Travis Perkins plc (TPK) Earnings Call Transcript & Summary

[Presentation] Good afternoon. I'm Jasmine Whitbread. I'm the Chair of Travis Perkins, and I'm absolutely delighted to welcome you all to today's update. And Nick and the team have got some great content to share with you, and I'll be handing over in just a minute. But first, because I'm relatively fresh to the business, having taken over as Chair of the Board 6 months ago, I thought I'd just share very briefly some initial impressions. I've really enjoyed getting out and about and visiting the different branches and getting to the different businesses, Travis Perkins and Toolstation, of course, but also CCF, BSS and Keyline. And I've really been struck by the fact that there's a really strong people orientation to the business. For all our products, it's essentially a people business with a strong culture, healthy culture and strong sense of community. And that's true at the top of the organization. And today, you'll meet some of Nick's top team and hopefully get a sense of how well they play together, but right the way through the organization everywhere I've gone as well. The diversity and inclusion agenda is starting to bear fruit, as you can see here, visiting the CCF Borehamwood branch recently, run by Jenny, who's here together with her regional manager, [ Carlie ], and their MD, Catherine, who's also here today. So yes, as you can see, we're having a nice visit. I've been really struck by and it's been interesting to see how resilient the business has been, and obviously, through COVID, but also handling the material shortages that we're seeing now and other challenges. And I really believe, having talked to colleagues, that this is very much about the local and long-term relationships that we have with customers and suppliers and a really deep understanding of the trade. I'm also impressed by how much has been achieved in just the space of a few months. So clearly, executing on the portfolio simplification strategy at the same time as growing momentum in the core business. So it really does feel like we're ready to launch the next chapter. And when I think about the next chapter, I guess, there's 3 things I think about. First of all, is the long-term growth in the industries that we serve. Secondly, is our own growth plans. And third is the change in the sector and being well positioned to lead on that change. And you'll hear about all those 3 points later this afternoon. And finally, I'd like to share that I'm really pleased that Nick and the team, as well as having what I hope you'll agree is a good story to tell, are utterly focused on execution, which, as we all know, is what counts in the end. So with that, over to you, Nick.

Thank you, Jasmine, and a really warm welcome to all of you in the room today and on the webcast. And thank you for taking the time to join us for what is a really important session and something we've actually looked forward to for a very, very long time. From my perspective, believe me, after over 2 years in the business, I'm really excited and pleased to be able to unpack our plans for the future with you today. Plans which we believe will place us absolutely at the forefront of the construction industry as it evolves, and enabling us to grow and deliver value for shareholders, for customers and for the communities we serve. And to continue to be a place where the very best people in the industry grow their careers, and you're going to meet some of them today. And to continue to be a deeply relevant and respected company long into the future. So a quick orientation to our agenda today on the slide. I will set the scene with an overview of the ambition we have for the group and how we're thinking about the markets which we operate in and how they're changing. And then we'll discuss how we're leading the evolution of the merchant proposition. And Angela and Kieran and Frank will talk you through that. Then, James and Alan will discuss how we're maximizing the potential for Toolstation here in the U.K. and in Europe, before we have a short break. So the first half is all about our brilliant businesses. Second half, we'll come back after the break and discuss how, together as a group, we believe we can add more value to customers and our industry and ensure the long-term sustainable success of the business for our shareholders, for our customers and the communities we serve, all the while being true and clear in the new sense of purpose we have as a company and delivering the financial outcomes that are compelling, we believe, for our investors. So I make no apology for showcasing 2 specific things today. Firstly, you will hear from most members of my group leadership team or the GLT. All of the GLT are in the room today to answer questions and to meet you afterwards, but you will hear from most of them, and I believe them to be the very best in the industry. And secondly, we are going to unapologetically showcase some of those less-often discussed parts of our business. Our agenda over the last 2 years has been crowded out by, as Jasmine mentioned, our portfolio optimization. And therefore, we're going to unpack other parts of our business, particularly our specialist merchants, but other parts of our general merchant, too, because we believe that they are deeply relevant to the issues that we face as an industry in the future. They form a significant part of our revenue base, and there's great potential to grow. So I'm really proud of both of those things, and I'm hugely proud to represent the company today that I'm incredibly fortunate to be part of. So let's get started. So let's start on Slide 5 by reminding ourselves of what we've done since the Capital Markets Day way back in December 2018, and doesn't the world feel like a different place now. Simply put, we have done what we said we would do. We've simplified the group. Portfolio actions are well reported, but they resulted in an increased focus on our advantaged trade businesses. We focused on the trade. We strengthened the core of the business. We've invested in our propositions and -- both in our branch and digital propositions as you'll hear. And we've simplified our ways of working. We're easier to do business with, we're more relevant to our customers and we're more competitive as a result. As you'll hear, there has been a huge amount of work here over the last couple of years. And despite the distraction of the pandemic, we have established a very firm platform upon which this business can continue to win. We've got a very focused leadership team. We've got a focused capital allocation plan. We are moving at pace and executing change. None of what you're going to hear about today is not in progress. Everything that we're going to be talking about is in flight. We're getting on and we're making it happen. And as a result, we're winning both here in the U.K. and in Europe, and we're creating new opportunities for growth. But we're not standing still. That actually is just first base. Our markets are changing fast. The construction process, top left of this slide, is changing, driven by multiple factors: regulation, carbon, skills or lack of them, demand, efficiency. We're ideally placed to create value and advantage from these series of change. And as you'll see, we are evolving from a traditional way of working, where our role is enshrined in a traditional value chain and well understood within our business model, to increasingly modern methods of doing business and working within reengineered value chains that require a much more agile and ambitious mindset and different ways of working. So we're committed to continuing to change the way we work and do more for our customers. Introducing new services alongside our deep product expertise, as we say opening up new channels where our customers and suppliers can work with us more easily, adding new value, overall knowledge of materials in areas such as design and leveraging the strength of our portfolio of assets to create more value. So we've reset our sites and framed our ambition as continuing to evolve from being the leading supplier of building materials to the trade to be the leading partner to the construction industry. We're really excited about this. That's what we're going to unpack for you today. And so you can understand what that means for the industry and what that means for the group. So if we think about the addition of modern ways of working and what that means by just expanding on the right-hand side of the previous slide, it's about adding more value from the core of what we do really well today, opening up new avenues for growth, driving value for customers and for shareholders. Better for customers. Deepening the relationship we have with them, providing simpler and more convenient ways to do business with them, and being much more attractive and relevant to new customers. And elevating our relationships in a way that we can help them navigate a changing construction process where carbon reduction is an imperative. Better for shareholders. We're creating a focused margin-accretive, services-orientated proposition, and a sustainable and differentiated business model with clear capital allocation policy and greater predictability. I'd add here that these are characteristics common with the very best-in-class worldwide distributors that we respect. And we're doing this by adopting pilot-based test-and-learn philosophies where we're rapidly able to measure and scale and change. And this is muscle that we developed through the pandemic, and it's proving extremely beneficial as we move forward. And in doing so, and articulating this ambition very clearly, our role and responsibility to the wider industry and to the communities we serve is just really, really clear. So let's spend a minute talking about our markets, what's changing and why we think we are uniquely positioned to do well. Now most of you will be familiar with some of the details on this slide. So I'll make a few comments. We operate in robust markets with strong long-term fundamentals. And we occupy #1 or 2 positions in the -- we have businesses that occupy #1 or 2 positions in their respective markets. And we enjoy strong market share in what is highly fragmented market. And as you will all be aware, there has been significant M&A activity and capital inflow into this segment of the market, which has led to increased consolidation. And we expect this to continue as a result of the strong long-term attractiveness of the market. And we think it's a positive for the industry actually. We think this will lead to professionalization of the industry and require participants to invest in order that they've got the capability to face the challenges we have as an industry. So as these things evolve, we're already [indiscernible]. So perhaps it's the most obvious statement of the day, that the world is changing at pace. And construction has generally lagged in terms of innovation and productivity. But it is being impacted by some macro trends, which are changing the way we work. At a macro level, the fusion of technology with your business and customer proposition is just ubiquitous and table stakes in today's world. Customers expect to be able to connect, to get help and advice, to organize fulfillment any time of the day or night, and they expect to be able to be kept abreast of the process all the way. The purpose of our business, and the congruence of our culture with our business model and our operating model with our sustainable business framework is not only important to us, but it's important to our customers, large and small, and increasingly to our suppliers and our colleagues, both now and in the future. And our sector is cited as being one of the slowest to change, exhibiting poor productivity, but considerations of quality, efficiency, ESG, I've mentioned carbon, is driving new ways of working really as a means to address this productivity. So we think we're not only positioned well now to rapidly adopt to these changes but actually to seek advantage in them. And we're already doing so as you will see from many of the examples today. So as we think about the future, we have this very simple model to help us. We've got the right mix of market-leading businesses, simplified, focused, clear on who their customers are. We've got a really strong core addressed during the pandemic. We operate within robust growth markets. And we see the opportunity to capitalize on many of the changes in flight. So we've got options as to where we play and how we play. And we've made some clear choices and -- as to where we focus with our customers always at the heart of the plan. So as I discussed earlier, in support of our ambition to be the leading partners to the construction industry, we're kind of focused on 2 axes [ share-of-wallet ] growth, new revenue growth, reducing the risk of disintermediation, being really relevant to current and future customer needs, and we'll bring many of these to light for you today. But more than that, as a group, we believe that we are uniquely positioned to respond and lead changes in our space. Our businesses from which you're all hear now, are positioned to address these issues for customers and that overlay demonstrates how well they are matched against our customer sets. As we've rationalized the portfolio, I've organized the business and the leadership team to do more together by collaborating, by sharing data, by sharing capability, by building new propositions for the long-term positive change within our business, and the industry and by using the collective assets of the group to do so. Alongside this, we've structured our incentives to reflect our ambition to be the leading partner to the construction industry and to leverage the power of the group together. So to bring this to light for you, we will now hear from the MD of Travis Perkins, Kieran Griffin; the MD of Toolstation, James MacKenzie; the MD of BSS, Rushforth; our Group COO, Frank Elkins; and our group CFO, Alan Williams. Their respective biographies are in pack. And sparing their blushes, I truly believe them to be the best team in the industry. They've got broad and deep capability for many years in the industry. So first, to talk you through how the general merchant is positioned to outperform the market, I'll leave you in the capable, if slightly shovel-like hands, of Kieran Griffin.

Thanks, Nick. Thanks for that compliment. So good afternoon, everybody. I am delighted to be here talking to you today about the Travis Perkins general merchanting business. Now I've been in the group for 27 years, starting as a trainee and working up to Commercial Director in TP. Prior to rejoining general merchanting in 2019, I've previously been Managing Director of CCF then Keyline and then BSS. Coming back to TP as Managing Director was a real privilege for me personally as it's a business that's really close to my heart, having spent the majority of my career working within it. Unfortunately, I came back to a business in 2019 that had lost its mojo and didn't believe that it could win. We had become overcentralized, too retail like, with the subsequent loss of empowerment for branch managers, resulting in many of them leaving. We have done a lot of heavy lifting to address this, and I can confidently say this is now a really exciting time for our business. We are well positioned to leverage the benefits of the work that we have done over the last couple of years and have really ambitious plans for the future. So much so that we now have a lot of people knocking on our door looking to come back rather than looking to leave. And so over the next few minutes, I'll be talking about these plans and sharing my vision and passion for what lies ahead. But first, let me unpack the business for you. Our ambition at Travis Perkins is to be the destination for timber and heavy building materials, supporting the best builders and professional trades people throughout the U.K. We operate across a broad range of customer groups, from small jobbing builders up to large national contractors and developers. This includes a number of tailored propositions to suit the needs of customers such as local authorities and housing associations, as well as regional house builders and FM contractors. We provide a range of building materials, hire equipment and other support products and services. And whilst we specialize in timber and heavy side, we also carry a strong range of light side products for the convenience of our customers. The integration of the Benchmarx business during 2020 sees a much greater alignment of our kitchen proposition to existing Travis Perkins customers, as well as providing improved access to the broader Travis Perkins product range for the Benchmarx customer base. Overall, this provides an attractive and differentiated proposition, combining the range of products and services all in one place for the convenience of our broad customer base. And this is something that none of our competitors offer. And it also means that we're really well positioned to deliver further value-added solutions to these customers in the way they procure and access the products and services that they need. Now, as I said earlier, we believe the business is in great shape to win share and move forward. Significant improvements have been made, both in terms of competitiveness and capability to increase our relevance to our core customer groups. During 2020, the business underwent a thorough pricing realignment of our trade and visible prices and simplified the tools in place for our branch teams to manage our customers' pricing. We shifted the business towards greater local branch empowerment, recognizing that there are many variances in local markets such as competitors, regional product preferences and different customer types. This means the elements of our proposition are best determined locally to support the needs of customers. We have worked with our suppliers to simplify our commercial deals, to support our local and central teams with much clearer management information, speeding up and improving decision-making. In 2020, we took the really tough decision to close a number of our smaller branches because they could never be destinations for timber and heavy side. But since these closures, we have already opened 9 larger, more capable branches, which have been really well received by our customers with more to follow, as I will explain later. And I'm also delighted with the progress that we've made in digital. We have introduced a mobile app for customers running off our legacy systems, as well as the delivery management platform, which allows us to update customers on the status of their delivery. Hence, we now have multiple channels through which customers can do business with us in a way that is convenient to them. So I believe that we're in a great position to move forward and build on all the hard work that we have done. And I've laid out some of these opportunities here, split as Nick outlined, between our smaller and larger customers and between opportunities to grow share of wallet and offer value-added service lines. Some of these are new and some build on work that is already well underway, and let me pick out a few for you. Firstly, a particular benefit to our professional trades and general builders, we're going to continue to build out our network of larger, more capable branches with a real emphasis on delivery, and more to follow on that in a moment. We will also expand our value-add services, such as our kitchen design and supply service through Benchmarx, and our established Tool Hire business to provide additional benefits to support these customers. To gain more share of wallet with these customers, we will push hard into digital -- and again, more to follow on that in a moment, and build on the hard work that we have done in our commercial teams to deliver -- to keep delivering competitive prices and to ensure that our ranges are wide. For our larger customers, we're focusing hard on how we bring to life our value-add services around our offering, helping to address some of the problems that these customers face. This includes our market-leading Managed Services offering which, as I will explain, provides a fantastic, tailored solution for customers; and developing services around our hire and kitchen businesses, which, again, I will go into more detail on shortly. In order to ensure that we capture a greater share of spending, we are developing some system integration capabilities to allow our customers to train seamlessly with us and make their back-office functions more efficient, and you will hear more from Phil about that later. We've also developed a tailored project funding solution to support regional housebuilders, where a lack of credit availability can impact the speed of project delivery. And we continue to develop new ways of supplying materials, which best suits the needs of these customers. For example, we have just launched a dedicated supply facility for a modular contractor. It's important that we understand our customers and deliver a proposition which suits their individual needs. This supports us as we look to retain, grow and attract them to our branches. As the quality of our data has improved, we have completed customer segmentation work, which provides greater insight and opportunities for us to better target our proposition to the most appropriate customers. The insight we now have includes, and isn't limited to, purchasing behaviors by customer, products or categories they are not buying from us and opportunities to better leverage the benefits from other parts of the group. And you'll hear from Nick later about how we're collaborating with James and the Toolstation business to enhance our proposition to trade customers. We know from our customers that about 40% of their spend is with TP and about the same again with other merchants. And we believe that there's a great opportunity for us to use our data intelligently to help us grow spend with these customers and deepen our relationships with them. I now want to talk about the digital work that we've been doing. The new TP customer app was launched in quarter 1 of this year, and we've already seen more than 100,000 customers download the app and start working with TP on the go. And the early results have been really, really positive, with great feedback from our customers, and we've seen significant increases in both average order values being up 25% and a doubling of conversion rates when compared to our website, and we were pretty pleased with the website. With the launch of the app, we have taken a big step forward in providing customers a platform to trade with us at a time and place that is convenient for them. They can check local stock availability, they can arrange orders for day-of-choice delivery, order goods for 1-hour Click & Collect, as well as manage their accounts on the go with access to their invoices, requesting for more credit, as well as paying their TP account. The development of our digital capabilities also includes a colleague app, supporting the way our teams work and providing a better experience for customers when they interact with our branches. It already does real-time booking in of goods delivered from suppliers, live stock checking to enhance stock accuracy as well as better management of prearranged customer collections, all with the intention of removing complexity and inconsistency in our [ plant ] service and creating a better timber and heavy side experience. And there's loads more to come, such as being able to open a credit account in 5 minutes; multiple user logins and ordering for one account, which is really important for our larger customers, as well as being able to manage open orders and quotes. We're really excited about these plans, and we'll be working closely with Phil's technology team so that we can further support customers, making Travis Perkins an indispensable part of how they run their business. The establishment of a strong network of large capable branches remains a key part of how we will continue to lead in our markets. These will improve the consistency of customer experience throughout the estate, provide better delivered sales predictability through wider fleet capacity and greater stock debt, and make it easier for customers to navigate and access the products that they need, as well as adopt energy-saving solutions in the construction and operation of these sites, such as LED lighting, solar panels and electric vehicle charging points. Sustainability remains an important commitment for both us and our customers. The network plan focuses on locations where we're currently under-indexed, with particular focus on the U.K.'s largest towns and cities, as well as defending those areas where we have a strong market position but operate from constrained or compromised sites. We will be well placed to provide a great proposition and experience for customers engaging across both traditional and digital channels. And we have a strong pipeline of property developments such as our newly relocated branch of Minworth in Sutton Coldfield, which is pictured here, which opened in August of this year. Our customers are loving these new sites. And it was great to see that Minworth has already doubled its sales run rate after only a few weeks of trading. As mentioned, we are actively focused on gaining share in some of the U.K.'s largest towns and cities where we're under-indexed. Incremental profits for new branches are in excess of 10%. With an established fit-out and fleet model, the expected return on capital deployed is in excess of 30%. The network development plan sees us adding around 50 of these new sites to the existing network over the course of the next 5 years. Similarly, we have a number of branches that, with a more capable facility, we would be well positioned to better support customers and gain market share. We're also conscious that as our competitors seek to grow their estate, we need to ensure that in areas of high market share, we have capable and effective branches. Again, these new sites benefit from a strong net return of in excess of 10% and a return on capital employed in excess of 30%. The network development plan sees us relocating up to 50 of our existing sites to larger, more capable locations over the course of the next 5 years. Providing value-add services to our customers is not new to us, currently contributing 25% of overall revenue. Our Managed Services business is well established, serving contractors involved in the repair and maintenance of local authority and housing association domestic properties, and sales for these customers are around GBP 200 million per year. I'm going to talk through that business model in a moment. Our kitchen and joinery proposition delivered through the Benchmarx business has a network of 150 stand-alone branches and showroom implants across the U.K. with an intention to develop this further. Pleasingly, we have already seen an increase in the penetration of Travis Perkins customers using Benchmarx from 2% to 4% since the integration of the 2 businesses at the end of last year. A really encouraging start, but there remains significant opportunity going forward across our customer cohorts. We continue to look to improve the proposition including trialing the supply and fit kitchen model for regional housebuilders as well as developing a preformed kitchen solution to support the modular construction market. Our hire proposition provides a one-stop solution for customers across both their material and equipment requirements. Whilst we have a well-established hire business, there is still significant untapped potential. Through working more collaboratively, we have successfully managed to grow to 12% penetration with more to go. Across our network, 250 branches have dedicated hire teams. And we will increase this number to further support customers with a broad range of tools and equipment. And for our larger customers, we will support their projects through tailored solutions, such as fleet repair and maintenance arrangements as well as waste management solutions. These areas provide us -- provide our customers -- sorry, these areas provide value to our customers as part of a joined-up proposition rather than customers needing to engage and work with multiple suppliers on their projects. As I mentioned, we have a tailored proposition supporting public sector contractors. These customers have longer contractual terms, and we support them with dedicated account management and operational teams to deliver the most effective fulfillment solution, and identify opportunities to add value, such as how we support their sustainability ambitions across their housing stocks. We work with them through dedicated managed stores, but also utilize our assets across the wider branch network, often with tailored project ranges based on their planned repair activity. We continue to explore new ways of providing an effortless supply chain solution for these customers that reduce the need for their contractors to make unnecessary visits to our branches and be more efficient on site, including using tools such as van stock management solutions and unmanned lock boxes on sites. We also work with these customers to implement back-office solutions to reduce their administration burden. Our tailored approach to Managed Services makes it really difficult for our competitors to replicate and provide the value-add solutions that these customers require. And there remain opportunities for us to further develop this proposition to support the changing way that these customers are having to work. So we are not short of opportunities to drive additional value across our customer segments, and we believe that we can continue to grow share while further enhancing our customers' journeys and service through our digital channels. Through the development of our branch network to support our heavy side and timber proposition and service capabilities, and by leveraging the value-add propositions in Managed Services, Benchmarx and Tool Hire. We believe the business is in great shape following the changes that we have implemented over the past couple of years. And this is highlighted by the fact that we're performing well and taking share across both new and existing customers. And feedback from customers, suppliers and colleagues is really encouraging. I am excited about the role of our business going forward because we are well set up to adapt and continue to win in tomorrow's market. We have a lot of opportunity already within our [ gift ] and much more to come through collaboration with the rest of the group, as Nick will explain. We are leading the way in the evolution of the general merchanting model, and I'm now going to hand over to Frank to talk about how the specialist businesses are leading in their markets. Thank you for listening.

Thank you, Kieran. Good afternoon, everybody. I now want to talk about the specialist businesses who are either leaders in their respective markets or #2 by volume, but all have market-leading returns. I briefly want to give you an overview of the markets they operate in and the foundations of their success to date. I then want to cover a number of areas that exist, that will deliver both growth and develop our leading proposition. So firstly, let's take a look of where these businesses are currently positioned. The specialist businesses are made up of 3 separate business units. I'll touch on all 3, plus TF Solutions that sits as an adjacency in BSS. We call these businesses specialists due to the nature of the markets and the customers they serve. These business units serve particular market segments highlighted in the slide, with much more in-depth knowledge of both the customers and the technical expertise in products and solutions that these customers require. These business units have consistently shown good growth over the past few years and have taken market share. This performance has been delivered through a deep understanding of customers having technical expertise and providing bespoke solutions through an empowered workforce, all delivered through a national network suited to an 85% delivered business mix. However, there is greater opportunity to grow and develop these businesses, which is what I want to talk about over the next few slides. All 3 business units have significant opportunities for growth, driven by, as Nick has already highlighted, partly the core fundamentals of the markets they serve. Secondly, the need to decarbonize the built environment, potential adjacencies and value-added service propositions that we're introducing. I'll touch on TF Solutions separately in a moment. BSS, who operate in both the commercial and high-rise residential market, continues to see strong growth potential with the investment, particularly in schools, prisons and hospitals, and also in an exciting new value-added service called Design for (sic) [ to ] Use, which Angela will talk about shortly. CCF is well positioned in the domestic residential market, which is forecasted for strong growth. In addition, they have the opportunity to grow their market position in technical insulation and the overall insulation market. Keyline, which also benefits from strong outlook in the domestic housebuilding sector, but they are also extremely well placed to take advantage of the potential GBP 650 billion investment in the next 10 years announced in the infrastructure sector. Why do we think that? Well, for example, we've already been being successful in securing preferred supplier status with all 4 JVs on the HS2 program. As I said, on top of the growth with core markets, we see decarbonization as a major area of opportunity. The need to reduce the carbon output and the total sustainability agenda will drive significant benefit for all the specialist businesses. The built environment in the U.K. construction accounts for 45% of carbon emissions and we see this as an opportunity for all the specialist businesses to provide an energy efficient solution as many buildings will not meet requirements that are currently being proposed. Our specialist businesses, as well as TP and Toolstation, are well positioned to service these marketplaces, both with the fabric of building such as installation of insulation, I know that's a bit of a tongue twister, but also for systems and solutions such as ventilation of air, ventilation, air quality and other draft proof categories. We also see huge growth in the air source heat pump market, which is predicted to grow from what is currently 3,000 installs per annum to over 600,000 installs by 2028, on which TF Solution is really well positioned to capitalize on. The next part of our growth equation is adjacencies. We acquired TF Solutions in 2017 to access the air conditioning market adjacent to the core BSS market. TF Solution is an air-conditioning distributor, which when acquired, had 3-branch network. However, we have identified significant opportunity to grow this business through 3 key levers. Firstly, to provide a national coverage in existing AC market. It needs to expand its network to approximately 30 branches using a mix of implants existing in BSS and new branches to complement the recently expanded 11-branch estate. Customer changes in demand means that digital proposition, both through a trading website and mobile app, which will allow customers to be able to research and design small AC systems, see product availability at branch and order the goods that they require. And finally, category extension into the refrigeration market, which provides chilling for cold food storage in a market adjacent to the AC market, not yet serviced by TF Solutions, and this also provides an excellent opportunity for growth. As already -- as I've already discussed and highlighted, the decarbonization agenda drives opportunities for alternative energy sources in the commercial heating market. TF Solution is well placed to take advantage of this market for 3 reasons. It has long established relationships with suppliers in the AC market, who also are key players in the air source market. They already have and provide training and accreditation for AC installers, which can be utilized and developed for the air source installer market. And TF Solutions operates in the SME and small installer market, which is identified for key growth for air source. Additionally to this, TF Solution also has the opportunity of leveraging the BSS customer base and actually the wider group customer base, whereby AC products, particularly can be sold through a number of different customer bases and channels within the group. The last element of growth for the specialist businesses is value-added services to help our customers. As could be seen on the slide, we have identified a number of areas we can add significant value to our customers. But for instance, we're going to focus on gaining early project engagement, which will benefit for our customers as we help in the design phase and, as Angela's going to bring to life, will also help provide better and more integrated solutions to our customers. As we progress our internal ESG agenda, we will be able to support customers and suppliers as we take an collaborative approach in carbon reduction, skill shortages, supporting local communities and diversity in the construction industry. In the first steps to decarbonize our HGV fleet and support customers reducing the embedded carbon footprint. We're leading here. As early this year, CCF launched the U.K.'s first 27-tonne curtain-sided battery-operated vehicle, and we are trialing alternative fuel sources for our HGVs. Nick also spoke about deepening our proposition. We're working hard to deliver a best-in-class, efficient, digitally enabled supply chain solution for customers so they know what products we are delivering and when they will be delivered. We'll be focusing on how we can integrate digitally better with our customers, integrating our systems and theirs to allow quicker and more efficient service. I'm now going to hand over to Angela, who's going to talk about one of the value-added services with developing for our customers. Angela?

Thanks, Frank. You've heard from Kieran and Frank, how we're deepening and elevating our relationships. Using this case study, I'll demonstrate how we're bringing to life those value-added principles in BSS and how we're elevating our position within the construction value chain. BSS is the market-leading distributor of pipes, valves and fittings to both the building services sector and industrial sector. Today, our position in the value chain means that much of the work to define and specify a project has been complete before engagement with BSS. Although we support our customers with technical and product specification, much of it means that many of our interactions are transactional. Throughout the value chain, our customers and our contractors have some significant challenges, including how to contract with multiple parties from installers, designers, suppliers and distributors. They also have a lack of designs and paperwork for existing systems, meaning that they often have to start designing a system from scratch at significant cost. There's lack of accessible and up-to-date data, which means a lack of visibility for maintenance schedules, and an inability to budget effectively. These customer pain points lie outside our usual material supply. However, we believe we have significant opportunity to solve the problems at either ends of the value chain by engaging customers and contractors on system design and the opportunity to use data effectively to provide ongoing maintenance services. Our Design to Use proposition brings together multiple technologies, enhanced by our existing technical capabilities. And it allows us to digitally scan a customer's premises, identifying and tag products, create digital system designs and maintenance schedules, prepare and share an asset management platform accessible to BSS and our customers. We're bringing this proposition to life with a number of customers right now. You see here a school that we've already engaged with and we're currently working with a large university, bringing it to life and on a much larger footprint. This proof of concept is helping us determine the size of the opportunity, to refine the technology and the delivery model, and to clarify the revenue potential. The revenue streams will come from front-end system design and an ongoing managed services offer as well as gaining greater share of our material supply. Initial discussions with customers give us great confidence that this is a much needed solution addressing our customers' challenges. Our customers are excited by this integrated solution and how it simplifies their processes and adds significant value. And I'm really excited of the potential for this industry-changing service model. Design to Use moves BSS from being a technical distributor to a proactive technical solution partner. And this case study is a concrete example of how at Travis Perkins Group, we're bringing these added value solutions to life and elevating and deepening our relationships. I'll now hand back to Frank to wrap up the specialist section.

Thank you, Angela. This specialist businesses have delivered fantastic growth for the group over the past few years and I am hugely proud of what we have achieved, and it's great to have the time today to talk about that. Equally though, I'm really excited by what the future holds. The areas of potential growth are clear to us. And as Angela has just demonstrated, our customers are looking for a more complete set of services as the industry changes, and we are really well positioned and ready to respond. I'm now going to hand over to James, who's going to talk about the exciting story of growth in Toolstation and how we're going to maximize its potential for the future. Thank you.

Thank you, Frank, and good afternoon, everyone. My name is James McKenzie. I'm the Managing Director of Toolstation, and I've had the privilege of running this business for the past 4.5 years. Toolstation is one of Europe's fastest-growing disruptors in the supply of tools and materials to the professional trades and general builders. Toolstation is a brilliant digitally-led business, offering customers simple, convenient and multichannel access to products for a low-cost operating model. In the U.K., it's well set to growth of GBP 1 billion of revenue by 2024, and we also have clear line of sight to a high single-digit operating margin at maturity. The model is portable, and you'll hear from Alan later about the European businesses, which are poised to follow a similar route. You heard from Nick earlier about the changing market and evolving customer needs. Toolstation has been at the forefront of leading the changing market dynamic on what we call the lightside segment, which are predominantly made up of tools, consumables, decorating and plumbing and heating. Our target customer are the professional trades and general builders, and we've laid out on the slide here, some of the key customer needs. They require high availability and visibility digitally that we've got it in stock. It's about certainty and reliability and being able to be in and out in a couple of minutes. Speed of service is critical. Convenience is also key. Only about 1/3 of lightside trade spend is planned. Having a local branch with proximity of stock close to the customer is increasingly important. In urban locations, you need to be within a 10-minute drive time. This is all underpinned by requirements for consistent value and fixed low prices. Toolstation operating model is engineered to deliver these customer needs consistently. The offer is the same in every branch. The model is powered by being digitally led with a truly multichannel offering. Customers can have what they want, when they want it. Toolstation offers 5-minute Click & Collect from our rapidly expanding branch network of 500 branches. We have a growing range of 25,000 products available for next-day delivery, 7 days a week. And we're also trialing same-day delivery in less than 2 hours in London. You can also still order on the phone from our dedicated U.K. contact center. This is all underpinned by great service from our 5,000 engaged colleagues. And Toolstation has over 6 million satisfied customers. And this is backed up by a Net Promoter Score, which is over 75, which is world-class. Our customers love what we do. As you can see from the slide, Toolstation has delivered outstanding performance. We have an accelerated CAGR of 26% and 4 consecutive years of double-digit like-for-like sales. This market-beating performance has been driven by 3 proven levers of growth. The number one lever has been our network expansion to drive even greater convenience and brand awareness for our customers. In 2017, the format had been largely unchanged since the inception of the business in 2003. Our average branch footprint was 5,500 square feet and predominantly located on industrial parks. So we started to test, fitting the same offer into smaller units, down to 2,500 square feet. This proved extremely successful, allowing us to enter smaller catchments, both in urban infill and also into small country towns. It also allowed us to put branches into higher footfall and more prominent locations. At the same time, we started to use this format strategy to go into A1 retail units, along with high street locations. And it's now business as usual to open branches in ex-cafes, restaurants, and car showrooms. And these are just examples of how we're getting the proposition even closer to the customer. We also started to drive what we call the network effect, in that each additional branch in a defined catchment allowed the Toolstation business to extract additional growth and share from the market beyond the standard one branch model. And a great example of that is Bristol, where we've got 7 branches and we've grown the business by over 40% in the past 2 years. And our highest value customers shop in multiple locations as the work dictates. And the performance of these branches allowed us to accelerate our branch openings by over 50% per annum, and we've been at a run rate of 60 a year since 2018. It also allowed us to raise our ambition to 650 branches in the U.K. by the end of 2024. The second lever of growth has been driving sales densities and driving new customer acquisition through propositional development. Click & Collect within 5 minutes has been the biggest play as it blends the convenience and choice of shopping digitally with the speed, certainty and reliability of collecting from our network of 500 branches. It's grown from being 5% of our business to well over 35%. And it actually peaked at over 90% of our business when we operated dark branches in COVID. We've also further built our digital capability with a mobile-first approach, improving our speed and search along with big steps forward in our content and ease of use, and particularly in areas like checkout where we've introduced Google and Apple Pay. We launched 7-day delivery and a market-leading 9:00 p.m. cutoff for next-day delivery to drive even greater convenience for our customers. Much of the work in developing the offer has been focused on the trade customer base, where we see the greatest opportunity. One of the key levers has been the introduction of trade credit, which has gone really well so far. We've seen the average order value of credit sales being more than 50% higher than cash sales. The final lever is range extension. We've increased the range by over 10,000 trade targeted products, including specialist trade brands and added new routes to market such as drop ship to increase choice and convenience for our customers. We've also developed a stable of 6 own exclusive brands, which complement our core trade brands and drive value and differentiation on key categories. Over the last 4 years, the business is focused on strengthening the foundations for growth, which has positioned the business well for the future. We continue to see strength in the growth of the Toolstation business. As I said before, it's on track to reach GBP 1 billion of sales at the end of 2024 and 10% market share. Looking to the future, the next stage of our journey will be underpinned by strong branch maturity fundamentals, coupled with the impact of increased brand awareness. And we see the outlook post 2024 to be at least a 10% revenue CAGR. This growth is going to come from 4 key areas. Our network growth will continue at 60 a year to at least 650 branches in the short term with potential beyond this as we drive sales densities and smaller formats. We've trialed 6 micro format branches of 1,500 square feet, which have got 70% of the full offer. And this has been really, really strong performance from those branches for us. We will continue to develop this, coupled with our next-day and same-day delivery capability and deploy it where the economics and property availability dictates. We are really well positioned as customers shop across multiple channels with enhanced delivery capacity coming on stream in 2022 and learnings from our same-day delivery trial in London well underway. Our focus on the professional trades and general builders will continue as we leverage our digital trade credit proposition and further incentivize customer loyalty. We've already identified further opportunities to extend our trade brands and ranges and to really focus on capturing more share of their wallet. Moving on to propositional development. We will develop the total offer to 50,000 products across core lightside categories, going both deeper and more credible on existing categories, but also adding new categories which were additive to the Toolstation proposition. A great example of this recently has been the launch of smart home. We will continue to develop our delivery proposition with enhanced tracking throughout the customer journey, the development of our same-day proposition and rollout across the U.K. New value-added services will be launched powered by the app to help our customers run their business. All this growth is underpinned by an unrelenting focus on the fourth area, which is accelerating our digital capability. Digital participation now represents 70% of the total business and this has been stable at this level as we've come out of peak COVID restrictions. This is made up of Click & Collect, delivered volumes and ROPO, which is research online, purchase offline in a branch. Over the past 18 months, we've made significant investment in our digital proposition as well as creating dedicated Click & Collect lanes in our branches. The recently launched mobile app has been really well received by our customer base with positive reviews. We're at 4.8 out of 5 on both the Google and Apple stores. And we've had over 130,000 downloads in the past 8 weeks. The app offers an enhanced user experience, enable better product shopping, account management and faster checkout. We have a -- we have diversified our customer acquisition by investing and leveraging in emerging marketing channels such as social media and affiliate marketing. We've significantly increased our organic search presence, enabling us to reduce reliance on paid search. We've invested in a new search engine, which utilizes AI and machine learning to provide a better shopping experience for our customers. Increased use testing has enabled us to introduce new features faster and to become more data-driven. We've invested heavily in customer research to help develop a new loyalty program. This is being piloted and tested and will be launched fully at the end of the year. Through better use of customer data, we are now able to personalize the user experience through the website and the app. And I'm also delighted that we have a brand-new 0.5 million square feet facility coming on stream in Q4 2022 to further support the growth of the digital business. This facility will also support here in the Travis Perkins team with their lightside fulfillment. So the Toolstation business has demonstrated operational strength and flexibility over its history, and this trend is set to continue in the future. Firstly, the branch network plays a critical role in our proposition, driving growth both from a revenue and returns perspective with 55% of the estate still maturing. We are confident that the return to this cohort will double over the next 5 years to a branch contribution of well over 20% and average sales per branch will revolve to be greater than GBP 1.5 million. Over the last 4 years, we've significantly increased our branch openings to drive convenience and brand awareness. By investing in smaller units with better visibility and by providing dedicated branch opening team resources, we've seen sales in the first 12 months of trading increase by 58%. This demonstrates the maturity of the model and the importance of having a physical estate at the heart of its leading digital offering. Well-invested infrastructure will be required to support current and future growth. We approach this by ensuring an effective, efficient and a sustainable model, which maintains Toolstation's operational agility. These costs will be stepped in nature, like the new DC facility I mentioned some moments ago, and investment in support center resources will follow a similar profile. I'm really excited about size of the prize ahead of us and the opportunity of delivering on our ambition of exceeding GBP 1 billion of sales in the U.K. You'll hear from Nick later on, on how we will leverage the scale and expertise of the group to further accelerate our trade-focused development. And as you would expect, we're applying the learnings from our success in the U.K. to speed up the development of the European business and enhancing the future portability of the model to different markets. We'll now play a short video showcasing the European business before I hand over to Alan to talk about our expansion plans there. [Presentation]

So as you heard from James, Toolstation U.K. offers huge potential in terms of future revenue and profit growth. While still in its early stages of development, Toolstation Europe is showing all the signs that it can follow the same path as the U.K. I hope that short video give you a feel for the business we are building in Europe and its similarities with the U.K. operations. What I've set out for you here is the addressable market by country, current and potential network size, an indication of current maturity, and how we see the long-term potential relative to the U.K. Let's take each market in turn. Firstly, the Netherlands. This was the original entry into Europe for the business and is the most mature of the 3 markets at this stage with 66 branches. This network is backed up by an extensive digital presence in a relatively sophisticated e-commerce market. We see scope for 150-plus branches in time and expect to start generating profits within 24 months. Belgium started as an online-only platform run from the Netherlands, where we have a common back office and warehousing operation. This helps us spread the fixed cost base. We began opening branches around 2 years ago and have been very encouraged by what we have seen. There's less digital penetration in the Belgium market, but the market overall is also less competitive. We plan to accelerate the branch rollout in the next few years. France is the big opportunity with an addressable market, at least the size of the U.K. But at this stage, it is also our least mature European business. Early stages since the initial implantation in the Lyon area have been encouraging, and we're building out the presence in the Southeast first. We're taking our time to work out which locations work best and what the right marketing mix is to drive the business. We will continue to test and refine, and are building the infrastructure to enable us to move at real pace once we have fine-tuned the model. We expect to invest EUR 35 million to EUR 40 million in start-up costs over the next 24 months in France, and this may increase once we have honed the model. Now before we take a short break, let me just summarize what you've heard on Toolstation. The U.K. is a very compelling business. The building blocks of revenue are clear and will help us deliver GBP 1 billion plus of revenue by 2025 with operating margins expanding as the network matures. We're confident in our ability to achieve a high single-digit operating margin. I'm particularly keen that we capture and exploit the learnings from the more mature business in the U.K. into our European markets. These are both commercial benefits and also collaboration and transfer of digital and technology innovation. We get together regularly as a team to ensure the best practices are served. As I've said, this ensures that our businesses in Europe developed well and follow a similar path to the U.K. in their early years. We are confident that we have a unique proposition in each market, first-mover advantage and a clear runway to growth. Our profit trajectory will change over the medium term as the Dutch business is close to breaking even, and Belgium will quickly follow as we are able to share back office and warehousing costs. France is a significant opportunity, potentially bigger than the U.K. We need to continue to test and learn and refine the model. Once we found the winning formula, we will go hard on the rollout. That may increase the losses in the short term, but grow the longer-term value of the business. We need to see progress in our core markets first and prove we can make money outside the U.K. But our ambition does not stop at 3 markets in Europe. We believe the model would be well suited to other markets in Europe and beyond. And whether on our own or with a partner, we have a real appetite to explore these opportunities when the time is right. So we're now going to take a 15-minute break. So when we come back, Nick will take you through how we plan to really harness the power of the group going forwards to better serve our customers and create value in the long term. So if we could be back in the room at say, 5 past 3. Thank you. [Break]

I'm going to take that as the doors shut and nobody else is coming in. Thank you for rejoining us for the second half. A number of you have commented it's kind of chilled in here, which is probably an advantage at this time of the day, kind of keeps us all sharp and awake. But let me start the second half of our show. Thanks to all my colleagues for their first half presentations. And I hope you agree that as that demonstrated, we have brilliant market-leading businesses. You've heard from the team and I think, hopefully, you feel that it really demonstrates the quality of the business and how aligned and relevant to our customers and our customer needs that they are. And I'm really excited about the potential for these businesses. I'm really excited as they continue to outperform their markets, but actually evolve and grow. And as I hope you've seen, they are in the hands of accomplished leaders backed by first-class teams. And I would add that Catherine Gibson, who runs CCF; and Dean Pinner, who runs Keyline are also with us, and we'll be happy to talk afterwards and take your questions in addition to everybody else you've heard from. But as you've heard, we intend to go further and realize our ambition to be the leading partner to the construction industry. And that's what this section is all about. And I'm going to build on that theme as we go through. We're absolutely focused and committed for doing more for our customers and leading the industry as it changes. So in the addition to the enormous potential within our businesses, the strength of the combination of assets and capabilities that we have as a group puts us in an enviable position to do more to enhance the proposition for customers and help them navigate a changing industry. Too often, our business is seen as a set of components. We firmly believe there is more value in our business as a group than it would be as a set of individual businesses. And I'm going to bring this to life for you this afternoon by talking through a couple of examples from many I could choose. So I would invite and encourage you all to look beyond the sum of the parts and see how we are uniquely placed to do more. I will then hand over to our group CITO, Phil Tenney, who will help us understand how we're thinking about aligning our technology with the development of our business propositions. And then Emma Rose, our group CHRO, will help us understand how we frame our purpose as an organization and think about our long-term future. Emma will hand over to Alan, who will help us to bring all this together and really think about how this all underpins an attractive investment thesis for our shareholders. And then I will try and wrap it all up. As I outlined earlier, this framework within which we think about our strategy is very simple, but it's important. You've heard from the businesses about how they're using this framework to think about deepening and elevating relationships with customers, and it's really enabling focus on value-added activities, but it also helps us think about how we create more value from the combination of assets and capabilities within our strong portfolio of businesses. We think about deepening our relationships with our core professional and general builder trade customers through closer collaboration between Toolstation and the general merchant. Both Kieran and James referred to that, and I'll unpack it a little bit more. I'll then come back to the right-hand side and I'll talk about how we're thinking about elevating our relationship with our larger construction and developer customers and helping them navigate the changes that we see within the industry. So let's first talk about our Toolstation and general merchant customers to build on the narrative from Kieran and James. We know our trade customers use both the general merchant and Toolstation. But actually, only 30% of our general merchant customers regularly use Toolstation. Unbelievably, they use other lightside providers, too. Actually, they use them about twice as much. About 4% of their share of wallet is spent with Toolstation, 8% of their share of wallet is spent with other providers. To the bottom half of the slide, trade customers who shop with Toolstation spend about 9% of their share of wallet with the general merchant compared to 14%, which is being spent with other general merchants. There is untapped potential to increase the share of wallet from these core trade customers, making it easier and more convenient for them to get what they want when they need it. And we know from customers who shop across both brands that they exhibit greater average order values and purchase frequency. So again, to James' and Kieran's points, as we call out the middle of Slide 51 here, we are in the process of working with customer data, coupled with specific areas of collaboration between these businesses to deepen and enhance and elevate our proposition for trade customers. Let me build on this. So this simple framework on Slide 52 helps us think about maximizing the potential of this shared customer base. Now -- and it also helps us to think about how we enhance the delivered and the collect proposition for lightside and heavyside categories. I'm going to bring this to life for both lightside and heavyside. I appreciate this is an oversimplification. But it helps to lay out how we see the opportunity for collaboration to really enhance the customer experience for our core trade customers. This in itself is a step forward. Until now, Toolstation and the general merchant have worked in splendid isolation from each other. And in doing so, we've missed the opportunity to really improve the trade customer experience with us. So our teams, James' and Kieran's, are working closely together on key initiatives as we open up opportunities for new growth. So let's start with Lightside. Our customers tell us that we can improve our general merchant lightside proposition, and we've got the ideal means to do so. It's called Toolstation. So we're trialing the fulfillment of selected ranges and SKUs through the TPGM site, TPGM web, and online platforms supplied by and fulfilled by Toolstation and it's been really successful so far. And this is moving through the pilot and is growing all the time. And it's got huge potential. To support this growth, as you heard from James, we are in the process of building a 500,000 square foot new lightside facility, which will allow us to provide direct to customer for both businesses. And we continue to trial and optimize the lightside collect channel to enhance the general merchant experience using expertise from both businesses. So with benefits of extended range, convenience of shared customer accounts that Kieran mentioned, loyalty programs and importance of the choice of fulfillment options, this is a really exciting first step. And it's in flight now, and we are finding new areas of growth and building real value for our customers with the businesses in collaboration. So let's just take this a step further and let's use this slide on 54 to discuss heavyside. This is currently all sold by TP general merchant, but with most, but by no means all being delivered. So as you heard from Kieran, right, we are enhancing and developing the fulfillment of heavyside using technology, the customer app coupled with our ability to notify customers of delivery and keep them informed through our delivery management system. But how do we see this developing in the future? It's really simple. We want to give our customers the sort of service proposition that we expect every day in our day-to-day lives. Clear availability and pricing information, simple and consistent ordering process, a clear delivery and promise and a great delivery experience. Why not, right? That is all stuff that we expect. And that's precisely what we are doing. So we are trialing and have been trialing the specific branches to act as fulfillment hubs for delivered heavyside, enhanced by the digital channel, which gives our customers certainty and choice over delivery slots. That's a small thing, but makes a massive difference to them, and they've told us it does. That is further enhanced by the delivery management system, which keeps them via text notified at every step of the way. If you're a trade customer on site with multiple loads coming in, that's a really important service proposition. Our pilots are giving us great confidence that this will work really, really well. And we see the future as we extend this trial as a network across the country of delivery-centric branches offering exceptional customer service for heavyside. So what about the Collect business? Because that sits alongside it. We are optimizing the mobile app to enhance the collect experience, time to click and collect through our branches, to enable our customers to have a much more efficient in-branch experience. This is something they told us was a fantastic service development during the pandemic. And actually, we're extending that. We know this works well for Toolstation for lightside and the possibilities for a better heavyside experience are really, really clear. And therefore, we're taking complexity and inconsistency out of our branch experience. Kieran spoke to it on the right-hand side of the slide, where we had the colleague app. All of that is about taking complexity and inconsistency out for our colleagues and, therefore, for our customers. But how we also then, thinking about this collaboration between Toolstation on our general merchant for heavyside. We're looking at to the gray arrow how we utilize our 500-plus branch network for Toolstation and the digital channels that James has talked about to provide additional convenience for our trade customers to place heavyside orders through Toolstation for fulfillment, that's my tongue twister, for fulfillment, either delivered or collect through the general merchant. Simple, convenient, consistent, leveraging the depth of our customer base, putting our portfolio of assets and capabilities to work, maximizing our share of wallet. Who else can match a physical network of over 1,000 branches backed up by rapidly developing digital channels? We believe our branch network will be really important for some time to come. The last mile logistics of heavyside fulfillment requires capable facilities proximate to our customers. Kieran ably demonstrated that. And we remain committed to this aspect of our capital allocation plan, as Alan has outlined earlier. Quite simply, we regret it -- we consider it as no regrets capital. It gives us resilience and flexibility into the future. And our ability to test and learn, use insights from data and from customers, and scale fast gives us a real competitive edge. This stuff is in flight now. So let's pivot to the right-hand side of my -- or simple model from earlier and think about how we're helping customers, typically our larger customers, navigate changes within the industry. And one of the pace of change is kind of hard to predict with any certainty. Our customers are really clear about what they need. They need efficiency, quality, sustainability and an innovative partner to help them face into the challenge of working with more modern techniques alongside traditional techniques and construction projects. So one area that is scaling and attracting attention, I'm sure you all would have seen it, is investments around how we apply offsite and factory-based manufacturing methods and the benefits to more traditional construction projects. So we're doing several things in this space, helping our customers. Firstly, to the right-hand side, we are working with developers to apply our capability in supply chain logistics, just-in-time logistics, our supplier relationships, the breadth and depth of our supplier relationships to optimize their factory production operations. It's not a core skill of theirs. So we're leveraging our skill. Secondly, we're working with a cohort of regional and bespoke housebuilders. That cohort of customers is very, very significant in U.K. housebuilding. This is a big group of customers. And we're providing capability and services that they don't have or they find really difficult to access in areas like digital design. Thus enhancing their materials optimization, their supply chains, making their projects more efficient and cost effective, more sustainable, higher-quality all the while protecting with them their point of difference in the market. These -- we're in pilot projects with 3 developers and they're going extremely well. We're really excited about this, the potential of this for our business and for their businesses. Thirdly, we are directly enhancing our in-house capability with Staircraft, which puts us absolutely at the leading edge of value-added component design, timber engineering and production. So let me talk a bit about that. We're really excited about it, and it speaks directly to elevating our relationship with customers. Our relationship with Staircraft is not new. We've held a minority share since 2015, and we've worked closely as one team ever since then. And now it's going to be moving entirely under our control. Let me be clear, this is not a retail business. This is a trade-focused market leader in timber engineering for complex systems, stairs, floors and the like. And it's known throughout the industry for its innovation and quality, whether it's supplying artificial intelligence to floor design to minimize waste, or creating new factory-based painting techniques for components to maximize quality and minimize in-store time on site, saving time, money and improving quality. Staircraft supplies the U.K.'s 10 largest house builders, and it's actively involved with us right now with our regional bespoke house builders, rethinking design and deployment of materials that I mentioned earlier on. Being technology-led, it dovetails completely with our growing digital design capability that Angela ably outlined in Design To Use. So that it adds significant depth and capability to our proposition. And as I said, during Q4 of this year, it will come under our full control. So we're really excited about the addition of Staircraft to our business. Before I move on to discuss Slide 57, let me be clear about one thing. This is not about merging our businesses. This is not about centralizing control or centralizing decision-making, pouring concrete over our group. This is now letting our businesses lead in the markets that they already lead and driving more value from the opportunities presented to us by being a group and leveraging the assets and capability of our group. We strongly believe, the left-hand side of this slide, in the kind of tailored propositions delivered by our leading businesses. That's what they do best, whether it's organization, sales force, investments in bespoke digital propositions and fulfillment. But we believe in some key areas, we can thoughtfully leverage our scale to further advantage. We've talked about enhancing our customer propositions. And I've used those 2 examples for those 2 key customer cohorts to bring some of that to life. By flexibly using our assets in combination, we can do more than these businesses could do individually. And really setting up a position where it's really difficult for our competitors to replicate. And being aligned closely with our suppliers, not just to get leading prices, but actually more importantly, for innovation, for routes to market, reducing carbon and helping us lead this agenda for change within the industry and developing, as we discussed, differentiated areas where we can play a leading role. The addition of Staircraft to our stable of businesses absolutely does that all the while, underpinned by closely aligned technology, capability. And to bring this to life, I want to introduce Phil Tenney. Phil is our Group CITO. Phil joined us in January of this year and has already made a massive impact on the group. So with absolutely no body part references this time, so I don't get ticked off, Phil, over to you.

Thank you, Nick. And good afternoon, everyone. I really welcome this opportunity to talk to you about technology and our approach because, to be honest, as techies don't get out in public very often. And so I do promise there's not going to be a lot of technical jargon in what I talk about here. As you have heard through this presentation so far, there is so much we can do for our customers. What's hugely exciting for me is that technology underpins so much of this. And in fact, being part of the journey was one of the compelling reasons as to why I joined the business at the start of the year. I think there are a couple of key points I want to make upfront. First one is I'd emphasize that I'm confident that we can deliver our growth plans with the technology approach I'm outlining today. Our approach is based on deploying new technologies that allow us to accelerate our digital ambitions, but without necessarily having to replace all of our core underlying systems. It's an approach already proven in other sectors, and it's one that we've proven ourselves over the past couple of years. The examples Kieran's given earlier, they were all based on our existing underlying technology solutions. I also think it's important for me to recognize that technology has been a source of pain for investors in recent years. So what I'm going to share with you today is what we're doing, most importantly, how we're doing it differently and how we're already able to demonstrate the benefits of this approach. Now as Nick set out, we're looking to both elevate and deepen relationships with our key customers. And as I said, technology is key to enabling this. Now from my point of view, as a digital business, it always starts with the customer. And so our technology framework that you can see on this slide is defined by the needs of our 2 key macro customers segments you've already heard about. These 2 different segments of customers have potentially quite different sets of requirements and how they want to engage with us. And so we need to provide differentiated technology solutions that enables them to have seamless customer experiences that build lasting relationships with our business. Equally, behind the scenes, we need to make sure we're enabling our business to be lean and efficient in the way it operates, so we can benefit from economies of scale, process standardization and automation where appropriate. But technology is really a case of one size fits all. And the approach we're taking across the stack is different with an emphasis on unlocking different benefits at different layers. But there is one common theme that runs through it all, and that's our emphasis on integration. The ability to integrate between a wide range of systems, both in-house and increasingly third-party, and being able to integrate them at pace. It's also about deploying new technology when needed, but equally about leveraging existing technologies where appropriate. Some of the examples I'll highlight are proof that we can get the best of both heritage and new technologies to deliver great outcomes for our business. Now when we look at this, where we really close to the customer as an over-the-top of the customer proposition layer, we're using a product management approach to enable a combined business and technology teams to work as one, to move at pace, to deliver compelling experiences for our customers. As examples of this, you've heard Kieran talk about our website, the Customer and Colleague apps from Travis Perkins, where we've delivered a market-leading digital capability on top of existing systems. And you've heard from James, the focus Toolstation has on digital experience, what's already been delivered and the exciting road map ahead. What I've said -- what I would say is all of these have been done using a product-centric approach. Furthermore, Kieran's also talked about the managed services business model, which is a great example where we're using the same underlying technology capabilities at this time to create a bespoke proposition for a subset of our larger customers enabling them to seamlessly integrate their systems and ours. Now one added benefit of these examples is the way that we're developing, and that means developing them because that means whilst the initial focus is on the Travis Perkins business, we can quickly unlock similar capabilities for our other specialist businesses. Now when we think about the next layers, specifically the customer promise and fulfillment and the merchant operations layers. Here, we're using different technology solutions where we need to, but equally, recognizing there may well be opportunities to share common solutions where there are similarities in the customer requirements across custom segments that enables us to drive economies of scale and delivery. To what Nick described, lightside and heavyside fulfillment are great examples of where we're doing this and also how we're using a test-and-learn approach to new technology capabilities. Now what I mean by that is we're starting small. To test, learn and develop the right capabilities before then scaling fast when we've got a proven solution that delivers value to our business. Share a couple of examples of this. Firstly, we're starting out small in the use of a new order management solution for a subset of Toolstation products available on our Travis Perkins website. Secondly, we're in the process of scaling fast in our rollout of a new delivery management solution, which is live across CCF and Keyline and almost completely rolled out across the Travis Perkins business. Now most of what I've talked about so far is how we're using technology to deepen relationships with our customers. And so I'd also like to highlight the case study Angela shared on design to use, because this is one where we're integrating a number of new predominantly third-party products to create a new end-to-end proposition that's enabling us to elevate our relationship with another subset of our larger customers. In the back office, we've recently launched the Finance Transformation Program, where we're deploying an industry-standard third-party solution working with a proven implementation partner that will enable us to standardize and optimize many of our finance processes to drive operational efficiencies across our business. Now moving to the foundation of the stack. We recognize the huge opportunity we have with our data. And so we're transforming our data: people, process and technology. We're refreshing our data infrastructure to ensure we have a robust single version of the truth and the tools that enable our business to unlock insight and value from it. As Kieran described earlier, and as Nick has just explained in the customer overlap and the opportunities we've had, these are examples of this new data capability and action. So what does this mean for our delivery approach. As you can see from this slide, looking ahead, we're moving to a product management approach where it makes sense with an emphasis on testing and learning before scaling quickly. This changes the risk profile of technology investments and enables us to be agile in refocusing our efforts if or when customer behaviors demand it. It will change the way we work at many levels, and I don't have time to go into the detail of it all. But suffice to say that it is very different, and we're embracing the changes to support lower risk deployments where possible. Finally, we recognize technology as a core enabler for our business that merits a long-term sustainable level of investment. This is predominantly in the operating expense line and will be in the region of GBP 35 million to GBP 40 million per annum. The vast majority of this is already in the base run rate and is, in my experience, appropriate for an organization of our scale and ambition. So that's summary of our approach to technology. I did say there'd be no techy detail in it. Thanks for listening to me. And now I'm going to hand over to Emma to talk about how we'll frame our long-term future. Emma?

Thanks, Phil, and good afternoon to you all. I'm delighted to share with you today the work we have done on our purpose and how we're going to bring it to life through our long-term impact goals and also our ESG agenda. We sit at the heart of a network of stakeholders in our industry and our ambition to be the leading partner to the construction industry means we must build on our rich history and play a significant role in helping the industry to reshape for a new era in construction. As a group of market-leading businesses, we have a unique perspective in the sector, a perspective that enables us to drive progress by connecting our networks or bringing thought leadership on the big issues, which we are all trying to solve. With this in mind, we have defined our purpose. We're here to help build better communities and enrich lives, a bold statement of intent. Through our purpose, we want to rise to the opportunity to positively impact the way people live, work, learn and play long into the future. Our purpose will drive us to think about the long-term impact and sustainability of everything we do. It's through thinking sustainably that we have set ourselves some ambitious goals, goals which we believe speak to who we are, how we can have an impact, and the ambition of this team to make a difference beyond the business through the work that we do. The first goal, helping to change construction. As you've heard today, we'll take the lead in acting as a partner to our suppliers and customers. We'll enable the industry to build better and we'll deliver projects which are more comfortable, more efficient, safer and more sustainable. You've heard from Nick about the work we're doing with regional house builders where we're bringing together our network to drive more efficient and sustainable design. Another example is the work that we're doing in through Kieran's managed services business in Wales, where through our strong ESG credentials, we're able to support them to deliver on their goals to provide modern and sustainable social housing to Welsh communities, enriching the lives of those who need it most. Our second goal is to support the decarbonization of the industry. As you've heard from Frank today, we want to support our customers and suppliers to make long-term changes to the way we all live through the use of more sustainable energy sources, products and services throughout the industry. Angela spoke earlier about how we're working with our suppliers to support the sustainability and efficiency of heating and ventilation systems and to innovate through technology and data to support efficient design, maintenance and repairs. For our third and final goal, we'll support the skills development and employment opportunities for a generation of young people. As you know, our branches and stores are at the hearts of cities and towns across the nation, and we feel deeply connected to playing our part in building thriving communities and enriching people's lives by supporting them to find meaningful employment. Supporting the next generation of colleagues to develop their careers with us is something that has always been close to our hearts. But in the last 5 years, we've accelerated the impact we can have here through our industry-leading apprenticeship and early career opportunities. We want to ensure that a rich and diverse range of talent is equipped with the skills and experience to drive the future success and sustainability of Travis Perkins and also contribute to developing talent for the broader construction sector. Thinking sustainably is in everything we do. Through our work in delivering our purpose and trying -- driving to deliver against these 3 goals, we also believe we'll achieve better performance and deliver strong total shareholder returns. In thinking about making these goals a reality, I'd like to talk for a few minutes about the progress we're making on our ESG agenda. I'm sure you've all seen our ESG framework, which supports the delivery of our long-term goals into a working agenda. Nick and Alan have talked about it a lot before, and the detail is in our annual report. It's the framework which brings together our ESG priorities within the business, and we have 6 core areas of focus. The first 3, you can see here. Our focus in reaching our net zero carbon target is on decarbonizing our fleet of over 4,000 vehicles and also our estates of 1,300 buildings. Our drivers are excited that we're already trialing more environmentally friendly fuels and vehicles across our businesses and we're planning our road map for change across our fleets. We've included some significant environmental improvements in our recent refurbishment of the head office, which has been a real source of pride for our colleagues as we return to the office after the pandemic. And we're making progress in upskilling our colleagues to be able to advise our customers to make different product choices so that we can drive the use of more sustainable products and services as well as establishing minimum standards with our suppliers for responsible sourcing. In fact, these are some of the main themes for the conference we're holding with around 500 of our suppliers next month. I'd like to spend my final couple of minutes talking about our people and our culture, our other 3 priority areas on our ESG agenda. When I joined the business 16 months ago, I quickly discovered a place where colleagues and community are at the heart of our success. It's special. Our colleagues care. They care about the success of our business as if it's their own. They care about each other, our customers and their communities. Nowhere is this care more tangible than in our commitment to send everybody home safe and well every single day. A commitment, this is a top priority for all of our colleagues. And in the last 18 months, we've shifted the balance to include support for our colleagues' health as well as safety with support for physical, mental and financial well-being so we can support our colleagues when they need it most. It's clear to us that the development of our people will be fundamental to the delivery of our strategy. And we're committed to providing industry-leading career and development opportunities for all of our colleagues. We are by far the largest apprenticeships and early careers provider in our sector. We've almost doubled the number of colleagues on apprenticeships in the last 18 months to around 1,000. We're also one of the biggest partners to the government on the recent Kickstart scheme with around 500 16- to 24-year-olds joining us for 6 months work experience to help them find their feet during and after the pandemic. But it's not just about apprenticeships and early careers. We're proud of our track record in developing and retaining some of the best leaders in our industry, many of whom have developed their careers working across the businesses in the group. From a leadership team point of view, you'll be able to see this in the biographies in your packs. You'll also see that we brought in a number of new leaders into the leadership team and also deeper into the group from different sectors and backgrounds over the last 18 months. This blend of experience will ensure that we can work together to bring diverse thinking and leading-edge solutions to our customers. Speaking of diverse thinking, our ambition to build a thriving culture means we're very clear that we have work to do in driving diversity, equality and inclusion within our business and also in the wider sector. In the last 12 months, we've shifted our family leave policies to an industry-leading position. We've moved all of our merchant business colleagues onto at least the real living wage, and we've introduced a Diversity and Inclusion Board to the group, led by colleagues from across the business. We've also halved our gender pay gap, and we've improved the diversity of our Board, our group leadership team, and our top 200 leaders. But the answer lies in driving a change in attitudes across the sector. We're working closely with some of our peers, customers and suppliers to try to solve some of these issues together to ensure that the sector is seen as a welcoming, diverse, inclusive destination for talent. As I said earlier, we have a unique perspective at the heart of the construction sector. Our breadth of expertise and our ambition to make a positive difference to the future of the construction industry is captured in our purpose and impact goals as well as our strategy and ambition. By thinking sustainably, we believe that we can play an important role in working with our partners across the sector to bring thought leadership to some of the biggest issues of our time. And in doing so, positively impact a range of stakeholders and our environment as well as ensuring a sustainable business model for Travis Perkins Group long into the future. I'd now like to hand over to Alan, who's going to take us through our investment thesis.

Thanks, Emma. So I hope that as a team today, we've conveyed our confidence in the group's prospects. We laid out a strategy in December 2018 to focus on our advantaged trade businesses and to simplify the group. While in doing so, we've reduced the size of the group. It is now, in my opinion, one of higher quality and greater predictability with the more volatile movements from Wickes and the Plumbing & Heating division now removed. Our portfolio work also removes the need to allocate significant capital and management's attention to these businesses. This is a significant gain as they prove to be a source of distraction during a period when I believe we should have been focused on the modernization of the general merchant and on the expansion of Toolstation. Despite the pandemic, we've also significantly improved the business, developing a robust platform from which to benefit from market changes and continue to gain share in the years to come. We've also significantly strengthened the balance sheet and increased cash generation. Our future strategy is self-financing from the cash we generate and thereby, it creates the scope for enhanced shareholder returns. So if we now turn to the future financial prospects of the group. Let me take you through first how I would expect revenue and earnings to evolve. From a revenue perspective, as we've outlined today, the group is well positioned to outperform in its end markets. Through the continued rollout of Toolstation, through share gain with existing and new customers as we deepen relationships, and through opportunities we've illustrated for you in added value services. I would expect to see modest accretion in gross margin. While I expect gross margins to remain relatively stable in Merchanting, the Toolstation business is higher margin and also a faster growing component. Cost to serve will remain broadly unchanged at the group level. While Toolstation has a higher cost-to-serve ratio, I do expect to see some leverage of the fixed cost base in Merchanting over time, given our focus on gross profit flow-through and the more flexible cost base following the major restructuring, which we undertook in June 2020. We will also be addressing our centrally managed fixed cost base as we work through the transitional service arrangements with Plumbing & Heating and Wickes. Putting all of these elements together, I would expect to see us deliver some modest operating margin accretion over time as the Toolstation business matures and as we develop our presence in service-led offerings in the Merchanting businesses. The group has also recently improved its underlying cash generation performance. It's true that conversion of profit to cash has been held back in recent years by a significant level of restructuring. This phase is now thankfully behind us. Our Merchanting business's working capital performance has improved recently, particularly in terms of trade receivables management. The profile has now normalized in 2021 following COVID disruption, and I would expect the Merchanting segment to have a fairly constant working capital to sales ratio going forward. And that, with a cash conversion ratio of over 80%. As you would expect, cash conversion in Toolstation will be somewhat lower in the medium term, given the investment in network and growth, but underlying cash conversion overall is really strong, underpinned by the vast majority of sales being cash. Following the portfolio changes, our capital allocation strategy is very clear. We intend to focus that capital investment behind the expansion of Toolstation and the modernization of the General Merchant. Remember, the attractive returns Kieran laid out for you earlier from both new and redeveloped TP General Merchant branches and also the rapid cash payback on new Toolstation branches. As a distributor, we operate a significant fleet of HGVs, which together with branch maintenance, account for a significant proportion of the maintenance CapEx. And finally, we will allocate some capital to other investment opportunities such as the expansion of TF Solutions, which Frank described earlier. M&A is unlikely to be a significant component of the group strategy going forward. Quite simply, we have a leading portfolio of businesses and significant growth opportunities from investing organically in these businesses. That said, there is scope for value-adding acquisitions in adjacent market opportunities, particularly to our specialist businesses, which could enable us to elevate or deepen customer relationships. Frank described a perfect example for you earlier in TF Solutions, and Nick took you through the latest example with our intention to exercise our options to take full control of Staircraft. Now before moving to the balance sheet, let me remind you about the central role that property plays in our strategy overall in supporting the businesses. We are not a property company, but we operate a significant portfolio of sites where great locations and long-term security of tenure are critical. It is for this reason that we own the freehold of around half our property portfolio by value in the Merchanting segment. We are highly adept at spotting opportunities to develop industrial land and add value to the business as demonstrated by the significant latent value in the property portfolio that you can see on the left-hand side of this chart. The cash inflows from property disposals over the last 10 years have fully funded additions to the portfolio, while also generating a predictable profit stream and this will continue. And I wanted to bring this to life a little for you with an example of the merchanting market in Cambridge. Historically, we've operated from a large site in the city center, which has proven to be more difficult to operate in recent years. We, therefore, developed a new site to the north of the city and acquired a large site to the southeast. From these 2 new sites, we would expect to significantly grow our market share in the Cambridge market. The proceeds from the disposal of the City Center location will have fully funded the development and acquisition of the 2 new sites and generate a significant property profit. The timing of acquisitions and disposals of freehold is always difficult to predict, but I would expect us to have significant net cash inflows during both '22 and '23. So where are we now in terms of the balance sheet? Since 2012, we've been chipping away at the least adjusted leverage in the group. 2021 represents a step change with the completion of our portfolio rationalization. Our financial policy is prudent, and we aim to maintain a level of lease adjusted leverage consistent with investment-grade debt metrics. As you can see from the chart, we're targeting a range of 1.5 to 2x lease adjusted debt-to-EBITDA in the medium term. Adjusting for the planned full return of disposal proceeds on Plumbing & Heating, I would expect us to be at the lower end of this range as at December '21 and to remain there. In summary, I believe we have taken the business forward significantly in the last couple of years and developed a much more robust model focused on delivering sustainable TSR. Going forward, we anticipate driving above-market growth by both deepening and elevating our customer relationships in Merchanting and exploiting the Toolstation growth opportunity. We remain focused on converting this profit stream into cash, and the cash generation is further underpinned by freehold property activity. Our allocation of capital is clear and focused and we will maintain a strong balance sheet. Given the cash-generative nature of the business, the clear self-funded capital allocation strategy, and the strong balance sheet, we see ample scope for the additional return of surplus capital to shareholders over and above a growing ordinary dividend. And with that I'm now going to hand over to Nick for some concluding remarks before we move to Q&A.

Fabulous. Thanks, Alan. And also thanks to Emma and to Phil for their presentations. Look, I know it's been a long session, and I really appreciate your attention here in the room and on the web. So before Alan and I open it up to questions, let me finish with a bit of a wrap-up and a few concluding thoughts. To this slide, look, we've talked about how our sector is changing. The trends of the world around us are just inescapable even if time scales are difficult to predict for our industry. And as a result of the Herculean efforts of this team over the last couple of years, we're in a great position to adapt quickly as the landscape changes. And we framed our strategy simply as around deepening and elevating our relationship with customers and what we do from them. We've also heard from Kieran, from James, from Angela, from Frank, from Alan about how our businesses have got clear and focused plans to win in their space. And I hope you enjoyed those. But also together, leveraging the power of being one company -- and how from Emma, we take our role in the industry very, very seriously as the market leader. And as Alan has laid out, how in the shape we're now in, we can really fund the development of our business and enhance and grow our return to shareholders. So look, what you've seen before you is a deeply committed team determined to continue to win in an industry and a market where we can affect change for the benefit of our customers and for the benefit of our shareholders and the communities in which we operate, we live and we serve. We've got a really clear purpose honed from the cultural DNA of our company and one that really deeply resonates with our colleagues across the group. We've got a really clear ambition to be the leading partner to the construction industry, and my team represents the quality of colleagues across this business who I believe are uniquely placed to deliver it. We respect, as I said earlier, the best-in-class distribution companies around the world. They are growth-orientated, both in organic and inorganic growth plan, so do we. Their growth is based not just on products but on services and adding value through those services, so is ours. They're predictable, they're focused on driving change, but also on adding value to customers for their benefit. They're focused on actively creating differentiation and moving at pace, and that's exactly what we're doing. I joined this business 2 years ago because I saw the latent potential within it. I saw the latent potential of this business to drive change in an industry that needs it, and that change arguably has only been accelerated by the pandemic. We are the market leader, and we've got market-leading businesses and the very best people in this industry. We're in the right shape with the right depth and flexibility of assets and capability to adapt as this landscape changes. Our focus on our customers is absolutely baked into our culture. And as you've seen from the businesses, they're actively deepening their relationship with customers, providing simpler, more consistent and more helpful ways to do business with us, embracing new channels, embracing new ways of working, using data, testing and learning, moving at pace, elevating our relationships as an opportunity to do more. And as Angela said, really adding more value and extending our breadth across the value chain. And more than that, we've got the capability, the professionalism, the tenacity and the courage to further deepen and elevate our relationship with our customers by using our assets and our capabilities in combination to bring ever more value to them. This is not a follower strategy. We are not throwing down space and going back to normal. We are absolutely not a business that's run out of road. This is about leadership, and this is about the future. Being the leading partner to the construction industry, underpinned by a sustainable business model. Our ethos, our people, our financial algorithm, it all adds up to why we will ensure that we remain the leading business in this market for a long time to come. That's why I joined this business. And that's why we've led this industry through the biggest market disruption in living memory, and we're emerging stronger. We're here to help build better communities and enrich lives. And we're going to do that by being the leading partner to the construction industry. And with that, we are very happy to take your questions, and thank you for your time and attention. Before I open the floor to questions, I have some terms and conditions. Can I just remind the audience that this morning, the Group issued a statement that performance is consistent with guidance provided at the half year results in August, and that no new disclosures today will be made regarding current trading or short-term influences on the market. I'll be therefore grateful if we could hold those questions on those topics until the trading update on the 28th of October. That is investor relations team code for is try to make him polite and diplomatic, but he is not very good at it. So don't ask him those questions. If you could, as you ask the questions, please state your name and your company. And with that, very open to the floor. Jon?

Jon Bell from Deutsche Bank. Could you talk more broadly about the supply chain, some of the challenges that you've been facing, what you've been doing to tackle them, perhaps an indication of how long you might expect it to take to settle down?

Jon, I think you've just slightly broken Nick's rules.

Sorry. I did say more broadly.

Yes.

I'll deploy the diplomatic one.

Shall I do a quick bit and then can we please move on to talking about the long-term strategy of the group and questions on that. So we've seen, on price rises, I think we're still seeing price rises come through, but they're not coming through as quickly as they are. So there are signs to me that that's sort of reaching a peak. But from a modeling perspective, you're going to have an increased component of price within the revenue mix for a time as that cycles through. From a supply chain, in terms of moving goods, availability has improved slightly. I think we'll see that continuing to improve. But I don't think we'll be through it, Jon, to make it a bit more long term. I don't think it will be through it until we get into Easter, say, next year or maybe a little beyond to really see that settling. In certain product categories, it's already a lot better, but there will be some products with a longer lead time that take a longer while. We're not seeing a huge impact from [ petrol forecasts ] at the moment to our business, don't worry about that. Famous last words, but let's go with it for now. And driver availability, listen, we're always recruiting drivers. As you've heard today, we operate an extensive fleet. On 2,000 drivers, I'd say we've probably got less than a 5% vacancy right at this stage. But we are always doing what we can to recruit more drivers because that's the lifeblood of the business.

I would only add to that, Jon. As we said, our deep -- our relationship -- deep and long relationships with suppliers puts us in a really good position to navigate the choppy waters that we've had due to the hard work of the team and our colleagues within the business and what lies ahead.

[indiscernible]

Yves, can you -- sorry, can you wait for the mic?

Yves from Exane BNP Paribas. I realized more than one question, though, or is it just one question only?

Yves, you always ask more than one question...

I guess my first question is on infrastructure. You said that you would have some sort of a strategy here to grow in this end market. And I was curious what this was because it may not have come through in your presentation or I missed it. On TF Solutions, it's clearly showing quite a significant growth potential here. I was wondering whether you can keep sort of the 8% margin that you've presented there or if you need extra OpEx. And last but not least, on the financial targets, just wondering what is the time frame here when you say medium term. On the financial targets that you have, when you mentioned medium term, what exactly do you mean? And by modest margin accretion, what base should we have in mind? Are we looking at the base being 2021? Is it 2019? And what do you mean by modest accretion medium term as well would be appreciated.

Good. Thank you, Yves. So let's start, Alan, and I'll then pick up the final one. So I'll start with infrastructure. Yes, we're really excited. I mean perhaps it's an obvious statement, but sadly, we would have kept you for 5 hours if we wanted to talk about all the stuff that we've got going on right now. So I just -- we just referred to infrastructure, but do pick up with Dean right here afterwards, who will be willing to talk about that more. Clearly, we see -- we all know that there's significant government support and ongoing investment in infrastructure around the country. And with our customer relationships and supplier relationships, we are progressively working at an earlier stage of the project cycle, unable to get involved in a different value-adding capability than earlier stage of the project cycle. And we're really focused on the roads program. That's where we have long heritage, very successful heritage with both designers and Tier 1 contractors. And as Frank said, we have -- we are now working with the 4 lead JVs on High Speed 2 for the provision of support to infrastructure projects. So this is a very exciting space for us. We're focused on the roads program and would be very happy to unpack that some more with Dean afterward, Yves. Alan, do you want to pick up TF...

Yes. So on TF Solutions, Yves, I think the business is well capable of making an 8% operating margin sustainably. And given the rate at which we're opening new branches and before we've built the revenue up to a maturity level, you will see a bit of a dip because of the drag from the operating cost, but I don't think it's going to be a significant overall because we've got a number of branches that we've opened going from 3 to 11. We've already absorbed some of that within the numbers that you see. So in terms of the financial targets, what do we mean by medium term? For me, medium term is a 3- to 5-year sort of outlook. I'm not saying it's a start point going to an end point. I think in terms of the merchanting business, and I'm saying that's maintainable, and I think there is scope for some accretion from that. By modest, I mean, don't expect that it's going to go to 10% or 12% or anything like that. So it's more incremental year-by-year. And it will depend on -- some of the team have described, in particular, when you're laying down new supply chain assets or you have a significant burst in terms of new distribution capability, in terms of branches, it will take you a little while to absorb some of that cost. But overall, I think with Toolstation getting to the high single digit area as the -- in the U.K. as the business matures, that will provide some momentum to the overall group operating margin as well.

Yves, I think I [ did you short ] actually on my answer around infrastructure. I should just build on that for everybody's benefit. My apology. Not only are we engaging earlier in the project cycle, what we're doing is different. So Dean and the team are working with suppliers and with customers to really think about supply chain optimization, materials optimization, earlier-stage understanding of the project cycle, minimizing waste of time, waste of money, integration of components and sets of products at the point of deployment to the project, really using our understanding of civil engineering in this case and the projects that takes time, money, waste out of the deployment of that project. And it's a really exciting place for us to be. And by dint of our scale and our capability, capability of our people, our focus on health, safety, well-being, vehicle standards, we're able to access those projects with those customers in a way that our competitors are less able to do so. So it's a really exciting space for us to be. I hope that is a more fuller answer, Yves, to your question. Charlie, should we just go, sorry, and then we'll work the microphone back up?

Charlie Campbell at Liberum. I've got 3, but they're all on General Merchanting and, hopefully, quite short. I just wondered, as you start to think about sort of changing the portfolio from smaller to larger branches, what sort of percentage of the estate is kind of the right size and the right place, just to give us an idea of the magnitude of the task? Second question on General Merchanting. Is there still a tail? Is it still possible that you might repeat that exercise at some point in the future? Or has that been done once and for all? And the third question, just thinking about the customer mix, which you very kindly showed on Slide 18, I just wondered if you expected that to change over time as these initiatives. For example, I'm thinking that maybe you end up kind of have a bigger share of revenues from larger customers and maybe a smaller share from smaller customers, for example. I'm just wondering if that is part of the plan.

Excellent, Charlie. Thank you. Shall I start? I'm going to start from the bottom up actually. And I think what Kieran really articulated clearly is that, actually, over the last few years, I think we've lost some of our focus on the cohort of smaller professional trades and local general builders and actually to the delight of some of our competitors. And what we've seen is that actually as the team under Kieran's leadership has really refocused there and really thought about how we deploy our physical assets, our in-branch experience as well as, as Kieran outlined, the digital assets and capabilities. We've really started to restore the relationships and the trust and the business from that cohort. So actually, I would expect to see that grow over time, Charlie, as opposed to, in a sense, I think, the history over recent years as we possibly concentrated too much on some of the larger customers, even though those customers are extremely valuable to us. The point about the tail repeating -- or the exercise repeating itself, I think you're talking about what Kieran talked about in terms of our branch closure program from last summer. I think we are constantly looking to optimize our branch estate to ensure that we optimize the branch experience for our customers. So what we discussed there was the pivot towards -- to give the heavyside timber and heavy building materials destination experience we want for our customers, there will be a constant pivot towards larger, more capable branches located, as we said, primarily in the -- focused on winning share in those top 50 conurbations where we currently under-index. But that will be a general transition over time, which means that we will review the kind of the shape and the size of remaining branches within the network. And it might be that we repurpose some of those branches to a different use. Actually, we've done that in the past. We thought about repurposing to a managed service branch to serve customers in a different way and, actually, the MD of Managed Services, Stuart, is in the room today. So we've done that very successfully. We might pivot to another role that serves a particular -- or we might actually choose to close that branch and recycle capital into continuing to open larger, more capable branches. It's all about giving that destination experience to our customers and where we can stop the depth and the breadth of range that we need. And actually, we can think about this kind of marriage of the digital as well as the physical channel fulfillment model. So it will be an ongoing transition as we really renew the estate and think about the experience we want to give to our customers. Hopefully, that sort of answers the first question, does it? Yes. Okay -- sorry, go ahead.

Charlie, I want to just add on one of Kieran's charts you referred to, 50 refurbishments, resiting, expansions in the next 5 years. So it gives you a bit of an order of magnitude of the pace at which we need to do that. I also think with a network of 550 branches, it is a bit of a painting the Forth Bridge. You're always going to have some change and churn in that network, half by value leased. So there will be lease expiries within that where we may choose to move on as well. So that sort of activity will be ongoing, but I don't see the need for any large scale closure programs. Within some of the larger urban projects that we've got in mind on new branches, that may enable us to fold in -- say, we open a large 3-acre site. It may enable us to fold in, in time 1 or 2 smaller proximate sites, particularly if the concept of the regional sort of branches -- the area branches works for us, where we're doing heavyside from one location.

Ami Galla from Citi. Just a few questions for me. First one, TF Solutions, as you look to expand that business, in terms of the product range that the business has today, is it on par with the competition? Or do you think you need to expand that further going forward? The second one, just a couple of clarifications on numbers. On the slide, which outlined the IT investments, there was a mention that there would be an element of expensing through the P&L. Can you give us some color in terms of how much goes through the CapEx and how much is expensed? My next question was on the CapEx guidance that you've given. Assuming that the investment plan that you're talking about goes further beyond 2022, is the CapEx level that you've outlined something that we need to think about in the business for the next 3 years or 5 years? Some time line there would be helpful. And the last one is just on incentives. Are there any changes to the incentives down to the branch level on the back of the new investment plan that you're talking about?

Fabulous. Let me start on the product range, Alan. Actually, I think the product range will change over time. What we see in ongoing conversations with customers and suppliers is how we think about the sustainability of products going forward, how we really face into the carbon reduction imperative for our industry as a number of colleagues outlined. And I think that's where we'll see product ranges change. But increasingly, really coming to the way in which construction processes will happen in the future, we'll see more and more componentization of product into kits, components that then will be assembled in a different way. So we're going to see a change in the way this industry organizes itself and the changes in the way what we stock and how we stock it and actually how we put it together for customers. So I think we'll see quite a bit of change over time. But I think what will drive it is kind of quality, efficiency, utility, carbon and the availability of skills to put this stuff together, right? And we've got -- as Emma outlined, we're doing a huge amount to enhance skills, but it's well known that the industry has a skills challenge. So I think all of those affect kind of product range. I'll come back to incentives. Do you want to cover the middle 2, Alan?

Yes. Ami, I think you were driving as well a TF Solutions product range, in particular, within your question on whether we needed to expand the range or whether we're on a [ path ]. The -- on the -- the HVAC markets often work with specific manufacturers who you work with as distributors, and we're very well placed in terms of the distribution we do there. New products that we will do more of is more on the air source heat pump side. And then as Frank was describing on refrigeration for things like food industry requirements, so that end of the commercial market we will need to do some development to the product range. On IT investments, the vast majority there nowadays is OpEx rather than CapEx. And what we're saying is some -- a lot of that's already in the base. We're not saying that you need to put in a significant new number for modeling or anything like that. It's already there. But I would say, I'm going to look at some of our finance colleagues, probably over 80% nowadays of IT spend on projects is sort of OpEx rather than CapEx. Yes, I'm getting a nod, so all safe ground. CapEx going forward and the guidance. I put that GBP 125 million in 2022 on the chart. I think the best way to think about it, given there'll be a bit of inflation in materials and also as you move to more of a sustainable fleet, that's more expensive. So if you think about modeling purposes, I'd work out, what's your 2022 revenue? I'd then say, if I take the GBP 125 million divided by the revenue, I get to a CapEx to sales, and then I would use that constant CapEx to sales ratio for a model at this stage. Nick, on incentives?

So incentives, I'll say 2 things. I mean at a kind of macro level, our approach -- our revised approach to incentives has been well documented in our annual report through the rem policy change that we undertook this year. But you ask specifically at a branch level, and we've carefully, across our businesses, restructured our branch and above-branch incentive schemes to ensure that we've got greater collaboration across -- within and across our businesses to really ensure that, again, the theme of putting our assets and capabilities within different areas to good use for customers are really seen and felt by our branch and the above-branch teams. So that's where we're carefully adjusting our incentives, which has been really well received by colleagues. Thanks, Ami.

It's Annelies Vermeulen from Morgan Stanley. I have 3 questions as well, please. So firstly, Nick, you talked earlier in the presentation about all these initiatives, part of which is becoming more attractive and relevant to new customers as well. So I was just wondering if you could elaborate on that. Is that trying to increase your share of the distribution market or customers who are previously going to suppliers using you instead? Or is it taking share from your competitors? Or just what you're targeting in that sense? And then secondly, just thinking about the app and your digital investments, I'm guessing there's some part of your customer base in probably the specialty and larger customers who -- for which the app is perhaps not as relevant. If you're a house builder, for example, you're probably not ordering through the app. So is there a sort of a max digital penetration that you think about within the business in terms of where that could go to and sort of for which customers is this really the main focus? And then lastly, on your mix, which you've given today on RMI and new construction and so on, obviously, even in the past, you've talked a lot about how your RMI exposure is a big benefit and the relative resilience of that. Again, given the initiatives that you've put in place and the areas of growth that you're targeting, do you expect that mix to change over time? Or are you relatively happy with where it is today?

Fantastic. Great. So great questions there, actually, on customers. Yes, I think the first 2 questions, in a sense, dovetail together quite nicely and pick up what Kieran and Phil spoke about. Attractiveness and relevance to some new customers. Without doubt, our fairly analog approach, if I can put it like that, to fundamentally a branch-based experience for our customers over many, many years is well tried and tested. It's the traditional way within this segment of the industry. But actually, for many -- much more digitally literate, typically younger professional traders and builders who are well used to living off their mobile phone and see that as a way of accessing everything in their lives, that very analog, what has been largely paper-based experience in a branch is kind of an anathema. So actually, for so many of that really important smaller professional trade customers, our old way of working kind of turn them off. Having an app that allows them to manage their account, see stock availability, see stock levels, place orders, organize fulfillment on their mobile device ensures that we're really relevant and attractive to the way they want to work. And for many of them, actually, it goes beyond actually accessing their account online during the evening. They don't want to do that just on their phone. Have tested, tested, learned, adjusted, tested with customers, the development of that app really plays into being very attractive to our existing customers. And Kieran mentioned that, especially the development of the multiple log-ons for small general builders where they've got multiple teams actually able to access one account through multiple devices, for example, that's a real advantage for them. So it really plays to being very attractive for cohorts of customers we possibly disenfranchised through our operating model in the past. Really good question around app and larger customers. You're absolutely right, there's no one size fits all here. Actually, the app, the mobile platform, is very much focused at those smaller professional traders and general builders. And that's just not sole traders. There could be multiple teams in a tens of person local contractor. But actually, for larger customers, as Phil outlined and Kieran did, it's much more about integrating and sharing data, which is a different solution. That's not a mobile -- necessarily a mobile platform, but that's data share and integration so that they can place orders bespoke to them through a bespoke website. I mean it's not new. And that's what we are putting in place. So as Phil's chart about the 2 customer cohorts and the product sets at the top driving different responses through our technology stack to give different propositions to our customers that's absolutely in line with what we're doing. I hope that answers that part of the question. Actually, we see the mix of RMI in our business as a real strength in the long term, as I outlined. We would have to -- I mean you'd have to walk around this city for very long to recognize we have an aged legacy building stop that needs constant upgrade, constant work. We knew that before the pandemic, right? But I think what -- the pandemic has just kind of lifted the lid on the fact that this needs constant investment, constant work. And actually, if we're spending, as it seems to be, on an ongoing basis, more time at home, then actually all those little things that might have irritated us before actually become a big issue, right? And it isn't just about a new garden office or whatever it might be. Actually, it's an awful lot of smaller jobs as well as the larger jobs. So we see our -- the way in which we are aligned and tuned into various aspects of the domestic RMI market is, obviously, the commercial RMI market as well and the public sector RMI market, all to be beneficial in the long term, superimposed the kind of carbon reduction imperative on top of that, which is a multiyear challenge for us all. And I think you've got a pretty compelling robust long-term market segment to go at.

On merchanting, I think, one of the early slides you showed, your positions in each product category. I think the one where you're most underweight is electrical by the looks of it. Is that something you'd consider over the medium term potentially expanding? Or is it a different game in terms of, I guess, market dynamics? The second one was just around Toolstation France. It felt a slightly like mixed message insofar as you've got lots of enthusiasm about where it could go longer term, but it's still -- there's still a sense maybe of hesitancy in the very near term about pressing the button. I just wondered what you're waiting to see or what you need to see to really go for it there and could that, in turn, mean that if you, again, do press the button as it were that the losses across Toolstation Europe maybe go beyond 20 million before they start to improve again. And maybe just wrapping around that, please, just the latest in terms of the competitive response you've seen in France to your, I guess, actions to date. And then the last one was just around the net debt EBITDA target range of, I think, 1.5 to 2, but more like 1.5 in the near term. I think historically, you had numbers closer to 2, 2.5 that you had in mind. So I guess why that change of heart on that number, if that's the case?

Alan, do you want to speak to France and net debt? And then we'll come back to the electrical one.

Yes. So on Toolstation France, well, we've opened almost 40 branches at this stage. They range from very urban areas and some areas that you'd say look like a very trade-dominated area. We've then got other branches in urban areas, which are next to a boulangerie or a drive-thru McDonald's. And then we've got some branches which are in 25,000, 30,000 inhabitant towns. With a 20-minute drive time around, you've got 100,000 inhabitants, and we are trying different marketing techniques to reach the customers. So we still -- what we're trying to say is we're still in the early formative stages of working out what really works well for that market. When we've cracked the code on that, we will then go really quickly. So in terms of the losses going up, I think the GBP 20 million number at this stage is still a good number because what you'll see is, as I tried to illustrate the -- first of all, the Dutch market and the Belgian market moving into profit, the Netherlands within the next 24 months, that will give us some space if we need to increase the figure in France. If we want to go more quickly than that and it's going to increase the level of losses, listen, we've had all of the players in the French market come into our branches as "mystery shoppers" having a look at what we're doing. We saw a -- before we even put physical estate down in France, we saw Saint-Gobain have a trial with a similar [ me-too ] sort of model in the old France market, which they closed down. We've noted other competitors saying they're going to have a go. I think the important thing to remember about France is it's a huge market and will be bigger than the U.K. In terms of the leverage range, we had targeted 2.5x on a lease-adjusted leverage basis previously. We brought that down to a range of 1.5 to 2x. Some of the thinking on that is making sure that we maintain the right mix overall with cost of funds for the business. So at that sort of 1.5 to 2x level, I'm very confident that even with the smaller scale, we're investment grade in terms of debt metrics, and that optimizes the cost of funds for the group's sort of range. But I hope you noted that while I haven't said here's a new share buyback program or here's a special dividend or anything like that promising in the future, we're very clear that we're not wanting to operate sustainably below that 1.5x level. So it does -- with the cash-generative nature of the business, it really opens up the scope for additional returns to shareholders. But let's return the P&H proceeds first, and then we'll talk about what next.

Super. Well, on -- I'll just answer the first part. Just on -- you can be sure that Kieran and team look very carefully at selective range expansion and, obviously, electrical being part, but let's not forget where we've got real depth and quality in our range for electrical is through Toolstation. So again, thinking really across our business about how we leverage the power of our businesses and their capability and the interplay between Toolstation and the General Merchant to support electricians and those who need electrical products is really, really strong. So it really is thinking about -- actually, look at the power of what Toolstation business really do. Kieran and the team often looking at how we can, depending on demand by customers in different areas, really maximize the range they're able to access. But the collaboration that I talked about opens that up in very new and exciting ways.

Rajesh Patki from JPMorgan. I've got 2, please. First one is on the ambition of potential that you've talked about on value-added services on Slide 25. If you could talk about the scale of opportunity in the adjacent markets, I think, your build on the Managed Services. And how much can you grow the penetration rates by on benchmarks and higher? And so basically, just thinking there about -- do you have any specific targets in mind for the value-added services? And secondly, on Toolstation, you talked about the competitive landscape in France. Do you see any incremental threats emerging in the U.K. market?

Sorry, I just didn't catch that last -- the second part of the last question, France?

Incremental threats for Toolstation in the U.K.

Shall I start with that bit on the U.K.? I think, overall, the U.K. remains extremely competitive market. There are, as we know, various online platforms that are popping up. I think they're relatively modest in scale, and they tend to be more brass-plating in terms of the way that they operate and use other parties to do the distribution for them and also hold the stock sometimes. So I don't think they have the same scale and reach what works brilliantly in the Toolstation model or its nearest competitor from omnichannel experience. And for the trade, in particular, they need that proximate branch. They are not going to go more than 10 or 15 minutes when they need a consumable to get it. They can't wait for something to be delivered online. So I think the model has real strength, and that's a real competitive advantage.

Good. I'm just going to play in Kieran to comment in a minute on Managed Services. So I'll talk about hire and Benchmarx. The first thing I'll say is, as Kieran outlined, actually, both are our established existing businesses. But as we have brought, particularly, Benchmarx much, much closer and more integrated with the Travis Perkins General Merchant, it gives us ways in which we can really start to crank up the penetration of our customer base with the Benchmarx proposition. The same for Tool Hire. We're not satisfied with the 12% that Kieran showed on that slide, far from it. And we will be working -- are working extremely hard in a number of ways, penetration of customer base, utilization of our assets, all sorts of ways the team are working extremely hard to change that penetration dramatically. And obviously, we look forward to updating you in due course on how we're getting on. Kieran, do you want to just talk about Managed Services because we're very much the market leader in that space?

No, definitely. But before I do, Nick, it's also worth just pointing out, we believe we've got 190,000 customers within the TP customer base that currently buy kitchens. And so there's a huge opportunity on the Benchmarx piece for us in terms of the customer cohorts that we have within the business. From a Managed Services perspective, we think there is a significant opportunity for us to grow in that space. And there's sort of 4 key drivers for that. And the first one I'll call out is the housing associations and local authorities are under sort of real pressure of decarbonation of their housing stocks. And we're having conversations with them at the moment in terms of how can we support them in that space. And you are talking from the sort of government reports that are coming out that this is in the billions in terms of the size of that investment in probably over recent weeks, pieces around despite some of the housing starts and the requirement for repair and maintenance work that got postponed during COVID. So again, there is significant investment required going forward in the repair and maintenance of local authority and housing association housing starts. The third element for us, and this is a real opportunity for us to lever our relationships, is on those -- in that space already in terms of the repair and maintenance market to grow in that space as well. And then the final opportunity for us is the consolidation of some of the work that we don't currently get into TP, and that's very much about linking them into our kitchen business and our hire businesses where significant opportunities for us again. So across 4 areas, real big opportunity for us to face.

Graeme Kyle, Shore Capital. Just 3 questions, two on Toolstation, one on Merchanting. First one on Toolstation. I'm quite surprised that the trade focus, hasn't much of the revenue growth been driven by taking share from the DIY retailers to date? And secondly, on Toolstation, what supports the high single-digit operating margin maturity? Third question on Merchanting. The online-only merchants, something like cmostores.com, for instance, what's the long-term threat to market share and the pricing of heavyside products? And could this eventually compromise your forecast margin improvements?

Alan, start with Toolstation and then I'll pick it up.

Yes. So Graeme, on the trade focus point and your question about have we been taking share from DIY retailers, the great thing about the Toolstation model is the wide opening hours. So that we build around the trade, but we encourage DIY customers as well. I think where we do take a lot of share from DIY is where they have historically -- where the trades have historically gone to DIY. I think that piece in the largest player in the U.K. has lost share in recent years, and you don't hear about the trade going into home base either. So on the high single digit and what gives us confidence, I think James did explain that on the chart. So we talked about the supply chain and support costs being around 12%. There are occasional steps-up in that, but you would look to leverage that over time. As you grow the range of products on the gross margin side and as we do more with the trade, you actually see an improving gross margin as well. So DIY customers look at the promotions that are ongoing. So the more you do with the trade, actually, the more beneficial it is to the margin. You slow that rate of opening. Think of the amount of immature space that we've got from opening 180 branches in 3 years as a percentage of the base than it was before that. So when it was 300 branches, 180 over 300, think about that when you're opening 30 or 40 on a base of 600, you've got a maturity factor. So we're actually very confident on that. And I think you can look at Toolstation's closest competitors' statutory accounts to see exactly the model that the business should be following in time. On the online-only, I think they do find it very difficult to match the pricing because they don't have the scale. So it's something that we watch, but I don't think that plays heavily for the trade customer at this stage.

Yes. And just to add to that, Graeme. Not only that, when you speak to our trade customers, they want to understand the products that they need and what they're going to get from the branch. They want to understand and work with our branch teams to make sure that they source the right products. That local knowledge, the product and certainty around delivery from a team that they know is really, really important to them. So that branch channel is seductive to think that actually the online pure play can disintermediate that branch general merchant. But actually, the branch channel is hugely important to them, augmented by a really leading digital channel so that they can see, as we've said, on their mobile platform. That's what they really need. And so while we're -- we watch the online-only very, very closely, ironically, they rely on us to provide their supply chain to many of their customers. So actually, it's a space where we feel we simply outplay them. But all the changes that we've talked about today have been absolutely critical in making sure that we stay on the front foot.

Mamta Valechha from Quilter Cheviot. Just one question for me on ESG. We all know ESG makes appearance in every corporate presentation these days. What I'm trying to understand as a company, are there actual internal targets and metrics set to measure performance and progress in this area? And how incorporated are these metrics on a day-to-day basis from a branch level to Board levels to ensure interests are aligned and we are seeing real progress in this area?

Sorry, I missed the front -- the first part of your question. Is this on...

ESG.

ESG. Okay. Tremendous. Thank you. Yes, it's a short answer. So when we think about Scope 1 and 2 carbon, we are implementing specific targets right from branch level through our businesses to all aspects of our operation, okay? So that -- as we talked -- as Emma talked about for our fleet as well as our buildings and building stock. So very clear on what we need to do there. Scope 3 carbon clearly is a systemic industry-wide issue, and what Emma put up there with us being [indiscernible] to convene how the industry will face into the reduction and removal of carbon for all aspects of what we do from the creation of materials through the supply chain to the deployment in buildings. So that's a difficult nut to crack, as is Scope 3, for any industry. So we're working really, really hard. We're very, very early in the journey, but we're working really hard with our customers and suppliers to start to think about how we do that. So Scope 1 and 2, very much more in our gift, specific targets. And obviously, we will chart our progress through the normal mechanism of the annual report, Scope 3, obviously, harder and longer, and we need to bring the industry with us on that. Anything, Alan, do you want to add?

Yes. Beyond carbon, I think, Emma illustrated some of the targets that we had around apprenticeships as well. So this is not just about, when we're talking ESG in our case, not just targets, about decarbonization that you'll see. So there is a specific section in the annual report with detail, and we've added further targets in other areas. And there is a significant component of short-term [ goal of ] the management team that's linked to some of the ESG measures that we have.

Robert Eason from Goodbody. A few questions. You talked about getting deeper into the project cycle and with your bigger cost [ solutions ], how should we think about how the pricing model might evolve as you get deeper into those relationships and you're going beyond just selling the product? And in relation to that, how -- what risks are you prepared to take on in that project cycle that you mightn't have taken on before? And how do you think about that? How are you joining up the kind of Keyline line, the CCF, the BSS and, indeed, the Managed Services in terms of bringing all those products together and share of wallet without it becoming a complex journey for your ultimate customer? So there's a few questions in all of that. And a previous question, especially on Scope 3, where the industry is only starting off really on that, how prepared would you be to get involved in a JV with someone on the material side and almost go exclusive and get a step ahead of anyone, given that we're only at the start of this journey, and it's going to take a long time in this journey as well. Like, again, maybe just talk about your idea about that?

Fantastic. Thanks, Robert. Some great questions. You're absolutely right. And I think really what Angela talked about started to bring your first question to life. How you start to think about the pricing and commercial model for progressively value-adding services is very different to product distribution. And we are active, as you would expect, through our tests and learns with customers. We're, actually, actively developing the commercial model that will sit alongside and around this so that the expertise and the capability that's brought to bear is recognized and valued by the customer. And that sits alongside, obviously, very close to my heart given my previous world, the kind of risks, whether they be design, advice, value engineering, whatever it might be. Or really, as we start to work more broadly along the value chain, we are very focused and working really hard to be really clear about the risks that we take on and what we're prepared to take on. So this is about working in collaboration with not just our customers, but suppliers to be really clear about where we add value, how we charge for that and how we manage the risks together. So far, we're getting some really good responses from customers working through those issues really, really well, and we're really excited about it. Your point about joining up, well, as I said, I've organized the leadership team and the businesses to work much more together, collaborating together, sharing data, sharing capability. So as we think about where the customer lies within our businesses, actually, how we start to integrate the capability and integrate the flow of product, wherever it might be behind them is actively something we're working on now. And obviously, the Managed Services part of our business is more than just a part of the business within Kieran's general merchants. It's actually kind of state of mind. It's an approach, how do we think about managing a customer in such a way that we're able to bring the full service to them in a very bespoke way that suits them best, whether that's the deployment of our physical assets. We talked about the kind of role of our branches, whether -- how the flow of materials from wherever within our group is required to come forward to serve their needs. So our Managed Services mindset as opposed to just the business really plays strongly as customers' demands get ever more complex and broad ranged. Scope 3, I didn't know the question actually. Alan, did you...

So whether we're prepared to go into a JV with someone. I think at this stage, Robert, it's early days. We're working with anyone and everyone who wants to listen on that rather than looking at specific opportunities. But if something were to arise, we'd, of course, look at it. I think you had a question on risk related to getting into deeper into the project cycle as well. So we have looked at that. I'm not going to go into specific examples for commercial confidentiality reasons. But some of the projects that we're working on trialing at the moment, we've been looking at the balance of risks within those, take an appropriate legal advice so that we can think through that. So we're very alive to the risk on that. Overall, we're more open in terms of risk appetite on furthering our strategy as you might imagine that we might be on something like cyber risk. So we'll be open to assessing that but taking appropriate advice.

Christen Hjorth from Numis. Two for me on Toolstation. The first on the U.K. As Toolstation and Screwfix, I know there's sort of differences, but also similarities [ based on ] move towards maturity in terms of number of branches. Is there a risk that we could see increased price competition? Or is the market just big enough for both of them to be winners? And the second, just on Toolstation France. Over the medium term sort of 3 to 5 years, under every scenario, should we assume that, that remains loss-making? Or could it become breakeven over that period?

I'll start on France and then I'll move on to the question on the U.K. I think given the scale of France and the ambition we've got, it's more likely to have losses on a 3-year basis and then be breakeven. But as I said to an earlier question, the -- as we look at the way that the Benelux business is developing, it's following exactly the same pattern as the U.K. So I know that will be in profitability, the Netherlands in a couple of years and Belgium shortly thereafter. So that will enable us to have the space within the envelope, if you like, to manage those losses. When we talked about -- or when James talked about Toolstation and, indeed, Nick earlier, we talked about a share that was in a low single digit of an addressable market. So we don't focus on the price competition with the nearest competitor. We think about that in a broader sense within the market. We know we are more price competitive despite what others will say. We look at thousands of SKU -- comparable SKUs every week on the website and do the price comparison. We know we have a lower cost simpler business model, and we know that enables us to keep our price advantage value in the market. So I think it's -- I'd be more worried if I were a big box operator about the price competition than a price competition between Toolstation and its nearest competitor.

Super. Thank you. I think we have time for one more.

It's Emily Biddulph from Credit Suisse. I've got 3 questions, please. And the first one, I think you said at the start, in General Merchanting, you captured something like 40% of customer wallet. Of that sort of remaining 60%, do you have sort of much of a sense of what's genuinely accessible to you? Or what sort of -- I suppose some customers want to have more than one trade account and maximize on credit, et cetera, or buy stuff on Toolstation and the like. So do you have much of a sense of what's genuinely accessible? And secondly, on General Merchanting, this sort of shift to larger branches over the long term. Are you comfortable that, that sort of means that you're further away from customers and sort of, therefore, the people travel to these destination branches? Or is the risk here of actually just being further away from the customer base? And secondly, on the sort of same topic, does it fundamentally change the cost structure of the General Merchanting branches? So if you have bigger branches, do you have more fixed cost at a local level and, therefore, sort of a more sort of cyclical through the cycle from a margin perspective? And then sort of -- and yes, then thirdly, sorry, on Toolstation, you obviously talked about sort of medium-term potential to take heavyside orders. Here, are you -- like do you have sufficient capacity here in General Merchanting to make this a very meaningful number? Is the risk that you sort of cannibalize sales that would have gone through General Merchanting via this channel? And I suppose, are you comfortable that you can kind of maintain these really high service levels that Toolstation is known for through heavyside as well as a risk that you sort of dilute the model and then sort of kind of dilute that kind of customer service proposition?

Super. Thank you. I'll start. What do our customers tell us? Our customers tell us that they want destination, really capable destinations for heavyside and timber. What they really appreciate is depth of range, accessibility, the ability of our branches to really service their needs whenever they need it and, actually, our larger, more capable branches, bear in mind that we've got a pretty big network, so they're never that far from our customers, are really appreciated over and above what on the face of it might seem a really convenient local branch, but we don't have the depth of stock. It's not as easy to access. It's not as easy to operate for our customers. And therefore, the pivot to larger, more capable branches, I think, is really appreciated by them. And actually, we can be much more efficient with them. And as we've said, actually, how we think about optimizing the shape and the role of our network in any given geography will be a mix of some of those larger, more capable ones and maybe still a mix of some of those smaller, more proximate branches. What thinking about in the medium term unlocking with Toolstation collaboration is just the ability for our customers to access even more conveniently. James talked about branches that aren't further than 10 minutes away from -- 10 minutes' drive time away from our customers. It gives a really convenient channel for heavyside as well as the lightside delivery and collect. And actually in building the larger, more capable branches, we give ourselves the capacity to be able to deal with that. So clearly, what we've laid out today is the early work that we've been doing in piloting the lightside collaboration between Toolstation and General Merchant, and it's proved really successful. So now as we optimize the heavyside collect and delivered proposition for our customers within the general merchant, make sure we have the right to stay, make sure we have the right digital channels, we really understand what works well for our customers. It gives us a fantastic opportunity to unlock that in due course. So we're really excited about it. Alan, do you want to comment on...

Yes, just on that point, I mean, remember as well that for heavyside, we deliver more than half of the product to the end customer as well. So they're not necessarily coming into the branch to take products away. I think the interesting thing about heavyside is it will remain a business where there's a high proportion that has to be delivered to site in the medium to long term. I think Glynis had a question as well, Nick.

Glynis Johnson, Jefferies. I'll be very quick. One question. Toolstation, given it's reaching maturity in the U.K., given your margin guidance, what is the return on capital employed is making? And what can we expect it to make?

Yes. You should ask chart for the answer to that question next to you because we've been discussing it. So in my view, Toolstation can make a mid-20s plus return on capital employed. And I think it's a difficult one to measure at the moment because there's so much immature space within the network. But the -- if we think about the economics of laying down a branch, net investment CapEx, 130,000 to 150,000 to [ fit this out ]. We can do that in 10 days from getting the keys so we get them up and running pretty quickly. You put in an equivalent amount of stock, part of which is funded by the creditors. And then you need the distribution assets, in particular, the large distribution centers to run your fulfillment for the branches and then also direct business as well. The -- you can see the numbers. I'd expect that business to be making as we -- as it starts to mature GBP 2 million per branch of revenue. And we ran through the economics of the return on sales for the branches.

Good. Thank you so much for being with us and for your tremendous questions and for your attention over several hours. It's now 5:00. So I know many of you will want to dash away on some empty train or half empty train out of London. But I hope that many of you can stay, even if for a short while, to have a drink with us. All the team are here, so it's a great opportunity to ask us some questions, meet the team and really understand our business a little bit more. So we hope that you can hang around for a little or a long while, but thank you for being with us today. Really appreciate seeing you. It's been tremendously exciting for us to unpack and talk about our plans, and we hope to see you soon and talk about us more. Thank you very much. [Presentation]