Builders merchants group Travis Perkins have increased revenue and operating profit for the first six months of the year but warn that the next half year is likely to be very tough indeed for all building material suppliers.
Overall group sales edged up by 5.4% to £1.671bn for the six months to June 30, of which like-for-like sales grew 0.8%. Operating profit was £156m, up just 0.2%. Profit before tax declined by 3.2% to £125 million, reflecting higher financing costs. The interim dividend is being retained at 14.5p, while adjusted earnings per share are up 3% to 74.4p. Gross margin increased by 30 basis points, mainly thanks to active margin management, reduced costs of products from enhancement of the supply chain technology and facilities, and changes in mix, mainly due to a lower proportion of less profitable supply to the house building sector.
"As we anticipated and observed in our last full year results statement, 2008 has become a more
challenging market and we expect our markets to weaken further as the year progresses," said chief executive Geoff Cooper. "We expect to continue to gain market share on a like-for-like basis across our merchanting and retail brands which will partially compensate for lower market activity. "
Turnover in the merchanting division was up by 4.7% at £1.17bn, and earnings before interest and tax increased by £0.1 million to £125.6 m. Like-for-like turnover per trading day was up by 1.6%, with weaker sales trends experienced in the second quarter compared to the first three months of the year. Travis Perkins estimate their like-for-like sales performance to have remained some 1% to 2% ahead of the overall merchanting market.
Total turnover in the retail division for the first half was up by 6.3%. Tile Giant represented 2.3% of this increase and Wickes 4.0%. For this period, Wickes like-for-like sales per trading day were down 1.1%, with core products down 1.0% and showroom sales down 1.3%. With price inflation of 2.3%, like-for-like volume in core products was down by 3.3%. Sales trends in the second quarter strengthened slightly, with total like-for-like daily turnover in the last eight weeks up 2.3% over the equivalent period last year.
"We estimate that Wickes has increased its rate of sales out-performance against the market," Cooper says. "This reflects Wickes' unique positioning with 'cash-based' tradesmen and 'serious' DIY customers, where these customers have sustained their spending on materials compared with the relatively weaker trend of more discretionary spending from 'casual' practitioners of DIY."
The general merchanting businesses are less exposed than some competitors to larger scale housebuilding, which in any case accounts for only 18% of group revenue. Operating as four distinct business units under the Travis Perkins brand, this division continued to outperform the market and increased turnover and profits in the first half of 2008.
Total turnover in the specialist merchanting businesses grew by 7.7%, with like-for-like turnover per working day up just less than in general merchanting at 1.3%, reflecting the stronger presence of house builders and their key sub-contractors as customers of CCF and Keyline, two of the four businesses that make up this division. Volume and pricing conditions in this market, together with start-up costs associated with the branch expansion programme meant that EBIT in specialist merchanting declined slightly.
Travis Perkins have successfully increased turnover from dedicated public sector supply operations for social housing and also benefited from targeting and expanding business with major contractors serving areas of the construction market such as regulated industries, infrastructure and PFI projects which are currently still performing well.
"We now expect that the very negative trends in mortgage approvals, secondary housing transactions and new domestic construction will result in a contraction in the RMI market in the second half of 2008 and into 2009," Cooper continues.
"We also now expect that this contraction will be more rapid than previously expected. In contrast, contractors' forward order books for large construction projects, boosted by the Olympics and Thames Gateway programmes, indicate we can expect this source of business to remain firm in 2008, but with a contraction beginning in 2009."