- Closure of 19 branches and job losses impact 2022 profit
- Management expects further market weakness in 2023
- Resilient performance anticipated
Building materials distributer Travis Perkins (TPK) reported a 16% fall in full year adjusted operating profit to £295 million despite sales increasing 9% to £4.9 billion as the firm cut costs amid a weakening market.
Both sales and profit were below market expectations while a cautious outlook with management expecting overall market volume reductions in mid to high single digits pushed the shares down 3.3% to £10.10. Over the last year the shares are down by just under a third.
WHY WAS PROFIT DOWN?
Management responded to anticipated weaker market volumes by initiating cost reductions in the fourth quarter of 2022 and closing 19 branches which resulted in £15 million restructuring charges. Property profits were also down year on year.
The company said although the second half was ‘good’ operating profit in Toolstation was ‘significantly’ lower as the business faced challenging comparatives and increased investments to secure future growth.
The cost reductions are anticipated to deliver benefits of around £23 million in 2023.
CEO Nick Roberts commented: ‘In the second half of the year we made some difficult decisions in response to the weaker trading environment and we continue to be watchful of market trends, working closely with our customers and suppliers to stay on the front foot.
‘Whilst it is early in the year and macroeconomic uncertainty remains, the combination of our diverse end market exposure, appropriate cost actions and further market share gains driven by continued strategy execution, will enable the Group to deliver another resilient trading performance in the year ahead.’
The company although it expects product cost inflation to moderate into 2023 it does not currently see any deflation in manufactured products.
WHAT ARE THE EXPERTS SAYING?
Shore Capital analyst Graeme Kyle said he believes the closure of 19 Travis Perkins branches represents ‘ongoing shrinkage in the traditional merchanting segment due to online competition and cannibalisation of hybrid formats.’
‘Longer-term we remain concerned about growing on-line competition in general merchanting and cannibalisation between the Merchanting and Toolstation segments.’
