Plumbing and Heating
|Adjusted operating profit
|Adjusted operating profit excluding property
|Adjusted operating margin excluding property
|Adjusted operating margin (including property)
* 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.
- 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.
- 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.