THIS DOCUMENT AND ANY ACCOMPANYING DOCUMENTS ARE IMPORTANT AND REQUIRE YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, you are recommended to seek immediately your own personal financial advice from your stockbroker, bank manager, solicitor, accountant, fund manager or other appropriate independent financial adviser, who is authorised under the Financial Services and Markets Act 2000 (the “FSMA”) if you are in the UK or, if not, from another appropriately authorised independent financial adviser. If you sell or have sold or otherwise transferred all of your Existing Shares (other than ex-rights) held in certificated form before 28 May 2009 (the “Ex-Rights Date”), please send this document, together with any Provisional Allotment Letter, duly renounced, if and when received, at once to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for delivery to the purchaser or transferee except that such documents should not be sent to any jurisdiction where to do so might constitute a violation of local securities laws or regulations, including but not limited to, subject to certain exceptions, the United States and the Excluded Territories. If you sell or have sold or otherwise transferred all or some of your Existing Shares (other than ex-rights) held in uncertificated form before the Ex-Rights Date, a claim transaction will automatically be generated by Euroclear UK which, on settlement, will transfer the appropriate number of Nil Paid Rights to the purchaser or transferee. If you sell or have sold or otherwise transferred only part of your holding of Existing Shares (other than ex-rights) held in certificated form before the Ex-Rights Date, you should refer to the instruction regarding split applications in Part III (“Terms and Conditions of the Rights Issue”) of this document and in the Provisional Allotment Letter, if and when received. This document, which comprises a prospectus relating to the Rights Issue prepared in accordance with the Prospectus Rules, PRA3 4.7 has been approved by the Financial Services Authority (the “FSA”) in accordance with Section 87A of the FSMA and made PRA3 6.1 available to the public in accordance with Rule 3.2 of the Prospectus Rules. The Existing Shares are listed and admitted to PRA3 6.2 trading on the London Stock Exchange’s main market for listed securities. Application will be made to the UK Listing Authority and to the London Stock Exchange for the New Shares to be admitted to the Official List of the UK Listing Authority and to trading on the main market for listed securities of the London Stock Exchange, respectively. It is expected that Admission will become effective and that dealings on the London Stock Exchange in the New Shares (nil paid) will commence at 8.00 a.m. (London time) on 28 May 2009.
TRAVIS PERKINS PLC (incorporated and registered in England and Wales with registered number 00824821) Proposed 7 for 10 Rights Issue of 85,903,379 PRA1 5.1.1 PRA1 5.1.2 New Shares at 365 pence per New Share PRA3 4.1 Joint Sponsor and Joint Sponsor and PRA3 4.2 Joint Global Coordinator Joint Global Coordinator PRA3 4.4 Citi HSBC Bank plc PRA3 5.1.2 PRA3 5.3.1 Joint Lead Manager Joint Lead Manager Joint Lead Manager Barclays Bank PLC BNP Paribas RBS Hoare Govett Limited
Joint Financial Adviser Joint Financial Adviser HSBC Bank plc Tricorn Partners LLP
Your attention is drawn to the letter from the Chairman which is set out on pages 34 to 41 of this document. You should read the whole of this document and any documents incorporated herein by reference. Shareholders and any other persons contemplating a purchase of the Nil Paid Rights, the Fully Paid Rights or the New Shares should review the risk factors set out on pages 12 to 21 of this document for a discussion of certain factors that should be considered when deciding on what action to take in relation to the Rights Issue and deciding whether or not to purchase the Nil Paid Rights, the Fully Paid Rights or the New Shares. The latest time and date for acceptance and payment in full for the New Shares by holders of the Nil Paid Rights is PRA3 5.1.3 expected to be 11.00 a.m. on 11 June 2009. The procedures for delivery of the Nil Paid Rights, acceptance and payment are set out in Part III (“Terms and Conditions of the Rights Issue”) of this document and, for Qualifying Non-CREST Shareholders only, also in the Provisional Allotment Letter which is due to be sent subsequently. Qualifying CREST Shareholders should refer to paragraph 2.2 of Part III (“Terms and Conditions of the Rights Issue”) of this document. If you have questions on the procedure for application and payment, you should contact the Receiving Agent. The Receiving Agent cannot provide advice on the merits of the proposals or give any financial, legal or tax advice. Further information is set out in “Where to find help” on page 31. The Nil Paid Rights, the Fully Paid Rights and the New Shares have not been and will not be registered under the US Securities Act or under any securities laws of any state or other jurisdiction of the United States and may not be offered, sold, resold, taken up, exercised, renounced, transferred or delivered, directly or indirectly, within the United States except pursuant to an applicable exemption from the registration requirements of the US Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. There will be no public offer in the United States. The Nil Paid Rights, the Fully Paid Rights and the New Shares will not be registered under the securities laws of the Excluded Territories and may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within such jurisdictions except pursuant to an applicable exemption from and in compliance with any applicable securities laws. There will be no public offer in any Excluded Territory. Subject to certain exceptions, this document and the Provisional Allotment Letter should not be distributed, forwarded to or transmitted in or into the United States or the Excluded Territories or in or into any other jurisdiction where the extension or availability of the Rights Issue would breach any applicable law. Subject to the passing of the Resolutions, it is expected that Qualifying Non-CREST Shareholders will be sent a Provisional Allotment Letter on 27 May 2009 and that Qualifying CREST Shareholders will receive a credit to their appropriate stock accounts in CREST in respect of the Nil Paid Rights to which they are entitled on 28 May 2009. The Nil Paid Rights so credited are expected to be enabled for settlement by Euroclear UK as soon as practicable after Admission. Neither this document nor the Provisional Allotment Letter constitutes or forms part of any offer or invitation to sell or issue, or any solicitation of any offer to acquire, the Nil Paid Rights, the Fully Paid Rights or the New Shares offered to any person with a registered address, or who is resident or located, in the United States or any of the Excluded Territories, subject to certain exceptions, or to any person in any jurisdiction in which such an offer or solicitation is unlawful. The Underwriters, the Joint Sponsors and Tricorn Partners are acting exclusively for Travis Perkins and no one else in connection with the Rights Issue and will not regard any other person (whether or not a recipient of this document) as their respective client in relation to the Rights Issue and will not be responsible to anyone other than Travis Perkins for providing the protections afforded to their respective clients or for providing advice in relation to the Rights Issue or any matters referred to in this document. Investors should only rely on the information contained in this document and any documents incorporated herein by reference. No person has been authorised to give any information or make any representations other than those contained in this document and any document incorporated by reference herein and, if given or made, such information or representation must not be relied upon as having been so authorised. Travis Perkins will comply with its obligation to publish a supplementary prospectus containing further updated information if so required by law or by any regulatory authority but assumes no further obligation to publish additional information. Apart from the responsibilities and liabilities, if any, which may be imposed on the Underwriters by the FSMA, none of the Underwriters accepts any responsibility whatsoever and makes no representation or warranty, express or implied, for or in respect of the contents of this document, including its accuracy, completeness or verification or regarding the legality of an investment in the Nil Paid Rights, the Fully Paid Rights or the New Shares by an offeree or purchaser thereof under the laws applicable to such offeree or purchaser or for any other statement made or purported to be made by them, or on their behalf, in connection with Travis Perkins, the Nil Paid Rights, the Fully Paid Rights, the New Shares or the Rights Issue, and nothing in this document is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or future. The Underwriters accordingly disclaim any responsibility and liability whether arising in tort, contract or otherwise, which they might otherwise be found to have in respect of this document or any such statement.
2 The Nil Paid Rights, the Fully Paid Rights and the New Shares have not been approved or disapproved by the United States Securities and Exchange Commission, any state securities commission in the United States or any United States regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the Nil Paid Rights, the Fully Paid Rights or the New Shares or the accuracy or adequacy of this document. Any representation to the contrary is a criminal offence.
The Underwriters may arrange for the offer of New Shares in the United States not taken up in the Rights Issue only to persons reasonably believed to be “qualified institutional buyers” within the meaning of Rule 144A under the US Securities Act in reliance on an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act. The Nil Paid Rights, the Fully Paid Rights and the New Shares offered outside the United States are being offered in reliance on Regulation S under the US Securities Act. In addition, until 40 days after the commencement of the Rights Issue, an offer, sale or transfer of the Nil Paid Rights, the Fully Paid Rights or the New Shares within the United States by a dealer (whether or not participating in the Rights Issue) may violate the registration requirements of the US Securities Act.
All Overseas Shareholders and any person (including, without limitation, a nominee or trustee) who has a contractual or legal obligation to forward this document or any Provisional Allotment Letter, if and when received, or other document to a jurisdiction outside the UK, should read paragraph 2.5 of Part III (“Terms and Conditions of the Rights Issue”) of this document.
NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES (“RSA”) WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
3 TABLE OF CONTENTS
Page
SUMMARY 5
RIGHTS ISSUE STATISTICS 10
EXPECTED TIMETABLE OF PRINCIPAL EVENTS 11
RISK FACTORS 12
IMPORTANT INFORMATION 22
DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS 32
PART I LETTER FROM THE CHAIRMAN OF TRAVIS PERKINS PLC 34
PART II SOME QUESTIONS AND ANSWERS ABOUT THE RIGHTS ISSUE 42
PART III TERMS AND CONDITIONS OF THE RIGHTS ISSUE 48
PART IV INFORMATION ON TRAVIS PERKINS 74
PART V OPERATING AND FINANCIAL REVIEW OF TRAVIS PERKINS 89
PART VI FINANCIAL INFORMATION ON TRAVIS PERKINS 113
PART VII UNAUDITED PRO FORMA FINANCIAL INFORMATION 114
PART VIII TAXATION 118
PART IX ADDITIONAL INFORMATION 125
PART X DOCUMENTATION INCORPORATED BY REFERENCE 168
PART XI DEFINITIONS 169
4 SUMMARY
The following summary information should be read as an introduction to the more detailed S87A(5)FSMA information appearing elsewhere in this document. Any decision relating to the Rights Issue should be PR2 1.7 based on consideration of this document as a whole (including documents incorporated by reference PR2 2.10 into this document) and not solely on this summarised information. Where a claim relating to the information contained in this document is brought before a court in a member state of the European Economic Area, the claimant may, under the national legislation of the member state where the claim is brought, be required to bear the costs of translating this document before legal proceedings are initiated. Civil liability attaches to those persons who are responsible for this summary, including any translation of this summary, but only if this summary is misleading, inaccurate or inconsistent when read together with other parts of this document.
1. Introduction On 11 May 2009, the Board announced a fully underwritten rights issue to raise gross proceeds of PRA3 3.4 approximately £314 million (approximately £300 million net of expenses) by the issue of 85,903,379 New Shares (representing approximately 70.0 per cent. of the existing issued share capital of the Company and 41.2 per cent. of the enlarged issued share capital immediately following completion of the Rights Issue) through a 7 for 10 rights issue at 365 pence per New Share. The Issue Price represents a 38.5 per cent. discount to the theoretical ex-rights price based on the Closing Price on 8 May 2009 (being the last business day before the announcement of the terms of the Rights Issue).
Travis Perkins is one of the UK’s largest builders’ merchant and home improvement retailers in terms of revenue and number of branches. The principal activities of the Group are the distribution and sale of a wide range of general building materials, timber, plumbing and heating products and the hiring of tools to professional builders and contractors and to the general public within the UK.
2. Background to and reasons for the Rights Issue The weakening economic conditions which started in 2008 and have continued since then have negatively affected the Group’s operating performance. During 2008, Travis Perkins sought to address the impact of the decline in its markets across the UK by taking a number of cost reducing and cash generating initiatives. These initiatives included significantly reducing headcount, reducing capital expenditure, reducing working capital and suspension of the final dividend for 2008.
Travis Perkins’ syndicated credit facility and its US PP Notes contain financial covenants. The key financial covenants are the ratio of consolidated total net borrowings (adjusted net debt) to consolidated earnings before interest tax, depreciation and amortisation (“EBITDA”) (each as defined in those covenants) which must not exceed 3.5:1 (the “Net Debt Covenant”), and the ratio of consolidated earnings before interest, tax and amortisation (“EBITA”) to consolidated net interest (“interest cover”) (each as defined in those covenants) which must not be less than 3.5:1. The Group remains, and expects to remain, fully in compliance with its covenants.
In addition to the cost reducing and cash generating initiatives implemented by the Group described above, the Board has determined that it is appropriate for the Group to strengthen its balance sheet and overall financial position now, given continuing uncertain macro-economic conditions and the implications of this uncertainty for the Group’s business. The Rights Issue would enable the Group to operate more effectively in the current market conditions, to create a more stable position from which to grow and to position the Group to take advantage of a possible future recovery in its markets. Specifically, the Board believes the Rights Issue should enable the Group to:
(i) reduce the Group’s net debt and substantially increase financial headroom;
(ii) improve the Group’s trading position through the recession;
(iii) increase the flexibility of the Group to operate and invest in its core businesses;
5 (iv) strengthen the Group’s competitive and strategic position to allow it to exploit the recovery potential in its markets and expand as conditions improve; and
(v) enhance the Group’s future access to and costs of sources of capital.
3. Use of proceeds The Board intends to use the net proceeds of the Rights Issue, amounting to approximately £300 million, PRA3 3.4 primarily to reduce borrowings under the Group’s £475 million revolving credit facility. To the extent the net PRA3 8.1 proceeds exceed the amount paid down under the revolving credit facility, any balance of the net proceeds will be retained for general corporate purposes. The Group’s revolving credit facility will remain available to be redrawn. The Board believes that the Rights Issue will strengthen the Group’s balance sheet and create a stronger position from which to develop the Group’s business as macroeconomic conditions improve.
4. Principal terms of the Rights Issue Travis Perkins intends to raise gross proceeds of approximately £314 million (approximately £300 million PRA3 4.1 net of expenses) through the issue of 85,903,379 New Shares under the Rights Issue. PRA3 8.1
Subject to certain conditions, the Company is proposing to offer 85,903,379 New Shares by way of PRA3 4.4 rights to Qualifying Shareholders at 365 pence per New Share on the basis of 7 New Shares for every 10 Existing Shares.
The Issue Price represents a 38.5 per cent. discount to the theoretical ex-rights price based on the Closing Price of 753.5 pence per Ordinary Share on 8 May 2009 (being the last business day before the announcement of the Rights Issue) and a 51.6 per cent. discount to the Closing Price of 753.5 pence per Ordinary Share on 8 May 2009 (being the last business day before the announcement of the terms of the Rights Issue). The Rights Issue is being made to all Qualifying Shareholders on the register of members of the Company at the close of business on 22 May 2009.
The Rights Issue, which is fully underwritten by the Underwriters pursuant to the Underwriting Agreement, PRA3 5.1.1 is conditional, inter alia, upon: PRA3 5.4.3
(i) the passing of the Resolutions at the Extraordinary General Meeting;
(ii) the Underwriting Agreement having become unconditional in all respects (save for the condition PRA3 5.4.3 relating to Admission) and not having been terminated in accordance with its terms; and
(iii) Admission becoming effective by not later than 8.00 a.m. on 28 May 2009 (or such later time and date as the Company and the Joint Global Coordinators may agree).
Admission is expected to occur and dealings in the New Shares (nil paid) are expected to commence on the London Stock Exchange at 8.00 a.m. on 28 May 2009. The New Shares will, when issued and fully paid, rank pari passu in all respects with the Existing Shares, including the right to receive all dividends or other distributions declared, made or paid after the date of their issue.
The latest time and date for acceptance and payment in full under the Rights Issue is expected to be PRA3 5.2.3(g) 11.00 a.m. on 11 June 2009 (unless Travis Perkins announces through a Regulatory Information Service at a later date).
5. Selected financial information on Travis Perkins The financial information for the years ended 31 December 2008, 2007 and 2006 as set out below has been PRA1 3.1 extracted without material adjustment from, and should be read together with, Travis Perkins’ audited CESR 27-32 consolidated financial statements included in its Annual Report and Accounts for each of the years ended PRA1 20.4.1 31 December 2008, 2007 and 2006 and incorporated by reference into this document.
6 Key income statement data: For the year ended 31 December 2008 2007 2006 (£m) Revenue 3,178.6 3,186.7 2,848.8 Operating profit 215.3 319.9 289.6 Profit before taxation 146.3 261.4 231.9 Profit after taxation 101.9 185.3 167.0 Basic earnings per Ordinary Share (pence) 87.1 153.3 137.9 Total dividends declared per Ordinary Share (pence) 14.5 44.9 37.4 Adjusted operating profit(1) 271.5 319.9 278.0 Adjusted profit before taxation(1) 202.5 261.4 220.3 Adjusted profit after taxation(1) 143.9 181.1 154.2 Adjusted basic earnings per Ordinary Share(1) (pence) 123.0 149.8 127.4
Note: (1) For a discussion of the adjustments made, see “Important Information – Non-GAAP financial measures”.
Key balance sheet data: As at 31 December 2008 2007 2006 (£m) Total non-current assets 2,173.2 2,010.2 1,904.8 Total current assets 718.2 779.1 715.0 Total non-current liabilities 1,225.5 998.7 959.5 Total current liabilities 647.7 753.7 727.2 Total equity 1,018.2 1,036.9 933.1
6. Working capital The Company is of the opinion that, after taking into account existing available bank and other facilities, the Group has sufficient working capital for its present requirements, that is, for at least the next 12 months from the date of this document.
7. Current trading and prospects PRA1 12.1 Overall the Group has performed ahead of the Board’s expectations in the first four months of 2009 in PRA1 12.2 markets that have, as anticipated, continued the slowdown seen throughout 2008.
Group revenue for the four months ended 30 April 2009 was down by 13.6 per cent. with like-for-like sales down 14.4 per cent., giving rise to a reduction in the Group’s profit before tax, compared to the same period in 2008.
• For the four months ended 30 April 2009, Merchanting revenue declined by 18.4 per cent. and on a like-for-like basis by 19.0 per cent. Merchanting has been successful in passing on the majority of product cost increases and limiting gross margin erosion.
• Revenue for Retail for the 18 week period ended 2 May 2009 declined by 1.9 per cent., with like-for- like sales declining by 3.6 per cent. on a delivered basis compared to the same period in 2008. Wickes had a successful Easter period reflected by like-for-like sales improvement for March and April 2009 combined of 2.9 per cent. over the same months in 2008.
• Reductions in overhead costs (comprising selling and distribution costs and administration expenses) in the four months ended 30 April 2009 are running just ahead of the Group’s targeted £50 million reduction of costs in 2009 when compared to 2008.
7 • The Group’s net debt position at 31 March 2009 of £984.6 million was improved ahead of the Board’s expectations.
• The Board expects the Group’s markets to continue to weaken until at least the third quarter of 2009. The Board believes recent lead indicators generally show signs of stabilisation. The Board has continued to manage the business according to its current operational priorities, including cash generation and cost control.
8. No significant change Save for the declines in revenue of 18.4 per cent. in Merchanting and 1.9 per cent. in Retail, giving rise to a reduction in the Group’s profit before tax, as disclosed in paragraph 7 above, there has been no significant change in the financial or trading position of the Group since 31 December 2008, the date to which the latest published financial information on the Group was prepared.
9. Dividend policy PRA1 20.7 In view of the continuing difficulties in the markets in which the Group operates, the Board announced on 19 February 2009 a suspension of the final dividend for the year ended 31 December 2008.
The Board remains committed to maintaining long-term dividend cover at between 2.5 and 3.5 times earnings and expects to resume dividend payments once it is prudent to do so. The decision as to when to declare a dividend and the amount to be paid will take into account, inter alia, the Group’s earnings, cash flows and balance sheet position, as well as the then prevailing market outlook.
10. Summary of risk factors Shareholders should carefully consider the following key risks:
Risks relating to the Group PRA1 4 CESR 27 • Economic conditions in the UK have experienced significant distress, which has had and may continue to have a material adverse effect on the Group’s future prospects, financial condition and results of operations.
• The Group’s customers and suppliers are exposed to risks associated with the current worldwide downturn and financial crisis, which could in turn have a material adverse effect on the Group’s future prospects, financial condition or results of operations.
• The Group operates in a competitive environment and it may not be able to compete effectively.
• The Group’s operating and financial flexibility is restricted by its level of indebtedness and financial covenants and it may incur costs if it breaches its financial covenants.
• Suppliers may not continue to supply products to the Group on commercially acceptable terms or at all.
• Major incidents at the Group’s distribution centres could damage its business.
• Changing commodity prices may adversely affect the Group’s future prospects, financial condition or results of operations.
• Interruption or failure of the Group’s information technology systems could damage its business.
• The Group’s products are supplied from a number of overseas markets and the Group depends on effective hedging against fluctuations in exchange rates.
• The Group’s borrowings are subject to varying interest rates, which could have a material adverse effect on its business.
8 • The Group’s success depends in part on its senior management and there is no guarantee that the senior management team will remain employed by the Group.
• The Group is exposed to the risk of bank counterparty default.
• An unexpectedly high increase in contributions to the Group’s pension scheme could materially reduce the availability of cash to the Group.
• The Group has high insurance deductibles and may have under-provided for any losses.
• The Group may not be able to successfully acquire or integrate new businesses.
• The Group’s reputation, future prospects or results of operations may be materially adversely affected by claims or litigation.
• The Group is exposed to risks associated with leased property and any variations to the terms of such leases.
• The Group is exposed to the risks associated with leases it has assigned.
• The Group depends on its brands and may not be able to prevent reputational damage.
• The ability of Travis Perkins to pay dividends is dependent on the performance of its subsidiaries.
• The Group’s operations could be adversely affected by unusual weather conditions.
Risks relating to the Rights Issue and the New Shares • Travis Perkins’ share price may fluctuate.
• An active trading market in the Nil Paid Rights and the Fully Paid Rights may not develop.
• Shareholders who do not acquire New Shares in the Rights Issue will experience dilution in their ownership of Travis Perkins.
• Any future issues of shares will further dilute the holdings of current Shareholders and could adversely affect the market price of Travis Perkins’ shares.
• Depending on performance and market conditions, Travis Perkins may not pay out cash dividends in the foreseeable future, or may pay out smaller dividends than the market expects.
• Shareholders outside the UK may not be able to receive the New Shares in the Rights Issue and may be diluted.
• The ability of Overseas Shareholders to bring actions or enforce judgments against Travis Perkins or the Directors may be limited.
• Overseas Shareholders may be subject to exchange rate risks.
9 RIGHTS ISSUE STATISTICS
Issue Price per New Share 365 pence PRA3 5.3.1
Basis of Rights Issue 7 New Shares for every 10 Existing Share
Number of Ordinary Shares in issue at the date of this document 122,719,114
Number of New Shares to be issued by the Company pursuant to the Rights Issue(1) 85,903,379 PRA3 5.1.2
Number of Ordinary Shares in issue immediately following completion of the Rights Issue(1) 208,622,493
New Shares as a percentage of the enlarged issued share capital of the Company immediately following completion of the Rights Issue(1) 41.2%
Estimated gross proceeds receivable by the Company approximately £314 million
Estimated net proceeds receivable by the Company after expenses approximately £300 million PRA3 8.1 PRA3 8.1
Note: (1) On the assumption that no further Ordinary Shares are issued as a result of the exercise of any options or awards under any Travis Perkins Employee Share Plans between the publication of this document and the closing of the Rights Issue.
10 EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Each of the times and dates in the table below is indicative only and may be subject to change. PRA3 5.1.3
Record Date for entitlement under the Rights Issue for Qualifying CREST Shareholders and Qualifying Non-CREST Shareholders close of business on 22 May 2009
Latest time and date for receipt of Forms of Proxy for the Extraordinary General Meeting 11.00 a.m. on 25 May 2009
Extraordinary General Meeting 11.00 a.m. on 27 May 2009
Despatch of Provisional Allotment Letters (to Qualifying Non-CREST Shareholders only) 27 May 2009
Start of subscription period 28 May 2009
Admission 8.00 a.m. on 28 May 2009
Dealings in New Shares, nil paid, commence on the London Stock Exchange 8.00 a.m. on 28 May 2009 PRA3 5.2.3(g)
Existing Shares marked “ex-rights” by the London Stock Exchange 8.00 a.m. on 28 May 2009
Nil Paid Rights credited to stock accounts in CREST (Qualifying CREST Shareholders only) 8.00 a.m. on 28 May 2009
Nil Paid Rights and Fully Paid Rights enabled in CREST 8.00 a.m. on 28 May 2009
Recommended latest time for requesting withdrawal of Nil Paid Rights and Fully Paid Rights from CREST (i.e. if your Nil Paid Rights and Fully Paid Rights are in CREST and you wish to convert them to certificated form) 4.30 p.m. on 5 June 2009
Latest time for depositing renounced Provisional Allotment Letters, nil or fully paid, into CREST or for dematerialising Nil Paid Rights or Fully Paid Rights into a CREST stock account (i.e. if your Nil Paid Rights and Fully Paid Rights are represented by a Provisional Allotment Letter and you wish to convert them to uncertificated form) 3.00 p.m. on 8 June 2009
Latest time and date for splitting Provisional Allotment Letters, nil or fully paid 3.00 p.m. on 9 June 2009
Latest time and date for acceptance, payment in full and registration or renunciation of Provisional Allotment Letters 11.00 a.m. on 11 June 2009
Dealings in New Shares, fully paid, commence on the London Stock Exchange 8.00 a.m. on 12 June 2009
New Shares credited to CREST stock accounts by 12 June 2009
Despatch of definitive share certificates for the New Shares in certificated form by 26 June 2009
Notes: (1) The ability to participate in the Rights Issue is subject to certain restrictions relating to Shareholders with registered addresses outside the UK, details of which are set out in Part III (“Terms and Conditions of the Rights Issue”) of this document. (2) The times and dates set out in the expected timetable of principal events above and mentioned throughout this document may be adjusted by Travis Perkins (in consultation with the Underwriters), in which event details of the new times and dates will be notified to the FSA, the London Stock Exchange and, where appropriate, Qualifying Shareholders. (3) Different deadlines and procedures for applications may apply in certain cases. For example, if you hold your Existing Shares through a CREST member or other nominee, that person may set an earlier date for application and payment than the dates noted above. (4) References to times in this document are to London times unless otherwise stated.
11 RISK FACTORS
The following risks should be considered carefully before making any investment decision. PRA1 4
The Rights Issue and an investment in New Shares are subject to a number of risks. Accordingly, investors PRA3 2 and prospective investors in New Shares should carefully consider all of the information set out in this document and the risks described in this section, which address the existing and future material risks to the Group’s businesses and industry and to New Shares. The risks below are not the only ones that the Group will face. Some risks are not yet known and some that are not currently deemed material could later turn out to be material. All of these risks could materially affect the Group, its future prospects, financial condition or results of operations. In such a case, the market price of Ordinary Shares may decline and Shareholders could lose all or part of their investment. Shareholders should read this section in conjunction with this entire document.
Risks Relating to the Group
Economic conditions in the UK have experienced significant distress, which has had and may continue PRA1 6.3 to have a material adverse effect on the Group’s future prospects, financial condition and results of operations As the Group’s operations are almost entirely based in the UK, the performance of the Group is influenced by economic conditions in the UK. The global financial system has been experiencing severe difficulties since August 2007 and, in particular, financial markets have deteriorated dramatically since mid-2008. This has led to a severe dislocation of financial markets around the world, including in the UK, and unprecedented illiquidity in the global financial system. In response to market instability and illiquidity, a number of governments, including the UK Government, have intervened in order to inject capital into, and generate additional liquidity in, financial markets to promote stability and, in some cases, to prevent the failure of financial institutions. In spite of ongoing efforts by the UK Government to stabilise the economy in the UK, the UK is currently in recession.
The Group’s products are sold to customers principally for use in connection with commercial, industrial and residential construction projects in the UK. Economic conditions have led to severe restrictions on spending on such projects and have restricted consumer spending on all aspects of construction. Additionally, deteriorating house values in the UK have negatively impacted the volume of housing transactions and related expenditures for home improvements and repairs, in addition to reducing the equity against which homeowners may borrow to finance home improvements. The Board believes that the construction market contracted significantly in 2008 and continues to contract in 2009. Specific drivers of activity in the Group’s market sectors which have been adversely affected include: housing transactions; new housing builds; RMI activity; the extent of unsold new housing inventory; house price inflation; mortgage and other interest rates; the availability of credit; unemployment; demographic trends; gross domestic product growth; the price of oil, metals, utilities and other commodities; and consumer spending and confidence. In 2008, the Group began to experience reduced sales attributable to the deteriorating economic conditions. Like-for-like sales in the Group’s Merchanting and Retail segments decreased by 4.2 per cent. and 5.3 per cent., respectively, in the year ended 31 December 2008 compared to the year ended 31 December 2007.
It is not possible to accurately predict the duration of the current market conditions or the timing or strength of any future recovery of the UK economy. It is also not possible to provide any assurances that current market conditions and the UK economy will not weaken further or that the cost-cutting measures the Group has implemented to address the current market conditions will be sufficient. Because commercial, industrial and residential construction spending and markets are sensitive to changes in the economy, further downturns or continued weakness in the Group’s market sector and the UK economy could have a material adverse effect on the Group’s future prospects, financial condition or results of operations. There may also be significant fluctuations in the Group’s operating results and the results for any period may not be indicative of results for any future period.
12 The Group’s customers and suppliers are exposed to risks associated with the current worldwide downturn and financial crisis, which could in turn have a material adverse effect on the Group’s future prospects, financial condition or results of operations The Group is exposed to the risk of default by customers who have agreed to purchase products or services from the Group, suppliers who have agreed to supply goods and/or pay rebates to the Group, and others with whom the Group has entered into financial and other arrangements. For example, within Merchanting, one of the key aspects of customer service is the provision of credit to customers, with the Group carrying the associated credit risk. Additionally, a number of the Group’s customers and suppliers have been and may continue to be adversely affected by the worldwide financial crisis, disruptions to the capital and credit markets and decreased demand for their products and services. The Group’s exposure to default by counterparties, such as through contracts with suppliers under which rebates would be due to the Group, may increase if economic conditions further deteriorate. As at 31 December 2008, Merchanting had approximately 140,000 active accounts, the top 25 of which owed the Group £19.8 million. In the event that any of the Group’s key customers or suppliers, or a significant number of smaller customers and suppliers, are further adversely affected by these risks, the Group may face further reductions in demand for its products and services, failure of customers to pay invoices when due and disruptions in supply which may have a material adverse effect on the Group’s future prospects, financial condition or results of operations.
During the recession of 1990/1991, the Group experienced bad debt levels of up to 1.36 per cent. of credit sales. Over the past 10 years, the bad debt charge has averaged below 0.5 per cent. However, during the latter part of 2008, the Group experienced an increasing level of bad debts, with the bad debt charge for the year reaching 0.9 per cent. of credit sales (compared to 0.4 per cent. for the year ended 31 December 2007). The Group’s bad debt level in the latter part of the second half of 2008 was 1.3 per cent. The Group’s bad debt charge increased by £8.9 million in the year ended 31 December 2008 over the year ended 31 December 2007. Debtor days at 31 December 2008 were 59 days (compared to 56 days at 31 December 2007). In the current climate, there may be further deterioration in both debtor days outstanding and the Group’s bad debt charge and such deterioration could exceed the levels experienced during the recession of 1990/1991, which could have a material adverse effect on the Group’s future prospects, financial condition or results of operations.
The Group operates in a competitive environment and it may not be able to compete effectively The sectors or markets in which the Group operates are highly competitive. The principal competitive factors are convenience of location, product availability, pricing strategies, customer service, availability of credit, technical product knowledge with respect to application and usage and advisory capabilities. The Group competes with a wide variety of builders’ merchants and retailers of varying sizes, and faces increased competition from existing general and specialist retailers which operate in different ways from the Group, for example by mail order or exclusively over the internet. The Group also faces the risk of new entrants to any of its markets, including from businesses currently only operating in overseas markets. Actions taken by the Group’s competitors, as well as actions taken by the Group to maintain its own competitiveness and reputation for value for money, have placed and may continue to place pressure on the Group’s product pricing, margins and profitability. Some of the Group’s competitors may have access to some or all of the following: greater financial resources, greater purchasing economies and lower cost bases, any of which may give them a competitive advantage and may adversely impact the Group’s sales, profits and margins. Competitive conditions can be particularly acute in down markets, as in the latter half of 2008 and in 2009, when market participants increased pricing pressure through promotional activities to maintain or increase their sales volume and market share. In the current economic environment, the Group’s competitors may resort to particularly aggressive actions to hold or increase their market share, for example pricing benchmark products such as cement and plasterboard below cost in order to attract customers. No assurance can be given that the Group will be able to respond effectively to such competitive pressures. Increased competition by existing and/or future competitors could result in reductions in sales, prices, volumes and gross margins that could materially adversely affect the Group’s future prospects, financial condition or results of operations. Furthermore, the Group’s success will depend, in part, on its ability to continue to gain market share from competitors.
13 The Group’s operating and financial flexibility is restricted by its level of indebtedness and financial covenants and it may incur costs if it breaches its financial covenants The Group’s existing syndicated credit facility and its US PP Notes contain a number of restrictive covenants that could limit the Group’s operating and financial flexibility. The key financial covenants are the ratio of consolidated total net borrowings (adjusted net debt) to consolidated earnings before interest tax, depreciation and amortisation (“EBITDA”) (each as defined in those covenants) which must not exceed 3.5:1, and the ratio of consolidated earnings before interest, tax and amortisation (“EBITA”) to consolidated net interest (“interest cover”) (each as defined in those covenants) which must not be less than 3.5:1. At 31 December 2008, the Group achieved an adjusted net debt to EBITDA ratio of 2.8:1 and an interest cover ratio of 4.3:1. The Net Debt Covenant and the Interest Cover Covenant are tested twice per annum on 30 June and 31 December.
A breach of either of these covenants could result in a significant proportion of the Group’s borrowings becoming immediately repayable. In order to remain in compliance with these covenants, and depending on the future performance of its business, the Group may be required to take actions that it would not otherwise have chosen or may be unable to pursue opportunities it otherwise would have, such as brownfield expansion and business acquisitions. In addition, any future debt financing that the Group obtains may impose additional restrictions on financing and operating activities. For details of the Group’s debt financing arrangements, see Part V (“Operating and Financial Review of Travis Perkins”) of this document.
The Group’s existing level of indebtedness and the covenants which apply to it may have important consequences, including:
• causing the Group to reprioritise the uses to which its capital is put to the potential detriment of the Group’s business needs, which, depending on the level of the Group’s borrowings, prevailing interest rates and exchange rate fluctuations, could result in reduced funds being available for expansion, dividend payments and other general corporate purposes;
• limiting the Group’s flexibility in planning for, or reacting to, changes in technology, customer demand, competitive pressures and the sectors in which it operates;
• placing the Group at a competitive disadvantage compared to its competitors, who may be less leveraged and restricted by financial covenants than the Group;
• increasing the Group’s vulnerability to both general and industry-specific adverse economic conditions; and
• increasing the cost of servicing the Group’s borrowings in the event such covenants are renegotiated.
The above factors could limit the Group’s financial and operational flexibility and this could have a material adverse effect on its future prospects, financial condition, results of operations or ability to pay dividends.
The Board believes that it has sufficient headroom under its financial covenants for the next 12 months and has undertaken additional measures to further increase this headroom, such as the cost-cutting measures described in paragraph 2 of Part I (“Letter from the Chairman of Travis Perkins plc”) and the paragraph entitled The Group’s response to market conditions set out in of Part V (“Operating and Financial Review of Travis Perkins”) of this document, replacing its interest rate derivative contracts, described in Part V (“Operating and Financial Review of Travis Perkins – Interest Rate Derivatives”) of this document and the Rights Issue, which the Board believes will further improve its headroom. However, although the Board does not have any expectation that the Group will breach any of its financial covenants in the future, to the extent that the actions the Group has already taken are not sufficient to combat events outside of its control, such as further deterioration in the market environment proving to be more severe than the Group expects, there is a risk that these covenants may be breached in the future and the cost of such breach and the resulting required refinancing could be an expensive cost to the Group, which could adversely affect the Group’s future prospects, financial condition or results of operations.
14 Suppliers may not continue to supply products to the Group on commercially acceptable terms or at all The Group distributes heavy building materials, timber, forest products, plumbing and heating, lightside products and kitchens and bathrooms products sourced from a number of suppliers. The ability of the Group to supply those products to its customers depends on its ability to procure them from suppliers. The Group’s top 50 suppliers accounted for 57 per cent. of the Group’s purchases by value in the year ended 31 December 2008. Although no single supplier accounted for more than 7 per cent. of the Group’s total material and supply purchases by value during the year ended 31 December 2008, the Group may still experience product shortages as a result of unexpected demand or production difficulties or any plant closures during the current recession. If the Group is unable to obtain sufficient products from suppliers, at all or on commercially acceptable terms, the Group’s business would be materially adversely affected.
As a consequence of the current economic downturn, some suppliers and potential suppliers have been facing difficulties in obtaining sufficient credit insurance on their receivables; this may affect their willingness to continue extending favourable credit terms to the Group and, in some cases, they may require prepayments from the Group, or, if prepayments are no longer available or not considered acceptable by the Group, they may no longer supply their products to the Group. If suppliers do demand prepayments, and the Group elects not to make them, it will need to find alternative suppliers for the relevant products. If such products cannot be sourced from another supplier, the Group will lose customers and revenue. If suppliers demand prepayments and the Group elects to make them, this could adversely impact the Group’s working capital position and therefore increase its debt levels. To the extent the Group’s available cash is limited in the longer term, and to the extent that any such prepayments adversely affect the Group’s cash flows and working capital, the Group may not be able to procure products from suppliers or it may have to procure products on less favourable terms. Also, due to the economic downturn, there is a risk that the number of available suppliers in the industry may be reduced due to insolvencies, which could thereby limit the availability of suppliers and further limit the Group’s ability to obtain or negotiate favourable terms with suppliers.
Major incidents at the Group’s distribution centres could damage its business The Group distributes products from 10 major warehouses and three timber supply centres in the UK. Although each warehouse has fire-detection and alarm systems and a business continuity plan is in place for each site, the loss of any single warehouse or supply centre through fire or other major incident could have a material effect on the availability of products in the trade and retail outlets. If the Group’s disaster recovery procedures are not sufficient to mitigate the harm that may result from such a disaster or disruption, it could have an adverse effect on the Group’s future prospects, financial condition and results of operations.
Changing commodity prices may adversely affect the Group’s future prospects, financial condition or results of operations The market price and availability of commodity products which the Group distributes, such as gypsum, cement, steel, aluminium, copper, nickel alloys, plastic and other products and commodities used in the manufacture of such products, as well as fuel which the Group uses for the distribution and transportation of its products, can fluctuate, and have fluctuated, quickly and significantly and these fluctuations may adversely affect the Group’s results of operations. In general, increases in raw material prices increase the Group’s operating costs and reduce its operating profit to the extent that such increases cannot be passed on to customers. Although in recent years the Group has generally been able to pass on raw material price increases to its customers, the ability of the Group to do so is limited by the price-sensitive nature of its customers, and there can be no assurance that it will be able to pass on any further increases in the future. Even if the Group were ultimately able to pass on such price increases, delays or restrictions in doing so may adversely affect the Group’s future prospects, financial condition or results of operations.
The Group is also exposed to the risk of decreases in the prices of the products it buys. During inflationary pricing periods, the Group is often able to anticipate future price increases, overstock while prices are at lower levels and then liquidate those stocks at the higher market prices prevailing subsequent to supplier price increases. Such gains accounted for a portion of the Group’s profits in the last few years. However, during deflationary pricing periods, to the extent that the Group has significant inventory of commodity products in such periods, it may not be able to sell them at the prices it has been able to in the past or even
15 at the price at which they were bought by the Group, which may adversely affect the Group’s future prospects, financial condition or results of operations.
Interruption or failure of the Group’s information technology (“IT”) systems could damage its business The Group is dependent on the proper functioning of its IT and processes. Whilst the Group operates two data centres which mirror each other, with data processing switched from one to the other on a regular basis, and it has an IT disaster recovery plan which is tested regularly, together with a business continuity plan, the Group’s systems are potentially vulnerable to damage or interruption from various factors, including, but not limited to, power loss, telecommunication failures, data corruption, network failure, computer viruses, security breaches, natural disasters, theft, vandalism or other acts. If the Group’s disaster recovery procedures are not sufficient to mitigate the harm that may result from a disaster or disruption to the IT infrastructure that supports the Group’s businesses, including loss of data, this could have a material adverse effect on its ability to continue to operate those businesses without interruption, which may have a material adverse effect on the Group’s future prospects, financial condition or results of operations.
The Group’s products are supplied from a number of overseas markets and the Group depends on effective hedging against fluctuations in exchange rates Fluctuations in exchange rates could have a material adverse effect on the Group’s future prospects, financial condition or results of operations to the extent that it has not effectively hedged against those exchange rate movements. The Group sources approximately 40 per cent. of its purchases either directly from overseas suppliers who invoice principally in US dollars or from UK-based suppliers who source these products from overseas suppliers and who may seek to pass on the exchange rate risk to the Group through higher prices. The Group’s trading exposures are reduced through the use of currency forward contracts. The Group’s policy is to purchase forward contracts for between 30 per cent. and 70 per cent. of the value of its anticipated directly sourced requirements 12 months forward. The Group’s anticipated directly sourced trading exposures were 70 per cent. hedged at 31 December 2008. The Group’s currency hedging strategies on supplies may not adequately protect the Group’s operating results from the effects of currency rate fluctuations or may limit any benefit that it might otherwise receive from favourable movements in currency rates. In addition, the Group’s currency hedging strategies may not be as effective or as favourable as those of its competitors, which could result in competitors being able to pass on the benefits of their strategies to customers by selling their products more cheaply than the Group is able sell the same products. As such, the Group’s future prospects, financial condition or results of operations could be adversely affected by exchange movements.
There are also political risks associated with purchases from overseas and a change in policy (such as the imposition of import and/or export quotas or import and/or export tariffs) of the UK Government, the European Union and/or the government of the market of the product supplier could materially adversely affect the Group’s future prospects, financial condition and/or results of operations.
The Group’s borrowings are subject to varying interest rates, which could have a material adverse effect on its business The Group entered into hedging arrangements to swap its fixed interest rate on the US PP Notes into variable interest rates linked to LIBOR. The Group’s UK borrowings are all subject to variable interest rates linked to LIBOR. The Group effectively borrows in sterling at floating rates and, where necessary, uses interest rate derivatives to fix rates on at least 33 per cent. of anticipated external net cleared debt (the sum of indebtedness under the Group’s syndicated credit facility, the US PP Notes and its bank balances) to generate the preferred interest rate profile and to manage its exposure to interest rate fluctuations. At 31 December 2008, the Group had entered into nine interest rate derivatives fixing interest rates on approximately 70 per cent. of the Group’s external net cleared debt. As part of the Group’s ongoing interest rate management policy, it terminated eight of its nine existing interest rate derivatives during the first week of May 2009 and entered into eight new derivative contracts commencing on 11 May 2009. For a discussion of the Group’s interest rate derivatives see Part V (“Operating and Financial Review of Travis Perkins – Interest Rate Derivatives”) of this document. An increase in LIBOR interest rates or an increase in the margins on which
16 finance can be obtained would increase the Group’s financing costs on the unhedged portion of its debt and, consequently, adversely affect the Group’s future prospects, financial condition or results of operations.
The Group’s success depends in part on its senior management and there is no guarantee that the senior management team will remain employed by the Group The Group’s success depends, to a significant extent, on the continued services of its senior management team, which has substantial experience in the industry. In addition, the Group’s ability to continue to identify and develop opportunities depends on the management’s knowledge of, and expertise in, the market. There is no guarantee that any of the senior management team will remain employed by the Group. The loss of the services of key members of the senior management team could have an adverse effect on the Group’s future prospects, financial condition or results of operations.
The Group is exposed to the risk of bank counterparty default The Group is exposed to the risk of default by bank counterparties in respect of longer-term contracts such as interest rate swaps and other financial derivatives used to hedge interest rate and currency risk. Currently, the Group’s biggest counterparty default risk is in respect of the five cross-currency swaps used to hedge the US PP Notes. The counterparty banks under the cross-currency swap contracts have the right to terminate those contracts on 26 January 2011. The extent of the Group’s loss, should a bank counterparty default, would be the additional currency and interest rate cost that had been hedged (i.e. the Group’s lost benefit on the transaction) and the cost of replacement of those financial instruments. In the event of a bank counterparty failure on a contract, the failure could have a material adverse effect on the Group’s future prospects, financial condition or results of operations.
An unexpectedly high increase in contributions to the Group’s pension scheme could materially reduce the availability of cash to the Group The Group operates a defined benefit pension scheme (the “Scheme”) which was closed in 2006 to employees who joined the Group after 31 January 2006. The Scheme is currently underfunded. At 31 December 2008, the gross deficit of the pension scheme on an IAS19 basis was £69.9 million (31 December 2007: gross deficit £16.0 million). The net deficit after allowing for deferred tax was £50.4 million (2007: net deficit £11.5 million). In the actuarial valuation as at 30 September 2005, the gross deficit on an ongoing basis was £65 million. The nature of a defined benefit pension scheme means that the funding level of the Scheme is subject to factors outside the Group’s control which could increase the deficit in the Scheme at future actuarial valuations. These factors include investment returns, discount rates for valuing liabilities, life expectancy and inflation. As a result, it is not possible to accurately predict the future funding level of the Scheme, deficit-reduction periods, employer cash contribution obligations or accounting charges with any degree of certainty.
The trustee of the Scheme (the “Trustee”) is currently undertaking a formal actuarial valuation of the Scheme as at 30 September 2008, with results anticipated later in 2009. On completion of the valuation, the Trustee will prepare a schedule of contributions, which will have to be agreed with the Group and certified by the scheme actuary (the “Schedule of Contributions”). The Schedule of Contributions will set out the rate of employer contributions and the due dates on which contributions have to be paid. If the Trustee and the Group cannot reach an agreement on the Schedule of Contributions, the Trustee can refer the matter to the Pensions Regulator who may impose a Schedule of Contributions on the Group. Additionally, as part of the valuation process, the Group and the Trustee are engaged in ongoing discussions regarding the funding basis and assumptions to be used; however, it is clear that, because of the factors mentioned above, the deficit will be markedly higher than the 2005 valuation.
The Board expects there to be a substantial increase in cash contributions to the Scheme, which it does not currently expect to have a material adverse effect on business, but if the increase is substantially higher than expected, it could reduce the availability of cash for other purposes and have a material adverse effect on the Group’s future prospects, financial condition or results of operations.
17 The Group has high insurance deductibles and may have under-provided for any losses The Group maintains high deductibles on its principal insurances, requiring losses to be of high value before the Group can make a claim on the insurance. The Group is responsible for losses below the high deductibles and makes provisions for such losses in its financial statements. As insurance claims frequently take many years to crystallise fully, the Board has to estimate the value of provisions to hold in the balance sheet in respect of historic claims. To the extent that the estimates are inaccurate, the Group may be under-provided, which could result in an adverse effect on the Group’s results of operations and on cash flows which could adversely affect the Group’s future prospects or financial condition.
The Group may not be able to successfully acquire or integrate new businesses In the future, the Group may wish to continue its expansion strategy through acquisitions when appropriate opportunities arise. The ability of the Group to pursue this strategy and expand its business in the future may be affected if it is unable to identify and complete acquisitions at commercially acceptable prices. Further, the success of any acquisitions may be dependent on the Group’s ability to integrate such acquisitions without disruption to its existing business.
Any material new acquisitions will require the attention of the Group’s management, may result in disruption to operational capabilities and may require the diversion of other resources. It cannot be assured that future acquisitions will be managed profitably or integrated successfully without significant costs, delays or other problems. In addition, it cannot be assured that any businesses acquired will achieve, or any businesses already acquired will continue to achieve, levels of profitability that will justify the investment made in them by the Group or that all synergies expected by the Group will materialise.
The Group’s reputation, future prospects or results of operations may be materially adversely affected by PRA1 8.2 claims or litigation Litigation, including that related to product liability, asbestos and environmental pollution or contamination, may have a material adverse impact on the Group’s future prospects, financial condition or results of operations, and the Group’s insurance cover may not be adequate.
The Group relies on manufacturers and other suppliers to provide it with the products it sells. As the Group does not have direct control over the quality of the products manufactured or supplied by such third-party suppliers, it is exposed to risks relating to the quality of the products it distributes. If a product sold by the Group does not conform to agreed specifications or is otherwise defective, the Group may be subject to potential reputational damage or claims by its customers arising from end-product defects, injury to individuals or other such claims. The products sold by the Group are covered by warranties given to it by the suppliers from whom the goods are bought. These warranties are then passed on by the Group to its customers. If any of these suppliers cease to trade, are uninsured or otherwise are unable to fund a claim by the Group under the warranties, then any liabilities for product warranties could rest with the Group.
Some Group companies prior to the 1970s included asbestos-based products in their product ranges. On occasions when handling these products, employees may have been exposed to the potentially harmful effects of asbestos, with the result that their health may have suffered. Occasionally, the Group receives a claim for damages from a former employee, or from his or her estate, in respect of his or her ill-health. For the majority of cases where liability is proven against the Group, the claim is paid by the insurers of the employing company at the time the exposure to asbestos occurred. However, occasionally, where, due to the passage of time and the lack of records, particularly for companies subsequently acquired by the Group, it is not possible to identify the insurer, the Group may be directly liable for settling the claim.
Historically, the level of such claims has not been material either individually or in aggregate and the Board currently has no reason to believe that the situation will change. However, if there was a significant increase in the number of such claims for which insurance cover could not be traced, the future prospects, financial condition or results of operations of the Group could be adversely affected.
The Group’s property portfolio includes properties of various ages and a number of its properties were constructed in areas that have historically been the subject of commercial or industrial use. It is possible that on-site pollution or contamination could have been caused by any such previous uses, or in limited
18 circumstances by current uses, for which the Group could be held liable. Although the Board is not aware of any relevant liability, claims or actions, a claim or regulatory action against the Group for pollution or contamination could have a material adverse effect on its future prospects, financial condition or results of operations.
Any litigation carries an inherent risk of an adverse outcome. Any successful product liability, asbestos or environmental claim could have a material adverse effect on the Group’s future prospects, financial condition or results of operations. In addition, even if the Group is successful in defending any such claim, claims of this nature could have a negative impact on customer confidence in its products and on the Group itself.
The Group is exposed to the risks associated with leased property and any variations to the terms of such leases The majority of the Group’s branch portfolio is held through leasehold interests which are generally subject to periodic rent reviews, lease expiries and renegotiations. As a result, the Group is susceptible to changes in the property rental market, such as increases in market rents, which are cost increases to the Group that it may not be able to pass on to customers in the form of higher prices. Any such rental increases may negatively impact on the Group’s margins and could have a material adverse effect on the Group’s future prospects, financial condition or results of operations.
The Group is exposed to the risks associated with leases it has assigned The Group has assigned a limited number of leases on surplus properties in the course of its business, and the Group has acquired businesses which also have assigned leases prior to acquisition. In certain circumstances, the Group may be contingently liable for performance of leasehold and other obligations relating to the assigned leases. Particularly in the current market environment, there is a risk of such liability crystallising in the event of the insolvency of, or other default by, an entity or entities to which a number of the leases on those properties were assigned. In such circumstances, the resulting liability could have a material adverse effect on the Group’s future prospects, financial condition or results of operations.
The Group depends on its brands and may not be able to prevent reputational damage The Group is reliant on the reputation of its principal seven brands: Travis Perkins, Keyline Builders’ Merchants, City Plumbing Supplies, CCF, Benchmarx, Wickes and Tile Giant. The Group has registered its seven principal brands as trade marks in the United Kingdom. Registered trade mark protection has also been secured for the Wickes brand in a limited number of other European countries. If third parties adopt and use these brands in countries where registered trade mark protection has not been secured by the Group for its brands, the Group may be unable to prevent such use. Any event that damages the reputation of any of these principal brands could have a material adverse effect on the Group’s future prospects, financial condition or results of operations.
The ability of Travis Perkins to pay dividends is dependent on the performance of its subsidiaries The Company is a holding company and is therefore entirely dependent on the cash flow from its subsidiaries to pay dividends to its shareholders (to the extent the Board elects to do so). The Company’s future prospects, financial condition and results of operations are primarily dependent on the trading performance of members of the Group and upon the level of distributions, interest payments and loan repayments, if any, received from them and upon any amounts received on asset disposals and the level of its cash balances. Failure of the Group’s subsidiaries to generate profits and cash may result in the Company having insufficient funds to make a dividend payment.
The Group’s operations could be adversely affected by unusual weather conditions The building materials industry provides customers with products used largely in construction and RMI. These activities are typically undertaken less during inclement weather, and, as a result, the Group’s operations are characterised by weather-affected fluctuations in demand. Prolonged periods of poor weather can adversely affect the Group’s future prospects, financial condition and results of operations.
19 Risks Relating to the Rights Issue and the New Shares
Travis Perkins’ share price may fluctuate The market price of the Ordinary Shares (including the Nil Paid Rights, the Fully Paid Rights and the New Shares) could be subject to significant fluctuations due to a change in sentiment in the market regarding the Ordinary Shares. The fluctuations could result from national and global economic and financial conditions, the market’s response to the Rights Issue, market perceptions of Travis Perkins, including when it might recommence payment of dividends on the Ordinary Shares and various other factors and events, including but not limited to regulatory changes affecting the Group’s operations, variations in the Group’s operating results, business developments of the Group and/or its competitors and the liquidity of the financial markets. Stock markets have recently experienced significant price and volume fluctuations that have affected the market price of the Ordinary Shares. Furthermore, the Group’s operating results and prospects from time to time may be below the expectations of market analysts and investors. Any of these events could result in a decline in the market price of the Ordinary Shares (including the Nil Paid Rights, the Fully Paid Rights and the New Shares).
An active trading market in the Nil Paid Rights or the Fully Paid Rights may not develop An active trading market in the Nil Paid Rights or the Fully Paid Rights may not develop on the London Stock Exchange during the trading period. In addition, because the trading price of the Nil Paid Rights and the Fully Paid Rights depends on the trading price of the Ordinary Shares, the Nil Paid Rights and the Fully Paid Rights prices may be volatile and subject to the same risks as noted elsewhere in this document.
Shareholders who do not acquire New Shares in the Rights Issue will experience dilution in their PRA3 9.1 ownership of Travis Perkins PRA3 9.2 If Shareholders do not take up the offer of New Shares in the Rights Issue, their proportionate ownership and voting interests in Travis Perkins will be reduced and the percentage that their Shares will represent of the total share capital of Travis Perkins will be reduced accordingly. Even if a Shareholder elects to sell his unexercised Nil Paid Rights, or such Nil Paid Rights are sold on his behalf, the consideration he receives may not be sufficient to compensate him fully for the dilution of his percentage ownership of the Company’s share capital that may be caused as a result of the Rights Issue.
Any future issues of shares will further dilute the holdings of current Shareholders and could adversely affect the market price of Travis Perkins’ shares Other than the proposed issue of shares under the Rights Issue, Travis Perkins has no current plans for an offering of shares. However, it is possible that Travis Perkins may decide to offer additional shares in the future either to raise capital or for other purposes. If Shareholders did not take up such offer of shares or were not eligible to participate in such offering, their proportionate ownership and voting interests in Travis Perkins’ would be reduced and the percentage that their Shares would represent of the total share capital of Travis Perkins’ would be reduced accordingly. An additional offering, or significant sales of shares by major Shareholders, could have a material adverse effect on the market price of Travis Perkins shares as a whole.
Depending on performance and market conditions, Travis Perkins may not pay out cash dividends in the foreseeable future, or may pay out smaller dividends than the market expects The Board has recently reviewed Travis Perkins’ near-term dividend policy in response to the ongoing global financial crisis and increasingly challenging trading conditions. In view of the continuing difficulties in the markets in which the Group operates, the Board announced on 19 February 2009 a suspension of the final dividend for the year ended 31 December 2008. The Board remains committed to maintaining long-term dividend cover at between 2.5 and 3.5 times earnings and expects to resume dividend payments once it is prudent to do so. The decision as to when to declare a dividend and the amount to be paid will take into account, inter alia, the Group’s earnings, cash flows and balance sheet position, as well as the then prevailing market outlook. There can be no assurance as to whether cash dividends or similar payments will be paid out in the foreseeable future or of their amount.
20 Shareholders outside the UK may not be able to receive the New Shares in the Rights Issue and may be diluted Securities laws of certain jurisdictions may restrict Travis Perkins’ ability to allow participation by Shareholders in the Rights Issue. In particular, holders of Ordinary Shares who are located in the United States may not be able to exercise their pre-emption rights unless a registration statement under the US Securities Act is effective with respect to such rights or an exemption from the registration requirements is available thereunder. The Rights Issue will not be registered under the US Securities Act. Securities laws of certain other jurisdictions may restrict Travis Perkins’ ability to allow participation by Shareholders in such jurisdictions in any future issue of shares carried out by the Company. Qualifying Shareholders who have a registered address in or who are resident in, or who are citizens of, countries other than the UK should consult their professional advisers as to whether they require any governmental or other consents or need to observe any other formalities to enable them to receive the Nil Paid Rights, the Fully Paid Rights and the New Shares in the Rights Issue.
The ability of Overseas Shareholders to bring actions or enforce judgments against Travis Perkins or the Directors may be limited The ability of an Overseas Shareholder to bring an action against Travis Perkins may be limited under law. Travis Perkins is a public limited company incorporated in England and Wales. The rights of holders of Shares are governed by English law and by Travis Perkins’ Memorandum and Articles of Association. These rights differ from the rights of shareholders in typical US corporations and some other non-UK corporations. An Overseas Shareholder may not be able to enforce a judgment against some or all of the Directors and executive officers. The majority of the Directors and executive officers are residents of the UK. Consequently, it may not be possible for an Overseas Shareholder to effect service of process upon the Directors and executive officers within the Overseas Shareholder’s country of residence or to enforce against the Directors and executive officers judgments of courts of the Overseas Shareholder’s country of residence based on civil liabilities under that country’s securities laws. There can be no assurance that an Overseas Shareholder will be able to enforce any judgments in civil and commercial matters or any judgments under the securities laws of countries other than the UK against the Directors or executive officers who are residents of the UK or countries other than those in which judgment is made. In addition, English or other courts may not impose civil liability on the Directors or executive officers in any original action based solely on foreign securities laws brought against Travis Perkins or the Directors in a court of competent jurisdiction in England or other countries.
Overseas Shareholders may be subject to exchange rate risks The New Shares are priced in sterling, and will be quoted and traded in sterling. In addition, any dividends Travis Perkins may pay will be declared and paid in sterling. Accordingly, Shareholders resident outside the UK jurisdictions are subject to risks arising from adverse movements in the value of their local currencies against the pound, which may reduce the value of the New Shares, as well as that of any dividends paid.
21 IMPORTANT INFORMATION
Presentation of financial information The Company publishes its financial statements in pounds sterling (“£” or “sterling”). The abbreviation “£m” represents millions of pounds sterling, and references to “pence” and “p” represent pence in the UK.
The financial information presented in a number of tables in this document has been rounded to the nearest whole number or the nearest decimal place. Therefore, the sum of the numbers in a column may not conform exactly to the total figure given for that column. In addition, certain percentages presented in the tables in this document reflect calculations based upon the underlying information prior to rounding and, accordingly, may not conform exactly to the percentages that would be derived if the relevant calculations were based upon the rounded numbers.
International Financial Reporting Standards As required by the Companies Act and Article 4 of the European Union IAS Regulation, the consolidated financial statements of the Group are prepared in accordance with IFRS issued by the IASB and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB as adopted by the European Union.
Non-GAAP financial measures This document presents various non-GAAP measures including adjusted operating profit, adjusted operating margin, adjusted profit before tax, adjusted profit after tax, adjusted basic earnings per ordinary share, and net debt. Certain of these non-GAAP measures have been presented on both a segmental and a consolidated basis. These adjusted profit measures have been adjusted to exclude the effects of items which the Board has determined to be exceptional and include the following:
• 2008: The Group incurred an exceptional charge of £56.2 million associated with the severe downturn in the construction market (see note 5 of Travis Perkins’ audited consolidated financial statements included in its Annual Report and Accounts for the year ended 31 December 2008 which has been incorporated by reference in this document).
• 2007: The Group recognised an exceptional deferred tax credit of £4.2 million arising from the reduction in the corporation tax rate to 28 per cent. (see note 11 of Travis Perkins’ audited consolidated financial statements included in its Annual Report and Accounts for the year ended 31 December 2007 which has been incorporated by reference in this document).
• 2006: The Group recognised an exceptional property profit of £11.6 million and associated tax effects (see note 5a of Travis Perkins’ audited consolidated financial statements included in its Annual Report and Accounts for the year ended 31 December 2006 which has been incorporated by reference in this document).
In addition to the above non-GAAP measures, this document also presents certain other non-GAAP measures including like-for-like sales, gearing and adjusted net debt. Like-for-like sales consists of revenue derived from those branches that have been operated by the Group for the preceding 12 months or longer (like-for-like branches). Gearing is computed as adjusted net debt (being net debt before the effect of exchange rate movements, leases capitalised under IAS17 and finance charges netted off bank debt) divided by shareholders’ equity.
There are no generally accepted accounting principles governing the calculation of non-GAAP items included above, and, as non-GAAP measures, the criteria upon which they are based can vary from company to company. These non-GAAP measures are not intended to be a substitute for, or superior to, any IFRS measures of performance. The Group uses adjusted profit measures and like-for-like sales in order to provide a clearer view of the performance of its underlying business operations and to provide a metric that will give greater comparability of operating results over time. The Group uses net debt, gearing and adjusted net debt to measure and report on its current liquidity as well as its compliance with certain financial covenants.
22 These measures are used by the Group to, amongst other things, develop its budgets and to measure its performance against those budgets.
Forward-looking statements PRA1 6.5 This document contains certain forward-looking statements which may include reference to one or more of the following: the Group’s financial condition, results of operations, cash flows, dividends, financing plans, business strategies, operating efficiencies or synergies, budgets, capital and other expenditures, competitive positions, growth opportunities for existing products, plans and objectives of management and other matters. Statements in this document that are not historical facts are hereby identified as “forward-looking statements” which can be identified by the use of forward-looking terminology, including the terms “believes”, “estimates”, “plans”, “seek”, “projects”, “anticipates”, “continue”, “expects”, “intends”, “may”, “will”, or “should” or, in each case, their negative or other variations or comparable terminology. Such forward-looking statements, including, without limitation, those relating to future business prospects, revenue, liquidity, capital needs, interest costs and income, in each case relating to the Group, wherever they occur in this document, are necessarily based on assumptions reflecting the views of the Group and involve a number of known and unknown risks, uncertainties and other factors that could cause actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements. Such forward-looking statements should, therefore, be considered in light of various important factors. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include, without limitation: changes in general economic conditions in the UK and in the markets in which the Group operates (such as may be indicated by housing transactions, new housing and RMI output, the extent of unsold new housing inventory, house price inflation, mortgage and other interest rates, the availability of credit, unemployment, demographic trends, gross domestic product growth, the price of oil, metals, utilities and other commodities, consumer spending and consumer confidence); factors related to competitive conditions in the markets in which the Group operates; factors related to the Group’s financing arrangements and indebtedness levels; factors related to the Group’s ability to obtain its products from its suppliers; factors relating to the integrity of the Group’s distribution centres; changes in commodity prices; factors related to the Group’s IT functionality; exchange rate and interest rate fluctuations; retention of senior management; and factors related to bank counterparty default.
These statements are further qualified by the risk factors disclosed in this document that could cause actual results to differ materially from those in the forward-looking statements. See “Risk Factors” on pages 12 to 21 of this document.
These forward-looking statements speak only as at the date of this document. Except as required by the FSA, the London Stock Exchange, the Prospectus Rules, the Listing Rules and/or the Disclosure and Transparency Rules (the “Part VI Rules”) or applicable law, the Group does not have any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, further events or otherwise. Except as required by the FSA, the London Stock Exchange, the Prospectus Rules, the Listing Rules, the Disclosure and Transparency Rules (the Part VI Rules) or applicable law, the Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this document to reflect any change in the Group’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this document might not occur.
Notice to all investors Any reproduction or distribution of this document, in whole or in part, and any disclosure of its contents or use of any information contained in this document for any purpose other than considering an investment in the Nil Paid Rights, the Fully Paid Rights or the New Shares is prohibited. By accepting delivery of this document, each offeree of the Nil Paid Rights, the Fully Paid Rights or the New Shares agrees to the foregoing.
The distribution of this document and/or the Provisional Allotment Letters and/or the transfer of the Nil Paid Rights, the Fully Paid Rights and the New Shares into jurisdictions other than the UK may be restricted by law. Persons into whose possession these documents come should inform themselves about and observe any
23 such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. In particular, subject to certain exceptions, such documents should not be distributed, forwarded to or transmitted in or into the United States or the Excluded Territories or into any other jurisdiction where the extension or availability of the Rights Issue would breach any applicable law. For further information on the manner of distribution of the New Shares, and transfer restrictions to which they are subject, see paragraph 2.5.3 of Part III (“Terms and Conditions of the Rights Issue”) of this document.
The Nil Paid Rights, the Fully Paid Rights and the New Shares are not transferable, except in accordance with, and the distribution of this document is subject to, the restrictions set out in paragraph 2.5.3 of Part III (“Terms and Conditions of the Rights Issue”) of this document. No action has been taken by Travis Perkins or by the Underwriters that would permit an offer of the New Shares or possession or distribution of this document, the Provisional Allotment Letters or any other offering or publicity material in any jurisdiction where action for that purpose is required, other than in the UK.
No person has been authorised to give any information or make any representations other than those contained in this document and, if given or made, such information or representations must not be relied upon as having been authorised by Travis Perkins or by the Underwriters. Neither the delivery of this document nor any subscription or sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of Travis Perkins since the date of this document or that the information in this document is correct as at any time subsequent to its date.
In making an investment decision, each investor must rely on his or her own examination, analysis and enquiry of the Company and the terms of the Rights Issue, including the merits and risks involved.
The contents of the websites of the Group (or any other websites, including the content of any website accessible from hyperlinks on the Group’s website) do not form part of this document.
Capitalised terms have the meanings ascribed to them in Part XI (“Definitions”) of this document.
Certain information in relation to the Group is incorporated by reference into this document as set out in Part X(“Documentation Incorporated by Reference”) of this document.
General notice Nothing contained in this document is intended to constitute investment, legal, tax, accounting or other professional advice. This document is for your information only and nothing in this document is intended to endorse or recommend a particular course of action. You should consult with an appropriate professional for specific advice rendered on the basis of your situation.
Notice to European Economic Area investors In relation to each member state of the European Economic Area which has implemented the Prospectus Directive (each, a “relevant member state”) (except for the UK), with effect from and including the date on which the Prospectus Directive was implemented in that relevant member state (the “relevant implementation date”) no Nil Paid Rights, Fully Paid Rights or New Shares have been offered or will be offered pursuant to the Rights Issue to the public in that relevant member state prior to the publication of a prospectus in relation to the Nil Paid Rights, Fully Paid Rights or the New Shares which has been approved by the competent authority in the relevant member state or, where appropriate, approved in another relevant member state and notified to the competent authority in the relevant member state all in accordance with the Prospectus Directive, except that, with effect from and including the relevant implementation date, offers of Nil Paid Rights, Fully Paid Rights and the New Shares may be made to the public in that relevant member state at any time:
(a) to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities;
24 (b) to any legal entity which has two or more of (i) an average of at least 250 employees during the last financial year; (ii) a total balance sheet of more than €43 million; and (iii) an annual turnover of more than €50 million, as shown in its last annual or consolidated accounts; or
(c) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of Nil Paid Rights, Fully Paid Rights or the New Shares shall result in a requirement for the publication by the Company or any Underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.
For this purpose, the expression “an offer of any Nil Paid Rights, Fully Paid Rights or New Shares to the public” in relation to any Nil Paid Rights, Fully Paid Rights or New Shares in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the Rights Issue and any Nil Paid Rights, Fully Paid Rights or New Shares to be offered so as to enable an investor to decide to acquire any Nil Paid Rights, Fully Paid Rights or New Shares as the same may be varied in that relevant member state by any measure implementing the Prospectus Directive in that relevant member state.
In the case of any Nil Paid Rights, Fully Paid Rights or New Shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, such financial intermediary will also be deemed to have represented, acknowledged and agreed that the Nil Paid Rights, Fully Paid Rights or New Shares acquired by it in the Rights Issue have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any Nil Paid Rights, Fully Paid Rights or New Shares to the public other than their offer or resale in a relevant member state to qualified investors as so defined or in circumstances in which the prior consent of the Company and each of the Underwriters has been obtained to each such proposed offer or resale.
Notice to all Canadian investors
General The distribution of securities offered in Canada pursuant to this document is being made in the Canadian Jurisdictions only to those persons where and to whom they may be lawfully offered for sale and as part of an international rights offering. The securities offered by this document will be distributed under exemptions from the prospectus and registration requirements of applicable securities laws in each of the Canadian Jurisdictions. The offering of the securities hereunder and pursuant to this document does not constitute a general offer to the public or the general solicitation from the public of offers to subscribe or purchase the securities offered hereunder and under no circumstances is to be construed as an advertisement of the securities referred to in this document. Any certificates representing the securities offered pursuant to this document may bear legends required or desirable under applicable securities laws or policies. The offering in the Canadian Jurisdictions is being made solely by this document and no person has been authorised to give any information or to make any representation other than as provided for herein.
Resale Restrictions The distribution of the securities hereunder in Canada is being made on a private placement basis only and is exempt from the requirement that Travis Perkins prepares and file a prospectus with the relevant Canadian securities regulatory authorities. Accordingly, any resale of the securities must be made in accordance with applicable Canadian securities laws, which may require resales to be made in accordance with prospectus and dealer registration requirements or exemptions from the prospectus and dealer registration requirements. These resale restrictions may in some circumstances apply to resales of the securities outside Canada. Canadian investors should seek legal advice prior to any resale of the securities offered hereby.
Travis Perkins is not a “reporting issuer”, as such term is defined under applicable Canadian securities laws, in any province or territory of Canada in which the securities will be offered. Canadian investors are advised that Travis Perkins is not required to file a prospectus or similar document with any securities regulatory authority in Canada qualifying the resale of the securities to the public in any province or territory of Canada. Canadian investors are further advised that Travis Perkins currently does not intend to file a prospectus or
25 similar document with any securities regulatory authority in Canada qualifying the resale of the securities to the public in any province or territory of Canada in connection with this offering.
Enforcement of Legal Rights Travis Perkins is incorporated under the laws of England and Wales. All of the director and officers of Travis Perkins may be located outside Canada and, as a result, it may not be possible for purchasers to effect service of process within Canada upon Travis Perkins. All or a substantial portion of the assets of Travis Perkins and such other persons may be located outside Canada and, as a result, it may not be possible for purchasers to satisfy or collect a judgement in Canada against Travis Perkins, or its directors and officers or to enforce a judgement obtained in Canadian courts against Travis Perkins or such persons outside Canada.
Representations Each Canadian investor who purchases securities hereunder will be deemed to have represented to Travis Perkins, the Underwriters and any dealer who sells securities to such purchaser that:
(a) the offer and sale of the securities was made exclusively through the final version of this document and was not made through an advertisement of the securities in any printed media of general and regular paid circulation, radio, television or telecommunications, including electronic display, or any other form of advertising in Canada;
(b) such purchaser has reviewed and acknowledges the applicable resale restrictions;
(c) such purchaser has reviewed and acknowledges the representations required to be made by all purchasers of the securities as set forth in this document and hereby makes such representations;
(d) where required by law, such purchaser is purchasing as principal, or is deemed to be purchasing as principal in accordance with applicable securities laws of the province in which such purchaser is resident, for its own account and not as agent for the benefit of another person; and
(e) such purchaser, or any ultimate purchaser for which such purchaser is acting as agent, is entitled under applicable Canadian securities laws to purchase the securities without the benefit of a prospectus qualified under such securities laws, and without limiting the generality of the foregoing:
(i) in the case of a purchaser resident in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Prince Edward Island, and Nova Scotia, such purchaser is an “accredited investor” as defined in section 1.1 of National Instrument 45-106 Prospectus and Registration Exemptions (“NI 45-106”);
(ii) in the case of a purchaser resident in Ontario, such purchaser:
(1) is an “accredited investor”, other than an individual, as defined in Section 1.1 of NI 45- 106, and is purchasing the securities from a dealer registered as an international dealer in Ontario within the meaning of Section 98(4) of the Regulation to the Securities Act (Ontario); or
(2) is an “accredited investor”, including an individual, as defined in Section 1.1 of NI 45- 106, and is purchasing the securities from a registered investment dealer or limited market dealer registered in Ontario within the meaning of Section 98(5) and Section 98(6) of the Regulation to the Securities Act (Ontario), respectively;
(iii) in the case of a purchaser resident in Newfoundland and Labrador, such purchaser:
(1) is an “accredited investor”, other than an individual, as defined in section 1.1 of NI 45- 106, and is a person to which a dealer registered as an international dealer in Newfoundland and Labrador may sell the securities offered hereunder, or
(2) is an “accredited investor”, including an individual, as defined in section 1.1 of NI 45- 106, who is purchasing the securities hereunder from a registered investment dealer in
26 Newfoundland and Labrador within the meaning of section 86 of the Regulation to the Securities Act (Newfoundland and Labrador); and
(f) such purchaser is not a person created or used solely to purchase or hold the securities as an “accredited investor” as described in paragraph (m) of the definition of “accredited investor” in Section 1.1 of NI 45-106.
In addition, each resident of Ontario who purchases the securities will be deemed to have represented to Travis Perkins, the Underwriters and each dealer from whom a purchase confirmation was received, that such purchaser:
(a) has been notified by Travis Perkins:
(i) that Travis Perkins may be required to provide certain personal information (personal information) pertaining to the purchaser as required to be disclosed in Schedule I of Form 45- 106F1 under NI 45-106 (including its name, address, telephone number and the number and value of any securities purchased), which Form 45-106F1 may be required to be filed by Springboard under NI 45-106;
(ii) that such personal information may be delivered to the OSC in accordance with NI 45-106;
(iii) that such personal information is collected indirectly by the OSC under the authority granted to it under the securities legislation of Ontario;
(iv) that such personal information is collected for the purposes of the administration and enforcement of the securities legislation of Ontario; and
(v) that the public official in Ontario who can answer questions about the OSC’s indirect collection of such personal information is the Administrative Assistant to the Director of Corporate Finance at the OSC, Suite 1903, Box 55, 20 Queen Street West, Toronto, Ontario M5H 3S8, Telephone: (416) 593-8086; and
(b) has authorised the indirect collection of the personal information by the OSC.
Furthermore, the purchaser acknowledges that its name, address, telephone number and other specified information, including the number of securities it has purchased and the aggregate purchase price paid by the purchaser, may be disclosed to other Canadian securities regulatory authorities and may become available to the public in accordance with the requirements of applicable Canadian laws. By purchasing the securities, the purchaser consents to the disclosure of such information.
Language of Documents By its receipt of this document, each Canadian investor confirms that it has expressly requested that all documents evidencing or relating in any way to the sale of the securities described herein (including for greater certainty any purchase confirmation or any notice) be drawn up in the English language only. Par la réception de ce document, chaque investisseur canadien confirme paries présentes qu’il a expressément exige que tous les documents faisant foi ou se rapportant de quelque manière que ce soit a la vente des valeurs mobilières décrites aux présentes (incluant, pour plus de certitude, toute confirmation d’achat ou tout avis) soient rédiges en anglais seulement. (The foregoing text in French is a direct translation of the previous sentence.)
Taxation Any discussion of taxation and related matters contained within this document does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase the securities and, in particular, does not address Canadian tax considerations. Canadian investors should consult with their own legal and tax advisers with respect to the tax consequences of an investment in the securities in their particular circumstances and with respect to the eligibility of the securities for investment by such investor under relevant Canadian legislation and regulations.
27 Notice to Canadian investors who are not currently shareholders of Travis Perkins The directors and officers of Travis Perkins believe, following reasonable efforts to determine the number of shares held by resident Canadians, that approximately 7.04 per cent. of the existing issued Ordinary Shares are currently held by resident Canadians. Canadian investors should be aware that in the event the aggregate number of Ordinary Shares acquired in the placing by the Underwriters of the New Shares not taken up by Travis Perkins’ Shareholders results in residents of Canada owning (directly or indirectly) more than 10 per cent. of the then outstanding Ordinary Shares, the resale of any New Shares acquired in connection with the placing by the Underwriters of the New Shares not taken up by Travis Perkins’ Shareholders will need to be made in reliance upon an exemption from the prospectus requirement until the date that is four months and one day from the later of (i) the distribution date, and (ii) the date Travis Perkins became a reporting issuer in any province or territory of Canada. Canadian investors should seek legal advice on such resale restrictions.”
This document constitutes a Canadian offering memorandum for those Canadian investors who are not currently shareholders of Travis Perkins. As such, this document constitutes an offering of the securities described herein only in those Canadian Jurisdictions and to those persons where and to whom they may be lawfully offered for sale, and therein only by persons permitted to sell such securities. This document is not, and under no circumstances is to be construed as, an advertisement or a public offering of the securities referred to in this document in Canada. No securities commission or similar authority in Canada has reviewed or in any way passed upon this document or the merits of the securities described herein and any representation to the contrary is an offence.
This document is for the confidential use of only those persons to whom it is delivered by the Underwriters in connection with the offering of the securities in the applicable Canadian Jurisdictions.
Except as otherwise expressly required by applicable law or as agreed to in contract, no representation, warranty, or undertaking (express or implied) is made and no responsibilities or liabilities of any kind or nature whatsoever are accepted by the Underwriters or any dealer as to the accuracy or completeness of the information contained in this document or any other information provided by the Company in connection with the offering of the securities hereunder.
Rights of Action for Damages or Rescission Securities legislation in certain of the Canadian provinces provides purchasers of securities pursuant to an offering memorandum (such as this document) with a remedy for damages or rescission, or both, in addition to any other rights they may have at law, where the offering memorandum and any amendment to it contains a “Misrepresentation”. Where used herein, “Misrepresentation” means an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make any statement not misleading in light of the circumstances in which it was made. These remedies, or notice with respect to these remedies, must be exercised or delivered, as the case may be, by the purchaser within the time limits prescribed by applicable securities legislation.
Ontario Section 130.1 of the Securities Act (Ontario) provides that every purchaser of securities pursuant to an offering memorandum (such as this document) shall have a statutory right of action for damages or rescission against the issuer and any selling security holder in the event that the offering memorandum contains a Misrepresentation. A purchaser who purchases securities offered by the offering memorandum during the period of distribution has, without regard to whether the purchaser relied upon the Misrepresentation, a right of action for damages or, alternatively, while still the owner of the securities, for rescission against the issuer and any selling security holder provided that:
(a) if the purchaser exercises its right of rescission, it shall cease to have a right of action for damages as against the issuer and the selling security holders, if any;
(b) the issuer and the selling security holders, if any, will not be liable if they prove that the purchaser purchased the securities with knowledge of the Misrepresentation;
28 (c) the issuer and the selling security holders, if any, will not be liable for all or any portion of damages that it proves do not represent the depreciation in value of the securities as a result of the Misrepresentation relied upon; and
(d) in no case shall the amount recoverable exceed the price at which the securities were offered.
Section 138 of the Securities Act (Ontario) provides that no action shall be commenced to enforce these rights more than:
(a) in the case of an action for rescission, 180 days after the date of the transaction that gave rise to the cause of action; or
(b) in the case of an action for damages, the earlier of:
(i) 180 days after the date that the purchaser first had knowledge of the facts giving rise to the cause of action; or
(ii) three years after the date of the transaction that gave rise to the cause of action.
This document is being delivered in reliance on the exemption from the prospectus requirements contained under Section 2.3 of NI 45-106 (the accredited investor exemption). The rights referred to in Section 130.1 of the Securities Act (Ontario) do not apply in respect of an offering memorandum (such as this document) delivered to a prospective purchaser in connection with a distribution made in reliance on the accredited investor exemption if the prospective purchaser is:
(a) a Canadian financial institution or a Schedule III bank (each as defined in NI 45-106);
(b) the Business Development Bank of Canada incorporated under the Business Development Bank of Canada Act (Canada); or
(c) a subsidiary of any person referred to in paragraphs (a) and (b), if the person owns all of the voting securities of the subsidiary, except the voting securities required by law to be owned by directors of that subsidiary.
The foregoing summary is subject to the express provisions of the Securities Act (Ontario) and the rules, regulations and other instruments thereunder, and reference is made to the complete text of such provisions. Such provisions may contain limitations and statutory defences on which Travis Perkins may rely. The enforceability of these rights may be limited as described herein under the section entitled “Notice to all Canadian investors – Enforcement of Legal Rights” above.
The rights of action for damages or rescission discussed above are in addition to, and without derogation from, any other right or remedy that purchasers may have at law.
Forward-Looking Information This document may contain “forward-looking information” (“FLI”) as such term is defined under Section 1.1 of the Securities Act (Ontario). FLI is disclosure regarding possible events, conditions or results of operations that is based on assumptions about future economic conditions and courses of action, and includes future-oriented financial information (“FOFI”) with respect to prospective results of operations, financial position or cash flows that is presented either as a forecast or a projection. FOFI is FLI about prospective results of operations, financial position or cash flows, based on assumptions about future economic conditions and courses of action, and presented in the format of a historical balance sheet, income statement or cash flow statement. Similarly, a financial outlook is FLI about prospective results of operations, financial position or cash flows that is based on assumptions about future economic conditions and courses of action that is not presented in the format of a historical balance sheet, income statement or cash flow statement. Without limitation, FLI presented under the heading “Long-Term Strategy” in Part IV (“Information on Travis Perkins”) of this document may be considered FOFI, as such terms are defined above.
Upon receipt of this document, each Canadian investor hereby acknowledges and agrees that: (a) any FLI contained herein (other than information constituting FOFI) should not be considered material for the
29 purposes of and may not have been prepared and/or may not be presented consistent with National Instrument 51-102 – Continuous Disclosure Requirements; and (b) that the investor will not receive any additional information updating such FLI during any period that Travis Perkins is not a “reporting issuer” in any province or territory of Canada, other than as required under applicable securities laws in England and Wales and/or as expressly agreed to by contract. Canadian investors should refer to the section entitled “Important Information – Forward-looking statements” contained in this document and should consult with their own legal and financial advisers for additional information.
Notice to Japanese investors The Rights Issue of New Shares offered hereby has not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the ‘‘Financial Instruments and Exchange Law’’). Accordingly, the Joint Sponsors and each Underwriter has represented, warranted and agreed that the New Shares which it subscribes will be subscribed by it as principal and that, in connection with the offering made hereby, it will not, directly or indirectly, offer or sell any Nil Paid Rights, Fully Paid Rights or New Shares in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organised under the laws of Japan) or to others for re-offering or resale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan, except pursuant to an exception from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and other relevant laws and regulations of Japan.
Notice to Swiss investors This document is being communicated to a small number of selected investors only in or from Switzerland. Each copy of this document is addressed to a specifically named recipient and may not be passed on to third parties. The Nil Paid Rights, Fully Paid Rights or New Shares are not being offered to the public in or from Switzerland, and neither this document, nor any other offering material in relation to the Nil Paid Rights, Fully Paid Rights or New Shares may be distributed in connection with any such public offering.
Notice to all overseas investors All Overseas Shareholders and any person (including, without limitation, a nominee or trustee) who has a contractual or legal obligation to forward this document or any Provisional Allotment Letter, if and when received, or other document to a jurisdiction outside the UK, should read paragraph 2.5 of Part III (“Terms and Conditions of the Rights Issue”) of this document.
30 WHERE TO FIND HELP Part II (“Some Questions and Answers about the Rights Issue”) of this document answers some of the questions most often asked by shareholders about rights issues. If you have further questions, please telephone the Shareholder Helpline on the numbers set out below. This helpline is available from 9.00 a.m. to 5.00 p.m. on any London business day.
Shareholder Helpline 0871 664 0321 (from inside the UK) or +44 208 639 3399 (from outside the UK)
Calls to 0871 664 0321 number are charged at 10 pence per minute (including VAT) from a BT landline. Other service providers’costs may vary. Calls to +44 208 639 3399 number from outside the UK are charged at applicable international rates. Different charges may apply to calls made from mobile telephones and calls may be recorded and monitored randomly for security and training purposes. For legal reasons, the Shareholder Helpline will be unable to give advice on the merits of the Rights Issue or to provide financial, tax or investment advice.
31 DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS
Directors PRA1 1.1 PRA3 1.1 Tim Stevenson, OBE Chairman PRA1 14.1 Geoff Cooper Chief Executive Paul Hampden Smith Finance Director John Carter Chief Operating Officer Chris Bunker Non-executive Director John Coleman Non-executive Director Philip Jansen Non-executive Director Andrew Simon, OBE Non-executive Director
The business address of each of the Directors is the Company’s registered address at Lodge Way House, Lodge Way, Harlestone Road, Northampton NN5 7UG.
Company Secretary Andrew Pike
Registered office PRA1 5.1.4 Lodge Way House, Lodge Way, Harlestone Road, Northampton NN5 7UG Telephone: 01604 752 424 or, when dialling from outside the UK, +44 16 0475 2424. Registered in England and Wales with number 00824821.
32 Joint Sponsor Joint Sponsor PRA3 10.1 PRA3 5.4.1 Citigroup Global Markets Limited HSBC Bank plc Citigroup Centre 8 Canada Square Canada Square London E14 5HQ London E14 5LB
Joint Global Coordinator and Underwriter Joint Global Coordinator and Underwriter PRA3 10.1 PRA3 5.4.1 Citigroup Global Markets U.K. Equity Limited HSBC Bank plc Citigroup Centre 8 Canada Square Canada Square London E14 5HQ London E14 5LB
Joint Lead Manager Joint Lead Manager PRA3 10.1 Barclays Bank PLC BNP Paribas 5 The North Colonnade 16, boulevard des Italiens Canary Wharf 75009 Paris, France London E14 4BB
Joint Lead Manager RBS Hoare Govett Limited 250 Bishopsgate London EC2M 4AA
Joint Financial Adviser Joint Financial Adviser HSBC Bank plc Tricorn Partners LLP 8 Canada Square 27 Knightsbridge London E14 5HQ London SW1X 7LY
Auditors and Reporting Accountants PRA3 10.1 PRA1 2.1 Deloitte LLP Four Brindleyplace Birmingham B1 2HZ
Legal Advisers to Travis Perkins Legal Advisers to the Underwriters as to English and United States law as to English and United States law Linklaters LLP Clifford Chance LLP One Silk Street 10 Upper Bank Street London EC2Y 8HQ London E14 5JJ
Registrars Receiving Agent PRA3 4.3 PRA3 5.4.2 Capita Registrars Capita Registrars Northern House Corporate Actions Woodsome Park The Registry Fenay Bridge 34 Beckenham Road Huddersfield Beckenham HD8 0GA Kent BR3 4TU
33 PART I
LETTER FROM THE CHAIRMAN OF TRAVIS PERKINS PLC
(Incorporated and registered in England and Wales with registered no. 00824821)
Dear Shareholder
Proposed 7 for 10 Rights Issue at 365 pence per New Share
1. Introduction The Company announced today that it intends to raise gross proceeds of approximately £314 million (approximately £300 million net of expenses) by way of a fully underwritten 7 for 10 rights issue (the “Rights Issue”). I am writing to provide you with further details of the Rights Issue, the proceeds of which will be used to strengthen the Company’s balance sheet and provide increased operational and strategic flexibility against the backdrop of the current adverse macro-economic environment.
The Company is proposing to offer 7 New Shares at the Issue Price of 365 pence per New Share for every 10 Existing Shares held by Qualifying Shareholders at close of business on the Record Date. This represents a 51.6 per cent. discount to the Closing Price of 753.5 pence per Ordinary Share on 8 May 2009, being the last business day before the announcement of the Rights Issue. The Rights Issue, which is fully underwritten by Citi, HSBC, Barclays Bank, BNP Paribas and RBS Hoare Govett, is subject to the terms of the Underwriting Agreement, details of which are set out in Part III (“Terms and Conditions of the Rights Issue”) of this document.
The Rights Issue is conditional on, inter alia, the passing by Shareholders of the Resolutions at an Extraordinary General Meeting of the Company being convened at 11.00 a.m. on 27 May 2009. In order to take up their entitlement to New Shares, Qualifying Shareholders need to accept and make payment in full by no later than 11.00 a.m. on 11 June 2009 (or such later date as may be notified by Travis Perkins). The terms and conditions of the Rights Issue are set out in full in Part III (“Terms and Conditions of the Rights Issue”) of this document.
Paragraph 11 of this Part I sets out the actions to be taken by Qualifying Shareholders.
2. Background to and reasons for the Rights Issue
Background to the Rights Issue Travis Perkins is one of the UK’s largest builders’ merchant and home improvement retailers in terms of revenue and number of branches. The principal activities of the Group are the distribution and sale of a wide range of general building materials, timber, plumbing and heating products and the hiring of tools to professional builders and contractors and to the general public within the UK. The Group operates through a number of leading brands including the generalist builders’ merchant Travis Perkins, the heavy builders’ merchant Keyline Builders’ Merchants, the specialist dry lining and insulation distributor CCF, the plumbing and heating products distributor City Plumbing Supplies, the kitchens and joinery business Benchmarx, the DIY retailer Wickes and the retail tile business Tile Giant. Additionally, the Group has a minority investment in ToolStation, a direct fixed price retailer of tools, fixings and hardware. The Group has strengthened and significantly grown its business both organically, with increases in market share in its core markets, and through the successful acquisition and integration of strategic businesses. In 2003, the Group generated revenues of £1.7 billion, which by 2008 had grown to £3.2 billion, representing a compound annual growth rate of approximately 13.6 per cent. over that period.
34 The weakening economic conditions which started in 2008 and have continued since then have negatively affected the Group’s operating performance. During 2008, the Group sought to address the impact of the decline in its markets by taking a number of cost reducing and cash generating initiatives. These included:
(i) significantly reducing headcount with like-for-like full time equivalent employee reductions during 2008 of 14 per cent. and 21 per cent. in its Merchanting business and Wickes, respectively, leading to an overall Group reduction of 16 per cent. Further restructuring actions were also implemented across the Group, including rationalisation of some senior management teams, elimination of one head office function, significant reductions in discretionary costs, postponement of development projects with longer-term benefits and rationalisation of the merchant division transport fleet. These actions, together with those taken in 2009, are expected to reduce costs in 2009 by approximately £50 million when compared to 2008;
(ii) reducing capital expenditure in 2008 to £126 million, compared to £166 million in 2007, and significantly limiting expected 2009 capital expenditure to approximately £37 million, principally by scaling back of new branch expansion, investing in only essential capital projects and lengthening the replacement cycle for all asset classes;
(iii) reducing working capital by £23 million in 2008 as compared to 2007; a further reduction of £20 million is targeted in 2009, as cash-generating initiatives are completed;
(iv) suspension of the final dividend for 2008, resulting in an expected cash saving of approximately £35.5 million in 2009 as compared to 2008; and
(v) renegotiating the Group’s syndicated credit facilities in April 2008 on what the Board believes are attractive terms.
In addition, the Group is pursuing a programme of active management of its property portfolio. From the Group’s property portfolio, some £49.5 million in cash and £28.7 million of profit have been generated over the last three years from 22 transactions involving 56 sites. As at 31 December 2008, the Group had 24 projects under development and the Board remains optimistic that in 2009 the Group will exceed the average annual cash raised from the property projects in the last three years.
The Board believes that there are strong long-term growth drivers for the Group’s businesses, including a growing need for construction and house building investment in the UK owing to demographic changes, population shifts and historical under-investment in new house building. A recent government forecast of the UK’s housing needs has predicted that over the period from 2006 to 2013, the number of households in England is expected to grow by approximately 250,000 households per year, whereas in the last 15 years an average of fewer than 200,000 houses have been constructed in the UK each year. Over half the Group’s revenue is derived from RMI work in domestic, commercial and public sector buildings. The Board believes that spending on RMI tends to be less volatile than new housing, since much of the work is non-discretionary in nature. The UK Government’s requirement to reduce the carbon footprint of buildings and the Board’s belief that owners of buildings will seek to upgrade existing buildings or homes rather than move to new ones in the current economic environment are both positive indicators for increased spending on RMI. In addition, increased government funding is expected to benefit publicly funded construction markets. The Board believes that due to the Group’s leading positions in the UK’s builders’ merchant and DIY markets, the Group continues to be well placed to benefit from these trends.
In April 2008, the Group refinanced its UK bank debt facilities, securing a new committed £1 billion, five year syndicated credit facility expiring in 2013. The new syndicated credit facility comprises a fully drawn £525 million amortising term loan and a £475 million revolving credit facility, of which £305 million was undrawn as at 31 March 2009. The amortising term loan is due to be repaid in six £35 million tranches each half year, commencing April 2010, with the balance falling due in April 2013. The revolving credit facility is available to the Group until April 2013. Prevailing market conditions at the time of the refinancing in April 2008 resulted in the margin over LIBOR applied to the Group’s borrowings under the new syndicated credit facility increasing significantly compared to the expiring facilities. Additionally, the Group incurred £14.7
35 million in facility arrangement fees, which are being amortised through finance charges over the period the facility is available.
In addition, the Group has in issue US$200 million of US PP Notes repayable in 2013 and a further US$200 million repayable in 2016. Through the use of cross-currency swaps the Group has eliminated its exposure to currency fluctuations and converted the fixed rate coupon to a variable rate.
The Group’s syndicated credit facility and its US PP Notes contain financial covenants. The key financial covenants are the ratio of consolidated total net borrowings (adjusted net debt) to consolidated earnings before interest tax, depreciation and amortisation (“EBITDA”) (each as defined in those covenants) which must not exceed 3.5:1, and the ratio of consolidated earnings before interest, tax and amortisation (“EBITA”) to consolidated net interest (“interest cover”) (each as defined in those covenants) which must not be less than 3.5:1. As at the 31 December 2008, the Group achieved an adjusted net debt to EBITDA ratio of 2.8:1 and an interest cover ratio of 4.3:1. The Group remains, and expects to remain, fully in compliance with its covenants.
The Group also has access to a £40 million uncommitted overdraft facility.
The Board believes that in the context of current debt capital market conditions the Group’s bank facilities and its US PP Notes are attractive both in terms of pricing and maturity.
As part of the Group’s ongoing interest rate management policy, it terminated eight of its nine existing interest rate derivatives (hedging Sterling debt) during the first week of May 2009, which had a notional value of £578 million (with a range of maturities between 2010 and 2013), at a cost of £29 million, and entered into eight new derivative contracts commencing on 11 May 2009 for a two-year period with an initial notional value of £600 million. The Board believes this will reduce interest charges (with the effective interest rate on £600 million of debt reducing from approximately six per cent. to approximately three per cent.) included in the calculation of the Interest Cover Covenant by approximately £11 million in 2009.
Reasons for the Rights Issue The Board has determined that it is appropriate for the Group to strengthen its balance sheet and overall financial position now, given continuing uncertain macro-economic conditions and the implications of this uncertainty for the Group’s businesses. The Board believes that the Rights Issue would enable the Group to operate more effectively in current market conditions, create a stronger position from which it can grow and provide a platform from which it can take advantage of future recovery in its markets. Specifically, the Board believes the Rights Issue should enable the Group to:
(i) Reduce the Group’s net debt and substantially increase financial headroom. The proceeds of the Rights Issue will reduce the Group’s net debt and reduce its annual interest charge. In addition, the Rights Issue will increase headroom under the Group’s financial covenants. This strengthening of the overall financial position of the Group should result in immediate and long-term benefits.
(ii) Improve the Group’s trading position through the recession. The reduced net debt of the Group as a result of the Rights Issue should enable the Group to better withstand the economic downturn and compete more effectively in its markets.
(iii) Increase the flexibility of the Group to operate and invest in its core businesses. Following the Rights Issue, the Group will have increased operating and strategic flexibility and the Board believes it will be able to maintain appropriate levels of investment in its businesses, increase capital expenditure from reduced levels and undertake projects that meet or exceed the Group’s minimum rate of return as and when appropriate. Such operational and strategic flexibility should enable the Group to maintain or improve the market positions of its businesses as well as to pursue attractive organic growth opportunities.
(iv) Strengthen the Group’s competitive and strategic position to allow it to exploit the recovery potential in its markets and expand as conditions improve. The improved capital structure of the business should allow the Group to capitalise on attractive opportunities that might arise in its markets. For
36 example, when appropriate market conditions return, the Group may seek to pursue selective bolt-on acquisitions, consistent with its existing multi-channel distribution strategy.
(v) Enhance the Group’s future access to, and lower the costs of, sources of capital. The Board believes that the reduced net debt of the Group as a result of the Rights Issue should enhance the Group’s future access to, and lower the costs of, sources of financing and widen the sources of capital available to the Group.
The Board expects that the Rights Issue should make a positive contribution to total earnings in the year to 31 December 2009 as a result of lower interest payments arising from lower average levels of financial indebtedness. The Board expects that the increased number of Shares in issue following the Rights Issue will, however, have a negative effect on the Group’s earnings per share for the same period.
3. Use of proceeds The Board intends to use the net proceeds of the Rights Issue, amounting to approximately £300 million, PRA3 3.4 primarily to reduce borrowings under the Group’s £475 million revolving credit facility. To the extent the net PRA3 8.1 proceeds exceed the amount paid down under the revolving credit facility, any balance of the net proceeds will be retained for general corporate purposes. The Group’s revolving credit facility will remain available to be re-drawn. The Board believes that the Rights Issue will strengthen the Group’s balance sheet and create a stronger position from which to develop the Group’s business as macro-economic conditions improve.
4. Summary of the principal terms of the Rights Issue The Company is proposing to offer 85,903,379 New Shares by way of a Rights Issue. The New Shares will PRA3 4.1 be offered to Qualifying Shareholders. The Rights Issue is expected to raise approximately £300 million, net of expenses. The Issue Price represents a 38.5 per cent. discount to the theoretical ex-rights price based on the Closing Price of 753.5 pence per Ordinary Share on 8 May 2009 (being the last business day before the announcement of the Rights Issue) and a 51.6 per cent. discount to the Closing Price of 753.5 pence per Ordinary Share on 8 May 2009 (being the last business day before the announcement of the Rights Issue).
The Rights Issue will be made on the basis of:
7 New Shares at 365 pence per New Share for every 10 Existing Shares held by Qualifying Shareholders at the close of business on the Record Date (being 22 May 2009).
Entitlements to New Shares will be rounded down to the nearest whole number. The fractional entitlements not allotted to Shareholders will be aggregated and sold in the market for the benefit of the Company. Holdings of Existing Shares in certificated and uncertificated form will be treated as separate holdings for the purpose of calculating entitlements under the Rights Issue.
The Rights Issue is fully underwritten by the Underwriters pursuant to the Underwriting Agreement, the PRA3 5.4.3 principal terms and conditions of which are summarised in paragraph 16.1 of Part IX (“Additional Information”) of this document.
The Rights Issue will result in 85,903,379 New Shares being issued (representing approximately 70.0 per cent. of the existing issued share capital and 41.2 per cent. of the enlarged issued share capital immediately following completion of the Rights Issue, on the assumption that no Ordinary Shares will be issued pursuant to the exercise of any options or awards under any Travis Perkins Employee Share Plans between the publication of this document and the closing of the Rights Issue).
The Rights Issue is conditional, inter alia, upon: PRA3 5.1.1
(i) the passing of the Resolutions at the Extraordinary General Meeting;
(ii) the Underwriting Agreement having become unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms; and
37 (iii) Admission becoming effective by not later than 8.00 a.m. on 28 May 2009 (or such later time and date as the Company and the Joint Global Coordinators may agree).
The New Shares, when issued and fully paid, will rank pari passu in all respects with the existing issued PRA3 4.1 Ordinary Shares including the right to receive dividends or distributions made, paid or declared after the date PRA3 4.5 of their issue.
Application will be made to the UK Listing Authority and to the London Stock Exchange for the New Shares PRA3 6.1 to be admitted to the Official List and to trading on the London Stock Exchange’s market for listed securities. It is expected that Admission will occur and that dealings in the New Shares (nil paid) on the London Stock Exchange will commence at 8.00 a.m. on 28 May 2009.
Some questions and answers, together with details of further terms and conditions of the Rights Issue, including the procedure for acceptance and payment and the procedure in respect of rights not taken up, are set out in Parts II (“Some Questions and Answers about the Rights Issue”) and III (“Terms and Conditions of the Rights Issue”) of this document and, where relevant, will also be set out in the Provisional Allotment Letter.
Overseas Shareholders should refer to paragraph 2.5 of Part III (“Terms and Conditions of the Rights Issue”) of this document for further information on their ability to participate in the Rights Issue.
5. Current trading and prospects PRA1 12.1 Overall the Group has performed ahead of the Board’s expectations in the first four months of 2009 in PRA1 12.2 markets that have, as anticipated, continued the slowdown seen throughout 2008.
Group revenue for the four months ended 30 April 2009 was down by 13.6 per cent. with like-for-like sales down 14.4 per cent., giving rise, as expected, to a reduction in the Group’s profit before tax, compared to the same period in 2008.
Merchanting For the four months ended 30 April 2009, Merchanting revenue declined by 18.4 per cent and on a like-for- like basis by 19.0 per cent., compared to the same period in 2008. The decline in like-for-like sales was evenly balanced between General and Specialist Merchanting.
Merchanting’s like-for-like sales in the months of March and April 2009 decreased by 18.4 per cent. over the same months in 2008, reflecting a continuation of like-for-like sales decline.
Against competitive market conditions and continued high cost inflation, particularly on heavy building materials, Merchanting has been successful in limiting gross margin erosion and the Board believes it has also been successful in passing on the majority of product cost increases. The Board has chosen not to pursue low margin sales.
Retail Revenue for Retail for the 18 week period ended 2 May 2009 declined by 1.9 per cent., with like-for-like sales declining by 3.6 per cent. on a delivered basis compared to the same period in 2008. Like-for-like sales for Retail on an ordered basis over the same period declined by 1.6 per cent.
Over this period, Wickes made significant gains in kitchen and bathroom revenue with like-for-like sales on a delivered basis up by 12.5 per cent. and on an ordered basis up by 22.8 per cent. over the same period of 2008. Wickes initiated a successful change in promotional strategy utilising television advertising instead of predominantly relying on paper based catalogues and advertising materials, which the Board believes enabled it to increase its revenue from sales of kitchen products in the early part of 2009 following the liquidation of a competitor. Like-for-like sales of Wickes’ core products decreased by 6.5 per cent. over the same period of 2008.
38 Wickes had a successful Easter period reflected by like-for-like sales improvement for March and April 2009 combined of 2.9 per cent. over the same months in 2008. Strong kitchen and bathroom revenue during the two month period improved Wickes’ gross margin with a slight gain on the previous year.
Property The Group has continued its programme of active management of its property portfolio and during the four months ended 30 April 2009 generated £2.6 million profit (£0.6 million cash received). In addition, the Group has exchanged contracts on transactions which will realise £2.2 million of profit upon receipt of planning consent and is in an advanced stage of negotiation in respect of transactions which would realise a profit of more than £7.5 million if completed.
Overhead costs Overhead costs comprising selling and distribution costs and administration expenses were tightly controlled in the four months ended 30 April 2009, and cost reductions are running just ahead of the Group’s targeted £50 million reduction of costs in 2009 when compared to 2008.
Net debt The Group’s net debt position at 31 March 2009 of £984.6 million improved ahead of the Board’s expectations principally due to further improvements in inventory reduction and the performance of Wickes, as described above.
Prospects The Board expects the markets in which the Group operates to continue to weaken until at least the third quarter of 2009. The Board believes recent lead indicators relating to the housing market, such as mortgage approvals; housing transactions and house prices; consumer and customer confidence; and construction orders generally show signs of stabilisation. However the impact of any potential increases in unemployment on these markets and indicators is uncertain. The Board has continued to manage the business according to its current operational priorities, including cash maximisation and cost control, while maintaining the benefits of Group scale.
6. Dividend policy In view of the continuing difficulties in the markets in which the Group operates, the Board announced on PRA1 20.7 19 February 2009 a suspension of the final dividend for the year ended 31 December 2008.
The Board remains committed to maintaining long-term dividend cover at between 2.5 and 3.5 times earnings and expects to resume dividend payments once it is prudent to do so. The decision as to when to declare a dividend and the amount to be paid will take into account, inter alia, the Group’s earnings, cash flows and balance sheet position, as well as the then prevailing market outlook.
7. Travis Perkins Employee Share Plans Options and awards held by employees under the Travis Perkins Employee Share Plans may be adjusted to PRA1 17.3 compensate for any effect the Rights Issue will have on the value of such options and awards. Adjustments will not be made until after the Rights Issue and will be subject to the approval of HMRC where required. Employees holding investment shares under the Share Matching Scheme and/or shares under the Share Incentive Plan will be able to participate in the Rights Issue in respect of such shares. Participants in the Travis Perkins Employee Share Plans will be contacted separately with further information on their rights and how their options and awards will be affected by the Rights Issue.
A description of the Travis Perkins Employee Share Plans is set out in paragraph 13 of Part IX (“Additional Information”) of this document.
39 8. Extraordinary General Meeting On 11 May 2009, Shareholders were sent the circular convening an Extraordinary General Meeting to be PRA3 4.6 held at 11.00 a.m. on 27 May 2009 at the offices of Linklaters LLP, One Silk Street, London EC2Y 8HQ. The Extraordinary General Meeting is being held for the purpose of considering and, if thought fit, passing three resolutions (the “Resolutions”). As noted above, completion of the Rights Issue is subject to a number of conditions, including Shareholders’ approval of the Resolutions being obtained at the Extraordinary General Meeting.
The first resolution is an ordinary resolution to increase the Company’s authorised, but unissued, share capital. The second resolution that will be proposed at the Extraordinary General Meeting, conditional on the passing of the first Resolution above, is an ordinary resolution to grant the Directors authority to allot the New Shares for the purposes of the Rights Issue and allow the Directors to retain sufficient authority to allot relevant securities (as defined in the Companies Act) for general purposes, in line with the authority to be proposed at the annual general meeting of the Company to be held on 21 May 2009.
The third resolution conditional on the passing of the second Resolution above, is a special resolution, to disapply the pre-emptive rights provisions of section 89 of the Companies Act in respect of the New Shares to be allotted pursuant to the second Resolution above: (i) in connection with the Rights Issue (and/or any other pre-emptive offer) and (ii) otherwise than in connection with the Rights Issue (and/or any other pre- emptive offer).
Further details of the Resolutions are set out in paragraph 3.8 of Part IX (“Additional Information”) of this document.
The Rights Issue is conditional on the passing of the Resolutions.
To be effective, Forms of Proxy must be completed and received by the Registrars at Capita Registrars, Proxy Department, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU by 11.00 a.m. on 25 May 2009.
9. Overseas Shareholders The attention of Overseas Shareholders who have registered addresses outside the UK, or who are citizens of or resident or located in countries other than the UK, is drawn to the information in paragraph 2.5 of Part III (“Terms and Conditions of the Rights Issue”) of this document.
10. UK and United States taxation Certain information about UK and United States taxation in relation to the Rights Issue is set out in Part VIII (“Taxation”) of this document. If you are in any doubt as to your tax position, or you are subject to tax in a jurisdiction other than the UK or the United States, you should consult your own independent tax adviser without delay.
11. Action to be taken You are not required to take any action at present in relation to the Rights Issue. If the Resolutions are passed, PRA3 5.1.3 it is intended that:
(i) if you are a Qualifying Non-CREST Shareholder, you will be sent a Provisional Allotment Letter giving you details of your Nil Paid Rights by post on or about 27 May 2009; and
(ii) if you are a Qualifying CREST Shareholder, you will receive a credit to your appropriate stock accounts in CREST in respect of the Nil Paid Rights as soon as practicable after 8.00 a.m. on 28 May 2009. Qualifying CREST Shareholders will not be sent a Provisional Allotment Letter.
If you sell or have sold or otherwise transferred all of your Ordinary Shares held (other than ex-rights) in certificated form before 28 May 2009, please forward this document and any Provisional Allotment Letter duly renounced, if and when received, at once to the purchaser or transferee or the bank, stockbroker or other agent through whom the sale or transfer was effected for delivery to the purchaser or transferee, except that,
40 subject to certain exceptions, such documents should not be sent to any jurisdiction where to do so might constitute a violation of local securities laws or regulations, including, but not limited to, the United States and the Excluded Territories.
If you sell or have sold or otherwise transferred all or some of your Ordinary Shares (other than ex-rights) held in uncertificated form before the Ex-Rights Date, a claim transaction will automatically be generated by Euroclear UK which, on settlement, will transfer the appropriate number of Nil Paid Rights to the purchaser or transferee.
If you sell or have sold or otherwise transferred only part of your holding of Existing Shares (other than ex- rights) held in certificated form before the Ex-Rights Date, you should refer to the instruction regarding split applications in Part III (“Terms and Conditions of the Rights Issue”) of this document and in the Provisional Allotment Letter.
The latest time and date for acceptance and payment in full in respect of the Rights Issue is expected to be 11.00 a.m. on 11 June 2009, unless otherwise announced by the Company. The procedure for acceptance and payment is set out in Part III (“Terms and Conditions of the Rights Issue”) of this document and, in respect of Qualifying Non-CREST Shareholders only, in the Provisional Allotment Letter.
For Qualifying Non-CREST Shareholders, the New Shares will be issued in certificated form and will be represented by definitive share certificates, which are expected to be despatched to the registered address of the person(s) entitled to them by no later than 26 June 2009 (unless otherwise announced by the Company).
For Qualifying CREST Shareholders, the Registrars will instruct CREST to credit the stock accounts of the Qualifying CREST Shareholders with their entitlements to New Shares. It is expected that this will take place at 8.00 a.m. on 12 June 2009 (unless otherwise announced by the Company).
Qualifying CREST Shareholders who are CREST sponsored members should refer to their CREST sponsor regarding the action to be taken in connection with this document and the Rights Issue.
If you are in any doubt as to the action you should take, you should immediately seek your own financial advice from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under the FSMA or, if you are outside the UK, by another appropriately authorised independent financial adviser.
12. Intentions of Directors The Directors are fully supportive of the Rights Issue and intend to take up their rights to acquire New Shares in full, save for John Carter who intends to take up his rights in part.
13. Further information Your attention is drawn to the further information set out in Parts II (“Some Questions and Answers about the Rights Issue”) to XI (“Definitions”) of this document. Qualifying Shareholders should read the whole of this document and not rely solely on the information set out in this document. Shareholders should consider fully and carefully the risk factors associated with Travis Perkins and the Rights Issue set out in the section headed “Risk Factors” on pages 12 to 21 of this document.
Yours sincerely,
Tim Stevenson Chairman
41 PART II
SOME QUESTIONS AND ANSWERS ABOUT THE RIGHTS ISSUE
The questions and answers set out in this Part II are intended to be in general terms only and, as such, you should read Part III “Terms and Conditions of the Rights Issue” of this document for full details of what action you should take. If you are in any doubt as to what action you should take, you are recommended to seek immediately your own financial advice from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser, duly authorised under the FSMA if you are resident in the UK or, if not, from another appropriately authorised independent financial adviser.
This Part II deals with general questions relating to the Rights Issue and more specific questions relating to Ordinary Shares held by persons resident in the UK who hold their Ordinary Shares in certificated form only. If you are an Overseas Shareholder, you should read paragraph 2.5 of Part III (“Terms and Conditions of the Rights Issue”) of this document and you should take professional advice as to whether you are eligible and/or you need to observe any formalities to enable you to take up your rights. If you hold your Ordinary Shares in uncertificated form (that is, through CREST) you should read Part III (“Terms and Conditions of the Rights Issue”) of this document for full details of what action you should take. If you are a CREST sponsored member, you should also consult your CREST sponsor. If you do not know whether your Ordinary Shares are in certificated or uncertificated form, please call the Shareholder Helpline between 9.00 a.m. and 5.00 p.m. on any London Business Day on 0871 664 0321 (from inside the UK) or +44 208 639 3399 (from outside the UK). Calls to 0871 664 0321 number are charged at 10p per minute (including VAT) from a BT landline. Other service providers’ costs may vary. Calls to +44 208 639 3399 from outside the UK are charged at applicable international rates. Different charges may apply to calls made from mobile telephones and calls may be recorded and monitored randomly for security and training purposes. For legal reasons, the Shareholder Helpline will be unable to give advice on the merits of the Rights Issue or to provide financial, tax or investment advice.
Timetable dates in this Part II have been included on the basis of the expected timetable set out on page 11.
1. What is a rights issue? A rights issue is a way for companies to raise money. Companies do this by giving their existing shareholders a right to buy further shares in proportion to their existing shareholdings.
This Rights Issue is an offer by Travis Perkins of 85,903,379 New Shares at a price of 365 pence per New Share. If you hold Ordinary Shares on the Record Date, and you are a “Qualifying Shareholder” (i.e. you do not, subject to certain exceptions, have a registered address in, or are not located or resident in, the United States or any of the Excluded Territories), you will be entitled to buy New Shares under the Rights Issue. If you hold your Existing Shares in certificated form, your entitlement will be set out in your Provisional Allotment Letter (which is due to be sent subsequently).
New Shares are being offered to Qualifying Shareholders in the Rights Issue at a discount to the share price on the last business day before the details of the Rights Issue were announced on 11 May 2009. The Issue Price of 365 pence per New Share represents a 38.5 per cent. discount to the theoretical ex-rights price based on the Closing Price of 753.5 pence per Ordinary Share on 8 May 2009, the last business day prior to the date of announcement of the terms of the Rights Issue. Because of this discount and while the market value of the Existing Shares exceeds the Issue Price, the right to buy the New Shares is potentially valuable.
The Rights Issue is on the basis of 7 New Shares for every 10 Existing Shares held by Qualifying Shareholders on the Record Date.
If you are a Qualifying Shareholder and you do not want to buy the New Shares to which you are entitled, you can instead sell or transfer your rights (called “Nil Paid Rights”) to those New Shares and receive the net proceeds, if any, of the sale or transfer in cash. This is referred to as dealing “nil paid”.
42 2. I hold my Existing Shares in certificated form. How do I know if I am eligible to participate in the Rights Issue? If you receive a Provisional Allotment Letter and, subject to certain exceptions, are not a holder with a registered address in the United States or in any of the Excluded Territories, then you should be eligible to participate in the Rights Issue (as long as you have not sold all of your Existing Shares before 8.00 a.m. on 28 May 2009 (the time when the Existing Shares are expected to be separated to be marked “ex-rights” by the London Stock Exchange)).
3. I hold my Existing Shares in certificated form. What do I need to do in relation to the Rights Issue? Subject to Shareholders approving the Resolutions at the Extraordinary General Meeting to be held on 27 May 2009, if you hold your Existing Shares in certificated form and do not have a registered address in the United States or one of the Excluded Territories, you will be sent a Provisional Allotment Letter that shows:
• how many Existing Shares you held at the close of business on 22 May 2009 (the Record Date for the Rights Issue);
• how many New Shares you are entitled to buy; and
• how much you need to pay if you want to take up your right to buy all the New Shares provisionally allotted to you in full.
Subject to certain exceptions, if you have a registered address in the United States or any of the Excluded Territories, you will not receive a Provisional Allotment Letter.
4. I am a Qualifying Shareholder with a registered address in the UK and I hold my Existing Shares in certificated form. What are my choices and what should I do with the Provisional Allotment Letter?
(a) If you want to take up all of your rights If you want to take up all of your rights to subscribe for the New Shares to which you are entitled, all you need to do is send the Provisional Allotment Letter, together with your cheque or banker’s draft for the full amount, payable to Capita Registrars Limited re: Travis Perkins plc – Rights Issue a/c and crossed “A/C payee only”, by post or by hand (during normal business hours only) to Capita Registrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, to arrive by no later than 11.00 a.m. on 11 June 2009. Within the UK only, you can use the reply-paid envelope which will be enclosed with the Provisional Allotment Letter. Full instructions are set out in Part III (“Terms and Conditions of the Rights Issue”) of this document and will be set out in the Provisional Allotment Letter. A definitive share certificate will then be sent to you for the New Shares that you take up. Your definitive share certificate for New Shares is expected to be despatched to you by no later than 26 June 2009. You will need your Provisional Allotment Letter to be returned to you if you want to deal in your Fully Paid Rights. Your Provisional Allotment Letter will not be returned to you unless you tick the appropriate box on the Provisional Allotment Letter.
Third-party cheques will not be accepted, with the exception of building society cheques or banker’s drafts where the building society or bank has confirmed the name of the account holder by stamping or endorsing the cheque or draft to such effect. The account name should be the same as that shown on the application. Post-dated cheques will not be accepted.
(b) If you do not want to take up your rights at all If you do not want to take up your rights, you do not need to do anything. If you do not return your Provisional Allotment Letter subscribing for the New Shares to which you are entitled by 11.00 a.m. on 11 June 2009, we have made arrangements under which the Underwriters will try to find investors to take up your rights and the rights of others who have not taken them up. If the Underwriters find
43 investors who agree to pay a premium above the Issue Price and the related expenses of procuring those investors (including any applicable brokerage and commissions and amounts in respect of value added tax), you will be sent a cheque for your share of the amount of that premium provided that this is £5.00 or more. Cheques are expected to be despatched on or around 26 June 2009 and will be sent to your existing address appearing on Travis Perkins’ register of members (or to the first-named holder if you hold your Existing Shares jointly). If the Underwriters cannot find investors who agree to pay a premium over the Issue Price and related expenses so that your entitlement would be £5.00 or more, you will not receive any payment. Alternatively, if you do not want to take up your rights, you can sell or transfer your Nil Paid Rights (see paragraph 4(d) below).
(c) If you want to take up some but not all of your rights If you want to take up some but not all of your rights and wish to sell some or all of those you do not want to take up, you should first apply to have your Provisional Allotment Letter split by completing Form X on the Provisional Allotment Letter, and returning it by post or by hand (during normal business hours) to Capita Registrars, to be received by 3.00 p.m. on 9 June 2009, together with a covering letter stating the number of split Provisional Allotment Letters required and the number of Nil Paid Rights to be comprised in each split Provisional Allotment Letter. You should then deliver the split Provisional Allotment Letter representing the New Shares that you wish to accept together with your cheque or banker’s draft to Capita Registrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU (see paragraph 4(a) above) to be received by 11.00 a.m. on 11 June 2009.
Alternatively, if you only want to take up some of your rights (but not sell some or all of the rest), you should complete Form X on the Provisional Allotment Letter and return it by 11.00 a.m. on 11 June 2009 with a cheque or banker’s draft together with an accompanying letter indicating the number of Nil Paid Rights that you wish to take up, in accordance with the provisions set out in the Provisional Allotment Letter.
Further details are set out in Part III (“Terms and Conditions of the Rights Issue”) of this document and will be set out in the Provisional Allotment Letter.
(d) If you want to sell all of your rights If you want to sell all of your rights, you should complete and sign Form X on the Provisional Allotment Letter (if it is not already marked “Original Duly Renounced”) and pass the entire letter to your stockbroker, bank manager or other appropriate financial adviser or to the transferee (provided they are not in the United States or any of the Excluded Territories).
Please ensure that you allow enough time so as to enable the person acquiring your rights to take all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 11 June 2009.
5. I acquired my Existing Shares prior to the Record Date (22 May 2009) and hold my Existing Shares in certificated form. What if I do not receive a Provisional Allotment Letter? If Shareholders approve the Resolutions at the Extraordinary General Meeting to be held on 27 May 2009, and you do not receive a Provisional Allotment Letter but hold your Shares in certificated form, this probably means that you are not eligible to participate in the Rights Issue. Some Non-CREST Shareholders, however, will not receive a Provisional Allotment Letter but may still be eligible to participate in the Rights Issue, namely:
• Qualifying CREST Shareholders who held their Existing Shares in uncertificated form on 22 May 2009 and who have converted them to certificated form;
• Qualifying Non-CREST Shareholders who bought Existing Shares before 22 May 2009 but were not registered as the holders of those Shares at the close of business on 22 May 2009; and
• certain Overseas Shareholders.
44 If you do not receive a Provisional Allotment Letter but think that you should have received one, please contact the Shareholder Helpline on 0871 664 0321 (from inside the UK) or +44 208 639 3399 (from outside the UK) between 9.00 a.m. and 5.00 p.m. on any London business day. Calls to 0871 664 0321 are charged at 10 pence per minute (including VAT) from a BT landline. Other service providers’ costs may vary. Calls to +44 208 639 3399 number from outside the UK are charged at applicable international rates. Different charges may apply to calls made from mobile telephones and calls may be recorded and monitored randomly for security and training purposes. For legal reasons, the Shareholder Helpline will be unable to give advice on the merits of the Rights Issue or to provide financial, tax or investment advice.
6. If I buy Shares after the Record Date (22 May 2009), will I be eligible to participate in the Rights Issue? If you bought Shares after the Record Date but prior to 8.00 a.m. on 28 May 2009 (the time when the Existing Shares are expected to start trading ex-rights on the London Stock Exchange), you may be eligible to participate in the Rights Issue.
If you are in any doubt, please consult your stockbroker, bank or other appropriate financial adviser, or whoever arranged your share purchase, to ensure you claim your entitlement.
If you buy Shares at or after 8.00 a.m. on 28 May 2009, you will not be eligible to participate in the Rights Issue in respect of those Shares.
7. I hold my Existing Shares in certificated form. If I take up my rights, when will I receive my New Shares certificate? If you take up your rights under the Rights Issue, share certificates for the New Shares are expected to be posted by no later than 26 June 2009.
8. How do I transfer my rights into the CREST system? If you are a Qualifying Non-CREST Shareholder, but are a CREST member and want your New Shares to be in uncertificated form, you should complete Form X and the CREST Deposit (on page 4 of the Provisional Allotment Letter) and ensure they are delivered to CCSS to be received by 3.00 p.m. on 8 June 2009 at the latest. CREST sponsored members should arrange for their CREST sponsors to do this.
If you have transferred your rights into the CREST system, you should refer to paragraph 2.2 of Part III (“Terms and Conditions of the Rights Issue”) of this document for details on how to pay for the New Shares.
9. What should I do if I think my holding of Shares is incorrect? If you have bought or sold Shares shortly before 22 May 2009, your transaction may not be entered on the register of members in time to appear on the register at the Record Date. If you are concerned about the figure in Box 1 or Box 2 of the Provisional Allotment Letter or otherwise concerned that your holding of Shares is incorrect, please contact the Shareholder Helpline on 0871 664 0321 (from inside the United Kingdom) or +44 208 639 3399 (from outside the United Kingdom). Calls to the 0871 664 0321 number are charged at 10p per minute (including VAT) from a BT landline; other service providers’ costs may vary. Calls to the +44 208 639 3399 number from outside the UK are charged at applicable international rates. Different charges may apply to calls made from mobile telephones and calls may be recorded and monitored randomly for security and training purposes. For legal reasons, the Shareholder Helpline will be unable to give advice on the merits of the Rights Issue or to provide legal, financial, tax or investment advice.
10. What if the number of New Shares to which I am entitled is not a whole number: am I entitled to fractions of Shares? Your entitlement to New Shares will be calculated at the Record Date. If the result is not a whole number, you will not receive a fraction of a New Share and your entitlement will be rounded down to the nearest whole number. The New Shares representing the aggregated fractions that would otherwise be allotted to Shareholders will be sold in the market nil paid for the benefit of the Company.
45 11. Will I be taxed if I take up or sell my rights or if my rights are sold on my behalf? If you are resident in the UK for tax purposes, you should not have to pay UK tax when you take up your rights, although the Rights Issue will affect the amount of UK tax you may pay when you subsequently sell your Ordinary Shares. However, assuming that you hold your Ordinary Shares as an investment, rather than for the purposes of a trade, you may (subject to any available exemption or relief) be subject to capital gains tax on any proceeds that you receive from the sale of your rights (unless, generally, the proceeds do not exceed £3,000, or, if more, 5 per cent. of the market value of your Ordinary Shares, although in that case the amount of UK tax you may pay when you subsequently sell all or any of your Ordinary Shares may be affected).
Further information for Qualifying Shareholders who are resident in the UK for tax purposes is contained in Part VIII (“Taxation”) of this document. This information is intended as a general guide to the current tax position in the UK and Qualifying Shareholders should consult their own tax advisers regarding the tax treatment of the Rights Issue in light of their own circumstances. Qualifying Shareholders who are in any doubt as to their tax position, or who are subject to tax in any other jurisdiction, should consult an appropriate professional adviser as soon as possible. Please note, the Shareholder Helpline will not be able to assist you with taxation issues.
12. I understand that there is a period when there is trading in the Nil Paid Rights. What does this mean? If you do not want to buy the New Shares being offered to you under the Rights Issue, you can instead sell or transfer your rights (called “Nil Paid Rights”) to those New Shares and receive the net proceeds of the sale or transfer in cash. This is referred to as dealing “nil paid”. This means that, during the Rights Issue offer period (i.e. between 28 May and 11 June 2009), a person can either purchase Ordinary Shares (which will not carry any entitlement to participate in the Rights Issue) or can trade in the Nil Paid Rights.
13. I hold my Existing Shares in certificated form. What if I want to sell the New Shares for which I have paid? Provided the New Shares have been paid for and you have requested the return of the receipted Provisional Allotment Letter, you can transfer the Fully Paid Rights by completing Form X (the form of renunciation) on the receipted Provisional Allotment Letter in accordance with the instructions set out in the Provisional Allotment Letter until 11.00 a.m. on 11 June 2009. After that time, you will be able to sell your New Shares in the normal way. The share certificate relating to your New Shares is expected to be despatched to you by no later than 26 June 2009. Pending despatch of the share certificate, instruments of transfer will be certified by Capita Registrars against the register.
Further details are set out in Part III (“Terms and Conditions of the Rights Issue”) of this document.
14. What should I do if I live outside the UK? Your ability to take up rights to New Shares may be affected by the laws of the country in which you live and you should take professional advice as to whether you require any governmental or other consents or need to observe any other formalities to enable you to take up your rights. Shareholders with registered addresses in the United States or the Excluded Territories are, subject to certain exceptions, not eligible to participate in the Rights Issue. Your attention is drawn to the information in paragraph 2.5 of Part III (“Terms and Conditions of the Rights Issue”) of this document.
Travis Perkins has made arrangements under which the Underwriters will try to find investors to take up your rights and those of other Shareholders who have not taken up their rights. If the Joint Global Coordinators find investors who agree to pay a premium above the Issue Price and the related expenses of procuring those investors (including any applicable brokerage and commissions and amounts in respect of value added tax), you will be sent a cheque for your share of the amount of that premium provided that this is £5.00 or more. Cheques are expected to be despatched on or around 26 June 2009 and will be sent to your address appearing on Travis Perkins’ register of members (or to the first-named holder if you hold your Shares jointly). If the
46 Underwriters cannot find investors who agree to pay a premium over the Issue Price and related expenses so that your entitlement would be £5.00 or more, you will not receive any payment.
15. Will the Rights Issue affect the future dividends Travis Perkins pays? The Board has recently reviewed Travis Perkins’ near-term dividend policy in response to the ongoing global financial crisis and challenging trading conditions. In view of the continuing difficulties in the markets in which the Group operates, the Board announced on 19 February 2009 a suspension of the final dividend for the year ended 31 December 2008. The Board remains committed to maintaining long-term dividend cover at between 2.5 and 3.5 times earnings and expects to resume dividend payments once it is prudent to do so. The decision as to when to declare a dividend and the amount to be paid will take into account, inter alia, the Group’s earnings, cash flows and balance sheet position, as well as the then prevailing market outlook. As a result, there can be no assurance that cash dividends or similar payments will be paid out in the foreseeable future or of their amount.
47 PART III
TERMS AND CONDITIONS OF THE RIGHTS ISSUE
1. Introduction The Company is proposing to raise gross proceeds of approximately £314 million (approximately £300 PRA3 5.1.2 million net of expenses) by way of a rights issue of 85,903,379 New Shares. Subject to the fulfilment of the PRA3 4.4 conditions of the Underwriting Agreement, the New Shares will be offered by way of rights at 365 pence per PRA3 5.2.1 New Share, payable in full on acceptance by Qualifying Shareholders, on the basis of: PRA3 5.3.1
7 New Shares for every 10 Existing Shares held on the Record Date (and so in proportion for any other number of Existing Shares then held) and PRA3 5.2.3(a) otherwise on the terms and conditions as set out in this document and, in the case of Qualifying Non-CREST Shareholders, the Provisional Allotment Letters.
Qualifying Shareholders are holders of Ordinary Shares on the register of members of the Company at the Record Date, with the exclusion (subject to certain exceptions) of Shareholders with a registered address or located or resident in the United States or an Excluded Territory.
Timetable dates in this Part III have been included on the basis of the expected timetable set out on page 11.
The Issue Price of 365 pence per New Share represents a 38.5 per cent. discount to the theoretical ex-rights price based on the Closing Price of an Ordinary Share of 753.5 pence per Existing Share on 8 May 2009, PRA3 5.3.1 the last business day prior to the date of announcement of the terms of the Rights Issue.
Qualifying Shareholders who do not take up entitlements to New Shares will have their proportionate shareholdings in Travis Perkins diluted by approximately 41.2 per cent. Those Qualifying Shareholders who take up their rights in full will, subject to fractions, have the same proportionate voting and distribution rights as held on the Record Date.
The Nil Paid Rights (also described as New Shares, nil paid) are entitlements to acquire the New Shares subject to payment of the Issue Price. The Fully Paid Rights are entitlements to receive the New Shares, for which a subscription and payment has already been made.
Holdings of Existing Shares in certificated and uncertificated form will be treated as separate holdings for the purpose of calculating entitlements under the Rights Issue. Entitlements to New Shares will be rounded down to the next lowest whole number and fractions of New Shares will not be allotted to Qualifying Shareholders. Such fractions will be aggregated and, if possible, sold as soon as practicable after the commencement of dealings in the New Shares, nil paid. The net proceeds of such sales (after deduction of expenses) will be aggregated and will ultimately accrue for the benefit of Travis Perkins.
The attention of Overseas Shareholders or any person (including, without limitation, custodians, nominees and trustees) who has a contractual or other legal obligation to forward this document into a jurisdiction other than the UK is drawn to paragraph 2.5 below. The offer of New Shares and the Rights Issue will not be made into certain territories. New Shares will be provisionally allotted (nil paid) to all Shareholders on the register at the Record Date. However, subject to the provisions of paragraph 2.5 below, Shareholders with a registered address in the United States or an Excluded Territory are not being sent this document, will not be sent Provisional Allotment Letters and will not have their CREST accounts credited with Nil Paid Rights.
Applications will be made to the UK Listing Authority and to the London Stock Exchange for the New Shares PRA3 4.3 (nil paid and fully paid) to be admitted to the Official List and to trading on the London Stock Exchange’s main PRA3 4.7 market for listed securities respectively. It is expected that Admission will become effective on 28 May 2009 PRA3 6.1 and that dealings in the New Shares, nil paid, will commence on the London Stock Exchange by 8.00 a.m. on
48 that date. The New Shares and the Existing Shares are in registered form and can be held in certificated form or uncertificated form via CREST.
The Existing Shares are already admitted to CREST. No further application for admission to CREST is required for the New Shares and all of the New Shares when issued and fully paid may be held and transferred by means of CREST.
Applications will be made for the Nil Paid Rights and the Fully Paid Rights to be admitted to CREST as separate securities. Euroclear UK requires the Company to confirm to it that certain conditions (imposed by the CREST Manual) are satisfied before Euroclear UK will admit any security to CREST. It is expected that these conditions will be satisfied, in respect of the Nil Paid Rights and the Fully Paid Rights, on Admission. As soon as practicable after satisfaction of the conditions, the Company will confirm this to Euroclear UK.
The ISIN for the New Shares will be the same as that of the Existing Shares, being GB0007739609. The PRA3 4.1 ISIN code for the Nil Paid Rights is GB00B4N50J80 and for the Fully Paid Rights is GB00B4N52472.
None of the New Shares is being made available to the public other than pursuant to the Rights Issue.
The Rights Issue has been fully underwritten by the Underwriters, and is conditional, inter alia, upon: PRA3 5.1.1
(i) the passing of the Resolutions at the Extraordinary General Meeting; PRA3 4.6 (ii) the Underwriting Agreement having become unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms; and PRA3 5.4.3 (iii) Admission becoming effective by not later than 8.00 a.m. on 28 May 2009 (or such later date as the Company and the Joint Global Coordinators may agree).
The Underwriting Agreement is conditional upon certain matters being satisfied or not breached prior to Admission and may be terminated by the Underwriters prior to Admission upon the occurrence of certain PRA3 5.4.3 specified events, in which case the Rights Issue will not proceed. The Underwriting Agreement is not capable of termination following Admission. The Underwriters may arrange sub-underwriting for some, all or none of the New Shares. A summary of certain terms and conditions of the Underwriting Agreement is contained in paragraph 16.1 of Part IX (“Additional Information”) of this document.
The Underwriters and any of their respective affiliates may engage in trading activity in connection with their roles under the Underwriting Agreement and, in that capacity, may retain, purchase, sell, offer to sell or otherwise deal for their own account in securities of the Company and related or other securities and instruments (including Ordinary Shares, Nil Paid Rights and Fully Paid Rights). Except as required by applicable law or regulation, the Underwriters do not propose to make any public disclosure in relation to such transactions.
The Company will not proceed with the Rights Issue if the Underwriting Agreement is terminated at any time prior to Admission and commencement of dealings in the New Shares (nil paid).
Subject, inter alia, to the conditions referred to above being satisfied (other than the condition relating to Admission) and save as provided in paragraph 2.5 below, it is intended that:
(i) Provisional Allotment Letters in respect of Nil Paid Rights will be despatched to Qualifying Non- CREST Shareholders on 27 May 2009;
(ii) Capita Registrars will instruct Euroclear UK to credit the appropriate stock accounts of Qualifying PRA3 5.1.9 CREST Shareholders with such Shareholders’ entitlements to Nil Paid Rights with effect from 8.00 a.m. on 28 May 2009;
(iii) the Nil Paid Rights and the Fully Paid Rights will be enabled for settlement by Euroclear UK by PRA3 4.7 8.00 a.m. on 28 May 2009, as soon as practicable after the Company has confirmed to Euroclear UK that all the conditions for admission of such rights to CREST have been satisfied;
(iv) New Shares will be credited to the relevant Qualifying Shareholders who validly take up their rights by no later than 12 June 2009; and
49 (v) share certificates for the New Shares will be despatched to Qualifying Non-CREST Shareholders by no later than 26 June 2009.
The offer will be made to Qualifying Non-CREST Shareholders by way of the Provisional Allotment Letter (as described in paragraph (i) above) and to Qualifying CREST Shareholders by way of the enablement of the Nil Paid Rights and the Fully Paid Rights (as described in paragraph (iii) above) (such Shareholders’ stock accounts having been credited as described in paragraph (ii) above).
The New Shares will, when issued and fully paid, rank pari passu in all respects with the Existing Shares, PRA3 4.5 including the right to receive all dividends or other distributions made, paid or declared after the date of this document.
All documents including Provisional Allotment Letters (which constitute temporary documents of title) and cheques and certificates posted to, by or from Qualifying Shareholders and/or their transferees or renouncees (or their agents, as appropriate) will be posted at their own risk.
The Registrar has instructed Euroclear to credit the appropriate stock accounts of Qualifying CREST Shareholders with such shareholders’ entitlements to Nil Paid Rights with effect from 28 May 2009, and the Nil Paid Rights are expected to be enabled for settlement by Euroclear on 28 May 2009, as soon as practicable after the Company has confirmed to Euroclear that all conditions for admission of such rights to CREST have been satisfied.
Shareholders taking up their rights by completing a Provisional Allotment Letter or by sending a Many-To- Many (“MTM”) instruction to Euroclear UK will be deemed to have given the representations and warranties set out in paragraph 2.2.2(iv) below, unless the requirement is waived by Travis Perkins.
2. Action to be taken The action to be taken in respect of the New Shares depends on whether, at the relevant time, the Nil PRA3 5.1.3 Paid Rights or the Fully Paid Rights in respect of which action is to be taken are in certificated form PRA3 5.1.8 (that is, are represented by Provisional Allotment Letters) or are in uncertificated form (that is, are in PRA3 5.1.10 CREST).
If you are a Qualifying Non-CREST Shareholder, please refer to paragraph 2.1 and paragraphs 2.3 to 2.8 below.
If you hold your Existing Shares in CREST, please refer to paragraph 2.2 and paragraphs 2.3 to 2.8 below and to the CREST Manual for further information on the CREST procedures referred to below.
CREST sponsored members should refer to their CREST sponsors, as only their CREST sponsors will be able to take the necessary actions specified below to take up the entitlements or otherwise to deal with the Nil Paid Rights or Fully Paid Rights of CREST sponsored members.
All enquiries in relation to the Provisional Allotment Letters should be addressed to the Shareholder Helpline on 0871 664 0321 (+44 208 639 3399 if you are calling from outside the UK) between 9.00 a.m. and 5.00 p.m. Monday to Friday (except bank holidays). Calls to 0871 664 0321 are charged at 10p per minute (including VAT) from a BT landline. Other service providers’ costs may vary. Calls to +44 208 639 3399 from outside the UK are charged at applicable international rates. Different charges may apply to calls made from mobile telephones and calls may be recorded and monitored randomly for security and training purposes. For legal reasons, the Shareholder Helpline will be unable to give advice on the merits of the Rights Issue or to provide financial, tax or investment advice.
2.1 Action to be taken by Qualifying Non-CREST Shareholders in relation to the Nil Paid Rights represented by Provisional Allotment Letters
2.1.1 General Provisional Allotment Letters are expected to be despatched to Qualifying Non-CREST Shareholders on 27 May 2009. Each Provisional Allotment Letter will set out:
50 (i) the holding at the Record Date of Existing Shares in certificated form on which a PRA3 5.1.6 Qualifying Non-CREST Shareholder’s entitlement to New Shares has been based;
(ii) the aggregate number and cost of New Shares in certificated form which have been PRA3 5.2.4 provisionally allotted to that Qualifying Non-CREST Shareholder;
(iii) the procedures to be followed if a Qualifying Non-CREST Shareholder wishes to dispose of all or part of his entitlement or to convert all or part of his entitlement into uncertificated form; and
(iv) instructions regarding acceptance and payment, consolidation, splitting and registration of renunciation.
On the basis that Provisional Allotment Letters are posted on 27 May 2009, and that dealings PRA3 5.1.3 in Nil Paid Rights commence on 28 May 2009, the latest time and date for acceptance and payment in full will be 11.00 a.m. on 11 June 2009.
If the Rights Issue is delayed so that Provisional Allotment Letters cannot be despatched on 27 May 2009, the expected timetable, as set out at the front of this document, will be adjusted accordingly and the revised dates will be set out in the Provisional Allotment Letters and announced through a Regulatory Information Service. All references in this Part III should be read as being subject to such adjustment.
2.1.2 Procedure for acceptance and payment
(i) Qualifying Non-CREST Shareholders who wish to accept in full PRA3 5.1.3 Holders of Provisional Allotment Letters who wish to take up all of their PRA3 5.1.8 entitlements must return the Provisional Allotment Letter, together with a cheque or PRA3 5.1.10 banker’s draft in pounds sterling, made payable to Capita Registrars Limited: re Travis Perkins plc – Rights Issue a/c and crossed “A/C payee only”, for the full amount payable on acceptance, in accordance with the instructions printed on the Provisional Allotment Letter, by post or by hand (during normal business hours only) to Capita Registrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, so as to arrive as soon as possible and in any event so as to be received by not later than 11.00 a.m. on 11 June 2009. A reply-paid envelope will be enclosed with the Provisional Allotment Letter for this purpose and for use in the UK only. If you post your Provisional Allotment Letter within the UK by first-class post, it is recommended that you allow at least four days for delivery.
(ii) Qualifying Non-CREST Shareholders who wish to accept in part PRA3 5.1.5 Holders of Provisional Allotment Letters who wish to take up some but not all of their Nil Paid Rights and wish to sell some or all of those rights which they do not want to take up should first apply for split Provisional Allotment Letters by completing Form X on the Provisional Allotment Letter and returning it, together with a covering letter stating the number of split Provisional Allotment Letters required and the number of Nil Paid Rights or Fully Paid Rights (if appropriate) to be comprised in each split Provisional Allotment Letter, by post or by hand (during normal business hours only) to Capita Registrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU by 3.00 p.m. on 9 June 2009, the last date and time for splitting Nil Paid Rights or Fully Paid Rights. The Provisional Allotment Letter will then be cancelled and exchanged for the split Provisional Allotment Letters required. Such holders of Provisional Allotment Letters should then deliver the split Provisional Allotment Letter representing the rights they wish to take up together with a cheque or banker’s draft in pounds sterling for this number of rights, payable to Capita Registrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU and crossed “A/C payee only” to arrive by 11.00 a.m. on 11 June 2009, the last date and time for acceptance. The further split Provisional Allotment Letters (representing the New Shares
51 the Shareholder does not wish to take up) will be required in order to sell those rights not being taken up.
Alternatively, Qualifying Non-CREST Shareholders who wish to take up some of their rights, without selling or transferring the remainder, should complete Form X on the original Provisional Allotment Letter and return it, together with a covering letter confirming the number of rights to be taken up and a cheque or banker’s draft in pounds sterling to pay for this number of New Shares, by post or by hand (during normal business hours only) to Capita Registrars. In this case, the Provisional Allotment Letter and payment must be received by Capita Registrars by 11.00 a.m. on 11 June 2009, the last date and time for acceptance.
(iii) Company’s discretion as to validity of acceptances If payment is not received in full by 11.00 a.m. on 11 June 2009, the provisional allotment will, subject to the below, be deemed to have been declined and will lapse. The Company may elect, with the agreement of the Underwriters, but shall not be obliged, to treat as valid Provisional Allotment Letters and accompanying remittances for the full amount due which are received through the post prior to 5.00 p.m. on 11 June 2009.
The Company may also (in its sole discretion) treat a Provisional Allotment Letter as valid and binding on the person(s) by whom or on whose behalf it is lodged even if it is not completed in accordance with the relevant instructions or is not accompanied by a valid power of attorney where required.
The Company reserves the right to treat as invalid any acceptance or purported acceptance of the New Shares that appears to the Company to have been executed in, dispatched from, or that provided an address for delivery of definitive share certificates for New Shares in, the United States or an Excluded Territory.
A Qualifying Non-CREST Shareholder who makes a valid acceptance and payment in accordance with this paragraph 2.1 is deemed to request that the New Shares to which they will become entitled be issued to them on the terms set out in this document and subject to the Memorandum and Articles of Association.
(iv) Payments All payments must be in pounds sterling and made by cheque or banker’s draft made payable to Capita Registrars Limited re: Travis Perkins plc – Rights Issue a/c and crossed “A/C payee only”. Cheques or banker’s drafts must be drawn on a bank or building society or branch of a bank or building society in the UK or Channel Islands which is either a settlement member of the Cheque and Credit Clearing Company Limited or the CHAPS Clearing Company Limited or which has arranged for its cheques and banker’s drafts to be cleared through the facilities provided by any of those companies or committees and must bear the appropriate sort code in the top right-hand corner. Cheques should be drawn on the personal account to which you have sole or joint title to the funds. Third-party cheques will not be accepted with the exception of building society cheques or banker’s drafts where the building society or bank has confirmed the name of the account holder by stamping or endorsing the cheque or draft to such effect. The account name should be the same as that shown on the application. Post-dated cheques will not be accepted. Cheques or banker’s drafts will be presented for payment upon receipt. The Company reserve the right to instruct Capita Registrars to seek special clearance of cheques and banker’s drafts to allow value to be obtained for remittances at the earliest opportunity. No interest will be paid on payments made before they are due. It is a term of the Rights Issue that cheques shall be honoured on first presentation and the Company may elect to treat as invalid acceptances in respect of which cheques are not so honoured. All documents, cheques and banker’s drafts sent
52 through the post will be sent at the risk of the sender. Payments via CHAPS, BACS or electronic transfer will not be accepted.
If the New Shares have already been allotted to a Qualifying Non-CREST Shareholder prior to any payment not being so honoured upon first presentation or such acceptances being treated as invalid, the Company may (in its absolute discretion as to manner, timing and terms) make arrangements for the sale of such New Shares on behalf of such Qualifying Non-CREST Shareholders and hold the proceeds of sale (net of the Company’s reasonable estimate of any loss it has suffered as a result of the same and of the expenses of the sale, including, without limitation, any stamp duty or SDRT payable on the transfer of such New Shares, and of all amounts payable by such Qualifying Non- CREST Shareholders pursuant to the terms of the Rights Issue in respect of the acquisition of such New Shares) on behalf of such Qualifying Non-CREST Shareholders. None of the Company or the Joint Global Coordinators or the Underwriters or any other person shall be responsible for, or have any liability for, any loss, expense or damage suffered by such Qualifying Non-CREST Shareholders as a result.
2.1.3 Money Laundering Regulations It is a term of the Rights Issue that, to ensure compliance with the Money Laundering Regulations, the Registrars may require, at their absolute discretion, the verification of the identity of the person by whom or on whose behalf a Provisional Allotment Letter is lodged with payment (which requirements are referred to below as the “verification of identity requirements”). The person(s) (the “acceptor”) who, by lodging a Provisional Allotment Letter with payment, as described above, accept(s) the allotment of the New Shares (the “relevant shares”) comprised in such Provisional Allotment Letter (being the provisional allottee or, in the case of renunciation, the person named in such Provisional Allotment Letter) shall thereby be deemed to agree to provide the Registrars and/or the Company with such information and other evidence as they or either of them may require to satisfy the verification of identity requirements.
If a Provisional Allotment Letter is submitted by a United Kingdom regulated broker or intermediary acting as agent and which is itself subject to the Money Laundering Regulations, any verification of identity requirements are the responsibility of such broker or intermediary and not of the Registrar. In such case, the lodging agent’s stamp should be inserted on that Provisional Allotment Letter.
If the Registrars determine that the verification of identity requirements apply to an acceptance of an allotment and the verification of identity requirements have not been satisfied (which the Registrars shall in their absolute discretion determine) by 11.00 a.m. on 11 June 2009, the Company may, in its absolute discretion, and without prejudice to any other rights of the Company, treat the acceptance as invalid or may confirm the allotment of the relevant shares to the acceptor but (notwithstanding any other term of the Rights Issue) such shares will not be issued to him or registered in his name until the verification of identity requirements have been satisfied (which the Registrars shall in their absolute discretion determine). If the acceptance is not treated as invalid and the verification of identity requirements are not satisfied within such period, being not less than seven days after a request for evidence of identity is despatched to the acceptor, as the Company may in its absolute discretion allow, the Company will be entitled to make arrangements (in its absolute discretion as to manner, timing and terms) to sell the relevant shares (and for that purpose the Company will be expressly authorised to act as agent of the acceptor). Any proceeds of sale (net of expenses) of the relevant shares which shall be issued to and registered in the name of the purchaser(s) or an amount equivalent to the original payment, whichever is the lower, will be held by the Company on trust for the acceptor, subject to the requirements of the Money Laundering Regulations. The Registrars are entitled in their absolute discretion to determine whether the verification of identity requirements apply to any
53 acceptor and whether such requirements have been satisfied. None of the Company, the Company’s Registrars nor the Underwriters will be liable to any person for any loss suffered or incurred as a result of the exercise of any such discretion or as a result of any sale of relevant shares.
Return of a Provisional Allotment Letter with the appropriate remittance will constitute a warranty from the acceptor that the Money Laundering Regulations will not be breached by acceptance of such remittance. If the verification of identity requirements apply, failure to provide the necessary evidence of identity may result in your acceptance being treated as invalid or in delays in the despatch of a receipted fully paid Provisional Allotment Letter or a share certificate.
The verification of identity requirements will not usually apply:
(i) if the acceptor is an organisation required to comply with the Money Laundering Directive 2005/60/EC of the European Parliament and of the EC Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing; or (ii) if the acceptor is a regulated UK broker or intermediary acting as agent and is itself subject to the Money Laundering Regulations; or (iii) if the acceptor (not being an acceptor who delivers his acceptance in person) makes payment by way of a cheque drawn on an account in the name of such acceptor; or (iv) if the aggregate subscription price for the relevant shares is less than €15,000 (approximately £13,000). Where the verification of identity requirements apply, please note the following as this will assist in satisfying the requirements. Satisfaction of the verification of identity requirements may be facilitated in the following ways: (a) if payment is made by cheque drawn on the personal account to which you have sole or joint title to the funds or banker’s draft in pounds sterling drawn on a branch in the UK of a bank or building society and bears a UK bank sort code number in the top right- hand corner, the following applies. Cheques should be made payable to Capita Registrars Limited re: Travis Perkins plc – Rights Issue a/c and crossed “A/C payee only”. Third-party cheques will not be accepted with the exception of building society cheques or banker’s drafts where the building society or bank has confirmed the name of the account holder by stamping or endorsing the building society cheque/banker’s draft to such effect. The account name should be the same as that shown on the application; (b) if the Provisional Allotment Letter is lodged with payment by an agent which is an organisation of the kind referred to in paragraph (a) above or which is subject to anti- money laundering regulation in a country which is a member of the Financial Action Task Force (the non-European Union members of which are Argentina, Australia, Brazil, Canada, Hong Kong, Iceland, Japan, Mexico, New Zealand, Norway, the Russian Federation, Singapore, South Africa, Switzerland, Turkey, the United States of America and, by virtue of their membership of the Gulf Co-operation Council, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE), the agent should provide written confirmation with the Provisional Allotment Letter that it has that status and a written assurance that it has obtained and recorded evidence of the identity of the persons for whom it acts and that it will on demand make such evidence available to the Registrars or the relevant authority; or
(c) if a Provisional Allotment Letter is lodged by hand by the acceptor in person, he should ensure that he has with him evidence of identity bearing his photograph (for example, his passport) and evidence of his address.
54 In order to confirm the acceptability of any written assurance referred to in paragraph (c) above or any other case, the acceptor should contact the Registrars.
2.1.4 Dealings in Nil Paid Rights Assuming the Rights Issue becomes unconditional, dealings in the Nil Paid Rights on the London Stock Exchange are expected to commence at 8.00 a.m. on 28 May 2009. A transfer PRA3 5.2.4 of Nil Paid Rights can be made by renunciation of the Provisional Allotment Letter in PRA3 5.1.10 accordance with the instructions printed on it and delivery of the letter to the transferee. The latest time and date for registration of renunciation of Provisional Allotment Letters, nil paid, is expected to be 11.00 a.m. on 11 June 2009.
2.1.5 Dealings in Fully Paid Rights After acceptance of the provisional allotment and payment in full in accordance with the provisions set out in this document and the Provisional Allotment Letter, the Fully Paid Rights may be transferred by renunciation of the relevant Provisional Allotment Letter and delivering it, by post or by hand (during normal business hours) to Capita Registrars, by not later than 11.00 a.m. on 11 June 2009. To do this, Qualifying Non-CREST Shareholders will need to have their fully paid Provisional Allotment Letters returned to them after acceptance has been effected by Capita Registrars. However, fully paid Provisional Allotment Letters will not be returned to Shareholders unless their return is requested by ticking the appropriate box on the PRA3 4.3 Provisional Allotment Letter. After 12 June 2009, the New Shares will be in registered form and transferable in the usual way (see paragraph 2.1.10 below).
2.1.6 Renunciation and splitting of Provisional Allotment Letters Qualifying Non-CREST Shareholders who wish to transfer all of their Nil Paid Rights or, after PRA3 5..1.10 acceptance of the provisional allotment and payment in full, Fully Paid Rights comprised in a Provisional Allotment Letter may (save as required by the laws of certain overseas jurisdictions) renounce such allotment by completing and signing Form X on the Provisional Allotment Letter (if it is not already marked “Original Duly Renounced”) and passing the entire Provisional Allotment Letter to their stockbroker or bank or other appropriate financial adviser or to the transferee. Once a Provisional Allotment Letter has been renounced, the letter will become a negotiable instrument in bearer form and the Nil Paid Rights or Fully Paid Rights (as appropriate) comprised in the PAL may be transferred by delivery of the PAL to the transferee. The latest time and date for registration of renunciation of Provisional Allotment Letters, fully paid, is 11.00 a.m. on 11 June 2009.
If a holder of a Provisional Allotment Letter wishes to have only some of the New Shares registered in his name and to transfer the remainder, or wishes to transfer all the Nil Paid Rights or (if appropriate) Fully Paid Rights but to different persons, he may have the Provisional Allotment Letter split, for which purpose he or his agent must complete and sign Form X on the Provisional Allotment Letter. The Provisional Allotment Letter must then be delivered by post or by hand (during normal business hours only) to Capita Registrars, by not later than 3.00 p.m. on 9 June 2009, to be cancelled and exchanged for the split Provisional Allotment Letters required. The number of split Provisional Allotment Letters required and the number of Nil Paid Rights or (as appropriate) Fully Paid Rights to be comprised in each split letter should be stated in an accompanying letter. Form X on split Provisional Allotment Letters will be marked “Original Duly Renounced” before issue.
The Company reserves the right to refuse to register any renunciation in favour of any person in respect of which the Company believes such renunciation may violate applicable legal or regulatory requirements, including (without limitation) any renunciation in the name of any person with an address outside the UK.
Alternatively, Qualifying Non-CREST Shareholders who wish to take up some of their rights, without transferring the remainder should complete Form X on the original Provisional
55 Allotment Letter and return it, together with a covering letter confirming the number of rights to be taken up and a cheque or banker’s draft in pounds sterling to pay for this number of New Shares, by post or by hand (during normal business hours only) to Capita Registrars. In this case, the Provisional Allotment Letter and payment must be received by Capita Registrars by 11.00 a.m. on 11 June 2009.
2.1.7 Registration in names of Qualifying Shareholders PRA3 4.3 A Qualifying Shareholder who wishes to have all the New Shares to which he is entitled registered in his name must accept and make payment for such allotment in accordance with the provisions set out in this document and the Provisional Allotment Letter but need take no further action. A share certificate is expected to be sent to such Qualifying Shareholders by no later than 26 June 2009.
2.1.8 Registration in names of persons other than Qualifying Shareholders originally entitled PRA3 4.3 In order to register Fully Paid Rights in certificated form in the name of someone other than the Qualifying Shareholders(s) originally entitled, the renouncee or his agent(s) must complete Form Y on the Provisional Allotment Letter (unless the renouncee is a CREST member who wishes to hold such New Shares in uncertificated form, in which case Form X and the CREST Deposit Form must be completed (see paragraph 2.2 below)) and deliver the entire Provisional Allotment Letter, when fully paid, by post or by hand (during normal business hours) to Capita Registrars, by not later than the latest time for registration of renunciations, which is expected to be 11.00 a.m. on 11 June 2009. Registration cannot be effected unless and until the New Shares comprised in a Provisional Allotment Letter are fully paid.
The New Shares comprised in several renounced Provisional Allotment Letters may be registered in the name of one holder (or joint holders) if Form Y on the Provisional Allotment Letter is completed on one Provisional Allotment Letter (the “Principal Letter”) and all the Provisional Allotment Letters are delivered in one batch. Details of each Provisional Allotment Letter (including the Principal Letter) should be listed in the Consolidated Listing Form adjacent to Forms X and Y of the Principal Letter and the allotment number of the Principal Letter should be entered in the space provided on each of the other Provisional Allotment Letters.
2.1.9 Deposit of Nil Paid Rights or Fully Paid Rights into CREST PRA3 4.3 The Nil Paid Rights or Fully Paid Rights represented by the Provisional Allotment Letter may be converted into uncertificated form, that is, deposited into CREST (whether such conversion arises as a result of a renunciation of those rights or otherwise). Similarly, Nil Paid Rights or Fully Paid Rights held in CREST may be converted into certificated form, that is, withdrawn from CREST. Subject as provided in the next following paragraph or in the Provisional Allotment Letter, normal CREST procedures and timings apply in relation to any such conversion. You are recommended to refer to the CREST Manual for details of such procedures.
The procedure for depositing the Nil Paid Rights represented by the Provisional Allotment Letter into CREST, whether such rights are to be converted into uncertificated form in the name(s) of the person(s) whose name(s) and address appear(s) on page 1 of the Provisional Allotment Letter or in the name of a person or persons to whom the Provisional Allotment Letter has been renounced, is as follows: Form X and the CREST Deposit Form (both on the Provisional Allotment Letter) will need to be completed and the Provisional Allotment Letter deposited with the CREST Courier and Sorting Service (“CCSS”). In addition, the normal CREST Stock Deposit procedures will need to be carried out, except that (a) it will not be necessary to complete and lodge a separate CREST Transfer Form (prescribed under the Stock Transfer Act 1963) with the CCSS and (b) only the whole of the Nil Paid Rights or the Fully Paid Rights represented by the Provisional Allotment Letter may be deposited into CREST. If
56 you wish to deposit some only of the Nil Paid Rights or the Fully Paid Rights represented by the Provisional Allotment Letter into CREST, you must first apply for split Provisional Allotment Letters by following the instructions in paragraph 2.1.2 above. If the rights represented by more than one Provisional Allotment Letter are to be deposited, the CREST Deposit Form on each Provisional Allotment Letter must be completed and deposited. The Consolidated Listing Form (as defined in the Regulations) must not be used.
A holder of the Nil Paid Rights (or, if appropriate, the Fully Paid Rights) represented by a Provisional Allotment Letter who is proposing to convert those rights into uncertificated form (whether following a renunciation of such rights or otherwise) is recommended to ensure that the conversion procedures are implemented in sufficient time to enable the person holding or acquiring the Nil Paid Rights (or, if appropriate, the Fully Paid Rights) in CREST following the conversion to take all necessary steps in connection with taking up the entitlement prior to 3.00 p.m. on 8 June 2009. In particular, having regard to processing times in CREST and on the part of Capita Registrars, the latest recommended time for depositing a renounced Provisional Allotment Letter (with Form X and the CREST Deposit Form on the Provisional Allotment Letter duly completed) with the CCSS in order to enable the person acquiring the Nil Paid Rights (or, if appropriate, the Fully Paid Rights) in CREST as a result of the conversion, to take all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 11 June 2009.
When Form X and the CREST Deposit Form (on the Provisional Allotment Letter) have been completed, the title to the Nil Paid Rights or the Fully Paid Rights represented by the Provisional Allotment Letters will cease to be renounceable or transferable by delivery, and for the avoidance of doubt any entries in Form Y will not subsequently be recognised or acted upon by Capita. All renunciations or transfers of Nil Paid Rights or Fully Paid Rights must be effected through the CREST system once such Nil Paid Rights or Fully Paid Rights have been deposited into CREST.
CREST sponsored members should contact their CREST sponsor as only their CREST sponsor will be able to take the necessary action to take up the entitlement or otherwise to deal with the Nil Paid Rights or Fully Paid Rights of the CREST sponsored member.
2.1.10 Issue of New Shares in definitive form Definitive share certificates in respect of the New Shares to be held in certificated form are expected to be despatched by post by 26 June 2009 at the risk of the persons entitled thereto to PRA3 4.3 Qualifying Non-CREST Shareholders (or their transferees who hold Fully Paid Rights in certificated form) or, in the case of joint holdings, to the first-named Shareholders, at their registered address (unless lodging agent details have been completed on the Provisional Allotment Letter). After despatch of the definitive share certificates, Provisional Allotment Letters will cease to be valid for any purpose whatsoever. Pending despatch of definitive share certificates, instruments of transfer of the New Shares will be certified by Capita Registrars against the register.
2.2 Action to be taken by Qualifying CREST Shareholders in relation to Nil Paid Rights and Fully Paid Rights in CREST
2.2.1 General It is expected that each Qualifying CREST Shareholder will receive a credit to his stock account in CREST of his entitlement to Nil Paid Rights on 28 May 2009. It is expected that PRA3 5.1.6 such rights will be enabled by 8.00 a.m. on 28 May 2009. The CREST stock account to be PRA3 5.2.4 credited will be an account under the participant ID and member account ID that apply to the Existing Shares in uncertificated form held at the close of business on the Record Date by the Qualifying CREST Shareholder in respect of which the Nil Paid Rights are provisionally allotted.
57 The Nil Paid Rights will constitute a separate security for the purposes of CREST and can accordingly be transferred, in whole or in part, by means of CREST in the same manner as any other security that is admitted to CREST.
If, for any reason, it is impracticable to credit the stock accounts of Qualifying CREST Shareholders, or to enable the Nil Paid Rights by 8.00 a.m. on 28 May 2009, Provisional Allotment Letters shall, unless the Company determines otherwise, be sent out in substitution for the Nil Paid Rights which have not been so credited or enabled and the expected timetable as set out in this document will be adjusted as appropriate. References to dates and times in this document should be read as subject to any such adjustment. The Company will make an appropriate announcement to a Regulatory Information Service giving details of any revised dates but Qualifying CREST Shareholders may not receive any further written communication.
CREST members who wish to take up their entitlements in respect of or otherwise to transfer Nil Paid Rights or Fully Paid Rights held by them in CREST should refer to the CREST Manual for further information on the CREST procedures referred to below. If you are a CREST sponsored member, you should consult your CREST sponsor if you wish to take up your entitlement as only your CREST sponsor will be able to take the necessary action to take up your entitlements or otherwise to deal with your Nil Paid Rights or Fully Paid Rights.
2.2.2 Procedure for acceptance and payment
(i) MTM instructions PRA3 5.1.3 CREST members who wish to take up all or some of their entitlement in respect of Nil PRA3 5.1.8 Paid Rights in CREST must send (or, if they are CREST sponsored members, procure PRA3 5.1.10 that their CREST sponsor sends) an MTM instruction to Euroclear UK that, on its settlement, will have the following effect:
(a) the crediting of a stock account of Capita under the participant ID and member account ID specified below, with the number of Nil Paid Rights to be taken up;
(b) the creation of a settlement bank payment obligation (as this term is defined in the CREST Manual), in accordance with the RTGS payment mechanism (as this term is defined in the CREST Manual), in favour of the RTGS settlement bank of Capita in pounds sterling in respect of the full amount payable on acceptance in respect of the Nil Paid Rights referred to in paragraph 2.2.2(i)(a) above; and
(c) the crediting of a stock account of the accepting CREST member (being an account under the same participant ID and member account ID as the account from which the Nil Paid Rights are to be debited on settlement of the MTM instruction) of the corresponding number of Fully Paid Rights to which the CREST member is entitled on taking up his Nil Paid Rights referred to in paragraph 2.2.2(i)(a) above.
(ii) Contents of MTM instructions The MTM instruction must be properly authenticated in accordance with Euroclear UK’s specifications and must contain, in addition to the other information that is required for settlement in CREST, the following details:
(a) the number of Nil Paid Rights to which the acceptance relates;
(b) the participant ID of the accepting CREST member;
(c) the member account ID of the accepting CREST member from which the Nil Paid Rights are to be debited;
58 (d) the participant ID of Capita Registrars, in its capacity as a CREST receiving agent. This is 9RA01; (e) the member account ID of Capita Registrars, in its capacity as a CREST receiving agent. This is TRAVISP; (f) the number of Fully Paid Rights that the CREST member is expecting to receive on settlement of the MTM instruction. This must be the same as the number of Nil Paid Rights to which the acceptance relates; (g) the amount payable by means of the CREST assured payment arrangements on settlement of the MTM instruction. This must be the full amount payable on acceptance in respect of the number of Nil Paid Rights referred to in paragraph 2.2.2(i)(a) above; (h) the intended settlement date. This must be on or before 11.00 a.m. on 11 June 2009; (i) the Nil Paid Rights ISIN number which is GB00B4N50J80; (j) the Fully Paid Rights ISIN number which is GB00B4N52472; (k) the Corporate Action Number for the Rights Issue. This will be available by viewing the relevant corporate action details in CREST; and (l) contact name and telephone number in the shared note field.
(iii) Valid acceptance An MTM instruction complying with each of the requirements as to authentication and contents set out in paragraph 12.2.2(ii) above will constitute a valid acceptance where either: (a) the MTM instruction settles by not later than 11.00 a.m. on 11 June 2009; or (b) at the discretion of the Company: (I) the MTM instruction is received by Euroclear UK by not later than 11.00 a.m. on 11 June 2009; and (II) a number of Nil Paid Rights at least equal to the number of Nil Paid Rights inserted in the MTM instruction is credited to the CREST stock member account of the accepting CREST member specified in the MTM instruction at 11.00 a.m. on 11 June 2009.
An MTM instruction will be treated as having been received by Euroclear UK for these purposes at the time at which the instruction is processed by the Network Providers’ Communications Host (as this term is defined in the CREST Manual) at Euroclear UK of the network provider used by the CREST member (or by the CREST sponsored member’s CREST sponsor). This will be conclusively determined by the input time stamp applied to the MTM instruction by the Network Providers’ Communications Host.
(iv) Representations, warranties and undertakings of CREST members A CREST member or CREST sponsored member who makes a valid acceptance in accordance with this paragraph 2.2.2(iv) represents, warrants and undertakes to the Company and the Underwriters that he has taken (or procured to be taken), and will take (or will procure to be taken), whatever action is required to be taken by him or by his CREST sponsor (as appropriate) to ensure that the MTM instruction concerned is capable of settlement at 11.00 a.m. on 11 June 2009. In particular, the CREST member or CREST sponsored member represents, warrants and undertakes that, at 11.00 a.m. on
59 11 June 2009 (or until such later time and date as the Company may determine), there will be sufficient Headroom within the Cap (as those terms are defined in the CREST Manual) in respect of the cash memorandum account to be debited with the amount payable on acceptance to permit the MTM instruction to settle. CREST sponsored members should contact their CREST sponsor if they are in any doubt. CREST members or CREST sponsored members taking up entitlements must make the representations and warrants set out in paragraph 2.5.5 of this Part III below. If there is insufficient Headroom within the Cap (as those terms are defined in the CREST Manual) in respect of the cash memorandum account of a CREST member or CREST sponsored member for such amount to be debited or the CREST member’s or CREST sponsored member’s acceptance is otherwise treated as invalid and New Shares have already been allotted to such CREST member or CREST sponsored member, the Company may (in its absolute discretion as to the manner, timing and terms) make arrangements for the sale of such New Shares on behalf of that CREST member or CREST sponsored member and hold the proceeds of sale (net of the Company’s reasonable estimate of any loss that has been suffered as a result of the acceptance being treated as invalid and of the expenses of sale, including, without limitation, any stamp duty or SDRT payable on the transfer of such New Shares, and of all amounts payable by the CREST member or CREST sponsored member pursuant to the Rights Issue in respect of the acquisition of such New Shares) on behalf of such CREST member or CREST sponsored member. None of the Company, the Underwriters, or any other person shall be responsible for, or have any liability for, any loss, expense or damage suffered by such CREST member or CREST sponsored member as a result.
(v) CREST procedures and timings CREST members and CREST sponsors (on behalf of CREST sponsored members) should note that Euroclear UK does not make available special procedures in CREST for any particular corporate action. Normal system timings and limitations will therefore apply in relation to the input of an MTM instruction and its settlement in connection with the Rights Issue. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST sponsored member, to procure that his CREST sponsor takes) the action necessary to ensure that a valid acceptance is received as stated above by 11.00 a.m. on 11 June 2009. In connection with this, CREST members and (where applicable) CREST sponsors are referred in particular to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.
(vi) CREST member’s undertaking to pay A CREST member or CREST sponsored member who makes a valid acceptance in accordance with the procedures set out in this paragraph 2.2.2(vi)(a) undertakes to pay to Capita Registrars, or procure the payment to Capita Registrars of, the amount payable in pounds sterling on acceptance in accordance with the above procedures or in such other manner as Capita Registrars may require (it being acknowledged that, where payment is made by means of CREST RTGS payment mechanism, the creation of an RTGS payment obligation in pounds sterling in favour of Capita Registrars’ RTGS settlement bank (as defined in the CREST Manual) in accordance with the RTGS payment mechanism shall, to the extent of the obligation so created, discharge in full the obligation of the CREST member (or CREST sponsored member) to pay the amount payable on acceptance) and (b) requests that the Fully Paid Rights and/or New Shares to which he will become entitled be issued to him on the terms set out in this document and subject to the Memorandum and Articles of Association of the Company.
If the payment obligations of the relevant CREST member or CREST sponsored member in relation to such New Shares are not discharged in full and such New Shares
60 have already been allotted to the CREST member or CREST sponsored member, the Joint Global Coordinators or the Company may (in their absolute discretion as to manner, timing and terms) make arrangements for the sale of such Shares on behalf of the CREST member or CREST sponsored member and hold the proceeds of sale (net of the Company’s reasonable estimate of any loss that has been suffered as a result of the same and of the expenses of the sale, including, without limitation, any stamp duty or SDRT payable on the transfer of such Shares, and of all amounts payable by such CREST member or CREST sponsored member pursuant to the terms of the Rights Issue in respect of the acquisition of such Shares) or an amount equal to the original payment of the CREST member or CREST sponsored member. None of the Company, the Underwriters or any other person shall be responsible for, or have any liability for, any loss, expense or damage suffered by the CREST member or CREST sponsored member as a result.
(vii) Company’s discretion as to rejection and validity of acceptances The Company may agree in its absolute sole discretion to:
(a) reject any acceptance constituted by an MTM instruction, which is otherwise valid, in the event of breach of any of the representations, warranties and undertakings set out or referred to in this paragraph 2.2.2(vii). Where an acceptance is made as described in this paragraph 2.2.2(vii), which is otherwise valid, and the MTM instruction concerned fails to settle by 11.00 a.m. on 11 June 2009 (or by such later time and date as the Company and the Joint Global Coordinators have determined), the Company and the Joint Global Coordinators shall be entitled to assume, for the purposes of their right to reject an acceptance contained in this paragraph 2.2.2(vii), that there has been a breach of the representations, warranties and undertakings set out or referred to in this paragraph 2.2.2(vii) unless the Company is aware of any reason outside the control of the CREST member or CREST sponsor (as appropriate) for the failure to settle;
(b) treat as valid (and binding on the CREST member or CREST sponsored member concerned) an acceptance which does not comply in all respects with the requirements as to validity set out or referred to in this paragraph 2.2.2(vii);
(c) accept an alternative properly authenticated dematerialised instruction from a CREST member or (where applicable) a CREST sponsor as constituting a valid acceptance in substitution for, or in addition to, an MTM instruction and subject to such further terms and conditions as the Company and the Joint Global Coordinators may determine;
(d) treat a properly authenticated dematerialised instruction (in this paragraph 2.2.2(vii)(d), the “first instruction”) as not constituting a valid acceptance if, at the time at which Capita Registrars receives a properly authenticated dematerialised instruction giving details of the first instruction, either the Company or Capita Registrars has received actual notice from Euroclear UK of any of the matters specified in Regulation 35(5)(a) of the Regulations in relation to the first instruction. These matters include notice that any information contained in the first instruction was incorrect or notice of lack of authority to send the first instruction; and
(e) accept an alternative instruction or notification from a CREST member or CREST sponsored member or (where applicable) a CREST sponsor, or extend the time for acceptance and/or settlement of an MTM instruction or any alternative instruction or notification, if, for reasons or due to circumstances outside the control of any CREST member or CREST sponsored member or
61 (where applicable) CREST sponsor, the CREST member or CREST sponsored member is unable validly to take up all or part of his Nil Paid Rights by means of the above procedures. In normal circumstances, this discretion is only likely to be exercised in the event of any interruption, failure or breakdown of CREST (or of any part of CREST) or on the part of facilities and/or systems operated by Capita in connection with CREST.
2.2.3 Money Laundering Regulations If you hold your Nil Paid Rights in CREST and apply to take up all or part of your entitlement as agent for one or more persons and you are not a UK or EU regulated person or institution (e.g. a UK financial institution), then, irrespective of the value of the application, Capita Registrars is entitled to take reasonable measures to establish the identity of the person or persons (or the ultimate controller of such person or persons) on whose behalf you are making the application. You must therefore contact Capita Registrars before sending any MTM instruction or other instruction so that appropriate measures may be taken.
Submission of an MTM instruction which constitutes, or which may on its settlement constitute, a valid acceptance as described above constitutes a warranty and undertaking by the applicant to provide promptly to Capita Registrars any information Capita Registrars may specify as being required for the purposes of the verification of the identity requirements in the Money Laundering Regulations or the FSMA. Pending the provision of such information and other evidence as Capita Registrars may require to satisfy the verification of identity requirements, Capita Registrars, having consulted with the Company, may take, or omit to take, such action as it may determine to prevent or delay settlement of the MTM instruction. If such information and other evidence of identity has not been provided within a reasonable time, then Capita Registrars will not permit the MTM instruction concerned to proceed to settlement, but without prejudice to the right of the Company, the Joint Global Coordinators and/or the Underwriters to take proceedings to recover any loss suffered by it as a result of failure by the applicant to provide such information and other evidence.
2.2.4 Dealings in Nil Paid Rights in CREST Assuming the Rights Issue becomes unconditional, dealings in the Nil Paid Rights on the London Stock Exchange are expected to commence at 8.00 a.m. on 28 May 2009. A transfer (in whole or in part) of Nil Paid Rights can be made by means of CREST in the same manner as any other security that is admitted to CREST. The Nil Paid Rights are expected to be disabled in CREST after the close of CREST business on 11 June 2009.
2.2.5 Dealings in Fully Paid Rights in CREST After acceptance of the provisional allotment and payment in full in accordance with the provisions set out in this document, the Fully Paid Rights may be transferred by (in whole or in part) means of CREST in the same manner as any other security that is admitted to CREST. The last time for settlement of any transfer of Fully Paid Rights in CREST is expected to be 11.00 a.m. on 11 June 2009. The Fully Paid Rights are expected to be disabled in CREST after the close of CREST business on 11 June 2009. After 12 June 2009, the New Shares will be registered in the name(s) of the person(s) entitled to them in the Company’s register of members and will be transferable in the usual way (see paragraph 2.2.7 below).
2.2.6 Withdrawal of Nil Paid Rights or Fully Paid Rights from CREST Nil Paid Rights or Fully Paid Rights held in CREST may be converted into certificated form, that is, withdrawn from CREST. Normal CREST procedures (including timings) apply in relation to any such conversion.
The recommended latest time for receipt by Euroclear UK of a properly authenticated dematerialised instruction requesting withdrawal of Nil Paid Rights or, if appropriate, Fully
62 Paid Rights from CREST is 4.30 p.m. on 5 June 2009, so as to enable the person acquiring or (as appropriate) holding the Nil Paid Rights or, if appropriate, Fully Paid Rights following the conversion to take all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 11 June 2009. You are recommended to refer to the CREST Manual for details of such procedures.
2.2.7 Issue of New Shares in CREST Fully Paid Rights in CREST are expected to be disabled in CREST after the close of CREST business on 11 June 2009 (the latest date for settlement of transfers of Fully Paid Rights in CREST). New Shares (in definitive form) will be issued in uncertificated form to those persons registered as holding Fully Paid Rights in CREST at the close of business on the date on which the Fully Paid Rights are disabled. Capita Registrars will instruct Euroclear UK to credit the appropriate stock accounts of those persons (under the same participant ID and member account ID that applied to the Fully Paid Rights held by those persons) with their entitlements to New Shares with effect from the next business day (expected to be 12 June 2009).
2.2.8 Right to allot/issue in certificated form Despite any other provision of this document, the Company reserves the right to allot and/or issue any Nil Paid Rights, Fully Paid Rights or New Shares in certificated form. In normal circumstances, this right is only likely to be exercised in the event of an interruption, failure or breakdown of CREST (or of any part of CREST) or on the part of the facilities and/or systems operated by Capita Registrars in connection with CREST.
2.3 Procedure in respect of rights not taken up and withdrawal
2.3.1 Procedure in respect of New Shares not taken up If an entitlement to New Shares is not validly taken up by 11.00 a.m. on 11 June 2009, in accordance with the procedure laid down for acceptance and payment, then that provisional PRA3 5.1.10 allotment will be deemed to have been declined and will lapse. The Underwriters will endeavour to procure, by not later than 4.30 p.m. on the second business day after 11 June 2009, acquirors for all of those New Shares not taken up at a price per New Share which is at least equal to the aggregate of the Issue Price and the expenses of procuring such acquirors (including any applicable brokerage and commissions and amounts in respect of value added tax).
Notwithstanding the above, the Underwriters may cease to endeavour to procure any such acquirors if, in their opinion, it is unlikely that any such acquirors can be procured at such a price and by such a time. If and to the extent that acquirors for New Shares cannot be procured on the basis outlined above, the relevant New Shares will be acquired by the Underwriters or their sub-underwriters at the Issue Price pursuant to the terms of the Underwriting Agreement.
Any premium over the aggregate of the Issue Price and the expenses of procuring acquirors (including any applicable brokerage and commissions and amounts in respect of value added tax) shall be received on behalf of, and be paid (subject as provided in this paragraph 2.3.1): (i) where the Nil Paid Rights were, at the time they lapsed, represented by a Provisional Allotment Letter, to the person whose name and address appeared on the Provisional Allotment Letter; (ii) where the Nil Paid Rights were, at the time they lapsed, in uncertificated form, to the person registered as the holder of those Nil Paid Rights at the time of their disablement in CREST; and (iii) where an entitlement to New Shares was not taken up by an Overseas Shareholder, to that Overseas Shareholder,
and Capita Registrars shall account to such persons accordingly.
63 New Shares for which acquirors are procured on this basis will be reallotted to the acquirors and the aggregate of any premiums (being the amount paid by the acquirors after deducting the Issue Price and the expenses of procuring the acquirors, including any applicable brokerage and commissions and amounts in respect of value added tax), if any, will be paid (without interest) to those persons entitled (as referred to above) pro rata to the relevant lapsed provisional allotments, save that amounts of less than £5.00 per holding will not be so paid but will be aggregated and retained by Capita Registrars for the benefit of the Company. Cheques for the amounts due will be sent by post, at the risk of the person(s) entitled, to their registered addresses (the registered address of the first-named holder in the case of joint holders), provided that, where any entitlement concerned was held in CREST, the amount due will, unless the Company (in its absolute discretion) otherwise determines, be satisfied by the creation of an assured payment obligation in favour of the relevant CREST member’s (or CREST sponsored member’s) RTGS settlement bank in respect of the cash amount concerned in accordance with the RTGS payment mechanism.
Any transactions undertaken pursuant to this paragraph 2.3.1 or paragraph 2.5.1 below shall be deemed to have been undertaken at the request of the persons entitled to the lapsed provisional allotments or other entitlements and none of the Company or the Underwriters or any other person procuring subscribers shall be responsible for any loss or damage (whether actual or alleged) arising from the terms or timing of any such acquisition, any decision not to endeavour to procure subscribers or the failure to procure acquirors on the basis so described. The Underwriters will be entitled to retain any brokerage fees, commissions or other benefits received in connection with these arrangements.
2.3.2 Withdrawal rights Persons who have the right to withdraw their acceptances under section 87Q(4) of the FSMA after a supplementary prospectus (if any) has been published and who wish to exercise such PRA3 5.1.7 right of withdrawal must do so by lodging a written notice of withdrawal (which shall not include a notice sent by facsimile or any other form of electronic communication), which must include the full name and address of the person wishing to exercise such statutory withdrawal rights and, if such person is a CREST member, the participant ID and member account ID of such CREST member, with Capita Registrars so as to be sent no later than two business days after the date on which the supplementary prospectus was published, withdrawal being effective as at posting of the written notice of withdrawal. Notice of withdrawal given by any other means or which is deposited with or sent to Capita Registrars after the expiry of such period will not constitute a valid withdrawal. Furthermore, the Company will not permit the exercise of withdrawal rights after payment by the relevant Shareholder of its acquisition in full and the allotment of the New Shares to such Shareholder becoming unconditional. In such circumstances, Shareholders are advised to consult their professional advisers.
Provisional allotments of entitlements to New Shares which are the subject of a valid withdrawal notice will be deemed to be declined. Such entitlements to New Shares will be subject to the provisions of paragraph 2.3.1 above as if the entitlement had not been validly taken up.
2.4 Taxation The information contained in Part VIII (“Taxation”) of this document is intended only as a general guide to the current tax position in the UK and the United States and Qualifying Shareholders should consult their own tax advisers regarding the tax treatment of the Rights Issue in light of their own circumstances.
Shareholders who are in any doubt as to their tax position or who are subject to tax in any other jurisdiction should consult an appropriate professional adviser immediately.
64 2.5 Overseas Shareholders This document has been approved by the FSA, being the competent authority in the UK.
Accordingly, the making of the proposed offer of New Shares to persons located or resident in, or who are citizens of, or who have a registered address in countries other than the UK may be affected by the law or regulatory requirements of the relevant jurisdiction. Any Shareholder who is in any doubt as to his position should consult an appropriate professional adviser without delay.
2.5.1 General The making or acceptance of the proposed offer of New Shares to persons who have registered addresses outside the UK, or who are resident in, or citizens of, countries other than the UK, may be affected by the laws of the relevant jurisdiction. Those persons should consult their professional advisers as to whether they require any governmental or other consents or need to observe any other formalities to enable them to take up their rights.
Subject to paragraphs 2.5.2, 2.5.3 and 2.5.4 below, any person (including, without limitation, custodians, nominees and trustees) outside the UK wishing to take up rights under the Rights Issue must satisfy himself as to the full observance of the laws of any relevant territory in connection therewith, including the obtaining of any governmental or other consents which may be required, the compliance with other necessary formalities and the payment of any issue, transfer or other taxes due in such territories. The comments set out in this paragraph 2.5.1 are intended as a general guide only and any Overseas Shareholder who is in doubt as to his position should consult his professional adviser without delay.
Receipt of this document and/or Provisional Allotment Letter or the crediting of Nil Paid Rights to a stock account in CREST will not constitute an offer in those jurisdictions in which it would be illegal to make an offer and, in those circumstances, this document and/or a Provisional Allotment Letter must be treated as sent for information only and should not be copied or redistributed.
New Shares will be provisionally allotted (nil paid) to all Shareholders on the register at the Record Date (including those who do not constitute Qualifying Shareholders). However, Provisional Allotment Letters will not be sent to, and Nil Paid Rights will not be credited to CREST accounts of, Shareholders with registered addresses in the United States or the Excluded Territories or their agents or intermediaries, except where the Company is satisfied that such action would not result in the contravention of any registration or other legal requirement in any jurisdiction.
No person receiving a copy of this document and/or a Provisional Allotment Letter and/or receiving a credit of Nil Paid Rights to a stock account in CREST in any territory other than the UK may treat the same as constituting an invitation or offer to him nor should he in any event use the Provisional Allotment Letter or deal with Nil Paid Rights or Fully Paid Rights in CREST unless, in the relevant territory, such an invitation or offer could lawfully be made to him or the Provisional Allotment Letter could lawfully be used or dealt with without contravention of any registration or other legal requirements. In such circumstances, this document and the Provisional Allotment Letter are to be treated as sent for information only and should not be copied or redistributed.
Persons (including, without limitation, custodians, nominees and trustees) receiving a copy of this document and/or a Provisional Allotment Letter or whose stock account is credited with Nil Paid Rights or Fully Paid Rights should not, in connection with the Rights Issue, distribute or send the same or transfer Nil Paid Rights or Fully Paid Rights in or into any jurisdiction where to do so would or might contravene local security laws or regulations. If a Provisional Allotment Letter or a credit of Nil Paid Rights or Fully Paid Rights is received by any person in any such territory, or by his agent or nominee, he must not seek to take up the rights referred
65 to in the Provisional Allotment Letter or in this document or renounce the Provisional Allotment Letter or transfer Nil Paid Rights or Fully Paid Rights unless the Company determines that such actions would not violate applicable legal or regulatory requirements. Any person (including, without limitation, custodians, nominees and trustees) who does forward this document or a Provisional Allotment Letter or transfer Nil Paid Rights or Fully Paid Rights into any such territories (whether pursuant to a contractual or legal obligation or otherwise) should draw the recipient’s attention to the contents of this paragraph 2.5.1.
The Company reserves the right to treat as invalid and will not be bound to allot or issue any New Shares in respect of any acceptance or purported acceptance of the offer of New Shares which:
(i) appears to the Company or its agents to have been executed, effected or despatched from the United States or an Excluded Territory; or
(ii) in the case of a Provisional Allotment Letter, provides an address for delivery of the share certificates in or, in the case of a credit of New Shares in CREST, to a CREST member or CREST sponsored member whose registered address would be in the United States or an Excluded Territory or any other jurisdiction outside the UK in which it would be unlawful to deliver such share certificates or make such a credit.
The attention of Overseas Shareholders with registered addresses in the United States or any of the Excluded Territories is drawn to paragraphs 2.5.2 to 2.5.4 below.
Entitlements to Nil Paid Rights to which Shareholders with registered addresses in the United States or any of the Excluded Territories would otherwise be entitled will be aggregated with entitlements to Nil Paid Rights which have not been taken up by other Shareholders and, if possible, sold as described in paragraph 2.3 above. Any premium over the aggregate of the Issue Price and the expenses of procuring acquirers (including any applicable brokerage and commissions and amounts of value added tax) shall be paid (without interest) to the relevant Shareholders pro rata to the relevant lapsed provisional allotments, as soon as practicable after receipt, save that individual amounts of less than £5.00 per holding will not be so paid but will be aggregated and retained by Capita Registrars for the benefit of the Company. None of the Company, the Underwriters, the Joint Sponsors, Tricorn Partners or any other person shall be responsible or have any liability whatsoever for any loss or damage (actual or alleged) arising from the terms or the timing of the acquisition or the procuring of it or any failure to procure subscribers. Despite any other provision of this document or a Provisional Allotment Letter, the Company reserves the right to permit any Shareholder to take up rights on the terms and conditions set out in this document as if it were a Qualifying Shareholder if the Company in its sole and absolute discretion is satisfied that the transaction in question is exempt from or not subject to the legislation or regulations giving rise to the restrictions in question.
Those Shareholders who wish, and are permitted, to take up their entitlement should note that payments must be made as described in paragraphs 2.1 (Qualifying Non-CREST Shareholders) and 2.2 (Qualifying CREST Shareholders) above.
Overseas Non-Crest Shareholders should note that all subscription monies must be paid in pounds sterling by cheque or banker’s draft and should be drawn on a bank in the UK, made payable to Capita Registrars Limited re: Travis Perkins plc - Rights Issue a/c and crossed “A/C payee only”.
2.5.2 United States The Nil Paid Rights, the Fully Paid Rights and the New Shares have not been and will not be registered under the US Securities Act or under any securities laws of any state or other jurisdiction of the United States and may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within the United States except pursuant to an applicable exemption from the registration requirements of the US Securities
66 Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States.
Accordingly, the Company is not extending the Rights Issue into the United States unless an exemption from the registration requirements of the US Securities Act is available and, subject to certain exceptions, neither this document nor the Provisional Allotment Letter constitutes or will constitute an offer or an invitation to apply for or an offer or an invitation to acquire any Nil Paid Rights, Fully Paid Rights or New Shares in the United States. Subject to certain exceptions, neither this document nor a Provisional Allotment Letter will be sent to, and no Nil Paid Rights will be credited to, a stock account in CREST of any Shareholder with a registered address in the United States. Subject to certain exceptions, Provisional Allotment Letters or renunciations thereof sent from or post-marked in the United States will be deemed to be invalid and all persons acquiring New Shares and wishing to hold such Shares in registered form must provide an address for registration of the New Shares issued upon exercise thereof outside the United States or acting on a non-discretionary basis for a person located within the United States.
The Company reserves the right to treat as invalid any Provisional Allotment Letter (or renunciation thereof) that appears to the Company or its agents to have been executed in or despatched from the United States, or that provides an address in the United States for the acceptance or renunciation of the Rights Issue, or which does not make the warranty set out in the Provisional Allotment Letter to the effect that the person accepting and/or renouncing the Provisional Allotment Letter does not have a registered address and is not otherwise located in the United States and is not acquiring the Nil Paid Rights, the Fully Paid Rights or the New Shares with a view to the offer, sale, resale, transfer, delivery or distribution, directly or indirectly, of any such Nil Paid Rights, Fully Paid Rights or New Shares in the United States or where the Company believes acceptance of such Provisional Allotment Letter may infringe applicable legal or regulatory requirements. The Company will not be bound to allot (on a non- provisional basis) or issue any New Shares, Nil Paid Rights, or Fully Paid Rights to any person with an address in, or who is otherwise located in, the United States in whose favour a Provisional Allotment Letter or any Nil Paid Rights, Fully Paid Rights or New Shares may be transferred or renounced. In addition, the Company and/or the Underwriters reserve the right to reject any MTM instruction sent by or on behalf of any CREST member with a registered address in the United States in respect of the Nil Paid Rights.
In addition, until 40 days after the commencement of the Rights Issue, an offer, sale or transfer of the New Shares, the Nil Paid Rights, the Fully Paid Rights or the Provisional Allotment Letters within the United States by a dealer (whether or not participating in the Rights Issue) may violate the registration requirements of the US Securities Act.
The provisions of paragraph 2.3 above will apply to any rights not taken up. Accordingly, subject to certain exceptions, Shareholders with a registered address in the United States will be treated as non-exercising holders and the Underwriters will endeavour to procure on behalf of such non-exercising holders acquirers for the New Shares.
Subject to certain exceptions, any person who acquires New Shares, Nil Paid Rights or Fully Paid Rights will be deemed to have declared, warranted and agreed, by accepting delivery of this document or the Provisional Allotment Letter and delivery of the New Shares, the Nil Paid Rights or the Fully Paid Rights, that they are not, and that at the time of acquiring the New Shares, the Nil Paid Rights or the Fully Paid Rights they will not be, in the United States.
In addition, certain Qualifying Shareholders in the United States will be required to execute a US Investor Letter pursuant to which such Qualifying Shareholders will acknowledge, represent to and agree with the Company, and any acquiror in the United States of New Shares not taken up in the Rights Issue will be deemed, by accepting delivery of this document, to have acknowledged, represented to and agreed with the Company and the Underwriters, among other things, that:
67 (a) it certifies that it (i) is a QIB, (ii) is aware, and each beneficial owner of such New Shares has been advised, that the sale to it is being made in reliance on Rule 144A or another exemption under the US Securities Act and (iii) is acquiring such New Shares for its own account or the account of a QIB for investment purposes and not with a view to resale or distribution within the meaning of the US securities laws, subject to the disposition of its property being at all times within its control.
(b) it is an institution which (i) invests in or purchases securities similar to the New Shares in the normal course of its business, (ii) has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment in the New Shares and (iii) it, and any accounts for which it is acting, is able to bear the economic risk, and sustain a complete loss, of such investment in the New Shares.
(c) it has made its own independent investigation of the business, financial condition, prospects, status and affairs of the Company, the Rights Issue and the New Shares, and it has made its own investment decision to acquire the New Shares. It understands that there may be certain consequences under US and other tax laws resulting from an investment in the New Shares, including that it must bear the economic risk of an investment in the New Shares for an indefinite period of time, and it will make such investigation and consult such tax and other advisors with respect thereto as it deems appropriate.
(d) it will base its investment decision on this document, including the documents incorporated by reference herein. It acknowledges that neither the Company nor any of its affiliates nor any other person (including the Underwriters) has made any representations, express or implied, to it with respect to the Company, the Rights Issue, the New Shares or the accuracy, completeness or adequacy of any financial or other information concerning the Company, the Rights Issue or the New Shares, other than (in the case of the Company and its affiliates only) the information contained or incorporated by reference in this document. It acknowledges that it has not relied on any information contained in any research reports prepared by the Underwriters or any of their respective affiliates. It understands that this document, including the documents incorporated by reference herein, has been prepared in accordance with UK format, style and content, which differs from US format, style and content. It will not distribute, forward, transfer or otherwise transmit this document, or any other presentational or other materials concerning the Rights Issue (including electronic copies thereof, if provided) to any person within the United States (other than a QIB on behalf of which it acts). It acknowledges that it has read and agreed to the matters set forth under (“Terms and Conditions of the Rights Issue—Overseas Shareholders”) in Part III of this document.
(e) it acknowledges and agrees that it is not acquiring the New Shares as a result of any general solicitation or general advertising (as those terms are defined in Regulation D under the Securities Act).
(f) it understands that the New Shares have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered, sold, pledged or otherwise transferred except (i) in accordance with Rule 144A to a person that it and any person acting on its behalf reasonably believes is a QIB purchasing for its own account or for the account of a QIB, (ii) in an offshore transaction in accordance with Regulation S under the US Securities Act or (iii) pursuant to an exemption from registration under the US Securities Act provided by Rule 144 thereunder (if available), in each case in accordance with any applicable securities laws of any state of the United States.
(g) it acknowledges that, notwithstanding anything to the contrary in the foregoing, the New Shares will be “restricted securities” within the meaning of Rule 144(a)(3) under the US
68 Securities Act and for so long as such securities are “restricted securities” the securities may not be deposited into any unrestricted depositary receipt facility in respect of New Shares established or maintained by a depositary bank.
(h) it certifies that if in the future it decides to offer, resell, pledge or otherwise transfer such New Shares, these New Shares may be offered, sold, pledged or otherwise transferred only in accordance with the following legend, which the New Shares, if in certificated form, will bear unless otherwise determined by the Company in accordance with applicable law:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE “SECURITIES ACT”), OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON WHOM THE SELLER AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVE IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALES OF THE SHARES REPRESENTED HEREBY. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE FOREGOING, THE SHARES REPRESENTED HEREBY WILL BE “RESTRICTED SECURITIES” WITHIN THE MEANING OF RULE 144(a)(3) UNDER THE SECURITIES ACT AND FOR SO LONG AS SUCH SECURITIES ARE “RESTRICTED SECURITIES” THE SECURITIES MAY NOT BE DEPOSITED INTO ANY UNRESTRICTED DEPOSITARY RECEIPT FACILITY IN RESPECT OF SHARES ESTABLISHED OR MAINTAINED BY A DEPOSITARY BANK. EACH HOLDER, BY ITS ACCEPTANCE OF THIS SHARE, REPRESENTS THAT IT UNDERSTANDS AND AGREES TO THE FOREGOING RESTRICTIONS.
(i) it acknowledges and agrees that any offer, sale, pledge or other transfer made other than in compliance with the restrictions in paragraph 2.5.2(h) above will not be recognised by the Company in respect of the New Shares.
(j) it acknowledges and agrees that the Company, the registrar and the Underwriters will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements. It agrees that if any of the representations, warranties, agreements and acknowledgements made herein are no longer accurate, it shall promptly notify the Company and the Underwriters. All representations, warranties, agreements and acknowledgements it has made in this document shall survive the execution and delivery hereof. If it is acquiring the New Shares for the account of one or more QIB, it represents that it has sole investment discretion with respect to each such account and that it has full power to make the foregoing acknowledgements, representations and agreements on behalf of each such account.
69 2.5.3 The Excluded Territories Due to restrictions under the securities laws of the Excluded Territories, and subject to certain exemptions, no Provisional Allotment Letters in relation to the New Shares will be sent to, and no Nil Paid Rights or Fully Paid Rights will be credited to a stock account in CREST of Shareholders with registered addresses in, the Excluded Territories and their entitlements will be sold if possible in accordance with the provisions of paragraph 2.3 above. Subject to certain exceptions, the Provisional Allotment Letters, the Nil Paid Rights, the Fully Paid Rights and the New Shares may not be transferred or sold to, or renounced or delivered in, the Excluded Territories. No offer of New Shares is being made by virtue of this document or the Provisional Allotment Letters into the Excluded Territories.
(i) South Africa Due to restrictions under the securities laws of South Africa, and subject to certain exceptions, no Provisional Allotment Letters in relation to the New Shares will be sent to Shareholders with registered addresses in South Africa and their entitlements will be sold if possible in accordance with the provisions of paragraph 2.3 above. The Provisional Allotment Letters, the Nil Paid Rights, the Fully Paid Rights and the New Shares may not be transferred or sold to, or renounced or delivered in, South Africa. No offer of New Shares is being made by virtue of this document or the Provisional Allotment Letters into South Africa.
(ii) Canada This document constitutes an offering of the Nil Paid Rights, Fully Paid Rights and New Shares only in those Canadian jurisdictions and to those persons where and to whom they may be lawfully offered for sale, and therein only by persons permitted to sell such securities. This document is not, and under no circumstances is to be construed as, an advertisement or a public offering of the Nil Paid Rights, Fully Paid Rights and New Shares in Canada. No securities commission or similar authority in Canada has reviewed or in any way passed upon this Prospectus or the merits of the securities described herein and any representation to the contrary is an offence. Specifically, Qualifying Non- CREST Shareholders and Qualifying Crest Shareholders in Canada must also be “accredited investors” as such term is defined under Canadian securities laws in order to accept their rights under the Rights Issue.
(iii) Australia This document is not a disclosure document under Chapter 6D of the Corporations Act 2001 (Cth) (the Australian Corporations Act), has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly:
(a) the offer of the Nil Paid Rights, Fully Paid Rights and New Shares in Australia may only be made to persons who are “sophisticated investors” (within the meaning of section 708(8) of the Australian Corporations Act) or to “professional investors” (within the meaning of section 708(11) of the Australian Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708(8) of the Australian Corporations Act, so that it is lawful to offer, or invite applications for, the Nil Paid Rights, Fully Paid Rights and New Shares without disclosure to persons under Chapter 6D of the Australian Corporations Act; and
(b) this document and the Provisional Allotment Letter may only be made available in Australia to persons as set forth in clause (a) above.
If you acquire Nil Paid Rights, Fully Paid Rights or New Shares, then you (i) represent and warrant that you are a person to whom an offer of securities can be made without a
70 disclosure document in accordance with subsections 708(8) or (11) of the Corporations Act and (ii) agree not to sell or offer for sale any Nil Paid Rights, Fully Paid Rights and New Shares in Australia within 12 months after their issue to the offeree or invitee under this document, except in circumstances where disclosure to investors under Chapter 6D would not be required under the Australian Corporations Act.
No person receiving a copy of this document and/or a Provisional Allotment Letter and/or receiving a credit of Nil Paid Rights to a stock account in CREST with a bank or financial institution in Australia may treat the same as constituting an invitation or offer to him nor should he in any event use the Provisional Allotment Letter or deal in Nil Paid Rights or Fully Paid Rights in CREST unless such an invitation or offer could lawfully be made to him or the Provisional Allotment Letter could lawfully be used or dealt with without contravention of any registration or other legal requirements. In such circumstances, this document and the Provisional Allotment Letter are to be treated as received for information only and should not be copied or redistributed.
(iv) Japan The Rights Issue of New Shares offered hereby has not been and will not be registered under the Financial Instruments and Exchange Law of Japan. Accordingly, each Underwriter has represented, warranted and agreed that the New Shares which it acquires will be acquired by it as principal and that, in connection with the offering made hereby, it will not, directly or indirectly, offer or sell any Nil Paid Rights, Fully Paid Rights or New Shares in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organised under the laws of Japan) or to others for re-offering or resale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan, except pursuant to an exception from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law of Japan and other relevant laws and regulations of Japan.
2.5.4 Overseas territories other than the United States and the Excluded Territories Provisional Allotment Letters will be posted to Qualifying Non-CREST Shareholders and Nil Paid Rights will be credited to the CREST stock accounts of Qualifying CREST Shareholders. Such Qualifying Shareholders may, subject to the laws of the relevant jurisdictions, accept their rights under the Rights Issue in accordance with the instructions set out in this document and, if relevant, the Provisional Allotment Letter. In cases where Overseas Shareholders do not take up Nil Paid Rights, their entitlements will be sold if possible in accordance with the provisions of paragraph 2.3 above. Qualifying Shareholders who have registered addresses in or who are resident in, or who are citizens of, countries other than the UK should consult their professional advisers as to whether they require any governmental or other consents or need to observe any other formalities to enable them to take up their rights.
(i) Switzerland This document is being communicated in or from Switzerland to a small number of selected investors only. Each copy of this document is addressed to a specifically named recipient and may not be passed on to third parties. The Nil Paid Rights, Fully Paid Rights and New Shares are not being offered to the public in or from Switzerland, and neither this Prospectus, nor any other offering material in relation to the Nil Paid Rights, Fully Paid Rights or New Shares, may be distributed in connection with any such public offering.
71 2.5.5 Further representations and warranties
(i) Qualifying Non-CREST Shareholders Any person accepting and/or renouncing a Provisional Allotment Letter or requesting registration of the New Shares comprised in this document represents and warrants to the Company and the Underwriters that, except where proof has been provided to the Company’s satisfaction that such person’s use of the Provisional Allotment Letter will not result in the contravention of any applicable legal requirement in any jurisdiction (documentation for establishing such proof being obtainable from the Company or Registrar); (a) such person is not accepting and/or renouncing the Provisional Allotment Letter, or requesting registration of the relevant New Shares, from within the United States or any of the other Excluded Territories; (b) such person is not in any jurisdiction in which it is unlawful to make or accept an offer to subscribe for New Shares or to use the Provisional Allotment Letter in any manner in which such person has used or will use it; (c) such person is not acting on a non-discretionary basis for a person located within the United States or any Excluded Territory or any territory referred to in (b) above at the time the instruction to accept or renounce was given; and (d) such person is not acquiring Nil Paid Rights or Fully Paid Rights or New Shares with a view to the offer, sale, resale, transfer, delivery or distribution, directly or indirectly, of any such Nil Paid Rights or Fully Paid Rights or New Shares into the United States or any Excluded Territory or any Excluded Territories or any territory referred to in (b) above. The Company may treat as invalid any acceptance or purported acceptance of the allotment of New Shares comprised in, or renunciation or purported renunciation of, a Provisional Allotment Letter if it: (x) appears to the Company to have been executed in or despatched from the United States or any Excluded Territory or otherwise in a manner which may involve a breach of the laws of any jurisdiction or if it believes the same may violate any applicable legal or regulatory requirement; (y) provides an address in the United States or any Excluded Territory for delivery of definitive share certificates for New Shares (or any jurisdiction outside the UK in which it would be unlawful to deliver such certificates); or (z) purports to exclude the warranty required by this paragraph 2.5.5(i).
(ii) Qualifying CREST Shareholders A CREST member or CREST sponsored member who makes a valid acceptance in accordance with the procedures set out in this Part III represents and warrants to the Company and the Underwriters that, except where proof has been provided to the Company’s satisfaction that such person’s acceptance will not result in the contravention of any applicable legal requirement in any jurisdiction (documentation for establishing such proof being obtainable from the Company or Capita Registrars); (a) he is not within the United States or any of the Excluded Territories; (b) he is not in any jurisdiction in which it is unlawful to make or accept an offer to subscribe for New Shares; (c) he is not acting on a non-discretionary basis for a person located within the United States or any Excluded Territory or any territory referred to in (b) above at the time the instruction to accept was given; and (d) he is not acquiring Nil Paid Rights or Fully Paid Rights or New Shares with a view to the offer, sale, resale, transfer, delivery or distribution, directly or indirectly, of any such Nil Paid Rights or Fully Paid Rights or New Shares into the United States or any Excluded Territory or any territory referred to in (b) above.
2.5.6 Waiver The provisions of this paragraph 2.5.6 and of any other terms of the Rights Issue relating to Overseas Shareholders may be waived, varied or modified as regards specific Shareholders(s) or on a general basis by the Company in its absolute discretion. Subject to this, the provisions of this paragraph 2.5.6 supersede any terms of the Rights Issue inconsistent herewith. References in this paragraph 2.5.6 to Shareholders shall include references to the person or
72 persons executing a Provisional Allotment Letter and, in the event of more than one person executing a Provisional Allotment Letter, the provisions of this paragraph 2.5.6 shall apply to them jointly and to each of them.
2.6 Times and dates The Company shall (in consultation with the Joint Global Coordinators but otherwise in its discretion) be entitled to amend the dates that Provisional Allotment Letters are despatched or dealings in Nil Paid Rights commence or amend or extend the latest date for acceptance under the Rights Issue and all related dates set out in this document and in such circumstances shall notify the UK Listing Authority, and make an announcement on a Regulatory Information Service. In the event that such an announcement is made, Qualifying Shareholders may not receive any further written communication in respect of such amendment or extension of the dates included in this document.
If a supplementary prospectus is issued by the Company two or fewer business days prior to the latest time and date for acceptance and payment in full under the Rights Issue specified in this document (or such later date as may be agreed between the Company and the Joint Global Coordinators Agreement), the latest date for acceptance under the Rights Issue shall be extended to the date that is three business days after the date of issue of the supplementary prospectus (and the dates and times of principal events due to take place following such date shall be extended accordingly).
2.7 Governing law The terms and conditions of the Rights Issue as set out in this document and the Provisional Allotment Letter and any non-contractual obligations arising out of or in relation to the Rights Issue shall be PRA3 4.2 governed by, and construed in accordance with, English law.
2.8 Jurisdiction The courts of England and Wales are to have exclusive jurisdiction to settle any dispute which may arise out of or in connection with the Rights Issue, this document or the Provisional Allotment Letter (including any dispute relating to any non-contractual obligations arising out of or in connection with them). By accepting rights under the Rights Issue in accordance with the instruction set out in this document and, in the case of Qualifying Non-CREST Shareholders only, the Provisional Allotment Letter, Qualifying Shareholders irrevocably submit to the jurisdiction of the courts of England and Wales and waive any objection to proceedings in any such court on the ground of venue or on the ground that proceedings have been brought in an inconvenient forum.
73 PART IV PRA1 8.2
INFORMATION ON TRAVIS PERKINS
Business Description Overview and Company History Travis Perkins is one of the UK’s largest builders’ merchant and home improvement retailers in terms of revenue and number of branches. The principal activities of the Group are the distribution and sale of a wide range of general building materials, timber, plumbing and heating products and the hiring of tools to professional builders and contractors and to the general public within the UK.
The Company was formed in 1988 out of a merger between Travis and Arnold plc, a company with a strong PRA1 5.1.5 business based in Central and Northern England, and Sandell Perkins plc, a company with 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 and 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 with Travis and Arnold listing in 1964 and Sandell Perkins in 1986.
In the last 10 years, the Group has expanded its operations through a strategy of acquiring new businesses and opening new branches of its existing businesses. Its Merchanting business was expanded in 1999 by the acquisition of the Keyline Builders’ Merchants and Sharpe and Fisher businesses and in 2002 by the acquisition of the CCF business, which further expanded the Group’s presence in the dry lining and insulation sector, and the City Plumbing Supplies business, marking the Group’s significant expansion in the plumbing and heating specialist sector. In 2005, the Group entered the DIY retail sector by acquiring the Wickes business, a chain of DIY retail outlets. The Group’s retail business was further expanded by the acquisition of Tile Giant in 2007 and Tile Magic and Tile It All in early 2008. The tile businesses have been subsequently consolidated and are managed by a common management team.
The Group is organised into two separate reporting segments: Merchanting, which comprises General Merchanting and Specialist Merchanting, and Retail. The Group’s businesses operate primarily through seven key brands: Travis Perkins, Keyline Builders’ Merchants, City Plumbing Supplies, CCF, Benchmarx, Wickes and Tile Giant. Additionally, the Group has a minority investment in ToolStation, a direct, fixed-price retailer of tools, fixings and hardware in the UK with a franchise in the Netherlands.
The Group’s segments and brands, number of branches as at 31 December 2008 and existing product categories are set out below: Brands by segment Branches Products and services Merchanting 952 General Merchanting Travis Perkins 611 General building materials, timber and sheet materials, plumbing and heating products, tool and equipment hire and a range of related products and services Specialist Merchanting Keyline Builders’ Merchants 83 Heavy and general building materials (in particular, building materials for the civils industry), drainage product solutions, timber and sheet materials, plumbing and heating products, tool and equipment hire and a range of related products and services City Plumbing Supplies 196 Plumbing and heating products and related services, bathrooms and accessories
74 Brands by segment Branches Products and services CCF 33 Interior building products, including dry lining, insulation systems, suspended ceilings, partitions and related products and services Benchmarx 29 Kitchen and joinery products and related services Retail 271 Wickes 193 Home improvement products, including timber, building materials, tools and decorative materials, and an extensive range of kitchens, bathrooms and related services Tile Giant 78 Ceramic tiles and accessories ———— Group ————1,223 ToolStation 33 Tools, fixings, hardware, electrical, plumbing and heating materials
The Group’s operations are almost entirely based in the UK, with 1,223 branches of its various brands across PRA1 6.2 the country as at 31 December 2008.
The Group has its head office in Northampton, England. Outside the UK, the Group franchises a Wickes branch in the Republic of Ireland and, through its minority investment in ToolStation, it has an interest in five branches in the Netherlands.
As at 31 December 2008, the Group had a headcount of 14,315. The Group defines headcount as the total PRA1 17.1 number of full-time equivalent employees across all brands and centralised functions.
The Group’s revenue for the year ended 31 December 2008 was £3.18 billion and the Group had an operating profit of £215.3 million with an adjusted operating profit of £271.5 million (see “Important Information – Non-GAAP financial measures” for more information on adjusted operating profit).
Key Strengths PRA1 6.5 The Board believes that the key strengths of the Group are:
Business model The Group’s business offers customers a number of channels through which they may purchase products, including a national branch network and internet and telephone ordering. Through this multi channel offering the Group sells its products within a broad range of market sectors, including RMI, house building and the public sector, and to a broad range of customers, including house builders, large national contractors, general builders and contractors, cash-based builders, and serious and casual DIYers. The Board believes that this diversity helps to insulate the Group from economic downturns affecting the industry by spreading the risk to the Group of relative underperformance of any one channel, market sector or customer segment. Moreover, the Group estimates that approximately 70 per cent. of its revenue for the year ended 31 December 2008 was derived from the RMI market sector, cushioning the Group against the recent downturns in new house building. Additionally, the Group’s extensive network of branches across the UK, together with its internet and telephone ordering services, provides customers with easy access to its products. Centrally mandated inventory requirements are designed to ensure each branch carries sufficient quantities of the products most in demand by customers. The Group’s recognised customer service and efficient supply chain allow Merchanting customers to place bespoke orders for most products not on offer. Taken collectively, the Board believes the business model allows the Group to operate across the markets in its industry in a strategically balanced, diversified manner, while maximising customer access to its products.
75 Strong brands The Board believes that some of the brands in the Group, including Travis Perkins, Keyline Builders’ Merchants, City Plumbing Supplies, CCF and Wickes, are among the best known in their respective markets. The Merchanting brands are known for high quality products, customer service, product availability and strong management. Customer service is a key focus of the Group. The Group’s Customer Insight initiative provides its businesses with independent customer views, assisting management in making informed decisions to enhance customer services. For example, in 2008 Customer Insight collected over 20,000 customer opinions across the Merchanting market sector (and, according to its survey, Merchanting rated as a preferred source of building materials in 12 out of the top 13 criteria used by customers when selecting a merchant). The Board believes that in Merchanting the strength of its brands attracts customers, translating into higher volumes and higher profit margins. In Retail, Wickes was named in the annual Verdict retail consultancy survey as the UK’s favourite DIY retailer for 2007 and 2008.
Industry-leading margins The Board believes that the Group’s significant investment in improving customer service, supply chain, branch network, distribution, cost control and cash generation allows it to achieve attractive margins within its markets. For example, the adjusted operating profit margins for Merchanting and Retail were 10.0 per cent. and 5.1 per cent., respectively, for the year ended 31 December 2008, which the Board believes are higher than the operating profit margins most recently reported by all of Merchanting and Retail’s closest competitors.
Management The Group’s management team is highly experienced and the Board believes its management team is well regarded in the industry. Collectively, the Group’s Executive Committee has over 150 years of experience in the industry. The core Group management team has formulated, executed and delivered a strategic plan that has transformed the business into its current market-leading position. In 2005, following the acquisition of Wickes, the Group began building on its senior management capability with managers joining from acquired businesses and a number of external appointments and internal promotions. A significant proportion of management at every level has experienced an economic downturn in the Group’s industry before, and are well equipped to take action as appropriate to manage their branches, departments and businesses through the current economic climate.
The Group operates a management training programme, the intake of which have become some of the best managers working for the Group today. The Chief Operating Officer, several business managing directors, a number of regional directors and many branch managers across the Group are alumni of the Group’s management training programme.
Buying power The Group is one of the top three customers of its top 25 suppliers and is the single largest customer of 15 of those suppliers. Those top 25 suppliers sold the Group 44 per cent. of the products it purchased, measured by value, in the year ended 31 December 2008. Economies of scale and purchasing concentration have given the Group buying power, manifested through pricing discounts not generally available to smaller purchasers. The Group’s scale also provides it with the opportunity to work with its suppliers to create advantageous product availability and selection, shipping, packaging and other terms and conditions related to the Group’s product sourcing.
Information technology The Group’s investments in information technology (“IT”) have provided it with advanced bespoke software platforms with which it has improved the efficiency and profitability of its business. The Group’s IT is underpinned by a software development team based mainly in Northampton and partly in Barnstable and partly in Bangalore, India. Amongst many beneficial software applications, the IT platform includes a market pricing software tool which the Board expects will continue to improve price management consistency across General Merchanting by allowing each General Merchanting branch to view real-time and historical pricing for all products sold locally by General Merchanting, and by supporting each branch’s individual
76 customer price negotiations. This pricing software is expected to be rolled out into Specialist Merchanting during 2009.
The Group’s IT platform also provides branch managers with real-time access to data regarding an array of key performance indicators applicable to each branch, called the Key Results Area (“KRA”) system. The KRA system is designed to increase visibility of branch operating performance, facilitating improvement in that performance.
Currently, the Group is in the process of rolling out a vehicle tracking system that it believes will increase efficiency in its distribution network and ultimately enhance customer service by facilitating customer access to improved product delivery information.
Significant proportion of freehold sites With 1,223 branch locations as at 31 December 2008, and additional warehousing and administrative office sites, property costs play a significant role in the Group’s operating results. The Board believes that the Group’s relatively high portfolio ratio of freehold to leasehold properties, comprising 351 freehold and 57 long-leasehold properties in a total estate of 1,307 properties as at 31 December 2008, allows the Group to enjoy higher operating margins by not incurring rent on the freehold properties. Additionally, these freehold and long-leasehold properties give increased operational flexibility and provide the Group with an asset reserve that could be profitably liquidated should the Group need to increase cash on its balance sheet.
Current Operational Priorities Given the current financial conditions in the UK, the Group’s operational priorities are to maximise revenues from its existing assets, service customer requirements, cut costs and generate cash. The cost reduction measures taken during 2008 involved cutting discretionary and variable costs to a level the Board believes is capable of supporting anticipated volumes for 2009. The Board’s focus in the current operational environment includes:
• Cash maximisation The Group is maximising cash by reducing unnecessary inventory, cutting back on discretionary capital expenditures, halting all non-capital development projects except for those with an attractive short-term cash return, working with suppliers to maintain existing payment schedules and efficiently managing customer debt. The Board expects that cash generation from working capital will contribute significantly to the Group’s target of a £125 million reduction (excluding any reduction from the proceeds of the Rights Issue) in net debt (as defined in the Net Debt Covenant) in 2009. In view of the continuing difficulties in the markets in which the Group operates, the Board announced on 19 February 2009 a suspension of the final dividend for the year ended 31 December 2008. The Board remains committed to maintaining long-term dividend cover at between 2.5 and 3.5 times earnings and expects to resume dividend payments once it is prudent to do so. The decision as to when to declare a dividend and the amount to be paid will take into account, inter alia, the Group’s earnings, cash flows and balance sheet position, as well as the then prevailing market outlook.
The Group will continue to look for ways to streamline the business and maintain a low cost base. Recently completed cost-cutting measures, which the Group expects to reduce 2009 costs by approximately £50 million when compared to 2008, include: • managing headcount. Headcount was reduced by 16 per cent. on a like-for-like basis in the year ended 31 December 2008. Through 2009, the Group expects to continue to look for areas where it may make further reductions in headcount without jeopardising its other strategic goals; • reducing the size of Merchanting’s transport fleet. The active Merchanting transport fleet was reduced by 306 vehicles during 2008 to a total of 1,950 as at 31 December 2008; • lengthening the replacement cycle for all classes of assets on a short-term basis; and • in-sourcing some external services where economically more efficient.
77 • Concentration on more resilient customer markets and increasing market share The Group is targeting contractors working in segments of the construction market that have continued to grow and that show good medium-term prospects. In particular, more social housing landlords and their contractors are seeking to outsource their parts-storage operations and the UK Government is increasingly giving indications that it will direct economic stimulus packages towards investing in public sector buildings and infrastructure. The Group’s dedicated national sales and centralised managed services teams will target developing such public sector building and RMI work with increased management support and resources. The Group is also seeking to increase its market shares by taking advantage of competitor closures, the maturing of recently opened branches and the withdrawal of credit insurance from some competitors.
• Protection of gross margins by working to pass on price increases to customers and resisting competitive deflationary pressure on pricing of the Group’s products.
• Limiting branch expansion Most new commitments for acquisitions of businesses and brownfield sites for new branches were suspended by the Group from early 2008. The Group added 75 net new branches in the six months ended 30 June 2008, but only 23 net new branches in the six months ended 31 December 2008. The Board currently envisages that new branch expansion plans will be restricted in 2009 with the exception of some branch expansion for the Tile Giant brand and a limited number of branches focused on social housing projects and, provided performance conditions are met, the funding of expansion of the ToolStation network under the terms of the agreement governing the Group’s investment in the ToolStation business.
• Property realisation Since late 2005, the Group has pursued and will continue to pursue a programme of active management of its property portfolio to maximise value generated from each site. That programme has involved, on a site-by-site basis, sales of surplus land, relocations of trading sites to less valuable locations, establishment and sale of a special purpose vehicle to raise capital from low capital growth properties via a partial sale and leaseback, and the purchase of a limited number of freehold properties to maintain the overall quality of the Group’s estate. From the Group’s property portfolio, £49.5 million in cash and £28.7 million of profit have been generated over the last three years from 22 transactions involving 56 sites. As at 31 December 2008, the Group had 24 projects under development and the Board remains optimistic that in 2009 the Group will exceed the average annual cash raised from the property projects in the last three years.
The Board believes that the foregoing measures, together with the fall in interest rates since September 2008, should enable the Group to reduce debt further and increase financial flexibility. Until it is possible to see a sign of recovery in UK financial conditions, the Board does not intend to focus on its longer-term strategies described below. The Board believes that this stance will produce the best outcome for shareholders in the current challenging economic environment.
Long-term Strategy The Board remains committed to the long-term creation of shareholder value, which, once financial conditions in the UK strengthen, it believes is best achieved through:
• increasing the Group’s market share through a combination of like-for-like sales growth and targeted expansion through acquisitions, brownfield openings and in-store development either in its current markets or in specialist building material markets where the Group does not have a strong presence; • 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 per cent.;
78 • 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 (as defined in the Group’s financing agreements) between four and six times EBITA; and • maintaining long-term dividend cover at between 2.5 and 3.5 times earnings.
Operating Divisions For IFRS reporting purposes, the Group’s activities fall into two reporting segments: Merchanting and Retail. Merchanting comprises: General Merchanting and Specialist Merchanting, and involves the sale of products and services mainly to professional builders and contractors. Retail is involved in the sale of products and services to trade, serious DIY and retail consumers through the Wickes and Tile Giant brands.
For the year ended 31 December 2008, the total revenue of Merchanting was £2.24 billion, which was 70.4 per cent. of the total revenue of the Group. The total revenue for the year ended 31 December 2008 for Retail was £941 million, which was 29.6 per cent. of the total revenue of the Group.
Merchanting Merchanting operates in the UK building materials market, which includes sales of building products to trade professionals. The major competitors of Merchanting in the UK are Wolseley (which consists of various divisions, but principally Build Center, Plumb Center, Encon and Bathstore), Grafton (principally Buildbase and Plumbase), Saint Gobain Building Distribution (principally Jewson), BSS, SIG and Galiform (Howdens Joinery).
The table below sets out certain key performance indicators of Merchanting for the years ended 31 December 2008, 2007 and 2006:
Key Performance Indicators of Merchanting for the years ended 31 December 2008 2007 2006 Branches 952 908 843 Revenue (£ million) 2,238 2,254 2,000 Adjusted operating profit(1) (£ million) 225 258 224 Adjusted operating profit margin(1) 10.0% 11.4% 11.2% Like-for-like sales movement(2) (4.2%) 9.2% 2.9% Yard sales (as % of total)(3) 83.8% 82.9% 82.8% Direct sales (as % of total)(4) 16.2% 17.1% 17.2% Credit sales (as % of total)(5) 80.9% 80.7% 79.6% Cash sales (as % of total)(6) 19.1% 19.3% 20.4% Employee productivity(7) (£’000) 216 220 206
Notes: (1) For a discussion of the adjustments made, see “Important Information – Non-GAAP financial measures”. (2) Like-for-like sales movement is the change in sales of like-for-like branches from the previous year. (3) Yard sales (as % of total) represents the percentage of total segment sales for which products were either collected or delivered from the segment’s branches. (4) Direct sales (as % of total) represents the percentage of total segment sales for which product is delivered directly from the segment’s supplier to the customer. (5) Credit sales (as % of total) represents the percentage of total segment sales made to customers paying on credit given by the segment. (6) Cash sales (as % of total) represents the percentage of total segment sales made to customers paying in immediate funds.
79 (7) Employee productivity represents the annual revenue divided by the average number of full time equivalent employees of the segment during the year. During 2008, Merchanting made improvements in increasing product availability to customers and improving service standards through improving its supply chain, instituting certain mandated inventory stock levels, reorganising its timber milling operations, expanding its global sourcing, reducing the level of slow moving stock and streamlining administration to increase focus on customer service. These initiatives were used by the sales and marketing teams as a platform to launch targeted marketing campaigns, particularly in market segments that continued to grow in 2008, and achieved sales gains from new accounts without reducing gross margin.
In the short term, the Board expects to expand Merchanting’s branches by concentrating on projects for the operation of building products storage for local authorities and housing associations, with a strategy to potentially double the number of such branches over the next few years.
In the medium to long term, the strategy of Merchanting is to increase market share through the continuation of a best practice programme and ongoing branch network expansion. The best practice programme is designed to enhance Merchanting’s overall service to trade customers and includes management projects such as: increasing organic sales, increasing margin, driving productivity and reducing overheads.
Merchanting primarily sells its products to customers on credit, with 80.9 per cent. of all Merchanting revenue for the year ended 31 December 2008 being made pursuant to credit sales. Merchanting has a centralised credit control system that manages all customer credit accounts across the segment. As at 31 December 2008, the top 25 credit customers of Merchanting comprised 7.2 per cent. of the outstanding customer balances, which in total consisted of approximately 140,000 customer balances. See “Customer Credit” in Part V (“Operating and Financial Review of Travis Perkins”) of this document.
General Merchanting General Merchanting, which is conducted under the Travis Perkins brand, comprises four geographically based but discrete business units (Travis Perkins Midlands, Travis Perkins South East, Travis Perkins South West and Travis Perkins Northern), each with its own managing director and management teams.
The business had 611 branches in the UK at 31 December 2008 and supplies more than 100,000 product lines to trade professionals including general building materials, timber and sheet materials, plumbing and heating products, tool and equipment hire and a range of related products and services.
The customers of General Merchanting are primarily professional tradesmen, ranging from sole traders to national house builders, whose particular needs include product range and availability and customer service. General Merchanting, through the Travis Perkins brand, operates to high standards in each of these requirements.
During 2008, General Merchanting continued improving product availability and customer service, which the Board believes is increasing the consistency with which it manages pricing. A centrally mandated inventory range was introduced in 2007 and fully implemented in 2008 which significantly enhanced product availability by requiring all branches to maintain sufficient levels of products most in demand by customers. General Merchanting also introduced a new market pricing software tool which increased price management consistency across General Merchanting by allowing each branch to view real-time and historical pricing for products sold locally, and new customer service initiatives. The General Merchanting brand also maintains a customer account management website called Trademate, facilitating online ordering and account management for customers.
Tool Hire, a Merchanting tool hire service available at General Merchanting and Keyline Builders’ Merchants branches, traded from 191 branches as at 31 December 2008.
Specialist Merchanting Specialist Merchanting consists of four separate businesses trading under the following brands: Keyline Builders’ Merchants, City Plumbing Supplies, CCF and Benchmarx.
80 Keyline Builders’ Merchants, which was acquired in 1999, is a major supplier of heavy building materials in the UK with 83 branches nationwide. It supplies heavy building materials and civil and drainage solutions to the construction industry throughout the UK.
Keyline Builders’ Merchants has sought to increase focus on both the depth and breadth of its specialist stock range and to concentrate on major civil engineering customers and infrastructure projects, with 18 branches having been reconfigured to take new ranges in 2008.
City Plumbing Supplies was acquired in 2002 and, with the further acquisitions of Jayhard and B&G in 2003, enhanced its geographical coverage of the market, particularly in the South East. City Plumbing Supplies is now a major nationwide plumbing and heating merchant serving both the professional contractor and the general plumbing and heating market. The business offers high-quality products and expert service to professional industry consumers through a national network of 196 branches as at 31 December 2008.
CCF, which the Group acquired in 2002, is a leading supplier of interior building products, including suspended ceilings, partitions, dry lining and insulation systems, to specialist trade customers. It operates throughout the UK from its nationwide branch network of 33 branches as at 31 December 2008.
Benchmarx, which was launched in 2006, is the first Group brand created as a completely new business adjacent to the Group’s traditional markets. It supplies kitchen and joinery products to professional contractors and industry buyers in a market with only one dominant market player, Howdens Joinery, offering the potential for significant market share gain. As at 31 December 2008, Benchmarx had 29 branches throughout the UK.
Retail Retail operates in the UK building materials market, which includes sales of building products to trade, serious DIY and retail consumers. The major competitors of Retail in the UK are Kingfisher (principally B&Q and Screwfix), Homebase, Focus and Topps Tiles.
The table below sets out the key performance indicators of Retail for the years ended 31 December 2008, 2007 and 2006:
Key Performance Indicators of Retail for the years ended 31 December 2008 2007 2006 Branches 271 217 179 Revenue (£ million) 941 933 849 Adjusted operating profit(1) (£ million) 48 62 54 Adjusted operating profit margin(1) 5.1% 6.7% 6.4% Like-for-like sales movement(2) (5.3%) 5.5% (3.0%) Employee productivity(3) (£’000) 187 197 189
Notes: (1) For a discussion of the adjustments made see “Important Information – Non-GAAP financial measures”. (2) Like-for-like sales movement is the change in sales of like-for-like branches from the previous year. (3) Employee productivity represents the annual revenue divided by the average number of full time equivalent employees of the segment during the year.
Wickes Wickes opened its first store in the UK in 1972 at Whitefield in Manchester as a joint venture between the United States group, Wickes Corporation, and the UK builders’ merchant, Sankeys. It was listed on the London Stock Exchange in 1987 and was subsequently acquired by the Group in 2005.
Wickes had a national chain of 193 stores as at 31 December 2008, designed to appeal to tradesmen who undertake general repairs, maintenance and improvement projects for households and small businesses, and to serious DIY customers, who carry out more complete DIY projects. Wickes’ brand strategy is to position itself as the value-for-money provider in the home improvement market. Wickes offers a focused range of
81 approximately 6,000 high quality, primarily own-brand (90 per cent. of revenue), competitively priced home improvement products, such as timber, building materials, tools and decorative materials. In addition, Wickes branches incorporate a specialist kitchens and bathrooms business. Wickes’ strengths are its good value own- brand products, its management and its brand, which the Board believes is one of the strongest and most resilient in the market in which it operates. This was reflected in Wickes being named in the annual Verdict retail consultancy survey as the nation’s favourite DIY retailer for 2007 and for 2008.
Whilst higher priced competitors have increasingly used advertising and promotions to boost customer perceptions of their price cutting credentials, Wickes has maintained the more competitive price position of its product ranges, and continues to attract customers in greater numbers.
During 2008, Wickes continued to invest in new products and new formats. Three new mezzanine floors were fitted and a new format was trialled for kitchens and bathrooms which will be extended more widely in 2009. Wickes also invested in its kitchens and bathrooms product ranges during the year, which it believes will allow it to benefit from a capacity reduction in the sector following the demise of a major kitchens and bathrooms competitor.
Revenue from Wickes’ online transaction website business, which was launched in mid-2006, has quickly increased since then, reflecting the retail industry trend for distance shopping. Wickes also ran a successful trial of a catalogue which will be rolled out nationally during 2009.
The Group signed an agreement in 2008 to develop a franchised chain of Wickes stores in the Republic of Ireland. The first store opened in October 2008. Further expansion of the Wickes franchise will depend on the performance of this store and market conditions in the Republic of Ireland.
Tile Giant In November 2007, the Group acquired Tile Giant, a chain of stores offering ceramic tiles and accessories, open to both public and trade consumers. The acquisition was consistent with the Group’s strategy at the time for growth and it facilitated entry into the specialist ceramic tile market. The subsequent acquisitions of Tile Magic, a 17-store chain and Tile It All, a 16-store chain, both in early 2008, and 16 brownfield openings increased the number of stores in which the business traded as of 31 December 2008 to 78. Of the 17 Tile Magic stores acquired in London and the South East of England, 15 have now been rebranded as Tile Giant. Tile It All continues to trade under its existing name in the North East of England and Scotland but will be rebranded to Tile Giant during 2009. Tile Giant’s rapid growth has made it the number two ceramic tile specialist in the UK by branch numbers and, the Board believes, number two by revenue as well. As such, the Board believes the Tile Giant brand offers a strong pipeline for further expansion.
The brand’s product range has been enhanced by selecting the best products from each of the three businesses. The buying of key commodity items such as adhesives and grouts has been moved to a single supplier and, using the expertise of Tile Giant, significant buying gains have also been achieved within Wickes’ tiles categories.
ToolStation In April 2008, the Group acquired a 30 per cent. equity interest in ToolStation, a direct fixed-price retailer of tools and hardware offering products through its branch locations and internet and telephone ordering. ToolStation was launched in 2003. The Group has the option to acquire the outstanding share capital of ToolStation in April 2012 through an earn-out formula as provided in the ToolStation Agreement further described at paragraph 16.5 of Part IX (“Additional Information”) of this document. ToolStation’s operating and financial results are not consolidated with those of the Group.
ToolStation sells a wide range of tools, fixings, hardware, electrical, plumbing and heating materials to retail and merchanting customers throughout the UK and through a franchised operation in the Netherlands. At the date the Group acquired its interest, ToolStation traded from 11 branches. By the end of 2008, its network had expanded to 33 branches, and it had grown its revenue on a like-for-like basis. ToolStation plans to continue its strategy of branch network expansion, with the aim of operating from at least 80 branches in the UK.
82 National Sales and Managed Services Merchanting has a dedicated national sales team which manages relationships with major house builders and construction customers, as well as a number of other organisations of a significant size or with a significant geographic coverage.
A centralised managed services team actively targets the affordable housing RMI sector, and is responsible for the development, delivery and ongoing management of bespoke supply chain solutions to customers within the social housing market, which the Board believes will continue strong economic activity through the current economic climate. Typical clients in this market are local authorities, housing associations and contractors. These customer supply chain solutions are complementary to the UK Government’s recently announced drive to increase energy efficiency in the UK residential housing market.
Merchanting branches exclusively supplying local authorities and housing associations and contractors serving such markets increased from 11 at 31 December 2007 to 19 at 31 December 2008, and the Group enjoyed strong sales growth in this area as a result. Additionally, Merchanting branches are servicing in excess of 40 other local authority or housing association projects on a non-exclusive basis through existing branches.
In May 2008, Travis Perkins was awarded Supplier of the Year at the Housing Excellence Awards, organised by Northern, Midlands and Southern Housing magazines, in recognition of its work with social housing providers and their contractors.
Suppliers and Global Sourcing The Group sources its products through centralised buying, from over 7,200 suppliers, including over 600 primary suppliers, supplying in excess of 130,000 product lines. The Group has two principal buying teams: one is based in Northampton and deals with those suppliers supplying solely Merchanting plus a number of Groupwide suppliers; the other is based in Harrow and deals with Wickes-only suppliers plus a number of Groupwide suppliers. In addition, the Group operates a global sourcing team which has the responsibility for sourcing directly imported products.
The Group’s sourcing strategy is to develop low-cost sources of supply and increase efficiency by leveraging related services and processes. Within the Group’s global sourcing work, its strategy is to establish a direct line of supply with producers in low-cost economies for product markets where branding is not a key purchasing criteria for customers. This has resulted in imported products now accounting for over 40 per cent. of the Group’s revenue. Although most of these imported products are currently purchased by the Group from distributors who have themselves imported the products, a growing proportion of these imported products is being directly sourced from overseas manufacturers themselves. In connection with its global sourcing, the Group has arrangements with an Asian-based trading agency and a leading freight forwarding company.
Within Merchanting, the Group primarily purchases from manufacturers that develop and produce products that have high brand recognition, are of high quality and utilise leading technology. The Group does however also have a substantial requirement for own-brand products, most notably within Wickes. Wickes is predominantly an own-label, limited assortment retailer, whose customers rely on its sourcing teams to find and present the best value products pitched at brand leader quality for each product type.
The Group has recently been establishing partnerships with selected suppliers for the development of long- term relationships. The Group’s criteria for selection of its suppliers include market leadership, scale to both develop and bring to market new products and product range sufficient to supply or potentially supply all of the Group’s brands. To increase supply efficiency and minimise transportation costs, the Group also considers product specification and shipping when selecting and negotiating with suppliers. Although the Group does seek to develop long-term relationships with suppliers and will enter into arrangements regarding the terms and conditions of sale and shipping with the Group’s major suppliers, the Group does not generally enter into any long-term committed supply agreements with its product suppliers.
83 Security of supply of products and product quality are monitored by product category directors in Merchanting and Retail. Supplier financial strength, product quality and service levels are monitored on a continuous basis. An annual risk assessment is prepared for the major suppliers across the Group including business continuity plans. The Group is not significantly exposed to one supplier or product type with no supplier accounting for more than seven per cent. of total goods purchased in 2008. An established quality assurance process is in place throughout the business.
Due to the differences in models between Wickes and the other businesses within the Group, the following table sets out separately the number of product suppliers and the percentage of total purchases the top 50 suppliers represent in each channel as at 31 December:
2008 2007 Merchanting and Tile Giant Number of product suppliers 7,050 6,750 Top 50 representation of total purchases by value 59% 58% Wickes Number of product suppliers 228 245 Top 50 representation of total purchases by value 86% 84%
In recent years, there has been an increase in the demand for certified well-managed timber products and to meet this increased demand the Group has recently undertaken a full review of its chain of custody procedures to ensure it maximises supplies of certified timber and timber products. The Group estimates that, in the year ended 31 December 2008, it purchased 80 per cent. of its timber by value from certified well- managed sources. Details of the Group’s targets in relation to the purchase of certified timber are set out in “Environment” below.
Supply Chain and Distribution Merchanting suppliers deliver products either to its warehouses in the UK or, in the majority of cases, to its branches. For some high-volume orders, Merchanting arranges with suppliers to deliver products directly to customers.
After delivery from the Group’s suppliers, Merchanting delivers the products to some of its customers through its in-house distribution system which includes a fleet of approximately 2,000 commercial vehicles. The Group does not manufacture any of its products, although within Merchanting it does mill timber at its three timber supply centres in the UK.
A complex operational programme of consolidating Merchanting’s timber supply centres from four sites to three was completed in August 2008. The Board believes that this will improve operational efficiency and reduce costs while providing a strong operating platform for future growth in the timber business.
Retail suppliers deliver most products primarily to its intermediate warehouses (from which Wickes then delivers those products to its branches) or directly to its branches. Kitchens, however, are supplied to Wickes’ customers from its Home Delivery Centre based in Northampton, whilst made-to-order bathrooms are supplied to customers directly from the supplier.
Up until 30 April 2009, Wickes’ intermediate warehouses and Home Delivery Centre were operated by a third-party logistics company. With effect from 1 May 2009, that operation was transferred to Wickes.
The strategy of the Group’s supply chain platform, which is managed by a dedicated Supply Chain team, is to enhance customer service, improve efficiency, leverage Group scale, support margin and working capital improvement, whilst minimising impact on the environment.
Certain improvements have recently been made to the Group’s infrastructure. Centralised warehousing improves availability and margin and reduces the Group’s impact on the environment by consolidation of multiple supplier deliveries into single vehicle loads to branches. Approximately 60 per cent. of the products sold by Wickes are stored at a central warehouse before distribution.
84 A key component of the Group’s supply chain business model is utilising local product distribution. Because the Group negotiates with its suppliers to deliver products to regional warehouses or the Group’s large network of branch locations, the product delivery to customers borne by the Group’s own distribution system is primarily local in nature.
During the economic downturn experienced in 2008, the Group reacted quickly to slowing sales by reducing product inventory volume and by removing 306 vehicles from its Merchanting vehicle fleet. These initiatives were the continuation of a programme of efficiency improvements in supply chain and distribution. Following a successful trial, the Group implemented vehicle tracking and utilisation technology in all its CCF brand vehicles. This improved vehicle utilisation, reducing cost and environmental impact, will be rolled out to the other Merchanting businesses during 2009.
Customer Service The Group’s businesses have increasingly become more focused on customer service in recent years, and to this end the Group has established a centralised Customer Insight department which works across the Group to collect independent customer views, enabling management to improve customer service across the brands in a targeted way. In 2008, Customer Insight collected over 20,000 Merchanting customer opinions.
In order that the Group remains customer focused, each business has a “Brand Bullseye” which encompasses all the elements of the customer experience: product and range, availability, price and service, and these have been built into the day-to-day activity of each business within the Group.
Employees PRA1 17.1 As at 31 December 2008, headcount was 9,565 in Merchanting and 4,750 in Retail, for a total Groupwide headcount of 14,315. On 1 May 2009, in addition to ordinary course fluctuations in headcount there was an exceptional increase due to the addition of approximately 700 employees formerly employed by a third-party logistics company operating Wickes’ intermediate warehouse and Home Delivery Centre.
Given the poor short and medium-term outlook for the markets in which the Group operates, headcount was reduced in 2008 and, as at 31 December 2008, was over 1,900 full-time equivalents (14 per cent.) lower than at 1 January 2008. After accounting for an extra 600 people added in new branches, the like-for-like fall in headcount was 2,500, a reduction of 16 per cent., in 2008.
Property PRA1 8.1 As at 31 December 2008, the Group owned 351 freehold and 57 long-leasehold properties amongst its total portfolio of 1,307 properties which the Board currently believes is an optimal mix of short leaseholds to freeholds and long leases. Since late 2005, the Group has pursued a programme of active management of its property portfolio to maximise value generated from each site. That programme has involved, on a site-by- site basis, sales of surplus land, relocations of trading sites to less valuable locations, establishment of a special-purpose vehicle to raise capital from low capital growth properties via partial sale and leaseback, and the purchase of a limited number of freeholds to maintain the overall quality of the Group’s estate. Over the three years ended 31 December 2008, the Group has increased its property portfolio significantly by adding approximately £80 million of new properties whilst disposing of approximately £50 million of existing properties. The majority of the Group’s branches occupy leasehold premises with some branches being subject to more than one lease. The average unexpired lease term remaining for the portfolio at 31 December 2008 was approximately 16 years; 69 leases expire prior to 31 December 2009, 110 between 31 December 2009 and 31 December 2012 and 891 leases expire after 31 December 2012. As at 31 December 2008, the total annual net rent for all leasehold branches of the Group was approximately £126 million. Branch leases typically have a five yearly upwards only open market rent review cycle. Over the last three financial years, the average aggregate increase in rent across the branch portfolio has been approximately 3-4 per cent. As at 31 December 2008, there were 284 leases with rent reviews outstanding,
85 a further 188 with rent reviews falling due in 2009, and 162 with rent reviews falling due in 2010. The Group currently makes provisions in its accounts for rent reviews. As at 31 December 2008, the Group had 24 projects under development covering 41 properties. These projects include a mixture of sale and lease-back, asset management/redevelopment, sale of partial site, and those for which the Group is obtaining planning permissions for alternate use. Over the three years ended 31 December 2008, the Group generated £49.5 million of cash and £28.7 million of profit from 22 projects involving 56 properties. While the current restriction of funding to property developers has reduced the targets for 2009, the Board remains optimistic that in 2009 the Group will exceed the average annual cash raised from the property projects in the last three years. A number of projects involve counterparties such as discount food retailers who, despite economic conditions, have sustained expansion plans and available funds. The Group’s management team devotes significant time to identifying and reviewing potential new branch locations. Existing branches are also rigorously monitored for performance and compatibility with the Group’s strategy. Each branch is expected to make a positive contribution to the Group’s overall profitability. Holding branches on a freehold basis helps to enhance the Group’s operational flexibility. The Group maintains a pro-active store management policy, which involves the identification and closure or relocation of branches and the opening of new branches where there can be a substantial increase in net profitability and/or market share.
As at 31 December 2008, the Group was considering the closure of fewer than 10 branches and was in the process of opening around 10 to 15 new branches for 2009. New branch leases are typically taken on short leases with most entered into on 10 to 15 year lease commitments with a rent review every five years and a tenant break option between five to 10 years into the lease. When leases expire, the Group is liable for the repair of the property and the settlement of any dilapidation claims which the relevant landlord may have. As at 31 December 2008, the Group was negotiating around five dilapidation claims. The Board views the current position regarding renewal negotiations and dilapidations as a normal commercial situation in the ordinary course of business. Four of the Group’s leasehold branches are currently subject to discussions with the local planning authorities regarding compulsory purchase orders, which may result in the closure or relocation of the branches, none of which is considered material to the Group.
The Group has assigned its interest in certain leasehold properties to third parties. It remains liable for any defaults on the part of these tenants. The Board does not expect that any potential default would result in a material claim against the Group.
The following table sets out certain information about each of the Group’s principal properties, which include its headquarters in Northampton, its 10 distribution centres and its three timber supply centres:
Freehold/ Principal Properties Square Feet Business Activity Leasehold Headquarters: Northampton N/A Group Head Office Freehold Harrow N/A Wickes Head Office Freehold/ Leasehold Distribution centres: Northampton – Composite warehouse 475,000Merchanting and Wickes. Used Leasehold to centralise bulk products and doors and to assist global sourcing arrangements Northampton- Brackmills P&H 166,000Plumbing and heating; Leasehold warehouse warehouse and distribution for Merchanting Northampton – HDC warehouse 200,000 Wickes home delivery centre (kitchens) Leasehold Nether Heyford intermediate warehouse 120,000 Wickes core products Leasehold
86 Freehold/ Principal Properties Square Feet Business Activity Leasehold Wakefield intermediate warehouse 120,000 Wickes core products Leasehold Hemel 1 intermediate warehouse 120,000 Wickes core products Leasehold Hemel 2 warehouse 60,000 Wickes’ internet business. Leasehold Stoke warehouse 50,000 Tile Giant warehouse Freehold Tilbury warehouse 150,000 Sheet materials Leasehold/ Contractual(1) Poole warehouse 40,000 Plumbing and heating Leasehold Timber supply centres: Acres King’s Lynn 6 Timber milling, storage and distribution Leasehold Ferndown 9 Timber milling, storage and distribution Leasehold Cardiff 8 Timber milling, storage and distribution Leasehold
Note: (1) The Group has a timber importing base at Tilbury (which includes an administrative office). The Group uses a large warehouse space at this location under a contractual arrangement with the local docks, but holds no property interest in this site other than an unregistered lease over the administrative office (a portacabin).
Other property and equipment The Group has a fleet of approximately 2,000 commercial vehicles (lorries), 1,400 cars, and over 2,600 pieces of heavy equipment, primarily forklifts, used primarily in connection with the warehousing and day- to-day operations within branches. Most of the fleet is owned by the Group but a small portion is leased. Additionally, the Group has a range of fixed assets typical for businesses within its market, including IT equipment, such as mainframe and personal computers and printers, racking, trade counters and tools used in connection with its tool hire service.
Information Technology The Group’s IT facilities include a data centre at its head office in Northampton and a mirror facility located on a separate site in Northampton. The Group maintains a software development team based mainly in Northampton and partly in Barnstable and partly in Bangalore, India. In addition to standard operating software monitoring Group performance, supply chain, product inventory, credit, billing and administrative functions typical for a business with the size and revenue of the Group’s, its IT platform includes a market pricing software tool which the Board expects will continue to improve price management consistency by tracking product pricing across General Merchanting. The Group’s IT platform also includes a KRA system. The KRA system is designed to increase visibility on branch operating performance by tracking certain key performance indicators for each branch. In 2009, the Group plans to continue rolling out a vehicle tracking system after a pilot programme successfully completed by CCF in 2008.
Environment PRA1 8.2 Addressing any environmental concerns arising from the operations of the Group is a key priority. In 2001, the Group adopted an ISO 14001 certified environmental management system to cover all activities and operations of the Group. In recent years the Group has significantly increased the time and effort devoted to raising the profile of environmental issues amongst employees and to the understanding of the impact of the Group’s operations on the environment. This has included initiating work to establish better reporting procedures and systems and the establishment of realistic targets. The Board holds four key objectives to reduce the Group’s environmental impact, which it believes are the core areas with the potential for the largest effect: • reduce carbon emissions; • reduce waste to landfill; • increase certified timber purchases; and • prevent local pollution.
87 The Group has set certain targets in order to judge its environmental progress and it reports on its performance against these targets in its annual report and accounts.
For the year ended 31 December 2008, direct and indirect emissions of carbon dioxide by the Group were 111,070 tonnes, or 167,241 tonnes if discounts for grid-based renewables are excluded. Overall, the Group has not succeeded in meeting its 10 per cent. voluntary reduction target from the Group’s 2005 baseline year by the end of 2008. Taking into account present economic conditions, and to reduce costs and improve the forthcoming mandatory Carbon Reduction Commitment Regime, the Group’s aim is to reduce the tonnes of carbon dioxide emitted per million pounds of sales from the Group’s 2005 baseline year by 15 per cent. by the end of 2010 and by 20 per cent. by the end of 2013.
The Group wishes to reduce the amount of packaging it passes on to its customers. Its self-imposed target is to reduce the weight of packaging per million pounds of sales by 20 per cent. from the levels in 2008 by 2013. The Group estimated that, for the year ended 31 December 2008, 22 tonnes of packaging waste were generated per million pounds of sales by the Group.
The Group has set itself a target of 5 per cent. reduction in water usage per million pounds of sales from 2008 levels by 2013. For the year ended 31 December 2008, the Group estimates that it used 403,779 litres, which equates to 140 litres per million pounds of sales.
There has recently been growth in the demand for certified well-managed timber products. The Group estimates that, for the year ended 31 December 2008, it purchased 80 per cent. of its timber by value from certified well-managed sources. The five-year ambition of the Group is to achieve full certification for all of its timber. The Board believes a target of 90 per cent. certification by value is achievable by 2011.
The Group seeks to engage with colleagues, customers, suppliers, regulators, government and civil society in relation to environmental issues, recognising that a partnership and broad consensus between those within the supply chain and other stakeholders is required to achieve genuine progress. For these reasons, the Group has formed a non-executive environmental advisory panel made up of members of its executive management and five external stakeholder representatives to advise the Group on its environmental compliance and any environmental issues confronting it.
Health and Safety The Group has developed a number of health and safety policies, which are implemented at each location. These are managed by a Group health and safety committee that was established in November 2007 and that is responsible for reviewing health and safety policies, practices and Group performance and monitors compliance with legal obligations and performance against the Group’s health and safety objectives. In addition, an industry health and safety expert has been appointed to advise the Group on further improving its performance standards in this area. A “change” programme was launched in 2008 to embed a strong health and safety culture at every level across the Group, and the Board believes it is having a beneficial and wide-reaching effect on attitudes and behaviour across the different activities and operations of the Group.
Insurance The Group maintains policies of insurance in respect of the major risks associated with its operations, in particular damage to its properties, injuries to its employees or members of the public, claims arising from motor accidents involving its vehicles, and claims arising from damage caused by the products it sells. These policies generally have high deductibles exposing the Group to a certain degree of risk up to those deductibles. An actuarial review of claims is carried out annually. The review estimates future costs in relation to the uninsured element of known claims and the likelihood of further claims in subsequent years. To the extent that actual claims differ from those estimated, provisions in the Group accounts could vary significantly. At 31 December 2008, the provision for claims arising under these insurances was £27.6 million.
88 PART V PR 2.4 PR2 4.5 OPERATING AND FINANCIAL REVIEW OF TRAVIS PERKINS PRA1 5.2.1 PRA1 5.2.2 The following discussion should be read in conjunction with “Important Information” and the Group’s PRA1 9.1 Audited Financial Statements, including the notes thereto, incorporated by reference in this document. PRA1 9.2 PRA1 9.2.1 The following discussion contains certain forward-looking statements that involve risks and uncertainties. PRA1 9.2.2 The Group’s actual results could differ materially from those anticipated in these forward-looking statements CESR 27-32 as a result of certain factors including, but not limited to, those discussed in “Risk Factors” and “Important Information”. Except where otherwise indicated, the information in respect of the Group in this Part V is presented in sterling and in accordance with IFRS issued by the IASB.
Overview PRA1 6.1.1 Travis Perkins is one of the UK’s largest builders’ merchant and home improvement retailers in terms of revenue and number of branches. The principal activities of the Group are the distribution and sale of a wide range of general building materials, timber, plumbing and heating products and the hiring of tools to professional builders and contractors and to the general public within the UK. In the last 10 years, the Group has expanded its operations through a strategy of acquiring new businesses and opening new branches of its existing businesses. The Group is organised into two separate reporting segments: Merchanting, which comprises General Merchanting and Specialist Merchanting, and Retail. The Group’s businesses operate primarily through seven key brands: Travis Perkins, Keyline Builders’ Merchants, City Plumbing Supplies, CCF, Benchmarx, Wickes and Tile Giant. Additionally, the Group has a minority investment in ToolStation, a direct fixed-price retailer of tools, fixings and hardware in the UK with a franchise in the Netherlands. Set out below is a breakdown of revenue, adjusted operating profit, operating profit and number of branches for Merchanting and Retail for the years ended 31 December 2008, 2007 and 2006: Year ended 31 December 2008 2007 2006 (£m) Revenue Merchanting 2,238 2,254 2,000 Retail 941 933 849 ———— ———— ———— Group———— 3,179 ———— 3,187 ———— 2,849 Adjusted operating profit(1) Merchanting 225 258 224 Retail 48 62 54 Share of results of associate (1) – – ———— ———— ———— Total———— 272 ———— 320 ———— 278 Operating profit Merchanting 206 258 236 Retail 10 62 54 Share of results of associate (1) – – ———— ———— ———— Total———— 215 ———— 320 ———— 290 Branches Merchanting 952 908 843 Retail 271 217 179 ———— ———— ———— Total branches———— 1,223 ———— 1,125 ———— 1,022 Note: (1) For a discussion of the adjustments made, see “Important Information – Non-GAAP financial measures”.
89 Principal Factors Affecting the Group’s Results of Operations Market conditions The residential, commercial and industrial construction markets in which the Group operates are sensitive to changes in the economy and, as a result, downturns in the economy may adversely affect the Group’s business, financial condition and results of operations. The current distress in the global financial markets has resulted in a significant economic downturn in most of the markets in which the Group operates including, in particular, a sharp and significant decline in the construction industry. Economic conditions have led to severe restrictions on spending on residential, commercial and industrial projects in such markets and have restricted consumer spending on all aspects of construction. Additionally, deteriorating house values in the UK have negatively impacted the volume of housing transactions and related expenditures for home improvements and repairs, in addition to reducing the equity against which homeowners may borrow to finance home improvements. The Board believes that the construction market contracted significantly in 2008 and continues to contract in 2009. In 2008, the Group began to experience reduced sales impacting revenue attributable to deteriorating economic conditions. Like-for-like sales in the Group’s Merchanting and Retail segments decreased by 4.2 per cent. and 5.3 per cent., respectively, in the year ended 31 December 2008 compared to the year ended 31 December 2007. The Board believes that the market for RMI will be more resilient to the impact of deteriorating economic conditions than the new housing sector, because spending for RMI projects is less discretionary by nature. As a result, the General Merchanting and Retail segments are expected to be relatively resilient since the customer market for General Merchanting is largely dependent on RMI and Retail’s customer market is wholly dependent on RMI. The Board estimates that revenue from the RMI market accounted for approximately 70 per cent. of the Group’s total revenue in the year ended 31 December 2008. In addition to reducing demand for the Group’s products and services, the economic downturn has led to a general tightening on extensions of existing credit and a reduction in the availability of new credit, which has impaired, and may continue to impair, the ability of customers to pay amounts due for products and services provided to them by the Group. This in turn could increase the amount of bad debts accounted for by Merchanting in which credit sales account for the approximately 80 per cent. of revenue. Over the past 10 years, the bad debt charge has averaged below 0.5 per cent. However, during the latter part of 2008, the Group experienced an increasing level of bad debts, with the bad debt charge for the year reaching 0.9 per cent. of credit sales (compared to 0.4 per cent. for the year ended 31 December 2007). The Group’s bad debt level in the latter part of the second half of 2008 was 1.3 per cent. The Group charge for bad debts increased by £8.9 million in the year ended 31 December 2008 over the year ended 31 December 2007. Debtor days at 31 December 2008 were 59 days (compared to 56 days at 31 December 2007).
The Group’s response to market conditions In light of the deteriorating economic conditions, the Group has taken steps to mitigate negative effects on its operating results by instituting a cost-cutting programme which the Group expects to reduce costs in 2009 by approximately £50 million when compared to 2008. Pursuant to this programme, the Group, with limited exceptions, halted all branch expansion; halted all capital and non-capital development projects such as technology developments except for those with an attractive short-term cash return; reduced like-for-like headcount by 2,500, a reduction of 16 per cent.; reduced the size of Merchanting’s transport fleet by 14 per cent., with over 300 vehicles disposed of or taken out of use; lengthened the replacement cycle for all classes of assets on a short-term basis; and in-sourced some external services. The elimination of all but the most essential capital projects and lengthening of the replacement cycle for all classes of assets, together with the withdrawal of delivery vehicles from Merchanting branches in 2008, is expected to substantially reduce capital expenditure in 2009, which is targeted at £37 million (2008: £140.8 million). The Board believes that expenditure at broadly this level is sustainable for two to three years, following which, with the depreciation charge at just over £60 million, the Board expects an increase in capital expenditure will be required. Additionally, during 2008 the structure of the Group’s national sales team was changed to focus on the most active market sectors, including infrastructure, health and education, facilities management and repair and maintenance of social housing stock, which has partially offset the reduction in sales to major house builder customers.
90 In 2009, a number of additional cost reduction projects are expected to complete, including projects aimed at reducing fuel costs through vehicle tracking technology, waste costs through greater separation and recycling and energy costs through improved management information and monitoring. The Group is also taking steps to maximise cash by reducing unnecessary inventory, working with suppliers to maintain or improve existing payment schedules and efficiently managing customer debt, in addition to suspending dividend payments. The foregoing measures have affected every business, department and level of the Group, impacting operating results for 2008. In 2008, the Group recorded a charge for exceptional items of £56.2 million, including future lease costs of closed branches of £39.5 million, costs of redundancies and reorganisation of £10.5 million, and up-front costs associated with cancelled business expansion of £6.2 million.
Product pricing The Group’s profit margin is dependent on the extent to which it is able to price its products and services in the markets in which it operates above related costs. During inflationary pricing periods, such as may result from rising energy and utility prices, market-wide inflation, rising commodity prices and certain exchange rate movements, the Group is often able to anticipate future price increases, enabling it to overstock while prices are at lower levels and then sell off those stocks at the higher market prices prevailing subsequent to supplier price increases. During the three years ended 31 December 2008, gains due to inflationary pricing contributed to Group profits. However, if the Group is unable to pass price increases on to customers during inflationary pricing periods, such as when levels of competitive pressure are rising during periods of economic downturn, the Group’s profit margins and other operating results may be adversely affected. This problem is particularly acute with respect to products that are commoditised or more fungible, such as cement and copper tubing, because competitors are seeking to hold or increase their market share through promotional pricing campaigns. During the three years ended 31 December 2008, the Group was generally able to pass on price increases to customers and maintain its gross margin. During deflationary price periods, the Group will be unable to reap similar margin benefits. To the extent that the Group has significant inventory of commodity products in such periods, it may not be able to sell them at the prices it has been able to in the past or even at the price at which they were bought by the Group.
Branch expansion A significant factor in the Group’s overall strategy is expansion of the number of branches in the Group, through both brownfield openings and acquisitions. Over the three years ended 31 December 2008, the Group added 253 branches to its network and consolidated 13 branches into other branches, resulting in a net branch expansion over the period of 240, representing 19.6 per cent. of the aggregate number of branches in the Group as at 31 December 2008. Of the 253 branches added, 142 were due to brownfield openings, while 111 were attributable to acquisitions. In the year ended 31 December 2008, 4.2 per cent. of revenue growth was attributable to expansion (with such growth offset by a decline of 4.5 per cent. attributable to diminished like-for-like sales), while in the year ended 31 December 2007, 3.8 per cent. of revenue growth was attributable to expansion. The Board currently envisages that new branch expansion plans will be restricted in 2009 with the exception of some branch expansion for the Tile Giant brand and a limited number of branches focused on social housing projects and, provided performance conditions are met, the funding of expansion of the ToolStation network under the terms of the agreement governing the Group’s investment in the ToolStation business.
Property management Since late 2005, the Group has pursued a programme of active management of its property portfolio to maximise value generated from each site. This programme involves, on a site-by-site basis, sales of surplus land, relocations of trading sites to less valuable locations, establishment of a special purpose vehicle to raise capital from low capital growth properties via partial sale and leaseback, and the purchase of a limited number of freeholds to maintain the overall ratio of freehold to leasehold properties in the Group’s portfolio.
91 The Group has a significant portfolio ratio of freehold to leasehold properties, comprising 351 freehold and 57 long leasehold properties in a total estate of 1,307 properties as at 31 December 2008. Proceeds from the disposal of primarily property assets were £14.9 million, £4.8 million and £38.9 million (of which £31.5 million was related to the sale of property to a special purpose vehicle) in 2008, 2007 and 2006, respectively. The value of proceeds principally reflects the levels of property management activity each year. From the Group’s property portfolio, some £49.5 million in cash and £28.7 million of profit have been generated over the last three years from 22 transactions involving 56 sites. As at 31 December 2008, the Group had 24 projects under development and the Board remains optimistic that in 2009 the Group will exceed the average annual cash raised from the property projects in the last three years.
Seasonality and weather Because the building materials industry provides customers with products used largely in construction and RMI, activities which are typically undertaken less during inclement weather, the Group’s operations are characterised by weather-affected fluctuations in demand. Prolonged periods of poor weather can adversely affect the Group’s sales, financial position and results of operations. Due to the effects on demand of weather, the Group’s revenues are generally higher during the spring and summer months and tend to dip during late autumn and winter. While typical seasonal fluctuations tend not to affect the Group’s operating results year- on-year, years with weather conditions that are on average unusually inclement or mild will affect operating results for that year.
Description of Certain Income Statement Line Items and Non-GAAP Financial Measures Revenue Revenue consists of the amounts received and receivable from customers from the provision of goods and services by the Group’s operations. 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 for goods and services provided in the normal course of business, net of discounts and value added tax and excludes any intra-Group revenue.
Cost of sales Cost of sales consists of material purchases, net of supplier rebates, together with those overheads that have been incurred in bringing the inventories to their present location and condition. Such costs include the cost of internal transfers between distribution centres and branches.
Selling and distribution costs Selling costs consist primarily of: branch and distribution wages and salary costs; operating property rent rates, maintenance and depreciation; and distribution costs (in respect of deliveries to customers).
Administrative expenses Administrative expenses are expenses related to the administration of the Group. These are primarily central costs, but also may include some costs from the operating divisions, such as those associated with brand marketing. Administration expenses consist primarily of: wages and salary costs; depreciation charges; bad debt charges; IT costs; heat, light and power costs; security and refuse removal costs; telephone, print, post and stationery costs; marketing and promotional expenditure.
Other operating income Other operating income consists of: rents receivable from external tenants and profit on the sale of properties.
Financing income and costs Financing income consists of: interest on bank deposits; gains on forward contracts; and gains on derivatives. Financing costs consist of: interest on private placement notes and bank borrowings (bank loans and overdrafts); amortised bank arrangement fees; losses on forward contracts; losses on derivatives; interest on finance leases; and interest on unsecured loan notes.
92 Exceptional items The separate reporting of non-recurring exceptional items gives an indication of the Group’s underlying performance. Exceptional items are those items of income and expenditure that by reference to the Group are material in size and unusual in nature or incidence that, in the judgement of the Board, should be disclosed separately to ensure a proper understanding of the Group’s financial performance and comparability of financial performance between periods.
Adjusted operating profit Adjusted operating profit is a non-GAAP financial measure. It consists of operating profit adjusted to exclude exceptional operating items. In the judgement of the Board, disclosure of operating profit after adjusting for the effect of exceptional items is necessary to ensure a proper understanding of the Group’s financial performance and comparability of financial performance between periods.
Adjusted operating margin Adjusted operating margin is a non-GAAP financial measure that, in the judgement of the Board, should be disclosed separately to ensure a proper understanding of the Group’s financial performance and comparability of financial performance between periods. It consists of adjusted operating profit divided by revenue.
Like-for-like sales Like-for-like sales is a non-GAAP financial measure that, in the judgement of the Board, should be disclosed separately to ensure a proper understanding of the Group’s financial performance and comparability of financial performance between periods. It consists of revenue derived from those branches that have been operated by the Group for the preceding 12 months or longer (like-for-like branches).
Results of Operations
Comparison of years ended 31 December 2008 and 2007 Year ended 31 December 2008 2007 (£m) Revenue 3,178.6 3,186.7 Cost of sales (2,080.3) (2,087.3) ———— ———— Gross profit 1,098.3 1,099.4 Selling and distribution costs (687.7) (649.1) Administrative expenses (148.9) (141.8) Other operating income 11.2 11.4 Share of results of associate (1.4) – ———— ———— Adjusted operating profit(1) 271.5 319.9 Exceptional items (56.2) – ———— ———— Operating profit 215.3 319.9 Finance income 7.7 3.7 Finance costs (76.7) (62.2) ———— ———— Profit before tax 146.3 261.4 Tax impact of exceptional items 14.2 – Exceptional tax credit – 4.2 Adjusted tax charge (58.6) (80.3) ———— ———— Profit for the year ————101.9 ———— 185.3 Adjusted operating margin(1) ————8.5% ———— 10.0% Note: (1) For a discussion of the adjustments made, see “Important Information – Non-GAAP financial measures”.
93 Revenue For the year ended 31 December 2008, Group revenue was down slightly to £3,178.6 million from £3,186.7 million for the year ended 31 December 2007, a decrease of 0.3 per cent., which comprised a decline of 4.5 per cent. in like-for-like sales, partially offset by network expansion which accounted for growth of 4.2 per cent.
Merchanting Merchanting revenue fell by 0.7 per cent., with revenue from network expansion contributing 3.5 per cent. and like-for-like sales falling by 4.2 per cent. The latter comprised 6.4 per cent. of price inflation offset by a 10.6 per cent. decline in volume due to diminishing market conditions marked by reduced RMI, homebuilding and consumer spending.
Both General and Specialist Merchanting performed ahead of their respective markets, with like-for-like sales down by 4.1 per cent. in General Merchanting and 4.3 per cent. in Specialist Merchanting.
Retail Overall like-for-like sales in Retail were down 5.3 per cent. with 1.7 per cent. price inflation and a 7.0 per cent. volume decrease. Network expansion, including the acquisitions of Tile Magic and Tile It All, added 6.2 per cent. to Retail sales which in total increased by 0.9 per cent. Like-for-like sales for the full year of Wickes’ core products were down by 4.8 per cent. and, on the same basis, showroom sales fell by 8.1 per cent. Tile Giant’s like-for-like sales were up by 5.5 per cent.
Wickes branch expansion in 2008 was limited to those sites which Wickes was contracted to take. Other site opportunities were deferred and two unprofitable branches were closed. Of the 10 new Wickes branches, seven were acquired and converted from a competitor chain and three were brownfield developments. The average size of the new branches was approximately 24,000 sq ft compared with the 30,000 sq ft average of recent years, reflecting Wickes’ strategy of lowering fixed costs through smaller branches supplemented with more efficient supply chains.
The Wickes showroom business was disrupted towards the end of the year by two significant events: stock liquidation from the administration and closure of a major kitchen and bathroom competitor, which placed competitive pressure on pricing before the competitor closed; and the administration and closure of Wickes’ supplier of conservatories, which resulted in Wickes ceasing to sell conservatories.
Cost of sales The Group’s cost of sales decreased by £7.0 million, or 0.3 per cent., from £2,087.3 million in 2007 to £2,080.3 million in 2008 in line with the total revenue decrease for the year.
Gross profit The Group’s gross profit fell by £1.1 million, or 0.1 per cent., from £1,099.4 million in 2007 to £1,098.3 million in 2008. The markets in which the Group operates experienced falling volume and increased competition exerting downward pressure on pricing. Despite this, gross margin as a percentage of revenue increased by 0.1 per cent. due to the optimisation of pricing provided by the Group’s new pricing software and by improved negotiations with the Group’s product suppliers.
Selling and distribution costs The Group’s selling and distribution costs increased by £38.6 million, or 5.9 per cent., from £649.1 million in 2007 to £687.7 million in 2008. This increase was largely attributable to an increase in selling and distribution wages of £11.3 million, rent and rates increases of £18.4 million, in each case due to the full year impact of the branch expansion in 2007 and the impact of the part year 2008 branch expansion, and increased fuel costs.
94 Administrative expenses The Group’s administrative expenses increased by £7.1 million, or 5.0 per cent., from £141.8 million in 2007 to £148.9 million in 2008. This movement consisted primarily of an increase of £8.9 million in the bad debt charge for the year due to the deteriorating economic conditions affecting customers’ liquidity, and higher utility costs due to the expiry of an old utility pricing arrangement, offset by cost savings in other areas of administration expenses.
Other operating income The Group’s other operating income decreased by £0.2 million, or 1.8 per cent., from £11.4 million in 2007 to £11.2 million in 2008. This reflected an increase in rents receivable from external tenants of £1.2 million and a reduction in the profit on disposal of properties of £1.4 million.
Share of results of associate In April 2008, the Group acquired a 30 per cent. equity interest in ToolStation. The Group’s share of the post tax losses of ToolStation in 2008 was £1.4 million.
Adjusted operating profit and adjusted operating margin The Group’s adjusted operating profit decreased by £48.4 million, or 15.1 per cent., from £319.9 million in 2007 to £271.5 million in 2008. The Group’s adjusted operating margin fell by 1.5 percentage points to 8.5 per cent. from 10.0 per cent. in 2007. This primarily reflected a reduction in overhead recovery from declining like-for-like sales. Whilst variable costs were cut back as a result of falling activity levels, and some significant fixed costs were eliminated, a proportion of the Group’s costs – such as branch rents – are both fixed and unavoidable.
Merchanting Adjusted operating profit within Merchanting fell from £258 million (11.4 per cent. of revenue) in 2007 to £225 million (10.0 per cent. of revenue) in 2008, a reduction of 12.8 per cent. A 0.3 percentage point gross margin improvement achieved through the optimisation of pricing, increased sourcing benefits and a better sales mix was offset by increases in overheads, particularly in energy costs and bad debts.
Retail Adjusted operating profit within Retail fell 22.7 per cent. from £62 million (6.7 per cent. of revenue) in 2007 to £48 million (5.1 per cent. of revenue) in 2008. The 1.6 percentage point reduction in adjusted operating margin was due to a combination of a 0.5 percentage point reduction in gross margin as a result of price pressure and the operational leveraging of fixed rent and rate costs.
Exceptional items As a result of the economic downturn the Group took steps to reduce its overhead costs by challenging all areas of expenditure. A combination of reducing headcount, stopping nearly all discretionary business expansion, eliminating marginal activities and challenging suppliers to be more cost effective was successful, but it resulted in the Group incurring significant one-off charges. In addition, the slowdown in the property market left considerably less opportunity to sublet the Group’s empty trading properties, a situation which may exist for many years. Accordingly, it is likely that the Group will have to pay significant property running costs in respect of these properties for longer than previously anticipated. The total charge of £56.2 million included redundancy and reorganisation costs of £10.5 million, onerous property lease provisions of £39.5 million and asset write-offs in respect of up-front costs associated with cancelled business expansion of £6.2 million.
Operating profit The Group’s operating profit decreased by £104.6 million, or 32.7 per cent., from £319.9 million in 2007 to £215.3 million in 2008. This decrease reflected the exceptional items recorded in 2008 as well as the decline in adjusted operating profit discussed above.
95 Finance income and costs With turmoil in the financial markets pushing six month LIBOR rates up as high as 6.40 per cent. during 2008 and causing the margin on the Company’s new £1 billion syndicated credit facility to be more than double that on the previous facility, total net interest expense, before other finance income in respect of the pension scheme of £4.8 million (2007: £3.3 million) and £6.3 million of derivative mark-to-market losses which arose as a result of falling interest rates in 2008 (2007: £0.3 million gains), was £5.4 million higher than 2007 at £67.5 million (2007: £62.1 million).
Profit before tax Profit before tax decreased £115.1 million from £261.4 million in 2007 to £146.3 million in 2008, a decrease of 44.0 per cent.
Tax The Group’s taxation charge decreased by £31.7 million, or 41.7 per cent., from £76.1 million in 2007 to £44.4 million in 2008. On 26 June 2007, the House of Commons approved the Finance Bill which reduced the UK standard rate of corporation tax from 30 per cent. to 28 per cent. with effect from 1 April 2008. The 2008 adjusted tax charge was £58.6 million (effective rate: 28.9 per cent.) compared with £80.3 million (before tax in respect of the exceptional items credit) (effective rate: 30.7 per cent.) in 2007. The effective tax rate was higher than the UK corporation tax rate principally because of non-qualifying property expenditure and other items, which are not allowable for tax. The total tax charge of £44.4 million in 2008 was £14.2 million lower than the adjusted tax charge of £58.6 million as a result of exceptional items charged to profits during 2008.
Profit for the year The Group’s retained profit for the year decreased by £83.4 million, or 45.0 per cent., from £185.3 million in 2007 to £101.9 million in 2008.
Comparison of years ended 31 December 2007 and 2006 Year ended 31 December 2007 2006 (£m) Revenue 3,186.7 2,848.8 Cost of sales (2,087.3) (1,855.0) ———— ———— Gross profit 1,099.4 993.8 Selling and distribution costs (649.1) (596.3) Administrative expenses (141.8) (126.6) Other operating income 11.4 7.1 ———— ———— Adjusted operating profit(1) 319.9 278.0 Exceptional items – 11.6 ———— ———— Operating profit 319.9 289.6 Finance income 3.7 1.9 Finance costs (62.2) (59.6) ———— ———— Profit before tax 261.4 231.9 Tax impact of exceptional items – 1.2 Exceptional tax credit 4.2 – Adjusted tax charge (80.3) (66.1) ———— ———— Profit for the year ————185.3 ———— 167.0 Adjusted operating margin(1) ————10.0% ———— 9.8% Note: (1) For a discussion of the adjustments made, see “Important Information – Non-GAAP financial measures”.
96 Revenue The Group’s revenue increased by £337.9 million from £2,848.8 million in 2006 to £3,186.7 million in 2007. This represented an increase in revenue of 11.9 per cent. comprising 8.1 per cent. from like-for-like sales, with network expansion accounting for the remaining 3.8 per cent.
Merchanting Merchanting revenue grew by 12.7 per cent. with revenue from new branch openings contributing 3.5 per cent. and increased like-for-like sales contributing 9.2 per cent. This comprised 5.8 per cent. of price inflation and a 3.4 per cent. growth in volume.
Merchanting continued its customer segmentation work through the implementation of a series of targeted marketing initiatives, which the Board believes succeeded in increasing revenue amongst existing customers and converting an increased proportion of prospective customers. This, combined with operational improvements in product range, stock availability and customer service levels, enabled the segment to increase like-for-like sales.
Retail Like-for-like sales for the full year of Wickes’ core products was up by 7.5 per cent. in 2007 over 2006 and on the same basis showroom sales fell by 4.6 per cent., reflecting weakness in consumers’ willingness to purchase higher price products. Overall like-for-like sales in Wickes were up 5.5 per cent. with 3.8 per cent. price inflation and a 1.7 per cent. volume increase. Network expansion, which had been increased compared to 2006, added 4.3 per cent. to Wickes’ revenue which in total increased by 9.8 per cent.
The Retail business, in addition to growing revenue, increased its total market share. These gains were mainly attributable to a continued programme of range enhancements, new store sales initiatives and improved store standards. In addition, Wickes launched its transactional website in July 2006. By 31 December 2007, the website was regularly amongst the top 15 branches for weekly revenue.
Cost of sales The Group’s cost of sales increased by £232.3 million, or 12.5 per cent., from £1,855.0 million in 2006 to £2,087.3 million in 2007 broadly in line with the total revenue increase for the year.
Gross profit The Group’s gross profit increased by £105.6 million, or 10.6 per cent., from £993.8 million in 2006 to £1,099.4 million in 2007.
Gross margins in both segments continued to benefit from work to rationalise the supplier base, increase global sourcing volumes and complete the few remaining projects from the synergy programme arising out of the Wickes acquisition but these gains were offset by downward price pressure from competitors. Because the Group’s sales volumes of those products subject to price pressure grew in line with or above market trend, overall gross margins decreased slightly in both segments.
Selling and distribution costs The Group’s selling and distribution costs increased by £52.8 million, or 8.9 per cent., from £596.3 million in 2006 to £649.1 million in 2007. This movement consisted primarily of an increase in selling and distribution wages of £32.1 million and rent and rates increases of £19.2 million, in each case due to the full year impact of 2006 and part year impact of branch expansion in 2007.
Administrative expenses The Group’s administrative expenses increased by £15.2 million, or 12.0 per cent., from £126.6 million in 2006 to £141.8 million in 2007. This movement consisted primarily of an increase in IT costs of £7.2 million following the introduction of two new data centres in Northampton to run both Merchanting and Retail systems and provide internal disaster recovery capacity, and £4.1 million relating to increased marketing activity.
97 Other operating income The Group’s other operating income increased by £4.3 million, or 60.6 per cent., from £7.1 million in 2006 to £11.4 million in 2007. This increase primarily related to an increase in rental income from external tenants of £2.8 million and an increase in the profit on the sale of properties of £1.5 million.
Adjusted operating profit and adjusted operating margin Adjusted operating profit increased by £41.9 million from £278.0 million in 2006 to £319.9 million in 2007, an increase of 15.1 per cent.
The Group’s adjusted operating margin increased by 0.2 percentage points to 10.0 per cent. in 2007 from 9.8 per cent. in 2006.
Merchanting Adjusted operating margin in Merchanting was up by 0.2 percentage points to 11.4 per cent. for 2007, with a strong performance from General Merchanting; adjusted operating margin for Specialist Merchanting was lower in 2007 than in 2006, reflecting more competitive conditions in the dry lining and insulation market following consolidation in the sector over the preceding two years.
Retail Retail adjusted operating margin increased by 0.3 percentage points to 6.7 per cent. for 2007, driven mainly by spreading central Group costs across higher revenue, following the volume gains from like-for-like sales growth and branch expansion.
Exceptional items During 2006, the Group made an exceptional property profit of £11.6 million on the sale of long leasehold interests in 35 properties to an investment vehicle, in which the Group retained a 15 per cent. interest.
Operating profit The Group’s operating profit increased by £30.3 million, or 10.5 per cent., from £289.6 million in 2006 to £319.9 million in 2007.
Finance income and costs Higher debt levels, which resulted from a significant increase of £142 million in net capital expenditure primarily for branch expansion through acquisitions and brownfield openings, and a £76 million Employee Share Ownership Trust share acquisition programme, combined with higher interest rates, resulted in an increase in total net interest expense (before other finance income in respect of the pension scheme of £3.3 million (2006: cost £0.4 million)) up to £62.1 million (2006: £58.2 million).
Profit before tax Profit before tax increased £29.5 million from £231.9 million in 2006 to £261.4 million in 2007, an increase of 12.7 per cent.
Tax The Group’s taxation charge increased by £11.2 million, or 17.3 per cent., from £64.9 million in 2006 to £76.1 million (after including a deferred tax credit of £4.2 million) in 2007 due to increased profit. The adjusted tax charge (before a £4.2 million deferred tax credit arising from the reduced UK standard rate of corporation tax from 30 per cent. to 28 per cent. with effect from 1 April 2008) was £80.3 million (effective rate: 30.7 per cent.) compared with £66.1 million (effective rate: 28.0 per cent.) in 2006. The rate was higher for 2007 than the UK corporation tax rate of 30 per cent. principally because of non-qualifying property expenditure and other items which are not allowable for tax.
98 Profit for the year The Group’s retained profit for the year increased by £18.3 million, or 11.0 per cent., from £167.0 million in 2006 to £185.3 million in 2007.
Cash Flows, Liquidity and Capital Resources PRA1 10.1 PRA1 10.2 Cash flows PRA1 10.3 The table presented below shows information extracted from the audited Group cash flow statements for the PRA3 3.2 years ended 31 December 2008, 2007 and 2006: Year ended 31 December 2008 2007 2006 (£m) Adjusted operating profit(1) 271.5 319.9 289.6 Depreciation and impairment of property, plant and equipment 63.0 56.3 53.7 Other non cash movements 4.6 3.7 3.8 Losses of associate 1.4 – – Gain on disposal of property, plant and equipment and investment (6.0) (7.6) (17.1) Net decrease/(increase) in inventories, receivables and payables 23.1 (58.8) 14.3 Cash payments on exceptional items (8.5) – – Cash payments to the pension scheme in excess of the charge to profits (11.5) (9.6) (21.0) Interest paid (63.0) (72.7) (59.8) Income taxes paid (66.0) (74.5) (57.3) ———— ———— ———— Net cash from operating activities 208.6 156.7 206.2 ———— ———— ———— Cash flows from investing activities Interest received 0.3 0.2 0.8 Purchases of property, plant and equipment (97.3) (123.7) (50.4) Acquisitions of shares in unit trust (0.3) – (2.0) Acquisition of businesses net of cash acquired (22.5) (47.2) (10.9) Interest in associate (20.7) – – Proceeds on disposal of property, plant and equipment and investments 14.9 4.8 38.9 ———— ———— ———— Net cash used in investing activities (125.6) (165.9) (23.6) ———— ———— ———— Financing activities Proceeds from the issue of share capital 0.6 6.8 6.9 Purchase of own shares – (76.0) – Payment of finance lease obligations (2.1) (1.9) (2.8) Repayment of unsecured loan notes (11.5) (0.2) (0.3) (Decrease)/increase in bank loans (33.7) 98.6 (143.7) Dividends paid (52.5) (48.1) (42.5) Bank facility finance charges paid (14.7) – – ———— ———— ———— Net cash from financing activities (113.9) (20.8) (182.4) ———— ———— ———— (Decrease)/increase in cash and cash equivalents ————(30.9) ———— (30.0) ———— 0.2 Net debt at 1 January (941.0) (804.4) (982.4) (Decrease)/increase in cash and cash equivalents (30.9) (30.0) 0.2 ———— ———— ———— Cash flows from debt 47.3 (96.5) 146.8 (Increase)/decrease in fair value of debt (108.2) (2.3) 31.6 Additional finance charges netted off bank debt 12.5 (1.7) (0.6) Finance lease surrendered 2.9 1.6 – Loan notes issued – (7.7) – ———— ———— ———— Net debt at 31 December (1,017.4) (941.0) (804.4)
Note: ———— ———— ———— (1) For a discussion of the adjustments made, see “Important Information – Non-GAAP financial measures”.
99 Net cash from operating activities Depreciation rose by £2.6 million during 2007 to £56.3 million and by £6.7 million to £63.0 million in 2008 primarily as a result of increased capital expenditure levels and further branch expansion.
Working capital management is a priority across the Group. The Group reduced working capital by £23 million as at 31 December 2008 compared with 31 December 2007 and the total working capital to revenue ratio at the end of 2008 was 4.2 per cent. compared to 5.3 per cent. at the end of 2007. Supply chain projects delivered approximately £34 million of cash savings in 2008 from stock reductions, whilst at the same time improving product availability. The work already completed on working capital management has reduced working capital into 2009, which is expected to further improve by £20 million as more projects complete.
In 2007, £28 million of weekly supplier payments were made on the 53rd Monday of the year which reduced year end creditors and therefore increased the outflow in working capital for the year. In addition, working capital was impacted by higher levels of trade and rebate debtors.
In 2008, the Group made payments of £8.5 million in respect of exceptional redundancy and reorganisation charges.
Under an agreement with the Trustees of the Group’s defined benefits pension scheme, the Group is required to make payments over and above those charged to the profit and loss account in order to reduce the scheme deficit. The current arrangement commenced in 2006 and covers an eight-year period. The payments for 2008 and 2007 are lower than for 2006 because in 2006, additional payments were made to equalise funding levels prior to the Wickes defined benefits pension scheme being merged with the Travis Perkins defined benefits pension scheme. For a discussion of the status of the formal actuarial valuation of the Scheme as at 30 September 2008, which is still ongoing, see the paragraph entitled “An unexpectedly high increase in contributions to the Group’s pension scheme could materially reduce the availability of cash to the Group” set out in “Risk Factors” of this document.
As a result of the turbulence in credit markets increasing LIBOR rates during 2007, the Group repaid and drew-down its bank debt weekly and, therefore, paid interest on a weekly rather than six-monthly basis for most of the second half of 2007. This change meant the Group paid 16 months of interest arising from its UK syndicated credit facility during the year (charges from August 2006 to December 2007). As a result, when combined with the effect of higher debt and higher interest rates, interest payments of £72.5 million were £13.5 million higher in 2007 than in 2006. In 2008, the Group paid interest on its borrowings either weekly or monthly for the entire year, which when coupled with falling interest rates towards the end of 2008, resulted in interest payments being £9.8 million lower than for 2007 at £62.7 million.
Taxes paid reflect the level of profits for each year. Tax payments were £66.0 million, £74.5 million and £57.3 million in 2008, 2007 and 2006, respectively. The corporation tax rate was reduced by 2 per cent. from 1 April 2008 to 28 per cent. This reduced the 2008 effective rate by 1.5 per cent. and resulted in an exceptional deferred tax credit in 2007.
Net cash used in investing activities In 2008, a decision was made to halt almost all network expansion and withdraw from acquisition opportunities in order to reduce debt. In addition, all but the most essential capital projects were eliminated and the replacement cycles for all classes of asset were lengthened. This reduced capital and acquisition expenditure in the year to £120.1 million.
The Group achieved strong results in 2007 and increased capital expenditure significantly to grow the Group’s brands through an acceleration of its branch expansion programme. The cash generated by the Group was used to fund replacement capital expenditure of £41.5 million (2006: £20.8 million), expansion capital expenditure of £82.2 million (2006: £31.6 million) in the existing business and in part on new acquisitions, which in total cost £47.2 million (2006: £10.9 million) plus loan notes issued to the value of £8 million.
In April 2008, the Group acquired a 30 per cent. equity interest in ToolStation from its founding shareholders for £5 million. Since then the Group has provided an initial loan of £7 million to allow ToolStation to repay its outstanding early stage loan capital and a further £9 million of funds to support its expansion programme.
100 Proceeds from the disposal of primarily property assets were £14.9 million, £4.8 million and £38.9 million in 2008, 2007 and 2006, respectively. The value of proceeds principally reflects the levels of property management activity each year.
Net cash from financing activities Proceeds from the issue of share capital represent amounts received from employees of the Group when they exercised share options and purchased Shares. In 2007, the Group loaned £76 million to its Employee Share Ownership Trust to purchase shares to satisfy outstanding share scheme awards.
Dividends paid reflect the implementation of the Group’s historic strategy of progressively increasing dividends so dividend cover (earnings per share divided by dividend per share) falls in the range 2.5 times to 3.5 times See “Dividend policy” in Part IV (“Information on Travis Perkins”) of this document for details of the Group’s change in dividend policy during the economic downturn.
Dividends paid were £52.5 million, £48.1 million and £42.5 million in 2008, 2007 and 2006 respectively. The increase in dividend paid in 2008 compared to 2007 reflects the increase of 20 per cent. in the 2007 final dividend compared to 2006. The increase in dividend paid in 2007 compared to 2006 reflects a reduction in the shares qualifying for dividend following the share acquisitions by the Group’s Employee Share Ownership Trust, the increase of 10 per cent. in the 2006 final dividend compared to 2005 and the 19.8 per cent. increase in the 2007 interim dividend compared to 2006.
In April 2008, the Group replaced its existing syndicated credit facility with a new committed five-year syndicated credit facility. In securing the new syndicated credit facility the Group had to pay £14.7 million in facility arrangement fees to the lending banks.
Net debt In the year ended 31 December 2008 there was a significant increase in the fair value of the Group’s debt due to the depreciation of sterling against the US dollar. IFRS requires the fair values of the cross-currency derivatives taken out to hedge the Group’s US PP Notes to be added to or deducted from the Group’s borrowings in arriving at its net debt. Exchange rate movements affect the fair values and so net debt will increase or decrease each year, depending upon the markets expectations for the sterling US dollar exchange rate over the life of the derivatives.
The facility arrangement fees referred to under “Net Cash from Financing Activities” are being amortised through finance charges over the period the syndicated credit facility is available ending in April 2013. In accordance with IFRS the unamortised element of the fees is deducted from borrowings when determining the Group’s net debt position.
As a result of the property disposals referred to above, finance lease obligations of £2.9 million and £1.6 million in 2008 and 2007, respectively, were cancelled with a resultant reduction in net debt.
In 2007, £7.7 million of the consideration for the acquisition of Tile Giant was deferred through the issue of loan notes. The notes were redeemed in 2008.
Debt before the effect of exchange differences on the US PP Notes has decreased by £45 million over the three years ended 31 December 2008. Over that period, the group generated £573 million of cash from operations, which provided the funding for £316 million of net capital and investment expenditure and £143 million of dividends to shareholders.
Capital expenditure As at 31 December 2008, the Group had capital commitments totalling £1.7 million, primarily in respect of the opening of one new and the relocation of an existing Wickes branch and for purchases of cars and forklifts within Merchanting. These expenditures are expected to be financed from operating cash flows. As at 31 December 2008, total capital expenditure for 2009 was targeted at £37 million.
101 Debt Liquidity Management
Facilities The Group’s principal sources of liquidity are the finance facilities detailed below. However, the net cash inflows from its operating activities are also an important source of liquidity.
Liquidity headroom was increased during 2008 through a refinancing of the Group’s UK bank debt, which secured a new committed £1 billion five-year syndicated credit facility in April 2008, a portion of which was used to fully pay down the outstanding balance on the Group’s pre-existing bank debt. Of the £1 billion:
• £525 million is represented by a fully drawn amortising term loan, which is due to be repaid in six CESR 36 £35 million tranches each half year, commencing April 2010, with the balance falling due in April 2013; and
• £475 million is a revolving credit facility, which can be drawn down as required and is available until April 2013.
In addition, at 31 December 2008 the Group had:
• US$400 million of fixed rate guaranteed unsecured notes in issue (the US PP Notes), of which US$200 million are due for repayment in January 2013 and US$200 million in January 2016. At inception, the fixed interest rate net proceeds were swapped into sterling six-month LIBOR determined variable rate debt. At 31 December 2008, there were 19 companies holding these US PP Notes, of which the largest held 21 per cent. by value; and
• access to a £50 million uncommitted overdraft facility, although because it was no longer being fully utilised it has been subsequently reduced to £40 million.
As at 31 March 2009, £305 million was undrawn on the revolving credit facility. CESR 36
There has been no material change in the Group’s liquidity position since 31 March 2009.
Net debt Set out in the table below is the net debt of the Group at 31 March 2009 and 31 December 2008, 2007 and 2006, respectively.
At At At At 31 March 31 December Movement 31 December Movement 31 December CESR 36 2009 2008 in 2008 2007 in 2007 2006 Net debt (984.6) (1,017.4) (76.4) (941.0) (136.6) (804.4) Exchange loss/(gain) included in net debt(1) 82.7 80.2 108.0 (27.8) 2.5 (30.3) ———— ———— ———— ———— ———— ———— Net debt before exchange movements———— (901.9) ———— (937.2) ———— 31.6 ———— (968.8) ———— (134.1) ———— (834.7) Note: (1) Reflecting exchange gains on the US dollar denominated US PP Notes. The US PP Notes are fully hedged against exchange rate movements and so by the dates they are due for payment in 2013 or 2016, the exchange effects are expected to have fully reversed. As at 31 March 2009, the Group had a net debt of £984.6 million.
As at 31 December 2008, the Group had net debt of £1,017 million (2007: £941 million). However, if exchange gains and losses caused by movements in sterling: US dollar exchange rates are eliminated, net debt reduced by £32 million during 2008.
Similarly at 31 December 2007, the Group had net debt of £941 million (2006: £804 million). If exchange gains and losses caused by movements in sterling: US dollar exchange rates are eliminated, net debt increased by £134 million during 2007.
102 Gearing (net debt before exchange rate effects divided by shareholders equity) was 92 per cent., 93 per cent. and 89 per cent. at 31 December 2008, 2007 and 2006, respectively.
Following significant reductions in the share price, the ratio of the Group’s adjusted net debt to market capitalisation rose from 0.34 times at 31 December 2006 to 0.65 times at 31 December 2007 and to 2.2 times at 31 December 2008.
The Group’s borrowing levels are impacted by the timing of receipts and payments during the month together with other factors such as quarterly rental payments, quarterly payments of corporation tax and VAT, and dividends.
The peak level of daily borrowings on a cleared basis during the year ended 31 December 2008 was £1,112 million (2007: £1,022 million). The maximum month end cleared borrowings were £1,043 million (2007: £984 million).
For a discussion of cash generation from working capital and expected reductions in net debt, see Part IV (“Information on Travis Perkins – Current Operational Priorities”) of this document.
Banking Covenants The Group’s borrowings are subject to covenants set by the lenders. Covenant compliance is measured semi- annually using financial results prepared under IFRS existing at 31 December 2007. For summaries of these agreements, see paragraphs 16.2 and 16.3 of Part IX (“Additional Information”) of this document.
The key financial covenants are the ratio of consolidated total net borrowings (adjusted net debt) to consolidated earnings before interest tax, depreciation and amortisation (“EBITDA”) (each as defined in those covenants) which must not exceed 3.5:1, and the ratio of consolidated earnings before interest, tax and amortisation (“EBITA”) to consolidated net interest (“interest cover”) (each as defined in those covenants) which must not be less than 3.5:1. At 31 December 2008, the Group achieved an adjusted net debt to EBITDA ratio of 2.8:1 and an interest cover ratio of 4.3:1.
In addition to these financial covenants, the Group’s financing agreements include general covenants and potential events of default. At 31 December 2008, there had been no breaches of the financial covenants and the Group had complied in all other respects with the terms of its financing agreements.
Interest Rate Derivatives The Group’s hedging policy is to generate its preferred interest rate profile, and so manage its exposure to interest rate fluctuations, through the use of interest rate derivatives. Currently, the policy is to use interest rate derivatives to fix rates on at least 33 per cent. of anticipated external net cleared debt (the sum of indebtedness under the Group’s syndicated credit facility, the US PP Notes and its bank balances) and the remainder at variable rates.
The Group has entered into a number of interest rate derivatives designed to protect it from fluctuating interest on its borrowings. At 31 December 2008, the Group had nine interest rate derivatives fixing interest rates on approximately 70 per cent. of the Group’s anticipated external net cleared debt.
As part of the Group’s ongoing interest rate management policy, it terminated eight of its nine existing interest rate derivatives (hedging Sterling debt) during the first week of May 2009, which had a notional value of £578 million (with a range of maturities between 2010 and 2013), at a cost of £29 million, and entered into eight new derivative contracts commencing on 11 May 2009 for a two-year period with an initial notional value of £600 million. The Board believes this will reduce interest charges (with the effective interest rate on £600 million of debt reducing from approximately six per cent. to approximately three per cent.) included in the calculation of the Interest Cover Covenant by approximately £11 million in 2009, providing significantly increased headroom. With these derivatives in place, the Group’s average anticipated interest rate on its indebtedness in 2009 will be approximately 4.5 per cent. £23 million of the cost of terminating the derivatives will be capitalised and charged as a financing cost over the remaining life of the terminated derivatives had they not been
103 terminated. Of the remaining £6 million of the cost of terminating the derivatives, £5 million will be charged to provisions already established in the balance sheet at 31 December 2008 with the remaining £1 million charged to profit in 2009. Immediately following entrance of these eight new interest rate derivatives in the first week of May 2009, the maturity of the Group’s nine interest rate derivatives was as follows: Maturity Notional Value Vanilla amortising interest rate swaps May 2011 £500 million Vanilla interest rate swaps May 2011 £100 million Cancellable swaps October 2013 £50 million
For a discussion of the Group’s interest rate risk sensitivity, see “Quantitative and Qualitative Disclosures About Market Risk” below.
Currency Management Having taken out five cross-currency swaps to protect it from exchange rate fluctuations, in respect of its US PP Notes, the Group is not directly exposed to significant foreign exchange risk in relation to its debt. The counterparty banks with whom the Group contracts for these cross-currency swaps have the right to terminate those contracts on 26 January 2011.
Whilst the majority of purchases of goods and services are invoiced in sterling, goods acquired from overseas either directly from manufacturers or through UK based distributors continue to increase. Overseas originated purchases currently approximate to 40 per cent. of Group purchases and so adverse movements in sterling, could, to the extent they cannot be passed on to customers, affect profitability.
The Group settles its foreign currency denominated trading obligations using a combination of currency purchased at spot rates and currency bought in advance on forward contracts. Its policy is to purchase forward contracts for between 30 per cent. and 70 per cent. of its anticipated requirements 12 months forward. At 31 December 2008, the nominal value of currency contracts, most of which were US dollar denominated, was US$46 million and €2 million.
Shareholders’ Equity Total equity at 31 December 2008 was £1,018.2 million. The decrease of £18.7 million compared to 31 December 2007 was the result of lower retained profits for the year as well as actuarial losses in the pension scheme and losses incurred on cash flow hedges as a result of interest rate movements. The Group’s adjusted return on capital in 2008 was 12.9 per cent. (2007: 15.9 per cent.), which was higher than the Group’s weighted average cost of capital. At 31 December 2008, the market capitalisation of the Group was £417.2 million representing 0.4 times shareholders’ funds.
Total equity at 31 December 2007 was £1,036.9 million, an increase of £103.8 million from 31 December 2006. The principal reasons for the increase were an increase in retained profits of £137 million and actuarial gains in the pension scheme of £36 million offset by a £76 million charge to equity in respect of own shares acquired (as described below). The Group’s adjusted return on capital in 2007 was 16.2 per cent. (2006: 14.6 per cent.). At 31 December 2007, the market capitalisation of the Group was £1,500 million representing 1.4 times shareholders’ funds.
During 2007, through its Employee Share Ownership Trust, the Group acquired 5.2 million Shares in the Company at an average cost of £14.56 per Share. The Shares were acquired for future settlement of share scheme awards.
Off Balance Sheet Arrangements
Operating leases PRA1 8.1 As at 31 December 2008, the Group was committed to paying £126 million in respect of operating leases of which 98 per cent. related to rent due on approximately 900 property leases. Further disclosure of the
104 Group’s operating lease arrangements is set out in note 30 to the consolidated financial statements of Travis Perkins included in the Annual Report and Accounts of Travis Perkins for the year ended 31 December 2008 and incorporated by reference into this document, as set out in Part X (“Documentation Incorporated by Reference”) to this document.
Other As at 31 December 2008, the Group had a 15 per cent. interest in an investment vehicle arising from its sale to the vehicle in 2006 of long leasehold interests in 35 properties. Those 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 was recorded as an exceptional item in the Group’s 2006 income statement.
Contractual Obligations As at 31 December 2008, the Group had the following contractual obligations and commitments: 0-1 Year 1-2 Years 2-5 Years 5+ Years Total (£m) Derivatives(1) 29.8 0.9 (30.8) (30.3) (30.4) Borrowings(2) 16.2 70.0 770.7 155.7 1,012.6 Finance leases 3.1 3.1 7.8 28.7 42.7 ———— ———— ———— ———— ———— Total balance sheet commitments 49.1 74.0 747.7 154.1 1,024.9 Capital commitments 1.7–––1.7 Operating leases 125.7 125.7 345.7 1,078.1 1,675.2 ———— ———— ———— ———— ———— Total contractual obligations(3) ————176.5 ———— 199.7 ———— 1,093.4 ———— 1,232.2 ———— 2,701.8 Note: (1) Comprises the fair value of interest rate swaps, cross-currency swaps, and foreign exchange hedging instruments. The future cash outflows described above may vary based on changes in exchange rate or interest rates. For a discussion of recent changes to the Group’s interest rate derivatives, see Part V (“Operational and Financial Review of Travis Perkins – Interest Rate Derivatives” LRA1.10.1 of this document. (2) The borrowings in the table do not include any liabilities related to accrued interest or interest which will be payable in future financial periods. The outstanding borrowings under the Group’s £475 million revolving credit facility are subject to ordinary course fluctuations. As at 31 December 2008, the £1,012.6 million of total borrowings included £160 million drawn under the revolving credit facility. As at 31 March 2009, the amount drawn under the revolving credit facility was £170 million. (3) The contractual obligations table does not include outstanding invoices/purchase orders for products or services entered into in the normal course of business. Except as disclosed above, there were no material changes to the Group’s contractual obligations as at 31 March 2009.
Critical Judgements and Key Sources of Estimation and Uncertainty The preparation of financial statements requires the Board to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgement based on various assumptions and other factors such as historical experience and current and expected economic conditions. The Board constantly re- evaluates these significant factors and makes adjustments where facts and circumstances dictate. The Board believes that the following accounting policies are critical due to the degree of estimation required and/or the potential material impact they may have on the Group’s financial position and performance:
Inventory valuation Inventories are stated at the lower of cost and net realisable value. Provisions for excess or obsolete inventory are recorded based upon assumptions about future demand and market conditions.
The level of inventory provisioning requires management judgement and is sensitive to changes in the forecast sales of particular products which is dependent on changes in conditions in the Group’s markets. If
105 changes in actual market conditions are less favourable than those projected, additional inventory provisions may be required; similarly if changes in actual market conditions are more favourable than predicted, it may be possible to release a proportion of the inventory provision.
Debtor recoverability The Group provides credit to a significant number of its customers. At each period end an assessment is made of the extent to which those customers may not pay amounts due to the Group and a doubtful debt provision is established accordingly. Determining the likelihood of the Group incurring bad debts requires the Board to exercise judgement. To the extent this judgement ultimately proved to be inaccurate it would change the profit for the period.
Provisions for returns and warranty claims The products sold by the Group are covered by warranties given to it by the suppliers from whom the goods are bought. Should any of those suppliers cease to trade, then any liabilities for product warranties would rest with the Group. In such circumstances the Board would have to estimate the value of any provision required to meet the obligations of the Group. At 31 December 2008, the Board estimated that there was no need for any material warranty and product guarantee provisions to be made. While the Board believes that the Group’s warranty provisions at 31 December 2008 were adequate and that the judgements applied were appropriate, the ultimate cost of product warranty could differ materially from the estimates.
Income taxes The Group is subject to the income tax laws of the United Kingdom. These laws are complex and subject to different interpretations by taxpayers and tax authorities. When establishing income tax provisions, the Board makes a number of judgements and interpretations about the application and interaction of these laws. Changes in these tax laws or in their interpretation could impact the Group’s effective tax rate and the results of operations in a given period.
The process of estimating the Group’s tax position requires an assessment of temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in the recognition of deferred tax assets and liabilities. Deferred tax assets are included within the consolidated balance sheet to the extent that it is believed they are recoverable.
In recognising deferred tax assets, the Group considers profit forecasts, including the effect of exchange rate fluctuations on sales and external market conditions.
The Board’s judgement is required in determining the provision for income taxes, deferred tax assets and liabilities. Deferred tax assets have been recognised where the Board believes there are sufficient taxable temporary differences or convincing other evidence that sufficient taxable profit will be available in future to realise deferred tax assets. Although the deferred tax assets which have been recognised are considered realisable, actual amounts could be reduced if future taxable income is lower than expected. This could materially affect the Group’s reported net income and financial position.
Goodwill In testing for impairment, the Board made certain assumptions concerning the future development of the business that are consistent with its annual budget and three-year plan. Whilst the Board considers those assumptions are realistic, should those assumptions regarding the growth in profitability be unfounded, then it is possible that goodwill included in the balance sheet could be impaired.
Pension liabilities The Group has chosen to adopt assumptions that the Board believes are in line with the median for UK companies. 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 that stated in the balance sheet at 31 December 2008.
106 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.
The Board believes that its estimates at 31 December 2008, which were based upon the state of the UK property market at that time, were appropriate. However, it is possible that it may take longer to dispose of leases than it anticipated. As a result, the provisions may be understated but, in the opinion of the Board, this is unlikely to be material.
Insurance provisions The Group has had high insurance deductibles on its insurance policies since 2001. The nature of insurance claims is that they frequently take many years to fully crystallise, therefore the Board has to estimate the value of provisions to hold in the balance sheet in respect of both known claims and those which may be received in future. Under the guidance of the Group’s insurance advisers, the value of 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 have been under-provided at 31 December 2008.
Quantitative and Qualitative Disclosures About Market Risk
Financial risk management 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 liquidity risk, interest rate risk, foreign exchange risk, credit risk, capital risk and tax 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 and does not enter into speculative transactions.
Treasury activities, which fall under the day-to-day responsibility of the Finance Director, are managed centrally under a framework of policies and procedures approved and monitored by the Board. The policies in respect of interest and currency hedging, the investment of surplus funds and the quality and acceptability of financial counterparties were reviewed and re-approved by the Board during 2008.
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.
The Board receives monthly reports on cash flows, debt levels and covenant compliance with comparisons to budgets and forecasts. In addition, all derivative-related activity is reported to the Board at the next Board meeting. In addition the Board receives regular reports on specific areas of risk. As part of these risk reviews papers are presented on areas such as budgeting and planning, debt strategy (including derivative policy) and banking relations and working capital control.
Liquidity
Liquidity risk The Group’s policy on liquidity risk is to ensure that sufficient cash is available to fund ongoing operations. The Board manages exposure to liquidity risk by maintaining adequate facilities to meet the future needs of the business. Those needs are determined by continuously monitoring forecast and actual cash flows taking into account the maturity of financial assets and liabilities included in the balance sheet.
107 The Group’s principal borrowing facilities are provided by a group of core relationship banks through the syndicated credit facility and by US institutions through the US PP Notes. The quantum of committed borrowing facilities available to the Group is reviewed regularly and is designed to comfortably exceed forecast peak gross debt levels.
Liquidity management The Group’s treasury team is responsible for monitoring the Group’s short and medium-term liquidity requirements using a combination of annual budgets which have been analysed on a daily basis using historic trends, quarterly trading and cash flow re-forecasts and short-term forecasts adjusted for actual events as they occur. They are then charged with drawing down sufficient funds to meet those needs whilst minimising borrowing costs and reducing the incidences of investing surplus funds.
Medium-term borrowing and hedging requirements (up to five years) are determined from the Group’s annual budget and three-year plan. These, which are prepared to show monthly trading, cash flows and debt requirements for the entire period, are updated and approved by the Board each year.
To ensure the Board continues to take pre-emptive action, the Group re-forecasts profits and cash flows on a quarterly basis.
In April 2008, the Group secured a new committed £1 billion five-year syndicated credit facility comprising a £525 million term facility (which is fully drawn) and a £475 million revolving credit facility (of which £305 million was undrawn as at 31 March 2009).
In early 2006, the Group issued the US$400 million fixed-rate guaranteed unsecured US PP Notes to a broad range of US financial institutions. The debt comprises US$200 million of US PP Notes repayable in 2013 and the remainder in 2016.
Interest rate risk sensitivity The Group regularly monitors its interest rate risk by reviewing the effect on profit before taxation and net equity of a rise or decrease of one percentage point in the Group’s interest rates for both derivatives and non- derivative financial instruments at the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the balance sheet date was outstanding for the whole year. If interest rates had been one percentage point higher/lower and all other variables were held constant, the Group’s:
• profit before taxation for the year ended 31 December 2008 would have decreased/increased by £7 million, including £4 million of movement on interest rate swaps with options. For the year ended 31 December 2007, the decrease/increase would have been £5 million with no material effect from movement on interest rate swaps; and
• net equity for the year ended 31 December 2008 would have decreased/increased by £11 million mainly as a result of the changes in the fair value of interest rate derivatives. For the year ended 31 December 2007, the decrease/increase would have been £2 million.
Credit risk
Financing Credit risk refers to the risk that a counterparty will default on its contracted obligations resulting in loss to the Group. It arises on financial instruments such as trade receivables, short-term bank deposits, banking facilities, interest rate derivatives and foreign currency hedging transactions.
To reduce the risk of loss arising from counterparty default, the Group has a policy of dealing with credit- worthy counterparties.
The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics (other than banks providing banking facilities, interest rate
108 derivatives and cross-currency swaps). The Group defines counterparties as having similar characteristics if they are connected entities. The credit risk in liquid funds and derivative financial instruments is limited because the counterparties used are banks with high credit-ratings assigned by international credit-rating agencies.
As at 31 December 2008, the Group had open currency hedging contracts with four banks, open interest rate derivative contracts with six banks and had 16 banks within its banking syndicate. The Group has entered into only one currency hedging contract and no swaps with a counterparty that is not a current member of its banking syndicate. On 18 February 2009, the latest practicable date before the Group’s preliminary results for the year ended 31 December 2008 were published, the Group’s banking counterparties had ratings of:
Notional Notional Proportion of Value of Value of Number of UK Bank Interest Rate Cross-Currency Rating Banks Facility Derivatives Swaps (No.) (£m) (£m) (£m) AA+ to AA– 9 528 337 150 A+ to A– 8 472 218 250
Customer credit Within Merchanting, one of the key aspects of service is the provision of credit to customers, with the Group carrying the associated credit risk. The Group has policies and procedures to ensure that customers have an appropriate credit history and that account customers are given credit limits appropriate to their circumstances, which are regularly monitored. In the current economic climate, this has become an area of even greater focus than normal as the Group seeks to minimise bad debt levels whilst limiting the impact on revenue of a tighter credit control policy.
Merchanting receivables consist of a large number of customers, none of which represents more than 0.5 per cent. of Merchanting revenue, spread across diverse industries and geographical areas. However, the nature of the industry is such that there is a risk that some of these customers will be unable to pay outstanding balances.
Ongoing evaluation of the financial condition of accounts receivable and reviews of the total credit exposure to all customers is performed monthly, using external credit risk services where necessary. Increased credit levels are approved by both operational and financial management with personal guarantees being obtained, where appropriate, before credit is advanced. Whilst day-to-day credit control is the responsibility of the centrally based teams, the Group also operates an in-house debt recovery team, headed by a qualified solicitor, that is responsible for recovering debt that remains unpaid. The Group does not have credit guarantee insurance.
During the recession of 1990/1991, the Group experienced bad debt levels of up to 1.36 per cent. of credit sales. Over the past 10 years, the bad debt charge has averaged below 0.5 per cent. However, during the latter part of 2008, the Group experienced an increasing level of bad debts, with the bad debt charge for the year reaching 0.9 per cent. of credit sales (compared to 0.4 per cent. for the year ended 31 December 2007). The Group’s bad debt level in the latter part of the second half of 2008 was 1.3 per cent. The Group’s bad debt charge increased by £8.9 million in the year ended 31 December 2008 over the year ended 31 December 2007. Debtor days at 31 December 2008 were 59 days (compared to 56 days at 31 December 2007). An increase in one debtor day at 31 December would have reduced cash flow by approximately £5 million.
Capital risk The Group manages its capital risk by ensuring it has a capital structure appropriate to the ongoing needs of the business that ensures it remains within the covenant limits that apply to its banking arrangements. The capital structure of the Group consists of debt, which includes the borrowings disclosed above under “Debt Liquidity Management”, cash and cash equivalents and equity attributable to equity holders of Travis Perkins, comprising issued capital, reserves and retained earnings.
109 The capital structure is formally reviewed by the Board as part of its annual strategy review, but it is kept under review by the Finance Director throughout the year. As necessary, the Board intends to rebalance its capital structure through raising or repaying debt, issuing equity or paying dividends.
Tax risk The Group seeks to efficiently manage its tax affairs whilst at the same time complying with the relevant laws and disclosure obligations placed upon it. However, the complexity of tax legislation means that there will always be an element of uncertainty when determining its tax liabilities.
To minimise compliance risk, the Group utilises qualified in-house expertise and takes external advice when making judgements about the amount of tax to be paid and the level of provisions required.
Future tax charges and payments could be affected by changes in legislation and accounting standards beyond the control of the Group.
Significant Accounting Policies For a discussion of the significant accounting policies of the Group, see note 2 to Travis Perkins’ audited consolidated financial statements included in its Annual Report and Accounts for the year ended 31 December 2008 and incorporated by reference into this document.
Capitalisation and Indebtedness The following table sets out the capitalisation of the Group and the indebtedness of the Group as at 31 March CESR 36 2009. None of the figures have been audited. PRA3 3.2
There has been no material change in the indebtedness of the Group since 31 March 2009, and no material change in the capitalisation of the Company since 31 March 2009.
Capitalisation £m Total current debt: Secured 0.3 Unsecured 5.1 ———— 5.4 ———— Total non-current debt (excluding current portion of long-term debt): Unsecured 1,019.9 ———— Total gross indebtedness 1,025.3 ———— Total shareholders’ equity: Issued share capital 12.3 Share premium 179.5 Cash flow hedging reserve (22.3) Retained earnings 904.5 Revaluation reserve 23.8 Own shares (83.7) ———— 1,014.1 ———— Total Capitalisation: ————2,039.4
110 Net Indebtedness £m Cash 40.7 ———— Liquidity: 40.7 ———— Unsecured loan notes(2) (3.9) Current portion of finance leases(3) (1.5) ———— Current financial debt: (5.4) ———— Net current financial indebtedness: 35.3 ———— Unsecured 5 year term loan(1) (513.0) Unsecured 5 year revolving credit facility – drawn balance(1) (170.0) Finance leases(3) (23.0) Unsecured senior notes (313.9) ———— Non-current financial indebtedness (1,019.9) ———— Net Financial indebtedness: ————(984.6) Guarantees and Indemnities Travis Perkins Trading Company Limited unsecured duty deferment issued by Nat West Bank to HM Revenue & Customs (TPTC have given a specific counter indemnity to Nat West Bank for £0.4 million) 0.4 Wickes Building Supplies unsecured duty deferment issued by Nat West Bank to HM Revenue & Customs 0.1 Local authority performance guarantee 0.1 ———— 0.6 Unsecured standby letters of credit issued by Nat West Bank to Insurers listed – Specific counter indemnity given to Nat West Bank by Travis Perkins plc Atico US$0.5 million 0.3 AXA Insurance 0.2 Mitsui Sumitomo Insurance 8.3 Royal and Sun Alliance Insurance 0.3 ———— 9.1 ———— ————9.7 Notes: (1) On 31 March 2009, the following Group companies were borrowers and guarantors under the UK £1 billion five-year syndicated credit facility and of the US PP Notes: Travis Perkins plc Original Borrower and Guarantor Travis Perkins Trading Company Limited Original Guarantor Travis Perkins (Properties) Limited Original Guarantor Keyline Builders’ Merchants Limited Original Guarantor CCF Limited Original Guarantor City Plumbing Supplies Holdings Limited Original Guarantor Wickes Limited Original Guarantor Wickes Building Supplies Limited Original Guarantor The term loan is shown net of £12m of unamortised arrangement fees.
111 (2) Guaranteed in an amount of £3.6 million by an unsecured loan note guarantee issued by HSBC, such loan note guarantee in turn being guaranteed by unsecured guarantees issued by the following members of the Group: Travis Perkins plc Travis Perkins Trading Company Limited Travis Perkins (Properties) Limited D W Archer Limited Travis Perkins (KGC 1994) Limited AML (Sales) Limited Connections (AML) Limited Travis Perkins Leasing Company Limited (3) A number of leases of fixtures and fittings with a value of £0.3 million are secured on the assets subject to the leases. In addition, £24.2 million of property leases have to be treated as capital under IAS 17, of which £1.2 million is shown as a current liability and £23 million is shown as a non-current liability.
112 PART VI PR 2.4 PR 2.4.5 PRA 1.3.1 PRA 1.3.2 FINANCIAL INFORMATION ON TRAVIS PERKINS PRA 1.20.1 PRA 1.20.4.1 The consolidated financial statements of Travis Perkins and its subsidiaries included in the Annual Report PRA 1.20.5.1 PRA 1.20.6.1 and Accounts of Travis Perkins for each of the years ended 31 December 2008, 2007 and 2006 together with PRA 3.10.1 the audit reports thereon are incorporated by reference into this document. Deloitte LLP of Four Brindley PRA 3.10.2 Place, Birmingham B1 2HZ, Chartered Accountants regulated by the ICAEW, has issued unqualified audit CESR 27-32 opinions on the consolidated financial statements of Travis Perkins and its subsidiaries included in the Annual Report and Accounts of Travis Perkins for each of the three years ended 31 December 2008, 2007 and 2006. The audit opinion for the year ended 31 December 2008 is set out on pages 64 and 65 of the Annual Report and Accounts 2008. The audit opinion for the year ended 31 December 2007 is set out on page 69 of the Annual Report and Accounts 2007. The audit opinion for the year ended 31 December 2006 is set out on page 62 of the Annual Report and Accounts 2006.
See Part X (“Documentation Incorporated by Reference”) of this document for further details about information that has been incorporated by reference into this document.
113 PART VII PRA 1.20.2 PRA 1.20.4.3 UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma statement of the consolidated net assets is compiled on the basis set out below. LRA 2.1 LRA 2.4 The unaudited pro forma statement of the consolidated net assets of the Group has been prepared for LRA 2.5 illustrative purposes only and, because of its nature, addresses a hypothetical situation and, therefore, does not represent the actual financial position of the Group or the Group’s results following the Rights Issue. It has been prepared to show the effects of the Rights Issue on the net assets of the Group as if this event had taken effect on 31 December 2008. No account has been taken of any results or other activity since 31 December 2008.
114 SECTION A
UNAUDITED PRO FORMA STATEMENT OF NET ASSETS PRA 1.20.2 PRA 1.20.4.3 Consolidated Net Assets of Proceeds LRA 2.2 the Group as at of the Pro forma LRA 2.3 31 December Rights Issue net assets LRA 2.6 2008 net of expenses post Rights Note 1 Note 2 Issue £(m) £(m) £(m) Non-current assets Property, plant and equipment 534.5 – 534.5 Goodwill 1,351.4 – 1,351.4 Other intangible assets 162.5 – 162.5 Derivative financial instruments 80.3 – 80.3 Interest in associate 19.6 – 19.6 Investment property 3.4 – 3.4 Available for sale investments 2.0 – 2.0 Deferred tax asset 19.5 – 19.5 ————— ————— ————— 2,173.2 – 2,173.2 ————— ————— ————— Current assets Inventories 321.9 – 321.9 Trade and other receivables 386.2 – 386.2 Derivative financial instruments 2.4 – 2.4 Cash and cash equivalents 7.7 300.4 308.1 ————— ————— ————— 718.2 300.4 1,018.6 ————— ————— ————— Current liabilities Interest bearing loans and borrowings 13.9 – 13.9 Unsecured loan notes 3.9 – 3.9 Trade and other payables 582.2 – 582.2 Tax liabilities 9.1 – 9.1 Short term provisions 38.6 – 38.6 ————— ————— ————— 647.7 – 647.7 ————— ————— ————— Non-current liabilities Interest bearing loans and borrowings 1,007.3 – 1,007.3 Derivative financial instruments 25.8 – 25.8 Retirement benefit obligation 69.9 – 69.9 Long term provisions 47.8 – 47.8 Deferred tax liabilities 74.7 – 74.7 ————— ————— ————— 1,225.5 – 1,225.5 ————— ————— ————— Net Assets —————1,018.2 ————— 300.4 ————— 1,318.6 Notes: (1) The financial information in respect of the Group has been extracted without material adjustment from the audited financial LRA 2.2 statements of the Company for the year ended 31 December 2008, which are incorporated by reference in this document. LRA 2.4 (2) The net proceeds of the Rights Issue are calculated on the basis that the Company issues 85,903,379 New Shares of 365 pence LRA 2.1 each net of estimated expenses in connection with the Rights Issue of approximately £13.1 million. The net proceeds of the LRA 2.3 Rights Issue will be used to create a more suitable capital structure and reduce net financial indebtedness. Accordingly, within the pro forma statement of net assets, the estimated net proceeds of £300.4 million have been applied against current assets – cash and cash equivalents (£7.7 million). (3) Save for the adjustment for the net proceeds of the Rights Issue as described in note (2) above, no adjustment has been made to reflect any trading or other transactions undertaken by the Group since 31 December 2008.
115 SECTION B
REPORT ON PRO FORMA FINANCIAL INFORMATION OF TRAVIS PERKINS Deloitte LLP Four Brindleyplace Birmingham B1 2HZ The Board of Directors on behalf of Travis Perkins plc Lodge Way House Harlestone Road Northampton NN5 7UG
HSBC Bank plc 29th Floor 8 Canada Square Canary Wharf London E14 5HQ
Citigroup Global Markets Limited Citigroup Centre Canada Square London E14 5LB 11 May 2009
Dear Sirs,
Travis Perkins plc (the “Company”) We report on the pro forma financial information (the “Pro forma financial information”) set out in Part VII of the prospectus dated 11 May 2009 (the “Prospectus”), which has been prepared on the basis described in notes 1 to 3 to the Pro Forma financial information, for illustrative purposes only, to provide information about how the proposed Rights Issue by the Company in relation to new ordinary shares of the Company might have affected the financial information presented on the basis of the accounting policies adopted by the Company in preparing the financial statements for the period ended 31 December 2008. This report is required by Annex I item 20.2 of Commission Regulation (EC) No 809/2004 (the “Prospectus Directive Regulation”) and is given for the purpose of complying with that requirement and for no other purpose.
Responsibilities It is the responsibility of the directors of the Company (the “Directors”) to prepare the Pro forma financial information in accordance with Annex I item 20.2 and Annex II items 1 to 6 of the Prospectus Directive Regulation.
116 It is our responsibility to form an opinion, in accordance with Annex I item 20.2 of the Prospectus Directive Regulation, as to the proper compilation of the Pro forma financial information and to report that opinion to you in accordance with Annex II item 7 of the Prospectus Directive Regulation. Save for any responsibility arising under Prospectus Rule 5.5.3R (2)(f) to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in accordance with this report or our statement, required by and given solely for the purposes of complying with Annex I item 23.1 of the Prospectus Directive Regulation, consenting to its inclusion in the prospectus. In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on any financial information used in the compilation of the Pro forma financial information, nor do we accept responsibility for such reports or opinions beyond that owed to those to whom those reports or opinions were addressed by us at the dates of their issue.
Basis of Opinion We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of making this report, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro forma financial information with the Directors. We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Pro forma financial information has been properly compiled on the basis stated and that such basis is consistent with the accounting policies of the Company. Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in jurisdictions outside the United Kingdom, including the United States of America, and accordingly should not be relied upon as if it had been carried out in accordance with those standards or practices.
Opinion In our opinion: (a) the Pro forma financial information has been properly compiled on the basis stated; and (b) such basis is consistent with the accounting policies of the Company. LRA 2.7
Declaration For the purposes of Prospectus Rule 5.5.3R(2)(f) we are responsible for this report as part of the Prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Prospectus in compliance with Annex I item 1.2 of the Prospectus Directive Regulation.
Yours faithfully
Deloitte LLP Chartered Accountants
Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and its registered office at 2 New Street Square, London EC4A 3BZ, United Kingdom. Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTT and its member firms.
117 PART VIII
TAXATION
1. UK The following statements are intended only as a general guide to the position under current UK law and PRA 3.4.11 HMRC published practice as at the date of this document, both of which are subject to change at any time, PRA 3.5.1 possibly with retrospective effect. They relate only to certain limited aspects of the UK taxation treatment of holders of the Existing Shares and apply only to persons who are resident (and, in the case of individuals only, ordinarily resident and domiciled) solely in the UK for UK tax purposes (except insofar as express reference is made to the treatment of non-UK residents) who hold Existing Shares as an investment, and who are absolute beneficial owners thereof. They may not apply to (i) certain categories of Shareholders, such as traders, dealers in securities, insurance companies and collective investment schemes, (ii) Shareholders who hold their Existing Shares as a part of hedging or conversion transactions or (iii) Shareholders who have (or are deemed to have) acquired their Existing Shares by virtue of an office or employment. Such persons may be subject to special rules. Any person who is in any doubt as to their tax position, or who is subject to taxation in any jurisdiction other than the UK, should consult their own professional adviser.
Shareholders who acquire New Shares It is expected that, for the purposes of CGT, the issue of the New Shares should be regarded as a reorganisation of the share capital of the Company.
Accordingly, you should not be treated as making a disposal of all or part of your holding of Existing Shares by reason of taking up all or part of your rights to New Shares. No immediate liability to CGT in respect of the New Shares should arise if you take up your entitlement to New Shares in full.
Instead, your Existing and New Shares should be treated as the same asset having been acquired at the same time as you acquired your Existing Shares. The subscription monies for your New Shares will be added to the base cost of your existing holding(s).
New Shares that you acquire in excess of your entitlement under the Rights Issue should be treated as a new and separate acquisition.
If you sell all or some of the New Shares allotted to you, or your rights to subscribe for them, or if you allow or are deemed to have allowed your rights to lapse and receive a cash payment in respect of them, you may, depending on your circumstances, incur a liability to tax on any capital gain realised. However, if the proceeds resulting from the disposal or lapse of your rights to subscribe for New Shares are “small” as compared to the value of the Existing Shares in respect of which the rights arose, you should not generally be treated as making a disposal for the purpose of CGT. No liability to CGT should then arise as a result of the disposal or lapse of the rights, but the proceeds will be deducted from the base cost of your holding of Existing Shares. HMRC interprets “small” as 5 per cent. or less of the market value of the Existing Shares held or, if higher, £3,000 or less, regardless of whether or not it would pass the 5 per cent. test.
In the case of a Shareholder within the charge to UK corporation tax, indexation allowance will apply to the amount paid for the New Shares only from, generally, the date the monies for the New Shares are paid (or liable to be paid), not from the time the original holding was acquired.
CGT is currently charged at a flat rate of 18 per cent. for individuals, trustees and personal representatives, irrespective of how long an asset has been held and taper relief and indexation allowance have been withdrawn for such categories of shareholders.
An individual Shareholder who has ceased to be resident or ordinarily resident for tax purposes in the UK for a period of less than five years of assessment and who disposes of all or part of his New Shares during that period of temporary non-residence may be liable on his return to the UK to capital gains tax arising during the period of absence, subject to any available exemption or relief.
118 Stamp duty and SDRT (a) Subject to the points in the following sections, no stamp duty or SDRT will generally be payable on the issue of Provisional Allotment Letters or split Provisional Allotment Letters in respect of the New Shares or on the issue of definitive share certificates or the crediting of Nil Paid Rights to accounts in CREST. Accordingly, where New Shares represented by such documents or rights are registered in the name of the original subscriber or New Shares are credited in uncertificated form to CREST accounts, no liability to stamp duty or SDRT will arise.
(b) Persons who purchase (or are treated as purchasing) rights to New Shares represented by Provisional Allotment Letters or split Provisional Allotment Letters (whether nil paid or fully paid on or before the latest time for registration or renunciation) will not generally be liable to stamp duty, but such purchasers will normally be liable to pay SDRT at the rate of 0.5 per cent. of the actual consideration paid. Where such a purchase is effected through a stockbroker or other financial intermediary, that person will normally account for the liability of SDRT and will indicate that this has been done in any contract note issued to a purchaser. In other cases, the purchaser of the rights to the New Shares represented by the Provisional Allotment Letter or the split Provisional Allotment Letter is liable to pay the SDRT and must account for it to HMRC. In the case of transfers within CREST, any SDRT due will be collected through CREST in accordance with the CREST rules.
(c) No stamp duty or SDRT will be payable on the registration of Provisional Allotment Letters or of split Provisional Allotment Letters, whether by the original holders or their renouncees.
(d) Where New Shares are issued or transferred (i) to, or to a nominee for, a person whose business is or includes the provision of clearance services or (ii) to, or to a nominee or agent for, a person whose business is or includes issuing depository receipts, stamp duty or SDRT will be payable at the higher rate of 1.5 per cent. of the amount or value of the consideration payable or, in certain circumstances, the value of the New Shares (rounded up in the case of stamp duty to the nearest £5). This liability for stamp duty or SDRT will strictly be accountable by the clearance service or depositary receipt operator or their nominee, as the case may be, but will, in practice, be payable by the participants in the clearance service or depositary receipt scheme. Clearance services may opt, provided certain conditions are satisfied, for normal stamp duty or SDRT treatment to apply to issues or transfers of shares into, and to transactions within, such services, instead of the higher rate applying to an issue or a transfer of shares into the clearance service.
(e) The transfer on sale of Existing Shares or New Shares will generally be liable to ad valorem stamp duty at the rate of 0.5 per cent. (rounded to the nearest multiple of £5) of the amount or value of the consideration paid. An exemption from stamp duty will be available on an instrument transferring New Shares where the amount or value of the consideration is £1,000 or less, and it is certified on the instrument that the transaction effected by the instrument does not form part of a larger transaction or series of transactions for which the aggregate consideration exceeds £1,000. The purchaser normally pays the stamp duty. An unconditional agreement to transfer such shares will be generally liable to SDRT, at the rate of 0.5 per cent. of the consideration paid, but such liability will be cancelled or a right to a repayment in respect of the SDRT liability will arise if the agreement is completed by a duly stamped transfer within six years of the agreement having become unconditional. SDRT is normally the liability of the purchaser.
(f) Paperless transfers of shares within the CREST system are generally liable to SDRT (generally at a rate of 0.5 per cent. of the amount or value of the consideration payable, subject to (d) above) rather than stamp duty, and SDRT on relevant transactions settled within the system or reported through it for regulatory purposes will be collected by CREST. Deposits of Shares into CREST will not generally be subject to SDRT unless the transfer into CREST is itself for consideration.
The statements in this paragraph apply to any holders of New Shares irrespective of their residence, summarise the current stamp duty and SDRT position and are intended as a general guide only. Certain categories of person are not liable to stamp duty or SDRT and others may be liable at a higher rate or may,
119 although not primarily liable for tax, be required to notify and account for SDRT under the Stamp Duty Reserve Tax Regulations 1986.
Dividends The Company will not be required to withhold tax at source when paying a dividend.
A UK-resident individual Shareholder who receives a dividend from the Company will be entitled to a tax credit which may be set off against the Shareholder’s total income tax liability on the dividend. The tax credit will be equal to 10 per cent. of the aggregate of the dividend and the tax credit (the “gross dividend”), which is also equal to one-ninth of the cash dividend received. Such an individual UK-resident Shareholder who is liable to income tax at a rate not exceeding the basic rate will be subject to tax on the dividend at the rate of 10 per cent. of the gross dividend, so that the tax credit will satisfy in full such Shareholder’s liability to income tax on the dividend. In the case of such an individual Shareholder who is liable to income tax at the higher rate, the tax credit will be set against but not fully match the Shareholder’s tax liability of 32.5 per cent. on the gross dividend and such Shareholder will have to account for additional income tax equal to 22.5 per cent. of the gross dividend (which is also equal to 25 per cent. of the cash dividend received) to the extent that the gross dividend when treated as the top slice of the Shareholder’s income falls above the threshold for higher-rate income tax.
If the Finance Bill 2009 receives Royal Assent in its current form, a new tax rate of 50 per cent. for taxable non-savings and savings income above £150,000 will be introduced with effect from 6 April 2010. Dividends otherwise taxable at the new 50 per cent. rate would be liable to income tax at a new rate of 42.5 per cent of the gross dividend.
A UK-resident individual Shareholder who is not liable to income tax in respect of the gross dividend and other UK-resident Shareholders who are not liable to UK tax on dividends, including pension funds and charities, will not be entitled to claim repayment of the tax credit attaching to dividends paid by the Company.
Shareholders who are within the charge to corporation tax will generally not be subject to corporation tax on dividends paid by the Company. Such Shareholders will not be able to claim repayment of tax credits attaching to dividends. However, if the Finance Bill 2009 receives Royal Assent in its current form, the general exemption from corporation tax which currently applies to dividends of a UK-resident company will be replaced with a series of exemptions for company distributions. Shareholders who are within the charge to corporation tax and fall within such an exemption will generally not (subject to a number of anti-avoidance provisions) be subject to corporation tax on dividends paid by the Company. As the Finance Bill may be amended as it progresses through Parliament, Shareholders within the charge to corporation tax are advised to consult their professional tax advisers in relation to the implications of the proposals.
Non-UK-resident Shareholders will not generally be able to claim repayment from HMRC of any part of the tax credit attaching to dividends paid by the Company. A Shareholder resident outside the UK may also be subject to foreign taxation on dividend income under local law. Shareholders who are not resident for tax purposes in the UK should obtain their own tax advice concerning tax liabilities on dividends received from the Company.
2. UNITED STATES TO ENSURE COMPLIANCE WITH TREASURY DEPARTMENT CIRCULAR 230, HOLDERS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF FEDERAL TAX ISSUES IN THIS DOCUMENT IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY HOLDERS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON HOLDERS UNDER THE INTERNAL REVENUE CODE; (B) SUCH DISCUSSION IS INCLUDED IN THIS DOCUMENT BY THE COMPANY IN CONNECTION WITH THE PROMOTION OR MARKETING (WITHIN THE MEANING OF CIRCULAR 230) BY THE COMPANY OF THE TRANSACTIONS OR MATTERS ADDRESSED IN THIS DOCUMENT; AND (C) HOLDERS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISER.
120 The following is a summary of certain material United States federal income tax consequences of the acquisition, ownership and disposition of rights and New Shares by a United States Holder (as defined below). This summary deals only with United States Holders that will receive the rights with respect to Existing Shares or that purchase New Shares and that will hold the rights and New Shares as capital assets. The discussion does not cover all aspects of United States federal income taxation that may be relevant to, or the actual tax effect that any of the matters described in this document will have on, the acquisition, ownership or disposition of rights and New Shares by particular investors, and does not address state, local, foreign or other tax laws. This summary also does not address tax considerations applicable to investors that own (directly or indirectly) 10 per cent. or more of the voting stock of the Company, nor does this summary discuss all of the tax considerations that may be relevant to certain types of investors subject to special treatment under the United States federal income tax laws (such as financial institutions, insurance companies, investors liable for the alternative minimum tax, individual retirement accounts and other tax- deferred accounts, tax-exempt organisations, dealers in securities or currencies, investors that will hold the rights and New Shares as part of straddles, hedging transactions or conversion transactions for United States federal income tax purposes or investors whose functional currency is not the United States dollar).
As used in this document, the term “United States Holder” means a beneficial owner of rights or New Shares that is, for United States federal income tax purposes, (i) an individual citizen or resident of the United States; (ii) a corporation or other business entity treated as a corporation created or organised under the laws of the United States or any State thereof; (iii) an estate the income of which is subject to United States federal income tax without regard to its source; or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or the trust has elected to be treated as a domestic trust for United States federal income tax purposes.
The United States federal income tax treatment of a partner in a partnership that holds rights and New Shares will depend on the status of the partner and the activities of the partnership. Prospective purchasers that are partnerships should consult their tax advisers concerning the United States federal income tax consequences to their partners of the acquisition, ownership and disposition of rights and New Shares by the partnership.
The Company believes, and this summary assumes, that the Company is not, was not in the previous year, and will not become a passive foreign investment company (a “PFIC”) for United States federal income tax purposes. Although the Company does not expect to become a PFIC, the Company’s possible status as a PFIC must be determined annually and therefore may be subject to change. If the Company were to be a PFIC in any year, materially adverse consequences could result for United States Holders.
The summary is based on the tax laws of the United States, including the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations thereunder, published rulings and court decisions, as well as on the income tax treaty between the United States and the UK (the “Treaty”), all as of the date hereof and all subject to change at any time, possibly with retroactive effect.
THE SUMMARY OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS FOR GENERAL INFORMATION ONLY. ALL PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISERS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING THE RIGHTS AND NEW SHARES, INCLUDING THEIR ELIGIBILITY FOR THE BENEFITS OF THE TREATY AND THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND POSSIBLE CHANGES IN TAX LAW.
Taxation in respect of rights
Receipt of rights The tax consequences of the receipt of rights by a United States Holder are not free from doubt. In particular, it is not clear whether the sale of rights by the Joint Global Coordinators or the Underwriters, and the remittance of the proceeds from that sale to certain United States Holders whose rights were sold, should be treated as a sale and distribution by the Company, or as a distribution of rights by the Company and a subsequent sale of those rights by the relevant holders. If the sale and distribution were considered to be
121 made by the Company, then the receipt of rights would be taxable to United States Holders as a dividend to the extent of the Company’s current or accumulated earnings and profits, as described below under “Taxation in respect of New Shares – Dividends”. However, based on the particular facts relating to the rights and the sale of rights by the Joint Global Coordinators or the Underwriters, we believe it is proper to take the position that a United States Holder is not required to include any amount in income for United States federal income tax purposes as a result of the receipt of the rights. It is possible that the Internal Revenue Service (“IRS”) will take a contrary view and require a United States Holder to include in income the fair market value of the rights on the date of their distribution. The remainder of this discussion assumes that the receipt of the rights will not be a taxable event for United States federal income tax purposes.
If, on the date of receipt, the fair market value of Nil Paid Rights is less than 15 per cent. of the fair market value of the Existing Shares with respect to which rights are received, Nil Paid Rights will be allocated a zero tax basis unless the United States Holder affirmatively elects to allocate a tax basis in proportion to the relative fair market values of the United States Holder’s Existing Shares and Nil Paid Rights received determined on the date of receipt. This election must be made in the United States Holder’s timely filed United States federal income tax return for the taxable year in which the rights are received, in respect of all rights received by the United States Holder, and is irrevocable.
If, on the date of receipt, the fair market value of rights is 15 per cent. or more of the fair market value of the Existing Shares with respect to which the rights are received, then, except as discussed below under “Expiration of rights”, the basis in the United States Holder’s Existing Shares with respect to which rights were received must be allocated between the Existing Shares and rights received in proportion to their fair market values determined on the date of receipt. A United States Holder’s basis in a Fully Paid Right will be the amount allocated (if any) as described above, increased by the United States dollar value of the Issue Price paid upon exercise.
Sale or other disposition of rights Upon a sale or other disposition of rights, a United States Holder will generally recognise capital gain or loss equal to the difference, if any, between the United States dollar value of the amount realised (as determined on the date of the sale or other disposition) and the United States Holder’s adjusted tax basis in the rights. Any gain or loss will be United States source, and will be long-term capital gain or loss if the United States Holder’s holding period in the rights exceeds one year. A United States Holder’s holding period in the Nil Paid Rights will include the holding period in the Existing Shares with respect to which the rights were distributed. However, a United States Holder’s holding period in Fully Paid Rights will not include the holding period in the Existing Shares with respect to which the rights were distributed.
A United States Holder that receives a payment from the Underwriters or on account of the sale of New Shares at a premium over the Issue Price will be treated either as having sold the rights or as having exercised the rights and sold the New Shares (as described below under “Taxation in respect of New Shares – Dividends Sale or other disposition”). A United States Holder that receives such a payment should consult its own tax advisers about the United States federal income tax treatment of those amounts.
The amount realised on a sale or other disposition of rights for an amount in foreign currency will be the United States dollar value of this amount on the date of sale or disposition. On the settlement date, the United States Holder will recognise United States source foreign currency gain or loss (taxable as ordinary income or loss) equal to the difference (if any) between the United States dollar value of the amount received based on the exchange rates in effect on the date of sale or other disposition and the settlement date. However, in the case of rights traded on an established securities market that are sold by a cash basis United States Holder (or an accrual basis United States Holder that so elects), the amount realised will be based on the exchange rate in effect on the settlement date for the sale, and no exchange gain or loss will be recognised at that time. It is unclear if this exception will apply to any sale of the rights, in part because it is uncertain whether an active trading market on an established securities market will develop for the rights.
122 Expiration of rights If a United States Holder allows the rights to expire without selling or exercising them and does not receive any proceeds, the holder will not recognise any loss upon the expiration of the rights, and the holder will not be entitled to allocate any basis to the rights.
Exercise of rights A United States Holder will not recognise taxable income upon the receipt of New Shares pursuant to the exercise of rights. A United States Holder’s basis in the New Shares will equal the sum of the United States dollar value of the Issue Price determined at the spot rate on the date of exercise and the United States Holder’s basis, if any, in the rights exercised to obtain the New Shares. A United States Holder’s holding period in each New Share acquired through the exercise of a right will begin with and include the date of exercise.
Taxation in respect of New Shares PRA 3.4.11 Dividends General Distributions paid by the Company out of current or accumulated earnings and profits (as determined for United States federal income tax purposes) will generally be taxable to a United States Holder as foreign source dividend income, and will not be eligible for the dividends received deduction allowed to corporations. Distributions in excess of current and accumulated earnings and profits will be treated as a non- taxable return of capital to the extent of the United States Holder’s basis in the New Shares and thereafter as capital gain. However, the Company does not maintain calculations of its earnings and profits in accordance with United States federal income tax accounting principles. United States Holders should therefore assume that any distribution by the Company with respect to New Shares will constitute ordinary dividend income. United States Holders should consult their own tax advisers with respect to the appropriate United States federal income tax treatment of any distribution received from the Company.
For taxable years that begin before 2011, dividends paid by the Company will generally be taxable to a non- corporate United States Holder at the special reduced rate normally applicable to long-term capital gains, provided the Company qualifies for the benefits of the Treaty, which the Company currently believes it does. A United States Holder will be eligible for this reduced rate only if it has held the New Shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date.
Prospective purchasers should consult their tax advisers concerning the applicability of the foreign tax credit and source of income rules to dividends on the New Shares.
Foreign currency dividends Dividends paid in pounds sterling will be included in income in a United States dollar amount calculated by reference to the exchange rate in effect on the day the dividends are received by the United States Holder, regardless of whether the pounds sterling are converted into United States dollars at that time. If dividends received in pounds sterling are converted into United States dollars on the day they are received, the United States Holder generally will not be required to recognise foreign currency gain or loss in respect of the dividend income. Any gain or loss recognised on a sale or other disposition of a foreign currency will be United States source ordinary income or loss.
Sale or other disposition Upon a sale or other disposition of New Shares, a United States Holder generally will recognise capital gain or loss for United States federal income tax purposes equal to the difference, if any, between the amount realised on the sale or other disposition and the United States Holder’s adjusted tax basis in the New Shares. This capital gain or loss will be long-term capital gain or loss if the United States Holder’s holding period in the New Shares exceeds one year. However, regardless of a United States Holder’s actual holding period, any loss may be long-term capital loss to the extent the United States Holder receives a dividend that
123 qualifies for the reduced rate described above under “Dividends – General”, and exceeds 10 per cent. of the United States Holder’s basis in its New Shares.
A United States Holder’s tax basis in a New Share will generally be its United States dollar cost. The United States dollar cost of a New Share purchased with foreign currency will generally be the United States dollar value of the purchase price on the date of purchase, or the settlement date for the purchase, in the case of New Shares traded on an established securities market, as defined in the applicable Treasury Regulations, that are purchased by a cash basis United States Holder (or an accrual basis United States Holder that so elects). Such an election by an accrual basis United States Holder must be applied consistently from year to year and cannot be revoked without the consent of the IRS. The amount realised on a sale or other disposition of New Shares for an amount in foreign currency will be the United States dollar value of this amount on the date of sale or disposition. On the settlement date, the United States Holder will recognise United States source foreign currency gain or loss (taxable as ordinary income or loss) equal to the difference (if any) between the United States dollar value of the amount received based on the exchange rates in effect on the date of sale or other disposition and the settlement date. However, in the case of New Shares traded on an established securities market that are sold by a cash basis United States Holder (or an accrual basis United States Holder that so elects), the amount realised will be based on the exchange rate in effect on the settlement date for the sale, and no exchange gain or loss will be recognised at that time.
Disposition of foreign currency Foreign currency received on the sale or other disposition of a New Share will have a tax basis equal to its United States dollar value on the settlement date. Foreign currency that is purchased will generally have a tax basis equal to the United States dollar value of the foreign currency on the date of purchase. Any gain or loss recognised on a sale or other disposition of a foreign currency (including its use to purchase New Shares or upon exchange for United States dollars) will be United States source ordinary income or loss.
Transfer Reporting Requirements If persons who take up the rights or purchase New Shares hold at least 80 per cent. of the Shares immediately after the Rights Issue, a US Holder who exercises rights or purchases New Shares may be required to file Form 926 (or a similar form) with the IRS if the purchase, when aggregated with all transfers of cash or other property made by the US Holder (or any related person) to the Company within the preceding twelve month period, exceeds US$100,000 (or its equivalent). A US Holder who fails to file any such required form could be required to pay a penalty equal to 10 per cent. of the gross amount paid for the New Shares (subject to a maximum penalty of US£100,000, except in cases of intentional disregard). US Holders should consult their tax advisers with respect to this or any other reporting requirement that may apply to an acquisition of the New Shares.
Backup withholding and information reporting Payments of dividends and other proceeds with respect to New Shares, by a United States paying agent or other United States intermediary, will be reported to the IRS and to the United States Holder as may be required under applicable regulations. Backup withholding may apply to these payments if the United States Holder fails to provide an accurate taxpayer identification number or certification of exempt status or fails to report all interest and dividends required to be shown on its United States federal income tax returns. Certain United States Holders (including, among others, corporations) are not subject to backup withholding. United States Holders should consult their tax advisers as to their qualification for exemption from backup withholding and the procedure for obtaining an exemption.
124 PART IX
ADDITIONAL INFORMATION
1. Responsibility The Company and the Directors, whose names are set out on page 32 of this document, accept responsibility PRA1 1.1 PRA1 1.2 for the information contained in this document. To the best of the knowledge and belief of the Company and PRA3 1.1 the Directors (who have taken all reasonable care to ensure that such is the case), the information contained PRA3 1.2 in this document is in accordance with the facts and does not omit anything likely to affect the import of such information.
2. Incorporation and registered office 2.1 Travis Perkins was formed as a result of a merger between Travis & Arnold plc and Sandell Perkins PRA1 5.1.1 PRA1 5.1.2 plc in 1988. Sandell Perkins plc was incorporated and registered in England and Wales on 27 October PRA1 5.1.3 1964. It changed its name on 21 October 1988 to Travis Perkins plc. Travis Perkins is registered under PRA1 5.1.4 company number 00824821. PRA1 5.1.5
2.2 Travis Perkins is domiciled in the UK. Its registered office is at Lodge Way House, Lodge Way, PRA1 5.1.4 Harlestone Road, Northampton NN5 7UG (telephone 01604 752 424 or, if dialling from outside the UK, +44 16 0475 2424).
2.3 The principal law and legislation under which the Company operates, and under which the Ordinary PRA3 4.2 Shares have been created, are the Companies Act and regulations made thereunder.
3. Travis Perkins’ share capital 3.1 As at 8 May 2009 (being the latest practicable date prior to the publication of this document), the PRA1 21.1.1(a) PRA1 21.1.1(b) authorised, issued and fully paid share capital of the Company was as follows: PRA1 21.1.1(c) PRA1 21.1.4 Authorised Issued and fully paid Number Amount Number Amount Ordinary Shares 135,000,000(1) £13,500,000 122,719,114 £12,271,911.40
3.2 The authorised, issued and fully paid ordinary share capital of the Company immediately following PRA1 21.1.1(a) completion of the Rights Issue(2) is expected to be as follows: PRA1 21.1.1(b) PRA1 21.1.1(c) Authorised Issued and fully paid Number(3) Amount Number Amount
Ordinary Shares 400,000,000 £40,000,000 208,622,493 £20,862,249.30
Notes: (1) At the Company’s annual general meeting to be held on 21 May 2009, a resolution will be proposed to increase the authorised share capital of the Company from £13,500,000 to £22,000,000. Please see paragraph 3.8.2 below for further details of the resolutions to be proposed at the 2009 annual general meeting of the Company. (2) The number of Ordinary Shares in issue immediately following the Rights Issue assumes that no options or awards are exercised under the Travis Perkins Employee Share Plans between 8 May 2009 (being the last practicable date prior to the publication of this document) and the closing of the Rights Issue. (3) At the Extraordinary General Meeting of the Company to be held on 27 May 2009, a resolution will be proposed to increase the authorised share capital of the Company in connection with the Rights Issue is £40,000,000. Please see paragraph 3.9 below for further details of the Resolutions to be proposed at the Extraordinary General Meeting. 3.3 Save as disclosed in paragraphs 3.6 and 3.7 below, during the three years immediately preceding PRA1 17.2 8 May 2009 (being the latest practicable date prior to the publication of this document), there has been PRA1 21.1.3 PRA1 21.1.6 no issue of ordinary share capital of Travis Perkins, fully or partly paid, either in cash or for other consideration, and (other than in connection with the Rights Issue or the Travis Perkins Employee
125 Share Plans) no such issues are proposed. Other than in connection with the Travis Perkins Employee Share Plans, no ordinary share capital of Travis Perkins or any of its subsidiaries is under option or agreed conditionally or unconditionally to be put under option.
3.4 As at 8 May 2009, being the latest practicable date prior to the publication of this document, 5,684,680 Ordinary Shares of 10 pence each are held on trust by Halifax EES Trustee International (as Trustee of the Travis Perkins plc ESOP Trust) in connection with the Travis Perkins Employee Share Plans, of which 289,142 have been allocated to meet the 1 April 2005 Executive Share Option Grant. As at the date of this document, Travis Perkins holds no treasury shares.
3.5 The number of Ordinary Shares outstanding at the beginning and end of the 2008 financial year was PRA1 21.1.1(d) as follows:
Issued and Date Authorised fully paid (Ordinary Shares) 1 January 2008 135,000,000 122,641,849 31 December 2008 135,000,000 122,719,114
3.6 History of ordinary share capital
3.6.1 Authorised ordinary share capital Since 1 January 2006, the period covered by the historical financial information incorporated PRA1 21.1.7 by reference in this document, there have been no changes to the authorised share capital of Travis Perkins.
3.6.2 Issued ordinary share capital As at 1 January 2006, the first day covered by the historical financial information incorporated by reference in this document, the authorised ordinary share capital of the Company was £13,500,000 divided into 135,000,000 Ordinary Shares of 10 pence each. The Company’s issued share capital amounted to £12,130,988.90 divided into 121,309,889 Ordinary Shares of 10 pence each.
Since 1 January 2006, during the period covered by the historical financial information incorporated by reference in this document, the following changes have occurred to the issued share capital of the Company:
(i) In January 2006, the issued share capital of Travis Perkins was increased by 35,962 Shares to 121,345,851 Ordinary Shares by allotments of 35,962 Ordinary Shares under share option schemes.
(ii) In February 2006, the issued share capital of Travis Perkins was increased by 7,815 Shares to 121,353,666 Ordinary Shares by allotments of 7,815 Ordinary Shares under share option schemes.
(iii) In March 2006, the issued share capital of Travis Perkins was increased by 58,752 Shares to 121,412,418 Ordinary Shares by allotments of 58,752 Ordinary Shares under share option schemes.
(iv) In April 2006, the issued share capital of Travis Perkins was increased by 56,215 Shares to 121,468,633 Ordinary Shares by allotments of 56,215 Ordinary Shares under share option schemes.
(v) In May 2006, the issued share capital of Travis Perkins was increased by 117,249 Shares to 121,585,882 Ordinary Shares by allotments of 117,249 Ordinary Shares under share option schemes.
126 (vi) In June 2006, the issued share capital of Travis Perkins was increased by 6,902 Shares to 121,592,784 Ordinary Shares by allotments of 6,902 Ordinary Shares under share option schemes.
(vii) In July 2006, the issued share capital of Travis Perkins was increased by 6,915 Shares to 121,599,699 Ordinary Shares by allotments of 6,915 Ordinary Shares under share option schemes.
(viii) In August 2006, the issued share capital of Travis Perkins was increased by 18,236 Shares to 121,617,935 Ordinary Shares by allotments of 18,236 Ordinary Shares under share option schemes.
(ix) In September 2006, the issued share capital of Travis Perkins was increased by 13,987 Shares to 121,631,922 Ordinary Shares by allotments of 13,987 Ordinary Shares under share option schemes.
(x) In October 2006, the issued share capital of Travis Perkins was increased by 34,057 Shares to 121,665,979 Ordinary Shares by allotments of 34,057 Ordinary Shares under share option schemes.
(xi) In November 2006, the issued share capital of Travis Perkins was increased by 11,102 Shares to 121,677,081 Ordinary Shares by allotments of 11,102 Ordinary Shares under share option schemes.
(xii) In December 2006, the issued share capital of Travis Perkins was increased by 370,913 Shares to 122,047,994 Ordinary Shares by allotments of 370,913 Ordinary Shares under share option schemes.
(xiii) In January 2007, the issued share capital of Travis Perkins was increased by 50,786 Shares to 122,098,780 Ordinary Shares by allotments of 50,786 Ordinary Shares under share option schemes.
(xiv) In February 2007, the issued share capital of Travis Perkins was increased by 15,296 Shares to 122,114,076 Ordinary Shares by allotments of 15,296 Ordinary Shares under share option schemes.
(xv) In March 2007, the issued share capital of Travis Perkins was increased by 77,651 Shares to 122,191,727 Ordinary Shares by allotments of 77,651 Ordinary Shares under share option schemes.
(xvi) In April 2007, the issued share capital of Travis Perkins was increased by 32,683 Shares to 122,224,410 Ordinary Shares by allotments of 32,683 Ordinary Shares under share option schemes.
(xvii) In May 2007, the issued share capital of Travis Perkins was increased by 88,343 Shares to 122,312,753 Ordinary Shares by allotments of 88,343 Ordinary Shares under share option schemes.
(xviii) In June 2007, the issued share capital of Travis Perkins was increased by 23,831 Shares to 122,336,584 Ordinary Shares by allotments of 23,831 Ordinary Shares under share option schemes.
(xix) In July 2007, the issued share capital of Travis Perkins was increased by 1,230 Shares to 122,337,814 Ordinary Shares by allotments of 1,230 Ordinary Shares under share option schemes.
(xx) In August 2007, the issued share capital of Travis Perkins was increased by 9,656 Shares to 122,347,470 Ordinary Shares by allotments of 9,656 Ordinary Shares under share option schemes.
127 (xxi) In September 2007, the issued share capital of Travis Perkins was increased by 18,322 Shares to 122,365,792 Ordinary Shares by allotments of 18,322 Ordinary Shares under share option schemes.
(xxii) In October 2007, the issued share capital of Travis Perkins was increased by 280 Shares to 122,366,072 Ordinary Shares by allotments of 280 Ordinary Shares under share option schemes.
(xxiii) In December 2007, the issued share capital of Travis Perkins was increased by 275,777 Shares to 122,641,849 Ordinary Shares by allotments of 275,777 Ordinary Shares under share option schemes.
(xxiv) In January 2008, the issued share capital of Travis Perkins was increased by 21,434 Shares to 122,663,283 Ordinary Shares by allotments of 21,434 Ordinary Shares under share option schemes.
(xxv) In February 2008, the issued share capital of Travis Perkins was increased by 6,381 Shares to 122,669,664 Ordinary Shares by allotments of 6,381 Ordinary Shares under share option schemes.
(xxvi) In March 2008, the issued share capital of Travis Perkins was increased by 3,664 Shares to 122,673,328 Ordinary Shares by allotments of 3,664 Ordinary Shares under share option schemes.
(xxvii) In April 2008, the issued share capital of Travis Perkins was increased by 38,431 Shares to 122,711,759 Ordinary Shares by allotments of 38,431 Ordinary Shares under share option schemes.
(xxviii) In May 2008, the issued share capital of Travis Perkins was increased by 2,008 Shares to 122,713,767 Ordinary Shares by allotments of 2,008 Ordinary Shares under share option schemes.
(xxix) In June 2008, the issued share capital of Travis Perkins was increased by 5,347 Shares to 122,719,114 Ordinary Shares by allotments of 5,347 Ordinary Shares under share option schemes.
3.7 Share capital after Rights Issue Subject to Admission, pursuant to the Rights Issue, 85,903,379 New Shares will be issued at a price of 365 pence per New Share. This will result in the issued ordinary share capital of the Company increasing by approximately 70.0 per cent. (assuming no options or awards are exercised under the Travis Perkins Employee Share Plans between 8 May 2009, (being the last practicable date prior to the publication of this document) and the closing of the Rights Issue).
3.8 Existing Shareholder authorities 3.8.1 At the annual general meeting of the company on 13 May 2008, the following resolutions were PRA3 4.6 passed:
(a) the authority conferred on the Directors by Article 4(B) of Travis Perkins’ Articles of PRA1 21.1.1(a) Association was renewed for a period ending on the earlier of the conclusion of the next annual general meeting of the Company or the period ending 15 months after the passing of the resolution. For this period the “Section 80 Amount” was set at £1,233,034;
(b) a resolution was passed renewing the authority of the Directors under Article 4(C) for a period ending on the earlier of the conclusion of the next annual general meeting of the Company or the period ending 15 months after the passing of the resolution. The “Section 89 Amount” was set at £613,348; and
128 (c) the Company was also authorised, in certain circumstances, to make one or more market PRA3 4.6 purchases of Ordinary Shares in the capital of the Company (pursuant to section 163 of the Companies Act 1985).
3.8.2 At the annual general meeting of the Company to be held on 21 May 2009, the following resolutions will be proposed:
(a) that the authorised share capital of the Company be increased from £13,500,000 to PRA3 4.6 £22,000,000 by the creation of 85 million Shares of 10 pence each;
(b) that the Directors be generally and unconditionally authorised to allot:
(i) relevant securities (as defined in the Companies Act 1985) up to an aggregate nominal amount of £4,090,637; and
(ii) relevant securities comprising equity securities (as defined in the Companies Act PRA1 21.1.1(a) 1985) up to an aggregate nominal amount of £8,181,274 (such amount to be reduced by the aggregate nominal amount of relevant securities issued under paragraph (i) of this resolution (b)) in connection with an offer by way of a rights issue:
(A) to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings; and
(B) to holders of other equity securities as required by the rights of those securities or, subject to such rights, as the Directors otherwise consider necessary,
such authorities to apply for a period ending on the earlier of the conclusion of the Annual General Meeting in 2010 or, if earlier, until the close of business on 30 June 2010; and
(c) that subject to the passing of the above resolution, the Directors be generally empowered PRA3 4.6 to allot equity securities (as defined in the Companies Act 1985) for cash pursuant to the authority granted by the above resolution (b) and/or where the allotment constitutes an allotment of equity securities by virtue of section 94(3A) of the Companies Act 1985, in each case free of the restriction in section 89(1) of the Companies Act 1985, such power to be limited:
(i) to the allotment of equity securities in connection with an offer of equity securities (but in the case of an allotment pursuant to the authority granted by paragraph (ii) of resolution (b) set out in this paragraph 3.8.2 above, such power shall be limited to the allotment of equity securities in connection with an offer by way of a rights issue only):
(A) to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings; and
(B) to holders of other equity securities, as required by the rights of those securities or, subject to such rights, as the Directors otherwise consider necessary,
(ii) to the allotment of equity securities pursuant to the authority granted by paragraph (i) of resolution (b) set out in this paragraph 3.8.2 above (otherwise than in the circumstances set out in paragraph (i) of this resolution (c)) up to a nominal amount of £613,596 calculated, in the case of equity securities which are rights to subscribe for, or to convert securities into, relevant shares (as defined in the Companies Act 1985), by reference to the aggregate nominal amount of relevant shares which may be allotted pursuant to such rights,
129 such authorities to apply for a period ending on the earlier of the conclusion of the annual general meeting of the Company in 2010 or, if earlier, until the close of business on 30 June 2010; and
(d) that the Company be generally and unconditionally authorised, in certain circumstances, PRA3 4.6 to make one or more market purchases of Ordinary Shares in the capital of the Company (pursuant to section 163 of the Companies Act 1985).
3.9 Rights Issue Shareholder authorities If the Resolutions proposed to the Extraordinary General Meeting to be held on 27 May 2009 are passed:
3.9.1 (a) if the resolution referred to in paragraph 3.8.2(a) has been passed the authorised share capital of the Company will be increased from £22,000,000 to £40,000,000 by the creation of an additional 180,000,000 Ordinary Shares; and
(b) if the resolution referred to in paragraph 3.8.2(a) has not been passed, the authorised share capital of the Company will be increased from £13,500,000 to £40,000,000 by the creation of an additional 265,000,000 Ordinary Shares.
3.9.2 in substitution for all existing authorities, the Directors will be generally and unconditionally authorised pursuant to and in accordance with section 80 of the Companies Act and Article 4(B) of the Company’s Articles of Association to exercise all the powers of the Company to allot relevant securities comprising equity securities (as defined in the Companies Act):
(a) up to an aggregate nominal amount of £8,590,337.90, equivalent to 85,903,379 Ordinary Shares of 10 pence, in connection with the Rights Issue; and
(b) in addition to the authority conferred by paragraph (A), up to an aggregate nominal amount of £6,954,084,
such authorities to expire at the end of the annual general meeting of the Company to be held in 2010 or on 11 August 2010, whichever is the earlier but, in each case, so that the Company may make offers and enter into agreements during the relevant period which would, or might, require relevant securities to be allotted after the authority ends and the Board may allot relevant securities under any such offer or agreement as if the authority had not ended.
3.9.3 in substitution for all existing powers, the Directors will be generally empowered to allot equity securities (as defined in section 94(2) of the Companies Act) wholly for cash:
(a) pursuant to the authority given by paragraph (a) of the resolution set out in paragraph 3.9.2 above, in connection with the Rights Issue; and
(b) pursuant to the authority given by paragraph (b) of the resolution set out in paragraph 3.9.2 above or where the allotment constitutes an allotment of equity securities by virtue of section 94(3A) of the Companies Act in each case:
(i) in connection with a pre-emptive offer; and
(ii) otherwise than in connection with a pre-emptive offer, up to an aggregate nominal amount of £1,043,112,
as if section 89(1) of the Companies Act did not apply to any such allotment, such power to expire at the end of the annual general meeting of the Company to be held in 2010 or on 11 August 2010, whichever is the earlier but so that the Company may make offers and enter into agreements during this period which would, or might, require equity securities to be allotted after the power ends and the Board may allot equity securities under any such offer or agreement as if the power had not ended.
130 For the purposes of this paragraph 3.9.3:
(i) “pre-emptive offer” means an offer of equity securities open for acceptance for a period fixed by the Directors to holders (other than the Company) on the register on a record date fixed by the Directors of ordinary shares in proportion to their respective holdings but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to treasury shares, fractional entitlements, record dates or legal, regulatory or practical problems in, or under the laws of, any territory;
(ii) references to an allotment of equity securities shall include a sale of treasury shares; and
(iii) the nominal amount of any securities shall be taken to be, in the case of rights to subscribe for or convert any securities into shares of the Company, the nominal amount of such shares which may be allotted pursuant to such rights.
4. Memorandum and Articles of Association The Memorandum and Articles of Association are available for inspection at the address specified in PRA1 24 paragraph 23 below.
4.1 Memorandum of Association The Memorandum of Association provides that the main objects for which the Company is formed PRA1 21.2.1 and incorporated are, amongst other things, to carry on business as wood and timber merchants and to carry on any other trade or business whatsoever which can be advantageously carried on by the Company. The other objects of the Company are set out in full in clause 4 of the Memorandum of Association of the Company.
4.2 Articles of Association The Articles of Association, adopted pursuant to a special resolution passed at the Company’s annual PRA3 4.5 general meeting on 13 May 2008, contain provisions to the following effect (such provisions always subject to the provisions of the Companies Act and the Articles of Association):
4.2.1 Dividends By passing an ordinary resolution, the Company may declare a dividend to be paid in PRA1 20.7 accordance with the respective rights and interests of the Shares. Dividends may not exceed the amount recommended by the Board. Furthermore, the Board may declare interim dividends as appear to be justified by the profits of the Company available for distribution. If the Board acts in good faith, it does not incur any liability to the holders of Shares conferring preferred rights for a loss they may suffer by the lawful payment of an interim dividend on Shares ranking after those with preferred rights.
Except as otherwise dictated by the rights attached to Shares, a dividend is declared and paid according to the amounts paid up on the relevant Shares. However, no amounts paid up on the Shares in advance of a call may be treated for these purposes as paid up on the Shares. Dividends shall be apportioned and paid proportionately to the amounts paid up on the Shares during any part of the period in respect of which the dividend is paid.
The Company may pay a dividend using a number of methods. No dividend or other amount payable by the Company in respect of a Share bears interest as against the Company unless otherwise provided by the rights attached to the Share. The Board may deduct from a dividend, or other amounts payable to a person in respect of a Share, an amount due from him to the Company on account of a call or otherwise in relation to a Share.
Any unclaimed dividend, interest or other amount payable by the Company in respect of a Share may be invested or otherwise made use of by the Board for the benefit of the Company until claimed. A dividend unclaimed for a period of 12 years from the date it was declared or
131 became due for payment is forfeited and will no longer be owed by the Company. The payment into a separate account of an unclaimed dividend, interest or other amount payable by the Company in respect of a Share does not constitute the Company a trustee in respect of it.
If in respect of a dividend or other amount payable in respect of a Share, on any one occasion a cheque, warrant or money order is returned undelivered or left uncashed, or transfer made by a bank or other funds transfer system is not accepted, and reasonable enquiries have failed to establish another address or account of the person entitled to the payment, the Company is not obliged to send or transfer a dividend or other amount payable in respect of that Share to that person until he notifies the Company of an address or account to be used for that purpose. If the cheque, warrant or money order is returned undelivered or left uncashed or transfer not accepted on two consecutive occasions, the Company may exercise this power without making any such enquiries.
4.2.2 Distribution of assets on winding up On a voluntary winding up of the Company, the liquidator may, on obtaining any sanction PRA3 4.5 required by law, divide among the members in kind the whole or any part of the assets of the Company, whether or not the assets consist of property of one kind or of different kinds. For this purpose the liquidator may set the value he deems fair on a class or classes of property, and may determine on the basis of that valuation and in accordance with the then existing rights of members. The liquidator may not, however, distribute to a member without his consent an asset to which there is attached a liability or potential liability for the owner.
4.2.3 Voting Subject to special rights or restrictions as to voting attached to any class of Shares by or in PRA1 21.2.3 PRA1 21.2.5 accordance with the Articles of Association, on a vote on a resolution on a show of hands at a PRA3 4.1 meeting, every member present (not being present by proxy) and entitled to vote has one vote. Every proxy present who has been duly appointed by a member entitled to vote on the resolution has one vote.
On a poll taken at a meeting, every member present and entitled to vote has one vote in respect of each share held by him.
Unless the Board decides otherwise, no member is entitled in respect of a Share held by him to be present or to vote, either in person or by proxy, at a general meeting or at a separate meeting of the holders of class of Shares or on a poll, or to exercise other rights conferred by membership in relation to the meeting or poll, if a call or other amount due and payable in respect of the share is unpaid. This restriction ceases on payment of the amount outstanding and all costs, charges and expenses incurred by the Company by reason of the non-payment.
4.2.4 Variation of class rights The rights attached to a class of Shares may be varied whether or not the Company is being PRA1 21.2.4 wound up (i) in such a manner (if any) as may be provided by those rights, or (ii) in the absence of provision, either with the consent in writing of the holders of at least three-fourths of the nominal amount of the issued Shares of that class (excluding any Share of that class held as treasury shares) or with the sanction of a special resolution passed at a separate meeting of the holders of the issued Shares of that class validly held in accordance with the Articles of Association, but not otherwise. The rights attached to a class of Shares are not, unless otherwise expressly provided in the rights attaching to those Shares, deemed to be varied by the creation, allotment or issue of further Shares ranking pari passu with or subsequent to them or by the purchase or redemption by the Company of its own Shares in accordance with the Companies Act and Article 39.
132 4.2.5 Issue of Shares Subject to the rights attached to Existing Shares, Shares may be issued on terms that they are to be redeemed or, at the option of the Company or the holder, are liable to be redeemed.
4.2.6 Alteration of share capital The Company may by ordinary resolution increase its share capital by a sum to be divided into Shares of an amount prescribed by the resolution. It may consolidate and divide all or any of its share capital into Shares of a larger amount than its Existing Shares, or into Shares of a smaller amount and may by the resolution decide that the Shares resulting from the sub- division have amongst themselves a preference or other advantage or be subject to a restriction, and cancel Shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by a person and diminish the amount of its share capital by the amount of the Shares so cancelled.
Subject to the Companies Act and to the rights attached to Existing Shares, the Company may by special resolution reduce its share capital, capital redemption reserve and share premium account in any way.
Subject to the Companies Act, the Company may purchase Shares of any class (including redeemable Shares) in its own capital in any way.
4.2.7 Transfer of Shares A member may transfer all or any of his Certificated Shares by instrument of transfer in writing, in any usual form or in another form approved by the Board, and the instrument shall be executed by or on behalf of the transferor and in the case of a transfer of a Share which is not fully paid by or on behalf of the transferee. A member may transfer all or any of his uncertificated Shares in accordance with the Uncertificated Securities Regulations. Subject to the Uncertificated Securities Regulations, the transferor of a Share is deemed to remain the holder of the Share until the name of the transferee is entered in the register in respect of it. Subject to the Articles of Association and requirements of the FSA, the Board may, in its absolute discretion, refuse to register the transfer of a certificated Share which is not fully paid or the transfer of a certificated Share on which the Company has a lien. In exceptional circumstances approved by the FSA, the Board may refuse to register a transfer of certificated Shares provided that such refusal would not disturb the market in those shares. Subject to article 69 and the requirement of the FSA, the Board may also, in its absolute discretion, refuse to register the transfer of a certificated Share or a renunciation of a renounceable letter of allotment unless certain conditions are satisfied.
If the Board refuses to register the transfer of a certificated Share, it shall, as soon as practicable and in any event within two months after the date on which the transfer was lodged with the Company, send notice of the refusal to the transferee. An instrument of transfer which the Board refuses to register shall (except in the case of suspected fraud) be returned to the person depositing it. Subject to the Articles of Association, the Company may retain all instruments of transfer which are registered.
The Company may or may not charge a fee for registering the transfer of a Share or the renunciation of a renounceable letter of allotment or other document relating to or affecting the title to a Share or the right to transfer it or for making any other entry in the register.
4.2.8 Purchase of own Shares The Company may purchase Shares of any class (including redeemable Shares) in its own PRA1 21.2.4 capital in any way.
133 4.2.9 Lien and forfeiture Travis Perkins has a first and paramount lien on every Share other than a fully-paid Share PRA1 21.2.3 registered in the name of a member for an amount payable in respect of the Share. The Board may call any monies unpaid on Shares and may sell Shares on which calls or amounts payable under the terms of issues are not duly paid.
4.2.10 Untraceable Shareholders Travis Perkins shall be entitled to sell, at the best price reasonably obtainable, the Shares of a member or the Shares to which a person is entitled by transmission if: PRA3 4.5
(i) during a period of not less than 12 years before the date of publication of the advertisements referred to in paragraph (iii) below, Travis Perkins has paid at least three cash dividends in respect of the Share;
(ii) throughout this 12-year period no cheque, warrant or money order sent by the Company has been presented to the paying bank and no payment made by the Company by any other means has been claimed or accepted and no other communication has been received by the Company from the member or person entitled to the Share;
(iii) on the expiry of this 12-year period, Travis Perkins announces that it intends to sell the Share by placing an advertisement in a national newspaper and in a newspaper appearing in the area which includes the address held by Travis Perkins for serving notices relating to the Shares; and
(iv) during this 12-year period, and for three months after the advertisement appears, Travis Perkins has not, so far as the Board is aware, heard from the Shareholder or any person who is automatically entitled to the Shares by law.
The net proceeds of such sale shall belong to Travis Perkins, which shall be obliged to account to the former member or other person previously entitled to the Shares for an amount equal to the proceeds as a creditor of Travis Perkins.
4.2.11 Shareholder meetings An annual general meeting shall be called by not less than 21 clear days’ notice. All other PRA1 21.2.5 general meetings shall be called by not less than 14 clear days’ notice. However, a shorter notice period can be given:
(i) in the case of an annual general meeting, if all the members entitled to attend and vote at the meeting agree; or
(ii) in the case of another meeting, if a majority in number of the members agree, being a majority together holding not less than 95 per cent. in nominal value of the Shares giving that right.
The notice shall specify whether the meeting is an annual general meeting or a general meeting, the place, date and time of the meeting, the general nature of the business of the meeting and that a member entitled to attend and vote may appoint one or more proxies. A notice convening a meeting to pass a special resolution shall specify the intention to propose the resolution as such and the text of the resolution. A notice of meeting may also specify a time by which a person must be entered on the register in order to have the right to attend or vote at the meeting. This time must not be more than 48 hours before the time fixed for the meeting. The accidental failure to give notice of a general meeting or to send, supply or make available any document or information relating to any meeting, or the non-receipt of any such notice, document or information, by a person entitled to receive any such notice, document or information shall not invalidate the relevant meeting or proceedings.
134 4.2.12 Directors The minimum number of Directors is three and the maximum number is 12. There is no age PRA1 21.2.2 limit for Directors. Directors are not required to hold any shares in the Company.
The Board has the power to appoint a person to be Director, either as an additional Director or to fill a vacancy. Any Director so appointed holds office until the dissolution of the next annual general meeting after his appointment unless he is reappointed at that meeting. He is not required, and is not taken into account in determining the number of Directors who are to retire by rotation at that meeting.
Directors may appoint either another Director or some other person approved by a two-thirds majority of the Board to act as their alternate with power to attend Board meetings and generally to exercise the functions of the appointing Director in their absence (other than the power to appoint an alternate).
At each annual general meeting, one-third of the Directors who are subject to retirement by rotation, or if their number is not three or a multiple of three, the number nearest to but not less than one-third, shall retiree from office. If there are fewer than three Directors who are subject to retirement by rotation, one shall retire from office. In any event, if any one or more Directors were last appointed or reappointed three years or more prior to the meeting or were last appointed or reappointed at the third immediately preceding annual general meeting, he or they shall retire from office.
For the purposes of section 175 of the Companies Act 2006, the Board may authorise any matter in relation to which a Director has, or can have, a direct interest that conflicts, or possibly may conflict, with the interests of the Company. Only Directors who have no interest in the matter being considered will be able to authorise the relevant matter and they may impose limits or conditions when giving authorisation if they think this is appropriate.
4.2.13 Borrowing powers and limits The Board may exercise all the powers of the Company to borrow money and mortgage or PRA1 10.4 charge its undertaking, property and uncalled capital, or any part thereof, and to issue debentures and other securities. The Board shall restrict the borrowings of the Company and exercise all voting rights in relation to its subsidiaries so as to secure (so far as by such exercise they can secure) that the aggregate amount at any one time owing by the Group in respect of monies borrowed (exclusive of inter-company borrowings) shall not, without the previous consent of the Company in general meeting, exceed specified thresholds.
4.2.14 Disclosure of shareholdings There are no disclosure provisions in relation to shareholder ownership thresholds which are PRA1 21.2.7 more stringent than those contained in the Companies Act.
Pursuant to the Articles of Association and section 793 of the Companies Act 2006, the Company may send a notice to a member, or other person who appears to be interested in the member’s Shares, who the Company knows or reasonably suspects to be interested in the Company’s Shares now or at any time three years before the notice was served. Unless the Board decides otherwise, certain sanctions apply if there is a failure to give the Company the required information within the prescribed period.
5. Mandatory takeover bids, squeeze-out and sell-out rules Other than as provided by the Companies Act and the City Code on Takeovers and Mergers, there are no PRA3 4.9 PRA1 21.2.6 rules or provisions relating to mandatory bids and/or squeeze-out and sell-out rules in relation to the Ordinary Shares.
135 6. Directors and Senior Managers of the Company
6.1 Directors The Directors and their principal functions are as follows:
Directors Functions Tim Stevenson OBE(1) (2) (3) Chairman Geoff Cooper(4) Chief Executive Paul Hampden Smith(4) Finance Director John Carter(3) (4) Chief Operating Officer Chris Bunker(1) (2) (5) Non-executive Director John Coleman(1) (2) (5) Non-executive Director Philip Jansen Non-executive Director Andrew Simon OBE(1) (3) (5) Non-executive Director
Notes: (1) Member of the Remuneration Committee (2) Member of the Nominations Committee (3) Member of the Health and Safety Committee (4) Member of the Executive Committee (5) Member of the Audit Committee
Brief biographical details of the Directors are as follows:
Tim Stevenson O.B.E. (Chairman) (Aged 60) 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, PRA1 14.1 PRA1 16.1 including Chief Executive from 1998. He is also non-executive Chairman of Morgan Crucible plc, and Lord Lieutenant of Oxfordshire. He is Chairman of the Nominations Committee and a member of the Remuneration and Health and Safety Committees.
In addition to his directorship of Travis Perkins and any directorships of companies in the Group, Tim Stevenson holds or has held in the past five years the following directorships. He has not been a partner in any partnerships during the past five years.
Company Status (Current/Previous) The Emmott Foundation Limited Current The Morgan Crucible Company plc Current Museum of Modern Art Previous National Express Group plc Previous Oxford Brookes Enterprises Limited Previous Partnerships UK plc Previous Tribal Group plc Previous Geoff Cooper (Chief Executive) (Aged 55) joined the Company in February 2005 and was appointed Chief Executive on 1 March PRA1 14.1 PRA1 16.1 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 (which later became part of Alliance Boots plc), where he was appointed Deputy Chief Executive in 2001. He is non-executive Chairman of Dunelm Group Plc.
In addition to his directorship of Travis Perkins and any directorships of companies in the Group, Geoff Cooper holds or has held in the past five years the following directorships. He has not been a partner in any partnerships during the past five years.
136 Company Status (Current/Previous) Dunelm Group plc Current Truth Corps Limited Current Abbey National plc Previous Alleanza Salute Italia S.p.a. Previous Alliance Sante Distribution S.A. Previous Alliance Unichem B.V. Previous Alliance Unichem GR JV Limited Previous Alliance Unichem Group Limited Previous Alliance Unichem Investments 1 Limited Previous Alliance Unichem Overseas Holdings Limited Previous Alliance Unichem plc Previous Alliance Unichem PWS JV Limited Previous Alliance Unichem Services Limited Previous Alliance Unichem Treasury Limited Previous Bradford Chemists’ Alliance Limited Previous Galenicare Holding AG Previous Hall Forster & Company Limited Previous Limefast Limited Previous OTC Direct Limited Previous Safa Galencia S.A. Previous Unichem Limited Previous
Paul Hampden Smith (Finance Director) (Aged 48) is a chartered accountant and joined Sandell Perkins in 1988. Following the merger with PRA1 14.1 PRA1 16.1 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 The Polestar Company Ltd until November 2008.
In addition to his directorship of Travis Perkins and any directorships of companies in the Group, Paul Hampden Smith holds or has held in the past five years the following directorships. He has not been a partner in any partnerships during the past five years.
Company Status (Current/Previous) DX Services plc Previous INK Acquisitions Previous The Polestar Company Limited Previous
John Carter (Chief Operating Officer) (Aged 47) joined Sandell Perkins as a management trainee in 1978. Having held regional management PRA1 14.1 PRA1 16.1 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, and is a member of the Health and Safety Committee.
Apart from his directorship of Travis Perkins and any directorships of companies in the Group, John Carter does not hold and has not held any directorships in the past five years. He has not been a partner in any partnerships during the past five years.
Chris Bunker (Non-executive Director) (Aged 62) was appointed as a Non-executive Director in January 2004. He is a chartered management PRA1 14.1 PRA1 16.1 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 formerly was a non-executive director of Mowlem plc, Baltimore Technologies plc and Xansa PLC. He is the Senior Independent Director and Chairman of the Audit Committee and a member of the Nomination and Remuneration Committees.
137 In addition to his directorship of Travis Perkins and any directorships of companies in the Group, Chris Bunker holds or has held in the past five years the following directorships. He has not been a partner in any partnerships during the past five years.
Company Status (Current/Previous) DS Smith plc Current Carillion JM Limited Previous A1 Auto Cosmetics Ltd Previous ISIS Insurance Co Ltd Previous John Mowlem & Co Plc Previous St James Group Ltd Previous Xansa PLC Previous
John Coleman (Non-executive Director) (Aged 56) was appointed as a Non-executive Director in February 2005. He is a chartered PRA1 14.1 PRA1 16.1 management accountant and Chairman of AGA Rangemaster Group plc and of Holidaybreak plc. He 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, Audit and Nomination Committees
In addition to his directorship of Travis Perkins and any directorships of companies in the Group, John Coleman holds or has held in the past five years the following directorships. He has not been a partner in any partnerships during the past five years.
Company Status (Current/Previous) AGA Rangemaster Group plc Current Holidaybreak plc Current 1 Howick Place (UK) Ltd Previous Beatties Card Handling Services Ltd Previous Beatties Ltd Previous Binns Limited Previous Chiesmans Ltd Previous Dickins & Jones Ltd Previous HOF 8 Ltd Previous HOF Property Investment Holdings Ltd Previous House of Fraser (Finance) Ltd Previous House of Fraser (Stores Management) Ltd Previous House of Fraser (Stores) Ltd Previous House of Fraser (WG) Ltd Previous House of Fraser Financial Services Ltd Previous House of Fraser Plc Previous James Beattie Ltd Previous Jenners Financial Services Limited Previous Jenners, Princes Street, Edinburgh Ltd Previous Linea Baby Ltd Previous Linea Direction Ltd Previous Linea Home Ltd Previous Linea Junior Ltd Previous M Coleman Associates Limited Previous Schofields (Yorkshire) Ltd Previous WGP 100 Ltd Previous WGP 1 Ltd Previous
138 Philip Jansen (Non-executive Director) (Aged 42) Philip Jansen was appointed as a Non-executive Director on 9 April 2009. He is Group PRA1 14.1 Chief Operating Officer and Chief Executive of Europe for Sodexo, having joined that company in PRA1 16.1 2004 as Chief Executive, UK and Ireland. He is also a non-executive director of the Professional Cricketers’ Association and has previously been a member of the UK Better Regulation Commission. He was Chief Operating Officer of My Travel Group plc between 2002 and 2004 and prior to that was the Managing Director for the Consumer Division of Telewest Communications PLC. Between 1988 and 1999, he held a number of senior commercial and marketing positions with Procter & Gamble and Dunlop Slazenger Group.
In addition to his directorship of Travis Perkins and any directorships of companies in the Group, Philip Jansen holds or has held in the past five years the following directorships. Save as disclosed below, he has not been a partner in any other partnerships during the past five years.
Company Status (Current/Previous) P.C.A. Management Limited Previous Sodexo Corporate Services (No.1) Limited Previous Sodexo Defence Services Limited Previous Sodexo Education Services Limited Previous Sodexo Healthcare Services Limited Previous Sodexo Holdings Limited Previous Sodexo Investment Services Limited Previous Sodexo Land Technology Limited Previous Sodexo Limited Previous Sodexo Management Services Limited Previous Sodexo Prestige Limited Previous Sodexo Services Group Limited Previous Telewest Communications PLC Previous Tillery Valley Foods Limited Previous
Partnership Status (Current/Previous) Ingenious Film Partners 2 LLP Current
Andrew Simon OBE (Non-executive Director) (Aged 63) was appointed as a Non-executive Director in 2006. He is non-executive Deputy Chairman PRA1 14.1 PRA1 16.1 of Dalkia Plc, and a non-executive director of Finning International Inc., Management Consulting Group plc and SGL Carbon AG. 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, Associated British Ports Holdings PLC, and Brake Bros Holdings Ltd. He is chairman of the Remuneration Committee, and the Health and Safety Committee and a member of the Audit Committee
In addition to his directorship of Travis Perkins and any directorships of companies in the Group, Andrew Simon holds or has held in the past five years the following directorships. Save as disclosed below, he has not been a partner in any other partnerships during the past five years.
Company Status (Current/Previous) CDR Tabasco ParentCo Limited Current Dalkia plc Current Finning International Inc Current Ineum Conseil et Associes SA Current Management Consulting Group plc Current SGL Carbon SE Current The Hildegard Simon Memorial Trust Limited Current ABP plc Previous
139 Company Status (Current/Previous) Ascent plc Previous Associated British Ports Holdings plc Previous Azelis S.A. Previous Brakes Bros Holdings I Limited Previous Kaffee Partner AG Previous Meretec Limited Previous The British Food Trust Previous
Partnership Status (Current/Previous) H and A Simon Farming Partnership Previous Simon Consultancy Partnership Previous
6.2 Senior Managers The Senior Managers and their principal functions are as follows:
Name Position Jeremy Bird Managing Director, Wickes Arthur Davidson Chairman, Specialist Merchanting Carol Kavanagh Group HR Director Martin Meech Group Property Director Joe Mescall Chairman, General Merchanting Andrew Pike Company Secretary and Lawyer Robin Proctor Supply Chain Director
Brief biographical details of the Senior Managers are as follows: Jeremy Bird PRA 1.14.1 (Aged 47) joined Wickes in 1992 as a store manager from major food retailer ASDA and joined the Wickes board as buying director in 1998. Following the acquisition of Wickes by Travis Perkins in 2005 he became the Group Marketing Director and was subsequently appointed Managing Director of Wickes in 2005. Apart from his directorships of companies in the Group, Jeremy Bird does not hold and has not held any directorships in the past five years. He has not been a partner in any partnerships during the past five years.
Arthur Davidson PRA 1.14.1 (Aged 56) is a Chartered Accountant and started with Keyline Builders’ Merchants in October 1977 as a management accountant. Over time, he held the positions of Finance Director and Commercial Director, prior to Keyline Builders’ Merchants acquisition by Travis Perkins in 1999. Upon acquisition, he became Managing Director of Keyline Builders’ Merchants, a role he held for eight years, before being appointed Divisional Chairman of Travis Perkins’ Specialist Merchanting in 2007. Specialist Merchanting comprises Keyline Builders’ Merchants, City Plumbing Supplies, CCF and Benchmarx Kitchens and Joinery. Apart from his directorships of companies in the Group, Arthur Davidson does not hold and has not held any directorships in the past five years. He has not been a partner in any partnerships during the past five years.
Carol Kavanagh PRA 1.14.1 (Aged 46) joined Travis Perkins in October 2006 as Group HR Director from Home Retail Group where she was HR Director for Argos. Prior to this, Carol held a number of different HR roles in Safeway Food Stores (now Morrison plc), the Ladbroke Group and Mothercare Plc where she was Group HR Director. Carol has been a Non-executive Board member of Leeds Building Society since December 2005 where she is also a Pension Trustee. Apart from her directorships of companies in the Group, Carol Kavanagh holds or has held in the past five years the following directorships. She has not been a partner in any partnerships during the past five years.
140 Company Status (Current/Previous) Leeds Building Society Current
Martin Meech PRA 1.14.1 (Aged 51) was appointed Group Property Director of Travis Perkins plc and chief executive officer of Travis Perkins Properties Ltd in September 2005. Between 1993 and 2005, Martin was managing director of property for DSG International Plc. His previous roles include Property & Development Director at Isoceles Subsidiary, Gateway Food Markets Limited and Property Director of Halfords plc, part of Ward White plc at the time. He is a Fellow of the Royal Institution of Chartered Surveyors, Chairman of the Property Advisory Group of the British Retail Consortium, and member of the Bank of England Property Forum. Martin has been a Non-executive Board member of Quintain Estates and Development Plc since July 2000 and is Chairman of their Remuneration Committee. In addition to any directorships of companies in the Group, Martin Meech holds or has held in the past five years the following directorships. He has not been a partner in any partnerships during the past five years. Company Status (Current/Previous) Quintain Estates and Development Plc Current Currys Group Limited Previous Dixons Retail Properties Limited Previous DSG Retail Limited Previous DSG International Retail Properties Limited Previous Holborn Public Relations Limited Previous Mastercare Service and Distribution Limited Previous Merchant Properties General Partners Limited Previous Merchant Properties Nominees Limited Previous Square1 Consulting Limited Previous Wallace Heaton Limited Previous
Joe Mescall PRA 1.14.1 (Aged 59) joined Sandell Perkins in 1974. He held a number of branch and area management positions before becoming Managing Director of Midlands in 1997. He was Managing Director of South East from 2004 to 2007 when appointed to his current role of Divisional Chairman of Travis Perkins’ General Merchanting. Apart from his directorships of companies in the Group, Joe Mescall does not hold and has not held any directorships in the past five years. He has not been a partner in any partnerships during the past five years.
Andrew Pike PRA 1.14.1 (Aged 56) joined Travis Perkins in August 1999 as Company Secretary and Lawyer. He qualified as a solicitor in 1976 and held a number of positions in private practice and industry before becoming Company Secretary and Director of Legal Services at Alfred McAlpine PLC from 1989 to 1994. He held a similar position at Ibstock PLC from 1994 to 1999. Andrew Pike does not hold and has not held any directorships in the past five years. He has not been a partner in any partnerships during the past five years.
Robin Proctor PRA 1.14.1 (Aged 40) joined Travis Perkins in September 2006 as Group Supply Chain Director. He has an MSc in Supply Chain Management and started his career at Sainsbury’s in 1988 as a trainee manager. In 1995 he joined Iceland frozen foods and left there as Head of Supply Chain Development in 2002 to join Howdens MFI as an Executive Director. He was appointed as a member of the Executive Committee of Travis Perkins in February 2009 and is responsible for Supply Chain, Logistics Operations and Group Quality. Apart from his directorships of companies in the Group, Robin Proctor does not hold and has not held any directorships in the past five years. He has not been a partner in any partnerships during the past five years.
141 7. Directors’ and Senior Managers’ interests Save as set out in paragraphs 7.1 and 7.2 below, no Director has any interests (beneficial or non-beneficial) PRA1 17.2 PRA3 3.3 in the share capital of the Company or any of its subsidiaries.
7.1 Directors’ and Senior Managers’ shareholdings As at 8 May 2009 (being the latest practicable date prior to the publication of this document), the PRA1 17.2 Directors collectively held 211,766 Ordinary Shares and will hold 360,001 Ordinary Shares immediately following completion of the Rights Issue (assuming that they all take up their rights under the Rights Issue in full notwithstanding that John Carter intends to take up his rights in part). As at 8 May 2009 (being the latest practicable date prior to the publication of this document), members of the Senior Management collectively held 72,058 Ordinary Shares and are expected to hold 122,497 Ordinary Shares immediately following completion of the Rights Issue (assuming that they all take up their rights under the Rights Issue in full). The interests (all of which are beneficial unless otherwise stated) of the Directors (as well as their immediate families) in the share capital of the Company or (so far as is known or could with reasonable due diligence be ascertained by the relevant Director) interests of a person connected (within the meaning of section 252 of the Companies Act) with a Director and the existence of which was known to or could, with reasonable due diligence, be ascertained by the relevant Director as at 8 May 2009 (being the latest practicable date prior to the publication of this document), together with such interests as are expected to be held immediately following completion of the Rights Issue are as follows:
Immediately following completion of the As at 8 May 2009(1) Rights Issue(1) Number of Percentage of Percentage of Existing issued share Number of issued share Shares(2) capital(3) Shares capital(3) Chairman Tim Stevenson 12,400 0.01 21,080 0.01 Executive Directors John Carter 42,912 0.04 72,950 0.04 Geoff Cooper 57,996 0.05 98,593 0.05 Paul Hampden Smith 88,024 0.07 149,641 0.07
Immediately following completion of the As at 8 May 2009 Rights Issue(2) Number of Percentage of Percentage of Existing issued share Number of issued share Shares(3) capital(3) Shares(2) capital(4) Non-executive Directors Chris Bunker 7,000 0.006 11,900 0.006 John Coleman 1,450 0.001 2,465 0.001 Philip Jansen – – – – Andrew Simon 2,000 0.002 3,400 0.002 Senior Managers Jeremy Bird 5,283 0.004 8,981 0.004 Arthur Davidson 9,339 0.008 15,876 0.008 Carol Kavanagh 10,618 0.009 18,051 0.009 Martin Meech 7,726 0.006 13,134 0.006 Joe Mescall 19,405 0.016 32,988 0.016 Andrew Pike 6,493 0.005 11,038 0.005 Robin Proctor 13,194 0.011 22,429 0.011
142 Notes: (1) Investment Shares to be acquired in respect of the 2009 operation of the Share Matching Scheme have not been determined as at 8 May 2009 (being the latest practicable date prior to the publication of this document) and are therefore not included. (2) Shareholdings immediately following the Rights Issue on the basis that all the Directors and Senior Managers take up their entitlements under the Rights Issue in full notwithstanding that John Carter intends to take up his rights in part. The number of Shares in issue immediately following the Rights Issue assumes that no options or awards are exercised under the Travis Perkins Employee Share Plans and that the New Shares which the Directors intend to take up in the Rights Issue are taken up. (3) Percentages shown have been rounded to two decimal places. (4) None of the Directors, nor their spouses or minor children, hold non-beneficial interests in the Ordinary Shares of the Company.
7.2 Directors’ and Senior Managers’ interests, options and awards
7.2.1 Share Matching Scheme PRA1 15.1 Participation by the Directors and Senior Managers in the Share Matching Scheme is as follows PRA1 17.2 at 31 December 2008. Investment Shares to be acquired in respect of the 2009 operation of the PRA1 21.1.6 Share Matching Scheme have not been determined as at the last practicable date prior to publication of this document and have therefore not been included. An invitation under the Share Matching Scheme has been issued on 11 May 2009 (see paragraph 13.7.6 below).
Deferred Investment Number of Number of Deferred Matching Matching Shares at Shares at Year Shares Shares Shares 31 December 8 May 2009 Geoff Cooper 2008 6,017 6,017 60,852 72,886 72,886 2007 6,017 6,017 12,636 24,670 24,670 Paul Hampden Smith 2008 4,109 4,109 44,069 52,287 52,287 2007 7,269 7,269 16,065 30,603 30,603 John Carter 2008 4,109 4,109 23,950 13,961 13,961 2007 7,154 7,154 13,961 28,269 28,269 Senior Management 2008 5,910 5,910 94,596 106,434 106,434 2007 8,250 8,250 20,417 36,917 36,917
Notes: (1) For 2009, participants have been given the opportunity to cancel their 2008 matching awards and to roll over any investment shares acquired in 2008 to receive a new 2009 matching award. The performance criteria for matching awards granted in 2008 under the Share Matching Scheme are disclosed on page 50 of the 2008 Annual Report and Accounts. The performance criteria for matching awards granted in 2007 are disclosed on page 54 of the 2008 Annual Report and Accounts. The performance criteria for matching awards granted in 2009 will be based on a three year average cash return on capital employed (“CROCE”) target.
7.2.2 Performance Share Plan Participation by Directors and Senior Managers in the Performance Share Plan is as follows at 31 December 2008. It is intended that awards under the Performance Share Plan for 2009 will be made shortly following completion of the Rights Issue.
Number of Number of Director/Senior shares at shares at Manager Year 31 December 8 May 2009 Geoff Cooper 2008 57,553 57,553 Paul Hampden Smith 2008 33,572 33,572 John Carter 2008 33,572 33,572 Senior Management 2008 124,445 124,445
143 The performance criteria for awards granted in 2008 under the Performance Share Plan are disclosed on page 50 of the 2008 Annual Report and Accounts. Following consultation with investors, the performance criteria for 2009 awards will be based on EPS growth aggregate cashflow and relative total shareholder return measured at the end of a three-year performance period.
7.2.3 Share Options The following options over Ordinary Shares have been granted to Directors and Senior Managers under the 1995 and the 2001 Executive Share Option Schemes and the 2002 Travis Perkins Sharesave Scheme and remained outstanding at 31 December 2008. Outstanding 8 May 2009 Exercise Exercise Director/Senior Manager No. price period John Carter 29,398 1,071.5p until 9/4/12 32,786 1,067.5p until 10/4/13 17,387 1,311.0p until 15/3/14 8,267 1,675.0p until 31/3/15 34,217 1,611.0p From 19/4/09 until 18/4/16 31,091 1,970.0p From 22/3/10 until 21/3/17 2,895 562.0p From 01/12/13 until 31/5/14(1) Geoff Cooper 14,173 1,675.0p until 31/3/15 57,262 1,611.0p From 19/4/09 until 18/4/16 50,761 1,970.0p From 22/3/10 until 21/3/17 2,895 562.0p From 01/12/13 until 31/5/14(1) Paul Hampden Smith 39,351 756.0p until 3/7/11 31,031 1,071.5p until 9/4/12 40,983 1,067.5p until 10/4/13 18,750 1,311.0p until 15/3/14 8,268 1,675.0p until 31/3/15 34,217 1,611.0p From 19/4/09 until 18/4/16 31,091 1,970.0p From 22/3/10 until 21/3/17 2,895 562.0p From 01/12/13 until 31/5/14(1) Jeremy Bird 4,136 1,435.0p until 29/09/15 14,315 1,611.0p From 19/04/09 until 18/04/16 17,512 1,970.0p From 22/03/10 until 21/03/17 22,500 255.0p From 19/11/11 until 18/11/18 1,389 1.159.0p From 1/12/10 until 31/5/11 Arthur Davidson 12,774 1,071.5p until 09/09/12 13,334 1,067.5p until 10/03/13 5,747 1,311.0p until 15/03/14 2,854 1,675.0p until 29/09/15 11,561 1,611.0p From 19/04/09 until 18/04/16 10,152 1,970.0p From 22/03/10 until 21/03/17 22,500 255.0p From 19/11/11 until 18/11/18 1,672 562.0p From 1/12/11 until 31/5/12 Carol Kavanagh 18,918 1,784.0p From 23/11/09 until 22/11/16 17,131 1,970.0p From 22/03/10 until 21/03/17 22,500 255.0p From 19/11/11 until 18/11/18 2,895 562.0p From 1/12/13 until 31/5/14 Martin Meech 3,150 1,435.0p until 29/09/15 18,689 1,611.0p From 19/04/09 until 18/04/16 19,035 1,970.0p From 22/03/10 until 21/03/17 22,500 255.0p From 19/11/11 until 18/11/18 2,895 562.0p From 1/12/13 until 31/5/14
144 Outstanding 8 May 2009 Exercise Exercise Director/Senior Manager No. price period Joe Mescall 10,790 1,071.5p until 09/09/12 11,709 1,067.5p until 10/03/13 4,870 1,311.0p until 15/03/14 2,509 1,675.0p until 29/09/15 10,862 1,611.0p From 19/04/09 until 18/04/16 9,835 1,970.0p From 22/03/10 until 21/03/17 22,500 255.0p From 19/11/11 until 18/11/18 521 1254.0p From 1/12/09 until 31/5/10 200 1414.0p From 1/12/10 until 31/5/11 Andrew Pike 11,66 1,071.5p until 09/09/12 11,827 1,067.5p until 10/03/13 6,697 1,311.0p until 15/03/14 2,813 1,675.0p until 29/09/15 11,650 1,611.0p From 19/04/09 until 18/04/16 12,944 1,970.0p From 22/03/10 until 21/03/17 22,500 255.0p From 19/11/11 until 18/11/18 1,672 562.0p From 1/12/11 until 31/5/12 Outstanding 8 May 2009 Exercise Exercise Director/Senior Manager No. price period Robin Proctor 7,180 1,777.0p From 14/09/09 until 13/09/16 11,421 1,970.0p From 22/03/10 until 21/03/17 15,000 255.0p From 19/11/11 until 18/11/18 2,895 562.0p From 1/12/13 until 31/5/14 Note: (1) Sharesave option 7.3 No Director has or has had any interest in any transaction which is or was unusual in its nature or PRA1 14.2 conditions, or is or was significant to the business of the Company, and which was effected by any member of the Group in the current or immediately preceding financial year or which was effected during an earlier financial year and remains in any respect outstanding or unperformed.
7.4 There are no guarantees provided by any member of the Group for the benefit of the Directors.
7.5 Within the period of five years preceding the date of this document, none of the Directors:
7.5.1 has any convictions in relation to fraudulent offences;
7.5.2 has been a director or senior manager (who is relevant to establishing that a company has the PRA1 14.1(b) appropriate expertise and experience for the management of that company) of any company at PRA1 14.1(c) the time of any bankruptcy, receivership or liquidation of such company; or
7.5.3 has received any official public incrimination and/or sanction by any statutory or regulatory PRA1 14.1(d) authorities (including designated professional bodies) or has been disqualified by a court from acting as a director of a company or from acting in the management or conduct of the affairs of a company.
7.6 Save for John Coleman’s directorship of AGA Rangemaster Group plc, the parent company of Fired Earth (a trading name of AGA Consumer Products Limited), a competitor of Tile Giant, none of the PRA1 14.2 Directors has any other potential conflict of interest between his duties to the Company and his private interests or other duties.
145 8. Remuneration details, Directors’ service contracts and letters of appointment
8.1 Remuneration of Directors and Senior Managers 8.1.1 In the year ended 31 December 2008, the aggregate total remuneration paid (including PRA1 15.1 contingent or deferred compensation) and benefits in kind granted (under any description whatsoever) to the Directors and Senior Managers by members of the Group was £1,899,000 (exclusive of the grants and awards set out in paragraph 7 above.
Directors The components of the remuneration of the Executive Directors are as follows:
(i) basic salary;
(ii) pension arrangements;
(iii) annual bonus payments; and
(iv) share incentives.
The Executive Directors’ service contracts all provide for a company car and medical insurance. The Directors are also provided with directors’ and officers’ liability insurance.
The 2009 Annual Bonus Scheme for the Chief Executive Officer (“CEO”) provides for a maximum potential bonus of 120 per cent. of his 2009 base salary. Performance is rewarded in three areas as follows: earnings per share (“EPS”), interest cover and individual objectives. 60 per cent. of salary is available for achievement of EPS targets, 36 per cent. for achievement of interest cover and 24 per cent. for achievement of individual objectives. Individual objectives are set by the Chairman and the Remuneration Committee. Any bonus is calculated on the basis of full months worked. The bonus payment date is March 2010. However, 25 per cent. of any bonus payment will be deferred into Travis Perkins’ shares to vest and be paid in March 2013. The CEO will only receive an award under the scheme if he is employed by the Company on the bonus payment date and has not been given notice other than as a “good leaver”. Good leaver reasons for termination for these purposes are as follows: retirement at normal retirement age (60), late retirement, ill-health early retirement and early retirement (both with Board consent), ill-health (injury and disability), redundancy and death. The Remuneration Committee reserves the right to withhold all or part of any bonus payment if there have been material deviations from Company policy in critical performance areas, for example, core product range, stock duration and security.
The 2009 Annual Bonus Scheme for the Chief Operating Officer and Group Finance Director is in similar terms to the scheme which applies to the CEO. The scheme provides for a maximum potential bonus of 100 per cent. of their respective 2009 base salaries. Performance is rewarded in three areas as follows: EPS, interest cover and individual objectives. 50 per cent. of salary is available for achievement of EPS targets, 30 per cent. for achievement of interest cover and 20 per cent. for achievement of individual objectives. Individual objectives are set by the CEO and the Remuneration Committee. The bonus payment date is March 2010. However, 25 per cent. of any bonus payment will be deferred into Travis Perkins’ shares to vest and be paid in March 2013.
Under the terms of their service contracts, appointment letters and applicable incentive plans, PRA1 15.1 in the year ended 31 December 2008, the Directors were entitled to the remuneration and PRA1 15.2 benefits set out below:
146 Base salary and 2008 Non-executive Annual Benefits Total Directors’ fees bonus in kind remuneration 2008 2008 2008 2008 (£) thousands Non-executive Chairman Tim Stevenson, OBE 180 – – 180 Executive Directors Geoff Cooper(1) 748 – 29 777 Paul Hampden Smith(2) 376 – 1 377 John Carter 362 – 30 392 Non-executive Directors Chris Bunker 46 – – 46 Stephen Carter(3) 1––1 John Coleman 38 – – 38 Michael Dearden(4) 42––42 Andrew Simon 46 – – 46 –———— –———— –———— –———— Total Directors’ remuneration–———— 1,839 –———— – –———— 60 –———— 1,899 Notes: (1) Basic salary includes a salary supplement of £230,000 which replaced continuing pension accrual from April 2006. This does not count when calculating annual bonus and granting share incentives. (2) Basic salary includes a £12,000 “cash for car” allowance and a £1,500 fuel allowance, which do not count when calculating annual bonus and granting share incentives. (3) Resigned 8 January 2008. (4) Retired 11 November 2008.
Senior Managers The components of the remuneration of the Senior Managers are as follows:
(i) basic salary;
(ii) pension arrangements;
(iii) annual bonus payments; and
(iv) share incentives.
The 2009 Annual Bonus Scheme for the Senior Managers (who are members of the Executive Committee) is in broadly similar terms to the scheme which applies to the scheme which applies to Geoff Cooper. The scheme provides for a maximum potential bonus of 90 per cent. of the 2009 base salary. Performance is rewarded in three areas as follows: EPS, interest cover and individual objectives. Individual objectives are set by the CEO and the Remuneration Committee. The bonus payment date is March 2010. However, 25 per cent. of any bonus payment will be deferred into Travis Perkins’ shares to vest and be paid in March 2013.
The table below provides an aggregate of the remuneration in the year ended 31 December 2008 of the Senior Managers:
Total Total benefits Total salary and fees annual bonus in kind Total £ (£) 1,655,650 3,351.6 96,489 1,755,490.8
147 In the year ended 31 December 2008 the total amount set aside or accrued by the Company to PRA1 15.2 provide pension, retirement or other benefits to the Directors and Senior Management was £632,022.00. No Senior Manager has received any expense allowance chargeable to UK income tax or compensation for loss of office/termination payment.
8.2 Directors’ service contracts and letters of appointment and Non-executive Directors’ Remuneration 8.2.1 Executive Directors The Company’s policy for Executive Directors is to have contracts which are not for a fixed PRA1 16.2 period, and which are terminable on 12 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. Contracts do not specify any particular level of compensation in the event of termination. Each of the Executive Directors has a service contract, the date of which is shown below together with the notice period from the Company. It is the Company’s policy to allow each Executive Director to hold one Non-executive Directorship in another company (and to retain the fee payable).
Date of Notice from Executive Directors appointment Company John Carter 6 August 2001 12 months Geoff Cooper 1 February 2005 12 months Paul Hampden Smith 8 October 1996 12 months
The Company may require the Executive Directors not to work during their full notice period (garden leave). The Company has the contractual right to pay remuneration in lieu of notice to one Executive Director (Paul Hampden Smith).
8.2.2 Non-executive Directors Non-executive Directors are appointed for a period of three years, at the end of which the appointment may be renewed by mutual agreement in accordance with the Company’s Articles PRA1 16.2 of Association. It is the Company’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 review. Non- executive Directors do not have a service contract, but each has received a letter of appointment expiring on the dates detailed below. The remuneration of the Non-executive Directors is determined by the Board (in the case of the Chairman, on the recommendation of the Remuneration Committee). Each Non-executive Director receives an annual fee. In addition, Chris Bunker and Andrew Simon receive an additional fee for the role of Senior Independent Director and chairing the Audit Committee in the case of the former, and for chairing the Remuneration and Health and Safety Committees in the case of the latter. 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 appointment, which may be without notice from the Company. They cannot participate in any of the Company’s Share Plans.
Date of Date of Non-executive Directors first appointment expiry Chris Bunker 14 January 2004 January 2010 John Coleman 10 February 2005 February 2011 Philip Jansen 9 April 2009 April 2012 Andrew Simon 20 February 2006 February 2012 Tim Stevenson 6 September 2001 September 2010
The Articles of Association of the Company require that Directors should submit themselves for re-election at least every three years.
148 8.2.3 Indemnity Under the Company’s Articles of Association, the Company agrees to indemnify each Director against certain claims and liabilities. The indemnity forms part of each Director’s terms and conditions of appointment. In addition, those terms and conditions include a provision under which the Company undertakes, following any change in control of the ability to direct the affairs of the Company, to meet expenditure incurred or to be incurred in defending certain legal proceedings but in certain circumstances the amounts provided are refundable. The maximum amount the Company is obliged to provide to all Directors in aggregate is capped at £15 million.
9. Board practices The Combined Code recommends that at least half the members of the board of directors (excluding the PRA1 16 chairman) of a public limited company incorporated in the UK should be independent in character and judgement and free from relationships or circumstances which are likely to affect, or could appear to affect, their judgement.
As at the date of this document, Travis Perkins is in full compliance with the provisions of the Combined PRA1 16.4 Code.
Currently, the Board is composed of eight members, consisting of the Non-executive Chairman and the Chief Executive, together with two Executive Directors and four Non-executive Directors.
The roles of the Non-executive Chairman and Chief Executive are distinct and separate, with a clear division of responsibilities.
The Board has established Nominations, Remuneration, Audit, Executive and Health and Safety Committees, with formally delegated duties and responsibilities with written terms of reference. From time to time, separate committees may be set up by the Board to consider specific issues when the need arises.
Nominations Committee Current members The Nominations Committee members are Tim Stevenson (Chairman), together with Chris Bunker and John Coleman.
The principal role of the Nominations Committee 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.
Remuneration Committee Current members The Remuneration Committee comprises Andrew Simon (Chairman), Tim Stevenson, Chris Bunker and PRA1 16.3 John Coleman.
The Remuneration Committee is responsible for the broad policy on Directors’ and Senior Management’s remuneration. It determines all aspects of the total individual remuneration packages of the Chairman and Executive Directors and reviews with the Chief Executive the remuneration package of each of the Senior Managers. It approves the design of and determines targets for performance linked annual bonus schemes for the Executive Directors and the Senior Managers.
149 The Remuneration Committee also oversees the administration of the Travis Perkins Employee Share Plans and makes recommendations to the Board on the Travis Perkins Long Term Incentive Plans, including levels of award and performance conditions.
In addition, the Remuneration Committee reports to Shareholders in compliance with the London Stock Exchange and legal requirements and ensures that the Company maintains contact as required with its principal Shareholders and with institutional shareholder bodies about remuneration policy and practice.
Audit Committee Current members The Committee comprises Chris Bunker (Chairman), Andrew Simon and John Coleman. PRA1 16.3
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 in them;
• reviewing the Company’s internal financial controls and risk management systems;
• monitoring and reviewing the effectiveness of the Company’s internal audit function;
• making recommendations to the Board in relation to the appointment of the external auditor and approving the remuneration and terms of engagement of the external auditor;
• reviewing and monitoring the external auditor’s independence and objectivity and the effectiveness of the audit process; and
• developing and implementing policy on the engagement of the external auditor to supply non-audit services.
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.
Executive Committee The Executive Committee is responsible for the implementation of strategies, operational plans, policies, procedures and budgets. The Executive Committee is a cross-functional team from the key operational segments of the Group and comprises the Senior Management and the Executive Directors. The Executive Committee monitors the operational and financial performance of the Group, assesses and controls the Group’s risk profile and makes recommendations as to the prioritisation and allocation of resources in order to inform the decisions made in the day-to-day management of the Group.
Health and Safety Committee The Health and Safety Committee is responsible for reviewing and monitoring Company performance on, and compliance with, health and safety objectives, policies, practices and Group performance and supporting management to identify and implement appropriate corrective action to achieve compliance and raise performance where required.
10. Significant shareholdings 10.1 As at 8 May 2009 (being the latest practicable date prior to the publication of this document), the PRA1 18 Company had been notified in accordance with DTR5 of the Disclosure and Transparency Rules of the following interests in its Ordinary Shares:
150 Percentage interest of issued Number of ordinary Shares share capital CM Travis(1) 7,293,138 5.94% Ariva Investors Global Services Limited 6,936,023 5.65% Ernest Raymond Anthony Travis(1) 6,823,964 5.56% Investec Asset Management Ltd. 6,047,690 4.93% Travis Perkins ESOP Trust 5,684,680 4.63% Legal & General Investment Management Ltd. (UK) 5,364,035 4.37% AEGON AM 4,631,068 3.77% Sprucegrove Investment Management, Ltd. 4,393,359 3.58% Royal Bank of Canada Europe Limited (Collateral A/C) 3,784,254 3.08% Standard Life Investments Ltd. 3,721,417 3.03% Notes: (1) Includes a non beneficial interest in 3,835,446 shares. 10.2 Save as disclosed in this paragraph 10, Travis Perkins is not aware of any person who, as at 8 May PRA1 18.3 2009 (being the latest practicable date prior to the publication of this document), directly or indirectly, PRA1 18.4 has a holding which is notifiable under English law.
10.3 Travis Perkins is not aware of any persons who, as at 8 May 2009 (being the latest practicable date prior to the publication of this document), directly or indirectly, jointly or severally, exercise or could exercise control over Travis Perkins nor is it aware of any arrangements the operation of which may at a subsequent date result in a change of control of the Company.
10.4 None of the Shareholders referred to in this paragraph 10 has different voting rights from any other PRA1 18.2 holder of Shares in respect of any Shares held by them.
11. Subsidiaries Members of the Group PRA1 7.1 PRA1 7.2 Travis Perkins plc is the parent company of the Group. The following table contains a list of the principal PRA1 25.1 subsidiaries of Travis Perkins plc (each of which is considered by Travis Perkins plc to be likely to have a PRA1 5.2.1 significant effect on the assessment of the assets, liabilities, financial position and/or profits and losses of the PRA1 5.2.2 PRA1 21.1 Group):
Percentage ownership interest and Field of Country of Name voting power activity incorporation Registered office Benchmarx Kitchens and 100 Specialist United Kingdom Lodge Way House, Joinery Limited distribution Lodge Way, Harlestone Road, Northampton NN5 7UG CCF Limited 100 (Held directly Ceiling and dry United Kingdom Lodge Way House, by Travis Perkins) lining distribution Lodge Way, Harlestone Road, Northampton NN5 7UG City Plumbing Supplies 92.85 of shares Plumbers’ United Kingdom Lodge Way House, Holdings Limited owned merchant Lodge Way, Harlestone 100 of voting Road, Northampton power NN5 7UG Keyline Builders’ Merchant 100 (Held directly Merchant in United Kingdom Southbank House, Limited by Travis Perkins) building materials 1 Strathkelvin Place, Kirkintilloch, Glasgow G66 1HX
151 Percentage ownership interest and Field of Country of Name voting power activity incorporation Registered office Tile Giant Limited 100 Ceramic tile United Kingdom Lodge Way House, merchant Lodge Way, Harlestone Road, Northampton NN5 7UG Travis Perkins (Properties) Limited 100 (Held directly Property United Kingdom Lodge Way House, by Travis Perkins) management Lodge Way, Harlestone company Road, Northampton NN5 7UG Travis Perkins Trading Company 100 (Held directly Merchant in United Kingdom Lodge Way House, Limited by Travis Perkins) building materials Lodge Way, Harlestone Road, Northampton NN5 7UG Wickes Building Supplies Limited 100 DIY retailers United Kingdom Lodge Way House, Lodge Way, Harlestone Road, Northampton NN5 7UG
12. Employees As at 31 December 2008, Travis Perkins had 14,315 employees. PRA1 17.1
As at As at As at 31 December 31 December 31 December 2008 2007 2006 Merchanting 9,565 10,625 9,891 Retail 4,750 4,908 4,029 –––––––– –––––––– –––––––– Total number of employees–––––––– 14,315 –––––––– 15,533 –––––––– 13,920 13. Travis Perkins Employee Share Plans PRA1 17.1 13.1 The Company operates the following employee share plans: • Travis Perkins 2001 Executive Share Option Scheme; • Travis Perkins Deferred Share Bonus Plan; • Travis Perkins 2007 Performance Share Plan; • Travis Perkins Share Matching Scheme; • Travis Perkins Share Matching Scheme (as amended in 2007); • Travis Perkins Sharesave Scheme 2002; and • Travis Perkins Share Incentive Plan (Buy As You Earn),
together (the “Plans”). The principal features of the Plans and, where relevant, the proposed operations for 2009 are summarised below.
In addition, Travis Perkins has set up an employee benefit trust in Jersey, the Travis Perkins ESOP Trust, which may be used to provide Shares to some or all employees in connection with some or all of the Plans. Outstanding options and awards granted under the Plans may be adjusted to compensate for any effect the Rights Issue will have on the value of such options and awards. Adjustments will not be made until after the Rights Issue and will be subject to the approval of HMRC where appropriate. Employees holding investment shares under the Share Matching Scheme and/or shares under the Share Incentive Plan will be able to participate in the Rights Issue in respect of such shares.
152 13.2 Common features The following features are common to each of the Plans.
13.2.1 Dilution limits Shares can be issued under any of the Plans, except the Deferred Share Bonus Plan and the Share Matching Scheme (2004), under which only awards over market purchased Shares can be made. In any 10-year period, not more than 10 per cent. of the issued ordinary share capital of Travis Perkins may be issued or committed to be issued under employee share plans adopted by Travis Perkins. In addition, in any 10-year period, not more than 5 per cent. of the issued ordinary share capital of Travis Perkins may be issued or committed to be issued under executive share plans adopted by Travis Perkins. These limits do not include awards, options or other rights which have lapsed or been surrendered. If Shares are transferred from treasury to satisfy awards and/or options, these will also be counted towards the dilution limits for as long as required by the ABI guidelines.
In addition, under the 2001 Executive Share Option Plan, no options may be granted which would cause the number of Shares allocated under this plan or any other share option plan adopted by Travis Perkins to exceed 1 per cent. of the issued ordinary share capital of Travis Perkins.
13.2.2 Timing of operation Awards and options under the Plans are normally granted within six weeks after the announcement of the Company’s results for any period. Awards and options may also be granted at other times in exceptional circumstances. The Deferred Share Bonus Plan may be operated at any time subject to any dealing restrictions.
13.2.3 Administration The Plans are administered by the Board, the Remuneration Committee or a duly authorised committee under it. The references to “Committee” for the purpose of this paragraph 13 means the Board, the Remuneration Committee or a duly authorised committee appointed by it, as appropriate.
13.2.4 Amendments Shareholder approval is required to amend certain provisions of the Plans to the advantage of participants. These provisions generally relate to: eligibility; individual and dilution limits; rights attaching to options or awards; adjustment of options or awards on a variation in the Company’s share capital; and the amendment power. Alterations to the 2001 Executive Share Option Scheme and the Sharesave Scheme 2002 are generally subject to the prior approval of HMRC. Amendments to the Deferred Share Bonus Plan do not require shareholder approval.
The Committee may make any other amendments to the Plans it considers appropriate without seeking shareholder approval, including: amendments to obtain or maintain HMRC approval; minor amendments to the benefit of the administration of the Plans or which relate to any changes in legislation, or which will obtain or maintain favourable tax treatment, exchange control or regulatory treatment for any participant or Company in the Group; or amendments to any performance condition.
No amendments to participants’ disadvantage may be made without the consent of the majority of participants affected.
13.2.5 Other provisions Options and awards granted under the Plans are not pensionable and are granted for no consideration.
153 Except as described below, participants do not have dividend or voting rights in respect of Shares under award or option until such Shares have been issued or transferred to them. Participants in the Share Matching Scheme have dividend and voting rights in respect of investment shares. On the vesting of awards under the Share Matching Scheme (as amended in 2007), the 2007 Performance Share Plan and the Deferred Share Bonus Plan (as amended in 2008), participants may, at the Committee’s discretion, receive a payment in cash or shares equal to the value of dividends which would have been payable on the vested shares during the vesting period.
Any Shares issued under the Plans will rank equally with other Shares of the same class in issue on the date of allotment except in respect of rights by reference to a record date prior to the date of allotment.
In the event of a variation in the share capital of the Company, a demerger, special dividend or other similar event, the Committee may adjust awards or options under the Plans as it considers appropriate. Where necessary, adjustments are subject to the prior approval of HMRC.
13.3 Travis Perkins 2001 Executive Share Option Scheme
13.3.1 Outline Under the 2001 Executive Share Option Scheme, HMRC-approved options and unapproved options are granted at market value. Options are subject to the satisfaction of a performance condition.
13.3.2 Eligibility Options under the 2001 Executive Share Option Scheme may be granted to employees and full- time Directors of the Company or any participating company.
13.3.3 Grant and exercise of options HMRC-approved options can be granted up to a value of £30,000 per participant. No options (approved or unapproved) may be granted to a participant where the value of underlying Shares exceeds 200 per cent. of the participant’s salary, unless exceptional circumstances apply (in which case the value may not exceed 300 per cent. of salary).
The option price is equal to the middle-market quotation of a Share on the dealing day preceding the date of grant of an option.
Options are normally exercisable between three and 10 years after grant, subject to the satisfaction of a performance condition.
13.3.4 Leaving employment If employment ends before vesting because of injury, disability, redundancy, retirement, death or the sale of the employing company or business, options generally become exercisable to the extent that the performance condition has been satisfied. Unless the Committee decides otherwise, options will lapse on cessation of employment for other reasons.
13.3.5 Takeovers and other corporate events On a takeover, scheme of arrangement or winding-up of the Company, options can generally be exercised early, subject to the satisfaction of the performance condition as at the time of the event. Alternatively, participants may, with the agreement of the acquiring company, be allowed to exchange their options for options over shares in the acquiring company.
13.3.6 2009 operation In accordance with the Committee’s policy adopted in 2008, options under the 2001 Executive Share Option Scheme will be granted to middle-management staff on a bi-annual basis.
154 Accordingly, it is intended that 50 per cent. of the 2009 annual grant will be made shortly following the completion of the Rights Issue. It is intended that grant levels will be in line with previous years’ grants and will take into account the share price at the time of grant.
13.4 Travis Perkins Deferred Share Bonus Plan
13.4.1 Outline Under the Deferred Share Bonus Plan, conditional awards of Shares may be granted to eligible employees subject to a three-year vesting period.
13.4.2 Eligibility Awards under the Deferred Share Bonus Plan may be granted to employees and full-time Directors of the Company or any participating company who is paid an annual cash bonus.
13.4.3 Grant and exercise of awards The Committee determines the value of an award to be granted under the Deferred Share Bonus Plan. The award is subject to a three-year vesting period. Once vested, the award must be exercised by the participant within six months. The Committee will determine on grant whether the exercise of an award is subject to the payment of an award price.
13.4.4 Leaving employment If employment ends before vesting because of death, retirement, ill-health, injury, disability, redundancy or the sale of the employing company or business, awards immediately become fully exercisable. Awards will generally remain exercisable for six months and then lapse. Unless the Committee decides otherwise, awards will lapse on cessation of employment for other reasons.
13.4.5 Takeovers and other corporate events On a takeover, scheme of arrangement or winding-up of the Company, awards can generally be exercised early. Where a change of control of the Company amounts to an internal reorganisation, awards may, with the acquiring company’s consent, be exchanged for awards over shares in the acquiring company.
13.5 Travis Perkins 2007 Performance Share Plan
13.5.1 Outline Under the 2007 Performance Share Plan, awards are granted to eligible employees subject to the satisfaction of a performance condition. Awards may be granted as conditional awards of shares, options or forfeitable shares.
13.5.2 Eligibility Awards under the 2007 Performance Share Plan may be granted to employees and full-time Directors of the Company or any participating company. To date, the 2007 Performance Share Plan has only been operated in respect of Executive Directors and selected senior executives.
13.5.3 Grant and vesting of awards Shares subject to awards may be granted to a participant up to a value of 150 per cent. of the participant’s salary. For awards made in 2008, the maximum award made was: 120 per cent. for the CEO; 100 per cent. for the Finance Director and Chief Operating Officer; and 90 per cent. of salary for the Senior Management. To date, awards have been granted as nil-cost options.
155 Awards granted in 2007 and 2008 vest subject to the satisfaction of an EPS growth performance condition measured at the end of a three-year performance period.
13.5.4 Leaving employment If employment ends before vesting because of death, retirement, ill-health, injury, disability, redundancy, the sale of the employing company or business or for any other reason decided by the Committee, awards generally vest on the normal vesting date, subject to the satisfaction of the performance condition, unless the Committee decides that the award will vest on cessation. Where an award vests as a result of cessation of employment, the awards will be pro rated to reflect the proportion of the vesting period where the participant was not in employment, unless the Committee decides otherwise.
13.5.5 Takeovers and other corporate events On a takeover, scheme of arrangement or winding-up of the Company, awards will generally vest early. The performance condition will be applied as at the date of the relevant event and awards will be pro rated to reflect the early vesting of the award, unless the Committee decides otherwise. Where a change of control of the Company amounts to an internal reorganisation, awards may, with the acquiring company’s consent, be exchanged for awards over shares in the acquiring company.
13.5.6 2009 operation It is intended that awards to Executive Directors and selected senior executives for 2009 will be made shortly following the completion of the Rights Issue. Award levels for 2009 will be in line with previous years’ awards and will take into account the share price at the time of award.
Following recent consultation with investors, the Committee has decided to adopt a broader performance measure for 2009. Accordingly, 2009 awards will vest subject to the satisfaction of a performance condition based on EPS growth, aggregate cashflow and relative total shareholder return (“TSE”) measured at the end of a three-year performance period.
13.6 Travis Perkins Share Matching Scheme
13.6.1 Outline The Share Matching Scheme is a bonus investment plan with a matching element. The Share Matching Scheme has only been operated in respect of bonuses for the 2004 and 2006 financial years. The scheme was amended in 2007 and approved by the Company’s shareholders. The Share Matching Scheme (as amended in 2007) is summarised in paragraph 13.7 below.
13.6.2 Eligibility Employees and full-time Directors of the Company or any participating company were eligible to participate in the Share Matching Scheme. To date, the Share Matching Scheme has only been operated in respect of Executive Directors and selected senior executives.
13.6.3 Grant and vesting of matching awards Eligible employees were required to invest a proportion of their annual bonus, and may have been invited to invest a further proportion, in the acquisition of Shares under the Share Matching Scheme (“investment shares”). The investment shares must be held by the participant for a period of three years. For each investment share, a participant was awarded a conditional right of up to such number of free shares which could have been bought with the amount spent on investment shares had that amount not been subject to tax and national insurance (“matching award”). The vesting of the matching award is subject to retention of the related investment shares and satisfaction of a performance condition.
156 Investment shares were released to a participant after three years. Matching awards vest after three years, subject to the satisfaction of the performance condition.
13.6.4 Leaving employment Investment shares will be released to a participant when he ceases employment with the Company or a participating company. If employment ends before vesting because of death, injury, disability, redundancy, retirement, the sale of the employing company or business, the matching award will generally vest on cessation. If the date of cessation is after the end of the performance period, the matching award will vest to the extent that the performance condition has been satisfied. If the date of cessation is before the end of the performance period, the matching award will vest to the extent that the performance condition has been satisfied as at the end of the financial year in which cessation occurs and the matching award will be pro rated to reflect the number of financial years in respect of which performance is measured as against the three-year performance period.
13.6.5 Takeovers and other corporate events On a takeover, scheme of arrangement or winding-up of the Company, investment shares will be released to participants and matching awards will generally vest early. Unless the Committee in exceptional circumstances decides otherwise, the performance condition will be applied as at the end of the financial year preceding the relevant event and the matching award will pro rated to reflect the early vesting. Where a change of control of the Company amounts to an internal reorganisation, unless the Committee decides otherwise, investment shares and matching awards may, with the acquiring company’s consent, be exchanged for shares and awards over shares in the acquiring company.
13.7 Travis Perkins Share Matching Scheme (as amended in 2007)
13.7.1 Outline The Share Matching Scheme (as amended in 2007) is an amended version of the Share Matching Scheme (described in paragraph 13.6 above). The Share Matching Scheme was amended in 2007 and approved by the Company’s shareholders to remove the compulsory bonus deferral element, to allow matching awards to be structured as nil-cost options, to increase the maximum amount which can be invested by a participant and to remove the requirement to invest only from bonus earned.
13.7.2 Eligibility Employees and full-time Directors of the Company or any participating company are eligible to participate in the Share Matching Scheme (as amended in 2007). To date, the Share Matching Scheme (as amended in 2007) has only been operated in respect of Executive Directors and selected senior executives.
13.7.3 Grant and vesting of matching awards Eligible employees may invest an amount up to 50 per cent. of the participant’s post-tax salary for the acquisition of Shares under the Share Matching Scheme (as amended in 2007) (“investment shares”).
The investment shares must be held by the participant for a period of three years. For each investment share, a participant is awarded a matching award of up to two matching shares (calculated on the basis of a grossed-up investment amount). The vesting of the matching award is subject to retention of the related investment shares and the satisfaction of a performance condition. Matching awards may be granted as conditional awards of Shares, options or forfeitable Shares. Matching awards are currently granted as conditional awards of Shares.
157 Investment shares are released to a participant after three years. Matching awards vest after three years, subject to the satisfaction of the performance condition.
13.7.4 Leaving employment Investment shares will be released to a participant when he ceases employment with the Company or a participating company. If employment ends before vesting because of death, ill- health, injury, disability, retirement, redundancy, the sale of the employing company or business or for any other reason determined by the Committee, the matching award will generally vest on cessation. The matching award will generally vest to the extent that the performance condition has been satisfied as at the end of the financial year in which cessation occurs and the matching award will be pro rated to reflect the early vesting of the matching award.
13.7.5 Takeovers and other corporate events On a takeover, scheme of arrangement or winding-up of the Company, investment shares will be released to participants and matching awards will generally vest early. Unless the Committee decides otherwise, the performance condition will be applied as at the date of the relevant event and the matching award will pro rated to reflect the early vesting. Where a change of control of the Company amounts to an internal reorganisation, unless the Committee decides otherwise, investment shares and matching awards may, with the acquiring company’s consent, be exchanged for shares and awards over shares in the acquiring company.
13.7.6 2009 operation Executive Directors and selected senior executives have been invited on 11 May 2009 to participate in the Share Matching Scheme for 2009. In accordance with previous years’ operation, participants will be able to invest an amount up to 50 per cent. of their post-tax salary in the acquisition of investment shares so as to receive a matching award. Any new investment shares acquired in 2009 will be counted towards the participant’s shareholding for the purpose of the Rights Issue.
13.8 Travis Perkins Sharesave Scheme 2002
13.8.1 Outline The Sharesave Scheme 2002 is an all-employee plan under which employees may be invited to apply for options to acquire Shares. The number of Shares over which the option is granted is determined by the amount the employee commits to save under a savings contract including a tax-free bonus added to the savings at the end of the savings contract. The Sharesave Scheme 2002 is approved by HMRC.
13.8.2 Eligibility All employees and full-time Directors of the Company and any participating subsidiaries must be invited to participate in the Sharesave Scheme 2002 if they are UK taxpayers and have been employed by the Group for a qualifying period (which cannot exceed five years). Other employees may be invited to participate on a discretionary basis.
13.8.3 Grant and exercise of options The option price must not be less than 80 per cent. of the average middle-market quotation of Share over the three dealing days preceding the date of invitation or such other date as agreed with HMRC. The savings contract may run over a period of three or five years and must not permit savings of more than (currently) £250 per month. Options are normally exercisable during the six months after the end of the savings contract.
158 13.8.4 Leaving employment and change of control Options will normally lapse when the participant ceases to be employed before vesting. However, if employment ends because of injury, disability, redundancy, retirement, death or the sale of the employing company or business, or in the event of a change of control of Travis Perkins, options immediately become exercisable to the extent of the related savings. Options will remain exercisable for six months (or 12 months in the case of death) and then lapse.
13.9 Travis Perkins Share Incentive Plan (Buy As You Earn)
13.9.1 Outline The Share Incentive Plan is an all-employee plan which operates through a UK-resident trust. It allows employees to use deductions from salary to buy partnership shares, on the basis that the shares are held in trust. The Share Incentive Plan is approved by HMRC.
13.9.2 Eligibility All employees of Travis Perkins and any participating subsidiaries must be invited to participate in the Share Incentive Plan if they are UK taxpayers. Other employees may be invited to participate on a discretionary basis.
13.9.3 Partnership shares The Share Incentive Plan allows eligible employees to be offered the opportunity to purchase partnership shares using money deducted from their pre-tax salary. The amount deducted must not exceed £1,500 (or 10 per cent. of salary, if lower) in any tax year. Partnership shares can be withdrawn from the Share Incentive Plan at any time, but income tax and national insurance charges will apply if they are withdrawn within five years of the purchase date.
13.9.4 Leaving employment Shares awarded to a participant whose employment terminates must be withdrawn from the Share Incentive Plan immediately. Charges to income tax and national insurance will apply unless the participant leaves by reason of death, injury, disability, redundancy, retirement or the sale of the business or subsidiary for which the participant works or the shares have been retained in the Share Incentive Plan for at least five years.
14. Pension benefits The Group operates a number of registered pension schemes for the benefit of its UK employees and executive directors, the Travis Perkins Pensions & Dependants’ Benefit Scheme, the Travis Perkins Pension Plan, the Travis Perkins Stakeholder Scheme and the Travis Perkins Contracted-in Money Purchase Scheme. The Travis Perkins Pensions & Dependant Scheme is a funded defined benefit scheme which is subject to an independent actuarial valuation at least every three years on the basis of which the scheme actuary certifies the rate of employer contributions which, together with the specified employee contributions and the proceeds of the scheme assets are expected to fund the benefits payable under the scheme. The scheme was closed to employees who joined the Group after 31 January 2006 and new employees and directors from that date are only entitled to join the Travis Perkins Pension Plan, which is a defined contribution plan. The Travis Perkins Stakeholder Scheme is a money purchase scheme and currently, there are approximately 700 members in this scheme. The Travis Perkins Contracted-in Money Purchase Scheme also provides money purchase benefits and currently has 16 members in this scheme.
Directors accrue benefits in the Travis Perkins Pensions & Dependant Benefit Scheme at the lesser of 1/30th of final pensionable salary or such rates as, at age 60, would provide a pension of 2/3rds of their final pensionable salary. Final pensionable salary is defined as the average of the best consecutive three of the last 10 years of pensionable salary. For pensionable service from 1 December 2004, pensionable salary for all members is basic salary only, excluding bonuses. As with all other members, directors’ dependants are eligible for dependants’ pensions and payment of a lump sum in the event of death in service. From April 2006, an “earnings cap” has been applied in respect of benefits based on service only to that date. Also since
159 that date, a salary supplement has been made available as an alternative to further accrual in the final salary scheme, at the member’s option, for members the value of whose benefits are at least 80 per cent. of the Lifetime Allowance. The salary supplement is calculated with regards to the cost to the Company of providing continuing pension accrual. Since 2007, executives choosing a salary supplement are offered a flat rate which is calculated based on the Company’s contributions to the Travis Perkins Pension Plan (25 per cent. for Executive Directors).
Please also refer to the paragraph entitled (“An unexpectedly high increase in contributions to the Group’s pension scheme could materially reduce the availability of cash to the Group”) set out in “Risk Factors” of this document.
15. Litigation No member of the Group is or has been involved in any governmental, legal or arbitration proceedings nor, PRA1 20.8 PRA1 22 so far as Travis Perkins is aware, are any such proceedings pending or threatened by or against any member of the Group which may have, or have had in the recent past (covering the 12 months immediately preceding the date of this document), a significant effect on the Group’s financial position or profitability.
16. Material contracts The following contracts (not being contracts entered into in the ordinary course of business) have been PRA3 5.4.4 entered into by members of the Group (i) within the two years immediately preceding the date of this document which are or may be material or (ii) contain any provision under which a member of the Group has an obligation or entitlement which is material to the Group as at the date of this document.
16.1 Underwriting Agreement The Company, the Underwriters and the Joint Sponsors have entered into the Underwriting Agreement dated 11 May 2009 under which the Underwriters have agreed, subject to certain conditions, to use their respective reasonable endeavours to procure subscribers for, and, failing which, to subscribe for, the 85,903,379 New Shares which are not validly taken up under the Rights Issue. Under the Underwriting Agreement, the Company has also appointed the Joint Sponsors in connection with its application for Admission.
The Company has agreed to pay the Underwriters an underwriting fee equal to:
(i) in the case of each of the Underwriters who are also Joint Global Coordinators, 3.264 per cent.; and (ii) in the case of each of the Underwriters who are also Joint Lead Managers, 2.75 per cent.,
of the Issue Price multiplied by the aggregate number of the relevant Underwriter’s Proportionate Share (as such term is defined in the Underwriting Agreement) of the New Shares, subject to reimbursement in respect of 701,150 New Shares which certain shareholders of the Company (being certain members of the Travis and Perkins families and related trusts) have irrevocably undertaken to take up). This fee accrues in its entirety at Admission.
In addition to the payment of commissions, the Company will, subject to certain exceptions, pay all properly incurred costs and expenses of, or in connection with, the Rights Issue, the Extraordinary General Meeting, the allotment and issue of the New Shares, Admission, the Underwriting Agreement and the Receiving Agent Agreement.
The Underwriters’ and Joint Sponsors’ obligations under the Underwriting Agreement are conditional, among other things, on:
(i) the passing of the Resolutions at the Extraordinary General Meeting on 27 May 2009;
(ii) subject to the prior satisfaction or waiver of the other conditions, Admission becoming effective not later than 8.00 a.m. on 28 May 2009 or such later time and/or date (not later than 4 June 2009) as the Joint Global Coordinators (acting jointly) may agree in writing; and
160 (iii) no event referred in section 87G(1) of the FSMA arising between the time of publication of the Prospectus and Admission and no Supplementary Prospectus being published by or on behalf of the Company before Admission. The conditions, other than, inter alia, the passing of the Resolutions and Admission of the New Shares becoming effective, may be waived in the absolute discretion of the Joint Global Coordinators, acting jointly.
Amongst other things, the Underwriting Agreement confers on the Joint Global Coordinators, acting separately or jointly, the right to terminate the Underwriting Agreement prior to the date of Admission in certain circumstances including for material adverse change and force majeure.
The Underwriting Agreement also contains certain customary representations and warranties by the Company as to the accuracy of the information contained in this document, and in relation to other matters relating to the Group and its business and an indemnity from the Company in favour of each of the Underwriters and the Joint Sponsors and their relevant persons. The liabilities on the Company are unlimited as to time and amount.
The Company has given certain undertakings including, but not limited to, that, subject to certain exceptions (including the issue of Shares and the exercise of share options or awards) it will not, during the period ending 90 calendar days after the latest acceptance date under the Rights Issue or, if applicable, the date on which the Underwriting Agreement is terminated, without the prior written consent of the Joint Sponsors, allot, issue, offer, lend, mortgage, assign, charge, pledge, sell, contract to sell, allot or issue, sell any option or contract to purchase, purchase any option or contract to sell or issue, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any rights in respect of any securities or any securities convertible into or exercisable or exchangeable for, or substantially similar to, shares or enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of any securities of the Company.
In addition, each of the Underwriters have undertaken that, during the period beginning on the date of the Underwriting Agreement and ending on the third business day after the latest acceptance date under the Rights Issue, it will not (subject to certain exemptions), without the prior written consent of the Company (such consent not to be unreasonably withheld or delayed), enter into any transaction involving the Ordinary Shares or derivatives referencing the Ordinary Shares intended to, directly or indirectly, have the economic effect of hedging or otherwise mitigating the economic risk associated with its underwriting commitments under this Agreement.
16.2 Facility Agreement Travis Perkins has entered into a facility agreement dated 4 April 2008 (the “Facility Agreement”) with Barclays Capital, The Royal Bank of Scotland Plc, BNP Paribas London Branch, Lloyds TSB Bank Plc, The Governor and Company of the Bank of Ireland and Fortis Bank S.A./N.V. as mandated lead arrangers, HSBC Bank Plc and The Bank of Tokyo-Mitsubishi UFJ, Ltd. as lead arrangers and Barclays Bank Plc as facility agent, as amended by amendment agreements dated 8 April 2008 and 28 May 2008, comprising a term facility of up to £525,000,000, a revolving facility of up to £475,000,000 and a letter of credit facility. Each term loan may only be used for (i) refinancing amounts outstanding under an existing £1,200,000,000 credit facility provided by, among others, Barclays Bank Plc and The Royal Bank of Scotland plc, as amended from time to time, dated 16 December 2004 and (ii) the general corporate purposes of the Group, including the acquisition of companies or businesses. Each revolving credit loan may be used for the general corporate purposes of the Group including any purposes for which a term loan may be used. Each letter of credit may only be issued for the general corporate purposes of the Group. If the Company and a lender agree, a lender may provide an ancillary facility on a bilateral basis to a borrower in place of all or part of that lender’s revolving credit commitment with the facility agent’s approval. The terms of the ancillary facility will be those agreed by the ancillary lender and the Company.
161 Advances under the term and revolving facilities bear interest at rates per annum equal to the aggregate of IBOR, plus, where appropriate, any applicable mandatory costs (which are the adjustments required if the Bank of England mandates a change to the reserve requirements for lending banks), plus the applicable margin. The applicable margin ratchets up and down and is determined by reference to the ratio of the Company’s consolidated total net borrowings to consolidated EBITDA (as defined in the Facility Agreement). A borrower must pay to the facility agent for each lender a letter of credit fee, computed at the same rate as the margin, on the outstanding amount of each letter of credit requested by it for the period from the issue of that letter of credit until its maturity date.
The Facility Agreement is guaranteed by the Company together with Travis Perkins Trading Company Limited, Travis Perkins (Properties) Limited, Keyline Builders’ Merchant Limited, CCF Limited and City Plumbing Supplies Holdings Limited, Wickes Limited and Wickes Building Supplies Limited and allows for its wholly owned subsidiaries to accede as additional borrowers and/or additional guarantors. Otherwise the Facility Agreement is not subject to any security.
The financial covenants require the Company to comply with financial tests including (i) ensuring the ratio of consolidated total net borrowings to consolidated EBITDA (as defined in the Facility Agreement) does not exceed 3.5:1 and (ii) ensuring that the ratio of consolidated EBITA (as defined in the Facility Agreement) to consolidated net interest payable is not less than 3.5:1 when tested on 30 June and 31 December. The next scheduled test of the two financial covenants described in this paragraph at (i) and (ii) above is 30 June 2009. The Company is obligated to ensure that the aggregate pre-tax profits, gross assets and turnover of the guarantors (excluding intra-group items, investments in subsidiaries and goodwill and other intangible assets arising on consolidation) are not at any time less than 80 per cent. of the total pre-tax profits, gross assets and turnover, respectively, of the Group at that time.
16.3 US PP Note Purchase Agreement On 26 January 2006, Travis Perkins entered into a note purchase agreement (the “US PP Note Purchase Agreement”) with a number of purchasers set out at Schedule A of that agreement (the “Purchasers”) under which Travis Perkins agreed to the issue and sale to the Purchasers of (i) US$200,000,000 aggregate principal amount of its 5.77 per cent. Guaranteed Series A Senior Notes due 26 January 2013 (the “Series A Notes”) and (ii) US$200,000,000 aggregate principal amount of its 5.89 per cent. Guaranteed Series B Senior Notes due 26 January 2016 (the “Series B Notes” and, together with the Series A Notes, the “US PP Notes”) at a purchase price of 100 per cent. of the principal amount of the US PP Notes. The Notes are guaranteed by certain subsidiaries of Travis Perkins and rank pari passu with all other unsecured and unsubordinated financial indebtedness of Travis Perkins, as defined in the US PP Note Purchase Agreement.
Travis Perkins gave certain warranties to the Purchasers including, inter alia, as to valid existence, corporate power and authority to enter into the US PP Note Purchase Agreement, material accuracy of the Private Placement Memorandum given to the Purchasers in November 2005 (relating to the US PP Notes and describing Travis Perkins’ business and properties), Travis Perkins’ financial indebtedness, tax and the use of the proceeds of the US PP Notes. Travis Perkins also granted certain tax indemnities to the Purchasers.
Travis Perkins is subject to certain positive covenants so long as the US PP Notes remain outstanding, including, inter alia, in relation to the priority of the payment obligations under the US PP Note Purchase Agreement. Subject to certain exceptions, Travis Perkins is also subject to certain negative covenants so long as the US PP Notes remain outstanding, including, inter alia, certain covenants not to merge or allow any of its subsidiaries to merge into or with or into any other entity, not to sell, lease or otherwise dispose of all or any substantial part of its assets and not to create security interests over its assets. The Net Debt Covenant and the Interest Cover Covenant in the US PP Note Purchase Agreement mirror those in the Facility Agreement.
162 Events of default under the US PP Note Purchase Agreement include, inter alia, defaults by Travis Perkins in the payment of principal or interest due on the US PP Notes, defaults in compliance with certain of its covenants under the US PP Note Purchase Agreement, default in payment of Travis Perkins’ other financial indebtedness and misrepresentation or breach of warranty under the US PP Note Purchase Agreement. The Purchasers’ remedies on events of default include, inter alia, the US PP Notes automatically becoming due and payable and the right to bring legal proceedings for specific performance of any term of the US PP Note Purchase Agreement or for an injunction against the violation of any term. Prepayment events may be triggered under the US PP Note Purchase Agreement on, inter alia, a change in the tax laws or a change of control of Travis Perkins.
Certain of Travis Perkins’ subsidiaries have entered into subsidiary guarantee agreements with the Purchasers wherein they have agreed to irrevocably, absolutely and unconditionally guarantee: (i) the full and prompt payment of the principal of all of the US PP Notes and of the interest thereon, (ii) the full and prompt performance and observance by Travis Perkins of each and all of the obligations, covenants and agreements required to be performed or observed by Travis Perkins under the terms of the US PP Note Purchase Agreement and the US PP Notes, and (iii) the full and prompt payment, upon demand, by any holder of the US PP Notes of all costs and expenses, as may have been expended or incurred in the protection or enforcement of any right or privilege of the holder. Each holder of the US PP Notes has the right to sue a subsidiary guarantor directly upon principal, interest and other amounts becoming due and payable.
16.4 Agreement for the acquisition of Tile Giant On 15 November 2007, Travis Perkins and Mohammed Iqbal, Ansar Aziz and Neil Kelly (the “Sellers”) entered into an agreement (the “Tile Giant Agreement”) for the purchase by Travis Perkins of all of the issued share capital of Tile Giant Holdings Limited, a private limited company registered in England and Wales, and its subsidiary companies which include Tile Giant Limited (“Tile Giant”) and Tile Delta Limited (together the “Acquired Companies”). The consideration for the shares was £12.0 million paid in a mixture of £4.3 million in cash and the issue of £7.7 million in loan notes (which were redeemed in 2008), plus deferred consideration payments dependent upon the future profits and losses of Tile Giant over the 12-month periods ending on 31 December 2008, 31 December 2009 and 31 December 2010.
Provisions are included in the Tile Giant Agreement to regulate how the Acquired Companies are operated and managed by Travis Perkins until 31 December 2010. Until this date, Travis Perkins is prohibited from requiring the Acquired Companies (or their boards or directors) to do certain acts without the prior unanimous consent of the Sellers, including, inter alia, disposing of the business of the Acquired Companies or making any material changes to their business, incurring certain capital expenditures and making any acquisitions of properties, businesses or companies. Travis Perkins is also subject to certain positive obligations under the Tile Giant Agreement, including, inter alia, to procure that the business of the Acquired Companies is run and operated in accordance with a specified business plan which may only be amended with the written consent of both the Sellers and Travis Perkins.
The Sellers gave certain representations and warranties to Travis Perkins, including, inter alia, as to title to the shares, power and authority to enter into the Tile Giant Agreement, borrowings, charges and liabilities, the accounts, tax, premises and properties and employee benefits. The Tile Giant Agreement contains certain limitations and qualifications on the ability of Travis Perkins to make claims under such warranties and the Seller’s total liability is capped at £12.0 million. Travis Perkins also gave certain representations and warranties to the Sellers, including, inter alia, valid existence and power and authority to enter into the Tile Giant Agreement. The Sellers are liable to indemnify Travis Perkins for certain costs, claims and losses which may arise. Certain indemnity claims may not be made by Travis Perkins more than three years following completion of the acquisition.
163 16.5 ToolStation Acquisition Documents
Agreement for the acquisition of 30 per cent. of ToolStation and right to purchase remainder On 4 April 2008, Travis Perkins entered into an agreement (the “ToolStation Agreement”) with the founding shareholders (the “Vendors”) of ToolStation Limited (“ToolStation”) for the acquisition of 30 per cent. of the issued share capital of ToolStation (the “Initial Shares”). The initial consideration for the shares was £5.2 million paid in cash.
Under the ToolStation Agreement Travis Perkins agreed to purchase and the Vendors agreed to sell the remaining 70 per cent. of the issued share capital of ToolStation (the “Deferred Shares”) after four years using an earn-out formula based on a multiple of profits if certain earn-out conditions based on EBITDA thresholds are met. Payments of this deferred consideration are to be in the form of the issue of loan notes by Travis Perkins, payable for two earn-out periods the period commencing on 1 January 2011 and ending on 21 December 2011 (inclusive) and the period commencing on 1 January 2013 and ending on 21 December 2013 (inclusive) (the “Earn-out Periods”).
If the earn-out conditions specified in the ToolStation Agreement are not met, Travis Perkins has the option to require the Vendors to sell the Deferred Shares to it for cash equal to 0.001p per share. If Travis Perkins does not exercise this option, the Vendors have the option to require Travis Perkins to sell the Initial Shares back to the Vendors. Certain non-compliance with the Loan Note Instrument (as defined below) by Travis Perkins entitles the Vendors to require Travis Perkins to sell and transfer the Initial Shares back to the Vendors.
In the event that Travis Perkins commits any specified breach of its obligations under the ToolStation Agreement, the Vendors have the right to serve notice which may lead to Travis Perkins being required to issue to the Vendors loan notes equal to £115,000,000 (less an amount equal to the consideration already paid) and, if Travis Perkins has not by that date already acquired all of the Deferred Shares, Travis Perkins has the option to acquire them for 0.001p per share.
The Vendors are restricted under the ToolStation Agreement from transferring the Deferred Shares, creating any encumbrances over the Deferred Shares or voting in respect of the Deferred Shares in favour of any resolution without the prior consent of Travis Perkins. Travis Perkins is restricted from the same in relation to the Initial Shares.
During the Earn-out Periods, Travis Perkins is subject to certain positive obligations with respect to the conduct of ToolStation’s business, including, inter alia, an obligation to conduct the business in accordance with a specified business plan which may only be amended with the written consent of both the Vendors and Travis Perkins. Travis Perkins is also subject to certain negative obligations not to, without the prior written agreement of the Vendors, inter alia, dispose of the whole or any material part of ToolStation’s assets or business, materially alter the nature of the business, appoint or remove senior employees or directors of ToolStation, incur capital commitment or capital expenditure or enter into any transaction not being in the normal and ordinary course of business.
The Vendors gave certain customary warranties and indemnities to Travis Perkins. Mark Goddard- Watts, one of the Vendors and a director of ToolStation, gave certain other warranties to Travis Perkins and Mark Goddard-Watt’s total liability under such warranties is capped.
16.6 ToolStation Finance Documents
£30 million Revolving Credit Facility On 4 April 2008, Travis Perkins entered as lender into an intercompany loan agreement (the “ToolStation £30m RCF”) with ToolStation as borrower, agreeing to make available to ToolStation a £30 million unsecured revolving credit facility for the purposes of financing: ToolStation’s expansion of its business in accordance with an agreed business plan, fees and expenses in relation to such expansion and ToolStation’s general working capital requirements.
164 ToolStation is permitted to draw under the revolving credit facility until 31 December 2013. Drawings are subject to performance conditions related to progress against ToolStation’s business plan, and may not be made by ToolStation if, inter alia, it has not opened a specified number of shops within six months of the target date set out in the business plan or the gross profits (less operating costs) of ToolStation in any six month period (to the end of June or December, as the case may be) is less than 75 per cent. of the level projected by the business plan.
Interest of 1 per cent. per annum above the Bank of England’s base rate is payable by ToolStation to Travis Perkins in arrears. The ToolStation £30m RCF provides that all drawings made under the revolving credit facility, unless already repaid, are due and payable by ToolStation on 31 December 2013. Travis Perkins has the right under the terms of the ToolStation £30m RCF to declare all monies drawn under the revolving credit facility, and interest accrued thereon, immediately due and payable if an event of default occurs, such events including, inter alia, the administration of ToolStation, the appointment of a receiver over the assets of ToolStation or if ToolStation stops or threatens to stop payment of its debts.
As at 31 December 2008, £8.5 million had been borrowed by ToolStation under the ToolStation £30m RCF.
Loan Note Instrument On 4 April 2008, Travis Perkins entered into a loan note instrument (the “Loan Note Instrument”) creating up to £115,000,000 bank unsecured guaranteed loan notes 2018 (the “Loan Notes”).
Under the Loan Note Instrument, Travis Perkins has agreed to arrange for The Royal bank of Scotland plc or some other reputable bank to issue, and maintain until redemption, a guarantee of the payment of all sums due in respect of the Loan Notes for the benefit of the noteholders.
Interest of 1 per cent. per annum above the Bank of England’s base rate is payable on the nominal amount of each Loan Note. Interest of 2 per cent. per annum above the Bank of England’s base rate is payable if Travis Perkins fails to pay any amount payable in respect of the principal or interest on the Loan Notes on the due date.
The deferred consideration payable under the ToolStation Agreement shall be paid when due under that agreement by the issue of the Loan Notes in the principal sum equal to the amount of the deferred consideration then due to be paid. If the deferred consideration is greater than £115,000,000, Travis Perkins must procure that it has constituted sufficient additional bank guaranteed loan notes on the same terms as the Loan Notes to satisfy the full payment of the deferred consideration.
Redemption provisions applicable following issue of the Loan Notes:
Once issued, the Loan Notes will be redeemed at their principal amount together with interest accrued (less tax where required by law to be deducted from the payment) on 31 December 2018. A noteholder will have the right at any time prior to 31 December 2018 redeem any Loan Notes (at any time after six months from the date of issue) on 31 October, 31 January, 30 April and 31 July by giving at least 30 days’ notice. The noteholders will be entitled by notice in writing to Travis Perkins, signed by 75 per cent. of the holders of the Loan Notes then outstanding, to require redemption of all or any of the Loan Notes if an event of default occurs, such events including, inter alia, failure by Travis Perkins to repay any principal amount or interest of the Loan Notes within 10 business days of the due date of such principal or interest, the administration of Travis Perkins, if Travis Perkins stops or threatens to stop payment of its debts or if the guarantee ceases to be effective or is withdrawn by the guarantor.
No application has been or is intended to be made to any stock exchange or other market for the notes to be listed or otherwise traded.
£7 million ToolStation Loan Agreement On 4 April 2008, Travis Perkins entered as lender into an intercompany loan agreement (the “ToolStation Loan Agreement”) with ToolStation as borrower, agreeing to make available to
165 ToolStation a £6,805,758.49 loan for the purposes of financing ToolStation’s repayment of existing indebtedness to National Westminster Bank plc and certain of the vendors as defined in the ToolStation Agreement.
Interest of 1 per cent. per annum above the Bank of England’s base rate is payable by ToolStation to Travis Perkins in arrears. The ToolStation Loan Agreement provides that the principal together with all interest accrued and all other amounts due are due and payable by ToolStation on 31 December 2013. Travis Perkins has the right under the terms of the ToolStation Loan Agreement to declare all monies drawn under the credit facility, and interest accrued thereon, immediately due and payable if an event of default occurs, such events including, inter alia, the administration of ToolStation, the appointment of a receiver over the assets of ToolStation or if ToolStation stops or threatens to stop payment of its debts.
17. Related party transactions Other than as disclosed in the financial information incorporated by reference into this document for the PRA1 19 years ended 31 December 2006, 2007 and 2008, there are no related party transactions between the Company or members of the Group that were entered into during the years ended 31 December 2006, 2007 and 2008. There have been no additional related party transactions between the Company or members of the Group that were entered into during the period between 8 May 2009 (being the latest practicable date prior to the publication of this document).
18. Dividends The following table sets out the dividend per Ordinary Share paid in respect of each of the years ended PRA1 20.7 PRA1 20.7.1 31 December 2006, 2007 and 2008: PRA3 4.5 2008 2007 2006 (pence) Dividend per Ordinary Share for the year ended 31 December 14.5 44.9 37.4
19. Working capital The Company is of the opinion that, after taking into account existing available bank and other facilities, the PRA3 3.1 Group has sufficient working capital for its present requirements, that is, for at least the next 12 months from the date of this document.
20. No significant change Save for the declines in revenue of 18.4 per cent. in Merchanting and 1.9 per cent. in Retail giving rise to a PRA1 20.9 reduction in the Group’s profit before tax disclosed in paragraph 5 (“Current trading and prospects”) of Part I (“Letter from the Chairman of Travis Perkins plc”) of this document, there has been no significant change in the financial or trading position of the Group since 31 December 2008, the date to which the latest published financial information on the Group was prepared.
21. Consents Deloitte LLP is a member firm of the Institute of Chartered Accountants in England and Wales and has given PRA3 1.1 PRA1 23 and not withdrawn its written consent to the inclusion of its report in Part VII (“Unaudited Pro Forma PRA3 10.3 Financial Information”) of this document in the form and context in which it appears and has authorised the PRA3 10.4 contents of the Parts of this document which comprise its report for the purposes of Rule 5.5.3R(2)(f) of the Prospectus Rules. As the New Shares have not been and will not be registered under the US Securities Act, Deloitte LLP has not filed a consent under the US Securities Act.
22. General 22.1 The financial information concerning the Group contained in this document does not constitute PRA1 2.1 PRA1 20.4.1 statutory accounts within the meaning of section 434(3) of the Companies Act. The consolidated
166 financial statements of the Company in respect of the three years ended 31 December 2006, 2007 and 2008 incorporated by reference in this document were reported on by Deloitte LLP, the auditors of the Company, within the meaning of section 495 of the Companies Act for the period of the historical financial information set out in this document. The auditors of the Company made reports under section 503 of the Companies Act in respect of the three years ended 31 December 2006, 2007 and 2008 incorporated by reference in this document and such reports were unqualified reports within the meaning of sections 836 to 841 of the Companies Act.
22.2 The total costs, charges and expenses payable by the Company in connection with the Rights Issue PRA3 8.1 are estimated to be £13 million (inclusive of VAT).
22.3 The Company remains subject to the continuing obligations of the Listing Rules with regard to the PRA3 4.5 issue of securities for cash and the provisions of section 89 of the Companies Act (which confers on PRA3 5.3.3 Shareholders rights of pre-emption in respect of the allotment of equity securities which are, or are to be, paid up in cash) apply to the balance of the authorised but unissued share capital of the Company which is not the subject of the disapplication in Article 9.3 of the Articles of Association.
22.4 The Existing Shares are in registered form, are capable of being held in uncertificated form and are PRA3 6.2 admitted to the Official List and are traded on the main market for listed securities of the London PRA3 4.3 Stock Exchange.
22.5 The New Shares will be in registered form and, from Admission, will be capable of being held in PRA3 4.3 uncertificated form and title to such shares may be transferred by means of a relevant system (as PRA3 4.1 defined in the CREST Regulations). Where New Shares are held in certificated form, share certificates will be sent to the registered members by first-class post. Where New Shares are held in CREST, the relevant CREST stock account of the registered members will be credited. The New Shares have the ISIN GB00B4N52472.
22.6 The New Shares will be issued at 365 pence per share. PRA3 4.1 PRA3 4.4
23. Documents available for inspection Copies of the following documents may be inspected at the registered office of the Company and at the PRA1 24 offices of Linklaters LLP, One Silk Street, London EC2Y 8HQ during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) from the date of publication of this document until Admission and will also be available for inspection at the Extraordinary General Meeting for at least 15 minutes prior to and during the meeting:
23.1 the Memorandum and Articles of Association;
23.2 the Annual Report and audited consolidated accounts of the Group for the three years ended 31 December 2006, 2007 and 2008;
23.3 the report on the unaudited pro forma financial information by Deloitte LLP set out in Part VII (“Unaudited Pro Forma Financial Information”) of this document;
23.4 the Circular to Shareholders; and
23.5 this document.
24. Announcement of results of the Rights Issue The Company will make an appropriate announcement(s) to a Regulatory Information Service giving details PRA3 5.1.9 of the results of the Rights Issue on 11 June 2009 (unless an extended timetable is otherwise announced by the Company).
Dated: 11 May 2009
167 PART X
DOCUMENTATION INCORPORATED BY REFERENCE
The Annual Report and Accounts of Travis Perkins for each of the years ended 31 December 2006, 2007 and PR 2.4 2008 are available for inspection in accordance with paragraph 23 of Part IX (“Additional Information”) of PR 2.4.4 this document and contain information which is relevant to the Rights Issue. These documents are also PRA1 20.3 available on Travis Perkins’ website http://www.travisperkinsplc.com under Investor Centre, Company Reports.
The table below sets out the various sections of such documents which are incorporated by reference into this document so as to provide the information required under the Prospectus Rules and to ensure that Shareholders and others are aware of all information which, according to the particular nature of Travis Perkins and of the New Shares, is necessary to enable Shareholders and others to make an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of Travis Perkins and the rights attaching to the New Shares.
Accounts for the year ended 31 December 31 December 31 December 2008 2007 2006 PR Reference Accounting Policies 71-76 76-80 69-72 PRA1 20.1(e) Consolidated Income Statement 66 72 64 PRA1 20.1(b) Balance Sheet 68-69 73-74 65-66 PRA1 20.1(a) Statement of Recognised Income and Expense 67 72 64 PRA1 20.1(b) Cash Flow Statement 70 75 67 PRA1 20.1(d) Notes to accounts 71-109 76-110 68-101 PRA1 20.1(e) Changes in equity 93 96 88 PRA1 20.1(c) Report of the auditors 64-65 69-70 62-63 Directors’ Remuneration Report 49-57 53-61 47-54 Related party Transaction 106 107 98 Statement of Directors’ Responsibilities 63 68 60 N/A Financial Director’s Review of the Year 34-37 – – N/A – Financial Risk Management – Liquidity and Net Debt – Interest Rate and Currency Derivatives Financial Director’s Review of the Year – Financial Risk Management – 40-42 34 N/A Shareholder Enquiries 117 117 108 N/A
168 PART XI
DEFINITIONS
In this document the following expressions have the following meaning unless the context otherwise requires:
Admission the admission of the New Shares (nil paid and fully paid) to the Official List becoming effective in accordance with the Listing Rules and the admission of such shares (nil paid and fully paid) to trading on the London Stock Exchange’s market for listed securities becoming effective in accordance with the Admission and Disclosure Standards Admission and Disclosure Standards the “Admission and Disclosure Standards” of the London Stock Exchange containing, among other things, the admission requirements to be observed by companies seeking admission to trading on the London Stock Exchange’s main market for listed securities Articles of Association the articles of association of the Company, details of which are set out in paragraph 4 of Part IX (“Additional Information”) of this document. Audit Committee the audit committee established by the Board Barclays Bank Barclays Bank PLC Board the board of directors of Travis Perkins Canadian Jurisdictions all Provinces of Canada CCSS or CREST Courier and Sorting the CREST Courier and Sorting Service established by Service Euroclear UK to facilitate, amongst other things, the deposit and withdrawal of securities certificated or in certificated form where a share or other security is not in uncertificated form CGT UK tax on chargeable gains Circular to Shareholders the circular to Shareholders issued by the Company dated 11 May 2009 incorporating the notice of Extraordinary General Meeting Citi Citigroup Global Markets Limited in its capacity as joint sponsor and/or Citigroup Global Markets U.K. Equity Limited, as the context may require Closing Price closing middle market price as derived from the Daily Official List Combined Code the UK Combined Code on Corporate Governance Companies Act the UK Companies Act 1985, as amended or the UK Companies Act 2006, as the context so requires
169 Company or Travis Perkins Travis Perkins plc, a company incorporated under the laws of England and Wales (registered under no. 824821), with its registered office at Lodge Way House, Lodge Way, Harlestone Road, Northampton NN5 7UG. “Travis Perkins” is also the brand name under which the Group’s General Merchanting division conducts its business and has such meaning where so stated CREST the relevant system, as defined in the CREST Regulations (in respect of which Euroclear UK is the operator as defined in the CREST Regulations) CREST Manual the rules governing the operation of CREST, consisting of the CREST Reference Manual, CREST International Manual, CREST Central Counterparty Service Manual, CREST Rules, Registrars Service Standards, Settlement Discipline Rules, CCSS Operations Manual, Daily Timetable, CREST Application Procedure and CREST Glossary of Terms (all as defined in the CREST Glossary of Terms promulgated by Euroclear UK on 15 July 1996 and as amended since) CREST member a person who has been admitted to Euroclear UK as a system member (as defined in the CREST Regulations) CREST participant a person who is, in relation to CREST, a system-participant (as defined in the CREST Regulations) CREST Regulations or Regulations the Uncertificated Securities Regulations 2001 (SI 2001 No. 01/378), as amended CREST sponsor a CREST participant admitted to CREST as a CREST sponsor CREST sponsored member a CREST member admitted to CREST as a sponsored member Daily Official List the daily record setting out the prices of all trades in shares and other securities conducted on the London Stock Exchange Directors the Executive Directors and Non-executive Directors of Travis Perkins, whose names appear on pages 32 and 136 of this document Disclosure and Transparency Rules the rules relating to the disclosure of information made in accordance with section 73A(3) of the FSMA EPS earnings per share EU or European Union the European Union EURIBOR the Euro Interbank Offered Rate Euro or € the single currency of the member states of the European Communities that adopt or have adopted the euro as their lawful currency under the legislation of the European Monetary Union Euroclear UK Euroclear UK & Ireland Limited, the operator of CREST European Economic Area the European Union, Iceland, Norway and Liechtenstein Exchange Act the United States Securities Exchange Act of 1934, as amended Excluded Territories and each an Australia, Canada, Japan, New Zealand and South Africa Excluded Territory Executive Directors the executive directors of Travis Perkins
170 Existing Shares Ordinary Shares in issue as at the date of this document Extraordinary General Meeting the extraordinary general meeting of Travis Perkins to be held at 11.00 a.m. on 27 May 2009 Ex-Rights Date the date on which the Ordinary Shares commences trading ex- rights, being 28 May 2009 Facility Agreement the facility agreement dated 4 April 2008 between Travis Perkins and Barclays Capital, The Royal Bank of Scotland plc, BNP Paribas London Branch, Lloyds TSB Bank plc, The Governor and Company of the Bank of Ireland and Fortis Bank S.A./N.V. as mandated lead arrangers, HSBC Bank plc and The Bank of Tokyo-Mitsubishi UFJ, Ltd. as lead arrangers and Barclays Bank plc as facility agent, as amended by amendment agreements dated 8 April 2008 and 28 May 2008, comprising a term facility of up to £525,000,000, a revolving facility of up to £475,000,000 and a letter of credit facility, and further described in paragraph 16.2 of Part IX (“Additional Information”) of this document Financial Services Authority or FSA the Financial Services Authority of the UK Form of Proxy form of proxy accompanying this document for use by Shareholders in relation to the Extraordinary General Meeting FSMA the Financial Services and Markets Act 2000, as amended Fully Paid Rights rights to acquire the New Shares, fully paid GAAP generally accepted accounting principles Group the Company and each of its subsidiaries and subsidiary undertakings from time to time HMRC HM Revenue & Customs HSBC HSBC Bank plc IAS International Accounting Standard IASB the International Accounting Standards Board IBOR in relation to an amount in Euros, EURIBOR and, in relation to any other amount, LIBOR ICAEW the Institute of Chartered Accountants in England and Wales IFRS International Financial Reporting Standards as issued by the International Accounting Standards Board Interest Cover Covenant the financial covenant set out in Travis Perkins’ syndicated credit facility and its US PP Notes that the ratio of consolidated earnings before interest, tax and amortisation (“EBITA”) to consolidated net interest (“interest cover”) (each as defined in those covenants) must not be less than 3.5:1 Issue Price 365 pence per New Share Joint Global Coordinators Citigroup Global Markets U.K. Equity Limited and HSBC Joint Lead Managers Barclays Bank, BNP Paribas and RBS Hoare Govett Joint Sponsors Citigroup Global Markets Limited and HSBC
171 LIBOR London Interbank Offered Rate Listing Rules the Listing Rules made by the FSA under Part VI of the FSMA London Business Day a day (excluding Saturdays and Sundays or public holidays in England and Wales) on which banks generally are open in London for the transaction of normal business London Stock Exchange London Stock Exchange plc member account ID the identification code or number attached to any member account in CREST Memorandum of Association the memorandum of association of the Company, details of which are set out in paragraph 4 of Part IX (“Additional Information”) of this document Money Laundering Regulations the Money Laundering Regulations 2007 (SI 2007/2157) Net Debt Covenant the financial covenant set out in Travis Perkins’ syndicated credit facility and its US PP Notes that the ratio of consolidated total net borrowings to consolidated earnings before interest tax, depreciation and amortisation (“EBITDA”) (each as defined in those covenants) must not exceed 3.5:1 New Shares Ordinary Shares to be allotted and issued pursuant to the Rights Issue Nil Paid Rights rights to acquire the New Shares, nil paid Nominations Committee the nominations committee established by the Board Non-CREST Shareholder a Shareholder who does not hold their Ordinary Shares in CREST Non-executive Directors the Non-executive Directors of Travis Perkins Official List the Official List of the FSA pursuant to Part VI of the FSMA Ordinary Shares or Shares the ordinary shares of 10 pence each in the share capital of the Company (including, if the context requires, the New Shares) OSC Ontario Securities Commission Overseas Shareholders Shareholders with registered addresses outside the UK or who are citizens or residents of, or located in, countries outside the UK Part VI Rules the rules contained in Part VI of the FSMA Participant ID the identification code or membership number used in CREST to identify a particular CREST member or other CREST participant Pounds sterling or £ the lawful currency of the UK Prospectus Rules the Prospectus Rules published by the FSA under section 73A of the FSMA Provisional Allotment Letter or PAL the renounceable provisional allotment letter expected to be sent to Qualifying Non-CREST Shareholders in respect of the New Shares to be provisionally allotted to them pursuant to the Rights Issue QIB or qualified institutional buyer the meaning given in Rule 144A under the US Securities Act
172 Qualifying CREST Shareholders Qualifying Shareholders holding Ordinary Shares in uncertificated form in CREST Qualifying Non-CREST Shareholders Qualifying Shareholders holding Ordinary Shares in certificated form Qualifying Shareholders holders of Ordinary Shares on the register of members of the Company at the Record Date with the exclusion (subject to certain exceptions) of persons with a registered address or located or resident in the United States or an Excluded Territory RBS Hoare Govett RBS Hoare Govett Limited Receiving Agent Capita Registrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU Record Date close of business on 22 May 2009 Registrar(s) or Capita Registrars the Registrars of the Company, Capita Registrars, at Northern House, Woodsome Park, Fenay Bridge, Huddersfield HD8 0GA Regulation S Regulation S under the US Securities Act Regulatory Information Service one of the regulatory information services authorised by the UK Listing Authority to receive, process and disseminate regulatory information in respect of listed companies Remuneration Committee the remuneration committee established by the Board Resolutions the resolutions to be proposed at the Extraordinary General Meeting to implement the Rights Issue Rights Issue the proposed issue by way of rights of New Shares to Qualifying Shareholders on the basis described in this document and, in the case of Qualifying Non-CREST Shareholders, in the Provisional Allotment Letter RMI repair, maintenance and improvement RTGS real time gross settlement SDRT stamp duty reserve tax SEC or United States Securities and the United States government agency having primary Exchange Commission responsibility for enforcing the federal securities laws and regulating the securities industry/stock market Senior Managers the senior managers of Travis Perkins whose names appear in paragraph 6.2 of Part IX of this document Shareholder or Travis Perkins a holder of Ordinary Shares Shareholder Stock account an account within a member account in CREST to which a holding of a particular share or other security in CREST is credited Subsidiary undertaking as defined in section 258 of the Companies Act
173 Travis Perkins or the Company Travis Perkins plc, a company incorporated under the laws of England and Wales (registered under no. 824821), with its registered office at Lodge Way House, Lodge Way, Harlestone Road, Northampton NN5 7UG. “Travis Perkins” is also the brand name under which the Group’s General Merchanting division conducts its business and has such meaning where so stated Travis Perkins Employee Share Plans the employee share plans described in Part IX (“Additional Information”) of this document Tricorn Partners Tricorn Partners LLP Trustee the trustee of the Group’s main UK pension scheme TSR total shareholder return UK the United Kingdom of Great Britain and Northern Ireland UK Listing Authority or UKLA the FSA in its capacity as the competent authority for the purposes of Part VI of the FSMA and in the exercise of its functions in respect of the admission to the Official List otherwise than in accordance with Part VI of the FSMA uncertificated or in uncertificated form recorded on the relevant register of the share or security concerned as being held in uncertificated form in CREST and title to which, by virtue of the CREST Regulations, may be transferred by means of CREST Underwriters Citigroup Global Markets U.K. Equity Limited, HSBC, Barclays Bank, BNP Paribas and RBS Hoare Govett Underwriting Agreement the underwriting agreement dated 11 May 2009 between the Company, the Underwriters and the Joint Sponsors relating to the Rights Issue and further described in paragraph 16.1 of Part IX (“Additional Information”) of this document United States or US the United States of America, its territories and possessions, any state of the United States and the District of Columbia US Dollar or US$ the lawful currency of the US US Exchange Act the United States Securities Exchange Act of 1934, as amended US Holder a beneficial owner of rights and New Shares that is, for United States federal income tax purposes, (i) an individual citizen or resident of the United States, (ii) a corporation created or organised under the laws of the United States or any State thereof, (iii) an estate the income of which is subject to United States federal income tax without regard to its source or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or the trust has elected to be treated as a domestic trust for United States federal income tax purposes US Investor Letter the letter, in agreed form, to be delivered by certain QIBs in the United States in connection with the Rights Issue
174 US PP Note Purchase Agreement the note purchase agreement dated 26 January 2006 under which Travis Perkins agreed to the issue and sale of (i) US$200,000,000 aggregate principal amount of its 5.77 per cent. Guaranteed Series A Senior Notes due 26 January 2013 and (ii) US$200,000,000 aggregate principal amount of its 5.89 per cent. Guaranteed Series B Senior Notes due 26 January 2016, and further described in paragraph 16.3 of Part IX (“Additional Information”) of this document US PP Notes the US$400 million fixed rate guaranteed unsecured private placement notes issued by the Company in January 2006 pursuant to the terms of the US PP Note Purchase Agreement, and further described in paragraph 16.3 of Part IX (“Additional Information”) of this document US Securities Act the United States Securities Act of 1933, as amended
175 sterling 116873