Travis Perkins warns on profit, blaming weak demand and Brexit

By James Davey

LONDON (Reuters) - Travis Perkins (TPK.L), Britain's biggest supplier of building materials, said on Wednesday it would miss 2016 profit forecasts and predicted a tough 2017, blaming weak demand and uncertainty created by Britain's vote to leave the European Union.

Shares in the group, which trades from over 20 businesses including Travis Perkins, Wickes, BSS, Toolstation and Tile Giant, fell as much as 8 percent, taking their losses for the year to over 30 percent.

The group's customers range from big building firms to sole traders such as plumbers and kitchen fitters as well as consumers, with its fortunes closely tied to housing transactions and consumer confidence.

"What Brexit has created is a degree of uncertainty in both those areas – both in how many people are going to move homes and what will be the degree of consumer confidence," Chief Executive John Carter told Reuters.

"Many businesses in walks of life other than building materials are also finding it difficult to predict what does Brexit actually mean?"

The firm said it would close 10 small distribution centres and 30 of its 2,060 branches, threatening 600 jobs. That, and other moves to make its supply chain more efficient would mean an exceptional charge of 40-50 million pounds in 2016.

Core earnings for 2016 would be "slightly below" the current market consensus of 415 million pounds. Core earnings were 413 million pounds in 2015.

"It is not easy to understand whether softness is due to uncertainty around the EU referendum and its after-effects or a sign of more fundamental weakness," said Liberum analyst Charlie Campbell who has a "buy" rating on the stock.

Travis Perkins said underlying sales in its plumbing and heating division fell 4.1 percent in the third quarter ended September.

It blamed weak demand, partly due to previous government boiler replacement incentive schemes which brought sales forward. The division's future will now be reviewed, though Carter said it was too early to say if the group would look to sell some businesses.

"There is an over-capacity of branches," he said, pointing to recent restructurings announced by rivals Wolseley (WOS.L) and Grafton.

The plumbing and heating division accounts for just under a quarter of Travis Perkins’ revenue and just under 10 percent of its profits.

Total group sales rose 3.4 percent in the third quarter, with like-for-like sales up 2.0 percent.

"I’ve got three other divisions (general merchanting, consumer and contracts) doing really well that add up to 90 percent of my profits," said Carter.

The CEO added import costs, both of raw materials and of finished product, were likely to start increasing in 2017 due to the weaker pound, as currency hedges unwind.

(Editing by Louise Heavens and Mark Potter)