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Travis Perkins in Connaught talks

Builders’ merchant Travis Perkins has revealed it is owed a significant sum of money by imperilled social housing group Connaught.

However, the firm said it had placed no pressure on Connaught other than enforcing the payment terms originally agreed.

Connaught was given a £15 million extension to its overdraft last week, after warning that government spending cuts could blow a £200 million hole in its revenues over this year and next.

Travis Perkins finance director Paul Hampden-Smith said: “We have significant exposure as they are a large customer. We are having discussions with Connaught, but these are confidential.”

The builders’ merchant unveiled a positive set of interim results last week, with revenue up 4.7 per cent to £1.5 billion in the six months to 30 June compared with the same period a year earlier. It managed to increase adjusted pre-tax profits by 23.7 per cent to £111.8m.

But Travis Perkins chief executive Geoff Cooper was lukewarm in his appraisal of the market. He said it had improved from being “appalling” 12 months ago, but still described it as “miserable”.

The firm offers a good indication of the overall state of the construction market, given its broad geographic exposure and high number of customers.

The construction industry officially grew by 6.6 per cent in the three months to the end of June, according to the Office for National Statistics.
But these figures were greeted with surprise after two consecutive quarters of 1.6 per cent negative growth.

Travis Perkins has a large number of housebuilding customers. Strong sales to these clients in the first quarter of the year were driven by demand from house buyers and re-stocking of inventories by housebuilders.

However, sales dipped in the second quarter, when a decline in demand from re-stocking was accompanied by a slowdown in the housing market generally.

Mr Cooper said: “We have performed ahead of our expectations in the first half of 2010. While we continue to see modest market growth following a severe recession, we view the future with confidence.”

No single region is outperforming or underperforming the others for Travis Perkins.

Mr Hampden-Smith said: “All the regions are performing well, with mid single-digit sales growth across the board.”

The firm has resumed paying a dividend to shareholders. It is also investing in its retail business, increasing capacity and targeting higher levels of customer service.

After generating positive cash flows in the first half of the year, net debt has been reduced by £102.8m and now stands at £410.5m.