Ferguson Enterprises Inc (FERG) 2011 Q2 法說會逐字稿

John's going to take you through the numbers, and then I'll give you a quick update on resource allocation and operational progress in the last six months.

But I am delighted to welcome Gareth Davis, our new Chairman, who's with us this morning, sitting in the front row. His considerable presence, both physically and mentally, can only help us move forward faster. And I just said to Gareth that his first Chairmanship with Wolseley in a brewery, very appropriate, Gareth, so good morning.

Let me start with highlights, though, before John takes you through the numbers. We achieved decent like-for-like growth in the first half in all clusters, except Central Europe. Clearly, the US performance was pleasing.

We also increased share in most of our growth engines and synergy driver businesses. And despite very intense pricing pressure, we managed to hold gross margins by improving our mix of customers, products and vendors. But we do not see any reduction in competitive tendering at the moment, and don't expect to see any for the coming months. It's a constant fight out there for every single order, across all our markets.

The performance review process continues to gain traction down into the business units, from there on to the branches as well. This process is being reinforced by the cluster CEOs and CFOs. However, there is still much we can do to improve our operating performance.

We've managed to keep our costs under control, which has led to significant leverage in terms of profit delivery. This leverage rate will drop as we use up some of our spare capacity.

Our revenue performance has picked up, because we improved customer service. Again, we've made decent progress here, all business units now measuring service and product availability down to the branch level.

The customer service agenda is driven by having better engaged employees. I've made several changes to the leadership team, and this is working well. But we have now started to evaluate all of our people more rigorously, and reinvest in training and development of our people in the frontline. Again, like customer service, we are now measuring our progress down to the branch level.

Lastly, the focus and clean up agenda is coming to an end, through better resource allocation, resolution of performance builders, successful redomiciliation and reinstating the dividend.

So, thanks. John, over to you.

Thank you very much, Ian, and good morning, ladies and gentlemen.

How are we doing with the numbers at the halfway mark? Well, like-for-like revenue is 5% ahead, on an ongoing basis, compared with last year. As Ian said, there has been plenty of pressure on selling prices, but notwithstanding that pressure, gross margins overall were 20 basis points ahead of last year.

The cost base was GBP16m better than last year, but if you exclude disposals the cost base went up to 2% higher. Despite that, we achieved flow through to trading profit which was good, with trading profit up 64% at GBP275m. Currency movements gave us an additional GBP6m, and that's principally due to the strengthening of the US dollar. Headline EPS was boosted by lower finance charges and lower tax charges, so that's left EPS well ahead of last year.

So let me move on to the performance review. As you can see, US growth of 11% in quarter two absolutely dominates this chart. That's the reason for the Group's growth rate in the second quarter of 7%.

The UK had a good second quarter too, 5% ahead, and it was 8% ahead overall. No obvious signs so far of the impact of VAT increases or government spending cuts. But growth rates have declined a little since the end of the period. Consumer confidence has gone backwards, and today we are pretty cautious about the outlook for the UK in the second half.

Growth slowed in Canada, and the trends in Nordics and Central Europe were very similar to the first quarter. It's great to see France back into growth, with 2% like-for-like growth in the period. And just a reminder, that reduction in Central Europe, that is as a result of a stopping doing certain unprofitable business.

Just as a note of caution, I wouldn't read too much into that acceleration of the growth rate in the second quarter, because that growth rate is up against relatively weak comparatives, 10% down in the comparative period last year. And I think we should expect growth to become more challenging in the second half, as the growth rates are up against tougher comparatives.

In the US, the recovery in like-for-like growth has been broadly based. All major business units generated decent growth, and that's supported by inflation of about 3.5% in the US. Pricing has been under pressure, particularly in commercial markets. But notwithstanding that pressure, gross margins were ahead in the US in the period.

Like-for-like operating costs rose by 6%, and that's principally related to variable staff costs and variable distribution costs. We've also now started 401(k) payments, which in the second half will cost us an additional GBP5m. I also expect that bad debt charges will increase somewhat in the second half. They have been abnormally low in the first half of the year.

The continued resilience of RMI markets was a driver for growth in blended branches, though the data for new housing starts remains very mixed. HVAC and Industrial growth was strong, and Waterworks continued its recent steady growth trend. But there's little impact in Waterworks of the -- or there's little evidence of the impact of government stimulus spending. In Waterworks, we did complete a small acquisition in the period. That's a three-branch acquisition based in Alabama and Missouri.

We're really pleased, in the US, that Fire and Fabrication has returned to growth, though commercial markets generally remain pretty subdued. And we continue to invest in Build.com, which is our B2C business in the US, the results there strongly ahead again in the first quarter. Each of our major businesses in the US have continued to grow market share.

This time last year Canada was well ahead, as the economy was more resilient and the business gained from the impact of government stimulus packages. That's gone away now. Growth slowed to 4% by the end of the period. And as an indication of construction activity, new housing starts have come down. Good revenue growth in Waterworks and Industrial, somewhat offset by HVAC, where we've probably been a little bit too focused on residential markets.

Gross margin improved, as the new DC in Milton came online. And overall, the headcount increase relates both to that DC, but also to investment in more frontline staff supporting our customer service proposition. Costs were 5% higher at constant currency. Trading profit of GBP23m was GBP5m ahead of last year, and market share in Canada was broadly unchanged.

In the UK here I've stripped out disposals, to show performance from ongoing businesses. Revenue from those businesses was 7% ahead, and the impact of inflation on that revenue, principally commodities, was about 3%. Gross margins were slightly down, and costs for those ongoing businesses 2% higher than last year.

Growth in Plumb and Parts was encouraging, despite intense competition. Gross margins were slightly ahead, and we believe we gained market share. However, we failed to retain a GBP70m contract, supply contract, which was tendered, and that has a GBP5m a year trading profit impact. That contract ends in March. Clearly, had we retained the contract, we would have been retaining it at substantially lower levels of profitability.

We are absolutely committed to our core small and medium-sized businesses in Plumb and Parts. And we are investing a lot more now in the business in local area networks, in Parts, into Plumb, in e-commerce, in showrooms and sustainability centers.

We grew Pipe and Climate strongly. And along with higher inflation, better market conditions and slightly better margins, the business did well and also took market share. Build Center continued to grow throughout the period. We focus more on gross margin and maintenance and keeping the cost base down, to restore that business to profitability, but the business remained behind the market.

The only business in the UK, though, that moved backwards in the period was Bathstore; sales were down 9%. And I think that reflects the fact that big ticket sales in the market generally are challenged at the moment.

Market trends were varied across the Nordic region. We grew strongly in Finland, Sweden and Norway, but market conditions in Denmark remained pretty challenging. Gross margins, always under pressure, were held flat. Encouragingly, there are plenty of opportunities to invest in the region, and we completed two small, bolt-on acquisitions in Denmark. And overall, our cost base in the region was 3% higher than last year.

Trading profit edged ahead, at GBP48m. But in the numbers last year, you might recall there was a GBP6m one-off credit, so the underlying performance is actually somewhat better than that. Regarding market share, we grew market share in Finland and Norway, and held market share elsewhere in the region.

By Central Europe, we predominantly mean Switzerland, Austria and Holland. The story here is pretty straightforward. We have stopped doing certain business in Holland which was unprofitable. That's why the revenue is lower. The team have been really focused on gross margins, which were strongly ahead, and -- whilst costs for the ongoing business were 4% lower than last year.

In Switzerland, where we continue to grow, the new DC was brought online, and that DC is delivering the benefits that we expected. It's great to see trading profit in Central Europe at GBP16m. And if you look now at the flow through to trading margin in this business, that is higher overall than the Group average.

I said last year that France was late into the downturn, and it's late out of the downturn too. Like-for-like revenue was 2% higher. Gross margins were actually slightly ahead. Costs continue to be pushed down, by about 5%. So trading profit overall was GBP18m better than last year, and that includes a GBP3m one-off gain from property disposals.

Inflation helped the top line by about 2% overall, though Wood Products' inflation remains very high at about 12%. The Wood Products business grew well; Building Materials are slightly ahead. Brossette was slightly behind, but it has returned to growth over the last couple of months. On market share, we held market share in Building Materials and in Wood Products, and in Brossette now we believe that we have narrowed the gap.

Let me just move on and tell you a little bit more about Brossette. Firstly, I think we made pretty good progress in the period. Despite lackluster market conditions, trading profit in the business was GBP7m more than last year. Secondly, we do now have a clear and credible plan to return the business to decent margins. But, being true to our strategic framework, we have better opportunities to invest the capital employed elsewhere in the business, and that's what we intend to do.

On this slide, you can see the tally of performance builders. We made good progress on performance builders in the period. These businesses lost GBP8m in the first half last year. This year, they made a profit of GBP2m.

Last month, we sold the business in Italy. That was a business which made very large losses. Its market position we felt was not strong enough to make a decent return. The management team made great progress in reviving this business, and I think they achieved a good result on exit, with a debt-free, cash-free valuation of GBP29m on exit.

The largest remaining performance builders, therefore, are Build and Brossette, which represent about two-thirds of turnover now from those remaining performance builders. The strategy remains the same, improve the performance and reclassify, or exit the businesses.

And just for completeness in the performance review, I'll cover central costs. As you can see, Group costs are under control and coming down. You can also see from the slide that we had GBP3m of non-recurring costs relating to the Swiss move, which is a one-off.

I'll just cover two items on the income statement, if I may, which is finance charges and tax. We've brought finance charges down by GBP10m, and that reflects both the reduction in net debt, but also implementing effective cash pooling across the business. We're now looking pretty close at finance charges, and also the level of facilities that we require in the Group. We may decide to replace and extend the Group's revolving credit facilities. If we do that in the second half of the year, which is quite possible, there are GBP7m unamortized finance costs which we will take to P&L at that time.

Last year, before the move to Switzerland, the effective tax rate was 34%. We did the move to Switzerland just before the half-year. The tax rate is at 30%, and that's en route to the expected rate of 27% next year.

Just let me comment briefly on domicile. We took the decision to move to Switzerland on the grounds of economics and clarity and simplicity of our tax base. If at any time in the future those factors change, we will look properly at that time.

I showed you in December how we measure net debt. We've brought adjusted net debt now down to GBP933m. That's GBP260m better than July and more than GBP500m better than this time last year. Pension liabilities have also come down to GBP338m, and that's principally a reflection of the returns on equity markets.

What's the shape of the cash flow? I've broken the working capital movement here into three parts. I talked at the end of the year about this historical working capital management exercise that the Company had done at the end of the period. That's unwound. Our managers are now incentivized on month-end targets, month in, month out, every month end, not just on those two period end numbers.

We reduced the utilization of receivables financing by GBP118m, which again I think I flagged back at final. And finally, we invested another GBP72m in working capital, which was to make sure we had the right inventory and receivables there to finance the growth in the business.

But just let me remind you; my guidance on working capital absorption or working capital investment as we grow still remains. Over an annual period, I expect 12% to 13% of incremental sales to be invested in incremental working capital.

Further down the cash flow, as you can see, we're back to the normal tax payment cycle and we paid GBP46m of tax in the period. In the second half, the tax -- the cash tax rate may go up, as we expect to tidy and settle a number of historical tax liabilities.

Proceeds from disposal relate principally to the sale of Brand and Hire. And you'll see that we've stepped up our rate of capital investment in the business; that was GBP48m in the first half of the year. So the likely outcome this year is somewhat lower than my earlier guidance. I would guide now to somewhere in the range GBP120m to GBP140m of CapEx for this year. And as you can see from the slide, we are continuing to sell any surplus assets that are not properly employed in the business.

And as a consequence of all of this, return on capital grew from 14% to 23% in the period. After adding back goodwill written off, the return on gross capital employed was increased to 9.3%.

Finally, how are we thinking about capital structure? At the final results, we talked about our approach to the balance sheet, and we gave a target net debt range. And that was the ratio of net debt to EBITDA in which we were comfortable trading of 1 to 2 times. That's consistent with investment grade credit metrics. Our balance sheet strategy remains absolutely unchanged.

Today, we've also announced an interim dividend of 15p a share. And to put that into some context, we'd expect the interim dividend to be about one-third of the total dividend for the year. The business is strongly cash generative. And our views on dividends take account of both the prospects for reinvestment in organic growth and also via carefully selected acquisitions.

We've considered the level at which the dividend is reinstated very carefully. We don't intend to link that level to a certain level of dividend cover. Our mindset is to think about a rate of growth in the business over the long term that is sustainable.

So, in summary, I think we've made decent progress on the P&L in the first half. We continue to deleverage the business and we've started paying dividends again.

Ladies and gentlemen, thank you very much.

Thanks, John. Good. Thanks, John. I'll start by giving you a quick summary of our delivery against our commitments. I'd then like to take you through an update on resource allocation, but then spend the bulk of my presentation, like last time, on the operating performance management of the business.

This is critical because, as I've explained in the past, grinding away at operating performance delivers enormous returns in this business. And I'll make no apologies for using some slides from previous meetings. We're being very consistent in our approach to driving the business.

In terms, then, of delivery against our plans, we feel we've made decent progress. Also very conscious there's still a lot more to do, though. We've again sharpened the allocation of capital to the highest return areas, ensuring we generate accelerated organic growth. We're investing more in training and development of our people, to keep the great people longer, and helping them to become more effective.

We've put far more effort into improving the quality of our inventory, to deliver better product availability, and we've upped our investment in e-commerce. We've made a few selective bolt-on acquisitions, which we will integrate quickly and ensure we deliver our expected returns.

The performance review process is gathering momentum. We have good visibility down to business units, and also into our 4,000 branches. For example, in Ferguson, for each branch we have a dashboard of customer service, product availability, local market share performance, branch manager performance, as well as financials. We're measuring employee engagement now on a regular basis and improving our ability to retain our most engaged employees, because there's a direct causal link between engaged employees, customer service and financial results.

We're beginning to get best practice adopted across multiple business units of an increased IT investment behind projects that will deliver better frontline performance. Sales force productivity, pricing and trade terms management, product availability down to the branch level, data warehouses to ensure dashboards, with all relevant performance data by branch. We've said in the past that we don't need new ERPs in our businesses, but we do need processes and IT systems that better support our customers.

I've strengthened the leadership team over the past 18 months, so I'm now confident in their abilities, assuming of course they perform. But we have now also evaluated all our management down to branch level, as we know -- so we know where there are performance gaps.

John has already taken you through our performance on performance builders, redomiciliation and reinstatement of dividend.

I've used this slide several times in the past. And just to remind you, we are driving a parallel path of strategy development and performance management, to generate profitable growth, strategy both at a Group level and also at a business unit level, and performance management at both business unit and across business units. Our progress on cross-country sourcing has been slow, because of other priorities, but we're now increasing our focus and resources behind that.

To the first part of resource allocation, we used this slide 12 months ago to describe how we are approaching allocation of resources across the Group. We've rerun the process for the four factors of market attractiveness, strategic position, performance management, and obviously synergies with the rest of the Group. The result is that we now have, again, a very clear view on our attractive businesses. And we're now left with six performance builders to resolve, with by far the largest being Build in the UK.

So this is how our portfolio of businesses looks in terms of return on sales and also relative market share. Most of our businesses are either leaders in their own right, or have a relative market share of at least half times that of the leader. This is on a national basis. Often, when we look at regional share, we have a stronger relative position.

We do have a very strong set of businesses. Almost all are now making profit, and all but one has improved its margin over the last six months. Many of our businesses, though, although in a good relative market share position, only have a low level of absolute market share, which is why we believe there's so much more growth potential.

Ferguson blended branches in the US has only 12%, the Waterworks business in the States 16%, Plumb in the UK has just over 20%, Stark in Denmark 16%, Beijer in Sweden just 8%. Our Wood Solutions business in France is a clear leader, with more than 20%, but PBM, our Building Materials business, has only 12% market share.

Because of these strategic positions, as well as our gross margins holding up well and we have good control on our cost base. So, consistent with what we've said in the past 18 months, we see absolutely no reason why we cannot get back to historical levels of return on sales, assuming of course reasonable market conditions.

As last year, we've also analyzed our return on capital of each business unit, to ensure we are delivering shareholder value. And as John has described, our return on operating capital is coming back to a reasonable level. And again, we see no reason why we cannot get back to historic levels quite soon, assuming reasonable market conditions.

For the last two meetings, I've detailed our approach to strategy and driving performance at a business unit level. It's obviously dependent on us gaining share from existing and also gaining new customers. To do this, we have to develop best customer service, and also have preferred relationships with our vendors. And this is all driven by having the best staff in our industry, throughout the organization, but particularly at branch level. Underpinning this, we must have the most efficient operating model in our industry. Today, I will update you briefly on progress.

Ferguson, then, is our first example. Frank and the team are progressing a series of initiatives, from moving more to system rather than manual pricing, to expanding our private label offering in new categories, to improving our sales force productivity in the showrooms, accelerating the growth of our business-to-business and business-to-consumer e-commerce offering, and expanding the branch dashboard to capture all key performance measures, as well as continuing to drive better customer service in the branch, which is what I want to focus on now.

And building on the work from last time, we have improved our Net Promoter Score from 55 to 65, which is getting to be pretty much best in class in our industry. In many areas, we've improved our performance in terms of range, rate and speed of service, billing accuracy, product availability, pricing and deliveries. However, we've dropped, in the last month, a little in terms of relationship with associates, which is driven by the business picking up rapidly and leaving us sometimes short staffed at peak times, in the early morning or late afternoon. US team are obviously now recruiting selectively, where we have very busy branches.

And last time we looked specifically at product availability, and this has again improved. We know that availability is a key differentiator for our customers. They would rather pay a little more to have instant availability. Their economics are driven by job completion, not a few more basis points on copper tubing, boilers or toilets.

We have, over the last six months, expanded the 100% availability initiative at branch level from 2,000 to 3,000 SKU. Remember, in the past we only used to measure availability at DC level, not from branch to customer. Given the initial success, we've increased the core availability range to 3,000 SKUs, which now represent about 55% of our total business. And remember, even our core products have huge variability month on month, by up to 20%.

Service levels have again moved up to 99.2% at branch, and improved 2% from the DCs. We've also managed to reduce the extra stock we put in from about $10m to $8m on a total stock of $1b.

As you can see, we've edged forward availability on the 2,000 lines and also on the 3,000 lines, the blue line here, from when we started that in August 2010. We've worked hard with our core vendor community, to make sure preferred suppliers are advantaged, and we get better deliveries and improved terms. Often, vendors only manage 75% availability into our network, but some of our key vendors, Kohler, American Standard, Trane, Vitalik, are all up in the 90% mark now.

But this small increase has a significant impact on order completion. We now have improved our order fill rate by some nearly 4%, 5%. So the variability of SKU demand on the 3,000 SKUs at branch level gives us a real competitive advantage versus the local competition.

The 3,000 SKU initiative has been one of the main reasons for Ferguson outperforming the market. In 2008/2009, we were performing broadly in line. But the 2,000 initiative and now the 3,000 initiative has been executed; we are moving well ahead of the market. In the last two quarters, we've been about 6% to 7% above the market.

And we also know from our research that during this period our share of wallet has increased, on average, to over 60% of our core customers. And certainly, anecdotally, when I was last in the US with Frank, visiting customers in the west and central regions, it was remarked on regularly that we were ahead of competition in terms of product availability.

And now we know we can execute this plan, we are beginning to make this advantage a real point of differentiation. Firstly, we are broadly communicating the guarantee to our customers, 100% on the top 3,000, 98% on all orders, pickups ready if you call an hour in advance so no queuing, 24-hour phone order service, and we'll guarantee to fill customer -- sorry, competitor back orders if they don't have the stock available. We're testing the promise of free product within 24 hours if we don't have the 3,000 SKUs in stock, and this would again move us ahead of competition.

So, with better product availability in our branches, supported by our key vendors, we know we have a real advantage versus the small local players. And certainly this is one of the benefits of scale and why our Net Promoter Score has moved up so much. And clearly we're replicating this initiative in other parts of the Group, Plumb and Parts in the UK, Pipe and Climate as well, Brossette in France, and also the building merchants businesses in the UK, France and Nordics.

Turning, then, to the second example, like Ferguson, Plumb has a series of initiatives aimed at improving our gross margin. Do you want to move on one, Mark? That's it. We're rolling out local area networks, where we have -- where we group smaller branches around a large mother branch. This allows overnight stock delivery, better utilization of staff to respond to peaks and better management of regional customers who buy across the local network.

We're working to improve sales force productivity. We've invested an extra GBP9m to improve our e-commerce offering, which goes live in a couple of months. We're looking to develop a series of new branches where we have low penetration. We believe there may be another 30 or 40 locations in the UK. And like Ferguson, we're improving our product availability and customer service.

We've rolled out a new merchandising planogram in November across all of our 700 branches, which has led to a 25% uplift on merchandising sales, although I would stress that's a relatively low absolute number.

And there are two initiatives we want to describe in more detail, rolling out Parts branches into Plumb, and also improved employee engagement.

Firstly, though, when we met last time, we explained we were recovering our gross margin in Plumb, the dark blue line, in 2009's performance. We are delivering now on the whole series of initiatives that we discussed last time, to reverse the trend. And you can see from the light blue line that we've managed to continue the better performance, and now back above the 2009 levels.

One of the key projects here, we explained last time, was working with some of our key vendors, like Baxi, Meissen, Ideal or Twyford, to get a better, more profitable mix of products, improved branch stocking profiles and better joint sales programs.

We've now completed the Parts rollout and have 500 Parts branches across our Plumb network. We have a strong position in Plumb, but an even stronger position in Parts.

There's been a significant increase in our revenues from the expansion plan, with sales between 200% and 250% up on the same period, and also a better gross margin by several percentage points, as we have managed to improve the mix of our business. December was a particularly good month, because of the cold snap, for Parts.

In 2008, when we were just going into the downturn, the UK business was not in good shape in terms of employee engagement. There was confusion about strategy and direction, and we were investing heavily in some non-core businesses. Steve Ashmore took over as MD 12 months ago, and we've set about getting clarity on direction, investing in core businesses, making sure we're communicating clearly and honestly, executing better training for our branch managers, and ensuring that we're conducting high-quality, twice-a-year assessments. People always want to know where they stand in an organization.

Results here show that even at a time when we have laid off some -- over 2,000 people, we've managed to improve the way our people judge the Company. They've always been satisfied with their day-to-day jobs, but now they are far more satisfied with the Company as an employer. They are also significantly more committed and proud to work for the Company. As a result, our involuntary staff turnover has reduced significantly, and we're now near the top quartile of UK businesses, in terms of overall score. And just like customer service, we're measuring regularly our staff engagement and have taken more actions to ensure continued progress.

With the result of all these initiatives, we've managed to nudge ahead again in terms of service across most aspects, reduced waiting times, attendance and efficiency, better knowledge, better stock availability, like Ferguson, where we've significantly moved ahead. And also terms, where we have been through a complete program of reclassifying our customers, so that their terms are consistent with their business performance.

Overall, like Ferguson, this has led to an improved share performance during the early summer. Last year, we did lose some share as we addressed the terms with some major customers. But since that time, we've managed to get back to decent out-performance versus the market, and expect this to continue as we roll out further initiatives.

Clearly, the loss of the large contract John highlighted was gutting. We tried very hard to get a decent commercial agreement, and we're disappointed not to win the business. Obviously, we hate to lose business. However, we do believe we made the right decision not to price lower, given the new contract would have led to a very small profit for us, with potential risks and no obvious upside.

Last example of our progress is looking at how we're developing dashboards in our businesses, to make sure that we have easy visibility to our holistic performance of our nearly 4,000 branches. Let me take you through the work being done in Stark in Denmark, where we have a leading position with 16% market share. Steen Weirsoe, the cluster CEO, and General Manager Lars Hansen are driving this work down into the 83 branches in Stark.

The Stark business has performed well in a very difficult market. They've only just recently returned to growth, though. Steen and Lars are working on several initiatives. They're working to expand our channels to government institutions, where we've have been underrepresented. They have done a great job improving the skills of our people. Even though they have laid off 500 people, our involuntary staff turnover is now in low single digits.

They are working on new product categories, approaches like flooring, to improve margins and own-label penetration. And they're rolling out more training to our customers, as a service, paid for by the customers. And last time we explained the self-build concept for professional self-build consumers, which is progressing well. Where we have the right trained staff, we get uplift of between 10% and 20%, and at a decent margin.

But today we're going to focus on the dashboard development for branch performance. First of all, the data that you see over the coming slides - it's not easy to see from this one; it'll be in your pack - is easily available from the ERP or the data warehouses, and is downloaded automatically each day into this format. Let's be clear, there's nothing unique about what we're doing here, but the huge advantage for the branch manager is it's all in one place; he doesn't have to go scrambling around, trying to find the data or the comparisons.

The front office dashboard, this one, looks at sales and gross margin performance and then, critically, the sales activity is reported. How many meetings with core customers, our setup this month, does the pipeline look good? Then the number of bids outstanding with customers. We know that active follow up, and often in person, gets a far higher strike rate.

We then have core customers, which are growing, which are declining. Again, it's clear which battles we're winning or losing. And also the customer service measures we showed you six months ago. And in this instance, 10 very happy customers, three are -- two are okay and three are not satisfied, and these can be identified specifically. And why, the reasons, can be drilled down from this dashboard as well. And finally, the product split, the sales with the gross margin as well.

There are then a whole series of internal measures on separate dials, product availability, manual versus system pricing, credit measures, cost and productivity measures. But let's look at just one dial, to give you a sense, which is the proportion of orders matched with invoices directly, so that they can be processed efficiently and debts collected rapidly.

This dial is the Kobsmatch dial, in Danish. That's about as good as my Danish gets. In this dial, the branch manager can see his or her performance versus forecasts, and if needed the drilldown can be used by clicking the green star, the triangle or the Stark man. Around the quadrants here, the Polar Bear is our Greenland branches.

So, if the branch manager drills down, he can see what best in class is like across our 80 branches in Stark network. He can see the development over time, month by month. He can see where he stands versus colleagues in the league table. He can then see some more details in the period and the period previously, and what is benchmark average for the best 30 branches. So, in one dashboard, the branch manager can see all he needs to measure the holistic performance of his branch, and who he can learn most from in terms of improving his performance. Each variable and dial is then given to one dedicated person in a branch, so it can be monitored and managed.

Steen and Lars are now rolling this out to the branch network. I hope you can see again there is still a hell of a lot more that we can do to improve our performance. And clearly, assuming this initiative is a success, it will be one of the ones we'll be looking to roll out in more detail across other business units.

So, again, this is a very similar summary to the meeting we had six months ago. As I said upfront, we're great believers on just being consistent. We need this absolute bedrock of great and consistent branch-by-branch, day-by-day performance. We're clear about our future direction. We will continue to resolve the performance builders. And assuming reasonable market conditions, we will complete this task over the next six to 12 months.

Clearly, if the right bolt-on acquisitions come along, we'll take them into our network, but we will be very disciplined here. Given our strong strategic positions, we're under no pressure.

We're pleased with the performance of the businesses improving, and we're now getting good visibility down to branch level across the crucial performance measurements, but we still know we have plenty to do. Lastly, there are still significant growth opportunities to go for. And given the already high return on capital in the Group, we should be able to deploy more resources in a disciplined way and create good returns for shareholders.

New customer segments, sales force productivity; we are a fair way behind the fast-moving consumer goods businesses I'm used to. Pricing and trade terms management, share of core customer businesses, we've only just started measuring our share of wallet. We can still improve our service and reward schemes to gain a share of their business.

E-commerce, the whole industry has been relatively slow to invest. We want to be in the lead here. And given we do actually have the last mile in the value chain, we believe we're well advantaged. And finally, employee engagement.

So net, I think we see decent results. We're making progress. There's still a hell of a lot to do, but we're starting from a solid platform.

We're happy to take any questions now.

In the front row. There's a mike down here, Lisa, when you --

Okay. Sorry. The cough wasn't an intentional trying to get attention. (laughter) Howard Seymour from Numis. If I could ask two questions, please. The first one, really, John, you alluded to the costs in the first half and rattled through them. Could you give us an expectation on costs for the full year in terms of where you expect to see costs going up, etc., on an operational basis, by division if possible?

Well, let me try overall first, Howard. I think the way in which I look at the costs is what is our cost base today and where is it going. So this is on first-half numbers. The cost base in the first half was 1558. I think the second half looks like it's going to be something like 2.5% higher than that, GBP30m, GBP35m, GBP40m, something like that.

The big drivers of that, we've got -- I mentioned 401K costs in the US. Bad debt charge has been very low, 0.26% of sales in the first half. That's against a long run average. It's credit management costs, actually, of 0.42%, so I think there's probably another up to GBP10m if we got back to normal run rate. And I don't see why we would be lower than normal run rate at the current point in the cycle.

There's some variable pay costs coming through now, commissions and bonus payments, because some of the numbers in some areas are better than budget. And there are some other costs such as, for example, oil price inflation costs. We've got an oil bill around the Group of probably thirty something million. I would expect that to be up GBP3m or GBP4m in the second half.

So those are some of the drivers. Some of them are across the board and some are more localized.

Okay. And the more localized, would you specifically pick out the US as the one, because of the reasons you've said, where those costs will be slightly higher than in (multiple speakers)?

Yes. Today, that's certainly the case. So the US costs in the first half were 6% higher. They're going to be a little bit higher in the second half, driven by variable pay, variable distribution costs, plus the 401K costs that were suspended during the downturn.

Okay. Great. Thank you. Second question, really for Ian, it was just a general one, because you mentioned specifically at the end the three drivers, the sales, the gross margin and then the net. Which of those do you see as the key driver going forward to get you back to, as you said, the historic margins? Is it now going to be the top line growth, because obviously margins are getting back to a more normal level? Just on a general basis, but over the next couple of years. Thank you.

I think it sadly is going to be all of those. I think where we've done well and I think we do feel the top line growth has done well in the last half, 5% like-for-like growth. We're gaining share in the core markets, which certainly makes us feel better, particularly the US numbers look good.

But we want to do that in a way that we continue to just eke up our gross margin. Holding it has been a huge task. I've talked about it in the past. No let-up in price competition. It's bloody hard work, down to our mix of customers, vendors and products, but I think we're getting a lot better at that. So I think, again, a little bit of tick-up in gross margin, assuming reasonable market conditions.

And then, to the conversation you've just been having really with John, we'll keep a very close eye on our cost base. This business, to me, doesn't yield to big strategic moves. It's about doing a lot of small things very, very well. And I think that's actually where we're beginning to get better again.

Thank you very much.

Okay. Gentleman over there.

Morning. It's Charlie Campbell from Liberum. Just two questions from me. I just wondered if you could update the like-for-like sales growth into February and March, just to give us an idea how the second half has started.

And also, on materials or selling price increases, I think 3% in the first half, would you expect that to accelerate in the second half, given things that are going on in the world today?

The like for like, we haven't fallen off a cliff, Charlie, since the end of the year. I mentioned it's a bit weaker in the UK. The UK hasn't fallen off a cliff, but it's a bit early for the March numbers yet. February was fine. So it's steady as she goes at the moment. It's about now last year when we moved into growth, so I'd be more concerned about May, June, July, really, than February, March.

I think, in terms of the materials price inflation, we've said historically that materials, commodities represent probably about 15% of our cost of goods sold. And clearly some of those are pretty closely related. Copper pipe is copper pipe, and it's overwhelmingly copper and not a lot of value added. So we've got a good handle on that inflation. And you can actually go back and retrospectively -- you can rationalize the inflation that we've had. I said 3% in the UK, 3.5% in the US, and slightly lower in one or two other areas, so there is some local inflation.

I would say that around the rest of our product set it's not highly inflationary, has not been highly inflationary in the first half. So, most of the inflation that we've measured is due to commodities in that first-half period. And outlook for that, clearly there's some flow-through of that. I wouldn't be able to call that today, frankly, Charlie, where it was going to go in Q3 and Q4. Q3 there's some indication, because it's a continuation, but Q4 it would be early to call.

Thank you. And just to follow up on the like for likes, we've seen obviously some pretty bad numbers out of North American or US residential, particularly in February. I guess it's quite easy to attribute that to snow, but is that your understanding of that? And as the snow clears, is activity picking up again?

Charlie, point one, I think we made the point last time, new residential build is only about 20% of our US business. Okay? So we're not at all dependent on that, point one. But you're right, point two, there was a very low number in terms of new house sales.

But then, if you look at the other indicators, so, for example, total house sales actually held up pretty well, and that's a far, far larger number. Secondly, new residential starts crept up to just below the 600,000 mark, coming off the base of about 530,000. So, again, that looked to be moving in the right direction.

Consumer confidence actually is pretty optimistic. It's moved up from the low 50s up into the low 70s over the past six months. And looking at the data that we've seen recently, that's clearly been going in the right direction.

Other measures we look at; the architectural -- architect AIA, architect indicator of how active the architects are, that's above 50. Above 50 would denote growth. We also now -- in the last three or four months, we've been doing very regular surveys of our customers and asking them, give us a sense of how you see the following period, and they are seeing low single-digit growth is what they would be suggesting. And the last one being LIRA, the Leading Indicator on Remodeling, again would suggest - which is not a bad indicator for us - would suggest a good second half in the States, and unemployment down below 9%, 8.9%, and 200,000 job starts. We are cautiously optimistic about the US at the moment.

Good. Thanks.

Sorry. I can't see. Yes, in there.

Yes. Good morning. It's Paul Roger from Exane BNP Paribas. A couple of questions. Firstly, you've talked about the risk of cost inflation, particularly in the US. I wonder if you could say a bit more about the actions you can take in the second half.

You've obviously done a good job in the first half. You talked about some of the initiatives. Is there more to go? And what do you think the gross margin could do in the US, in the second half?

And then, secondly, on the use of your balance sheet, obviously you're comfortable in the 1 to 2 times net debt/EBITDA. Some of your competitors have talked about an increasing improvement in the pipeline for bolt-on acquisitions. Is that something you've seen? And if so, where would be interesting?

I'll do the first one, John. You can do the second one.

I was going to suggest the other way round.

Well, after your insightful comment about copper earlier on, I think I'll leave you -- you just do the second one. Look, in terms of the gross margin, the same sort of answer. We're working the whole mix of the business now really very, very hard.

So we get more money, better margin from counter sales. We get better margin from showroom sales, get better margin, actually, from smaller customers rather than larger customers. We get better margins where we manage our pricing matrix and trade terms matrix, and make sure our customers are in the right block in there.

So I think, as I said last time, though, if you look at just the like for like, a contract that's being bid out, it would still be very brutal in terms of pricing. So I don't think we're seeing any uplift in like-for-like pricing, but by working the mix of the business we think we can begin -- we can continue to edge our gross margin forward. And certainly, holding it, edging it forward, that's absolutely where we're trying to get to.

In terms of the balance sheet and acquisitions, John?

I think the pipeline for M&A, it's pretty thin; it remains pretty thin at the moment. There are half a dozen things on there. They're pretty small. And from our perspective, that's fine.

We've got plenty of work to do in the core business, and acquisitions would be the icing on the cake. We will either use the balance sheet wisely, or we'll keep the cash in the bank. So I'm not too concerned about that. I think we still expect a pickup in M&A activity, is the reality, but there hasn't been a lot of pickup so far.

I think, again, as we've said in the past, we don't need to do M&A. You saw the relative market share positions we have. We have good positions, from which we can grow the business. I think I was trying to highlight in the charts I went through, I think there's still a huge amount of organic growth potential. So, look, absolutely, as John said, for the right acquisitions we'll do it, but we have plenty to get on with now.

Down here. Microphone, someone. Lisa. Come on, Lisa; get a grip. (laughter) John, hi.

Thanks. It's John Messenger at RBS. Three, if I could. First one was just on the UK. Obviously, this 25% public, I wonder, could you flesh out how much of that you see as being the new build component and how much of it is repair and maintenance where you have a view that clearly it still has to happen, just to give us a rough feel as to how much you actually feel of that 25% is truly exposed to the big cuts?

Second one was just on the UK again. Obviously, that GBP70m dropping out and the deal that Travis had done, from a purchasing power point of view, in terms of just your negotiations with the manufacturers, are you still able to drive the rebate dynamics in the next 12 months, or does this create a bit more of a challenge for you in terms of rebating? That was the first question, sorry.

Sounded like two to me, John, but anyway, all right.

The second one was just on performance builders. You mentioned there you've got a plan for Brossette. I just wonder, could you just flesh out a little bit, because obviously you talk about potentially it will be disposed of is one option?

Just what is brutally wrong with France, in that it's 25 miles away from the -- across the border? Is it just because it has had such a low level of investment that actually there's a lot needs to go in? Because on those various tests you've got, you are going to have more financing, what actually is holding you back from a view about the general return you could make on Brossette? Because for the Group to pull back from a plumbing and heating market like that would look quite a challenge.

Yes.

And then the other one was just a cheeky one. Bathstore, clearly, hopefully you pushed back on Electra trying to strong-arm you in getting a deal done this side of the results meeting, which is commendable. But what's the sales level in Bathstore broadly for us, just to have an idea of how big it is?

And then, finally --

No, no, no. John, come on, come on.

It has to be, because John mentioned a sustainable growth in the dividend. I just wondered -- the Group used to talk about a sustainable growth rate for the Group based on organic and acquisitions. I just wondered, when we're thinking about ignoring cover but a long-term growth rate from this low level, what kind of growth rate might you envisage?

John, do you want to come up and do the presentation?

No, no, that's fine.

Look, Bathstore we're not going to comment on, okay, in terms of where it fits in the business. We've got a good plan to turn it round. It's in a tough marketplace at the moment. We're not losing market share. Okay?

Let me do Brossette. Then I'll do UK. And then, John, you can do dividend.

Brossette, look, it's -- yes, it's clearly a huge decision for us to take. I think 18 months ago, 12 months ago, six months ago, I think I was very clear about laying out the problems that we saw in Brossette. Initially, it was around performance, product availability, the service of the business.

We've done a lot of -- a huge amount of investment in the DC network. We have eight DCs in France to cover half the country. In the States we have 11 to cover the whole country. So we have massive overcapacity in our logistics and DC network.

We'd invested a lot of money, actually, in small satellite branches that when the market went into recession these businesses became unprofitable very quickly. And bluntly, our cost base had got a bit out of control, and I don't think we had particularly good leadership in there as well.

So, again, as we've highlighted, we made all the changes that we would -- absolutely we would be expected to make in terms of leadership, taking the costs out, improving the productivity of the sales force. And we've seen progress. The business is back in profit. Well, fine, but it's still at a very low level.

And from our point of view, John, it is a sad conclusion to draw, but when we look at the amount of investment we'll now have to put in to reconfigure the whole of the cost base, and particularly the logistics and the supply chain network, to get Brossette back to the sort of 5% return on sales levels that it has achieved historically, that's a big number. Okay? It's expensive restructuring in France, and it takes a long time.

So, when we look at a big number and we might take at least three more years to get back to a reasonable level of profitability, and then compare that to the opportunities we have in the other fantastic businesses we've got, bluntly, it's a straight trade-off in terms of time, effort, energy, resource allocation. And we have been, I think, pretty brutal about the resource allocation process. So it's a tough one, but I think absolutely the right one to do.

In terms of the UK, the 25% of the business, difficult to give you a real sense of how much of that is RMI versus new. It's probably over half is in the RMI category. Okay? And that clearly will be less impacted by what's going on in the UK.

And I think we are cautious about the second half in the UK. But be clear, the first half -- sorry, the second half calendar last year, UK came back well, like for likes up 6% in a market we think growing about 2% or 3%, so our volumes up 2% or 3%. That we thought was a good performance.

But we are certainly cautious and, as John said, we can certainly begin to see some leading indicators heading down a little bit. But we're not talking recession; we're talking a slowdown. Consumer confidence you've seen come off in the last couple of months.

And the contract that we lost, we're not going to comment on who picked it up. But clearly the magnitude, the quantum of it, GBP70m in terms of purchasing on our total boiler volume is not a significant change. We're still one of, by far, one, two leading players in terms of boiler negotiations. And we -- anyway, yes, we do not think that that will impact our ability to get the right deals.

John, do you want to do the dividend?

Yes. John's on number six now. He's just grabbed the mike.

Can I just -- just on that point there about buying power, it wasn't so much the GBP70m, just that actually you have got a quantum. Those 30 to 40 branches for Plumb in the UK as a potential rollout, do you almost need to do that more now to drive the top line, to incentivize your manufacturers to give you the best deal (multiple speakers)?

Oh, I see. No. Look, clearly, no one wants to lose GBP70m; point one, absolutely. It doesn't move us from one sort of category down from the best to medium. All right? It moves us off a small amount. We think we've got a lot of growth initiatives going on now, okay, that can absolutely support the boiler manufacturers.

And whether the boiler manufacturers really want to support the contract that we lost is a good conversation. So we don't feel the need to rush out and roll out branches willy-nilly to recover the buying scale. We're doing more work on pan-European purchasing as well, so if there is any sense there, we believe we can appropriately get to the right deals.

John, do you want to talk about the dividend growth?

Yes. I think -- John, we'll have an answer this time next year, so we'll have to put it on the board then. I think a couple of observations. Clearly, if you work out the cover at the moment, although that's not the way in which we have thought about the dividend, if you work out the cover at the moment, it's well covered.

That leaves us good resources to reinvest in the business, both in terms of selective bolt-on M&A and also in organic growth. So I think we have very good returns on capital in the business. And reinvesting that cash in income-generating assets will be a big driver for growth going forward.

We are not an ex-growth stock, not in our view. And so I think our growth rate -- and look, same-store like-for-like growth, are we going to have double-digit same-store like-for-like growth? I doubt it. So, modest same-store growth, with all of the actions that we are focused on and our management teams are focused on. Every day they are well motivated to get the right growth out of that, really boosted by growth from reinvestment, that's the way that I see it, and thus being very disciplined on margins and the cost base to make sure that that flows through to the bottom line and is converted appropriately to cash.

Lisa.

Clyde Lewis from Citigroup. Three, if I may, as well. One on the UK. Just looking at the data that John gave earlier, in terms of the number of branches has dropped about 33, I'm just wondering if you can explain a little bit more behind that. And also, it looks as if the headcount number is flat, so it does look as if you've invested in people. I just wanted to clarify that a little bit.

The second one is probably for Ian. In terms of all the surveys that you're doing for customers, the one that you didn't have up there was price perception in terms of where does the business fit in terms of good value, bad value, expensive, cheap, etc. So I'm just wondering if you can say little bit about that.

And the third one was on margin targets. You've given a general getting back to where you were previously, but can you give us a little bit of help in terms of timescale? And I suspect within that mix you've got businesses that you think can get beyond where they've peaked at previously and some that won't.

Yes. In terms of the branch losses, we have some division of branches into the different disciplines, and they either work or they don't. If they don't, we'll reconsolidate; if they do, we expand. So I wouldn't read anything into the branch network. The branch network is fundamentally the same branch network that we had last year.

It's an interesting question, though, Clyde, on the headcount, because we have got investment in here. We've actually invested -- some of the areas that I mentioned, we've invested quite heavily in. The local area networks, the showroom rollout, even the headcount implications of the e-commerce project in the UK at the moment are pretty chunky. And Parts rollout into every Plumb branch has also been -- has also needed some additional heads. So, yes, we have been investing in the UK, and I think that you should expect that rate of investment to step up over the coming six, 12 months.

Clyde, in terms of the surveys [answer], yes, you're right. It's just my charts were already busy enough; I couldn't get any more on them. Price perception, when we ask our customers, price perception normally comes up at about number three, number four variable in terms of differentiator. Okay? So it's absolutely product availability, relationship with the associates and the ongoing management of their business comes up before that. So price perception, three or four in the ratings, and our performance versus competition would be about in line.

Bluntly, I don't want to be seen as the cheapest. I want to be seen as the best in terms of service, and then be competitive in terms of price. So our price perception would be about in line with the competition. But it's not actually a key differentiator on our core customer base. Clearly, when you're bidding for contracts, yes, price is a fundamental driver there.

And then, in terms of margin targets, well, look, we don't have margin targets for the Group because, as we've said before, we have 26, 27 business units, all with different gross, net margins, different cycles, moving through the business. We're very consistent, though, that we absolutely do see we can get these businesses back to the historic highs they had. Whether we can take them beyond that at the moment, I honestly don't know. Of course we'd like to think we can. But let us get back to delivering what has been done historically, and then take it forward from there. Okay?

Sorry. We'll come back. There's one here.

Hi. Ian Osburn from ING. Just more on the potential for acquisitions in the US, you've made it clear that you're focused on the return on your capital employed. It looks like some of your competitors are now trying to consolidate over there. Some of the smaller competitors will probably be working capital constrained. You're investing in working capital yourself. So I think this could become a theme in the sector sooner rather than later. I just wondered, presumably you've worked out your strategy, and I wondered whether that would be to try and rebalance the Company, your exposure between residential and non-residential infrastructure, or is it to actually grow market share in your existing markets?

Also, quickly on the UK. I presume that the contract you lost, am I right that it is British Gas? And would you say that that's a one-off, or do you have further painful decisions to make between market share to defend margins?

And a very quick question as well to John. You mentioned an increase in bad debts in the second half. I was unclear whether that was just the UK or more global, if you could just give me some details on where that might be and how material.

Yes. Look, just in terms of -- we're not going to comment on the specifics of the contract in the UK. We have nothing else of that sort of scale or magnitude. Everything else is in the run of business.

In terms of the first two, acquisitions in the US, John's already said, we would step forward on small bolt-on acquisitions. [Absa] is the one -- the Waterworks one we've done in Alabama. Good business, three branches, strengthened our market share position there, where we were relatively weak. So we will step forward where we see the right opportunities. Again, we've made the point in the past, our blended business, and going to the chart I had, we're two times larger than the nearest other competitor, so I'm not -- we're not feeling under any pressure to go out and do lots of deals. We'll do them if the right ones come along.

And it's a good point you make. Talking to the old hands in the industry, they would say there will be more opportunities coming through as the businesses get back to growth, because that's when people struggle; private family companies struggle to fund the business. And I think particularly in the States there's still a huge difficulty getting credit at a small company basis. So that may come through. If it does, fine; if it doesn't, fine.

I think, in terms of the share, we're very clear. Our customers move around. So if new res falls off, they'll go into RMI. If RMI falls off -- so to some extent, we have these definitions. Our customers will go where the work is, so our whole obsession is how do we get higher wallet share with our existing customers. And I think we're going to continue to drive that. And then how do we go into new customer segments. Hospitality I talked about. In the property management business, there are big companies out there who we're talking to now. So those are new segments that we think we can get into.

In terms of bad debt, John, do you want to --?

Yes. I think the bad debt experience in the first half was generally positive across the Company. And I would say the business has remained very disciplined. Management have remained very disciplined on credit management. Credit management is independent of the normal line management process. So it's a pretty strong function in the Wolseley Group.

And so, do I expect it to deteriorate at some point? I'm afraid I do. And actually, in one or two geographies, there is already some evidence that bad debts might creep up. For example, we've had a couple in Austria recently that were quite chunky. And I would expect it to pick up, and pretty much across most jurisdictions. It's difficult to say anywhere in particular. The charge in the first half was GBP17m. That compared to GBP27m in the same period last year, so GBP10m better first half this year compared to last year.

And can you just outline what you see the driver of the increase in the bad debt is, if it's so global?

Sorry?

Can you outline the drivers of the bad debt that you see.

Well, I think there's no step change in the Company. There's no difference in how we look at allocating credit limits to customers. I think it will be primarily a consequence of the economic environment. As Ian said, there are still whole swathes of the US where for small companies to obtain credit is really, really difficult. And a lot of businesses -- and this is just a personal feeling. I think a lot of businesses have been hanging on through the downturn. And dare I say it with a few bankers in the room, perhaps the bankers have been more disciplined than in earlier cycles in not letting lots of businesses go to the wall very promptly. But to me there is some evidence now that the rate of corporate failure might pick up.

Thank you very much.

Could you pass the microphone forwards to (inaudible)?

It's Kevin Cammack at Cenkos. Two questions I have. Firstly, in view of the comments you've made about Brossette, could you give us a relatively up to date capital employed figure that's there, either gross or free of debt?

And just, I can't recall from memory that you've actually taken any impairment on Brossette, but, again, if you could confirm that?

And secondly, just on a general point, you've made a great deal today about the opportunities to continue to invest in the business and strive for the organic growth in various places, and where you are acquiring it's relatively small. Going back to the organic growth thing, it's quite interesting, in a sense, that you've downgraded your CapEx expectations and CapEx still remains, by historical standards, pretty low. Is that something, looking forward, that we can envisage ramps up quite significantly?

Just in terms of -- if I take the second one, John. I think, on the opportunities to invest, I think we're still at a relatively early stage. We're coming out of three years of absolutely digging the business out of a difficult place, and the teams have done a good job. I think we're getting far better at allocating our capital as well. We did spend a lot, historically. We've spent a lot on building DCs. I talked earlier on about spending a lot on building DCs in Brossette, too many, bluntly. And we're now at a stage where, given that the Company is still 15% smaller than it was historically, we don't see the need in the next couple of years to pick up big DC investment or anything like that.

Where I think we will see more investment, though, is in the IT systems and processes at the front end of the business, but we're not going to be doing a global rollout of SAP. But the sort of guidance I think that we've given, John, is GBP150m to GBP200m. We see --

That was, yes, on an ongoing basis.

Yes, on an ongoing basis. We see that as being about -- that's what we would look at, at the moment. So what we're talking about funding is within, I think, what we've currently seen.

Yes. I think if you look historically at the capital investment over the last few years, you've got to remember BCP was in there, big SAP charges each year, I think north of GBP250m. And actually, some of the businesses -- one or two of the businesses that we have exited were more capital intensive. Brandon Hire was very intensive on capital, as was Stock Building Supplies.

So I think a related observation at the moment, we aren't seeing from the business lots of demand for investment in under-invested sites. We don't believe that our estate is hugely under-invested. That's just not our observation around the business, and it's not our colleagues' observation either.

Just turning to Brossette, the net assets number there is GBP140m. There's no goodwill. The goodwill has been written off previously.

Thank you. Good. Sorry, there's a gentleman here, [Julia].

Hello. It's Rajesh Kumar from HSBC. Could we get a sense of inventory write-down in the first half, versus last year? That's the first.

And second is, in terms of the investment in working capital in the second half, how should we think -- how much of that receivables will unwind further and how much of it should be organic, just to get a sense?

Rajesh, sorry, I didn't quite catch the first of those questions. Sorry.

Inventory write-down which you take -- the inventory which you can't sell each year, do a write-down related to that. I think last full year number was GBP420m, if I'm not mistaken?

I would have to -- I'll check the data on that. I'll check the data and we'll take that afterwards, if we may.

I think the overall investment in working capital and the unwind, the period-end working capital management, which was the historical way that the business worked, this essentially depressed working capital at the end of July and January. At the end of January, the impact of that was negligible. There was no incentive for anybody to do it, because they weren't getting paid any bonus as a consequence of it. They were incentivized, actually, for one year only on 10 months rather than 12, in order to make sure there's no incentive to do anything in January.

So the January number is -- it's fine. So there's no further unwind of that number, if that makes sense. If there is any flow-through in July, I will show you on the board, because we will use the same methodology that we used before.

Is that okay?

Yes.

Good. Sorry, I think we've got time for one more. That's probably about it.

Morning. Gregor Kuglitsch from UBS. A couple of questions. The first one is on the US market. Obviously you're outpacing the growth there quite significantly, 600 to 700 basis points. And the question really is how much more do you think you can do? How long do you think this is sustainable at that sort of rate?

The second question is really on the performance builders. You have obviously mentioned Brossette, that you're more tending towards the disposal route. There's been some press speculation on Bathstore. And then the only one which hasn't really been mentioned is Build Center. Does that mean you haven't really made up your mind, or does that mean you will really try to keep that one?

And then a numbers question, really. On a trailing 12-month basis of the performance -- six performance builders which are left, can you give us a sales and capital employed number? And obviously I think you've mentioned that it's below 1% margin. I think I'll leave it with that.

In terms of the US market, we're pleased that we're outperforming by definition the market by 6%, 7%. How long can that be kept going for? Who knows. It's -- I'm absolutely crystal-balling that. Do I think we will continue to outperform the market with all the initiatives we have? Yes, absolutely I do. Whether it will be 6% or 7%, it depends obviously on competitive activity. But certainly our ambition and the track record in the last 12 months is good market out-performance, which is absolutely what we're driving the business towards.

In terms of performance builders, the Build business is actually performing a lot better, a bit like Brossette. It is certainly turning round in terms of its performance. And I think, as we've said all along, as John said earlier on, for each of them we'll take them in turn. We're working our way through the Group. We started with 19. We're now down to six to resolve. Clearly, our absolute commitment is we will either get them to perform and then reclassify them, or we will exit them. And we'll go through exactly the same process through the last remaining six.

And sorry, on the last question, the trailing --

Trailing 12-month sales and capital employed. GBP800m is the sales, of which the single biggest element is Build. And capital employed, GBP260m.

Thank you.

Good. Thank you all for coming along. Look forward to seeing you all again soon. Thank you very much.