Earnings Call: H1 2019

Jul 31, 2019

Good morning, ladies and gentlemen. My name is Stuart Chambers. I'm the Chairman of Travis Perkins Plc. My great pleasure to welcome you to our 2019 half year results. I'm, there's quite a lot to cover. There are number of significant changes, the income statement, the balance sheet and quite a few work streams to update you on. So, but I'm not going to duplicate there. I'll leave, Alan and John do that, but I just want to cover 2 areas. Firstly, I would like to acknowledge on behalf of the board For those work streams, the significant progress that the team has made in moving forward the strategic objectives that we laid out in our Capital Markets Day in December. That has involved, as I said, some very significant work streams involving a lot of resource, a lot of senior management time. And I think it's a great credit to the team that in doing so, they didn't fall into the trap of taking their eye of the performance ball of business as usual across the businesses. And I hope you'll agree that if you look at the numbers, there's not much evidence of them having taken their eye off the ball. That's the first thing. And the second thing before I hand over is, of course, to acknowledge, this is a quite an important week. I'm handing over the baton at the top of the company. This will be John's last set of results that he presents. And I'd just like to say, what, how wonderful my time has been with John, albeit somewhat short, 2 years, because John has delivered 41 years of sterling service committed and always dedicated to the company. And I think the thing that earmarked John, most of all, is his passion. He puts his his head, his soul and his heart into the company. And I think his loyalty and his commitment to the business has always been a great example to us all. So we'll miss you, John. But of course, absolutely delighted to be welcoming Nick Roberts, including here this morning. And he takes over on Monday, 5th, next week. And, we're really, really delighted to have been able to persuade Nick to come and join us. And I'm absolutely confident that he's going to take this group and he's going to build on what's already been achieved. He's going to take it forward and grab it. Successfully for the benefit of all stakeholders, but very warm welcome to Nick as well. However, you're still in charge, Chung, And it is obviously the result. So without further ado, let me hand over to Alan who's going to start off with the numbers. Thank you, Stuart, and good morning, everyone. So the first half of 2019 has actually been very positive for the Travis Perkins group. I think we've made some excellent progress on executing the strategy which we set out at the Capital Markets event in December 2018, namely to focus on Advantage Trade Businesses and to simplify the group. We separated out the plumbing and heating businesses, and we are underway with the disposal process. And today, we've also announced our intention to stew a demerger of Wix. This process of simplification is reducing complexity in the group and is enabling us to make operating cost savings. The strategic progress has been underpinned by a strong H1 trading performance despite ongoing uncertainty in our end markets. We've demonstrated outperformance across our merchanting businesses, continued to deliver outstanding growth in Toolstation and have delivered a very strong turnaround in Wix. Before I take you through the to the presentation of our results which were in effect for 2019. So firstly, as we set out with our full year results, At the end of February, we have redefined our reporting segments. As Plumbing and Heating is now classified as an asset held for sale, and, hence, excluded from underlying results, we are reporting under 3 segments, Merchanting, Toolstation And Retail. We've also applied IFRS 16 leases for the first time. We've not restated 2018 results on an IFRS 16 basis due to its complexity, but we have provided for you some illustrative comparatives. H1118 is, however, restated to exclude Plumbing and Heating as is required by the relevant accounting standard. And finally, we've redefined how we measure free cash flow so as to better reflect the operating cash generation of the business. We therefore included all capital expenditure, both maintenance and investment CapEx, but have excluded freehold transactions purchases and sales as we view these as a financing decision. So turning to the key financial highlights. It's been a good start to the year with 6.9% total sales growth or 8% growth on a like for like basis, with our businesses demonstrating outperformance in their markets. Adjusted operating profit excluding property profits was 1,000,000, an increase of 18.1% on a comparable basis. Adjusted earnings per share were 19.9% higher at 50.1p on a comparable basis, and the return on capital employed increased by 80 basis points to 9.8% on a comparable basis. Driven by both strong profit growth and a disciplined approach to capital allocation. As noted on the slide, we've recognized adjusting items of 1,000,000. The vast majority of this amount, 1,000,000 relates to a noncash write off of IT investments related to the ERP program. This is because it no longer meets strict criteria under the relevant accounting standard. John will cover the decision process around that and the outlook for our future IT investments in more detail As I mentioned, like for like sales growth in the period was 8%. Growth in Q1 was 11%, aided by a soft comparator and growth was 5.2% in Q2. Interestingly, if you look at the table on the bottom left hand side of Slide 8, you will see that on a 2 year basis, like for like, were more even, with 9.1% growth in Q1 and 8% growth in Q2, giving an overall like for like for the half on a 2 year basis of 8.2%. Like for like revenue growth was led by volume, 6.8% volume growth in the half, In the Merchanting segment, volume growth was 4.6% and cost of goods inflation was passed through. Toolstation again saw excellent growth from both mature branches and recent openings, while Wix delivered recovery across both core DIY and the Kitchen And Bathroom Showroom business. So moving on to Slide 9. Operating profit I've broken out the drivers of the million growth in adjusted operating profit in the period. Firstly, strong volume performance led to 1,000,000 growth in gross profit. Overheads on a net basis increased by 1,000,000 in the half. The vast majority of the increase is driven by investment particularly the expansion of the Toolstation branch network and to a lesser extent, investment in branch and sales staff in Travis Perkins, which has helped drive volume growth ahead of the market. We delivered 1,000,000 of cost savings in the half and I'll return to this topic in more detail on the next slide. These savings helped us broadly offset inflation headwinds in particular labor costs with increases related to national living wage and also pensions auto enrollment. Profit profits were 1,000,000 lower in the half, which is driven by the phasing of completion of transactions compared to 2018. We still expect to deliver around 1,000,000 of property profits in the year on an IFRS 16 basis. As you will recall, we delivered significant cost savings in 2018 in both Wix and TP. The annualization benefits from these savings in the first Remember, these savings were achieved in H2 18 and do not form part of the $20,000,000 to $30,000,000 savings we announced at the Capital Markets event. Of that announced 1000000 to 1000000 savings, we've now completed actions that will deliver 1000000 of annualized savings of which million are included in the first half results. This sets us on a path to take the overhead sales ratio down further in the year to around 23%. We're also working on a plan to fully mitigate strand of overhead costs associated with the disposal of the plumbing and heating businesses. I'll now turn to performance by reporting segment, starting with Merchant Inc. As I mentioned earlier, volume growth was 4.6% reflecting market share gains and driving the like for like sales growth In CP, like for like sales grew by 5.2%, demonstrating outperformance of the wider merchanting market. Our specialist businesses continue to deliver strong revenue growth despite some signs of slowing in some end markets Adjusted operating profit growth of 5.3 percent to 1000000 was a little ahead of the growth in sales. This reflects the benefit to volume growth, pass through of cost of goods inflation and cost initiatives helping us to offset overhead inflation and the additional investments and branch teams I mentioned in CP. Toolstation demonstrated outstanding revenue growth of 23.1 percent and 17.3% on a like for like basis. 21 further branches were added in the UK in the half, and their performance is exceeding our expectations. The like for like figure benefits from both strong performance in the maturing branches and the extension of the despite the step up in branch openings in the period. H2 will see further growth in openings with all sites identified and an overall target for the year of 60 openings. With a further 10 new branches taking the total to 42. Like for like revenue performance in Holland was really strong. The French trial continues to be encouraging and we've opened the 1st physical branch in Belgium. So turning now to the Retail business in Wix, like for like growth in the period was 9.7%, with total sales up 8.9%. This was a strong recovery following a very difficult first half in 2018, Growth came from across the Wix business with core DIY sales benefiting from a strong, clear and well balanced trading plan, the addition of new ranges and improvements in product availability. Kitchen and bathroom showroom deliveries were strong throughout the half, and the order book remains encouraging despite subdued consumer confidence. Adjusted operating profit grew by 1,000,000 or 48.6 percent to 1000000. This excellent recovery reflects both the strong trading performance and the well controlled cost base following the significant cost reduction activities in 2018. A 200 basis points improvement in EBITA margin 7.5 percent reflects the operating leverage from I did want to highlight that we've made excellent progress on making the Wix business more standalone, following similar principles and processes, to those that we've used for the separation of the plumbing and heating operation. As I mentioned earlier, we've updated our definition of free cash flow to better reflect the operating cash generation of the business. So the definition now includes both maintenance and investment capital expenditure. And as I said, excludes Freehold transaction as these are a financing decision. On this basis, free cash flow generation improved versus H118 despite a significant investment in inventory of a further million ahead of the anticipated Brexit situation in March. We've largely maintained this inventory position, in order to protect customer It's difficult to predict at this stage what the year end position will be, but we continue to act in the best interest of protecting customer service. So looking at the group's capital expenditure on Slide 15, as we guided in December 2018, we're now beyond the peak period of investments, with base CapEx at over 1,000,000 lower than H1 'eighteen at 1,000,000 The reduction has been achieved despite continued investment in the Toolstation Estate and it's driven primarily by fewer store refits being required in Wix. Maintenance CapEx was modestly lower due to an H2 weighting on fleet renewals. We are maintaining our full year guidance for base CapEx spend of 1,000,000 to 1,000,000, excluding freehold activity. It was a quieter period on the property front, as I said, due to the phasing of transactions, with both fewer purchasers and fewer disposals completed in the period, We do however have a number of transactions we expect to complete in the second half. As you're aware, balance sheet presentation has been heavily impacted by the application of the new lease accounting standard, Now we've reported lease adjusted metrics for a number of years. And whilst these are not directly comparable to IFRS 16 measures, They are broadly consistent. I think the key message is that the balance sheet remains strong and is expected to continue to strengthen with strong cash generation So before I hand over to John, just a word on outlook for the year. Despite the long term fundamental drivers, of our end markets remaining robust. I don't think you will be surprised to hear me say that the continuing political uncertainty is making it difficult to forecast market conditions in the near term. Whilst we've been encouraged by the outperformance across our businesses in H1. This was against the soft trading comparator in H1 'eighteen, and the comparators do strengthen in H2. The group's key lead indicators remain very mixed, and we maintain a cautious view of the short term market outlook Although we do remain confident in making progress across 2019 as a whole. Thanks for your time. I'll look forward to taking questions later and hand over to John for the operational review and strategic update. Good morning, everyone. Let me thank sure if those kind words early on, it clearly is a sort of an emotional period. And let me take the advantage of the situation. In fact, welcoming and Nick, Nick Roberts to the business. We've worked together now for sort of 4.5 weeks. Fairly intensively as you'd imagine with the handovers. And Nick, you've been a delight to work with, and I wish you absolutely every success. I know you do well. When we presented the Capital Markets Day back in December, we always knew it was going to be a busy 18 months. And I'm delighted with the progress that the teams have made during this period as outlined by Alan earlier. We've made really good strategic progress on our strategic aims. I'm particularly pleased with the development of the merchant organization under Frank Elkins, which is trading really, really well. Whole area of simplification has moved forward nicely with us dismantling the divisional structure in the early parts of the year. What a difference a year makes? The Wix performance over the last 12 months has been truly outstanding We've always believed that the business is competitively advantaged against its sector. And it's trading extremely well We have a new management team there with David Woods, who's a new Chief Executive and Julie Worth is a new CFO both really adding to the depth and strength of the management team. And we'll touch on the disappointing delay in this long journey of upgrading our IT capabilities. This was a slide we used at the Capital Markets Day and I'm really only using it in terms of refreshing our memories of what we said 8 months, it feels a lot longer to me actually. We've always believed the the long term drivers for our sector remain strong. And clearly, the short term is moving around We were focused on the 29th March as we came into this year. Obviously, the uncertainty has moved to the 31st October. As we look back over the last 5 year period, I've been chief exec. We've grown the group, but sadly, we did create some complexity in that. So when we presented last December, there were 2 really strong themes that the first one being around our purpose and that being focused on the trade and the trade the trade customer. And the other was to do everything to simplify the growth. The areas that we were sort of using as measurement, we're going to be driving outperformance, which I think we the numbers we've delivered in the first half gives us good confidence that we're making progress in that This lean cost structure, it's a journey, but again, I think we can demonstrate some really good progress in that. And the disciplined capital allocation, which Alan showed, we're in a really strong position on all those three measures. Forming the trade merchant organization under Frank Elk in there are some certain characteristics that set, I think, across all the businesses in that organization. And I would really express given it's my last presentation, the importance of thinking and acting locally, in Merchanting, And we are a business to business organization and trading is very different than that of a retail or consumer type business. I think we should do everything to make it easier to do business with and really be focused on that. And a phrase coined by Kieran Griffin, who took over the green and gold Travis Perkins business earlier this year, He talks around if it matters to a branch manager, it matters to him. I've sort of plagiarized that and talk around if it to the branches and it matters to us in the center. Those three areas I think will hold us in extremely good stead as we go forward The other sort of sub bullet points, I think, are really important. The convenient branch location is more around the Travis Perkins brand we know if we get good sites with good profile, well laid out that that is an advantage in any of the catchments that we operate. This whole area of making it easier for branch managers has really gained momentum. You're going to pull that up for us. Thank you. And I passionately believe being an old merchant that a manager having an influence in the range of products that they have to serve that local market and having the authority to tailor, make a price in stripes. Structure for each individual customer is vitally important to being successful. Over my years with the business, the companies that have the best relationships with the customers surprise surprisingly, trade the best and being focused on account management and relationship management is critical And when I talk around improved delivery proposition, I talk about keeping your promise and merchant seems no different if you have a builder on site. If you promised to deliver it on Thursday afternoon, it's damn important that you do that. And that leads through to actually helping the customer, through sort of digital development of giving them visibility of where the product is and when things are going to putting the manager at the heart, I've talked about a little bit in more depth at the heart of the business, is proven really positive. And the mindset that the center is there serve the branches, not the other way around. I think it's a really important point. Keeping things simple and clear, and communicate in as well as you can. We've without doubt, helps in terms of the developing of the business. If we look directly at the Travis Perkins brands, as it goes without saying, it is the biggest business in the group And it's critical for Travis Perkins as a brand to develop and grow and be successful. It is evolution, not revolution. It's been around a long time and been successful. It is it needs to be a customer led proposition with the customer at the heart of what we're trying to do. And it's not as if we've got a 0 sales culture, but I think businesses that improve their sales culture and a stronger sales plan will always do better in our sector. So we are building on strong heritage We've got a really strong culture for looking after the customer. I've always been pleased with our operational excellence but all of these areas can and will be improved. And as you've seen over the last 5 years, the development of CCF Key Line and BSS under Frank's leadership. It is replicating some of the focus that those businesses have had and transferring them through Kieran and his management team into the TV business. When I talk about targeting the best builder in town. I talked about catchment by catchment. There are 10 to 15 great builders that put their boards outside. They're never short of work. They use the best materials. They're not has bothered about price, they're more input bothered about service, and they're looking for a deep and meaningful relationship with their merchant. The merchant becomes the 4th emergency service to that customer and behind the police ambulance and the fire. And they're really embedded in that customers mind if we target those and successful, other customers gravitate towards the merchants that are supplying them, this and all of the stuff around having deep understanding of what they want, but it's more importantly to provoke the service to them. And the only way you can bespoke that service is via the branch manager really engaging with that customer. I talk around the deep and wider branch stock. Often it's around confidence in the customer. But actually knowing that they can actually turn up at the branch and get what they want is it proves to be much more successful. And again, sort of building on that sales culture, it's very much around aligning the external sales effort with the branch internal effort and making sure that we are aligned and communicating with the data and when what customers want and when they want it. As I'm sure you'd expect, I've had a bit more time this year. To wander around the business and catch up on a lot of the branches. And I've been particularly focused on Travis Perkins on the green and gold. And these are sort of my observations that I've seen far better engagement from the branch manager community much more confident and a visible sort of reaction to Kieran's leadership and in terms of the Tony setting. And we're starting to see that in the early stages come through in our numbers. I talk about authority information and localized decision making because I do believe they make the difference I took I've put their streamlined approval process for pricing agreements in jargon. That's arranging customer special arrangements. And I'm not pleased to say that on some occasions, it needed 8 authority levels get a customer agreement that authorized. That's now down to 2, the branch manager and their boss. And, clearly, this is now speeding up decision making and making things much more, more easy to do business with the customer. We are trialing much more information to the best 100 managers we've got across the the business with a view of extending that out as we understand how it's used. But the key word that I hear now more and more the business is trust the managers to make good commercial decisions. We've got good visibility of what they're doing, but don't overmanage them set the framework and trust them to make good decisions. We talked around best builders in town, and the right stock in the right depth and the right breadth. But it is about getting back to trade in catchment by catchment customer by customer rather than blanket central dictate, in terms of the marketing and sales direction of sales. Often overlooked by analysts and investors, was our specialist businesses over the last 5 years. As a division, I think Frank did a fantastic job On the left hand side, there's some sort of talking around the overall characteristics exist within specialist businesses. They because of that specialist, they tend to attract and target large customers, large customers tend to be more demanding and they're seeking high levels of bespoke service. And I think that's where the businesses in that area have responded really well. At least tailor made propositions that fulfill customer requirements and particularly pleasing that we have driven an agenda of being a low cost to serve business. Therefore, we can drive good volumes and get good returns on capital and earnings. The probably best example that I can give is key line It has moved into, for my mind, a second right merchant business into a fantastic specialist business in the last 10 years. And it is now clearly for me, the sector leader in heavy civils and drainage products it targets large customers really successfully, not often picked up, but over 90% of its business is delivered. It is truly a distribution business and not a merchant. Its branch locations are not necessarily needing to be convenient. They need to be low cost, often out of town, and driven more on stocking products for distressed situations when the customer needs products faster. Than when the manufacturer can deliver it. So Alan talked, around the the the write off of our computer project ERP system that we internally call momentum I'm using a slide again that we used in the Capital Markets Day back in December. And I just want to sort of remind people where we were then and where we are 8 months on. The current merchant in systems are old. And we've always called that out in the north for 35 years, and I was part of the team in 19 installed the original platform. We cover most and businesses. So this does not impact Toolstation and in the main, it doesn't impact Wix other than these financials. They are stable. They are pretty robust, but they are highly complex. And clearly, limited in functionality. But I would sort of point to the fact that CCF and Keyline have operated off the same system to the same period and being highly successful. And, for our point of view, we clearly want give our businesses, our colleagues, our customers, the best systems possible. During this period, we undertook a really, for me, delicate and important task of separating our Plumbing and Heating business. And on 20th May, it sits on its own computer system, which is a dead replica of the IT system that obviously CCF and Keyline operate with now. That task was not to be underestimated. It was a really important step in separating in the disposal of plumbing and heating. And the teams did a great job with it. We're well on the way to separating and the WIC systems, which we would expect to complete before the end of this year. But we do have a complicated ecosystem with up to 400 applications all actually serving the trade merchant businesses we took the decision in late November to delay the deployment of the new ERP system because of the challenges that we were facing 6 or 7 months on, we are still facing those challenges And as Alan explained, the accounting standards are extremely high. And therefore, we had to write off the whole project of 111,000,000 which is clearly a disappointment and of deep regret. However, it was unequivocally had to happen because of the accounting standards. As we look forward, what does that mean for the merchants in systems? And our systems operate and they operate well. And any major transition on an ERP level is without without it's not without its risk. And often when it goes wrong, it can destroy our business. So the decision to not deploy, I think in my mind was right, is right. We are embarking and working hard to improve and modernize the ecosystem, the IT technical system that we operate the business on today effectively with a view of improving its performance and resilience for the future. We have a high number of customer facing and back office applications as outlined And our aim over the coming period is to streamline those applications and processes to give us faster and better data driven decision making. There's every chance that we will move now to a lower risk modular deployment rather than a big bang ERP approach and focus on our core transactional and stock systems initially in that program. What does that actually mean as we step all the way back? Well, the overall plan is likely to take 18 months longer than we would have anticipated and signaled back in December. It's delayed, not canceled. The cash impact, which I'm sure many of us are interested in over that period, will be not materially different than expected because we are operating our overall cost to serve of IT on a lower level as we move through this modernization program. So the message for us is going to take a little bit longer. But overall, the cost is not going to be much different Okay. Moving on to Toolstation, which Alan sort of highlighted. Was a fantastic period, in under James McKinsey's leadership. Simply, this is a lowest cost, best value, best service model in the sector. I think it's demonstrating that with its overall performance. It's got price leadership and it's learning and developing smarter sort of marketing and promotional techniques to drive footfall. The team has introduced 1500 new products and introduced 20 known brands to underpin in trade credentials. It's driving good network expansion of 21 stores and we're still targeting 60 for the full year. We're investing in its digital and IT side and we release a new platform at the end of last year and we're seeing click and collect growth grow 80% in this period. And ultimately, as it underpins this for me, it's such strong service culture and drive and we monitor and measure positively the higher and growing Net Promoter Score. With Wix, we signaled quite clearly at what our purpose was as a group in December. And clearly at that time, our overall trading performance would have not been right for us to signal any corporate action. So we made it very clear that the aim was to improve our performance and turn the business positively into growth. That, as you can see, in the first half of this year, has been extremely positive. We've maintained the value leadership in that DIY shed market. And again, strengthened our promotional activity with an aim of driving our footfall. I think sometimes miss is the overall balance of our customers in Wix where we broadly have a third trade, a third do it for me, and a third DIY and that I think substantially helps the business, in the sector it's operating. We signaled last May, a significant cost reduction program at the center that was executed extremely well and has held good stead as we've gone through this trading period. It's got a compact 240 ish store network with the footprints of those stores smaller and lower cost. It's got, I think, a sector leading kitchen and bathroom offer We're now more than 50% of our kitchens that we sell. We also go into the customer's home and install them And as you would expect with a consumer facing business, we continue to invest on the development of digital proposition online range is expanding and we've developed a much smarter delivery fulfillment system from the store rather a delivery hub. The rationale as we said about demerging was well signaled in December. We believe Wix is a well positioned standalone business with a clear competitive advantage in the market it operates. It also allows us to fulfill the strategy of having the Travis Perkins business focused on trade and trade customers Our aim is to demerge the business. So all things going well by the end of the first half of twenty twenty. As you would expect, there's been a lot of work going on behind the scenes to enable us to make this announcement with work streams already full in full flow, including the separation of the IT, but we've also instigated the merger work streams, including obviously the important areas of finance governance and the legal and regulatory side. So we're very confident that we can complete this and now is the right time for us to announce it. So my last slide and my last presentation, as Chief exec, and you're not going to expect it to be downbeat, are you? I genuinely believe the team has done a fantastic job in the last 12 months. Building through to the Capital Markets Day was really important and that we've made some substantial progress on the strategic aims. I'm very fond of the PNH business, but it the right thing to do in terms of disposing it and Andrew Harrison and the P and H team have done an outstanding job so far and we're still in with the process, the sale process underway, we're still positive or confident of disposal of it for the end of this year. The Wix recovery, I think, is truly positive and allows us to announce the demerger. At trading across merchant businesses is absolutely solid and it's good to see the TB, green and gold return into market share gains. So progress in 2019. I think as we go forward, it is a little bit more of same. I think Frank Hiltkins and the team have done a great job informing the trade merchant organization. A lot of the hard work is done, but still there's more to do as we go forward. And I probably might biggest legacy, if I'm allowed to say that, has been the quality of the merchant team that's actually installed at the moment. It's the best team I've ever worked with and I think holds us in good stead as we go forward. I think it can't be anything other than delighted with Toolstation's progress. And I think again, I think the stage is set for it to continue to progress really well. And this whole area of simplification and having a leaner cost base puts us in a really good stead for the future. So on that, no pressure, Nick. We'll open up for some questions We're going to get to you Mike, sorry. Good morning, everyone. Roberty, from Goodbody. A few questions. Just on the merchant side of the business, can you just go through like in kind of a the drop through from sales down to profits and the strategy that you're pursuing there? And maybe asking the question in terms of what are you doing with gross margins to attract that market share gain? What is the strategy going forward given that markets, Evinil has been equal, could get a bit tougher in the coming months. But just the whole kind of drop through in that business especially just given the strong top line performance. Alan, in your remarks, you were talking about the demerger process of Plumbing and Heating and you use the words stranded costs. And can you just give us any guidance on the scale of those stranded costs could be. And I'm assuming it's on top of the $20,000,000 to $30,000,000. That has been highlighted for a number of months And my last question, and it's probably been led by someone else who has reported, this morning. So that's the background for this comment. We talked about softer conditions from the merchants in recent weeks. And it was it's such a brick manufacturer. So my question is, can you just give us a bit more flavor on the recent weeks in terms of trade for Travis? How much information do you want to give a moment? Probably less than you did. Yeah, exactly. Alan could answer that then. Let me start with, some recent trading. We certainly saw the market slow a little in June. But as I've repeatedly said, this has been an extremely difficult period to understand when you look compared to prior year, January, February 2018 started well March, April, a complete disaster May, June, heat wave, we saw a bounce back with merchants in growing 11%, 12% during May, June. So it's been a little difficult to navigate that That's why we focused on those 2 year like for like and what we were talking about. And the fact that we've seen 8% or so 2 year like for like if you look through that period. So we haven't seen any difference during July and from that trend that we're already seeing. On a 2 year sort of basis. So I think there are indicators that the market softening Whether that is due to people having had a bit more stock and a bit of destocking, I've seen some people talk about that. Don't know whether it's people worried about where next for the economy, the housing market still being quite slow not clear. I think that's why we've sounded the note of caution for the H2 outlook. So that unknown event that we had around the 29th March has just moved out to the 31st October. I think it would be pretty heroic for anyone to try and give solid guidance around that at this stage. Moving on to the point about the stranded costs It was more in connection with the P and H disposal than a demerger, that I was talking about, but you can imagine the same thing goes when we get around to the Wix B merger. Let me give an example of something that we need. So when we report our central costs you see around $30,000,000 to $35,000,000 of remaining PLC type costs, which is not allocated to a segment. However, We do run a number of shared services across the businesses. So in our Northampton office campus, we are providing an accounts payable service, for example, to both P and H and Wix So we're putting teams locally in the businesses so that we can eliminate the risk of stranded overhead So that's the people there. Sometimes we need to reorganize slightly the shape of the teams to make sure that we don't leave any strand overhead behind as we do that. The second element is we are still if you do nothing, we still be operating the same footprint within the Northampton campus because we had so many 1000 square feet. We still got those offices Therefore, once we get to the end of this process, we've got to be agile about making sure that we shrink down the foot space the floor space that we're operating from so that we can ensure that we have mitigated any risk of stranded overhead. So there is a plan around that. Those costs will come out on top of the 20 to 30 But on a net basis, think about net 20 to 30 of things that we're taking out and the fact that it's just something that we got to do to make sure that we eliminate the risk of stranded overhead as we go through the process. On your first question, Robert, the drop through from sales to profits, what we're doing with gross margin, I think we said previously, unashamedly what we're interested in doing is growing the earnings that's a merchanting business. Now over time, that may mean a slightly different shape. So we have as you know, we some of the areas where we score weakest when we talk to customers around pricing consistency and price perception. So we have been addressing that over a number of years. We'll continue to do so. We think we can more than make that up by, covering the any risk of gross margin dilution by getting a better amortization of the fixed cost base. So we've got a certain amount of overhead. This is a fixed cost sort of business, the trucks, the branches. You've got to make sure that you analyze that cost. If you don't grow your volume, you can't amortize the cost. So what drives us is absolute operating profit delivery and growth in the business and then trust the operators to know the best way to do that. So if you incentivize a branch manager, a regional director the regional Managing Director in the right way, they will manage that margin mix overall, which they've done successfully in the past. No, absolutely. You okay, Robert? Howard Seymour from Numis. 3 from me if I can please are in different areas. Firstly, Alan, you alluded to on the specialty side of things, the end user market. Been a bit weaker. Again, I suppose the comment is, is that across the piece and is it in certain areas rather than towards the end of the period? Secondly, the price leadership on Toolstation, what we have seen in Screwfix is the like for like still growing, but at a lesser rate. Just wondering if you start and see any response to your price leadership from them in terms of pricing, if they're getting more aggressive on pricing. And thirdly, 2 smaller businesses, just to our process on those, please, benchmarks, which I saw, there's a couple more depots there, but not many. And also tiled giant, because clearly that is in the retail business. And I'm assuming when you're talking about demerging wicks, that's just wicks and not necessarily tiled giants as well. Thank you. So on just not the Talgiant 1 on the head, the demerger is just Wix. So we still have the Talgiant business there. In terms of the numbers for the avoidance of doubt, you can get the statutory accounts for Talgiant from company's house around 1,000,000 of revenue and a very small profit contribution to the group. On the specialist end user markets, it's not across the piece. I think you know there are that within the drylining market, so impacting CCF there are currently capacity constraints in the market. So we've spoken about this in our Q1 trading statement. The manufacturers have got an allocation process in place, which is creating some restriction on the growth in that that business at this stage. If we talk about end markets, I'd be most concerned about commercial and commercial RMI as the areas where we're seeing more slowing I think the housing market new house build is well controlled and I think infrastructure remains buoyant. So for those businesses, I think it's set fair, but there are some indicators where we could see the market slow a little, particularly around that commercial RMI piece. Yes. On the price leadership, I'm always quite concerned where you where where prices sit between people. We should never forget what Bunnings did when they came in and was so reckless. We tracked the differential between screwfix and and and toolstation. And it's been pretty consistent now, Howard, for a number of years. But the last thing you want to do is provoke a price war. We are a lower cost to serve business and Screwfix inherently. And therefore, what we don't want we want to preserve margin, not just destroy So then on benchmarks. So I think we're quite pleased with the progress we're making in benchmarks. We have a good like for like in the first half. We've got a new MVNO business, John O'Keefe, who was previously commercial director. For general merchanting. I think he's made strong strides already with the business. We will be looking to continue to grow the footprint of the business over time, but John's rightly taking some time to understand what he's got and work out the plan as to how it goes about that. With Frank. Thank you. So if we go Amy first, And then we'll come over to you, Ainsley. Good morning. Ami Galla from Citi. Just two questions from me. First was on the share gains in the Merchanting division. If you could give us some color as to the mix of customers where you're actually making more progress, whether it's large or midsize or smaller customers here, The second question was really could you give us some color on what was the amortization on the IT spend that was going through the P and L last year? And should we expect that to be reversed this year given that you impaired that course? Okay. So if I take the sort of mix for the mix merchant, the Travis Perkins brand, we have been marginally more successful with the larger customer, but clearly the focus is on the balance and the best builders in towners as I call them, they're normally a midsized customer. So that was about the target area, but over the over this sort of 9 month period, we've made progress with them all, but marginally better with the larger customers. Alan, do you want to take that? Yes. So on the IT, the asset was still in the course of construction, so it was held on the balance sheet. So we haven't actually start at the amortization. So there's no underlying P and L impact. We're going to go to Ainsley Thanks, Linaman from Canaccord. Just three questions, please. Firstly, I wondered if you could comment on any changes you've seen in the backdrop and particularly, you know, reaction to competitors sort of changes you're making in the merchant side? Secondly, on the Wix demerger, and just a bit more kind of background to the rationale of going down the demerger route and not selling the business. Have you tried to do that like a bias there or any color you can give? And then thirdly on, obviously, some kind of rumors that there may be a cut to stamp duty at some point if it's gets through what would be your view on that? Would you be at the end, do you think that would have a big impact? So in terms of the backdrop, it's really difficult to see any major trends. I think the markets remain, in my mind, quite benign. Is because it's catchment by catchment, Ainsley, and we don't look at it in terms of of geographical sort of regions or national. So I'm not seeing anyone misbehave think everyone's sort of quite, quite sensible. At the moment, now we've got bunnings out of the market. And did you want to pick up on? Are they Wicks, you do stamp shoot? Yes. Stamps, it definitely took the London market of the China fill in the market. So you'd hope any reduction in stamp duty would have a positive effect on housing transactions. And as we've always said, the 2 big drivers for our ROI have been housing and consumer confidence. And anything that helps those 2 lead indicators, I think will help our business. And so on the rationale around Wix demerger and then picking up on demerger for sale. Think the first thing to say is that the board reached a decision, as a follow on from what we'd said at the Capital Markets Day in December. So we talked at the time about creating optionality for Wix. Importantly, we said we wanted to focus on the trade businesses going forward. So the fact that there would be some form of separation, however, that was delivered, I don't think is, particularly new news or shouldn't be new news at this stage. Our rationale is that Wix has a very different strategy that it's pursuing, it's a retail focused business. And we want the Wix business to allocate capital in its own way just as we want to allocate capital within the remaining merchanting business and Toolstation in the right way. So different priorities around the capital allocation will be a key driver. We will always be minded by acting in the best interest of the owners of the business, the shareholders, and the decision we've taken to pursue the demerger is what we think is in the best interest of our shareholders. We've considered the disposal route But we think that given the recovery underway in Wickes in the longer term, that will deliver far more value to shareholders than a quick sale, particularly in the context of UK Retail at the moment, the recovery that the business is going through and whether you'd see full value versus via that route via the demerger. So I'm very clear that the demerger is the best way forward Thanks. Hi, Stephen Rawlinson at Applied Valley. 3 from me. You don't mind. Firstly, on the issue around Wix, could you just tell us whether that has any impact on the manufacturer rebating structures either in Travis Perkins or in Wickes. Secondly, part of the presentation refers to increased credit lines to the builders. Obviously, it's a tricky time in the building sector, and we're all aware of what's going on at here and what has been going on at inter serve. Just tell us how you might insulate yourself from bad debts that might occur over the next 6 to 12 months with regards to those increased credit lines? And thirdly, in the appendix on page 40, the Q2 sales in Merchanting dropped off of the increase. There was an increase in sales, but it dropped off quite sharply. Just talk a little bit more in-depth about that. I know we've covered it already, but the tail up in merchandising in Q2 was quite sharp down to 2.9% growth there with 10 in Q1. Can you just talk in terms of the volume price mix there and a little bit more about that please? So I think the Q2 Q1 is answered really against 'eighteen. So in 'eighteen, we obviously had a really low comparator because of the beast of the east. And as we came through March, May June, they were very, very strong. Well, Alan pointed to, I think if you look at the 2 year like for like, we were at 9% in Q1 and about 8% over a 2 year period. So the shape was different, Stephen, but it was more to do with last year was the most bizarre sort of it was 2 months, January, February was his own little period, March April, and then May June. It's just the way the numbers come through. I think read it, we read it through on the 2 year like for like. Can I just deal with the rebate side and Yes, it's all pretty sensitive to this area? And I would put it down to our excellent commercial negotiators, that we we'll do the best we can in terms of the synergies that potentially exist. But at the moment, manufacturers are being relatively supportive. On credit line? Yes. So, Tim, the comment is about higher debtors overall, trade debtors just because of the growth in credit sales in the business. It's not about, so that's growing in line with the growth in the merchanting business. Not extending further credit lines or credit periods to customers, the way in which we manage it is looking across all of the businesses total exposure. And then we carry credit insurance on specific risk groups within that as well. So if you were to look in terms of debt to days of sale on the credit parts of the business, which is most of our merchant thing, as you know, that's pretty similar data sales prior year. Any other questions? I've got to go to the wires. Is there any calls coming through from those on the wire? We have a question registered from Yves Bromhead of Exane. Eves. Your line is open. Hi, good morning. Just two questions on my side. The first one is on the PNH. Just wondering what will you do with the disposal proceeds on that business? And also for weeks, if it does go next year, Is this more of a buyback story or could you increase investments elsewhere? And second of all, on the Merchanting Margins, they were flat in H1 because of the mix changes you have seen. Is this also likely to be the case in H2? Or will cost cutting lead to margin expansion in the second part of the year? Think both of those. You're right. Yes. So, Eve, on the first of all, on the disposal proceeds with plumbing and heating, We've had for a YLA target on leverage within the business that's previously been expressed as lease adjusted net debt to EBITDA. Post IFRS 16, it's a similar calculation, as I was saying earlier. So, but now net debt to EBITDA from the financial statement directly We're at 2.8x. That target that we're working towards is 2.5x. So we're very aware that once we reach that target. We'll need to give an update on where we go next. But that is target that we think is the right level for this business. So I think you can draw conclusions from what I'm saying there. On the WIC side, to be clear, it's a demerger. So it doesn't necessarily lead to a a buyback story or anything like that. I think we said previously the business is very cash generative. So when you look at a remaining merchanting and Toolstation group, the Travis Perkins in H2 2020. Assuming that we've disposed of CNH and demerge Wix, that will have a radically different balance sheet shape. Because there is a fair amount of lease debt within the Wix balance sheet. So we will come back and have a look at overall what's the right capital structure. The businesses are very cash generative in that group. So in order to fund their future development, we don't need to use any of those funds from the PNH disposal to reinvest within the merchanting business, we can generate the cash in merchanting and toolstation that we need very happily from the operation. On the operating margins within merchanting, in the second half, you're right, relatively stable or stable in the first half I wouldn't expect any different trends at this stage going into H2. We have no further questions on the phone lines. Okay. Thank you. Good morning. It's Paul Checketts from Barclays Capital. I've got 3, if you don't mind. The first is, if you look at the retail strength, it's coming through from the core DIY side and the kitchens and bathrooms Could you give us a sense of the split of that? And then if you're thinking about how the kitchens and bathrooms benefit is going to unfold over the next 6 to 12 months given the comp. It even is a bit of a feel for that. The next one is every day at the moment the pound is sliding. To what degree is that causing you some concerns because of some of the transactional exposure? And then lastly, I just want to ask about the ERP write off. Can you actually explain exactly what went wrong there? And you're looking at that merchanting system now, how well equipped is it to support e commerce and the changes that are happening in the in the market. So if we work backwards, Alan, on the ERP, Paul, it is subject So fairly delicate discussions with our provider. And I'd rather not at this stage talk about it We've declared where we are. And obviously as we move forward, we'll explain a little bit more The, the delay is that opportunistic missed opportunities rather that our businesses are trading really well at the moment and with the systems we've got, all the investment and what we were trying to achieve was a competitive advantage in our sector. So it does put us back a little bit, but not 0, because we with the modernization we can actually get some benefits to come through. So around the delivery visibility, we can still create some digital enhancement to the customers from our existing system. As we go forward, we want to modernize and effective system. So we've still got to address that. But just a setback rather than completely ruined and we've learned an awful lot through that process as you as you, but the accounting standards are pretty defined in the sense that they've instructed to write the whole lot off. And pound exposure, my take on it for what it's worth is that when everyone's exposed to the same criteria, it's painful but manageable. If you remember back to June 2016, as we saw that sort of devaluation of 15% affected most people and it's not helpful because it'll drive Unfortunately, a bit more inflation into the market, but then it's really around making sure that we've got good stopes and we've got good trading arrangements. So annoying. And then on retail, I think when we talk about those three segments of trade, DIY and do it for me, put an argument all 3 have moved forward and not one disproportionately? Yes, no, the within the mix, the kitchen and bathroom showroom is clearly the one that moves around a bit more. It's Each of them are around a third of the revenue, we'd have been double digit on kitchen and bathroom showroom in the first half. We are going into a more difficult comparator as we get into the second half because we'd already seen the recovery coming through in H2 'eighteen of that business. And we had a competitor pull out of the installation market. I think we may not have talked to you enough about the real strength of offering that installation service We just won yet another award for how good we are at doing the installation and going into someone's house and ripping out the heart of the house, and replacing that over a week to 2 week period is a pre major change as anyone who's been through it will know in the house and living with that. So to go in and create that amount of disruption and do it successfully, If you go back 3 or 4 years, we may be installing 20% of them. We're now installing over half, and that continues to grow. So that is one of the bits that we're most proud of with the business. I think customers realize that and that's why the business performed so strongly. So John's right. It's a balanced recovery across the portfolio within weeks. Okay. One last one? No. Good. And from my point of view, thank you very, very much for all your support and, wish you all the best. Thank you.