Marshalls plc (MSLH) Earnings Call Transcript & Summary

Right. Good morning, everyone, and welcome to Marshalls' 2024 Full Year Results Presentation. Thanks to you all in the room for joining. And for those joining online, too, welcome. As always, I'm joined by Justin Lockwood, our Chief Financial Officer, to go through the presentation this morning. And we've also got Simon Bourne with us, our Chief Commercial Officer, who will join for the Q&A. So what's in store this morning? I'll start with my reflections and summary of the year with a particular focus on the work we are doing in Landscaping before Justin talks through the detail of our financial results. I'll then come back to briefly recap on our Transform & Grow strategy and importantly, share some of the progress we are making across our business units in the 3 months since we launched the strategy at the Capital Markets event back in mid-November. Ending with a short summary and outlook for 2025 and then I will open things up for questions to people in the room and for those joining online, too. And just a reminder to those online, they can type their questions at any time, and we'll read them out in the room before answering. So when I stood here just over 12 months ago, I've just formally taken the reins as Chief Executive. And when I reflect on the year, it's proved to be an important year in transforming the group. Back in November, we presented our Transform & Grow strategy, which establishes a strong foundation for future market outperformance across our diverse and balanced business portfolio with a clear focus on strengthening our 2 brand powerhouses, Marshalls Landscaping and Marley Roofing and investing in our 3 growth engines of Viridian Solar, Marshalls Water Management and Marshalls Bricks. And in that time, we've realigned our organization to support our business unit-led operating model, strengthened and invested in our leadership, put customers back at the very heart of everything we do and ensuring that the decisions we are making are being guided by our new purpose, building tomorrow's world. And the team have done all of this work in a backdrop of weak end markets, focusing on supporting our customers better every day, controlling our cost base and ensuring we maintain a disciplined approach to managing our working capital. And I'm hugely appreciative of the support, hard work and dedication of all my colleagues across the group over the last year who have delivered a resilient performance whilst putting in place strong foundations to drive outperformance over the medium term. The strong foundation -- sorry, I've lost my place there. Apologies about that. That performance reflects the decisive management actions taken back in 2023, underpinned by a diversified group with a more balanced exposure to our key end markets. With the continued weakness in these markets, particularly new housing, down by over 1/4 in the last 2 years and continued weakness in private housing RMI, overall revenues reduced by 8% to GBP 619 million across the group, but our profit before tax at GBP 52.2 million was down just 2%. We saw some positive and encouraging performances from 2 of our 3 segments, with Roofing and Building products delivering 80% of the group's profit in 2024. I want to be clear that this was much a reflection of their growing contribution and growth as it was the performance of Landscape products. Very importantly, we have rigorously controlled our costs and driven greater efficiencies, and I'm particularly pleased with the clear focus and disciplined working capital management, which has significantly strengthened our balance sheet with net debt reducing by nearly GBP 40 million and leverage improved to 1.5x, and our adjusted operating cash flow conversion remains very strong at 106%. The strong foundations of the group that are in place will benefit further in both the short and the medium term from the performance improvement in Landscaping, our ability to swiftly capitalize on the market recovery, which we expect to materialize later this year and strengthen progressively. And the profitable growth through the execution of our Transform & Grow strategy. And quite clearly, we will benefit from the inherent strength of the group's nationwide network and operational leverage. So looking across our 3 reporting segments. In Landscaping Products, the focused improvement actions we have put in place in the middle of last year are gaining traction with revenue growth expected to be delivered in 2025, and I'll return to this in more detail shortly. And whilst the key end markets of new housing and private housing RMI have remained weak, we were encouraged to see the rate of revenue decline slow across the year, and we believe now that we have arrested any further market share loss. Our Building Products segment, including Marshalls Bricks and Marshalls Water Management has also strengthened despite the continued weakness in new housing, with revenues improving sequentially in the second half and strong profit growth of 16% for the full year and an expanding forward order book that is encouraging at the start of this year. And I'm particularly pleased with the growth in revenue and profits for roofing products in this year. Marley Roofing returned to growth in the second half of the year, and Viridian Solar performed very strongly, driven by regulation and the increased adoption of in-roof solar in new housing with over 70% revenue growth in half 2. And this growth is continuing into 2025. And overall, profits for our Roofing Products segment were up 10%. So before I hand over to Justin to go through the detail of our 2024 results, I wanted to update you on our landscaping business and where we are focused on improving performance. This remains a core part of a broader and more diverse portfolio, and I'm confident we will return this business to profitable growth, and it will further strengthen the potential of the group. In my first few months in the business, it was clear that landscaping was underperforming, and we quickly identified the core issues behind this, which we have talked about at both the half year and at the Capital Markets event back in November. In June of last year, the team implemented a comprehensive performance improvement plan, which will underclear our strategic imperative to drive greater value from our distinctive national specification model, which we know is highly valued by all of our customers. That improvement plan has 4 key priorities: strengthening our leadership and realigning the organization to drive specification, simplifying and rationalizing the portfolio and driving through the associated operational efficiencies, reinvigorating and rebuilding our long-term strategic partnerships with both customers and suppliers and developing our core commercial and operational excellence capabilities. This slide provides a more detailed summary of this improvement plan, and we will update you on the progress against this plan as we travel through this year as it gathers pace and drives the improvements we are targeting. So in regards to strengthening our leadership and realigning the organization, we have made significant progress. Nick Platt joined from Baxi on January 1 as MD for Landscaping. Michael Roden and Keith Brophy rejoined Marshalls and have significantly strengthened our senior sales leadership. They know this market and our customers well and are already making a real impact. And Stacey Temprell joined as Marketing Director across the Marshalls brand bringing a much needed focus on our reinvigorating our value propositions. Alongside this, we have made a number of key other key sales appointments across the specification and trading teams. Again, some of these people are talent rejoining our organization. And we have reorganized the team across both commercial and domestic sectors to focus on specification, reorganized our regional and area sales teams, adding an additional region to ensure we are appropriately focused of what and where we create the most value in the market. And we've also established a commercial excellence team. That reorganization is now 95% complete and I can't underestimate the impact of having the right people organized effectively to service the needs of our customers and creating value for them has had on the engagement with our customers and within our own teams. Now back in November, Simon and I talked about how the Landscaping portfolio had become overly complex, in essence, trying to be all things to all people. And that over a period of 3 years, our pricing and portfolio architecture had not responded appropriately to the needs of our customers in a challenging and far more competitive market. We are resetting our portfolio, which will see us rationalize the number of SKUs by over 25%. That equates to about 500 product lines coming out of the portfolio whilst bringing MPD to market to complete identified gaps in our good, better, best architecture. This work is progressing at pace, and we expect to see the impact of this work through the end of quarter 2 and into quarter 3. Clearly, linked to this is running this tighter and improved portfolio back through our operations, aligning our capacity and network to manufacture and deliver this range more efficiently. This work is happening in parallel, and we will see the benefits of this delivered in half 2 this year. When it comes to strategic partnerships, we have made a significant step change. A good deal of this is down to the -- the strengthening of the leadership team and also to the focus and the effort that Simon Bourne has led in leading -- is led with our key customers. We now have agreed a number of multiyear trading agreements with major customers and more in the pipeline at both national and regional level, which is leading to significant improvements in the presence and share of voice of Marshalls landscaping products versus our competition right the way across the U.K., and it's reinforced by the improving customer Net Promoter and Customer satisfaction scores that we monitor continuously through the business. And whilst I can't share the name of this customer, one of the best compliments you can have is when a customer says to you, it feels like Marshalls really is back on its game, and I genuinely believe we are and it's not only with customers but suppliers too. We are strengthening our partnerships with material suppliers, agreeing mutually beneficial terms and harnessing the innovation and technology they can bring to our markets, strengthening our market-leading portfolio and supporting our carbon leadership. And finally, we have a clear focus on investing in developing our commercial and operations excellence. We have a structured program in place, and we will invest ongoing in ensuring we have the best and most comprehensively trained team in the market, who understand how to create value for our customers, and equally optimize the revenue and margin from a clearly positioned and focused added value portfolio. 2025 is a year of reinvesting in landscaping in the Landscaping business. And these plans are already gaining traction. We can see this is our forward indicators with the strengthening of our order books and a greater visibility and presence in the market for Marshalls Landscaping. These improvement plans will continue beyond this year and underpin our strategic goals, and we expect to return to revenue growth in 2025 and drive significant improvement in both revenue and profitability in 2026. So on that note, I'll hand over to Justin.

Thanks, Matt, and good morning, everybody. So I'm going to take you through the detail of our financial performance for 2024, and that will include an update on each of our reporting segments and on our cash flow performance. I'll then move on to an update on the strength of our balance sheet, and I'll close with a recap on our capital allocation policy. So this slide sets out the key financial highlights for 2024. And you can see that revenue has contracted by 8% year-on-year. And that's fed through to a reduction in operating profit at a slightly more modest rate of 6%, helped by the benefit of the cost-saving actions that we implemented in 2023. Now Matt touched on earlier about the reduction in net debt year-on-year, which was GBP 39 million. We're really pleased with that, but it's also benefited the P&L account through a reduction in our finance charge. And that's meant that the reduction in PBT has been restricted to 2% year-on-year. That's fed through to a reduction in EPS of 4% down to 16p. And that reflects a slightly higher effective tax rate. And the reduction in the full year proposed dividend is -- has been reduced by the same percent, so down by 4%, and that reflects the application of our capital allocation policy. So I'll now talk through the key drivers of performance at group level, starting with revenue. So the chart on this slide sets out a revenue bridge split between our reporting segments. And you can see that, that revenue is contracted by 8% year-on-year to GBP 619 million. And as Matt highlighted, we've seen a progressive slowing of the rate of contraction from 13% at the half year to 2% in the second half of the year. And indeed, in the final quarter of the year, revenues were flat year-on-year. And that reflects that weak U.K. construction market in general, but more specifically, the weakness in new house building and housing RMI, both of which are key markets for the group. Now it's clear from the chart that the weakest performer across the group was Landscaping, and that reflects its exposure to both of those 2 key end markets. The discretionary nature of parts of its product range and some loss in market share. And the chart really underlines the need for the improvement actions that Matt set out a couple of slides ago. The rate of revenue decline in Building Products was much more modest at 3%. And indeed, revenue in the second half of the year was flat year-on-year and increased sequentially compared to the first half. And then turning to Roofing Products, which delivered growth for the year as a whole. And that growth really accelerated in the second half of the year, principally driven by a strong performance from Viridian Solar. So now moving on to operating profit at group level. And the chart on this slide sets out the component parts of the 6% reduction in operating profit to GBP 66.7 million. And you can see from the chart that we delivered profitability growth in both Roofing Products and Building Products, but that was offset by a weaker performance in landscaping, which was adversely impacted by lower volumes and a really competitive pricing environment. The operating profit also benefited during the year from cost savings resulting from the actions that we took in 2023, and that resulted in a benefit of GBP 7 million in the current year. And I'm pleased to be able to say that we've delivered our targeted annualized savings of GBP 11 million in full. Now it's also worth highlighting on this chart as well that we returned to profitability growth in the second half of the year. So profit was up by GBP 3.9 million. Our operating profit was up by GBP 3.9 million and that was driven by improved performances by both our Roofing Products and our Building Products segments. And improved margins in both those segments were partially offset by a weaker margin performance in landscaping, but overall, the group operating margin increased by 0.3 percentage points to 10.8%. And we continue to expect a significant improvement in our operating margin in the medium term to at least 15%, driven through a combination of increased volumes from a market recovery, the benefit of the successful application of our performance improvement planning landscaping and also the execution of our Transform & Grow strategy, and we expect all those factors to drive significant operational leverage through the P&L account to underpin that margin target. So I'll now move on to each of our reporting segments, starting with Landscaping Products. And this business has encountered tough trading conditions throughout 2024, due to its exposure to new housing and the more discretionary end of housing RMI. And as a result, revenue is contracted by 17% year-on-year driven by lower volumes and that tougher pricing environment. But the rate of revenue contraction slowed from 21% at the half year to 9% in the final quarter. And that demonstrates that the performance improvement actions that we put in place during the middle of the year are starting to gain traction through the business. Operating profits in the segment halved to GBP 10.7 million. And that reflects the impact of lower volumes on gross profits, weaker price over cost realization and reduced levels of operational efficiency. But that was partially offset by a lower cost base from the cost savings that we implemented in 2023, and that benefited this segment by about GBP 9 million year-on-year -- sorry, by about GBP 5 million year-on-year. And as Matt touched on earlier, we expect this business to return to revenue growth in 2025 and then to substantial profit growth from 2026 and onwards driven through further increases in revenue and the benefit of operational leverage as we drive more volume through our manufacturing network. So turning now on to Building Products. And the products within this segment are principally supplied into new housing and commercial and infrastructure end markets with little exposure to housing RMI. Revenues in the segment contracted by 3% year-on-year. And that reflects weakness in the new housing market, partially offset by a pivot towards commercial and infrastructure end markets within our Water Management business. And again, we saw an improving performance as we traded through the year with revenues being flat in the second half year-on-year and a sequential improvement. And that was driven through improved activity levels in both our bricks and our mortars business units. Profitability increased by 16% to GBP 14.1 million, and that was driven through improved operational efficiency, again, within our bricks and mortars business unit, where we saw the benefit of higher production volumes and the cost savings from the actions that we took in 2023, which reduced the cost base by about GBP 1.7 million. So now moving on to Roofing Products where for the year as a whole, we delivered revenue growth of 4%, and that included a 13% increase in revenues in the second half of the year. Now that was principally driven through Viridian Solar, where revenue growth was over 70% in H2. And that was driven from a ramp-up in demand for the Clearline Fusion product or roof-integrated solar product as the impact of the part L -- or changes to part L Building Regulations really started to take an effect. And it demonstrates that house builders are selecting Viridian Solar as a market-leading product as part of their response to those changes in regulations. It's also noteworthy that Marley returned to growth in the second half of the year. And that demonstrates the resilience of that business with its balanced exposure to end markets. We're really pleased with the profitability performance of this business. So profit is up by 10% to GBP 49.4 million and that reflects increased volumes and really strong price discipline within Viridian Solar. That resulted in a profit increase. But actually, the performance -- the underlying performance of Marley was really strong in weak market conditions, and that was generated through some increase in volumes and very tight cost control. So now this slide sets out the profit and loss account from operating profit through to earnings. And as mentioned earlier, operating profit contracted by 6% to GBP 6.7 million but it increased in the second half of the year by 13%. Finance costs were GBP 2.9 million lower year-on-year due to lower bank interest costs and reduced lease charges. And that restricted the reduction in PBT to 2%, so down at GBP 52.2 million. And that's in the context of an 8% reduction in revenue. So we're pretty pleased with our performance. The effective tax rate increased by 1 percentage point to 22%, and that's reflective of the increase in the U.K. corporation tax rate partially offset by the benefit of a patent box arrangement that was put in place during the year. And that's fed through to the 4% reduction in EPS with a modest reduction in PBT and a slightly higher effective tax rate. So now moving on to our cash flow performance and reduction in net debt. And you will be aware that we've been focused on reducing net debt over the last couple of years. And therefore, I'm really pleased to be able to report that pre-IFRS 16 net debt has reduced by GBP 39 million in the last 12 months, and we closed the year at about GBP 134 million. The components of that reduction in net debt are set out on the chart on the slide with the first contribution being EBITDA at about GBP 98 million. And then we delivered a really strong cash conversion performance, where we delivered 106% of EBITDA into operating cash flow. And that reflects really robust working capital management despite an increased investment in inventories ahead of the expected market recovery in 2025. Finance and tax payments are lower year-on-year and that's due to lower finance costs and reduced profitability. And there's some benefit in there also of timing of cash flows. We've managed capital expenditure very tightly in the year with gross capital expenditure of GBP 11.6 million. And that reflects a controlled investment plan where we've been focused on maintenance capital expenditure rather than growth capital because, frankly, we didn't need any incremental capacity during 2024. And that was partially offset by the receipt of GBP 4.4 million from our site disposal program, which resulted in the overall net capital expenditures during the year of GBP 7.2 million. The dividend cash flows reflect the application of our capital allocation policy. And included within other cash flows, is a GBP 3 million contingent consideration payments associated with the Viridian solar acquisition agreement. And there's a final payment under that agreement, which will be made in the first half of this year, and that's GBP 6.6 million. So we take all that together, and that adds up to the reduction in net debt of GBP 39 million during the year. In a slightly longer historical context, though, over the last 2.5 years, we've reduced net debt by over GBP 70 million. So now turning to the balance sheet. So this chart sets out -- this table sets out a range of measures focused on working capital management returns and balance sheet strength. And you can see from the table that debtor days and creditor days both improved in 2024, an average inventory term was unchanged. Return on capital employed was marginally lower year-on-year, but remember, we do expect to see the return on capital employed increased to around about 50% in the medium term as we see market volumes recover, and we have the successful execution of our Transform & Grow strategy. The balance sheet has been further strengthened during the period and leverage has reduced to 1.5x EBITDA as a result of that strong cash generation that I talked through on the last slide. And it's also worth highlighting that we've got very significant headroom against our bank facilities, and it was GBP 160 million of headroom at December '24, and that gives us plenty of capital to access in order to execute our growth plans. And finally, turning to our capital allocation policy, which we tweaked at the time of the launch of our Transform & Grow strategy in November. So the execution of that strategy requires CapEx of between GBP 20 million and GBP 30 million a year. And in 2025, we expect to be towards the bottom end of that range. Our next priority is to invest in those areas, identifying as part of the strategy review, we believe will enhance our competitive advantage. So that's best-in-class technical and design support, our leading brands and carbon leadership. We'll continue to maintain dividend cover of 2x adjusted earnings and the proposed final dividend of 5.4p per share, which will result in a total dividend of 8p per share is in line with that policy. Now following the much strengthened balance sheet position in 2024, we don't expect to see any significant reduction in net debt during 2025. And that reflects an increased investment in working capital, higher levels of capital expenditure and the Viridian Solar contingent consideration payment that I mentioned on the last slide. Now we do expect though reductions in net debt to recommence from 2026 onwards and into the medium term. And as part of our update to the capital allocation policy back in November, we're now targeting a leverage range of between 0.5 and 1.5x EBITDA. And at the end of 2024, we were at the top end of that range. And finally, we will continue to evaluate potential bolt-on acquisition opportunities that will enable us to accelerate the delivery of the Transform & Grow strategy. And they're likely to be focused on Roofing, Water Management and Energy Transition. And with that, I'll hand back to Matt.

Thank you, Justin. Clearly, whilst markets have remained weak, as Justin has talked about, there have been some very encouraging performances from 2 of our 3 reporting segments and the financial foundations of this business are very strong. So let me turn now to a short recap and progress update on our Transform & Grow strategy and to our future growth. That growth is underpinned by a more diverse group with balanced exposure to our key end markets. This chart has been updated to reflect the 2024 position with 45% of revenues coming from new housing, 25% from housing RMI and 30% from commercial and infrastructure for the group as a whole. And you can see the same split across our 3 reporting segments. Importantly, you can see that our revenues are becoming more balanced across the group with nearly 60% of revenues coming from our growing Building and Roofing products segments. Whilst today, 80% of profits are coming from these 2 segments through the execution of our strategy and with Landscaping returning to health, it will be as part of a broader and more diverse portfolio. We are definitely on a journey to building out a group with 3 significant component parts and not on a journey back to a group overly exposed to one particular segment or business. Now today, our addressable market is significant scale around GBP 3.5 billion and we have enviable market positions with strong and differentiated propositions and significant headroom for growth from our brand powerhouses of Marshalls Landscaping and Marley Roofing, where even as a strong #1, we see the opportunity for revenue and share growth through the recovery. To our 3 growth engines, Viridian Solar, where regulation will drive significant growth in the size of this market through the cycle and where we can leverage our strong market-leading position. To Marshalls' Water Management, where we have real potential to organically grow from our strength in new housing into the large commercial and water infrastructure segment. And finally, in Bricks, where Marshalls is the #1 in lower carbon concrete bricks, and we see significant opportunity to grow our penetration and win in a very big market. In each of these markets, our businesses have clear strategic imperatives to deliver this growth. And I wanted to just provide a short recap on each of their strategies and a snapshot in the progress since November. So I've outlined earlier the key near-term priorities in Landscaping that will underpin our medium-term strategy, which is to reinforce our brand position in our commercial heartlands, drive share growth in higher-margin commercial segments with headroom for growth and strengthen our brand position and drive share in residential segments. And these will drive a 1% to 3% market outperformance over the medium term. Now our near-term improvement plan is gaining traction. We've seen a clear reduction in the rate of revenue decline, and this trend has continued into the early part of this year. Our order book is strengthening as we rebuild the commercial specification pipeline and invest in winning business today. And we are seeing a significant uplift in orders going into merchant yards to support the residential sector, reflecting the strength of the trading agreements that are now in place. Importantly, we believe we have now arrested any market share loss that we saw over the last couple of years. And as we're traveling, it's important to recognize some of the work that's going on. We have reinvested in our domestic installer program, launching a new Marshalls accredited scheme to support and inspire loyalty with our highly regarded landscaping installers. And we've relaunched the Marshalls website responding to feedback from our customers so that it is now -- provides an easier and more seamless customer experience for them. In Marley Roofing, our aim is to strengthen our position in our roofing heartlands and drive share in the roofing adjacencies with a clear strategy to optimize the profit in the social RMI heartland, drive market share in the larger, relatively higher-margin private RMI sector and leverage the unique full roof offer to drive share in the private new build market. With these actions, we plan to deliver a 1% to 2% market outperformance over the medium term. And today, the revenue growth in Marley, we saw in half 2 is continuing into the early part of 2025. Our market share in concrete and clay tiles is increasing in our heartlands. We are continuing to win specification in social RMI and have a strong pipeline of opportunities to convert through the year, and trials are already underway to test the value of a full roofing system solution, including solar in the private new build market. And we've also identified the need to invest in our manufacturing capability to underpin our quality proposition and drive improved efficiencies, and this investment is planned for 2025. So let's move on to our growth engines. Viridian Solar being primarily driven by leveraging the regulatory tailwinds, particularly those part L of the regulations to accelerate its growth, this first chart shows the trajectory of the percentage of new homes built to the part L 2021 regulations, which stood at 42% at the end of 2024 and is forecasted to hit nearly 100% of all new homes by the end of this year in England. This increase in penetration is reflected in the strong year-on-year growth in this chart with revenues in half 2 up over 70%, and this rapid growth continuing into this year. Importantly, our share and margins are holding firm, although we continue to monitor our win rates closely to ensure we maximize the pound note returns for this growing business and it's not just about Clearline solar fusion. We are seeing continued growth in sales of our solar inverters with attachment rates growing towards 30%. And our ArcBox, which is a patented product that helps to mitigate the risk of fire associated with the arcing in solar connections is going from strength to strength both in the U.K. and overseas. And it's also worth remembering the chart we shared back at the Capital Markets event that highlights that for every 100,000 new homes built, 64% of these houses will have roof integrated solar, representing a GBP 77 million opportunity for every 100,000 new homes in England. And we are targeting market outperformance of 8% to 12% in this business. In Water Management, our focus is on repositioning the business and building a compelling proposition and offer to access the growth and market headroom in water infrastructure, while strengthening our market-leading position in new housing and supporting and investing in broadening our manufacturing capability and building capacity to support that growth. And we are making significant progress already. Our order intake is strongly ahead of the prior year, supported by increased activity in new housing, reflecting the positive sentiment of many house builders on an improving housing market this year. And we're continuing to win more commercial infrastructure projects across highways, projects like HS2 and power and wastewater projects. Importantly, with the AMP8 investment cycle starting this year, which is approved at GBP 108 billion, we now have framework agreements in place with 4 major Tier 1 main contractors in water infrastructure and more in progress. This will allow us to access the work packages as they approved and clear tracking is in place to monitor when these are awarded. To support this activity, we have already begun scaling up our design and specification sales teams, and CapEx planning is underway to invest in building that capability and the capacity we will need in the coming years to support this strong growth. This is clearly an exciting opportunity for Marshalls, and we expect to deliver a 4% to 6% market outperformance over the medium term. And finally, in Marshalls Bricks and Masonry, we're accelerating the adoption of concrete as the lower carbon alternative is a source of significant growth. And our priorities are to drive share in new regions with national house builders, accelerate concrete adoption with regional house builders and launch NPD to expand our offering as well as investing in our manufacturing capability, flexing our existing capabilities today across the group's network to build the required nationwide coverage. We are seeing traction in every single part of this strategy. Our facing brick share has increased to nearly 7% in 2024. Importantly, our forward order book with house builders is strongly ahead of last year and reflects the more positive outlook from house builders at the start of this year. And we have in our sights 3 national house builders who are targeting 50% use of lower carbon concrete bricks. To support our growth, we're launching 2 new ranges this year that strengthen our offer through new aesthetics, finishes and colors and this activity means we are necessarily scaling both our marketing activity and our commercial team to drive growth. Now the execution of our Transform & Grow strategy underpins our value creation and the medium-term targets we set out at the Capital Markets event. The group is well positioned to outperform the construction market with its diverse portfolio of businesses exposed to scale markets where there is significant headroom for growth through innovation and bolt-on acquisitions. Profit growth will be further supported by our inherent operational leverage, and we have a highly cash-generative business model and our strategy delivers a material increase in operating cash flow and requires only a normalized level of capital investment through the cycle. Increase in free cash flow supports deleveraging our balance sheet and provides the optionality to support bolt-on acquisitions or returning it to our shareholders and the profitable growth will increase shareholder returns through dividend growth without a material increase in capital employed. So in summary, we delivered a resilient group performance in 2024, reflecting those decisive management actions, underpinned by a more diverse group, positive and encouraging performances in both our Roofing and Building Product segments which deliver 80% of our profits today, and our Landscaping Products improvement plan is gaining traction and will strengthen the business through 2025. And our disciplined focus on working capital management has strengthened our balance sheet with a significant reduction in net debt. As we look ahead, we expect a market recovery later this year, which should strengthen progressively. Our confidence in this is underpinned by the government's ambition to reinvigorate new housebuilding and to invest in the nation's infrastructure alongside further likely cuts in the Bank of England base rate through this year. And we are well placed to leverage this recovery through our diverse group of businesses and the execution of our Transform & Grow strategy. A strategy that will see Landscaping returning to health as part of a broader and more diverse portfolio and a strategy that is building out a group with 3 significant component parts, not a journey back to a group overly exposed to one particular business or segment. A group that will both look and feel different where Landscaping will be part of a bigger and a more balanced business overall, one that comprises 3 reporting segments delivering revenues that are more evenly split approximately 40% across Landscaping products and 30% in Building and Roofing Products over the medium term. And we remain confident about delivering that material increase in profitability and returns through the cycle. And we are clearly seeing some very positive and encouraging forward-looking indicators at the start of this year across all of our businesses. So thank you. And we'll open it up for questions. I'll ask Justin and Simon to come on up. So as normal with these things, we go to the questions and we say, maybe 1 question, but we know we'll probably get 2 or 3 chance. So we'll start over here. You have your hand up first.

Aynsley Lammin from Investec. I think I've just got 2, please. On the kind of trade in year-to-date, a bit more color around that. I think you said Landscaping was still down revenue. I just wondered what that was compared to the 9% in Q4, if you've got a number for that. And then just thinking about Landscaping for the rest of the year, how much of your kind of -- is it all market that you expect to drive the increase in revenue? How much do you need the market to kind of benefit, I guess, your forecast?

Maybe I'll ask Justin to do trading update. I'll say a bit about Landscaping and then hand to Simon.

Yes. Okay. So in the first couple of months of the year, what we're seeing is a continuation of the trends that we saw in the final quarter of last year. So within that, we're seeing -- Landscaping is still contracting year-on-year, and it's mid-single digits. And we've returned to growth in Building Products, low single digits, and the performance within Roofing is broadly consistent with the second half of the year. It's probably worth just adding to that within Landscaping, what we are seeing is improving order intake position. And if we look at the orders to date, they're broadly similar to orders to date this time last year. So we're certainly seeing some improving in trends within that.

Okay. When it comes to Landscaping, I think you're asking, are we relying really on the market to help us recover. The answer to that is no. The market has still been weak. It's the improvement actions that we're taking that we expect to start generating that recovery and turnaround in revenues and we're getting traction with that. I think it's about that leadership. It's about having the right portfolio, clearly articulated. It's about driving the efficiencies through our business and building those long-term partnerships with our customers is really paying dividends. And Simon, would you add any more color to that?

Yes, I think you summarized it well, Matt. So we're not relying on the market. The market will clearly be a bonus if that starts to pick up. The work we are doing is already getting traction with some major customers, and there's still more opportunity out there. That's fair to say. So where we are seeing traction that is in play, but there's an awful lot more to go up.

Okay. Thanks, Aynsley. We'll go straight in front of you to Chris.

Chris Millington from Deutsche Numis. I suppose the first one, I just wanted to ask about is this opportunity in Civils, kind of where you were before, how big an opportunity is this in Civils? And also perhaps could you just tie into that comment kind of how concrete is going to play versus plastic in this whole framework as well? I'll do one at a time. I'll come back with another...

Okay. So yes, I mean, the size of that market, I think you could see it in one of the charts. I mean this is a very, very large market, and it's got probably 1 very large other player in it, but our capabilities, which we looked at as we went into our strategy work show that we're quite capable of accessing that market and the types of products that the customers are looking for. I think about 80% of what they're looking for. We have the capability to make. So that allows us to pivot very effectively into that. We have a very, very limited share in that market, which is vast. I mean, we work currently with Severn Trent Water, but actually being able to access all of the investment that's being made into that through the Tier 1 main contractors is the criticality. So those framework agreements are key to accessing that opportunity. Can I put a number on it? No, but I think you can see we're targeting 4 to 6 market outperformance. It could be more in that as we learn more and access that opportunity, but also wouldn't undermine the strength that we have in new housing as well, as that new housing market recovers with our strength in position there, we will drive significant growth. So I'm very positive about where we are today but what we can see in the future. Can I put a size of opportunity on it fully? No, but we will look to outperform that market very strongly.

And the concrete plastic?

And the concrete plastic, I think the size of the market is there's a significant opportunity for both. If you go on site, you'll see concrete and plastic being used together on many projects, but there are certainly ones, certain projects where concrete is absolutely critical to that infrastructure, and that's where we'll play out very strongly. But I think there's a huge opportunity here for any player in Water Management.

I think just to add to that as well, the pipes, I mean, clearly you got concrete versus plastic pipes, that's one thing, but a lot of the investment is going to be in CSO tanks, which aren't going to be plastic. It's just the scale of means that it's a different material required to manufacture those products.

Next one, could I just ask around pricing strategy in '25? And perhaps that's going to be better to be discussed divisionally because of what you're doing in Landscaping. But maybe just talk around the subject matter for us.

Do you want to talk that and then a bit of Simon as well?

Yes. Sure. So I guess what we're looking at is if I start really with cost inflation because that flows into this. So across our input costs, we're seeing those being broadly flat from a raw material perspective. There are some pockets of inflation. There are some pockets of deflation within there. But if you work on broadly flat. The other area of cost inflation that we need to deal with is driven from labor. And we've concluded pay awards of between 3.5% and 4%, and that is on the back of actually no consolidated pay increase in 2024. So the key driver of increasing cost is coming from labor, both through the cost of living increase and the higher national insurance contributions that will kick in next month following October's budget. And our aim is to recover those input costs in building products and in roofing products. And we're taking a different approach within landscaping because our key priority really is to rebuild our market share and reestablish those customer relationships. So we'll be taking a more pragmatic approach in that segment. Simon, do you want to?

Yes. Again, I think you summarized it well. I think the investment in landscape, we talked about it at the Capital Markets event. That was known. It's a strategy that we're adopting and whether opportunities will take them, Chris. But at the moment, it's a case of investing in the Landscape space.

I've got 1. I don't want to leave too many for Clyde afterwards -- so it's just portfolio simplification. It strikes me taking out 25% is a big number, but equally, having 1,500 remaining is still a big number. So I don't know, can you talk us through kind of how biased it is into the top 10% of the category? I just need to understand it more. Is it little bit wider than maybe I thought it would be?

Yes. Simon, do you want to talk about that?

The reality is that over a lengthy period of time. I think we've lost a little bit of control, Chris, in terms of how the portfolio is positioned. I think that reduction in 25%, it sounds like a big number. It actually isn't in the grand scheme of things when you look at the portfolio end-to-end in the price positioning. It's a bit messy. We've taken that feedback from customers. And obviously, we've got an internal view. So that 25% doesn't mean that we're not going to have a very credible offer out there. We pride ourselves of having a great proposition, and that will remain. So that 25% sounds a lot, but we've got a lot of duplication in the portfolio. So we're looking to eradicate that in the main.

I think with these things, you always end up with a range that just ends up with every color under the sun, every size under the sun, and it just gets like this and you create a tail that's totally ineffective and drives massive inefficiency both with your sales team, but also back through your manufacturing operations. And I think that's one of the benefits of a simpler portfolio is you can start to optimize your manufacturing network really strongly against that. And that has clear benefits back into the business.

And it's working capital management as well because it feeds into reduced inventory holdings.

Is that it for you, Chris?

Adrian Kearsey, Panmure Liberum. Following on from your comment, Justin, in terms of working capital in terms of the simplification and how that can translate. Can you sort of perhaps give an indication there, however, in the sort of short term, what kind of working capital investment you're looking to make this year? I'll go one at a time, if that's alright.

Okay. So I guess there's a couple of aspects to this. When we issued our trading statement in January, we highlighted that there were some temporary factors that have positively impacted our performance, i.e. our net debt performance was much stronger than we thought it was going to be in the full year. And we highlighted a number of GBP 9 million, GBP 3 million of that related to a piece of CapEx, which we've now concluded. So that was complete in the first part of this year. But the other element was GBP 6 million relating to working capital. That will reverse this year. And so obviously, that feeds into cash conversion in 2025. So the other areas are really is how much inventory do we think we will put on the ground. And we have reduced inventory quite significantly over the last couple of years. We've built some back in the second half of last year, and there's a bit more rebuilding of inventory to take place there, particularly in Bricks and in Water Management. And then the rest of the working capital, really, well, we -- I think we do a very good job for credit control management. We are cognizant of, I guess, there's increased risk in the supply chain there, given the ownership structure of some of the merchants, but we're managing that very well, and we'll continue to pay our creditors in accordance with terms. So I wouldn't really see any significant changes in credit to date. But I'd expect a little tick up in debtor days next year.

In the presentation, you mentioned order book a few times. Can you perhaps sort of give a sort of indication what's the scale of the order book, which parts of the business the order book is most concentrated on, but also perhaps how that's evolved over the last 12 months so we can get a sense about the direction?

Do you want to take that, Justin?

Yes, sure. So we start with the different parts of the business. So as Matt touched on, we're seeing an improving order intake position within Landscaping. And I think I just touched on that earlier, we're now broadly flat year-on-year. And that's been helped by the new customer deals that have been put in place, and we've got some products going into yard. So I think that's pretty positive. Within our Bricks business, we've seen a modest uptick in physical order intake, but we've seen a more, I guess, a larger indicative volume requirement from house builders. So that's double digit, whereas the actual order intake is lower than that in the year-to-date. In Water Management, we're seeing strong improvement in order intake in that business, which is positive. And they are the really key areas of the business where order intake is indicative. In Marley, much of the orders go straight into -- go into yard rather than going into site and an order turns into a dispatch within 3 or 4 days. And I guess in Viridian, whilst you don't -- you're not getting physical order intake coming in, what you are seeing is a really healthy pipeline of designs that are being performed by the design team, which gives us confidence that we're going to continue to see a positive trajectory from a revenue perspective in that business.

And the last one. You talked about having a great capability within water management and CPM sort of well positioned to take advantage there. Some of the products that you make are quite big. So although you have 80% capability, do you think that given the way that, that market is going to evolve, you may have to invest in capacity?

Yes. I mean that -- there's a significant capital investment to be made over time is probably the area of our transforming growth strategy that will see the most significant investment in CapEx. So we have the capability in terms of our technical capability and know-how. What we're going to have to do is broaden the range of offer that will be required to access those opportunities. So that's the investment that we're making across our Water Management sites. What we're doing at the moment is planning out exactly what that capability and capacity needs to look like. We've got enough for the moment, but we'll need more as we go. So I don't know whether you want to add anything more to that?

No. Just the assessment on our capability is already underway. Clearly, we're not investing yet, but I think we want to take our time and make sure we've got exactly what we need for the future. So that piece of work is already underway.

Thank you. Clyde?

I've got a few. I'll do them one at a time as well. One on solar. Where are we in terms of power prices, are things going up, down or just sort of flat at the moment, would be useful to get an update on that? And I'll attach at that comment really around bottlenecks in terms of installation and other parts that might be slowing the growth of that business down. So I'm just looking for an...

So I guess from a pricing perspective, we saw -- we've seen some reductions in input costs throughout 2024. That's broadly stabilized. And we don't think our current view is that we're not going to see any more of that flowing through in the current year. And from an installation perspective, we've not really seen any bottleneck that is restricting the demand and the installation of those products. Certainly, we're carrying plenty of inventory ahead of the continued ramp-up in demand, and that's one of the drivers of the increased in inventory that we have on the balance sheet. But I've not heard any instances of a bottleneck being created by labor at this point in time. We're doing a lot of work to train installers both within the Viridian business and in Marley. So it's not impacting at the moment, but who's to say what's going to happen in the future.

Second one I had really was on again Landscape and the consumer focus versus the commercial focus. And I suppose more of the dust has settled. And I'm sort of, a, wondering whether you think you've lost more share in consumer or more share in commercial side of the business and attached to that, and I'm asking lots of subquestions here, the consumer side of it, it sounds like you've gone through the website. Are you looking to drive that a bit harder than the commercial or both the same?

I'll just give an overview. We're going after both. I mean those are core heartlands for us. The commercial side of our business, as we said, is a real strength. That's where you can see significant opportunities in margin growth and headroom. I think -- but we can also see that in domestic. We came off the boil a little bit there versus our competition. We're putting that back in place. And that's why that investment in the installer registered with Marshalls accredited. So both are really important to us as we travel. Can you comment on it some more, Simon.

Yes. I think that's the very reason we've set ourselves up in landscape the way we have. We've got focus on both, and we've made sure that we've got the resource and the setup in terms of how we've kind of constructed the regions and what we're going after in both commercial and domestic. So Michael Roden will look after the commercial aspects and Keith Brophy will look after the consumer and domestic aspects. So yes, you're 100% focused on both.

But if you look at the market share chart, I'm not sure what slide it is, but you'll see that we've got a very strong market share of concrete and a weaker market share of natural stone and porcelain. And that natural stone and porcelain is principally focused around the domestic end markets. And it's fair to say that's a more commoditized part of the market and the margins are lower and therefore, less attractive. I guess what we want to do is to sell concrete and natural stone together and to have combined deals with customers.

And Matt, you mentioned competitors then in your response. Are they just lying down and letting you retake the market share. What are they doing in response?

I think probably referenced my comment is saying, we're back on our game. And I genuinely believe, our customers believe we are back on our game and that is ensuring that we're getting a greater share of voice and presence across many of our customers based on the work that we're doing. That's playing out for our competition where we want to win. Someone loses in the consequence, that's fine with me. We're there to win, and we're doing it really well at the moment, and that bodes well. So competition will be filling the pressure, some more than others. But we've got to do what we do really well and reconnect with the models that have made our -- created value for our customers, both in the past, but doing it in the right way for today, and that's what we're focused on. So yes, we're putting some pressure on out there, but it's about time really.

Last one is a very geeky one. The 25% of the SKU...

Looking at Justin.

Sorry. Obviously, cutting 25% out of your landscape SKU. Are we going to see any sort of stock write-downs needed as a result of that?

No.

Should we go to Stephen.

Stephen Rawlinson from Applied Value. 2 for me. You mentioned CapEx in response to Adrian's question. Sort of what sort of increase in volumes would you need to see in order that to become a real issue or? And I mean, obviously, we're looking at the recovery phase of a cycle here. So obviously, you look at increased volumes. Are we talking about you can do 20% to 30% within existing capacity, additional volumes or is it a different number from that?

We're talking here Water Management specifically?

Yes.

Yes, I'd say we should be able to cover 20% increase in volumes with what we've got because if you look at -- if you go back to 2022 and what that business was delivering at that point in time. There's been a significant reduction in volumes since then. So we expect to be able to recover that. And that's really driven through more labor going into the factories and therefore running the kit...

And more ships, perhaps?

Well, exactly more labor on ships patterns, et cetera.

And a second one on Viridian because Viridian was a strange thing because it sort of bolted on by inflection at the last minute to make my look a bit sexier, some people may think. Yes, you've grown in sort of GBP 40 million revenue. So it's about 6%, 7% of group revenue and about 12%, 15% of operating profit. Where would you see that going? I mean, obviously, those proportions will change as the rest of the business recovers. But it sort of marked time in '22, '23 and it seems to have grown strongly in '24. What are the ambitions for that business because I can see your market share indication here. But can you just sort of outline that a bit more, please?

You'll probably get 2 different sets of ambitions between myself and the CFO. But I think in the past, we've actually said we believe this business can grow to north of GBP 80 million in terms of revenues and do that quite quickly, given the uptake in solar in group driven by that Part L regulation hitting that terminal penetration of 100% to expect at the end of this year. So I think it's genuinely an ambition to double the size of that business to do it quickly, but we think there's more growth to be had here, not just from in-roof solar, but from the attachment rates we're seeing in solar inverters. And from the strength of what is an absolutely fantastic product, which is ArcBox, which is a singular product, which is growing very, very fast. It's not just for use with our product. It's used in solar connectors in-roof on commercial flat roofs both in the U.K., in Europe and around the world. That product has significant growth. And the nature of Viridian, and we've locked in the founding partner and the leadership team. There's more innovation to come. We don't even know what that is. If you think around the type of business they are. There's more things to come. And so there, opportunity is really -- potential is great.

And so 2 supplementary to that, just very quickly. Does that mean M&A? And secondly, just could you give us an outline of the margins that you might expect? Because I can look at the company's house data last year, they were running about 22%, 23%. You're probably running a bit higher now because of better overhead absorption for this year. But are we talking to get to GBP 80 million at current levels of margins?

I'll let Justin.

Yes. So I guess from a margin perspective, we expect them to compress over time. We expect to see new entrants coming into the market and put pressure on margins. On one of the slides, you'll have seen earlier that we are targeting an operating margin in Roofing of between 20% and 25%. We're running above that at the moment. That's principally driven by the very strong performance by Viridian. So we expect over time for that to normalize. But I guess the key thing is what we want to do is to deliver a very strong pound note margin from this market rather than a very high percentage margin on a relatively low revenue.

Thanks, Stephen.

Charlie Campbell at Stifel. I've just got 2, please. First of all, just on Landscape, the drop-through in the year just gone 20%. But should probably be higher the other way as volumes come back?

Yes. So I guess, remember on the -- we did a lot of work last year to take cost out of -- sorry, last year, in 2023 to take cost out of that business. And the drop-through this year -- in '24 benefited from the delivery of those cost savings. I would expect to see a strong recovery in that business, but note that we're not predicting that for 2025 in terms of profitability. And that's because we're choosing to invest in price in order to rebuild our market share. So -- and when you start looking at this in a -- from a longer-term perspective, then we do expect that growth to drive operational efficiency and leverage through the business and improve profitability.

And secondly, just on the Brick side, you talked about the 3 national house builders looking to do 50% concrete bricks. What are those 3 doing now? And is that a medium-term ambition rather just this year, I guess?

I think I'll stick with the ambition that they have, which is they've got an ambition to target 50% use. And it's not there today. Some of those will have higher shares of concrete bricks in their businesses and some are relatively low. But I think our -- the key about this is we know more and more house builders are looking at lower carbon and embodied carbon in their houses. That plays to our strength, and we'll make the most of that. And it's not just about those 3. There's opportunity across other national house builders to build share regionally, but also in our regional house builders as well is an area where we've got opportunities. It's across the piece, but it gives you an indication of the strength of opportunity that exists for our Marshalls Bricks business.

Yes. And sort of just could you make sort of capacity utilization where you are now in concrete bricks and so how quickly you need to scale up?

So we don't need any more capacity this year in order to deal with our growth expectations, but we will do next year. And it's probably just worth reiterating that we see that capacity coming from existing assets that we have across the estate. So we can manufacture concrete bricks is in a block paving machine. There needs to be some CapEx spend on it to convert it to allow us to manufacture or to put perforations into the bricks. So we've done that successfully with the site that we have in Maltby, in South Yorkshire, that's churning out fantastic high-quality bricks, and we can do that with other parts of the estate. And that is part of our capital plan as we roll through the second half of this year, I'd be starting to -- or I'll be expecting us to be starting to spend pound notes on that ahead of 2026.

I don't think there are any more questions in the room. We got any questions online? We haven't. All right. Thank you very much for your time this morning and look forward to catching up with you all soon.

Thank you very much.

Thank you.