2023 was a challenging year for the Group as a combination of macroeconomic uncertainty, progressively weakening end market demand, sharp deflation on commodity products in the second half and overhead inflation made business planning difficult, weighing heavily on the Group’s earnings performance during the year. Reflecting the expectation of continued challenging market conditions, management’s primary focus is now to drive efficiencies through the transformation of the Group’s operating model and prioritise capital allocation to support the recovery of profitability and reduction of leverage in the medium term.
The Group delivered revenue of £4,862m, down 2.7% versus 2022. The decline in revenue was driven by the Merchanting businesses with rising interest rates leading to a significant reduction in new build housing activity. A lack of secondary housing transactions, coupled with weak consumer confidence and pressure on household finances, resulted in the domestic RMI market also remaining subdued. Toolstation saw good revenue growth in both the UK and Europe with maturity benefits being realised and further market share gains.
Adjusted operating profit of £180m was £115m, or 39.0%, lower than in 2022 with the prior year reported adjusted operating profit also including a £15m restructuring charge. Around £64m of the profit decline resulted from lower sales volumes whilst approximately £24m was attributable to lower gross margins, with deflation on timber products in the second half a significant contributory factor.
Although the Group delivered overhead savings in 2023 of around £35m, the remaining profit reduction was due to these savings being more than offset by overhead increases. The majority of these increases related to inflation, primarily on salaries, and included an £8m cost-of-living payment in January 2023. The increase in overheads also included £20m investment in Toolstation, primarily in the new distribution centres at Pineham (UK) and Rotterdam (Netherlands and Belgium) plus the ongoing expansion of the European network.
