The UK home improvement market has been growing at an average 2.5% per annum for the last ten years (source GfK) and this is expected to continue, with growth being driven by:

• a rising number of UK households;
• increasing UK home ownership;
• more time spent in the home and garden as a result of hybrid working practices;
• investment by consumers to reduce energy costs and make their homes more energy efficient.

Rising mortgage rates may have some impact on housing market activity and disposable income in the short term, although unemployment remains low and a large proportion of expenditure across the market is carried out by older, wealthier homeowners.

The business is split across three distinct customer propositions – Local Trade, Do-it-for-me (DIFM), and DIY Retail. This balanced business model gives us greater exposure to the fastest growing sectors in the market, and provides us with greater resilience to consumer trends. In addition, our range of proven growth levers across our three customer propositions has driven additional market share gains. These growth levers, particularly digital development, TradePro and store refits, are relatively immature, and should, along with the white space catchments we have identified, continue to drive revenue growth and share gains over the next few years. Any capacity reduction from weaker competitors could enhance these likely share gains.

A combination of market growth and share gains should generate mid single digit revenue growth over the cycle. Our growth levers have successfully driven sales densities and,  looking ahead, this will be supplemented by the contribution from new stores. At the same time, our occupancy costs are stable, and our three customer propositions allow us to schedule colleagues efficiently across the trading week. As a result of this efficient model, we would expect to grow profit at least as fast as revenue over the economic cycle.

Our profitable business model generates strong operational cash flow. The cash generated funds new capital investment into our proven growth levers - store refits, new stores, digital - which deliver revenue and profit growth with a good return on capital. In addition to re-investing for growth the business is able to deliver healthy dividends to shareholders from its operational cash flow.

At demerger, we outlined the rationale for a strong balance sheet to give us flexibility for future investments or to trade through periods of uncertainty. In March 2022, we outlined a target to reduce lease-adjusted net debt / adjusted EBITDA to below 2.75x; when the ratio consistently falls below this, we would expect to return surplus cash to Shareholders in the form of special dividends or share buy-backs.