared in accordance with IFRS will be available from the Company Secretary, Travis Perkins plc, Lodge Way House, Harlestone Road, Northampton NN5 7UG from 16 April 2007 or are available through the internet on our website at www.travisperkins.co.uk 6. Profit (a) Operating profit 2006 2005 £m £m Revenue 2,848.8 2,640.8 Cost of sales (1,855.0) (1,723.1) -------------------------------------------------------------------------- Gross profit 993.8 917.7 Selling and distribution costs (596.3) (540.7) Administrative expenses (126.6) (110.4) Other operating income* 18.7 1.4 -------------------------------------------------------------------------- Operating profit 289.6 268.0 -------------------------------------------------------------------------- Exceptional property profit (11.6) - -------------------------------------------------------------------------- Adjusted operating profit 278.0 268.0 -------------------------------------------------------------------------- * Other operating income includes exceptional property profits of £11.6m (2005:£nil). The exceptional property profit, which is exceptional due to the magnitude of the deal in comparison to other deals undertaken by the group, arises from the sale of long leasehold interests in 35 properties to an investment vehicle, in which the company retains a 15% interest. The sale proceeds (net of costs) were £31.5m and the carrying value of the properties was £15.2m. The profit of £11.6m reflects the profit deferment in respect of land of £4.7m in accordance with the requirements of IAS 17. (b) Adjusted profit before and after tax 2006 2005 £m £m Profit before tax 231.9 206.7 Exceptional property profit (11.6) - -------------------------------------------------------------------------- Adjusted profit before tax 220.3 206.7 -------------------------------------------------------------------------- 2006 2005 £m £m Profit after tax 167.0 140.8 Exceptional property profit (11.6) - Tax effect of exceptional property profit (1.2) - -------------------------------------------------------------------------- Adjusted profit after tax 154.2 140.8 -------------------------------------------------------------------------- (c) Adjusted operating margin Group Merchanting Retail £m £m £m Revenue 2,848.8 2,000.3 848.5 -------------------------------------------------------------------------- Operating profit 289.6 240.3 54.2 Corporate expenses - (4.8) - Property profits - - (4.5) Exceptional property profits (11.6) (11.6) - -------------------------------------------------------------------------- Adjusted segment result 278.0 223.9 49.7 -------------------------------------------------------------------------- Adjusted operating margin 9.8% 11.2% 5.9% -------------------------------------------------------------------------- The segmental results for merchanting and retail are shown in note 10. The retail reduction in operating margin from 2005 of 11.1% is calculated by deducting the £49.7m shown above from the retail segment result for 2005 of £55.9m and dividing by £55.9m. 7. Finance costs 2006 2005 £m £m Interest on bank loans and overdrafts* (55.5) (54.1) Interest on unsecured loans (0.4) (0.4) Interest on obligations under finance leases (2.0) (2.0) Unwinding of discounts in provisions (1.1) (0.9) Net loss on re-measurement of derivatives at fair value (0.2) (0.6) -------------------------------------------------------------------------- Interest payable (59.2) (58.0) Other finance costs - pension schemes (0.4) (3.7) -------------------------------------------------------------------------- Finance costs (59.6) (61.7) Net gain on re-measurement of derivatives at fair value 1.1 - Interest on bank deposits 0.8 0.4 -------------------------------------------------------------------------- Net finance costs (57.7) (61.3) -------------------------------------------------------------------------- Adjusted interest cover 4.9 4.9 -------------------------------------------------------------------------- *Includes £0.6m (2005 £1.0m) of amortised fees. Adjusted interest cover is calculated by dividing adjusted operating profit of £278.0m (2005: £268.0m) by the combined value of interest on bank loans and overdrafts (excluding amortised fees), unsecured loans, finance leases and interest on bank deposits, which total £56.5m (2005: £55.1m). 8. Earnings per share (a) Basic and diluted earnings per share 2006 2005 £m £m Earnings Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent 167.0 140.8 --------------------------------------------------------------------------- Number of shares No. No. Weighted average number of ordinary shares for the purposes of basic earnings per share 121,060,158 120,542,092 Dilutive effect of share options on potential ordinary shares 1,054,815 1,205,748 --------------------------------------------------------------------------- Weighted average number of ordinary shares for the purposes of diluted earnings per share 122,114,973 121,747,840 --------------------------------------------------------------------------- At 31 December 2006, nil (2005: 561,736) share options had an exercise price in excess of the market value of the shares on that day. As a result they were excluded from the calculation of diluted earnings per share. (b) Adjusted earnings per share Adjusted earnings per share is calculated by excluding the effect of the exceptional property profit from earnings. 2006 2005 £m £m Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent 167.0 140.8 Exceptional property profit (11.6) - Tax on exceptional property profit (1.2) - -------------------------------------------------------------------------- Earnings for adjusted earnings per share 154.2 140.8 -------------------------------------------------------------------------- Adjusted earnings per share 127.4p 116.8p -------------------------------------------------------------------------- Adjusted diluted earnings per share 126.3p 115.6p -------------------------------------------------------------------------- 9. Dividends Amounts were recognised in the financial statements as distributions to equity shareholders as follows: 2006 2005 £m £m Final dividend for the year ended 31 December 2005 of 23.0p (2004: 21.0p) per ordinary share 27.8 25.3 Interim dividend for the year ended 31 December 2006 of 12.1p (2005: 11.0p) per ordinary share 14.7 13.3 -------------------------------------------------------------------------- Total dividends recognised during the year 42.5 38.6 -------------------------------------------------------------------------- The proposed final dividend of 25.3p per ordinary share in respect of the year ending 31 December 2006 was approved by the board on 5 March 2007. As the final dividend has not yet been approved by shareholders, in accordance with IFRS, it has not been included in the balance sheet as a liability as at 31 December 2006. Adjusted dividend cover of 3.4x (2005: 3.4x) is calculated by dividing adjusted basic earnings per share (note 8) of 127.4p (2005: 116.8p) by the total dividends for the year of 37.4p (2005: 34.0p). 10. Business and geographical segments For management purposes, the group is currently organised into two operating divisions - Builders Merchanting and DIY Retailing, both of which operate entirely in the United Kingdom. These divisions are the basis on which the Group reports its primary segment information. Segment results, assets and liabilities include items directly attributable to segments as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly interest bearing loans, borrowings and expenses and corporate assets and expenses. There are no inter-segment sales. Builders DIY Merchanting Retailing Eliminations Consolidated -------------------------------------------------------------------------- 2006 2006 2006 2006 £m £m £m £m Revenue 2,000.3 848.5 - 2,848.8 -------------------------------------------------------------------------- Result Segment result 240.3 54.2 (0.1) 294.4 -------------------------------------------------------------------------- Unallocated corporate expenses (4.8) Net finance costs (57.7) -------------------------------------------------------------------------- Profit before taxation 231.9 Taxation (64.9) -------------------------------------------------------------------------- Profit for the year 167.0 -------------------------------------------------------------------------- Segment assets 1,256.9 1,232.9 - 2,489.8 Unallocated corporate assets 136.9 -------------------------------------------------------------------------- Consolidated total assets 2,626.7 -------------------------------------------------------------------------- Segment liabilities (454.1) (218.8) - (672.9) Unallocated corporate liabilities (1,020.7) -------------------------------------------------------------------------- Consolidated total liabilities (1,693.6) -------------------------------------------------------------------------- Consolidated net assets 802.8 1,014.1 --------------------------------------------- Capital expenditure 39.8 12.0 51.8 Depreciation 38.0 15.7 53.7 -------------------------------------------------------------------------- 10. Business and geographical segments continued Builders DIY Merchanting Retailing Eliminations Consolidated -------------------------------------------------------------------------- 2005 2005 2005 2005 £m £m £m £m Revenue 1,881.0 759.8 - 2,640.8 -------------------------------------------------------------------------- Result Segment result 213.3 55.9 - 269.2 -------------------------------------------------------------------------- Unallocated corporate expenses (1.2) Net finance costs (61.3) ------------------------------------------------------------------------- Profit before taxation 206.7 Taxation (65.9) ------------------------------------------------------------------------- Profit for the year 140.8 ------------------------------------------------------------------------- Segment assets 1,186.1 1,235.2 - 2,421.3 Unallocated 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 71.6 Depreciation 39.4 14.5 53.9 Impairment losses - 0.6 0.6 ------------------------------------------------------------------------- 11. Adjusted return on capital 2006 2005 £m £m Operating profit 289.6 268.0 Exceptional property profit (11.6) - ------------------------------------------------------------------------- Adjusted operating profit 278.0 268.0 ------------------------------------------------------------------------- Opening net assets 758.0 650.6 Goodwill written off 92.7 92.7 Net borrowings 982.4 30.7 Pension deficit 99.9 89.8 ------------------------------------------------------------------------- Opening capital employed 1,933.0 863.8 Closing net assets 933.1 758.0 Equity impact of exceptional property profit (12.8) - Goodwill written off 92.7 92.7 Net borrowings 804.4 982.4 Pension deficit 56.6 99.9 ------------------------------------------------------------------------- Closing adjusted capital employed 1,874.0 1,933.0 ------------------------------------------------------------------------- Average adjusted capital employed* 1,903.5 1,812.9 ------------------------------------------------------------------------- Adjusted return on capital 14.6% 14.8% ------------------------------------------------------------------------- *On 10 February 2005, borrowings and therefore capital employed were substantially increased. Therefore, average capital employed for 2005 has been calculated using £863.8m for 41 days and £1,933.0m for 324 days. 12. Adjusted earnings before interest, tax and depreciation 2006 2005 £m £m Profit before taxation 231.9 206.7 Finance costs 57.7 61.3 Depreciation and impairments 53.7 54.5 ------------------------------------------------------------------------- EBITDA under IFRS 343.3 322.5 Exceptional property profits (11.6) - Reversal of IFRS effect and for 2005 inclusion of Wickes' pre-acquisition EBITDA 4.0 4.4 ------------------------------------------------------------------------- Adjusted EBITDA as defined in UK banking agreements 335.7 326.9 ------------------------------------------------------------------------- Net debt under UK GAAP (note 13) 804.9 950.7 ------------------------------------------------------------------------- Adjusted net debt to EBITDA 2.4x 2.9x ------------------------------------------------------------------------- 13. Net debt (a) Actual 2006 2005 £m £m Net debt at 1 January (982.4) (30.7) Increase/(decrease) in cash and cash equivalents 0.2 (60.8) Cash flows from debt 146.8 (871.9) Reduction/(increase) in fair value of debt 31.6 (1.3) Additional finance charges netted off bank debt (0.6) 2.3 Finance leases acquired - (20.0) -------------------------------------------------------------------------- Actual net debt 31 December (804.4) (982.4) IAS 17 finance leases 31.5 32.7 Fair value adjustments to debt (30.3) 1.3 Finance charges netted off debt (1.7) (2.3) -------------------------------------------------------------------------- Net debt under UK GAAP (804.9) (950.7) -------------------------------------------------------------------------- (b) Proforma net debt reduction £m Net debt at 1 January 2004 (30.7) Debt to acquire Wickes 1,009.7 Finance leases acquired (20.0) Cash acquired 6.7 ------------------------------------------------------------------------- Proforma net debt at 31 December 2006 (1053.7) Net debt at 31 December 2006 (804.4) ------------------------------------------------------------------------- Proforma net debt reduction 249.3 ------------------------------------------------------------------------- 14. Adjusted free cash flow 2006 2005 £m £m Net debt at 1 January (982.4) (30.7) Net debt at 31 December (804.4) (982.4) ------------------------------------------------------------------------- Movement in net debt 178.0 (951.7) Wickes finance leases acquired - 20.0 Dividends 42.5 38.6 Net cash outflow for expansion capital expenditure 31.6 42.2 Net cash outflow for acquisitions and investments 10.9 1,045.5 Net cash outflow for acquisition of investments 2.0 - Own shares purchased - 8.1 Shares issued (6.9) (6.4) Movement in fair value of debt and amortisation of fees (31.0) 1.3 Special pension contributions 21.0 28.5 ------------------------------------------------------------------------- Free cash flow 248.1 226.1 Cash impact of exceptional property profits (31.5) - ------------------------------------------------------------------------- Adjusted free cash flow 216.6 226.1 ------------------------------------------------------------------------- Adjusted free cash flow yield is calculated by dividing adjusted free cash flow of £216.6m (2005: £226.1m) by the company's market capitalisation at 31 December of £2.4bn (2005: £1.7bn). 15. Identified impact of Wickes In the year to 31 December 2006 (2005: 10.5 months to 31 December, Wickes contributed operating profit of £54.2m and profit before tax of £51.8m (2005:operating profit £55.9m and profit before tax of £52.7m) to the Group's profits. In addition to the profit before tax, the Wickes acquisition contributed £16.4m (2005: £4.7m) of identifiable synergy benefits (arising from specific integration projects) to the existing builders merchants business and increased group finance costs by £56.1m (2005: £48.6m). The total pre-tax identifiable impact of Wickes was £12.1m (2005: £8.8m) as disclosed in the income statement. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Travis Perkins