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Travis Perkins Confirms Plans to De-Merge Wickes

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Travis Perkins plc has reported interim results for the six months ended 30 June 2019, advising of 'good strategic progress underpinned by strong trading performance'.

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Financial highlights
● Continuing Group revenue increased by 6.9%, and by 8.0% on a like-for-like basis, primarily driven by volume growth
● Continuing Group adjusted operating profit increased by 14.7% to £195m
● Strong performance across the Group - positive trading in Merchanting demonstrating share gains, a strong recovery in Wickes and continued excellent growth in Toolstation
● Adjusting items of £127m including a £111m asset write off relating to the ERP replacement programme

Strategic progress
● Merchant businesses benefitting from simplification and more empowered branch
managers
● Process to divest the P&H business ongoing, classified as an asset held for sale
● Decision to demerge Wickes reflecting the Group’s focus on advantaged trade
businesses and the simplification of the Group
● Cost actions delivering improved financial performance

Wickes

Wickes revenue has recovered strongly in the first half of 2019 after a difficult period in 2018, with like-for-like sales growth of 9.7%. Around 2% of the like-for-like growth is estimated to be attributable to the milder weather in March and April in 2019 compared with the same period in 2018.

Core DIY sales performance benefited from a strong, clear and well balanced trading plan combined with the addition of new ranges, particularly in decorating and landscaping, and improvements made in the supply chain to increase product availability in store.

Kitchen & Bathroom showroom (K&B) deliveries remained strong through the half, benefitting from the order book carried into the year from the improved Q4 2018 order intake, along with continued good order placement so far in 2019. The order book at the end of the half is encouraging, although the wider market for consumer big-ticket purchases remains subdued and the benefit of competitor withdrawal from the market is cycled in the second half of the year.

Wickes adjusted operating profit showed a significant improvement over 2018, with growth of 49% to £52m. Gross margins, which were under pressure in 2018 from competitor pricing activity, have remained broadly stable in 2019. Adjusted operating profit margin increased by 200bps to 7.5%, with this improvement reflecting the volume growth in both Core DIY and K&B, a mix shift to higher margin sales as K&B recovered strongly, and the benefits of the intensive overhead cost reduction activity carried out in the first half of 2018. The improvement in adjusted operating profit drove a 2ppt increase in return on capital employed. 

Three additional Wickes refits were completed in the half, which, along with one new store
opened, brings the total number of new store formats up to 125 from an overall network of 241 stores. Continuing development of digital capability and customer service channels includes online-in-store capability, allowing colleagues to sell the full online range of products to customers in store, either for in store collection or home delivery. This enables colleagues to provide full-project service to all customers, whilst maintaining a tight SKU range in store.

Improved stock accuracy, reductions in wastage and better product supply forecasting have
increased product availability in store. Better availability has supported targeted promotional campaigns to drive footfall and sales. TradePro continues to be an attractive proposition for our trade customers, with improvements in specific customer marketing.

De-merge
At the capital markets event in December 2018, the Group announced the intention to 
strengthen the performance of Wickes and to capitalise on its clear competitive advantages in the DIY, small trade and Kitchen and Bathroom markets. At the same time the Board committed to review the options for maximising the value of Wickes in the medium term. 

Since the capital markets update, good progress has been made in strengthening Wickes’s trading performance, and steps have been taken to provide Wickes with greater autonomy from the Travis Perkins group through the separation of its systems and processes. After reviewing the options, the Board has determined to demerge Wickes to shareholders as a standalone business.

The demerger of Wickes is a key component of the overall Travis Perkins strategy to focus on trade customers and to simplify the Group which the Board believes will underpin the creation of enhanced value for shareholders. It is expected to complete in H1 2020. The Board believes that Wickes, under a management team led by David Wood, is well positioned to thrive as a stand-alone business. Wickes will have the autonomy to execute on its strategy and allocate capital to its customer proposition and growth opportunities with a clearer focus.

John Carter, Chief Executive Officer, commented:
“I am delighted with the progress the Group has made in executing the strategy set out at the capital markets event in December 2018; to focus on our advantaged trade businesses and to simplify the Group. The P&H sales process is well underway, and we are today announcing our intention to demerge Wickes as a separate business.

This strategic progress has been underpinned by a strong trading period in the first half of 2019 albeit against softer trading conditions in H1 2018. Our trade merchanting businesses have outperformed their markets, through continued focus on delivering excellent customer service, and benefitting from the leaner, lower cost organisation now in place. Toolstation continues to deliver excellent growth through proposition improvements and network expansion. Wickes has delivered a strong turnaround in volume and profit performance, with gains in both core DIY and through the Kitchen & Bathroom showroom.

Whilst our underlying markets remain subdued, the self-help initiatives underway are supporting an encouraging improvement in performance and provide a strong platform to drive sustainable growth ahead of our markets in the medium term. Despite a cautious outlook for the near-term, the Group remains confident in making progress across the year as a whole.”

View the full report on Group performance here.

Source : Insight DIY Team and Wickes

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31 July 2019

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