Ladies and gentlemen, I would like to welcome you to the Travis Perkins 2019 Q3 trading update. My name is Britta, I'll be coordinating your call today. Please note, all lines will be on mute for today's conference call. After the presentation, there will be a question and answer session. To ask a question, please press star 1 on your telephone keypad. I would now like to hand over to Nick Roberts, the Group CEO, to begin the call.
Good morning to you all. Thank you very much. It is a real pleasure to join Alan and you all for my first call as CEO following nearly three months in charge of the group. My short time with the group has been a tremendous experience, I have to say, due to the welcome afforded to me by my colleagues, by our customers, and our suppliers. Clearly, I have had much to learn in this short time. The highlight of my tenure so far has been spending just over six weeks through the summer on the road, visiting colleagues across 60 of our branches, across all of our brands, up and down the country, from Inverness to Somerset, from across in Rotterdam over to Liverpool. All our branches, our distribution centers, and our offices.
As well as spending time out with our drivers, delivering loads to our customers, serving customers in branches behind our famous green screen, and understanding our supply chain. It really was a fabulous insight. I've seen firsthand the progress that's been made in equipping our branch managers and their teams with the ability to make the right decisions for our customers at a local level. Whilst we've still got much to do in this regard, I'm confident that we're on the right track. This, alongside meetings with our customers and suppliers, large and small, has enabled me to understand merchanting and set that in the context of my broader understanding of the construction industry that we serve.
I've been really impressed by the quality and the character of our colleagues in ensuring that we give our customers the best possible service, and our capability in data and technology that I believe will enable us as a business to evolve at pace for the future. It therefore gives me really great pleasure to be sitting here with Alan, presenting what I believe are a positive update on the group through the third quarter, as we deliver the plan that was communicated to you all last December. I believe we have the right plan in place. I'm impressed by the progress that's been made so far against that plan. We will continue to focus on its delivery, and we remain on track to deliver performance in line with expectations.
In future Q1 and Q3 calls, they'll be conducted by Alan, unless anything of strategic nature or is material to the group, for which I'll join him on those calls. With that, I'll now hand over to Alan and look forward to your questions.
Thank you, Nick. Good morning, everyone. As you'll have seen from the heading on the Q3 trading update this morning, we've characterized the performance as resilient in the context of challenging market conditions. If I run through the headlines, the total group like-for-like revenue performance in the quarter, including plumbing and heating, was 3.4%. On a three-year basis, you'll note that the like-for-like was 7.7%. That's a slowdown from 9.7% in the first half, reflecting incrementally more challenging market conditions. The merchanting businesses continued to grow their share and delivered a decent performance, 1.6% like-for-like in the quarter, with the Travis Perkins general merchant growing just over 2% in the period. In plumbing and heating, our like-for-like sales overall were unchanged in the quarter.
The branch-based businesses demonstrated good growth, that was offset by lower sales as we expected in the wholesale business. The Toolstation business continued to demonstrate excellent growth, with Q3 like-for-like in the U.K. up 15.4%. Likewise, our sales performance in retail was very strong, with 9.7% like-for-like growth, albeit still against a weak comparator, as you'll see from looking at the two-year like-for-like. Within the Wickes business, a strong performance was seen across both the core and also the kitchen and bathroom showroom proposition. We also continue to make really good progress on the cost reduction agenda and remain on track to deliver the GBP 20 million-GBP 30 million of cost savings, which were identified at the Capital Markets Day last year, by mid-2020. If I move to some of the corporate development activity.
In the uncertain market conditions, we've taken the decision to pause the plumbing and heating disposal process for the time being, as we do not believe that a sale in the current market conditions would optimize value for shareholders. We've made good progress in the quarter towards the demerger of Wickes, both in terms of the activities to make Wickes a standalone business and in terms of the regulatory process. We remain on track to complete the demerger in Q2 2020. I'd also like to draw your attention to the fact that we acquired majority control of Toolstation Europe at the end of September. Going forward, therefore, the business will be fully consolidated within the group's results. This acquisition will enable us to invest further in our European operations.
If I summarize, the group traded well during Q3 in the context of a challenging market. We also continue to make progress in the period on delivering the strategy laid out in December 2018. Given the current market uncertainty, we're maintaining our cautious outlook for the near term. Notwithstanding a much tougher Q4 comparator, we anticipate full-year performance to remain in line with our expectations. With that, Nick and I will be very happy to take your questions.
Just a reminder, ladies and gentlemen, that star one to ask a question. The first question today from the phone lines comes from Paul Sheridan from BNP Paribas. Paul, your line is now open.
Morning, everyone. Thanks for taking the questions early. I'll have three questions to start. Firstly, for 2019, the story is a case of self-help offsetting market weakness. My question is, if the markets do stay weak into next year, is there more you can do? Are we in a situation where some profitability could come under some pressure in 2020? My second question is for Nick. Nick, you sound quite aligned with the strategy from last December's Capital Markets Day. I'm wondering if there's any areas where you might think differently, maybe on digital or IT spending at all Range Centers, or if there's any areas where you think you could potentially do a bit more. Thirdly, on the P&H sale, is the delay about the market conditions?
Maybe you can reassure us by giving some commentary on the level of interest you've seen for that business.
Okay, thanks, Paul. On your first question around self-help and continued market weakness, is there more we can do if that continues into 2020? I think there is more activity that we've got. As a first comment, remember we said the GBP 20 million-GBP 30 million annualized savings would be realized by June 2020, so that would continue. I think it will depend on the level of volume growth that we see in the market or otherwise. We have our contingency plans, were we to go into a downturn, as to what we would do to respond to those market conditions. We've got a plan. I think there's more that we can go after. As ever in a business, whilst you set out a plan, events that you haven't anticipated or the timing of those events is always different.
You have to be alive and responsive to the conditions in front of you. We're constantly working with our businesses on thinking that through. I suppose the threat of a no-deal Brexit and the impact on the economy means that we're in a heightened state of preparedness as to what those contingency plans would look like. On the plumbing and heating, and then I'll hand over to Nick on the alignment question. This is primarily about the market uncertainty. We've had a good level of interest, and in particular, some of the sponsor community we've been speaking to are finding the financing challenging in these conditions. They can get the financing, but maybe not at optimal cost, and therefore, we don't think we can get optimal value for our shareholders for the business.
I think it's appropriate to pause it for the time being until conditions normalize.
Good. Thanks, Alan. Paul, thank you for your question. Yes, you are correct. I am very aligned with the plan, as you know from our conversations previously. To your point about thinking differently, yes, clearly, look, I'll be, and I am actively looking at many areas. Technology and data will fundamentally change the way in which all businesses operate progressively over time, and that's an area of considerable interest for me, as well as looking at how we optimize and really drive efficiency further into our supply chain. You mentioned Range Centers, and clearly we've taken some decisions there, but looking more broadly as our businesses grow at how we might think about our distribution and logistics in a very different way.
Clearly, as I speak to our customers, large, medium, and small, I start to think about how we will partner with our customers much more seamlessly in the future. I think over time you will see plenty of evidence of thinking differently. I look forward to talking to you about that more in due course.
Yeah, that's great. Thanks, Nick. Can I just have one just very general follow-up? You're giving quite a cautious outlook, but you're confirming the guidance. Basically, has anything actually really changed in your thinking about the market or the group performance since the first half, or is this really just very much in line?
Well, I'd say it's largely in line. We did highlight at the half year and certainly on the analyst meeting that we'd seen the market start to slow from mid-late May. I always said that this would be a very difficult year to read because of the unusual weather patterns and the impact of that in the comparative year. I think the market has slowed a bit more. I think that started in May. I don't think it started in September. I think we'll continue to see that uncertainty until the economic and political clouds start to lift.
That's great. Thanks for your time.
Thanks, Paul.
Thank you for the question. The next question today comes from Robert Eason from Goodbody. Robert, please go ahead.
Good morning, everyone.
Hi, Robert.
Hi, Robert.
Just a real general kind of question in terms of just given the well-flagged kind of more challenging market conditions, as you say, since kind of mid-late May, have you seen any behavioral shift in the market, either you're doing it or general competitors in terms of extended credit, gross margin behavior, bad debt behavior? Is there any variations through your different types of businesses within Travis? Just kind of a general chat around that in terms of, I suppose what I'm looking for, is there any canaries in the coal mine that you're focused on?
Robert, that's a really good question in the current context. I think the more difficult volume is to come by, I think the more we'll see some competitor reaction on gross margin or extending credit. Particularly some of the smaller regional players we've heard noises about offering extended credit terms within the market. I think we haven't seen in our business particular trends on bad debts, as a proportion of credit sales. What we are seeing is occasionally contractors or subcontractors who you think are solid just disappear, with a few days notice of that from the marketplace. From a gross margin perspective, we're kind of disciplined, but it's our job to trade our business at the same time. We'll be alive to the changes.
Our focus is on the drop-through of the gross profit that we can generate from our outperformance to the bottom line and making sure we get as much as possible to drop through.
If I describe that as seeing some incremental changes regarding kind of extended credit, et cetera, but not.
I think they are isolated events rather than it being enough to call it a trend at this stage. Robert, I'm also hearing chatter from time to time that one or two smaller merchants have started to lay off some staff as well, in response to softer volumes. I don't think there's enough to call that a definitive trend at this stage.
Okay. Then maybe just one more kind of very general question. Just in terms of what regional differences are you seeing, is it the same as we've been seeing for some time now, kind of Southeast versus the rest of the country? Any shift in that? Any further commentary you can give on different trends by the segments, RMI, new build, non-res. You called out non-res a bit in the statement itself.
Yeah, I think the regional differences are really a continuation of the trend that we've seen. For example, the Northwest continuing to be very strong, London and the Southeast being weaker. We've seen the Southwest slow a little, but I think that's more a reflection of the slowing overall market. I think on segments, we are seeing a real slowdown in new housing starts as opposed to building out developments that were already in construction. We've seen some of the ground worker activity slow, but that could as well be due to the fact that we've had a really wet four or five weeks. It's difficult for them to get on the ground rather than it being a more sustained trend.
Okay. Thank you very much.
Thanks, Robert.
We now have a question from Howard Seymour from Numis. Howard, you can now speak.
Thank you. Morning, gents.
Hi, Howard.
A couple from me if I may, on unrelated areas. Firstly, in terms of the market share gains that you allude to. First half you pointed out that that was mostly large contracts. I'm just wondering if that's a kind of continuation there, allied to the fact that clearly a lot of the big house builders specifically have kept on building. Just taking on board what you just said, Alan. That's the first question. Have you seen a material shift in your pattern of market share gains or is it, as I said, just a continuation of where you were in the first half? I'll come back to my other two if that's possible.
I think it is a continuation, Howard. What we were saying in the first half was that our larger customers were growing more quickly than the smaller players within the marketplace. That was less a reflection on share gain with the larger customers, just where the growth was coming from. Notwithstanding that, yeah, we have had, we think, some share gain on the larger customer side. I think our share gains are also more indexed towards the heavy side within the general merchant.
I think there are some sort of detail points as well, Howard, around share gains within our managed services portfolio.
Growth in our tool hire business as well, which I think is exciting for the future.
Lovely. Thanks, gents. Second one was just on kitchens and bathrooms. Just allude to the fact again that doing well in that market and installation. Can you just talk a little bit more about that? Again, is it a continuation of where you were in the first half or have you seen quite decent gains specifically? Are they more targeted re installation, or again, is it more a general situation in terms of your position versus the industry?
I think what we're finding, Howard, is a trend in the market, and I should stress this is within the retail business, for those less familiar with the story. We are seeing a greater desire from customers for what I would call an end-to-end or turnkey do it for me solution, particularly within kitchen and bathrooms. The bathroom piece is growing strongly this year. Also clearly the larger part, the kitchen showroom. We will be approaching, I guess, 60% of the kitchens we sell now being installed, and we are extending some of the specialist services around that. For example, offering a tiling solution as part of the kitchen installation, that enables you to capture the sale of the products as well as providing the service.
The key to doing this well is having really good control over making sure that you deliver on time in full. A kitchen can be over 100 boxes that you have to deliver so that you avoid repeat visits and you avoid cost failure within your supply chain. That needs a really disciplined, well-organized team. We continue to win awards for the installation service that we offer within the Wickes business, and we think that will continue to be a growth area in the future.
Okay, great. Thank you. Just final one from me. Grafton alludes with the other two issues in Holland relating to nitrogen emission and obviously Toolstation European businesses are focused in Holland. Have you similarly started seeing some aspect of that? Just your thoughts on that, please.
Yeah. No, we aren't impacted at all. Toolstation Netherlands business continues to grow really strongly. We have added more branches since the half year. I would say, however, that the nature of the Toolstation business, particularly in Holland, would be more focused on RMI type projects and servicing the small installer. That may be different from how competitors are configured in their businesses.
Great. Thank you very much.
Thanks, Howard.
Thank you. Next question today comes from Arnaud Lemaire from Bank of America. Arnaud, your line is now open.
Thank you very much. Good morning, gentlemen.
Good morning.
I guess my first question is on merchanting. As you mentioned in the first half, you already had some growth in the heavy side, that seems to continue in H2. On the other hand, that meant that if I remember well, the margin in the first half in merchanting was broadly stable. You continue to grow probably a little bit in Q3 and H2 in merchanting, probably mostly pricing over volumes, I assume. Considering all these moving parts, would you expect another stability in margin in the second half, or do you think you can extract some margin gains from your cost-saving initiatives? That's my first question. Related to that, I guess could you give us an updated consensus estimate for the full year? You say performance remains in line with your expectations.
Can you please clarify a little bit what are your expectations, I guess especially post-IFRS 16? Lastly, maybe a more medium-term question for Nick. You've got Toolstation in Europe, and I think that's your first leg or toe in Europe, to put it this way. Do you have any more ambitions outside of the Netherlands? Could that be a first step towards expanding Travis Perkins in continental Europe? Especially if the kind of medium-term outlook in the U.K. is potentially a bit slower. Thank you.
Okay. Thanks, Arnaud. On your first question on merchanting and you're right on the heavy side growth continuing. Clearly, heavy side is a lower margin percentage business at a gross margin level. I reiterate my earlier comments about focusing on drop-through. From a mix perspective, clearly it has a slightly negative impact on your mix if you grow the heavy side faster than the light side. I think I would anticipate margins being broadly unchanged at the bottom line rather than saying that you would expect to see margin gains. I don't think you would see margin gains in the current context. If I look at current consensus, post IFRS 16, but excluding plumbing and heating, the market is around GBP 395 at the moment. It is really difficult to read, however, currently, because not everyone has adopted IFRS 16 in their forecast at this stage.
Good. Thanks, Alan. Arnaud, great question on Toolstation in Europe, and obviously the acquisition of a majority share there is a really positive move in the quarter. First of all, we're really building well on our base in the Netherlands and seeing really positive progress there. Recently, the opening of a store in Belgium has allowed us to expand our operations there through web as well as the physical store service from the Netherlands. What I'm excited about is as we test the format further, as we grow in France, so we currently have 11 stores in southeastern France, and we're looking very carefully at accelerating the growth of our network there as well as a distribution center. It gives us the opportunity to further test the proposition, further evolve the proposition alongside our growth in the U.K.
I'll be looking very carefully with Alan at what that means for further growth in due course.
That's great. Thank you very much.
Thank you. We now have a follow-on question from Charlie Campbell from Liberum. Charlie, your line is now open.
Hi, Charlie.
Hi. Morning, everyone. Probably a couple questions from me. Just on Toolstation Europe. You say you got a controlling share. Does that mean you now own 100%, or does the founder still retain some equity in the business? Also just there's a question really on the founder's continuing interest within that business, whether he's staying on. Then secondly, just wondering if you could give us a bit more color on the merchanting part that's not the core, if you like. Just maybe a bit more commentary around what you're seeing in CCF, BSS, and Keyline as well. Just a bit more color on those would be very helpful. Thank you.
Sure. Charlie, on Toolstation Europe, the founder remains involved, although he has sold a shareholding to us. He's still involved with the business on an ongoing basis. Our ownership is now over 95%, but not the full 100%. There are some options in the future to take the 100%, but we've accelerated, really by mutual agreement, one of those options to take the ownership over 95%. It will be fully consolidated, and then we will have a small minority interest that we'll remove. On the specialist merchants, I think we feel we continue to gain share in those businesses. If I make a few comments on CCF, first of all, we've seen the market slow a little during Q3. At the same time, we've seen some of the allocation that we've referred to previously ease somewhat.
I think that's a greater output into the market or more capacity, but at the same time, the fact that volumes have softened has made the situation a bit easier to manage. I think we've seen it from a Keyline perspective, I said earlier, some of the new starts slowing. We've been pleased with the overall performance of all the businesses, but also BSS. We have continued to perform really well within that marketplace, notwithstanding the softer environment.
Thank you. The next question today comes from John Messenger from Redburn. John, your line is now open.
Morning all.
Morning John.
Two if I could please. One is just on Toolstation Europe, as we were just talking about it. Could you give us a bit of an idea, a rough idea of the dimensions of it, just so we're all thinking of that in terms of obviously kicking in for a quarter and a bit for this year and for next year? I know it was obviously down after tax, it was a GBP 4 million loss in full year 2018 and a GBP two and a half million loss in the half year. Is that a business that will be positive in terms of the EBITDA, I guess, looking forward? Just to have a rough idea of the size, top line sales, and trading profit. The second question was when we think about the retail side, obviously the comparatives last year in Q3 were pretty weak at -7.2%, I think.
Clearly, there's a big swing in the fourth quarter. Should we be thinking of that business more as a two-year like-for-like? Obviously it was 1.8 in the third quarter. That 1.8 clearly a function partly of the way the business is taking share in the market. Is that something that you'd expect probably similar in the final quarter, or should it be stronger in terms of maybe if we should be thinking around that two-year LFL figure and holding the 2%, or is it something that you'd actually be more confident on? Those are two things.
Okay. John, on Toolstation Europe, first of all, clearly we are in a heavy investment phase in terms of the structure to get the business going. Roughly the revenue in the current year would be on a full year basis, EUR 40 million-EUR 50 million.
Probably in the order of EUR 15 million-EUR 17 million loss in the business at this stage. Clearly, a reasonably fast-growing business. We'd see on a like-for-like basis, over 20% like-for-like growth. On your question on the retail business. In retail, Q4 2018 was 3.5% like-for-like, quite a turnaround from the 7% or so sales decline on a like-for-like basis that we'd seen across the first nine months. I'm not going to get into exact predictions on the two-year or one-year like-for-like. That would be inappropriate, but we are very comfortable with the current trading trajectory and the business continuing.
Sorry, can I just come back to this one? I'm not sure if it's disclosable at this stage, but the Toolstation Europe, how much has the group invested in terms of the shareholding increase?
Well, it will be disclosed in the annual report and accounts.
Got you. All right. Thanks, Alan.
Thank you. The next question today is going to come from Gregor Kuglicz from UBS. Gregor, your line is now open.
Hi. Good morning. I have got a few questions left, please. The first is just on the cost savings. I know you flagged the cost saving run rate target in the statement today. Can you just remind us, I believe there is some costs from last year or initiatives rolling into this year. Kind of how much do you expect to deliver into the P&L this year, 2019? How much is left based on what you have announced so far for next year? If you could just simplify it for us, what the sort of incrementals are. It is a little bit difficult for us to calculate. The second question is just on Toolstation Europe again. Did I hear you saying EUR 14 million-EUR 15 million trading loss? Is that right? EBITDA, I guess, in EUR terms.
Yes.
And then-
Yep
As a follow-on to that, how quickly can that become break even? Obviously it's actually reasonably material in the context of the group. Obviously, business plan appreciate it will depend a little bit on growth. If you could give us some help as to when that could reach break even in new business plan at least. Then finally, which is purely housekeeping from an accounting perspective, are you still allowed to keep P&H discontinued? Do we now have to reintegrate that back as you having taken it all out given that you-
Yeah
ended the sale process?
On the cost savings, Gregor, of that EUR 20 million to EUR 30 million, by the year end, over half of the actions will be in train. Delivery in the year, though, will clearly lag that because of the timing of when the initiatives have been implemented. As a sort, certainly EUR 20 million annualized of activities will have been put in train, but you would expect to see maybe half that, if you average it out, delivered within the year. On the Toolstation Europe question and when we can break even. It's a challenging question in that it depends how many markets you go into, because clearly, as you are starting up those markets, you're going to incur relatively heavy losses. There is a break-even point in terms of the number of shop units that you need to reach that.
What we've been doing over the last two years is investing in an infrastructure across the European businesses with some shared central functions, if you like, for Toolstation Europe to get the business going. I appreciate it's a, in your words, a relatively material number in the context of the overall group. We will only invest in markets at full bore when we are confident on those markets, hence what we're doing in the Netherlands at the moment. We are very confident there. As Nick described earlier, we're in test phase in Belgium and France at this stage. On the plumbing and heating accounting treatment. It was actually recognized in the half year as discontinuing rather than discontinued. The way that the accounting standard works for this, there are effectively two tests. The business has to be salable in its present condition.
We certainly meet that criteria having successfully completed the separation during May, in particular on the transactional IT systems. The second test is that you have to demonstrate that you've got active interest in a marketing campaign. How we meet that criteria will depend on the circumstances at the 31st of December. You will have seen, I've spoken about plumbing and heating within the context of those overall numbers today, and also excluding that because it will depend on the conditions at 31st of September. I think from your perspective, it would be prudent to still continue to forecast the plumbing and heating business.
Thank you. Thank you very much.
Thank you. We now have another question from the phone lines, and this is from Ami Galla from Citigroup. Ami, your line is now open. Please go ahead.
Morning, guys. Just two questions from me. The first one was on the plasterboard supply. You mentioned that the tightness has been easing more recently. I was wondering if you could give us some color as to is it demand led or to what extent have you seen a capacity increase in this space? To what extent should we expect these conditions to prevail into the next year, essentially, seeing a better supply trend than material? My second question was really on the additional stock that you have built up on the back of the Brexit date. Can you give us some color as to what is the additional stock that we should be expecting to unwind following a Brexit conclusion?
Sure. I mean, on the first one, on the plasterboard supply, I think we have seen some increase in output, but it is as well a question of the demand in the marketplace. It wouldn't surprise me if the volume is actually slightly lower year-on-year at this stage in terms of overall meters squared of plasterboard sold within the marketplace. I should stress that's not a comment on our own position within the market. We would expect to see those conditions to continue to ease such that it's no longer an issue come early mid 2020. Then on your second question around the additional inventory, we've maintained those higher stock levels at this stage that we built. As a reminder, it was around GBP 30 million in 2018 and a further GBP 50 million by the half year 2019.
In fact, we've been at those elevated levels since late February, March now, having anticipated first the 29th of March and then the 31st of October. As to how it unwinds, I think that question is probably best addressed to Westminster at this stage, unless the politicians decide to put it back to the people.
Sure. Thank you. Thanks for those comments.
Thanks, Ami.
Thank you, Ami. We now have a question from Clyde Lewis from Peel Hunt. Clyde, your line is now open.
Thank you. Good morning, Nick. Good morning, Alan.
Morning, Clyde.
Two, if I may. One on the trading pattern throughout the third quarter. I mean, Alan, I think you referred to September not being massively different to May in terms of the softening trends. You talk about incrementally more challenging through the course of the summer. Certainly, we've heard from others that September was quite a bit tougher than July, August. I'm just looking for a little bit more color on your trading pattern through Q3. The second one I had was, again I suppose around the comments you were making on pretty strong heavy side sales and how that sits with the comments you made about weaker new housing and weaker commercial activity, which would generally be the bigger element for heavy side sales. I'm just trying to square that particular circle, as it were.
Yeah. I think on that latter point, Clyde, the comments about stronger heavy side is that within the general merchant, that is where we've seen the strongest share gains, rather than it being a reflection of the marketplace. On the trading patterns through the quarter, I did say we'd seen incrementally more challenging. The nuance I was trying to make was we actually thought the market started to soften from mid-May onwards, rather than that being a particular phenomenon later in Q3. I think certainly from mid-May onwards, we saw the market step down a point or so, and then maybe it stepped down a little further as we got into the early autumn. I don't think it's a hugely different trend from the softening that we'd start to see. That's the point I was making.
Okay. Thank you. That's clear. Okay.
Clyde, just to add just a nuance to Alan's point on the heavy side. I mentioned in my commentary around the progress we're making in empowering local decision making, particularly around heavy side in our range. I think what we're seeing is some of the benefits of that, really stocking range that our customers want at a local level and ensuring that we are really majoring on that category, and we're seeing some benefits of that starting to show through. Very early days.
Okay. Thank you very much.
Thank you, Clyde. We now have a question from Paul Jackman from Barclays Capital. Paul, your line is now open
Hi, guys. I've got two questions left, please.
Hi, Paul.
Hi. The first, this year you've had to contend with large currency swings, the pound being weak and then bouncing back more recently. How have you been managing that and to what extent is the recent strength bit of a relief? The second, I'm just returning to the plumbing and heating side. It seemed that transaction was very close at the time of the half year results. Did the buyer walk away? Related to that, what do you think a sensible timeframe is now for the disposal of the business or separation in some form? As a consequence of it leaving, the strategy update, we didn't really talk much about the plumbing and heating business, but given that you'll be managing it for a bit longer now, can you just run us through precisely what the plan is? Thanks.
Yeah. Paul, I'm afraid I'm going to disappoint you on plumbing and heating because it would be inappropriate to go into the detail of where we are or were with particular buyers. That, I would consider too sensitive for a call. In terms of managing the business, we have been really pleased with the ongoing performance within the plumbing and heating business. We did talk at the half year about growing the operating profit in the half by 9%. Clearly, we put a lot of effort into the transformation plan, and at the time that we held the Capital Markets Day, we were still only halfway through that transformation plan. We are very comfortable continuing to manage the business. It is a merchanting business after all.
The reasons for the proposed divestment of plumbing and heating were different from the circumstances surrounding our recent decision to de-merge Wickes, namely a question of longer-term market economics. Hopefully that helps on that. On the currency management side, we always have a program of rolling hedges and averaging out the cover that we got in the business. I get the point that the currency has moved around, but maybe I have a few more gray hairs than you, and I don't consider the level of currency volatility historically to be that large. I think that's just one of those things that you have to contend with as a business and have a strong management progress and really good people like Graham in charge of it.
Okay, thanks.
Thank you. We now have a question from Mohit Rastogi, from AlphaValue. Mohit, please go ahead.
Yeah, thank you. Good morning, everyone.
Mohit.
Am I on? Yeah. If I remember correctly, I had just one question on the full year guidance of the company. If I remember correctly, in 2018, final results mentioned that 2019 adjusted operating profit would be similar to 2018 levels. Now that you have maintained the full year guidance, despite the fact that during H1 2019, adjusted operating profit grew by, I think, around 15%. What are the key reasons why we are maintaining the full year guidance of similar or stable adjusted operating profit despite this 15% surge in H1?
Okay. Thanks, Mohit. I think the comment that you're referring to around being similar was a comment from our full year results for 2018 back at the end of February. We have said along the way that our second half performance we expect to be similar to 2018 and 2019 as well. It was that H2 performance in 2019 we expected to be similar to H1 2019, as well as similar to H2 2018, roughly. Following the half year results, I think we saw the consensus move up, which reflected the strong delivery in the first half. I am not expecting numbers to change in any way, given that we'd said that H2 2019 would be broadly similar to H1 2019 in terms of a more even profit split, and also at the same time similar to H2 2018.
Okay. That roughly means that we can expect somewhere around a 10% growth in adjusted operating profits, at least?
Well, I said earlier, it's really complicated because of IFRS 16 and how people treat plumbing and heating. The current consensus levels that we're seeing, including IFRS 16 and excluding plumbing and heating, are around the GBP 395 or so level.
Okay. Thank you.
Okay.
The final question today comes from Rajesh Karkera from JP Morgan. Rajesh, please go ahead. Your line is now open.
Yeah. Thank you. Good morning, everyone.
Good morning.
I have two questions, please. First one is if you can maybe comment on how trends have been in the first three weeks of this quarter across the business. Second one is on retail business. One of your competitors talking about further investment in price for the second half. Can you talk about how you're seeing the competitive trends in that part of the business evolve? Thank you.
Yeah. I'm not going to get drawn into specific comments on three weeks of trading. Put it this way, if there was anything materially different from what we'd seen in the previous four months or so, we would make that clear. From a retail perspective and investment in price, I think from our analysis, we maintain our value leadership, compared to our competitors in the DIY market. I don't think that's changed materially over the year. We've consistently been, by our calculations, about 6% or so cheaper than the nearest competitor from a pricing point of view. Clearly, there are, from time to time, investments that competitors make in particular categories. We have maintained our everyday low price type approach to the market and have supplemented that with some really strong and effective promotions at key points during the year.
Okay, thank you.
Thank you for that. We have no further questions. I'll hand back over to you, Nick.
Super. Well, listen, thanks to you all for joining us this morning. Thanks for your questions. I hope that's been useful, and we look forward to speaking to you all again shortly.
Thank you.
Ladies and gentlemen, that does conclude today's call. Thank you again for joining. You may now disconnect your lines.