TIDMTPK
Further to the release of its preliminary results announcement on 2
March 2017, Travis Perkins plc (the "Company") announces that it has
today published its Annual Report for the year ended 31 December 2016.
In addition, the Company announces that the Notice of Annual General
Meeting 2017 has been sent to shareholders. The Company's Annual Report
2016 and Notice of Meeting 2017 can be viewed on the Company's website -
www.travisperkinsplc.com
The Annual General Meeting of the Company will take place at 12.00 noon
on Wednesday 24 May 2017 at Northampton Rugby Football Club, Franklin's
Gardens, Weedon Road, Northampton NN5 5BG.
In accordance with rule 9.6.1 of the Listing Rules, copies of the
following documents have been submitted to the National Storage
Mechanism and will shortly be available for inspection at
www.morningstar.co.uk/uk/NSM
-- Annual Report and Accounts 2016;
-- Notice of Annual General Meeting 2017; and
-- Proxy Form for the 2017 Annual General Meeting.
A condensed set of the Company's financial statements and information on
important events that have occurred during the year and their impact on
the financial statements were included in the Company's preliminary
announcement on 2 March 2017. That information together with the
information set out below which is extracted from the Annual Report
constitute the requirements of Disclosure and Transparency Rule ("DTR")
6.3.5 which is to be communicated via a Regulatory Information Service
in unedited full text. This announcement is not a substitute for
reading the full Annual Report. Page and note references in the text
below refer to page numbers in the Annual Report. To view the
preliminary announcement, visit the Company's website:
www.travisperkinsplc.com
Enquiries:
Jonathan Diec
jonathan.diec@travisperkins.co.uk
+44 (0) 7887 454 584
Helen O'Keefe
helen.okeefe@travisperkins.co.uk
+44 (0) 7392 101 897
STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES
For the year ended 31 December 2016
The Group operates in markets and an industry which by their nature are
subject to a number of inherent gross risks. The Group is able to
mitigate those risks by adopting different strategies and by maintaining
a strong system of internal control. However, regardless of the approach
that is taken, the Group has to accept a certain level of risk in order
to generate suitable returns for shareholders and for that reason the
risk management process is closely aligned to the Group's strategy.
The Board has a risk reporting framework that ensures it has visibility
of the Group's key risks, the potential impacts on the Group and how and
to what extent those risks are mitigated. As part of its risk management
process, the principal risks stated in the Group's risk register are
reviewed, challenged and updated by the Board and monitored throughout
the year. Each operating business within the Group monitors a separate
risk register. This risk register is used to determine strategies
adopted by the Group's various businesses to mitigate the identified
risks and these are embedded in their operating plans.
Details of the Group's risk management processes are given in the
Corporate Governance report on page 65.
In common with most large organisations the Group is subject to general
commercial risks; for example, political and economic developments,
changes in the cost of goods for resale, increased competition in its
markets and the threat of emerging and disruptive competitors, material
failures in the supply chain, failure to secure supply of goods for
resale on competitive terms, cyber-security breaches and failure of the
IT infrastructure.
The risk environment in which the Group operates does not remain static.
The nature of risk is that its scope and potential impact will change
over time. As such the list on pages 38 to 43 should not be regarded as
a comprehensive statement of all potential risks and uncertainties that
may manifest themselves in the future. Additional risks and
uncertainties that are not presently known to the Directors, or which
they currently deem immaterial, could also have an adverse effect on the
Group's future operating results, financial condition or prospects.
The table on pages 38 to 43 sets out, in no particular order, the
current principal risks that are considered by the Board to be material,
their potential impacts and the factors that mitigate them. The inherent
risk (before the operation of control) is stated for each risk area
together with an indication of the current trend for that risk.
Inherent Risk, Level and Trend Risk Description Impact Risk mitigation
Market Conditions The Group's products are sold to businesses, tradesmen Adverse effect on financial results The Board conducts an annual review of strategy, which
Inherent Risk: High and retail customers for a broad range of end uses includes an assessment of likely competitor activity,
Trend: Increasing in the built environment. The Group's markets are market forecasts and possible future trends in products,
cyclical in nature and the performance of those markets channels of distribution and customer behaviour. The
is affected by general economic conditions and a number Group maintains a comprehensive tracking system for
of specific drivers of construction, RMI and DIY activity, lead indicators that influence the market for the
including mortgage availability and affordability, consumption of building materials in the UK. Significant
housing transactions and the timing and nature of events including those in the supply chain that may
government activity to stimulate activity, net disposable affect the Group are monitored by the Executive Committee
income, house price inflation, consumer confidence, and reported to the Board monthly by the Group CEO.
interest rates and unemployment. Should market conditions deteriorate then the Board
A significant downturn in economic conditions or alternatively has a range of options dependent upon the severity
major uncertainty about the future outlook could affect of the change. Historically these have included amending
the Group's markets levels of construction activity the Group's trading stance, cost reduction, lowering
and the confidence levels of the Group's customers, capital investment and cutting the dividend
which could reduce their propensity to purchase products
and services from the Group's businesses.
Competitive pressures place pressure on prices, margins Market trends, particularly in respect of customers' Adverse effect on financial results Changes to market practice are tracked on an on-going
and profitability preferences for purchasing materials through a range basis and reported to the Board each month. The Group
Inherent Risk: High of supply channels and not just through the Group's is building multi-channel capabilities that complement
Trend: Static traditional competitors may affect the Group's performance its existing operations and provide its customers
so making traditional branch based operations less with the opportunity to transact with the Group through
relevant or profitable. channels that best suit their needs. Pricing strategies
Increased price transparency could cause customers across the Group are regularly reviewed and where
to perceive that the Group is less competitive than necessary refined to ensure they remain competitive.
some other competitors. The development of new, innovative and competitive
Public sector buying groups could reduce sales if supply solutions is a key strength of the Group. It
public bodies choose to buy direct from manufacturers. works closely with customers and suppliers on a programme
Disintermediation may become more of a threat if manufacturers of continuous improvement designed to improve its
decide to deal directly with end users. The Group customer proposition. The Group's strategy allows
faces the risk of new entrants to any of its markets, it to use sites flexibly. Alternative space utilisation
including from businesses currently operating outside models are possible, including maintaining smaller
its industry or only in overseas markets. stores and implanting additional services into existing
branches.
Information technology capabilities impact the Group's The Group depends on a wide range of complex IT systems, Adverse effect on financial results. The strategic demands of the business, the resources
ability to trade profitably both in terms of the availability of hardware and Adverse effect on the Company's reputation available to IT, the performance levels of key systems
Inherent Risk: Medium the efficient and effective operation of software. and IT security are kept under review by the Executive
Trend: Increasing The rapid expansion of the Group together with an Committee. Plans that require continual investment
increasing demand for IT services, particularly as in the IT infrastructure have been approved and are
the Group embraces modern platforms such as multi-channel, being implemented. Maintenance is undertaken on an
updates its point of sale systems and develops its on-going basis to ensure the resilience of Group systems,
supply chain capabilities, could result in development with escalation procedures operating to ensure any
programmes being delayed or new IT systems and change performance issues are resolved at an early stage.
management systems not being successfully implemented. The Group's two data centres mirror each other with
Should a system become unavailable for an extended data processing capable of being switched from one
period either through deliberate act or through accidental site to the other. An IT disaster recovery plan exists
failure it could impact the business' ability to trade. together with a business continuity plan. Arrangements
Incidents of sophisticated cyber-crime represent a are in place for alternative data sites for both trade
significant and increasing threat to all businesses and consumer businesses. Off-site back-up routines
including the Group. A major breach of system security are in place. The Group has a data security committee
could result in system disruption to systems and / responsible for monitoring and maintaining cyber security.
or the theft and misuse of confidential data with In addition a programme of risk oriented reviews is
consequential impacts on the Group's reputation or undertaken to ensure the level of control around IT
ability to trade. systems remains robust. The Group has a team in place
to deliver a comprehensive security architecture to
protect it from cyber crime. Investments in best of
breed solutions have been made that continually adapt
to mitigate the risk associated with the most advanced
threats. Furthermore, the Information Security team
has the full support of senior management acting as
an important gateway to ensure the development of
new systems is performed according to industry standard
security practices.
Colleague recruitment, retention and succession plans The ability to recruit, retain and motivate suitably Inability to develop and execute development and succession The Group's employment policies and practices are
do not deliver the required skills and experience qualified staff is an important driver of the Group's plans. Competitive disadvantage kept under regular review. Staff engagement and turnover
Inherent Risk: Low overall performance. by job type is reported to the Executive Committee
Trend: Static The strength of the Group's customer proposition is regularly and to the Board regularly. Succession plans
underpinned by the quality of people working throughout are established for the most senior positions within
the Group. Many of them have worked for Travis Perkins the Group and these are reviewed annually. The Group's
for some considerable time, during which they have reward and recognition systems are actively managed
gained valuable knowledge and expertise. to ensure high levels of employee engagement. A wide
The Group faces competition for the best people from range of training programmes are in place to encourage
other organisations. Ensuring the retention and proper staff development, whilst management development programmes
development of employees and succession for key positions are available to those identified for more senior
is important if the Group is not to suffer an adverse positions. Salaries and other benefits are benchmarked
effect on future prospects. regularly to ensure that the Group remains competitive
and the Group operates incentive structures to ensure
that high performing colleagues are adequately rewarded
and retained.
Supplier dependency could result in shortages of product The Group is the largest customer to many of its suppliers. Adverse effect on financial results. The commercial and financial teams have established
Inherent Risk: Medium In some cases, those suppliers are large enough to Adverse effect on reputation. strong relationships with the Group's key suppliers
Trend: Static cause significant supply difficulties to the Group and work closely with them to ensure the continuity
if they are unable to meet their supply obligations of quality materials. To spread the risk where possible
due to either economic or operational factors. contracts exist with more than one supplier for key
Alternative sourcing may be available, but the volumes products. The Group has made a significant investment
required and the time it may take those suppliers in its Far East infrastructure to support its direct
to increase production could result in significant sourcing operation which allows the development of
stock-outs for some considerable time. own brand products, thereby reducing the reliance
The Group has become more reliant on overseas factories on branded suppliers. Comprehensive checks are undertaken
producing products as the Group has rapidly expanded on the factories producing products and the quality
its direct sourcing capabilities. This has increased and the suitability of that product before it is shipped
the Group's exposure to sourcing, quality, trading, to the UK.
warranty and currency issues.
There is a potential for European anti-dumping legislation
to be extended to encompass further Asian countries
which could increase the cost of some imported products.
Defined benefit pension scheme funding could increase The Group is required by law to maintain a minimum Adverse effect on financial condition. All of the Group's final salary pension schemes are
significantly funding level in relation to its on-going obligations closed to new members. For the Travis Perkins scheme,
Inherent Risk: Medium to provide current and future pensions for members pensionable salary inflation has been capped at 3%
Trend: Static of its defined benefit pension schemes. per annum. The schemes' investment policies are kept
The level of contributions required from the Group under regular review by the trustees in conjunction
to meet the benefits promised in the final salary with the Group to ensure asset portfolios produce
schemes will vary depending upon the funding position the desired level of return within an acceptable risk
of those schemes. profile. The Group has agreed deficit reduction payment
The funding of pension obligations could increase plans for each of its defined benefit pension schemes
significantly due to a number of factors including with the Trustees of the schemes. The repayment plans
poor performance of the pension fund investments, will remain in place until the next actuarial valuation,
falling corporate bond and gilt yields and increasing when in conjunction with the Scheme Trustees they
longevity of pension scheme members. will be reassessed to take into account the circumstances
at the time. In 2015 the Group agreed with the Trustees
to align future member contributions more closely
to the cost of the accrual and in so doing capping
the current service contribution of the Group. Notwithstanding
this, the Group remains exposed to movements in member
longevity, the value of pension scheme investments
and falling corporate bond and gilt rates.
Future expansion plans are not implemented due to The Group's strategic plans are predicated on the Adverse effect on financial results. Responsibility for identifying and implementing opportunities
the unavailability of funding or do not achieve the continued expansion of its UK branch network and the to expand the Group's operations rests with each of
desired sales and profit improvements development of its supply chain capabilities. the divisional boards, with capital being deployed
Inherent Risk: Low Large scale acquisitions in existing UK markets are to those projects giving the best return on capital.
Trend: Static unlikely due to the Group's size and the potential The Group has identified a significant number of opportunities
concerns of the competition authorities to ensure for expansion throughout the United Kingdom and continues
competitive markets. Therefore the Group will rely to develop alternative trading formats that will open
on developing smaller scale opportunities, in new up additional opportunities in future. The Group continues
catchment areas or in new formats within existing to invest in its leading supply chain infrastructure.
sites or on expanding into adjacent markets in which Its capabilities in this area allow it to source directly
it does not have a presence. from manufacturers, offer superior availability to
The Group also needs to ensure that funding is available customers and operate cost efficient mechanisms to
to support its plans. The Group has been reliant on deliver products to customers when they most need
the banking market for funding, a market that has them. It is the responsibility of the treasury function
contracted in recent years and which may continue to manage the Group's liquidity, funding availability
to contract in the future. It has an established bond and treasury risk by reference to the policies and
issuance capability, but the availability of funds plans set out in the board approved funding strategy.
from that market at a sensible cost may depend upon Regular reporting of a series of key metrics is designed
the Group's rating which can be affected by its trading to monitor treasury activities and maintain opportunities
performance. to diversify sources and access suitable funding.
Business transformation projects fail to deliver the The Group is undertaking a large number of strategic Adverse effect on financial results. All potentially significant projects are subject to
expected benefits, cost more or take longer to implement projects throughout its business. These projects are detailed investigation, assessment and approval prior
than expected intended to transform the Group's infrastructure and to commencement. Dedicated teams are allocated to
Inherent Risk: Medium its information technology systems and to develop each project, with additional expertise being brought
Trend: Static its supply chain operations and its branch and store into the Group to supplement existing resource when
networks. necessary. All strategic projects are closely monitored
By their nature, strategic projects are often complicated, by the Executive Committee with regular reporting
interlinked and require considerable resource to deliver to the Board.
them. As a result the expected benefits and the costs
of implementation of each project may deviate from
those anticipated at their outset.
Plumbing & Heating business performance adversely The market supplying boilers to large contract customers, Adverse effect on financial results. A new management team has been appointed to the Plumbing
affects Group returns served by the PTS business, is highly competitive, & Heating division, which is conducting a fundamental
Inherent Risk: High offers low margins and certain manufacturers exercise review of all P&H businesses and activities. It is
Trend: Increasing a degree of control through disintermediation. due to report its findings in August 2017, but in
Competition in the plumbing and heating ("P&H") markets the meantime greater focus is being placed on developing
remains intense, with margins being adversely affected the customer proposition ensuring there is a renewed
and is likely to continue to be so for the foreseeable focus on serving existing customers well, tight management
future. of operating costs and capital expenditure and ensuring
The provision of plumbing and heating product to the the basics of ranging and pricing are carefully managed.
secondary P&H market, which is undertaken by F & P, Projects are underway to tailor branch processes in
is becoming increasingly competitive. the PTS business to better meet the needs of contracting
Low margins, pressure on sales and a high fixed cost customers and improve the customer offer which should
base mean the Plumbing and Heating business' profit drive an increase in sales. The branch network of
could be more muted than some of the Group's other the F & P / Primaflow business is going through a
businesses. major rationalisation programme to better meet the
needs of customers, whilst reducing costs.
UKs decision to leave the European Union The result of the UK vote to leave the European Union Adverse effect on financial results. It is too early to determine the effect of the decision
Inherent Risk: High has caused considerable market uncertainty, which to leave, but the Board is closely monitoring market
Trend: Increasing has resulted in a significant weakening of sterling conditions and will react accordingly. The Board has
against the US dollar and the Euro, the main currencies already taken steps to reduce some costs, but is carefully
used by the Group for imported goods. balancing the current needs of the business against
The effect on the Group's operations is unlikely to what may or may not occur in the future. The Group
become clear until full details emerge about how the continues to invest in the business where those investments
UK will seek to engineer its exit from the EU and are expected to realise acceptable returns, but it
the EU responds. is prepared to reduce activity levels should market
conditions so dictate. Where the cost of goods increases
due to the exchange rate deteriorating, the Group
will seek to pass those price increases through to
its customers, but its ability to do so will depend
upon market conditions at the time.
Legislation The Group is subject to a broad range of existing Adverse effect on the Company's reputation. The Group's legal team is responsible for monitoring
Inherent Risk: Medium and evolving governance, environmental, health and Adverse effect on branch operations. changes to laws and regulations that affect the business.
Trend: Static safety and other laws, regulations, standards and Adverse effect on financial performance. The Group has policies in place that set out the ways
best practices which affect the way the Group operates employees and suppliers are expected to conduct themselves.
and give rise to significant compliance costs, potential Those expectations are widely disseminated using a
legal liability exposure and potential limitations range of methodologies to ensure colleagues and suppliers
on the development of the Group's operations. understand their responsibilities to comply with the
law and other regulations affecting the Company at
all times. The Board and the Executive Committee regularly
monitor compliance with laws and regulations. The
Group operates a whistleblowing process that allows
the anonymous reporting of noncompliance with health
and safety, environmental, bribery and other laws
and regulations.
Corporation tax The Group has a number of unresolved disputes with Adverse effect on the Company's reputation. Given the lack of agreement with HMRC about the interpretation
Inherent Risk: Low HMRC about the tax treatment of several commercial Adverse effect on financial performance. of key areas of the disputed transactions, coupled
Trend: Static transactions undertaken in previous years. Based on with the current tax litigation environment and HMRC's
legal and tax technical advice the Group claimed GBP72m policy for pursuing such a route the Group has recognised
of tax benefits in its tax returns over several years a GBP20m provision for the disputed amounts claimed
and reduced its tax payments accordingly, although by HMRC and has not recognised any benefit in its
following a change in legislation in 2015, the Group income statement for the GBP52m tax legislation required
subsequently paid HMRC GBP52m of the amount withheld. it to pay to HMRC in respect of the disputed amounts,
HMRC have disputed the Group's interpretation of the which it hopes will be repaid in future. The Group
tax legislation. has a governance structure that requires specialist
Whilst the Group believes it has acted appropriately third party technical advice to be obtained on significant
when submitting its tax returns, HMRC has the power tax treatments before the Board of Directors agrees
to levy penalties in circumstances where it believes to the tax position to be adopted by the Group. Accordingly,
a taxpayer has been negligent. it does not believe that its actions can be considered
negligent and therefore should the Group's views ultimately
not prevail it does not believe HMRC will have any
basis for levying penalties or additional assessments.
In the event that the Group's view does not prevail,
interest will be payable on previously unpaid amounts.
Given the current uncertainty interest has been fully
accrued in the financial statements.
RELATED PARTY TRANSACTIONS
The Group has a related party relationship with its subsidiaries, its
Directors and with its pension schemes (note 27). Transactions between
Group companies, which are related parties, have been eliminated on
consolidation and are not disclosed in this note. Transactions between
the Company and its subsidiaries are disclosed below. In addition the
remuneration of the Directors, and the details of their interests in the
share capital of the Company are provided in the audited part of the
remuneration report on pages 88 to 94.
The remuneration of the key management personnel of the Group is set out
below in aggregate for each of the categories specified in IAS 24
Related Party Disclosures.
2016 2015
GBPm GBPm
Short-term employee benefits 10.9 10.7
Post employee benefits 0.2 0.4
Share-based payments 4.2 4.2
15.3 15.3
The Company undertakes the following transactions with its active
subsidiaries:
-- Providing day-to-day funding from its UK banking facilities
-- Paying interest to members of the Group totalling GBP21.6m (2015:
GBP22.5m)
-- Levying an annual management charge to cover services provided to
members of the Group of GBP8.4m (2015: GBP8.4m)
-- Receiving annual dividends totalling GBP330.4m (2015: GBP256.5m)
Details of balances outstanding with subsidiary companies are shown in
note 18 and in the Balance Sheet on pages 116 and 117.
Other than the payment of remuneration there have been no related party
transactions with directors.
The Group advanced a total of GBP4.7m (2015: GBP3.5m) to all the Group's
associate companies in 2016. Operating transactions with the associates
during the year were not significant.
DIRECTORS' RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
1. The financial statements, prepared in accordance with International
Financial Reporting Standards as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation taken
as a whole; and
2. The Strategic Report, which is incorporated into the Directors'
Report, includes a fair review of the development and performance of the
business and the position of the Company and the undertakings included
in the consolidation taken as a whole, together with a description of
the principal risks and uncertainties that they face
3. The annual report and financial statements taken as a whole, are fair,
balanced and understandable and provide the information necessary for
shareholders to assess the Company's position, performance, business
model and strategy
Declaration
We consider that the Annual Report and Accounts, when taken as a whole,
is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group's position, performance,
business model and strategy.
This announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the information
contained therein.
Source: Travis Perkins PLC via Globenewswire
http://www.travisperkinsplc.co.uk/
(END) Dow Jones Newswires
April 07, 2017 07:01 ET (11:01 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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