Marshalls plc (1QG.F) Earnings Call Transcript & Summary

All right. Good morning, and welcome to Marshalls' 2025 Half Year Results Presentation. Thanks to everyone in the room for joining, especially in the middle of the holiday season and to all of you online, too. As always, I'm joined this morning for the presentation by Justin Lockwood, our Chief Financial Officer; and we also have Simon Bourne, our Chief Commercial Officer here for the Q&A, too. I'll start with a brief overview of our half year performance; from there, I'll focus in on our Landscaping products business following the trading update we shared on the 25th of July. I'll talk through some of the challenges currently impacting our profitability and the encouraging progress we are making through our performance improvement program, which is set to deliver a material uplift in profitability. After that, Justin will take us through the group's half year financial results in more detail, and then I'll return to share an update on the early momentum we're seeing with our Transform & Grow strategy across the other business units outside of landscaping. And then I'll wrap up with a short summary and outlook before opening the floor to questions, both from those of you here in the room and those online, too. Just a quick reminder for the online participants. You can submit your questions at any point via the chat, and we'll read them out before responding. So let's move into the half year summary. Back in November 2024, we introduced our Transform & Grow strategy, a clear road map for shaping a group where long-term profitable growth is driven by the combined strength of our diverse portfolio of market-leading businesses and brands. This approach ensures that our medium-term performance is not reliant on any one single business unit. In the first half of 2025, the group returned to revenue growth, up 4% year-on-year, driven by profitable growth across key areas. Roofing and Building Products delivered strong performances, up 11% and 6%, respectively. Encouragingly, we also saw a positive trend in Landscaping Products where revenue contracted by just 1% and that's a marked improvement from the 11% decline that we saw in the second half of last year. Profitability improved in both roofing and building products. In Roofing, Viridian Solar continued to perform strongly, benefiting from those regulatory tailwinds that are expected to increase the adoption of in-roof solar in England and Wales from around 10% to 80%. Marley Roofing also delivered a robust performance, gaining profitable share in clay tiles and timber battens and holding its market share in concrete tiles, and therefore, reinforcing its market leadership position. In Building Products, water management and mortars were the key drivers of profitable growth. Water Management strengthened its position in new housing and secured more specified higher-margin infrastructure projects highlighting the significant market opportunity beyond residential new build for that business. Our Mortars business benefited from a moderate uplift in build rates across new housing sites, which favored our ready-to-use products. This was partially offset by a softer performance in our Bricks business, where increased sector capacity and a slowdown in activity during quarter 2 intensified pricing pressure. In response, we made a deliberate strategic choice to protect margins rather than chase volume at lower prices. With Landscaping profitability below expectation in subdued markets, we've taken decisive action to accelerate our performance improvement plan. These measures, which I'll return to in more detail shortly, will reduce costs, align capacity with current market demand and deliver annualized savings of around GBP 9 million from 2026. And we're also addressing a smaller currently unprofitable part of our business either by improving its performance or exiting it altogether. And importantly, we've maintained a robust balance sheet through disciplined working capital management with adjusting operating cash flow conversion at 94%, and net debt reduced by GBP 4.2 million at the halfway point. So before Justin takes you through the detail of the results at the half year, I wanted to focus in on Landscaping Products. In the first half of 2025, we have seen that improving revenue trend that I highlighted. And that reflects the work of the sales team in engaging with our customers and strengthening those relationships, with new trading agreements driving positive momentum and delivering volume growth and regaining market share in what are clearly subdued markets. However, our margins have been impacted by a combination of market, pricing and product mix dynamics. Subdued markets and overcapacity are acting to suppress pricing. The cumulative inflation in building materials over the last few years is driving value engineering of projects in both commercial and domestic sectors and has resulted in a deterioration in product mix with a shift to more lower-margin commodity products and away from value-add solutions. In the medium term, we do expect a market recovery and know that this will act to ease the challenges of overcapacity, supporting a shift back towards higher-margin value-add solutions and reducing the pressure on pricing. But with no improvement in market conditions expected in the near-term, we are not relying on the market recovery and are accelerating key parts of our performance improvement plan. In June, we put this comprehensive plan in place, and we've been executing it at pace. And as a quick reminder, that improvement plan has 4 key priorities: strengthening our leadership and realigning the organization to drive specification, portfolio simplification to reset our portfolio to better meet the needs of our market and our customers and drive operational efficiency through network optimization, reinvigorating and building long-term strategic customer and supplier partnerships and investing in strengthening core commercial and operational excellence capabilities. The plan has not changed, and we remain confident that these initiatives will deliver a material improvement in profitability in 2026. Commercial actions we have taken are delivering a clear improvement in revenue trends, regaining market share and we are starting to see an improved mix of product in our order intake. We've made good progress on portfolio simplification and network optimization in the first half of this year and are taking additional steps in the second half to accelerate these plans. And in the next few slides, I'll provide more detail on these actions. In the first half of this year, we took a significant step forward by partially closing one site unlocking annualized savings of approximately GBP 3 million, around half of which will benefit 2025. Given the continued subdued market conditions, we are accelerating our plans to reduce costs and enhance operational efficiency. Actions are already underway to deliver an additional GBP 6 million in annualized savings, around GBP 1.5 million of this will benefit in 2025. This is a substantial and strategic piece of work has involved a complete remapping of our landscaping manufacturing network and will result in relocating production of our core product ranges closer to our most profitable markets. Together, these 2 programs are expected to deliver total annualized savings of around GBP 9 million with approximately GBP 3 million benefiting 2025. In addition, we're addressing a small and profitable part of our product portfolio, and our focus is clear, either return it to profitability or exit it altogether. The new Landscaping leadership team is now fully embedded and successfully led a business reset, strategically positioning the business to deliver improved margins on the back of volume growth and increased market share through the remainder of this year and into next. At the Capital Markets event last November, we acknowledge the need to reinvigorate our customer relationships. Since then, we've made significant progress in engaging at every level, positioning Marshalls as the preferred strategic partner, creating value for both our customers and ourselves. We now have multiyear trading agreements in place with our key customers, which are driving a notable uplift in brand presence and share of voice across our distributor network. The images you can see on screen are just a snapshot of hundreds of examples on the ground: impactful displays, deeper engagement at branch level and joint marketing campaigns. In our top 3 distributor partners alone, our share of voice now exceeds 75%; and in one of these, it is around 90%. And it's not just about distributors, the relaunch of the Marshalls accredited installer scheme has boosted engagement, ensuring that our products are being promoted and installed by the highest quality professionals in the industry. And while overall market activity remains subdued, we are winning business in the near-term and are increasingly well positioned to capitalize on rising demand as and when market conditions improve. Now whilst the revenue trend is encouraging, margins came under pressure in the first half of the year due to a less profitable product mix with a shift towards commodity products. However, we're beginning to see signs of recovery in the commercial landscaping sector, which represents approximately 2/3 of our landscaping business. It's important to remember that commercial projects typically have a gestation period of anywhere between 3 and 18 months. Against that backdrop, the positive impact of our sales team's effort on the specification pipeline is particularly encouraging. Their focus supported by targeted incentives to drive an improved product mix is delivering results. Between April and July, we recorded an 8% increase in the order intake of value-add products, signaling strong momentum and strategic alignment. And to further support our sales teams and customers, we're simplifying our product portfolio, a clearer range architecture structured around good, better, best. We'll ensure the right product ranges are positioned at the right price points, and this will create a stronger platform for value-add growth and improved profitability across both commercial and domestic sectors. We will be actively working with our customers to transition volumes from discontinued ranges and we're enhancing our better tier offering through focused new product development, leveraging the capabilities of our dual block plant technology at St Ives. This transformation is progressing at pace. While it's difficult to fully appreciate the scale of the work underway, it will result in 28% reduction in SKUs. To bring this to life, we'll be removing 16 ranges and across the remaining portfolio, removing overly complex combinations of sizes, colors and the finishes, making our offer clearer, more compelling and easier to navigate for both our teams and our customers. So that combination of self-help measures and the actions we are taking to reset the business are already gaining traction positioning our landscaping products business for a material improvement in profitability in 2026. So I'll come back after Justin has talked through the financial results for the first half of the year to briefly update you on the early progress we are seeing with our Transform & Grow strategy across our other business units. Justin?

Thank you, Matt, and good morning, everybody. So I'm going to take you through the detail of our financial results for the first half of the year, and that will include an update on each of our reporting segments as well as our cash flow performance. I'll then give you an update on the strength of our balance sheet before running through a recap of our capital allocation policy. So this slide sets out the key financial headlines for the year. Revenue grew by 4% to GBP 319.5 million, but operating profit contracted by 16% to GBP 28.4 million, and that reflects a weaker performance in our Landscaping Products business. That fed through to a reduction in earnings per share of 16% to 6.6p per share. And we've applied our dividend policy of maintaining 2x cover, and that's resulted in a 15% reduction in the interim dividend to 2.2p per share. And we've continued our disciplined approach to cash management during the period. And as a result, pre-IFRS 16 net debt closed the half year at GBP 152 million, which is a GBP 4 million improvement compared to June of last year. So I'll now run through the key drivers of performance at group level, starting with revenue. The chart on this slide sets out a year-on-year revenue bridge from the first half of '24 to the first half of '25, and it's split between our reporting segments. So as mentioned on the last slide, we reported revenue growth of 4% year-on-year to GBP 319 million, and that's against the context of continued subdued levels of market activity. And it also compares to a contraction of about 2% in the second half of last year, showing encouraging trends in both landscape and building products and a continued good performance in Roofing. So in Landscaping, revenues contracted by 1% in the first half of the year, and that's a significant improvement on the 11% rate of contraction in the second half of last year with volume growth being offset by targeted price investment and an impact to a shift in product mix, which reduced revenues. In Building Products, revenues grew by 6% and that's a step up from the flat revenue performance in the second half of last year, and it was led by improved performances in Water Management and our Mortars business units. And in Roofing, we reported revenue growth of 11% in the first half and that's comparable to the 13% that we reported in the second half of last year. And it was led by continued very strong growth from Viridian Solar as housebuilders continue to adopt its market-leading products, alongside a small -- a slower rate of growth in Marley that built on its market-leading position and increased revenues in a subdued marketplace. So now moving on to operating profit. In the chart on this slide sets out the component parts of the 16% reduction in operating profit to GBP 28.4 million. And you can see clearly from the slide that we reported growth in profits in building products and roofing products, but that's been offset by a significant reduction in profitability in our Landscaping business. And there's a similar story from a margin perspective with a modest improvement in margins in Building Products, continued strong margins in Roofing, but a significant reduction in the margin in Landscaping. And as a result, the group operating margin contracted by 2.2 percentage points to 8.9%. Now we continue to have a medium-term target to -- for that margin to recover to around 15% as we benefit from operational leverage generated from incremental volume from the execution of our Transform & Grow strategy and the recovery in market volumes. So I'll now talk through the drivers of performance in each of our business units, starting with Landscaping Products. So as mentioned earlier, revenues contracted by 1% year-on-year. And that's against the context of subdued market activity levels with sector-wide volumes being materially below historic norms. As Matt mentioned earlier, we returned this business to volume growth during the year, and that volume growth was 6% and it was driven through improved customer engagement and the new trading arrangements where we've put in place with key distributor partners. But that was offset by targeted price investment, which was around 2% and a shift in product mix, which had the impact of reducing revenues by about 5%. Now of that shift in mix of products, about half of it was driven from a shift from value-add to commodity products. And those value-added products have got significantly higher revenues and significantly higher margins than the commodity products. So moving on to the operating profit performance. Operating profits contracted by GBP 8 million. And as a result, the reported segment was broadly breakeven in the first half of the year. A number of drivers of that reduction in profitability, the first of which is the targeted price investment, which clearly flows straight down to the bottom line. And we've seen the impact of that shift from value-add to commodity products which has resulted in a less profitable product mix. Now those 2 factors were partially offset by the benefit of additional volumes. In addition to that, though, the business has been impacted by cost increases, the largest of which has been labor related from cost of living increases and increased national insurance contributions that have not been recovered through price increases during the period. And in addition, our manufacturing efficiency has reduced year-on-year, particularly in our natural stone business. Now in response to this, we've decided to accelerate the network optimization element of our landscape and improvement plan. And as Matt touched on earlier, we expect that to deliver annualized savings of GBP 3 million -- sorry, of GBP 9 million, with GBP 3 million being delivered in 2025. And we're confident that, that will create a more agile and flexible business that will facilitate a material improvement in profitability in 2026. So now moving on to Building Products, which, as I mentioned earlier, delivered revenue growth of 6% year-on-year, and that was driven through growth in both Water Management and Mortars, partially offset by lower revenues in Bricks and Aggregates. In Water Management, we saw good growth in both our core housing market and in the wider infrastructure market, aided by improved inventory availability and good service levels. In Mortars, we benefited from some increase in activity levels, but the relatively slow build rates on housing developments, which favor our ready-to-use mortars products. In Bricks, in a very competitive marketplace, we chose to prioritize price over volume in order to protect our gross margins. And as a consequence, revenues dipped slightly. And in Aggregates, we saw lower demand in our regional marketplace. Profitability grew by 8% to GBP 6.9 million in the period. And that profit growth was driven by Water Management, where we saw the benefit of increased volumes and a stronger product mix. And in Mortars, where we benefit from higher activity levels and strong pricing discipline but that was partially offset by lower profitability in Bricks due to the lower volumes. So now moving on to Roofing Products, where we had revenue growth of 11% during the period and that was principally driven through very strong revenue growth in Viridian Solar of around about 50%. And that, as I mentioned earlier, is reflective of housebuilders continue to adopt the business's market-leading products as part of their response to changes in building regulations that require increased levels of energy efficiency. But it's also worth highlighting that we do expect the rate of growth in this business to moderate in the second half of the year as the comparatives get tougher. Marley Roofing augmented that performance by building on its market position and gaining share in concrete plain tiles and timber battens and holding share in concrete tiles, and that resulted in an increase in revenues. Operating profit increased by 7% and that was driven by Viridian Solar with incremental volumes and its disciplined pricing strategy, resulting in improved profitability. And profits were modestly lower in Marley, where we saw weaker manufacturing efficiency and some targeted investment in customer engagement and commercial capability. We've chosen to increase the level of capital expenditure in this business during 2025, with a focus on improving manufacturing efficiency and product quality, and that will put the building blocks in place for long-term margin delivery and -- sorry, long-term revenue delivery and margin performance. So now this slide sets out the profit and loss account from operating profit through to earnings. And as mentioned earlier, operating profit contracted by 16% to GBP 28.4 million. Finance costs were lower year-on-year by about GBP 1 million due to lower borrowings and the reductions in base rate and profit before tax contracted by 17% to GBP 22 million. The effective tax rate that we've applied at the half year is 24%. That's in line with the full year effective tax rate from last year and it includes the benefit of a patent box arrangement. And adjusted earnings per share reduced by 16% to 6.6p per share, reflecting the weaker operational performance. So now turning to our cash flow performance and the movement in net debt. And the chart on this slide sets out the movement in -- the component parts of the movement in net debt from the December '24 year-end to the June '25 half year. And it illustrates the seasonal nature of our working capital requirements. And you can see that working capital line there, which absorbed about GBP 26 million during the first half. That's normal. And it reflects higher levels of trade accounts receivables from customers. And you can see that it absorbs a reasonably significant part of the EBITDA generation during the period. And it's a principal reason why net debt has increased by GBP 18 million since the year-end. Now our operating cash flow conversion continues to be very strong at 94%. And it reflects our continued focus on working capital management, and I'll touch on that a little bit on the next slide. Finance and taxation cash flows totaled GBP 12 million in the half year, that's a little bit higher than it was this time last year due to a normalization of the timing of interest payments and some front loading of taxation payments in 2025. Net capital expenditure was GBP 8.9 million, and that comprises gross CapEx of GBP 9.7 million less the proceeds from a site disposal of GBP 800,000. And we continue to tightly control capital expenditure given that we don't need any more incremental capacity as things stand today. And we also made the final contingent consideration payment in respect of Viridian Solar, which at a cost of GBP 6.6 million in the first half of the year. So we closed the half with net debt of GBP 152 million, which is GBP 4 million better than the 12 months earlier. So this slide sets out a number of measures based on working capital management returns and balance sheet strength. And as mentioned on the last slide, we continue to take a proactive approach to working capital management with both debtor days and creditor days improving year-on-year and average inventory turn being flat. Returns debt to -- by 0.3 percentage point to 7.3% and that reflects the weaker earnings during the period. We do have a target to return on capital employed to around 15% in the medium term, and that will be driven through operational leverage underpinned by our Transform & Grow strategy and a recovery in market volumes. The balance sheet continues to be robust with leverage stable at 1.8x, so the same as it was this time last year. And we've got very significant liquidity against our bank facilities of GBP 145 million, which provides the liquidity and capital to execute our growth plans. And finally, just moving on to a recap on our capital allocation policy. So our first priority is to continue to invest in organic growth opportunities. No change in our view that our strategic plan will require between GBP 20 million and GBP 30 million of spend in the medium term, but our spend this year is expected to be slightly below the bottom end of that range. We'll continue to invest in those areas, which will enhance the group's competitive advantage, being carbon leadership, leading brands and our best-in-class technical and design support. Our dividend policy remains unchanged, maintaining 2x cover of adjusted earnings, and the interim dividend is in line with that policy. At the start of the year, I guided to net debt being unchanged in 2025, and that continues to be our current view. So whilst our expectations of EBITDA generation have reduced, we'll have lower taxation cash flows, lower dividend cash flows and there will be a bit less investments in working capital and capital expenditure than we originally assumed. And we continue to expect to see reductions in net debt from 2026 onwards due to the cash generative nature of our business. And we're still targeting leverage between the range of 0.5 to 1.5x EBITDA, which will provide optimal flexibility. And finally, we will continue to consider selective bolt-on M&A opportunities that will accelerate our Transform and Grow strategy. So I'll now hand back to Matt, who will take you through the strategy update.

Thanks, Justin. It's clear that against a backdrop of macroeconomic uncertainty and continued subdued activity across our key end markets, we've delivered a performance that underscores the strength of our broad product offering. It's a direct result of the group's diversification strategy and highlights the potential for a successful turnaround of our Landscaping Products business. So now let's turn to Transform & Grow strategy, and I'll give you a brief recap and share some of the early progress we're making across our other business units outside of Landscaping. With customers at the heart of our strategy, we're building on a common set of capabilities that we know they value from carbon leadership, best-in-class technical and design support and our market-leading brands. Our Transform & Grow strategy is establishing that clear pathway forward to shaping a group where long-term profitable growth is driven by the collective strength of our diverse portfolio of market-leading businesses that ensures medium-term outperformance is not reliant on any one single business unit. Our medium-term goals are clearly defined. They are built on delivering market outperformance across our businesses and leveraging the financial strength of the group to support sustainable growth. Our successful diversification strategy has created a more balanced exposure across our end markets. We're building a group with 3 more evenly contributing reporting segments across Landscaping, Building and Roofing Products. In the near-term, activity levels in our key end markets remain subdued. However, commercial and infrastructure, representing around 30% of group revenues, has shown greater resilience. The government's 10-year infrastructure strategy and commitment to major infrastructure investment alongside the AMP8 investment cycle in water is expected to drive increased activity in the coming years. New housing, which accounts for around 45% of group revenues, continues to face relatively low activity levels. While there is a clear structural need for more homes, near-term economic uncertainty is dampening confidence despite improved mortgage affordability following successive cuts to the Bank of England base rate. The government's ambition to accelerate house building during this parliament, supported by planning reforms and the GBP 39 billion affordable homes funding program with a commitment to build 300,000 new affordable homes, is encouraging, but these measures will take time to translate into increased activity. Housing RMI makes up the remainder. About 25% of group revenues. Repair and maintenance remains more resilient, which is reflected in the strong performance of our Marley Roofing business. However, the improvement segment of RMI continues to operate at historically low levels with homeowners cautious about committing to more significant renovation and improvement projects in the current climate. So while near-term market conditions remain challenging, the medium-term fundamentals are encouraging, and to support our confidence in the group's strategic direction. And with our portfolio of market-leading brands and differentiated propositions, the group is positioned well for sustainable growth across all its businesses in landscaping, roofing and solar where we have enviable market positions; and in water management and bricks, where we have significant headroom for growth. And back at the Capital Markets event in November, we outlined a clear role and strategy for each of our businesses to drive growth and outperformance across our 2 brand powerhouses, Marshalls Landscaping and Marley Roofing, and our 3 growth engines of Viridian Solar, Marshalls Water Management and Marshalls Bricks and Masonry. So let's briefly touch on the early progress with Transform & Grow beyond our landscaping business. Marley Roofing has reinforced its market leadership position in the first half of the year, and the business is investing around GBP 5 million in capital projects that will enhance both product quality and manufacturing efficiency at 2 of our concrete tile manufacturing sites. In addition, we're investing in developing bespoke software that will support our specification selling strategy by enhancing the customer experience and increasing product attachment rates. And progress continues on integrating the solar roof system into Marley's full roof offer with a defined strategy and ongoing discussions with selected housebuilders ahead of a wider rollout. Through the first half of this year, Viridian Solar grew in line with expectations, driven by the increasing penetration of housing built to Part L regulations, regulations that present a market opportunity of GBP 77 million a year per 100,000 new homes built and where Viridian Solar has around a 40% to 45% market share. And the team has continued to strengthen its position with key housebuilders signing a 2-year extension to a solar [ deal ] with its largest customer for its Clearline Fusion roof-integrated solar panels. Viridian Solar's outlook improved further during the first half of 2025 following the government's announcement on the future home standard, which will make solar panels mandatory on most new homes. The impact of the new standards announced will drive an increase of penetration of solar on new homes to around 90% and combined with the requirement to increase the solar power output per home, has the potential to double the business' addressable market to around GBP 162 million per year per 100,000 new homes built. The implementation time is expected this autumn and will fuel further market growth after the current Part L regulations are fully embedded in 2026. And as you'll hopefully remember from Viridian Solar, they also launched the ArcBox product, a patented product that acts to mitigate arcing in solar connections, thereby reducing the risk of fires and can be used with any solar panel connection. Sales of ArcBox have grown over 135% in the first half of this year, primarily in the U.K., but also in Europe, where we've appointed 3 wholesale partners in Spain. Water Management has delivered a strong performance in the first half of the year with growth in both its core housing market and by winning business in the wider water management and infrastructure business. We've invested in new design software and training programs across our engineering and commercial teams, which is enhancing engagement with key specifiers. And we're on track to deliver over 3,000 project designs in 2025, an uplift of over 25%. Importantly, more of these projects are for larger, more complex design schemes. Now one example of this is the Toddbrook Spillway project where the reservoir threatened the work -- threaten the town of Whaley Bridge in the Peak district and was widely reported on the news. Our structural engineering team provided the solution with a combination of our Redi Rock Retaining Wall System, which is a bit of a mouthful, and our winder drainage network solutions. The team have also won further high-value infrastructure business with further work on HS2, the Hinkley Point C nuclear power station and numerous projects across motorway junction improvement and major road schemes. The team has also established framework agreements with key Tier 1 contractors and built relationships with design consultancies, building a very strong foothold ahead of the AMP8 cycle with water infrastructure design work up 35% year-on-year. We expect feasibility and design work to continue to ramp up further through the latter part of 2025 and construction on projects to commence from mid-2026, and continue to grow in number throughout the 8AMP cycle. To support this growth, we've also undertaken a detailed capacity and capability review to inform a targeted capital investment plan, which we'll evaluate in the coming months to align our future investment with the highest value and growth opportunities. And finally, in Bricks. As you've heard earlier in the presentation, the first quarter of 2025 saw encouraging demand from housebuilders. However, increased sector capacity and softening activity levels in the second quarter intensified price competition. In response, we made a deliberate strategic decision to protect margins by focusing on the differentiated value of our low-carbon brick offering competing on quality, sustainability and long-term performance rather than price. So on the left-hand side of this chart, you'll see that we're launching a major advocacy campaign in the second half to reinforce our carbon leadership, positioning our lower carbon bricks as a sustainable choice for U.K. construction. Just one of many compelling facts I could share is if all the new dwellings built in 2023 have been built with lower carbon concrete bricks, it would have saved around 215,000 tonnes of carbon dioxide. And when it comes to miss about concrete bricks in regards to limited range, on the right-hand side of this chart, you can see the comprehensive range of formats, aesthetic finishes and over 200 colorways that we have today to meet the needs of our housebuilders. And with further NPD being worked on with our housebuilders that will be launched later this year to enhance this offer. So I hope this provides you with a brief update on the early progress of Transform & Grow across our business units and demonstrates the significant opportunity we have for growth and value creation. So now let's turn to the outlook and summary before we join the Q&A. As we look ahead, we remain mindful of the ongoing macroeconomic uncertainty and at this stage, do not anticipate any meaningful improvement in market activity levels through the remainder of this year. That said, we are clearly focused on the plans and actions within our own control. We continue to be encouraged by the medium-term outlook supported by the government's commitment to more new housing and infrastructure investment throughout the Parliament. And our Transform & Grow strategy is positioning the group well for sustainable growth across our diverse portfolio of businesses. And we remain confident in the ability to deliver a material improvement in profitability and returns over the medium term. So in summary, at the half year, performance reflects the encouraging progress of the group. We've returned to revenue growth despite subdued market conditions, demonstrating the early impact of our strategy. We've delivered improved profitability in both Building Products and Roofing Products, and we've continued to execute our landscaping improvement plans at pace, taking decisive action to accelerate the optimization of our national manufacturing network and reduce costs and we've maintained a robust balance sheet underpinned by disciplined working capital management. And with that, I'll ask Simon and Justin to join me for Q&A. Thank you.

All right, where are we going first? Should we go left or right, which is over here, my left.

Adrian Kearsey, Panmure Liberum. Three, if I may. Could you remind us what proportion of revenues come from Water perhaps in the first half '25? And how does that compare as a proportion for '24? In Slide 10, you talk about order intake, up 8% in April to July for the value-add products. Could you perhaps give an indication of what order intake is across the wider Landscaping division? And then finally, you talked about -- so return 7.3% in the first half, remain committed to delivering 15%. Could you perhaps walk through what kind of changes to the balance sheet, for example, in particular, working cap, we need to be thinking about, what how is that could evolve in order to get to your 15%?

Okay. Then it comes to Water Management, I'll let Justin talk a little bit more about that, but I think our growth was 15% of revenue in the first half of the year. And then we'll take order intake, I'll let Simon do that one, and then I'll let Justin do the ROCE. So if you want to cover 1 of 3 first, Justin?

Right. Okay. So the first one was Water Management. So as we said before, Water Management revenues in '24 were around about GBP 70 million. And Matt said, the growth that we've seen in that business has been mid-teens during the period. I think that probably answers your question there, Adrian. Yes.

Do you want to answer the ROCE question as well?

Yes. So if you think about capital employed across the business, we're talking -- if we start with fixed capital, so capital expenditure, we're guiding to between GBP 20 million and GBP 30 million a year, which is broadly aligned with our depreciation. So in terms of fixed capital employed, you shouldn't really be assuming that particularly increases. In terms of the working capital, the best planning assumption for that will be for it to increase in line with the revenue growth in the business. I mean reality is, I'd certainly expect trade receivables and payables to increase in line with that. I'd actually like to see a bit more inventory turn coming through as you see an increase in revenue levels. But if you're keeping it simple, if you increase your working capital at the same rate as your revenue, you'd be in the right space.

Do you want to pick up on the order intake.

Yes. So order intake overall, Adrian, is up across both domestic and commercial. But the encouraging bit within that is the split between the commodity mix and the value-add mix. If we take Q1 of this year, if you look at the value-add element within commercial, it was down minus 8% and the swing is now plus 8% across April, May and June. So really encouraging swing. Clearly, there's a gestation period for that to flow through into sales and therefore, impact on the P&L, but it's really encouraging.

Okay. Where should we go? Keep going left to right or my left to right?

It's Rob Chantry, Berenberg. So yes, 3 questions. So market structure and landscaping, obviously, I guess you're the market leader at 40% in concrete, another 2 at kind of 20%, 25%. Where are the main problems coming from? Is it in the tail in terms of the 30%, which is, I guess, family owned and smaller? What are they doing with kind of pricing in kind of that part? So kind of talk around market structure and who exactly is causing the problems? Secondly, capacity reductions. Can you just remind us how much in your Landscaping network has been taken out mothballed since '22 and what the capacity will look like post the upcoming round of cuts? And then thirdly, Water Management, you outlined there, GBP 74 million revenue growing 15%, but clearly, low absolute share, but the market is growing quickly. Can you just talk about the competitive environment there? Where are you winning? Where are you missing out? How do you see that changing to really capitalize on that opportunity?

Okay. Simon, do you want to talk around market structure in landscaping and our share there and really the competitive structure in that marketplace?

Yes. You're right. There's a lot of regional pressure in terms of market structure across landscape. We find ourselves competing with smaller kind of family and privately owned businesses that are not distressed. And that's what we've seen the kind of impact on price and the pressure on price over the past couple of years. We've seen a slight change in dynamic now. We've managed to displace a lot of those competitors, both the regional competitors and some of the larger competitors. And that's the point that Matt made earlier in terms of taking market share. And in fact, certainly through our merchant partners, we're in excess of 75% across the patch and winning business, certainly with Tier 1 contractors and housebuilders. And we believe we're doing that because of the service proposition, the kind of technical know-how that we talk about and indeed, that geographical footprint that we've got. So we have seen a shift in that regard, and that's why we've managed to get some traction around that.

Okay. You could carry on and talk around capacity and landscape or I'll let Justin do after you. Justin, do you want to talk about capacity?

Yes. So surplus capacity is depending on which production process you're looking at is somewhere between 30% and 40%. And we have -- since the -- I guess, the volume challenges that started in 2022, we've permanently closed one site in Scotland. So it wasn't an enormous side, but that one is closed and we sold that. So that won't reopen. And we've partially closed a site in the rest of the network, and that's what we did in the first half of this year. The assets on that side, we can use other assets across the group, where we've got particularly high levels of availability on them. So -- we've got plenty of capacity across the group. And the actions that we've taken this time around, let's ignore the partial closure that I just touched on, don't permanently reduce capacity at all. What they're really doing is making the sites more efficient and moving production closer to the customer. So a reasonably significant portion of the GBP 6 million of savings that we expect to generate come from lower logistics costs rather than people-related costs. So it's driving manufacturing and logistics savings through the estate. So we've got -- we've got plenty of capacity left in order to respond to any conceivable increase in demand.

Okay. And then your final question, I think, was around the competitive environment in Water Management. And I think back at the Capital Markets event, we talked around that whole Water Management infrastructure market. And there's one -- there are a number of competitors, but there's one very significant major competitor who supplies into that market. But we believe, given the level of investment going into water management and infrastructure that there's plenty of space for someone like us to grow within that and that margins in that area will also be accretive as you're starting to look at more highly specified bespoke types of design into that area. So we believe the opportunity growth is still significant, both in the market and for ourselves and that margin should be higher than what we're seeing in our new housing market as well. And you can see that when I talked to around the number of the design work being up 35% in our Water Management business, reflects that growth that we're starting to see and should materialize through the AMP8 cycle. Does that answer the question?

I think it's just probably worth adding as well that we don't expect any significant benefits from AMP8 investment until midway through next year. So a lot of design activity going on at the moment in that space, but not translating into dispatches, but very encouraging for 2026.

We'll go that way, sorry.

Aynsley Lammin from Investec. Just 2 for me, please. First, just on new housing, some kind of mix messages across the sector. Just wondered some of the early kind of -- I think you mentioned water and mortar. Are you seeing the beginnings of a sustained recovery in new housing, do you think? Or is it just a lot more precarious than that? Just interested in your view there. And then the second question, just on the drop-through for Building Products and Roofing. If you look at the drop-through it wasn't that great in the first half, I mean, just maybe a bit more color in terms of what held that back? And would you expect what would be the key drivers to really improve the drop-through going forward on those 2 divisions?

Do you want to start the drop-through one, and I'll come back to new housing market.

Yes. So I guess what we saw was in Water Management, we saw strong growth in profitability in our -- in the mortars business, again, strong growth in profitability and actually drop-through in line with our expectations of our businesses. But we are investing also in both Water Management. So we talked about the increased capability from a design perspective. So we're putting people into that structure. We've also put people into the brick structure as well to improve our engagement, in particularly with regional housebuilders. So the drop-through is, I guess, the -- from an operating profit perspective is moderated a touch by that. And then you've got the impact in Bricks, where we saw lower profitability from -- and I guess, less efficiency through our manufacturing network as well as a result of that. So there's a few moving parts going on there, but there's a layer of investment in Transform & Grow, which is in those numbers.

Okay. And on the new housing market, I can't really comment on what other people are seeing in the new housing market, but certainly, what we're seeing in our own business doesn't signal a significant upward tick in new housing, certainly through this year, particularly in terms of completions, and it's certainly quite mixed music from the housebuilders themselves around that front as well. So if you were to say, do I see a sustained recovery? Not at the moment. No. Do I see some early, very early signs of life, and you have to see this continuing for a while? We're winning new business in -- or more business in Water Management, in our civils and drainage and that's usually a first sign of sites being opened up in civils and drainage goes in. The other part is flag curbs and edging in our landscaping business, and that's one of the things that goes into new housing sites early, and we've seen an uptick in that as well. Whether I could sit here and say that's the start of a sustained recovery in new housing? I think I'd be very foolish to say that at this point given the fragile nature of the housing market and coming from quite low comparatives year-on-year. So hopefully -- does that answer your question, Aynsley?

Yes.

Yes. I think just to add to that and tie that back to one of the points I raised in the presentation was the shift in mix. So part of that shift in mix was from value-add to commodity but the remaining shift in the mix was from a relatively stronger performance from flag curb and edging compared to concrete block paving and whilst that results in lower revenues, that doesn't actually result in lower margins because the margins are reasonably comparable across those 2 businesses.