Travis Perkins warns on profits due to Wickes challenges

Travis Perkins warned on profits for the full year after being dragged to a loss in the first half by its consumer facing Wickes chain, even though its builder's merchant businesses grew at a solid rate.

Management of the FTSE 250 group said it had begun a "comprehensive review" of the business, having already been chipping away at costs since announcing poor results in February that were blamed on weak consumer confidence and a decline in home improvement.

In the six months to 30 June, the group swung from the £168m profit a year before to a £123m loss before tax due to a £246m impairment against goodwill at Wickes and reorganisation costs in the Plumbing & Heating and Wickes businesses. Adjusted profit before tax, which excludes such one-off costs, still fell 4.6% to £167m.

The trade-focused businesses grew sales in spite of conditions that were described as "volatile", contributing to 4.4% group revenue to £3.36bn, and chief executive John Carter said they started the second half with "encouraging momentum" and "on track to deliver modest profit growth" for the full year.

However, he said the consumer-focused 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."

With the market backdrop expected to remain challenging for the foreseeable future, Carter said the review of its business was being carried out "with a view to driving stronger performance and enhanced value for shareholders in the medium term".

Looking to keep investors onside, the interim dividend was kept at 15.5p per share, even though cash conversion was lower at 72% as free cash flow fell to £128m from £188m a year earlier. This effect, which also had the effect of lifting net debt £119m since December to £461m, was said to be due to phasing of working capital flows which are expected to reverse in the second half of the year.

At the bottom line, a loss per share of 59.8p at the statutory level compared to EPS of 53.6p a year before, with adjusted earnings per share slipping 4.1% to 53.5p.