Grafton Group plc (GFTU) Earnings Call Transcript & Summary

Hello, and welcome to the results presentation for the Grafton Group plc for the 6 months ended June 2022. I'm Gavin Slark. I'm the group's CEO, and I'm joined today by David Arnold, who is our Group CFO. As usual, I will just take you through some first half highlights. David will give you the details of the financial presentation, and then I shall come back at the end and talk you through the strategic outlook and how we see the market going forward. In terms of the first half of 2022, I do believe we are now seeing the benefits of the geographic diversification across the group and the portfolio management that we've carried out in recent times. An excellent performance from our distribution businesses in Ireland and the Netherlands supported, of course, by the contribution this year from IKH in Finland, which came in with a 13% operating margin, really underlying the quality of the investment that we made in Finland during last year. Profitability in Selco and Woodie's was lower relative to last year against the exceptional performances that we had, remembering, of course, particularly in Ireland that during the half 1 last year, we still have very significant retail restrictions in place, but Woodie's was designated as an essential retailer. We have got a double-digit operating margin in all of our operating segments, completely consistent with the targets that we put out at the Capital Markets Day last year, along with a very strong adjusted return on capital employed of almost 19%. On a pre-IFRS 16 basis, we have net cash of over GBP 520 million and that gives us real significant optionality going forward in terms of both organic and acquisitive investment opportunities. And we have made further progress on our sustainability agenda, which I will talk more about in just a moment. In terms of 2022 in the first half of the year, you'll see the details on the screen in front of you there, with revenue slightly higher than what it was or 12% higher than what it was in the first half of 2021. Adjusted operating profit and EPS at GBP 151 million and 49.5p, respectively, slightly lower than last year as we had anticipated based on the normalization of those very high-performing businesses last year. We are proposing an increase in the dividend to 9.25p, an increase of almost 9% over the same period last year. And as I mentioned earlier, the net cash on the balance sheet compared to the same period last year, obviously significantly enhanced by the divestment of the GB traditional merchant business that we carried out in the second half of 2021. Adjusted operating profit margin at 11.5%, significantly stronger than it had been in prior years, and obviously, that return on capital employed as well, although slightly down on 2021, still very much within our target range up there at 18.8%. On our sustainability agenda, I'm delighted to say that Rosie Howells is going to be joining the group very shortly as our new Group Head of Sustainability. She has huge experience in this area, particularly from a retail background and we're really looking forward to working with Rosie during the second half of the year. We've also completed our second Carbon Disclosure Project submission for 2021, and we're continuing across the whole of the group to develop our sustainability systems to make sure that not only we're taking the right actions, but that we can measure and manage those actions in a very clear way. CPI Mortars has installed its first solar panels on one of its factories following on from the installations in both Woodie's and TG Lynes. And that's a project, again, that we'll continue to look at going forward to see where we can implement solar across more of the properties within the Grafton Group. We're also running some of our commercial fleet on HVO. As many of you will be aware, there really isn't an electric alternative for very large heavy good vehicles at the moment. But using HVO across some of the fleet is a way of significantly reducing the emissions across what is a very difficult area to try and manage. And our new debt funding includes incentives connected to the achievement of targets aligned to the group's sustainability strategy. At that point, I'll pass over to David, who will take you through the details of the financial performance.

Thank you, Gavin, and welcome, everyone. Group revenue was 12% higher at GBP 1.15 billion. Adjusted operating profit, pre-property profit of GBP 132.6 million was 7% lower than the first half of last year. The property profit was GBP 18.5 million, and this was attributable to the disposal of 2 properties previously part of the GB Traditional Merchanting business, which realized cash proceeds of GBP 24 million. Adjusted operating profit was GBP 151.1 million. The net finance cost of GBP 7.7 million was lower with the benefit of a lower interest charge on gross borrowings and interest received on the cash deposits arising from the disposal of GB Traditional Merchanting at the end of last year. Adjusted profit before tax was slightly lower than the comparative period at GBP 143.4 million. Let's now look at the movements in revenue and operating profit for the first half of the year compared to the first half of last year. You'll also find at the back of the presentation the same bridges replicated compared with the first half of 2019 as we think it's helpful to consider the comparison against pre-pandemic trading, too. Returning to this slide and looking at the GBP 125 million revenue increase in the first half of the year, GBP 39 million of the increase arose from organic growth and GBP 102 million from acquisitions. The largest of these was the acquisition of IKH, which completed in July last year and represented just under GBP 70 million of sales. The euro was approximately 3% weaker on average through the first half and so we had an exchange adjustment of GBP 16 million in revenue. This slide analyzes the increase of GBP 39 million in organic revenue, which we delivered in the first half of last year. As we expected and had previously flagged, we saw the normalization of DIY sales in the first half of this year compared with the exceptional levels of demand, which we experienced through the COVID-affected period in the first 6 months of last year. In the retail segment, Woodie's saw a reduction in like-for-like sales by GBP 35 million, and this shift in demand also had a bearing elsewhere, but particularly in the U.K., where Selco also saw lower levels of spending by the serious DIY segment. Irish distribution saw exceptional growth with sales of GBP 47 million ahead of the same period last year. Both the Netherlands and manufacturing saw good organic growth in revenue. The net increase of GBP 8 million from branch openings came from 4 new Selco and 3 new Leyland branches that opened in 2021 and 2022. Turning to the movement in reported adjusted operating profit. This slide bridges from 2021's reported figure of GBP 157.8 million, adjusts for a small amount relating to our adopted treatment of acquisition expenses and then bridges to our reported first half 2022 adjusted operating profit of GBP 151.1 million. I'll look at the reduction in operating profit from like-for-like business in more detail in a moment, but you can see that acquisitions contributed an additional GBP 14 million to operating profit, with IKH representing GBP 8.9 million of this. We were really pleased with the performance of our newly acquired businesses, and the contribution made by our new colleagues in the first half of the year. Looking at the GBP 22.8 million reduction in operating profit in our like-for-like business, you can see that as we expected and had flagged the biggest element arose in Woodie's with a reduction of GBP 19.5 million. We also saw a reduction of GBP 9.6 million in the U.K., largely in Selco, with operating profit down on last year's record level due to the decline in volumes from DIY customers, a small contraction in their gross margin, which saw gross margins return to their pre-pandemic levels and an increase in operating costs. We were really pleased with the performances in the Irish and Dutch distribution businesses, which both saw really good profit growth in their like-for-like business. There was a modest decline in profitability in the manufacturing businesses. I've also drawn-out GBP 2.7 million of movement in one-off costs. These relate to nonrecurring management fee income received in the first half of last year in respect of the GB Traditional Merchanting Businesses and some costs expensed on acquisitions research work on our target markets. In U.K. Distribution, first half revenue was 3.6% higher than the same period last year. We saw significant price inflation with Selco experiencing cost price increases of 19% in the first half, led in particular by timber price increases. The first half of the year saw a return to a more normal proportion of sales from trade activity and a lower level of spending by the Sirius DIY community, which in turn led to a normalization in sales mix and in turn, gross margins. The overall U.K. operating margin was a double-digit 11%, and we were very pleased with the contribution from Blair in Northern Ireland, together with their recent acquisitions, which added revenue of GBP 9 million in the period. In Ireland, Chadwick saw 2 distinct phases to trading in the first 6 months of the year. If you recall, we saw quite severe COVID restrictions on construction activity in the first quarter of 2021. And then in the second quarter, as construction was allowed to resume, we saw a surge in sales in our trade customers and a declining proportion of DIY activity. Those movements are reflected in overall like-for-like revenue growth of 19.5% and a decline in the gross margin in the first half of this year with a return to a more normalized mix of customers. In Ireland, the key indicators remain positive. And although activity in the RMI and DIY market is moderating, the new housing market remains robust. Our 2 most recent acquisitions in Ireland, ProLine and Sitetech, both performed ahead of plan and have settled into the group extremely well. A really strong operating margin of 12.4% was delivered by the Chadwicks team, 80 basis points higher than the same period last year. The Netherlands performed consistently well during the pandemic and was the least affected by COVID of any of their markets. We saw good growth in the first half of the year with average daily like-for-likes up 7.5%, driven by price inflation with volumes broadly flat. We saw strong demand in the residential and commercial new build sectors delivering another 6 months of steady profit growth. Regts, our latest acquisition delivered a very positive performance, which together with Govers, expanded our geographic coverage into the Northeast region of the Netherlands. We were delighted with the reported operating margin of 12.5% and which was up by 170 basis points on the same period last year. IKH was acquired on the 1st of July last year, and we were pleased with the way that the business and teams have integrated into Grafton. We see the business as a good platform for further growth in the Nordics. And whilst performance in the first half was down a little on last year as a result of unseasonal mild weather in the winter as well as weaker consumer confidence following the outbreak of the Ukrainian conflict, we like what we see in these markets so far and think that there is further opportunity for growth here. The business delivered GBP 8.9 million of operating profit in the first half and a good operating margin of 13.2%. The Woodie's business in Ireland delivered a good first half performance as trading returned to more normalized levels. It's important to remember that for the early months in the first half of last year, most of Irish retail was required to close but Woodie's was deemed an essential retailer. In the first half of this year, as expected, we saw a lower number of transactions in the comparable period last year, but we were pleased that the average transaction value proved resilient and was only down modestly. The first half operating profit of GBP 13.9 million was 46% higher than the GBP 9.5 million reported for the first half of 2019, and the operating margin was a very creditable 11.7%. The Woodie's team continues to progress in their digital development with revenue growing by 2/3 since 2019. Turning to our manufacturing businesses. CPI EuroMix saw good growth in revenue, although operating profit was behind the prior year due to higher input costs and a more challenging trading environment. Although the business had a record number of silos on site, we're still not seeing the same level of throughput as we saw before the pandemic, which tells us that housing output per site is still not back to 2019 levels for the customers we serve. StairBox saw strong growth in revenue and to support the continued expansion of the business, we've leased an additional property very close to their existing premises. We saw very good demand from housing RMI trade customers and the business is on track to deliver some 27,000 staircases this year, enough to replace all the staircases of a town the size of Royal Leamington Spa in the U.K. Turning now to the balance sheet and a few points here. We saw further investment into working capital in the first 6 months of the year and have broken down the analysis further here. Net working capital increased by just under GBP 48 million, with most of this increase related to the like-for-like business. We saw an increase in inventories, which reflected the twin effects of inflation and our continued investment to ensure good product availability for our customers. This increase was funded by an increase in trade creditors. Trade debtors overall increased by just under GBP 54 million, with the largest element being in Chadwicks, where we saw a significant increase in trade activity in the first half. As we proceed through the second half, we'll be managing working capital closely to ensure we're aligned with activity levels as well as keeping a firm eye on product pricing and availability. You'll also see in the balance sheet that the pension position improved by GBP 19 million and moved from a deficit of GBP 11.5 million to a surplus of GBP 7.7 million. Net cash, including leases, was GBP 73.5 million, and our adjusted return on capital employed was 18.8% down very slightly from the 19.4% reported for the previous full financial year. Turning briefly to the cash flow and cash generated from operations. You can see here the most notable movement was the increase in working capital of GBP 39.4 million compared to an inflow last year of GBP 37.7 million and a reflection of a more normalized operating environment. Free cash flow in the period was GBP 121.7 million and represented just over 80% of adjusted operating profit. The cash dividend was GBP 52.7 million and was lower than the first half of last year because that included the payment of both the second interim dividend for 2019 and the final dividend for 2020. We spent GBP 43.9 million on share repurchases as part of our GBP 100 million share buyback. This GBP 100 million buyback is funded from the free cash flow predevelopment spend that we expect to generate in the current financial year. Finally, a few elements of technical guidance for the full year. We completed the material property disposals we expect this year in the first half, so we aren't expecting further property profit in the second half of the year. Depreciation and amortization is forecast to be approximately GBP 90 million to GBP 95 million or around GBP 40 million on an old money pre-IFRS 16 basis. We're currently expecting our gross replacement spend to broadly match the old money depreciation charge of GBP 40 million and gross development spend to be around GBP 35 million. The net finance charge is expected to be approximately GBP 15 million, though this will be influenced by, among other things, the timing of any acquisitions and further increases in interest rates. Finally, we estimate the tax rate for the full year to be 17.3%, although over the next few years, this will trend upwards towards approximately 22%, given the currently enacted increase in the U.K. corporation tax rate in 2023 and the likely increase in Ireland for multinational groups from 12.5% to 15% at some stage in the future. And before I hand back to Gavin, I just wanted to say that this is the 18th and last results presentation, which the 2 of us are making together as Gavin steps down as Grafton's CEO at the end of the year. I just wanted to say how much I've enjoyed working with Gavin over the last 9 years. He leaves a tremendous legacy for the business, which we're all proud to take forward, and we'd like to all wish him the very best for the future. Gavin, back to you for the last time.

Thank you, David. Obviously, over the last couple of years, there's been an awful lot of moving parts in terms of Grafton, not only with the pandemic, but also with significant divestments and significant acquisitions. So I felt it was worth a moment just comparing the first half of 2022 back to the first half of 2019 on an absolute basis. And you'll see there from that slide that the revenue within the group was actually over 1/5 lower than compared to that same period. However, the really important thing here is the quality of the business that we have today compared to what we had in 2019. So if you look at the adjusted operating profit there, you'll see it's an increase of over 1/3 to GBP 132 million. Our adjusted earnings per share has increased by more than 50%. And an over 40% rise in the dividend that we've paid out during that time. If you look at the balance sheet, I mentioned earlier on a pre-IFRS basis that we had over GBP 0.5 billion of cash on the balance sheet. Moving to a post-IFRS basis, then you can see that we've moved from a debt situation of GBP 540 million to having over GBP 73 million of cash on the balance sheet, a movement of over GBP 600 million. Also significant improvements in the operating margin and the return on capital employed, which you'll remember have been really key metrics for us over a number of years, moving the operating margin from 6.9% to 11.5% and the return on capital employed moving up from 12.9% to 18.8%. So I think even though there's been a lot of moving parts during that time, you can see a significant improvement in the underlying quality of the performance of the Grafton Group. I mentioned at the very beginning that I thought that our geographical diversity was a really important component of the group going forward. And you'll see from this slide from a revenue basis, that over 20% of our revenue now comes from the Netherlands and Finland, which is a significant move away from where we had been a few years ago. And if you look at the next slide in terms of operating profit, you'll see that there is a very similar pattern there. And I think that this geographical diversity, giving us real movement in terms of the customer base that we have in terms of the end markets that we serve, not only has been really important in the performance in the first half of 2022, but also is really important aspects of Grafton going forward in the years to come. The strong cash generation, which has been a significant characteristic of Grafton for a number of years, and the strength of the balance sheet does give us real optionality. We will continue to follow the disciplined approach that we have to capital allocation. If you look at the first half of this year, we've spent GBP 45 million on acquisitions, GBP 52 million on paying dividend to shareholders and over GBP 43 million so far in terms of the share buyback, very much in line with what we outlined we would do earlier in the year. And as I said, very much keeping that disciplined approach to capital deployment that we've executed over a number of years and will continue to do so as a group going forward. In terms of future group development, we'll continue to look at organic development, and we will continue to look at developing the branch networks in Selco, in Leyland SDM, in the Netherlands and in Finland. That organic growth is a really important part of the plan going forward. As David mentioned, we've also invested into the future growth of StairBox, putting extra facility in place very close to their existing factory, enabling them to grow now as well as in the future. In terms of acquisitions, we did complete some acquisitions during the first half of this year with Sitetech, a specialist business in Ireland; the Wood Floor Warehouse, which predominantly operates in Northern Ireland and also Regts, which operates in the Netherlands. And we are continuing to progress discussions with potential acquisition targets right now and will continue to do so going forward. And there is certainly no change in the acquisition strategy of Grafton moving into next year. In terms of current trading, I think it is fair to say that our distribution businesses have seen a slightly weaker trading period than we anticipated during July and August, partially impacted by the hot weather and also by holidays, which had been restricted during 2019 and 2020. So you can see there in terms of U.K. distribution in the first few weeks of the second half, a slight decrease compared to where we were in the same period last year. Ireland, still showing growth. The Netherlands, still showing growth. And I think it's also important to remember that over the past few years, the Dutch business really has been a very stable performer within Grafton Group during 2019, '20 and '21. On Finland, obviously, we didn't own the business during the first half of 2021. So we're only measuring the period from July 1 to the 14th of August. And you'll see there, there is a downturn in terms of 10% compared to the same period last year. We're delighted with how the Finnish business is integrating with into the group, but no doubt that consumer confidence in Finland has been more affected than the U.K. by the impact of the war in Ukraine. But we are now seeing with stabilization of the retail business in Ireland, Woodie's showing growth coming through, which I think for a high-margin, high-performing business gives us a lot of confidence that Woodie's has come out of the other side of the retail normalization in Ireland and will continue to be a strong business moving forward. And similarly, improvements in our manufacturing businesses, which as David highlighted earlier, from a margin perspective, very important contribution to the group going forward. So in terms of the summary and the outlook, we think the first half has shown a good trading performance and really emphasize the importance of our diversified earnings base. There is absolutely no doubt that the outlook for our market is weaker than we came into the year given the prevailing headwinds. But we remain on track to deliver the full year expectations for this year and that remains dependent, obviously, on the usual seasonal upturn that we anticipate during September going through to the end of November. But as we stand here today, we're not changing any of our expectations for the end of the year. So final points. We do believe that Grafton has a really strong portfolio of resilient businesses with excellent market positions. The group has got a very long track record of disciplined capital allocation. That's a policy that the whole Board has signed up to and that will absolutely carry on going forward. The strength of the balance sheet gives us excellent optionality whether that be returning money to shareholders, investing in organic growth, or looking at acquisitions going forward. And we're very, very well placed to continue to outperform throughout the cycle. Thank you for your time and attention this morning. Thank you for your continued interest in Grafton, and we will move to our Q&A session. Thank you.

[Operator Instructions] We will now take our first question from David O'brien from Goodbody.

Three, if that's okay. Firstly, just on Ireland, encouraging to see normalization, we talked about already within the retail and business and the outlook for distribution as well, it looks pretty solid. But maybe you could give us a little bit more color on what to expect from that region into H2 and beyond, please? And overall, you've noted softer trading in distribution in July and August, as everyone has seen the hit for the beach. I just wonder how is the competitive backdrop around pricing of our true-up period as well? Or can you give us a bit of insight on what you're seeing? And then just finally on CapEx, I think about $25 million for the first half, but we're guiding for $75 million for the full year. Is that just timing? Or what are the development plans for the second half of the year? And generally, how do you approach capital deployment and what is a more uncertain macro backdrop?

Okay. David, it's David here. Let me pick up the first one, just around Ireland and a bit more color on what to expect. As you saw in the first half results, I mean, the biggest element of normalization was as expected in Woodie's. If you cast your mind back to the first half of last year, Obviously, when Woodie's was deemed an essential retailer, one of the few retailers in Ireland that was open for business, we saw an extraordinary performance within Woodie's. Once effectively retail more widely was then open for business, actually, we did see quite a sort of rapid normalization. So I think from a comparative perspective, in the second half of this year, we're up against the sort of a more normal trading period. I think if you listen to the presentation, which we did, that year-on-year performance against 2019 or the half year on half year performance against 2019, I think, is really important because the level of profit in Woodie's was up almost 50% against the first half of '19. And I think we genuinely were really pleased to hang on to a higher level of average transaction value, notwithstanding the fact that as expected, the transaction numbers came down. How do we think about the second half of the year? Well, an important period for Woodie's is naturally Christmas. That's always a very big trading period for the group. It particularly was last year. I think we saw a huge amount of activity and perhaps some of that was a response to the pandemic and a desire to spend money on the house/home and have a really good Christmas. So I think Christmas will be a key trading month, but I think Woodie's will be very well set up to be able to address that. I don't think that Ireland is necessarily immune from the same levels of some of the pressures on disposable income and spend that we see elsewhere. But I think our sense overall is that the Irish economy is better positioned than perhaps other countries in Europe. And indeed, I think the forecast for Ireland to be the strongest performing economy in Europe. That feels when we look across the geographies, like an appropriate forecast. And I think there's more of a spring in the step when you talk to people in Ireland than perhaps say, in the U.K. So I think the outlook for Woodie's for the balance of the year, I think we're pretty positive about it on a sort of a like-for-like basis. I think if we're looking at Chadwicks, a very strong first half performance from Chadwicks. Particularly if we looked at the components of a good performance from the steel business, Chadwicks is the biggest steel stockholder in Ireland, and we saw a significant performance and good activity in there. I think as we go into the second half of the year, as we've seen across all the geographies, that DIY strength that we saw, particularly in the first half of 2021, that has softened. We've seen it, quite a profound shift in terms of mix first half of last year, for example, almost half of the sales in Chadwicks were collected. That's now down to a little over 40%, which is much more in keeping with normal. So that's had a bearing on the gross margin as we have previously explained. And I think that we see a continuation of that trend. We see that the trade market, particularly into new house field remaining resilient. And I think that tracks into next year as well, I think we see that strength in the new housing market, but we could see a bit more softness around the DIY and any areas related to consumer spend. I think on the -- in terms of competitive backdrop, Gavin, do you want to pick that one up?

Yes. I mean we've always operated in a competitive environment. Every market we operate, there's always price sensitivity. Obviously, inflation has played a big part in pricing as we've gone through the first half of this year, second half of last year. Hopefully, we'll see start to normalize as we go through the second half. And it varies tremendously by product group, by geography and by customer sector. So obviously, you look at things like timber and steel we've seen really significant price movements on timber and steel. But in recent weeks and months, the price of timber has started to come back. So I don't think the pricing environment per se has changed very much at all. We've always had some good strong competitors. It's always been a competitive environment. And I don't believe that the pricing of our competitors has changed significantly during the first half of this year. Do you want to pick up the CapEx point, David?

So just on CapEx, David, I mean, I think if you look at the cash flow, particularly if you look at it in the presentation from a replacement CapEx perspective, we net off asset disposals. And obviously, we had a couple of significant property sales that we made in the first half of this year, which realized cash proceeds of a little under GBP 25 million. So that's the net figure. We quote the gross figure in terms of our expected spend of GBP 40 million on replacement and GBP 35 million into development spend. In that development spend, we sort of roughly spent about half in the first half. In the second half, that development spend is continuing to be focused on areas such as expansion of Selco and new Selco branches. Further investment in terms of Chadwicks and the state there. We've just, for example, had quite a significant refit at our steel warehouse. So we've put a replacement roof on that, for example. So it tends to be that sort of projects and growing the organic state or the state organically. I think from a replacement perspective, that tends to be very influenced by spending on things like the fleet and property. Fleet is a bit more lumpy and quite difficult to predict at the moment because of some of the time delays around the fleet. So that may slip slightly into next year. But that's in terms of the capital spend. How do we think about capital allocation in sort of slightly tougher times? Look, we're absolutely here for the long term. The really important thing from our business perspective is that we continue to invest into our brands and making them a stronger and a better business so that when we start to emerge from some of the tougher times, that we're even better placed to provide a really good offering to our customers. That's what we've always done historically. You go back to the global financial crisis, and you look at Chadwicks, for example, that emerged from the global financial crisis and even stronger player than when it went into it. And so look, I think with the balance sheet that we've got, we've got good opportunities to continue to make sure that for the longer term, the proposition is really strong and compelling.

We will now take our next question from Aynsley Lammin from Investec.

I think I've got 3 as well, actually. Just firstly, on acquisitions. Wondered if you could just give us a bit of color there. And then I mean, what does the pipeline look like? And obviously, given you're leaving at the end of the year, Gavin, macro outlook is a bit more uncertain. Should we assume that nothing kind of major will be done on the acquisition front until into next year? And secondly, just on margins, obviously, very good performance in both Ireland Distribution and the Netherlands in the first half around 12.5%. Is there anything kind of abnormally positive in there on the gross margin front and you talked about some of the kind of price benefits there? Or is that type of margin sustainable for the full year? And then just maybe exploring a little bit more on the U.K. obviously fell off 5% like-for-like in the half -- second half to date. Again, is that kind of you seeing some of the volume maybe on that trade side, the new house flip away a bit? Or is it pricing? I mean, just a bit more color around what you think is going on in the U.K.? Or is it just everybody is on holiday?

Thanks, Aynsley. As far as the acquisitions are concerned, I mean, look, acquisitions have played a really important part in Grafton's development for a long time, and I'm sure they'll play a really important part going forward. I'm here until the end of the year, as you said, but we are still having conversations around acquisitions. We have visited businesses recently. We've got more plans to visit businesses in the coming weeks and the acquisition strategy and the plan is very much some of that is brought into by the whole Board and the whole of the executive team and definitely not just me. So I think it's a case of -- we've always said, buy the right business at the right time, at the right price, that very much stays very much the focus. So I can't sit here and say that we definitely won't make an acquisition between now and the end of the year in the same way that I can't say we definitely will. But there are certainly active discussions taking place, but we will make sure that if we do make a move, it's a good business with a good management team in a good market as we always said it would be.

I'd just pick up the piece around margins in Ireland and the Netherlands. And as you say, Aynsley, I mean, a really strong performance in the first half of the year with sort of 12.4%, 12.5% operating margin. I don't think our view of the -- where the long-term margins for those business trends to changes. And we've always said sort of somewhere around about 10%. I think we'll start to see in the second half of the year, that will normalize the first half for both of those businesses, I think, did benefit from some one-offs. For example, in the case of Ireland, as I already mentioned, very strong performance from the steel business. That's not likely to be quite as strong in the second half of the year. I think if you take the Netherlands, there was an element around stock gains. I think when it comes to stock gains, we'd probably see more material improvement in the U.K. and Ireland or more material stock gains in the U.K. and Ireland last year because we saw that very rapid shift to a high inflationary environment. The product set in the Netherlands isn't -- hasn't seen quite that level of inflation, but it's been catching up more recently, which is why I think there's an element of stock gains in the first half, which has supported that margin equally a level of rebates associated with some of the acquisitions. We've had good collection on some of those rebates. So I would tend to think that in terms of the second half of the year, both of those businesses will end up coming back -- heading back more towards that sort of 10% level and influenced, again, in Ireland, particularly by the mix of customers and products that we sell. In terms of the U.K. and our experience to date, I would always caution at this point of the year, we're looking at effectively 6 weeks of like-for-likes, which can be quite difficult and influenced by hot-days this year compared to not-hot days last year. I think -- I suppose the one thing that I would take is when you look across all our geographies, all our management teams are saying the same thing, which is we've all been surprised by the level of holidays that are being taken by our customers and by our customers' customer. So I am looking at the numbers, I do think there's quite a heavy degree of holiday influence in that. And it is difficult to unpick from that where the underlying sits. I think our view of the U.K. in the second half of the year from an inflation perspective is that we do expect inflation to moderate. So our sort of latest thinking is it's more likely to be high single-digit inflation perhaps rather than the level of 19%, for example, that Selco saw in the first half. Part of that inflation will be influenced by timber. It's a big product category for Selco. And we've seen some softness in timber pricing in the in the summer period. So I think we're more into a high single-digit price environment. And as a consequence, I think from a like-for-like basis through that September to November trading period, an element of volume -- like-for-like volume reduction on the same period last year is our expectation.

We will now take our next question from Will Jones from Redburn.

Try 3 as well, if I can. Just first one, just picking up on that pricing comment, David. Would you have a view on what pricing would be sequentially second half on first? Perhaps are we kind of flattening off now with some stuff going up and some stuff going down month-to-month. Just any comments there would be great. The second one was just whether you've given any thought to that potential requirement for any fixed cost cuts in -- even if modest, in any of your businesses? And the last one was just around the buyback rate. I think you're nearly done on the GBP 100 million just given, a, the balance sheet and be the share price, would you be open to that more being done in the current year beyond the GBP 100 million? Or is it something you rethink about start '23?

Okay. Well, let me pick up the view on sequential inflation. I guess in terms of sequential inflation, I suppose I'd best describe it as up a bit. I can't give you an exact -- that's the CFO accurate scientific approach. But look, I think if you think that we're -- our current expectation is high single digit in the second half of this year. and I think about product categories. I think overall, probably we're still talking about a modest level of inflation on what we saw in the first half, taking into account that we still see some quite strong product inflation in some product categories, particularly those that are linked to energy. But equally, we see softness in something like timber, where actually stock levels for the U.K. as a whole are relatively high at the moment. So I think that's the view. In terms of fixed cost cuts, look, we're not looking at anything on cutting of fixed cost. We constantly look at, have we got the right level of cost to serve our customers and do the best for our customers. So it's something that the management teams are always looking at. We're always pretty nimble on this. Largely speaking, we are a pretty fixed cost base. So it tends to be, from a variable cost perspective, it tends to be around people and it tends to be around vehicles. And you need both of those things to continue to maintain high levels of service. But yes, look, absolutely, in the current inflationary environment, we are being generally tight on costs. In terms of buyback, are we open to do more? Yes, look, I mean, we'll always keep our options open. We're very disciplined in how we think about capital allocation. We don't -- we certainly don't rule anything out. So look, it's still under constant review or remain under constant review. The GBP 100 million buyback that we committed to was effectively, as we said at the time, it was funded from our estimates of free cash flow for the current year. Effectively, we'll have executed that buyback over that GBP 100 million over the next couple of days. So yes, look, we keep it under constant review. I think the thing that I would say, though, is with the balance sheet in the position that it is, I think that's -- it's a tremendous position if the times get tougher. That's great. It means that we can have the confidence to continue to do the right thing for the long term in terms of investing in our business, focusing on what do we need to do to improve what we offer our customers and productivity improvement. So I think that that's really important. Equally, tough times always throw out opportunities. And I'd much rather sit here with the capacity to be able to jump on good opportunities that emerge. So yes, I think that's where we sit at the moment against -- on the sort of buyback point.

We will now take our next question from Flor O'Donoghue from Davey.

Just a couple from me. Just sticking maybe with the cost side of things, just wondering what you are seeing in terms of staff costs at the present, given everything that's happening with cost of living, et cetera. Secondly, David, just wondering in terms of the rise in central costs in H1. Is that something we need to think about annualizing? Or is there a one-offs in there? Then also, I guess, on the financing side, just wondering, is there anything you can tell us about the terms around the refinancing you did there, I think it was this month. And then finally, maybe just if I can, on StairBox, I'd just be interested to hear your thoughts around the expansion of as you've outlined in terms of the scale of that, in terms of what it could maybe bring to the business in relation to capacity, et cetera.