Travis Perkins plc

John Carter - CEO and Director Alan Williams - CFO and Executive Director

Paul Roger - Exane BNP Paribas Aynsley Lammin - Canaccord Genuity Howard Seymour - Numis Securities John Messenger - Redburn Partners Robert Eason - Goodbody Emily Biddulph - JPMorgan Gregor Kuglitsch - UBS Ami Galla - Citigroup

Thank you very much, and good morning all, Alan and myself are here. If I just give a sort of a brief overview and then we will be able to get into questions and answers, and you would have had a chance to read the statement.

Overall, I think it was a good like-for-like growth in Q3, and a 4.1% with total sales for the period, and up 3.5%. I think it's worth to saying just from a trade point of view, that's against fairly weak comparators in 2016, immediately post referendum, although we did have quite positive consumer period in Q3 2016.

And we'd calculate inflation in the period at around sort of plus 3.9%, and I guess, we're going to pick this up in Q&A, but initially driven by foreign exchange. But we are seeing certainly in Q2 and Q3 specific commodity impacts coming through with products like timber and copper.

And our trading stance remains that we will maintain our gross margins where we can, but I would say that our markets do remain competitive. And we just put in there really for comparison purposes, good like-for-like growth on a combined trade merchanting businesses of plus 4.7%.

Contracts are a standout performer. They continue to perform well on a like-for-like growth, and good performance from all three businesses.

Our General Merchanting improved. It's like-for-like growth of plus 2.4% in the period.

Price inflation still the driving factor and less pressure on our volumes. As directed in August, significantly we extended the reach of our Range Centers to cover all England and Wales.

And that had an implication on increasing our operating costs in the short-term, but we believe absolutely right for the development of our proposition over the longer term. And regarding Plumbing & Heating, still early days, and for our and Tony's improvement plans, they are encouraging signs of early progress.

We've completed the closure in excess of 30 branches in the period, and we are working hard to improve the proposition and see better performance coming through from our City Plumbing business and our Wholesale Plumbing business. Consumer like-for-like growth in that period was plus 2.4%, and with headline growth of 5%.

And we've remained sort of cautious and watchful on how the consumer is behaving, and it continues to be difficult to read over the medium-term, but the business is reacting positively to a quite challenging market. We were, and as I said earlier, in consumer cycling quite strong comparators for 2016.

Toolstation rollout continues. We now have over 300 stores and strong like-for-like and overall sales growth.

There is no change in our long-term view and the underlying fundamental drivers of our markets, but we do remain concerned about the economic uncertainty over the short-term. I've always believed we've got good stable and experienced management teams able to navigate these challenging and uncertain times, and we remain very vigil in managing our underlying cost base to good effect.

Despite the short-term uncertainties and we still will continue on a selective basis to invest and improving our networks in certain of our brands like Toolstation, Benchmarx and our Range Center investments, as well as investing in that propositions. We continue to invest in our future capabilities such as digital, but with the real focus on developing a stronger competitive position for the future.

Investments in both capital and OpEx today are focused on that longer term and delivering benefits through structural advantage. Despite the headwinds, we remain on track to meet market expectations for the full-year.

So with that in mind, we will now open it up for Q&A with Alan and myself.

Yes, hi. Good morning, gentlemen, so…

Good morning, Paul.

Hi, Paul.

Hi. Well, I guess, starting off with our congratulations on the Plumbing & Heating.

I think when we first saw this morning, it looks almost simply, but I mean, can you give us a bit more in terms of the drivers of that, may be by splitting it between price, market volumes, and maybe market share as well? And I guess, the key question on Plumbing & Heating, is that growth profitable?

And then -- sorry, do you want me to ask them all at once, John, or…

Yes, go on. It's just -- it's what I was keen to do, and I want to attempt to try and get some of the split.

But I'm keen to point out that we underwent a big project through 2014 and '15 to rebalance the estate, which we called Build the Best internally. And we are seeing that the benefits of that come through with that City Plumbing.

And Tony went into the business in April and his typical style has got lots of enthusiasm. We've built a good team around Tony in Plumbing & Heating.

And you know, I do stress these are early, but positive signs of improvement.

Yes, Paul. So, on some of the detail before I get into that; just note that the like-for-like is up 5.4%, total sales were up 1.3%.

And that total sales number compares to first half where we were down 1.5%. So, you got close on three percentage points turnaround.

It's mainly come in the wholesaling business, and also the small install [ph] business, City Plumbing, rather than in the large contracts business at this stage, which still has a negative performance, so not unexpected on the negative. Some of the things we've done, we got an operational Web site now up and running full transactions in City Plumbing, I don't think that's a big driver of the turnaround at this stage, but it is a fundamental long-term building block in the proposition.

I think it's more down to the focus that the teams have brought to the business getting together the ranging and the promotional activity in branch has served them really well. So, it's just still very early days, but I think the team is doing all the right things.

I guess, it was just really because unless I misunderstood what Tony was saying in the first half, I think the suggestion was it could get worse before it got better. I don't know whether he was actually referring to profitability rather than sales, but obviously on the sales side, that definitely hasn't happened.

Yes. Paul, it was a comment about the profitability…

Okay.

So, in the first half, we were down 30% year-on-year. And the message we are trying to get through at the half-year was to expect that H2 profitability would also be down on prior year.

I don't think anything has fundamentally changed our view of that at this stage. There are still some people expecting to see a full-year number in the 40s for operating profit, and we wanted to address that when we did the half-year.

Yes. Our primary aim was to -- and Tony's aim is to stabilize the business and then stop building.

We got up to a good start. I wouldn't want us to get in front of our sales in terms of the profitability and that comes over the medium-term.

Okay, that's very sensible. The other one was on cost inflation, I think, Alan, you were saying in the first-half, 3% to 5% for the full-year, actually maybe towards the top-end of that.

Is that still your expectations? I mean, most of the businesses are you able to pass that on?

Yes. That's still our expectation.

And as we said at the half-year, Paul, we take a different trading stance business-by-business. So, if I distinguish the trade businesses who have largely acted to pass that on versus the consumer business, where in both Toolstation and Wickes, we have a strategy of being the price leader.

So, you will see we put through a little less by way of price increases in those consumer businesses. If I look at those businesses as well, they also would have a bit more Fareast sourcing, and we've seen a bit less input cost inflation in any case in that area.

So that's helped them with the positioning. I don't think we've seen any change in the trend.

The currency impact will start to wash its way through over the next few months of this stage, you know, if you look at dollar/sterling, we are now relatively stable to where we were at the end of 2016, but as John commented, we are still seeing some commodity increases come through in certain areas of timber, copper, some of the chemicals that are used in insulation materials as well.

Okay, that sounds very good. And just one final one from me, I think -- and it's more of a stretchy one, I think you've launched a new fixed price heavy side offering [ph], I believe it's Built in Birmingham.

I'm just wondering if this is small part of the choppy story, or could it in time be a significant, say South West for Grafton, and what's your overall thinking with regard to that business?

I think both price points, Paul, I think it's a small step. It is a new format, and very early days and -- but we've invested in this with a view that hopefully it's successful and we can build on that.

That's great. Thank you very much.

All right.

Hi, good morning guys.

Good morning, Aynsley.

Good morning. Two from me, please.

Wondered if you could comment just on the kind of monthly trends you've seen obviously in the more important months of September, any differences as we have gotten kind of July, August, September. And then, secondly you mentioned you're carefully managing this kind of underlying cost base, wondered if you could give a bit more color there, you know, given the trends you see in the consumer you're reining in CapEx or OpEx any more significantly than you might have thought you would have to do three months ago?

Thanks.

Okay, on the monthly trends firstly; thankfully September was a decent month, but we'd already seen July and August performing a little better than we've seen during the second quarter. So, I don't think there's anything particular to draw our attention too in that trend month-to-month.

On the cost base and the capital management, I think what we've tried to do is distinguishing the statement between ongoing operating cost investments that we continue to make in the proposition. So, example is the Range Center expanding the Toolstation network, investments in ERP and digital capabilities.

All of those will continue to have a short and medium-term operating cost impact versus tightly managing the underlying cost base. So, I think given that we've got an uncertain economic climate, and I think we're all finding it difficult to predict what the economy will do in 2018.

It's right to be going back through the cost base on an underlying basis and working out how we can manage things as tightly as possible. So, we are looking at in some instances higher hurdle rates on CapEx as well as the operating cost balance that we have within the business, but we're not going be shying continuing to invest for very longer term in winning propositions like the Toolstation expansion.

I think, Aynsley, if you follow this for some time, I think we've got a pretty good track record of managing that underlying cost base based on market outlook, and I'm confident the teams will set themselves up appropriately going into what is strictly remains quite uncertain challenging markets.

That's really clear. Thank you.

Thank you. Good morning, gents.

Hi, Howard.

How are you?

Two from me, if I can please; firstly, just on consumer, take the point the sort of the very image of last year, John, but have you seen any sort of significant movements because obviously there is a bit more concern or suspect around on pricing whether the differential like-for-like is just more the mirror image or whether there has been any sort of particular shifts in that like-for-like positions in the third quarter? And second, I suspect probably related to that problem, which is more specific, just on kitchens both crate and retail services quite big movement cornering the retail market, just few sorts of thoughts on that?

And what's been happening there as well? Thank you.

I would too. But first, Alan has probably got some detail on it, but then we started the year with quite cautious position and kind of through the half year, pleased with the performance.

For me let's say lease up suggest that the market is going to be tight and tough and certainly in the bigger ticket areas, we watch again all of our service. Other indicators of 1,000 cars, 1,000 big furniture tickets and kitchens clearly in that bracket, so we are seeing mixed markets Howard, but we come forward with that portion.

Kitchens at that moment are filled up pretty well. As each week, month goes by; we are more concerned that the consumer and does rain in slightly, it has to be there.

In terms of Wickes in particular, a bit I would really say is when we compare against that two major competitors, we continue to do really well and but the overall concern comes more from the market and the consumer behaviors really.

Yes, I think Howard John's comment there I'd say it's a reflection on the, a narrow definition of the DIY market, so looking at the three large competitors from a DIY position, you still see the likes of two stations performing really strongly within that market with a, with a differentiated offer. The other thing I'd say about the comment on the like-for-like in the mirror image.

If you look at two year like-for-like, it's up 8.9%. So that's probably a good indication of the underlying strength in a business.

Yes, great. Thank you very much gents.

HI, good morning all. And two from me as well if I could.

John.

John Messenger, is it?

Yes, it is. Exactly.

Yes, the first one was just coming back to the Plumbing & Heating and can I just and I'm doing sort of simple methods here but, if I think about Tony's comments back at the half year about kind of hold on to, I think all but a couple of percent of the sales line, if you've closed about 8% of the branches, which obviously dropout of the like-for-like. If I think of those -- if half of those sales were migrated across for the rest of your state then you will learn about a 4.2%, 4.3% like-for-like boost that would have appeared in these numbers on a year-over-year comparison, is that kind of in the right ballpark to think of it.

In terms of how much about 5.4 is benefited from sales migrating across to the ongoing branches. And then, your second -- yes.

John, that's a bit high. So the branches close during mid August.

So you only got a half period impact on that.

Okay, brilliant. And then, the this thing was just you made the comment and a statement about how actually in the wholesale side of the Plumbing & Heating business is done pretty well in terms of encouraging results.

Clearly, it's a business that is supplying your smaller independent competitors. Can I just -- is that in anyway kind of a signal as to the fact that when we look at all the other data points around the small independents, they all seem to be doing quite well in terms of sales or is that because you are clearly pushing hard to get that wholesale business performing because it's like double thing in the half year only potentially kind of belongs or it should be dig or pulled from the group.

So, is it telling us something about the health of the independence or is it more about how you are managing it with the view to potentially obviously looking at where does that belongs in or address how the group looking ahead?

Yes, I think as these things it's difficult to be ever to display, what I would say is I think some of the good independence are doing well and I also think we've taken some share as well, but it's very difficult to know where that line splits are. It does feel almost 50-50 and yes we have structurally changed the business and built a service, go though S&P, which is what is called and I think it's playing benefits, if you said lower turn in business, that's white or thin margins because we are supplying here essentially boilers to the smaller independents.

John, I think if we go back to the interims and Tony's comment on links, so he referred to chocolate bar sales. So the team has put a lot of effort into a link sale promotional activity, which is really the business as well and I think I would say it's more a reflection on that wholesale business is doing against wholesale competitors.

Yes.

Rather normally independence underlying performance having taken a step-up or anything like that.

Got you. And sorry just one, this was more than two.

Just the home range spent over the last, do you think without doing pretty much front end of the quarter or backend in terms of just the extra branches that we are added into that kind of range and the delivery area. And what the portion, was it roughly out of the general merchandising kind of portfolio that are now able to access a joy fees.

Oh, dear. We'd like to come back to you on that specific going on the March activity I guess but it would only be a…

180 branches.

Yes, so 180 branches, but I don't know what was the actual percentage displayed and we completed the exercise by the end of August.

Brilliant, thanks very much.

Well done.

Good morning everyone.

Hi, Robert.

Hi, Robert.

HI, just a few questions. Firstly, in terms of your merchandising business and separately your consumer business, are you seeing any big regional differences and we've got a property company this morning that's a profit warrant on a slower London markets.

So just to give those extra color for you are seeing regional differences or not. And secondly, in terms of you've been happy with consensus forecast for this year, is the shape of that kind of flat gross margins, the rest been taken up by higher and op costs and as we go into year, I know I'm pushing the boundaries here.

As we go into next year, do you feel given your caution on the markets, which a few I would share that you can make progress next year from a profitability perspective in terms of getting the balance right between top line gross margin and going back, so should we think about that go into 2018, getting a cautious stand?

So I think we wake up with the view of moving the business forward. I think it really will depend on volume as to what the outcome will be, but we definitely set the stool out to embrace our own interim.

The regional variation is quite small Robert. Yes, with a little bit what we say software in southwest but no deal, extraordinarily it's not really extreme and it's been a bit of a characteristic of balance across the different territories that we operate both the merchants and consumer that London is a bit sort of tampered, but not again noticeable.

Robert, on the question on 2017 and the shape of how we expect the profitability from consensus, I think you are right, I would see gross margin largely held year-on-year and the -- that the increase that we've made in operating expense and coming through to give the number that is current consensus. So, for the avoidance of that, we see current consensus as being in the 380s, and clearly we've made a statement that the group remains on track to achieve full-year expectations.

Okay. I'm sorry, Alan, if you would mind showing up, when you say 380s, is up the high end or at the low end to something to where we to see kind of 392 here.

Yes. So I think there are few road numbers in the Bloomberg consensus at the particularly at the very high end.

And people who haven't updated their numbers for a long time and so that's why we track it separately ourselves and we'd see that to low mid 380s.

Okay.

Good morning, guys.

Good morning, Emily.

Good morning. I've two questions please.

First on price inflation just on so, you also talking about continued commodity price increases coming through that kind of price inflation that we see at the movement as we look into the first couple of quarters of next year should really thinking about it being meaningful low because it becomes tougher role the continued price increase you're saying I mean that we should think about something close to always saying now continuing for a while? And then secondly just on contract, obviously the performance continues to be very good.

Is there anything sort of in the outlook for the order book for anything that you sort of would want to kind of want to solve all kind of keep expectations little bit meet on that? Thanks.

So, on the price inflation trend, Emily, for 2018, so I would expect similar trend first of all in Q4, '17 and then if the currency remains stable. And as we track through 2018 the impact will moderate so, they'll still be selected increases on the commodity side as John described earlier but if you see him the currency is fairly stable at this stage to the end of where we were at the end of 2016 that element should moderate and quarter-on-quarter.

And on the contract business I don't think that there's anything particular we'd want to note about the, the order book at this stage. I just make a comment that the, the like for like is starting to moderate a little if you picked up on versus the first half and also the end of 2016 that's a natural maturing.

It's some of the investment that we made in capacity and distribution and the, in the business through new branches in late 2015.

Thank you.

Hi, good morning.

Hi, Gregor.

Couple of questions one is just on CapEx and then debt outlook can you maybe update us I think its sounded like your pushing hurdle rates here and there on new investments so if you can give us an update on CapEx outlook may be relative to what you said time of intrinsic I think said 170 to 190 X freeholds for this year and next if there's any change in the shape of it. And then the second question is on consumer obviously the like for like if you said are kind of easing off is it also that the disruption suffered at home base now it's kind of cycling through and then there kind of starting to stabilize perhaps if you see in the kitchen side is there any of that and that distribution give us any kind of update on a lot of particular competitor is impacting you at all particularly on the branch conversion that they are undergoing?

Thanks.

Okay. So, on the CapEx, first of all, Gregor, there's no change to the outlook for 2017.

I'd still say 170 to 190 X. Freehold.

As we go forward and you will see as distinguish between the CapEx in the way that we present things between freehold investments in land where, there are all selected opportunities which I think are really good for us to see buying some freeholds and I would view that more is there a financing decision rather than a cap to decision if you, if you like the CapEx decision. So, we will make that clearer.

For 2018, I would expect that 170 to 190 to come down a bit. And from a debt outlook more generally nothing's changed versus what we would have said at the, the half year, we continue to generate good cash in terms of the consumer business or with more specifically it's fair to say that we, we have been somewhat they did by disruption in competitors but I think if we focus on that, it takes away the credit for the with team from the really good work that would sell from an proposition particularly in the showroom.

So I think I described this previously as we got a really strong performance in the last 12 to 18 months in consumer that wouldn't have happened unless we had a really good proposition that the teams were pushing hard and it was certainly got a boost from competitor activity. We're clearly now cycling one of our competitors having moved away from the show remote fitted kitchen part of the market.

So that will start to moderate and then like for like as we go forward.

Thank you very much.

Yes, good morning. Just have one really.

Yes, I was wondering if you could give us some color in the demand back shop. I mean have you seen any in extensions or improvements coming back again.

I mean and what is the, what is the demand that you see from social housing have you seen more public or might has been coming through?

So the social housing is crazy to answer I may, it's too horribly flat.

Okay.

And low. It is -- each of the divisions is on middle sort of that environment and economic sort of outlook.

And customer demand is very difficult to predict. I think the businesses as Alan has pointed out on a couple of good questions, we can be really please with all four of our businesses, and how they're actually managing, well, I think is a really quite challenging market.

We've not seen any sort of demands growth step up in customer demand. I'm more concerned about the other side, where demand starts to weaken.

Sure, thank you.

So, from Alan and myself, thank you very, very much. And I have no doubt we will be speaking over the coming weeks and months.

Thank you very much.

Thanks very much. Bye.

Thanks very much.

Thank you