Travis Perkins Aktie

Good morning, everybody. Nice to see so many people here in the room, and a very warm welcome to everyone who's following us on the webcast as well. I believe we have several hundred people out there watching us on the webcast this morning. For those of you who don't know me, I'm Gavin Slark. I'm the CEO or more correctly, the CEO of 10 weeks. And I'm joined today by Duncan Cooper, who obviously most of you will know as our CFO. And we also have quite a few members of our group leadership team in the room today as well. So very happy for you to badger them with questions at the end. Obviously, they've been well briefed not to answer any of them. But I'm very happy for you to have a go anyway.

I think most of you will know, although 10 weeks in the role here at TP, very well versed with the sector, having been in the sector for kind of well over 25 years, but really delighted to be here as the CEO of Travis Perkins and really looking forward with a lot of excitement to what happens going forward. I think it's fair to say that the business has been through quite a lot of flux and quite a lot of change over the last couple of years. I think as many of you will know, Duncan has been here for 2 years. And during that period, he's technically worked with 3 different chairs and 4 CEOs and also 3 managing directors of our Travis Perkins Green & Gold business. So a huge amount of change.

And what I would just say at this point is just thank you to everybody who was involved in the group last year, particularly the leadership team who got us to the point in where we are today. My aspiration in terms of the business is very simple. It's to build a group of world-class businesses and for all of our stakeholders, whether they be colleagues, whether they be suppliers, whether they be customers, but just to build a great experience for everybody involved in the business. And it doesn't really matter what we do. One thing we need to be sure of is that everything that we do is driven by the needs and the wants of our customer base.

We do have an all-new leadership team in place. And what I would say there is we've got a leadership team in place now that I think is really committed in terms of delivering value in the business going forward in the medium to long-term. I'll talk a little bit more about the leadership team later on. And as I said, you'll have an opportunity to talk to them one-on-one when we finished.

We are and we should be a branch-based sales-led organization. But I think that kind of organization can work absolutely in harmony with a mindset of a disciplined approach to margin, to cost and to capital allocation. And I think particularly with where the macro is now and the construction market, in particular, having that disciplined approach to the balance sheet management is a really important factor that Duncan will talk more about later on.

I know many of you will be aware that we had the Oracle transition in the group last year, and I don't want to underestimate or understate in any way the pain that the business suffered during that Oracle transition. But that Oracle transition is now principally behind us, and we're now starting to see the positive benefits of Oracle in the business starting to come through. I really believe that our success will be defined by what we do. It won't be defined by what happens in the market. Some market growth would be great, and we'll talk more about that later on.

But I think what we can focus on is what we have control over, what we can do in the day job and be really disciplined about the way that we run the business. But I firmly believe that our success is driven by us and not by external factors. The focus right now is to improve what we have. It's to remove distractions, it's to remove background noise and to really give the leadership team the opportunity to focus on the business that we have today and the necessary improvements that we need to make.

I'm not going to go into sort of detail around numbers because obviously, we have a CFO for that, but I've really got sort of 3 numbers that I think I just want to focus on for one moment. If you look at the revenue number there, you'll see that the revenue in total was down by 0.9%. If you look at that on a like-for-like basis, it was positive by 0.3%. So for the sake of sensible conversations, we'll basically say revenue was broadly flat. If you look at the adjusted operating profit at GBP 133 million, I believe that's absolutely right in line with where consensus was for the business.

But I do think that the most important number on that page there is the balance sheet number. And even though it's a relatively small number of GBP 1 million, but on a pre-leases basis, being net cash positive, I think, is a really important place for us to be and gives us an underlying financial strength. And it's the best cash position that Travis Perkins as a group has had in over 25 years. We don't have any significant refinancing to do probably until 2028, and we also have a really substantial level of liquidity headroom in the business. So the financial underpinnings of the group remain really, really strong.

What I will do at that point is pass you over to Duncan, who will take you through the more interesting parts of the numbers. And then I will come back after Duncan's finished and just give you some of my early observations on the group and what I think we can do going forward. So with that, Duncan.

Thanks, Gavin. Good morning, everyone. So I will start with the usual financial overview slide. Group revenue for the year was GBP 4.6 billion, down 0.9% on prior year. And as I normally do, I'll provide some color on the moving parts within that shortly. Adjusted operating profit for the year was GBP 133 million, down 12.5% on prior year and in line with company compiled consensus of the same number. That delivers an adjusted earnings per share of 30.8p per share, down 15.8% on prior year, reflecting the reduction in earnings on prior year and the fixed nature of interest expense between years as well.

Net cash of GBP 1 million before leases puts the group, as Gavin has said, in the strongest cash position for nearly 30 years. And accordingly, despite the reduction in earnings, leverage adjusts down another 40 basis points to 2.1x, and I'll talk more about the good work we've been doing here later.

Finally, the Board is pleased to announce a final dividend of 7.5p per share to make 12p for the full year, in line with the group's policy to pay a dividend of 30% to 40% of adjusted earnings.

Over on to the next slide and our revenue walk then for the year. I'm not going to dwell on this too long as I think Geoff and I covered in some detail at the half year, the challenges we faced in the first half with key vacancies and trying to grapple with the implementation of Oracle. As we move through those challenges into the second half, we were able to be far more front-footed with some key promotions, which drove an improvement in our sales performance.

This saw the general merchants start to reverse market share losses and retake share, a trend we are seeing continue into early 2026. And you see that reflected in the cadence of the like-for-like sales performance in Merchanting that we have reported today as well, minus 3.2% in Q1 like-for-like, improving to plus 2.1% in Q4 as we exited the year. We saw 1 fewer trading day 2025 versus 2024. And finally, the impact of disposing of Staircraft is also presented, which was not material enough to the group's performance to be reported as a discontinued operation.

On the next slide is the usual operating profit walk we provide. The first 4 blocks relate to Merchanting segment only. The first block represents the reduction in gross margin for the year, and this reflects the ongoing competitive intensity in a market starved of volume growth. Manufacturers' price increases have been hard to pass through in full or in some cases, at all. And as we ourselves have demonstrated in the second half, some price investment has been necessary to kickstart a volume recovery.

One fewer trading day is the next block, and then we come to overheads. We saw about GBP 40 million of total overhead inflation in the year, about half of which is represented in the next block and the other half is netted off within the Toolstation bar for consistency of reporting. I'll go into more detail on this in the next slide, including the actions we've taken to reduce overheads whilst facing into these headwinds.

Toolstation U.K. continues its strong earnings growth and remains on track with our longer-term expectations and aspirations for that business. And finally, property profits were in line with prior year. So let me come on to talk about cost inflation and mitigation in a little more detail. So firstly, you will remember at last year's prelims and half year, Geoff and I both talked about the need to reinvest in some frontline predominantly branch-based roles, which were removed at the end of 2023. Most of the 350 colleagues I referred to on this slide were onboarded early in the first half of 2025. A small amount of that increase relates to the opening of 3 new general merchant branches.

At the same time, I think we've also been consistently open with the market that the group had become too centralized and its decision-making and was carrying too much resource in central and regional management roles. Across several ways of activity during 2025, we remove roles from functions such as finance, co-sec, sustainability, HR, corporate communications, group procurement and marketing and IT to ensure that we start 2026 with over 300 fewer heads in these areas than at the start of 2025.

Our total overhead inflation across 2025 was around GBP 40 million, which comes from a part year effect of the national insurance increase, national living wage, property rates and rental inflation. Through our focus on headcount and other discretionary costs, we did a good job of offsetting as much of this as possible during the year, but we cannot offset it in full. It's a similar story for 2026 where cost inflation will be of a similar magnitude. And our ability to offset as much of that as possible will depend on identifying further operational efficiencies across the group.

I would also add at this point that sometimes people ask me why we need to hold over GBP 800 million of property on the group balance sheet. There are lots of reasons I could share around why the flexibility and long-term location security, that gives us is important, but I'm not going to go into those now. However, a positive consequence of our tenure mix is how it helps shelter us from some of that index-linked rental inflation, whilst also ensuring we don't shackle the group with long-term lease debt and leverage.

And I'll close on this slide by offering example of what I mean by tighter controls on discretionary spend and headcount. Gavin now has to personally sign off all roles coming into the group above a certain salary threshold.

On the next slide, I want to cover the adjusting items we've recorded this year. The first thing I will say is all of these are covered extensively in the notes to the accounts with detailed disclosure. The first charge of GBP 111 million could be split into branch level impairments, covering 196 branches in the merchanting segment, where the carrying value of the branches assets was above the value of our forecast discounted cash flows generated from those assets. The total noncash impairment recognized in relation to these branches is GBP 67 million.

In the majority of cases, the branches are expected to deliver a positive contribution in 2026 with the vast majority delivering a positive contribution in the future based on our forecasts. A noncash goodwill impairment of GBP 44 million has also been recognized following the annual impairment review of the CCF business as an entity. Taking into account the structural challenges in its end markets and future forecasts of CCF profitability.

The Toolstation Europe impairment charge relates to the noncash write-down of goodwill, property and right-of-use assets in the Toolstation Benelux business under IFRS accounting rules. The Toolstation Europe restructuring charge relates to restructuring costs in Toolstation Benelux and adjustments in respect of redundancy provisions and lease liabilities related to Toolstation France recognized in previous years. Again, this impairment is principally driven by our recent trading performance in Benelux and our future forecasts of its profitability.

The restructuring charge of GBP 12 million relates to severance payments made as a result of the headcount reductions I referred to earlier on that were made during the year. The majority of these roles were in central functions or regional support teams. The Staircraft business was sold during the year for a consideration of GBP 21 million and resulted in a loss on disposal of GBP 3 million. It had already been impaired in our 2024 accounts.

And finally, the adjustments to prior year items relates to the release of property and stock provisions recognized as adjusting in prior periods. So I want to come on to now talk about cash and the balance sheet. We reported a strong cash inflow of GBP 196 million for the year, and that is set against the backdrop of lower year-on-year EBITDA reflected in the first line of the table. You can see we have a similar level of excess costs associated with restructuring year-on-year, similar levels of interest expense and dividend commitments.

The sale of Staircraft has broadly offset the lower cash receipts from property transactions principally sale and leasebacks. The 2 big controllables here remain capital expenditure and working capital. We've had another year of disciplined capital investment into the group. Our priority over the past 2 years has been to invest in our fleet and bring down its average age. We had allowed that to drift up in recent years. And whilst the useful and operable life of our trucks is around 10 years, based on the heavy usage they get, you see repairs and maintenance costs increase and utilization rates fall past about 7 years. So we want to ensure our branches and drivers can operate efficiently with minimal vehicle downtime.

We're also starting the job of fixing some of the uninvested parts of our estate and the strength of our balance sheet means we can do this in a sensible and staggered way over the coming years. Our big focus though has clearly been in working capital. Stock has increased in line with inflation, but we know we have more work to do here across the group. Trade debtors have reduced by GBP 130 million as we have successfully managed to invoice much of the Oracle related backlog of debt I referred to last year, but also sharpened our disciplines on debt collection generally.

Trade creditors have increased by GBP 26 million as we have harmonized payment terms across the group following the introduction of Oracle. These changes combined to deliver the significant working capital inflow number. In addition, we are targeting further self-help in terms of cash generation during 2026. And I'm not going to put a target on that or provide formal guidance. But I would reiterate what I've said about TP since I joined. This group is capable of generating very healthy levels of cash when it's focused in the right way. I'm happy to bring the obsession, and I'm really pleased to see how others are responding to that. But to affect a real cultural shift throughout the whole organization will take time, but we've made a good start.

The last point I would make to give confidence in our cash generative capabilities is to remind you that we have managed to absorb some significant one-offs in recent years, including the closure costs of France -- Toolstation France, some significant restructuring and severance costs and the multi-year cost of implementing and launching Oracle and still demonstrated some excellent forward momentum. So that brings us on to the balance sheet impact of this cash generation.

Net debt has fallen by GBP 224 million to GBP 621 million, and that leaves us just outside our desired long-run leverage range of 1.5x to 2x. It also puts us at net cash at the end of the year of GBP 1 million. It's only slight, I accept, but we'll take it. And that, as I said at the outset, it's the strongest cash position we've had since 1998. If you're looking for cultural reference points, Michael Owen's scoring wonder goals against Argentina was the first 1 that came into my mind.

That cash profile has compounded steadily and consistently throughout the year as the benefit of the actions I referred to earlier on, have taken effect. It gives us when combined with our undrawn revolving credit facility at year-end, over GBP 800 million of available liquidity, which provides significant resilience in what remains a challenging market backdrop. But also the necessary firepower to underpin our competitive position if market conditions demand it.

Being more optimistic and forward-looking, it also gives us the necessary headroom to invest in areas like inventory when market conditions do improve. The renewed cash discipline we've put in place over the last 2 years has also enabled us to refinance on competitive terms during the year. Across 2 tranches, we fully refinanced the GBP 250 million corporate bond due to mature in 2026 with U.S. private placement funding for both tranches and did so on an investment-grade basis, with a blended coupon across both tranches of 6.27%.

We've also managed to smooth the time line of future tranche maturities, which now run out to 2035. This gives us excellent near-term as well as long-term financial security as we have no immediate significant refinancing events until 2028. And as I touched on earlier, we are targeting further cash generation opportunities and therefore, further deleveraging in 2026.

So let me conclude with outlook and guidance. There is likely to be ongoing uncertainty attached to the economic and geopolitical environment. And therefore, we will remain focused on what we can control. We've started the task of rightsizing the overhead base of the group and implementing a more rigorous approach to expenditure generally, and we'll continue to identify and deliver further efficiencies.

On the balance sheet and cash generation, we go again. From a guidance perspective, we expect the group effective tax rate to be around 30%. Capital expenditure is expected to be around GBP 80 million for the year and property profits will be around GBP 5 million. On a like-for-like basis, our interest expense is expected to be around GBP 6 million higher per annum from switching out the 3.75% corporate bond for the PP financing arrangements I outlined earlier. However, holding the healthy cash position that we currently do provides an offset to this through higher interest income.

And finally, we expect a similar level of loss in Toolstation Benelux this year and Gavin will talk to you more about this when he returns. And with that, I will hand over to him now.

Thanks, Duncan. What I'd like to move on to now is just to really give you some kind of early views of what I've seen within the group as I said earlier, it has only been 10 weeks. I think we've crammed quite a lot into 10 weeks, but really trying to give you some sort of early observations of what I've seen. And working with the leadership team, we've tried to look at this very much from the point of view of all of the stakeholders, so whether that's customers, colleagues, suppliers or shareholders, but really trying to take a rounded view of what we've got and where we go with what we've got. A [ dead clicker ].

So trying to come up with a simplistic way of looking at the group. And what I've done is I've broken the group into 3 tiers, so different businesses in each of those tiers. And we'll talk about the individual businesses more. I've got some more slides after this one. But if you look at Tier 1, what we're really saying in T1 with Travis Perkins general merchanting or Green & Gold, how you want to refer to it. BSS, Toolstation U.K. and Keyline. These businesses are already delivering what I think is a sustainable financial return.

That's not to say that they are at the endpoint, and they're performing absolutely at their zenith, but these are businesses that within the group are already giving us a decent financial return.

The priority here is to improve the businesses and to really exploit some of the synergies that exist there. It's really important, though, not to confuse exploiting synergies with some grand centralization plan. I think as most of you know, I'm an absolute disciple of the sort of decentralized federated structure within distribution businesses, and that is absolutely core. But utilizing the businesses and really recognizing the synergies is about having a leadership team that understand the power of collaboration and what we can do with these Tier 1 businesses.

The Tier 2 businesses being CCF and TF Solutions are in a slightly different position. To put some context around it, these 2 businesses together have revenues of around about GBP 600 million. But in broad terms, these businesses are trading at either side of breakeven. So we do need to make sure as we go forward, we recognize the different challenges within these businesses and how we move these businesses from being around about breakeven to getting into what we would comfortably refer to being Tier 1 businesses but it's a different set of challenges that we have to the Tier 1 business.

And also, as I'll just explain in a moment, both CCF and TF Solutions have different challenges of their own as well. And then in Tier 3, we have Benelux Toolstation. It's fair to say that I think Benelux has been a perennial lossmaker within the group for quite some time, and it's also been a cash burn for quite some time. So what I'm going to commit to you today is, although I've only been here for 10 weeks, I've been across to Benelux, I've spent time with the leadership team, got a really much better understanding of the challenges that they face. But by the time we stand here and deliver the half year results in the summer, I will give you absolute clarity at that point of what the plan for the Benelux business is.

So just moving on to some of the individual businesses. And forgive me if some of you really know this very, very well. But obviously, Travis Perkins Green & Gold #1 in the U.K. builders merchant market, 579 branches trading today. Within Green & Gold, we have the sub-brands as well of benchmarks. We have Hire and we have Managed Services, all coming under the remit of the new MD, Rich Lavin. Rich was formally appointed as MD, I think, in my second week in the business. So that was great to be able to do that.

Rich had been running the business as the interim MD since the middle of last year. He's actually been in the business for over a decade and held a lot of sort of a senior finance and operations roles. So although brand new to the Managing Director role of Green & Gold, a huge amount of experience coming into that particular role.

We do believe we've got opportunities that we've already identified in ranging, in sourcing, logistics and the way that we take the product to market. And I think when we're looking at how we can utilize the facilities that we already have in the group, we'll talk later on about how we can make some of the assets that we've got like the Toolstation distribution center, just sweat a little bit harder and bring value into the other parts of the group.

One of the areas that we've identified that we think there's a greater degree of collaboration between Toolstation and Green & Gold, is in what we would call either the shop or the self-select area, where there was a real margin opportunity if we can be a little bit slicker at how we bring that product to market. Green & Gold is the largest turnover business within the group. In broad terms, it's around 50% of our turnover. So it's a really high potential business for us and a significant platform for growth as we go forward. recognizing that Rich is brand new into the MD's role, but what we've also done is strengthen the spine of the team around Rich.

We've got a really experienced commercial director in Paul in there now and some of you will know Matt Worster, who was our Group IR Director. Matt is now the Finance Director in Green & Gold, which I think speaks volumes about, a, what we think about Matt; and b, the significance of getting a really high-class management team within Green & Gold.

Just moving on to Toolstation in the U.K. Toolstation in the U.K., #2 market position, a 590 stores. There's a regular theme coming here that you're going to recognize. So Lakhvir was appointed Managing Director of this business in around about September of last year. But Lakhvir has been with the group, I think I'm right in saying for about 14 years. She's held very senior commercial roles. She's been a Pricing Director. She's been a Commercial Director. She's been a Finance Director, so brings a huge amount of experience to the role of Managing Director of Toolstation.

And I think 1 of the things that you'll see from the leadership team that we're putting in place we're bringing through here the next generation of leaders within the group to give us real longevity and a long-term view of how the group should be operated. Within the 7 operating businesses within the Travis Perkins Group last year, Toolstation U.K. was the #1 profit earner within the group. So it's a really very significant business within the group and should be viewed absolutely as part of our core offering.

As I mentioned earlier, we do believe there's opportunities to work better between Green & Gold and between Toolstation in utilizing the Pineham distribution center that we have in Northampton. To give you some context around that. Pineham is a 0.5 million square feet high bay distribution center that we believe can actually work harder and give us better value across the group in distributing for more than just the 1 business. We have got a new demand planning and forecasting software coming into this business, I believe, around August, September time of this year.

One of the areas, I think we've been less efficient at in Toolstation U.K. is inventory management and this new demand planning and forecasting software will enable us to manage that inventory with a greater degree of diligence and really make sure that we're sweating the assets that we have. And as I said earlier, it's another growth platform along with Green & Gold, very significant turnover, largest profit maker that we have within the group and should be seen as really important as we go forward.

Also in a Tier 1 business is BSS. I think some of you who've been around a long time will recognize this is a business that I used to know very well, having been the CEO there from 2005 through to 2010 and actually selling the business to Travis Perkins in 2010. It's #1 in its market. We've got 54 branches. Josie has been appointed as the MD in the middle of last year. I think it's fair to say when I was the CEO there in 2010, I think I'm right in saying that Josie was in her first year of branch management in BSS Peterborough. So again, although a new Managing Director has got huge experience, not only within BSS, but also across the whole of the Travis Perkins Group.

We have got quite a unique distribution model within BSS. We have a superb central distribution center in Magna Park in Leicestershire, but we also have quite a unique big pipe national tube distribution center in Coventry, which is a facility that we have that none of our competitors really do have. So we have got some real unique characteristics within BSS that I think enable us to drive that business forward with quite a lot of vigor.

We've also developed, over quite a number of years through the national accounts team, a real skill in what I would call significant projects. So when you look at airports, when you look at stadiums, when you look at prisons, when you look at these kind of secure environments in which we operate, we've now got a great deal of experience operating on-site facilities that, again, I think is a differentiator for BSS going forward. And just to be clear, while we're in the spirit of openness in the group last year, BSS was the third largest profit maker that we had behind the top 2.

And lastly, but by no means least, within Tier 1, Keyline, our specialist civils distribution business, again, #1 in the civils distribution market in the U.K., 41 branches, a new Managing Director in Huw Jenkins. Huw joined the business. We could do this as audience participation, but in September of last year. I think it's also fair to say Huw's background is in logistics and distribution. That is wholly appropriate for this business because well over 90% of the business through Keyline is delivered either ex-yard or from our suppliers. So having someone whose expertise is in moving product from point A to point B in the most effective and the most efficient way is absolutely appropriate in this particular business.

Huw and I have been working on this for a little while now in terms of growth opportunities for this business. We do see particularly in infrastructure. If you look at the areas like power and like water, we think we have got real growth opportunities here. And that also opens up new markets and new product opportunities. So it gives us really a very positive outlook for Keyline going forward as being 1 of our Tier 1 businesses, again, with that new leadership team.

Just moving into Tier 2. So these are the businesses that predominantly have been trading at around about breakeven. CCF, which is our drylining and insulation business, is a structurally challenged business, but more importantly, operating in a structurally challenged market. Drylining, which is over 65% of the revenue in this business is very much about high volume, low-margin commoditized high cost to serve. And we really are going to have to look at how we operate this business and make sure that we can find a more efficient route to market, utilizing the assets that we have right the way across the group. I mean it's fair to say in terms of leveraging margin in this particular business, over 50% of the business is with one manufacturer.

So our opportunities even to leverage margin on ex-yard sales are still a little bit challenged. 37 branches across the U.K., new Managing Director, the summer of last year, Chris. Fair to say Chris has got over 20 years' experience in CCF and has basically done every single job in CCF from working in a branch, getting through to be the Managing Director. And it shows how much we think of Chris as the MD of this business. For those of you who know me well, he is a Newcastle supporter, that would ordinarily be a challenge in my book, but I think Chris is bang on the right guy to be running this business going forward.

We do believe we've got synergy opportunities again with Green & Gold looking at that from a distribution point of view, just reiterating, don't look upon that as some kind of like centralization move. But in the categories of plasterboard and insulation, Green & Gold also have volumes in that particular category that run into hundreds of millions of pounds. So I think there's just some opportunities there for us to do what we do a little bit better so that we can find the most efficient and effective route to market for CCF and again, get that to a point where we believe it can be a Tier 1 business.

TF Solutions, which is a business some of you may not know very well, is our specialist distributor in air conditioning and refrigeration. Refrigeration being a relatively new sector that we've gone into, but one that we see with a real opportunity for growth and development. James is the MD of TF Solutions. He is the longest-serving MD that we have in the team, having been in place for 14 months. So in terms of like getting on a bit, he's the one that's been there, seen it and done it during the whole of 2025.

To enable us to get the maximum benefit out of this business, we do believe we need to give it greater support in terms of logistics and distribution. We've identified what we need to do to make that happen. But to get to that point, we have to make some systems and processes upgrades. Those systems and processes upgrades are already in train. They will take place later this year. That will then enable us to move into a more efficient distribution model for TF Solutions.

And I think for the first time, it will give us the ability to react to customers as opposed to just having what I would see as a more inefficient stockholding within the business. But I think TF Solutions intuitively, it's a business that ought to make money. I think the plans that we have in place will enable us to move that business forward as we go through 2026.

And finally, in terms of Tier 3, the Benelux business, as I said, my commitment to you is to stand here at the half year results and give you absolute clarity over the plan for that business. We don't actually have a permanent Managing Director in that business as we stand here today. It's still an interim, but I have been over and spent time with the management team, getting to understand the magnitude of the challenges over there. And I think all I would ask for is, look, having only been in for 10 weeks, if you can give me that little bit of forbearance through to the half year, but we'll then give you some absolute clarity on where we stand on Benelux.

So in summary, we've got a new leadership team. We've got a simplified structure. All of the managing directors now report directly into me. We don't have any intermediary level there, which I think just gives us a more efficient and more effective communication chain across the whole group. We've identified business improvement opportunities in every business. Don't get me wrong. Some market growth would be great and we would absolutely welcome it with open arms. But we absolutely can improve the business without that reliance on market growth. And I think making those improvements now will put us in a great position for when the market does turn.

The leadership team is very focused on doing the day job, removing distractions, removing the noise around, let's just focus on what we do within the business today. There's a lot of noise outside in terms of the economy, in terms of the market, in terms of even the global macro situation now, but we will absolutely stay focused on what we can do, which is running the business the best that we possibly can.

As we mentioned earlier, we're in the best financial position in terms of balance sheet that the group has been in for over 25 years. And I think in any kind of uncertain market that is a great place to be. And I think a lot of our suppliers, a lot of our customers and a lot of our shareholders will take a lot of faith in the business that we're starting here with a very, very strong financial structure. As I mentioned at the very beginning, culturally, we absolutely see ourselves as a branch-based sales-led organization that can work in harmony with a disciplined approach to cost-to-margin and also to capital allocation.

And very, very simply and primarily around our customers, who are the main drivers in us being in business, it's about can we just be brilliant at what we do? And if we're brilliant at what we do and focus on the simple tasks, then I believe that everything else will follow through. And financially, we're in a great position to support all of the businesses in the group to develop and to recognize their potential.

That's the end of the formal part. We're going to move on to Q&A.

[Operator Instructions] If you could ask your difficult questions first, so that Duncan can answer those and leave your easy ones for the end, and I can bowl in there, that'd be a great way to run it. So I think what we'll do, Sarah, if we start at the very front down here, and then we'll work our way backwards.

Ben Wild from Deutsche Bank. Three questions for me, please. Firstly, Duncan, you mentioned delivery of '25 in line with consensus forecasts. You haven't given a quantitative guidance for '26, but are you happy with where consensus is?

Secondly, in terms of pricing in the group and particularly in merchanting, and it sounds as though there's been a slight change of policy at the start of 2026 as compared to 2025. Given the inflationary backdrop, can you -- and the demand environment, can you make a comment on the price elasticity of your customers and how your attitude towards pricing?

And then thirdly, you made a lot of the leverage in the presentation and have delivered an exceptional year of cash generation compared to your peers who are highly levered, you have significant balance sheet headroom to deploy maybe related to the pricing question, how do you think about deploying that balance sheet to drive competitive advantages? And is there a temptation given the market environment to push extremely hard on pricing given your competitor set probably can't follow?

Okay. So I think -- well, we'll work our way backwards, and I'll certainly pick up on the pricing point. I think in terms of deployment of the balance sheet that I think everybody recognizes, we proved last year that we could increase market share by being more price competitive. But I think when you look at the overall financial performance as we go through this year, we absolutely need to have a slightly more balanced approach. So I think in terms of, can we still deliver great prices for the customers and improve the margins that we have within the business, it is a fine balance, but I think that is the right thing to do.

If I'd have been in place last year, going aggressive on the prices is probably exactly what I would have done last year. But I think with where we are right now we need a more nuanced approach and making sure that we're balancing what we're doing on pricing and balancing what we're doing on margin. And that does drift into your sort of second point, which is when you look at the pricing models that we have within the business, the price -- the elasticity that our customers have, there's quite a lot of moving parts here right now.

I mean, even in the last few days, literally over the last week, we've started to see communications coming in from manufacturers, talking about energy surcharges, talking about surcharges on transportation. I think we need to react to that really quite carefully in making sure that we're not being disadvantaged by what's happening in the sort of global environment. If you look at diesel, as an example, just as a one-off, we spend about GBP 15 million a year on diesel within our merchant businesses. So if we've got a 20% spike in diesel that lasted for 6 months, it's GBP 1.5 million, we need to make sure that we're not being disadvantaged by what's going on.

So I think last year, pricing was quite aggressive, and we proved that we can take market share. I think the trick for us this year would be can we maintain and grow market share while still improving the margins that are within the business and making sure that we get the right level of return. So hopefully, that kind of gives you a skirmish around pricing. I'll let Duncan talk about '26.

Yes, we're not making any comment on consensus today.

Will Jones from Rothschild & Co Redburn. Three, please. Perhaps we just have a quick runaround of the end markets within the construction sector as it were? And whether you think the combination can deliver a kind of flat market picture for '26 or realistically, should we be expecting market volumes to be slightly down?

Second, maybe coming back to overheads. I think you mentioned a similar rate of inflation, about the GBP 40 million mark underlying in '26 with then the challenge to be the extent to which you can offset that, perhaps you could talk about that ability to offset?

And then maybe last 1 just on the businesses. Perhaps you could just expand on your thoughts with regard to Benchmarx. Obviously, sits inside Green & Gold, but a somewhat different business to the standard Green & Gold offer.

Okay. Yes. So if I pick up Benchmarx, and again, we'll kind of work our way backwards. Look, Benchmarx is a brand within the Green & Gold business. We've got a good management team in Benchmarx. We've got a really talented Managing Director in that business who reports into Rich. because it is part of that overall business offering. I think we need to work out with Benchmarx exactly where it's placed in the market is, who is it trying to compete with? Who will its target audience?

And I think there's improvements that we can make in Benchmarx. Is it a -- is it one of my burning issues as I sit here today, the answer well is no. I mean I think we've got other things that are sort of like better for us to address, but I think we spent some time with the Benchmarx leadership team. We've got a view on where Benchmarx will go over the next 12 months. But it is and will remain part of that overall kind of Green & Gold merchant model as opposed to being pulled out and standing alone.

Do you want to do the overheads, one?

Yes. It's about half, well, I think, is where we start the year at GBP 40 million, we think we can offset through some of the actions we've taken at the end of last year, but that doesn't include further actions we may then take in this year as well, which also help contribute to it. It comes back a little bit to the Gavin's answer to Ben's question earlier on, which is for all of our peers and all large multisite organizations in the U.K., which are also very highly labor-intensive based on the inflationary pressures, cost inflation pressures of things like NI and national living wage, et cetera.

We're only going to get to margin expansion if we can start to expand gross margins. Either or we are trying to take out so much cost that we would, in my view, fundamentally impair the business and really hobble it in terms of its ability to sort of face into any recovery as well. So it's a careful balance. We've -- I don't think anyone could say that 300 heads isn't a meaningful and significant reduction in terms of the challenge that's out there. And we are also going to strong hand on every other element of discretionary cost. But I come back to my comments in the presentation, we can't offset that in full, but then I don't think anyone else can either.

And just back to your point on the markets, I mean, look, we're sitting here sort of like middle of March, the world is in a very different place than what it was in the middle of January, who knows where it will be in the middle of April. So I think I'm just looking around the room, actually, the number of analysts in the room, we've probably got greater analytical brainpower sat out there rather than up here. So maybe ask some of your peer group when you're having a coffee after you might get a better answer.

Annelies Vermeulen from Morgan Stanley. I have 2 questions, please. So you've mentioned ongoing competitive intensity and touching on some of what you said earlier, given the state of the world at the moment and what that implies for consumer and business confidence. Are you seeing any change in that competitive intensity in terms of some of your competitors? Any less discipline on pricing, not only as a result of the actions you've taken, but also given what the end customers are seeing?

And then secondly, on the headcount reductions, do you expect to make further headcount reductions this year or are you happy by the businesses today? And as part of that, could you comment on your expectations for the exceptional charges and restructuring costs, how they -- how you expect them to stack up in '26 versus '25?

Do you want to take the exceptionals?

Yes. I mean, look, the first thing to say is we don't have any live and significant programs. And as you would expect me to say, the first people we'll communicate those to appropriate or our colleagues and then the market. However, I think we'd be reasonably open to say that Gavin's just arrived. So we are clearly lifting up every single rock in the business and looking around how we're resourced and how we're structured and whether we're appropriately set.

Look, I'm not going to get into giving forward guidance around whether we would have an exceptional charge associated with that quantum or not. I mean you can backsolve analyst, the kind of number that we've got for what has been a very large reduction last year. If we end up having some further reductions, it may or may not qualify for an exceptional item, but it doesn't -- that wouldn't concern me in terms of either the profit impact or the cash if it was the right thing for us to do as a group.

I think the other thing on cost, I would say is, it isn't just about the absolute level of cost. It's making sure that you've got the cost focused in the right place. So I think there's been quite a lot of work done in terms of -- as Duncan mentioned earlier, some central roles taken out, but making sure that we've got the appropriate level of cost in customer-facing roles, which is more important. So it isn't just about cost out. It is about the rebalancing of the cost and making sure the cost is in the right place as well.

In terms of market behavior, I mean, look, we have hundreds of competitors across the whole country in different sectors. So it's really difficult to say whether people are behaving more or less rationally. What I would say is having been in this market for 25 years, it's always been a competitive market. You've always got competitive pricing. But I wouldn't say intuitively now I don't think people are behaving less rationally now than they were a year ago, 2 years ago or so on. So I don't think there's been a significant change.

Aynsley Lammin from Investec. I think I've got 3 as well, actually. Just first of all, on the kind of backdrop, I think we've heard last year that maybe some companies and particularly the independents are struggling a bit more. Just interested to hear your thoughts where you think any more capacity will come out of the market? And given your strong balance sheet, would you consider any M&A if it's even smaller bolt-on deals interested in that?

Secondly, Gavin, in your various previous guys, as you always had very clear margin targets, just interested in your early thoughts on where do you think that merchanting margin could be over the medium term? I think we've heard 8% in the past and similarly for Toolstation U.K., is that still kind of reasonable, do you think? And then last question is just on the working capital. If we do get kind of flat sales, is there more efficiency that can be squeezed out of the working capital or actually, are we kind of broadly there?

I think in terms of the backdrop and kind of M&A, I think at the very beginning, let's not get distracted by things. Let's focus on the day job and do what we need to do and do it really well. As you know, M&A has been a huge part of my career over the past 20-odd years. So as and when the time is right, there's also things that you can look at. But fundamentally, it's not about looking at distressed businesses in a market where there's overcapacity. Anything that you buy is going to be a really good business and bring strategic and financial value to the group.

So I don't think it's a case of just saying, do we think some independents will be finding life tough and therefore, hoover them up. I mean we've got well over 500 locations in Green & Gold. We've got pretty good coverage. In fact, last week, I discovered some towns in Scotland, where we have branches that I've never even heard of. So I think our coverage is pretty good. In terms of margin targets, I don't -- I think it's far too early for me to give like a long-term margin target of where it all sits. But just a couple of points that you made. Do I think in the medium term, an 8% margin target in Toolstation U.K. is a reasonable target to have? Yes, I do.

I think everything that I've seen so far, I think that's reasonable. In terms of Green & Gold rather than setting long-term targets there, let's just -- let's see some margin movement and start moving back towards the 5% level and then we can determine where we go beyond that. But I think there is definitely margin improvement to be had. But I'm not in a position, Aynsley, where I can sit here today and say, right, in 3 years, I want to be here in 5 years, I want to be here. We need to make sure we understand all the moving parts in there as well.

And on your working capital question. Yes, I mean not just working capital, I mean, just generally cash opportunities I've got a metaphorical dartboard up, and it's -- there's a big number we're going at this year. I mean just to give you some examples, our relative percent of sales of our credit is still higher than it was pre-Oracle. We've still got, as Paul will attest when you speak to him afterwards, firmly under some pressure around payment terms elsewhere with other suppliers. There's loads we can go at within the group.

What we've got to -- but the problem is or the challenge for me is I can't and won't see all of those sat in my seat. We have got to create a culture where everyone is forging for these opportunities across the group. And I said in a bit earlier on, we've started that, and I think that's really encouraging. I'm actually quite pleased and excited to see what starts coming back because I'm starting to get more things come back organically to me around suggestions around what we can do differently. So yes is the answer to your question. I think there's plenty still to go out.

Clyde Lewis, Peel Hunt. Three, if I may as well. Firstly, on incentives and you stress the brand-focused, sales-led sort of structure you really want to push hard on. Are you happy with the current incentives for the team or do you need to tweak that and if you -- or if you have, which -- what have you done on that front? That was the first one.

Second one, Gavin, you sort of talked about, again, very much focused on the day job. Where do you think the biggest noise is still within the organization that's stopping the team from doing the day job?

The third one was probably following, well a little bit on Benchmarx. So I want to ask about managed services, similar sort of question -- well, it may well be, may well be, but slightly different business, obviously, the Benchmarx, so those are the 3.

Okay. I think in terms of incentivization, we have tweaked some of the incentives this year. We have made some changes I don't think it's right and appropriate to sit and sort of go through details of incentive plans here today. But I think Rich and I, particularly in terms of Green & Gold, we believe that what we've put in this year gives a greater emphasis on driving sales and also driving profitable sales. So we have made some tweaks.

We'll see how those incentives play out during the year, but it was something that very early doors I kind of looked at and thought, I think there's something that we can do better there. So we have made some tweaks there.

In terms of the biggest noise in the day job, God, that's an interesting question. So I think it's -- from my perspective, I think the leadership team that we've got now, the newness of the leadership team in terms of being MD, I think, has taken a huge amount of noise away because what we don't have sitting in the room, when Duncan and I with them together, there isn't any kind of tendency of or 3 years ago we did this, 5 years ago we did that, 10 years ago we did this.

I think we've got a sort of a young, hungry leadership team that I think have really got a new focus and actually looking at the business in a slightly different way. So I do think a lot of the noise in terms of the internal noise is gone. Now that needs to filter through hundreds of branches and areas and regions and make sure that we get down to a branch level and people understand it there. But I just want people to think, look, very, very simplistically, if we give people 3 or 4 things that we just need them to do, focus on the customer, sell more product, protect the margin those very simple messages.

I think that's what we need to get down right to branch level so that people really understand what it is that we need them to do. So I think there's -- I'd like to think what we're bringing is a simplicity and a clarity of the messaging that I think takes a lot of the noise away. And the response I've had from that new leadership team has been really good in terms of, okay, we understand this, let's start getting that messaging through and we're having some really good dynamic conversations between us as a leadership team in terms of how we want to move the business forward.

And in terms of managed services, I do refer the honorable gentlemen to the answer I gave some moments ago.

Shane Carberry, Goodbody. Just one for me. Just to dig a little bit deeper into that kind of exploit synergies point and particularly in the Tier 1 bracket. And I know you've made it very clear, you don't want us to think about that as centralization. So maybe just a couple of live examples of what you're kind of getting at there would be helpful?

Okay. So Shane, I think as a really good example, so our electrical range in the shop in Travis Perkins Green & Gold, I think, left quite a lot to be desired. And this is not about targeting electricians, but this is about looking at jobbing builders and the electrical product that they buy that currently they buy from somewhere else. We looked at the range that we have in Toolstation. And basically, Rich's response, I'm paraphrasing was, well, if we just take the top 50 selling SKUs from Toolstation and put them into Green & Gold, distribute them through Pineham, which is already going out to hundreds of locations on a daily basis, that's a really quick win.

We don't need to go back and start reranging and rethinking and sort of reinventing the electrical range in Green & Gold because actually, the top 50 SKUs are very much fit for purpose in terms of Green & Gold and Toolstation. So it's just like it's those kind of examples, but it isn't -- it absolutely isn't centralization. And I think the -- utilizing the sort of Pineham distribution center, as I said, it's 0.5 million square feet. It's a very high bay. It's got a couple of mezzanines in there. And I think there's just efficiencies that we can utilize from there on distribution.

Again, that distribution center is going out to hundreds of locations already. So it's just things like that, that we've just looked at very early doors and thought, no, no, we can do this a little bit better if it makes it more effective, makes it more efficient, takes a little bit of cost out, then it's just those like knocking these small things over one day at a time. That's the kind of viewpoint, Shane, really.

Arnaud Lehmann from Bank of America. A few from my side. I mean, Gavin, you're quite recent in the business. We've been around a long time, and I guess we all had enough of talking about Travis Perkins' IT systems. That being said, do you think it's in good shape now? And do you see opportunities related to AI? It's a bit of a buzzword at the moment, but I'm sure there could be some improvement going forward.

Secondly, I think a follow-up to some of the questions on the balance sheet. Could buyback be an option or are you just going to see it on your strong balance sheet for considering market uncertainties?

Travis Perkins, thirdly, is in Tier 1. That's great. We've seen branch closures in the past, especially the smaller ones. Do you think if volumes continue to decline, would you consider that? And lastly, for Duncan as a trading day impact for 2026, please?

Can you repeat the last one?

Trading days and impact this year relative to '25. I think it's a small positive maybe.

Okay. All good points. So in terms of branch closures, we have seen some branch closures. We're not sitting here right now with a mass branch closure plan. I think one of the things that we're doing already, we're looking at individual branches based on their P&L. Sometimes there's a lease impact, sometimes there's a property sale impact. But overall, I think the branch infrastructure that we've got gives us pretty good coverage across the whole of the country.

And I'm -- what I certainly haven't done is coming with a mindset of let's reduce it by 100 branches. So I think every single branch that we look at is looked at on an individual basis. We looked at 1 or 2 with Rich last week where we thought, okay, is this border line? Do we keep it open? If we extend the branch that's 3 miles away, can we cover it from a transport point of view? But it is absolutely on a branch-by-branch basis as opposed to a program branch closures, that really isn't part of what we're trying to do.

I'll touch on the IT systems because I know Duncan spoke a lot about IT in the last couple of years. So I'll try and kind of give you an outsider view of it. I think there were obviously -- there was a lot of pain last year from the Oracle implementation. It was very clear when I turned up that pain of the implementation was behind. And we were genuinely having conversations even down at branch manager level with people saying we're starting to see the benefits of that coming through. So I think with any big ERP implementation, there's always a lot of pain.

But I think Oracle was particularly painful, but it's really good to sit here now and say Oracle is a reason to be positive now as opposed to a reason to be negative. And I would also say, in other parts of the group, we've done other stuff that has kind of gone under the radar. So like in BSS changing over to carriage from the system that, that was on. That went really smoothly. The team did a super job on that. So I think it's something that we are constantly looking at to make sure we have got the right systems.

We're not sitting here today with any plan of another significant ERP change in any of the businesses. By virtue of just evolution of time, there'll always be some work that needs doing on the systems, but I'm looking at the next 2 years and thinking we haven't got anything in the next couple of years that's sort of a magnitude of what the group has been through over the past 2 years.

And just in terms of things like AI, I mean, look, it's always easy to say that -- I appreciate it's a great buzzword. I think we're still some time away yet from an AI truck driver in TP who can drive a 36-tonne truck, operate a crane and lift a pallet over Mrs. Jones hedge and get it in the drive. But there are areas within the business. So when we're looking at things like credit management, when we're looking at inventory management, we're very alert to the fact that those developments can bring some value to the group. So it's not lost on us at all, but I think there are some quite specific areas, probably more so back office rather than front office.

Yes. I agree entirely. So I think your 2 on buyback and on trading day -- one more trading day in Q4 this year than the Q1 to Q3, the same. And on your buyback, I mean, somewhat rhetorical question in terms of you answered it at the end. We will come back with some more developed thoughts on strategy and thinking. And as you would expect me to say, capital allocation should follow as a logical extension or accompaniment to that in -- when we come back in the half year. So right now, we're just basking in having a relatively strong position, and it is pretty uncertain out there. So I think we'll sort of enjoy the resilience that affords us.

Zaim Beekawa at JPMorgan. The first is just on the CapEx. How sustainable is it to have CapEx at this level? And at what level do we see that reinvestment cycle come back? And then secondly, on Toolstation GO, just how that's been trending? And what's the opportunity set there?

The Toolstation GO. It's a new format store that we've opened up in Battersea. It's a physically smaller branch. It has about 4,500 SKUs in it as opposed to a full fat Toolstation that would get close to 10,000. SKUs. It has literally been open for a matter of weeks, but the early trading is really encouraging. I think it's something that lends itself predominantly to the London market rather than elsewhere. But it -- I mean, literally, it's been open for like 3 or 4 weeks. So we just need to see how it goes. But early indications have been really good.

And yes, on CapEx, look, I mean it's -- at the moment, we are -- we say we've managed to move our way through what we need to fix fairly carefully. I think where we've been historically is we have made a number of large relocations or new branch investments, which are very -- which come with a higher CapEx bill. Mindset-wise, we are starting to move into a world where we've got great sites and great locations, didn't have our heritage, where we need to move into a mindset of effective refurbishment at a much, much lower cost, but ultimately still giving branch colleagues a better working experience and customers a better experience when they come in. So I think we can manage it at around this level.

I think it's more, frankly, the previous number perhaps, which acts as a precedent has been too high. And as I said, we're nutting into and replacing our fleet and bringing down that average age. I think Ben asked a question earlier on around price to Gavin. I was thinking as he was making a point around that cash doesn't necessarily have to be deployed per se into price in terms of taking on. You can also create competitive differentiation by investing that capital into assets and equipment in the business, which also is a point of differentiation. And so there's nothing stopping us doing that.

Adrian Kearsey, Panmure Liberum. Two for me, if I may. On Toolstation, on the distribution center you talked about sweating the assets and then provided the example of the electrical range within Green & Gold. Are there any other examples where you can use the Toolstation DC to sweat and provide service elsewhere?

And then the other question sort of follows on from Duncan's comments about points of differentiation. I'm drawing on the point that you made about having the cost in the right place. Do you think you have the right number of people in different branches or is there something that you need to evolve over time to make sure that you can actually differentiate on service?

So I think in terms of Toolstation DC, are there other examples? And the answer is yes. I mean -- and I can't sit here and list them for you, but I think we've had very grown-up conversations around the leadership team in terms of how we can utilize the assets that we have. The Pineham distribution center is the most modern distribution center we have, there is undoubtedly efficiencies that we can bring across the group by using Pineham more. And when I mentioned earlier about the logistics support that we can give TF Solutions as an example, we will be doing that through Pineham. So -- and Pineham is the Toolstation DC. So the answer to your question is yes.

I think in terms of how we got the right number of people in the branches as a point of differentiation, we're always looking because also branches change. So if you look at certain branches, they can land a very large contract. That very large contract may require extra manpower in one branch, but actually 18 months down the line, that contract could be gone and you then have to realign.

So -- can I sit here and say, well, I'm absolutely confident we have got the right number of people in every single branch across the whole of the group? I mean, the answer is no because it's a very kind of fluid playing field, but I think the work that the guys did in the second half of last year before I started in January, there was quite a lot of work done in making sure that we have the right resources going in the right place. That was part of the changes in the center that Duncan spoke about earlier. But it's a constant area of focus, as is productivity, as is utilization of people, utilization of vehicles, that is very much part of what we need to be on top of as a top class distributor.

[indiscernible] from [ Applied Value ]. A couple for me, but mostly in and around the whole of the IT system, whether it's actually giving you now the data that your decentralized structure will allow you to manage properly as well as get some of the benefits of centralization, for example, say, from procurement? So you've just spoken there about electrical products. I mean you can now go back -- can you -- does your IT system give you the data to be able to go back to manufacturers and argue properly for a group discount or group deals in and around those product areas?

And just on the branch networks, quite clearly, I get your point about centralized management, but there's got to be centralized understanding of what's going on, plus not having those individual units in silos such that they can work across customers. So there's 2 questions there. One, really about procurement, centralized buying and the other one about centralized management of customers that might use both Green & Gold and Toolstation such that you can help them perform better, but also help you get more out from them as well?

Okay. I'll let Duncan pick up on your first point around the IT system. In terms of the decentralized structure, a decentralized structure does not mean it's a free for all. So there are parameters that we have people working within. We've got a lot of experience in making this work. One of the things that I would say actually is an opportunity for us and back to a point that was made about managed services earlier on, I think there are opportunities with Toolstation in the U.K., and we haven't really fully maximized what that can do perhaps with some of the managed service customers and those are still opportunities that we've got going forward.

But do I think we've got the right level of communication and understanding of how that can work? The answer is yes, but there's still some implementation that we need to go. We had the guys together last week in Northampton. And one of the things I was very conscious of is make sure that we actually manage these initiatives in a well-managed way. You can't just pile everything in, in month 1 because that will just result in chaos.

So I think there are improvements that we can make across the group in utilizing both inventory and in utilizing the branch network. We need to make sure that the backup systems are right for those. And I think as we go through the year, you'll start to see some of that come to value, Stephen.

Yes. I'll delight and disappoint you in equal measure and the response on kind of Oracle, particularly. I mean -- so look, on the one hand, things like stock visibility, stock valuation, branch level reporting, highlighting process issues around where we're not following process correctly and getting that right because Oracle is more sophisticated and because it's a closed box, it's flushing a lot of that stuff out. Just gone through a year-end audit, unsurprisingly, second largest ERP platform on the planet. Our auditor can come in and plug in and get a lot -- so there's a load of efficiencies and things started to come out of that.

What I'll disappoint you in equal measure, though, is we didn't need Oracle to address some of the other things you addressed in your answer around can our group commercial function go and have a conversation around the fact that we're not getting the best price on the supplier. That was never a data issue. That was a will issue. And actually, we don't lack information in this organization. We are swimming in data and information in this organization.

And as Rich will talk to you afterwards, we need -- you need 5 reports to run a branch. The challenge is, what insights is it giving you and who is holding that branch manager or any other person in the organization to account around why the KPIs don't tell you what they're doing. So for me, it's -- I don't think Oracle has necessarily addressed that. That's around better performance management, and that is a journey we're on and making good progress into.

We've got any more questions in the room. I'm going to look at Bailey and say we've got any questions coming in off-line or not?

Excellent. Well, that's it, ladies and gentlemen. So thank you for your time. Thank you for your interest. I look forward to seeing you all in the summer, and I hope everyone stays well. Stay safe. Thank you very much.

Good morning, everybody, and welcome to the Travis Perkins Half Year results. I'm going to kick off with a short introduction, and then I will hand over to Duncan, who will take you through the financials in a lot more detail. That's why he's got the very thick blue ring binder there with all of the detail and I'm just standing up here. Look, I stepped in March, somewhat unexpectedly on this stage in March. And unsurprisingly, there was a fair bit of uncertainty, both internally and externally in terms of what all of that meant. So what we look to do -- sorry, I get this right. What we tried to do is settle down the business by focusing on 3 very clear priorities.

First one was, look, we needed a credible permanent CEO to take the business forward long term. And we also needed to address the losses in market share in the merchanting business. So this required us to address a series of organizational issues and very importantly, address a significant systems issue that we were facing during the course of last year. And finally, on a more positive note, I felt that Toolstation was at an important inflection point, and we should be a little more than handing in terms of both its growth potential and continuing that growth trajectory, but also recognizing the potential for it being a more significant profit contributor. So how have we done in terms of those 3 key objectives and how is the achievement of that work playing into our performance as we have moved through the quarter? Well, we would -- as you would have seen, we were delighted to appoint Gavin as CEO.

He has a ton of relevant experience and his knowledge and his personality, I think, fit very, very well. And I think he will be a seamless addition to the business. Unfortunately, he still can't start until the 1st of January despite my best efforts. And therefore, the business and you are stuck with me until that point filling in the gap. But I am very much looking forward to working with Gavin. In terms of declining -- reversing the decline in market share in the merchanting business, we sort of split this into 2 key areas. First and foremost, we needed to get far more agile in terms of dealing with customers. And secondly, we needed to create an organization that was -- got decisions made closer to the customer and was again, nimbler, customer-centric and actually, we started to fill what had become a number of key vacancies. So we had way too many positions where people were doing 2, 3 jobs and unable to do those jobs effectively.

So in terms of focus on customer and market opportunities, I think we've done an okay job in the areas where we have been able to influence it. Look, if you look at the graph there, you can see during Q3, Q4, our like-for-like merchandising sales, we were down 7%, 8% year-on-year. I mean that has to be addressed. Had we continued with that on an ongoing basis, there was no level of cost cutting that was going to adjust for the impact on the top line. So as you can see, through Q1 and going through to Q2, the trajectory has changed. Now those of you with very good eyesight, you can see the numbers on the left-hand side, good now means flat. So let's not get carried away, okay? I am delighted with the performance. Again, if you look at the microscope, and we haven't -- and Duncan is going to add all kinds of caveats that we haven't fully closed out the month, July will be slightly positive.

Now in any normal world, that wouldn't make a whole heap of a difference. But in our world, that is very, very important in terms of the morale and the impetus we have got into the business. I think what we have proven during some time is that we can reenergize, refocus the business that we can put in sensible local incentives and through targeted promotions backed by our supply base, we can do that without a serious adverse effect to our margin. So I am pleased with that -- those sorts of updates. Now the big unknown in April, I was been perfectly honest with you was we thought we knew where we were with Oracle could it be worse. If I was out on your -- sitting down there listening to this, that would have been my big question. How much worse can I get with Oracle?

There's no question whatsoever that, that system implementation has been a big drag on the business over the course of the last 12 months. And it manifests itself, and you can see the distinction there when you look at merchanting and yard sales where we've got positive quite quickly because those -- that activity is not impacted with Oracle and what's called the direct sales, which is where it goes direct from a supplier to one of our customers, which is about 20% of our business, that has been severely impacted. It's just been very difficult to do those changes. Now we've got to July. We've put in some significant fixes, and we can start to see some real improvement there. So I am happy that we can now start trading and doing direct sales again, which should help us as we lead into the second half. Now we've got to win back those customers. Our staff have got to get more comfortable with doing those things again.

Again, without wanting to highlight tiny numbers over short periods of time. I'm told by Rich, who's sitting there that our July like-for-like direct sales were down 1.7%. Again, it sounds like a good number. Well, it's certainly a lot better than minus 14%. But on the basis we did [book it all] in July last year, it's not that good a number. So look, again, not to get carried away with any of this, we have to be realistic, but there are clear signs of improvement. And most importantly, I sense that the business now has confidence in the Oracle system. Our training initiatives are starting to pay off. So the issues now are less about the fundamentals of the system and more about training and making our organization comfortable with it. So at least it is now back within our control. So I think that is very, very positive. We had to have a better organization that where key positions were filled, lines of responsibility were clear, and it was a commercially focused business.

So I'm delighted that we've been able to achieve that. You can see we split the business into 3 key business units, obviously, Green and Gold, General Merchant, Specialist Merchants, some more longer-term contract type businesses and Toolstation still relatively stand-alone. All 3 now have very experienced leaders who've been with the business some time, and I think that's very, very important. Below them, there was also a number of key positions that just weren't filled. So we have filled a number of key positions within the business again. So now I feel that the operating end of the business is appropriately staffed to deliver the service level, which is required to win market share. That wasn't the case before.

Most of the cost cutting had come around the operational level. And the problem with that is you erode your capacity to serve customers. I was going through all the stuff as we're getting ready for this, and I kept thinking, actually, our numbers look better on a statutory basis than I expected. And the answer was because we haven't had any big, massive one-off costs. So I then started going back year after year after year, there's been a huge one-off costs to save overheads, and our results have just got worse. So we've taken one of the theoretical cost savings and lost more than that in the top line. That is a road to -- and a road that we are not going to go down. We are at a very classical point in this cycle where we are somewhere near the bottom, slashing and burning operational capability, so we are fit for purpose when the inflection point naturally comes. That is not a path forward. I'm not saying there is an area where we will have to address overhead at some point in time. But for right now, our focus has been very, very much focused on operational abilities as well as those key indirect appointments.

I'm reading lots of announcements of how people have improved their profits and telling us how many locations have closed and how many staff they've got rid of, great. Rich has got 200 more people directly operating in the business today than he had in January. And yes, Duncan and the team have done a great job in discretionary overhead control, which has allowed that to not adversely affect the margin. So we are reinvesting in the business. Travis Perkins is open for business again.

Toolstation. Toolstation has delivered a really good performance. The U.K., in particular, has seen both good growth in profitability and it's seen good growth in momentum in terms of its top line growth and has a series of initiatives that I'm quite excited about, which will further enhance its proposition to trade customers. I also think Toolstation rightly is very much a stand-alone business at the moment. Longer term, its potential as being a central plank in a full range offering to a range of our customers is a very important strategic position for this group. To be fair, we're nowhere near ready to exploit that opportunity right yet. We need each of the 3 individual verticals to be strong in their own right because the problem with any broad proposition is you're as strong as your weakest link and each individual link is not strong enough yet, but it clearly has the potential of being the front end for fast flexible omnichannel offering to our customer base.

So I'm excited about that. In terms of the overall Toolstation numbers, they've been adversely affected by Benelux. But this is another one where you sit there and go, how many ways can this business find to shoot itself in the foot. And the answer seems to be endless. Look, what we did -- we saw good improvement. We were still clearly heading to a far better position in Benelux during the course of last year and some bright spot decided that what we really need to do now is change the website and cut our marketing expenditure. And you can see what impact that has had on our online sales in Benelux. The store performance, the like-for-like store performance, people liking the proposition, walking in the door and buying for us has been really, really positive. We've just made it almost impossible for them to buy off us online. So again, I think the fixes are broadly in place again. And I think you will start to see some momentum in the second half where -- I'm not saying Benelux is going to break even again, which is probably where we started off, but it's going to make a much smaller loss than it did historically, and it's certainly a much smaller loss than it did in the first half.

So that short introduction wasn't that short in the end, really. Let me try and summarize where I think we are. As I said, obvious series of challenges, business needed to be settled down, suppliers need to be settled down. Part of the job today is to settle you all down too in terms of the direction and financial capabilities of this business. Look, as we've gone through this, I have been increasingly impressed by the efforts and the quality of the talent that I have found in this business. What we needed to do was give them a voice, put them in the right structure and give them some basic tools to succeed. And if I look at the sequential improvement through the quarter, it's starting to bear some fruit. Now it's early days in our recovery. There will be another headwind. There will be something else that we have started some time ago that will come out of the woodwork because that's what happens in early stages of recovery.

It's never completely linear and the market is fairly tough. However, people are leaning into this, and I'm very, very impressed with the level of enthusiasm and energy in the business. And I would like to take this opportunity to thank all of our colleagues who have really made a difference when they could have given up given the scale of the difficulties that we faced in most recent times. So we are going into the second half with a little bit of momentum, a little bit. We're going into it with a little bit of optimism that if we can just settle it all down, it ought to look and feel a bit better. But we're also going into it with a realism that early in the recovery and markets aren't great. So how that will manifest itself out in financials, that's a tough guess. And so the tough part of the task. Therefore, I will hand over to Duncan.

Thanks, Geoff. Good morning, everyone. So I'll start with the usual financial overview slide, which we cover. Revenue for the half was GBP 2.3 billion, down 2.1% on prior year, and that translated into an adjusted operating profit of GBP 63 million and an adjusted earnings per share of 13.3p per share. I'll take you through the mechanical elements of the revenue and profit walk later on. But at a high level, those 2 comparatives to prior year reflect the trading and operational dynamics that Geoff has just outlined. We've maintained a strong focus on cash generation, which has enabled us to further strengthen our balance sheet despite the reduction in earnings. Net debt before leases is down 56% to GBP 103 million, with net debt to adjusted EBITDA down 40 bps to 2.3x. This is the culmination of 18 months' worth of effort and focus in tightening our grip on how we utilize and allocate our cash resources across the group and the benefit of streamlining our portfolio by exiting noncore or loss-making operations. The implementation of Oracle last year meant that we've arrived at this destination in a nonlinear way.

Finally, the Board is recommending an interim dividend of 4.5p per share, in line with our prevailing dividend policy and payable on the 7th of November 2025. If I come on to the revenue slide next, and I'm not going to repeat all the detail Geoff has already provided around where we've been and how we've started to recover. But you can see from the chart that loss of volume in merchants has been our biggest driver. In addition, compared to the prior year, we have 1 fewer trading day. It's hard to fully detangle the impact of our own operational challenges with the ongoing subdued market backdrop. For example, we started the year with a very weak January and February, as others have also reported in the sector. But this was also a time when we were continuing to wrestle with the Oracle implementation. We were making a number of senior management changes, and we're also carrying several vacancies. As the half has progressed, and we've introduced more stability for our teams and refocused on our customers, we have seen our sales line respond accordingly.

A warm spring and early summer has provided the basis for better comparatives in seasonal lines and landscaping, but the competitive intensity has endured. And as you can see from the pricing and mix bar, we are not managing to achieve a contributory pass-through of manufacturers' price increases as deeper promotional activity has been necessary to turn around our volume performance. The final element of recovering our sales momentum is to ensure we are not closing any branches. It sounds fairly obvious, I know, but we have in recent years, exited markets and geographies in the U.K., which has made short-term sense, but weakened our longer-term standing and footprint. We believe protecting our national reach and share is key for when the market does fully recover.

Over on to the next slide and the adjusted operating profit walk. The first 2 bars are a reflection of the drop-through impact on trading that I've just outlined. So stronger promotional activity to address some of our volume loss, but still with a lower level of volume in the business in the first half, most notably in January and February with an improving trend thereafter. Property profits were slightly lower than prior year with the overall contribution this year to be strongly second half weighted, and I'll return to that in guidance later on. Toolstation U.K.'s ongoing growth contributes an incremental GBP 7 million, and Toolstation Benelux is around GBP 1 million favorable to prior year. On overheads, we've obviously had to absorb a part year effect of the national insurance increase worth around GBP 4 million for the half, along with other general cost inflation. And we've successfully managed that by maintaining a strong level of cost discipline across the group, which has yielded a net GBP 4 million reduction in overheads compared to prior year.

On the next slide, I've outlined the key line items that have shaped our cash generation. You can see that despite the lower contribution from EBITDA compared to last year, we have managed to generate a net cash inflow of GBP 88 million. Working down the table, you can see that the largest difference arises in the debtors' creditors line. This has principally been driven by the continued progress we've made in embedding Oracle into the organization. I outlined at the year-end that the invoice matching issues we were experiencing were creating 2 specific challenges. Firstly, our need to pay suppliers on account, often more promptly than our usual payment terms to ensure we could minimize trading friction. And secondly, where we were making a direct or drop-ship sale, having challenges in settling supplier invoices so that we could then raise our own invoices for customers and therefore, collect outstanding debt.

Colleagues in all parts of the group have worked hard to clear this backlog and implement changes to our processes to ensure it doesn't rebuild. And accordingly, we have been able to draw back down the payments on accounts and collect our debt in line with our terms, both of which have combined to deliver a GBP 75 million cash inflow. It is clear that offering credit in this market is becoming increasingly important to our customers and will be an important differentiator for the foreseeable future. So it is particularly pleasing we've managed to get back into business as usual in this area. I'd like to repeat my thanks at year-end to our colleagues and also to our customers and our suppliers, who we value greatly for bearing with us during this transition. Elsewhere in working capital, we've maintained the discipline we implemented last year on the depth and breadth of stock that we are holding.

Capital expenditure remains tightly controlled as well. But as we start to delever the group and move into better trading conditions, we will re-expand our expenditure as we invest in our core proposition, bringing down the average age of our fleet and upgrading the older parts of our estate remains a medium-term priority, and we need to sensibly balance this against maintaining a strong balance sheet. In May, we announced we had divested Staircraft for a consideration of GBP 24 million. Whilst Staircraft is a high-quality business in its field, the Board concluded that holding a manufacturing business in the portfolio was not consistent with the group's strategy going forward, and the capital should be recycled to support our capital allocation priorities. The accounting for Staircraft was largely catered for in the full year '24 accounts with the associated impairment, meaning the impact on the full year '25 income statement is immaterial.

Finally, I continue to believe that further opportunities exist for us to release cash from the group in a sensible and productive way. But clearly, our main focus is now on enhancing profitability and cash generation from our underlying trading operations. So if I briefly summarize the impact of these cash movements have had on leverage, net debt for the half was GBP 710 million, down GBP 135 million on year-end and down GBP 212 million since December '23, reflecting that 18-month journey I referred to at the start. In fact, if you take into account the cash outflows associated with the group's restructuring activities and closing Toolstation France, which we've also incurred over that same time horizon, at a gross level, we've unlocked over GBP 0.25 billion of trapped capital in the past 18 months against a backdrop of declining profitability.

The exit of Staircraft and Toolstation France both contribute to the reduction in lease liabilities shown. And accordingly, net debt to adjusted EBITDA falls to 2.3x and ex leases to 0.3x. In the half, we also successfully refinanced half of our GBP 250 million corporate bond due to mature in 2026 with GBP 125 million of U.S. private placement debt secured on an investment-grade basis. This debt has maturities ranging from 2028 to 2035 at an average coupon of 6.4%. We have a plan in place to refinance the remaining half of this bond, which will ensure the group has long-dated, competitively priced financing in place and benefits from a diverse capital structure. When this is complete, we will update you with updated medium-term guidance on financing costs. I remain strongly of the view that a business of our size, scale and complexity should be run as an investment-grade entity for lenders. And so I reiterate our commitment to returning the group to our long-term guided range that consistently supports this aspiration of 1.5x to 2x.

And so I'll close with outlook and specific guidance. We expect the trading environment to remain challenging and unpredictable in a world of low volume growth, competitive pricing and excellent customer service remain key to securing business, and you've heard Geoff talk about the progress we're making in these areas. We expect the second half to be very similar. From a guidance perspective, we expect base capital expenditure to be around GBP 80 million for the full year and property profits to be slightly higher than we guided at year-end at GBP 8 million. Our expected full year '25 effective tax rate is around 30%. Finally, given the first half results and our view on the outlook for the second, we expect adjusted operating profit, including that slightly higher property profits contribution to be broadly in line with current consensus. And with that, I think we can move to Q&A.

Ami Galla from Citi. A few questions from me. The first one was on overhead savings. You touched upon looking at savings on discretionary expenses. Could you give us some examples of where these savings have come from? And when we think about the H1 performance at the overhead line, to what extent are there incremental OpEx savings? And what was potentially an annualization of actions that you've taken last year, just to get a sense of what flows into the second half? The second question was on gross margin. I think we've seen a slightly stronger trend in Toolstation gross margin, which has helped kind of navigate a slightly better outcome at the group level. How much of that is sustainable into the second half? And from a procurement perspective, are there any sort of savings that you're seeing, which is helping the gross margin outcome for Toolstation?

And the last one was just on the merchanting market share. You've touched upon that you've seen stability. Can you give us some sort of incremental color as to what gives us confidence as we step into the second half that this should continue, i.e., competitively, have things broadly come back to a level playing field in addition to the disruption from Oracle implementation that's likely to ease from here. From a competition perspective, are things more disciplined now?

I'll do 2 and 3 and Duncan will do 1, if that's okay.

So on the overhead savings, a few bits into your question. So it's an annualized effect of -- I think Geoff touched on at the beginning when we referenced it, we carry quite a few vacancies into the first half, which has an element of saving attached to it. I don't think we've done anything really incrementally different to what we did last year in terms of discretionary spend, and that is just things like travel, general discretionary expenditure in terms of what money we're spending in each business unit level. You've also got the benefit of a slightly lower depreciation charge as well in that overhead number given the impairment we took in the back end of last year as well. So it's a variety of elements, but generally just a philosophical and cultural mindset within the group to overspend when we really need to given where we are in the cycle.

Toolstation, it's a really good question about Toolstation. Look, Toolstation is a business which has grown exceptionally well over a number of years, and everything has been about growth. And I can understand that. I can understand why you have to get a brand identity, you had to get a base proposition. I felt that we had got there and everything was about growth. Everything was about 3 decimal point increments of market share against some sort of metric, which I didn't think was a particularly good metric of market share in any case.

Look, we can see what the absolute level of growth is and we can see what the margin improvement was. So all we try to do is not take away the focus on growth. I think there's some really exciting initiatives about new propositions for growth, and there is the opportunity for further store openings. But there also has to be a level of focus, which I hope we -- I continue to believe we can do better, which is we have a distribution curve of profitability per location. And in short, the more mature locations ought to be and do, in general, offer provide higher margin. So there is a natural improvement in margin as some of the stores we've opened in recent years just mature.

However, I also think there's an emphasis for us to be far more forensic about what dictates the very highest margin businesses that we have. So we have businesses -- we have an expectation for a margin level for our mature branches, and yet we have a handful who significantly overachieve and we have a handful that underachieved. Why? And so I think being far more analytical about margin, what our margin expectations are, what is the configuration of a location, and we may have to revisit some of the estate in terms of its size, their location, whether there's parking nearby, not parking nearby, how easy it is to deliver, not deliver.

Some of the growth may have been in areas where we are inevitably restrained from a margin perspective. So I think we have a very good team who now have a base of evidence to go back instead of just adding more stores, really review the business that we have and look at how we improve the margin. So I would like it to be more of a dual track approach, not just pure growth -- pure growth. And so we've got some expectations out there of getting to GBP 1 billion business. I think we will do -- the question is when? That will be somewhat dependent on the margin. And we've said it will be an 8% return on sales business.

I think that is undershooting from a margin perspective. And I just wanted to make sure that we have that focus on margin as much as growth. And that's -- I've been delighted in terms of how the U.K. has responded to that. And I believe Benelux well, too. In terms of merchanting market share, look, again, I don't think it's the greatest metric in the whole wide world, we speak to suppliers. Suppliers -- suppliers who will tell you anything you want to really know. So they tell us we're winning tons and tons of market share. I don't believe that.

We can see -- we can look at some of our peers' results and commentary they have made about how it's been a bit more difficult in May and June, and we've seen what our performance has been in that period of time. So am I confident that we are no longer losing market share? Yes, I am pretty confident about that. Can I categorically say we're winning market share? No. Look, again, I don't think we're going to get obsessed about it. What we've got to get obsessed about is improving our financial performance. And again, not -- we want a retail business. There is not good metrics and a tiny percentage of market share doesn't tell you a whole heap of a lot quarter on quarter. So what we need to do is continue doing what we're doing, which is responsible targeted promotions. You can see it has not a significant -- so we have started doing targeted promotions again. We typically pick a product in a month, and we really focus on that product.

Now I don't know how many of the people in this room here have aspired to be a salesman in a builders merchanting business. I'm sure many of you, it would be the pinnacle of your career. If you think I'm probably not qualified to do that; well, let me tell you, if I say to you, you can sell something for the lowest price in the market, I promise you will become a genius salesman overnight. It is not hot to sell more if you have the lowest price in the marketplace. So that would be a fool's errand if we try to do that, which is why we're picking a product. The key and where I've been impressed with some of the muscle memory in the business, but we can get better at this is to say, okay, the first promote -- Rich is going to tell me I've got these stats wrong, but I haven't got them wrong by a lot.

Our first promotion was cement. When we did the promotion in cement, we got 1,600 new customers. The key is not just a promotion. So our growth in cement sales was fantastic in June, and we were ably supported by our suppliers who therefore also got incremental volume. We've got about 1,600 new customers. The key is having the apparatus in place to track that 1,600 customers. Why have they come back? What else do they sell? If they're buying cement, what is their project, what else are we doing with them? And because we've lost our way. And because of Oracle, it was hard and because of some of the cutting that we've done, dealing with Travis Perkins was hard work.

We needed to get new customers in the door in a targeted manner, track them and let them have a better experience with Travis Perkins again. That's why we did. This is not a race to the bottom in price. If we -- I just said everybody reduced their prices, it would be a free for all. That is not what we have done and not what we will do either, but we will. We will be very competitive in targeted areas, either targeted product or targeted sectors in order for our customers to have a new experience of a better, more customer-focused Travis Perkins. And I think that level of promotional activity is sustainable. I think it is responsible, and I think it will lead us to gaining more market share.

Will Jones from Rothschild & Co Redburn. First, maybe if you could just expand on how the specialist and the general business has performed within Merchanting in the first half, if there's any variation there? Second, whether anything has changed on incentives for branch managers? I know last year, there was some issues around, I think, communication and implementation of those. And then the last one was really just, I think when we look back at the gross profit to like-for-like sales decline into play, I think it's something like GBP 26 million of gross profit for GBP 29 million of like-for-like sales and presumably Toolstation is in there, slightly helping as well. So can you help us just understand what the gross margin decline was potentially in Merchanting? And I guess, just high level, what you think it needs for the industry to kind of step back on competition? Will volume, do you think be the answer to that?

Yes. Look, let me cover the specialist general and the margin bridge I probably -- wisest to leave that to Duncan. Look, there has been a range of performance within the specialist businesses. Some specialist businesses have been hurt more than others because of the direct ship. So we've got businesses in -- the specialist business where 50% of their business is direct ship. So that has been difficult. And we've had -- it's been a mixed bag. BSS also had a system implementation, but I think BSS traded very well. It's going to have a difficult summer, and it's going to have a difficult summer because it depends very, very much on school refurbishments.

And there are issues with government spending at the moment where there isn't any money available to do -- so is it a great distinction between general and specialists right now? No. Specialists, because of its contract nature, is fundamentally lumpy. So I get -- we get months where we go, wow, look how great the specialist -- some of the specialist businesses are. And then we have -- they fundamentally work in the same markets, and there ought not to be a massive difference between the 2. Again, if I'm being perfectly honest, given their relative size the key is turning around the general merchant business, like we can have a nicely performing Toolstation and a lovely performing BSS or TF Solutions, and they aren't going to make a whole difference unless we turn around green and gold. And again, there are some encouraging signs. I get e-mails saying this is our best week sales for 3 or 4 years, which is great. So the last 3 or 4 years haven't been that great.

And there's a base -- and there is a base level of performance where we cover our cost. This is a semi-fixed cost business, and therefore, we need volume to cover those costs. One of the areas that will help us drive more volume is a more motivated branch network and a more motivated sales team. So almost immediately, I stepped into this job, we put in a new incentive plan, which was a quarterly plan, which was a new construct for the business. And it's worked pretty well. So of all of the colleagues that were -- it could have paid out to about 1/3 of people got it. So it's an incremental couple of million pound cost that wasn't in last year or wasn't in previous quarters when you're looking at margin right now. I would have said on balance, 1/3 is okay is a take-up. Look, people got to understand it. People have got to believe in it. We have a track record of doing bonus plans and not paying them. So I guess there was a skepticism about whether it would work, whether it wouldn't work. And if it takes you 4 to 6 weeks to get on a program with a 3-month program, you're too late.

So those people who probably woke up and said, yes, this makes sense. This is a pretty good deal. And it was affected by direct. So I -- my target -- I was at the SLT meeting with Rich and the team last week is, look, I'd be really disappointed if half the people don't participate in this plan in the third quarter. More people understand it. It's largely the same. So there's a sense of stability. And for the first time since we started all this, we can include direct sales in it. And depending on what branch you're in, what the mix of your business is, the fact you couldn't do direct sales potentially precluded you from really being successful. So I think those incentive plans have worked and they have had the desired effect of motivating the sales team. That's a good thing. And I think that, as I said, more than anything else, we just need a quarter.

So Duncan will give you a beautiful bridge to within GBP 1 million here or GBP 1 million there or GBP 2 million here or GBP 2 million there. And it's nonsense really because we don't really know precisely what our top line is going to be in the third quarter. So if you're looking for any degree of accuracy, knock yourself out, best of look at that. But we do have to get that top line going now. So that has sorted out the direct people in the field dealing with our customer base. There are a couple of other areas where we are pretty warful at the moment. So we did a secret shopper program where we called in and said, I'm a customer. I think we did 400 branches, and our performance was mixed. It is still hard work to transact with us. So there's a training program and there's some basic fixes on how you answer the phone, how you ask for the order, how you help somebody set up an account. The saving grace, whilst we were fairly warful, we decided we'd phone some competitors too and see how they were too. And they are equally warful.

Therefore, to be better than everybody else in a period where they're clearly slashing costs and closing locations, I am optimistic that if we are improving our customer service proposition, whilst we're going through classic bottom of the cycle behavior of ridiculously low prices and just slashing costs, then making this -- recognizing that we still have to -- to be clear, we have to continue to manage the overhead base. So there has to be savings somewhere else to pay for all this. That is Q4 exercise. Q3 exercise is stabilizing the work that we've done, making sure the Oracle things fit and reestablishing our customer service credentials. So yes, I think the incentive program has worked, but it is a proportion of the business. And then when Gavin comes in long term, we've just got to do more with apps. We've just got to do with more online selling.

We are doing the basics better again, but ultimately, there are such obvious -- this is not a difficult training program. People were horrified when they saw some of the results from -- now to be fair, there were some locations were great. But again, the range between a well-answered call taking the account, go online, it takes about 10 minutes to try and order something online with us. You will give up when you get to the point where you've got to decide if we've got any stock or not. That is not a hard fix. That's really truly not a hard fix. Sorry, -- having said it's going to be nonsense, why don't you take us through the bridge...

So Will -- answered a lot of the question. I'll give you some extra bit of color to try and be helpful. Yes, you identified the kind of the volume margin interplay. We're into pretty consistent low single-digit cost price inflation and increases coming through, which is helpful as a general norm for the industry, as you know, given we traditionally pass those on. The challenge is the volume environment is still so benign, as we outlined, we're having to sort of do deeper discounting to sort of get hold of that performance. But I think there's a general view that's positive in terms of we've moved out of the striking inflation deflation that's characterized the last couple of years. We obviously set up a central group procurement function for the group last year, and I am quite buoyed by the kind of opportunity that sits there for having that function in place when we look at that, how we buy better across the group generally to support gross margin.

But again, at this point in the cycle, you're not going to see the full benefits of that starting to manifest and come through. And then you're right on the Toolstation element of the mix, which is going in the opposite direction, you just get through a general maturation effect of the business with gross margin improvements in there as the proportion of own brand also starts to increase in the mix in there as well, it's a generally higher gross margins as well. So that's moving in the opposite direction. I'm not going to unpack it more than that given it's relatively commercially sensitive. But hopefully, that gives you some additional color.

Sorry, the lady -- I've been conscious. She's had a hand up first right from the very, very beginning.

I think I've got 3 questions. So the first one, I think you mentioned some of the merchanting businesses are up to 50% direct. Do you have a broad figure for what proportion of merchanting is direct sales? And I ask that in the context that with July looking like the sales are potentially back into positive, is it fair to say that direct is back into positive or there's more work to do there?

Depending on when you pick it just over 20% of the business. And no, direct were not in positive territory in July. So being in positive territory, and we've got to be careful. Direct will go into positive territory quite soon, but that might not mean we've really fixed it because it will be hard to not be in positive territory relative to the level of direct we were able to do in the second half of last year. However, I am assured by people outside the IT and finance department, which is reassuring that they can operate the system again, they can make direct shipments. Part of the problem was there was a point in time where it took us 45 minutes to place an order. I don't know how long it takes you to place an order when you go online, but 45 minutes is a long time.

We celebrated last week that it was down to 8 minutes. Now that is still not great, but it's enough to -- particularly around managed services, we can probably work around that. We have a path to get it to 5 minutes. I went through all this journey with Ferguson. It was when we couldn't get below 5 minutes that they gave up on Oracle. So I think we can get 5 minutes. I think the nature of our business is slightly different. If we can get down to a 5-minute period, that will be good. So 45 to 8, congratulate the team on great, great efforts. 8 to 5 by the year-end, that would be great.

Great. And then the second question was just with regards to CapEx. You sort of mentioned, I think there's some CapEx that you're ready to deploy for re-expansion or something. Do you need to get back to the 1.5x to 2x net debt to EBITDA range to trigger that? And are you quite comfortable that, that's not going to forgo sort of near-term growth, I guess, by pushing those back? And then the last question was just sort of a follow-up. You mentioned sort of targeted promotions and how pricing is obviously key to pull those customers in. Have you got any sort of provisional evidence of how well you're sort of retaining those new customers that you've pulled in? And what sort of key to...

Duncan, I'll do promotions.

Yes. Look, I'm highly aligned with the way in which you framed it. I mean, fundamentally, we can do both, right? I mean the leverage will come back into that guided range. naturally always was going to -- the biggest driver will be a recovery in the earnings position, actually, not the relative indebtedness on the balance sheet. So we have a cash position that enables us when I told Geoff where we got to at the half year, the first question was how do we put more capital investment back into the fleet in Rich's part of the business. So we're not wasting time doing that at a point as well when others are not doing that, I think this is the time for us to make that investment. So I think we can do both as a simple answer, and we're not going to -- also be consistent with saying that starving the business of capital expenditure to get to a leverage target for the sake of it is not what we're trying to do here. So I think we can achieve both in the right sensible way over the next 6 to 12 months.

Yes. Look, I think I quoted some statistics from our very first -- so as I said, we're doing a hero product once a month to create a buzz on the sales force. Look, here is a product where it's a sensible product. It fits in a category where people would anticipate trading with Travis Perkins. And here, you are armed with a list of people who are dormant accounts or recently traded with us, who we know will buy this stuff. So we are giving them a playbook to go and get revenue and go and get commission. That's the easy bit. And there's been spotty -- there's been a massive regional variation in who performed well in those promotions and who hasn't performed in those.

So there's some internal work to do to understand why those regional differences have taken place. There's also some customer information, too. So what we're doing is very, very meticulously recording who's buying from us, what they're buying from us, where they're buying this from and reengaging with them about what else we can buy. And so use it. And again, look, we're 3 months in. Really, we need to get to the year-end where we see what repeat cycle behavior is. If we're doing this and the people who buy from us only buy from us because of the promotional activity, we will have failed. I mean -- so the key is the behind-the-scenes analytics. Now I introduced this concept and thought this is going to be hard work. It's been one of the areas where I have been impressed, and I shouldn't been really -- look, there are some very good people working in this business who've done this many times before, either at Travis Perkins or somewhere else.

So this is not rocket science, let's be absolutely clear. But -- and they're delighted that they're being asked to do their jobs again. And so I think when we're back together, we ought to be able to show a clear progression in the number of -- and again, it's one of the KPIs we've now gone on is number of new accounts that we're dealing with. And there's been a very good growth in the number of new accounts, and that's what's backing up that improvement in your sales. So giving a lower price to people who would have bought from us in any case and not anybody new doesn't achieve anything whatsoever other than to reduce the margin. So again, I think there is a commercial reality of why we're doing this. I need to give you a reason to come and try this business again. And there is a reason why this business remains the market leader, which is there are some strong fundamentals. You might have forgot about that.

The only way I'm probably going to get you in right now with all the noise around Travis Perkins is to give you a reason to come in. We have to make you -- then give you a reason to stay. That -- we're not trying to change the marketplace, change the market pricing. We are very, very deliberately getting people into our locations. And then because we've got more stable organization, lower staff turnover, starting to spend a bit of money on trucking and you'll start to see better delivery capability, some relief drivers so we can get it because what's happening is we're putting more volume in, it's highlighting where we've got some problems, but that's sort of a good thing, where we've -- the reason we've got extra people in is because we need some relief drivers.

We were talking about the further reinvestment in vehicles last week. You need to get a move on with that, by the way. We need to crack on. But it was a really sensible debate, which is this series of vehicles, we are underutilized. We need to get rid of a certain time. And some of the old ones that we're selling to replace where we actually shouldn't replace them. We should keep some of the better quality old ones because we just don't have spare capacity. And so we've got no flex in the system. You get better margins in this business when you have the best customer service. You get a good customer service because the building industry is probably the worst planned industry in the world and you solve problems. You've got to solve problems by getting people what they want when they want it. You can't do that without trucks and drivers. You just can't.

And we somehow manage because if we cut more drivers, cut more trucks, somehow will be a lower cost business and we'll make higher margin, nonsense. So look, as I said, we're going to get you back in. And when you get back in, [indiscernible] might well be up here, Richard. It's this gentleman's job to make sure that your experience is great again. And I think our relative experience, given what we're seeing from behaviors of some of our peers, this is where we have to hold our nerve in all of this. We have to hold on there to think, believe as I probably do that by next spring, there could easily be -- it could start to be an inflection point. What changes pricing and margins is the balance of supply and demand.

Now in a perfect world, you've got demand going up. I've been in industries where actually the actual kick at the inflection point is the quality of supply going down. But right now, we've got too much supply and not enough demand. We need a combination of demand improving. And I believe that if not the absolute level of supply, but the quality of level of supply deteriorates and ours improves and in that gap is where we win.

I'm Marcus Cole, I've got 3 questions. The first one, you spoke about it a few times before, but can you just give us what you think the competitive dynamics are at the moment, particularly in merchanting and particularly within your private peers? The second one is inventory levels. You've done a very good job in managing inventory. How should we think about this as volumes inflect? And then the last one is just on Benelux. How does this fit into the overall strategy?

Yes, sure. I'll do private and Benelux. Yes. I'll do those. Look, our privately owned competitors, there are some awesomely good small local merchants who are hard to compete with. They're just great in one geography, might be great in a relatively narrow product range, and they will always be part of this industry, and they'll always be the toughest competition. We've got great relationships, no great central overhead expense, not the same aspirations as us and things like health and safety and whatever. And it will be forever. I've seen people stand up in this space and talk about great consolidation. There will always be good local players.

Now -- there are now a series of private equity constructs. They're a different animal altogether. And some of them have prospered because of the mistakes we've made. So if your business model is to open a location when we close one and to take our staff when we get rid of them, you just lost your business model if it was a business model in the first place because we aren't closing any locations and we aren't getting rid of any staff. Now hopefully, that will allow us to have less supply in the marketplace. Also, most of those constructs, Duncan can give you the detail on this, have exponentially more leverage than us. Their debt is significantly more expensive than us, and that's causing great concern in the supply base because they can't get credit insurance from them.

So if we stop messing up, we win. Benelux, I think Benelux is -- I just like Toolstation generally as a business. I think if you look at the store performance and actually, if you look at some of the margin around some of the products, if you cut through all of it, it's been a bit unloved. It's been a bit left out on its own. Look, France got into itself into [indiscernible] before my time, it over invested in this, stop hemorrhaging so much money. I understand why we closed France. I'm not sure I would have done, but I don't really know enough detail about it to say. If you believe in the Toolstation model, which I do, and if you've taken all of this time and trouble to get into what is now a scalable position in Benelux, what we need to do is give it the opportunity to prove its worth. It is -- it would be bonkers to do anything other than improve Benelux right now.

Yes. On inventory levels, Marcus, yes, look, they will have to and will naturally start to grow again as we start to see a pickup. I think we have a much better level of awareness, a much better sort of philosophical outlook on what -- and is the right level of inventory to hold. We've made a number of supply chain, physical infrastructure and capability distribution changes in the last 12 to 18 months. And I should say one of the things despite the sort of challenges we've put around Oracle's neck, that was one of the motivations for putting Oracle in is it gives us far more accurate stock insights reporting, gives us a weighted average cost of stock. So there's lots of kind of reasons to be positive and optimistic about that. But the biggest one is just mindset and philosophy and control. So yes.

Shane Carbury, Goodbody. Just 2 quickly, if I could. Firstly, just in terms of the kind of employee turnaround story, from a senior management perspective, you gave us good color in terms of the kind of 9 new hires, et cetera. I'm just wondering in terms of the level below that from a branch perspective, you talked a lot at the time of the full year about how kind of a lot of the branch managers and things like that had gone. I'm just wondering where we are in terms of that story. And then secondly, you had mentioned about credit as well and the kind of customers' need for credit. Just wondering how bad debts have evolved over the last 6 months.

Okay. On the first one, you do the second one, Duncan if that's okay. Look, yes, I was very open about our challenges in March. We had a terrible level of staff turnover. And again, there were certain regions where they've lost all of their regional managers and literally all of their depot managers. We're just in a much, much better place right now. I think people can see that we're back in the game. I think they can see that we're giving sensible local incentives. And I think because of the business units we've established, I think they've got a voice again where those business leaders are out and about in the business and listening to them.

We did lose some really talented good people, and that continues to be -- put a bit of a strain on certain sectors of the business where they've taken some customers with them. So I'm not telling you -- we're still dealing with the people who have left, which is a shame. I think we've lost some commercial now. But I think we've now settled the business down, and we're more likely if we're going to lose the depot managers because it's our decision, not theirs. So I think it's better. Again, it was tiny that -- I was at this meeting last week. The biggest issue we're talking about from an HR perspective is driver less than 1 year staff turnover, and that's our biggest issue. That's a big step forward. Now I would love driver staff turnover to be lower than it is right now. But when people are talking about -- when I joined the Board back in October, I was going around locations and then when I stepped in from Pete in March, all we were talking about was lost sales, lost sales directors -- I'm not close enough to be able to say there are 1 or 2 going here or there, but it's really less of an issue.

The impact of the ones gone continues to make the environment tough. I'm optimistic about the business units that we've put in place. Now some of the people have had a job about 2, 3, 4, 5, 6 weeks. I mean all of this sounds great when you say it quick, but it's new. Will there be cockups along the way? Absolutely. I haven't got a clue what they are, but there will. So let's -- but genuinely, there are -- there was a couple of people who -- 2 people on it for the first time pretty much last week. And you just went, wow, they're great. Where have we been hiding them? I think we've given them hospital battles and some of the jobs that we've given them. But I think if anyone is going to do it, there is. So yes, I think the worst of it all is over.

And your question on credit, yes, increasing slightly and actually without getting too technical, the accounting standard forces you to look at experience as well and make a greater provision for that. You see lots of examples anecdotally. It's why I've been quite sort of strongly of the view internally, we've really got to look at cash optimization and look at strengthening the balance sheet because I think we're seeing more and more examples of relative rising stress in the sector, and we're going to have to be quite thoughtful about that as we trade into H2 on the basis we don't get some kind of miraculous inflection in the second half, and this may endure into the early part of next. So this has to be a sort of a point of competitive advantage to be able to offer credit reliably independently in the market. And we've got very good, experienced credit teams. That's the other thing I would say. They are -- we've got lots of collective knowledge within the business, and they're very, very closely aligned to the frontline colleagues, which is great.

Is that everything? Thank you very much indeed for your interest in the business and enjoy the summer. Thank you.