Hello, and welcome to the Wickes Analyst Conference Call. My name is Laura, and I will be your coordinator for today's event. Please note, this call is being recorded, and for the duration of the call, your lines will be on listen only. You will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to your host, David Wood, CEO, to begin today's conference. Thank you.
Well, good morning, all, and thank you for taking the time to join us this morning. I'm here with Mark George, our CFO, and we plan to spend the next 50 minutes or so outlining our new capital allocation policy, and of course, answering any questions that you may have. We have prepared a short slide presentation, and hopefully, you'll already have this in front of you. If not, it can be found, in the investor, section of our Wickes PLC website. Before we turn to the slides, let me give you a quick voiceover on our Q2 trading update that we've issued this morning. I'm pleased to say that we've had an encouraging first half performance.
We've seen an improvement in like-for-like sales in the second quarter, up 3%, and despite the challenging consumer environment, group like-for-like sales for the first half were up 0.7% year-on-year. Core like-for-like sales were ahead by +2.3% in the second quarter, with categories such as decorative and construction performing well, and outdoor projects benefiting from a normalization of weather patterns. We have seen a particularly good performance from trade sales, reflecting continued healthy order pipelines for local trade professionals as we continue to grow membership of our digital TradePro scheme. DIY sales have seen an improving trend as the period progressed, although remain lower year-on-year.
In our Do It For Me showroom business, like-for-like sales growth on a delivered basis were plus 5.3% for the second quarter, as we continue to work through the elevated order book. Orders in the first half were up modestly, with bathrooms again performing well. Naturally, we are keeping tight control on costs, with savings slowing through as expected in distribution, logistics, and store operations, and we continue to make good progress across our strategic growth leaders. We have completed six store refits so far this year, and we're opening a new store in Chelmsford later this week, with a further two openings planned before the year end. If I could ask you to turn to the first slide of the deck, please. As I've just outlined, trading is on track, and we are comfortable with consensus expectations.
Mark and I will now take you through the new capital allocation policy. This policy reflects the strength of the balance sheet, our confidence in our future growth strategy, and a focus on delivering strong shareholder returns. We have updated our capital allocation framework to deliver an efficient capital structure. The key points of which are: the balance sheet target will be focused on a net cash basis, retaining at least GBP 50 million of cash at the year end, which is typically our seasonal low point. We will continue to invest around 3% of sales behind our proven strategic growth levers. This is before the adoption of IAS 38, which Mark will run through in a bit more detail later. We plan to maintain the full year dividend at GBP 0.109.
Going forward, our previous policy of a 40% payout ratio will be superseded by a new policy of 1.5-2.5x cover. I'm pleased to confirm that today we are announcing a GBP 25 million share buyback, as we believe this is the best route to return surplus cash to shareholders. Finally, again, Mark will talk in more detail to this, we are increasing the proportion of our Software as a Service costs to support our investment in our IT infrastructure and capability. This will affect adjusted profit before tax over the next few years, although it won't have any impact on cash. If you could turn to the next slide, please. Wickes has a compelling investment case, targeting double-digit total shareholder returns over the cycle.
The cornerstones of this are mid-single-digit sales growth, profits growing faster than sales, a regular dividend, and return of surplus cash to shareholders. On the first point, we operate in a large, U.K. home improvement market, which goes broadly in line with GDP. In recent years, we've consistently grown ahead the market, and we anticipate further market share gains, driven by our successful balanced business model and our proven growth levers. We expect to generate operating leverage as we grow the business. We have a very lean and efficient cost model and are highly focused on driving further productivity. As a result, we would expect to grow profit faster than revenue. I've already covered off the dividend policy with our new cover range of 1.5-2.5x.
The final cornerstone of our investment case is that after taking into consideration spend on maintenance and growth CapEx, we are a cash generative business. This means that we are able to drive additional total shareholder returns by returning surplus cash to shareholders, and we are announcing the start to that process today. I'd now like to hand over to Mark, who will take you through the remainder of the presentation. Mark?
Thank you, David, and good morning, everyone. I'd like to start by setting out the four pillars of our new capital allocation policy and explaining the position on each of those in financial year 2023, as on Slide four. The first pillar is that we will have a strong balance sheet and we'll aim to have cash at all times. Specifically, we will aim to have at least GBP 50 million of cash at the end of each financial year, which as David mentioned, is a seasonal low point in the annual cycle, and we'll show this in a bit more detail in a moment. For 2023, in this pillar, we started the year with GBP 100 million in cash, and we will end the year at a broadly similar level.
As this is well above the policy of being at least GBP 50 million at the year-end, we deem this to mean that we currently have surplus cash. The second pillar is that we are a growth business, and we plan to invest to drive growth with a strong return on investment. In 2023, we expect this capital investment to be between GBP 30 million and GBP 35 million on a post-IAS 38 basis, which is around 2% of sales. On a pre-IAS 38 basis, this would be GBP 40 million-GBP 45 million and around 3% of sales. More on IAS 38 later. The third pillar is our intention to pay a healthy, regular dividend each year, and we plan to operate with dividend cover of between 1.5 and 2.5x .
In 2023, we are likely to be slightly outside of this range due to a low point in the cycle for profit, but plan to maintain the same cash dividend of GBP 0.109 per share that we paid for 2021 and 2022 financial years. This higher-than-policy payout reflects the confidence in our business and the strength of the balance sheet. The fourth pillar is we plan to return cash to shareholders. With an expectation of ending the year with around GBP 100 million of cash, we have surplus cash versus our new policy, and so we will start to return some of that cash to shareholders immediately. We have today announced a GBP 25 million share buyback program, which will start in the next few days. I'll now take you through each of these four points in a little more detail.
Before talking through our primary new balance sheet metric, I wanted first to explain why we're moving away from a target based on lease debt to one focused on cash. On Slide five, we show the renewal profile for our leases, which, as you can see, is uneven. As a result of relatively few renewals in recent years, and in the next few years, our lease debt is currently falling by GBP 40 million-GBP 50 million per year. From 2026 onwards, we start to have a lot more renewals, and our lease debt will start to rise again. In contrast, our rent payments, and therefore our actual cash flows, are stable throughout this period. In addition, our bank covenants with our RCF lenders are based on cash metrics, not lease-adjusted ones.
For these reasons, while being cognizant of our substantial lease obligations, our preferred metric for measuring our leverage going forward will be financial debt or cash rather than lease-adjusted debt. Moving to Slide six, we set out here a little more detail on our cash profile as a business and why we've set our new policy to be at least GBP 50 million cash at the year-end. Firstly, we want to have a prudent balance sheet that reflects the fact that we have lease obligations and operational gearing. As such, we want to operate with cash at all times rather than add financial debt to the lease obligations we already hold. The second consideration for us was our annual cash cycle. December is a low point in the year, with the average across the year significantly higher.
As you can see in the chart on the right, in 2022, we averaged around GBP 150 million of cash, compared to a year-end point of GBP 100 million. When looking at sensitivity analysis for potential downside scenarios, we modeled our potential headroom versus the year-end low point, and that's why we've established our new policy based on the cash position at the year-end. Our intra-month cash flow can be up to GBP 40 million, and this was another consideration for us as we considered what we wanted our minimum cash balance to be. Overall, our view is that by holding at least GBP 50 million at the year-end, and I want to emphasize at least, we will remain in net cash throughout the year in a normal trading environment, and we'll be able to remain in net cash even during a downturn.
We will keep the RCF, would not expect to utilize this except in exceptional circumstances. It does provide a useful backstop and added level of protections. Overall, we believe this new approach strikes the right balance between delivering an efficient balance sheet and protecting against downturns in the economic cycle. Turning now to Slide seven and our second pillar on capital investments. Which is a growth business, and we have a number of pro-proven growth leaders across property and digital in particular. We expect to invest around 2% of sales in CapEx in the coming years, or 3% on a pre-IAS 38 basis. Our investments will be a mixture of maintenance and growth investment. The maintenance CapEx is essential to retain our market position and performance, and as such, we don't ascribe an incremental return on investment to this CapEx.
If we didn't do it, the business would start to underperform. We have other investment opportunities to grow sales and profit that will drive incremental returns. In property, our proven store refit program consistently delivers 25% returns, and we expect our new stores to deliver even higher returns, albeit with a slower payback. In technology, we will have three broad categories of investment: maintenance, sales driving, and productivity. The maintenance will not drive an incremental return, but the initiatives to increase sales or reduce costs will do so. Our overall aim with our investment is to maintain and enhance the business's assets, such that the blended overall return on investment exceeds 15%, to ensure we can continue to grow shareholder value as we grow the business. On the right-hand side of this slide, we've shared a little more detail on our IT investment plans.
We have successfully separated our IT systems now from Travis Perkins on time and on budget. We developed a very strong internal tech team. During the separation process, we took the opportunity to move all of our systems into the cloud, which has been a great step forward. We've now started our new technology roadmap, which will modernize the systems inherited from TP, will further improve the digital experience for our customers, and it will seek to use technology in our operations to drive efficiencies. In terms of project investment in technology, we expect to spend around GBP 17 million this year, growing to around GBP 25 million per year from 2025 onwards.
As we are now operating largely in the cloud, and we expect much of our future investment in systems to be software as a service, we anticipate that 50%-75% of this project spend will now be expensed through the P&L in accordance with IAS 38 clarification on expenditure on SaaS platforms. The accounting implications of this are set out on Slide nine. Let me take you through this. As I mentioned, we now estimate that 50%-75% of our IT project investment will be expensed rather than capitalized. This will increase our P&L charge and decrease our CapEx by a corresponding amount, so there is no impact on cash flow. The higher P&L charge means that profit will be reduced in the short term.
However, the lower CapEx leads to a lower amortization charge, which in time catches up to offset the higher expense going through the P&L, but it does take three to four years to do so. In the table, you can see the effect on P&L, CapEx, and cash in the next few years. At the bottom of the table, you can see an estimate of the impact on the PBT, which this year will be around GBP 8 million-GBP 10 million. Whatever number you had in your forecast for PBT for 2023, you should reduce by this amount. In 2024, there'll be a similar size adjustment, then the gap reduces in 2025 and 2026 as the lower amortization charge builds. From 2027 onwards, there will be no net effect.
The key takeaways here are that there will be a lower PBT for the next four years, but the cash will be exactly the same as if all these costs had been capitalized. Turning now to our third pillar of our new capital allocation policy, the dividend. We're moving from a straight payout ratio of 40% of profit after tax to a dividend cover range of 1.5-2.5x . The upper end of this range is obviously the same as the previous 40% payout ratio, but the lower part of the range enables us to be more flexible if we need to be. For 2023, we plan to maintain the same cash dividend of GBP 0.109 that we paid for 2021 and 2022 financial years.
This will be slightly outside the new target dividend cover range, given the combined impacts of the lower profit this year and the new IT accounting, which lowers PBT further. Our intention is to maintain the GBP 0.109 dividend until the profitability recovers sufficiently, such that the GBP 0.109 is within the target cover range, at which point we will review options around increasing the dividend or increasing cover. Maintaining the dividend at GBP 0.109 in 2023 will result in a payment to shareholders that's more than GBP 10 million above what the previous policy of a 40% payout ratio would have paid, reflecting our strong balance sheet and a desire to give surplus cash back to shareholders. Which brings us to the fourth pillar, surplus cash, which we set out on page 10.
Across the cycle, we expect to generate strong operational cash flow from the business that can fund the investment we need to grow, plus a healthy dividend and generate surplus cash beyond this. Our intention is that whenever we have surplus cash, we'll look to return this to shareholders to drive balance sheet efficiency and improve shareholder returns. As mentioned earlier, we expect to end 2023 with a cash level well above our new policy threshold of GBP 50 million at the year-end. We therefore plan to start returning surplus cash to shareholders straight away. Today, we announced the start of a GBP 25 million share buyback program, which will start in the next few days. The combination of this share buyback and maintaining the higher dividend payout shows a confidence in the business model and a commitment to capital discipline and strong shareholder returns.
Just to end on Slide 11, we end with a summary of the investment case that David started with. Which has a compelling business model in a large market where we continue to grow market share and deliver strong double-digit returns to shareholders. Over the cycle, we aim to deliver mid-single-digit sales growth. We will use operating leverage and productivity to grow profit faster than sales. We'll pay a regular dividend, and on top of that, we'll aim to return excess cash to shareholders. In the immediate period, this will be via a share buyback program. That concludes the formal presentation. We'll now be happy to take your questions.
Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We'll take our first question from Shane Carberry at Goodbody. Your line is open. Please go ahead.
Thank you very much, and thanks for the presentation, guys. Three from me, if I may. Firstly, just from the consumer's perspective, I guess one of the things that we've been hearing in the sector recently is... you know, potentially some customers kind of finally feeling the bite of the inflation that we've seen over the last couple of years, and maybe some becoming a little bit more price sensitive. I just wondered if that's something that you've seen at all, and just how the kind of price competitive backdrop is generally. Secondly, on the DIFM side of things, look really kind of consistent and strong growth through Q2 and Q1 there, and it, like, it feels like probably outperforming some of your peers in that regard.
Can you give me just a little bit of color on, you know, what you're seeing in the competitive backdrop from a DIFM perspective? Then the last one for me, just in terms of the capital allocation framework, I think as you said there, Mark, it shows a lot of confidence in the business. I suppose, why now being the kind of key question, what is it that you're seeing in one of the business or the market that gives you the confidence to kind of bring forward this today, I suppose? Cheers, guys.
Thank you, Shane. Mark, if I lead on the first two, you on the third, and of course, chip in as I go. I appreciate that, Shane. I think if I start at a high level, and I think about the consumer and where the mood of the consumer is at the moment, and it's probably worth thinking through each of the verticals actually, Shane, as I answer that question, more broadly. When we think of our local trade professionals, there remains a high degree of confidence in terms of the pipeline fill for those customers.
These, they're confident, you know, there's a, you know, a decent percentage of those customers that have, you know, up to, and even more than a year's worth of sort of like, you know, planned work that they've got visibility of. There's a, there's a level of confidence there, and we continue to grow both that customer base and, of course, that overall sales profile. I think confidence there. When we come across to DIY, you know, the good news is, in actual fact, the rate of sort of like declining DIY is slowing, which is encouraging. What we are seeing is consumers are definitely taking on more smaller projects rather than the larger home improvement projects. We can see that in what they're buying and what they're telling us.
There's a little bit of thoughtfulness around overall project cost sensitivity, I think would be the fair thing to say, Shane, more specifically through the DIY lens. It's always harder to call when we think about Do It For Me, 'cause it's such a highly fragmented market with a very long tail of independence. What we can see in this sector is at the very, what we call the top of the funnel, so in terms of leads, you know, leads have been in decline throughout the first half of the year. Encouraging, those customers that are in the journey are much more serious.
It's almost as if we've shaken out a little bit of the window shopping, and the customers got in the top of the funnel in terms of leads, do have actually a much higher conversion rate and a higher average order value. Net-net, we find ourselves in a situation where as we've demonstrated, we've got growth in terms of delivered sales and, you know, you know, a slight growth in terms of our ordered sales in terms of the first half. There are fewer people in the market. We seem to be winning those people and converting them, and the average project value does seem to be higher than normal. That's sort of like how I think about the customer groups at the moment.
What we haven't seen, you know, to quote the words in your question, was this like any kind of brakes on or real bites through the lenses we see it through our customer base and as we talk to them, through the mood of the nation. I think that sort of like ticks off one and two. I don't know if you want to talk to the capital allocation policy, Mark.
Yeah. Thanks for the questions, Shane. I think the timing really has been less about what the market conditions are, and more about us as a business, as Wickes. We've just gone through the point of being two years since de-merger and becoming a public company. Through that period, we have obviously moved to a position where we're operating our own balance sheet and funding, and we have gone through a process of sort of working capital normalization during that period, since the de-merger. That's now got us to a position where we are very clear on our working capital cycle and our position.
We've also, of course, had the major IT project, the transition away from Travis Perkins, which was a major cost, but one that was well signposted, and it came in on time and on budget. Of course, two years ago, that was still a major project for us to go through. Probably, you know, the opportunity for me as a new CFO to come in and take a view as well, to add to the thoughts of the board. All of those things coming together, it feels like now is the right time for us to be very clear. We've traded well through the COVID period and beyond, and we're gaining market share. We're very confident in our business model, and we're now very clear on our balance sheet and strategy with regards to capital as well.
Nope, that's really clear, guys. Thank you very much for your time.
Thank you, Shane.
Thank you. We'll move on to our next question from Ami Galla at Citi. Your line is open. Please go ahead.
Yeah, thank you. Just a few questions from me. Maybe a follow-up from Shane's question. In terms of promotional activity in the market, what if you could give us some color as to what was the degree of that in Q2, and how do you see that in the start of remainder of the year? My second question was mostly on demand. I mean, do you see any pickup in terms of H1 trading so far? Do you see any pickup of energy refurbishment demand projects going through in the pipeline? The third one was just from the consumer perspective. You know, historically, over the last 12 months, we kind of heard an element of households postponing some amount of projects that they were potentially taking or planning to go ahead with.
Has that sort of delay really come to a halt, and maybe to an extent, can households are a lot more confident of projects they potentially planning in the pipeline? Any color there would be helpful as well.
Okay. If I, Amy, could I just clarify the second question I think I heard? The line was just a little bit distorted there. I think I heard, was the question around energy-based projects?
Yes. Any refurbishment projects to kind of improve energy efficiency- Do you see signs of that picking up in the market so far?
I think, let me start with that one. I think there remains in the marketplace, and obviously not surprisingly, it's always worth reminding ourselves that we do have the oldest and most inefficient housing stock in Europe, here in the U.K., and we are a property-owning democracy. There is a desire to make that asset more energy efficient. I think, you know, we continue to see growth, Ami, in those categories that reflect people trying to improve the overall sort of like efficiency for energy in their homes, so particularly to do with insulation, you know, draft excluders, et cetera. We would anticipate that that's structural change in the marketplace, and that will just continue going forward.
We see that as a great opportunity, not just for the market, but more specifically, for Wickes, not least given our sort of like installation strengths when we think about some of the complexity of those bigger projects, in time. Promotional activity is an interesting one because we are quite a promotionally lean, business. As you know, we have this highly curated range, but also two-thirds of our business is own brand, so we have a really strong cornerstone of value in the first instance, which on top of, we put a smattering of sort of like relevant promotions on the lines that matter most to our customers.
We're a very promotionally uncomplex business, given the strength of our base business and the strength of our own-brand, which is great for running the operation as well, because we may have a much more efficient operation. It does mean our colleagues in store are actually focused on the customer and servicing the customer, rather than changing things at the shelf edge. More broadly in the market, though, which was more pertinent to your question, yeah, there is more promotional activity, I think it's fair to say, and that just may well be a reflection of the performance of those in the broader market.
We are seeing a fair bit of promotional activity, and some of that will be affected by seasonal patterns, a very wet Q1, a dry Q2, but people need to move through seasonal lines, and so forth. For us, dare I say it, we're quite a promotionally benign business, really, just because of the strength of our overall value proposition. In terms of the consumer and just thinking about postponement, yes, it's true, we do see customers thinking about either delay or downsizing projects. As I referred to earlier, we're seeing the downsize to smaller projects.
What we do hear, particularly though, from our trade customers, is if somebody cancels a project, that slot very quickly gets filled just because of the length of their pipeline, so people are quite happy to jump the queue and get in. Most of our trade customers tell us, although they are experiencing some postponement, it just very quickly gets rescheduled, because they've got the time available, and they can pull through somebody else's project. I wouldn't determine that as a material sort of like characteristic of the marketplace at this moment in time, but we remain curious as to what will happen in the second half.
That's helpful. Thank you.
Thank you, Ami.
Thank you. We'll take our next question from Kate Calvert at Investec. Your line is open, please go ahead.
Good morning, everyone. Three from me, if I may. The first question is that some of the other builders merchants in the market have been talking about inflation slightly higher than the 4%, you've quoted in Q2. Is there a mix effect here, or do you think you've actually improved your relative price proposition? What are your thoughts on inflation in the second half? Second question is to do with Do It For Me. You mentioned your orders were slightly up in the first half. Were they up in Q2? In terms of Do It For Me, how much of the elevated order book is left to deliver, so you get back to a more normal size of order book? Thank you.
Mark, do you want to lead with the inflation?
Yeah.
I can chat to Do It For Me, and maybe I'll pick up with the final one.
Yeah, morning, Kate. I mean, the first thing to say is that we are always determined to provide the best price that we possibly can and be market leading. As you know, we tend to be around 3% cheaper than competitors on a basket of products. For us, what we have seen is quite rapid reduction in inflation, Q1 at 9%, Q2 at 4%. What's driven that has been timber in many ways. There have been other factors, but timber has been in deflation, and timber is a really important category for us, not just because we sell it in its raw form, but also because of the kitchen units, it's decking, it's fence panels, it's wooden flooring.
For us, there may well be some mix effects versus people in the merchant sector, which may have a slightly lower proportion of timber. Hard to tell, but certainly we're seeing reductions, and we're passing those back on to our trade and our DIY customers. And that's why we're at 4% at the moment.
Do you want to pick up?
Yeah
... orders, or do you want me to pick up orders? Do It For Me orders.
Oh, you can. Yeah. Yeah, go for it. DIFM orders, we're up in the second quarter. You know, I think that's really encouraging in the environment that we see ourselves in. We are, you know, as David said, leads are down, but conversion is up, and average order value is up. We're not seeing any discernible trends where people are either trading down or the proportion of people taking finance, for example, hasn't changed. The proportion of people who are taking installation with their kitchen, and obviously that's a slightly more expensive package from us, that's actually strong at the moment. Those sort of key indicators for us, at the moment, are healthy.
As David said earlier, it's hard to know where the rest of the market is because there's no particular market share data we can point to, but certainly we're pleased that we're in growth, albeit modest growth, for the first half in, on an ordered basis.
there was just a final-.
The order book, yes. We haven't given a specific number. We'll probably do that at the interims, but we are working our way through the elevated order book. We are still above the point where you might describe it as normalized. I think, by the end of 2023, we'll be much closer to what normal levels would be. I think we'll probably still be slightly elevated, but largely that would have been worked through.
Thank you. Can I just come back on inflation, what, in terms of what you're expecting for inflation for the second half?
We haven't given any specific guidance in the RNS. I think given the trend of 9% falling to 4% across Q1 and Q2, I would expect it to be between 0% and 4% in the second half.
Great. Thanks so much.
Thank you. We'll take our next question from Sam Cullen at Peel Hunt. Your line is open. Please go ahead.
Yeah. Morning, everyone. I've got three as well. The first one is kind of a follow-up on that inflation point, really. Kind of outside of the commodity products, like timber, are you seeing any of your competitors kind of bring down prices on some of those products that have seen sort of more structural increases, whether it's kind of multi-finish or plasterboard? If they do kind of bring them down, how do you think about the chances or risk of going into sort of overall deflation in the second half of the year or next year, if you kind of are committed to being the lowest supplier in the marketplace? That's the first one.
Secondly, just on the benefits of the kind of the SaaS service providers, can you give us some examples of some of the kind of revenue and cost products or capabilities that you think that gives you? My last one is on the kind of the buyback going forward. Obviously, I assume you're gonna reassess this going forward. Will that be on an annual or an interim basis? Just kind of a clarification around that GBP 100 million. The GBP 100 million for the year end, I assume that's sort of before the GBP 25 million buyback, so it might be GBP 75 million, for example.
If that's correct, does that GBP 25 million equate to the sort of at least that you flagged Mark, in your comments around the sort of the at least GBP 50 million, i.e., we should see sort of a GBP 20 million, GBP 25 million buffer ahead of GBP 50 million going forward?
Mark, if I take the first, can you take the second two?
Okay. All right.
Yep. Sam, thank you for those questions. I mean, look, on, on inflation, more broadly, or deflation, as you were just citing there, or potential deflation. Look, of course, we have and will remain, you know, with a competitive price position. As you know, we take a, you know, a daily scrape on a number of key lines across all of our major competitors to assess and ensure that we hold a competitive position. In terms of price index, that normally settles around sort of like the, what we call 98. On balance, somewhere between 2% or 3% cheaper in the round for the broader basket.
Of course, you know, our long-term value proposition is the very thing that is driving our customer growth, and most notably, those that really are aware of price, which is the trade customer. I'm delighted to say, you know, our TradePro scheme still remains in very good growth in the first half. I think on the lines that matter most, for the customers that matter most strategically for us, we remain in a very good and competitive position. Of course, we maintain and monitor that on a weekly basis and make balanced decisions. We don't pull ourselves out of shape, Sam.
We provide value on our terms, I think we do that very successfully, as an organization, as I say, it plays out in our customer growth that we see as a consequence to that. Mark, if I just hand over to you for some thoughts on SaaS.
Yeah. SaaS, and I think your question around some examples of projects that enhance revenue and reduce costs. I mean, I'll give some examples that do that. It won't necessarily be the case that these will all be SaaS, because we'll have to evaluate each technology opportunity as we come to it. Most of them will be SaaS, as we've indicated.
You know, revenue opportunities that we'll be looking at, to enhance, for example, our TradePro app, we've got some good ideas of how we can make that more compelling, to improve loyalty, frequency of purchase, and continue to drive the strong growth of TradePro app. That would be a good example of where we're using digital to improve revenue. On the cost side, we recently put in handheld devices for our colleagues in stores that helps with the operational efficiency of what we're doing. That has obviously some hardware, but also has software components as well. That would be a good example of where we're using technology investment to drive productivity and reduce costs.
There'll be multiple examples on both sides of that as we go forward, which we think will really enhance the business. Your third question was about the buyback program. The first thing is that, just coming to your last point about the GBP 100 million target, that's sort of not an exact guidance for the year-end, but a broad number to give you a sense. That's the first thing. The second thing is, you shouldn't expect that we will have completed the GBP 25 million buyback by the end of this financial year. It will run well into 2024.
you know, there will be some reduction from our year-end cash position as a result of the buyback, but I would estimate that less than half of it will be completed by the end of 2023. In terms of reassessing when we would do more or potentially more, I think we'll get through the GBP 25 million. We'll reassess at that point. That will be at some point during 2024. We'll judge at that point what we want to do. We're not promising anything further at this stage, and we'll reassess at that point.
Great. Thank you. Thank you. We'll take our next question from Adam Cochrane of Deutsche Bank. Your line is open. Please go ahead.
Good morning, guys. Sadly, only two questions from me. On the talk on inflation coming down, experience as inflation comes down, what is the impact on demand? Should we see, hopefully underlying demand for, you know, renovations, product spend increase as the cost of raw materials comes down? It may not be as negative for top line maybe as feared. The second question, your IT spend. You put the zero to 30% return on invested capital. Would you be able to, I don't know, helpfully give a split of that IT spend by those buckets? I suppose how much of it would you expect to fall into the cost saving stroke revenue generating opportunities compared to, I suppose, ongoing IT maintenance? Thanks.
Thank you, Adam. Mark, I'll take the inflation question if you pick up on the spend. Adam, I think it's probably quite the easiest proxy for this, will be to look at what's happening in terms of the price volume mix, and particularly if we look at Q2 as a good example. You can see the volume recovery. Overall, we've delivered 3% in terms of growth. We said there was around about a 4% inflation in the period as well. What you're seeing broadly is volumes are coming back to flat now. That wasn't the situation in Q1.
We have seen, as prices have cooled, we have seen that sensitivity and that elasticity coming back through volume in the round, at a headline level. I think we're quite comfortable with the response of the market to price, in terms of how that flows through for volume. Of course, the benefits that that will bring to the business as you move more volume through the business and overage going forward. On the IT spend, I don't want to be drawn on a, on a, on a split. It will be a mixture of all of those three. The key for us is that overall, in our total investment spend, that we'll combine the IT with the property and other maintenance, is that we'll get a return in excess of 15%.
We will manage our capital investments accordingly. It's important to say, you know, that if we have a project that we deem to be maintenance, and we don't describe a specific incremental return, you know, it may well generate a return, but it's largely to replace perhaps an existing system. We would expect it would have improved functionality and may well drive an upside as well. I think it's taking a conservative view to say that when we maintain something, it will be zero. There may well be a net uplift. Over time, we will get a good blend on that IT investment.
Just a quick follow-up on the inflation. As inflation comes down, I know there's some pressure on percentage gross margin as not all the inflation has been passed through. Is there any opportunity to recover some of the gross margin percentage in a lower inflationary environment?
Not sure whether recovery is the right word, but certainly it's easier to pass through the percentage. You'll remember that we talked in 2022 about the dilutory effects of inflation, because we were largely passing it through on a cash basis rather than a percentage basis. With inflation being much lower, it is easier to pass it through. I hope that's clarification versus sort of recovering, if you like, in terms of over-recovering the percentage. When we talk about gross margin and publish that externally, not only is it the product margin, but also the distribution costs that go into that. Some of those trends are working in our favor as well at the moment, in terms of distribution costs.
One of which, for example, is the fact that we are very strong in our Click and Collect sales, which we've indicated in the RNS today. A slight shift of people coming into store to do Click and Collect, or to just purchase in store, which reduces our cost to serve. Our overall, that helps our overall statutory gross margin as we report it.
Great. Thank you.
Thank you. Once again, ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We'll now move on to our next question from Mark Holson at Deloitte Capital. Your line is open. Please go ahead.
Good morning, folks. It's just a quick question. On the change of the, I think the correct change, you know, to OpEx in IT spending versus CapEx. Obviously we see the impact you've set out, and obviously by 2027, it's no effect. Is there any reason why any sort of past capitalized sort of IT spend, you know, perhaps should not be written off? Can you just explain why that remains? Can you just help me with that, please?
Yeah, sure. What this is driven by is not so much a change in view from our perspective on the interpretation of accounting, it's actually the nature of our spend. A lot of our focus on IT spend in the last two years has been in the separation from Travis Perkins. That is now shifting towards the future roadmap that we want to invest, either in modernizing those systems or replacing them, or building new ones. As we look forward to shifting into the future view, we are now going to be spending a lot more on software as a service, where previously we hadn't been, or hadn't been spending nearly as much. Actually, it's the nature of the spend profile changing rather than a reflection on accounting.
The what we have on the balance sheet, and we've capitalized in the past, has all been capitalized correctly. It's now the nature of the spend changing in the future that's driving this new guidance.
Great. Got it. Thank you very much.
Thank you. We'll take our next question from Matthew at Singer Capital Markets. Your line is open. Please go ahead. You might want to unmute your audio from your end.
Good morning, guys. It's Matthew from Singers. Thanks very much for taking the question. Just a quick one left over in relation to showroom, bathroom, and specifically kitchen. I think you've been introducing some new, kind of, lower price ranges. I'm just wondering if you could give us an update on the timing of those landing, and whether or not you're starting to get some traction from improving the price proposition in that part of the business.
Thank you, Matthew. Yeah, we have recently repositioned and relaunched part of our overall kitchens proposition called Lifestyle. When we talk about the Showroom business specifically, we call that our bespoke service for the customer, where the customer is coming and designing their own, you know, dream kitchen with us through the, through the bespoke service. We also have what we call our Lifestyle range, which is a much more accessible, affordable range of kitchens, which we also do wrap a free design service around. You know, this year we've repositioned and relaunched that, and yeah, I'm pleased to say we are, you know, we're pleased with the performance and traction that that is getting, and I'm sure we'll talk to that in more detail in future, in future updates.
Do you want to just outline when that, when that took place, and the extent of the range, you know, if there was some extension in there or rather than just a relaunch?
Yeah, I think in total we had about eight new ranges, so quite an overhaul in terms of the proposition for Lifestyle. Not just in style, but also in colorways as well. A fair bit of innovation underpinned that. Realistically, it's been launched in earnest only in sort of like recent weeks/months. For the first time, last month, we had a TV campaign that spoke about this broader proposition. I mean, to summarize it, we talk about, you know, from your first kitchen, i.e., Lifestyle, to your forever kitchen, we sort of like got you covered. We are now talking more comprehensively about that, sort of like that good, better, best choice that a customer has now in terms of the kitchen opportunity. It's, but embryonic, and as I say, you know, we'll come back at a later date and talk more specifically to that.
Yeah. That's okay. That's very helpful. Thanks very much indeed.
Thank you. We'll take our next question from Georgia Pettman at Panmure Gordon. Your line is open. Please go ahead.
Morning. Just one question from me, which actually follows up on SaaS. Adam covered off my question on the composition of the IT CapEx, but I was wondering if you could maybe identify what's given you the confidence to go faster on this. Mark did reference that trade digital proposition, but I wondered if at a strategy level, the intention is to apply some of the learnings from trade to the broader business, given previous conversations we've had around MME.
Yeah. It's, it's a mixture of things, Georgia. I think first of all, the opportunity through digital generally, and then SaaS separately within that. You know, we do see major opportunities to improve the customer experience, whether that's for trade or for DIY. And we have learnt, as you said, through our MME, and, you know, using that both for trade and consumer DIY customers now, that's the Mission Motivation Engine that uses AI to send more targeted emails and marketing to customers, and we've proven that that's adding to our sales, and that's really great. It's across the board where we see opportunity to improve the customer journey digitally, in store, and also to improve the effectiveness of our operation that will reduce our cost to serve.
It will, for example, through technology improvements, reduce our or improve our on time in full delivery for installation and improve our end-to-end customer journey in that respect as well. There's a whole range of things that are gonna improve the customer experience. In terms of our confidence in moving to SaaS and the Cloud, I think that's just really the direction of travel that most companies will go, and we think we have taken a bold step through the transition away from Travis Perkins to move everything onto the cloud. Others will no doubt be on that journey as well.
And we think the next logical step to get most agility in our tech platforms will be to operate on the whole, through SaaS, rather than big major platforms that we build ourselves. Those platforms that we do take on are likely to be smaller individual function delivering platforms rather than one major ERP. We're not heading in that direction. And what we want to try and do is get best in class in each of the functions that we develop as platforms. And most of those will be through SaaS.
Brilliant. Thank you so much.
Thanks, Georgia.
Thank you. We'll take our last question from Georgina Johanan at JP Morgan. Your line is open, please go ahead.
Good morning. Thanks for taking my question, a very dry one to finish with, I'm afraid. Sorry about that.
We like it.
Thank you for the slide on the IFRS 16 net debt, and just calling out that those higher proportion of leases are coming up for renewal. I understand obviously, no impact on cash rents, obviously of most importantly. Can you just remind us, is this kind of changing in the profile versus like the last few years? Does that have any impact on P&L, please?
Yes, it will have a small impact on the lease charge going through the P&L. As we reduce the overall leverage from leases, that will reduce the P&L charge, and then when we start renewing, again, that will have a small increase in the P&L charge through the combined depreciation and interest under IFRS 16.
Thank you.
The cash is driven by the rental charge, which is pretty flat.
Okay, that's great. Thank you very much.
Thank you.
There are no further questions in here. I will now hand you back to your host to conclude today's conference.
Well, firstly, thank you everyone for joining us this morning. Thank you very much for a really broad and good suite of questions. I always enjoy that part of these sessions. Look, I mean, in summary, look, it's, it's been an encouraging first half, I think, despite what we all recognize is a challenging environment more broadly. We do remain comfortable in the full year consensus and not least, because of our confidence in the distinctiveness of our business model, the balance of the business, the strength of our value, digital and service proposition, and of course, our own self-help growth levers. You know, we have announced our new capital allocation policy today.
I think it's simple, I think it's clear, and really does reflect the strength of the balance sheet that we have. As I say, the confidence that we have in our business and the future growth potential, and most critically, you know, making sure that we're delivering in terms of strong shareholder returns. Thank you very much for listening this morning, and no doubt we'll pick up with a number of you in the coming days or weeks. Do take care. Have a super day.
Thank you so much, ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.