We're ready to start. Good morning, everybody, and welcome to the Travis Perkins half year results. I'm going to kick off with a short introduction, and then I will hand over to Duncan, who will take you through the financials in a lot more detail. That's why he's got the very thick blue ring binder there with all of the detail, and I'm just standing up here. I stepped in in March and was somewhat unexpectedly on this stage in March. Unsurprisingly, there was a fair bit of uncertainty both internally and externally in terms of what all of that meant. What we tried to do was settle down the business by focusing on three very clear prior. First one was, we needed a credible permanent CEO to take the business forward long term, and we also needed to address the losses in market share in the merchanting business.
This required us to address a series of organizational issues and, very importantly, address a significant systems issue that we were facing during the course of last year. Finally, on a more positive note, I felt that Toolstation was at an important inflection point, and we should be a little more demanding in terms of both its growth potential and continuing that growth trajectory, but also recognizing the potential for it being a more significant profit contributor. How have we done in terms of those three key objectives, and how is the achievement of that workplace playing into our performance as we have moved through the quarter? As you'll have seen, we were delighted to appoint Gavin as CEO. He has a ton of relevant experience, and his knowledge and his personality, I think, fit very, very well, and I think he will be a seamless addition to the business.
Unfortunately, he still can't start until the 1st of January, despite my best efforts, and therefore the business and you are stuck with me until that point, filling in the gap. I am very much looking forward to working with Gavin. In terms of reversing the decline in market share in the merchanting business, we sort of split this into two key areas. First and foremost, we needed to get far more agile in terms of dealing with customers. Secondly, we needed to create an organization that got decisions made closer to the customer and was, again, nimbler, customer centric. Actually, we started to fill what had become a number of key vacancies. We had way too many positions where people were doing two, three jobs and unable to do those jobs effectively.
In terms of focus on customer and market opportunities, I think we've done an okay job in the areas where we have been able to influence it. Look, if you look at the graph there, you can see during Q3, Q4, our like-for-like merchanting sales were down 7%, 8% year- on- year. I mean, that had to be addressed. Had we continued with that on an ongoing basis, there was no level of cost cutting that was going to adjust for the impact on the top line. As you can see through Q1 and going through to Q2, the trajectory has changed. Now, those of you with very good eyesight, you can see the numbers on the left-hand side. Good now means flat. Let's not get carried away, okay? I am delighted with the performance.
Again, if you look with a microscope, and Duncan's going to add all kinds of caveats that we haven't fully closed out the month. July will be slightly. In any normal world, that wouldn't make a whole heap of a difference. In our world, that is very, very important in terms of the morale and the impetus we have got into the business. I think what we have proven during some time is that we can re-energize, refocus the business, that we can put sensible local incentives, and through targeted promotions backed by our supply base, we can do that without a severe adverse effect to our margin. I am pleased with that. Those sorts of updates. The big unknown in April, if I was being perfectly honest with you, was we thought we knew where we were with Oracle.
Could it be worse if I was out on your sitting down there listening to this? That would have been my big question. How much worse can it get with Oracle? There's no question whatsoever that that system implementation has been a big drag on the business over the course of the last 12 months, and it manifests itself, and you can see the distinction there when you look at merchant in-yard sales where we've got positive quite quickly because that activity is not impacted with Oracle, and what's called the direct sales, which is where it goes direct from a supplier to one of our customers, which is about 20% of our business, that has been severely impacted. It's just been very difficult to do those changes. Now we've got to July, we've put in some significant fixes, and we can start to see some real improvement there.
I am happy that we can now start trading and doing direct sales again, which should help us as we lead into the second half. Now we've got to win back those customers. Our staff have got to get more comfortable with doing those things again without wanting to highlight tiny numbers over short periods of time. I'm told by Rich, who's sitting there, that our July like-for-like sales were down 1.7%. Again, sounds like a good number. It's certainly a lot better than -14%, but on the basis we did booger all in July last year, it's not that good a number. Look, not to get carried away with any of this, we have to be realistic. There are clear signs of improvement, and most importantly, I sense that the business now has confidence in the Oracle system. Our training initiatives are starting to pay off.
The issues now are less about the fundamentals of the system and more about training and making our organization comfortable with it. At least it is now back within our control. I think that is very, very positive. We had to have a better organization where key positions were filled, lines of responsibility were clear, and it was commercially focused. I'm delighted that we've been able to achieve that. You can see we split the business into three key business units. Obviously, Green and Gold, General Merchant, Specialist Merchants, some more longer-term contract type businesses, and Toolstation still relatively standalone. All three now have very experienced leaders who've been with the business some time, and I think that's very, very important. Below them, there was also a number of key positions that just weren't filled. We have filled a number of key positions within the business again.
Now I feel the operating end of the business is appropriately staffed to deliver the service level which is required to win market share. That wasn't the case before. Most of the cost cutting had come around the operational level, and the problem with that is you erode your capacity to serve customers. I was going through all the stuff as we were getting ready for this, and I kept thinking, actually, our numbers look better on a statutory basis than I expected. The answer was because we haven't had any big massive one-off costs. I then started going back year after year after year. There's been a huge one-off cost to save overheads, and our results have just got worse. We have taken what were theoretical cost savings and lost more than that in the top line.
That is a road to ruin and a road that we are not going to go down. We are at a very classical point in this cycle where we are somewhere near the bottom, slashing and burning operational capability. We are not fit for purpose when the inflection point naturally comes. That is not a path forward. I'm not saying there isn't an area where we will have to address overhead at some point in time, but for right now, our focus has been very, very much focused on operational abilities as well as those key indirect appointments. I'm reading lots of announcements of how people have improved their profits and telling us how many locations have closed and how many staff they've got rid of. Great.
Rich has got 200 more people directly operating in the business today than he had in January, and yet Duncan and the team have done a great job in discretionary overhead control, which has allowed that to not adversely affect the margin. We are reinvesting in the business. Travis Perkins is open for business again. Toolstation. Toolstation's delivered a really good performance. The U.K. in particular has seen both good growth in profitability and it's seen good growth in momentum in terms of its top line growth and has a series of initiatives that I'm quite excited about which will further enhance its proposition to trade customers. I also think Toolstation rightly is very much a standalone business at the moment. Longer term, its potential as being a central plank in a full range offering to a range of our customers is a very important strategic position for this group.
To be fair, we're nowhere near ready to exploit that opportunity, right? Yet we need each of the three individual verticals to be strong in their own right. The problem with any broad proposition is you're as strong as your weakest link and each individual link is not strong enough yet. It clearly has the potential of being the front end for fast, flexible omnichannel offering to our customer base. I'm excited about that. In terms of the overall Toolstation numbers, they've been adversely affected by many looks. This is another one where you sit there and go, how many ways can this business find to shoot itself in the foot? The answer seems to be endless. Look what we did. We saw good improvement.
We were clearly heading to a far better position in Benelux during the course of last year, and some bright spark decided what we really need to do now is change the website and cut our marketing expenditure. You can see what impact that has had on our online sales in Benelux. The store performance, the like-for-like store performance, people liking the proposition, walking in the door and buying from us, has been really, really positive. We've just made it almost impossible for them to buy from us online. I think the fixes are broadly in place again, and I think you will start to see some momentum in the second half.
I'm not saying Benelux is going to break even again, which is probably where we started off, but it's going to make a much smaller loss than it did historically, and it's certainly a much smaller loss than it did in the first half. That short introduction wasn't that short in the end, really. Let me try and summarize where I think we are. As I said, obvious series of challenges. Business needed to be settled down, suppliers need to be settled down. Part of the job today is to settle you down, to settle you all down too, in terms of the direction and financial capabilities of this business. As we've gone through this, I have been increasingly impressed by the efforts and the quality of the talent that I have found in this business.
What we needed to do was give them a voice, put them in the right structure, and give them some basic tools to succeed. If I look at the sequential improvement through the quarter, it's starting to bear some fruit. Now it's early days in our recovery. There will be another headwind. There will be something else that we have started some time ago that will come out of the woodwork because that's what happens in early stages of recovery. It's never completely linear, and the market is fairly tough. However, people are all leaning into this, and I'm very, very impressed with the level of enthusiasm and energy in the business. I would like to take this opportunity to thank all of our colleagues who have really made a difference when they could have given up, given the scale of the difficulties that we'd faced in most recent times.
We are going into the second half with a little bit of momentum, a little bit. We're going into it with a little bit of optimism that if we can just settle it all down, it ought to look and feel a bit better. We are also going into it with the realism that early in the recovery and markets aren't great. How that all manifests itself out in financials, that's a tough guess. The tough part of the task, therefore, I will hand over to Duncan.
Thanks, Geoff. Good morning, everyone. I'll start with the usual financial overview slide which we cover. Revenue for the half was EUR 2.3 billion, down 2.1% on prior year, and that translated into an adjusted operating profit of EUR 63 million and an adjusted earnings per s of 13.3 pence per share. I'll take you through the mechanical elements of the revenue and profit walk later, but at a high level, those two comparatives to prior year reflect the trading and operational dynamics that Geoff has just outlined. We've maintained a strong focus on cash generation, which has enabled us to further strengthen our balance sheet. Despite the reduction in earnings, net debt before leases is down 56% to EUR 103 million, with net debt to adjusted EBITDA down 40 bps to 2.3 times.
This is the culmination of 18 months' worth of effort and focus in tightening our grip on how we utilize and allocate our cash resources across the group and the benefit of streamlining our portfolio by exiting non-core or loss-making operations. The implementation of Oracle last year meant that we've arrived at this destination in a non-linear way. Finally, the Board is recommending an interim dividend of 4.5 pence per share in line with our prevailing dividend policy and payable on the 7th of November 2025. If I come onto the revenue slide next, I'm not going to repeat all the detail Geoff has already provided around where we've been and how we've started to recover, but you can see from the chart that loss of volume in merchanting has been our biggest driver. In addition, compared to the prior year, we have one fewer trading day.
It's hard to fully detangle the impact of our own operational challenges with the ongoing subdued market backdrop. For example, we started the year with a very weak January and February, as others have also reported in the sector. This was also a time when we were continuing to wrestle with the Oracle implementation. We were making a number of senior management changes, and we were also carrying several vacancies. As the half has progressed and we've introduced more stability for our teams and refocused on our customers, we have seen our sales line respond accordingly. A warm spring and early summer has provided the basis for better comparatives in seasonal lines and landscaping.
The competitive intensity has endured, and as you can see from the pricing and mix bar, we are not managing to achieve a contributory pass through of manufacturers' price increases, as deeper promotional activity has been necessary to turn around our volume performance. The final element of recovering our sales momentum is to ensure we are not closing any branches. Sounds fairly obvious, I know, but we have in recent years exited markets and geographies in the U.K., which has made short-term sense but weakened our longer-term standing and footprint. We believe protecting our national reach and share is key for when the market does fully recover. Over onto the next slide and the adjusted operating profit walk, the first two bars are a reflection of the drop-through impact on trading that I've just outlined.
Stronger promotional activity to address some of our volume loss, but still with a lower level of volume in the business in the first half, most notably in January and February, with an improving trend thereafter. Property profits were slightly lower than prior year, with the overall contribution this year to be strongly second-half weighted, and I'll return to that in guidance later on. Toolstation UK's ongoing growth contributes an incremental EUR 7 million, and Toolstation Benelux is around EUR 1 million. Favorable to prior year on overheads, we've obviously had to absorb a part-year effect of the National Insurance increase worth around EUR 4 million for the half, along with other general cost inflation. We've successfully managed that by maintaining a strong level of cost discipline across the group, which has yielded a net EUR 4 million reduction in overheads compared to prior year.
On the next slide, I've outlined the key line items that have shaped our cash generation. You can see that despite the lower contribution from EBITDA compared to last year, we have managed to generate a net cash inflow of EUR 88 million. Working down the table, you can see that the largest difference arises in the debtors/creditors line. This has principally been driven by the continued progress we've made in embedding Oracle into the organization. I outlined at the year end that the invoice matching issues we were experiencing were creating two specific challenges. Firstly, our need to pay suppliers on account, often more promptly than our usual payment terms, to ensure we could minimize trading friction. Where we were making a direct or dropship sale, we had challenges in settling supplier invoices so that we could then raise our own invoices for customers and therefore collect outstanding debt.
Colleagues in all parts of the group have worked hard to clear this backlog and implement changes to our processes to ensure it doesn't rebuild. Accordingly, we have been able to draw back down the payments on account and collect our debt in line with our terms, both of which have combined to deliver a EUR 75 million cash inflow. It is clear that offering credit in this market is becoming increasingly important to our customers and will be an important differentiator for the foreseeable future. It is particularly pleasing we've managed to get back into business as usual in this area. I'd like to repeat my thanks at year end to our colleagues and also to our customers and our suppliers, who we value greatly for bearing with us during this transition.
Elsewhere in working capital, we've maintained the discipline we implemented last year on the depth and breadth of stock that we are holding. Capital expenditure remains tightly controlled as well, but as we start to deliver the group and move into better trading conditions, we will re-expand our expenditure as we invest in our core proposition. Bringing down the average age of our fleet and upgrading the older parts of our estate remains a medium-term priority and we need to sensibly balance this against maintaining a strong balance sheet. In May we announced we had divested Staircraft for a consideration of EUR 24 million. Whilst Staircraft is a high-quality business in its field, the Board concluded that holding a manufacturing business in the portfolio was not consistent with the Group's strategy going forward and the capital should be recycled to support our capital allocation priorities.
The accounting for Staircraft was largely catered for in the full year 2024 accounts with the associated impairment, meaning the impact on the full year 2025 income statement is immaterial. I continue to believe that further opportunities exist for us to release cash from the group in a sensible and productive way. Clearly our main focus is now on enhancing profitability and cash generation from our underlying trading operations. If I briefly summarise the impact that these cash movements have had on leverage. Net debt for the half was EUR 710 million, down EUR 135 million on year end and down EUR 212 million since December 23, reflecting that 18 month journey I referred to at the start.
In fact, if you take into account the cash outflows associated with the Group's restructuring activities and closing Toolstation France, which we've also incurred over that same time horizon at a gross level, we've unlocked over a quarter of a billion pounds of trapped capital in the past 18 months against a backdrop of declining profitability. The exit of Staircraft and Toolstation France both contribute to the reduction in lease liabilities shown and accordingly net debt to adjusted EBITDA falls to 2.3 times and ex leases to 0.3 times in the half. We also successfully refinanced half of our EUR 250 million corporate bond due to mature in 2026. With EUR 125 million of U.S. private placement debt secured on an investment grade basis, this debt has maturities ranging from 2028 - 2035 at an average coupon of 6.4%.
We have a plan in place to refinance the remaining half of this bond which will ensure the Group has long dated competitively priced financing in place and benefits from a diverse capital structure. When this is complete we will update you with updated medium term guidance on financing costs. I remain strongly of the view that a business of our size, scale and complexity should be run as an investment grade entity for lenders. I reiterate our commitment to returning the group to our long term guided range that consistently supports this aspiration of 1.5 times - 2 times. I'll close with outlook and specific guidance. We expect the trading environment to remain challenging and unpredictable in a world of low volume growth, competitive pricing and excellent customer service remain key to securing business. You've heard Geoff talk about the progress we're making in these areas.
We expect the second half to be very similar from a guidance perspective. We expect base capital expenditure to be around EUR 80 million for the full year and property profits to be slightly higher than we guided at year end at EUR 8 million. Our expected full year 2025 effective tax rate is around 30%. Finally, given the first half's results and our view on the outlook for the second, we expect adjusted operating profit, including that slightly higher property profits contribution, to be broadly in line with current consensus. With that I think we can move to Q & A. Thank you very much.
Morning. I'm Ami Galla from Citi . Few questions from me. The first one was on overhead savings. You touched upon looking at savings on discretionary expenses. Could you give us some examples of where these savings have come from? When we think about the H1 performance at the overhead line, to what extent are there incremental OpEx savings and what was potentially an annualization of actions that you'd taken last year just to get a sense of what flows into the second half? The second question was on gross margin. I think we've seen a slightly stronger trend in Toolstation gross margin which has helped kind of navigate a slightly better outcome at a group level. How much of that is sustainable into the second half? From a procurement perspective, are there any sort of savings that you're seeing which is helping the gross margin outcome for Toolstation?
The last one was just on the merchanting market share. You've touched upon that you've seen stability. Can you give us some sort of incremental color as to what gives us confidence as we step into the second half that this should continue, that is competitively have things broadly come back to a level playing field in addition to the disruption from Oracle implementation that's likely to ease from here? From a competition perspective, are things more disciplined now?
I'll do two and three, and yeah, do one if that's okay.
On the overhead savings, a few bits into your question, there's an annualized effect. I think Geoff touched on at the beginning when we referenced it. We're carrying quite a few vacancies into the first half, which has an element of saving attached to it. I don't think we've done anything really incrementally different to what we did last year in terms of discretionary spend. That is just things like, you know, travel, general discretionary expenditure in terms of what money we're spending in each business unit level. You've also got the benefit of a slightly lower depreciation charge as well in our overhead number, given the impairment we took in the back end of last year as well. It's a variety of elements, but generally just a philosophical and cultural mindset within the group to only spend when we really need to, given where we are in the cycle.
Cool. Toolstation. It's a really good question about Toolstation. Look, Toolstation is a business which has grown exceptionally well over a number of years and everything's been about growth. I can understand that. I can understand why you had to get a brand identity, you had to get a base proposition. I felt that we had got there and everything was about growth. Everything was about three decimal point increments of market share against some sort of metric which I didn't think was a particularly good metric of market share. In any case, we can see what the absolute level of growth is and we can see what the margin improvement was. All we tried to do is not take away the focus on growth. I think there's some really exciting initiatives about new propositions for growth and there is the opportunity for further store openings.
There also has to be a level of focus which I thought we, which I continue to believe we can do better, which is we have a distribution curve of profitability per location. In short, the more mature locations ought to be and do in general offer, provide higher margin. There is a natural improvement in margin as some of the stores we've opened in recent years just mature. However, I also think there is an emphasis for us to be far more forensic about what dictates the very highest margin businesses that we have. We have businesses, we have an expectation for a margin level for our mature branches, and yet we have a handful who significantly overachieve and we have a handful that underachieve. Why?
I think being far more analytical about margin, what our margin expectations are, what is the configuration of a location, and we may have to revisit some of the estate in terms of its size, their location, whether there's parking nearby, not parking nearby, how easy it is to deliver, not deliver. Some of the growth may have been in areas where we are inevitably restrained from a margin perspective. I think we have a very good team who now have a base of evidence to go back and instead of just adding more stores, really review the business that we have and look at how we improve the margin. I would like it to be more of a dual track approach, not just pure growth, but pure growth. We've got some expectations out there of getting to a billion business. I think we will do. The question is when.
That will be somewhat dependent on the margin, and we've said it'll be an 8% return on sales business. I think that is undershooting from a margin perspective, and I just wanted to make sure that we have that focus on margin as much as growth, and that's. I've been delighted in terms of how the U.K. has responded to that, and I believe Benelux as well too in terms of merchanting market share. Look, I don't think it's the greatest metric in the whole wide world. We speak to suppliers, suppliers are suppliers, they'll tell you anything you want to really know. They tell us we're winning tons and tons of market share. I don't believe that we can see at all.
We can look at some of our peers' results and commentary they've made about how it's been a bit more difficult May and June, and we've seen what our performance has been in that period of time. Am I confident that we are no longer losing market share? Yeah, I am pretty confident about that. Can I categorically say we're winning market share? No. I don't think we're going to get obsessed about it. What we've got to get obsessed about is improving our financial performance. We want a retail business. There are not good metrics, and a tiny percentage of market share doesn't tell you a whole heap of a lot, quarter on quarter. What we need to do is continue doing what we're doing, which is responsible targeted promotions. You can see it has not a significant. We have started doing targeted promotions again.
We typically pick a product in a month, and we really focus on that product. I don't know how many of the people in this room here have aspired to be a salesman in a builder's merchanting business. I'm sure many of you, it would be the pinnacle of your career. You're thinking, I'm probably not qualified to do that. If I say to you, you can sell something for the lowest price in the market, I promise you, you will become a genius salesman overnight. It is not hard to sell more if you have the lowest price in the marketplace. That would be a fool's errand if we try to do that, which is why we're picking a product.
The key, and where I've been impressed with some of the muscle memory in the business, but we can get better at this, is to say, okay, the first promoter, Rich is going to tell me I've got these stats wrong, but I haven't got them wrong by a lot. Our first promotion was cement. When we did promotion cement, we got 1,600 new customers. The key is not just a promotion. Our growth in cement sales was fantastic in June, and we were ably supported by our suppliers who therefore also got incremental volume. We've got about 1,600 new customers. The key is having the apparatus in place to track that 1,600 customers, why have they come back? What else do they sell? If they're buying cement, what is their project? What else are we doing with them?
Because we'd lost our way and because of Oracle, it was hard, and because of some of the cutting that we'd done, dealing with Travis Perkins was hard work. We needed to get new customers in the door in a targeted manner, track them, and let them have a better experience with Travis Perkins again. That's why we did this. This is not a race to the bottom in price. If I just said everybody reduced their prices, it would be a free for all. That is not what we have done and not what we will do either. We will be very competitive in targeted areas, either a targeted product or targeted sectors, in order for our customers to have a new experience of a better, more customer-focused Travis Perkins. I think that level of promotional activity is sustainable.
I think it is responsible, and I think it will lead us to gaining more market share.
Thanks. Will Jones from Rothschild & Co, Redburn. First, maybe if you could just expand on how the specialists and the general businesses performed within merchanting in the first half, if there's any variation there. Second, whether anything's changed on incentives for branch managers. I know last year there were some issues around, I think, communication and implementation of those, and then the last one was really just, I think, when we look back at the gross profit to like-for-like sales decline interplay. I think it's something like EUR 26 million off gross profit for EUR 29 million off like-for-like sales, and presumably Toolstation is in there slightly helping as well. Can you help us just understand what the gross margin decline was potentially in merchanting, and I guess just high level, what you think it needs for the industry to kind of step back on competition.
Will volume, do you think, be the answer to that?
Let me cover the specialist General and the margin bridge. It's probably wisest to leave that to Duncan. There has been a range of performance within the specialist businesses. Some of the specialist businesses have been hurt more than others because of the direct ship. We've got businesses in the specialist business where 50% of their business is direct ships. That has been difficult and we've had a mixed bag. BSS also had a system implementation, but I think BSS traded very well. It's going to have a difficult summer because it depends very, very much on school refurbishments and there are issues with government spending at the moment where there isn't any money available to do so. Is there a great distinction between general and specialists right now? No. Specialists, because of its contract nature, is fundamental.
We get months where we go, wow, look how great some of the specialist businesses are. They fundamentally work in the same markets and there ought not to be a massive difference between the two. If I'm being perfectly honest, given their relative size, the key is turning around the General Merchant business. We can have a nicely performing Toolstation and a lovely performing BSS or TF Solutions and it isn't going to make a whole heap of difference unless we turn around Green and Gold. There are some encouraging signs. I get emails saying this is our best week sales for three or four years, which is great, except the last three or four years haven't been that great as a base, and there is a base level of performance where we cover our costs.
This is a semi-fixed cost business and therefore we need volume to cover those costs. One of the areas that will help us drive more volume is a more motivated branch network and a more motivated sales team. Almost immediately I stepped into this job, we put in a new incentive plan, which was a quarterly plan, which was a new construct for the business and it's worked pretty well. Of all of the colleagues that it could have paid out to, about a third of people got it. It's an incremental couple of million pound cost that wasn't in last year or wasn't in previous quarters. When you're looking at margin right now, I would have said on balance, a third's okay as a take up. People have got to understand it, people have got to believe in it.
We have a track record of doing bonus plans and not paying them. I guess there was a skepticism about whether it would work or whether it wouldn't work. If it takes you four to six weeks to get on the program of a three month program, you're too late. There were people who probably woke up and said, yeah, this makes sense, this is a pretty good deal. It was affected by directs. My target, I was at the SLT meeting with Rich and team last week, is look, I'd be really disappointed if half the people don't participate in this plan in third quarter. More people understand it. It's largely the same. There's a sense of stability. For the first time since we started all this, we can include direct sales in it.
Depending on what branch you're in, what the mix of your business is, the fact you couldn't do direct sales potentially precluded you from really being successful. I think those incentive plans have worked and they have had the desired effect of motivating the sales team. That's a good thing. I think that as I said, more than anything else, we just need a quote. Duncan will give you a beautiful bridge to within a million quid here or a million quid there or EUR 2 million here or EUR 2 million there. It's nonsense really because we don't really know precisely what our top line is going to be in the third quarter. If you're looking for any degree of accuracy, knock yourself out. Best of luck with that. We do have to get that top line going now.
That has sorted out the direct people in the field dealing with our customer base. There are a couple of other areas where we are pretty woeful at the moment. We did a secret shopper program where we called in and said I'm a customer. I think we did 400 branches and our performance was mixed. It is hard, it is still hard work to transact with us. There's a training program and there's some basic fixes. How you answer the phone, how you forward the order, how you help somebody set up an account. The saving grace, whilst we were fairly woeful, we decided we'd phone some competitors too and see how they were too and they are equally woeful. Therefore, to be better than everybody else in a period where they're clearly slashing costs and closing locations.
I am optimistic that if we are improving our customer service proposition whilst we're going through classic bottom of the cycle behavior of ridiculously low prices and just slashing costs, then making this, recognizing that we still have to, to be clear, we have to continue to manage the overhead base. There has to be saving somewhere else to pay for all this. That is Q4 exercise. Q3 exercise is stabilizing the work that we've done, making sure the Oracle sinks fit, and reestablishing our customer service credentials. Yes, I think the incentive program has worked, but it is a proportion of the business, and when Gavin comes in long term, we've just got to do more with apps. We've just got to do more online selling. We are doing the basics better again, but ultimately there are such obvious, this is not a difficult training program.
People were horrified when they saw some of the results from now. To be fair, there were some locations that were great, but again, the range between a well-answered call, taking the account, go online, it takes about 10 minutes. Try and order something online with us. You will give up when you get to the point where you've got to decide if we've got any stock or not. That is not a hard fix. That's really, truly not a hard fix. Sorry, but having said it's going to be nonsense. Why don't you take us through the bridge.
My beautiful margin bridge. You answered a lot of the question. I'll give you some extra bits of color to try and be helpful. Yes, you've identified the kind of the volume margin interplay. We're into pretty consistent low single digit cost price inflation and increases coming through, which is helpful as a general norm for the industry, as you know, given that we traditionally pass those on. The challenge is the volume environment is still so benign as we outlined. We're having to do deeper discounting to get hold of that performance. I think there's a general view that's positive in terms of we've moved out of the striking inflation deflation that's characterized the last couple of years.
We obviously set up a central group procurement function for the group last year, and I am quite buoyed by the kind of opportunity that sits there for having that function in place when we look at how we buy better across the group generally to support gross margin. At this point in the cycle, you're not going to see the full benefits of that starting to manifest and come through. You're right on the Toolstation element of the mix, which is going in the opposite direction. You just get through a general maturation effect of the business with gross margin improvements in there. As the proportion of own brand also starts to increase in the mix in there as well, it's at generally higher gross margins as well. That's moving in the opposite direction.
I'm not going to unpack it more than that, given it's relatively commercially sensitive, but hopefully that gives you some additional color.
Sorry. Was that okay? We did good. The lady, I have been conscious she's had a hand up first right from the very, very beginning.
Thank you very much. I think I've got three questions. The first one, I think you mentioned some of the merchanting businesses are up to 50% direct. Do you have a broad figure for what proportion of merchanting is direct sales? I ask that in the context with July looking like the sales are potentially back into positive. Is it fair to say that direct is back into positive or there's more work to do there?
I don't know. Depending on when you pick it. Just over 20% of the business and no directs were not in positive territory in July. Being in positive territory, we got to be careful that directs will go into positive territory quite soon. That might not mean we've really fixed it. It's because it will be hard to not be in positive territory relative to the level of directs we were able to do in the second half of last year. I am assured by people outside the IT and finance department, which is reassuring, that they can operate the system again. They can make direct shipments. Part of the problem was there was a point in time where it took us 45 minutes to place an order.
I don't know how long it takes you to place an order when you go online, but 45 minutes is a long time. We celebrated last week that it was down to 8 minutes. That is still not great, but it's enough to, particularly around managed services, we can probably work around that. We have a path to get it to 5 minutes. I went through all this journey with Ferguson. It was when we couldn't get below 5 minutes that they gave up on Oracle. I think we can get 5 minutes. I think the nature of our business is slightly different. If we can get down to a five minute period that will be good. 45 - 8, congratulate the team on great efforts. 8 - 5 by the year end, that would be great.
Great. The second question was just with regards to CapEx. You sort of mentioned I think there's some CapEx that you're ready to deploy for re-expansion or something. Do you need to get back to the 1.5 - 2 times net debt EBITDA range to trigger that, and are you quite comfortable that that's not going to forego sort of near-term growth, I guess, by pushing those back? The last question was just sort of a follow-up. You mentioned sort of targeted promotions and how pricing is obviously key to pull those customers in. Have you got any sort of provisional evidence of how well you're sort of retaining those new customers that you've pulled in and what sort of key to capital?
I'll do promotions.
Yeah, look, I'm highly aligned with the way in which you've framed it. I mean, fundamentally we can do both, right? I mean, the leverage will come back into that guided range naturally, always was going to. The biggest driver will be a recovery in the earnings position, actually, not the relative indebtedness on the balance sheet. We have a cash position that enables us. When I told Geoff where we got to with the half year, the first question was how do we put more capital investment back into the fleet in the richest part of the business, so we're not wasting time doing that at a point as well when others are not doing that. I think this is the time for us to make that investment. I think we can do both as a simple answer, and we're not going to otherwise.
Also, being consistent, saying that starving the business of capital expenditure to get to a leverage target for the sake of it is not what we're trying to do here. I think we can achieve both in the right sensible way over the next six to 12 months.
Yeah, look, I think I quoted some statistics from our very first. As I said, we're doing a hero product once a month to create a buzz on the salesforce. Here is a product where it's a sensible product. It fits in a category where people would anticipate trading with Travis Perkins, and here you are armed with a list of people who are dormant accounts or recently traded with us who we know will buy this stuff. We are giving them a playbook to go and get revenue and go and get commission. That's the easy bit. There's been a massive regional variation in who have performed well in those promotions and who hasn't performed in those. There's some internal work to do to understand why those regional differences have taken place. There's also some customer information too.
What we're doing is very, very meticulously recording who's buying from us, what they're buying from us, where they're buying us from, and re-engaging with them about what else we can buy and so use it. Again, we're three months in really. We need to get to the year end where we see what repeat cycle behavior there is. If we're doing this and the people who buy from us only buy from us because of the promotional activity, we will have failed. The key is the behind the scenes analytics. I introduced this concept and thought this is going to be hard work. It's been one of the areas where I have been impressed, and I shouldn't have been really. There are some very good people working in this business who've done this many times before, either at Travis Perkins or somewhere else.
This is not rocket science, let's be absolutely clear. They're delighted that they're being asked to do their jobs again. I think when we're back together, we ought to be able to show a clear progression in the number of. It's one of the KPIs we've now got on, is number of new accounts that we're dealing with. There's been a very good growth in the number of new accounts, and that's what's backing up that improvement in yard sales. Giving a lower price to people who would have bought from us in any case and not anybody new doesn't achieve anything whatsoever other than to reduce the margin. I think there is a commercial reality of why we're doing this. I need to give you a reason to come and try this business again.
There is a reason why this business remains the market leader, which is there are some strong fundamentals you might have forgot about. The only way I'm probably going to get you in right now with all the noise around Travis Perkins is to give you a reason to come in. We have to make you then give you a reason to stay that we're not trying to change the marketplace, change the market pricing. We are very, very deliberately getting people into our locations. Then, because we've got a more stable organization, lower staff turnover, starting to spend a bit of money on truck and you'll start to see better delivery capability, some relief drivers so we can get it. What's happening is we're putting more volume in, it's highlighting where we've got some problems, but that's sort of a good thing, you know, like where we've.
The reason we've got extra people in is because we need some relief drivers. We were talking about the further reinvestment in vehicles last week. You need to get a move on with that, by the way. We need to crack on. It was a really sensible debate, which is this series of vehicles, we are underutilized. We need to get rid of a certain time and some of the old ones that we're selling to replace where we actually we shouldn't replace them. We should keep some of the better quality old ones because we just don't have spare capacity and so we've got no flex in the system. You get better margins in this business when you have the best customer service. You get good customer service because the building industry is probably the worst planned industry in the world. You solve problems.
You've got to solve problems by getting people what they want when they want it. You can't do that without trucks and drivers. You just can't. Yet we somehow managed, we thought if we cut more drivers, cut more trucks, somehow we'll be a lower cost business and we'll make higher margin. Nonsense.
So.
As I said, we're going to get you back in, and when you get back in, you might as well be up here. Richard, it's this gentleman's job to make sure that your experience is great again. I think our relative experience, given what we're seeing from behavior of some of our peers, this is where we have to hold on to in all of this. We have to hold on to rethink, believe as I probably do, that by next spring there could easily be, there could start to be an inflection point. What changes pricing and margins is the balance of supply and demand. In a perfect world, you've got demand going up. I've been in industries where actually the actual kick after the inflection point is the quality of supply going down. Right now we've got too much supply and not enough demand.
We need a combination of demand improving, and I believe that if not the absolute level of supply, but the quality of level of supply deteriorates and ours improves. In that gap is where we win.
Thank you very much.
Hi, Marcus Cole. I've got three questions. The first one, you spoke about it a few times before, but can you just give us what you think the competitive dynamics are at the moment, particularly in merchanting and particularly within your private peers? The second one is inventory levels. You've done a very good job in managing inventory. How should we think about this as volumes inflect? The last one is just on Benelux. How does this fit into the overall strategy?
Yeah, sure, I'll do privates and Benelux. Yep, I'll do those two. Look, I'll privately own competitors. There are some awesomely good small local merchants who are hard to compete with. They're just great in one geography, might be great in a relatively narrow product range. They will always be part of this industry and they'll always be the toughest competition we've got. Got great relationships, no great central overhead expense, not the same aspirations as us in things like health and safety and whatever. It will be forever, though. I've seen people stand up in this space and talk about great consolidation. There will always be good local players. Now, there are now a series of private equity property constructs. They're a different animal altogether and some of them have prospered because of the mistakes we've made.
If your business model is to open a location when we close one and to take our stuff when we get rid of them, you've just lost your business model if it was a business model in the first place, because we aren't closing any locations and we aren't getting rid of any stuff now. Hopefully that will allow us to have less supply in the marketplace. Also, most of those constructs, Duncan can give you the detail on this, have exponentially more leverage than us. Their debt is significantly more expensive than us. That's causing great concern in the supply base because they can't get credit insurance from them. If we stop messing up, we win. Benelux. I think Benelux is, I just like Toolstation generally as a business.
I think if you look at the store performers and actually if you look at some of the margin around some of the products, if you cut through all of the, it's been a bit unloved, it's been a bit left out on its own. Look, France got itself into a terrible mess and as before my time it overinvested in this. Stop hemorrhaging so much money. I understand why we closed France. I'm not sure I would have done but I don't really know enough detail about it to say. If you believe in the Toolstation model, which I do, and if you've taken all of this time and trouble to get into what is now a scalable position in Benelux, what we need to do is give it the opportunity to prove its worth. It would be bonkers to do anything other than improve Benelux right now.
Yeah. On inventory levels, yeah, look, they will have to and will naturally start to grow again as we start to see a pickup. I think we have a much better level of awareness, a much better sort of philosophical outlook on what is the right level of inventory to hold. We've made a number of supply chain, so physical infrastructure and capability distribution changes in the last 12 - 18 months. I should say one of the things, despite the sort of challenges we've put around Oracle's neck, that was one of the motivations for putting Oracle in. It gives us far more accurate stock insights. Reporting gives us a weighted average cost of stock. There's lots of reasons to be positive and optimistic about that, but the biggest one is it's just mindset and philosophy and control. So yeah.
Shane Carberry, good buddy. Just two quickly if I could. Firstly, just in terms of the kind of employee turnaround story from a Senior Management perspective, you gave us good color in terms of the kind of nine new hires etc. I'm just wondering in terms of the level below that from a branch perspective. You talked a lot at the time in the full years about how kind of a lot of the branch managers and things like that had gone. I'm just wondering where we are in terms of that story. Secondly, you'd mentioned about credit as well and the kind of customers' need for credit. Just wondering how bad debts have evolved over the last six months. Okay, I'll do first one, you use the second one. That's okay. Look, I was very open about our challenges in March.
We had a terrible level of staff turnover and there were certain regions where they'd lost all of their regional managers and literally all of their depot managers. We're just in a much, much better place right now. I think people can see that we're back in the game. I think they can see that we're giving sensible local incentives and I think because of the business units we've established, they've got a voice again where those business leaders are out and about in the business and listening to them. We did lose some really talented good people and that continues to put a bit of a strain on certain sectors of the business where they've taken some customers with them. I'm not telling you we're not still dealing with the people who have left, which is a shame.
I think we've lost some commercial nous but I think we've now settled the business down and we're more likely, if we're going to lose the depot managers, it's because it's our decision, not theirs. I think it's better. It was timely that I was at this meeting last week when the biggest issue we're talking about from an HR perspective is driving a less than one year staff turnover and that's our biggest issue. That's a big step forward. I would love driver staff turnover to be lower than it is right now, but when people aren't talking about it. When I joined the board back in October and was going around locations and then when I stepped in from Pete in March, all we were talking about was lost salesmen, lost sales directors.
I'm not close enough to deal to say there are one or two going here or there, but it's really less of an issue. The impact of the ones gone continues to make the environment tough. I am optimistic about the business units that we've put in place now. Some of the people have had the job about two, three, four, five, six weeks. All of this sounds great when you say it quick, but it's new. Will there be cock ups along the way? Absolutely. I haven't got a clue what they are, but they will. Genuinely, there was a couple of people who, one, two people who I met for the first time pretty much last week. You just went, wow, they're great. Where have we been hiding them?
I think we've given them hospital battles and some of the jobs that we've given them, but I think if anyone's going to do it, they're it. Yes, I think the worst of it all is over.
Your question on bad debts? Yes, increasing slightly and actually, without getting too technical, the accounting standard forces you to look at experience as well and make a greater provision for that. You see lots of examples anecdotally. It's why I've been quite, you know, sort of strongly of the view internally. We've really got to look at cash optimization and look at strengthening the balance sheet because I think we're seeing more and more examples of relative rising stress in the sector. We're going to have to be quite thoughtful about that as we trade into H2 on the basis we don't get some kind of miraculous inflection in the second half, and this may endure into the early part of next year.
This has to be a point of competitive advantage to be able to offer credit reliably, independently, sustainably in the market, and we've got very good experienced credit teams. That's the other thing I would say. We've got lots of collective knowledge within the business, and they're very, very closely aligned to the frontline colleagues, which is great.
Is that everything? Thank you very much indeed for your interest in the business and enjoy the summer.
Thank you.