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Travis Perkins PLC
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Good day, and welcome to the Travis Perkins Quarter 3 Results Conference Call. At this time, I would like to turn the conference over to CFO, Alan Williams. Please go ahead, sir.
Thank you, Molly, and good morning, everyone. I'm joined by Matt and Heinrich. Thank you for joining the Q3 update call. I'll follow the usual format, speak for 5 minutes to give you a brief introduction to the statement, and then we'll move to Q&A. So Q3 has proved to be another really strong quarter despite the well-documented challenges of inflation and supply chain disruption. Like-for-like sales for Q3 were up 13.1%, and at a very similar level, namely 13.3% on a 2-year like-for-like basis. So if you compare that figure to the first half, the first half on a 2-year like-for-like was 14.5%, so pretty much in line with what we saw over the first half. As we've guided previously, at the half year results, price recovery has become a larger component of the sales growth mix in the quarter, and that was driven by the price increases that we've seen from heavy side manufacturers and also reflecting well-trailed commodity inflation. So much more of a feature on heavy side, a lot less of a feature in light side still at this stage. If we think segmentally, Merchanting performed really well. We've been passing through the inflation effectively. The like-for-like was 15.3% in the quarter. And I've noted there that the that like-for-like number is now back in line with the total sales because if you recall, in June 2020, we had a significant closure program. So there's been a gap between -- a significant gap between the like-for-like and total sales through H1. We've now cycled beyond that. If we look at the like-for-like on a 2-year basis for Merchanting, we were up 11.8% in the third quarter versus 11% in the first half. So very much in line. Toolstation overall, 1.4% like-for-like in the quarter, not unexpected that we would see the slowdown in the rate. It's up 25.2% on a like-for-like basis. What's going on there is we're cycling against an exceptional Q3 2020 driven by the DIY upsurge that we saw during the pandemic, and that's starting to temper. I think on a 2-year basis, DIY is still ahead, however, within the mix. Our trade customer demand has remained extremely robust during the third quarter, notwithstanding all of the challenges that we know. And on a 2-year total sales basis, the U.K. is up over 45%. We're on track with the branch openings in both the U.K. and Europe and continuing to attract plenty of new customers on the trade side in the European businesses as well. So turning to inflation. Inflation was around 11% in the third quarter versus 7% that we've noted in Q2. And as I said, mainly in Merchanting and much more modest from a Toolstation perspective. I would expect inflation to continue to be a feature going into the first half of 2022, particularly in categories which are much more energy intensive in terms of their production process, and also where there's a significant transport component. So again, particularly, I'd expect that more on the heavy side. From a supply chain perspective, some of the availability challenges are starting to ease, notably on timber at this stage, but there are still issues in particular categories and products on allocation. And as we've said previously, I think that will continue through the fourth quarter and probably into the start of 2022. So if I turn to guidance, given the robust performance. We've upgraded our profit expectations again today. If you recall at the half year, we are guiding to at least GBP 310 million of operating profit, including GBP 30 million of property profits. We're now guiding to at least GBP 340 million, so GBP 30 million higher, GBP 20 million of that is driven by the underlying performance in the business, with another GBP 10 million from successful property activity that we've either completed during Q3 or intend to complete during the fourth quarter. So with that, I'll now hand over to questions, please.
[Operator Instructions] We will take our first question from Yves Bromehead of BNP Paribas.
Just 1 for me. I just was wondering, if you could split in Toolstation, the sort of like-for-like between U.K. and Europe. And also wanted to understand whether there was any sort of differences between this trend line of July and August? And what is sort of the exit rate in September? And if sort of that is the number we should think about as we go forward into Q4 and maybe thinking more into 2022, I guess you'll be lapping against tougher comps as well. So is that 2-year trend line, the one we should think about as we go into H1 '22.
Thanks for your question. So on Toolstation, remember that the U.K. is over 80% of the total revenue. The growth was a little higher on a like-for-like basis in Europe, but we're seeing exactly the same trend in the U.K. and the Benelux business at this stage. France is obviously much more embryonic. But let's say the same trend between the U.K. and Europe, which is that the exceptionally high demand from DIY customers has tempered. I think, there's still growth there on an underlying basis. The demand from trade customers has been much more consistent through the last 9 months or so. You know what our numbers were for Toolstation on Q1 and Q2. So as a reminder, 48%, on a 2-year like-for-like basis in the first quarter and 39% in the second quarter. So I would expect that we will see a -- on a 1-year basis, I would anticipate Q4, Q1 being more tempered. But on a 2-year basis, the numbers will still remain very robust. We're not concerned that there's anything that's changed in terms of the overall demand for the Toolstation offer.
Anything on the September exit rate? Was it a bit better than Q3 or no, it's just the same thing around?
Steve, I don't think, it's helpful to break down a quarter into months. There's no -- there's nothing particularly discernible that I'd draw your attention to.
We will take our next question from Annelies Vermeulen of Morgan Stanley.
Just 2, please. So firstly, could you comment a little bit on how you see the market having developed over, I suppose, both the third quarter and the last 9 months. Thinking about that 2-ish percent volume growth in Merchanting, Is that broadly what you're seeing across the industry? I'm assuming prices have risen commensurately across most of your competitors across the U.K. So I'm just wondering how that volume piece has stacked up. As it implies that so far, I guess there isn't a lot of demand being impacted by those higher prices? And then secondly, just in terms of the sector mix, it sounds like residential has still been very strong. But obviously, in the past, you've talked about commercial taking a bit longer to come back. I'm just wondering, if you're seeing any signs of life in some of those specialty divisions in some of those parts that have been a bit slower sine the pandemic.
Yes. Thanks, Annelies. So in terms of market development during Q3, I think July and August were -- in particular, were marked by, if you recall, we're talking about pandemics in the media at the time. So labor availability, I think, was a challenge. I think a lot of people from talking to our customers, they retired, they were ready for a break. So we did see some slowdown during August and then pick back up during September, which I think had some, something to do with labor availability and also product availability. Because the product availability issues, we're certainly not out of the woods, but they've been easing. I think that's helped some of the underlying pickup that you've seen since that point. I think we are outperforming in our markets. I think the volume picture that we've seen will be similar across the business. The industry is very focused, given the exceptionally high levels of input cost inflation, all players will be very focused on ensuring that they are able to recover that within the mix overall. And then turning to the second part or second question, Annelies, on sector mix. The RMI pieces remain robust for us. What we have seen, to your point, is some tentative signs of commercial getting better. I think the demand in infrastructure and new house building notwithstanding those challenges around labor availability, the underlying trend has been pretty similar. And then finally, I'd add that we do a lot of surveying of our customers. We know that the -- because of product and labor availability, some of our customers were putting jobs back a little. But the really important point is the -- when talking to customers, we know their order books still remain really healthy. So I think that's a really positive sign for the outlook for both ourselves and the sector.
We will take our next question from Rajesh Patki of JPMorgan.
I've got 2 questions, please. So firstly, the like-for-like performance sort of a slight moderation compared to Q2. So is it fair to assume that the upgrade today is mostly on margins in the Merchanting business? That's the first question. And Secondly, just on property profit, should we expect -- continue to expect [ GBP 20 million ] going forward as per the previous guidance? Or is the GBP 10 million upgrade today being pulled forward from next year?
So in terms of the upgrade, I mean the margin will be healthy because of drop-through of the additional volume that we've seen to the bottom line. So we've been very focused on that. I think it's really insightful to look at the group in a broader context. So if you exclude Wickes, exclude Plumbing & Heating and compare 2021 to 2019, what you'll see is revenue growth 12% to 15% ahead or whatever. And a lot of that -- the vast majority of that would be pricing component, but some volume growth versus 2019. But the important thing is the quality of the profit that we're now delivering. And I think a big contributor to that was the restructuring program that we undertook last summer, painful to do, but I think it's left the business in a much better position overall. So I'd say the upgrade on the trading side is GBP 20 million versus our previous guidance is predominantly reflective of the robust underlying performance in the business. In terms of the property profits and another GBP 10 million coming through, I think one of the reasons that we -- let me point to 2 aspects, actually. One of the reasons why the number is particularly robust on property is -- the overall property market. The second factor, I suppose, is that having had the closure program last year, there was simply a greater number of surplus freeholds that we were wanting to move on. And the -- I spoke a little about this at the half year as well. I think, we've been pretty successful and ahead of our expectations in being able to move some of those sites on. So it's not really borrowing from the 2022 or future years in terms of property profits. They've always been a bit lumpy. I think the best guidance I can give you here is that I would expect us to continue to deliver at least GBP 20 million a year going forward over the next few years.
We will take our next question from Arnaud Lehmann of Bank of America.
Two questions on my side. The first one, just following up on Rajesh question on the Merchanting margin. Based on your guidance and your property profit estimate, I mean, we deduct that the Merchanting margin in the second half would be, I guess, somewhere between 8.5%, 8.6%, 8.7%, something like that mechanically. Firstly, is that the right assumption? Secondly, I remember you're saying that 8.0% was probably more of a normalized level of margin for Merchanting going forward. So was there any one-offs in the second half that you're expecting supporting the margin? Or you believe that 8.0% was a bit conservative and now you hope to do better going forward? And secondly, just on starting to think about 2022, you mentioned the pricing and the volumes getting a bit more challenging on the base. Are you confident that you could increase volumes in 2022 for Merchanting?
Thanks, Arnaud. So on the first part of your question on Merchanting margins and normalized level, the 8% or so range that I referred to feels like the right sort of level through the cycle for the Merchanting segment. In terms of one-offs in the number, the -- we talked at the half year a little about the stock revaluation that you get during inflationary times. So obviously, there's a little of that. If I had to quantify roughly over the year, what I think the one-off benefit might be from stock revaluation aspects, I think, probably about 40 basis points on the Merchanting margin. And then on the second question, looking ahead into 2022. I think we're confident on seeing volume growth continuing within the industry.
That's very clear.
The next question will come from Emily Biddulph of Credit Suisse.
I've got 2, please. Firstly, just on the volume performance in Merchanting, that sort of -- there's at least some slowdown in the 2-year growth rate in terms of volume. Do you think that's entirely reflective of underlying demand? Or are there any -- you also commented earlier that you're seeing some easing of supply chain issues. So presumably, that isn't a factor. But do you think there's any scope for sort of destocking in the sort of customer base that might be impacting volumes slightly? And then secondly, I just wanted to come back on your comments on sort of the customer mix in Toolstation. Where DIY is today? I sort of appreciate that the comp is tough, but is DIY still within the Toolstation sales mix? Is it still materially more than it was in sort of 2019? And are you seeing what you think are sort of sequential slowdown in DIY demand that we should expect to continue?
Thanks, Emily. On the -- on your first question on the merchanting volume performance, I think the underlying demand picture is pretty robust and fairly consistent on a 2-year basis, let's normalize for the impact of lockdown in the first half of 2020. I think the underlying picture is pretty similar and pretty robust at this stage. I think confidence has improved from an RMI perspective. And we know the demand is still there on housebuilding and from an infrastructure point of view, still supported by government expenditure. So I think that remains consistent. There will obviously be ups and downs on the picture from month to month and quarter to quarter. What I'm saying is, I don't think, we should read too much into those. I think at the margin, there may be a little destocking where customers have tried to ensure that they have the supply. But I think a more significant factor just in the quarter, would have been that availability or challenge around availability of labor and certainty of getting a job done. So if you're running a building site and you're not confident about getting the labor and you've got an option on the timing of doing the job, and you know you're running into holiday period, and you're also concerned about the availability of product, it makes entirely rational decision to just delay that job a few weeks or a month or so, particularly when you know you've got a healthy order book going forward. So I think that's what we're seeing from the customer base rather than anything significantly different. On Toolstation customer mix, I think the DIY component is probably a little higher still than in 2019, but that's as much reflective of Toolstation Europe and the stage of development we're in within the European business. So when we start up in a new market, we tend to see that the DIY demand or the DIY sales are a larger component of the mix and gradually that tempers and the trade element picks up. The reason for that is, obviously, we use promotions to attract people to try the business in the first place. So the trial aspect, those promotions are often on power tools, pressure washers, lawnmowers, et cetera, which appeal more to the infrequent buyer, namely the DIY element. And as the business starts to mature and we increase the size of the branch network, we then see the trade element starting to pick up. So summarize that a little higher on the DIY side, but that's what we would expect, and it's more related to Europe rather than a U.K. feature per se. I think going back to the early spring this year and also in Q3 last year, we were still seeing exceptional demand on those promotional mix items on the front cover or on the website, which appeal more to DIY customers. And it's that element that's slowed for us.
We will take our next question from Christen Hjorth of Numis.
Just a couple for me on inflation, if that's okay. I imagine sort of mid-single-digit inflation is quite comfortable and [ hopeful ] I was just wondering what the thought price is as it sort of moves in the double digits and how sustainable it is in the double digits in the coming months. In particular, potentially supply chain pressures ease and obviously, when product availability is a key issue, then maybe that price is easier to put through. And also any thoughts on potential impact on end market demand as you potentially see prices move up in the double digits.
Thanks. I think the number of price increases that we're seeing coming through and the quantum of those are starting to ease somewhat. On one of my earlier comments was around the more energy-intensive areas of the market. So what I'm hinting at there is obviously, at some point, there'll be a feed through from higher gas prices into the conversion process and also the supply chain or logistics costs of actually moving product when fuel prices are higher and driver costs are increasing more rapidly. That will be a more significant component. So that's the reason that we think we'll continue to see inflationary increases going forward. I don't think that is having a significant feed through to end market demand for construction materials. I think it's just 1 of those things that the industry has to contend with. And in terms of mid-single digit versus double-digit and recovery on that. Listen, I think, if you look over the -- if you look at the industry, not just ourselves, but our competition, we're very disciplined at managing the pass-through of those manufacturer increases to our customer base. And likewise, our customer passing that through to the end customer as well. And I see no reason why that would change in the coming months.
We will take our next question from Geoff Lowery of AllianceBernstein.
Just developing the inflation theme. Can you talk about how you're approaching the challenge of sharing it at Toolstation? And strategically, is the ambition here to maintain gross margin percentage or to maintain cash gross profit? And second, just coming back to Annelies' question about the mix of DIY and trade customer.From your comment about the U.K. mix being almost back to normal, should -- and your robust comments about the demand outlook, should we take from that, that you think the 2-year rate of growth, that slowdown that we've seen in that number is now going to stabilize? Or am I missing some nuance in the mix?
Thanks, Geoff. On the points around what we're setting out to do for commercial sensitivity reasons, if you like, I don't want to go into too much detail, but our objective, we know, we are the value leader in the market, and that's an important part of the proposition for the Toolstation business. So we would look to maintain that value leadership position within the market. In terms of our mix of margin between the different segments, the gross margin is higher on trade customers than DIY customers. And that's because of the categories that the customers purchase. So the van stocking or consumables and regular business that we have, therefore, with the trade customers is more profitable overall than the mix that you get from DIY where, as I've mentioned, the promotions that we'd be running on power tools, pressure washers, lawnmowers, et cetera, they inherently are a bit lower gross margin, but our traffic builders for the business overall. So I don't -- I think we'll maintain a healthy gross margin percentage within the business. On the 2-year like-for-likes, yes, they will continue to soften a little, but that's reflective of that exceptional DIY demand having tempered.
Understood. Can I just ask 1 quick follow-up.
Sure.
Is your sense that in the sort of more consumer-facing parts of what you do, price discipline is holding. I totally get your comments about the trade market being relatively disciplined, but there does seem to be slightly weird promotion in some of the more consumer refacing bits? Or am I just overreacting to 10%, if everything flies from some of the peers.
I won't comment on this specifically, but listen, I think in some areas of the market, because there were availability [ changes ], maybe people are set on a bit more inventory than they'd want. And also, I think the first point I should stress is that the -- If we go back to 24 months ago, my perception would be that DIY will remain in a much more robust position and a more positive outlook than perhaps the market had 2 years ago for anything DIY. So I think that will continue. I think it's just tempered because listen, we can go on holiday a bit more freely again. And there are leisure activities that we can go and do at weekend rather than being confined to barracks at the weekend. So I think it's a natural easing, but the overall picture remains pretty robust.
We will take our next question from Ami Galla from Citi.
Just 2 questions from me. The first on Merchanting. Can you give us some color in terms of how is the pace of branch openings in Merchanting being likely to pan out in the next, say, 6 months? And the second 1 on net debt levels. Is there any guidance that you can give in terms of where should we expect net debt at the end of 2021?
Thanks, Ami. So on your first question, I think in Merchanting, there'll be a handful of net branch openings concentrated particularly within the general merchant. There are a few in the specialist businesses. So we spoke at the Capital Markets Day about TF Solutions in particular. We've got a couple in the other businesses as well. But in terms of the 6-month period, it feels more like 10-or-so branches overall on a net basis in Merchanting. In terms of net debt, for the year-end, it depends whether -- it's a difficult question for me to answer how quickly the buyback program will go. I think at the pace it's going up at the moment, as I previously indicated that first GBP 250 million of return of proceeds through buyback from the Plumbing & Heating disposal will span into 2022 and through the -- partly through the first quarter of 2022. So if you look at net debt pre-leases, underlying, we will have a net debt position, and I think in line with -- I'm pretty comfortable with what's implied within consensus for that at the moment. I suspect pre-leases we may be in a small net cash position because of the Plumbing & Heating proceeds that will not have been utilized on buybacks by the end of December.
We will take our next question from Sam Cullen of Peel Hunt.
I just got one, just coming back on the kind of the volume trends really for Q3. If I look on a 2-year stack basis, I'm guessing that volumes are probably down in Q3 in Merchanting. I know you've alluded to the various delays. And are you seeing -- how much kind of project cancellation are you seeing in terms of people not swallowing the higher prices coming through. And also, can you give us -- you've alluded to the strength in customer order books. Could you put some numbers around that potentially to give us some comfort on the demand profile into Q4 and into 2022?
Thanks, Sam. On that latter question, it's really difficult to put a figure on the exact quantum of order book. So the basis on which I'm referring there is the customer survey that we do 3 times a year or thereabouts and that we publish. So that's asking customers about their order book, whether it feels the same higher or lower than the previous time we polled customers. So I don't think that's scientific enough to rely on, unfortunately. But the sentiment is that order book still remain healthy. That linked through to the second part of your question around cancellations. We're not really seeing cancellations. It's more postponement and delays until customers are more certain about availability of product, availability of labor and also wanting to be able to price jobs robustly for the end customer. So having put together an estimate, you don't want to be going back and saying, I'm sorry, but the materials are now going to be this component. So that's, I think, featuring in the minds. On a 2-year stack on merchanting like-for-like, I don't think we've seen much slowdown in volume to be honest. I think it's probably or rather a decline in volume. I think the volume is probably broadly consistent with 2019.
Okay. And can you just remind me when the [ last survey ] was for the order book?
July, August time, Sam. So if you look on our website in the press releases, there will be a link to that.
[Operator Instructions] We will take our next question from Gregor Kuglitsch from UBS.
I have a few follow-ups, please. So I think you said, you saw total revenue could be up 12% to 15%, I don't know, if I heard that correctly. And the question, I guess, is, I think, first half, just looking at sort of the total revenue figure you were up 11%, right, in reported terms. We don't give the number for Q3, but my calculation suggests it's probably 11% again. So when you say 12% to 15%, can we take that sort of as [ gospel ] because obviously it implies a much higher Q4? And then on Toolstation, did I hear you correctly that you said you thought the 2-year like-for-like will continue to slow down so versus that 25% that you reported. And I guess the question is, if that's true, does that imply you go negative in the short-term, which would be a little bit surprising. Then the third and final question is around -- again, sorry to come back on the margins. So you kind of gave us saying, well, this year maybe you're not over earning, but there's an exceptional stocking gain of, whatever, 40 basis points. So maybe Merchanting makes, I don't know, 8.5, right? And next year, that basically reverts back down to more the 8 level. Is that essentially what you're saying? And then does that imply overall that you think perhaps next year's earnings don't grow much versus this year? Or is it too early to call?
Thanks, Gregor. So on the total revenue, I think you're probably over analyzing if I could be [ so bold ]. What I was trying to do was give a feel for the quality of earnings within the business and illustrate that rather than being taken at Gospel on the actual numbers. So the point I was making was you've got a revenue that's low double digits higher than it was in 2019. And that's coming through predominantly from price, but the operating profit would be considerably ahead of the level in 2019. And 2019, it was a pretty decent year particularly in the context of '17 and '18, I'd remind you. So the point I was making was more 1 about the quality of earnings, having undertaken a significant restructuring program and been pleased with the flow-through of the gross profit to operating profit following that. On Toolstation like-for-likes, listen, I think, it will continue to moderate simple as that. I am not at all flagging any concern with the business on a 1-year basis or anything like that. I think through the Q&A, we've given enough there about we're pretty pleased with where Toolstation is in terms of both its overall performance, its relative competitive performance and also the flow-through of the gross profit or the gross margins within the business? And then on your third question, Gregor, around Merchanting margins, I flagged the stock revaluation gain being around 40 basis points. I think the natural assumption, therefore, is the 8% or so in 2022 is the right sort of level to think around the operating margin but it is a bit early to give any more guidance at this stage. I think mechanically, I've pointed to property profits being more in line at this early stage thinking about 2022, perhaps more in line with what we've seen historically rather than the higher level that we're experiencing in 2021. So I think that will -- if it were to flag pointers to think about as you're building a model for 2022, you've got the 40 basis points on the stock revaluation. And then you've got the element coming through the property profits that you should be considering. Hope that helps.
That's really helpful.
We will take our next question from Dimitri [indiscernible] of Schroders.
Three quick ones from my side. So firstly, just to clarify on the Toolstation, inflation. Can you give us a number of how much cost inflation have you seen? And how much of that did you manage to pass to your end customers? My second point is on the number of new store openings from Toolstation and total CapEx guidance. And my final question is on leverage target, if you have one, or in terms of ratings where do you aspire to be?
Yes. So Dmitry, thanks for the questions. On the first question on inflation, in the statement this morning, we identified price inflation in Q3 at around 11%, predominantly in the Merchanting segment, and that compared to 7% in Q2 and a lower amount, more like 3% or 4% in Q1 of the year. On total CapEx guidance and also on your third question around leverage, we covered both of those extensively at the Capital Markets update at the end of September. So the total CapEx guidance we gave was GBP 125 million for '22 or thereabouts. And we broke out for you the mix between growth maintenance and within the growth component, the growth in the general Merchanting side, including Toolstation versus the specialists. And likewise, you'll find in that pack pretty good detail, I'd hope on the leverage target that we're working towards, which is consistent with investment-grade debt metrics and being around 1.5x net debt-to-EBITDA on a lease-adjusted basis.
Just 1 follow-up on the total growth inflation. So 11% is the price inflation of end customers. How does it compare to the cost inflation in terms of the input inflation that you've seen?
So that is a read-through from the input cost inflation on goods for resale that we're seeing. So that's the direct pass-through of that manufacturer heavy side and commodity-led inflation that we're seeing.
So that the net impact in terms of what you pass through...
What we're saying is we have managed to recover the gross profit pounds impact of that inflation that we're experiencing.
We will take our next question from Yves Bromehead of BNP Paribas.
Just 1 follow-up on the backlogs. When you're saying that they're healthy and you're sort of tracking that with clients, are you tracking the value of the volume in terms of the backlog, just so we understand whether we're talking about the overall [ stock ] value or the volume package to remain healthy and therefore positive?
Yves, if I can refer you to the answer I gave Sam on that. It's not -- this is from surveys and me talking to business unit heads and their sales teams to get an overall feel for the state of the market and what they're flagging to me is, anecdotally, there has been a reasonable amount of, but the overall demand picture and the order books when they talk to customers, customers are still very positive about the overall demand. And again, anecdotally, if you try and find a tradesperson at the moment to work on your home, it's very difficult to find someone who can come and do something immediately unless it's an emergency repair, if you're trying to do some improvement, there are waiting lists going into several months to anecdotally to get hold of a tradesperson to do the job. So what we're flagging is all of that feels pretty positive to us overall for the outlook in the medium term.
[Operator Instructions] Our next question comes from Bruce Hubbard of Brook.
I'm not quite understanding how we reconcile what you're saying about the now with what you're saying about next year. You've said we're in 11% inflation, direct pass-through, you're expecting volume growth, you've got backed-up orders for your customers. And then you say you go back -- straight back in reverse all of the 40 bp stock gain next year when in the same paragraph you've been describing the inflation will pass through at least in the first half of next year. The implication to me seems to be that you have to stub out to a EBIT margin decline in the second half, which I don't think is what you're trying to tell us at all. So could you talk us through that, please?
Yes. Thanks, Bruce. I think listen, on the what I've said is not that the stock revaluation element goes away I've set the additional benefit for this year, given the number -- the quantum and number of price increases coming through, it feels around 40 basis points or so of benefit to this year. Now mathematically, if we see encounter more price increases next year, depending on our stock profile at the year-end where absolute stock levels are and where those increases are coming through, there may be some more stock revaluation benefit, but it will be relatively modest compared to what we've seen during 2021 or will moderate as an element.
I do understand you've gone from 8.5, 8.6 in half 2 to talking about 8 next year. And I know that's not the [ delta ] on the annual basis. But the only way I can reconcile all of those numbers are that you get accelerating adverse cost to price inflation, which I don't think you're telling us at all.
No. I -- Bruce, I haven't given specific guidance here on Merchanting segmental operating profit for the second half. I was responding to the question an analyst inferred operating margin rather than what I'm looking at, which is the -- in my view, the right side of sitting on the fence here rather than giving away absolutely everything on a conference call.
At this time, we have not received any further telephone questions. I would like to hand back to our host for any additional or closing remarks.
Thanks, Molly. It just remains to me to thank everyone for their interest, and I look forward to speaking to you over the coming months and then updating at the end of February on the full year results. Thank you.
This will conclude today's conference call. Thank you all for your participation. You may now disconnect.