4th Mar 2008 07:02
Travis Perkins PLC04 March 2008 4 March 2008 TRAVIS PERKINS PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007 FINANCIAL HIGHLIGHTS • REVENUE UP 11.9% TO £3,187M • ADJUSTED OPERATING PROFIT UP 15.1% TO £320M • ADJUSTED OPERATING MARGIN UP 28 BASIS POINTS TO 10.0% • ADJUSTED PRE TAX PROFIT UP 18.7% TO £261M • ADJUSTED EPS UP 17.6 % TO 149.8P • DIVIDEND DECLARED UP 20.1% TO 44.9P PER SHARE OPERATING HIGHLIGHTS • ACQUISITION AND EXPANSION CAPEX INVESTMENT STEPPED UP TO £138M • GAINS MADE IN BOTH TOTAL AND LIKE-FOR-LIKE MARKET SHARE • WICKES COMES TOP OF CONSUMER SURVEYS OF DIY STORES 2007 2006 £m % £m Revenue 3,186.7 11.9 2,848.8 Adjusted*: Operating profit (note 6) 319.9 15.1 278.0 Profit before taxation (note 6) 261.4 18.7 220.3 Profit after taxation (note 6) 181.1 17.4 154.2 Basic earnings per ordinary share (pence) (note 9) 149.8 17.6 127.4 Statutory: Operating profit 319.9 10.5 289.6 Profit before taxation 261.4 12.7 231.9 Profit after taxation 185.3 11.0 167.0 Basic earnings per ordinary share (pence) 153.3 11.2 137.9 Total dividend declared per ordinary share (pence) 44.9 20.1 37.4 (note 10) *During the year the Group recognised an exceptional deferred tax credit of£4.2m (2006: £nil) arising from the reduction in the corporation tax rate to 28%(note 8). During 2006 the Group made an exceptional property profit of £11.6mand associated tax effects (note 6). Throughout these preliminary results theterm "adjusted" has been used to signify that these exceptional items have beenexcluded from the disclosures being made. Geoff Cooper, Chief Executive, commented: "The Group achieved strong results in 2007 and accelerated its branch expansionprogramme. All of our businesses performed well, with both our trade and retaildivisions growing their like-for-like sales ahead of market growth rates. Thissuperior performance underlines the attractiveness to customers of our seventrade and retail brands, and enabled us simultaneously to grow market share andto expand our operating margin. "In addition to the gross 75 branches we added to our existing brands during theyear, we entered a new market via the acquisition of Tile Giant, furtherimplementing our strategy of entering adjacent channels for the distribution ofbuilding materials. Our expansion programme continues to deliver returns aheadof those predicted at the time of each branch opening and generates goodincremental returns for shareholders. "With like-for-like performance ahead of market, superior operating margins toany comparable operator and a full pipeline of opportunities to expand further,we are well placed to continue our progress in what we expect to be a morechallenging market in 2008." Enquiries: Geoff Cooper, Chief ExecutivePaul Hampden Smith, Finance DirectorTravis Perkins PLC +44 (0)1604 683 111 David Bick/Mike Feltham/Mark LongsonSquare1 Consulting Limited +44 (0)20 7929 5599 Robust Financial Performance The Group delivered record financial results in 2007, with good progress fromthe three key elements of our strategy - driving like-for-like performance,expanding our branch network and entering adjacent markets. For 2007, the Group's revenue was up by 11.9% to £3,187m (2006: £2,849m), withadjusted profit before tax up by 18.7% to £261m (2006: £220m), and adjustedearnings per share up by 17.6% to 149.8 pence (2006: 127.4 pence). The revenueincrease of 11.9% comprised 8.1% from like-for-like sales, with networkexpansion accounting for the remaining 3.8%. Adjusted Group operating margin grew by 28 basis points to 10.04% (2006: 9.76%)(note 6c). This increase was achieved primarily through improved management ofour operations and scale benefits, which produced lower overhead ratios andfurther labour productivity gains. Competitive conditions both in trade andretail markets, as always, remained tough and gross margins reduced slightly. In addition, an accelerated rate of network expansion and launch of Benchmarx,our trade kitchen and joinery specialist, had a dilutive effect on operatingmargin. New branches typically take 6 - 18 months to reach breakeven and weestimate that without this dilutive effect the operating margin would have beenhigher by some 20 basis points. We stepped up the rate of branch networkexpansion, adding new branches to each brand and adding a further new businessstream to our portfolio in the form of Tile Giant. As at the end of the year ournetwork comprised 1,125 branches, and in the first two months of the year hasgrown further to 1,166 branches, with 15 branches added in our trade divisionand 26 stores added in the retail division. In the trade division, sales grew by 12.7% with sales from new branch openingscontributing 3.5% and increased like-for-like sales per working day contributing9.2%. This comprised 5.8% of price inflation and a 3.4% growth in volume. Bothgeneral and specialist merchanting performed well, with like-for-like sales perworking day up by 9.2% in general merchanting and 8.7% in specialistmerchanting. We estimate that our trade businesses are growing their sales some2% ahead of market growth rates, with market share gains coming equally fromnational competitors and independent merchant competitors. Adjusted operatingmargin in the trade division was up by 24 basis points to 11.43%, with a strongperformance from the Travis Perkins general merchanting brand - operating marginfor the specialist distribution businesses was lower, reflecting morecompetitive conditions in the dry lining and insulation market following theconsolidation of a large proportion of the independent sector over the last twoyears. Like-for-like sales for the full year of Wickes' core products were up by 7.5%and on the same basis showroom sales fell by 4.6%, reflecting continued weaknessin consumers' willingness to spend on so-called 'big ticket' purchases. Overalllike-for-like sales in Wickes were up 5.5% with 3.8% price inflation and a 1.7%volume increase. Network expansion, which has been stepped up over the lastyear, added 4.3% to Wickes' sales which in total increased by 9.8%. Wickesincreased its market share over the year, with most recently available datashowing an increase in share of the market of major DIY retailers of 1.0% from ayear earlier. Retail operating margin increased by 28 basis points to 6.67% (note 6c) for2007, driven mainly by economies of scale following the volume gains fromlike-for-like sales growth and space expansion. We are pleased to report that we continue to maintain our position of having thehighest operating margin in both merchant and retail sectors where we operate. We invested £174m (including £8m of loan notes issued) on capital expenditure,including £138m (including loan notes) spent on expanding the Group. We alsoloaned £76m to the Group's Employee Share Ownership Trust to purchase shares tosatisfy outstanding share option grants. Tight control of our daily cashposition meant that we reported only marginally higher interest costs despitethese investments and increasingly difficult conditions in the debt capitalmarkets and a resultant rise in the cost of short-term debt. Interest coverimproved to 5.4 times EBIT (note 7). The timing of certain cash flows at theyear end meant that the final balance sheet showed an increase in net debt to£941m - and £28m of outflows impacted by timing issues mainly related topayments to Wickes suppliers on the 53rd Monday of the year which reversedwithin 7 days of the end of the year (note 15). Increased 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 30.4 pence. Taken together with the interim dividend of 14.5pence, this represents a total dividend of 44.9 pence, an increase of 20.1% onthe previous year. Improved Resilience For 2007, we believe the trade market showed strong growth continuing therecovery started in 2006, whilst the retail market showed a slight improvement.The well documented turbulence in financial markets and its impact on theeconomy, consumers and the construction sector is expected to have an adverseeffect on growth rates in our markets in 2008. There has been much debate about whether current conditions mirror those seen inthe downturn in our markets in 2005, or whether they bear a closer relationshipto the more severe period of slow down in 1991 to 1993. Whilst no comparisonwill produce a perfect match, thus far in the current year our analysis of leadindicators currently suggests activity levels may bear a greater resemblance to2005. Both in early 2005 and early 2008, the outlook for the housing marketlooked poor, whilst other sources of building material consumption - notably therepair and maintenance sector - looked more positive. In 1991 - 1993, agenerally worse economic background, with higher interest rates andunemployment, meant demand weakened across the spectrum of construction andrepair activity. Our customers currently report a shortening of orders on hand,particularly for new housing construction work. The outlook for repair,maintenance and improvement work, where we enjoy proportionately higher margins,remains relatively firmer. Forecasts are, of course, dynamic and the outlookbeyond the next few months remains uncertain. However, despite this less promising outlook, our business is in better shape towithstand a more challenging environment. We expect to enjoy better levels ofbusiness activity than our competitors, even if market volumes weaken, since ourtrade and retail divisions are both taking like-for-like market share. TheWickes business has been fully integrated, its management strengthened, itsoffer improved and its store formats overhauled and made more productive. In thelast 24 months, we have broadened our revenue sources, entering the tradekitchen and joinery market and the retail tiling market. The contribution toprofits from expansion of our well established brands is benefiting from theincreased rate of openings started in 2006, whilst our newer brands are expectedto provide greater potential for expansion in later years. The strengthening of our central functions - such as IT and Supply Chain - isyielding further sourcing gains and productivity improvements. The activemanagement of our property assets is expected to contribute increased profitsand cash flows in 2008 and beyond. In addition we will continue to monitor ourlead indicators and deploy the Group's traditional strengths in active costcontrol to manage our cost ratios before expected movements in turnover trends. Outlook Our early sales performance in 2008 reflects the expected slowing of marketgrowth, with like-for-like sales in our merchanting division for the first twomonths ahead by 5.7% and like-for-like sales for the first 8 weeks trading inretail up by 0.9% These rates are some 3% to 4% below the like-for-like salestrends we achieved in the fourth quarter of 2007. Whilst forecasting market volumes with any accuracy is currently morechallenging, cost inflation in goods-for-resale remains high and will increasethe value of our market, even if it may take some time to establish new pricesat a time when customers' activity levels may be lower than before. With like-for-like performance ahead of market, superior operating margins toany comparable operator and a full pipeline of opportunities to expand further,we are well placed to continue our progress in what we expect to be a morechallenging market in 2008. Sustained Growth Longer term trends in our markets, driven by population growth, increasinghousehold formation, government policies on 'decent homes' and sustainabilityhave all been strengthened by various announcements and initiatives launched in2008. Building products provided through our ten businesses and seven brands(the Travis Perkins brand operating as four geographically defined businesses)have a major contribution to managing climate change issues. From a benchmarkingexercise conducted by us in 2007, we estimate that the gross margin earned by usfrom products having a beneficial environmental impact, less the cost ofcomplying with new environmental management and reporting is just over £30m. Weaim to continue our work to increase our own environmental performance, andintroduce new products to market in response to planning and end-user demands,avoiding peripheral products of questionable environmental value - like domesticwindmills - and, over time, improve this contribution. Our focus on driving stronger performance from our like-for-like estate hasdelivered increased profits, and is making us a tougher competitor in eachmarket in which we trade. Our expansion is continuing to deliver the benefits ofscale. This approach means we are well positioned to maintain our leadership,pursuing our aim of having the "best business with the best operating margin",in each of our markets. Operational Delivery In 2007 our priorities were to improve the customer offer in each of ourbusinesses, implementing our best practice programmes, to take like-for-likemarket share and to strengthen our central functions to build a strong platformfor growth. Our trade division continued its customer segmentation work and implemented aseries of marketing initiatives, succeeding in increasing our share of spend byexisting customers and converting an increased proportion of prospectivecustomers. This, combined with significant operational improvements in productrange, stock availability and yard service levels enabled the division toincrease like-for-like sales ahead of market growth rates. Our surveys indicatean improved perception of our trade branches as a preferred source of buildingmaterials. We intend to continue our work to stretch our lead on theseindicators of customer preference and differentiation. Our retail business also achieved good revenue performance, growing bothlike-for-like and total market share. These gains were mainly attributable to acontinued programme of range enhancements, new store sales initiatives andimproved store standards. This work was recognised in two recent surveys ofcustomers by independent retail research organisations, which showed Wickes tobe the UK's favourite home improvement retailer - a remarkable result given thatwe are geographically under-represented. In addition we successfully launchedthe Wickes transactional website with an investment considerably less than foran average Wickes store. The website achieved breakeven within 12 months and isnow regularly amongst the top 10 stores for weekly takings. Gross margins in both divisions continued to benefit from our work torationalise our supplier base, increase our global sourcing volumes and completethe few remaining projects from the Wickes synergy programme. However, thesegains were eroded by margin pressure as competitors fought to retain businessagainst our improved service. Although prices of some commodity products in theretail market were reduced by one or two competitors, our volumes of theseproducts grew in line with or above market trend and gross margins decreasedonly slightly. Overall, various pricing and promotional initiatives by retailcompetitors appears not to have impacted Wickes' sales. Both our divisions maintained tight controls over headcount and other costs, andoperating cost ratios improved in both divisions - by 38 basis points in tradeand 93 basis points in retail. Whilst colleague numbers inevitably increased asthe Group expanded, productivity improved in both divisions, with merchantingrecording a 6.1% gain and retailing ahead by 3.4%. Furthermore, on five yearlease reviews settled in 2007, the average annual rate of rental increaseexperienced continued to decline, supporting our view that rental inflation iseasing. The 63 basis point improvement in the Group's operating cost ratio was achieveddespite our investing to strengthen central functions to support further growth.This included building two new data centres in Northampton to run both trade andretail division systems and provide internal disaster recovery capacity. Wedevelop most of our software ourselves, which external benchmarking shows givesus better business effectiveness and lower cost ratios than competitors. The£14m implementation project for these data centres was completed on time and onbudget by our very experienced IT managers and teams, led by Frank Smith, ourGroup IT director. We continued our programme of improving capital efficiency through more activemanagement of our property portfolio. From our extensive list of active projectsin progress we exchanged contracts or completed on 3 projects, generatingprofits of £6.4m and cash of £0.8m (£5.6m to follow in 2008). Martin Meech, ourGroup property director has been responsible for creating this programme of workand resulting financial benefits following his arrival in 2005, and is pursuingprojects on a further 26 properties. The proportion of freehold or longleasehold properties in the Group's estate remained broadly level at 33%, withthe net book value of property increasing by £50m to £242m as we reinvested cashfrom this programme in properties that we judge to have attractive growthcharacteristics. Loyal People Our analysis in 2005 identified that performance of our branches, centralfunctions and businesses is significantly correlated with the stability of ourteams of colleagues. Expertly led by Carol Kavanagh, our Group Human ResourcesDirector, we have over the last two years introduced a series of measures aimedat improving the recruitment and retention of colleagues, increasing theirskills and raising their engagement with the business. This work has includedincreased investment in long service awards, new training and developmentprogrammes, both for technical and management skills, introduction of abuy-as-you-earn share scheme and better communication of our save-as-you-earnscheme. Our colleague retention has steadily improved over this period - in thetrade division it is now up by some 13% over two years to 80%, and it is up by1.4% in the retail division to 75.5%. A baseline score for employee engagement was established in 2007 from a surveyconducted anonymously by an independent research company, and we aim to steadilyimprove colleague engagement and performance measured from surveys repeatedannually. As a start, we introduced in January 2008 a new incentive scheme forall colleagues not already members of an existing scheme. Unlike many schemes,this rewards colleagues for achieving standards of performance partly linked tocustomer expectations rather than being linked only to an annual budget oryear-on-year financial performance. To further support colleagues a new group health and safety department wasestablished in 2006 with a brief to improve our performance significantly,building on the excellent work carried out in each of the businesses. In itsfirst full year, the department was responsible for overhauling our policies,procedures and reporting systems, and more investment was injected in to healthand safety training. A new health and safety committee of the Plc board has beenestablished to oversee further progress. In 2007 we saw a continuation of thefavourable trends in accident frequency experienced over the previous two years,however, the severity of accidents has increased, increasing our resolve toimprove further. Further Expansion and Development We added a seventh brand to our portfolio, and took advantage of a gradualstrengthening in both trade and retail markets as the year progressed to expandour network. All this was achieved whilst maintaining our investment criteriafor all new branches and businesses and, through a post-investment auditreported to the board, ensuring that the programme of network expansioncontinues to achieve results in excess of those predicted at the time theprojects were approved. As the highest margin operator in the market, and withmarket conditions likely to exert more pressure on weaker operators, in 2008 weexpect to see an increased supply of opportunities to expand that will meet ourdemanding financial criteria. Wickes Total retail selling space at Wickes expanded by 6% as a result of launching 6new stores and re-configuring 3 existing stores. At 31 December, we traded from185 stores. The re-configuration programme, which involves reclaiming storagespace for use as selling area and the construction of mezzanine floors in storeswith very high sales densities, will continue in 2008. These developments,together with a strong pipeline of opportunities to introduce Wickes in newcatchments, means that we anticipate the strongest space expansion for Wickes in2008 since the business was acquired in 2005. The recent Wickes store openingsfollowing our purchase of 7 stores from a home improvement retailer operating ina different segment of the market are all trading ahead of expectations,benefiting from the fresh approach to the Wickes offer developed in late 2006.The strength of the Wickes offer means that its expansion programme will delivergood incremental returns despite volumes in the home improvement market not yetrecovering to the levels seen in 2004. Travis Perkins We added a net 22 sites during the year to the Travis Perkins' branch networkand traded from 581 sites at the year end. Around 44% of new sites werebrownfields, which have relatively attractive returns compared to acquisitions.We undertook major branch refurbishments at a number of branches including KingsLynn Mill, Wigan, Wisbech and Cheam in 2007 and have 3 projects planned for2008. We also added a gross 10 toolhire outlets taking our total to 164 in theGroup. Travis Perkins is our largest and most prominent brand, and excellentcustomer goodwill means that new and expanded branches continue to acquire newbusiness quickly and have excellent payback and cash flow characteristics. Despite having a network approaching 600 branches, we still have significantexpansion potential for the Travis Perkins brand in the UK. Our relativelygreater efficiency and operating margin means we have good opportunities toacquire selectively good merchanting businesses and create value. As marketsbecome more challenging in 2008, we expect more owners to sell. With many ownersconsidering a sale following the changes to the capital gains tax regime, we arelooking for a softening in goodwill prices in the coming months. Keyline Our heavyside merchant added 3 branches to its network, finishing the year with79 branches. In 2006 we introduced programmes to increase focus on both depthand breadth of specialist stock range and a concentrate on major civilengineering customers. This programme continued in 2007, with 7 branches beingre-configured to take new ranges. Following the appointment of a new managingdirector with a background in construction this work will continue in 2008 andfurther new branches will be added where market opportunities arise. City Plumbing Supplies Following its steady recovery from trading difficulties experience in 2005, CityPlumbing Supplies re-started its expansion programme in 2007 and 12 new brancheswere added, bringing the total trading at the end of the year to 189. Allremaining branches not yet converted were refitted to the City Plumbing formatfrom their predecessor brand. Our business is aimed at serving the needs ofcontractors and jobbing plumbers in the repair and refurbishment sector of themarket, for whom branch location is crucial. We plan to continue our rate ofexpansion in 2008, reflecting our confidence in this business. CCF Our dry-lining ceilings and insulation specialist had a very busy year, with 2new brownfield openings and the acquisition of a further 7 new branches via theacquisition of 2 excellent regional operators. The CCF business operated from 34branches at the end of the year. CCF's market is now very largely held in thehands of major national or international distributors who have recently investedin the sector, and with only few suppliers of the key products, competitiveconditions remained very tight. Despite this, CCF's 'one-stop shop' offer tocontractors means it enjoys a good reputation and new branches deliver goodreturns. We aim to expand the CCF network further in 2008. Benchmarx Following the good start made in 2006 by Benchmarx, our specialist kitchen andjoinery business for the trade, a further 19 branches were added in 2007,bringing the total trading up to 25. Benchmarx serves a market with attractivereturns and growth characteristics and our offer has scored very highly with ournew customers in this market. We plan further branch openings in 2008 and we arecommitted to creating a business with a significant market share in this sector. Tile Giant We entered the retail tile market in November via the acquisition of Tile Giant,a 29 store chain operating mainly in the Midlands. With existing revenues fromtile products approaching £45m through our existing brands, we are confident ofachieving good synergies through improved buying terms. The tile market isexpected to show good growth and we see an excellent opportunity to win asignificant market share and help consolidate the sector, under the leadershipof Mo Iqbal, Tile Giant's managing director and founder. Today we are announcingthe acquisition of Tile Magic, a 17 branch chain operating in London and theSouth East, and we have a good pipeline of further opportunities to expand. Suppliers Having increased our supplier base through the acquisition of Wickes in 2005, wehave steadily been rationalising numbers and establishing partnerships where wecan develop long-term relationships with selected suppliers. We seekrelationships with those suppliers who hold market leading positions and whohave the scale to both develop and bring to market new products and who eithercurrently supply or have the potential to supply all of our brands. This policy of rationalisation meant that in 2007 the top 25 suppliersrepresented 47% of our cost of goods sold. We also made significant progress onour global sourcing programme, where we seek to establish a direct line ofsupply with producers in low cost economies for products where branding is not akey purchasing criteria for our customers. We have strengthened our qualityassurance and shipping capabilities and in 2008 will expand storage capacity inthe UK. Senior management To support our continued growth, the operations side of the Group, led by JohnCarter our Chief Operating Officer, was re-organised in 2007 with the creationof positions for three divisional chairmen for three collections of businesses -general merchanting, specialist merchanting, and retailing. Joe Mescall, anoutstanding managing director for two of our general merchanting businessesduring a distinguished 35 year career with the Group became divisional chairmanfor general merchanting. Arthur Davidson, having managed Keyline with a suretouch since its acquisition in 1999 - a period during which Keyline's profitsmore than doubled - and chaired CCF since 2004, became divisional chairman forspecialist merchanting. Arthur and Joe join Jeremy Bird, who in only his firstyear as managing director for Wickes has seen the brand catapulted to the top ofcustomers' lists for their favourite home improvement retailer and overseen a23% rise in profits, before property gains, as members of the Group's ExecutiveCommittee. Following these appointments, Andrew Harrison, who, as managing directorestablished CCF as a new business in the Group whilst its profits doubled overhis four years in that role, moved to become managing director of Benchmarx, tohelp us exploit the significant opportunity presented by our entry in to thismarket. Also, Phil Gransden was promoted within the board of our Travis Perkinsbusiness in the South East to become its managing director. Phil is a furtherexample of the Group's excellent management trainee scheme providing futuresenior managers. Whilst many of the Group's operating managers - including ourChief Operating Officer, John Carter, come from this source, balance ofexperience is maintained by sourcing around a third of our senior managers fromoutside the Group. In 2008, Phil Atkinson, with a background in the constructionsector, joined us as managing director of Keyline. Phil's sector experience willenable him to lead effectively Keyline's initiative to position itself as thesupplier of choice in heavy building products to major civil engineeringcontractors and ground workers. Turnover of senior managers is relatively low,and not many leave the Group. When, occasionally they do, we wish them well intheir careers and look forward to welcoming them back to our business in the nottoo distant future. Financial review To ensure the business is focused upon achievement of appropriate targets, aseries of key financial performance indicators are monitored throughout thebusiness. For 2007, where indicated, these measures are stated on an adjustedbasis stripping out the effects of the exceptional deferred tax credit and in2006, where indicated, the exceptional property profits. 2007 2006 2005 2004Revenue growth 11.9% 7.9% 44.4% 9.0%Adjusted profit before tax growth 18.7% 6.6% 0.1% 16.0%Profit before tax growth 12.7% 12.2% 0.1% 16.0%Merchanting adjusted operating 11.4% 11.2% 11.3% 11.9% profit to salesAdjusted interest cover (note 7) 5.4x 4.9x 4.9x 25.9xAdjusted return on capital (note 12) 16.2% 14.6% 14.8% 25.0%Adjusted free cash flow (note 15) £157.8m £216.6m £226.1m £150.7mAdjusted dividend cover (note 10) 3.3x 3.4x 3.4x 4.1x The above table reflects the significant purchase of Wickes in 2005. Adjusted earnings before interest, tax, depreciation and goodwill amortisation("EBITDA") (note 13) were £379m (2006: £335.7m), an increase of 12.9%. Higher debt levels, which have resulted from a significant increase of £142m incapital expenditure and a £76m share acquisition programme by our Employee ShareOwnership Trust, combined with higher interest rates, have resulted in anincrease in total net interest expense (before other finance income of £3.3m(2006: cost £0.4m) up to £61.8m (2006: £57.3m). Adjusted interest cover (note 7)is approximately 5.4 times (2006: 4.9 times). Adjusted group profit before tax (note 6) was 18.7% ahead of last year at£261.4m (2006: £220.3m). On 26 June 2007 the House of Commons approved the Finance Bill which reduces theUK standard rate of Corporation tax from 30% to 28% with effect from 1 April2008. The reduction in rate results in an exceptional deferred tax credit of£4.2m in the current year tax charge. The adjusted tax charge (before the tax credit) was £80.3m (30.7%) compared with£64.9m (28.0%) in 2006. In 2006 the rate was reduced by 2.8% by property profitsnot chargeable to tax. The rate for 2007 is higher than the UK corporation taxrate of 30% principally because of non-qualifying property expenditure and otheritems which are not allowable for tax. Profit after tax was £185.3m an increase of 11.0%. Adjusted profit after tax(note 6) was £181.1m an increase of £26.9m (17.4%) compared to 2006. Basic earnings per share was 153.3 pence. Adjusted basic earnings per share(note 9) was 17.6% higher at 149.8 pence, compared with 127.4 pence in 2006. Cash flow In addition to the substantial investments in business development describedabove, debt at 31 December 2007 was increased temporarily by £28m as a result of£28m of payments made to Wickes suppliers on the 53rd Monday of the year.Despite this and a higher level of trade and rebate debtors, the group hasgenerated £304m of cash from operations (2006: £323m), a decrease of 6.0%.Adjusted free cash flow, (calculated before exceptional property disposals, theextra Wickes supplier payment run, expansionary capital expenditure, specialpension contributions and dividends) (note 15) was £157.8m, 27.1% lower than2006. As a result of the turbulence in credit markets increasing LIBOR rates,the group rolled its debt, and therefore paid interest, on a weekly rather than 6 monthly basis for most of the second half of the year. As a result, whencombined with the effect of higher debt and higher interest rates, interestpayments were £13.5m higher in 2007, than in 2006. We indicated last year that we intended to increase capital expendituresignificantly to grow the Group's brands. The free cash generated by the Groupwas used in part to fund expansion capital expenditure of £82.2m (2006: £31.6m)in the existing business and in part on new acquisitions, which in total cost£47.2m (2006: £10.9m) plus loan notes issued to a value of £8m. Pensions At 31 December 2007 the gross deficit of the scheme was £16m (31 December 2006:gross deficit £80.8m). The net deficit after allowing for deferred tax was£11.5m (2006: net deficit £56.6m). The significant improvement in the deficit is the result of improved assetreturns, higher corporate bond rates reducing liabilities and £9.6m of companycontributions in excess of the income statement charge (2006: £21m). The scheme is now 97% funded with the net deficit representing less than 1.0% ofthe Company's market capitalisation at 31 December 2007. Equity Total equity, after deducting the pension scheme deficit at 31 December 2007,was £1,036.9m, an increase of £103.8m on 31 December 2006. During the year, through its Employee Share Ownership Trust, the Group acquired5.2m shares in the Company at an average cost of 14.56p per share. The shareswere acquired for future settlement of share options and share save grants madeto employees of the Group. The Group's adjusted return on capital in 2007 (note 12) was 16.2% (2006:14.6%), which is substantially higher than the Group's weighted average cost ofcapital. At the year-end the share price was 1,204 pence (2006: 1,984 pence) and themarket capitalisation £1.5bn (2006: £2.4bn), representing 1.4 times (2006: 2.6times) shareholders' funds. During the year the daily closing share price rangedfrom 1,180 pence to 2,121 pence. Properties The carrying value of the Group's 347 freehold and 55 long leasehold propertyportfolio, which was last revalued in 1999 on an existing use basis, is £242m.As well as being one of the Group's considerable operating strengths theportfolio gives it the potential to seek further opportunities to enhance value. Goodwill The net book value of goodwill and other intangibles in the balance sheet is£1,492m (2006: £1,445m). Additions to goodwill and intangible assets in the yeartotalled £47m. Capital structure The Group finances itself through a combination of bank borrowings, fixed rateunsecured notes, leases and retained profits. Its capital base is structured tomeet the ongoing requirements of the business. As at 31 December 2007 the Grouphad net debt of £941m (2006: £804m) (note 14). Consolidated income statement For the year ended 31 December 2007 2007 2006 £m £m Revenue 3,186.7 2,848.8____________________________________________________________________________ Operating profit (before exceptional 319.9 278.0 property profit)Exceptional property profit 6 - 11.6____________________________________________________________________________ Operating profit 6 319.9 289.6Finance income 7 3.7 1.9Finance costs 7 (62.2) (59.6)____________________________________________________________________________ Profit before tax 261.4 231.9Tax (before exceptional deferred tax credit) (80.3) (64.9)Exceptional deferred tax credit 8 4.2 -____________________________________________________________________________ Tax (76.1) (64.9)____________________________________________________________________________ Profit for the year 185.3 167.0____________________________________________________________________________ Earnings per ordinary share 9Basic 153.3p 137.9pDiluted 151.9p 136.8p____________________________________________________________________________ Total dividend declared per ordinary share 10 44.9p 37.4p____________________________________________________________________________ All results relate to continuing operations. Consolidated statement of recognised income and expenseFor the year ended 31 December 2007 2007 2006 £m £mActuarial gains and losses on defined benefit pension 51.9 41.4 schemeGains on cash flow hedges 0.4 7.9Tax on items taken to equity (15.7) (13.7)____________________________________________________________________________ Net income recognised directly in equity 36.6 35.6Transferred to income statement on cash flow hedges (1.4) 0.6Tax on items transferred from equity 0.4 0.1Profit for the year 185.3 167.0____________________________________________________________________________ Total recognised income and expense for the year 220.9 203.3____________________________________________________________________________ Consolidated movement in equityFor the year ended 31 December 2007 2007 2006 £m £mOpening equity 933.1 758.0Shares issued 6.8 6.7Own shares (76.0) 0.2Total recognised income and expense for the year 220.9 203.3Share options 0.2 7.4Dividends paid (48.1) (42.5)____________________________________________________________________________Closing equity 1,036.9 933.1____________________________________________________________________________ Consolidated balance sheet As at 31 December 2007 2007 2006 £m £mASSETSNon-current assetsProperty, plant and equipment 505.0 426.4Goodwill 1,329.7 1,282.0Other intangible assets 162.5 162.5Derivative financial instruments 3.0 3.8Investment property 3.5 3.9Available-for-sale investments 2.0 2.0Deferred tax asset 4.5 24.2____________________________________________________________________________Total non-current assets 2,010.2 1,904.8____________________________________________________________________________Current assetsInventories 330.2 294.4Trade and other receivables 421.9 363.8Derivative financial instruments 0.7 0.5Cash and cash equivalents 26.3 56.3____________________________________________________________________________Total current assets 779.1 715.0____________________________________________________________________________Total assets 2,789.3 2,619.8____________________________________________________________________________ Consolidated balance sheet (continued) As at 31 December 2007 2007 2006 £m £mEQUITY AND LIABILITIESCapital and reservesIssued capital 12.3 12.2Share premium account 178.9 172.2Other reserve 24.2 25.3Hedging reserve 2.9 4.0Own shares (83.9) (7.9)Accumulated profits 902.5 727.3____________________________________________________________________________Total equity 1,036.9 933.1____________________________________________________________________________Non-current liabilitiesInterest bearing loans and borrowings 863.9 763.6Derivative financial instruments 29.8 30.9Retirement benefit obligation 16.0 80.8Long-term provisions 13.7 13.1Deferred tax liabilities 75.3 71.1____________________________________________________________________________Total non-current liabilities 998.7 959.5____________________________________________________________________________Current liabilitiesInterest bearing loans and borrowings 88.0 89.2Unsecured loan notes 15.4 7.9Derivative financial instruments - 0.2Trade and other payables 585.0 565.2Tax liabilities 32.3 34.2Short-term provisions 33.0 30.5____________________________________________________________________________Total current liabilities 753.7 727.2____________________________________________________________________________Total liabilities 1,752.4 1,686.7____________________________________________________________________________Total equity and liabilities 2,789.3 2,619.8____________________________________________________________________________ The financial statements were approved by the Board of Directors on 3 March 2008and signed on its behalf by: G. I. Cooper ) P. N. Hampden Smith ) Directors Consolidated cash flow statement For the year ended 31 December 2007 2007 2006 £m £mOperating profit 319.9 289.6Adjustments for:Depreciation and impairment of property, plant 56.3 53.7 and equipmentOther non cash movements 3.7 3.8Gain on disposal of property, plant and equipment (7.6) (17.1)____________________________________________________________________________Operating cash flows before movements in working capital 372.3 330.0Increase in inventories (30.1) (29.7)Increase in receivables (39.8) (38.9)Increase in payables 11.1 82.9Cash payments to the pension scheme in excess of the charge to profits (9.6) (21.0)____________________________________________________________________________ Cash generated from operations 303.9 323.3Interest paid (72.7) (59.8)Income taxes paid (74.5) (57.3)____________________________________________________________________________ Net cash from operating activities 156.7 206.2____________________________________________________________________________Cash flows from investing activitiesInterest received 0.2 0.8Acquisition of shares in unit trust - (2.0)Proceeds on disposal of property, plant and equipment 4.8 38.9Purchases of property, plant and equipment (123.7) (50.4)Acquisition of businesses net of cash acquired (47.2) (10.9)____________________________________________________________________________ Net cash used in investing activities (165.9) (23.6)____________________________________________________________________________Financing activitiesProceeds from the issue of share capital 6.8 6.9Purchase of own shares (76.0) -Payment of finance leases liabilities (1.9) (2.8)Repayment of unsecured loan notes (0.2) (0.3)Increase / (decrease) increase in bank loans 98.6 (143.7)Dividends paid (48.1) (42.5)____________________________________________________________________________ Net cash from financing activities (20.8) (182.4)____________________________________________________________________________ Net (decrease) / increase in cash and cash equivalents (30.0) 0.2Cash and cash equivalents at beginning of year 56.3 56.1____________________________________________________________________________ Cash and cash equivalents at end of year 26.3 56.3____________________________________________________________________________ Notes to the preliminary announcement 1. The Group's principal accounting policies, as set out in its interim statement of 31 July 2007, which is available on the Company's website www.travisperkins.co.uk, have been applied consistently. 2. The proposed final dividend of 30.4 pence will be paid on 15 May 2008 to shareholders registered as members of the Company at close of business on 18 April 2008. 3. The financial information above does not constitute the Company's statutory accounts. Statutory accounts for the years ended 31 December 2007 and 31 December 2006 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 2006 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 2007, prepared under IFRS will be delivered to the Registrar in due course. 4. This announcement was approved by the Board of Directors on 3 March 2008. 5. It is intended to post the annual report to shareholders on 10 April 2008 and to hold the Annual General Meeting on 13 May 2008. 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 10 April 2008 or will be available through the internet on our website at www.travisperkins.co.uk 6. Profit (a) Operating profit 2007 2006 £m £m Revenue 3,186.7 2,848.8 Cost of sales (2,087.3) (1,855.0) ________________________________________________________________________ Gross profit 1,099.4 993.8 Selling and distribution costs (649.1) (596.3) Administrative expenses (141.8) (126.6) Other operating income* 11.4 18.7 ________________________________________________________________________ Operating profit 319.9 289.6 Exceptional property profit - (11.6) ________________________________________________________________________ Adjusted operating profit 319.9 278.0 ________________________________________________________________________ * Other operating income includes exceptional property profits of £nil (2006: £11.6m). The exceptional property profit in 2006, which was exceptional due to the magnitude of the deal in comparison to other deals undertaken by the Group, arose 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 reflected a profit deferment in respect of land of £4.7m in accordance with the requirements of IAS 17. 6. Profit (continued) (b) Adjusted profit before and after tax 2007 2006 £m £m Profit before tax 261.4 231.9 Exceptional property profit - (11.6) ________________________________________________________________________ Adjusted profit before tax 261.4 220.3 ________________________________________________________________________ 2007 2006 £m £m Profit after tax 185.3 167.0 Exceptional property profit - (11.6) Tax effect of exceptional property profit - (1.2) Exceptional deferred tax credit (4.2) - ________________________________________________________________________ Adjusted profit after tax 181.1 154.2 ________________________________________________________________________ (c) Operating margin Merchanting Retail Group £m £m £m £m £m £m 2007 2006 2007 2006 2007 2006 Revenue 2,254.2 2,000.3 932.5 848.5 3,186.7 2,848.8 __________________________________________________________________________ Operating profit 260.3 240.3 62.2 54.2 322.5 294.5 Corporate expenses (2.6) (4.8) - - (2.6) (4.8) Corporate eliminations - - - - - (0.1) Exceptional property - (11.6) - - - (11.6) profits __________________________________________________________________________ Adjusted segment 257.7 223.9 62.2 54.2 319.9 278.0 result __________________________________________________________________________ Adjusted operating 11.43% 11.19% 6.67% 6.39% 10.04% 9.76% margin __________________________________________________________________________ The segmental results for merchanting and retail are shown in note 11. 7. Finance costs 2007 2006 £m £m Interest on bank loans and overdrafts* (58.6) (55.5) Interest on unsecured loans (0.5) (0.4) Interest on obligations under finance leases (1.9) (2.0) Unwinding of discounts in provisions (1.2) (1.1) Net loss on re-measurement of derivatives at fair - (0.2) value ________________________________________________________________________ Interest payable (62.2) (59.2) Other finance costs - pension scheme - (0.4) ________________________________________________________________________ Finance costs (62.2) (59.6) Net gain on re-measurement of derivatives at fair 0.3 1.1 value Other finance income - pension scheme 3.3 - Interest on bank deposits 0.1 0.8 ________________________________________________________________________ Net finance costs (58.5) (57.7) ________________________________________________________________________ Adjusted interest cover 5.4x 4.9x ________________________________________________________________________ *Includes £1.7m (2006 £0.6m) of amortised fees. Adjusted interest cover is calculated by dividing adjusted operating profit of £319.9m (2006: £278.0m) 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 £59.2m (2006: £56.5m). 8. Tax On 26 June 2007 the House of Commons approved the Finance Bill which reduces the UK standard rate of Corporation tax from 30% to 28% with effect from 1 April 2008. The reduction in rate results in an exceptional deferred tax credit of £4.2m in the current year charge. 9. Earnings per share (a) Basic and diluted earnings per share 2007 2006 £m £m Earnings Earnings for the purposes of basic and 185.3 167.0 diluted earnings per share being net profit attributable to equity holders of the parent ________________________________________________________________________ Number of shares No. No. Weighted average number of ordinary 120,839,499 121,060,158 shares for the purposes of basic earnings per share Dilutive effect of share options on 1,109,765 1,054,815 potential ordinary shares ________________________________________________________________________ Weighted average number of ordinary 121,949,264 122,114,973 shares for the purposes of diluted earnings per share ________________________________________________________________________ At 31 December 2007, 3,254,859 (2006: nil) share options had an exercise price in excess of the market value of the shares on that day. As a result, for 2007 these share options were excluded from the calculation of diluted earnings per share. 9. Earnings per share (continued) (b) Adjusted earnings per share Adjusted earnings per share is calculated by excluding the effect of the exceptional tax credit in 2007 and the exceptional property profit in 2006 from earnings. 2007 2006 £m £m Earnings for the purposes of basic and 185.3 167.0 diluted earnings per share being net profit attributable to equity holders of the parent Exceptional property profit - (11.6) Tax on exceptional property profit - (1.2) Exceptional deferred tax credit (4.2) - ________________________________________________________________________ Earnings for adjusted earnings per share 181.1 154.2 ________________________________________________________________________ Adjusted basic earnings per share 149.8p 127.4p ________________________________________________________________________ Adjusted diluted earnings per share 148.4p 126.3p ________________________________________________________________________ 10. Dividend Amounts were recognised in the financial statements as distributions to equity shareholders as follows: 2007 2006 £m £m Final dividend for the year ended 31 December 30.8 27.8 2006 of 25.3p (2005: 23.0p) per ordinary share Interim dividend for the year ended 31 December 17.3 14.7 2007 of 14.5p (2006: 12.1p) per ordinary share ________________________________________________________________________ Total dividends recognised during the year 48.1 42.5 ________________________________________________________________________ The dividend for 2007 at 31 December 2007 and for 2006 at 31 December 2006 were as follows: 2007 2006 Pence Pence Interim paid 14.5 12.1 Final proposed 30.4 25.3 ________________________________________________________________________ Total dividend for the year 44.9 37.4 ________________________________________________________________________ The proposed final dividend of 30.4p per ordinary share in respect of the year ending 31 December 2007 was approved by the board on 3 March 2008. 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 2007. It will be paid on 15 May to shareholders on the register on 18 April 2008. Adjusted dividend cover of 3.3x (2006: 3.4x) is calculated by dividing adjusted basic earnings per share (note 9) of 149.8p (2006: 127.4p) by the total dividends for the year of 44.9p (2006: 37.4p). 11. 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. As the Group's operations are entirely UK based, the Group does not present any secondary segmental 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 Retailing Eliminations Consolidated Merchanting ________________________________________________________________________ 2007 2007 2007 2007 £m £m £m £m Revenue 2,254.2 932.5 - 3,186.7 ________________________________________________________________________ Result Segment result 257.7 62.2 - 319.9 ________________________________________________________ Net finance costs (58.5) ________________________________________________________________________ Profit before 261.4 taxation Taxation (76.1) ________________________________________________________________________ Profit for the year 185.3 ________________________________________________________________________ Segment assets 1,382.6 1,305.9 - 2,688.5 Unallocated corporate assets 100.8 ________________________________________________________________________ Consolidated 2,789.3 total assets ________________________________________________________________________ Segment (435.7) (242.0) - (677.7) liabilities Unallocated (1,074.7) corporate liabilities ________________________________________________________________________ Consolidated (1,752.4) total liabilities ________________________________________________________________________ Consolidated net 946.9 1,063.9 assets ____________________________________________ Capital 115.5 24.1 139.6 expenditure Depreciation 40.7 15.6 56.3 ________________________________________________________________________ 11. Business and geographical segments (continued) Builders DIY Retailing Eliminations Consolidated Merchanting 2006 2006 2006 2006 £m £m £m £m Revenue 2,000.3 848.5 - 2,848.8 ________________________________________________________________________ Result Segment result 235.5 54.2 (0.1) 289.6 ___________________________________________________________ Net finance costs (57.7) ________________________________________________________________________ Profit before 231.9 taxation Taxation (64.9) ________________________________________________________________________ Profit for the 167.0 year ________________________________________________________________________ Segment assets 1,256.9 1,232.9 - 2,489.8 Unallocated 130.0 corporate assets ________________________________________________________________________ Consolidated 2,619.8 total assets ________________________________________________________________________ Segment (454.1) (218.8) - (672.9) liabilities Unallocated (1,013.8) corporate liabilities ________________________________________________________________________ Consolidated (1,686.7) total liabilities ________________________________________________________________________ Consolidated net 802.8 1,014.1 assets ___________________________________________ Capital 39.8 12.0 51.8 expenditure Depreciation 38.0 15.7 53.7 ________________________________________________________________________ 12. Adjusted return on capital 2007 2006 £m £m Operating profit 319.9 289.6 Exceptional property profit - (11.6) ________________________________________________________________________ Adjusted operating profit 319.9 278.0 ________________________________________________________________________ Opening net assets 920.3 758.0 Goodwill written off 92.7 92.7 Net borrowings 804.4 982.4 Pension deficit 56.6 99.9 ________________________________________________________________________ Opening capital employed 1,874.0 1,933.0 Closing net assets 1,036.9 933.1 Equity impact of exceptional property profit - (12.8) Goodwill written off 92.7 92.7 Net borrowings 941.0 804.4 Pension deficit 11.5 56.6 ________________________________________________________________________ Closing adjusted capital employed 2,082.1 1,874.0 ________________________________________________________________________ Average adjusted capital employed 1,978.1 1,903.5 ________________________________________________________________________ Adjusted return on capital 16.2% 14.6% ________________________________________________________________________ 13. Adjusted earnings before interest, tax and depreciation 2007 2006 £m £m Profit before taxation 261.4 231.9 Finance costs 58.5 57.7 Depreciation and impairments 56.3 53.7 ________________________________________________________________________ EBITDA under IFRS 376.2 343.3 Exceptional property profits - (11.6) Reversal of IFRS effect 2.8 4.0 ________________________________________________________________________ Adjusted EBITDA as defined in UK banking agreements 379.0 335.7 ________________________________________________________________________ Net debt under 2004 UK GAAP (note 14) 940.1 804.9 ________________________________________________________________________ Adjusted net debt to EBITDA 2.48x 2.40x ________________________________________________________________________ 14. Net debt 2007 2006 £m £m Net debt at 1 January (804.4) (982.4) (Decrease) / increase in cash and cash equivalents (30.0) 0.2 Cash flows from debt (96.5) 146.8 (Increase) / reduction in fair value of debt (2.3) 31.6 Lease surrender 1.6 - Additional finance charges netted off bank debt (1.7) (0.6) Loan notes issued (7.7) - ________________________________________________________________________ Actual net debt 31 December (941.0) (804.4) IAS 17 finance leases 28.8 31.5 Fair value adjustments to debt (27.9) (30.3) Finance charges netted off debt - (1.7) ________________________________________________________________________ Net debt under 2004 UK GAAP (940.1) (804.9) ________________________________________________________________________ 15. Adjusted free cash flow 2007 2006 £m £m Net debt at 1 January (804.4) (982.4) Net debt at 31 December (941.0) (804.4) ________________________________________________________________________ (Increase) / decrease in net debt (136.6) 178.0 Dividends 48.1 42.5 Net cash outflow for expansion capital expenditure 82.2 31.6 Net cash outflow for acquisitions 47.2 10.9 Net cash outflow for acquisition of investments - 2.0 Own shares purchased 76.0 - Shares issued (6.8) (6.9) Non cash movements 10.1 (31.0) Special pension contributions 9.6 21.0 ________________________________________________________________________ Free cash flow 129.8 248.1 Additional payment run on 53rd Monday 28.0 - Cash impact of exceptional property profits - (31.5) ________________________________________________________________________ Adjusted free cash flow 157.8 216.6 ________________________________________________________________________ - ENDS - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Travis Perkins