Mixed news in Q3 update from Travis Perkins

Mixed news in Q3 update from Travis Perkins

Travis Perkins has described its Plumbing & Heating performance as ‘not satisfactory’ whilst an ‘uncertain’ outlook for 2017 will mean the closure of over 30 branches and further ‘efficiency driven’ changes in its supply chain.

The trading update from Travis Perkins for Q3 2016 details the organisation’s ‘continued outperformance’ against an uncertain UK outlook with total sales growth of 3.4% and like-for-like growth of 2.0%. It describes market outperformance by its Consumer, Contracts and General Merchanting businesses, however Plumbing & Heating performance is deemed ‘not satisfactory albeit in a challenging market’.

John Carter, Chief Executive, commented: “General Merchanting delivered a solid result in the third quarter alongside very strong performances in our Consumer and Contracts businesses where we materially outperformed our markets. Our Plumbing & Heating results were disappointing and whilst market conditions have worsened, we are not satisfied with our performance and will commence reviewing these operations.

“Our operational focus remains on improving all of our customer propositions, optimising our networks, intensifying our use of space and exploiting the scale advantage we have created. We expect this focus to underpin our outturn for 2016, albeit with Adjusted EBITA slightly below current market consensus of around £415 million.”

John continued: “It is still too early to predict customer demand in 2017 with certainty and we will continue to monitor our lead indicators closely. Given this uncertainty we will be closing over 30 branches and making further efficiency driven changes in the supply chain, resulting in an exceptional charge of £40-50 million this year.

“We have a proven track record developed over many years of taking swift action to take advantage of opportunities as they arise in whichever part of the cycle we find ourselves. The strength of the Group’s balance sheet and the competitive advantage we have created through the investments we have made position us well to continue outperforming the markets we compete in and drive shareholder value over the medium term.”

It is still too early to predict customer demand in 2017 with certainty and we will continue to monitor our lead indicators closely. Given this uncertainty we will be closing over 30 branches and making further efficiency driven changes in the supply chain.

Group sales grew by 3.4% during the third quarter and by 2.0% on a like-for-like basis. Sales for the nine months ended September grew by 4.9% and 2.7% on a like-for-like basis. On a two-year basis like-for-like sales grew by 4.6% during the third quarter and are up 7.6% for the year to date.

General Merchanting sales grew by 3.8% in the third quarter and 0.6% on a like-for-like basis. Total sales growth benefitted from 11 new Benchmarx and TP branches opened and 13 branches transferred from Keyline in Q1 2016. Despite the volatility in demand seen during July and softer market conditions in August and September, margin was well managed and benefitted from the work undertaken over the last two years to provide our branch managers with better information to win business.

Plumbing & Heating sales declined by (3.9)% in the third quarter and by (4.1)% on a like-for-like basis. The Travis Perkins statement noted that a “combination of weak demand, changing customer buying behaviours and the impact of previous government boiler replacement incentive schemes has meant the plumbing, heating and bathroom markets have been challenging. The operations of the division will be fully reviewed and the outcome of the review and any associated costs will be communicated in 2017.”

The statement continued: “Given that levels of future demand remain difficult to predict the Group has chosen to implement a number efficiency programmes and branch closures to further optimise the network. This work includes the closure of ten smaller distribution and fabrication centres, the write off of certain IT legacy equipment and over 30 branch closures in our trade businesses. All of the 600 affected employees are aware of the changes.”

It notes that it is committed to its ongoing ‘Strategic plan’ with an update stating: “The Group is now in the second phase of its five-year plan, first outlined in December 2013, and remains focused on making selective investments to create and extend structural advantages over the medium to longer term. Despite an uncertain market outlook, significant investment opportunities remain to achieve strong incremental returns on capital and underpin continued outperformance in the markets in which the Group’s businesses compete.”

This includes a further commitment to improving its multichannel offering including a two-hour Click & Collect service nationwide in Travis Perkins branches, the expansion of its branch network along with further exploring the opportunities to ‘co-locate’ business units and further exploiting its ‘scale advantage’ in terms of range optimisation, logistics and IT infrastructure.

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