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Edited Transcript of PLP.L earnings conference call or presentation 15-Sep-20 7:30am GMT

Half Year 2020 Polypipe Group PLC Earnings Call

DONCASTER Sep 15, 2020 (Thomson StreetEvents) -- Edited Transcript of Polypipe Group PLC earnings conference call or presentation Tuesday, September 15, 2020 at 7:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Martin K. Payne

Polypipe Group plc - CEO & Executive Director

* Paul James

Polypipe Group plc - CFO & Executive Director

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Conference Call Participants

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* Christen David Hjorth

Numis Securities Limited, Research Division - Analyst

* Jonathan Matthew Bell

Deutsche Bank AG, Research Division - Research Analyst

* Priyal Woolf

Jefferies LLC, Research Division - Equity Analyst

* Samuel Berkeley Cullen

Peel Hunt LLP, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, everybody, and welcome to Polypipe's 2020 Interim Results Presentation. I'm Martin Payne, the Chief Executive. And with me, I've got Paul James, the group's Chief Financial Officer.

So if we can turn to Page 3 of the presentation, just for a couple of introduction comments, and I think the most important of those is that during this crisis, our COVID-19 response has been all around protecting the well-being, health and safety of our people, our business and our stakeholders, actually. And the actions we've taken to maximize and preserve liquidity through the crisis have helped the business very much as well. The sort of actions that we've taken include going down to -- or up to 60% of our staff being on furlough, at the worst point in the crisis. And we've also reduced Board remuneration by 20% through this crisis.

Despite all of that, we've managed to continue our operations through the crisis and ensuring site safety, but helping the national effort as well with some space ventilation equipment going into the Royal Marsden Hospital and other NHS projects like the Nightingale Hospitals. We did switch some of our manufacturing to be able to make visors and other PPE for the NHS service and obviously, some of the special pipe used in medical use as well.

And despite all of the things that have happened through the last 6 months, revenue was 22.3% lower than the prior year, but the group remained profitable with an underlying EBIT of GBP 10.5 million, which I think is a very robust result.

Recovery in the second quarter has been stronger than we anticipated at the end of April, and that's continued through into July and August as well, and we'll talk a little bit more about that as we get into the presentation.

And to reassure everybody that safe working practices will be sustained as the volumes that we see come back to some sort of normality. And I'd just like to take this opportunity as well to thank all of our colleagues around the group for their hard work and dedication through what have been some extremely challenging times.

And with that, we'll turn to Page 4. What I thought I'd do just before we get into the financial section is just to recap on some of those COVID-19 actions that we've taken and give you an update with where we are currently on those. So in terms of health and safety measures, yes, we've preserved social distancing across all our sites. We've made PPE mandatory. We've got deep cleansing teams that can go to different parts of our factories and make sure we keep the highest levels of hygiene. We have made layout changes in a number of our factories, and that does include renting additional assembly space where we found it difficult to preserve distancing, giving us the ability to spread out a little bit more and keep our people safe. We've got temperature testing at all sites. And actually, in 1 site testing out proximity centers as well. All of those measures, as I've said, are ongoing with a little bit of impact on productivity, as you'd probably expect. But paramount importance is to keep our people safe.

In terms of the cash actions, we did utilize the Government's Job Retention Scheme from April 2020. Utilization of that scheme has ceased at the 31st of August. We've got all our people back. And the job retention bonus will not be utilized in February next year. You may remember that we did put 250 jobs at risk in July 2020. I'm pleased to report that the restructuring is now complete. Unfortunately, we did have to lose 104 people. So less than we put at risk. And actually, roughly half of those have been volunteers. So -- and we will be repaying JRS monies that relate to those 104 redundancies to the government. Board pay was reduced by 20% from April 2020, and we will be returning to normal levels of pay from September 2020 onwards.

Funding actions. We took early decisions and actions in this crisis to maintain liquidity wherever we could. We got an extra GBP 50 million facility negotiated through to May 2021, and that's still in place. We did take out and draw down GBP 100 million from the COVID corporate financing facility early on in the process. And I think given some of the recent trading behavior, we've decided to repay that, and that was repaid on the 10th of September 2020, although the facility just -- is still there for us if we actually need it. An equity raise of GBP 120 million was completed in May 2020 and very pleased that we got that completed.

So that gives you an update on all our COVID actions. I'm going to hand over to Paul now to take us through the numbers. So over to you, Paul.

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Paul James, Polypipe Group plc - CFO & Executive Director [2]

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Okay. Thank you, Martin. So if you turn to Slide 6, the financial highlights. Yes, when the crisis broke, immediate steps we took were to strengthen the balance sheet so that we could weather the crisis well. We included the newly negotiated GBP 50 million COVID-19 facility. We've got some deferral of some covenant testing, and we had the successful GBP 120 million equity raise.

Our performance has been more resilient, with recovery so far stronger than we expected. Many of you may remember that back when we did the equity raise, we worked very hard on a very robust exercise of producing the operating case. We have traded ahead of that. And latest figures show that for July and August post period end, net revenue has been 6% and 3% below 2019 levels for July and August, respectively. So I'm very pleased with that.

In terms of debt, we concluded the period with net debt, excluding IFRS 16 leasing, at GBP 71.2 million. And that's with the leverage, therefore, 1.1x EBITDA compared to 1.8x a year ago. And the Bank of England's COVID Corporate Financing Facility, GBP 100 million, that was repaid early after the period end.

Now the Board recognizes the importance of dividends to shareholders. But given the current uncertainty, we're not recommending -- the Board is not recommending an interim dividend as yet. However, we would consider paying a final dividend if performance continues ahead of the operating scenario that we set out at the time of the equity raise.

Now if I turn to the next slide, Slide #7. This is the waterfall chart that many of you should be familiar with. The top row is showing the walk-through of revenue from last year to this. And the bottom row is underlying operating profit or EBIT. And if I go from left to right on the columns and just talk you through them, the first one is selling price. You'll see the benefit there is about 2.5%, just on a 2.5% net selling price increase. And we always aim to try and compensate for cost inflation in absolute pound note terms. And therefore, the drop-through in that column to EBIT is round about 0. In terms of the currency, we're 90% U.K. business, so the currency fluctuations are pretty negligible for our group.

And then the next column is showing the volume impact of the COVID crisis. So it's down -- impact GBP 61 million on net revenue with a drop-through of 47%. And that represents the fact that the volume loss was very sudden at the beginning of April. And hence, the high drop-through at that point.

The acquisitions column is Alderburgh and the margin performance of Alderburgh is roughly equivalent to that of the rest of the group. And included in the results, we have JRS furlough income, the job retention scheme, benefit of GBP 6.7 million. And we also have included in OpEx about GBP 600,000 of COVID-19-specific costs.

If we then turn to Slide #8, this is just the underlying results summary, the profit and loss accounts. And you'll see that net revenue is down, as Martin said, 22.3%. But within that, the pattern was that Q1 was relatively normal. Then the crisis kicked in, and April was down 66% with that recovery happening through the first half and continuing on post period end, as I've already described.

We have the GBP 6.7 million JRS benefit in H1 included. And it's likely to be -- is we finished benefiting of that end of August, and the total benefit will be about GBP 8 million, and the COVID cost included GBP 600,000.

On the financing costs, GBP 3.9 million, slightly up on previous year. We did have slightly higher leverage coming into the year post acquisition of Alderburgh. And many of you may recall that as a mitigation measure back in March, we drew down fully our revolving credit facility of GBP 300 million and put that on deposit. And the cost of that was offset by the lower borrowing levels post the equity raise in May.

In terms of the underlying tax rate, 16% effective tax rate is broadly similar to that of the last year.

If I then turn to Slide #9, statutory results. This shows the items that included in exceptionals. You'll see the amortization of intangible assets, a slight uptick there relating to the acquisition of Alderburgh in October 2019. We have some acquisition costs related to earn-out Permavoid. And going forward, into H2, on top of this run rate, if you like, we would expect to see the redundancy costs for the 104 people may redundant, and we anticipate that those costs to be around about GBP 1.5 million.

If we have to look at the balance sheet summary, really the key thing to point out there is the movement in net debt. And obviously, the reduction in investments is driven by the equity raise in May. And on working capital, I'll show you the next slide with a bit more detail on the movement in net working capital on Slide 11.

The inventories were consistent with the reduction in manufacturing activity. We have minimal absolute movement in trade value -- trade debtors' value. And I have to comment that customer receipts did perform well throughout the crisis. So that was good to see. And trade and other payables reduction is consistent with the slowdown activity and a reduction in accrued rebates.

If we then turn to the next slide which is cash flows, the key point I want to draw out here is on capital expenditure. Now many of you may recall that during the crisis we had a lot of constraints placed upon capital expenditure. A lot of internal controls were put in place. And we said at the time of the operating case, at the time of the equity raise that if we were trading ahead of that, we would look forward to the opportunity to continue investing in the business, and that's really the position we're in. So I'm hoping that by the end of this year we should be getting CapEx -- we will be getting CapEx back to more normalized levels and be in the range of the low GBP 20 million. But a little bit more about that in a minute.

Okay. If we then turn to the next slide on banking facilities, as mentioned, we did get some deferral in the covenants for June. Post period end, we paid down GBP 130 million of revolving credit facility. And there you can see the GBP 50 million COVID-19 facility, which is there as part of our armory. So in terms of covenant performance, we were at period end comfortably within the requirements with interest cover at 7.3x versus a requirement of more than 4 and leverage at 1.1x versus requirements of less than 3. And if we look forward to the modeling that we did and the operating case we look forward to Q1 next year, that was always going to be the tightest point with the trailing nature of the calculation, including the previous 12 months of EBITDA and the impact that the Q2 profitability this year would have had on that. I'm pleased to say that we are going to get through that with some, should we say, headroom in the covenants going forward.

Right. The next slide then is just a little bit of technical guidance, although we're not formally guiding as a whole. So you'll see, as I've mentioned, immediate capital expenditure for this year, we aim to be in the range of GBP 20 million to GBP 25 million, so low GBP 20s million. Finance costs, we anticipate to be around about GBP 7 million. The effective tax rate will be circa 17%. The restructuring costs, as mentioned, about GBP 1.5 million. And the savings from those redundancies, we anticipate will be about GBP 3 million on an annualized basis, but obviously affecting those redundancies as we speak in September.

So with that, I will hand back to Martin for the business review.

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Martin K. Payne, Polypipe Group plc - CEO & Executive Director [3]

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Thank you, Paul. So just before we get into the markets and business review on Slide 16, I'll -- we'll just quickly run through the chart that many of you will have seen before. This is looking at the demand drivers that are behind the Polypipe business. You can see there on the left, that's looking at revenue and demand drivers through to June -- 12 months through to June 2020, and that's remained reasonably similar to what we've seen in the past. So U.K. RMI at 27%; U.K. newbuild at 38%; commercial at 21%, split evenly between -- split between public and private, 9% and 12%, respectively; and 4% infrastructure. And that adds up to the 90% revenues that are derived from the U.K. And as we've said before and continue to say the balanced exposure to those different segments of the U.K. construction market do give us resilience through the cycle. And I think that resilience shines through in the first half results that we just reported with that robust performance.

I think, therefore, as we move on to the markets on Slide 17. We'll start with residential and within that new housebuild. Overall, the CPA are forecasting 2020 new housebuild to be down 33% overall versus 2019. And you can see there on the left, we've just mapped out starts and completions, and we'll come back to that in a second.

Undoubtedly, the market struggled through April and May with the new house market pretty much shut down. And I think that was obviously a challenge for us through the businesses, and we'll see that when we come to some of the segment reporting. But I think as we've come back out of that shutdown, the recovery of the new house market has probably surprised us on the upside. And obviously, that's been helped by some of the government intention that's been announced recently, the stamp duty changes as well as the extension of the existing Help to Buy scheme through to March '21, which will allow us to have a more seamless transition into the new Help to Buy scheme.

And I think when we look at our businesses, we can see signs that housebuilders are building out those plots that they've already started prior and during lockdown. And more recently, encouraging signs in our underground business of evidence that housebuilders are starting to put shovels in the ground as well and opening up new sites. So some encouragement there. But undoubtedly, looking forward into 2021, a large degree of uncertainty, particularly with the wave of redundancies that has happened and is likely to continue for the next couple of months, and the impact that's going to have on the new house market in '21, obviously, gives us cause for a lot of uncertainty around that outlook.

In terms of RMI, that's remained pretty resilient through the crisis actually. DIY has been strong. We've seen reports of merchant cash sales being very strong as well. And again, when you look at the sort of general supply issues in construction, you can see a lot of garden work has been done, a lot of landscaping as well as house decoration and that sort of thing. So RMI has remained positive really or less negative through this crisis. So that's good.

Turning to Page 18, the Commercial and Infrastructure space. I think generally, the Commercial and Infrastructure space has perhaps been a little more resilient than certainly newbuild through this crisis. I think the Tier 1s managed to get back to site a bit faster and get productivity levels up a bit faster, building out those projects that had already been started prior to lockdown. But nonetheless, you can see a significant impact on the commercial space for 2020. Again, the CPA looking at 28% down this year. I think, again, the commercial space has been encouraging more recently as guys have got back to work on projects, as I say, that had been started and I've got up to productivity levels nearing normal. I think what we do need to keep an eye out for is whether -- is when those new projects that should be started the speed at which those new projects are started, and we'll keep a close eye on that going into 2021. And again, it gives us cause for some uncertainty around that outlook.

Roads and infrastructure markets. Again, infrastructure generally has been continued through the crisis reasonably well. I guess, social distancing is that bit easier on some of those large road projects. And again, I think it's going to be a key area for us going forward as the government continues and increases its investment in the transport infrastructure. So generally, in this space, I think the fundamentals are strong. The government will increase its spending, I suspect, on infrastructure, it gets the joke of trickle down impact into the economy on infrastructure spending. And obviously, projects like HS2 will be key to some of those -- that improvement. So that's it for the Commercial and Infrastructure space.

If we move to Slide 19 and just look at our performance, firstly, in the Residential Systems segment, we saw 28.1% like-for-like revenue decline in the first half of this year. It sounds a big number. I still contend that, that's a pretty robust performance given everything we had to face. Underlying operating profit down 72% at GBP 7.4 million. And I guess that's, as Paul said, largely around the drop-through of that revenue decline. As we've said, new housebuild markets shut completely, opened back up in May. And again, I'm surprised us on the upside, I think, as that's come back, an RMI remains -- has remained relatively resilient through the crisis. And life has carried on in the businesses.

Manthorpe, we're very pleased to have won best brand-new product within its innovative Redshield Cavity Barrier, which is a fire-retardant cavity closure. Very pleased with that. And then Surestop winning prestigious awards as well with its i-water control product, which, again, we're looking forward very much to seeing that come out into the market further.

In the Commercial and Infrastructure Systems segment, again, as I said earlier, perhaps a slightly better performance from this segment as the Tier 1s got back a bit faster and up to normal productivity levels, and we were able to sort of go along with that. So like-for-like revenue down 21%. And although reported 14% down because we did get some first-time revenue benefit from the Alderburgh acquisition, which was during October 2019. And I'm pleased to report Alderburgh has integrated very well so far, but obviously, it hasn't been immune to the crisis, just like the rest of the business.

Profits down 75%, again, through the drop-through of that top line reduction. And again, I think we're expecting -- we look forward positively with that and government investments in the U.K. infrastructure will help this segment. And we are continuing to invest in some of the innovative projects that we have going. Notably, the Polysewer project, that we'll see some significant growth into next year.

Turning to Page 21. What I thought I'd do is just bring us back up a bit out of the first 6 months and give us just a little bit of a strategy reminder. If you remember, Polypipe's -- Polypipe will grow ahead of the U.K. construction market over the cycle and we'll do that by focusing on higher growth parts of the market, which are driven by sustainable and environmental factors, such as flood resilience and storm water management issues that were very at the front of minds before the crisis, and I'm sure will come back to front of mind at some point in the future. Green urbanization, longer-term challenges. The drive for low and 0 carbon construction. And then also those drivers, such as legacy material substitution and the selective development of export markets. So a lot of good reasons to sort of see higher than market growth over the next few years.

We'll also do it by leveraging our customer relationships, filling those product gaps and adjacencies, using organic and inorganic means that make us that one-stop shop for our customers.

And just turning to Page 22. I guess we've been very keen to continually review our strategy through the COVID crisis and just making sure that there aren't changes that we need to react to. And I think there's a couple of things that I point to coming out of that crisis. I think more exposed to infrastructure, given the government investment over 3 to 5 years, will be important to us. I think space ventilation and air quality will be more attractive in a post-COVID world, and we're definitely seeing elements of that starting to happen. And also the drive for low-carbon heat source in the residential space and its implicit changes for distribution systems is going to be a great opportunity for us as well. And really to sort of build on that and to show you a little bit about what we're doing within the businesses on trying to drive those sort of opportunities, but also on our wider ESG and sustainability credentials, we will be holding a virtual Capital Markets event on the 17th of November 2020. So please mark those into your diaries if you can join us.

Good. So just turning to Page 24 then for a summary. Look we took prompt action in this crisis with our priority being the safety and well-being of our staff and protecting the business and strengthening its balance sheet. And I think we took those actions decisively and early in the crisis.

Trading since the end of the first half has continued to recover, and July and August being 6% and 3% below, respectively, last year's level. So pleased with the way that's coming back. And as Paul mentioned, tracking well ahead of the operating scenario that we set out at the time of the group's equity raise.

And look, we are mindful of the overall pace and sustainability of the economic recovery. We're encouraged by the trajectory of trading so far, and we're confident in the group's position to capitalize as that continues to recover.

The medium-term fundamentals in our business remain as strong as ever and, in some instances, stronger in a post-COVID world. The housing shortage will still be there. The government investment in infrastructure, I think, will be helpful. And look, we've got sufficient resources to make sure we can invest to capitalize on those opportunities.

We do recognize the importance of dividends to shareholders, as Paul said. But given the economic uncertainty, we're not recommending an interim dividend. We will, however, consider a final dividend subject to the performance ahead of the operating scenario that we set out at the time of the group's equity raise in 2020. So we will keep a very close eye on that. And again, as I said, please put the 17th of November in your diaries if you can possibly join us for that.

So that's really what we wanted to say. I'm going to hand back over to Ruby now for Q&A. So over to you, Ruby.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Priyal Woolf of Jefferies.

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Priyal Woolf, Jefferies LLC, Research Division - Equity Analyst [2]

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Can you hear me, okay?

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Paul James, Polypipe Group plc - CFO & Executive Director [3]

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Yes.

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Priyal Woolf, Jefferies LLC, Research Division - Equity Analyst [4]

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Okay. So I've got 3 questions. And first one is just, obviously, you've sort of said 2020 final dividend should be considered. But how are you feeling in terms of M&A? I mean, when could this restart? What does your pipeline look like? Have you seen more sort of opportunities coming about as a result of COVID?

The second question is just in terms of R&D. Did this sort of pause through the lockdown? Do you feel you've got some sort of catch-up to do in terms of innovation of your development products? And then the last one is just a quick one. You said health and safety measures have had a plus of an impact on productivity. Is that something you can quantify a little bit more at all?

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Martin K. Payne, Polypipe Group plc - CEO & Executive Director [5]

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Thank you, Priyal. So if we take those in order. So in terms of M&A, look, I think as we come out of this crisis, undoubtedly opportunities will arise, and we are turning our attention to some of those. I think we've got to be very careful on timing, and we've got to make sure that these are the right opportunities for us. But certainly, we've -- we're continuing to perform ahead of that operating case. So I think we're in a good place to be able to capitalize on some of those bolt-on M&A opportunities as they arise. And as I say, rest assured, we are working as hard as we can to make some of those happen.

In terms of R&D development, yes, look, I mean, I think in the very early parts of the crisis, we did cease activity in some areas. But I think we've come back now and are strongly driving that R&D. Again, new product and innovation is going to be the core of our ability to sort of capitalize on some of these opportunities. And if we can come out of this crisis on the front foot with some of those NPD projects, I think we'd be -- we will be in a very much stronger position. So very much the performance, again, ahead of the operating case has given us the confidence to really crack on with some of those R&D projects. So we're trying not to lose any time on those. And I think we're being successful at that so far. And Paul, do you want to take the productivity question?

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Paul James, Polypipe Group plc - CFO & Executive Director [6]

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Yes. Sure. So your question around health and safety. I think we had costs in H1 related to COVID-19 around about $600,000, so I mentioned, Priyal. And that's cost you'd expect to incur things like deep cleaning, more regular cleaning, et cetera, et cetera. As far as the impacts of social distancing are concerned, I suppose for us, it's relatively minor. In that over the many years, we've had a lot of automation in the factory. So the need to space people out more, that's -- there was some impact, but it's probably not been as great as perhaps it would have been in some other businesses. So for that, we're grateful that, that was a result of prior investment helping us there. But yes, the direct cost of cleaning, et cetera, at the moment is running about $600,000 for the 6 months.

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Operator [7]

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Our next question is from Sam Cullen of Peel Hunt.

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Samuel Berkeley Cullen, Peel Hunt LLP, Research Division - Research Analyst [8]

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I've got 3, I think, really on -- you kind of -- first one is on -- you alluded to the drop-through of 47% in the early part of the presentation, assuming volumes continue to recover, how -- what sort of drop-through should we be assuming for the first kind of year or so of volume recovery and where might that kind of average out over the medium term?

And the second question is relating to CapEx and R&D spend again. What -- it might be kind of somewhat semantic, but what's the split do you think between kind of just out and out maintenance CapEx versus growth R&D in the business currently? And then lastly, you mentioned HS2 in the presentation. Can you give us an idea of the products that are exposed to HS2? And at what time in the construction phase, you would expect to supply them?

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Martin K. Payne, Polypipe Group plc - CEO & Executive Director [9]

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Okay. Thanks, Sam. If it's all right with you, I'm going to take the third question and defer the other 2 to Paul. But just on HS2, the sort of things -- normally on rail, we don't -- rails normally laid on gravel and gravel drains naturally. So generally, our products don't really -- it's not been a great stomping ground for us normal rail. HS2 is unusual in that. It's going to be laid on concrete because of the forces that play on the rails. And because of that, as soon as you put a hard surface down, you need a drainage solution along the length of those tracks, which is why it's very interesting for us. So it's a lot around the drainage side of the business and the larger diameter as well in some of the infrastructure projects work that we do out of our Civils business. There's not many -- hardly any businesses around the group that got the capacity that we've got to be able to supply the amount of product into those projects. And look, we're very well placed on that HS2 roster we've quoted for, I think, in excess of GBP 30 million worth of business on that, and I think that is still ongoing. And we're very pleased that, that HS2 announcement was made during the crisis and are working hard with HS2 on that. So that's on HS2. I'm going to hand over to Paul on the other 2 questions.

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Paul James, Polypipe Group plc - CFO & Executive Director [10]

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Yes. Sam, first question around the drop through, I mean, yes, 47%. And that, as I said, was a result of the suddenness of the decline in volume in the beginning of April. I think, I see, obviously, the situation improving, but it won't quite yet be back to normality for the second half of this year. And in terms of the -- if you look at operating margin, it's -- it is returning towards normality month-by-month, but it probably won't quite get there certainly for the remainder of this year and probably tracking into next. So I'm hopeful that we will get probably into next year back to something looking like normality, but I think there's a bit of a way to go just yet on that one.

In terms of the CapEx, yes, we're guiding to low 20s. Your question was how much is maintenance. Maintenance spend normally is around about GBP 8 million or GBP 9 million a year. In terms of the R&D element to it, I mean, the R&D -- part of that to Priyal's question is very much the sort of life blood of Polypipe development, new products, et cetera. So we do have plenty to go for. There are some really exciting investments out there in the offering. So we're just going to really roll up our sleeves, crack on and get on with it. So that is very encouraging.

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Operator [11]

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Our next question is from Jon Bell of Deutsche Bank.

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Jonathan Matthew Bell, Deutsche Bank AG, Research Division - Research Analyst [12]

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I think I've got 2 questions. The first one is just, I wonder whether you could elaborate on your underground business and the signs you've seen of housebuilders putting more shovels into the ground, just a bit more color around that would be helpful. And the second one really is you've commented on July and you've commented on August. It looks like we're narrowing the gap versus last year's equivalents. We're a couple of weeks into September now. Any new trends to report? Are you seeing a similar trajectory as we move through this month?

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Martin K. Payne, Polypipe Group plc - CEO & Executive Director [13]

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Thanks, Jon. In terms of -- maybe we take the second question first. In terms of trends that we see coming out of July, August into the rest of the year, I think perhaps we did -- we're pleased with the way that July and August have performed and to be getting back into 6% below and 3% below, I think, is an absolutely creditable performance. I think as we look forward into the remainder of this year, we've got a bit of a line of sight through September into October, and I think I'm encouraged by certainly what's been happening in the first part of September. I think we're all conscious of the wider macro picture which leads to really the uncertainty into 2021. But I think August is always a bit of a funny month, and I'm sure it was impacted a little bit by some -- a lot of holidays, like it always is, to a certain extent, but I do sense it's a little bit more this time around. But certainly, coming back after that bank holiday weakened, it seems to be continuing at the same sort of level. So I'm pleased with that. But as I say, we know the macro picture going into '21 is uncertain. And we keep a very a close eye on all of that.

In terms of the underground stuff, I mean, I think certainly when housebuilders initially came back from lockdown, they were very much focused on building out those houses that they've got water tight, those ones that they've got contracts for and reservations for and doing what we'd all do in that situation, trying to turn as much of the cash they've got in WIP into -- sorry, much of the WIP they've got into cash. I think encouragingly, that return to the housing market and the improved performance and probably surprised us on the upside and surprised everybody on the upside, hopefully, has given the house a little more confidence to start putting shovels into the ground.

And whilst -- when we look inside our residential business, the above ground products picked up first and strongest. We are seeing a little bit now of the underground product starting to pick up as well, which means they are starting to put shovels in grounds. And certainly, anecdotally, some of the bigger housebuilders have got a little more confidence around their starts -- site starts for this year and into next year. You've got to bear in mind that we're coming off the back of 2019 where completions -- as you can see in our slides, completions were 206,000 and starts were only 181. So they're coming off the back of the 2019 where their WIP was reduced and obviously, that's not a trend that can continue add in for an item. They have to start filling the pot again. So I think we are encouraged there. But again, moving into '21, we are cognizant of those macro pictures, particularly with the redundancies that could potentially weigh on the new housing market. So hopefully, that answers those questions, Jon.

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Jonathan Matthew Bell, Deutsche Bank AG, Research Division - Research Analyst [14]

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Yes, it does.

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Operator [15]

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(Operator Instructions) Our next question is from Christen Hjorth of Numis.

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Christen David Hjorth, Numis Securities Limited, Research Division - Analyst [16]

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Three questions from me, if that's okay. First of all, I think it's probably following on from what Jon was talking about recent trends, but just sort of touch specifically on order books. If you can remind us perhaps on the different businesses, what sort of length of order book you have? And what -- how you're seeing those trending as well?

The second one is, you obviously pointed to ventilation seeing some good inquiries and also as a potential opportunity, strategic opportunity going forward. Just a little bit more color on that. You've obviously got the new air business, but probably you're thinking sort of more widely than that. And then just finally, on competitors. Obviously, price was offset by cost inflation in the first half, but you guys are on good position in terms of balance sheet and obviously take advantage of the recovery. Just wondering how competitive you feel have fared?

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Martin K. Payne, Polypipe Group plc - CEO & Executive Director [17]

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Christen, so I'll take the first 2 and maybe hand the pricing question to sort of Paul. So order books -- look, I mean, we don't tend to work on very long lead time order books we're supplying albeit working with the end users of our products, the housebuilders, the architects, the designers, the M&E contractors, the groundworks contractors. We do supply through merchants certainly in the plumbing and drainage side of our businesses. So we don't tend to have huge order books to look at. I am encouraged by the order book situation at the moment, but it is relatively short term. So we tend to look for other drivers. We tend to work very closely with the house developers to get an understanding of their development plans. And that gives us some confidence given what we've talked about certainly in the short term.

In terms of the commercial space, we do track new projects and project quote logs and all that good stuff. So we are trying to keep an eye on when those projects starts are made, when those sign-offs for new projects are made as well. And that -- the commercial guys have worked through on the existing projects, which is why they've come back quite quickly after lockdown. But again, we do track there. And there is some encouraging sign that starts have not been impacted too hard, but we would need to keep a very close eye on that, and that can change over time.

So I think generally, again, very much, as I said to Jon, we've got -- as we look into September and perhaps the balance of the year, we've got a reasonable line of sight on that and think I'm pleased with where we are on that at the moment. But again, looking into '21, we'll track those longer-term drivers, but there's quite a degree of uncertainty around them.

In terms of the ventilation space, Christen, yes, I mean, look, of all our businesses, I guess, perhaps new air performed the best through the crisis because it had a lot of work to do with emergency NHS projects, getting those Nightingale Hospital setup, helping repurpose NHS buildings for care and recovery. And doing that, you need upgraded space ventilation. And I think as the world gets used to what I'm afraid will be a new normal for quite a time, thoughts do turn to ensuring improved air quality within buildings. And we're looking at things like schools, offices, hotels, anything public space and some of the opportunities there to upgrade ventilation. And that's going to be key, I think, as people get used to the new normal. I think as well air quality within that as well is going to be an increasing driver for people. So -- and again, we've got a lot of interesting product developments in that space that we're hoping to bring to the market. So I think the new air and our ventilation business more generally have got a lot to offer in that post-COVID world, and I'm excited about the opportunities that we've got there. And I'll hand over to Paul just on pricing and inflation.

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Paul James, Polypipe Group plc - CFO & Executive Director [18]

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Yes. Sure. So well, you saw we had sort of just on 2.5% increase in the year, which adequately compensated for cost inflation in absolute pound note terms, and that really has been our track record over recent years. It's probably is worth noting that by compensating for cost inflation in absolute pound note terms, it does have a margin dilutive effect. So that's worth bearing in mind. As far as the sort of costs of our business are concerned, at the moment, it's a relatively benign environment. I mean pre-COVID, there was perhaps a little pressure on labor cost, but that's obviously seems have gone away, raw materials as well at the moment. You get slight fluctuations. But again, I'm not seeing a huge amount of pressure. And we keep an eye on it. So if we start to see cost inflation building, then as we've done in the past, we'll take action on pricing. So I think that...

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Operator [19]

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We have a question from Mark Atkinson of (inaudible) Invest.

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Unidentified Analyst, [20]

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Just a quick question really. Just wondering how difficult the decision it was regarding the repayments of the Job Retention Scheme, the redundant employees, not to take up on the bonus scheme for February. Just with a view of the fact that there isn't an interim dividend. You've had to conduct an equity raise. You've -- I think you've done a bit in helping the NHS. And with the greatest of respect, the Board has taken a 20% pay cut. But I believe from September, that will be returning to normal. So I'm just wondering, was that a consideration or was it an easy decision for you to make?

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Martin K. Payne, Polypipe Group plc - CEO & Executive Director [21]

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Look, we've had to make a lot of tough decisions through this crisis. And I can assure you, none of them have been easy to make. I think what we've tried to do through all of this is to really keep the balance in terms of all stakeholders and our businesses. Yes, we have had to restructure and unfortunately lose 104 people from the group. That was a bit less than we put at risk. So again, pleased with the way the business has performed in the interim time. I think what we have done by implication is bought 1,667 people back to work that were on furlough at the worst point in the crisis. And I think in that sense, that may not have been the case without that JRS scheme. So I think in terms of trying to keep a balanced approach across all stakeholders, we felt as a Board that repaying that money for those that we had to make redundant, unfortunately, was the right thing to do and not participating in that bonus scheme was the right thing to do. We bought those 1,667 people back for good commercial reasons. And I think because of that, we're not bringing them back for -- because of that bonus scheme. So I think it was right to do that. We have -- we did take early days help from the government in terms of the CCFF, but we have repaid that now because I think the business has performed better than our operating case. So look, they're all tough decisions. And it's all about trying to keep that balance across all our stakeholders. Hopefully, that gives you a bit of an insight, but I can assure you it wasn't an easy decision.

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Operator [22]

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We have no further questions, so I will hand back to your host.

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Martin K. Payne, Polypipe Group plc - CEO & Executive Director [23]

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Thank you, everybody, for participating in the call in these slightly strange times. I hope one day soon we'll be back to doing this in front of you. But in the meantime, stay safe and well, and look forward to speaking to you individually over the coming weeks. Thank you.

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Operator [24]

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Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.