Travis Perkins profits slump, bearish outlook hits shares

By James Davey

LONDON (Reuters) - Travis Perkins (TPK.L), Britain's biggest supplier of building materials, warned of rising costs and pressure on discretionary spending as it delivered a 67 percent slump in 2016 profit, sending its shares down 8 percent.

The group's customers include local authorities, big building firms, traders such as plumbers and kitchen fitters and regular consumers, with its fortunes closely tied to housing transactions and consumer confidence.

"The sharp decline in the value of sterling since June 2016 has created cost pressures on imported goods and materials, and the expectations for secondary housing market transactions and growth in the repair, maintenance and improvement market have weakened," Chief Executive John Carter said on Thursday.

The group, which has over 20 businesses including Travis Perkins, Wickes, BSS, Toolstation and Tile Giant, mostly blamed its poorly performing plumbing and heating business for a raft of exceptional charges that pulled down profits.

Its shares fell 121 pence to 1,444 pence by 1042 GMT, valuing the firm at 3.64 billion pounds ($4.5 billion) and taking losses for the year to 20 percent.

Carter said pressure on discretionary spending from rising inflation could dent secondary housing transactions in the second half of 2017.

"Any significant reduction in consumer confidence may have a more pronounced impact on big-ticket purchases such as kitchens and bathrooms which make up around 10 percent of the group's sales," he said.

Travis Perkins booked an exceptional non-cash impairment charge of 235 million pounds ($289 million) against goodwill and intangible and tangible assets.

An exceptional charge of 57 million pounds was also taken to cover the cost of closing underperforming branches and a restructuring of its supply chain and central operations. Those changes were announced in October when Travis Perkins also warned of the hit to profits and kicked off a review of the plumbing and heating business.

The charges meant the group's pretax profit fell to 73 million pounds in the year to Dec. 31 2016.

"Further work is required and over the next six months we will be exploring all routes to enhance returns," Carter said of the plumbing and heating division which contributes about 10 percent of group profit.

Adjusted operating profit was 409 million pounds, broadly in line with analysts' expectations but down from 413 million pounds in 2015. Revenue increased 4.6 percent to 6.22 billion pounds.

"While current consensus expectations are not too stretched for 2017 with flattish profits expected, we would not be surprised to see 2017 consensus move lower, probably down by 4-6 percent," said analysts at Canaccord Genuity, which has a "buy" rating on the stock.

($1 = 0.8145 pounds)

(Editing by Alistair Smout and Elaine Hardcastle)