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Thu February 20 2020

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Plumbing problems weigh on Travis Perkins

2 Mar 17 Builders’ merchant group Travis Perkins saw its profits nosedive in 2016 after reorganisation of its plumbing & heating operations.

PTS – a Travis Perkins brand
PTS – a Travis Perkins brand

Travis Perkins’ 2016 revenue was up 4.6% for the year to 31st December 2016, reaching £6,217m. Pre-tax profit was down 67% to £73m (2015: £224m), primarily due to an impairment charge of £235m recognised against goodwill and other intangible and tangible assets in City Plumbing, PTS, F&P, bathrooms.com, Solfex and Tile Giant.

The plumbing & heating market (which contributed £1,359m to Travis Perkins revenues in 2016) has been flat over recent years, Travis Perkins said, with declines in the social housing sector offset by growth in private new build and more modest growth in repair & maintenance work.

 “Both the contract and local installer markets are increasingly competitive, with the traditional plumbing merchant channels under pressure from the significant expansion of online, fixed price multichannel operators and strong local and regional independents,” Travis Perkins said. “As a result of these market changes, conditions may worsen in 2017.”

The company’s plumbing & heating division has already been reorganised in the past couple of years and further restructuring is ahead.

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The social housing boiler and heating replacement market has remained difficult with traditional merchants competing aggressively on price for business impacting PTS. The PTS management team developed a lower cost branch operating model in the year and trialled the model in a small number of locations.

Chief executive John Carter said: "2016 was another solid year for the Group, with continued strong performances from the Consumer, Contracts and General Merchanting divisions, which together contributed 90% of Group adjusted operating profit. These businesses continued to benefit from the investments made in the branch network and customer propositions over the last three years, which provides a strong base for future growth.

“It was a much more difficult year for the Plumbing & Heating division driven by structural challenges for traditional merchant businesses in this segment. Whilst the network restructuring work carried out in 2014 and 2015 created a more focused branch network, further work is required and over the next six months we will be exploring all routes to enhance returns. There are improvements we can make to the ranges we offer to our customers, our availability, our online presence and our service proposition.

“The macro-economic outlook of the UK is mixed. The sharp decline in the value of sterling since June 2016 has created cost pressures on imported goods and materials, and the expectations for secondary housing market transactions and growth in the RMI market have weakened. We have a proven track record of managing our cost base and took decisive action in October 2016, announcing a restructuring programme to close underperforming branches and improve supply chain efficiency. We enter 2017 with a strong balance sheet and will continue to invest selectively in our leading businesses to further strengthen our competitive advantages which will enable us to continue to outperform and drive shareholder value over the medium term.”

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