Ladies and gentlemen, welcome to the Travis Perkins Q3 trading update. My name is Megan and I will be coordinating your call today. During the presentation, you will have the opportunity to ask a question by pressing star followed by one on your telephone keypad. I will now hand over to your host, John Carter, CEO, and Alan Williams, CFO, to begin. John, please go ahead.
Good morning, everyone, and welcome to the Travis Perkins Q3 trading update. It was a short introduction, which I think a lot of the messages are contained within the IMS. Solid Q3 trading performance. Our trade businesses collectively performed extremely well with like-for-like sales of plus 7%, taking market share in plumbing and heating contracts and Toolstation. As highlighted at the half year, U.K. DIY market still had significant challenges, and that is impacting Wickes. We'd always said that there'd be short-term disruption from the Bunnings exit from the Homebase business. We're making good progress with our cost reduction initiatives and taking all these points together, we remain in line and comfortable with market consensus for the year end. We'll open that up for Q&A, if we could please.
Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone keypad. Question from Gregor Kuglitsch of UBS. Gregor, please go ahead.
Hi. I didn't expect to be-
Hi, Gregor
Hi, Gregor
Hi, how are you?
Good.
I have a question on the consumer business and Wickes in particular. Obviously in the statement you point to sort of a sequential stabilization in the pricing pressure. Also you're talking about better kitchen and bathroom order activity. I just wanted to understand kind of what we're talking about here in terms of quantum, if you can kind of give us some kind of directionality, obviously, in the first half, your gross margin in the consumer segment, appreciate that's not just Wickes, was down 270 basis points. I want to understand when you talk about sequential stabilization, is that a recovery or is it the rate of decline kind of moderating? I just wanted to get perhaps a little bit of color.
Okay
on that specifically.
Given this just is a bit of a trading update, we can't give the details. Overall, we highlight U.K. DIY remains really challenging, Gregor. I think the team are doing a really good job in difficult circumstances. There's a number of moving parts. I think the pricing pressure that we saw in the first half remains still difficult, but is, as we say, moderating slightly as we move through the year, through the second half. We are taking advantage of the Kingfisher exit of delivered installed kitchens. I'd really call that as it's a delay because a lot of the orders taken in Q3 and leading definitely into Q4 won't be affecting delivered ordered sales in 2018, but sets us up better for 2019.
It is more stable, we always called that we would see short-term disruption, and I think we're still in that period of disruption as well. Alan, I don't know if you wanted to add to that.
Just to clarify, Gregor, on the revenue recognition point that John points to on the kitchen and bathroom order activity. In the statement we said early signs of recovery, we probably saw that in ordered sales from mid-August onwards. Typically, there's something like an eight-week or so lead time on average between when a kitchen is ordered and when it's delivered and installed for the customer. From a revenue recognition point of view, you won't see some of that till the Q4, and as John says, into 2019.
Thank you. Just one point clarification on your guidance. Are you still leaving the property profit guidance of GBP 25 million unchanged? Just so we understand-
Yes
what the underlying is. Okay. Thank you.
Yes, absolutely.
We have a follow-up question from Emily Biddulph of JP Morgan. Emily, please go ahead. We have another question from Andy Murphy of Merrill Lynch. Please go ahead. Sorry, I clicked Ami Galla, Citi, please go ahead.
Hello.
Hi, Ami.
Hi, Ami.
Hi. Just one question on if I could get you to comment a bit around 2019 expectations here. I know it's early days. Given your comment around the kitchen and bathroom order intake, should we expect that 2018 is actually a trough year in terms of earnings for the consumer division at least? Any further color that you can give us in terms of general merchanting business? To what extent the cost reductions that you've implemented should actually see earnings improve into 2019 for general merchanting?
Ami, I'm not going to comment specifically on 2019 expectations overall, as you'd expect at this stage, given we're on a trading update call. I think if there's anything specific we wanted to flag, we would have done so. Take from that, at the moment, nothing to say versus what the market's expecting. In terms of the specific on Wickes cost savings, we enacted some of those at the end of 2017. As you'll recall, the things like the reduction in head office costs within Wickes were only enacted around mid-May. Therefore, there will be a further benefit from cost reductions, not only in Wickes, but across the group from the cost actions that we've taken as we start to annualize those during 2019. You will get a full year effect from the cost savings in 2019, which will give some boost.
As to whether it's a trough year, we'd like to think so, but I think it would be premature to make too many predictions given the uncertain economic outlook at the moment.
I think it'd be best to update in February.
Yeah.
Can I have another question, this one on Capital Markets Day in December and what should we be expecting into that update? Are you looking at a restructuring of the existing divisions? Are some of the things, smaller divisions, an option? Are you looking at exiting some of the divisions? Yeah.
Right. Could I refer you back to the paragraph that we included in the interim results announcement at the end of July with regards to the Capital Markets Day? If we had anything that was material that we needed to say at this stage, it would have been contained in the statement. We will provide more detail as we set out on our operational and business update on the 4th of December. That date is now confirmed.
Thank you.
Apologies. Emily Biddulph of JP Morgan was our next questioner. Emily, your line is now open. Please go ahead.
Morning, guys. Can you hear me?
Hi, Emily. Yeah, we can now, Emily.
Brilliant. Thanks. I've got two questions, please. The first one just on general merchanting and what the price volume split is roughly in there. Secondly, just on the contract outlook, obviously it's a really good performance, particularly in the light of the price rolling off. What do the order books look like, and do you think that continues? Thanks.
If I take on the contracts, it does feel a bit groundhog day. We've consistently done well across all three businesses for the last few years. Like most construction, there is an element of cyclicality about it. We've not seen anything noticeable in our order book that would indicate a slowing down, but I think we have to go forward with a degree of cautiousness. We have outperformed all three sectors over the last three to four years. Emily, it's a great performance by Frank Elkins and the team, and we're trading well at the moment. Each period you think could things slow down, but we're not seeing that through the order book.
Emily, on the general merchanting side, Q3 was really a continuation of the trend we saw in Q2 from a selling price inflation that we've achieved, just under 3% sort of level. That implies that the whilst volume was still negative in Q3, was slightly less negative. I'd also point to the bit that we highlight in the statement around we're cycling against a relatively strong Q3 2017 in general merchanting. If you look at the two-year stacks on a like-for-like basis, general merchanting up 3.7 compared to up 3.3 in Q2. We think things are improving a little. If you look quarter by quarter, clearly we had a very weak Q1, as you know. We had a very strong Q2 driven by the improvements in weather, particularly in May and June.
Q3 came back a little from the May and June position that overall, we were satisfied it was in line with what we were anticipating.
Brilliant. Thanks very much.
Cheers, Emily.
We have another question from Andy Murphy of Merrill Lynch. Andy, your line is now open. Please go ahead.
Good morning, guys.
Hi, Andy.
Can you hear me? You can trust me.
It's on, yeah.
You talked about pricing of about 1.9. I just wanted to sort of try and explore that a little bit, because you seem to be suggesting that sales pressure are at ease. You're saying selling prices from you to your customers is coming down. I guess that's on the back of cost of goods also coming down. To what extent is that a choice that you're making, and to what extent do you think you could perhaps hang on to the higher prices? Could you perhaps give us a flavor between the sort of merchanting divisions and consumer, how that sort of splits in terms of the mix?
Andy, I think we pointed in the statement too, in the contract merchanting division in particular, the selling price inflation had come down considerably. Obviously, within there, you have a high element driven by commodity price inflation. A lot of that we have to adjust in line with broadly where the market's going on the commodity-driven elements. That's one of the key features within merchanting in the quarter. As I said, general merchanting followed a similar trend to what we'd seen in the first half. From a consumer point of view, the market environment remains extremely challenging. From a pricing point of view, we're still having to react to what our competitors are doing. I think that's the right trading stance to have taken in the market. We are constantly adjusting the position.
Okay, thanks very much.
Excuse me.
We have another question from Robert Easton of Goodbody. Robert, your line is open. Please go ahead.
Good morning, everyone.
Hi, Robert.
Hi, Robert. Two questions. Apologies for the first one. It's more of a reminder on my part. In terms of the costs that you're taking out, can you just remind us the quantum that will hit the P&L this year and then the annualization effect into 2019? Just kind of refresh our memories on that. Second one, it's more of an industry-wide question. Over the last few weeks, we've had two big independents getting together, Huws Gray and Ridgeons. Just wanted your own views on how does that impact the market from a competition perspective. Is this another wave of consolidation that we should expect in the merchanting sector after the one through the 1990s? I'd just like your initial thoughts on that.
Sorry, just a third question. I know this is pretty small, but I just want to know kind of the size of it. I believe you sold Virtuous, your tool and screws business. What was the quantum of the cash flow from that at all, and any exceptionals associated with it?
Okay. Do you want me to go? Robert, I've said to you for many years, the best operators in each catchment across the country are the single independents, followed by some of the regional independents. In both Huws Gray and Ridgeons, you've got two very different businesses but two very well-run businesses that we've always, from a distance, admired. I think we are looking at a period of potential consolidation. I'll throw in, obviously, the equity change at MKM with Bain taking their position and Parker's being sold into private equity. I think we can see over the next sort of 18, 24 months a little bit more of this.
From our point of view, I would see it as an opportunity rather than a threat in the sense that the buying groups have been pretty supportive on the cost price, they'll now have the added complexity of having to run a little bit more of a business across brands and slightly different cultures. Only time will tell, but I think we've been waiting for a next wave of consolidation for some time.
Robert, on the virtual price tools, first of all, I should point out the business isn't really material to the group overall. The profit position was around breakeven, and the disposal proceeds will be something like GBP 9 million. On those cost elements that you referred to, there will be an annualization impact as we go into 2019, as I said earlier. The position differs from business to business. I think we do need to go into some of the divisional detail to understand that. If I start with plumbing and heating, we had closed a significant number of branches starting last September. We're starting to cycle against some of the first closures which took place September onwards. From memory, 40-odd branches out of 60 or so that we've closed were in the last quarter of 2017.
There's less of a pickup in plumbing and heating overheads benefits-wise as we go into 2019. From a general merchanting point of view, we highlighted GBP 10 million plus of cost savings, which were in the second half of 2018. You'll see an annualization impact on that. The contracts division, broadly, our overhead position in 2018 will be unchanged versus 2017. In other words, the team have absorbed the cost of delivering more volume in a business where we deliver something like 90% of the overall volume, plus all of the inflation. A great performance by Frank and the team. From a consumer point of view, we have invested in Toolstation in expansion in Wickes, we are going to be lower year on year, and I would expect an annualization impact of that in 2019 of at least GBP 5 million coming in the first half.
Okay. Thank you.
We have another question from Charlie Campbell of Liberum Capital. Charlie, your line is open. Please go ahead.
Good morning, all. A couple of small things, I think. I can largely cover them, but just for completeness. In terms of the space in Q3, +2.4% in consumer, I'm assuming that's all Toolstation, but just wondered what the change in space was at Wickes, if there's anything to say there. I think we talked quite a lot about consumer pricing and the stabilization. I think it's been alluded to, but just again, for completeness, should we think about that stabilization being as a result of changes at Homebase kind of finishing and maybe some inventory clearance finishing and that may be what's driving that? The third question is on Plumbing & Heating. Just wondered if there's anything you could say about success of online particularly, and whether that's a material impact on the sales growth number.
If we take the stabilizing issue at Wickes, it's slightly more complicated, Charlie, as we would expect. We're seeing things moderate rather than change. I think my expectations is the Homebase story will run for some time. We've already announced 42 store closures, My expectation is that we'll see a few more as we move forward. The KMB is going to be interesting, but we won't see that really play out until 2019. I think management in Wickes have taken good corrective action, but it's still quite a challenged area of the market, as you can see from, obviously, the negative sales line. We're aiming to move it forward in what is a challenging and uncertain environment. On the P&H online, Tony and the team have done a good job.
They've got a couple of specialist businesses that continue to grow quite fast online and the underfloor heating business, and a number of the spares businesses that's really positive. Making good progress, but it's still small numbers on City Plumbing. We stood up the website, and we're growing nicely from small numbers. I think it will become an increasingly important part of Plumbing & Heating, but it's still relatively small at this stage, but growing.
Charlie, on the branch numbers in the quarter, the growth that we'd have seen in consumer all came from Toolstation. We opened nine further branches in the period. As we said in the statement, we're on track for 40 in the full year, and we're also well advanced on accelerating that as we go into 2019, with the majority of the sites now identified and under negotiation or being planned. In the quarter, we actually closed two Wickes stores, where the leases had terminated, and we didn't see enough forward volume in those catchments to want to renew the leases.
Sure. Yeah. Okay. That's very helpful. Thank you.
Thanks, Charlie.
We have another question from John Messenger of Redburn Partners. John, your line is now open. Please go ahead.
Morning, chaps. Can you hear me okay?
We can, John. What a good morning, please.
Good morning. Just, well, actually three, partial follow-on. First one was just on Ridgeons. Was it a business that actually, was it in any way put out there and that you were able to look at it or were invited to look at it just to understand if it was one that actually might have made sense for yourselves in that back through history, that part outside of London heading up into Cambridgeshire, et cetera, is not that intrinsically covered by yourselves?
You say.
Second question.
Yeah. You're going to do it that way, okay. Yeah.
Yeah. The second one was just on the cost kind of actions that you've delivered or seen coming through in the third quarter. When we look at how the top line's been evolving, particularly the slightly softer sales in the two higher contribution margin businesses in general merchanting and Wickes, has that meant that you've actually increased some of the operating cost actions that you're taking, or is it very much what you were doing that you talked about at the half year stage has just effectively continued?
The final question was on with Brexit and everything else going on, are there any implications in terms of what you internally are planning on either stockholding, just with a view to what you're going to do towards the year-end, thinking about what you may have to put in place, maybe too early, maybe you don't need to do it until into the new year. Are there actions that we should expect around inventory buildup or anything that you're going to have to do preemptively? Thanks.
Thanks, John. Ridgeons, yeah, we've been a long admirer of the business. We did talk to them They made it fairly easy for us to move on in terms of what their terms for any potential deal were. It would have been difficult, John, if you actually overlay our network with theirs. There was a considerable duplication. In that part of the world, I think it would have actually raised a conflict with CMA. It wasn't for us. It was a little bit the same, if I'm being honest with Huws Gray as well. We have a big presence, obviously as a network, and these regional players are difficult for us to do without getting ourself into sort of conflict. It was one that we welcome. I welcome it.
I think it's an interesting group now with a timber bias at Ridgeons and obviously a heavy side bias in Huws Gray, both very well-run businesses. We'll have to see how it moves forward. On Brexit, it is very difficult when we actually don't know what we're actually facing into. I think the one thing that we are focused on is making sure that we've got product available for our customers. The most, the effort at the moment that we're really putting into place is to ensure that we've got our supply chain lines as open as possible, and we've got staff on the ground. Yeah, challenging Alan at the moment, but
Yeah. John, you won't see any impact of that in the overall network and capital at year-end. Where we are looking at some potential inventory buys as part of contingency planning, we'd expect to be paying for those in 2019. You may see in the components of working capital inventory a little higher, but it would be offset within trade credits if that were the case.
Okay.
Just on the cost actions, I don't think we've changed our stance from what we'd set out in the interims at all. We challenged all of the businesses to be tight on their overheads, and they've all responded really well, as have the central functional budget holders as well, where we've asked them to be really tight on cost control.
Can I just come in with one follow-up? Just when we sit and look at the numbers here and compare general merchanting here, particularly something like contracts, John, when you think about contracts growing, I guess what, just over five on volume, by implication, general merchanting kind of declining by 200 basis points. When you look at that kind of 7% gap, can you comfortably sit there and say, actually, look, this is all about that different kind of customer, the different segments that are there in Keyline, CCS, and BSS versus our typical RM&I trade on the other side? Or is there a bigger question here about just again, around where you are sitting on the price spectrum back in general merchanting? Because that-
I think it's a bit of both, John. We have openly said our trading stance is to hold our gross margin. Not easy in this environment. Therefore it does in some ways restrict their ability to grow their top line faster than they are. The other combination is that is a challenged market with a small builder and with a different level of disruptors. You flip that over and look at what Frank and the team have done. I think they excelled against SIG and CCS. I think Wolseley and the challenges are helping Frank and BSS, which is a great business, but being helped. You look at Keyline, and I think you go back to the roots where, it's gone from my head now.
The Burdens have demised and then sort of remnants of it picked up by Wolseley, has really given Keyline, CCS, and BSS a really net sale as well. Those markets that are operating, they aren't growing at that speed. They are taking share and taking share effectively. Both Frank and Paul have got different challenges, but we are enjoying a period where we can take share and grow our contracts businesses. It's tougher in general merchanting.
Got you. Thanks very much.
We have another question from Aynsley Lammin of Canaccord Genuity. Aynsley, your line is now open. Please go ahead.
Hi, thanks. Good morning.
Hi, Aynsley.
Morning. Just two from me, actually. I think you've kind of touched on it a bit on the working capital front, but just wondered if there's any material changes we should expect on the cash flow for the full year, whether it's CapEx or trade debtors. I think consensus net debt is about GBP 330 million, any comments there? Secondly, some of the recent macro data and the households we've been talking about, kind of the wider housing market not seeing the bounce back post this summer, particularly London, South East, and higher price points. Are you seeing any kind of that sluggishness flow through to your kind of RM&I market? Should we expect that to start to come through at some point? Just really a few and a bit more color around how you see the RM&I. Is it a bit weaker than you may have expected? Thanks.
Yes. Thanks, Lee. It's Alan. On the net debt and working capital position, I don't think there's anything really to add to what we said at the half year this stage. We said CapEx would be lower year-on-year. I said on the working capital side, where we had an outflow in the first half that was higher than people had anticipated, that was due to some of the lumpiness of sales in May and June, and we've seen that come back as we'd anticipated. There's nothing really to add at this stage on the net debt position. I'll let John comment on your point on RM&I as well, but my view would be that the RM&I market's been sluggish throughout the year. I don't think we've seen a change in that trend.
We are seeing London and the South East a bit softer than elsewhere in the U.K. at this stage. Overall, I'd say it's been more sluggish than the new house builds market had been.
I think I'd agree with Alan. Aynsley, from my mind as a business, we've always used housing transactions and consumer confidence as our two sort of lead indicators, and we've been pretty cautious for the last sort of 18-24 months on the RM&I. I think I agree with Alan. It's not easy out there. We've got to make sure that we win our share of work. I think it's going to be quite challenging if we see housing transactions come off. I would echo Alan's point that I think we are seeing areas of the U.K., in Midlands and the North and the West, a little bit stronger than we would have seen as a traditional heartland of London and the South East.
Okay. You haven't seen anybody kind of delay, increased caution around imminence of Brexit or anything, any delays recently?
The RM&I by its nature is mass numbers and we're not seeing anything different. To Alan's point, I think we've been in a quieter RM&I market now for some time.
Okay. That's really helpful. Thanks very much.
We have another question from Kevin Cammack of Stifel Securities. Kevin, your line is now open. Please go ahead.
Good morning, gentlemen.
Hello, Kevin.
Good morning, Kevin.
I think I've got one specific and I think sort of two slightly more general questions, if that's okay.
Go on, Kevin.
Just on the specifics, the Q3 pullback on plumbing and heating. Is it possible to just give us a sense of what sort of run rate that might level out to on an underlying basis? If it's easier to answer the question, what sort of exit rate at the end of this year would you be happy with? The two more general ones are firstly on kitchens. It's quite a sort of unusually confusing backdrop amongst the competition. Surprising action from B&Q. Nobody really knows what Homebase will be, I suspect they'll reverse the flat pack decision, and you've got Howdens, which have been maneuvering away in the background.
I just wonder tactically what you're doing, how you're presenting your kitchen offer this time around, bearing in mind that this time a year ago, it didn't quite come off what you did in terms of your tactical position on kitchens. I just wonder if you can explain that to us as of today. The last one, which may be sort of well out into the distance, but how much of an issue would it be for you, either as an opportunity or a threat if the offsite manufacturing of volumetric house building takes off?
Okay. Good questions as usual, Kevin. Alan, do you have a view on the run rate?
On P&H-
Yes
My flippant response, Kevin, is it may have attenuated, but I'd take 14.8% like-for-like any day of the week. Thank you. The more serious answer is clearly there's some help from competitor actions, but there's also a very large dose of our own activity that we've taken within that. I think the other thing is, I would point you to the total sales starting to be more of an indicator because we will start to cycle the periods when we closed a lot of branches. I just thought if you think about the maturity of that market and you see a mid-single-digit go forward sort of position, that would be a good position to be in for the Plumbing & Heating category.
We'd obviously target 20 or more. I think Alan's right. In terms of the kitchen, you're right, Kevin. There's some sort of The market does need to settle down a little bit with B&Q's exit of the installed element of kitchens. Obviously, the other one I'd throw into the mix is Wren, who's growing significantly.
Yes.
Finding the appropriate go-to-market customer journey, whatever we want to call it, approach for Wickes is really important. We've grown the business. We've doubled the business in the last three or four years, and getting the balance of promotional activity and the whole customer journey in terms of the design, the delivery, the install, because over 50% of the kitchens that we're selling, we install as well, is really important. At the moment, we think we're in an okay spot as we sort of flag that the orders are improving as we speak, but that won't be really realized until 2019. Our aim is to offer customers great value for money and a great service, and I think we'll find our own niche in that. We are now, as we speak, the only DIY chain to offer installed kitchens and with a design facility.
We're hoping to make progress on that as we move into 2019.
Do you have any-
Yes, John. Sorry.
Sorry. Do you have any capacity constraints in that delivery?
Not really, no. We don't. No, there is a degree of flexibility in the capacity. You right-size your cost base to the volumes. We've got a good facility in Northampton that's dedicated to kitchen delivery and consolidating, and that can be flexed up should we need to.
Sorry, I was referring more specifically to the installers.
The installer side of it is actually being sort of helped by B&Q withdrawing. We've employed nearly 100 of their top designers and some of their install team. At any given time, we've got between 1,800 and 2,000 installation teams in different orbit for install. To be fair, we're in a bit better position because of B&Q's withdrawal. With regard off-site, it's a great subject, Kevin. We watch it with great interest. I think inevitably when you've got something being made on a repetitive basis, there is this advantage of building it in a better circumstances or climate or environment, and then shipping it to the site and installing it faster. Cost is a quite a big challenge for off-site, and trying to bridge the cost gap between making it off-site and making it on-site remains a big challenge.
We watch with great interest and where we can participate, we will. I will remind you, the vast majority of our business still focuses on the extensions and the improvements to people's homes and the RM&I market, rather than the sort of new build where the off-site is likely to be stronger in penetration.
Okay. Thank you very much.
We have another question from Clyde Lewis of Peel Hunt. Clyde, your line is now open. Please go ahead.
Morning, John. Morning, Al.
Hi, Clyde.
Morning.
How are you? You well?
Yeah. Very good, thank you.
Good. Three if I may. One, can you maybe just sort of say a little bit on how you're getting on with all the IT projects and how they're progressing at the moment? Second one was on RDCs. Again, similar sort of question in terms of just a little bit of an update as to how they're performing. The third one was on sort of weather. I mean, it's not a time of the year where we normally talk about weather, but it has been pretty mild through most of Q3, pretty good weather with limited sort of rain and any sort of difficult conditions. Has that been an impact at all on your numbers in any shape or form?
Clyde, I think the weather impact has been relatively benign through the last few months compared to what we saw. I think what we picked up from speaking to suppliers, competitors generally, was that August was a bit soft, and we weren't different from that. I think overall, Q3 is probably leveled out a bit more than the ups and downs that we saw during the first half. On the IT projects, we're still on track for our first deployment of the ERP solution in the first quarter of 2019. We're continuing to make the investments in the digital side as well across the group. I think generally we feel like we're on track there. It's hard going, but I don't think there's anything I'd want to draw your attention to at this stage.
In terms of the supply chain side, if I talk about the heavy side range centers, I don't think we've seen a particular change in trend given the overall volume softness in the markets at this stage. Okay. Thanks very much, guys.
Needless to say, Tony continues to point out to us this is the mildest autumn that we've had on record, and you can see that in his sales numbers.
Okay. Thanks, John.
Yeah.
We have another question from Paul Checketts from Barclays. Paul, your line is now open. Please go ahead.
Morning, guys. I've got three, please.
Hey, Paul.
Hi. The first is on Toolstation. I think in the first half we discussed that the profits were lower due to the investment that was going in. How are you expecting full-year profitability to compare year-on-year? The second one, can I just check, are you still on track to do about GBP 25 million of property profits in the year? The last question is more general, which is, we've seen more private equity ownership in the sector over the last few years, and it looks like that may well be set to continue. How do you find they tend to behave as owners compared to the previous owners? Maybe give us a sense of whether that's when you see those announcements go out, whether or not it's a groan or you feel like they're disciplined. That's the three. Thanks.
Okay. On Toolstation, Paul, I'm not going to give you the profit number. What I will say is we had a record day yesterday, which is significant as we just launched a new catalog. Obviously, as Alan said, we're on target for 40 new outlets. It's trading very strong. We did have to absorb, obviously, the 40 new branches and the new distribution center that allows us to grow up to 500 units as we expand the network. The profits for this business will ebb and flow as we put the infrastructure and investment in, but underlying, it's trading really, really well. Earlier we mentioned that property profits are still in line of GBP 25 million.
Private equity question is really interesting, Paul, because in the main, I think it's really good for the sector, and the feedback I'm getting from those that have been involved with the private equity joining their business has been quite positive and really good. I think the sector will benefit from that involvement.
Is that because they're quite disciplined on prices?
I think they certainly want their return.
Okay. Thanks very much.
All right, Paul.
We have another question from Howard Seymour of Numis Securities. Howard, your line is now open. Please go ahead.
Thank you. Morning, gents.
Hi, Howard.
Morning. A couple from me, if I may. Firstly, both quite general, actually. Firstly, given obviously there's a lot of chat in the industry about cost recovery, et cetera, John, I'm wondering if that changes the dynamic from a materials point of view, i.e. people looking to try to get price increases through in the second half as opposed to traditionally in the first quarter. Secondly, you alluded before to the moderation in pricing in the contracts division. Is that purely a function again of the commodity prices, or is it more that people are looking at price movements again in the context of market share movements?
I think the whole area, Howard, of cost recovery pass-through or whatever we want to call it, is tricky because it is not single dimension. You can push your prices up, but you'll lose volume with certain customers. I think what Frank and the contracts team, because they've got quite a high concentration of customers in each of the three businesses. They work alongside them effectively and make sure that they're aligned in terms of the overall value and service proposition. It's a bit harder when you're into consumer and general merchant team with the high element of the smaller tradesmen that tend to want to trade.
I think if you move into any period, you set your stall up and your trading stance which you feel is most effective, but you have to be agile and flexible in terms of responding to volumes, and ultimately it's down to GBP gross profit generated from the sales rather than a volume of price mix.
If you remember, Howard, there was a second wave of price increases going on in the second half for the contract merchanting businesses last year, copper, but also things like the chemicals in the insulation market. We have seen some of that attenuate, and indeed, we've seen some of the suppliers come back with modest price reductions compared with where they were as those markets have stabilized. There are still some materials, though, in certain categories where we're on allocation with suppliers. There are still tightnesses in the market. I think the material point, though, is it's not impacting the margin within the business.
Okay. That's clear. Lovely. Thank you.
Well done.
We have no further questions on the line. John, I'll hand back to you for any further remarks.
No, just really a big thank you to everyone and we'll see you shortly. Take care. Bye-bye.
Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines. Have a lovely day