Travis Perkins plc

So we're ready to start. Good morning everybody and welcome to the Travis Perkins half year results. I'm going to kick off with a short introduction and then I will hand over to Duncan who will take you through the financials in a lot more detail. That's why he's got the very thick blue ring binder there with all of the detail. I'm just standing up here. Look, I stepped in in March and was somewhat unexpectedly on this stage in March and unsurprisingly there was a fair bit of uncertainty both internally and externally in terms of what all of that meant. So what we look to do, sorry let me get this right. What we tried to do was settle down the business by focusing on three very clear priorities. First one was, look, we needed a credible permanent CEO to take the business forward long term. And we also needed to address the losses in market share in the merchanting business. So this required us to address a series of organizational issues and very importantly address a significant systems issue that we were facing during the course of last year. And finally, on a more positive note, I felt the tool station was at an important inflection point and we should be a little more demanding in terms of both its growth potential and continuing that growth trajectory, but also recognising the potential for it being a more significant profit contributor. How have we done in terms of those three key objectives and how is the achievement of that work playing into our performance as we have moved through the quarter? Well, as you'll have seen, we were delighted to appoint Gavin as CEO. He has a ton of relevant experience and his knowledge and his personality, I think, fit very, very well and I think he will be a seamless addition to to the business. Unfortunately he still can't start until the 1st of January despite my best efforts and therefore the business and you are stuck with me until that point filling in the gap. But I am very much looking forward to working with Gavin. In terms of reversing the decline in market share and the merchants in business, we sort of split this into two key areas. First and foremost, we needed to get far more agile in terms of dealing with customers. And secondly, we needed to create an organization that got decisions made closer to the customer and was again, nimbler, customer centric and actually we started to fill what had become a number of key vacancies. So we had way too many positions where people were doing two, three jobs and unable to do those jobs effectively. So in terms of focus on customer and market opportunities, I think we've done an okay job in the areas where we have been able to influence it. Look, if you look at the graph there, you can see during Q3, Q4, our like-for-like merchandising sales, we were down 7-8% year-on-year. that has to be addressed. Had we continued with that on an ongoing basis, there was no level of cost cutting that was going to adjust for the impact on the top line. So as you can see, through Q1 and going through to Q2, the trajectory has changed. Now, Those of you with very good eyesight can see the numbers on the left-hand side. Good now means flat. So let's not get carried away. I am delighted with the performance. Again, if you look with a microscope, and Duncan's going to add all kinds of caveats that we haven't fully closed out the month, July will be slightly positive. Now, in any normal world, that wouldn't make a whole heap of a difference, but in our world, that is very, very important in terms of the morale. and the impetus we have got into the business. I think what we have proven during some time is that we can re-energise, refocus the business, that we can put sensible local incentives, and through targeted promotions backed by our supply base, we can do that without a serious adverse effect to our margin. So I am pleased with that Those sorts of updates. Now, the big unknown in April, if I was being perfectly honest with you, was we thought we knew where we were with Oracle. Could it be worse? If I was sitting down there listening to this, that would have been my big question. How much worse can I get with Oracle? There's no question whatsoever. that that system implementation has been a big drag on the business over the course of the last 12 months and it manifests itself and you can see the distinction there when you look at merchants in yard sales where we've got positive quite quickly because that activity is not impacted with Oracle and what's called the direct sales which is where it goes direct from a supplier to one of our customers which is about 20% of our business That has been severely impacted. It's just been very difficult to do those changes. Now, we've got to July. We've put in some significant fixes and we can start to see some real improvement there. So I am happy that we can now start trading. and doing direct sales again, which should help us as we lead into the second half. Now, we've got to win back those customers. Our staff have got to get more comfortable with doing those things again, without wanting to highlight tiny numbers over short periods of time. I'm told by Rich who's sitting there that our July like-for-like direct sales were down 1.7%. Again, it sounds like a good number. Well, it's certainly a lot better than minus 14%. But on the basis we did bugger all in July last year, it's not that good a number. So, again, not to get carried away with any of this, we have to be realistic, but there are clear signs of improvement. And most importantly, I sense that the business now has confidence in the Oracle system or training initiatives are starting to pay off. So the issues now are less about the fundamentals of the system and more about training and making our organisation comfortable with it. So at least it is now back within our control. So I think that is very, very positive. We had to have a better organisation where key positions were filled, lines of responsibility were clear, and it was a commercially accessible focused business. So I'm delighted that we've been able to achieve that. You can see we split the business into three key business units, obviously green and gold, general merchants, specialist merchants, longer term contract type businesses and tool stations still relatively standalone. All three now have very experienced leaders who've been with the business some time and I think that's very, very important. Below them there was also a number of key positions that just weren't filled. So we have filled a number of key positions within the business again. So now I feel the operating end of the business is appropriately staffed. to deliver the service level which is required to win market share. That wasn't the case before. Most of the cost cutting had come around the operational level and the problem with that is you erode your capacity to serve customers. I was going through all the stuff as we were getting ready for this and I kept thinking, oh actually our numbers look better on a statutory basis than I expected and the answer was because we haven't had any big massive one-off costs so I then started going back year after year after year there's been this huge one-off costs to save overheads and our results have just got worse so we've taken to one of the theoretical cost ratings and lost more than that in the top line that is a road to ruin and a road that we are not going to go down we are at a very classical point in this cycle where we are somewhere near the bottom slashing and burning operational capability so we aren't hit for purpose when the inflection point naturally comes, that is not a path forward. I'm not saying there isn't an area where we will have to address overhead at some point in time but for right now our focus has been very very much focused on operational abilities as well as those key indirect appointments I'm reading lots of announcements on how people have improved their profits and telling us how many locations have closed and how many staff they've got rid of. Great. Richard's got 200 more people directly operating in the business today than he had in January. And yet Duncan and the team have done a great job in discretionary overhead control, which has allowed that to not adversely affect the margin. So we are reinvesting in the business. Travis Perkins is open for business again. Toolstations. The Tool Station has delivered a really good performance. The UK in particular has seen both good growth in profitability and it's seen good growth in momentum in terms of its top line growth and has a series of initiatives that I'm quite excited about which will further enhance its proposition to trade customers. I also think Tool Station rightly is very much a standalone business at the moment. Longer term, its potential as being a central plank in a full range offering to a range of our customers is a very important strategic position for this group. To be fair, we're nowhere near ready to exploit that opportunity right yet. We need each of the three individual verticals to be strong in their own right, because the problem with any broad proposition is you're as strong as your weakest link and each individual link is not strong enough yet, but it clearly has the potential of being the front end for fast, flexible omnichannels offering to our customer base. So I'm excited about that. In terms of the overall tool station numbers, they've been adversely affected by Benelux. But this is another one where you sit there and go, how many ways can this business find to shoot itself in the foot? The answer seems to be endless. What we did, we saw good improvements. We were still clearly heading to a far better position in Benelux during the course of last year. And some bright spot decided what we really need to do now is change the website and put on marketing expenditure. And you can see what impact that has had on our online sales in Benelux. The store performance, the like-for-like store performance, people liking the proposition, walking in the door and buying for us, has been really, really positive. We've just made it almost impossible for them to buy off us online. So again, I think the fixes are broadly in place again. And I think you will start to see some momentum in the second half where I'm not saying Benelux is going to break even again, which is probably where we started off, but it's going to make a much smaller loss than it did historically and it's certainly a much smaller loss than it did in the first half. So, that short introduction wasn't that short in the end really. Let me try and summarise where I think we are. As I said, Obvious series of challenges. Business needed to be settled down. Suppliers needed to be settled down. Part of the job today is to settle you all down too in terms of the direction and financial capabilities of this business. As we've gone through this, I have been increasingly impressed by the efforts and the quality of the talent that I have found in this business. What we needed to do was give them a voice, put them in the right structure, and give them some basic tools to succeed. And if I look at the sequential improvement through the quarter, it's starting to bear some fruit. Now, it's early days in our recovery. There will be another headwind. There will be something else happening. that we have started some time ago that will come out of the woodwork because that's what happens in early stages recovery. It's never completely linear and the market is fairly tough. However, people are leaning into this and I'm very, very impressed with the level of enthusiasm and energy in the business and I would like to take this opportunity to thank all of our colleagues who have really made a difference when they could have given up. given the scale of the difficulties that we've faced in most recent times. So we are going into the second half with a little bit of momentum, a little bit. We're going into it with a little bit of optimism that if we can just settle it all down, it ought to look and feel a bit better. But we're also going into it with a realism that early in the recovery, markets aren't great. So how that all manifests itself out in financials That's a tough guess and so the tough part of the task therefore I will hand over to Duncan.

Thanks Geoff, good morning everyone. So I'll start with the usual financial overview slide which we cover. Revenue for the half was 2.3 billion, down 2.1% on prior year, and that translated into an adjusted operating profit of 63 million and an adjusted earnings per share of 13.3 pence per share. I'll take you through the mechanical elements of the revenue and profit walk later on, but at a high level, those two comparatives to prior year reflect the trading and operational dynamics that Geoff has just outlined. We've maintained a strong focus on cash generation, which has enabled us to further strengthen our balance sheet despite the reduction in earnings. Net debt before leases is down 56% to $103 million, with net debt to adjusted EBITDA down 40 bps to 2.3 times. This is the culmination of 18 months' worth of effort and focus in tightening our grip on how we utilise and allocate our cash resources across the group, and the benefit of streamlining our portfolio by accessing non-core or loss-making operations. The implementation of Oracle last year meant that we've arrived at this destination in a non-linear way. Finally, the Board is recommending an interim dividend of 4.5 pence per share, in line with our prevailing dividend policy and payable on 7 November 2025. If I come onto the revenue slide next, and I'm not going to repeat all the detail Jeff has already provided around where we've been and how we've started to recover, but you can see from the chart that loss of volume in merchants has been our biggest driver. In addition, compared to the prior year, we have one fewer trading day. It's hard to fully detangle the impact of our own operational challenges with the ongoing subdued market backdrop. For example, We started the year with a very weak January and February, as others have also reported in the sector. But this was also a time when we were continuing to wrestle with the Oracle implementation. We were making a number of senior management changes and we were also carrying several vacancies. As the half has progressed and we've introduced more stability for our teams and refocused on our customers, we have seen our sales line respond accordingly. A warm spring and early summer, has provided the basis for better comparatives in seasonal lines and landscaping, but the competitive intensity has endured. And as you can see from the pricing and mixed bar, we are not managing to achieve a contributory pass-through of manufacturers' price increases as deeper promotional activity has been necessary to turn around our volume performance. The final element of recovering our sales momentum is to ensure we are not closing any branches. It sounds fairly obvious, I know, but we have in recent years exited markets and geographies in the UK, which has made short-term sense, but weakened our longer-term standing and footprint. We believe protecting our national reach and share is key for when the market does fully recover. Over onto the next slide and the adjusted operating profit walk. The first two bars are a reflection of the drop-through impact on trading that I've just outlined. So, stronger promotional activity to address some of our volume loss, but still with a lower level of volume in the business in the first half, most notably in January and February, with an improving trend thereafter. Property profits were slightly lower than prior year, with the overall contribution this year to be strongly second-half weighted, and I'll return to that in guidance later on. Toolstation UK's ongoing growth contributes an incremental £7 million, and Toolstation Benelux is around £1 million favourable to prior year. On overheads, we've obviously had to absorb a part-year effect of the national insurance increase, worth around 4 million for the half, along with other general cost inflation. And we've successfully managed that by maintaining a strong level of cost discipline across the group, which has yielded a net 4 million pound reduction in overheads compared to prior year. On the next slide, I've outlined the key line items that have shaped our cash generation. you can see that despite the lower contribution from EBITDA compared to last year, we have managed to generate a net cash inflow of $88 million. Working down the table, you can see that the largest difference arises in the debtors-creditors line. This has principally been driven by the continued progress we've made in embedding Oracle into the organisation. I outlined at the year end that the invoice matching issues we were experiencing were creating two specific challenges. Firstly, and e-to-pay suppliers on account, often more promptly than our usual payment terms, to ensure we could minimise trading friction, and secondly, where we were making a direct or dropship sale, having challenges in settling supplier invoices so that we could then raise our own invoices for customers and therefore collect outstanding debt. Colleagues in all parts of the group have worked hard to clear this backlog and implement changes to our processes to ensure it doesn't rebuild. And accordingly, we have been able to draw back down the payments on account and collect our debt in line with our terms, both of which have combined to deliver a £75 million cash inflow. It is clear that offering credit in this market is becoming increasingly important to our customers and will be an important differentiator for the foreseeable future. So it is particularly pleasing we've managed to get back into business as usual in this area. I'd like to repeat my thanks to our colleagues and also to our customers and our suppliers who we value greatly for bearing with us during this transition. Elsewhere in working capital we've maintained the discipline we implemented last year on the depth and breadth of stock that we are holding. Capital expenditure remains tightly controlled as well but as we start to de-level the group and move into better trading conditions we will re-expand our expenditure as we invest in our core proposition. bringing down the average age of our fleet and upgrading the older parts of our estate remains a medium-term priority and we need to sensibly balance this against maintaining a strong balance sheet. In May, we announced we had divested Staircraft for a consideration of £24 million. Whilst Staircraft is a high-quality business in its field, the Board concluded that holding a manufacturing business in the portfolio was not consistent with the group's strategy going forward. and the capital should be recycled to support our capital allocation priorities. The accounting for Staircraft was largely catered for in the full year 24 accounts with the associated impairment, meaning the impact on the full year 25 income statement is immaterial. Finally, I continue to believe that further opportunities exist for us to release cash from the group in a sensible and productive way, but clearly our main focus is now on enhancing profitability and cash generation from our underlying trading operations. So if I briefly summarise the impact that these cash movements have had on leverage, net debt for the half was $710 million, down $135 million on year end, and down $212 million since December 23, reflecting that 18-month journey I referred to at the start. In fact, if you take into account the cash outflows associated with the group's restructuring activities and closing Tool Station France, which we've also incurred over that same time horizon, at a gross level, we've unlocked over a quarter of a billion pounds of trapped capital in the past 18 months against a backdrop of declining profitability. The exit of Staircrafts and Tool Station France both contribute to the reduction in lease liabilities shown. And accordingly, net debt to adjust the EBITDA falls to 2.3 times and ex-leases to 0.3 times. In the half, we also successfully refinanced half of our £250 million corporate bond due to mature in 2026 with £125 million of US private placement debt secured on an investment grade basis. This debt has maturities ranging from 2028 to 2035. at an average coupon of 6.4%. We have a plan in place to refinance the remaining half of this bond, which will ensure the group has long-dated, competitively priced financing in place and benefits from a diverse capital structure. When this is complete, we will update you with updated medium-term guidance on financing costs. I remain strongly of the view that a business of our size, scale and complexity should be run as an investment-grade entity for lenders and so I reiterate our commitment to returning the group to our long-term guided range that consistently supports this aspiration of 1.5 to 2 times. And so I'll close with outlook and specific guidance. We expect the trading environment to remain challenging and unpredictable. In a world of low volume growth, competitive pricing and excellent customer service remain key to securing business. And you've heard Jeff talk about the progress we're making in these areas. We expect the second half to be very similar. From a guidance perspective, we expect base capital expenditure to be around $80 million for the full year and property profits to be slightly higher than we guided at year end at $8 million. Our expected full year 25 effective tax rate is around 30%. Finally, given the first class results and our view on the outlook for the second, we expect adjusted operating profit, including that slightly higher property profits contribution, to be broadly in line with current consensus. And with that, I think we can move to Q&A. Thank you very much.

A few questions from me. The first one was on overhead savings. You touched upon looking at savings on discretionary expenses. Could you give us some examples of where these savings have come from? And when you think about the H1 performance at the overhead line, you know, to what extent are there incremental OPEX savings and what was potentially an annualization of actions that you've taken last year? Just to get a sense of what flows into the second half. The second question was on gross margin. I think, you know, we've seen a slightly stronger trend in tool station gross margin, which has helped kind of navigate a slightly better outcome at a group level. How much of that is sustainable into the second half? And from a procurement perspective, are there any sort of savings that you're seeing which is helping the gross margin outcome for tool station? And the last one was just on the merchanting market share. You've touched upon that you've seen stability. Can you give us some sort of incremental colors? What gives us confidence as we step into the second half that this should continue, i.e., competitively have things broadly come back to a level playing field? In addition to the disruption from Oracle implementation that's likely to ease from here, from a competition perspective, are things more disciplined now?