With today being the day which marks the 45 day period in which to inform staff on furlough of their redundancy, Travis Perkins has announced that it is to close 165 branches of its business, resulting in the loss of 2500 staff, which is 9% of their workforce.
This is their statement, made via their PLC website:
Over the last six weeks, the Group has continued to open more of its branches under the safe, social-distancing working practices we have developed in conjunction with customers, suppliers and construction industry bodies, as well as the UK Government.
Group volumes in May were around 60% of prior year with an improving trend throughout the month. The Group’s weekly volume run rate is now around 85-90% of prior year with particular strength in Wickes’ core DIY ranges and in Toolstation, with both businesses demonstrating improving like-for-like growth versus 2019, with performance underpinned by their strong digital capabilities.
Across the Merchanting and Plumbing & Heating businesses, volumes are now around 80% of prior year with more marked differences between the businesses depending on the customer category mix and also with some regional variations. The General Merchanting business is operating well, whereas trading in Plumbing & Heating is recovering more slowly as a greater proportion of plumbing work requires tradesmen to work in people’s homes.
However, while there has been a significant recovery in trading volumes in recent weeks, it is evident that the UK is facing a recession and this will have a corresponding impact on the demand for building materials during 2020 and 2021.
Throughout the COVID-19 crisis, the safety of colleagues and customers has been of paramount importance, with the closure, re-opening and operation of branches focused on maintaining a safe approach to trading. The Group has used Government schemes appropriately to protect employment during the lockdown period, giving time to make an initial assessment of the level of recovery of the trading environment as the lockdown eases.
Reflecting the challenging outlook for our end-markets, the Group is taking regrettable but necessary actions to preserve the future competitiveness of the business.
Following discussions with colleagues this morning, the Group has commenced a consultation process regarding the closure of around 165 branches across the overall branch estate, representing approximately 8% of the Group’s network. In addition, the Group is consulting on above-branch roles in the distribution, administrative and sales functions. In total, the Group expects to reduce the number of colleagues by around 2,500 or approximately 9% of the workforce.
Branch closures will be concentrated in the Merchant businesses, in particular the Travis Perkins General Merchant, focusing on small branches where it is either difficult to implement safe distancing practices, or where marginal profitability will be eroded in a reduced volume environment.
Strong cash management to maintain a robust financial position
The Group continues to maintain a strong liquidity headroom position with a robust balance sheet. Actions to reduce the monthly operational cash burn rate and to carefully manage working capital have continued. Customer collections remain robust, enabling the Group to maintain its committed payments to suppliers throughout the crisis period, whilst also preserving a strong liquidity position. At 12 June, the Group had cash deposits of £363m, and taken together with the undrawn £400m Revolving Credit Facility, overall liquidity headroom of £763m.
The Group continues to work closely with its relationship banking syndicate. Despite the strong liquidity position, given the impact of the COVID-19 crisis and the resulting lockdown period on the Group’s income statement for 2020, the Group has taken the prudent step to agree a relaxation of the covenants for the test dates at the end of June and December 2020.
- The interest cover covenant has been waived for both June and December 2020
- The net leverage covenant has been relaxed to 3.5x for June 2020
- The net leverage covenant has been waived for December 2020
- A minimum liquidity headroom covenant has been established for September and December 2020
Interim results announcement
Due to the ongoing uncertainty caused by the COVID-19 pandemic, the Group has decided to publish its interim results in early September.
Nick Roberts, Chief Executive, commented:
“The COVID pandemic has created significant challenges across our Group and I have been hugely encouraged by the flexibility of our colleagues to adapt our business models successfully and at pace, which has enabled us to maintain safe working practices whilst continuing to provide an effective service to our customers.
Whilst we have experienced improving trends more recently, we do not expect a return to pre-COVID trading conditions for some time and consequently we have had to take the very difficult decision to begin consultations on the closure of selected branches and to reduce our workforce to ensure we can protect the Group as a whole. This is in no way a reflection on those employees impacted and we will do everything we can to support them during this process.
The Group has a robust balance sheet, strong liquidity position and I am confident that these proposed changes will enable us to trade successfully through this period of uncertainty with a cost base that better reflects the environment we are operating in.”
Planning for recession
Cutting 9% of the workforce is a significant step. They recognise that whilst they have seen a return to business for most of its group, it’s not yet at 100%, and their statement makes clear that they know a recession is nearby, if not already started.
They also state that they don’t expect to return to pre-COVID trading conditions for a while. A hint that they think the current surge in business activity may not hold beyond this busy period.
This is a sad day for those thousands who are going to lose their jobs. They join the ranks of thousands of others from other sectors which have either lost their job or due to lose it due to the pandemic and its impact on the economy.
The business is planning for the recession. One which is very different from others in the past. One where we have very advanced notice that it is on its way. One where we have an unprecedented level of support from the Government. As we move closer to the beginning of the end of furlough, I expect to see other moves like this from companies in both ours, and the wider construction sector.
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