Marshalls plc (MSLH) Earnings Call Transcript & Summary

Okay. Good morning. I'd like to welcome you to Marshalls' half year results, which I'm presenting today. And also today, I have the pleasure of introducing Justin Lockwood, who has joined us in July as our new CFO; and Justin will obviously have the opportunity to talk to you. What I'm going to cover today is the highlights, obviously, of the business, the first 6 months. The financial performance will be covered by Justin. And I'll talk about the market, both the domestic and the public sector and commercial. We'll then talk about and give you an update on our 5-year strategy. And then we'll talk about the ESG leadership that we believe is obviously continuing in the business. There's a summary at the end, and then there's an opportunity for anybody to ask any questions. So if we look at the numbers, the first thing, obviously, is at the moment, we're seeing the sales up some 6%. We're comparing to 2019 and 2020. But the reality from a business point of view and continuity, we think it's more appropriate to focus on the change between '19 and '21 because of obviously the exceptional circumstances of 2020. So despite all the issues, and I'm going to cover those later, occurring in construction we have managed, as I said, to get 6% on the top line, and that's resulted also in 5% in terms of profitability in growth. We've also seen a good performance in terms of our net debt. As you can see, going down to GBP 7.6 million pre-IFRS and also from a point of view from GBP 52 million. So a big reduction from last year, which is exceptional, but even from 2019. So the operating profit has come through as we can see in terms of obviously from the EPS has come through. And what that's resulted in is what we talked about today is the dividend coming forward, an interim dividend of some 4.7p. If you look at the key parts, obviously, of 2021, the first half, we've seen the sales go up and obviously, the revenue. The operating margin has returned to the business in 2019, which we see as really positive despite a lot of cost headwinds and obviously difficulties as well with COVID. The profit before tax, as we said, is going forward, and we've maintained a very strong balance sheet, which gives us a lot of opportunities, and we'll talk again, Justin would about our capital allocation policy, which has obviously been consistent. In this critical time, as we've had challenges, obviously, in the marketplace, we've been able to leverage our manufacturing network and the logistics efficiency, particularly in using our own trucks, and that has allowed us to see growth in a market which has obviously got a number of issues. The capital investment remains very strong from our point of view, and that is going forward. We said we'd spend GBP 30 million this year. The key part of that is the dual block plant, which is making up GBP 20 million over 2 years. I mean our St. Ives facility and that is still well on track to go forward. The order books have been very, very good in terms of, obviously, they underpin our second half expectations. The priority throughout this has been on health and safety for our employees, for our customers and suppliers and making sure that we're able to operate all of our facilities in a safe way, now more and more, obviously, for the offices. The focus from an ESG point of view remains. I mean, ESG is not new to Marshalls. We've been focusing on this for a number of years, but we believe we have leadership in this area, and I'll talk about the priorities of that. And I mentioned, obviously, the dividend. And the end result of all of those things is after the first 6 months. What we're seeing is the Board has got more confident, and we're seeing another raising of our expectations, which I think is the third this year for '21 and also for '22. So with that, I'll pass across to Justin, who's going to cover the financial results.

Thank you, Martyn. It's great to be back in the business and good morning, everybody. So I'm going to talk through the financial results for the first half of the year. And I'm going to start with the profit and cash flow performance. I'll then move on from that and talk about the strength of our balance sheet and funding position and our capital allocation priorities. I'll then close with an update on the resumption of the interim dividend. I'm pleased to report that the group is now firmly back in growth mode, having recovered all the contraction in revenue reported in 2020 as a result of the pandemic and delivered growth compared to 2019. The chart on the slide sets out a walk between revenue in 2019 and 2020 and then between 2020 and the current year. And from the slide, it's very clear to see the significant impact that COVID had on both our U.K. end markets in 2020. However, that's been followed by 42% growth in the current year. And as a result, revenues in 2021 are 6% ahead of 2019. Now this has been led by a very strong performance in our domestic end market, where consumer confidence to recover to pre-pandemic levels. And with consumers spending more time in their homes, they are deciding to invest the savings accumulated during the pandemic period in home and garden improvement projects. And that's resulted in strong demand for both DIY projects and professional installations. And Marshalls' registered professional installers are reporting order books of 21 weeks and that compares to 17 weeks this time last year. And so taken together, that's resulted in sales growth of 54% compared to 2020 and 17% compared to 2019. We've also seen a strong rebound in demand in our public sector and commercial end markets. And that's been driven by a recovery in residential construction and infrastructure. And as a result, the sales growth in this area was 40% compared to 2020 and a more modest rate of 1% compared to 2019. And we've delivered continued growth in our international sales markets of 11% compared to 2020 and 27% compared to 2019, and that's been driven by a very strong performance by our business in Belgium. Turning now to operating profit and margins. The table on this slide sets out the growth in revenue, operating profit and margins year-on-year. And we've also included for comparative purposes, the results for 2019 to give an indication of the pre-pandemic performance. Now this rebound in operating profit margins has been delivered against a challenging operational backdrop. And that's resulted from our teams being impacted by pandemic, both from the workforce perspective, from raw material supplies and from pressures around the availability of third-party haulage. And this really demonstrates the benefits of our national manufacturing network and operate in our own vehicle fleet for a substantial proportion of our deliveries. Taken together, this has resulted in an operating profit of GBP 41 million. And that's an increase compared to 2019 of 5% and an increase compared to 2020 of around about GBP 37 million for that year was very, very significantly impacted by the pandemic. I'm also pleased to report a recovery in margins to 13.8%, and that's broadly speaking, at the same level as 2019. So the growth in profitability in 2021 compared to 2019 has been driven from a combination of higher selling prices, and the cost savings arising from the restructuring process that was undertaken in 2020. And that's been largely offset by the incremental cost of operating within the COVID environment and raw material price inflation. Now this slide sets out the P&L account from operating profit through to earnings. And the first point to draw out here is as expected, there's been no repeat of the exceptional charge that was booked in 2020. And as a result, the growth in operating profit has spread through to a 5% growth in PBT compared to 2019, and and a very, very significant uplift in profitability compared to the loss reported in 2020. The effective tax rate is a little over 21% for the period, and that reflects an incremental deferred tax charge associated with the government's decision to increase the rate of corporation tax to 25% from 2023. And that's partially offset by some benefit from the super deduction which has been put in place to encourage capital expenditure by companies in the next couple of years. This higher effective tax rate has had a moderating impact on earnings growth compared to growth in PBT. And as a result, earnings per share has increased by 1% compared to 2019 to 15.3p per share. Turning now to cash flow, where we've also delivered a very strong performance, with cash flow from operating activities materially ahead of both the preceding 2 half year comparative period and that's been driven by growth in profit before tax and active working capital management. Conversion of EBITDA into operating cash flow has also been very robust at 93%. And and that just demonstrates the cash-generative nature of our business. Capital expenditure was GBP 7 million in the first half of the year, and that's relatively modest. And we expect that to ramp up significantly in the second half of the year as we increased spend on the previously announced dual block plant at St Ives. So these factors have resulted in very strong cash flow and a GBP 23 million reduction in net debt during the period and closing net debt was GBP 52 million. And if we look at that number on a pre-IFRS 16 basis, net debt was actually GBP 8 million. So moving on now to funding and liquidity. The group has total bank facilities of GBP 165 million of which GBP 140 million are committed. And following the recent renewal of maturing revolving credit and working capital facilities, we now have a balanced set of maturities which extend out as far as the third quarter of 2025, and details of that are set out in the table on the right-hand side of the slide. We've got very significant headroom against our bank covenants with interest cover a little over 25x compared to a covenant of 2.5x and net debt-to-EBITDA at 0.1x, and that compares to a covenant of less than 3x. And gearing at 16.4% is very modest. And if we look at gearing on a pre-IFRS 16 basis, it's only GBP 2 million or 2%. Headroom against the debt facilities at the half year was GBP 105 million. This slide sets out a range of measures, which are focused on working capital management returns and balance sheet strength. And it's shown for each of the last 4 half year-end period. And from this year that you can see that creditor days, debtor days and inventory turn are all in really good shape, and that reflects the active working capital management that I mentioned a couple of slides ago. Returns have bounced back to almost pre-pandemic levels following the dip in 2020. And gearing, as I mentioned on the last slide, is very low in a historical context. And finally, net assets have strengthened during the period to more than GBP 300 million. So taken together, the strong balance sheet, the highly cash-generative nature of the business model and the headroom against our debt facilities gives us significant capacity to execute our organic growth strategy and to consider selective acquisitions as and when opportunities arise. Turning now to our capital allocation policy, and this is a slide that will be very familiar to all of you. And I can confirm that there have been no changes to this policy during the period. Our first priority remains to invest in our organic growth opportunities. And whilst CapEx was relatively modest in the first half of the year at GBP 7 million, we expect to spend around about GBP 30 million for the year as a whole, and that's driven by incremental expenditure on the dual block plant at St Ives and a variety of other projects. Our second priority is to continue to invest in R&D and new product development, and we expect to spend a similar amount in that area as in previous years. We operate a progressive dividend policy, and we aim to maintain dividend cover of 2x over the business cycle. And we will continue to evaluate potential acquisition opportunities where we see good businesses in attractive markets that add value to both our customer offer and to our shareholders. And finally, we will consider supplementary dividends in a situation where we don't see sufficiently attract or sufficient attractive growth opportunities in the near term. And finally, moving on to dividends. Having paid the full year final dividend last month, the Board has considered the recovery in profit before tax and the strong cash generation during the period alongside the strength of the balance sheet and has decided to reinstate the interim dividend at 4.7p per share. And with that, I'll hand back to Martyn.

Okay. Thank you, Justin. And what I'd like to do now is to carry on looking at the market. It's fair to say, I think the construction market is seeing what's classically known as a V-shape recovery with obviously the recovery volumes coming all the way up almost back to 2019 levels, and very much looking at the infrastructure spend, which is way ahead of what we've seen in previous years. If we look at the actual numbers coming out of the CPA forecast, we can see that last year, it went down by some 14%. And this year is going up to 13.7%. So almost coming back to 2019 levels in the whole construction market. And for us, it shows again, we're ahead of the CPA numbers. If I look forward as well, 2022, we shouldn't lose sight of the fact that it's showing some strong growth expected from 6.3% in '22 and followed on with 2.7% in '23. So at the moment, if you look at it from a construction market point of view, this is probably the best market I can remember in my experience in the construction sector. If I look at the individual parts, we use the ABI lead indicator. This is actually looking at projects because, obviously, our products can run at the end of the project. So we're able to see what is being put into construction now and in 12 months' time, we use as an indicator what that means for us. And at the moment, that's after the last 4 months, running very, very strongly. It's some 9% going forward. We've had challenges in the construction sector. I think it's fair to say in the last few months, one of which has obviously been driven here by it's about 270,000 people less working in this sector. This has been driven by Brexit and obviously with COVID, and that's given some challenges in some of the areas, and those challenges are obviously real and we see in that as we're going through. If you look at the Construction Leadership Council, which I've been on for the last 12 to 15 months, there's been a number of issues in key areas. The top 2 obviously directly affect us. In cement, production has been at normal levels, but demand has been ahead of production. And effectively in bagged cement, that's been a big, big issue. And in some cases, being almost put on allocation with our suppliers has been a challenge. Aggregates, again, production is at normal levels, but there's been fewer demolitions, that's given less recycled aggregates. And again, lead times have become an issue there. And also whole year shortages with the whole thing that's happening with HGV drivers at the moment has been challenging, and both of those have a direct effect potentially in our business. But there's been other areas in roofing. We're long extended lead times, plasterboard and plaster have given long lead times and allocation and timber has been at very low levels and big, big price increases and drainage products driven very much by PVC. And those 4 areas can also affect our business because obviously, if construction is being delayed, then eventually, it works through to our products as well. So it's been an area which has certainly had a number of issues to contest with. Our registered installers, we look at, obviously, the order books at 21.4 weeks, this is a record, the strongest market we've ever seen. 2/3 of them, as you can see, it over 20 weeks with some actually claiming numbers of 6 and 9 months ahead. So very, very strong order book that we see at the moment. What we're also seeing is that order book is putting a lot of pressure on natural stone. Natural stone, as you know, we import. As you can see in this slide, the majority comes from India. This is the whole market and have seen substantial growth to levels never seen before. And this has given challenges. At the moment, it's been challenges in the beginning. It was done through our ports when Brexit came. It's then been about containers and ships availability and now it's about cost. So to give you an idea there, the price escalation, we were paying $800 for a container from India. We're now being quoted over $8,000 for a container. So it's a big, big issue that obviously means, from our point of view, we've had to manage that and make sure that we're obviously covering that from a cost point of view. But the demand, as I said, has been very strong. If you look at the GfK , if the income is over 50,000, which are predominantly our customers, their intention to spend money on gardens and drives are up there with garden being certainly 1 of the biggest areas through people working more from home. And even when people go back to the hybrid version, I think everybody is expecting, there will still be strong demand in that area. We also use this Areva. This is the architects looking forward, and they can see what they're working on. And what you can see here in the private housing index is very, very strong. So architects are doing a lot of work. The whole of the construction sector is positive. And we can see that coming through, and that obviously bodes well for future months and years ahead. And one of the reasons why the domestic, we believe is so strong is the availability of people through savings. People have not been able to go away on holidays, people have spent more time at home, less time going out. And that's resulted in significant household savings, which have been recorded. And this is despite the number of people actually spending money on holidays, which they've kept rolling forward. So we see this as its funding such a strong domestic market. But if you look forward in terms of on the CPA numbers, what we can see is private new housing is very strong, both now and forecast to go forward. I think most major house builders and many of the local ones are building volumes ahead of where they were effectively in 2019. But also that's backed up with infrastructure work, which is again very strong in public and private sector. So again, as I said earlier, very strong construction market, we believe, going forward. But obviously, there's a challenge. And one of the challenges is price. There's a lot of talk in the press about this issue. And yes, we've seen input materials going up. As I said, we've obviously got situation on shipping. And we, this year, quite unusually, from Marshalls' point of view for a second price increase into the market. And in fact, on natural stone, we're now working on surcharges, which have to be applied as each shipment we're making, but those have been passed on and passed through the market. So difficult to manage, but we believe we're doing the right thing in managing them. Obviously, the 5-year strategy helps us a lot of these issues that we are faced, but we think we're focused in the key areas. As we said before, the strategic goal is to become the U.K.'s leading manufacturer in this area, and it's really pinned to 8 key pillars that we've identified. And if we look at those, the first 1 on brand preference for product specification. We've been doing this for many years. As you all know, we invest our time upfront to make sure we are specified on these products, on the specifications before they come to market. And what we're seeing is customers' needs changing. They're looking for more lower embedded carbon and obviously, projects that they're working on, looking at flood prevention and also an interest in human rights and where material is sourced from, so our specification approach is helping us in this area as it moves forward. We've talked about customer centricity. Here, we use something called Net Promoter Score at plus 56, which has actually gone up from plus 50 in the pandemic. And we thought 1 of the issues here was obviously with the demand outweighing supply. In lots of cases, the customers are chasing different products. And we were really pleased with this response that we've got from our customers. And really, I believe it's a highlight of the fact that not only did we not effectively do furlough and claim the money that we paid back, but by not doing furlough, we brought all of our customer service and all of our staffing. We were able to answer customers' queries which many of our competitors couldn't do as they kept people at home and obviously, we came in furlough them. There are logistics excellence. I mean we, as many people know, we deliver about 2/3 of our products on our own vehicles. Never has that been a benefit as it is at the moment. The HGV license is a massive shortage at the moment in the U.K., I've viewed [ 65,00,000 ] drivers less than needed. And from our point of view, having our own fleet means that obviously, we can use the fleet, we can keep delivering throughout. And we only have exposure to the increasing cost of the market in 1/3 of our business. So that's been a very big advantage to us. In the operational excellence, I mean, one of the things we're doing, as we said, is investing in our dual block plant. We think that's really important, and that's well underway, and we'll be the first stage of that would be in this year. Our new focus now is on the next stage is on our flag presses. And what we've come out with you is a new technology, which we think in existing footprint can do double the output. So over the next few years, we'll be replacing much of our assets with this, which gives a big, big productivity statement. Sustainable material supply. I mean, if you take making concrete, it's a bit like making bread as we say you the amount of cement compared to flour you put in. The key from our point of view is can we actually use less cement if it's on allocation, obviously, the less we use, the better from our point of view, but also from a carbon point of view, that helps as well. And also plastic packaging. As you can see here in the pack, it used to be fully covered we've cut down in the amount of plastic we are consuming. Our new product development has always been a differentiator for Marshalls to the competition. And what we're doing more and more is aiming that at the latest things like obviously, outside space has become critical, not just for domestic but also for new build housing, how people can anticipate and sell the houses with better use. Our concrete bricks that we brought in, we've now got concrete brick facing brick and obviously, a much lower carbon footprint than the clay bricks, and that gives us a big advantage we have with our customers. And also looking at where we saw some materials from. We do a lower ethical risk index, which made some of the big contractors are really interested in. So again, using new product development, looking very much at the agenda with carbon and ESG. The digital transformation, we brought out a new website for the new -- for the house builders. They can use this to look at all of the products that we're able to supply and give effectively a house that from a client's point of view, pose them more in. They're looking at -- they've got a very strong market at the moment and there's the potential of getting more price if they can obviously sell more of the asset and outside space becomes that. And also from our point of view, we bring in out of broad the augmented reality app where people are able to look at their own space or also from a point of view of architects and imagine those spaces with our products as you overlay one into the other. You then got the eighth one, which is the emerging businesses. The emerging businesses for us, civils and drainage and obviously, from our point of view, bricks and masonry and landscape protection, all these areas where we've made acquisitions are growing. They're doing very well. They're all underneath the Marshalls' brand, and we see real big opportunities to keep growing that part of our business. From an ESG point of view, I mean, instead, I'd give an update on this, ESG is not something new for Marshalls. We've been doing this for many, many years, but it's become more new, I guess, and more appealing to other people, and there's a lot of talk about this area of the business. Now in simple terms, from our point of view, this is all based on the UN Global Compact. We look at that and we build up, obviously, from our point of view, the different parts of we think are applicable to us. What is we going to do what it is we're not going to do. From Marshalls' point of view, it's been interesting. In the last few weeks, we ended up in the U.K. Sunday Times as the top company in Europe in terms of from a building materials point of view in ESG rated. And interestingly, we also ended up in the Wall Street Journal as #1 in the world. We're still not quite sure how we got that, it wasn't something you applied for. But there is recognition. And obviously, I think we're doing lots of the right things, which, as I said before, are actually embedded in the business. Now the key bit for me on ESG is science-based targets. If you don't do in science-based targets, then I'm not sure how you're actually going to reduce in a way that people can actually understand. So we work with a Carbon Trust. We have all of our products effective via their own carbon footprint, where is still the old building manufacturers done that. So then when we talk about having reductions by 2030, even 40%, we know what we're talking about. We know how it's measured, it's third-party accredited, and this is the future. So if companies aren't doing this, in my opinion, they will end up having to do this. But the key part of that, obviously, from a climate change point of view is understanding how can you mitigate some of the issues? And obviously, how do we produce less carbon? You've got manufacturing, obviously, the facilities, you've got the mix and what you've put into the materials, you've got the science-based targets how to reduce it. And then it's also adapting what we do in the market to avoid disaster risk management, what you can do for flood protection, the infrastructure upgrades that are going on. All of these things you put together effectively to come out with your policy. And what that means for us is lowering the carbon footprint of all of our products. We brought out, as I mentioned earlier, the perforated concrete engineering brick, that effectively gives people an option of having a much lower carbon solution than what they had. And the way you measure this is effectively what you're looking at is the amount of carbon in the production. So what it's actually going into your product in the top case, which we see is 33% lower than the competition. And then when you look at the full lifespan and actually the product going in, then we believe it's even bigger than 49%. Again, all achieved because we measure these and we get them accredited by, as I said, third party. And also when you come to mitigation, you can do this at a very early stage with the architects, as we know, obviously, in city centers, effectively, the heat index is going up, and heat is going up in general. So there's a big focus on through design can we do things that help to reduce this. And obviously from that point of view, we try to get involved with architects, with our products with different solutions, and we think this is the right way to go. Now there's lots of measurements of ESG, as I said earlier, there's different papers are coming out, so we have to follow each one of these. And all of them, we tend to be in the top quartile, either with AAA at the highest within our sector. And I think we will carry on doing all these. They will, in my view, be a consolidation of measurements. So you have to follow all of them. But again, I think there's a consistency throughout them. And what they all feed into is the focus that we say on ESG. As I said, for us, it's doing it the right way. But with that, we're obviously using the Carbon Trust, the fair tax from our point of view, the super brand. I think we obviously have to have all the different approvals would be, yes. But I think what we are working towards is this is part of a whole thing. We're working with charity. We're trying to do the same thing on how we treat our people. Obviously, with the living wage employer. So when you combine it all, I think what we do in an ESG fits very well and I think fits very well in where the market is moving as well. So in summary, I think, for today, we've had a first half which has been strong. We've had growth, obviously, in revenue. I think over a year ago to imagine, we do ahead of 2019 would have been -- I think anybody would have signed up for that. And we're there, despite all the issues, we've been faced with the issues obviously with COVID we're having all the things with people being pinged, that's given a big pressure on the management and obviously, to the workforce. On the other hand, the material potential shortages. It is cost increases, but all of them are being managed, which I think is a critical thing. The ESG, it's been something we've been doing for many years. It's been right throughout the business, and we have the targets there. We'll be measured on those targets, and therefore, we've got to deliver on them. Domestic stands out, the demand is very strong. I believe will continue to do so at record levels of order book, obviously, 21 weeks, but also infrastructure, road and rail, new build housing, water management, all our key markets we've talked about for a number of years are today growing, which is why I'm saying I think the market is very, very good. The capital investment is going to continue from our point of view. We know that that's #1 on our capital allocation policy. The dual block plant is going in, and there's more to follow. We keep coming up with more and more ideas. And obviously, from a new product development, we are turning that all to sustainability and driving innovation, and we think that will be a big differentiator from us and the competition going forward. The balance sheet, as Justin mentioned, is very strong. We've got the flexibility to invest in this business, organically and from an acquisition point of view where those opportunities are. We're talking to some companies, and we have the opportunity, in my view, to do both of those things going forward. We've announced, obviously, the interim dividend following last time when we reintroduced the dividend and that's in line and will grow with earnings growth. And as I said right at the beginning, this has given us the confidence and from the Board's point of view to raise expectations. This is actually, I think, the third time for 2021. And hopefully, obviously, that will flow through into 2022. So that's the end of the formal presentation. I'd like to do now is give you an opportunity to ask whatever questions.

[Operator Instructions] Our first question comes from Chris Millington from Numis.

I've got a few if I may. Let me know if you want me to do them one by one, but otherwise, I'll just go ahead and do them at all. First one is just really about whether there's been any fundamental change in product mix since the pandemic, whether you see particularly the domestic market starting to look at the more higher value products, just in keep with that chart you showed on the demand for natural stone. So that's the first one. The second one is just -- I wonder if you could be a little bit more granular on the performance of the P&C markets. Perhaps mention how new build housing and infrastructure are faring relative to 2019 because obviously, it's lagging domestic a little bit there. I understand there's obviously delays, et cetera, but there's some commentary there. And then the final one, I had really is whether you've got any expectation that raw material prices and availability will ease a bit in the second half of the year? And what your pricing strategy is against the backdrop you've seen and the expectations you have. That's pretty up those.

Okay. Okay. Thanks, Chris. If I kick off and at least the first 2. I think the change in the product mix, I mean, from a domestic point of view, what we are seeing is people are predominantly spending more time and more money on the patio than the driveway, which tends to be the case when people are moving house less often and obviously investing in really the space for themselves. What that's led to is as you intimate, is more and more demand for natural stone. And with that, probably the natural stone itself has been moving towards more the higher value side, which is what we call the 6 sides so on. So it's more like a tail than like the ribbon type that used to be more prevalent. So yes, I think we're seeing that, and I think it's a consequence of people really looking at that outside space. And in many cases, trying to extend, I guess, inside space to outside space. So that's been the move that we've seen most. If the second part, from a new building infrastructure, what we've seen there is really catch up in growth. I mean the numbers sort of talk about 1%. I guess it's sort of like-for-like is sort of 3% really because we reduced our mortars business last year. So the core part of that business, the new build housing that is a bit of a slow start, weather-related, I guess, the beginning of the year in January, February, but that's gone very strong and the order book is positive and those orders are coming through. And obviously, with infrastructure, HS2 kicking off, but particularly developments within city centers as we're seeing like in London with Oxford Street, Battersea and Nine Elms, I think it's giving us a lot more work. So I'm quite confident that, that part of the business is actually going to keep growing, and the numbers should get better. I think on the raw material prices, I think is probably a couple of answers there. Some of the material prices we've seen move because of carbon taxes on cement, and that's probably permanent. Certainly, the shipment costs that we talked about in containers, I have to believe that it's going to come back a little bit as containers become more available. But that is taking some time, and that inflation has been large. And what it's led to is as you say, on price increase, we've had to have 2 price increases this year which is unusual and a general price increase. Obviously, we do dynamic pricing on many of our direct-to-site orders. And we have had to change really the process for bringing in natural stone so that all customers now are signing up effectively to a quotation for the material. But also accepting there may be an additional invoice coming for the cost of shipment, which, to be honest, you're not going to know until you come to ship. So there has been some changes, but I am confident that our pricing strategy will cover all of those eventualities.

Our next question comes from Sam Cullen from Peel Hunt.

Two questions really, well, 3 probably. On the price front, very impressive but through this year. What sort of pushback if any have you seen from customers? And secondly, leading on to that would you expect margin to move forward again in '22 and beyond? And kind of what's the medium-term vision for margins for the group? And the second question really, I guess, is related to the capital allocation point. Made the point you're in discussions with some businesses. Can you give us an idea of sort of what level of kind of excess cash you'd be happy running with kind of wait for the right deals to come along?

Okay. So I think if you take it from a pricing point of view, if you take the construction market today, I mean, the first thing I think people saw was plasterboard, followed very quickly by timber, followed by paint and so a number of materials have become ones case, usually on allocation and have seen price inflation. So I think in reality, when we came with our price increase the second time around, the market was in a different place. So everybody understands that there's real inflation because of demand driven. So this isn't because of underperformance of output. And therefore, the market is really having to take those price increases. Obviously, you always have to bid. But in simple terms, if we don't get the price increase, we're effectively not prepared to take the orders. So it went through and it went through even retrospectively. What I mean by that is it was for orders dispatched after the due date, not the new orders placed. So I think there's recognition today that the market has to have these cost increases, otherwise, people are going to be facing losses. Obviously, that gets passed through the chain of merchants, contractors and eventually to the end users. So I think there is that expectation that inflation is happening in building materials. I think in terms of our margins, if you take it, looking forward, everything we're doing in the 5-year plan is, in our view, margin enhancing. And obviously, we've got the margins back to where they were in '19, but that is despite all of the on costs of COVID. I mean we, like many other companies, been working from home. But for the factories and the logistics, there's no such thing as working from home. They're having to work at the workplace. So as they've got pinged in many cases. We've acted to bring in extra 10% or 15% more labor to cover that on over time and obviously understanding the costs. So when that comes back out to the business, which obviously, we plan on doing, and that should also be positive for margins. So I'm still confident the margin can go further. On the excess cash, I will let Justin talk, I think...

Yes. So I guess it's probably -- it's a dynamic situation. I guess the one thing to say is that we've got no intention of hanging on to the shareholders' cash. If we don't have opportunities that exist within a reasonable time frame. But equally, we'll be looking at the numbers and looking at the context of what our organic investment plans are, Martyn touched on some of those in his section of the presentation and where we get to with M&A and how likely that looks to conclude at any point in time. So it's a dynamic situation, but we certainly won't be hanging on to shareholders' money in the longer term if we don't have use for it.

We do think there's going to be opportunities to spend our money. And my feedback always from the shareholders is they prefer us to invest it.

[Operator Instructions] As there are no further questions in the queue, I would like to hand the call back over to Martyn for any additional or closing remarks.

Okay. Well, thank you very much. I mean, obviously, we're continuing in this slightly strange way of doing the presentation. And perhaps in the future, we'll return back to some in person. But obviously, thank everybody for being on the call. We've got a full schedule for the next few days in terms of meeting, obviously, with the shareholders and look forward to sharing the story as we're going forward. As we said at the beginning, we think it's good results, very positive market, and we think there's more to come. So thank you very much for your time.

Thank you.