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Annual Report and Accounts - Hemscott IR

Annual Report and Accounts - Hemscott IR

Finance Director’s

Finance Director’s Review of the YearFor the year ended 31 December 2011“We have arranged a £550mforward start extension to theGroup’s UK borrowing facilitieswhich will meet the Group’sfunding requirements until 2016”Paul Hampden SmithFinance DirectorFinancial achievementsOur principal financial objectives for 2011were to support the Group’s strategy bydelivering the synergies anticipated at the timeof the BSS acquisition, further reducing groupborrowings, managing margins and costs inthe face of increasingly difficult markets andensuring increased profitability by leveragingthe investments we made in product serviceinitiatives and branch expansion. This involved:● Delivering £20m of synergies from the BSSacquisition, which has left us well placed toexceed our original £25m target, with £30mbeing our new target;● Reducing net debt by £191m to £583mthrough a series of initiatives and synergiesdesigned to improve cash flow;● Increasing adjusted earnings per share on aproforma basis (assuming we owned BSS forall of 2010) by 6%;● Integrating financial systems following theBSS acquisition.Furthermore, at a time when financial marketliquidity has been severely affected by eventsin Europe, we have arranged a £550m forwardstart extension to the Group’s UK borrowingfacilities which will meet the Group’s fundingrequirements until 2016.Financial resultsThe Group’s overall adjusted operating marginremained flat at 6.6% compared with last yearon a proforma basis.Whilst the operating margins of individualdivisions are still strong, there has been alimited amount of erosion during the year inmerchanting. The overheads to sales ratioreduced by 0.4% due to the combined impactof good cost control and the operationalgearing effect of the fixed element of our costbase and synergy benefits contributed 0.2%.However, these were not enough to preventmerchanting operating margins falling by 0.2%to 8.6% (2010: 8.8%) as gross margins eased0.8% due to mix (direct to site deliveries grewstrongly, so diluting gross margins), input pricepressure, investment in warehouse facilitiesand some investment in market share.In our retail business, despite a 1.3% grossmargin improvement due to a combination ofimproved purchasing terms, direct sourcingand lower sales incentives, adjusted operatingmargin fell by 1.4% to 4.5% (2010: 5.9%).This reflects an increase in overheads due tohigher marketing spend, the initial costs ofopening all of the new stores acquired fromFocus and restructuring.BSS adjusted operating margins includingsynergies improved by 0.4% to 4.6% (2010:4.2% on a proforma basis) as the benefits ofour synergy programme more than offset theeffects of sales mix, which reduced operatingmargins, due to significantly increased turnoverwith British Gas from April.The Group incurred £10m of exceptionaloperating charges in 2011 (2010: £19m) asa result of integrating BSS into the Group.The charges arose mainly as a result of30Richard Haines at Toolstation Redditch

T R A V I S P E R K I N S A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 1“Early in 2012 we completed the acquisition of Toolstation”REPORTS31

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