Wickes parent company, Travis Perkins (TP), has announced it will begin a comprehensive review of the business and look to simplify the model in order to "improve returns." The company has said the fundamental long-term growth drivers of the business remain robust, with a continued shortage of housing in the UK and underinvestment in the maintenance and improvement of the existing, ageing, housing stock. However, in the shorter term, market conditions remain uncertain, impacting secondary housing market transactions and consumer confidence.
Following a comprehensive review, the board has concluded that the group will focus on serving trade customers through advantaged businesses in attractive markets, and will simplify the group to reduce complexity and cost to drive returns.
TP said it will focus on delivering best in class service to trade customers through businesses with clear competitive advantages in their markets. The group aims to deliver sales growth through market outperformance, building on the momentum in the Contract Merchanting businesses, the continuing strong growth in Toolstation, and a reinvigoration of our market-leading general merchanting business.
In the short term, management will also focus on strengthening the performance of Wickes and capitalising on its clear competitive advantages in the DIY, small trade and kitchen & bathroom markets. As it is a predominantly consumer focused business, the Board will also look to review the options for maximising the value of Wickes in the medium term.
Travis Perkins’ consumer division saw like-for-like (LFL) sales slide 4.2% in Q3, as Wickes reported declines in both core DIY and kitchen and bathroom categories. Announcing the results, TP said “the market environment in UK DIY remains challenging”, resulting in continued volume declines in these key categories for Wickes.
The group will focus on simplifying the business to reduce complexity, speed up decision making and improve agility whilst further reducing the above-branch and distribution cost base. The group is targeting further annualised cost savings of £20-30m which will be delivered over the next 18 months. This is expected to underpin earnings progression and create a platform from which to drive operating cost leverage going forwards.
Following on from the success of the plumbing & heating transformation programme, the board has concluded that as part of the process of simplification, now is the time to explore the potential sale of the plumbing & heating division. This will facilitate more focused management attention and capital deployment on the higher returning areas, and creates further opportunities to simplify the group and reduce costs.
Future capital investment will be focused on reinvigorating the general merchanting business, completing the major IT programmes and expanding both the Toolstation UK and Europe businesses.
Travis Perkins CEO John Carter said: "We have developed a clear plan to focus on delivering best-in-class service to our trade customers, and to simplify the group to reduce complexity, speed up decision making and reduce costs. Our trade businesses hold strong positions in attractive markets, and these initiatives will enable us to concentrate our management time and capital in the highest returning areas.
"Our strong balance sheet and free cash flow generation, driven by growing earnings and lower capital expenditure, will underpin our commitment to drive shareholder value and a progressive dividend."