UK's Travis Perkins profit rises as turnaround starts to bear fruit

By Simone Lobo

Aug 4 (Reuters) - British building materials supplier Travis Perkins reported higher first-half profit on Tuesday as price increases and cost-cutting measures helped offset weak demand in a subdued UK construction market, sending its shares up as much as 18.8%.

Under CEO Gavin Slark, who took the helm in January, Travis Perkins is focusing on controlling costs as the UK construction sector grapples with weak demand, slow economic growth, and rising building costs spurred by the Iran war.

On Tuesday, the owner of Toolstation UK said it was seeing encouraging early progress from that turnaround plan.

It reported a 6.3% rise in adjusted operating profit in the six months to June 30, while revenue fell 1.8%. It said trading conditions were likely to remain subdued in the second half and broadly in line with those seen in the first.

"Travis Perkins was among the most shorted names in the market coming into the result, and there was a clear expectation that they may well reduce forecasts today – hence an in-line statement is as good as beat", Peel Hunt analyst Sam Cullen said.

The revenue decline was driven by continued weakness in the company's merchanting business, which supplies building materials to housebuilders and infrastructure contractors.

However, Travis Perkins said it had passed on some manufacturers' price increases to customers, slowing the decline in like-for-like revenue at the division.

Slark told investors that suppliers had raised prices of some oil-based plastic products by 15% to 20%.

Asked whether price increases could hit consumer demand, the CEO told Reuters: "I think that the demand has been impacted more by the macro and UK-specific economic situation rather than pricing."

Separately, smaller rival SIG's shares fell 2.3% after it warned again that its markets were unlikely to recover this year and possibly through 2027, as it accelerated a plan to simplify operations, and boost cash generation and profits.

($1 = 0.7443 pounds)

(Reporting by Simone Lobo in Bengaluru. Editing by Mrigank Dhaniwala and Mark Potter)