Wickes Group plc

Good morning and a very warm welcome to Wix's first set of results since its return to the public markets in April. My name is Chris Rogers and I joined David, Julie and the team as chairman ahead of the demerger, stepping down from the board of Travis Perkins where I had been senior independent director and a non-executive director since 2013. The demerger of WICs was thoughtfully executed and well planned. David has built a strong team and we have assembled a bench of experienced and relevant independent non-executive directors. And as a board, we are very focused on creating value over the medium term for all our stakeholders. With its digitally led, service enabled approach, David and his team are building a business for the future. The continuous focus on improving the relevance of the core for the customer and the emerging position in DIFM has created a uniquely balanced business. A business with a very clear and distinctive position in the market which, with its newly found independence, can be even more agile and responsive to the ever-changing needs of its customers. The last 18 months has been a huge challenge, but as these results demonstrate, the team at Wix have been equal to it, and I would like to thank each and every colleague for the part they have played. Thank you for listening, and I will now hand you over to David.

Thank you, Chris. And I'd also like to welcome everyone and thank you for taking the time to join us this morning. I'm here with our CFO, Julie Worth, and we are delighted to share with you our very first half year results as a standalone business since we de-merged from Travis Perkins back in April. Julie and I will spend the next half an hour or so taking you through the performance of the business for the six months to the end of June, as well as highlighting our key levers for growth and outlook for the rest of the year. This has been a good first half with strong sales and profit performance across the business. And I would like to echo Chrissie's thanks to all our colleagues. During this period, our uniquely balanced business model has really come to the fore. We have benefited from our differentiated customer proposition and digitally-led, service-enabled operating model, which has allowed us to thrive throughout the pandemic. Two thirds of our sales were driven from digital channels in the first half of 2021, and retention of our digital shopper base was strong, having grown this substantially in 2020. Over the past 18 months we have successfully transformed and innovated our business, swiftly adapting to changes in consumer behaviour as people seek to improve their homes and gardens as they spend more time in them. Both our store and distribution environments handled record levels of throughput, driving strong operational leverage by continuing to develop and refine working practices. As we grew our customer base, we continued to deliver improvements across our key customer satisfaction measures and gained market share. And we were very pleased to win the DIY Week Retailer of the Year award earlier this summer. The last few months have seen many challenges in our sector, with well-trailed global supply issues, constraints on raw materials and subsequent cost inflation. Whilst we are not immune to these challenges, we consider that our strong supplier relationships, curated range and operational agility has served us well to continue to provide customers with the products they need at competitive prices throughout this period. As a standalone business, we are better positioned than ever before to capitalise on our exciting growth opportunities. This morning, I'll take you through the great progress we have made across each of our growth levers as we continue to involve and enhance our proposition through product and service innovation. I'll now hand over to Julie to take you through the numbers in more detail.

Thank you David and good morning. I too am delighted to be presenting our first set of financial results today. We have had an exceptional first half despite the ongoing impacts of COVID disruption. We added almost 200 million of sales year on year and we were particularly pleased with our core sales performance where we continue to take market share. We have stepped forward from what would have been an underlying loss last year, excluding government support, which was subsequently repaid, to a profit of £46.5 million, with an operating margin of 7.6%. There was strong cash generation and balance sheet deleverage, albeit that investment is second half weighted. And there were also some timing benefits on working capital, which will unwind in the balance of year. We have announced a maiden interim dividend of 2.1 pence per share, which will be paid on the 1st of November. So let's now look at the results in a little more detail. First half sales were up by 32.5%. Within this, we estimate price inflation of around 3%, although much of the inflationary impact was only seen in the latter part of half one, with this expected to be more marked in half two. Space accounted for a reduction of 0.6% from our ongoing space optimisation programme. And we had 232 stores as at the half year, a reduction of one store from our year end position. Our gross profit percentage, as expected, was down, declining by 60 basis points. As highlighted at Demerger, we expected a normalisation of promotional activity compared with the prior year, when the focus across the industry was on handling the first lockdown. Local trade has performed strongly, which delivers a lower level of margin through category mix and also from TradePro participation. In addition, within Do It For Me, bathrooms and installation performed particularly well, both carrying a lower level of percentage margin. Our approach to price inflation is to recover cash cost increases through price. This protects cash gross profit whilst ensuring we remain highly competitive, but clearly reduces percentage margin. As you may recall, distribution costs are recognised through our cost of sales, and the effect on gross margin from these factors was partially offset by operational cost leverage through our distribution activity, supported by strong volume growth. Customer delivery participation remains at elevated levels, indicating a more sustained change in customer behaviour. In the first half of last year, we had taken the benefit of a number of elements of government support which were subsequently repaid in the second half. If we exclude the impact of these, our cost to sales ratio improved by around 600 basis points, again demonstrating strong cost leverage supported by volume growth. Adjusted PBT at £46.5 million is slightly ahead of our £45 million guidance. I also note the underlying tax rate of 21.1%, reflecting a lower level of disallowables than previously indicated. Overall, a very strong performance considering that our business continued to be impacted by COVID disruption. So let's look at how sales trends evolve through the first half. This graph shows the weekly ordered like for like sales trends year on year and right now it continues to be helpful in articulating sales performance through these dynamic times. It is worth noting once again that do it for me ordered sales move into reported sales only when deliveries and installations are completed. Our one-year sales trends show core, indicated by the blue line, performing well against pre-lockdown trading last year, and we delivered Q1 core like-for-like growth of 38.5%. Core sales then accelerated against the lockdown one period last year, when our stores operated for click and collect and home delivery only for a number of weeks. As we anniversaried the reopening of stores last year, core sales for the last few weeks of the first half were in line with the strong post-lockdown trading period. And we delivered Q2 core like-for-like growth of 34.2%. Within Do It For Me, indicated by the red line, our showrooms remain closed through to the 12th of April. Despite this, and supported by our digital capability, together with our newly developed virtual showroom journey, we achieved a significant proportion of prior year sales through the Key Q1 trading period. And as our showrooms reopened, sales recovered strongly. If we now look at delivered sales on a two-year like-for-like basis, core like-for-like sales growth remains strong throughout the first half, slowing into Q2, whilst continuing to deliver an increase of 38.4%. This performance has been achieved across a broad range of product categories, where we continue to innovate through range reviews, and is supported by both DIY and local trade. Within Do It For Me, like for like declined as a result of showroom closures in both the prior and current year. However, we still achieved over 70% of 2019 delivered sales, supported by a virtual showroom journey. It is also worth noting that two thirds of our sales continue to be driven from digital channels, demonstrating the strength of our digitally led capability, which also underpins this sales performance. I will come back and talk about current trading and outlook shortly. So moving on to the profit bridge. This slide shows the major movements in profitability on a year-on-year basis. In the first half of last year, adjusted pre-tax profit was £14.5 million. As already noted, this included £17.3 million of government support, which was subsequently repaid. Excluding this support, the first half of last year would have shown a loss of £2.8 million. In the first half of the current year, the strong performance of core sales and the high level of operational gearing generated £52 million of incremental profit, clearly a significant driver of profit improvement year on year. Do It For Me contributed £4.5 million, the result of delivered, like-for-like sales growth of 20.5%. This reflects a lower level of operational gearing, impacted by temporary showroom closures, lower margins on bathrooms, which grew strongly, and installation participation, which continues to grow. Investment in marketing has stepped up again year on year as we return to more normalised levels of activity, notably to support Do It For Me. COVID costs continue to rise as we annualise the first quarter of unrestricted trading last year, and we've remained cautious in terms of changing our COVID policies to protect our colleagues and customers. We are, however, confident that, subject to further trading restrictions, COVID costs will start to fall away in the second half of the year. Additional PLC costs were £1.9 million as we progressed towards our guided figure of £7 million on a full year basis. Overall, a strong step forward in profit terms, significantly benefiting from strong core sales growth combined with operational leverage. Our IFRS 16 net debt position at the end of the first half was £564.8 million, compared with a pro forma net debt position at demerger of £665 million. The improvement of around £100 million splits down as a £21 million reduction in IFRS 16 lease debt and a £79 million improvement in cash. IFRS 16 lease debt reduced as a result of fewer lease renewals in the period. This is consistent with the lease profile of our business which sees a low level of renewals over the next few years and IFRS 16 lease debt is expected to continue to decline modestly. This is clearly a timing factor as these leases will eventually be renewed influencing the net debt position in the future. Cash balances, excluding the impact of the demerger, increased as a result of strong operating cash flow and a favourable working capital position. Stock recovered from unusually low level in the prior year, which was impacted by COVID disruption, noting that there was a further improvement in stock turn to 5.6 times. Overall, our cash position in half one benefited from the second half weighting of capital and IT separation investment, together with timing impacts within payables, which will partially unwind in the balance of year. We will of course also pay dividends for the first time in half two. As a reminder, we reiterate here our capital allocation priorities. You won't be surprised to hear that there are no changes to our capital allocation policies as set out at the time of demerger. The first priority is to continue to invest in organic growth and innovation. This includes a very successful store refit programme, digital investment and range development. Full year capex guidance of around £30 million remains unchanged and we continue to expect to invest around £40 million in IT separation over the next couple of years. It is worth noting that in 2021 our capex and IT separation investment will be weighted to the second half of the year. We will continue to maintain a strong balance sheet holding net cash as a partial offset against our lease liabilities and maintaining the 80 million RCF for liquidity purposes. Our guidance remains for a full year dividend payout of 30% of post tax profit. We are in the early stages of life as an independent PLC and are comfortable with the current capital structure and capital allocation priorities. Moving forward, we will continue to review these and notably consider an appropriate IFRS 16 based leverage target as we emerge from these dynamic times. And finally from me, our outlook. As we expected, core performance has now moderated as we continue to annualise strong comparatives in 2020. However, we continue to see strong core sales on a two-year basis. This is notably driven by buoyant demand from local trade and continues to be underpinned by our digital capability, demonstrating once again the resilience of our balanced business model. Following a strong Q2 from an order perspective, Do It For Me orders have normalised over the summer and for Q3 are currently broadly in line with 2019. We remain optimistic about the future opportunity in Do It For Me and a good example of this is in bathrooms, where we have seen particularly strong growth following the relaunch of our new bathroom ranges in stores over recent months. As a result of very high market driven demand for installers and builders, combined with ongoing COVID disruption, we are, however, experiencing longer lead time to project completion, which will result in a higher carryover order book into 2022. The combination of these factors together with half year results ahead of guidance is expected to deliver full year adjusted PBT towards the upper end of market expectations. This of course remains subject to any further COVID disruption or restrictions. Noted here also are some slightly amended technical guidance points on week 53 and the underlying tax rate as we continue to refine our modelling. I would now like to pass back to David, who will take you through the operational review. Thank you.

Thank you, Julie. As you know, we have a clear framework to win, which is guided by our vision, mission and importantly, our purpose. The why Wix exists to simply help the nation feel house proud. We have a strong portfolio of growth levers to win in this market that are relatively immature with more to go for. I'll spend the next few minutes taking you through the progress we are making across each of these levers and outline some of our key activities planned for the second half. But before I do that, it's worth setting our growth plans in context of the market in which we operate. The home improvement market in the UK is currently valued at around £25 billion and projected to reach £28 billion as we enter 2025. The market is underpinned by an ageing housing stock, property transactions and consumer confidence, which drive customers to improve and invest in their homes. COVID restrictions have further amplified this market through changes in working habits, resulting in more time spent in the home, fueling the desire to renovate and refurbish. When taken together with the increased appetite from rental tenants to invest in their homes, interest from the millennial generation in DIY, combined with a higher level of savings which supports pent-up demand, these factors continue to indicate strong growth opportunity in the home improvement market. The chart on the top right of the screen showing property transactions reflects the impact of the stamp duty holiday and whilst that government initiative is ending, typically it is several months after moving home that we seek to improve and invest in the larger ticket projects such as a new kitchen or bathroom. And consumer confidence is bouncing back as the country opens up. With solid market fundamentals and consumer trends continuing to support home improvement plans, the strength of our customer proposition and digital capabilities mean that we are well placed to capitalise on these market growth opportunities. Local Trade is a key customer segment and represents around one-third of our revenues. At the heart of winning for trade is our TradePro membership scheme, which is a very simple, entirely digital scheme for local trade, designed to save them time and money, offering a flat 10% discount across the store. Continuing to grow with our most strategically valuable customers is critical as a TradePro member will spend 10 times more than a regular DIY customer. In the first half we have continued to successfully grow our TradePro membership enrolling over 50,000 new local trade customers bringing total membership to around 600,000. This has helped drive TradePro sales which you can see here are above 2019 and 2020 levels and is reflective of the confidence of this customer base. We conduct a monthly survey amongst trade customers and they are telling us that they have a strong pipeline of work with almost 60% of tradespeople saying they have work lined up more than three months out. Our do it for me customer proposition was significantly impacted by the pandemic in the first half, with all our showrooms closed from January until the 12th of April when lockdown restrictions were eased. Our Do It For Me activity therefore relied entirely on our newly developed virtual journey, which was used by over one million customers within six weeks of launch, delivering a resilient level of sales despite showroom closes through our critical winter sale period. Do It For Me orders naturally increased following the reopening of our showrooms, indicating a level of pent-up demand and supported by the launch of new product ranges. In the first half, we redeveloped our entire bathroom range, which has driven strong sales growth. We also saw the launch of our new home office proposition, which notably demonstrates our ability to respond to changing consumer behaviour and leverages our existing design and installation capability. We are delighted to see that our innovative new ranges are proving very popular with customers, accounting for more than a quarter of all sales in the first half. As we continue to see high attachment rates of tiling and flooring sales to kitchen and bathroom projects, confirming the opportunity to grow adjacent categories and increase overall project spend. Installation solutions for new categories are progressing well with more pilots commencing later this year. We have seen a step change in our bathrooms performance, following the development of an entirely new range, an example of which you can see here. We also took our new bathroom range above the line, launching our first ever bathroom TV ad in June. We completed a major refresh of our kitchen ranges and these are performing well. We had planned to refresh our in-store kitchen ranges in 2020, but these were put on hold due to the pandemic. However, we have now started the work to roll out the new kitchen range and 80% of displays will be completed by the end of October. Now that we have launched our home office product, we have noticed that customers are also integrating this into their kitchen design. And you can see just how good this can look from the image on the screen. At Wix, our strong installer base is a key differentiating factor and gives us a significant competitive advantage. We recruited over 350 new installer teams in the first half, strengthening the capacity and quality of our installation capability. And we were delighted to retain our distinction level of service from the Institute of Customer Service, despite the challenging environment. Recognising our need for a base of trusted, quality installers and to ensure a future generation of skilled tradespeople, we took the step in 2019 to launch our own Wix Installer Apprenticeship and we were the first and only major retailer to do so. We were delighted when our first cohort of apprentices completed their apprenticeship in July this year. And you can see here Nathan, who has recently set up his own business and is now a Wix-approved installer. And we are continuing to actively recruit new apprentices to this programme. Within DIY, our highly curated range continues to work well, supporting strong levels of core sales growth and market share improvement, with extended ranges available through our in-store online terminals, OLLI, and through our website. As part of our strategy to get our fair share in underweight categories, range reviews were completed in garden maintenance, flooring, timber and sheet materials, and own brand power tools. These reviews have delivered strong sales growth in excess of 30%, along with improved availability and stock turn due to an average 20% reduction of in-store range count. What's more, we've been able to successfully introduce these range reviews despite the macro market supply challenges. And we have lots of exciting plans coming in the second half for further range reviews, including doors and decorating. A good example of how our range reviews are performing is in the timber and flooring category. It's worth noting that our timber range review was conducted before supply constraints emerged. However, what has transpired is that the review puts us in good stead to mitigate these issues as we've been able to secure supply on the timber lines that matter most to our customers. Following the introduction of the new range of timber, we had achieved a 20% reduction in the number of SKUs in the timber aisle, which has meant that we've been able to reallocate the space that this generated to carry up to 50% more stock of high volume product lines. We have seen significant year-on-year growth in transactions of key timber lines and our sales of timber to our TradePro members has grown by over 45% year-on-year. In the first half, we also conducted a comprehensive review of our flooring range and took the opportunity to truly innovate, with 60% of the flooring range being new, including a new water-resistant laminate range, especially for kitchens and bathrooms. The strength of our digital and service proposition has led to the significant growth of our digital customer base to well over 5 million digital customers today and two-thirds of our sales emanating in the digital space. Continuing to build on these digital strengths is critical to enhancing our customer proposition and we have delivered some exciting digital developments in the first half with more to come. Arguably, our most exciting and game-changing digital activity is the development of our missions motivation engine, which uses machine learning to combine the power of data with that of the customer's activity in the broader digital ecosystem – Pinterest, Instagram, Facebook, etc. It enables us to identify the missions that customers shop and gauge the commercial volume and value within those missions. With this information, we are then able to create more targeted, personalised communications, increasing both the quality and the quantity of missions that customers shop with us. In the first half, we have focused our missions motivation engine on gaining greater insight into the missions of our TradePro customers. In the second half, we will continue our ongoing programme improvement features for the TradePro app, including further personalisation and the ability to target promotional offers and give early visibility of offers to drive loyalty amongst our trade customers. For our DIY customers, we are making the click and collect journey even easier with faster store picking for colleagues through digital picking apps, which enables them to receive customer arrival notifications and prioritisation so they can ensure the products are ready for collection. In those stores where we offer contactless park and collect functionality, this is now being used by 20% of customers with significant improvements in the customer satisfaction performance measures. We are continuing to optimise key areas of the website to improve the customer experience including improvements to the checkout journey and deploying a greater use of product videos, where we typically see higher levels of conversion and average transaction values, up over 30% when customers interact with video. In the second half, we plan to launch our new customer app with improved functionality, including better account facilities, push notifications, and augmented reality capability, for example, within paint swatches. We will also be turning the focus of our missions motivation engine onto our DIY customers. Turning to our Do It For Me customers, Digital Development has delivered improved imaging, features and pricing illustrations for Do It For Me projects on our website. These enhancements have led to a 10% increase in design consultant enquiries and a 45% increase in brochure downloads. Building on success of the virtual showroom experience, we have created an online showroom tour, which has already had 2.6 million views. And we are creating a new area on the website to centralise and promote all our design and installation services, as well as introducing a credit online eligibility checker. Our physical estate remains a truly integral part of the Wix proposition. While two-thirds of our sales emanate in the digital space, 98% of all sales directly touch the store. During the first half of the year, three store refits were completed in Dundee, Ryslip and Stockport, together with a refresh in Taunton and a relocation in Sunderland. With an average uplift of 60% in Do It For Me and 10% in Core, these investments continue to deliver strong returns. This gives us confidence as we move into the second half and we will be accelerating our store refit programme with a further eight store refits and refreshes, demonstrating our ability, now that we are a standalone business, to allocate capital to drive growth and further enhance our market-leading position. To date this year, we have also increased storage capacity in 35 of our highest volume home delivery and click and collect fulfillment stores. As a result, we've been able to remove storage of our home delivery and click and collect orders from the shop floor, allowing us to future-proof further volumes. In total, we have created 26,000 square feet of additional storage space without impacting store ranges and planograms or compromising the store format. We will continue this programme throughout 2021. We continue to evolve our 4C store service model and earlier this month we relaunched our Dunstable store following a refit to represent the current best-in-class store service proposition. You can see from these before and after pictures the extent of the transformation. I'd like to share with you a short video of how our 4C model operates within the Dunstable store and importantly how digital features in every part of the customer journey.

Here at Wix, we have a unique and differentiated customer proposition. We serve three types of customers, DIYers, local tradespeople and those customers who are looking for help in their bigger projects, from design to full installation, which we call Do It For Me. Our stores are especially designed to meet the needs of all three customer segments. We successfully integrate digital with our service delivery model to ensure a seamless shopping experience. We do this through our unique store layout we call our 4C model. This model allows us to work collectively as one team and ensure we have the right people in the right place at the right time to deliver exceptional service to our customers. Here's our Dunstable store team to explain how the 4C model works in practice.

This is our self-serve area where customers can browse and pick up whatever they need. We have highly curated product ranges with limited number of SKUs, which stands for Stock Keeping Units. This allows us to improve efficiency by having more volume of product on display. especially for the fastest selling lines. We have simplified pricing propositions so it's clear and compelling for customers and we pride ourselves on driving price leadership in our sector so we are always at the best value. Local tradespeople account for about a third of our business. They use our TradePro app to research and buy their product at a 10% discount. Having checked suitability, availability and price online is a quick and easy process for our customers to come into the store and pick up their product. But with so many customers now purchasing online and then taking advantage of click and collect or home delivery, our order fulfilment area of the store is critical to the Wix service proposition.

I look after our customer orders which are either being collected in store or are being delivered to their home by our delivery partners. My colleagues will carefully pick the stock for our click and collect and home delivery customers and we're rolling out our new handheld technology so colleagues can do this even more efficiently. We've also increased storage capacity across dozens of our highest delivery volume stores. Each store has a click and collect counter where the customer simply provides their online order details and the product is ready to be collected. Here at Dunscore we have a click and park service so customers don't even have to get out of their car and of course they can also choose to have their product delivered to their home so we work very closely with our delivery partners to give them the best possible service.

In the assisted selling area we help our customers with everything they want from finding the colour of paint to any service enquiries they have and searching stock availability across our network of stores. This is our Oli desk, our online ordering terminal where we help out our customers who are looking for a particular product to know how much stock might be in store. It also gives us access to our full extended range of products. Paint is one of our most popular products and we are able to mix paint for customers to get their exact colour they need in any format.

We call this our do it for me area where our team of design consultants are here to help bring a customer's dream home to life. Most customers start their new project online where they research the styles, ideas and costs. When our showrooms were closed during lockdown, we quickly created a virtual showroom journey for customers to experience. Even when our showrooms reopen, this new digital service remains a key part of our offer and our customers really love it. Having done some research online, a customer will then typically come into a showroom to walk around the displays and touch and feel the products and discuss design ideas with our design team. Every store has its own team of design consultants who are fully trained in styling a kitchen, bathroom or home office and they will work with a customer from start to finish on their home improvement projects.

Each of our 4C areas are underpinned by our service behaviours that our 8,000 plus colleagues deliver every day. At Wix, we're passionate about making sure our customers find what they need for their home improvement plans and helping them to feel house proud.

Earlier this year we laid out our ESG focus areas together with our ambition to grow a responsible, sustainable business. Since April we have established a board level ESG committee, appointed our first ever Head of Sustainability and embarked upon a comprehensive ESG strategy review. As you can see from this slide, we have made great progress with a tremendous amount of activity taking place across each of our focus areas. I'd just like to highlight a couple of initiatives that I'm particularly proud of. Our inclusion and diversity programme goes from strength to strength. We have been focused on ensuring our store managers receive training and development in areas such as disability, allyship and mental health to ensure they are able to support our colleagues so that everybody feels welcome at Wix. We have now raised over one million for Young Minds, our charity partner, after strong fundraising in the first half of this year and we have pledged to raise a further one million by the end of 2022. And we are on a mission to reduce the amount of plastic in our packaging. We have begun work to eliminate polystyrene from all our packaging. We are now using over 90% recycled content in the packaging of many of our own labelled products. And we have launched plastic-free packaging for door handles, power tool accessories and bathroom accessories. ESG is completely embedded within our culture and DNA at Wix, but we're not stopping here and we absolutely intend to build upon this position into the future. As I said, we've embarked upon a review into our ESG strategy and I look forward to updating you on this and further progress we have made. So, in summary, we have delivered a strong set of results, which has been achieved in part due to our digital strength and the quality of the products and service we provide. We are excited by the growth opportunity for Wix in Home Improvement and we continue to successfully advance and evolve our model to win in the market. We are a growing, cash-generative and profitable business with a highly distinctive and differentiated proposition to the competition. At the heart of this is the unique balance of our business, in which revenue is split between our three customer segments of local trade, do it for me, and DIY retail. This not only allows us the best exposure to the fastest growing sectors in the market, but also means we are not overtly dependent on one customer. area. We have a low cost efficient and totally integrated operating model all powered by data driven insight and our proven levers for growth remain valid with more to go for. All of this results in a business which will continue to deliver good earnings growth with strong cash generation giving capacity for increased shareholder returns through a progressive dividend policy. Thank you for listening. Julie and I will be very happy to answer any questions you have.

Ladies and gentlemen, if you would like to ask a question, you can do so now by pressing star 1 on your telephones. That's star 1 if you'd like to ask a question. We will now take our first question from Shane Carberry from GoodBuddy. Please go ahead, your line is open.

Morning all and thanks for the presentation. Three, if I may, just firstly looking at the kind of like-for-like trends as we kind of have run into kind of July, August and midway through September now. Can you talk us through the kind of moderation in core and maybe give us kind of some sense in terms of trade versus DIY? Similar question then from the perspective of DIFM and if you could kind of help us give a little bit more color in terms of the ordered sales growth that you flagged in July update, kind of up 30% on a two-year basis. And kind of how we should think about that flowing through in terms of actual sales for the second half. Then the third question really was just on gross margin. And you did give a little bit of color in terms of the kind of 60 bits of margin decline. Can you just help us kind of decipher kind of what proportion of that is mixed versus inflation? And you mentioned promotional activity as well, kind of returning to more normalized levels. So if you could just give us a little bit more color there, that'd be helpful. And sorry, just one more, and it's a bit more of a technical question, just surrounding the lease debt. You gave a little bit of colour, you know, talking about the lease debt declining in the short term before kind of ticking back up in the medium term. But could you give us some sort of kind of range in how we should be thinking about lease debt over the medium term? That would be helpful. Thanks, Al.

Well, Shane, that's a super list of questions. Thank you very much. What I will do in the first instance is just hand you to Julie to start to cover those off and I'll add a bit of colour as we go.

Okay, thanks, David. Good morning, Shane. So in terms of like-for-like trends, if I take core first of all, clearly over the course of the first half, we've seen very strong like-for-like growth through our core side of the business. And if I take the year-on-two-year growth figures, Q1, 51.5%, Q2, 38.4%. And what we're signalling here today is a continued trend of strong year-on-two-year growth, albeit that that has now moderated as we work through into the second half. It's also worth mentioning we will update our on Q3 the actual performance imaging course. So some moderation against the very strong levels we've seen in the first half, but still strong year on two year. From a do it for me perspective, we reported through our last trading update at very strong levels of order growth through the backend of the first half. We've seen that moderate over the summer, but I'm pleased to say that we're seeing order levels in line with 2019 and 2019 was a particularly strong year for us from a do it for me perspective. So the key thing, though, that impacts our second half of performance in Do It For Me is that ability to take those ordered sales and move those through into a delivered and installation completed project status. And that's where we are signalling as part of our outlook statement here today, that that has extended out and will push some of the Do It For Me sales ordinarily we would have recognised in this year into the second half. So core overall, compared to previous guidance, performing more strongly we expect in the second half, Do It For Me impacted by timing, shifting some of that sales into 2022.

And Shane, from my perspective, I guess this is where we see our uniquely balanced model in full flight. Because if I was to characterise the last 18 months of the pandemic, as we came into the pandemic, as Judy quite rightly said there, a very strong do-it-form reforms as we exit 2019 into 2020. As we came through the pandemic, it was very much a story of DIY. That was a real uptick in terms of DIY. As we start to come out the other side, we've got a real surge in terms of local trade. But obviously the encouraging thing as a business in the way that we're shaped and organised is we serve all three routes to home improvement. So it leads to a very strong position in the first half and gives us great confidence as we look forward in terms of growth for the business.

Okay, I'll pick up the margin point next. So again, we've reported... a 60-bit decline in margin rate. That's absolutely as we would have expected. That has seen a return to more normalised promotional activity through the course of the first half, and that's consistent across the market. Mix, which is a combination of strong local trade and particularly participation through our trade pro customers together with mix impacts through do it for me where we continue to see very strong levels of installation participation and a particularly strong participation through bathrooms. If I was to just comment on the key influences though on that margin decline mix would probably be the main factor that I would call out there and it's something we've you know, continuously signalled really in terms of the shift of our business, particularly into our service-based proposition, which carries lower levels of margin. So absolutely, as expected, mix perhaps the more prominent feature in the first half and noting that the impacts of cost price inflation, relatively low in the first half, likely to increase moderately in the second half, because we saw those strong inflationary forces coming towards the back end of half one. There was a lease debt. And then lease debt. Yes, so in terms of Leesat, very much a very strong position at half year, somewhat flattered by an unusual profile whereby capital investment will flow more strongly in the second half. IT separation clearly remobilised in the first half of the back of the demerger. And we do expect to see some unwind of working capital. So certainly we'll see some moderation in that cash position as we move through to the full year. I think that answers your question, Shane.

Yeah, my only other build really, Julie, on that, pertaining to the gross margin, Shane, was, you know, obviously it's a strategic imperative of ours to build out our installation service business because it means we get more of the cash within the project. So we will continue to do this. We will continue to build out the suite of installation services we have, but recognise that does come at a lower margin, but an overall cash improvement for the business overall.

Yeah, perfect. That makes a lot of sense. Thanks, David and Julie. Appreciate that. Thank you, Shane.

Thank you. Thank you. We will now take our next question from Clyde Lewis from Peel Hunt. Please go ahead. Your line is open.

Thank you. Morning, David. Morning, Julie. I think I've got three. Apologies. But the first one, I suppose, was on pricing. And obviously, I understand completely the drive to pricing. know recover the cost pressures and i'm i suppose i'm sort of wondering at what point do you actually start to sort of change that position and maybe start to actually look to recover the gross margin aspect of of all the sort of cost pressures from from from higher build building cost um materials prices that was the first one um the second one was on kitchens and the do it for me i mean you've obviously had a big drive on um bathrooms and i'm And it sounds very much like you've taken a fair bit of market share there. And I'm just wondering in kitchens, whether you've done the same in kitchens or whether you expect the refresh that you're bringing through now will help you in terms of market share going into 22. And the third one was around, I think, David, you put up the comment about millennial sort of DIY recovery, you know, DIY is sort of growing and you know, improving. I mean, I'd love to know more about that in terms of the data that you've sort of picked up there, because obviously that's going to be a fairly important part for your DIY story over the next sort of, you know, three to five years in particular.

Indeed. Thank you, Clyde. You know, from a pricing position, of course, you know, it's that delicate balance between the commercial reality and the customer attraction, isn't it? So we've taken a pricing stance that in the first instance ensures that we maintain our market leading price position in the market. So we're cautious in how we move through and make sure that we maintain a market leading position. Why do we do that, Clyde? We do that because retail is a volume business. That's where you get the real operational leverage and it starts to improve the net profit performance of the business. So we want to focus on driving as much volume through the business as possible. We also recognise that some of the inflation that we've seen more recently is definitely transitory. It's not structural change. So to structurally change your price position, I think will be far higher risk to the overall performance of the business in the long term, rather than actually provide the right balance between the commercial reality and the customer attraction, basically. And, you know, we're already seeing that. I mean, I'll use a good example. You know, you know, a top five setting line for me in the business at the moment is blue circle cement. You know, it went from 415 up to 460. Today it's back down to 430. So I think we're taking the right strategic approach with our pricing perception at the moment to maintain and engage customers. And as you know, we have a reasonable heavy side to the business and price is clearly working because of our signups with local traders are accelerating in recent months. I mean, you've seen the good performance over the first half in terms of growth of our TradePro base. I'm going to say with confidence that in recent weeks that is accelerating. And I think our... price strategy around the lines that matter most to those customers is driving that. Kitchen's interesting. I think you're absolutely right. We are having a good time, a very good time in our bathrooms business. We've completely reset the range and it's performing tremendously well. We are in the rollout of our new kitchen ranges. So that was somewhat delayed through the COVID period, but we are now absolutely moving forward in anger with that. So by the end of October, our new kitchen ranges will be in all of our stores and we're confident that they're resonating well with customers. We're already seeing if we look at our new ranges within our do it for me business, you know, 25 percent of the growth in the first half was due to new lines listed in the first half. So we know when we get new ranges right, we get it very right. And it really appeals to customers. So I'm confident as we move forward, particularly around kitchens, as we get the presence and visibility of those into our physical estate, that we will see exactly the same response as we have done with bathrooms. And then finally, I think you had a question around millennial DIYers. I mean, the data we really have, and as you know, we research every month with a couple of thousand of customers through the lens of DIY and 2,000 to 3,000 through the lens of local trade through our TradePro base. There still is a really high intent to take on DIY projects through the customer base and through all sort of like demographics and ages. I mean, interestingly, millennial DIYers still actually show the highest intent to continue to do a DIY project over the next 12 to 24 months. But putting that down to a bit of data, you know, last month alone in August, you know, 80% of households in the UK took on a DIY project. That particular project definitely had a very outdoor bias to it, probably not a surprise given the month we're talking to. But I think the penetration of the amount of customers taking on board outdoor projects really signals to us how the garden and outdoor space is becoming much more of an extension to the square footage of the home. as people still plan to spend more time in their gardens and entertain more in their gardens going forward, which is why it's right for us, and we're testing and learning, or just about to start a test and learn at the moment, in terms of a design and installation service around landscaping and garden, because we do see that almost as an extended room in the home as we move forward.

Perfect. Thank you very much. Thank you, Clyde.

Thank you. We will now take our next question from Adam Tomlinson from Liberum. Please go ahead. Your line is open.

Morning, everyone. Morning, Adam. Just a few. Morning. A couple of questions for me. Firstly, on availability. So having been into your Tottenham store a few times, you revamped one there last few weeks. Seems like availability is still in a pretty good place. So it'd be useful just to get Any overview on that? And I guess in terms of stock coming into the business, any visibility you have and how far out that goes in terms of availability? That's the first question. Secondly, just a reminder on TradePro, on the TradePro app, so looking like continued momentum in terms of people downloading that. Can you just remind on the stats around and the customer behavior around the TradePro customer versus a non-TradePro customer? Then on fitters as well, it's like you've added a good number there. Just, um, anything you can say around, you know, how hard you've had to kind of fight to get those fitters, the availability in the marketplace. And finally, if I can just one on outlook for 2022 and, and Cognizant, there's a lot of moving parts and uncertainties here, but I think got the impression this morning that, you know, caught some confidence around profits stepping up in 2022 helped by that, the IFM order book. So just, um, Just keen to understand the other kind of assumptions and pushes and pulls that you're sort of baking into that guidance, if that's okay.

Yeah, no, thanks, Adam. A good suite of questions there. I think we all know that some of the challenges more recently around availability have been pretty well trailed at an industry level in the marketplace. For us, I would say we're in a very good place, Adam. And of course, that starts with the fact that we have a highly curated range. So we make sure, we have a curated range, we make sure we're holding good stock on the lines that matter most to our customers. And our availability on balance is in very good shape. Interestingly, from last month's TradePro Mood of the Nation research reports, more than 90% of our TradePro customers are telling us they can get the materials they need. Actually, only 3% said they had a bit of a challenge, so we can call it in the round, so like 97% are comfortable in terms of their ability to get the tools and the products they need to get the job done. So I think we're increasingly in a much better place and that data certainly highlights it. In terms of TradePro app, the data point I guess is most helpful is, we can see through the lens, the strategic value of a TradePro customer. They on balance are worth sort of like 10 times that of what we call a non-TradePro or a DIY customer. So their strategic value is critical. It's meaningful, which is why accelerating our recruitment, engagement and retention of those guys through having a proposition that is all about saving them time and saving them money is so important to the growth strategy across that pillar. And then finally, on the fitters, I mean, I'd almost link that question to the point around save me time and save me money. What we provide an installer and installer team in our business is just the simplest way of doing what they do best, which is to fit bathrooms, fit kitchens, tiling and flooring projects. They don't have to worry about any of the lead generation, any of the design, any of the product securement, any of the invoicing, any of the paperwork. we just then have them pointed at doing what they do best, which is their artisanal skill. So I think the volume of work that we have in our business, the simplicity with which they can engage and work with us and the support they get from us to do all of the things that they don't like to do, means in actual fact, we're just an attractive proposition for fitters. So, you know, getting another 350 teams in over the course of the last half a year, Isn't without effort on my part, of course, but we're a very sticky proposition for the installation population and we can see that working. And we see that working through our own apprenticeship programme as well in terms of some of the uptake that we're getting there. So I feel very confident that we will continue to successfully build our installation teams as we move forward and expand our services.

If I pick up the Outlook question. Yeah, please do. Yeah. So in terms of outlook for 2022, whilst we've not provided any specific guidance today, the key dynamic that is changing, though, is that carryover point on Do It For Me. So we fully expect now our carryover order book is going to be higher than would ordinarily be the case, and that will have a positive impact on profits for 2022. Aside from that, and really consistent with the messaging we've given before, we remain cautiously optimistic around Cork. So generally speaking, we'd be looking at continuing to expect moderation, of course. So we, again, annualise that COVID impacted period. And of course, we will be looking to closely monitor and manage some of the cost inflationary pressures that we can see out in the market. But the key change today that we're signalling is around that carryover timing point on do it for me. So that's a key step change here.

Great. That's very helpful. Thanks a lot. Thanks, Adam.

Thanks, Adam. Thank you. We will now take our next question from John Bell, Deutsche Bank. Please go ahead. Your line is open.

Morning, David. Morning, Julie. Hey, John. Hope all well. Good morning. A couple from me, actually. Just interested in any supply chain bottlenecks that you see. I know that cement was an issue the last time you spoke. It doesn't sound like it is now particularly. but anything else that's emerged is particularly difficult to get hold of. And then just on the do-it-for-me side, where you've had the installations postponed into next year, could you just give us a sense of whether that's been at the behest of the installer or at the behest of the consumer, some kind of broad split if there is one, And then finally, just is there any risk where something gets pushed into next year that it can disappear completely or are they on the hook already? Tractually. Thank you.

Thank you, John. Look, on the supply chain points, as I said previously, we are definitely in a much stronger position. Of course, there are still some more broader industry-wide challenges, funny enough, around cement and in certain areas of timber. It's getting much better. For us, we're in good shape. I'll come back to it. Our curated range is And our operational agility ensures that we get what we need for our customer base. And they're telling us that as well. So that's good news. In installations, it is an interesting one because obviously every kitchen or bathroom that we sell, we don't necessarily install, although we have a high propensity to do that. So there is some shift in terms of the availability of our installer network because they're very busy. I think I mentioned in the update, in our latest round of research with our TradePro customer base, more than 60% of them have got work up to Christmas and beyond. So you can see how busy they are, which is great, by the way, because we feel that benefit through our business on the trade pro and trade category side of the business. But there are also consumers ringing us up quite genuine, just saying, you know, look, can we push it back a little bit? Because I can't get my installer lined up. So for those that are doing where we are a supply only, you know, with our kitchens and bathrooms, we can supply everything between seven to 14 days. So there's absolutely no issue in our ability to get the product to the customer, but customers are telling us they're still struggling to potentially get an installer over the line. And not surprisingly, I think with the kitchen, kitchen tends to become, it's a bigger project. It might be more part of a broader remodeling of the home. And unlike bathrooms where you typically need one trader to do the job, in a kitchen, you know, you're going to need a joiner, electrician, a plumber, you know, et cetera. So there's a more complex team that you've got to organize around that. So in the round, it's some and some. It's some of us and it's some of customers sort of like pushing back in terms of the installation times. Yeah. Yeah, and just at any risk. Yeah, go on.

Sorry, on your final question. We monitor levels of refunds quite carefully across the business. And as we stand today, we are seeing no uptick in trends. The level of refunds you get is very low in our Do It For Me business. And I think that reflects, it comes back to what David said, really, in terms of a lot of this delay is market driven, sometimes at the customer behest. And actually, they're more than happy to defer those installations to post-Christmas. and are quite comfortable with that. So, of course, we'll continue to monitor that, but have absolutely no indication that that order profile is going to fall away.

And John, you know, putting it bluntly, I think it reflects the strength of our overall service proposition that customers will absolutely want to stay with us and they're willing to wait.

OK, thanks for the call. Thank you.

Thank you. Thank you. We will now take our next question from Amy Galaf from Citi. Please go ahead. The line is open.

Yeah, thanks, guys. Just a couple for me. The first one was on the branch refits. I mean, if you could give us some color as to the refits that you've made in the last 12 months, how have they traded and what's the sort of sales uplift that you're seeing? And also... At what point do these refitted stores actually achieve maturity? Is there some visibility that you have on that? And the second one is just a clarification. Is it right for me to understand that the 17 million of government grants that you have received in H-120 was reversed in the second half? So when we look at the H-1, H-2 numbers, there is a reversal implied within the sort of H-2 numbers on the full year. It's kind of neutral. Thank you.

Okay, thanks. In terms of branch refits, over the last 12 months, the refits has been relatively low. We're now accelerating that programme as we come into the second half of the year. But the uplifts we see are absolutely consistent with the profile we've shared before, which is plus 60% on Do It For Me on average, plus 10% on core on average. And the refits we're doing are consistent with that, if not a little bit stronger. In terms of maturity, the answer to that really is they get to maturity very, very quickly, certainly within the first year. So we see that uptick almost immediately, and then that is sustained as a store annualises. So it's a very, very quick maturity curve for those stores. And we work hard to launch them. in the right way so that customers become aware of that new proposition very quickly. Sorry, did you want to add anything to that, David?

No, I was just going to say, Amy, that it's really rare in retail that you continue to move through your network and get such consistency of delivery around a refit programme. And I'm delighted, as you saw in the video this morning, actually, we showed you the Dunstable store, which relaunched three weeks ago, And it's the best performing store in the network now over the course of the last three weeks. So we know that we know how to get this right. We continue to sharpen the execution as we move forward. And with that, performance comes. And I'm delighted to say that the stores that we've got planned, you know, the other seven that we've got planned for the remainder of the year in flight, Macclesfield opens this Saturday. The rest are underway. So across the course of November and December, we'll have the rest of the refit programme landed for this year, which is a step change up in the second half versus the first. We'll be doubling the amount of refits that we do.

And just coming back to the government support, absolutely right. I mean, in terms of the £17 million benefit that somewhat flatters the first half of last year, that was completely reversed and repaid in the second half of 2022. So you'll see that come through in the second half.

Thank you. Thank you.

Thanks. Thank you. We will now take our next question from Saranja Sivachalam from Pilhunt. Please go ahead.

Good morning, David, Julie. Thanks for taking the question. I have two questions, if I may. So the first one is, how do you see the split between stores and online evolving? So I noticed during the call, you said that 98% of all sales still touch the store. But kind of, you know, post-pandemic, how do you see that evolving? And is kind of your social media reach also helping with interest amongst millennials? And the second question is on share gains. I might have missed this earlier, but where is it that you see your share gains kind of coming from? What's driving it? Is there a particular part that's kind of doing better on the share game side. Thank you.

Thank you. The evolution of online, I mean, a great question. You're absolutely right. If you look across the course of the first half performance, we've grown the overall business by 33%, but we've maintained the penetration at close to 66% or so in terms of our sales, our digital channels. So you can see how they're growing with the business. That's a highly penetrated suite of digital channels, to be fair, I think in any retail business. But over time, we would still expect to see some penetration growth as we move forward. We do see some change in those channels. We can see TradePro really stepping forward. As our stores have opened up, whilst home delivery has remained very, very high, You might see a little bit lower click and collect, but what compensates that is our online in-store facility, which is really stepping back up now. Now colleagues and customers feel a little bit closer or the ability to get closer in terms of proximity, running our online in-store digital lever is now really sort of like coming back to the fore again. there's some movement across the digital channels. But overall, that penetration is very high, and it will probably step forward in time at a more marginal rate as we go forward. And I agree with you, by the way, our social presence, Pinterest, Instagram, how we engage our own customer base in generating the content onto our website sites, which in itself drives greater sales when people participate in that content is a really good and virtuous circle. So I think I think we're doing a brilliant job there. More specifically around share gain, I mean, broadly, we see good outperformance across all of our major categories. So we're moving forward as a business at large. But we do recognize, and we've laid this out strategically, when we look through the lens, particularly of DIY, that there are some larger categories that we under-trade in and our strategy is to make sure that we over-perform in these underweight categories. And certainly in the first half, just to reflect that, garden maintenance, flooring, sheet materials, own brand power tools are some good examples of some category refreshes that we've done to address that very strategy. And I'm delighted to say their growth has been nothing short of phenomenal since we've reset those categories. So we think our strategy of curated range, hold the volume and confidence on the lines that matter most to customers combined with addressing those underweight categories through innovation and category resets is working really well.

Great. Thank you so much for taking the question.

Thank you.

Thank you.

We will now take our final question from Sam Cullen, Peel Hunt. Please go ahead.

Morning, everyone. I've got three, I think. The first one is just going back to the margins. And if we look at operating margin first and assume that you're not changing, I think what you said at demerge of looking to return to operating margins in line with the kind of 7.5% you did in 2019. When I think about the split there between kind of gross and operating, it sounds to me like you still expect kind of further pressure on gross margin going forward. Should we then expect that to be made up, I guess, in the in the overhead recovery and the selling costs line in that you're shifting towards kind of more online sales, which comes structurally lower gross margin, but the cost to serve is lower from a selling cost line perspective. Is that how we should think about the kind of change in those three lines of the margin profile of the business? And then the second one is the chart that you gave helpfully on, I think, slide 18 about the percentages of trades people who've worked lined up for more than three months. Do you have any idea what that may have looked like 18 months ago, for example, to give us an idea of the transition there. And just the last one is just on the tax rate. It's clearly going to be better this year, maybe early to say, but should we extrapolate that performance into 2022 and beyond relative to what you've guided previously?

Okay, if I take the sort of operating margin point first, I think we've consistently said that we expect through a function of mix and particularly as we grow and evolve our service-based model to see moderation through our gross margin percentage combined with operational leverage that will come back through Gail Ellis- are selling an administration cost line to drive improvement at the bottom line so that message remains consistent and there's no reason to change that based on what we've seen to date. So hopefully that answers your question. If I take the tax rate question, because I think that's a very straightforward one, again, around about 21% absolutely should stand into the future, subject, of course, to the headline rate that does change in 2023.

Super. Thank you, Julie. Specifically to the chart, I think you said on slide 18, that shows the progression of the buoyant pipeline of work. So the percentage of TradePro customers telling us that they've got three months plus work in their pipeline. Typically, the normal balance would be that the... the up to three months would be the higher percentage typically. So you can see that growth from January right the way up to nearly 60% now saying I've got three months plus. Typically the more material side of that, if I'd gone back 18 months, probably would have been a little bit more sort of like I'm up to three months worth of work. So I think the balance has shifted that their pipelines are getting longer and they're more confident about their workflow. And we're certainly seeing that in our engagement with our TradePro customers, their narrative and how they're thinking about the outlook as they move into 2022. So they remain very confident.

OK, thank you.

Thank you. Thank you. I will now pass the call back to your host, Mr. David Wood, for closing remarks.

Super, thank you. Well, look, thank you everybody for joining us this morning and thank you for your questions. There's a really good suite of questions there and we really do appreciate that. Really, just to wrap up, I mean, how do we reflect on the first half? Look, we have delivered a very strong set of results. very much driven, you know, at the heart of this absolutely is this uniquely balanced business model that we have across not just local trade DIY, but also do it for me. And that has really enabled us to thrive over the last year to 18 months. But also that being underpinned by digital scale and capability. And of course, most importantly, you know, 8,000 amazing colleagues that deliver wonderful service to our customers every day and innovation everywhere. at the heart of that. As we look forward and we look through the lens of our levers for growth, they do remain valid with more to go for. So I think we face the second half and into 2022 with real confidence that this is a successful, growing, cash generative business that will continue to take share in the very large and growing home improvement market in the UK. So thank you for listening and look forward to speaking with you soon. Do take care. Have a great day.