Marshalls plc (MSLH) Earnings Call Transcript & Summary

Okay, and good morning, and I'm just going to say good morning, ladies and gentlemen, but I'm faced in the room with gentlemen, but there may be some ladies online. And welcome to Marshalls' 2022 results presentation. 2022 saw us make a transformational acquisition of the Marley Group. And we've seen that group has come into Marshalls. And from our point of view, we're really pleased with what we've done. We'll obviously talk about that in some detail in a second. Despite the difficult market, we believe we've performed well. We've come out with record numbers, and we certainly believe we're well placed for when the market starts to recover, which we'll talk about, too. The plan today is I'm going to talk about the highlights, obviously, of the year, what's happened. Then Justin is going to talk through the financial performance. I'll then come back on to talk about the market, the outlook, what we're doing strategically, obviously give an update on ESG, which we still see is absolutely critical to the business. After the summary and outlook, there's an opportunity to take questions. And today, we'll take questions both from within the room, but also for those people who are online. If we look at the numbers, first of all, what we can see is from the financial point of view, the revenues were up some 22%. Now these numbers include 8 months trading of Marley. And obviously, we're aware of that. But still with that, going forward, we've had a 31% increase in operating profit, 23% increase in PBT. As you can see, the EPS is up 7%, even with more shares which have been issued, and the full year dividend coming ended up at 9%. All of those numbers are records for the Marshalls Group. So from our point of view, we see that performance is very positive. And what you can also see is the net debt has come down to GBP 190 million. That is 1.3x EBITDA from a pre-IFRS 16 point of view. And we see that as really positive. And what we believe we want to get to, and we'll talk about today, is how we think we can get that down relatively quickly certainly by the end of next year, if not sooner, to below 1x where the group has always gone before. If you look from a point of view of the highlights of 2022, the first point, as I said at the beginning, is the acquisition of Marley. Marley is the market-leading pitch roof manufacturer in the U.K. And from our point of view, obviously, they've come on board and also look really, really positive. We've also seen record performances. We bought 2 businesses prior to Marley and we bought CPM, and we've bought Edenhall, 1 in drainage and 1 in concrete bricks. And in 2022, they had the best operating years ever in terms of sales and profit. And we see that as a real positive. What that means is not only we bought the business to add to you, but we're also adding to their performance. The Brick business, in particular, which we bought, which is a slow market -- low market share in the U.K. of some 4% when we bought it, has grown to 6%. And last year, the facing bricks, which are the bricks which we really try to make the impact on, 10 of the top 12 housebuilders built houses using our facing bricks. If you go back to when we bought the business, that was only 1 or 2 of the top 12. So the big improvements being made and going through. And in fact, the other 2 we believe we'll be making houses this year with the 2. As I say, from our point of view, we've seen a record performance, obviously, against the weak performance in the Marshalls landscape products, which I'll come on to. What we have seen as well is the dual block plant being installed in our St. Ives factory in Cambridge. And I've got a short video today to show you about that. We think this is a really exciting development. It underpins our new product development going forward. And from our point of view, we think that will give us a big opportunity to grow our market share and bring products to the market hasn't seen before. Obviously, there were challenges in 2022, which we've had to overcome and operate within. The first one is inflation coming back double digit in the U.K., which has not been seen for a number of years. Energy prices have been feeding in, obviously from an energy price point of view. What that means is that fueled things like our cement manufacturers to have to increase prices. And what you've seen is normally, we'd have an increase in costs once a year, that would normally need an increase in prices once a year. What we saw last year was numerous increases, which put pressure on, obviously, in the marketplace of how that goes through. We've also seen labor shortages for the first time that I can remember in my time in the company in our factories and facilities, it was more difficult to recruit people than what we've seen before. And that was obviously then has impact in terms of installation and the rest. Interest rate raises. And obviously, when the government had the turmoil with the budget, which there's another one today, which hopefully won't have the same effect. Obviously, we saw that have an effect on consumer confidence. That has an effect in interest rates. And when that happens, people decide not to do anything if they don't have to. And we saw that, particularly from our point of view in the domestic landscaping business. We have to acknowledge, obviously, that's a discretionary spend. If people are concerned, people are panicking, they stop spending the money, and we saw that. We saw the volumes come back by 1/3, and this is actually following a year of nearly 20% growth the previous year coming out of the COVID. So it was a big change. It wasn't necessarily seen, and that gave obviously issues in terms of managing from a capacity, from a cost point of view. The big message from my point of view, and I'm not saying exactly when, but that market will come back. I mean that is a very unusual drop. The market performance will come. The top level of the market actually stayed up there. It was more the medium and the lower entry point, where people obviously were seeing the cost increases, the energy increases, which had the biggest effect. But I think from that point of view, that has a big impact that we'll talk about. If you talk from the business, I mean, the graphs and the idea of the pie charts to show you that if you go back to Marshalls, as it was pre our acquisition strategy and diversification, then that impact would have been much bigger. It used to represent 37% of our turnover. It's down now below 20% of our turnover. So the impact wasn't as great as we've diversified into other areas, which is obviously important from our point of view. But input price inflation was recovered through price. So we didn't lose on the costing, but we have to acknowledge that it has an effect on demand. The ultimate from our point of view is stone. Stone, which we import and sell in the market, which is about 1/3 of our domestic supply, it effectively went up 100% in price to the end consumer, and that was the shipping costs became more than the actual product cost. We passed that on. We had the 100%, but effectively, we saw over 40% reduction in demand. So you can't say that it doesn't affect demand. It obviously does. The positive thing is where we are today is the stone prices are actually back to where they were. So the container prices have come all the way back down, and that will manage it, and I do believe we'll see a rebound in some of those areas. And obviously, the acquisition of Marley. I mean it's a transformational acquisition from our point of view, and we see that as absolutely really positive. And Marley, what does that then do to our mix of business? I mean, there'll be no change in our exposure in housebuilding. Marley is about 14%, same as the Marshalls group. What is then is our biggest exposure in the commercial sector, particularly because of the social housing work, it does and less in the RMI. And it's also important to understand in the RMI, where they're coming from, from their point of view, is repair and maintenance. It's not the case, obviously, that if your roof is leaking, if your roof is failing, you can't ignore it. So it's not as discretionary spend of say landscaping is. So from that point of view, again, it's more resilient, and that's obviously a big positive. The significant solar PV last year, as we thought was coming. Part L legislation came through to put pressure and now new housebuilders from June, they've got 12 months effectively until this June, they've got to build houses with energy efficiency schemes in them. It's going to be solar panels, or it's going to be heat pumps. If you take Scotland, which is a number of years ahead of us, the result has been solar panels where nearly 85%, 90% of houses are now built with those. If you take in England and Wales, it's been historically 8% or 9%. So a significant increase is going to come in that area. And this business, we will see significant growth in. Last year, it was about GBP 28 million. I see that it will get up to GBP 100 million in a relatively short period. The integration tracking is in line, as we said at the time when we bought the business. We thought there were opportunities within operations. Simon Bourne is here today. He's our COO, he's taking responsibility for all their facilities. And what we're seeing there is an opportunity, focusing on the people, plant and the process, exactly what we've done before in Marshalls. We've seen early results which are positive. The efficiencies are going up. We believe we can get efficiency improvements, which is cost savings, and we can release potential extra capacity if it's needed for the products there. We're now working on logistics and purchasing in those areas. Certainly, from our point of view, we see opportunities. And the other way around as well, we're trying to use Marshalls lead in ESG credentials in these areas. We're trying to make sure we got the products from Marley understanding what we can do, how we reduce the carbon and now we've rolled that across from their point of view. The big, big issue from my point of view and the big emphasis, I guess, in our presentations, is we believe the group is definitely more resilient and a better group with the acquisition of Marley. Marley has joined Marshalls on a permanent basis. It's not the case of buying it to look as an opportunity, and we think that's added there. And from our point of view, we're very happy with the way it's been trading and the way it is currently trading. I'll just hand over to Justin to talk about the financial numbers.

Thank you, Martyn, and good morning, everybody. So I'm going to talk through our financial performance for 2022. I'll then give you an update on our funding and liquidity position, some comments on the balance sheet, and then I'll explain some modest changes that we've made to our capital allocation policy before closing on our final dividend proposal. So turning to revenues. This chart sets out a revenue bridge between 2021 and 2022, and it's split between our reporting segment. Overall, as Martyn touched on earlier, revenue growth was 22% for the year. And that includes the benefit of Marley. On a like-for-like business, revenue growth was much more modest at 1%. And within that, we saw strong growth within the Building Products division of 17% and GBP 132 million contribution from Marley. But within the Landscape Products business, we saw a 7% contraction in revenues. Okay. Turning now to operating profit. So the chart on this slide sets out the component parts of the 31% increase in operating profit, and we closed the year at GBP 101.1 million. Now within that, again, Marshalls Building Products delivered a very strong improvement in its profitability of GBP 7.2 million. We had a GBP 34.4 million contribution from Marley in the post-acquisition period. But that was partially offset by Marshalls' Landscape Products, where we saw operating profit reduced by GBP 17.1 million, so a weaker performance there. If we look at the margin performance, margins overall for the group increased by 1 percentage point to 14.1%. And that reflects some margin improvement in Building Products, the benefit of Marley's structurally higher margins, and that was partially offset by a weaker margin performance in Marshalls' Landscape products. Now I think it's worth drawing out here that these results are stated after a number of adjusting items. And it's done that way in order to show the underlying performance of the group. And the Board uses underlying numbers in order to assess the performance of the business and when it comes to making dividend payments. The total adjusting items during the year were GBP 52.3 million. And they come in through 3 buckets: a series of charges related to the acquisition of Marley; the amortization of intangible assets that appeared on acquisitions, so things like customer lists and brands; and then finally, some restructuring and impairment charges. Now the important thing here is that when we look at this from a cash perspective, these adjusting items of GBP 17.4 million. So a lot of accounting charge in there. The cash element of GBP 17.4 million. And that principally relates to charges associated with the Marley acquisition. So adviser fees of about GBP 15 million, and then there's about GBP 2.5 million worth of redundancy costs from an exercise that we did in the second half of the year. There's more detail on those items on Page 42 of the deck if you're interested in understanding what they are. So I'll now move on to more information on each of the operating segments. So this slide sets out revenue, operating profit and operating margin for Marshalls Landscape Products. And as a reminder, that comprises our commercial and domestic landscaping businesses, landscape protection and our international businesses. And this segment encountered some pretty tough trading conditions during the year with weak private housing RMI activity and product price inflation that impacted customer demand for our products across all end markets. And against this backdrop, revenue is contracted by 7%. And that was principally driven by a reduction in domestic volumes of around about 1/3. And that reflects reductions in real incomes and depressed consumer confidence and the reprioritization of household expenditure. That reduction in volume was partially offset though by the price increases that were put in place in order to recover input cost inflation. Looking at the operating profit. As mentioned earlier, that reduced by GBP 17.1 million to GBP 45.3 million. And that reflects the lower volumes and the impact that they had both on gross profit and on the manufacturing efficiency of our factories. And that impact was more pronounced in the second half of the year as we saw a more significant reduction in volumes and we took actions in order to reduce production in order to manage inventory levels. We also took decisive action to ensure that we had a balance between our manufacturing capacity and cost base and the reduced levels of market demand. And that resulted in a restructuring exercise that took GBP 10 million of costs out of the business from the start of 2023. Overall, these factors resulted in some compression in operating margins of 3.2 percentage points to 11.5%. But looking into the medium term, we expect to see margins in this segment increased to at least 15%. And that's on the basis of volumes recovering and the very significant operational leverage impact that will have on this division. So moving on now to Marshalls Building Products, which comprises our Civils and Drainage, Bricks and Masonry, Mortars and Screeds and Aggregates businesses. And the market backdrop for this segment was actually very positive during the year with good growth in new build housing and in commercial infrastructure. And it doesn't really have a great deal of exposure to private housing RMI. And we saw particularly good demand for our concrete bricks and our mortars. Although we did see some slowing of activity and demand in our Drainage business in the fourth quarter of last year, and that's because of the very strong correlation it has to new housing starts. Overall, this resulted in revenue growth of 17% for the year. Operating profit increased by GBP 7.2 million to GBP 26.8 million in the year, and that reflects some very good management of inflationary pressures. We've also a good control of the overhead base, which increased at a much slower rate than the revenue growth. And overall, operating margins improved by 2 percentage points to 13.9%. Now moving on to Marley, which traded very well in the post-acquisition period and contributed GBP 132 million of revenues, which represents 6% growth on a comparative basis. And that was driven by a particularly strong performance by the integrated solar business. And that's reflective of the good market backdrop that we saw in both new build housing and commercial infrastructure and the factors Martyn touched on earlier that the private housing RMI business of this segment is actually much less discretionary than, say, landscape products. Segment operating profit for the year was GBP 34.4 million, and that's a 1% increase year-on-year. So there's a slight compression of margins that we've seen year-on-year, and that reflects a higher proportion of the slightly lower-margin solar products in the sales mix. Overall, segment operating margin was 26%. And in the medium term, we expect that to trade in the range of 20% to 25% as we see a greater mix of integrated solar in the overall revenue pool. So this slide now sets out the profit and loss account from operating profit through to earnings. And the first point to draw on here is the profit before tax increased by 23%, and that's slightly lower than the rate of operating profit growth of 31%. And that reflects the incremental finance costs associated with the debt that we took on to partially fund the Marley acquisition. It's worth just pointing out at this stage that around 70% of the term loan was hedged through a series of instruments that we put in place in June of last year, and it's only at a rate of about 3%. And that's starting to give us some protection against the increase in base rates that we've already seen, and we'll continue to do so going forward. The effective tax rate for the period was 18.9%, and that's pretty much in line with the U.K. headline rate of 19%. It's a little bit lower than the effective tax rate last year. As a consequence, profit after tax increased by 26% compared to the 23% increase in PBT. But when we get down to EPS, we saw an increase of 7%, and that reflects the higher profit after tax, but obviously, the increase in number of shares that we now have following the Marley acquisition. Turning now to cash flow. We delivered a good cash conversion performance during the year with 91% of EBITDA being converted into operating cash flow. And what that represents is a very strong performance in the second half of the year, which has been driven by 2 factors: Firstly, an increased focus on inventories; and secondly, the benefits of our usual working capital cycle that moves on a seasonal basis. Capital expenditure was GBP 28.7 million. And that was in line with the guidance that we gave at the half year. And the principal area of expenditure was the dual block plant. And as Martyn mentioned, we'll show you a video of that in operation shortly. We've got very significant acquisition-related cash flows of GBP 196 million, and that represents the cash paid for the business, less the equity raise during the year. Dividends increased by GBP 21 million, and that reflects higher dividends per share and the increase in number of shares in issue, together with the fact that the final dividend for 2020, which was paid in 2021, was actually relatively modest. And overall, net debt increased by GBP 196 million, which is effectively the debt that was taken on in order to fund the acquisition. Okay. Now moving to funding and liquidity. So when we put the capital structure in place for the acquisition of Marley, we did that on a conservative basis, and we funded over 60% of the consideration through the issuance of equity. We also drew down on a GBP 210 million term loan and took the opportunity to replace some existing bilateral revolving credit facilities with a syndicated revolving credit facility of GBP 160 million. So the total debt facilities of GBP 370 million, and they have a 4-year term. Net debt at the end of the year was GBP 236.6 million, but on a pre-IFRS 16 basis, was GBP 191 million. We've got very significant headroom against our covenants, with interest cover of 16x against a covenant minimum of 3x and net debt to EBITDA of 1.35x against the covenant maximum of 3x. Gearing was relatively modest at 35.8%, and we've got very significant headroom of GBP 120 million against our bank facilities. Okay. This slide sets out a variety of measures, which are focused on a combination of working capital, management, returns and balance sheet strength. And you can see by looking at the debtor days, creditor days and inventory turn, they're all in good shape in a historical context. Return on capital employed was 13.3%, and that's lower than the performance for last year, which is reflective of the weakness in Marshalls' Landscape Products, but also the impact of the Marley deal on that particular metric. And you can see the overall net assets increased to GBP 661 million, largely as a result of the equity issuance. Now you should remember, the Marshalls businesses, and clearly, Marley, are all cash generative, as I touched on earlier. And we expect that organic cash generation to be used to drive rapid deleveraging of the balance sheet. And indeed, we're targeting pre-IFRS 16 net leverage will reduce to around about 1x by December 2024. And that's an organic cash flow. There may will also be opportunities to release capital from sites that we're no longer using, and we've got an active program of evaluating that at the moment. So now moving on to capital allocation. And we've made a modest change to our capital allocation policy during the year. Whilst the Board continues to be comfortable with the post-transaction leverage, in the context of the challenging macro environment, we've chosen to prioritize deleveraging over any significant M&A activity until net debt to EBITDA has been reduced to around about 1x. So within the policy, our first priority continues to be to invest in organic growth opportunities. And we expect capital investment this year to be around about GBP 25 million, but that to reduce to around about GBP 20 million next year. And that's because we'll complete the spend on the dual block plant, which is GBP 4 million or GBP 5 million in the current year. We'll continue to invest in R&D and new product developments. And the real focus there will be on low-carbon products, and Martyn will touch on some of that in detail a little later. There's no change to our dividend policy, which is to maintain cover of 2x adjusted earnings. And indeed, our final dividend proposal for the year of 9.9p, which will result in a full year dividend of 15.6p, is in line with that policy. I touched on earlier that we'll look to prioritize deleveraging, but we will continue to look at bolt-on acquisition opportunities where we see good businesses in markets -- that will provide additional products to our product range, and we'll deliver good returns for our shareholders. But there will be no significant M&A until that leverage is down at 1x EBITDA. With that, I'll hand back to Martyn.

Thanks, Justin. What I'd like to do now is talk about, obviously, the market, the market that we're obviously operating in. We use the CPA, and the CPA have come out with their obviously winter forecast. And what it's shown is a 4.7% reduction in construction for 2023 before a small recovery in 2024. And within the numbers, what it's showing is first half will be harder and the second half will start to show some recovery. And what we're seeing and what we understand, we believe it is in the right ballpark. If you look within that, obviously, the big debate and discussion is about new housebuilding. The forecast at the moment is an 11% reduction in new houses being built in 2023. And obviously, from our point of view, we've had to use some number, and that's the number we've been using in terms of going forward. Now the big thing here with housebuilding is, to me, there is a short-term issue, which has come about effectively by interest rate rises, by obviously inflation, both of which are forecast to come down this year. And it's anticipated they'll come down fairly quickly. If you look at, obviously, the chart on the right-hand side, you can see housebuilding. Every single target ever being set in the U.K., we've missed by some distance. So there's still a chronic undersupply of housebuilding. And I believe that once the market corrects itself, which it will be on its way to do in this year, then we will see a recovery in this area quite rapidly. Obviously, for the commercial and infrastructure point of view, the CPA, you see in this year, a slight decline. As you know, in previous years, we tend to use this ABI contracted value awards. So these are contracts already awarded. We tend to look 12 months ahead as to what that is, and we see about 3% positive in this area. And I think in these factors, we are seeing today, if you take in London, you've got Battersea, you've got Nine Elms, you've got Sloane Square. You've got the redevelopment of Birmingham and the back of HS2. You've got from our point of view with Marley, the social housing contracts that are coming forward. Commercial is today still a very robust area and has signs of positive growth. And we all know that the U.K.'s infrastructure plans could be many, many decades before we correct all of those. Obviously, private housing RMI, from that point of view, is further decline is forecast of about 9% by the CPA. I think in some of this, we saw this last year. I mean, the landscaping, because it's discretionary, would be at the first forefront. People, when they start panicking and the first decision is not to spend money. We use the register. Obviously, if the register is at the top end of our, what I'd call a high-end in terms of, installation and these are professional installers whose -- yes, it's come down slightly, but it's still above where the historical numbers have been pre-COVID. So again, this is still a heavy demand. People who want to spend the money and want to go ahead. If anything, it's been labor holding that back. And that still remains positive. On the graph on the right-hand side is talking about the age profile of the U.K. housing stock, 65% of the houses are from 1974 or before. If you take it from a Marley point of view, concrete roofs are due to last about 50 years. So we believe there's a massive pent-up demand that's going to come through in the next few years of work in these areas. So again, we think as the housing stock is aging, the demand is only going to go one way. If you look from strategy and what is it that we're obviously focusing on. First of all, at the group level, obviously, we've got 2 market-leading brands, now, Marshalls and Marley. So we continue to invest in those. Those are the main brands that people in the specification world understand. The focus from both businesses, and this was one of the attractions in the acquisition, is they both focus on specification selling. What is that? That means getting on any job before it comes out for tender, before it comes out of the contract, working with specified developers, giving them solutions, which obviously carry our brand, which is very, very important to us. Be easy to deal with and enhance customer service. One lesson that Marshalls is learning from Marley is they've got a much more simplified offer to the marketplace. What does a simplified offer mean? Simpler for the customer, yes. But there's a lot less people doing customer order and there's a lot less people doing accounts receivable because the business is a lot simpler. So we're trying to take those lessons and apply them back into Marshalls and doing that. Obviously, from an ESG point of view, ESG is growing, ESG, I would say, for many years, we've been doing and there hasn't been the direct commercial benefits, but that is coming. Demand is definitely there. Housebuilders have been focused on energy. That's why solar panel, heat pumps have been a focus of Part L. The next one is going to be the embedded carbon in the house. And that's going to change the discussion completely, and we believe we'll be at the forefront of that. But also maintaining operational flexibility and rightsizing. I mean last year, we saw a drop that people hadn't forecast. We had to take action in a very short period. We mothballed one of our facilities in Sandy. That was a GBP 10 million cost saving. And we've got to get faster at doing that. And every business, I think, has to respond to the marketplaces. I'm not sure how many years you stand you're talking about unusual circumstances. It's been Brexit, it's been COVID, it's been a recession. So I think it's becoming the norm. And obviously, as we said for the group, deleveraging the balance sheet is absolutely critical and important, but it's not phasing us. From our point of view, it will happen in a very natural way, and that was the attraction from our point of view and doing the acquisition in the first place. If you look within the groups, obviously, the Marshalls landscape products is still a critical part of this business. And as Justin said, getting it back to 15% operating margin remains a real goal for us and very achievable in my view. The full commissioning of the dual block plant is absolutely critical for us. In the new products, we could be able to offer. The new products, the market can't buy today, the market wants these products, and we can produce them in a very cost-efficient way, which I'm going to show you a video of in a minute. The improving customer service, as we said, not only is it a case of simplifying, but also automated. In this industry, you'd be genuinely surprised at how many times we're entering orders physically, not enter them, obviously, electronically from the customer, and we're trying to change that and change that dramatically. The digital strategy I talked about in the past in landscaping of Dropship is now in with the major merchants, both national and independents. We're looking at it. What this is in simple case is if you go online to looking for a product for Marshalls to date, before this, you'd effectively have been looking at the stock in the yard of the branch that you were nearest to when you went online, not even looking across the network. What this allows you to do is to see the whole range of Marshalls, whether it's in stock or not in stock. If it's not in stock, we will deliver it anywhere in the country. And from our point of view, it's a different experience for the person buying digitally. And I think once they've had that experience, they won't go back to the other way. And this is a big breakthrough. And remember, we are unique in this. Other people can't do this because they haven't got the distribution spots that we've got. We can get anywhere in the U.K. within 2 hours from our facilities in the way we've set it up, other people would have to ship many, many miles and hours. And obviously, from our point of view, the flexibility of the cost base. As we've said, we have to match capacity, and Simon did that very efficiently at the end of last year, and we have to be flexible. We've taken the cost base down, but we haven't actually taken the capacity completely out that the plant is mothballed. There are 4 block plants sitting there that could be fired back up to make concrete to make bricks, and that is really important. And obviously, the delivery and the cost benefit from a new mix design, we've now got 2 factories. We will have 5 factories soon, which we've invested in, which can manufacture products effectively with less cement in it, so less carbon in it, to our own unique designs. It's a fantastic investment. It pays back in less than 2 years, and we will roll that out to all of our facilities. What I'd like to do now is just to show you a video, a short video of the facility that we've just brought online in St. Ives. [Presentation]

So the dual block plant is now operational, and we're certainly planning to do in customers and potentially investors to have a look at this. And I think it's a real game changer for us in the business. The Building Products. Obviously, we talk about low carbon and one of the biggest benefits that we've got as a product is our concrete facing bricks. The concrete facing bricks has 50% of the carbon effectively of a clay brick as is analyzed from cradle degree. If you look at that so far, our growth of Bricks has really been a case of being competitive and being pricing. The carbon game has not really been played, but it will be. And when that comes, there's a massive benefit to the housebuilder that's going to come from this. We're also looking at carbon sequestration. This is how you inject or introduce carbon dioxide into the process, effectively to remove carbon. So what you're doing is you're speeding up the curing. You're effectively getting to the point where you can take out the negativity of carbon that comes from cement. And from our point of view, we've put it into 1 factory at the moment, Grove in South Wales. That's operational. We'll be looking that in 2023, and that's to further reduce the carbon content. Again, customer service, it plays to this business the same as it did to the other one. And certainly, here, in terms of the operational demand, it's a different idea to what we're doing, obviously, in landscaping. Here, the issue is as we grow our brick business, and we're very confident we'll keep growing it, then we can convert assets we've got to date to make bricks. As I said before, we've got 4 block plants available, all of which could be converted to make bricks if we want to, which would be the equivalent -- more equivalent of actually manufacturing more bricks than we currently make. So from that point of view, there's no big capital-intensive investment that's needed to do this. So I think going forward, we have the demand profile ready to go. Also, in our water management offer, in water management, we're looking there, where we can enhance the product offering that we've got. We offer in, obviously, from a drainage point of view, but there are some key products that we think we can manufacture that today we're not supplying. So the NPD is quite critical for that business, too. If you look from the roofing products point of view, the key here, and this became apparent when we were looking at buying this business, is Marley do not just make roof tiles. They sell roofs. And effectively, they're unique in this position. They're the only ones who have the battens, the only ones who have the solar panels and the only ones can offer the full integrated solution, and they can offer that with 15-year warranties. So from a social housing point of view, an RMI point of view or even a housebuilder's point of view, that's a big selling point. And as they've done that, they've seen a profitable growth because obviously, that gives confidence to the consumer. And they've been doing that, obviously, the next new panel in next building products, so that is solar panels. With Part L legislation, as I said earlier, the potential here is very, very big. And the key from our point of view is it's not just coming in new build, but social housing. And now looking at this, social housing would have sort of projects where you'd renewal have roofs so many years, 50 years. That's been shortened because they know by doing this, they can give energy efficiency to the tenants. So the demand here is going to be very, very big. We're at a great place in this. We are developing and training at the moment our roofers to do this instead of just electricians. And we think this is going to be a real significant growth area, as I said, for the business going forward. Obviously, during the production facilities, there is opportunities as we identified. We believe we can identify those and free them up. That gives us 2 benefits. In the short term, the cost benefit, in the medium term, capacity benefit from existing sites. And we think that's a real big opportunity. And from an ESG point of view, there's risks and opportunities we use in Marshalls experience in this area on both sourcing and obviously from production. We think that can give big benefits in this, too. ESG, as we said before, ESG is not new, and it's not new to Marshalls. We've been doing this for 22, 23 years. We've started with sourcing. We're looking at carbon. We moved on from our point of view in terms of tax and what we've done in fair pay. We'll be the first to do science-based targets. And we're now the first in terms of, from our point of view, doing the TCFD reporting. So we've been leading this way for many years. It's not a new thing for us. If you take in now, what does that mean? We've committed, obviously, to carbon reduction. We've looked from a point of view. We're working with the UN right from the beginning, really in understanding what we're doing. But we try to explain it internally, it is to do the right thing. Why would you not do it? What we've seen in that key is leadership. What I believe we're going to see more of this commercial benefits that's going to come through from that point of view. What does that mean? We're still going to go for net zero. So from Marshalls' point of view, we committed to do that by 2030. Obviously, that's going to be revisited with Marley, which is further beginning, but the same commitment is there. The Marshalls journey, we achieved the carbon reduction this year. We see health and safety is absolutely critical for obviously, for our people. The [indiscernible] is obviously growing and is important, human rights. And from our point of view, it's about science-based targets, driving carbon reduction. But my view is this is coming and it's only going to grow in importance and it's going to have a big significant effect in our industry. And the one phase is going to come quicker than others in manufacturing is now when you produce a product, you meant to produce an EPD, an environmental product declaration, that says how much carbon is in it. And you can't just make this up. There's going to be third-party accredited. And these are given to all contractors, manufacturers, installers, architects when they do in design, so they understand what they're doing. When we've done these measurements, we can look it against competitors. The product here is a landscaping product with 40% lower than the competition. And that's a mixture of getting a lower design because we use less cement in our designs. And also, we have a big advantage geographically by being closer to the customers because obviously, you're putting carbon in when you're shipping, concrete is a heavy product. And also from our point of view, things like bricks. So this will grow, I think you'll hear a lot more about EPDs as obviously, we go forward in the construction industry. So in terms of summary and outlook, if you look at it, sort of starting, I guess, from the bottom up, we believe this group is very well positioned. Obviously, for the markets, at the moment, in the difficulty, I think those markets difficulty has been a sort of short-term creation, which will recover. If you take from our point of view following the acquisition, we think we're in a very strong position. It's certainly more resilient. We've exposed this out to different areas. Marley is not only performing very well, but it's probably more resilient than all of the businesses we have because you have to do something, obviously, about the rules. If you take from our numbers, in terms of what we reported, they're at record levels, as we said at the beginning, and it's taken the group, in my view, to a higher level completely. The business is very cash generative, 90% of EBITDA is not unusual. If we carry on with those performances, we deleverage anyway, which is exactly what happened with previous acquisitions where we deleverage back to 0. But we certainly believe we can get to below 1x by the end of next year. The current market conditions are challenging in obviously the first few months, we believe, of this year, and we see that, but we do see there's going to be improvements. But that doesn't stop us making strategic developments, doing self-help. We've taken GBP 10 million out of our cost base to address a number of those issues. ESG, I believe, will give commercial benefits. You will get to a point where there will be a price for a low-carbon product, and it will be a lower price effectively when it has more carbon in it. So that benefit will come through. But I think the big issue and the big debate, obviously, in our area, we're in the construction sector, and we're exposed to 3 areas. The reality today is there's a structural deficit in new housing, and that's going to have to be addressed and will have to be addressed ongoing once obviously, interest rates settle down. The housing stock in the U.K. is very old. As we said, 65% is over 50 years old. That's not going to change, particularly if you're not building as well at the right numbers. So that's going to be with us for a long time. And obviously, the U.K. infrastructure is definitely in need of investment and repair, and that is actually going ahead, and we're seeing the benefits of that. So I still believe medium term, long term, the construction sector has not gone into a recession like the 2008. It's gone into a blip which has been affected by short-term economics and will recover, in my view, relatively quickly. That's the end of the formal presentation. If I can ask Justin to come onto the stage and more than happy to answer any questions.

If we start in the room, because obviously, with recording this, if you could say who you are and what you whatever, there is a microphone so that the people of can capture as well.

Rob Chantry from Berenberg. Just 3 questions from me. Firstly, on new build, clearly, a few headwinds there. Can you just talk through some of the factors to mitigate the slowdown in terms of your ability to kind of take share of wallet and kind of manage through this period? Secondly, in Landscape Products, clearly, again, at a tough year in the second half last year. Can you help us understand the margin dynamics for '23 and '24 in terms of drop-through mix, cost savings, how they play out in terms of that margin in that division? And then thirdly, just on market structure. Clearly, you've got a high share in both the kind of Marshalls and Marley assets, but you're seeing weak demand. Can you just give us an update on what the competitive environment is doing? Any exits or any PE firms being opportunistic, trying to buy those assets up? Are there any big changes in the competitive environment that you face in those areas?

I'll do first and third, and you can do the second one, if I make sense, if I remember. Yes, I think if you take the market dynamics, I mean, in housebuilding, I mean, what you're seeing is obviously you've got the national housebuilders, we're talking about the volumes from their point of view. I mean we shouldn't forget that there's also a midsized housebuilders from our -- from what we can see are carrying on in the volumes. I mean, the national housebuilders obviously will affect the volumes they make. We saw a slowdown in January of new starts. But I do think there are 2 factors to be taken into account. One, the weather, which is always impacted. When it's cold and when it's freezing, then effectively, you can't do the ground [ out ]. And secondly, because of this Part L legislation, there's been a lot of new builds started, which, again, they want to get started by June of this year to avoid having to do the more expensive build, which they're going to have to do to conform to Part L. So I think there's some dynamics at play. I mean, we're obviously watching and seeing what the volumes are. At the moment, what we see is the volumes coming through are okay. But we're not being laid back about this. We've built a case on 11% reduction this year, which is significant. If it's greater than that, obviously, it'll have an impact. But I think the housebuilding is still to be seen. The critical period, I guess, for housebuilding is coming up in the March, April period when -- what is going to be the real demand. If people, I think, get stability and get more confidence that they know what interest rates are, then people can make the decision. I mean, the thing to remember is still buying a house is cheaper than renting. The issue is putting the deposit down and getting the mortgage. So I think the underlying demand is there. I think in your third point, yes, we've -- obviously, Marshalls and Marley are the market leaders. There's been no private equity entrants into building materials. The private equity entrants has been all into merchants. And there's been quite a bit of that with, I think, [indiscernible] being the most recent. So yes, there's a lot of activity there, and we obviously have to see how that plays out. But in the building materials section, there hasn't been. The competitors, I don't think, from our point of view, both in the roofing and in the landscape are doing what we're doing, they're not investing in the ESG, they're certainly not building dual block plants. So again, what we focus on is trying to make ourselves as difficult as possible to compete with. And the key for that is, I believe, specification. If you get the specifications, it's all the competition, I have to compete with after that is price, and that becomes difficult. So in that sense, I think we keep doing that. So we're not seeing anything dramatic in that.

In terms of Landscape Product margins. In the short term, I'd expect them to remain under pressure. So what we have here, I mean, the site that you saw the video there is pretty typical of our landscape product site, so they're very well invested. And what that means is that you have a pretty significant drop-through when revenues drop away because you've got a relatively high fixed cost base. So not too many people wandering around those factories working there. So what we really need to see is a recovery of the demand profile. When we see that recovery, we will see a very rapid improvement in margins. But in the short term, I'd expect them to remain under pressure until we see that recovery in volumes.

Aynsley Lammin from Investec. I think I've got 3 as well, actually. Just firstly, on the pricing cost inflation. Just wondered how you're thinking about this year versus last year? You said came up a bit of an issue for demand. Are you aiming to pass on all the cost inflation? How much if that has to be passed on? Secondly, just on the 10% like-for-like fall in January, February. I wonder if you could just talk between -- is that fairly evenly spread kind of between Building Products, Marley and Landscaping? Any different trends within those? And then on cost savings, if new housing is down, say, 25%, 30%, not the kind of 11%. Have you got still opportunity to take out costs like you did the GBP 10 million last year within the overall group?

Yes. So I think if you take -- your first question was about price and inflation. I think we see -- still seeing costs going up from a point of view of cement through energy effectively. We've seen, obviously, costs going up from a labor point of view. And so I don't think that's going to change. I think it has without doubt slowed down compared to where it was last year. So I'm not anticipating every 3 months having changes in that, but we've had a cost increase from January. We've had a price increase from January, which has gone into the market, most of which is held. But we're also very conscious. So obviously, if volumes aren't great, and it's harder to hold and keep price, so from our point of view, we're also looking at initiatives how do we reduce cost. But I think the market has changed in the sense of I don't see '22 being repeated of continual price chasing and volumes, material shortages and all the like. So I think that's calmed down. But I think inflation on building materials is there. It has been talked that people think it will come back and become negative in our sector. I just don't see that. The cement manufacturers investment strategy today is to remove carbon from cement. The only way to remove carbon from cement is carbon capture. Carbon capture is very, very expensive. I'm sure they're not going to do it for charity. So from their point of view, if they make this investment, there will be cost increases. Obviously, there's a benefit in the carbon side. So I think in that sense, I don't think it will go away. If you take -- sorry, I think it was maybe the third question, I'll come back. The issue in terms of from a housebuilding point of view, obviously, if the number is bigger than there's a drop off in demand, then yes, we have plans in terms of we could do. We still have long-term views of what we've talked about in the past of investments, like the dual block plant. One of the benefits that gives you is bigger sites that can make more. You can keep your geographical footprint, and you don't necessarily need as many sites. And that's still there. So we would not take decisions that weren't long term the right decisions, but we could accelerate some of those to do that. That would be the response. Sorry, the second one?

The January February...

So the -- across the divisions, the weakest performance in Landscape Products, and I guess what you need to remember there is that if we go back 12 months, what we're actually seeing in that part of the business was the strongest part of trading that we had. So on the back of shortages in 2021, what we saw in the early part of '22 was lots of demand from merchants who were stocking up ahead of what they thought was going to be a normal season. So the revenue performance in that business is pretty strong in the first quarter. It got weaker in the second quarter, and then deteriorated quite dramatically in the third quarter as merchants started to destock. So those comparatives get easier as we pass through the years. In terms of the Building Products business, that was marginally down year-on-year, but not significantly. And [ roofing ] was broadly in line year-on-year.

I think this year, just on top of that, what we'll see is a different half 1 and half 2 split to normal because last year, the half 2 basically was running even below the market demand to compensate for the overbuying in the first half. So it's going to be an unusual measurement against the year, I think.

Clyde Lewis at Peel Hunt. I think I've got 3, if I may. Martyn, I think you mentioned solar sales of GBP 28 million in the year -- well, you mentioned GBP 28 million of solar sales. Was that for the 12 months or for the 8 months that you're on Marley?

That's for the 12.

That's for the 12 months. Okay, perfect. You also flagged up that the sort of the simplification process that you can see in Marley and you're trying to get it across the Marshalls. Can you help us a little bit in terms of the potential benefits that you can sort of potentially achieve? Clearly, it's not going to be a 6 or 12 months, it will probably last a little bit longer. But I mean, is it sort of GBP 3 million, GBP 5 million, GBP 10 million sort of impact that you think you can see from that?

If you look at it today, I mean, what we've got is, I mean, a simple comparison, I suppose. The headline numbers from our point of view is we've looked at, say, customer service entry, we've looked at accounts receivable and obviously, pro rata it to turnover, but there's about probably a 3 to 4x a factor there. So that's a number of heads which are employed, either that you don't need to do that or you are going to deploy to do other things. So the potential for me is very, very big. But you're talking in the low millions in that sense. But it's not just the benefit directly to that cost. It's also the ease of dealing with. For many years, I was always told that we were very complicated in Marshalls for -- and that gives enhanced price well, by Marley. That's proved -- that's not true. So from that point of view, we have to simplify the way of doing business with us, and there's a big benefit.

And a similar sort of question around Dropship. I mean we come back 12 months' time, what would be a success from your point of view in terms of sort of drop ship in terms of sort of trying to get the merchants adopting it? And presumably, you'd expect to see not just sales growth but obviously, hopefully, a better mix coming through, which clearly would be helpful in terms of margins as well?

The unknown at the moment, Clyde, is in the Building Materials sector with respect to the whole market, it's still very transactional, walk into the store, place your order in the morning, and do a lot of manual stuff. The key is when that changes, how much will people take that up. Now all these same people ensured at all on Amazon and doing all of these things anyway. So it's not like it's new. Today, there's just not the opportunity to do that. So it's -- it's difficult to say how big is it going to be. In my personal view, I think it will grow exponentially once it kicks off because once you get used to the fact, technically, you can go on your phone and you can order what you want. And you know when you get a date and when it's all going to be delivered. That's going to simplify the whole process. And it should grow and grow and grow quite quickly. We're in with the national merchants. We're in with some of the independents. What success, I guess, in the short term coming from where we are probably a few percent of turnover. What do I think is achievable, probably 30%, 40% in the future, in my view, because I think it will change the way people do business. Some of that is also going to be dependent, which is out of our control on other materials because if, obviously, you can only order certain materials in this way and you can't order the other materials you need for the same job, then the benefit is going to be slower before it comes in. You've still got to go in and physically order the other things. But I think it will stimulate that change. The industry has to change.

So if I can sneak in a fourth as well. The installer weeks obviously sort of come back in a bit. I mean, over the last couple of years, you've talked about sort of installers either struggling or not wanting to bring on extra [ gangs ] to give them more capacity. What's the feedback from them so far this year on that sort of front?

Labor has eased. So it is not as difficult as it was certainly from their point of view. And for them, I mean, if we're struggling in the factory, we pay good salaries. I mean, the guys who are doing this, they generally would tell you stories. If you train somebody for 3 days and they don't come in for the fourth. So they were getting very frustrated. I mean the other thing to bear in mind is if housebuilding volumes drop, that means -- what does that mean? I mean there's an awful lot of contractors who are not working on new build housing. Well, they're available to work in other areas. If you're a groundwork, you're working in commercial, you can play a patio or you can learn -- to drive way. So there is the potential of feeding in capacity from other places as well.

Can I sneak one more? CPM.

See, put a microphone in a [ Welshman's ] hand.

I know, I know. Where is the committee? Where is the committee? CPM is probably at the start of most of the processes for sort of certainly new housing, clearly. What's the inquiry sort of position look like through the start of the year? Has that been improving? I mean we've certainly been hearing the housebuilders getting better sales rates, things have obviously improved. Mortgage rates confidence, et cetera, have come back. Has that fed into a better inquiry rate into CPM?

Each month, the answer is yes. January was bad, but we shouldn't forget the weather. The weather does have a big impact in obviously doing footwork and doing all these things in housing. So February had recovery, March is looking better. You'd expect that this time of year. I'll remind everybody that the housebuilders have to get to a certain level of development to avoid extra cost by this June or they're going to miss the Part L. So it will, in my view, feed some of that demand. The key is, I think, at the moment, people don't know. I mean, I read the same reports, and housebuilders seem to be selling at a better rate, but the critical period, I guess, is March and April. Take the microphone off him.

Tori Thorrington, Equity Development. Could you just tell us what proportion of the portfolio is currently -- or currently has EPD certification and how common it is at the moment for specifiers to ask for that in the tender?

So EPD information at the moment, I think we've only got our Landscaping Products. In our Landscaping Products, we've got most of those products either fully qualified that you have to get somebody to sign it off to be official. So we certainly will have all of landscaping done relatively shortly. I'd say in terms of, at the moment, in contracts, it's very, very little. At the moment you're offering it as an additional thing, but it's coming.

I think what we're actually seeing is that local authorities are more focused on this than commercial developers at the moment.

And I guess, playing into that slightly. Could you talk a little bit about sort of new product development. It's always a mainstay of the Marshalls business either in terms of materials or processes perhaps?

So I split the new product into 2 things, really. One is about carbon. So we're trying to obviously have carbon reduction. We're trying to do that. We -- the Board were up last week having a look in one of our factories where we've got 3 different products we're making at the moment without cementing, which are looking really encouraging and giving big benefits, obviously, from a carbon footprint point of view. So I think that is one stage of new product development. The other stage is very much linked to what you saw earlier on the new dual block plant. I mean one of the products coming out there is effectively a copy of a granite product. Granite today predominantly in the world is sourced from China. The carbon footprint to bring in that from there to hear is a nightmare. The cost is obviously prohibitive. And if you look at this product from our point of view, you could imagine us having a product that potentially would sell at 65%, 70% of what the granite would sell it. For us, massively enhancing our margins. And from a carbon footprint, probably about 20% of the granite. So I think getting those products like to replace stone is a big benefit. We make an awful better -- a much better return on manufactured product than we ever will in buying in and selling.

And if you just link that back to your earlier question, that is the carbon content is just going to become increasingly important, and that's where we'll drive the commercial benefit ultimately.

So in the first bucket where you're talking about decarbonization compared to, say, in landscape products, it's probably more of a structural element to it in the carbon side. Is that [indiscernible] period, approval period longer to get new products at a different composition?

Not really. The type tests are the same. I mean, in our products, the type test tends to be obviously on how strong it is, how long it's going to last. You can do accelerated life cycle testing. So I don't think it's any different in that sense. And it's particularly less when the customers and consumers are asking for it. So I think as this grows, we can specify the British standards in terms of strengthening things and people be prepared to use it, obviously, as long as you stand behind it.

Chris Millington at Numis. Can I ask a first question just around margins. You touched on it before, Justin. There's quite a high drop-through in landscaping. I mean would we expect a different profile in either Marley or building products? And just on that subject, is there a target margin for building products? You've given us a bit of a steer for the other ones.

Okay. Yes. So in terms of margins. So the Landscape products factories are more automated than Marley and the building products factories. And therefore, you've got more opportunity to take costs out of those factories should you see a reduction in demand. So the drop-through margins before you start taking action on Landscape Products are going to be somewhere between 40% and 45%, whereas on Building Products and Marley, it will be in the 30% to 35% range. And in terms of the medium-term view on margins for Building Products, we'd like to see that north of 15%.

I think the key part of that it also works the other way. Landscaping, in my view, will not stay where it is. And when it comes back, you should have exactly the same -- the opposite effect.

I was going to ask that, but Clyde used most of the questions before. So next one is just on Bricks. Can you just talk about relative pricing there versus clay? And do you think a driver last year was availability because it did feel quite tight? Or do you think it was carbon was the big driver there?

At the moment, if you take from Bricks' point of view, our pricing in general terms has been at market, minus a couple of percent, has been a historical position. I personally don't think that will be the long-term position. I think it should be plus with the carbon situation, but we're not there. The demand at the moment has not come in from the carbon. The demand is coming, in my view, from availability, from the product portfolio. I mean, one of the issues you have is your range of products you can make is actually quite big because to set up concrete and do changes is not like changing the clay factory, which obviously has a continuous run part of it. So I think the flexibility, the offering, availability has been the key to those drivers and going through with different housebuilders. I mean, we're not China. Where, years and years ago, there were issues with concrete bricks being heavier, being more difficult to lay. You've got to literally work with the housebuilder, you've got to work with the bricklayer, you prove and disprove all of those things. It is the same weight. It's the same type to lay. Once you get that, it's treated as a normal product. The carbon is to the -- housebuilders today have all been focused on Part L. but that's now in place. The next thing will be the embodied carbon in a build. And that's where I believe you get an enhancement in using a concrete brick, not an alternative.

And further one just about domestic volumes. I mean down 1/3, obviously, a massive move. Where would you see domestic volumes in a historic context? And obviously, they never really fully recovered from that sort of full peak. So just curious kind of how it looks in the historic context.

Yes. I mean if you go back, as you say, the peak of all time is 2004. I think there's been some changes, which are a semi-permanent. We were talking about this the other day that I think block paving a new driveway is not as popular now as it was then, not just a cost point of view. And I think that is one element that they drop off that never fully recovered. I think with the latest drop, it's just taken us back to about -- well, if you take last year, probably now 40% down on the peak. So it's a substantial drop, but it's also now from a patio point of view. We can see in where we sell out and what products we sell, what's happened. It's definitely at the element where you're a house owner, you'd like to do the work in the garden, the heating bills have gone really -- your mortgage has gone up. I'm sitting on my hands. The demand hasn't gone away, but they stopped spending in that area. So at the top end, it's carried on. You can see that with the register is at that medium end, obviously, house owners, they're in there. They like to garden, and I'm stopping. I still believe when the stability comes back and people know where they are and inflation comes down and everything with interest rates, that will come back. History says it always has.

I guess just more open question on Marley. I'm sorry, [indiscernible] Berenberg. In terms of what you feel you've learned from them, you talked about the way they go to market in terms of simplification, they've clearly got great margin at 26%. They've kind of got exciting solar rollout. What more strategically, when you sit down, have you learned from them and think you could do better or differently in the broader Marshalls business?

I think they've done something that we've talked about in Marshalls in the past and been unable to do and it has some subtle differences is in selling a roof is to me like selling a patio and selling a patio in a box is selling a roof. What I mean by that is you sell everything that you need to do it. We've not ever been able to do all of that and it's a little bit different. The design side of it and that element give some issues. Today, I think there's bits that certainly what Marley do, in my view, very, very well, is they've understood that it's about a solution, not about a product. And I think for Marshalls, we've got to get more and more to that. One of the things we're challenging is, for me, we've had a lot of inquiries we get, for instance, on the website where somebody will come on. And our historical approach to this has been, we get over 1 million hits, people will say, I'm looking for a patio. Look, can you help me basically. And the process in the past has been to send them the nearest 3 registered installers by their postcode with the numbers and the e-mails and everything to do it. Following that up, only about 50% even respond. So we've actually taken somebody who was interested, they've gone on our website, and we've -- to me, let down 50% of those people. So I want us to start taking that inquiry and we book the appointment, we book the arrangement, we get the [indiscernible] of the call. And if they don't, we get a different person to call. So we enact more. So I think they give the consumer customer in the different areas, in my opinion, a better experience than what we have. And that's practiced the simplified offer to do anything. If somebody has gone to the effort to go on your website, don't let them go until you completely seen if you can satisfy that demand. If there are no more questions in the room, are there any questions online? We did try and set the system up, you could do that.

[Operator Instructions] First question comes from Ross Harvey from Davy.

I've got 3 questions, if I can as well. First is just in relation to Landscape Products.

Sorry, can we do 1 question at a time, and then we am going to try to remember the 3 if you could.

Sounds good, sounds good. Yes. So I'll kick off with the Landscape Products pricing. I'm just wondering maybe for Justin, what's the annualization effect from increases you put through in 2022? And what are the increases you've put through this year? And just Martyn, has there been any kind of pushback on any of the pricing that you've seen there? I know you mentioned that the higher end products have held up better than the medium and lower end. Just what sort of customer feedback have you had on pricing?

So in terms of the price increase this year is high single digits. The annualized effect will probably add another 5 percentage points or so on to that. And I think without a doubt, it is becoming more difficult to pass those prices on through the channel. I think 2022, we did a really good job of that. And you saw, for example, new build housing, build cost inflation of around 8%, which is reflective of our products going there. That market is going to get tighter, and that becomes more difficult. I think our commercial guys have done a good job landing the prices that they have in the first couple of months of the year.

I think in answer to your question as well, we always get feedback on the price increase.

I can imagine. Secondly, just on Marley, and I know the solar margin you would have mentioned in the past would have been lower than the likes of clay tiles and you obviously source the panels from China, you'd ship and cost issues and then the weaker pound. I'm just wondering, in terms of the normalization that you've seen there in terms of shipping costs and currency, et cetera, et cetera, have you been able to work any kind of margin benefits from that normalization? Or are you trying to contain prices possibly to try and accelerate the penetration of solar? I'm just wondering on the margin and the price there.

There's quite a few moving parts there, and we saw some pretty significant swings in the sterling U.S. dollar FX rate last year. So we tend to keep our pricing commitments pretty short within solar, and we're trying to match them with forward contracts so that we can manage the overall margin. And we're trying to manage the margins there to between 15% and 20% on a gross margin basis. So this market will grow very rapidly. And we want to keep a good market share of that. But we're also conscious that we want to make sure the margins are in the right place.

Yes. Very helpful. And just final one. Just in terms of Belgium. I know there was some impairment of '22. Do you mind just running us through quickly what the key drivers were there?

Yes, okay. So the Belgium business has come off the back of a couple of very positive years in 2020 and 2021. And in 2022, it had a difficult time. So we've talked about the reduction in volumes across the domestic business of around 1/3. Well, pretty much the whole of the Belgium business is a domestic business. So it swung from a -- from producing profits for a couple of years to producing a loss. And that just triggered, from an accounting perspective, an impairment review, and we process that and wrote down some of the assets in the Belgian balance sheet.

Okay. Are there any more questions on hand?

Our next question comes from Graeme Kyle from Shore Capital.

Yes. Just 2 from me, please. The first one is on concrete bricks. What resistance are you seeing to concrete bricks from local planners open new build and for RMI projects? And how do you expect this to evolve?

Yes. I think if you take the planners and the feedback we get, Graeme is people you have to spend time with them, you have to obviously work through with them. I mean the reality is, I mean if I brought in this room concrete and clay bricks and put them in front of you, I'd take a fair bet that a number of people wouldn't know one from the other. So I think there's -- again, you've got to use the examples. You've got to go through, show them. I mean it's all obviously about appearance and color. I don't think planners are particularly bothered if what the material is. It makes it is more a case of getting the approval. So it's the same issue that they have with all planners. And yes, you have to work your way through it. But I don't see it as it should be anything against concrete bricks because they don't care about the material side of it.

Okay. The second question, this may have been comments as landscape products, should we expect further cost reduction measures this year given the volumes are likely to be down again?

Yes. I mean if you take from our point of view, I mean, that's a constant issue is at the end, one of the challenges we always have in operations is every year, how do you take cost out. Cost can be with materials, can be mixes, it can be efficiencies. So absolutely. I mean if you're not getting volume growth then you have to look at the cost efficiency, that would be normal. And yes, there are programs in place for that.

There currently no further questions.

Okay. Well, as we come to an end, I think we've tried to answer all the questions. Thanks so much today. I hope all the people in the room with no tubes, I'm impressed how many people got here. So thanks so much for your time.

Thank you. Thank you.