TP refinance to fund expansion plans

A trading update, released today by Travis Perkins chairman Tim Stevenson, has shown growth for the chain in the first quarter of 2008, despite an increasingly challenging economic climate.
Stevenson’s update, presented at the groups agm, details a 6.8% increase in group turnover to the end of April when compared with the same period in 2007.

He said, “Our business has made good progress in the first four months of 2008 in markets that have, as anticipated, continued the slowdown which started in the last quarter of 2007.

However, the merchanting side of the business outperformed the retail side of the operation considerably. Total turnover for the merchanting division was up by 8.2% in the period, compared with 3.3% in the retail division (Tile Giant contributing 1.8% and Wickes the remaining 1.5%). Similarly, with like-for-like turnover per trading day for the merchant business was up by 3.0%, while Wickes mirrored this performance with a drop of 3%

“Our merchanting division like-for-like sales performance for this period is ahead of estimated market growth,” said Stevenson. “Our like-for-like sales were flat across March and April combined. This reflects a slowing in markets, an early Easter and a strong comparator in the previous year. We continue to see the benefits of initiatives taken to improve operational performance across the estate, which partly mitigate the combination of high product cost inflation and increasingly competitive selling conditions.

Par of this move is a refinancing agreement to free up funds to continue the group’s expansion plans. The new £1bn facility, which has a duration of five years from April 2008, replaces the £900m remaining of the existing facility, arranged in 2004 for the acquisition of Wickes. And, said Stevenson, “when taken together with $400 million previously raised through a US private placement provides sufficient resources to support continuation of the Group’s strategy of network expansion.”

Since the end of last year the group has added 26 new merchant branches, eight new Wickes stores and 36 Tile Giant stores, meaning they now trade from 1195 locations. In the first quarter of 2008 they have spent £30m on capital expenditure and a further £30m on acquisitions, underlining the continued commitment to expansion.

However, says Stevenson, The group expect acquisition prices to fall because of the tightening of the economic climate and because of this expect expenditure to fall accordingly. “Our recent experience shows that acquisition prices have not yet fallen sufficiently to reflect prevailing circumstances and we have therefore withdrawn from a number of acquisition possibilities,” said Stevenson. “As a result, and without a significant upturn in market conditions, it is likely that our current rate of capital expenditure and acquisition spend will halve for the remainder of the year.

“As indicated in March, we expect our markets to weaken further as the year progresses. Recent lead indicators, particularly from the housing market, and on declining consumer confidence and disposable income, confirm this continued slowing of activity levels. In that context, with our resilient business model and increased banking facility, we are in a sound position to mitigate the cash and profit effect of a tougher trading environment.”