SIG plc (SHI) Earnings Call Transcript & Summary

Hello, and welcome to SIG Half Year Results for 2022. [Operator Instructions] Just as a reminder, there is a copy of the full presentation on our website. I will now hand over to Steve France's Chief Executive Officer. Steve, over to you.

Good morning, everyone. It's good to see a large number, braving the holiday trains, thankful of holiday makers and 1 or 2 suits like us. So good morning, everyone. Welcome to SIG's First half results for 2022. I'm Steve Francis, Chief Executive Officer of SIG, I'm joined today here by Ian Ashton, our CFO. Ian is going to take us through the H1 results, and then I'll summarize the progress we've made and the actions we're taking to continue our growth towards 5% margin. SIG has delivered a strong first half performance in volatile markets, thanks to our colleagues who again delivered superior availability and service through their passion, their professionalism and dedication across all 7 countries of our operation. Two years ago, I communicated our plan to grow back to 2019 levels after the falls since then and back to 3% margins by 2023 at the end '23. I'm pleased to say that we've far exceeded these plans. So the revenues in the first half were not only higher than 2019, they were 15% higher than 2018. And the first half margins were in excess of 3% over a year ahead of plan. This was driven by broad-based share gains across the group. Record performances in France and Poland, and further momentum in our U.K. Interiors business now well back into profit. SIG is performing because it's today a structurally different business after 2 years of investment and execution of our strategy of investing to become a more local, more specialized and a superior service business. We've built this on a foundation stone of making every one of our 7,000 employees feel proud, cared for and rewarded. We all face particularly uncertain times, highlighted by the unprecedented Bank of England announcements last week. SIG today, more than ever, is resilient, flexible and sustainable. 80% of our products serve the installation and building efficiency markets. We are, by far, the largest independent supplier in Europe of these products. So never more in the last 50 years of these products being more needed than now. SIG is the most diversified distributor, 59% of our revenues are from the EU across 6 different countries. And each of our 444 branches operate with local teams, providing a tailored expertise and service for local customer needs with agility every day. We're a local trading business. This provides flexibility and resilience as we've demonstrated in the last 2 years. We're confident both in delivering our expectations for this year, but also in our path to 5% margins in the medium term. And we plan to continue relentless execution of our 7 pillar strategy for growth, continuing to invest in expertise and talent in modernizing the business and in growth. As an example, mergers and acquisitions, we've completed acquisitions adding GBP 140 million of revenues on an annualized basis at an average margin of 7%, also bringing enhanced expertise and market position and thereby accelerating our strategy. We can and will continue on our steady course to our destination of 5% margins. I'm now going to hand over to Ian to talk us through the financial outlook.

Thank you, Steve. Hello, everybody, here in the room and on the webcast, I hope you're all well. So the first slide, I will cover is the key financials. So in the first half, we continue to make very good financial progress. We delivered a 21% increase in group sales over the prior H1, a strong result, which includes volume growth in almost all markets as well as the tailwinds from ongoing inflationary pressures on input costs. The revenue performance drove an underlying operating profit of GBP 42 million at a margin of 3.1%, both ahead of where we'd expected at the beginning of the year. This resulted in a profit before tax of GBP 29 million, and I'll look in more detail in a moment at the key elements within these numbers. Below underlying profit, other items were modest at GBP 3 million for the half. This number consists almost wholly of the normal amortization of intangibles related to historic acquisitions. I've spoken previously about our desire and clear intent to keep these other items number low. We, of course, can't and don't rule out appropriate one-off items in the future, but this sort of size of number is very much where we want it to be. Our leverage continues to improve moving towards the 2.5x or 1.5x post and pre-IFRS 16 that we're targeting. Our improvement in profitability is more than offsetting the inflationary headwinds in working capital and investments in inventory we made in H2 of last year. We do remain very focused on reducing leverage. And I'll discuss net debt and cash flow in a few minutes. So next slide, revenue. This shows clearly that the growth has been seen across the business and the bars show the growth over last year in absolute terms. The largest drivers against H1 '21 with the U.K. and France. Within the U.K. Interiors number of GBP 93 million is GBP 39 million of additional year-over-year revenue from the F30 and Penlaw acquisitions completed in April and November of 2021, respectively, both of which are performing well. The balance of that U.K. Interiors growth is from a very robust like-for-like underlying growth of 24% as is now shown. The French business remains the other key growth driver of GBP 53 million growth between the interiors and exteriors parts of the French business. Poland's growth remains exceptionally strong, partly due to a very high inflation number, but also equally high volume growth. And Steve will talk more about the progress made in both countries in a few minutes. Germany is getting very firmly back on track and Benelux's trading is improving. As expected, Ireland reported strong growth following COVID-related restrictions on construction that were in place there in the early months of last year, which you may recall. But underneath that number, there was also some very solid real growth. So the overall picture for H1 was very encouraging. Pass-through of input cost inflation has benefited all areas of the business to different degrees, with France at the lower end and Poland as mentioned at the higher end, resulting in a group impact in the high teens. We've seen volume growth in all areas by 2, enabling U.K. Exteriors, partly due to extremely strong comparisons in 2021 rather than any material drop-off in normal activity levels and our French Interiors business where we've continued to take share in a slightly softening market. So gross margin and OpEx and operational leverage. Gross margin percentage finished 30 bps ahead of prior year, pricing discipline and mix continued to drive real underlying improvement with year-over-year improvements in most parts of the business, most notably U.K. Interiors and the French businesses. And as mentioned, we remain able to pass on cost inflation successfully. OpEx fell further as a percentage of sales to just below 23%, and we continue to leverage the fixed elements of the cost base. OpEx was up on prior year in absolute terms as to be expected, given the GBP 250 million of high sales. In addition to some additional freight and other handling costs on volumes, we've seen inflation on indirect costs of approximately 5% and have also added modestly to our bad debt reserves in light of the current macro environment. We'll continue to focus on driving more volume through our existing capacity, notably in the U.K. and Germany and in driving efficiency and OpEx through increasing modernization. It remains an imperative to further reduce our OpEx to sales ratio as we push towards our medium-term 5% margin goal. So this slide on operating margin demonstrates the consistent upward momentum that we've shown showing a rolling last 12-month margin over the last 3.5 years. The blue line is as reported and the red are just for the material COVID impact in 2020 as well as the recent improvement, this highlights that in prior years, we were operating to margins higher than 3% and also that we're in a period of decline pre-COVID. We've managed inflation well over the last year or so and with much work by the commercial teams have been able to pass this on, as I mentioned, helped by our high customer service and levels of product availability. Overall, this has helped operating margin in recent quarters, but absent that, we would still be showing a notable improvement over that period. Looking forward, the rate of improvement shown on here was slow compared to the exceptional improvement over the last 18 months and given some of the uncertainties in the macro environment. But we're confident of delivering to our expectations for full year 2022 as advised in April and in getting to our medium-term operating target of 5%. Cash flow and net debt. I'll look at the drivers of free cash flow on the next slide, but just for completeness and clarity, this more detailed quite busy slide shows the total cash flow in a standard format and with competitors. We finished the period with GBP 113 million of gross cash balances and not shown on here an undrawn RCF of GBP 50 million. After the end of the half, we acquired Miers Construction Products, for a potential total price of GBP 36 million and GBP 28 million of that was payable on closing. We also recently acquired Thermodamm, a German technical insulation business for around GBP 4 million. And you can see the foot of the table direct from cash to net debt. So pre-IFRS 16 net debt closed the GBP 164 million and post-IFRS 16 at GBP 432 million, reflecting our lease commitments. These lease liabilities, of course, grow over time as the business grows, and we've also seen slightly more new and renewed leases in recent months. So looking at free cash flow. Looking at the big picture, we've been very clear for some time that a 3% margin, we get to positive free cash flow on a full year basis. And we expect this year's full year numbers to demonstrate that. Of course, whilst input price inflation is a tailwind to profitability, it's also a headwind on working capital, but we're expecting that the latter effect will be partially offset over the full year by the unwind of last year's investment in inventory. So back to the H1 picture. This slide, consistent with our presentation at the full year bridge from EBITDA to free cash flow, showing all the key drivers. And we hope will also help provide some clarity on how we see cash flow evolving over the second half and beyond. So to that end, I've split some of the items before and after the GBP 4 million or GBP 3 million number rather in the middle of the page, to broadly articulate the distinction between H1 numbers and how we expect the shape of the bridge to differ in H2. You may recall that we invested in working capital in the second half of 2021 in light of the supply situation at the time. And there was also a strong inflationary headwind from June to December. And so hence, we saw an outflow in H2 of last year. We do not expect that this year. H1 EBITDA of GBP 80 million was at an EBITDA margin of 6%. The first 4 red bars are generally quite predictable and [indiscernible] so this half. Interest and tax going forward, I'll cover in a few minutes. The largest item lease payments on our fleet and estate. As I said, we'll grow slightly over time with the business, but it's a pretty stable number. CapEx was a bit lower than expected in H1. And in 2021, we expect slightly more than H2. The other items on this bridge, i.e., working capital and the other or exceptional items are inherently more variable. We've broken them both out for the reasons mentioned, namely they'll move in different ways in H2 and indeed beyond. Working capital was an outflow in the half, as shown in the box on the top right of the page. This is the norm in our business given its seasonality, i.e., December is an extremely quiet time of the year unlike June. You can see the 3 key elements within working capital within that separate table. And looking at those in turn. Firstly, continued inflation since January 1 of about 10%, drove around GBP 25 million of increase affecting all 3 elements of working capital, numerically, the largest element of these is debtors obviously, as you'd expect. Secondly, we saw a modest underlying improvement of GBP 6 million in management of debtors and inventory, and that will, of course, remain a focus. And thirdly, the seasonality that I mentioned drove an excess of GBP 30 million of increase in H1. As you'd expect, that will reverse in H2, I will be a positive on this chart for the second half. That GBP 30 million plus in the first half was offset by some initial unwinding of the tactical buying we saw in H2 last year, as noted on the slide. The final elements on here are the exceptional and other items I think the only comment of note on those is that the material items such as our contribution to the U.K. pension scheme and legacy SAP costs, while they will mostly recur next year, all tend to occur in H1 and hence the split shown on here. So looking forward, given the ongoing macro uncertainties, we'll continue to make the right decisions and trade-offs of the business around levels of investment in inventory, but we expect robust cash generation in H2 that will deliver modest but positive free cash flow for the full year, and we remain confident in driving continuing sustainable cash flow in 2023 and beyond. Medium-term goals, a brief reminder on the goals that we've set ourselves. These are unchanged versus our previous communications on this. The only point I would highlight is leverage, which, as I mentioned, 3x June or 2.1x on a pre-IFRS 16 basis. And that 3x is down from 3.9 a year ago and 3.3 in December '21, and we expect it to continue to move further downwards by the end of the year. The Miers acquisition will have a minor short-term impact on this. Capital allocation. I presented this slide with the files in March. So I won't dwell on it. I would just say that in the first half, we've been very true to this policy. On organic growth, I've talked about inventory. Steve will also reference our branch openings program in a few moments. And on M&A, the Miers and Thermodamm deals in the U.K. and Germany clearly meet the important criteria shown here. And finally, dividends timing-wise, as we said, we'll start paying a dividend again once we sensibly can, which the Board means once we are consistently generating cash. So on guidance, a very quick comment on current trading. It's very early, obviously, but it's been a -- it's been solid in the first weeks of the second half, supply shortages have continued to abate as we expected and are currently not a material factor but we're, of course, very mindful of the possible impact on both supply and demand of current macro uncertainties. So on inflation, we expect some additional inflation on input costs in H2, but the year-over-year impact will in all probability decline versus what we saw in H1 due to the annualization of the high increase you see in H2 last year. Overall, we remain well placed to manage these inflationary uncertainties. Cash I talked about already, CapEx, as mentioned, was lower than planned in H1, and we now expect closer to around GBP 20 million for the full year rather than the GBP 25 million previously guided. On interest, no change to our guidance. And likewise, on tax, as reported previously, on tax, we've got tax assets in the U.K., unrecognized from an accounting point of view, so we don't expect to pay U.K. corporation tax for some time. We do pay tax in our other operating companies. Our expected cash tax for this year is in the mid-teens of millions. So that concludes my update. We're pleased with the first half. There's still scope for further improvements in the business and its financial performance, which we're determined to deliver. We are mindful of the increasingly uncertain macro outlook, but SIG is in increasingly good shape. And with confidence in both the strategy and our team's ability to execute. And with that, I'll hand it back to Steve.

Thanks, Ian. I'll now detail how SIG is a structurally different business from the business 2 years ago when we launched the Return to Growth strategy. Again, investing in empowering our 444 branch teams with a decentralized model to deliver superior service, superior expertise, great availability on a consistent basis. I'll explain why SIG is resilient, delivering with flexibility and agility every day and lay out the basis for our confidence in 5% margins. So what have the teams done to deliver a structurally different business? A bit of history, SIG grew reported revenues from 1991 to 2007 consistently at a compound annual growth rate of 20% and margins of 5% to 7% throughout that period -- that long period. How? On the decentralized lean central model, focusing on delivering specialist expertise, superior service and great availability. We are now back to that model. We returned to that model in the summer of 2020, and we modernized it through, as you can see here, our 7-pillar strategy for growth implemented consistently across all countries of operation. And that consistency and clarity of strategy is new to SIG for many years. Pillar #1, the foundation pillar, and I'm not going to go through all the details of the stats on this page, but just highlight a few. And then number 1 is about being responsible for our people, our communities and the environment. And it is genuinely the foundation stone for what our people would say has been the difference in our business. We enhanced incentives for management and in the branches and have invested in physically upgrading the branches. Our people are more engaged. There was an 8 percentage point improvement in employee engagement at the end of the first year. We're about to launch our second employee survey in the autumn, and we expect further improvements. We've opened 11 new branches after years of reducing the network. Every one of our 444 branch managers has P&L responsibility and the tools to help them deliver locally. We've invested also in superior product availability, as Ian has described, particularly when supply has been challenged, and that's been immediately beneficial to our revenue growth strategy. Our scale and strengthened customer supplier partnerships -- sorry, supplier partnerships have been instrumental in this. We brought in greater expertise to understand their products and sell more and higher-value products helping to drive up our gross margin on a consistent basis. In the U.K. alone, we hired more than 150 specialists with an average of 15 years of industry experience. Just think about that 14 football teams or the very best in our industry in the U.K. That's a huge intake of knowledge and experience. And the trust comes with the customer and supplier relationships built over many years that they brought back to us. Our suppliers have backed us and benefited from it with superior growth themselves, given our scale and the rate of share gain that we've enjoyed over the last 2 years. This has structurally improved the productivity of our network with OpEx to sales now 3.3% lower and revenue per head up 33% on 2 years ago. And employees -- on an employee workforce up 6%. As I've said, we've already made several small accretive and strategically accelerating acquisitions, adding around 5% to our revenues at group level with superior margins. So today, SIG is a structurally different business from 2 years ago. We're more specialist, we're more local, we're more productive. Our people are more engaged we're more valuable to our suppliers and we're more flexible. And this has delivered a step change in performance. I summarized some of these statistics here to put some context on it. In the first quarter of 2020, immediately prior to COVID, the group reported negative EBIT of GBP 10 million, which was around about 2.2% of sales loss in margin terms. So from that position of minus 2.2% before COVID, we're now back at 3% operating margins so a year ahead of expectations. Over 50% today, over 50% of the revenue is generated from operating companies already trading at 5% operating margins or higher. Sales per working day at group level is up 39%. It's the strongest organic growth period this group has seen for 15 years since the late 2000s. We see an acceleration of high-performing businesses, especially France, where profit doubled versus 2019. And Poland, like-for-like growth up over 40% versus prior year, an operating margin now over 5% for the first time in its history. U.K. Interiors is out of turnaround. In the first quarter of 2020, the business was delivering losses of 7.5% of sales. And now it's back in profit at 1.2% of sales. Germany, the turnaround is well underway. Margins are 2.4% up versus prior year. Every business has gained share and improved margin, except our Benelux business, which is 4% of revenue. Two years ago, as you can see on this chart, which plots both operating margin and share gain on 2 different axes. Two years ago, all the 2 businesses were delivering sub-3% margins or losing market share and in the case of the U.K. businesses, as you can see, heavily loss-making and losing share rapidly. Customers, key employees, suppliers were voting with their feet due to the policy of centralizing, standardizing service and reducing local leadership and autonomy. And we reversed this approach, 180 degrees in the summer of 2020 back to the time-honored way of running the business. As you can see on the right, this is the picture today. The majority of our businesses are delivering 5% plus margins and gaining share. Both U.K. Interiors and Germany are gaining share in profitability. They're well on the way. The small Benelux business is earlier on its journey, but the same formula is applied in the U.K. as being applied in the German business and the Benelux business. There's a lot of information here, but this gives you a feel for how we're running the business, how we think about it. We categorize them into 3 groups largely. So the first group, the high performers. High revenue growth, margins over 5%, U.K. Exteriors, France, Poland, Ireland. These businesses are focusing on network expansion, opening branches, widening the product range, especially private label, which is underpenetrated in most of our markets, driving process automation and exploiting the opportunities in e-commerce and they've got lots of opportunity to improve further. The U.K. Interiors business, which is 24% of revenues, has gone from deeply loss-making, as I've said, to making a profit, as I said, recorded 1.2% margins in the first half of '22. And there, we have been carefully rebuilding margin, increasing the quality of the product mix and tackling underperforming branches and customer segments, bit by bit. The third group, which we've labeled temporarily as EU turnarounds, Germany and Benelux, we've got different starting points. But they're starting to benefit from the same growth formula that we've applied in the U.K. and in the higher-performing EU businesses. As you can see from this page, 5% is not a magical ceiling for our businesses. Our French and Polish businesses are performing at record levels by investing behind the 7 pillars approach. Although in Poland, we do have a wary eye on developments in the wider economy there given the war on their borders. We will return to the 5% operating margin target by continuing to execute based on the same performance levers we've deployed over the last 2 years. There's lots of opportunity. Talk about a few of the country businesses in a bit more detail just to bring this a bit more to life. The France Interiors business lead. As you can see, it's been under same management for 8 years now. It's delivered consistent improvements in profitability and performance and is now at new levels. The Exteriors business on the chart below, Lariviere, has benefited from empowering the people in the branches, investing in their businesses and now performing at new levels as you can see. The 6.7% and 6.4% margins of these businesses and the share gains that have powered them attest to the potential of the SIG model. Our Polish business, in many ways, it's our model business. Management in place for a long time, for many years generating steady growth but low margins of 1% to 2% and it's now powered back to a new level of 5% on the back of significant share gains, strong market conditions. The business has won many awards, Best Employer. The MD was voted top construction executive in Poland, best e-commerce leader in Poland, acknowledged for our CSR work. Selected KPIs that sort of illustrate the true structural improvement, customer growth of 29% in 2 years. Online sales now mushroomed to 16% of total sales, with all the associated productivity benefits you get of an online relationship with customers. We've grown own label, we've opened 3 new branches there after a decade of the business in hibernation. U.K. Interiors business completely rebuilt. And you can see this path over the last 2 years financially. We've put it back to being a decentralized business. We appointed 32 branch managers in late '20. We've hired 240 sales recruits, bringing back expertise and relationships. We've opened 4 new branches, and we've made 3 add-on acquisitions. Based on improved supplier relationships, we've also enjoyed better rebates and terms. We've enhanced the sales skills and the teams have given them new tools. We've also put in new disciplines and systems. So their performance is visible to Ian and myself every day. This has driven a transformation in performance. Sales per working day immediately prior to COVID were GBP 1.4 million per working day, and they're now at GBP 2.6 million. During that period, gross margins have improved by 4%. So high growth and improvement -- significant improvement in gross margin. Productivity has gone from driving OpEx to sales from 29.9%, a very high number in the quarter immediately prior to COVID hitting to now 24.1%. And sales per FTE in that business are up 58%. Now this is a large mature business, and these are very unusual numbers. Operating margins are up by 7.5%. Germany. So Alfons Horn, who is the MD for 8 successful years until 2016 when he left, he came back last autumn, he's been with us around 10 months. Applying the same formulas in the U.K. He thinned down the head office a bit. He reempowered the branches, and he put it reempowering the touch points with customers. He improved product availability and drove sales productivity. So from breakeven, it's now trading at around 3% -- 3.7% margins in the first half, driven by a 31% increase in sales. There's more to go. He's only 1 year in the job after all. Our branch network. For many years, SIG was closing branches. If you take us back a few more years, you'll see far more closures. So since 2020, we've been starting to open branches, we'd opened 11. We've got another 35 to 40 to come across all markets. So it's our fragmented market with the underlying demand for our products is so strong, it's such a significant growth opportunity. The scarce resource on branch openings holding us back is we need to find great local teams with experience and relationships, and we need great locations. And in our business, branch network growth is low CapEx intensity, with paybacks typically quite fast. So it's attractive when we have the opportunity to do it. On M&A, why M&A? Well, it's an accelerator to our 7 pillar strategy. It's not a diversion from it. Our markets are very local. They remain very fragmented. There are many small businesses out there in all of our countries of operation who now want to join our success story, attracted by the entrepreneurial decentralized 7-pillar business model we deploy and the strong name of SIG in the market. Add-on acquisitions typically entail low integration risk and high supply side synergies that enables accretive M&A to take place. So the story so far, as I've said, GBP 140 million of revenues and average margins of over 7% at accretive prices. There's more to come as opportunities present. Subject to our overriding objective, as Ian stated, of maintaining our ability to deliver superior stock availability to our existing business. As you can see on this page, we are twice the size in the interiors markets to the next largest player in Europe and 3x the size of the next largest player in exteriors in Europe. We have long established and strong partnerships with majors like Saint-Gobain, Knauf, RockWool, uniquely having board-level access to them. with we're their largest European customer by far for these products. We've got significant scale advantages on competitors on a pan-European basis. That also makes us multi-diversified by geography, by region, by end use. We're not exposed to retail and under 15% of our business, for example, to expose to U.K. residential RMI or an EU business and very diversified. We view our 444 branches operating independently and trading independently with the flexibility to source both locally and centrally and manage price and demand trade-offs locally as another source of diversification and resilience. SIG was born green as a business, as an insulation supply in the early beginnings of the use of specialist insulation materials on large-scale construction in the late '50s. 65 years later, we're the #1 distributor in Europe of insulation products. They're over 80% of our revenues. '22 has seen a further increase in the focus on insulation due to new legislation like the U.K. Building Safety Act, this June, further government incentive schemes and the prospect of further government support is expected across Europe as people face high energy costs this winter. These forces provide a strong underpinning for demand even when the economic activity in the wider economy is subdued. So our recipe for further share gains, margin growth will remain the same, regardless of the economic conditions. Relentlessly driving our 7-pillar specialist, high service and availability model and continuing to invest as we have been in branch openings, product expansion, better merchandising in shops, increasing our focus on own label, high-margin products and increasingly using new and more sustainable materials and systems. We're driving growth in productivity through e-commerce. And we have a large modernization program, as we call it, to accelerate that progress. And in short, we're making the business easier to work for, buy from and sell to using digitalization. And this is a really important group program that we'll talk about more in the spring and beyond. And lastly, M&A. And thereby, we're going to continue to take share, continue to build leading positions improving the product mix, reducing reliance on lower-margin categories, dry but productivity of our branch and fleet. We're going to remain capital light, and we're going to progress towards 5% margins at the group level and generate cash. So in summary, we've achieved 3% ahead of plan. We've got a resilient and flexible model. We've got confidence in our path to 5%. The U.K. turnaround is complete, Germany is progressing well. And more than 50% of sales of our operating companies are operating at 5% margins or more. We're structurally different from 2 years ago. We're more specialist, we're more local, we're more service-driven, more productive. And we have a resilience to the diversification of the business at scale, the operational flexibility and the strength of our franchise across all our countries of operation. We're going to continue to benefit from the fact that we have 80% of products in insulation building energy efficiency. So we're well placed for the sustainability tailwinds that, that generates. We've got multiple levers for capital-light growth, mix improvement and productivity gains. I will be returning to cash generation with a demonstrated ability to execute investment-led growth both organically and via M&A. So the economic outlook may look uncertain, but I'm delighted to say that because of the hard work of our teams, SIG is in better shape than it has been for many years. We look forward to the future with confidence. Thank you for listening, and we'll now go to Q&A. So you can tell it's live because I'm moving straight from [indiscernible] to table. So I think we'll start with some questions from the audience.

Ami Galla from Citi. Just a few from me. The first one, just on outlook. If you can talk about the net benefit of the sort of restructuring that you've gone through over the last few years, where do volumes sit in your business versus '19, which are like you've kind of highlighted the U.K. Exteriors business has definitely been quite -- had quite a strong performance. It will be useful to get some color around volumes, whether you said? The second one was on corporate costs. Is this the right level as we kind of think moving forward and the investments that you've talked about? Is that the base that we should think about or should we also see corporate costs moving higher? And the last one is really on the order book. What sort of visibility do we have into the second half? Are there -- is there -- have you seen projects being delayed because of repricing, which could potentially come through in the second half, which is part of the pipeline ahead?

Okay. So on the volume question. So we measure, obviously, volume, but we measure share gains slightly differently by country. It depends on the data that's available from market. And what's very clear is that in all markets, we've gained significant market share. I think you can -- if you want to -- If you like, look at external references, there are some, for example, Saint-Gobain, which is our largest supplier, they've got a lot of public information and you can do some comparators. But over that period, some of those growth numbers we showed and the reason we went back 2 years, by the way, was to gain that wider perspective way, way, way beyond inflation. So strong volume growth across all the businesses. You asked about corporate costs. Yes. All means -- we don't have big corporate costs, but...

It's been pretty stable now. I mean, I think there might be around the margins, some investment in some of the areas like modernization. There may be a little bit of that, but broadly it's really marginal. So I think the corporate costs will be pretty stable going forward.

On order book, I mean, we don't -- we typically don't have a long forward order book as a business, a project sort of 3 to 6 months out. A lot of our trade is spot. There's a lot of cash trade in the business. So I mean, all we can say is what our customers say. And what -- and the pattern that we've seen this year, which is very, very varied by country. Some countries have had stronger order books recently than in the first quarter and others the other way around. It's a real mix bag. Mean in a way, we see that as part of the diversification benefit because it's different everywhere you look.

And we do -- I think your point about sort of ordering ahead and does that skew things. I mean again, there's bits of that. We see that it varies a bit by market, by segment, but it's really -- it's very marginal.

It's Aynsley Lammin from Investec. I think I've got 3 actually. Just on the U.K. Interiors, obviously, you're seeing good improvement and momentum in the margins there. I mean, from here, do you need to increase the scale of that business still and take market share? Or is it more about kind of shifting product mix, better price management, et cetera. Just wondered where you are with that? And what -- how the kind of competitive environment looks, how they're reacting on the ground at the key competitors? And then secondly, just on acquisitions, you mentioned there's a good pipeline. Just wonder what your appetite was there. Is that something, obviously, you've just done the good acquisition in the U.K. would you kind of hold off now until maybe next year given the macro backdrop? Or should we expect a few kind of bolt-ons coming through? And then thirdly, just kind of H1, H2 profit split now the business as it normalizes, what would be a normal kind of H1, H2. Obviously, there's lots of distortion impacts of the pandemic and price inflation. But the guidance kind of implies a second half drop off. Just trying to get structurally what the H1, H2 profit spread would?

So I'll take the first couple, Ian will take the last. So U.K. Interiors scale. But obviously, the first part of this, we had a sort of, if you like, relatively underutilized network at the beginning, it's grown significantly. So that the rate of growth of scale in the next sort of 2, 3 years will be lower and so the teams are moving their focus much more to improving the margin mix. So for example, Miers is a business which is highly specialized in construction products. That's the acquisition we made last month, much higher margins. than the legacy core business. And we've hired more people into those sectors within the business and to those category teams. So we'll be driving more, if you like, the quality of the mix as we go forward and less, if you like, the revenue growth, there will still be a lever. And the next one, obviously, is productivity. I would say the U.K. is less advanced than some of our other markets within our business on the sort of productivity gains we can get from digitalization. They put a lot of effort into it at the beginning of this year. So we expect that to kick in, in the 2 or 3 years hence. On M&A, we've got a guiding principle that M&A is essentially there to enhance the organic strategy. So the primary requirement of the business is to maintain our ability to deliver superior availability to our existing customers through our existing network. And if we find we need to make a trade-off, we're going to trade off in favor of the organic. And we'll be opportunistic. But obviously, at the end of the day, Ian gives me permission on that front because we want to make sure that above all that, our financial targets, our leverage targets are adhered to.

Well said, Steve. On the H1-H2, Aynsley, I mean it's broadly -- in a normal year, if obviously your question, it is actually pretty even between the 2. You think about the impact of winter sort of December, January, February and then you've got August and [indiscernible] France. So it's pretty even. I would say this year, Q1 was very strong. So probably this year, it's probably slightly skewed to H1, which is kind of what you've seen -- but as a general rule, there's not a huge amount of seasonality sales-wise, working capital, clearly, there is.

[ Joe ], I didn't answer your question on competitive threat competitive intensity. So what we said 2 years ago, I think with some level of disbelief that we could grow quickly and grow margin at the same time. The only way you do that is by growing through service and availability and being local and being trusted you don't do it through price. So that's going to maintain -- continue to be our approach. In the U.K., in the dry lining market, for example, which is the most competitive segment, the management there have been very carefully rebuilding volume, turning away low-margin opportunities or if competition on a particular project is intense, we just leave it behind and move on to the next. And we'll continue to do that.

Sam Dindol from Stifel. Three questions from me, please. Firstly, in Poland, very good margin progression. How much of that is due to the omnichannel growth? And is it easy to export that to other geographies? Secondly, on operating margins, obviously, the 5% target. I think in the past, it's supported by the Air Handling business, which is now disposed of many years ago, it was a very good margin. How confident you are of getting to that target without further M&A? And then finally on the dividend, should we see the leverage target as a hard target before reintroducing the dividend or is there any flexibility around that?

So as before, I'll have a crack at the first 2 and Ian the third. So on the channel margin impact. Yes. So in Poland, our Polish business has had a very significant impact. It's not only -- we actually use -- by omnichannel, it means we're using e-commerce as another way to get to our existing customers. We don't use it as a new customer acquisition tool. So it's a way of extending our traditional business model at the same sorts of prices using the same fulfillment. So in and of itself, it doesn't drive margin. But what we found is that customers who buy the same high-volume products from us, they'll still have a touch point in the same branch. They've got the same salesperson. But then also out of hours, if you like, they'll go online to fulfill those orders, and they'll tend to buy a large number of accessory products where there are higher margins. And that's a phenomenon we've seen. And the other aspect of that is that the salesperson, so it's the same person responsible for the physical and the e-commerce relationship. They're made far more productive because a lot of that activity it's moved online and freeze them out for other things. We do see that as transferable. It's not a one-for-one transferability to other countries because it depends on the customer buying preference. For example, in Ireland, we have the same physical capability, but the market is slightly different that the customers genuinely not as likely to pick up on an e-commerce opportunity or availability. So that is a big part of our program over the next 2 or 3 years, where in the U.K., in France and Germany, our e-commerce is in very, very early stages. So on 5% target confidence, I suppose, hopefully, the presentation made it clear. We're very confident why we're pulling the levers that, which levers we're pulling. We're confident because we're seeing it done in most of our business already. And the way that we're looking at the businesses like U.K. Interiors is to disaggregate the categories 1 by 1 to make sure they've all got the margin potential. They've all got slightly different flavors of approach towards it. So the lower margin is much more productivity driven, making sure that we make, if you like, the volume level we need for 5% will bring that volume level down. And in ours, it's a case of driving the higher margins, but very high confidence on that. I'm going to ask Ian to talk about the dividend point.

Yes. So Sam, thanks for the question. I mean we obviously want to get back to a dividend and reinstate the dividend when we sensibly can, just to be clear. But we'll stick with the capital allocation or priorities we've laid out. And including the underpinning of the leverage targets you alluded to and sort of a base liquidity level. I think on both of those, if anything, we see those as more important now than they may be even were 6 or 8 months ago, given the broader environment. So we'll kind of keep an eye on that. But the other priority is our organic growth, M&A, where we sensibly can do really good accretive deals and dividend. Is it hard -- I think the cash generation point will take out of itself a little bit once we get to the right level of cash generation and leverage will be where it needs to be.