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Travis Perkins: Successfully adapted to unprecedented markets

8 Sep 2020 07:02

Travis Perkins (TPK) Travis Perkins: Successfully adapted to unprecedented markets 08-Sep-2020 / 07:00 GMT/BST Dissemination of a Regulatory Announcement, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement.


Travis Perkins plc

Interim results for the six months ended 30 June 2020

Successfully adapted to unprecedented markets

 

£m (unless otherwise stated)

Note

HY 2020

HY 2019

Change

Revenue

 

2,781

3,484

(20.2)%

Like-for-like revenue growth(1)

 

(19.3)%

5.3%

(24.6)ppt

Adjusted operating profit(1)

20a

42

220

(80.9)%

Adjusted earnings per share(1)

11b

1.4p

56.5p

(97.5)%

ROCE(1)

20f

6.4%

10.0%

(3.6)ppt

Covenant net debt(1)

15

22

414

(392)

Dividend per share

12

-

15.5p

 

Operating (loss) / profit

 

(92)

62

 

Total (loss) / profit after tax

 

(113)

12

 

Basic (loss) / earnings per share

11a

(45.7)p

4.2p

 

(1) Alternative performance measures are used to provide a guide to underlying performance. Details of calculations can be found in the notes listed

Financial highlights

Fall in revenue of 20% demonstrated resilience despite the impact of the pandemic, with continuing recovery as lockdown measures eased Adjusted operating profit of £42m reflecting shortfall from lower volumes partially offset by actions to reduce and control operating costs Restructuring programme underway to reduce overheads in line with the anticipated volume outlook, delivering cost savings of £120m on an annualised basis Net adjusting items of £129m, primarily relating to the restructuring programme Strong focus on cash and working capital management driving reduction of covenant net debt of £322m from 31 December 2019 to £22m

Strategic and operational progress

Rapidly adapted the business model to ensure safety and deliver outstanding customer service throughout the pandemic Accelerated elements of the strategic plan across digital enablement, customer fulfilment, process simplification and branch network Significant improvements in digital platforms across all segments underpinning market outperformance and supporting future growth Demerger of Wickes paused until markets become more stable and predictable

Nick Roberts, Chief Executive Officer, commented:

"Throughout the pandemic, the health and safety of our colleagues and customers has been our primary concern. Customer interactions have changed significantly resulting in changes to the way we do business, from increased activity through digital channels through to alterations to our physical store formats in order to maintain safe working practices.

Although our financial performance in the first half of 2020 was impacted by the Covid-19 pandemic, and we have had to undertake a restructuring programme in light of the challenging outlook for the Group's end markets, we have made significant strategic and operational progress against the four strategic priorities we outlined at our full year results in March 2020.

Although considerable uncertainty around the impact of the COVID-19 pandemic remains, the actions we have taken to adapt and innovate in our businesses mean that the Group is well placed to continue to service our customers, support our colleagues, outperform our markets and generate value for our shareholders."

Enquiries:

Travis Perkins

 

Powerscourt

Graeme Barnes

 

Justin Griffiths / James White

+44 (0) 7469 401819

 

+44 (0) 207 2501446

graeme.barnes@travisperkins.co.uk

 

travisperkins@powerscourt-group.com

 

 

 

Heinrich Richter

 

 

+44 (0) 7392 125417

 

 

heinrich.richter2@travisperkins.co.uk

 

 

 

Interim results presentation:

Management are hosting a virtual results presentation at 9.30am. Please register at the following link: https://www.investis-live.com/travis-perkins/5f437c906fbfa21200605076/ylsc

 

American depositary receipts

Travis Perkins American depositary receipts are traded in the US on the OTC Pink market: (OTC Pink: TPRKY).

 

 

Cautionary Statement:

This announcement contains "forward-looking statements" with respect to Travis Perkins' financial condition, results of operations and business and details of plans and objectives in respect to these items. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as "anticipates", "aims", "due", "could", "may", "will", "should", "expects", "believes", "seeks", "intends", "plans", "potential", "reasonably possible", "targets", "goal" or "estimates", and words of similar meaning. By their very nature forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, the Principal Risks and Uncertainties disclosed in the Group's Annual Report and as updated in this statement, changes in the economies and markets in which the Group operates; changes in the legislative, regulatory and competition frameworks in which the Group operates; changes in the capital markets from which the Group raises finance; the impact of legal or other proceedings against or which affect the Group; and changes in interest and exchange rates. All forward-looking statements, made in this announcement or made subsequently, which are attributable to Travis Perkins or any other member of the Group or persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. No assurances can be given that the forward-looking statements in this document will be realised. Subject to compliance with applicable law and regulations, Travis Perkins does not intend to update these forward-looking statements and does not undertake any obligation to do so. Nothing in this document should be regarded as a profits forecast.

Without prejudice to the above:

(a) neither Travis Perkins plc nor any other member of the Group, nor persons acting on their behalf shall otherwise have any liability whatsoever for loss howsoever arising, directly or indirectly, from the use of the information contained within this announcement; and

(b) neither Travis Perkins plc nor any other member of the Group, nor persons acting on their behalf makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained within this announcement.

This announcement is current as of 8 September 2020, the date on which it is given. This announcement has not been and will not be updated to reflect any changes since that date.

Past performance of the shares of Travis Perkins plc cannot be relied upon as a guide to the future performance of the shares of Travis Perkins plc.

 

Summary

The Group's performance in the first half of 2020 was significantly impacted by the Covid-19 pandemic. While financial performance was as a consequence materially below H1 2019, the Group has significantly strengthened its core and found new ways to deliver excellent service to both its trade and retail customers.

Financial Performance

The Group made an encouraging start to 2020 with revenue growth of 2.4% in the 11 weeks to 18 March. However, as the impact of the pandemic spread to the UK and the lockdown period was implemented, overall revenue in the half declined by 20% to £2,781m and by 19% on a like-for-like basis.

Given the largely fixed cost base in the business, the revenue decline had a significant impact on Group profitability, resulting in an adjusted operating profit of £42m (H1 2019: £220m). In the first half, as a direct result of the challenging trading conditions, the Group recognised higher provisions in relation to holiday pay, slow moving stock, rebates, and timing of customer credit account settlement, up to £20m of which may be recovered if the recovery in trading continues through the second half of the year.

Taking into account £129m of adjusting items (principally resulting from the business restructuring actions announced in June 2020), the Group delivered a statutory operating loss of £92m (H1 2019: operating profit of £62m).

Adjusted earnings per share fell to 1.4p per share (2019: 56.5p per share). Basic EPS fell to a 45.7p per share loss, with the difference primarily driven by the costs of the restructuring programme.

Cash generation throughout H1 2020 was extremely strong, reflecting the Group's focus on liquidity management throughout the Covid-19 crisis. Through strong and careful management of working capital, particularly the receipt of debtor balances from customers and utilisation of inventory across the Group, the Group's covenant net debt position fell by £322m in the half, to £22m. At 31 August 2020 the Group had £551m of cash on deposit, giving overall liquidity headroom of £951m. The Group has a supportive bank lending group and prudently negotiated a relaxation of covenant tests at both June and December 2020.

Given the ongoing level of uncertainty in the UK economy and the Group's end markets, the Board is not announcing an interim dividend for 2020.

 

Response to the COVID-19 pandemic

Throughout the pandemic, the health and safety of our colleagues, customers and suppliers has been our primary concern. In the early weeks of lockdown, the Group concentrated on supporting essential services to keep the nation's critical infrastructure maintained and operational and to keep the UK's homes dry, warm and safe. The Group has continued to work with its customers and suppliers as well as government and trade bodies to set standards to maintain safe working practices and to support the recovery in construction.

From late March 2020, at the onset of the lockdown period, the Group ran a "service-light" operating model, focusing on serving customers through remote, non-contact channels. Around a third of Merchanting branches were open, while Wickes and Toolstation leveraged their strong digital capabilities to operate the majority of their branch networks as fulfilment centres for digitally enabled transactions, either for direct delivery, or for click & collect within designated time slots.

Through May and June, more of the Group's Merchant network returned to operation to support the early recovery of UK construction activity. In late May, Wickes and Toolstation began, under strict safety guidelines, to welcome customers back into stores, with a corresponding step up in DIY activity supporting the Group's overall performance.

The Group's end markets have continued to recover, with particular strength in DIY markets, but a slower return to activity in new housebuilding and major commercial projects.

In order to partially mitigate the impact of reduced volumes, the Group managed its cost base tightly in the period and appropriately used government assistance from the Coronavirus Job Retention Scheme and Business Rates Relief arrangements. In the first half of the year, the Group has benefited from around £45m of furlough support, with very few colleagues remaining on furlough beyond the end of June. The overall benefit of Business Rates Relief across the 12 months of the scheme is expected to be around £80m, with 75% to be realised in 2020, including around £20m in the first half of the year.

In addition, a decision was taken, and announced internally on 7 April 2020, by the Board of Directors and the Group Leadership Team to reduce their salaries by 20% effective from 1 May for a period of three months.

Business restructuring

On 15 June 2020, and reflecting the challenging outlook for the Group's end markets, a programme of restructuring was announced, resulting in the planned closure of 165 branches, primarily across the trade merchant businesses. In the main, these branches were closed by the end of June with the remainder closed by the beginning of August. Combined with a streamlining of above-branch central support functions, the number of roles which will be reduced is around 2,500, equivalent to 9% of the workforce.

In the Travis Perkins general merchant, branch closures targeted smaller, subscale branches where either there are difficulties in operating safe, social distancing practices, or where the scale of the branch means that profitability is difficult in a lower volume environment. Since December 2018 the Group has embarked on a strategy to reduce the number of branches, particularly around large UK conurbations, in order to operate from fewer, larger branches with greater breadth and depth of product range. This restructuring activity accelerates the closure of suboptimal branches in these areas.

In the specialist merchants, customer activity is more weighted towards delivery of products to customers, either from branches or direct from suppliers. Fewer customer visits to branches reduces the requirement for 'nearby convenience', and branch networks have been rationalised to ensure an even spread of delivery capability across the UK, with right-sized branches in the right locations to service customers efficiently.

In Plumbing & Heating, a number of lower performing branches were closed, together with a reduction in headcount across the business to reflect lower anticipated volumes in the short to medium term.

These restructuring actions are expected to deliver operating cost savings of approximately £120m on an annualised basis, with the vast majority of actions completed by the end of August 2020. An adjusting item of £111m has been recognised in H1 2020 covering the cost of accessing these savings. The cash cost is likely to be around £85m, with approximately £35m to be paid in 2020. The remainder, associated with leasehold property, will be paid in future years, although this is expected to be largely offset by the sale of freehold sites closed as part of the restructuring.

 

Strategic and operational progress

At a Capital Markets event in December 2018, the Group laid out its plans for the years ahead, with two overarching strategic aims being (i) to focus on best serving trade customers, and (ii) to simplify the business to increase agility, speed up decision making and enable a leaner cost base.

In March 2020, four key strategic priorities were identified towards achieving these goals:

Successful demerger of the Wickes business Regeneration of the Travis Perkins general merchant Acceleration of the expansion of the Toolstation business, in the UK and overseas Deliver an organisational platform fit for the future.

The regeneration of the Travis Perkins general merchant, growth of Toolstation, and development of an optimised organisational platform form the basis of "strengthening the core" of the Group's businesses, focusing on getting the fundamentals right to deliver outstanding customer service in a consistent and efficient way.

Strengthening the core

The Covid-19 pandemic has acted as a catalyst for changes across the operations of the Group, and has seen the Group move to accelerate some of the strategic actions set out at the full-year 2019 results in March. A number of strategic initiatives, previously planned to take place over a two year period, have been achieved in a matter of months as the Group has moved at pace to better position the businesses for the future.

These advances can be grouped as follows:

Digital enablement

Customer interactions changed significantly through the lockdown period, and during the recovery phase. Forced to move to a more remote transaction structure, customers looked for digital solutions to interact, which drove an immediate focus on the Merchant businesses' digital transaction capabilities. Over the course of five weeks, the transactional web platform for the Travis Perkins general merchant was rebuilt, with significant improvements in information on product availability for collection or delivery, enabling a significant rise in web-based transactions.

Further progress was also made in the trade businesses on digitising the customer relationship, from initial product research to account management, allowing customers to manage proof of delivery notices, invoices and credit account payments all through an online portal. A customer app is under trial allowing this to all take place through a smartphone.

In Toolstation, the balance of trading also shifted, with click & collect transactions increasing from around 10% to around 90%. Branches adapted quickly, moving to a "timeslot drive-through model" which worked successfully with customers. The IT infrastructure of Toolstation was also re-platformed to be scalable and more resilient as the business grows. This pulled forward months of development, and has left the business in a considerably stronger position.

Wickes demonstrated the success of its investments in recent years to fully embed its strong digital capabilities at the heart of its operations, with stores expanding their established roles as fulfilment centres driving click & collect sales up over 1,000%. Since reopening to customers, the online-in-store capability has given customers access to the full range of Wickes products, whether transacting in store or online. A move to virtual customer meetings was also made to support the reopening of the Kitchen & Bathroom showroom business.

In addition to the delivery of digital solutions, the Group has begun to plan the phased, lower risk approach to IT upgrades, beginning with master data and core financial systems.

Customer fulfilment

The change in operations has also impacted colleagues in branch, with a higher proportion of orders being delivered, with TP experiencing an increase of around 10ppts, with two thirds of product being delivered, and a similar trend across the specialist merchants. In branch, a far greater degree of stock picking is being carried out by colleagues, and a colleague app is under test which will streamline branch processes to reduce workload, and provide greater data accuracy around stock.

In Toolstation UK, one of the branch fulfilment warehouses was converted in a matter of days to be able also to pack parcels for direct customer delivery. Whilst the branch expansion programme was temporarily halted throughout the lockdown period it has now resumed in earnest, with 19 branches opened in July and August, and the business on course to achieve the planned 60 openings in 2020.

Process simplification

Across the Group the focus on cash and liquidity enabled conversations with suppliers around the netting of standard pricing rebates, moving away from gross settlement of invoices and corresponding rebate payments. Along with improving near term liquidity metrics, this also allows a clearer view of product costing to be shared with branch teams which is enabling branch colleagues to make better informed decisions around pricing.

The Merchant businesses have further simplified pricing templates reducing the number of alternatives to provide greater consistency for customers, including more relevant shelf-edge pricing on lightside products, thus making it easier and simpler for branch colleagues to serve customers.

Estate

As mentioned above, as part of the restructuring programme, the merchant businesses have rationalised their branch estates to focus operations from right-sized branches in optimised locations to service customers efficiently.

Strategic portfolio actions

While the Group placed on hold the plans to dispose of the Plumbing & Heating business in September 2019 due to Brexit uncertainty, it took the opportunity to dispose of the low margin PF&P wholesale activity in January 2020. It remains the intention of the Board to sell the P&H business, whilst in the short term continuing to drive operational improvements to improve returns further and to optimise value for shareholders.

On 20 March, the Group announced that it had placed the demerger of Wickes on hold in order to focus on managing through the pandemic and to maximise liquidity across the Group. The Board continues to believe the demerger of Wickes will allow both businesses to fulfil their potential and will pursue it when market conditions are more settled and will update the market in due course.

Dividend

At the end of March, the Board took the prudent decision to suspend the 2019 Final Ordinary dividend that was due to be paid to shareholders in May 2020. This action helped to protect the Group's near-term liquidity position through a period of extreme uncertainty and market volatility. While the Group's liquidity position remains strong, the Board acknowledges that a significant level of economic and market uncertainty remains in the short term. Therefore, in order to maintain the strong liquidity position, the Board deems it appropriate for dividend distributions to shareholders to remain suspended at this time.

The Board recognises the importance of dividends to shareholders and so will keep this position under review, taking into consideration the trading environment in the Group's end markets and the on-going liquidity position. A further update will be provided as and when it is appropriate to do so.

Outlook

The long term fundamentals of the Group's end markets remain robust, with ongoing demand for new housing and underinvestment in the repair, maintenance and improvement of the existing UK housing stock, however, significant uncertainty remains in the UK economy in the near term.

The Group welcomes Government stimulus for the UK construction sector as it recovers from the COVID-19 crisis, with commitments regarding infrastructure investment, green home improvement schemes and SDLT reductions. There has been a recent strong recovery in secondary housing transactions, but it is not yet clear whether this is a sustained trend or a release of pent up demand. Furthermore, it is likely that an increase in unemployment will have a detrimental impact on consumer confidence, and hence the Group remains cautious on the volume outlook for building materials in the near term.

Group like-for-like sales trends in July and August have returned to close to prior year levels which is supported by domestic RMI and current strong trading in consumer DIY markets. The Group has demonstrated significant agility across all its activities in the first half of the year, taking actions to strengthen its core businesses and leaving it well placed to continue to outperform its markets and generate value for shareholders.

Technical guidance

The Group's technical guidance for 2020 is as follows:

Effective tax rate of 22% Finance charges similar to 2019 Capital expenditure in 2020 of around £70m to £80m Property profits of around £10m

 

Segmental performance

Merchanting

 

H1 2020

H1 2019

Change

Total revenue

£1,385m

£1,869m

(25.9)%

Like-for-like growth

(25.8)%

6.4%

(32.2)ppt

Adjusted operating profit*

£35m

£140m

(75.0)%

Adjusted operating margin

2.5%

7.5%

(500)bps

ROCE

9%

12%

(3)ppt

Branch network**

848

984

(136)

*Segmental adjusted operating profit figures are presented excluding property profits

**2019 branch network figures for comparison are taken at 31 December 2019

Trade merchanting sales were severely impacted by the lockdown period, with around a third of branches open during the end of March and April as the business pivoted to focus on essential projects only, including support to build the network of Nightingale Hospitals. Branches progressively re-opened from late-April onwards to support the steady recovery in construction end markets. The recovery has been strongest in domestic RMI markets, with the Travis Perkins general merchant recovering most quickly, and the specialist merchants, with a greater exposure to new housebuilding and commercial construction, lagging as customers ramp up more slowly.

During the crisis, all of the Merchant businesses moved to call & collect models, with solutions quickly developed to also offer a click & collect service. This has proven successful across a full range of customers from large to small, with the solutions implemented set to be firmly established on an ongoing basis.

Across the Merchanting segment gross margins have reduced modestly in the period, reflecting a reduction in annual volume rebate expectations from suppliers and the mix of business shifting more towards heavyside materials. The cost of operating both branch and distribution networks has also been proportionally higher because of the lower efficiency from running on a socially distanced basis.

There has been a shift in sales in the first half, with a higher degree of delivered sales across all businesses. A shift to a greater proportion of heavyside sales in Travis Perkins was partially offset by a higher proportion of yard sales, at typically higher margins than direct sales, in Keyline.

While operating costs in the Merchanting segment were reduced in the half by around £50m year-on-year, the high fixed cost nature of the merchant business model drove a significant reduction in operating margin. Lower absolute operating costs were supported by the use of the Coronavirus Job Retention Scheme to furlough staff during the lockdown period when two thirds of the network was closed as well as cost savings made across the supply chain, including the benefits of simplifying product supply from more local sources.

In addition to the short-term Covid response actions, as part of the restructuring plans announced in June 2020, 140 Merchanting branches were closed by the end of June. These closures, together with the restructuring of sales and above-branch support teams are expected to generate around £90m of annualised cost savings.

Throughout the COVID-19 pandemic, the Merchant businesses have had a clear focus on cash, in particular the recovery of monies due from credit customers throughout the lockdown period. A successful collaboration between the credit, sales and branch teams to leverage the businesses' strong customer relationships, combined with careful management of inventory and close control of material purchases has driven an excellent cash performance across Merchanting in the half.

 

Toolstation

 

H1 2020

H1 2019

Change

Total revenue

£285m

£208m

37.0%

Like-for-like growth

12.9%

17.3%

(4.4)ppt

Adjusted operating profit*

£1m

£13m

(92.3)%

Adjusted operating margin

0.4%

6.3%

(590)bps

ROCE

4%

10%

(6)ppt

Branch network (UK)**

409

400

9

Branch network (Europe)**

74

66

8

 

Memo:

 

 

 

Adjusted operating profit - UK

£10m

£13m

(23.1)%

*Segmental adjusted operating profit figures are presented excluding property profits

**2019 branch network figures for comparison are taken at 31 December 2019

Toolstation revenues increased by 37% in the half, including the consolidation of Toolstation Europe following the acquisition in Q4 2019. Like-for-like growth in Toolstation UK of 12.9% was a strong performance considering the level of disruption from the lockdown in late March and April.

In the UK, branches were closed on 24 March, before reopening as click & collect fulfilment centres. The multi-channel capability of the business was demonstrated as volumes grew, with 90% of transactions being carried out through the website and collected in branches or delivered to site. In order to cope with the significant increase in volume the website was rebuilt in a matter of days, before the wider IT infrastructure of the business was then replatformed over following weeks in order to be scalable and more resilient as the business grows.

The pivot to digital trading required a significant increase in direct-to-customer deliveries, and to satisfy this demand the Redditch distribution centre was successfully repurposed from store replenishment to customer fulfilment. The costs involved in adapting and running the distribution network on a socially distanced basis, as well as the higher proportion of delivered sales and the costs to make the necessary improvements to the business's digital capabilities, increased the operating costs of the business in the first half of the year, offsetting the growth in gross profit generation in the UK in the first half of the year.

Although the network expansion programme was paused between March and June as fitters could not access sites, nine new branches were opened in the first half. The opening programme restarted in July, with the UK business continuing to plan to open 60 new branches in 2020 in total. New format branches continue to be trialled, particularly following the success of the enforced "Drive Through" model of click & collect service developed during lockdown.

In Europe, the lockdown impacted the business earlier than in the UK, but with the result of reopening also coming sooner. It is apparent that Toolstation's proposition, particularly its multichannel model and digital capability to service customers, combined with reliable stock availability, has proven popular with tradespeople in the Netherlands, Belgium and France, with significant sales growth in the half. Total sales in the Netherlands and Belgium grew by 79%, and by 56% on a LFL basis. In France, total sales grew by 74%, and by 61% on a LFL basis. Although the branch network expansion is behind plan, eight new branches were opened in Europe in H1 with further openings in Benelux and France planned for the second half.

As disclosed previously, the additional operating costs of the European business will lead to the consolidation of around a £20m loss for 2020, of which £9m was recognised in the first half of the year.

 

Retail

 

H1 2020

H1 2019

Change

Total revenue

£636m

£695m

(8.5)%

Like-for-like growth

(8.2)%

9.7%

(17.9)ppt

Adjusted operating profit*

£32m

£52m

(38.5)%

Adjusted operating margin

5.0%

7.5%

(250)bps

ROCE

6%

7%

(1)ppt

Store network - Wickes**

235

235

-

Store network - Tile Giant**

93

94

(1)

*Segmental adjusted operating profit figures are presented excluding property profits

**2019 store network figures for comparison are taken at 31 December 2019

Total sales declined by 8.5% in the half, demonstrating a strong recovery throughout the course of Q2. From the end of March to mid-May, Wickes stores operated as fulfilment centres for click & collect orders, alongside direct to home deliveries from the distribution network. Stores reopened to customers in late May, driving an acceleration in DIY sales as the trend for consumers to carry out DIY projects continued strongly. In June, overall LFL growth was 22%, despite Kitchen & Bathroom sales not recovering fully, with core DIY sales up nearly 50%.

The sales performance during this period reflected the strength of Wickes' digital capabilities, particularly the level of integration between digital platforms and stores. Online delivered sales grew by 115%, and click & collect deliveries up over 1000%. Sales growth was particularly strong in DIY categories, including gardening, and painting and decorating.

Do-It-For-Me sales through the Kitchen & Bathroom showroom declined by around 40% on a LFL basis with showrooms closed for April and May, and installation activities paused until June. With the service now fully up and running, lead generation is running modestly ahead of 2019 levels, with installation recovering more quickly than previously expected.

Gross margins were broadly flat year-on-year, with a mix shift towards DIY from K&B showroom sales offset by reduced promotional activity in the DIY categories through the busy spring bank holiday period. Margins on K&B sales also declined modestly with a greater take up of installation services by customers, particularly since the launch of the tiling and flooring services.

Operating costs were modestly reduced in absolute terms in the half, with a benefit from the Business Rates Relief programme partially offset by the higher costs required to operate the supply chain and distribution network on a socially distanced basis. Against the lower volumes, the operating cost base drove a reduction in overall operating margin.

The Board still intends to pursue the demerger of Wickes when market conditions are more settled and predictable, and will update the market in due course.

 

Plumbing & Heating

 

H1 2020

H1 2019*

Change

Total revenue

£475m

£713m

(33.4)%

Like-for-like growth

(22.8)%

(3.9)%

(18.9)ppt

Adjusted operating profit/(loss)**

£(8)m

£24m

(133.3)%

Adjusted operating margin

(1.7)%

3.4%

(510)bps

ROCE

4%

12%

(8)ppt

Branch network***

354

375

(21)

*H1 2019 figures include £129m of revenue and £3m of operating profit from PF&P wholesale, which was sold in January 2020. H1 2020 figures include £28m of revenue and £0.7m of operating profit, plus the £1.8m profit on sale of the business.

**Segmental adjusted operating profit figures are presented excluding property profits

***2019 branch network figures for comparison are taken at 31 December 2019

During lockdown, sales in the P&H segment reduced to around one-third of prior year levels, similar to the other trade focused businesses, and representing the ongoing support for essential maintenance being carried out on UK homes' plumbing and heating. The recovery in sales has generally been slower than for the general merchant business, driven by a slower recovery in new housebuilding, a more gradual return to activity in the social housing sector, and a careful return to operating in customers' homes by larger contractor installers. Smaller installer customers have returned to work more quickly, and the Bathroom showroom has performed well since branches reopened.

Gross margins were stable year-on-year, with the impact of lower annual volume rebates offset by the shift in sales mix towards small installer customers and the business mix change following the sale of the PF&P wholesale business in January. Absolute overhead costs reduced by around £16m through Government furlough support and variable cost savings in the supply chain, although the significant drop in volumes drove an operating loss for the business of £8m in H1 2020.

In line with the Group restructuring actions announced in June, 16 P&H branches were closed in June, alongside a streamlining of above branch activities. This is expected to generate around £25m of annualised cost savings.

While it remains the intention to sell the P&H business, the Group took the opportunity to divest the low-margin wholesale business of PF&P in January 2020. The Board will continue to improve the remaining Plumbing and Heating business further whilst assessing opportunities to optimise value for shareholders.

 

Central costs

Unallocated central costs rose in H1 2020, partly owing to higher costs resulting from the separation of the Wickes and P&H businesses. In Wickes in particular, the infrastructure had been put in place for Wickes to operate as an independent business following the proposed demerger in April 2020, but with the demerger process paused there has been some cost duplication within the Group.

In March 2020 the Group disclosed stranded costs relating to the separation of Wickes and P&H from the Group of around £15m per annum, anticipating that these would be mitigated over a two-year period. Mitigations will be accessed through progress on the phased IT modernisation programme to make costs more scalable rather than fixed in the future, as well as the successful demerger of the Wickes business.

The streamlining of central support functions as part of the restructuring programme is well advanced, and is expected to generate annualised savings of around £5m.

 

Property transactions

The impact of the pandemic and resulting lockdown resulted in fewer property transactions being completed in the first half of 2020 than previously planned. The Group generated around £2m of property profits in the first half (H1 2019: £6m), and now expects to generate around £10m of property profits in 2020.

 

Financial Performance

Revenue analysis

During the lockdown period, the greatest revenue impact was experienced across the Merchant businesses, where only around one third of branches remained open, with trading volumes down by around 80% on the prior year. Both the Retail and Toolstation segments traded more strongly during lockdown as their established digital capabilities, a switch to distanced operations through click & collect services and direct delivery enabled a greater degree of trading to continue as they satisfied strong demand for DIY products.

From the end of April, large parts of the construction industry began to return to work, and the Group correspondingly opened more Merchant branches to satisfy the increasing demand for materials. This recovery continued throughout May and June, with the Group returning to a run-rate close to 2019 in July and August, supported by continued strong domestic RMI and DIY sales.

Volume, price and mix analysis

Total revenue

Merchanting

Toolstation

Retail

Plumbing & Heating

Group

Volume

(25.5)%

14.4%

(7.0)%

(26.5)%

(19.3)%

Price and mix

(0.3)%

(1.4)%

(1.1)%

3.7%

0.0%

Like-for-like revenue growth

(25.8)%

12.9%

(8.2)%

(22.8)%

(19.3)%

Network expansion and acquisitions / disposals

(0.7)%

23.5%

(0.8)%

(11.2)%

(1.5)%

Trading days

0.6%

0.6%

0.5%

0.6%

0.6%

Total revenue growth

(25.9)%

37.0%

(8.5)%

(33.4)%

(20.2)%

 

Quarterly like-for-like revenue analysis

 

Merchanting

Toolstation

Retail

P&H

Group

Q1 LFL sales growth

(8.7%)

9.1%

4.5%

(1.9%)

(3.8%)

April

(73.1%)

(1.9%)

(53.1%)

(69.1%)

(63.6%)

May

(37.4%)

23.8%

(32.1%)

(53.0%)

(34.6%)

June

(17.6%)

27.6%

21.7%

(23.4%)

(6.7%)

Q2 LFL sales growth

(42.9%)

16.5%

(19.8%)

(48.4%)

(34.8%)

H1 LFL sales growth

(25.8%)

12.9%

(8.2%)

(22.8%)

(19.3%)

 

At a Group level, price inflation was neutral in the first half of the year reflecting a benign input cost environment. There was one extra trading day in the period.

Toolstation total sales include fully consolidated sales from Toolstation Europe, driving the significant step up in growth between LFL and total sales. Conversely, P&H total sales figures were impacted by the disposal of the PF&P Wholesale business in January 2020.

 

Operating profit and margin

The significant drop in revenue negatively impacted profitability with lower gross profit generated. Adjusted operating profit fell by 81% to £42m (2019: £220m). The Group took significant actions to control its cost base and has appropriately used government assistance, including accessing the Coronavirus Job Retention Scheme, with up to 15,000 colleagues furloughed in April, and benefitting from the business rates relief scheme.

 

£m

HY 2020

HY 2019

Change*

Merchanting

35

140

(75.0)%

Toolstation

1

13

(92.3)%

Retail

32

52

(38.5)%

Plumbing & Heating

(8)

24

(133.3)%

Property

2

6

(66.7)%

Unallocated costs

(20)

(15)

33.3%

Adjusted operating profit

42

220

(80.9)%

Amortisation of acquired intangible assets

(5)

(4)

25.0%

Adjusting items

(129)

(154)

(16.2)%

Operating profit

(92)

62

(248.4)%

Adjusting items in H1 2020 are primarily related to the restructuring programme announced on 15 June 2020 at a cost of £111m. In addition, the Group recognised adjusting items of £13m in relation to Wickes store impairments and £9m in relation to costs to separate Wickes from the Group ahead of the planned demerger. Further details are provided in note 2.

Adjusting items in H1 2019 primarily related to the impairment charge taken against the IT improvement programme, and the costs to separate the P&H business from the Group.

In the first half of 2020, as a direct result of the challenging trading conditions, the Group recognised additional provisions in relation to holiday pay, slow moving stock, rebates, and timing of customer credit account settlement. Of this, up to £20m may be recovered in the second half of the year as colleagues utilise outstanding holiday before the year end, and stock and debtor provisions may reduce if the recovery in trading continues.

Finance charge

The net finance charge for the six months to 30 June 2020 was significantly lower than the first half of 2019, at £34.9m (H1 2019: £43.3m). There was a significant movement in the foreign exchange rates in the period, with the Group posting a gain on FX of £7m, compared with £0.5m for the same period in 2019.

Interest costs were flat year-on-year, although 2019 also included the costs of refinancing the Group's revolving credit facility in January 2019.

Interest recognised on lease liabilities was flat year-on-year, at £30m.

Taxation

The tax credit for the period to 30 June 2020, including the effect of adjusting items, is £13.2m, (2019: tax charge of £58m). This represents an effective tax rate (ETR) of 10.4% (2019: 32.1%).

The tax charge for UK activities for the period before adjusting items is £2.3m (2019: £67m) giving an adjusted ETR of 22% (standard rate 19%, 2019 actual 19.2%). The adjusted ETR is higher than the standard rate due to the effect of expenses not deductible for tax purposes (such as depreciation of property) and the effects of a reduction in the deferred tax asset related to employee share schemes following a fall in the Group's share price in the period.

The tax charge for the period, before adjusting items but including overseas activities, is £2.3m (2019: £67m) giving an adjusted ETR of 111.7% (2019: 19.7%). The increase in ETR is as a result of the non-recognition of losses incurred in these overseas activities. It is considered that these losses will not be utilised for the foreseeable future.

It is expected that the ETR on UK activities, before adjusting items, for the full year will be in the region of 22%. This is higher than previous guidance due to the effect of the expected fall in profits for the year as a result of COVID 19, without a corresponding reduction in expenses incurred which are not deductible for tax purposes. An ETR of between 20.5% and 21% is expected for future periods.

During the period the Group received a deferred cash benefit on tax payments of £107m. This was as a result of the Government's decision to allow deferral of VAT payments due on or before 30 June 2020 as a result of the COVID 19 crisis. This amount is required to be repaid to HMRC on or before 31 March 2021. Other than the deferral of VAT, the Group has not entered any other arrangements with HMRC and has continued to meet its tax liabilities as they fall due.

Earnings per share

The Group reported a statutory loss after tax of £(113)m (H1 2019: profit after tax of £12m) resulting in a basic loss per share of (45.7) pence (H1 2019: earnings per share of 4.2 pence). There is no significant difference between basic and diluted basic earnings per share.

Adjusted profit after tax was £4m resulting in adjusted earnings per share (note 11b) of 1.4p (H1 2019: 56.5p). There is no significant difference between adjusted basic and adjusted diluted earnings per share.

Cash flow and balance sheet

Throughout the Covid-19 crisis, and in particular during the lockdown period, the Group has maintained a close focus on cash flow and its liquidity position. The actions taken by the Group have protected liquidity throughout, generating significant cash from working capital in the half and maintaining a strong balance sheet.

Free cash flow

(£m)

H1 2020

H1 2019

Group adjusted operating profit excluding property profits

40

214

Depreciation of PPE and other non-cash movements

64

70

Change in working capital*

320

(134)

Net interest paid (excluding lease interest)

(5)

(4)

Interest on lease liabilities

(30)

(30)

Tax paid

(37)

(30)

Adjusted operating cash flow

352

86

Capital investments

 

 

Capex excluding freehold transactions

(47)

(51)

Proceeds from disposals excluding freehold transactions

0

5

Free cash flow before freehold transactions

305

40

*Change in working capital includes around £100m of deferred VAT payments, due to the HMRC in March 2021

The two main drivers of the significant improvement in free cash flow generation in 2020 compared with 2019 were the difference in adjusted operating profit, offset by a strong performance on working capital.

The significant cash inflow from working capital was driven by a number of factors:

Inventory reduced by £154m as the business reduced purchase volume and worked to collaborate between businesses to share stock holdings where appropriate. The inventory held in closed branches has also been shared across the network. In Toolstation and Wickes, branches remained well stocked with good product availability, but the unprecedented demand for DIY products has left lower stock levels in some distribution facilities, and some restocking is likely in the second half of the year. Receivables reduced by £393m, primarily driven by the reduction in trade receivable volumes in the second quarter of the year. Continued strong collections from customers from traded volume in Q1 saw the overall size of the customer credit book reduce throughout Q2. As the construction industry returns to work, this debtor book will increase through the second half of the year but will be broadly offset by the corresponding increase in trade payables. Payables also reduced in the period, but to a lesser extent than the change in receivables. This has been influenced by a move to net settlement of invoices to suppliers, removing the timing difference of standard pricing rebates. The deferred VAT payment of around £100m, due in March 2021, is also included in non-trade payables.

Capital investment

As part of the Group's drive to conserve cash in the short term, capital expenditure was constrained in the first half of the year.

(£m)

H1 2020

H1 2019

Maintenance

(22)

(22)

IT

(3)

(12)

Growth capex

(22)

(17)

Base capital expenditure

(47)

(51)

Freehold property

(12)

(9)

Gross capital expenditure

(59)

(60)

Disposals

18

29

Net capital expenditure

(41)

(31)

Overall base capital spend was broadly flat year-on-year because while capex commitments were curtailed during the Covid crisis, the cash phasing includes settlement of projects carried out in the final months of 2019 and early 2020.

Maintenance capital expenditure was flat in H1 2020, primarily because of the timing of cash payments on vehicle purchases in late 2019. The Group has taken the opportunity to rephase vehicle replacements through the first half of the year, including the reallocation of vehicles previously aligned to branches which have now been closed.

The reduced capital spend on IT programmes reflects the change in approach, moving from a large capitalised programme to a more phased approach based on the progressive improvement or replacement of existing modules, with a greater proportion of costs being expensed rather than capitalised.

Growth capex investment was flat due to the phasing of cash payments for investments made in 2019. Growth projects were paused during the height of the crisis, mainly in Toolstation where no new branches could be opened between the end of March and June as fitters could not access sites to set the branches up. The network expansion programme is now back underway, with the target of 60 new branches in 2020.

Uses of free cash flow

 

H1 2020

H1 2019

Free cash flow (£m)

305

40

Investments in freehold property

(12)

(9)

Disposal proceeds from freehold transactions

18

24

Acquisitions / disposals

50

(20)

Dividends

-

(78)

Pensions payments

(6)

(6)

Sale / (purchase) of own shares

1

(14)

Cash payments on adjusting items

(26)

(33)

Other

(9)

(21)

Change in cash/cash equivalents

321

(117)

Combined with the strong free cash flow generation in H1 2020, the overall cash position of the Group was further boosted by the suspension of the final 2019 dividend payment, due in May 2020. The Group sold £1m of its own shares (previously held for employee schemes) in the first six months of the year (H1 2019: purchased £14m). The Group received £50m on the disposal of the PF&P wholesale business in January.

Cash payments on adjusting items were broadly flat year-on-year, with costs primarily focused on the separation of Wickes from the Group. The cash costs of the restructuring programme announced in June are likely to be around £85m, with around £35m in 2020.

Net debt and funding

The strong focus on cash and liquidity, and the resulting cash position of the Group, has driven a significant improvement in the net debt position.

 

Medium Term Guidance /

Covenant (June 2020)*

H1 2020

H1 2019

Change

Covenant net debt

 

£22m

£414m

£(392)m

Covenant net debt / adjusted EBITDA

3.5x

0.04x

0.6x

 

Net debt under IFRS16

 

£1,441m

£1,890m

£(449)m

Net debt / adjusted EBITDA

2.5x

2.6x

2.7x

(0.1)x

*Leverage covenant for June 2020 was relaxed from 3.0x to 3.5x. It has been waived for December 2020

Covenant net debt reduced by £392m to £22m from 30 June 2019, and by £322m since 31 December 2019. Lease obligations reduced modestly, so there was a corresponding significant improvement in IFRS16 net debt.

Despite the significant step down in profitability of the Group, the reduction in IFRS16 net debt caused the rolling 12-month Net debt / adjusted EBITDA ratio to reduce year-on-year to 2.6x.

In May 2020 the Group took the prudent step to agree with its lenders a relaxation of its financial covenants for the test dates at the end of June and December 2020:

The interest cover covenant has been waived for both June and December 2020 The net leverage covenant has been relaxed to 3.5x for June 2020 The net leverage covenant has been waived for December 2020 A minimum liquidity headroom covenant has been established for September and December 2020

Funding

As at 30 June 2020, the Group's committed funding of £950m comprised:

£250m guaranteed notes due September 2021, listed on the London Stock Exchange £300m guaranteed notes due September 2023, listed on the London Stock Exchange A revolving credit facility of £400m, refinanced in January 2019, which has been extended to run until 2025.

As at 30 June 2020, the Group had undrawn committed facilities of £400m (2019: £400m) and deposited cash of £455m (2019: £52m), giving overall liquidity headroom of £855m.

The Group's credit rating, issued by Standard and Poor's, was maintained at BB+ negative watch following its review in April 2020, with the risks from the impact of the COVID-19 pandemic on the Group's end-markets broadly offset by the pausing of the Wickes demerger.

Principal risks and uncertainties

The risk environment in which the Group operates does not remain static and has been significantly impacted by the global Covid-19 pandemic. This was considered an emerging risk in the Group's 2019 Annual Report & Accounts and, through the half year review of principal risks and uncertainties, it has been determined that Covid-19 represents a new principal risk for the Group. The current assessment of the risks faced in relation to Covid-19, and the key mitigating actions taken to date are set out below, followed by an update on the other principal risks faced by the Group.

Covid-19

The Covid-19 pandemic has rapidly become a global crisis that has significantly impacted the Group's results and operations during 2020, as described earlier in this announcement, which should be read in conjunction with this section. It is not clear how long the pandemic will last, how much more extensive it may become or what further measures may be introduced by governments to mitigate the associated health, economic and wider societal impacts. The pandemic may lead to a significant and prolonged impact for the Group in respect of:

Operational disruption resulting from high levels of colleague absence, due to contracting the virus or attempts to contain an outbreak at any Group location. This could impact the Group's ability to operate its branch and distribution network, or provide the necessary functional support to the business, where these cannot be delivered remotely. Pressure on colleagues to adapt to rapidly changing circumstances, ways of working and resourcing levels, which will continue to evolve both locally and nationally depending on the progression of the pandemic. Disruption to the Group's supply chain, which operates across multiple territories. In addition to the proximate disruptive effects of the pandemic, the supply chain may also be impacted by business closures and consolidation activity. Levels of consumer confidence in an uncertain economic environment, which may adversely impact demand for the Group's products and services.

The Group's operations and distribution network may also be impacted by measures to contain further localised Covid-19 outbreaks in the UK or in the event of a further wave of the virus that requires a return to national lockdown. Failure to respond swiftly and appropriately to the many risks presented by Covid-19, which continue to evolve, could adversely impact the health and wellbeing of colleagues and customers as well as the financial condition and reputation of the Group.

The Group acted quickly to respond to the challenges posed by Covid-19 with the safety and wellbeing of colleagues and customers the overriding priority for the Group in its ongoing response to the crisis. Tiered crisis response teams were mobilised before the UK lockdown to coordinate the actions taken to manage the impact of Covid-19 on colleagues, customers and operations. These teams continue to monitor the situation closely, with regular oversight from the Board, and update measures, advice and communications as required.

Colleagues have been regularly consulted throughout the pandemic and are empowered to call out unsafe practices, such as refusing to complete a delivery if the environment at a delivery site is found to be unsafe. Under normal circumstances the Group's safety culture and practices are assessed as good but a number of incidents in recent months suggest that Covid-19 has been an influencing factor both in terms of the physical and mental impact to colleagues of adapting to changed ways of working, and as a necessary area of focus which may divert attention from more typical operational hazards. To reinforce that safety is everyone's responsibility, the Group ran an organisation-wide safety stand down briefing to provide colleagues with the time to reflect and consider the actions that can be undertaken individually and collectively to take responsibility for their own and each other's safety.

The Group's other major response measures during this challenging period have included:

Rapid changes to branches and stores that included initial limited provision of products for 'essential services' only; the introduction of contactless click & collect or call & collect; and closure to browsing. Almost all of the network is now open and strict social distancing measures and enhanced hygiene routines are enforced. Supporting all colleagues able to work from home to do so, which it is anticipated will continue for the foreseeable future. The suspension of the 2019 final dividend payment and a reduction in Board and Executive pay by 20% for three months. Active, detailed management of cost and cash flow, including a significant reduction in non-committed capital expenditure, reduction in business rates and deferral of VAT payments. Monitoring product availability and investigating alternative sources of supply. Regular communications to colleagues including a weekly pulse survey reported to leadership and the provision of extended wellbeing support.

The Covid-19 pandemic, and the related risks and impacts, continue to evolve and cannot be determined with any certainty. We will therefore continue to monitor the situation and related guidance from the Government, focus relentlessly on safety and wellbeing, and evolve other mitigation activities and communications as needed.

Other Principal Risks & Uncertainties

With the exception of the Covid-19 risk outlined above, the Directors consider that the principal risks and uncertainties faced by the Group have been, and are expected to remain, consistent with those described on pages 40 to 51 of the 2019 Annual Report and Accounts. Details are provided for inherent risks relating to the changing customer and competitor landscape, supplier risks, Brexit, market conditions, capital allocation, change management, portfolio management, IT systems and infrastructure, cyber threat and data security, health and safety, talent management and legal compliance. The Directors consider the risk trend to be increasing in relation to market conditions, supplier risks and the changing customer and competitor landscape. The capital allocation risk trend is now considered static, with all other risk trends unchanged at this point.

The Group's risks are regularly reviewed and reassessed through a process that considers both internal and external factors. There are no emerging risks considered significant enough to report at this time. Emerging risks, which are known risks that are currently difficult to fully assess and/or quantify, are regularly considered and monitored by the Directors.

 

Condensed consolidated income statement

 

£m

Six months ended

 30 June

2020

(unaudited)

 

Six months ended

 30 June

2019

(unaudited)

(re-presented*)

Year

ended

31 December

2019

(audited)

 

Revenue

2,780.6

3,484.3

6,955.7

Adjusted operating profit (note 20)

42.0

219.8

441.5

Adjusting items - operating (note 2)

(128.5)

(153.9)

(200.4)

Amortisation of acquired intangible assets

(5.0)

(4.3)

(9.0)

Operating (loss) / profit

(91.5)

61.6

232.1

Adjusting items - remeasurement of associate

-

-

40.3

Share of associates' results

(0.1)

(2.5)

(4.3)

Net finance costs (note 5)

(34.9)

(43.3)

(87.3)

(Loss) / profit before tax

(126.5)

15.8

180.8

Adjusting items - deferred tax

(6.4)

-

(27.1)

Tax on adjusting items

21.9

27.6

36.2

Other tax

(2.3)

(31.8)

(67.1)

Total tax (note 7)

13.2

(4.2)

(58.0)

(Loss) / profit for the period

(113.3)

11.6

122.8

Attributable to:

 

 

 

Owners of the Company

(113.5)

10.5

121.1

Non-controlling interests

0.2

1.1

1.7

 

(113.3)

11.6

122.8

 

Earnings per ordinary share (note 11)

 

 

 

Basic

(45.7)p

4.2p

48.9p

Diluted

(45.7)p

4.2p

48.4p

Total dividend declared per share (note 12)

-

15.5p

33.0p

 

*Figures for the six months ended 30 June 2019 have been re-presented to include the results of the Plumbing & Heating segment, which was previously presented as a discontinued operation.

Condensed consolidated statement of comprehensive income

 

 

£m

Six months ended

30 June

2020

(unaudited)

Six months

ended

30 June 2019

(unaudited) (re-presented)

Year

ended

31 December 2019

(audited)

(Loss) / profit for the period

(113.3)

11.6

122.8

Items that will not be reclassified subsequently to profit and loss:

 

 

 

Actuarial gains / (losses) on defined benefit pension schemes (note 8)

6.9

(39.9)

(43.0)

Income taxes relating to other comprehensive income

(4.7)

15.5

8.3

Items that may be reclassified subsequently to profit and loss:

 

 

 

Foreign exchange differences on retranslation of foreign operations

(2.6)

-

3.2

Other comprehensive loss for the period net of tax

(0.4)

(24.4)

(31.5)

Total comprehensive (loss) / income for the period

(113.7)

(12.8)

91.3

 

Attributable to:

 

 

 

Owners of the Company

(113.9)

(13.9)

91.3

Non-controlling interests

0.2

1.1

-

 

(113.7)

(12.8)

91.3

 

Condensed consolidated balance sheet

 

£m

As at

30 June

2020

(unaudited)

As at

 30 June

2019

(unaudited)

(restated - note 1)

As at

31 December

2019

(audited)

ASSETS

 

 

 

Non-current assets

 

 

 

Goodwill

1,359.5

1,222.7

1,359.1

Other intangible assets

321.6

318.5

332.6

Property, plant and equipment

860.2

835.8

882.0

Right-of-use assets

1,212.8

1,208.4

1,276.8

Interest in associates

1.8

46.6

1.9

Investments

6.7

5.8

6.7

Retirement benefit asset (note 8)

66.2

48.5

57.5

Total non-current assets

3,828.8

3,686.3

3,916.6

Current assets

 

 

 

Inventories

786.7

687.3

937.8

Trade and other receivables

849.2

992.3

1,239.7

Tax assets

21.1

-

-

Derivative financial instruments

0.4

-

-

Cash and cash equivalents

528.5

139.3

207.9

Total current assets

2,185.9

1,818.9

2,385.4

Assets classified as held for sale (note 14)

-

762.3

138.0

Total assets

6,014.7

6,267.5

6,440.0

 

Condensed consolidated balance sheet (continued)

£m

As at

30 June

2020

(unaudited)

As at

 30 June

2019

(unaudited)

(restated - note 1)

As at

31 December

2019

(audited)

EQUITY AND LIABILITIES

 

 

 

Capital and reserves

 

 

 

Issued share capital

25.2

25.2

25.2

Share premium account

545.6

545.5

545.6

Merger reserve

326.5

326.5

326.5

Revaluation reserve

14.5

14.7

14.5

Own shares

(47.1)

(55.7)

(50.8)

Foreign exchange reserve

0.6

-

3.2

Other reserves

(1.8)

(4.5)

(4.1)

Retained earnings

1,612.4

1,645.2

1,722.6

Equity attributable to the owners of the Company

2,475.9

2,496.9

2,582.7

Non-controlling interests

4.6

5.1

4.4

Total equity

2,480.5

2,502.0

2,587.1

Non-current liabilities

 

 

 

Interest bearing loans and borrowings

579.3

583.2

583.3

Lease liabilities

1,215.2

1,193.4

1,253.6

Derivative financial instruments

-

4.7

-

Deferred tax liabilities

54.7

33.8

62.7

Retirement benefit liability

-

-

4.9

Long-term provisions

14.7

-

8.0

Total non-current liabilities

1,863.9

1,815.1

1,912.5

Current liabilities

 

 

 

Lease liabilities

175.0

139.8

158.7

Derivative financial instruments

1.8

-

2.5

Trade and other payables

1,385.9

1,230.5

1,613.9

Tax liabilities

-

68.5

13.4

Short-term provisions

107.6

55.9

60.4

Total current liabilities

1,670.3

1,494.7

1,848.9

Liabilities classified as held for sale (note 14)

-

455.7

91.5

Total liabilities

3,534.2

3,765.5

3,761.4

Total equity and liabilities

6,014.7

6,267.5

6,440.0

The interim condensed financial statements of Travis Perkins plc, registered number 824821, were approved by the Board of Directors on 7 September 2020 and signed on its behalf by:

 Nick Roberts

 Chief Executive Officer

 

 Alan Williams

 Chief Financial Officer

 

 

Condensed consolidated statement of changes in equity

 

£m

Issued share capital

Share premium account

Merger reserve

Revaluation reserve

Own shares

Foreign exchange

Other

Retained earnings

Total equity before non-controlling interest

Non- controlling interest

Total equity

At 31 December 2019 (audited)

25.2

545.6

326.5

14.5

(50.8)

3.2

(4.1)

1,722.6

2,582.7

4.4

2,587.1

(Loss)/income for the period

-

-

-

-

-

-

-

(113.5)

(113.5)

0.2

(113.3)

Other comprehensive loss for the period net of tax

-

-

-

-

-

(2.6)

-

2.2

(0.4)

-

(0.4)

Total comprehensive (Loss)/income for the period

-

-

-

-

-

(2.6)

-

(111.3)

(113.9)

0.2

(113.7)

Purchase of own shares

-

-

-

-

1.0

-

-

-

1.0

-

1.0

Option on non-controlling interest

-

-

-

-

-

-

2.3

(2.3)

-

-

-

Own shares movement

-

-

-

-

2.7

-

-

(2.7)

-

-

-

Equity-settled share-based payments, net of tax

-

-

-

-

-

-

-

6.1

6.1

-

6.1

At 30 June 2020 (unaudited)

25.2

545.6

326.5

14.5

(47.1)

0.6

(1.8)

1,612.4

2,475.9

4.6

2,480.5

 

 

 

 

 

 

           
                         

 

£m

Issued share capital

Share premium account

Merger reserve

Revaluation reserve

Own shares

Other

Retained earnings

Total equity before non-controlling interest

Non- controlling interest

Total equity

At 1 January 2019 (as previously stated) (audited)

25.2

545.4

326.5

14.7

(47.8)

(5.6)

1,847.5

2,705.9

11.8

2,717.7

Impact of change in accounting policy (as previously stated)

-

-

-

-

-

-

(95.9)

(95.9)

-

(95.9)

At 1 January 2019 (as previously stated)

25.2

545.4

326.5

14.7

(47.8)

(5.6)

1,751.6

2,610.0

11.8

2,621.8

Impact of restatement - note 1

-

-

-

-

-

-

(10.2)

(10.2)

-

(10.2)

At 1 January 2019 (restated - note 1)

25.2

545.4

326.5

14.7

(47.8)

(5.6)

1,741.4

2,599.8

11.8

2,611.6

Profit for the period

-

-

-

-

-

-

10.5

10.5

1.1

11.6

Other comprehensive (Loss)/income for the period net of tax

-

-

-

-

-

-

(24.4)

(24.4)

-

(24.4)

Total comprehensive income for the period

-

-

-

-

 

-

(13.9)

(13.9)

1.1

(12.8)

Dividends

-

-

-

-

-

-

(78.4)

(78.4)

-

(78.4)

Dividend equivalent payments

-

-

-

-

-

-

(0.1)

(0.1)

-

(0.1)

Issue of share capital

-

0.1

-

-

-

-

-

0.1

-

0.1

Purchase of own shares

-

-

-

-

(14.0)

-

-

(14.0)

-

(14.0)

Option of non-controlling interest

-

-

-

-

-

0.8

-

0.8

-

0.8

Acquisition of non-controlling interest

-

-

-

-

-

-

(12.0)

(12.0)

(7.8)

(19.8)

Tax on share based payments

-

-

-

-

-

-

0.1

0.1

-

0.1

Foreign exchange

-

-

-

-

-

0.3

-

0.3

-

0.3

Own shares movement

-

-

-

-

6.1

-

(6.1)

-

-

-

Equity-settled share-based payments, net of tax

-

-

-

-

-

-

14.2

14.2

-

14.2

At 30 June 2019 (unaudited) (restated - note 1)

25.2

545.5

326.5

14.7

(55.7)

(4.5)

1,645.2

2,497.0

5.1

2,502.0

 

Condensed consolidated statement of changes in equity (continued)

 

£m

Share capital

Share premium

Merger reserve

Revaluation reserve

Own shares

Foreign exchange reserve

Other

Retained earnings

Total equity before non-controlling interest

Non- controlling interest

Total equity

At 1 January 2019 (audited)

25.2

545.4

326.5

14.7

(47.8)

-

(5.6)

1,847.5

2,705.9

11.8

2,717.7

Impact of change in accounting policy

-

-

-

-

-

-

-

(106.1)

(106.1)

-

(106.1)

Adjusted balance at 1 January 2019

25.2

545.4

326.5

14.7

(47.8)

-

(5.6)

1,741.4

2,599.8

11.8

2,611.6

Profit for the year

-

-

-

-

-

-

-

121.1

121.1

1.7

122.8

Other comprehensive income for the year net of tax

-

-

-

-

-

3.2

-

(34.7)

(31.5)

-

(31.5)

Total comprehensive (loss) / income for the year

-

-

-

-

-

3.2

-

86.4

89.6

1.7

91.3

Dividends paid

-

-

-

-

-

-

-

(116.2)

(116.2)

-

(116.2)

Dividend equivalent payments

-

-

-

-

-

-

-

(0.1)

(0.1)

-

(0.1)

Issue of share capital

-

0.2

-

-

-

-

-

-

0.2

-

0.2

Purchase of own shares

-

-

-

-

(7.7)

-

-

-

(7.7)

-

(7.7)

Adjustments in respect of revalued fixed assets

-

-

-

(0.2)

-

-

-

0.2

-

-

-

Arising on acquisition

-

-

-

-

-

-

-

(11.9)

(11.9)

(9.1)

(21.0)

Equity-settled share-based payments, net of tax

-

-

-

-

-

-

27.5

27.5

-

27.5

Option on non-controlling interest

-

-

-

-

-

-

1.5

-

1.5

-

1.5

Own shares movement

-

-

-

-

4.7

-

-

(4.7)

-

-

-

At 31 December 2019 (audited)

25.2

545.6

326.5

14.5

(50.8)

3.2

(4.1)

1,722.6

2,582.7

4.4

2,587.1

 

Condensed consolidated cash flow statement

£m

Six months ended

30 June 2020

(unaudited)

Six months ended

 30 June 2019

(unaudited)

Year ended

 31 December 2019

(audited)

Cash flows from operating activities

 

 

 

Adjusted operating profit

42.0

219.8

441.5

Adjustments for:

 

 

 

Depreciation of property, plant and equipment

48.3

48.0

97.5

Depreciation of right-of-use assets

85.1

84.0

176.5

Amortisation and impairment of intangible assets

8.2

8.5

23.5

Share-based payments

6.8

14.2

19.9

Foreign exchange

4.5

-

4.1

Other non-cash movements

(9.9)

0.1

4.2

Gains on disposal of subsidiaries

(1.8)

-

-

Gains on disposal of property, plant and equipment

(1.9)

(6.0)

(20.6)

Purchase of toolhire assets

(2.2)

-

(9.2)

Adjusted operating cash flows

179.1

368.6

737.4

Decrease / (increase) in inventories

153.9

(50.7)

(104.2)

Decrease / (increase) in receivables

393.0

(105.0)

12.5

(Decrease) / increase in payables

(226.5)

21.5

(36.5)

Payments in respect of adjusting items

(26.2)

(32.5)

(90.0)

Pension payments in excess of charge

(6.2)

(6.3)

(9.9)

Cash generated from operations

467.1

195.6

509.1

Interest paid

(5.1)

(4.6)

(27.0)

Interest on lease liabilities

(29.7)

(30.1)

(57.0)

Debt arrangement fees

(0.5)

-

(2.9)

Income taxes paid

(37.5)

(30.1)

(52.9)

Net cash inflow from operating activities

394.3

130.8

369.4

Cash flows from investing activities

 

 

 

Interest received

0.8

0.4

0.8

Proceeds on disposal of property, plant and equipment

18.0

28.8

82.0

Development of software

(2.5)

(12.2)

(8.4)

Purchases of property, plant and equipment

(53.9)

(48.2)

(125.2)

Interests in associates

-

(14.9)

(20.6)

Acquisition of businesses

-

-

(23.0)

Disposal of business

50.1

-

-

Net cash outflow from investing activities

12.5

(46.1)

(94.4)

Cash flows from financing activities

 

 

 

Proceeds from the issue of share capital

-

0.1

0.2

Sale / (purchase) of own shares

1.2

(14.0)

(7.7)

Repayment of lease liabilities / finance lease liabilities

(83.9)

(85.3)

(175.6)

Drawdown on bank facilities

400.0

-

-

Repayment of borrowings

(400.0)

-

-

Decrease in loans and liabilities to pension scheme

(3.5)

(3.4)

(3.4)

Dividends paid (note 12)

-

(78.4)

(116.2)

Purchase of non-controlling interest

-

(19.8)

(19.8)

Net cash outflow from financing activities

(86.2)

(200.8)

(322.5)

Net increase/(decrease) in cash and cash equivalents

320.6

(116.1)

(47.5)

Cash and cash equivalents at the beginning of the period

207.9

255.4

255.4

Cash and cash equivalents at the end of the period

528.5

139.3

207.9

Notes to the interim financial statements

1. General information and accounting policies

The interim financial statements have been prepared on the historical cost basis, except that derivative financial instruments, available for sale investments and contingent consideration arising from business combinations are stated at their fair value. The condensed interim financial statements include the accounts of the Company and all its subsidiaries ("the Group").

Basis of preparation

The financial information for the six months ended 30 June 2020 and 30 June 2019 is unaudited. The June 2020 information has been reviewed by KPMG LLP, the Group's auditor, and a copy of their review report appears on page 51 of this interim report. The June 2019 information was also reviewed by KPMG LLP. The financial information for the year ended 31 December 2019 does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. A copy of the statutory accounts for the year ended 31 December 2019 as prepared under International Financial Reporting Standards as adopted by the EU ("IFRS") has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

The unaudited interim financial statements for the six months ended 30 June 2020 have been prepared in accordance with IAS 34 - Interim Financial Reporting and have been prepared on the basis of IFRS.

The annual financial statements of the Group are prepared in accordance with IFRS. As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated financial statements, with the addition of the policy for the government grants described below, for the year ended 31 December 2019. The 2019 full year financial statements are available on the Travis Perkins website (www.travisperkinsplc.co.uk).

Significant impact of COVID-19 outbreak

During the period ended 30 June 2020 the UK's economic outlook has deteriorated as a consequence of the COVID-19 pandemic and the measures taken by the government to control the spread of the virus. In these circumstances, neither the Group nor its customers have been able to trade in a normal manner.

The Group disclosed in its 2019 Annual Report that it was monitoring the potential impact of coronavirus carefully. This has subsequently become a principal risk.

Going concern assessment by the Board of Travis Perkins plc

In the context of the current COVID-19 outbreak, the Board of Travis Perkins plc undertook an assessment on 4 September 2020 of the ability of the Group to continue in operation and meet its liabilities as they fall due over the period to 31 December 2021. In doing so, the Board considered events throughout the period of their assessment, including the availability and maturity profile of the Group's financing facilities, and concluded that it remained appropriate to prepare the interim financial statements on a going concern basis on the following basis.

In late March and early April 2020, the Group operated a "service-light" operating model, focusing on serving customers through remote, non-contact channels with sites primarily running call/click and collect or direct delivery services to support essential construction programmes. After 20 April 2020, the Group carefully re-opened more of its Merchant branch network and the Wickes and Toolstation responded at pace to cope with the high levels of consumer demand.

In June 2020, the Group initiated a restructuring programme involving branch closures and reductions in above-branch roles. The purpose of this restructuring was to align the cost base of the Group to reduced sales volumes, particularly in the Merchanting and Plumbing & Heating businesses. As a result the Group is well positioned to trade through even a significant and long-term decline in volume, has the flexibility to react to changing market conditions and is adequately placed to manage its business risks successfully. Furthermore, the Group's experience of trading over the initial lockdown period gives confidence in its ability to operate through subsequent lockdowns if there are further peaks in infections.

 

Notes to the interim financial statements

In the analysis performed, the Travis Perkins plc Board considered the impact of the COVID-19 outbreak on the Group's results and financial position in a range of possible scenarios. The following key assumptions were used in the central scenario:

Trading over the remainder of 2020 broadly continues at current levels, with no material improvement over the Group's experience through July and August Business rates relief of circa £80m for the 2020-2021 tax year and no further furlough claims No further overhead reductions beyond those identified as part of the recent restructuring programme Capital expenditure of circa £70m, net of disposals Working capital metrics return to normal, with a cash benefit from stock reduction related to closed branches

A second two-month lockdown scenario was also considered, with trading and cash collection reduced to the levels experienced by the Group in May 2020, and recovering to a lower level than in the central scenario. In this scenario it was assumed that the Group would take mitigating measures, including reduced dividend payments, although no further structural cost savings are included.

Under all scenarios considered, the Group was able to operate for the period ended 31 December 2021 within its existing borrowing facilities and its financial covenants.

Further reverse stress testing examined the scale of prolonged sales decline required to cause the Group to become insolvent or to breach its financial covenants and concluded that the magnitude of the sales decline required was not plausible.

After reviewing these forecasts and risk assessments and making other enquiries, the Board of Travis Perkins plc on 4 September 2020 formed the judgement that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the period ended 31 December 2021 and meet its liabilities as they fall due. For this reason the interim financial statements have been prepared on a going concern basis.

New and amended standards adopted by the Group

A number of new or amended standards became applicable for the current reporting period and the Group has applied the following requirements:

Amendments to References to Conceptual Framework in IFRS Standards Definition of a Business; amendments to IFRS 3 Definition of Material; amendments to IAS 1 and IAS 8 Interest Rate Benchmark Reform; amendments to IFRS 9, IAS 39 and IFRS 7

The above requirements did not have a material impact on the Group and have been adopted without restating comparatives.

 

Notes to the interim financial statements

Restatement of numbers reported as at 30 June 2019

In the preparation of the Group's 2019 Annual Report & Accounts, certain leases and lease-related current assets and liabilities were identified, for which the accounting in the 30 June 2019 interim financial statements did not correctly reflect the adoption of IFRS 16 - Leases on 1 January 2019. The comparative figures have been restated for these items and this has resulted in the following changes to the reported numbers:

£m

As at

30 June 2019

(reported)

Adjustment

As at

30 June 2019

(restated)

ASSETS

 

 

 

Non-current assets

 

 

 

Right-of-use assets

1,146.5

61.9

1,208.4

Current assets

 

 

 

Trade and other receivables

1,024.0

(31.7)

992.3

Total assets

6,237.3

30.2

6,267.5

EQUITY AND LIABILITIES

 

 

 

Capital and reserves

 

 

 

Retained earnings

1,655.4

(10.2)

1,645.2

Total equity

2,512.2

(10.2)

2,502.0

Non-current liabilities

 

 

 

Lease liabilities

1,155.6

37.8

1,193.4

Deferred tax liabilities

31.2

2.6

33.8

Total liabilities

3,725.1

40.4

3,765.5

Total equity and liabilities

6,237.3

30.2

6,267.5

These changes also affect the opening balance sheet as at 1 January 2019 as presented in the 30 June 2019 interim financial statements. The total equity at 1 January 2019 as presented in the 30 June 2019 interim financial statements has been reduced by £10.2m to £2,611.6m. However these matters were corrected in the 31 December 2019 Annual Report & Accounts and, as such, there is no restatement of the balances at 1 January 2019 as presented in the 31 December 2019 Annual Report & Accounts in these interim financial statements.

The impact on trade and other receivables represents an adjustment to the initial measurement of right-of-use assets for lease-related prepayments that were recognised in the balance sheet immediately before the date of initial application.

This restatement has not affected the income statement for the six-month period ended 30 June 2019 nor has it affected earnings per share. No adjustment has been made to the depreciation charge on right-of-use assets in that period, as any such adjustment would have been immaterial.

 

Notes to the interim financial statements

2. Adjusting items

To enable a reader of the interim financial statements to obtain a clear understanding of the underlying trading, the Directors have presented the items below separately in the income statement.

 

£m

Six months ended 30 June 2020

Six months ended 30 June 2019

 

Year ended 31 December 2019

Adjusting items - operating

 

 

 

Branch closures and restructuring

111.0

-

-

Wickes separation and store impairment

9.1

3.5

11.7

Wickes store impairment

12.6

-

-

IT-related settlement and impairment charge

(4.2)

111.2

107.6

Closure of business

-

12.6

13.1

Plumbing & Heating separation and disposal process

-

26.6

46.5

Supply chain restructuring costs

-

-

21.5

 

128.5

153.9

200.4

Adjusting items - business acquisitions

 

 

 

Fair value gain on the acquisition of Toolstation Europe

-

-

(40.3)

 

-

-

(40.3)

Adjusting items - tax

 

 

 

Deferred tax rate change

6.4

-

-

Rollover relief deferred tax

-

-

27.1

 

6.4

-

27.1

 

134.9

153.9

187.2

Branch closures and restructuring

In June 2020, in response to coronavirus and an expectation of reduced sales volumes in 2020 and 2021, the Group announced a significant programme of branch closures and the restructuring of distribution, administrative and sales functions. This will result in the closure of around 165 branches across the overall branch estate, representing approximately 8% of the Group's network. The branch closures are concentrated in the Merchant businesses and in particular on small branches in the Travis Perkins General Merchant. In total, the Group expects to reduce the number of roles by around 2,500 or approximately 9% of the workforce. Costs recognised in relation to these closures are as follows:

£56.2m of property costs arising on the closure of branches and office locations, including a £24.4m impairment charge in respect of right-of-use assets £22.8m of redundancy and other restructuring costs £21.1m of fixed asset impairments £10.9m of inventory provisions in respect of closed branches and associated restructuring

A number of these costs are currently based on estimates and will therefore be revised in the period to 31 December 2020 as the actual costs are incurred.

 

Notes to the interim financial statements

Wickes separation

The Group incurred costs preparing to demerge the Wickes business, prior to the announcement in March 2020 that the demerger would be paused given the uncertainty of the impact of coronavirus and the current volatility in the equity markets. The costs disclosed as adjusting consist of:

£5.2m of costs related to the separation of IT functions from the Group £3.9m of professional service fees incurred in preparation for the demergerWickes store impairment

An impairment charge of £12.6m was recognised in respect of five Wickes stores where the impacts of coronavirus have made it more challenging to implement the performance improvement plans necessary to generate cash flows that support the stores' value-in-use. The impairment reviews were carried out using assumptions consistent with the impairment review of the Wickes CGU (note 17). The remaining lease term was used as the remaining useful life. The impairment has been recognised against the right-of-use assets associated with these stores, which are the only material assets.

IT-related impairment charge

The gain of £4.2m is the result of the full and final settlement of claims in relation to the cancelled replacement of the Group's merchant ERP system.

Deferred tax rate change

The tax charge includes an adjusting charge of £6.4m arising from the increase in the rate of UK corporation tax effective on 1 April 2020 from 17% to 19%.

2019

The following items were disclosed as adjusting in 2019:

An impairment charge of £107.6m after the previous programme to develop a replacement ERP for the Merchant businesses was halted Costs of £46.5m incurred in relation to separation of the Plumbing & Heating business from the Group's central IT infrastructure and support functions to enable the business to operate autonomously and support any future disposal £11.7m of Wickes separation and demerger costs were disclosed as adjusting following the Group's announcement of its intention to demerge the Wickes business Restructuring costs of £21.5m relating to cost reduction activities in the supply chain and support centre of the merchant business, including the costs of closure of the Group's range centre and timber network Losses recognised following the closure of the Built business in April 2019 A fair value gain on the acquisition of Toolstation Europe of £40.3m following the remeasurement of the investment at fair value A deferred tax charge of £27.1m following the Group's change in property strategy and therefore its assessment of its ability to use rollover relief indefinitely on capital gains in 2019.

 

Notes to the interim financial statements

3. Business segments

The operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Operating Decision Maker ("CODM"), which is considered to be the Board, to assess performance and allocate capital.

All operating segments sell building materials to a wide range of customers, none of which are dominant, and operate almost exclusively in the United Kingdom.

Segment result represents the result of each segment without allocation of certain central costs, finance income and costs and tax. Unallocated segment assets and liabilities comprise financial instruments, current and deferred tax, cash and borrowings and pension scheme assets and liabilities.

a) Segment results Six months ended 30 June 2020

£m

Merchanting

Retail

Toolstation

Plumbing & Heating

Unallocated

Consolidated

Revenue

1,384.7

635.9

284.5

475.5

-

2,780.6

Adjusted segment result before property profits

35.2

31.8

1.2

(8.4)

(19.7)

40.1

Property profits

0.1

-

-

1.8

-

1.9

Adjusted segment result

35.3

31.8

1.2

(6.6)

(19.7)

42.0

Adjusting items

(93.2)

(25.9)

(0.7)

(12.0)

3.3

(128.5)

Amortisation of acquired intangible assets

(2.8)

-

(1.9)

(0.3)

-

(5.0)

Segment result

(60.7)

5.9

(1.4)

(18.9)

(16.4)

(91.5)

Adjusted segment margin excluding property profits

2.5%

5.0%

0.4%

(1.7%)

-

1.4%

Adjusted segment margin

2.5%

5.0%

0.4%

(1.4%)

-

1.5%

Six months ended 30 June 2019 (re-presented)

£m

Merchanting

Retail

Toolstation

Plumbing & Heating

Unallocated

Consolidated

Revenue

1,869.1

694.8

207.5

712.9

-

3,484.3

Adjusted segment result before property profits

140.0

52.3

12.6

24.3

(15.4)

213.8

Property profits

7.0

(1.1)

-

0.1

-

6.0

Adjusted segment result

147.0

51.2

12.6

24.4

(15.4)

219.8

Adjusting items

-

(3.5)

-

(26.6)

(123.8)

(153.9)

Amortisation of acquired intangible assets

(3.0)

-

(1.1)

(0.2)

-

(4.3)

Segment result

144.0

47.7

11.5

(2.4)

(139.2)

61.6

Adjusted segment margin excluding property profits

7.5%

7.5%

6.1%

3.4%

-

6.1%

Adjusted segment margin

7.9%

7.4%

6.1%

3.4%

-

6.3%

 

 

Notes to the interim financial statements

3. Business segments (continued)

Year ended 31 December 2019

£m

Merchanting

Retail

Toolstation

Plumbing & Heating

Unallocated

Consolidated

Revenue

3,703.4

1,342.4

445.1

1,464.8

-

6,955.7

Adjusted segment result before property profits

284.3

96.6

24.6

48.4

(33.0)

420.9

Property profits

20.7

-

-

1.0

(1.1)

20.6

Adjusted segment result

305.0

96.6

24.6

49.4

(34.1)

441.5

Adjusting items

(23.5)

(11.6)

-

(45.4)

(119.9)

(200.4)

Amortisation of acquired intangible assets

(6.1)

-

(2.6)

(0.3)

-

(9.0)

Segment result

275.4

85.0

22.0

3.7

(154.0)

232.1

Adjusted segment margin excluding property profits

7.7%

7.2%

5.5%

3.3%

-

6.1%

Adjusted segment margin

8.2%

7.2%

5.5%

3.4%

-

6.3%

b) Segment assets and liabilities

£m

30 June 2020

Segment assets

 

Merchanting

2,682.5

Retail

1,627.8

Toolstation

527.4

P&H

547.7

Unallocated

629.3

Total assets

6,014.7

Segment liabilities

 

Merchanting

(1,054.2)

Retail

(1,190.8)

Toolstation

(264.0)

P&H

(322.9)

Unallocated

(702.3)

Total liabilities

(3,534.2)

4. Seasonality

The Group's trading operations when assessed on a half-yearly basis are mainly unaffected by seasonal factors, however it is anticipated that there will be higher seasonal variation in 2020 due to the significant impacts of coronavirus. In 2019, the period to 30 June accounted for 50.1% of the Group's annual revenue (2018: 49.7%).

 

Notes to the interim financial statements

5. Finance costs

a) Net finance costs

 

£m

Six months ended

30 June

2020

Six months ended

30 June

2019

Year

ended

31 December

2019

Finance income

 

 

 

Fair value gains on derivatives

0.9

-

-

Net gains on remeasurement of foreign exchange

6.9

0.5

-

Interest receivable

0.8

1.3

2.5

Other finance income - pension scheme

0.5

1.2

2.4

 

9.1

3.0

4.9

Finance costs

 

 

 

Interest on lease liabilities

(29.7)

(30.1)

(57.0)

Interest on bank loans and overdrafts

(1.7)

(1.4)

(2.0)

Interest on sterling bonds

(10.5)

(10.4)

(21.0)

Amortisation of issue costs of bank loans*

(0.7)

(2.2)

(2.9)

Other interest

(0.2)

(0.9)

(2.3)

Unwinding of discounts - liability to pension scheme

(1.1)

(1.1)

(2.2)

Unwinding of discounts - property provisions

(0.1)

-

(0.2)

Fair value losses on derivatives

-

(0.2)

(1.3)

Net loss on remeasurement of foreign exchange

-

-

(3.3)

 

(44.0)

(46.3)

(92.2)

Net finance costs

(34.9)

(43.3)

(87.3)

\* The 2019 charge includes a £1.5m accelerated charge recognised as the result of the replacement of the Group's previous banking agreement with a new £400m agreement in January 2019.

b) Interest for non-statutory measures

Interest for non-statutory measures is used to calculate fixed charge cover ratio.

 

 

£m

 

12 months ended

30 June 2020

 

12 months ended

30 June 2019

 

Year ended

31 December 2019

Interest on bank loans and overdrafts

2.3

2.1

2.0

Interest on sterling bonds

21.1

21.0

21.0

Amortisation of issue costs of bank loans

1.4

3.0

2.9

Unwinding of discount - liability to pension scheme

2.2

2.0

2.2

Interest for fixed charge ratio purposes

27.0

28.1

28.1

 

Notes to the interim financial statements

6. Government grants and other support

The UK government has offered a range of financial support packages to help companies affected by coronavirus, including the furlough scheme and business rates holidays. During the six-month period ended 30 June 2020 the Group has received the following benefits from these support packages:

 

£m

Six months ended

30 June 2020

Government grants from furlough scheme

44.9

Business rates relief

21.3

 

66.2

The Group has elected to deduct the grants from the furlough scheme in reporting the related expense.

In addition the Group has deferred £107m of VAT payments, which will be paid on or before 31 March 2021.

7. Tax

 

£m

Six months ended

30 June 2020

Six months ended

30 June 2019

(re-presented)

Year ended

31 December 2019

 

Current tax

 

 

 

 - current year

-

11.1

44.0

 - prior year

-

-

(3.1)

Total current tax

-

11.1

40.9

Deferred tax

 

 

 

 - current year

(13.2)

(6.9)

(12.1)

 - prior year

-

-

29.2

Total deferred tax

(13.2)

(6.9)

17.1

Total tax charge/(credit)

(13.2)

4.2

58.0

Tax for the interim period is charged on profit before tax, based on the best estimate of the corporate tax rate for the full financial year.

 

Notes to the interim financial statements

8. Retirement benefit obligations

(a) Pension scheme asset movement Six months ended 30 June 2020

£m

TP Schemes

BSS Schemes

Group

Gross pension asset / (liability) at 1 January

55.0

(2.4)

52.6

Administration expenses

(0.3)

(0.3)

(0.6)

Net interest income / (expense)

0.6

(0.1)

0.5

Contributions from sponsoring companies

1.0

5.8

6.8

Return on plan assets (excluding amounts included in net interest)

126.4

35.5

161.9

Actuarial losses arising from changes in financial assumptions

(119.6)

(35.4)

(155.0)

Gross pension asset at 30 June

63.1

3.1

66.2

Deferred tax

 

 

(12.8)

Net pension asset

 

 

53.4

 

 

 

 

  Six months ended 30 June 2019

£m

TP Schemes

BSS Schemes

Group

Gross pension asset / (liability) at 1 January

82.3

(1.1)

81.2

Administration expenses

(0.5)

(0.2)

(0.7)

Current service charge

(0.2)

-

(0.2)

Net interest income / (expense)

1.2

(0.1)

1.1

Contributions from sponsoring companies

1.0

6.0

7.0

Return on plan assets (excluding amounts included in net interest)

103.1

30.8

133.9

Actuarial losses arising from changes in demographic assumptions

(0.9)

(0.3)

(1.2)

Actuarial losses arising from changes in financial assumptions

(130.5)

(42.1)

(172.6)

Gross pension asset / (liability) at 30 June

55.5

(7.0)

48.5

Deferred tax

 

 

(10.6)

Net pension asset

 

 

37.9

 

Notes to the interim financial statements

8. Retirement benefit obligations (continued)

(a) Pension scheme asset movement (continued) Year ended 31 December 2019

£m

TP Schemes

BSS Schemes

Group

Gross pension asset / (liability) at 1 January

82.3

(1.1)

81.2

Current service costs and administration expenses

(0.9)

(0.5)

(1.4)

Net interest income

2.3

0.1

2.4

Contributions from sponsoring companies

2.1

11.3

13.4

Return on plan assets (excluding amounts included in net interest)

127.1

34.7

161.8

Actuarial losses arising from changes in demographic assumptions

(0.9)

(0.3)

(1.2)

Actuarial losses arising from changes in financial assumptions

(161.5)

(48.3)

(209.8)

Actuarial gains arising from experience adjustments

4.5

1.7

6.2

Gross pension asset / (liability) at 31 December

55.0

(2.4)

52.6

Deferred tax

 

 

(8.9)

Net pension asset

 

 

43.7

(b) Amounts recognised in the statement of comprehensive income Six months ended 30 June 2020

£m

TP Schemes

BSS Schemes

Group

Return on plan assets (excluding amounts included in net interest)

126.4

35.5

161.9

Actuarial losses arising from changes in financial assumptions

(119.6)

(35.4)

(155.0)

Actuarial gains on defined benefit pension schemes

6.8

0.1

6.9

 

Notes to the interim financial statements

8. Retirement benefit obligations (continued)

(b) Amounts recognised in the statement of comprehensive income (continued) Six months ended 30 June 2019

£m

TP Schemes

BSS Schemes

Group

Return on plan assets (excluding amounts included in net interest)

103.1

30.8

133.9

Actuarial losses arising from changes in demographic assumptions

(0.9)

(0.3)

(1.2)

Actuarial losses arising from changes in financial assumptions

(130.5)

(42.1)

(172.6)

Actuarial losses on defined benefit pension schemes

(28.3)

(11.6)

(39.9)

Year ended 31 December 2019

£m

TP Schemes

BSS Schemes

Group

Return on plan assets (excluding amounts included in net interest)

127.1

34.7

161.8

Actuarial losses arising from changes in demographic assumptions

(0.9)

(0.3)

(1.2)

Actuarial losses arising from changes in financial assumptions

(161.5)

(48.3)

(209.8)

Actuarial gains arising from experience adjustments

4.5

1.7

6.2

Actuarial losses on defined benefit pension schemes

(30.8)

(12.2)

(43.0)

9. Trade and other receivables

 

 

£m

As at

30 June 2020

As at

30 June 2019

(restated - note 1)

As at

31 December 2019

Trade receivables

595.5

705.9

743.0

Allowance for doubtful debts

(34.8)

(24.3)

(20.0)

 

560.7

681.6

723.0

Other receivables

215.9

224.5

444.4

Prepayments and accrued income

72.6

86.2

72.3

 

849.2

992.3

1,239.7

The Directors consider that the only class of asset containing material credit risk is trade receivables. No interest is charged on the trade receivables from the date of the invoice until the date the invoice is classified as overdue according to the trading terms agreed between the Group and the customer. Thereafter, the Group retains the right to charge interest at 4% pa above the clearing bank base rate on the outstanding balance.

 

Notes to the interim financial statements

9. Trade and other receivables (continued)

Expected credit loss assessment

The outbreak of coronavirus has had a material impact on businesses around the world and the economies in which the Group operates. Given the rapidly changing economic impact and the effect of substantial government and central bank relief actions and support measures, the Directors have made various judgements to best reflect the range of outcomes at the reporting date. The expected credit loss for current debt has been increased to reflect the Group's experience in the 2008-2009 recession and overdue debt has been provided against as if it were one aging bracket older.

The following table provides information about the exposure to credit risk and expected credit losses for trade receivables as at 30 June 2020.

 

 As at 30 June 2020

 As at 31 December 2019

 

 

£m

Gross carrying amount

Weighted average loss rate

Loss allowance

Credit impaired

Gross carrying amount

Weighted average loss rate

Loss allowance

Credit impaired

Current

528.4

1.0%

(5.0)

No

673.7

0.4%

(2.4)

No

0 - 30 days

13.9

10.0%

(1.3)

No

35.0

4.0%

(1.5)

No

31 - 60 days

12.6

18.0%

(2.2)

No

13.6

8.0%

(1.1)

No

61 - 90 days

6.2

35.0%

(2.1)

No

3.5

18.0%

(0.6)

No

91 - 120 days

2.0

71.0%

(1.3)

No

2.1

31.0%

(0.6)

No

>120 days

32.4

71.0%

(22.9)

Yes

15.1

91.0%

(13.8)

Yes

Total

595.5

 

(34.8)

 

743.0

 

(20.0)

 

10. Share capital

 

Allotted

 

No.

£m

Ordinary shares of 10p:

 

 

At 1 January 2020

252,143,923

25.2

Allotted under share option schemes

-

-

At 30 June 2020

252,143,923

25.2

 

Notes to the interim financial statements

11. Earnings per share

a) Basic and diluted earnings per share

£m

Six months ended

30 June

2020

Six months ended

30 June

2019

(re-presented)

Year

ended

31 December

2019

(Loss) / profit attributable to the owners of the parent

(113.5)

10.5

121.1

No.

 

 

 

Weighted average number of shares in issue

248,364,801

248,121,892

247,957,050

Dilutive effect of share options

3,135,205

4,348,093

2,293,525

Weighted average number of shares for diluted earnings per share

251,500,006

252,469,985

250,250,575

(Loss) / earnings per share

(45.7)p

4.2p

48.9p

Diluted (loss) / earnings per share

(45.7)p

4.2p

48.4p

b) Adjusted earnings per share

Adjusted earnings per share are calculated by excluding the effects of the amortisation of acquired intangible assets, adjusting items and discontinued operations from earnings.

£m

Six months ended

30 June

2020

Six months ended

30 June 2019

(re-presented)

Year ended

31 December

2019

(Loss) / profit attributable to the owners of the parent from continuing operations

(113.5)

10.5

121.1

Adjusting items

128.5

153.9

160.1

Tax on adjusting items

(21.9)

(27.6)

(36.3)

Amortisation of acquired intangible assets

5.0

4.3

9.0

Tax on amortisation of acquired intangible assets

(1.0)

(0.8)

(1.6)

Adjusting items - deferred tax

6.4

-

27.1

Earnings for adjusted earnings per share

3.5

140.3

279.4

Adjusted earnings per share

1.4p

56.5p

112.7p

Adjusted diluted earnings per share

1.4p

55.6p

111.6p

 

Notes to the interim financial statements

12. Dividends

Amounts were recognised in the financial statements as distributions to equity shareholders in the following periods:

£m

Six months ended

30 June 2020

Six months ended

30 June 2019

Year ended

31 December

2019

Final dividend for the year ended 31 December 2019 of 33.0 pence (2018: 31.5 pence) per share

-

78.4

78.2

Interim dividend for the year ended 31 December 2019 of 15.5 pence per share

-

-

38.0

The Board suspended the final dividend payment of 33.0 pence per ordinary share in respect of the year ended 31 December 2019 due to the impact of COVID-19.

No interim dividend is proposed in respect of the year ending 31 December 2020.

13. Borrowings

At the period end, the Group had the following borrowing facilities available:

 

 

£m

As at

30 June

2020

As at

30 June

2019

As at

31 December

2019

Drawn facilities:

 

 

 

Sterling bond 2014 (due September 2021)

254.1

257.5

255.8

Sterling bond 2016 (due July 2023)

300.0

300.0

300.0

 

554.1

557.5

555.8

Undrawn facilities:

 

 

 

5-year committed revolving credit facility (expires January 2025)

400.0

400.0

400.0

Bank overdraft

30.0

30.0

30.0

 

430.0

430.0

430.0

The Group continues to work closely with its relationship banking syndicate. Despite the strong liquidity position, given the impact of the COVID-19 crisis and the resulting lockdown period on the Group's income statement for 2020, the Group has taken the prudent step to agree a relaxation of the covenants for the test dates at the end of June and December 2020.

The interest cover covenant has been waived for June and December 2020 The net leverage covenant has been relaxed to 3.5x for June 2020 The net leverage covenant has been waived for December 2020 A minimum liquidity headroom covenant of £100m under the existing facility as at 30 September 2020 and 31 December 2020

The revolving credit facility was also extended to 2025.

 

Notes to the interim financial statements

14. Non-current assets held for sale and discontinued operations

On 30 June 2019 the Plumbing & Heating segment was available for immediate sale and the Directors considered that its sale was highly probable. The assets and liabilities of the Plumbing & Heating segment were therefore presented as held for sale and its results were reported as a discontinued operation. After this, a decision was made to pause the sale of the Plumbing & Heating segment and therefore as at 31 December 2019 and 30 June 2020 the assets and liabilities of this segment are not classified as held for sale.

The Primaflow F&P wholesale business, which formed part of the Plumbing & Heating segment, was sold on 31 January 2020. As at 31 December 2019 the assets and liabilities of this business were classified as held for sale.

a) Assets and liabilities of disposal group classified as held for sale

£m

30 June 2020

 30 June 2019

 31 December 2019

Assets

 

 

 

Property, plant and equipment

-

46.8

4.2

Right-of-use assets

-

110.0

19.0

Intangible fixed assets

-

68.9

2.9

Inventory

-

218.7

35.7

Trade and other current receivables

-

317.9

76.2

Total assets

-

762.3

138.0

 

£m

30 June 2020

 30 June 2019

 31 December 2019

Liabilities

 

 

 

Trade and other payables

-

(302.7)

(71.9)

Tax liabilities

-

(31.3)

-

Lease liabilities

-

(113.0)

(19.6)

Provisions

-

(8.7)

-

Total liabilities

-

(455.7)

(91.5)

Net assets

-

306.6

46.5

 

Notes to the interim financial statements

15. Net debt

£m

Six months ended

30 June

2020

Six months

ended

30 June

2019

(restated - note 1)

Year

ended

31 December 2019

Net debt at 1 January

(1,787.7)

(353.6)

(353.6)

Recognition of lease liability

(61.7)

(1,510.3)

(1,566.9)

Decrease in cash and cash equivalents

320.6

(116.1)

(47.5)

Cash flows from debt

0.5

2.9

2.9

Cash flows from repayment of lease liabilities

113.6

115.2

232.6

Cash flows from pension liability

3.5

3.4

3.4

Finance charges movement

(0.6)

(2.2)

(2.9)

Amortisation of swap cancellation receipt

1.7

1.7

3.4

Discount unwind on liability to pension scheme

(1.1)

(1.1)

(2.1)

Discount unwind on lease liability

(29.7)

(30.1)

(57.0)

Net debt at 30 June / 31 December

(1,440.9)

(1,890.2)

(1,787.7)

Less: pension SPV liability

29.1

30.4

31.5

Less: lease liability

1,390.2

1,446.2

1,412.3

Covenant net debt at 30 June / 31 December

(21.6)

(413.6)

(343.9)

 

 

 

 

Notes to the interim financial statements

16. Financial instruments

The fair values of financial assets and financial liabilities are determined as follows:

Foreign currency forward contracts are measured using quoted forward exchange rates Deferred consideration liabilities are calculated using forecasts of future performance of acquisitions discounted to present value

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.

There were no transfers between levels during the year. There are no non-recurring fair value measurements.

£m

As at 30 June 2020

As at 30 June 2019

As at 31 December 2019

Included in assets

 

 

 

Level 2 - Foreign currency forward contracts at fair value through profit and loss

0.4

0.5

-

 

0.4

0.5

-

Current assets

0.4

0.5

-

Non-current assets

-

-

-

 

0.4

0.5

-

Included in liabilities

 

 

 

Level 2 - Foreign currency forward contracts at fair value through profit and loss

-

-

0.7

Level 3 - Deferred consideration at fair value through equity

1.8

4.7

1.8

 

1.8

4.7

2.5

Current liabilities

1.8

-

0.7

Non-current liabilities

-

4.7

1.8

 

1.8

4.7

2.5

 

Notes to the interim financial statements

17. Impairment

The Group tests goodwill and other non-monetary assets with indefinite useful lives for impairment annually or more frequently if there are indications that an impairment may have occurred. The recoverable amounts of the goodwill and other non-monetary assets with indefinite useful lives are determined from value-in-use calculations. The key assumptions for the value-in-use calculations are those regarding the discount rates, growth rates, volume growth in the relevant markets and operating margins. Management estimates pre-tax discount rates that reflect current market assessments of the time value of money and the risks specific to the cash-generating unit groupings that are not reflected in the cash flow projections.

Due to coronavirus and its impact on the UK economy and the Group, an impairment review has been performed on the Travis Perkins General Merchant, BSS, CCF, Keyline, Plumbing & Heating and Wickes businesses and on their branches and stores. The Directors' concluded that there is not an indication that the assets of the Toolstation UK and Toolstation Europe businesses may be impaired and accordingly these businesses and their branches were not reviewed for impairment.

The impairment reviews have shown that no impairment has occurred in relation to goodwill, but that the Wickes CGU, which was disclosed as being sensitive to impairment in the Group's 2019 Annual Report & Accounts, remains sensitive to changes in the assumptions used in the impairment review. Additionally, an impairment of £12.6m has been recorded in respect of five Wickes stores as discussed in note 2.

Key assumptions

The key financial assumptions used in the estimation of the recoverable amount are set out below. The values assigned to the key assumptions represent management's assessment of current market conditions and future trends and have been based on historical data from both external and internal sources.

 

30 June 2020

31 December 2019

Pre-tax discount rate

11.8%

9.3%

Long-term growth rate

1.6%

1.6%

Management determined the values assigned to these financial assumptions as follows:

Pre-tax discount rates: these are calculated by reference to the weighted average cost of capital ("WACC") of the Group and reflect specific risks relating to the Group's industries and the countries in which the Group operates. The pre-tax discount rate is adjusted for risks not adjusted for in the cash flow forecasts, including risks related to the size and industry of each CGU. Due to coronavirus and its impact on debt and equity markets, the Group's cost of capital has increased significantly since December 2019. Long-term growth rate: This is the weighted average growth rate used to extrapolate cash flows beyond the budget period. This represents the forecast GDP growth for the final year considered in the Office for Budget Responsibility's most recent Economic and Fiscal Outlook report.

Cash flow forecasts are derived from the most recent board approved corporate plans updated for changes in current trading conditions and adjusted for risks relevant to the cash flows for 2020 and 2021. These updates have included the impact of coronavirus on sales, operating costs and government support schemes, with the forecasts incorporating grants from the furlough scheme from July 2020 to October 2020 and business rates relief from July 2020 to March 2021. The forecasts have not assumed any government support beyond March 2021.

 

Notes to the interim financial statements

17. Impairment (continued)

The key underlying operating assumptions used in the estimation of future cash flows are:

Market volumes, on which the approved corporate plans are based, are derived from a variety of sources including construction and consumer outlook reports, current and forecast housing market transaction numbers and mortgage approval levels. The Directors consider this to be the principal operating assumption as it determines management's approach to the interlinked factors underlying the operating margin percentage. Operating margin percentage is forecast in the context of the sales market volume assumptions and is based on historical experience of operating margins, adjusted for the impact of changes to product costs and cost-saving initiatives.

Cash flows beyond the corporate plan period (2022 and beyond) have been determined using the long term growth rate.

Sensitivity of results to changes in assumptions

Whilst the Directors believe the assumptions are realistic, there are reasonably possible changes in key assumptions that would cause the recoverable amount of the Wickes CGU to be lower than the carrying amount. The key variables applied to the value-in-use calculations for Wickes and the value at which the recoverable amount would be equal to the carrying amount of £595.2m, including the effect of lease liabilities £130.7m in excess of right-of-use assets, were:

 

 30 June 2020

31 December 2019

 

Value

Sensitivity

Value

Sensitivity

Pre-tax discount rate

11.8%

12.3%

9.3%

10.7%

Long-term growth rate

1.6%

1.2%

1.6%

0.3%

Market volume growth

1.0%

0.6%

1.0%

(0.1%)

Operating margin

5.2%

4.9%

5.1%

4.3%

The market volume growth and operating margin values and sensitivities in this disclosure compare conditions and performance before coronavirus with the assumed conditions at the end of the corporate plan period. The Directors have assumed that the unusual economic circumstances and government restrictions that currently exist as a result of coronavirus will not exist at the end of the corporate plan period.

 

Notes to the interim financial statements

18. Disposal of business

The Primaflow F&P wholesale business, which formed part of the Plumbing & Heating segment, was sold on 31 January 2020 for cash consideration of £50.1m, generating profit on disposal of £1.8m. As this business did not represent a separate major line of business or geographical area of operations, it has not been shown as a discontinued operation in the income statement.

19. Related party transactions

The Group has related party relationships with its subsidiaries and with its Directors. Transactions between group companies, which are related parties, have been eliminated on consolidation and are not disclosed in this note. There have been no related party transactions with directors other than in respect of remuneration. In the first half of 2020 the Group made loans to associates of £nil (2019 H1: £13.6m). Operating transactions with the associates were not significant during the period.

20. Non-statutory information

a) Adjusted operating profit

Adjusted operating profit is calculated by excluding the effects of amortisation of acquired intangible assets and adjusting items from operating profit.

£m

Six months ended

30 June 2020

Six months ended

30 June 2019

Year ended

31 December 2019

Operating (loss) / profit

(91.5)

61.6

232.1

Adjusting items (note 2)

128.5

153.9

200.4

Amortisation of acquired intangible assets

5.0

4.3

9.0

Adjusted operating profit

42.0

219.8

441.5

b) Adjusted profit before tax

Adjusted profit before tax is calculated by excluding the effects of amortisation of acquired intangible assets and adjusting items from profit before tax.

£m

Six months ended

30 June 2020

Six months ended

30 June 2019

Year ended

31 December 2019

(Loss) / profit before tax

(126.5)

15.8

180.8

Adjusting items (note 2)

128.5

153.9

160.1

Amortisation of acquired intangible assets

5.0

4.3

9.0

Adjusted profit before tax

7.0

174.0

349.9

 

Notes to the interim financial statements

20. Non-statutory information (continued)

c) Ratio of net debt to adjusted EBITDA (rolling 12 months)

Due to the impact of the adoption of IFRS 16 - Leases on 1 January 2019, ratios for the period ended 30 June 2019 were calculated using two times the result for the six month period.

 

£m

 30 June 2020

(rolling 12 months)

 30 June 2019

(6 months)

(restated - note 1)

31 December 2019

(rolling 12 months)

Operating profit

79.0

61.6

232.1

Depreciation and amortisation

306.5

136.9

300.2

EBITDA

385.5

198.5

532.3

Adjusting items (note 2)

175.0

153.9

200.4

Share of associates' results

(1.9)

(2.5)

(4.3)

Adjusted EBITDA

558.6

349.9

728.4

Adjusted EBITDA (annualised)

n/a

699.8

n/a

Net debt (note 15)

1,440.9

1,890.2

1,787.7

Net debt to adjusted EBITDA

2.6x

2.7x

2.5x

d) Fixed charge cover (rolling 12 months)

 

£m

 30 June

2020

(rolling 12 months)

 30 June

2019

(annualised 6 months)

31 December

 2019

(rolling 12 months)

Adjusted EBITDA

558.6

349.9

728.4

Adjusted EBITDA (annualised 6 months)

n/a

699.8

n/a

Depreciation of property right-of-use assets (annualised 6 months / rolling 12 months)

149.0

142.4

147.5

Interest for fixed charge cover (rolling 12 months) (note 5)

27.0

28.1

28.1

Interest on lease liabilities (annualised 6 months / rolling 12 months)

56.6

60.2

57.0

Fixed charge (annualised 6 months / rolling 12 months)

232.6

230.7

232.6

Fixed charge cover

2.4x

3.0x

3.1x

 

Notes to the interim financial statements

20. Non-statutory information (continued)

e) Free cash flow

£m

Six months ended

30 June 2020

Six months ended

30 June 2019

Year

ended

31 December 2019

Adjusted operating profit

42.0

219.8

441.5

Less: Profit on disposal of properties

(1.9)

(6.0)

(20.6)

Adjusted operating profit excluding property profit

40.1

213.8

420.9

Depreciation of property, plant and equipment

48.3

48.0

97.5

Amortisation and impairment of internally generated intangibles

8.2

8.5

23.5

Share-based payments

6.8

14.2

19.9

Movement on working capital

320.4

(134.2)

(128.7)

Other net interest paid

(4.8)

(4.2)

(26.2)

Interest on lease liabilities

(29.7)

(30.1)

(57.0)

Income tax paid

(37.5)

(30.1)

(52.9)

Capital expenditure excluding freehold purchases

(46.9)

(51.1)

(120.9)

Disposal of plant and equipment

0.1

5.0

19.4

Free cash flow

305.0

39.8

195.5

f) Capital ratios (i)  Average capital employed

£m

30 June 2020

(rolling 12 months)

30 June 2019

(6 months)

(restated - note 1)

31 December 2019

(rolling 12 months)

Opening net assets

2,502.0

2,611.6

2,611.6

Net pension asset

(37.9)

(65.8)

(65.8)

Net borrowings

1,852.4

1,876.9

1,876.9

Opening capital employed

4,316.5

4,422.7

4,422.7

Closing net assets

2,480.5

2,502.0

2,587.1

Net pension asset

(53.4)

(37.9)

(43.7)

Net borrowings

1,440.9

1,890.2

1,787.7

Closing capital employed

3,868.0

4,354.3

4,331.1

Average capital employed

4,092.3

4,388.5

4,376.9

 

Notes to the interim financial statements

20. Non-statutory information (continued)

(ii)  Return on capital employed

£m

30 June 2020

(rolling 12 months)

30 June

 2019

(6 months)

(restated - note 1)

31 December

 2019

(rolling 12 months)

Adjusted operating profit

263.7

219.8

441.5

Adjusted operating profit (annualised 6 months)

n/a

439.6

n/a

Average capital employed

4,092.3

4,388.5

4,376.9

Return on capital employed

6.4%

10.0%

10.1%

g) Like-for-like sales

£m

Merchanting

Retail

Toolstation

Plumbing & Heating

Total

2019 H1 revenue (re-presented)

1,869.1

694.8

207.5

712.9

3,484.3

Branch closures

(37.2)

(6.1)

(0.8)

(0.5)

(44.6)

Trading days

14.8

3.8

1.1

4.7

24.4

Disposal of the business

-

-

-

(102.6)

(102.6)

2019 H1 like-for-like revenue (re-presented)

1,846.7

692.5

207.8

614.5

3,361.5

Like-for-like revenue change

(477.0)

(56.7)

26.9

(140.3)

(647.1)

Branch opening

15.0

0.1

18.8

1.3

35.2

Acquisition of the business

-

-

31.0

-

31.0

2020 H1 revenue

1,384.7

635.9

284.5

475.5

2,780.6

Like-for-like sales are a measure of underlying sales performance for two successive periods. Branches contribute to like-for-like sales once they have been trading for more than twelve months. Revenue included in like-for-like sales is for the equivalent times in both years being compared. When branches close revenue is excluded from the prior year figures for the months equivalent to the post closure period in the current year.

RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge:

The condensed set of financial statements has been prepared in accordance with IAS 34 - Interim Financial Reporting, as adopted by the EU; The Interim Management Report includes a fair review of the information required by:DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

 

By order of the Board

 

 

Nick Roberts   Alan Williams

Chief Executive Officer  Chief Financial Officer

7 September 2020  7 September 2020

 

INDEPENDENT REVIEW REPORT TO TRAVIS PERKINS PLC

Conclusion

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 which comprises the condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated statement of changes in equity, condensed consolidated cash flow statement and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

 

Anthony Sykes

Senior Partner

for and on behalf of KPMG LLP

Chartered Accountants

15 Canada Square

Canary Wharf

London

E14 5GL

7 September 2020

 

 

 

 

 

 

 

 


ISIN:GB0007739609
Category Code:IR
TIDM:TPK
LEI Code:2138001I27OUBAF22K83
Sequence No.:83664
EQS News ID:1128433
 
End of AnnouncementEQS News Service

UK Regulatory announcement transmitted by DGAP - a service of EQS Group AG. The issuer is solely responsible for the content of this announcement.

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