July 31, 2018 / 6:55 AM / 19 days ago

Travis Perkins to cut costs as weak UK DIY hits profit outlook

LONDON (Reuters) - Travis Perkins, Britain’s largest supplier of building materials, said its full year operating profit would be at the lower end of expectations because Britons were not spending on big upgrades to their kitchens and bathrooms.

Shares fell almost 12 percent after the company took a 246 million pound ($324 million) impairment charge against goodwill in its Wickes UK retail consumer business, which took the shine off a better performance in sales to building trade customers. Adjusted first half profit before tax fell 4.6 percent to 167 million pounds ($220 million).

Chief Executive John Carter said the group was starting a deep review of its business, focusing on its cost base due to “changing market conditions which are expected to continue for the foreseeable future.” A simplified structure would be announced in December.

Travis had particular problems with big ticket purchases in UK DIY, especially in Wickes’ kitchen and bathroom sales, as consumers adjusted to a more uncertain economic environment.

The group said it had been unable to pass on price increases to customers because of fierce competition.

Travis cited including inconsistent house price growth and depressed consumer confidence as problems. Growth continued strongly, however, in its plumbing and heating division.

“It’s possible that the incredible weather and World Cup (in June and July) may have unhelpfully put people off DIY and kitchen refurbs – but if it was just a case of delayed spending, we doubt management would be considering a major cost reduction review,” said Ameet Patel, analyst at Northern Trust Capital Markets.

Rivals such as Kingfisher also struggled in the first half of the year, while Australia’s Wesfarmers quit the UK market, selling its 255-store loss-making Homebase chain.

Net debt of 461 million pounds at 30 June 2018 was up 119 million pounds from December 2017 because of lower profitability and a temporary increase in working capital, the group said.

The range of market expectations for Travis full-year 2018 group core earnings was 360 million pounds to 390 million pounds.

($1 = 0.7617 pounds)

($1 = 0.7602 pounds)

Reporting by Elisabeth O'Leary in Edinburgh and Kate Holton in London; Editing by Keith Weir

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