Good morning, and a warm welcome to all of you in the room and those of you who have joined us by the webcast. I'd like to thank our advisors, Linklaters, for hosting us here today. There are no planned fire alarm tests today, so if the alarm does sound, then please make your way through the double doors to the back of the room that you entered through and down through the foyer and out of the building. I'm joined in the normal way by Duncan Cooper, our CFO, and together we will take you through the financial and operational updates for the group for the first half of 2024. Before I start, I'd like to point out that on the front row is our Interim Chair, chair Jez Maiden, who would be available after the presentation if you'd like to catch up with him.
So let me turn to the update. As we set out in March, our key priority for financial year 2024 was to continue to improve the business and enhance cash generation, and we have made good progress despite persistently challenging market conditions. We have reduced our overheads by GBP 19 million compared to prior year, with significant cost inflation absorbed. We have delivered a strong cash inflow, resulting in our net debt before leases reducing by GBP 81 million in the first half. In Toolstation UK, we have expanded our operating margin by 130 basis points, driven by improvement in both gross margin and cost to serve. We expect that we will exit Toolstation France by the end of FY 2024, taking a GBP 16 million loss out of the Group's P&L next year.
And we have completed the strategic review of our Toolstation Benelux business, putting in place actions that will deliver a break-even performance next year. I'll talk more about these later. So simply, we have done what we said we would do. These actions are necessary as weak demand continues across the Group's end markets, and our merchant businesses' gross margins have been squeezed by commodity price deflation and strong competition in a market where volumes are well below the long-run average. We are, however, maintaining our strong market positions as we focus on ensuring that we meet the needs of our customers in tough trading conditions, while staying really disciplined on pricing. We expect those tough trading conditions to continue for the second half of the year, albeit we now have greater economic and political stability, which bodes well for FY 2025 and beyond. We'll talk more about the outlook as we go through the presentation. I'll now hand you over to Duncan, who will talk through the financial performance for the first half.
Thanks, Nick. Good morning, everyone. So as Nick has outlined to you already, the market in the first half has remained challenging. I'll try and bring that to life in the financial review, and outline some of the headwinds that we are continuing to continue to influence our financial performance and the actions we are taking to combat their impacts. Despite the backdrop, we are making good progress in making the business more efficient, more profitable, and have begun the task of strengthening the balance sheet. All of these actions will ensure that the group is positioned strongly for a future recovery. So onto the first slide and the usual financial overview. Revenue for the first half was down 4.4%, GBP 2.36 billion, which in turn translated to an adjusted operating profit for the half of GBP 75 million.
I'll come on to talk about the adjusted, adjusting items separately in due course. Accordingly, adjusted earnings per share was GBP 0.159. Leverage, as measured by lease adjusted net debt to adjusted EBITDA, was 2.7x, up from 2.1x this time last year and broadly in line with year-end, despite the further deterioration in profitability. I'll talk to the good progress we have also started to make in strengthening our financial position later on, and this is reflected in the cash conversion for the half as well. Finally, the board is pleased to declare an interim dividend of GBP 0.055 per share, which reflects the Group's policy to pay a dividend of 30%-40% of adjusted earnings, the revised guidance on adjusted operating profits, and the expected benefit of closing Toolstation France.
Both items, again, I'll come back to you later. Over on to the next slide on our revenue walk for the half. Group revenue is down 4.4%, as I've previously mentioned, and this is principally driven by the weak trading environment that has persisted in the first half. Non-essential domestic RMI activity has remained well down the household batting order of priorities, coupled with lower house building activity and cancellations or delays in public sector projects arising from the political uncertainty leading into and immediately after the general election. Within this anemic volume, volume environment, pricing has also remained challenging. We've continued to feel the effects of commodity price deflation, albeit this effect has been weakening as we traveled through the half.
Remaining competitive on price, therefore, has been critical to secure trade and win work in an environment where everyone is looking for their fair share and to maintain some positive operational leverage. We have maintained our market position in the General Merchant during the half and continue to grow share profitably in Toolstation UK, and I'll provide some more specific commentary on each of these segments later... The network change effect is broadly neutral from the Benchmarx, Benchmarx closures we announced back in March, largely offsetting new Toolstation openings, and we have one extra day when compared to the prior half. On to the next slide and the usual adjusted operating profit what we provide. The gross profit decline reflects the trading dynamics I've just alluded to. Overhead inflation is detailed next at GBP 19 million.
The GBP 80 million restructuring savings is a half-year effect of the GBP 35 million annualized savings we announced in January, which was generated from headcount reductions across the group, principally delivered through above branch and central headcount roles. We then come to the reduction in discretionary expenditure of GBP 16 million. This has come from a variety of sources across the P&L and also includes GBP 8 million of the non-repetition of the one-off cost of living payment we made to colleagues in the prior half. We will maintain this focus on overheads throughout the second half as we continue to scrutinize the cost base and continue to introduce new controls and oversight to the way in which we operate. Technology plays an important part in that maturation of the control environment. Nick will talk to you later about the introduction of Oracle.
For most businesses of our size and scale, having a purchase order system with escalating seniority of sign-off approval is a given. We've not previously had this capability, but from the first of July, we now benefit from this greater systemic rigor and control. But we also need to extend this focus across the way we procure, buy, and operate across the group. From a goods for resale perspective, Nick will talk to you about the work we're doing across the group supply chain and the group commercial functions. But across all our businesses, the opportunity to harmonize the way we procure the things we need to function in areas like property, consumables, transport and fleet can be standardized and better integrated. This will be a key focus of mine and the rest of the finance team in the second half.
In addition, we will continue to review the group operating model and following the recent arrival of Jane Davies, our new Chief HR Officer, and the impending arrival of Pete in September, this again will be a key focus for us in the second half as well. I want to talk next about the GBP 32.2 million of one-off items recorded in the first half. As we outlined in March, the group is in the middle of a multi-year transformation of the way it operates and how its businesses interact with each other. The charges taken in the first half reflect the costs associated with delivering this program of change. I'll let Nick talk to the strategic and operational detail to these items in his section later.
The GBP 50 million supply chain consolidation charge relates to the closure of a number of supply chain distribution centers in Toolstation, Benchmarx, and Group Timber Supply Chain. The costs relate primarily to stock write-downs. These charges will reduce our cost to serve across the group and ensure we can better serve our branches, stores, and customers. The GBP 8.9 million restructuring charge relates to actions taken to reduce central and regional headcount and to centralize the Group's individual procurement capabilities into one collective group function. The GBP 5.7 million charge associated with Benchmarx reflects the cost of closing the 39 standalone branches that we announced in March. Finally, the Toolstation France charge reflects adjustments to stock provisions and lease liabilities made as a result of the decision to exit the business, as well as legal costs that have been incurred to date.
Further cash costs will be required to close Toolstation France, and I'll provide specific guidance on these and the timing of when they will be incurred later on. Of the GBP 32 million one-off cost detailed on this slide, around GBP 10 million are cash items. So let's now come on to talk about the Merchanting segment. Revenue was down 5.8% on prior half, with adjusted operating profit down 30% to GBP 91 million. Adjusted operating margin was down 160 Bips to 4.7%. I think it's important we try and disaggregate some of the factors at play in this segment and how they evolved over the course of the half.
If I start with the General Merchant, we outlined in March how we had seen the continuation of commodity deflation impacting the margin mix, most notably in timber, which was still mid-teens deflationary in January, for example. As the half has progressed, we've seen some of that input deflation starting to weaken and level out. Timber pricing is down 4% year-on-year in June, for example. But the volume backdrop has deteriorated even further, leading to excess capacity in certain categories and an absence of price increases being passed through in the first half. Bricks, blocks, plasterboard, for example, were all in strong inflation in H1 last year and have been deflationary this year as the demand side and volume backdrop has remained persistently weak.
During a sustained period of pressure on disposable incomes, consumers have continued to deprioritize domestic RMI activity and/or wait until greater clarity on the trajectory of interest rates and personal taxation becomes clear. And from mid-May onwards, what incentives or policies would be in place from any prospective government following the general election announcement? If we look at both Keyline and Staircraft, both businesses that are strongly correlated to new house building activity and have seen demand reduce in line with build rates in this sector.... We welcome the government's decisive action to deliver meaningful planning reform and remove regulatory barriers to boost house building and infrastructure projects. However, these measures will take time to take effect due to the lag in new land being approved, passed through the planning process, and actual work starting on site.
In BSS, we've seen significant disruption in planned public sector and commercial projects, largely again, due to political uncertainty. We've seen deferrals or postponements to school projects, hospitals, prisons, corporate office projects, all of which have been scheduled for some time but have been recently paused or delayed. The summer is normally a period where we deliver a lot of school projects when they're unoccupied in fixing or repairing heating systems. Finally, in our value-added services, we continue to see sales growth in our hire business up 3%, and also in our managed services business up 9%. In light of this demand backdrop, we have continued to deliver further overhead reductions, which I've already covered. But specifically, we have also realized the synergies of integrating the CCF and Keyline management teams due to the strong customer overlap, delivering us further efficiencies in these two businesses.
From a network perspective, we closed 39 standalone Benchmarx, Benchmarx branches in the half, which we announced at the year-end, but also closed eight smaller General Merchant branches. These closures were offset by us continuing to open previously approved projects with two new destination branches in the General Merchant in Leeds and Derby and a new CCF branch in Norwich. So let's come on to talk about Toolstation. We saw solid sales growth of 2.4% in the first half, despite the weak market backdrop. This was delivered by taking further market share and also ongoing maturity benefits being derived from the existing store estate. Like-for-like sales growth was 0.7%.
In the U.K., adjusted operating profit grew to GBP 14 million, supported by this sales expansion, but also a clear focus on the commercial proposition to enhance gross margin and continued efficiencies, which have lowered our cost to serve. In Europe, losses were reduced by over 20% year-on-year, as Toolstation France remains on track to be closed before the end of the year, and in Toolstation Benelux, we are starting to see the early effects of the actions we have taken to move that business to profitability, and Nick will give you more detail on this later on. In the U.K., we opened 8 new branches in the first half and expect to open around 20 by the end of the year. In Benelux, we closed 8 branches as part of the actions identified in our strategic review to accelerate the business to profitability.
On to the next slide, and I want to give you the usual disclosure we provide on capital expenditure. The first thing I want to say in respect of CapEx is to reiterate the strong message I hopefully successfully conveyed back in March, and that was that I want to get our leverage target back into our previously guided range of 1.5x-2x as soon as is sensibly possible to do so. A short to medium-term reduction to the long-run average of the Group's capital expenditure outlay for full year 2024 is part of us being sensible. We are not taking any dysfunctional decisions. In the half, we continued to open the previously approved 3 branches I've already referred to.
These are fantastic sites that showcase us at our best and in geographies where we want to elevate our presence and competitive footprint. These sit in the strategic capital pot, along with the new Toolstation UK store openings for the half. The overall balance of strategic CapEx is lower compared to prior year, as the comparative included expenditure in respect of the new Toolstation UK distribution center in Pineham. GBP 50 million of maintenance CapEx principally relates to the ongoing maintenance of our fleet and tool hire asset base, and IT CapEx relates to IT infrastructure and the Oracle implementation team. The GBP 10 million freehold CapEx relates to new branches in the early part of their acquisition life cycle, and the GBP 80 million disposals relates to the seven branches that were sale- and- leasebacks in the half.
As we look to the second half, we remain on track to spend GBP 80 million on capital expenditure for the full year, in line with our previous guidance. The next slide walks our adjusted operating profit, excluding property, to our free cash flow. I've already touched on how a lower capital expenditure outflow has contributed to this improvement, but I also now want to touch on working capital. Within the GBP 54 million contribution is nearly GBP 60 million less stock than at year-end. This has been delivered via a combination of actions, the supply chain consolidation activity we've undertaken, but also a more disciplined focus on buying, ranging, and stockholding principles across the group. Again, the move to a group commercial function gives us far better dedicated category management and expertise and consequent oversight for the group.
The implementation of Oracle in July will also give us more powerful stock reporting and cash allocation insights and will be a key ally in delivering further benefits. We now have a monthly working capital steering group, which I chair and has cross-functional representation from across the group. This team has been working hard to develop further opportunities, and although it'll be ambitious, we're targeting a further reduction in working capital in the second half. That will not only be delivered through stock efficiencies, but the debtor-creditor mix as well. The next slide completes the balance sheet progress story in the first half. Net debt is down GBP 54 million since year-end, with net debt before leases down GBP 81 million. Our relative leverage has very slightly increased since year-end because of the further deterioration in underlying stability.
The closure of Toolstation France will have a mechanical benefit of approximately 20 bips through the elimination of the loss and the capitalized leases associated with that business. The GBP 8 million of remaining lease debt in Toolstation France will reduce over time as we agree the termination terms or nature of each lease exit. In closing Toolstation France, we expect cash outflows of around GBP 20 million-GBP 25 million to be incurred across the second half and into the first of 2025. It's hard to be specific, more specific at this stage, but as this year progresses, and if we become clearer on that split, I will try and provide more specific guidance when appropriate.
As I look forward into 2025 and reflect on the underlying progress we have made so far, the further self-help that we are targeting, and the return of better trading conditions, I remain confident that we are on the pathway to sensibly reducing the group to its stated leverage target of 1.5-2x lease-adjusted net debt to adjusted EBITDA. So I'll briefly wrap up before handing back to Nick with my final slide on outlook and full-year guidance. We remain firmly focused on controlling what we can control. You can hopefully see the progress we have made across both the combination of enduring structural change, as well as simply being more disciplined and rigorous in the way we utilize the Group's resources.
We can and will go further on overheads and working capital in the second half, and collectively, these actions will position us strongly for when the market recovers. However, at present, the market remains challenging. We clearly wish it wasn't, but it's the reality, and we expect this to remain the case in the second half. Accordingly, this influences our guidance for the remainder of the year. We will remain disciplined on capital expenditure and not spend any more than GBP 80 million. We expect our effective tax rate to be around 29% for U.K.-generated profits and now expect full-year 2024 adjusted operating profit to be around GBP 150 million. This includes property profits of GBP 5 million-GBP 10 million and an expected loss of around GBP 60 million from Toolstation France. With that, I will hand you back to Nick.
Super. Thank you, Duncan. So to the operational review, as Duncan mentioned there in his final slide, at the full year, we rightly foresaw ongoing weak demand through 2024. While there's been some improved sentiment regarding new house building activity recently, the market overall, and particularly demand in the RMI market, remains weak on the back of persistently weak consumer confidence. Although an earlier than expected election is helpful in terms of providing certainty on future government policy, it has led to delays in public sector social infrastructure projects towards the end of the first half, and pricing will remain under pressure in a weak volume environment. All of this confirms our view that we won't see a notable improvement in trading during the second half of 2024.
However, inflation has stabilized and interest rates are decreasing, both of which will gradually restore consumer confidence to undertake RMI projects. We also welcome the decisive actions being taken by the new government to encourage more house building and infrastructure improvement, which will promote better trading conditions for businesses operating in our sector. These changes are likely to progressively make the U.K. a more attractive place to invest and could lead to an improved outlook in 2025, from which we are well positioned to benefit. We have continued to deliver a simpler, more efficient business for the future in order to become an ever more cost-effective and resilient group.
We've made strong progress on the actions we're taking to modernize our technology, transform our structures and our capabilities, and address loss-making activities, while we ensure that we maintain competitive positions and create a differentiated proposition in the market in the medium term. I'll now take you through some of the detail of work that we've continued since we last spoke to you in March. Technology enablement and the modernization of our legacy systems, for those of you who have known us long enough, have long been difficult issues for the group. We have now replaced our legacy finance systems with cloud-based Oracle Financials. We are still in the early post-implementation phase. However, this is a significant step forward for the modernization of our systems, which are over 30 years old.
This implementation has introduced standardized processes and will strengthen financial controls across the business, as well as provide enhanced stock visibility and improved reporting tools to better manage performance. Perhaps most importantly of all, this program has developed the capability and the experience and the confidence within the organization to deliver further technology change in the future. We have made further progress on simplifying our structure in procurement and other areas of the business. We have now combined our procurement functions, what we call our commercial function, into one shared capability across the group. We have now organized our commercial teams in our merchanting businesses on a category basis rather than by business unit. As a result of this simplification, we're now able to leverage our purchasing scale to drive the best commercial outcomes, including harmonization of ranges and commercial teams.
We're able to share category experience and relationships across the group and share digital and marketing capability to develop group-wide customer propositions that allow customers to seamlessly access the full range of products and services across the group. We're developing more efficient and consistent ways of working within our business and with our suppliers, eliminating duplication and also realizing a modest headcount reduction. Furthermore, we have improved the way our businesses interact with each other and with our customers. As Duncan said, we recently combined the leadership and core functions of our Keyline and CCF businesses. But whilst CCF and Keyline will remain as separate business units, having a shared leadership structure and functional roles are unlocking wider benefits by sharing best practice, offering cross-brand career opportunities, and delivering a leaner organization.
We'll continue to work on optimizing and simplifying our operating model to reduce cost and complexity as we move forward. As Duncan also mentioned, we've further consolidated our supply chain by closing five supply chain assets in the half. In order to drive long-term supply chain efficiencies, the Toolstation Bridgwater distribution center is now closed, and the Daventry distribution center is in the process of closing down, which is expected to be completed by September 2024. Reflecting the actions taken to streamline the Benchmarx network, Benchmarx kitchen cabinets are now being solely assembled at the Group's distribution hub in Northampton, and the Benchmarx assembly facility in Devon has now been closed. The Group's timber supply chain assets have been consolidated with the closure of the King's Lynn and Tilbury timber supply centers.
These actions will deliver lower overhead costs and working capital efficiencies, and we're in the process of harmonizing our Lightside ranges across the Group's businesses, bringing further benefits in operational efficiency, procurement capability, and a simplified and more compelling customer proposition, which leverages the Group's scale. In March, we announced our intention to exit our Toolstation France business, as we no longer believe that the required time and investment to deliver a profitable business was sustainable. We have now completed a consultation process with the French Works Council. This has been a difficult process for all involved, but we expect to exit the business by the end of 2024. We're currently planning for cash exit costs of GBP 20-25 million, which will be spread across financial years 2024 and 2025.
As I noted earlier, this will deliver a benefit of GBP 16 million to the Group's P&L in 2025. In March, we announced a full strategic review of the Toolstation Benelux business, which as a result of increased trading losses. This review is now complete and reaffirmed the long-term potential of the business. It's a more mature and well-established business, where customer behaviors mirror our U.K. business, which provide more confidence in our operating plans, achieving breakeven and profitability. Importantly, the review concluded that the Benelux business has a shorter maturity curve relative to France, with associated lower cash costs to reach profitability.
The review identified the actions needed to reflect near-term challenging market conditions and accelerate the path to profitability, and these actions include a pause in further store expansion, a reduction of central overhead of around 15%, and the closure of 8 unprofitable branches, as well as further opportunities in distribution and logistics. We've also joined a buying group, which will improve buying terms in the region. All of these actions mean that we are on track for a breakeven in 2025. As we said, it's been a challenging first half, and we expect those difficult market conditions to persist in the second half. This has not distracted us from focusing on what we can control, and we've made strong progress on the measures we outlined in March to deliver notable reductions in overheads and working capital and improve cash generation.
As you've heard, we continue to make good progress on technology, supply chain, shared capabilities, and our operating model, ensuring our businesses continue to maintain their market leaderships in their respective parts of the market, as well as addressing loss-making activities as we committed to in March. Our merchant businesses benefit from excellent customer relationships, and with considered yet decisive cost actions and tight pricing discipline, we've ensured that we've maintained our strong market positions. We remain confident in Toolstation's ability to achieve its plan of an 8% operating margin by 2027.... Although times remain tough at the moment, decisive policy action from the new government and early improvements in key economic levers are creating a more positive outlook, and we remain confident in our plan.
All of the actions we've taken are positioning the group to maintain its leadership and benefit from the recovery in due course, and this work will continue. My stewardship of this great business will soon pass to a new leadership team, and I'm confident that the group, with its great people and great capability, will continue to go from strength to strength and continue to lead on all fronts. Thank you, everyone, for listening to Duncan and I, and with that, we are happy to take your questions in the normal way. If you could state your name and institution when you ask a question, and we will get round as quickly as we can. Will?
Thank you. Will Jones, Redburn Atlantic. Just a couple, please, on merchanting. First, perhaps we could explore the second quarter, like for like, I think roughly -8 from -4 in the first quarter. I think you referenced public spending delays out of the election, but anything more than that to explain the gap and perhaps around that, whether strategy has evolved in the first half? I think you're talking today about maintaining share in merchanting. I think before you talked about trying to gain. And maybe linked to that really, just gross margin, was the first half pressure all a result of last year's evolution, or has gross margin been affected at all during the calendar year sequentially? Linked to that, I suppose, just the wider competitive backdrop and how that's looking at the moment in the industry? Thanks.
Super. Thanks, Will. I'll start and then maybe pick up the like for likes, Duncan, and the gross margin. Look, the strategy hasn't changed. We've absolutely maintained our market share. Actually, we've grown our market share, according to the data, over this period, just slightly. And actually, that market share data includes all of our major GM competitors. So it gives us a pretty, pretty good snapshot. It's only one data point. It's the most robust data point. Anecdotally, we continue to at least hold our market share in all of our merchant businesses. And we know from the data that that Toolstation has continued to grow its market share as well. So the strategy hasn't changed, Will. Maintaining those customer relationships is always at the heart of what's most important to us.
That's where our businesses are so strong, that's where our branch teams are so strong, and that's at the heart of what we do, as I mentioned. So nothing changed there. Clearly, the competitive environment remains intense. As an observer of this space, you'll know that, but what we're confident about anecdotally is that we continue to perform better than our competitors and continue to maintain our customer relationships and deliver for our customers. Duncan, do you want to pick up those?
Yeah, I mean, just a couple of builds, and they're all volume-driven, Will. I mean, I think, you know, there—in terms of you cited the project impact in the first half, and we referenced that as relevant. I think, you know, again, I never like putting this in a press release because I think it sounds pretty wet, excuse the pun, but, you know, we had a miserable spring from a weather perspective. We sort of missed the landscaping season, in terms of that core part. It's been a busy summer with the Euros and the general election as well, so we've definitely had some footfall disruptors. But... And as well, you referenced the public project element.
There's also just been a general consumer hesitancy with the general election going on in terms of what, what that means. All of that's fed in, and the volume environment has just remained really, really weak, and that has not even though we've got input deflation starting to unwind and lap out, that has not supported, you know, pricing increases coming through and being able to be passed through and sustained, which is the challenge. I think to build on Nick's point on around the wider competitive backdrop, yeah, I echo Nick's points completely. You know, we're seeing anecdotally we pick up in the industry the fact that everyone is finding this environment incredibly difficult.
We are seeing isolated examples as well, where we are, not winning work, and we are at a point where we don't think it would make sense to be winning that work. And so you kind of think, "Well, who, who is winning that work and on, on what terms?" No one's defying gravity. Unfortunately, it has just been, it's been a challenging, challenging first half.
Thanks, Will. Annelies.
Hi, good morning, Annelies Vermeulen from Morgan Stanley. I have three, please. So just following up on that merchanting point around the public sector works, I assume that work is all still needs to take place. So now that we're past the election, do you have any visibility on when that will start to pick up again into Q3, and what is baked into your full year guidance, in that regard? Secondly, again, on the election, appreciate it's only been a month, but have you seen any notable change in tone of the conversations you're having, particularly with your large house building clients, following the election outcome? And then lastly, just on the consolidation of the management teams between CCF and Keyline, could you talk a little bit about the synergies from that and the benefits you're seeing? Are there any other opportunities to do that elsewhere in the business, or is it just specific to CCF and Keyline? Thank you.
Super. Thanks for that. I'm going to defer to my learned gentleman on my left for some comments around the house builders, given his recent history, but I will comment on it. But let me come to your first point. I'm smiling because I've got my two MDs at the back of the room who are looking at me, Dave, who runs BSS, and Catherine, who runs Keyline, CCF. Let me comment on those. Public sector, schools, hospitals, as I and Duncan mentioned, yes, we've seen delays. Those projects are still in the pipeline. That work still needs to be done. And so we have taken a realistic view on what we think will happen in the second half.
But, you know, there, we have definitely seen a slowdown in that work as we approached and went through that election period. Which was understandable, but actually the election perhaps being drawn forward, that was an unhelpful outcome from that. But, you know, these, public sector projects, this aged infrastructure needs to be replaced, and this is critical heating and cooling systems for sensitive public and commercial infrastructure.
Mm-hmm.
So we're confident that that work will happen, and that we will maintain our dominant market share in that respect. We'll come back to the election and house builders. The consolidated management teams in the CCF. Keyline and CCF have got a significant customer overlap. Let's start there. So house builders, for example, being perhaps the major ones. CCF, Keyline are generally the first in, putting primary infrastructure into the ground, drainage, pavements, all that sort of stuff,
Mm-hmm
And then CCF come at a later stage of the build with all the insulation and plasterboard. So considerable customer overlap, considerable relationship overlap. So Catherine and the team are really exploring ways in which we can maximize that, those relationships to good effect, as well as bring obviously efficiency to the way we run those two businesses. But as I said, they are really important brands in those market spaces, and they will retain their identity and their operation as separate business units. But wherever possible, we're bringing the leadership structures and the intelligence, the relationships, and the focus to bear on maximizing our opportunity. We'll obviously keep an open mind as to where there are other opportunities in that regard.
As both Duncan and I said, you know, the work around our operating model, simplifying our business, simplifying our structures, the work we've done in our commercial capability, will continue. There is more opportunity, but we will do so sensitively in a way that absolutely makes sense, and that we don't put the organization through so much stress due to internal change during a period when market, the market remains extremely challenging. Our main effort is to keep all of our people focused on serving customers. But there are definitely opportunities that we've seized, and we will continue to seize. Duncan, do you want to talk about the election and house builders?
Yeah, I mean, I don't think it's any new news on this. I mean, I think they're more positive as we're more positive in respect of medium-term outlook. I think you start to see that reflected in the fact of the land approvals number has started to tick up, and you're starting to see it being the underpin driving some of the consolidation activity for those who can't necessarily get at that land quickly enough for what they expect. The challenge with this is the pace and the rate at which it comes through. So I think the, you know, we're very welcoming of the rhetoric and the changes that have been talked about.
We just, but this is was never going to be something that could be instantaneously fixed, and have an immediate and quick effect. And I think you're starting to see that being borne out in some of the house builders' commentary as well, around the timing of when that really starts to take effect. So look, I think they're positive on the sentiment, as are we. It just, we just need to caution on how quickly that's going to change, and it's not straightforward.
Thanks, Annelies . Marcus?
Thank you. Marcus Cole, UBS. Two questions as well. A question for Duncan on the balance sheet. Just given all the, the cash actions you're taking, how quickly do you think you can de-lever to the, to the target range? And then just another point in terms of the, the inventory management you're doing and the cost cutting. I just wonder how much could this constrain the ability of the group to take advantage of a volume recovery in the market when it comes?
Yeah. So on the sort of delivering point, Marcus, so I think we should de-lever, as measured by our ratio at the end of this year compared to last. As I've talked about, the France piece will come out. There's a degree of kind of imprecision at this stage around when those cash costs and those cash outflows necessarily come out. But I said we're targeting a further improvement in working capital in the second half. I'm feeling very positive actually, around the amount of self-help we've got in this regard as we go into the end of the year.
And as I say, you know, we, we think about where we started at the beginning of the year, again, over GBP 500 million worth of liquidity and headroom. I think, you know, the balance sheet does not keep me awake at night, but it does excite me in terms of the opportunity for us to, to make it better and to improve things. I think, look, on your second point on the inventory management and the cost cutting, there's nothing in the inventory management that again gives me cause for concern that we're stymieing our ability to to react to a recovery. What we've talked about is moving out of, in, in the main, and characterized by moving out of aged supply chain assets into more modern, dynamic, infrastructure assets to serve customers better.
So I think actually, if anything, we are, we've got greater flexibility and greater agility going forward. And on the cost-cutting look, I think that's always a challenge. And in fact, for us to turn that around slightly, that's something we've got to balance quite, be quite thoughtful about in the second half. You know, one of the things that this downturn has done to this sector as well, with house building generally, is it's, you know, we've seen, we will have undoubtedly seen a flight of skills for construction in the construction industry.
And that's one of the other things that's going to be interesting to see at what point and how quick that house building activity can ramp up, is just how quickly and how does that focus go on rebuilding the skills, you know, resource required to do that. So I think you have, you're absolutely right, you have to be very thoughtful about, about that, and we are. And, you know, I know Pete will feel the same about that when he arrives in September.
Thank you, Marcus.... Any other questions? Ami.
Ami Galla from Citi. Just a few questions from me. The first one was on overhead inflation. Could you give us some color in terms of the moving parts between payroll costs and property? What are you seeing in the market currently, and how is the outlook for that ahead? The second one was on gross margin. Could you give us some sense about what's happening with Toolstation and the gross margins there? And the last one really is on that Lightside collaboration that you pointed out. What are you doing there, and, you know, where are these sort of medium-term initiatives or as we kind of think about the change, the things that you're working on could potentially benefit us next year?
Do you want to take the first two, and I'll pick up on the Light side?
Yeah, sure. So look, on the overhead inflation, I, I don't wanna, I don't wanna get into breaking it out, in detail. You know, you've, you've highlighted the, the key points within there, I think, and, in respect of kind of how we, how we mitigate that. On, on Toolstation GM, look, there's, there's just a range of activities or range of actions that, that, that Toolstation is undertaking, which improve that margin mix. There's undeniable... There's a, there's a maturation benefit in the business that comes through, but the, you know, as we start to increase the participation and penetration of private label within there, that has a gross margin benefit, clearly. So it's, it's just—it's a range of activities.
Our pricing position as well in the market enables us to look at the way in which we optimize our pricing position versus the market, the competitor and principal competitors of Screwfix. So it's just a range of activities that the team has been focused on in really trying to improve that.
Super. Yeah, I'll say a little bit about the Light side harmonization. It's commercially sensitive, clearly, and you might recall that I talked about it at the Capital Markets Update in 2021. You will as well, Will, and several of you. This is about rationalizing and harmonizing our range. Obviously, there's many, many benefits, rationalization and terms harmonization with our suppliers, and much more effective procurement through those channels for our Light side. There's simplicity for our customers across our businesses, and there's obviously enormous operational efficiencies in the way that we manage our Lights ide ranges between our distribution assets and our branches, et cetera.
So, work ongoing, really good progress made, particularly between our General Merchant and Toolstation, and that work has taken us a little time, given the backdrop to get to, but now is progressing well, and I'm sure the team will update you in due course as to the benefit that's bringing for all concerned. Thank you, Ami. Charlie?
Sorry, thanks. It's Charlie Campbell at Stifel. I, I think sort of one or two maybe just on, on the property side, really. Property profits have come down. You've, well, your guidance is a bit lower this year than, than, than it was. And just wondering, kind of the subdued property profit level, is that, is that a function of property markets or your own actions? And just maybe as we start to look out to 2025, 2026, does that come back to a more normal level again, with sort of the opportunities on the profit on the, on the property side? Thank you.
Yeah. Yeah, Charlie, I mean, it is a function of the market, and particularly where we've historically done in the last few years, quite a bit of sale and leaseback activity. It depends on market demand and pricing intention. Also depends on as well, where what our property strategy is in respect of what we're trying to achieve. I think what I would say is there's no pressure being applied from me for us to do anything dysfunctional with our property portfolio to contribute to helping with the balance sheet. For a start, it doesn't make a difference to the ultimate leverage metric in any event. But nonetheless, I think that's pretty short term and pretty dysfunctional.
So we do have a, I think, a very, you know, effective property strategy in the way in which we utilize and hold freehold and leasehold properties in the way it enables us to access different markets. Do I expect it to, could it tick up? Yes, and also there are other lumpier things within the property portfolio where there are possible mixed-use development activities further down the line. I suspect my new CEO might have some thoughts and ideas about those as well, given his background. So look, we continue to look at the property portfolio as a, a real source of strength for the group, and ways in which we can, we can sensibly and effectively monetize it.
Thanks, Charlie. Ben?
Hi, Ben Wild from Deutsche Bank. Three questions from me as well, please. Firstly, close to 50 branch closures in merchanting in the first half of the year. You talked about Benchmarx and had the full year results, but clearly 8 in the GM as well. Can you just talk about the basis for those closures and what the net impact on the closures for the full year adjusted operating profit figure for this year would be? Secondly, on Benelux, looks like some strategic changes have been made in that business in the first half of the year. Again, you communicated a review into your ownership of that business or a review into the business, before your results.
Can you provide an update on whether you think the Toolstation Benelux business will remain part of the Travis Perkins group going forward or, or any further color on, on where you've got to on, on the review of that business? And then thirdly, on CapEx, clearly a chunky cut to the base CapEx figure in the first half of this year. When you look across the merchanting branches in the U.K., is it your view that the branches are well invested? And as you come into a volume recovery, would we expect to see a kind of overcorrection, correction of base CapEx into those branches? Thank you.
Let me start, and then Duncan just pick up anything I miss. Then as you know, you know, with 900+ merchant branches, well established, many of them been around a long time, we've been on a multi-year, all of my tenure, multi-year, investment in our branches, both upgrade, renewal, closure, open new ones, our new destination branches, where we bring together Benchmarx, tool hire, other services, alongside our Heavyside and Lightside ranges. We've really been going through our estate, and you'll recall, you know, we closed around 150 merchant branches in 2020 as part of this multi-year renewal and investment. So we've been hard at work. So the branches that we closed were smaller challenged branches in terms of their locations.
Some of them had listed bits to them, and, you know, the costs of upgrade, the costs of maintenance just far outweighed the benefit of holding them. But they've been part of a network plan where we've been, either we've already opened or we intend to open on or, and/or upgrade adjacent branches, so that we don't lose, you know, our presence in a particular geography and our market share. So a well-considered plan. So it's part of that. When you've got that many branches, it is a constant job of work to upgrade, renew, replace, or whatever that we aim to do. And the CapEx, whilst obviously we've constrained CapEx given market conditions, it hasn't dulled our thoughtfulness and our focus on making the right decisions, and it plays into Charlie's point about property.
You know, the right decisions around what we're doing, particularly with our big destination branches in the GM space, where the competition is so intense. So that's an ongoing piece of work. Benelux, and then Duncan, just pick up anything I miss. Yes, just look, some really sensible strategic changes, which are all part of the maturation of the business. As I said, it's a mature, well-established business in its market. As you continue to evolve the business, we've closed, as I mentioned, you know, eight of the unprofitable branches. We focused on how we optimize our supply chain, assets and processes. We've joined a buying group, which gives us further leverage with supplier.
So just all sensible things that confirmed for us that this business is well-placed to continue to perform against its plan and continue to break even in FY 2025. So we're just doing sensible things, and the team are really, really focused on ensuring, as they would naturally be, that we break even and move the business into profitability as soon as possible. And, you know, look, in due course, the board will make a decision as to whether any part of our business remains part of our group. But actually, we are investing in and maintaining our focus on Benelux for the long term so that it remains part of the TP group. And I look forward to seeing the benefits from that in due course. Duncan, anything to add to that?
Nothing to add, Nick.
Thanks, Ben.
Shane Carberry, Goodbody. Just one from me. I was just wondering in terms of if you could give a little bit more color in terms of what the simplification means from the perspective of the branch managers. Do they find that this will make them more efficient, or there's more power being taken away from them? Just how kind of broadly they've reacted.
So I'll pick that up in terms of a couple of ways, Shane. The technology changes that I mentioned in terms of the introduction of Oracle Financials have, for the first time in our history, standardized processes in our branch environment. And I say that our first time in history, and we're a pretty old company. That's a massive step forward, a massive step forward for our branch teams in simplifying and standardizing the processes, and obviously a massive step forward for the company as a whole, where there's one way of doing things. So our focus is always on making the life easier for our branch teams, the branch manager, but their teams as well.
Whether that's the introduction of handheld devices to digitalize branch processes, which again, we talked about over the last couple of years, have really made their lives easier. All of this is about not taking power away from them, enabling them to focus their time on the customer and on driving the best deal for the customer and with supplier, and giving the best service. Taking the friction, duplication out of running the branch. And we continue further. I mean, you know, the work that we've been doing is all about actually, what do we want our, our shared teams to do? So the changes in our commercial structure, and our Commercial Director, Paul Beaman, is sat at the back of the room smiling at me. You know, the... What Paul and the team do in this new shared capability is, again, take friction away.
They're not taking power away from our branch teams. They're actually giving them more information, better deals, and actually taking some of that friction away, sharing capability, giving them a much better category view, sharing the relationships with suppliers. So really optimizing the kind of service, if you like, that we give our branch teams in order they can go and give better service to the customers, and that's the focus. Structurally reducing our cost base isn't just about taking out heads and branches. It's actually about making ways of working much, much simpler. Over the last few years, that's precisely what we've done. I hope that helps. Duncan, do you want to add anything to that?
Yeah, I agree with everything Nick said, and building on, as a PLC of our size, there's also a lot of stuff we do and a lot of stuff we spend money on, which just doesn't even get across a branch manager's radar, and we shouldn't worry about doing things with, which disrupt whether he or she can, you know, turn up and trade in the way that they want to. So it's both. It's got to be a question, and that's, that's where, that's what we're alluding to in terms of the focus and, where the energy is going.
One of the areas, Shane, which we talked about a lot over the last few years, where we've really and progressively still enable this organization with data. Better data capability, better data understanding, data literacy is really providing teams with much better information upon which they can make their decisions. And that's just all about ensuring that they've got more power to make the pricing decisions they need to make, to make the operational decisions they need to make, to make the stocking decisions they need to make, and that will continue. So although the last few years have been tough, we've been building the capability relentlessly, that as this business moves into a period of economic recovery, that we all hope will come, that it's really well-positioned with the core capabilities to continue to stay ahead. Thank you, Shane.
I'm conscious I'm probably standing between you and a flight to your summer holiday, so are there any other questions? I can see it written in your faces. No? Well, with that, I would just mention again, Jez Maiden is on the front row, if anybody would like to chat to Jez while you're here. Otherwise, thank you very much for joining us this morning, and, I wish you well. Thank you, everyone.