Travis Perkins PLC : Results for the full year ...
Travis Perkins plc
Unaudited results for the full year ended 31st December 2015
Good profit growth in a year of significant change and investment
| £m | 2015 | 2014 | Change |
| Revenue | 5,942 | 5,581 | 6.5% |
| Like-for-like revenue(1) | 3.8% | 7.3% | |
| Adjusted operating profit(2) | 413 | 384 | 7.6% |
| Adjusted operating profit excluding property profits(2) | 389 | 358 | 8.7% |
| Adjusted profit before taxation(2) | 382 | 362 | 5.5% |
| Adjusted profit after taxation(2) | 307 | 291 | 5.5% |
| Adjusted earnings per share(2)(3) (pence) | 124.1 | 119.0 | 4.3% |
| Dividend per share | 44.0p | 38.0p | 15.8% |
| Lease adjusted ROCE | 10.5% | 10.4% | 0.1ppt |
| Free cash flow | 317 | 255 | 24.3% |
| Operating profit(4) | 254 | 343 | (25.9)% |
| Property profits | 24 | 26 | (7.7)% |
| Operating profit excluding property profits | 230 | 317 | (27.4)% |
| Profit before taxation | 224 | 321 | (30.2)% |
| Profit after taxation | 168 | 259 | (35.1)% |
| Basic earnings per share(3) (pence) | 67.8p | 105.9p | (36.0)% |
| Cash generated from operations | 350 | 310 | 12.9% |
(1)Details of non-GAAP measures can be found in notes 6, 11, 12, 13, 15, 16 and 17.
(2)The term "adjusted" is used to signify that the effects of exceptional items, impairment of goodwill and other intangible assets, amortisation of intangible assets and the associated tax impacts have been excluded from the disclosure being made.
(3)Share count in 2015 was 247,302,865 (2014: 244,146,721)
(4) Including the non-cash impairment charge of £141m recognised against goodwill and other intangible assets in PTS and F&P
Full year highlights
- Revenue increased by 6.5%, like-for-like revenue up 3.8% (11.4% two-year like-for-like)
- Adjusted operating profit, excluding property profits, increased by 8.7% to £389m
- Adjusted EPS increased by 4.3% to 124.1p, lower than the 7.6% growth in adjusted operating profit due to lower property profits and non-cash charges relating to foreign exchange contracts
- Full-year dividend increased 15.8% to 44.0p per share, reflecting confidence in future growth
- Network expansion continued, with net 53 new branches and stores opened, including implants
- Significant progress on major strategic fronts, including supply chain investments in General Merchanting and completion of the re-segmentation in Plumbing & Heating
- Free cash flow of £317m (note 13) at a cash conversion rate of 77% (2014: 66%) used to fund £134m of growth capex
- Lease adjusted return on capital employed (note 15b) increased to 10.5% reflecting higher earnings offset by the increase in capital employed including the £104m invested in freehold property
- Non-cash impairment charge of £141m recognised against goodwill and other intangible assets of PTS and F&P given the challenging market conditions
John Carter - Chief Executive Officer said:
"The Group has delivered a good performance in 2015 despite the weaker than expected RMI market in the second half of the year. We made very good progress on our key strategic priorities; modernising General Merchanting, transforming Wickes and re-segmenting the Plumbing & Heating division, and we continued to improve our customer propositions, delivering access to greater ranges with better availability. The increased capital and operational investments are enabling us to leverage the scale of the business and exploit structural advantages in sourcing and supply chain, driving our continued outperformance.
We believe that the growth drivers in our markets remain strong and welcome the return to growth of mortgage approvals and secondary housing transactions in the second half of 2015. This has supported good growth in RMI sales for the Group in January and February 2016. This gives us further confidence that through our strategy we will successfully deliver against our medium-term targets of sales outperformance, low double-digit profit growth and improving returns."
Divisional Performance
| Revenue growth | Adjusted operating margin | LAROCE | ||||||
| Inc. property profits | Exc. property profits | |||||||
| Total | LFL | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| General Merchanting | 5.3% | 3.9% | 10.1% | 9.8% | 9.2% | 9.0% | 16% | 16% |
| Plumbing & Heating | 1.3% | (1.4)% | 3.3% | 4.8% | 3.3% | 3.5% | 6% | 9% |
| Contracts | 13.2% | 8.5% | 6.9% | 6.7% | 6.4% | 6.6% | 14% | 13% |
| Consumer | 8.0% | 5.3% | 6.8% | 6.0% | 6.7% | 6.0% | 7% | 7% |
| Group | 6.5% | 3.8% | 6.9% | 6.9% | 6.5% | 6.4% | 10.5% | 10.4% |
General Merchanting
- General Merchanting revenue increased by 5.3%, 3.9% on a like-for-like basis, outperforming the market with strong growth in heavyside categories and tool hire.
- Adjusted operating margins, excluding property profits, improved by 20 bps. Despite a weaker and more competitive RMI market in the second half gross margins over the year improved by 10 bps. Higher operating costs from additional heavyside range centres were offset through significant efficiencies delivered in the second half of the year.
- Twelve new or relocated Travis Perkins branches were opened in 2015 in addition to 38 new Benchmarx branches.
Plumbing & Heating
- Plumbing & Heating revenue grew by 1.3%, a decline of 1.4% on a like-for-like basis.
- Adjusted operating margins, excluding property profits and a number of one-off short term contracts and associated sourcing benefits, reduced by 20 bps, primarily due to the sales disruption from the re-segmentation programme.
- The re-segmentation programme was accelerated through 2015, with the majority of branch conversions and closures completed six months ahead of plan.
- Lease adjusted return on capital employed reduced by 3 ppts, driven by the benefits of property profits and the Government backed ECO scheme in 2014 not repeating in 2015, and disruption from the re-segmentation programme.
Contracts
- Strong sales growth of 13.2%, 8.5% on a like-for-like basis was driven by Keyline and CCF, with both businesses continuing to take market share.
- Adjusted operating margins, excluding property profits, reduced by 10 bps. Gross margin reduction was driven by the shift in sales mix towards the lower margin CCF and Keyline businesses whilst operating efficiency improved with the increase in volumes.
- Lease adjusted return on capital increased by 1 ppt owing to the significant growth in profits more than offsetting additional capital employed.
Consumer
- Revenue growth of 8.0% and like-for-like growth of 5.3% demonstrates continued strong market share gains.
- Adjusted operating margin, excluding property profits and the year-on-year improvement arising from the reversal of impairments on loans to Toolstation Europe of £6m, improved by 30 bps.
- A further 40 Toolstation stores were opened in 2015 with additional openings committed in 2016.
Enquiries:
Travis Perkins
Graeme Barnes
graeme.barnes@travisperkins.co.uk
+44 (0) 7469 401 819
Matt Johnson
matt.johnson@travisperkins.co.uk
+44 (0) 7584 491 284
Tulchan Communications
David Allchurch / Siobhan Weaver
+44 (0) 207 353 4200
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 Principle Risks and Uncertainties disclosed in the Group's Annual Report, 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 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 3 March 2016, 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
During 2015 the Group made good progress in executing the plan set out in December 2013. Improvements continue to be made in each of the four areas of value creation: customer innovation; optimising the network; building on structural advantage; and managing the portfolio.
Innovation in customer propositions
- Wickes continued to offer better value to customers through price investments and focused promotional offers.
- Improvements in pricing, and pricing guidance to branches, were trialled in Travis Perkins during the year and will be extended further in 2016.
- Significant range reviews were completed in Wickes in 2015 providing customers with more clearly defined value, good quality and premium ranges.
- Further investment in the distribution network enabled Travis Perkins to extended ranges of up to 16,000 products for delivery within 72 hours.
- The online propositions of both Wickes and Toolstation were enhanced, with both now offering a one-hour click and collect service.
- Investment continued in new formats for both Travis Perkins and Wickes, with further roll out in the bathroom showroom concessions in City Plumbing. Investments in new store formats are demonstrating returns above the Group's internal threshold and customer feedback continues to be positive.
Optimising the Group's network
- In line with the Group strategy, 53 net new branches, stores and implants were added to the network in 2015, with openings and acquisitions adding 2.8% to revenue growth in the year (2014: 1.1%). Network expansion was focused on businesses that have good long-term growth characteristics and provide opportunities to improve returns; including Toolstation (40), Benchmarx (38) and CCF (8). New format branches were also opened in Travis Perkins, Keyline and Wickes.
- The programme to co-locate businesses continued with eleven trade parks now open across the UK, and further Benchmarx implants, Tool Hire and Managed Services concessions opened within Travis Perkins branches, increasing sales densities from additional footfall.
- The re-segmentation programme in the Plumbing & Heating division was substantially completed in 2015, six months ahead of schedule. 114 PTS branches were converted to City Plumbing, with a further 46 branches closed which do not meet the Group's requirements. The PTS and City Plumbing networks are now in a position to operate without further disruption in 2016.
- Five PTS distribution centres were consolidated into the lightside distribution facilities in Warrington and Northampton.
Leveraging the Group's structural advantage
- Investments in the supply chain network have further improved the Group's competitive advantage resulting in a broader range of products able to be supplied to customers more quickly.
- The third heavyside range centre opened in Tilbury in July to serve Travis Perkins branches in London and the South East, providing customers with an extended range of 3,000 heavyside products available next-day, with a further 3,000 available within two days.
- The three range centres in Warrington, Cardiff and Tilbury now support around two thirds of Travis Perkins branches. Heavyside product specialists in the range centres are able to provide knowledge and advice to customers and colleagues in all branches within their catchment.
- The Group continued to focus on sourcing improvements, with further increases in direct purchasing through the Group's Asian sourcing team.
- Investment in technology improvement programmes also continued, including better network connectivity, supply chain systems improvements and multichannel applications.
- The Group's extensive property network enabled it to repurpose 114 branches from the PTS format to the City Plumbing format with further conversions from PTS to Benchmarx, Toolstation and Tile Giant. This demonstrates the Group's ability to flex the estate to better meet changing customer needs without incurring significant exit costs.
Managing the portfolio
- The Group continued to focus on lease adjusted return on capital as a critical measure of performance, ensuring that capital was employed across the business in the most effective and efficient manner.
- Deployment of new capital was focused on those businesses with significant opportunities to grow and improve returns, including Travis Perkins, Wickes, CCF, Toolstation and Benchmarx.
- In businesses with fewer opportunities for growth, capital continued to be re-allocated, for example, the re-segmentation in Plumbing & Heating.
- The property portfolio is managed to provide the best operating locations for each business whilst maximising the returns from each site. The Group invested £104m in freehold property to benefit from flexibility of site use, ensure control of strategically important sites and add value to the property asset through development. A sale and lease back transaction was completed in November, recycling capital from 19 non-strategic sites, realising disposal proceeds of £33m and releasing cash for investment elsewhere.
- During 2015 further decision making control was devolved to the businesses. Travis Perkins and the Plumbing & Heating division took additional responsibility for supply chain and commercial negotiations and property and finance teams during the year. This is enabling these businesses to develop more robust plans and execute them at pace.
Market drivers
UK population growth trends, immigration and smaller family units continue to create demand for housing, with the formation of around 225,000 new households per year. In 2015, around 160,000 new homes were built. This shortfall in supply, combined with historic under-investment in the existing 28 million dwellings in the UK means the Group expects continued growth in both new house building and, importantly, in the repair, maintenance and improvement (RMI) market.
Following a strong recovery in the first half of 2014, the number of mortgage approvals dipped in the third quarter of 2014 following the Mortgage Market Review (MMR) leading to a reduction in the number of secondary housing transactions in the first half of 2015. The RMI market traditionally lags transactions by six to nine months which translated to weaker building material supply volumes in the second half.
Mortgage approval rates have since recovered to above the pre-MMR level, in turn driving more housing transactions. Although recovery of the RMI market has been slightly later than expected these lead indicators give confidence that there will be further growth in the RMI market during 2016, evidenced by encouraging sales in January and February.
Outlook
Good progress has been made in 2015 in executing the Group's plans evidenced through improving financial performance and continued outperformance of the markets in which the Group operates. However, whilst considerable improvements have been accomplished, the Board believes there is further opportunity to grow returns over the medium term.
The long term drivers of growth in the RMI market remain positive and the lagged growth in mortgage approvals and secondary housing transactions suggests the RMI market should recover well in the first half of 2016.
In addition, the investments the Group is making to improve customer propositions, optimise the network, exploit scale advantage and efficiently manage the portfolio of businesses provide confidence that the Group can continue to outperform and improve returns.
Guidance
Guidance for 2016:
- There is expected to be no discernable inflation in the Group's markets in 2016.
- Market volume growth is expected to be around 2 to 3%. The Group expects to outperform the markets by around 1 ppt and add around 2 ppts of new space, resulting in headline sales growth for 2016 of 5 to 6%.
- The Group's medium term EBITA growth ambition remains consistent at around 10%
- Property profits are expected to be around £20m.
- Capital expenditure, excluding investment in freehold property, is expected to be £170m - £190m in 2016 (2015: £189m).
- Investment in freehold property will continue in 2016 at a reduced level, the timing and number of which will be dependent on market opportunities.
- The Group expects an effective tax rate of around 20%.
- Dividend cover will continue in the targeted medium-term cover range of 2.5x to 3.25x.
Financial Performance
Income Statement
Group revenue increased by £361m, or 6.5%, to £5,942m. Like-for-like sales grew by 3.8% with additional growth through the opening of new branches and the inclusion of Primaflow and Rudridge into the Group's results. There was no change in the number of trading days in 2015 when compared with the prior year.
Adjusted operating profits increased by 7.6% to £413m. Excluding property profits, adjusted operating profit increased by 8.7%. At a divisional level, adjusted operating profits grew in General Merchanting, Contracts and Consumer, partially offset by a decline in Plumbing & Heating.
Adjusted earnings per share (EPS) increased by 5.1 pence to 124.1 pence. This 4.3% improvement was driven by a 5.5% increase in adjusted profit after tax, partly diluted by an increase in the weighted average number of shares in issue due to the exercise of share options and other share related incentives.
The proposed dividend for the year is 44 pence (2014: 38 pence), a 15.8% increase, and reflects the Board's confidence in the future growth prospects and cash generating ability of the Group. Dividend cover reduces to 2.8 times (2014: 3.1 times), and just below the mid-point of the Group's target cover range of between 2.5x and 3.25x.
Revenue
Total Group revenue increased by 6.5%, with growth of 3.8% on a like-for-like basis.
| Like-for-like revenue growth | General Merchanting | Plumbing & Heating | Contracts | Consumer | Group |
| Q1 2015 | 8.1% | (6.1)% | 15.1% | 6.0% | 5.1% |
| Q2 2015 | 5.3% | 1.0% | 12.9% | 6.9% | 6.3% |
| Q3 2015 | 1.7% | 1.7% | 5.5% | 2.3% | 2.6% |
| Q4 2015 | 1.0% | (1.9)% | 1.5% | 6.1% | 1.4% |
| First half | 6.7% | (2.9)% | 13.9% | 6.5% | 5.7% |
| Second half | 1.4% | (0.3)% | 3.6% | 4.2% | 2.0% |
| Full year 2015 | 3.9% | (1.4)% | 8.5% | 5.3% | 3.8% |
Group like-for-like sales growth slowed significantly in the second half of 2015, driven by weakness in the RMI market. As previously mentioned, the link between the RMI market and the level of secondary housing transactions shows a strong correlation. The impact of the Mortgage Market Review on the availability of mortgages, and therefore the number of secondary housing transactions, along with uncertainty at the time of the election, had a negative impact on the RMI market in the second half of 2015. Whilst the summer months, especially August, were particularly weak, the significant recovery in RMI spend in October was not sustained consistently through November and December.
Consequently, weaker fourth quarter trading was experienced across all of the trade businesses, with lower like-for-like sales growth in General Merchanting, Contracts and Plumbing & Heating leading to more competitive market pricing. The Group's consumer businesses, however, performed well during the final quarter of the year, further extending their outperformance of the market.
The start to 2016 has been encouraging. The six to nine month lagged growth in housing transactions suggested RMI demand would improve in Q4 2015 or early in Q1 2016. The Group has seen these improvements in demand take a firmer hold in January and February of 2016.
The following table sets out volume, like-for-like and expansionary sales growth by division through 2015.
| Total revenue | General Merchanting | Plumbing & Heating | Contracts | Consumer | Group |
| Volume | 2.8% | (0.1)% | 7.4% | 8.5% | 4.3% |
| Price and mix | 1.1% | (1.3)% | 1.1% | (3.2)% | (0.5)% |
| Like-for-like revenue growth | 3.9% | (1.4)% | 8.5% | 5.3% | 3.8% |
| Network expansion and acquisitions | 1.4% | 2.7% | 4.7% | 2.7% | 2.7% |
| Total revenue growth | 5.3% | 1.3% | 13.2% | 8.0% | 6.5% |
General Merchanting volumes grew by 2.8%. There was continued inflation in heavyside products, although this slowed in the second half of the year. Lightside products continued to experience price deflation as commodity prices weakened further through the second half of 2015, and direct sourcing of products continued to drive lower costs passed through to customers in more competitive pricing.
Plumbing & Heating sales were broadly flat, owing to the 2014 benefits from the Government incentive scheme being not repeated in 2015, the disruption from the branch re-segmentation programme and continued market weakness. These factors were compounded by deflation in copper and plastic prices.
Price inflation in heavyside products in the Contracts division was partially offset by more competitive pricing in the industrial plumbing market and copper and steel price deflation. Keyline and CCF volume growth was strong and contributed significantly to 8.5% like-for-like revenue growth in the Contracts division as a whole.
Further investment in value and more focused promotions generated significant growth in sales in Wickes. Toolstation continued to grow strongly as it invested in lower prices, opened new stores, and delivered an enhanced 60 minute click and collect proposition.
New branch openings and acquisitions added 2.7% to Group sales in 2015. Acquisitions included Rudridge, which added four branches to the Keyline heavy civils network, and The Underfloor Heating Store and Bathrooms.com in the Plumbing & Heating division. Expansion of the branch and store network continued through the development of new sites and additional implants into existing locations.
Adjusted Operating Profit
In 2015 the Group was required to impair the goodwill and other intangible assets of the PTS and F&P businesses by £141m. This impairment is a non-cash, exceptional charge, and is explained in the Plumbing & Heating business review section.
| General Merchanting | Plumbing & Heating | Contracts | Consumer | Group | |
| 2014 adjusted operating margin | 9.8% | 4.8% | 6.7% | 6.0% | 6.9% |
| Change in gross margin | 0.1% | 0.1% | (0.8)% | 1.0% | 0.2% |
| Margin impact of change in operating costs | 0.1% | (0.8)% | 0.6% | (0.3)% | (0.1)% |
| Adjusted operating margin excluding change in property profits | 10.0% | 4.1% | 6.5% | 6.7% | 7.0% |
| Margin impact of change in property profits | 0.1% | (0.8)% | 0.4% | 0.1% | (0.1)% |
| 2015 adjusted operating margin | 10.1% | 3.3% | 6.9% | 6.8% | 6.9% |
Reported adjusted operating margins were stable in 2015 and improved by 10 bps excluding the effects of changes in property profits. Improvement in gross margin across the Group was broadly offset by higher operating costs and the recognition of slightly lower property profits, £24m in 2015 (2014: £26m).
Group gross margins improved by 20bps, with good gains in the Consumer division despite the significant range change programme, offset by deterioration in the Contracts division of 80 bps largely because of a change in the mix of business. Strong sales growth in Keyline and CCF combined with higher volumes of direct to customer sales were the principal drivers of the lower gross margin. In General Merchanting, the strong gross margin performance in the first half of 2015 reversed in the second half as price competition due to lower volumes in the market intensified.
Group operating costs increased by 10 bps in 2015, with lower operating costs in the Contracts division owing to good cost control, more than offset by higher costs in the Plumbing & Heating and Consumer divisions. In Plumbing & Heating operating costs increased following the re-segmentation programme, with City Plumbing branches having a higher cost to serve than PTS branches. Operating costs in the Consumer division as a function of sales increased owing to the relative immaturity of new Toolstation branches, the labour costs associated with range changes in Wickes and additional marketing and online costs.
In 2014 Plumbing & Heating benefited from property profits realised from the sale and leaseback of the Warrington primary distribution centre. The Contracts division included £5m of property profits (2014: nil), which added 40bps to the adjusted operating margin.
Finance costs
Net finance costs, shown in note 9, were £31m (2014: £22m). Interest costs on borrowings increased by £5m to £25m (2014; £20m) largely owing to higher average borrowings during the year.
The impact of marking-to-market currency forward contracts used to hedge commercial transactions, which remained outstanding at the year-end lowered profits by £5m when compared with 2014. In 2015 £1m of losses were recorded (2014: £4m gain). Other financing type costs were broadly similar to last year at £6m (2014: £6m).
The average interest rate on the Group's borrowings during the year was 3.6% (2014: 3.7%).
Impairment and amortisation
As a result of undertaking its annual review of the carrying value of goodwill and other intangible assets the Group has recognised an impairment charge of £141m in respect of PTS and F&P. Trading conditions in the wholesale and contract-led Plumbing and Heating market have been challenging with the current structure of the market not expected to materially change in the foreseeable future. This has caused the Board to reduce its expectations of future performance in PTS and F&P. After consideration, the Board concluded that the expected future cash flows of all other businesses in the Group will be sufficient to support the balance sheet carrying value of goodwill and other intangible assets.
The annual amortisation charge was £18m (2014: £18m).
Taxation
After reflecting an exceptional £9m (2014: £nil) credit arising from a change in the statutory rate of corporation tax and an exceptional £8m credit arising from the impairment of goodwill and other intangible assets in respect of PTS and F&P the statutory tax charge for the year was £56m (2014: £63m).
The underlying tax charge, excluding the benefit of the rate change and the effect of exceptional items, and in 2014 the effect of exceptional items, was £72m (2014: £68m), which represents an effective rate of 19.7% (2014: 19.7%). This is slightly below the standard rate of corporation tax of 20.25% (2014: 21.5%) applicable to profits in the United Kingdom. The difference is mainly due to the value of non-taxable property profits exceeding the value of expenses not deductible for tax purposes.
The Group's balance sheet tax provision includes £71m relating to uncertain tax positions currently under discussion with H. M. Revenue and Customs ("HMRC"), which arose in prior periods. Based on legal and tax technical advice the Group claimed tax benefits in its tax returns for several years and reduced its tax payments accordingly. HMRC have disputed the Group's interpretation of the tax legislation. The Group has provided HMRC with all information requested and discussions continue in order to reach a conclusion on the differing interpretations. It cannot currently be estimated how long it will take to reach an agreed interpretation and litigation is a likely outcome if agreement cannot be reached.
The Group is determined to pursue the cases because of the amounts involved, but given the lack of agreement with HMRC at this stage in the interpretation of key areas, coupled with the current tax litigation environment and HMRC's policy for pursuing such a route, the Group has continued to recognise a provision for the disputed amounts claimed by HMRC. This is considered appropriate given the uncertainty involved in this process and meets the requirements of IAS 12.46 for recognition of such a provision.
Following legislative changes that enable HMRC to demand payment of amounts previously withheld in respect of disputed items, the Group has received notices to pay £24m in February 2016. The Group expects to receive notices to pay a further £28m during the second quarter of 2016.
Should the Group's filed tax positions be either agreed by HMRC or the Group prevail in the litigation process then the tax charge in the group income statement in a future period will be reduced by the repayment of the £52m referred to above and the release of £19m of tax provisions for which payment cannot be demanded under current legislation unless HMRC are successful. If after concluding all possible avenues available to the Group, it becomes necessary to amend the Group's filed tax position then there should be no significant impact on the tax charge in the group income statement.
Earnings per share
Basic EPS decreased by 36.0% in 2015, principally due to the effect of the non-cash impairment. Adjusted EPS increased by 4.3% with the reconciliation between Basic and Adjusted EPS noted below.
Profit after taxation decreased by 35.1% to £168m (2014: £259m) resulting in basic earnings per share decreasing by 36.0% to 67.8 pence (2014: 105.9 pence). There is no significant difference between basic and diluted basic earnings per share.
Adjusted profit after tax 5.5% higher than 2014 at £307m (2014: £291m) (note 6c) resulting in adjusted earnings per share (note 11) increasing by 4.3% to 124.1 pence (2014: 119.0 pence). There is no significant difference between adjusted basic and adjusted diluted earnings per share.
| Reconciliation from reported to adjusted earnings | 2015 | 2014 | ||
| Earnings | EPS | Earnings | EPS | |
| Basic earnings and EPS | £168m | 67.9p | £259m | 106.1p |
| Exceptional Items | ||||
| Wickes store closures | - | - | £(10)m | (4.1)p |
| Plumbing & Heating network configuration | - | - | £29m | 11.9p |
| Rinus roofing disposal | - | - | £4m | 1.6p |
| Impairment of acquired intangibles | £141m | 56.9p | - | - |
| Amortisation of acquired intangible assets | £18m | 7.3p | £18m | 7.3p |
| Tax on amortisation of acquired intangible assets | £(3)m | (1.2)p | £(3)m | (1.2)p |
| Tax on exceptional items | £(8)m | (3.2)p | £(5)m | (2.2)p |
| Deferred tax rate change(1) | £(9)m | (3.6)p | - | - |
| Other | - | - | £(1)m | (0.4)p |
| Adjusted earnings and EPS | £307m | 124.1p | £291m | 119.0p |
(1)At a statutory level a deferred tax benefit of £9m was recognised due to the expected tax rate reductions between 2017 and 2020.
Balance Sheet and Cash Flow
The Group continued to make good progress towards the targeted financial metrics laid out in 2013.
| Medium Term Guidance | 2015 | 2014 Restated* | |
| Net debt | £447m | £358m | |
| Lease debt | £1,443m | £1,423m | |
| Lease adjusted net debt | £1,891m | £1,781m | |
| Lease adjusted gearing | 44.6% | 43.4% | |
| Fixed charge cover | 3.5x | 3.3x | 3.2x |
| LA net debt : EBITDAR | 2.5x | 2.8x | 2.8x |
*2014 lease related numbers were restated to reflect the refinement to the calculation to include £5.7m of rental income receivable on leased property that is sublet
The increase in on-balance sheet debt of £89m relates largely to the investments made in freehold property. Lease debt increased modestly from the position as at 31 December 2014. Whilst a number of PTS leases were exited as branches were closed this was offset by a significant sale and lease back transaction and additional new leases. The gross lease charge for the year was broadly flat at £185m.
Overall lease adjusted net debt increased by £110m, largely owing to additional on-balance sheet debt funding freehold property purchases. The increase in on-balance sheet debt is consistent with the Group's plans to increase the proportion of freehold property in the estate.
Lease adjusted gearing (note 14b) increased by 120 bps in 2015 to 44.6%. Fixed charge cover (note 16c) increased by 0.1x to 3.3x, owing to improvements in profitability. The lease adjusted net debt to EBITDAR ratio (note 16b) was flat, representing higher earnings from the Group offset by increasing on-balance sheet debt, used to fund freehold property purchases.
Free cash flow
The Group continued to generate strong free cash flows.
| (£m) | 2015 | 2014 |
| EBITA | 413 | 384 |
| Depreciation of PPE and other non-cash movements | 98 | 89 |
| Proceeds in excess of property profits | 25 | 4 |
| Change in working capital | (96) | (107) |
| Maintenance capital expenditure | (55) | (50) |
| Interest | (20) | (15) |
| Tax paid | (48) | (50) |
| Free cash flow | 317 | 255 |
| Cash conversion rate | 77% | 66% |
The Group generated £317m of free cash flow in 2015, with a conversion rate of 77% to EBITA (2014: 66%). Net working capital increased by £96m in 2015 (2014: £107m), net working capital days were broadly flat. Purchases to acquire stock increased by £14m as the stock level in the lightside distribution centre in Warrington increased, and the heavyside range centres in Cardiff and Tilbury became operational. This was partially offset by better management of stock in the branch network.
Receivables increased by £43m, owing to the growth in credit sales by the Group. Payables decreased by £39m as the instances that suppliers were paid on time improved, due to a focus on resolving disputes more promptly and efficiently. Maintenance capital expenditure rose to £55m as the Group continued to maintain the expanding branch network to a standard that is safe and secure for colleagues, suppliers and customers. Interest payments increased by £5m due to a full year of interest payments on the public bond issued in September 2014, and the increase in on-balance sheet debt.
Net debt, funding and liquidity
Net debt rose in 2015 and finished the year at £447m (2014: £358m), an increase of £89m (2014: £14m increase).
At 31 December 2015 the Group's committed funding comprised:
- £250m guaranteed notes due 2021, listed on the London Stock Exchange.
- A revolving credit facility of £550m, refinanced in December 2015, which runs until December 2020, advanced by a syndicate of 8 banks.
In addition:
- Five bilateral revolving credit facilities totalling £221m with tenures of 18 to 24 months, signed in January and February 2016.
- $200m of unsecured guaranteed $US senior notes were fully repaid at their maturity on 26 January 2016 and not replaced.
At 31 December 2015, the Group had undrawn committed facilities of £440m (2014: £550m) and available cash and short term borrowings of £84m (2014: £108m). The Group's rating was maintained at BB+ stable during 2015. The next review is due in the spring of 2016.
Capital investments
In 2015 the Group completed four small, bolt-on acquisitions, totalling £26m. Rudridge, a four branch network of civil merchants in the South East, was added to the Contracts division in February. In July the Group invested in Bathrooms.com to expand channel capability in the bathrooms market. The Underfloor Heating Store was acquired in August 2015. Garratt Timber Supplies was acquired in July 2015.
Investments to provide best-in-class customer propositions and drive continued outperformance continued throughout 2015, with £134m invested in growth capex, and a further £104m invested in freehold property sites to sustain the future pipeline of network expansion.
The expansion of the Group's branch network continued with new branches opened in Travis Perkins, Benchmarx, CCF, Wickes and Toolstation.
As noted earlier, significant capital investments were also made through the completion of the Group's second primary lightside distribution centre, Omega, and in new heavyside range centres in Cardiff and Tilbury. Under the Group's 'Investing to grow' plans, further work was completed in opening new formats in Wickes and Travis Perkins.
Improving the IT infrastructure of the Group remained a key area of investment in 2015. Online investment in the Consumer division continued, with the development of Click & Collect services in Wickes and Toolstation now offering a one hour service. Travis Perkins developed a fully transactional website, with customers able to purchase products from the current 'trade offers' range online. Travis Perkins also adopted a new electronic proof of delivery (EPOD) system, reducing the administrative burden on colleagues and improving delivery traceability for customers.
| (£m) | 2015 | 2014 | |
| Extending leadership | New TP / Wickes / Toolstation / CCF / Benchmarx branches Benchmarx implants / showrooms / tool hire implants | 49 | 34 |
| Investing to grow | New Wickes / TP formats Distribution centres Plumbing & Heating branch conversions | 57 | 17 |
| Re-engineering and infrastructure build | Multi-channel development IT infrastructure upgrades | 28 | 29 |
| Growth capital investment | 134 | 80 | |
| Freehold property | 104 | 35 | |
| Maintenance | 55 | 50 | |
| Total capital investment | 293 | 165 |
Property
The Group acquired 25 (2014: 19) freehold properties for £77m (2014: £35m) and invested a further £27m construction work to develop new branches and distribution assets. The investment was partially financed through free cash flow, with the majority through the £89m increase in on-balance sheet debt. Increasing the level of freehold property assets is enabling the Group to secure attractive operating sites that might otherwise not be available, provides operational flexibility, and allows the Group to benefit from capital appreciation and development gains. Many of these assets are not yet in operation, but provide the Group with the opportunity to grow earnings and improve returns as they are brought into use.
The value of leasehold properties based on applying a valuation of 8 times the annual lease charge was £1,443m (2014: £1,423m).
The Group continues to realise value from its property assets once developments have been completed, there is limited strategic value in holding the site and where returns on capital can be improved by investing elsewhere. During the year property disposal proceeds were £45m (2014: £27m) realising gains on disposal of £24m (2014: £26m). The primary contributor was the sale and leaseback of 19 properties which the Group did not consider to be strategic sites or to have further development potential, which realised proceeds of £33m and profits of £19m.
Dividend
Dividend costs increased in line with the Group's plan to maintain a progressive dividend policy, with £100m paid to shareholders in 2015. The proposed dividend for the year of 44 pence (2014: 38 pence) results in a 16% increase compared to 2014 (2014: 23% increase). An interim dividend of 14.75 pence was paid to shareholders in November 2015 at a cost of £37m. If approved, the proposed final dividend of 29.25 pence will be paid on 27 May 2016, the cash cost of which will be approximately £73m.
A 44.0 pence full year dividend would reduce dividend cover to 2.8 times (2014: 3.1 times) adjusted earnings per share, just below the midpoint of the Board's target cover range of between 2.5x and 3.25x.
Return on Capital
Net assets at the end of 2015 were £2,796m (2014: £2,678m), which contributed to capital employed of £3,286m (2014: £3,114m).
Including the impairment of goodwill and other intangible assets in the PTS and F&P businesses, the ROCE was 12.9% (2014: 12.7%) and LAROCE (note 15b) was 10.8% (2014: 10.6%), after adjusting for property leases at rate of 8 times the annual charge.
Pensions
The Group made £40m (2014: £35m) of cash contributions to its defined benefit schemes and £14m (2014: £12m) to its defined contribution pension scheme during the year. At 31 December 2015 the combined gross accounting deficit for the Group's two final salary pension schemes was £52m (2014: £98m), which equated to a net deficit after tax of £42m (2014: £78m). The gross deficit for the BSS scheme, based upon the net present value of the agreed minimum funding contributions was £52m (2014: £57m). The TP scheme had a £34m surplus, which on the application of IFRIC 14 was reduced to nil.
During the year the Trustees of both schemes finalised the 30 September 2014 actuarial valuations. These resulted in the Group being obliged to pay recovery plan contributions of £10m p.a. (2014: £25m) until September 2021, and voluntarily agreeing to pay additional contributions of £2m (2014: £nil).
Business performance
General Merchanting
| 2015 | 2014 | Change | |
| Total revenue | £1,972m | £1,873m | 5.3% |
| Like-for-like growth | 3.9% | ||
| Adjusted operating profit | £199m | £183m | 8.7% |
| Adjusted operating profit excluding property and one-offs | £182m | £169m | 7.7% |
| Adjusted operating margin | 10.1% | 9.8% | 30bps |
| LAROCE | 16% | 16% | - |
| Branch network | 813 | 772 | 41 |
General Merchanting revenue increased by 5.2%, 3.9% on a like-for-like basis, demonstrating continued outperformance compared to the market. Growth was particularly strong in heavyside materials, supported by the heavyside range centre network, and Tool Hire. Growth in heavyside categories has led to an increase in the proportion delivered sales (53.4% versus 51.8% in 2014). Sales growth slowed considerably in the second half of the year as the RMI market slowed owing to fewer secondary housing transactions in late 2014 and early 2015.
Despite the strong start to the fourth quarter in October, the expected pick-up in volumes occurred in January and February 2016, rather than as anticipated in November and December 2015. The growth in nine month lagged housing transactions provides increased confidence that the market growth is likely to be sustained through the first half of 2016.
Adjusted operating profits, excluding property profits, grew by 7.7% to £182m. Gross margins improved by 10 bps in 2015. An improvement in gross margins in the first half, driven by improved sourcing, and better management of cost price inflation pass through was offset in the second half of the year by increased competitive pricing in the weaker market. The operating cost base of the business was controlled carefully across the year, with additional cost invested in the range centre network, new store formats and customer service offset by improvements in efficiency.
Property profits were £3m higher in 2015 at £17m (2014: £14m), with the majority of these profits recognised towards the end of the year, from the disposal of 12 Travis Perkins sites, as part of the wide sale and leaseback transaction.
Lease adjusted return on capital employed was flat at 16% compared with 2014, with growth in operating profits broadly offset by the increase in capital employed following the investments made in new branch openings, the distribution network, store formats, and the growth in net working capital as credit sales grew. These investments are expected to drive improvements to shareholder returns in 2016 and beyond.
Twelve new Travis Perkins branches were opened or re-sited in 2015, either entering under-served catchments, or moving existing businesses to alternative sites to locate them more conveniently for customers and optimise operations.
The benefits of supplying an extended heavyside product range more quickly to customers through the heavyside range centre network were evidenced by the growth in heavyside categories. In July 2015 the Tilbury range centre was opened to cover branches in London and the South East, and combined with the range centres in Warrington and Cardiff, service two thirds of Travis Perkins branches with next day and day-plus-one deliveries.
The heavyside range centres are also able to support the growing Tool Hire proposition. Assets can be held centrally, and supplied to branches next-day or as required by customers. This extends the number of branches able to offer tool hire, where previously only branches large enough to stock a credible range of hire assets could provide this additional service. Any branch now served by a range centre can offer a broad tool hire solution to customers driving superior profit density for existing branches and efficient returns on highly utilised hire assets. The range centres improve tool hire operational efficiency, as less equipment is required to cover the network, asset utilisation is increased, and maintenance activity is centralised requiring fewer resources in-branch.
The programme to modernise Travis Perkins branch formats continued, with twenty branches now operating with the new shop and yard layouts. Initial signs from these branches are encouraging with strong sales growth and positive customer feedback.
Benchmarx continues to grow through a combination of organic growth, and network expansion. New branches were opened in 38 sites across the UK, including 26 standalone showrooms and 12 implants within Travis Perkins branches.
Benchmarx continues to outperform the market, increasing its market share in trade kitchens and building relationships directly with end-users on behalf of the business's trade customers. In 2015 the Benchmarx product range was refreshed, reducing the number of SKUs and complexity. This allowed greater operational efficiency and improved the on-time in-full delivery to customers, and provides the business with a strong platform for further growth.
Plumbing & Heating
| 2015 | 2014 | Change | |
| Total revenue | £1,371m | £1,353m | 1.3% |
| Like-for-like growth | (1.4)% | ||
| Adjusted operating profit | £46m | £65m | (29.2)% |
| Adjusted operating profit excluding property and one-offs | £46m | £48m | (4.2)% |
| Adjusted operating margin | 3.3% | 4.8% | (150)bps |
| LAROCE | 6% | 9% | 3ppts |
| Branch network | 463 | 505 | (42) |
Plumbing & Heating revenue grew by 1.3% in 2015, although this represented a decline of 1.4% on a like-for-like basis. The heating market continued to be highly competitive, leading to intense pricing pressure, particularly in the supply of products to larger contractors and through the wholesale channel. Combined with the continued weakness in commodity prices such as copper and plastic, this impacted the sales of both PTS and F&P. There were signs of recovery in the local bathroom installer market which is more closely correlated with consumer confidence and improvements in the RMI market.
The like-for-like revenue decrease in Plumbing & Heating of 1.4% was due to two main factors. The positive impact on boiler sales from the government backed ECO scheme in 2014 was not repeated in 2015. The re-segmentation programme to convert PTS to City Plumbing branches was accelerated in the second half of the year, with the programme substantially complete by the end of 2015, six months ahead of the original schedule. This increase in activity caused higher levels of disruption than previously anticipated, impacting sales negatively; however, it leaves the Plumbing & Heating division in a strong position to focus on the growth of the newly structured businesses from the beginning of 2016.
Adjusted operating profit for the division reduced by £19m to £46m (2014: £65m). In 2014 the Plumbing & Heating division recognised £11m of property profits from its share of the sale and leaseback of the Warrington primary distribution centre. In 2014 Plumbing & Heating also benefited from the Government backed ECO scheme, which created both a boost in sales and sourcing benefits. Neither of these factors repeated in 2015.
Adjusted operating profit, excluding property profits and a number of one-off short term contracts and associated sourcing benefits, reduced by £2m to £46m from £48m in 2014. This was primarily driven by the like-for-like sales deterioration including the disruptive impact of the re-segmentation programme. Operating costs in City Plumbing branches converted from PTS, were also higher, given the higher cost-to-serve of the City Plumbing business, but as yet have not benefitted fully from the additional sales expected following conversion.
The re-segmentation programme accelerated in the second half of the year, with 114 branches converted from PTS to City Plumbing in 2015. In addition, 30 unsuitable PTS sites were closed with a further three relocated, and seven City Plumbing sites were relocated with a further six closed.
Following the annual impairment review a charge of £141m has been recognised against the goodwill and other intangible assets of PTS and F&P. The impairment is a non-cash, exceptional charge, and is necessary due to changes in the plumbing & heating market relating to contract and wholesale customers which has been highlighted following the completion of the re-segmentation programme. The PTS network now comprises 95 branches with a considerably lower capital base, with work continuing to improve the operating efficiency and working capital management of the branches to enhance returns.
There is increasing confidence in the expanded City Plumbing network, now totalling 344 branches, following strong customer response to the improved bathroom proposition, renewables and spares offers. City Plumbing branches unaffected by the resegmentation programme and those converted early in 2014 have seen encouraging like-for-like growth, and it is expected that those branches converted in 2015 will mature through 2016 and 2017.
In the wholesale distribution channel served by F&P there has been increased competition in 2015. The F&P business will continue to fully integrate Primaflow, which will improve operational and capital efficiency across the combined F&P, Primaflow and Connections business.
As part of the Group's plan to leverage its scale in the UK, and to simplify and consolidate distribution networks, the PTS supply chain has been fully integrated into the Group's lightside facilities in Warrington and Northampton. The remaining PTS distribution centres were closed in 2015.
Lease adjusted returns reduced, as lower adjusted operating profits more than offset the reduction in capital employed through the closure of branches and strong debtor management. After the impairment of goodwill and other intangible assets LAROCE was 7%.
Contracts
| 2015 | 2014 | Change | |
| Total revenue | £1,214m | £1,072m | 13.2% |
| Like-for-like growth | 8.5% | ||
| Adjusted operating profit | £83m | £72m | 15.3% |
| Adjusted operating profit excluding property profits | £78m | £71m | 9.9% |
| Adjusted operating margin | 6.9% | 6.7% | 20bps |
| LAROCE | 14% | 13% | 1ppt |
| Branch network | 181 | 171 | 10 |
Sales in the Contracts division grew strongly in 2015, with total sales up 13.4%, 8.5% on a like-for-like basis. Throughout the year growth was concentrated in the Keyline and CCF businesses which are focused on the commercial construction and new house building markets, although growth in these markets slowed in the second half of the year. BSS' sales are more weighted to public sector RMI and construction. This market has been more difficult in 2015, resulting in BSS sales marginally lower on a like-for-like basis. BSS maintained its market-leading position in this more difficult market by focusing on providing the best customer solutions, and investing to operate more cost-effectively.
Adjusted operating margins, excluding property profits, reduced by 20 bps, with gross margins reducing by 80 bps, offset by a 60 bps improvement from operating costs. The reduction in gross margin was driven by the shift in sales mix towards the lower margin CCF and Keyline businesses. Whilst the products sold in these businesses attract a lower gross margin the businesses themselves generate strong returns. At a business level, adjusted operating margins improved in CCF and Keyline as higher volumes enabled greater efficiencies and further sourcing improvements.
The Contracts division recognised £5m of property profits in 2015 (2014: £1m) through the sale and leaseback of six sites as capital was recycled for further investment.
Lease adjusted return on capital increased to 14% (2014: 13%), a function of increased sales, operating leverage and only modest increases to the capital base.
The Keyline business continued to increase its focus on the delivery of civil, drainage and heavyside materials to large, commercial customers. In 2015 a new format Keyline branch was opened in Lincoln, which was specifically designed to operate at reduced cost, so improving operational efficiency, whilst enhancing the range of specialist heavyside products available to the customer. The acquisition of Rudridge added a further four civils branches to the Keyline network in the South East.
The CCF network was expanded with the addition of eight new branches, six of which were opened in December 2015. This additional capacity should improve national coverage, with faster delivery to both local customers and those on framework agreements. CCF continues to build strong customer relationships, deliver superior customer service, more extensive ranges with strong availability, all resulting in significant share gains.
BSS is the largest operator in the industrial plumbing market. Throughout 2015 difficult market conditions, with both lower spending in the public sector and increasing competition from new entrants to the market, led to reduced volumes and margins. BSS maintained its advantaged market position through investments in pricing, continued market-leading customer service and product knowledge, and by improving the efficiency of the business. Three BSS branches were closed and two were relocated to reduce costs and improve customer accessibility.
In 2016 it is planned to convert 13 Keyline branches into the Travis Perkins format. These conversions will occur where it is felt the existing branch would better serve the General Merchant market and fill a previously underserved catchment.
Consumer
| 2015 | 2014 | Change | |
| Total revenue | £1,386m | £1,283m | 8.0% |
| Like-for-like growth | 5.3% | ||
| Adjusted operating profit | £95m | £77m | 23.4% |
| Adjusted operating profit excluding property profits | £93m | £77m | 20.8% |
| Adjusted operating margin | 6.8% | 6.0% | 80bps |
| LAROCE | 7% | 7% | - |
| Branch network | 571 | 527 | 44 |
The Consumer division made continued market share gains in 2015, with revenue growth of 8.0% and like-for-like growth of 5.3%, well ahead of the DIY market which was broadly flat. This outperformance demonstrates the continued improvement of the Wickes business as it progresses through the transformation programme, the market-leading customer proposition in Toolstation and the growth of the Tile Giant business.
After a period of market weakness in the third quarter of the year, the Consumer division returned to good growth in the fourth quarter. This was predominantly driven by strong kitchen and bathroom sales in Wickes and continued like-for-like growth and network expansion in Toolstation.
In 2015 previous impairments to loans made to Toolstation Europe were required to be reversed, recognising confidence in the future plans and viability of the business. This reversal resulted in a year-on-year improvement of £6m in operating profits.
Adjusted operating profit, excluding property profits and the one-off credit for impairment reversals in Toolstation Europe, increased by 11.7% to £87m, driven by the significant improvements made to the customer propositions across the division during the year.
Property profits of £2m were recognised in 2015 (2014: £nil), relating to the disposal of the former Wickes support centre in Harrow, resulting in adjusted operating profits of £95m in 2015 (2014: £77m), and growth of 23.4%.
The businesses in the Consumer division continue to invest in their value propositions in order to maintain market-leading prices and drive continued growth in market share. Wickes undertook significant range review activity in 2015, incurring costs of around £10m as old ranges were discounted for clearance. The majority of range changes have now been completed, with 36 ranges reviewed, including 'take-away' kitchens, adhesives and sealants, paint, tiles, flooring and timber. Further reviews are planned, across 32 smaller or simpler categories in 2016, including bricks and blocks, take-away bathrooms and garden maintenance.
Wickes now has eight stores operating in the new format, including four refurbishments, and four new stores. The new store formats allow both trade and retail customers to shop the stores efficiently, whilst also increasing range breadth and availability. Combined with the range review activity, the new store layouts maximise product adjacencies, give more focus to seasonal and promotional activities and segregate a more inviting Kitchen and Bathroom design centre. Initial customer feedback has been positive, returns are encouraging, and plans to continue the refurbishment of existing stores and the opening of new stores continue.
The Wickes online offer was enhanced, with the launch of a one-hour click and collect service. Online transactions now make up over 8% of Wickes sales, with half of the growth in online transactions in 2015 coming through click and collect.
The growth of the Toolstation business continued with a strong revenue performance throughout 2015, driven by both the growth in like-for-like sales from existing stores, and the addition of 40 new branches. Toolstation also benefitted from the introduction of a new one-hour click and collect service.
Tile Giant performed well in 2015 with good like-for-like sales growth. The performance exceeded the growth of the tile market with Tile Giant gaining market share.
Principal Risks and Uncertainties
The principal risks and uncertainties faced by the Group have been, and are expected to remain, consistent with those described in the 2014 Annual Report and Accounts. Details are provided for risks relating to market conditions, competitive pressures, information technology, colleague recruitment, retention and succession, supplier dependency and direct sourcing, defined benefit pension scheme funding, future expansion and funding liquidity, and further business transformation.
Consolidated income statement
For the year ended 31 December 2015
| 2015 | 2014 | |||||||
| Pre- exceptional items | Exceptional items | Total | Pre- exceptional items | Exceptional items | Total | |||
| £m | £m | £m | £m | £m | £m | |||
| Revenue | 5,941.6 | - | 5,941.6 | 5,580.7 | - | 5,580.7 | ||
| Operating profit before amortisation and impairment (note 6a) | 412.6 | - | 412.6 | 384.0 | (23.3) | 360.7 | ||
| Amortisation of goodwill and acquired intangible assets | (18.0) | - | (18.0) | (17.6) | - | (17.6) | ||
| Impairment of goodwill and other intangible assets | - | (140.6) | (140.6) | - | - | - | ||
| Operating profit | 394.6 | (140.6) | 254.0 | 366.4 | (23.3) | 343.1 | ||
| Finance income (note 9) | 1.2 | - | 1.2 | 5.6 | - | 5.6 | ||
| Finance costs (note 9) | (31.7) | - | (31.7) | (27.3) | - | (27.3) | ||
| Profit before tax | 364.1 | (140.6) | 223.5 | 344.7 | (23.3) | 321.4 | ||
| Tax (note 10) | (71.8) | 16.0 | (55.8) | (68.0) | 5.3 | (62.7) | ||
| Profit for the year | 292.3 | (124.6) | 167.7 | 276.7 | (18.0) | 258.7 | ||
| Attributable to: | |||||||
| Owners of the Company | 292.2 | (124.6) | 167.6 | 276.5 | (18.0) | 258.5 | |
| Non-controlling interests | 0.1 | - | 0.1 | 0.2 | - | 0.2 | |
| 292.3 | (124.6) | 167.7 | 276.7 | (18.0) | 258.7 |
| Earnings per ordinary share (note 11a) | |||
| Basic | 67.8p | 105.9p | |
| Diluted | 66.2p | 102.8p | |
| Total dividend declared per ordinary share (note 12) | 44.0p | 38.0p |
All results relate to continuing operations.
Details of exceptional items are given in notes 6 and 10.
Consolidated statement of comprehensive income
For the year ended 31 December 2015
| 2015 | 2014 | |
| £m | £m | |
| Profit for the year | 167.7 | 258.7 |
| Items that will not be reclassified subsequently to profit and loss: Actuarial gains / (losses) on defined benefit pension schemes | 24.8 | (48.4) |
| Deferred tax rate change on actuarial movement | (1.4) | - |
| Income tax relating to items not reclassified | (4.7) | 9.5 |
| 18.7 | (38.9) | |
| Items that may be reclassified subsequently to profit and loss: | ||
| Cash flow hedges | (0.3) | 0.2 |
| Other comprehensive income / (loss) for the year net of tax | 18.4 | (38.7) |
| Total comprehensive income for the year | 186.1 | 220.0 |
Consolidated balance sheet
As at 31 December 2015
| 2015 | 2014 | |
| £m | £m | |
| ASSETS | ||
| Non-current assets | ||
| Goodwill | 1,740.2 | 1,816.8 |
| Other intangible assets | 371.7 | 406.8 |
| Property, plant and equipment | 849.1 | 689.3 |
| Derivative financial instruments | 6.3 | 18.7 |
| Investment property | 0.4 | 0.4 |
| Interest in associates | 7.9 | 1.7 |
| Investments | 7.8 | 3.2 |
| Total non-current assets | 2,983.4 | 2,936.9 |
| Current assets | ||
| Inventories | 761.8 | 742.7 |
| Trade and other receivables | 986.9 | 931.8 |
| Derivative financial instruments | 16.2 | 2.5 |
| Cash and cash equivalents | 83.8 | 108.3 |
| Total current assets | 1,848.7 | 1,785.3 |
| Total assets | 4,832.1 | 4,722.2 |
Consolidated balance sheet (continued)
As at 31 December 2015
| 2015 | 2014 | |
| £m | £m | |
| EQUITY AND LIABILITIES | ||
| Capital and reserves | ||
| Issued capital | 25.0 | 24.9 |
| Share premium account | 518.9 | 510.5 |
| Merger reserve | 326.5 | 326.5 |
| Revaluation reserve | 18.4 | 18.1 |
| Hedging reserve | (0.1) | 0.2 |
| Own shares | (15.5) | (28.5) |
| Other reserves | (1.4) | (1.5) |
| Accumulated profits | 1,918.1 | 1,827.5 |
| Equity attributable to owners of the company | 2,789.9 | 2,677.7 |
| Non-controlling interests | 5.9 | - |
| Total equity | 2,795.8 | 2,677.7 |
| Non-current liabilities | ||
| Interest bearing loans and borrowings | 411.4 | 440.0 |
| Derivative financial instruments | - | 0.5 |
| Retirement benefit obligations (note 8) | 52.2 | 97.5 |
| Long term provisions | 7.4 | 7.8 |
| Deferred tax liabilities | 61.3 | 66.7 |
| Total non-current liabilities | 532.3 | 612.5 |
| Current liabilities | ||
| Interest bearing loans and borrowings | 139.8 | 43.5 |
| Trade and other payables | 1,235.5 | 1,255.2 |
| Tax liabilities | 90.2 | 71.6 |
| Short-term provisions | 38.5 | 61.7 |
| Total current liabilities | 1,504.0 | 1,432.0 |
| Total liabilities | 2,036.3 | 2,044.5 |
| Total equity and liabilities | 4,832.1 | 4,722.2 |
Consolidated statement of changes in equity
For the year ended 31 December 2015
| The Group | ||||||||||||
| Issued share capital | Share premium account | Merger reserve | Revaluation reserve | Hedging reserve | Own shares | Other | Retained earnings | Total | Non controlling interest | Total equity | ||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | ||
| At 1 January 2014 | 24.7 | 498.0 | 326.5 | 18.4 | - | (40.6) | (1.7) | 1,689.9 | 2,515.2 | - | 2,515.2 | |
| Profit for the year | - | - | - | - | - | - | 0.2 | 258.5 | 258.7 | - | 258.7 | |
| Other comprehensive income for the period net of tax | - | - | - | - | 0.2 | - | - | (38.9) | (38.7) | - | (38.7) | |
| Total comprehensive income for the year | - | - | - | - | 0.2 | - | 0.2 | 219.6 | 220.0 | - | 220.0 | |
| Dividends | - | - | - | - | - | - | - | (81.1) | (81.1) | - | (81.1) | |
| Issue of share capital | 0.2 | 12.5 | - | - | - | 12.1 | - | (10.5) | 14.3 | - | 14.3 | |
| 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 | - | - | - | (0.1) | - | - | - | 0.1 | - | - | - | |
| Tax on share based payments (10c) | - | - | - | - | - | - | - | (0.5) | (0.5) | - | (0.5) | |
| Foreign exchange | - | - | - | - | - | - | - | (0.1) | (0.1) | - | (0.1) | |
| Credit for equity-settled share based payments | - | - | - | - | - | - | - | 9.9 | 9.9 | - | 9.9 | |
| At 31 December 2014 | 24.9 | 510.5 | 326.5 | 18.1 | 0.2 | (28.5) | (1.5) | 1,827.5 | 2,677.7 | - | 2,677.7 | |
| Profit for the year | - | - | - | - | - | - | 0.1 | 167.6 | 167.7 | - | 167.7 | |
| Other comprehensive income for the period net of tax | - | - | - | - | (0.3) | - | - | 18.7 | 18.4 | - | 18.4 | |
| Total comprehensive income for the year | - | - | - | - | (0.3) | - | 0.1 | 186.3 | 186.1 | - | 186.1 | |
| Dividends | - | - | - | - | - | - | - | (100.2) | (100.2) | - | (100.2) | |
| Issue of share capital | 0.1 | 8.4 | - | - | - | 13.0 | - | (11.5) | 10.0 | - | 10.0 | |
| Realisation of revaluation reserve in respect of property disposals | - | - | - | (0.5) | - | - | - | 0.5 | - | - | - | |
| Difference between depreciation of assets on a historical basis and on a revaluation basis | - | - | - | (0.1) | - | - | - | 0.1 | - | - | - | |
| Deferred tax rate change | - | - | - | 0.9 | - | - | - | - | 0.9 | - | 0.9 | |
| Tax on share based payments (10c) | - | - | - | - | - | - | - | 1.9 | 1.9 | - | 1.9 | |
| Arising on acquisition | - | - | - | - | - | - | - | - | - | 5.9 | 5.9 | |
| Foreign exchange | - | - | - | - | - | - | - | (0.2) | (0.2) | - | (0.2) | |
| Credit for equity-settled share based payments | - | - | - | - | - | - | - | 13.7 | 13.7 | - | 13.7 | |
| At 31 December 2015 | 25.0 | 518.9 | 326.5 | 18.4 | (0.1) | (15.5) | (1.4) | 1,918.1 | 2,789.9 | 5.9 | 2,795.8 | |
Consolidated cash flow statement
For the year ended 31 December 2015
| 2015 | 2014 | |
| £m | £m | |
| Operating profit before amortisation and impairment of goodwill and other intangible assets and exceptional items | 412.6 | 384.0 |
| Adjustments for: | ||
| Depreciation of property, plant and equipment | 83.0 | 74.9 |
| Amortisation of internally generated intangibles | 3.1 | 0.7 |
| Other non-cash movements-share based payments | 13.7 | 9.9 |
| Other non-cash movements-other | 0.7 | - |
| (Gains) / losses of associates | (2.7) | 3.3 |
| Gain on disposal of property, plant and equipment | (26.3) | (26.8) |
| Operating cash flows (before exceptional items) | 484.1 | 446.0 |
| Increase in inventories | (14.1) | (48.5) |
| Increase in receivables | (43.0) | (107.7) |
| (Decrease) / increase in payables | (38.8) | 48.9 |
| Payments of exceptional items | (14.6) | (3.8) |
| Pension payments in excess of the charge to profits | (23.3) | (24.7) |
| Cash generated from operations | 350.3 | 310.2 |
| Interest paid | (19.9) | (15.2) |
| Income taxes paid | (47.8) | (49.9) |
| Net cash from operating activities | 282.6 | 245.1 |
| Cash flows from investing activities | ||
| Interest received | 0.2 | 0.2 |
| Proceeds on disposal of property, plant, equipment | 50.8 | 30.8 |
| Development of computer software | (23.9) | (14.0) |
| Purchases of property, plant and equipment | (268.7) | (150.9) |
| Interest in associates | (3.5) | (2.1) |
| Investments | (5.3) | - |
| Acquisition of businesses net of cash acquired | (26.0) | (15.7) |
| Net cash used in investing activities | (276.4) | (151.7) |
| Financing activities | ||
| Net proceeds from the issue of share capital | 10.0 | 14.3 |
| Net movement in finance lease liabilities | (2.7) | (2.5) |
| Repayment of loan notes | (40.8) | - |
| Debt arrangement fees | (3.9) | (2.6) |
| Increase in sterling bond | - | 250.0 |
| Increase / (decrease) in loans and in liabilities to pension scheme | 106.9 | (243.0) |
| Dividends paid | (100.2) | (81.1) |
| Net cash from financing activities | (30.7) | (64.9) |
| Net (decrease) / increase in cash and cash equivalents | (24.5) | 28.5 |
| Cash and cash equivalents at beginning of year | 108.3 | 79.8 |
| Cash and cash equivalents at end of year | 83.8 | 108.3 |
Notes
1. The Group's principal accounting policies are set out in the 2014 annual report, which is available on the Company's website www.travisperkinsplc.com. All other accounting policies have been applied consistently in 2015.
2. The proposed final dividend of 29.25 pence (2014: 25.75 pence) is payable on 27 May 2016. The record date is 29 April 2016.
3. The financial information set out in this statement does not constitute the Group's statutory accounts for the years ended 31 December 2015 or 31 December 2014. The financial information is derived from those accounts for the year ended 31 December 2014 and from the draft version of those accounts of the year ended 31 December 2015. Statutory accounts for the year ended 2014 have been delivered to the Registrar of Companies and those for 2015 will be delivered in due course. The audit of the statutory accounts for the year ended 31 December 2015 is not yet complete. The Group's previous auditors have reported on the 31 December 2014 accounts; their report was unmodified, did not draw attention to any matters by way of emphasis without modifying their report and did not contain statements under s498 (2) or (3) Companies Act 2006. Whilst the financial information included in this 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 2 March 2016.
5. It is intended to post the annual report to shareholders on Friday 22 April 2016 and to hold the Annual General Meeting on 25 May 2016. 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 Monday 25 April 2016 or will be available on the Group's website at www.travisperkinsplc.com.
6. Profit
(a) Operating profit
| 2015 | 2014 | |
| £m | £m | |
| Revenue | 5,941.6 | 5,580.7 |
| Cost of sales | (4,172.6) | (3,930.2) |
| Gross profit | 1,769.0 | 1,650.5 |
| Selling and distribution costs | (1,066.2) | (1,015.5) |
| Administrative expenses | (480.4) | (320.6) |
| Profit on disposal of properties | 23.9 | 26.3 |
| Other operating income | 5.0 | 5.7 |
| Share of results of associate | 2.7 | (3.3) |
| Operating profit | 254.0 | 343.1 |
| Add back exceptional items | 140.6 | 23.3 |
| Add back amortisation of acquired intangible assets | 18.0 | 17.6 |
| Adjusted operating profit | 412.6 | 384.0 |
- Profit (continued)
(b) Exceptional items
| 2015 | 2014 | |
| £m | £m | |
| Impairment of goodwill and other intangible assets | 140.6 | - |
| Reconfiguration of the Plumbing and Heating business | - | 29.5 |
| Onerous lease provision release | - | (10.0) |
| Write down in loans and investments in Rinus Roofing Limited | - | 4.6 |
| Fair value adjustments to contingent consideration | - | (0.8) |
| 140.6 | 23.3 |
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.
2015
Trading conditions in the wholesale and contract led Plumbing and Heating market have been challenging and as a consequence, following the annual impairment review of goodwill and other intangible assets, the Group has recognised an impairment charge in respect of PTS (£109.9m) and F&P (£30.7m) totalling £140.6m.
2014
The programme to reconfigure the Plumbing and Heating business resulted in the Group incurring £29.5m of exceptional operating charges.
£10.0m of surplus exceptional onerous lease provision was credited back to operating profit following the surrender of the lease on a property.
The Group disposed of its investment in Rinus Roofing Limited for £2.8m and recorded a loss of £4.6m as loans previously advanced to that company and the Group's equity investment were not fully recovered.
In accordance with IAS 39 the contingent consideration payable in respect of the acquisition of Solfex was reassessed with the discounted amount previously recognised being reduced by £0.8m.
(c) Adjusted profit before and after tax
| 2015 | 2014 | |
| £m | £m | |
| Profit before tax | 223.5 | 321.4 |
| Exceptional items (note 6b) | 140.6 | 23.3 |
| Amortisation of intangible assets | 18.0 | 17.6 |
| Adjusted profit before tax | 382.1 | 362.3 |
| Profit after tax | 167.7 | 258.7 |
| Exceptional items | 140.6 | 23.3 |
| Amortisation of other intangible assets | 18.0 | 17.6 |
| Tax on amortisation of acquired intangible assets | (3.4) | (3.5) |
| Tax on exceptional items | (7.5) | - |
| Income effect of reduction in corporation tax rate on deferred tax | (8.5) | - |
| Adjusted profit after tax | 306.9 | 290.8 |
6. Profit (continued)
(d) Adjusted operating margin
| General Merchanting | Plumbing & Heating | Contracts | Consumer | Unallocated | Group | |||||||
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| Revenue | 1,971.5 | 1,872.7 | 1,370.7 | 1,353.3 | 1,213.6 | 1,071.3 | 1,385.8 | 1,283.4 | - | - | 5,941.6 | 5,580.7 |
| Segment result | 198.8 | 183.4 | (102.1) | 29.4 | 77.3 | 65.9 | 89.9 | 82.4 | (9.9) | (18.0) | 254.0 | 343.1 |
| Amortisation of intangible assets | - | - | 7.2 | 7.0 | 5.9 | 5.7 | 4.9 | 4.9 | - | - | 18.0 | 17.6 |
| Exceptional items | - | - | 140.6 | 28.7 | - | - | - | (10.0) | - | 4.6 | 140.6 | 23.3 |
| Adjusted segment result | 198.8 | 183.4 | 45.7 | 65.1 | 83.2 | 71.6 | 94.8 | 77.3 | (9.9) | (13.4) | 412.6 | 384.0 |
| Adjusted operating margin | 10.1% | 9.8% | 3.3% | 4.8% | 6.9% | 6.7% | 6.8% | 6.0% | - | - | 6.9% | 6.9% |
7. Business and geographical segments
| 2015 | |||||||
| General Merchanting | Plumbing & Heating | Contracts | Consumer | Unallocated | Consolidated | ||
| £m | £m | £m | £m | £m | £m | ||
| Revenue | 1,971.5 | 1,370.7 | 1,213.6 | 1,385.8 | - | 5,941.6 | |
| Segment result | 198.8 | (102.1) | 77.3 | 89.9 | (9.9) | 254.0 | |
| Finance income | - | - | - | - | 1.2 | 1.2 | |
| Finance costs | - | - | - | - | (31.7) | (31.7) | |
| Profit before taxation | 198.8 | (102.1) | 77.3 | 89.9 | (40.4) | 223.5 | |
| Taxation | - | - | - | - | (55.8) | (55.8) | |
| Profit for the year | 198.8 | (102.1) | 77.3 | 89.9 | (96.2) | 167.7 | |
| Segment assets | 1,540.2 | 856.0 | 833.7 | 1,479.1 | 123.1 | 4,832.1 | |
| Segment liabilities | (437.8) | (293.4) | (244.8) | (283.8) | (776.5) | (2,036.3) | |
| Consolidated net assets | 1,102.4 | 562.6 | 588.9 | 1,195.3 | (653.4) | 2,795.8 | |
| Capital expenditure | 169.8 | 20.0 | 31.6 | 44.3 | - | 265.7 | |
| Amortisation of acquired intangibles | - | 7.2 | 5.9 | 4.9 | - | 18.0 | |
| Impairment of goodwill and other intangibles | - | 140.6 | - | - | - | 140.6 | |
| Depreciation | 47.8 | 8.4 | 9.2 | 17.6 | - | 83.0 | |
7. Business and geographical segments (continued)
| 2014 | ||||||
| General Merchanting | Plumbing & Heating | Contracts | Consumer | Unallocated | Consolidated | |
| £m | £m | £m | £m | £m | £m | |
| Revenue | 1,872.7 | 1,353.3 | 1,071.3 | 1,283.4 | - | 5,580.7 |
| Segment result | 183.4 | 29.4 | 65.9 | 82.4 | (18.0) | 343.1 |
| Finance income | - | - | - | - | 5.6 | 5.6 |
| Finance costs | - | - | - | - | (27.3) | (27.3) |
| Profit before taxation | 183.4 | 29.4 | 65.9 | 82.4 | (39.7) | 321.4 |
| Taxation | - | - | - | - | (62.7) | (62.7) |
| Profit for the year | 183.4 | 29.4 | 65.9 | 82.4 | (102.4) | 258.7 |
| Segment assets | 1,453.4 | 961.5 | 735.5 | 1,436.2 | 135.6 | 4,722.2 |
| Segment liabilities | (420.2) | (265.2) | (280.7) | (334.7) | (743.7) | (2,044.5) |
| Consolidated net assets | 1,033.2 | 696.3 | 454.8 | 1,101.5 | (608.1) | 2,677.7 |
| Capital expenditure | 110.1 | 13.6 | 13.9 | 20.1 | - | 157.7 |
| Amortisation | - | 7.0 | 5.7 | 4.9 | - | 17.6 |
| Depreciation | 44.6 | 5.9 | 8.8 | 15.6 | - | 74.9 |
All four Divisions sell building materials to a wide range of customers, none of which are dominant, and operate almost exclusively in the United Kingdom and consequently no geographical information is presented. Segment result represents the profit earned by each segment without allocation of certain central costs, finance income and costs and income tax expense. Intersegment trading is eliminated.
In 2015 an impairment charge was recognised in the Plumbing & Heating segment on goodwill and other intangible assets totalling £140.6m. In 2014 there were no impairment losses or reversals of impairment losses in respect of goodwill and other intangible assets recognised in profit or loss or in equity in any of the reportable segments.
8. Pension schemes
| 2015 | 2014 Restated* | |
| £m | £m | |
| Actuarial (deficit) / surplus | (95.6) | 0.3 |
| Additional liability recognised for minimum funding requirements | (1.9) | (71.7) |
| Gross deficit at 30 June / 31 December | (97.5) | (71.4) |
| Service costs charged to the income statement | (16.6) | (10.7) |
| Net interest expense | (2.9) | (2.4) |
| Contributions from sponsoring companies | 39.9 | 35.4 |
| Foreign exchange | 0.1 | - |
| Return on plan assets (excluding amounts included in net interest) | (22.8) | 55.4 |
| Actuarial gains / (losses) arising from changes in financial assumptions | 35.2 | (175.3) |
| Actuarial gains arising from changes in demographic assumptions | 47.8 | - |
| Actuarial gains arising from experience adjustments | 13.2 | 1.7 |
| (Increase) / decrease arising from IFRIC 14 restriction | (48.6) | 69.8 |
| Gross deficit at 31 December | (52.2) | (97.5) |
| Actuarial deficit | (1.1) | (95.6) |
| Restriction an asset recognised | (34.4) | - |
| Additional liability recognised for minimum funding requirements | (16.7) | (1.9) |
| Gross deficit at 30 June / 31 December | (52.2) | (97.5) |
| Deferred tax asset | 9.8 | 19.2 |
| Net pension liability at 31 December | (42.4) | (78.3) |
*The 2014 pension numbers in respect of the Travis Perkins pension scheme have been restated to reduce the return on plan assets in the year by £14.8m to exclude contingent rentals from the value of the liability to the pension scheme with an equal and opposite reduction to the additional liability recognised in respect of the minimum funding requirement. There was no overall effect on the total pension liability.
In 2016 the total amount payable to the pension schemes in excess of the cost of on-going funding will be £10m.
9. Net finance costs
(a) Finance costs and finance income
| 2015 | 2014 | |
| £m | £m | |
| Interest on bank loans and overdrafts* | (14.0) | (14.4) |
| Interest on sterling bond | (7.4) | (2.1) |
| Interest on obligations under finance leases | (0.7) | (1.2) |
| Unwinding of discounts - property provisions | (0.3) | (1.3) |
| Unwinding of discounts - SPV | (2.5) | (2.5) |
| Other interest | (2.7) | (3.4) |
| Other finance costs - pension scheme | (2.9) | (2.4) |
| Net loss on re-measurement of derivatives at fair value | (1.2) | - |
| Finance costs | (31.7) | (27.3) |
| Amortisation of cancellation receipt for swap accounted for as fair value hedge | 0.9 | 1.0 |
| Net gain on re-measurement of derivatives at fair value | - | 4.1 |
| Interest receivable | 0.3 | 0.5 |
| Finance income | 1.2 | 5.6 |
| Net finance costs | (30.5) | (21.7) |
*Includes £3.8m (2014: £1.7m) of amortised finance charges.
(b) Interest cover covenant
| 2015 | 2014 | |
| £m | £m | |
| Interest on bank loans and overdrafts* | (14.0) | (14.4) |
| Interest on sterling bond | (7.4) | (2.1) |
| Amortised bank finance charges | 3.8 | 1.7 |
| Other interest | (2.7) | (3.4) |
| Interest receivable | 0.3 | 0.5 |
| Interest for covenant purposes | (20.0) | (17.7) |
| Adjusted interest cover for covenant purposes | 20.6x | 21.6x |
Adjusted interest cover is calculated by dividing, adjusted operating profit of £412.6m (2014: £384.0m) less £nil (2014: £1.3m) of specifically excluded IFRS adjustments, by the interest for covenant purposes. The calculation for 2015 is in accordance with the requirements of the £550m credit facility signed on 14 December 2015.
- Fixed charge cover interest
| 2015 | 2014 | |
| £m | £m | |
| Interest on bank loans and overdrafts | (14.0) | (14.4) |
| Interest on sterling bond | (7.4) | (2.1) |
| Interest on obligations under finance leases | (0.7) | (1.2) |
| Unwinding of discounts - SPV | (2.5) | (2.5) |
| Loan note interest (included in other interest) | (0.3) | (0.6) |
| Interest for fixed charge ratio purposes | (24.9) | (20.8) |
10. Tax
| 2015 | 2014 | ||||||
| Pre-exceptional items | Exceptional items | Total | Pre-exceptional items | Exceptional items | Total | ||
| £m | £m | £m | £m | £m | £m | ||
| Current tax | |||||||
| UK corporation tax | |||||||
| - current year | 71.8 | - | 71.8 | 70.2 | (5.3) | 64.9 | |
| - prior year | (1.3) | - | (1.3) | (11.1) | - | (11.1) | |
| Total current tax | 70.5 | - | 70.5 | 59.1 | (5.3) | 53.8 | |
| Deferred tax | |||||||
| - current year | (0.1) | (16.0) | (16.1) | 1.9 | - | 1.9 | |
| - prior year | 1.4 | - | 1.4 | 7.0 | - | 7.0 | |
| Total deferred tax | 1.3 | (16.0) | (14.7) | 8.9 | - | 8.9 | |
| Total tax charge | 71.8 | (16.0) | 55.8 | 68.0 | (5.3) | 62.7 | |
The standard rate of corporation tax for the year of 20.25% is a blended rate of 21% up to 1 April 2015 and 20% thereafter. The tax charge for 2015 includes an exceptional credit of £8.5m arising from the reduction in the rate of UK corporation tax from 20% to 19% on 1 April 2017 and a further reduction to 18% on 1 April 2020. In addition the tax charge includes an exceptional credit of £7.5m in respect of the exceptional impairment of other intangible assets.
11. Earnings per share
(a) Basic and diluted earnings per share
| 2015 | 2014 | |
| Earnings | £m | £m |
| Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the Parent Company | 167.6 | 258.5 |
| Number of shares | No. | No. |
| Weighted average number of shares for the purposes of basic earnings per share | 247,302,865 | 244,146,721 |
| Dilutive effect of share options on potential ordinary shares | 5,681,972 | 7,295,091 |
| Weighted average number of ordinary shares for the purposes of diluted earnings per share | 252,984,837 | 251,441,812 |
| Earnings per share | 67.8p | 105.9p |
| Diluted earnings per share | 66.2p | 102.8p |
No share options (2014: 47,940) had an exercise price in excess of the average market value of the shares during the year. As a result, these share options were excluded from the calculation of diluted earnings per share.
11. Earnings per share (continued)
(b) Adjusted earnings per share
Adjusted earnings per share are calculated by excluding the effect of the exceptional items and amortisation from earnings.
| 2015 | 2014 | ||
| £m | £m | ||
| Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the Parent Company | 167.6 | 258.5 | |
| Exceptional items | 140.6 | 23.3 | |
| Amortisation of intangible assets | 18.0 | 17.6 | |
| Tax on amortisation of intangible assets | (3.4) | (3.5) | |
| Tax on exceptional items | (7.5) | (5.3) | |
| Effect of reduction in corporation tax rate on deferred tax | (8.5) | - | |
| Adjusted earnings | 306.8 | 290.6 | |
| Adjusted earnings per share | 124.1p | 119.0p | |
| Adjusted diluted earnings per share | 121.3p | 115.6p |
12. Dividends
Amounts were recognised in the financial statements as distributions to equity shareholders as follows:
| 2015 | 2014 | ||
| £m | £m | ||
| Final dividend for the year ended 31 December 2014 of 25.75p (2013: 21.0p) per ordinary share | 63.7 | 51.2 | |
| Interim dividend for the year ended 31 December 2015 of 14.75p (2014: 12.25p) per ordinary share | 36.5 | 29.9 | |
| Total dividend recognised during the year | 100.2 | 81.1 |
The dividends declared for 2015 and for 2014 were as follows:
| 2015 | 2014 | |
| Pence | Pence | |
| Interim paid | 14.75 | 12.25 |
| Final proposed | 29.25 | 25.75 |
| Total dividend for the year | 44.0 | 38.0 |
The proposed final dividend of 29.25p per ordinary share in respect of the year ended 31 December 2015 was approved by the Board on 2 March 2016.
Dividend cover of 2.8x (2014: 3.1x) is calculated by dividing adjusted earnings per share (note 11b) of 124.1p (2014: 119.0p) by the total dividend for the year of 44.0p (2014: 38.0p).
13. Free cash flow
| 2015 | 2014 | |
| £m | £m | |
| Net debt before exchange and fair value adjustments at 1 January | (375.2) | (347.6) |
| Net debt before exchange and fair value adjustments at 31 December | (467.4) | (375.2) |
| Increase in net debt | (92.2) | (27.6) |
| Dividends paid | 100.2 | 81.1 |
| Net cash outflow for expansion capital expenditure | 237.6 | 115.0 |
| Net cash outflow for acquisitions | 26.0 | 15.7 |
| Net cash outflow for investments | 5.3 | - |
| Amortisation of swap cancellation receipt | (0.9) | (1.0) |
| Discount unwind on liability to pension scheme | 2.5 | 2.5 |
| Cash impact of exceptional items | 14.6 | 3.8 |
| Issue of Toolstation loan notes | - | 37.6 |
| Interest in associate | 3.5 | 2.1 |
| Shares issued and sale of own shares | (10.0) | (14.3) |
| Increase in fair value of debt and exchange movements | 2.9 | 13.4 |
| Movement in finance charges netted off bank debt | 3.8 | 1.7 |
| Special pension contributions | 23.3 | 24.7 |
| Free cash flow | 316.6 | 254.7 |
14. Net debt and lease adjusted gearing
(a) Net debt
Balances at 31 December comprise:
| 2015 | 2014 | |
| £m | £m | |
| Cash and cash equivalents | 83.8 | 108.3 |
| Non-current interest bearing loans and borrowings | (411.4) | (440.0) |
| Current interest bearing loans and borrowings | (139.8) | (43.5) |
| Exchange and fair value adjustments on derivatives hedging net debt items | 20.0 | 17.1 |
| Net debt | (447.4) | (358.1) |
14. Net debt and lease adjusted gearing (continued)
| The Group | ||||||||
| Cash and cash equivalents | Finance leases | Term loan and revolving credit facility and loan notes | Unsecured senior US$ loan notes and Sterling Bond | Liability to pension scheme | Fair value and exchange movement on hedged net debt items | Total | ||
| £m | £m | £m | £m | £m | £m | £m | ||
| At 1 January 2014 | (79.8) | 23.8 | 238.4 | 128.7 | 36.5 | (3.7) | 343.9 | |
| Cash flow | (28.5) | (2.5) | (240.0) | 247.4 | (3.0) | - | (26.6) | |
| Exchange movement | - | - | - | 4.2 | - | (4.2) | - | |
| Fair value movement | - | - | - | 9.2 | - | (9.2) | - | |
| Finance charges amortised | - | - | 1.6 | 0.1 | - | - | 1.7 | |
| Issue of Toolstation loan notes | - | - | 37.6 | - | - | - | 37.6 | |
| Amortisation of swap cancellation receipt | - | - | - | (1.0) | - | - | (1.0) | |
| Discount unwind on liability to pension scheme | - | - | - | - | 2.5 | - | 2.5 | |
| At 1 January 2015 | (108.3) | 21.3 | 37.6 | 388.6 | 36.0 | (17.1) | 358.1 | |
| Cash flow | 24.5 | (2.7) | 65.2 | - | (3.1) | - | 83.9 | |
| Exchange movement | - | - | - | 3.9 | - | (3.9) | - | |
| Fair value movement | - | - | - | (1.0) | - | 1.0 | - | |
| Finance charges movement | - | - | 3.4 | 0.4 | - | - | 3.8 | |
| Amortisation of swap cancellation receipt | - | - | - | (0.9) | - | - | (0.9) | |
| Discount unwind on liability to pension scheme | - | - | - | - | 2.5 | - | 2.5 | |
| 31 December 2015 | (83.8) | 18.6 | 106.2 | 391.0 | 35.4 | (20.0) | 447.4 | |
| 2015 | 2014 | |
| £m | £m | |
| Net debt before exchange and fair value adjustments | (467.4) | (375.2) |
| Finance leases recognised on adoption of IAS17 | 14.3 | 16.0 |
| Unamortised swap cancellation receipt | - | 0.9 |
| Liability to pension scheme | 35.4 | 36.0 |
| Fair value adjustment to debt | 20.0 | 17.1 |
| Finance charges netted off bank debt | (6.0) | (5.7) |
| Net debt under covenant calculations | (403.7) | (310.9) |
14. Net debt and lease adjusted gearing (continued)
(b) Lease adjusted gearing
| The Group | ||
| 2015 | 2014 | |
| £m | £m | |
| Net debt before exchange and fair value adjustments | 467.4 | 375.2 |
| Exchange and fair value adjustments | (20.0) | (17.1) |
| Net debt | 447.4 | 358.1 |
| Property operating lease rentals x8 | 1,443.2 | 1,423.2 |
| Lease adjusted net debt | 1,890.6 | 1,781.3 |
| Property operating lease rentals x8 | 1,443.2 | 1,423.2 |
| Total equity | 2,795.8 | 2,677.7 |
| Lease adjusted equity | 4,239.0 | 4,100.9 |
| Gearing | 44.6% | 43.4% |
15. Return on capital ratios
(a) Return on capital employed is calculated as follows:
| 2015 | 2014 Restated* | |
| £m | £m | |
| Operating profit | 254.0 | 343.1 |
| Amortisation of intangible assets | 18.0 | 17.6 |
| Exceptional items | 140.6 | 23.3 |
| Adjusted operating profit | 412.6 | 384.0 |
| Opening net assets | 2,677.7 | 2,515.2 |
| Net pension deficit | 78.3 | 57.4 |
| Net debt before exchange and fair value adjustments | 375.2 | 347.6 |
| Exchange and fair value adjustment | (17.1) | (3.7) |
| Opening capital employed | 3,114.1 | 2,916.5 |
| Closing net assets | 2,795.8 | 2,677.7 |
| Net pension deficit | 42.4 | 78.3 |
| Net debt before exchange and fair value adjustments | 467.4 | 375.2 |
| Exchange and fair value adjustment | (20.0) | (17.1) |
| Closing capital employed | 3,285.6 | 3,114.1 |
| Average capital employed | 3,199.9 | 3,015.3 |
| Adjusted pre-tax return on capital | 12.9% | 12.7% |
*The 2014 lease related numbers were restated to reflect a refinement to the calculations to include £5.7m of rental income receivable on leased property that is sublet.
15. Return on capital ratios (continued)
- Lease adjusted return on capital employed is calculated as follows:
| 2015 | 2014 Restated | |
| £m | £m | |
| Adjusted operating profit | 412.6 | 384.0 |
| 50% of property operating lease rentals | 90.2 | 89.0 |
| Lease adjusted operating profit | 502.8 | 473.0 |
| Average capital employed | 3,199.9 | 3,015.3 |
| Property operating lease rentals x8 | 1,443.2 | 1,423.2 |
| Lease adjusted capital employed | 4,643.1 | 4,438.5 |
| Lease adjusted return on capital employed | 10.8% | 10.7% |
Group lease adjusted return on capital employed adjusted for goodwill written off and the impairment of goodwill and other intangible assets is shown below;
| Lease adjusted operating profit | 502.8 | 473.0 |
| Opening capital employed | 3,114.1 | 2,916.5 |
| Goodwill written off | 92.7 | 92.7 |
| Opening capital employed adjusted for goodwill written off | 3,206.8 | 3,009.2 |
| Closing capital employed | 3,285.6 | 3,114.1 |
| Goodwill and other intangible assets written off | 233.3 | 92.7 |
| Closing capital employed adjusted for goodwill written off | 3,518.9 | 3,206.8 |
| Average capital employed | 3,362.9 | 3,108.0 |
| Property operating lease rentals x8 | 1,443.2 | 1,423.2 |
| Lease adjusted capital employed | 4,806.1 | 4,531.2 |
| Lease adjusted return on capital employed | 10.5% | 10.4% |
16. Leverage ratios
(a) Adjusted ratio of net debt to earnings before interest tax and depreciation ("EBITDA") is derived as follows:
| 2015 | 2014 | |
| £m | £m | |
| Profit before tax | 223.5 | 321.4 |
| Net finance costs | 30.5 | 21.7 |
| Depreciation and amortisation | 104.1 | 93.2 |
| EBITDA | 358.1 | 436.3 |
| Exceptional operating items | 140.6 | 23.3 |
| Adjusted EBITDA | 498.7 | 459.6 |
| IFRS adjustments for covenant calculations | - | (2.4) |
| Adjusted EBITDA under covenant calculations | 498.7 | 457.2 |
| Net debt under covenant calculations | 403.7 | 310.9 |
| Adjusted net debt to EBITDA under covenant calculations | 0.81x | 0.68x |
- Adjusted ratio of net debt to earnings before interest, tax, depreciation, and operating lease rentals ("EBITDAR) is derived as follows:
| 2015 | 2014 Restated* | |
| £m | £m | |
| Adjusted EBITDA | 498.7 | 459.6 |
| Property operating lease rentals net of rent receivable | 180.4 | 177.9 |
| Adjusted EBITDAR | 679.1 | 637.5 |
| Net debt before exchange and fair value adjustments | 467.4 | 375.2 |
| Exchange and fair value adjustments | (20.0) | (17.1) |
| Net debt | 447.4 | 358.1 |
| Operating lease rentals (x 8) | 1,443.2 | 1,423.2 |
| Lease adjusted net debt | 1,890.6 | 1,781.3 |
| Lease adjusted net debt to EBITDAR | 2.8x | 2.8x |
- Fixed charge cover is derived as follows:
| 2015 | 2014 Restated* | |
| £m | £m | |
| Adjusted EBITDAR | 679.1 | 637.5 |
| Property operating lease rentals | 180.4 | 177.9 |
| Interest for fixed charge calculation (note 9) | 24.9 | 20.8 |
| Lease adjusted net debt | 205.3 | 198.7 |
| Fixed charge cover | 3.3x | 3.2x |
*See note 15a
17. Like-for-like sales
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 12 months. Revenue included in like-for-like 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.
18. Acquisition of businesses
On 4 February 2015, the Group acquired 100% of the issued share capital of Rudridge Limited for a total consideration of £13.4m. Rudridge Limited is a leading supplier of groundwork, civil engineering and drainage materials.
On 6 July 2015, the Group acquired 100% of the issued share capital of IJM Enterprises Limited trading as Bathrooms.com, an online retailer of bathroom suites, for a total consideration of £3.1m.
On 24 July 2015, the Group acquired 100% of the issued share capital of Garratt Timber Supplies Limited, which trades as a timber merchant, for a total consideration of £4.1m.
On 18 August 2015, the Group acquired 55% of the issued share capital of The Underfloor Heating Store Limited, an online supplier of underfloor heating systems, for a total consideration of £7.3m.
For the period from acquisition the total revenue and operating profit for all the above acquisitions totalled £54.4m and £2.3m respectively. If the acquisitions had been completed on the first day of the year group revenues would have been £5,959.7m and group operating profit before amortisation would have been £413.3m.
Goodwill recognised consists of the benefits from forecast growth and the assembled workforces. None of the goodwill recognised is expected to be deductible for income tax purposes. Acquisition costs charged in administration expenses for the period to 31 December 2015 amounted to £0.5m. The fair value of the trade receivables totalled £9.4m and all acquired receivables are expected to be collected in full.
18. Acquisition of businesses (continued)
All acquisitions were accounted for using the purchase method of accounting. Provisional fair values ascribed to identifiable assets as at the date of the acquisitions are shown in the table below:
| Fair value acquired £m | ||
| Net assets acquired: | £m | |
| Property, plant and equipment | 2.5 | |
| Identifiable intangible assets | 3.7 | |
| Inventories | 5.0 | |
| Trade and other receivables | 11.3 | |
| Cash at bank | 2.1 | |
| Trade and other payables (11.0) | (11.2) | |
| Corporation tax (0.8) | (0.8) | |
| Deferred tax | (1.2) | |
| 11.4 | ||
| Goodwill - addition during the period | 22.4 | |
| 33.8 | ||
| Satisfied by: | ||
| Cash paid | 27.9 | |
| Non-controlling interest | 5.9 | |
| 33.8 |
£0.2m was paid in respect of the prior year contingent consideration for Solfex Limited.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Travis Perkins PLC via Globenewswire
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