Wickes Group plc (WIX) Earnings Call Transcript & Summary

Good morning, and thank you for taking the time to join us this morning. And I'd like to also welcome everyone who is watching via the webcast. I'm here with our new CFO, Mark George, who joined the business in July. Mark and I are delighted to share with you our half year results for the business for the 6 months to the end of June. We will spend the next half an hour or so taking you through the performance of the business as well as highlighting the great progress we are making on our growth levers and sharing an outlook for the rest of the year. I'm pleased to report we've had record first half sales as we continue to gain market share. As you know, our balanced business model spans 3 distinctive customer propositions of Local Trade, our Do-it-for-me showrooms and DIY, with both Local Trade and Do-it-for-me driving our strong performance in the first half as the DIY market moderates following its COVID heights. The power of our digital TradePro scheme means we have seen unprecedented growth in sign-ups as local traders switch to Wickes for great value, convenience and confidence in product availability, the cornerstones of helping them save time and money every day. We have seen strong delivered sales in our Do-it-for-me showroom business as we work through the elevated order book from the end of last year and we are attracting customers with innovative new kitchen and bathroom ranges and our unique installation proposition. Given our record sales performance and continued growth in market share, we are more confident than ever that our highly distinctive business model is working and affords us tremendous opportunity in the U.K.'s large home improvement market. Given a more challenging operating environment, I am pleased with the agility of our operating model in the first half, driving efficiencies within the business to protect profits in the face of lower volumes. We are a cash-generative business with a strong balance sheet that gives us the flexibility to both invest in our distinct levers for growth, deliver innovative new products, services and stores to our customers as well as reward our shareholders. And we have today announced that we will be maintaining our full year cash dividend at 10.9p. More on this, Mark, as he now walks us through the financial review.

Thank you, David, and good morning, everyone. First of all, I just wanted to say how pleased I am to be here to have joined Wickes in July. It's a fantastic business, and I'm thoroughly enjoying working with David and the rest of the Wickes team. So it's great to be here for my first set of results with David. So as David said, the first half was a strong performance. We've got some of the headlines here, as you can see. Sales were up slightly, which is a really good performance on lapping a period last year when we had an absolute peak and a record performance. Crucially, on a 3-year basis, when we compare to pre-COVID periods, you can see here that like-for-like sales for the business overall were 23.4% up. And that really reflects substantial progress in that period, particularly in the core business, which as you can see, is 36.3% up on a 3-year basis. Now our margin was 70 basis points lower, and that really was driven by the inflationary environment that we're in, and I'll talk a bit about that in a moment. And overall, we delivered GBP 45.6 million of PBT, which was broadly similar year-on-year, a resilient performance. Now our profitable cash-generative model means that we've got a very strong balance sheet, and we ended the year with sorry, ended the half with GBP 167 million of cash. And it's that balance sheet position and strength and the confidence that we have in the business going forward that has enabled us to confirm that we'll maintain the cash dividend for this year, as David mentioned despite the lower PBT that we've recently guided to. So let's just look at the P&L in a little bit more detail. So you can see here, this has been a resilient profit performance, particularly in light of inflation. So the product inflation that we have through our business is around 15% in the first half. Now one of the effects of that is a real pressure on percentage margin because our strategy for dealing with that is to pass through the cost increases to our customers on a cash basis. So that dilutes the profit margin percentage slightly. Another factor that's driving that is that we are selling more of our sales in TradePro. And as you know, TradePro customers get 10% discount. So those 2 effects together are both dilutive to percentage margin. So 70%, sorry, 70 basis points decline in that context, I think, is a good outcome. Now if you look at operating costs there, they're up slightly year-on-year, just over 1%. Again, that's a good result in this inflationary environment, but it also reflects our ability to take out some costs as volumes decline and more on that in a moment. So overall, that's delivered an adjusted operating profit of GBP 56.3 million, which is down 9% year-on-year. Below operating profit, we have our interest, which is principally IFRS 16 interest payments, but also foreign exchange. Now we've had a GBP 4 million benefit in unrealized FX gains in this half. That's a 3.8% uplift versus last year. Now that's noncash, that will unwind. So just bear that in mind worth pointing that out. But overall, a very resilient performance against record profits in the first half last year. So this next slide takes us through how our uniquely balanced model really works in a period of quite disruptive consumer environment that we've had in the last 3 years. The year-on-year comparisons, you can see here that there's been some normalization in our core business. It's down 5.5% on a like-for-like basis versus very strong performance last year when we were in the midst of the pandemic. And then in Do-it-for-me, that business is recovering nicely. So you'll remember in the first half of last year, for a period, our showrooms were closed. We're now bouncing back from that, as you can see in the year-on-year comparison, up 29.7%. But on a 3-year comparison, which takes us back to pre-COVID levels, you can really see the progress we've made in our core business there, 36.3%. Now this is a combination of some market growth but actually substantial market growth -- market share growth where we've been outperforming the market with our very strong model. With Do-it-for-me, our showroom business, that is still to recover to 2019 levels, as you can see, but that's an opportunity for us. We are very confident we will get back to 2019 levels and beyond in due course. So overall, what we've shown over this period of 3 years is that we've moved forward on a like-for-like basis by 23.4% in terms of the overall business with a substantial part of our business, our Do-it-for-me showroom business, still to recover back to those pre-COVID levels. So the shape of our sales mix year-on-year is really reflected also in this profit bridge. And what you can see is that versus H1 last year, our gross profit has decreased in Core as the sales have come off there, but increase in our Do-it-for-me business, which has been recovering. And you can see the 2 are almost offsetting there. And within the rest of the cost movements, the first thing is marketing, which we've shown there is GBP 2.2 million higher in the first half of this year. For the year as a whole, we expect that to be the same as last year. The phasing is slightly different because if you remember last year, with showrooms closed in the first half, it just changed the pattern of our marketing spend. So that should be similar year-on-year by the time we get to December. But the next 2 bars show the interplay between cost and volumes and inflation. And you can see that there's been some inflation in our cost base. But there's also been an opportunity to take cost out. We have some of our costs in our business that are variable, and I'm going to touch on that in a moment and performance and volume related. But that has managed to broadly offset the inflation that we've seen in the business. And then the last 2 FX and interest, which we touched on a moment ago. So just a bit more on that cost base then. So what we see here in the bar on the left, is a diagram of our overall cost base. Now the first thing to say here is that ordinarily distribution costs are presented as part of gross profit. And on the previous slide, they would have been in those first 2 bars, the Do-it-for-me and for Core. Here though, we've just taken them out just to give you the full range of what our operational costs are. And obviously, no numbers here, but they are in proportion of those boxes. So the first thing to say is that about 1/3 of our cost base is fixed in property-related costs, the biggest proportion, of course, is rent. Now what we're seeing with rent, most of our leases are renewed on an open market value basis, and we're not seeing any upward pressure in rents when we're coming to renewal and changing the lease payment. So really 0 inflation in rent. At the moment, rates also temporarily protected from inflation. And of course, depreciation and amortization more a function of previous CapEx, but in the short term, also fixed. So a good proportion of our base really not inflating at all. Then you can also see the next biggest part from our semi-variable costs are store wages. Now there, we have a certain degree that's fixed around our management structure there on relatively -- you can see there in 2022, the pay award that we gave. But then we have a large proportion of our wages and stores that are hourly wages paid to our staff where that's dictated really by national minimum wage, which was 6.6% in April. Now that's an area where we can flex the hours according to volume. So there is an opportunity there as volumes come down in the business to bring costs down as well. Within distribution, there's a number of components. So some of these are in-house costs that we have for our own warehouse and our own staff, but then we also have outsourced operations for transport and last mile delivery and is particularly those outsource operations that are more variable, more volume related, where as volumes come down, we can take some cost out and have done so. But overall, the inflationary effects here in distribution are around 4%. And then you can see support center and marketing as well, also reasonable levels of inflation. So overall, what we're seeing at the moment in our operating cost base is around 3%. And is obviously very different from the kind of inflation we're seeing in the products that we're selling at nearly 15%. And we wanted to just set this out to make that distinction. One final thing on this slide, as you can see in that bottom sliver of other that includes our utilities costs, which at the moment are less than 1% of revenue. We are locked into a position until end of Q1 next year in terms of our energy hedging, and we have an attractive rate. So that is going to go up when we're exposed to the market later in 2023. It's not possible at this stage to say what that is going to be. It's a function of both the market and also what government support that may be beyond the initial 6-month cap that the government has talked about for businesses. So as we get more visibility of that, we'll, of course, update you, but it will be going up in 2023, as you would expect. So I just wanted to touch on balance sheet and cash flow now. So Wickes is obviously a cash-generative business. And what we've tried to do in this cash flow is in the cash flow waterfall is describe what's operational, what's timing and what's non-underlying and one-off. So you can see there the core operational cash flow that we've delivered in the first half is GBP 50 million, a very strong cash generating business. We then have a working capital benefit of around GBP 45 million. Now that is timing. You'll remember from previous presentations we've done, our first half is where we get the positive working capital in the cycle, it comes off and will unwind in the second half, and you should expect that again. We then have our investments in CapEx, new stores, IT, refits and then the dividend, of course. We then have some cash outflows that won't continue for much longer. These are the separation costs we have as we separate from Travis Perkins. They will continue through 2022. There will be a small number in 2023, and then that will be over after that. So we're showing those as non-underlying to try and give you a good picture of what the operational -- the true operational cash generation of the business is. And then in the table on the top left, you can see the overall leverage position, including our IFRS 16 lease liabilities. And as you know, the way we prefer to quote our leverage is net debt to EBITDA using the IFRS 16 basis. As you can see, in June, we've reached 2.6x on that basis. So you'll remember in March that we outlined our capital allocation policy. And here is a reminder of that. So the first thing is our policy is that we want to be consistently below 2.75x on a net debt to EBITDA leverage basis, including IFRS 16 leases. We'll invest in projects that will deliver strong returns and that will be store refits and new stores as well as smaller internal projects. We will pay out 40% of profit after tax in the form of dividend and then excess cash, we will return to shareholders in the form of special dividends or buybacks. So you'll notice from the previous slide that we have now reached a point where we have gone below 2.75x. We're at 2.6x but very important to remember that this is at the optimal point in the cycle for us for a year in terms of working capital. And our expectation is that leverage will be higher on this basis at the year-end. So we won't be doing anything on buybacks or dividends, at least until that point. However, one of the things we do want to do, as we mentioned earlier, is maintain the cash dividend. So our policy is 40% profit after tax. We've indicated that profit will be coming slightly down year-on-year, but actually, we're going to keep the cash dividend, which means the payout ratio will be slightly higher than 40% this year. So I'll finish with some words on outlook and guidance. And really, the outlook that we have is very similar to what we said at the trading statement at the end of July. We are seeing some softening really in the DIY market only. And that just reflects the wider economic uncertainty that consumers are facing at the moment. But much of our business is trading very well. Now although we are going through that slightly more uncertain period, we are very confident in our model and our ability to not only deliver market share growth, but also we're reaffirming the target of GBP 72 million to GBP 82 million PBT range that we gave at that trading statement. We've also got some technical guidance, which we've put up there. I'm not going to read that out. But that's broadly the same as what we set out at the beginning of the year for those factors. The only slight difference is that where previously we had CapEx at GBP 45 million for the year. It's now GBP 40 million to GBP 45 million as we get closer to the year-end. So in summary, this has been a very strong first half performance for the business, both in terms of sales and profit and of course, cash flow. Now we're entering a less certain period of trading at the moment in the next few months, but we go into that period with a very strong customer proposition, a growing market share and a very strong balance sheet. So with that, I'd like to hand back to David for a business update.

Thank you, Mark. Okay. So look, I make no apologies for showing this slide again as the long-term structural fundamentals of the U.K.'s home improvement market have not materially changed since I last presented it back in March. 65% of the U.K.'s housing stock is owner occupied and the lion's share of which is well over 50 years old, generating an ongoing need for repair and maintenance. We continue to experience high levels of housing transactions. And as you can see from the chart on the top right, the green bar represents the half year position, and we are pacing well over half of the 10-year average at this point in the year. The boost in 2021 was driven by the COVID-related stamp duty relief. When people move house, they tend to seek to improve and in particular, invest in larger ticket projects such as a new extension, kitchen or bathroom. Alongside this, one of the legacies of the pandemic is that we are spending more time at home and want our homes and gardens to better reflect the way we're living and working today. And this is encouraging people to invest in their living space. The chart on the bottom right shows that older people who tend to spend more money on their homes will typically use trade people or installation services to help them with their home improvement projects. This benefits the Local Trade and Do-it-for-me parts of our business where we have an older, more affluent customer profile. Now what has changed since March is that the cost of energy has materially increased with broad inflation impacting consumers. And despite the welcome announcement from the government last week, the nation still faces a huge challenge. There is even more imperative for consumers to reduce their energy consumption and costs, whether that's by fitting better installation or investing in newer technologies such as solar or air source heat pumps. Add to that, the government's target to reach net 0 by 2050 and the fact that around 40% of the U.K.'s carbon emissions come from the residential sector, there will be an increasingly urgent need to decarbonize the U.K.'s housing stock by making our homes more energy efficient, which presents a tremendous long-term growth opportunity for us, not least given our unique installation capability. So look, in summary, despite the short-term noise, the cornerstones of this market remain in good health and underpin future growth. Now of course, we also keep a watchful eye on more immediate trends through our monthly mood of the nation consumer research. This gives us great insight into the home improvement trends through the lens of our 3 customer propositions. From our most recent survey, we can see that Local Trade and Do-it-for-me remain relatively stable month-on-month where we are seeing consumer behavior changing is in DIY. When they began altering their general spending habits from June onwards post the Jubilee bank holiday weekend. But the Local Trade story remains very positive. Our trade customers continue to tell us that their pipelines are in good shape. One in 4 trades people have work lined up for 12 months or more, with close to 60% having a solid pipeline of work over the next 3 months, both broadly unchanged since early 2022. And 2/3 of trades people have not seen any jobs being canceled or postponed. And if they do get postponed, most rebook within the next month. Now turning to Do-it-for-me. As we look forward at our own leads, conversion and average order value, we don't see any significant changes and cancellations remain at a very low level. However, as we mentioned in our Q2 trading statement, what we are seeing is that customers are just taking longer to get through the journey from order to completion. They're being a lot more considered and thoughtful around their purchase. Now we are taking proactive steps to get customers through this journey quicker. So now as soon as the customer has accepted our quote, our design consultants are booking in the delivery to create further certainty that the purchase will go through to completion. But we're also responding to the current consumer environment and helping customers purchase their dream kitchen or bathroom with the introduction of a new lower financing rates at 3.9% APR. We're simply making it more affordable, so they don't have to compromise on what they want. As distinct from Local Trade and Do-it-for-me, there is a different story in our DIY business. As Mark guided in our outlook statement, we are seeing some softening in DIY as we come off the COVID highs and consumers are more mindful of the economic environment. And whilst we are still seeing high levels of engagement in DIY with 9 out of 10 households taking on a DIY project, there is some evidence of people canceling projects, and our latest survey suggests that is around 1 in 10. Now whilst we can't predict future sales levels, what we are confident about is that we will continue to perform better than the market and be a relative winner. Our uniquely balanced business model leaves us well positioned with greater resilience to consumer trends and our distinctive customer propositions mean we can support all customers with their home improvement plans during a period when their household costs are rising. As I've already mentioned, customers across our Local Trade and Do-it-for-me channels are generally older and wealthier homeowners with high levels of savings and a need to invest in their aging housing stock. We have a market-leading proposition and a highly efficient model that is based on a curated product range that means we can have a laser-sharp focus on providing the lines that matter most at the best possible value. This is especially important to Local Trade who are increasingly seeking value to be able to mitigate rising costs for their customers. One in two local trades are doing more price research than normal and turning to Wickes products more frequently as a result. As you can see from this chart on the top right, our price index versus our main competitors remains strong. Our well-regarded own brand has strong brand recognition and has built up half a century of goodwill with our most valuable customers. 2/3 of our sales come from great value Wickes own brand products. Critically, our focus on making sure we are always innovating with new products and services that customers love is a key factor in driving demand and market share gains. And finally, as household looks for ways to reduce their energy costs this winter, we are well placed to help them with that task. As we step into autumn, we are focused on our trading and pricing plans on making energy-efficient products more affordable to support customers in the challenges around the cost of living crisis with a focus on how they can lower their household energy consumption. We are selling numerous energy-saving products from LED light bulbs to draught excluders to insulation. Indeed, in recent weeks, we have seen sales volumes of insulation up by as much as 85% on a 3-year basis. And we've also updated our energy saving advice pages on our website where customers can find great tips on how to make their homes more energy efficient. But this slide will be familiar to all of you now. It outlines the strong portfolio of growth levers that we have to win in the market. We've made great progress on these growth levers in the first half, and I'd just like to share a few highlights. Our strong balance sheet gives us a real advantage. And while others may not have the funds to invest, we do and they are driving good returns. Our TradePro scheme goes from strength to strength, sales up 20% in the first half driven by an 18% increase in new members, taking the customer base now to well over 700,000. That's around 70,000 new members in the first half of this year alone compared to 80,000 in the whole of last year. So we're well on our way to hitting our target of 1 million TradePro members. We've been doing some exciting work in our Do-it-for-me business with the introduction of new bathroom and kitchen ranges, which are performing really well and already contributing 15% of all showroom sales. It's vital that we're able to provide our customers the very best installer service backed up by our guarantee of great workmanship. This is a real point of difference for us, and we're delighted to have added a further 200 installer teams to our network of Wickes-approved installers. We now have over 2,800 teams spread far and wide across the country and on track to have 3,000 by the year-end. More than 60% of our kitchen and bathroom installations have a tiling of flooring project attached and following the continued success of our tiling and floor installation service, we have launched internal joinery nationally this year. We're also exploring the opportunity to broaden the reach of our kitchen proposition and have introduced 6 new ranges of ready-to-fit kitchens tailored to the budget end of the market. In DIY, we have conducted a number of range reviews in the first half, including our garden maintenance and buildings categories, which has resulted in a 75% uplift in sales since 2019. The bedrock of DIY is painting and decorating. And in this category, we have seen strong market share gains in the first half and have new ranges landing in the second. And enduring legacy the pandemic was the introduction of a younger generation to DIY, including more women trying their hand at home improvement projects. We have seen a 20% growth in female customers since the pandemic and women now account for over 70% of our followers on our DYI Instagram pages. We're making super progress on our store refit program with 6 out of the 11 stores for 2022 already completed and the rest on track to be done by the end of this year. Our refitted stores continue to see an average sales uplift in ROCE of around 25%. In March, I announced our plans to open on average around 4 to 5 new stores each year over the next 5 years from 2023. And I'm delighted to say we've brought forward the opening of 1 of those new stores, and we'll be welcoming customers through the doors of our new Bolton store in Q4 of this year. Within our stores, we continue to invest enhancing our service model. We have increased the square footage of order fulfillment in a further 30 stores, taking the total to just shy of 70, and growing our overall home delivery capacity by over 10%. We have also rolled out the new digital handheld devices, so our store teams can swiftly pick customer orders resulting us launching a new reduced 30-minute click and collect window. So customers can now order what they need online or via the app and have their order pick packed and ready for them in store in just 30 minutes. Finally, on this slide, we continue to make great strides in our digital capabilities. The number of sales starting online are up year-on-year despite lapping COVID comparatives. And in the first half, we launched a range of Wickes products on eBay with the intention of growing our customer base and reaching customers who might not have shopped with us before. We are making positive progress on all our responsible business pillars. I won't go through each of these, but just pick some highlights in the first half. These includes a phenomenal response to the launch of our Wickes community program. We've helped over 130 community projects in the form of product donations and volunteer support from over 90 stores with more and more stores getting on board. We've implemented a new energy management platform across the estate alongside the launch of an energy efficiency drive with a focus on reducing store electricity and gas consumption. In our homes pillar, selling sustainable products and services will be central to our business strategy over the coming years. We have spent the first half of this year mapping out the sustainability credentials of all of our products and are working on a taxonomy and labeling strategy that will help customers make informed decisions about the products they purchase and their environmental impact. And just to conclude on this slide, we are submitting our science-based targets next week. So more on that in the year to come. So to wrap up, we've had a strong first half record levels of sales, record market share, successfully maintained profit and made good progress across our growth levers. Our distinctive business model and strong value proposition is standing us in good stead, and we continue to outperform the market despite the challenging environment with the Local Trade and Do-it-for-me parts of our business in good health, although signs of softening in DIY. We have an agile model focused on efficiency of the cost base and remain confident in our ability to be a relative winner in this market. We are well placed to capitalize on the long-term structural improvement trends. Our strong balance sheet and cash generation supports continued investment in our growth levers and delivering shareholder returns. So thank you for listening. Mark and I would now be happy to answer any questions.

It's Adam Cochrane from Deutsche. A couple of questions, if I can. You talked about a finance offer within the Do-it-for-me. What proportion of Do-it-for-me sales are made on finance? And secondly, how much of that Do-it-for-me, do you think is people spending down saved cash reserves that they may have saved up for that project in advance during COVID or other times? And then secondly, you talked about the energy conservation. Clearly, it's very topical and right to flag it. What proportion of your sales does this represent? And how are you going about making -- is there things you can do with -- I would like to do something in my house, but you need to find it in-store. Can you just come do it for me, right? Can you do the whole lot for me in terms of that process? And then finally, the lead time on DIY projects. You said that there might be some signs of softening. When people do a DIY project rather than Do-it-for-me, how long in advance do you think they know? I know I've got some projects, but they've been on the shelf for 2 years, let's say, how long do people have in the pipeline, when do they make the decision to, I suppose, cancel their DIY projects?

Well, I don't know. That was a lot, wasn't it?

Do you want to hit on the finance?

Yes, finance one.

You do the first one.

And perhaps you can do.

I can do the second one.

Indeed. Okay. Yes. So broadly, in the Do-it-for-me business, it's about 50% buy on finance and 50% pay cash. And it's not -- in answer to your second part of the question, whether the people paying on cash are paying out of savings versus regular income. I don't think we know that information. But we haven't seen a particular shift in the proportion of people paying on finance versus paying cash. As you know, there are -- there is still excess savings in the market since COVID and although clearly, the consumer pressures are there for everybody to see. There are still people with cash and with savings. And at the moment, in terms of investment for that and what you do with your cash, there aren't that many places that give a good return, but one place you can put cash and get a good return and also help your general well-being and quality of life is to invest in your house. And so people that have got that cash are still doing so. We have, as David said, improved our finance offer as well because it's important that we make it as affordable as possible, so we brought that down from 4.9% APR to 3.9% APR. And obviously, that's in an environment where rates are going up. So we're really trying to do the right thing for our customers, but we haven't seen a big shift either way in that mix between finance and cash.

Thank you, Mark. Just picking up on the energy conservation point. As Mark pointed out in his update, it's broadly our energy bill is 1% cost of sales sort of thing. Now of course, what we're focusing on is making sure as we anticipate that cost may rise as we move into Q2 next year that we're well organized to be as efficient as possible at a store level in terms of that energy utilization. And that project is working quite well. And for our refit stores and particularly new stores, we'll make sure they really fit for purpose in terms of being effective in the modern world. So that does mean we are installing right now air source heat pumps into our stores. We are working with our landlords to put solar on the roof of those stores to try and generate energy more locally and immediately at the store. The speed of decision-making, I mean I think it's fair to say that there is a longer lead time definitely attached to a more scale project in the home. So when we look through the lens Do-it-for-me customers, it's a thoughtful considered process if you're going to remodel your home and put new bathrooms and new kitchens in it. If you think about most of the DIY projects and the most common thing is really about decorating painting a room or maybe dropping some bulk on the borders in the garden, not necessarily this time a year, either. I think that's more immediate in terms of people thinking about what they want to do. And of course, people have different habits and attitudes. I mean, we do have a very clear segmentation analysis, Adam, which you will fall into the sort of like put it off to tomorrow-type group. That's very, very clear and tomorrow never comes in terms of your project. But what we are seeing, as I said earlier, is 1 in 10 projects being canceled. But the flip side is still a very high engagement in DIY with 9 out of 10. I've got a project in mind, and I tend to execute that. But that 1 in 10 as we've seen that come through sort of in the last sort of couple of months or so. But definitely a shorter time got attached to the DIY project.

It's Jack McNicol here with Redburn. Two questions for me, 1 on market share, 1 on inflation. On Slide 8, I think it is, you're using GfK for your market share data. Just wondering if you're kind of relying on them solely or if there are other indices you're looking at? And kind of looking forward for market share, which categories are you seeing as being the movers and shakers? In terms of inflation, Slide 10, thanks to the breakdown. Lots of moving parts there. You mentioned utilities for FY '23, potentially having some driving force there. But in terms of raw mats, lumber, stuff like that, what you're seeing in terms of inflation, that would be great.

I'll take the first 2?

Yes.

Yes. Our market share measure in terms of JfK really covers the Local Trade and the retail sort of DIY side of the business. I think it's a very sound and strong measure. We augment that with understanding, particularly through the Do-it-for-me lens, the type of share that we're getting in terms of visit impressions to our website and our showroom business. So we can compare that with others in the market. The challenge with Do-it-for-me is it's just such a highly fragmented market with many, many independents. So you don't get a regular read through any form of EPOS in that marketplace. So we just have to be a bit more thoughtful as to how we measure that. But as I say, we use web impressions and sessions as a barometer to understand our performance in that marketplace.

So in terms of inflation in our products, we have 15% in the first half. We are expecting that to moderate in the second half for a couple of reasons. First of all, the simple math of annualizing when we started to get the strong inflation, which was in the second half of last year. So that will have a natural slowing down of inflation, we think. The second thing is that some of the raw commodities are actually now starting to come down in price. So if you look at timber, for example, that has started to come down. And that was -- our betting line is a stick of CLS, that was at GBP 2.50. It got as high as GBP 5 and it's currently GBP 4.60. So it's now coming off. But that's just indicative because across our business, timber is incredibly important. It goes into our kitchen furniture. It's our decking, it's our fencing. So actually, if commodity prices start to deflate that will be a second factor that will help with inflation in the second half of the year. I think the medium-term outlook is quite hard to predict. We would expect it to be coming off the 15% that we had in the first half. But as we move into 2023, we -- and we would naturally see that start to come down. We also will see some headwinds in 2 forms. One would be FX. So at the moment, we're in a very strong position of hedging our foreign exchange. But gradually, over time, that sort of unwind, we'll be more exposed to a potentially weaker sterling. We'll obviously have to see where that plays out. And then freight costs at the moment, we're in locked into a good position and through to part of 2023. And again, depending on what happens when we come off that hedge, there may be some offsetting headwinds there. So it's actually quite hard to unpick some of the different elements. But worth reminding you that in our supply chain, 70% of our sales we buy in the U.K., probably about 20% in Europe and just under 10% Asia. So we are very much a U.K. purchaser, albeit that even within the U.K. purchases, we're not immune to a weaker sterling because obviously, some of our downstream suppliers are exposed to that in commodity prices. So I hope that gives a bit of a flavor. I know it's not an exact answer, but those are the drivers.

I just thought -- sorry, I did miss one of the questions in between there, which was movers and shakers in terms of our market share. So let me just briefly come back on that. In terms of the moving and the shaking, for us, it's definitely our timber category in terms of helping drive market share for the business, and we really overtrade in timber. It's also decorative. We've seen some of our strongest outperformance in decorative, which again is the most common, so like DIY product. And then also garden, in particular, like garden maintenance. But beyond that, I'm not talking about -- I'm talking about sort of fencing and more structural sort of like projects in the garden. So there are 3 big drivers in terms of our share performance.

Wayne Brown, Liberum. Just 2 on DIFM and then 1 on marketing. Can you give us an indication of the direction of travel of installations per order and how that's performing? And then does the imminent recession delay your entry into new categories and just some thoughts around that? And then on marketing spend, can you just talk to us about the efficiency of marketing spend and your ability to drive traffic?

Shall I take those?

Yes.

Excellent. Thank you, Wayne. I mean, broadly, when we look at our Do-it-for-me business in the round, we're slightly ahead of more than 1 in 2 projects having our installation service attached to that. And that is in growth, much higher in bathrooms, very specialist thing. A little lower in kitchen on that average point as people may use Local Trade and join us in the area to get that done. As I said earlier, the attachment of further installation services around those key projects is performing very, very well with 60% of our installations taking on the form of further installation attached to that. And I think that really focuses our minds in terms of how we think about extending our services to your question, Wayne. It's really about saying, look, if we take the kitchen project or we take the bathroom project. What are the obvious installation services around that, that mean we can get more of the project in terms of the sales value. So tiling and flooring are good examples. We've now launched national joinery, internal joinery . So we're actually sort of fitting the doors. But of course, customers now we provide the service come to us and say, "Look, can you just fit 8 new doors on the top of my building, please on to my house?" I don't mean a lot of the top, Wayne, at second floor. So our strategy with confidence is to extend from the heartland of kitchens and bathrooms. We are still trialing some other stuff around the edges, but I think our immediate focus has to be through that lens in the first instance. So we will build our installation services that make logical sense to capture more of that overall project in the kitchen and the bathroom. I mean, efficiency, I mean, this is really one for the market here, but we are highly efficient in how we invest our money. I always describe it this way because there's -- when you think about marketing in its broadest sense, particularly as a retailer, you do have what I call bought channels. You do have owned channels of which we have real strength and real penetration. I mean, one, we have a national store network. But two, we have a very, very strong digital presence, a very, very high organic search for our business. So we're over efficient there. And of course, we understand PPC to within GBP 0.01 of this investment. And then you have earned channels, people speaking positively on your behalf. And increasingly, we see that with the Wickes business. So we utilize all channels. We're highly efficient in how we invest in those channels. We can see the returns. We measure the returns and we course-correct what we're doing. I think the marketing team do a fabulous job in making sure we can out every sort of like penny a benefit in how we go to market through bought, owned and earned channels.

Sam Cullen from Peel Hunt. I've got 4, I think the first one is really an extension of Adam. So on the energy piece question that he asked. In terms of -- if I'm a consumer, and I've got GBP 5,000 to spend on doing some sort of upgrade to my house to reduce my energy consumption? Can I come to you and say, I live in a 1950s 3-bedroom house, tell me what the best thing to do is to reduce my energy consumption. You might say, your boiler is 25 years old, it's burning at 1/6 efficiency, spend GBP 2,000 and on a new boiler. That's the best bang for buck or is it installation or solar or whatever? So can you kind of solve my problem for me in that way? The second one is on guidance around kind of the leverage position. I think we can all definitely helped by your cost breakdown, have an idea of what the EBITDA numbers might be for the next couple of years with some volume assumptions. How do we think about the change in the lease debt, which is going to be the balancing figure for where the leverage is going forward? And then are you seeing any signs of trading down product categories in the trade market or in the DIY market? And then lastly, I guess, on the balance between dividends and buybacks, and you've also maintained the dividend at last year's rate. But what sort of valuation do the shares need to get to before you do a buyback rather than a dividend?

Okay. It looks like 2 for me and 2 for you, Mark, and we can oscillate. Let me pick up with the energy piece. Of course, right now, you can step into one of our stores. We have a whole host of products and services or products that can help you in the first instance. Our colleagues will be delighted to help you with your thinking on what you could do in your home to help reduce energy. We also play that out through our energy saving advice portal in our online store as well. So you can go and get that advice there, and you can click through on My Projects to help you certain projects. And we give you an indication of what you could save. We are planning on building out that sort of like education and awareness pieces I mentioned in the update. We're planning on improving sort of our taxonomy and how we communicate and help customers get on to those projects quicker. Right now, do I have the ability to step over your door and say, right, let me give you an audit of your home and then recommend to you what you need to do, specifically through that personal audit. I think is a very -- an interesting avenue to pursue, but not one that we can do immediately right now. But one that would probably involve a good balance of not just our products and our services, but also partnerships, I think, with others in these areas who are quite more specialists to create the overall proposition for the customer. So I'll leave it there in sort of like that point on there. But of course, it is on our mind because we do see that we can pay a really unique role in this area, not least given our capability in terms of installation and the size of our installation teams to offer something that could look like that on. Do you want to talk to leverage?

Do you want to do the trading then I'll cover mine two together.

Yes. I mean I have a phrase which is the team laughed at me in the business, which you have a number of canaries in the mine that I look at every week just to anticipate what the customer is doing differently. And I can say with a high degree of confidence, whether you look through local trade, whether you look through DIY or even Do-it-for-me, we are seeing no trading down. Ironically, in Do-it-for-me at the moment, we're seeing a higher percentage of sales going through in our best ranges. Now on DIY, one of the key barometers is actually looking at the most common project, which is paint and an area that we've made remarkable gains in terms of share. We're not seeing any trading down in those areas on that most common DIY project. And likewise, Local Trade very, very similar. It is worth reminding though, that we do have a very strong own brand business. 2/3 of our sales are already owned brands. So it's less about trading down and more about new customers trading into it at the moment. And that's what we're seeing in terms of the speed and quality of the growth of our customer base going forward.

Yes. So the 2 points on balance sheet. So we haven't given specific guidance on where the lease liability is going to be going in terms of numbers, but it's going to be coming down. And you'll remember from -- I think it was the prelims presentation, we shared the profile of lease renewals, and you'll see that in the next 2 or 3 years, we have a low level of renewals, which means our liability is coming down and our annual charge will be coming down before a period then when we get more leases coming -- renewals coming in and the liability goes up and the annual charge will be going up a bit. But we've not given specific guidance. But as you can see, that is starting to come off in terms of the annual charge. So that will help from a leverage perspective in the medium term. But I do want to reiterate in the shorter term that we're expecting leverage to go up by the year-end because of the working capital cycle. And then dividends and share buybacks, you probably won't be surprised to know that we're not going to say at what price we think we'll be willing to buy back shares. For us, the important thing is when we reach the point where we're consistently below 2.75x on that, IFRS 16 net debt to EBITDA basis. That then is the time to start taking action and also talking to you more about how our strategy is there, first of all, between share buybacks and dividends and also the price at which we buy the shares. But really, it's more dictated by where we are on leverage and excess cash versus where the share price is.

Kate Calvert from Liberum -- Liberum? Why am I changing already? Anyway, Investec. Yes, I know. It's over. Sorry, Wayne.

That means that we regather the thinking.

Two questions from me. The first one is, given what the market is today, can you sort of give some comment on where you see your investment plans for next year? So are we looking at sort of 12 to 15 refurbs. Obviously, you're slightly lower than that this year. And do you have visibility on 4 to 5 sites for next year? I appreciate Bolton slipping into this year, but basically next year's next in the end. And my second question is the move on to eBay marketplace. Is this margin dilutive from a gross margin perspective.

Should I take the first and you second?

Yes.

Yes. Super, thank you, Kate. I mean, in terms of our commitment to investing in our core levers for growth, which obviously store refits and new stores are, it remains unchanged. So we would be looking to be somewhere between sort of like the 11 and 15 next year in terms of store refits. They move around for a whole host of reasons. But of course, we've got good line of sight of the next 40 that we want to do. So there's always optionality in terms of how you move through the portfolio. Yes, on new sites, we pulled Bolton forward. We have another new site, which is absolutely confirmed and we will start on that. And there are around about 6 or 7 that we're working with at the moment to get to that sort of average of about 4. So we can work with enough breakage in the marketplace sort of thing, but we've -- there's enough good sort of like white space sites for us to be working with and again, we have good visibility on those. So I would say we're in a very comfortable position to achieve our objectives on an annual basis.

Yes. And in terms of eBay, obviously, at the moment, it's something that's very small in terms of trialing. We have only got home delivery at this stage. We're looking to implement click & collect, which obviously, is a slightly lower cost model to serve for us, so that will come in. I think the important thing is to look at this both from and incremental sales on eBay perspective, but also what it does to introduce us to new customers. We believe and are now demonstrating that the sales are incremental, and we're reaching people who wouldn't necessarily have encountered Wickes in the first place anyway. So part of this is also, yes, it would be slightly margin dilutive because there's another mouth to feed in paying eBay. But also it's in comparison to other forms of customer acquisition that we might look at and so we're looking at it in the whole, not just on the pure gross margin that we can flow through the business.

Yes. I think mainly build on that is the purpose of eBay, as Mark just outlined was to attract new customers to the business and the incrementality of that customer base is very, very high. The good news is as we build out beyond home fulfillment, this is all about driving the efficiency of our physical estate through digital. So a whole host of new customers being home fulfillment now moving into click & collect, drive the efficiency of our physical estate through digital. So it makes complete sense for us to pursue this as we move forward.

Yes, Tony Shiret from Panmure. Just maybe give you the hardest one first, so you can think about it.

Give the hardest one to Mark.

Just on the emissions plan that you're going to come up with at the end of this month. Is it going to be the case that you'll be able to do in broad terms, lots on Scope 1 and 2 and virtually nothing on Scope 3? Or is it -- are you planning to make meaningful reductions in Scope 3 emissions? That's the question. Secondly, a bit more sort of our business now. In terms of the DIFM business, presumably, you can give us some numeric indication of actual new orders per month year-on-year because I'm slightly concerned that your new orders are more at the top end of the range and you're still seeing a softening year-on-year. So I wonder what the volume picture is year-on-year in new orders. And lastly, 4 to 5 stores per annum. New stores looks a bit puny relative to your 230 base. I just wondered if you could give us some sort of indication of how you evaluate stores and the extent to which if Bolton is an absolute mega success or something like that or to what degree would it have to be make a success to actually get you to a more meaningful opening program?

Should I do the first and the third, and you the one in the middle? Is that all right? Tony, you are absolutely spot on. So when we look through the profile of our overall sort of carbon emission profile as a business, the vast majority of that does sit in Scope 3. So Scope 1 and 2 for us are probably around about 2% to 3% of our emissions. 97% to 98% of that does sit further down the extended value chain into supply base. We have a very challenging science-based target that we will be performing against with our suppliers. And that takes -- the headline form of that is making sure that our supply base are also lining up behind science-based targets that align to our objectives in terms of where we want to be by 2040. We are actually making really good progress on that. We have been engaging for quite a while through all our supplier forums and supplier conferences with this particular topic at the center of most discussions. So I think the team have done a wonderful job. And it won't come as a surprise. A lot of our existing supply base, or already big public businesses that are under the same pressure we are to make progress in this area. So there's natural alignment there. So against the targets that we will set and we'll submit next week. So once we submit, we can come back with more detail around those. I actually feel very confident on Scope 3, and we're seeing really good alignment through the supply chain on that.

Yes. So for the orders. Obviously, at the moment, in the year-on-year comparison, we are -- this is certainly in the first half, being lapping an unusual period because in the first quarter of the previous year showrooms were closed, and so we had very good positive like-for-like in terms of ordered sales this year that we're comparing. And then, of course, the reverse happened, we had a very strong period in Q2 last year, and that's unwound a bit. I think as we go through the second half a slightly lower level of ordered sales year-on-year is where we're at. But obviously, we believe that we have the opportunity to get back to overall levels of sales in it -- of 2019 levels, which were GBP 400 million in the year in due course. We think it will be slightly lower than that this year on a delivered sales basis. But we have a lot of great initiatives that will help us get back to 2019 and beyond in due course.

I mean slightly is, what, less than 10% or more than 10%?

We're not giving specific numbers on that.

Yes, but slightly is an optive word.

New stores?

Yes, on new stores. Well, I mean, thank you for the challenge and our ability to open a pure number, Tony. I appreciate the feedback. It will go straight to the team. They'll enjoy that. No. All joking aside, I mean, look, we need to be really, really disciplined in terms of our focus on capital in the first instance. And the types of locations that we look for in terms of new stores are -- they're harder to find because we want to be on quality retail parks. As you know, when we think about our PSAs about being in the right retail parks with the likes of the Pets at Home and Delamere around Handforth, all other specialty retailers. We're not looking at vacant areas on the high street or big box out of town. This is premium retail parks where we'd like to place the business. So that in itself means we just need to be really, really disciplined. We've also got to manage the duality of the very strong refit program that we're pushing through, and we've doubled the pace on that in combination with opening new stores. And there's a tight but highly skilled team that do this in the business. And I'm almost -- I mean load is probably too strong a term, actually to tell you. But I'm reluctant to increase the pace because I think it might dilute the quality of the execution. And I want to make sure the execution is right first time so it's in there for the long haul and delivers the returns that we believe. Now the good thing about new stores is thinking about how you evaluate and of course, we use a number of techniques to evaluate the potential of a new store in the area. But broadly, we're looking at a payback period that's somewhere just over 2 years on a new store versus a refit that's probably closer to 4. So these are good things for us to do, but we will remain very disciplined laser-like in our focus in terms of how we do those. And I'd say 4 to 5. It could be 4 next year. It could be 6 or 7 the following sort of things. I'm just keeping it as an average in terms of what we're trying to do.

Just one follow-up on that, sorry. If you're looking to open in retail parks, the follow-up question is, if you look at the 230, you've got at the moment, how many of those are actually retail as opposed to sort of semi industrial parks?

The vast majority are retail or adjacent to retail, not necessarily on the park. I think if you remember, we've been to the Dunstable store, it's sort of like adjacent to a retail park. That's where the vast majority of our estate is.

Ami Galla from Citi. Just a few questions from me. First one was on pricing. I was wondering if you could talk about the levers that you can pull for pricing next year? Potentially the degree of flex that you have to cover additional overhead inflation through pricing. Given that you've got about 10% sterling exposure versus USD to an extent. And maybe your competitors may have a slightly high exposure to USD. Does that mean that you probably have some headroom there? Second one really on competitive behavior into the sort of softer summer patch. Has there been any changes in the broader DIY space?

Should I take the first and you take the competitor behavior point?

Yes.

Yes. So we've got a relatively low exposure, but there will be some exposure if sterling continues to be weaker. And I don't know exactly the exposure that other competitors will have but you may be right in saying that they perhaps have a slightly higher exposure. In terms of what pricing levers we have to operate with. Obviously, we are aiming to be the best value in the market. You saw the pricing chart that we put up, and we continue to be a few percentage points below, which is just right. We want to be the cheapest, but we don't want to leave money on the table either in terms of margin. We'll aim to continue to achieve that. And whilst we have a position where our competitors are also facing the same headwinds, whether it's FX or freight, then we think we'll be able to do that and what the evidence of the industry is that we have passed through cost increases to the customer on a reasonable basis because our pricing index hasn't really changed very much versus our competitors. So it feels like the rest of the industry is going with us. But in terms of other levers, clearly, what we are trying to do is all of the time get the best possible prices that we can from our suppliers, but we will be passing those through. So timber, for example, as soon as the price came down, we've started to reduce the price on our timber and it's about allowing that process to just flow through and managing it effectively and hedging where we can to help smooth the effect clearly in the long term, you can't -- but the trend of foreign exchange, you can move in the shorter term.

Sorry, but a follow-up on that. I mean do some of your -- some of the sort of independent businesses, would they be running on a cash basis on a normalized? And would you have quarters where there's a distinct price mismatch between your pricing versus them?

You want to pick up pricing versus competitors, particularly smaller independents as well as the larger?

Yes. I think our -- both our competitive thinking and interesting and our pricing thinking because we don't face any one competitor. So if you're thinking through the axis of value and how competitive are we, because of the 3 verticals. In the DIY vertical, of course, the obvious players in there are sort of like B&Q and Homebase. For example, as you would have seen earlier, we have a very sharp position versus our competitors, our major competitors in terms of DIY. In trade, I mean it's just obvious from the performance of our trade business, how sticky our proposition and the value that we offer our trade customers is proving in this marketplace right now. So I feel very confident that we're in a strong position on both value and convenience and availability versus our competitors in there. In Do-it-for-me, it's tricky actually because there's not really a price. And interestingly, to the point around independents, and it is still an industry that is highly fragmented with a lot of independents in local areas. And it really is about what the customer wants in terms of their dream kitchen or the dream bathroom or the dream home office. The one thing we do know is the average sale, the average order value that we have is much higher than the market on average. So back to the type of consumer that comes to our business, which is much more an older, more affluent customer. If we think of classic good, better, best tiering, our average price on a sort of like a kitchen, for example, would be around the GBP 6,500, GBP 7,000 mark ahead of installation. The broad average in the market is GBP 4,000 and below. So we are positioned in a different space with a slightly different customer, and it's not obvious what any one price should be because it depends what the customer wants in terms of their design and their dream kitchen or bathroom and how we choose to service that and install that.

Sorry, Sam, again, just one follow-up on the Scope 1, 2 and 3 emissions. Obviously, all the material manufacturers and suppliers are telling everyone who listened that they're introducing various green products, which are going to achieve a pricing premium versus the legacy products in the market. Is that your experience that you're willing to kind of pay a premium for green products? And similarly, are you able to pass that additional cost through to the consumer? Does the consumer care enough to buy a green product versus a non-green product?

Yes, there's -- I think there's 2 different things that isn't there because your question is probably centered more on the environment than it is necessarily on energy saving. I think consumers are very keen right now in energy saving products, and we can see that in the performance of those categories in our business. I've got to be honest, I'm not aware. I'm personally not aware of a thematic trend of people coming in and selling green products to a premium with the hope that customers will pay that. I think most customers love the idea of more environmentally friendly products, but we want them at a similar price to the ones that they bought previously. So there's always a job to be done, I think, between both the retail and the supplier partner to make sure we're providing best value and in line with customer expectations to get the traction and the change you want in terms of the customer behavior. Good. Well, look, thank you for a very engaging...

There are questions in the queue.

A lot or some?

May be -- Emma, are there any questions from the conference call?

[Operator Instructions] We do have a question, Matthew McEachran from Singer Capital Markets.

Just on TradePro, you've obviously got quite a lot of experience in terms of the cohorts coming through since the start of the program. Could you just give us some idea as to what -- how the different cohorts are performing? Are you still getting growth in the original cohorts? And are the newer joiners starting their life at a better place than the original cohorts or not, a little bit of flavor on that, please?

Yes. No, of course, Matthew. I mean, encouragingly what we do see is quite quickly as a new cohorts come into the TradePro scheme. They very quickly adopt the behavior and the pattern and the frequency and the overall value versus sort of like the existing or average lines in the cohort. So typically, over 8 to 12 weeks, they will then be up at where the sort of existing loyal cohorts are. So I see that in retail is quite a rapid sort of alignment in terms of the customer base as they come in.

I mean you may have noticed in our statement that we are up year-on-year 20% in TradePro sales in terms of TradePro members, it's high teens. So I think that gives you an indication that actually the newer members are doing just as well. A combination of new members doing just as well and existing members, perhaps slightly ahead. So I think that gives you good evidence that it's not diluting the quality of our TradePro members as we take more on board.

Yes. That's what I thought you would say that's good. And in terms of the click & collect, 30-minute after you've rolled out, I mean, it's pretty early days, but is there any evidence that's kicking things on again?

Yes. Super question, Matthew. I mean early evidence is, yes, in actual fact, in terms of click & collect growth. So we look at every part of our multichannel proposition through the customer lens. So we can see that our TradePro customers right now are the fastest-growing part of our click & collect business. It's not a surprise because you can go on your TradePro app on a Sunday evening. You can see by SKU availability, you can place your order, pay for your order. And then the following day, we're picking that. We're packing it, and we're actually putting in the back of your van as you drive past the store sort of thing. So have our outside park and collect facility for our traders and customers, broader DIY customers, but it's proving really sticky with the trade because it's just super convenient, isn't it? They can sit in their van having a bacon roll and a cup of tea while we're putting plasterboard in the back of the their wagon sort of thing before they get off to work for the day. So using our digital strength with the trade and the convenience and the value and the availability we offer is working very well.

We will now hand the call back to your host for some closing remarks.

Super. Thank you, Emma. Well, look, team, it will come as no surprise that we're really pleased with the performance in the first half. It is record sales, it is record market share. We've successfully maintained the profit in the business in a very challenging environment. That performance remains underpinned by those 3 things. The uniqueness of the balance in this business, the quality of the value proposition that we have for our customers across all 3 routes to market. And most importantly, and they shouldn't go without recognition, a wonderful team of colleagues just doing an outstanding job in terms of providing service. We're really confident in our distinct levers for growth and how we can invest in those to continue to be a winner in this market, outperform and move the business forward in terms of growth. So thank you for your time this morning. Thank you for your attendance. Thank you for joining on the webcast, and have a wonderful day.