Earnings Call: H2 2018

Feb 28, 2019

Okay. Good morning, everybody. Thank you for coming. I know some of you had made a mad dash across town to get here, but, Welcome to the results presentation for the Grafton Group for the year ending December 2018. I think most of you know us pretty well, but if anyone's not sure, I'm Gavin Slark. I'm the group's CEO and I'm joined today by David Arnold, who's our CFO. Our agenda for this morning is relatively simple. I will give you some highlights, to start the presentation off. I will then hand you over to David who will take you through some more detail in terms of the P and L, the balance sheet, performance of the individual businesses and the potential impact of IFRS 16. Once he's dazzled you with that, I shall come back up and give you a view on current trading and the outlook as we see it, and that should leave us plenty of time for some Q and A towards the end. So in terms of the by 9% to $2,950,000,000, a significant improvement on last year resulting in a 19% increase in operating profit to 194,500,000. The adjusted EPS showing a 20% increase up to 66p which has also resulted in a 16% increase in the dividend up to 18p per share from 15.5p last year. And absolutely in line with our progressive dividend policy that is the 6th consecutive year of double digit dividend increase. Adjusted operating margin, but by 60 basis points to 6.6p and the return on capital employed improvement of 140 basis points to 15%. So overall, from the headline point of view, very, very strong performance from the group last year, very positive set of results. The pleasing aspect from these results from last year is again we have seen all of the segments within the group showing improvement year on year. That's merchanting, manufacturing, and retailing all showing improvements against 2017. What's also really pleasing about this set of results as well as we say there, the integration of Layland SDM and the acquisition that we made last year, which has contributed very positively to the P and L this year, but also very broadly based organic growth when you look at some of our core businesses, you look at Ireland, you look at Woodies, you look at Chadwicks, you look at the Dutch business, maybe some businesses in the UK that we don't talk about in awful lots that Pete businesses like Cymbals and Lyntraes, T. G. Lions, as an example, all showing positive organic growth. Excellent progress towards our medium term financial targets. I think we've been very public and said medium term target was a 7% operating margin, married to a 15% return on capital employed. That target we actually hit during 2018 with a 6.6% operating margin very close to that 7% target too. And a fantastic job by David Charles and the finance team in delivering really strong cash flow, getting net debt down to very low levels, meaning that we're in financially really good shape enabling us to take advantage of investment opportunities that come along in the future. Many of you will recognize this chart as we've now shown it for a few years but really just showing the journey of the operating margin and the return on capital employed over the past few years. You'll see there the operating margin over that period moved from just over 2.5% up to that 6.6% that we talked about earlier. And the return on capital employed stellar growth going from 4.6 percent up to the 15% where we are today. And I think what we're demonstrating there is that consistent growth coming right the way through the group. And with that, you're probably desperate for some more detail, so I shall hand you over to David who will take you through the financials. Thank you, Gavin, and, good morning, ladies and gentlemen. Group revenue was up by 9% to £2,950,000,000 or up by 8% in constant currency terms. Adjusted operating profits before property profits were 18% ahead of last year at 189,600,000 Properties profits were slightly ahead at 1,000,000, leaving the group's adjusted operating profit up 19% overall at 194,500,000. There was a £7,000,000 combined charge for amortization on acquisitions and the small loss on disposal of noncore businesses. The net finance cost was 1,000,000, and that was down slightly on the year because of higher interest receivable and lower foreign currency losses. And adjusted profit before tax was 20% up to £188,400,000. We show here the overview bridge of the improvement in operating towards our 7% operating margin target last year and it was really sick pleasing to see the balance of improvement between that gross margin improvement and the benefits of tight control of operating expenses. The investment and the focus that we've had in recent years on higher margin businesses continue to have a favorable impact last year. As a consequence, despite most of our businesses seeing some pressure on gross margins in competitive markets, the faster underlying growth in higher gross margin businesses That's the likes of Selco, Ireland and the Netherlands, together with the Layland SDM acquisition, all contributed to lifting the group's gross margin by 20 basis points. In addition, self help initiatives and a continual focus on cost management improved our overhead efficiency by 30 basis points. So overall, we delivered an increase in the group's operating margin of 60 basis points to 6.6%. The increase in revenue during from organic growth in a quarter from acquisitions. And as you can see, foreign exchange movements didn't have a significant bearing on the 2018 results. The principal acquisition that we made in 2018 was Layland SDM, which represented 1,000,000 of the incremental revenue £58,000,000 with the balance being the acquisitions which we made in Holland. And if we look at the organic growth in revenue of 1000000, all businesses delivered like for like growth with the bulk of the absolute growth delivered from the UK merchanting and Irish merchanting businesses, which you can see over towards the left hand side of the chart. £58,000,000 of the increase in organic revenue last year was derived from organic growth initiatives of which the majority was the new were the new Selco branches. There was a reduction of £13,000,000 from branch consolidations and disposals. If we now look at the component of the increase in operating profit from 1,000,000 over on the left up to the 1,000,000 which we reported last year, you can see that 1,000,000 was derived from profit improvement in the like for like business. Growth initiatives contributed a net improvement of 1,200,000 and of this approximately 1,000,000 relates to lower Selco store opening costs in 2018 when compared to 2017. Acquisitions added 1,000,000 to operating profit, of which the bulk comprised the contribution from Layland SDM. If we look at the analysis of that £20,700,000 improvement in the like for like business, It was really pleasing to see that profit advance look across all our main businesses and when we look at the drop through rates, You can see that the overall group drop through rate was at 16% as over on the right hand side on incremental like for like revenue that was slightly higher than last year. Turning now to the individual businesses. In UK Merchanting, Adjusted operating profit pre property profit increased by 9.1 percent to 1000000. The operating margin was unchanged at 5.5 percent that was up slightly in the second half of the year. Average daily like for like revenue grew by two point 7% with volumes broadly in line with last year, though the RMI market did see a modest volume reduction. The gross margin improved by 30 basis points, and that reflected the mix benefits of the Selco expansion and the acquisition of Layland which has offset general pricing pressure, which we experienced in competitive markets. Selco profit was ahead of last year due to lower store opening costs. We made further investment into the new bill based trading system which is now up and running and supporting significant portion of our day to day back office operations, and we expect to commence branch rollout in the second quarter. This branch rollout will lead to an increase in operating expenses of approximately 1,000,000 in 2019, and that's principally derived through training costs, and an amortization of the investment that we've made into the system, but it will ultimately lead to even better customer service for our bill based customers. The Irish merchanting business continued to perform perform strongly Reported revenue grew by 9.3% in sterling terms and average daily like for like revenue was up by 7.7% and that was consistent with our expectations at the start of the year. We saw the underlying construction market continue to perform well, With house completions increasing to 18,000, though still some way short of the annual homes requirement, which is estimated at some 40,000 units per year. The gross margin reduced modestly as we expected and that reflected the continued expansion of delivered products to new build customers. Operating profit increased by 20 percent to £41,300,000, and the operating margin increased by 90 basis points to 9.4% with the 2nd half margin increasing to 10.6%. At Chadwick's brand, trialed a new trading format, and this has now been rolled out to 5 more branches with further investment across the estate plan. Our investment is focused on ensuring we continue to offer offer our cost customers the best experience possible through the largest bur builders merchanting network in Ireland. In the Netherlands, reported revenue increased by 19% and average daily like for like revenue increased by 6.6% We saw good performances across both the branch network and also through growth with key national account customers. Operating profit increased by 2.7 percent to £16,000,000 and the operating margin was just over 10%. 2 branches were acquired in the year, and we opened 2 new branches, and we're continuing to invest into the branch network. Particularly focusing on improving the self select areas for customers. Construction of the new distribution center is progressing well, with occupation expected in the second half We saw improved financial performance in the second half, with an ongoing focus to drive efficiencies and operational improvements to improve returns in this business. Woodies delivered an excellent performance with reported revenue up by 10% and operating profit up by 50% to 16,800,000. The operating margin increased by 230 basis points to 8.5%. The growth in revenue was derived from a roughly equal split between transactions and average transaction value. Seasonal products performed particularly strongly in 2018. The good weather that we had in May June gave rise to stronger sales in the likes of barbecues and garden furniture, and the Christmas category performed very strongly too. The store upgrade program now covers 85% of the revenue and we're continuing to invest in the store estate and digital offering. Online remains a relatively small element of overall revenue, but is growing quickly. Manufacturing had another record year with operating profit up by 27% to £19,200,000. The operating margin increased by 150 basis points to 24.4 percent percent due to volume growth and tight management of the cost base. We saw continued growth in packaged products which are now being extended for sale into Selco. Turning now to the balance sheet and just a few comments here. Working capital increased slightly faster than revenue last year, but remains very well controlled. Working capital intensity was 6.5% at the end of December. We've taken precautionary steps to mitigate Brexit risk and invested into stock in the first quarter at slightly higher levels than we ordinarily would have done. With net debt of £53,000,000, representing net debt to EBITDA of just 2 of just 0.2 times, the balance sheet remains in very good shape. You may remember that we raised money in the US private placement market last year and received the proceeds in September This was at an average coupon of 2.5 percent with 1,000,000 raised split over 10 12 years. Finally, we were delighted consistent with our medium term objectives and represented an increase of 140 basis points. Now this improvement in Rocky was led by an improvement in operating margin as capital return remained constant at 2.3 times and you may recall previously that we said that we felt it was unlikely that we could improve capital turns significantly from that 2.3 times and that the Rocky improvement was likely to be derived from future increases in operating margin. Looking at our cash flow, we once again saw strong free cash flow generation 81 percent of operating profit Net replacement CapEx was well controlled with the bulk of this investment focused on fleet and branch maintenance. We continue to invest in further growth of the business with £41,000,000 spent on development CapEx. A gross £81,000,000 was spent on business acquisitions with a net £13,000,000 generated from the sale of 2 small UK businesses and a branch in Belgium. These disposals contributed 1,000,000 of revenue and 1,000,000 of operating profit in 2018. Just to provide some initial guidance on some of the more technical elements of 2019 expectations, And firstly, on property profits, we currently expect these to be about 1,000,000 that's slightly lower than the 1,000,000 we delivered in 2018. Depreciation on a pre IFRS 16 basis, and I'll come to that in a moment. That's currently forecasted approximately 49,000,000 and we expect 2019 CapEx to be around 1a half times this figure. We expect replacement CapEx to be approximately 1,000,000 with organic development spend at approximately 1,000,000. And please note that this excludes any acquisition spend. Based on current forecasts, the interest charge should be around £7,500,000. That reflects the higher coupon on the US private placement notes And again, I just note that this will be influenced by the acquisition spend. Finally, we expect the tax rate to be 18.5% consistent with the underlying rate in 2018. Now that John Messenger come in, I just wanted to spend a few moments on IFRS 16, which is the new lease standard. You'll see that this is include or will be included for the first time in our rim results, which we publish in August. The new standard comes into effect on the 1st January 2019, and we intend to adopt the modified retrospective approach. IFRS 16 will bring all our leases onto our balance sheet at the implementation date but the modified approach does mean that we will not be providing restated comparatives. The key thing to remember is that the new standard has no impact on cash flows and no impact on our financial covenants. Our financial covenants and our funding agreements are all fixed at the date of signing on the basis of frozen gap. We estimate that the balance sheet liability for the current lease portfolio is somewhere between 1000000 and 1000000. That's equivalent to roughly 7.5 times our 2018 annual lease charge. Instead of the actual lease rental now being expensed through the P and L account, we will now see a separate depreciation charge and an imputed interest cost. The impact on profit before tax is neutral over the life of a lease but it will result in a higher charge in the earlier years with a lower charge coming through in the later years. I've set out on this slide the impact on the various key elements of the income statement but it is our intention over the next 3 years to provide restated earnings per share information on a pre IFRS 16 basis in order to provide historic comparability. And on that note, I'll hand back to Gavin. We just felt it was worth spending a moment just looking at what we perceive to be the factors that makes grafton a little bit different. I think first of all, we talk about the market positions that that we have. And if you look at the UK, obviously in that traditional merchanting market with BillBase and with Plumb base, we have very strong positions. And again with Selco Builders Warehouse, which in the UK, is a clearly differentiated business model. In Holland, we've got a leading position in the Iron Mongolian Construction accessories market. And obviously in Ireland, we are the market leader in both builders merchanting and DIY retailing. And what's looking at Ireland and Holland, I think one of the other strengths that that we have is obviously those two markets are 2 of the fastest growing economies within Europe. We also operate what we refer to as a decentralized federated structure, probably epitomized by the fact that if you visit our head office in Dublin, You'll just be met with a team of 20 something people to very, very small head office with everything else who's pushed back out into the businesses. Which means that all the resources of the business, all of the assets are nearer the customer where we believe the individual businesses can make best use of them. That decentralized structure also drives very strong culture development within the individual businesses. We want the people within our businesses to have an ambition to be brilliant for our customers to feel that they're empowered to be entrepreneurial And you can only really do that in an environment where you trust the people that you have working within the business. And we have got some incredibly talented business leaders working right the way through the group, making sure that we're delivering that customer service and customer experience that helps to differentiate Grafton. As David said, we have an incredibly strong financial base, very low levels of debt, strong cash generation. The balance sheet is in extremely good shape. Enabling us to look forward in terms consistently delivering better results year on year. And you know how we love a chart. So if you look at this one in terms of earnings and dividend per share, You'll see there that the EPS since 2011, the compound annual growth rate on EPS is in excess of 25% getting up to that 66p level that we saw this year. And again, in terms of the dividend, moving the dividend from just 6 and a half pence per share, up to that 18p per share where where we are now showing sustained dividend growth in line with that progressive dividend policy that we have talked about in recent years. In terms of the journey that we've been on, if you for those of you who were at the Capital Markets Day at the end of 2013, there are a few of you were, We started then by saying our aspiration was to get to a 5% operating margin and a double digit return on capital employed. In 2015, we moved that forward to the targets that we talk about today being a 7% operating margin married with a 15% return on capital employed. One of those targets that we've achieved now, one that we're very, very close to. So what does that mean in terms of the next stage of the development of Grafton. We've got a very clear plan. We have a very clear strategy on the future growth of the business and achieving those targets along the way really get us to a point now where we can be clearly focused on investing in both organic growth and acquisitive growth to keep driving the earnings of the business forward for I now this is an incredibly short period of time that we're looking at here. We're talking about January 1st through February 17, And I think most of you will remember that most of the world didn't come back to work after Christmas until January 7th. So this is a very short period of time I know many of you guys have got a voracious appetite for this information. So here is the information that we can give you. What we've given you on the slide is Q4 from last year and then that period up until 17th December, that 17th February, sorry, that 6 week period at the start of this year. So UK merchanting like for like growth of 1.9% at the start of this year compared to that 3.4% and the strong end that we had to 2008. In Ireland, really positive start to the year in terms of merchanting, but by 10.5% if you then go to the Netherlands, you'll see just over 4 a half percent growth in like for like sales in that 1st 6 weeks in Netherlands. Also 5.5% growth in Belgium. And you will remember that over the past couple of years, we've talked in Belgium about during the second half of last year, we were relocating the Brussels branch, which really accounts for almost 25% of the Belgian revenue. That branch was relocated during the second half of last year, and now we can have a focus on really driving revenue growth through that branch that's probably held the growth in Belgium back a little bit over recent years. In retailing, in Woodies, just over 5.5% growth continuing the strong performance of Woodies in that Irish DIY market. Manufacturing up by 1.3% which you may look at that compared to Q4 and think that that's a little bit of a weaker performance What I would just like to point out on manufacturing, if you take this same 6 week period the beginning of last year, that business was actually up 26% on the 1st 6 weeks of 2017. So last year was an incredibly strong start to the year. Some growth on that this year I would also say in terms of our mortar business, we've actually got more silos out on construction sites in the UK than we've ever had before. So total group like for like revenue growth in that 6 week period, 3.7%. So continuing to see growth in every sector continuing to see growth in every geography. In terms of the outlook as we see going forward our focus remains in the UK very much on out performing the market. We obviously all understand there's a little bit of macro uncertainty in the UK. We have no control over what happens in terms of the Brexit process So our focus is very much on whatever the market brings to us, our focus is on outperforming that market. We do believe The RMI activity may be modestly lower this year in terms of volume, but there is some price inflation coming through and we think that that should help to offset whatever potential volume risk there is in terms of the UK market. The UK market continues to be competitive. It's been competitive for a long time, we would anticipate it continuing to be competitive going forward. Competitive market conditions for us are pretty much business as usual. In Ireland, we see continued growth coming through in terms of the economy. The forward indicators are still positive And as David said earlier, that the Irish new build market is still some considerable way of what is recognized generally as a normalized market of between 3540 1000 homes a year being built. That number was 18,000 last year. So we still see the Irish economy has having some continued growth coming forward in the years to come and it is the fastest growing economy in Europe. In terms of Netherlands and Belgium, obviously the outlook for the Dutch market continues to be positive. We are increasing our scale in the Dutch market and we should continue to see business improvements coming through from that increase in scale. And as I said earlier, Belgium our focus really is on self help and making sure that we get the traction that we need out of that new location in Brussels. So in summary, growth and profitability across all of the sectors that we have, manufacturing, merchanting, and retailing all showing growth during 2018 and of course in every geography. So in terms of the Netherlands, the UK and Ireland growth going right the way across the group, Excellent progress towards those medium term targets of 7% operating margin, 15% return on capital employed, with that return on capital employed target, having been achieved during 2018. Our ongoing focus is on growth and on self help. And self help from my perspective, what that really means, it's about doing the simple things really well because I believe if we get the basics right, that gives us a great foundation on which to build on which to grow. And on that note, the balance sheet puts us in a great position be able to continue to support investment in organic initiatives as we go through organic growth and looking at acquisition opportunities I think as we've said consistently, our belief on acquisitions is we we continue to look for acquisitions. However, We really are quite disciplined in the approach that we have. They have to be good businesses. They have to have good positions in robust markets. With more opportunities to grow and management teams that we believe we can work with going forward. And on that note, I will retake my seat. We'll go into Q and What I would say what I would say in terms of the Q and A, for the benefit of those watching on the webcast, if you've got a question, if you can raise your hand, will bring a microphone to you. If you could give us your name, the company that you represent, and then your question, that'll make the Q and A flow very smoothly for us. Thank you. Ainsley Lammin from Canaccord. Just two questions, please. Just on the U. K. Outlook, obviously lots of uncertainty. You say in competitive markets business as usual, but given one of the big competitors has maybe acted a bit more aggressively taking market share and the market as you said expects to be down this year on volumes do you see the risk of more gross margin pressure being higher this year in the UK, just kind of thoughts around that? And I guess my second question is you've reached a return on capital employed 15%. The margins have got to quite high levels now, maybe with the exception of the UK, I wonder if you could comment on the further upside you see potentially in margins and you've obviously flagged up strong balance sheet preference for investment acquisitions, any obvious gaps geographically business end markets for acquisitions and pipeline? Thanks. Okay. I think in terms of gross margin, in pressure. It's always dangerous to try and look at our business and just do a direct comparison with one competitor. I think we we've been quite consistent in our messaging that certainly in terms of traditional merchanting in the UK, many of our branches consider the local independence to be the ones that really can be, strong competition some of the local towns. So I I don't think that one competitor, may be changing their position necessarily has a major impact on how we see gross margins in the UK. I think we continue to work really hard at making sure that we can offer the customers great value while protecting margins and making sure that we we grow the earnings going forward. I think in terms of the operating margins across the group and in some of the businesses, you you genuinely cannot just exponentially keep improving the operating margins across the whole group. So for us, is very much about the quantum of earnings and making sure that we have a good pipeline of opportunities both organically and acquisitively to keep growing the actual earnings across the group. That's not to say that the operating margins will stay static because in some businesses, we still believe we have room for improvement. But when you look where the level of some of the operating margins are now in the individual businesses, we really can't expect those to keep growing exponentially going forward. In terms of the acquisition opportunities, we're constantly looking at businesses, Ainsley, and I think, you know, there are geographies that we would like to move into. There are gaps that we would like to fill, but I think as I said just a moment ago, we are very disciplined in how we deploy capital and making sure that we are buying good businesses in in good markets with with strong market positions but critically with that further opportunity for growth whether that's organic growth or whether it's looking at bolt on acquisitions after you've made one deal and making sure that they have a management team that we we can work with. And I, you know, I suppose an overly simplistic message on acquisitions would be If the right deal comes along next week, fantastic. If the right deal doesn't come along for 12 months, that's great because it means the right thing to do was to buy that business in 12 months time. And I think it's much more important for us to buy well in a disciplined manner than just to buy. Just one follow-up. Would you still make acquisitions in the UK, or is it why I think if you if you'd have asked us that 2 years ago, I think we probably answered and said we would expect our next acquisition to be outside of the U. K. And then the opportunity came to buy Leland SDM. I think it is about the quality of business. You know, we have a very clear plan of where we'd like to develop and if opportunities of the like of Layland SDM come along high quality business, high operating margins, then we'll always look at them. Do you want to just go next to yours for a little easier, Angie? Thank you. Amigala from Citi, just a couple from me. Was wondering if you could talk a bit about the CELCO like for like growth trends over 2018. How has that evolved over the quarters? And what is your outlook for the like for like on the existing Dayton Selco. My second question is there are a couple of media reports on some level of price competition in the DIY market as well as your intention to invest in pricing. Is this a reflection of the overall market tightening in competitors trying to work harder to get that sort of volume? What is your sense of how the market stands today? And my third question really is on is on the M and A pipeline. You've touched quite a bit in detail in the first question. But with the European outlook looking a bit more subdued now, do you think the level of opportunities that you're seeing are much higher And to an extent, you can pick and choose the best deals out there. Can you give us some color on the pipeline in that sense? Okay. Well, if we work backwards and start with the acquisition that will give David a minute to come up with a really good answer on the Cellco like like for likes for you. So I think in terms of the acquisition pipeline, It's always difficult to try and generalize and say, you know, in in all of the markets that that we're looking, is it getting easier to buy? Is it getting more more difficult to buy? I think, you know, we are very we're we're very careful about making sure that we can get really good value for what what we buy Now really good value doesn't always mean it it's cheaper than than it would have been good value. It can be, every bit as much about the quality of the business and the quality of the potential going forward. In that that particular market. So I I wouldn't say that necessarily we're looking at things now compared to 6 months ago thinking it's cheaper than it than it was. We we really do have quite a disciplined approach in terms of the quality of the business. And the quality of the business and the opportunity to grow the business in reality is probably more important than whether you're moving half a turn on a multiple or not. So I think that's probably more important. In terms of the pricing, your your your second question, you talked about the DIY market. Obviously, our our only exposure to DIY is in Ireland through through the Woody's business. And we are, you know, clear market leader in terms of DIY in in Ireland. And I think when you've got a market leading position, you've got to be very conscious of the you still need to offer your customers good value as well as making sure that you're balancing off with maximizing margins. So I think investing in price to me is often a code word for just discounting. And you know, we've never really had a track record of investing in price. So it's about being competitive. It's about managing the margins and it's about offering the customer a price that is competitive when you put it alongside the level of that you can deliver? Just coming back to the Selco point, I think one of the things and we've highlighted this in the past is in terms of our strategy of opening Selcos over the the last 3 years, where effectively we've more than added 50% to the overall store estate. The nature of what we're doing is increasing the density of stores that we have, particularly around London and the Southeast. So if you go back to the 19 stores that we have opened in 2017, 2018, there were about 16 of those 19 that in some way shape or form overlapped with the existing stores. So the existing stores, of course, in terms of like for likes, will be impacted by the extra revenue that's going to the new stores. So in absolute terms, when you look at the like for likes for Selco for 2018, in terms of the existing store estate rather than the new store estate, it was somewhere around about 2% was a like for like growth, but that was consistent with our expectations given that we expected revenue to migrate to new stores. Okay. I was going to say, should we just keep coming forward and bring the microphone down to Robert? Robert Eason of Goodbody. Just in relation to Salco, you've just touched on, you've come out come on the back of a very aggressive store opening, program, and I think it was a few weeks ago to Selco chief executive was out in the media talking about 30,000,000 of investment in the business. Maybe if you can just elaborate what is the next stage of development for Salco. That there's going to be less stores open, this year. I think there's only 3 or 4 being opened this year. So just to elaborate, you know, where the investment is going. My second kind of area of questioning is just more for a view, more than anything else. There's a lot going on in the plumbing and heating markets. In terms of, some big, disposals going on, not only with Travis, there's no speculation, in relation to Saint Gobain, given the the big write down, last week. There's always ongoing speculation regarding Ferguson you know, what is your take of the plumbing market and where it could land, out of that, what opportunities can come grafton's way out of that because it's for sure the plumbing and heating market's gonna change over the the next couple of years in terms of ownership. So they're kind of, two areas of questions. Okay. I need two questions from you Robert. It's unusually pleasing. If I start with pot plumbing and heating and just work again work work backwards, I think I think obviously we we made a small disposal in the plumbing market last year. We sold up our business plumb world. The reason we disposed the plumb world was it was a it was a a very focus b to c business, which really didn't didn't fit with where we are. If you look at Plumbaitre, which obviously is our major exposure, that plumbing and heating market. We've got a very good management team in Plumb base. We've seen a consistent performance improvement in Plumb base over the last 2 or 3 years since since Mark's been in running that business. And I think, you know, we we see plumbing and heating as an important part of the overall offer of building materials. It's important that our customers can access plumbing and heating. Obviously with a business like Selco We sell a lot of plumbing and heating through selco as well. We sell a reasonable quantity of plumbing and heating through bill base. So I think as a category for us, it remains relatively important. I mean just unfair of me to try and speculate on what will happen with some of our competitors. But actually we've seen over the past 3 years consistent performance improvement in our plumbing and heating business within Grafton within the UK so at the moment we're quite comfortable with what Plumbbase is doing but I think if you then look and say, well, what happens in terms of potential big disposals who ends up owning those businesses. Probably the one thing that I I would say on that, I think given the size of our plum based business, given the size of plumbing and heating business that we do through Selco, through build base, it would be unlikely that you would see us looking to acquire a major plumbing and heating business in the UK. Do you want me to pick up the Selco? Yeah. So just on the Selco 1, you're right, Robert. When we're looking at new branch openings, this year, round about 3 to 4 is is our current thinking. In to be more towards the back end of the year. The investment that we'll be making in Selco will be in new branches. It will be on elements of refurbishing the existing branches. State because I think one of the things that has historically set Selco apart from the competition is actually the quality of the state and it's sort of refreshing different style compared to a more traditional merchant, so there'll be investment going in to maintain the good fabric of what we've got on offer And of course, we'll continue to invest in on the digital side. You know, that remains a very important area of investment for us. So there's a number of initiatives that that we're going to be progressing on Selco over the course of the next 12 to 18 months. I think we've also said on Selco, just historically, we've got a number of branches around the southeast that we're probably operating close to their physical capacity. So some of the branches that David mentioned that we've opened was was there to alleviate that We also know that in some of the very high turnover branches, we're going to have to make some infrastructure investment to make sure that we can continue to handle the volume safely that we're actually putting through those stores as well. So, you know, you've got some of those some of those stores are doing 100100 of transactions a day and we've got physical investment going in to make sure we can continue to grow and we can continue to grow safely. We'll come across the front to Howard Thank you, Howard Seymour from and Amy's. David, you put up an interesting progression on on the margins before on gross profit and OpEx efficiency. Two questions on that really. 1, one on the gross profit, clearly the higher margins have come in through, but there'd also been mix effects on a negative front, just simply because of mix. Question there is have you seen any material parts of the group where you've seen gross margins actually decline in overall that? Then second is just on the OpEx. 30 bps is a good performance. I'm just sort of question where that was particularly focused and capability to continue to sort of push forward in terms of the margin progression on costs? Thank you. So just in terms of, gross margin decline and did we see any notable areas? I think, if I went to, excuse me, Irish Merchanting, We have talked about already the fact that we expected that gross margin dilution as a consequence of actually delivering more product to new build customers. So So that was, anticipated. If we look at the UK, I think we did see, you know, as Gavin has mentioned already, you know, quite competitive conditions. It's what we've grown used to. I wouldn't draw out any sort of notable examples. I think, we saw particular pressure really in the first half of the year. I would say when we look at at the second half of the year, we saw relative improvement against the second half of twenty seventeen. I don't think there's anything in particular that I'd call out there, they're having on that. In terms of OpEx and future areas of improvement in OpEx, Again, I think fundamental point around our federated structure is that each of our businesses is really incentivized to deliver on that bottom line. And to run their businesses efficiently and effectively. And we saw a number of businesses this year, which continued to drive down operating costs how much further can that go? I think, really, it's about revenue improvement relative to holding down in in cost base. Undoubtedly, when we look, there are a number of areas of pressure that we see, whether that's on things like national minimum wage, whether we see it's on auto enrollment, or indeed whether we see it on property costs. So it's a constant battle to look to alleviate and mitigate those pressures which we see across the business. We got. Florence down the back. Thank you. Sorry, Donna from Davy. 2 for me, I think. One is just on layland. I note in the statement, you you say formed in line with what you expected. Just interested to hear your view, how it's evolved since you've taken ownership, your your sense of how it's it's been relative to what you might have expected. And maybe added on to that is, is there any plans to expand it on an organic basis, or is there adjacent opportunities in in in that area? Second, if I can go back to Selico is just a very quick one, really, on the, I guess it's the store opening costs given presumably was a help in in 2018 going from from 12 to 7 if it goes to 3 to 4 this year. David, I guess you might just update us on on very roughly what the what the saving is on fewer branch openings. Okay. In terms of Layland SDM, as you know, we acquired it just pretty much a year ago, almost exactly. Delighted to say the business has been pretty much exactly what we wanted the business to be. We we talked last year about that having the potential to be 13% to 14% operating margin business. That's exactly what it delivered during 2018. We had some planned management changes within that business. Because the chief executive who was running it at the time of acquisition and the finance director, were were both on a contract basis from the previous owner so we've promoted internally. So the finance director, Jade Patel, who's gone in, he was an internal appointment, Jonathan Jennings, who's now the chief executive of Leland SDM with with an internal appointment people that we've developed through our own succession plan. There there is some potential, to expand that business organically. There is also potential to expand that business with some small bolt on acquisitions. And I would say both of those we're kind of actively looking at at the moment, but the business has done exactly what we wanted it to do during the 1st 12 months of ownership. And just on store opening costs, SELCO store opening costs in 2018 were just about £5,000,000. If you take 2 to 4 new store, new Selco stores this year, you'll be looking at somewhere around about 2 to £3,000,000 for store opening costs in 2019. Okay. We've got we'll come to you in a minute, Sam. We just got John at the back there. Sorry. Yeah. Just just to round that one out, actually, just on the the opening cost, can we just have the 5,000,000 incurred this year, could we just understand what it was last year David? Was it about 7.5 or 8 or just to understand That's the kind of quantum. And second one was just on the organic growth and the kind of growth initiatives, and tying that to Selco. And apologies if you gave it at the start, but thinking about Selco, is it sales based? Is it around the 1,000,000 mark and I'm just trying to glean from the data you've given here. I'm thinking 1,000,000 is the implied LFL most of the growth I assume is Selco related. So you get to about 5,000,000 dollars, $27,000,000, $530,000,000 of sales. Is that right shape? You're a little bit toppy there. It's more like 513 in 2018. Got you. In 2018. And then just coming back to Leeland, obviously a year ago, you flagged look potential to do things with land land almost like a mini cellco. As that with obviously getting under the skin of it, other things you're going to do with Layland STM in terms of more product into it? Maybe it's happened already. Just to understand if that's something that you can roll out elsewhere. Yeah, I mean the land utilizing Cellco supply chain. We spoke about at the half year results last year. We said we'd we'd kick that off during the second half of last year. We have done So if you go into a Layland SDM store, we now have something called Layland Extra, which is the, providing of building materials two customers of Layland SDM, utilizing the Cellco supply chain tractors and deliver those products. So we started that trial in four stores during Q3 we moved that to 10 stores during Q4. We'll move it to the whole Layland estate as we go through sort of Q1 this year, John. So that was very much part of what we wanted to do. We've done that. It's actually working very smoothly. And it's quite interesting now because when you see customers buying building materials through Layland SDM, you can start to see which building materials are more relevant to the Layland SDM customers and we can start to build a better profile there. But, yeah, very, very pleased with Layland SDM and that whole integration with with Selco It it was never it's never designed to be part of the Selco chain. It was never designed to be branded Selco but utilizing the Selco supply chain to really help to service the Landau SDM customers was always part of the plan because of the strength of the Selco supply chain particularly within the center of London. I'm sorry. Just just one final one. When we go back to Salco and that store and the rollout, in terms of the messaging here, is part of this look actually Selco was a little bit over earning effectively in terms of pushing the limits on sales per store and hence the rollout of more stores. Just trying because obviously when you look around the country are there bigger cities where you'd like to go and put a store in sooner rather than later rather than just having the cannibalization because it just obviously dilute to what we're seeing through from Telco? It it it does. And as I said, it was it was very deliberate cannibalization to make sure that we had the kind of business that could continue to operate and could continue to grow. We mustn't forget with with Selco, you know, we talk about Selco in the southeast it's very strong in Birmingham. It's very strong in Manchester. It's very strong in Bristol, card of swansea. You know, so we we we've got some very, very good cellco's outside of the southeast that are that are generating, good, good levels of revenue. I think one of the things that we we look at is we still believe there are gaps in the southeast that we can fill with with Selco stores and there are other cities around the UK. I think as we go back, if you go back 3 or 4 years ago, we had a challenge with real estate on Selco making sure we could get the right units. As David said, we've opened 19 Selco's in the last 24 months. We went through a real period of sustained growth. I think the right thing to do now is just to make sure that we do get the right returns from from those stores to make sure we that the formatting is still right. We're still looking at smaller format Solco stores particularly for parts of the southeast. We're getting 30,000 to 40,000 square feet could be cost prohibitive but if we can make the model work in 15,000 to 20,000 square feet opens up more opportunities. So, you know, Selco, I mean, being open with you, John, Selco as an individual business unit, it's the biggest profit earner that we have within the Grafton Group. So it's a very, very significant part of our plans going forward. And I don't want to give a plug for Chris Evans in his new show on Virgin Radio. But even he was singing the cellco jingle yesterday. Yeah. I think we have Sam down down the front here. Sorry. Thanks. Sandendon from Stifel, a couple from me. In terms of the 2 Irish businesses, very good margin progression. Should we see those as double digit operating margin business going forward on sustainable basis or is that probably a bit choppy? And secondly, on to release adjusted net debt to EBITDA currently at two times, you previously spoke about sort of being comfortable 3 times. So should we see around sort of 300,000,000 headwind for acquisitions? Yes. Well, if I just pick those 2 up, I mean, we did see really good margin progression. So the Irish merchanting operating margin up to 9.4%. And Moody's increased their operating margin to 8.5%. And I think that the key thing for us is that we need to have the right margin in the right markets in which we operate. We need to be careful and considerate of our of our customer base, we need to make sure that we continue to offer a very competitive and compelling proposition. So I think that that naturally means that there'll be a headroom around the operating margin. It sort of plays a little bit to our view of overall long term group targets for operating margin and that 7% operating margin, I think will continue as a group to see progression and improvement, but it's likely to be about relative growth in the mix rather than about continually driving forward an improvement in Irish merchanting and Irish retail operating margin. So I think operating margins around about their current level are probably about right in terms of those two businesses. In terms of net debt to EBITDA, I think you've answered that question very well. I think around about 1,000,000 is about right in terms of acquisition capacity. I think also, Sami, if you go back and look at your notes maybe a couple of years ago, I think I think we said that we always saw the Irish merchanting business as being a 9 point something percent operating margin business. So it's it's it's very consistent with where we've always felt we could get the margins to. Got another one down the back there. It's lush from Berenberg. Two questions. Just another one on cellco. Just just to clarify, obviously, with it, what would the sort of step down in opening costs and obviously the maturing of those 19 branches have margins in Cellco now bottomed out? And is that what drove the recovery in the UK margin in H2? And then secondly, obviously a lot of chat earlier about acquisitions, is there anything you see particularly in the UK, I guess, that is noncore if you've got quite a few formats there at the moment? Thank you. I suppose not noncore is quite quite an interesting topic. I mean, we We are continually sort of refreshing the portfolio businesses. We probably don't make a big song and dance about it. So if you look over the sort of recent history you know, we we sold Plum World last year. We sold a business called Bools last year that was a specialist in steel pipes, valves, and flanges. That that wasn't core. If you're looking at recent time, we've sold the Belgian ready mix business. We've sold our solar business that was based in Sunland We've sold the Irish scaffolding business. So we've we've constantly kind of trimmed some of those smaller peripheral businesses, redeployed the capital into higher high returning businesses. So I think it's something that we are consistently looking at in terms of our portfolio to make sure that that that the businesses we have are the right businesses to continue to grow going forward. But we have consistently done that over the past few years. That's not a new initiative. And based on life, as we see it at at the moment, lush, I would say, actually, yes, you're right. We would say that they've bottomed out when you look particularly at CELCO, the combination of store opening costs that we've had over the last couple of years and a new store format, we should start to see those mature now. And deliver an incremental contribution. Anymore, ladies and gentlemen, feel like an auctioneer now? Okay, brilliant. Well, listen, thank you very much for your time. I know it's a very busy day out out out there today. Really appreciate your interest and, thank you very much and hopefully we'll see you all in 6 months time. Thank you.