Half-year report - Travis Perkins plc Interim ...
Travis Perkins plc
Interim results for the six months ended 30 June 2018
Trade focused businesses performing well, significant challenges in DIY market
| £m | Note | H1 2018 | H1 2017 | Change |
| Revenue | 3,364 | 3,221 | 4.4% | |
| Like-for-like revenue growth(1) | 4.2% | 2.7% | ||
| Adjusted operating profit(1) | 16a | 179 | 190 | (5.8)% |
| Adjusted operating profit excluding property profits(1) | 162 | 183 | (11.5)% | |
| Adjusted profit before taxation(1) | 16b | 167 | 175 | (4.6)% |
| Adjusted earnings per share(1) | 8b | 53.5p | 55.8p | (4.1)% |
| Net debt(1) | 13 | (461) | (377) | £(84)m |
| Dividend per share (pence) | 9 | 15.5p | 15.5p | - |
| Lease adjusted ROCE(2) | 16f | 10.1% | 11.2% | (1.1)ppt |
| Adjusting items | 2 | (286) | - | |
| Operating (loss)/profit | (112) | 183 | ||
| (Loss)/Profit before taxation | (123) | 168 | ||
| Basic (loss)/earnings per share (pence) | 8a | (59.8)p | 53.6p |
(1) Alternative performance measures are used to provide a guide to underlying performance and details of the calculations can be found in the notes listed
(2) Lease adjusted ROCE restated for H1 2017 to adjust for the £246m write off of goodwill in Wickes in H1 2018
Highlights
- Solid revenue growth of 4.4% with like-for-like growth of 4.2%.
- Good trading performance in the trade focused businesses in General Merchanting, Plumbing & Heating, Contracts and Toolstation.
- Challenging UK DIY market negatively impacting sales and profitability in Wickes, with significant cost reduction plans underway.
- Cost reduction plans in progress across the Group with benefits weighted towards H2 2018.
- Adjusted operating profits decline of 5.8% primarily reflects sales mix, with weaker Kitchen and Bathroom showroom sales in Wickes, and higher operating costs in General Merchanting.
- Adjusting items include an impairment of £246m against the goodwill in Wickes given the challenging DIY market, and reorganisation costs in the P&H and Wickes businesses.
- Interim dividend unchanged at 15.5p per share
- Strong focus on costs given mixed market outlook, with 2018 Group EBITA anticipated to be in the lower half of the range of analyst expectations.
John Carter – Chief Executive Officer said:
“Our trade focused businesses in General Merchanting, Contracts, Toolstation and Plumbing & Heating achieved good sales growth despite experiencing a volatile first half. These businesses exited the period with encouraging momentum and, supported by a continued focus on cost, they remain on track to deliver modest profit growth for the full year.
Our consumer-focused business, Wickes, has had a far more challenging period as weaker consumer spending trends, combined with a difficult competitive environment, have held back profitability. Consequently, the Wickes team is executing a significant cost reduction programme. Whilst these savings will help drive improved profitability through the second half of the year, Wickes’ profits will be lower than previously expected.
Against a backdrop of changing market conditions which are expected to continue for the foreseeable future, the Group has commenced a comprehensive review of its business, with a view to driving stronger performance and enhanced value for shareholders in the medium term.”
Enquiries:
| Travis Perkins | Tulchan Communications | |
| Graeme Barnes | David Allchurch | |
| +44 (0) 7469 401819 | +44 (0) 207 353 4200 | |
| graeme.barnes@travisperkins.co.uk | ||
| Zak Newmark | ||
| +44 (0) 7384 432560 | ||
| zak.newmark@travisperkins.co.uk |
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 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 31 July 2018, the date on which it is given. This announcement has not been and will not be updated to reflect any changes since that date.
Past performance of the shares of Travis Perkins plc cannot be relied upon as a guide to the future performance of the shares of Travis Perkins plc.
Summary
The Group achieved good overall sales growth of 4.4% to £3,364m in the first half of 2018, with like-for-like sales growth of 4.2%. Group adjusted operating profits, excluding property profits, declined by 11.5% to £162m, in part reflecting a change to the overall sales mix between businesses, with very strong growth in Plumbing & Heating, and a significant decline in Wickes. In addition, and as expected, overhead cost inflation in General Merchanting was concentrated in the first half of the year, with the benefits from cost reduction activities weighted to the second half.
Given the current mixed market outlook, the Group continues to focus on achieving a good balance between tightly controlling the cost base and maximising efficiency, whilst maintaining the strong trading propositions put in place in recent years. This balance is flexed for different businesses across the Group depending on end market conditions and potential future growth.
The Group’s cash conversion was lower in H1 2018 than in recent periods, at 72%, due to phasing of working capital flows which are expected to reverse in the second half of the year. This had a corresponding impact on net debt which rose by £119m since December 2017, which is also expected to reverse through H2 2018.
The Board has declared a 15.5 pence per share interim dividend, unchanged from 2017.
Outlook
The long-term drivers of market growth remain favourable, centred on the UK’s requirement for more homes and the underinvestment in the repair, maintenance and improvement (RMI) of existing dwellings and infrastructure. The mixed backdrop of market lead indicators has, however, continued since the beginning of 2018, with mortgage approvals and housing transactions broadly flat, inconsistent house price growth across the UK, depressed consumer confidence and continued pressure on wider retail sales figures across many UK consumer facing markets.
These factors make it difficult to accurately forecast market volumes in the near-term, although recent trends would indicate that the trade markets are performing more consistently than consumer markets, with UK DIY the most challenged, with weak demand for big ticket purchases in particular. At this stage, the Group sees no evidence to suggest a change to the current market environment through the remainder of 2018.
Assuming that current market conditions persist for the balance of the year, expectations for the trade businesses remain unchanged for 2018. Given the first half performance in Wickes in a challenging DIY market, the Group now anticipates that 2018 EBITA will be in the lower half of the range of analyst expectations.
*As at 30 July 2018 the range of market expectations for full-year 2018 Group EBITA was £360m to £390m.
Business and operational review
Against a backdrop of changing market conditions which are expected to continue for the foreseeable future, the Group has commenced a comprehensive review of its business, with a view to driving stronger performance and enhanced value for shareholders over the medium term. The review will focus on defining a simplified Group structure aligned more closely with its core customer base. An update on the conclusions from the review will be provided at a capital markets day in early December.
Technical guidance
The Group’s technical guidance for 2018 is as follows:
- Effective tax rate of around 19%
- Finance charges will be similar to 2017
- Capital expenditure of around £140m - £160m, excluding investment in freehold property
- Property profits will be around £25m, with the increase primarily due to achieving better than expected yields on sale and leaseback transactions.
- Dividend pay-out underpinned by strong cash generation
Divisional Review
The Group’s trade focused businesses in General Merchanting, Contracts, Toolstation and the Plumbing & Heating division, performed well despite volatility in trading conditions through the first half of 2018. The six month period can be split into three distinct time periods. In January and February, performance was encouraging, with both sales volumes and recovery of input cost inflation in line with expectations. The extended period of poor weather through March and April had a significant impact on the Group’s end markets, with trade customers unable to work on projects, although this period did provide a mild boost to the Plumbing & Heating division.
In May and June, the trade-focused businesses showed a significant recovery in sales, and demonstrated encouraging momentum into the second half of the year. Whilst market trends remain difficult to read, the recent trading performance underpins the Group’s confidence in expectations for H2 2018.
General Merchanting
| H1 2018 | H1 2017 | Change | |
| Total revenue | £1,065m | £1,055m | 0.9% |
| Like-for-like growth | 0.6% | ||
| Adjusted operating profit excluding property | £86m | £97m | (11.3)% |
| Adjusted operating margin excluding property | 8.1% | 9.2% | (110)bps |
| LAROCE* | 12% | 14% | (2)ppt |
| Branch network* | 843 | 850 | (7) |
* Comparison data from 31 December 2017
The General Merchanting division began the year well with good recovery of input cost inflation, before a difficult period in March and April during a sustained period of inclement weather. Sales recovered in May and June, with volume growth primarily driven by extended range sales through the heavyside range centre network, growth in online sales and strong performance in Tool Hire and Managed Services.
Gross margin percentage returned to the level of H1 2017, following the successful recovery of input cost inflation, particularly in core categories such as timber, and tight control of category pricing throughout the half.
Adjusted operating profits declined reflecting a higher overhead cost base in the business. This was due to the expected step-up in costs associated with the heavyside range centre network extension to cover all of England and Wales, as well as inflation on rent, rates and salaries that came into effect very early in the year.
In response to the higher cost base, as previously announced in March 2018, a significant cost action plan was put in place across the division, focussing on maximising efficiency across the business, optimising asset utilisation and tightly managing the overall branch network. These cost reduction activities are expected to deliver benefits of approximately £10m heavily weighted to the second half of 2018 with more to come in 2019.
Plumbing & Heating
| H1 2018 | H1 2017 | Change | |
| Total revenue | £774m | £669m | 15.7% |
| Like-for-like growth | 19.8% | ||
| Adjusted operating profit excluding property | £20m | £13m | 53.8% |
| Adjusted operating margin excluding property | 2.6% | 1.9% | 70bps |
| LAROCE* | 13% | 11% | 2ppt |
| Branch network* | 388 | 391 | (3) |
* Comparison data from 31 December 2017
The Plumbing & Heating transformation programme continues to drive strong results, with like-for-like sales growth of 20% in the half, exceeding expectations. Volume growth has come through all three parts of the business, the online channels, the branch network and the lower-margin wholesale business, particularly in boilers. Encouragingly, this pace of growth was maintained throughout the second quarter. Momentum remains positive into the second half of the year, and there are further opportunities to improve performance through better customer engagement and category extensions, although comparators will become more challenging as the business cycles the start of the improvement plan in 2017.
The division is also benefitting from the substantial reduction in the overhead cost base carried out as part of the restructuring process in 2017.
Contracts
| H1 2018 | H1 2017 | Change | |
| Total revenue | £718m | £675m | 6.4% |
| Like-for-like growth | 5.1% | ||
| Adjusted operating profit excluding property profits | £43m | £41m | 4.9% |
| Adjusted operating margin excluding property profits | 6.0% | 6.1% | (10)bps |
| LAROCE* | 14% | 14% | - |
| Branch network* | 165 | 169 | (4) |
* Comparison data from 31 December 2017
The businesses in the Contracts division continue to perform strongly, growing ahead of their end markets and taking market share. After a slow start to the year, mainly owing to delayed activity on large construction projects, like-for-like growth rates accelerated throughout the first half, reaching 9.5% for Q2.
Adjusted operating profit grew in line with sales, with a modest decline in gross margin driven by the mix of deliveries direct from manufacturer offset by better operating leverage. Actions to drive efficiency through the branch network remain a key priority, including rationalisation of the branch network – 5 Keyline branches were closed, consolidated or switched to the Travis Perkins brand with over 90% of sales retained within the business.
In BSS a programme is underway to streamline processes ahead of the first roll out of the new Merchanting ERP system in early 2019.
CCF performed well in the period.
Consumer
| H1 2018 | H1 2017 | Change | |
| Total revenue | £807m | £822m | (1.8)% |
| Like-for-like growth | (4.2)% | ||
| Adjusted operating profit excluding property profits | £29m | £45m | (35.6)% |
| Adjusted operating margin excluding property profits | 3.6% | 5.5% | (190)bps |
| LAROCE* | 7% | 7% | - |
| Branch network* | 696 | 666 | 30 |
* Comparison data from 31 December 2017
Toolstation
The sales trend in Toolstation through the first half of the year was similar to the other trade focussed businesses, with a good start to the year, a weak period in March and April, and strong recovery thereafter. Even with the disruptive backdrop, Toolstation achieved another strong performance with total sales growth of 17.6%, and 10.7% on a like-for-like basis.
Sales growth was driven by the continued growth of the store network in the UK, with 22 new stores opened in the half taking the total network to 317. The rollout will continue at pace in the second half. Improvements to the proposition are also driving higher sales density, with front-of-counter consumables, range improvements focused on trade customers and additional online range extension and the roll out of “drop-ship” delivery direct from suppliers.
As expected, adjusted operating profits in Toolstation were modestly lower because of the level of expansionary cost investment in the business. Opening of new stores and the construction of a third distribution centre, increasing capacity to support 500 stores will benefit future sales and profit growth.
The expansion of the Toolstation Europe network continued with further stores in the Netherlands and an extension of the trial in France, with encouraging sales results.
Wickes
As highlighted at the time of our Q1 2018 trading update, the UK DIY market continues to be challenging, and was badly affected by the inclement weather in March and April. Wickes did not recover as strongly as the trade focused businesses, with consumer sentiment remaining subdued. Whilst core DIY sales recovered modestly, helped by the business’s exposure to small trade customers, K&B showroom sales have proven to be weaker, which has significantly impacted sales and profitability.
Wickes’ sales declined by 5.8% in the first half of the year, and by 7.7% on a like-for-like basis. Gross margin was diluted as input cost inflation could not be recovered through pricing due to competitive pressures and an adverse sales mix in the period. Adjusted operating profit declined by £14m. As described in note 2 and 12, the Group has recognised an impairment of £246m in relation to goodwill.
In response to the challenging market conditions, the Wickes team has implemented a comprehensive cost reduction plan, building on the activities carried out in Q4 2017. As a direct consequence of these actions the overhead cost base was £9m lower in H1 2018 compared to H1 2017, with further benefits to be realised in the second half of the year which are expected to underpin an improved profit trend. Shrinkage has been reduced by 25% by applying an end-to-end focus on the supply chain, branch staffing levels are being carefully controlled to match trading volumes, and a significant restructuring was carried out in the head office functions in May, reducing headcount by a third.
Central costs
Unallocated central costs rose by £3m to £16m for the half, in line with the expectations for the full year. Growth was driven primarily by the investments the Group is making in IT capabilities and digital platforms, in particular the Group’s new ERP system for the Merchant businesses.
Property
The 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.
Eight new freehold sites were purchased in H1 2018 at an investment of £36m, with a further £5m of construction costs to develop sites ready for trading. These investments were fully funded in the half by property disposals of £51m, which also generated property profits of £17m.
Financial Performance
Revenue
Group revenue grew by 4.4% in the first half of the year, and by 4.2% on a like-for-like basis with the main drivers being good growth in the Plumbing & Heating and Contracts divisions, partially offset by continuing challenges for the Wickes business.
Volume, price and mix analysis
| Total revenue | General Merchanting | Plumbing & Heating | Contracts | Consumer | Group |
| Volume | (2.3)% | 16.5% | (0.9)% | (6.1)% | 0.8% |
| Price and mix | 2.9% | 3.3% | 6.0% | 1.9% | 3.4% |
| Like-for-like revenue growth | 0.6% | 19.8% | 5.1% | (4.2)% | 4.2% |
| Network expansion and acquisitions | 0.3% | (4.1)% | 1.2% | 2.3% | 0.2% |
| Trading days | - | - | - | - | - |
| Total revenue growth | 0.9% | 15.7% | 6.3% | (1.9)% | 4.4% |
Quarterly like-for-like revenue analysis (see note 16h)
| Like-for-like revenue growth | General Merchanting | Plumbing & Heating | Contracts | Consumer | Group |
| Q1 2018 | (1.3)% | 19.7% | 0.9% | (4.6)% | 3.0% |
| Q2 2018 | 3.0% | 20.1% | 9.5% | (3.1)% | 5.9% |
| H1 2018 | 0.6% | 19.8% | 5.1% | (4.2)% | 4.2% |
New branch and store openings net of closures contributed 0.2% to revenue growth with the expansion of the Toolstation network offset by the branch closures in P&H in 2017. There was no difference in the number of trading days in 2018 compared to 2017.
The Group maintained a focus on recovering cost price inflation in the first half of 2018, with overall price inflation across the Group of approximately 3%, with the highest increases in the Contracts division where commodity price inflation has had the most concentrated impact.
Operating profit and margin
| £m | H1 2018 | H1 2017 | |
| General Merchanting | 86 | 97 | (11.3)% |
| Plumbing & Heating | 20 | 13 | 53.8% |
| Contracts | 43 | 41 | 4.9% |
| Consumer | 29 | 45 | (35.6)% |
| Property | 17 | 7 | 142.9% |
| Unallocated costs | (16) | (13) | 23.1% |
| Adjusted operating profit | 179 | 190 | (5.8)% |
| Amortisation of acquired intangibles | (5) | (7) | |
| Impairment of Wickes goodwill | (246) | - | |
| Other adjusting items | (40) | - | |
| Operating (loss)/profit | (112) | 183 |
Adjusting items recognised in the period included:
- An impairment of £246m on the goodwill held against Wickes
- Adjusting items of £35m in the Plumbing & Heating division covering further optimisation of the branch and supply chain networks
- Adjusting items of £10m in Wickes covering the costs of the head office restructuring programme and software impairment
- A pension curtailment gain of £5m relating to the closure of the defined benefit schemes.
Adjusted operating margin
| General Merchanting | Plumbing & Heating | Contracts | Consumer | Group | |
| H1 2017 adjusted operating margin (excluding property profits) | 9.2% | 1.9% | 6.1% | 5.5% | 5.7% |
| Change in gross margin | 0.0% | (0.8)% | (0.3)% | (2.7)% | (1.5)% |
| Margin impact of change in operating costs | (1.1)% | 1.5% | 0.2% | 0.8% | 0.6% |
| H1 2018 adjusted operating margin (excluding property profits) | 8.1% | 2.6% | 6.0% | 3.6% | 4.8% |
The reduction in Group gross margins reflects the change in sales mix across the business, with strong growth in lower margin Plumbing & Heating sales offsetting weakness in higher margin Wickes sales, particularly Kitchens and Bathrooms. Operating costs were carefully controlled, with significant year-on-year improvements in Plumbing & Heating and Consumer, and with the operating cost base in General Merchanting expected to benefit from cost reduction activities in the second half of the year.
Finance charge
Net finance charges, shown in note 6, were £10m (2017: £16m). Interest costs on borrowings were unchanged from 2017 at £11m, with the majority of the Group’s debt covered by the two publically traded bonds on fixed interest coupons.
The impact of marking-to-market currency forward contracts which remained outstanding at 30 June 2018 was to reduce the net finance charge by £3.2m (the 2017 impact was to increase the net finance charge by £0.2m). These contracts are used to hedge commercial currency transactions.
Taxation
The total tax charge for the half year period, excluding the effect of adjusting items, was £32m (2017: £32m), which represents an effective rate of 19.7% (2017: 19.2%). This is slightly higher than the standard rate of corporation tax for the year of 19.0% (2017: 19.25%) applicable to profits in the United Kingdom because the effective rate is inflated by the fall in share price during 2018 which has reduced the benefit of the deferred tax asset held on share options, and resulted in a charge to the income statement.
The impairment of £246m of goodwill held against the Wickes business has no impact on the current tax charge.
Earnings per share
Reported earnings per share returned a loss of 59.8p per share for H1 2018 (2017 earnings per share: 53.6p), primarily due to the £246m write off of goodwill in Wickes.
Adjusted earnings per share reduced by 4.1% to 53.5p (2017: 55.8p).
Reconciliation of reported to adjusted earnings
| H1 2018 | H1 2017 | |||
| Earnings | EPS | Earnings | EPS | |
| Basic earnings and EPS attributable to shareholders | £(149)m | (59.8p) | £135m | 53.6p |
| Adjusting items | - | - | ||
| Plumbing & Heating division transformation | £35m | 13.8p | ||
| Wickes restructuring | £10m | 4.1p | ||
| Pension curtailment gain | £(5)m | (1.9p) | ||
| Impairment of Wickes goodwill | £246m | 98.9p | - | - |
| Amortisation of acquired intangibles | £5m | 1.8p | £7m | 2.7p |
| Tax on amortisation of acquired intangibles | £(1)m | (0.4p) | £(1)m | (0.5p) |
| Tax on adjusting items | £(8)m | (3.0p) | - | - |
| Effect of reduction in corporation tax on deferred tax | - | - | - | - |
| Adjusted earnings and EPS attributable to shareholders | £133m | 53.5p | £141m | 55.8p |
Dividend
The Group’s dividend pay-out is underpinned by the on-going strength of cash generation and continued confidence in the Group’s outlook over the medium term. The interim dividend will be held unchanged in 2018 at 15.50 pence (H1 2017: 15.50 pence) and will be paid on 09 November 2018, at a cash cost of approximately £39m.
Cash flow and balance sheet
Free cash flow
The Group generated free cash flow of £128m, at a conversion rate of 72%.
| (£m) | H1 2018 | H1 2017 |
| EBITA | 179 | 190 |
| Depreciation of PPE and other non-cash movements | 69 | 65 |
| Disposal proceeds in excess of property profits | 34 | 41 |
| Change in working capital* | (100) | (54) |
| Maintenance capital expenditure | (25) | (25) |
| Net interest | (1) | (2) |
| Tax paid | (28) | (27) |
| Free cash flow | 128 | 188 |
| Underlying cash conversion rate | 72% | 99% |
*H1 2018 Change in net working capital figure excludes £7m in relation to the development of cloud-based software (H1 2017: £5m)
On a modestly lower earnings figure, the free cash flow generation of £128m was impacted by a higher working capital out flow in the half. This is expected to reverse in the second half of the year.
The main driver of the significant increase in trade receivables was the timing of sales during the half. With strong sales growth in May and June, and around 80% of the Group’s sales made via customer credit accounts, the phasing of cash receipts is expected to be Q3 weighted.
Inventories were broadly flat compared with December 2017, improving stock turnover on modestly higher sales, and reflecting significant cost price inflation. The Group’s trade payables position grew in the first half of the year, broadly in line with the growth in Group sales.
Maintenance capex, which primarily reflects the purchase and maintenance of specialist fleet vehicles, was £25m, unchanged from 2017 and in line with the Group’s expectations. The Group’s interest and tax payments are in line with 2017.
Uses of free cash generated
| (£m) | H1 2018 | H1 2017 |
| Free cash flow | 128 | 188 |
| Investment capex | (58) | (56) |
| Investments in freehold property | (41) | (23) |
| Acquisitions | 0 | (7) |
| Dividends | (76) | (75) |
| Pensions payments | (5) | (5) |
| Cash payment in respect of adjusting items | (12) | (6) |
| Purchase of own shares | (44) | (9) |
| Other | (17) | (13) |
| Change in cash/cash equivalents | (125) | (6) |
Additional cash contributions to the defined benefit pension schemes above the income statement charge were £5m (2017: £5m). The cash cost of 2018 adjusting items and utilisation of prior year provisions for adjusting items was £12m. There were no acquisitions in the period.
The Group moved from issuing new shares for employee share schemes to purchasing shares in the market. The initial set up of this structure required a £44m purchase in the first half of 2018, with modest further purchases in future periods.
Capital Investments
Allocation of capital to support and improve the business continued in 2018.
| (£m) | H1 2018 | H1 2017 |
| Maintenance (including vehicles) | (25) | (25) |
| IT - inc. Merchant ERP / Digital capabilities | (24) | (24) |
| Growth capex - inc. New stores / store refits | (34) | (32) |
| Base capital expenditure | (83) | (81) |
| Freehold property - inc. new freehold sites / existing leases | (41) | (23) |
| Gross capital expenditure | (124) | (104) |
| Property disposals | 51 | 50 |
| Net capital expenditure | (73) | (54) |
*IT investments exclude prepayments in relation to the development of cloud-based software of £7m (2017: £5m)
Investments in digital capabilities continued as anticipated, with the main focus being the programme to deliver a new ERP system to support the Group’s Merchant businesses. The programme team are gearing up for the first deployment of the system into the BSS business in early 2019. The programme will deliver significant benefits, making it easier for our customers to do business with the Group, and making it simpler and more efficient for colleagues to serve customers.
Under accounting practices for the cloud based systems, a portion of the IT costs are expensed, leading to the higher unallocated central costs, with the remainder capitalised or treated as a prepayment.
Growth capex spend of £34m was similar to 2017 (£32m). A greater proportion of planned capex has already been completed in the first half of 2018, including fitting out three new Wickes stores, three new Travis Perkins branches and completing all of the planned Wickes refits for the year. The expansion of the Toolstation network accelerated, with 22 stores opened in the half, with this pace to be maintained in the second half of the year.
Net debt and funding
Net debt of £461m at 30 June 2018 was an increase of £119m from the end of December 2017, reflecting the lower profitability, temporary increase in working capital and the move to purchase shares for employee share schemes in the market as previously described.
Details of non-statutory disclosures are shown in note 16.
| Medium Term Guidance | H1 2018 | FY 2017 | ? | |
| Net debt | £461m | £342m | £119m | |
| Lease debt | £1,540m | £1,525m | £15m | |
| Lease adjusted net debt | £2,001m | £1,867m | £134m | |
| Lease adjusted gearing* | 47.6% | 42.6% | 5ppts | |
| Fixed charge cover | 3.5x | 3.1x | 3.1x | - |
| LA net debt : EBITDAR | 2.5x | 3.0x | 2.7x | 0.3x |
Lease adjusted gearing (note 16g) increased by 5.0ppts to 47.6% because of the higher net debt figure. The Group’s fixed charge cover ratio (note 16d) was unchanged at 3.1x. The lease adjusted net debt/EBITDAR ratio (note 16c) rose to 3.0x, reflecting higher net debt and lower earnings.
Principal Risks and Uncertainties
The principal risks and uncertainties faced by the Group have been, and are expected to remain, consistent with those described on pages 33 to 39 of the 2017 Annual Report and Accounts. Details are provided for inherent risks relating to the changing customer and competitor landscape, colleague recruitment, retention and succession, supplier dependency and disintermediation, unsafe practices resulting in harm to stakeholders, the efficient allocation of capital, business transformation projects, market conditions, Brexit, defined benefit pension scheme funding, data security and the changing regulatory framework.
Condensed consolidated income statement
| Six months ended 30 June 2018 (unaudited) | Six months ended 30 June 2017 (unaudited) | Year ended 31 December 2017 (audited) | |
| £m | £m | £m | |
| Revenue | 3,364.5 | 3,220.8 | 6,433.1 |
| Operating profit before amortisation and adjusting items | 178.7 | 190.2 | 380.1 |
| Adjusting items (note 2) | (286.3) | - | (40.9) |
| Amortisation of acquired intangible assets | (4.5) | (6.9) | (12.3) |
| Operating (loss)/profit | (112.1) | 183.3 | 326.9 |
| Share of associates’ results | (1.1) | - | (2.2) |
| Net finance costs (note 6) | (10.2) | (15.7) | (35.0) |
| (Loss)/profit before tax | (123.4) | 167.6 | 289.7 |
| Tax before adjusting items | (32.1) | (32.2) | (63.5) |
| Tax on adjusting items | 7.6 | - | 7.8 |
| Tax (note 7) | (24.5) | (32.2) | (55.7) |
| (Loss)/profit for the period | (147.9) | 135.4 | 234.0 |
| Attributable to: | |||
| Owners of the Company | (148.9) | 134.9 | 232.8 |
| Non-controlling interests | 1.0 | 0.5 | 1.2 |
| (147.9) | 135.4 | 234.0 | |
| Earnings per ordinary share (note 8) | |||
| Basic | (59.8p) | 53.6p | 93.1p |
| Diluted | (59.7p) | 53.2p | 92.2p |
| Total dividend declared per share (note 9) | [15.5p] | 15.5p | 46.0p |
All results relate to continuing operations.
Condensed consolidated statement of comprehensive income
| Six months ended 30 June 2018 (unaudited) | Six months ended 30 June 2017 (unaudited) | Year ended 31 December 2017 (audited) | |
| £m | £m | £m | |
| (Loss)/profit for the period | (147.9) | 135.4 | 234.0 |
| Items that will not be reclassified subsequently to profit and loss: | |||
| Actuarial gains on defined benefit pension schemes | 73.7 | 76.8 | 90.8 |
| Income taxes relating to items not reclassified | (14.0) | (14.5) | (17.1) |
| Other comprehensive income for the period | 59.7 | 62.3 | 73.7 |
| Total comprehensive (loss)/ income for the period | (88.2) | 197.7 | 307.7 |
| Attributable to: | |||
| Owners of the Company | (89.2) | 197.2 | 306.5 |
| Non-controlling interests | 1.0 | 0.5 | 1.2 |
| (88.2) | 197.7 | 307.7 |
Condensed consolidated balance sheet
| As at 30 June 2018 (unaudited) | As at 30 June 2017 (unaudited) | As at 31 December 2017 (audited) | |
| £m | £m | £m | |
| ASSETS | |||
| Non-current assets | |||
| Goodwill | 1,292.8 | 1,536.1 | 1,539.2 |
| Other intangible assets | 396.9 | 368.1 | 387.1 |
| Property, plant and equipment | 962.9 | 930.8 | 932.0 |
| Interest in associates | 25.1 | 15.6 | 20.3 |
| Investments | 11.3 | 9.0 | 9.5 |
| Retirement benefit asset (note 5) | 54.9 | - | - |
| Other receivables | 37.4 | 13.3 | 30.4 |
| Total non-current assets | 2,781.3 | 2,872.9 | 2,918.5 |
| Current assets | |||
| Inventories | 809.4 | 767.1 | 816.3 |
| Trade and other receivables | 1,268.3 | 1,148.2 | 1,130.2 |
| Derivative financial instruments | 2.0 | 1.5 | - |
| Cash and cash equivalents | 151.5 | 245.3 | 276.8 |
| Total current assets | 2,231.2 | 2,162.1 | 2,223.3 |
| Total assets | 5,012.5 | 5,035.0 | 5,141.8 |
Condensed consolidated balance sheet (continued)
| As at 30 June 2018 (unaudited) £m | As at 30 June 2017 (unaudited) £m | As at 31 December 2017 (audited) £m | |
| EQUITY AND LIABILITIES | |||
| Capital and reserves | |||
| Issued capital | 25.2 | 25.1 | 25.2 |
| Share premium account | 545.5 | 531.6 | 543.4 |
| Merger reserve | 326.5 | 326.5 | 326.5 |
| Revaluation reserve | 15.7 | 16.8 | 15.7 |
| Own shares | (53.0) | (9.0) | (15.3) |
| Other reserves | (4.9) | (4.0) | (4.9) |
| Retained earnings | 1,793.3 | 1,884.2 | 1,958.0 |
| Equity attributable to owners of the Company | 2,648.3 | 2,771.2 | 2,848.6 |
| Non-controlling interests | 12.7 | 10.2 | 11.7 |
| Total equity | 2,661.0 | 2,781.4 | 2,860.3 |
| Non-current liabilities | |||
| Interest bearing loans and borrowings | 606.7 | 618.9 | 612.1 |
| Derivative financial instruments | 4.9 | 4.0 | 4.9 |
| Retirement benefit obligations (note 5) | - | 46.9 | 28.3 |
| Long-term provisions | 17.8 | 21.2 | 17.1 |
| Deferred tax liabilities | 75.9 | 58.2 | 61.0 |
| Total non-current liabilities | 705.3 | 749.2 | 723.4 |
| Current liabilities | |||
| Interest bearing loans and borrowings | 5.6 | 3.5 | 6.2 |
| Derivative financial instruments | - | - | 1.2 |
| Trade and other payables | 1,549.5 | 1,395.2 | 1,453.6 |
| Tax liabilities | 40.6 | 51.0 | 44.5 |
| Short-term provisions | 50.5 | 54.7 | 52.6 |
| Total current liabilities | 1,646.2 | 1,504.4 | 1,558.1 |
| Total liabilities | 2,351.5 | 2,253.6 | 2,281.5 |
| Total equity and liabilities | 5,012.5 | 5,035.0 | 5,141.8 |
The interim condensed financial statements of Travis Perkins plc, registered number 824821, were approved by the Board of Directors on 30 July 2018 and signed on its behalf by:
| John Carter | Alan Williams | |
| Chief Executive Officer | Chief Financial Officer |
Condensed consolidated statement of changes in equity
| Issued share capital | Share premium account | Merger reserve | Revaluation reserve | Own shares | Other | Retained earnings | Total equity before non-controlling interest | Non- controlling interest | Total equity | ||||||||||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||||
| At 1 January 2018 (audited) | 25.2 | 543.4 | 326.5 | 15.7 | (15.3) | (4.9) | 1,958.0 | 2,848.6 | 11.7 | 2,860.3 | |||||||||
| IFRS 9 adoption | - | - | - | - | - | - | (2.4) | (2.4) | - | (2.4) | |||||||||
| At 1 January 2018 (restated) | 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 period | - | - | - | - | - | - | (148.9) | (148.9) | 1.0 | (147.9) | |||||||||
| Other comprehensive income for the period net of tax | - | - | - | - | - | - | 59.7 | 59.7 | - | 59.7 | |||||||||
| Total comprehensive income for the period | - | - | - | - | - | - | (89.2) | (89.2) | 1.0 | (88.2) | |||||||||
| Dividends | - | - | - | - | - | - | (75.6) | (75.6) | - | (75.6) | |||||||||
| Dividend equivalent payments | - | - | - | - | - | - | (0.5) | (0.5) | - | (0.5) | |||||||||
| Issue of share capital | - | 2.1 | - | - | - | - | - | 2.1 | - | 2.1 | |||||||||
| Purchase of own shares | - | - | - | - | (43.6) | - | - | (43.6) | - | (43.6) | |||||||||
| Tax on share based payments | - | - | - | - | - | - | (0.1) | (0.1) | - | (0.1) | |||||||||
| Own shares movement | - | - | - | - | 5.9 | - | (5.9) | - | - | - | |||||||||
| Credit to equity for equity-settled share based payments | - | - | - | - | - | - | 9.0 | 9.0 | - | 9.0 | |||||||||
| At 30 June 2018 (unaudited) | 25.2 | 545.5 | 326.5 | 15.7 | (53.0) | (4.9) | 1,793.3 | 2,648.3 | 12.7 | 2,661.0 | |||||||||
Condensed consolidated statement of changes in equity (continued)
| Issued share capital | Share premium account | Merger reserve | Revaluation reserve | Own shares | Other | Retained earnings | Total equity before non-controlling interest | Non- controlling interest | Total equity | ||||||||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||
| At 1 January 2017 (audited) | 25.1 | 528.5 | 326.5 | 16.8 | (8.7) | - | 1,760.1 | 2,648.3 | 7.3 | 2,655.6 | |||||||
| Profit for the period | - | - | - | - | - | - | 134.9 | 134.9 | 0.5 | 135.4 | |||||||
| Other comprehensive income for the period net of tax | - | - | - | - | - | - | 62.3 | 62.3 | - | 62.3 | |||||||
| Total comprehensive income for the period | - | - | - | - | - | - | 197.2 | 197.2 | 0.5 | 197.7 | |||||||
| Dividends | - | - | - | - | - | - | (74.6) | (74.6) | - | (74.6) | |||||||
| Issue of share capital | - | 3.1 | - | - | - | - | - | 3.1 | - | 3.1 | |||||||
| Purchase of own shares | - | - | - | - | (8.9) | - | - | (8.9) | - | (8.9) | |||||||
| Tax on share based payments | - | - | - | - | - | - | (0.3) | (0.3) | - | (0.3) | |||||||
| Options on non-controlling interest | - | - | - | - | - | (4.0) | - | (4.0) | - | (4.0) | |||||||
| Own shares movement | - | - | - | - | 8.6 | - | (8.6) | - | - | - | |||||||
| Arising on acquisition | - | - | - | - | - | - | - | - | 2.4 | 2.4 | |||||||
| Foreign exchange | - | - | - | - | - | - | 0.5 | 0.5 | - | 0.5 | |||||||
| Credit to equity for equity-settled share based payments | - | - | - | - | - | - | 9.9 | 9.9 | - | 9.9 | |||||||
| At 30 June 2017 (unaudited) | 25.1 | 531.6 | 326.5 | 16.8 | (9.0) | (4.0) | 1,884.2 | 2,771.2 | 10.2 | 2,781.4 | |||||||
Condensed consolidated statement of changes in equity (continued)
| Issued share capital | Share premium account | Merger reserve | Revaluation reserve | Own shares | Other | Retained earnings | Total equity before non- controlling interest | Non- controlling interest | Total equity | ||||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | ||||
| At 1 January 2017 (audited) | 25.1 | 528.5 | 326.5 | 16.8 | (8.7) | - | 1760.1 | 2,648.3 | 7.3 | 2,655.6 | |||
| Profit for the year | - | - | - | - | - | - | 232.8 | 232.8 | 1.2 | 234.0 | |||
| Other comprehensive income for the year net of tax | - | - | - | - | - | - | 73.7 | 73.7 | - | 73.7 | |||
| Total comprehensive income for the year | - | - | - | - | - | - | 306.5 | 306.5 | 1.2 | 307.7 | |||
| Dividends | - | - | - | - | - | - | (113.0) | (113.0) | - | (113.0) | |||
| Issue of share capital | 0.1 | 14.9 | - | - | - | - | - | 15.0 | - | 15.0 | |||
| Purchase of own shares | - | - | - | - | (19.2) | - | - | (19.2) | - | (19.2) | |||
| Realisation of revaluation reserve in respect of property disposals | - | - | - | (0.8) | - | - | 0.8 | - | - | - | |||
| Difference between depreciation of assets on a historical basis and on a revaluation basis | - | - | - | (0.3) | - | - | 0.3 | - | - | - | |||
| Tax on share based payments | - | - | - | - | - | - | 0.1 | 0.1 | - | 0.1 | |||
| Option on non-controlling interest | - | - | - | - | - | (4.9) | - | (4.9) | - | (4.9) | |||
| Arising on acquisition | - | - | - | - | - | - | - | - | 3.2 | 3.2 | |||
| Foreign exchange | - | - | - | - | - | - | 0.2 | 0.2 | - | 0.2 | |||
| Own shares movement | - | - | - | - | 12.6 | - | (12.6) | - | - | - | |||
| Credit to equity for equity-settled share based payments | - | - | - | - | - | - | 15.6 | 15.6 | - | 15.6 | |||
| At 31 December 2017 (audited) | 25.2 | 543.4 | 326.5 | 15.7 | (15.3) | (4.9) | 1,958.0 | 2,848.6 | 11.7 | 2,860.3 | |||
Condensed consolidated cash flow statement
| Six months ended 30 June 2018 (unaudited) £m | Six months ended 30 June 2017 (unaudited) £m | Year ended 31 December 2017 (audited) £m | |
| Operating profit before acquired intangible amortisation and adjusting items | 178.7 | 190.2 | 380.1 |
| Adjustments for: | |||
| Depreciation of property, plant and equipment | 51.5 | 49.0 | 102.0 |
| Amortisation of internally generated intangibles | 8.4 | 5.6 | 12.6 |
| Other non-cash movements – share based payments | 9.0 | 9.9 | 15.6 |
| Other | (2.5) | 0.3 | 0.2 |
| Losses of associates | - | 0.7 | - |
| Gains on disposal of property, plant and equipment | (17.0) | (8.9) | (30.6) |
| Operating cash flow | 228.1 | 246.8 | 479.9 |
| Decrease / (increase) in inventories | 6.9 | 0.9 | (47.0) |
| Increase in receivables | (146.4) | (104.4) | (106.3) |
| Increase in payables | 35.1 | 44.1 | 76.8 |
| Payments on adjusting items | (12.3) | (6.0) | (20.2) |
| Pension payments in excess of the charges to profits | (4.6) | (5.2) | (11.3) |
| Cash generated from operations | 106.8 | 176.2 | 371.9 |
| Interest paid | (1.1) | (2.6) | (27.6) |
| Total income taxes paid | (27.8) | (27.4) | (57.2) |
| Net cash from operating activities | 77.9 | 146.2 | 287.1 |
| Cash flows from investing activities | |||
| Interest received | 0.2 | 0.2 | 0.5 |
| Proceeds on disposal of property, plant and equipment | 51.1 | 50.3 | 113.9 |
| Development of software | (23.1) | (19.8) | (48.1) |
| Purchases of property, plant and equipment | (101.1) | (84.3) | (179.0) |
| Interests in associates | (7.5) | (4.9) | (11.3) |
| Dividends received | 0.5 | - | - |
| Investments | - | - | 0.3 |
| Acquisition of businesses net of cash acquired | - | (6.6) | (9.7) |
| Net cash used in investing activities | (79.9) | (65.1) | (133.4) |
| Financing activities | |||
| Net proceeds from the issue of share capital | 2.1 | 3.2 | 15.0 |
| Movement in finance lease liabilities | (2.9) | (2.6) | (7.0) |
| Shares purchased | (43.6) | (8.9) | (19.2) |
| Decrease in loans, liabilities to pension scheme and loan notes | (3.3) | (3.2) | (3.2) |
| Dividends paid | (75.6) | (74.8) | (113.0) |
| Net cash (outflow) / inflow from financing activities | (123.3) | (86.3) | (127.4) |
| Net (decrease) / increase in cash and cash equivalents | (125.3) | (5.2) | 26.3 |
| Cash and cash equivalents at the beginning of the period | 276.8 | 250.5 | 250.5 |
| Cash and cash equivalents at the end of the period | 151.5 | 245.3 | 276.8 |
Notes to the interim financial statements
1. General information and accounting policies
The interim financial statements have been prepared on the historical cost basis, except that derivative financial instruments, available for sale investments and contingent consideration arising from business combinations are stated at their fair value. The condensed interim financial statements include the accounts of the Company and all its subsidiaries (“the Group”).
Basis of preparation
The financial information for the six months ended 30 June 2018 and 30 June 2017 is unaudited. The June 2018 information has been reviewed by KPMG LLP, the Group's auditor, and a copy of their review report appears at the end of this interim report. The June 2017 information was also reviewed by KPMG LLP. The financial information for the year ended 31 December 2017 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for the year ended 31 December 2017 as prepared under International Financial Reporting Standards as adopted by the EU (“IFRS”) has been delivered to the Registrar of Companies. The auditor’s report on those accounts was not qualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.
The unaudited interim financial statements for the six months ended 30 June 2018 have been prepared in accordance with IAS 34 - Interim Financial Reporting and have been prepared on the basis of IFRS.
The annual financial statements of the Group are prepared in accordance with IFRS. As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated financial statements for the year ended 31 December 2017, except for the adoption of new and amended standards as set out below.
The accounting policies adopted by Travis Perkins plc are set out in the 2017 full year financial statements, which are available on the Travis Perkins website www.travisperkinsplc.co.uk.
The Directors are currently of the opinion that the Group’s forecasts and projections show that the Group should be able to operate within its current facilities and comply with its banking covenants. The Group is however exposed to a number of significant risks and uncertainties, which could affect the Group’s ability to meet management’s projections.
The Directors believe that the Group has the flexibility to react to changing market conditions and is adequately placed to manage its business risks successfully. After making enquiries, the Directors have formed a judgement that there is a reasonable expectation that the Group has the resources to continue in operational existence for twelve months from the date of signing these interim financial statements. For this reason the interim financial statements have been prepared on a going concern basis.
New and amended standards adopted by the Group
A number of new or amended standards became applicable for the current reporting period and the Group had to change its accounting policies and make retrospective adjustments as a result of adopting the following standards:
? IFRS 9 - Financial Instruments,
? IFRS 15 - Revenue from Contracts with Customers, and
? Annual improvements to IFRS 2014-2016 cycle
The impact of the adoption of these standards and the new accounting policies are disclosed in note 17.
Impacts of standards issued but not yet applied by the entity
In January 2016 the IASB issued IFRS 16 - Leases and this was endorsed by the European Union in October 2017. It will be effective from 1 January 2019. This Standard will have a material effect on the Group because the value of the operating leases it has entered into will be included in the balance sheet in future. The Group has a project team working to determine the effect of this new Standard and implement the processes and systems necessary to comply with its requirements.
Notes to the interim financial statements
1. General information and accounting policies (continued)
Given the complexity of the Standard and the volume of leases, this project has not been completed at the date of these interim financial statements, however based on an analysis of all the Group’s material leases the initial estimates are that the implementation of the standard will result in net debt that is comparable to or lower than lease-adjusted net debt as currently disclosed in note 16.
The Group plans to apply IFRS 16 - Leases using a “modified retrospective” approach as described in paragraph C5(b) of the standard. Therefore, the cumulative effect of adopting IFRS 16 - Leases will be recognised as an adjustment to the opening balance of retained earnings at 1 January 2019, with no restatement of comparative information.
- Adjusting items
To enable a reader of the interim financial statements to obtain a clear understanding of the underlying trading, the Directors have presented the items below separately in the income statement.
| | Six months ended 30 June 2018 £m | Six months ended 30 June 2017 £m | Year ended 31 December 2017 £m |
| Plumbing & Heating division transformation | 34.4 | - | 40.9 |
| Impairment of Wickes goodwill (note 12) | 246.3 | - | - |
| Wickes restructuring and software impairment | 10.3 | - | - |
| Pension curtailment gain (note 5) | (4.7) | - | - |
| 286.3 | - | 40.9 |
In August 2017 the Group announced that, following a comprehensive strategic review of the Plumbing & Heating division, it would reduce capacity, integrate the CPS and PTS businesses, overhaul the division’s customer proposition and create a dedicated Plumbing & Heating supply chain. In accordance with the Group’s accounting policy the total cost of £34.4m (2017: £40.9m) has been treated as an adjusting item. The adjusting item consisted of the following:
- £1.2m of property, redundancy and other costs (2017: £12.0m) associated with the closure of six branches
- £22.8m of costs (2017: £19.1m) arising from the separation and rationalisation of the Plumbing & Heating supply chain and the integration of the CPS and PTS businesses. The costs comprised property-related costs, redundancy and reorganisation costs and inventory write-downs and provision adjustments.
- £10.4m of central and divisional costs (2017: £9.8m) including people-related, consultancy and other restructuring costs
The Wickes restructuring and software impairment cost of £10.3m consists of redundancy and reorganisation costs of £3.8m incurred in respect of the cost-reduction programme announced in May 2018 and software impairment costs of £6.5m.
The £4.7m pension curtailment gain, recognised as a result of the closure of the Travis Perkins Pensions and Dependants’ Benefit Scheme and the BSS Defined Benefit Scheme to future accrual, is stated net of £0.5m of associated administrative expenses.
Notes to the interim financial statements
- Business segments
As required by IFRS 8 - Operating Segments, the operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Operating Decision Maker (“CODM”), which is considered to be the Board of Directors, to assess their performance. 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. Segment profit represents the profit earned by each segment without allocation of certain central costs, finance income and costs and income tax expense. Unallocated segment assets and liabilities comprise financial instruments, current and deferred taxation, cash and borrowings and pension scheme assets and liabilities.
Six months ended 30 June 2018
| General Merchanting | Plumbing & Heating | Contracts | Consumer | Unallocated | Consolidated | |
| £m | £m | £m | £m | £m | £m | |
| Revenue | 1,065.0 | 773.8 | 718.4 | 807.3 | - | 3,364.5 |
| Segment result before amortisation, adjusting items and property profits | 86.5 | 19.7 | 43.0 | 28.5 | (16.0) | 161.7 |
| Property profits | 1.5 | 2.7 | 3.8 | 9.0 | - | 17.0 |
| Segment result before amortisation and adjusting items | 88.0 | 22.4 | 46.8 | 37.5 | (16.0) | 178.7 |
| Adjusting charges | (4.7) | (29.7) | - | (256.6) | - | (291.0) |
| Adjusting gains | 4.7 | - | - | - | - | 4.7 |
| Amortisation of acquired intangible assets | - | (0.9) | (3.0) | (0.6) | - | (4.5) |
| Segment result | 88.0 | (8.2) | 43.8 | (219.7) | (16.0) | (112.1) |
| Share of associates | - | - | - | - | (1.1) | (1.1) |
| Finance income | - | - | - | - | 4.2 | 4.2 |
| Finance costs | - | - | - | - | (14.4) | (14.4) |
| Profit / (loss) before taxation | 88.0 | (8.2) | 43.8 | (219.7) | (27.3) | (123.4) |
| Taxation | - | - | - | - | (24.5) | (24.5) |
| Profit / (loss) for the period | 88.0 | (8.2) | 43.8 | (219.7) | (51.8) | (147.9) |
Notes to the interim financial statements
3. Business segments (continued)
Six months ended 30 June 2017
| General Merchanting | Plumbing & Heating | Contracts | Consumer | Unallocated | Consolidated | |
| £m | £m | £m | £m | £m | £m | |
| Revenue | 1,054.7 | 669.2 | 674.8 | 822.1 | - | 3,220.8 |
| Segment result before amortisation and property profits | 97.3 | 13.2 | 41.2 | 45.4 | (13.9) | 183.2 |
| Property profits | 6.0 | 0.1 | 0.2 | 0.7 | - | 7.0 |
| Segment result before amortisation | 103.3 | 13.3 | 41.4 | 46.1 | (13.9) | 190.2 |
| Amortisation of acquired intangible assets | - | (0.5) | (4.0) | (2.4) | - | (6.9) |
| Segment result | 103.3 | 12.8 | 37.4 | 43.7 | (13.9) | 183.3 |
| Finance income | - | - | - | - | 0.4 | 0.4 |
| Finance costs | - | - | - | - | (16.1) | (16.1) |
| Profit / (loss) before taxation | 103.3 | 12.8 | 37.4 | 43.7 | (29.6) | 167.6 |
| Taxation | - | - | - | - | (32.2) | (32.2) |
| Profit / (loss) for the period | 103.3 | 12.8 | 37.4 | 43.7 | (61.8) | 135.4 |
Year ended 31 December 2017
| General Merchanting | Plumbing & Heating | Contracts | Consumer | Unallocated | Consolidated | |
| £m | £m | £m | £m | £m | £m | |
| Revenue | 2,109.5 | 1,365.5 | 1,369.0 | 1,589.1 | - | 6,433.1 |
| Segment result before amortisation and property profits | 182.6 | 30.8 | 85.7 | 82.5 | (30.9) | 350.7 |
| Property profits | 18.0 | 7.6 | 1.9 | 1.9 | - | 29.4 |
| Segment result before adjusting items and amortisation | 200.6 | 38.4 | 87.6 | 84.4 | (30.9) | 380.1 |
| Adjusting items | - | (40.9) | - | - | - | (40.9) |
| Amortisation of acquired intangible assets | - | (1.0) | (6.3) | (5.0) | - | (12.3) |
| Segment result | 200.6 | (3.5) | 81.3 | 79.4 | (30.9) | 326.9 |
| Share of associates | - | - | - | - | (2.2) | (2.2) |
| Finance income | - | - | - | - | 0.7 | 0.7 |
| Finance costs | - | - | - | - | (35.7) | (35.7) |
| Profit / (loss) before taxation | 200.6 | (3.5) | 81.3 | 79.4 | (68.1) | 289.7 |
| Taxation | - | - | - | - | (55.7) | (55.7) |
| Profit / (loss) for the year | 200.6 | (3.5) | 81.3 | 79.4 | (123.8) | 234.0 |
Notes to the interim financial statements
3. Business segments (continued)
| 30 June 2018 £m | 30 June 2017 £m | 31 December 2017 £m | |
| Segment assets: | |||
| General Merchanting | 1,855.1 | 1,702.1 | 1,811.0 |
| Plumbing & Heating | 560.1 | 607.9 | 592.3 |
| Contracts | 915.7 | 877.3 | 867.2 |
| Consumer | 1,363.2 | 1,545.9 | 1,544.6 |
| Unallocated | 318.4 | 301.8 | 326.7 |
| Total assets | 5,012.5 | 5,035.0 | 5,141.8 |
| 30 June 2018 £m | 30 June 2017 £m | 31 December 2017 £m | |
| Segment liabilities: | |||
| General Merchanting | (438.3) | (415.3) | (441.5) |
| Plumbing & Heating | (299.7) | (299.6) | (317.8) |
| Contracts | (332.4) | (295.9) | (323.5) |
| Consumer | (479.3) | (447.8) | (403.6) |
| Unallocated | (801.8) | (795.0) | (795.1) |
| Total liabilities | (2,351.5) | (2,253.6) | (2,281.5) |
- Seasonality
The Group’s trading operations when assessed on a half yearly basis are mainly unaffected by seasonal factors. In 2017 the period to 30 June accounted for 50.1% of the Group’s annual revenue (2016: 50.1%).
Notes to the interim financial statements
- Retirement benefit obligations
- Pension scheme asset / (liability) movement
| Six months ended 30 June 2018 | |||
| TP Schemes £m | BSS Schemes £m | Group £m | |
| Gross pension asset / (liability) at 1 January | 6.6 | (25.7) | (19.1) |
| Restriction of asset recognised | - | (9.2) | (9.2) |
| Gross asset / (liability) at 1 January | 6.6 | (34.9) | (28.3) |
| Service costs charged to the income statement | (3.7) | (1.4) | (5.1) |
| Curtailment gain | 3.6 | 1.6 | 5.2 |
| Net interest income / (expense) | 0.1 | (0.3) | (0.2) |
| Contributions from sponsoring companies | 2.9 | 6.7 | 9.6 |
| Return on plan assets (excluding amounts included in net interest) | (5.3) | (0.8) | (6.1) |
| Actuarial gains arising from changes in demographic assumptions | 6.8 | 2.1 | 8.9 |
| Actuarial gains arising from changes in financial assumptions | 63.4 | 20.2 | 83.6 |
| Actuarial gains arising from experience adjustments | 10.6 | 9.9 | 20.5 |
| Increase arising from IFRIC 14 restriction | - | (33.2) | (33.2) |
| Gross pension asset / (liability) at 30 June | 85.0 | (30.1) | 54.9 |
| Gross actuarial asset | 85.0 | 3.1 | 88.1 |
| Additional liability recognised for minimum funding requirements | - | (33.2) | (33.2) |
| Gross pension asset / (liability) at 30 June | 85.0 | (30.1) | 54.9 |
A curtailment gain has been recognised as a result of the closure of the Travis Perkins Pensions and Dependants’ Benefit Scheme and the BSS Defined Benefit Scheme to future accrual from 31 August 2018.
Notes to the interim financial statements
5. Retirement benefit obligations (continued)
| Six months ended 30 June 2017 | |||
| TP Schemes £m | BSS Schemes £m | Group £m | |
| Gross pension liability at 1 January | (61.8) | (65.5) | (127.3) |
| Service costs charged to the income statement | (3.5) | (1.2) | (4.7) |
| Net interest expense | (0.8) | (0.8) | (1.6) |
| Contributions from sponsoring companies | 3.0 | 6.9 | 9.9 |
| Return on plan assets (excluding amounts included in net interest) | 27.2 | 16.8 | 44.0 |
| Actuarial gains arising from changes in demographic assumptions | 19.8 | 6.2 | 26.0 |
| Actuarial gains arising from changes in financial assumptions | 9.0 | 4.5 | 13.5 |
| Increase arising from IFRIC 14 restriction | - | (6.7) | (6.7) |
| Gross deficit at 30 June | (7.1) | (39.8) | (46.9) |
| Gross actuarial deficit | (7.1) | (33.1) | (40.2) |
| Additional liability recognised for minimum funding requirements | - | (6.7) | (6.7) |
| Gross pension liability at 30 June | (7.1) | (39.8) | (46.9) |
Notes to the interim financial statements
5. Retirement benefit obligations (continued)
| Year ended 31 December 2017 | |||
| TP Schemes £m | BSS Schemes £m | Group £m | |
| Gross pension liability at 1 January | (61.7) | (65.6) | (127.3) |
| Service costs charged to the income statement | (7.0) | (2.6) | (9.6) |
| Net interest expense | (1.5) | (1.6) | (3.1) |
| Contributions from sponsoring companies | 7.0 | 13.9 | 20.9 |
| Return on plan assets (excluding amounts included in net interest) | 56.7 | 24.2 | 80.9 |
| Actuarial gains arising from changes in demographic assumptions | 20.2 | 6.6 | 26.8 |
| Actuarial (losses) / gains arising from changes in financial assumptions | (2.2) | 1.1 | (1.1) |
| Actuarial losses arising from experience adjustments | (4.9) | (1.7) | (6.6) |
| Increase arising from IFRIC 14 restriction | - | (9.2) | (9.2) |
| Gross pension asset / (liability) at 31 December | 6.6 | (34.9) | (28.3) |
| Gross actuarial surplus / (deficit) | 6.6 | (25.7) | (19.1) |
| Additional liability recognised for minimum funding requirements | - | (9.2) | (9.2) |
| Gross pension asset / (liability) at 31 December | 6.6 | (34.9) | (28.3) |
- Net pension asset
| Six months ended 30 June 2018 | |||
| TP Schemes £m | BSS Schemes £m | Group £m | |
| Gross pension asset / (liability) at 30 June | 85.0 | (30.1) | 54.9 |
| Deferred tax | (10.4) | ||
| Net pension asset at 30 June | 44.5 | ||
| Six months ended 30 June 2017 | |||
| TP Schemes £m | BSS Schemes £m | Group £m | |
| Gross pension liability at 30 June | (7.1) | (39.8) | (46.9) |
| Deferred tax | 9.0 | ||
| Net pension liability at 30 June | (37.9) | ||
Notes to the interim financial statements
5. Retirement benefit obligations (continued)
| Year ended 31 December 2017 | |||
| TP Schemes £m | BSS Schemes £m | Group £m | |
| Gross pension asset / (liability) at 31 December | 6.6 | (34.9) | (28.3) |
| Deferred tax | 5.4 | ||
| Net pension liability at 31 December | (22.9) | ||
- Amounts recognised in the statement of comprehensive income
| Six months ended 30 June 2018 | |||
| TP Schemes £m | BSS Schemes £m | Group £m | |
| Return on plan assets (excluding amounts included in net interest) | (5.3) | (0.8) | (6.1) |
| Actuarial gains arising from changes in demographic assumptions | 6.8 | 2.1 | 8.9 |
| Actuarial gains arising from changes in financial assumptions | 63.4 | 20.2 | 83.6 |
| Actuarial gains arising from experience adjustments | 10.6 | 9.9 | 20.5 |
| Increase arising from IFRIC 14 restriction | - | (33.2) | (33.2) |
| Actuarial gains / (losses) on defined benefit pension schemes | 75.5 | (1.8) | 73.7 |
| Six months ended 30 June 2017 | |||
| TP Schemes £m | BSS Schemes £m | Group £m | |
| Return on plan assets (excluding amounts included in net interest) | 27.2 | 16.8 | 44.0 |
| Actuarial gains arising from changes in demographic assumptions | 19.8 | 6.2 | 26.0 |
| Actuarial gains arising from changes in financial assumptions | 9.0 | 4.5 | 13.5 |
| Increase arising from IFRIC 14 restriction | - | (6.7) | (6.7) |
| Actuarial gains on defined benefit pension schemes | 56.0 | 20.8 | 76.8 |
Notes to the interim financial statements
5. Retirement benefit obligations (continued)
| Year ended 31 December 2017 | |||
| TP Schemes £m | BSS Schemes £m | Group £m | |
| Return on plan assets (excluding amounts included in net interest) | 56.7 | 24.2 | 80.9 |
| Actuarial gains arising from changes in demographic assumptions | 20.2 | 6.6 | 26.8 |
| Actuarial gains / (losses) arising from changes in financial assumptions | (2.2) | 1.1 | (1.1) |
| Actuarial (losses) / gains arising from experience adjustments | (4.9) | (1.7) | (6.6) |
| (Increase) / decrease arising from IFRIC 14 restriction | - | (9.2) | (9.2) |
| Actuarial gains / (losses) on defined benefit pension schemes | 69.8 | 21.0 | 90.8 |
- Finance costs
- Net finance costs
| | Six months ended 30 June 2018 £m | Six months ended 30 June 2017 £m | Year ended 31 December 2017 £m |
| Interest receivable | 1.0 | 0.4 | 0.7 |
| Net gain on re-measurement of derivatives at fair value | 3.2 | - | - |
| Finance income | 4.2 | 0.4 | 0.7 |
| Interest on bank loans and overdrafts | (1.2) | (1.0) | (2.6) |
| Interest on sterling bonds | (10.4) | (10.4) | (21.0) |
| Amortisation of issue costs of bank loans | (0.7) | (0.7) | (1.5) |
| Other interest | (0.1) | (0.3) | (0.7) |
| Interest on obligations under finance leases | (0.2) | (0.3) | (0.8) |
| Unwinding of discounts – liability to pension scheme | (1.2) | (1.2) | (2.4) |
| Unwinding of discounts – property provisions | (0.3) | (0.4) | (0.7) |
| Other finance costs – pension scheme | (0.3) | (1.6) | (3.1) |
| Net loss on re-measurement of derivatives at fair value | - | (0.2) | (2.9) |
| Finance costs | (14.4) | (16.1) | (35.7) |
| Net finance costs | (10.2) | (15.7) | (35.0) |
Notes to the interim financial statements
6. Finance costs (continued)
- Interest for non-statutory measures
| | Year ended 30 June 2018 £m | Year ended 30 June 2017 £m | Year ended 31 December 2017 £m |
| Interest on bank loans and overdrafts | 2.8 | 2.4 | 2.6 |
| Interest on sterling bonds | 21.0 | 21.0 | 21.0 |
| Amortisation of issue costs of bank loans | 1.5 | 1.5 | 1.5 |
| Interest on obligations under finance leases | 0.7 | 0.5 | 0.8 |
| Unwinding of discounts – liability to pension scheme | 2.4 | 2.4 | 2.4 |
| Interest for fixed charge ratio purposes | 28.4 | 27.8 | 28.3 |
- Tax
| | Six months ended 30 June 2018 £m | Six months ended 30 June 2017 £m | Year ended 31 December 2017 £m |
| Current tax | |||
| UK corporation tax | |||
| - current year | (24.0) | (34.7) | (57.5) |
| - prior year | - | - | (0.4) |
| Total current tax | (24.0) | (34.7) | (57.9) |
| Deferred tax | |||
| - current year | (0.5) | 2.5 | (2.5) |
| - prior year | - | - | 0.3 |
| Total deferred tax | (0.5) | 2.5 | (2.2) |
| Total tax charge | (24.5) | (32.2) | (55.7) |
Tax for the interim period is charged on profit before tax, based on the best estimate of the corporate tax rate for the full financial year.
Notes to the interim financial statements
- Earnings per share
- Basic and diluted earnings per share
| Six months ended 30 June 2018 | Six months ended 30 June 2017 | Year ended 31 December 2017 | |
| £m | £m | £m | |
| Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity shareholders of the Parent Company | (148.9) | 134.9 | 232.8 |
| No. | No. | No. | |
| Weighted average number of shares for the purposes of basic earnings per share | 249,131,207 | 251,798,828 | 250,100,896 |
| Dilutive effect of share options on potential ordinary shares | 182,869 | 1,825,582 | 2,468,248 |
| Weighted average number of shares for the purposes of diluted earnings per share | 249,314,076 | 253,624,410 | 252,569,144 |
| Earnings per share | (59.8p) | 53.6p | 93.1p |
| Diluted earnings per share | (59.7p) | 53.2p | 92.2p |
- Adjusted earnings per share
Adjusted earnings per share are calculated by excluding the effects of amortisation of acquired intangible assets and adjusting items from earnings.
| Six months ended 30 June 2018 £m | Six months ended 30 June 2017 £m | Year ended 31 December 2017 £m | |
| Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity shareholders of the Parent Company | (148.9) | 134.9 | 232.8 |
| Adjusting items | 286.3 | - | 40.9 |
| Amortisation of acquired intangible assets | 4.5 | 6.9 | 12.3 |
| Tax on amortisation of acquired intangible assets | (0.9) | (1.3) | (2.1) |
| Tax on adjusting items | (7.6) | - | (7.8) |
| Effect of reduction in corporation tax rate on deferred tax | - | - | - |
| Earnings for adjusted earnings per share | 133.4 | 140.5 | 276.1 |
| Adjusted earnings per share | 53.5p | 55.8p | 110.4p |
| Adjusted diluted earnings per share | 53.5p | 55.4p | 109.3p |
Notes to the interim financial statements
- Dividends
Amounts were recognised in the financial statements as distributions to equity shareholders in the following periods:
| Six months ended 30 June 2018 £m | Six months ended 30 June 2017 £m | Year ended 31 December 2017 £m | |
| Final dividend for the year ended 31 December 2017 of 30.5 pence (2016: 29.75 pence) per share | 75.6 | 74.8 | 74.7 |
| Interim dividend for the year ended 31 December 2017 of 15.25 pence per share | - | - | 38.3 |
The proposed interim dividend of 15.5p per share in respect of the year ending 31 December 2018 was approved by the Board on 30 July 2018 and has not been included as a liability as at 30 June 2018. It will be paid on 9 November 2018 to shareholders on the register at close of business on 5 October 2018. The shares will be quoted ex-dividend on 4 October 2018.
- Borrowings
At the period end, the Group had the following borrowing facilities available:
| | As at 30 June 2018 £m | As at 30 June 2017 £m | As at 31 December 2017 £m | |
| Drawn facilities: | ||||
| 5 year committed revolving credit facility | - | - | - | |
| Sterling bond 2014 (due 2021) | 260.9 | 264.1 | 262.6 | |
| Sterling bond 2017 (due 2023) | 300.0 | 300.0 | 300.0 | |
| 560.9 | 564.1 | 562.6 | ||
| Undrawn facilities: | ||||
| 5 year committed revolving credit facility (expires December 2020) | 550.0 | 550.0 | 550.0 | |
| Bank overdraft | 30.0 | 30.0 | 30.0 | |
| 580.0 | 580.0 | 580.0 | ||
- Share capital
| Allotted | ||
| No. | £m | |
| Ordinary shares of 10p | ||
| At 1 January 2018 | 251,994,708 | 25.2 |
| Allotted under share option schemes | 149,215 | - |
| At 30 June 2018 | 252,143,923 | 25.2 |
Notes to the interim financial statements
- Impairment
The Group tests goodwill and other non-monetary assets with indefinite useful lives for impairment annually or more frequently if there are indications that an impairment may have occurred. The recoverable amounts of the goodwill and other non-monetary assets with indefinite useful lives are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and like-for-like market volume changes which impact sales and therefore cash flow projections and maintenance capital expenditure. Management estimates pre-tax discount rates that reflect current market assessments of the time value of money and the risks specific to the cash generating unit groupings that are not reflected in the cash flow projections.
In the 2017 Annual Report & Accounts it was disclosed that the Wickes CGU was sensitive to key assumptions. As Wickes has underperformed its forecasts so far in 2018 an impairment review has been performed. The Directors’ calculations have shown that an impairment of £246.3m has occurred in relation to goodwill.
The key variables applied to the value in use calculations were:
- Cash flow forecasts are risk-adjusted and were derived from the most recent board approved corporate plan updated for changes in current trading conditions.
- The sales market volume assumptions underlying the cash flow forecasts are the Directors’ estimates of likely future changes based on historical performance (excluding future investment and enhancements) and the current outlook for both the UK economy and the UK DIY market. This is a key operating assumption because the state of the DIY market determines the Directors’ approach to margin and cost maintenance.
- The performance of kitchen and bathroom sales and forecast cost savings are key drivers of operational cash flows.
- A pre-tax discount rate is calculated by reference to the weighted average cost of capital (“WACC”) of the Group calculated with reference to market information and equals 8.65%.
- Cash flows beyond the corporate plan period (2022 and beyond) have been determined using a growth rate of 2.0%. This represents average GDP growth in UK over the past 20 years and the Bank of England target for nominal growth.
Sensitivity of results to changes in assumptions
Whilst management believe the assumptions are realistic, it is possible that a materially different impairment would be identified if any of the above key assumptions were changed significantly. The impact on the impairment charge recognised of a change in each assumption, all other assumptions remaining the same, is shown in the table below.
| Terminal value | Discount rate | Long-term growth rate | |||
| Reduction in assumption | Impact | Increase in assumption | Impact | Reduction in assumption | Impact |
| 5% | £30m | 1% | £119m | 0.5% | £54m |
Notes to the interim financial statements
- Net debt reconciliation
| Six months ended 30 June 2018 £m | Six months ended 30 June 2017 £m | Year ended 31 December 2017 £m | |
| Net debt at 1 January | (341.5) | (377.5) | (377.5) |
| (Decrease) / increase in cash and cash equivalents | (125.3) | (5.2) | 26.3 |
| Cash flows from debt | 6.2 | 5.9 | 7.0 |
| Cash flows from pension liability | - | - | 3.2 |
| Finance charges movement | (0.7) | (0.7) | (1.5) |
| Amortisation of swap cancellation receipt | 1.7 | 1.7 | 3.4 |
| Discount unwind on liability to pension scheme | (1.2) | (1.2) | (2.4) |
| Net debt at 30 June / 31 December | (460.8) | (377.0) | (341.5) |
- Financial instruments
The fair values of financial assets and financial liabilities are determined as follows:
- Foreign currency forward contracts are measured using quoted forward exchange rates
- Deferred consideration liabilities are calculated using forecasts of future performance of acquisitions discounted to present value
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
There were no transfers between levels during the year. There are no non-recurring fair value measurements.
Notes to the interim financial statements
14. Financial instruments (continued)
| As at 30 June 2018 £m | As at 30 June 2017 £m | As at 31 December 2017 £m | |
| Included in assets | |||
| Level 2 | |||
| Foreign currency forward contracts at fair value through profit and loss | 2.0 | 1.5 | - |
| 2.0 | 1.5 | - | |
| Current assets | 2.0 | 1.5 | - |
| Non-current assets | - | - | - |
| 2.0 | 1.5 | - | |
| Included in liabilities | |||
| Level 2 | |||
| Foreign currency forward contracts at fair value through profit and loss | - | - | 1.2 |
| Level 3 | |||
| Option on non-controlling interest at fair value through reserves | - | 4.0 | - |
| Deferred consideration at fair value through equity | 4.9 | - | 4.9 |
| 4.9 | 4.0 | 6.1 | |
| Current liabilities | - | - | 1.2 |
| Non-current liabilities | 4.9 | 4.0 | 4.9 |
| 4.9 | 4.0 | 6.1 |
Notes to the interim financial statements
- Related party transactions
The Group has related party relationships with its subsidiaries and with its directors. Transactions between group companies, which are related parties, have been eliminated on consolidation and are not disclosed in this note. There have been no related party transactions with directors other than in respect of remuneration. In the first half of 2018 the Group made loans to associates of £7.5m (2017: £4.9m). Operating transactions with the associates were not significant during the period.
- Non-statutory information
- Adjusted operating profit
Adjusted operating profit is calculated by excluding the effects of amortisation of acquired intangible assets and adjusting items from operating profit.
| Six months ended 30 June 2018 £m | Six months ended 30 June 2017 £m | Year ended 31 December 2017 £m | |
| Operating (loss)/profit | (112.1) | 183.3 | 326.9 |
| Adjusting items | 286.3 | - | 40.9 |
| Amortisation of acquired intangible assets | 4.5 | 6.9 | 12.3 |
| Adjusted operating profit | 178.7 | 190.2 | 380.1 |
- Adjusted profit before taxation
Adjusted profit before taxation is calculated by excluding the effects of amortisation of acquired intangible assets and adjusting items from profit before taxation.
| Six months ended 30 June 2018 £m | Six months ended 30 June 2017 £m | Year ended 31 December 2017 £m | |
| (Loss)/profit before taxation | (123.4) | 167.6 | 289.7 |
| Adjusting items | 286.3 | - | 40.9 |
| Amortisation of acquired intangible assets | 4.5 | 6.9 | 12.3 |
| Adjusted profit before taxation | 167.4 | 174.5 | 342.9 |
Notes to the interim financial statements
16. Non-statutory information (continued)
- Ratio of lease adjusted net debt to EBITDAR (rolling 12 months)
| | 30 June 2018 £m | 30 June 2017 £m | 31 December 2017 £m |
| Operating profit | 28.3 | 97.6 | 326.9 |
| Depreciation and amortisation | 129.8 | 126.0 | 126.9 |
| EBITDA | 158.1 | 223.6 | 453.8 |
| Adjusting items | 327.2 | 292.0 | 40.9 |
| Adjusted EBITDA | 485.3 | 515.6 | 494.7 |
| Property operating lease rentals | 192.5 | 187.8 | 190.6 |
| Adjusted EBITDAR | 677.8 | 703.4 | 685.3 |
| Reported net debt (note 13) | 460.8 | 377.0 | 341.5 |
| Property operating lease rentals x8 | 1,540.0 | 1,502.4 | 1,524.8 |
| Lease adjusted net debt | 2,000.8 | 1,879.4 | 1,866.3 |
| Lease adjusted net debt to adjusted EBITDAR | 3.0x | 2.7x | 2.7x |
- Fixed charge cover (rolling 12 months)
| | 30 June 2018 £m | 30 June 2017 £m | 31 December 2017 £m |
| Adjusted EBITDAR | 677.8 | 703.4 | 685.3 |
| Property operating lease rentals | 192.5 | 187.8 | 190.6 |
| Interest for fixed charge cover (note 6) | 28.4 | 27.8 | 28.3 |
| Fixed charge | 220.9 | 215.6 | 218.9 |
| Fixed charge cover | 3.1x | 3.3x | 3.1x |
Notes to the interim financial statements
- 6. Non-statutory information (continued)
- Adjusted free cash flow
| Six months ended 30 June 2018 £m | Six months ended 30 June 2017 £m | Year ended 31 December 2017 £m | |
| Operating profit before acquired intangible amortisation and adjusting items | 178.7 | 190.2 | 380.1 |
| Depreciation and amortisation of internally generated intangible assets | 59.9 | 54.6 | 114.6 |
| Other non-cash movements (share based payments) | 9.0 | 10.9 | 15.6 |
| Gain on disposal of property plant and equipment | (17.0) | (8.9) | (30.6) |
| Movement on working capital* | (100.3) | (54.4) | (54.4) |
| Net interest paid | (0.9) | (2.4) | (27.1) |
| Income tax paid | (27.8) | (27.4) | (57.2) |
| Maintenance capital expenditure | (25.0) | (25.0) | (48.0) |
| Proceeds from disposal of property, plant and equipment | 51.1 | 50.3 | 113.9 |
| Dividends received | 0.5 | - | - |
| Adjusted free cash flow | 128.2 | 187.9 | 406.9 |
*Excludes £7.0m in relation to the development of cloud-based software (31 December 2017: £22.1m; 30 June 2017: £5.0m).
- Capital ratios (rolling 12 months)
(i) Lease adjusted operating profit
| 30 June 2018 £m | 30 June 2017 £m | 31 December 2017 £m | |
| Operating profit | 28.3 | 97.6 | 326.9 |
| Amortisation of acquired intangible assets | 9.8 | 15.2 | 12.3 |
| Adjusting items | 327.2 | 292.0 | 40.9 |
| Adjusted operating profit | 365.3 | 404.8 | 380.1 |
| 50% of property operating lease rentals | 96.3 | 93.9 | 95.3 |
| Revised lease adjusted operating profit | 461.6 | 498.7 | 475.4 |
Notes to the interim financial statements
16. Non-statutory information (continued)
f) Capital ratios (rolling 12 months) (continued)
(ii) Lease adjusted capital employed
| 30 June 2018 £m | 30 June 2017 £m | 31 December 2017 £m | |
| Opening net assets | 2,781.4 | 2,868.3 | 2,655.6 |
| Net pension deficit | 37.9 | 39.8 | 103.2 |
| Net borrowings | 377.0 | 529.4 | 377.5 |
| Exchange and fair value adjustment | - | (19.4) | - |
| Impairment of goodwill and other intangibles | - | (235.4) | - |
| Tax on impairment of goodwill and other intangibles | - | 3.8 | - |
| Opening capital employed as previously stated | 3,196.3 | 3,186.5 | 3,136.3 |
| Impairment of goodwill and other intangibles | (246.3) | (246.3) | (246.3) |
| Revised opening capital employed | 2,950.0 | 2,940.2 | 2,890.0 |
| Closing net assets | 2,661.0 | 2,781.4 | 2,860.3 |
| Net pension (asset)/liability | (44.5) | 37.9 | 22.9 |
| Net borrowings | 460.8 | 377.0 | 341.5 |
| Closing capital employed as previously stated | 3,077.3 | 3,196.3 | 3,224.7 |
| Impairment of goodwill and other intangibles | - | (246.3) | (246.3) |
| Closing capital employed | 3,077.3 | 2,950.0 | 2,978.4 |
| Average capital employed | 3,013.7 | 2,945.1 | 2,934.2 |
| Property operating lease rentals x8 | 1,540.0 | 1,502.4 | 1,524.8 |
| Lease adjusted capital employed | 4,553.7 | 4,447.5 | 4,459.0 |
(iii) Lease adjusted return on capital employed
| 30 June 2018 £m | 30 June 2017 £m | 31 December 2017 £m | |
| Revised lease adjusted operating profit | 461.6 | 498.7 | 475.4 |
| Revised lease adjusted capital employed | 4,553.7 | 4,447.5 | 4,459.0 |
| Revised lease adjusted return on capital employed | 10.1% | 11.2% | 10.7% |
Notes to the interim financial statements
16. Non-statutory information (continued)
- Lease adjusted gearing
As at 30 June 2018 £m | As at 30 June 2017 £m | As at 31 December 2017 £m | |
| Reported net debt | 460.8 | 377.0 | 341.5 |
| Property operating lease rentals x8 | 1,540.0 | 1,502.4 | 1,524.8 |
| Lease adjusted net debt | 2,000.8 | 1,879.4 | 1,866.3 |
| Property operating lease rentals x8 | 1,540.0 | 1,502.4 | 1,524.8 |
| Total equity | 2,661.0 | 2,781.4 | 2,860.3 |
| 4,201.0 | 4,283.8 | 4,385.1 | |
| Lease adjusted gearing | 47.6% | 43.9% | 42.6% |
- Like-for-like sales
| General Merchanting | Plumbing & Heating | Contracts | Consumer | Total | |
| £m | £m | £m | £m | £m | |
| 2017 H1 revenue | 1,054.7 | 669.2 | 674.8 | 822.1 | 3,220.8 |
| Like-for-like revenue change | 7.1 | 131.8 | 35.5 | (34.0) | 140.4 |
| 1,061.8 | 801.0 | 710.3 | 788.1 | 3,361.2 | |
| Branch opening | 8.1 | 1.7 | 3.6 | 26.6 | 40.0 |
| Branch closures | (4.9) | (33.4) | (1.8) | (7.4) | (47.5) |
| Acquisitions | - | 4.5 | 6.3 | - | 10.8 |
| 2018 H1 revenue | 1,065.0 | 773.8 | 718.4 | 807.3 | 3,364.5 |
Like-for-like sales are a measure of underlying sales performance for two successive periods. Branches contribute to like-for-like sales once they have been trading for more than twelve months. Revenue included in like-for-like sales is for the equivalent times in both years being compared. When branches close revenue is excluded from the prior year figures for the months equivalent to the post closure period in the current year.
Notes to the interim financial statements
- Changes in accounting policies
This note explains the impact of the adoption of IFRS 9 - Financial Instruments and IFRS 15 - Revenue from Contracts with Customers on the Group’s financial statements and also discloses the new accounting policies that have been applied from 1 January 2018, where they are different to those applied in prior periods.
The new standards have generally been adopted without restating comparative information. The reclassifications and the adjustments arising from the new impairment rules are therefore not reflected in a restated balance sheet as at 31 December 2017, but are recognised in the closing balance sheet as at 30 June 2018 or, for the change to the Group’s financial asset impairment model necessitated by IFRS 9 - Financial Instruments, have been recognised in the opening balance sheet at 1 January 2018.
- IFRS 15 - Revenue from Contracts with Customers
Impact of adoption
The Group has adopted IFRS 15 - Revenue from Contracts with Customers from 1 January 2018 which resulted in changes in accounting policies and the reclassification of amounts recognised in the financial statements. None of the adjustments impacted the Group’s retained earnings and this standard is not expected to have a significant impact on the Group.
Provisions for customer returns were previously presented on a net basis, as part of accruals and deferred income. Following adoption of IFRS 15 - Revenue from Contracts with Customers they are now shown on a gross basis and liabilities for the full amount expected to be refunded to customers (£3.1m as at 1 January 2018) are included in trade and other payables. Subsequently assets for the value of goods expected to be returned are included in trade and other receivables (£1.8m as at 1 January 2018).
Accounting policies
Revenue recognition
Revenue is recognised when the Group has satisfied its performance obligations to the customer and the customer has obtained control of the goods or services being transferred.
Revenue is measured at the fair value of consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and value added tax. For the Group, services comprise tool hire and kitchen and bathroom installations. Tool hire revenue is recognised on a straight line basis over the period of hire. Revenue from the installation of kitchens and bathrooms is recognised when the Group has fulfilled all its performance obligations under the installation contract.
Customer rebates
Where the Group has rebate agreements with its customers, the value of customer rebates paid or payable, calculated in accordance with the agreements in place based on the most likely outcome, is deducted from turnover in the year in which the rebate is earned.
Notes to the interim financial statements
17. Changes in accounting policies (continued)
- IFRS 9 - Financial Instruments
Impact of adoption
IFRS 9 - Financial Instruments replaces the provisions of IAS 39 - Financial Instruments: Recognition and Measurement that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.
The adoption of IFRS 9 - Financial Instruments from 1 January 2018 resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements. The new accounting policies are set out below. In accordance with the transitional provisions in IFRS 9 - Financial Instruments, comparative figures have not been restated.
Classification and measurement
On 1 January 2018 (the date of initial application of IFRS 9 - Financial Instruments), the Group’s management has assessed which business models apply to the financial assets held by the Group and has classified its financial instruments into the appropriate IFRS 9 - Financial Instruments categories. The main effects resulting from this reclassification are as follows:
| Note | Original classification | New classification under IFRS 9 - Financial Instruments | Carrying amount 1 January 2018 £m | |
| FINANCIAL ASSETS | ||||
| Derivative financial instruments | a) | Designated as FVTPL | Mandatorily at FVTPL | - |
| Cash and cash equivalents | Available -for-sale | Amortised cost | 276.8 | |
| Trade and other receivables | b) | Loans and receivables | Amortised cost | 1,049.2 |
| Available-for-sale investments | c) | Available -for-sale | Designated instrument by instrument as either FVOCI or FVTPL | 4.7 |
| FINANCIAL LIABILITIES | ||||
| Derivative financial instruments | a) | Designated as FVTPL | Mandatorily at FVTPL | (1.2) |
- Under IAS 39 - Financial Instruments: Recognition and Measurement, these foreign currency forward contracts were designated as fair value through profit and loss (FVTPL) because they were managed on a fair value basis and their performance was monitored on this basis. These assets have been classified as mandatorily measured at FVTPL under IFRS 9 - Financial Instruments.
- Trade and other receivables that were classified as loans and receivables under IAS 39 - Financial Instruments: Recognition and Measurement are now classified at amortised cost as the business model is to hold the financial asset to collect contractual cash flows which represent solely the payment of principal and interest. An increase of £2.4m in the allowance for impairment over these receivables was recognised in opening retained earnings at 1 January 2018 on transition to IFRS 9 - Financial Instruments.
- These equity securities represent investments that the Group intends to hold for the long term for strategic purposes. As permitted by IFRS 9 - Financial Instruments, the Group has designated these investments on a instrument by instrument basis as either fair value through other comprehensive income (‘’FVTOCI’’) or FVTPL.
Notes to the interim financial statements
17. Changes in accounting policies (continued)
Impairment of financial assets
Trade receivables and contract assets are subject to the new expected credit loss model in IFRS 9 - Financial Instruments and therefore the Group has revised its impairment methodology. The impact of the change in impairment methodology on the Group’s retained earnings and equity is a reduction of £2.4m in retained earnings and net assets at 1 January 2018.
The Group applies the IFRS 9 - Financial Instruments simplified approach to measuring expected credit losses. This uses a lifetime expected loss allowance for all trade receivables and contract assets. To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the days past due. The contract assets relate to unbilled work in progress and have substantially the same risk characteristics as the trade receivables for the same types of contracts. The Group has therefore concluded that the expected loss rates for trade receivables are a reasonable approximation of the loss rates for the contract assets. On that basis, the loss allowance as at 1 January 2018 was determined to be £2.4m higher than these previously recognised under the incurred loss model of IAS 39 - Financial Instruments: Recognition and Measurement. The amount restated represents the impairment loss recognised on current trade receivables and contract assets.
The loss allowance at 30 June 2018 is £23.5m. Under the incurred loss model of IAS 39 - Financial Instruments: Recognition and Measurement it would have been £20.2m.
Trade receivables and contract assets are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group, and the commencement of legal proceedings.
Accounting policies
The adoption of IFRS 9 - Financial Instruments has not had a significant effect on the Group’s accounting policies related to financial liabilities and derivative financial instruments. The impact of IFRS 9 - Financial Instruments, on the classification and measurement of financial assets is set out below.
Investments and other financial assets
Classification:
From 1 January 2018, the Group classifies its financial assets in the following measurement categories:
- those to be measured subsequently at fair value (either through Other Comprehensive Income ‘‘FVOCI’’, or through profit or loss “FVTPL”), and
- those to be measured at amortised cost.
The classification depends on the business model for managing the financial assets and the contractual terms of the cash flows.
For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at FVTPL or at FVOCI.
The Group reclassifies debt investments when and only when its business model for managing those assets change.
Measurement:
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVTPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVTPL are expensed in profit or loss.
Notes to the interim financial statements
17. Changes in accounting policies (continued)
Debt instruments
Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset. There are two measurement categories into which the Group classifies its debt instruments:
- Amortised costs: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses), together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the statement of profit or loss.
- FVTPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVTPL. A gain or loss on a debt instrument that is subsequently measured at FVTPL is recognised in profit or loss and presented net within other gains/(losses) in the period in which it arises.
Equity instruments
The Group subsequently measures all equity investments at fair value. Where the Group’s management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when the Group’s right to receive payments is established.
Changes in the fair value of financial assets at FVTPL are recognised in other gains/(losses) in the statement of profit or loss as applicable. Impairment losses (and the reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value.
Impairment:
From 1 January 2018, the Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
For trade receivables, the Group applies the simplified approach permitted by IFRS 9 - Financial Instruments, which requires expected lifetime losses to be recognised from initial recognition of the receivables.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
- The condensed set of financial statements has been prepared in accordance with IAS 34 - Interim Financial Reporting, as adopted by the EU;
- The Interim Management Report includes a fair review of the information required by:
- DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
- DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.
By order of the Board
John Carter Alan Williams
Chief Executive Officer Chief Financial Officer
30 July 2018 30 July 2018
INDEPENDENT REVIEW REPORT TO TRAVIS PERKINS PLC
Conclusion
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 which comprises the condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated statement of changes in equity, condensed consolidated cash flow statement and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with IAS 34 - Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules (“the DTR”) of the UK’s Financial Conduct Authority (“the UK FCA”).
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Directors’ responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 - Interim Financial Reporting as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.
Greg Watts
for and on behalf of KPMG LLP
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
30 July 2018
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