Travis Perkins profits down amid tough trading conditions

Building merchant Travis Perkins posted its annual results for the year ended 31 December on Wednesday, reporting lower profits and guiding to a flat 2018.

The FTSE 250 company unveiled revenue growth of 3.5% to £6.43bn, with like-for-like growth of 3.3%, but adjusted operating profit of £380m was down 7.1% following investments made to improve customer propositions.

Adjusted profit before tax fell 10% to £343m, while adjusted earnings per share were off 8.3% at 110.4p.

Free cash flow generation was £407m, with the board also highlighting “strong” cash conversion of 107%.

Net debt reduced by £36m to £342m during the 12 month period.

The board confirmed a full-year total dividend of 46.0p - an increase of 2.2%, reflecting the company’s strong cash performance.

It also pointed to “encouraging” early signs from its plumbing and heating transformation plan announced in August last year.

As it had previously disclosed, an exceptional charge of £40.9m was recognised in connection with that plan.

“2017 was a challenging year for the group, with continuing uncertainty in our end-markets, and declining consumer confidence throughout the year,” said chief executive John Carter.

“The main focus for our businesses has been to recover the significant cost price inflation encountered and on the whole, this has been achieved successfully.”

Carter explained that, despite the challenging environment, the company continued to make disciplined investments in its customer proposition for the long term.

Both the general merchanting and consumer divisions were held back by that investment in a higher cost base, which ran ahead of volume growth, he said.

“The contracts division delivered another excellent performance, with strong revenue growth generating good operating leverage.

“Progress in plumbing and heating following the announcement of the transformation plan has been swift and very encouraging.

“The business has been simplified under a single branch network, reducing costs and improving the proposition which has driven higher revenues and a return to profit growth in the second half of the year.”

In 2018, Carter said the board anticipated that the mixed market backdrop would continue.

As a result, it would be focusing capital investment behind its key priorities, and slowing investments elsewhere.

“The group will focus heavily on maintaining tight control of the cost base and expects 2018 performance to be similar to 2017.

“The long-term prospects for our businesses remain favourable, and the investments we have made in recent years give us a strong and sustainable competitive position from which to grow.”

Shares fell around 8% on Wednesday to just over 1,300p.

2017 results appear to be circa 1% below expectations, said analysts at Canaccord, with consensus for 2018 is likely to come back by circa 2-3% on the outlook comments.

"It seems the reason was a weaker than expected performance in consumer in Q4 as extra promotional costs did not deliver as expected."

The outlook comments point to another year at a similar level to 2017 in terms of profits, with the group having "started to take out costs as its sharpens its pencil"...Clearly the group is facing a challenging backdrop and unlikely to deliver any profit growth in 2018. While there is arguably value in the shares on a medium term view, there is a lack of any near term catalysts."

Analyst Jamie Constable at N+1Singer said: "Not a good outlook then given UK GDP growth is not forecast to be growing from here," said "Performance in the contracts division was better than in consumer. In General Merchanting and Consumer investment and resultant higher cost base ran ahead of volume growth. Seeing some good progress with turnaround in Plumbing and Heating."

He said there was negative read-across for Grafton, SIG and Kingspan, Howden and Kingfisher.