Travis Perkins PLC

LSE:TPK

Well,

good

morning

to

you

all,

and

a

warm

welcome

to

everybody

in

the

room

and

on

the

webcast,

for

our

first

in-person

results

briefing

in

two

years,

which

has

been

rather

denuded

unfortunately

by

the

Tube

strike.

I

would

also

say

to

you,

Dydd

Gŵyl

Dewi

Hapus,

Happy

St.

David's

Day

from

me

to

you

all.

I'll

open

with

some

reflections

and

then

hand

over

to

Alan

for

our

financial

and

operational

update

before

I

return

with

a

strategic

update

and

look

ahead.

Let

me

first

capture

the

year,

if

I

may.

2021

was

a

year

of

significant

progress

for

the

group.

We

successfully

navigated

a

very

challenging

market

in

all

our

businesses

and

produced

what

we

think

is

a

superb

financial

performance.

Our

performance

underpinned

by

operational

and

strategic

progress

across

the

group.

We

were

true

to

our

promise

to

focus

on

the

trade

and

simplify

the

group.

We

demerged

the

Wickes

business,

we

sold

our

Plumbing

&

Heating

business,

we

strengthened

our

balance

sheet,

and

we

repatriated

excess

capital

to

shareholders,

all

the

while

growing

our

business;

new

branches,

new

propositions,

new

digital

channels,

and

winning

share

by

focusing

on

our

strategy

for

the

future

to

be

the

leading

partner

to

the

construction

industry.

That

means

doing

more

for

our

customers

by

adding

new

and

exciting

capability

to

our

business

and

it

strengthens

our

investment

story

for

new

and

existing

shareholders.

All

of

which

is

enabled

through

our

energized

and

confident

teams

across

the

business,

full

of

confidence,

full

of

self-belief

after

a

challenging

yet

exhilarating

couple

of

years

in

the

business.

And

they

feel

that

they

have

the

support

and

the

capability

to

win

and

execute

the

strategy.

So,

I'm

incredibly

proud

of

what

we've

achieved

last

year

and

how

now

we

are

well-positioned

for

the

future,

remaining

true

to

who

we

are

and

our

purpose.

We're

here

to

build

better

communities

and

enrich

lives.

And

that's

a

theme

I'll

return

to

later.

But before that, over to Alan.

Thanks,

Nick.

And

good

morning,

everyone.

So

as

Nick

mentioned,

the

group

delivered

a

really

excellent

performance

in

2021

in

addition

to

delivering

the

demerger

of

Wickes

and

the

disposal

of

Plumbing

&

Heating.

On

that

note,

I

should

remind

you

that

the

2020

income

statement

and

cash

flow

have

been

restated

to

exclude

the

discontinued

operations.

And

any

comparisons

that

I'll

draw

to

2019

will

also

be

on

a

continuing

operations

basis.

The

group

recovered

strongly

from

the

pandemic

with

annual

revenue

growth

of

24%,

helped

by

both

strong

execution

and

the

market

recovery.

Perhaps

more

meaningfully,

revenue

was

over

10%

higher

than

in

2019

with

broadly

similar

growth

overall

in

each

half

on

a

two-year

basis.

Adjusted

operating

profit

was

also

significantly

ahead

of

2020,

and

some

19%

of

ahead

of

2019

on

a

comparable

basis

with

consequent

growth

in

operating

margin.

The

strong

operational

performance

alongside

continued

disciplined

capital

management

led

to

a

much

improved

return

on

capital

employed

at

12.1%

excluding

property

profits.

Net

debt

to

EBITDA

leverage

on

an IFRS

16

basis

reduced

to

1.2

times.

And

on

a

pro

forma

basis,

that

is

adjusting

for

the

proceeds

of

the

P&H

disposal

still

to

be

returned

to

shareholders

at

the

yearend.

We're

at

the

lower

end

of

the

range

that

we

laid

out

in

September

last

year,

namely

around

1.5

times.

While

cash

conversion

was

lower

in

2021,

this

was

entirely

down

to

the

growth

in

credit

sales

year-on-year,

and

cash

conversion

looked

at

over

2020

and

2021

combined

with

over

100%.

Finally,

the

Board

is

proposing

a

final

dividend

of

£0.26

per

share

to

take

the

ordinary

dividend

distribution

for

the

year

to

£0.38

per

share

or

around

35%

of

adjusted

EPS.

This

is,

of

course,

in

addition

to

the

special

dividend

we've

paid

at

£0.35

per

share.

Looking

at

the

revenue

performance

in

more

detail,

slide

7

provides

a

bridge

of

the

key

drivers

from

2019

to

2021.

I

would

highlight

three

key

features.

Firstly,

you

can

see

the

impact

to

the

volume

declines

in

2020

from

both

the

pandemic

and

the

branch

closure

program

in

June

of

that

year.

In

2021,

there

is

an

annualization

impact

from

the

latter

but

a

very

significant

positive

contribution

from

underlying

volume

growth

at

£655

million.

The

second

key

feature

is

pricing

and

mix.

This

was

a

negligible

feature

in

2020,

but

it

contributes

£305

million

of

growth

in

2021,

an

indication

of

the

scale

and

the

successful

recovery

of

input

cost

inflation.

Finally,

in

both

years,

you

can

see

the

positive

impact

from

the

expansion

of

Toolstation.

In

aggregate

versus

2019,

revenue

was

10.6%

ahead.

Underlying

volume

has

grown

by

7%,

partly

offset

by

the

net

space

reduction

of

3%,

and

pricing

and

mix

have

contributed

a

growth

of

7

percentage

points.

Turning

to

slide

8,

I've

broken

out

the

year-on-year

drivers

of

the

strong

operating

performance

at

£353

million.

Versus

2020

of

course,

the

largest

driver

is

the

gross

profit

growth

from

incremental

volume

at

£249

million.

This

gross

profit

delivery

was

further

boosts –

bolstered

to

the

tune

of

£49

million

by

strong

margin

management.

Both

the

successful

recovery

of

input

cost

inflation

and

the

year-on-year

recovery

in

volume

related

supplier

incentives.

I've

then

highlighted

various

cost

increase

elements,

namely

the

non-recurrence

of

government

assistance

which

was

received

in

2020,

inflationary

elements,

including

the

return

to

payment

of

bonus

programs

after

zero

in

the

prior

year

and

variable

costs

to

service

the

incremental

volume.

Next,

you

can

see

the

contribution

of

£50

million from

the

annualization

of

the

branch

closure

program.

This

disciplined

approach

to

overheads

led

to

a

strong

drop

through

of

gross

profit,

resulting

in

an

operating

margin

before

property

profits

of

6.6%.

And

finally,

in

terms

of

property

profits,

these

totaled

£49

million

in

the

year,

with

cash

receipts

of

£78

million.

Our

property

team

did

an

outstanding

job

in

exiting

sites

closed

in

June

2020,

along

with

the

disposal

of

the

former

Tilbury

distribution

center.

I'm

now

turning

to

segmental

views.

If

we

start

the

reporting

segments

with

Merchanting,

the

excellent

performance

was

driven

by

the

operational

initiatives

put

in

place

over

the

last

24

months

to

strengthen

the

business

underpinned

by

the

recovery

in

end

markets.

Compared

to

2019, like-for-like

sales

were

some

12%

ahead.

Now,

as

you're

well

aware,

the

speed

of

recover

caused

some

availability

issues

and

led

to

significant

supply

price

increases.

Our

businesses

are

highly

adept

at

managing

these

issues,

and

while

availability

issues

have

now

largely

eased,

we

do

anticipate

further

cost

price

increases

throughout

2022.

At

the

Capital

Markets

Update

in

September,

Kieran

covered

the

actions

taken

over

the

last

couple

of

years

to

improve

the

competitive

position

of

the

General

Merchant

to

enhance

service,

build

capability,

and

these

actions

enabling

the

business

to

benefit

from

the

volume

recovery.

Our

specialist

merchants

also

benefited

from

improved

efficiency

following

the

2022

branch

rationalization

program

with

both

BSS

and

Keyline

achieving

record

profits.

CCF

recovered

well

despite

having

the

biggest

challenges

from

product

availability

with

key

products

and

allocation

for

much

of

2021.

Given

the

strong

operating

leverage,

operating

margin

in

2021

was

8.4%,

some

70

basis

points

ahead

of

2019.

And

as

we

discussed at

the

Q3

trading

update,

around

40

basis

points

of

this

recovery

stemmed

from

inflation

gains

and

stock

and

this

is

not

expected

to

repeat

in

2022.

I

do,

however,

expect

that

operating

margin

will

remain

around

the

8%

mark

with

mid-to-high-teens

return

on

capital

employed.

Toolstation's

outperformance

continues

with

growth

of

over

20%,

taking

a

two-year

growth

figure

to

over

50%.

Growth

in

the

second

half

was

lower

as

the

business

cycled

the

strongest

comparators

from

2020.

We

anticipate

this

will

also

be

the

case

in

the

first

four

months

or

so

of

2022

before

the

comparators

ease.

Importantly,

the

business

continues

to

perform

well

with

its

core

trade

customers.

During

H2

2021

in

the

UK

business,

we

saw

those

higher

spending

trade

customers

continuing

to

grow

at

over

20%.

In

the

UK,

revenue

grew

by

19%

and

was

54%

ahead

of

2019

with

operating

profit

growth

of

£42

million

and

an

operating

margin

of

6.3%

in

line

with

our

expectations

at

the

stage

of

the

businesses

development

and

despite

the

heavy

investments

in

the

branch

network

over

the

last

couple

of

years.

Encouragingly,

branches

open

during

the

last

three

years

are

maturing

more

quickly

than

those

open

in

previous

years.

We

anticipate

opening

a

further

60

branches

in

2022

in

the

UK

to

take

the

total

to

close

to

600

branches.

In

late

2022,

Toolstation

UK

will

open

a

new

500,000

square

feet

direct

distribution

center,

initially

servicing

Toolstation

only

but

with

the

potential

to

service

direct

light

side

sales

for

the

General

Merchants

as

well.

We

anticipate

startup

costs

expensed

through

the

operating

profit

line

of

around

£5

million

in

each

of

H2

2022

and

H1 2023.

Turning

to

Europe,

revenue

grew

by

35%

to

£92 million

as

the

network

was

expanded

by

40

branches

to

123 branches

in

total.

In

the

Benelux,

sales

grew

by

32%

with

the

Dutch

business

narrowing

losses

and

on

track

for

breakeven

by

the

end

of

2023.

In

France,

we

opened

a new

distribution

center

to

support

future

growth

in

the

southeast

and

doubled

the

number

of branches.

At

this

early

stage

of

2022,

I

would

anticipate

a

similar

loss

overall

in

Europe

to

2021.

Free

cash

flow

generation

in

2021

was

£65

million

as

working

capital

was

rebuilt

given

the

trading

recovery.

The

increase

in

working

capital

of

£152

million was

driven

entirely

by

the recovery

in

credit

sales.

The

credit

book

continues

to

be

really

well-managed

with

record-low

overdues

as

a

percentage

of

credit

sales.

The

increase

in

stock,

including

the

impact

of

cost

price

inflation,

was

fully

offset

by

the

increase

in

the

corresponding

creditor

position.

And

as

we

discussed

at

the

Capital

Markets

Update

in

September,

we

remain

very

focused

on

the

conversion

of

profits

into

cash.

And

as

I

said

earlier,

taken

together,

we

delivered

cash

conversion

of

111%

across

2020

and

2021.

Looking

at

the

breakdown

of

capital

expenditure

on

slide

12,

around

70%

of

the

base

expenditure

of

£95

million

was

on

our

strategic

priorities,

specifically

Toolstation

branch

roll

out,

putting

down

new

larger

General

Merchant

branches,

TF

Solutions

expansion,

and

tool

hire.

Maintenance

CapEx

was

lower

in

2021

as

vehicles

were

redeployed

from

closed

branches

and

the

group

experienced

lengthening

lead

times

for

vehicles

and

manual

handling

equipment.

I

would

expect

maintenance

CapEx

in

2022

to

form

around

35%

of

total

spend.

As

measured –

as

mentioned,

sorry,

earlier

in

connection

with

property

profits,

excellent

progress

was

made

on

the

disposal

of closed

sites

and

a

cash

inflow

of

£81

million

– £82

million fully

funded

the

acquisition

of

a

number

of strategic

freehold

sites

for

the

merchants

and

businesses.

Turning

to

2022,

our

updated

guidance

is

for

base

CapEx

of

around

£140

million,

ahead

of

the

previous

expectation

of

£125

million.

This

increase

is

driven

by

a

decision

to

automate

the

new

Toolstation

direct

distribution

center

and

thus

enable

us

to

better

manage

the

labor

requirement

while

delivering

a

more

efficient

and

lower

cost

service.

If

I

move

on

to

capital

structure,

the

balance

sheet

has

been

transformed

as

a

result

of the

portfolio

actions.

Net

debt,

as

measured

for

covenant

purposes,

was

£87

million

at

the

31st

of

December,

with

lease

liabilities

reduced

by

over

£900

million

over

the

last

two

years.

At

the Capital

Markets

Update

in

September.

I

set

out

for

you

a

target

leverage

range

of

1.5 times

to

2

times

on

a

lease

adjusted

basis.

This

is

compatible

with

investment

grade

debt

metrics,

and

hence

an

optimized

cost

of

funds

for

the

group.

I

said

we

want

to

operate

towards

the

lower

end

of

the

range

in

the

next

couple

of

years,

and

on

a

pro

forma

basis

adjusting

for

P&H

proceeds

still

to

be

returned

via

buyback,

yearend

leverage

was

1.5

times.

You

will

have seen

that

we

have

announced

this

morning

the

final

tranche

of

that

buyback

program,

having

completed

£170

million

to-date

to

return

the

P&H

proceeds

to

shareholders

in

full.

The

significantly

strengthened

balance

sheet

enables

the

group

to

invest

in

strategic

growth

opportunities,

such

as

the

expansion

of

Toolstation

and

the

acquisition

of

Staircraft,

while

at

the

same

time

creating

a

scope

for

additional

shareholder

returns

over and

above

the

ordinary

dividend.

So

in

terms

of

the

outlook,

the

lead

indicators

for

our

markets

remain

encouraging

with

improved

levels

of

housing

transactions,

leading

to

ongoing

strength

in

both

RMI

and

new

house-building.

We've

seen

an

improvement

in

commercial

markets

particularly

in

commercial

RMI,

and

the

outlook

for

infrastructure

is

positive.

As

we've

demonstrated

in

2021,

we're

very

adept

of

recovering

input

cost

inflation

through

pricing

activity

and

at managing

availability

challenges

effectively.

The

group

is

in

great

shape,

and

given

the

robust

end-market

demand

and

a

positive

start to

the

New

Year,

we

are

confident

of

making

further

progress

in

2022.

And

with

that,

I'll

hand

back

to

Nick

and

look

forward

to

taking

questions

later.

Excellent.

Thanks,

Alan.

I

hope

you

agree

that

what

Alan

has outlined

represents

a

tremendous

operational

and

financial

performance.

So

now,

I'm

just

going

to

touch

on

some

elements

of

the

strategic

progress

that

we've

made

since

we

last

met

at

the

end

of

September.

First,

let's

just

remind

ourselves

of

the

dynamics

of

some

of

our

end-markets,

just

to

build

out

some

of

the

comments

that

Alan

made.

Being

blunt,

the

planning

system

and

the

construction

industry

is

failing

to

meet

the

needs

of

the

country

in

terms

of

new

and

affordable

housing.

And

UK's

legacy

housing

stock

remains

underinvested,

particularly

in

terms

of

energy

efficiency.

Furthermore,

we

have

to

continue

to

repair,

maintain

and

improve

our

social

infrastructure;

schools,

hospitals,

prisons,

other

public

buildings,

and

that

work

is

well-served

by

our

specialist

merchants,

BSS,

CCF

and

the

General

Merchant.

And

infrastructure

continues,

quite

rightly,

to

attract

high levels

of

investment

and

a

positive

policy

backdrop

from

the

government.

But

these

needs

support

our

view

that

our

markets

remain

robust

in

the

long-term,

particularly

from

the

RMI

perspective.

In

addition,

our

customer's

requirements

and

their

needs

and

their

behaviors

continue

to

change

in

the

construction

process,

the

industry

we

serve

continues

to

change

as

we

face

into

labor

and

skills

challenges

and

the

need

to

use

different

materials

and

materials

more

efficiently

in

the

construction

process

and

to

continue

to

take

out

cost

and

complexity.

So

against

this

backdrop,

we

continue

to

feel

that

we

are

uniquely

placed

to

be

at

the

forefront

of

the

change

and

benefit

from

those

positive

market

dynamics.

So

against

that

backdrop,

let's

have

a

quick

recap

of

what's

at

the

core

of

our

strategy

that

we

ran

through

back

at

the

end –

at

the

back

end

of

September.

We

remain

absolutely

relentless

in

our

focus

on

our

relationship

with

our

customers

to

meet

their

needs

now

and

in

the

future.

And

that

is

all

in

service

of

us

achieving

our

ambition

to

become

the

leading

partner

to

the

construction

industry,

but

this

requires

us

to

do

more

for

our

customers.

So

how

are we

doing

that?

So

as

before

we

recognize

two

key

customer

cohorts

for

our

business;

our

professional

trades

and

general

builder

customers

who

really

need

price

transparency,

stock

accuracy,

convenience,

particularly

around

and

increasingly

around

Click

&

Collect,

delivered

fulfillment, accuracy, expertise

on

materials particularly

with

respect

to

sustainability

increasingly.

And

our

larger

developer

and

contractor

customers

who

need

fulfillment

reliability,

accuracy,

seamless

data

integration,

sustainability

advise

again

increasingly,

and

removing

time

and

complexity

on

their

sites.

So,

we're

actively

deepening

our

relationship

with

our

customers

to

earn

a

greater

share

of

their

wallet

by

doing

what

we

do

in

a

simpler

and

more

convenient

way

for

them.

But

we're

also

elevating

our

relationship

with

our

customers

by

adding

new

value

and

more

value

to

their

businesses,

taking

away

costs,

taking

away

complexity,

reducing

time

on

sites,

introducing

them

to

more

efficient

materials

and

ways

of

working.

And

we're

to

solve

our

customers'

problems

fundamentally.

As

we

made

progress,

we

remain

focused

on

delivering

this

value

through

our

five

leading

business

units.

But

we're

also

leveraging

the

power

of

our

group

assets

to

bring

additional

value

to

our

customers. And

I'll

cover

that.

So,

let

me

take

you

through

some

areas

of

progress.

And

I

stress

that

these

are

not

exhaustive.

We've

got

multiple

areas

in

play.

But

I

just want

to

give

you

a

sense

of

the

progress

we're

making

and

how

we're

putting

capital

effectively

to

work.

So,

we

continue

to

make

great

progress

in

deepening

our

relationship

with

our

customers

by

really

optimizing

our

branch

channel

experience

and

really

being

disciplined,

as

Alan

said,

in

our

investment

in

our

branch

channels.

And

it's

all

in

service

of

making

us

more

convenient

and

simple

to

do

business

with;

accurate,

simple,

convenient,

right

stuff

at

the

right

place

at

the

time

for

our

customers,

all

underpinned

by

our

knowledgeable

colleagues

in

our

branches.

So,

we

continue

to

open

new

destination

branches

where

we

can

further

grow

market

share

and

actually

integrate

services

around

the

core

product

offer.

So,

that's

higher

and

Benchmarx

into

our

TP

branches.

As

Alan

mentioned,

TF

Solutions

and

higher

into

our

BSS

branches.

And

these

new

and

existing

branches,

we're

really

investing

in

capability

in

our

colleagues

to

really

increase

the

penetration

of

our

customer

base

with

a

deeper

and

broader

offer.

When

you

visit

these

destination

branches,

I

was

out

in a

number

last

week,

they

really

work

and

customers

love

them.

They

really

love

the

fact

that

integrated

services

are

juxtapositioned

with

our

core

product

offer.

But

we

continue

to

invest

in

new

branches

as

well.

New

CCFs

in

West

London

and

East

Birmingham,

and

we've

expanded

our

TF

branch network – TF Solutions

branch

network

by

five

last

year.

And

we

anticipate,

as

we

said

at

the

CMU,

a

more

than

30%

return

on

the

investment

in

new

and

redeveloped

General

Merchant

branches

alike.

As

Alan

touched

on,

we

continue

to

roll

out

our

Toolstation

network.

77

new

branches

in

the

UK,

that's

now

a

total

of

just

over

530,

123

now

in

Europe.

And

we're

successfully

deepening

the

relevance

of

our

Toolstation

branches

to

our

trade

customers

by

our

new

essentials

front-of-house

range

core

trade

items

that

are

regularly

needed

for

replenishment

right

at

the

front

of

the

branch.

And

our

trade

customers

absolutely

love

that

sort

of

development.

And

it's

coupled

with

new

trade

credit

services

in

our

Toolstation

business,

uptake

of

which

has

accelerated

over

the

last

few

months.

And

we've

also

opened

our

first

Toolstation

branch

in

a

new

TP

branch

in

Swindon.

Absolutely

true

to

us

furthering

the

collaboration

between

our

businesses

and

again

making

it

simpler

and

more

convenient

for

our

customers

to

get

what

they

need

in

one

place

and

deepening

our

relationship

with

them.

So,

it's

too

early

to

discuss

progress

on

that,

but

we're

moving

forward

with

that

collaboration

really

positively.

But

it

doesn't

stop

there.

So,

we're

using

technology

to

further

deepen

our

relationship

with

our

customers.

Progress

through

our

online

and

app

channels

has

been

really

positive

over

the

last

year.

This

time

last

year,

we

had

a

basic

online

presence

in

our

General

Merchant

and

a

good

robust

online

presence

in

Toolstation.

We've

now

got

vastly

improved

online

channels

for

our

customers

using

AI

to

really

optimize

the

experience

that

they

get, and

the

feedback

for

that

online

channel

has

been

fabulous.