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Analysis of Travis Perkins plc

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    This report intends to analysis the macro and internal environments and financial position of the Travis Perkins plc by conducting the PESTLE and SWOT analysis. In the beginning of this report, it introduces the mission of Travis Perkins plc. After that, this report presents the PESTLE analysis to show the company’s external environment. Then, it depicts the SWOT analysis of Travis Perkins plc to show the strengths, weaknesses, opportunities and threats of this company. It follows by the financial strategy analysis and results of Travis Perkins. The balance sheet analysis will be presented in the appendix. In conclusion, the comprehensive environments are favorable to Travis Perkins plc. The future of Travis Perkins plc is promising.

    Table of contents

    List of tables

    1.0 Introduction
    1.1 Background of Travis Perkins plc
    Travis Perkins is a multi-channel provider retailing various building materials and home improvement to individual consumers and the trade across a network of chiefly UK branches (Travis Perkins plc, 2012). It is one of the largest suppliers in the construction and building market in United Kingdom. It was emerged since the merger between Travis & Arnold and Sandell Perkins in 1988 (Travis Perkins plc, 2012). Travis Perkins plc operates 16 businesses and over 1800 branches across the UK, including Travis Perkins, BSS Pipeline &Heating Solutions, Wickes and Plumbing Trade Supplies, etcetera. This company offers almost 130,000 kinds of product lines to trade individual builders and professionals, which include plumbing and heating, landscaping materials, building materials, decorating and timber, painting. It is listed on the London Stock Exchange (Travis Perkins plc, 2012). 1.2 Task of this report

    This report intends to give a long-term strategy of Travis Perkins through a general introduction of Travis Perkins plc and some specific analysis of the macro and micro environment and financial position. This report will use PESTLE and SWOT analysis method as the tools to describe the environment of this company, and use financial analysis to analyze the financial position and future strategy of the company. 1.3 Structure of this report

    The general structure of this article is as follows: At first, this report will introduce the mission of Travis Perkins from the aspects of vision, mission and value. And then the PESTLE analysis will be presented to describe the macro environment of the company. After that, SWOT analysis will show the internal situation of the company from the aspects of strengths, weaknesses, opportunities and threats. The next, the description of the financial strategy and results of last three years will be given to determine the long-term strategy of the company. At last, through the analysis of the financial spreadsheet, this article will estimate the financial position of Travis Perkins over the last three years. 2.0 Mission of Travis Perkins plc

    As Travis Perkins plc is a major company in the home improvement and builders’ merchant markets, the mission of the company will provide a better understanding of the financial situation and environment of the company. This article will introduce the mission of Travis Perkins plc from three aspects: vision, mission and value. 2.1 Vision of Travis Perkins plc

    The vision of Travis Perkins plc is to achieve the goal that no matter who need building materials or home improvement in Britain and no matter what access or supply channel they choose, the Travis Perkins plc will always be their first choice (Travis Perkins plc, 2011, p.10). 2.2 Mission of Travis Perkins plc

    The mission of Travis Perkins group is to make continual efforts to construct the best enterprise with the most excellent staff to provide the whole country with comprehensive building material solutions, then preserving, restoring, improving and even creating the building environment redounding to build the UK. In other words, the final ambition of Travis Perkins plc is to create a new, more scientific and convenient building environment for the construction of Britain by unremitting effort of supplying the building materials (Travis Perkins plc, 2011, p.10). 2.3 Value of Travis Perkins plc

    The value of Travis Perkins plc can be described from the following aspects: First, from the aspect of the relationship with consumers, the company understands the expectations and needs of consumers, respecting them and responding them in time. Second, from the aspect of the group itself, the company works together as a united family to solve problems first when faced problems instead of criticizing someone first. Third, from the aspect of development, the company has a deep understanding of what they do now and what they are going to do next, pursuing being the best (Travis Perkins plc,2011, p10). 3.0 PESTLE analysis

    Macro environment is crucial to the development of a company. All the external factors can have huge positive or negative influences on Travis Perkins plc, therefore a better understanding of the environment of the company is of supreme significance (Peng & Nunes, 2007). Among all the analysis tools, PEST analysis is one of the most effective tools to analyze the external environment of a company (Riley, 2012). This part will demonstrate PESTLE analysis of Travis Perkins plc below. The result of PESTLE analysis can be demonstrated in the following table 1.

    Table PESTLE analysis of Travis Perkins plc
    Political(-)
    Economical(-)
    Social(+)
    The raise of the tax rate
    the regulation of antidumping
    the depression of economy
    contraction of the housing transactions
    home and office decoration has become a fashion
    appearance of the supermarkets of building materials
    Technological(+)
    Legal(-)
    Environment(-)
    the sale channels becomes diverse
    development of EFTPoS and EPoS
    strict standard of building material
    regulation of purchasing of raw material
    heavy responsibility of protecting the environment
    the promotion of the green buildings
    Note: ‘-’refers to negative effects on Travis Perkins plc, ‘+’ means positive effects on Travis Perkins. 3.1 Political The political factors have negative effects on Travis Perkins plc, this part will explain it from two aspects. On one hand, as one of the largest building materials retailers in the UK, the tax policy is important for the company. The prices of the building materials are sensitive to tax policy which can affect the sales and revenues of the company (Georgeanne & Kenneth, 2012). However, on 4 January 2011, the rate of value added tax (VAT) increased from 17.5% to 20% (UK government, 2012), which will have adverse influences on the Travis Perkins plc. On the other hand, the regulation of antidumping is also an adverse factor. International trade is an important part of Travis Perkins plc, since the company relies more and more heavily on off-shore sourcing (Travis Perkins plc, 2011, p.28). The trade protectionism policy will absolutely increase the cost of import, hence, will negatively affect the company. 3.2 Economical

    The economical factor is also a negative external factor for Travis Perkins plc. The economic depression is still a tough problem that harasses the UK. Having experienced the consecutive negative growth of GDP in the first three quarters of 2012 (Trading Economics, 2012), the UK government curtailed the public sector expenditure this year, which leads to the contraction of the housing transactions and the lack of consumptions (Davey, 2011). All of the factors adversely reduced the sales of building materials. The rising unemployment and low consumer confidence also will contribute to the declining sales. 3.3 Social

    The social factor has favorable effects on Travis Perkins plc. Since the home and office decoration has become a fashion in the new generation of Britain, consumers tends to try the DIY decoration which can increase the sales of building materials (Davidson & Leather, 2012). What’s more, the appearance of the supermarkets of building materials has developed the habit of consumers to buy the building materials by themselves. This will surely be beneficial to Travis Perkins plc. 3.4 Technological

    The technological environment may facilitate the development of Travis Perkins plc. As the technology of online shopping develops, the sale channels of building material manufacture becomes diverse. The technologies of Electronic Funds Transfer Systems (EFTPoS), the Mobile E Commerce and Electronic Point of Sale (EPoS) make production line, the sales and manufacture of home improvement integrated (Finch, 2004). This development of technology will motivate consumers and boost sales. 3.5 Legal

    The legal environment is relatively adverse towards Travis Perkins plc. First, Britain has strict standard of building materials. Britain has specific regulation of the ventilation, energy conservation, insulation and thermal elements and Energy Efficiency (Planning Portal 2012). Those policies increase the difficulty in producing the building material. Second, the purchase of raw material of building material is regulated in Britain. For example, the procurement of timber must meet the regulation of the Central Point of Expertise on Timber (CPET) and the Programme for the Endorsement of Forest Certification (PEFC) (NBS 2012). The comprehensive effects of the two aspects add the hardness of producing building material of Travis Perkins plc. 3.6 Environmental

    The environmental factors have adverse effect on the Travis Perkins plc. Society and the government and tends to impose heavy responsibility to the building firms of protecting the environment (Galbreath, 2009). The notion of Green building has been promoted by the British government which places the concrete tasks on the building materials industry. Environment related proposals and policies inevitably affect the business of Travis Perkins plc, in 2011, Travis Perkins plc spent 6% of their total profit on their environmental responsibility (Travis Perkins plc, 2011, p40). 4.0 SWOT
    analysis

    To get a better understanding of the environment of Travis Perkins plc, SWOT analysis of Travis Perkins plc is necessary. Through the analysis of the strengths, weaknesses, opportunities and threats of the company, we can further understand the internal environment of the company. The result of SWOT analysis is demonstrated in the following table 2.

    Table SWOT analysis of Travis Perkins plc

    Helpful to achieve the objective
    Harmful to achieve the objective
    Internal attributes of the organization
    Strengths
    Weaknesses

    strong profitability
    excellent strategy
    high recognition by the market
    Integration complexity
    relatively weak information technology
    External attributes of the environment
    Opportunities
    Threats

    promotion of the green building
    online retail shopping
    change of consumers’ preference
    mighty competitors

    4.1 Strengths
    The strengths of the company can be described from three aspects. First, the core strength of Travis Perkins is the strong profitability. Despite of the depression of the Europe economic, the company maintains a forceful revenue growth rate. According to the annual report of Travis Perkins, the profits increased by 52% (Travis Perkins plc, 2011, p.40), although since its peak in 2007 the British DIY market had shrunk by 25% (BBC, 2012). Second, the merchanting business strategy of Travis Perkins plc is excellent. The company achieves the exploitation of various channel chances and new markets through the expansion of the ongoing branch network. The sale of the company increases by 2.7% to £2.4bn in the first half year of 2012 (Robinson, 2012). Third, the degree of recognition by the market is high. The Travis Perkins is the largest supplier of building materials in the UK that has the numerous branches overall the country, therefore, the advantage is undoubtedly unique. 4.2 Weaknesses

    The main weakness of the company is related to the property of Travis Perkins plc. Travis Perkins plc starts with the merger and reorganization between Travis & Arnold and Sandell Perkins and develops by large Acquisition of expertise and resource. As a result, the integration complexity can be a serious problem. The unexpected difficulties in systems development and implementation, the extra costs of administration and the bias management can lead to the inefficiency of the trade (Carmeli & Halevi, 2009). Moreover, the relatively weak information technology is another weakness of Travis Perkins plc. The Travis Perkins plc is highly reliant on information technology especially the BSS integration restricts the development of Travis Perkins plc to the IT services and make Travis Perkins plc vulnerable when the system is disabled (ITPRO, 2012). 4.3 Opportunities

    On one hand, the promotion of the green building is the chance for Travis Perkins plc to meet the newly appeared market demands. Early in 2008, Travis Perkins has won the “Green500 Better Buildings Partnership Awards” for its eco-friendly building materials (builders merchants journal, 2009). The environmental-protection products will be welcomed in the markets that worship green and environmental protection. On the other hand, the online retail shopping provides Travis Perkins plc with opportunities to expand the retail channels in addition to the convenient stores and supermarkets (Lee, Eze & Ndubisi, 2011). Since consumers have changed their way of shopping, Travis Perkins plc can seize the chance to cater the preference of consumers to expand its market share. 4.4 Threats

    The most severe threat from the external environment is the change of preference of the consumers. Some of the consumers’ loyalty to the traditional branch tends to decrease or the public sector buying groups are inclined to choose to buy building materials directly from manufacturers, which can lead to the shrinkage of the market share of Travis Perkins plc (Howard, Edginton & Selin, 2011). Another threat comes from the competition of the homogeneous companies. The competition of the building material production in the UK is very fierce. For example, the peer Wolseley Company may be a potential competitor, the shares of which are at a premium to Travis Perkins in the March, 2012 (Stevenson, 2012). Therefore, Travis Perkins plc is faced with the pressure of being caught up by the strong competitors.

    The result of SWOT analysis can be demonstrated in the following table2. 5.0 Financial strategy & results over the last three years Financial strategy involves investment strategy, financing strategy and financial management. In the last three years, Travis Perkins plc has adopted effective financial strategies to expand market share and to seek better development. This part will present the financial strategies and results of Travis Perkins plc in the last three years from the aspects of investment strategy, financing strategy and financial management of this company. 5.1 Investment strategy & results of Travis Perkins

    To start with, the investment strategy of this company will be first discussed. Travis Perkins plc invests in acquisitions and organic initiatives to reduce the central and fixed costs to improve the benefits of economies of scale. In addition, Travis Perkins plc also invests in the product service to improve the profitability in the more and more difficult market. To be concrete, in 2011, after the BSS acquisition, Travis Perkins plc integrates financial systems (Hammond, 2011). What’s more, the Travis Perkins plc concentrates on the investment in the warehouse facilities to improve the efficiency of purchasing. These investment strategy works quite well in the last three years. In 2011, the adjusted profits per share on a pro forma basis increased by 6% after the BSS acquisition. By operating from 24 main warehouses, the Travis Perkins plc is able to buy goods in bulk and improve the efficiency of sourcing. 5.2 Financing strategy & results of Travis Perkins

    Second, the financing strategy of Travis Perkins plc will be discussed. The financing strategy refers to the way that how the company can raise money. In the time of economic depression of Europe, the liquidity of money is low. To keep the liquid of the working capital, the financing strategy of Travis Perkins is a combination of unsecured guaranteed private placement notes and unsecured bank borrowings at floating and fixed rates of interest. Moreover, as a listed company in London Stock Exchange, Travis Perkins is committed to debt reduction through the careful capital management and a good command of capital investment. Travis Perkins has already arranged a £550m fund borrowing from the UK to satisfy its cash flow need until 2016. As to the debt reduction, net debt of Travis Perkins was reduced by £191m to £583m during the year2011. After adopting the effective strategies, the basic earnings are 30% higher per share at 90.3 pence (2010: 69.6 pence). Adjusted earnings were 93.1 pence per share (2010: 77.2 pence), the gross get a 21% increase (Travis Perkins plc, 2011p.36). 5.3 financial management & results of Travis Perkins

    At last, the financial management will be discussed. The financial management consists of how to use the capital, reducing the financial risk and the analysis of the financial position of the company. First, the money of Travis Perkins plc will be used to invest in the project which the after-tax revenue will surpass the average cost. Second, Travis Perkins plc conducted a good command of financial risk by keep away from the speculative transactions, adopting the hedging policy through entering into the interest rate derivatives and retaining significant liquidity. These financial management strategies bring satisfying results, the rate of net debt to EBITDA (earnings before interest, tax and depreciation) has decreased to less than 3.0 and even decreased to 1.3 at the end of this year. What’s more, in 2011, the bad debt charge stayed 0.6% (2010: 0.6%) of credit sales.

    6.0 Conclusion
    In conclusion, the comprehensive environment is favorable to Travis Perkins plc and the financial position of Travis Perkins plc is satisfying. Firstly, it introduces the mission of Travis Perkins from the aspects of vision, mission and value. The vision of this company is to be the first choice of consumers; the mission of the company is to improve the building environment; the value of the company is to building a united group. Secondly, the PESTLE analysis is conducted to show the macro environment of the company. The tax policy and the regulation of antidumping make the political factor adverse to the company; the depression of economy makes Travis Perkins plc in a though period; the new fashion of decoration promotes the sales of Travis Perkins plc; development of online retail play as a positive technologic factor of Travis Perkins plc; the strict legal environment has negative effects on the company; the environment protection task also make the cost of Travis Perkins plc increases. Thirdly, this report shows SWOT analysis of Travis Perkins plc to get a better understanding of its internal environment. The strengths lie in the strong profitability, excellent strategy and high recognition by the market, the weaknesses are integration complexity and relatively weak information technology, the opportunities can be seized in the promotion of the green building online retail shopping, the threats comes from competitors and the change of preference of consumers. Fourthly, this report demonstrates the financial strategies of Travis Perkins plc from the aspects of investment strategy, financing strategy and financial management, which indicates Travis Perkins plc has adopted effective financial strategy in the past three years.

    Appendix: the balance sheet analysis of Travis Perkins plc.
    Table the balance sheet analysis of Travis Perkins plc
    NAME OF COMPANY
    Travis Perkins plc
    BALANCE SHEET ANALYSIS SPREAD SHEET

    Date of Auditors Certificate

    Date of balance sheet
    31/12/2010
    31/12/2011
    30/06/2012
    (State if qualified)
    n/q
    n/q
    n/q
    Currency (in GBP £000’s)__________________)

    QUICK ASSETS

    Cash & bank
    62.9
    78.6
    60.6
    Derivative Financial instrutments
    0.1
    3.1
    1.5
    Prepayments

    Assets Held for Sale
    2.3
    0.0
    2.4
    Tax rebate due

    Other receivables

    Debtors/Accounts Receivable/Bills Receivable
    687.2
    743.0
    782.2
    TOTAL QUICK ASSETS
    752.5
    824.7
    846.7

    Stock
    571.4
    596.0
    644.2

    TOTAL CURRENT ASSETS
    1,323.9
    1,420.7
    1,490.9
    CURRENT LIABILITIES

    Trade & Other Payables
    1,004.5
    1,088.3
    1,149.7
    Bank loans & overdrafts
    72.3
    60.3
    426.4
    Unsecured loan notes
    3.3
    3.3
    3.3
    Tax liabilities
    36.5
    75.9
    77.5

    Derivative financial instruments
    2.5
    0.0
    0.0
    Provisions & charges
    54.8
    60.2
    59.9
    Accruals and deferred income

    Other Current Liabilities

    TOTAL CURRENT LIABILITIES
    1,173.9
    1,288.0
    1,716.8
    LIQUID SURPLUS/(DEFICIT)
    150.0
    132.7
    (225.9)
    QUICK ASSET SURPLUS/(DEFICIT)
    (421.4)
    (463.3)
    (870.1)
    FIXED AND OTHER ASSETS

    Property,plant and equipment
    527.1
    562.6
    573.6
    Goodwill
    1,697.8
    1,706.2
    1,809.1
    Other intangible assets
    411.9
    388.9
    433.5
    Derivatives financial instrutments
    56.9
    40.3
    34.5
    Investment in property
    0.4
    0.4
    0.4
    Interest in associates
    45.7
    51.3
    5.6
    Available for sale investments
    1.5
    1.5
    2.4

    Retirement Benefit Assets
    31.7
    19.3
    11.5

    2,773.0
    2,770.5
    2,870.6
    TERM AND OTHER LIABILITIES

    interest on loans and borrowings
    760.9
    598.2

    Derivative financial instruments
    4.2
    5.9

    Retirement Benefit Obligation
    59.6
    65.0

    Defered tax liabilities
    110.5
    97.4

    Provisions & charges
    36.0
    28.9

    TERM & OTHER LIABILITIES
    971.2
    795.4
    0.0
    Minority Interests

    TOTAL TERM & OTHER LIABILITES
    971.2
    795.4
    0.0
    NET TANGIBLE ASSETS – SURPLUS/(DEFICIT)
    1,951.8
    2,107.8
    2,644.7
    Financed by

    Share Capital – Issued
    24.2
    24.4
    24.4
    Share Premium Account
    471.5
    480.8
    483.4
    Merger Reserves
    325.9
    326.5
    326.5
    Revaluation Reserves
    21.3
    20.8
    18.6
    Hedging reserve
    (6.9)
    (5.1)
    (3.4)
    Accumulated profits
    1,199.2
    1,335.6
    1,432.7
    Own shares
    (83.4)
    (75.2)
    (68.2)
    SHAREHOLDERS FUNDS – SURPLUS/(DEFICIT)
    1,951.8
    2,107.8
    2,214.0
    Check line
    0.0
    0.0
    430.7

    SUMMARY OF MOVEMENTS IN NTA’s

    Opening NTA’s
    1,460.4
    1,951.8
    2,107.8
    Profit for the Year
    141.3
    212.4
    136.3
    Cash Flow headge gains
    2.4
    (1.8)
    0.2
    Actuarial gains on defined benefit Pensions scheme
    15.9
    (49.8)
    (13.4)
    Unamortised cash flow hedge cancellation payment
    4.8
    4.2
    2.0
    Tax relating to comprehensive income
    (6.7)
    7.1
    2.7

    Profit Before Interest Paid
    157.7
    172.1
    127.8
    (Interest Paid)
    (40.5)
    (43.3)
    (20.6)
    Profit Before Tax (PBT)
    117.2
    128.8
    107.2
    (Taxation)
    (55.5)
    (57.2)
    (27.9)

    ‘Attributable Profit/Loss After Tax (APAT)
    61.7
    71.6
    79.3
    (Dividends)
    (10.1)
    38.8
    (32.1)
    Residual Profit/Loss
    51.6
    110.4
    47.2
    Issued of share capital
    329.5
    11.2
    0.9
    Deferred tax
    0.4
    0.9
    (2.1)
    Foreign exchange
    0.0
    (0.1)
    (0.3)
    EBT share movements
    96.0
    22.9
    50.6
    Equity settled Share based payment
    13.9
    10.7
    9.9
    Sundry matters

    NET VARIATION IN SURPLUS/(DEFICIT)
    491.4
    156.0
    106.2
    Closing NTA’s
    1,951.8
    2,107.8
    2,214.0
    Checkline
    0.0
    0.0
    0.0

    KEY FIGURES AND RATIOS

    Sales
    3,153
    4,779

    Cost of Goods Sold
    2,082
    3,356

    Gross Profit
    1,071
    1,423
    0
    Depreciation & Impairment

    34
    Capital Employed
    1,608
    1,457
    853
    PROFITABILITY

    Gross Profit Margin

    (Gross Profit ÷ Sales x 100
    34.0
    29.8

    Net Profit Margin

    (Residual profit ÷ Sales x 100)
    1.6
    2.3

    Return on Capital Employed

    (Profit Before Interest & Tax÷

    Capital Employed )x 100)
    8.8
    14.6
    16.0
    CONTROL/LIQUIDITY

    Credit Given in days

    (Debtors ÷ Sales x 360)
    78
    56

    Credit Taken in days

    (Creditors ÷ Cost of Goods Sold x 360)
    174
    117

    Stock Turnover in days

    (Stock ÷ Cost of Goods Sold x 360)
    99
    64

    Current Ratio

    (Current Assets ÷ Current Liabilities)
    1.1
    1.1
    0.9
    Liquid Ratio

    (Quick Assets ÷ Current Liabilities)
    0.6
    0.6
    0.5
    GEARING AND SOLVENCY

    Analysis of Travis Perkins plc. (2016, Jul 27). Retrieved from https://graduateway.com/analysis-of-travis-perkins-plc/

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