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

Good morning. 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. 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 newbuild 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 softer performance in our Bricks business, where increased sector capacity and a slowdown in activity during the 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 in 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 four 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 and 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 two programs are expected to deliver total annualized savings of around GBP 9 million with approximately GBP 3 million benefit in 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. 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 1 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 that right product ranges are positioned at the right price points. This will create a stronger platform for value-add growth and improve 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 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 in 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, where 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 GBP 2.2 per share. And we 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 Landscaping 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 or 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 smaller -- 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 the 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, group operating margin contracted by 2.2 percentage points to 8.9%. Now we continue to have a medium-term target 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 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 that we 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 reporting segment was broadly breakeven in the first half of the year. And 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. Then 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 landscaping 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 a 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 continuing 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 resulted in improved profitability. And profits were modestly lower in Marley, where we saw weaker manufacturing efficiencies and targeted investments 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 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 books 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 part 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're continuing to tightly control our 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 to 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 dipped to -- by 0.3 percentage points 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 the 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'll 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 in 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 & 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 the 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 of 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 are 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 strengths 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 three more evenly contributing reporting segments across Landscaping, Building and Roofing products. In the near term, activity levels on 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 commitments of 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 housebuilding 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 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. 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 two brand powerhouses, Marshalls Landscaping and Marley Roofing; and our three growth engines of Viridian Solar, Marshalls Water Management and Marshalls Bricks & 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 two 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 products' 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 homes 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 for 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 arching 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 three 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 -- were to threatened the town of Whaley Bridge in the Peak District and was widely reported on the news. Our structural engineering team provided a solution with a combination of our Redi-Rock Retaining Walls System, which is a bit of a mouthful, and our winded 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 A 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 8 AMP cycle. To support this growth, we've also undertaken a detailed capacity and capability review to inform a targeted capital investment plan, which we will 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 myths 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 house builders and with further NPD being worked on with our housebuilders that will be launched later this year to enhance this offer. So look, 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.

Thank you all. We have had a number of questions pre-submitted and submitted live. [Operator Instructions] So our first question this morning. Regarding landscaping's profits, what makes you sure that 2026 will really bring the turnaround you're talking about?

Thanks, Danielle. So yes, we -- you can see from the presentation, there are a number of plans that we're driving to improve the performance of landscaping, not least of which is addressing the cost base of the business. And you'll have seen in that presentation that we are aiming to deliver GBP 9 million of annualized savings with GBP 3 million of those being delivered in 2025 and the remainder in 2026. And then also addressing a smaller, more unprofitable part of the business, which will either improve the profitability or exit that by the end of the year, and that will probably deliver somewhere between GBP 2 million to GBP 2.5 million benefit as we travel into 2026. So those are things that are in our control and -- they'll start to rebuild the base profitability of landscaping as we go into 2026. And then all of the actions that were outlined there that we're taking at the front end of the business with our customers, as you can see, starting to pay dividends, the order intake in our commercial business, which is 2/3 of our landscaping business, that order intake was up plus 8% between April and July in terms of value-add mix. And just to put that in context, in the first quarter of the year, it was minus 8%. And that's all the actions that we're taking with the sales team to incentivize them to drive a value-add mix and to drive margin, and they are incentivized in margin rather than revenue. And all of those actions help to rebuild the revenue and the margins in the top half of the business. And I think thirdly, the other part that will help as we travel into next year, we believe the sector is ready to take price increase. The sector hasn't taken any price increases for the last 2 years. We've been resetting our premium with the new portfolio to get it back in line with our competition, so that our premium today will be between sort of 5% and 10% rather than a year ago where we had some parts of our portfolio over 20%. We're now in a position where we've seen other competitors look for price. The sector needs to reinflate, and we'll look to recover cost input inflation, particularly people costs, which have risen strongly over the last couple of years in terms of cost of living and the impact of national insurance contributions, which are about GBP 3 million in terms of a cost to the business. So all of those things together give us confidence that we'll be rebuilding and driving a more profitable landscaping business as we go into 2026. Justin or Simon, I don't know whether you want to add anything to that.

No, I think it's a really good summary, Matt. I think all the parts of the plan are in play. I think the only thing to say with regards to that is that the plan is still the plan, and we'll continue to kind of work through that. The only thing that we're accelerating within that is the network optimization piece. But yes, the plans are plans, and a good summary.

Our next question. You've grown revenue 4% but profits are down. When do you see that gap closing?

So yes, revenue is up 4% year-on-year for the group as a whole. And in two parts of the business, in Roofing and Building Products, revenues in Roofing Products are up 11%. Profits, they are up 6%. And in Building Products revenue was up 6% and profits up 8%. So we've got two parts of the portfolio performing well. And certainly, I think the plans that we have in landscaping, which I've just referred to, start to improve the profitability of that business as well. So we see some material profit improvement for the group as a whole as a result of that landscaping turnaround and the continued progress in Roofing and Building Products.

And next, how do you expect margins to evolve in the face of input cost inflation and ongoing supply chain challenges?

Justin, do you want to take that one?

So I think Matt just covered a number of factors about the evolution of -- evolution in margin going forward. I guess specifically here, just thinking about the nature of cost inflation that we're currently facing that we expect to face next year based on our current market intelligence. And it's really labor-related costs. So cost of living increases or our cost of living increase for 2025 was 4%, and that was on the back of no increase in the preceding year. Looking at what the Bank of England was talking about yesterday with -- sorry, last week, with inflation expected to be in the region of 3% to 4% as we go through the back end of this year. I expect to see continued pressure on wage inflation, and any services that we're buying that have got significant people and components where those operators or our suppliers will be looking to recover their costs. And so it's our job now to, as Matt said, to ensure that we recover those costs in the supply chain, and we're feeling more confident around that than certainly we would have been 12 months ago. And then really, the margin growth in the business is underpinned by all the actions that Matt spoke about from a cost perspective in landscaping and also improving the product mix in landscaping. Value-added products are more valuable from a profitability perspective, the gross margins are significantly higher than they are on commodity products. So delivering a shift towards value-add will be beneficial. And then in the more medium term, we'll be looking for some market growth in market volumes continue to be materially below historic norms and we'll benefit from operational leverage there, which will drive up the overall operating margins.

You've cut the interim dividend. Is this a one-off? Or are we looking at a lower payout for the next couple of years?

I think this is probably another one for me to pick up on. So in the presentation that you've just seen, I talked a little bit about our capital allocation policy. And within that is our dividend policy. It's our policy to make 2x cover of adjusted earnings. So in simple terms, we pay half our profits after tax out to our shareholders. And therefore, if our profit after tax grows, the dividend increases. But unfortunately, the profit after tax falls, then the payout to you, to shareholders falls with that. So that is the policy. So future dividends will be based on -- will reflect the financial performance of the business.

A couple of questions now. How is the company positioning itself in the face of rising demand for sustainable and eco-friendly building materials? And also with Viridian Solar's growth linked to upcoming Future Homes Standard regulations, what's your contingency plan if the government delays or changes the implementation?

Okay. Simon, do you want to take the first of those questions? And Justin, you want to take the second?

Yes. Okay, Matt. Thank you. So there's a number of levels in terms of positioning ourselves from a sustainable and eco-friendly perspective. I think the first one is working closely with our raw material supply partners to reduce carbon from the input materials that we buy. And a good example of that will be working with people like HeidelbergCement. And then we move on to what we do internally, which is we're always looking at our mix designs for our products, and we're continually looking to reduce carbon within those. And that is primarily through cement reduction into our products. And we've got some success of that. We did a project, a Tri-blend project where we removed cement out of the mixed designs and replaced it with alternatives. So we've got demonstrated capability in that area. I think the other thing to call out is the national network and the advantages that, that gives us in terms of our kind of delivered miles and the carbon miles advantage that, that brings. Our products are produced much closer in terms of proximity to our customers than our competition. So that gives us an advantage. And then specifically, when you look at our lower carbon bricks, the performance of our facing bricks is over its lifetime is 49% better than its clay alternative. So again, we've got lots of demonstrated capability in this area to position ourselves for the future.

Thanks, Simon. Okay. Thanks, I'll pick up on the Viridian Solar point. So I guess there's a couple of different pieces of legislation, which are relevant here. The first one of which is a change to Part L of the building regulations, which was implemented in -- sorry, which is enacted in 2021. And it's that piece of legislation, which is currently driving the growth that we're seeing in Viridian Solar. And as Matt said out earlier, we expect around about 80% of new homes to have solar and around about 80%, of the 80%. So about 2/3 of all new homes to have roof integrated solar, and roof integrated solar is the product that we supply. So what we're currently benefiting from is a piece of enacted regulation and it's tracking along the path that we expected it to track along, and it will drive further growth, albeit at a slowing rate in the second half of this year. And then again, into 2026, there will be a continued growth, albeit increasingly modest. The Future Homes Standard will be published in full, assuming the government hits its own deadlines at some point in the autumn. But it announced a couple of -- the government announced a couple of months ago that the Future Homes Standard would mandate solar in all new build housing going forward. And just as a comparator, the Part L of the building regulations that's currently impacting the industry doesn't mandate solar. It just requires increased levels of energy efficiency, which basically can be met by either solar or by an air source heat pump. So we think that not all homes will be built with solar because there are some exemptions, but we think maybe there's an increase from 80% of homes to 90%. So that gives an increase in market size. But the other factor to take into account is that it actually now specifies the amount of solar power that needs to be generated by a house. And it's a calculation which is made by reference to the square footage of the house. And what that means is, as Matt touched on earlier, is that if we assume that there's no increase in power output from panels, then the market size doubles as a result of the Future Homes Standard. Now in reality, there will be some -- I'm sure there will be some improvement in panel output, and therefore, you'll need fewer panels to hit the power output that's required under the standard. But either way, we expect a significant increase in the market size. Now this is not built into any forecast at the moment, and that's because it's relatively new, news because it was only announced a couple of months ago. But the other point is we don't understand what the implementation time line looks like. So when the Future Homes Standard has been announced, we'll be able to look at the implementation guidance, and then we'll be able to start making some estimates about what we think it will mean for the market. And then clearly, it's our job to take share of that market as and when it arises. So I firmly see that this has been a future opportunity for the business, but it's not something which is driving growth today. So the risk of the government changing their mind on it, well, of course, that may happen. But I think if they've already announced it, they decided to front run it ahead of the rest of the Future Homes Standard, that would appear unlikely. I think it's more a concern about how long it takes for this thing to actually become a real regulation and then to actually drive building activity on the ground.