Grafton Group plc

Good morning everyone, welcome to the Grafton Group plc half year results. Click agenda, I will start with some operational highlights before our CFO David Arnold will go through the financial details and afterwards you will have me again talking a little bit about strategy and outlook for the remainder of the year. the performance in the first half was i would call very solid we had revenue growth of 6.7 percent adjusted operating profit increase of 8.2% and a growth of our adjusted earnings per share of 10.8% as you will have noted this morning we increased the interim dividend by 2.3% and reconfirm our full year operating profit guidance between 190 and 200 million in terms of development activities in the first half of the year we completed two acquisitions in europe's faster growing markets in ireland where we acquired signum and in iberia in spain where we acquired megalus and both of those acquisitions have started well in our ownership and are trading strongly here today We also invested into new branches on a group wide basis, especially in Iberia and also in Ireland. And we maintain a strong balance sheet to have sufficient firepower to deploy capital as the opportunities arise. I will now hand over to David to go through the financials.

Thank you Eric and good morning everyone. As Eric has already covered some of the key financial KPIs from our first half performance, I'll now dive straight into the income statement in a bit more detail. Revenue of 1.34 billion was 6.7% higher than last year. Strong execution across the group enabled us to deliver a resilient, adjusted operating margin before property profits of 7.4%, up 10 basis points year on year, despite ongoing competitive pressures in several of our markets. This reflects a continued focus on margin management across the group and proactively addressing our cost base to mitigate the ongoing inflationary environment on operating costs. we've seen no material disruption from developments in the Middle East as we continue to manage supply chain risks proactively maintaining strong product availability while effective supplier engagement and pricing actions have helped protect margins it's pleasing to report that we saw strong profit growth in the first half with the group suggested operating profit of 98.5 million pounds up 8.2% compared to prior year net finance costs were 5.5 million pounds 1.4 million pounds higher than last year largely due to reduced interest income on our cash deposits and lower cash balances following the acquisitions and share buybacks that was partly offset by favourable foreign exchange movements in the full year we currently expect a finance charge of 15 to 16 million pounds the effective tax rate was 19.8 percent 30 basis points higher than last year and is our assumed rate for the full year. This slightly higher rate reflects the increasing contribution from Spain where the corporate tax rate is 25%. We're pleased to report an increase in adjusted earnings per share of 10.8% to 39.4 pence which is consistent with our targets set out in our recent capital markets event. and reflects the impact of operational improvements organic growth and capital deployment into acquisitions and share buybacks looking at the first half revenue increase to 1.3 billion we delivered an increase of 8 million pounds in organic revenue and I'll cover that in more detail on the next slide acquisitions were the main driver of sales growth in the first half contributing 56 million pounds of incremental revenue This reflected the inclusion of the seasonally important May and June trading period at Mercolouth, a full second quarter of trading from Signum and the incremental contribution from HSS Higher Ireland which was acquired at the end of March 2025. The divestment of the small MFP plastic pipe business in the Republic of Ireland at the end of May 2025 reduced revenue by £3 million. and finally the strengthening of the euro against sterling accounted for an exchange gain of 23 million pounds in the first half. This slide analyzes the net increase of 8 million pounds in organic revenue. In general I would note that we saw an uptick in product price inflation in the second quarter as pricing actions implemented in response to the conflict in the Middle East flowed through the P&L. our diversified portfolio supported a resilient first half as strong performances in the island of ireland and iberia more than offset the decline in great britain the island of ireland segment delivered organic revenue growth of 19 million pounds largely attributable to a strong performance in chadwick's against a backdrop of persistently challenging market conditions throughout the first half organic revenue in great britain declined by 19 million pounds a year on year revenue in northern Europe increased by two million pounds on a like-for-like basis driven largely by an improved performance in Finland organic growth of six million pounds in Iberia was driven by Salvador Escoda only since Mercolus was acquired in the first half the Salvador Escoda performance reflected its continuing positive growth trajectory since we first entered the Spanish market and finally branch openings and closures had a small negative impact on revenue and that will reverse in the full year. Turning to the movement in adjusted operating profit, I'll look at the performance of the light for light business in a moment. The major component of the increase in group operating profit to £98.5 million was the £10.4 million of profit attributable to acquisitions led by Merker Luth with £6.5 million. Looking at the £4 million reduction in adjusted operating profit in our light for light business, you can see that all operating segments except Great Britain reported an increase in adjusted operating profit. Disappointingly, the profit growth we achieved in Great Britain during 2025 was not sustained into the first half of 2026, with UK private RMI and new build markets both weakening further and all our business units exposed to the UK reporting lower profits year on year. Moving on to look at each segment now in a little bit more detail. Once again we saw a good performance from our Island of Ireland segment in the first half. Revenue of £579.4 million increased by 7.5% on a constant currency basis. Like for like revenue grew by 3.4% in the first half, led by strong trading in Chadwick and modest growth in Woody's against tough comparatives. After a relatively slow start to the year, trading strengthened during the second quarter as construction activity increased and the weather improved markedly. Our businesses on the island of Ireland delivered strong profit growth in the first half, with adjusted operating profit of £60.6 million, up 7.3% on a constant currency basis. This performance was underpinned by a strong performance in underlying trading in Chadwick's, in addition to the incremental contributions from the HSS Higher Ireland and Signum acquisitions. Trading in McBlair in Northern Ireland followed a similar pattern to our GV segment with the overall environment remaining challenging. The integration of Signum is well on track and we've been pleased with the business's performance since its acquisition on the 31st of March. First half sales increased by 18.3% on a pro forma basis compared with the prior year. driven by additional production capacity that was brought on stream shortly before the acquisition completed. Signum enhances our exposure to the growing Irish new build housing market and Eric will speak in a little bit more detail about the strategic rationale for the acquisition a little later. We continue to strengthen our market leading position on the island of Ireland. This included the opening of a new Woody store in Ennis County Clare in June and a new Chadwick specialist hub in Ravenhill Belfast in July. Bringing together the panelling centre and site tech in a single location, the hub demonstrates the Grafton way in practice, showcasing how our businesses work together across the island of Ireland to improve our proposition for customers. moving next to great britain it's fair to say that we were disappointed with the first half results after positive progress last year market conditions remain very challenging with new build housing activity and discretionary home improvement projects constrained by affordability pressures and weak consumer and business confidence levels revenue in great britain was 367.2 million pounds in the first half down 5.1 year-on-year with average daily light-for-light revenue declining by the same amount. All our GB businesses reported declines in light-for-light revenue during the period. Despite lower market volumes and continued competitive pressure, we were pleased to deliver a slight improvement in gross margin in the first half and this reflects the strong execution of our teams and disciplined pricing across our businesses. Notwithstanding inflationary pressure on costs, especially with respect to labour and property, overheads were tightly controlled, with the increase in like-for-like overheads contained to approximately 1%, well below general inflation levels. Nevertheless, despite tight cost control, adjusted operating profit of 17.5 million declined by almost 30%, as lower volumes weighed on operating leverage. In Northern Europe, market conditions remain subdued in the Netherlands, where the expected recovery has been slower to materialise. resulting in slightly lower volumes compared to prior year. In contrast, Finland showed more encouraging signs of early recovery, supported by improving consumer spending, exports and business investment. Revenue of £244.2 million increased by 0.7% on a constant currency basis. Average daily life-alike sales grew by 0.8% in the first half, driven primarily by growth in Finland where an improvement in trading conditions and targeted management actions supported trading adjusted operating profit increased to 16.3 million pounds in the first half with the adjusted operating profit margin unchanged at 6.7% higher profitability in Finland more than offset a modest reduction in profits in the Netherlands we continue to make good progress in the Netherlands in the execution of their multi-year improvement program a key milestone was achieved in the period with our end-to-end purchasing and finance processes now successfully operating on their new ERP platform we continue to be very encouraged by the performances of our businesses in Iberia and the broader opportunities in this market revenue of 145.1 million pounds increased by 35.5 percent on a constant currency basis average daily like-for-like sales grew by 6.6 percent in Salvador Escoda supported by strong market demand and record first-half temperatures in Spain with robust commercial execution across its air conditioning refrigeration and ventilation product categories a key highlight during the period was the completion of our second acquisition in Iberia Mercolud at the end of April like Salvador Escoda it's primarily serving the professional HVAC installer market and represents another important step in strengthening our position in the region. We've been pleased with the integration process to date and very encouraged by its early trading performance, with average daily life-alike sales up 6.7% on a pro forma basis across May and June, and Eric will discuss Merker Luthe in more detail shortly. Our Iberia segment delivered an adjusted operating profit of £14.1 million, representing an adjusted operating profit margin of 9.7%. The strong year-on-year increase on both profits and margin was largely attributable to Mercolouth which joined the group just before the start of two of its most important seasonal trading months. Grafton continues to support local management teams in driving organic growth. Salvador Escoda opened five branches in the first half and Mercolouth opened a further branch following completion of its acquisition. Having successfully supported Salvador Escoda's accelerated expansion plans following integration, we expect to provide similar support to Mercolud. We continue to assess further growth opportunities in the attractive Iberian market with a strong pipeline of both organic and inorganic development. Now this slide analyzes our cash flow in the first half. and as you can see the group generated 70.7 million pounds in free cash flow and that represents a 72% conversion of adjusted operating profit into cash building upon the group's strong cash flow generation credentials working capital management remains a key focus for the group and we invested 22 million pounds in net working capital during the first half reflecting product price inflation and inventory actions taken in response to developments in the Middle East we've always said that we believe it is essential to continue to reinvest into our businesses to maintain their competitive edge even during times of market weakness and we invested a net 23 million pounds into replacement and development capex in the first half where do we use that free cash flow and that strength of our balance sheet well the major element went into acquisitions but we also returned a net 75.5 million pounds to shareholders through dividends and buybacks you will have seen from today's results announcement that we propose to increase the interim dividend by 2% to 11 pence per share and consistent with the targets which we set out at our capital markets event it remains our intention to restore dividend cover more firmly within the two to three times dividend cover range as we move forwards share buybacks of 25.6 million pounds were executed in the first half out of a total figure announced in the current year of 50 million pounds Grafton's cash generative nature together with its strong balance sheet continues to support both shareholder returns and provide significant firepower for the group to capitalise on organic and inorganic development opportunities. At the end of June our net debt was £315 million representing least suggested net debt to EBITDA of just under one times. And turning to the balance sheet a key point to note is that the acquisitions accounted for £34 million of the £53 million increase in net working capital since the end of 2025. Adjusted return on capital employed was 10.7% in the first half that was down 20 basis points on last year and that's very much a function of our recent capital deployment into acquisitions. This level of return on capital employed is still around two percentage points higher than our estimated weighted average cost of capital capital turn was constant at 1.4 times finally just note before I hand back to Eric I have included some technical guidance for the full year which you might find may find helpful in the appendices Eric so a few words about strategy and outlook

I will share a few slides which I went through in detail at our very recent capital markets event so I will not dwell on them but the strategy remains unchanged we provide our trade customers in Europe with construction related products and solutions that what we do we drive growth and through long-term organic growth in markets where there are underlying structural growth drivers and supplement that via acquisitions and execute all of that in our federated operating model where we combine the best of two worlds which means good controls, processes, best practice and technology through the group whilst having local accountability in execution and customer proximity and all of that is what we call the Grafton way the talk about the long-term growth drivers key is how we select markets again aside from the cattle markets event we select regions and countries which have underlying structural gross drivers we are well aware this is a cyclical industry but in the long run these are like markets where the gross drivers are there then in each market we look at which verticals do we believe we can deliver their returns, the profitability, strive for consolidation and growth and enhance the businesses through our shared knowledge across the group, exactly what we do in Spain, and the outcome of that is that in every single market where we operate in, we have strong management teams running differentiated models with trusted local brands, we have local scale and the necessary customer centricity which allows us to deliver you know industry average above industry average returns rocky and cash generation throughout the cycle our federated operating model again just a little illustration the outcome is really the most important thing is on the bottom of the slide agile customer focused businesses empowered and engaged colleagues delivering the returns we expect and from a structural point of view as a group we have the structures in place to make sure that best practices are leveraged IT solutions are leveraged procurement benefits are taken very make sense and the capital allocation is stringent controlled by the group so that's a model which has worked very well for us over time as we continue to execute David mentioned briefly Mercalus Mercalus is a Spanish company leader in HVAC predominantly air conditioning very very complimentary to Salvador Escoda it's a different model Salvador Escoda offers 40 000 plus SKUs AC ventilation refrigeration a one-stop shop for the installer with branches and the network of branches Mercalus has their branches are like small distribution centers they deliver to the installers they have a narrow range about 8,000 SKUs very much focused on the own brand which is Johnson Johnson air conditioning and other products so 75% of the sales are own branded products hence the very very strong marching which can be achieved There is a rapid expansion on the way, we have now 20 locations in Spain, 9 locations were opened in the last 18 months, you know, whilst we were in contact with them and talks about acquiring the business integration progressing really really well the local management team remains in place so the two former owners continue to run the business with all the appropriate incentive structures you would expect so that our incentives are aligned to successfully continue to grow the business and have the next phase of accelerated growth in a strong market our other acquisition was signum in in the republic of ireland a leading supplier of mates to order off-site timber frame solutions that's a product expansion for jagvics it's a business where is our first you know mmc business or multiple methods of construction this is a growing element especially in scheme housing low-rise scheme housing where in the first half 66% of new scheme housing commencement had timber frames we have synergies with Chadwick's in two ways one we are the largest buyer with Chadwick's group of materials like insulation and so on and timber which is needed to do those timber frames so there is a product procurement synergy but also you know in addition to the customers which signum already has there is now access to the customers which cedric has to provide the timber frame solutions again integration progressed very well and trading is in line with where we expected it to be at the capital markets event we were clear about our ambition of 850 million plus free cash flow cumulatively until the end of 2030 an EPS CAGR greater than 10% and in normalized markets a rocky which is 13% or more by 2030 so we are tracking well to achieve that we had a free cash flow in the first half as David mentioned of just shy of 71 million and adjusted EPS growth just shy of 11% and a rocky of 10.7 and that with two markets which are not at all pumping on all cylinders namely Northern Europe and in particular GD which nicely brings me to the current trading and the average daily like-for-like sales as you can see in the first half but also in the most recent weeks up until the 23rd of August the island of Ireland performing well and strong and the same can be said for Iberia our two strong growing markets Northern Europe with a little bit of growth but you know not fantastic and still a challenge in GB which is in my eyes significant upside potential once we can have the positive effect of the operating leverage which we have in our GB businesses in terms of H2 outlook we have a positive republic of ireland construction outlook for the second half so we expect to continue to perform strongly in the republic of ireland in terms of northern ireland with our mcflair business we expect no significant uplift in the second half as from a macro point of view this is more aligned to our gb businesses in Great Britain we expect the second half market conditions to remain unchanged compared to the first half so we expect it to continue to be challenging and of course the autumn budget will be key in shaping consumer confidence going forward so we will see what the outcome will be in terms of northern europe the dutch market conditions are expected to be similar to the first half and in finland we expect that the gradual recovery which has started will continue in the second half of the year in spain we expect continuous strong growth as Spain remains one of the fastest growing large economies in Europe In summary, a resilient performance in the first half the acquisitions are performing well are in line with our expectation integration is going well so you know that's always important that the teams gel with the teams we already have so that is all going well we continue to execute our strategy drive long-term organic growth supplemented with value enhancing acquisitions and we reaffirm full year guidance for the operating profit for the full year and remain on track to deliver our 2030 targets. Any questions?

So just on the questions front we have some microphones that will come around if for the benefit of the tape you could state your name and your rank and serial number that would be great I certainly have a selective memory so if you ask me too many questions at once I'll select not to answer them

so you can do them one at a time and I'll give you the answer that will be even better so we'll start with Will you have the mic thank you Will Jones Rothschild & Co Redburn a couple please the first around pricing perhaps you could just walk us through how that's evolved in the top line as we've gone from say Q1 through to the early part of Q3 and maybe within that just how commodities are faring relative to normal finished products yeah so

actually the year started from an inflationary perspective in a very benign way if I was to look across the group Q1 inflation was very modest indeed pretty flat actually and then we started to see it pick up as we got towards the end of the second quarter I would say across the businesses the more material impacts have been around the heavy building products in GB and in Ireland if you look at the Spanish businesses indeed if you were to look at Woody's a lot of the products which they are buying in they would have bought in some way in advance so they haven't really been as impacted by product price inflation at this point that's more likely to be a future as we move into 2027 for those businesses in particular but if you look at the likes of Chadwick's and the GB distribution businesses I think what we saw was inflation in the second quarter we were more in the three to four percent camp and as we exited i would say we were more around that that four percent and now the huge amount of volatility as we know in markets more generally what is the outlook for the second half i think probably for the heavy on the heavy building materials side probably isn't is probably closer to the four percent i would say than the than the three percent i think you know that's where the the bigger pressure that we see comes through um for those other businesses I think it's about next year and next year we're probably likely to see a higher rate of inflation for those businesses and we saw this year where it's been running at sort of that one to two percent level whether there's anything to note in timber and steel where it's relevant I wouldn't say there's anything particular to pull out there I mean they've been relative steel has been relatively volatile and of course you know we have to concern ourselves with things like CBAM as well these days and the impact of that

and second was just maybe unpicking some of the moving parts around gross margin firstly whether there's been any kind of one-off assistance from that sequential price inflation through recent months and then maybe just exploring weighting the competitive tension and any of those self-help levers that i think finland you called out this one for example but anything to explore on gross margins

Well if I sort of pick up the gross margin and pick up sort of competitive elements around the market and self-help I mean on gross margin I would say no there hasn't been no sort of specific one-off elements of that it's just a function of an awful lot of work that we've been doing at the branch level in terms of pricing in terms of being quick to pass through any of the extra price increases that we've got I mean a lot of work around selective promotional activity and I think continuing that theme that we had and talked about last year really which in GB in the GB context which is we saw no benefit in being very aggressive on price because we just didn't see that the market would give the volume uplift to compensate for that so yeah I think we continue to be quite tactical we'll be very responsive GB had a good performance on gross margin as we talked about in the first half overall for the group you know we were pleased with where the gross margin landed

in terms of competitive environment in each market is as you would expect given the circumstances of the market you know the toughest market I would say at the moment is GB where volumes are really low and with low volumes you will have you know the same amount of players fighting for lower volumes which normally gives extra competitive pressure but as David said we are we are not you know, we are not really driving the businesses per se on gaining market share and achieving less cross-profit than maintaining market share and achieving more cross-profit. So, you know, we work closely with the businesses in each market, but we certainly have no irrational competitive behaviour in any of the markets.

Shane Carberry good buddy the first one just to follow up maybe on Signum and given how constructive the new build background is in Ireland probably right out to 2030 just trying to get an idea of where you think that business could go over the medium term and when we think about it scaling from here is it you know additional manufacturing facilities I know it's just been ramped up from manufacturing perspective or is it plugging into the Chadwick's model just how we should think about the growth from here over the medium term

well in the medium term I would say you have sufficient capacity in the existing setup after the capacity extension to significantly grow the business right but of course if the business will grow successfully and at some stage we need to expand capacity well that's what we will do right so like in any of the businesses but in the medium term we certainly have no capacity constraint to significantly grow the business over time and then the second one I guess it's just around the 2030 targets and the EGS targets I mean already you're coming in slightly ahead of at kind of circa 11% relative to the 10% category

what does that do for your confidence level when you think about the fact that some of the markets as you mentioned are quite subdued within that mix it might have been easy to think some of that cagger would have been back-end weighted maybe look the way how i look i joined this industry in 2022 and i didn't expect

and at that time there were lots of our earnings coming out of GB so when I joined I did not foresee that GB will kind of do what it will do and I always tease David who has spent a lifetime in the industry telling me second half next year the recovery will start it hasn't yet happened so my point is you don't really know five years out what is happening we certainly had a good start and you know if all the markets in in a perfect world so let's say ireland continues on to 2030 to be strong so does iberia we achieved the ambition to get the billion in iberia at the 7 10 7 to 10 operating margin and northern europe plus gb recover happy day i feel very confident but what i don't know is do we have some other market which has a slowdown in 2028, 2029, right? So I think you can only deal with it as you go along. Overall, as we explained in the capital market stage, I think we have the levers necessary in our hands to achieve those targets. So I'm pretty confident we will get there, but I'm not overconfident because, you know, I don't have a magic wand to read the future, so you just have to be cautious and react to what happens.

A couple from me. First one I might ask is the network expansion. You just might give us a bit more colour on the five new branches, where they are. geographic gaps, just broad economics around how it works in terms of opening costs, the kind of pathway to maturity and those kind of things, if that's okay.

yeah sure uh you know it's it's filling openings right so so where we have still wide gaps where we think we will can we'll be able to open it it's across spain where we opened and also uh on the balearic islands uh we have a plan to open 70s year five are done in the first half uh two two more to come in line with our business plan opening a salvador is called our branches is not expensive you know it's a they are not the massive branches it's not like a cell call where you put quite a lot of capital down so it's a relatively modest investment and we would normally expect the business to certainly contribute after 12 months to the bottom line so it's you know sometimes earlier right so it's a relatively fast break even and you have relatively short lease commitments as well you know you you take a five-year lease these costs are relatively low and so you know if it wouldn't work you can exit relatively painless and if it doesn't work and if it does work it normally moves in you know an extension of leases is pretty simple or it moves into evergreen contracts

The second one then just my turn to GB really feels like you've done everything you can in operating costs and trying to keep the business as tight and as lean as possible.

Is there any thought around maybe as leases come up in the likes of Selco that you may look at kind of consolidating the estate a bit or will you just kind of just have to hang tough to the market terms?

It's a constant process where we look at each branch does the branch contribute does it contribute to overhead if it's not otherwise in the best shape so we look at these very actively and if it makes economic sense to consolidate we'll consolidate if it makes economic sense to continue to trade we'll continue to trade we closed one in the last 18 months we went from 75 to 74 and we will keep monitoring it in the long run we still believe that there is potential for up to 90 cell cost in GB we believe it's a very good model but it's a model with a lot of operating leverage and at that moment in the cycle operating leverage isn't great when the cycle turns operating leverage is great that's how it works but we will if it makes economic sense to exit some sites we will but you have to look at it on a site by site basis how does it contribute now do we think how much more revenue do you actually need for the site to be a really good contributor again so you have to look at it in the overall picture of each site

and just to add to that I mean I think Frank Elkins covered some of this at the capital markets event you know we've got a new centralized distribution center that will be coming on stream in next year so that's an important investment now inevitably there'll be an element of some double running costs for a period but once that is operating on its own that's a big efficiency gain for Selco as well it gives them more capacity for doing some own brand sourcing and that sort of thing. So that's quite an exciting efficiency improvement that by the time we get to 28, 29 that will be in full stream.

As you can see we are committed to GB in the long term and I can only stress and we invest throughout the cycle. It would be easy to say no we don't put a new DC down for Selco. but actually it's the right thing and GB will return it's not a question if it's a question right I think it's second offer next year keep going Kristen from Deutsche Bank just to start with the

The first one, probably for David, the Mercoluf margin looked very good in the first half. You did point out there was a couple of good months for them, but just to get a sense of that versus normalised pick-up versus what they generated last year, for example.

I think the result in the first half, if you were to just look at Mercoluf's contribution to the group, the operating margin was super normal because it had those two months in it. ordinarily we'd expect their margin to be sort of mid-teens it was stronger than that as i say in the first half so looking sort of further forward if you just take the salvador and take the mercoliv business we'd expect in a sort of normalized to be that sort of nine to ten percent when we think about our broader ambitions for iberia again which we talked about the capital markets event you know we want to get to a billion euros of revenue that's our that's our target the sort of zone if you like for the operating margin that we see for a mature business in different business streams would probably be more in that 7-10% margin and the second one obviously sticking with Spain clearly a bit of a benefit I imagine from the heatwave that we've had across Europe just your sense

whether that drives brought forward demand or actually triggers a structural change in the demand for air conditioning and therefore you know you can see good sales even as the weather gets cooler because people realize they need to have air conditioning in summer months

look you already have a strong AC penetration in countries like Spain right so you know many of the houses have already AC but I do think that the penetration of AC will continue to increase and of course if you know some of them are particularly hot you know the AC systems have to work harder it might shorten the lifespan so therefore you know you will sell more AC units over time and I think all those fundamentals if you want are reasons why we invested into that particular product segment in Iberia and believe there is among other segments still a lot of stuff to do and to consolidate that particular market so you know I expect the heat to be an ongoing feature and as we've seen in London this summer you know it's pretty hot here and I'm sure many of you who don't have air conditioning in the house thought about maybe next year I should find some air conditioning right thank you

I was the spirit from progressive equity research a couple of questions the first one in the UK and going on to second half again the it's probably a bit unfair to get granularity on eight weeks of latest trading and but it's down 5.6 percent versus 4.9 for the second quarter and What's the direction of travel in that latest 5.6%? Do you get the sense it's getting better, worse and all changed? and you mentioned the autumn budget but I get the sense this time around there's far less speculation than in the two or three months before the last budget which really did slow down the market so maybe a bit of colour on what your customers are actually seeing so that's the first question so just I mean you know what are we seeing look I think if I can describe it I think we're bumbling along a bit you know I think week to week we'll have a I wouldn't say we have a good week we just don't have a really bad week

I think the feature that we saw in May and June and July though in particular was new build we saw that in CPI Euromix we saw the volume that was being drawn off on sites was down quite significantly so I think that as we went through the first half that was the thing that really emerged you know we started off with new build was flat and then it really came off so now look I wouldn't say it's getting worse I just think it's bumbling along where it is now you're right in terms of that speculation that we had I mean last year crikey it was horrendously attritional in terms of all the kite flying that was out but we're not seeing that to the same extent yet let's hope that we don't see it but I think the ramifications for the sort of q4 and into q1 next year is really what happens in that budget

you know do we do we see another tax raising exercise and if we do then I don't think that will be particularly good for the confidence more generally but that was the context in which we made that comment second question probably quickly timber frame 66% penetration in Ireland just out of interest where's that come from five years ago for you how much of timber frame penetration

rallied in Ireland for having a clue that has that's been quite strong growth over the last decade but still sits beneath the level of timber frame in Scotland or in Scandinavia where it would be probably closer to ninety percent of timber frame so so we still see further opportunity in Ireland for that to grow from a penetration perspective

I'm trying to have a steeple. So a couple of questions. The first one, it's really around the the drop through. And I suppose if you look at the results and you put GB to one side, and you do the exercise of the drop through from the other countries, it's maybe not as much as we might have thought. So just wonder what the offset is there because you've talked about gross margin obviously kind of picking up in all those areas and discipline on overhead so I guess there's some investment going in the other side just to understand what that is really you probably have to look at it geographically really

in terms of that drop through if we look at Ireland of Ireland the thing to bear in mind is you know there is also an element around McBlair in there which has its exposure to the UK if we look at the businesses in the Republic of Ireland we were pleased with the level of drop through that we saw the common theme across all the geographies that is impacting has impacted around drop through is really around labour inflation and property costs If we look at our overhead base, 75% of our overhead base is drawn from people and property. And property, I would say, is still suffering. That tail of the inflationary impact that we've seen that's coming through in rent, so that's sort of still coming through. People is very heavily influenced across many of our businesses, either by, if I take the Netherlands, you know, collective labour agreement. Collective labour agreement for 2026 is up a little under 4%. if I look at minimum wage levels in Ireland or in GB you know that that's where the pressure is coming so that's the thing that we're having to work really hard from an operational efficiency to try to offset if if we look at Iberia then what we have been doing in Iberia is we have been investing in the business so if I look at my like-for-like overheads in Iberia I mean that's that's up somewhere around about 5% but some of that is really because we've been investing in that business for the future we've been putting those new branches in which is why that drop through doesn't look as strong as ordinarily we would expect given that level of revenue but yeah we're all over that one

The second question is the risk of being too optimistic. The drop through in the UK if this recovery comes through, we ought to be thinking at least the gross margin because one would have thought there's really not much overhead to go in for quite some time. Is that the right way to think about that?

I would love to aspire to a drop through rate that came in at the gross margin. I think that's a bit bullish. because i think inevitably you know there's a lot of stuff that comes along i mean typically in a recovery and it does depend upon the pace and the speed at which volumes come back but but typically you'd be looking at 15 to 20 would be a you know reasonable level of drop through i would have said i would love it to be uh coming through the gross margin i mean the real the real kicker in in in drop throughs if you can combine that volume uptick with some improvement in gross margin and then it becomes a bit adrenaline fuelled and then you will see much stronger levels of drop through.

Hi, Sam Cullen from Berlin. I've just got one and really related to that 75% number on property and labour costs and sort of the question to you all currently is what are you doing or exploring in terms of AI to take some of that labour cost out or be more efficient across the business, particularly with your centralised model in Ireland?

Yeah, look, I mean we're doing a lot of work generally across those sort of centralised functions but it's it's not just about productivity but it's also about quality as well in terms of the output so that's where the principal focus is because you know a lot of that labor cost is people serving people in branches moving product putting product on shelves helping customers so that that's where the major element around um around labor expenditure sits but yeah the AI level we're using across all elements whether it's recruitment or whether it's marketing and whether it's product descriptions so I mean it is I think that will where it will help is comes back I think probably to Charlie's point around drop through is that it will just enable us to be more efficient and benefit then when we when we see volume uptake without having to put additional resources in.

Thanks Ben Barrow RBC one on Iberia with the target to the 1 billion can you just remind us how we should think about organic growth as we head into next year and to that target out to 2030?

Look I do this like mental math by Eric right so I guess on an annualized run rate with the businesses we have it should be somewhere around 430, 450 million euro in revenue I will expect them to organically grow to 600 plus by 2030 so we need to acquire and grow around 400 to get to billion so that's really how I look at it and we have a pipeline which would facilitate that but as we keep saying we don't buy a business for the sake of buying a business if we don't think the valuation is right or there is something which we don't think after looking at the business closely that it will give us what we really expected it to be so the pipeline is there to facilitate that I'm confident that we will get there but I think I just want to reiterate the 1 billion is a target I don't, if you end up at eight hundred and fifty million and nine percent operating profit I wouldn't look at it as failure I would still be content with that if everything goes great we might end up above a billion who knows right but you really have to think about okay it should be more than 600 million purely organically with the business we already have and then you know add another few hundred million we should then keep growing to that portfolio and of course the earlier between now and 2030 will be able to add those businesses in the more confident to get to a billion but in the end we want to have quality businesses which we buy at the right time for the right valuation rather than businesses we overpay just for the sake of having them early in our portfolio Jamie at the back

Thank you guys, I'm Jamie Murray from Bank of America. Just on free cash flow, why did that fall by about 10%? I think you mentioned cash conversion fell a little bit but if you could just provide a little bit of colour around why that happened and also how you see that going forwards into H2.

I mean the cash conversion dropped a little bit compared to last year because last year actually we released capital from working capital. This year we invested into working capital which was where that was at incremental drag. I mean ordinarily you have to bear in mind if we think about our operating profit how we how we characterize our free cash conversion it's after we pay tax so typically 20% tax rate in round terms so that's going to come off and after we pay finance charges as well so so actually something in the range of 70 to 80 percent would be you know a reasonable level and an expectation level we've had some really strong performances I think we can continue to do good work around working capital but the most important thing for us is to make sure that we've got the products available for customers and when we end up with a bit of conflict in the Middle East then a bit more investment into working capital is a sound thing to do that looks like it we've got no questions on the line so I think that it draws to a conclusion the proceedings thank you very much for coming good to see everybody thank you