Preliminary Results

RNS Number : 6835B

Travis Perkins PLC

23 February 2011

 



TRAVIS PERKINS PLC

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2010

GROWTH IN A FLAT MARKET DRIVEN BY OUTPERFORMANCE IN EVERY BUSINESS
FINANCIAL HIGHLIGHTS
	·   Group revenue up 8% at £3,153m, up 5% on a like-for-like basis
	·   Adjusted profit before tax up 20% to £217m
	·   Adjusted EPS up 5% before consolidating BSS, up 3% to 77.2p on a reported basis
	·   Adjusted group operating margin before BSS impact increased by 0.1% to 7.8%
	·   Net debt reduced by £205m before the effect of the BSS acquisition and the one-off pension contribution
	·   Year end net debt was £774m.  Adjusted net debt to EBITDA was 1.92x (note 12)
	·   Travis Perkins pension fund into surplus of £32m
	·   Final dividend of 10p per share making a total dividend of 15p per share
	·   BSS acquisition completed on 14 December 2010 for £799m enterprise value
OPERATING HIGHLIGHTS
	·     All 11 group businesses performed better than the market with outperformance of around 4% in merchanting and around 6% in retail
	·     Focus on operating and financial performance maintained against background of completion of the acquisition of BSS
	·     Strong like-for-like performance in merchanting with increase of 7.3%
	·     Retail like-for-like sales increase of 0.2%
			2010		2009
			£m	%	£m
Revenue			3,152.8	7.6	2,930.9
Adjusted*:
Operating profit (note 6a)			239.0	6.4	224.6
Profit before taxation (note 6b)			216.7	20.4	180.0
Profit after taxation (note 6b)			156.9	17.2	133.9
Adjusted earnings per ordinary share (pence) (note 8b)			77.2	2.7	75.2
Statutory:
Operating profit			219.8	(14.6)	257.3
Profit before taxation			196.8	(7.5)	212.7
Profit after taxation			141.3	(10.2)	157.4
Basic earnings per ordinary share (pence)			69.6	(21.3)	88.4
Total dividend declared per ordinary share (pence) (note 9)			15.0p	-	-

* Throughout this preliminary announcement the term "adjusted" has been used to signify that the effects of the exceptional items, amortisation of intangible assets and the associated tax impacts have been excluded from the disclosure being made. Details of exceptional items are given in notes, 6, 7 and 8.

Geoff Cooper, Chief Executive, commented:

"The Group made excellent progress in 2010, a year in which our organic development strategy, against a background of depressed levels of construction activity, produced a strong financial performance. The Group achieved further market share gains and impressive increases in profits. The Group's strategic position and prospects in the UK have been considerably strengthened through the recent completion of the BSS.

"Our three main targets for 2011 are to drive organic growth, drive cash generation and to integrate BSS to get the best out of the acquisition. We have made a strong start to 2011 and consequently we look forward to another year of good progress."

Enquiries:

Geoff Cooper, Chief Executive

Paul Hampden Smith, Finance Director

Travis Perkins PLC                                                                 [phone]

David Bick/Mike Feltham/Mark Longson

Square1 Consulting Limited                                                   [phone]            

Summary  The Group achieved strong financial results in 2010 with good gains in revenues, market share and profitability. Our organic strategy, which has involved a continuous series of incremental improvements in our offer to customers, has increasingly gained traction in the market.  Every one of our 11 businesses outgrew their direct market comparators, increased market share and grew profits.  The Group also took a major strategic step forward with the BSS acquisition.

Financial Performance  After adjusting for the effect of exceptional items and amortisation in both years, the Group recorded an increase of 20% in PBT to £217m and an increase of 5% in adjusted earnings per share before consolidating two weeks of trading at BSS through the Christmas shutdown.  Adjusted earnings per share rose 3% to 77 pence. Including the effect of our acquisition of BSS, shareholders' funds increased by £491m.

For 2010, the Group reported revenue up £222m at £3,153m (2009: £2,931m).  Whilst the market overall was broadly flat in value, our revenues increased mainly through the self-help initiatives incorporated within our organic strategy.  This revenue increase drove adjusted operating profit up 6% to £239m (2009: £225m).  The revenue increase of 7.6% comprised an increase of 5.0% in like-for-like ("LFL") sales, with network expansion accounting for growth of 2.6%.

Adjusted operating margin, before the effects of BSS, grew by 0.1% to 7.8% (2009: 7.7%) (note 6c). This reflects our strategy of investing in improvements to our customer propositions. Whilst adjusted operating margin in the retail division improved by 0.1% to 5.9%, the merchanting division adjusted operating margin remained at 8.8%.  Including the effect of the BSS acquisition, adjusted operating margin fell by 0.1% to 7.6% (2009: 7.7%) (note 6c).

The Board is recommending to shareholders the payment of a final dividend of 10p per share which, together with the interim paid dividend of 5p per share, will make a total dividend for 2010 of 15p per share. The total dividend will absorb £35m of cash.  Our objective is to grow dividends ahead of earnings so as to reduce dividend cover to between 2.5 times and 3.5 times over the medium term.

Markets  We predicted, in merchanting, a gradual recovery in 2010 from the sharp contraction of activity, caused by the recession, which started towards the end of 2008. In contrast, we expected a contraction in retail markets in 2010 following the fading of the artificial support consumers received from a fall in housing costs in 2009. We were broadly correct, with the aggregate value of these two segments of the market being broadly flat, despite continued relatively high product cost and price inflation.

Our tracking of lead indicators told us that construction activity levels were improving at the end of 2009 and the beginning of 2010. When the UK went into the recession at the end of 2008, builders were doing more and more 'second fix' internal work, but less and less heavy-duty foundation, and block and brick building work. In effect, the builders were completing projects that were already underway. This changed towards the end of 2009, when a slow recovery in mortgage activity, encouraged more housing related building works, including the opening up of many new housing sites. Whilst this directly boosted the merchanting market, the retail market had a tough time as inflation bit into consumers' purchasing power.

Outlook and Strategy  The Group has started the year well with like-for-like sales in January up 22% in merchanting, 8% up in BSS and 12% in Retail on a delivered basis (Wickes core up 12%, kitchen and bathroom up 15%), reflecting the weak comparatives from the snow affected January last year. The first 3 weeks of February have also traded well with a 10% increase in like-for-like sales in merchanting, 5% in BSS and a 2% increase in Retail on a delivered basis (Wickes core up 3%, kitchens and bathrooms down 2%).

In January, Wickes' kitchen and bathroom orders were down 3% and in February they were down 36%.  This reflects a combination of pre-VAT increase advanced ordering in late 2010, rather than early 2011, and recent competitor discounting.  In this weak K&B market our K&B gross margins are ahead of 2009.

Despite starting the year well we expect conditions for the next 12 months to remain difficult. There is considerable gloom in the wider economy, but we do not subscribe to the double-dip theory. The merchanting market fell by over 30% from its peak in 2008 and although activity has picked up a little, from a longer term perspective, activity levels are currently around 20% below their peak. Although we will probably see some turbulence in short term trends, we expect activity levels to continue their gradual recovery.  In contrast, we expect the retail market to continue to be soft.

The Group's organic growth strategy is based on a combination of self-help initiatives and external expansion.   In particular, the Group will extend its direct sourcing operations in the Far East and enhance its supply chain whilst at the same time investing in the IT resource necessary to support those and many other activities. 

We will continue to pursue this organic growth strategy, which is delivering increasing market share and sales performance whilst we monitor very closely both our performance and market conditions to keep ahead of our competitors. We will retain our policy of improving our businesses, making many small steps in a large number of aspects of our offer to customers. This process of continual improvement is supported by many new initiatives that we will implement during the course of the year.

Our acquisition of BSS was the stand out event at Travis Perkins last year. Our commercial analysis indicated that we would be acquiring a strong company with quality people and that the prospects for the business are excellent and exciting.  This has proven to be the case.

We are realistic about market prospects, but are positive about the future because we have the strategy, market position, execution skills and scale to respond quickly to market changes and to deliver outstanding service to our customers.

Our three main targets for 2011 to create value are to:

·     continue the Group's strategy of organic growth. We have more initiatives in gestation to bring to market;

·     use our strong cash generation to pay down debt, maintain investment in continuous improvement, selectively continue network expansion and increase dividends;

·     integrate BSS and get the best out of the acquisition. We have proved we can generate superior returns from businesses in our sector, and will work hard to apply those skills to the BSS businesses.

We look forward to another year of good progress.

Merchanting and Retail  Performance in merchanting was achieved by improvements in its overall service to builders, including better product availability.  Our regular customer research indicates that over the year, we have consolidated our reputation for being the merchant who can supply what customers need, when they need it.  Because of our growing international sourcing expertise, we can increasingly supply both unique and routine products at more competitive prices than our rivals. This aspect of our work relies on the vital support of our buying and supply chain teams, working in tandem.

Merchanting division sales increased by 8.0%, with sales from new branch openings contributing 0.7%, and LFL sales improving 7.3%. The LFL increase comprised 3.6% of price inflation and 3.7% increase in volumes. We estimate that both our general and specialist merchanting operations recorded a performance of around 4% ahead of the market, with LFL sales in general merchanting increasing by 6.7% and specialist merchanting increasing by 8.5%.

All retail markets were tough in 2010, with non-food, and particularly our own segment of DIY, badly affected by falling consumer confidence. Against this backdrop our retail division outperformed its market by around 6%, with further improvements to our customer proposition, particularly in our multi-channel operations, where our superior technologies and fulfilment operations have helped us make significant gains in revenues.  We are pleased that, with increasing use of retail channels by tradesmen, our market share gains have been greatest in that segment of the market.

Retail division total sales were up by 2.3% to £1,003m (2009: £981m), with sales from new branch openings contributing 2.1%.  A 3.3% sales increase arising from price inflation was offset by a 3.1% volume decrease resulting in a LFL sales increase of 0.2%. Within the retail division's overall LFL performance, LFL sales for the full year of Wickes' core products were down by 2.0%, and on the same basis kitchen and bathroom sales were ahead by 9.5%.

Acquisition of BSS  We approached the BSS opportunity with great confidence because we believed BSS was strategically strong and financially very attractive. Although we had a considerable amount of plumbing business through our various brands, we were in the second tier of national companies operating in the market.  By acquiring BSS and combining our activities, the Group has been promoted to a leading position in the market, making us a powerful force in serving customers and helping suppliers meet their own strategies.

The Group's published target for synergies arising from the BSS acquisition is £25m, which comprises £19m in respect of goods for resale and £6m of overhead savings.  We remain confident of achieving these targets. 

The integration programme has commenced, but it is too early to provide any further meaningful insight about the synergies available to the Group.  However, it is clear that achieving the target will require a substantial effort from teams across the business and in particular the allocation of considerable resource to, and investment in, supply chain and IT.  We aim to provide an update at the interim stage this year with our progress on achieving these synergies.

Financial Objectives Achieved  Our principal objectives for 2010 were to reduce group borrowings through cash generation, continue the creation of shareholder value by increasing profits and increase the Group's market share via like-for-like sales growth, expansion through acquisitions and in-store developments.   We exceeded those targets, if the effect of the acquisition of BSS is excluded from net debt.

The Group's operating margins were very healthy, with merchanting operating at 8.8%, while in retail we achieved a 5.9% margin. Both merchanting and retail achieved margins that were the highest in their respective sectors.

The Group incurred net exceptional operating charges of £19m in 2010.  £21m of exceptional costs related to the acquisition of BSS, which comprised £13m of professional and bank fees and £8m of charges arising from post acquisition adjustments to assets and liabilities in the books of BSS.  There was a £2m exceptional credit to operating profit due to the partial release of exceptional onerous lease provisions established in 2008.   After charging these exceptional operating items, operating profit was £220m (2009: £257m).

Overall, lower interest rates combined with significantly lower borrowings following the rights issue have reduced net finance charges, excluding the effects of an exceptional bank fee write off and other finance income and charges associated with the pension scheme, by £13m (31%).  The average interest rate during the year was 3.1% (2009: 3.7%).

Excluding the effect of exceptional items the adjusted tax charge was £60m, an effective rate of 27.6% compared with £46.1m (25.6%) in 2009. The increase was due mainly to the non-recurrence of the reduced IFRS 2 share option charge in 2009.

Basic earnings per share were 69.6 pence (2009: 88.4 pence).  Adjusted earnings per share (note 8b) were 77.2 pence (2009: 75.2 pence) a 2.7% increase.  This reflects the 13% dilution of the £300m rights issue in the middle of 2009.   There is no significant difference between basic and diluted earnings per share.

Continued Focus On Strong Cash Generation  Despite the tough operating conditions the Group still managed to generate £343m from operations, before one-off and special pension cash flows of £53m.  
Free cash flow for the year was £278m (2009: £294m).

Before including the £295m cash element of the BSS acquisition, and disposal proceeds of £17m, gross capital expenditure and investment totalled £65m.  £24m was spent on capital replacements, and £41m on expansion, including £13m on ToolStation.  We believe our culture of undertaking small incremental improvement projects with strict return criteria for each expansion project is a major strength of the Group. 

Excluding the £477m effect of acquiring BSS and the £35m one-off pension payment, net debt reduced by £205m to £262m at the end of 2010. At 31 December total debt was £774m.

At 31 December 2010, the Group had committed UK bank facilities of £857m and $525m of $US notes in issue.  In agreement with its lenders, during the year the Group bought in, but did not cancel £84m of its £1,000m revolving credit facility in return for a profit of £3m, which has benefited finance charges in the income statement.

At the instigation of one of the Group's counterparty banks, the Group realised £14m of cash from cancelling an in the money cross currency swap associated with its US private placement borrowings. This derivative has been replaced by four $US forward contracts.  

The peak and minimum levels of daily borrowings on a cleared basis during the year ended 31 December 2010 was £876m and £551m respectively (2009: £1,083m and £438m).  The maximum month end cleared borrowings were £736m (2009: £1,035m).  At 31 December 2010 the Group had undrawn committed facilities of £493m (2009: £515m).

Pension Fund Into Surplus  At 31 December 2009 the gross deficit of the Travis Perkins' final salary pension scheme was £43m which following negotiations with the Scheme Trustee, the Group has agreed to eliminate over an eight-year period.

In June 2010 we reached a further agreement to fund £35m of the deficit using a group controlled special purpose vehicle ("SPV").  The pension scheme will be entitled to receive the income of the SPV for a period of up to 20 years, subject to funding levels, and this income is backed by the security of 16 Travis Perkins freehold properties. The existing cash contributions to reduce the funding deficit of the pension scheme will fall from £18m in 2010 to £16m in 2011. 

Due to the combination of the one-off £35m contribution to the pension scheme the strong performance of the fund, the capping of pensionable salary increases at 3% in December 2009 and the increase in employees' contributions in April 2009, the Travis Perkins pension scheme now has an accounting surplus of £32m.  The BSS pension schemes have an accounting deficit of £60m, using the same actuarial assumptions as the Travis Perkins' scheme.

Going Concern  

After reviewing the Group's forecasts and making other enquiries, the Directors have formed a judgement at the time of approving the financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  For this reason, they continue to adopt the going concern basis in preparing the financial statements.

In arriving at their opinion the Directors considered the:

·     Group's cash forecasts and revenue projections;

·     Reasonably possible changes in trading performance;

·     Committed facilities available to the Group to early 2013 and the covenants thereon. 

·     Group's robust policy towards liquidity and cash flow management; and

·     Group's abilities to manage its business risks successfully during periods of uncertain economic outlook and challenging macro economic conditions.

Consolidated income statement

For the year ended 31 December 2010

		2010	2010	2010		2009	2009	2009
		Pre- exceptional items	Exceptional items	Total		Pre- exceptional items	Exceptional items	Total
		£m	£m	£m		£m	£m	£m
Revenue		3,152.8	-	3,152.8		2,930.9	-	2,930.9
Operating profit before amortisation		239.0	(19.0)	220.0		224.6	32.7	257.3
Amortisation of intangible assets		(0.2)	-	(0.2)		-	-	-
Operating profit		238.8	(19.0)	219.8		224.6	32.7	257.3
Finance income		17.5	-	17.5		5.6	-	5.6
Finance costs		(39.8)	(0.7)	(40.5)		(50.2)	-	(50.2)
Profit before tax		216.5	(19.7)	196.8		180.0	32.7	212.7
Tax		(59.8)	4.3	(55.5)		(46.1)	(9.2)	(55.3)
Profit for the year		156.7	(15.4)	141.3		133.9	23.5	157.4
Earnings per ordinary share
Basic				69.6p				88.4p
Diluted				67.2p				86.2p
Total dividend declared per ordinary share				15.0p				-

All results relate to continuing operations.

Details of exceptional items are given in notes 6, 7 and 8.

 

Consolidated statement of comprehensive income

For the year ended 31 December 2010

	2010	2009
	£m	£m
Profit for the year	141.3	157.4
Cash flow hedges: (Losses) / gains arising during the year	(4.4)	14.7
Transferred to income statement	6.8	0.4
	2.4	15.1
Actuarial gains / (losses) on defined benefit pension schemes	15.9	(28.3)
	18.3	(13.2)
Movement on cash flow hedge cancellation payment	4.8	(14.0)
Tax relating to components of other comprehensive income	(6.7)	12.5
Other comprehensive income / (loss) for the year	16.4	(14.7)
Total comprehensive income for the year	157.7	142.7

 

Consolidated balance sheet

As at 31 December 2010

	2010	2009
	£m	£m
ASSETS
Non-current assets
Property, plant and equipment	526.0	499.0
Goodwill	1,690.4	1,352.8
Other intangible assets	411.5	162.5
Derivative financial instruments	56.9	44.7
Investment property	0.4	3.3
Interest in associates	45.7	31.7
Available-for-sale investments	1.5	1.5
Deferred tax asset	16.4	12.0
Total non-current assets	2,748.8	2,107.5
Current assets
Inventories	571.6	312.7
Trade and other receivables	692.5	375.4
Derivative financial instruments	0.1	-
Assets held for resale	2.3	-
Cash and cash equivalents	62.9	347.2
Total current assets	1,329.4	1,035.3
Total assets	4,078.2	3,142.8

Consolidated balance sheet (continued) 

As at 31 December 2010

	2010	2009
	£m	£m
EQUITY AND LIABILITIES
Capital and reserves
Issued capital	24.2	20.9
Share premium account	471.5	471.2
Merger reserve	325.9	-
Other reserve	21.3	21.3
Hedging reserve	(6.9)	(12.1)
Own shares	(83.4)	(83.7)
Accumulated profits	1,199.2	1,042.8
Total equity	1,951.8	1,460.4
Non-current liabilities
Interest bearing loans and borrowings	760.9	739.1
Derivative financial instruments	4.2	6.1
Retirement benefit obligation	27.9	43.0
Long-term provisions	36.0	43.7
Deferred tax liabilities	126.9	62.8
Total non-current liabilities	955.9	894.7
Current liabilities
Interest bearing loans and borrowings	72.3	71.5
Unsecured loan notes	3.3	3.8
Trade and other payables	999.9	638.7
Derivative financial instruments	2.5	-
Tax liabilities	39.4	28.1
Short-term provisions	53.1	45.6
Total current liabilities	1,170.5	787.7
Total liabilities	2,126.4	1,682.4
Total equity and liabilities	4,078.2	3,142.8

The financial statements of Travis Perkins plc, registered number 824821, were approved by the Board of Directors on 22 February 2011 and signed on its behalf by:

Geoff Cooper
Paul Hampden Smith		Directors

Consolidated statement of changes in equity

	Issued share capital	Share premium account	Merger reserve	Revaluation reserve	Hedging reserve	Own shares	Retained earnings	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2009	12.3	179.5	-	23.8	(17.8)	(83.7)	904.1	1,018.2
Profit for the year	-	-	-	-	-	-	157.4	157.4
Cash flow hedge gains	-	-	-	-	15.1	-	-	15.1
Actuarial losses on defined benefit pension schemes	-	-	-	-	-	-	(28.3)	(28.3)
Unamortised cash flow hedge cancellation payment	-	-	-	-	(14.0)	-	-	(14.0)
Tax relating to comprehensive income	-	-	-	-	4.6	-	7.9	12.5
Total comprehensive income for the year	-	-	-	-	5.7	-	137.0	142.7
Issue of share capital	8.6	304.9	-	-	-	-	-	313.5
Costs of issuing shares	-	(13.2)	-	-	-	-	-	(13.2)
Realisation of revaluation reserve in respect of property disposals	-	-	-	(2.1)	-	-	2.1	-
Difference between depreciation of assets on a historical basis and on a revaluation basis	-	-	-	(0.4)	-	-	0.4	-
Debit to equity for equity-settled share based payments	-	-	-	-	-	-	(0.8)	(0.8)
At 31 December 2009	20.9	471.2	-	21.3	(12.1)	(83.7)	1,042.8	1,460.4
Profit for the year	-	-	-	-	-	-	141.3	141.3
Cash flow hedge gains	-	-	-	-	2.4	-	-	2.4
Actuarial losses on defined benefit pension schemes	-	-	-	-	-	-	15.9	15.9
Unamortised cash flow hedge cancellation payment	-	-	-	-	4.8	-	-	4.8
Tax relating to comprehensive income	-	-	-	-	(2.0)	-	(4.7)	(6.7)
Total comprehensive income for the year	-	-	-	-	5.2	-	152.5	157.7
Dividends	-	-	-	-	-	-	(10.1)	(10.1)
Issue of share capital	3.3	0.3	325.9	-		0.3	(0.3)	329.5
Realisation of revaluation reserve in respect of property disposals	-	-	-	(0.2)	-	-	0.2	-
Difference between depreciation of assets on a historical basis and on a revaluation basis	-	-	-	(0.2)	-	-	0.2	-
Deferred tax rate change	-	-	-	0.4	-	-	-	0.4
Credit to equity for equity-settled share based payments	-	-	-	-		-	13.9	13.9
At 31 December 2010	24.2	471.5	325.9	21.3	(6.9)	(83.4)	1,199.2	1,951.8

Consolidated cash flow statement

For the year ended 31 December 2010

	2010	2009
	£m	£m
Operating profit before exceptional items	238.8	224.6
Adjustments for:
Depreciation and impairment of property, plant and equipment	57.5	58.7
Other non cash movements	8.0	(1.5)
Amortisation of intangible assets	0.2	-
Impairment of investment	-	0.5
Losses of associate	2.1	3.2
Gain on disposal of property, plant and equipment and investment	(11.3)	(12.0)
Operating cash flows before movements in working capital	295.3	273.5
(Increase) / decrease in inventories	(62.3)	9.2
(Increase) / decrease in receivables	(3.2)	12.4
Increase in payables	112.8	52.3
Payments on exceptional items	(7.6)	(2.5)
Payments to the pension scheme in excess of the charge to profits	(52.7)	(25.1)
Cash generated from operations	282.3	319.8
Interest paid	(25.4)	(30.5)
Swap cancellation payment	-	(28.7)
Income taxes paid	(42.4)	(27.3)
Net cash from operating activities	214.5	233.3
Cash flows from investing activities
Interest received	9.4	1.5
Proceeds on disposal of property, plant and equipment and investment	17.2	20.8
Purchases of property, plant and equipment	(52.6)	(28.6)
Interest in associate	(12.5)	(12.9)
Acquisition of businesses net of cash acquired  (note 15)	(294.9)	(1.0)
Net cash used in investing activities	(333.4)	(20.2)
Financing activities
Net proceeds from the issue of share capital	0.3	300.3
Swap cancellation receipt	13.7	-
Payment of finance lease liabilities	(1.3)	(1.5)
Repayment of unsecured loan notes	(0.6)	(0.1)
Pension SPV	34.7	-
Decrease in bank loans	(214.1)	(160.0)
Dividends paid	(10.1)	-
Net cash from financing activities	(177.4)	138.7
Net (decrease) / increase in cash and cash equivalents	(296.3)	351.8
Cash and cash equivalents at beginning of year	347.2	(4.6)
Cash and cash equivalents at end of year	50.9	347.2

Notes to the preliminary announcement

1.          The Group's principal accounting policies are set out in the 2009 annual report, which is available on the Company's website www.travisperkinsplc.com.  They have been applied consistently in 2010 other than those in respect of IFRS 3 (revised) Business Combinations, which have been adopted by the Group during the year.

2.         The proposed final dividend is 10 pence (2009: nil pence) payable on 31 May 2011.  The record date is 6 May 2011.

3.         The financial information set out in this statement does not constitute the Company's statutory accounts for the years ended 31 December 2010 or 31 December 2009, but is derived from those accounts. Statutory accounts for 2009 have been delivered to the Registrar of Companies and those for 2010 will be delivered in due course. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006. Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards ("IFRS") this announcement does not itself contain sufficient information to comply with IFRS.

4.         This announcement was approved by the Board of Directors on 22 February 2011.

5.         It is intended to post the annual report to shareholders on 12 April 2011 and to hold the Annual General Meeting on 26 May 2011. Copies of the annual report prepared in accordance with IFRS will be available from the Company Secretary, Travis Perkins plc, Lodge Way House, Harlestone Road, Northampton NN5 7UG from 13 April 2011 or will be available through the internet on our website at www.travisperkinsplc.com.           

6.         Profit

(a)  Operating profit

	2010	2009
	£m	£m
Revenue	3,152.8	2,930.9
Cost of sales	(2,081.5)	(1,944.4)
Gross profit	1,071.3	986.5
Selling and distribution costs	(675.8)	(649.8)
Administrative expenses	(189.0)	(125.0)
Other operating income	15.4	48.8
Share of results of associate	(2.1)	(3.2)
Operating profit	219.8	257.3
Exceptional items	19.0	(32.7)
Amortisation of intangible assets	0.2	-
Adjusted operating profit	239.0	224.6

On 14 December 2010 the group acquired 100% of the issued share capital of The BSS Group plc for total consideration of £623.9m.  As required by IFRS 3 (2008), £13m of costs incurred in making the acquisition and £8.1m of non-fair value charges incurred in respect of assets written out of the opening BSS group balance sheet have been charged to the income statement as exceptional items and included in administrative expenses.   Offset against the exceptional charges is the release of £2.1m of onerous lease provisions which were originally established in 2008 as exceptional charges to the income statement.  The net total of exceptional items is £19.0m.

6.         Profit (continued)

With effect from the 1 December 2009 the Company and the Trustees of the Travis Perkins defined benefits scheme agreed to amend the terms of the Scheme to include a cap on future pensionable salary increases of 3% per annum.  This was treated as a curtailment event and the resulting exceptional reduction of £32.7m in the benefit obligation was included in other operating income in 2009.

To enable readers of the financial statements to obtain a clear understanding of underlying trading, the Directors have shown the exceptional items separately in the group income statement.  

(b)  Adjusted profit before and after tax

	2010	2009
	£m	£m
Profit before tax	196.8	212.7
Exceptional items	19.7	(32.7)
Amortisation of intangible assets	0.2	-
Adjusted profit before tax	216.7	180.0

Profit after tax	141.3	157.4
Exceptional items	19.7	(32.7)
Tax on exceptional items	(1.9)	9.2
Amortisation of intangible assets	0.2	-
Effect of reduction in corporation tax rate on deferred tax	(2.4)	-
Adjusted profit after tax	156.9	133.9

(c)  Operating margin

	Merchanting		Retail		Unallocated		Group Pre BSS		BSS		Group
	2010	2009	2010	2009	2010	2009	2010	2009	2010	2009	2010	2009
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Revenue	2,106.5	1,950.2	1,002.9	980.7	-	-	3,109.4	2,930.9	43.4	-	3,152.8	2,930.9
Operating profit	174.1	203.5	58.7	57.0	-	-	232.8	260.5	(10.9)	-	221.9	260.5
Share of associate losses	-	-	-	-	(2.1)	(3.2)	(2.1)	(3.2)	-	-	(2.1)	(3.2)
Amortisation of intangible assets	-	-	-	-	-	-	-	-	0.2	-	0.2	-
Exceptional items	10.3	(32.7)	0.6	-	-	-	10.9	(32.7)	8.1	-	19.0	(32.7)
Adjusted segment result	184.4	170.8	59.3	57.0	(2.1)	(3.2)	241.6	224.6	(2.6)	-	239.0	224.6
Adjusted operating margin	8.76%	8.76%	5.91%	5.81%	-	-	7.77%	7.66%	(5.99)%	-	7.58%	7.66%

Segmental information is shown in note 10. 

7.         Net finance costs

	2010				2009
	Pre- exceptional items	Exceptional items	Total	Total
	£m	£m	£m	£m
Interest on bank loans and overdrafts*	(27.8)	(0.7)	(28.5)	(29.1)
Interest on unsecured loans	(0.2)	-	(0.2)	(0.2)
Interest on obligations under finance leases	(1.2)	-	(1.2)	(1.3)
Other finance charges - pension scheme	-	-	-	(2.6)
Unwinding of discounts	(4.2)	-	(4.2)	(3.8)
Amortisation of cancellation payment for swaps accounted for as cash flow hedges	(4.9)	-	(4.9)	(8.7)
Cancellation of swaps measured at fair value	-	-	-	(0.8)
Net loss on re-measurement of derivatives at fair value	(1.5)	-	(1.5)	(3.7)
Finance costs	(39.8)	(0.7)	(40.5)	(50.2)
Other finance income - pension scheme	6.2	-	6.2	-
Amortisation of cancellation receipt for swap accounted for as fair value hedge	0.9	-	0.9	-
Interest receivable	10.4	-	10.4	5.6
Finance income	17.5	-	17.5	5.6
Net finance costs	(22.3)	(0.7)	(23.0)	(44.6)
Adjusted interest cover			18.9x	10.7x

*Includes £5.7m (2009: £2.9m) of amortised bank finance charges.

Adjusted interest cover is calculated by dividing, adjusted operating profit of £239.0m (2009: £224.6m) less £1.2m (2009: £1.3m) of specifically excluded IFRS adjustments, by the combined value of interest on bank loans and overdrafts (excluding amortised bank finance charges), unsecured loans, and interest receivable, which total £12.6m (2009: £20.8m).  

The unwinding of the discount charge arises principally from the property provisions created in 2008 and the pension SPV.

Included in interest on bank loans and overdrafts is a fair value and exchange gains on the US private placement of £3.1m offset by a £3.1m loss on hedged derivatives.

Included within finance costs is an exceptional charge of £0.7m arising from the write off of unamortised bank fees in respect of the BSS loan facility which was repaid following the acquisition.

8.         Earnings per share

(a)  Basic and diluted earnings per share

	2010		2009
	£m		£m
Earnings
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the Parent Company	141.3		157.4
Number of shares	No.		No.
Weighted average number of shares for the purposes of basic earnings pre share pre-rights issue adjustment & BSS acquisition share issue	201,682,453		117,034,434
Rights issue adjustment	-		61,001,501
Issued in connection with the BSS acquisition	1,444,926		-
Weighted average number of shares for the purposes of basic earnings per share	203,127,379		178,035,935
Dilutive effect of share options on potential ordinary shares	7,099,195		4,427,564
Weighted average number of ordinary shares for the purposes of diluted earnings per share	210,226,574		182,463,499

At 31 December 2010, 2,450,045 (2009: 3,913,130) share options had an exercise price in excess of the market value of the shares on that day. As a result these share options were excluded from the calculation of diluted earnings per share.

(b)  Adjusted earnings per share

Adjusted earnings per share are calculated by excluding the effect of the exceptional items and amortisation from earnings.

	2010		2009
	£m		£m
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the Parent Company	141.3		157.4
Exceptional items	19.7		(32.7)
Amortisation of intangible assets	0.2		-
Tax on exceptional items	(1.9)		9.2
Effect of reduction in corporation tax rate on deferred tax	(2.4)		-
Earnings for adjusted earnings per share	156.9		133.9
Adjusted basic earnings per share	77.2p		75.2p
Adjusted diluted earnings per share	74.6p		73.4p

The tax charge for 2010 includes an exceptional credit of £2.4m arising from the reduction in the rate of UK corporation tax from 28% to 27% on 6 April 2011.

8.         Earnings per share (continued)

            (c) Adjusted pre-BSS earnings per share

	2010		2009
	£m		£m
Earnings for adjusted earnings per share	156.9		133.9
BSS post tax loss for the period	2.0		-
Earnings for adjusted earnings per share pre-BSS	158.9		133.9
Adjusted basic earnings per share pre- BSS	78.8p		75.2p

9.         Dividends

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

	2010		2009
	£m		£m
Final dividend for the year ended 31 December 2009 of nil p (2008: nil p) per ordinary share	-		-
Interim dividend for the year ended 31 December 2010 of 5p (2009: nil p) per ordinary share	10.1		-
Total dividends recognised during the year	10.1		-

The dividends declared for 2010 at 31 December 2010 and for 2009 at 31 December 2009 were as follows:

	2010	2009
	Pence	Pence
Interim paid	5.0	-
Final proposed	10.0	-
Total dividends for the year	15.0	-

The proposed final dividend of 10p per ordinary share in respect of the year ended 31 December 2010 was approved by the board on 22 February 2011. 

Adjusted dividend cover of 5.1x (2009: nil) is calculated by dividing adjusted basic earnings per share (note 8b) of 77.2 pence (2009: 75.2 pence) by the total dividend for the year of 15.0 pence (2009: nil pence)

10.       Business and geographical segments

	2010
	Merchanting	Retail	BSS	Unallocated	Eliminations	Consolidated
	£m	£m	£m	£m	£m	£m
Revenue	2,106.5	1,002.9	43.4	-	-	3,152.8
Result
Segment result	174.1	58.7	(10.9)	-	-	221.9
Share of associate losses	-	-	-	(2.1)	-	(2.1)
Finance income	-	-	-	17.5	-	17.5
Finance costs	-	-	-	(40.5)	-	(40.5)
Profit before taxation	174.1	58.7	(10.9)	(25.1)	-	196.8
Taxation	-	-	-	(55.5)	-	(55.5)
Profit for the year	174.1	58.7	(10.9)	(80.6)	-	141.3
Segment assets	2,543.8	1,498.5	1,128.4	308.8	(1,401.3)	4,078.2
Segment liabilities	(865.6)	(215.3)	(466.1)	(1,980.7)	1,401.3	(2,126.4)
Consolidated net assets	1,678.2	1,283.2	662.3	(1,671.9)	-	1,951.8
Capital expenditure	44.5	7.2	-	0.2	-	51.9
Amortisation	-	-	0.2	-	-	0.2
Depreciation	43.3	13.7	0.5	-	-	57.5

For management purposes, the Group is currently organised into three operating divisions - Builders Merchanting, Retailing and BSS, which operate mainly in the United Kingdom.  Segment profit represents the profit earned by each segment without allocation of share of losses of associates, finance income and costs and income tax expense.

There are no significant inter-segment sales.

During 2010 and 2009, other than in respect of fair value adjustments and exceptional charges made in respect of BSS assets, there were no impairment losses or reversals of impairment losses recognised in profit or loss or in equity in any of the reportable segments.

10.       Business and geographical segments (continued)

	2009
	Merchanting	Retail	Unallocated	Eliminations	Consolidated
	£m	£m	£m	£m	£m
Revenue	1,950.2	980.7	-	-	2,930.9
Result
Segment result	203.5	57.0	-	-	260.5
Share of associate losses	-	-	(3.2)	-	(3.2)
Finance income	-	-	5.6	-	5.6
Finance costs	-	-	(50.2)	-	(50.2)
Profit before taxation	203.5	57.0	(47.8)	-	212.7
Taxation	-	-	(55.3)	-	(55.3)
Profit for the year	203.5	57.0	(103.1)	-	157.4
Segment assets	2,234.5	1,438.8	524.5	(1,055.0)	3,142.8
Segment liabilities	(725.7)	(237.5)	(1,774.2)	1,055.0	(1,682.4)
Consolidated net assets	1,508.8	1,201.3	(1,249.7)	-	1,460.4
Capital expenditure	16.0	16.1	-	-	32.1
Depreciation	44.1	14.6	-	-	58.7

11.       Adjusted return on capital

	2010	2009
	£m	£m
Operating profit	219.8	257.3
Amortisation of intangible assets	0.2	-
BSS post acquisition operating losses (excluding exceptionals)	2.6	-
Exceptional items	19.0	(32.7)
Adjusted operating profit	241.6	224.6
Opening net assets	1,460.4	1,018.2
Net pension deficit	31.0	50.4
Goodwill written off	92.7	92.7
Net borrowings	467.2	1,017.4
Exchange adjustment	(40.5)	(80.2)
Opening capital employed	2,010.8	2,098.5
Closing net assets	1,951.8	1,460.4
BSS post acquisition loss before tax	2.8	-
Shares issued in respect of the BSS acquisition	(329.2)	-
Travis Perkins pension scheme net (surplus) / deficit	(23.1)	31.0
Goodwill written off	92.7	92.7
Net borrowings	773.6	467.2
Borrowings arising from the BSS acquisition	(469.3)	-
Exchange adjustment	(37.4)	(40.5)
Closing capital employed	1,961.9	2,010.8
Average capital employed	1,986.4	2,054.7
Adjusted return on capital	12.2%	10.9%

12.       Adjusted earnings before interest, tax and depreciation 

	2010 £m	2009 £m
Profit before tax	196.8	212.7
Net finance costs	23.0	44.6
Depreciation, impairments and amortisation	57.7	58.7
EBITDA under IFRS	277.5	316.0
Exceptional operating items	19.0	(32.7)
BSS 2010 pre-acquisition EBITDA	71.3	-
IFRS adjustments not included in covenant calculations	(2.6)	(2.5)
Adjusted EBITDA under covenant calculations	365.2	280.8
Net debt under covenant calculations	701.4	413.1
Adjusted net debt to EBITDA	1.92x	1.47x

13.       Net debt

	2010	2009
	£m	£m
Net debt at 1 January	(467.2)	(1,017.4)
(Decrease) / increase in cash and cash equivalents	(296.3)	351.8
Cash flows from debt	167.6	161.6
Decrease in fair value of debt	3.1	39.7
Amortisation of swap cancellation receipt	1.0	-
Discount unwind on SPV	(1.5)	-
Finance charges netted off bank debt	(5.7)	(2.9)
Net debt arising on acquisition	(174.6)	-
Net debt at 31 December	(773.6)	(467.2)

14.       Free cash flow

	2010	2009
	£m	£m
Net debt at 1 January	(467.2)	(1,017.4)
Net debt at 31 December	(773.6)	(467.2)
(Decrease)  / increase in net debt	(306.4)	550.2
Dividends paid	10.1	-
Net cash outflow for expansion capital expenditure	29.0	11.1
Net cash outflow for acquisitions	294.9	-
Net cash outflow for acquisition of investments	-	1.0
Swap cancellation fee	-	28.7
Amortisation of swap cancellation receipt	(0.9)	-
Discount unwind on SPV	1.5	-
Cash impact of exceptional items	7.6	2.5
Interest in associate	12.5	12.9
Shares issued	(0.3)	(300.3)
Increase fair value of debt	(3.1)	(39.7)
Movement in finance charges netted off bank debt	5.7	2.9
Net debt arising on BSS acquisition	174.6	-
Special pension contributions	52.6	25.1
Free cash flow	277.8	294.4

15.       Acquisition of businesses

a)   The BSS Group plc

On the 15 December 2010 the Group acquired the entire issued share capital of The BSS Group plc. The acquisition was accounted for using the purchase method of accounting.  The acquisition has created the leading plumbing and heating trade and retail distribution business in the UK.

	2010		2009
	Provisional fair value acquired		Fair value acquired
	£m		£m
Net assets acquired:
Property, plant, equipment and investments	36.6		-
Identifiable intangible assets	257.3		-
Derivative financial instruments	14.9		-
Inventories	199.7		-
Trade and other receivables	316.8		0.1
Retirement benefit obligations	(59.7)		-
Trade and other payables and provisions	(247.3)		0.4
Deferred and current tax liabilities	(57.4)		-
Bank overdrafts and loans	(174.6)		(1.8)
	286.3		(1.3)
Goodwill	337.6		1.4
Deferred consideration	-		0.9
Amount payable	623.9		1.0
Satisfied by:
Cash	294.7		1.0
Equity instruments (closing price on 14 December 2010	329.2		-
	623.9		1.0

Due to the close proximity of the date of acquisition of The BSS Group plc to the Group's year-end it has not been possible to under take all of the reviews that the Directors of Travis Perkins believe are necessary to finalise the fair value adjustments relating to the BSS balance sheet on the acquisition date. Accordingly the fair values ascribed to assets and liabilities in the table above are provisional and will be subject to change in the 2011 statutory accounts.

Expenses incurred on the acquisition of The BSS Group plc are discussed in note 6. The total amount of goodwill expected to be deductible for tax purposes is nil.

The identifiable intangible assets comprise customer relationships of £134.8m, brands acquired of £112.9m and computer software of £9.6m.

If the acquisition of The BSS Group plc had been completed on the first day of the financial year, group revenues for the period would have been £4,599m and adjusted group operating profit would have been £300m.

Goodwill arising on acquisitions

The goodwill arising on the acquisition made during the year is attributable to the anticipated profitability of this acquisition and the future operating synergies arising in the enlarged group.

b)   Other acquisitions

The Group paid £0.2m for other immaterial acquisitions during 2010.

 

END

 

 

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