Travis Perkins Annual Report 2006

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FY2006 Annual Report · Travis Perkins

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T R A V I S P E R K I N S P L C

2 0 0 6 A N N U A L R E P O R T A N D A C C O U N T S

Lodge Way House, Harlestone Road, Northampton NN5 7UG

Telephone 01604 752 424

A L E A D E R I N B U I L D E R S ’ M E R C H A N T I N G A N D H O M E I M P R O V E M E N T R E T A I L I N G

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T R A V I S P E R K I N S P L C

2 0 0 6 A N N U A L

R E P O R T

A N D A C C O U N T S

If you have sold or transfered all of your holding of ordinary shares, you should pass this
document and the accompanying form of proxy and letter from the Chairman to the person
through whom the sale or transfer was effected, for transmission to the purchaser or transferee.

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C O N T E N T S

Financial highlights

Mission, vision and values

Who we are

Chairman’s statement

Chief executive’s review

Chief operating officer’s review

Finance director’s report

Corporate responsibility statement

Directors and professional advisers

Corporate governance

Audit committee report

Directors’ remuneration report

Nominations committee report

Directors’ report

Statement of directors’ responsibilities

Independent auditors’ report

Income statements

Statements of recognised income and expense

Balance sheets

Cash flow statements

Notes to the financial statements

Five year record

Notice of annual general meeting

Notes to notice of annual general meeting

Directions to annual general meeting venue

Other shareholder information

102

104

106

107

108

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F I N A N C I A L H I G H L I G H T S

For the year ended 31 December 2006

Revenue

Adjusted:*
Operating profit (note 5a)
Profit before taxation (note 5b)
Profit after taxation (note 5b)
Basic earnings per ordinary share (note 12) (pence)

Statutory:
Operating profit
Profit before taxation
Profit after taxation
Basic earnings per ordinary share (pence)

2006
£m
2,848.8

278.0
220.3
154.2
127.4

289.6
231.9
167.0
137.9

2005
£m
2,640.8

268.0
206.7
140.8
116.8

%
7.9

3.7
6.6
9.5
9.1

8.1
12.2
18.6
18.1

Total dividend per ordinary share (note 13) (pence)

37.4

10.0

34.0

* Adjusted results are stated before exceptional property profits of £11.6m (2005: £nil) and

associated tax effects

During the year the Group made an exceptional property profit of £11.6m which
realised £31.5m of cash receipts. Throughout these financial statements the term
‘adjusted’ has been used to signify that the effect of the exceptional property
disposal has been excluded from the disclosure being made. Further details of the
exceptional property transaction are given in note 5 to the financial statements.

· Revenue up 7.9%

· Adjusted
operating profit
up 3.7%

· Adjusted pre tax
profit up 6.6%

· Net debt reduced
by £178m

· Adjusted EPS
up 9.1%

· Total dividend
up 10.0%

R E V E N U E ( £ M )

A D J U S T E D P R O F I T B E F O R E
T A X A T I O N ( £ M )

A D J U S T E D B A S I C E A R N I N G S
P E R S H A R E ( P E N C E )

2,848.8

2,640.8

220.3

206.5

206.7

124.4

116.8

127.4

1,828.6

1,678.3

1,417.5

162.7

137.6

110.0

91.6

2002

2003

2004

2005

2006

2002

2003

2004

2005

2006

2002

2003

2004

2005

2006

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The front cover
shows a colleague
from the 2006
branch of the year
for each of the
Travis Perkins’
businesses

The Company would
like to thank all
those colleagues
featured for their
co-operation during the
production of this
Report and Accounts

Natasha Mahood, Sales Co-ordinator,
CCF, East London

Roger Jemmott, Sales Assistant,
Travis Perkins, London City

Elaine Davis, Senior Counter
Sales Assistant, Travis Perkins, Bath

O U R G R O U P M I S S I O N

“Continue to deliver better returns by...

putting in place and growing the best

businesses, with outstanding people

providing comprehensive building material

solutions, to everyone creating, maintaining,

repairing or improving the built

environment, ...helping to build Britain”

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O U R G R O U P V I S I O N

To ensure that anyone in Britain who wants to access any kind of

building materials through any form of supply channel will have a

Travis Perkins group operation as their first or first alternative choice.

Savva Zacharia, Assistant Manager,
Benchmarx, Croydon

Simon King, Manager,
City Plumbing, Leeds

Tania McGerty, Sales Assistant,
Travis Perkins, Ulverston

Malcolm Simpson, Driver,
Keyline, Hull

Mandeep Sandhu, Merchandise
Supervisor, Wickes, Halesowen

Mike Colman, Assistant Manager,
Travis Perkins, Norwich

O U R G R O U P V A L U E S

At Travis Perkins, we:

Know our customers – we understand their needs, beat their expectations, treat
them with respect, and know our major customers personally.

Talk and listen – we say what we mean clearly and honestly, we listen carefully; we
respond objectively, we explain our decisions.

Are with you, not against you – we seek mutual benefits with all stakeholders; we
think about the impact of our actions; we search for similarities.

Know how to do our jobs – not just today, but for the next job; we equip ourselves
with the skills needed to perform and be confident we can perform.

Like to deliver – we enjoy being the best; we know exactly what each of us is
expected to achieve; we focus on getting results, simply.

Work together – we actively work with each other; when something goes wrong, the
first thing we will do is fix the problem; not look for someone to blame.

Always try to get better – we constructively challenge how we work; we look for
fresh ideas that are different; we only have rules where they are necessary because
we use our common sense.

Are proud to be here – this is a great company; everyone working with us is
welcome; we make work enjoyable for everyone.

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W H O W E A R E

T R A V I S P E R K I N S P L C

K E Y L I N E

C I T Y P L U M B I N G

Travis Perkins, a major PLC, is a
main supplier to the building and
construction market, one of the
largest industries in the UK.

The present day Company was

formed in 1988 out of a merger
between Travis & Arnold plc, a
company with a strong Midlands
and Northern based business,
and Sandell Perkins plc, a
company with an equivalent
strength in the South of England.
The origins of Sandell Perkins

can be traced back over 200
years to 1797 when a carpentry
company was first established in
London; Travis & Arnold was
initially formed as a partnership
in 1899. During the early to mid
20th century both businesses
expanded before eventually
becoming listed public
companies, Travis & Arnold was
the first to the market in 1964,
followed 22 years later by
Sandell Perkins.

2006 saw a major

achievement with the opening
the Group’s 1,000th business unit;
a brownfield Travis Perkins
branch in Hatfield, Hertfordshire,
five years after opening its 500th
branch. The Group also launched
its latest business, Benchmarx
Kitchens and Joinery – a
trade-only one-stop-shop for the
small specialist joiner.

Keyline Builders’ Merchants is a
major supplier of heavy building
products and materials to the
building and construction
market, one of the largest
industries in the UK.

Born out of the merger of
established regional merchants
and united under the one name
of Keyline in 1988, the Company
developed its strong local identity
through the late 1970s and early
1980s by capitalising on the
knowledge and expertise of staff
in acquired businesses.

Further acquisitions of

independent merchants
continued throughout the 1990s
which gave Keyline a competitive
advantage. It now operates from
76 branches across Scotland,
England and Wales.

As a progressive company,

Keyline has developed its
traditional heavyside range and
increased its product portfolio to
include roofing, insulation and
dry lining, hand and power tools,
landscaping materials, painting
and decorating materials, timber
and Truss Joists™, kitchens,
tool hire as well as general
building materials.

City Plumbing Supplies is one of
the fastest growing plumbing and
heating suppliers in the UK, with
a dedicated nationwide branch
network of 178 branches.

The Company began trading

in 1981 from a single site in
Salisbury, Wiltshire, supplying
plumbing and heating products
to the local trade. During its first
decade of trading it concentrated
on steady growth, developing
existing sites and evolving its
range of products and services.
For more than 25 years, the
Company has built its reputation
of selling quality products and
providing expert service.

The Company offers the
highest quality products, and,
expert service to trade and retail
customers which makes City
Plumbing Supplies the first choice
for plumbing and heating
requirements. Its trade counter
offers one of the UK’s largest
ranges of stock products from
tried and trusted brands, at the
lowest trade prices.

Arthur Davidson, Managing Director, Keyline

John Frost, Managing Director, City Plumbing

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C C F

W I C K E S

B E N C H M A R X

Benchmarx is the newest
business within the Travis Perkins’
Group, opening its first branch on
10 July 2006 in Croydon.

The Company targets the small

specialist joinery (SSJ) market,
which has emerged over the past
ten years, and is now a significant
sector in the merchanting arena.
With its offering of ready
assembled kitchens, doors,
hardware, and accessories; its
vision is to become the first
choice supplier of kitchens and
joinery products to the trade
through its competitive pricing,
quality products and
knowledgeable staff.

The Company operated from
six locations in the South East of
England by the end of 2006 and
has a vigorous expansion plan
for 2007.

CCF (Commercial Ceiling Factors)
is one of the UK’s leading
distributors of interior building
products to the construction
industry. Its service and support,
combined with a nationwide
branch network and extensive
fleet of modern vehicles ensures
that customers get the materials
they require, where and when
they need them.

Founded in 1978, CCF
operates from a network of 25
branches throughout mainland
UK, with a further five branches
operating as Passmore Drywall
and Insulation. CCF supplies trade
account customers with an
impressive product portfolio,
which has extended since the
Company’s formation to include
ceilings, dry lining, insulation,
partitioning and fire protection
products, all from the leading
manufacturers.

CCF is proud of its dedication
to service excellence. As well as
providing customers a large and
comprehensive stockholding of
major product lines it also offers
a variety of transport and
delivery options.

Wickes stores are designed to
appeal to tradesmen, who
undertake general repairs,
maintenance and improvement
projects for households and to
serious DIY customers, who carry
out more complex DIY projects.
These customers are more
demanding in terms of service,
quality and price.

The Company meets these

expectations by offering a
targeted range of primarily own
brand, competitively priced home
improvement products, with
particular emphasis on building
products, such as timber, bricks
and cement. In addition, Wickes
stores offer a range of kitchens,
conservatories, bathrooms and
bedrooms, which are sold
through in-store showrooms.

Wickes opened its first store in

the UK in 1972 at Whitefield in
Manchester. The concept was
launched as a joint venture
between the US group, Wickes
Corporation, and the UK builders
merchant, Sankeys. Travis Perkins
acquired Wickes in 2005 and the
company now operates from
181 stores nationwide.

Andrew Harrison, Managing Director, CCF

Jeremy Bird, Managing Director, Wickes

Rob Gladwin, Managing Director, Benchmarx

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W H O W E A R E

T P M I D L A N D S

T P S O U T H E A S T

T P S O U T H W E S T

From its Head Office in
Northampton, Travis Perkins
(Midlands) operates 115 branches
across the breadth of England
and Wales, from Lowestoft in the
East to Caernarfon in the West.

Travis Perkins in the Midlands
supplies a wide range of products
consisting of 100,000 lines,
including general building
materials, timber, plumbing &
heating, kitchens, bathrooms and
landscaping materials to trade
professionals and self-builders.

The Midlands business is also

home to the new Group Hire
Division and the new £1.8m
National Service Centre - a
dedicated 15,000 sq ft facility,
which offers an onsite workshop
and huge equipment stock to
support a network of 163 Hire
branches across the UK.

Travis Perkins operates from 132
branches across the South East;
more than 50 of which are within
the M25. At eight acres, Aylesford
is its largest branch and is also
home to its Head Office.

The business also operates
Travis Perkins’ timber operations
at the Port of Tilbury, Essex. The
company imports in excess of
75,000 cubic metres of timber
product per year from
responsible sources across the
World, and distributes it from a
200,000 sq ft facility to the
group’s merchanting branches
across the UK.

One of TP South East’s branch
openings in 2006 was historic for
the Group, as Hatfield in
Hertfordshire was chosen as
Travis Perkins’ 1,000th branch.
With its strong network of
branches in London, the business
is working closely with building
and construction companies in
the development of facilities for
the London 2012 Olympics.

Travis Perkins has seen
tremendous growth in the South
West over the last 10 years. From
42 branches in 1996, it now
boasts 159 branches following
the major acquisitions of Sharpe
and Fisher, Brittons in South
Wales and important single
strategic acquisitions.

At least one-third of all
building and construction
material sales in the South-West
(as supplied by UK builders’
merchants) were made from
these Travis Perkins’ branches.
Its operation in Ferndown,
Dorset, produces all the prepared
and moulded softwood for the
South West business and supplies
much of the specialist plywood
for boat and yacht builders in the
South West.

Ian Church, Managing Director, TP Midlands

Joe Mescall, Managing Director, TP South East

Norman Bell, Managing Director, TP South West

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Benchmarx, Croydon

T P N O R T H E R N

Based in Stockport, Cheshire,
Travis Perkins Northern has
increased its business unit
portfolio by an impressive 35% in
just four years, and operated
from 156 branches by the date of
this report.

Of all the TP businesses Travis
Perkins Northern has the largest
geographical spread. It reaches as
far North as Invergordon in Ross
Shire down to Long Eaton in
Nottingham and Spalding in
Lincolnshire, then across from
Scarborough in the East to the
very Western point of Scotland at
Fort William.

Like all Travis Perkins
businesses, Travis Perkins
Northern supplies these areas of
the UK with an extensive range of
product lines, including timber,
forest, heavy and light building
materials, plumbing & heating
and Tool Hire.

TP Northern has successfully

built and opened 17 new
branches in the last two years
and looks set to continue its
aggressive expansion strategy in
the future.

Andrew Pike
Company Secretary

Carol Kavanagh
Group Human Resources Director

Mark Nottingham, Managing Director, TP Northern

Martin Meech
Group Property Director

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C H A I R M A N ’ S

S T A T E M E N T

For the year ended 31 December 2006

In 2006 we made considerable progress
in the development and performance of
our business, with financial results
ahead of original expectations for the
year, further expansion of our branch
network and satisfactory integration of
the Wickes business. All this was
achieved in trade and retail markets
that, whilst recovering in line with our
expectations, remained challenging for
most of the year.

R E S U L T S
Our focus on maximising profits from
our existing branch network during the
difficult markets of 2005 and early 2006
yielded benefits, and was mainly
responsible for the increases reported in
revenue, operating profit, profit before
tax and reduction in debt. These results
were driven by positive achievements in
sales performance, trading margin, cost
reduction and productivity.

We continued to expand our branch

network, albeit at a slower rate than in
2005, adding new branches to each
brand and adding a new business to our
portfolio. We passed through the 1000
branch milestone in June 2006 and to
commemorate this launched a major
programme of community projects.
The integration of Wickes is now
substantially and successfully complete,
with a number of retail support
functions now integrated with their
equivalent function in the trade
division to provide a new Group
capability. Additional steps have been
taken to strengthen these functions
which now support all businesses in the
Group, to provide a platform to support
further growth.

Our management teams worked
hard over the past two years in difficult
conditions in the home improvement
market and have delivered synergy and
buying gains in excess of those
anticipated. The Wickes acquisition has
enhanced earnings per share in 2006,
and we are pursuing additional
opportunities to grow the Wickes’
business and further enhance
shareholder value.

We have maintained our position of
having the highest operating margin in
both merchant and retail sectors, and
four out of our six brands now have
‘best in class’ operating margins.

With improved operating profit
performance and a further priority to
increase returns and cash generation,
we reduced our debt by £178m since
last year end. Net debt is now some
£249 million lower than the pro-
forma position at the time of the
Wickes acquisition (note 33).

A combination of strong financial
markets and additional contributions by
the Company has resulted in the net
pension deficit being reduced to £56.6m
at the year end from £99.9m at 31
December 2005. The scheme is now 86%
funded with the net deficit representing
less than 2.5% of the Company’s market
capitalisation at 31 December 2006.

D I V I D E N D
The Group continues to be highly cash
generative. As a result of this and our
confidence in the future prospects of
the Group, the Board is recommending
a final dividend of 25.3 pence per share.
Taken together with the interim
dividend of 12.1 pence, this represents a

total dividend of 37.4 pence, an
increase of 10.0% on the previous year.

B O A R D O F D I R E C T O R S
We added two new non-executive
directors to our Board in 2006. Andrew
Simon, with considerable experience as a
chief executive, non-executive director
and chairman, joined us in February. We
benefit from Andrew’s prior experience
of our sector and his wide accumulation
of experience on major public company
boards. Andrew is Chairman of the
Remuneration Committee. Stephen
Carter, with senior executive experience
in marketing and communications,
joined us in April. Stephen stepped down
as planned as Chief Executive of Ofcom
in September and is now CEO of a
financial public relations company and
has already made a significant
contribution to the Board’s deliberations.

E M P L O Y E E S
For any business to trade successfully in
difficult markets it is important that the
people who work in that business are
committed to it success. The results
achieved in 2006 are a testament to our
workforce and the Board of Directors
would like to place on record its thanks
for the dedication and commitment
shown by all colleagues in Travis Perkins
over the past year.

C O R P O R A T E G O V E R N A N C E
Requirements and activity in
corporate governance continue apace.
In 2006 significant new work was
carried out in risk assessment and
management, remuneration, health
and safety and environment. Our work

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C H A I R M A N ’

T A T

E M E N T

“we have maintained our position of
having the highest operating margin in
both merchant and retail sectors”

Garry Dunbar, Fork-lift Driver, Keyline, Hull

Delivery from Travis Perkins, Bath

in these areas was supported by
strengthened and newly integrated
functions for Business Risk Assurance,
Health and Safety and Environmental
Management, established this year.
These larger group functions allow us
to ensure we have sufficient resources
and expertise to deal with the
increasing challenges all companies
are likely to have to deal with in
future. Further details of our
governance controls can be found
under the corporate governance
section of this annual report.

O U T L O O K
Long term prospects for our markets
remain good and the gradual recovery
we expected and experienced in 2006
has, we believe, sufficient momentum
to deliver good market growth in both
trade and retail markets in the first
half of 2007.

Early sales performance in 2007 has

been encouraging, with like-for-like
sales in our merchanting division for the
first two months ahead by 5.3% and
like-for-like sales for the first 8 weeks
trading in retail up by 5.0%.

Much of this positive market
performance has been propelled by a
healthy housing market. Although rising
consumer confidence and spending has
more recently provided added impetus,
particularly in retail, our prospects for
the second half of 2007 are sensitive to
the current uncertain outlook for
interest rates and the consequent
impact on both new and secondary
housing markets.

Our planned development of the

Group’s businesses and support
functions assumes a continued
recovery in both our markets, and we
are confident of capitalising on this
growth to make further gains in market

share and returns to shareholders.
However, we remain vigilant to the risk
that the current recovery may stall and
that, as in 2005, we may need to act
swiftly to reduce costs and curtail the
pace with which we build our
capabilities and network.

Our focus on driving stronger

performance from our like-for-like estate
is paying off, and is making us a tougher
competitor in each market in which we
trade. Our expansion is continuing to
deliver the benefits of scale. This
approach means we are well positioned
to maintain our leadership, having the
“best business with the best operating
margin”, in each of our markets.

T. E. P. Stevenson
Chairman
5 March 2007

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C H I E F E X E C U T I V E ’ S R E V I E W

For the year ended 31 December 2006

P E R F O R M A N C E
In 2006 our priorities were to continue
the focus on tight management of costs,
raise our performance on cash
generation, outperform on the synergy
and buying gain targets we had set at
the time of the Wickes transaction, and
execute trading strategies tailored to
each set of market circumstances.

We passed the anniversary of full

implementation of the price
repositioning of our trade businesses,
which started in the second quarter of
2005 and was fully implemented by
October that year. This allowed us to
assess the full year impact of our trading
strategy. Research indicates we have
positively impacted customer’s
perceptions of our price competitiveness.
We have confirmed that the extra
business gained has generated more
contribution than the cost required to
fund the price investment. Research
indicates we have positively impacted

customers’ perceptions of our price
competitiveness. We have therefore
achieved a net return from this initiative.
On a month on month basis our like-for-
like revenues are now increasing in line
with the market, and our gross margin is
level with the prior year. Over the year as
a whole we grew our like-for-like
revenues ahead of the market with
consistent gross margin. These positive
achievements in growing revenue were
aided by the initial stages of a
programme to segment markets and
better target customers.

Our retail business also achieved
good revenue performance, growing
both like-for-like and total market
share. Whilst our year-on-year
comparisons were slightly flattered by
the cessation of a promotional war, our
gains were mainly attributable to a
programme of range enhancements
and store sales initiatives. Our non-
participation in the promotional war

I N T R O D U C T I O N
Our forecast that our markets would
recover gradually throughout 2006
proved correct. The trade market led the
way from early in the year, with the
retail market not recording growth until
the fourth quarter. We selected and
applied successful trading strategies in
both our divisions, aimed at maximising
returns in the prevailing market
conditions. In trade, our 2005 price
repositioning has won us significant
extra business. In retail, range
enhancements and pricing to recover
product cost inflation have enabled us
to grow like-for-like market share. In
both markets we have outperformed
most competitors and outperformed
market growth rates.

Against this background of

improved performance, we continued
to grow our business through network
expansion and the trial of a new
format in an adjacent trade channel.
Whilst maintaining the tight controls
over costs and cash introduced during
the tougher market experienced in
2005, we also took steps in 2006 to
increase our investment in support
functions to provide a robust platform
for further growth. This has involved
changes to organisation structures,
senior management and physical
facilities.

Part of this investment has involved
the integration of the Wickes business
into the Group. This programme is now
virtually complete, and we have
exceeded all our targets for
streamlined central support functions,
reduced overhead costs and overall
financial benefits.

John Reynolds, Transport Manager,
CCF, East London

James Dunn, Sales Assistant,
Benchmarx, Croydon

Alan Bates, Mill Supervisor,
Travis Perkins, Wreningham

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C H I

E X E

C U T

I V E

’

R E V I

E W

also meant we were able to slightly
increase gross margins over the year.
Gross margins also benefited from

an excellent performance on our
synergy and buying gain work following
the Wickes transaction. Having set an
overall target for benefits of £35m in
the acquisition assumptions, we
achieved £78m in 2006, including
overhead reduction and improved
buying terms. Our out-performance was
achieved by setting goals for stretched
buying gains in addition to the original
list of synergy projects. Projects from
this original list contributed £33m in
2006, reflecting the poorer market
growth experienced post acquisition.
Both our divisions maintained tight
controls over headcount and other costs.
Like-for-like headcount fell, yielding a
like-for-like productivity improvement in
both divisions, with merchanting
recording a 5.4% gain and retailing
ahead by 10.4%. Overhead ratios
improved in the trade division, and,
before property related increases, also
improved in the retail division. The
average annual rate of rental increase
experienced on five year lease reviews
settled in 2006 declined compared with
the rates seen in 2005 supporting our
view that recent rental inflation will ease.
Strong revenue performance, good

gross margin management, buying
gains and tight cost controls meant we
were able to increase operating profits
in the trade division. Trade adjusted
operating margin was down by 0.1% to
11.2% (note 5), reflecting these benefits
less the full year effect of the price
repositioning programme. Retail
operating profit (excluding property

profits of £4.5m, 2005: £nil) was down
by 11.1%, mainly reflecting; an
additional 41 days trading in 2006,
during a weak season for the DIY
market; the weaker market experienced
for the bulk of the year; and the costs of
opening new stores and relaying ranges
in existing stores. In a tough year in the
DIY market, the retail operating margin
(excluding property profits of £4.5m,
2005: £nil) fell to 5.9% from 7.4% last
year (note 5). However, our selection of
trading strategies and actions on costs
meant we performed significantly better
than competitors.

We raised our targets for cash
generation, including new cash-linked
elements in incentive schemes, driving
working capital performance harder and
constraining capital expenditure to
critical projects or those with a short
payback. We also sought to improve
capital efficiency through more active
management of our property portfolio.
We have an extensive list of active
projects in progress, involving disposals,
relocations, re-developments and co-
location of multiple businesses. In 2006,
we realised cash from the initial projects
in addition to selling and leasing back
an interest in a small portfolio of
freehold properties with low capital
growth characteristics. These properties
were sold, using 200 year leases, into a
special purpose vehicle in which we
retain a 15% equity interest and certain
rights to re-acquire the leasehold of
individual sites. This enables us to enjoy
some capital growth should it arise.

Improved cash flows generated from

operations and these other actions,
provided with excellent leadership from

“retail achieved
good revenue
performance,
growing both like-
for-like and total
market share”

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confidence and spending levels
recovered slowly throughout 2006, we
experienced healthy conditions in the
housing market from late 2005. Our
trade markets are more sensitive to
housing rather than consumer
behaviour, and hence these markets
performed better, and from earlier in
the year, than our retail market. Trade
markets also continue to benefit from
good activity levels of commercial,
education and health related
construction, even though these are
weakening from the peak years of 2002
to 2004. These positive trends in new
construction were offset by a decline in
expenditure on the more consumer
related repair and maintenance
segment of the market. Overall we
estimate that the materials market was
unchanged in volume terms over 2005,
with cost inflation producing growth of
about 3%.

“our priorities
were tight cost
management, cash
generation and
outperforming
synergy and
buying gain
targets”

Product cost inflation in 2006
continued at the relatively elevated
rate seen since the end of 2004 as a
result of rising energy prices and strong
world markets for key commodities
such as metals. Whilst price
competition in trade – as always –
remained tough, market prices moved
up to recover almost all of those
increases in product costs.

Product cost increases were also
reflected in higher ‘shelf edge’ prices in
retail, although the average rate of
increase across our catalogue was

Paul Hampden Smith, our Group
Finance Director, reduced net debt by
£178m, over the year to £804m – since
the Wickes acquisition, we have reduced
proforma net debt by £249m (note 33).

M A R K E T S
2006 has seen further government and
commercial initiatives that strengthen
the prospects for good long-term growth
in our markets. The output of
construction and the supply and unit
value of building materials is set to
grow over the long term as a result of
structural factors such as demographic
change. This growth will benefit further
from new regulatory requirements
resulting from a number of major
reviews, including studies of the impact
of climate change, housing needs and
the state of our housing stock. We also
expect to see an increase in commercial
opportunities from the 2012 Olympics
and Thames Gateway regeneration
programmes. We expect to see a
reduced contribution to growth from a
weakening of investment in
infrastructure and a trend away from
‘Do it Yourself’ towards ‘Do It For Me’.
However, the impact on our business
will be limited, partly because both our
trade and retail businesses are well
positioned to benefit from any trend
that involves greater use of tradesmen.
As a result of these market factors, we
continue to expect good long-term
growth in our core markets.

Conversion of these factors into
current spending depends on short-
term conditions, principally consumer
confidence and activity levels in the
housing market. Whilst consumer

M A R K E T S H A R E

Travis Perkins 10%

Others 47%

B&Q 15%

Wolseley 8%

St. Gobain 7%

Grafton 4%

Focus 3%

Home Retail Group 6%

Total Market
£29.1bn

Share of the DIY & builders merchants market based
on company estimates

R E T A I L P R O D U C T I V I T Y
P E R E M P L O Y E E

£193k

£207k

2005

2006

M E R C H A N D I S I N G P R O D U C T I V I T Y
P E R E M P L O Y E E

£171k

£182k

£192k

£196k

£206k

2002

2003

2004

2005

2006

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Darren Evans, Regional Sales
Representative, Benchmarx, Croydon

John Williams, LGV Driver, Travis Perkins, Bath

Val Drysdale, Sales Assistant,
Travis Perkins, Ulverston

Dianne Hazell, Senior Administration Assistant
Travis Perkins, Bath

behind the trade market as a result of
the higher mix of lightside products.
This category, following long established
trends, benefits from deflation as the
proportion of imported goods rises.
However, the level of promotional price
activity from competitors reduced
significantly following the ending of
intense campaigns over the winter of
2005/6. We did not participate in this
‘promotional war’ since customer
research indicated that investment in
cheaper prices and more advertising
was unlikely to generate sufficient extra
business to yield any return.

We expect the improved conditions
in the housing market in 2006 to carry
through into 2007, giving satisfactory
growth in trade markets in the first half.
Improving consumer confidence is also
expected to boost growth in retail,
which we anticipate will grow slightly
ahead of the trade market. The outlook
for our markets in the second half-year
will depend significantly on the interest
rate environment and outlook.
Divergent forecasts for the likely
outcome of the MPC’s deliberations
mean it is difficult to predict market
activity in the second half.

D E V E L O P M E N T
We continued our programme of
network expansion for all of our
businesses, but with some adjustments
to our approach. Our overall rate of
expansion in terms of branch numbers
was reduced in response to the lower
activity levels in our markets and also
reflecting planning work to refine the
Wickes store formats following our
assumption of control. We also put

G R O W I N G A N D I M P R O V I N G T H E B R A N C H N E T W O R K

31 Dec
2005

533

178

176

983

Acquisition

Brownfield

Consolidation

31 Dec

Net 2007
2006 movement
to date

5 March
2007

(1)

(2)

559

177

179

566

178

181

(3)

1,022

1,038

Keyline

CCF

City Plumbing

Wickes

Benchmarx

Total branches

more emphasis on trade brownfield
openings as goodwill prices for
acquisitions remained high.

This approach raised the average
quality of the bolt-on new branches we
introduced and meant that whilst the
number of new branches reduced
compared to the peak achieved in 2005,
the profit contribution of both the 2005
and 2006 programme will exceed our
initial expectation.

We also launched Benchmarx, a new

format in the adjacent market serving
specialist small trade joiners, with 6
branches operating by the end of the
year. Research indicated that this group
of tradesmen are dissatisfied by the
service available from existing
merchants. Our trial has gone well so
far, and we plan to have 20 branches
open by the end of this year.

O R G A N I S A T I O N A L
C A P A B I L I T I E S
Our cost management policy in 2006
meant we deliberately constrained
our investment in building
organisational capabilities. Despite
this, we made significant
enhancements to organisational

effectiveness and, supported by
improving profits as the year
progressed, we began to invest
in improved facilities towards the end
of 2006.

The senior management team was

strengthened with a number of
significant appointments including;
Carol Kavanagh who joined us from a
FTSE 100 company as Group Human
Resources Director; Robin Procter who
joined us from a leading company in
an adjacent market as our new Group
Supply Chain Director; Linda Doughty,
with a successful career in building
materials joined us as Trade Marketing
Director; and Richard Dey joined us
from a dedicated plant and tool hire
operator to become our Group Toolhire
Director. These senior executives join
our high quality senior management
team and have already made a positive
impact.

From the existing team we promoted

two executives to become managing
directors; Jeremy Bird was appointed as
Wickes’ Managing Director following the
planned retirement of Richard Bird (no
relation), and Rob Gladwin became
Managing Director of our newly

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established Benchmarx business. Both
Jeremy and Rob joined us as board
members of Wickes upon acquisition,
and are now part of a growing group of
senior executives with both trade and
retail experience. They join our highly
regarded group of nine managing
directors responsible for driving the
Group’s operating profits, led with
distinction by John Carter, our Chief
Operating Officer.

“the senior
management
team was
significantly
strengthened”

Several structural changes occurred
following the integration of the Wickes
business. We now have unified support
functions, serving both the trade and
retail divisions, for Information
Technology, Business Risk Assurance
and Security, Property, Human
Resources and Finance. This has allowed
us to reduce costs and headcount whilst
harmonising support provision. To
provide a stronger platform for further
growth, we unified our succession
planning processes to ensure the
continued provision of internal
candidates for leadership roles across all
businesses and functions and make
career progression opportunities
available to our people.

As part of our planned strategic
development we began development of
two new central data centres to support
expansion of our branch networks and
host the retail division systems on a
harmonised architecture. This approach
will improve the resilience of the
systems since the two centres will
provide a ‘warm start’ back up facility
for each other, at a reduced cost
compared to the current arrangements.
These new data centres will come on
stream in the third quarter of 2007.
Although we kept tight control of

costs in 2006, we continued to invest in
our colleagues. We recruited 80 people
into our industry leading two-year trade
management trainee programme in our
2006 intake, and 72% of the original
2004 intake graduating in 2006 were
appointed to a range of roles across our
businesses and support functions. We
will build on the success of this
programme by extending it into the
retail division. At Wickes, we
implemented a ‘Master’ programme to
enhance the skills of store colleagues at
all levels. This includes the opportunity
to gain a BTEC DIY retail qualification
that is unique to Wickes. There are over
3,500 store colleagues that have
obtained this qualification. We also took
steps to improve staff turnover, since
good performance here correlates
closely with good branch or store
performance. Staff turnover in the trade
division fell by 10%, and in retail it was
down by 8%.

The demands of running the
business against a background of
challenging market conditions have
presented our colleagues with a period
of unprecedented change. In 2006 I
continued my programme of regular
visits to our branches, stores,
distribution centres and offices and by
the end of the year had seen just under
a quarter of our sites. I also meet with
all colleagues in our support functions
over a rolling series of meetings during
the year. I am continually impressed by
the dedication and commitment of my
colleagues and would like, on behalf of
the Board, to express my thanks to all of
them for dealing so admirably with the
challenges they have been asked to
manage in 2006. Being with colleagues
loading customers’ trucks before dawn
on a freezing winter morning, or
keeping shelves full on a sweltering
summer evening in stores, or staying
until the job of posting cash payments
in time for a holiday break is complete
is to see the best of our people at work.

E N V I R O N M E N T
The environmental impact of business
activities has received an
unprecedented amount of attention in
2006. The Group has long recognised its

Preparing for a delivery, Travis Perkins, Ulverston

corporate responsibility to carry out its
activities and operations whilst
minimising its environmental impact.
Having personally studied
environmental issues over 30 years
ago, it remains a surprise to me
that some business leaders have
expressed themselves surprised at the
need to improve corporate performance
in the area.

We continue to maintain

accreditation of our Environmental
Management System to the ISO 14001
standard. We have increased the
resource available to environmental
management over 2006 and fully
integrated Wickes into our reporting
and improvement programme.

Our policy has not significantly
changed in 2006 and it remains our
commitment to address the four key
areas of our performance where we

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“the Group has
long recognised its
corporate
responsibility to
carry out its
activities and
operations whilst
minimising its
environmental
impact”

Martyn Stamp, Assistant Manager, Keyline, Hull

Chris Wiltshire, Machinist, Travis Perkins, Bath

have the greatest impact and where
there is the most stakeholder interest:
• Reducing carbon dioxide emissions;
• Reducing waste to landfill;
• Increasing certified timber

purchases;

• Preventing pollution from our

operations.

Stakeholder engagement
In developing our environmental
approach and policy we value the views
of colleagues, customers, environmental
Non Governmental Organisations, and
the investment community. Six meetings
were held in 2006 with representatives
from these groups. In 2007 we plan to
extend the scope of our engagement
with the wider community and the
government, convening an advisory
body made up from these stakeholders.

We took part in the Carbon

Disclosure Project for the first time in
2006 and we continued our
participation in the Business in the
Community Green Index and our
membership of the UK Forest and
Trade Network.

Environmental improvement plan
Performance data, collected from across
the business, are converted into a
common base and aggregated to allow
for easy comparison to earlier
performance. The final indicators are a
combination of measured, averaged and
estimated performance. Wherever
possible we have used standardised data
collection and reporting techniques and
continue to work to improve the
accuracy of the measures reported. This
year the data has been scrutinised by
Lloyds Register of Quality Assurance and
a copy of their verification statement

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can be found in the environment section
of the Travis Perkins website.

A review of the performance
measures, set against a changing site
portfolio post the acquisition of Wickes,
has meant that for increasing clarity
moving forward we felt it necessary to
restate the baseline at 2005 for the key
performance indicators. We also re-set
the performance target for carbon
emissions and waste arisings to a more
challenging reduction and added a
further indicator and target for waste
management to present a picture of
how we are doing, not only at reducing
the total amount of waste arising but
also in segregating and recycling waste.

“we have
increased our
longer-term target
for a reduction in
tonnes of carbon
dioxide emissions
per million
pounds of sales”

Carbon management
In 2006 the Group emitted 117,553
tonnes of carbon dioxide. To further
add impetus to our efforts to reduce
emissions, we engaged the Carbon Trust
to work with us on building energy
efficiency as part of a complete carbon
management package. We aim to
improve the efficiency of our existing
estate, as well as pilot the development
of a new trade branch and a new retail
branch, showcasing innovative
environmental technologies, including
renewable energy generation.

We have also been looking at our
delivery fleet and started to see some
fuel efficiency gains through the
addition of roof air deflectors. We have
ordered over 150 new delivery lorries
with efficient Euro IV diesel engines

which are scheduled for delivery in
2007. During 2007, a hybrid car will be
available as an option for company car
drivers helping them cut emissions from
their work and private travel.

As well as efficiency savings,
renewable sources of energy remain
an important part of our strategy,
with approximately 50% of grid
electricity currently being purchased
from this source.

To further focus our efforts to
reduce emissions, we have increased
our longer-term target for a reduction
in tonnes of carbon dioxide per
million pounds of sales. By 2010 we
now target a reduction of 20% from
the levels in 2005, with an interim
2008 target of 10%. Our previous
target was 5% by 2010.

Waste management
In 2006 we moved the majority of our
sites to a single waste management
contract, improving cost control and
legal compliance as well as increasing
the accuracy of performance indicators.
We also reduced the number of open
skips used and introduced a waste bag
system. Fewer receptacles for waste and
less stock damage has helped us drive
down the waste we generate. Our
recycling rate increased through the roll
out of a pallet back haul system and
cardboard recycling skips. This brings
our total sites recycling cardboard to
over 300. In 2006 our overall waste
arising was 48,546 tonnes with 3,824
tonnes (8%) being recycled.

In 2007 we plan to complete the roll

out of the cardboard recycling skips to
all sites and to introduce the collection
and back haul of more materials to
further increase our level of recycling.
A zero waste concept branch is also
planned as a test bed to find practical
solutions to the elimination of waste.

Our target for waste reduction of 5%
per pound of sales from 2005 levels by
2008 has been achieved inside 12
months and therefore we are now
seeking to reduce our waste arising per
pound of sales by a further 5%. Our new
target for 2008 is a 10% reduction from
2005 levels in the tonnes of waste per
pound of sales. In addition we have

W A S T E T O N N A G E 2 0 0 5 - 2 0 0 6

0.9 Tonnes

1.5 Tonnes

4.7 Tonnes

19.8 Tonnes

2005

17.8 Tonnes
2006

14.0 Tonnes

2008 Target

Waste

Recycling

Tonnes Waste per £m Yard Sales & Core Sales
excluding sales from direct deliveries

C O 2 E M I S S I O N S 2 0 0 5 - 2 0 0 6

24.8 Tonnes

24.2 Tonnes

14.6 Tonnes

15.2 Tonnes

35.5 Tonnes

2005

2006

2008 Target

Energy

Transport

Tonnes CO2 per £m Group Sales

T I M B E R C E R T I F I C A T I O N 2 0 0 5 - 2 0 0 6

34%

36%
2005

24%

49%
2006

85%

2008 Target

FSC

Other Certiﬁed Schemes

Timber Purchased (£)
Note: 2005 data excludes Wickes timber ﬁgures

E N V I R O N M E N T A L I N C I D E N T S
& C O M P L A I N T S 2 0 0 5 - 2 0 0 6

2005

2006

2007 Target

Incidents

Complaints

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Colin Veitch,
Yard Supervisor,
Travis Perkins,
London City

Petra Tapako,
Design Consultant,
Wickes, Halesowen

Gary Massen,
Yard Supervisor,
Travis Perkins,
Norwich

Replenishing stock at Travis Perkins, Ulverston

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Chris Fishlock,
Mill Supervisor,
Travis Perkins,
Bath

Ian Sutton,
Assistant Manager,
Travis Perkins,
Bath

Julie Nicholson,
Administration
Assistant,
Travis Perkins,
Ulverston

introduced a target that 25% of the
waste be recycled or recovered by 2008.

Timber management
Our merchant division is one the
largest multi-site chain of custody
holders in Europe. Our national
coverage of chain of custody enables
us to serve the increasing demand for
certified, well managed timber to the
construction and housebuilding
sectors. Our retail division also has an
externally certified chain of custody for
the purchase and resale of timber
products at all outlets.

In 2006 we continued to make

progress towards our target of increased
purchases of certified timber. A
combined estimate of 73% of timber
purchases by value comes from certified
sources, in line with our aim of
achieving our target of 85% in 2008. We
estimate that of the total timber
purchased, 49% was from FSC sources,
22% was from PEFC sources and 2% was
from other schemes.

Preventing pollution
In 2006 we received three warnings from
environmental regulators. One for
abandoned shopping trolleys, one for
noise and one for storing waste on site.
We maintain dialogue with the
regulators in all of these cases to arrive
at a satisfactory conclusion and are
confident that no further action will
result. We also informed the
Environment Agency of four incidents
where a spillage either did or had the
potential to enter a controlled water
course. In all cases the regulator was
happy that our emergency response
procedures had been effective, and took
no action.

We are pleased to report that we had

no prosecutions for environmental
matters during 2006.

Complaints
In 2006 we received eight complaints
about our environmental impact – two
of these complaints were from
neighbours about noise, two related to
inadequate pest control and one of a
visual intrusion from an advertising
banner. All of these complaints have

been locally resolved.

The remaining three complaints

related to our conduct in timber
management as a result of an
Environmental Investigation Agency (EIA)
investigation into the sale of Merbau
flooring from illegally felled timber. Two
complaints were received from the
investment community and one from a
primary school class. Our own
investigation into the supply chain
supported the finding from the EIA
report and we suspended trading
Merbau flooring as a result. We are
confident that this is an isolated incident
but are ever vigilant against the
importation of potentially illegally
harvested timber and remain committed
that it has no place in our organisation.
Our target for 2007 remains to have

no complaints or notifiable incidents.

C O M M U N I T Y R E L A T I O N S
With an extensive national presence of
over 1,000 places across Great Britain
where we do business, and deeply
embedded relationships in local
communities, we actively manage our
community relations and our
charitable activities.

Our business raised almost

£620,000 for charities, including our
three nationally supported charities,
the NSPCC, Children First (Scotland)
and MacMillan Cancer Relief. This total
raised includes direct donations by the
Group amounting to £203,916 (2005:
£53,794) and donations by our
colleagues through our payroll giving
scheme amounting to £33,585 (2005:
£16,713). After six years relationship
with NSPCC and MacMillan, our staff
charity committee and company
charity committee, chaired by the
Company Chairman, decided it was
time for a change and after a
consultation period, adopted NCH, the
children’s charity and Mencap as our
national charities. We look forward to
working with them to continue our
charitable efforts.

To celebrate the milestone of
launching our 1,000th branch in June
2006, we launched a major community
initiative called ‘1,000 projects in 1,000
places in 1,000 days’. This builds on the

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“our business raised almost
£620,000 for charities”

Duncan Hair, Branch Manager, Benchmarx, Croydon

Zoe Richards, Sales Assistant, Travis Perkins, Norwich

Steve Richardson, Warehouse Supervisor,
City Plumbing, Leeds

work already carried out by many of our
branches to support local community
projects. This programme will mean
that in every neighbourhood, town and
village where we operate, we will
marshal our resources and relationships
to help deliver a building related
community project. The programme has
been structured to engage our people,
suppliers and customers and work with
local community leaders to deliver
something of real value to the
communities we serve. Although
conceived and co-ordinated centrally,
this is essentially about our teams
locally living our group values.

In 2006 we rationalised our sports
sponsorship activities, concentrating on
our role as main sponsor of
Northampton Saints rugby club.

I N V E S T O R R E L A T I O N S
Responsibility for communications with
shareholders and debt providers rests
directly with me and Paul Hampden

Smith, our Finance Director, with support
and advice from the Company’s brokers.
We do not employ an investor relations
manager. The Company Chairman and
Senior Independent Director attend a
selection of investor meetings
throughout the year, and the Company
Chairman attends the meetings to
present the Group’s interim and
preliminary results to buy-side and sell-
side analysts. In addition to these
meetings, at least one day per month is
set aside to meet investors and analysts.
This regular programme is supplemented
with two trips per year to meet with
investors in Eire, Canada and the USA,
and we host a visit for analysts to a
selection of our businesses once per year.
In 2006 we conducted meetings with

63 separate investors. As part of each
exercise to present interim and
preliminary results, we typically meet
shareholders representing around 64%
of the shares outstanding. This includes
a ‘family lunch’ where we meet with

representatives of the Travis, Perkins and
Fisher families.

Feedback about investors’ views is
gathered after our scheduled meetings
by brokers and occasionally by the
Company Chairman, and steps are taken
to enhance investor communication in
response.

S T R A T E G Y
In last year’s report to shareholders,
we set out the results of a major
review of Group strategy carried out
after the acquisition of Wickes, and
outlined our main priorities. Since
then we have carried out further work
to re-check the validity of our plans
and refine our position.

Much of our work on strategy,

engaged in by all of our senior
management in 2005, stems from
thinking about our reason for existing
and the direction the Company should
travel. A clear view about our Group
mission, vision and values was evolved

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Management trainee seminar at Head Office

S T R A T E G I C P R I O R I T Y
Continue to drive scale benefits:

Acquisition growth and brownfield
expansion:

P R O G R E S S I N 2 0 0 6

• 42 new branches added, including:

• 9 acquisitions;
• 33 brownfields, including 3 Wickes;
• 3 closures;
• 5 merchant relocations;
• 3 Wickes Extra conversions;

• Expansion programme continues to exceed projected returns;
• Detailed catchment modelling updated, confirming expansion potential.

Adaptable trading in merchanting:

• Successful price re-positioning yielding net profits;
• Like-for-like sales growth brought up to market levels;
• Gross margins now stabilised.

Refresh our service offer and gain
market share:

• Initiatives launched to introduce new service packages, marketing tools and

customer relationship management;

• Simplified branch manager routines to increase resources available for managing

customers;

• Like-for-like market share gained in both trade and retail markets.

Review our category presence
in each outlet:

•
•
•

Expanded core range in retail outlets;
Increased density of retail offers and promotions;
Started trials of new mandated ranges in trade outlets.

Develop or acquire specialist channels
in selected categories:

•
Launched ‘Benchmarx’, serving specialist joiners;
• Profiled further specialist channels for potential entry.

Seek further gross margin expansion:

• Out-performed on our synergy and buying gain targets, achieving £78m of

benefits in 2006 against an initial synergy target of £35m;
Expanded our global sourcing capability, with quality assurance facilities in China;
Introduced processes for harmonising ranges between trade and retail divisions.

•
•

Drive further productivity and returns
on capital:

• Achieved productivity gains of 5.4% in trade and 10.4% in retail;
•

Completed analysis of value maximisation options in all freehold and long
leasehold properties;
Initiated 42 value maximisation property projects;

•
• Disposed of interests in 38 properties, including 35 properties sold on long leases

and leased back, realising £37m cash and £16.9m profits.

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Timber stack at Travis Perkins, Norwich

Daniel Layton, Shop Assistant (now fork-lift driver) and Dave Harvey,
Store Manager, Wickes, Halesowen

CCF, East London

These actions will require an
increase in capital expenditure and
project related costs charged to revenue.
We plan to implement the work in a
carefully controlled manner so as to
match the rate at which these funds are
deployed with the continued gradual
recovery in our markets.

This programme is designed to
ensure that we put in place the best
businesses – as viewed by customers,
and delivering a best in class operating
margin. We already achieve this with
seven out of our nine businesses, but
intend to stretch our lead and get all
our businesses to this level of
performance.

With good long term growth
prospects in our markets, proven
expansion plans and the best businesses
in each segment, we are confident of
continuing to deliver excellent returns
for shareholders.

G. I. Cooper
Chief Executive
5 March 2007

and included in last year’s report to
shareholders – and is repeated in this
report on pages 4 and 5. This year we
extended this work. Each of our nine
managing directors and their boards
developed a clear view of their own
mission and vision within the context of
the Group’s aims. This work was then
taken further by defining a target – a
‘Bullseye’ - for the kind of operation,
viewed from a customer perspective,
each business felt it needed to put in
place to achieve its aims. A series of
cross-business initiatives are now in
place to close the gap between current
operational performance and the
targets demanded in the ‘Bullseyes’.
This work will help us achieve
objectives on our main strategic
priorities. Those priorities, as reported
to shareholders last year, and our
progress on each one, are shown in the
table opposite.

Going forward, we will continue to

pursue these priorities, which we
believe represent the best way of
driving value for shareholders.

The next phase of implementing our

strategy will see significant
enhancements to our branch and store
operations to meet the performance
standards set in the ‘Bullseyes’,
particularly in service and product
availability. We will strengthen our
efforts to understand and increase our
share of spend by current and potential
customers in each of the clearly defined
segments served by our businesses, with
new marketing techniques. These
initiatives will be supported by
significant improvements to our

information technology architecture,
including a programme of
harmonisation between trade and retail
technologies, such as a common
telecommunication architecture across
the Group’s operating sites.

“the next phase of
our strategy will
see significant
enhancements to
our branch and
store operations”

We will also step up our branch
expansion programme, returning to the
rate of expansion achieved in the early
part of this decade. Improvements in
market conditions and in our formats
and operational performance improve
the projected risk/reward balance we
can expect, and support a greater rate
of expansion. We will also look for
further profitable channels for potential
entry by the Group.

We will also see continued impact

from our property programme. In
addition to completion of projects
stemming from our review of freeholds
and long leaseholds, we will review the
726 short leasehold sites. Given the size
of our network, we expect the impact
of this programme to extend for a
number of years.

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R E V I E W O F O P E R A T I O N S
I am pleased to report good
performance across our six trading
brands as we took advantage of a
gradual strengthening in both trade and
retail markets as the year progressed.

Whilst initially cautious in the earlier

part of the year about investment in
network expansion and increasing our
operational capabilities, as customer
confidence returned in the second half
of the year we increased our
development spend across the estate
and increased our pipeline of store
openings and therefore improved our
prospects for network expansion.

C H I E F O P E R A T I N G

O F F I C E R ’ S R E V I E W

For the year ended 31 December 2006

progress with the integration of Wickes
into our Group. This integration of seven
areas of support function is now
substantially complete and is already
delivering improved service levels
together with overhead savings.

during the year but a 5% increase in
space as a further three stores were
converted from Standard to Extra stores.
We remain flexible in our store formats
according to both the size and nature of
each catchment area.

Wickes
Wickes achieved a creditable result
against a difficult background of weak
markets in the first half of the year and
continued high inflation in property
costs. These factors were mitigated by
robust control of our variable overheads
and improvement in our gross margin as
a result of improved buying terms.

We have continued to make excellent

The appointment of Jeremy Bird as

Wickes new Managing Director,
represents a significant internal
promotion after his 14 years experience
in Wickes and a successful period
developing aspects of our trade business.
We have successfully introduced a
number of new products. New products
now account for 15% of our sales each
year. The increased number of products
introduced as a result of range reviews
since early 2005 continues to help
maintain our like-for-like sales growth
at above market rates.

Our initiatives to optimise the use

of space within our stores including
the twinning of selective showrooms
continues to be successful in achieving
above sector average sales per
square foot.

Our new transactional website has

been trading for six months and is
showing a rate of growth and profit well
beyond our expectations.

At 31 December, we traded from 179

“each TP branded
business
demonstrated
good profit growth
with consistent
delivery”

Travis Perkins
We added a net 26 stores during the
year to the Travis Perkins’ branch
network and traded from 559 stores at
the year end. Around 70% of this
expansion was from brownfield sites,
reflecting the relatively attractive returns
compared to acquisitions. Although we
temporarily slowed our rate of
expansion in 2006 the quality of these
new branches was higher, resulting in
overall returns beating projections. The
Travis Perkins brand operates through
four geographically based businesses
and represents about 60% of group
profits. We are delighted that each
business demonstrated good profit
growth with consistent delivery of
improved performance across our estate.
We have achieved increased like-

stores, an increase in three locations

for-like sales growth ahead of the

Garry Watts, Driver,
CCF, East London

Trevor Digby,
Tool Hire Manager,
Travis Perkins,
Norwich

Sue Dimmock, Stock
Administrator,
Wickes, Halesowen

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Glen Ringer, Driver,
Travis Perkins, Wreningham

Louis Durnell, Management
Trainee, Travis Perkins, Bath

Jason Rumbell, Assistant Manager,
Travis Perkins, London City

market and stabilised our strong gross
margin percentage following our 2005
pricing initiatives.

We undertook major branch
refurbishments at a number of
branches including Hemel Hempstead,
Ramsgate, Glasgow Muirend, Sunbury
and Brackmills in 2006 and have 24
projects planned for 2007 with an
incremental capital spend relative to
2006 of around £30m. We also added a
net four toolhire outlets taking our total
to 163 in the Group. Following the
appointment of Richard Dey as toolhire
director we have made excellent
progress expanding our network and in
centralising our buying and servicing
activities. This has resulted in good
profit growth.

Keyline
Our heavyside merchant added three
branches to its network, finishing the
year with 76 branches. Following a
detailed profiling of its market, an
increased focus on both depth and
breadth of specialist stock range and
concentration on major civil
engineering customers, sales
performance has been increasingly
successful. Robust control of Keyline’s
cost base and continued support of key
suppliers has resulted in another year of
improved margins.

City Plumbing
For City Plumbing, 2006 was a year of
recovery and consolidation with all 177
branches now branded City Plumbing.
We improved the consistency of our
pricing and stock range and launched a
major sales drive with large contractors.

All remaining branches not yet
converted were refitted to the City
Plumbing format from their predecessor
brand. A combination of strong top line
growth and an absolute decrease in
costs led to a strong recovery in profits.
We added one new branch and
consolidated two small units during
2006. However, we plan to step up our
rate of expansion in 2007, reflecting our
confidence that the business is very
much back on track.

CCF
Our dry-lining ceilings and insulation
specialist had another excellent year
reflecting the strength of our major
contractor relationships. Strong like-for-
like sales and further improvement in
margins has resulted in profits in the
fourth year after acquisition being in
excess of three times the pre-acquisition
level. After adding two branches in 2006
to end the year at 25 outlets, a further
five were added in early 2007 following
the acquisition of Passmores, who are
based in London.

Benchmarx
Our specialist kitchen and joinery
business for the trade made a good
start headed up by Rob Gladwin,
previously Wickes Retail Director. The
first branch opened at Croydon in July,
and overall six branches were added in
2006. Benchmarx serves a market with
attractive returns and growth
characteristics. We plan to have 20
branches open by the end of 2007 and
we are committed to creating a
business with a significant market
share in this sector.

G E O G R A P H I C A L S A L E S
M E R C H A N T I N G

31.6%

16.6%

27.1%

24.7%

% of total 2006 annual sales

G E O G R A P H I C A L S A L E S
R E T A I L

26.7%

20.8%

12.5%

40.0%

% of total 2006 annual sales

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Insulation being loaded at CCF, East London

Raymond Langan,
Sales Assistant, City Plumbing

Karen McLaren, Administration
Supervisor, Travis Perkins, Bath

“we only select
products from
suppliers that
operate good
corporate social
responsibility
policies”

S C O P E F O R N E T W O R K E X P A N S I O N

Travis Perkins

200

Keyline

566

CPS
180

178

Wickes
160

CCF
20

Benchmarx
150

181

Current branches

Potential branches

C O N T I N U O U S
I M P R O V E M E N T
The clear aim of each of our brands is
to be the best operator within its sector,
both in terms of financial performance
and overall customer service. To achieve
this objective each of our brands has
invested in extensive research with their
customers to develop a ‘Brand Bullseye’.
This ‘Bullseye’ or target, clearly states
what our customers want from each
business. A series of best practice
projects have been established, each
designed to deliver the level of
performance defined in the ‘Bullseye’.
We have also established clear measures
of our performance today to benchmark
against future improvements and
customer expectations.

Each best practice project is designed

to either increase our organic sales,
enhance our margins, drive productivity,
reduce our overheads or give our
people better tools to do their jobs.
Each initiative is sponsored by a senior
executive who is responsible for the
project’s delivery. As a result this firmly
places the customer, and our ability to
serve the customer, as our highest
priority.

We have had a dedicated Affordable

Housing Team for the last three years
focusing on the growing requirement
from local authorities and other
registered social landlords (RSLs) to find
more efficient and cost effective methods
of procuring materials for repair &
maintenance, planned maintenance and
capital works programmes – further
accelerated by the government’s Decent
Homes initiative.

We have achieved significant growth

in this area and worked with several
affordable housing clients to develop
innovative and cost effective
alternatives to traditional in–house
materials stores facilities. The Group
currently operates nine dedicated stores
for specific RSLs and has additionally
provided alternative supply solutions
from within existing branches at 13
locations throughout the UK.

For 2007 the Group has increased its

investment in the Affordable Housing
Team to further respond to the
increased demand and opportunities
that exist within this growing market.
Further innovative solutions which
combine our core competencies of
procurement, logistics and
administration are being developed for
the provision of materials to large-scale
Decent Homes projects.

S U P P L I E R S
We place great emphasis in
developing long term partnerships
with our suppliers. Most of our
suppliers hold market leading
positions and the scale to both
develop and bring to market new
products and to either currently or
potentially supply all of our brands.
We have continued to review our
supply base, following the successful
initiatives in 2005, which extracted the
‘quick win’ synergies. These mainly
involved initiatives where, amongst
our six brands, there was overlap
between product and supplier. In 2006
we focused on major product
categories where there was a potential
change of range and/or supplier in
one or more brands.

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I N G O F

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R E V I

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Craig Smith,
Partitioning Team
Leader, CCF,
East London

Debbie Carter, Showroom Sales Assistant and Jenny Neilands, Senior Sales Assistant,
Travis Perkins, Norwich

Derek Rapley, Driver, Keyline, Hull

Sharon Allen, Sales Representative,
Benchmarx, Croydon

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Our supplier base continues to

become more concentrated with the top
25 suppliers representing 42% of our cost
of goods sold. In 2007 we will continue
to leverage our strong buying position as
market leader in heavyside and timber
products and drive further efficiencies
through our small but rapidly expanding
global procurement function.

The trade and retail quality
assurance functions have recently
been centralised. Quality Assurance
has an important role in projecting
and protecting the values of each of
our brands – not least because we sell
a significant proportion of our own
label products (retail 91%, trade 13%).
Our policy is to only select products
from suppliers that operate good
corporate social responsibility policies
in line with Travis Perkins Group
Statement of Expectations; have robust
Management Systems in compliance
with the Travis Perkins Supplier
Assessment programme; and produce
products that are safe and of the
highest quality.

S U P P L Y C H A I N
Given the significance and potential in
our supply chain in 2006 we launched
an internally resourced strategic review
to develop an overall long term
architecture of our supply chain, in
particular the network of central
warehousing and logistics to support
the Group’s growth.

Robin Proctor, our Group Supply
Chain Director, joined us in the latter
part of 2006. His is a newly created role
embracing primary distribution via our
trade plumbing & heating warehouse,
three Wickes’ central warehouses, and a
customer home delivery centre. In
addition he is responsible for primary
logistics including our global sourcing
and stock replenishment systems.

E M P L O Y E E S
We know that more than most other
businesses, our success depends on our
people. We enjoy many long term
relationships with customers who in turn
value highly the long term relationships
they have developed with the people
who work for us. In 2006 we introduced

a number of additional measures aimed
at further strengthening the engagement
of our people.

Recognition
During 2006 we introduced a range of
schemes supported by a £1m plus
investment – ‘The Building Britain
Awards’. These are designed to
recognise those colleagues who are
critical to our success through:
• Loyalty – additional holidays and
gifts designed to reward and
recognise long serving colleagues.
• Getting It Right – instant cash awards
for colleagues who are observed
living our values and who, in doing
so, help to deliver fantastic service to
our customers.

• Special Achievement Awards – for
those people in our business who
consistently go the extra mile. We are
encouraging colleagues to nominate
one another.

In addition to the above awards we have
a wide ranging suite of awards across
the Group ranging from management
trainee of the year and branch/store of
the year to mystery shopper and ‘Bright
Sparks’ suggestion schemes.

We continue to improve of levels of

staff retention, up from 76% in 2005
to 78% in 2006. This success has
resulted from excellent induction
programmes and a high level of
management attention.

Sharing our success
As well as competitive salaries and
incentive schemes, we offer a wide
range of benefits and ways for our
people to make more of their money,
share in the increasing value of our
company, take care of their future and
look after their health.

4,291 people participate in our Save

As You Earn Scheme. Colleagues
investing the maximum £250 per month
from 2001 in our five year SAYE scheme
enjoyed a profit of £33,700 in 2006.

In 2006 we introduced a new Buy As

You Earn Scheme, giving colleagues
another opportunity to share further in
our future success.

All colleagues have the
opportunity to join our money

“181 ex-trainees
are now in
management
positions”

A C C I D E N T F R E Q U E N C Y R A T E

13.95

13.42

10.95

2004

2005

2006

Merchant lost time accidents per million man hours

A C C I D E N T S E V E R I T Y R A T E

0.22

0.21

2004

2005

2006

Merchant number of days lost per thousand man hours

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purchase pension scheme with life
cover automatically provided.

During 2006 we used our buying

power to negotiate a number of
discounted benefits on behalf of our
employees. These cover discounts on
numerous services and products from
private medical and dental cover to
holidays and car purchases.

Development
In addition to the development
programmes that are in place to support
individuals from induction, progressing
through each step of the career ladder,
we have continued to invest further in
the initiatives that we believe are
making a major difference - the ‘Master
Programme’ in Wickes, supported by a
new customer service programme and
the management trainee scheme in
Travis Perkins, where we plan to recruit
a further 106 trainees in 2007.

As well as successfully developing 181

ex-trainees into current management
positions, including nine directors, the
scheme ranks highly against comparator
groups, with a significantly lower
turnover rate (10% in 2006).

H E A L T H A N D S A F E T Y
This continues to be a Group priority
at the most senior level and has
benefited from a number of
significant enhancements in the last
two years; in 2005 we conducted a
major external review of health and
safety in Wickes. In 2006 we recruited
a new Group head of health and
safety with extensive experience
working with the health and safety
executive. His initial priorities have
been to implement the
recommendations of the external
review, and re-establish a new, more
powerful and high profile health and
safety function with a remit across the
Group’s activities.

During 2006, emphasis was also
placed on our existing involvement in
the health and safety executive
initiatives covering builders merchants
and retail/warehouse traffic
management and manual handling.

Following a comprehensive review of
all existing general merchant health and

safety systems and procedures during
2006, a similar approach is planned for
all specialist brands within the
merchant business during 2007. The
revised health & safety policy will be
embedded in the business via an
intensive training programme.
With our continued focus on

maintaining health and safety
standards, it was pleasing to record a
15% reduction in the number of lost
time accidents and a 5% reduction in
working days lost against our 2005
merchant performance.

There were no workplace fatalities
in 2006, but there was, however, one
prosecution relating to an incident
that occurred in 2004, following an
accident involving a fork-lift truck and
delivery vehicle.

We remain committed to reduce

the accident rates further, with a
targeted Group reduction of 10% by
the end of 2007.

J. P. Carter
Chief Operating Officer
5 March 2007

Craig Donnelly,
Management Trainee,
Travis Perkins, Bath

Kitchen Showroom,
Wickes, Halesowen

John Hancock, Driver,
Travis Perkins, Bath

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F I N A N C E D I R E C T O R ’ S

R E P O R T

For the year ended 31 December 2006

I N T R O D U C T I O N
The Group’s financial objectives, which
were first reported in 2005, are set out
below. This report provides a
commentary on how the business has
successfully achieved those objectives in
2006 through generating enhanced
profits and cash flows which in turn
have resulted in a stronger balance
sheet. Additionally this report sets out
further details of the financial aspects of
the Group’s strategy, risks and policies.

F I N A N C I A L O B J E C T I V E S
The directors of the Group remain
committed to the long-term creation of
shareholder value, which they believe is
achieved through:
• Increasing the Group’s market share

through a combination of like-for-like
sales growth and targeted expansion
through acquisitions, brown-field
openings and in-store development;

• Improving profitability with a

medium term target for profit
growth in percentage terms
exceeding that for sales;

• Investing in projects and acquisitions
where the pre-tax return on capital
employed exceeds the weighted
average cost of capital of the Group
by a minimum of 4%;

• Generating sufficient free cash flow
to enable the Group to expand its
operations whilst funding attractive
returns to shareholders, reducing its
debt and pension deficit;
• Operating an efficient balance
sheet, by structuring sources of
capital to minimise the Group’s
weighted average cost of capital
consistent with maintaining an
investment grade financial profile
with interest cover between four
and six times EBITA; and

• Maintaining long-term dividend

cover at between two and a half and
three and a half times earnings.

F I N A N C I A L R E V I E W
Overall Group revenue increased by
7.9%, to £2,848.8m from £2,640.8m in
2005. The additional 41 days trading
from Wickes contributed 3.0% of the
increase, like-for-like sales contributed
1.4% with expansion accounting for the
remaining 3.5%.

In the merchanting business, sales

grew by 6.3% with sales from new
branch openings contributing 3.4% and
increased like-for-like sales per working
day contributing 2.9%. This comprised
3.8% of price inflation and a 0.9%
decline in volume. Merchanting
adjusted operating margin was down
slightly to 11.2% (note 5).

Like-for-like sales for the full year of
Wickes’ core products were down 3.5%
whilst showroom sales fell by 0.2%.
Overall like-for-like sales in Wickes were
down 3.0% with 2.4% price inflation and
5.4% volume decrease. Network
expansion added 3.5% to Wickes’ sales,

K E Y F I N A N C I A L P E R F O R M A N C E I N D I C A T O R S
To ensure the business is focused upon achievement of targets, a series of key financial performance indicators are monitored
throughout the business. For 2006, where indicated, these measures are stated on an adjusted basis stripping out the effects of
the exceptional property profits:

IFRS
2006

Revenue growth
Adjusted profit before tax growth (note 5)*
Profit before tax growth*
Merchanting adjusted operating profit to sales (note 5)
Adjusted interest cover (note 10)
Adjusted return on capital (note 36)
Adjusted free cash generation (note 35)
Adjusted dividend cover (note 13)

7.9%
6.6%
12.2%
11.2%
4.9x
14.6%
£216.6m
3.4x

*Excludes goodwill amortisation in 2002 and 2003.
The above table reflects the significant purchase of Wickes in 2005.

IFRS
2005

44.4%
0.1%
0.1%
11.3%
4.9x
14.8%
£226.1m
3.4x

IFRS
2004

9.0%
16.0%
16.0%
11.9%
25.9x
25.0%
£150.7m
4.1x

UK GAAP
2003

18.4%
18.9%
18.9%
11.4%
21.0x
25.5%
£128.1m
4.5x

UK GAAP
2002

10.8%
23.7%
23.7%
11.2%
18.0x
24.0%
£105.6m
4.7x

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“adjusted earnings per share was 9.1%
higher at 127.4 pence”

which in total, increased over a full year
by 0.5%.

Adjusted Group operating profit (note

5) rose 3.7% to £278m from £268m in
2005. Adjusted Group operating margin
was 9.8% compared with 10.1% in 2005
(note 5). This slight decrease was caused
by two factors. The first was the effect of
the additional 41 days trading from
Wickes occurring in its weakest seasonal
trading period. The second was the
dilutive effect of our continuing branch
expansion programme, where new
branches take time to reach sales and
profit maturity. Compared to 2005,
merchanting adjusted operating margins
were 0.1% lower at 11.2%, whilst Wickes
saw a fall of 1.5% to 5.9% for 2006 (note
5) of which 0.4% relates to the additional
41 day trading period. The remainder is
explained by property cost inflation
exceeding sales price inflation.

Adjusted earnings before interest, tax,

depreciation and goodwill amortisation
(‘EBITDA’) (note 37) were £335.7m (2005:
£326.9m), an increase of 2.7%.

Total net interest expense (before
other finance costs of £0.4m (2005:
£3.7m)) in 2006 was £57.3m (2005:
£57.6m). Whilst like-for-like interest
charges have fallen in 2006 as net debt
has reduced substantially, the actual
cost for 2006 is only £0.3m lower than
for 2005 as a result of the effect of a
full year’s charge on the borrowings
taken out to acquire Wickes on 11
February 2005. Adjusted interest cover
(note 10) is approximately 4.9 times
(2005: 4.9 times).
Adjusted Group profit before tax (note 5)
was 6.6% ahead of last year at £220.3m
(2005: £206.7m).

Sarah Layton, Stock Adminstrator,
Wickes, Halesowen

Andy Stephens, Manager, Travis Perkins, Norwich

The tax charge was £64.9m (28.0%)
compared with £65.9m (31.9%) in 2005.
The rate is lower than the UK
corporation tax rate of 30% principally
because:
• no capital gains tax charge on

property sales being included in the
profit and loss account under IFRS
as any tax due is rolled over – this
reduces the tax charge by 2.8%;
• non-qualifying property expenditure

and other items which are not
allowable for tax – this increases the
tax charge by 0.8%.

Profit after tax was £167m, an increase
of 18.6%. Adjusted profit after tax
(note 5) was £154.2m an increase of
£13.4m (9.5%) compared to 2005.

Basic earnings per share was 137.9

pence. Adjusted basic earnings per
share (note 12) was 9.1% higher at
127.4 pence, compared with 116.8
pence in 2005.

C A S H F L O W
Management throughout the Group has
continued to focus on cash generation
during 2006 with a number of working
capital initiatives playing an important
part in further reducing debt. In 2006
the Group has generated £323.3m of
cash from operations (2005: £310.8m),
an increase of 4.0%. Adjusted free cash
flow, calculated before exceptional
property disposals, expansionary capital
expenditure, special pension
contributions and dividends, was
£216.6m, down 4.2% from 2005, which
gave an adjusted free cash flow yield of
9% (2005: 13.3%) (note 35). This was due
to the timing of interest payments (one
additional 6 monthly payment in 2006).
The free cash generated by the Group
was used in part to fund expansion
capital expenditure of £31.6m (2005:
£42.2m) in the existing business and on
new acquisitions, which in total cost

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The Group’s adjusted return on
capital in 2006 (note 36) was 14.6%
(2005: 14.8%), which is substantially
higher than the Group’s weighted
average cost of capital. The slight
reduction was due to the additional
period of Wickes ownership.

At the year-end the share price was

1,984 pence (2005: 1,400 pence) and
the market capitalisation £2.4bn
(2005: £1.7bn), representing 2.6 times
(2005: 2.2 times) shareholders’ funds.
During the year the daily closing share
price ranged from 1,372 pence to
1,984 pence.

P R O P E R T I E S
The Group currently operates from over
1,100 sites of which 375 are freehold or
long leasehold. The carrying value of
the Group’s freehold and long leasehold
property portfolio, which was last
revalued in 1999, on an existing use
basis, is £191.4m. As well as being one
of the Group’s considerable operating
strengths the portfolio gives it the
potential to seek further opportunities
to enhance value.

During the year, in line with its
stated strategy to release value from its
property portfolio, the Group
undertook a transaction which by its
magnitude was exceptional, and sold
35 freehold properties on long leases,
for £31.5m after costs, to an
investment vehicle, in which the Group
has retained a 15% stake. The
properties, which have been leased
back by the Group on 25 year terms,
on a near 6% yield, realised a net profit
of £11.6m in 2006. In addition
accounting rules required profits made
on the disposal of land of £4.7m to be
deferred in the balance sheet to be
amortised over the lives of the long
leases.

This was the Group’s biggest ever

property deal and represented an
important step in implementing its
policy of maximising value through the
development of its property portfolio.
The Group plans to re-invest the
proceeds in new and existing
properties as it continues to expand
across its six brands.

It is likely that disposals in future

years will be on a smaller scale with the
emphasis on driving profits from
relocations, part disposals and site
redevelopments.

G O O D W I L L
The net book value of goodwill in the
balance sheet is £1,282m. Additions to
goodwill and intangible assets in the
year totalled £8.2m.

C A P I T A L S T R U C T U R E
The Group finances itself through a
combination of bank borrowings,
fixed rate unsecured notes, leases and
retained profits. Its capital base is
structured to meet the ongoing
requirements of the business. As at 31
December 2006 the Group had net
debt of £804.4m (2005: £982.4m)
(note 33).

Included within the net debt of the

Group are £31.5m of finance leases
(2005: £32.7m) capitalised under IFRS.
These primarily relate to finance leases
on properties for trading sites. In
addition to the property leases the
Group had £1.9m (2004: £3.6m) of
finance leases associated with plant
and equipment.

Borrowings also include £7.9m

(2005: £8.2m) of unsecured loan
notes, which are redeemable at six
monthly intervals ending in June
2015. Interest on these loan notes is
determined at 6 monthly intervals by
reference to LIBOR.

B O R R O W I N G F A C I L I T I E S
The Group has a £970m syndicated
credit facility of which £230m is
represented by an amortising term
loan and the remainder a revolving
credit facility. In addition the Group has
access to overdraft facilities of £25m.
The term loan is due to be repaid in
four £43.2m and two £48.6m tranches
six monthly commencing 30 June 2007,
with the final payment due in
December 2009. The revolving credit
facility is available to the Group until
December 2009.

In addition, in January 2006 the

Group issued $400m fixed rate
guaranteed unsecured notes (the
‘Notes’) with a broad range of US

£10.9m (2005: £42.5m excluding
Wickes). With a step up in our network
expansion plans, new investments in
group infrastructure and reinvestment
of the exceptional property disposal
proceeds into freeholds, we anticipate a
significant increase in capital
expenditure in 2007.

P E N S I O N S
The Travis Perkins defined benefit
pension scheme was merged with the
Wickes final salary scheme on 30 June
2006. At 31 December 2006 the gross
deficit of the combined scheme was
£80.8m (31 December 2005 combined
gross deficit £142.8m). The net
deficit after allowing for deferred tax
was £56.6m (2005: combined net
deficit £99.9m).

The significant improvement in the

deficit is the result of improved asset
returns, more favourable corporate
bond rates reducing liabilities and £21m
of company contributions in excess of
the income statement charge (2005:
£26m).

During the year the Group has
reached agreement with the pension
fund trustees to eliminate the 30
September 2005 deficit over a nine-
year period. The scheme is now 86%
funded with the net deficit
representing less than 2.5% of the
Company’s market capitalisation at
31 December 2006.

E Q U I T Y
Total equity, after deducting the
pension scheme deficit at 31 December
2006, was £933.1m, an increase of
£175.1m on 31 December 2005.

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I N A N C

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“the pension fund deficit represents
less than 2.5% of the Company’s
market capitalisation”

Mark Bradley,
Heavyside Sales,
Travis Perkins,
Ulverston

Travis Perkins,
London City

Another delivery, from Keyline, Hull

financial institutions. The debt
comprises of $200m of Notes
repayable in 7 years and the
remainder in 10 years resulting in
bullet repayments becoming due in
2013 and 2016. The net proceeds
were swapped into Sterling at
variable rates.

I N T E R E S T R A T E A N D
C U R R E N C Y D E R I V A T I V E S
The Group’s hedging policy is to
maintain the profile of borrowings in
the approximate ratio of one third to
one half at fixed interest rates, one
third to one sixth within a collar of
interest rates and the remainder at
variable rates.

The Group currently has two
amortising interest rate swaps each
of £157.5m, one amortising interest
rate floor and one amortising interest

rate cap of £157.5m. Further details
are given in note 25 to the financial
statements.

L I Q U I D I T Y
As at 31 December 2006 the Group had
bank borrowings totalling £620m
consisting of a term loan of £270m and
£350m of draw down on the revolving
credit facility. In addition it had drawn
down $400m in respect of the Notes.
The peak level of daily borrowings

on a cleared basis in the year to 31
December 2006 was £1,100m (2005:
£1,117m). Throughout the year the
maximum month end cleared
borrowings were £1,031m (2005:
£1,036m). At 31 December 2006 the
Group had undrawn facilities of £375m
(2005: £230m).

The Group’s borrowings are subject

to covenants set by the lenders.

Covenant compliance is measured semi-
annually using financial results
prepared under UK GAAP extant at 31
December 2004. During 2006 there
were no breaches of the covenant
limits. The key financial covenants are
the ratio of net debt to earnings before
interest, tax, depreciation and
amortisation (‘EBITDA’) and the ratio of
earnings before interest, tax and
amortisation (‘EBITA’) to net interest. At
31 December 2006 under UK GAAP the
Group achieved net debt to EBITDA of
2.4x (note 37) and interest cover of 4.9x
(note 10).

In addition to these financial
covenants the Group’s borrowing
agreements include general covenants
and potential events of default. The
Group has complied in all respects with
the terms of its borrowing agreements
at the date of this report.

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Wickes, Halesowen

Barry Routledge, Driver,
CCF, East London

City Plumbing, Leeds

Richard Dylong, Fork-lift Driver, Travis Perkins, Wreningham

F I N A N C I A L R I S K
M A N A G E M E N T
Financial risk management is an
integral part of the way the Group is
managed. In the course of its business,
the Group is exposed primarily to
foreign exchange risk, interest rate risk,
liquidity risk and credit risk. The overall
aim of the Group’s financial risk
management policies is to minimise
potential adverse effects on financial
performance and net assets. The Group
manages the principal financial risks
within policies and operating
parameters approved by the Board of
Directors and does not enter into
speculative transactions.

Treasury activities are managed
centrally under a framework of policies
and procedures approved by and
monitored by the Board. The treasury
department is not a profit centre. Its
objectives are to protect the assets of
the Group and to identify and then
manage financial risk. In applying these
policies, the Group will utilise derivative
instruments, but only for risk
management purposes. Under the
policies, derivative financial instruments
may only be entered into for risk
management purposes with A- or better
rated financial institutions. A total of six
such institutions have been identified as
potentially suitable for this purpose.

The principal risk facing the Group is

an exposure to interest rate
fluctuations. Having swapped out its US
dollar Notes into Sterling, the Group is
not exposed to significant foreign
exchange risk as most purchases are
invoiced in Sterling. These risks are
described further below:

Interest rate risk
The Group finances its operations
through a mixture of retained profits,
bank borrowings, US dollar Notes and
loan notes. The Group borrows in Sterling
at floating rates and, where necessary,
uses interest rate swaps to fix rates (note
25) to generate the preferred interest rate
profile and to manage its exposure to
interest rate fluctuations. Based upon the
borrowing levels and structure at 31
December 2006 a 1% increase in interest
rates would alter borrowing costs by
approximately £4.0m.

Currency risk
The Group settles currency related
trading obligations using a combination
of currency purchased at spot rates and
using forward contracts. With direct
purchases from overseas set to increase
the Group has recently implemented a
policy of maintaining forward contracts
for between 30% and 70% of its
anticipated requirements twelve months
forward. At 31 December 2006 the value
of currency contracts, all of which were
$US denominated, was $12m.

As previously stated the Group has

borrowed $400m. The $US
denominated Notes have fixed rates of
interest. The borrowings have been
converted to Sterling variable rates
using cross currency swaps.

Liquidity risk
The Group’s policy on liquidity risk is to
ensure that sufficient cash is available to
fund on-going operations without the
need to carry significant net debt over
the medium term. The Group’s principal
borrowing facilities are provided by a

group of core relationship banks in the
form of a term loan and a revolving
credit facility and by US institutions in
the form of $US denominated Notes.
The quantum of committed borrowing
facilities available to the Group is
reviewed regularly and is designed to
exceed forecast peak gross debt levels.

Credit risk
Credit risk arises on financial
instruments such as trade receivables,
short-term bank deposits and foreign
currency hedging transactions. To
reduce the risk of loss arising from
counterparty default, the Group has
policies and procedures to ensure that
customers have an appropriate credit
history and account customers are given
credit limits that are monitored. Short-
term bank deposits and foreign
currency hedging transactions are
executed only with A - or better rated
authorised counterparties based on
ratings issued by the major rating
agencies. Counterparty exposure
positions are monitored regularly so
that credit exposures to any one counter-
party are within predetermined limits.

Overall, the Group considers that it is

not exposed to a significant amount of
credit risk.

O T H E R R I S K S A N D
U N C E R T A I N T I E S
Market conditions and
competitive pressures
The Group’s products are sold to
tradesmen and retail customers for a
broad range of end uses in the build
environment. The performance of the
market is affected by general economic

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“recruitment and retainment of staff
at all levels is an important driver of
our overall performance”

David Egan, Warehouse Assistant, City Plumbing, Leeds

Loading pipe sections at Keyline, Hull

conditions and a number of specific
drivers of construction activity,
including, housing transactions, house
price inflation, consumer confidence,
interest rates and unemployment. The
Board conducts an annual review of
strategy, which includes an assessment
of likely competitor activity, market
forecasts and possible future trends in
products, channels of distribution and
customer behaviour. Significant events
including those in the supply chain that
may affect the Group are monitored by
the Executive Committee and reported
to the Board monthly by the Group CEO.
Market trends and competitor
performance are also tracked on an
ongoing basis and reported to the Board
each month.

merchant and retail businesses.
Supplier financial strength, product
quality and service levels are
monitored on a continuous basis. An
annual risk assessment with recovery
plans is prepared for the major
suppliers across the Group. No
supplier accounted for more than 6% of
total purchases in 2006. An
established QA process is in place
throughout the business.

The market price of products
distributed by the Group, particularly
commodity products, can vary
significantly and affect operating
results. The Group’s business actively
takes steps to protect themselves from
and maximise the opportunities for
significant anticipated price rises.

Product availability and
product prices
Security of supply of products and
product quality are monitored by
product category directors in the

Acquisitions and other expansion
Growth by acquisition continues to be
an important part of the strategy of
the Group. Significant risk can arise
from acquisitions in terms of the initial

valuation, the integration programme
and the ongoing management of the
acquisition. Detailed internal analysis
of the market position of major
acquisition targets is undertaken and
valuations are completed using
discounted cash flow financial models.
Independent advisors are used to
comment on the strategic implications
and the assumptions in valuation
models for larger acquisitions. A rolling
programme of post acquisition audits
is completed and reviewed at the
Board each year.

Human resources
The ability to recruit and retain staff
at all levels of the Group is an
important driver of our overall
performance. Salaries and other
benefits are benchmarked annually to
ensure that the Group remains
competitive. A recruitment toolkit is
available for both merchant and retail
brand branches. A wide-range of

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Winners of Chief
Executive’s Award
for Branch of the
Year, Wickes,
Halesowen

Gary Fawcett,
Manager,
Travis Perkins,
Ulverston

Pallets for recycling

Luke Stringer, Fork-lift Driver, Wickes, Halesowen

70306_Travis_Pre 26/3/07 14:42 Page 37

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R E P O R T

Pensions
The risks in this area relate to the
potential for contributions required to
meet the benefits promised rising to a
level that restricts other corporate
activity. The scheme and the Group
obtain independent actuarial advice and
formal valuations are carried out at least
every three years. The Trustees receive
reports on the investment performance
quarterly. The Travis Perkins’ final salary
scheme was closed to all new members
in April 2006.

P. N. Hampden Smith
Finance Director
5 March 2007

training programmes are in place to
encourage staff development and
management development
programmes are used to assist those
identified for more senior positions.
The HR director monitors staff
turnover by job type and reports to
the Board annually. Succession plans
are established for the most senior
positions within the Group and these
are reviewed annually.

Information technology/business
continuity
The operations of the Group depend on
a wide range of IT systems to operate
efficiently. An IT strategy committee
reviews performance levels of the key
systems and prioritises development
work. Maintenance is undertaken on an
ongoing basis to ensure resilience of the
group systems and escalation
procedures are in place to resolve any
performance issues at an early stage. An
IT disaster recovery plan exists and is
tested regularly together with the
business continuity plan with
arrangements in place for alternative
data sites for both merchant and retail
businesses. Off-site back-up routines are
in place for both data centres and
application code is also held off-site.

The Group distributes products from
five major warehouses in Great Britain.
The loss of any single warehouse
through fire or other major incident
could have a material effect on the
availability of product in the merchant
and retail outlets. Each warehouse has
fire detection and alarm systems and a
business continuity plan is in place for
each site.

Customer credit
Within our merchanting businesses, one
of the key aspects of service is the
provision of credit to customers with
the Group carrying the associated credit
risk. A detailed review of the credit risk
of each customer is carried out using
external credit risk services. Total
exposures to all customers are
monitored monthly with increased
credit levels being approved by both
operational and financial management.
No one customer represents more than
1% of sales and the bad debt charge has
averaged below 0.5% of credit sales in
the last ten years.

Environmental
Failure to operate within the highest
environmental standards may reduce
the Group’s profitability if such action
causes it to come into conflict with
legislative requirements. Furthermore,
with heightened environmental
awareness companies that fail to meet
environmental standards may find their
ability to trade or gain access to capital
markets reduced.

The Group has accreditation for its
environmental management system to
the ISO 14001 standard. Further details
of the Group’s environmental policies
and performance are given in the Chief
Executive’s report. However, to mitigate
the potential environmental risks, the
Group undertakes comprehensive
reviews across all its businesses
involving independent external
advisers. External verification of
environmental performance is
undertaken and repeated on an
annual basis.

70306_Travis_Pre 26/3/07 14:42 Page 38

Jimmy Morrison, Yard Sales Assistant,
Travis Perkins, London City

70306_Travis_Pre 26/3/07 14:42 Page 39

C O R P O R A T E R E S P O N S I B I L I T Y S T A T E M E N T

For the year ended 31 December 2006

The Company has not produced a separate corporate social responsibility statement
in the report and accounts since it believes these matters are sufficiently important
to receive the personal attention of individual directors rather than risking less focus
through the exercise of collective responsibility. Instead full details of those areas
normally covered by such a report are contained in the reports of the directors
responsible for such matters:

Environment

Chief Executive’s review

Health & safety

Chief Operating Officer’s review

Supply chain

Chief Operating Officer’s review

Employees

Chief Operating Officer’s review

Community relations

Chief Executive’s review

The Board takes account of the significance of social, environmental and ethical
matters in its conduct of the Company’s business and as part of the system of
internal control receives reports on the risks associated with the above matters.

70306_Travis_Pre 26/3/07 14:42 Page 40

D I R E C T O R S A N D

P R O F E S S I O N A L A D V I S E R S

Tim Stephenson O.B.E.

Geoff Cooper

Paul Hampden Smith

John Carter

C H A I R M A N
Tim Stevenson O.B.E. (aged 58) joined
the Board in September 2001 and
became Chairman on 1 November 2001.
He is a barrister and held a number of
senior positions in Burmah Castrol plc
between 1975 and 2000, including Chief
Executive from 1998. He is also non-
executive Chairman of Morgan Crucible
plc. He is Chairman of the Nominations
Committee and a member of the
Remuneration Committee.

C H I E F E X E C U T I V E
Geoff Cooper (aged 53) joined the
Company in February 2005 and was
appointed Chief Executive on 1 March
2005. He is a chartered management

accountant and worked in
management consultancy before
joining Gateway (now Somerfield plc) as
Finance Director in 1990. In 1994 he
became Finance Director of UniChem
plc, subsequently Alliance UniChem plc
(merging with Boots plc to become part
of Alliance Boots plc) where he was
appointed Deputy Chief Executive in
2001. He is non-executive Chairman of
Dunelm Group Plc.

F I N A N C E D I R E C T O R
Paul Hampden Smith (aged 46) is a
chartered accountant and joined
Sandell Perkins in 1988. Following the
merger with Travis & Arnold, he was
appointed regional finance director. In

1992, he became Finance Director of
Travis Perkins Trading Company
Limited and was appointed Finance
Director of Travis Perkins plc in 1996.
He was a non-executive director of DX
Services plc until August 2006.

C H I E F O P E R A T I N G
O F F I C E R
John Carter (aged 45) joined Sandell
Perkins as a management trainee in
1978. Having held regional
management positions, he was
appointed as Managing Director,
Operations in 1996, and became a
director of Travis Perkins plc in July
2001. He was appointed Chief
Operating Officer in February 2005.

70306_Travis_Pre 26/3/07 14:42 Page 41

D I R E

T O R S

A N D P R O F

I O N A L

A D V I

E R S

Chris Bunker

John Coleman

Stephen Carter C.B.E.

Michael Dearden

Andrew Simon O.B.E.

Michael Dearden (aged 64) was
appointed as a non-executive director in
November 2000. He held a number of
senior posts with Burmah Castrol plc
from 1980 until his retirement at the
end of 2000. He was a member of the
group board from 1995, most recently as
Chief Executive of Castrol International.
He is a non-executive director of
Johnson Matthey plc and of The Weir
Group plc and was formerly Chairman of
Minova International Limited. He is the
Senior Independent Director, and a
member of the Audit, Nomination and
Remuneration Committees.

Andrew Simon O.B.E. (aged 61) was
appointed as a non-executive director
in 2006. He is Non-Executive Deputy
Chairman of Dalkia Plc, Non-Executive
Chairman of Meretec Limited and a
non-executive director of Finning
International Inc. and Brake Bros Ltd.
He was previously Chairman and/or
Chief Executive of Evode Group plc
from 1980 to 1993, and has also held
non-executive directorships with
Severn Trent Plc, Ibstock PLC, Laporte
Plc and Associated British Ports
Holdings PLC. He is chairman of the
Remuneration Committee.

N O N - E X E C U T I V E D I R E C T O R S

Chris Bunker (aged 60) was appointed
as a non-executive director in January
2004. He is a chartered management
accountant and was Finance Director of
Thames Water plc, from 2000 until
March 2004. He was previously Finance
Director of Tarmac PLC and Westland
Group PLC. He is a non-executive
director of D S Smith Plc and Xansa PLC
and formerly was a non-executive
director of Mowlem plc and Baltimore
Technologies plc. He is Chairman of the
Audit Committee and a member of the
Nominations Committee.

John Coleman (aged 54) was
appointed as a non-executive director
in February 2005. He is a chartered
management accountant and was
Chief Executive of House of Fraser plc
from 1996 to 2006. He was previously
Chief Executive of Texas Homecare and
of a number of businesses within
Burton Group PLC. He is a member of
the Remuneration Committee.

Stephen Carter C.B.E. (aged 43) was
appointed as a non-executive director in
April 2006. Between 1992 and 2000 he
held a number of senior posts in JWT
UK Group and from 2000 to 2002 was
Managing Director, UK & Ireland, for
NTL. From 2003 to 2006 he was Chief
Executive of Ofcom. He was appointed
Chief Executive of Brunswick Group LLP
on 5 March 2007. He was formerly a
non-executive director of Trucost plc. He
is a member of the Audit Committee.

SECRETARY: A. S. Pike

AUDIT COMMITTEE:

C. J. Bunker (Chairman)

S. Carter

M. B. Dearden

REMUNERATION COMMITTEE :

A. H. Simon (Chairman)

J. Coleman, M. B. Dearden

T. E. P. Stevenson

NOMINATIONS COMMITTEE:

T. E. P. Stevenson (Chairman)

C. J. Bunker, M. B. Dearden

EXECUTIVE COMMITTEE:

G. I. Cooper (Chief Executive and

Committee Chairman)

P. N. Hampden Smith (Finance Director)

J. P. Carter (Chief Operating Officer)

J. Bird (Managing Director Wickes)

C. Kavanagh (Group HR Director)

M. R. Meech (Group Property Director)

A. S. Pike (Company Secretary & Lawyer)

INVESTMENT BANKERS:

HSBC Bank plc

CORPORATE BROKERS:

HSBC Bank plc

Dresdner Kleinwort Wassersteinn

BANKERS:

The Royal Bank of Scotland plc

Barclays Bank plc

SOLICITORS:

Clifford Chance LLP, London

Hewitsons, Northampton

AUDITORS:

Deloitte & Touche LLP, Birmingham

REGISTRARS:

Capita Registrars, Huddersfield

70306_Travis_Pre 26/3/07 14:42 Page 42

C O R P O R A T E G O V E R N A N C E

For the year ended 31 December 2006

C O M B I N E D C O D E
In June 1998, the Combined Code on
Corporate Governance was issued by the
London Stock Exchange and this was
revised in July 2003 (‘the Code’). Section
1 of the Code is applicable to
companies. A statement on how the
Company has applied the principles and
a statement explaining the extent to
which it has complied with the
provisions of the Code appear below.
The Code contains fourteen main
principles of governance, which are
divided into the following four areas:

1. Directors
The Company is controlled through a
board of directors, which presently
comprises the Chairman, three executive
and five non-executive directors. Tim
Stevenson is Chairman and Geoff Cooper
is Chief Executive. Michael Dearden is
the senior independent non-executive
director. Chris Bunker, Stephen Carter,
John Coleman and Andrew Simon are
also independent non-executive
directors. Appointments of new
directors are made by the Board on the
recommendation of the Nominations
Committee. All directors will submit
themselves for re-election at least every
three years.

The Board has a formal schedule of
matters reserved to it and meets at least
ten times a year. It is responsible for
overall group strategy, policy on
corporate governance issues, acquisition
policy, approval of major capital
expenditure and consideration of
significant financial and operational
matters. It monitors the exposure to key
business risks and reviews the strategic

direction of the trading subsidiaries,
their annual budgets and progress
towards the achievement of those
budgets and their capital expenditure
programmes. It also considers
legislative, environmental, health and
safety and employment issues. The
Board has approved a written statement
of the division of key responsibilities
between the Chairman and the Chief
Executive.

The Chairman leads the Board,
ensuring that each director is able to
make an effective contribution. He also
monitors the information provided to
the Board to ensure it is sufficient,
timely and clear, and from time to time
the Board reviews the adequacy of this
information.

The Board held eleven meetings

during 2006. Stephen Carter and
Andrew Simon each missed one
meeting because of commitments made
before their appointments to the Board.
Also, John Coleman, Michael Dearden
and Andrew Simon each missed one
meeting because of conflicting business
engagements. Otherwise, all meetings
were attended by all directors. One
meeting dealt with consideration of the
Company’s long-term strategy and six
meetings were either combined with
visits to parts of the Company’s
operations or included presentations by
senior executives on their areas of
responsibility. Individual visits to
operational sites by non-executive
directors also occurred. In addition to
the regular board meetings, key
financial information is circulated to
directors outside of meetings. The
Chairman has regular direct contact

with the executive directors and keeps
the non-executive directors informed of
material developments between board
meetings.

All directors have direct access to the
Company Secretary and are able to take
independent professional advice in the
furtherance of their duties if necessary.
The Company maintains directors &
officers’ insurance in respect of the risk
of claims against directors.

The Chairman held one meeting

during the year with all the non-
executive directors, without the
executive directors being present and
several meetings with some of the non-
executive directors, also without the
executive directors being present. The
Senior Independent Director held one
meeting during the year with the other
directors, without the Chairman being
present, together with a number of
individual discussions with the other
directors, to evaluate the Chairman’s
performance, as described in more
detail below, and to review his salary.

The Board has adopted an induction

process for new directors and this is
facilitated by the Company Secretary.
The Chairman ensures that all directors
receive appropriate training on
appointment and then subsequently as
needed, taking into account their need
to update their skills and their
knowledge of the Company’s business.
They are also regularly provided with
information on forthcoming legal and
regulatory changes and corporate
governance developments.

The Board has established four

standing committees: the Audit
Committee, the Remuneration

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Committee, the Nominations
Committee, and the Executive
Committee, which operate within
defined terms of reference. Details are
available on the Company’s website or
may be obtained from the Company
Secretary. The minutes of committee
meetings are available to all the
Directors. During the year, the
Remuneration Committee met seven
times, the Nominations Committee
once, and the Audit Committee four
times. All these meetings were attended
by all members of the relevant
committee, except that John Coleman
and Michael Dearden each missed one
meeting of the Remuneration
Committee because of conflicting
business engagements. The reports of
the Audit Committee, Remuneration
Committee, and the Nominations
Committee are on pages 45 and 46, 47
to 54 and page 55 respectively.

The Executive Committee was
established in June 2005. Its members
are described on page 41. Other
executives are invited to attend from
time to time in relation to specific
issues. The principal purpose of the
Committee is to assist the executive
directors in the performance of their
duties in relation in particular to:
• Strategy, operational plans, policies,

procedures and budgets;

• The monitoring of operational and

financial performance;

• The assessment and control of risk;
• The prioritisation and allocation of

resources.

The Committee met fourteen times
during the year and all meetings were
attended by all members except that
Martin Meech, Group Property Director
and Jeremy Bird, Managing Director
Wickes, each missed one meeting
because of conflicting business
engagements.

During the year the Board undertook

an evaluation of its performance and
the performance of its committees and
the individual directors. The Board
engaged Egon Zehnder to facilitate this
process. The process took the form of
interviews with each director and the
Company Secretary separately, focussing
on a number of areas pertinent to the

operation of the Board, its committees
and each director. These interviews
formed the basis of a report by Egon
Zehnder that was the subject of a
discussion by the Board and the
Committees. Egon Zehnder also gave
individual feedback to each director on
his own performance. The Board was
very pleased to hear Egon Zehnder say
that it was one of the best functioning
boards they had encountered. Therefore
the Board was satisfied that the process
showed that the Board and its
committees worked very effectively.
Nevertheless, the Board and the
committees agreed a number of specific
measures aimed at further enhancing
their performance, in particular in the
following areas:
• Transparency of information
between all Board members,
wherever possible;

• The presentation of information to
the Board and its committees;
• Succession planning for senior

executives;

In addition, during the year, the Senior
Independent Director led a process for
appraisal of the performance of the
Chairman. He consulted with each other
director in the light of the Egon Zehnder
report and then provided feedback in a
discussion with the other directors
without the Chairman being present. A
board evaluation process will be carried
out in 2007.

2. Directors’ remuneration
The Remuneration Committee consists
of the Chairman and three independent
non-executive directors, and meets at
least four times a year. Its
responsibilities include a review of the
performance of executive directors and
other senior executives prior to
determining their remuneration. The
remuneration of the non-executive
directors is determined by the Board of
Directors as a whole. No director plays a
part in the discussion about his own
remuneration.

The Remuneration Report is set out

on pages 47 to 54.

3. Accountability and audit
A review of the performance of the

Group’s trading subsidiaries and the
financial position of the Group is
included in the Chief Executive’s review,
in the Chief Operating Officer’s review
and in the Finance Director’s report set
out on pages 12 to 37. The Board uses
them, together with the Chairman’s
statement on pages 10 and 11 to
present a full assessment of the
Company’s position and prospects. The
directors’ responsibilities for the
financial statements are described on
page 60.

Internal control
The Board of Directors is responsible for
the Group’s system of internal control
and for reviewing its effectiveness. In
designing the system of internal control,
consideration is given to the significant
risks to the business, the probability of
these risks manifesting themselves and
the overall cost of controlling them. The
system is designed to manage rather
than eliminate the risk of failing to
achieve business objectives and
therefore can only provide reasonable,
and not absolute, assurance against
material misstatement or loss.

The implementation and day-to-day

operation of the system of internal
control has been delegated to
executive directors and senior
management, but the effectiveness of
the system is regularly reviewed by the
Board in a process that accords with the
Turnbull Guidance. As part of its
corporate governance procedures, the
Board has received regular reports on
specific areas of risk. If appropriate,
these reports include recommendations
for improvement in controls or for the
management of those risks.
Furthermore, steps continue to be taken
to integrate risk management
procedures into the Group’s operations,
to extend awareness of the importance
of the management of risk and to
ensure that recommended
improvements brought to the attention
of the Board are implemented. In 2006,
the different risks affecting the Group
were reviewed with the responsible
director or senior executive, and
improvements made in the methods of
identifying and evaluating these risks,

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and of recording risk management
measures, and in the reporting on those
risks. The effectiveness of these changes
was reviewed during 2006, and certain
improvements to the process were
made. In particular, senior executives
are asked, twice a year, to confirm the
adequacy of internal controls in their
areas of responsibility, identify any
control weaknesses, and to confirm the
accuracy and completeness of
information given to directors and to
the external auditors.

In conjunction with the Audit

Committee, the Board has carried out an
annual review of the overall effectiveness
of the system of internal control and risk
management procedures, during the
year and up until the date of approval of
the annual report.

Audit committee and auditors
The report of the Audit Committee is set
out on pages 45 and 46.

4. Relations with shareholders
The Company encourages two-way
communication with both its
institutional and private investors and
responds promptly to all enquiries
received orally or in writing. During the
year the Chairman, the Chief Executive,
the Chief Operating Officer and the
Finance Director, either separately or

together, attended a number of
meetings with analysts, and with
shareholders representing circa 64 per
cent of the issued share capital. The
senior independent director also
attended a number of such meetings in
2006. The Chairman, Chief Executive
and Finance Director report fully to the
Board on any meetings with
shareholders or analysts. In addition,
written reports about the Company by
analysts or brokers are circulated to all
directors.

As well as sending annual and
interim reports to shareholders, the
Company normally issues trading
statements at the Annual General
Meeting and around the year end. All
shareholders receive at least twenty
working days notice of the Annual
General Meeting at which all directors
are available for questions and a short
business presentation takes place. Each
substantive issue is the subject of a
separate resolution. The numbers of
proxy votes for and against each
resolution are announced at the
meeting, after the voting has taken
place, and are subsequently published
on the Company’s website.

G O I N G C O N C E R N
After making enquiries, the Directors
have formed a judgement at the time of

approving the financial statements that
there is a reasonable expectation that
the Company and the Group have
adequate resources to continue in
operational existence for the foreseeable
future. For this reason, they continue to
adopt the going concern basis in
preparing the financial statements.

C O R P O R A T E G O V E R N A N C E
C O M P L I A N C E S T A T E M E N T
The Company is pleased to report that it
has complied throughout the year
ended 31 December 2006 with the
provisions set out in Section 1 of the
Code, except:
B2.1 The Remuneration Committee did
not consist wholly of independent non-
executive directors as the Chairman is
one of its members. The Board has
noted that this will be permissible under
the revised Code which will apply for the
financial year ending 31 December 2007.
In any event, the Board considers it to
be very important that the Chairman is
closely involved in the establishment
and application of the Company’s
remuneration policy.
C3.1 Pending the appointment to the
Board of Stephen Carter in April 2006,
the Audit Committee only consisted of
two independent non-executive directors
between January and April 2006.

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A U D I T C O M M I T T E E R E P O R T

For the year ended 31 December 2006

R O L E O F T H E A U D I T
C O M M I T T E E
The Audit Committee is responsible for:
• Monitoring the integrity of the

financial statements of the Company
and any formal announcements
relating to the Company’s financial
performance, and reviewing
significant financial reporting
judgements contained therein;
• Reviewing the Company’s internal
financial controls and, unless
expressly addressed by the Board
itself, the Company’s internal control
and risk management systems;
• Monitoring and reviewing the
effectiveness of the Company’s
internal audit function;

• Making recommendations to the

Board, for a resolution to be put to
the shareholders for their approval
in general meeting, in relation to the
appointment of the external auditors
and the approval of the
remuneration and terms of
engagement of the external auditors;

• Reviewing and monitoring the

external auditors’ independence and
objectivity and the effectiveness of
the audit process, taking into
consideration relevant UK
professional and regulatory
requirements;

• Reviewing and monitoring the

Company’s policy on the
engagement of the external auditors
to supply non-audit services, taking
into account relevant guidance
regarding the provision of non-audit
services by the external audit firm.

The Audit Committee is required to
report its findings to the Board,

identifying any matters in respect of
which it considers that action or
improvement is needed, and make
recommendations as to the steps to
be taken.

The Committee’s full terms of

reference are available on the
Company’s website, or on request to
the Company Secretary.

C O M P O S I T I O N O F T H E
A U D I T C O M M I T T E E
Chris Bunker was Chairman, and
Michael Dearden a member of the
Committee, throughout the year.
Stephen Carter was appointed to the
Committee in April 2006. All members of
the Committee are considered to be
independent. The Group Company
Secretary, Andrew Pike, is secretary to
the Committee. The Board considers
that Chris Bunker has the recent and
relevant financial experience required by
the Combined Code (see also the Board
profiles on pages 40 and 41).

M E E T I N G S A N D
A T T E N D A N C E
The Committee met four times during
2006 to consider inter alia, the annual
and interim results. The Chairman of
the Committee also invited the Group
Chairman, the Group Finance Director,
the Group Chief Operating Officer; the
Group Financial Controller, the Group
Head of Business Risk and Assurance
and the external auditors to attend
each meeting. During each meeting
the external auditors and the Group
Head of Business Risk and Assurance
were given the opportunity to talk
with the Committee without the

presence of management and in
addition during the year, the
Committee Chairman held a number
of meetings or telephone conferences
with the Group Head of Business Risk
and Assurance and with the external
auditors, all without management
being present.

M A I N A C T I V I T I E S O F
T H E C O M M I T T E E
D U R I N G T H E Y E A R
At its meeting in February, the
Committee reviewed the annual
financial statements of the Company
and received reports from the internal
auditors on control matters and from
the external auditors on the conduct of
their audit, their review of accounting
policies, areas of judgment and the
financial statements and their
comments on statements concerning
risk and internal control. A similar
review was undertaken at its August
meeting when the interim statements
were considered.

At these meetings, and at its
meetings in July and November, the
Committee also dealt with the following
particular matters:
• It established terms of reference for

a subcommittee to make
recommendations to the Committee
on administrative matters;

• It reviewed the effectiveness of the

systems of internal financial control;

• It reviewed the strategy, staffing
and processes of the internal
audit department and
recommended to the Board minor
changes to the terms of reference
of that department;

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• It reviewed the operation of the
Group’s whistleblowing policy;

• It reviewed the policy on

engagement of the external auditor
for non-audit work, as referred to
below, and its policy on the
employment of anyone previously
employed by the external auditor;
• It reviewed the plans presented by
the external auditor for conduct of
the year-end audit including terms
of engagement, fees and letters of
engagement;

• It reviewed the Company’s

accounting policies and forthcoming
International Financial Reporting
Standards and other regulatory
changes;

• It reviewed the Company’s approach

to tax planning;

• It reviewed the Company’s business

continuity planning;

• It reviewed an evaluation of its work
carried out as part of the Board
evaluation process referred to on
page 43 and reported to the Board
on this evaluation;

• It reviewed any comments received
on its 2005 report from institutional
investor bodies;

• Principally by means of a

questionnaire, the Committee
reviewed the effectiveness of the
Internal and External Audit functions.

E X T E R N A L A U D I T O R S
The Company places great importance
on the effectiveness and independence
of its external auditor and together
with them is careful to ensure their
objectivity is not compromised. At its
November meeting, the auditor

presented to the Committee their plans
for the forthcoming audit together with
details of their proposed fees and how
they ensure that their objectivity and
independence are not compromised.
It is the role of the Committee to
ensure compliance with the Board’s
policy in respect of services provided by,
and fees paid to, the auditor. Audit fees
are negotiated by the Finance Director
and approved by the Audit Committee.
For other services that may be provided
by the auditor, the Company’s policy is:

Audit related services
The auditor is invited by the Company to
undertake those services that they are
required to and are most suited to
perform. Such work includes certification
in respect of borrowings, stock exchange
related reporting and where appropriate,
assistance with acquisitions.

Taxation
The external auditor assists the Group to
meet general tax compliance
requirements as well as providing
advice on acquisitions and tax planning.
Should opportunities arise for them to
advise on special tax projects, their
suitability is assessed at the time to
ensure it would not compromise their
audit independence, with the work
being tendered where appropriate.

Consulting
To avoid any possible conflict of interest
the Group’s policy is not to employ its
auditor for general consulting work.

Following its November 2006 meeting,
the Committee recommended to the

Board that a resolution be put to
shareholders at the Annual General
Meeting for the re-appointment of the
external auditor, and to authorise the
Directors to fix their remuneration.

I N T E R N A L A U D I T
As well as its reviews of the internal
audit department’s strategy and
processes, as described above, during its
meetings in 2006, the Committee
received presentations from the Group
Head of Business Risk and Assurance,
about the results of work undertaken by
the department, and approved its plans
for work in 2007. The Committee was
satisfied with the overall effectiveness of
the department.

O V E R V I E W
As a result of its work during the year,
and taking into account the result of the
board and committee evaluation
process described on page 43 the Audit
Committee has concluded that it has
acted in accordance with its terms of
reference and has ensured the
independence, objectivity and
effectiveness of the external and
internal auditors.

The chairman of the Audit Committee

will be available at the Annual General
Meeting to answer any questions about
the work of the Committee.

C. J. Bunker
Chairman, Audit Committee
5 March 2007

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D I R E C T O R S ’ R E M U N E R A T I O N R E P O R T

For the year ended 31 December 2006

I N T R O D U C T I O N
This report sets out the Company’s
remuneration policies for its directors
and senior executives and describes
how those policies are applied in
practice. We have reviewed these
policies during 2006 and in this report
we give and explain the conclusions of
this review.

The Directors confirm that this report

has been drawn up in accordance with
the requirements of Schedule 7A of the
Companies Act 1985 and the 2003
Combined Code on Corporate
Governance (‘the Code’). A resolution to
approve the report will be proposed at
the Annual General Meeting.

U N A U D I T E D
I N F O R M A T I O N
Remuneration committee
The Committee comprises Andrew
Simon, Tim Stevenson, John Coleman
(from April 2006) and Michael Dearden,
all of whom are independent non-
executive directors. Andrew Simon was
appointed Chairman of the Committee
on 1 May 2006. Michael Dearden
chaired the Committee from January to
April 2006.

The Committee is responsible for the

broad policy on senior executives’ pay
and remuneration. It determines all
aspects of the remuneration packages
of the executive directors and reviews
with the Chief Executive the
remuneration packages for other senior
executives. The Committee’s terms of
reference, which are available in the
investor section of our website, require
it to give due regard to the best practice
contained in the Code.

The Committee met seven times

in 2006. A large proportion of the
Committee time during the year has
been spent reviewing the incentive
scheme arrangements for executive
directors and senior executives, as
described in more detail later in
this report.

The Committee keeps itself fully
informed of all relevant developments
and best practice in remuneration
matters and seeks advice where
appropriate from external advisors. Both
New Bridge Street Consultants and
Towers Perrin have provided material
advice to the Committee on directors’
remuneration and share schemes in the
past year, and Mercer Human Resources
Consulting have advised on pension
matters. These advisers were appointed
by the Committee. In addition,
Geoff Cooper (Chief Executive),
Andrew Pike (Group Company Secretary),
Carol Kavanagh (Group Human
Resources Director) (or her predecessor
Rob Tansey) have assisted the
Committee in its deliberations, but never
in respect of their own remuneration.

Policy on executive directors’
remuneration
The Company’s policy on executive
remuneration is to ensure that it has an
appropriate mix of fixed and variable
pay over the short and long term, to
attract and retain high quality
executives with an appropriate blend of
skills and experience. This is supported
by the following policies:
1. We aim to be competitive. During

the year the Committee reviewed the
comparator group and concluded

that, going forward, the
benchmarking group will be
companies ranked in the FTSE 51-
200 because Travis Perkins has
consistently had a FTSE ranking of
circa 125.

2. We ensure that remuneration

packages contribute to the delivery
of long-term shareholder value. This
is reflected in the Company’s annual
bonus plan and share plans, which
are explained in more detail below.
A significant proportion of a
director’s total remuneration
package is variable, being subject to
the achievement of specified
business objectives. In applying this
policy the Committee has taken
account of the provisions of
Schedule A of the Combined Code.

3. We encourage executives to own
Travis Perkins’ shares. This is
exemplified by the compulsory
deferral of bonus in shares and our
share holding guidelines.

Conclusions of remuneration review
The key conclusions of the
remuneration review carried out in
2006 were:
• A coherent and graded remuneration
structure should apply across all
Travis Perkins’ businesses for senior
executives.

• The annual bonus metrics of

earnings per share, return on capital
employed and reduction in Group
net debt all support the Company’s
five year business plan.

• Deferral of part of the annual bonus
in Travis Perkins’ shares should
continue to apply, with all executives

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having a common 25% deferral
percentage of any bonus declared.
• For 2007 and later financial years,
deferred bonus will not attract an
allocation of matching shares, i.e.
the annual bonus plan has been
decoupled from the long term
incentive plans. Instead matching
shares will only be awarded to
executives who voluntarily choose to
invest in Travis Perkins’ shares, from
annual bonus or other monies.
• Subject to shareholder approval at

the 2007 AGM, share options will be
replaced for the most senior
executives with performance share
awards in 2008. Further details on
this are in the letter from the
Chairman to shareholders dated
5 March 2007.

The Committee believes that these
changes will give a sound and robust
structure to variable pay at Travis
Perkins, be easier to understand and
will support the five year business plan
and the wish to make available variable
remuneration to reward
outperformance.

Basic salary
A director’s basic salary is generally
determined by the Committee annually
taking in to account criteria such as
market conditions affecting executive
remuneration, affordability, the
individual’s contribution, and when an
individual changes role. The Company’s
policy is to pay competitive salaries.
Salaries are normally reviewed in
November each year, with increases
taking effect from 1 January in the
following year.

Against this policy the Committee

reviewed the executive directors’
salaries and concluded that they were
uncompetitive. Accordingly, above
inflation salary increases were awarded
to the three executive directors and,
with effect from 1 January 2007, their
basic annual salaries (and percentage
increases) are:
£350,000 (11.1%)
J. P. Carter
G. I. Cooper
£500,000 (8.4%)
P. N. Hampden Smith £350,000 (11.1%)
When awarding these salary increases,
the Committee considered the salary

increases awarded to other managers
and employees in the group, where
a similar market driven approach
was taken.

Pension arrangements
Historically, the general policy has
been for executive directors to be
members of the Company’s final salary
pension scheme, although from 1
February 2006 all new employees,
including any executive directors, have
been and will be provided with defined
contribution benefits.

In the final salary scheme, the policy

was for executive directors to accrue
benefits at a rate of 1/30 of pensionable
salary for each year’s pensionable
service after appointment as a director.
In the case of John Carter and Paul
Hampden Smith, the effective accrual
rate is less than 1/30 (approximately
1/57 and 1/42 respectively) due to their
potential length of service up to
retirement age, so that their pension
does not exceed two thirds of
pensionable salary. Normal retirement
age is 60. As with all other members,
executive directors’ dependants are
eligible for dependants’ pensions and a
payment of a lump sum in the event of
death in service. The pension
arrangements provide for a pension in
retirement based on the director’s
length of service in the Group pension
scheme and the average of the best
three of the last ten years of
pensionable salary. For pensionable
service from 1 December 2004,
pensionable salary for all members is
basic salary only. In the event that a
director’s pension benefits were limited
by the Inland Revenue ‘earnings cap’,
which applied up to April 2006, the
general policy was to pay an age related
annual salary supplement. Geoff Cooper
and Paul Hampden Smith received such
a salary supplement. From April 2006,
an ‘earnings cap’ has been applied only
in respect of benefits based on service
to that date.

There have been no changes in the
basis of directors’ pension entitlements
during the year except as described
below for Geoff Cooper. There are no
unfunded pension commitments or

similar arrangements for directors.
During the year the Committee
implemented measures which reflected
changes in the taxation of pension
arrangements at April 2006. It
recognised that the Company should
not compensate such executives for any
additional tax for which they would be
liable under the new arrangements. It
will make available at the member’s
option, a cost neutral alternative to
continued pension provision for
members the value of whose benefits
are at least 80% of the Lifetime
Allowance. The alternative benefit will
be a salary supplement calculated with
regard to the cost the Company would
have incurred in providing continuing
pension accrual. This supplement will
not be taken into account for the
purposes of bonuses or other benefits.
In line with this policy, at April 2006,
Geoff Cooper ceased to accrue service
related benefit in the final salary
scheme and instead has received a
salary supplement.

Annual bonus payments
At the beginning of the year, the
Committee establishes the targets that
must be met in order for a bonus to be
paid. As was the case in 2006, the
Committee’s policy for 2007 executive
directors is that there are three bonus
criteria: basic earnings per share
growth, average cleared net debt
reduction and return on capital
employed. Each has an equal weighting.
Individual bonuses are capped at
120% of salary for the Chief Executive
and 100% of salary for the Chief
Operating Officer and the Finance
Director. This compares to a maximum
bonus potential of 101% of salary that
applied to all three directors in 2006.
The change was made as part of the
remuneration review and reflects the
policy of remuneration being based on
reporting lines. On-target bonuses are
calibrated at half the maximum and
targets are set by reference to the
Company’s financial plans at the
beginning of the year.

One of the conclusions of the
incentives review was that the annual
bonus plan should be de-coupled from

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the long term incentives. Accordingly,
annual bonus outcome in 2007 and
later years will not determine the
quantum of grant of matching share
awards.

It was recognised by the Committee

that the previous bonus deferral
arrangement was unnecessarily
complex. Therefore from 2007 all bonus
for all senior executives will be subject
to a common 25% deferral. This means
that payment of a quarter of the full
bonus will be deferred for three years.
To ensure alignment of interest with
shareholders, the deferred bonus will be
payable in shares the number of which
shall be calculated at the beginning of
the deferral period.

For the 2006 bonus year maximum

bonus (set at 101% of salary) was
payable if the Company achieved
107.5% of budget for earnings per share,
105% of budget for return on capital
employed, and an improvement over
budget in average cleared net debt
reduction of £16m. As a result of the
Company’s good results in 2006,
bonuses worth a total of 101% of salary
were awarded to the executive directors.
Under the bonus plan that applied for
2006, the bonuses are sub-divided so
that 75% of salary is payable
immediately in cash and 26% of salary
is deferred for three years in Travis
Perkins’ shares.

Equity incentives
The Company’s previous policy on
equity incentives was to grant share
options and share matching awards.
The grant of share matching awards was
linked to the amount of bonus paid,
subject to a limited top up by the
executives. Subject to shareholder
approval at the AGM, the future policy
will be to grant performance shares
instead of share options to executive
directors and senior executives and to
operate an amended Share Matching
Scheme on a voluntary only basis. Full
details of these new arrangements are
given in the letter from the Chairman to
shareholders dated 5 March 2007. As a
result 2007 will be a transitional year,
for which the new bonus plan as
described above will apply, share

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P E R F O R M A N C E S H A R E A W A R D S

Three year earnings per share growth

Vesting percentage

Less than RPI + 3% per annum
RPI + 3% per annum
Between RPI + 3% per annum and RPI + 10% per annum 30% to 100% pro rata
RPI + 10% per annum

0%
30%

100%

The actual targets to apply to the 2008 awards will be given in next year’s
remuneration report.

options (and no performance shares)
will be granted, and deferred share and
matching share awards will be made
under the previous policy because they
relate to the 2006 bonus.

Share options
The 2001 Executive Share Option
Scheme, provides for the grant of
options on an annual basis, with a
nominal value limit up to twice basic
salary. Options are not granted at a
discount to the market value. The
exercise of options requires satisfaction
of an earnings per share (‘EPS’)
performance condition. EPS has been
chosen because the Committee
considers it to offer the greatest
incentive and to be the best rounded
measure of year-on-year financial
performance at Travis Perkins. For all
eligible executives, EPS must exceed
inflation by at least 9% over a 3 year
period. For the most senior executives,
for the grants made in 2006 and 2007,
this allows 25% of their options to be
exercised, and for all options to be
exercisable EPS growth must exceed
inflation by at least 15% over that
period. Between 9% and 15%, the
number of exercisable options is
calculated on a straight line basis.
Performance criteria for earlier grants
are set out on page 53. The approach to
measurement of EPS as a performance
measure is described below. Options
granted in 2004 and thereafter do not
permit any re-testing of the
performance condition.

Share options normally lapse on
cessation of employment but during
the year the Committee exercised its

discretion to allow exercise for one
early leaver (who was not an
executive director).

Performance share awards
If approved by shareholders at the AGM,
the 2007 Performance Share Plan will
empower the Committee to grant
performance share awards. For the same
reason as for share options, the vesting
of performance share awards will
depend on the extent to which an EPS
performance condition is satisfied over
the normal three year vesting period.
Although the first awards will not be
granted until 2008, it is the Committee’s
general premise that calibration shall
apply as shown in the table above.

Share matching awards
Under the current rules of the Share
Matching Scheme, executives can be
awarded shares in the Company of a
value up to 35% of their annual cash
bonus (“Deferred Shares”). These shares
are to be held in trust for three years
and generally will be forfeited if an
executive leaves during this time. In
addition, further awards of shares in the
company (known as ‘Matching Shares’)
are made, the vesting of which is
subject to a three-year EPS performance
condition. Awards of matching shares
are linked to the Deferred Shares and,
in addition, executives may invest up to
35% of annual salary in the Company’s
shares, (‘Investment Shares’) using the
proceeds of their annual cash bonus.

There were no occasions during the

year on which the Committee
exercised its discretion to transfer
shares to early leavers.

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I O N R E P O R T

For the awards made this year that

relate to 2006 bonuses, the
performance criterion is:
• for EPS growth of less than RPI plus
12%, no Matching Shares vest;
• for EPS growth of RPI plus 12%, one
Matching Share vests for each three
Deferred/Investment Shares;
• for EPS growth of RPI plus 24% or

higher, one Matching Share vests for
every one Deferred/Investment
share; and

• straight line pro-rating applies

between EPS growth of RPI plus 12%
and RPI plus 24%.

As part of the proposals being put to
shareholders at the Annual General
Meeting it is proposed that in future
years, the vesting of matching share
awards will depend on the extent to
which a three year cash return on
capital employed target is met. This
has been chosen because the
management and efficient utilisation
of cash within the Group is important
in the creation of future shareholder
value. It can be measured from
audited figures published in the
annual accounts and more detail will
be given in next year’s report when the
first awards are made.

In the use of EPS as a performance

measure in share incentive schemes,
the Committee has recognised the
potential impact of changes in
accounting standards. It has therefore
adopted an approach whereby the
basis used for measuring EPS growth
for each performance period is static
even if the method of measurement of
EPS in the company accounts develops
over the same period. This will ensure
consistency in the measurement of the
performance of the business for the
purposes of the share schemes.

Shareholding guidelines
In March 2005, the Company issued
shareholding guidelines to its most
senior executives encouraging them to
build up a shareholding in the
Company over a five-year period. The
target shareholding is 100% of salary
for the executive directors and 50% of
salary for the other executives. Share
options which have vested but not been

exercised count towards these targets.
The guidelines were reviewed in
December 2006. While these guidelines
are not mandatory, the Committee has
reserved the right to take into account
an individual’s position relative to the
target, when making future awards
under the Company’s share incentive
arrangements.

Service contracts
The Company’s policy for executive
directors is to have contracts which are
not for a fixed period, and which are
terminable on twelve months notice
from the Company, and six months
from the director. It is not the policy to
specify what compensation would be
payable on termination by the
Company. If such compensation was
due, it would be calculated by reference
to the unexpired part of the notice
period, and the director’s salary and
other benefits, including pension rights,
taking due account of the director’s duty
to mitigate his loss. Service contracts do
not specify any particular level of
compensation in the event of
termination following change of control
of the Company.

Each of the executive directors has a

service contract, the date of which is
shown below, which will be available for
inspection at the Annual General
Meeting.
John Carter
6 August 2001
1 February 2005
Geoff Cooper
Paul Hampden Smith 8 October 1996

Non-executive directors
The policy of the Board is to recruit
non-executive directors of the highest
calibre, with a breadth of skills and
experience appropriate for the
Company’s business. Non-executive
directors are appointed for a period of
three years, at the end of which the
appointment may be renewed by
mutual agreement. It is the Board’s
policy that non-executive directors
should serve for six years (two three year
terms) and that any term beyond this
should be subject to a rigorous review.
This review would take into account
both the need for progressive refreshing
of the Board, and the particular

requirements of the Company at the
time of the possible extension.

Chairman
The second three year term of the
Chairman, Tim Stevenson, will expire in
September 2007. In a review process led
by the senior independent director,
Michael Dearden, the Board agreed that
in the light of the current make-up of
the Board, the point that has been
reached in the Company’s development
and the evaluation of Mr Stevenson’s
performance as part of the Board
evaluation process described on page
43, it was highly desirable that Mr
Stevenson should continue his
chairmanship. It has therefore been
agreed that he will continue as
Chairman until September 2010.

Michael Dearden
Similarly, the Chairman led a review
process in regard to the appointment of
Michael Dearden, senior independent
director, whose second three year term
ended in November 2006. Taking into
account the evaluation of his
performance, it was agreed that
shareholders’ interests would be greatly
served by his continuing presence on
the Board and he has agreed to
continue as senior independent director
for an additional two year term until
November 2008.

Non-executive directors do not have
a service contract, but each has received
a letter of appointment expiring on the
following dates:
Chris Bunker
Stephen Carter
John Coleman
Michael Dearden
Andrew Simon
Tim Stevenson
These letters of appointment will be
available for inspection at the Annual
General Meeting.

January 2010
April 2009
February 2008
November 2008
February 2009
September 2010

The remuneration of the non-

executive directors is determined by the
Board. Each non-executive director
receives an annual fee. In addition
Michael Dearden, Chris Bunker and
Andrew Simon receive an additional fee
for the role of senior independent
director and for chairing the Audit

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I O N R E P O R T

Committee and Remuneration
Committee, respectively. Non-executive
directors do not receive any other
benefits and are not eligible to join a
company pension scheme. No
compensation is payable on termination
of their employment, which may be
without notice from the company. They
cannot participate in any of the
Company’s share schemes.

Total shareholder return
As required by the Companies Act the
graph shows total shareholder return
for Travis Perkins’ shares over the last
five years, relative to the FTSE 250
Index. Total shareholder return is
defined as a combination of growth in
the Company’s share price and
dividends paid to shareholders. The
FTSE 250 Index has been chosen as a
comparable broad equity market index
because the Company has been a
member of it for the five years.

A U D I T E D I N F O R M A T I O N

Travis Perkins’ share price information

Mid-market price at the year end
Highest mid-market price during the year
Average mid-market price during the year
Lowest mid-market price during the year

T O T A L S H A R E H O L D E R R E T U R N ( ‘ T S R ’ )

250%

200%

150%

100%

50%

Dec 01

Dec 02

Dec 03

Dec 04

Dec 05

Dec 06

Travis Perkins TSR

FTSE 250 TSR

2006
1,984p
1,986p
1,616p
1,341p

2005
1,400p
1,979p
1,598p
1,205p

2005
No.
4,000
14,188
-
-
5,000
3,000
9,360
-
8,500

Directors’ shareholdings
The directors’ holdings of ordinary 10p shares of Travis Perkins plc at 31 December 2005 and 2006 were as follows:

Director
C. J. Bunker
J. P. Carter
S. Carter
J. Coleman
G. I. Cooper
M. B. Dearden
P. N. Hampden Smith
A. H. Simon
T. E. P. Stevenson

Interest
Beneficial owner
Beneficial owner
Beneficial owner
Beneficial owner
Beneficial owner
Beneficial owner
Beneficial owner
Beneficial owner
Beneficial owner

2006
No.
4,000
15,042
1,000
-
10,000
3,000
21,785
1,000
8,500

Details of directors’ share options are given on pages 53 and 54. There have been no changes in the holdings of the Directors
between 31 December 2006 and the date of this report.

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Amount of directors’ emoluments
Details of directors’ remuneration are set out in the table below.

Part of each executive director’s remuneration may consist of benefits in kind not payable in cash, such as the provision of a
company car, a fuel card, and private healthcare insurance. No director receives an expense allowance which is chargeable to tax.

Basic salary

Annual bonus

Benefits in kind

2006
£’000

2005
£’000

2006
£’000

2005
£’000

2006
£’000

2005
£’000

Total
remuneration
2006
£’000

2005
£’000

Executive
G. I. Cooper1
P. N. Hampden Smith2
J. P. Carter
Non-executive
T. E. P. Stevenson
C. J. Bunker
S. Carter3
J. Coleman
M. B. Dearden
A. H. Simon4

648
337
315

160
41
23
33
41
34

540
386
300

150
41
-
29
33
-

346
236
236

-
-
-
-
-
-

1,632

1,479

818

-
-
-

-
-
-
-
-
-

33
10
29

-
-
-
-
-
-

32
11
25

-
-
-
-
-
-

1,027
583
580

160
41
23
33
41
34

572
397
325

150
41
-
29
33
-

2,522

1,547

1 Highest paid director - Basic salary includes a £34,440 (2005 £126,640) salary supplement to enable Geoff Cooper to arrange pension
provision for that part of his salary, which was above the HMRC approved limit, which applied up to April 2006. It also includes a
salary supplement of £152,375 which replaced continuing pension accrual from April 2006. Geoff Cooper also received, and retained,
in 2006, £75,000 (2005: £65.000) in respect of his non-executive chairmanship of Dunelm Group Plc.

2 Basic salary includes a £21,870 salary supplement (2005: £84,270) to enable Paul Hampden Smith to arrange pension provision for

that part of his salary, which is above the HMRC approved limit which applied up to April 2006. It also includes a £1,500 fuel
allowance. Paul Hampden Smith also received, and retained, in 2006, £33,287 (2005: £35,000) in respect of his non-executive
directorship of DX Services Plc.

3 Appointed 24 April 2006.
4 Appointed 20 February 2006.

Directors’ pension entitlements
Pension entitlements of the executive directors during the year were as follows:

Age at 31 December 2006

J. P. Carter
45

P. N. Hampden Smith
46

Accrued pension at 31 December 2005
Accrued pension at 31 December 2006

Increase in accrued pension in 2006

Real increase in accrued pension in 2006

Transfer value of the real increase in accrued
pension net of member’s contributions

Value of increase in accrued benefit

Member’s contributions towards pension
Increase in transfer value net of member’s contributions
Transfer value of benefits accrued at 31 December 2005

Transfer value of benefits accrued at 31 December 2006

£’000
176
182

(1)

(27)
(7)

20
241
1,814

2,075

£’000
33
40

46
63

17
115
343

475

G. I. Cooper
52

£’000
3
4

13
15

2
21
46

Notes:
G. I. Cooper ceased future accrual on 5 April 2006 but retains his salary link (subject to the Earnings Cap which applied up to April 2006).
Salary Sacrifice was introduced for member contributions in April 2006. The figures above include the sacrificed amounts.

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Share matching scheme
The following shares (price at award date 1,681p) remain outstanding at 31 December 2006:

At 1 January 2006
Vested during the year
Lapsed during the year

Deferred Shares
No.
13,966
(919)
(1,050)

Deferred Matching Shares
No.
19,539
-
(6,623)

Investment Matching Shares
No.
27,158
-
(1,011)

At 31 December 2006

11,997

12,916

26,147

Participation by directors in the Share Matching Scheme is as follows at both 31 December 2006 and 31 December 2005:

Deferred shares
Deferred matching shares
Investment matching shares

G. I. Cooper
-
-
-

P. N. Hampden Smith
3,160
3,160
5,746

Number of shares at 31 December 2006

12,066

J. P. Carter
3,045
3,045
5,537

11,627

The performance criteria for the vesting of share matching shares are disclosed on page 49 of the remuneration report.

Share options
The following options over ordinary shares have been granted under the 1995 and the 2001 Executive Share Option Schemes and
the Travis Perkins’ Sharesave Schemes 1992 and 2002 and remained outstanding at 31 December 2006:

Executive share options

Outstanding
at 1 January
2006
No.
39,802
13,520
310,671
136,601
328,085
466,605
72,033
9,044
574,301
264,156
-
-
-

Granted
during
year
No.
-
-
-
-
-
-
-
-
-
-
884,639
7,180
18,918

Lapsed
during
year
No.
-
-
(3,303)
-
(12,177)
(24,302)
(3,332)
-
(51,019)
-
(19,315)
-
-

Exercised
during
year
No.
(4,051)
(1,260)
(95,059)
(18,080)
(150,575)
(23,348)
-
-
(16,777)
(2,666)
(11,561)
-
-

Outstanding at
31 December
2006
No.
35,751
12,260
212,309
118,521
165,333
418,955
68,701
9,044
506,505
261,490
853,763
7,180
18,918

Exercise
price

Exercise
period

571.5p
602.5p
756.0p
1,071.5p
1,067.5p
1,311.0p
1,447.0p
1,382.0p
1,675.0p
1,435.0p
1,611.0P
1,777.0p
1,784.0p

Anytime until 26/4/08
Anytime until 7/9/10
Anytime until 3/7/11
Anytime until 9/4/12
Anytime until 10/4/13
Anytime until 15/3/14
From 30/4/07 until 29/10/14
From 7/9/07 until 6/9/14
From 1/4/08 until 31/3/15
From 30/9/08 until 29/9/15
From 19/4/09 until 18/4/16
From 14/9/09 until 13/9/16
From 23/11/09 until 22/11/16

2,214,818

910,737

(113,448)

(323,377)

2,688,730

The performance criteria for the exercise of executive share options granted in 2006 and 2007 under the 2001 Executive Share
Option Scheme are set out on page 49. For earlier grants, for the most senior executives, the number of options vesting at EPS
growth of RPI plus 9% and the EPS growth required to achieve 100% vesting are shown below:

Year

2001 - 2004
2005

Options vesting at RPI + 9%

EPS growth for 100% vesting

50%
25%

RPI + 15%
RPI + 21%

The options granted under the 1995 Executive Share Option Scheme prior to 1998 do not have performance conditions,
consistent with market practice at the time.

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Sharesave options

Outstanding
at 1 January 2006
No.
28,197
201,636
31,584
196,014
203,576
146,064
203,272
154,567
482,860
298,274
-
-

Granted
during year
No.

-
-
-
-
-
-
-
-
-
383,847
176,019

Lapsed
during year
No.
(435)
(4,634)
(2,131)
(10,319)
(12,530)
(12,197)
(23,029)
(19,929)
(77,181)
(40,883)
(4,152)
(1,769)

Exercised

Outstanding at
during year 31 December 2006
No.
-
13,663
-
177,386
16,586
132,900
178,411
134,537
402,937
257,154
379,695
174,250

No.
(27,762)
(183,339)
(29,453)
(8,309)
(174,460)
(967)
(1,832)
(101)
(2,742)
(237)
-
-

Exercise
price

Exercise
period

464.0p
609.5p
847.5p
847.5p
1,079.0p
1,079.0p
1,156.0p
1,156.0p
1,159.0p
1,159.0p
1,254.0p
1,254.0p

Anytime until 31/5/07

From 1/12/07 until 31/5/08
Anytime until 31/5/07
From 1/12/08 until 31/5/09
From 1/12/07 until 31/5/08
From 1/12/09 until 31/5/10
From 1/12/08 until 31/5/09
From 1/12/10 until 31/5/11
From 1/12/09 until 31/5/10
From 1/12/11 until 31/5/12

1,946,044

559,866

(209,189)

(429,202)

1,867,519

Directors’ share options (including sharesave options*) included within the previous tables

J. P. Carter

P. N. Hampden Smith

Outstanding
at 1 January 2006
No.
29,398
32,786
34,038
31,343
-
745
30,000
39,351
31,031
40,983
36,708
31,343
819
-
53,731
-
1,389

G. I. Cooper

Granted
during year
No.
-
-
-
-
34,217
-
-
-
-
-
-
-
-
34,217
-
57,262
-

Outstanding at
31 December 2006
No.
29,398
32,786
34,038
31,343
34,217
745
30,000
39,351
31,031
40,983
36,708
31,343
819
34,217
53,731
57,262
1,389

Exercise
price

1,071.5p
1,067.5p
1,311.0p
1,675.0p
1,611.0p
1,254.0p
571.5p
756.0p
1,071.5p
1,067.5p
1,311.0p
1,675.0p
1,156.0p
1,611.0p
1,675.0p
1,611.0p
1,159.0p

Exercise
period

Anytime until 9/4/12
Anytime until 10/4/13
Anytime until 15/3/14
From 1/4/08 until 31/3/15
From 19/4/09 until 18/4/16
From 1/12/09 until 31/5/10*
Anytime until 26/4/08
Anytime until 3/7/11
Anytime until 9/4/12
Anytime until 10/4/13
Anytime until 15/3/14
From 1/4/08 until 31/3/15
From 1/12/07 until 31/5/08*
From 19/4/09 until 18/4/16
From 1/4/08 until 31/3/15
From 19/4/09 until 18/4/16
From 1/12/10 until 31/5/11*

393,665

125,696

519,361

No directors’ share options were exercised or lapsed during the year.
At 31 December 2006, in addition to the directors, there were 186 employees (2005: 206) who had holdings of executive share
options and 4,291 employees (2005: 4,210) who were participating in the Sharesave Scheme.

S H A R E H O L D E R S ’ A P P R O V A L
The shareholders will be invited to approve the remuneration policy set out in this report at the Annual General Meeting, at which
the Chairman of the Committee will be available to answer any questions.

Approved by the board and signed on its behalf by:

A. H. Simon
Chairman, Remuneration Committee
5 March 2007

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N O M I N A T I O N S C O M M I T T E E R E P O R T

For the year ended 31 December 2006

The Nominations Committee was
established in July 2003, and its
principal role is to identify and
nominate for Board approval,
candidates to fill board vacancies as and
when they arise. It is required to
prepare a description of the role, and
capabilities required, for any
appointment, and to maintain contact
with major shareholders about
appointments to the Board. It also
reviews the induction process for newly
appointed directors, reviews annually
the time required of non- executive
directors, keeps the structure, size and
composition of the Board under review,
and considers succession planning for
both executive and non-executive
directors and for other senior executive
posts. During the year, the Committee
members were Tim Stevenson
(Chairman), together with Chris Bunker
and Michael Dearden both of whom are
independent non-executive directors.
During first half of the year, the
Committee reviewed the balance of
experience on the Board, following the
retirements of Ted Adams and Peter
Maydon, and the appointment of
Andrew Simon, as reported last year. It
recommended to the Board that a
further non-executive director should be
appointed. A description of the

experience and capabilities required for
this appointment was agreed by the
Committee in consultation with the
other directors. Recruitment
consultants, Russell Reynolds, assisted
the Committee in this process and a
number of candidates were interviewed
by the Committee and by other
directors. As a result, Stephen Carter was
appointed on 24 April 2006.

The Committee also considered the

forthcoming expiry of the terms of
appointment of Michael Dearden (in
November 2006) and Tim Stevenson (in
September 2007) and made
recommendations to the Board for the
continuation of their appointments, as
described in the remuneration report
on page 50. Neither Michael Dearden
nor Tim Stevenson took part in the
discussion about his own appointment.
The Chairman of the Nominations

Committee will be available at the
Annual General Meeting to answer
any questions about the work of
the Committee.

T. E. P. Stevenson
Chairman, Nominations Committee
5 March 2007

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D I R E C T O R S ’ R E P O R T

For the year ended 31 December 2006

The Directors present their annual
report and audited accounts for the year
ended 31 December 2006.

P R I N C I P A L A C T I V I T I E S
Travis Perkins is one of the largest
builders merchants and home
improvement retailers in the UK. The
principal activities of the Group are
the sale of timber, building materials,
plumbing and heating products, and
the hiring of tools to the building
trade and industry generally and,
(since the acquisition of Wickes), to the
general public, within the United
Kingdom. The Directors are not aware,
at the date of this report, of any likely
major changes in the Group’s activities
in the next year.

E N H A N C E D B U S I N E S S
R E V I E W
A review of the Group’s position,
developments and future prospects is
contained in the Chairman’s
statement on pages 10 and 11, the
Chief Executive’s review on pages 12
to 23, the Chief Operating Officer’s
review on pages 24 to 29 and the
Finance Director’s report on pages 30
to 37. A review of the Group’s
environmental performance is
contained in the Chief Executive’s
review on pages 16 to 20.

R E S U L T S A N D D I V I D E N D S
The Group results and dividends for the
year ended 31 December 2006 are set
out on page 64. If approved, the final
dividend will be paid on 17 May 2007 to
those shareholders on the register at the
close of business on 20 April 2007.

B A L A N C E S H E E T A N D P O S T
B A L A N C E S H E E T E V E N T S
The balance sheet on pages 65 and 66
shows the Group’s financial position. At
the year end, in both net assets and
cash terms, it is consistent with the
prior year. No significant events have
occurred since the balance sheet date.

P R I N C I P A L R I S K S A N D
U N C E R T A I N T I E S
A review of the Group’s principal risks
and uncertainties are contained in the
Finance Director’s report on pages 34 to
37 and in note 3 to the accounts.

D I R E C T O R S A N D T H E I R
I N T E R E S T S
The names of the Directors at 31
December 2006, together with their
biographical details, are set out on
pages 40 and 41. All of those Directors
held office throughout the year except
Andrew Simon, who was appointed on
20 February 2006 and Stephen Carter,
who was appointed on 24 April 2006. In
accordance with the Company’s Articles
of Association, John Carter, John
Coleman and Michael Dearden will
retire by rotation and, being eligible,
will offer themselves for re-election at
the forthcoming Annual General
Meeting. John Carter has a rolling 12
month notice period in his contract. As
non-executive directors, John Coleman
and Michael Dearden do not have
service contracts. In light of the
evaluation of their performance as a
result of the process described on page
43, Tim Stevenson, Chairman, confirms
on behalf of the Board that John
Coleman and Michael Dearden continue

to be effective in, and committed to,
their roles as non-executive directors.
In accordance with the Company’s
Articles of Association, Stephen Carter,
who has been appointed as a director
since the last Annual General Meeting,
will retire at the forthcoming Annual
General Meeting and will offer himself
for election. The Board believes that,
with his experience of a number of
different business sectors, he will
continue to make a valuable
contribution to the Board. Tim
Stevenson, Chairman, confirms on
behalf of the Board that Stephen Carter
continues to be effective in and
committed to his role as a non-
executive director. As a non-executive
director, Stephen Carter does not have a
service contract.

Directors and officers of the

Company are entitled to be indemnified
out of the assets of the Company in
respect of any liability incurred in
relation to the affairs of the Company,
or any associate company, to the extent
the law allows. In this regard, the
Company is required to disclose that
under article 147 of the Company’s
Articles of Association, the Directors
have the benefit of an indemnity, to the
extent permitted by the Companies Act
1985 (as amended), against liabilities
incurred by them in the execution of
their duties and exercise of their
powers. This indemnity is currently in
force. A copy of the Company’s Articles
of Association (which contains this
indemnity) is available for inspection at
the Company’s registered office during
normal business hours and will be
available for inspection at the

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D I R E

T O R S

’

R E P O R T

S U B S T A N T I A L S H A R E H O L D I N G S A T 1 9 J A N U A R Y 2 0 0 7

E. R. A. Travis
C. M. Travis
Legal and General Group PLC

Beneficial
Number

1,966,026
1,016,992
4,267,030

1.61
0.83
3.49

Non-beneficial
%
Number

6,402,252
5,793,257
-

5.24
4.74
-

company’s forthcoming Annual General
Meeting.

None of the Directors had an
interest in any contract to which the
Company or any of its subsidiaries was a
party during the year.

The disclosable interests of Directors

at 31 December 2006, including
holdings, if any, of wives and of
children aged under 18, were as
detailed in the directors’ remuneration
report on pages 51, 53 and 54.

S U B S T A N T I A L
S H A R E H O L D I N G S
Until 19 January 2007, the Company
maintained a register of substantial
shareholdings in accordance with the
provisions of s.211 of the Companies Act
1985. At 19 January 2007, the register
showed that the holdings exceeding the
3% disclosure threshold were as the
table above.

On 20 January 2007, the Companies

Act 1985 provisions in respect of
substantial shareholdings were repealed
and replaced by the Disclosure and
Transparency Rules of the FSA. As at 5
March 2007, the Company had received
notification that the holdings of voting
rights exceeding the 3% notification
threshold was as follows:

Baillie Gifford & Co which held
9,079,300 voting rights (representing
7.44% of the total voting rights attaching
to the issued ordinary share capital of
the Company).

E M P L O Y E E S A N D
C H A R I T A B L E D O N A T I O N S
Statements on these matters are
contained in the Chief Operating
Officer’s review and in the Chief
Executive’s review respectively on pages
28, 29 and 20.

Details of the number of

employees and related costs can be
found in note 7 to the financial
statements.

Applications for employment by

disabled persons are always fully
considered, bearing in mind the
aptitudes of the person concerned. In
the event of a member of staff
becoming disabled, every effort is
made to ensure that their employment
with the Group continues and that
appropriate training is arranged. It is
the policy of the Company that the
training, career development and
promotion of disabled persons should,
as far as possible, be identical to that
of other employees.

The Group’s policies and practices

have been established to keep
employees informed on matters
relevant to them as employees
through regular meetings and
newsletters. Employee representatives
are consulted regularly on a wide
range of matters affecting their
interests. The sharesave scheme has
been running successfully since its
inception and is open to all employees
after 3 months service.

C L O S E C O M P A N Y S T A T U S
The close company provisions of the
Income and Corporation Taxes Act 1988
do not apply to the Company.

P O L I T I C A L D O N A T I O N S
The Group did not give any money for
political purposes in the UK nor did it
make any donations to EU political

organisations or incur any EU political
expenditure during the year.

S U P P L I E R P A Y M E N T P O L I C Y
The Group’s policy is to pay all of its
suppliers in accordance with established
terms. Group trade creditors at 31
December 2006 represented 52.5 days
(31 December 2005: 50.5 days) of
average purchases of goods and
services. The Company trade creditors at
31 December 2006 represented 30 days
(2005: 30 days).

A U D I T O R
A resolution to re-appoint Deloitte &
Touche LLP as the Company’s auditor
and to authorise the Directors to fix the
auditor’s remuneration will be proposed
at the Annual General Meeting.

S T A T E M E N T O N D I S C L O S U R E
O F I N F O R M A T I O N
T O A U D I T O R
Each of the persons who is a director at
the date of approval of this report
confirms that:
• so far as the Director is aware, there
is no relevant audit information of
which the Company’s auditor is
unaware; and

• the Director has taken all reasonable
steps that he ought to have taken as
a director in order to make himself
aware of any relevant audit
information and to establish that the
Company’s auditor is aware of that
information.

This confirmation is given and should
be interpreted in accordance with the
provisions of s234ZA of the Companies
Act 1985.

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R E P O R T

letter from the Chairman to
shareholders dated 5 March 2007.

Resolution 11: Renewal of authority
to allot shares
Under the Companies Act 1985 the
Board is not able to allot shares except
with the general or specific authority of
shareholders. Resolution 11 renews the
Board’s authority to issue share capital
up to an aggregate nominal amount of
£1,288,449.20 (being the Company’s
authorised but unissued share capital).
This represents 10.55% of the issued
share capital of the Company as at 5
March 2007 (excluding treasury shares).
The Company holds no treasury shares
at 5 March 2007. The authority extends
until the earlier of the conclusion of
the next Annual General Meeting and
the date fifteen months from the
passing of this resolution. The Board
does not have any present intention of
exercising this authority other than for
the purposes of the Company’s
employee share option schemes.

Resolution 12: Limited authority
to allot shares for cash
The Companies Act 1985 provides that,
when equity securities are being issued
for cash, such securities must first be
offered pro-rata to existing shareholders
unless the Board is given power to allot
them without regard to that
requirement. Resolution 12 therefore
empowers the Board to allot for cash,
equity securities of a nominal amount
not exceeding £610,577.54 (representing
5 % of the issued share capital as at
5 March 2007) without first offering such
securities to existing shareholders. Under
the relevant institutional shareholder
voting guidelines, the annual
disapplication of pre-emption rights
should not exceed 5% of the issued
share capital and there is also a
cumulative limit of 7.5% of issued share
capital in any three year period.
Although the Board is seeking a
disapplication in respect of 5% the Board
will have due regard to the effect of the
placing in connection with the Wickes
acquisition on such 7.5% cumulative
limit until 18 December 2007, at which

time such placing will cease to be
relevant to this cumulative limit. The
authority extends until the earlier of the
conclusion of the next Annual General
Meeting and the date fifteen months
from the passing of this resolution. Any
issue of shares for cash will, however,
still be subject to the requirements of
the UK Listing Authority.

Resolution 13: Amendment of
Articles of Association
Resolution 13 proposes certain
amendments to the Company’s Articles
of Association. The revised Articles of
Association would enable the Company
to benefit from broader powers under
the Companies Act 2006 (the ‘2006 Act’)
in relation to the sending or supplying
of notices, documents or information by
the Company in electronic form
(including via a website). Although the
Company's Articles of Association
currently contain provisions relating to
electronic communications, the relevant
provisions of the 2006 Act, which came
into force on 20 January 2007, permit
the use of electronic communications to
a greater extent than was previously
possible. In particular, the 2006 Act
permits all communications between
shareholders and the Company to be
made in electronic form and allows
notices, documents or information
(including, for example, the Company’s
annual report and accounts) to be sent
or supplied via the Company’s website
unless a shareholder has specifically
requested to continue to receive notices,
documents and information in hard
copy form.

The Directors believe that it is in the

interests of the Company to take
advantage of these broader powers.
Subject to the passing of this resolution,
the Company intends to make use of
these provisions in the future in order to
facilitate communications between the
Company and its shareholders and to
reduce the cost currently incurred in
sending paper copies of documents to a
large number of shareholders. If this
resolution is passed the Company will
write to shareholders, in accordance
with the 2006 Act, inviting those

A N N U A L G E N E R A L M E E T I N G
S P E C I A L B U S I N E S S
The Annual General Meeting of the
Company will be held at Northampton
Rugby Football Club, Franklin’s
Gardens, Weedon Road, Northampton,
NN5 5BG on Tuesday 15 May 2007 at
11.45 a.m. The following items are to
be proposed at the forthcoming Annual
General Meeting as items of special
business, and the Board recommends
that shareholders vote in favour of all
resolutions put before the Annual
General Meeting.

Resolution 8: Directors’
remuneration report
In accordance with the Directors’
Remuneration Report Regulations 2002,
this resolution seeks shareholders’
approval of the report of the Directors’
Remuneration Report as set out on
pages 47 to 54.

Resolution 9: Amendment of share
matching scheme
This resolution seeks shareholders’
approval to amend the rules of the
Travis Perkins’ Share Matching Scheme
which is summarised on pages 49 and
50 and further details of which are
given in the letter from the Chairman to
shareholders dated 5 March 2007.

Resolution 10: Approval of
performance share plan
This resolution seeks shareholders’
approval to the proposed rules of the
Travis Perkins 2007 Performance Share
Plan which is summarised on page 49
and further details are given in the

70306_Travis_Pre 26/3/07 14:42 Page 59

D I R E

T O R S

’

R E P O R T

11,997 Deferred Shares, 12,916 Deferred
Matching Shares and 26,147 Investment
Matching Shares, these are described in
the Share Matching Awards section of
the Remuneration Report on pages 49
and 50), which represent 3.70% of the
Company’s issued ordinary share capital
(excluding treasury shares). If the
authority to purchase the Company’s
ordinary shares were exercised in full,
these options would represent 4.11% of
the Company’s issued ordinary share
capital (excluding treasury shares). As at
5 March 2007, the Company did not
hold any treasury shares in the Company
and no warrants over ordinary shares in
the capital of the Company existed.

By order of the Board
A. S. Pike
Secretary
5 March 2007

shareholders who wish to continue to
receive notices, documents and
information in hard copy form to notify
the Company accordingly. As this will
only take place after the Annual General
Meeting, shareholders need take no
action at present.

In addition, the references to sections
of the Companies Act 1985 contained in
the existing Articles of Association
dealing with the disclosure of Directors’
interests and the Company’s power to
investigate holdings of its shares are to
be updated to reflect the repeal and/or
re-enactment of those sections by the
2006 Act.

A copy of the Company’s existing
Articles of Association, a copy marked to
show the differences between the
existing Articles of Association and the
Articles of Association as proposed to be
amended pursuant to resolution 13 and
a copy of the Articles of Association
incorporating such amendments will be
available for inspection from the date of
this notice up to the time of the Annual
General Meeting at the registered office
of the Company during usual business
hours and at the place of the Annual
General Meeting for at least 15 minutes
before and during the meeting.

Resolution 14: Authority to
purchase own shares
The authority for the Company to
purchase its own shares of 10 pence
each granted at last year’s Annual
General Meeting will expire on the
date of the forthcoming Annual
General Meeting. The Directors wish to
renew this authority and a special

resolution, which is set out in full in
the Notice of Annual General Meeting
on page 104, will be proposed as
special business at the forthcoming
Annual General Meeting to give the
Company the authority to purchase its
own ordinary shares in the market as
permitted by the Companies Act 1985.
The authority limits the number of
shares that could be purchased to a
maximum of 12,211,550 (representing
10% of the issued ordinary share
capital of the Company as at 5 March
2007) and sets minimum and
maximum prices. This authority will
expire no later than 15 months after
the date of the forthcoming Annual
General Meeting.

The Directors consider that it is in
the best interests of the Company to
have available this authorisation, in
case of circumstances when it would be
appropriate to use it. They would only
use it after consideration of the effect
on earnings per share and the longer
term benefit for the Company and
shareholders generally. The fact that
such authorisation is being sought
should not be taken to imply that
shares would be purchased at any
particular price or indeed at all.
Any ordinary shares purchased pursuant
to this authority may either be held as
treasury shares or cancelled by the
Company, depending on which course
of action is considered by the Directors
to be in the best interests of
shareholders at the time.

As at 5 March 2007, there were
options over 4,515,230 ordinary shares
in the capital of the Company, (including

70306_Travis_Pre 26/3/07 14:42 Page 60

S T A T E M E N T O F D I R E C T O R S ’

R E S P O N S I B I L I T I E S

For the year ended 31 December 2006

The Directors are responsible for
preparing the Annual Report, Directors’
Remuneration Report and the financial
statements in accordance with
applicable law and regulations.

applicable International Financial
Reporting Standards. Directors are also
required to:
• properly select and apply accounting

policies;

Company law requires the Directors

• present information, including

to prepare financial statements for
each financial year. The Directors are
required by the IAS Regulation to
prepare the Group financial statements
under International Financial
Reporting Standards (‘IFRS’) as adopted
by the European Union and have also
elected to prepare the Parent Company
financial statements in accordance
with IFRS as adopted by the European
Union. The financial statements are
also required by law to be properly
prepared in accordance with the
Companies Act 1985 and Article 4 of
the IAS Regulations.

International Accounting Standard 1

requires that financial statements
present fairly for each financial year
the Company’s financial position,
financial performance and cash flows.
This requires the faithful
representation of the effects of
transactions, other events and
conditions in accordance with the
definitions and recognition criteria for
assets, liabilities, income and expenses
set out in the International Accounting
Standards Board’s ‘Framework for the
preparation and Presentation of
Financial Statements’. In virtually all
circumstances, a fair presentation will
be achieved by compliance with all

accounting policies, in a manner
that provides relevant, reliable,
comparable and understandable
information; and

• provide additional disclosures when

compliance with the specific
requirements in IFRS is insufficient to
enable users to understand the
impact of particular transactions,
other events and conditions in the
entity’s financial position and
financial performance.

The Directors are responsible for
keeping proper accounting records that
disclose with reasonable accuracy at
any time the financial position of the
Company, for safeguarding the assets,
for taking reasonable steps for the
prevention and detection of fraud and
other irregularities and for the
preparation of a directors’ report and
directors’ remuneration report and
enhanced business review that comply
with the requirements of the
Companies Act 1985.

The Directors are responsible for the

maintenance and integrity of the
Company website. Legislation in the
United Kingdom governing the
preparation and dissemination of
financial statements may differ from
legislation in other jurisdictions.

70306_Travis_Pre 26/3/07 14:42 Page 61

T A T

E M E N T

O F

D I R E

T O R S

’

R E

S P O N S

I B I

Rob Castle,
Assistant Manager,
Travis Perkins,
Wreningham

Russ Pittingale,
Manager, CCF
East London

Sylvia Spray,
Cleaner, Wickes,
Halesowen

Ian Kirkby, Driver and Andy McDonald, Fork-lift Driver (now plumbing counter sales assistant), Travis Perkins, Ulverston

70306_Travis_Pre 26/3/07 14:42 Page 62

I N D E P E N D E N T A U D I T O R S ’ R E P O R T T O T H E

M E M B E R S O F T R A V I S P E R K I N S P L C

For the year ended 31 December 2006

We have audited the Group and Parent
Company financial statements (the
‘financial statements’) of Travis Perkins
plc for the year ended 31 December
2006 which comprise the Group and
Individual Company Income Statements,
the Group and Individual Company
Balance Sheets, the Group and
Individual Company Cash Flow
Statements, the Group and Parent
Company Statement of Recognised
Income and Expense and the related
notes 1 to 37. These financial
statements have been prepared under
the accounting policies set out therein.
We have also audited the information in
the Directors’ Remuneration Report that
is described as having been audited.
This report is made solely to the
Company’s members, as a body, in
accordance with section 235 of the
Companies Act 1985. Our audit work
has been undertaken so that we might
state to the Company’s members those
matters we are required to state to
them in an auditors’ report and for no
other purpose. To the fullest extent
permitted by law, we do not accept or
assume responsibility to anyone other
than the Company and the Company’s
members as a body, for our audit work,
for this report, or for the opinions we
have formed.

R E S P E C T I V E
R E S P O N S I B I L I T I E S O F
D I R E C T O R S A N D
A U D I T O R S
The Directors’ responsibilities for
preparing the Annual Report, the
Directors’ Remuneration Report and the

financial statements in accordance with
applicable law and International
Financial Reporting Standards (IFRSs) as
adopted by the European Union are set
out in the Statement of Directors’
Responsibilities.

Our responsibility is to audit the
financial statements and the part of the
Directors’ Remuneration Report to be
audited in accordance with relevant
legal and regulatory requirements and
International Standards on Auditing (UK
and Ireland).

We report to you our opinion as to
whether the financial statements give a
true and fair view and whether the
financial statements and the part of the
Directors’ Remuneration Report to be
audited have been properly prepared in
accordance with the Companies Act
1985 and, as regards the Group
financial statements, Article 4 of the IAS
Regulation. We also report to you
whether in our opinion the information
given in the Directors’ Report is
consistent with the financial statements.
The information given in the Directors’
Report includes that specific
information presented in the
Chairman’s statement, the Chief
Executive’s review, the Chief Operating
Officer’s review and the Finance
Directors’ report that is cross referred
from the Business Review section of the
Directors’ Report.

In addition we report to you if, in
our opinion, the Company has not kept
proper accounting records, if we have
not received all the information and
explanations we require for our audit,
or if information specified by law

regarding directors’ remuneration and
other transactions is not disclosed.

We review whether the Corporate

Governance Statement reflects the
Company’s compliance with the nine
provisions of the 2003 Combined Code
specified for our review by the Listing
Rules of the Financial Services Authority,
and we report if it does not. We are not
required to consider whether the
Board’s statements on internal control
cover all risks and controls, or form an
opinion on the effectiveness of the
Group’s corporate governance
procedures or its risk and control
procedures.

We read the other information
contained in the Annual Report as
described in the contents section and
consider whether it is consistent with
the audited financial statements. We
consider the implications for our report
if we become aware of any apparent
misstatements or material
inconsistencies with the financial
statements. Our responsibilities do not
extend to any further information
outside the Annual Report.

B A S I S O F A U D I T O P I N I O N
We conducted our audit in accordance
with International Standards on
Auditing (UK and Ireland) issued by the
Auditing Practices Board. An audit
includes examination, on a test basis, of
evidence relevant to the amounts and
disclosures in the financial statements
and the part of the Directors’
Remuneration Report to be audited. It
also includes an assessment of the
significant estimates and judgments

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I N D E P E N D E N T

A U D I

T O R S

’

R E P O R T

statements, Article 4 of the IAS
Regulation; and

• the information given in the

Directors’ Report is consistent with
the financial statements.

As explained in Note 1 to the Group
financial statements, the Group in
addition to complying with its legal
obligations to comply with IFRSs as
adopted by the European Union, has
also complied with the IFRSs as issued
by the International Accounting
Standards Board.

In our opinion the group financial
statements give a true and fair view, in
accordance with IFRSs, of the state of
the Group’s affairs as at 31 December
2006 and of its profit for the year
then ended.

Deloitte & Touche LLP
Chartered Accountants and
Registered Auditors
Birmingham, United Kingdom

5 March 2007

made by the Directors in the
preparation of the financial statements,
and of whether the accounting policies
are appropriate to the Group’s and
Company’s circumstances, consistently
applied and adequately disclosed.
We planned and performed our
audit so as to obtain all the information
and explanations which we considered
necessary in order to provide us with
sufficient evidence to give reasonable
assurance that the financial statements
and the part of the Directors’
Remuneration Report to be audited are
free from material misstatement,
whether caused by fraud or other
irregularity or error. In forming our
opinion we also evaluated the overall
adequacy of the presentation of
information in the financial statements
and the part of the Directors’
Remuneration Report to be audited.

O P I N I O N
In our opinion:
• the financial statements give a true
and fair view, in accordance with
IFRSs as adopted by the European
Union, of the state of the Group’s
and the Parent Company’s affairs as
at 31 December 2006 and of the
Group’s and the individual
Company’s profit for the year then
ended;

• the financial statements and the part

of the Directors’ Remuneration
Report to be audited have been
properly prepared in accordance
with the Companies Act 1985 and, as
regards the group financial

70306 ACCOUNTS 26/3/07 12:07 Page 64

I N A N C

I A L

T A T

E M E N T

I N C O M E

S T A T E M E N T S

For the year ended 31 December 2006

The Group
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

Non-
Wickes
related

Notes

£m

2006

Identified
impact of
Wickes
(Note below)
£m

2005

Non-
Wickes
related

£m

Identified
impact of
Wickes
(Note below)
£m

Total

£m

Total

£m

Revenue

2,000.3

848.5

2,848.8

1,881.0

759.8

2,640.8

The Company
––––––––––––––––––
2005
2006

Total

£m

72.5

Total

£m

65.6

56.8
–

56.8
0.3
(54.4)

2.7
18.2

20.9

Operating profit (before

exceptional property profit)

Exceptional property profit

Operating profit
Finance income
Finance costs

Profit before tax
Tax

5
10
10

207.4
11.6

219.0
0.8
–

219.8
(63.5)

70.6
–

70.6
1.1
(59.6)

12.1
(1.4)

278.0
11.6

289.6
1.9
(59.6)

231.9
(64.9)

208.3
–

208.3
0.4
(10.8)

197.9
(61.9)

Profit for the year

156.3

10.7

167.0

136.0

59.7
–

59.7
–
(50.9)

8.8
(4.0)

4.8

Earnings per ordinary share 12
Basic
Diluted

Total dividend per
ordinary share

137.9p
136.8p

37.4p

268.0

59.9

59.9
1.9
(55.6)

6.2
17.6

23.8

––

268.0
0.4
(61.7)

206.7
(65.9)

140.8

116.8p
115.6p

34.0p

All results relate to continuing operations.
Note: The column headed “Identified impact of Wickes” includes the post-acquisition result of Wickes, together with the synergies that
have arisen from specific integration projects, and the additional finance related costs incurred by the Group as a result of the
acquisition, (note 5c).

S T A T E M E N T S O F R E C O G N I S E D I N C O M E A N D E X P E N S E

For the year ended 31 December 2006

Actuarial gains and losses on defined benefit pension scheme
Gains/(losses) on cash flow hedges
Tax on items taken to equity

Net income recognised directly in equity
Transferred to income statement on cash flow hedges
Tax on items transferred from equity
Profit for the year

Total recognised income and expense for the year

The Group
––––––––––––––––––––––
2005
2006
£m
£m

The Company
––––––––––––––––––––––
2005
2006
£m
£m

41.4
7.9
(13.7)

35.6
0.6
0.1
167.0

203.3

2.4
(5.0)
10.1

7.5
0.5
(0.1)
140.8

148.7

–
7.9
(1.4)

6.5
0.6
0.1
23.8

31.0

–
(5.0)
1.4

(3.6)
0.5
(0.1)
20.9

17.7

70306 ACCOUNTS 26/3/07 12:07 Page 65

B A L A N C E

S H E E T S

As at 31 December 2006

ASSETS
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Derivative financial instruments
Investment property
Available-for-sale investments
Investment in subsidiaries
Deferred tax asset

Total non-current assets

Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents

Total current assets

Total assets

I N A N C

I A L

T A T

E M E N T

The Group
––––––––––––––––––––––
2005
2006
£m
£m

The Company
––––––––––––––––––––––
2005
2006
£m
£m

Notes

16
14
15
25
17
18
18
27

19
25
20

426.4
1,282.0
162.5
3.8
3.9
2.0
–
24.2

445.2
1,273.8
162.5
1.3
4.1
–
–
42.9

0.3
–
–
3.8
–
–
1,614.5
1.7

0.3
–
–
1.3
–
–
1,607.8
2.4

1,904.8

1,929.8

1,620.3

1,611.8

294.4
363.8
0.5
56.3

715.0

263.2
322.4
–
56.1

641.7

–
125.2
0.5
13.0

138.7

–
114.1
–
11.0

125.1

2,619.8

2,571.5

1,759.0

1,736.9

70306 ACCOUNTS 26/3/07 12:07 Page 66

I N A N C

I A L

T A T

E M E N T

B A L A N C E

S H E E T S C O N T I N U E D

As at 31 December 2006

EQUITY AND LIABILITIES
Capital and reserves
Issued capital
Share premium account
Revaluation reserve
Hedging reserve
Own shares
Accumulated profits

Total equity

Non-current liabilities
Interest bearing loans and borrowings
Derivative financial instruments
Retirement benefit obligation
Long-term provisions
Amounts due to subsidiaries
Deferred tax liabilities

Total non-current liabilities

Current liabilities
Interest bearing loans and borrowings
Unsecured loan notes
Derivative financial instruments
Trade and other payables
Tax liabilities
Short-term provisions

Total current liabilities

Total liabilities

The Group
––––––––––––––––––––––
2005
2006
£m
£m

The Company
––––––––––––––––––––––
2005
2006
£m
£m

Notes

21
23
23
23
23
23

24
25
8
26

24
24
25
28

12.2
172.2
25.3
4.0
(7.9)
727.3

933.1

763.6
30.9
80.8
13.1
–
71.1

959.5

89.2
7.9
0.2
565.2
34.2
30.5

727.2

12.1
165.6
26.3
(3.2)
(8.1)
565.3

758.0

1,027.4
–
142.8
13.2
–
72.6

12.2
171.1
–
4.0
(7.9)
124.9

304.3

732.8
30.9
–
–
549.4
–

12.1
164.5
–
(3.2)
(8.1)
142.3

307.6

994.0
–
–
–
267.1
–

1,256.0

1,313.1

1,261.1

2.9
8.2
5.1
482.3
33.3
25.7

557.5

110.0
7.9
0.2
23.5
–
–

141.6

129.8
8.2
5.1
25.1
–
–

168.2

1,686.7

1,813.5

1,454.7

1,429.3

Total equity and liabilities

2,619.8

2,571.5

1,759.0

1,736.9

The financial statements were approved by the Board of Directors on 5 March 2007 and signed on its behalf by:

G. I. Cooper

P. N. Hampden Smith } Directors

70306 ACCOUNTS 26/3/07 12:07 Page 67

C A S H F L O W S T A T E M E N T S

For the year ended 31 December 2006

Operating profit
Adjustments for:
Depreciation and impairment of property, plant and equipment
Other non cash movements
(Gain)/loss on disposal of property, plant and equipment

Operating cash flows before movements in working capital
(Increase)/decrease in inventories
(Increase)/decrease in receivables
Increase in payables
Cash payments to the pension scheme in excess of

the charge to profits

Cash generated from operations
Interest paid
Income taxes paid

Net cash from operating activities

Cash flows from investing activities
Interest received
Acquisition of shares in unit trust
Proceeds on disposal of property, plant and equipment
Purchases of property, plant and equipment
Acquisition of businesses net of cash acquired (note 29)

Net cash used in investing activities

Financing activities
Proceeds from the issue of share capital
Purchase of own shares
Payment of finance lease liabilities
Repayment of unsecured loan notes
(Decrease)/increase in bank loans
Dividends paid

Net cash from financing activities

Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

I N A N C

I A L

T A T

E M E N T

The Group
––––––––––––––––––––––
2005
2006
£m
£m

The Company
––––––––––––––––––––––
2005
2006
£m
£m

289.6

268.0

59.9

53.7
3.8
(17.1)

330.0
(29.7)
(38.9)
82.9

(21.0)

323.3
(59.8)
(57.3)

206.2

0.8
(2.0)
38.9
(50.4)
(10.9)

(23.6)

6.9
–
(2.8)
(0.3)
(143.7)
(42.5)

(182.4)

0.2
56.1

56.3

54.5
2.4
0.7

325.6
12.4
(1.5)
2.8

(28.5)

310.8
(38.6)
(47.0)

225.2

0.4
–
1.4
(71.6)
(1,045.5)

(1,115.3)

6.4
(8.1)
(2.3)
(0.8)
872.7
(38.6)

829.3

(60.8)
116.9

56.1

–
0.6
–

60.5
–
6.4
284.3

–

351.2
(57.3)
–

293.9

0.8
–
0.1
(0.1)
(6.7)

(5.9)

6.9
–
–
(0.3)
(250.1)
(42.5)

(286.0)

2.0
11.0

13.0

56.8

–
0.4
–

57.2
–
3.7
27.9

–

88.8
(33.6)
–

55.2

0.3
–
–
(0.2)
(1,042.5)

(1,042.4)

6.4
(8.1)
–
(0.8)
941.3
(38.6)

900.2

(87.0)
98.0

11.0

70306 ACCOUNTS 26/3/07 12:07 Page 68

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S

For the year ended 31 December 2006

1 . G E N E R A L I N F O R M A T I O N

Overview

Travis Perkins plc is a company incorporated in the United Kingdom under the Companies Act 1985. The address of the registered office

is given on page 108. The nature of the Group’s operations and its principal activities are set out in the Chief Executive’s review, the Chief

Operating Officer’s review and the Finance Director’s report on pages 12 to 37.

These financial statements are presented in pounds sterling, the currency of the primary economic environment in which the

Group operates.

Basis of accounting

The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The financial

statements have also been prepared in accordance with IFRS adopted by the European Union and therefore the Group financial

statements comply with Article 4 of the EU IAS Regulations.

Basis of preparation

The financial statements have been prepared on the historic cost basis, except that derivative financial instruments are stated at their

fair value. The consolidated financial statements include the accounts of the Company and all entities controlled by the Company (its

subsidiaries) (together referred to as “the Group”) from the date control commences until the date that control ceases. Control is achieved

where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its

activities. As such, the results of subsidiaries acquired during the year are included in the consolidated income statement from the

effective date of acquisition.

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not yet been applied

in these financial statements were in issue, but not yet effective:

• IFRS 7 – Financial Instruments: Disclosures; and the related amendment to IAS 1 on capital disclosures

• IFRS 8 – Operating segments

• IFRIC 7 – Applying the restatement approach under IAS 29 reporting in hyper-inflationary economies

• IFRIC 8 – Scope of IFRS 2

• IFRIC 9 – Reassessment of embedded derivatives

• IFRIC 10 – Interim reporting and impairment

• IFRIC 11 – IFRS 2 – group and treasury share transactions

• IFRIC 12 – Service concession arrangements

The Directors anticipate that adoption of these Standards and Interpretations in future periods will have no material impact on the

financial statements of the Group, except for the additional disclosures required by IFRS 7 in respect of financial instruments, when the

relevant Standard comes into effect for periods commencing on or after 1 January 2007.

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E M E N T

2 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S

The principal accounting policies adopted in preparing the financial statements are set out below.

Revenue recognition

Revenue is recognised when goods or services are received by the customer and the risks and rewards of ownership have passed to them.

Revenue is measured at the fair value of consideration received or receivable and represents amounts receivable for goods and services

provided in the normal course of business, net of discounts and value added tax.

Business combinations and goodwill

All business combinations are accounted for using the purchase method. The cost of an acquisition represents the cash value of the

consideration and/or the fair value of the shares issued on the date the offer became unconditional, plus expenses. The acquiree’s

identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair

value at the acquisition date. It is this fair value, which is incorporated into the consolidated accounts.

Goodwill arising on acquisition represents the excess of the cost of acquisition over the share of the aggregate fair value of identifiable

net assets (including intangible assets) of a business or a subsidiary at the date of acquisition. All material intangible fixed assets

obtained on acquisition have been recognised separately in the financial statements. Goodwill is initially recognised as an asset and

allocated to cash generating units, then at least annually, is reviewed for impairment. Any impairment is recognised immediately in the

income statement and is not subsequently reversed, as such, goodwill is stated in the balance sheet at cost less any provisions for

impairment in value.

Goodwill arising on acquisitions before the date of transition to IFRS (1 January 2004) has been retained at the previous UK GAAP

amounts subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been

reinstated and is not included in determining any subsequent profit or loss on disposal.

Intangible assets

Intangible assets identified as part of the assets of an acquired business are capitalised separately from goodwill if the fair value can

be measured reliably on initial recognition. Intangible assets are amortised to the income statement on a straight-line basis over a

maximum of 20 years except where they are considered to have an indefinite useful life. In the latter instance they are reviewed

annually for impairment.

Investment properties

Investment properties, which are held to earn rental income or for capital appreciation or for both, are stated at deemed cost less

depreciation. Properties are depreciated to their estimated residual value on a straight-line basis over their estimated useful lives, up to

a maximum of 50 years.

Rental income from investment property is recognised in the income statement on a straight-line basis over the term of the lease.

Non current assets held for sale

Non current assets held for sale are measured at the lower of carrying amount and fair value less costs to sell.

Property, plant and equipment

Property, plant and equipment is stated at cost or deemed cost less accumulated depreciation and any impairment in value. Assets are

depreciated to their estimated residual value on a straight-line basis over their estimated useful lives as follows:

• Buildings – 50 years or if lower, the estimated useful life of the building or the life of the lease

• Plant and equipment – 4 to 10 years

• Land is not depreciated

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets, or where shorter,

the term of the relevant lease.

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds net of

expenses and the carrying amount of the asset in the balance sheet and is recognised in the income statement. Where appropriate, the

attributable revaluation reserve remaining in respect of properties revalued prior to the adoption of IFRS is transferred directly to

accumulated profits.

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2 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S C O N T I N U E D

Leases

Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are

capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease

payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant

rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Capitalised leased assets

are depreciated over the shorter of the estimated useful life of the asset or the lease term. Leases where the lessor retains substantially

all the risks and benefits of ownership of the asset are classified as operating leases.

Operating lease rental payments are recognised as an expense in the income statement on a straight-line basis over the lease term.

Reverse lease premia and other incentives receivable for entering into a lease agreement are recognised in the income statement over

the life of the lease.

Impairment of tangible and intangible assets excluding goodwill

The carrying amounts of the Group’s tangible and intangible assets other than investment properties, deferred tax assets and inventories

are reviewed at each balance sheet date to determine whether there is any indication of impairment. If such an indication exists, the

asset’s recoverable amount is estimated and compared to its carrying value. Where the asset does not generate cash flows that are

independent from other assets, the Group estimates the recoverable amount of the cash-generating unit (“CGU”) to which the asset

belongs. Where the carrying value exceeds the recoverable amount a provision for the impairment loss is established with a charge being

made to the income statement.

For intangible assets that have an indefinite useful life the recoverable amount is estimated at each annual balance sheet date.

Impairment losses recognised in respect of CGU are allocated first to reduce the carrying amount of any goodwill allocated to the CGU

and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis.

Inventories

Inventories, which consist of goods for resale, are stated at the lower of cost and net realisable value. Cost comprises direct materials

and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present

location and condition. Net realisable value is the estimated selling price less the estimated costs of disposal.

Financial instruments

Financial assets and liabilities are recognised in the balance sheet when the Group becomes a party to the contractual provisions of

the instrument.

Trade receivables

Trade receivables are measured at amortised cost which is carrying amount less provision for irrecoverable amounts. Allowances for the

estimated irrecoverable amounts are made in the income statement when the receivable is considered to be uncollectable.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less.

Bank and other borrowings

Interest bearing bank loans and overdrafts and other loans are recognised in the balance sheet at amortised cost. Costs associated with

arranging a bank facility are recognised in the income statement over the life of the facility. All other borrowing costs are recognised in

the income statement in the period in which they are incurred.

Trade payables

Trade payables are measured at amortised cost.

Foreign currencies

Transactions denominated in foreign currencies are recorded at the rates ruling on the date of the transaction.

At the consolidated balance sheet date, unhedged monetary assets and liabilities denominated in foreign currencies are translated at

the rate of exchange ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement.

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E M E N T

2 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S C O N T I N U E D

Derivative financial instruments and hedge accounting

The Group uses derivative financial instruments to hedge its exposure to interest rate and foreign exchange risks arising from financing

activities. The Group does not enter into speculative financial instruments. In accordance with its treasury policy, the Group does not

hold or issue derivative financial instruments for trading purposes.

Derivative financial instruments are stated at fair value. The fair value of derivative financial instruments is the estimated amount the

Group would receive or pay to terminate the derivative at the balance sheet date, taking into account current interest and exchange

rates and the current creditworthiness of the counterparties.

Changes in the fair value of derivative financial instruments, that are designated and effective as hedges of the future variability of cash

flows, are recognised directly in equity and the ineffective portion is recognised immediately in the income statement.

For an effective hedge of an exposure to changes in the fair value of a hedged item, the hedged item is adjusted for changes in fair

value attributable to the risk being hedged with the corresponding entry in the income statement.

For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken to the income

statement as they arise.

Derivatives embedded in commercial contracts are treated as separate derivatives when their risks and characteristics are not closely

related to those of the underlying contracts, with unrealised gains or losses being reported in the income statement.

Taxation

The tax expense represents the sum of the tax currently payable and the deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income

statement because it excludes items of income and expense that are taxable or deductible in other years and it further excludes items

which are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or

substantially enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in

the financial statements and the corresponding tax bases used in the computation of taxable profit. This is accounted for using the

balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax

assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary

differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the

initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit

nor the accounting profit.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised.

Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in

which case the deferred tax is also dealt with in equity.

Pensions and other post-employment benefits

For defined benefit schemes, operating profit is charged with the cost of providing pension benefits earned by employees in the period.

The expected return on pension scheme assets less the interest on pension scheme liabilities is shown as a finance cost within the

income statement.

Actuarial gains and losses arising in the period from the difference between actual and expected returns on pension scheme assets,

experience gains and losses on pension scheme liabilities and the effects of changes in demographics and financial assumptions are

included in the statement of recognised income and expense.

Recoverable pension scheme surpluses and pension scheme deficits and the associated deferred tax balances are recognised in full in

the period in which they occur and are included in the balance sheet.

Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred.

Employee share incentive plans

The Group issues equity-settled share-based payments to certain employees (long term incentives, executive share options and Save As

You Earn), which do not include market related conditions. These payments are measured at fair value at the date of grant by the use

of the Black Scholes option-pricing model taking into account the terms and conditions upon which the options were granted. The cost

of equity-settled awards is recognised on a straight-line basis over the vesting period, based on the Group’s estimate of the number of

shares that will eventually vest. No cost is recognised for awards that do not ultimately vest.

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2 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S C O N T I N U E D

Provisions

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event,

and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the Directors’

best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where

the effect is material.

Equity instruments and own shares

The Group has applied the requirements of IFRS 2 – Share Based Payments. In accordance with transitional provisions, IFRS 2 has been

applied to all grants of equity instruments after 7 November 2002 that were unvested at 1 January 2005.

Equity instruments represent the ordinary share capital of the Group and are recorded at the proceeds received, net of directly

attributable incremental issue costs.

Consideration paid by the Group for its own shares is deducted from total shareholder equity. Where such shares vest to employees

under the terms of the Group’s share options or the Group’s share saving schemes or are sold, any consideration received is included in

shareholders’ equity.

Dividends

Dividends proposed by the Board of Directors and unpaid at the period end are not recognised in the financial statements until they

have been approved by shareholders at the Annual General Meeting.

3 . A C C O U N T I N G E S T I M A T E S A N D J U D G E M E N T S

The Audit Committee has been party to discussions about the development, selection and disclosure of the Group’s critical accounting

policies and estimates and about their actual application. The key estimates made by management are detailed below:

Goodwill

In testing for impairment, management have made certain assumptions concerning the future development of the business that are

consistent with its annual budget and three-year plan. Should these assumptions regarding the growth in profitability be unfounded

then it is possible that goodwill included in the balance sheet could be impaired. Management are confident that this is not the case.

Pension liabilities

The Group has chosen to adopt assumptions that are more conservative than average, particularly in respect of longevity. If the future

return on equities is lower than anticipated, or if the difference between actual inflation and the actual increase in pensionable salaries

is greater than that assumed, or if the average life expectancy of pensioners increases, then the pension deficit would be greater than

currently stated in the balance sheet.

Property leases

The Group is party to a number of leases on properties that are no longer required for trading. Whilst every effort is made to profitably

sub-let these properties, it is not always possible. Where a lease is onerous to the Group, a provision is established for the difference

between amounts contractually payable to the landlord and amounts contractually receivable from the tenant (if any) for the period up

until the point it is judged that the lease will no longer be onerous.

Management believe that their estimates, which are based upon the current state of the UK property market are appropriate. However,

it is possible that it may take longer to dispose of leases than they anticipate. As a result the provisions may be understated, but in the

opinion of the Directors this is unlikely to be material.

Insurance provisions

The Group has been substantially self-insured since 2001. The nature of insurance claims is that they frequently take many years to fully

crystalise, therefore the Directors have to estimate the value of provisions to hold in the balance sheet in respect of historic claims.

Under the guidance of the Group’s insurance advisors, the value of incurred claims is estimated using the Generalised Cape Cod Method.

The provision is determined by deducting the value of claims settled to date from the estimated level of claims incurred. Whilst the

Generalised Cape Cod Method is an insurance industry standard methodology, it relies on historic trends to determine the level of

expected claims. To the extent that the estimates are inaccurate the Group may be underprovided, but in the opinion of the Directors

any under-provision is unlikely to be material.

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4 . R E V E N U E

Sale of goods

Management charges

Dividends from subsidiaries

Other operating income

Finance income

5 . P R O F I T

(a) Operating profit

Revenue

Cost of sales

Gross profit

Selling and distribution costs

Administrative expenses

Other operating income*

Operating profit

Exceptional property profit

Adjusted operating profit

The Group
–––––––––––––––––––––
2005
2006

£m

2,848.8

2,640.8

–

2,848.8

2,640.8

18.7

1.9

1.4

0.4

2,869.4

2,642.6

The Group
–––––––––––––––––––––
2005
2006

£m

2,848.8

(1,855.0)

2,640.8

(1,723.1)

993.8

(596.3)

(126.6)

18.7

289.6

(11.6)

278.0

917.7

(540.7)

(110.4)

1.4

268.0

–

268.0

The Company
–––––––––––––––––––––
2005
2006

£m

–

7.5

65.0

72.5

–

1.9

74.4

£m

–

6.8

58.8

65.6

–

0.3

65.9

The Company
–––––––––––––––––––––
2005
2006

£m

72.5

–

72.5

–

(12.6)

–

59.9

–

59.9

£m

65.6

–

65.6

–

(8.8)

–

56.8

–

56.8

*Other operating income for the Group includes exceptional property profits of £11.6 million (2005: £nil).

Operating profit has been arrived at after charging/(crediting):

The Group
–––––––––––––––––––––
2005
2006

The Company
–––––––––––––––––––––
2005
2006

Provisions against inventories

Cost of inventories recognised as an expense

Pension costs in administration expenses

Pension costs in selling and distribution costs

Depreciation of property, plant and equipment

Impairment of property, plant and equipment

Staff costs (see note 7)

(Gain)/loss on disposal of property, plant and equipment

Exceptional property profit

Rental income

Hire of vehicles, plant and machinery

Other leasing charges – property

Auditor’s remuneration for audit services

£m

2.2

£m

1.8

1,852.8

1,721.3

2.7

12.5

53.7

–

326.2

(5.5)

(11.6)

(3.4)

13.9

100.4

0.3

2.0

12.1

53.9

0.6

302.9

0.7

–

(2.5)

11.3

86.3

0.3

£m

–

0.5

–

7.4

–

£m

–

0.4

–

4.1

–

Exceptional property profit, which is exceptional due to the magnitude of the deal in comparison to other deals undertaken by

the Group, arises from the sale of long leasehold interests in 35 properties to an investment vehicle, in which the Group retains a

15% interest. The sale proceeds (net of costs) were £31.5 million and the carrying value of the properties was £15.2 million. The profit

of £11.6 million reflects the profit deferment in respect of land of £4.7 million in accordance with the requirements of IAS 17.

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5 . P R O F I T C O N T I N U E D

During the year the Group incurred the following costs for services provided by the Company’s auditor:

Fees payable to the Company’s auditor for the audit of the Company’s annual accounts

Fees paid the Company’s auditor for other services:

The audit of the Company’s subsidiaries pursuant to legislation

Other services pursuant to legislation

Other services relating to taxation – compliance

– advisory

Corporate finance transactions
Other services

The Group
––––––––––––––––––
2005
2006
£000
£000

225

103

18
2

477

321

100

42
4

625

Audit fees include £9,000 (2005: £9,000) which was paid to the auditor by the Travis Perkins Pension and Dependents Benefit Scheme.

A description of the work of the Audit Committee is set out in the Audit Committee report on pages 45 and 46, and includes an

explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditor.

(b) Adjusted profit before and after tax

Profit before tax
Exceptional property profit

Adjusted profit before tax

Profit after tax

Exceptional property profit

Tax effect of exceptional property profit

Adjusted profit after tax

The Group
––––––––––––––––––
2005
2006
£m
£m

231.9
(11.6)

220.3

206.7
–

206.7

The Group
––––––––––––––––––
2005
2006
£m
£m

167.0

(11.6)

(1.2)

154.2

140.8

–

140.8

In the year to 31 December 2006 (2005: 10.5 months to 31 December), Wickes contributed operating profit of £54.2 million and

profit before tax of £51.8 million (2005: operating profit £55.9 million and profit before tax of £52.7 million) to the Group’s profits. In

addition to the profit before tax, the Wickes acquisition contributed £16.4 million (2005: £4.7 million) of identifiable synergy benefits

(arising from specific integration projects) to the existing builders merchants business and increased group finance costs by £56.1 million

(2005: £48.6 million). The total pre-tax identifiable impact of Wickes was £12.1 million (2005: £8.8 million) as disclosed in the

income statement.

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5 . P R O F I T C O N T I N U E D

(d) Adjusted operating margin

Revenue

Operating profit

Corporate expenses

Property profits

Exceptional property profits

Adjusted segment result

Adjusted operating margin

Group
£m

Merchanting
£m

2,848.8

2,000.3

289.6

–

(11.6)

278.0

9.8%

240.3

(4.8)

–

(11.6)

223.9

11.2%

Retail
£m

848.5

54.2

–

(4.5)

–

49.7

5.9%

The segmental results for merchanting and retail are shown in note 6.

The retail reduction in operating margin from 2005 of 11.1% is calculated by deducting the £49.7 million shown above from the retail

segment result for 2005 of £55.9 million and dividing by £55.9 million.

6 . B U S I N E S S A N D G E O G R A P H I C A L S E G M E N T S

For management purposes, the Group is currently organised into two operating divisions – Builders Merchanting and DIY Retailing, both

of which operate entirely in the United Kingdom. These divisions are the basis on which the Group reports its primary segment

information. Segment results, assets and liabilities include items directly attributable to segments as well as those that can be allocated

on a reasonable basis. Unallocated items comprise mainly interest bearing loans, borrowings and expenses and corporate assets and

expenses. There are no inter-segment sales.

Revenue

Result

Segment result

Unallocated corporate expenses

Net finance costs

Profit before taxation

Taxation

Profit for the year

Segment assets

Unallocated corporate assets

Consolidated total assets

Segment liabilities

Unallocated corporate liabilities

Consolidated total liabilities

Consolidated net assets

Capital expenditure

Depreciation

2006
––––––––––––––––––––––––––––––––––––––––––––––––––––

Builders
merchanting
£m

DIY
retailing
£m

Eliminations
£m

Consolidated
£m

2,000.3

848.5

–

2,848.8

240.3

54.2

(0.1)

294.4

–

(4.8)

(57.7)

231.9

(64.9)

167.0

2,489.8

136.9

2,626.7

(672.9)

(1,020.7)

(1,693.6)

51.8

53.7

1,256.9

1,232.9

(454.1)

(218.8)

802.8

1,014.1

39.8

38.0

12.0

15.7

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6 . B U S I N E S S A N D G E O G R A P H I C A L S E G M E N T S C O N T I N U E D

2005
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

Builders

DIY

merchanting

retailing

Eliminations

Consolidated

£m

1,881.0

£m

759.8

213.3

55.9

1,186.1

1,235.2

(425.3)

(213.5)

760.8

1,021.7

54.1

39.4

–

17.5

14.5

0.6

£m

–

£m

2,640.8

269.2

(1.2)

(61.3)

206.7

(65.9)

140.8

2,421.3

150.2

2,571.5

(638.8)

(1,174.7)

(1,813.5)

71.6

53.9

0.6

Revenue

Result

Segment result

Unallocated corporate expenses

Net finance costs

Profit before taxation

Taxation

Profit for the year

Segment assets

Unallocated corporate assets

Consolidated total assets

Segment liabilities

Unallocated corporate liabilities

Consolidated total liabilities

Consolidated net assets

Capital expenditure

Depreciation

Impairment losses

7 . S T A F F C O S T S

(a) The average monthly number of persons employed (including executive directors)

Sales

Distribution

Administration

(b) Aggregate remuneration

Wages and salaries

Social security costs

Other pension costs (note 8)

The Group
–––––––––––––––––––––
2005
2006

The Company
–––––––––––––––––––––
2005
2006

No.

11,948

1,506

1,412

14,866

No.

11,082

1,582

1,384

14,048

No.

–

No.

–

The Group
–––––––––––––––––––––
2005
2006

The Company
–––––––––––––––––––––
2005
2006

£m

(285.8)

(25.2)

(15.2)

(326.2)

£m

(265.8)

(23.0)

(14.1)

(302.9)

£m

(6.1)

(0.8)

(0.5)

(7.4)

£m

(3.4)

(0.3)

(0.4)

(4.1)

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8 . P E N S I O N A R R A N G E M E N T S

Defined benefit schemes

During the year, the Group operated two final salary schemes; the Travis Perkins Pensions and Dependants Benefit Scheme (“TP”), which

is a 1/60th scheme, and the Wickes Group Retirement Benefits Plan (“Wickes”). The Wickes’ scheme merged into the TP scheme on

30 June 2006. The assets of each scheme were held in separate trustee administered funds. The TP scheme is funded by contributions

from group companies and employees. Contributions are paid to the Trustees on the basis of advice from an independent professionally

qualified actuary who carries out a valuation of the scheme every three years.

Employees are entitled to start drawing a pension, based on their membership of a scheme, on their normal retirement date.

If employees choose to retire early and draw their pension, then the amount they receive is scaled down accordingly.

A full actuarial valuation of the TP scheme was carried out on 30 September 2005, then updated to 31 December 2006 by a qualified

actuary. The present values of the defined obligations, the related current service costs and the past service costs for the scheme were

measured using the projected unit method.

The comparative disclosures for the TP scheme and the Wickes’ scheme, which were shown separately last year, have been merged to

allow easier comparison with the 2006 values for the combined scheme.

(a) Major assumptions used by the actuary at the balance sheet date (in nominal terms)

Rate of increase in pensionable salaries

Rate of increase of pensions in payment

Discount rate

Inflation assumption

31 December

2006

4.1%

3.1%

5.1%

3.1%

2005

3.8%

2.8%

4.8%

2.8%

In respect of longevity the valuation adopts the PMA/PFA92 tables with improvements in life expectancy to continue in the medium

term, with base year appropriate to the member’s date of birth. This results in the following life expectancies at illustrative ages:

Weighted average life expectancy for mortality tables used to determine pension liability at 31 December 2006

Member age 65 (current life expectancy)

Member age 40 (life expectancy on reaching age 65)

(b) Amounts recognised in income in respect of defined benefit schemes

Current service costs charged to operating profit in the income statement

Interest cost

Expected return on scheme assets

Total pension costs

Male

Years

21.5

23.0

2006

£m

13.5

27.4

(27.0)

13.9

Female

Years

24.5

26.0

2005

£m

11.6

25.8

(22.1)

15.3

In consultation with the scheme actuary and the Trustees of the pension fund the Directors are in the process of fixing the employers’

contribution rate for 2007.

Note 5 shows where pension costs have been charged in the income statement. Actuarial gains and losses have been included in the

Statement of Recognised Income and Expense.

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8 . P E N S I O N A R R A N G E M E N T S C O N T I N U E D

TP Scheme

Equities

Gilts

Corporate bonds

Total fair value of assets

Actuarial value of liability

Deficit in scheme

Related deferred tax asset

Net pension liability

The actual returns on scheme assets

TP scheme

At 31 December 2006
–––––––––––––––––––––––––
Fair value
Expected
£m
return

At 31 December 2005
–––––––––––––––––––––––––
Fair value
Expected
£m
return

7.3%

4.3%

4.9%

321.5

144.7

34.3

500.5

(581.3)

(80.8)

24.2

(56.6)

6.9%

3.9%

4.6%

269.8

132.0

29.8

431.6

(574.4)

(142.8)

42.9

(99.9)

2006
–––––––––––––––––––––
%

£m

2005
–––––––––––––––––––––
%

£m

41.7

9.7

64.3

19.2

(d) The amount included in the balance sheet arising from the Group’s obligations in respect of its defined benefit schemes and the

movement during the year

At 1 January*

Expense recognised in the income statement

Contributions received by the scheme

Actuarial gains recognised in the statement of recognised income and expenditure

At 31 December

2006

£m

(142.8)

(13.9)

34.5

41.4

(80.8)

*The opening liability at 1 January 2005 includes the value of the Wickes’ scheme acquired on 11 February 2005.

(e) Movements in the present value of defined benefit obligations in the current period

At 1 January*

Service cost

Past service cost

Interest cost

Contributions from scheme members

Actuarial gains and losses

Benefits paid

At 31 December

*The opening liability at 1 January 2005 includes the value of the Wickes’ scheme acquired on 11 February 2005.

2005

£m

(173.7)

(15.3)

43.8

2.4

(142.8)

2005

£m

(503.5)

(11.6)

–

(25.8)

(4.3)

(39.8)

10.6

2006

£m

(574.4)

(13.4)

(0.1)

(27.4)

(4.7)

26.7

12.0

(581.3)

(574.4)

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8 . P E N S I O N A R R A N G E M E N T S C O N T I N U E D

(f) Movements in the present value of fair value of scheme assets in the current period

At 1 January *

Expected return of scheme assets

Actuarial gains and losses

Contributions from sponsoring companies

Contributions from scheme members

Benefits paid

At 31 December

2006

£m

431.6

27.0

14.7

34.5

4.7

(12.0)

500.5

*The opening liability at 1 January 2005 includes the value of the Wickes’ scheme acquired on 11 February 2005.

(g) Cumulative actuarial gains and losses recognised in equity

At 1 January

Net actuarial gains recognised in the year

At 31 December

(h) History of experience gains and losses

Fair value of scheme assets (£m)

Present value of scheme obligations (£m)

Deficit in the scheme (£m)

Experience adjustments on scheme liabilities

Amounts (£m)

Percentage of scheme liabilities (%)

Experience adjustments on scheme assets

Amounts (£m)

Percentage of scheme assets (%)

(i) Defined contribution schemes

2006

£m

(192.7)

41.4

(151.3)

2003

192.7

(314.3)

(121.6)

0.1

–

14.7

7.6%

2006

500.5

(581.3)

(80.8)

–

14.7

2.9%

2005

431.6

(574.4)

(142.8)

9.0

1.6%

42.2

9.8%

2004

253.4

(381.7)

(128.3)

0.1

–

10.9

4.3%

2005

£m

329.8

22.1

42.2

43.8

4.3

(10.6)

431.6

2005

£m

(195.1)

2.4

(192.7)

2002

148.6

(271.1)

(122.5)

(15.4)

5.7%

(43.1)

29.0%

There is one defined contribution scheme in the Group. The pension cost, which represents contributions payable by the Group,

amounted to £1.7 million (2005: £0.4 million).

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9 . S H A R E - B A S E D P A Y M E N T S

Details of the share option schemes run by the Company, including information concerning vesting periods, amounts outstanding and

the exercise price are contained in the remuneration report on pages 49, 50, 53 and 54.

The Black-Scholes option-pricing model is used to calculate the fair value of the options and the amount to be expensed.

No performance conditions were included in the fair value calculations. The inputs into the model expressed as weighted averages are

as follows:

Share price at grant date (pence) – group

Option exercise price (pence) – group

Share price at grant date (pence) – company

Option exercise price (pence) – company

Volatility (%) – group and company

Option life (years) – group and company

Risk-free interest rate (%) – group and company

Expected dividends as a dividend yield (%) – group and company

Executive Options

–––––––––––––––––––––––––
2005

2006

SAYE

–––––––––––––––––––––––––
2005

2006

1,611

18.5%

4.0

4.5%

2.3%

1,601

1,659

16.4%

4.0

4.6%

1.9%

1,754

1,254

1,754

1,254

21.4%

3.6

4.7%

2.4%

1,265

1,159

1,265

1,159

22.0%

3.8

4.4%

2.0%

Volatility was based on historic share prices over a period of time equal to the vesting period. Option life used in the model has been

based on options being exercised in accordance with historical patterns. For executive share options the vesting period is 3 years. If

options remain unexercised after a period of 10 years from the date of grant, these options expire. Options are forfeited if the employee

leaves the Group before options vest. SAYE options vest after 3 or 5 years and expire 31/2 or 51/2 years after the date of grant. The

risk-free interest rate of return is the yield on zero-coupon UK Government bonds on a term consistent with the vesting period. Dividends

used are based on actual dividends where data is known and future dividends estimated using a dividend cover of 3 times. It has also

been assumed that performance conditions in respect of the executive share options and the share matching scheme will be met.

The expected life used in the model has been adjusted, based upon management’s best estimate, for the effect of non-transferability,

exercise restrictions and behavioural considerations.

The number and weighted average exercise price of share options is as follows:

The Group

In thousands of options

Outstanding at the beginning of the period

Forfeited during the period

Exercised during the period

Granted during the period

Outstanding at the end of the period

Exercisable at the end of the period

2006
–––––––––––––––––––––––––
Weighted
average
exercise
price
p

Number
of
options
No.

2005
–––––––––––––––––––––––––
Weighted
average
exercise
price
p

Number
of
options
No.

1,256

1,266

1,108

1,478

1,349

1,069

3,430

(315)

(423)

1,471

4,163

182

1,112

1,147

903

1,388

1,256

848

2,180

(167)

(222)

1,639

3,430

Share options were exercised on a regular basis throughout the year. The weighted average share price for options exercised during the

year was 1,690 pence (2005: 1,356 pence). Details of the options outstanding at 31 December 2006 were as follows:

Range of exercise prices (pence)

Weighted average exercise price (pence)

Number of shares (thousands)

Weighted average expected remaining life (years)

Weighted average contractual remaining life (years)

2006
–––––––––––––––––––––––––
Executive
Options

SAYE

2005
–––––––––––––––––––––––––
Executive
Options

SAYE

1,068-1,784

848-1,254

1,068-1,675

848-1,159

1,508

2,309

2.4

8.2

1,151

1,854

2.5

3.0

1,412

1,714

2.6

8.4

1,101

1,716

2.8

3.3

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9 . S H A R E - B A S E D P A Y M E N T S C O N T I N U E D

The Company

In thousands of options

Outstanding at the beginning of the period

Forfeited during the period

Exercised during the period

Granted during the period

Outstanding at the end of the period

Exercisable at the end of the period

2006
–––––––––––––––––––––––––
Weighted
average
exercise price
p

Number
of options
No.

2005
–––––––––––––––––––––––––
Weighted
average
exercise price
p

Number
of options
No.

1,346

1,529

1,134

1,615

1,478

1,068

589

(42)

(138)

233

642

1,200

–

879

1,655

1,346

–

410

–

(6)

185

589

–

Share options were exercised during the year. The weighted average share price for options exercised during the year was 1,134 pence.

Details of the options outstanding at 31 December 2006 were as follows:

2006
–––––––––––––––––––––––––
Executive
Options

SAYE

2005
–––––––––––––––––––––––––
Executive
Options

SAYE

Range of exercise prices (pence)

Weighted average exercise price (pence)

Number of shares (thousands)

Weighted average expected remaining life (years)

Weighted average contractual remaining life (years)

The Group and the Company

1,068-1,784

1,079-1,254

1,068-1,675

1,008-1,159

1,484

1,186

628

1.8

8.2

2.5

3.0

1,352

577

2.2

8.2

1,039

2.1

2.6

Executive options were granted on 19 April 2006, 14 September 2006 (Group only) and 23 November 2006. SAYE options were granted

on 1 December 2006. The aggregate of the estimated fair values of the options granted on those dates is £6.4 million for the Group and

£0.9 million for the Company.

Executive options were granted on 1 April 2005 and 30 September 2005. SAYE options were granted on 1 December 2005. The aggregate of

the estimated fair values of the options granted on those dates is £5.5 million for the Group and £0.7 million for the Company.

The Group charged £3.8 million (2005: £2.4 million) and the Company charged £0.6 million (2005: £0.4 million) to the income statement

in respect of equity-settled share-based payment transactions.

1 0 . F I N A N C E C O S T S

The Group
–––––––––––––––––––––
2005
2006

The Company
–––––––––––––––––––––
2005
2006

Interest on bank loans and overdrafts*

Interest on unsecured loans

Interest on obligations under finance leases

Unwinding of discounts in provisions

Net loss on re-measurement of derivatives at fair value

Interest payable

Other finance costs – pension schemes

Finance costs

Net gain on re-measurement of derivatives at fair value

Interest on bank deposits

Net finance costs

Adjusted interest cover

£m

(55.5)

(0.4)

(2.0)

(1.1)

(0.2)

(59.2)

(0.4)

(59.6)

1.1

0.8

(57.7)

4.9

£m

(54.1)

(0.4)

(2.0)

(0.9)

(0.6)

(58.0)

(3.7)

(61.7)

–

0.4

(61.3)

4.9

£m

(55.0)

(0.4)

–

(0.2)

(55.6)

–

(55.6)

1.1

0.8

(53.7)

£m

(53.4)

(0.4)

–

(0.6)

(54.4)

–

(54.4)

–

0.3

(54.1)

*Includes £0.6 million (2005: £1.0 million) of amortised fees.

Adjusted interest cover is calculated by dividing adjusted operating profit of £278.0 million (2005: £268.0 million) by the combined value

of interest on bank loans and overdrafts (excluding amortised fees), unsecured loans, finance leases and interest on bank deposits, which

total £56.5 million (2005: £55.1 million).

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1 1 . T A X

Current tax

UK corporation tax

– current year

– prior year

Total current tax

Deferred tax

– current year

– prior year

Total deferred tax

Total tax charge

The Group
–––––––––––––––––––––
2005
2006

The Company
–––––––––––––––––––––
2005
2006

£m

62.7

(4.1)

58.6

2.6

3.7

6.3

64.9

59.1

(0.4)

58.7

7.0

0.2

7.2

65.9

(17.5)

(0.1)

(17.6)

0.1

(0.1)

–

(16.7)

(1.4)

(18.1)

(0.1)

–

(0.1)

(17.6)

(18.2)

The differences between the total tax charge shown above and the amount calculated by applying the standard rate of UK

corporation tax to the profit before tax is as follows:

The Group

Profit before tax

Tax at the UK corporation tax rate of 30% (2005: 30%)

Tax effect of expenses that are not deductible in determining taxable profit

Depreciation of non-qualifying property

Property sales

Prior period adjustment

Tax expense and effective tax rate for the year

The Company

Profit before tax

Intercompany dividends

Profit before tax and dividends

Tax at the UK corporation tax rate of 30% (2005: 30%)

Tax effect of expenses that are not deductible in determining taxable profit

Prior period adjustment

Tax expense and effective tax rate for the year

2006
–––––––––––––––––––––
%

£m

2005
–––––––––––––––––––––
%

£m

231.9

69.6

1.1

(6.4)

(0.5)

64.9

30.0%

0.5%

(2.8)%

(0.2)%

28.0%

206.7

62.0

1.1

3.0

–

(0.2)

65.9

30.0%

0.5%

1.5%

–

(0.1)%

31.9%

2006
–––––––––––––––––––––
%

£m

2005
–––––––––––––––––––––
%

£m

6.2

(65.0)

(58.8)

(17.6)

0.1

(0.1)

(17.6)

(30.0)%

–

(30.0)%

2.7

(58.8)

(56.1)

(16.8)

–

(1.4)

(18.2)

(30.0)%

–

(2.5)%

(32.5)%

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1 2 . E A R N I N G S P E R S H A R E

(a) Basic and diluted earnings per share

Earnings

Earnings for the purposes of basic and diluted earnings per share being net

profit attributable to equity holders of the Parent

167.0

140.8

2006

£m

2005

£m

Number of shares

No.

Weighted average number of ordinary shares for the purposes of basic earnings per share

121,060,158

120,542,092

Dilutive effect of share options on potential ordinary shares

1,054,815

1,205,748

Weighted average number of ordinary shares for the purposes of diluted earnings per share

122,114,973

121,747,840

At 31 December 2006, no (2005: 561,736) share options had an exercise price in excess of the market value of the shares on that day.

As a result, for 2005, these share options were excluded from the calculation of diluted earnings per share.

(b) Adjusted earnings per share

Adjusted earnings per share is calculated by excluding the effect of the exceptional property profit from earnings.

Earnings for the purposes of basic and diluted earnings per share being

net profit attributable to equity holders of the Parent

Exceptional property profit

Tax on exceptional property profit

Earnings for adjusted earnings per share

Adjusted basic earnings per share

Adjusted diluted earnings per share

1 3 . D I V I D E N D S

The Group and the Company

Amounts were recognised in the financial statements as distributions to equity shareholders as follows:

Final dividend for the year ended 31 December 2005 of 23.0p (2004: 21.0p) per ordinary share

Interim dividend for the year ended 31 December 2006 of 12.1p (2005: 11.0p) per ordinary share

Total dividends recognised during the year

2006

£m

167.0

(11.6)

(1.2)

154.2

127.4p

126.3p

2006

£m

27.8

14.7

42.5

2005

£m

140.8

–

140.8

116.8p

115.6p

2005

£m

25.3

13.3

38.6

The proposed final dividend of 25.3 pence per ordinary share in respect of the year ending 31 December 2006 was approved by the

Board on 5 March 2007. As the final dividend has not yet been approved by shareholders, in accordance with IFRS, it has not been

included in the balance sheet as a liability at 31 December 2006. It will be paid on 17 May 2007 to shareholders on the register on

20 April 2007.

Adjusted dividend cover of 3.4x (2005: 3.4x) is calculated by dividing adjusted basic earnings per share (note 12) of 127.4 pence

(2005: 116.8 pence) by the total dividend for the year of 37.4 pence (2005: 34.0 pence).

There are no income tax consequences in respect of the dividends declared, but not recognised in the financial statements.

70306 ACCOUNTS 26/3/07 12:07 Page 84

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T O

T H E

I N A N C

I A L

T A T

E M E N T

1 4 . G O O D W I L L

The Group

Cost

At 1 January 2005

Recognised on acquisitions during the year

At 1 January 2006

Recognised on acquisitions during the year

Builders

DIY

merchanting

Total

––––––––––––––––––––––––––––––––––––––––––

£m

–

939.2

–

£m

304.8

29.8

334.6

8.2

£m

304.8

969.0

1,273.8

8.2

At 31 December 2006

939.2

342.8

1,282.0

Goodwill arising on the acquisition of businesses during the year was allocated to those cash generating units (“CGU”) that are expected

to benefit from those acquisitions. With the exception of the Wickes’ business, no individual CGU is significant in comparison with the

total carrying amount of goodwill.

During the year management has carried out an impairment test for the goodwill and other indefinite life intangible assets carried in

the balance sheet. No impairments were identified as a result of the review. All of the recoverable amounts were based on value in use.

The key assumptions applied in the value in use calculations were:

•

cash flow projections based on management approved budgets for 2007 and three-year plan for 2008 to 2010;

the weighted average cost of capital (“WACC”) of the Group of 7.5%;

long-term forecast growth rates of 2.5% in line with the average long-term GDP growth trend applied from 2010 onwards.

Whilst management is confident that its assumptions are appropriate, it is possible an impairment would be identified if any of the

above key assumptions were changed significantly. However, as they are all inextricably linked it is not possible to determine the impact

of a significant change to one or more of them.

The Company has no goodwill.

1 5 . O T H E R I N T A N G I B L E A S S E T S

Cost

At 1 January

Additions – brand

At 31 December

The Group
––––––––––––––––––
2005
2006

£m

162.5

–

162.5

£m

–

162.5

The brand is not amortised. As a leading brand in the DIY sector, with significant growth prospects, it is considered to have an indefinite

useful life and is reviewed annually for impairment. Details of impairment testing are given in note 14. No impairments were identified

in either year.

70306 ACCOUNTS 26/3/07 12:07 Page 85

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I N A N C

I A L

T A T

E M E N T

1 6 . P R O P E R T Y , P L A N T A N D E Q U I P M E N T

The Group
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

Cost or valuation

At 1 January 2005

Additions

Additions from acquired businesses

Disposals

At 1 January 2006

Additions

Additions from acquired businesses

Disposals

At 31 December 2006

Accumulated depreciation

At 1 January 2005

Charged this year

Impairment loss

Disposals

At 1 January 2006

Charged this year

Disposals

At 31 December 2006

Net book value

At 31 December 2006

At 31 December 2005

Freehold
£m

186.2

9.1

7.8

(0.5)

202.6

8.1

0.2

(17.4)

193.5

15.6

5.2

–

(0.2)

20.6

3.3

(2.1)

21.8

171.7

182.0

Long
leases
£m

19.9

0.4

0.2

–

20.5

2.0

–

22.5

1.8

0.6

–

2.4

0.4

–

2.8

19.7

18.1

Short
leases
£m

Plant &
equipment
£m

33.4

9.4

38.5

–

81.3

9.3

–

(0.2)

224.9

52.7

42.9

(18.1)

302.4

31.0

1.2

(10.9)

Total
£m

464.4

71.6

89.4

(18.6)

606.8

50.4

1.4

(28.5)

90.4

323.7

630.1

8.4

5.9

0.2

–

14.5

6.7

–

21.2

69.2

66.8

97.9

42.1

0.4

(16.3)

124.1

43.2

(9.4)

123.7

53.8

0.6

(16.5)

161.6

53.6

(11.5)

157.9

203.7

165.8

178.3

426.4

445.2

The Company
–––––––––––
Plant &
equipment
£m

0.3

0.2

–

0.5

0.1

–

(0.1)

0.5

0.2

–

0.2

–

0.2

0.3

The cost element of the fixed assets carrying value is analysed as follows:

At valuation

At cost

The Group
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

The Company
–––––––––––

Freehold
£m

75.6

117.9

193.5

Long
leases
£m

6.1

16.4

22.5

Short
leases
£m

1.9

88.5

90.4

Plant &
equipment
£m

–

323.7

Total
£m

83.6

546.5

630.1

Total
£m

–

0.5

Those freehold and leasehold properties included at valuation in the consolidated balance sheet were revalued at their open market

value on an existing use basis. The valuations were performed as at 31 December 1999 by an independent professional valuer, Lambert

Smith Hampton, Consultant Surveyors and Valuers.

70306 ACCOUNTS 26/3/07 12:07 Page 86

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I N A N C

I A L

T A T

E M E N T

1 6 . P R O P E R T Y , P L A N T A N D E Q U I P M E N T C O N T I N U E D

Included within freehold property is land with a value of £77.8 million (2005: £80.8 million) which is not depreciated.

The carrying amount of assets held under finance leases is analysed as follows:

2006

2005

The Group
––––––––––––––––––––––––––––––––––––––––––––––

The Company
–––––––––––

Long
leases
£m

0.9

Short
leases
£m

19.5

20.8

Plant &
equipment
£m

3.3

4.3

Total
£m

23.7

26.0

Total
£m

–

Comparable amounts determined according to the historical cost convention:

The Group
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

The Company
–––––––––––

Freehold
£m

184.9

(39.7)

145.2

154.2

Long
leases
£m

21.5

(4.1)

17.4

15.8

Short
leases
£m

95.3

(24.0)

71.3

68.9

Plant &
equipment
£m

323.7

(157.9)

165.8

178.3

Total
£m

625.4

(225.7)

399.7

417.2

Total
£m

0.5

(0.2)

0.3

Cost

Accumulated depreciation

Net book value

At 31 December 2006

At 31 December 2005

1 7 . I N V E S T M E N T P R O P E R T Y

Cost

At 1 January 2005 and 1 January 2006

Disposals

At 31 December 2006

Accumulated depreciation

At 1 January 2005

Provided in the year

At 1 January 2006

Provided in the year

At 31 December 2006

Net book value

At 31 December 2006

At 31 December 2005

The Group
–––––––––––
£m

4.3

(0.1)

4.2

0.1

0.2

0.1

0.3

3.9

4.1

Investment property rental income totalled £0.3 million (2005: £0.2 million). In addition the Group also receives income from subletting

all or part of 100 ex-trading and trading properties, the amount of which is not material.

As no external valuation has been performed, the Directors have estimated that the fair value of investment property equates to its

carrying value. As such it is not material to the Group’s balance sheet.

70306 ACCOUNTS 26/3/07 12:07 Page 87

1 8 . I N V E S T M E N T S

Shares in group undertakings

At 1 January

Provision for impairment

At 31 December

N O T

T O

T H E

I N A N C

I A L

T A T

E M E N T

The Company
––––––––––––––––––
2005
2006

£m

1,619.1

(4.6)

1,612.4

(4.6)

1,614.5

1,607.8

The principal operating subsidiaries of the Group and Company at 31 December 2006 are as follows:

Subsidiary

Registered Office

Travis Perkins Trading Company Limited*

Lodge Way House, Harlestone Road,

(Builders merchants)

Northampton NN5 7UG

Keyline Builders Merchants Limited*

Southbank House, 1 Strathkelvin Place,

(Builders merchants)

Kirkintilloch, Glasgow G66 1HX

Wickes Building Supplies Limited

Lodge Way House, Harlestone Road,

(DIY retailers)

Northampton NN5 7UG

City Plumbing Supplies Holdings Limited

Lodge Way House, Harlestone Road,

(Plumbers merchants)

Northampton NN5 7UG

CCF Limited*

Lodge Way House, Harlestone Road,

(Ceiling & dry lining distribution)

Northampton NN5 7UG

Travis Perkins (Properties) Limited*

(Property management company)

Lodge Way House, Harlestone Road,

Northampton NN5 7UG

Benchmarx Kitchens and Joinery Limited

(Specialist distribution)

Mercury Drive, Brackmills,

Northampton NN4 7PN

* Held directly by Travis Perkins plc

The Directors have applied s231 of the Companies Act 1985 and therefore list only significant subsidiary companies.

All subsidiaries are 100 per cent owned. Each company is registered and incorporated in England and Wales, other than Keyline Builders

Merchants Limited and five dormant companies, which are registered and incorporated in Scotland, and City Investments Limited and

13 dormant companies, which are registered and incorporated in Jersey.

Available-for-sale investments

The Group
––––––––––––––––––
2005
2006
£m
£m

The Company
––––––––––––––––––
2005
2006
£m
£m

Fair value investment

2.0

–

The investment represents a minority holding in the unit trust that acquired the properties disposed of during the year which resulted

in the exceptional property profit (note 5). The investment presents the Group with an opportunity to generate returns through both

income and capital gains. The Directors consider that the carrying amount of this investment approximates its fair value.

70306 ACCOUNTS 26/3/07 12:07 Page 88

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T O

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I N A N C

I A L

T A T

E M E N T

1 9 . T R A D E A N D O T H E R R E C E I V A B L E S

Trade receivables

Amounts owed by subsidiaries

Other receivables, prepayments and accrued income

The Group
––––––––––––––––––
2005
2006
£m
£m

The Company
––––––––––––––––––
2005
2006
£m
£m

250.6

–

113.2

363.8

229.3

–

93.1

322.4

–

106.7

18.5

125.2

–

90.5

23.6

114.1

The Group’s principal financial assets are trade and other receivables, which for the Group at the balance sheet date comprise principally

amounts receivable from the sale of goods, together with amounts due from rebates and sundry prepayments. The Group has no

significant concentration of credit risk, with exposure spread over a large number of customers. The average credit term for sales of

goods is 50 days (2005: 48 days).

The amounts presented in the balance sheet are net of allowances for doubtful debts of £20.4 million (2005: £19.0 million), estimated

by the Group’s management based on prior experience and their assessment of the current economic environment. The Directors

consider the carrying amount of trade and other receivables approximates their fair values.

2 0 . C A S H A N D C A S H E Q U I V A L E N T S

Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or

less. The carrying amount of these assets approximates their fair value.

The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-

rating agencies.

2 1 . S H A R E C A P I T A L

Ordinary shares of 10p

At 1 January 2005

Allotted under share option schemes

At 1 January 2006

Allotted under share option schemes

Authorised
––––––––––––––––––
£m

No.

Issued fully paid
––––––––––––––––––
£m

No.

135,000,000

13.5

120,519,379

–

790,510

135,000,000

13.5

121,309,889

–

738,105

12.1

–

12.1

0.1

12.2

At 31 December 2006

135,000,000

13.5

122,047,994

The net contribution received for the issue of shares during the year was £6.8 million. Details of the share option schemes are given in

the remuneration report on pages 49, 50, 53 and 54.

The Company has one class of ordinary share that carries no right to fixed income. The holders of ordinary shares are entitled to receive

dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with

regard to the Company’s residual assets.

70306 ACCOUNTS 26/3/07 12:07 Page 89

2 2 . O W N S H A R E S

The Group and the Company

At 1 January

Acquired in the year

Re-issued in the year

At 31 December

N O T

T O

T H E

I N A N C

I A L

T A T

E M E N T

2006

No.

494,427

–

(14,474)

2005

No.

–

500,000

(5,573)

479,953

494,427

The own shares are stated at cost and held to satisfy options under the Group’s share option schemes. All rights attaching to own shares

are suspended until the shares are re-issued.

2 3 . R E S E R V E S

The Group

At 1 January 2005

Dividends paid

Total recognised income and expense

Difference between depreciation

of assets on a historical basis and

on a revaluation basis

Effect of share options

Own shares

premium

account

£m

159.2

–

Premium on the issue of equity shares

6.4

At 31 December 2005

Dividends paid

Total recognised income and expense

Difference between depreciation of

assets on a historical basis and

on a revaluation basis

Realisation of revaluation reserve in

respect of property disposals

Effect of share options

Own shares re-issued

165.6

–

Premium on the issue of equity shares

6.6

Other

reserve

Hedging

reserve

£m

26.7

–

(0.4)

–

26.3

–

(0.4)

(0.6)

–

£m

–

(3.2)

–

(3.2)

–

7.2

–

At 31 December 2006

172.2

25.3

4.0

Own

Accumulated

£m

–

(8.1)

–

(8.1)

–

0.2

–

(7.9)

profits

£m

452.6

(38.6)

151.9

0.4

(1.0)

–

565.3

(42.5)

196.1

0.4

0.6

7.4

–

Total

reserves

£m

638.5

(38.6)

148.7

–

(1.0)

(8.1)

6.4

745.9

(42.5)

203.3

–

7.4

0.2

6.6

727.3

920.9

The other reserve represents the revaluation surplus that has arisen from property revaluations in 1999 and prior years.

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments

related to hedged transactions that have yet to occur.

The own shares reserve represents the cost of shares purchased in the market and held by the Employee Benefit Scheme to satisfy

options under the Group’s share save options.

70306 ACCOUNTS 26/3/07 12:07 Page 90

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I N A N C

I A L

T A T

E M E N T

2 3 . R E S E R V E S C O N T I N U E D

The cumulative total of goodwill written off directly to reserves for acquisitions from December 1989 to December 1998 is £40.1 million.

The aggregate information for the accounting periods prior to this period is not available.

The Company

At 1 January 2005

Total recognised income and expense

Dividends paid

Effect of share options

Own shares

Premium on the issue of equity shares

At 31 December 2005

Total recognised income and expense

Dividends paid

Effect of share options

Own shares re-issued

Premium on the issue of equity shares

At 31 December 2006

2 4 . B O R R O W I N G S

premium

account

£m

158.1

–

6.4

164.5

–

6.6

171.1

Hedging

reserve

£m

–

(3.2)

–

(3.2)

7.2

–

Own

Accumulated

£m

–

(8.1)

–

(8.1)

–

0.2

–

profits

£m

159.9

20.9

(38.6)

0.1

–

142.3

23.8

(42.5)

1.3

–

Total

reserves

£m

318.0

17.7

(38.6)

0.1

(8.1)

6.4

295.5

31.0

(42.5)

1.3

0.2

6.6

4.0

(7.9)

124.9

292.1

A summary of the Group policies and strategies with regard to financial instruments can be found in the Finance Director’s report on

page 34. At 31 December 2006 all borrowings were made in Sterling except for the unsecured senior notes (note 24i).

(a) Summary

Unsecured senior notes

Bank loans (note 24c)*

Bank overdrafts

Finance leases (note 24d)

Loan notes (note 24e)

Fair value of commitment to debt*

Issue costs netted off bank loans*

Current liabilities

Non-current liabilities

The Group
––––––––––––––––––
2005
2006
£m
£m

The Company
––––––––––––––––––
2005
2006
£m
£m

201.0

620.0

–

33.5

7.9

–

(1.7)

860.7

97.1

763.6

860.7

–

995.0

–

36.3

8.2

1.3

(2.3)

1,038.5

11.1

1,027.4

1,038.5

201.0

620.0

23.4

–

7.9

–

(1.6)

850.7

117.9

732.8

850.7

–

995.0

129.8

–

8.2

1.3

(2.3)

1,132.0

138.0

994.0

1,132.0

*These balances together total the amounts shown as bank loans in note 24b.

70306 ACCOUNTS 26/3/07 12:07 Page 91

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T O

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I N A N C

I A L

T A T

E M E N T

2 4 . B O R R O W I N G S C O N T I N U E D

(b) Analysis of borrowings

The Group

Borrowings repayable

On demand or within one year

More than one year, but not more than two years

More than two years, but not more than five years

More than five years

The Company

Borrowings repayable

On demand or within one year

More than one year, but not more than two years

More than two years, but not more than five years

More than five years

At 31 December 2006 the Group had the following bank facilities available:

Drawn facilities

5 year term loan

5 year revolving credit facility

Unsecured senior notes

Bank overdrafts

Undrawn facilities

5 year revolving credit facility

Bank overdrafts

Bank loans
and overdrafts
––––––––––––––––––
2005
2006
£m
£m

Other
borrowings
––––––––––––––––––
2005
2006
£m
£m

86.6

445.2

–

618.4

–

84.0

910.0

–

994.0

10.5

1.9

4.6

225.3

242.3

11.1

2.5

5.0

25.9

44.5

Bank loans
and overdrafts
––––––––––––––––––
2005
2006
£m
£m

Other
borrowings
––––––––––––––––––
2005
2006
£m
£m

110.0

86.6

445.2

–

641.8

129.8

84.0

910.0

–

1,123.8

7.9

–

201.0

208.9

8.2

–

8.2

The Group
––––––––––––––––––
2005
2006
£m
£m

The Company
––––––––––––––––––
2005
2006
£m
£m

270.0

350.0

201.0

–

821.0

350.0

25.0

375.0

500.0

495.0

–

995.0

205.0

25.0

230.0

270.0

350.0

201.0

23.4

844.4

350.0

1.6

351.6

500.0

495.0

–

995.0

205.0

25.0

230.0

The disclosures in note 24(c) do not include finance leases, loan notes, fair value adjustments, or the effect of issue costs.

70306 ACCOUNTS 26/3/07 12:07 Page 92

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I N A N C

I A L

T A T

E M E N T

2 4 . B O R R O W I N G S C O N T I N U E D

(d) Obligations under finance leases

The Group

Amounts payable under finance leases:

Within one year

In the second to fifth years inclusive

After five years

Less: future finance charges

Present value of lease obligations

Less: Amount due for settlement within 1 year

(shown under current liabilities)

Amount due for settlement after 1 year

Minimum
lease payments
––––––––––––––––––
2005
2006
£m
£m

Present value of
minimum lease
payments
––––––––––––––––––
2005
2006
£m
£m

4.8

7.5

46.8

59.1

(25.7)

33.4

5.3

11.9

46.1

63.3

(27.0)

36.3

2.6

6.5

24.3

33.4

–

33.4

(2.5)

30.9

2.9

7.4

26.0

36.3

–

36.3

(2.9)

33.4

As a result of the introduction of IAS 17 – “Leases”, the Group considers certain properties to be subject to finance leases. Excluding

999 year leases, the average loan term for these properties is 50 years and the average borrowing rate has been determined at the

inception of the lease to be 8.9%. In addition the Group leases certain fixtures and equipment under finance leases, the obligations for

which are secured by the lessors’ charges over the leased assets. The average lease term is 3-4 years. For the year ended 31 December

2006, the average implicit borrowing rate was 14.6% (2005: 14.2%). Interest rates are fixed at the contract date. All lease obligations,

which are denominated in Sterling, are on a fixed repayment basis and no arrangements have been entered into for contingent

rental payments.

(e) Loan notes

Included in borrowings due within the year are £7.9 million (2005: £8.2 million) in respect of loan notes issued as consideration for the

acquisition of two groups during 1999 and 2000. The loan notes of £4.3 million issued in 1999 to acquire Sharpe and Fisher can be

redeemed on 31 January and 31 July each year, the final redemption date being 31 January 2010. The £3.6 million of loan notes issued

for the acquisition of the business of Broombys Limited are redeemable on 30 June and 31 December each year until the final

redemption date of 30 June 2015.

(f) Interest

The weighted average interest rates paid were as follows:

2006

2005

Unsecured senior notes

Bank loans and overdrafts

Other borrowings

5.8

5.7

5.0

–

5.5

4.9

Bank term loans and revolving credit facilities of £970 million (2005: £1.2 billion) were arranged at variable interest rates. The $400

million unsecured senior notes were issued at fixed rates of interest and swapped into variable rates. This exposes the Group to fair value

interest rate risk. As detailed in note 25, to manage the risk the Group entered into amortising interest rate swap arrangements, which

for 2006, fix interest rates on £315 million of borrowing. For the year to 31 December 2006 this had the effect of increasing the weighted

average interest rates paid by 0.01%.

In respect of income earning financial assets and interest bearing financial liabilities, the following table indicates their effective interest

rates at the balance sheet date and the periods in which they reprice.

70306 ACCOUNTS 26/3/07 12:07 Page 93

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T O

T H E

I N A N C

I A L

T A T

E M E N T

2 4 . B O R R O W I N G S C O N T I N U E D

The Group

Unsecured senior notes

Unsecured variable rate bank facilities

Loan notes

The Company

Unsecured senior notes

Unsecured variable rate bank facilities

Loan notes

Bank overdrafts

2006

–––––––––––––––––––––––
6 months
or less
Total
£m

Effective
interest rate

2005

–––––––––––––––––––––––
6 months
or less
Total
£m

Effective
interest rate

5.8%

5.1%

201.0

620.0

7.9

828.9

–

5.2%

5.0%

–

995.0

8.2

1,003.2

2006

–––––––––––––––––––––––
6 months
or less
Total
£m

Effective
interest rate

2005

–––––––––––––––––––––––
6 months
or less
Total
£m

Effective
interest rate

5.8%

5.1%

6.0%

201.0

620.0

7.9

23.4

852.3

–

5.2%

5.0%

5.5%

–

995.0

8.2

129.8

1,133.0

(g) Fair values

For both the Group and the Company the fair value of financial assets and liabilities have been calculated by discounting expected cash

flows at prevailing rates at 31 December. There were no significant differences between book and fair values on this basis and therefore

no further information is disclosed. Details about the fair values of derivatives are given in note 25.

(h) Guarantees and security

No debt is secured, except for that relating to £1.9 million (2005: £3.6 million) of finance lease obligations, which are secured on the

assets subject to the leases.

There are cross guarantees on the overdrafts between group companies.

The companies listed in note 18, with the exception of Benchmarx Kitchens and Joinery Limited, together with Wickes Limited are

guarantors of the following facilities advanced to Travis Perkins plc:

• £270 million term loan;

• £700 million revolving credit facility;

• $400 million unsecured senior notes (note 24i);

• The interest rate and currency swaps (note 25).

The Group companies have entered into other guarantee and counter-indemnities arrangements in respect of guarantees issued in

favour of group companies by the clearing banks amounting to approximately £14 million (2005: £14 million).

(i) Unsecured senior notes

On 26 January 2006 the Group finalised a US private placement that resulted in it receiving $400 million and repaying £230 million of

the term loan. $200 million of the unsecured senior notes is repayable in January 2013 and $200 million in January 2016. The US

borrowings carry fixed rate coupons of between 130 bps and 140 bps over US treasuries. As described in note 25, to protect itself from

currency movements and bring interest rate exposures back into line with the Group’s desired risk profile the Group entered into five

cross currency swaps.

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2 5 . D E R I V A T I V E F I N A N C I A L I N S T R U M E N T S

Interest rate swaps

The Group adopts a policy of ensuring that its exposure to changes in interest rates on borrowing is either on a fixed rate basis or is

subject to movements within pre-defined limits. To achieve its desired interest rate profile the Group uses interest rate swaps and

interest rate collars.

As part of their interest rate management processes, the Group and the Company are parties to two amortising interest rate swaps, one

amortising interest rate floor option and an amortising interest rate cap option. The two interest rate swaps each have a notional value

of £157.5 million. The interest rate cap and floor options provide a collar on £157.5 million of borrowings. Contracts with nominal values

of £315 million have fixed interest payments at an average rate of 4.95% for periods up until February 2010 and have floating interest

receipts at 0% plus LIBOR.

At 31 December 2006 the fair value of interest rate derivatives, all of which terminate approximately 3 years from the balance sheet

date, to which the Group and the Company were parties was estimated at £4.3 million (2005: £(5.1) million). This amount is based on

market values of equivalent instruments at the balance sheet date. All of these interest rate swaps are designated and effective as cash

flow hedges and the fair value thereof has been deferred in equity. An amount of £1.1 million (2005: £(0.5) million) in respect of the

fair value movement on the cap and floor has been taken to the income statement as the Company has not applied hedge accounting.

Currency swaps

In order to eliminate the currency risk associated with the $400 million unsecured senior notes described in note 24(i) the Group and

the Company have entered into five cross currency swaps in varying amounts between £23 million and £63 million to fix the exchange

rate at £1 equal to $1.73 for the entire lives of the unsecured senior notes, although there is a mutual break clause on each swap on

1 December 2010. The forward options fix the notional amount receivable and payable in respect of the unsecured senior notes to

£231 million as well as fixing the exchange rate applicable to future coupon payments.

The currency swaps manage the Group’s and the Company’s exposure to the fixed interest rate on the US dollar denominated borrowing

arising out of a private placement on 26 January 2006. There are two interest rate swaps of £58 million that convert the borrowing rate

on $200 million of debt from 5.77% to a variable rate on 6 month LIBOR plus a weighted average basis point increment of 81.9. At

26 January 2006 the variable rates were both at 5.43%. A further three interest rate swaps of £29 million, £23 million and £63 million

convert the borrowing rates on $50 million, $40 million and $110 million of debt from 5.89% to a variable rate based on six month

LIBOR plus basis point increment of 86.5, 86.7 and 86.05 respectively. At 26 January 2006 the variable rates were at 5.47 weighted

average per cent.

At 31 December the fair value of currency derivatives, all of which terminate more than five years after the balance sheet date, was

estimated at £(30.9) million (2005: £1.3 million). All of these currency swaps are designated and effective as fair value hedges.

In addition the Group is party to US$ forward foreign exchange contracts. At the balance sheet date the total notional value of

contracts to which the Group was committed was $12 million (2005: US$ nil). The fair value of these derivatives are £(0.2) million

(2005: £nil). These contracts have not been designated as hedges and accordingly the fair value movement has been reflected in the

income statement.

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2 6 . P R O V I S I O N S

At 1 January 2006

Additional provision in the year

Utilisation of provision

Release of pre-acquisition provision

Unwinding of discount

At 31 December 2006

Included in current liabilities

Included in non-current liabilities

The Group
––––––––––––––––––––––––––––––––––––––––––––––––
Total
Property

Insurance

Other

£m

18.1

4.3

(0.2)

(3.2)

1.1

20.1

7.0

13.1

20.1

£m

19.7

7.1

(4.2)

–

22.6

–

22.6

£m

1.1

–

(0.2)

–

0.9

–

0.9

£m

38.9

11.4

(4.6)

(3.2)

1.1

43.6

30.5

13.1

43.6

The Group has a number of vacant and partly sub-let leasehold properties. Where necessary provision has been made for the residual

lease commitments after taking into account existing sub-tenant arrangements.

It is Group policy to substantially self insure itself against claims arising in respect of damage to assets, or due to employers or public

liability claims. The nature of insurance claims means they may take some time to be settled. The insurance claims provision represents

management’s best estimate, based upon external advice of the value of outstanding insurance claims where the final settlement date

is uncertain.

2 7 . D E F E R R E D T A X

The Group

The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and

prior reporting period.

Provided

Capital allowances

Revaluation

Share based payments

Provisions

Business combinations

Brand

Derivatives

At
1 Jan
2005
£m

13.7

13.5

(5.3)

5.8

10.6

–

Recognised

Acquired
in year
£m

in non- Recognised Recognised
current
in
equity
assets
£m
£m

in
income
£m

At
31 Dec
2005
£m

Acquired
in year
£m

in non- Recognised Recognised
in
current
equity
assets
£m
£m

in
income
£m

At
31 Dec
2006
£m

(3.3)

–

(8.1)

–

5.9

48.8

–

54.7

–

1.0

–

(2.0)

(0.3)

–

(1.3)

8.5

–

3.1

(9.4)

–

(1.4)

(7.7)

0.7

11.4

13.5

(2.2)

(13.7)

16.2

48.8

(1.4)

72.6

(42.9)

0.1

–

0.1

–

0.1

–

0.1

–

0.1

–

0.1

1.7

–

0.6

(2.3)

–

6.3

–

(0.2)

(2.9)

–

1.4

(1.7)

12.4

13.2

13.3

(5.1)

(13.1)

14.0

48.8

–

71.1

(24.2)

10.7

46.9

Deferred tax liability

Deferred tax asset

38.3

(38.5)

(11.4)

(13.6)

Net

(0.2)

(25.0)

54.7

7.2

(7.0)

29.7

At the balance sheet date the Group has unused capital losses of £67.0 million (2005: £71.5 million) available for offset against future

capital profits. No deferred tax asset has been recognised because it is not probable that future taxable profits will be available against

which the Group can utilise the losses.

Other than disclosed above, no deferred tax assets and liabilities have been offset.

The Group has recognised a deferred tax asset of £24.2 million (2005: £42.9 million) in respect of the deficit on its pension scheme.

The Directors believe that the deferred tax asset will be realised as the deficit is reduced over the coming years.

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2 7 . D E F E R R E D T A X C O N T I N U E D

The Company

At
1 Jan
2005
£m

(0.9)

(0.4)

–

(1.3)

Recognised
in non-
current
assets
£m

Recognised
in equity
£m

Recognised
in income
£m

–

(0.1)

–

(0.1)

–

(1.4)

0.4

–

0.4

At
31 Dec
2005
£m

(0.5)

(1.4)

(2.4)

Recognised
in equity
£m

(0.7)

–

1.4

0.7

At
31 Dec
2006
£m

(1.2)

(0.5)

–

(1.7)

Provided

Share based payments

Provisions

Derivatives

2 8 . T R A D E A N D O T H E R P A Y A B L E S

Trade payables

Other taxation and social security

Other payables

Accruals and deferred income

The Group
––––––––––––––––––
2005
2006
£m
£m

The Company
––––––––––––––––––
2005
2006
£m
£m

392.8

33.9

62.9

75.6

565.2

352.6

23.0

61.3

45.4

482.3

–

23.5

–

23.5

–

24.6

0.5

25.1

The Group

Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period

taken for trade purchases is 52.5 days (2005: 50.5 days). The Directors consider that the carrying amount of trade payables approximates

to their fair value.

The Company

Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period

taken for trade purchases is 30 days. The Directors consider that the carrying amount of trade payables approximates to their fair value.

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2 9 . A C Q U I S I T I O N O F B U S I N E S S E S

During the year the Group acquired 5 limited companies and the assets of 4 other businesses, details of which on an individual basis

are not material to the financial statements. All the acquisitions were accounted for using the purchase method of accounting.

2006
––––––––––––––––––––––––––––––––––

–––––––––––––––––––––––––––––––––––––

2005

Book
value
acquired
£m

Provisional
fair value
adjustments
£m

Provisional
fair value
acquired
£m

Other
acquisitions
fair value
acquired
£m

Wickes
fair value
acquired
£m

Provisional
fair value
acquired
£m

Net assets acquired:

Property, plant and equipment

Inventories

Trade and other receivables

Cash and cash equivalents

Trade and other payables

Retirement benefit obligations

Tax (liabilities)/assets

Bank overdrafts and loans

1.4

1.5

2.5

1.8

(2.7)

–

(0.1)

4.4

–

Other intangible assets (net of deferred tax)

Goodwill

Costs not charged to goodwill

Satisfied by:

Cash

Directly attributable costs included in goodwill

Directly attributable costs not included in goodwill

1.4

1.5

2.5

1.8

(2.7)

–

(0.1)

4.4

–

8.2

–

12.6

–

12.6

–

12.6

8.4

4.5

7.1

1.4

(5.7)

–

(1.6)

(1.9)

12.2

–

29.8

–

42.0

–

42.0

–

42.0

81.0

70.5

25.9

6.7

(204.9)

(31.8)

6.1

–

(46.5)

113.7

939.2

3.3

89.4

75.0

33.0

8.1

(210.6)

(31.8)

4.5

(1.9)

(34.3)

113.7

969.0

3.3

1,009.7

1,051.7

994.3

12.1

1,006.4

3.3

1,036.3

12.1

1,048.4

3.3

1,009.7

1,051.7

On the day following completion, the trade and assets of each acquired business were transferred into another Travis Perkins’ subsidiary.

The acquired subsidiary companies are now dormant.

Acquisitions made in the periods under review are not material to the Group in respect of turnover, profits or cashflows. Therefore, the

results and cash flows of the Group, prepared on the basis that the acquisitions were made on 1 January 2006, are not disclosed on the

grounds of materiality.

The individual turnovers, results and cash flow effects of the acquired businesses are not sufficiently material to warrant separate

disclosure. The acquired branches have now been fully integrated into the Travis Perkins’ group accounting systems. As such, the

directors are unable to calculate meaningful cash flow effects of each of the acquired businesses for the period of Travis Perkins

ownership without incurring undue expense and delay.

Goodwill arising on acquisition

The goodwill arising on acquisitions made during the year is attributable to the anticipated profitability of these acquisitions and the

future operating synergies arising in the enlarged group. No intangible assets were acquired during the year.

Prior period acquisitions

The provisional fair values ascribed to the net assets of acquisitions made during 2005 and disclosed in the 2005 financial statements

were finalised during the year. There were no significant changes to the values disclosed last year.

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3 0 . O P E R A T I N G L E A S E A R R A N G E M E N T S

The Group leases a number of trading properties under operating leases. The leases are typically 25 years in duration, although some

have lessee only break clauses of between 10 and 15 years. Lease payments are reviewed every five years and increases applied in line

with market rates. The Group also leases certain items of plant and equipment.

The Group as lessee

Minimum lease payments under operating leases recognised in income for the year

2006

£m

105.7

2005

£m

90.2

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating

leases, which fall due as follows:

Within one year

In the second to fifth years inclusive

After five years

2006

£m

109.0

412.2

985.8

2005

£m

101.2

380.7

949.9

1,507.0

1,431.8

The Group as lessor

The Group sublets a number of ex-trading properties to third parties. Property rental income earned during the year in respect of these

properties was £3.4 million (2005: £2.5 million).

At the balance sheet date, the Group had contracts with tenants for the following future minimum lease payments:

Within one year

In the second to fifth years inclusive

After five years

2006

£m

2.5

7.6

9.1

19.2

2005

£m

2.7

8.9

12.7

24.3

3 1 . R E L A T E D P A R T Y T R A N S A C T I O N S

The Group has a related party relationship with its subsidiaries and with its directors. Transactions between group companies, which are

related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Company and its

subsidiaries are disclosed below. In addition the remuneration, and the details of interests in the share capital of the Company, of the

Directors, who are the key management personnel of the Group, are provided in the audited part of the remuneration report on

pages 51 to 54.

The Company undertakes the following transactions with its active subsidiaries:

• providing day-to-day funding from its UK banking facilities;

• levying an annual management charge to cover services provided to members of the Group of £7.5 million (2005: £6.8 million);

• receiving annual dividends totalling £65.0 million (2005: £58.8 million).

There have been no material related party transactions with directors.

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3 2 . C A P I T A L C O M M I T M E N T S

The Group
––––––––––––––––––
2005
2006
£m
£m

The Company
––––––––––––––––––
2005
2006
£m
£m

Contracted for but not provided in the accounts

15.3

15.2

–

3 3 . N E T D E B T R E C O N C I L I A T I O N S

(a) Actual

Net debt at 1 January

Increase/(decrease) in cash and cash equivalents

Cash flows from debt

Reduction/(increase) in fair value of debt

Additional finance charges netted off bank debt

Finance leases acquired

Net debt at 31 December

(b) Proforma net debt reduction

Net debt at 31 December 2004
Debt to acquire Wickes
Finance leases acquired
Cash acquired

Proforma net debt at 31 December 2004
Net debt at 31 December 2006

Proforma net debt reduction

3 4 . G E A R I N G

Net debt under IFRS

IAS 17 finance leases

Fair value adjustment to debt

Finance charges netted off bank debt

Net debt under UK GAAP

Total equity

Gearing

The Group
––––––––––––––––––
2005
2006
£m
£m

The Company
––––––––––––––––––
2005
2006
£m
£m

(982.4)

0.2

146.8

31.6

(0.6)

–

(804.4)

(30.7)

(60.8)

(871.9)

(1.3)

2.3

(20.0)

(982.4)

(1,121.0)

2.0

250.4

31.6

(0.6)

–

(94.5)

(87.0)

(940.5)

(1.3)

2.3

–

(837.6)

(1,121.0)

£m

(30.7)
1,009.7
(20.0)
6.7

(1,053.7)
(804.4)

249.3

The Group
––––––––––––––––––
2005
2006

£m

(804.4)

31.5

(30.3)

(1.7)

(804.9)

933.1

86.3%

£m

(982.4)

32.7

1.3

(2.3)

(950.7)

758.0

125.4%

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E M E N T

3 5 . A D J U S T E D F R E E C A S H F L O W

Net debt at 1 January

Net debt at 31 December

Movement in net debt

Wickes finance leases acquired

Dividends

Net cash outflow for expansion capital expenditure

Net cash outflow for acquisitions

Net cash outflow for acquisition of investments

Own shares purchased

Shares issued

Movement in fair value of debt and amortisation of fees

Special pension contributions

Free cash flow

Cash impact of exceptional property profits

Adjusted free cash flow

The Group
––––––––––––––––––
2005
2006

£m

(982.4)

(804.4)

178.0

–

42.5

31.6

10.9

2.0

–

(6.9)

(31.0)

21.0

248.1

(31.5)

216.6

£m

(30.7)

(982.4)

(951.7)

20.0

38.6

42.2

1,045.5

–

8.1

(6.4)

1.3

28.5

226.1

–

226.1

Adjusted free cash flow yield is calculated by dividing adjusted free cash flow of £216.6 million (2005: £226.1 million) by the Company’s

market capitalisation at 31 December of £2.4 billion (2005: £1.7 billion).

3 6 . A D J U S T E D R E T U R N O N A D J U S T E D E Q U I T Y A N D A D J U S T E D R E T U R N O N C A P I T A L

Adjusted return on equity

Profit before tax

Exceptional property profit

Adjusted profit before tax

Closing adjusted equity

Equity impact of exceptional property profit

Net pension deficit

Closing goodwill written off

Opening equity

Net pension deficit

Opening goodwill written off

Average net assets

Adjusted return on equity

100

The Group
––––––––––––––––––
2005
2006

£m

231.9

(11.6)

220.3

933.1

(12.8)

56.6

92.7

1,069.6

758.0

99.9

92.7

950.6

1,010.1

£m

206.7

–

206.7

758.0

–

99.9

92.7

950.6

650.6

89.8

92.7

833.1

891.9

21.8%

23.2%

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E M E N T

3 6 . A D J U S T E D R E T U R N O N A D J U S T E D E Q U I T Y A N D A D J U S T E D R E T U R N O N C A P I T A L C O N T I N U E D

Adjusted return on capital

Operating profit

Exceptional property profit

Adjusted operating profit

Opening net assets

Goodwill written off

Net borrowings

Pension deficit

Opening capital employed

Closing net assets

Equity impact of exceptional property profit

Goodwill written off

Net borrowings

Pension deficit

Closing adjusted capital employed

Average adjusted capital employed*

Adjusted return on capital

The Group
––––––––––––––––––
2005
2006

£m

289.6

(11.6)

278.0

758.0

92.7

982.4

99.9

1,933.0

933.1

(12.8)

92.7

804.4

56.6

£m

268.0

–

268.0

650.6

92.7

30.7

89.8

863.8

758.0

–

92.7

982.4

99.9

1,874.0

1,933.0

1,903.5

1,812.9

14.6%

14.8%

*On 11 February 2005, borrowings and therefore capital employed were substantially increased. Therefore, average capital employed

for 2005 has been calculated using £863.8 million for 41 days and £1,933.0 million for 324 days.

3 7 . A D J U S T E D E A R N I N G S B E F O R E I N T E R E S T , T A X A N D D E P R E C I A T I O N

Adjusted earnings before interest, tax and depreciation (‘EBITDA’) is derived as follows:

Profit before tax

Finance costs

Depreciation and impairments

EBITDA under IFRS

Exceptional property profits

Reversal of IFRS effect and for 2005 inclusion of Wickes’ pre-acquisition EBITDA

Adjusted EBITDA as defined in UK banking agreements

Net debt under UK GAAP (note 34)

Adjusted net debt to EBITDA

The Group
––––––––––––––––––
2005
2006

£m

231.9

57.7

53.7

343.3

(11.6)

4.0

335.7

804.9

2.4x

£m

206.7

61.3

54.5

322.5

–

4.4

326.9

950.7

2.9x

101

70306 ACCOUNTS 26/3/07 12:07 Page 102

F I V E Y E A R R E C O R D

Consolidated income statement

IFRS
–––––––––––––––––––––––––––––––
2004
2005
2006
£m
£m
£m

UK GAAP
––––––––––––––––––
2002
2003
£m
£m

Revenue

2,848.8

2,640.8

1,828.6

1,678.3

1,417.5

Operating profit before exceptional property profits,

amortisation and impairment charges
Amortisation and impairment charges
Exceptional property profits

Operating profit
Net finance costs

Profit before tax
Income tax expense

Net profit

Adjusted return on capital

Adjusted return on equity

Basic earnings per share
Adjusted earnings per share

Dividend declared per ordinary share (pence)

Branches at 31 December (No.)

278.0
–
11.6

289.6
(57.7)

231.9
(64.9)

167.0

14.6%

21.8%

137.9p
127.4p

37.4p

1,022

268.0
–
–

268.0
(61.3)

206.7
(65.9)

140.8

14.8%

23.2%

116.8p
116.8p

34.0p

983

Average number of employees (No.)

14,866

14,048

217.7
–
–

217.7
(11.2)

206.5
(64.4)

142.1

25.0%

29.2%

124.4p
124.4p

30.5p

751

9,385

191.4
(15.3)
–

176.1
(13.4)

162.7
(53.8)

108.9

25.5%

29.3%

96.5p
110.0p

24.4p

700

9,199

158.2
(12.1)
–

147.3
(9.7)

137.6
(45.8)

91.8

24.0%

29.0%

81.9p
91.6p

19.5p

610

8,497

Consolidated cash flow statement

IFRS
–––––––––––––––––––––––––––––––
2004
2005
2006
£m
£m
£m

UK GAAP
––––––––––––––––––
2002
2003
£m
£m

Cash generated from operations
Net interest paid
Income taxes paid
Net purchases of investments, property and plant
Acquisition of businesses net of cash acquired
Proceeds from issuance of share capital
Dividends paid
Own shares acquired
Payment of finance lease liabilities
Repayment of unsecured loan notes
(Decrease)/increase in bank loans

Net increase/(decrease) in cash and cash equivalents
Net debt at 1 January
IFRS adjustment
Cash flows from debt and debt acquired

Net debt at 31 December

323.3
(59.0)
(57.3)
(13.5)
(10.9)
6.9
(42.5)
–
(2.8)
(0.3)
(143.7)

0.2
(982.4)
–
177.8

(804.4)

310.8
(38.2)
(47.0)
(70.2)
(1,045.5)
6.4
(38.6)
(8.1)
(2.3)
(0.8)
872.7

(60.8)
(30.7)
–
(890.9)

(982.4)

222.9
(8.0)
(54.2)
(65.1)
(39.0)
90.6
(30.0)
–
(1.0)
(3.2)
(30.0)

83.0
(128.5)
(19.4)
34.2

(30.7)

230.8
(9.3)
(50.9)
(46.9)
(72.3)
3.5
(23.7)
–
–
–
–

31.2
(159.7)
–
–

(128.5)

179.8
(8.3)
(42.7)
(31.6)
(111.5)
2.8
(20.0)
–
(0.1)
(2.0)
–

(33.6)
(126.1)
–
–

(159.7)

102

70306 ACCOUNTS 26/3/07 12:07 Page 103

F I V E Y E A R R E C O R D C O N T I N U E D

Consolidated balance sheet

Assets

Property, plant and equipment

Goodwill and other intangibles

Derivative financial instruments

Investment property and other investments

Deferred tax asset

Inventories

Trade and other receivables

Cash and cash equivalents

Total assets

Issued capital

Share premium account

Other reserves

Accumulated profits

Total equity

Non-current liabilities

I V E

Y E A R R E

C O R D

IFRS
–––––––––––––––––––––––––––––––
2004
2005
2006
£m
£m
£m

UK GAAP
––––––––––––––––––
2002
2003
£m
£m

426.4

1,444.5

3.8

5.9

24.2

294.4

364.3

56.3

445.2

1,436.3

1.3

4.1

42.9

263.2

322.4

56.1

340.7

304.8

–

4.2

38.5

200.6

287.8

116.9

284.7

285.7

–

4.3

–

178.1

265.6

33.9

2,619.8

2,571.5

1,293.5

1,052.3

12.2

172.2

21.4

727.3

933.1

12.1

165.6

15.0

565.3

758.0

258.2

249.9

–

4.6

–

152.1

251.4

30.0

946.2

11.3

65.7

31.2

287.2

395.4

175.0

–

85.8

–

7.9

14.7

–

218.5

42.7

6.2

550.8

946.2

12.1

159.2

26.7

452.6

650.6

137.8

–

128.3

–

38.3

9.8

–

293.4

22.6

12.7

642.9

11.3

69.4

30.6

365.7

477.0

150.0

–

85.1

–

10.2

12.4

–

281.8

25.9

9.9

575.3

Interest bearing loans and borrowings

763.6

1,027.4

Derivative financial instruments

Retirement benefit obligations

Long term provisions

Deferred tax liabilities

Current liabilities

Interest bearing loans and borrowings

Derivative financial instruments

Trade and other payables

Tax liabilities

Short-term provisions

Total liabilities

30.9

80.8

13.1

71.1

97.1

0.2

565.2

34.2

30.5

–

142.8

13.2

72.6

11.1

5.1

482.3

33.3

25.7

1,686.7

1,813.5

Total equity and liabilities

2,619.8

2,571.5

1,293.5

1,052.3

The amounts disclosed for 2002 and 2003 and earlier periods are stated on the basis of UK GAAP because it is not practicable to restate

amounts for periods prior to the date of transition to IFRS.

103

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N O T I C E O F A N N U A L G E N E R A L M E E T I N G

Notice is hereby given that the forty-third Annual General Meeting of Travis Perkins plc will be held at Northampton Rugby Football

Club, Franklin’s Gardens, Weedon Road, Northampton, NN5 5BG on Tuesday 15 May 2007 at 11.45 a.m.

The Resolutions

Resolutions 1 to 11 (inclusive) will be proposed as ordinary resolutions. Resolutions 12 to 14 (inclusive) will be proposed as special

resolutions.

Ordinary Business

1. To receive the Company’s annual accounts for the financial year ended 31 December 2006, together with the directors’ report,

the directors’ remuneration report and the auditors’ report on those accounts and on the auditable part of the directors’

remuneration report.

2. To declare a final dividend for the financial year ended 31 December 2006 of 25.3 pence per ordinary share, payable to shareholders

on the register at the close of business on 20 April 2007.

3. To appoint, as a non-executive director, pursuant to Article 71 of the Company’s Articles of Association, Stephen Carter who was

appointed as a non-executive director by the Board on 24 April 2006. Biographical details of Stephen Carter appear on page 41.

4. To re-appoint John Carter as a director, who is retiring by rotation pursuant to Article 76 of the Company’s Articles of Association.

Biographical details of John Carter appear on page 40.

5. To re-appoint John Coleman as a non-executive director, who is retiring by rotation pursuant to Article 76 of the Company’s Articles

of Association. Biographical details of John Coleman appear on page 41.

6. To reappoint Michael Dearden as a non-executive director, who is retiring by rotation pursuant to Article 76 of the Company’s

Articles of Association. Biographical details of Michael Dearden appear on page 41.

7. To re-appoint Deloitte & Touche LLP, Chartered Accountants, as auditors of the Company to hold office from the conclusion of this

meeting until the conclusion of the next general meeting of the Company at which accounts are laid and to authorise the Directors

to fix their remuneration.

Special Business

8. That the directors’ remuneration report for the financial year ended 31 December 2006 set out on pages 47 to 54 be approved.

9. That the amendments to the rules of the Travis Perkins Share Matching Scheme (the “Matching Scheme”), the effect of which is

explained in the letter from the Chairman to shareholders dated 5 March 2007, and which are included in the draft produced to

this meeting which, for the purposes of identification, is initialled by the Chairman, be and are hereby approved and the Directors

be authorised to:

(a) do all such acts and things as they may consider appropriate to implement the Matching Scheme, as amended; and

(b) establish further plans based on the Matching Scheme, as amended, but modified to take account of local tax, exchange control

or securities laws in overseas territories, provided that any shares made available under such further plans shall be treated as

counting against the limits on individual or overall participation in the Matching Scheme.

104

70306 ACCOUNTS 26/3/07 12:07 Page 105

N O T

O F

A N N U A L

G E N E R A L

M E

I N G

N O T I C E O F A N N U A L G E N E R A L M E E T I N G C O N T I N U E D

10. That the rules of the Travis Perkins 2007 Performance Share Plan (the “Performance Share Plan”), the principal terms of which are

summarised in the letter from the Chairman to shareholders dated 5 March 2007 and which are included in the draft produced to

this meeting which, for the purposes of identification is initialled by the Chairman, be and are hereby approved and the Directors

be authorised to:

(a) do all such other acts and things as they may consider appropriate to implement the Performance Share Plan; and

(b) establish further plans based on the Performance Share Plan but modified to take account of local tax, exchange control or

securities laws in overseas territories, provided that any shares made available under such further plans shall be treated as

counting against the limits on individual or overall participation in the Performance Share Plan.

11. That, in substitution for all existing unexercised authorities, the authority conferred on the Directors to allot relevant securities by

Article 4(B) of the Company’s Articles of Association be and is hereby renewed for the period expiring fifteen months after the date

of the passing of this resolution or, if earlier, at the conclusion of the next Annual General Meeting (unless previously renewed,

varied or revoked by the Company in general meeting) and for that period the “section 80 amount” is £1,288,449.20.

12. That, subject to the passing of Resolution 11, and in substitution for all existing unexercised authorities, the power conferred on the

Directors to allot equity securities wholly for cash on a non-prescriptive basis by Article 4(C) of the Company’s Articles of Association

be and is hereby renewed for the period expiring fifteen months after the date of the passing of this resolution or, if earlier, at the

conclusion of the next Annual General Meeting and for that period the “section 89 amount” is £610,557.54.

13. That the amendments to the Company’s Articles of Association set out in the document presented to the meeting, and initialled by

the Chairman for the purposes of identification only, be and are hereby approved.

14. That the Company be and is hereby generally and unconditionally authorised to make one or more market purchases (within the

meaning of section 163(3) of the Companies Act 1985) of ordinary shares of 10 pence each in the capital of the Company (“ordinary

shares”), provided that:

(a)

the maximum aggregate number of ordinary shares authorised to be purchased is 12,211,550 (representing 10% of the issued

share capital of the Company as at 5 March 2007);

(b)

the minimum price (exclusive of expenses) which may be paid for an ordinary share is its nominal value of 10 pence;

(c)

the maximum price (exclusive of expenses) which may be paid for an ordinary share is an amount equal to 105% of the average

of the middle market quotations for an ordinary share as derived from The London Stock Exchange Daily Official List for the

five business days immediately preceding the day on which that ordinary share is purchased;

(d)

this authority expires at the conclusion of the next Annual General Meeting of the Company or the date fifteen months from

the date of passing of this resolution, whichever is the earlier; and

(e)

the Company may make a contract to purchase ordinary shares under this authority before the expiry of such authority, which

will or may be executed wholly or partly after the expiry of such authority, and may make a purchase of ordinary shares

pursuant to any such contract.

By order of the Board,

Andrew Pike Secretary

Lodge Way House, Harlestone Road, Northampton NN5 7UG.

5 March 2007

Registered in England No. 824821

(Directions to Northampton Rugby Football Club can be found on page 107).

105

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N O T E S T O T H E N O T I C E O F
A N N U A L G E N E R A L M E E T I N G

1. A member entitled to attend and vote at the meeting may appoint one or more proxies to attend and, on a poll, vote instead of

him. A proxy need not be a member.

To be effective, the instrument appointing a proxy and any authority under which it is signed (or a notarially certified copy of such
authority) must be returned by post to the Proxy Processing Centre, Telford Road, Bicester, OX26 4LD, or may be delivered
by courier or by hand to the offices of the Company’s Registrar, Capita Registrars, The Registry, 34 Beckenham Road, Beckenham,
Kent, BR3 4TU.

CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the
Annual General Meeting to be held at Northampton Rugby Football Club, Franklin’s Gardens, Weedon Road, Northampton
NN5 5BG at 11.45 a.m. on 15 May 2007 and any adjournment(s) thereof by using the procedures described in the CREST Manual.

CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service
provider(s) should refer to their CREST sponsors or voting service provider(s), who will be able to take the appropriate action on
their behalf.

In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message (a “CREST Proxy Instruction”)
must be properly authenticated in accordance with CRESTCo’s specifications and must contain the information required for such
instructions, as described in the CREST Manual. The message must be transmitted so as to be received by the Company’s agent (ID
RA10) by the latest time(s) for receipt of proxy appointments specified in the notice of meeting. For this purpose, the time of receipt
will be taken to be the time (as determined by the timestamp applied to the message by the CREST Application Host) from which
the Company’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST.

CREST members and, where applicable, their CREST sponsors and voting service providers should note that CRESTCo does not make
available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in
relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST
member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his CREST
sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of
the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting
service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST
system and timings.

The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated
Securities Regulations 2001.

In each case the proxy appointments must be received by the Company not less than 48 hours before the time appointed for holding
the meeting or any adjournment thereof.

A form of proxy is enclosed with this notice. The appointment of a proxy does not preclude a member from attending the meeting
and voting in person, in which case any votes of the proxy will be superseded.

3. Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, only those members entered on the register of
members of the Company as at 11.45 a.m. on 13 May 2007 shall be entitled to attend or vote at the meeting in respect of the
number of shares registered in their name at that time. Changes to entries on the register of members after that time shall be
disregarded in determining the rights of any person to attend or vote at the meeting.

The register referred to in note 2 means the issuer register of members and the Operator register of members maintained in
accordance with Regulation 20 of the Uncertificated Securities Regulations 2001.

The following documents will be available for inspection at the Registered Office of the Company during usual business hours on
any weekday (Saturdays and public holidays excluded) from the date of this Notice to the date of the meeting and at Northampton
Rugby Football Club from 11.15 a.m. on the day of the meeting until the conclusion of the meeting.

5.1 Copies of contracts of service of directors and non-executive directors’, letters of appointment with the Company, or with any

of its subsidiary companies.

5.2 The register of directors’ interests kept by the Company.

5.3 A copy of article 147 of the Company’s existing Articles of Association, which sets out the directors’ and officers’ indemnity

entitlements.

5.4 A statement giving particulars of directors’ relevant transactions.

5.5 The proposed new Articles of Association of the Company.

Copies of the draft rules of the Travis Perkins 2007 Performance Share Plan and of the Travis Perkins plc Share Matching Scheme (as
marked with the proposed amendments) will be available for inspection at the Registered Office of the Company and at New Bridge
Street Consultants LLP at 20 Little Britain, London EC1A 7DH during normal business hours on any weekday (Saturdays and public
holidays excepted) until the close of the Annual General Meeting and at the place of the Annual General Meeting for at least 15
minutes prior to and during the Annual General Meeting.

106

70306 ACCOUNTS 26/3/07 12:07 Page 107

D I R E C T I O N S T O N O R T H A M P T O N R U G B Y
F O O T B A L L C L U B

F R A N K L I N ’ S G A R D E N S , W E E D O N R O A D , N O R T H A M P T O N , N N 5 5 B G

The Travis Perkins AGM will be held in The Captains Suite and The Rodber Suite. Parking is directly outside in the VIP Car Park (follow

VIP Car park signs off Weedon Road).

M1 MOTORWAY

W E E D O N ROAD A4500

TOWN CENTRE

FRANKLIN’S
GARDENS

BEACON
BINGO

PUB

VIP CAR PARK

NORTHAMPTON
SAINTS RFC
STADIUM

D I R E C T I O N S

From the South (via the M1)

Exit the motorway at junction 15A, follow the signs towards Sixfields and then right onto the Weedon Road (A4500) sign posted Town

Centre. For VIP Car Park turn right after the Franklin’s Pub.

From the North (via the M1)

Exit the motorway at junction 16 and follow the A45 on to the Weedon Road (A4500). Then follow directions from the south.

From Peterborough, Cambridge, Wellingborough

Follow the ring road (A45) to Northampton and follow directions from the south.

From Welford, Market Harborough

Aim for Kingsthorpe area of Northampton. Turn right at the major set of traffic lights, signposted Sixfields. Follow the dual carriageway

to the major roundabout at Dallington. Go to the next major roundabout at the Sixfields Stadium and turn left onto the A4500 and

continue as from the M1.

From the train station

It is 5 minutes in a taxi or a 10 minute walk from the train station. Turn right out of the station, follow road into St James area of

town, keep going and follow road past St James Working Men’s Club on your left hand side, and the rugby club is 100 metres on the

left hand side.

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O T H E R S H A R E H O L D E R I N F O R M A T I O N

S H A R E H O L D E R E N Q U I R I E S
Shareholder enquiries should be directed to the Company Secretary at the Company’s registered office Lodge Way House, Lodge Way,
Harlestone Road, Northampton NN5 7UG. (telephone 01604 752424; email cosec@travisperkins.co.uk). Should your query relate to a
pensions matter please email pensions@travisperkins.co.uk or if your query relates to a marketing matter please email
marketing@travisperkins.co.uk

R E G I S T R A R ’ S O N - L I N E S E R V I C E
By logging onto www.capitaregistrars.com, clicking on “shareholders” at the top of the page and then the link under “The Share Portal”
and following the prompts, shareholders can view and amend various details on their account. Please note that you will require your
unique investor code, which can be found on your share certificate, proxy card or dividend tax voucher.

F I N A N C I A L D I A R Y
Annual General Meeting
Payment of final dividend
Announcement of interim results
Payment of interim dividend
Announcement of 2007 annual results

15 May 2007
17 May 2007
August 2007
November 2007
March 2008

S H A R E D E A L I N G S E R V I C E S
Capita IRG (“Capita”), the Company’s Registrar, offers an on-line and telephone share dealing service which is available by logging on to
www.capitadeal.com or telephoning 0870 458 4577. For the on-line service, Capita’s commission rates are 1% of the value of the deal
(minimum £17.50, maximum £50) and for the telephone service, Capita’s commission rates are 1.50% of the value of the deal
(minimum £22.50, maximum £100). An additional £2.50 will be levied on all share dealings to cover Capita’s compliance and
administrative costs.

D I V I D E N D R E - I N V E S T M E N T P L A N ( “ D R I P ” )
This is a scheme which allows you to use your dividends to buy further shares in Travis Perkins. The DRIP is administered by Capita IRG
Trustees Ltd (“CIRGT”). CIRGT will instruct the broker to buy shares on the dividend payment date at the then current market price. Any
cash left over which is insufficient to purchase a whole share will be carried forward and held without interest, in a Client Money bank
account. The DRIP commission, charged to the shareholder is 1% of the purchase price of the shares, with a minimum charge of £2.50.
This is exclusive of stamp duty reserve tax at 0.5% of the deal value. Should you wish to apply you should request an application pack
by telephoning 0870 162 3181; or, if calling from overseas +(44) 20 8639 3404; alternatively you can email shares@capitaregistrars.com.

I N T E R N E T
There are sites on the internet that carry a range of information about the Group and its principal brands, products and services at the
following addresses:

www.travisperkins.co.uk*
www.trademate.co.uk
www.gardendimensions.co.uk
www.tpph.co.uk
www.buildthedream.co.uk
www.homedimensions.co.uk
www.bmpublicsector.co.uk
*These sites allow credit account holders to order on-line with the exception of the Wickes’ site which allows on-line ordering by secure card transaction.

www.cityplumbing.co.uk*
www.tpextranet.co.uk
www.ccfltd.co.uk*
www.toolmart.co.uk
www.keyline.co.uk*
www.wickes.co.uk*
www.tpnet.co.uk

Some of the sites provide information about branch locations and allow access to prices and the product range available. Customers
are also able to construct their own price quotation that includes any special price arrangements that have been negotiated with
the Group.

108

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M
U

I
L
O
F

T
N

I
R
P

T
T
I

W
E
H

I
V
L
A
C

Y
H
P
A
R
G
O
T
O
H
P

S
T
N
A
T
L
U
S
N
O
C

N
G
I
S
E
D

H
W
R

N
G
I
S
E
D

70306_trav CVR 21/3/07 12:55 Page 1

T R A V I S P E R K I N S P L C

2 0 0 6 A N N U A L R E P O R T A N D A C C O U N T S

Lodge Way House, Harlestone Road, Northampton NN5 7UG

Telephone 01604 752 424

A L E A D E R I N B U I L D E R S ’ M E R C H A N T I N G A N D H O M E I M P R O V E M E N T R E T A I L I N G