Earnings Transcript for TPK.L - Q2 Fiscal Year 2019

Stuart Chambers: So good morning, ladies and gentlemen. My name is Stuart Chambers, I'm the Chairman of Travis Perkins plc. It's my great pleasure to welcome you to our 2019 half year results. I'm -- there is quite a lot to cover. There are a number of significant changes, the income statement, the balance sheet, and quite a few work streams to update you on. So -- but I'm not going to duplicate there, I'll leave Alan and John to do that, but I just want to cover 2 areas. Firstly, I would like to acknowledge on behalf of the board, those work streams. The significant progress that the team has made in moving forward the strategic objectives that we laid out in our Capital Markets Day in December. That has involved, as I said, some very significant work streams involving a lot of resource and lot of senior management time. And I think it's a great credit to the team that in doing so, they didn't fall into the trap of taking their eye off the performance ball of business as usual across the businesses. And I hope you all agree that if you look at the numbers, there's not much evidence of them having taken their eye off the ball. That's the first thing. And the second thing before I hand over is, of course, to acknowledge. This is a quite an important week. The handing over the baton at the top of the company. This will be John's last set of results that he presents. And I'd just like to say what a -- how wonderful my time has been with John, albeit somewhat short, 2 years, because John has delivered 41 years of sterling service, committed and always dedicated to the company. And I think the thing that earmarks John most of all is his passion. He puts his head, his soul and his heart into the company, and I think his loyalty and his commitment to the business has always been a great example to us all. So we'll miss you, John. But of course, absolutely delighted to be welcoming Nick Roberts, who's sitting here this morning. And he takes over on Monday, is it? Next week. And we are really, really delighted to have been able to persuade Nick to come and join us and I'm absolutely confident that he's going to take this group and he's going to build on what's already been achieved. He's going to take it forward grow it successfully for the benefit of all stakeholders, so a very warm welcome to Nick as well. However, you're still in charge, John. I'll let you do some of the results. So without further ado, let me hand over to Alan, who's going to start off with the numbers.

Alan Williams: Thank you, Stuart, and good morning, everyone. So the first half of 2019 has actually been very positive for the Travis Perkins Group. I think we've made some excellent progress on executing the strategy, which we set out at the Capital Markets event in December 2018, namely to focus on advantaged trade businesses and simplify the group. We separated out the Plumbing & Heating businesses, and we're underway with the disposal process. And today, we've also announced our intention to pursue a demerger of Wickes. This process of simplification is reducing complexity in the group and it's enabling us to make operating cost savings. The strategic progress has been underpinned by a strong H1 trading performance, despite ongoing uncertainty in our end markets. We've demonstrated outperformance across our merchanting businesses, continued to deliver outstanding growth in Toolstation and have delivered a very strong turnaround in Wickes. Before I take you through the results in detail, I thought it might be helpful to draw your attention to some of the changes to the presentation of our results, which were in effect for 2019. So firstly, as we set out with our full year results at the end of February, we've redefined our reporting segments. As Plumbing & Heating is now classified as an asset held for sale and, hence, excluded from underlying results, we're reporting under three segments

John Carter: Thanks, Alan. Good morning, everyone. Let me thank Stuart for his kind words early on. It clearly is a sort of an emotional period. And let me take the advantage of the situation of, in fact, welcoming Nick Roberts to the business. We've worked together now for sort of 4.5 weeks, fairly intensively as you'd imagine with the handovers and Nick, you've been a delight to work with and I wish you absolutely every success. I know you'll do well. When we presented the Capital Markets Day back in December, we always knew it was going to be a busy '18 months and I'm delighted with the progress that the teams have made during this period as outlined by Alan earlier. We've made really good strategic progress on our strategic aims. I'm particularly pleased with the development of the merchant organization under Frank Elkins, which is trading really, really well. This whole area of simplification has moved forward nicely with us dismantling the divisional structure in the early parts of the year. What a difference a year makes? The Wickes performance over the last 12 months has been truly outstanding. We've always believed that the business is competitively advantaged against its sector and it's trading extremely well. We have a new management team there with David Woods, who is the new Chief Executive. And Julie Werth is the new CFO, both really add in to the depth and strength of the management team. And we'll touch on the disappointing delay in this long journey of upgrading our IT capabilities. This was a slide we used at the Capital Markets Day, and I'm really only using it in terms of refreshing our memories of what we said. 8 months, it feels a lot longer to me, actually. We've always believed the long-term drivers for our sector remains strong. And clearly, the short term is moving around. We were focused on the 29th of March as we came into this year, obviously, the uncertainty has moved to the 31st of October. As we look back over the last 5-year period that I've been Chief Exec, we've grown the group, but sadly we did create some complexity in that. So when we presented last December, there were 2 really strong themes that -- the first one being around our purpose and that being focused on the trade and the trade customer and the other was to do everything to simplify the group. The areas that we were sort of using as measurement, we're going to be driving outperformance, which I think, with the numbers we've delivered in the first half, gives us good confidence that we're making progress in that. This lean cost structure is a journey, but again, I think we can demonstrate some really good progress in that. And the disciplined capital allocation, which Alan showed, we're in a really strong position on all those 3 measures. And forming the trade merchant organization under Frank Elkins, there were some certain characteristics that's set, I think, across all the businesses in that organization. And I would really stress, given it's my last presentation, the importance of thinking and acting locally in merchanting. And we're a business-to-business organization and trading is very different than that of a retail or consumer-type business. I think we should do everything to make it easier to do business with and really be focused on that. And a phrase coined by Kieran Griffin, who took over the green and gold Travis Perkins business earlier this year, he talks around if it matters to a branch manager, it matters to him. I have sort of plagiarized that and talk around if it matters to the branches, and it matters to us in the center. Those three areas, I think, will hold us in extremely good stead as we go forward. The other sort of sub-bullet points, I think, are really important. The convenient branch location is more around the Travis Perkins brand. We know if we get good science, with good profile, well laid out that, that is an advantage in any of the catchments that we operate. This whole area of making it easier for branch managers has really gained momentum. You can pull that up first. Thank you. And I passionately believe being an old merchant that actually a manager having an influence in the range of products that they have to serve that local market and having the authority to tailor-make a pricing structure for each individual customer is vitally important to being successful. Over my years with the business, the companies that have the best relationships with the customers, surprisingly trade the best and being focused on account management and relationship management is critical. And when I talk around improved delivery proposition, I talk about keeping a promise and merchanting is no different if you have a builder on-site, if you've promised to deliver it on Thursday afternoon, it's damn important that you do that. And that leads through to actually helping the customer through sort of digital development of giving them visibility of where the product is and when things are going to happen. Putting the manager at the heart -- I've talked about a little bit in more depth, at the heart of the business is proving really positive and the mindset that the center is there to serve the branches, not the other way around. I think, it's a really important point. Keeping things simple and clear and communicating as well as you can without doubt helps in terms of the developing of the business. If we look directly at the Travis Perkins brands, it goes without saying it is the biggest business in the group and it's critical that Travis Perkins is a brand to develop and grow and be successful. It is the evolution of revolution, it's been around a long time and been successful. It is -- it needs to be a customer-led proposition with the customer at the heart of what we're trying to do. And it's not as if we've got a 0 sales culture, but I think businesses that improve their sales culture and a stronger sales plan will always do better in our sector. So we are building on strong heritage. And we've got a really strong culture for looking after the customer. I've always been pleased with our operational excellence, but all of these areas can and will be improved. And as you have seen over the last 5 years, the development of CCFP line and BSS under Frank's leadership, it is replicating some of the focus that those businesses have had and transferring them through Kieran and his management team into the TP business. When I talk about targeting the best builder in town, I talk about catchment by catchment, there are 10 to 15 right builders, they've got their boards outside, they're never short of work, they use the best materials, they're not as bothered about price, and more importantly, they're bothered about service, and they are looking for a deep and meaningful relationship with a merchant. The merchant becomes the full emergency service to their customer and -- behind the police, ambulance and the fire, and that really embedded in that customer's mind. If we target those and are successful, other customers gravitate towards the merchants supplying them. And all of the stuff around having deep understanding of what they want, but it is more importantly to bespoke the service to them. And the only way you can bespoke that service is by the branch manager really engaging with that customer. I talk around the deepened and wider branch dock, often it's around confidence in the customer but actually knowing that they can actually turn up at the branch and get what they want is -- it proves to be much more successful. And again, sort of building on that sales culture, it's very much around aligning the external sales effort with the branch internal effort and making sure that we're aligned, and communicating with the data and what customers want and when they want it. As I'm sure you'd expect, I've had a bit more time this year to wander around the business and catch up on a lot of the branches, and I've been particularly focused on Travis Perkins on the green and gold and these are sort of my observations. I've seen far better engagement from the branch manager community, much more confidence and a visible sort of reaction to Kieran's leadership in terms of the tone he set in. And we're starting to see that in the early stages come through in our numbers. I talk about authority, information and localized decision-making because I do believe they make the difference. I talk -- I've lined -- put their streamlined approval process of pricing agreements in job and that's arranging customer special arrangements. And I'm not pleased to say that on some occasions it needed 8 authority levels to get a customer agreement authorized. That's now down to 2, the branch manager and their boss. And clearly, this is now speeding up decision making and making things much more, more easy to do business with the customer. And we are trialing much more information to the best 100 managers we've got across the business with a view of extending that out as we understand how it's used. But the keyword that I hear now more and more across the business is trust the managers to make good commercial decisions. We've got good visibility of what they're doing, but don't overmanage them, set the framework and trust them to make good decisions. We talked around best builders in town and the right stock in the right depth and the breadth, and -- but it is about getting back to trading catchment by catchment, customer by customer, rather than blanket central dictate in terms of the marketing and sales -- direction of sales. Often overlooked by analysts and investors was our specialist businesses over the last 5 years. As a division, I think, Frank did a fantastic job. On the left-hand side is I'm sort of talking around the overall characteristics that exist within specialist businesses. They -- because they're specialists, they tend to attract and target large customers, large customers tend to be demanding, and they are seeking higher levels of bespoke service. And I think that's where the businesses in that area have responded really well. And these tailor-made propositions that fill customer requirements and particularly pleasing that we've driven an agenda of being a low-cost to serve business, therefore, we can drive good volumes and get good returns on capital and earnings. The probably best example that I can give is keyline. It has moved into, from my mind, a second right merchant business into a fantastic specialist business in the last 10 years. And it is now clearly for me the sector leader in heavy civils and drainage products. It targets large customers really successfully. Not often picked up, but over 90% of its business is delivered. It is truly a distribution business and not a merchant. Its branch locations are not necessarily needing to be convenient, they need to be low cost, often out of town and driven more on stocking products for distressed situations when the customer needs products faster than when the manufacturer can deliver it. So Alan talked around the write-off of the computer project, ERP system, that we internally call Momentum. I'm using the slide, again, that we used in the Capital Markets Day back in December. And I just want to sort of remind people where we were then and where we are 8 months on. The current merchanting systems are old, and we've always called that out, they're north of 35 years and I was part of the team in 1986, that installed the original platform. We cover most of the merchant businesses. So this does not impact Toolstation and in the mind, it doesn't impact Wickes other than its financials. They're stable, they're pretty robust, but they're highly complex and clearly limited in functionality. But I would sort of point to the fact that CCF and keyline have operated off the same system and to the same period and been highly successful. And for our point of view, we clearly want to give our businesses, our colleagues, our customers the best systems possible. During this period, we undertook a really, for me, delicate and important task of separating our Plumbing & Heating business. And on the 20th of May, it sits on its own computer system, which is a dead replica of the IT system that, obviously, CCF and keyline operate with now. That task was not to be underestimated, it was a really important step in separating or in the disposal of Plumbing & Heating and the teams did a great job with it. We're well on the way to separating the Wickes systems, which we would expect to complete before the end of this year, but we do have a complicated ecosystem with up to 400 applications, all actually serving the trade merchant businesses. We took the decision in late November to delay the deployment of the new ERP system because of the challenges that we were facing. 6 or 7 months on, we're still facing those challenges. And as Alan explained, the accounting standards are extremely high. Therefore, we had to write off the whole project of £111 million, which is clearly a disappointment and of deep regret. However, it was unequivocally had to happen because of the accounting standards. As we look forward, what does that mean for the merchanting systems? Our systems operate and they operate well. And any major transition on an ERP level is without -- is not without its risk. And often, when it goes wrong, it can destroy a business so the decision to not deploy, I think, in my mind, was right, is right. We are embarking and working hard to improve and modernize the ecosystem, the IT technical system that we operate the business on today, effectively with a view of improving its performance and resilience for the future. We have a high number of customer-facing and back-office applications as I've outlined and our aim over the coming period is to streamline those applications and processes to give us faster and better data-driven decision-making. There is every chance that we will move now to a lower risk modular deployment rather than a big bang ERP approach and focus on our core transactional and stock systems initially in that program. What does it actually mean as we step all the way back? Well, the overall plan is likely to take 18 months longer than we would have anticipated and signaled back in December. It's delayed, not canceled. The cash impact, which I'm sure many of us are interested in, over that period will be not materially different than expected because we are operating our overall cost to serve of IT on a lower level as we move through this modernization program. So the message for us it's going to take a little bit longer, but overall, the cost is not going to be much different. Okay. Moving on to Toolstation, which Alan sort of highlighted. It was a fantastic period in -- under James Mackenzie's leadership, simply this is a lowest-cost, best-value, best-service model in the sector and I think it's demonstrating that with its overall performance. It's got price leadership, and it's learning and developing smarter sort of marketing and promotional techniques to drive footfall. The team has introduced 1,500 new products and introduced 20 known brands to underpin its trade credentials. It's driving good network expansion at 21 stores, and we're still targeting 60 for the full year. We are investing in its digital and IT side, and we've released a new platform at the end of last year, and we're seeing our click-and-collect growth grow 80% in this period. And ultimately, as it underpins this for me, is the strong service culture and drive and we monitor and measure positively the higher and growing Net Promoter Score. With Wickes, we signaled quite clearly that what our purpose was as a group in December, and clearly at that time our overall trading performance would not have been right for us to signal any corporate action. So that we made it very clear that the aim was to improve our performance and turn the business positively and to grow. That as you can see in the first half of this year has been extremely positive. We've maintained the value leadership in that DIY shed market. And again, we've strengthened our promotional activity with an aim of driving out footfall. I think sometimes missed is the overall balance of our customers in Wickes, where we broadly have a third trade, a third do it for me and a third DIY, and that I think substantially helps the business in the sector that it's operating. We signaled last May a significant cost-reduction program at the center that was executed extremely well and has held it in good stead as we've gone through this trading period. It's got a compact 240-ish store network with the footprints of those still smaller and lower cost. It's got, I think, a sector-leading Kitchen & Bathroom offer where now more than 50% of our kitchens that we sell we also go into the customer's home and install them. And as you would expect, with a consumer-facing business, we continue to invest in the development of digital proposition, online range is expanding, and we've developed a much smarter delivery fulfillment system from the store rather from a delivery hub. The rationale, as we've said, about demerging was well signaled in December. We believe Wickes is a well-positioned stand-alone business, with a clear competitive advantage in the market it operates. It also allows us to fulfill the strategy of having the Travis Perkins business focused on trade and trade customers. Our aim is to demerge the business, all things going well by the end of -- the first half of 2020. As you would expect, there's been a lot of work going on behind the scenes to enable us to make this announcement with work streams already full -- in full flow, including the separation of the IT, but we've also instigated demerger work streams, including obviously the important areas, the finance, governance and the legal and regulatory side. So we're very confident that we can complete this, and now is the right time for us to announce it. So my last slide and my last presentation as chief exec, and you're not going to expect it to be downbeat, are you? I genuinely believe the team has done a fantastic job in the last 12 months. Building through to the Capital Markets Day was really important and then we've made some substantial progress on the strategic aims. I'm very fond of P&H business, but it is the right thing to do in terms of disposing it. And Andrew Harrison and the P&H team have done an outstanding job so far, and we're still in -- and with the sale process under way, we're still positive or confident of disposing of it before the end of this year. The Wickes recovery, I think, is truly positive and allows us to announce the demerger. Our trading across merchant businesses is absolutely solid, and it's good to see the TP green and gold returning to market share gains. So progress in 2019. I think as we go forward, it is a little bit more of the same. I think Frank Elkins and the teams have done a great job informing the Trade Merchanting Organisation. A lot of the hard work is done, but still there's more to do as we go forward. And I -- probably my biggest legacy, if I'm allowed to say that, has been the -- is the quality of the merchant team that's actually installed at the moment. It's the best team I've ever worked with and I think holds us in good stead as we go forward. I think you can't be anything other than delighted with Toolstation's progress. And I think again, I think the stage is set for it to continue to progress really well. And this whole area of simplification and having a leaner cost base puts us in a really good stead for the future. So on that, no pressure, Nick. We'll open up for some questions.

Operator: [Operator Instructions]

John Carter: We're going to get you a mic, sorry.

Robert Eason: Robert Eason from Goodbody. A few questions. Just on the merchant side of the business. Can you just go through like kind of the drop-through from sales down to profits and the strategy that you're pursuing there? And maybe if -- asking the question in terms of what are you doing with gross margins to attract that market share gain, what is the strategy going forward given that markets, everything else being equal, could get a bit tougher in the coming months? So just the whole kind of drop-through in that business, especially just given the strong top line performance. Alan, in your remarks, you were talking about the demerger process of Plumbing & Heating, and you used the words stranded costs. Can you just give us any guidance on what the scale of those stranded costs could be? And I'm assuming it's on top of the £20 million to £30 million that has been highlighted for a number of months. And my last question, and it's probably been led by someone else who has reported this morning, so that's the background for this comment, we talked about softer conditions from the merchants in recent weeks, and it was -- a brick manufacturer. So my question is can you just give us a bit more flavor on the recent weeks in terms of trade for Travis.

John Carter: How much information do you want to give him, Alan?

Alan Williams: Probably less than you do.

John Carter: Yes. Exactly. Alan could answer that then.

Alan Williams: Just let me start with some recent trading. We certainly saw the market slow a little in June. But as I've repeatedly said, this has been an extremely difficult period to understand when you look compared to prior year

John Carter: No. Absolutely. You okay, Robert? Good. Good. Go on, Howard.

Howard Seymour: Howard Seymour from Numis. Three from me, if I can, please, all in different areas. Firstly, Alan, you alluded to on the speciality side of things, the end user markets being a bit weaker. Again, I suppose the comment is, is that across the piece and as you gained in certain areas. And I mean towards the end of the period. Secondly, the price leadership on Toolstation. What we have seen in specific is the like-for-like's still growing but at a lesser rate. Just wondering if you're starting to see any response to your price leadership from them in terms of pricing, if they're getting more aggressive on pricing. And thirdly, two smaller businesses. Just thought process on those, please. Benchmarx, we just saw there's a couple of more depos there but not many. And also Tile Giant because clearly, that is in the retail business. And I'm assuming when you talk about demerging Wickes that's just Wickes and not necessarily Tile Giant as well.

Alan Williams: So just knocked the Tile Giant one on the head. The demerger is just Wickes. So we still have the Tile Giant business there. In terms of the numbers for the avoidance of doubt, you can get the statutory accounts for Tile Giant from Companies House, around £50 million of revenue and a very small profit contribution for the group. On the specialist end user markets, it's not across the piece. I think you know there are -- that within the drylining market that are impacting CCF, there are currently capacity constraints in the market. So we've spoken about this at -- in our Q1 trading statement. The manufacturers have got an allocation process in place which is creating some restriction on the growth in that business at this stage. If we talk about end markets, I've been most concerned about commercial and commercial RMI as the areas where we're seeing more slowing. I think the housing market, new house build is well controlled, and I think infrastructure remains buoyant. So I -- for those businesses, I think it's set fair, but there are some indicators where we could see the market slow a little, particularly around that commercial RMI piece.

John Carter: One on the price leadership, I'm always quiet concerned where you -- where prices sit between people. We should never forget what Bunnings did when they came in and were so reckless. We track the differential between Screwfix and Toolstation, and it's been pretty consistent now, Howard, for a number of years. But the last thing you want to do is provide a price wall. We are a lower cost to serve businesses than Screwfix inherently. And therefore what, we don't want -- we want to preserve margin, not just destroy it.

Alan Williams: So then on Benchmarx. So I think we're quietly pleased with the progress we're making in Benchmarx. We had a good like-for-like in the first half. We've got a new MD in the business, John O'Keefe, who was previously Commercial Director for General Merchanting, and I think he has made strong strides already with the business. We will be looking to continue to grow the footprint of the business over time, but John's rightly taking some time to understand what he's got and work out a plan as to how he goes about that with Frank.

John Carter: So if we go Ami first, and then we'll come over to you, Aynsley.

Ami Galla: Ami Galla from Citi. Just two questions from me. First is on share gains in the merchanting division. If you could give us some color as to the mix of customers where you're actually making more progress or whether it's large or midsize or smaller customers here. The second question was really -- could you give us some color on what was the amortization on the IT spend that was going through the P&L last year? And should we expect that to be reversed this year given that you embed that cost?

John Carter: Okay. So if I take the sort of mix, so the -- well, the mix merchant, the Travis Perkins brand. We have been marginally more successful with the larger customer. But clearly, the focus is on the balance. And the best builders in town, as I call them, are normally the midsized customers, so that's our target area. But over the sort of 9-month period, we've made progress with them all but marginally better with the larger customer. Alan, do you want to take the one on IT?

Alan Williams: Yes. So on the IT, the asset was still in the course of construction, so it's held on the balance sheet. So we haven't actually started the amortization. So there's no underlying P&L impact.

Stuart Chambers: We're going to go to Aynsley.

Aynsley Lammin: Aynsley Lammin from Canaccord. Just 3 questions, please. Firstly, wondered if you could comment on any changes you've seen in the competitive backdrop, particularly your reaction to competitors to the changes you're making in the merchant side. Secondly, on the Wickes demerger, just a bit more kind of background to the rationale of going down the demerger route and not selling the business. Have you tried to do that? Lack of buyers there? Or any color you can give? And then thirdly, on obviously some kind of rumors that there may be a cut to stamp duty at some point. If it's -- gets through, what would be your view on that? Would you be -- do you think it'll have a big impact?

John Carter: So in terms of the backdrop, it is really difficult to see any major trends. I think the markets remain, in my mind, quite benign. It's because it's catchment by catchment, Aynsley, and we don't look at it in terms of geographical sort of regions or national. So we've not seen anyone misbehave. I think everyone's sort of quite sensible at the moment now that we've got Bunnings out in the market. And did you want to pick up on...

Alan Williams: I'll take Wickes. You do stamp duty.

John Carter: Stamp duty definitely took the London market of -- the shine off the London market. So you'd hope any reduction in stamp duty would have a positive effect on housing transactions. And as we've always said, the 2 big drivers for our RMI have been housing transactions and consumer confidence. And anything that helps those 2 lead indicators, I think, will help our business.

Alan Williams: And so on the rationale around Wickes demerger and then picking up on demerger versus sale. I think the first thing to say is that the Board reached its decision, and -- as a follow-on from what we've said at the Capital Markets Day in December. So we talked at the time about creating optionality for Wickes. Importantly, we said we wanted to focus on the trade businesses going forward. So the fact that there will be some formal separation, however that was delivered, I don't think is particularly new news or shouldn't be new news at this stage. Our rationale is that Wickes has a very different strategy that it's pursuing. It's a retail-focused business. And we want the Wickes business to allocate capital in its own way just as we want to allocate capital within the remaining merchanting business and Toolstation in the right way. So different priorities around the capital allocation will be a key driver. We will always be minded by acting in the best interest of the owners of the business, the shareholders. And the decision we've taken to pursue the demerger is what we think is in the best interest of our shareholders. We've considered the disposal route, but we think that given the recovery under way in Wickes, in the longer term that would be of far more value to shareholders than a quick sale, particularly in the context of U.K. retail at the moment, the recovery that the business is going through and whether you'd see full value via that route via the demerger. So I'm very clear that the demerger is the best way forward.

John Carter: Stephen.

Stephen Rawlinson: Stephen Rawlinson, Applied Value. Three from me, if you don't mind. Firstly, on the issue around Wickes. Could you just tell us whether that has any impact on the manufacturer rebating structures either in Travis Perkins or in Wickes? Secondly, part of the presentation refers to increased credit lines to the builders. I mean obviously, it's tricky time in the building sector, and we're all aware of what's going on at Kier [ph] and what has been going on at Interserve. Can you just tell us how you might insulate yourself from bad debts that might occur over the next 6 to 12 months with regard to those increased credit lines? And thirdly, on the appendix on Page 40, the Q2 sales in merchanting dropped off -- or the increase -- there was an increase in sales, but it dropped off quite sharply. Just talk a little bit more in depth about that. I know we've covered it already, but the tail-off in merchanting in Q2 was quite sharp, down to 2.9% growth compared with 10% in Q1. Can you just talk in terms of the volume and price/mix there and a little bit more about that, please?

John Carter: So I think the Q2, Q1 is answered really against '18. So in '18, we obviously had a really low comparator because of the beast of the east. And as we came through March, May and June, they were very, very strong. What Alan pointed to, I think, if you look at the 2-year like-for-like, we were at 9% in Q1 and about 8% over a 2-year period. So the shape was different, Stephen, but it was more to do with last year was the most bizarre sort of -- it was 2 months -- January, February was its own little period, March and April and then May and June. It's just the way the numbers come through. I think read it -- we read it through on a 2-year like-for-like. Can I just deal with the rebate side? And yes, it's all pretty sensitive, this area, and I would put it down to our excellent commercial negotiators but that we will do the best we can in terms of the synergies that potentially exist. But at the moment, manufacturers are being relatively supported.

Stephen Rawlinson: On credit lines?

Alan Williams: Yes. So your comment is about higher debtors overall, trade debtors just because of the growth in credit sales in the business. It's not about -- so that's growing in line with the growth in the merchanting business, not extending further credit lines or credit towards the customers. The way in which we manage it is looking across all the business, at total exposure, and then we carry credit insurance on specific risk groups within that as well. So if you were to look in terms of debtor days of sale on the credit parts of the business, which is most of our merchanting, as you know, that's pretty similar days of sale to prior year.

John Carter: Any other questions? I've got to go to the wire? Is there any calls coming through from those on the wire?

Operator: We have a question registered from Yves Bromehead of Exane.

Yves Bromehead: Just two questions on my side. The first one is on the P&H. Just wondering, what will you do with the disposal proceeds on that business? And also for Wickes, if it does go next year, is this more of a buyback story? Or could you increase investments elsewhere? And second on merchanting margins. They were flat in H1 because of the mix synergies you have seen. Is this also likely to be the case in H2? Or will cost cutting lead to margin expansion in the second part of the year?

John Carter: All right, pal. That's your...

Alan Williams: Yes. Yes. So Yves, on the -- first of all, on the disposal proceeds with Plumbing & Heating. We've had for while a target on leverage within the business that's previously been expressed as lease adjusted net debt-to-EBITDAR. Post IFRS 16, it's a similar calculation, as I was saying earlier. So -- but now, net debt-to-EBITDA from the financial statement directly, we're at 2.8x. That target that we're working towards is 2.5x. So we're very aware that once we reach the target, we'll need to give an update on where we go next. But that is a target that we think is the right level for this business. So I think you can draw conclusions from what I'm saying there. On the Wickes side, to be clear it's a demerger, so it doesn't necessarily lead to a buyback story or anything like that. I think we've said previously the business is very cash generative. So when you look at the remaining merchanting and Toolstation group, the Travis Perkins, in H2 2020, assuming that we've disposed of P&H and demerged Wickes, that will have a radically different balance sheet shape because there is a fair amount of lease debt within the Wickes balance sheet. So we will come back and have a look at overall what's the right capital structure. The businesses are very cash generative in that group. So in order to fund their future development, we don't need to use any of those funds from the P&H disposal to reinvest within the merchanting business. We can generate the cash in merchanting and Toolstation that we need very happily from the operations. On the operating margins within merchanting in the second half, you're right, relatively stable or stable in the first half. I wouldn't expect any different trends at this stage going into H2.

Operator: We have no further questions on the phone lines.

John Carter: Okay. Thank you.

Paul Checketts: It's Paul Checketts from Barclays Capital. I've got 3, if you don't mind. The first is if you look at the retail strength that's coming through from the core DIY side and the kitchens and bathrooms. Could you give us a sense of the split of that and then if you're thinking about how the kitchens and bathrooms benefit is going to unfold over the next 6 to 12 months given the comp? Can you give us a bit of a feel for that? The next one is every day as well, the pound is sliding. To what degree is that causing you some concerns because of some of the transactional exposure? And then lastly, I just want to ask you about the ERP write-off. Can you actually explain exactly what went wrong there? And if you're looking at that merchanting system now, how well equipped is it to support e-commerce and the changes that are happening in the market?

John Carter: So if we work backwards. On the ERP, Paul, it is subject to fairly delicate discussions with our provider, and I'd rather not at this stage talk about it. We've declared where we are. And obviously, as we move forward, we'll explain a little bit more. The delay is about opportunity -- missed opportunities rather than our businesses are trading really well at the moment with the systems we've got. All the investment and what we were trying to achieve was a competitive advantage in our sector. So it does put us back a little bit but not 0 because with the modernization, we can actually get some benefits to come through. So around the delivery visibility, we can still create some digital enhancement to the customers from our existing system. As we go forward, we want a modernized and effective system. So we've still got to address that. But it's a setback rather than completely ruined. And we've learned an awful lot through that process, as you -- but the accounting standards are pretty defined in the sense that they've been structured to write the whole lot off. Pound exposure, my take on it for what it's worth is that when everyone is exposed to the same criteria, it's painful but manageable. If you remember back to June 2016, as we saw that sort of devaluation of 15%, it affected most people. And it's not helpful because it drives, unfortunately, a bit more inflation into the market. But then, it's really around making sure that we've got good stocks and we've got good trading arrangements. So annoying -- and then on retail, I think when we talk about those 3 segments of trade, DIY, and do it for me, I can put an argument all 3 have moved forward and not 1 disproportionately. Alan?

Alan Williams: Yes. No, within the mix, the Kitchen & Bathroom showroom is clearly one that moves around a bit more. And as each of them around 1/3 of the revenue, it would have been double digit on Kitchen & Bathroom showroom in the first half. We are going into a more difficult comparator as we get into the second half because we had already seen the recovery coming through in H2 '18 of that business and we have a competitor pull out of the installation market. I think we may not have talked enough about the real strength of offering that installation service. We just won yet another award for how good we are at doing the installation, and going to someone's house and ripping out the heart of the house and replacing it out over a week to 2-week period is a pretty major change, as anyone who has been through it will know in the house and living with that. So to go in and create that amount of disruption and do it successfully. If you go back 3 or 4 years, we're maybe installing 20% of them. We're now installing over half, and that continues to grow. So that is one of the bits that we're most proud of with the business. I think customers realize that, and that's why the business performed, so strongly. So John is right, it's a balanced recovery across the portfolio within Wickes.

John Carter: Okay. One last one? No? Good. From my point of view, thank you very, very much for all your support, and wish you all the best. Thank you.

Operator: Ladies and gentlemen, this concludes today's call. If you missed any part of this call or would like to hear it again, a recording will be ready shortly. Thank you for joining.