Full year results for the twelve months ended 3...
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Travis Perkins (TPK)
Travis Perkins plc Full year results for the twelve months ended 31 December 2019 Positive trading performance against a challenging market backdrop
(1) Figures adjusted on a non-statutory illustrative basis for IFRS 16 - Leases as previously reported in May 2019 (2) Alternative performance measures are used to provide a guide to underlying performance. Details of calculations can be found in the notes listed Financial highlights
Strategic progress
Nick Roberts, Chief Executive Officer, commented: "Against a challenging market backdrop we have delivered a strong operational and financial performance across the Group. Our merchanting businesses gained market share as a result of a range of initiatives to improve our customer proposition, including increased local empowerment for our branch managers, while the pace of the Toolstation expansion accelerated. The actions put in place to improve our Wickes and Plumbing & Heating businesses meant that both recovered well during the year and made positive contributions towards the Group's overall performance. "Our strategic progress in 2019 has been significant, but there remains much work to do in order to build stronger foundations for the Group to deliver enhanced returns and long-term growth. Our immediate priorities are the regeneration of the Travis Perkins general merchant, continued growth of Toolstation, further simplification of our business and successful delivery of the demerger of Wickes. "The long-term fundamental drivers of the Group's end-markets remain strong, and our businesses enjoy leading positions in their respective markets. Whilst trading conditions in 2019 have been challenging we have seen some green shoots of recovery in our lead indicators, although it remains too early to point towards any tangible improvement in RMI. The Group remains focused on delivering against our key priorities, and we are optimistic that we can build on the positive performance in 2019, continue to outperform our end-markets and deliver improved returns for our shareholders."
Enquiries:
Cautionary Statement: This announcement contains "forward-looking statements" with respect to Travis Perkins' financial condition, results of operations and business and details of plans and objectives in respect to these items. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as "anticipates", "aims", "due", "could", "may", "will", "should", "expects", "believes", "seeks", "intends", "plans", "potential", "reasonably possible", "targets", "goal" or "estimates", and words of similar meaning. By their very nature forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, the Principal Risks and Uncertainties disclosed in the Group's Annual Report, changes in the economies and markets in which the Group operates; changes in the legislative, regulatory and competition frameworks in which the Group operates; changes in the capital markets from which the Group raises finance; the impact of legal or other proceedings against or which affect the Group; and changes in interest and exchange rates. All forward-looking statements, made in this announcement or made subsequently, which are attributable to Travis Perkins or any other member of the Group or persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. No assurances can be given that the forward-looking statements in this document will be realised. Subject to compliance with applicable law and regulations, Travis Perkins does not intend to update these forward-looking statements and does not undertake any obligation to do so. Nothing in this document should be regarded as a profits forecast. Without prejudice to the above: (a) neither Travis Perkins plc nor any other member of the Group, nor persons acting on their behalf shall otherwise have any liability whatsoever for loss howsoever arising, directly or indirectly, from the use of the information contained within this announcement; and (b) neither Travis Perkins plc nor any other member of the Group, nor persons acting on their behalf makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained within this announcement. This announcement is current as of 3 March 2020, the date on which it is given. This announcement has not been and will not be updated to reflect any changes since that date. Past performance of the shares of Travis Perkins plc cannot be relied upon as a guide to the future performance of the shares of Travis Perkins plc.
SummaryBasis of preparation The Group's 2019 audited results are reported on the following basis:
Financial performanceThe Group produced a positive performance in 2019 against a challenging market backdrop, with early signs of progress from the strategic initiatives set out in December 2018. Total Group revenues grew by 3.2% in 2019 to £6,956m, and by 3.8% on a like-for-like basis. Sales growth was driven by a good performance from the Merchant businesses despite the challenging market environment, with continued excellent growth in Toolstation and a strong recovery in Wickes. The P&H business recorded a modest reduction in sales across the year, but this reduction was concentrated in the lower margin wholesale business, whilst the branch-based business continued to grow. Adjusted operating profits grew to £442m, an increase of 7.8% when compared to the 2018 illustrative comparative (including the impact of IFRS 16). The increase of £32m was driven by improvements in all segments, with the biggest increase coming from the strong recovery in Wickes. Toolstation UK also grew profits strongly, but this was offset by the consolidation of Toolstation Europe in Q4, and the corresponding losses of around £4m. The transformation of P&H continued to make good progress, improving the balance of business and improving margins. The Group continued to generate good free cash flow of £195m in 2019, after capital expenditure but before freehold activity, at a cash conversion rate of 54% (2018: 46%). Covenant net debt increased by £44m to £344m, primarily driven by higher net working capital, with additional inventory held by the Group as a mitigation against the risk of a 'no deal' exit from the EU. There was also higher spend on acquisitions in the year, with further payments relating to both Underfloor Heating Store and National Shower Spares, and the acquisition of a majority stake in Toolstation Europe. Underlying net debt, excluding the inventory build and acquisitions, would have improved by around £45m. Adjusted earnings per share were 112.7p for 2019 (2018 illustrative comparative: 106.0p), an increase of 6.3%. This increase in adjusted EPS was modestly lower than the increase in adjusted operating profits due to higher financing charges in the year, primarily driven by the marking-to-market of foreign exchange contracts. On a statutory basis, operating profit increased to £232m from the 2018 loss of £(22)m which included a £246m goodwill impairment. The positive trading performance in 2019 was partially offset by the impact of the halting of the ERP replacement programme and restructuring charges across the business. The Board recommends a full-year dividend of 48.5p, an increase of 3.2% (2018: 47.0p), reflecting the Board's confidence in the future cash generation and prospects of the Group. Strategic progressAt a Capital Markets event in December 2018, the Group laid out its plans for the years ahead, with two overarching strategic aims being (i) to focus on serving trade customers through advantaged trade businesses; and (ii) to simplify the Group to increase agility, speed up decision making and enable a leaner cost base. The Group has made good progress towards its strategic goals, and this is reflected in the encouraging financial performance in 2019. Simplifying the GroupWickes demerger The Travis Perkins Board has been clear on the Group's purpose to focus on its advantaged trade businesses, with the intention to concentrate the allocation of capital in businesses serving trade-focused end-markets to create maximum value for shareholders. Providing best-in-class service to trade customers represents the Group's heartland, where it has the most experience and advantages in understanding and delivering on specific customer requirements. The propositions required for trade customers and consumers are different. Trade-focused businesses provide tailored propositions to satisfy diverse customer requirements on a regional, local and often individual level. As a consumer-facing retail business, Wickes deploys a centrally controlled proposition, providing a market-leading service to local trade, Do-It-For-Me and DIY customers. The Travis Perkins Board believes that the demerger of Wickes will underpin the creation of enhanced value for shareholders in both Travis Perkins and Wickes by maximising the performance of both businesses through focused capital allocation decisions made by dedicated management teams. The demerger process is proceeding smoothly. Wickes has always operated as a more autonomous business within the Group, in commercial, HR and IT areas. Given Wickes' high lease commitments, the Group has agreed a positive opening cash balance of £130m which will realise an appropriate capital structure and leverage position in line with Wickes's retail peers over time. The prospectus is due for publication in late March and the demerger process expected to be completed in Q2 2020. P&H divestment In January 2020, the Group announced the sale of Primaflow F&P, the wholesale business within the Plumbing & Heating segment, for cash consideration of £50m. The sale completed on 31 January 2020. This allows the remaining Plumbing & Heating branch and digital businesses to focus on delivering market-leading service to direct trade customers. The Board paused the process to divest the P&H business in Q4 2019 at a time of significant political and economic uncertainty in the UK. The intention to divest the P&H business remains in place and the 2019 results demonstrate a continued improvement in financial performance. The Group's focus is to maximise value for shareholders, and not on the specific timeframe of divestment. In the meantime, the transformation programme has continued to drive greater efficiency and improve the balance of business towards the higher returning branch and digital businesses. Cost reduction activities A key driver for the simplification of the Group is the opportunity to streamline the above-branch cost base, reducing the overall operating cost of the Group, offsetting overhead cost inflation in a low volume growth environment, and making the business more agile. In 2019, the divisional structure over the trade merchanting businesses has been removed, reducing costs but also speeding up decision making. In 2019, the cost base has benefited from the annualisation of cost reduction activities taken in Wickes and Travis Perkins in 2018, with around £15m of cost savings rolling into the first half of the year. In December 2018, the Group committed to taking actions to achieve £20m-£30m of annualised cost reductions by mid-2020. By the end of 2019 all of the planned actions were in place, which will realise annualised savings modestly exceeding expectations, with around two-thirds of the savings achieved in the 2019 results. As well as removing the divisional structure, these savings include operational cost savings relating to the closure of the heavyside range centre network and the restructuring and streamlining of support functions. As anticipated, in 2019 these savings have partially mitigated inflationary pressure in the overhead cost base with increases in rent and rates, and higher salary costs, in part due to the increase in the National Living Wage. The Group continues to selectively invest in its businesses to improve customer service and drive growth, including the continued expansion of Toolstation and additional investment in front line branch and sales colleagues in Travis Perkins. It remains a Group priority to maintain focus on the simplification of processes and tight control of costs to offset the impact of inflation in the cost base. The programmes to demerge Wickes and create autonomy in the P&H business have led to around £15m of dis-synergy costs, which the Group will be taking actions to mitigate over the course of the next two years. IT Modernisation The programme to implement a new ERP platform to support the Merchant businesses was halted in 2019, primarily reflecting significant risks relating to performance of the system. An impairment charge of £108m has been recognised in respect of the cancellation of the programme. The Group terminated its relationship with the software provider and does not expect to incur any further liabilities. The Group is investigating alternative ways to modernise the IT landscape across the Group to bring benefit to customers and colleagues with a lower risk profile. Trade-focused prioritiesThe Group's strategy to focus on its advantaged trade businesses is built on its strong heritage of a deep understanding of trade customers, and a proven track record of providing excellent customer service. These solid foundations are core to the Group, and have been particularly evident in the specialist merchants in recent years. A number of key priorities have been identified to drive sustainable growth across all the trade-focused businesses in the medium term, improving market share and best positioning the businesses to compete successfully in the future. Actions towards achieving the immediate priorities of the Group are well under way, with encouraging early signs of progress feeding through to the performance of trade businesses in 2019. There remains much to do, and the process to build solid foundations from which to grow the Group in the future will continue throughout 2020. Regeneration of the Travis Perkins general merchant
Accelerate the growth of Toolstation Toolstation continues to demonstrate excellent growth and, in line with the strategic intent to focus on advantaged trade businesses, it remains a priority to which the Group will continue to deploy capital.
Deliver an organisational model fit for the future Strengthening the Group's operational foundations is vital to delivering sustainable future growth. This starts with the Group's people, building on the existing strengths and experience of colleagues to ensure that the right knowledge and skills are in place to continue to deliver excellent service in fulfilling customers' changing requirements. There is further work to be completed on the structure and operation of the Group's support functions, including the improvements required to core IT and digital platforms to enable the businesses to perform, and to adapt their propositions as customer demands change. This will be underpinned by the careful management of the corresponding overhead cost base as the Group aims to drive efficiency and improve financial performance. Sustainability is becoming increasingly fundamental to the Group's long-term strategy, particularly around the environmental impact of building efficiency, and the Group is positioning itself to partner with customers and suppliers to develop sustainable solutions for the future. OutlookThe long-term fundamental drivers of the Group's end-markets remain strong. The number of new homes built in the UK continues to lag underlying demand, and ongoing underinvestment in the existing, ageing housing stock has led to pent up demand for domestic repair, maintenance and improvement activities. The Group's end market environment became increasingly challenging through the second half of 2019, although the outcome of the UK general election in December 2019 has now created a more certain political environment. Whilst there has been an improvement in some of the Group's key lead indicators in the near-term, the Group retains a cautious stance, particularly as there is a natural lag between increasing housing transactions and consumer confidence and improvement in the Group's end market performance. The Group is monitoring the potential impact of the COVID-19 virus carefully and will continue to review the possible effects on the business and refine its contingency plans as more information about the epidemic emerges. The Group remains confident in its ability to deliver on its strategy, and notwithstanding challenging market conditions in the near-term, the initiatives which are underway to focus on advantaged trade business and improve efficiency are positioning the Group's businesses well for the future. The Group's overall aim is for its businesses to outperform their end-markets, with strong cost discipline and continued good free cash flow generation in all market conditions. Technical guidanceThe Group's technical guidance is given on the basis of the Wickes demerger being completed in Q2 2020.
Segmental performanceMerchanting
*2018 figures used are illustrative comparatives including the impact of IFRS 16 as previously disclosed **Segmental adjusted operating profit figures are presented excluding property profits Merchanting sales grew by 2.6% in 2019, and by 3.3% on a like-for-like basis. Like-for-like sales growth slowed through the course of the year, with growth of 6.4% in H1 reflecting an easier H1 2018 comparator. This was followed by increasingly challenging market conditions in the second half of the year as the significant levels of political uncertainty impacted consumer confidence, and increasingly led to larger projects being postponed or delayed. The specialist merchants continued the on-going trend of winning market share in their respective markets. Sales in CCF and Keyline were, however, impacted by the slowdown in larger projects in the fourth quarter. LFL sales growth was split evenly between volume and price. Adjusted operating profits grew by 1.8% to £284m, representing a stable adjusted operating margin of 7.7%. Pressure on operating margin was driven by changes to customer mix, with stronger sales growth to larger customers in Travis Perkins, and a greater proportion of direct-to-site deliveries, also to larger customers, in Keyline and CCF, both representing comparatively lower margin business, but at a lower cost to serve and a high return on capital. This mix effect was offset by a focus across the Merchant businesses to control the above-branch cost base, eliminating the divisional structure, making savings through the supply chain transformation plan in Travis Perkins with the ongoing closure of the heavyside range centre network, and working to improve efficiency across the business. Travis Perkins' performance was encouraging throughout the year, with signs that the early changes made to reinvigorate the business have positively impacted performance. In a challenging second half, Travis Perkins maintained flat LFL sales in Q4, demonstrating continued outperformance of the wider market, a trend that has been achieved through much of 2019. The main areas of progress have been around defining and stocking of the right product ranges to satisfy local customers, and in the right stock depth to engender real credibility, particularly in heavyside categories. The mix of sales growth varied by customer type, with stronger growth in larger, national customers, and through the Managed Services proposition providing service to local councils and housing authorities. For CCF, a strong LFL performance in the first half was followed by a flat second half, impacted by the market slow down, and the continued constraint around plasterboard supply which constricted sales volumes. Flat LFL sales still represented a significant market share gain during a difficult period. In 2019 Keyline continued to focus on its core Civils and Drainage specialism. Over the year, total sales grew modestly, but from a consolidated branch network (five fewer branches) with lower generalist sales and with share gains in all key product categories. The Rudridge brand was fully integrated into the Keyline branch network, simplifying the business and unifying business processes. BSS performed well in 2019, with positive LFL growth in both halves of the year, despite project delays continuing to impact the business across all regions. Growth was driven by the introduction of new product ranges into branches, and further development and growth of the specialist tool hire offering. Toolstation
*2018 figures used are illustrative comparatives including the impact of IFRS 16 as previously disclosed **Segmental adjusted operating profit figures are presented excluding property profits Toolstation UK In 2019, Toolstation demonstrated outstanding revenue growth of 25.7%, and 16.3% on a like-for-like basis. Growth was driven by the acceleration of the UK network expansion, with 65 branches opened in 2019, bringing the overall network up to 400. This opening profile reflects a branch opening every six days, with new branches demonstrating strong growth trends, including trials of smaller-format branches in smaller catchment areas. The range of products available online and through the catalogue was extended by an additional 4,000 products, with added ranges being primarily trade-focused brands which are popular with trade customers. These new products included extension into new categories, including kitchen and bathroom accessories and home automation. Toolstation maintained its market-leading value position, with its "Always Low" pricing model keeping a differential to peers across both the core product range and a wider basket of products. The new website, launched in December 2018, drove strong growth in click & collect transactions throughout 2019, as well as steadily increasing conversion rates of site visitors. At a headline level, adjusted operating profits grew by 4.2%, but this included the consolidation of the start-up losses in Toolstation Europe in Q4 of around £4m. Excluding these losses, UK profits grew by over 20% with operating margin remaining broadly stable. The business continues to invest heavily not only through capital investment to develop new branches, but also in operating costs for teams to run the growing network. The inclusion of Toolstation Europe assets and losses in Q4 2019 also impacted ROCE, reducing it by 3ppts. UK ROCE was stable at 10%. Toolstation Europe The Group acquired a further 50% share in Toolstation Europe at the end of September 2019, giving a majority 97% share in the business. Since Q4 2019, Toolstation Europe results have been fully consolidated into the Group's results (previously accounted for as an associate). The development of the Toolstation business in Europe continued, with a further 26 branches opened, bringing the total to 66. In the Netherlands the network rollout continues, with 22 branches opened which continue to perform strongly. The branch trial in France continues to perform well, and a first trial branch was opened in Belgium. Retail
*2018 figures used are illustrative comparatives including the impact of IFRS 16 as previously disclosed **Segmental adjusted operating profit figures are presented excluding property profits Wickes demonstrated a strong recovery in performance in 2019, with revenue growth of 7.7% and 8.7% on a like-for-like basis. Growth was primarily driven by self-help actions supported by beneficial changes in the competitive market and extreme weather conditions in Q1 2018. Like-for-like growth was strong in both Core at +6.5% and Do It For Me (DIFM) categories at +14.1%. Core sales performance benefited from a clear and well-balanced trading plan combined with the addition of new ranges, particularly in decorating and landscaping, together with improvements made in the supply chain to increase product availability in store. TradePro continues to be an attractive proposition for trade customers with membership now at around half a million members at the end of 2019. Kitchen & Bathroom (K&B) revenue remained strong throughout the year, benefitting from an improved range and service proposition, and strong order book carried forward from Q4 2018. The proportion of kitchens sold with a full installation service increased to 56% (up from 54% in 2018), reflecting the high-quality end-to-end service provided to end consumers. Twelve additional Wickes refits were completed in the year with one new store opened, bringing the total number of new store formats up to 135 of a total network of 235 stores. There was continued development of digital capability and customer service channels, including "online-in-store" capability, allowing colleagues to sell the full online range of products to customers in store, either for in store collection or home delivery. This enables colleagues to provide a full project service to all customers, whilst maintaining a tight SKU range in store. Over half of Wickes sales are digitally-led, with 95% of sales touching the physical store. Adjusted operating profit for the Retail segment showed a significant improvement over 2018, with growth of 26.0% to £97m, whilst adjusted operating profit margin improved by 100bps to 7.2%. In Wickes, gross margin pressure in 2018 from competitor pricing activity has stabilised through 2019. Improved profitability reflected volume growth in Core and DIFM categories driving operating leverage, combined with the benefits of significant overhead cost reduction carried out in the first half of 2018. The improvement in adjusted operating profit drove a 2ppt increase in return on capital employed. The Board proposes to demerge Wickes to shareholders as a standalone listed business in Q2 2020. Further information on Wickes's investment case from the Capital Markets Day on the 29 January 2020 can be found on the Investor Relations section of the Travis Perkins plc website.
Plumbing & Heating
*2018 figures used are illustrative comparatives including the impact of IFRS 16 as previously disclosed **Segmental adjusted operating profit figures are presented excluding property profits Although total revenue in the P&H business fell by 4.1% in 2019, and by 1.7% on a like-for-like basis, the majority of the sales decline was concentrated in the low-margin PF&P wholesale business. The higher-margin branch and digital businesses grew in like-for-like terms, with the branch based merchant business demonstrating encouraging like-for-like growth of 3.3%. The transformation programme has continued, driving greater efficiency and improving the balance of business towards the higher returning branch and digital businesses. Adjusted operating profit increased by 9.1% to £48m despite the decrease in sales, benefitting from the change to business mix, improvements to product ranges and on-going actions to tightly manage the overhead cost base. The separation of the Plumbing & Heating business has progressed to plan in 2019, enabling the business to operate autonomously from the Group. The Board paused the process to divest the P&H business in late 2019 at a time of significant political and economic uncertainty in the UK. Whilst the intention to divest the P&H business remains, the 2019 results demonstrate continued improvement in financial performance and the focus for the Group is to realise a suitable valuation for shareholders, rather than a specific timeframe for divestment. In January 2020, the Group announced the sale of Primaflow F&P, the wholesale business within the Plumbing & Heating segment, for a cash consideration of £50m. The sale completed on 31 January 2020. Sale of the wholesale business enables the remaining Plumbing & Heating branch and digital businesses to focus on delivering market-leading service to direct trade customers.
Central costsUnallocated central costs increased modestly by £2m to £33m (2018: £31m when adjusted for IFRS 16). The increase was primarily driven by the additional costs required to manage the separation activities to increase the autonomy of the P&H and Wickes businesses. These costs, and the changes to central allocations, combined with inflationary pressure, offset cost reduction actions taken to rightsize the central function in line with the Group's simplification plans, whilst also focusing on delivering an efficient support service to branches. Property transactionsThe Group continues to recycle its freehold property portfolio to provide the best trading locations for its businesses, whilst managing the level of capital allocated to owning and developing freehold sites. Four new freehold sites were purchased in 2019 at an investment of £6m (2018: £38m), with a further £15m of construction costs to develop sites to be ready for trading (2018: £10m). These investments were fully funded in the year by asset disposals of £82m, which also generated property profits of £21m. The application of IFRS 16 defers an element of the property profits recognised on sale and leaseback transactions. For 2018, the comparative property profit figure would have been £17m when adjusted for IFRS 16 (FY 2018 as reported: £27m). Financial PerformanceRevenue analysisGroup revenue grew by 3.2% in total, and by 3.8% on a like-for-like basis. There was a good performance from the Merchant businesses against a challenging market backdrop, continued excellent growth in Toolstation and a strong recovery in Wickes. Volume, price and mix analysis
The continued expansion of the Toolstation network was offset by branch closures from the rest of the Group. There was no difference in the number of trading days in 2019 compared to 2018. The Group maintained its stance to recover input cost inflation across the trade-focused businesses in 2019, with overall price inflation across the Group of 1.5%. Quarterly like-for-like revenue analysis
For the Group as a whole, quarterly like-for-like sales slowed through the course of the year reflecting a strong start from the impact of poor weather setting a low comparator in Q1 2018. This was followed by market conditions growing more challenging in the second half of the year as the significant levels of political uncertainty impacted consumer confidence, and increasingly led to larger projects being postponed or delayed. Operating profit and margin
*Changes calculated versus FY 2018 illustrative comparatives including the impact of IFRS 16 as previously disclosed Adjusting items of £200m were included in operating profit in 2019 (2018: £387m).
In addition, a fair value gain of £40m was recognised as an adjusting item in associate income on the acquisition of Toolstation Europe. Adjusting deferred tax relating to rollover relief on prior year property profits was £27m. Finance chargeNet finance charges, shown in note 10, were £87m (2018: £24m). Of this £63m year-on-year difference, around £57m was due to the interest charge on leased assets recognised as a result of the implementation of IFRS 16 - Leases. Net finance costs before lease interest were higher in 2019 by around £7m, primarily reflecting the difference in the fair value re-measurement of foreign exchange and derivatives. In 2019, the mark-to-market was a loss of £5m, compared to a £3m gain in 2018. There was an additional charge of £2m relating to the early refinancing of the Group's revolving credit facility, which was completed in January 2019, offset by an IAS19 related pension credit in 2019. TaxationThe tax charge for continuing activities for the period to 31 December 2019, including the effect of adjusting items, is £58m (2018: £34m). This represents an effective tax rate (ETR) of 32.1% (2018: negative 69.0%). The tax charge for the year before adjusting items is £69m (2018: £60m) giving an adjusted ETR of 19.7% (standard rate 19%, 2018 actual 17.1%). The adjusted ETR rate is higher than the standard rate due to the effect of expenses not deductible for tax purposes (such as depreciation of property) and unutilised overseas losses, although these are mostly offset by the increase in the deferred tax asset related to employee share schemes following an increase in the share price in 2019. Earnings per shareThe Group reported a statutory profit after tax of £123m (2018: loss after tax of £84m) resulting in a basic earnings per share of 48.9 pence (2018: loss per share of 34.4 pence). There is no significant difference between basic and diluted basic earnings per share. Adjusted profit after tax was £281m resulting in adjusted earnings per share (note 12b) increasing by 6.3% to 112.7 pence when compared with an illustrative comparative figure for 2018 of 106.0 pence[1]. Reconciliation of reported to adjusted earnings
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|
£m |
2019 |
2018 |
|
Group adjusted EBITA excluding property profits |
421 |
348 |
|
Depreciation of PPE and other non-cash movements |
141 |
137 |
|
Change in working capital |
(129) |
(107) |
|
Net interest paid (excluding lease interest) |
(26) |
(26) |
|
Interest on lease liabilities |
(57) |
- |
|
Tax paid |
(53) |
(55) |
|
Adjusted operating cash flow |
297 |
296 |
|
Capital investments |
|
|
|
Capex excluding freehold transactions |
(121) |
(143) |
|
Proceeds from disposals excluding freehold transactions |
19 |
14 |
|
Free cash flow before freehold transactions |
195 |
168 |
Under the new definition, FCF of £195m was generated in 2019 (2018: £168m). The increase was primarily driven by the higher operating profits generated by the Group and lower base capital expenditure.
As expected, there was an increase in working capital in 2019. Inventories, which have been held broadly stable in recent years, increased by around £80m in the year, with over £60m relating to the Group's inventory planning to mitigate the risk of a no-deal exit from the EU. This elevated level was maintained throughout 2019 as the potential risk was delayed by a prolonged period of political uncertainty. Going forwards, the Group expects the period of uncertainty to continue, and will make decisions regarding the optimal level of inventory to protect customers' access to materials in 2020. Trade receivables grew in line with the growth in credit sales, with around two thirds of Group sales being conducted through a customer credit account.
Capital investment
In line with the Group's guidance for 2019, capital investment was lower than in prior years, with £121m of base capital expenditure (2018: £143m).
|
£m |
2019 |
2018 |
|
Maintenance |
(56) |
(57) |
|
IT |
(12) |
(42) |
|
Growth capex |
(53) |
(44) |
|
Base capital expenditure |
(121) |
(143) |
|
Freehold property |
(22) |
(48) |
|
Gross capital expenditure |
(143) |
(191) |
|
Disposals |
82 |
98 |
|
Net capital expenditure |
(61) |
(93) |
Maintenance capital expenditure was broadly stable at £56m (2018: £57m), primarily driven by the required maintenance and replacement of the Group's vehicle fleet.
Growth capex investment was £9m higher than in 2018. Investment in 2019 was concentrated towards the Group's key priorities: the acceleration of the Toolstation branch network expansion and investments required in the Merchanting branch network to improve convenience for customers and optimise branch returns.
Capex spend on IT was lower in 2019 following the halting of the Merchant ERP programme. The Group is investigating alternative ways to modernise the IT landscape across the Group whilst maintaining a lower business risk profile.
Uses of free cash flow
|
Free cash flow (£m) |
195 |
|
Investments in freehold property |
(22) |
|
Disposal proceeds from freehold transactions |
64 |
|
Acquisitions / disposals |
(43) |
|
Dividends |
(116) |
|
Pensions payments |
(10) |
|
Purchase of own shares |
(8) |
|
Cash payments on adjusting items |
(90) |
|
Other |
(18) |
|
Change in cash/cash equivalents |
(48) |
Property transactions in 2019 yielded a net cash inflow of £42m (2018: £36m inflow). The cash cost of acquisitions was higher in 2019 at £43m (2018: £6m inflow), including the acquisition of a controlling share of Toolstation Europe, and further payments towards the previous acquisitions of Underfloor Heating Store and National Shower Spares.
Additional cash contributions to the defined benefit pension schemes above the income statement charge, excluding the annual payment against the pension SPV, were £10m (2018: £7m).
The cash cost of 2019 adjusting items, and utilisation of prior year provisions for adjusting items was £90m, with costs incurred towards the transformation and separation of the P&H business, increasing the autonomy of the Wickes business ahead of demerger, and costs incurred in the streamlining and simplification of above-branch services, including the removal of the Merchanting divisional structure and the programme to close the heavyside range centre network.
Under the new policy initiated in 2018 for the Group to purchase shares in the market for employee share schemes, £8m of shares were purchased in the period.
Net debt and funding
The move to accounting under IFRS 16 has changed the balance sheet metrics around debt. The Group has defined new debt measures as follows:
- Covenant net debt - A new KPI which matches the definition of net debt in the Group's banking and bond covenants. 2018 covenant net debt has been recalculated as a direct comparative figure.
- Net debt - The Group has stopped reporting lease adjusted net debt as the implementation of IFRS 16 - Leases means that the effect of leases is already reflected in the statutory measure of net debt. 2018 results have not been restated.
Covenant net debt increased by £44m year-on-year, primarily driven by the increase in inventory, the cash costs relating to adjusting items in 2018 and 2019, and higher acquisition costs. The net debt to adjusted EBITDA metric under IFRS 16, with net debt now including all lease obligations, reduced to 2.5x, achieving the Group's medium term leverage target of 2.5x. The Group's balance sheet will change significantly when the Wickes business is demerged and the Group will consider the suitability of the existing medium term leverage target for the future.
|
|
Medium Term Guidance |
2019 |
2018 |
Change |
|
Covenant net debt |
|
£344m |
£300m |
£44m |
|
Net debt under IFRS16 |
|
£1,788m |
|
|
|
Lease adjusted net debt |
|
|
£1,833m |
|
|
Net debt : Adjusted EBITDA* |
2.5x |
2.5x |
2.7x |
(0.2)x |
*2018 comparative figure is calculated as Lease Adjusted Net Debt to EBITDAR with a lease adjustment based on 8x the annual net rent charge. Whilst not directly comparable, the two methods are broadly consistent.
Funding
As at 31 December 2019, the Group's committed funding of £950m comprised:
- £250m guaranteed notes due September 2021, listed on the London Stock Exchange
- £300m guaranteed notes due September 2023, listed on the London Stock Exchange
- A revolving credit facility of £400m, refinanced in January 2019, which runs until 2024, advanced by a syndicate of 8 banks.
As at 31 December 2019, the Group had undrawn committed facilities of £400m (2018: £550m) and cash deposits of £140m (2018: £190m).
Dividend
At the Capital Markets event in December 2018, the Group reiterated its commitment to a progressive dividend policy which is supported by the Board's confidence in the Group's expected future cash flow generation. The proposed dividend for the full year 2019 of 48.5 pence (2018: 47.0 pence) results in a 3.2% increase (2018: 2.2% increase).
Following the demerger of Wickes, the Board will be reviewing the capital structure and dividend policy of the Group, and will provide an update with the interim results in August 2020.
An interim dividend of 15.5 pence was paid to shareholders in November 2019 at a cost of £38m. If approved, the proposed final dividend of 33.0 pence per share will be paid on 13 May 2020, to shareholders on the register at the close of business on 3 April 2020, the cash cost of which will be approximately £83m.
Principal risks and uncertainties
The risk environment in which the Group operates does not remain static. During the year, the Directors have reviewed the Group's principal risks and have concluded that as the nature of the business and the environment in which it operates remain broadly the same, the principal risks it faces are largely unchanged from those listed on pages 34 to 41 of the 2018 Annual Report and Accounts. However, whilst the risk profile for the Group remains relatively stable relative to 2018, one new principal risk has been identified in relation to IT systems and infrastructure. This risk has been introduced given the Group's plans to modernise its IT structure and replace a number of legacy systems. The inherent risk associated with business transformation initiatives, including the IT modernisation programme, has been reassessed to 'high', reflective of the scale of change activities ongoing or planned within the Group. The Directors have also increased their assessment of the inherent risk associated with cyber threats and data security to 'high' to acknowledge that the continual changes in both threat sources and the tactics employed by cyber criminals present an ongoing challenge for all companies, including the Group.
Accordingly the 2019 Annual Report and Accounts will report risks under the following captions: the changing customer and competitor landscape, talent management, supplier risks, health and safety, capital allocation, change management, portfolio management, market conditions, Brexit, IT systems and infrastructure, cyber threat and data security and legal compliance.
Consolidated income statement
For the year ended 31 December 2019
|
£m |
2019 |
2018 |
|
Revenue |
6,955.7 |
6,740.5 |
|
Adjusted operating profit (note 6) |
441.5 |
374.5 |
|
Amortisation of acquired intangible assets |
(9.0) |
(9.5) |
|
Adjusting items - operating (note 7) |
(200.4) |
(386.7) |
|
Operating profit / (loss) (note 6) |
232.1 |
(21.7) |
|
Adjusting items - remeasurement of associates (note 7) |
40.3 |
- |
|
Share of associates' results |
(4.3) |
(4.0) |
|
Finance costs (note 10) |
(92.2) |
(27.9) |
|
Finance income (note 10) |
4.9 |
4.2 |
|
Profit / (loss) before tax |
180.8 |
(49.4) |
|
Adjusting items - deferred tax (note 7) |
(27.1) |
- |
|
Other Tax (note 11) |
(30.9) |
(34.1) |
|
Profit / (loss) for the year |
122.8 |
(83.5) |
|
Attributable to: |
|
|
|
Owners of the Company |
121.1 |
(85.6) |
|
Non-controlling interests |
1.7 |
2.1 |
|
|
122.8 |
(83.5) |
|
Earnings per ordinary share (note 12a) |
|
|
|
Basic |
48.9p |
(34.4)p |
|
Diluted |
48.4p |
(34.4)p |
All results relate to continuing operations.
Consolidated statement of comprehensive income
For the year ended 31 December 2019
|
£m |
2019 |
2018 |
|
Profit / (loss) for the year |
122.8 |
(83.5) |
|
Items that will not be reclassified subsequently to profit and loss: |
||
|
Actuarial (loss) / gain on defined benefit pension schemes |
(43.0) |
102.0 |
|
Foreign exchange differences on retranslation of foreign operations |
3.2 |
- |
|
Income tax relating to other comprehensive income |
8.3 |
(19.3) |
|
Other comprehensive income for the year net of tax |
(31.5) |
82.7 |
|
Total comprehensive income / (loss) for the year |
91.3 |
(0.8) |
All other comprehensive income is attributable to the owners of the Company.
Consolidated balance sheet
As at 31 December 2019
|
£m |
2019 |
2018 |
|
Assets |
|
|
|
Non-current assets |
|
|
|
Goodwill |
1,359.1 |
1,289.2 |
|
Other intangible assets |
332.6 |
385.4 |
|
Property, plant and equipment |
882.0 |
913.2 |
|
Right-of-use assets |
1,276.8 |
- |
|
Interest in associates |
1.9 |
34.2 |
|
Investments |
6.7 |
6.6 |
|
Retirement benefit asset |
57.5 |
81.2 |
|
Other receivables |
- |
43.3 |
|
Total non-current assets |
3,916.6 |
2,753.1 |
|
Current assets |
|
|
|
Inventories |
937.8 |
855.3 |
|
Trade and other receivables |
1,239.7 |
1,253.8 |
|
Cash and cash equivalents |
207.9 |
255.4 |
|
Total current assets |
2,385.4 |
2,364.5 |
|
Assets of disposal group classified as held for sale |
138.0 |
- |
|
Total assets |
6,440.0 |
5,117.6 |
Consolidated balance sheet continued
As at 31 December 2019
|
£m |
2019 |
2018 |
|
Equity and liabilities Capital and reserves |
|
|
|
Issued share capital |
25.2 |
25.2 |
|
Share premium account |
545.6 |
545.4 |
|
Merger reserve |
326.5 |
326.5 |
|
Revaluation reserve |
14.5 |
14.7 |
|
Own shares |
(50.8) |
(47.8) |
|
Foreign exchange reserve |
3.2 |
- |
|
Other reserve |
(4.1) |
(5.6) |
|
Retained earnings |
1,722.6 |
1,847.5 |
|
Equity attributable to the owners of the Company |
2,582.7 |
2,705.9 |
|
Non-controlling interests |
4.4 |
11.8 |
|
Total equity |
2,587.1 |
2,717.7 |
|
Non-current liabilities |
|
|
|
Interest bearing loans and borrowings |
583.3 |
605.2 |
|
Lease liabilities |
1,253.6 |
- |
|
Derivative financial instruments |
- |
0.9 |
|
Deferred tax liabilities |
62.7 |
77.8 |
|
Retirement benefit liability |
4.9 |
- |
|
Long-term provisions |
8.0 |
18.4 |
|
Total non-current liabilities |
1,912.5 |
702.3 |
|
Current Liabilities |
|
|
|
Interest bearing loans and borrowings |
- |
3.8 |
|
Lease liabilities |
158.7 |
- |
|
Derivative financial instruments |
2.5 |
4.7 |
|
Trade and other payables |
1,613.9 |
1,603.2 |
|
Tax liabilities |
13.4 |
25.9 |
|
Short-term provisions |
60.4 |
60.0 |
|
Total current liabilities |
1,848.9 |
1,697.6 |
|
Total liabilities |
3,761.4 |
2,399.9 |
|
Liabilities of disposal group classified as held for sale |
91.5 |
- |
|
Total equity and liabilities |
6,440.0 |
5,117.6 |
Consolidated statement of changes in equity
For the year ended 31 December 2018
|
£m |
Share capital |
Share premium |
Merger reserve |
Revaluation reserve |
Own shares |
Foreign exchange reserve |
Other |
Retained earnings |
Total equity before non-controlling interest |
Non controlling interest |
Total equity |
|
At 1 January 2018 |
25.2 |
543.4 |
326.5 |
15.7 |
(15.3) |
- |
(4.9) |
1,955.6 |
2,846.2 |
11.7 |
2,857.9 |
|
Loss for the year |
- |
- |
- |
- |
- |
- |
- |
(85.6) |
(85.6) |
2.1 |
(83.5) |
|
Other comprehensive income for the period net of tax |
- |
- |
- |
- |
- |
- |
- |
82.7 |
82.7 |
- |
82.7 |
|
Total Comprehensive (loss) / income for the year |
- |
- |
- |
- |
- |
- |
- |
(2.9) |
(2.9) |
2.1 |
(0.8) |
|
Dividends paid |
- |
- |
- |
- |
- |
- |
- |
(114.1) |
(114.1) |
(2.0) |
(116.1) |
|
Dividend equivalent payments |
- |
- |
- |
- |
- |
- |
- |
(0.8) |
(0.8) |
- |
(0.8) |
|
Issue of share capital |
- |
2.0 |
- |
- |
- |
- |
- |
- |
2.0 |
- |
2.0 |
|
Purchase of own shares |
- |
- |
- |
- |
(43.4) |
- |
- |
- |
(43.4) |
- |
(43.4) |
|
Adjustments in respect of revalued fixed assets |
- |
- |
- |
(1.0) |
- |
- |
- |
1.0 |
- |
- |
- |
|
Equity-settled share-based payments, net of tax |
- |
- |
- |
- |
- |
- |
- |
19.6 |
19.6 |
- |
19.6 |
|
Tax on equity-settled share-based payments |
- |
- |
- |
- |
- |
- |
- |
0.1 |
0.1 |
- |
0.1 |
|
Options on non-controlling interest |
- |
- |
- |
- |
- |
- |
(0.7) |
- |
(0.7) |
- |
(0.7) |
|
Foreign exchange |
- |
- |
- |
- |
- |
- |
- |
(0.1) |
(0.1) |
- |
(0.1) |
|
Own shares movement |
- |
- |
- |
- |
10.9 |
- |
- |
(10.9) |
- |
- |
- |
|
At 31 December 2018 |
25.2 |
545.4 |
326.5 |
14.7 |
(47.8) |
- |
(5.6) |
1,847.5 |
2,705.9 |
11.8 |
2,717.7 |
Consolidated statement of changes in equity continued
For the year ended 31 December 2019
|
£m |
Share capital |
Share premium |
Merger reserve |
Revaluation reserve |
Own shares |
Foreign exchange reserve |
Other |
Retained earnings |
Total equity before non-controlling interest |
Non controlling interest |
Total equity |
|
At 1 January 2019 |
25.2 |
545.4 |
326.5 |
14.7 |
(47.8) |
- |
(5.6) |
1,847.5 |
2,705.9 |
11.8 |
2,717.7 |
|
Impact of change in accounting policy |
- |
- |
- |
- |
- |
- |
- |
(106.1) |
(106.1) |
- |
(106.1) |
|
Adjusted balance at 1 January 2019 |
25.2 |
545.4 |
356.5 |
14.7 |
(47.8) |
- |
(5.6) |
1,741.4 |
2,559.8 |
11.8 |
2,611.6 |
|
Profit for the year |
- |
- |
- |
- |
- |
- |
- |
121.1 |
121.1 |
1.7 |
122.8 |
|
Other comprehensive income for the period net of tax |
- |
- |
- |
- |
- |
3.2 |
- |
(34.7) |
(31.5) |
- |
(31.5) |
|
Total Comprehensive income for the year |
- |
- |
- |
- |
- |
3.2 |
- |
86.4 |
89.6 |
1.7 |
91.3 |
|
Dividends paid |
- |
- |
- |
- |
- |
- |
- |
(116.2) |
(116.2) |
- |
(116.2) |
|
Dividend equivalent payments |
- |
- |
- |
- |
- |
- |
- |
(0.1) |
(0.1) |
- |
(0.1) |
|
Issue of share capital |
- |
0.2 |
- |
- |
- |
- |
- |
- |
0.2 |
- |
0.2 |
|
Purchase of own shares |
- |
- |
- |
- |
(7.7) |
- |
- |
- |
(7.7) |
- |
(7.7) |
|
Adjustments in respect of revalued fixed assets |
- |
- |
- |
(0.2) |
- |
- |
- |
0.2 |
- |
- |
- |
|
Arising on Acquisition |
- |
- |
- |
- |
- |
- |
- |
(11.9) |
(11.9) |
(9.1) |
(21.0) |
|
Equity-settled share-based payments |
- |
- |
- |
- |
- |
- |
- |
23.0 |
23.0 |
- |
23.0 |
|
Tax on equity-settled share-based payments |
- |
- |
- |
- |
- |
- |
- |
4.5 |
4.5 |
- |
4.5 |
|
Option on non-controlling interest |
- |
- |
- |
- |
- |
- |
1.5 |
- |
1.5 |
- |
1.5 |
|
Own shares movement |
- |
- |
- |
- |
4.7 |
- |
- |
(4.7) |
- |
- |
- |
|
At 31 December 2019 |
25.2 |
545.6 |
326.5 |
14.5 |
(50.8) |
3.2 |
(4.1) |
1,722.6 |
2,582.7 |
4.4 |
2,587.1 |
Consolidated cash flow statement
For the year ended 31 December 2019
|
£m |
2019 |
2018 |
|
Cash flows from operating activities |
|
|
|
Adjusted operating profit |
441.5 |
374.5 |
|
Adjustments for: |
|
|
|
Depreciation of property, plant and equipment |
97.5 |
101.0 |
|
Depreciation of right-of-use assets* |
174.3 |
- |
|
Lease terminations and impairments* |
2.2 |
- |
|
Amortisation and impairment of internally-generated intangibles |
23.5 |
15.5 |
|
Share-based payments |
19.9 |
19.6 |
|
Foreign exchange |
4.1 |
- |
|
Other non-cash movements |
4.2 |
2.1 |
|
Gain on disposal of property, plant and equipment |
(20.6) |
(26.8) |
|
Purchase of toolhire assets |
(9.2) |
- |
|
Adjusted operating cash flows |
737.4 |
485.9 |
|
Increase in inventories |
(104.2) |
(49.5) |
|
Decrease / (increase) in receivables |
12.5 |
(141.4) |
|
(Decrease) / increase in payables (Decrease) / increase in supplier financing arrangements |
(36.4) (0.1) |
80.9 2.9 |
|
Payments in respect of adjusting items |
(90.0) |
(40.6) |
|
Pension payments in excess of the income statement charge |
(9.9) |
(7.2) |
|
Cash generated from operations |
509.1 |
331.0 |
|
Interest paid |
(27.0) |
(26.2) |
|
Interest on lease liabilities* Debt arrangement fees |
(57.0) (2.9) |
- - |
|
Current income taxes paid |
(52.9) |
(55.1) |
|
Net cash from operating activities |
369.4 |
249.7 |
|
Cash flows from investing activities |
|
|
|
Interest received |
0.8 |
0.7 |
|
Proceeds on disposal of property, plant and equipment |
82.0 |
98.4 |
|
Development of computer software |
(8.4) |
(44.4) |
|
Purchases of property, plant and equipment |
(125.2) |
(146.9) |
|
Interest in associates |
(20.6) |
(17.6) |
|
Acquisition of businesses |
(23.0) |
(3.0) |
|
Disposal of business |
- |
9.0 |
|
Net cash used in investing activities |
(94.4) |
(103.8) |
Consolidated cash flow statement continued
For the year ended 31 December 2019
|
£m |
2019 |
2018 |
|
Cash flows from financing activities |
|
|
|
Proceeds from the issue of share capital |
0.2 |
2.0 |
|
Purchase of own shares |
(7.7) |
(43.4) |
|
Repayment of lease liabilities* |
(175.6) |
(6.5) |
|
Payments to pension scheme |
(3.4) |
(3.3) |
|
Dividends paid |
(116.2) |
(116.1) |
|
Purchase of non-controlling interest |
(19.8) |
- |
|
Net cash from financing activities |
(322.5) |
(167.3) |
|
Net (decrease) / increase in cash and cash equivalents |
(47.5) |
21.4 |
|
Cash and cash equivalents at 1 January |
255.4 |
276.8 |
|
Cash and cash equivalents at 31 December |
207.9 |
255.4 |
* These are new or altered captions arising from the implementation of IFRS 16 - Leases
Notes
- The Group's principal accounting policies are set out in the 2019 Annual Report & Accounts, which is available from 3 March 2020 on the Company's website www.travisperkinsplc.co.uk.
- The proposed final dividend of 33.0 pence (2018: 31.5 pence) is payable on 13 May 2020. The record date is 3 April 2020.
- The financial information set out in this statement does not constitute the Company's statutory accounts for the years ended 31 December 2019 or 31 December 2018, but is derived from those accounts. Statutory accounts for 2018 have been delivered to the Registrar of Companies and those for 2019 will be delivered in due course. The auditor has reported on those accounts: their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their reports and (iii) did not contain a statements under section 498 (2) or (3) of the Companies Act 2006. The audit of the statutory accounts for the year ended 31 December 2019 is now complete. 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.
- This announcement was approved by the Board of Directors on 2 March 2020.
- It is intended to post the Annual Report & Accounts to shareholders on 26 March 2020 and to hold the Annual General Meeting on 28 April 2020. Copies of the annual report prepared in accordance with IFRS will be available from the Company Secretary, Travis Perkins plc, Lodge Way House, Lodge Way, Harlestone Road, Northampton NN5 7UG from 26 March 2020 or is available on the Group's website at www.travisperkinsplc.com.
6. Profit
a. Operating profit
|
£m
|
2019
|
2018
|
|
Revenue |
6,955.7 |
6,740.5 |
|
Cost of sales |
(4,921.1) |
(4,812.7) |
|
Gross profit |
2,034.6 |
1,927.8 |
|
Selling and distribution costs |
(1,475.9) |
(1,607.4) |
|
Administrative expenses |
(353.6) |
(375.0) |
|
Profit on disposal of properties |
20.6 |
26.8 |
|
Other operating income |
6.4 |
6.1 |
|
Operating profit / (loss) |
232.1 |
(21.7) |
|
Adjusting items |
200.4 |
386.7 |
|
Amortisation of acquired intangible assets |
9.0 |
9.5 |
|
Adjusted operating profit |
441.5 |
374.5 |
|
Profit on disposal of properties |
(20.6) |
(26.8) |
|
Adjusted operating profit before property disposals |
420.9 |
347.7 |
Other operating income consists of rents receivable.
b. Adjusted profit
|
£m |
2019
|
2018 |
|
Profit / (loss) before tax |
180.8 |
(49.4) |
|
Adjusting items (note 7) |
160.1 |
386.7 |
|
Amortisation of acquired intangible assets |
9.0 |
9.5 |
|
Adjusted profit before tax |
349.9 |
346.8 |
|
Total tax |
(58.0) |
(34.1) |
|
Tax on adjusting items |
(36.3) |
(24.2) |
|
Adjusting items - deferred tax |
27.1 |
- |
|
Tax on amortisation of acquired intangible assets |
(1.6) |
(1.6) |
|
Adjusted profit after tax |
281.1 |
286.9 |
Adjusted profit excludes adjusting items and amortisation of acquired intangible assets.
7. Adjusting items
|
£m |
2019 |
2018 |
|
Adjusting items - operating IT-related impairment charge |
107.6 |
15.7 |
|
Plumbing and Heating separation and disposal process |
46.5 |
45.3 |
|
Wickes separation and demerger costs |
11.7 |
- |
|
Merchant supply chain and support centre restructuring |
21.5 |
58.4 |
|
Loss on the sale and closure of business |
13.1 |
10.3 |
|
Impairment of Wickes and Tile Giant goodwill |
- |
252.1 |
|
Pension-related items |
- |
4.9 |
|
|
200.4 |
386.7 |
|
Adjusting items - business acquisitions |
|
|
|
Fair value gain on the acquisition of Toolstation Europe |
(40.3) |
- |
|
|
(40.3) |
- |
|
Adjusting items - tax |
|
|
|
Rollover relief deferred tax |
27.1 |
- |
|
|
27.1 |
- |
|
|
187.2 |
386.7 |
IT-related impairment charge
The previous programme to develop a new ERP platform to support the Merchant businesses was halted in 2019. As a result the existing capitalised spend has been written off. The charge consists of the write-off of £59.7m of capitalised development spend (2018: £6.7m) and £44.3m of prepaid licence fees, as well as £3.6m of associated costs incurred in 2019.
Plumbing and Heating separation and disposal process
In 2019 the Plumbing and Heating business was separated from the Group's central IT infrastructure and support functions to enable the business to operate autonomously and support any future disposal. Costs of £46.5m have been incurred in 2019 in relation to these activities, which have been disclosed as an adjusting item, and consists of the following:
- £23.6m of costs related to the separation of IT systems including people costs and the cost of additional infrastructure
- £9.8m of non-IT separation costs such as the carve out of support functions, people costs and parallel-running costs in the transition
- £7.6m professional fees incurred in preparation for the sale of the segment and in support of the separation process
- £5.5m of other costs, including a charge for share-based payments resulting from the restructuring activity
7. Adjusting items continued
Wickes separation and demerger costs
In July 2019, the Group announced its intention to demerge the Wickes business as part of its strategy of simplifying the Group and focusing on the trade. In accordance with the Group's accounting policy, the total cost of £11.7m has been disclosed as an adjusting items and consists of the following:
- £9.8m of costs related to the separation of IT and support functions from the Group's shared services. This includes a £0.7m impairment charge for IT assets that are no longer in use
- £1.2m of fees incurred for professional services in preparation for demerger
- £1.1m of restructuring costs related to redundancy payments and the outsourcing of services
- Release of £0.4m related to the under-utilisation of a 2018 restructuring provision initially recognised as an adjusting item
Merchant supply chain and support centre restructuring
The restructuring charge of £21.5m relates to cost reduction activities in the supply chain and support centre of the merchant businesses and includes the costs of the closure of the Group's range centres and timber network. The adjusting item consists of the following:
- £5.3m of property costs relating to the range centre and timber network closures
- £16.3m of other costs relating to the supply chain closures, including redundancy costs, asset disposal costs and inventory write-downs
- £2.0m of other restructuring projects in the Merchant supply chain, including the cost of integrating Rudridge into the Keyline business
- Release of £2.1m related to the under-utilisation of property closures provisions initially recognised as an adjusting item
Closure of the Built business
The closure of the Built business in April 2019 resulted in the recognition of £8.6m of property-related charges and redundancy, stock write-off and other closure costs of £4.5m.
Fair value gain on the acquisition of Toolstation Europe
The Group's investment in associates balance for Toolstation Europe was re-measured at fair value when the Group obtained control. This resulted in the recognition of a gain of £40.3m which has been disclosed as an adjusting item due to its unusual nature and magnitude.
Rollover relief deferred tax
The Group changed its property strategy and therefore its assessment of its ability to use rollover relief indefinitely on capital gains in 2019, resulting in creation of a deferred tax charge of £27.1m relating to 2018 and earlier. In accordance with Group accounting policies this is disclosed as an adjusting item. This has arisen due to a change in an estimate resulting from a change in facts and circumstances and not a change in an accounting policy.
7. Adjusting items continued
2018
The following items were disclosed as adjusting in 2018:
Impairment charge of £252.1m in respect of goodwill in the Wickes and Tile Giant CGUs
Impairment charge related to intangible fixed assets of £15.7m arising from the termination of certain IT projects in the Wickes business (£6.5m) and in the central IT function (£2.5m) and from two specific components of the Group's ERP project (£6.7m)
Costs of £45.3m incurred in 2018 in the Plumbing & Heating division to reduce capacity, integrate the CPS and PTS businesses, overhaul the division's customer proposition, create a dedicated Plumbing & Heating supply chain and prepare for a future sale process
Restructuring costs of £58.4m related to cost-reduction programmes announced in 2018. This included £16.0m for Merchanting supply chain rationalisation, £16.3m for the closure of 27 branches, £12.8m of redundancy and reorganisation costs in the Wickes business and £13.3m of Group costs
Pension-related charge of £4.9m consisting of a £4.7m curtailment gain recognised as a result of the closure of the Group's two main defined benefit pension schemes to future accrual and a £9.6m charge for the equalisation of guaranteed minimum pension ("GMP") benefits between men and women
8. Business segments
The operating segments are identified on the basis of the internal reports about components of the Group that are regularly reviewed by the Chief Operating Decision Maker ("CODM"), which is considered to be the Board, to assess performance and allocate capital. From 1 January 2019 the Group has changed its internal reporting structure and as a result has identified four operating segments:
- Merchanting
- Retail
- Toolstation
- Plumbing & Heating
These segments reflect the Group's organisation around differences in products (general building versus plumbing & heating), customers (trade versus consumer) and price and range flexibility (fixed range and fixed price versus variable and variable range).
All operating segments sell building materials to a wide range of customers, none of which are dominant, and operate almost exclusively in the United Kingdom. The information previously reported under the business segments note has been restated to reflect the new operating segments.
Segment result represents the result of each segment without allocation of certain central costs, finance income and costs and tax. Unallocated segment assets and liabilities comprise financial instruments, current and deferred tax, cash and borrowings and pension scheme assets and liabilities.
8. Business segments continued
a. Segment information
|
|
|
|
2019 |
|
|
|
|
£m |
Merchanting
|
Retail
|
Toolstation |
Plumbing & Heating |
Unallocated |
Consolidated |
|
Revenue |
3,703.4 |
1,342.4 |
445.1 |
1,464.8 |
- |
6,955.7 |
|
Segment result |
275.4 |
85.0 |
22.0 |
3.7 |
(154.0) |
232.1 |
|
Amortisation of acquired intangible assets |
6.1 |
- |
2.6 |
0.3 |
- |
9.0 |
|
Adjusting items |
23.5 |
11.6 |
- |
45.4 |
119.0 |
200.4 |
|
Adjusted segment result |
305.0 |
96.6 |
24.6 |
49.4 |
(34.1) |
441.5 |
|
Less property profits |
(20.7) |
- |
- |
(1.0) |
1.1 |
(20.6) |
|
Adjusted segment result excluding property profits |
284.3 |
96.6 |
24.6 |
48.4 |
(33.0) |
420.9 |
|
Adjusted segment margin |
8.2% |
7.2% |
5.5% |
3.4% |
- |
6.3% |
|
Adjusted segment margin excluding property profits |
7.7% |
7.2% |
5.5% |
3.3% |
- |
6.1% |
|
Average capital employed |
2,287.4 |
1,479.9 |
344.9 |
356.9 |
(82.3) |
4,386.8 |
|
Segment assets |
3,037.3 |
1,705.5 |
552.4 |
860.2 |
284.6 |
6,440.0 |
|
Segment liabilities |
(1,224.6) |
(1,134.7) |
(241.0) |
(528.7) |
(723.9) |
(3,852.9) |
|
Consolidated net assets |
1,812.7 |
570.8 |
311.4 |
331.5 |
(439.3) |
2,587.1 |
|
Capital expenditure |
89.0 |
23.8 |
13.2 |
15.8 |
1.0 |
142.8 |
|
Amortisation of acquired intangible assets |
6.1 |
- |
2.6 |
0.3 |
- |
9.0 |
|
Depreciation and amortisation of software |
67.4 |
27.8 |
4.3 |
8.0 |
9.0 |
116.5 |
8. Business segments continued
a. Segment information continued
|
|
|
|
2018* |
|
|
|
|
£m |
Merchanting
|
Retail
|
Toolstation |
Plumbing & Heating |
Unallocated |
Consolidated |
|
Revenue |
3,608.8 |
1,249.6 |
354.4 |
1,527.7 |
- |
6,740.5 |
|
Segment result |
237.7 |
(208.8) |
21.0 |
(5.4) |
(66.2) |
(21.7) |
|
Amortisation of acquired intangible assets |
6.3 |
1.5 |
0.9 |
0.8 |
- |
9.5 |
|
Adjusting items |
34.4 |
272.3 |
- |
46.3 |
33.7 |
386.7 |
|
Adjusted segment result |
278.4 |
65.0 |
21.9 |
41.7 |
(32.5) |
374.5 |
|
Less property profits |
(6.3) |
(17.7) |
- |
(2.8) |
- |
(26.8) |
|
Adjusted segment result excluding property profits |
272.1 |
47.3 |
21.9 |
38.9 |
(32.5) |
347.7 |
|
Adjusted segment margin |
7.7% |
5.2% |
6.2% |
2.7% |
- |
5.6% |
|
Adjusted segment margin excluding property profits |
7.5% |
3.8% |
6.2% |
2.5% |
- |
5.2% |
|
Average capital employed |
1,930.9 |
712.9 |
169.3 |
263.8 |
(87.9) |
2,989.0 |
|
Lease adjusted capital employed |
2,281.9 |
1,543.9 |
280.4 |
436.4 |
(74.4) |
4,468.2 |
|
Lease adjusted operating profit excluding property profits |
300.2 |
116.9 |
28.8 |
52.5 |
(31.6) |
466.8 |
|
Segment assets |
1,848.0 |
1,333.9 |
910.3 |
645.2 |
380.2 |
5,117.6 |
|
Segment liabilities |
(490.8) |
(458.2) |
(318.9) |
(392.2) |
(739.8) |
(2,399.9) |
|
Consolidated net assets |
1,357.2 |
875.7 |
591.4 |
253.0 |
(359.6) |
2,717.7 |
|
Capital expenditure |
143.8 |
36.1 |
11.0 |
4.7 |
1.9 |
197.5 |
|
Amortisation of acquired intangible assets |
6.3 |
- |
2.4 |
0.8 |
- |
9.5 |
|
Depreciation and amortisation of software |
78.4 |
23.0 |
6.1 |
8.8 |
0.2 |
116.5 |
During 2018 an impairment loss was recognised in the Consumer segment in respect of goodwill totalling £252.1m.
*Restated for comparability purposes into the four new business segments.
9. Pension schemes
|
£m |
2019 |
2018 |
|
At 1 January actuarial asset / (deficit) |
81.2 |
(19.1) |
|
Additional liability recognised for minimum funding requirements |
- |
(9.2) |
|
|
81.2 |
(28.3) |
|
Current service costs and administrative expenses charged to the income statement |
(1.4) |
(6.5) |
|
Past service costs |
- |
(4.9) |
|
Net interest income |
2.4 |
0.4 |
|
Contributions from sponsoring companies |
13.4 |
18.5 |
|
Return on plan assets (excluding amounts included in net interest) |
161.8 |
(25.8) |
|
Actuarial (loss)/gain arising from changes in demographic assumptions |
(1.2) |
(4.0) |
|
Actuarial gain / (loss) arising from changes in financial assumptions |
(209.8) |
99.5 |
|
Actuarial gain arising from experience adjustments |
6.2 |
23.1 |
|
Reduction in minimum funding requirement liability |
- |
9.2 |
|
Gross pension asset / (liability) at 31 December |
52.6 |
81.2 |
|
Deferred tax asset |
(8.9) |
(15.4) |
|
Net pension asset at 31 December |
43.7 |
65.8 |
10. Net finance costs
Finance costs and finance income
|
£m |
2019 |
2018 |
|
Interest on bank loans and overdrafts |
(2.0) |
(1.2) |
|
Interest on bonds |
(21.0) |
(21.0) |
|
Unwinding of discounts - property provisions |
(0.2) |
(0.2) |
|
Unwinding of discounts - pension SPV loan |
(2.2) |
(2.1) |
|
Amortisation of issue costs of bank loans* |
(2.9) |
(1.5) |
|
Other interest |
(2.3) |
(0.7) |
|
Other finance costs - pension scheme |
- |
(0.8) |
|
Net loss on remeasurement of foreign exchange |
(3.3) |
- |
|
Net loss on remeasurement of derivatives at fair value |
(1.3) |
- |
|
Finance costs before lease interest |
(35.2) |
(27.5) |
|
Interest on lease liabilities |
(57.0) |
- |
|
Interest on obligations under finance leases |
- |
(0.4) |
|
Finance costs |
(92.2) |
(27.9) |
|
Net gain on remeasurement of derivatives at fair value |
- |
1.8 |
|
Net gain on remeasurement of foreign exchange |
- |
0.7 |
|
Other finance income - pension scheme |
2.4 |
- |
|
Interest receivable |
2.5 |
1.7 |
|
Finance income |
4.9 |
4.2 |
|
Net finance costs |
(87.3) |
(23.7) |
*Includes a £1.5m accelerated charge recognised as the result of the replacement of the Group's previous banking agreement with a new £400m agreement in January 2019.
11. Tax
|
£m |
2019 |
2018 |
|
Current tax: |
|
|
|
Current year |
44.0 |
47.1 |
|
Prior year |
(3.1) |
(10.4) |
|
Total current tax |
40.9 |
36.7 |
|
Deferred tax: |
|
|
|
Current year |
(12.1) |
(2.7) |
|
Prior year |
29.2 |
0.1 |
|
Total deferred tax |
17.1 |
(2.6) |
|
Total tax charge / (credit) |
58.0 |
34.1 |
Prior year charge for deferred tax includes £27.1m in relation to the adjusting items, as described in note 7.
12. Earnings per share
a. Basic and diluted earnings per share
|
£m |
2019 |
2018 |
|
Earnings for the purposes of earnings per share |
121.1 |
(85.6) |
|
Weighted average number of shares for the purposes of basic earnings per share |
247,957,050 |
248,681,183 |
|
Dilutive effect of share options on potential ordinary shares |
2,293,525 |
345,820 |
|
Weighted average number of ordinary shares for the purposes of diluted earnings per share |
250,250,575 |
249,027,003 |
|
Earnings / (loss) per share |
48.9p |
(34.4)p |
|
Diluted earnings / (loss) per share |
48.4p |
(34.4)p |
1,878,458 share options (2018: 5,284,836 share options) 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.
Adjusted earnings per share are calculated by excluding the effect of the exceptional items and amortisation acquired intangible assets from earnings.
|
£m |
2019 |
2018 |
|
Earnings for the purposes of earnings per share |
121.1 |
(85.6) |
|
Adjusting items |
160.1 |
386.7 |
|
Amortisation of acquired intangible assets |
9.0 |
9.5 |
|
Tax on adjusting items |
(36.3) |
(24.2) |
|
Adjusting deferred tax |
27.1 |
- |
|
Tax on amortisation of acquired intangible assets |
(1.6) |
(1.6) |
|
Adjusted earnings |
279.4 |
284.8 |
|
Adjusted earnings per share |
112.7p |
114.5p |
|
Adjusted diluted earnings per share |
111.6p |
114.4p |
13. Dividends
Amounts were recognised in the financial statements as distributions to equity shareholders as follows:
|
£m |
2019 |
2018 |
|
Final dividend for the year ended 31 December 2018 of 31.50p (2017: 30.50p) per ordinary share |
78.2 |
75.6 |
|
Interim dividend for the year ended 31 December 2019 of 15.50p (2018: 15.50p) per ordinary share |
38.0
|
38.5 |
|
Total dividend recognised during the year |
116.2 |
114.1 |
The Directors are recommending a final dividend of 33.0p in respect of the year ended 31 December 2019. The anticipated cash payment in respect of the proposed final dividend is £83.2m (2018: £79.4m).
There are no income tax consequences in respect of the dividends declared, but not recognised in the financial statements. The dividends for 2019 and for 2018 were as follows:
|
Pence |
2019 |
2018 |
|
Interim paid |
15.5 |
15.5 |
|
Final proposed |
33.0 |
31.5 |
|
Total dividend for the year |
48.5 |
47.0 |
14. Free cash flow
|
£m |
2019 |
2018* |
|
Adjusted operating profit |
441.5 |
374.5 |
|
Less: Profit on disposal of properties |
(20.6) |
(26.8) |
|
Adjusted operating profit excluding property profit |
420.9 |
347.7 |
|
Depreciation of property, plant and equipment |
97.5 |
101.0 |
|
Amortisation of internally generated intangibles |
23.5 |
15.5 |
|
Share-based payments |
19.9 |
19.6 |
|
Movement on working capital |
(128.7) |
(107.0) |
|
Other net interest paid |
(26.2) |
(25.5) |
|
Interest on lease liabilities |
(57.0) |
- |
|
Income tax paid |
(52.9) |
(55.1) |
|
Capital expenditure excluding freehold purchase |
(120.9) |
(143.1) |
|
Disposal of plant and equipment |
19.4 |
13.8 |
|
Free cash flow |
195.5 |
167.8 |
*The Group's definition of free cash flow has been revised and is now defined as net cash flow before dividends, capital expenditure and disposal proceeds on freehold property, pension deficit repair contributions, adjusting cash flows and financing cash flows. Compared to the previous definition, free cash flow now excludes all freehold property related cash flows and includes growth capital expenditure. In the Directors' view this revised metric better reflects the cash the Group needs in order to invest and expand its operations, pay dividends to shareholders and access the best property locations.
15. Net debt
a. Covenant net debt
Following the implementation of IFRS 16 - Leases, the Group has started reporting covenant net debt, a new KPI that matches the definition of net debt in the Group's banking and bond covenants. The Group has stopped reporting lease adjusted net debt as the implementation of IFRS 16 - Leases means that the effect of leases is already reflected in net debt.
|
£m |
2019 |
2018 |
|
Cash and cash equivalents |
207.9 |
255.4 |
|
Non-current interest bearing loans and borrowings |
(583.3) |
(588.0) |
|
Non-current lease liabilities |
(1,253.6) |
(17.2) |
|
Current lease liabilities |
(158.7) |
(3.8) |
|
Net debt |
(1,787.7) |
(353.6) |
|
Less: Liability to pension scheme |
31.5 |
32.8 |
|
Less: Lease liabilities |
1,412.3 |
21.0 |
|
Covenant net debt |
(343.9) |
(299.8) |
b. Movement in net debt
|
|
|
The Group |
||||||
|
£m |
Cash and cash equivalents |
Leases |
Term loan and revolving credit facility and loan notes |
Unsecured senior US$ loan notes and sterling bonds |
Liability to pension scheme |
Total |
||
|
At 1 January 2018 |
(276.8) |
27.5 |
(2.2) |
559.3 |
33.7 |
341.5 |
||
|
Cash flow |
21.4 |
(6.5) |
- |
- |
3.3 |
18.2 |
||
|
Finance charges movement |
- |
- |
0.8 |
0.7 |
- |
1.5 |
||
|
Amortisation of swap cancellation receipt |
- |
- |
- |
(3.4) |
- |
(3.4) |
||
|
Discount unwind on liability to pension scheme |
- |
- |
- |
- |
(4.2) |
(4.2) |
||
|
At 1 January 2019 |
(255.4) |
21.0 |
(1.4) |
556.6 |
32.8 |
353.6 |
||
|
Recognition of lease liability |
- |
1,566.9 |
- |
- |
- |
1,566.9 |
||
|
Cash flow |
47.5 |
(232.6) |
(2.9) |
- |
(3.4) |
(191.4) |
||
|
Finance charges movement
|
- |
- |
2.2 |
0.7 |
- |
2.9 |
||
|
Amortisation of swap cancellation receipt
|
- |
- |
- |
(3.4) |
- |
(3.4) |
||
|
Discount unwind on liability to pension scheme
|
-
|
- |
- |
- |
2.1 |
2.1 |
||
|
Discount unwind on lease liability |
- |
57.0 |
- |
- |
- |
57.0 |
||
|
31 December 2019 |
(207.9) |
1,412.3 |
(2.1) |
553.9 |
31.5 |
1,787.7 |
||
16. Return on capital ratios
Group return on capital employed is calculated as follows:
|
£m |
2019 |
2018 |
|
Operating profit |
232.1 |
(21.7) |
|
Amortisation of acquired intangible assets |
9.0 |
9.5 |
|
Adjusting items |
200.4 |
386.7 |
|
Adjusted operating profit |
441.5 |
374.5 |
|
Opening net assets |
2,611.6 |
2,860.3 |
|
Net pension (surplus) / deficit |
(65.8) |
22.9 |
|
Net debt including opening adjustment for change in accounting policy |
1,876.9 |
341.5 |
|
Goodwill amortisation and impairment |
- |
(252.1) |
|
Opening capital employed |
4,422.7 |
2,972.6 |
|
Closing net assets |
2,587.1 |
2,717.7 |
|
Net pension surplus |
(43.7) |
(65.8) |
|
Net debt |
1,787.7 |
353.6 |
|
Closing capital employed |
4,331.1 |
3,005.5 |
|
Average capital employed |
4,376.9 |
2,989.0 |
Group return on capital employed is calculated as follows:
|
£m |
2019 |
2018 |
|
Adjusted operating profit |
441.5 |
374.5 |
|
Average capital employed |
4,376.9 |
2,989.0 |
|
Return on capital employed |
10.1% |
12.5% |
17. Net debt to adjusted EBITDA
Due to the impact of the adoption of IFRS 16 - Leases on 1 January 2019, net debt and adjusted EBITDA are not prepared on a consistent basis to previous years. The Group previously presented lease adjusted net debt to adjusted earnings before interest, tax, depreciation, amortisation and operating lease rentals (''EBITDAR''). This is shown below for the comparative year.
|
£m |
2019 |
2018 |
|
Operating profit |
232.1 |
(21.7) |
|
Depreciation and amortisation |
300.2 |
126.0 |
|
EBITDA |
532.3 |
104.3 |
|
Adjusting operating items |
200.4 |
386.7 |
|
Share of associates' results |
(4.3) |
(4.0) |
|
Adjusted EBITDA |
728.4 |
487.0 |
|
Net debt |
1,787.7 |
353.6 |
|
Net debt to adjusted EBITDA |
2.5x |
0.7x |
|
Lease adjusted net debt to adjusted EBITDAR |
n/a |
2.7x |
18. Revenue reconciliation and like-for-like sales
The Group has changed its internal reporting structure and as a result has changed the definition of operating segments. The segmental information for revenue and like-for-like sales has been restated to reflect the new operating segments.
|
£m |
Merchanting |
Retail |
Toolstation |
Plumbing & Heating |
Total |
|
2018 revenue |
3,608.8 |
1,249.6 |
354.4 |
1,527.7 |
6,740.5 |
|
Like-for-like revenue |
116.7 |
105.1 |
57.5 |
(26.0) |
253.3 |
|
|
3,725.5 |
1,354.7 |
411.9 |
1,501.7 |
6,993.8 |
|
Network change |
(22.1) |
(12.3) |
33.2 |
(36.9) |
(38.1) |
|
2019 revenue |
3,703.4 |
1,342.4 |
445.1 |
1,464.8 |
6,955.7 |
Like-for-like sales are a measure of underlying sales performance for two successive periods. Branches and stores 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, including changes to the number of trading days. When branches close revenue is excluded from the prior year figures for the months equivalent to the post closure period in the current year.
19. Business combinations
On 30 September 2019 the Group acquired an additional 49.5% of the ordinary share capital of Toolstation Europe Limited for transferred cash consideration of £21.9m, giving the Group a controlling 97.1% share of the business. This investment will enable the Group to accelerate the expansion of the Toolstation network in Europe.
In accordance with the requirements of the acquisition accounting method, the existing 47.5% investment in associate has been remeasured to fair value. This fair value has been calculated based on the amount paid for the additional 49% acquired, creating a gain of £40.3m that has been credited to the consolidated income statement as an adjusting item.
On 2 January 2019 the Group acquired the remaining 25% of the issued share capital of National Shower Spares Limited for cash consideration of £1.3m. National Shower Spares Limited is now a wholly-owned subsidiary.
On 17 May 2019 the Group acquired an additional 35% of the issued share capital of the Underfloor Heating Store Limited for cash consideration of £18.5m. The Group now owns 90% of the issued share capital of this subsidiary. As a result of this transaction, the amount of non-controlling interest recognised in the Group's equity was reduced by £6.8m.
On 15 January 2019 the Group acquired the trade and assets of Ambient Electrical Limited, an online retailer of electric underfloor heating products, for cash consideration of £1.0m, generating goodwill of £0.8m.
On 30 September 2018 the Group sold the trade and assets of Birchwood Price Tools business for the total cash consideration of £9.0m, generating a loss on disposal of £10.3m, which has been disclosed as an adjusting item. Total net assets sold consist of £12.5m of working capital, £0.6m of other debtors and other creditors and £0.3m of fixed assets. As a result of the above disposal £5.9m of Group's intangible fixed assets were derecognised.
20. Adoption of IFRS 16 - Leases
This note explains the impact of the adoption of IFRS 16 - Leases on the Group's financial statements and discloses the new accounting policies that have been applied from 1 January 2019.
The Group has adopted IFRS 16 - Leases using the modified retrospective approach as described in paragraph C5(b) of the standard. Therefore the cumulative effect of adopting IFRS 16 - Leases was recognised as an adjustment to the opening balance of retained earnings at 1 January 2019 with no restatement of comparative information. Comparative information continues to be reported under IAS 17 - Leases and IFRIC 4 - Determining Whether an Arrangement Contains a Lease.
Practical expedients applied
In applying IFRS 16 - Leases for the first time, the Group has used the following practical expedients permitted by the standard:
- the use of a single discount rate for portfolios of leases with reasonably similar characteristics
- reliance on previous assessments of whether leases are onerous instead of performing an impairment review
- accounting for low value operating leases and operating leases with a remaining lease term of less than 12 months as at 1 January 2019 on straight line basis as an expense without recognising a right-of-use asset or a lease liability
- the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease
The Group has also elected not to reassess whether a contract is, or contains, a lease at the date of initial application. Instead, for contracts entered into before the transition date the Group relied on its assessment made applying IAS 17 - Leases and IFRIC 4 - Determining whether an Arrangement contains a Lease.
Measurement of lease liabilities
On adoption of IFRS 16 - Leases, the group recognised liabilities in relation to leases which had previously been classified as operating leases under the principles of IAS 17 - Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019. The incremental borrowing rate represents the rate of interest that the entity within the Travis Perkins Group that entered into the lease would have to pay to borrow over a similar term and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The weighted average incremental borrowing rate applied to the property leases on 1 January 2019 was 4.4% and for fleet and other leases was 1.8%.
For leases previously classified as finance leases the entity recognised the carrying amount of the lease asset and the lease liability immediately before transition as the carrying amount of the right-of-use asset and the lease liability at 1 January 2019.
20. Adoption of IFRS 16 - Leases continued
The reconciliation of differences between the operating lease commitments disclosed under the prior standard and the additional lease liabilities recognised on the balance sheet at 1 January 2019 is as follows:
£m
|
Operating lease commitments disclosed as at 31 December 2018 |
1,797.7 |
|
Additional lease commitments not included in the 2018 Annual report & Accounts |
95.0 |
|
Restated operating lease commitments |
1,892.7 |
|
Impact of discounting |
(398.5) |
|
Finance lease liabilities as at 31 December 2018 |
21.0 |
|
Adjustments as a result of a different treatment of extension and termination options |
8.1 |
|
Lease liability recognised as at 1 January 2019 |
1,523.3 |
|
Comprising |
|
|
Current lease liabilities |
170.5 |
|
Non-current lease liabilities |
1,352.8 |
|
|
1,523.3 |
Measurement of right-of-use assets
Right of use assets are measured at either:
- Their carrying amount as if IFRS 16 had been applied since the lease commencement date, discounted by the lessees' incremental borrowing rate as at 1 January 2019. The Group has applied this methodology to the Group's 330 most material property leases where sufficient historical information has been available to facilitate this and the majority of plant and equipment leases.
- At amounts equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised on the balance sheet as at 31 December 2018. This has been applied to the remaining portfolio of leases.
An impairment adjustment to the right-of-use assets of £11.3m in relation to previous onerous lease provisions was recognised at the date of initial application.
The recognised right-of-use assets relate to the following types of assets:
|
£m |
1 January 2019 |
|
Properties |
1,326.9 |
|
Plant and equipment |
79.1 |
|
Total right-of-use assets |
1,406.0 |
|
20. Adoption of IFRS 16 - Leases continued |
|
Adjustments to balance sheet items
The change in accounting policy affected the following items in the balance sheet on 1 January 2019:
£m
|
Property, plant and equipment |
(18.3) |
|
Prepayments |
(35.2) |
|
Right-of-use assets |
1,406.0 |
|
Deferred tax asset |
21.3 |
|
Onerous lease and rent review provisions |
17.0 |
|
Accruals |
5.4 |
|
Finance lease creditor |
21.0 |
|
Lease liabilities |
(1,523.3) |
|
Net impact on retained earnings |
(106.1) |
Impact on segment disclosures
Segment assets and segment liabilities for December 2019 increased as a result of the adoption of IFRS 16 - Leases. Lease liabilities are now included in segment liabilities, whereas finance lease liabilities were previously excluded from segment liabilities. Segment assets and liabilities as at 1 January 2019 were affected as follows:
|
£m |
Segment assets |
Segment liabilities |
|
Merchanting |
390.4 |
(399.4) |
|
Retail |
745.4 |
(861.4) |
|
Toolstation |
90.7 |
(93.0) |
|
P&H |
118.3 |
(118.8) |
|
Unallocated |
29.0 |
(7.3) |
|
Total |
1,373.8 |
(1,479.9) |
Impact on the Group's basic and diluted earnings per share
If Group has applied IFRS 16 - Leases from 1 January 2018 using the same transition options and accounting policy choices, and calculated using the same lease data and lease accounting system, then the Group's basic and diluted earnings per share and adjusted earnings per share would have been lower by approximately 9 pence for the year ended 31 December 2018.
21. Contingent liability
Following the change in approach to the replacement of the Group's merchant ERP system announced in July 2019, the Group terminated its relationship with Infor (the software provider) in October 2019 and formally set out its damages claim.
There is a contingent liability in respect of the Group's possible obligations under the relevant contracts, which include break clauses limiting the Group's maximum possible contractual exposure to c. £65m.
In the view of Directors, it is probable that the Group will be able to successfully resolve this matter without making any payments to the software provider. Accordingly no provision has been made in respect of these contracts. The Directors expect this matter to resolve in the next 48 months.
| ISIN: | GB0007739609 |
| Category Code: | FR |
| TIDM: | TPK |
| LEI Code: | 2138001I27OUBAF22K83 |
| Sequence No.: | 50000 |
| EQS News ID: | 987907 |
| End of Announcement | EQS News Service |
|
|
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