2020 full year results - seeking alpha

2020 Full Year ResultsMarch 2021

Agenda

Full Year Results March 2021

Introduction Nick Roberts p3

Financial review Alan Williams p5

Operational review

& strategic updateNick Roberts p22

Appendices p37

IntroductionNick Roberts

4 Full Year Results March 2021

2020 - Resilient trading amidst significant uncertainty

Full year earnings impacted by the pandemic but strong recovery in H2

Accelerated platform for growth and work to define our sustainable business framework

Excellent progress on a number of key initiatives to strengthen the core of the businesses

Opening up new channels via technology and network changes to take market share

Announcing today the resumption of the Wickes demerger process

Financial ReviewAlan Williams


Key financial highlights

Year ended 31 December 2020

(£m unless otherwise stated) FY 2020 FY 2019

Year-on-year

change

Revenue 6,158 6,956 (11.5)%

Like-for-like revenue growth (7.1)% 3.8% (10.9)ppt

Adjusted EBITA 227 442 (48.6)%

Adjusted earnings per share (pence) 42.4p 112.7p (62.4)%

Adjusting operating items (140) (200)

ROCE 5.5% 10.1% (4.6)ppt

Covenant net debt 40 344 (304)

Dividends per share 0.0p 15.5p


Revenue impacted by unprecedented conditions

Volumes significantly impacted by the

pandemic but good recovery in H2

Pricing remained robust despite drop in

volumes

Disposals of PF&P Wholesale & Tile Giant

TS Europe consolidation - first full year

Branch closure programme impact c.

(3)% in the year


H2 Revenue recovery after spring lockdown closure

Lockdown


Group gross margins increased due to segment mix

Overall Group gross margin increased by c. 50 bps:

– Positive segmental mix; 7% increase in sales participation of Retail and Toolstation.

– Lower annual volume rebates due to reduced purchases - expected to be recovered in 2021

– Some adverse movement in category and channel mix; largely offset by reduced promotional activity

– P&H gross margin higher due to better mix of business, accentuated by disposal of PF&P

Group gross margin will be impacted in 2021 by Wickes demerger

Category / channel mix

Annual volume rebates

P&H business mix

Segmental mix

*Arrows are demonstrative and are not to scale

2019 gross margin

2020 gross margin

Reduced promotional

activity

+c. 50bps


EBITA drivers


Restructuring programme driving operational efficiencies

Programme launched to close approximately 190 Merchanting and P&H branches with focus on smaller sites

Sales retention from closed branches in line with expectations across the Merchant businesses

Headcount reduction of approximately 2,500, including branch staff and support functions across all businesses and head office

Annualised gross cost savings of c. £120m. Some reinvestment will be required at branch level in customer service as volumes recover

Future estate investment to be in larger, high quality assets with more stock on the ground - focus on continuing to reduce cost to serve


Merchanting - H2 revenue recovery driven by RMI

Significant impact from spring lockdown

Encouraging recovery in H2 led by RMI. Housebuilding and commercial slower to recover

Gross margins impacted by lower annual volume rebates. Expected to normalise in 2021

Restructuring generated annualised cost savings of £90m leaving the business well positioned

*Segmentall adjusted operating profit figures are presented excluding property profits

FY 2020 FY 2019 Change

Total revenue £3,065m £3,703m (17.2)%

Like-for-like growth (14.0)% 3.3% (17.3)ppt

Adjusted operating profit* £152m £284m (46.5)%

Adjusted operating margin 5.0% 7.7% (270)bps

ROCE 7% 12% (5)ppt

Branch network 846 984 (138)


Toolstation - another year of great progress

Another year of exceptional UK sales growth despite the disruption of Covid

UK branch network expansion resumed at pace post initial lockdown with 54 new branches Jun-Dec

Toolstation Europe consolidated and growing strongly - underlying revenue up £35m (83%) with 17 new branches

Segmental operating profit impacted by:

Europe consolidation

Product and customer mix

Higher fulfilment and Covid-19 costs*Segmental adjusted operating profit figures are presented excluding property profits


Total revenue £633m £445m 42.1%

Like-for-like growth 22.2% 16.3% 5.9ppt



ROCE 2% 7% (5)ppt

Branch network (UK) 460 400 60

Branch network (Europe) 83 66 17

Memo:

Adjusted operating profit - UK £24m £29m (17.2)%


Retail - model enables further market outperformance

Wickes LFL revenue +5.5%** led by strong performance in Core DIY +19.3%**

K&B revenue down (27.4)%** impacted by showroom restrictions

Gross margin modestly higher as K&B mix impact offset by Core performance

Costs impacted by:

Maintaining safe environments (c. £9m)

Unproductive K & B labour (c. £7m)

Higher customer delivery participation

Tile Giant disposed in September 20202019 figures include £47m of revenue and £0.1m of adjusted operating profit from Tile Giant, which was sold in September 2020.2020 figures include £31m of revenue and an adjusted operating loss of £(0.2)m, plus the £1.4m profit on sale of the business.*Segmental adjusted operating profit figures are presented excluding property profits**On a calendar year basis. For the 52 weeks to 26th December 2020 Wickes like-for-like sales were +5.0% with Core +18.8% and Kitchens & Bathrooms (27.8)%


Total revenue £1,391m £1,342m 3.6%

Like-for-like growth 5.0% 8.6% (3.6)ppt



ROCE 6% 7% (1)ppt

Store network - Wickes 233 235 (2)

Store network - Tile Giant 0 94 (94)


Plumbing & Heating - strong H2 recovery

Significant impact in spring lockdown as installers unable to access customer properties

Strong H2 recovery driven by domestic installer activity (RMI) with contract business a little slower

Restructuring actions to deliver c. £25m annualised cost reduction

Better mix of business and cost actions driving 12.5% EBITA growth in H2

Successful completion of disposal of PF&P wholesale

2019 figures include £269m of revenue and £7.1m of adjusted operating profit from PF&P wholesale, sold in January 2020

2020 figures include £28m of revenue and £0.7m of adjusted operating profit, plus the £1.8m profit on sale of the business

*Segmental adjusted operating profit figures are presented excluding property profits


Total revenue £1,069m £1,465m (27.0)%

Like-for-like growth (11.2)% (1.7)% (9.5)ppt



ROCE 5% 13% (8)ppt

Branch network 354 375 (21)


Outstanding free cash flow generation

Excellent free cash flow generation of

£304m

Significant working capital inflow:

Inventory reduced by £97m due to

unwind of Brexit contingency and

network rationalisation

Strong debtor collection

performance throughout the year

Business growth concentrated in

cash sales (Retail, Toolstation)

*Interest cost includes £59m ‘Interest on Lease assets’ recognised under the implementation of IFRS16 - Leases


Significant H2 investment to keep expansion on track

Base capex lower year on year due to

rephasing of fleet replacements in light

of restructuring

Growth capex driven by Toolstation H2

expansion, TP branch investment and

Wickes refits

IT spend reflects hardware refresh and

smaller scale, phased modernisation

developments

Base capex forecast for 2021 of

£90-100m (excluding Wickes)

(£m) FY 2020 FY 2019

Maintenance (42) (56)

IT (15) (12)

Growth Capex (51) (53)

Base capital expenditure (108) (121)

Freehold property (26) (22)

Gross capital expenditure (134) (143)

Disposals 64 82

Net capital expenditure (70) (61)


Property Activity underpins business growth

Merchant freehold acquisitions focused on major conurbations, with retail portfolio exit largely complete

Recent freehold investments built out or in planning / under construction

Paddington site development under contract

Excellent progress on sites closed in June: 80% of freeholds and 55% of leaseholds disposed or under offer

23 of the sites repurposed by other Group brands including 11 Toolstations

Value of freehold property assets significantly above £375m NBV

Freehold activity 2016-2020

Cumulative cash invested £239m

Cumulative cash from disposals £360m

Net cash in £121m

Change in freehold in NBV (£31m)

Cumulative property profits £106m


Significant reduction in net debt

Exceptional working capital performance driving free cash flow

Receipt of £50m from PF&P wholesale disposal in January

Dividend payments suspended in 2020 to preserve liquidity. Intention to resume distributions in 2021.

Underlying leverage reduction

Prudent decision to agree covenant relaxation

Successful refinancing of 2021 bonds with long 5 year issuance at 3.75%

*Note - the covenant test under financing agreements is based on ‘frozen GAAP’ before the introduction of IFRS16. Leverage covenant for June 2020 was relaxed from 3.0x to 3.5x. It was waived for December 2020 and will be reinstated at 3.0x at June 2021

FY 2020 FY 2019

Free cash flow (£m) 304 195

Net freehold transactions 26 42

Acquisitions / disposals 54 (43)

Dividends 0 (116)

Cash payments on adjusting items (65) (90)

Other (21) (36)

Change in cash or cash equivalents 298 (48)

FY 2020 FY 2019

Covenant net debt £40m £344m

Covenant net debt / adjusted EBITDA 0.1x 0.7x

Net debt under IFRS16 £1,397m £1,788m

IFRS16 net debt / adjusted EBITDA 2.8x 2.5x


Wickes demerger

Wickes demerger process has recommenced given more stable environment and strong liquidity position

Prospectus and circular due to be issued late March*

Capitalisation of Wickes with c.£130m as at year end

Wickes Investor Seminar 26th March 2021

Targeting EGM and completion at the end of April

TP Group

including

Wickes

FY2020

Wickes

FY2020

TP Group

excluding

Wickes

FY2020

Covenant net debt/(cash) £40m £(130)m £170m

IFRS16 Lease liabilities £1,327m £749m £578m

Other debt like items £30m £0m £30m

IFRS16 Net debt £1,397m £619m £778m

Significant reduction in Group IFRS16 net debt post-demerger

* Subject to FCA approval


Outlook and technical guidance

Outlook:

Effective tax rate of 20%

Base capital expenditure in 2021, excluding Wickes, expected to be £90 - 100m

Property profits around £20m

Technical guidance:

Long term fundamentals remain robust with positive catalysts from Government

stimulus and strong domestic RMI recovery

Continuation of trends seen in Q4 2020 so far in 2021

Focus on modernising and strengthening core business to deliver

outperformance and long term value for shareholders

Operational Review &Strategic UpdateNick Roberts


Overview

Strong recovery demonstrates resilience of both business models and end markets

Accelerated our strategy despite the challenges of the pandemic

Progress made in modernising the business for the future

Group is progressively leaner, more agile and customer focused


Key priorities unchanged

Q2 2021

● Network expansion on track

● IT Infrastructure replatformed

● Fulfilment capability enhanced

● Customer proposition enhanced

● Processes simplified

● Network quality improved

● Technology programme progressed

● Strong ESG framework & agenda

● Investment in people & capability

Successful demerger of Wickes

Regeneration of Travis Perkins

Accelerate Toolstation expansion

Deliver an organisational platform fit for

the future

Portfolio simplification

Strengthen the core


- strengthening the core

Significant progress on regenerating the General Merchant

Pricing Range & Commercials Empowerment Network

More relevant shelf-edge pricing

Simplified processes for both branch and customer

Simplified commercial structures

Depth of range

Local choice

Enhanced local decision making

More confident and capable branch teams

Refreshed regional / local leadership teams

Rationalised network

Retained customers


- progress towards a modern merchant

Channels Fulfilment

Enhanced website with trade account management capability

Enabled Click & Collect

Mobile App now available to trade customers

Larger footprint branches for depth of heavyside

Regional management of fleet for capability / efficiency

Integration of kitchens and joinery into General Merchant offer

Greater penetration of trade customer base

Integration


Winning market share in UK and Europe

Rapid evolution of UK business model….

...driving progress on key metrics...

…whilst gaining momentum in Europe

Network expansion continued

Significantly increased DC capacity

Replatformed IT/Digital infrastructure

Trade Credit launched

Mobile App in 2021

Further trade focused range development

Sales per branch up 25% since 2016

Over 70% of customer journeys digitally led - driven by click and collect +600% yoy

Improvements in web conversion

Digital wallet launched

Over 3m new customers in year

Adapted operating model quickly to offer a “near normal” service during Covid

Multi channel offering and high stock availability has proved a significant differentiator in the European market

New distribution centre in Lyon will support branch expansion in France

Network expansion delayed but still 17 new branches in 2020

Network expansion continues in 2021

Digital capability & multi-channel approach driving market share gains


- continuing to improve the business

Driving focus on quality of sales

Opening up new channels

Rationalising cost base

● Pricing / Commercial deal simplification

● Segmented customers by profitability

● Online sales up 18% to £57m

● Increasing strength of bathroom showroom proposition

● Closing lower performing branches

● Disposal of low margin PF&P business


Specialist Merchants - modernising to extend leadership

Networks rationalised. Strong sales retention from branch closures

Delivery management system

Heating & cooling Interiors & insulationCivils & drainage

Commercial simplification with suppliers

Simplified pricing and processes

BIM capability

Expanding TF Solutions

Digital development

Market leaders in respective sectors


- a thriving digitally led home improvement business

2020 has demonstrated the agility and resilience of the Wickes balanced model

Performance is supported by well developed digital and flexible fulfilment capability

Market share gains and buoyant DIY market underpinned performance

233 stores operate as fulfilment centres for both online and in-store purchases

Colleague engagement remained strong despite COVID disruption

Digitally Enabled Core DIY / Local Trade K&B

Around ⅔ of customers started their journey digitally

Active digital customers nearly doubled to 4.7m

Development of digital capability continued

Stock availability challenges closely managed

Strong performance across broad range of categories

TradePro membership continued to grow - now ~550k

Customer delivery and click & collect participation increased significantly

Temporary showroom closures restricted trading

Virtual customer journey developed & launched

Lead pipeline supported by pent up demand


An organisational platform fit for the future

People Process Systems

Commercial deals simplified

More focus on data to drive decisions

Removed significant complexity from internal and customer processes

Accelerated progress on digital capability

Core system replacement, starting with Finance system

Better insight derived from data

Leadership strengthened for modernisation

Management structure delayered

Refreshed key leadership positions through promotion of internal talent


Sustainable Business Framework

6 Strong Core Focus Areas

6 Leading Commitment Focus Areas

A Supply-Chain Wide Approach


Good progress in 2020; defining long term targets

Employee value proposition

Merchant and P&H businesses now Real Living Wage employers

Significantly enhanced family leave policies

Weekly “check-in” surveys during pandemic ~ 35,000 responses

Diversity & Inclusion

TP Women, LGBTQ+ and BAME networks now active with leadership sponsors

Disability on the leadership agenda with a partnership with the Valuable 500

10 mentees and 10 mentors joined the 30% club mentoring programme, accelerating development of women

Apprenticeships

783 apprentices 2020; 179 graduated

£2.4m invested; 38 different programmes

Driving greater diversity with 39% female; 66% under 25

Target of 1,000 more apprentices in 2021

850 Kick Starters to join in 2021

Carbon

Net zero by 2035 (Scope 1 and 2)

80% reduction and 20% offset

Set a Scope 3 carbon target by June 2021


Leveraging the strength of the GroupCreating a modern merchant

Building the future through a year of adversity

Collaboration between businesses

Seamless experiences for customers

Powerful fulfilment capability

Investing in high quality property &

digital assets

Continued reduction in cost to serve

Progressive digital tools and capability

Integrated with branch and fleet operations

Specialists building on advantaged positions

Accelerate growth of Toolstation - UK &

Europe

Organisational platform fit for the future

A Group of market leading businesses with huge potential

Questions

Appendices


I - Sales drivers by division


II - Segmental revenue analysisM

erc

ha

nti

ng

P&

H

Re

tail

To

ols

tati

on

Northern

Northern

Northern

Northern

Midlands

Midlands

Midlands

Midlands

South West

South West

South West

South West

South East

South East

South East

South East

Timber Forest Heavyside Lightside P&H Timber Forest Heavyside Lightside P&H

P&H Lightside

Cash Credit

Cash Credit

Cash Credit

Cash

Collected Delivered

Collected Delivered Collected Delivered

Collected Delivered

*Deliv ered includes direct to site


III - Group revenue analysisG

rou

p

Northern Midlands South West South East

Timber Forest Heavyside Lightside P&H

Cash Credit

Collected Delivered

*Deliv ered includes direct to site


IV - Market Lead Indicators

Dec YTD (12)%

Construction outputQ1 21(9) pt

Expected workload

Q1 21(10)pt

Trade confidenceQ4 20(13)%

New construction orders

Q3 20+8%

Architect work load

Jan 21(28)pt

Consumer confidence

Jan 21(24) pt

Climate for purchases

Q3 20(2)%

Equity withdrawal

Jan 217%

Retail Sales growth

Dec 20

(34) ptsSite visitors

Dec 20

(2) ptsSite reservations

Dec 20

54%Mortgage approvals

Dec 20

32%Housing transactions

Jan 216%

Housing prices


V - Branch numbers


VI - Like for Like sales growth


VII - Definitions

Metric Definition

Operating profit Earnings before results of associates, interest, tax and amortisation of acquisition-related intangible assets

Earning per share (“EPS”) Ratio of net profit after taxation adjusted for minority interests to weighted number of ordinary shares outstanding

Adjusted operating profit / Adjusted EPS

Operating profit / EPS before adjusting items and amortisation of acquisition-related intangible assets

ROCE Ratio of adjusted operating profit to debt plus equity

Covenant net debt On-balance sheet debt excluding lease liabilities and pension SPV liability

Net debt On-balance sheet debt including lease liabilities

Gearing Ratio of debt to equity plus debt

Fixed charge cover Ratio of adjusted operating profit before depreciation to interest plus lease right-of-use asset depreciation

Net Debt : EBITDA Ratio of Net debt to earnings before adjusting items, interest, tax, depreciation and amortisation

Free cash flow (“FCF”) Net cash flow before dividends, capital expenditure, freehold acquisitions and disposals, pension deficit contributions & fin ancing cash flows

Total Shareholder Return (“TSR”)

Ratio of opening market price per share to closing market price per share less opening market price per share plus dividends per share during the period

WALE Weighted average expiry of property leases


Metric Definition

Site visitors House Builders Federation Survey / monthly / Dec 2020 / Balance score compared to a year ago

Site reservations House Builders Federation Survey / monthly / Dec 2020 / Balance score compared to a year ago

Mortgage approvals Bank of England / monthly / Dec 20 / number of approvals % change year on year

Housing transactions HM Revenue & Customs / monthly / Dec 2020 / number of houses sold above £40k % change year on year

Housing prices Nationwide / monthly / December 2020 / house price inflation % change year on year

Consumer confidence GFK / monthly / January 2021 / index score

Climate for purchases GFK / monthly / January 2021 / index score

Equity withdrawal Bank of England / quarterly / Q3 2020 / Change in Equity withdrawal as % of net earnings compared to previous quarter

Retail sales growth British Retail Consortium / monthly / January 2021 / LFL % change year on year

Architect work load Mirza and Nacey Survey / quarterly / Q3 2020 / Index - balance score

Construction output Construction output YTD ONS / monthly / December 2020 / % change year on year

Trade confidence Travis Perkins survey materials spend / quarterly movement / Q4 2020 view of Q1 2021

Expected workload Travis Perkins survey work loads / quarterly movement / Q4 2020 view of Q1 2021

New construction orders Office for National Statistics / quarterly SA / Q4 2020 / % change year on year

VIII - Definitions (continued)

Contact

Heinrich Richter | +44 7392 125 417

[email protected]

Matt Worster | +44 7990 088 548

[email protected]

2020 full year results - seeking alpha

Documents