In the UK, 30 branches were opened in the first half and at least 60 new branches will be added during 2021. Alongside the expansion of network capacity, Toolstation UK continues to maintain its market-leading value proposition which has been enhanced by the introduction of trade credit. Initial signs are very encouraging with the average basket size of credit sales more than 50% higher than those of cash sales and the service achieving a net promoter score of 75.
The range of products available online and through the catalogue was extended by a further c.1,800 products, with added ranges primarily being trade-focused brands. Following the addition of Hawksmoor landscaping products, Toolstation now also offers six own exclusive brands.
The operating margin of Toolstation UK was in line with Management expectations in H1 2021 at 5.8%, reflecting the significant investment in the network in the past 12 months.
The European business continues to make good progress with revenue increasing by 52% in the first half. In Benelux, where sales were up 50%, 7 more shops were opened and the business in the Netherlands is scaling up well with losses narrowing. The Belgian rollout is still in the early stages but remains very encouraging.
Customer feedback continues to be strongly positive with Toolstation Netherlands achieving a Trustpilot rating of 4.4 (out of 5.0) equivalent to a rating of "Excellent". The "Click & Collect in 10 minutes" offer remains well ahead of the competition in terms of speed of service.
In France, sales grew by 74% with 8 new shops opened, taking the total to 27. The new c. 100,000 square foot distribution centre just outside Lyon is now fully operational which will facilitate the continued expansion of Toolstation France.
Toolstation Europe overall made a loss of GBP(10)m in H1, due primarily to the early stage investment in France. This level of loss is expected to continue through H2 as the rollout programme, with 40 new shops planned for 2021, remains on track. Central costs
Central costs reduced year-on-year at GBP19m with savings generated from the restructuring programme in 2020 more than offsetting the normalisation of management incentives. Property transactions
Excellent progress has been made in exiting both freehold and leasehold sites vacated as part of the restructuring programme announced in June 2020 with 96% of freehold properties sold or under offer and 76% of leasehold properties either exited, under offer or transferred to operate in another business within the Group.
These transactions have generated significant upside with GBP17m of profits recognised in H1. As a result of this work, guidance for full year property profits has been raised to GBP30m (previously GBP20m). Financial Performance Revenue analysis
Both business segments delivered strong revenue growth, although against comparatives influenced slightly differently by the first national lockdown in H1 2020. The Merchanting businesses experienced a period of severe disruption, including many temporary branch closures, in the prior year whilst Toolstation was able to continue trading largely throughout the period, albeit at reduced levels, by adapting branches to become fulfilment centres.
Input cost inflation picked up in the first half of 2021 and was exacerbated by materials shortages. In Merchanting, prices are updated in line with manufacturer increases which are invariably communicated clearly to the market. In Toolstation, this is less straightforward and has to be managed carefully to maintain value leadership.
The reduction in network capacity in the Merchanting business reflects the 2020 restructuring programme and the 1.9% overall growth against 2019 represents a very encouraging performance given the loss of c. (9)% capacity. Toolstation growth reflects the impact of the ongoing network expansion across both UK and Europe and the resulting market share gains. Volume, price and mix analysis
Total revenue Merchanting Toolstation Group
Volume 43.1% 28.4% 40.4%
Price and mix 4.2% 1.4% 3.7%
Like-for-like revenue growth 47.3% 29.8% 44.1%
Network changes and acquisitions / disposals (8.8)% 9.4% (5.5)%
Trading days (1.0)% (0.5)% (0.9)%
Total revenue growth 37.5% 38.7% 37.7% Quarterly like-for-like revenue analysis
Like for like revenue Total revenue
2021 vs 2020 2021 vs 2019 2021 vs 2020 2021 vs 2019
Q1 15.7% 5.8% 5.7% (2.6)%
Merchanting Q2 94.1% 16.1% 87.8% 6.4%
H1 47.3% 11.0% 37.5% 1.9%
Q1 42.1% 47.6% 49.8% 96.4%
Toolstation* Q2 19.7% 38.7% 29.0% 83.9%
H1 29.8% 42.9% 38.7% 89.9%
Q1 19.5% 10.2% 11.5% 7.0%
Total Group Q2 76.9% 18.6% 74.6% 14.3%
H1 44.1% 14.5% 37.7% 10.7%
*Toolstation Europe is excluded from the H1 2019 comparative as it was not wholly owned by the Group Operating profit and margin
H1 2020 was significantly impacted by the first national Covid-19 lockdown and hence the rebuilding of revenue, alongside good gross margin management and the benefits of the restructuring programme undertaken in 2020, resulted in a significantly increased adjusted operating profit.
A more meaningful comparison is against H1 2019 where adjusted operating profit for the continuing businesses was GBP144m. The actions described above have delivered a 14% improvement against this benchmark.
GBPm H1 2021 H1 2020 Change
Merchanting 156 36 n/m
Toolstation 10 1 n/m
Property 17 0 n/m
Unallocated costs (19) (20) 5.0%
Adjusted operating profit 164 17 n/m
Amortisation of acquired intangible assets (5) (5)
Adjusting items 9 (91)
Operating profit 168 (79)
In 2021, the Group has successfully exited the leases on a number of branches closed in 2020 for less than the contractual lease liability, which has generated a credit to adjusting items of GBP9m. The prior year charge primarily related to the restructuring programme undertaken in June 2020. Finance charge
Net finance charges, shown in note 5, were GBP22m (2020: GBP16m). The key driver of the variance was a GBP7m gain on foreign currency translation in the prior year which did not repeat. Interest payable on bonds and bank facilities reduced by GBP2m year-on-year while interest on lease liabilities was broadly flat. Taxation
The tax charge for continuing activities for the period to 30 June 2021, including the effect of adjusting items, is GBP46m (2020: tax credit GBP9m).
The tax charge for the half before adjusting items is GBP31m (2020: GBP2m credit) giving an adjusted ETR of 21.0% (standard rate 19%, 2020 actual 33.0%). The adjusted ETR is higher than the standard rate due to the effect of expenses not deductible for tax purposes (such as depreciation of property) and unutilised overseas losses. An adjusting deferred tax charge of GBP14m was recognised as a result of the increase in the UK corporation tax rate. Earnings per share
The Group reported a statutory profit after tax of GBP100m (2020: loss of GBP86m) resulting in basic earnings per share for continuing operations of 41.5 pence (2020: loss of 34.5 pence). Diluted earnings per share for continuing operations were 41.0 pence (2020: loss of 34.5 pence)
Adjusted profit after tax was GBP111m resulting in adjusted earnings per share (note 10(b)) of 46.2p (2020: 1.0 pence). Diluted earnings per share were 45.7 pence (2020: 1.0 pence) Cash flow and balance sheet Free cash flow
(GBPm) H1 2021 H1 2020
Group adjusted operating profit excluding property profits 147 17
Depreciation of PPE and other non-cash movements 46 44
Change in working capital 22 261
Net interest paid (excluding lease interest) (1) (5)
Interest on lease liabilities (10) (11)
Tax paid (32) (28)
Adjusted operating cash flow 172 278
Capex excluding freehold transactions (44) (32)
Proceeds from disposals excluding freehold transactions 1 0
Free cash flow before freehold transactions 129 246
Free cash flow conversion was again strong, building on the excellent performance in H1 2020. Despite the significant year on year increase in sales, there was a further working capital inflow of GBP22m. Credit sales were tightly managed with debtor days reduced by 3 days compared to H1 2019. The increase in stock was more than funded by trade creditors and the Group continues to benefit from the netting out of supplier rebates.
(GBPm) H1 2021 H1 2020
Maintenance (9) (15)
IT (8) (2)
Growth Capex (27) (15)
Base capital expenditure (44) (32)
Freehold property (27) (12)
Gross capital expenditure (71) (44)
Disposals 25 15
Net capital expenditure (46) (29)
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