Travis Perkins eyes efficiencies, divestments as part of new strategy
Travis Perkins has lifted the lid on its new strategy, including improving returns in the general merchanting division over the medium-term, and strengthening the performance of its Wickes chain and selling off its Plumbing & Heating division in the short-term.
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A potential spin-off of consumer-focused Wickes will also to be examined in future.
The FTSE 250 builders' merchant provided an overview of the new plan of "simplifying our business to improve returns" ahead of a capital markets day presentation given to investors and analysts later in the day.
Following a review of the business, management concluded that the group should focus on "serving trade customers through advantaged businesses in attractive markets, and will simplify the group to reduce complexity and cost to drive returns".
Simplifying the business aims to reduce complexity, including the potential sale of the Plumbing & Heating division, speed up decision making and deliver annualised cost savings of £20-30m, which will be delivered over the next 18 months.
"Our trade businesses hold strong positions in attractive markets, and these initiatives will enable us to concentrate our management time and capital in the highest returning areas," chief executive John Carter said in a statement on Tuesday.
He and the board see "robust" long-term growth drivers of the business, pointing to a continued shortage of housing in the UK and perceived underinvestment in the maintenance and improvement of the existing housing stock.
However, in the shorter term, management acknowledged that market conditions are not quite certain, impacting secondary housing market transactions and consumer confidence.
Focusing on building trade through advantaged businesses, means the target is to "deliver sales growth through market outperformance, building on the momentum in the Contract Merchanting businesses, the continuing strong growth in Toolstation, and a reinvigoration of our market-leading General Merchanting business".
With the General Merchanting division a powerful driver of profitability and cash flows, management aims to improve returns "through a rebalancing of decision making and an increase in local empowerment of the branch manager and sales teams", with extra cash flow delivered over coming years to be used in the reinvigoration of the division.
In the short term, the focus will be on strengthening the performance of Wickes, which has been a success story with customers in the DIY, small trade and Kitchen & Bathroom markets.
Noting that it is predominantly a consumer focused business, the board will also look to "review the options for maximising the value of Wickes in the medium term".
While lower costs and capital expenditure are expected to deliver the extra cash to invest in the business, there should also be enough to target a lease adjusted debt to EBITDAR ratio of 2.5x and keeping up the progressive dividend policy, while also completing the major IT programmes and expanding both the Toolstation UK and Europe businesses.
"Our strong balance sheet and free cash flow generation, driven by growing earnings and lower capital expenditure, will underpin our commitment to drive shareholder value and a progressive dividend," said Carter.