Travis Perkins plc

Good morning and a warm welcome to all of you in the room and those of you who have joined us by the webcast. I'd like to thank our advisors Linklaters for hosting us here today. There are no planned fire alarm tests today so if the alarm does sound then please make your way through the double doors to the back of the room that you entered through and down through the foyer and out of the building. I'm joined in the normal way by Duncan Cooper, our CFO, and together we will take you through the financial and operational updates for the group for the first half of 2024. Before I start, I'd like to point out that on the front row is our interim chair, Jez Maiden, who would be available after the presentation if you'd like to catch up with him. So let me turn to the update. As we set out in March, our key priority for financial year 2024 was to continue to improve the business and enhance cash generation. And we have made good progress despite persistently challenging market conditions. We have reduced our overheads by £19 million compared to prior year, with significant cost inflation absorbed. We have delivered a strong cash inflow, resulting in our net debt before leases reducing by £81 million in the first half. In Toolstation UK, we have expanded our operating margin by 130 basis points, driven by improvement in both gross margin and cost to serve. We expect that we will exit Toolstation France by the end of FY24, taking a £16 million loss out of the grouped P&L next year. And we have completed the strategic review of our Toolstation Benelux business, putting in place actions that will deliver a break-even performance next year. I'll talk more about these later. So, simply, we have done what we said we would do. These actions are necessary as weak demand continues across the Group's end markets and our merchant businesses' gross margins have been squeezed by commodity price deflation and strong competition in a market where volumes are well below the long-run average. We are, however, maintaining our strong market positions as we focus on ensuring that we meet the needs of our customers in tough trading conditions while staying really disciplined on pricing. We expect those tough trading conditions to continue for the second half of the year, albeit we now have greater economic and political stability, which bodes well for FY25 and beyond. We'll talk more about the outlook as we go through the presentation.

I'll now hand you over to Duncan, who will talk through the financial performance for the first half. Thanks, Nick. Good morning, everyone.

So as Nick has outlined to you already, the market in the first half has remained challenging. I'll try and bring that to life in the financial review and outline some of the headwinds that we are continuing to continue to influence our financial performance and the actions we are taking to combat their impacts. Despite the backdrop, we are making good progress in making the business more efficient, more profitable and have begun the task of strengthening the balance sheet. All of these actions will ensure that the group is positioned strongly for a future recovery. So on to the first slide and the usual financial overview. Revenue for the first half was down 4.4%, 2.36 billion, which in turn translated to an adjusted operating profit for the half of 75 million. I'll come on to talk about the adjusting items separately in due course. Accordingly, adjusted earnings per share was 15.9 pence. Leverage as measured by lease-adjusted net debt to adjusted EBITDA was 2.7 times, up from 2.1 times this time last year, and broadly in line with year-end, despite the further deterioration in profitability. I'll talk to the good progress we have also started to make in strengthening our financial position later on, and this is reflected in the cash conversion for the half as well. Finally, the board is pleased to declare an interim dividend of 5.5 pence per share, which reflects the group's policy to pay a dividend of 30 to 40% of adjusted earnings, the revised guidance on adjusted operating profits, and the expected benefit of closing Tool Station France. Both items, again, I'll come back to you later. Moving on to the next slide on our revenue walk for the half. Group revenue is down 4.4%, as I've previously mentioned, and this is principally driven by the weak trading environment that has persisted in the first half. Non-essential domestic RMI activity has remained well down the household batting order of priorities, coupled with lower house building activity and cancellations or delays in public sector projects arising from the political uncertainty leading into and immediately after the general election. Within this anemic volume environment, pricing has also remained challenging. We've continued to feel the effects of commodity price deflation, albeit this effect has been weakening as we've travelled through the half. Remaining competitive on price, therefore, has been critical to secure trade and win work in an environment where everyone is looking for their fair share and to maintain some positive operational leverage. We have maintained our market position in the general merchant during the half, and continue to grow share profitably in Toolstation UK. And I'll provide some more specific commentary on each of these segments later. The network change effect is broadly neutral. From the benchmark closures we announced back in March, largely offsetting new Toolstation openings, and we have one extra day when compared to the prior half. On to the next slide and the usual adjusted operating profit what we provide. The gross profit decline reflects the trading dynamics I've just alluded to. Overhead inflation is detailed next at £19 million. The £18 million restructuring savings is a half-year effect of the £35 million annualised savings we announced in January, which was generated from headcount reductions across the group, principally delivered through above-branch and central headcount roles. We then come to the reduction in discretionary expenditure of £16 million. This has come from a variety of sources across the P&L and also includes £8 million of the non-repetition of the one-off cost of living payment we made to colleagues in the prior half. We will maintain this focus on overheads throughout the second half as we continue to scrutinise the cost base and continue to introduce new controls and oversight to the way in which we operate. Technology plays an important part in that maturation of the control environment. Nick will talk to you later about the introduction of Oracle. For most businesses of our size and scale, having a purchase order system with escalating seniority of sign-off approval is a given. We've not previously had this capability, but from the 1st of July, we now benefit from this greater systemic rigor and control. But we also need to extend this focus across the way we procure, buy, and operate across the group. From a goods for resale perspective, Nick will talk to you about the work we're doing across the group supply chain and the group commercial functions. But across all our businesses, the opportunity to harmonise the way we procure the things we need to function in areas like property, consumables, transport and fleet can be standardised and better integrated. This will be a key focus of mine and the rest of the finance team in the second half. In addition, we will continue to review the group operating model, and following the recent arrival of Jane Davies, our new Chief HR Officer, and the impending arrival of Pete in September, this again will be a key focus for us in the second half as well. I want to talk next about the £32.2 million of one-off items recorded in the first half. As we outlined in March, the group is in the middle of a multi-year transformation of the way it operates and how its businesses interact with each other. The charges taken in the first half reflect the costs associated with delivering this programme of change. I'll let Nick talk to the strategic and operational detail to these items in his section later. The £15 million supply chain consolidation charge relates to the closure of a number of supply chain distribution centres and tool station, benchmarks and group timber supply chain. The costs relate primarily to stock write downs. These charges will reduce our cost to serve across the group and ensure we can better serve our branches, stores and customers. The £8.9 million restructuring charge relates to actions taken to reduce central and regional headcount and to centralise the group's individual procurement capabilities into one collective group function. The £5.7 million charge associated with benchmarks reflects the cost of closing the 39 standalone branches that we announced in March. And finally, the Toolstation France charge reflects adjustments to stock provisions and lease liabilities made as a result of the decision to exit the business, as well as legal costs that have been incurred to date. Further cash costs will be required to close Toolstation France, and I'll provide specific guidance on these and the timing of when they will be incurred later on.