For Travis Perkins, one of Britain’s leading builders’ merchants and home improvement groups, the past 12 months have seen a £230m swing-round from a loss of £49m in the 2018 financial year to a pre-tax profit of £181m in 2019.
The figures, published a few days ago, were better than the market had expected and commentary was generally favourable.
But Travis Perkins’ share price history has been anything but smooth. On the morning of March 5, shares traded at 1,386.50p, below their level of a year earlier, on March 6, 2019, when they changed hands at 1,453p.
Sales and profits rise
However, despite the Travis Perkins shares fall, the general momentum has seemed to be upwards, as the 12-monthly low was back on August 15 at 1,166p and the high for the year was as recently as February 17 at 1,720p.
Certainly the 2019 figures, released on March 3, ought to have supported the TPK share price history, given that they showed the company making solid, if unexciting, progress. True, on some key metrics the 2019 performance lagged that of the previous year.
So, like-for-like sales growth – in other words, taking account of the effect of store openings and closings – was 3.8 per cent in 2019, down on the 4.9 per cent seen in 2018, and adjusted earnings per share were down from 114.5p to 112.7p.
But in bottom-line terms, Travis Perkins made a profit this year and a loss in 2018. And in what the company described as a challenging market, it grew the top line as well, with revenue of £6.96bn, against £6.74bn in 2018.
Wickes to be spun off
Overheads as a proportion of sales have been reduced, and cost savings “have modestly exceeded the mid-2020 target of £20m-£30m”.
Among the factors supporting future growth for the group, it said, was a “shortage of housing in the UK and under-investment in existing stock”, both key factors in determining the profitability or otherwise of companies such as Travis Perkins. Demand for new housing, it said, was running at 270,000 units but only about 180,000 were built last year.
The average age of a residential property, it added, is 70 years, all good news for a company supplying building and home improvement materials. However, “significant uncertainty” was causing weakness in consumer confidence, especially as regards big-ticket items.
Travis Perkins plans to spin off its Wickes retail brand, of which more in a moment. But for now, its performance forms part of the overall results.
The group hailed a “strong recovery” in the performance of Wickes, with like-for-like sales growth of 8.7 per cent. Headline revenue grew by 7.4 per cent to £1.3bn. The adjusted operating margin improved by one percentage point to 7.2 per cent.
In the builders’ merchant sector of the business, Travis Perkins said that a “focus on outstanding customer service” had driven consistent market outperformance, but added that conditions had weakened in the second half of the year after a strong first half. Like-for-like sales growth slipped from 3.6 per cent in 2018 to 3.3 per cent, while the adjusted operating margin was unchanged at 7.7 per cent.
Its Toolstation branch business, which serves trade customers, saw revenue up 25.7 per cent to £445m, with like-for-like sales up 16.3 per cent, from 11.4 per cent in 2018. The UK branch network expanded during the year from 335 outlets to 400.
The plumbing and heating division, expected like Wickes to be demerged from the group but over a longer timescale, revenues declined by 4.1 per cent to £1.46bn and like-for-like sales were 1.7 per cent down at 16.1 per cent.
Regarding the demerger of Wickes, Travis Perkins said this was on track to be completed in the second quarter of this year. “Actions to separate the Wickes business are well advanced,” it said, adding that the spun-off entity would have a market capitalisation of about £130m using January 2020 figures.
Potential investors were invited to a “capital markets event” in late January in order for Travis Perkins “to present Wickes’s equity story”.
The demerger of Wickes and, ultimately, of the plumbing and heating division is aimed at streamlining the company and focusing on trade customers. Chief executive Nick Roberts said that while the group had grown it had also become more complex, thus his plan to simplify Travis Perkins and make it into the first-choice merchant for the building trade.
“Long-term fundamentals strong”
Of the 2019 results, he said; “Our strategic progress in 2019 has been significant, but there remains much work to do in order to build stronger foundations for the group to deliver enhanced returns and long-term growth. Our immediate priorities are the regeneration of the Travis Perkins general merchant, continued growth of Toolstation, further simplification of our business and successful delivery of the demerger of Wickes.”
He added: “The long-term fundamental drivers of the group’s end-markets remain strong, and our businesses enjoy leading positions in their respective markets. While trading conditions in 2019 have been challenging we have seen some green shoots of recovery in our lead indicators.”
Trade Travis Perkins PLC - TPK CFD
In the 2019 annual report, published on the same day, chairman Stuart Chambers wrote; “The unprecedented level of political and economic uncertainty in the UK in recent years has made the trading environment increasingly challenging.”
He added: “As a group, we remain focused on delivering on our self-help initiatives which will support our near-term financial performance and position the business well to outperform its end markets and generate sustainable value growth in the long term.”
Wickes is one of the oldest names in home improvements, having been founded in the US in the 19th century and floated on the London Stock Exchange in the Eighties. At the turn of the millennium, it was at the centre of one of the most bizarre court cases in recent UK history.
Britain’s Serious Fraud Office alleged that profits had been inflated by false paperwork that deceived auditors into believing that the cost of supplies for Wickes was lower than in reality. Four directors were put on trial, all agreed that a fraud had taken place but none was convicted because each denied they personally had any involvement.
Wickes was bought by Travis Perkins in 2005.
Meanwhile, perhaps the Travis Perkins share price history will start to give some credit for its profit turnaround.