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Travis Perkins (TPK)
Travis Perkins: Publication of 2018 Annual Report
26-Feb-2019 / 16:13 GMT/BST
Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
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Publication of the Annual Report 2018
Further to the release of its results announcement this morning, Travis
Perkins plc (the "Company") announces that it has today published its
Annual Report for the year ended 31 December 2018. The Company's Annual
Report 2018 can be viewed on the Company's website -
1 www.travisperkinsplc.co.uk
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
2 www.morningstar.co.uk/uk/NSM
• Annual Report and Accounts 2018;
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 announcement. 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:
3 www.travisperkinsplc.co.uk
Enquiries:
Graeme Barnes
4 Graeme.barnes@travisperkins.co.uk
+44 (0) 7469 401819
Helen O'Keefe
5 Helen.okeefe@travisperkins.co.uk
+44 (0) 1604 685910
STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES
For the year ended 31 December 2018
The Group operates in markets and an industry which by their nature are
subject to a number of inherent 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 must 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. The Board has assessed its risk
appetite, which is set to balance opportunities for growth and business
development in areas of potentially higher risk and return, whilst
maintaining its reputation, legal and regulatory compliance and high
levels of customer service and satisfaction. 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. These risk registers are used to determine
strategies adopted by the Group's various businesses to mitigate the
identified risks and are embedded in their operating plans.
Details of the Group's risk management processes are given in the
Corporate Governance report on page 59.
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 our IT
infrastructure.
The risk environment in which the Group operates does not remain static.
During the year, the Directors have reviewed the Group's principal risks
and have concluded that as the nature of the business and the environment
in which it operates remain broadly the same, the principal risks it faces
are largely unchanged. However, following the announcement in December
2018 that the Group strategy is being refined to achieve greater
simplification and focus on serving trade customers through advantaged
businesses, activities are underway to reshape the portfolio with the
proposed divestment of the Plumbing & Heating businesses. As a result, the
Directors have concluded that acquisition and disposal activity,
previously combined with risks associated with business transformation
projects, is a key area of focus and heightened risk for the Group and it
is now described separately. The Directors have also extended the
description of health and safety risk to consider in more detail the
transport related risk faced by the Group, due to the scale of the fleet
it operates and the associated regulatory and compliance requirements.
Finally, the reduction in the deficit for the Group's two main defined
benefit schemes, supported by the closure of the schemes to future accrual
in 2018 and a continued focus on liability management, means that the
Board no longer believes that this area represents a principal risk.
The nature of risk is that its scope and potential impact will change over
time. As such the list below should not be regarded as a comprehensive
statement of all potential risks and uncertainties that may manifest in
the future. Additional risks and uncertainties that are not presently
known to the Directors or which are currently deemed immaterial could also
have an adverse effect on the Group's future operating results, financial
condition or prospects.
The table on pages 36 to 41 sets out, in no particular order, the current
principal risks that the Board considers to be material, their potential
impacts, the factors that mitigate them and those areas of the businesses'
strategies they potentially impact. 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.
CHANGING CUSTOMER AND COMPETITOR
LANDSCAPE
RISK DESCRIPTION
The Group sells
and distributes
building
materials through
a number of
channels. The
number of outlets
and channels
where building
materials can be
purchased
continues to grow
with new
competitors
entering the
market. These new RISK MITIGATION
INHERENT RISK: entrants may
HIGH operate business Changes to market practice are tracked on
models which an ongoing basis and reported to the
differ Board.
significantly
TREND: STATIC from the The Group continues to build
traditional multi-channel capabilities that
merchanting, complement its existing operations and
retail and online provide its customers with the
STRATEGY: formats from opportunity to transact with the Group
which the Group through channels that best suit their
Best-in-class operates and may needs.
service take market
share. The Group's strategy allows it to use
Focus on trade sites flexibly. Alternative space
At the same time, utilisation models are possible,
Advantaged customer including maintaining smaller stores and
businesses purchasing habits implanting additional services into
continue to existing branches.
evolve with
increasing online The development of new, innovative and
IMPACT: transactions. competitive supply solutions is a key
Customers' strength of the Group. It works closely
Adverse effect preference for with customers and suppliers on a
purchasing programme of continuous improvement
on financial materials through designed to improve its customer
results a range of supply proposition.
channels and not
Loss of market just through the Pricing strategies across the Group are
share Group's regularly reviewed and where necessary
traditional refined to ensure they remain
competitors may competitive.
affect the
Group's
performance and
adversely impact
the profitability
of branch-based
operations.
Increasing price
transparency
could lead to a
perception that
the Group is less
price competitive
leading to
downward pressure
on price and
margins.
COLLEAGUE RECRUITMENT, RETENTION AND SUCCESSION
PLANS DO NOT DELIVER THE REQUIRED SKILLS AND
EXPERIENCE
RISK DESCRIPTION
The ability to
recruit, develop,
retain and
motivate suitably
qualified staff
is an important
driver of the
Group's overall
performance. The
Group may also be
exposed to skills
shortages in
certain areas
which can result
in salary cost
pressures. The
INHERENT RISK: availability of
MEDIUM suitably
qualified
commercial
drivers is one RISK MITIGATION
TREND: STATIC such area of
focus for the The Group's employment policies and
Group, which is practices are kept under regular review.
critical to the
STRATEGY: operation of its Staff engagement and turnover by job type
fleet to meet is reported regularly to the Executive
Best-in-class customer delivery Committee and to the Board. Succession
service expectations. plans are established for the most senior
positions within the Group and these are
Focus on trade The strength of reviewed annually.
the Group's
Simplifying customer The Group's reward and recognition
the Group proposition is systems are actively managed to ensure
underpinned by high levels of employee engagement.
the quality of
people working Salaries and other benefits are
IMPACT: throughout the benchmarked regularly to ensure that the
Group, Group remains competitive and the Group
Inability to particularly in operates incentive structures to ensure
develop and customer facing that high performing colleagues are
execute roles. Many of adequately rewarded and retained.
development them have worked
and succession for Travis A wide range of training programmes are
plans Perkins for some in place to encourage staff development,
considerable whilst management development programmes
Adverse effect time, during are available to those identified for
on delivery of which they have more senior positions.
strategy gained valuable
product and
Competitive customer
disadvantage knowledge and
expertise.
The Group faces
competition for
the best people
from other
organisations.
Ensuring the
retention and
development of
employees and
that robust
succession plans
exist for key
positions is
important for the
Group to deliver
on its strategic
objectives.
SUPPLIER DEPENDENCY, RELATIONSHIP AND
DISINTERMEDIATION LEADING TO ADVERSE IMPACTS ON
RANGING AND PRICE
RISK DESCRIPTION
The Group is the
largest customer
to a number of
its suppliers. In
some cases, those
suppliers are
large enough to
cause significant
supply
difficulties to
the Group if they
are unable to
meet their supply
obligations due
to either
economic or
operational
INHERENT RISK: factors. RISK MITIGATION
MEDIUM
Alternative Making decent returns is one of the
sourcing may be Group's cornerstones which requires it to
available, but treat both customers and suppliers
TREND: STATIC the volumes fairly. The commercial and financial
required and the teams have established strong
time it may take relationships with the Group's key
those suppliers suppliers and work closely with them to
STRATEGY: to increase ensure contracts that are beneficial to
production could both parties and the continuity of
Best-in-class result in quality materials.
service significant
stock-outs for To spread the risk where possible
Focus on trade some considerable contracts exist with more than one
time leading to supplier for key products.
Simplifying poor customer
the Group service. The Group has made a significant
investment in its Far East infrastructure
Financial The Group has to support its direct sourcing operation
strength increased the which allows the development of own brand
sourcing of products, thereby reducing the reliance
products from on branded suppliers. The Group has also
overseas adopted a conservative hedging policy to
IMPACT: factories. This reduce its exposure to currency
has increased the fluctuations.
Adverse effect Group's exposure
on financial to sourcing, Comprehensive checks are undertaken on
result quality, trading, the factories manufacturing products and
warranty and the quality and the suitability of those
Adverse effect currency issues, products before they are shipped to the
on reputation which again may UK.
lead to an
adverse impact on
customer service.
Manufacturers of
building
materials sold by
the Group may
also look to sell
their products
directly to end
customers in the
future
diminishing the
role of
distributors such
as merchanting
and retail
distribution
businesses.
UNSAFE PRACTICES RESULT IN HARM TO
COLLEAGUES, CUSTOMERS, SUPPLIERS OR THE
PUBLIC
RISK MITIGATION
INHERENT RISK: The Group continues to challenge its
MEDIUM RISK DESCRIPTION thinking and approach to improving its
safety performance through its 'Stay
Keeping the Safe' brand.
Group's
TREND: STATIC colleagues, Governance of Stay Safe is
customers, well-established and designed to promote
suppliers and the a continual focus on health and safety.
public safe is a Stay Safe performance is reviewed at all
STRATEGY: cornerstone of Board meetings, by the Executive
the business. The Committee and by the dedicated Stay Safe
Best-in-class Group operates Committee, which is chaired by a
service over 2,000 sites, Non-executive Director.
many with complex
Financial and busy yards. The Group's regular Divisional leadership
strength It also operates meetings also focus on performance and
one of the continuous improvement in this area.
largest vehicle These forums also monitor the achievement
fleets in the UK, of transport-related compliance
IMPACT: distributing requirements, including driver licencing
heavy and bulky and professional competence.
Harm to our materials. Poorly
colleagues, implemented Incidents are monitored, investigated and
customers and safety practices corrective action taken to reduce the
the wider on site, on the likelihood of similar incidents in
community road or at future. Stay Safe assurance reviews are
delivery regularly undertaken at sites by
Potential locations could dedicated safety professionals with any
legal action, result in resulting improvement actions tracked to
fines and significant harm completion.
penalties to people which
would damage the De-risking the Group's operations,
Adverse effect Group's improving health and safety awareness and
on financial reputation and implementing improved ways of working are
results could impact at the forefront of the Group's
trading activities. Further information on
Adverse effect performance. progress made during 2018 can be found in
on reputation the Health and Safety report on pages 47
to 49.
THE GROUP ALLOCATES CAPITAL INEFFICIENTLY OR UNDER INVESTS
IN ADVANTAGED BUSINESS AND DOES NOT ACHIEVE DESIRED RETURNS
RISK DESCRIPTION
The Group
operates a number
of different RISK MITIGATION
businesses in the
UK which operate Return on capital is one of the Group's
in different but key performance indicators as shown on
INHERENT RISK: complementary page 19. The Group's decision to refine
MEDIUM channels. As the its strategy and focus on trade customers
Group's markets in the most advantaged businesses will
continue to impact the allocation of capital with
develop, it is more focused management attention and
TREND: STATIC investing to capital deployment in areas of higher
enhance its return.
existing
businesses and to Responsibility for identifying and
STRATEGY: develop new implementing opportunities to expand,
propositions to improve or modify the Group's operations
Focus on trade better serve its rests with each of the Divisional Boards.
customers. Capital is deployed or re-deployed
Advantaged through a Group-led forum to the
businesses Whilst the Group strategically-aligned opportunities
operates a expected to achieve the best return on
Financial disciplined capital.
strength capital
allocation Major projects are kept under review to
process, there is monitor progress and ensure the
a risk that it deployment of capital remains
IMPACT: may be appropriate.
over-investing in
Adverse effect channels which Post-implementation reviews are
on financial may decline or undertaken on all major projects and
results that it may not returns are monitored on an ongoing basis
be allocating to ensure that the expected returns are
sufficient achieved and allow the Group to modify
capital to new its capital allocation when appropriate.
propositions
resulting in
sub-optimal
returns on
capital.
BUSINESS TRANSFORMATION AND IMPROVEMENT PROJECTS FAIL TO
DELIVER THE EXPECTED BENEFITS, COST MORE OR TAKE LONGER TO
IMPLEMENT THAN ANTICIPATED
RISK DESCRIPTION
The Group
undertakes a
variety of
projects
throughout its
business in order
to generate
returns for its
INHERENT RISK: shareholders.
MEDIUM These projects
include the
transformation of
the Group's core
TREND: STATIC IT systems and
infrastructure,
ongoing
development of RISK MITIGATION
STRATEGY: its supply chain
operations and All potentially significant projects are
Best-in-class its branch and subject to detailed investigation,
service store networks, assessment and approval prior to
and the commencement.
Advantaged simplification of
businesses the Group to Dedicated teams, including financial
speed up decision resource, are allocated to each project,
Simplifying making and reduce with additional expertise brought into
the Group costs. the Group to supplement existing resource
when necessary.
Financial By their nature,
strength such strategic All strategic projects are supported by
projects are an appropriate governance structure and
often are closely monitored by the Executive
complicated, Committee with regular reporting to the
IMPACT: interlinked and Board.
may require
Adverse effect considerable Regular communications are undertaken to
on financial resource to keep affected colleagues informed.
results deliver them. As
a result, the
Adverse effect expected
on shareholder benefits,
value timescale for
delivery and
costs of
implementation of
each project may
deviate from
those anticipated
at their outset.
Colleague
engagement may be
impacted during a
period of
significant
change and
cost-focus.
UNCERTAINTY CAUSED BY THE UK'S DECISION TO LEAVE THE
EUROPEAN UNION
RISK DESCRIPTION
The result of the
UK vote to leave
the European
Union and the
subsequent
process to
determine the
terms of the
withdrawal
agreement
continues to
cause
considerable
market
uncertainty. It
remains difficult
to predict the
economic outlook
and impact to the
Group in the
short-term. The
Group continued
to experience
significant
volatility in the
value of Sterling
against the
principal
currencies used
to pay for RISK MITIGATION
imported goods
during 2018. It remains too early to determine the
full impact of the UK's decision to leave
Future trading the European Union, but the Board is
relationships closely monitoring market conditions and
with foreign will react accordingly.
markets have yet
to be determined The Board has undertaken a process to
and these may assess the known and proximate risks
result in higher associated with Brexit. This includes
INHERENT RISK: tariffs or duties assessment of existing risk mitigations
HIGH on imports of and actions in progress and is updated on
construction a regular basis.
products as well
as extended lead The Board has already taken steps to
TREND: times on imported reduce some costs, but is carefully
INCREASING supplies or balancing the current needs of the
result in the business against what may or may not
need to source occur in the future.
some products
STRATEGY: elsewhere. These The Group continues to invest in the
risks have the business where those investments are
Best-in-class potential to expected to realise acceptable returns,
service impact the Group but it is prepared to reduce activity
significantly. Of levels should market conditions so
Financial less risk to the dictate.
strength Group, but
potentially Exercises have been undertaken by the
significant for divisional leadership teams to assess the
its customers, level of stock holding required in each
are the business unit to minimise disruption to
significant customers. A customer statement is in
IMPACT: numbers of non-UK place and will be reassessed as the terms
nationals of the UK's withdrawal are clarified.
Adverse effect employed in the Engagement with the Group's key suppliers
on financial construction is ongoing.
results industry and the
distribution and Where the cost of goods increases due to
logistics the exchange rate deteriorating or
markets. If the additional tariffs and duties, the Group
UK becomes a less will seek to pass those price increases
attractive place through to its customers, but its ability
for them to work to do so will depend upon market
this could result conditions at the time.
in labour
shortages and The processes in place around the
consequent salary recruitment and retention of people are
cost pressures set out in the principal risk pertaining
and could change to such matters on page 36.
dynamics in our
key markets.
Whilst
significant
changes to
product standards
and legislative
requirements more
generally are not
anticipated in
the short-term,
they could impact
the Group if
introduced in the
future.
The continued
uncertainties
that surround
Brexit mean that
a more precise
assessment of the
impact on the
Group's
operations is
unlikely to be
possible until
the terms of the
withdrawal
agreement are
confirmed.
MARKET CONDITIONS
LEADING TO DEMAND
UNCERTAINTY
RISK DESCRIPTION
The Group's
products are sold
to businesses,
trade
professionals and
retail customers
for a broad range
of end uses in
the built
environment. The
Group's markets
are cyclical in
nature and the
performance of
those markets is
affected by
general economic
conditions and
INHERENT RISK: specific drivers
HIGH of construction, RISK MITIGATION
Renovation,
Maintenance and The Board conducts an annual review of
Improvement and strategy, which includes an assessment of
TREND: DIY activity. likely competitor activity, market
INCREASING These include forecasts and possible future trends in
mortgage products, channels of distribution and
availability and customer behaviour.
affordability,
housing The Group maintains a comprehensive
transactions and tracking system for lead indicators that
STRATEGY: the timing and influence the market for the consumption
nature of of building materials in the UK.
Best-in-class government
service activity to Significant events including those in the
stimulate supply chain that may affect the Group
Focus on trade activity, net are monitored by the Executive Committee
disposable and reported to the Board monthly by the
Advantaged income, house Group CEO.
businesses price inflation,
consumer Should market conditions deteriorate then
confidence, the Board has a range of options
interest rates dependent upon the severity of the
IMPACT: and unemployment. change. Historically these have included
amending the Group's trading stance, cost
Adverse effect A significant reduction, lowering capital investment
on financial downturn in and cutting the dividend.
results economic
conditions or
alternatively
major uncertainty
about the future
outlook could
affect the levels
of construction
activity in the
Group's markets
and the
confidence levels
of the Group's
customers, which
could reduce
their propensity
to purchase
products and
services from the
Group's
businesses.
EXECUTION OF PLANNED DISPOSALS AND POTENTIAL ACQUISITIONS FAILS
TO DELIVER THE EXPECTED BENEFITS TO THE EXPECTED COST AND
TIMESCALE
RISK DESCRIPTION
The Group
undertakes
acquisition and
disposal activity
to optimise its
portfolio of
businesses and
drive shareholder
return. In
December 2018,
the Group
announced its
intention to
explore the
INHERENT RISK: potential
MEDIUM divestment of the
Plumbing &
Heating division,
as part of the
TREND: broader strategy
INCREASING of simplifying RISK MITIGATION
the Group. This
division All merger, acquisition and disposal
comprises a activities are subject to a detailed
STRATEGY: number of appraisal process and ultimate approval
businesses of by the Board.
Focus on trade varying size
which operate on A formal programme of work with dedicated
Advantaged a range of resource has been put in place to support
businesses systems, some of the execution of the Plumbing & Heating
which are shared disposal. External expertise and advisors
Simplifying with the wider are involved as required to support the
the Group Group. programme team.
Financial The programme to All activity of this kind is supported by
strength separate the robust governance and monitoring. The
Plumbing & Plumbing & Heating programme is closely
Heating monitored by a programme Steering
businesses for a Committee, with Executive sponsorship and
IMPACT: potential sale is representation. There is regular
complex with many reporting to the Executive Committee and
Adverse effect linkages to Group Board.
on financial systems and
results processes. The
Group has not
Adverse effect undertaken a
on shareholder restructure and
value disposal on this
scale for some
time and it
requires careful
management. The
costs and
timescale for the
separation may
deviate from
those originally
planned, which
could in turn
impact the
progression of a
sale process and
the value
realised.
DATA SECURITY
INHERENT RISK: RISK DESCRIPTION RISK MITIGATION
MEDIUM
Incidents of The strategic demands of the business,
sophisticated the resources available to IT, the
cyber-crime performance levels of key systems and IT
TREND: represent a security are kept under review by the
INCREASING significant and Executive Committee, with responsibility
increasing threat for monitoring and maintaining cyber
to all businesses security delegated to a data security
including the committee.
STRATEGY: Group. A major
breach of cyber Investments in best-of-breed solutions
Best-in-class security could are made that continually adapt and are
service result in updated to mitigate the risk associated
disruption to with the most advanced threats and the
Financial customer- facing, evolution of Group technology adoption.
Strength supplier-facing
and financial Cyber security controls are in place to
systems through protect IT systems and data including
theft and misuse firewalls, virus protection and
IMPACT: of confidential penetration testing. A programme of
data, damage to risk-oriented reviews is undertaken to
Adverse effect or manipulation ensure the level of control around IT
of operationally systems remains robust.
on financial critical data or
results interruption to An IT disaster recovery plan exists
IT services, any together with a business continuity plan.
Adverse effect of which may have Arrangements are in place for alternative
on serious impacts data sites for both trade and consumer
on the Group's businesses. Off-site back-up routines are
the Group's reputation or in place.
reputation ability to trade.
THE CHANGING REGULATORY FRAMEWORK
INCREASES THE RISK OF NON-COMPLIANCE
AND FINES
INHERENT RISK:
MEDIUM
RISK MITIGATION
The Group's in-house legal team is
TREND: STATIC responsible for monitoring changes to
laws and regulations that affect the
RISK DESCRIPTION business and is supported by external
advisors.
STRATEGY: The Group is
subject to a The Group has a comprehensive framework
Best-in-class broad range of of policies in place that sets out the
service existing and ways employees and suppliers are expected
evolving to conduct themselves. Those expectations
Focus on trade governance are widely disseminated using a range of
requirements, methods to ensure colleagues and
Advantaged environmental, suppliers understand their
businesses health and safety responsibilities to comply with the law
and other laws, and other regulations affecting the Group
Simplifying regulations, at all times.
the Group standards and
best practices The Group provides online training to
Financial which affect the colleagues in key areas of legal and
strength way the Group regulatory compliance, including a suite
operates and give of mandatory training for those that join
rise to the Group. During 2018 Group-wide
significant training was undertaken in respect of
IMPACT: compliance costs, GDPR.
potential legal
Adverse effect liability for The Executive Committee and the Board
on the non-compliance regularly monitor compliance with laws
Company's and potential and regulations.
reputation limitations on
the development The Group operates a whistleblowing
Adverse effect of the Group's process that allows the anonymous
on financial operations. reporting through an independent hotline
and of any suspected wrongdoing or unethical
operational behaviour, including reporting instances
performance of non-compliance with laws and
regulations. All reported cases are
Potential investigated.
legal action,
fines and
penalties
══════════════════════════════════════════════════════════════════════════
ISIN: GB0007739609
Category Code: ACS
TIDM: TPK
LEI Code: 2138001I27OUBAF22K83
OAM Categories: 1.1. Annual financial and audit reports
Sequence No.: 7634
EQS News ID: 781361
End of Announcement EQS News Service
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References
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4. mailto:Graeme.barnes@travisperkins.co.uk
5. mailto:Helen.okeefe@travisperkins.co.uk
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