Divisional performance

General Merchanting
Performance 2016 2015 Change
Total revenue £2,073m £1,972m
5.1%
Like-for-like growth 2.9%
Adjusted operating profit £207m £199m 4.0%
Property profit £14m £17m -
Adjusted operating profit excluding property £193m £182m 6.0%
Adjusted operating margin excluding property 9.3% 9.2% 10bps
LAROCE 15% 16% (1)ppt
Branch network 833 813 20
Adjusted operating margin (including property) 10.0% 10.1%  

General Merchanting demonstrated continued market outperformance with revenue growth of 5.1% and 1.7% on a like-for-like basis.

Operational highlights

  • The programme to modernise Travis Perkins branch formats continued, with 52 branches now operating with the new shop and yard layouts. Initial returns from these investments are encouraging with strong sales growth and positive customer feedback. 
  • The business also trialled a new branch concept at Staples Corner in London with a new counter format, significantly extended lightside ranges, a new pricing structure, a new layout and extended seven-day opening hours. 
  • Utilisation of the heavyside range centre network continued to improve driving strong revenue growth as customers took advantage of faster access to a broader range of products. The heavyside product range available to customers on a next-day basis was increased by over 15% to 3,500 products, with a further 3,000 products available within 48 hours. The Benchmarx business further refined the range of kitchens leading to robust like-for-like revenue growth and market share gains in the trade kitchen market.
  • Further progress was made on improving the multi-channel proposition for Travis Perkins, with a transactional website now offering a two-hour click-and-collect service launched nationwide on 19,000 locally stocked SKUs. 
  • An initiative to more closely align the distribution network with the businesses led to improved inventory control, allowing more efficient stock holding across the network, as demonstrated by Group inventory being held broadly flat despite the growth in sales. Further work was carried out to ensure that the right ranges are available in branch with extended ranges held upstream alongside direct to customer deliveries managed through suppliers. 
  • In 2016, thirteen former Keyline branches were rebranded as Travis Perkins. Travis Perkins opened six new branches, relocated seven to more suitable sites and closed 14 underperforming branches and the Group‟s timber supply centre at Ferndown. 18 new Benchmarx branches were opened in 2016, including five as implants in existing Travis Perkins sites or located as part of a Travis Perkins trade park. The marginal return on investment in new Benchmarx branches continues to be very strong.

Financial Performance

  • General Merchanting adjusted operating profits increased by £8m to £207m in 2016 (2015: £199m). There was a £3m reduction in property profits to £14m (2015: £17m).
  • Excluding property, operating profit grew by 6% to £193m (2015: £182m), marginally ahead of revenue growth. 
  • The division incurred £11m of exceptional charges in the year within the £57m Group charge.

LAROCE reduced modestly to 15% (2015: 16%), with growth in operating profits offset by the increase in capital employed following the investments made in the branch and distribution networks, store formats, and growth in trade debtors through higher credit sales. These investments are expected to drive market outperformance in 2017 and beyond.

Plumbing and Heating
Performance 2016 2015 Change
Total revenue £1,359m £1,371m (0.9)%
Like-for-like growth 0.4%
Adjusted operating profit £39m £46m (15.2)%
Property profit £3m - -
Adjusted operating profit excluding property £36m £46m (21.7)%
Adjusted operating margin excluding property 2.6% 3.3% (70)bps
LAROCE* 10% 11% (1)ppt
Branch network 436 463 (27)
Adjusted operating margin (including property) 2.9% 3.3%  

* 2015 has been restated for comparative purposes to allow for impairments in 2016 against goodwill and other intangible and tangible assets in City Plumbing, PTS, F&P and Solfex

Revenue in the Plumbing & Heating division declined by 0.9% in 2016 and by 1.6% on a like-for-like basis.

Operational highlights

  • The branch conversion programme was completed at the end of 2015. This work aligned PTS to the contract installer market offering a lower cost to serve on larger volumes. The City Plumbing business was aligned to the local installer market offering expertise, local delivery, good access to extended ranges such as boiler spares and assistance to bathroom installers in designing bathrooms for their retail customers.
  • Although City Plumbing grew its sales during the year, the growth in sales was below the Group's expectations. The branches converted from the PTS format in 2014 grew well, but the branches converted in 2015 delivered more modest increases in sales and profit.
  • 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.

Financial performance

  • Adjusted operating profits fell by £7m to £39m (2015: £46m). Property profits were £3m (2015: nil).
  • Adjusted operating profit excluding property profits fell by 21.7% to £36m. Adjusted operating margin excluding property, fell by 70bps to 2.6% (2015 3.3%) driven by higher overall cost to serve in the division.
  • LAROCE fell to 10% (2015: 11% restated for impairment to goodwill and intangible and tangible assets in 2016) principally driven by the reduction in operating profits.
  • The division incurred £19m of exceptional charges in the year within the £57m Group charge. These costs included £6m in respect of 28 branch closures, £12m cost in relation to the reorganisation of the F&P distribution network and £1m of other associated costs.
  • Following a review of the cash flow projections of the division, and in light of the continuing difficult market conditions and growth of online and fixed price operators an impairment charge of £213m has been recognised. All of the remaining assets in PTS and F&P have been impaired, excluding those assets which are genuinely transferable, and a charge of £189m has been taken against goodwill in the City Plumbing business.

The Group is developing a comprehensive transformation plan to address the challenges in the Plumbing & Heating division and will provide regular updates as to the plan and progress against it, starting at the 2017 interim results announcement.

Consumer
Performance 2016 2015 Change
Total revenue £1,518m £1,386m 9.5%
Like-for-like growth 6.5%
Adjusted operating profit £101m £95m 6.3%
Property profit - £2m  
Adjusted operating profit excluding property profits £101m £93m 8.6%
Adjusted operating margin excluding property profits 6.7% 6.7% -
LAROCE* 8% 7% 1ppt
Branch network 617 571 46
Adjusted operating margin (including property) 6.7% 6.8%  

* 2015 has been restated for comparative purposes to allow for impairments in 2016 against goodwill and other intangible and tangible assets in Tile Giant and bathrooms.com

The Consumer division delivered strong revenue growth of 9.5%, up 6.4% on a like-for-like basis, resulting in continued strong market share gains for both Wickes and Toolstation.

Operational highlights

  • The continued roll out of new Wickes store formats is offering customers a simpler shopping experience with access to improved ranges. The new format is also enabling Wickes‟ trade customers a faster way to buy their products and get back to work. A further 46 new Wickes store formats were opened in 2016, bringing the total number of new format stores to 62. The new formats provide more inspiration for DIY customers through much improved kitchen and bathroom displays and design centres. The programme to roll out further new formats will continue in 2017. 
  • The Wickes distribution centre network was rationalised, reducing to a single centre in Northampton which now serves all store and direct to customer deliveries.
  • Wickes continued to invest in their value propositions in order to maintain market-leading prices and drive continued growth in market share. The business undertook further range review activity in 2016 in tandem with the further development of its new store format with particular success in bricks and blocks and garden maintenance. 
  • The online proposition in Wickes continues to evolve, with nationwide click & collect within 1 hour, one hour time slots for home deliveries and same day delivery on up to 7,000 products. Initial customer feedback has been very positive, and Wickes has achieved over £100m of online sales in 2016 for the first time.
  • Expansion of the Toolstation network continued in 2016, with a further 36 stores opened in the UK, and seven shops opened in the Netherlands. Online only ranges were introduced for the first time with over 1,000 products available to customers along with improved marketing campaigns. Click and Collect order availability was improved to within 20 minutes with many orders available almost instantaneously. Further online range extension is planned in 2017 and the store opening programme will accelerate further in the Netherlands.

Financial performance

  • Adjusted operating profits increased by £6m to £101m (2015: £95m). No property profits were recognised in 2016 (2015: £2m).
  • Adjusted operating profits, excluding property profits, increased by 8.6%. 
  • Adjusted operating margin, excluding property profits, was unchanged with further investment in value for customers offset by operating leverage and further improvements in operating efficiency. 
  • Lease Adjusted Return on Capital for 2016 improved to 8% (2015 restated: 7%). The division continued to increase returns through highly accretive investments in store openings and reformats together with improvements to customer value and range. 
  • The division incurred £14m of exceptional charges in the year within the £57m Group charge. These costs included £9m of costs in relation to the reorganisation of the distribution business and £4m of other associated costs.
  • Following a review of the cash flow projections of Tile Giant, and in light of the continuing difficult market conditions, an impairment charge of £19m has been recognised against goodwill, and a £3m impairment charge has been taken against the assets of bathrooms.com
Contracts
Performance 2016 2015 Change
Total revenue £1,267m £1,214m 4.4%
Like-for-like growth 2.7%
Adjusted operating profit £76m £83m (8.4)%
Property profit - £5m  
Adjusted operating profit excluding property profits £76m £78m (2.6)%
Adjusted operating margin excluding property profits 6.0% 6.4% (40)bps
LAROCE 12% 14% (2)ppt
Branch network 170 181 (11)
Adjusted operating margin (including property) 6.0% 6.9%  

Sales growth in the Contracts division was 4.4%, and 5.0% on a like-for-like basis.

Operational highlights

  • Keyline achieved strong like-for-like sales growth in 2016, with the growth rate increasing in the second half of the year demonstrating further market share gains in the heavy civils and drainage market. Overall sales were modestly reduced following 13 branches transferring to Travis Perkins, reducing the remaining branch network to 64.
  • BSS sales grew modestly in 2016, a creditable performance in a difficult market with continued reduced government spending on infrastructure projects. There was significant focus on cost reduction and operating efficiency, with progress made in simplifying the interaction with customers, reducing administrative workload in the ordering, delivery and receipting processes.
  • CCF delivered a strong revenue performance in the year, although like-for-like sales growth was diluted by the opening of eight new CCF branches in 2015. Customer fulfilment was transferred to the new branches to better ensure the timely and efficient delivery of customer orders, freeing up capacity in the existing network which has subsequently enabled these branches to win new business.
  • The CCF team continued to focus on developing a deeper understanding of customer requirements, and in doing so forming closer customer relationships, which has enabled further significant market share gains.
  • The three businesses in the Contracts division continue to work more closely together, sharing information on projects and building deeper relationships with customers throughout the project lifecycle.

Financial performance

  • Adjusted operating profit reduced by £7m to £76m (2015: £83m). No property profits were recognised in 2016 (2015: £5m).
  • Adjusted operating profit, excluding property profits, fell by 2.6% to £76m (2015: £78m), with the transfer of 13 Keyline branches to Travis Perkins. This was partially offset by volume growth.
  • Adjusted operating margin, excluding property profits, declined by 40bps to 6.0%. This was driven by business mix as CCF and Keyline are structurally lower gross margin businesses than BSS. The mix of business however supported improved operating leverage as did excellent cost control across all businesses.
  • Divisional LAROCE reduced to 12%, driven by the absence of property profits (2015: £5m) and the significant expansion of the CCF branch network at the end of 2015. These branches are expected to deliver significant marginal returns as they mature and provide capacity for further growth and market share gains in the future.
  • The division incurred £10m of exceptional charges in the year within the £57m Group charge. These costs included £5m in respect of branch closures, £2m cost in relation to the reorganisation of the distribution network and £3m of other associated costs.