Ladies and gentlemen, welcome to the Travis Perkins 2019 Q1 trading update. My name is Brica, and I will be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star followed by one on your telephone keypad. I will now hand over to your host, John Carter. Please go ahead.
It is actually John Carter here with Alan Williams. Good morning, everyone. Look, we are really pleased with the positive start to the year and our Q1 trading. In many different ways, all our businesses across the group have performed well. A good start is set against a weak last year comparator and set against the continued uncertainty with the withdrawal process from the European Union. I would encourage you to read both our in-year like-for-likes and our two-year like-for-likes in conjunction with that positive Q1 performance. If we look at the businesses before we go to question and answers, clearly Toolstation is trading very well. Good progress and recovery from Wickes, both in their core DIY categories and showroom kitchen and bathroom categories. Do only show a +1.3% growth over a two-year period, giving the contrast between the two quarters year-over-year.
Merchanting is balanced and we have done well over the two-year period. We have seen continued good success come from CCF, Keyline, and BSS, and good early progress from the TP brand in the change of emphasis towards more branch manager empowerment. PNH is obviously annualizing the Beast from the East and a very strong trading period last year. It has got respectable two-year like-for-likes of 14.9%. We remain pleased with the progress we are making regarding the separation work for PNH and remain on target to have that work completed by the end of the second quarter.
As I say, despite the positive start to the new year and against the backdrop of annualizing the weak Q1 last year and the uncertainty that remains across our sector, we still have three quarters of the year to complete and report. Our guidance, therefore, at this moment is overall expectation similar to that of 2019. Should we open up for questions?
First up, we have Paul Roger from Exane BNP Paribas. Please go ahead.
Good morning, everybody, and congratulations on the strong start. I'll have three questions. I guess the first one and the obvious one is to push you a bit more on the guidance. Clearly we hear what you're saying about the easy comp and the uncertainties, I guess the 10.5% group two-year like-for-like was better than you expected. Just really trying to understand to the extent to which your business is just being conservative and whether you now think that the risks to your guidance are clearly on the upside. That's the first one. The second one is, can you give us a sense of how you feel that the market performed in each of the different businesses so that we can get a sense of basically the magnitude of the share gains you're seeing? The final is on Wickes.
Encouraging obviously to see a turnaround, particularly in K&B. I wonder if that could affect your thinking at all on strategy, and maybe accelerate a potential disposal.
Okay.
Paul, it's Alan.
Hi.
Hi. On the question around guidance and also the market performance, outperformance, I'm going to take a little while to explain some of the moving parts from prior year. Last year, we had a reasonable start in January and February 2018. We had two calamitous months in March and April with the weather. May, June was sort of 11% growth for the business. My view is that until we get beyond that and into Q3, we won't have a really good read on where the year is going to end up. We had certain businesses last year with the weather, which were out of action for three days from a delivery point of view or supply chain disruption, plus the sodden ground that we saw for our customers during March and April. I get the point about saying, is this conservative?
When you look at what we were saying last year, I think that puts some context around it. There's still that uncertainty around Brexit and whilst secondary housing market transactions have improved a little, it's sort of barely improved at this stage, a couple of thousand better. I think it's a sensible thing to say at this stage it's unchanged in terms of outlook. When we look at the individual businesses and where they're outperforming, I think it's contrary to what other people may say, this is not like a Nielsen or IRI read that you'd get in a food retail environment. We don't have that sort of market analysis. We think the independents continue to perform strongly in the market. But I think our businesses probably are on the Merchanting side.
I think they're at least holding their own, if not gaining a little share at this stage, but that's just a gut feel rather than being able to point back to any data. When it comes to Toolstation, clearly there is strong outperformance there against a narrower competitor group and an acceleration in those like-for-likes. If you look at last year, even Toolstation had, for the Toolstation business, a softer Q1 to 2018. From a Wickes point of view, we're pleased with the turnaround that we've seen in performance, but it's very early days, and as John was saying, again, I'd point to that two-year like-for-like being at only 1.3%, which is probably reflective of a fragile consumer environment continuing.
I think in terms of market share gains, we've been really pleased with all the businesses. Plumbing & Heating, even though in the period we're talking about of Q1 2019, we've gone backwards on a like-for-like basis, two year is still strong and I think we're still performing well. I think Wickes turnaround has been sort of three areas I'd point to is the good self-help that management have put in place and operating the business effectively. I think B&Q, as we've called out, moving away from installed kitchens would have definitely helped our business, and the changes going on in Homebase and the store closures is also helping our core business. I think we would call out taking share in that sector.
Toolstation is trading extremely well, but it is the value proposition, low cost to operate and we have stepped up our network expansion and feeling pretty positive about the future for Toolstation. TP, the green and gold brand, TP brand, is definitely picking up pace from the actions that we took at the end of 2018, but we have a long way to go, but pleased with the early progress. CCF, BSS, Keyline continue to perform well in relevant sectors. These are still early in the year, and we're pleased with the progress that we've posted, but we're focused now on the half year and clearly we don't know yet how the second half will pan out. I think, hopefully, Paul, we've covered what you wanted.
Yeah, I guess the influence of what you're seeing on Wickes, is it just too early to think about any change in strategy, and we need to see what happens there in the medium term?
I think we've committed to being a trade-focused business.
Yeah.
Timing is all important and obviously we will keep you posted.
Paul, if you recall what we said at the capital markets event in December, the sentiment of what we're saying was you've got to improve the performance to create options. Step number 1 for us is to continue improving the performance. If you put things together and just look at like-for-like sales growth quarter-on-quarter, this is now a second positive quarter after a positive Q4 2018 that was preceded by six negative quarters.
Yeah.
You build that step by step, don't you?
Yeah. Okay, that's very clear. Thanks, guys.
Thank you, Paul.
Next up, we have Pierral Malaji. Go ahead.
Hi, it's Pierral here from Jefferies.
Hi, Pierral.
Hi, Pierral.
Hi, morning. I've got three relatively quick ones here. That 7.3%, I just wondered if we could get a volume and price split of that. The second question is, obviously you've talked about easy comparables, particularly in March. Have you any idea what the influence would be if we split out some of that poor weather from that 7.3? Very lastly, obviously we're getting closer to a potential disposal of Plumbing & Heating. When it does come to this, do you think you'll be prioritizing the price or given that it's such a small part of your group anyway, will you be prioritizing the speed of the sale? Thank you.
Pierral, on the volume price mix, I'm not going to give a huge amount away at this stage. It's certainly been biased towards volume growth rather than price growth, let's put it that way in terms of the mix. I think we've seen one or two people report slightly higher input cost inflation than maybe the sell side was anticipating or have been previously guided. We're not seeing it quite to that extent at this stage. If you look back to the guidance we gave on pricing with the full year results, we're more in that zone at this stage. As I was trying to break down for Paul on the easy comps last year, we said the weather impact was in our Q1 trading statement. We pointed to GBP 30 million-GBP 40 million
Revenue impact from memory, and I think it was probably at least that we saw from the disruption last year. Remember as well that that disruption continued into the April period as well, and you've also got the disruption from the timing of Easter. My key message on that is this is quite noisy to read, and it's not till we get beyond the half year that you will get a really settled comparator to know. On the P&H disposal piece, I think what we're saying today is we've made good progress on the operational and IT separation of the business. We expect to complete that during Q2, and then we will start to a disposal process on the back of that.
I think it's too early to prejudge how that will go, and it would be not something I want to comment on in detail at this stage, for obvious reasons.
Thank you.
Should we go to the next question?
Next up, we have Emily Biddle from JPMorgan. Please go ahead.
Morning, guys.
Hi, Emily.
Hi, Emily.
I've got two questions, please. The first one, I just wanted to talk about weather. Sorry. I appreciate not only is the comp easy, but presumably this year has also been an exceptionally good year for construction activity. I was just wondering how concerned you might be that that could represent a pull forward from Q2 into Q1, and therefore we might expect some sort of incremental weakness through Q2 or into Q3. I assume that John's seen a few good Q1s in his time, and what the experience has been in the past would be interesting. Just secondly, I just wondered whether the growth difference between general Merchanting and contracts is broadly similar to what it was through 2018, or if there's any sort of change there, or if the growth rate gap has closed at all. Thanks a lot.
I think, Emily, we do give the TP quote.
Yeah, as 8% like for like in the TP brand, compared to the 10.6 total like for like.
I think, Emily, really drawing on any experience that I've had, Q1 quarter can both delight and disappoint, and that's why we've taken our overall expectations for the year until we really do get into second quarter and third quarter. As Alan said, we are tracking some quite tricky comparators, and as I looked at H1, and I think I'm repeating what Alan said, but the first two months last year, January, February, we would have considered good. March and April were really poor for slightly different reasons, and not just the snow, but the really sudden sites prevented us getting on some of the sites that we would have wanted to. Then we had a very strong May and June. My sense is that so far so good. We're really focused on driving for outperformance, but it's really too early and difficult to call.
Yeah. Emily, I think my reflection on Q1 as well would be, whilst the weather patterns were certainly very settled, and from a construction industry, I think you couldn't have expected a better weather period. You still have a very fragile underlying market here. I mentioned the housing transactions. I think we all know that the continued uncertainty as the background, added to which, we've got an inkling that some customers may have been stocking a little to be on the prudent side, particularly the larger customers pre-Brexit. Now, clearly as the threat of 29th of March hard Brexit receded, people will have pulled back, but you don't pull back quite that quickly. I don't honestly know what the size of that impact is, but I do wonder if one or two customers are carrying a bit more inventory where they can.
Interesting. Thanks, guys.
Thank you.
Next up, we have Arnaud Lannen from Bank of America Merrill Lynch. Please go ahead.
Much. Good morning, gentlemen.
Morning.
Just a few brief questions from me, please. Firstly, I hear everything you said about it's early days. Have you mentioned anything about the trend you've seen in April? Are they consistent with the first quarter? Secondly, you said that the like-for-like growth was mostly driven by volumes, which would imply, I would say, a modest price effect potentially. What is the backdrop to that in terms of cost inflation? How should we think about cost inflation for the year? I guess lastly, I appreciate this is just a Q1 trading update, but with this sort of like for like growth in the first quarter, do you get some positive operating leverage in terms of margins? I appreciate this year you also have some efforts regarding digitalization, and that's probably going to have an impact as well.
Even if accounting for some fading of the growth in the coming months, you mentioned a more challenging base effect in the next couple of months. Do you expect to see a small either gross margin or operating margin improvement for the first half?
Arnaud, if I start with your question on April, I think we gave a fairly broad hint that last year, both March and April were extremely soft.
Sure.
I think you can take from that April has been okay. On the like-for-like on the split with volume and the inflation for the year, I think when we talked at the full-year results, we were talking around something in the range of two and a half to 4%, say, on input cost inflation. I don't think our views have materially changed on that at this stage. On the overall margin, we wouldn't normally comment at this stage.
Sure.
I'd say there's a few things that should be taken into account. Clearly you would expect a decent drop through if it's more volume weighted rather than price weighted in terms of your like-for-like growth. There are cost savings that we've got coming through if we're focused on a net margin number. Equally, we've made some comments in the statement about we're seeing the larger customers grow more strongly at this stage than the smaller customers. I think that should also be borne in mind.
Very clear. Thank you very much.
Thank you.
Next up, we have Robert Eason from Goodbody. Please go ahead.
Morning, everyone.
Morning, Robert.
Hi, Robert.
I think three questions. Just in relation to the volume backdrop. Obviously, it's been a lot stronger this year than last year, albeit weather effects, I get that. What impact is that having on the gross margin environment in terms of people are not chasing their tails as much in the first quarter to get the volumes? Just general comment about gross margins. In the retail business, at the time of the full-year numbers, you were talking about a good order book for the kitchens. I was just wondering, can you just give us some commentary around what the order book looks like now? Just given what's happening, your competitors at the moment. My last question, I'm sorry if it's a bit off-piste, over the last few weeks, we've heard that you might have closed your BILT Concepts branch in Birmingham.
I was just wondering, what have been the learnings from that concept that you can bring to the rest of the business? They're my three questions.
Robert, on the first one, on the volume backdrop, I am tempted to say I refer the honorable gentleman to the response I gave earlier to the previous question.
Okay.
I think our view would be, I think you'd hear this from others reporting today, the environment remains very competitive from a pricing perspective. I think on the K&B order book, it sits in a reasonable position overall. We're quite comfortable with the way the K&B showroom business is trading at this stage.
I think Robert, on BILT, I think Shirley should maybe actually say what we learn. Whether you're successful with innovation or not, you always learn certain things that we will roll back into other parts of the business as a result of the experiment that we had in Birmingham.
Okay.
The next question is from John Messenger from Redburn. Please go ahead.
Good morning, gentlemen. Two from me, if I could as well, please. One, you mentioned just earlier about, I think it was Alan, the point about inventory build possibly in terms of customers. Could you give us a bit of a flavor, what have you had to do yourselves in terms of that inventory investment, given what was expected at the end of March, and how is that likely to impact across the remainder of the year? The second one was just when we think about that performance in retail in terms of the strength of that like-for-like growth, behind it all, is there a big difference in terms of gross margin in Wickes core versus K&B? Just because obviously I think K&B is a reasonably sizable part of that 10%.
Just to understand if it comes with a structurally lower margin, because obviously the drop through in Wickes of these kind of numbers has the most material impact on the group overall. That'd be great. Thank you.
Okay. John, just starting on the retail one, the growth is actually quite balanced between core and K&B. I'd also say there's not a huge difference in the gross margin points between the two. Clearly, we offer an installation service on the K&B showroom, and you're going to make less margin on that. We are installing more kitchens than ever before. I think at the full year, we said we were installing around 54% of the kitchens that we sell. That ticked up a little in the first quarter. On the inventory build question, when we talked at the full year, we talked about us building of the order of GBP 50 million-GBP 80 million of additional inventory, 10% sort of area we were talking about in case of a hard Brexit.
We thought some of that inventory would still not fully have washed through by the half year, but it would have washed through by the year-end. The challenge we've now got is what do you do about that, given that we've still no idea when and what form of Brexit, if there is any Brexit, we're going to get. Our bias is towards keeping a fuller inventory. We will be carrying more inventory at the 30th of June than would have originally been anticipated. I find it quite difficult to call when that will flush through because it's somewhat dependent on Westminster making a decision. Absolutely. Great. Sorry, just one further one. With Toolstation's growth, it's quite difficult when you're outside because of obviously the annualizing impact of those store openings and how they will drop into 2019.
When you look at that 19% growth, is that a number that sitting with James running the business and some of the stores, I don't know how they look across 2018 openings, but is there a chance that that number goes better still, or is that 19% probably as good as it gets in terms of a like for like from Toolstation?
I think, John, when things are trading as well as Toolstation and James is pulling all the right levers, I think we'd like to go faster, but I think this is pretty strong. 31.7% like for like over two years. We know last year was not the strongest period because of the weather impact. I think we support him the best way we can. We're increasing the store opening program.
We're trying to make a better business, more sticky for customers, and we'll be doing our best, but you have to be sensible about this. This is flying at the moment. John, when you think over the last two years, we've opened 40 branches a year in each of those two years, on average. You would expect to have a few sites which don't perform as well. I think we've been pleasantly surprised by the strength of the locations that we've opened over the last 18 months, including going down into smaller accommodations, towns with a population of 10,000 to 15,000, but drawing in people from surrounding smaller towns and villages as well, where the sales have been really robust.
I think the success in what James is doing lies in some of those additional locations and how strongly they're performing compared to what you may expect as the market matures.
Got you. Thank you very much.
Cheers, John.
We now have Aynsley Lammin from Canaccord. Please go ahead, Aynsley.
Hi, morning. Two, actually. First of all, on CCF, obviously, you talked about market share gains. Just wondered if you could give us a bit more color there. You kind of been a bit more aggressive recently in terms of pricing and you're winning market share at good margins. Maybe just a bit more explanation. I think you said expect the growth to moderate due to some kind of supplier product availability constraints. Just wondered what they were. Second question, just on the commercial side, wondered if you had any more color in terms of big projects. Are you seeing more delays? What's the order book looking like for those bigger commercial projects? Thanks.
Aynsley, I think we tread carefully each period with the commercial because it has held up remarkably well. Our three businesses that were the contracts division under Frank have continued to trade well. We call that out because the CPA are predicting a slower period. We're very agile to volumes, and the order book looks okay, but I continue to say that the draw, the call offs against that order book can fluctuate in different periods. It's steady as she goes, and we're performing well. I don't believe CCF are the aggressor. We're seeing the business grow, its earnings increase, and return on capital improve. We're very mindful that we're in business to make profit, and I'm really pleased with the way management is conducting their business. In terms of the supplier side, it's mainly around plasterboard
On allocation, as you will be aware, there are three suppliers of plasterboard to the U.K., predominantly. British Gypsum, which would be the largest, Knauf, which would be the second-largest, and Siniat, the third smaller player with a single factory down in Bristol. Product supply across all three of them is very tight and on allocation. You'd expect us being the largest plasterboard distributor to get our fair share, but it was something that we call out when material supply becomes difficult.
Great. All very clear. Thank you very much.
We now have Howard Seymour from Numis. Please go ahead.
Morning, gents.
Morning, Howard.
Morning, Howard.
Morning. Question on the-- You allude to the fact that the improving trend on TP was largely regional national customers and Managed Services. Can you talk me through that? Specifically as well, because you allude to the greater empowerment at branch level. Has this come through from branch managers doing more of the big contracts? Is it a function of market mix, or I'm just slightly confused now because I would have thought the branch managers would do more at local level as opposed to regional and national customers.
I would call out a little bit of a timing point there, Howard. We still are not even 16 weeks into the project. We are making progress in Travis Perkins. I think Alan's right to have called out that in this period that we're looking at, we've done slightly better with the larger customers and Managed Services. I think your intuition's right. We should also be building the smaller and medium-sized customers as this project progresses. I think this is a moving part, and we are just trying to update the market to what's happening within the business. As we move forward, my expectations will be that we are more successful with local and smaller customers, as I call them, the best builders in town.
Yeah.
Yeah.
John, on that basis, on the larger sales, has there been any material change to how you're doing business there? Would you say it is a function of that side of the market being stronger, perhaps, than the local market?
I think there's a little bit of that. The other thing is when you actually are a large builder and you want a national deal, there are only a few companies you can actually truly go to. At this moment in time, I think TP is the place to shop. I think we've had success on that. To your point earlier, our focus is also on the best builders in town and in each catchment against each town. Go on, Alan, you were going to say something.
I was going to say how one thing you might be interested in as well is that London and the Southeast remains relatively weaker within the mix overall still, which I think reflects the housing market as well, whereas we'd see the Southwest and Midlands relatively stronger at this stage.
Got you. Lovely. Thank you, gentlemen.
Great. Cheers, Howard.
We now have Gregor Kuglitsch from UBS. Please go ahead.
Hi. Thanks for squeezing me in. A couple of questions, please. Just remind us on the cost savings, please, kind of the incremental, just maybe a single number for the group and how the phasing is, because obviously, going to be quite important, I guess, for the kick-up in profits in the first half. I guess I want to figure out if it is, I guess, more H1-weighted. That's question one. Question two is just to be clear on your messaging with the kind of customer mix shift, are you implying that as a result of that, for the group growth is perhaps down a little bit, growth margins? I appreciate that's more mix driven than you taking any pricing action, but is that what you're trying to get across?
Finally, if you can give us some color on how Homebase has been acting in the marketplace since the change in ownership. Obviously now a bit more settled down. If you could give us some color how they're, I suppose, behaving. Thank you.
Okay. Gregor, I'm at risk of disappointing you here because this is a Q1 trading update, not the review of margins across the business. On the cost-saving question, as a reminder, we will have some flow through from H2 cost actions, which we'll get the benefit of in H1. Benefit in the first four months in Wickes because we put the cost-saving program in place in Wickes in May 2018. In general merchanting, the cost-saving program was mainly weighted towards the second half. As we've previously said, we'll get an H1 benefit from that. You've got the further GBP 20 million-GBP 30 million of cost savings over the 18 months from Q1 2019 through to the end of Q2 2020. Some of that's dependent on the portfolio activities that we're taking and shaping things for the future.
In the statement, we did refer to the removal of the divisional structure, there'll be some cost-saving benefits from that. I think they would be more second-half-weighted given the timing of that than first half. On the customer mix shift, I think we're at danger of overanalyzing a statement, which is that the bigger customers during the first quarter have grown faster than the smaller customers. I think from a Homebase point of view, rather than being specific on Homebase, maybe if I talk generally about the DIY market, we're seeing a more rational pricing environment than we'd seen over the previous 18 months or so within core DIY.
Thank you very much. Thank you.
Well done, Gregor.
We now have Ami Galla from Citi. Please go ahead.
Just two questions from me. The first one is on Toolstation. If you could give us some color as to what percentage of the business of the sales today are driven by your online platform. It could be interesting to understand what sort of growth have you seen in the in-store side of Toolstation. The second one is on renovation, the overall RMI trends that you've seen in Q1 so far. Is there anything that you would pick up in addition to the weather benefit? Is there anything that you've seen that indicates there's a bit more improvement going into the system?
I would say on RMI, Ami, that there are more risk than upside. I think the weather has been helpful.
I think that's right. I don't think the underlying market trends have changed at this stage. I think it's still relatively subdued. On the Toolstation question, Ami, the growth that's been across the board, whether that's online, in store, click and collect, the business continues to perform really strongly in all areas.
Thank you.
We'll do last one.
Our final question today comes from Clyde Lewis from Peel Hunt. Please go ahead.
Hi, Clyde.
I think I've only got one left now. One really on, I suppose, where you are in terms of, A, capital decisions, and I suppose, B, can you update us a little bit on property disposals and where are your expectations and for the full year, but whether you've managed to do anything in the first quarter?
Okay. On capital, I think we're bang in line with what we'd said previously. We're looking to continue to invest in the Toolstation business. I think we've got our priorities around the Merchanting business, and IT alongside that. On property, relatively quiet first quarter, but we're maintaining the guidance that we gave previously.
Okay. Thanks so much.
Thanks, Clyde. Take care. Ladies and gentlemen, thank you very much for your time, and we'll catch you up on the 31st of July for our half year results. Thank you.
Thank you.
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