Travis Perkins plc (TPRKY) Q4 2024 Earnings Call Transcript

Good morning. Welcome, finally, to the Travis Perkins Results Presentation. Pretty of you who don't know me, I'm Geoff Drabble. I became formerly the Chairman of Travis Perkins on the 1st of February this year. So, it's been an interesting first couple of months, culminating in today's results. But I'm going to do a brief introduction and also just make a few observations before I hand over to Duncan, who will take us through the majority of the presentation. But obviously, we'll get into Q&A, which I think will be the most interesting once that presentation is complete. Sorry, here we go. So, it's been a while since I did this, I'm a little bit out of practice. Look, once I started on the 1st of February, really, I was working closely with Pete from the moment he joined. And look, we're all very disappointed that Pete is unable to build on the good work that he started in his brief tenure with us. But we -- he and I had very, very similar views of this business. And look, you will be tired of us all telling you this because -- but the group does have incredibly strong fundamentals. It's got a great network, got good people. It's got long-standing relationships and some good brands, and I can promise you, the vast majority of our competitors in this industry would love to have all the strong fundamentals that we have as a business in Travis Perkins. Having said that, we have this unerring knack of scoring own goals and messing up the strong fundamentals that we have. And over the -- over recent years, in my opinion, there have been a number of strategic missteps. And in particular, around about a year ago where we had something of a management void, there were some quite serious tactical blunders, which has resulted in us having way too much attrition in our staff. When I look through those strategic missteps of those tactical blunders, look, we can get into Q&A what they specifically were. But they all, in my opinion, have a very common theme. And the common theme was there was a lack of clarity of what our business model was and what we were trying to achieve. And actually, I think the culture, which existed within the business worked against our likely achievement of that business model. So, what does that mean? It's all written down here; it all sounds very NBA. Look, what we need is a focused, entrepreneurial local business. You win business in this industry on a post code by post code basis on a -- based on relationships. We are a relationship business. We will not ever replace those relationships with digital over the format of our locations, we are not a retail business. And we need to rebuild that trust back into those core relationships and that core entrepreneurial flair out in the field. Having said that, that isn't the only thing we can do. So, whilst there have been some strategic missteps, some of the things we've put in place to leverage our scale and differentiate ourselves from a lot of our smaller competitors really do have value. And there's been a lot of work done. I look at areas such as the apps and some of our digital data stacks where we clearly have market-leading capabilities. I'm not convinced we have applied them terribly well. And I think there's some work we can do to join up the dots to make sure that we get benefit from them in the immediate term, but at least, and it will take us a lot longer to build those things than it will to work out how best to apply them. So, with that in mind, what do we need to do going forward? Well, look, what we need to do going forward is refocus on the practical day-to-day running of this business. And I think we've made some good starts in that. We are carrying on work which Pete started. So, with -- by the time we get to Easter, we will have reorganized the business into strong functional leadership with leaders in each of the key verticals within our business. So, we will end up with ahead of our contracts business with a number of MDs reporting to them, we'll end up with a head of Toolstation, and we will end up with a head of the Green and Gold merchanting business too. We have refocused the business as of yesterday. We launched a series of product initiatives across the business, backed by far more flexible, far more immediate, short-term bonus plans and sales commission programs. And so again, we have just reenergized the business and got it back to doing what it ought to do. Culturally, we're working very, very hard on the center, working far more closely with the people out in the field. And there's responsibility in both regards there. The field felt disenfranchised as they saw a number of initiatives taking place over recent years and stopped engaging with the business and stopped engaging with the center. The center got really, really frustrated because it was actually coming up with some very good ideas and things which will take this business forward in the long term, and they weren't getting traction. And again, what we're going to do and what we're focusing on in the short term is just joining up those dots that already exist. How is that happening in the absence of the CEO? Well, it's happening because what I have been really pleasantly surprised with over the last 4 weeks or 5 weeks is the strength and depth we have around our key leadership. There's going to be a call later this morning with what we call the key leadership group, which we've been having regularly. And those people have really stepped up. And actually, all of the initiatives I've just talked about they have come up with those initiatives, and they're the people who are implementing those initiatives. And so, there's any goods going to come in this. I think that level of the organization haven't been listened to, didn't feel empowered prior to all of this change and now out of necessity, they're doing so and they're doing so well. So, when I finally step back and become a Chair, again, this will have been a somewhat intense induction period. But if as a result of that, I know an awful lot more about the business. And the next level of the organization has stepped up and taken responsibility. It will create an environment where an incoming CEO will be inheriting the best possible business going forward. So, look, as I said, I suspect we will cover quite a bit of that again in Q&A, which is the appropriate point in which to do it. But with that, I'll hand over now to Duncan to take us through the financial review.

Thanks, Geoff. Good morning, everyone. So, I'm going to cover the usual components of the financial review for 2024. But I want to start off, if I can, just by giving us some overall context for the year. It's clearly been a challenging year from a trading standpoint, but it's also been a year of significant change for the group. Change in action, which orientates us more positively from a performance perspective as market conditions improve, but also a change that has protected our balance sheet and ensures we retain a strong financial position on which to build the turnaround of this business. In Toolstation U.K., we saw a further step on in profitability as we continue to execute our plans to grow that business in line with our previous guidance. In Toolstation Europe, we took the difficult but necessary decision to close Toolstation France and accordingly are reporting it as a discontinued operation in our year-end numbers, eliminating a significant loss from our go-forward performance and restating our prior year comparatives as is appropriate. Closing a business in France is not a straightforward exercise. And so, I would like to recognize and thank the teams involved internally who have made that happen. In Toolstation Benelux, we have successfully repositioned the business from an ongoing growth strategy to a returns-focused agenda with a clear focus on achieving sustainable profitability as soon as possible. Again, for context, that has been a GBP20 million loss and GBP13 million loss in the past two trading years. Across the business, and in everything we do, we have applied more rigor and discipline in how we can generate cash and use that cash, and that is reflected in our enhanced year-on-year cash position and reduced net debt. These efforts have underpinned our ability to partially refinance our 2026 maturing corporate bond through access to the U.S. private placement market in Q1 2025 on an investment-grade basis. However, there is no shying away from the fact that our merchant businesses have continued to underperform versus our expectations, and I'll talk more about that in more detail later. Finally, and as we outlined at the half year back in August, from the 1st of July 2024, the group moved to the general merchant, CCF and Keyline businesses onto Oracle Financials as part of a major technology upgrade. And as a reminder, Travis Perkins has not made any significant investment into ERP technology for over a generation. So, this was never going to be a straightforward transition. And as is always the case, some elements are progressing well and some others are more challenging. So, let me start off with what's going well. The first thing to say is the tech ostensibly works. We've taken out of the box solution and customized very little. We now have a modern purchase ordering system with escalating sign-offs. We have a sophisticated stock valuation engine that gives us true weighted average cost of stock. And we are starting to see the benefits of the enhanced data and insights Oracle will give us over the longer term. So, what are the challenges? Well, the main ones have been in respect of our financial operations. Oracle places a much greater level of checking discipline over the detail required to pay an invoice. If the detail we receive on an invoice differs from the detail of the order we raised, then the order will go into a queue to be manually resolved. And in short, we have accrued a significant backlog of invoices, which has had an impact on our working capital position, and I'll come back to this in more detail. But it's also created frustration for our colleagues on the front line, who have to interact with suppliers and customers. And I'd like to thank all three communities for their support and understanding as we have made this transition. In response, we've recruited additional resources into our central teams to address this backlog and are working with Oracle, and we are starting to see this backlog reduce. In addition, our commercial teams are also actively working with our suppliers to ensure our data sets are better aligned to reduce the exceptions we create in the future. The second challenge is the operating speed and flexibility Oracle gives us in some parts of the business for certain order types. And again, we're continuing to investigate ways in which we can make this more efficient and user-friendly for our colleagues. In summary, we are making good progress, but these adjustments have been difficult and they're going to remain a key focus for the business in 2025. So, coming on to the financial overview. And all of these numbers are represented for 2023 on a continuing business basis only, i.e., with Toolstation France excluded. Group revenue was GBP4.6 billion, down 4.7% on prior year, with adjusted operating profit down 23.2% to GBP152 million, in line with the guidance we issued in our Q3 2024 trading update back in October. Adjusted earnings per share was 36.6p per share, down 32.7%, reflecting the lower earnings year-on-year, and also the higher finance cost and effective tax rate. Net debt before leases was down 39.2% from GBP340 million to GBP191 million, and that has driven a slight reduction in leverage despite the year-on-year reduction in adjusted operating profit from 2.6 times to 2.5 times. Finally, the Board is recommending a final dividend of 9p per share to go with the interim dividend of 5.5p per share, making 14.5p for the full year. This payout is in line with the group's policy to pay a dividend of 30% to 40% of adjusted earnings. So, let me come on to discussing the trading environment. and I'll reiterate some of the things I said at half year. The biggest revenue drivers for us are RMI activity repairs, maintenance and improvement activity and new house building. Following 2 years of a cost of living crisis, household budgets are stretched, and most major RMI projects will be financed by additional borrowing of some sort. We have remained in a suspended state for some time about the evolution of inflation and interest rates. The path to inflation normalizing and rates coming down, keeps being pushed right. And at the same time, the geopolitical landscape remains uncertain. Both of these factors play into consumer confidence and risk appetite in making major or significant RMI commitments and that has remained the case into the start of 2025. From a housebuilding perspective, we have oscillated between one of the highest years for new housing starts ever recorded in 2023 to jointly the lowest along with the GFC year in 2024. Within this context, demand has been significantly impacted and volume share has been heavily contested through price as the competitive intensity has gradually risen, exacerbated by commodity price deflation. And against this backdrop, the self-inflicted operational challenges, both Geoff and I outlined at the start have put us in a weaker position to respond across all of our merchanting businesses. Specifically, though, in the general merchant business, this saw us move from a position of holding market share through 2023 and into H1 2024 and then steadily start to cede share in H2. The next bar reflects the loss of revenue from the net branch closures across the group, excluding Toolstation France, and which are detailed in the appendix. And the trading day bar reflects three additional trading days in 2024 versus 2023. On the next slide, we've provided the usual operating profit walk year-on-year, and I'll walk through these again each in turn. The GBP198 million for 2023 is the GBP180 million we reported last year, adjusted for Toolstation France as the starting point. The gross profit decline is a reflection of the operational performance dynamics I've already referred to on the previous slide, and is by some margin, the biggest variance year-on-year. Next is overhead inflation, and this is predominantly driven by wage inflation, rent increases and general cost inflation during the year. And finally, the adverse variances conclude with a GBP4 million lower contribution from property profits compared to prior year. Actions and impacts we have taken to offset these are as follows: firstly, and as I outlined at the half year, we conducted a detailed review of discretionary expenditure at the start of the year and have maintained a disciplined stance towards this throughout 2024, and that equates to around GBP35 million saving. The next bar is the annualized effect of the restructuring program we implemented at the end of 2023. As Geoff outlined at the outset with the benefit of hindsight, these changes have weakened our operational effectiveness during the year, and we have already started to actively reinvest in some of those roles and capabilities. That said, the saving effect for the year is around another GBP 35 million. And next is the margin effect of the trading day benefit outlined on the previous slide worth around GBP13 million and then come the two Toolstation bars, the first being the additional contribution from the growth of Toolstation in the U.K. and the second being the effect of our change in strategy in Toolstation Benelux. As a reminder, we communicated at the start of last year that we were conducting a strategic review into the Benelux business, and announced the outputs of that review at the half year. We considered all options for the business and concluded that given the invested capital to date, the right thing for the group and shareholders was to accelerate the path to profitability. It is a far more mature business than France was with 110 stores offering high saturation and coverage in the Netherlands in particular, and the customer proposition is more aligned to how the Dutch and Belgian trades already operate. Through a combination of underperforming store closures, central headcount savings, joining a buying group to enhance gross margins and outsourcing our logistics and supply chain operations to a third party, we've managed to reduce the loss by GBP7 million year-on-year, and the teams are firmly focused on driving for breakeven and thereafter, providing a positive contribution to group profitability. That then brings us to the GBP152 million for 2024 in line with the guidance we provided at the Q3 trading update when adjusting for France. On the next slide, we detail the adjusting items we have recorded during the year. The first line is a GBP63 million charge in respect to branch impairments and GBP57 million relates to the general merchant and CCF businesses, with the balance spread across the other businesses within the group. This is a noncash charge and arises from the application of IAS36 where the group is required to adjust the carrying value of individual branches on the balance sheet to our latest view of the future discounted cash flows generated from these assets. The second line is a GBP33 million charge, in respect of Staircraft, again, noncash, and predominantly comprises goodwill. The full breakdown of these calculations and the assumptions used for them can be found in Note 29 to the accounts. Next is a GBP26 million charge arising from the restructuring activity conducted during the year, including GBP9 million of dilapidations and other property-related items, GBP30 million of stock impairments and GBP4 million of other costs. And the final two lines reflect central and regional restructuring activity in the year amounting to GBP11 million and the costs associated with closing 39 stand-alone Benchmarx branches amounting to GBP6 million as we continue to refocus our proposition. Over on to the next slide. I want to talk you through the actions we've taken to enhance cash generation and protect the balance sheet against this challenging trading backdrop. If I would on the face of the table, you can see the headwinds we faced year-on-year. The first and most obvious being the lower level of cash inflow arising from underlying profitability and trading operations. The second line represents the cash outflows for the restructuring activity in the year and the cost of closing Toolstation France. We estimate around another GBP15 million of cash outflows to fulfill our remaining obligations for France phased across 2025 and 2026. The next slide represents the impact of our first year-end on Oracle. I've already talked about some of the implementation challenges at the outset. And since the cutover in July, a supply invoice backlog has arisen, which has seen us -- which we have been successfully working through since. This has seen us prioritize and pay a higher proportion of our suppliers on account because we can and because we value those relationships with a consequent lag in the time it is taking us to collect outstanding debt from some customers, and hence, the GBP58 million working capital outflow, GBP 36 million adverse to the prior year. As we continue to embed and optimize Oracle, we expect this working capital position to normalize during 2025. And we are already seeing in the first few months of this year, that our cash collection rate is running ahead of our sales rate. The remaining lines all represent positive variances to prior year, and I'll start with stock. I talked at the half-year about the focus we were placing on tighter inventory management across the group, and this has yielded a GBP64 million lower stock position year-on-year. I'm really pleased with the way our operational and commercial teams have embraced this challenge, and we continue to review all of our materials categories and have further opportunities to pursue this year. We've also exercised a greater level of discipline and oversight on capital expenditure, which was GBP64 million for the year, below our guidance of GBP80 million and GBP43 million lower than prior year. To be clear, this is not a sustainable or desirable level of expenditure for us on a steady-state basis. We want to invest in modernizing our fleet, upgrading our estate. And as Geoff already alluded to, we want to invest in the new tools and technologies that will make us more efficient and deliver a better customer experience. But given the current trading backdrop, and our commitment to carefully manage our leverage back down, it's been the right thing to do. Finally, we obviously took a difficult decision in early 2024 in respect of the final 2023 dividend to rebase the dividend to the top end of our payout ratio within our prevailing dividend policy. This is not a decision we took lightly. We understand the importance of the dividend to some shareholders. However, in light of the way the financial performance has evolved, the GBP59 million of favorable variance on prior year should be seen as a logical component of us protecting the balance sheet. So, if I bring those parts together to explain the overall impact on net debt, which is down significantly on prior year on both an including and excluding lease basis. During the year, we unwound an SPV that had historically been used to fund the TP defined benefit pension scheme. On the basis that this scheme is no longer in deficit, we have collapsed the SPV and that has reduced net debt by GBP25 million. The increase in lease debt arises from sale and leaseback activity during the year and the electrification of our forklift truck fleet. So, the overall impact of the actions we have taken have seen us deliver a moderate reduction in year-on-year leverage down to 2.5 times, notwithstanding the significant reduction in year-on-year earnings. And I'll reiterate the previous guidance I've issued and firmly subscribed to that this group should be operating inside 1.5 times to 2 times leverage range on a long run basis. So, we will continue to maintain a vigilant focus on cash and capital allocation as you would expect and we continue to review the balance sheet for noncore assets and disposals that support this objective. Finally, for information in 2025, we have successfully started to refinance the GBP250 million corporate bond due to mature in 2026 with GBP125 million of U.S. private placement debt secured on an investment-grade basis in Q1 this year. This debt has maturities ranging from 2028 to 2035 at an average coupon of 6.4%, the current maturity and currency profile of which are detailed in the appendix. So, let me summarize. On current trading and in merchanting, we have definitely moved out of the aggressive input deflation we were experiencing at the start of last year, specifically on timber. We are starting to see manufacturers price increases coming through, and where possible, we are seeking to pass those through. But the competitive landscape I referred to earlier on means there is limited sequentially improving pricing power at the moment. And therefore, it is best described as pricing having stabilized with volumes remaining in modest decline. By contrast, in Toolstation U.K., we've made a solid start to this year and are in line with our expectations. There are some early signs of recovery in some elements of the U.K. construction sector. For example, housebuilding activity is definitely starting to increase, as illustrated by the housebuilders' own outlook guidance, but overall, there remains significant uncertainty in the timing and strength of the U.K. construction recovery, especially in RMI. Our focus, therefore, will remain on what we can control. it will be to continue to implement the actions that will rebuild this business, empower our frontline colleagues and deliver a better customer service. From a financial perspective, we'll continue to keep a tight grip on discretionary expenditure and look for further ways to enhance our cash generation. And so, I'll conclude with our full year '25 guidance. We expect base capital expenditure to be around GBP80 million, property profits to be around GBP3 million and an effective tax rate of around 30% on U.K. generated profits. And finally, we expect full year '25 operating profit, excluding property profits, to be broadly in line with full year '24, also on an excluding property profit basis. And with that, I will start the Q&A.

Start with front here. Q - Aynsley Lammin: Okay. I'll start. It's Aynsley Lammin from Investec. I think I've got three questions, actually. Just first question on recent trade in kind of, you call it mixed trade in. I think suggest that volumes may be down low single-digit type level in merchanting. How does that compare to the wider market? And if you're losing share still in this year, kind of how quickly can you start to move more in line with the market, given the kind of issues you mentioned earlier? Second question: just appreciate some more color on pricing between Toolstation and Merchanting. You said some input cost inflation. Is it more difficult, very competitive in the merchant side? Interest here a bit more color there to pass those on. And then thirdly, on the implied -- your guidance, what's the implied kind of loss? Or is it breakeven in Benelux Toolstation for the one fall to this year?

Yes. Aynsley, I'll be a little opaque and potentially frustrating on current trading because we're not far away from Q1 in terms of giving you a bit more color on that. I think on the market share data, look, it's not that robust. So, I think looking at it on a kind of a month-by-month basis, we've talked about this previously, is not desperately useful. I think when we look at it across, and as I made the comment in the script about the second half, we had ceded share, I think, on that basis, we're more confident that it's a robust measure. I'll maybe ask Geoff to comment around how quickly we think we can address that and turn that around and start moving it back. I think on pricing, look, generally in the -- it is -- it's a different split is in it between the two parts of the business in Merchanting, where also in Toolstation where it's a retail model, that pricing power has a far greater degree of both control and ability to be passed through because of the relative competitive set is. In Merchanting, it's just -- it's far more intensely competitive at the moment, and any kind of pricing power we're getting is being sort of hardly in part contested and fought. And I think your comment around low single digits is sort of right indicatively, but we'll give you more detail on the Q1. And then on Benelux, look, I think the market in -- particularly in Holland is very similar to the U.K. at the moment. That won't surprise you for me to say that to you. So, I think it will be unlikely that we'll get Benelux to an absolute breakeven position for the full year '25. I would still anticipate we'll still have a small and moderate loss, but GBP20 million down to GBP13 million significantly closer than that. And I think we will be in a place where we're probably on an exit very close to an exit rate, breakeven position in that business. It's to say, in a very different space and sort of status to where France was.

In terms of market share, don't get right. I'm not sure the data is great. If you look at our data, it probably suggests over the course of the last two -- last 12 months, we've lost around about 200 basis points of market share. I would caveat that with some feedback from suppliers who say, no, you're doing yourself into service. That's not as bad as it sounds. We have lost market share. There's no question about it. We've lost market share because we've had a huge amount of attrition over recent years in terms of our sales force. If I look at the actions Pete started and we've reinforced over recent weeks, that attrition has largely come to an end. And indeed, positively, we're starting to see growth in our sales force. We're making a lot of tasks far easier out in the field, as Duncan said, around reinvestment. And these are big financial sum but look how hard is it to get a replacement driver if your drivers are off sick. The answer is it was really hard. And guess what, therefore, we couldn't deliver, and now it's really easy again. And so, there are a series of things that we have done in the short term, including incentive plans, which I think we will start to see the benefit of through the next quarter. Precisely how that works out net in this first quarter, I don't know because we have lost some salespeople, and we will lose some sales revenue as a consequence. So, I can kind of get my head around what we are doing and how that will give us positively. There is stuff in the hopper, which we've probably still got to lose, and I'm not quite sure how that all balances out. But this is not rocket science, okay? These are not the lineal message of sales forces that we have lost here. Most of them have a bag of business and it trips around all the competition on a fairly regular basis. What we need is stability and focus and a cultural awareness that people in the field, be they location managers or sales force are important. And I think we'll turn around pretty quickly if we can get the confluence of short-term incentive plans paying out with a modest recovery in the market, that change in momentum will change this business very, very quickly. I would reiterate, look, I have been reaching out to people who have left this business and life isn't great anywhere else, let's be absolutely clear. We have a lot of things which are very, very important, and we're very, very strong at. And therefore, I would expect us in relative terms to be seeing an improvement within a quarter or two. Now what that means in financial terms will depend on what the broader macroeconomic environment is. But in relative terms, this is not -- this is basic operational management, which unfortunately has been lost in recent times.

Arnaud Lehmann from Bank of America. I have three, if I may. Firstly, just to confirm that the delay in the reporting is just an auditing issue, and there was nothing flagged specifically by the auditors that generated this delay. Second one for Geoff. I mean, I guess you're the Chairman, you didn't expect to get involved I guess, so quick so much in the day-to-day operation. What's your actual role? Are you acting CEO? And I guess the broader question is what can you do in terms of improving the business for the short and the long term? And what would you leave to whoever will be CEO going forward? And then the last one, focusing on what seems to be good news around Toolstation U.K. You've done well in '24, you seem to expect to continue to do well in '25, U.K. macro is not great. So, can you tell us a little bit more about why you think this business can continue to improve this year?

Do you start if you want to do?

Yes, I can -- that's an easy one. It's -- there's nothing that's in anything related to the fact just taking a bit longer to complete the order process is frustrating and not lost on me the optics, particularly with Pete news created some questions, but they are entirely mutually exclusive events.

Look, what's my role, my role is to be whatever it needs to be. We haven't changed job titles. I'm not called Interim CEO or anything like that. It's my third chair role and what I've experienced as you go through an awful long period of time where you don't deserve your money and you do bigger role and then there's periods of intense activity where you've got to step up and do what's required. This falls into the category of stepping up and doing what is required. Mr. Roberts has a significant influence in returning this business around very, very quickly. Look, this is a sector I know fairly well. There are decisions that need to be taken, where I think I can create in an environment where people can make those decisions. I think some very good things have been done in the last 5 weeks, many of them carrying on from work that Pete started, but largely because I have been impressed by the quality of people who perhaps have not been listened to for quite some time. And now I'm relying on very, very heavily. So yes, I can take away some roadblocks, I can create an environment in which they can make decisions, and we can feel like a proper trading business again. We actually had this one or two of the people who were in the meeting yesterday, what's called the SLT, which is really the management team for the merchanting business. They launched some really good things yesterday, which I'm quite encouraged about. I think there was an energy in the business. If I had a patent for every time in this industry, I had seen in a budget preparation and different businesses, a SWOT analysis, where the threat was what if Travis Perkins ever gets its act back together again. Well, we're going to be that key for the foreseeable future. That is the threat for the other people within this industry.

Toolstation U.K.

Yes. I mean it's -- lots of what I just talked about, we both talked about in terms of some of the operational challenges, obviously, don't affect Toolstation, which is helpful. It's a really great quality business. It's got very experience and stable management team. And we're sort of firmly on with the plans we outlined back at the last Capital Markets update on that and don't feel we've got anything else to add. It remains on track.

I can answer that. I knew relatively little about Toolstation. It's not a model I knew particularly well, but I'm really quite excited about it. I think it has real structural tailwinds behind it. I think I'd quite like us to get out of the zero-sum game if it's either us or Screwfix who wins because I think, actually, the whole sector can win and actually we can both profit from being a very good alternative to traditional ways of acquiring light-side equipment. I think we need to raise our aspirations in terms of what the profitability can be by individual location and the profitability can be as a whole. But it's been fortunate that it's been a relatively immune to some of the disruption which has affected the rest of the business, and you can see the benefits of that in its own performance. So, I think there's a benchmark of what we can be. I think it's a very good benchmark.

Thanks. Will Jones from Redburn Atlantic. I'll try three as well, please. The first, just on those hiring needs, perhaps you could help us just size what needs to be done. I think you've got 720 merchant branches. Any context to how many of those need kinds of new leadership or were loss through the attrition? Second is just when you think about that tension between the center and the field, I think you mentioned some sensible initiatives that had come from the center that weren't really taken up. What were those? And previously, I think you talked about potentially looking at taking some cost out of the center and redeploying it to the field. Is that still the case? And are we -- is it still a net -- not a lot happening on a kind of cost savings basis as a result of those kind of flows. And then the last one is just around pricing and gross margin. You mentioned the limited pricing power currently. Are you able to push that back to the manufacturers? Or are you taking a bit of a hit on the gross margin? And just whether there are any other mix factors in the growth to think about this year?

Yes. Look, let me start with the levels of investment on a location-by-location basis. Look, we have location managers in pretty much all locations. I'm not saying we haven't got some vacancies, I'm not following it by a vacancy by vacancy basis. We have been through the worst of the churn. And therefore, we are now settling down a new management team. I checked this statistic in a meeting yesterday because there is a gentleman who runs our Northern region who has done this amazing job. And I was checking the statistic that he gave me once or twice before in case I happen to refer to it today to make sure it was accurate. And he basically, over a 1-year period, lost every single depot manager he had in that northern region. And over the course of the last 12 months to 18 months, he has replaced them. Now he will tell you, he is delighted that he lost some of them and less delighted that he lost others, but he is very confident about his team. And if you look at the performance of his region, it is -- given that level of disruption, it is performing incredibly well, which just goes to show the innate robustness of our business. What he does need is a few more salespeople and he has the ability to have some slightly younger trucks and he needs to be able to get replacement drivers so he can get deliveries out on time. These are not massive investments. But we are a cash-generative business. And from an operating cash -- and Duncan and the team have done a very good job on cash. So, we will redeploy the cash we are generating on those upper needs. There are going to be no fancy new grandiose projects that we'll be announcing anytime soon. We will be reinvesting in the core delivery within our business. So, look, I think from that perspective, we're in pretty good shape. In terms of the center in the field, let me try and give you a couple of examples. Before I took this job, I signed up for all of the Travis Perkins apps because I wanted to see if they're any good. I have a disagreement with some of the people in the business who don't fully agree with me. I'm a great believer in apps. If you look at how apps transform in things like Click & Collect transformed the prospects of businesses like Ashtead and Ferguson, that utilization and making transacting with us earlier easier for the small to midsized business, our apps are really quite good. Our data stacks in terms of how we can slice and dice different information, who we trade with, et cetera, is remarkably good. I would have said we are years ahead of other businesses I know in this industry. Because of all the disruption, our depot managers accessing that information and getting any advantage from it right now? No. What we're doing is we're winning awards from functional IT departments saying we've got the best data stack in the industry. That's true, but that's of no use to me whatsoever unless we're using it out in the field. Now -- so what we are -- we started this mantra, which is if you run a central organization, I want you every day to wake up and say, what have I done to improve the life of the field and generate sales. I'm sort of banning us going to win awards. I want us to use the information we've got to improve the business. Now it is going to be a way quicker to improve that communication flow than it is to that. It will take our competitors to build up to 5 years to build the quality of information. But again, I was happen to be out in a location where people were bemoaning this. The key to running a sales force in this industry in the U.K. is something called a Glenigan report, which basically tells you where every construction site is, what's data. You've got to follow that information, get your sales force out on site very, very quickly. The local depot managers which were bemoaning the fact they didn't quite know how to get Glenigan reports anymore. You can debate whether they should have done, but they were telling me they didn't. I then happened to bump into this gentleman who runs our data by pure chance in the location of public and asked him what he was doing. And he showed me the most impressive set of analysis of Glenigan reports I've ever, ever had. It was -- it's there. We just weren't using it. And that's why people are going to hear me talk about re-empowering the field and entrepreneurial nature out in the field, and that is true. I fundamentally believe in that. And that is what will win us back market share in the short term. In the medium to long term, what will make us winners is the adoption of a lot of the technology and a lot of the investments that we've already made. And that is where I believe, together with a new CEO, we can bring some pace to the improvement in this business.

The last one, on pricing. I mean look, no, I mean we are traditionally a pass-through business. But what I would say is that, I mean, given the relative stress that's in the sector and has been in the last 18 months, and I think we're getting benefits from kind of the changes we've made in terms of having a group commercial-wide view across all of our businesses. We're having good quality conversations with a number of material suppliers who perhaps also not finding life particularly easy at the moment and continue to highlight the fact that as the largest player in this market, they want to support our recovery as much as we want to support theirs as well. So that is definitely something I'm seeing a lot of examples of at the moment.

Look, good purchasing based around good selling. We have to convince our supply base, again, which I think fundamentally, they believe looking at the structure of our business that we are their best route to improve their business and to improve their market share. But they will grow quicker aligned with us than they will with anybody else. Again, perhaps I'm being overly optimistic, I don't think that's a tough sell. But it's probably not a conversation we've had sufficiently in recent time. We have to demonstrate that we're going to be really good partners and then they will utilize our scale to help -- these have to be mutually beneficial arrangements.

Charlie Campbell. Stifel. I've got two questions, both on Merchanting and broadly related, I think. I just wonder, kind of when you look at the business model at the moment and you look at the kind of potential gross margins, what your views would be on a kind of a couple of aspects. One would be sort of relative pricing against the industry; that's clearly been something that we've debated before in the past and whether that's the right level? And then secondly, you've talked a lot about incentivizing people. I wasn't quite clear if that's salespeople or branch managers and whether you're going to have to give basically branch managers a bigger share of the economics to get a better result on the ground locally.

Yes, sure. Look, I believe that we ought to have value-added services, which ought to allow us to have some pricing power over our smaller competitors. We're not there now. We're just not. If we're kidding ourselves that we can price significantly better than anybody else with our recent experience as customer service, that's not true. Now what we can be is selective in where we fight, but where we have regional strength, where we have product strength and where we have support from suppliers. So, do I believe we offer a range of value-added services, which ultimately people will be prepared to pay for? Yes. And that will particularly become true where you get a chance to gain market share and where you really get a chance to add margin is at the inflection point where the market starts to turn, instead of everybody just worrying about cost, they're worrying about getting it. There's a gentleman here who runs our managed service business at the moment. We're having this very conversation only yesterday where -- so we need to get ourselves ready for that inflection point. I'm not 100% sure when it's going to come. I've lived through enough construction cycles to know it will come. And what I will know is, and you can see it already, we are not alone in cutting costs and doing dumb things in this industry in order to survive, and therefore, the capacity in the marketplace to satisfy the market when that inflection point comes will be insufficient. And that's what we need to prepare ourselves. So, I don't believe we have any significant pricing point. In terms of how we have structured incentivizing our local teams. And yes, we have done it as a combination of both the sales force and the local managers, and that's really important. We need them getting -- working together to understand their patch and winning back local midsized trade customers, and they are best served to do that. We can have national teams who can have big national house builders and big national infrastructures. But to win back that higher margin midsized builder requires, as I said, doing it on a depot-by-depot, postcode-by-postcode basis, a combination of building on those relationships that both salesmen and depot managers have, I believe that will be more than self-funding. It may not be in the first month or the second month, and that's okay because it will be in the short term -- in the medium to long term. So, look, are our medium-term margin aspirations any different to what they were? No. Is it going to -- will that trade volume for margin over the next two quarters? Yes.

So just as a supplementary, just to clarify that. So, do you see a sort of a step change in basically with the costs of branch managers, salespeople across the country to move the model maybe more into line with some of the other models that are out there.

Look, it is based -- you don't get sales commission unless you sell more, therefore, to a large extent. So proportionately, we shouldn't see a significant change. But yes, to your point, do I believe our core staff should share more in the business economics of this business? Yes, 100%.

It's Ben Wild from Deutsche Numis. Three questions, please. Firstly, on the branch impairments. What exactly have you impaired there? Are the payments impacting specific businesses or branch types within the group? More color would be helpful there. On Oracle and the disruption that you described, there's an emphasis on employee churn, but to what extent do you believe that the implementation of Oracle has driven volume underperformance in the last two quarters and into this year. How do you think about that fading, hopefully? And then thirdly, on CapEx, Duncan, you made the point very clearly that the GBP64 million is not a sustainable level of CapEx for this business. So, what is a sustainable level of CapEx for this business? Thank you.

Would you do one or three? I'll do two and four.

So, I'm not going to go to one piece on the branch payments. It's all in Note 29 to the accounts. Ben, you can see it in there. On CapEx for the business, look, I mean, we have, on a medium-term run rate, historically been sort of north of GBP100 million, probably more like GBP120 million of capital expenditure. I'm not going to be drawn on a specific number on that for obvious reasons because I think there is a -- I've got a view around how much I think we need to invest in our fleet and invest in our estate but also need -- and we're starting to formulate that thinking with Pete, clearly, but that will also be a conversation for whoever replaces Pete as well to start thinking about. But we have requirements to invest in upgrading our fleet and estate. There's no two ways about that. We've been pretty open about it. So, I think it will definitely come up north of GBP80 million and be some -- heading somewhere towards that original level of expenditure that we outlined. And I think -- and again, a growing proportion of digital and IT expenditure as well as we start to invest in some of the things Geoff talked about. That won't necessarily be capital expenditure, but it will still be cash out the door.

In terms of the churn, look, the big period in terms of churn was the first half of last year. We found ourselves in a bit of a leadership void. We sort of said the CEO was going, but he wasn't gone. The chair had gone. There was a new chair being looked for, and therefore, there was a very uncertain period. In that uncertain period, there were a number of things, all of which happened together, which was, I think we made some poor decisions around bonuses. There were one or two other decisions from the center, which in the eyes of the field rightly or wrongly, restricted their ability to do business in the manner in which they wanted to do business. And on top of all of that, here's a new system and the early implementation of that system just made their lives a little bit more difficult. Therefore, if you're in that period of uncertainty, a combination of all of those things and you got approached. I kind of understand why you'd probably be prepared to leave. So, we were open season to be attacked by our competition. Pete came in, and as I said, Pete landed really well out in the field. He talked very sensibly about where he wanted to take the business. I found Pete as well as be academically very intelligent to be emotionally intelligent too. And you saw the improvement in those statistics. Again, given some of the decisions that were taken over a 5-year period, why had we not lost more people? Because people know as bad as it is, we're probably the best show in town. But we really tested that over a 6-month period. It would be wrong to attribute it to Oracle. There was a combination of factors. I believe you can all do some due diligence and check that with us that we have stopped the physical flow of people leaving us. And indeed, I think we're starting to rebuild the organization. Whether we have stopped the negative sales impact of that or whether there is a tail to that beyond them leaving, that is my uncertainty and precision around what's going to happen in the next quarter or so around revenue. But it would be wrong to blame it on Oracle. It was just one of a range of combining factors.

In your view, Oracle that the system itself is not driving significant customer disruption?

No, it's causing some disruption. Look, there are two separate issues as I see it. And again, Duncan, you should -- there is the financial bit of matching invoices and paying suppliers and because of the quality of our database and matching orders with invoices. Look, we are having to throw an inordinate amount of resource fixing it that's one of the reasons why the audit was to, look, when I started as an auditor, I don't know, 40-odd years ago, what you spent your life doing was ticking supplier invoices to statements. No auditor has done that for about 30 years or 40 years, and that's what they were back down to doing again to some degree. So, it's had a disruption to the business. In terms of trading, yes, it has had a disruption because we've been struggling with those invoices, statements have not been particularly accurate. And there's one particular area, which is drop-ship. So, if we place an order and get shipped directly from a supplier, directly to a customer, Oracle is very inflexible and takes too long to process an order. Now you are talking to the person who is the Chairman of Ferguson, and Ferguson wrote off $100 million rather than implement Oracle because it was a slow, cumbersome process. We are not in the same position as that whatsoever. There will have to be a workaround around drop-shipped because it's getting better. Certainly, all of the administers stuff is certainly getting better. And Luke over there was telling me yesterday, we'd cut another five minutes of the processing time of drop-ship, which is great progress. it's still never going to be quick enough. It's the truth of the matter in my humble opinion, because we get better margins when our customers change their mind. We react to their uncertainty of what they want, and we charge them for it. So, we can't have a system that says, no, you can't change your mind. We need a system that allows them to change their mind. And whilst that seems odd perhaps to finance people or IT people, that is how our business works and that is how we make money. And therefore, we will need to do something, but it's a minor tweak around a proportion of our business. And again, remember, you can see it, it hasn't touched Toolstation. There are huge sway, doesn't affect the --. There are significant sways of our business where it's had no effect. That doesn't mean we shouldn't change it, but it will be a minor tweak. This is not a ripping out. Again, for all Ferguson roll of $100 million, their finance system remains on Oracle and it's a very good system. So, look, there are tweaks. But let's be clear. I'm conscious of the internal audience as much as the external audience. We know it needs to be a lot better, and we know how important drop-ship is.

Thanks for taking my questions. Zaim Beekawa from JPMorgan. First question is just on the U.K. housing market. So, can you just remind us what your new build exposure is there? Are you more geared to the smaller house builders? Obviously, governments got a clear plan to build, so that should be impactful to business. And then secondly, I appreciate a lot has happened since about the Toolstation U.K. targets, how can we think about to effectively move that off the table? Thank you.

U.K. housing market, Keyline is probably the most obvious, what you described as a canary in the coal mine reaction in terms of the kind of sort of civils and groundworks attached to that. And where I was referring to in my comments around we're starting to see some early signs of some inflection in that, which you would expect. And we have -- I think in answering to your question, around, we have relationships across all array of the housebuilders, small regional, family-owned through to the big nationals as well across all parts of our business. And those are all important relationships. I think on Toolstation U.K., I wouldn't say take it off the table. I think that's a bit harsh. I mean I think I made the comment, I think we are sort of firmly on track in terms of the targets that we published previously and so got a very stable and experienced management team. I think Geoff said at the outset as well, and it's an opportunity for a fresh perspective with whoever comes in to be new CEO as well, opportunities and ways in which we can take that business further forward. So, I would say, no, don't take it off the table, but I would say equally with some opportunities and rights to think about where we take the next sort of strategic phase of that business forward and how we take it forward.

I genuinely -- as I said, it's a business of all the businesses in here, I knew the least about when I joined. But I am genuinely excited with it. I think I've talked a little bit about bad decisions over the last 12 months. A good decision that was taken over the last 12 months was to focus less on opening new locations and just getting growth through new stores and more looking at the profitability and potential of individual stores. And I think we can raise our aspirations about the mix of business, the margin of business. Again, it comes down to is it a retail experience and do we need process relatively low-paid order pickers in branch. Or is there a cross-selling opportunity? If we look at our stocking levels, do we have the appropriate range? Do we have the appropriate quantity of range to be able to satisfy projects? We have too many products and too few of each product to be a full project supplier. Basic upselling, we can do. Should we be offering same-day delivery to site, and what are the logistics and cross-docking requirements or that we've built this great big distribution center, which currently is a massive drag on our costs and makes no sense whatsoever, and it's never going to be used for the reason it was built. However, I think it will prove to be an excellent investment in terms of our ability if in major conurbations like here in London, we can offer same-day delivery to site and as part of a cross-docking solution. So, I think a new CEO coming in can reimagine and be very, very bullish about the potential in Toolstation.

Shane Carberry from Goodbody. Just one follow-on to Charlie's question, if I could. Just Geoff, when you talk about kind of impairing the branch managers and becoming more of a localized business. Is it fair to call that a little bit of a change in strategy versus the last kind of 6 months to 12 months where we've heard a lot about kind of centralization?

Yes. Absolutely, 100%. Look, we just got it a bit wrong in terms of -- again, I will stress this is a relationship business, and those relationships are important. Is the world slowly changing and do we need to be at the forefront of that? Yes, we do. So again, look at the proportion of our business that are using apps. Now again, look, businesses I've been involved in, Ashtead, Ferguson, Howdens have all got apps. Now, how people use the apps is relatively unimportant early on. More often than not, they'll sit at home and clear invoices on it. And then we'll start placing orders for collection, via the Click & Collect or for delivery the following day. So, you need that technology; a growing proportion of our business ought to be Click & Collect. Ultimately, a person needs to be on site, place an order as he can do with Ferguson, as he can do with Ashtead, track where that order is in the system and see it being delivered to their site. Hell, I can do that if I order a curry at home. Why can't I do it if I want to -- if I want to place an order? Ultimately, as I said, a lot of the strategy does make sense. Ultimately, people shouldn't care where we deliver it from, whether it comes from a CCF location, a Toolstation location or a Green and Gold. They should be able to go on an app on site, place an order, and we ought to be able to satisfy either we need to set parameters next day or same day. So, all of the things we were heading towards have a logic. I am not saying that a lot of them have not been applied as well as they should. And none of them -- there was an -- there was a disregard to how that was not mutually exclusive to the culture we have out in the field with the depot manager. What we're doing needed to be complementary to what we already had, and it became substitutional. And it became substitutional most importantly, in the minds of our associates. And that's what we've got to change. And in changing it, I don't want to piss off everybody in the center who says, I don't want you to keep developing this stuff. I just want you to be more aware of how hot, what you need to do to make it useful in the hands of our associates. So, they are really frustrating, but you can see bits everywhere you thought if you could just join up the dots and if you could actually apply some of the capabilities that we have right now, this would be very swiftly a much better business.

Ami Galla from Citi. A few questions from me. The first one was on working capital. Could you help us on the stock side? Do you think this is the optimal level? Or is this scope to optimize the stock levels in the business further? The second one was just on the cost reductions that have been implemented last year. Are there any tailwinds from annualization that we should consider in '25? We hear your point on the investment side, of course, but is there an offset there in the short term? And the last one was just on the scenarios that you have probably budgeted in for this year. If the underlying market conditions are worse than what you are currently expecting as a base level? What are the -- what is the scope to protect your balance sheet? You've touched upon that you will be -- you're constantly looking at noncore. When you look at the portfolio today, is there anything that sits in that non-core bucket at all?

Yes. So -- Look, on working capital, I think in -- let's be sunny side up for a bit for a second, assume the market does start to improve across the course of this year, then I think we'll end up with some relative probably neutrality on stock in the sense that some parts of the business will probably start stocking up a bit more in anticipation of that. But I alluded to it in a bit earlier on, there are parts of our range still where we think we've got opportunities to take further stock out, and there are still some stock reduction targets within the business for this year. And I don't think anything we've done in there has been kind of finance imposed to the point where it's ended up hobbling our ability in the recovery. I think, actually, it's been getting our house in order and discipline led by our commercial teams, which they've been great at doing. On the cost reduction, look, I guess the easy answer is it's implicit in the guidance in respect of kind of what we need to do to reinvest in the roles that we think we need to take on. But you can rest assured in the current market, we're going to keep a strong focus on discretionary spend where we don't need to be spending things. And at the same time, they want to give oxygen to things that Geoff alluded to in terms of incentives and structures in order to get us on the front foot and winning. So, there's a careful balancing out there. Of course, there is. But ultimately, we're not going to save our way to solving some of the problems that we've talked about at the outset. And so, we've got to be sensible and it's implicit in the guidance. And look, on the scenarios on the balance sheet, look, there is a lot of optionality. We've got -- I don't say this in a complacent sense, but the balance sheet isn't the thing that keeps me awake most at night, certainly not in the last 3 weeks or 4 weeks. It's not been the thing that's kept me awake at most at night. We've got a really strong balance sheet. We've got a really good quality property portfolio. We've got means and ways of creating more cash if we need to. And candidly speaking, even in the kind of really doomsday scenario and the market got much, much harder this year, we're still far lower levered and got a far lower cost of financing than virtually all of our peer group that are either in private equity ownership or in any other form of ownership. Actually, being a plc in this market and having refinanced in Q1 on investment-grade debt is a point, I think, a point of relative strategic advantage, which we've worked hard to create the space to do. And we'll continue to run the business in a careful and thoughtful way. You come back to back to that leverage position and the improvement we've made in terms of the overall net debt, you don't need a lot of improvement in underlying profitability just on the way that leverage calc works and you start to see quite a sharp downward movement on leverage. So, we're doing all the right things on that. It's -- we have got further options, and we continue to look at them.

And can I ask just one follow-up on the leverage point. What are the sort of lease liabilities that you're currently carrying for Toolstation France?

They're negligible, but they're wrapped up in the overall cash closure costs for running into next year and have come out of the discontinued operation. As part of the year-end count, they're out as part of the discontinued component.

All right. That seems to be all of the questions. As I say, look, it has been an uncertain time. I appreciate you spending the time with us today. And hopefully, I won't be doing this in 3 months' time, but let's wait and see. Thank you very much.