Marshalls plc (MSLH) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the Marshalls PLC Interim Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However, the company can review your questions submitted today, and we'll publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. And I'm sure the company would be most grateful for your participation. I'd now like to hand over to CEO, Matt Pullen. Good afternoon.

Thank you, and good afternoon, everyone, and thanks for joining this presentation on Marshalls' 2024 half year results. I'm joined by Justin Lockwood, he's our Chief Financial Officer, and we'll be coming back to him later. So what have we got in store this afternoon? So I've been in the role now for just 6 months, having formally taken over on the first of March. And I thought I'd just build on some very first early impressions that I shared back in March at the full year results and then provide a short summary on the performance at the half year before Justin leads us through the full details of those half year results. And then I'll come back towards the end of this to talk about a few thoughts on the development of our new strategy, which we plan to communicate at the Capital Markets Day on the 19th of November. And then obviously, we'll come back to answer any of the questions that you raised. So let's move on to the half year in review. So I joined back in March, and at that time, I had known Marshalls for some time, primarily as a landscape business. But in terms of my first impressions, this is a business with market-leading brands with significant national scale working across commercial, house build and repair maintenance and improvement markets. And -- and it's actually been strengthened from its traditional core of landscape through the more recent acquisitions. I've visited now over, what, 25 sites across the business, some of them quite a few times. I've met hundreds of colleagues. And one of the things that I can truly appreciate now is the amazing breadth and depth of talent and experience that we have, but also hugely proud and passionate team that care deeply about the business. And that's only really reinforced my view is that this is a really great business and one with huge opportunities for the future. So having had a bit of time to get below the surface of the group, it's clear that of our 3 divisions, the Building Products division, which includes our Civils and Drainage business and our Bricks and Masonry businesses; and our Roofing Products division, which includes the more recently acquired Marley and Viridian businesses are actually in pretty good shape and positioned for growth as markets recover. And I'd go as far as saying that the roofing products business in Marley and Viridian, which at the time was questioned in terms of an acquisition has proved to be a very good one given the results that you can see at the half year. And overall, well positioned for growth as the markets recover. But I think you can see in the results that we'll go through later that the traditional core, the Landscape Products business has been more challenging and is not performing to the true potential that we can see or that has done in the past. And we understand really clearly the reasons behind this, and we are moving at pace and taking the right steps to strengthen and build on its market-leading position and its competitive strengths. More positively, the group's recent acquisitions have diversified the business and not only creating value, but have definitely reinforced our resilience and creating a more balanced group as we move forward into the future. And importantly, they're providing a platform to unlock more growth and value creation, which I'll return to later when I talk about insights on our strategy development process. Now clearly, the markets have been pretty weak over the last 2 years. However, the actions that the team took back in 2023, where we look to reduce our cost by about GBP 11 million have not only been the right ones. They have successfully reduced that cost base, and they've underpinned a real strength of ours, which is the operational gearing of the business, which we will be able to capitalize on as the markets recover. And to be honest, I can see that this presents significant opportunities for the group to outperform over the medium term. Okay. So let's move on to talk about the half year in review. I think -- summarize it as it's a resilient performance for the group as a whole. We've clearly been in weakened markets. It's been compounded by some very wet weather in the first 6 months of the year, which has certainly not helped activity levels on construction sites across the U.K. As I said, our landscape business definitely experienced a more difficult period, predominantly due to the weak market conditions, but with some small market share loss, and I'm talking less than 1% to 2% of market share loss. What we have done is understood where we can significantly improve this performance. There are a number of self-help measures which are well underway, which all about playing to our strengths in specification in key profitable segments of the market, strengthening our trading relationships and simplifying our product offering, which has become overly complex over time and has lost its clarity and resonance with customers and is complex for our sales team to sell and drive inefficiencies back to the business. And this is something we're working on at this very point in time to get that clarity back. And we can also leverage the strength in our national manufacturing and supply chain network. When we think about this in terms of our customers, we are really the only truly national supplier of landscape products across the U.K. And this is something our customers are looking for, that surety of supply as markets recover. And we clearly are the only business that can do that. And at the same time, we continue to focus on tightly controlling our costs to ensure that we are efficient. Now as a group, we've continued to focus on our cash flow, which has resulted in really strong cash conversion and reduced net debt at the year of nearly GBP 30 million. And looking out to the year-end, I expect that profits will be broadly in line with the expectations that we set back in March, which is predicated on a modest improvement in market conditions through half 2. And in the medium term, I am really excited by the potential of this group. Our strategy development, we're about halfway through that, is well underway, and it's already highlighting a number of very meaningful opportunities to unlock growth and drive value creation and outperformance through the cycle. And that is only reinforced by the new government's agenda to get Britain building. And the improving macroeconomic conditions that we're all starting to see with inflation back under control at around 2%, first cut in Bank of England base rates, and another expected later this year. And generally, consumer confidence really starting to improve. And that bodes well as we move through the second half of this year and into 2025. So if we look at our half year results and summarize those. Revenue was down 13% in what have been very weak markets. And our profit before tax down 20%, reflecting the reduced volumes from those markets and a little bit of less favorable mix and price through the first half. However, our focus on controlling costs, delivering that GBP 11 million of cost savings that I mentioned earlier was implemented through 2023 and through the rest of this year. And our continued discipline in managing our working capital has resulted in that reduction of net debt of nearly GBP 29 million, and we have held our interim dividend in line with our policy at 2.6p. So that's a quick summary of the half year results. I think it's time to hand over to Justin to walk through those in a little bit more detail. Justin?

Thank you, Matt, and good afternoon, everybody. So I'm going to walk through the detail of our financial performance for the first half of the year, and that will include some comments on each of our reporting segments and our cash flow performance. I'll then give you an update on our balance sheet and funding position and I'll close with a few words on our capital allocation policy. So starting with group revenue. The chart on this slide sets out a year-on-year revenue bridge for the first half of the year, and it's split between our reported segments. Group revenue contracted by 12% on a like-for-like basis. The slide that Mark mentioned, just touched on earlier, so 13%, which is the reported level of reduction. The difference between the 2 is the impact of us exiting a small business in Belgium in April of 2023. And you can see from the slide that all of the segments have reported lower revenue year-on-year, and that's due to weakness in both New Build Housing and private housing RMI. You can also see from the chart that the Landscape Products business reported the weakest performance, and that's due to its exposure to both of those 2 key end markets. The discretionary nature of some parts of its product range and some loss of market share, as Matt touched on earlier. In addition, there were some weaker price realization during the period. The rate of contraction was significantly lower in our Building Products and Roofing Products segments, with the latter benefiting from higher revenues of Viridian Solar which partially offset weaker year-on-year Marley revenues. So moving on to adjusted operating profit at a group level. Now, the profitability numbers that we used throughout this presentation are stated after adding back adjusted items, and that's to show the underlying performance of the business. And it's the unadjusted items that are used by the Board when assessing performance and contemplating dividend payments. Adjusted items in the first half of the year totaled GBP 5.1 million was principally related to the amortization of intangible assets arising on acquisition. So it's a noncash charge. So back to the adjusted results. And the chart on this slide sets now the component part of the 19% reduction in operating profit of GBP 34 million. The reduction in profitability comprised both lower profits in Landscape Products and Building Products, and that's due to weaker sales volumes and some price realization challenges, particularly in Landscape Products. And that was partially offset by higher profitability from Roofing Products, which benefited from an increase in contribution from integrated solar. The group performance includes benefits of around GBP 4.6 million of cost savings from the restructuring activities that were influenced in 2023. And we're on track to deliver the full GBP 11 million of annualized cost savings, with the final benefit going through in the second half of the year. The weaker performance from a margin perspective of Landscape Products and Building Products offset the benefit of structurally higher margins in Roofing. And as a result, the group's operating margin contracted by 0.7 percentage points to 11.1%. We do expect the margins to improve as we see an increase in volumes in the marketplace and a growth in revenues, and we benefit from operational leverage. And we target to be a return on sales of 15% in the medium term. So I'll now move on to the results of each of our reporting segments, starting with Landscape Products. Now as mentioned earlier, this reporting segment experienced some tough trading conditions during the period. and that's due to its exposure to New Build Housing and the more discretionary end of private housing RMI. And in addition, as Mark mentioned earlier, we have lost some modest market share through certain channel partners. Against this backdrop, revenues contracted year-on-year by 19% on a like-for-like basis, and that was driven through a combination of lower volumes and pressure on price realization due to weak market demand conditions. Segment operating profit reduced by GBP 7.1 million to GBP 8.3 million, and that's due to the adverse impact of lower sales volumes on both gross profits and the efficiency of our manufacturing operations, together with a weaker price realization and a less favorable product mix. And the impact of these issues was partially offset by the benefit of cost saving actions taken last year, which contributed GBP 3.4 million in the first half. Moving on now to Building Products. Revenue in this segment contracted by 6% year-on-year, and that's due to continued weakness in New Build Housing activity levels. We actually delivered modest growth in our Drainage business, which was supported by a pivot into commercial and infrastructure end markets. However, this was offset by a weak performance in our Bricks and Mortars business units, which have performed relatively well in the first half of 2023. Operating profit reduced by GBP 2 million to GBP 6.4 million, and that resulted from the impact of weaker volumes on gross profit, partially offset by the delivery of cost savings from the restructuring actions that we took last year. And that benefited the P&L to a tune of GBP 1.2 million. In the first half of the year, we also successfully recommissioned some brick manufacturing capacity, and that was on the back of an encouraging increase in order intake for [ pacing rates ]. And that demonstrates the flexibility of the capacity reduction actions that we took during 2023 where we [ note ] a number of facilities and we can bring them back online. Moving on now to Roofing Products. And this business was also impacted by lower levels of New Build Housing activity. But it did benefit from relatively robust demand in both public and private housing RMI activity levels. And in addition, we reported further revenue growth from Viridian Solar. And that's despite reductions in New Build Housing volumes. And this is because its market-leading product continues to be chosen by house builders as part of their response to changes in energy efficiency regulations. And these factors resulted in a 5% reduction in revenue, with contraction in Marley being partially offset by growth from Viridian Solar. The segment delivered an increase in operating profit of GBP 1.2 million to GBP 23.2 million. And this increase in profitability was driven by a robust price over cost discipline and improving manufacturing efficiency. And it was part of which was partially offset by lower Marley volumes. So this slide sets up the profit and loss account from operating profit down to earnings. And as mentioned earlier, group operating profit contracted by 19% to GBP 34 million. Profit before tax contracted at a slightly faster rate of 20% to GBP 26.6 million. And that's despite a reduction in the interest charge of GBP 1.3 million, which arose from lower drawn borrowings and reduced lease interest charges. The effective tax rate for the period increased by a couple of percentage points to 25%, and that simply reflects the increase in the U.K. headline corporation tax. Earnings per share contracted by 23% to GBP 7.9p per share, and that's due to the weaker operational performance and the higher effective tax rate, partially offset by lower finance costs. Turning now to the cash flow performance. And cash flow conversion was strong, with 111% of EBITDA flowing into operating cash flow on an annualized basis. And that was delivered through continued working -- active working capital management during the period. Finance cash flows reduced year-on-year due to a lower interest expense and the timing of bank interest payments. And taxation payments were lower than last year as well due to reduced profitability in the first half and the benefit from an overpayment from 2023. Net capital expenditure in the period was only GBP 700,000. Now that comprised gross CapEx of GBP 5.1 million, which in itself is about half the level of spend in the first half of 2023. And that's because we completed spend on the new dual block plant facilities at our factory in St. Ives, and we're now focused on maintenance and efficiency CapEx. In the latent amount of capacity that we have across the organization, we don't need to invest at this time in further capacity. And this spend was partially offset by the receipt of GBP 4.4 million from our site disposal program. We do expect though for the full year gross capital expenditure to be in the region of up to GBP 15 million. The acquisition and disposal cash flows in the period comprised of contingent consideration payment under the acquisition agreement for Viridian Solar. And we expect further payments we made in this agreement in the first half of next year. During the period, we derecognized leases totaling GBP 24.4 million. And that relates to HGV and trailer leases, which have been novated to Wincanton following the logistics outsourcing that was completed in the first half of the year. And so taken together, we reported a reduction in reported net debt of GBP 34.6 million during the period as an accumulation of all these factors. Now moving on to the balance sheet and capital discipline. So this slide sets out a range of metrics that are focused on working capital management returns and balance sheet strength. And you'll see from the table on the right-hand side, the debtor days, the creditor days and inventory turns are all broadly in line with last year in good shape. It's worth highlighting though that we do intend to build some inventory in the second half of the year to ensure that we're well positioned to take advantage of the expected upturn in activity levels as we go into 2025. Return on capital employed was 7.6%, which is 3 percentage points over last year and represents the weaker operational performance over the trailing 12-month period. We target into an increased return on capital employed to around 15% in the medium term, when volumes recover and we benefit from operational leverage and the actions that we've taken in the last couple of years to improve efficiency. Leverage reduced from 1.9x at the 2023 year-end to 1.8x. And we expect further deleveraging progress in the second half of the year. The balance sheet has strengthened during the period with a reduction in net debt. And with the cash-generative nature of the business, we expect to see progressive leveraging as we go forward. And I'll talk more about this on the next slide. So now moving on to funding and liquidity. The group has a single syndicated bank facility, which totals GBP 340 million, and it comprises a term loan of GBP 180 million and a revolving credit facility of GBP 160 million. And around 95% of that facility matures in April 2027. And this provides us with a secure source of medium-term funding. Pre-IFRS 16 net debt reduced by GBP 28.8 million in the last 12 months to GBP 155.8 million. And about GBP 17 million of that reduction was delivered in the first half of 2024. The chart on the right of this slide sets out a longer-term perspective on pre-IFRS 16 net debt. And it illustrates that this is reduced by more than GBP 50 million in the last 2 years, reflecting the cash generative nature of the group's business model. We've got good headroom against covenants in our bank facilities, with interest cover at 5x against a covenant minimum of 3x. And net debt to EBITDA or leverage is 1.8x, and that compares to a covenant have been less than 3x. We've also got significant headroom against our bank [ sets ] at the half year, with GBP 145 million available to us. And that will provide sufficient capacity to fund our growth plans going forward. And now finally, moving on to capital allocation. And we had no changes in our capital allocation policy during the period, with a continued focus on reducing net debt and maintaining dividend cover at 3x earnings. And the interim dividend of 2.6p per share is in line with that. And I'll now hand back to Matt.

Thanks, Justin. I thought at this stage, it would be useful just to share a few high-level insights as we develop our next 5-year strategy. So in the next few slides, I'll give you a few thoughts on that before I come to a summary. So importantly, as we develop the strategy, the macroeconomic conditions and the market backdrop is increasingly encouraging across the U.K. and for the construction sector as a whole. I talked earlier about the modest improvement in conditions that we're expecting through half 2, which we're already seeing with inflation back under control at around 2%, that first cut in Bank of England base rates and a second expected and probably 2 or 3 more through 2025. And we're also seeing reservation rates for new houses and consumer confidence improving. And if we look forward, a progressive recovery forecasted by many commentators from 2025 for the U.K. economy. I certainly welcome the new government's positive agenda to get Britain building again and to drive the improvement in the planning process to facilitate that target of 1.5 million new homes during this parliament. Now naturally, this is going to take some time to impact and gain momentum. However, I believe that is a great ambition and one that we should look to support. And even in the near term, I believe that the house builders are able to meet an increase in demand that just comes from that increasing confidence that people have in the economy and the affordability of buying new homes improving. Now equally important for Marshalls is the implementation of the water industry's next investment cycle known as AMP8, which is multiple times higher than the previous cycle. And it's a much needed investment in water supply, surface water management and infrastructure drainage. And equally, there's a commitment to renewables emphasized by comments by Miliband, which talk about solar as part of supporting the transition to more energy-efficient homes and buildings. And I'm sure that in time, this will extend to including embodied carbon and the reduction of embodied carbon in building envelopes. So over the last few months, we started the review of our strategy, and it's allowing us to get under the bonnet of our business. And it's certainly deepening our understanding and the clarity we have of our end markets, how they're segmented and where the real value is. It's also helping us to understand our channels and routes to markets and the importance of different customers in this value change. And equally important, where the strength of our businesses and our brands play out to its fullest potential. So what is clear? We have enviable market-leading positions and models in our 2 core scale businesses of Marshalls Landscape and Marley Roofing. Our Landscape business has a unique and distinctive national model, which provides several sources of competitive advantage. From our product ubiquity and nationwide availability, the expertise and value that we bring in our design and specification model in those key segments of commercial and new house build and consumer scale. And it's supported by a national network that enables not only cost synergies, but drives sustainability and distribution benefits too. And we know that these are real assets when we're talking to our customers and the feedback that we get from them. With Marley Roofing, we're a clear market leader with a track record of superior value creation over many years. It's built on investing and developing in a very loyal installer base that values Marley's specification of the full roof offering with integrated solar. And it's the thing that ensures that Marley continues to command the strong premiums in the marketplace that it has done for many years. Now how we leverage these strengths will be central to our new strategy to unlocking more growth and higher volume as markets recover. And it will also ensure that we can capitalize on the strong operational gearing that exists in both these businesses. Now it's worth remembering, I shared a chart back in March. You might not have seen it, but it's also in the appendix of the slides that we're sharing. But it talks about how a return to 2019 volumes has the effect of doubling our profit before tax and improving our margins by 500 basis points. In reality, we're talking here about a 20% improvement in growth and volumes over a period of time where we have strong operational gearing that we can continue to play to. So beyond our 2 core scale businesses, our other recent acquisitions have increased our exposure to some very attractive markets with strong regulatory structural and sustainability tailwinds. Firstly, this integrated solar and energy transition through Viridian Solar. We expect to see really strong growth through the increased uptake and adoption of Solar PV, driven by regulation, both Part L and the forthcoming future home standard. And we see no reason why penetration of solar in new build housing across England and Wales will not mirror what we have seen in Scotland, which is already at 80%, having introduced these regulations some time ago. And when I look at the Viridian business, it's incredibly well placed to capitalize on this growth. It's already a business of GBP 30 million in scale and delivering significant margins. And secondly, in Water Management, there are significant growth tailwinds in wastewater, surface water management and infrastructure. This market, as I said previously, will benefit from both an expected recovery in house building supported by those government targets, but also from the incremental water industry investment in the AMP8 cycle, which is around GBP 85 billion, which is significantly higher than the previous scale. And about GBP 10 billion to GBP 12 billion of that is in the area of surface water management and infrastructure drainage, where we have a great position through our Civils and Drainage business, which was the acquisition of the CPM business. And today, that business primarily operates in new house build and some infrastructure, which we pivoted to as the downturn in house building came and that we found that we have a product offering that really resonated in that market, too. And it offers us a significant potential for growth in this growing market. And then finally, concrete bricks, which will naturally benefit from the increase in house building, but also from the increased adoption of concrete as a more sustainable alternative to clay. When we think about embodied carbon, it's 45% less embodied carbon in a concrete brick versus clay. And our concrete bricks business, which was the acquisition of Edenhall, has continued to grow its market share in tough markets, with its market share today standing at 7.8%. But what we've seen through the work we're doing on strategy that there is a very wide variation of regional adoption rates across the U.K., with share being significantly multiple times higher in some areas of the U.K. than the national average. And that actually speaks to the opportunity for future growth and outperformance for this concrete bricks business. So all these recent acquisitions present significant opportunities to unlock profitable growth and margin accretion and create more value for the group over time. And importantly, as we go through this strategy, I believe this group is competitively advantaged for that future growth. We really understand now our core capabilities and where we have or are developing those competitive advantages, whether it's our scale and national footprint or the operational excellence in gearing in our 2 core scale businesses of Marshalls Landscape and Marley Roofing, to our market-leading brands with strong positions, and our significant technical expertise in specification that helps us to drive product differentiation, which we know is highly valued by all our customers. And we're also developing new centers of innovation in more sustainable technologies like solar and energy transition, water management and concrete bricks. And all of these advantages leveraged in the right way to meet the needs of our customers and tackle the increasing challenge of a more sustainable-built environment will help us become a partner of choice for our customers over time. So let me bring it to a short summary before we get into questions. So the group has delivered a resilient performance in what have been challenging end markets in the first half of this year. A modest market recovery is expected through the second half of 2024 against that improving macroeconomic backdrop. And we expect that our full year profits for 2024 will be broadly in line with the Board's previous expectations set back in March. As to the medium-term opportunity, while most commentators and forecasts expect the U.K. economy and construction activity to grow through the next cycle, supported by this government's mission to get Britain building again. And Marshalls as a group is strongly operationally geared to capitalize on that anticipated market recovery. And finally, through our strategy review, we're deepening our understanding of the opportunities to create more value from a more diversified group with access to some increasingly attractive markets with strong structural regulatory and sustainability-driven tailwinds. And we look forward to sharing the details of our new 5-year strategy at our Capital Markets Day on the 19th of November.

That's great, Matt. Justin, thank you very much indeed for updating investors. Let me just give you a couple of minutes just to have a quick look at those questions. But while you do, I'd just like to remind investors that are probably slides along with the recording, and the published Q&A will be accessed via your InvestorMeet company dashboard. Matt, Justin, you've received a number of questions today from investors. Firstly, thank you to everybody for engagement. If I may, I'll hand back to you just to read through those questions where it's appropriate, and then I'll pick up from you at the end.

Yes. So the first question which I can see is the financial performance benefited from cost-saving measures implemented in 2023. Are there any additional cost saving initiatives planned for 2024? And what areas are being targeted for further efficiency improvements? Justin, do you want to talk through those?

Yes. Thanks, Matt. So I guess as a reminder, we did a number of restructuring exercises in 2023. That collectively took about GBP 11 million out of the overhead cost base of the organization. And as mentioned in the presentation, we're on track to deliver those. We also took further cost out of the organization last year. But I think around about another GBP 5 million of costs related to productive labor. And we hope and expect that productive labor has come back into the organization in due course when we see an increase in demand for our products. In terms of our current position, I think we're pretty comfortable with where the cost base is at the moment. There are always opportunity for taking another look at things, but it's more likely to be moving resources around and ensure we're targeting resource or the best possible opportunities rather than wholesale reductions. In terms of efficiency, if we get out of the overhead space, we think there are opportunities for further manufacturing efficiencies, particularly within the Roofing business. And we saw some of those flow though in the first half of the year. But to unlock them, we need more volume going through the factory. So I expect to see improving operational efficiency in that business in due course. But we have no further plans for other material cost reductions. We think we've got the overhead base in the right place at the moment, and we're focused on how we position ourselves to best go to market.

Thanks, Justin. Okay. Second question is how are you managing pricing strategies in the face of weak market demand? Are there any plans to adjust pricing strategies in the second half of 2024? So maybe if I just talk about our core scale business of Marshalls Landscape and some of the challenges around performance and pricing in that market. And then maybe I'll ask Justin to talk about some of the pricing strategies in Viridian Solar. So in Landscape, I think probably a little bit of background here. I've talked about the difficulties that we faced in this market. Part of it is actually around the model of specification. And what we're in the process of doing is reaffirming that model, which talks to really developing your business pipeline and your business development team are focused on relationships with core Tier 1, Tier 2 main contractors, house builders and big installers. And then using your technical design and specification to close down those projects towards a Marshalls specification. And the team on the ground in the region on an area sales teams are working closely with merchants and distributors and subcontractors to ensure that we're maximizing the returns from those projects that we specify. And equally, most importantly, is actually what I call commercial operations, which is the focus on our contract frameworks and our pricing architectures and pricing disciplines. And actually, we've lost touch with a bit of that model, which has probably resulted in some of that small market share loss we talked about, but also some mix and price as well. One of the real challenges that we see is that business has become quite complex and come away from that model. So one is real estate, that distinctive model. And the second is to simplify our offer. And over the last couple of years, our range has become too complex and too broad with too many sizes, too many finishes. And the breadth is significant, and in essence, trying to be all things to all people. And at the same time, in -- or if you like our pricing -- our portfolio ladder, in simple terms, good, better, best and super best. And what we found is in a tight market, we've had gaps in that product ladder. So people, when they're trading down maybe from super best to best or best or better in a tight market have not found what they were looking for and have, therefore, migrated a little bit to some of our regional competition, and they are all regional. The key thing to do is simplify the portfolio to get the product ladder absolutely right in terms of good, better, best to protect the pricing and to retain the volumes and the margins in our business. So that work is part of our self-help measures and is ongoing, and we're pretty sure that we get that right, and then we'll be attractively priced in the market but also retaining those superior margins. Justin, do you want to talk about the pricing dynamics in solar?

Yes. So in solar, we're seeing general market price deflation. And that reflects the, I guess, the supply and demand for solar products coming out of China, which were the majority of global manufacturing takes place. And a lot of capacity has been put into that market in the last couple of years. And as a result, that's driving down the cost of those products coming out of the factories. And that is feeding through into the U.K. marketplace. So we have seen in the first half of the year some modest reductions in selling prices across the U.K. in what is at present, a market that's growing pretty rapidly. We're continuing to focus on ensuring that we get a good return for our market leading product, but we are continuing to test the market on a very regular basis to ensure that those prices are in line with the market price to ensure that we continue to build a substantial business that will generate substantial [ pound ] margins and grow in the future. So it's about walking that line between market share and profitability in the short term.

Okay. Thanks, Justin. All right. Collaboration with SigmaRoc to develop ultra-low carbon tech within concrete building materials, is this ongoing? What have been the benefits? Is there good commercial uptake of any product? And then normally, I hand this question over to Simon Bourne, who has in-depth knowledge of this, but I might just see if Justin can answer this one. I might build up on that answer.

Yes. I can deal with this one, Matt. So we have some collaborations with SigmaRoc, but we had our own research programs independent of SigmaRoc, which have been running and they're being focused on taking cement out of our products and specifically cement out of our concrete at paving, which is one of the core product ranges within the Landscape Products business. We've introduced a new mix design called Tri-blend, which has replaced cement with limestone powder. Line -- cement is an input which uses a significant amount of energy in its own manufacturing process. And taking cement out and replacing it with limestone powder reduces carbon and it reduces the costs. In order to unlock those benefits, we've invested in new silo capacity across our estate, and that is driving very significant cost saving and carbon benefits for the organization. So I think in terms of the benefits of driving or delivering a lower carbon and lower cost out, but it's largely driven by our own R&D -- and a collaboration with SigmaRoc in that instance.

Thanks, Justin. And next question, the get Britain building has to be good for the company. Are there any plans for further M&A to exploit this? And what is missing from the product offering that would accelerate growth? So yes, I mean, I do think -- and we're fully supportive of getting Britain building again. As to M&A, I think what I'd say is having been in the business for 6 months, I'm actually very comfortable with the portfolio of businesses and brands and the offer that we have. We've still got room for improvement in growth in our 2 core scale business of Marshalls Landscape and Marley Roofing. I think there's plenty of headroom for organic innovation and growth from our other recent acquisitions, whether that's in Viridian with solar or in Civils and Drainage with our water management business or in concrete bricks and given our market position. So I feel that we've got significant opportunities for growth there. I think equally, it's important that we continue to pay down our net debt, and that's a priority for us. But in regards to M&A, we'll be clearer when we get through the work on strategy and that we'll talk about in November. But I think in short, we never say no to a small bolt-on acquisition if it gave us a capability or a technical solution that would benefit one of our existing businesses. And I think further forward, the opportunities for acquisition, you have to be keeping your eyes wide open. If I thought about water management and thought right, we need some capability in our -- in that area. And I look around, you see businesses that might have some of what you want, but then 90% of the business isn't what you need. So you need to think carefully about the balance between acquisition and organically investing to get greater capability. And then we'll be clear on that as we get through the strategy. And as to kind of where our leverage should be, I think naturally, people point to sort of 1.1, 1.2. I think we need to make sure that's a little bit broader and probably going from 0.5 up to 1.4, 1.5. Because if acquisitions are attractive and in line with your strategy, they don't always come along at the time that you want to dictate. So -- but we'll keep our eyes wide open and it's probably more of something that we'll look at through the back end of the next cycle in line to our strategy. Okay. What are the plans to optimize the product mix moving forward? And are there any new products or innovations in the pipeline that could enhance profitability? So I mean innovation, always people refer to it as the lifeblood of the organization, and we have a very strong track record across all of our businesses on bringing innovation to market, as we have done in Landscape with the dual block plant technology, which allows us to produce concrete paving or concrete blocks that mimic natural stone. And that's proving to be very, very successful in terms of what it can achieve. Although it won't reach its full potential until we see the markets recover and we'll be able to really leverage that value add that we can bring. But in terms of innovation across the group, I think there's a number of things. We want to be really clear about the innovation and platforms that we're going to grow against that benefit all of our businesses in a diversified group across landscape, water management, coal creek bricks and solar. And one of the things that I know is that with Viridian Solar, we've got a young entrepreneurial innovative business. And the mindset that they have is something that I think can benefit the whole group. So we have got some really interesting products in the pipeline. I don't think it'd be right to kind of reveal those now, but they -- they build on some of the successes we've had before. And there may be combined opportunities across a couple of our businesses, like landscape and drainage. But yes, it's a really important part of what we do, and it will certainly -- that's the vitality of the business as we move forward.

That's great. I might just jump in there, you've taken all the questions from investors. If any further questions Matt do come through, obviously, we'll make those available post today's call. I know feedback will be particularly important to yourself and to Justin, and I'll shortly redirect those on the call to certainly give you their thoughts and expectations. But before doing so, Matt, if I may, just return to you for a couple of closing comments.

Yes. I think, look, it has been a challenging first half, but what I'm really optimistic about is the future of the business. I think we've got 2 core scale businesses. Landscape should be producing mid-teens returns at the bottom line, and we're absolutely confident that we'll get there over the coming months. And we've got a very strong business in Marley Roofing. That's producing very good margins and commanding strong premiums. But it's also then the opportunity we've got in those more recent acquisitions across solar, concrete bricks and civils and drainage or water management, where we see some real opportunities to drive margin accretion and growth through building on our existing position. So this is a really strong business, and it's really well positioned to capitalize on the market recovery and outperform over the medium term, which is our key driver. So thank you for joining today. And hopefully, that's been an informative session and we managed to answer your questions.

That's great. No, you certainly have. Justin, thank you once again for your time this afternoon. Can I please ask investors not to close the session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This may take a few moments to complete, but I'm sure we'll be greatly thanked by the company. On behalf of the management team of Marshalls PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.