REG-Travis Perkins PLC : Annual Financial Report <Origin Href="QuoteRef">TPK.L</Origin> - Part 2
25/04/2016 16:05
- Part 2: For the preceding part double click ID:nHUG3dgqNa
Comprehensive checks are undertaken on the factories producing products and the quality and the suitability of that product
before it is shipped to the UK.
Defined benefit pension scheme funding could increase significantly Inherent Risk: Medium Trend: Static The Group is required by law to maintain a minimum funding level in relation to its on-going obligations to provide current and future pensions for members of its two defined benefit pension schemes. The level of contributions required from the Group to meet the benefits promised in the final salary schemes will vary depending upon the funding position of those schemes. The funding of pension obligations could increase due to a number of factors including poor performance of the pension fund investments, falling corporate bond and gilt yields and increasing longevity of pension scheme members. Adverse effect on financial condition. All of the Group's final salary pension schemes are closed to new members. For the Travis Perkins scheme, pensionable salary
inflation has been capped at 3% per annum. The schemes' investment policies are kept under regular review by the Trustees in
conjunction with the Group to ensure asset portfolios produce the desired level of return within an acceptable risk profile. The
Group has agreed deficit reduction payment plans for each of its defined benefit pension schemes with the Trustees of the
schemes. The repayment plans will remain in place until the next actuarial valuation when, in conjunction with the Scheme
Trustees, they 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 or do not achieve the desired sales and profit improvements and funding liquidity is unavailable Inherent Risk: Low Trend: Static The Group's strategic plans are predicated on the continued expansion of its UK branch network and the development of its supply chain capabilities. Large scale acquisitions in existing UK markets are unlikely due to the Group's size and the resulting concerns of the competition authorities to ensure competitive markets. Therefore the Group will rely on developing smaller scale opportunities, in new catchment areas or in new formats within existing sites or on expanding into adjacent markets in which it does not have a presence. The Group also needs to ensure that funding is available to support its plans. The Group has been reliant on the banking market for funding, a market that has contracted in recent years and which may continue to contract in the future. It established a bond issuance capability in 2014, but the availability of funds from that market at a sensible cost may depend upon the Group's rating which can be affected by its trading performance. Adverse effect on financial results. Responsibility for identifying and implementing opportunities to expand the Group's operations rests with each of the
divisional boards, with capital being deployed to those projects giving the best return on capital. The Group has identified a
significant number of opportunities for expansion throughout the United Kingdom and continues to develop alternative trading
formats that will open up additional opportunities in future. The Group continues to invest in its leading supply chain
infrastructure. Its capabilities in this area allow it to source directly from manufacturers, offer superior availability to
customers and operate cost efficient mechanisms to deliver products to customers when they most need them. It is the
responsibility of the treasury function to manage the Group's liquidity, funding availability and treasury risk by reference to
the policies and plans set out in the board approved funding strategy. Regular reporting of a series of key metrics is designed
to monitor treasury activities and maintain opportunities to diversify sources and access suitable funding.
Business transformation projects fail to deliver the expected benefits, cost more or take longer to implement than expected Inherent Risk: Medium Trend: Static The Group is undertaking a large number of strategic projects throughout its business. These projects are intended to transform the Group's infrastructure and its information technology systems and to develop its supply chain operations and its branch and store networks. By their nature, strategic projects are often complicated, interlinked and require considerable resource to deliver them. As a result the expected benefits and the costs of implementation of each project may deviate from those anticipated at their outset. Adverse effect on financial results. All potentially significant projects are subject to detailed investigation, assessment and approval prior to commencement.
Dedicated teams are allocated to each project, with additional expertise being brought into the Group to supplement existing
resource when necessary. All strategic projects are closely monitored by the Executive Committee with regular reporting to the
Board
Plumbing and Heating business performance adversely affects Group returns Inherent Risk: High Trend: Increasing The market supplying boilers to large contract customers, served by the PTS business, is highly competitive, offers low margins and certain manufacturers exercise a degree of control through disintermediation. Competition in the plumbing and heating ("P&H") markets remains intense, with margins being adversely affected and is likely to continue to be so for the foreseeable future. The provision of plumbing and heating product to the secondary P&H market, which is undertaken by F&P, is becoming increasingly competitive. Low margins, pressure on sales and a high fixed cost base mean the Plumbing & Heating business profit could be more muted than some of the Group's other businesses. Adverse effect on financial results The re-segmentation of the P&H business has been completed and has established CPS as a business serving the needs of the
jobbing plumber, with PTS business focussing on the contract customer. Projects are underway to tailor branch processes in the
PTS business to better meet the needs of contracting customers and improve the customer offer which should drive an increase in
sales. The branch network of the F&P/Primaflow business is going through a major rationalisation programme to better meet the
needs of customers, whilst reducing costs. Greater focus is being placed on cost control and the introduction of improved
systems. In addition further capital investment is being made in showrooms to boost sales in the more profitable CPS business.
RELATED PARTY TRANSACTIONS
The Group has a related party relationship with its subsidiaries, its
Directors and with its pension schemes (note 28). 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
117 to 122.
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.
2015 £m 2014 £m
Short-term employee benefits 10.7 16.1
Post employee benefits 0.4 0.4
Share-based payments 4.2 2.9
15.3 19.4
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 £22.5m (2014: £22.5m)
* levying an annual management charge to cover services provided to members
of the Group of £8.4m (2014: £8.3m)
* receiving annual dividends totalling £256.5m (2014: £197.1m)
Details of balances outstanding with subsidiary companies are shown in note
19 and in the Balance Sheet on pages 142 and 143.
Other than the payment of remuneration there have been no related party
transactions with directors.
The Group advanced a total of £3.5m (2014: £4.9m) to all the Group's
associate companies in 2015. Operating transactions with the associates during
the year were not significant.
DIRECTORS' RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
* 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
* 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.
* 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 performance, business model and strategy
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.
By order of the Board
John Carter Tony Buffin
Chief Executive Officer Chief Financial Officer
This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf
of NASDAQ OMX 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
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