Grafton Group plc (GFTU) Earnings Call Transcript & Summary

Well, good afternoon, everybody. And first of all, can I just say, we've got 2 audiences this afternoon. We've got the audience who are watching the live stream, but we also have an audience in front of us in person and just what a great event to have people face-to-face and coming to visit our Capital Markets Day. So thank you for taking the time to come out and visit us this afternoon. We do really appreciate it, and it is great to see. For those of you who don't know me, I'm Gavin Slark, I'm the group CEO. And during our presentations this afternoon, you'll obviously hear presentations from myself, but you will also hear presentations from David Arnold, who's our CFO, who I know many of you know very well. And then we also have some different presenters this afternoon. So we have Carine Jessamine, who is the Marketing Director of Selco; we have Mike O'Hara, who is our Group Health, Safety and Quality Manager; we have Susan Lannigan, who is our Deputy Company Secretary; Suzanne Quinn, who is the Marketing and Digital Director for Woodie's DIY; and also Dr. Dorothy Maxwell, who is the Senior Director of Sustainability from Davy's Horizons. So quite a mix of presenters this afternoon. And we also have some video clips for you as well today, and you'll see other members of the team on the video clips. We've also got with us in the room, Mike Roney, who is our Non-Executive Chairman; and we also have Paul Hampden Smith, who is our Senior Independent Director and also the Chairman of our Audit Committee, so delighted to have you both of us this afternoon. Thank you very much. The sort of rogue's gallery that you can see here now really is the senior management team from Grafton, who are here this afternoon. And for those of you who are in the room, you will get an opportunity to chat with these guys later on as we finish the event. But within that sort of gallery of people there, we do have Matti Vainionpää, who is the CEO of our newly acquired business, IKH in Finland; we have Bert Bunschoten, who is the CEO of our Dutch business; and also Alex Hancock, who's the CEO of our other recent acquisitions, StairBox. So for those of you who haven't met any of the new members of the team, great opportunity this afternoon to meet them and to chat with them at the end of the event. Our agenda for this afternoon is relatively simple and relatively straightforward. It's primarily about the evolution of Grafton. It's about where we are today and about where we've come from. We're going to talk quite significantly about capital allocation, how we have allocated capital and how we will allocate capital going forward. We want to talk about sustainability and how it becomes an integral part of what we do. We're going to spend a little bit of time talking about growth. And about growth, both organic and acquisitive, but also about how digital plays a really important part in that organic growth story. So that's really the kind of layout of the afternoon. It's a relatively straightforward, relatively simple agenda, but hopefully, you'll get some good understanding about Grafton going out. So to start with, it's about Grafton Group and what is our purpose. And our purpose, we see, as building progress together. And within that purpose, we have 4 very key pillars that you can see there at the bottom of the slide. Construction and related activities. Everything that we do within the Grafton Group, in some way, shape or form has a thread running through it that relates back to construction or relates back to construction products. We do see ourselves as a growing business, growing, getting bigger, getting better but also adding value and adding value to our shareholders and making sure that we absolutely embrace the growth of the business with delivering what our shareholders expect. Making a positive impact, and that isn't just a sustainability point. That isn't about making an impact on the environment. That is about our business is making an impact on the markets in which they operate, and it's about making an impact on our colleagues, on our customers, on our shareholders. It's about working in partnership with all of the stakeholders right the way across the Grafton Group. And those 4 key pillars we see as absolutely critical to that overall purpose of building progress together. And you'll feel these themes coming out as we go through the afternoon, relating back to some of these earlier points. Within the group, we also have 5 core values. Values that what we do, we operate by on a day-to-day basis. We just kill the slides. If we do kill the slides completely, you'll all be delighted to know that under the counter here, I've got a full print out of the slides. So if we get a complete tech breakdown, you'll all be reassured that I can keep talking all afternoon even if the slides don't work. But our 5 core values that we have, starting at the top, being brilliant for our customers. What does that mean? It's a very, very simple message. And what we really mean by that is, however, our customers interact with the Grafton business, whether that's in a store, whether it's on the phone, whether it's online, whether it's in person with a sales representative, we want our customers to finish that transaction and just go, "That was brilliant." Whether it was in terms of product, whether it was in terms of service, whether it's technology, we just want people to think that dealing with that Grafton business was a brilliant experience. We do value our people. We absolutely genuinely understand and believe that people really are the heartbeat of our business. And we want to treat people with respect, we want to treat people with integrity, and we want diversity and inclusion to be an integral part of what we do every day and just how we operate normally. We are an ambitious business. As I said earlier, we want to grow, we want to develop. We want to make sure that we embrace that ambition to be a bigger and better business combined with that commitment of delivering enhanced shareholder value. And we want our colleagues across the business to share that ambition and to create opportunities for ambitious people in the group. As part of our culture, being entrepreneurial and empowering is really important to us. And many of you will have heard us talk over recent years about our decentralized and federated structure. And this is where we believe we get the benefit of this, giving management teams and giving colleagues real authority and real autonomy to run their businesses in the way that they believe is best. Our CEOs and management teams of the individual businesses will always know their local customer better than we will at the center. And it is about making sure that we give them the ability to flourish and to be entrepreneurial in their own business. We'll talk a lot later on about sustainability, but within that core value, you've also got trustworthy and responsible. We want to be trusted by our colleagues, by our customers, by our suppliers by our shareholders. We want to do things in the right way, and we want people to recognize that Grafton is a business that does things responsibly from a business point of view and does things responsibly from a sustainability point of view. And that little circle of 5 values really embodies how we try and motivate our colleagues, how we try and energize the business going forward, utilizing those core values as part of our absolute methodology of doing business. But if I can, what I'd like to do is take you back to 2013 because actually, 2013 was the last time that Grafton Group did a capital markets event, and an awful lot has happened since 2013. If you go back to 2013, sadly, Nelson Mandela passed away. A new pope was appointed in quite unusual circumstances. He was appointed pope when his predecessor decided to retire, which isn't something that happens very often. The biggest selling music Act in the U.K. was one Direction, which I am reliably informed was a popular beat combo of its time, but you probably won't be surprised to hear that it doesn't really feature very highly on my own Spotify playlist. Barrack Obama was inaugurated for his second term in the White House. And for those of you who know me well, Sunderland celebrated their sixth consecutive season in the Premier League and finished a magnificent 17th. And of course, the biggest film of the year was Frozen. I know. Let it go. However, the evolution of Grafton since that Capital Market Day, what has happened to our business in that time period? Back then, we were primarily a generalist builders merchanting business, whereas now we see ourselves more as a specialist distributor with really strong market positions and businesses that are either market-leading or have some clear differentiation. We did have some businesses then that had lower financial returns. We have been focused more on driving our capital deployment into businesses that deliver higher operating margins, higher return on capital employed and giving us a better financial footing going forward. We were going through some management transition. I have been in the business for a couple of years and David actually joined us in 2013. I think it's fair to say now we are firmly established within Grafton as a management team, and we've got so many colleagues in the room here today that have got real experience and real knowledge of the business. And hopefully, for the people in the room, you'll get a chance to talk to them later, but really understand that we've got a very, very strong management team delivering on really good plans for the business. We were in a period of consolidation post the global financial crisis. And it's just worthy of note that from a cultural point of view, Grafton actually handled the financial crisis really well. There was no rescue rights issue, the business carried on paying a dividend all the way through and managed that whole crisis in a very sensible and very well measured way. But we stand here today, 8 years on, as a business in really strong financial strength. We've got a great balance sheet that gives us great optionality going forward as we look to deliver growth and we look to deliver further evolution. Stakeholder engagement back then was actually quite narrow. Primarily, it was about talking to shareholders about the financial performance of your business. Stakeholder engagement now is much broader. It is about building progress together. It is about more communication with shareholders, with colleagues, with customers, with suppliers and on a much broader range of topics than purely financial performance alone. And I think back then, Grafton was seen as a value proposition coming out of the global financial crisis, whereas now we do see ourselves very much as a growth opportunity, a business that has a really good future, a business that has the financial capability to drive what we believe is a really strong strategic plan. Over that period, what did we do to get to where we are today? Well, I'd like to think it wasn't anything that was too complicated on how we executed the plan. Operational outperformance, some great businesses doing their job in a really good way, making sure that we performed very well in the markets that we were operating in and performed well against our competitors. Exiting some of those lower-margin assets. And it wasn't just about the financial returns, it was also in those businesses about the growth potential. And we really wanted to move the focus within Grafton towards businesses that had higher operating margins, higher return on capital employed, but crucially growth potential going forward that we can continue the evolution of the group. And that's involved some really disciplined investment. And when you look at the people who are in the room today, you'll see a number of them came into the group over recent years via acquisition. And I believe that we've had a really disciplined approach to capital deployment in recent years. We've also had a really rigorous process behind the scenes in terms of due diligence. So when we actually get to making an investment that our shareholders can be confident that we're investing the money very carefully and that it's been through absolute due process to get to this point. And going forward, it's absolutely our intention to make sure that we retain that disciplined approach to capital deployment. It's very much part of our plan, very much part of our ethos going forward. In terms of the evolution of the business, back at the last Capital Markets Day, you'll see on the left-hand side of the screen, a number of different brands, some of which were well known, some of which were less well known within Grafton, but those were the brands that we had at the last Capital Markets Day. And if you look at the chart on the right-hand side, yes, it's a reduced number, but I believe that gives us a more focused, more streamlined approach to managing the business going forward and some really good platforms for growth in that right-hand side there. But the business has changed quite significantly in that time, some of which has been well publicized like the recent divestment of the traditional GB merchant business, some of which has kind of gone on behind the scenes. But all the time, it's been driven by this desire to have higher returning businesses with growth potential going forward. Grafton today, so if you take the numbers on the screen, and I'll do my financial clarification piece here, this is based on analyst consensus as of Monday. So yesterday, we issued a trading update, these -- some of these numbers may well have changed in the last 24 hours. But generally speaking, the expectation this year is that Grafton will deliver revenues of just over GBP 2 billion, with an EBITA of just over GBP 256 million. So a really strong performance. And again, to be clear, these numbers do not include the traditional GB merchant business, which is in the process of being divested. If you look at the map, obviously, we've been in the U.K. and Ireland for a long time. The business started in Ireland. It has Irish heritage. It has Irish DNA, grew into the U.K. And if you then look at the business in the Netherlands, which we acquired in 2015, that's now very much part of the map and part of the group. And then obviously, the recently acquired business of IKH in Finland, which not only gives us great growth potential in Finland, but also gives us access to markets in Sweden and in Estonia. Capital allocation over that period has been really important in helping to drive the transformation of the group. And this slide is really just there to give you an indication of what we've done. The numbers that you can see on the left-hand side are the revenue and the profit of the divested businesses as they were in 2012. So in 2012, those businesses that are no longer part of the group had revenues of GBP 1.1 billion and they then had profit of GBP 36 million. I appreciate we disposed of businesses at different times in different years, but it's just to give you an illustration of the scale of change that has happened within the Grafton Group. On the right-hand side there, you'll obviously see that the businesses that we retained from 2012 have had a compound annual growth rate of over 9% in the period from 2012 through to the end of 2021 based on the forecast numbers. And then obviously, you can see at the top there, the businesses that we've acquired recently, adding a significant part of revenue and profit to the group. Now whilst the shape of the group has changed quite significantly and the brands within the group has changed quite significantly, one thing has actually stayed relatively constant, and that is that distribution remains our principal focus. And if you look at our distribution business, in 2012, it was 89% of revenue. This year, it's 82%, also bearing in mind that this year, we've got a significantly higher proportion of revenue coming from Woodie's as part of our retail business. But overall, our core business remains as a distribution business. Distributing products that in some way, shape or form are linked to the construction industry. Now whilst the makeup of the group in terms of distribution hasn't changed hugely, geographically, we're much less U.K.-centric than we were at that point. At that point, revenue-wise, we were 76% from the U.K., now that's 43%. Ireland, both through growth and through recovery, is a much larger proportion than it was in 2012. And obviously, since then, you've got the 15% in orange, which is coming through from the Dutch business, and then the newly acquired Finnish business at 3% of group revenue. So core business has remained as distribution, geographically much less concentrated in terms of the U.K. So going forward, what's our simple plan for delivering growth going forward? Well, actually, it's pretty much what you've seen already. It's about operational outperformance. It's about having great businesses doing what they do really, really well and providing that brilliant experience for our customers. And then it is absolutely about the disciplined investment and the way that we deploy our capital whether we're deploying into organic growth opportunities, whether it's new Selco stores, whether it's new Isero stores or whether it's acquisitions, but having that really disciplined approach to capital allocation, which hopefully many of you will have seen, I think we've demonstrated in recent years. So as for this afternoon, what do we hope you'll take away from the next sort of 90 minutes-or-so? Well, really, I hope you're going to take away a vision of how the group has evolved and how the group will evolve in the medium term going forward. David is going to talk to you quite a lot about how we will deploy our capital and the kind of financial hurdles that we set ourselves before we make a deployment decision. You'll hear a lot about sustainability. But what we're really trying to move to is not where sustainability is a program or where sustainability is a project, but where sustainability becomes absolutely intrinsic to how we think, how we do business and what we do on a daily basis. And through some presentations and through some video clips and hopefully, again, for the people in the room by talking to the guys at the end of the presentation, you'll get more color on some of the businesses that we have within the group and more color on the management teams that we have and the strength of management that we have right across the group. But at that point, it's probably appropriate for me to pass over to David. I know most of you know David very, very well. But for those of you who maybe don't know him quite so well, he's the one that sat behind the PC that doesn't have a plant in front of it. Thank you very much.

Thank you, Gavin. Good afternoon, ladies and gentlemen. I look at that picture, and I think we may all be faceless accountants, but at least I'm an identifiable faceless accountant. I wanted to start my session running through our approach to capital allocation as Gavin did and to look back at the time of our last capital markets event in 2013. I thought we should revisit the journey that we've been on and remind ourselves of the financial targets, which we set at that time and how our financial performance has evolved since. So back in 2013, we set ourselves medium-term financial targets of a 7% operating margin and a 15% return on capital employed. Our 7% operating margin was a stretching target for what was then, and remains as Gavin has explained, principally a distribution-based business. In 2012, as a reminder, we had reported a group operating margin of 3.4%. And crudely, we wanted to more than double this. For both Gavin and I, a strong operating margin is a measure of financial quality. In addition, since we operate in a cyclical industry, higher operating margins can provide some extra headroom for when markets turn down. Now back in 2013, our medium-term target of 15% for return on capital employed was very important to us, and it remains really important to us today because a strong return on capital employed is very much our guiding light. We focus on turning our profit into cash. High cash conversion has been a notable characteristic of Grafton for many years. And by targeting a 15% return on capital employed, we felt that we were setting out on a journey to deliver good headroom against Grafton's cost of capital and the returns that we were generating on that invested capital. So how has our progress been? Well, in the years since 2013, we steadily improved our operating margin such that in 2019, we hit that 7% operating margin target. Now with the divestment of our GB traditional merchanting business, which is due to complete by the end of February at the latest, next year, we've seen a noticeable step-up such that in the first half on a comparable pre-IFRS 16 basis, the group's operating margin was 13.2%. Now as we explained in our first half results, we did experience both exceptional levels of demand, particularly in DIY as a result of the pandemic, but we also saw high inflation. And these factors did benefit the income statement in the first 6 months of the year. However, even if we allow for those effects, the group is nonetheless well above that original 7% target level. Now turning to the progress on return on capital employed and how we fared against that medium-term target. Well, again, we saw a steady improvement in our returns such that we hit that 15% threshold back in 2018. Now unfortunately, this dropped slightly to 13.6% on a comparable pre-IFRS 16 basis in 2020 as COVID impacted revenues and as a result, resulted in a slower capital turn. However, if we restate for the disposal of the GB traditional merchanting business, our return on capital employed in the first half was 29.3% and compared to that 15% pre-IFRS 16 target. Now you will have noticed on those 2 previous slides that after 2018, we state 2 figures in each year for operating margin and return on capital employed. Now that is unfortunately because our good old accounting standard setters came along and determined that leases had to be brought back on to balance sheet with the new IFRS 16 rules. The consequence of that change was that our medium-term target of 7% for the operating margin and 15% for return on capital employed now needed adjustment to reflect what was, in effect, the capitalization of lease liabilities, which were brought in onto the balance sheet as debt, but also recognition of the corresponding assets even though, of course, we didn't own them, but then that's a whole another discussion. So if we restate for leases, then our operating margin target of 7% needed to increase by 50 basis points to 7.5%. But that greater level of capital employed as we capitalize the value of the lease obligations and we brought the corresponding assets on board, that acted as a bigger drag on return on capital employed and pulls back the 15% to approximately 12% as a target. Now going forward, and with that different shape to the group's businesses following the disposal of GB traditional merchanting, we've increased our medium-term 7.5% post-IFRS 16 operating margin target to 10%. We've also increased our 12% post-IFRS 16 return on capital employed target to 13%. So just to reiterate, going forward, we'll only reference our IFRS 16-inclusive medium-term targets of 10% for operating margin and 13% for return on capital employed. And those are medium-term targets. So there may be a year where it's a little bit up or a little bit down, which will inevitably be reflective of the timing of the investments that we make and market fluctuations. Now we do recognize that the 10% operating margin and 13% return on capital employed target are lower than we reported in the first half of the year. But that is a function of 2 important points. Firstly, as we explained in our first half results, we did experience exceptional levels of demand and inflation. And secondly, as we carefully deploy our balance sheet strength into acquisitions going forward, this will have a bearing on our return on capital employed. Though I must stress that we will remain very disciplined to ensure that we maintain headroom to our long-run weighted average cost of capital. So what are our targeted returns for new investments Well, for all investments, whether that's organic or acquisitive, we expect to see those investments' return on operating margin of over 8%. Now why would we set ourselves a target that's less than that 10% medium-term target that we're setting for the group as a whole? Well, the reason for that is that we fundamentally believe that an operating margin for a distribution business that is over 8%, represents, in our view, a high-quality return, and we don't want to rule out acquiring good quality assets that have high single-digit margins. As regards to return on capital employed, our return criteria depends upon whether it's an organic investment or whether it's an acquisition. So in general, we target organic investment to deliver a lease-adjusted return on capital employed of 13% within a sensible time frame. For acquisitions, we distinguish between a platform investment and a bolt-on. So a platform investment is expected to deliver a double-digit return on capital employed as a stand-alone. But then by combining this with organic investment and bolt-on acquisitions, we'd expect to lift the totality of its return on capital employed over time. Bolt-on acquisitions are expected to generate a return on capital employed of at least 12% as we look to benefit from revenue and cost synergies by combining with an existing business. We believe that these investment criteria offer appropriate headroom to our marginal cost of capital. So what about funding these investments? Well, we start from a strong financial position. We hold an investment-grade credit rating, and we've always said that this provides us with important debt tram lines to operate within. Equally, it's an important metric for stakeholders. Possession of an investment-grade credit rating enabled us to move very quickly when COVID struck to get access to the Bank of England's COVID facility, a facility that fortunately we didn't use. An investment-grade credit rating gives confidence to our colleagues in the business, it gives confidence to suppliers, and it gives confidence to shareholders. We fully recognize that an efficient balance sheet is one which has an element of debt finance, where shareholders can benefit from the tax shield on interest or in lease costs with government's increasing corporate tax rates, this becomes more beneficial over time. Hence, our medium-term debt target is 1 to 2x lease-adjusted net debt-to-EBITDA. Now as a reminder, as of the 30th of June this year, our net debt, including leases, was GBP 210 million, and our EBITDA for the previous 12 months was GBP 350 million. So we were below our medium-term debt target and with the receipts of the proceeds from the disposal of the GB traditional merchanting business, our financial position will grow even stronger. So on this slide, I have tried to represent how we think about capital allocation. Now as I hope you can see from our track record, we have been very focused in our capital deployment into higher-returning, faster-growing businesses. That means that our organic development investment in recent years has principally been focused on the portfolio of businesses that we have today and are going forward with. So the expansion of Selco, for example, through some new branch openings, the reinvestment into Woodie's and the store upgrades. Those would be good examples of that. Now when it comes to acquisitions, we look for opportunities to make platform investments into businesses where we think we can get good growth and deliver strong financial returns. So for example, that 2015 acquisition of Isero in the Netherlands, the acquisition of IKH in Finland, which we completed in July of this year or the purchase of StairBox, which we made in November of last year. And we look to bolt-on acquisitions to add to our existing operations where we can drive revenue and cost synergies, for example, the acquisition of Polvo in the Netherlands or Proline in Ireland. And we constantly assess our portfolio of businesses looking for opportunities to support the management teams to accelerate growth and improve returns. And as we've seen in recent years, sometimes taking hard decisions to exit businesses, which we don't think the prospects of growth or financial return are strong enough. And all the while, we are constantly sensitive to whose capital we are managing and the importance of return to shareholders, which really leads me to my final slide before we turn to sustainability. We recognize the importance of a growing dividend to shareholders. And if we look back over the last 20 years, our dividend cover has averaged at approximately 3.5x earnings. With the strong financial position of the group and the high conversion rate of profits into cash, we feel it's appropriate to signal an intention to reduce dividend cover going forward to a range of 2 to 3x earnings. We'll make this adjustment slowly and therefore, in 2021, we expect to maintain the full year dividend cover at the top end of that range. Taking into account our intention to maintain an investment-grade credit rating, a medium-term financial leverage target of 1 to 2x lease-adjusted net debt-to-EBITDA, taking that together with the cash generation of the existing business and incremental earnings from acquisitions. And all those factors translate into acquisition capacity over the next few years of GBP 750 million to GBP 1.25 billion once the proceeds from the sale of GB traditional merchanting have been received. We intend to remain very disciplined in our deployment of this capital. And as we said before, acquisition timing can be difficult to judge, and we do not have a particular pace of deployment in mind. Grafton will return to acquisitions in the second half of our program. But for now, before we move seamlessly into a question-and-answer session, which will be hosted by Dr. Dorothy Maxwell as Daisy, can I introduce a short video by Martin Hastings and the team of T.G. Lynes. Now at the end of this video, there will be a little bit of furniture rearrangement, so for those watching online, just bear with us for about 90 seconds whilst we set up for the Q&A session, and we'll return after that video. So thank you very much. Run VT.

I'm Martin Hastings, and I'm here to talk to you about sustainability today. Before you roll your eyes, it's not just about being green. There's so much more to sustainability. So At T.G. Lynes, we're passionate about sustainability, and it affects everything we do. Come, let me show you.

Let's talk about energy. As Martin mentioned, we're looking at energy and our impact on the planet. We've installed a 100-kilowatt solar system on the roof of our building to generate our own electricity. We currently use 70% of what we generate to power our operation and reduce what we draw from the grid. All electricity we import is from 100% renewable power, and we can see, at the touch of a button, how much energy we have made, saved and sold. Not bad for rainy old Britain. Some of that energy also helps to power our EV and hybrid company cars. These make up 90% of our total company vehicles. And we're also trialing a number of EV commercial delivery vehicles. Our on-site EV charge points are also there for any colleagues who have personal electrical hybrid cars. Hey, Amelia, I like your uniform. In fact, all of our new high-vis workwear is made from recycled C plastic, and we also send our colleagues old uniforms to be recycled. All of these high-tech gadgetry is great. We also pride ourselves on other areas of being sustainable such things as a compactor for all our cardboard on site, reusable plastic bottles for staff and only using wrap and bags made from recycled plastic.

Even the smallest things we like to think about as well, like this LED light. In fact, every light on site has been changed to low-energy LEDs, so far, reducing our consumption by 60%.

But sustainability isn't just about the environment. In fact, we take the sustainability of our business and very seriously.

Hi, my name is Emilia, I've been working for T.G. Lynes for 2 years. I'm so happy to be the first female driver in this company. and I'm grateful for all support and training I've received.

Hi there. I'm Donna, I'm the warehouse supervisor for T.G. Lynes. I've been in this industry over 10 years now. Within that time, I have seen a lot of changes, seeing more females coming into senior roles. I am one of them, which I'm proud to be at T.G. Lynes.

Hi, I'm Leroy. I've been working for T.G. Lynes now for the past 2 years. I'm currently working in the warehouse, and I really like working for the company, as I say, the same values [indiscernible] as I do. I'm hoping to progress in my career further by working on the counter. And hopefully, 1 day be in an office doing sales.

Hi, my name is Lori. I'm the Marketing Manager here at T.G. Lynes. Since I've worked here, they've supported me in achieving my chartered institute of marketing qualification that has been fantastic for my personal career development. I've also been key in delivering the sustainability initiatives, which means I've got to work really closely with our local community, which has been really rewarding.

We take a holistic approach to sustainability and our people with a health and well-being calendar that has a new focus every month and biweekly mental health sessions to keep us in check. And it's not only our staff that we care about, we also take that dedication and put it into local communities. These included providing laptops for students that were forced to home school during the pandemic, creating outside learning areas at schools, litter picking, food bank donations and deliveries. So as you have seen, sustainability is at the very core of everything we do at T.G. Lynes.

Well, good afternoon, everyone, and welcome to the sustainability section of the Grafton Capital Markets event. My name is Dr. Dorothy Maxwell, and I'm delighted to host this Q&A session. And I am joined on stage from Grafton Group by Mike O'Hara.

Hi, Dorothy.

Mike. Hi, Mike. Mike is the Group Safety, Health and Environment Director. And also Susan Lannigan, the Deputy Company Secretary.

Hi, Dorothy.

Fantastic to be talking to you both in this session today. So just to give you a little bit of background. I am the Sustainability Director of Davy Horizons. I'm also a Board member at the Institute of Corporate Responsibility and Sustainability in the U.K. And I've been a sustainability professional internationally now for 20 years, and I've worked as an adviser to the U.K. Department of the Environment, the European Commission and the Prince of Wales. And I'm only telling you these things because it's my job today to ask the tough questions. So sorry, guys. It's a tough question that fund managers, heads of stewardship within those fund management companies are asking FTSE 100 and FTSE 250 companies. So alongside the Capital Markets event today, Grafton Group have issued a sustainability report called Our Agenda for Building a Sustainable Future. And this is available on the website, and I believe the QR code is being sent to all attendees here. So Susan and Mike, the report is probably a good place to start. It's already been clear from the earlier discussions with Gavin and David that Grafton Group is already stepping up on the sustainability challenge. And you've been on this now for a number of years. So Susan, as Deputy Company Secretary, you lead sustainability at Grafton Group at a group level. Can you start off by telling us about your strategy? Your program to deliver that? And how it manages the material and environmental social issues for the business, but also the opportunities?

Thanks very much, Dorothy. Yes. As a FTSE 250 company, sustainability really informs our decision-making at every level. Our sustainability strategy assessed by the Board and prioritized in the boardroom. But it comes down then through the sustainability working group to work with business unit management and colleagues on the ground. Our federated structure, as Gavin mentioned earlier, we have autonomous management teams. And thus really has informed our approach to the strategy. So we knew it needed to be flexible enough for those management teams to be able to focus their efforts on the things that were most material to them, while also obviously meeting our group obligations. So we started out with materiality impact under the FASB materiality map. And we came up with a framework with 5 key focus areas. So those are customer and products, people, planet, community and ethics. We've set targets against each of those focus areas, and we've aligned resources in the areas where we can make most impact. Our targets are aligned with the UN Sustainable Development Goals, so we started outlining with 5 of those SDGs, but we've actually increased that to 8 as our sustainability ambitions have evolved. So we're really proud of our progress to date, and we intend to continue to set that bar high for sustainability at Grafton

Okay. That's really clear on the purpose and the strategy. So if we look at governance, can you explain how sustainability is positioned to Grafton Group from a governance perspective? And importantly, where the rubber hits the road, do you link remuneration to sustainability targets for your executives?

Sure. Yes. I mean very much a top-down and bottom-up approach to sustainability. As I mentioned, it's prioritized at boardroom level and via that working group. So the working group is myself and Mike plus group heads of HR, procurement, property and internal audit and risk. So that group worked closely with business unit management and decision makers and colleagues to ensure we're all on track to meet those commitments that have been set by the Board. Yes. In terms of remuneration, our bonus remuneration is linked to sustainability targets for chief executives of our key business units.

Okay. That's really clear. Thank you for that. So Mike, as Safety, Health and Environment Director you're leading. You are in the weeds on sustainability. Can you explain to us how you actually operationalize sustainability across all the business lines and the brands?

Yes. Thank you. I think Susan's really well summarized the top governance of the ESG agenda. And I think, at an operational level, we follow the same federated structure approach as for everything else. So it's integrated within each business unit with the most appropriate colleagues at senior level leading within each of those business units. And our aim really is to make this part of the every day, so it's fully integrated. So that we really believe that sustainability has to be business as usual in order to be sustainable. To support the businesses, recognizing that we've got a variety of businesses at different stages of development, trialing different things. And we've developed a sustainability network. And that sustainability network is working really well to help each individual business, share the ideas that they're coming up with and working on themselves. It helps avoid reinventing the wheel when there's no need to. And it's also proving quite inspirational because it allows businesses that are progressing faster than others in 1 particular area to hopefully inspire growth in those others. So that's all working really well. But we also need to remember the colleagues in branch level right the way throughout the businesses and the branch networks. They are the ambassadors and the champions of everything we do on sustainability. They're the ones who engage. It's their enthusiasm that actually drives a lot of these, so that's down in the weeds.

Okay. Well, look, that makes a lot of sense. So let's move on to your ESG achievements that you've outlined in your report today. Let's start with environment and climate change. I'm very conscious that COP26 is live as we speak in Glasgow. So this is top of mind, I'm sure, to those of you in the room. So I'm going to spend a little bit of time on it. Mike, Grafton has done its first CBP disclosure on Scope 1 and Scope 2 greenhouse gas emissions for 2020. Your disclosures show that you've been meeting your annual 3% reduction targets to 2020. And you've actually reduced your intensity ratio for carbon by 14% in 2020 versus 2019. Now there's obviously COVID-19-related issues playing into that. But more generally, can you explain to us what you've been doing to reduce those carbon emissions?

Yes. I think picking up on your question, firstly, 2020 wasn't a normal year, obviously, for COVID reasons. But notwithstanding the COVID factor, then we've really been continuing with a lot of the successful initiatives that we've been using for some time. So we've been investing -- continuing to invest in energy efficiency programs in buildings, in our premises and aligns to the recommendations that came out from the work we did on that. And we've also been continuing with a lot of work on a shift to low or zero carbon vehicles and transport. Starting initially, I think we had a big focus on, for example, moving to Euro 6. But of late, we're moving to a lot of electric vehicles and plug-in hybrid vehicles and trialing alternative -- other alternative fuels. So there's a fair chunk of success coming from them. We saw earlier on the T.G. Lynes video, the solar installation there. And again, that's solar is starting to play a part in a few locations. We have solar installed in the Netherlands over the head office and central warehouse for Isero and Polva, also as we saw at T.G. And they're contributing substantially, so I think T.G. and solar, over 50% of the electricity they need and use is provided by that. And the rest comes from certificated renewable sources as well. I think it's worth just bearing in mind that 2021 has been an exceptional year in many, many ways. And actually, when we look at the first half of 2021, our carbon emissions data has increased slightly this year. But actually, when you analyze why, I think a lot of that comes from expansion of the operations. So we've added StairBox into the mix, which wasn't there before. We have opened new stores in Selco. We've opened new stores in Leyland SDM. We've opened a new branches and stores in this area in Polvo. So the actual estate has grown which contributes to that. What's pleasing for me to see is that the intensity ratio is still reducing. So our intensity ratio is down 12% on the 2019 levels so far in the first half of 2021. So that is hopefully just proving that the efficiency measures are continuing to work. And again, the bit of the factor we just need to be very conscious of is that in that period, we have seen price inflation, and we have seen a few changing habits on behalf of customers towards collect rather than deliver, et cetera. But it's everything in the mix that we consider. And finally, I have mentioned renewable electricity. Well, we are over 90% of our locations are now sourced with certificated renewable electricity. So that's great. But we've not actually included that credit, if you like, in any of our carbon emission calculations to date. And I don't think we intend to until we reach that 100%, which we will aspire to over the next year or so.

Okay. Maybe just to add to that, I think it's fair to say that M&A activity this year has probably played a role in terms of reducing our carbon footprint. So as a consequence of exiting the traditional GB merchanting business, that will result in a 35% reduction in our carbon footprint. We've also bought the Scandinavian distribution business like H, which has a much lower carbon footprint.

Okay. So I mean that all sounds very impressive, but can I push you a little bit. When I look at your report, I can see that 25% of your carbon footprint comes from manufactured dry mortar. And you are the largest manufacturer in the U.K. of dry mortar. So can you tell us more about what you're doing to reduce the carbon emissions of that bit of the business?

Yes. CPI mortars does recognize its role in contributing to that. And at the end of the day, the dry mortar process is a very energy intensive process. So in recognition of that, CPI have done work with Cambridge University on a research project, where they have followed the whole process through to try to identify the areas they can improve and see gains. So they have worked with Ventilex, who is one of their plant suppliers to develop more energy-efficient heat dryers as part of the process. So they'll be looking to install one of those next year. They also continually work with suppliers and customers to trial and be able to use the lower Scope 3 emission cement products where they can, the British standard formulations do obviously require certain strength of cement for certain applications, so that does limit that. And like the other businesses across the group, they are continually looking at their transport, their fleet options for alternative fuels.

Okay. That's really clear. And thank you for clarifying that. Susan, on the customer side, I can see also in the report that you're growing your green building product offerings. Can you explain further what you're doing?

Sure. Yes. I mean, I guess, our aim as a distributor is to support our customers to be part of the solution. So 1 really good example of that is Chadwicks. We've launched their dedicated eco center in their Galway branch earlier this year. So they're providing specialist, sustainable building solutions, and their plan is to roll that out to the wider branch network over this year and next year. Travix have also launched a carbon credit scheme with the SEAI, which is the Sustainable Energy Authority of Ireland and Bordgosh, the Irish gas distribution network. And so providing incentives for customers on those low carbon options. I guess just worth mentioning, our strategy really does challenge our businesses to keep on engaging with their suppliers to continue to improve their sustainable product offerings. So we expect to see further development on that over years to come.

Okay. Thank you for that. So really impressive initiatives. And Mike, can I ask you about responsible sourcing in your supply chain? And particularly, how does this work for timber sourcing? Again, I'm thinking of COP26, it's just been a big commitment made on halting deforestation by 2030. So again, this issue is top of mind.

Absolutely. And in terms of the whole supply chain, and we have a big focus with the supplier manual that covers the whole of the quality, ethics, environmental arena. And that's supplemented by additional cases replace in the contract with suppliers. An example of that would be in reference to the ethics area where we use the ethical trading initiative base code to actually set the standard for our modern slavery requirements as part of that. We're also currently just additional and fill on that really, we're additionally engaging currently with all suppliers and spending over GBP 10,000 -- that we spent over GBP 10,000 with currently with an updated risk assessment question so that we can update our supply chain transparency. And also actually assess the supplier credentials in more detail than we previously have. CPI mortars, I think it's also, as part of the supply chain responsibility, CPI mortars are accreted to be at 6001 themselves, so that they do everything they can to guarantee the sustainability and ethics across their supply chain. And you mentioned, obviously, timber specifically with COP26 commitments. We've had a group timber-sourcing policy for some time now, which requires all the businesses to purchase FSC and PEFC timber across the board.

Okay. Thank you very much for that. I'd like to shift the focus now to the social vertical during the pandemic. This has become a big focus area for shareholders. Susan, let's start with diversity, inclusion and equality. These are clearly priority areas for colleagues in Grafton Group. And I can see that you set targets on gender balance. You're also meeting your obligations on gender pay reporting. Can you tell us a bit more about what you're doing in some of the key benchmarks that you're working to?

Absolutely, yes. I mean we measure diversity at Board level, senior management and across the wider growth and one of our -- one of the commitments in our strategy is a year-on-year increase of the number of women working in the business. So as of September 2021, that was 32%, which is up 7% last year. So good improvement already. I guess one of the things that for us a group is that diversity varies by location, for example, our Layland SDM business here in Central London reflects that more diverse local population. It also varies by sector. So for example, the Woodie's business in Ireland, being retail-based a more 50-50 gender split. In terms of activity, we have working groups on diversity. We're launching an inclusion network early next year. We run a lot of campaigns, so things like pride, global diversity months. This was one of the big issues is our big focus areas is opportunities and training development for female colleagues. So we saw just in the video just now, Amelia, who's a professional HGV driver. So obviously very topical at the moment given the issues in the U.K. at the moment. Battlinshave been able to give it the support and training that she's needed to help her meet our ambition and to become an advocate for gender diversity and what's really still a very much male-dominated industry. One of our focus areas this year has been data collection. So we have over 60% of our population now providing diversity data, which is really helpful for us to understand the areas we need to improve. You mentioned reporting, so yes, we report under the FTSE Women Leaders review, gender pay reporting. We align to industry benchmarks like the social mobility pledge. And we formed lengths of diversity organizations like the Irish Center for Divestiry and Inclusion.

Okay. Thank you for that. And that's an amazing example we saw from Amelia. And I can see from your colleague engagement and your development supports that these are major focus, training is a major part of that. Can you give us some examples practically of what you do on that side?

Yes, sure. I mean it's back to value our people, which is one of our core values. People are critical to the success of the group. So it's really important for us to have their opinions heard. So we established colleague forms and we're carrying out colleague surveys just to make sure that their views can be heard at management level and up to board level. Training and development, again, is an essential part of that. So I mean we want people to maximize their impact, develop their careers with us, stay with us. So we have management development programs across our business. We've sell go Rising Star, management track, the Chadwick's management development program, engagement surveys, we're running across our business. Woodie's have -- for the fifth year in a row, be nominated as a great place to work. And also best workplace for women, which is really, really good. And they had a 99% participation rate in that survey, which is fantastic.

That's great. And I think wellness and mental health deserve mention as well because it's an area, especially during COVID lockdown times, et cetera, where we've really tried to increase the involvement of this across all the operational businesses. As every business has developed their own calendar, their own program of events. I think even this month, we've got a series of meetings involving mental health covering imposter syndrome, even going as far as steps to better sleep. So again, all just aspects trying to improve the wellness and mental health of Colleagues

These are really great initiatives. Thank you. And Susan, and more generally, what has you seen from investors on ESG? And how are you looking to meet those? I mean there's a lot of demands on FTSE 250 companies like Grafton to provide clear credible disclosure on ESG and to be part of the solution as opposed to the problem. So yes, we get investor requests for things like CDP, which we have done. We're planning to commit to the science-based targets initiative, so to ensure that we're aligned with best practice and with science. For next year, we'll also have TCFD reporting in terms of how we're managing our climate risk. So yes, a lot of demand.

Okay. And if we look to the future and your ambition for 2020 and beyond, in your report, your CEO Gavin says grafted seeds of positive connection between sustainability and financial performance. And it's clear that you have invested significantly already. Mike, can you outline for us just the headlines of what your ambitions are to future-proof the business on sustainability?

I can. And I'll certainly do it for 2030 and beyond as well. In terms of our sustainability report, that we've issued today. It's obviously got all the detail, and it's got the road map to 2030 and beyond, et cetera. So I haven't got time on the stage today to go through all of that, there's no need. But if I could pick out a few key areas, I'd start with climate change. Climate change measuring Scope 1, measuring Scope 2 and putting plans in place to reduce those internally where we can has been something we've been on for a while, and we will continue to drive those down where we can. We are now starting to move into the Scope 3, which we haven't historically done, but as part of the science-based target initiative as well. We're starting work to gather that information from the suppliers and the whole of the supply chain upstream and downstream. So that's going to keep us busy, I think, for some time as we move towards that. But we will continue to innovate as we have. And I'd like to again just remind go back to the low and zero emission transport initiatives that we've done. We've trialed compressed natural gas lorry-mounted cranes, a great effect to the point that we've extended that trial to additional vehicles. We're starting to see over 30% reduction in emissions compared to the older diesel equivalent. So that's got to be an improvement. We are -- I've got several businesses across the group, taking the initiative to trial or plan to trial hydrogenated vegetable oils instead of diesel in the commercial vehicles. We're starting to replace the old diesel counterbalance forklift truck, which has been the stalwart for years with electric version. So we were also committed to 100% of company car purchases by the end of '25, being alternatively-fueled vehicles. So that area, we've got a lot of ambition, and we've got a lot of work to continue with that. I think we also have flagged an ambition to extend our environmental management system across all businesses in the group as well. So we have certain businesses already that are certificated to ISO 14001, and we intend to extend that management system approach across the other businesses in the group. And we will continue working with all of our suppliers. I think that is a very, very important area for us in ambition terms. We want to help them improve their own ESG risk assessment scores. We want to help them develop more sustainable products. And we see ourselves as being in a very, very good, strong position to actually influence both suppliers and customers when it comes to sustainable products. I think that's plenty to be going on with.

Yes. Maybe to mention just a couple of ambitions on the social side. We mentioned earlier about general diversity and that year-on-year increase in female allies. We've also targeted 1% of profits to charitable and community initiatives by 2025. And also in terms of future proofing the business, I guess, just back to that investment in people, training and development and making sure people are motivated to stay what doesn't reach their full potential of Grafton.

Okay. Well, thank you very much. You've both given us such a comprehensive understanding of where you're at and where you're going. Is there anything else you'd like to add before we finish up?

Thank you very much, Dorothy. I feel like you put us through the ringer today. I guess, just from my side, just given your experience on what you're seeing amongst our peers, is there anything you think we should be doing better?

Well, in terms of what I can see, you're really on it. You have a huge amount on your plate that you're progressing. It's really credible in terms of responding to your material environmental and also your social risk, but you are grasping the opportunities as well, which is key. And what we would always look for is best practice, and you're demonstrating that with the CDP disclosure particularly, but also now you're looking to the science-based targets. And I'm particularly struck by the innovation that you're showing with your shift to low carbon and zero carbon transport. So I think all those things are incredibly positive. And to your point, Mike, about your positioning as a distributor, you are very well positioned for the constant shifting fans that sustainability has. It's always moving forward. So you're in a great position to influence your suppliers and also your customers. And more generally, I would say that one of the things we noticed is there is a dramatic growth in the ask for nonfinancial reporting from FTSE 100 and FTSE 250 companies. So I think having the resource and the reporting mechanisms to respond to that is going to be a key issue going forward. So look, I hope that's been helpful. But certainly, I'd like to thank you again for sharing all that information with us. Thank you very much. That's the end of our session on sustainability.

Thank you.

Thank you.

Thank you very much indeed, Dr. Maxwell for hosting that session. Thanks very much, Susan and Mike indeed, Martin Hastings on the T.G. Lynes. Thanks for throwing a spotlight on the really good work that is happening across Grafton on sustainability. Now just before we take a short comfort break, I would like to finish off this sustainability section by playing you a short video on Woodie's heroes. Now this shows the excellent work, which is being done in one of our businesses within its community. And I think it's a really terrific video. Once the video is finished, we will then take a very short comfort break. So if we could all be back in our seats, please, I would say, for 20 past 4, so it will be a very short comfort break. If you're watching online, you will see after the video, there will just be a holding screen. It will give you enough time to just get 10 minutes of Homes Under the Hammer. And we have a commitment, by the way, if you are watching online that we will be finished in time for today's edition of Pointless. So anyway, if we could run the Woodie's video quick break, and then back at 20 past 4 would be great. Thanks very much. [Presentation] [Break]

Hello, everyone. And now in the second half of our Capital Markets event, we wanted to turn our attention to growth. Now Gavin will turn to acquisitive growth towards the end of the session. But I wanted to start by looking at organic growth and specifically to look at some of the work we've been progressing across the group in the digital space. First, let's touch on organic growth and its importance to Grafton. We believe that we have a portfolio of winning businesses, businesses which will outperform in the long term relative to the market generally. Each of our businesses continually focuses on operational excellence and doing things better and faster for customers. For those of you in the room today, I would really encourage you to discuss with the Grafton team that we've got here, the initiatives which they are progressing in their businesses around that continuous improvement. Now we'd look to accelerate our growth by expanding within our existing geographies. We look to broaden our proposition to take a bigger share of our customer spend or alternatively to bring in new customers, and I'll give you some examples of that in a moment. The digital agenda is a regular topic of conversation with all our investors, and we felt that you benefit in hearing directly from our experts on how we are progressing digital in 2 of our businesses, Woodie's and Selco. But we also fundamentally believe that a physical branch network remains central to our customers, and we'll talk through that as well in those presentations. So I thought it was worth just giving you a few good examples of some of the sort of organic investments that we've been making in recent years into our businesses. Operational initiatives are important to revenue growth and to driving efficiency. For example, in Selco, the opening of our Lightside distribution center and 2 delivery hubs has supported both our sustainability and efficiency agendas. It significantly improved vehicle utilization, it's increased the speed of restocking shelves and it's allowed more waste recycling. The delivery hub initiative has been very successful, and we're now looking at opening an additional London hub next year. In the Netherlands, Isero has invested into a new larger and more efficient distribution center in Waddinxveen and we'll be investing in additional Kardex machines in 2022 to increase picking speed. In our existing geographies, we look to expand our market presence to increase market share. In Selco, for example, our expansion plans are focused on new branch openings with new branches this year in Liverpool, very recently in Canning Town and in December, Rochester. In Ireland, Chadwicks already has an excellent branch network. And whilst there may be 1 or 2 opportunities for acquisitions in its general merchanting business, there are greater opportunities for development through range expansion and broadening our customer proposition. Now this can be either by way of bringing new skills into the business to support that expansion. For example, in Chadwicks' case, where we've brought in specialist fixing centers and brought in the expertise to run and grow those businesses. Or alternatively by buying in a business such as Proline, which brought in terrific product expertise and a range of architectural ironmongery indoor furniture. And we've now taken that Proline concept, and we've expanded that across 11 Chadwicks branches. For a business like Isero, white space expansion is about a combination of new branches, such as our new branch, which we've opened in Lelystad, and bolt-on acquisitions that expand our geographic coverage, such as the purchase of Van de Anker and Govers, which we made earlier this year. in IKH, we see opportunities for organic growth. For example, we've just approved the opening of a new owned store in Finland's third largest city, Tampere, as well as through increasing the number of partner branches. For example, the new partner store that's just opened in Seinajoki and you'll see that later on the IKH video. We also think that there are opportunities for bolt-on acquisitions in due course. And finally then, what are our digital opportunities? Well, I'm pleased to introduce you to 2 of my colleagues, Suzanne Quinn of Woodie's; and Carine Jessamine of Selco, who will talk to you about -- talk through the digital journey, which we've been on in both of their businesses. So Suzanne.

Thank you, David. And I'm delighted to be here with you this afternoon, both in the room personally and also to our virtual audience. I'm Suzanne Quinn, and I have the privilege of leading the marketing and digital team for Woodie's in Ireland. Woodie's is the leading DIY home and garden retailer in Ireland. We've got 35 stores, and we also have an online business that's growing from strength to strength. The Woodie's ambition is quite singularly focused: We want to develop a seamless world-class omnichannel of customer experience with expertise and ease at our core. We also want to continue to be a locally loved national brand with a force for good in the communities in which we operate. And that's very much underpinned by our brand positioning, which is Woodie's, we're all homemakers. As you saw before the break, Woodie's is very much a people-centered business. And we're very proud of our 1,700 strong workforce of highly engaged colleagues who, as Susan mentioned in the Q&A session during sustainability, have voted Woodie's as a great place to work consecutively for the last 5 years. This year, we were also accredited as 1 of the top 75 workplaces in Europe, which was a great honor to receive. In terms of brand awareness, Woodie's is 98% brand awareness. So there isn't a household in Ireland, who isn't aware of the Woodie's brand. And we're known for our customer service. So this is very much at the forefront of what we do and what we do as a business and the service we provide to our customers. And this is demonstrated through a really strong Net Promoter Score of plus 76, which for any retailer, is massively enviable. With 70% coverage and in the market in Ireland, and there's 1.8 million households on the island of Ireland, so I suppose in terms of targeting our customers, we don't have the luxury of being specifically focused on one specific target customer. We've got to capture them throughout the life cycle of their journey, capturing them early, keeping relevant and then retaining them throughout that life cycle. Over the last 18 months, our sector has seen huge growth, and it's never been more relevant. And we've seen that in one particular cohort of customer, who we would have referred to as the do-it-for-me customer, who are now active DIYers, but they're also repeat customers with Woodie's. So this, coupled with some emerging tracts within the market, new entrants to the market, our sole focus has been very much around our digital strategy, more specifically around how we grow and acquire new customers and how we retain them by the use of data. Our omnichannel proposition is straightforward, shop the way that suits you. So for customers, whether that's in store, click-and-collect or home delivery. And our website is very much the window to our store. As we know, customers who shop in our stores, 70% of those actually visit our website first before they shop in our stores. So with our website as a window to our store, and -- I suppose it's really a case of the strong foothold that we have in the communities in which we operate. So this is the case of how do we take that brand service that we're renowned for in Ireland and actually bring it, take some of the magic of the customers' experience on a daily basis and bring it throughout all of our channels, in particular, our digital channels. Because we know customers are 54% more likely to shop with a retailer where they can purchase the products online and return it in store and vice versa. Social media has played a primary role in our digital growth over the last 18 months in particular. And what we've seen by that is customers engaging with our brand, but also driving website clicks. This has been coupled with a strong influencer strategy. So this is the case of using macro influencers and micro influencers to really drive that brand engagement, but back to that window of our store driving website clicks. So if the website is the window to our store, our digital ecosystem is the brain, and this is using all of the key digital touch points that we have at our disposal at Woodie's. And it's the case of capturing that data. And again, over the last 18 months, our sole focus has been building the infrastructure around actually capturing that data, being able to understand customers' behaviors and leveraging that data. And this has never been more timely, particularly with the removal of third-party cookies in the horizon at the end of 2022. The huge amount of work has gone into building our customer data platform. We use Homespots in Woodie's. And we currently have 1/4 of the high sales in Ireland on our customer data platform. By the end of 2023, we expect this to be half the households in Ireland. And so the reason for this is first-party data is the key battleground in digital marketing. Those not enabling first-party data and capturing that now, once cookies removed and we're in a cookie-less world, they'll effectively be renting audiences, which is less effective, more expensive and much less targeted. So how customers experience what we're doing in this space around data, and it really comes down to the ever-changing customer expectations. So customers, and I'm sure each of you in the room will agree and also virtually that you expect relevant targeting. Customers don't type brands who are targeting them with content that just simply isn't relevant to them, and I suppose that's the key reason we're getting behind this so that we can personalize at scale, through e-mail, using the data captured in our customer data platform, but then also so that we can remarket on the big platforms such as Facebook and Instagram. At Woodie's we take a digital-first approach to our communications. And I suppose then, what does that mean and why do we do it? So I suppose, firstly, it's around the fact that most messages convey digitally are just more effective. it's more cost effective, it's dynamic and it enables customers to engage with your brand. And then back to the key battleground being first-party data, which is the second reason we take a digital-first approach, is capturing that first-party data. But what you put on those channels is critical and content is key. So when we're taking approach to omnichannel communications, we focus as much on the internal audience as we do our customers. And creating that shareable content, we're trying to create a social currency that the masses want to share. We saw that last Christmas when we launched our TV brand film, with the starring role played by Mrs. Higgins, which we saw go viral internally first on our Work Vivo platform. And then within an amount of hours, it had gone viral externally. It had reached as far as Australia, I think, in kind of 10 hours. So it just shows the power of great shareable content, coupled with the right channel mix to be able to deliver and amplify that message. And that then comes back to what is the communication sweet spot? So going back to the Woodie's ambition that we want to be a seamless omnichannel retailer, plus being a force for good in the communities that we operate. It's very much around getting the right channel mix, using your social platforms and then also using your data and leveraging your CRM strategy, while creating brilliant work around what we're doing in the community: Work around our employer brand; but then also it could be trading deals, weekend deals to drive footfalls and clicks to your website. Over the last 18 months, as most businesses have seen, we have been investing in our infrastructure. So we've invested in a new website. We've invested in a new fulfillment center and also a new home delivery partner. And that has built our capability. So our digital investment, from a marketing perspective, has now increased sixfold since 2019. So we're investing in digital in line with our capability. And that's through our influencer strategy, it's through investing in our digital funnel strategy, but also a CRM strategy. And we've seen some really good results as a result of this. [Presentation]

So that gives you a flavor of what we've been doing over the course of the last 12 to 18 months. And -- so what are we going to do next? We're going to continue to work with our award-winning agencies to make sure that we're included in all the Google beta trials. We're going to make sure that we're included in the forefront of Facebook shopping and what's to come in that space. But I suppose, really, we need to keep innovating, we need to keep challenging the possibilities and also the art of the possible. Machine learning, AI, AR, this all seems so futuristic. But it's now here, we're using it. And it's the case of how do we continue to adapt and evolve while using customer data to the center point that inform our propositions and also our communications. So Woodie's, we really feel we're clear on our point of difference in how we're going to win in the market, and it's very much around an omnichannel proposition, sales but also continue to be a force for good in the community that we operate. We need to ensure that digital enhances already a cracking experience that our customers are receiving in our stores and amplify that. But we need to continue to adapt and change as the customers are. We need to be ready for that, and we need to anticipate their needs. I'm now going to pass you over to Carine Jessamine from Selco. Thank you.

Thank you very much, Suzanne, for that. Good afternoon, everybody. And to those watching online, I promised I'll be done by I think it was tipping point was, I promise I'll be done by then. I'm Carine Jessamine, I'm the Marketing Director at Selco Builders Warehouse. Suzanne has told you today about the digital experience in Woodie's, the B2C experience. I'm here today to talk to you about digital and the trade and how intrinsic our branch network is to the success of that offer, and also the overall Selco customer experience and how we're going to be brilliant for our customers as in one of our core values. Firstly, let me introduce our customers to Selco customers they operate within the repair and maintenance and improvement market, the RMI market predominantly. At Selco, we have 6 core customer segments. These are the 2 biggest segments that I'm showing you here. These equate to 85% of our total revenue and 18% of our customer numbers, so large segments for us. The difference between these 2 is that gentleman you see with a hard hat is typically maybe a facilities company, so has builders working for him. The second customer there is typically a one-man band, often known as Steve or Dave, you probably all use one and all known one. What they have in common is that they are the biggest spenders at Selco. They shop across all product categories. They shop weekly, if not daily, and often several times a day, if they've forgotten something, which is quite common, and they shop across multiple branches. So again, our network being very, very important. Deliveries are also very important to them with them with -- they use about 75% of delivery. So very important to them, and next-day delivery being particularly important to. However, the trade does use digital. So how does the trade use digital? This series of circles here represent digital activities and their size represent the relative hour spent on that activity by the trade relative to an average U.K. person, which is what you see in the yellow circle there. What you'll notice is the trade uses smartphone 46% more than the average U.K. person. So extensive use. But what they use it for is actually to make their lives a bit easier. They order pizza here, they play Candy Crush, they might do a bit of banking, and they place a bet or 2. So really, it's a tool for them to make their lives a lot easier. What you don't see here is shopping, so they don't over-index on shopping. That's because trade customers and actually self-help customers, predominantly because of our self-service format, like to touch and feel the products that they're buying, especially products such as timber. Steve and Dave don't like bendy timber. They want straight timber, they like to touch and feel it. The very last minute, they're notoriously bad at planning, to be honest. They need their deliveries ASAP. They shop in the morning for what they need that day. Our branches are very busy in the mornings, and they definitely don't buy what they don't need, so it's all about cash flow as well. So as I said, delivery is very important to them. Which is why our branches are very important to our trade customers. Selco has committed to opening 100 branches by the end of 2026, which is a 40% increase on where we are now with our 72nd branch opening in Rochester by the end of this year. Canning Town opened last week, and that's a great image of Canning Town there with Canary Wharf in the background. The reason branch is so important is not only because our trade customers love our branches, the self-serve model. It's also because one size doesn't fit all in the trade. So what I'm depicting here is basically an online order. So Steve or Dave has gone on to our website. and placed an order for online delivery. The order is particularly very mixed, so small products with big cumbersome products such as timber. Essentially, they don't fit in a box. What we have, therefore, is the central sales office team. This team triages the orders from the website and they liaise with our branch colleagues and our customers alike to ensure they find stock availability and the right delivery option and timings for our customer. It also means that this team can also -- when they're speaking to the customers, they can upsell and cross-sell and add any useful products on for our customers to enable them to complete their jobs. So again, adding good customer service. The local branch then delivers to the local customer. So again, we need that branch expertise in order to deliver effectively to the trade customer. With this in mind, knowing that a website is really a tool for the jobs, tool for the trade, we've been on an extensive digital journey over the last 2 years. In March 2019, we launched our Click & Deliver service, which I've just mentioned, which is the ability to deliver all of Selco products, whatever shape and size to our customers. In January 2020, we upgraded our platform to a more robust platform. So we moved to Magento 2, which is the significant investment and development program. This then enabled us to use digital at the heart of our reopening at the beginning of the pandemic, where it was core to online orders for customers so they can pick up their products from the car park and arrange deliveries. We basically created a digital ecosystem with best-in-class partners of all our software providers. All of these have not been onboarded in the last 2 years. We also know as our trade customers, whilst they do like going into branches, they're using -- they use the website as a bit of a tool. They actually do respond well to online advertising. We're now starting to understand the link between online advertising and branch visits. This is just an example of a campaign we ran a few weeks ago, a 4-week campaign of a search, display and YouTube which we know generated over 30,000 visits to branch. So we can actually see that whole experience now. So I hope I've gone some way to showing that we are creating a seamless omnichannel experience for our customers. However, we're now taking it a step further. As Suzanne mentioned, artificial intelligence is here. And at Selco, we are now using artificial intelligence. We've been using first-generation artificial intelligence for about 3 years to improve our customer relationship management direct marketing. We're now moving to the next generation. The next generation is taking data feeds from not only our branch order transactions, so branch information, but also online behavior. So how our customers are using the website, reacting to e-mails and on social channels, all of which is first-party data. And again, as Suzanne mentioned, makes this future proof when the third-party data cookies are abolished at the end of next year. Our new data platform, emarsys, can then assimilate all hundreds of thousands of pieces of information and ensure that we're targeting the right customers with the right messages at the right time. So very simple example of a campaign we now run. So somebody comes on to our website. We don't believe they're a customer because our data platform doesn't recognize them, doesn't recognize that visit to the website. They've browsed our website, and they decide to leave. When they leave, we actually serve them an ad that says register for a free trade card, we believe we haven't seen them. Since we launched this campaign, we've seen over 2,000 incremental visits to the customer registration landing page, so quite a significant step forward for us. This customer, Dave or Steve, will then go on back into Google, will go on to their social media platforms and they'll see relevant ads from Selco at relevant times for them. So it continues throughout their online journey. It doesn't stop there. It's been a detailed, extensive development program. We're determined to use these tool for the trade. We're launching new features such as account management, end-to-end online quotation, so really making our website the tool for the job. This extensive development program, as well as our branch expansion program, means that Selco will continue to be where the trade go. That's it for me this afternoon. I'd like to hand you back to Gavin. Thank you.

Thanks, Carine. I do find it quite interesting that my colleagues keep committing to our online audience that will be done by tea time TV. I'd just like to point out, I could talk about Grafton until the news at 10 comes on, but I won't, I promise I won't. So acquisitive growth is and always has been part of the Grafton story. It's always been a really important part of how Grafton has grown and developed over the years. And we like to think we've got a really simple but effective framework for working out what is a good acquisition for Grafton. We want a business in a good market that's a good business with a good management team. So what is a good market? A good market for us is one that has long-term growth potential. We want to have businesses within the group where we can see growth in both the medium and the long term. We do look at the ease of doing business characteristics in different geographic territories. And I'm sure many of you who have got experience of international businesses will understand, Some countries are easier to do business in than others. And we want to make sure that we're doing business in countries where doing business is relatively easy. And we want to do business in well-structured and well-disciplined markets, making sure that, that supply of construction-related materials is in a well-disciplined and well structured way. A good business for us is either a platform or it can be a bolt-on. Both of those can tick that box in terms of being a good business. What we do want to see is something that enhances or delivers either a market-leading proposition or something that is significantly differentiated from its competitors, enabling us to build the enduring competitive advantage. Obviously, we need to keep David happy. We need to make sure that these acquisitions hit both financial returns that we very clearly laid out in David's session earlier on. But it's really important for us to have the confidence of the shareholders as we spoke about before. Having that disciplined approach to capital deployment is a really important issue for us, making sure that those financial characteristics are hit. Sustainability synergies doesn't necessarily mean that buying a business into the group will make us better. What it means is that we can buy businesses into the group, where we believe either from a sustainability point of view, that business can make Grafton Group better; or that Grafton Group could make that individual business better with the skills and the experience that we've got. But that sustainability synergy part plays an important role in how we assess the acquisitions. And I think we've been clear about this for a number of years now, but we are really not interested in turnarounds. We want good businesses that are performing well. Turnarounds can take a huge amount of emotional and financial capital, and we strongly believe that if we buy a business that's a good business today, that stands a better chance of being a good business in 3, 4, 5 years' time. And what about the management teams? We've got a few of the acquired management teams in the room with us today, but we want management teams that have the experience, that understand the business, that understand how to get under the bonnet and really how those businesses operate and how they work. We want management teams that have a track record of success, really understanding how to move the businesses forward. We want that management team to share our ambition. We want management teams that want to grow. We want management teams that want to develop. And really importantly, we want those management teams to be a good cultural fit, not just with myself and David, but with the broader management team and the broader group and the culture and the ethos in the way that we want to work going forward. But to put it very, very simply, our acquisition framework is about good businesses in good markets with good management teams that will enable us to drive the value and the evolution of the group going forward. If you then take -- well, okay, where do we want to be? The world is a very big place, and you've got to have some parameters in which to work. So I think if you look at that map, no great surprise to see Ireland and the U.K. colored in there. We've got a lot of businesses there. I don't think it would come as a surprise to anybody if we took the opportunity for value-adding bolt-ons in the U.K. or in Ireland. Obviously, we have the business in the Netherlands, and we'll talk a little bit more about that in just a few minutes. And the Nordic business with the newly acquired IKH business, giving us that opportunity going forward. But where else do we want to go? Where else do we see those characteristics of a well-structured disciplined market? And if you look at that map, and you do take a view of going through from the Netherlands through to Germany, Austria, Switzerland, Poland, down towards the Czech Republic, all of those countries have got the kind of dynamics that we recognize when we look at businesses, when we look at opportunities there. We have looked at businesses in those territories. We've had conversations in those territories. So please don't be surprised if at any future point we do make acquisitions in those territories. We've also, I think, with a number of shareholders and analysts over recent years, we have talked about possibilities in the U.S. and in Canada. And even our primary focus is on those European markets, I would say that if we could find the right business, either in Canada or in the U.S., that met all those characteristics, that hit the financial terms that we wanted to hit, we absolutely would look at it. But what you can take from this chart is we're not looking at businesses in Australia, we're not looking at businesses in Africa, we're not looking at business in Asia. Our primary focus is on those European markets with the possibility of Canada and North America, if the right opportunity came along. Now obviously, we've made a number of acquisitions in recent years. And one of the first ones that we made under the new management team was the Isero acquisition in 2015. When we acquired that business, that business had revenues of around about EUR 90 million. And as we sit here today, that business turns over around about EUR 300 million and delivers an operating margin of around about 10%. And Bert is in the room with us today. And again, for those of you who are here, I would encourage you to talk to Bert after we finish. But just to give you an insight into Isero, to give you an insight into that business, we have got a short video now on Isero that we just like to run for you. [Presentation]

Obviously, Isero has been part of the group now for 6 years, whereas IKH has been part of the group for about 3 months. Now we're always happy to show anybody who wants to see any part of our business around the business. Now working on the assumption that not many of you will find yourself on a long weekend break in [indiscernible] in sort of Northeast Finland. We've taken the opportunity again to make a short video to give you an introduction to the Finnish business. When we're buying the business in Finland, you always try to find interesting facts out about the market in which you're operating and where you're going. And for a country of only 5 million people, there are 3.5 million store owners in Finland. So in terms of the whole ratio, I'm sure it's a great place to spend a long weekend. But just to give you a flavor of the IKH business, here is a short video, which Matti made for us earlier. [Presentation]

Sure, it felt quite strange for [indiscernible] and Milka both, they're watching themselves on the video. But a great job, guys, and thank you for doing it in English as I think we would have struggled if you said it in Finnish. So just in terms of that sort of journey that we're on in terms of recent acquisitions, obviously, just about a year ago exactly we acquired StairBox. And what makes StairBox different? Well, one of the key things about Star box is every single order in StairBox starts out as an online order. So this is a manufacturing business that has fully embraced web-based technology to make sure that it's absolutely -- you're pardon the point about making staircases, at the cutting edge of staircase manufacturing. Now we have 3 videos ready to show you our acquisition profile, and it's fair to say that the StairBox video is the final step in that video journey. [Presentation]

So that really is just to give you a flavor of the kind of businesses that we bought, the kind of characteristics that we like to see in businesses that we bought. What's also really positive for me is Bert was the CEO of Isero before we bought Isero, and he sits here today still as the CEO of Isero. Alex was the CEO of StairBox before we acquired it, he's still here today as the CEO. And exactly the same with Matti and the management team in IKH. And that management team part is really, really important in helping us to drive the businesses as we go forward. But we are heading towards the conclusion of the afternoon. And I think really, what I would like to say to you is I would hope that there are some key takeaways that you've taken from this afternoon session. I hope that you can see how the group has evolved, how the group continues to evolve and what our plans are in terms of the medium term, to make sure that we grow the business and we develop the business, but we keep it as a dynamic, energized entrepreneurial empowered business going forward. I think David has given you a real insight into how we'll deploy our capital, making sure that we've got rigorous targets in place for the kind of financial returns that we want to see from any acquisitions or any organic investments that we make across the group. And I'd particularly like to thank Dr. Dee and the team who came up earlier talking about sustainability. But really trying to get that message through about sustainability, it's not a program, it's something that's becoming intrinsic in how we think and really important in everything that we do going forward. So that actually concludes the presentations for this afternoon. Now we've overrun by a few minutes. No great surprise for anyone who sat in a board meeting with me, I will hear you say. But anyway, we have got some time for a little bit of Q&A. [Operator Instructions] But if anybody in the room has got any questions they'd like to ask on the presentation today, then we're very happy to answer them. And I'll ask David just to come up and join me, and we'll do the best we can to answer your questions. We're not using a roving microphone because we felt that in a COVID world, that might not be appropriate. But if we just start -- if you can just say who you are and ask your question, if we can't hear it, we'll repeat the question for you.

[indiscernible] First of all, just interested, should we view Grafton kind of holding company allocating capital to high-margin growth businesses? Or is that underestimated the benefit group -- How do you think about that? And then secondly, the 10% operating margin target, how much of that reflects maybe as you become a more specialist value-added distributor, Should we expect more manufacturing [indiscernible]

Yes. Well, if I take that last piece. There isn't [indiscernible] Yes, of course. So the second question was about the operating margin of 10% and whether we expect to increase the proportion of specialist distribution or manufacturing rather than, I think, sort of generalized distribution. And I think our approach is that we're open-minded on that. We will principally be a distributor. That remains at the heart of what we do. But I think specialist distribution, if we could describe specialist distribution is really executing well for a very targeted customer base. I think that's where we see the growth. As Gavin explained, really for us, it's about having differentiated positions in marketplaces, competitive positions that are enduring and that we can build on. That's the most important characteristic, I think, rather than perhaps just boxing it into a narrow definition.

I think your first part of the question was around the structure of the group and was it now just a holding company with a collection of businesses. And I think it's a little bit of both things. Because what you've really got is we do believe that all of our businesses have got that construction thread running through them. And as we look for opportunities to develop and to grow, we do look to see what can they bring to the group. So as an example, if you go back to when we first acquired Isero, one of the things that we did in Isero was we took the merchandising principles that we delivered in Selco, and we took those across to Isero. And over the past 5 years, the merchandising in Isero has significantly improved on the back of the work that we've done in Selco, which has helped us to drive higher-margin sales. When we acquired IKH, there are things that we think IKH do probably better than we do anywhere else in the group, particularly around workwear and PPE. So there are things that we can take learnings, maybe not so much in terms of purchasing synergies, there could be some of those, but learnings and skills that we can take from businesses like IKH and bring that into businesses like Selco and like Isero. So it's not a random collection of businesses. There is absolutely a thread running through where we believe we can drive value from having that collection of businesses within the group.

Sticking with M&A, [indiscernible] I guess. You talked about the third of the growth potential. Just wondering if you be a little bit more specific, like you heard business size [indiscernible]

Okay. So the question is when we look at growth potential for acquisitions, are we looking for a specific number like does it have to have 30% growth potential, 50% growth potential or so on and so forth. I think without tying ourselves to a number, what I would say is we're looking for real growth potential. So do we want to buy a business that in 3 years' time is going to be 5% bigger than what it is today? The answer is no. That really wouldn't fit the kind of growth criteria that we have. And everything that we've acquired over recent years would be way ahead of that in terms of what we would anticipate to see growth. I don't want to nail ourselves to the wall and say, it's 30% is 50%, but it's significant growth potential. And certainly, the businesses like Isero. If you look at where Isero is now, we recognized that the growth potential didn't just come from doing better with what the business was but there was growth potential from bolt-on acquisitions, which would then help us to drive the business further. So it's about the business having the ability to grow as a business. And then also, does it bring something else in terms of opportunities that we can bolt on to it in terms of bolt-on acquisitions. But we are looking for businesses that have significant growth potential. But I wouldn't want to give you specific number. But it's -- we're looking for substantial growth potential. So the lady just behind you had a question as well.

[indiscernible] I was wondering [indiscernible] when you think about the focus of mentioned construction increase in focus industrialized approach. What do you think if the volume growth in SME buildup and a [indiscernible]

Yes. I think -- I mean, the distributor still has a really important space to occupy in taking products from suppliers, breaking bulk and particularly in the case of SME builders, giving them the opportunity to tap into both expertise and products, which otherwise they wouldn't be able to do directly. So I think the distributor's role remains really important within that. In terms of how do we as a business develop between SME and broader businesses. I think when we look across the portfolio of businesses that we have, in each of the markets that we operate, those brands have a very targeted focus. In some cases, it's on more major contractors. If you take Martin's business in TG Lines, it's a very specialist and focused on if you take Bert's business in the Netherlands, it's a focus on contractors but also SMEs. And then you look at Selco, which is much more SME focused. So again, I think it probably comes a bit back to Ainsley's point in how do we see the group evolving it's about businesses that are just really good at delivering customer excellence -- but excellent but really know their segment very well and are very targeted on delivering that.

Okay. First of all, in Selco, I think you said 100 branches by 2026 target. Could you just remind us the sort of maturity profile of the Selco level revenue that is expected to be generated at a maturity margins as well [indiscernible]

Okay. Just to pause -- we'll get to the question for the guys at the back of the room online was, if you look at -- What is the maturity profile of Selco stores, how do they evolve, once we've opened them? And that commitment to open 100 stores by the end of 2026?

So in terms of the maturity profile of a typical Selco store, to some extent, it depends where it's located. Within the M25, which is where Selco has a very strong brand proposition, it's very familiar. Then typically, we would expect to see that maturity profile of a new store, a new store would be reaching that maturity profile in around about 3 years. If you take a Selco that's being located in a new geography, where there's that lack of familiarity, perhaps with the Selco concept, it naturally takes longer. It's more like 5 years before we get to those mature revenues. In terms of how does that look from an individual store revenue profile, that maturity and what do the margins look like? Again, to some extent, that is contingent on where it is. In London, there is a much greater volume of transactions that we tend to see, as we would say, in Birmingham or Manchester. Those are stores which typically we would see revenues of north of GBP 8 million plus and some of the stores in London will be doing near GBP 20 million. Outside London, in more regional stores, naturally, the revenues will be lower. It's not the same size of markets that we've got. So typically, we might see revenues in those stores of GBP 5 million, GBP 6 million, GBP 7 million at maturity. But nevertheless, what we see from a regional store is a very strong, high single-digit operating margin where stores are located, and you've got high levels of revenue. Then you'd get very good double-digit levels of margin.

I think you've got a second point.

And then just on the acquisitions in terms of the size of I think you previously said around GBP 30 million. Is that still sort of the right number? And linked to that, so what gives you the confidence that the level of opportunities are out there because it in terms of at [indiscernible]

Yes. And I think, yes, that's a very good point. So the question was around sort of our sweet spot would be in terms of acquisition and do we really feel that there's opportunities out there. I think we've said for a while, Christian, that we sort of felt our sweet spot was around that GBP 75 million to GBP 200 million mark. And I think in terms of financial digestion management digestion that, that's probably right. In terms of a platform going into a new country, a new geography, would we look at something bigger than that if we felt that it was bringing something differentiated and something new, a really good quality management team as we keep saying. And I can't say that enough. When you're making acquisitions, particularly in new geographies, the quality of the management team is so important. So I think that kind of size and sweet spot still fits for us. Would we look larger than that if we found the right deal? We absolutely would. And I suppose what gives us the confidence that the -- that those opportunities are out there. What gives us the confidence is the work that our M&A team have done from their top secret location on Docking High Street, to give us that view that going forward, we've got those opportunities. As David said, this is over -- we're kind of laying ourselves open here to our plan over several years, but we do believe there are really good quality opportunities out there, but we need to make sure that we retain that discipline in the way that we acquire them. We've got a question down the front here.

A couple of thoughts, please Firstly, just around customer type and you're placing new business. Do you have a preference as to customer mix is interesting to see makes the margins, it does with, I think, 2/3 exposure to large customers. So that part of Mexico business and more. And then the second one is on just general market share gains when you know across your countries and the strength of your business is all state of the competition. Do you think there are certain companies that might have a clear run of market share gains.

Yes. So the second half of the question was about market share and do we sort of look and target market share as we buy these businesses. I think market share is a really interesting one. And again, I think people who've known us a long time, we've been quite open about this. We've never really been obsessed about market share, it's about the quality of the business. So has it got opportunities to grow, as we talked about earlier and has it got significant growth opportunities? Yes, that's really important to us. But if you look at the markets in which we operate, just targeting market share per se doesn't really take you anywhere special. You've really got to look and see at the quality of the business. The type of customer was your first point around are we targeting a particular type of customer -- The critical thing is how good is the business dealing with their particular type of customer. So if you look at Matti's business in TG Line, which I completely accept is a business that many people would never have heard of, they are absolutely an Aston Martin within a car park of kind of Daisy or Sanderoz in terms of handling their particular type of customer. So I think it's about looking at those businesses. Well, he handles those particular kind of customers really, really well. But that's why it's really important, particularly in foreign territories, that you get the experience of people like Matti and people like Bert to really tell you what their target customer is. Because we could look at it from outside and we could have 1 view. But having the guys who really understand what their customer base is, that's what gives you the confidence to go into the new market. So it's not driven by a particular type of customer, whether it's a large customer or a smaller customer, it's driven more by how well does that business handle those particular types of customers and the sectors in which they deal, and that's why the management teams are so important.

[indiscernible] So the market share gains and the current business you've got over the next 5, 10 years. here a couple of step-downs we can amend going forward [indiscernible]

I mean I think if you look at -- I mean, IKH as an example, is a business that has a footprint in the Nordics, a small footprint in Sweden, a small footprint in Estonia. So I think in terms of absolute growth, it would be fair to assume that we bought that business that over the next 3 to 5 years, we would expect to see significant and substantial growth in IKH. And the same is another 40% of Selco stores in the next few years, we'd expect to see significant growth coming out of there. But every business that we have within the group, well there is an individual business plan that gives us the growth that we then sort of consolidate and add it together and adding up is really important because it gives the finance team something to do. We've got any more questions. We've got a repeat question.

We've talked about the acquisitions that clearly there's a lot of organic opportunities. So what kind of ratio should we expect over the next number of years? And then secondly, you've got of a lot of comparison like 2013, a higher margin as you think more protection against the cyclicality. Is there anything else or any improvement your business that gives you more protection against the cyclicality can industry [indiscernible]

Yes. So the first question was -- what was the first question? What was it? Sorry, CapEx depreciation. So this was about the level of CapEx and depreciation that we'd expect to go -- to see going forward as regards to that sort of organic development. And actually, what that comes back to is the pure strength of the cash conversion that we've got in our existing businesses. And I think our ambitions in terms of organic development can be more than fulfilled from what we're generating out of the profitability of those businesses. So going forward, if we look, for example, at the expansion of Selco, that should be met by Selco's own cash generation. So I don't think we'd expect to see a big drag there. So when we look at that acquisition capacity, that's the sort of the extra and incremental that sits above that. In terms of what do we expect to see as regards to numbers of CapEx and depreciation, I mean depreciation will probably be running at somewhere around about GBP 30 million to GBP 40 million going forward. That will deal with the replacement CapEx. The organic development CapEx spend that I would expect to see coming from the business will be in the order of tens of millions above that, but not a material amount above it.

And the second point was on cyclicality.

So on cyclicality, does -- do our targets, how does that impact on cyclicality? And does that make it less cyclical? I think you need to look at the operational leverage of the business as well, in terms of gross -- relevance between gross margin and also operating costs. A number of our businesses have high gross margins. It's one of their virtues as we've seen revenues increase and the growth of that business. So we need to have a weather eye on the level of that gross margin, which does give and mean that there's an element of operating leverage if you see a downturn, it means that you need to be very nimble in how you react to costs. But I think our management teams have a lot of experience and pedigree in that. In particular, I would use Woodie's as a case in point, what is as a high gross margin business, and the business acted very quickly through the recession to cut costs and continue to generate cash. So I think it's a sort of combination not just the financial targets, but again, boils down to the quality of the management teams that you've got to be able to react and offset what might be a financial downturn. I think the virtue of aiming for a quality margin, though, is that when you've got lower margin businesses and you do see a downturn, you really don't have anywhere to run then. And it's very quickly that you can be at the level that's breakeven at best or alternatively than starting to get into a loss position. So I think a good headroom above that is a virtue.

I'm very conscious of timing. We have got a hard stop here at 5:30. I'm also very conscious for the benefit of people in the room. You've obviously got us for a little while longer outside where we have some refreshments when you can pigeon holders and ask us, but I can probably got time to take 1 more question in the room if somebody wants to ask 1 more question.

Yes. I was curious why you didn't include an organic growth target when you spoke so much about growth. Is that kind of an implicit view of where we are in the cycle? Or is it

It's -- so the question was why did we didn't state an organic growth target. And I think that's very much down to each of the formats that we've got. So we tend to focus on each format and the capacity that they've got for organic growth. So rather than state an overall group growth context, as Carine brought to life for Selco in terms of the new store acquisitions, that's relevant for Selco. But for each of the businesses, we look to underpin that with their own organic growth plans.

And the business is at different points of their maturity profile. So Selco, we've got a lot of opportunity for opening new stores, a lot of opportunities to grow extra revenue if you take a business like Woodie's as an example, we've got a very mature store portfolio in Ireland, very limited opportunity to put more stores on the ground, but the growth has to come from a different channel. So it is very much part of that. As we mentioned earlier, that kind of federated structure, we look at each of the individual businesses individually. At that point, ladies and gentlemen, I'm really going to have to call this afternoon to a halt. We are available outside the room or we'll probably be here for an hour or so. I would imagine for people who've been watching the live stream, I appreciate your patience, and I really appreciate your interest to everybody in the room. Thank you very much for taking the time to come out and see us face to face. It's very much appreciated. Thank you to everyone who's presented this afternoon and the people who made the videos. I hope you found it interesting. I hope you found it informative. And we'll try not to leave it 8 years before we do the next one. So thank you very much, everyone. Thank you.