Travis Perkins plc

Alan Williams - CFO and Executive Director Anthony Buffin - COO and Executive Director John Carter - CEO and Director Robert Walker - Non-Executive Chairman

Robert Eason - Goodbody Stockbrokers Howard Seymour - Numis Securities Priyal Mulji - Deutsche Bank Andrew Murphy - Bank of America Merrill Lynch John Messenger - Redburn Emily Biddulph - JPMorgan Ami Galla - Citi

[Calls starts abruptly] …all of our businesses, particularly given the continuing uncertain and inconsistent indicators in our sector, housing transactions, mortgage approvals and consumer confidence. Alan, of course, will cover these numbers in detail.

But I would highlight the strong growth in our Contracts and Consumer divisions and good progress in recovering input cost inflation across the Group, especially Travis Perkins merchanting and we've done this through disciplined pricing. So therefore margins remaining pretty healthy as a result.

Particularly pleasing I think has been the strong focus on cash generation and disciplined cash management with underlying cash conversion, of 9%, free cash flow increased from 123 million to 188 million, partly assisted by a property transaction. Net debt 3.77 million is 133 million down on a year ago.

We have a strong balance sheet with significant liquidity and long term funding in place. And capital investment as usual continues to focus on our strategically advantaged businesses.

Travis Perkins, Wickes, Toolstation, Benchmarx, that's been the theme the last couple of years. Our Plumbing & Heating business on the other hand has underperformed in recent years with competitive pressures from online and fixed price operators and strong local independence.

And as we mentioned in our prelims in March, Tony Buffin and the new leadership team have now completed the comprehensive strategic review of the Plumbing & Heating business. The plan builds on the foundations of the building the best program in 2014 and '15 when over 150 branches were converted from PTS to City Plumbing and some 78 PTS branches were closed during that program.

Tony, of course, will cover the plan in a few minutes. It seeks to improve the business both operationally and in terms of consumer focus.

And importantly, when complete will provide the group with more options to maximize shareholder value in the future. Now over recent years, one theme clearly stands out for me and that is the group's ability to nurture, grow and transform our individual business propositions.

I believe we've demonstrated this with the growth of Toolstation, Benchmarx, CCF, Keyline, and, of course, Wickes . And those of you with long memories will remember 1 or 2 false starts at Wickes, but we've certainly I think being getting it right over the last 4 years.

And BSS and TP, Travis Perkins, have maintained their leading market positions. That's why I have complete confidence in our ability to fix the issues in Plumbing & Heating over the next year to 18 months or so and early indications, as you'll hear from Tony, are certainly in the right direction.

So I think that's enough from me, with that I'll -- it's the usual format, Alan with the financials, operational strategic update from John and then Tony will cover Plumbing & Heating and then back to John and Alan for questions. Thank you very much indeed.

Thank you, Robert, and good morning everyone. So the group's delivered a solid overall performance in the first half in a challenging market.

Overall, revenue growth was 3.5% with like-for-like sales at 2.7%, adjusted EBITA was 2.1% lower year-on-year at £190 million with a fall of £4 million versus H1 '16, driven by the challenging Plumbing & Heating market and also recent investments, including in information systems. Adjusted earnings per share was 4.5% lower at 55.8p.

The decline was driven by the 2.1% fall in EBITA together with an increased financing charge in the half following the replacements -- borrowings by the revolving credit facility with a fixed long-term bond rate issued last year. As you can see, underlying free cash flow was strong, given our confidence in both the market position of our advantaged businesses and also our ability to continue to drive free cash generation, we've increased the interim dividend by 1.6% to 15.5p per share.

So as mentioned, like-for-like sales increased by 2.7% in the half compared to H1 '16. Growth was consistent in Q1 and Q2 and you will note on the bottom left-hand side of the page, a slight pickup compared to H2 '16 on both the 1-year and a 2-year like-for-like basis.

All of the like-for-like growth was delivered by pricing activity and mix changes, as the group focused on mitigating the pronounced input cost inflation that we've experienced. Total sales growth was ahead of like-for-like growth at 3.5%.

Number of trading days was unchanged from the prior year. And despite the closure of some underperforming branches, which was signaled with the Q3 '16 Trading Update, the group increased its overall number of branches by 33.

The openings were predominantly in advantaged businesses, including Toolstation, Benchmarx and TP. I referred on the previous slide to the pronounced input cost inflation, which we're experiencing; as you know, this has been driven both by the shortfall in the value of sterling post the EU referendum and also by commodity price increases in certain product categories.

While each business has adopted a slightly different trading stance, our focus as a group in the first half was to mitigate the impact of this inflation and I'm pleased to report that we held our gross margin flat in the half. As John will touch on later, this has in certain cases impacted the market share in the short term, but we believe this was the right position to adopt for the longer term.

At a net operating margin level, we saw a 40 basis points decline in the first half. This was driven by the continued selective investments in the business, both in the first half and in prior years.

And I would highlight three areas, in particular; firstly, the expansion of the network, which I referred to earlier, including Wickes stores being refitted. Secondly, the extension of the reach of the range center network in TP and thirdly, the investments in IT infrastructure we're making, including the projects replaced called merchanting systems and also investments in digital capability.

We continue to leverage the property portfolio within the business with selective investments in freeholds combined with a disciplined disposal program to realize embedded value from fully developed properties. The freehold purchase and development program is focused on both development in multi-fascia trade parks and the acquisition of selective sites, where we can see long-term value from ownership.

We currently have over £50 million of freehold sites on the balance sheet, which will be developed and brought into use over the next 24 months. In the first half, we realized £50 million from disposals, principally driven by a sale and lease back of 8 Wickes stores.

Net of investments, £27 million of cash was realized from property recycling with an income statement profit of £7 million. We are maintaining our mid-term guidance of on average 20 million per annum of property profits, while at the same time increasing the freehold mix within the overall portfolio.

Turning to cash flow. Cash generation, as I mentioned earlier, has been strong in the half, despite the customary half one working capital outflow.

So 99% of EBITA are converted to cash in the period. A focus on cash conversion generates the funds needed to selectively reinvest in the proposition both to modernize and expand the business and, therefore, to drive long-term shareholder returns.

Having now spent six months in the business, I'm confident that there remains opportunities to further optimize working capital in the medium term. The balance sheet has strengthened further during the half, while net debt is essentially unchanged from December 16, year-on-year it was £133 million lower; with leased debt essentially unchanged, we saw a continued steady reduction in lease adjusted gearing and a further reduction in lease adjusted debt to EBITDAR, which is now close to the mid-term ambition that we set out a few years ago.

With long-term funding in place and also significant headroom in our facilities, the balance sheet is well positioned for the uncertain times that we're currently traversing. So in summary, I think we've delivered a solid performance in the half, executing well in challenging market conditions.

The business generated strong free cash flow during the period, enabling us to reinvest selectively in the business to drive long-term value creation. This also enabled us to further strengthen the balance sheet to provide both security and flexibility.

Whilst we remain cautious on the macroeconomic outlook for the second half, the investments we've made in recent years leave us well positioned for the future. And with that, I'll now hand over to John for the operational update.

[technical difficulty] sort of acknowledged Robert's contribution to the group on a personal level and from a company's point of view, I thoroughly enjoyed working with Robert, great support and great guidance, we wish you all the best, Robert. And in terms of -- sort of a reminder in terms of our operational update, we have a long-term market opportunity, remains compelling as Alan highlighted in the macro uncertainty.

I think the business over the first six months demonstrated resilience in our performance and each business is adopting a slightly different trading stance that was appropriate in the markets they are facing into. Again as Alan sort of highlighted, we will continue to invest on a selective basis with both a short, medium and long-term shareholder value view.

In terms of long-term drivers, just as a sort of reminder, they too would suggest that the UK needs 230,000 new homes each year and we know we're building around 160,000. That has given us a sort of chronic buildup of housing demand, about 2.5 million houses not built in the last 20 years and we also know from data that there are structural underinvestment in residential RMI, given us confidence about the medium and longer term future for our business.

The flip side of that is the more short-term uncertainty and we've seen a lot of mixed data regarding the sort of macro events, slowing GDP, consumer as of this week falling to minus 12, the lowest level since the Brexit vote, inflation eroding consumer real disposable income and a difficult to read secondary housing market in terms of transactions, and slightly falling on a mortgage approval basis. So quite a mixed set of data, but as we always say, we believe that we're building businesses which can cope with all market conditions.

I've have sort of promoted this slide, that's been used many, many years in terms of the different indicators that we track as a business, really to demonstrate the mixed messages we're getting. Clearly housing new build is particularly strong, we're getting very mixed messages in the consumer retail area but not particularly positive and construction as demonstrated by our contracts business and continues to be positive at the moment.

We turn our attention to our businesses, our General Merchanting business, which clearly is a cornerstone of the group, took a deliberate trading stance in a period where we saw inflation returning, and aim to recover both costs and maintain its gross margin. No doubt we'll deal with the detail in the Q&A, but we understood and accepted, that that may be at the expense of some volume decline.

We continue to modernize and invest in our General Merchanting business ensuring that we get maximum benefit from our earlier investments in distribution and we're investing in both digital online capability within Travis Perkins as well as fundamentally core systems that we need to renew over the next couple of years. Benchmarx continues to operate really well with branch network now nearly 190 and we added 11 during this period.

A slightly deeper dive into general merchanting, because clearly we continue to invest and we continue to take a different trading stance, we introduced last year a new pricing framework, unquestionably that has now given our managers more important information to make better pricing decisions. Not only is it sharpening our competitiveness at the trade counter, it's also given our customers who clearly have in feedback have said they are looking for price consistency.

So, so far , we've been really pleased with the introduction of the project, which we call Spinnaker across the General Merchanting and gives us opportunities to deploy in other parts of the trade businesses across the group. We've always said we scale to our advantage and certainly within Travis Perkins, we've been driving better efficiencies and better sourcing benefits in particular from our direct sourcing Asian office and our own label development and we've undertaken 2 trials, where we are approaching transport from a centralized basis in Bristol, Manchester, with hope to roll back to Birmingham and then part of London during this year, which really gives us better visibility and better efficiency of delivering our products to our customers.

We continue to sort of invest in our range centers, just from a sort of from familiarization, we have range centers in Warrington, Tilbury and Cardiff, during the period ending June we've added another 37 branches to the network and by the end of August, we'll have a third, the 140 branches on the network, which will then cover the whole of England and Wales, that clearly has increased our operational costs as we increase the reach of our range centers and there's a slight lag, but we're confident that we'll see the returns on this project increase as we roll this project through. It's important really having invested in both our primary distribution centers and our range centers that we extract the best value, so a lot of work is going on in terms of extending the breadth of our range of products we offer our customers and improving the availability within the branches and that is underpinned with using our working capital more effectively as we go forward.

This area of digital and online, we are as General Merchanting a traditional business, we are investing and working really hard to improve our capabilities both online and on a digital basis, especially for our younger building community and as I said earlier, we're moving forward with some substantial and significant investments and changing our core systems in all our trade businesses over the next couple of years. Our contracts department of merchanting had an extremely good half yearly, building really on some of our early investments especially in the end of 2015 where we expanded substantially at CCF, branch network growth over the last two years on a like-to-like basis is 12%, we've seen continued momentum and share gains from both Keyline and CCF and I am particularly pleased with the encouraging performance we're seeing come through from our BSS business.

A lot of the benefits are being driven by volume and the efficiencies that we are gaining by increase in volume and lease adjusted returns in this division is a healthy 13%. Equally in consumer, both Wickes and Toolstation enjoyed strong market share gains during the period.

We continue with the refit program -- refitting Wickes stores in the period. We now have 82, which is a third of our Wickes estate in the new format and seeing really good returns and growth from that.

Equally we're seeing the like-for-likes within our Toolstation UK business accelerating and we've added 19 new branches and operating form about 270 Toolstations within the UK. We've been working hard to sort of build a business in Europe, it is still small in terms of where we are, but we are now in a position where we are going to increase our investment on a modest basis over the coming period and grow our network in Holland and develop a small cluster in France supported by our distribution center, a small haul distribution center.

Obviously Tony's going to go into much more detail with Plumbing & Heating, and clearly it's been a tough market. We are seeing positive like-for-like growth within City Plumbing and wholesale businesses, but clearly the contract installer element, the PTS business, is a challenging time.

We've seen volumes decrease, both on the basis of reduced social housing activity and some decrease in volumes of some of our large customers. That volume decrease has really impacted our profitability and we've seen profits drop in this period by 31%.

As Robert alluded, we've undertaken under Tony Buffin's leadership a full review of the business, and I am taking over to talk you through the actions that we intend to take to arrest the situation and allow us to deliver shareholder value.

Do you all hear me? So first of all good morning, we are here earlier than usual, I'm used to something of about 11:30 but it's -- and John knows I am a real morning bird.

Thank you for joining us. So I am probably to start by picking up with some of the work that Paul Tallentire and the team have done to building the best in the right way you drove them over the last 3 years.

As we know, it's been a very challenging market but the team has achieved a lot. As Robert mentioned, we have closed well over 70 branches, reducing the capacity in the network and Paul has also started with the team that pivot towards digital.

So we acquired theunderfloorheatingstore.com business. We also acquired PlumbNation, a heating specialist.

Moreover, Paul and the team have invested in a number of categories to good affect, in our boiler spares business, in our renewable's business and also in our bathroom showrooms. But we recognize the market is difficult and we don't expect them to change anytime soon.

In fact, it may get even tougher for us. And what's that really been around?

Well, the traditional merchant channel, as has been facing some significant changes. Firstly, the government incentives that were introduced back during the recession have encouraged distributors really to put too much capacity and we think there is overcapacity in the marketplace.

We have a concentration of suppliers in a small number of categories and some of them are very strong and do control pricing effectively throughout the supply chain. And then finally with that overcapacity, a number of traditional merchants have been chasing volumes to get through that business to underpin profitability and that has caused some significantly aggressive pricing in a very competitive environment.

The installer end of the market, moving away from the contract end of the market, is no different. And you all know, John just mentioned the growth in our Toolstation business and also we have admire the Screwfix business as well.

They've been growing very rapidly and they've been taking significant share from Plumbing & Heating consumables and they are high margin categories. And that share has principally been coming from Plumbing & Heating specialist merchants.

We've also seen a shift to online, as you know there are a plethora of websites either customer specified websites, but less so in the trade space and that's seen a volume shift and also increasing price transparency. And we don't really expect any of those trends to change in the near term.

So we do require an added focus in a number of areas of the business. As we've been looking at the business and talking to our branch teams and importantly our customers over the last three or four months, it's become clear to us that as we've separated the business into a new storage channel and a discrete contract channel that has created some confusion with our customers in terms of where they buy us.

And that does inevitably mean that some customers have fallen through the gaps. We've also recognized as we looked at our business extremely closely, that our best businesses, much as you would expect, have a mixed business.

They have a core installer Plumbing & Heating proposition, they sell spares, renewables product, they often have a bathroom showroom. And selectively, they can win contract business to good effect in terms of revenue and marginal profit.

And that's exactly what some of our best independent regional customers do. We've recognized that by having two discrete channels, one based on installers and not pushing contract volume through it, complies to some extent with some of our City Plumbing branches and by dedicating capital to a very low margin contract market, it's very difficult to generate returns, as John mentioned in the PTS space.

Our supply chain is also expensive and we think we can improve the service. In our F&P business, we've done an excellent job in wholesale operation to offer a next day service to independent plumbing merchants across the U.K.

and we think we need to do a similar thing across CPS and PTS businesses. And I also picked up -- or we also picked up 14 different businesses effectively three or four months ago.

As I said, Paul has made a huge stride in terms of building the business in online and some of the category [specialist businesses]. But we recognize as volumes are tougher in the market, we need to bring some of those businesses closer together.

So we intend to simplify the business. We also recognize as customers' needs change, we need to evolve our customer proposition much faster.

So that's a backdrop to the work we've been doing over the last three or four months. So on this page, to help you navigate, we've really split the plan into two parts.

The first part in the colored boxes you can see on the page is really around building an integrated branch on online business, bringing 11 of those 14 businesses together. And the second part at the bottom of the page is how we're thinking about running our wholesale operation on a more standalone basis, it's pretty standalone at the moment, there's one or two more things for us to do and the team have got their tails up and are beginning to perform really well.

We think if we can do these things and separate the businesses in this way and bring them together, we can stabilize profits and simplify the business, enable us to grow in the future. And that creates us optionality in terms of choosing to invest in the business further, once we stabilize when the rest of that profit decline.

We've been listening really hard to our customers over the last few months and a significant number of them, and what they told us really is these three things. And this is contract customers and installer customers alike.

First of all, they want a local branch. Secondly, they want a single point of contact.

And thirdly, if they are buying in two branches, they want a single invoice. And at the moment, we haven't been giving that to them.

So as a result of that, we are going to bring the City Plumbing and PTS businesses closer together. And as I've been talking to the branch teams and the senior teams in the business, the operational teams, our sales team in the last couple of weeks, we've been explaining these plans.

I've been a little bit surprised, but they have universally found this is the right thing to do. Let me talk to that in a bit more detail.

In terms of the integrated branch network, one of the first things people have said to me is, are we going to call it -- are we going to put under one brand? The answer is no, we're not, we're going to carry on running two brands in PTS and CPS.

But we will run the business under a common leadership team. We're not going to bring them together, A: because it's expensive, but B: more importantly because our customers have said to us it's not about the brand, it's about the service, the range and the value and consistency of pricing that we provide to them.

We will, as I said, run that business, run the combined branch network under one common leadership team. As a result of these changes, there will be a number of branch closures.

We will reduce capacity by around 200,000 square feet and all of those people that have been affected by those changes we spoke to in the last two days. We also think though that we can relocate some of our branches to better effect, providing better sites for our customers to reach us and be more convenient.

And we also think there are opportunities to expand into certain catchments, where we are underrepresented, I'll give you an example, we have seven City Plumbing branches in Bristol, we have 12 in London. Even I know that London is a bigger market than Bristol.

In terms of how we think about operating the business, we will simplify the business under a single operating model. I've already mentioned about bringing our operations team together to support the branch network and our sales team, we've also done the same with our commercial team, and we've affected all of those changes in the last 16 weeks or 17 weeks, that will enable us to run the business at lower cost but also provide a more coherent product range and pricing service to our customers.

We've also set about integrating some of those smaller businesses, so our SBS business, sustainable business solutions and Toriga we've integrated into the sales and commercial teams. We brought our bathrooms.com and the-bathroom-showroom.co.uk businesses much closer together.

And we've closed our Solfex, underfloor heating operation, and brought that trade underfloor heating products under the leadership of Michael and Steven Lewis in our underfloor heating store business. Turning to improvement for the customer proposition, these the green boxes.

There are four elements to this, but I'll start with value, range and service. We need to provide more consistent pricing to our customers, we need to provide faster turnaround times to our contract customers, we need to provide better range conformity in all of our branches and ranges closer to the customer to provide better availability and a better service, and I'll talk a little bit about some of the things we've already done in that regard in a moment.

I mentioned earlier that Paul has done a fabulous job in building our category specialisms in spares renewables in our bathroom showroom, but we also think there's a bigger opportunity for us in heating controls. Heating controls, as you know went from analog to digital to Smart Controls and we think that's a significant opportunity in that category for us.

I also mentioned earlier, we need to make it easier for our customers to trade with us, that is about one point of contact in a local branch, but it's also about single invoice, about enhanced electronic trading through EDI is about online account management. And we also think through the expertise that's in our branch teams, if we can codify some of that expertise online, we can make our lives easier for our installer customers and make them more productive effectively, so we can provide the right expertise they need and the right products, so that when they go through a job, they don't need to come off the job and they are back to in fit and did it twice.

And online is fundamentally important to us. I'm really pleased that we have four category specialists online already, they are all fixed price and they will offer extended range.

So we have underfloorheatingstore.com in the well enough the underfloor heating space, our heating specialist businesses PlumbNation, our spares business, which is also fixed prices called Direct Heating Spares, we obviously have the bathrooms.com business, which is a fixed price bathrooms business. They will offer a range extension and complement in branch ranges.

And I'm also pleased to say that we stood up our transactional City Plumbing website last week and, obviously, as I say to people online may catch on, and we've already sold buyers with the plans of the product through the online website and we haven't yet started traffic counting. The final point in our plan is around building a dedicated supply chain.

As you know, we have a separate supply chain in Toolstation and we increasingly decoupled the supply chain in Wickes from some of the other group shed in distribution, and actually that's worked really well for us. What happens is, we believe that the management team then build supply chain to meet the customer promise.

And they've done that in Wickes and Toolstation at lower cost, with better service and with lower capital employed and we think it's absolutely the right thing to do for our Plumbing & Heating branches and for our Plumbing & Heating customers. It will be wrong for me to move on without talking about our people.

We have some absolutely brilliant people in our business, especially in our branches and I'm amazed, when I go and see them that they put customers really before themselves. And that relationship that we have with our customers on a local basis is the bedrock of our business and we change that at our peril.

What we do need to do though is invest in our teams and we need to reward them for the performance they deliver for us and I am adamant and committed to producing or developing a more open and collaborative culture. That's the way I work and so far it seems to be working pretty well in our business.

I mentioned the wholesale business at the bottom of the page, the team have really stepped up, I've been delighted with the way they have stepped up, particularly over the last couple of months in their performance. But we still think there's a lot more to do to extend the number of customers we reach, the category that we offer those customers and the service we provide to them.

So I'm finally turning to the outcomes of this. I mentioned the capacity reduction of 200,000 square feet, we do believe that that means, we can run the business more cost effectively on a simplified basis and also reduce capital in the business.

There will be a P&L charge between 30 million and 40 million over the next 12 months, not necessarily in the second half of this year, but over the next 12 months. But as ever, we want to fix the business without spending too much money and we think we can effect these changes on a broadly cash neutral basis as we work harder with our working capital and our fixed capital.

So over the last 16 or 17 weeks, what have we been up to, first I'll get back to the people, I've been struck by how passionate the teams are in the branches while serving our customers. We do have some brilliant people and they come into work on a Monday morning, striving to do a brilliant job, but often -- and we find the same thing, again, the way of doing a brilliant job as you go through the week.

So I think our job as the leadership team is removing some of those obstacles for our teams to do a brilliant job and provide them with the tools and infrastructure they need to be fantastic every day. And just touching, may be pausing for second on the leadership team, I am delighted, John calls it the vacuum, because we seem to be sucking people from everywhere, but we are pulling together a fantastic leadership team, Andrew Harrison, who was previously running the TP businesses, has decided to join us to run the sales and operations effort.

Dave Evans, who's worked with me before in a number of different businesses, has joined us also from TP. Mike Ashley, you may know was the commercial director we recruited three years ago to turnaround the Wickes business, has also joined us to lead the commercial effort.

Mark Slater joined us from Carphone Dixons where he was involved in restructuring of the Irish business. And a number of people have been moved around the business as well including Sherry Marchman, the new HR Director.

But it's not just about the new people we bring into the businesses, it's most importantly about the blend of the new and the old and I'm genuinely delighted that John Frost who was the previous Managing Director of City Plumbing has decided to stay with us; Kevin Williams, who runs our Spares business; Steve Smith, he runs our Bathrooms business and Jed Kenrick he runs our F&P Wholesaling business, but will also take more responsibility as we try to improve that supply chain service. We've given the teams a huge amount to think about over the last 17 weeks, but I'm delighted by the way they've responded to the challenges we've given them.

So what have we achieved? As I said, we've already simplified the head of the structure with the branch support infrastructure into a single operations team, single sales team and a single commercial team.

We've introduced new branch manager incentives and some of our best branch managers think it's absolutely fabulous and have already massively stepped up their performance. We opened a number of our bathroom showrooms over the bank holiday weekend, again I said it's important when we got retail customers to be open on a weekends, when customers want to buy from us.

We opened 10 branches as a trial for all 4 bank holiday weekends in April and May and their sales stepped up for those two months by 20%. We opened 107 branches for at least one day and their sales stepped up by nearly 10%.

We rolled out over a 1,000 products to all our City Pumbling branches for our best-selling lines and we're achieving about £100,000 of extra sales per week as a result of doing that. And clearly, given that encouragement, we'll be doing exactly the same to our PTS branches over the coming months.

We've doubled the promotional our participation of our catalog. We've moved from 3% of sales to 6% of sales in April and May as we've introduced those new catalogs.

We've launched our City Plumbing website, we've reskinned our website Spares website, trebling the number of unique visitors we get to the site. And we brought our bathrooms.com and bathroom showroom business closer together.

So if you now go on to the bathrooms.com website, you'll see a link through -- a prominent link, an increasingly prominent link to our bathroom showroom business. And that's already generated in the first six weeks about a third of our online booking equipments in the bathroom showroom.

I mentioned earlier, that I've been delighted with the F&P team, F&P team in our wholesale operations, they ran a Customer Day in June delivering £4 million of sales on a single day. And that's the best day they've ever had.

And they've also taken [indiscernible] W H Smith by selling chocolate bars, it's not actually chocolate bars, they sell Grundfos Pump and buckets of end feed, when their customers ring them up for new orders. So I've been delighted with the way the team's responded.

It will necessarily take us longer to turnaround our contract, or start to turnaround our contract business, they have longer lead times and once our customers are into contracts, clearly they need to do those contracts. So we do expect to continue to be a very challenging market in that end of our customer base through the second half of the year.

That said, sometimes I think we make business quite complex but I try and keep this as simplest as possible. We want to build a great team, and I think we're well on the way to doing that.

I think these are very strong comprehensive plans to fix the business and it's therefore all about delivery, but I feel that we've made a really strong start particularly in our City Plumbing, wholesaling operations and in the online business.

Thank you very much, Tony. In terms of just leading to a summary, we intend going forward to be highly disciplined in our investments to drive shareholder value, but there are areas where we believe we can create value.

Alan alluded to the overview of overview of property. In the first six months, we have a strong pipeline of high-quality freehold sites that we can commission over the next 18 to 24 months.

We have now operating some 13 trade parks, where we have multi-fascia businesses on one location that's proving very successful and we will continue to invest in those going forward and we will have long-term ownership of our strategic sites. Our strategic sites as you would expect tends to deliver our best returns.

Going forward, again, really, we will be selective in growing our Benchmarx business and within Frank Elkins' contract business, particularly in continuing the expansion of CCF. We have a big task in terms of investing in our core platforms and a digital capability to ensure we deliver the right things to the customers what they are demanding and we will continue to invest in our group's scale to deliver sourcing benefits and that will underpin our gross margins.

Within consumer, we are seeing continued good performance from our store refits, so we will continue with that program. There will be selective in our new store openings, we've got sort of a number of -- up to 100 white spots within the UK and we will selectively invest in those and, again, a highly successful online business, but we need to continue to invest and ensure that we continue to get the growth and service our customers.

We will continue to invest in the Toolstation model accelerating the U.K. investment, on broad terms, we've been opening around 40 branches a year.

We're hoping to step that up in 2018 to sort of 50 or 60. We now operate from 17 locations in Holland, we hope complete this year by 24 and again increase that number during 2018.

We will introduce some physical assets into France in the Lyon areas during the second half of this year and will update you next year in terms of how that's performing and overall, this approach is very much focused on delivering good returns and shareholder value despite the near term uncertainty. So just in conclusion, we believe the long term fundamentals remain compelling for our sector despite the near term uncertainty in markets to read.

We have the ability and the management teams across the globe to deliver resilient performances and adopting different trading stances to suit the markets as the businesses is operating and as I said earlier, we will continue to invest in a selective basis and to ensure shareholder return. On that note, we open it up for question and answer, we'll do it from the floor and then we'll go to the online team later on.

I have two very broad questions. In terms of the market outlook, how has your top evolved through the first half because I would say it's fair to say the first half top line has been a bit stronger, than you outlined in your full year results and kind of as a follow on to that, is there anything within the businesses in terms of -- especially in the contracts where there is longer lead times, but hoping things are actually changing to reflect your continuous cautious stance on markets.

So just generally just about the margin outlook and how your thoughts evolved there? And my second kind of broad question against that backdrop, how long do you -- should we expect Travis to continue with this trading stance of focus on gross margins over market share?

How should we think about that and in your opinion, where are you conceding that share at the most to like is it the independents or the nationals in just a general discussion aimed around that across your various businesses?

Okay. I think genuinely, when we went into this year we felt that it could be a bit tougher than it's turned out.

So, I think the markets held up pretty well in the RMI side and consumer has held up well. I think if we get to look to H2, I think it's got the same -- we're adopting the same sort of caution because these are the key -- the lead indicators are still giving us a very mixed message rather.

And underlying, we think it can get a bit tougher as we move on. Now that's the macro side, but we can do something within that market, and I think [things] are really set up to perform and that sort of leads us -- it's only really Travis brand, the General Merchanting brand, that has adopted a different trading stance, I think you can see from our contracts that we've continued to push on and because the markets have been pretty strong, and we failed given the scale of inflation that was coming through in our cost price, that it would be better to defend our margin as I think we've demonstrated at the expense of a little bit of market share, or market share growth, we still got a good market share, how long will really depend on how the market evolves, and I think at the moment we wouldn't want to change our trading stance until we actually saw some form of uplift in our markets.

Interestingly and some of you would have been there earlier the week, [Spangler] brand and their juicing business have adopted a very similar trading stance to ours, which I think are the two largest operators in mixed merchant space is a pretty responsible position to be in and I think those are benefited of being probably the better independent [indiscernible].

Howard Seymour, Numis Securities. Firstly, actually sort of retaining my view, I am just asking on CCF, because obviously [indiscernible] seeing significant growth on investment you put down previously.

[indiscernible] now up to a capacity level in those existing sites where you are alluding to further expansion to CCF going forward, is like under the [slog] of what you've already done or just a continuation of that strategy?

We opened in a 12-month period about an increase of 50% more space in CCF, we still got capacity within the network to grow. The expansion is more around getting closer to our customers.

So there were sort of gaps in the network that we feel we can develop a branch that actually gives us operational efficiency and closer to our customer in terms of better service. So it's not big, Howard, but actually it's [arrested] growth of the network to get us closer to the customer.

And then secondly I think on the central costs, excluding central costs which are quite significant in the first half relating to investment, etcetera, just thoughts going forward on whether that sort of [is] back in the full year and going forward from there whether sort of small one-off costs or a high level of central costs we should expect going forward?

Couple of thoughts on that. So one, the investment we're making in IT continues, we're still in the relatively early stages.

So, if you are going to replace all of your ERP infrastructure in the whole of the merchanting business across the three divisions with a significant amount of cost associated to that but what you traditionally see capitalized and also expensed within the income statement has incurred. So I won't go into the intricacies but the accounting around cloud-based applications is complex and compared to what you would have seen in a more traditional IT investment where you capitalized everything, you don't treat it in the same way.

So that will be my first reflection. My second reflection, would be look as well at the investments, which have been made in prior years.

So a significant amount of investment has gone into the business and there is a depreciation charge associated with that, so if you look in the detailed cash flow, you'll actually see EBITDAR is growing year-on-year and within that we're up 7 million or 8 million on the depreciation charge. So that is now incumbent on us to leverage the investments that we've made for the right reasons in the business to drive volume and drive the returns from that investment.

All right. three if I may I please John.

With regards to sort of Wickes and TP, could you maybe say a little bit about what your experience has been when Selco has opened up a new branch in the location of both those businesses, first one. Second one, in terms of -- probably more for Tony in terms of P&H, it sounds very much like, again there's going to be a little bit more price visibility, again that link between your online bathrooms offering and the branches, results were much light, the difference between going to the branch and seeing the price online is going to disappear.

Should that really indicate that the GM in Plumbing & Heating is still heading south and all of the benefits of the chains are very much going to come on the operational line? Just want to sort of get a better clarity on that.

And the last one I have is on kitchens and bathroom is experiencing Wickes, maybe just add a little bit more about the first half has gone , and how that sort of, I suppose [indiscernible] are I think I've read, there's a lot going on in this area. I think I've read that you've done quite well in the first half in Wickes' kitchens.

How that sort of squares with the wider ROI markets that you see?

Okay. Robert take the third up until -- Tony, do you want to pick up -- ?

Yes, okay. So I think, of course there is more possibility that we will be coming online, that's one of thing that does increase those price discovery, and but it only increases price discovery for a sense, actually customer base here and the base more [indiscernible] and who do tell us that they check prices online more quickly than that.

And in terms of gross margin, I don't think it's necessarily continued to add, but the reason why I said that is for a couple of reasons. The first one is the contract market being very tough and as I mentioned earlier there's been some aggressive pricing to maintain volumes across the industry, but as capacity comes up, we expect to leave it to some extent.

And we have taken a more supply chain costs in the first half of this year and that's contributed by a 30 basis point reduction in some of those -- in the gross margin. But just because online is coming, don't necessarily mean that our gross margins go down.

So I'll give you an example, and you'll know this, but in our consumer and DIY businesses we operate on a gross margin about 10 points ahead of merchant businesses. And you'd expect to see some of our online business, now it's under 42 stores, which is about half of online sales to be operating on similar gross margins.

So just because online is there on price transparency, if your operating model and your purchasing is able to withstand, you can actually create very good gross margins and we do that in our Toolstation business, we do in Wickes. Now we will begin a number of online business so, and I don't expect it to be a one-way trend.

Thanks, Tony. Just on the K&B I think we are benefiting -- we expect it to grow the category and I think we are also growing the category in benchmark, but we expect it to grow the category in the first half.

It goes a little bit back to Robert's point. I think we were expecting big ticket items to come under pressure.

But I do think we've been helped with Homebase's decision and decision to withdraw from showroom, kitchen and bathrooms. So we've enjoyed a good period.

And let's make hay while the sun shines. With regards to sales I would like to think that [indiscernible] and why don't you ask Kevin how Wimbledon's [indiscernible] as we've opened branches in their shadow.

But I wouldn't -- did anything as such. There is no question, Selco is a great business and operates really well inside London.

The honest impact is felt as they open a branch and that would've been sort of in the past, we would have seen margin and volume impacted. Interestingly experience has taught us that the margin returns, but the product mix changes slightly.

And what we've actually said is wherever we can set up next to Selco, we want a branch. And as I say, in the last year we've opened right next to them in [indiscernible] and right next to them in Wimbledon and right next to them in Sutton.

Our best performing Toolstation branches are next to Selco. So actually they do prove to be a good football driver and ultimately we benefit.

Interestingly they opened a couple years ago in Coventry, and we were sort of expecting an interesting sort of sales trend, after our sales went up slightly. So it's a mixed picture.

They are a great company and I always believe the competition drives your approach in terms of how you think.

Can I have one follow-up for Tony? 200,000 square feet, is that 50 to 60 branches?

We think that's between us and our teams. We spoke to everybody in last two days and I said and clearly we are visible as they do close, but we haven't disclosed how many branches that is.

Well done. [indiscernible] we start working around the room.

Just two for me. Wondered if you could comment a bit more to give some color on kind of what you see in the commercial work and maybe the heavier infrastructure sides that were laid and how you expect that trend seeing the second half?

And the second thing, Alan commented there is still scope for more improvement in working capital. Just interested in kind of when we expect to see that come through, that more stock or credits, any color there?

Alan, do you want to take that?

On working capital I think we can make improvements in all three areas actually. So we've made very good progress on better management, on trade [detours] over the last 12 or 18 months.

The team has done a great job there. I see opportunity to collect more to terms.

So it's not about altering customer terms. I think the credit offering is a strategic advantage in a business.

So I think we will continue to use that but we can do better at managing the terms. So opportunity there.

From a credits point of view, we have a very good supply finance program that we undergone with treasury team joining with commercial colleagues and I can see further scope for expansion of that. And then from an inventory management there are certain things like what we're doing in Plumbing & Heating which, as Tony said, would reduce some of the working capital within the Plumbing & Heating business.

More broadly, as we go through the systems implementation across our merchanting divisions, we will have much better visibility around stock. So again, I think that gives us opportunity to be much more efficient in where we place our inventory.

So it won't impact the -- it's not reduction in inventory impacting service in any way, but it's increasing visibility so that we can better manage overall. If you think through the timing of that systems project first implementation late next year and then rolling through in '19 and first half of 2020, I would imagine.

There's plenty of scope for ongoing working capital efficiency over the next two or three years.

And in term of contracts, again it's quite difficult to read the tea leaves. But if you look at in the detail, the first quarter of contracts was around 12% like-for-like and the second was around 6% for the quarter and so it's 9%.

I think we would guide you more towards the second quarter run rate. And we are annualizing some good numbers against 2016.

I think the market is okay but you have to keep watching the dates really earnestly.

This is Priyal from Deutsche Bank. I've got three questions.

The first one is on General Merchanting. You mentioned that you've increased prices slightly at the expense of market share volume.

Is it fair to say that you are potentially slightly ahead of the curve or more aggressive in your price increases than for its competitors? And if so what are they doing now?

Can we expect a slight recovery in market share later on this year? I'm just thinking in terms of sequential like-for-like in the division.

The second question is on Plumbing & Heating. You mentioned that when you segmented PTS and CPS some of the customers got a bit confused and fell through the crack.

Even as you integrate those two businesses a bit more, how easy will it be to actually win those customers back? And what sort of customers do you think fell through the cracks?

Are they more the contract guys or the installers? And the last question, just on Toostation, it feels that it's a little bit more focused on expanding your -- is this just taking advantage of great opportunities, or you are feeling moved by us in [indiscernible]?

If I take the GM, I think we led in terms of -- it wasn't necessary price increases, but per se, it was passing through the manufacturer increases with a high degree of focus. Positively and you heard earlier that Saint Gobain also took a sensible stance.

There is no question that those increases that came through in the first quarter worked through most of the independents and other competitors, but I think, it will probably not be at the same level, but there will be a second wave of increases and then certain categories based on commodity price increases. So I think, though it's very difficult to sort of again be precise, we will take our tradings down, so we've adopted.

But we work hard on that proposition to win both on the competitive, solely for money and good service. Tony, did you want to pick on segmentation and market share?

No, Priyal, I'll go back to simple things. I think delivering on time in for our customers is really important and that's what they tell us, and our contract customers need the product on site when their teams are available to sit.

They told us they want to more consistent pricing and more conforming ranges in our branches, they want our local branch and local branch relationship, and they want a single invoice. A lot of those things we can do very quickly.

Single invoicing, I want to clear, it's going to be bit harder for us, we need to make multi changes to do that. But a lot of those things, I think we can do relatively quickly.

And the interest rate in our business, as you can imagine with, Alan touched on it with cans business. We know who are last customers are and we know those customers that we want to reengage with.

What I would say is one of the drivers for the like-for-like performance in City Plumbing in quarter 2 in June, and particularly in July as we head into the, the second half of the year has been reengaging with branch customers. We've reengaged with about 2,500 branch customers even though they were trading in with us.

So that's I think on the P&H. On Toolstation, do we feel need to diversify, was that the question?

Not necessarily, I don't think, we need to diversify. And how would I position it?

The like-for-like growth in the U.K. is accelerating on a bigger base and was particularly encouraged by not giving us further encouragement to program all branches, but we have been aggressively driving our digital presence.

We're now adding about 100,000 new customers a months, which is a step up of nearly 50% on the prior year. So our value position and our digital work and our ranging is beginning to bear real fruit, we think.

Does that mean, we need to diversify? No, we think we've got lots of runway in the U.K., as we've talked about before.

But again, I go back to simple things, providing customers with the right products, making it available to them conveniently at the price that sort of resonates around the world as we've seen. We think we've got the lowest-cost operating model which means we can offer the lowest price to customers and a very convenient way of serving customers with 12,000 products in 4,000 square foot.

Our Dutch customers seem to be responding in exactly the same way as U.K. customers might a proposition.

And indeed I said to John a couple of weeks ago, we are now, per capita, driving more online sales in Holland than we are in U.K. So that tells you that customers actually really like the proposition and therefore that's why we're getting behind it.

And what I would say is we've been surprised, I think, over the last 12 weeks -- 12 months in terms of the response from Dutch customers. And as we open new branches, we've now got pretty much all of them breaking even or contributing within 3 months.

So we've made pretty good progress and I think there's no need to diversify. But as we see there is opportunities to create significant value for shareholders, we should certainly look at them.

Andrew Murphy from Bank of America. Two quick questions.

Just wanted to follow up on your point, John, about input prices coming around again for a second round of -- sort of commodity-based increases. Just wonder if you could give us, sort of, a flavor of over what period do you think that will happen [Indiscernible].

And secondly, can you perhaps help us out with what proportion of the overall products in revenue terms or in cost terms are sourced from overseas?

We direct source to show about $3 million of our own label in that purchase. I think our best estimate because sometimes people land in stuff that's being made in other parts of the world, so around 60% of all products we sell into this country that we sell is principally big heavy materials that is made in the U.K.

Timber obviously is imported. In the mine, although we do buy some home grown.

So it's a mixed bag, Andy. I think like always we are seeing different patterns in different categories.

So right at this moment in H2 the category that we are seeing the most inflation is in timber and -- as well timed based products. I think we are seeing commodities with copper and steel coming through.

Again we don't know the exact ask but we are expecting to see that during September. So my sense is that there will probably be of a quantum of around half of what we saw in the first quarter.

But again it will be a real mix and different for different companies. Our mix in Toolstation is very different from our mix in Contracts.

Just 2 really both on Plumbing & Heating. Following [indiscernible] just to have any sort of sense of what the group might be budgeting as a revenue decline associated with the capacity decline.

Is there any helpful guidance you can give us in that respect because to be honest 200,000 square foot sort of means nothing to me, because I don't know what the gross number is, I don't know what it assumes. It doesn't necessarily mean -- if that ratio was 10%, it doesn't necessarily mean your budgeting or losing 10% of revenue because online presumably doesn't need [the spike].

But just some help on that front. And secondly, I am probably doing a two and two gets five.

But you've made several references to the outcome of what you're doing here being choices, shareholder value creation and you've also outlined within the proposition that you intend to decouple the supply chain and from the infrastructure the group. Would it be wrong to assume that those 2 things are to some extent leading us to think you might be looking for a complete exist in 2 stage's or 3 stages or just really about how strong the commitment is?

So, why don't I take the second one? When Tony and I took over the business back in the end of '13, early '14, a lot of the investors were saying so Wickes and that has a bit of a checkered history, lots of sort of false starts and promises.

But we were ready to change, give one last chance to see if we can fix it and we say, hey, now we've a pretty successful business and growing. I mean, I think Tony's objective is to do what he can to fix the business [and their team] but to give us optionality and whether that's [part or] okay.

We always said that it was around getting enough optionality for Wickes, but we're seeing obviously good returns and good growth on the business. So I think the underline is that we need to arrest the decline and fix the business to see some growth and then I think we didn't take an objective view as we go forward.

Just in terms of the capacity reduction. Of course, again a little bit back to Priyal's point.

We do know who our customers are, the majority of them. We will certainly try and retain the overwhelming majority of our contract customers and by providing more local branches for those contract customers, we expect to do that.

It will be a little bit harder to retain some of our installer customers where we always want from a particular market. But I think you should model around 2 percentage points off the top line for those businesses in the aggregate Plumbing & Heating turnover number, that's what we would expect.

Can I, maybe a final question I mean, hopefully, can you give us a sense of what the capital employed actually in the business? And if you are prepared to give some kind of target or range we think the sustainable margin of this business could be, say, a few years down the line, and perhaps if you could be a little bit more detailed on -- you are obviously flagging your second half that could be challenging.

Is there a common sequential decline on the first half margin or is that a year-on-year? Just want to understand what you actually mean by that?

And the second question is on margins and overhead rationalization. So you get 60 basis point drag as you flag, there was a couple of investments flowing through the D&A.

I want to understand when that year-on-year increase in the step-up in SG&A costs, kind of, stops. So that you stop having a margin drag from legacy investments.

Is that something we should think about in the second half or is really perhaps only next year? Thank you.

We always think about lease as just a capital as you know, we think that's the best way to think about our business, because of those commitments we have for leases. So the lease adjusted capital employed now all up from the ageing business is about 450 million and you can get that from our segment analysis, but also the lease costs in relation to the space we operate.

In terms of the performance business, we have said we want to arrest the decline in [indiscernible] the business in 2018. And of course, we'd like to get closer to a run rate of the first half number, as I have alluded to, or do think, so implies the contract market will be difficult in the second half of the year.

And to the earlier comments, we have been here before in the last two years, sitting on pretty strong half one numbers in '15 and again is '16 and the market has not been kind to us in the second half of both years. So I remain pretty cautious about our second half.

We have made real progress in City Plumbing in F&P, in the online businesses but the contract part of the market is proving very difficult.

Just in terms of the SG&A step ups. So clearly if we a put a fair amount of cost into the business you can't take that out, some that you can't take out quickly enough as you drop a volume decline not would we want to do so because we put the investment into the business, because we firmly believe in the long-term outlook from that.

So that said, I do think it's important to ensure that going forward we have revenue growing more quickly than the overhead base in the business. So you can take from that scenario the focus for us as a team.

John Messenger, Redburn. I can say I can phrase I've got questions for all three, if possible, please.

The first one is maybe the simple one, just following up on the last one, just around costs, if you look at kind of the gap from [escrow] gross to operating, it would imply that the costs this year -- all those costs between grew about 6% in the first half. I'm trying to think of what the comps look like between the two halves last year, but is there anything that we should be bearing in mind in terms of your final comment there on kind of limiting SG&A growth and other costs, is that 6 or so reflection of what you'd expect for the full year?

Second one was actually to, I can come back here to John, if we look at the General Merchanting the topline and the explanation around pricing is, obviously, revenue performance. If I think about your key payer, they have obviously done about 4.7, they have quoted around 2.5 of that being price inflation, which is very much in line with your number.

The 5% kind of differential, if we think about what you've done versus them how much of that is self-inflicted? How much do you think is geography?

If you just try and explain to an investor, why there is such a gap in that price inflation maybe it just from a higher level and put to [2.5] on a more keen price. Just trying to understand that.

And finally to Tony, just if could ask around, first of all in the P&H division there's this comment around the big customer and some loss of sales. Can I just understand is that British Gas or is it somebody else?

And can you give us just a bit of a dimension as to what Plumbing & Heating is today between that kind of contracts business and what is contract, is it the big construction contracts plus BG, just have a feel of what is in that part of it, and what is the installer revenue? So we have a understanding where we are starting from, and also just on Toolstation separately, could you give us tell us where we are in terms of extended range?

Are you at the point where you can be much more exclusive in terms of lifting that sales base and when did that happen?

So, we get a split for Selco numbers though [indiscernible] I don't think that's 4.7 with their merchant business against merchant business.

No, but honestly, they've included the dilution. They obviously carry their [plumb] base business inside that number.

I don't think the delta is for but I accept there is a delta. And we have to run our business the best way we can.

We were always committed to installing the products in framework and clearly, we were up against our best periods in H1 last year. You'll see from the numbers there is a small change between Q1 and Q2 in general merchanting.

I'm pretty pleased with the performance as they are given the amount of changes going through. I wouldn't mind putting that numbers up against [billboards].

Just to add to John's point I would say if you are going to include lots of different things don't forget to look at the total merchanting business because they are parts, which compete in contracts as well. So on that basis, growth in the first half is over 2% across the merchanting businesses as a whole.

And I totally agree with John's point as well, don't forget [indiscernible] because we told clearly about [indiscernible] substitution ourselves, particularly on smaller EDS ship items going into the Toolstation business. On the growth in overhead in the first half is about 4% and that we had H1 to H1 and so I would expect it to be broadly a similar figure in the second half.

I'm sorry would Toolstation's growth be about 15 [indiscernible] that kind of rate?

I think we're certainly into double digit territory.

So the first thing to say is BG is about a quarter of our contracts business and our contract business is of the order of £450 million. That part of the business is proving difficult, so our focus has to be on the three quarters of the business, where we can [indiscernible] and we can save our customers, so I think that is our focus.

We've restructured the sales team and to good effect in the last month or so focusing on three areas socializing new build and commercial and we are beginning to talk in a way I'd like to, to our customers going forward. So hopefully that gives you a sense of scale.

In the Toolstation business, John opened and came to extend the range beyond the branch, and we introduced for the first time 1,500 online only products last year. We were 1,100, we are now to about 1,500 and maybe towards de-sizing and that's been done over the last 12 months, [indiscernible] so there is an opportunity for us to increase that by an order of magnitude, the trail order magnitude, and so we have lots of room to grow and we will introduce drop ship in the second half of this year, so we've been building the online capability in Toolstation to manage drop ship and if plan at where what drop ship is it's direct from supplier to customer deliveries or indeed direct from supplier to branch deliveries.

And so we think that will give us a further step on. So there's a lot more for us to do.

We're only just in the foothills of that and we're growing our digital business and our online presence extremely rapidly even with that modest introduction of extended range. So we do think we can accelerate growth from here.

We're just at that point about one customer taking some business away, was that British Gas or is it somebody else? Just to understand, and also is there a risk almost that drop ship model.

I'm just looking at British Gas, is there a risk of three or four years, as they increasingly migrate their business to a different model. I'm just trying to think about the risk that you still face as you're doing, which all sounds perfectly [indiscernible] for P&H.

I think we're cognizant of supply drop ship not customer drop ships, but much of the supply drop ship, so we're certainly cognizant that that was some of the strength of some of the -- and some of the concentration seeing categories within the Plumbing & Heating. So we're fairly cognizant of that.

I do think there's a role for merchanting going forward because customers don't want to receive on a building site six or seven or eight different deliveries of whether it would be radiators on cold, Plastics Fleming, Koffler Pumps, boilers and so on. So I do think there's a consolidation agent and I do think the consolidation agent is [indiscernible].

Thanks. This is Charlie Campbell, Liberum, I've got two but I think they are both quite quick actually.

So first of all, a question on the General Merchanting business, I'm just wondering if you give us not an update on the uptake of the range center proposition and how that's going. And secondly, on the contracts business just sort of wondering why the operational gearing wasn't bigger than it actually was given the strengthened sales, just what was holding that back?

On the range center, we continue to grow in line with our expectations. Clearly would be 37 that went on in June and 140 that's going to go on in July and August, we feel we're in a good place to continue to grow those volumes.

At the moment, it represents around 7% of all sales and at the moment the return on lease adjusted is very similar to the overall general merchant return and we would expect to know to get that over 20% in the next 12 months. So we're happy with the progress, Charlie.

I'm always impatient and want to push it harder further but it's growing nicely. And contracts, was there anything in the numbers on this?

From a distribution base business, CCF is inherently lower gross margin and we know that with the quicker growing part, Keyline grew very well also given the heavy side buy and also direct shipments tends to be a bit lower gross margin, where there is more specification going on within the BSS business, as John said earlier. BSS had a really good half and grew well but it's not growing as quickly as the other two businesses.

But it will back in its element but it's a dampener on the margin progression.

I'm Emily Biddulph from JPMorgan, I just got one left. Just coming back on to the cost inflation point [Indiscernible] cost investment point.

Specifically in the consumer business, the decline in margin year-on-year, [Indiscernible] do you expect that [indiscernible] in the second half, but it will complement thinking with [Indiscernible] next year or would we start to get some incremental sort of margin which should have been the volume that it drives?

Yes. We're going to a planning season after the summer and we've pulled out so we want to accelerate our Toolstation and expansion in the U.K.

in particular and we really came to continue the programs, the refits in the Wickes store. So I think it is the place at the moment [Indiscernible] similar basis.

Is there any questions from the call. Okay.

Any final question from the floor?

Ami Galla from Citi. Just two from me.

Firstly, on your comments of increasing your investments in Toolstation, could you give us some color on CapEx the next year? I know it's quite early to ask this, if there is any color that you can give there?

And the second one just to remind us your capital allocation priorities over the next couple of years. What is the key priorities you have on allocation [Indiscernible].

Ami, you'll probably correct me if I am wrong but we haven't got board approval yet but we're looking in the [range] of sort of £20 million investments in the Toolstation in Europe as we go forward, but that's to be negotiated and approved. In terms of our priorities clearly Toolstation, the Benchmarx, continuing the investment in CCF, we've got a very good business in Keyline that we think we can get better coverage.

Benchmarx is still very much in its infancy, less than 200 outlets. So we have a sort of network and key areas and clearly is the priority and our investments in IT will continue to be a big focus, Alan you want to say anything?

I am afraid this is a boring technical accounting point on the Toolstation Europe business, it's actually an associate company, of which we are at 49%, therefore it won't go through the CapEx line, but you'll see an increase in the investment in associates [business].

There is no any other questions, thank you very, very much for your patience and great to see you here.