Good morning, ladies and gentlemen. My name is Stuart Chambers. I'm the Chairman of Travis Perkins PLC. It's my great pleasure to welcome you to our 2019 half year results. There's quite a lot to cover. There are a number of significant changes, the income statement, the balance sheet, and quite a few work streams to update you on. I'm not going to duplicate there. I'll leave Alan and John to do that. I just want to cover two areas. Firstly, I would like to acknowledge on behalf of the board 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 off the performance ball of business as usual across the businesses. 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 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.
I'd just like to say how wonderful my time has been with John, albeit somewhat short, two years, because John has delivered 41 years of sterling service, committed and always dedicated to the company. I think the thing that earmarks John, most of all, is his passion. He puts 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. We'll miss you, John. Of course, absolutely delighted to be welcoming Nick Roberts into the team here this morning, and he takes over on Monday the 5th, next week. We are really delighted to have been able to persuade Nick to come and join us.
I'm absolutely confident that he's going to take this group, and he's going to build on what's already been achieved, and he's going to take it forward and grow it successfully for the benefit of all stakeholders. Very warm welcome to Nick as well. However, you're still in charge, John. It's obviously the results. 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. 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. Today, we've also announced our intention to pursue a demerger of Wickes. 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 own markets. We've demonstrated outperformance across our merchanting businesses, continued to deliver outstanding growth in Toolstation, and have delivered a very strong turnaround in Wickes.
Before I take you through the results in detail, I thought it might be helpful to draw your attention to some of the changes to the presentation of our results, which are in effect for 2019. Firstly, as we set out with our full year results at the end of February, we have redefined our reporting segments. As Plumbing & Heating is now classified as an asset held for sale and hence excluded from underlying results, we are reporting under three 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. H1 2018 is, however, restated to exclude Plumbing & Heating as is required by the relevant accounting standard.
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. 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 GBP 189 million, an increase of 18.1% on a comparable basis.
Adjusted earnings per share were 19.9% higher at GBP 0.501 on a comparable basis. 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 GBP 127 million. The vast majority of this amount, GBP 111 million, relates to a non-cash write-off of IT investments related to the ERP program. This is because it no longer meets the 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 later. 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 eight, you will see that on a two-year basis, like-for-likes 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 two-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 Wickes delivered recovery across both core DIY and the kitchen and bathroom showroom business. Moving on to slide nine, operating profit. I've broken out the drivers of the GBP 25 million growth in adjusted operating profit in the period. Firstly, the strong volume performance led to GBP 55 million growth in gross profit.
Overheads on a net basis increased by GBP 26 million 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 GBP 21 million of cost savings in the half. 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. Property profits were GBP 4 million lower in the half, which is driven by the phasing of completion of transactions compared to 2018. We still expect to deliver around GBP 20 million of property profits in the year on an IFRS 16 basis.
As you will recall, we delivered significant cost savings in 2018 in both Wickes and TP. The annualization benefits from these savings in the first half is around GBP 15 million. Remember, these savings were achieved in H218 and do not form part of the GBP 20 million-GBP 30 million savings we announced at the capital markets event. Of that announced GBP 20 million-GBP 30 million savings, we've now completed actions that will deliver GBP 10 million of annualized savings, of which GBP 6 million are included in the first half results. This sets us on a path to take the overhead to sales ratio down further in the year to around 23%. We're also working on a plan to fully mitigate stranded overhead costs associated with the disposal of the Plumbing & Heating businesses. I'll now turn to performance by reporting segment, starting with merchanting.
As I mentioned earlier, volume growth was 4.6%, reflecting market share gains and driving the like-for-like sales growth of 6.4%. In TP, 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% to GBP 140 million was a little ahead of the growth in sales. This reflects the benefit of volume growth, pass-through of cost of goods inflation, and cost initiatives helping us to offset overhead inflation and the additional investment in branch teams I mentioned in TP. Toolstation demonstrated outstanding revenue growth of 23.1% and 17.3% on a like-for-like basis. 21 further branches were added in the U.K. 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 range, both in branch and online. Adjusted operating profit and margin both grew 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. In Europe, we continued the expansion of our Dutch footprint 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, we've opened the first physical branch in Belgium. Turning now to the retail business in Wickes, 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 Wickes 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 GBP 17 million, or 48.6%, to GBP 52 million. 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 to 7.5% reflects the operating leverage from improved volumes. While John will cover the proposed de-merger in more detail later, I did want to highlight that we've made excellent progress on making the Wickes business more standalone, following similar principles and processes to those that we've used for the separation of the Plumbing & 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. The definition now includes both maintenance and investment capital expenditure, and as I said, excludes freehold transactions, as these are a financing decision. On this basis, free cash flow generation improved versus H1 2018, despite a significant investment in inventory of a further GBP 50 million ahead of the anticipated Brexit situation in March. We've largely maintained this inventory position in order to protect customer supply in the event of a no-deal Brexit later in the year. As you'll appreciate, 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.
Looking at the group's capital expenditure on slide 15, as we guided in December 2018, we are now beyond the peak period of investment, with base CapEx over GBP 30 million lower than H1 2018 at GBP 51 million. The reduction has been achieved despite continued investment in the Toolstation estate and is driven primarily by fewer store refits being required in Wickes. Maintenance CapEx was modestly lower due to an H2 weighting on fleet renewals. We are maintaining our full-year guidance for base CapEx spend, GBP 110 million-GBP 130 million, excluding freehold activity. It was a quieter period on the property front, as I said, due to the phasing of transactions, with both fewer purchases 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. 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 from the group and lower spending requirements. 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 a soft trading comparator in H1 2018, 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.
Thanks, Alan. Good morning, everyone. Let me thank Stuart for those kind words early on. It clearly is a sort of an emotional period. Let me take advantage of the situation, in fact, welcoming Nick Roberts to the business. We've worked together now for sort of four and a half weeks, fairly intensively, as you would imagine, with the handovers. Nick, you've been a delight to work with, and I wish you absolutely every success. I know you'll 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. This whole area of simplification has moved forward nicely with us dismantling the divisional structure in the early part of the year. What a difference a year makes. The Wickes 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 Wood, who's the new Chief Executive, and Julie Wirth , who's the new CFO, both really adding to the depth and strength of the management team. 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. Eight months, it feels a lot longer to me, actually. We've always believed the long-term drivers for our sector remain strong, and clearly, the short term is moving around. We were focused on the 29th of March as we came into this year. Obviously, the uncertainty has moved to the 31st of October. As we look back over the last five-year period that I've been chief exec, we've grown the group, but sadly, we did create some complexity in that. When we presented last December, there were two really strong themes, the first one being around our purpose and that being focused on the trade and the trade customer, and the other was to do everything to simplify the group.
The areas that we were sort of using as measurement were going to be driving out performance, which I think with 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. 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 Elkins, there are some certain characteristics that set, I think, across all the businesses in that organization. I would really stress, 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. 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 matters to the branches, then 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 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 going to pull that up for us? Thank you. I passionately believe, being an old merchant, that actually 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 pricing 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 surprisingly trade the best, and being focused on account management and relationship management is critical. When I talk around improved delivery proposition, I talk about keeping your promise. Merchanting is no different. If you have a builder on-site, if you promise to deliver it on Thursday afternoon, it's damn important that you do that.
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 happen. Putting the manager at the heart, I talk about a little bit in more depth, at the heart of the business, is proving really positive. The mindset that the center is there to serve the branches, not the other way around, I think is a really important point. Keeping things simple and clear. Communicating as well as you can, without doubt, helps in terms of the developing of the business. If we look directly at the Travis Perkins brand, it goes without saying, it is the biggest business in the group, and it is 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 needs to be a customer-led proposition with the customer at the heart of what we're trying to do. It's not as if we've got a zero sales culture. I think businesses that improve their sales culture and a stronger sales plan will always do better in our sector. 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. All of these areas can and will be improved. As you've seen over the last five years, the development of CCF, Keyline, 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 TP business.
When I talk about targeting the best builder in town, I talk about catchment by catchment. There are 10 to 15 great builders that have got their boards outside. They're never short of work. They use the best materials. They're not as bothered about price. They're more bothered about service, and they're looking for a deep and meaningful relationship with their merchant. The merchant becomes the fourth emergency service to that customer, behind the police, ambulance, and the fire. They're really embedded in that customer's mind. If we target those and successful, other customers gravitate towards the merchants that are supplying them. All of the stuff around having deep understanding of what they want, but it's more importantly to bespoke the service to them. 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 proves to be much more successful. Again, 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 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. I've been particularly focused on Travis Perkins, on the green and gold.
These are my observations that I've seen far better engagement from the branch manager community, much more confidence, and a visible reaction to Kieran's leadership in terms of the tone he's setting. 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've put their streamlined approval process for pricing agreements. In jargon, that's arranging customer special arrangements. I'm not pleased to say that on some occasions it needed 8 authority levels to get a customer agreement authorized. That's now down to 2, the branch manager and their boss. Clearly, this is now speeding up decision-making and making things much more easy to do business with the customer.
We are trialing much more information to the best 100 managers we've got across the business with a view of extending that out as we understand how it's used. The key word that I hear now more and more across the business is trust the managers to make good commercial decisions. We've got good visibility of what they're doing, but don't over-manage 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. It is about getting back to trading catchment by catchment, customer by customer, rather than blanket central dictate in terms of the marketing and direction of sales. Often overlooked by analysts and investors was our specialist businesses over the last five years. As a division, I think Frank did a fantastic job.
On the left-hand side is some sort of talking around the overall characteristics that exist within specialist businesses. They're specialists, they tend to attract and target large customers. Large customers tend to be more demanding. They're seeking higher levels of bespoke service. I think that's where the businesses in that area have responded really well. These tailor-made propositions that fulfill customer requirements. Particularly pleasing that we have driven an agenda of being a low cost to serve business. We can drive good volumes and get good returns on capital and earnings. The probably best example that I can give is Keyline. It has moved into, for my mind, a second-rate merchant business into a fantastic specialist business in the last 10 years. 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 distress situations when the customer needs products faster than when the manufacturer can deliver it. Alan talked around 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. I just want to sort of remind people where we were then and where we are eight months on. The current merchanting systems are old, we've always called that out.
They're north of 35 years, I was part of the team in 1986 that installed the original platform. We cover most of the merchant businesses, so this does not impact Toolstation, and in the main, it doesn't impact Wickes other than its financials. They are stable, they are pretty robust, but they are highly complex and clearly limited in functionality. I would sort of point to the fact that CCF and Keyline have operated off the same system for the same period and been highly successful. From our point of view, we clearly want to 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 & Heating business, and on the 20th of 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 & Heating. The teams did a great job with it. We're well on the way to separating the Wickes systems, which we would expect to complete before the end of this year. 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.
Six or seven months on, we are still facing those challenges, and as Alan explained, the accounting standards are extremely high. Therefore, we had to write off the whole project of GBP 111 million, 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 merchanting systems? Our systems operate, and they operate well. Any major transition on an ERP level is not without its risk, and often when it goes wrong, it can destroy our business. 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.
The message for us, it's going to take a little bit longer, but overall, the cost is not going to be much different. Moving on to Toolstation, which Alan highlighted, was a fantastic period under James Mackenzie's leadership. Simply, this is a lowest cost, best value, best service model in the sector, and I think it's demonstrating that with its overall performance. It's got price leadership, and it's learning and developing smarter marketing and promotional techniques to drive footfall. The team has introduced 1,500 new products and introduced 20 known brands to underpin its trade credentials. It's driving good network expansion to 21 stores, and we're still targeting 60 for the full year. We're investing in its digital and IT side, and we released a new platform at the end of last year, and we're seeing our click and collect growth grow 80% in this period.
Ultimately, as it underpins this for me, is the strong service culture, and we monitor and measure positively the higher and growing net promoter score. With Wickes, we signaled quite clearly what our purpose was as a group in December. Clearly at that time, our overall trading performance would not have been right for us to signal any call for action. 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. Again, strengthened our promotional activity with an aim of driving our footfall.
I think sometimes missed is the overall balance of our customers in Wickes, where we broadly have a third trade, a third do it for me, and a third DIY. That, I think, substantially helps the business in the sector that it's operating. We signaled last May a significant cost reduction program at the center that was executed extremely well and has held it in 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, where now more than 50% of our kitchens that we sell, we also go into the customer's home and install them. 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 from a delivery hub. The rationale, as we said about demerging, was well signaled in December. We believe Wickes 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 2020. 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 in full flow, including the separation of the IT. We've also instigated the merger work streams, including obviously the important areas of finance governance and the legal and regulatory side.
We're very confident that we can complete this, and now is the right time for us to announce it. 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 then we've made some substantial progress on the strategic aims. I'm very fond of the P&H business, but it is the right thing to do in terms of disposing it, and Andrew Harrison and the P&H team have done an outstanding job so far. With the sale process underway, we're still positive or confident of disposing of it before the end of this year.
The Wickes recovery, I think, is truly positive and allows us to announce the demerger. Trading across merchant businesses is absolutely solid, and it's good to see the TP green and gold returning to market share gains. Progress in 2019. I think as we go forward, it is a little bit more of the same. I think Frank Elkins and the team have done a great job in forming the trade merchant organization. A lot of the hard work is done, but still there's more to do as we go forward. Probably my 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 you can't be anything other than delighted with Toolstation's progress.
I think, again, I think the stage is set for it to continue to progress really well. This whole area of simplification and having a leaner cost base puts us in a really good stead for the future. On that, no pressure, Nick. We'll open up for some questions.
Please press star one to ask a question.
Oh, we're going to get to you, Mike. Sorry.
Good morning, everyone. Robert Easton from Goodbody. A few questions. Just on the merchant side of the business, can you just go through the drop-through from sales down to profits and the strategy that you're pursuing there? Maybe it's 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 market, if everything has been equal, could get a bit tougher in the coming months? 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 & Heating, and you used the words stranded costs. Can you just give us any guidance on what the scale of those stranded costs could be?
I'm assuming it's on top of the GBP 20 million-GBP 30 million that has been highlighted for a number of months. My last question, and it's probably been led by someone else who's reported this morning, that's the background for this comment. We talked about softer conditions from the merchants in recent weeks, and it was Ibstock, the brick manufacturer. 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 them, Alan?
Probably less than you do.
Yeah, exactly. Alan can answer that then.
Let me start with some recent trading. We certainly saw the market slow a little in June. 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 merchanting growing 11%, 12% during May and June. It's been a little difficult to navigate that. That's why we focused on those two-year like for likes in what we were talking about, and the fact that we'd seen 8% or so two-year like for like, if you look through that period. We haven't seen any difference during July from that trend that we're already seeing on a two-year sort of basis. I think there are indicators that the market's 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. That unknown event that we had around the 29th of March has just moved out to the 31st of 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 cost, it was more in connection with the P&H disposal than a demerger that I was talking about. You can imagine the same thing goes when we get around to the Wickes demerger.
Let me give an example of something that we mean. When we report our central costs, you see around GBP 30 million-35 million of remaining PLC type costs, which is not allocated to a segment. However, we do run a number of shared services across the businesses. In our Northampton office campus, we are providing an accounts payable service, for example, to both P&H and Wickes. We're pulling 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 stranded overhead behind as we do that. The second element is, if you do nothing, we'd still be operating the same footprint within the Northampton campus. Because we had so many thousand sq ft, we still got those offices.
Once we get to the end of this process, we've got to be agile about making sure that we shrink down the floor space that we're operating from, so that we can ensure that we have mitigated any risk of stranded overhead. There is a plan around that. Those costs will come out on top of the GBP 20-30, but on a net basis, think about net GBP 20-30 of things that we're taking out, and the fact that it's just something that we've 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 as a merchanting business.
Over time, that may mean a slightly different shape. We have, as you know, some of the areas where we score weakest when we talk to customers around pricing consistency and price perception. 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 any risk of gross margin dilution by getting a better amortization of the fixed cost base. 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 amortize that cost. If you don't grow your volume, you can't amortize the cost. 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.
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? Good. Go on, Howard.
Thank you. Thank you very much. Howard Seymour from Numis. Three from me if I can please, all in different areas. Alan, you alluded to on the specialist side of things, the end user market being a bit weaker. I suppose the comment is that across the piece and is it in certain areas and towards the end of the period? 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're starting to see any response to your price leadership from them in terms of pricing, if they're getting more aggressive on pricing. Two smaller businesses. Just your thought process on those, please.
Benchmarx, which I saw there's a couple more depots there, but not many, and also Tile Giant, because clearly that is in the retail business, and I'm assuming when you talk about de-merging Wickes, that's just Wickes and not necessarily Tile Giant as well. Thank you.
On just not the Tile Giant one on the head, the de-merger is just Wickes. We still have the Tile Giant business there. In terms of the numbers, for the avoidance of doubt, you can get the statutory accounts for Tile Giant from Companies House, around GBP 50 million 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 that within the dry lining market, so impacting CCF, there are currently capacity constraints in the market. 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 business at this stage. If we talk about end markets, I've been 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. 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.
Yeah. On the price leadership, I'm always quite concerned where prices sit between people. We should never forget what Bunnings did when they came in and were so reckless. We tracked the differential between Screwfix and Toolstation, and it's been pretty consistent now, Howard, for a number of years. The last thing you want to do is provoke a price war. We are a lower cost to serve business than Screwfix, inherently, and therefore, we want to preserve margin, not just destroy it.
On Benchmarx, I think we're quietly pleased with the progress we're making in Benchmarx. We had a good like for like in the first half. We've got a new MD in the business, John O'Keeffe , 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, John's rightly taking some time to understand what he's got and work out the plan as to how he goes about that with Frank.
Thank you.
Well done. If we go Ami first and then we'll come over to you, Ainsley.
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 mid-size 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&L last year? Should we expect that to be reversed this year given that you impaired that cost?
Okay. 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. Clearly the focus is on the balance and the best builders in town, as I call them, are normally the mid-size customers. That's a target area. Over this sort of nine-month period, we've made progress with them all, but marginally better with the larger customers. Alan, do you want to take the second question?
Yeah. On the IT, the asset was still in the course of construction, so it was held on the balance sheet. We haven't actually started the amortization, so there's no underlying P&L impact.
I'm going to go to Ainsley.
Ainsley Hammond from Canaccord Genuity. Just three questions, please. Firstly, wondered if you could comment on any changes you've seen in the competitive backdrop, particularly new reaction to competitors to the changes you're making in the merchant side? Secondly, on the Wickes 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? Lack of buyers there or any color you can give. Thirdly on, obviously, some kind of rumors that there may be a cut to stamp duty at some point. If it gets through, what would be your view on that? Do you think that would have a big impact?
In terms of the backdrop, it is really difficult to see any major trends. I think the markets remain, in my mind, quite benign. It's because it's catchment by catchment, Ainsley, and we don't look at it in terms of geographical sort of regions or national. I've not seen anyone misbehave. I think everyone's sort of quite sensible at the moment now we've got Bunnings out of the market. Did you want to pick up on?
I think Wickes, you do stamp duty.
Yeah. Stamp duty, it definitely took the shine off the London market. You'd hope any reduction in stamp duty would have a positive effect on housing transactions. As we've always said, the two big drivers for our RMI have been housing transactions and consumer confidence. Anything that helps those two lead indicators, I think, will help our business.
Ainsley, on the rationale around Wickes demerger and then picking up on demerger versus sale, I think the first thing to say is that the board reached its decision as a follow-on from what we'd said at the Capital Markets Day in December. We talked at the time about creating optionality for Wickes. Importantly, we said we wanted to focus on the trade businesses going forward. 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 Wickes has a very different strategy that it's pursuing. It's a retail-focused business, and we want the Wickes 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.
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. 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 U.K. 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. I'm very clear that the demerger is the best way forward.
Thank you. Stephen.
Thanks. Hi, Stephen Rawlinson, Applied Value. Three from me, if you don't mind. Firstly, on the issue around Wickes, 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 Kier and what has been going on at Interserve. Can you just tell us how you might insulate yourself from bad debt that might occur over the next 6-12 months with regard to those increased credit lines? Thirdly, in the appendix on page 40, the Q2 sales in merchanting dropped off or the increase, there was an increase in sales, but it dropped off quite sharply.
Can you just talk a little bit more in depth about that? I know we've covered it already, but the tail off in merchanting in Q2 was quite sharp, down to 2.9% growth compared with 10% in Q1.
Can you just talk in terms of the volume price mix there, and a little bit more about that please, if you don't mind.
I think the Q2, Q1 is answered really against 2018. In 2018, we obviously had a really low comparator because of the Beast from the East. As we came through March, May, and June, they were very, very strong. What Alan pointed to, I think if you look at the two-year like for like, we were at 9% in Q1 and about 8% over a two-year period. The shape was different, Stephen, but it was more to do with last year was the most bizarre sort of, it was two months, January, February was its own little period, March and April, and then May and June. It's just the way the numbers come through. I think we read it through on the two-year like for like. Can I just deal with the rebate side? Yeah, it's all pretty sensitive, this area.
I would put it down to our excellent commercial negotiators, that we'll do the best we can in terms of the synergies that potentially exist. At the moment, manufacturers are being relatively supportive.
On credit lines.
Yeah. Stephen, 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 the businesses at total exposure, and then we carry credit insurance on specific risk groups within that as well. If you were to look in terms of debtor days of sale on the credit parts of the business, which is most of our merchanting, as you know, that's pretty similar days of 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 Bromehead of Exane. Yves, your line is open.
Hi, good morning. Just two questions on my side. The first one is on the P&H. Just wondering what will you do with the disposal proceed on that business? Also for Wickes, if it does go next year, is this more of a buyback story, or could you increase investments elsewhere? 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? Thank you very much.
You all right. Yeah. Yves, first of all, on the disposal proceeds with plumbing and heating, we've had for a while a 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 2.8 times that target that we're working towards is two and a half times. We're very aware that once we reach that target, we'll need to give an update on where we go next. That is the target that we think is the right level for this business. I think you can draw conclusions from what I'm saying there. On the Wickes side, to be clear, it's a de-merger.
It doesn't necessarily lead to a buyback story or anything like that. I think we said previously, the business is very cash generative. When you look at a remaining merchanting and Toolstation group, the Travis Perkins in H2 2020, assuming that we've disposed of P&H and de-merged Wickes, that will have a radically different balance sheet shape because there is a fair amount of lease debt within the Wickes balance sheet. 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. In order to fund their future development, we don't need to use any of those funds from the P&H 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. Brilliant.
Thank you very much.
We have no further questions on the phone lines.
Okay, thank you.
Morning, it's Paul Checkers from Barclays Capital. I've got three, 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 spread of that? If you're thinking about how the kitchens and bathrooms benefit is going to unfold over the next six to 12 months, given the comp, could you give us 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?
Lastly, I just want to ask about the ERP write-off. Can you actually explain exactly what went wrong there? If 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 market?
If we work backwards, Alan, on the ERP call, it is subject to some fairly delicate discussions with our provider, and I'd rather not, at this stage, talk about it. We've declared where we are. Obviously, as we move forward, we'll explain a little bit more. The delay is about missed opportunities rather than Our businesses are trading really well at the moment with the systems we've got. All the investment and what we were trying to achieve was a competitive advantage in our sector. It does put us back a little bit, but not zero, because with the modernization, we can actually get some benefits to come through. Around the delivery visibility, we can still create some digital enhancement to the customers from our existing system. As we go forward, we want a modernized and effective system. We've still got to address that.
Just a setback rather than completely ruined. We've learned an awful lot through that process, as you. The accounting standards are pretty defined in the sense that they've been structured to write the whole lot off. GBP 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%, it affected most people, and it's not helpful because it'll drive, unfortunately, a bit more inflation into the market. It's really around making sure that we've got good stocks and we've got good trading arrangements. Annoying.
On retail, I think when we talk about those three segments of trade, DIY, and do it for me, I can put an argument all three have moved forward and not one disproportionately. Alan?
Yeah. No. Within the mix, the kitchen bathroom showroom is clearly the one that moves around a bit more. Each of them are around a third of the revenue. We'd have been double digit on kitchen 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 2018 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 two-week period is a pretty major change, as anyone who's been through it will know, in the house and living with that. To go in and create that amount of disruption and do it successfully, if you go back three or four years, we were maybe installing 20% of them. We're now installing over half, and that continues to grow. 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 performs so strongly. John's right, it's a balanced recovery across the portfolio within Wickes.
Okay. One last one? No? Good. From my point of view, thank you very, very much for all your support, and wish you all the best. Thank you.