Last checked at 25 Apr 2014 07:00
ANNUAL REPORT 2013
Publication of the Annual Report
25 April 2014
Travis Perkins plc (the "Company") announces that its Annual Report for the year ended 31 December 2013, and the Notice of Annual General Meeting, are now available on the Company's website - www.travisperkinsplc.com.
Printed copies of these documents will be posted to shareholders on 25 April 2014 and in accordance with rule 9.6.1 of the Listing Rules they will shortly be submitted to the National Storage Mechanism.
In accordance with rule 6.3.5 of the Disclosure and Transparency Rules, we set out below the following extracts from the Annual Report in unedited full text. It should be read in conjunction with the Company's preliminary announcement issued on 25 February 2014. Together these constitute the material required by rule 6.3.5 of the Disclosure and Transparency Rules to be communicated to the media in unedited full text. This material is not a substitute for reading the full Annual Report. Page and note references in the text below refer to page and note numbers in the Annual Report.
Statement of Principal Risks and Uncertainties
Related Party Transactions
Statement of Directors Responsibilities
The Company published its preliminary results on 26 February 2014.
On behalf of the Board:
John Carter - Chief Executive Officer | |
Tony Buffin - Chief Financial Officer |
The Annual General Meeting of the Company will take place at 12.00 noon on Wednesday 28 May 2014 at Northampton Rugby Football Club, Franklin's Gardens, Weedon Road, Northampton NN5 5BG.
Enquiries:
John Carter, Chief Executive Officer
Tony Buffin, Group Financial Officer
Matt Johnson, Investor Relations Director
Travis Perkins plc | +44 1604 683 222 | +44 7584 491 284 | investor.relations@travisperkins.co.uk
STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES
For the year ended 31 December 2013
The Group operates in a market and an industry which by their nature are subject to a number of inherent risks. The Group is able to mitigate those risks by adopting different strategies and maintaining a strong system of internal control. However, regardless of the approach that is taken, the Group has to accept a level of risk in order to generate suitable returns for shareholders.
Details of the Group's risk management processes are given in the Corporate Governance report on page 59. The risk environment in which the Group operates does not remain static. The nature of risk is that its scope and potential impact will change over time. As such the list below should not be regarded as a comprehensive statement of all potential risks and uncertainties that may manifest themselves in the future. Additional risks and uncertainties that are not presently known to the Directors, or which they currently deem immaterial, could also have an adverse effect on the Group's future operating results, financial condition or prospects.
This section describes the current risk factors that are considered by the Board to be material, their potential impacts and the factors that mitigate them. The inherent risk (before the operation of control) is stated for each risk area together with an indication of the current trend for that risk:
Inherent Risk Level and Trend | Risk Description | Impact | Risk Mitigation |
Market Conditions Inherent Risk-High: Trend: - Static
| The Group's products are sold to tradesmen and retail customers for a broad range of end uses in the built environment. The performance of the market is affected by general economic conditions and a number of specific drivers of construction and DIY activity, including housing transactions, net disposable income, house price inflation, consumer confidence, interest rates and unemployment. | Adverse effect on financial results | The Board conducts an annual review of strategy, which includes an assessment of likely competitor activity, market forecasts and possible future trends in products, channels of distribution and customer behaviour. The Group maintains a comprehensive tracking system for lead indicators that influence the market for the consumption of building materials in the UK. Significant events including those in the supply chain that may affect the Group are monitored by the Executive Committee and reported to the Board monthly by the Group Chief Executive. Should market conditions deteriorate then the Board has a range of options dependent upon the severity of the change. Historically these have included amending the group's trading stance, cost reduction, lowering capital investment and cutting the dividend.
|
Competitive Pressures Inherent Risk:-High Trend -: Static
| Market trends, particularly in respect of customers' preferences for purchasing materials through a range of supply channels and not just through our traditional competitors may affect the Group's performance so making traditional branch based operations less relevant. Public sector buying groups could reduce sales if public bodies chose to buy direct from the manufacturers. Disintermediation may become more of a threat if manufacturers decide to deal directly with the end users. | Adverse effect on financial results.
| Changes to market practice are tracked on an on-going basis and reported to the Board each month. The Group is building multi-channel capabilities so they compliment its existing operations and provide its customers with the opportunity to transact with the Group as they wish. The Group is leading the industry in terms of the development of new and innovative supply solutions, and works closely with customers and suppliers on a programme of continuous improvements. The Group continues to refine pricing strategies to ensure it retains competitiveness. The Group's branding strategy allows it to use sites flexibly. Alternative space utilisation models are possible, including maintaining smaller stores and implanting additional services into existing branches. |
Information technology Inherent Risk-Medium Trend: - Static
| The operations of the Group depend on a wide range of complex IT systems, both in terms of the availability of hardware and the operation of software operating efficiently and effectively. The rapid expansion of the Group together with an increasing demand for IT services, particularly as the Group embraces modern platforms such as multi-channel, could result in development programmes being delayed. Should the system become unavailable for an extended period either through deliberate act or through accidental failure it would impact the businesses ability to trade. Increasing levels of cyber crime represent a significant threat to all businesses with the potential to cause loss of system availability or financial loss. | Adverse effect on financial results. Adverse effect on the Group's reputation.
| The strategic demands of the business, the resources available to IT, the performance levels of key systems and IT security are kept under review by the Executive Committee. Plans that require continual investment in the IT infrastructure have been approved and are being implemented. Maintenance is undertaken on an ongoing basis to ensure the resilience of group systems, with escalation procedures operating to ensure any performance issues are resolved at an early stage. The Group's three data centres mirror each other with data processing switched from one to the other on a regular basis. An IT disaster recovery plan exists and is tested regularly together with the business continuity plan. Arrangements are in place for alternative data sites for both trade and consumer businesses. Off-site back-up routines are in place. A programme of risk oriented reviews is undertaken to ensure the level of control around the IT systems remains robust.
|
Colleague recruitment, retention and succession
Inherent Risk: - Low Trend: - Static
| The ability to recruit, retain and motivate suitably qualified staff is an important driver of the Group's overall performance. The strength of the Group's customer proposition is underpinned by the quality of people working throughout the Group. Many of them have worked for Travis Perkins for some considerable time, during which they have gained valuable knowledge and expertise. Ensuring proper development of employees and the succession for key positions is important if the Group is to continue to be successful in the future. | Inability to develop and execute our development plans. Competitive disadvantage. | The Group Human Resources Director monitors staff engagement and turnover by job type and reports to the Executive Committee regularly and to the Board annually. Succession plans are established for the most senior positions within the Group and these are reviewed annually. Our reward and recognition systems are actively managed to ensure high levels of employee engagement. A wide-range of training programmes are in place to encourage staff development, whilst management development programmes are used to assist those identified for more senior positions. Salaries and other benefits are benchmarked annually to ensure that the Group remains competitive. |
Supplier dependency and direct sourcing Inherent Risk:-Low Trend:- Static
| The Group is the largest customer to many of its suppliers. In some cases, those suppliers are large enough to cause significant supply difficulties to the Group if they become unable to meet their supply obligations due to either economic or operational factors. Alternative sourcing is available, but the volumes required and the time it may take those suppliers to increase production could result in significant stock-outs for some considerable time. The Group has become more reliant on overseas factories producing product as the Group has rapidly expanded its direct sourcing capabilities. This has increases the Group's exposure to sourcing, quality, trading, warranty and currency issues. There is a potential for European anti-dumping legislation to be extended to encompass further Asian countries which could increase the cost of some imported products. | Adverse affect on financial results. Adverse affect on reputation. | The commercial and financial teams have established strong relationships with the Group's key suppliers and work closely with them to ensure the continuity of quality materials. To spread the risk where possible contracts exist with more than one supplier for key products. The Group has made a significant investment in its Far East infrastructure to support its direct sourcing operation which allows the development of own brand product, which reduces the reliance on branded suppliers. Comprehensive checks are undertaken on the factories producing product, the quality and suitability of that product before it is shipped to the UK.
|
Defined benefit pension scheme funding Inherent Risk-Medium Trend:- Reducing
| The Group is required by law to maintain a minimum funding level in relation to its on-going obligations to provide current and future pensions for members of its pension schemes who are entitled to defined benefits. Some issues could adversely affect the funding of these obligations including poor performance of the pension fund investments and increasing longevity of pension scheme members. The level of contributions required from the Group to meet the benefits promised in the final salary schemes will vary depending upon the funding position of those schemes. | Adverse effect on financial condition. | All of the Group's final salary pension schemes are closed to new members. For the Travis Perkins scheme, pensionable salary inflation has been capped at 3% per annum. The scheme's investment policy is kept under regular review to ensure asset profiles are kept in line with the profile of liabilities. The Group has agreed deficit payment plans which currently require it to pay up to £26m per annum to its defined benefit pension schemes. The repayment plans will remain in place until the next actuarial valuations, when in conjunction with the Scheme Trustees they will be reassessed to take into account the circumstances at the time.
|
Future expansion Inherent Risk -: Low Trend:- Static
| The Group's strategic plans are predicated on the continued expansion of its UK branch network. Large scale acquisitions in existing UK markets are unlikely to be available to the Group due to the concerns the Office of Fair Trading to ensure competitive markets. Therefore the Group will rely on developing small scale opportunities, in new catchment areas or within existing sites or on expanding into adjacent markets in which it does not have a presence. The Group also needs to ensure that funding is available to support its plans. The Group is reliant on the bank market for funding, a market that has contracted in recent years and which may continue to contract in the future. | Adverse affect on financial results. | Responsibility for identifying opportunities to expand is given to each of the divisional boards, with capital being deployed to those giving the best return on capital. The Group has identified a significant number of opportunities for expansion through out the UK and continues to develop alternative formats that will open up additional opportunities in future. As part of its capital management strategy the Group has developed plans and instituted a series of metrics that are designed to provide opportunities to extend sources of funding to reduce reliance on one principal source of funding with generally short term durations. |
RELATED PARTY TRANSACTIONS
The Group has a related party relationship with its subsidiaries its Directors and with its pension schemes (note 28). Transactions between Group companies, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Company and its subsidiaries are disclosed below. In addition the remuneration, and the details of interests in the share capital of the Company, of the Directors, are provided in the audited part of the remuneration report on pages 77 to 82.
The remuneration of the key management personnel of the Group is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.
2013 £m | 2012 £m | ||
Short-term employee benefits | 9.2 | 7.9 | |
Share-based payments | 3.4 | 4.4 | |
12.6 | 12.3 |
The Company undertakes the following transactions with its active subsidiaries:
● providing day-to-day funding from its UK banking facilities;
● paying interest to members of the Group totalling £22.4m (2012: £15.6m);
● levying an annual management charge to cover services provided to members of the Group of £8.0m (2012: £7.9m);
● receiving annual dividends totalling £121.0m (2012: £74.2m).
Details of balances outstanding with subsidiary companies are shown in note 18 and on the Balance Sheet on page 95.
Other than the payment of remuneration there have been no related party transactions with directors.
The Group advanced a total of £2.9m (2012: £2.9m) to all the Group's associate companies in 2013. Operating transactions with the associates during the year were not significant.
DIRECTORS' RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
1. The financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
2. The strategic report, which is incorporated into the Directors' report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
The Directors consider that the Annual Report and Accounts, when taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's performance, business model and strategy.
By order of the Board
John Carter | Tony Buffin |
Chief Executive Officer | Chief Financial Officer |