Tyman PLC

LSE:TYMN

Earnings Call Transcript 2020-Q2

[Jo C. Hallas, CEO & Executive Director]

Welcome, everyone, and thank you for joining Jason and me today for the Tyman's First Half 2020 Results Webcast. Though this a slightly different approach to normal, but I think we're all adapting to this new world. We'll start by taking you through the slides, after which there'll be some time for Q&A. I'm sure that most of you will be familiar by now with the process. But as a reminder, if you joined through the webcast for questions, you will actually need to dial in through the audio conference.So turning to Slide 3 and our H1 2020 highlights. Our business has inevitably significantly impacted by COVID-19 in the period. I'd like to start by thanking our people who've done a tremendous job of managing through the intensity of the crisis, diligently safeguarding our colleagues and communities, and serving our customers. We had a solid start to the year before progressively being impacted by COVID. And since our operations have resumed, we've been encouraged by a better-than-expected recovery, with June recovering to 92% to prior year and further momentum continuing into July. The hard work of our teams has meant that we contained the impact of COVID to a decline in like-for-like revenue of 17%. The swift cost management actions we took as well as the self-help initiatives, which were already in progress or completed in 2019, partially mitigated the impact of the sales shortfall, resulting in a decrease in like-for-like adjusted operating profit of 26%, and only modest margin deterioration.We took decisive action to preserve cash, which led to a strong cash conversion of 106%. This contributed to our robust balance sheet with leverage of 1.8x and liquidity headroom of GBP 159 million.Whilst we expect to remain in compliance of our banking covenants, in order to give us increased headroom in the event of a slower-than-expected recovery, we have agreed a relaxation of our leverage covenant at December this year and June next year.Although the primary focus since February has inevitably been intensive management of the COVID-19 crisis, good progress has also been made on self-help measures. We've achieved a current and the encouraging level of customer wins in North America, further operational improvements at the Statesville facility and have successfully executed our planned footprint realignments with no customer disruption. I'll come on to talk about these in more detail.Finally, I'm very pleased to report a reduction in safety incidents to 1 million hours worked of 72%. And this is indicative of the progress that we're making on operational excellence.Turning then to Slide 4, I wanted to start by giving some color to the impact of COVID and our response. Firstly, as we have said throughout, our first priority has been ensuring the health and safety of our employees, their families and our communities. We acted quickly to implement enhanced hygiene and social distancing measures across the group. Regular communications with all employees were established throughout the crisis, including reminding our employees of the mental well-being assistance available to them.We conducted an employee survey in early June to get feedback on our handling of the pandemic, 2/3, in other words, over 2,500 employees, 2/3 of the global workforce responded and it was pleasing that over 80% of our employees agree that the company has put in place the right safety protocols, cared about their well-being, kept them informed, and that leaders were acting proactively and decisively through the crisis.To protect the business and our shareholders, we took swift and decisive action and put in place a broad range of measures with focus on optimization of cash flow via cost savings, working capital reduction, tight management of capital expenditure, and cancellation of the final 2019 dividend.We also made use of available government employee job retention schemes in our various countries of operation, with usage diminishing as operations resumed and demand returned. Use of these schemes has allowed the group to protect more jobs than would have otherwise been possible, but the group does not foresee further use of government job retention schemes beyond the end of July, and does not expect to make use of the U.K. government's job retention bonus.The Board and senior management took a base -- a temporary based salary reduction of 25% and 20% respectively, from the first of April, and the 2020 management bonus scheme was also canceled. Many of our employees also took temperance to salary and benefit reductions tapered according to seniority. With employee salaries progressively reinstated across June and July, senior management and board salaries will be reinstated at full pay from the first of August.We have also supported our customers through the crisis with enhanced communication and engagement and an intense focus on delivery service and managing demand volatility with payment plans where needed to help customers trade through. We've also supported the fight against COVID with one of our U.K. seals plants resuming operations early to produce Urethane seal for the partitions used in emergency hospital builds around the world, including in London and Istanbul.Moving on to Slide 5. I'll talk in a bit more detail about how performance has been impacted by COVID. As I said, we had a solid start to the year before the impact of the crisis took effect. We achieved Q1 like-for-like growth of 2% in North America, where operations continue to be buoyant, following the momentum experienced at the end of 2019.In the U.K., we reported like-for-like sales growth across January and February of 8%, following the decisive election result in December last year.Our International division had a more challenging start to the year, with markets continuing to be weak as expected coming into the year and China and Italy being impacted by COVID earlier than other territories.From mid-March until early May, trading was progressively impacted as increasingly stringent lockdowns took effect in our core markets. We responded accordingly, temporarily closing our facilities in Italy from the middle of March until the middle of April, and then in the U.K. from late March until early May. Apart from the 2 facilities in Juarez, Mexico, which were closed for much -- for most of May, the North American sites continued to operate throughout the period but saw a marked reduction in order intake through April and May.Most of our international division, distribution and sales office sites were closed for various time periods in accordance with local guidelines. All our operating facilities across the group are now open. As you can see in the table to the right of this slide, April was the most severely impacted month with like-for-like revenue 41% lower than 2019, but since operations began to resume from late April, trading has been better than expected, and we've outperformed our base case scenario in each month, with July recovering to only 8% lower than 2019, and this recovery trend continuing into July, with average sales per day currently 3% ahead of 2019, although we are cognizant that some of this improvement is likely to be driven by customer restocking and pent-up demand.Turning over to Slide 6 and some granularity on the progress made in North America following the issues we identified in the first half of last year as well as our plan for the second half. There's a lot of information here, and I'm not going to go through at all. Fundamentally, our priorities were, firstly, to strengthen operational excellence and then to rebuild customer trust to drive share gain. The operational excellence was naturally a prerequisite to building this trust, but there are also opportunities to expand margin. But firstly, to pick up on the top half of the slide, strengthening operational excellence to expand margin.In the second half of last year, we strengthened divisional and operational leadership resources and built on this in the current year with new supply chain and continuous improvement leadership roles hired. Continuous improvement activities conducted at Statesville facility have delivered improvements across a range of metrics over the course of the last 12 months, although the benefits in H1 this year have been masked somewhat by COVID.Other self-help initiatives in North America have included footprint realignments covering some $20 million of revenue as the North American centers of excellence are further optimized.In H1, we ceased production in Fremont, Nebraska and other planned transfers of manufacturing activities between 4 facilities were accelerated. These initiatives have been successfully executed with no disruption and will generate cost savings in H2 of $1 million.An accelerated rate of improvement for the remainder of the year is expected based on accomplishments in the first half as well as the expansion of lean excellence work and continued footprint rebalancing.Turning then to the bottom half of the slide, rebuilding customer trust to drive share gain. A number of changes were made in the second half of 2019, including splitting sales leadership into large accounts on the one hand and midsize and distributor accounts on the other hand, with new leaders appointed into each role.In 2020, we have further strengthened and refocused the sales team as well as enhancing our sales discipline. Supported by the quality of service provided through the crisis to our customers, this has enabled us to capture share, generating net wins of around $3 million in the first half this year, which follows net wins of around $4 million in the second half of 2019.In addition, door seals capacity was expanded by around $4 million through incremental production as well as by partnering with the Tyman international division. And in H2, this capacity will be used to win new business for high-value differentiated applications of seals.We also have plans in place to enhance efficiency and effectiveness of customer engagement and we'll continue to focus on share gain with midsized customers, building on the strength of our delivery and innovation capabilities.Turning now to Tyman's strategy of focus, define, and grow on Slide 7. Although our primary focus has inevitably been on managing through COVID, good progress has also been made on our strategic priorities. These priorities will strengthen the group and further enhance our portfolio of world-class brands and differentiated products to deliver meaningful value to our customers and thereby, create shareholder value.We've already talked about North America, so I'll just touch on a few other activities here. On the left-hand side, the activities to focus our operations through strengthening our -- the base of future growth have progressed as planned. These activities are fundamentally about simplifying the business and driving margin expansion.Firstly, the restructuring program to streamline operations in Australia, China and Singapore has been largely executed with no customer disruption. Manufacturing was ceased and the business transitioned to a distribution model in each of Australia and China in the first half. And the Asian market was migrated to being served as an export territory with the lease of the Singapore facility due to be exited at the end of July. This restructuring has resulted in a reduction in fixed cost base, but importantly, also the avoidance of future significant capital expenditure and increased management bandwidth across the region.Integration of our acquisitions has also continued to progress. Product portfolio harmonization across the AmesburyTruth and Ashland brands is underway. And Ashland and Zoo have both significantly exceeded the 14% return on acquisition target after 2 years of ownership.Moving to the middle column, the define element of the strategy which centers on building cultural cohesion across the group to facilitate ongoing synergy extraction. This has continued to gain momentum. We held a group conference virtually in June over 3 days with 85 senior managers with a significant focus on building cohesion across the group through a shared purpose, set of values and culture. In addition, all employee communications have been stepped up and 2 culture surveys were conducted in the first half to help build this shared set of values. Safety, excellence is our beachhead for driving culture change, supported by safety as our first language engagement program.The group-wide 2-day safety leadership training program, which was launched in January, had a 20% of managers completing this prior to lockdown, and we've now got work underway to transition the format to a digital format to continue deploying them.The significant improvement in the lost time incident frequency rate demonstrates the benefits of building such a group-wide excellence system.The grow element of the strategy, which near-term relates mostly to the divisional organical initiatives, including share gains through excellent execution, channel expansion, innovation for differentiated value as well as enhancing cross portfolio leverage across the group. In the U.K. and Ireland division, partnering with online retailers have served the business well during the COVID crisis and developing e-commerce routes to market will continue to be a focus area, including leveraging the existing ERA Everywhere platform. Innovations that create a differentiated value for our customers have also progressed in H1, including the smartware range, which addresses the accelerating adoption of connected home products, a range of antimicrobial-coated product to support the increased focus on surface hygiene, and sustainability-enhancing products, such as those with Cradle to Cradle Certification and an energy-efficient thermally broken smoke vent. Cross-divisional teams have been established to investigate specific opportunities to better leverage the Group's portfolio brands and technologies across our markets, and this has generated some early wins.Midterm, Tyman continues to be a natural consolidator in a fragmented market and we would intend to supplement our organic growth with acquisitions that either bring products and technologies of future strategic importance or synergistically balance out our geographic strength across our core markets.With that, I'd now like to hand over to Jason for the financial review.

[Jason Ashton, CFO & Director]

Thank you, Jo, and good morning, everybody.Thank you for joining us on the call this morning.Turning to Slide 9. You can see the KPIs for the period. Reported revenue of GBP 254.1 million and adjusted operating profit of GBP 31.3 million have reduced by 16% and 25%, respectively. This is mainly driven by volume reductions as a result of COVID-19 and the drag through effect of the 2019 U.S. footprint project-related customer losses. On a like-for-like basis, revenue is down 17%, and adjusted operating profit, down 26%. The swift cost management actions taken and also the benefit of the self-help initiatives, which were already in progress throughout 2019 and that the operating profit margin shows only a modest decline to 12.3%, which was a credible performance, given the circumstances, and I will cover this further in a moment.Adjusted EPS was down by 25%, and return on capital employed fell by 1.9 percentage points to 10.8% largely as a result of the reduction in like-for-like adjusted operating profit.We are pleased with our cash conversion in the first half of 2020, which was 106% compared to 62% in the first half of 2019 due to the quick actions taken to reduce cost and preserve cash as well as lower than normal levels of working capital, given the reduction in activity in H1. Leverage at this half year is 1.8x compared to 2.2x at H1 2019, and 1.7x at the year-end, a clear indication of the robustness of our balance sheet.Turning to Slide 10. We'll review the revenue evolution for the half year. Here, you can see that we have benefited from currency in the year, in particular, the weakness of sterling against the dollar. The most significant factor here is a volume decline of almost GBP 44 million, resulting from the impact of COVID-19, which Jo has talked through. The drag through impact of the 2019 North American footprint customer losses were circa GBP 7 million, which was in line with the guidance provided at the year-end, this was offset by a small pricing benefit of just under GBP 1 million and a reduction in U.S. tariffs accounted for GBP 2 million of the decline in revenue. These factors combined took our reported revenue number to GBP 254.1 million, which was down 16% on H1 2019.Turning next to the adjusted operating profit bridge on Slide 11. Currency fluctuations have slightly increased the operating profit. The biggest impact on our adjusted profit performance for the year related to the volume reduction of GBP 17.7 million with the drag through of the U.S. footprint project having an impact of GBP 2.5 million.The impact of the U.S. tariffs and pricing changes have the same marginal impact on operating profit as they did for revenue. Offsetting the impact of volume reductions, we benefited from various government job retention schemes by GBP 3.3 million and achieved cost savings of GBP 5.2 million, which is a combination of a moderation of material costs and the benefits of the cost management actions Jo described earlier.Productivity improvements resulted in a 4% increase in profit, mainly from acquisition synergy benefits and other self-help initiatives. The net effects of these were to deliver a reported adjusting operating profit decline of 25% on the first half of 2019.Turning now to Slide 12. COVID-19 has clearly had a significant impact across all markets and divisions, with all 3 divisions showing declines in both revenues and profits. I will take you through each of these 3 divisions in turn.As Jo has already mentioned, the U.S. division had a strong start to the year with like-for-like revenue to the end of the first quarter, 2% ahead of Q1 2019. However, from April, there was a significant reduction in demand. And as mentioned, the division continued to feel the effects from the drag through of the 2019 customer losses. This led to an overall reduction in revenue of 12% and operating profit reduction of 22% on a like-for-like basis.The U.K. division also had a strong start to the year with like-for-like revenue growth of 8% for the end of February. From late March, all sites were temporarily closed until early May. And consequently, like-for-like revenue and operating profit reduced by 28% and 46%, respectively.The International division had a challenging start to the year, with a weakness seen in core markets, in the second half of 2019, continuing into early 2020, with challenging macroeconomic conditions in Continental Europe, Latin America and Australia. China, which is the division's third largest market, was impacted by coronavirus from early February, and almost all markets were impacted by mid-March. Overall, the International division's revenue fell by 22% and operating profit fell by 39% on a like-for-like basis.Turning to Slide 13, which shows the cash flow performance for the period. We are pleased with our cash performance with adjusted operational cash flow for the period of GBP 33.2 million, which is a significant increase on the first half of 2019. This is driven mainly by a much lower than normal seasonal working capital build with trade receivables and payables being much lower due to the reduced level of trading.Inventory build has been tightly managed through COVID, given the uncertainty, and we are now ramping production back up to meet the improved demand levels. Net CapEx has reduced over last year and significantly down on our prior guidance, primarily due to postponing all nonessential CapEx in light of COVID. We do expect this to increase in the second half to support the future growth plans.Moving further down the cash flow. Income tax payments have reduced to GBP 1.3 million, mainly due to payment deferrals granted by the U.S. and Italian governments totaling about GBP 2.5 million. Net interest paid was GBP 0.8 million lower due to an overall reduction in base interest rates. This was despite temporarily drawing down the majority of our RCF facility during the period.Net exceptional cash costs have declined from GBP 6.9 million to GBP 2.2 million, due to the completion of the North American footprint project, which accounted for the majority of the costs in the prior year. These factors have led overall to a significant improvement in the free cash flow from GBP 4.2 million in the first half of 2019 to GBP 22.9 million in the first half of 2020 as well as an improvement in the operating cash conversion to 106%.Just touching quickly on Slide 14, which shows our net debt bridge. Overall, our reported net debt, which includes the IFRS 16 lease liabilities, circa GBP 60 million has decreased by GBP 3 million since the year-end. In addition to the movement in free cash flow, discussed on the previous slide, net debt has increased by GBP 2 million due to new leases, GBP 2 million due to settlement of deferred consideration related to the Zoo acquisition and some GBP 16 million as a result of adverse exchange movements.Now turning to Slide 15, which summarizes our debt facilities. Here, you can see that we have significant available liquidity headroom, GBP 159 million, comprising cash of GBP 80 million and an undrawn RCF facility of GBP 79 million. On top of this, we have potential access to an uncommitted accordion facility of GBP 70 million, and we have received eligibility under the Bank of England's CCFF program to draw up to GBP 100 million, although we don't intend to use this. And with the exception of the first tranche of the USPP of $55 million, which is due in November next year, the remaining facilities do not mature until 2024.Moving on to Slide 16. You can see we have significant headroom on our banking covenants at 30th of June 2020, with leverage of 1.8x adjusted EBITDA and interest cover of 8.4x. The leverage performance continues to put us on track towards our medium-term range of 1x to 1.5x EBITDA. Whilst under our base case scenario, we expect to remain in compliance with our existing covenants to provide additional headroom in the event of a slower-than-expected recovery, we have agreed a temporary relaxation of the leverage covenants with our lenders from 3x adjusted EBITDA to 3.5x at December 2020, and 4x at 30th of June 2021.And finally, turning to Slide 17, to sum up, COVID-19 has inevitably had a significant impact on the period, resulting in like-for-like revenue down 17%. Our decisive action to reduce costs mitigated this impact with only a modest margin deterioration. We have a robust balance sheet, leverage of 1.8x and liquidity headroom of GBP 159 million. We have conducted ongoing scenario planning as the COVID situation has evolved, considering both a base case scenario, and a severe, but plausible downside scenario. Although covenant headroom would be maintained under the base case scenario in order to provide increased headroom during this period of uncertainty, we have agreed a relaxation of the leverage covenants with our lenders for December 2020 and June 2021.Given the continued uncertainty, we are currently unable to resume guidance at this time. We are also taking a prudent approach to shareholder distributions and have not declared an interim dividend. We will determine the timing for the resumption of dividends once the ongoing impact of COVID-19 becomes clearer. And once dividend payments are restored, we intend to revert to a progressive dividend policy. And with that, I will now hand back over to Jo to take us through the divisional reviews.

[Jo C. Hallas, CEO & Executive Director]

Thank you, Jason. I'll now spend a few minutes talking through the strategic progress in each of the divisions.Turning to the North America divisional review on Slide 19. We've already talked about North America fairly extensive. So I'll just highlight a couple of things here. Our commercial access solutions business, Bilco, delivered a resilient performance as commercial constructions largely continued throughout the crisis. Like-for-like revenue for that business declined 9% in H1. We continue to achieve success in bringing new products to market. On the right-hand side here, you see in the first picture, an enhanced acoustical smoke vent, which provides smoke relief in the event of a fire and has an industry-leading sound rating for use in theaters, auditoriums and schools. The second example here is the Quad roller product, which provides easy and smooth gliding of large sliding doors in support of an increasing trend for large patio doors.Looking forward to the second half, the significant uncertainty about over the impact of COVID and the resulting high unemployment rates will have on residential demand, exacerbated potentially by the risk of a pause during the election period, as has been seen in previous election cycles. However, the rebound in May and June provides some optimism. And the low interest rates and a long-term supply shortfall are driving both new housing construction and repair and remodeling activity.The U.S. commercial construction market is expected to contract due to a slowdown in commercial building starts and planning activity. Our main priorities for the North America division will continue to be strengthening operational excellence to expand margin, rebuilding customer trust to drive share gain, and completing the first phase of the product portfolio harmonization initiative.Moving on to our U.K. and Ireland business on Slide 20. The stronger market in the first 2 months of the year resulted in growth in hardware sales into both the OEM and distribution channels. In particular, the division benefited from the level of exposure to trade distributors who have a strong online presence given that lockdown has accelerated the trend to online sales.Access 360, the division's commercial Access Solutions portfolio achieved strong revenue growth of 23% in the first 2 months of the year, reflecting the stronger projects pipeline and operational execution.The smartware offering continues to gain momentum with the ERA Protect range being selected by a key national distributor to replace an incumbent competitor range from Q3 2020. Several extensions to the range originally planned for the first half will now be launched in the second half to benefit from the market momentum post lockdown. The ERA Protect range remains the only home security portfolio to receive the BSI Internet of Things Kitemark.At Ventrolla, we achieved encouraging growth in residential inquiries prior to the lockdown and generated several commercial project wins. Given the nature of its in-home installation, COVID has had a more significant impact on Ventrolla, with the business only able to gradually recommence operations during June, albeit that inquiry levels in the last 2 weeks of June are back to long-term historic levels.In addition to the smartware range extensions, again, in the pictures here, you see a couple of the products, which are due for launch in the second half of the year. The first picture is the hydrogen spiral balance, which has a lower operating force and therefore, makes opening and closing sash windows easier. And the other picture is a twin cam offset window lock, which enhances the speed and installation for fabricators, while also improving -- providing improved security for the household through the multiple locking points.Looking to the second half, U.K. government measures to increase the stamp duty threshold and incentivize Green homes investment are expected to support both housing transactions and RMI spend. However, again, there remains significant uncertainty over the impact of COVID on unemployment, consumer confidence and thereby the housing market. The focus of ERA in H2 will continue to be driving momentum with new product launches, optimizing the cost base through continued integration of recent acquisitions and adjusting the business model to reflect the realities post-COVID which includes driving online sales through the e-commerce platform.Turning to Slide 22 on our International division. Despite some inevitable delays caused by COVID, the division made good progress on its strategic initiatives. A new fully integrated SchlegelGiesse website has been launched, which brings together all of the division's brands and products supporting further cross-selling. During the lockdown, webinars and virtual innovation workshops were delivered to distributors and window makers to maintain relationships and further progress the channel expansion strategic initiative.I've already talked about the self-help initiatives that we've executed in the International division. So then the integration of Reguitti, which we acquired in August 2018 has further progressed, albeit at a slower rate than planned due to lockdown measures. Cross-selling activities have gained traction following the integration of the sales force with many customers now buying both product portfolios. The suite of value-engineered products was launched in the Italian market with fully refreshed marketing materials and product repositioning to address the specific low-cost competition issue, which arose in 2019.New products launched in the period include the new Brio Evo range of flat handles shown in the first picture here, and these provide fast and simple assembly for installers, a modern clean design, and an ergonomic handle for easy and maneuvering by the end user. And the second picture shows the pull and slide door system, which combines both minimalist profiles with high weather type performance and ease of use.Looking ahead to the second half, there's been a good recovery since lockdown measures eased. However, again, significant uncertainty remains in the light of the ongoing pandemic in several markets and the macroeconomic impact. The main priorities of our International division in H2 is to share gain in core markets by capitalizing on the activities undertaken to integrate and extend the division's offer and to continue to pursue operational efficiencies.So to summarize, while COVID had a significant impact on the group's results in the period, the hard work of our employees and continuing to serve our customers on the challenging circumstances has helped our performance consistently exceed our base case assumptions. The group has also navigated the uncertainty by taking decisive action to reduce costs and preserve cash. The crisis has emphasized the strength of the Tyman business model with our diversification across geographies and markets providing resilience. Our innovation capability is allowing us to quickly adapt to changing trends and the cash-generative nature of the business supporting our balance sheet. Despite the impact of COVID, good progress has been made on our self-help measures and strategic initiatives with further improvements at the Statesville facility, an encouraging level of new business wins generated in North America and successful execution of footprint realignments in both the International and North American divisions.Although the recovery has so far exceeded expectations, the outlook continues to be uncertain. On the other hand, the structural industry growth drivers remain positive and post-COVID there are several factors which could support the housing markets that the group is exposed to worldwide.Overall, the resilience of our business model and our inherent strengths, including market-leading brands, innovation capabilities and deep customer relationships, continue to position the group well for future growth once the current crisis recedes and the period of intense operational focus is progressively behind us.So with that, I'd like to thank you all for your attention and open up the floor to questions.

[Operator]

[Operator Instructions]. We will take our first question now from Aynsley Lammin from Canaccord.

[Aynsley Lammin, Analyst]

Just 2 quick questions, actually. First of all, I wondered if you give a bit more color on the kind of sectors within the U.S. and of RMI, the new house and the commercial, just as how those kind of trends were evolving and where you see the outlook there at this point? And then just looking -- I know you're not giving any financial guidance understandably. But given the good performance in the first half, at this stage, would you expect the second half profit -- adjusted profit to be higher than the first half as it kind of historically has been, and any kind of -- if you could just remind us of the size and the nature of your order books, particularly in the U.S. and how much visibility that does give you at this point would be helpful.

[Jo C. Hallas, CEO & Executive Director]

Great. Thank you, Aynsley. I'll take the first part of that question, and then Jason will speak to the guidance part of the question. So I think in the U.S., from a -- we are seeing a dramatic recovery currently. There is a question mark, obviously, as to how much of that is driven by pent-up demand being released, but so far that recovery is not abating and has continued into July with a lot of momentum here. I think fundamentally, what you had coming into this crisis, was a -- was momentum at the start of the year, really driven by the long -- sort of the low interest rates, the long term, multi-year short supply in new build housing. And I think then on the back end now of the crisis, there are some trends which are playing to our benefit as well. People who spent a lot of time at home during the lockdown, people having to do more work from home. And also in the U.S., we're seeing a so-called urban flight trend as well with people moving out of the cities into the burbs and the -- suburbs and the extra burbs as they call them. And, of course, that's driving both housing transactions and RMI. So I think overall, we really do see some very positive momentum there in both new build and RMI in North America. But the concern is obviously as federal support drops off, as unemployment properly starts to bite, potentially, as I mentioned, a bit of a hiatus through the election period is what we typically see. Really, how does this pan out on the residential side. The commercial side, possibly just a little bit more -- slightly more pessimistic in terms of outlook, more driven by the sort of the underlying fundamentals coming into the crisis not being quite as strong as what they have been in the exceptional residential space. Jason, do you want to take the second question?

[Jason Ashton, CFO & Director]

Yes. Aynsley, as you correctly said, we're not giving any specific financial guidance at this stage, the thing as Jo has mentioned, the lack of visibility. But if the current trajectory continues, and we don't have anything that trips us up, such as a second wave and that recovery continues, as we've seen recently, we would expect a slight improvement in the second half compared to the first half, assuming no significant deterioration in trading.

[Aynsley Lammin, Analyst]

And just on the nature, if you could remind us, particularly in the U.S. of the order book, how long that order book is, and how kind of robust that looks?

[Jo C. Hallas, CEO & Executive Director]

So the order book is pretty short term. It's sort of 4 to 6 weeks. Obviously, the commercial business is slightly longer, but it's low visibility. We're working intensively with our customers to -- and in terms of the visibility that they've got. But again, there is just significant volatility at the moment. And customers are surprised by this as much as we are. So we're very strong with our customers now in terms of those conversations and engagement. So we've got as much clarity as we can do, but this is requiring lot of agility.

[Operator]

We have a question now from Charlie Campbell from Liberum.

[Charlie Campbell, Analyst]

I've got 2 or 3, I suppose. So first one is the big question, just on the U.S. and footprint, I suppose. Lots going on. And yes, I just sort of wondered, the big question is to what extent kind of the work is complete? And how much further there is to go in terms of getting the footprint fully as you wanted.The second question was just a detailed question on CapEx, you've said it comes a bit more in the second half. Just wondered if you might give us a range or some number on that.And then last question, just, I suppose, on North America, and this is, again, maybe a longer-term question. But just thinking whether we should still think of a sort of 20% margin as ultimately achievable as and when footprint is achieved and trading becomes kind of maybe more normal again.

[Jo C. Hallas, CEO & Executive Director]

So thank you, Charlie. I'll take the first and last of those 2 questions. And then Jason, the middle one, and Jason might also add some commentary to the last one as well.I think in terms of the U.S. footprint's work complete, the heavy lifting, as we've said previously, the heavy lifting is done, Fremont, which we've closed has been a relatively small site in recent years, sort of 40 people out of that facility. And so that's been a relatively straightforward consolidation, albeit that we'd be moving production from that facility into 4 other sites. There's been, as we touched on a range of other small realignment projects in the first half, and they will continue to be in the second half and into 2021 as well. But what these are is, it goes a bit to the other point we made on the North American slide in terms of priorities, which is this product portfolio harmonization across the AmesburyTruth and Ashland brands, whereby today, within product categories, we still have duplication across the 3 brands that hasn't been fully integrated.So I think what's very pleasing here is we've demonstrated across H1 that we can execute these projects well. And I believe that we've absolutely got in place the discipline, the capability to continue to manage these other smaller tuning and optimization projects going forward. And then I think the other piece probably implicit in your question that, Charlie, is also Statesville. Again, we've made -- as we try to sort of illustrate on that slide, we've made pleasing progress across a range of metrics. But there is still more that we want to do there and can do there. So that continues to remain a focus as well. To the North American 20% margin, fundamentally, nothing has really changed here in terms of our belief as to the level of differentiation and value that we create to customers that we should be able to be at that type of margin level midterm. So again, we see that ballpark as being sort of a still continuing to be a target margin level. Jason, do you want to pick up the CapEx in the second half?

[Jason Ashton, CFO & Director]

Yes. Yes, Charlie. And -- so CapEx will increase in the second half, the extent of it is, it's really driven by -- I mean, we're in July now. So there is a less flight path available to us, but the divisions are now turning the tap back on. And the reality is that some of that CapEx that we had earmarked and in our guidance will be deferred into 2020. So I would expect 2021 CapEx to be ahead of the original guidance that we gave for this year, which was GBP 15 million to GBP 20 million.And then just commenting on the third question, completely agree with Jo. I mean, what we're doing at the moment is really focusing and fixing the basics at state. So along with other self-help initiatives and line transfers across the network, which gives us that solid platform to then overlay other margin expansion activities such as lean manufacturing. So we are still targeting 20%. As we said previously, it's probably more the timing of that, which has changed.

[Operator]

Our next question now comes from Christen Hjorth from Numis.

[Christen David Hjorth, Analyst]

Three questions from me, if that's okay. I mean, first of all, on the U.S., just maybe touching on performance or your performance versus the market. It does sound like there was some market share gains with net customer wins and things like that. But --and clearly, obviously, a challenging period to pick apart how the market has performed, but any color you've got on that, and I suppose, the sustainability of any market share gains in that trend as we look through the second half and indeed next year. On trading over recent weeks, it was helpful to have that commentary in terms of what's happened in July to date. And I know it is a short period, but maybe a bit of commentary around the trend over recent weeks, I think the group was up 3% overall in July to date, but has that been sort of bettered more recently? And is that on an upward trend as well? And then just a final one. Clearly, there was a benefit from raw material cost deflation coming through in the first half. I just wondered to what extent there might be some competitive pressure perhaps to pass that on as we move through this year?

[Jo C. Hallas, CEO & Executive Director]

Thanks, Christen. Again, let me take the first couple of points there, and then Jason will pick up on material costs. So in terms of share performance versus market, absolutely, it's difficult to unpick. But anecdotally, we've got some clear evidence of that. So I think what the crisis has demonstrated is that resilience of the Tyman model. And in the U.S., the footprint that we've got has given us certain flexibility. So I mentioned that Juarez was in Mexico, was shut for about 4 weeks in May. The agility with which we operate it, and this is our balances production. Our main competitor on balances also happens to be based in Juarez. They've had a couple of issues and have to shutdown earlier than we did. But -- and then they were again shutdown through May as well. What we were able to do was leverage our Sioux Falls facility and really keep balanced production going through this. So we did a lot of shipping around of equipment to be able to keep going, including sending some stuff to Monterrey, which was still open and Sioux Falls and so on. So the first point there is that's the footprint we've got, the scale that we have gives us a certain strength, which in turn then that we have been at better -- we've been in a better position to continue to serve our customers through the crisis.I think the second piece is that thanks to the crisis, it didn't happen in the first half last year because we -- this has illustrated really just how much progress we did make over the second half of last year in improving our engagement with customers, our standing with customers, and that intensity, that proximity that we had with customers through the crisis and that we continue to have is being really important in just managing the demand and the real priorities within the demand and so on. So we've had a very transparent communication with customers so that we are better positioned to serve them.And I think with that again, it goes back to the language we used on the slide about North America progress. It is about rebuilding customer trust, and I think that credibility with customers through this crisis has only strengthened, which in turn will speak to the sustainability of that share gain.In terms of the trading of July to date, you've obviously got the numbers on that earlier slide in terms of the sort of the step-up that we've had in June and then in July. And so there's clear momentum there. And that is only increasing. We see that week-on-week that both order intake rates and thereby the shipment levels on a weekly basis are continuing to go up at the moment. Jason, do you want to speak to material cost?

[Jason Ashton, CFO & Director]

Yes, will do. I mean, first of all, I think it's relevant to say that we saw moderation of raw materials through the end of 2019, and we made a deliberate choice not to increase headline pricing in the U.S., for example. And as we've seen through this year, the raw materials have been very volatile, as you would expect with lower overall demand has had an impact on commodities. So it does -- we remain vigilant and very much focused on looking at the evolution and if we to remain competitive at all times, but has to say it is evolving and changing quite dynamically anyway.

[Operator]

We'll go to our next question now from Robert Eason from Goodbody.

[Robert Eason, Head of Research]

Jason, I have not many questions I have, so I'll just start away. And maybe if I use Slide 11 for my first part of my questions. In terms of just understanding how things potentially evolve into the second half, obviously, the job retention receipts disappears in the second half. But how should we think about the cost saving block and the productivity block and the cost saving one in light of what you've indicated in terms of the U.S., you've highlighted a further $1 million there, the restructuring in the International business. So how should we think of those 2 kind of last blocks in that chart? And also, if we just look at your July figures, the one that stands out is just the International, slight reversal in July, and kind of the improving trend. Can you just give us a bit of color on that? And I'm sorry, just going back to costs and just to the question of the previous contributor just in terms of what was the raw material benefit in the first half? And if raw materials stay the same, what is the kind of the annualization of that into the second half?

[Jo C. Hallas, CEO & Executive Director]

So Robert -- Jason, why don't you take the operating profit bridge and do the material cost question at the same time, then I can touch on the July international business as well.

[Jason Ashton, CFO & Director]

Sure. So as you correctly identified, Robert, the job retention receipts of GBP 3.3 million, given we are rolling off that program from the 1st of August. So you would not expect to see that in the rest of the year. The cost savings, there is the salary cost part of that, which is around GBP 2 million. And again, they will be reinstated from the 1st of August. So again, you won't see that saving in the rest of the year. However, we canceled the bonus scheme, so that will roll through to the end of the year. And the other big part of it is the raw materials, which is circa GBP 1.5 million saving, which is somewhat reduced because of the usage of materials and production in the first half. So I guess if everything remains the same, you would expect more than the H1 benefits of GBP 1.5 million. Productivity, we've got the self-help measures that Jo talked about, 3-month and the network transfer, we talked about GBP 1 million in the second half. So there are those buckets. And, of course, obviously, with the volume recovery, there should be better absorption rates as well in our factories. There was a lot in that, Robert, did I answer the question?

[Robert Eason, Head of Research]

Yes. So kind of in the 1.6 in terms of extrapolating that into the second half, we have to account for Fremont and the International is how I interpreted, yes.

[Jo C. Hallas, CEO & Executive Director]

So in terms of the July International business, this is largely about comparators. So June 2019 was poor. And July 2019 was strong. So going back last year, June was down 3% versus prior year. July was up 8% versus prior year versus 2018, which was really just timing lumpiness. This business is more lumpy in that respect. But that will have been in part due to last year, the fact we had a full 3 week Budrio shutdown in August because we were replacing the roof in that plant. Post-COVID, this year, August has being taken much more as a working month in Italy and general in the industry. And then additionally, when you look at the numbers now, we actually had quite a large -- one of our distributors taking quite a large shipment in June as well, which will have impacted that. So if you strip all of that out, fundamentally, the momentum is equally there in that International business at the moment.

[Operator]

We'll go to our next question now from Harry Philips from Peel Hunt.

[Harry Philips, Analyst]

A couple of questions, please. The first, just a simple one on the tax charge, obviously, a big reduction for this year, but where do we go for 2021? The second question is, we discussed sort of cost reduction programs already, but in terms of your sort of relative conservatism about where HT might go and what have you? Are you sort of looking at your broader manufacturing capacity and thinking about more structural change there in North America and outside as well? And then lastly, just I'm intrigued by your consolidated -- natural consolidated comments, and how that balances between growing the business on the one hand and keeping leverage in the 1x to 1.5x range?

[Jo C. Hallas, CEO & Executive Director]

Jason, do you want to start off with the question on the tax charges?

[Jason Ashton, CFO & Director]

Yes, I'll take the tax question. So yes, there are a couple of one-offs. The German tax settlement and the U.S. change in regulations benefiting this year but we expect tax rate to go back up to 24% to 25% on an ETR basis next year.

[Jo C. Hallas, CEO & Executive Director]

And then in terms of the cost reduction programs, there are further optimizations we can do across the group. And it's about sequencing things in the right order here. But I would say that it's not particularly driven by -- it's not driven by COVID, per se. We -- as a result of COVID, there will be a very small number of redundancies, but we're talking less than 2% of the global workforce. But as we continue to fine-tune the operations under this -- under the banner of the focus -- focusing, continuing to simplify, continuing to drive margin expansion there are further things we can do there. And then in terms of the natural consolidator question, I mean, obviously, midterm, our intention is to continue to grow this business, including through acquisition. But we are obviously very conscious that we have a target leverage range and striving to do that. And as we said previously, it's not that this is leverage driven, but we fundamentally believe that the near-term -- the biggest levers we can pull in the near-term are driving this margin expansion and simplification work, which, in turn, will give us a stronger base of which to integrate acquisitions down the line. Now that all said, the one thing is that COVID does here is potentially throw up strategic opportunities that wouldn't normally be available to us. And we will, of course, look at those if those come up. But to date, there's nothing particular on the radar there.

[Operator]

We have a follow-up question now from Robert Eason from Goodbody.

[Robert Eason, Head of Research]

Sorry, there was one question I forgot to ask. In the actual statement, you called out an increased bad debt charge in the U.K. So my question is just generally around bad debt. Are you seeing more -- further stress in the system with your customers? And how should we think about it for the rest of the year as a result?

[Jason Ashton, CFO & Director]

So yes, we had some specific customers in the U.K., not material on a group basis, but nevertheless hit the U.K. profit. The management of our debtors has been really, really tight, actually, and we have supported customers through the crisis, particularly the customers that can win with us and have a good long standing. And we -- so there has been some slower payments. But certainly, by the year-end, they will be brought in line. So I think it's a -- the divisions have really, really managed this well in terms of just isolating that to a few small incidences in the U.K.

[Operator]

Thank you. As we have no further questions, I'd like to turn the conference back over to Jason Ashton and Jo Hallas for any additional or closing remarks.

[Jo C. Hallas, CEO & Executive Director]

Well, thank you again, everybody for joining us this morning. Stay safe. And with that, I will close the session. Thank you.