Half Year 2026 Grafton Group PLC Earnings Call

September 3, 2026

Eric Born: Good morning, everyone. Welcome to the Grafton Group plc H1 results. Quick agenda. I will start with some operational highlights before our CFO, David Arnold, will go through the financial details. Afterwards, you will have me again talking a little bit about strategy and outlook for the remainder of the year. The performance in H1 was, I would call, very solid. We had revenue growth of 6.7%, adjusted operating profit increase of 8.2%, and a growth of our adjusted EPS of 10.8%. As you will have noted this morning, we increased the interim dividend by 2.3% and reconfirm our full year operating profit guidance between GBP 190 million and GBP 200 million. In terms of development activities in H1, we completed two acquisitions in Europe's faster-growing markets. In Ireland, where we acquired Cygnum, and in Iberia, in Spain, where we acquired Mercaluz.

Eric Born: Good morning, everyone. Welcome to the Grafton Group plc H1 Results. Quick agenda. I will start with some operational highlights before our CFO, David Arnold, will go through the financial details. Afterwards, you will have me again talking a little bit about strategy and outlook for the remainder of the year. The performance in H1 was, I would call, very solid. We had revenue growth of 6.7%, adjusted operating profit increase of 8.2%, and a growth of our adjusted EPS of 10.8%. As you will have noted this morning, we increased the interim dividend by 2.3% and reconfirm our full year operating profit guidance between GBP 190 million and GBP 200 million. In terms of development activities in H1, we completed two acquisitions in Europe's faster-growing markets. In Ireland, where we acquired Cygnum, and in Iberia, in Spain, where we acquired Mercaluz.

Speaker #1: Good morning, everyone. Welcome to the Grafton Group PLC Half-Year Results. Quick agenda: I will start with some operational highlights before our CFO, David Arnold, goes through the financial details.

Speaker #1: And afterwards, you will have me again talking a little bit about strategy and outlook for the remainder of the year. The performance in the first half was, I would call, very solid.

Speaker #1: We had revenue growth of 6.7%, an adjusted operating profit increase of 8.2%, and growth in our adjusted earnings per share of 10.8%. As you will have noted this morning, we increased the interim dividend by 2.3% and reconfirmed our full-year operating profit guidance between £190 million and £200 million.

Speaker #1: In terms of development activities, in the first half of the year, we completed two acquisitions in Europe's fastest-growing markets: in Ireland, where we acquired Signum; and in Iberia, in Spain, where we acquired Mecalus.

Speaker #1: Both of those acquisitions have started well under our ownership and are trading strongly year-to-date. We have also invested in new branches on a group-wide basis, especially in Iberia and in Ireland.

Eric Born: Both of those acquisitions have started well in our ownership and are trading strongly year to date. We also invested into new branches on a group-wide basis, especially in Iberia and also in Ireland. We maintain a strong balance sheet to have sufficient firepower to deploy capital as the opportunities arise. I will now hand over to David to go through the financials.

Speaker #1: And we maintain a strong balance sheet to have sufficient firepower to deploy capital as opportunities arise. I will now hand over to David to go through the financials.

Speaker #2: Thank you, Eric, and good morning, everyone. As Eric has already covered some of the key financial KPIs from our first-half performance, I'll now dive straight into the income statement in a bit more detail.

David Arnold: Thank you, Eric, and good morning, everyone. As Eric has already covered some of the key financial KPIs from our H1 performance, I will now dive straight into the income statement in a bit more detail. Revenue of GBP 1.34 billion was 6.7% higher than last year. Strong execution across the group enabled us to deliver a resilient adjusted operating margin before property profits of 7.4%, up 10 basis points year on year, despite ongoing competitive pressures in several of our markets. This reflects a continued focus on margin management across the group and proactively addressing our cost base to mitigate the ongoing inflationary environment on operating costs. We have seen no material disruption from developments in the Middle East as we continue to manage supply chain risks proactively, maintaining strong product availability, while effective supplier engagement and pricing actions have helped protect margins.

Speaker #2: Revenue of £1.34 billion was 6.7% higher than last year. Strong execution across the group enabled us to deliver a resilient adjusted operating margin before property profits of 7.4%, up 10 basis points year on year, despite ongoing competitive pressures in several of our markets.

Speaker #2: This reflects a continued focus on margin management across the Group and proactively addressing our cost base to mitigate the ongoing inflationary environment on operating costs.

Speaker #2: We've seen no material disruption from developments in the Middle East, as we continue to manage supply chain risks proactively, maintaining strong product availability, while effective supplier engagement and pricing actions have helped protect margins.

Speaker #2: It's pleasing to report that we saw strong profit growth in the first half, with the Group's adjusted operating profit of £98.5 million, up 8.2% compared to the prior year.

David Arnold: It is pleasing to report that we saw strong profit growth in H1, with the group's adjusted operating profit of GBP 98.5 million, up 8.2% compared to prior year. Net finance costs were GBP 5.5 million, GBP 1.4 million higher than last year, largely due to reduced interest income on our cash deposits and lower cash balances following the acquisitions and share buybacks that was partly offset by favorable foreign exchange movements. In the full year, we currently expect a finance charge of GBP 15 million to GBP 16 million. The effective tax rate was 19.8%, 30 basis points higher than last year, and is our assumed rate for the full year. This slightly higher rate reflects the increasing contribution from Spain, where the corporate tax rate is 25%.

Speaker #2: Net finance costs were £5.5 million, £1.4 million higher than last year, largely due to reduced interest income on our cash deposits and lower cash balances following the acquisitions and share buybacks. That was partly offset by favorable foreign exchange movements.

Speaker #2: For the full year, we currently expect a finance charge of £15 to £16 million. The effective tax rate was 19.8%, 30 basis points higher than last year, and this is our assumed rate for the full year.

Speaker #2: This slightly higher rate reflects the increasing contribution from Spain, where the corporate tax rate is 25%. We're pleased to report an increase in adjusted earnings per share of 10.8% to 39.4 pence, which is consistent with our target set out in our recent capital markets event. This reflects the impact of operational improvements, organic growth, and capital deployment into acquisitions and share buybacks.

David Arnold: We are pleased to report an increase in adjusted earnings per share of 10.8% to 39.4 pence, which is consistent with our target set out in our recent Capital Markets Day, and reflects the impact of operational improvements, organic growth, and capital deployment into acquisitions and share buybacks. Looking at the H1 revenue increase to GBP 1.3 billion, we delivered an increase of GBP 8 million in organic revenue. I will cover that in more detail on the next slide. Acquisitions were the main driver of sales growth in H1, contributing GBP 56 million of incremental revenue. This reflected the inclusion of the seasonally important May and June trading period at Mercaluz, a full Q2 of trading from Cygnum, and the incremental contribution from HSS Hire Ireland, which was acquired at the end of March 2025.

Speaker #2: Looking at the first half, revenue increased to £1.3 billion. We delivered an increase of £8 million in organic revenue, and I'll cover that in more detail on the next slide.

Speaker #2: Acquisitions were the main driver of sales growth in the first half, contributing £56 million of incremental revenue. This reflected the inclusion of the seasonally important May and June trading period at Mecalus, a full second quarter of trading from Signum, and the incremental contribution from HSS Hire Ireland, which was acquired at the end of March 2025.

Speaker #2: The divestment of the small MFP plastic pipe business in the Republic of Ireland at the end of May 2025 reduced revenue by £3 million.

David Arnold: The divestment of the small MFP plastic pipe business in the Republic of Ireland at the end of May 2025 reduced revenue by GBP 3 million. Finally, the strengthening of the euro against sterling accounted for an exchange gain of EUR 23 million in H1. This slide analyzes the net increase of GBP 8 million in organic revenue. In general, I would note that we saw an uptick in product price inflation in Q2 as pricing actions implemented in response to the conflict in the Middle East flowed through to the P&L. Our diversified portfolio supported a resilient H1, as strong performances in the island of Ireland and Iberia more than offset the decline in Great Britain. The island of Ireland segment delivered organic revenue growth of GBP 19 million, largely attributable to a strong performance in Chadwicks.

Speaker #2: And finally, the strengthening of the euro against sterling accounted for an exchange gain of £23 million in the first half. This slide analyzes the net increase of £8 million in organic revenue.

Speaker #2: In general, I would note that we saw an uptick in product price inflation in the second quarter, as pricing actions implemented in response to the conflict in the Middle East flowed through to the P&L.

Speaker #2: Our diversified portfolio supported a resilient first half, as strong performances in the Island of Ireland and Iberia more than offset the decline in Great Britain.

Speaker #2: The Ireland segment delivered organic revenue growth of £19 million, largely attributable to a strong performance in Chadwick's. Against a backdrop of persistently challenging market conditions throughout the first half, organic revenue in Great Britain declined by £19 million year on year.

David Arnold: Against a backdrop of persistently challenging market conditions throughout H1, organic revenue in Great Britain declined by GBP 19 million year-on-year. Revenue in Northern Europe increased by GBP 2 million on a like-for-like basis, driven largely by an improved performance in Finland. Organic growth of GBP 6 million in Iberia was driven by Salvador Escoda only, since Mercaluz was acquired in H1. The Salvador Escoda performance reflected its continuing positive growth trajectory since we first entered the Spanish market. Finally, branch openings and closures had a small negative impact on revenue, and that will reverse in the full year. Turning to the movement in adjusted operating profit, I will look at the performance of the like-for-like business in a moment.

Speaker #2: Revenue in Northern Europe increased by £2 million on a like-for-like basis, driven largely by an improved performance in Finland. Organic growth of £6 million in Iberia was driven by Salvador Escoda only, since Mecalus was acquired in the first half.

Speaker #2: The Salvador Escoda performance reflected the trajectory since we first entered the Spanish market. And finally, branch openings and closures had a small negative impact on revenue, and that will reverse in the full year.

Speaker #2: Turning to the movement in adjusted operating profit, I'll look at the performance of the like-for-like business in a moment. The major component of the increase in group operating profit to £98.5 million was the £10.4 million of profit attributable to acquisitions, led by Macalus with £6.5 million.

David Arnold: The major component of the increase in group operating profit to GBP 98.5 million was the GBP 10.4 million of profit attributable to acquisitions led by Mercaluz with GBP 6.5 million. Looking at the GBP 4 million reduction in adjusted operating profit in our like-for-like business, you can see that all operating segments except Great Britain reported an increase in adjusted operating profit. Disappointingly, the profit growth we achieved in Great Britain during 2025 was not sustained into H1 2026, with UK private RMI and new build markets both weakening further and all our business units exposed to the UK reporting lower profits year-on-year. Moving on to look at each segment now in a little bit more detail. Once again, we saw a good performance from our island of Ireland segment in H1. Revenue of GBP 579.4 million increased by 7.5% on a constant currency basis.

Speaker #2: Looking at the £4 million reduction in adjusted operating profit in our like-for-like business, you can see that all operating segments except Great Britain reported an increase in adjusted operating profit.

Speaker #2: Disappointingly, the profit growth we achieved in Great Britain during 2025 was not sustained into the first half of 2026, with UK private RMI and new build markets both weakening further, and all our business units exposed to the UK reporting lower profits year on year.

Speaker #2: Moving on to look at each segment now in a little bit more detail. Once again, we saw a good performance from our Island of Ireland segment in the first half.

Speaker #2: Revenue of £579.4 million increased by 7.5% on a constant currency basis. Like-for-like revenue grew by 3.4% in the first half, led by strong trading in Chadwick's and modest growth in Woody's against tough comparatives.

David Arnold: Like-for-like revenue grew by 3.4% in H1, led by strong trading in Chadwicks and modest growth in Woodie's against tough comparatives. After a relatively slow start to the year, trading strengthened during Q2 as construction activity increased and the weather improved markedly. Our businesses on the island of Ireland delivered strong profit growth in H1 with adjusted operating profit of GBP 60.6 million, up 7.3% on a constant currency basis. This performance was underpinned by a strong performance in underlying trading in Chadwicks, in addition to the incremental contributions from the HSS Hire Ireland and Cygnum acquisitions. Trading in MacBlair in Northern Ireland followed a similar pattern to our GB segment, with the overall environment remaining challenging. The integration of Cygnum is well on track, and we have been pleased with the business's performance since its acquisition on 31 March.

Speaker #2: After a relatively slow start to the year, trading strengthened during the second quarter as construction activity increased and the weather improved markedly. Our businesses on the island of Ireland delivered strong profit growth in the first half, with adjusted operating profit of £60.6 million, up 7.3% on a constant currency basis.

Speaker #2: This performance was underpinned by a strong performance in underlying trading in Chadwicks, in addition to the incremental contributions from the HSS Hire Ireland and Signum acquisitions.

Speaker #2: Trading in McBlair in Northern Ireland followed a similar pattern to our GB segment, with the overall environment remaining challenging. The integration of Signum is well on track, and we've been pleased with the business's performance since its acquisition on March 31st.

Speaker #2: First half sales increased by 18.3% on a pro forma basis compared with the prior year, driven by additional production capacity that was brought on stream shortly before the acquisition completed.

David Arnold: H1 sales increased by 18.3% on a pro forma basis compared with the prior year, driven by additional production capacity that was brought on stream shortly before the acquisition completed. Cygnum enhances our exposure to the growing Irish new build housing market, and Eric will speak in a little bit more detail about the strategic rationale for the acquisition a little later. We continue to strengthen our market leading position on the island of Ireland. This included the opening of a new Woodie's store in Ennis, County Clare in June, and a new Chadwicks specialist hub in Ravenhill, Belfast in July. Bringing together The Panelling Centre and Sitetech in a single location, the hub demonstrates the Grafton Way in practice, showcasing how our businesses work together across the island of Ireland to improve our proposition for customers.

Speaker #2: Signum enhances our exposure to the growing Irish new build housing market, and Eric will speak in a little bit more detail about the strategic rationale for the acquisition a little later.

Speaker #2: We continue to strengthen our market-leading position on the island of Ireland. This included the opening of a new Woodie's store in Ennis, County Clare, in June, and a new Chadwicks specialist hub in Ravenhill, Belfast, in July.

Speaker #2: Bringing together the Panelling Centre and Site Tech in a single location, the Hub demonstrates the Grafton way in practice, showcasing how our business has worked together across the island of Ireland to improve our proposition for customers.

Speaker #2: Moving next to Great Britain, it's fair to say that we were disappointed with the first half results after positive progress last year. Market conditions remained very challenging, with new-build housing activity and discretionary home improvement projects constrained by affordability pressures, as well as weak consumer and business confidence levels.

David Arnold: Moving next to Great Britain, it is fair to say that we were disappointed with the H1 results after positive progress last year. Market conditions remain very challenging, with new build housing activity and discretionary home improvement projects constrained by affordability pressures and weak consumer and business confidence levels. Revenue in Great Britain was GBP 367.2 million in H1, down 5.1% year-on-year, with average daily like-for-like revenue declining by the same amount. All our GB businesses reported declines in like-for-like revenue during the period. Despite lower market volumes and continued competitive pressure, we were pleased to deliver a slight improvement in gross margin in H1, and this reflects the strong execution of our teams and disciplined pricing across our businesses.

Speaker #2: Revenue in Great Britain was £367.2 million in the first half, down 5.1% year on year, with average daily like-for-like revenue declining by the same amount.

Speaker #2: All our GB businesses reported declines in like-for-like revenue during the period. Despite lower market volumes and continued competitive pressure, we were pleased to deliver a slight improvement in gross margin in the first half, and this reflects the strong execution of our teams and disciplined pricing across our businesses.

Speaker #2: Notwithstanding inflationary pressure on costs, especially with respect to labour and property, overheads were tightly controlled, with the increase in like-for-like overheads contained to approximately 1%, well below general inflation levels.

David Arnold: Notwithstanding inflationary pressure on costs, especially with effect to labor and property, overheads were tightly controlled with the increase in like-for-like overheads contained to approximately 1%, well below general inflation levels. Nevertheless, despite tight cost control, adjusted operating profit of GBP 17.5 million declined by almost 30% as lower volumes weighed on operating leverage. In Northern Europe, market conditions remain subdued in the Netherlands, where the expected recovery has been slower to materialize, resulting in slightly lower volumes compared to prior year. In contrast, Finland showed more encouraging signs of early recovery, supported by improving consumer spending, exports, and business investment. Revenue of GBP 244.2 million increased by 0.7% on a constant currency basis. Average daily like-for-like sales grew by 0.8% in H1, driven primarily by growth in Finland, where an improvement in trading conditions and targeted management actions supported trading.

Speaker #2: Nevertheless, despite tight cost control, adjusted operating profit of £17.5 million declined by almost 30%, as lower volumes weighed on operating leverage. In Northern Europe, market conditions remained subdued in the Netherlands, where the expected recovery has been slower to materialise, resulting in slightly lower volumes compared to the prior year.

Speaker #2: In contrast, Finland showed more encouraging signs of early recovery, supported by improving consumer spending, exports, and business investment. Revenue of £244.2 million increased by 0.7% on a constant currency basis.

Speaker #2: Average daily like-for-like sales grew by 0.8% in the first half, driven primarily by growth in Finland, where an improvement in trading conditions and targeted management actions supported trading.

Speaker #2: Adjusted operating profit increased to £16.3 million in the first half, with the adjusted operating profit margin unchanged at 6.7%. Higher profitability in Finland more than offset a modest reduction in profits in the Netherlands.

David Arnold: Adjusted operating profit increased to GBP 16.3 million in H1, with the adjusted operating profit margin unchanged at 6.7%. Higher profitability in Finland more than offset a modest reduction in profits in the Netherlands. We continue to make good progress in the Netherlands in the execution of their multi-year improvement program. A key milestone was achieved in the period, with our end-to-end purchasing and finance processes now successfully operating on their new ERP platform. We continue to be very encouraged by the performances of our businesses in Iberia and the broader opportunities in this market. Revenue of GBP 145.1 million increased by 35.5% on a constant currency basis. Average daily like-for-like sales grew by 6.6% in Salvador Escoda, supported by strong market demand and record H1 temperatures in Spain, with robust commercial execution across its air conditioning, refrigeration, and ventilation product categories.

Speaker #2: We continue to make good progress in the Netherlands in the execution of their multi-year improvement programme. A key milestone was achieved in the period, with our end-to-end purchasing and finance processes now successfully operating on their new ERP platform.

Speaker #2: We continue to be very encouraged by the performances of our businesses in Iberia and the broader opportunities in this market. Revenue of £145.1 million increased by 35.5% on a constant currency basis.

Speaker #2: Average daily like-for-like sales grew by 6.6% in Salvador Escoda, supported by strong market demand and record first-half temperatures in Spain, with robust commercial execution across its air conditioning, refrigeration, and ventilation product categories.

Speaker #2: A key highlight during the period was the completion of our second acquisition in Iberia, Mercaluz, at the end of April. Like Salvador Escoda, it is primarily serving the professional HVAC installer market and represents another important step in strengthening our position in the region.

David Arnold: A key highlight during the period was the completion of our second acquisition in Iberia, Mercaluz, at the end of April. Like Salvador Escoda, it is primarily serving the professional HVAC installer market and represents another important step in strengthening our position in the region. We have been pleased with the integration process to date and very encouraged by its early trading performance, with average daily like-for-like sales up 6.7% on a pro forma basis across May and June. Eric will discuss Mercaluz in more detail shortly. Our Iberia segment delivered an adjusted operating profit of GBP 14.1 million, representing an adjusted operating profit margin of 9.7%. The strong year-on-year increase on both profits and margin was largely attributable to Mercaluz, which joined the group just before the start of two of its most important seasonal trading months. Grafton continues to support local management teams in driving organic growth.

Speaker #2: We've been pleased with the integration process to date and very encouraged by its early trading performance, with average daily like-for-like sales up 6.7% on a pro forma basis across May and June. Eric will discuss Mercaluz in more detail shortly.

Speaker #2: Our Iberia segment delivered an adjusted operating profit of £14.1 million, representing an adjusted operating profit margin of 9.7%. The strong year-on-year increase in both profit and margin was largely attributable to Mercaluz, which joined the group just before the start of two of its most important seasonal trading months.

Speaker #2: Grafton continues to support local management teams in driving organic growth. Salvador Escoda opened five branches in the first half, and Mercaluz opened a further branch following completion of its acquisition.

David Arnold: Salvador Escoda opened five branches in H1, and Mercaluz opened a further branch following completion of its acquisition. Having successfully supported Salvador Escoda's accelerated expansion plans following integration, we expect to provide similar support to Mercaluz. We continue to assess further growth opportunities in the attractive Iberian market with a strong pipeline of both organic and inorganic development. This slide analyzes our cash flow in H1, and as you can see, the group generated GBP 70.7 million in free cash flow, and that represents a 72% conversion of adjusted operating profit into cash, building upon the group's strong cash flow generation credentials. Working capital management remains a key focus for the group, and we invested GBP 22 million in net working capital during H1, reflecting product price inflation and inventory actions taken in response to developments in the Middle East.

Speaker #2: Having successfully supported Salvador Escoda's accelerated expansion plans following integration, we expect to provide similar support to Mercaluz. We continue to assess further growth markets, with a strong pipeline of both organic and inorganic development.

Speaker #2: Now, this slide analyses our cash flow in the first half. As you can see, the Group generated £70.7 million in free cash flow, which represents a 72% conversion of adjusted operating profit into cash, building upon the Group's strong cash flow generation credentials.

Speaker #2: Working capital management remains a key focus for the group, and we invested £22 million in net working capital during the first half, reflecting product price inflation and inventory actions taken in response to developments in the Middle East.

Speaker #2: We've always said that we believe it is essential to continue to reinvest in our businesses to maintain their competitive edge, even during times of market weakness.

David Arnold: We have always said that we believe it is essential to continue to reinvest into our businesses to maintain their competitive edge, even during times of market weakness. We invested a net GBP 23 million into replacement and development CapEx in H1. Well, the major element went into acquisitions, but we also returned a net GBP 75.5 million to shareholders through dividends and buybacks. You will have seen from today's results announcement that we propose to increase the interim dividend by 2% to 11 pence per share. Consistent with the targets which we set out at our Capital Markets Day, it remains our intention to restore dividend cover more firmly within the two to three times dividend cover range as we move forwards.

Speaker #2: And we invested a net £23 million into replacement and development capex in the first half. Where do we use that free cash flow and that strength of our balance sheet?

Speaker #2: Well, the major element went into acquisitions. But we also returned a net £75.5 million to shareholders through dividends and buybacks. You will have seen from today's results announcement that we propose to increase the interim dividend by 2% to 11 pence per share. Consistent with the targets we set out at our Capital Markets event, it remains our intention to restore dividend cover more firmly within the two to three times dividend cover range as we move forward.

Speaker #2: Share buybacks of £25.6 million were executed in the first half, out of a total figure announced in the current year of £50 million.

David Arnold: Share buybacks of GBP 25.6 million were executed in H1, out of a total figure announced in the current year of GBP 50 million. Grafton’s cash generative nature, together with its strong balance sheet, continues to support both shareholder returns and provide significant firepower for the group to capitalize on organic and inorganic development opportunities. At the end of June, our net debt was GBP 315 million, representing lease-adjusted net debt to EBITDA of just under 1x. Turning to the balance sheet, a key point to note is that the acquisitions accounted for GBP 34 million of the GBP 53 million increase in net working capital since the end of 2025. Adjusted return on capital employed was 10.7% in H1. That was down 20 basis points on last year, and that is very much a function of our recent capital deployment into acquisitions.

Speaker #2: Grafton's cash-generative nature, together with its strong balance sheet, continues to support both shareholder returns and provide significant firepower for the group to capitalise on organic and inorganic development opportunities.

Speaker #2: At the end of June and net debt was 315 million pounds, representing least suggested net debt to EBITDA of just under one times. And turning to the balance sheet, a key point to note is that the acquisitions accounted for 34 million pounds of the 53 million pounds increase in net working capital since the end of 2025.

Speaker #2: Adjusted return on capital employed was 10.7% in the first half. That was down 20 basis points on last year, and that's very much a function of our recent capital deployment into acquisitions.

Speaker #2: This level of return on capital employed is still around 2 percentage points higher than our estimated weighted average cost of capital. Capital turn was constant at 1.4 times.

David Arnold: This level of return on capital employed is still around 2 percentage points higher than our estimated weighted average cost of capital. Capital turn was constant at 1.4x. Finally, just to note before I hand back to Eric, I have included some technical guidance for the full year, which you may find helpful in the appendices. Eric?

Speaker #2: Finally, just to note before I hand back to Eric, I have included some technical guidance for the full year, which you may find helpful in the appendices.

Speaker #2: Eric.

Speaker #1: Thank you. David?

Eric Born: Thank you, David. A few words about strategy and outlook. I will share a few slides, which I went through in detail at our very recent Capital Markets Day, so I will not dwell on them. The strategy remains unchanged. We provide our trade customers in Europe with construction-related products and solutions. That is what we do. We drive growth through long-term organic growth in markets where there are underlying structural growth drivers, and supplement that via acquisitions, and execute all of that in our federated operating model, where we combine the best of two worlds, which means, good controls, processes, best practice, and technology through the group, whilst having local accountability in execution and customer proximity. All of that is what we call the Grafton Way. To talk about the long-term growth drivers. Key is how we select markets. Again, a slide from the Capital Markets Day.

Speaker #3: So, a few words about strategy and outlook. I will share a few slides, which I went through in detail at our very recent capital markets event, so I will not dwell on them.

Speaker #3: But the strategy remains unchanged. We provide our trade customers in Europe with construction-related products and solutions. That's what we do. We drive growth through long-term organic growth in markets where there are underlying structural growth drivers, and supplement that via acquisitions. We execute all of that in our federated operating model, where we combine the best of two worlds—which means good controls, processes, best practice, and technology through the group—whilst having local accountability in execution and customer proximity.

Speaker #3: And all of that is what we call the Grafton way. If I talk about the long-term growth drivers, the key is how we select markets.

Speaker #3: Again, a slide from the Capital Markets event. We select regions and countries which have underlying structural growth drivers. We are well aware this is a cyclical industry, but in the long run, we select markets where the growth drivers are there.

Eric Born: We select regions and countries which have underlying structural growth drivers. We are well aware this is a cyclical industry, but in the long run, we select markets where the growth drivers are there. Then in each market, we look at which verticals do we believe we can deliver the returns, the profitability, drive consolidation and growth, and enhance the businesses through our shared knowledge across the group, exactly what we do in Spain. The outcome of that is that in every single market that we operate in, we have strong management teams running differentiated models with trusted local brands. We have local scale and the necessary customer centricity, which allows us to deliver above industry average returns, ROCE, and cash generation throughout the cycle. Our federated operating model, again, just a little illustration. The outcome is really the most important thing is on the bottom of the slide.

Speaker #3: Then, in each market, we look at which verticals we believe we can deliver their returns, the profitabilities, drive consolidation and growth, and enhance the businesses through exactly what we do in Spain.

Speaker #3: And the outcome of that is that in every single market where we operate, we have strong management teams running differentiated models with trusted local brands.

Speaker #3: We have local scale and the necessary customer centricity, which allows us to deliver returns and cash generation above the industry average throughout the cycle.

Speaker #3: Our federated operating model—again, just a little illustration. The outcome, really, the most important thing, is on the bottom of the slide: agile, customer-focused businesses.

Eric Born: Agile, customer-focused businesses, empowered and engaged colleagues delivering the returns we expect. From a structural point of view as a group, we have the structures in place to make sure that best practices are leveraged, IT solutions are leveraged, procurement benefits are taken where it makes sense, and the capital allocation is stringent, controlled by the group. That is a model which has worked very well for us over time as we continue to execute. David mentioned briefly Mercaluz. Mercaluz is a Spanish company, leader in HVAC, predominantly air conditioning. Very complementary to Salvador Escoda. It is a different model. Salvador Escoda offers 40,000 plus SKUs, AC, ventilation, refrigeration, a one-stop shop for the installer with branches and the network of branches. Mercaluz has, their branches are like small distribution centers. They deliver to the installers.

Speaker #3: Empowered and engaged colleagues are delivering the returns we expect, and from a structural point of view, as a group, we have the structures in place to make sure that best practices are leveraged, IT solutions are leveraged, procurement benefits are taken where they make sense, and the capital allocation is stringently controlled by the group.

Speaker #3: So that's a model which has worked very well for us over time, and we continue to execute. David mentioned briefly Mercaluz. Mercaluz is a Spanish company, a leader in HVAC, predominantly air conditioning.

Speaker #3: Very complementary to Salvador Escoda. It's a different model. Salvador Escoda offers 40,000-plus SKUs—AC, ventilation, refrigeration—it's a one-stop shop for the installer, with branches and a network of branches.

Speaker #3: Mercaluz has their branches, which are like small distribution centres. They deliver to the installers. They have a narrow range—about 8,000 SKUs—very much focused on their own brand, which is Johnson, Johnson Air Conditioning, and other products.

Eric Born: They have a narrow range, about 8,000 SKUs, very much focused on the own brand, which is Johnson. Johnson Air Conditioning and other products. So 75% of the sales are own branded product, hence the very, very strong margin which can be achieved. There is a rapid expansion on the way. We have now 20 locations in Spain. Nine locations were opened in the last 18 months, whilst we were in contact with them and talked about acquiring the business. Integration progressing really, really well. The local management team remains in place. So the two former owners continue to run the business with all the appropriate incentive structures you would expect, so that our incentives are aligned to successfully continue to grow the business and have the next phase of accelerated growth in a strong market.

Speaker #3: So, 75% of the sales are own-branded product, hence the very, very strong margin, which can be achieved. There is a rapid expansion underway. We have now 20 locations in Spain; 9 locations were opened in the last 18 months, whilst we were in contact with them and talked about acquiring the business.

Speaker #3: Integration is progressing really, really well. The local management team remains in place, so the two former owners continue to run the business with all the appropriate incentive structures you would expect.

Speaker #3: So that our incentives are aligned to successfully continue growing the business and to achieve the next phase of accelerated growth in a strong market.

Speaker #3: Our other acquisition was Signum in the Republic of Ireland, a leading supplier of materials to older offsite timber frame solutions. That's a product extension for Chadwicks.

Eric Born: Our other acquisition was Cygnum in the Republic of Ireland, a leading supplier of made-to-order off-site timber frame solutions. That is a product extension for Chadwicks. It is a business where it is our first MMC business, so Modern Methods of Construction. This is a growing element, especially in scheme housing, low-rise scheme housing, where in the H1, 66% of new scheme housing commencements had timber frames. We have synergies with Chadwicks in two ways. One, we are the largest buyer with the Chadwicks Group of materials like insulation and timber, which is needed to do those timber frames. So there is a product, a procurement synergy, but also, in addition to the customers which Cygnum already has, there is now access to the customers which Chadwicks has to provide the timber frame solutions. Again, integration progressed very well, and trading is in line with where we expected it to be.

Speaker #3: It's a business where it's our first MMC business, or Modern Methods of Construction. This is a growing element, especially in scheme housing, low-rise scheme housing, where in the first half, 66% of new scheme housing commencements had timber frames.

Speaker #3: We have synergies with Chadwicks in two ways. One, we are the largest buyer with the Chadwicks Group of materials like insulation and so on, and timber, which are needed to do those timber frames.

Speaker #3: So, there is a product and a procurement synergy. But also, in addition to the customers which Signum already has, there is now access to the customers which Chadwicks has to provide the timber frame solutions.

Eric Born: So there is a product, a procurement synergy, but also, in addition to the customers which Cygnum already has, there is now access to the customers which Chadwicks has to provide the timber frame solutions. Again, integration progressed very well, and trading is in line with where we expected it to be.

Speaker #3: Again, integration progressed very well, and trading is in line with where we expected it to be. At the capital markets event, we were clear about our ambition of €850 million plus free cash flow cumulatively until the end of 2030.

Eric Born: At the Capital Markets Day, we were clear about our ambition of GBP 850 million-plus free cash flow cumulatively until the end of 2030. An EPS CAGR greater than 10%, and in normalized markets, a ROCE which is 13% or more by 2030. So we are tracking well to achieve that. We had the free cash flow in the H1, as David mentioned, of just shy of GBP 71 million and adjusted EPS growth just shy of 11% and a ROCE of 10.7%, and that with two markets which are not at all pumping on all cylinders, namely Northern Europe and in particular, GB. Which nicely brings me to the current trading and the average daily like-for-like sales.

Speaker #3: An EPS CAGR greater than 10%. And in normalised markets, a ROCE which is 13% or more by 2030. So we are tracking well to achieve that.

Speaker #3: We had a free cash flow in the first half, as David mentioned, of just shy of £71 million, and adjusted EPS growth just shy of 11%, and a ROCE of 10.7%.

Speaker #3: And that's with two markets which are not at all pumping on all cylinders, namely Northern Europe, and in particular, GB. Which nicely brings me to the current trading and the average daily like-for-like sales.

Speaker #3: As you can see in the first half, but also in the most recent weeks, up until the 23rd of August, the Island of Ireland is performing well and strong, and the same can be said for Iberia, our two strong, growing markets.

Eric Born: As you can see in the H1, but also in the most recent weeks up until 23 August, the island of Ireland performing well and strong, and the same can be said for Iberia, our two strong growing markets. Northern Europe with a little bit of growth but not fantastic. Still a challenge in GB, which is, in my eyes, significant upside potential once we can have the positive effect of the operating leverage which we have in our GB businesses. In terms of H2 outlook, we have a positive Republic of Ireland construction outlook for the H2, so we expect to continue to perform strongly in the Republic of Ireland. In terms of Northern Ireland, with our MacBlair business, we expect no significant uplift in the H2 as from a macro point of view, this is more aligned to our GB businesses.

Speaker #3: Northern Europe with a little bit of growth, but not fantastic. And still a challenge in GB, which is, in my eyes, significant upside potential once we can have the positive effect of the operating leverage which we have in our GB businesses.

Speaker #3: In terms of H2 outlook, we have a positive Republic of Ireland construction outlook for the second half. So, we expect to continue to perform strongly in the Republic of Ireland.

Speaker #3: In terms of Northern Ireland, with our Macblair business, we expect no significant uplift in the second half as, from a macro point of view, this is more aligned to our GB businesses.

Speaker #3: In Great Britain, we expect second-half market conditions to remain unchanged compared to the first half. So, we expect it to continue to be challenging, and of course, the autumn budget will be key in shaping consumer confidence going forward.

Eric Born: In Great Britain, we expect the H2 market conditions to remain unchanged compared to the H1. So we expect it to continue to be challenging, and of course, the autumn budget will be key in shaping consumer confidence going forward. So we will see what the outcome will be. In terms of Northern Europe, the Dutch market conditions are expected to be similar to the H1. In Finland, we expect that the gradual recovery which has started will continue in the H2 of the year. In Spain, we expect continued strong growth as Spain remains one of the fastest-growing large economies in Europe. In summary, a resilient performance in the H1. The acquisitions are performing well, are in line with our expectation. Integration is going well. So, that is always important that the teams gel with the teams we already have.

Speaker #3: So, we will see what the outcome will be. In terms of Northern Europe, the Dutch market conditions are expected to be similar to the first half.

Speaker #3: And in Finland, we expect that the gradual recovery, which has started, will continue in the second half of the year. In Spain, we expect continued strong growth, as Spain remains one of the fastest-growing large economies in Europe.

Speaker #3: In summary, a resilient performance in the first half. The acquisitions are performing well and are in line with our expectations. Integration is going well, so that's always important—that the teams gel with the teams we already have.

Speaker #3: So, that is all going well. We continue to execute our strategy to drive long-term organic growth, supplemented with value-enhancing acquisitions. We also fully reaffirm our guidance for operating profit for the full year and remain on track to deliver our 2030 targets.

Eric Born: That is all going well. We continue to execute our strategy, drive long-term organic growth, supplemented with value-enhancing acquisitions, and we reaffirm full year guidance for the operating profit for the full year and remain on track to deliver our 2030 targets. Any questions?

Speaker #3: Any questions?

Speaker #1: Excellent. So, just on the questions front, we have some microphones that will come around. If, for the benefit of the tape, you could state your name and your rank and serial number, that would be great.

David Arnold: Excellent. Just on the questions front, we have some microphones that will come around. If for the benefit of the tape, you could state your name and your rank and serial number, that would be great. I certainly have a selective memory, so if you ask me too many questions at once, I will select not to answer them. If you could do them one at a time and I will give you the answer, that would be even better. So we will start with Will. You have the mic.

Speaker #1: I certainly have a selective memory, so if you ask me too many questions at once, I'll select not to answer them. So if you could do them one at a time, and I'll give you the answer, that would be even better.

Speaker #1: So we'll start with Will. You have the mic.

Speaker #2: Thank you. Will Jones, Rothschild & Co. Redburn—just a couple, please. The first is around pricing. Perhaps you could just walk us through how that's evolved in the top line as we've gone from, say, Q1 through to the early part of Q3, and maybe within that, just how commodities are faring relative to normal finished products.

Will Jones: Thank you. Will Jones, Rothschild & Co Redburn. A couple, please. The first around pricing, perhaps you could just walk us through how that has evolved in the top line as we have gone from, say, Q1 through to the early part of Q3. Maybe within that, just how commodities are faring relative to normal finished products.

Speaker #1: Yeah. So, actually, the year started from an inflationary perspective in a very benign way. If I was to look across the group, Q1 inflation was very modest indeed—pretty flat, actually.

David Arnold: Yeah. So actually the year started from an inflationary perspective in a very benign way. If I was to look across the group, Q1 inflation was very modest indeed, pretty flat actually. Then we started to see it pick up as we got towards the end of the second quarter. I would say across the businesses, the more material impacts have been around the heavy building products in GB and in Ireland. If you look at the Spanish businesses, indeed, if you were to look at Woodie's, a lot of the products which they are buying in, they would have bought in some way in advance. So they have not really been as impacted by product price inflation at this point. That is more likely to be a feature as we move into 2027 for those businesses in particular.

Speaker #1: And then we started to see it pick up as we got towards the end of the second quarter. I would say, across the businesses, the more material impacts have been around the heavy building products in GB and in Ireland.

Speaker #1: If you look at the Spanish businesses, indeed if you were to look at Woody's, a lot of the products which they are buying in, they would have bought in some way in advance.

Speaker #1: So, they haven't really been as impacted by product price inflation at this point. That's more likely to be a feature as we move into 2027 for those businesses in particular.

Speaker #1: But if you look at the likes of Chadwick's and the GB distribution businesses, I think what we saw was inflation in the second quarter, we were more in the 3 to 4 percent camp.

David Arnold: But if you look at the likes of Chadwicks and the GB distribution businesses, I think what we saw was inflation in the second quarter. We were more in the 3% to 4% camp, and as we exited, I would say we were more around that 4%. Now, the huge amount of volatility as we know in markets more generally, what is the outlook for the H2? I think probably on the heavy building material side, is probably closer to the 4%, I would say, than the 3%. I think that is where the bigger pressure that we see comes through. For those other businesses, I think it is about next year, and next year we are probably likely to see a higher rate of inflation for those businesses than we saw this year, where it has been running at that 1% to 2% level.

Speaker #1: And as we exited, I would say we were more around that 4% now. There has been a huge amount of volatility, as we know, in markets more generally.

Speaker #1: What is the outlook for the second half? I think, probably, for the heavy building materials side, it is probably closer to 4%, I would say, than to 3%.

Speaker #1: I think that's where the bigger pressure that we see comes through. For those other businesses, I think it's about next year, and next year we're probably likely to see a higher rate of inflation for those businesses than we saw this year, where it's been running at sort of that 1% to 2% level.

Speaker #2: Whether there's anything to note in timber and steel where it's relevant.

Will Jones: Whether there is anything to note in timber and steel where it is relevant.

David Arnold: I wouldn't say there's anything particular to call out there. Steel has been relatively volatile, and of course, we have to concern ourselves with things like CBAM as well these days and the impact of that.

Speaker #1: I wouldn't say there's anything particular to call out there. I mean, steel has been relatively volatile and, of course, we have to concern ourselves with things like CBAM as well these days, and the impact of that.

Speaker #2: The second one was just maybe unpicking some of the moving parts around gross margin. Firstly, whether there's been any kind of one-off assistance from that sequential price inflation through recent months.

Will Jones: The second one is just maybe unpicking some of the moving parts around gross margin. Firstly, whether there's been any kind of one-off assistance from that sequential price inflation through recent months, and then maybe just exploring where you're seeing the competitive tension, and any of those self-help levers that I think Finland you called out as one, for example. But anything to explore on gross margin? Thanks.

Speaker #2: And then maybe just exploring where you're seeing the competitive tension, and any of those self-help levers that—I think Finland, you called out, was one, for example.

Speaker #2: Is there anything further to explore on gross margin?

Speaker #1: Well, if I sort of pick up the gross margin and perhaps Eric picks up sort of competitive elements around the market and self-help—I mean, on gross margin, I would say, no, there haven't been any specific one-off elements of that.

David Arnold: Well, if I pick up the gross margin and perhaps Eric picks up competitive elements around the market and self-help. On gross margin, I would say no, there's no sort of specific one-off elements of that. It's just a function of an awful lot of work that we've been doing at the branch level in terms of pricing, in terms of being quick to pass through any of the extra price increases that we've got. A lot of work around selective promotional activity. I think continuing that theme that we had and talked about last year, really, which in the GB context, which is we saw no benefit in being very aggressive on price because we just didn't see that the market would give the volume uplift to compensate for that. So yeah, I think we continue to be quite tactical. We'll be very responsive.

Speaker #1: It's just a function of an awful lot of work that we've been doing at a branch level—in terms of pricing, in terms of being quick to pass through any of the extra price increases that we've got. I mean, a lot of work around selective promotional activity.

Speaker #1: And I think, continuing that theme that we had and talked about last year really, which in GB, and the GB context, which is—we saw no benefit in being very aggressive on price because we just didn't see that the market would give the volume uplift to compensate for that.

Speaker #1: So yeah, I think we continue to be quite tactical. We'll be very responsive. GB had a good performance on gross margin, as we talked about, in the first half.

David Arnold: GB had a good performance on gross margin, as we talked about in H1. Overall for the group, we were pleased with where the gross margin landed.

Speaker #1: Overall, for the group, we were pleased with where the gross margin landed.

Speaker #3: I think, in terms of the competitive environment in each market, it's as you would expect given the circumstances of the market. The toughest market, I would say at the moment, is GB, where volumes are really low.

Eric Born: I think in terms of competitive environment in each market is as you would expect given the circumstances of the market. The toughest market I would say at the moment is GB, where volumes are really low. With low volumes you will have the same amount of players fighting for lower volumes, which normally gives extra competitive pressure. As David said, we are not really driving the businesses per se on gaining market share and achieving less gross profit than maintaining market share and achieving more gross profit, right? We work closely with the businesses in each market, but we certainly have no irrational competitive behavior in any of the markets.

Speaker #3: And with low volumes, you will have the same amount of players fighting for lower volumes, which normally gives extra competitive pressure. But, as David said, we are not really driving the businesses per se on gaining market share and achieving less gross profit.

Speaker #3: Then maintaining market share and achieving more gross profit, right? So, we work closely with the businesses in each market, but we certainly have no irrational competitive behavior in any of the markets.

Speaker #1: Could you pass to Jane?

David Arnold: Pass to Shane.

Speaker #4: Yes, thank you.

Shane Carberry: James, thank you. Shane Carberry, Goodbody. The first one, just to follow up maybe on Cygnum and given how constructive the new build background is in Ireland, probably right out to 2030. Just trying to get an idea of where you think that business could go over the medium term. When we think about it scaling from here, is this additional manufacturing facilities? I know it's just been ramped up from a manufacturing perspective. Or is it plugging into the Chadwicks model? Just how we should think about the growth from here over the medium term.

Speaker #5: Shane Carbury, good buddy. The first one, just a follow-up maybe on Signum and, given how constructive the new build background is in Ireland—probably right out to 2030—just trying to get an idea of where you think that business could go over the medium term. And when we think about its scaling from here, is this additional manufacturing facilities?

Speaker #5: I know it's just been ramped up from a manufacturing perspective, or is it plugging into the Chadwick's model? Just how should we think about the growth from here over the medium term?

Speaker #3: Well, in the medium term, I would say we have sufficient capacity in the existing setup after the capacity extension to significantly grow the business, right?

Eric Born: Well, in the medium term, I would say we have sufficient capacity in the existing setup after the capacity extension to significantly grow the business, right? Of course, if the business will grow successfully and at some stage we need to extend capacity, well, that's what we will do, right? Like in any of the businesses, but in the medium term, we certainly have no capacity constraint to significantly grow the business over time.

Speaker #3: But of course, if the business grows successfully and, at some stage, we need to extend capacity, well, that's what we will do, right?

Speaker #3: So, like in any of the businesses, but in the medium term, we certainly have no capacity constraint to significantly grow the business over time.

Speaker #5: And then the second one, I guess it was just around the 2030 targets and the EPS targets. I mean, already you're coming in slightly ahead of kind of circa 11% relative to the 10% CAGR.

Shane Carberry: The second one, I guess, was just around the 2030 targets and the EPS targets. Already you are coming in slightly ahead at circa 11% relative to the 10% CAGR. What does that do for your confidence level when you think about the fact that some of the markets, as you mentioned, are quite subdued within that mix? It might have been easy to think some of that CAGR would have been back-end weighted, maybe.

Speaker #5: What does that do for your confidence level when you think about the fact that some of the markets, as you mentioned, are quite subdued within that mix?

Speaker #5: It might have been easy to think some of that carryover would have been back-end weighted, maybe.

Speaker #3: Look, the way I look at it, I joined this in 2022. And I didn't expect—at that time, there were lots of our earnings coming out of GB, right?

Eric Born: Look, the way how I look at it, I joined this industry in 2022. I did not expect, at that time, there were lots of our earnings coming out of GB. So when I joined, I did not foresee that GB will do what it will do. I always tease David, who has spent a lifetime in the industry, telling me H2 next year, the recovery will start. It has not yet happened. So my point is, you do not really know five years out what is happening. We certainly had a good start and, if all the markets in a perfect world, so let us say Ireland continues on to 2030 to be strong, so does Iberia. We achieved the ambition to get EUR 1 billion in Iberia at the 7% to 10% operating margin and Northern Europe plus GB recover, happy day. I feel very confident.

Speaker #3: So, when I joined, I did not foresee that GB would do what it has done. And I always teased David, who has spent a lifetime in the industry, telling me, "Second half next year, the recovery will start," right?

Speaker #3: It hasn't yet happened. So my point is, you don't really know five years out what is happening. We certainly had a good start. And if all the markets, in a perfect world—so let's say Ireland continues until 2030 to be strong, so does Iberia—we achieve the ambition to get €1 billion in Iberia, and the 7 to 10% operating margin.

Speaker #3: And Northern Europe, plus GB, recover—happy days. I feel very confident. But what I don't know is, do we have some other market which has a slowdown in 2028, 2029, right?

Eric Born: What I do not know is, do we have some other market which has a slowdown in 2028, 2029? So I think you can only deal with it as you go along. Overall, as we explained in the Capital Markets Day, I think we have the levers necessary in our hands to achieve those targets. So I am pretty confident we will get there, but I am not overconfident because I do not have a magic wand to read the future. So we just have to be cautious and react to what happens.

Speaker #3: So, I think you can only deal with it as you go along. Overall, as we explained at the Capital Markets Day, I think we have the levers necessary, in our hands, to achieve those targets.

Speaker #3: So I'm pretty confident we will get there. But I'm not overconfident, because I don't have a magic wand to read the future. So, you just have to be cautious and react to what happens.

Speaker #1: Could you pass to, sorry, the floor? I think they've just got the mic.

David Arnold: Sorry, Flor, I think this just got the mic.

[Analyst] (Davy): Thank you. A couple from me, Flor, one from Davy. The first one I might ask is the relationship with Salvador Escoda, just the network expansion. You just might give us a bit more color on the five new branches, where they are as geographic gaps, just broad economics around how it works in terms of opening costs, the kind of pathway to maturity and those kinds of things, if that's okay.

Florence O'Donoghue: Thank you. A couple from me, Flor, one from Davy. The first one I might ask is the relationship with Salvador Escoda, just the network expansion. You just might give us a bit more color on the five new branches, where they are as geographic gaps, just broad economics around how it works in terms of opening costs, the kind of pathway to maturity and those kinds of things, if that's okay.

Speaker #2: Thank you. Kieran from Me, Floor. I don’t know—from David. First one I might ask is in relation to Salvador Escoda, just the network expansion.

Speaker #2: Could you give us a bit more color on the five new branches—where they are, whether they're filling geographic gaps, and just some broad economics around how it works in terms of opening costs, the pathway to maturity, and those kinds of things?

Speaker #2: Is that's okay?

Speaker #3: Yeah, sure. It's feeling openings, right? So, where we have still wide gaps, where we think we will be able to open. So it's across Spain where we opened and also on the Balearic Islands.

Eric Born: Yeah, sure. It's filling openings, right? So where we have still wide gaps where we think we'll be able to open. It's across Spain where we opened and also on the Balearic Islands. We have a plan to open 70 this year, five were done in H1, two more to come in line with our business plan. Opening a Salvador Escoda branch is not expensive. They are not massive branches. It's not like a Selco where you put quite a lot of capital down. So it's a relatively modest investment, and we would normally expect the business to certainly contribute after 12 months to the bottom line. So it's sometimes earlier. So it's a relatively fast break even, and you have relatively short lease commitments as well. You take a five-year lease. Lease costs are relatively low, and if it wouldn't work, you can exit relatively painless.

Speaker #3: We have a plan to open 70 stores here; five were done in the first half. Two more to come, in line with our business plan.

Speaker #3: Opening a Salvador Escoda branch is not expensive. They're not massive branches. It's not like a Salco, where you put quite a lot of capital down.

Speaker #3: So it's a relatively modest investment, and we would normally expect the business to certainly contribute to the bottom line after 12 months. Sometimes it's earlier, right?

Speaker #3: So, it's a relatively fast break-even, and you have relatively short lease commitments as well. You take a five-year lease, lease costs are relatively low.

Speaker #3: And so if it wouldn't work, you can exit relatively painless. And if it doesn't work and if it does work, it's normally moves into an extension of leases is pretty simple or it moves into evergreen contracts.

Eric Born: If it does work, it normally moves into an extension of leases is pretty simple, or it moves into evergreen contracts.

David Arnold: It's slightly different to that Mercaluz model. A new Mercaluz branch tends to be a slightly higher investment because it tends to act as a distribution hub. So you need a slightly bigger warehouse than you would with a Salvador branch.

Speaker #1: It's slightly different to the Mercury's model. A new Mercury's branch tends to be a slightly higher investment because it tends to act as a distribution hub.

Speaker #1: So you need a slightly bigger warehouse than you would with a Salvador branch.

[Analyst] (Davy): Thank you. The second one then just might turn to GB. It really feels like you have done everything you can in operating costs and trying to keep the business as tight and as lean as possible. Is there any thought around maybe as leases come up on the likes of Selco that you may look at consolidating the estate a bit, or will you just have to hang tough till the market turns?

Florence O'Donoghue: Thank you. The second one then just might turn to GB. It really feels like you have done everything you can in operating costs and trying to keep the business as tight and as lean as possible. Is there any thought around maybe as leases come up on the likes of Selco that you may look at consolidating the estate a bit, or will you just have to hang tough till the market turns?

Speaker #4: Thank you.

Speaker #2: Second one then, just my turn to go. It really feels like you've done everything you can on operating costs and tried to keep the business as tight and as lean as possible.

Speaker #2: Is there any total round, maybe as leases come up and with the likes of Salco, that you may look at kind of consolidating the estate a bit, or will you just have to hang tough until the market turns?

Speaker #3: It's a constant process where we look at each branch. Does the branch contribute? Does it contribute to overhead? If not, then otherwise it's in the best shape.

Eric Born: It is a constant process where we look at each branch. Does the branch contribute? Does it contribute to overhead if it is not otherwise in the best shape? So we look at this very actively, and if it makes economic sense to consolidate, we will consolidate. If it makes economic sense to continue to trade, we will continue to trade. I think we closed one in the last 18 months. We went from 75 to 74, and we will keep monitoring it. In the long run, we still believe that there is potential for up to 90 Selcos in GB. We believe it is a very good model, but it is a model with a lot of operating leverage. At that moment in the cycle, operating leverage is not great. When the cycle turns, operating leverage is great. That is how it works.

Speaker #3: So, we look at these very actively. If it makes economic sense to consolidate, we'll consolidate. If it makes economic sense to continue to trade, we'll continue to trade.

Speaker #3: I think we closed one in the last 18 months, right? We went from 75 to 74, and we will keep monitoring it. In the long run, we still believe that there is potential for up to 90 Selcos in GB.

Speaker #3: We believe it's a very good model, but it's a model with a lot of operating leverage. And at that moment in the cycle, operating leverage isn't great.

Speaker #3: When the cycle turns, operating leverage is great. That's how it works, right? But we will—if it makes economic sense to exit some sites, we will.

Eric Born: We will, if it makes economic sense to exit some sites, we will. But you have to look at it on a side-by-side basis. How does it contribute now? Do we think how much more revenue do you actually need for the site to be a really good contributor again? So you have to look at it at the overall picture of each site.

Speaker #3: But you have to look at it on a side-by-side basis. How does it contribute now? Do we think about how much more revenue you actually need for the site to be a really good contributor again?

Speaker #3: So you have to look at it in the overall picture of each site.

Speaker #1: And just to add to that, I mean, I think Frank Elkins covered some of this at the Capital Markets event. We've got a new centralized distribution center that will be coming on stream next year.

David Arnold: Just to add to that, I think Frank Elkins covered some of this at the Capital Markets Day event. We have got a new centralized distribution center that will be coming on stream next year. So that is an important investment. Inevitably, there will be an element of some double running costs for a period. But once that is operating on its own, that is a big efficiency gain for Selco as well. It gives them more capacity for doing some own brand sourcing and that sort of thing. So that is quite an exciting efficiency improvement that by the time we get to 2028, 2029, that will be in full swing.

Speaker #1: So, that's an important investment. Now, inevitably, there’ll be an element of some double running costs for a period. But once that is operating on its own, that's a big efficiency gain for Salco as well.

Speaker #1: It gives them more capacity for doing some own-brand sourcing and that sort of thing. So that's quite an exciting efficiency improvement that, by the time we get to '28, '29, that will be in full stream.

Eric Born: Well, as you can see, we are committed to GB in the long term, and I can only stress, and we invest throughout the cycle. It would be easy to say, "No, we don't put a new DC down for Selco," but actually, it's the right thing and GB will return. It's not a question if, it's a question when.

Speaker #3: As you can see, we are committed to GB in the long term. I can only stress that we invest throughout the cycle. It would be easy to say, no, we don't put a new DC down for Selco.

Speaker #3: But actually, it's the right thing. And GB will return. It's not a question of if, it's a question of when.

Speaker #1: Yeah, I think it's the second half of next year.

David Arnold: Got it. I think it's H2 of next year.

Eric Born: We keep telling you.

Speaker #4: Keep telling me.

Speaker #1: Kristen.

David Arnold: Kristen.

Speaker #4: Thank you. Kristen, you're up from Deutsche Bank. Just to start with the first one, probably for David, the Mercury's margin looked very good in the first half.

Christian Fisk: Thank you. Christian Fisk from Deutsche Bank. Just to start with the first one, probably for David. The Mercaluz margin looked very good in H1. You did point out there was a couple of good months for them, but just to get a sense of that versus normalized, the pick-up versus what they generated last year, for example.

Christen Hjorth: Thank you. Christian Fisk from Deutsche Bank. Just to start with the first one, probably for David. The Mercaluz margin looked very good in H1. You did point out there was a couple of good months for them, but just to get a sense of that versus normalized, the pick-up versus what they generated last year, for example.

Speaker #4: You did point out there's a couple of good months for them, but just to get a sense of that versus normalized, it's a big pickup versus what they've generated last year, for example.

Speaker #5: Yeah, look, I think the result in the first...

David Arnold: Yeah. I think the result in the H1, if you were to just look at the Mercaluz's contribution to the group, the operating margin was super normal because it had those 2 months in it. Ordinarily, we would expect their margin to be mid-teens. It was stronger than that, as I say, in the H1. Looking further forward, if you just take the Salvador and you take the Mercaluz business, we would expect in it normalized to be that 9% to 10%. When we think about our broader ambitions for Iberia, again, which we talked about in the Capital Markets Day event, we want to get to EUR 1 billion of revenue. That is our target. The zone, if you like, for the operating margin that we see for a mature business in different business streams would probably be more in that 7% to 10% margin.

Speaker #1: Half, if you were to just look at Mercury's contribution to the group, their operating margin was super normal because it had those two months in it.

Speaker #1: Ordinarily, we'd expect their margin to be sort of mid-teens. It was stronger than that, as I say, in the first half. So, looking sort of further forward, if you just take the Salvador and you take the Mercury's business, we'd expect, in a sort of normalized period, to be at around 9 to 10%.

Speaker #1: When we think about our broader ambitions for Iberia—again, which we talked about at the capital markets event—we want to get to €1 billion of revenue.

Speaker #1: That's our target. I mean, the sort of zone, if you like, for the operating margin that we see for a mature business in different business streams would probably be more in that 7% to 10% margin.

Speaker #4: And the second one, obviously, sticking with Spain, clearly a bit of a benefit, I imagine, from the heatwave that we've had across Europe. Just your sense whether that drives brought-forward demand or actually triggers a structural change in the demand for air conditioning, and therefore you can see good sales even as the weather gets cooler because people realize they need to have air conditioning in the summer months.

Christian Fisk: The second one, David, is just sticking with Spain. Clearly a bit of a benefit, I imagine, from the heat wave that we have had across Europe. Just your sense whether that drives brought forward demand or actually triggers a structural change in the demand for air conditioning and therefore, you can see good sales even as the weather gets cooler because people realize they need to have air conditioning in the summer months.

Christen Hjorth: The second one, David, is just sticking with Spain. Clearly a bit of a benefit, I imagine, from the heat wave that we have had across Europe. Just your sense whether that drives brought forward demand or actually triggers a structural change in the demand for air conditioning and therefore, you can see good sales even as the weather gets cooler because people realize they need to have air conditioning in the summer months.

Speaker #3: Look, you already have a strong AC penetration in countries like Spain, right? So, many of the houses already have AC. But I do think that the penetration of AC will continue to increase.

Eric Born: Look, you already have a strong AC penetration in countries like Spain, right? Many of the houses have already AC, but I do think that the penetration of AC will continue to increase, and of course, if summer months are particularly hot the AC systems have to work harder. It might shorten their lifespan, so therefore you will sell more AC units over time. I think all those fundamentals, if you want, are reasons why we invested into that particular product segment in Iberia. I believe there is, among other segments, still a lot of stuff to do and to consolidate that particular market.

Speaker #3: And of course, if summer months are particularly hot, the AC systems have to work harder. It might shorten the lifespan, so therefore you will sell more AC units over time.

Speaker #3: And I think all those fundamentals, if you want, are reasons why we invested in that particular product segment in Iberia. I believe there is, among other segments, still a lot to do and to consolidate that particular market.

Speaker #3: So I expect the heat to be an ongoing feature. And as we've seen in London this summer, it was pretty hot here. And I'm sure many of you who don't have air conditioning in the house thought about maybe next year you should buy some air conditioning, right?

Eric Born: I expect the heat to be an ongoing feature, and as we have seen in London this summer, it was pretty hot here, and I am sure many of you who do not have air conditioning in the house thought about maybe next year I should buy some air conditioning, right?

Christian Fisk: Yeah. Great. Thank you.

Christen Hjorth: Yeah. Great. Thank you.

Speaker #4: Brilliant. Thank you.

Alastair Stewart: Alastair Stewart from Progressive Equity Research. A couple of questions. The first one in the UK and going on to H2s again. It is probably a bit unfair to get granularity on 8 weeks of latest trading, but it is down 5.6% versus 4.9% for Q2 and 5.2% for Q1. What is the sort of direction of travel in that latest 5.6%? Do you get the sense it is getting better, worse, or no change? You mentioned the autumn budget, but I get the sense this time around there is far less speculation than in the 2 or 3 months before the last budget, which really did slow down the market. Maybe a bit of color on what your customers are actually seeing. That is the first question.

Speaker #2: Alex, just do it from Progressive Equity Research. A couple of questions—the first one on the UK, and then going on to the second half again.

Speaker #2: It's probably a bit unfair to get granular on eight weeks of latest trading. But it's down 5.6%, versus 4.9% for the second quarter and 5.2% for Q1.

Speaker #2: What's the sort of direction of travel in that latest 5.6%? Do you get the sense it's getting better, worse, or no change? And you mentioned the autumn budget.

Speaker #2: But I get the sense this time around there's far less speculation than in the two or three months before the last budget, which really did slow down the market.

Speaker #2: So maybe a bit of color on what your customers are actually saying. That's the first question.

Speaker #1: So, just, I mean, what are we seeing? Look, I think if I can describe it, I think we're bumbling along a bit. I think week to week, we'll have—I wouldn't say we have a good week.

David Arnold: What are we seeing? Look, I think if I can describe it, I think we are bumbling along a bit. I think week to week we will have a, I wouldn't say we have a good week, we just don't have a really bad week. I think the feature that we saw in May and June and July though, in particular, was new build, and we saw that in CPI EuroMix. We saw the volume that was being drawn off on sites was down quite significantly. I think that as we went through H1, that was the thing that really emerged. We started off with new build was flat, and then it really came off. Now look, I wouldn't say it is getting worse. I just think it is bumbling along where it is.

Speaker #1: We just didn’t have a really bad week. I think the feature that we saw in May and June and July, though, in particular, was new build.

Speaker #1: And we saw that in CPI Euromix. We saw the volume that was being drawn off on sites was down quite significantly. So, I think that as we went through the first half, that was the thing that really emerged.

Speaker #1: We started off with new build, it was flat. And then it really came off. So now, look, I wouldn't say it's getting worse. I just think it's bumbling along where it is.

Speaker #1: Now, you're right. In terms of that speculation that we had, I mean, last year, Crikey, it was horrendously attritional in terms of all these all the kite flying that was out.

David Arnold: Now, you are right, in terms of that speculation that we had, I mean, last year, crikey, it was horrendously attritional in terms of all the kite flying that was out. We are not seeing that to the same extent yet. Let us hope that we don't see it. But I think the ramifications for Q4 and into Q1 next year is, well, really what happens in that budget. Do we see another tax-raising exercise? If we do, then I don't think that will be particularly good for confidence more generally. But that was the context in which we made that comment.

Speaker #1: We're not seeing that to the same extent yet. Let's hope that we don't see it. But I think the ramification the ramifications for the sort of Q4 and into Q1 next year is, well, really what happens in that budget.

Speaker #1: Do we see another tax-raising exercise? And if we do, then I don't think that will be particularly good for confidence, more generally. But that was the context in which we made that comment.

Speaker #2: And second question, probably quicker. Timber frame—66% penetration in Ireland. Just out of interest, where's that come from five years ago, for you? How much has timber frame rallied in Ireland?

Alastair Stewart: And second question, probably quicker. Timber frame, 66% penetration in Ireland. Just out of interest, where does that come from five years ago, for you?

Eric Born: How much has timber frame rallied in Ireland? Because I haven't a clue.

Speaker #2: Because I haven't a clue.

Speaker #1: Yeah, no, I mean, that's been quite strong growth over the last decade, but it still sits beneath the level of timberframe in Scotland or in Scandinavia, where it would be probably closer to 90% timberframe.

David Arnold: Yeah. No, that's been quite strong growth over the last decade.

Eric Born: Yeah.

David Arnold: But still sits beneath the level of timber frame in Scotland or in Scandinavia, where it would be probably closer to 90% of timber frame. So we still see further opportunity in Ireland for that to grow from a penetration perspective. Sorry, Charlie.

Speaker #1: So we still see further opportunity in Ireland for that to grow from a penetration perspective. Sorry, Charlie.

Speaker #5: Yeah, I'm Charlie Campbell at Stifel. So, a couple of questions. The first one is really around the drop-through. I suppose, if you look at the results and you put GB to one side, and you do the exercise of the drop-through for the other countries, it's maybe not as much as we might have thought.

Charlie Campbell: Yeah. Charlie Campbell at Stifel. A couple of questions. The first one, it is really around the drop-through. I suppose if you look at the results and you put GB to one side and you do the exercise of the drop-through for the other countries, it is maybe not as much as we might have thought. Just wonder what the offset is there because you have talked about gross margin, obviously, kind of picking up in all those areas and discipline on overhead. I guess there is some investment going in the other side, so just to understand what that is really. Yeah.

Speaker #5: So I just wonder what the offset is there, because you've talked about gross margin obviously kind of picking up in all those areas, and discipline on overhead.

Speaker #5: So I guess there's some investment going in on the other sides, just to understand what that is, really.

Speaker #1: Yeah, so you probably have to look at it geographically, really. In terms of that drop-through, if we look at Ireland or Ireland, the thing to bear in mind is there is also an element around MacBlair in there, which has this exposure to the UK.

David Arnold: You probably have to look at it geographically really, in terms of that drop-through. If we look at island of Ireland, the thing to bear in mind is there is also an element around MacBlair in there, which has its exposure to the UK. If we look at the businesses in the Republic of Ireland, we were pleased with the level of drop-through that we saw. The common theme across all the geographies that is impacting, has impacted around drop-through is really around labor inflation and property costs. If we look at our overhead base, 75% of our overhead base is drawn from people and property. Property, I would say, is still suffering that tail of the inflationary impact that we have seen that is coming through in rent. That is sort of still coming through.

Speaker #1: If we look at the businesses in the Republic of Ireland, we were pleased with the level of drop-through that we saw. The common theme across all the geographies that is impacting—has impacted—around drop-through is really around labor inflation and property costs.

Speaker #1: If we look at our overhead base, 75% of our overhead base is drawn from people and property. And property, I would say, is still suffering.

Speaker #1: That tail of the inflationary impact that we've seen is coming through in rent, so that's still coming through. People are very heavily influenced across many of our businesses.

David Arnold: People is very heavily influenced across many of our businesses, either by, if I take the Netherlands, collective labor agreement. Collective labor agreement for 2026 is up a little under 4%. If I look at minimum wage levels in Ireland or in GB, that is where the pressure is coming. That is the thing that we are having to work really hard from an operational efficiency to try to offset. If we look at Iberia, then what we have been doing in Iberia is we have been investing in the business. If I look at my like-for-like overheads in Iberia, that is up somewhere around about 5%. Some of that is really because we have been investing in that business for the future. We have been putting those new branches in, which is why that drop-through does not look as strong as ordinarily we would expect given that level of revenue.

Speaker #1: Either way, if I take the Netherlands' collective labor agreement, the collective labor agreement for 2026 is up a little under 4%. If I look at minimum wage levels in Ireland or in GB, that's where the pressure is coming from.

Speaker #1: So that's the thing that we're having to work really hard on, from an operational efficiency standpoint, to try to offset. If we look at Iberia, then what we have been doing in Iberia is we have been investing in the business.

Speaker #1: So, if I look at my like-for-like overheads in Iberia, I mean, that's up somewhere around about 5%. But some of that is really because we've been investing in that business for the future.

David Arnold: Some of that is really because we have been investing in that business for the future. We have been putting those new branches in, which is why that drop-through does not look as strong as ordinarily we would expect given that level of revenue.

Speaker #1: We've been putting those new branches in, which is why that drop-through doesn't look as strong as we would ordinarily expect, given that level of revenue.

Speaker #1: But yeah, we're all over that one.

David Arnold: Yeah, we are all over that one.

Charlie Campbell: Second question, at the risk of being too optimistic. The drop-through in the UK if, and when this recovery comes through, maybe we ought to be thinking at least the gross margin because one would have thought there's really not much overhead to go in for quite some time. Is that the right way to think about that?

Speaker #5: And second question, the risk of being too optimistic. The drop-through in the UK, if that recovery comes through—I mean, we ought to be thinking at least the gross margin, because one would have thought there's really not much overhead to go in for quite some time.

Speaker #5: Is that the right way to think about that?

Speaker #1: No, I mean, I would love to aspire to a drop-through rate that came in at the gross margin; I think that's a bit bullish.

David Arnold: No. I would love to aspire to a drop-through rate that came in at the gross margin. I think that's a bit bullish because I think inevitably there's other stuff that comes along. Typically in a recovery, and it does depend upon the pace and the speed at which volumes come back, but typically you'd be looking at 15% to 20% would be a reasonable level of drop-through, I would've said. I would love it to be coming through at the gross margin. The real kicker in drop-through is if you can combine that volume uptick with some improvement in gross margin, and then it becomes a bit adrenaline-fueled, and then you will see much stronger levels of drop-through.

Speaker #1: Because I think inevitably, there’s other stuff that comes along. I mean, typically in a recovery—and it does depend upon the pace and the speed at which volumes come back.

Speaker #1: But typically, you’d be looking at 15% to 20% as a reasonable level of drop-through, I would have said. I would love it to be coming through at the gross margin.

Speaker #1: I mean, the real kicker in drop-through is if you can combine that volume uptick with some improvement in gross margin, and then it becomes a bit adrenaline-fueled.

Speaker #1: And then you will see much stronger levels of drop-through.

Speaker #5: One day. Thank you.

Charlie Campbell: One day. Thank you.

Speaker #1: Oh, Sam, thanks.

David Arnold: Oh, Sam. Thanks.

Speaker #6: Hi, Sam Cullen from Bill Hunt. I've just got one, and I really related to that 75% number on property and labor costs, and sort of the question: Does your—currently, what are you doing or exploring in terms of AI to take some of that labor cost out or be more efficient across the business, particularly with your centralized model in Ireland?

Sam Cullen: Hi, Sam Cullen from Peel Hunt. I have just got one, and really related to that 75% number on property and labor costs and the question, what are you doing or exploring in terms of AI to take some of that labor cost out or be more efficient across the business, particularly with your centralized model in Ireland?

Speaker #1: Yeah, look, I mean, we're doing a lot of work generally across the sort of centralized functions. But it's not just about productivity—it's also about quality as well, in terms of the output.

David Arnold: Yeah, look, we are doing a lot of work generally across the centralized functions, but it is not just about productivity, but it is also about quality as well in terms of the output. So that is where the principal focus is because a lot of that labor cost is people serving people in branches. It is moving product, putting product on shelves, helping customers. So that is where the major element around labor expenditure sits. But yeah, the AI level we are using across all elements, whether it is recruitment or whether it is marketing and whether it is product descriptions. So, I think where it will help is, comes back I think probably to Charlie's point around drop-through, is that it will just enable us to be more efficient and benefit then when we see volume uptick without having to put additional resources in.

Speaker #1: So that's where the principal focus is, because a lot of that labor cost is people serving people in branches. It's moving product, putting product on shelves, helping customers.

Speaker #1: So that's where the major element around labor expenditure sits. But yeah, the AI level, we're using across all elements, whether it's recruitment or whether it's marketing and whether it's product descriptions so I mean, I think that will where it will help is comes back, I think, probably to Charlie's point around drop-through is that it will just enable us to be more efficient and benefit them when we see volume uptick without having to put additional resources in.

Speaker #6: Thanks.

Sam Cullen: Thank you.

Speaker #1: Ben.

David Arnold: Ben.

Speaker #4: Thanks. Ben Vara, RBC. One on Iberia. With the target to €1 billion, can you just remind us how we should think about organic growth as we head into next year, and with that target out to 2030?

Ben Barrow: Thanks. Ben Barrow, RBC. One on Iberia. With the target to the 1 billion, can you just remind us how we should think about organic growth as we head into next year and to that target out to 2030?

Ben Varrow: Thanks. Ben Varrow, RBC. One on Iberia. With the target to the 1 billion, can you just remind us how we should think about organic growth as we head into next year and to that target out to 2030?

Speaker #3: Look, I do dislike mental maths by Eric, right? So I guess, on an annualized run rate with the businesses we have, we should be somewhere around €430 million to €450 million in revenue.

Eric Born: Look, I do this mental maths by area. I guess on an annualized run rate with the businesses we have, we should be somewhere around EUR 430 million, EUR 450 million in revenue. I would expect them to organically grow to 600 plus by 2030. We need to acquire and grow around 400 to get to EUR 1 billion. That is really how I look at it, and we have a pipeline which would facilitate that. As we keep saying, we do not buy a business for the sake of buying a business if we do not think the valuation is right or there is something which we do not think after looking at the business closely that it will give us what we really expected it to be. The pipeline is there to facilitate that, and I am confident that we will get there.

Speaker #3: I would expect them to organically grow to 600-plus by 2030. So we need to acquire and grow around 400 to get to a billion.

Speaker #3: So that's really how I look at it. And we have a pipeline which would facilitate that. But as we keep saying, we don't buy a business for the sake of buying a business.

Speaker #3: If you don't think the valuation is right, or if there is something which, after looking at the business closely, we don't think will give us what we really expected it to be.

Speaker #3: So, the pipeline is there to facilitate that. I'm confident that we will get there. But I think I just want to reiterate that the £1 billion is a target.

Eric Born: I just want to reiterate the EUR 1 billion is a target. If we end up at EUR 850 million and 9% operating profit, I would not look at it as failure. I would still be content with that. If everything goes great, we might end up above EUR 1 billion. Who knows, right? You really have to think about, okay, to be more than EUR 600 million purely organically with the business we already have. Then add another few hundred billion, we should then keep growing to that portfolio. Of course, the earlier between now and 2030, we will be able to add those businesses in, the more confident to get to EUR 1 billion.

Speaker #3: If we end up at 850 million and 9% operating profit, I wouldn't look at it as a failure, right? I would still be content with that.

Speaker #3: If everything goes great, we might end up above a billion. Who knows, right? But you really have to think about, okay, to be more than $600 million, purely organically with the business we already have.

Speaker #3: And then add another few hundred million, which you then keep growing to that portfolio. And of course, the earlier between now and 2030, we'll be able to add those businesses in.

Speaker #3: The more confident to get to a billion. But in the end, we want to have quality businesses, which we buy at the right time for the right valuation.

Eric Born: In the end, we want to have quality businesses which we buy at the right time for the right valuation, rather than businesses we overpay just for the sake of having them early in our portfolio.

Speaker #3: Rather than businesses we overpay for just for the sake of having them early in our portfolio.

Speaker #1: OK, Jamie at the back.

David Arnold: Okay. Jamie at the back.

Speaker #7: Thank you, guys. I'm Jamie Murray from Bank of America. Just on free cash flow—why did that fall by about 10%? I think you mentioned cash conversion fell a little bit, but if you could just provide a little bit of color around why that happened.

Jamie Murray: Thank you, guys. Jamie Murray from Bank of America. Just on free cash flow, why did that fall by about 10%? I think you mentioned cash conversion fell a little bit, but if you could just provide a little bit of color

Eric Born: Yeah

Jamie Murray: around why that happened and also how you see that going forwards into H2. Thank you.

Speaker #7: And also, how do you see that going forward into H2? Thank you.

Speaker #1: Yeah, look, I mean, the cash conversion dropped a little bit compared to last year because last year, actually, we released capital from working capital.

David Arnold: Yeah, look, the cash conversion dropped a little bit compared to last year because last year, actually, we released capital from working capital. This year, we invested into working capital, which was where that was an incremental drag. Ordinarily, you have to bear in mind, if we think about our operating profit, how we characterize our free cash conversion, it is after we paid tax, so typically 20% tax rate in round terms. So that has got to come off, and after we pay finance charges as well. So actually, something in the range of 70% to 80% would be a reasonable level and an expectation level. We have had some really strong performances. I think we can continue to do good work around working capital, but the most important thing for us is to make sure that we have got the products available for customers.

Speaker #1: This year, we invested into working capital, which was where there was that incremental drag. I mean, ordinarily, you have to bear in mind, if we think about our operating profit, how we characterize our free cash conversion—it's after we've paid tax.

Speaker #1: So, typically, a 20% tax rate in round terms—that's got to come off, and that's after we've paid finance charges as well. So, actually, something in the range of 70% to 80% would be a reasonable level.

Speaker #1: And an expectation level. We've had some really strong performances. I think we can continue to do good work around working capital. But the most important thing for us is to make sure that we've got the products available for customers.

Speaker #1: And when we end up with a bit of conflict in the Middle East, then a bit more investment into working capital is a sound thing to do.

David Arnold: When we end up with a bit of conflict in the Middle East, then a bit more investment into working capital is a sound thing to do. That looks like it. We have no questions on the line, so I think that draws to a conclusion the proceedings. Thank you very much for coming. Good to see everybody. Thank you.

Speaker #1: That looks like it. We've got no questions on the line, so I think that draws the proceedings to a conclusion. Thank you very much for coming.

Speaker #1: Good to see everybody. Thank you.

Eric Born: Thank you all.

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Half Year 2026 Grafton Group PLC Earnings Call

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