Earnings Transcript for TPK.L - Q3 Fiscal Year 2018

Executives: John Carter – Chief Executive Officer

Analysts: Gregor Kuglitsch – UBS Ami Galla – Citi Emily Biddulph – JP Morgan Andy Murphy – Merrill Lynch Robert Eason – Goodbody Charlie Campbell – Liberum Capital John Messenger – Redburn Partners Aynsley Lammin – Canaccord Genuity Kevin Cammack – Cenkos Securities Clyde Lewis – Peel Hunt Paul Checketts – Barclays Howard Seymour – Numis Securities

John Carter: Good morning everyone and welcome to the Travis Perkins’ Q3 Trading Update. I’m going to give the short introduction, which I think a lot of the messages are contained within the IMS. Solid Q3 trading performance, our trade business has collectively performed extremely well with like-for-like sales of plus 7%, taking market share in both in Plumbing & Heating contracts in Toolstation. As highlighted at the half year, UK DIY market still at significant challenges and that is impacting Wickes. And we’d always said that there would be short-term disruption from the Kingfisher exit from the Homebase business. But we’re making good progress with that cost reduction initiatives. And taking these – all these points together, we remain in line and comfortable with market consensus for the year end. And so we’ll open that up for Q&A if we could please.

Operator: [Operator Instructions] Our first question from Gregor Kuglitsch from UBS. Gregor, please go ahead.

Gregor Kuglitsch: Hi. Didn’t expected me?

John Carter: Hi, Gregor.

Alan Williams: Hi, Gregor.

Gregor Kuglitsch: Hi. How are you?

John Carter: Good.

Gregor Kuglitsch: So I have a question on the consumer business and Wickes in particular, so obviously, in the statement you pointed of sequential stabilization in the pricing pressure, then also, you’re talking about better Kitchen & Bathroom order activity. I just wanted to understand kind of what we’re talking about here in terms of quantum? If you can kind of give us some kind of directionality? Obviously, in the first half, your gross margin in the consumer segment appreciate, that’s not just Wickes was down 270 basis points. So I want to understand, when you talk about sequential stabilization, is that recovery? Or is that the rate of decline, kind of, moderating? I just wanted to get perhaps a little bit of color on that specifically.

John Carter: Okay, so given this just as a bit of a trading update, we can’t give the details. But overall, we highlight DIY – UK DIY remains really challenging, Gregor. I think the team is doing a really good job in difficult circumstances, there’s a number of moving parts. I think the pricing pressure that we saw in the first half is still – remains still difficult, but is – as we say in moderating slightly as we move through the year – through the second half. And we are taking advantage of the Kingfisher exit of delivered installed kitchens, but I’d really call that as this, it’s a delayed, because a lot of the orders taken in Q3 and leading into – definitely into Q4, one be effecting and delivered that ordered sales in 2018, but that sets us up better for 2019. It is more stable, but we always call that we would see short-term disruptions and I think we’re still in that period of the disruption as well. Alan, I don’t know if you’re willing to add to that.

Alan Williams: Yeah, just to clarify Gregor on the revenue recognition point, the John points to on the Kitchen & Bathroom order activity. So in the statement, we said, early signs of recovery. We would probably saw that in ordered sales from mid-August onwards, but typically there is something like an eight-week or so lead time on average between when a kitchen is ordered and when it’s delivered to the – and installed for the customer. And so, from a revenue recognition point of view, you won’t see some about till the Q4 and as John says, into 2019.

Gregor Kuglitsch: Thank you. And just one point clarification on your guidance. Are you still leaving the property profit guidance of GBP25 million unchanged? Just so we understand what the underlying is.

John Carter: Yes. Absolutely.

Operator: We have another question Ami Galla of Citi. And please go ahead.

Ami Galla: Hi, just one question on – if I could – if I get you to comment a bit around 2019 expectations, and I know it is early days. But given your comment around the Kitchen & Bathroom order intake, should we expect that 2018 is actually a trophier in terms of earnings for the consumer division at least? And any further color that you can give us in terms of General Merchanting business? And to what extent the cost reduction that you have implemented? Should actually see earnings went through into 2019 for General Merchanting?

John Carter: So Ami, on the – I’m not going to comments specifically on 2019 expectations overall as you’d expect at this stage given where on a Trading Update call. I think if there’s anything specific we wanted to flag, we would if done so, take from that, at the moment nothing to say versus what the market is expecting in terms of the specific on Wickes cost savings. We and active some of those at the end of 2017 but as you will recall the things like the reduction reduction in head office costs within Wickes, we’re on the enacted around mid-May and therefore, there will be a further benefit from cost reductions, not only in Wickes, but across the group from the cost actions that we’ve taken, as we start to analyze those during 2019’s. So you will get a full year effect from the cost savings in 2019, which will give some boost. As to whether it’s say trough year, we would like to think so but, I think it’ll be premature to make too many predictions given the uncertain economic outlook at the moment.

Alan Williams: I think it will be best to update in February.

John Carter: Yes.

Ami Galla: Can I have another question just one on capital markets being in December and what should we be expecting into that update. Are you looking at a restructuring of the existing divisions? Is – a some of the smaller divisions and options – are you looking to exiting some other divisions?

John Carter: Could I refer you back to the paragraph that we included in the interim results announcement at the end of July with regards to Capital Markets Day. If we have anything that was material that we needed to set at the stage, it would have been contained in the statement. So we will provide more detail as we set out on our operational and business update on the 4th of December, so that data now confirmed.

Ami Galla: Thank you.

Operator: Emily Biddulph of JP Morgan is our next questionnaire. Your line is now open please go ahead.

Emily Biddulph: I have got two questions please. The first one, just on General Merchanting and what the price volumes, this is roughly at now end? And then secondly, just on the contract side – obviously, it’s a really good performance, particularly in the light of the price rolling off. What do the order books look like and anything that continues? Thanks.

John Carter: So if I take on the contracts. It does feel a bit Groundhog Talk Day. We’ve consistently done well across all three businesses for the last few years. And like most construction, there’s an element of cyclicality about it. We’re not seeing anything noticeable in our order book that would indicate a slowing down, but I think we have to go forward with a degree of cautiousness. We have really worked with – outperformed all three sectors over the last three to four year. So, Emily, it’s a great performance by Frank Elkins and the team. And we trading well at the moment, but each period, you think good things slowdown, but we’re not seeing that really order book.

Alan Williams: Emily, on the General Merchanting side, Q3 was really a continuation of the trend we saw in Q2 from a selling price inflation that we have achieved. So just under 3% sort of level. So that implies that the wealth volume was still negative in Q3, it was slightly less negative. I’d also point to the bid that we highlight in the statement around with cycling against a relatively strong Q3 2017 in General Merchanting. So if you look at the two-year stacks on a like-for-like basis, General Merchanting up 3.7% compared to up 3.3% in Q2. So we think things are improving a little. If you look by quarter-by-quarter, clearly, we had a very weak Q1 as you know. We then had a very strong Q2, driven by the improvement in weather, particularly in May and June, and then Q3 came back a little from the May and June position but we were – overall, we were satisfied that was in line with what we’re anticipating.

Emily Biddulph: Brilliant. Thanks very much.

John Carter: Thank you Emily.

Operator: We have another question from Andy Murphy of Merrill Lynch. Andy your line is now open. Please go ahead.

Andy Murphy: Good morning guys.

John Carter: Hi, Andy.

Andy Murphy: You talked about pricing about 1.9%. I was just wondering, is there a threshold trend explored that little bit. It was seem to be suggesting that [indiscernible] was pressure release, but you’re saying, selling prices up from you to your customer is coming down. I guess on the back of cost of goods coming in also coming down. To what extent is that a choice you’re making? And to what extent do you think you could perhaps hang on to the higher prices? And could you perhaps give us a flavor between – so the merchanting divisions and consumer, how that sort of sprits in terms of the mix?

Alan Williams: Andy, on the – I think we pointed in the statement to in the contract merchanting division in particular and but selling price inflation had come down considerably. Obviously, within there, you have a high element driven by commodity price inflation. And a lot of that we have to adjust in line with where broadly where the market is going on the commodity driven elements. So that’s one of the key features within merchanting in the quarter. As I said, General Merchanting followed a similar trend to what we’d seen in the first half. From a consumer point of view that the market environment remains extremely challenging so from a pricing point of view, we still having to react to what our competitors are doing. I think that’s the right trading stance to take in, in the market, but we are constantly adjusting the position.

Andy Murphy: Okay, thanks very much.

Operator: We have another question from Robert Eason of Goodbody. Robert, your line is now open. Please go ahead.

Robert Eason: Good morning, everyone.

John Carter: Hi, Robert.

Alan Williams: Hi Robert.

Robert Eason: Two questions and an apology for the first one is more of a reminder on my part. When you put – in terms of cost that you’re taking out, can you just remind us the quantum that would hit the P&L this year? And then, the annualization effect into 2019, just kind of refresh our memories on that. And second one and it’s more of an industry-wide question. Over the last few weeks and we’ve had two big independents and get them together, Huws Gray and Ridgeons, just want your own views on, how does that impact the market, from a competition perspective? Is this another way for consolidation that we should expect? And then the merchanting sector, after the one kind of show the 1990s. And so I just like your initial thoughts on that. I’m sorry, to put the third question, I know this is pretty small, but I just wanted to know that kind of that the size, I believe you sold Birchwood, your tool and scruffs business, probably it’s a quantum of the cash flow from that at all and any exceptional is associated with this?

John Carter: Okay. Do you want me to go? Robert, I’ve said to you for many years, the best operator in each catchment across the country is the singular independence followed by some of the regional independence in both Huws Gray and Ridgeons, you got two very different businesses, but two very well run businesses. And we always from a distance admired. I think we’re all looking at a period of potential consolidation. I’ll throw in obviously the change of – the equity change MKM with Bain taking the acquisition. And Parker is being sold into private equity. So I think we can see over the next sort of 18, 24 months, a little bit more of this. From our point a few, I would see it as an opportunity rather than a threat in the sense that volume groups have been pretty supportive on the cost price. And then now have the added complexity able to run a little bit more of a business across Byron’s and slightly different cultures. So how many times we’ll tell, but I think we’ve been waiting for next wave of consolidation for some time.

Alan Williams: Robert, on the virtual price tools, first of all, I should point out, the business isn’t really material to the group overall. The profit position was around breakeven and the disposal proceeds will be something like GBP9 million. On those cost elements that you referred to, there will be an annualization impact as we go into 2019, as I said earlier. So it’s the position differs from business-to-business, so I think we do need to go into some of the divisional details to understand that. So if I start with Plumbing & Heating, we add closely significant number of branches starting last September. So we’re starting to cycle again some of the first closures, which took place September onwards from memory, 40 odd branches after 60 or so that we closed were in the last quarter of 2017. So there’s less of a pickup in Plumbing & Heating overheads benefits wise, as we go into 2019. From a General Merchanting point of view, we highlighted GBP10 million plus of cost savings, which were in the second half of 2018, so you’ll see an annualization impact on that. The contracts division, broadly our overhead position in 2018 will be unchanged first there’s 2017. In other words, the team have absorbed the cost of delivering more volume in a business where we deliver something like 90% of the overall volumes plus all of the inflation. So a great performance by Frank and the team. And then from a consumer point of view, we have invested in Toolstation in expansions, but in Wickes we are going to be lower year-on-year and I would expect an annualization impact of that in 2019 of at least GBP5 million coming in the first half.

Robert Eason: Okay. Thank you.

Operator: We have another question from Charlie Campbell of Liberum Capital. Charlie, your line is now open. Please go ahead.

Charlie Campbell: Yes, good morning all. I got a couple of small things I think, I think we largely covered them, but just for completeness. So in terms of the space in Q3 plus 2.4 in consumer, I’m assuming that’s all Toolstation, but just wondered, what that change in space, was at Wickes, if there’s anything to say there? I think we talked in the call about the consumer pricing and the stabilization and I think it’s been alluded to, but just again for completeness, should we think upon a stabilization being as a result of sort of I think changes our Homebase, kind of, finishing and maybe some inventory clearance finishing and if not, maybe what’s driving that? And the third question is on Plumbing & Heating. Just wondered, if there’s anything maybe you could say about success of online particularly and whether that’s for the material impact from the sales growth number?

John Carter: So if we take the stabilizing issue of Wickes, it’s slightly bit more complicated, Charlie, as we would expect.

Charlie Campbell: Yes.

John Carter: We’ve seen things moderate rather than change.

Charlie Campbell: Okay.

John Carter: I think my expectation is depending – sorry, the Homebase story will run for some time, and we already announced 42 store closures and my expectation is that that we’ll see a few more as we move forward. And the K&B is going to be interesting, but we won’t see that really play out until 2019. So I think management in Wickes have taken good corrective action, but it’s still a quite challenged area of the market, as you can see from obviously, the negative sales line. But we’re aiming to move it forward in what is a challenging and uncertain environment. On the P&H unrolling, the Tony and the team has done a good job, they have got a couple of specialist businesses that continue to grow quite fast online and the under floor Heating business and the number of the sort of spares businesses, that’s really positive. Making good progress, but it’s still small numbers on 30 plumbing. And we stood up a website and we’re growing nice, but from small numbers. And so I think it will become an increasingly important part of Plumbing & Heating, but it’s still relatively small at this stage, but growing.

Alan Williams: Charlie, on the branch numbers in the quarter, so the growth that we’ve just seen in Consumer all came from Toolstation, we had nine further branches in the period. So as we said in the same, we’re on-track for 40 and the full year, and we’re also well advanced on accelerating that as we going into 2019 with the majority of the sites now identified and on the negotiations were being planned. In the quarter, we actually closed two Wickes stores, where the leases have terminated and we didn’t see enough forward volume in those catchments who want to renew the leases.

Charlie Campbell: Sure, yes, okay. That’s very helpful. Thank you.

Alan Williams: Thanks, Charlie.

Operator: We’ve another question from John Messenger of Redburn Partners. John, your line is now open. Please go ahead.

John Messenger: Good morning. Can you hear me okay?

Alan Williams: We can John. Good morning to you.

John Messenger: Good morning. Just, well, I keep three partial follow on. First one was just on Ridgeons, was it the business that actually – was it in any way put out there in the you were able to look at it or invited to look at it, just understand that it was one that actually might have made sense you solved in the back through history? That part outside of London having up into Cambridge or et cetra, is not that intensively covered by yourselves. Second question…

Alan Williams: So we’re not – you’re going to do in that way, okay, yes.

John Messenger: Don’t worry, yes. Second one was just on the cost kind of action is the you’ve delivered or seen coming through in the third quarter. When we look at how the topline is been involving, particularly, the slightly softer sales in the two higher contribution margin businesses, I think General Merchanting and Wickes, how is that meant to – you have actually increased some of the operating cost actions that you’ve taking? Or is it very much what you’re doing that you talked about at the half year stages, just effectively continued? And the final question was on – with Brexit and everything else going on, are there any implications in terms of what you internally are planning on either stockholding, just with a view to what you’re going to do at the – what’s the year end? I’m thinking about, what you may have to put in place? Maybe too early, maybe you don’t need to do it until into the New Year, but are there actions that we should expect around inventory buildup or anything that you’re going have to do preemptively? Thanks.

John Carter: Thanks, John. And regions, yes, we’ve been a long admirer of the business. And they have – if we could talk to them and maybe it is fairly easy for us to move on in terms of what their returns for any potential deal were. It would have been difficult, John, if you actually overlay on that work with payers, there was a considerable duplication and in that part of the world, I think it would have actually raise – raised a conflict with C&I. And so it wasn’t for us. It was a little bit the same, if I’m being honest with you, it’s great as well. We have a big presence, obviously, as a network and these regional players are difficult for us to do without getting ourselves into sort of conflict. So it was one that we welcome – I welcome it. I think it’s an interesting group now, with a timber bias at Ridgeons, and obviously, a heavy-side bias in Huws Gray. Both very well run businesses. We’ll have to see how it moves forward. On Brexit, it is very difficult when we actually don’t know what we’re actually facing into, but I think the one thing that we are focused on, is making sure that we got product available for our customers. So the most effort at the moment that we’re really putting into place is to ensure that we got lines of – our supply chain lines are as open as possible and we’ve got stock on the ground. So challenging Alan at the moment but on the stock inventories?

Alan Williams: John, you wouldn’t see any impact of that in the overall net working capital at year-end, so where we are looking at some potential inventory buys as part of contingency planning, we’d expect to be paying for those in 2019. So you may see in the components of working capital inventory a little higher, but it would be offset within trade creditors if that were the case. Just on the costs actions, I don’t think we changed our stance from what we set out in the interims at all. So we challenged all of the businesses to be tight on their overheads and that all responded really well, as have the central functional budget holders as well, where we’ve asked them to be really tight on cost control.

John Messenger: And can I just come back with one follow-up. Just, when we sit and look at the numbers here and compare General Merchanting here, particularly with something like Contracts, John. The – when you think about Contracts growing, I guess, what, just over five on volume, by implication General Merchanting, kind of, declining by two and a bit. When you look at that kind of 7% gap do you – can you comfortably sit there and say actually look, this is all about that different kind of customer, the different segments that are there in Keyline, CCF and BSS versus our typical RM&I trade on the other side? Or is there a bigger question here about, just again, around where you are sitting on the price spectrum back in General Merchanting? Because that…

John Carter: So I think it’s a bit of both, John. We have openly said, our trading stance is to hold our gross margin, not easy in this environment and therefore, it does in some ways restrict their ability to grow that topline faster than they are. The other combination is that they are – that is a challenged market with a small builder, with a different level of disruptors, and you flip that over and look at what Frank and the team have done, I think they have excelled against SIG and CCF. I think Wolseley and their changes are helping Frank and BSS, which is a great business, but being helped. And we look at Keyline and I think you go back to the roots where – it’s gone from my head now, the burdens had demised and were then sort of remnants of it were picked up by Wolseley has really given Keyline, CCF and BSS a really wet sale as well. Those markets that they are operating in aren’t growing at that speed, they are taking share and taking share effectively. So it’s just – again, both Frank and Paul have got different challenges, but we are enjoying a period where we can take share and grow our Contracts businesses, it’s tougher in General Merchanting.

John Messenger: Got you. Thanks very much.

Operator: We have another question from Aynsley Lammin with Canaccord Genuity. Aynsley, your line is now open. Please go ahead.

Aynsley Lammin: Thanks, good morning. I have just two from the actually. I think you have kind of touched on that of the under working capital front, but just wondered, if there’s any material changes we should expect from a cash flow for the full year, where as CapEx or trade deficits, I think consensus net that’s about GBP330 million, so any comments for there? And secondly, some of the recent macro data and the house-builds has been talking about kind of housing – the wider housing market not seeing the bounce-back process somehow, particularly London, Southeast and higher price points. Are you seeing any kind of that sluggishness flow through to your kind of RMI market? And should we expect that just start to come through at some point? So just really views and bit more color around how you see that RMNI, there is bit week you may have expected? Thanks.

Alan Williams: Yes, Aynsley, it’s Alan. On the net debt and working capital position, I don’t think there’s anything really to add to what we said at the half year at this stage. So we said, CapEx would be lower year-on-year, I said on the working capital side, where we had an outflow in the first half, that was higher than people have anticipated, that was due to some of these lumpiness of sales in May and June and we’ve seen that come back as we’d anticipated. So there’s nothing really to add at this stage on the net debt position. I’ll let John comment on your point on RMI as well, but my view would be that the RMI markets has been sluggish throughout the year. I don’t think we’ve seen a change in that trend, we are seeing London and the Southeast a bit softer than elsewhere in the UK at this stage. But overall, I’d say, it’s been more sluggish than you house build market have been.

John Carter: And I think I’d agree with Alan. Aynsely, for my mind as a business, we’ve always used housing transactions and consumer confidence, so that two leading indicators and we’ve been pretty cautious for the last sort of 18, 24 months on the RMI. I think I agree with Alan, it’s not easy out there, we have got to make sure that we announced share at work. But I think it’s going to be, yes, quite challenging if we see housing transactions come off. I would echo Alan’s point that I think, we are seeing sort of areas as the UK and Midland and the North and the West, a little bit stronger than we would’ve seen as a traditional heartland of London and the Southeast.

Aynsley Lammin: Okay. But you haven’t seen anybody kind of delay and increase caution around the eminence of Brexit or anything – any delays recently?

John Carter: The RMI base nature is math numbers and we’re not seeing anything different, but to Alan’s point, I think we’ve been in a quieter RMI market now for some time.

Aynsley Lammin: Okay. That’s really helpful. Thanks very much.

Operator: There’s another question from Kevin Cammack of Cenkos Securities, Kevin your line is open, please go ahead.

Kevin Cammack: Good morning gentlemen.

John Carter: Hello Kevin.

Kevin Cammack: I think I’ve got one specific and I think sort of two slightly more general questions, if I ask okay. Just on the specifics the Q3 pulled back on Plumbing & Heating, you’ve always sort of flagged it to be expected, but is it possible to just give us a sense of what sort of run rate that might level out to on an underlying basis? Or if it is easier to answer the question, what sort of exit rate at the end of this year would you be happy with? The two more general ones, firstly, on Kitchens, it’s point of a sort of unusually confusing backdrop amongst the competition, surprising action from B&Q, nobody really knows what Homebase will be, but I suspect they’ll reverse the flat-pack decision and you got held and switch have been maneuvering away in a background. I just wondered tactically, what you’re doing? How you’re presenting your kitchen offer this time around? Bearing in mind this time a year-ago, it didn’t quite come off what you did in terms of your tactical position on kitchens. I just wondered if you can explain that to us as of today? And the last one, which may be sort of well out into the distance, but how much of an issue would it be for you, either as an opportunity or a threat, if the off-site manufacturing of volumetric housebuilding takes off?

John Carter: Okay. Good questions as usual Kevin. Alan, do you have a reveal over the run rate?

Alan Williams: On P&H I might flippant response, Kevin, is it may of attenuated but I’ll take 14.8% like-for-like and the most serious answer is, clearly, there is some help from competitor actions, but there’s also a very large dose of our own activity that we are taking within that. So I think the other thing is, I’ll point you to the total sales, starting to be more of an indicator, because we will start through cycle by periods when we closed a lot of branches. I just thought, if you think about the maturity of that market and you see a mid-single-digit go forward sort of position that would be a good position to be in for the Plumbing & Heating category.

John Carter: But obviously, we would target – we’d obviously target Tony on more, but I think Alan is right. In terms of the kitchen, you’re right, Kevin. There’s some sort of – the market does need to settle down a little bit with B&Qs exit of the in-store element of Kitchens and obviously, the other one I have provide in terms of mix is range is growing significantly. Finding the appropriate go-to-market customer journey, whatever we want to call it, approach for Wickes is really important. We’ve grown the business, we’ve doubled the business in the last three or four years and getting the balance of promotional activity and the whole customer journey in terms of the design, the delivery, the install, because over 50% of the kitchen that we’re selling, we install as well, is really important. At the moment, we think we’re in an okay spot, as we sort of break that the orders are improving, as we speak, but that won’t be really realized until 2019. But our aim is to offer customers great value for money and a great service, and I think we’ll find our own niche. We are now only, as we speak, the only DIY chain to offer to installed kitchens and we have a design facility. So we’re hoping to make progress on that as we move into 2019.

Kevin Cammack: Do you have any capacity constraints within that delivery? I mean…

John Carter: Not really, no. I mean, we don’t. No, in capacity, there is a degree of flexibility in the capacity. We are – you’re right sized, you have a good cost base to the volume. We’ve got good facility in Northampton, that’s dedicated to Kitchen delivery and consolidating and that can be flexed out should we need to…

Kevin Cammack: Sorry, I meant slightly more – I suppose I was referring more specifically to the installers.

John Carter: So the installers side of it is actually being sort of helped by B&Q withdrawing. We have employed nearly 100 of their top designers and some of their installed teams. So we’ve got, at any given time, we’ve got between 1,800 and 2,000 installation teams in different orbit for install. And to be fair, we’re in a bit better position because of B&Q’s withdrawal. And with regard off-site, it’s a great subject, Kevin, we watch it with great interest. I think inevitably when you’ve got something being made on a repetitive basis that there is a disadvantage of building it in a better circumstances or climate or environment and then shipping it to the site and installing it faster. Cost is quite a big challenge for off-site and trying to bridge the cost gap between making it off-site and making it on-site is remains a good challenge. We watch with great interest and where we can participate, we will. But I will remind you that the vast majority of our business still focuses on the extensions and the improvements to people’s homes and the RMI market rather than the sort of new build, where the off-site is likely to be stronger in penetration.

Kevin Cammack: Okay. Thank you very much.

Operator: We have another question form Clyde Lewis from Peel Hunt. Clyde your line in now open. Please go ahead.

Clyde Lewis: Three for me. One, can you maybe just sort of say little bit on how you are getting on with all the IT projects? And how they’re progressing at the moment? Second one was on RDCs, again, similar sort of question in terms of just a little bit of an update as to how they’re performing? And the third one was on sort of weather, I mean it’s not a time of the year where we normally talk about whether, but it has been pretty mild through most of Q3, pretty good weather with limited sort of rain and any sort of difficult conditions, has that been an impact at all on your numbers in any shape or form?

Alan Williams: Clyde, I think the weather impact has been relatively benign through the last few months compared to what we saw. I think what we’ve picked up from speaking to suppliers, competitors generally, was that August was a bit soft, so – and we weren’t different from that, but I think overall, Q3 is probably leveled out a bit more than the ups and downs that we saw during the first half. On the IT projects, we’re still on-track for our first deployment of the ELP solution in the first quarter of 2019. We’re continuing to make the investments in the digital side as well across the group. So I think generally we feel like we’re on-track there. It’s hard going, but I don’t think there’s anything I want to draw your attention to at this stage. Then on in terms of the supply-chain side, and if I talk about the heavy-side range centers I don’t think we seen a particular change in trend, given the overall volume softness in the markets at this stage.

Clyde Lewis: Okay. Thanks a lot guys.

John Carter: Needless to say, Tony continues to point out to us this is the mildest autumn that we’ve had on record and you can see that in his sales numbers.

Clyde Lewis: Okay. Thanks John.

Operator: We have another question from Paul Checketts with Barclays. Paul your line is now open. Please go ahead.

Paul Checketts: I have got a – the first is on Toolstation. I think in first half, we discussed that the profit were lower due to the investment that was going in. How you’re expecting full year profitability to compare year-on-year? The second one, can I just check, are you still on-track to do about GBP 25 million of property profits in the year? And then the last question is more general, which is, we’ve seen more private equity ownership in the sector over the last few years and it looks like that may well be set to continue. How do you feel when – how do you find they tend to behave as owners compared to the previous owners? Maybe give us a sense of whether it’s – when you seen those announcements go out whether or not it’s a groan or you feel like they’re disciplined. And that’s the three, thanks.

John Carter: Okay. On Toolstation, Paul, I’m not going to give you the profit number. But what I will say is, we had a record day yesterday, which is significant, as we just launched a new catalog and obviously, as Alan said, we are on target for 40 new outlets. It’s trading very strong. We did have to absorb, obviously, the 40 new branches and the new distribution center that will allow us to grow up to sort of 500 units as we expand the network. The profits of this business will ebb and flow as we put the infrastructure and investment in, but underlying is trading really, really well. The – and earlier we mentioned that probably profits are still in sort of line of GBP 25 million. Private equity question is really interesting, Paul, because and – in the main, I think it’s really good for the sector and the feedback I’m getting from those that have been involved with the private equity joining their business, has been quite positive and really good. So I think we’re in a – the sector will benefit from that involvement.

Paul Checketts: Is that because they’re quite disciplined on price? Is it…

John Carter: I think they’ve said they certainly want their return.

Paul Checketts: Okay. Thanks very much.

Operator: We have another question from Howard Seymour of Numis Securities. Howard your line is now open. Please go ahead.

Howard Seymour: Couple from me, if I may. Firstly and both quite general actually, firstly, given obviously, there’s lot of chat in the industry about cost recovery etcetera, John. I’m wondering, if that changes the dynamics from a materials point of view, i.e. people looking to try to get price increases through in the second half, as opposed to traditionally in the first quarter? And secondly, you alluded before to the that the moderation in pricing in the Contracts division. Is that purely a function again of the sort of, the commodity prices? Or is it more that people are looking at the price movements again in the context of market share movements?

John Carter: I think the whole area, Howard, of cost recovery passthrough, or whatever we want to call it, it’s tricky, because it’s not a single dimension. You can push the prices up but you’ll lose volume with certain customers, and I think what Frank and the Contracts team, because they’ve got quite a high concentration of customers in each of the three businesses, they work alongside them effectively and make sure that they’re aligned in terms of the overall value and service proposition. It’s a bit harder when you’re in to Consumer and General Merchanting with a high element of the smaller tradesman, that tend to want to trade. So I think as you move into any period, you set your stool up and your trading stance in which you feel is most effective, but you have to be agile and flexible in terms of responding to volumes, and ultimately it’s down to pounds gross profit generated from these sales rather than a volume and price mix.

Alan Williams: If you remember, Howard, there was a second wave of price increases going on in the second half for the contract merchanting businesses last year, copper but also things like the chemicals in the insulation market. We have seen some of that attenuate and indeed, we have seen some of the suppliers come back with modest price reductions compared with where they were as those markets have stabilized. There are still some materials though, in certain categories, where we are on allocation with suppliers. There are still tightnesses in the market. I think the material point though is it’s not impacting the margin within the business.

Howard Seymour: Okay. That’s great. Thank you.

John Carter: Well done.

Operator: There are no further questions on the line. John, I’ll hand back to you for any further remarks.

John Carter: No, don’t, just really a big thank you to everyone. and we’ll see you shortly. Take care, bye-bye.