Travis Perkins plc

Robert Walker - Chairman John Carter - CEO Tony Buffin - CFO

Howard Seymour - Numis Dan Porter - UBS Aynsley Lammin - Canaccord Andy Murphy - Merrill Lynch Michael Mitchell - Davy Charlie Campbell - Liberum Paul Checketts - Barclays Capital Emily Biddulph - JPMorgan Clyde Lewis - Peel Hunt

Good morning, everybody, and welcome to Travis Perkins’ Final Results Presentation for 2015. I think the curate’s egg best describes 2015 for the market as a whole, as well as Travis Perkins good in parts, less good in others.

The market started strongly in the first quarter last year, weakened during, progressively during quarter two, and the hoped for recovery in the second half never materialized. Plumbing and heating, of course, remained difficult throughout the year.

Frankly, the leading indicators were all out there and, perhaps, we should have paid more attention to them. And I think that comment applies equally to quite a few of us in this room as well.

But it is, in our defense, I’d say, difficult to turn a ship round in relation to, and in response to, the short-terms indicators. This doesn’t change the confidence we have, as a Board and as a company, in the five-year strategy that was outlined in December 2013 by Tony and John.

We are absolutely convinced that, both for the cycle, and at our stage in the cycle, it is the right strategy for the five years. And if you judge 2015 against that background, I think it’s been a year of good progress on a number of fronts.

As we’re used to now, most of our businesses strongly outperformed, some more than others, in their categories. Network expansion continued.

And we took advantage in the second half of the year of a number of freehold opportunities, so CapEx came in higher than we planned. For me, particularly rewarding was the successful transformation of plumbing and heating, a very complex re-segmentation of our PTS and City Plumbing businesses.

We completed that, pretty much, in December, well ahead of schedule. And the decision to pair PTS and F&P, we announced this morning, is absolutely the right and proper thing to do.

Of course, we continue, as a Group, to be strongly cash generative. So we’ll be recommending a final dividend of 29.25p, making a full year of 44p, that’s up 16% for the whole year.

So that’s enough of 2015, and, in some respects, good riddance to it. Looking forward, I think there are reasons to be more optimistic about 2016.

The lead indicators, mortgage approvals, completed transactions turned positive in April last year, and have continued since then. Consumer confidence measures at the highest, in some cases, for almost 10 years.

So together with tighter overall control of overheads, tighter management of working capital, and lower CapEx, we think we’ve set our store very well for 2016, and we’re encouraged about the year ahead. So it’s usual order, John, followed by Tony, followed by John, and then questions afterwards.

John, over to you. Thank you.

Thank you, Robert. Morning to everyone, and morning to those who are on the telephone line.

Big thanks to Dan Porter and UBS for allowing us to host our presentation here today. As Robert said, I’m just going to cover some of the highlights of 2015.

Tony’s going to do most of the lifting, heavier lifting, in terms of covering the financial aspects, and doing a review of each of the divisions, and, then, I’m going to come back and give a little bit of update on our strategic program. Just to try and put 2015 in to context, three headings for me, the continued market outperformance, investing in the sustainable growth for the medium and longer term and what we called very much early in 2013 was we saw the program driven not just by macroeconomics, but a sustained program of self-help.

Within these outperformance, we’ve seen good growth over the year, and the majority of our businesses taking market share. We’d highlight, in particular, good work that’s gone on within TP, the growth and investment in Benchmarx, CCF, Keyline, the 40 branches of Toolstation that we put down in 2015, and the really great work that’s been going on within Wickes.

Fortunate enough to have with us today our Chief Operator Officer of TP, Andrew Harrison. I can see Paul Tallentire, who’s just come off two years of hard work on the restructuring of P&H and Frank, who manages our contracts division.

We’ve got a lot to be proud of with them and their teams. In terms of some of the investment, I’ve called out our gross investment in 2015 of 293 million.

We’ll go through a lot of the detail of that. We could have easily taken the 51 million that we actually collected by disposals of some of our freehold assets, but it was really driven by 104 million of freehold properties that we’ve invested in.

And I’ll go in to a little bit of detail in terms of how we’re actually commissioning and deploying that investment. We are two years in to a five-year program.

And I’m really pleased with the progress we’ve made, and I think we’re very much on track. In terms of the markets we operate in, both our trade and retail businesses, consumer businesses, remain fragmented.

A lot of great work has gone on focusing on our customer proposition, putting the customer at the heart of everything we do, and developing structural advantages against our competition. And, as Robert highlighted, 2016, we will be judicious on our focus on managing our overheads and control of CapEx expenditure.

So really, for us, it is driving that sustainable growth, and driving our TSR. The highlights, and Tony will give you more detail, it’s a shame, the accountants could have nudged the number to 6 billion, but we came out at 5.9 billion, growth of 6.5%; a like for like of 3.8%.

Excluding property profits, our EBITA was up 8.7%. Putting the property profits in, our profits were up 7.6%.

We invested 134 million in what we call investment in growth. And despite the increase in freehold investments, we managed to nudge our lease-adjusted ROCE up 10 basis points to 10.5%.

The performance, really, in 2015, and going in to 2016, give us the confidence to increase dividends, as Robert said, up 16% to 44p for the year. I’m not going to dwell on this slide, but this was a key slide for us back in December 2013, when we unveiled our plan for the next five years.

I’m really pleased to be able to say each of those work streams are now active in most of our businesses. And just really highlight, for me, the most satisfying thing is the great people we employ right across the group, and the culture they bring and the commitment and attitude.

And again, not aiming to go through this in detail, but this really is our school report after 24 months. And it’s not until we actually outline this of how much activity has been going on in the individual businesses, the divisions, and the group as a whole, really, under the four strands of customer innovation, optimizing our network, where we’ve actually installed 100 implants across our networks.

So it’s not just about new space, it’s making our existing space work much harder. I’ve always said there’s no point in being the UK’s largest distributor of building materials and not using the scale to our advantage.

And all of our teams are working really hard under the badge of club and country. They’re clearly working for their brands.

But there are, when we come together, opportunities to work as a Group and their country. And we’re seeing some great work where we’ve collectively coming together and gaining advantages on the cost of goods sold.

And then, really, the devolvement of the central control of the business that we had up until 2013 and the progress we’ve been making on devolving the responsibilities in to the individual businesses. A lot of work has been going on in terms of strengthening our management teams at each business level and divisional level.

And we are, I truly believe, seeing the benefits of that investment in some great people. So a lot of activity.

And they, this will hold us in really good stead over the medium-term. So I’m going to pass you on to Tony, who’s going to cover, obviously, the financial and the divisional review.

Hello, everyone. So I’ll run through the summary performance, to start with.

Obviously pleased to, again, report good growth across the financial metrics we’ve been showing consistently for the last two years. I, internally, call this the green-arrows chart, but, unfortunately, there appears to be an errant red arrow, which I haven’t been able to fix, notwithstanding trying.

So, we’ll aim to work harder on that next year. Obviously, the reported results included goodwill and intangibles impairment in our PTS and F&P businesses of 110 million and 31 million, respectively.

These impairments are non-cash and have been made following the completion of our re-segmentation work, and owing to the difficult plumbing and heating markets we experienced during the year. So all of the results I'll present hereafter exclude that impairment charge.

Turning to our adjusted results, which exclude this non-cash impairment charge, we were obviously pleased with our performance, given the softer market conditions in the second half of the year. Our headline sales grew by 6.5%, and our like-for-like sales by 3.8%.

Adjusted EBITA including property profits increased by £29 million and 7.6% to £413 million. EBITA, excluding those property profits, was up £31 million, or 8.7%, to £389 million.

Owing largely to a non-cash finance charge, adjusted profits after tax grew by 5.5% to 307 million. We were also, though, very pleased with our free cash flow conversion of 77%.

This was up from 66% this time last year. The 317 million of cash generated enabled us to accelerate our investments at the same as growing dividends to our shareholders.

And, as John mentioned, the Board are confident to increase the dividend by 16% this year to 44p per share. Despite the significant increase in capital expenditure, including over 100 million of freehold purchases and construction costs, lease-adjusted return on capital employed also increased to.

And if you exclude those freehold purchases and construction costs, underlying, it was up to 10.8%. Our strong propositions and the investments we've made over the last two years resulted in revenue growth of 6.5%.

Despite the tougher comparatives for the year as a whole and the weaker market conditions in the second half of the year, volume growth was strong at 4.3%. Output price inflation and mix fell by 0.5 percentage points as the value investments we made in Wickes continued; there was more competitive pricing in the second half; and we also saw the more material effects of commodity price deflation.

New branch openings in Travis Perkins, in Benchmarx, in Wickes, and in Toolstations, and the benefit of the acquisitions we made during the year, were the principle contributors to the 2.7% growth in non like-for-like revenue. Given these new stores and branches will not fully mature for three to five years, we expect to continue to benefit in our like-for-like sales line from these new branches over the coming years.

As I've done in the past, I continue to draw your attention to the table in the bottom left-hand side, which looks at the two year like-for-like growth that we experienced during the year. As you'll see from the table, our two-year like-for-like growth did moderate through the second half of 2015.

And as reported in our third-quarter trading update, our markets were weaker during the summer and the autumn, which continued in to the fourth quarter, albeit with a strengthening in October. You'll hear about this from John in a minute, but we expected the market to recover, and we have seen this recovery in January and February of this year.

Two months in to the quarter our two like-for-like sales growth has recovered very well; however, this is six to eight weeks later than we expected, given the October strengthening that we saw. I've shown this slide before: it tries to strip out the impact of property profits, to show you our underlying margin growth in the year.

For the Group as a whole, looking at the final column, including the effect of slightly lower property profits in 2015, our net margins remained flat at 6.9%. Our sector-leading margins in our general merchanting division increased by 20 basis points, including property profits, to 10%.

And our margins also increased by 20 basis points, if you exclude those property profits the 9.2%. And we expect to maintain our net operating margins in TP in the general merchanting division at between 9% and 10% in the medium term.

In our plumbing and heating business, we do expect margins to grow. However, the impact of disruption from the accelerated conversion program reduced operating leverage in the year, and we did not benefit from the repeat of the ECO scheme revenues in 2014.

Significant property profits were also recognized in 2014, and we did not -- and these did not repeat in 2015, and this diluted our margins to 3.3%. But this is broadly in line with what we expected.

In contracts, as we've said a number of times before, the very significant growth in Keyline and CCF, which are lower-margin businesses, with the principal driver behind the 20 basis points reduction in operating margins to 6.5%, excluding property profits. Both Keyline and CCF are growing absolute profits and improving returns on capital, and we're, therefore, very confident to continue the plans we have in place, and expect to improve returns in the future.

In the consumer division, net margin increased from 6% to 6.7%, before accounting for property profits. This was a 70 basis points improvement over 2014; or 30 basis points if you exclude the benefit of the Toolstation Europe impairment reversal of £6 million, which was required given our growing confidence in our European business to reach profitability.

We were pleased with this performance in the consumer division, given the significant investments we've been making. I'll now run through the four divisions, starting with general merchanting.

Travis Perkins and Benchmarx revenues grew by over 5% in the year, and a little under 4% on a like-for-like basis. This demonstrates continued outperformance of the market by both businesses, with good growth delivered in all regions.

Following recent range reviews and new branch rollout in Benchmarx over the last 18 months, that business has been performing particularly well. Adjusted EBITA grew by 8.7% to just under £200 million.

However, excluding property profits realized from our property disposals in 2015 underlying profits grew by 13 million to 182 million, which was up 7.4%. When we set out our plans, we were clear that we needed to invest in Travis Perkins.

We have made significant progress in landing our new range centers in Cardiff and Tilbury in the year; operating our new primary distribution center at Omega Park in Warrington; and beginning our investment in IT networks, hardware, and online software. Despite these investments, we maintained our lease-adjusted return at 16%.

And we fully expect these investments in the supply chain, in property, IT, and in our propositions to provide us with the assets and capabilities to outperform our markets over the longer term. Revenue growth in plumbing and heating was distorted in the year with particularly tough comparators in the first quarter.

And, as some of our commentators have noted, quarter 4 was warm and wet. Our re-segmentation plans progressed rapidly during the year and are now complete.

Obviously, with such significant change there was disruption to sales and this coupled with a challenging contract in wholesale plumbing and heating markets resulted in like-for-like sales declining by 1.4%. However, the acquisition of Primaflow and the Underfloor Heating Store more than offset the effect of 46 branch closures and the modest like-for-like sales decline resulting in our headline revenues growing by 1.3%.

Excluding property profits and the one-off effects of those short-term contracts and ECO program in 2014, underlying profitability decreased by £2 million to 46 million. As a result, lease-adjusted returns reduced to 6%; broadly in line with the plan that we set out 12 months ago.

As I mentioned earlier, the non-cash impairment of goodwill and intangibles reduced reported profit during the year, and will reduce the capital base of the P&H division by 141 million at the end of the year. Therefore, from 2016 onwards we'll report lease-adjusted returns including the effect of that impairment; and, therefore, if we re-state the 2015 numbers, the lease-adjusted returns are 8%.

The business has been through a very significant period of change. And, notwithstanding the 2015 reduction in profitability, we remain committed to improving returns.

Strong revenue growth in Keyline and CCF, as I mentioned earlier, continued in 2015 with a solid performance in BSS, and a positive contribution from the acquisition of Rudridge; a civil's merchant we acquired in the South East. Revenue grew by over 13% to £1.2 billion, was up 8.5% on a like-for-like basis.

Investments in improved ranges, in new categories, and our sales teams helped all the businesses achieve market share gains. As I explained earlier, the reduction in operating margins was principally as a result of that mix effect, with the business more weighted towards -- growth more weighted towards Keyline and CCF.

But we do expect that growth to moderate over time. Although the markets for BSS were difficult, significant cost action was taken to underpin profits and helped us to achieve underlying EBITA growth of 10%.

This included the additional operating costs incurred opening eight new CCF branches during the year, six of which opened in December. Overall, good sales growth, solid profit growth, and judicious capital management meant lease-adjusted returns improved to 14%.

Delivering good growth in profits and returns, whilst making significant investments, gives us further confidence in our ability to accelerate returns over the medium term. So, turning to the consumer division, our results here were particularly pleasing.

Headline sales grew by 8%, and like-for-like sales grew by 5.3%. In Wickes, further improvements have been made in value, range, and availability during the year with share gains recorded throughout the year, and accelerating into 2016.

Despite commodity price deflation, continued investment in better value, and Wickes' clearance activity, gross margins improved. This was a combination of good growth in higher gross margin categories, and significantly improved sourcing arrangements.

We explained that 2015 would be a year of more significant change in Wickes as we began to review our ranges and invest in our new formats. As a result, we incurred £10 million worth of clearance costs during the year.

These costs are expected to continue, but at a more modest level, in 2016 as we complete the bulk of our range reviews. Wickes' investment in its online capability continued with Click & Collect items now available inside the hour.

Furthermore, in Toolstation we opened 40 new stores during the year, our highest ever, and we also implemented one-hour Click & Collect. EBITA for the division overall increased by 23% to £95 million.

This did, however, include the benefit of £6 million relating to the reversal of a previous loan impairment to our Toolstation Europe operation, as I mentioned earlier. We continue to account for our share of operating losses as we extend the reach of the business and scale of our operations in the Netherlands, France, and now, most recently, online in Germany.

After excluding property profits, EBITA grew by 20% and by 14% to £87 million with the exclusion of the impairment reversal. Given the significant investment and substantial changes effected in all three businesses during the year, we think this was a very strong performance.

So, I'll turn to items below EBITA. Finance costs increased by £8 million to £31 million in the year.

However, £5 million of this, as I noted at the half year, was related to the movement in non-cash charges relating to the mark-to-market of forward foreign currency contracts. The underlying interest charge of £24 million was up GBP4 million; a solid result, given the increase on on-balance sheet debt, and the new facilities we've put in place to fund freehold and construction purchasing in the second half of the year.

The effective tax rate remained flat with a charge of £76 million; up from £71 million in 2014. And consistent with the Group's plans, the Board increased the dividend to a little under -- by a little under 16% to 44p.

And the dividend cover -- with dividend cover now just below the midpoint of the Board's 2.5 times to 3.25 times range. A slide I particularly like, cash generation.

Despite good sales growth and disproportionately higher growth in credit sales in TP and in our contracts division, cash flow conversion grew to 77%. As I said earlier, that was up from 66% last year.

We generated £317 million of free cash flow, and this was an increase of £56 million on 2014. As I've shown in the table, if you can see it, free cash flow funded our growth CapEx; our acquisitions during the year; a substantial growth in dividends to shareholders; and our cash contribution to the pension scheme.

As we previously guided, we spent -- we intend to increase our on-balance sheet net debt to fund freehold purchases. We spent £104 million on freehold purchases and construction costs in the year, and this was partly funded by our free cash flow, and partly by the increase in net debt of £89 million.

We're now over half way through our plan to increase the freehold mix in the property estate and we, therefore, expect freehold purchases to moderate in 2016. So, where did we spend our money?

A key feature of our plan is to balance growing returns to shareholders now with investing to drive sustainable and long-term returns through both the dividend and capital appreciation. We delivered on our commitment to step up capital investment in the year.

Our maintenance and growth CapEx increased to £189 million; our freehold purchases net of disposals was £53 million, resulting in total net spend of £242 million. At the top of the slide, in extending leadership, we intensified our use of space through Benchmarx implants and new bathroom showroom, tool hire, and spares concessions.

We also opened 40 new Toolstation shops; and eight Wickes, and 12 TP branches were either new or relocated. Investing in our customer propositions remained a key area of focus.

Trialing of new and Wickes formats continued. And we’ve now completed a program to better align our plumbing and heating business to our customers’ needs.

We’ve made it clear that more investment in our IT and supply chain infrastructure was needed to enhance our market leading propositions. The new heavyside range centers providing us with a strong platform to enhance the range and availability for our customers in heavyside products.

We’ve also made a solid start in improving our IT platforms with additional investment in our multi-channel capability, and that’s across the group, not just in the retail businesses, in our customer-facing delivery systems, in our network and in hardware. The ambitious plans we outlined to shareholders in 2013 to grow returns depended on our ability to access the right sites early in our five-year plan.

With this in mind, we were pleased with the very significant progress we made in 2015, acquiring a number of sites at good value, fit for our business and disposing of non-strategic assets, where there was no scope for further development. As planned, our net debt increased to largely fund freehold property acquisitions.

These sites will come into operation in 2016, in 2017, 2018, and beyond, and underpin our plans to improve returns over the medium-term. And John, as I said, will talk about some of this in a moment.

As a result, our lease-adjusted gearing increased by 80 basis points. That said, and despite the 45 million of property disposals in year, our continued management of lease obligations resulted in our lease debt increasing by just 20 million, and our fixed charge cover increasing to 3.3 times.

And this is well on the way to our target of 3.5 times cover. Lease-adjusted debt-to-EBITDA remained flat at 2.8 times, despite the freehold and construction costs we incurred in the year.

And finally, so given the weaker market in the second half, we felt we were pleased with the sales and earnings growth. We delivered a significant amount of change in the business, and this gives us confidence to reiterate our 2016 guidance.

We expect sales growth of 5% to 6% for the year, reflecting what we anticipate will be a very low-inflationary environment, if not zero. We expect property profits to continue at around 20 million and, importantly, remain committed to our earnings growth target of around 10%.

We continue to expect CapEx to be around 170 million to 190 million, excluding freehold and construction costs, and for freehold purchases to moderate in 2016. Our market monitoring, our continued outperformance, and the returns we have seen from our investments to date give us further encouragement to execute our plans at pace.

And finally, as I said earlier, we remain confident in our ability to increase the dividend, above the level of earnings growth, in 2016.

Thank you very much, Tony. Forgive me, I should have introduced Simon King, sat at the back, I missed him.

Simon runs our Wickes business, and, based on the numbers, really delighted with what Simon and the team are doing. Just kick things off with sort of collection of our lead indicators.

Housing, as you’d expect, is showing pretty positive forward projections. And, in particular, the growth in housing transactions we’ve really seen from the low point of March last year, with December having the highest transactions in the month of 108,000.

We’ve always said, broadly, 100,000 is the base number for our plan over the five years. Equally, we’re seeing some really good lead indicators within the consumer area.

Robert mentioned consumer confidence. But I would temper that with that, that is quite fragile, or fickle, in terms of what can happen.

And given the coverage of the EU referendum, we watch with interest, and a little bit of caution. In construction, there’s a little bit of a mixed message, but I think overall positive.

But we are watchful. I think some of the negativity in architects’ workloads could well be around the Central London area.

We’re seeing good growth in other parts and regions in the UK. So overall, our lead indicators give us confidence as we move in to 2016.

On the left-hand side, or my left-hand side, we’ve plotted housing transactions over the last couple of years, and overlaid it with the grid on the right-hand side in terms of TP general merchants and like-for-like sales, with a very strong correlation. As we’ve seen during the year, and lagged it for nine months, and as we see, we move in to positive territory during December, and in to the early part of this year, which gives us pretty good confidence as we move into the first quarter, and first half.

Robert mentioned consumer confidence. And over the last 10 years, we are seeing the strongest consumer confidence across the board.

Again, it gives us confidence as we invest to grow the business over the medium term. I just want to take a little bit of time and put in context some of the investments we’ve made over the last 24 months, very much in the same set up that Tony talked through 2015.

We’ve invested 353 million in growing the business, 83 million in extending our leadership in terms of investing in TP branches, CCF, Wickes, Benchmarx, and Toolstation, which have all give us strong growth over the medium term. But we'd temper that with they are in a three- to five-year maturity curve.

Investing in growth, as Tony highlighted the costs of the P&H conversion and the investments we're making in new trial branches and our investment in supply chain are in the areas that give us a slightly lower return but still strong between 15% and 20% and again, many of these mature over the same sort of timescale of three to five years. Then, the area of infrastructure is primarily in IT, both in our core and back-office systems as well as the investments in multi-channel and customer-facing systems.

So over -- and the total freehold -- sorry -- of 139 million in this last 24 months. As we go to the bottom chart, I really want to point out really just the timing of that.

We've only deployed less than half of our freehold investments and commissioned them in to trading branches. We've got 45 million of freeholds that we expect to commission and have active during 2016 and 21 million that we've already purchased that we will commission in 2017.

And we made a purchase of a fabulous site in Staines that we can't actually have trading until at least 2018. It's been a very big target town for us for many years.

Getting actual space in that area is really difficult and therefore, we thought it was wise to make the acquisition now even though we know we're not going to commission the trading branches until 2018. So we've got a really strong pipeline to grow our businesses on really prime sites over the medium term.

As I said earlier, the customer is very much at the heart of all the activity that we put together. And there's been some fantastic work undertaken by each of our teams.

We always said the three priorities for Tony and I in this plan was to modernize and grow the Travis Perkins brand. It is the cornerstone of the Group and it's had phenomenal performance over the last 20 to 30 years; we want to make sure it's relevant for the next 20 or 30 years.

And there's a lot of activity gone on in range, availability, and stepping up our customer propositions across all angles. We've had particular good growth in our tool hire business, albeit still relatively small in the overall scale.

Tony has mentioned the really strong performance of Benchmarx over the last couple of years. And we have a growing business in managed services that are providing good earnings and good returns.

If we go to contracts under Frank's team, we're really delighted with the performance of contracts. And although we're seeing the lead coming Keyline and CCF, my expectations over the coming year that we'll see BSS start to actually gain momentum and sales growth, and obviously enhance its earnings.

But it is very much about man-marking in this business. Often CCF, or Keyline, or BSS, there's about 200, 300 key customers and what I've been really particularly pleased at is the way Frank has deployed the sales teams to really target the customers that are going to make the difference and hence, we're seeing that excellent sales growth.

Plumbing and heating, I don't think anyone should underestimate the enormous task and project that Paul Tallentire and his team completed. It's the biggest project I've ever seen in our sector and it was completed in time and under budget.

It now gives us a clear run in 2016 to see the maturity of that work and drive enhanced earnings over the medium term. And then in consumer, each of our three businesses, I know Tile Giant is a small part of the overall division, but that's done extremely well; Toolstation has grown, and enhanced its earnings.

But I've been more delighted with the work that's been going on within Wickes as they improved pretty much every aspect of the customer journey in terms of value, in range, and availability. We expect that business to continue to grow during the medium term.

I'm not going to go through, but you'll have the detail, in terms of the activity of us putting new space in targeted catchments that we were underrepresented and really pleased to see in that two years 31 new TP branches. We've got a good pipeline now to grow Wickes at the rate of 10 to 15 stores as we move in to catchments that we're badly or poorly represented within.

And Toolstation, really growing. 73 branches in the last two years is real testament to hard work.

Equally, really pleased with the progress that Benchmarx is making. We've done some really good work behind the scenes, where we've taken underperforming branches of certain brands and rebranded them and again, you've really got to wait for two to three years to see your returns on those, but we're making good progress.

And in terms of having 11 trade parks now active, we've a nice pipeline as we move forward. We're really pleased with the performance and returns we're seeing from bringing together our brands on to one site and working together.

So, overall, we're really pleased with the network expansions and how we're actually driving sales density in our existing state. The third sort of lever of strategy was exploiting our scale.

Many of you would have attended our Capital Markets Day in November at Tilbury. We put a lot of investment in the range centers.

The teams have commissioned Omega up in Warrington, and run down the regional distribution centers of PTS. There's a lot of work that's been done, but what it's done is created great headroom for growth over the next four to five years.

In property, and, again, we did a Capital Markets Day down in Reading in July, where we outlined our strategy. And, as Tony indicated, we're about halfway through addressing the balance between freehold and leasehold within our estate.

And we're starting to demonstrate good use of our capital in terms of moving on assets that have got low-growth characteristics and deploying that capital in areas where we think we can get good growth capital. There's 48 faces on those 11 trade parks, and we're starting, as I said earlier, to see some real benefits from the trade park initiative.

On sourcing, it is very much about bringing our scale together and working with suppliers in positive ways, that we can both benefit from the growth that we can demonstrate; and in return, we get better actual arrangements and lower [COGS] from our suppliers. We're driving some really good work on our own label, small little stats, but some of these, you will appreciate.

Our iflo business last year outsold Twyford in the UK, which, given for where we come from, and the brand of Twyford, and how long it's been around, I think is a significant step. And I think their headroom for growth this year remains really strong, as well.

And I think there's still further opportunity for the businesses to utilize our Asian offices in terms of direct sourcing from low-cost countries. IT is an area that we're being very sensitive about.

In our trade businesses, clearly, we've got some legacy systems. But step by step, we're actually improving both the infrastructure and support of back office as we started work on our core systems.

But there is much to do. But the most important for me is, as we deploy new IT systems, that we make sure that they land within the businesses well.

I've seen many a case where companies have changed IT systems and it's caused chaos. And our sense is that we'd rather take time and do it right than push it too fast.

So really then, sort of for me building on a year of investment, we're right on track with our five-year plan. And we never said that the growth in our sector will be linear.

We've always talked about low and long return to growth. And with the indicators that we have for 2016, we go forward with real positive attitude.

2014 was very much about mobilizing our businesses in terms of the plan. 2015, we accelerated those implementation plans, and I think really well.

2016 is about gain: it's continuing that momentum, but also driving returns from those earlier investments. Our three priorities still remain the modernization and growth of the TP brand; the continued transformation of Wickes; and the exploitation now of the restructured plumbing and heating businesses.

Okay, we'll open up for questions.

Howard Seymour, Numis. A couple from me, if I can, just on the top down, really, that you alluded to, to the start of the year.

One would be on price. You mentioned overall flat pricing.

I'm assuming that we're in to a normal period where if you don't get it at the start of the year you're unlikely to get it, but is there any trends there on heavyside versus lightside that you've seen?

We'll take that. And do you want me to take that and the second one, or --.

If you want. The second one's on --.

I think we've gone in to 2016 on a very similar pattern as we've seen in 2015 and 2014, Howard.

Second, John, but maybe slightly conceptually as well, but you mentioned, you alluded to the RM&I markets starting to pick up already. It seems to me they've been very quickly.

You'd always say, historically, there was a lag, nine months to 12 months, but [you're reached] move already on your lead indicators. Do you think there's a faster movement going on at the moment?

And the second, and obvious, question is, like-for-like sales, you've alluded to a figure for the full year; where your pattern would be running at this moment in time relative to that full year.

The art of lag, whether it's six months, nine months, it's an art rather than a science. I think we -- on the slide on page 22, where we overlaid our TP general merchant to that trend with a nine-month lag, Howard, is pretty close.

So I think you can't take it for gospel, but it's a pretty close tracking of transactions lagged by side by nine months. I think Q4, and especially when we were on the call on October 22, we were expecting a bit of a stronger November and December.

We called it wrong for about eight weeks. It’s not that.

It’s not a science.

Dan Porter, UBS. Just a few.

On consumer, how do we think about the margins going forward over 2016, 2017? Obviously, we've had a pretty phenomenal lift over the past two years from 5-ish-% up in to the 6.8% that we have today.

Given store refurbs in Wickes, the entry of new competitors, and the price deflation that you mentioned earlier, how should we be thinking about that margin growth?

I think we’re in a situation where we’ll anticipate Bunnings coming in to the market. Given the backing they have from Wesfarmers, they’re going to be a considerable competitor, and they’ve declared they’re going to invest in the business.

I think we’re investing in our business. We can only do what we, address the challenges that we face.

We’re pretty confident and upbeat. I think we have to be conscious that we're not going to see huge growth in margin until we see exactly what their proposition is.

So we may see a little bit of a drift up, but I think I would indicate that holding that steady at the moment. We can make investments on price and value and drive the volumes, but, at the moment, I’d really keep it steady in to 2016.

And, Dan, just on that point, you should be thinking that the underlying margin is, in fact, 6.3%, not the 6.8%, because, obviously, there was some benefit in there from that impairment versus and profits as well. But 6.3% is a go-forward number, which was up about 30 basis points year on year.

And then, just on consumer as well, obviously, Q4 growth was very strong, and you’re significantly outperforming on the trade side. Is that just a normal difference that we see between the retail versus the trade side, or is there something else going on?

And in terms of is there a bit of a pull forward of demand do you think ahead of tax changes that come in to effect on April 1, or do you see there's more strength in the market?

I think we’re seeing a little bit more strength, but you watch with caution. I think, in fairness to Wickes, they’re generating that growth through really improved propositions, and we’re enjoying increased market share as a result of that.

And then, just finally on working capital, Tony, as well, we’ve seen a fairly large increase this year. Do we expect the same increase for next year as well, just in terms of your point earlier that you made and just in terms of credit flowers being so strong?

Yes, there’s a bit of a story behind that, I guess. As always in our business, when we expand the business, particularly with great sales in TP, and, importantly, in the contracts division as it’s growing faster than the rest of the Group, we’re going to consume some working capital, because there is a call on debtors and credit sales to customers.

So we did a pretty good job, we think, in debtors. If you look in our cash flow you’ll see, actually, a good job in debtors, notwithstanding that mix of credit sales.

The stock position was well managed. Our stock was only up about 20 million year on year, so about 2.5% growth in stock year-on-year.

But we mentioned some time ago we’d been making sure we get ourselves in a position with our suppliers where we’re comfortable with how we’re treating our suppliers. Because we think, in the long term, paying our suppliers is a good thing, and paying them on time is an even better thing.

And we certainly hope that they’re going to stick with us and see us through this period of expansion in the Group. And, therefore, working with our suppliers in partnership is really, really important to us.

And so the working capital outflow was better than it was last year, but we certainly still think there are improvements to make. Our working capital base were pretty flat year-on-year, so we certainly think there’s an improvement to make.

Thank you.

Just on the plumbing and heating business, you used the words you’ve got a clear run on that business now going in to 2016. Can you just give us guidance indicating in terms of the drag that persisted in 2015?

And what should we expect a clear run to look like in terms of margin progression? And how to hold new structures when they come together in terms of their numbers?

I realize it’s very small in terms of the consumer business, but the Toolstation Europe, further expansion in to Germany now, what is the size of that business? You indicated you’re carrying a bit of a loss there through consumer, what’s the scale of that?

And just the general development plan for that business, because I detect incrementally more positive on it would be my view on it.

Okay, good, I think that's a fair comment. Tony will pick up Toolstation Europe.

On P&H, and, Tony, have you got a number for disruption?

Disruption, well, we said at the start of the year probably about 4 million or 5 million for the year as a whole. We did accelerate a bit the plan, so you can assume that was about 5 million or 6 million during the year in that disruption to the --.

Internally, when I talk, and Paul's here so he doesn't mind me saying, he's got a tough (inaudible) in all our business. There are headwinds on deflation of commodities like copper, which is very relevant and prevalent in plumbing and heating; and volumes are really low to minus and pricing competitive in the contract side still remains really fierce.

So I think we're probably more confident about the growth of our City Plumbing now we've done the conversions. However, we've got 130 that were converted during 2015; we've got to be patient about the maturity of those as they adopt a new trading stance.

But we've got in excess of 200 bathroom showrooms that give us a good return. Our stairs-support departments are performing well and the core of City Plumbing, the 130 branches that were unaffected are trading well.

So I think City Plumbing not out of the woods, but actually has got a better run in 2016 and we're working hard to deliver on that. I think when we look at F&P and PTS we -- it will trail through for our competitors, it's a tough, tough market.

So I think we've got to really work hard to standstill, Robert, if I'm honest.

And Toolstation Europe?

Toolstation Europe.

Yes, just to give you a bit of background, we've, to this point, written off all of our investment in Toolstation, just prudently. So we're taking that through the P&L and taking that cash charge through the cash flow to date.

However, at this point, given the plans we have for the business, particularly in the Netherlands it's looking like, the [indiscernible] business in particular, and that’s would be a profitability in that we will required and it's can't expanded to reverse the impairment we've made, and that impairment is just a loan to lend to the business. So we've continue to take our share of losses, as you'd expect, but we've had to reverse those loans we've made in, given our line of sight in what we're trying to do.

In terms of the scale of the business, it'll still pretty small. We've got a good business in Holland we opened three new stores; in Holland this year so we're now up to eight.

We've got a plan to open a number of new stores in 2016. All the stores we've opened are now making money and they're contributing to profit so then it becomes a scale question.

So we're quite keen to get on and open those stores in 2016. At the same time, though, we recognize that getting some first-mover advantage in markets is important for that business as markets modify over time.

So we've opened a web business in France, again relatively small; and we opened a new web business in [indiscernible] in Germany in January this year. And we're working hard to improve our sourcing arrangements as well.

John and I were down speaking to one of the leading tool manufacturers in Europe Festival, and they've been very supportive to help us get access to their product range going forward. So it is a fledging business for us, and you shouldn't expect it to materially contribute to profits over the next three to five years.

It's a business for the next five to 10 years, really. And we think it's a very disruptive business for like-for-like sales growth in the Netherlands is very good and therefore, we want to invest behind it, but we're cautious in the way we're investing.

But clearly, we're working with Mark Goddard-Watts, the founder of a number of these businesses, including one of our competitors and our Toolstation UK business. We enjoy working with Mark, and Mark enjoys working with us, so we're going to keep pressing on as hard as we can.

So it's small in scale terms, but it is an important lever for future growth of the business.

Aynsley Lammin from Canaccord. Just a couple, please.

Firstly, I wonder if you could give a bit more color on January, February trading. Obviously, between the divisions it's quite variable in Q4, just wondered if you've -- the kind of recovery you've seen is across all four divisions.

And when you look at the week-to-week trend, has it been very consistently getting better? And then secondly, maybe, I don't know if you can describe how much -- if you had a bit of price inflation, whether you can quantify the benefits of margin of 1%.

Obviously, you're signaling zero inflation, what impact that has. And then just lastly on Benchmarx, obviously, you're rolling out that quite aggressively.

How's that going? And are you taking share from independents, or some of the larger players?

Okay, January and February, we debated, as you'd expect, long and hard with our advisers. And we give our first Q1 details on April 20th.

What we've indicated is we're really pleased with the way we've started. I'm not going to give numbers, because I'll have to give numbers this time next year.

So I think you have to rely on the fact that we're quite pleased with the start. Inflation's an awkward one, Aynsley, in the sense that we're still seeing inflation come through on heavyside, but we're seeing deflation on a number of our imported products, especially the commodity-led with sort of steel and copper.

Our best guess at the moment is inflation will be broadly flat. As Tony says, we've got a little bit of wriggle room.

It might be low, but it's not going to be higher than low. I think, at best, it's going to 1%; my guess would be it will be flat.

And that's really a mix issue rather than a -- so within that flat there will be a number of different levers to play. With Benchmarx, as you say, we don't report it separately other than the number of branches that we've opened.

We wouldn't be opening the branches if we didn't see line of sight to obviously good growth and good returns. I think we're taking a bit of share from independents and of the larger operators.

But we're also, and I think importantly, giving Howdens' customers a choice.

Just on that price inflation, if you assume 1%, what's the ballpark impact on [some stock gains, do you know this]?

As I say, I'm not calling 1%; I'm really thinking it's flat. And we'll give you updates as the year goes.

But, at the moment, the best line of sight we have with our mix is its flat.

And just to give you a bit of color, the second half of last year we experienced more significant commodity price deflation in steel, in copper, in plastics, in lead, and so on. But -- and that will carry through in the first half of the year, so you'd expect to see a bit more deflation probably in the first half of the year and then that annualizing through midway through the year.

But it is -- we can't call on that. We know what the cycle's going to look like in the comparatives, but it depends on how well we're working with our suppliers and sourcing directly from the Far East, as well.

So there's a bunch of movements. But I think, as John says, our best guess is it's about zero.

Andy Murphy from Merrill Lynch. Just three quick questions.

You've commented on the general merchanting side and said that you've seen particularly good growth in the heavyside of things. Just wondered to what extent good growth in the heavyside should or could lead to lighter-side demand further down the road?

Also, in that business you were talking about some properties that had been sold and leased back. I was wondering, given what you're doing with the freehold nature of the whole estate, what the reasoning behind that was?

And then, just on the question of Staines, why do you need to wait two years before you can go somewhere where you're hoping to find growth?

My question exactly. I want to get going now.

I've been trying to get in to Staines for the last 25 years with a site. Sites there are really like rocking horse poo.

So the site is currently occupied and the leases terminate in 2018. We took a position because it is a number one catchment for us.

When we look across the competition in that area it's weak because of the site profile. And we took a judgment, we didn't think we could get in without this site.

So it was a good call for us; I think we'll have a great business there, but we have to be a bit patient.

And it is for a number of sites. It's not just for TP, it's for a number of the businesses.

I'd agree, it will be a fully-fledged take up.

And we are receiving some rental income in the period of time, so it's not like a nil return investment in a couple of years. So we're getting some money back on it, but, as you'd expect, it's not quite in the 10.5%, 11% returns we're getting on our progressive business; it's more like 7% or 8%.

And on heavyside, you are right, we're seeing good growth in our heavyside. We're working really hard to try and get complement to ensure the lightside equals that sort of growth.

So a lot of focus on our propositions for lightside, and Andrew and the team are working hard on that.

And sale and leaseback, reasoning behind that, we look across the estate, I'm looking at Martin Meech, our property director, and try and work out where we've got our most strategic sites; where we're getting [super-normal] operating profits; and where we want to hold on to those sites ad infinitum because we get very good returns from those locations. We looked at a number of these sites.

I'm sure you could find in the marketplace which sites we did dispose of. They were all sites which are not strategic to the estate.

We don't think there's further development profits being able to generate from them. The returns are okay.

We've signed up relatively short leases in terms of the disposal. And we've got a good deal on disposal.

So when we look at those sites, there's no further development value in it for us. We've got a good yield when we dispose of, and we may or may not move from those sites in 10 or 12 years' time.

But we've signed up to relatively short leases for those. So that's the rationale behind it: we don't want to tie up our capital in those sites.

We want to invest our capital in to sites which are going to give us super-normal returns and development profits over time.

Thank you.

Michael Mitchell from Davy. Just a couple, please.

On the lead indicators, we look at housing transactions, internally, have you developed a view in terms of how much that's being supported by changes to price-led speculation going forward. And in that context, should we be thinking in terms of any different impact in terms of feed through to RMI, both in terms of volume and in terms of mix?

That's the first question. And then secondly, on the outlook for contracts in the first half of the year, clearly, CCF and Keyline going well.

But that pace has slowed, and clearly coming up against a very tough comp base in the first half of the year, so just wondering how you're viewing that.

I think the H2 overall was tougher for the whole sector. And that was felt also for our contracts business, which has had a fantastic track record over the last three years.

As I say, I think we're going in to 2016, with the evidence of January and February, quite positive. From the -- I don't think we've specifically done any modeling on the buy-to-let, and I think we'll have to just see how things work out.

Sure. I guess, what I was trying to ask was is there any reason to think of the recovery in housing transactions that we're seeing at the moment differently to the prior pace of housing transaction growth in terms of how it feeds through to your own revenue and the end-market activity?

Yes, there's a couple of bits to that. I think, obviously, buy-to-let has been good.

And what I think you've seen, some people going in to the market and mortgage lending for buy-to-let going up over the last couple of months ahead of the stamp duty changes in April. We wouldn't be seeing that as to the benefit of that for whether it’s nine months or six months, or somewhere between six and nine months, so to the back end of the summer anyway, I think.

However, I think for us, encouragingly, the underlying level of housing transactions is positive. We’ve started to see some growth in equity withdrawal, which obviously helps us.

And, for the first time in many years, we’ve seen a growth in first-time buyers as well in certain parts of the UK, which is again encouraging. And we go back to some of the things I think we said some time ago about house price inflation, as well.

We said, we do get some things right and wrong, but we said, a couple of years ago, we expect relatively low, and hopefully a long, period of price inflation. We expected London to go first and then to come off, and the regions to come later.

Some of the stamp duty changes, I think, have accelerated a little bit of that. We’ve seen relatively lower house price inflation at high end in London, but still some growth in the low end.

And the regions, it’s been going pretty well. You’ll have seen the Halifax house price data come out today.

So we think that gives people confidence to continue investing in their homes in the future. Mortgage interest rates are at an all-time low, and they’ve come off further.

So house price, or credit availability, credit affordability is pretty good. And house prices haven’t been going up too much in the regions.

So outside the 10 million people that live in London there’s another 55 million, 60 million that live elsewhere, and I think they’re feeling okay about life. All of that put together, it’s difficult to point to one of those factors and the impact it will have.

But overall, I think we’re reasonably confident in terms of the outlook.

Thank you.

This is Charlie Campbell, Liberum. I’ve got two questions, really.

First question on general merchanting, you’ve said for the year you’d outperformed. But I look at that Q4 like for like of 1%, that, in my mind, is maybe quite close to the BMF number, and just wondering if there’s any reason for maybe lower outperformance than you’d seen the rest of the year, or perhaps my understanding of the market’s wrong.

And secondly, on overheads, I think overheads increased about 7.5% year on year; probably, I suppose, 2% inflation, 2% or 3% in terms of expansion, and then that maybe leaves 2.5% of, maybe, I suppose, discretionary, maybe IT. And just sort of thinking about the shape of that and what happens to that in 2016, do you think you might be a bit meaner on some of the discretionary aspects of overheads, given maybe a more taxing environment?

Tony’s got all the details. If you actually look between H1 and H2, that will be the answer.

Well, right, so, cheers, John. We said in general merchanting, in the second half of 2014 we put some extra costs in ahead of Omega opening out of Cardiff, and so on and investing in service for customers as we’ve seen good growth in 2014.

Obviously, that annualizes out towards the back end of 2015, and we’ve annualized that cost growth. We also worked pretty hard on the cost base, as, Charlie, you can imagine.

And seeing some of that growth in sales growth in the second half, we doubled then our efforts on costs. So I think broadly, the shape of what you’ve got is right.

We did see cost growth in the first half in general merchanting, it was significantly lower in the second half. And I think we go in to the year with a much more fit-for-purpose cost base in the general merchanting division as a whole, but notwithstanding there is some investments we want to make around things like tool hire ratings, around like Benchmarx.

So overall, check, spot on. But I think we go in to the year in finer fetal than we did in the time of last year.

And we can probably conduct Andrew’s appraisal here today. We’re confident about the cost base and as we’re going in to 2016.

And in terms of Q4 Charlie, a, I’d point you to the five-year plan rather than one quarter and we’ve significantly outperformed over that two years. So it’s a blip.

And just BMF status, I would caution, we did see some slightly odd results from the BMF come out in January, commenting on 25% or 30% growth in the builders merchant market in December. We didn’t actually see that, and I don’t think many others did either, so I’d just caution you on just a straight read on the BMF data.

So Andrew got a C-minus.

On that basis, he got an F-minus.

With here next [indiscernible]. So Paul.

Paul Checketts, Barclays Capital. Three questions.

Can I just come back to that outperformance point, because your guidance is that you will outperform by 1% this year. And I suspect that if you were to give us the analysis that you’ve done, the outperformance in 2015 was better than that.

So what are you trying to tell us? Is there a slight shift in --?

We’re always aiming to please, Paul. So guidance that we give is what we can stand behind, but we're working hard to try and improve that.

And I think you're right, in 15, we probably had better outperformance from the 1%, but that’s really over a medium term, and Q1 we probably wasn’t 1%.

So you’re not backing off on price or anything like to try and stabilize it?

No, we're in good shape.

Okay. And the second question is on own label.

Can you give us a sense of how much of the products now are being, are own label?

Still relatively low. If you take Simon and Wickes, it will probably be about 70% own label.

Simon, are you nodding, or?

Higher.

76% own label in Wickes, so it’s only 24%. And then, if you take the trade businesses.

Of the products you're buying in China and elsewhere, with the weakness in the pound how are those -- how is that pressure managed?

So we never have all eggs in one basket. We'll have a couple of suppliers and often one quote, one [fall] and we'll balance between either landed UK, or taken from UK or we'll bring it across.

Although the exchange rate is low, shipping costs have never been lower. So we analyze where the value is.

And it's not a straight read as well, because, as you imagine, we do some hedging, which we describe in the stat accounts. We hedge forward about six months or nine months, so we've got a fair amount of hedging at $1.50 at the moment to $1.

Even though this is exactly why we do it, we will get a benefit from that obviously through the first half of the year. But we expect, therefore, if the pound stays where it is in the second half of the year, clearly, there's some cost price inflation coming through in the second half of the year.

And it balances against the points I raised earlier in terms of cost deflation in things like copper in the first half of the year will carry on, we may get some inflation in the second half. It's not a straight read through.

No, we've always said China isn't a finest sale. It's a very fruitful area for us, but we're always watching whether or not we can buy UK products any better, or out of Eastern Europe.

Sorry, on the own labels, I should have said, we are, essentially, a supplier of brands. So own label is there to complement.

And the last question is on the dispute with the HMRC. Can you explain a little more what exactly is being disputed here, and over what period that lasted?

I can go through that at length with you, if you'd like. It's probably not the time to go through it now.

Suffice to say, the starting point is we've fully provided in the accounts for that dispute, so there's no impact on profitability. It's really around what we can and can't take as tax deductions, largely relating to the BSS acquisition back in 2010.

The Revenue is taking a tougher stance on things and, therefore, we've prudently provided. That's what it is.

But I can give you the full detail, if you'd like, later.

Thanks, Paul. John?

Sorry, I think it's three. First one was just on consumer.

To understand a little bit, just in terms of where Toolstation fits, would it be fair to say that it's now clipping along at 250 million of sales, probably just over 20 million of EBIT? Would that be a sensible thing to go away from here thinking for 2015?

Second was just when you look at that Toolstation business, given what obviously we've heard from Screwfix, are you still very comfortable being as aggressive in terms of growing the outlets, as you stated in the statement here? And then, just a wider one in terms of Simon and the team at Wickes, given what Bunnings are clearly going to come in and do, I understand exactly your point about let's wait and see, but shouldn't you actually -- if I go to most DIY stores in the UK you're pretty underwhelmed with what are shabby, run-down looking facilities pretty much around the place.

Don't you want to steel the march and actually snaz up what you've go, because nice green glossy prices to the lowest price, whatever the strap line is. But actually, given what they're going to probably do, don't you need to be on the front foot a bit more in terms of getting there and doing things to snaz up the Wickes offer before they start?

And then my third one was --

We've had three.

The other one is back on costs, and to Charlie's question, in that obviously there's 90 million we can see as cost inflation, 39 million in the overheads, 50 million-odd in the sales and marketing and distribution. But in the first half you guys gross margins up 1.7 in GM, up 1 in plumbing and heating; that came back to 0.1 and 0.1.

When we think about distribution costs and what you are now carrying, do we need to think of Travis costs, inside cost of sales that are a bigger item? Just understand the mechanics here because -- and also, what the annualized effect that we need to bear in mind in the first half, or the first seven months or eight months of this new year because there's obviously been a gross margin dropping out.

Did you go early and get a better gross margin to the back end of last year for suppliers to be in the club, or -- and, therefore, it's washed out, just to understand a little bit, because it's quite a concerning mix.

There's a massive amount gone on there, John, and I can -- I am happy to talk to all of you later and just explain that in detail. But the short answer is we did have good margin progression in the general merchanting division in the first half of the year.

Some of that was around price battery, some of it was around mix. We grew tool hire very well; we grew Benchmarx very well in the mix in the first half as well, so we did see an annualizing, we did see some benefits in the first half on that.

Obviously, as we opened up the Benchmarx program, back end of 2014, some of those mixed benefits weren't quite so prominent in the second half of the year. And, as we said earlier in Andrew's performance review, we did look very closely at costs in the second half of the year, and our cost performance in general merchanting was significantly better in the second half of the year than it was in the first.

But just to be clear, are there HRC and Omega costs that are going through cost of sales now that are a step up that we need to be -- because, obviously, there's clearly been a [multiple speakers].

Yes, obviously, what you've seen in the second half is effectively the costs of Cardiff operating again on the prior year because that opened at the start of the year. You will also have seen the cost of Tilbury in the second half of the year; and some of the costs of the PDC, the primary distribution center in Omega in the second half of the year, which two -- all three of those things weren't around in the second half of 2014.

So that's part of the reason why the margin is slightly softer in the second half of the year. But we're now pushing significantly more volume through that, so we should expect that to start to fractionalize as we go through 2016.

And we've made, I think, pretty good progress on that front.

Just on the Bunnings, we're not sat on our hands, but it is difficult to fight a phony war when you're not really sure. Simon is chasing me; every other word is CapEx.

And you're not going to be surprised that we've already been to Australia in terms of understanding what we're going to be up against. But we're travelling well, and we're focused very much on our customer.

We've got some good momentum, and we're not going to be found wanting.

And just on the Bunnings point, obviously, I know the Wesfarmers business reasonably well, having worked for them, so I've got to say hello to PJ and John Gillam, who I'm sure will be listening in on the call. So hello, PJ; hello, John Gillam.

I did ask John Gillam whether PJ had brought his Milo fishing boat from Hamilton Island in North Queensland, but I don't think he's got as much use for it in Milton Keynes. Anyway, we know the business quite well.

We've got a fair handle on what they'll try and do. What we shouldn't be diverted from is the plan that we've put in place for our Wickes customers.

We've invested in some new estate, we'll keep doing that. And we'll invest in our format proposition; we'll invest in online.

And we've invested, and Simon's done a great job I think, in getting the value proposition right in Wickes. We've got a significant advantage over our competitors.

And the ranges are now better, as John and Simon mentioned earlier, with own label range now about 75% of the turnover, 25% is branded. And that clearly resonates with serious DIYers and trade.

So all the things we've been doing are the right things, and we're being rewarded for that. And I think we should keep going and we should, if anything, as you say, accelerate our plans.

I think we won't be complacent, because they're a good operator. And we know them well.

I'm sure PJ will say on the phone that he's thinking about some different things for the UK, but we know them reasonably well. And we'll be aggressive in our plans as well.

But I think we're in good shape, John.

Did you want to take the Toolstation?

Yes. And Toolstation, you're not a million miles off, John, in your numbers.

What would I say? We've got about 400, just over, of these outlets in the UK at the moment.

There are 5,000 builders' merchants. So are we worried about overcapacity and space?

At the moment, I don't think so. Screwfix, I think, have said they'd like to open about 600 outlets.

We've, of course, have got our plans in place. We opened 40 in the year.

We've guided to more than 30 in 2016, and I think we've got some capacity to keep going. And like-for-like sales growth are very good.

Underlying like-for-like sales growth were not impacted by cannibalization or new store openings. It's very strong.

So it's resonating, so we should keep going. And these are small boxes, very low capital intensity; we can put them down on short-lease terms and make good returns.

So we should keep going.

Morning, Emily Biddulph from JPMorgan. I've got two questions, I think, or maybe three, depending how you cut them, but they're both on plumbing and heating.

Can you just give us a bit more color on the impairment in PTS, and what's driven that? And maybe linked, or maybe not, the revenue retention rate in PTS that you talked about in the past, is that holding up at the moment, what you thought it would be?

And then coming back on City Plumbing, when we think about this year should we be thinking about -- can you give us a sense of, a, what the maturity curve should look like on the City Plumbing stores? And then, on top of that, if we're modeling the like for like, should we be thinking about an underlying like for like for that business because it's more discretionary, looks a bit more like general merchanting than plumbing and heating has done in the past?

Thanks.

I'll pick the impairment up. The thing here is PTS, as we've gone through this change, is going to be a smaller part of our P&H business in the future.

What I can't do is open, reopen the purchase-price adjustment we made on goodwill when we acquired the business back in 2010. It stays open for one year, you can't go back and adjust it.

So you can't move things around. So we are carrying more goodwill, or were carrying more goodwill, in PTS as a result of that.

As we're making it a smaller business and diverting more of our revenues through CPS, clearly, then there's an impairment to take. What I can't do is write up the goodwill -- or write up the carrying value of the assets in CPS.

So it's a bit of a one-sided entry, really. But we've taken that impairment.

And also, we've moved contract volumes across from some of the CPS customers previously in to PTS. But not all of them have moved across and, therefore, we've maintained some of the revenue in CPS, as you'd expect.

But over time, we'll move that revenue over. But we don't want to disrupt customers.

Customers are always right, or generally always right, so we'll try and look after them as best we can. But that's the broad brush, Emily, if that made sense.

And I think we'll be in a better position, Emily, to give you some better data on April 20, in terms of the maturity. We've got good line of sight for '14 conversions, and we're pleased with that.

I'd rather give you some data with three months under our belt of the '15 conversions.

So Clyde Lewis, Peel Hunt. Three if I may, as well.

Probably a fairly easy one for Tony just in terms of sort of, I suppose, a little bit more of the cost jigsaw. Can you maybe give us an idea as to how much the average number of employees changed during the year?

Second one was on the impact on the general merchanting branches and the Wickes branches that have received implants. Has that been a positive trend in terms of their like for likes versus the overall group numbers that you reported for those businesses?

And the third one I had was on, I suppose, a shift. If we look at the RMI market versus new build, either new housing, or infrastructure, or commercial markets, are you worried that a little bit of a labor drain away from RMI areas and that, that might be playing a little bit of a role in terms of what happened in the second half of the year last year?

And maybe January and February is a low point for the interior fit out for new house builders, and all those white-van men have come back in to doing RMI again.

Okay, in terms of the implants, Clyde, I think, without exception, any implant that’s going in to TP has been successful. Because there’s a whole combination of tool hire, of Benchmarx going in to them, and we’re just getting better returns off the site where we have the space.

We did an exercise on the oversized stores in Wickes and we put 20 Toolstations within those Wickes, and overall, from a Group perspective, it had been positive. The Simon and the management, I don’t mind saying, he’s there at the back, I think cottoned on quite early and said, well, why don’t we do a counter?

So Simon and the team have been developing their own counter. So we stopped at 20, and we've got about eight trade counters working in the Wickes brand.

I think, going forward, we’ll utilize the Wickes, rather any more implants from Toolstation in to Wickes. The labor piece, I’ll be honest, it would be a view that when we went in to the downturn in 2008 there was a huge exodus from our industry.

As we’ve picked up, and picking up, that has been a bit of a drag. And I think it’s fairly well trailed through some of the construction companies, and, in particular, the house builders, I think we’ll either have to get people back in to the industry, or trained in the industry, or that it will force a de-skilling of some of the construction methods.

I’m not seeing at the moment, I think good builders are really busy. If you’re talking to a builder that can come and do some work on your house next week, I’d question whether or not it’s a right one to have, probably using Jewsons.

The first question?

FTEs, FTEs, it’s a bit hard to give you a number exactly, because either you look at employees or you look at FTE, full-time equivalents, you look at the average during the year and you look at closing positions, and so on. But we did see a mid-single digit growth in headcount during the year.

It’s a bit different by different businesses. CCF, for instance, as I said, opened six branches in December, so we put some extra headcount in for that, as you’d expect us to.

But it’s a constant focus of ours. But you would have expected actually over the last two years, which is what you’ve seen, slightly more people going in relative to cost growth and sales growth as we put those people in to run branches and new shops we’ve opened, and that we should get the cost fractionalization of that over 2016 and 2017, frankly, as those businesses mature.

So you wouldn’t expect to see the same sort of level of FTE growth, or people growth in our business over the next couple of years, unless volumes go shooting through the roof. But I think we’re in pretty good nick in that regard.

Kevin?

[Indiscernible].

Two, actually, from me. Firstly, I don’t know whether it’s appropriate this year, but one of the things that may have changed from the outline of the plan 2013, if anything, the market may have not been quite as good as you might have hoped when you set the objectives.

Is there a level of nominal growth in the market, which would make you question the tactic of being happy with the level of outperformance? So it does there comes a point where you actually need to pressure the business more simply because the market growth isn't sufficient with your additional gains to get you to your 10% growth target?

That’s the first question. Secondly, again, I guess this might be too early, similar response to the Australian question, as it were.

But Kingfisher have made it very clear where their first, the first area that they’re looking to drive the one Kingfisher, which is bathrooms. And may be wrong, but the impression that they're giving is that they're obviously trying to create a much more consumer-friendly product, etcetera, etcetera.

Do you -- is there any danger that you may have moved CPS just at a time when the completion are trying to move in the same space, and that actually the fertile ground, ironically, could have been back in the trade PTS business?

We always get great questions from you Kevin. I think, take the first one, we've put the four buckets down in terms of how we see our growth.

The market, which we call between 2% and 3%; the pricing, 0% to 2%; with our outperformance between 1% and 2%; and we have new space expansion. And I think if you saw the slide, I think on that new space expansion we're doing pretty well.

I think our outperformance can be argued that we're at the upper end. But those two levers that we can deal with I think we dealing with, or the teams are dealing with, really quite well.

I think the growth area has been relatively robust and if I look back right to second -- in the Second World War on average, construction output has been around 2% to 2.5%. Si I think this is -- I'm not concerned with the volume output.

I think the piece that's really caught us, I can't remember a time of sustained low inflation, or zero inflation. So I think if you wind back to December 2013, looking forward, I would not have called zero for the period at the time.

And I think that's really why Tony and I have moderated sort of call for this year to 5% to 6%, because we're not expecting any help from inflation. So I think -- but clearly we watch the sort of medium term.

And we put some really good investments in areas that we're fully confident with in 2015 and some of those obviously float through into 2016. If we felt that volume was going to come off and then it wouldn't just be about our outperformance and new space, we'd be cautious.

We've got quite a high hurdle rate in terms of what we expect to get returned from that new capital and we think that over the medium term will hold us in good stead. I think the Kingfisher piece is -- and sanitary ware, it really does seem the battle ground.

Wolseley have declared they're going to open showrooms. And we collectively are starting to look about how do we work together with this club and country, working as country because we've got a pretty good bathroom business.

And the work that Paul and the team have done of driving these trade showrooms has been really quite positive and rewarding. I think with all these things you've just got to keep continuous improvement raising the bar, and making sure that we're one step ahead.

And Kingfisher are coming from a lower base. They're a substantial business, so I'm sure they'll put their best shoulder behind it.

But all we can do is to do these categories as well as we can. So it may get a little bit more intensive, but we've got some really good formats.

And I think there's an area for Simon and the Wickes team to improve. At the moment, it's not something we would back off from, but we'll see, over a period of time, how each of the businesses performed.

Yes, and just nominal growth in the market, to your earlier point, I think there's two things to pick up: one, we're investing and we've invested in the foundations to outperform, not just this year, but into the future. So I think we want to drive harder outperformance, because that's the way we win long term.

The second point, and that's irrespective of the market, to some extent, but the market, if we saw the market grow back to 0% or 1%, I think then we'd probably need to have a think again about where we're heading. But 2% to 3% underlying volume growth in the market, I think we're pretty comfortable.

I've got to go to the phones, as everyone's waited quite patiently. Okay, ladies and gentlemen, thank you very much for taking the time.

Thank you.