Marshalls plc (MSLH) Earnings Call Transcript & Summary

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. We've also got Simon Bourne with us, our Chief Commercial Officer, who will join for the Q&A. 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 and growth 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'll 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. 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 profits 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 brands, bringing a much needed focus on 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 on what -- on 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 strengthening of the leadership team and also to the focus and 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 in 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 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 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 has 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 housebuilding 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 or 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 that operating margin in the medium term to at least 15%, driven through a combination of increased volumes from market recovery, the benefit of the successful application of our performance improvement plan in 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, revenues 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 infrastructure end markets with little exposure to housing RMI. Revenues in this 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 the 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 housebuilders are selecting Viridian Solar's market-leading product as part of their response to those changes in regulations. But 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 the 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 66.7 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 that 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 sped 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'll all 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. 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, it's 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 the lower finance costs and reduced profitability. And there's some benefit in there also of the 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 expenditure 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 payment 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, and average inventory turn was unchanged. Return on capital employed was marginally lower year-on-year. But remember, we do expect to see the return on capital employed increase to around about 15% in the medium term as we see market volumes recover, and we have a successful execution of our transform and growth 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 identified as part of the strategy review that 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 0.5x 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 and growth 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's 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 these same splits 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 product 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 a 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. The 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 a 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 housebuilders 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 are 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 housebuilders, accelerate concrete adoption with regional housebuilders 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 housebuilders is strongly ahead of last year and reflects the more positive outlook from housebuilders at the start of this year. And we have in our sights 3 national housebuilders 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 aesthetic 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, 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 Products 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 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.

Thank you, Matt. [Operator Instructions] We have had a number of questions pre-submitted and submitted live. Our first question is, do you see acquisition as part of this growth strategy?

Yes, I'll take that. This is Matt. So I think as we said through that presentation, we're building down our net debt, and we're getting our leverage into the top end of our medium-term range of 0.5x to 1.5x. But what I do see is a huge amount of potential for organic growth with the businesses that we already have across Roofing, Building Products and Landscaping. That being said, if we see the opportunity for bolt-on acquisition through the cycle and it helps build that strategy, we would look at it. But I think our priority for the time being is organic growth from the businesses we have today.

Thank you. The next question is, you've mentioned enhancing your customer value proposition through leading brands and carbon leadership. Can you provide more specific examples of how you plan to differentiate Marshalls' offerings in these areas?

Maybe I'll give a couple of examples and then maybe give it to Simon to emphasize a few more. But I think we set out through our Transform & Growth strategy, the capabilities that we know our customers hugely value from us. And our track record of innovating leading brands across the group is well known and well regarded. If I think about the innovations we brought to market, low carbon concrete bricks is one example of that, and it ticks the box of developing our leading brand, but underpins our carbon leadership. And if you look at our low-carbon concrete bricks, they have a 50% advantage to the equivalent clay bricks in the market. And I think that's a huge example of that. But equally, some of the examples we have in our Landscaping business, which are around the TriBlend mix. And maybe I'll ask Simon just to give an example of that and maybe any others you can think of, too.

Yes. Thank you, Matt. Simon here, guys. So yes, we've obviously always led from the front with regards to innovation, particularly around materials to reduce carbon and indeed cost in the business. So TriBlend would be a particular example of that. And we've got numerous others where we actually work with supplier partners to get the best value and indeed reduce carbon across the patch. Another thing that I would call out in terms of differentiation would be the technical services that we provide in various different parts of the business. We do that through Viridian Solar in terms of our design packages. But if we bring it into the concrete world from a commercial landscaping perspective, we have a technical and design team that work with architects and Tier 1 contractors to be able to reduce carbon within particular schemes and indeed reduce cost of install. Our competition can't match us for that, and therefore, that differentiates us.

Thanks, Simon. And maybe just one very current example is an innovation coming out of Viridian Solar, which is our ArcBox, which is, if you like, a product that reduces the risk of fires in roofs where solar is put into them. And this is basically a product that goes over solar connections to prevent arcing. And when you get arcing, potentially you can get a spark and it can cause fires in roofs. And the product we have, which is due to receive its patent in the U.K. in the next month, basically mitigates the risk of that. It's a clamp that goes over the solar connection, and it reduces those risks. It's -- year-to-date, we sold 28,000 of those products. They are -- they have a very strong gross margin. And we have patents pending in countries that represent 95% of where all solar panels are sold in the world. So our track record of innovation is strong, and we'll continue to do that to create value for our customers, but also for our business, too.

Thank you. The next question is, how effective do you think the government's strategy to reinvigorate new housebuilding given the additional cost implications given the budget?

Yes. I think we're all very aware of the government's stated ambition to build 1.5 million new dwellings as they would call it through this parliament. And firstly, I absolutely support the ambition. There's a huge need for more housing across the U.K. I mean I think the pragmatism of achieving that 1.5 million probably needs a little bit of resetting. But the work that the government has done on addressing the planning constraints that have slowed down our ability to build not only new housing, but other infrastructure are fully support and that will encourage house builders to find more sites and to build out quicker, which is much needed. I think there's also the investment that this government is planning to do in the nation's infrastructure, which is equally important. And however the spending review goes in June, I think what we do know is that the level of investment going into the nation's infrastructure in terms of road and rail and power and water is significantly more than it has been through the last cycle. So we should see the benefits of that flowing right the way through our business. And I think we're well set to support that growth as it comes. And when housebuilding is at the kind of low levels it is today, we know there's capacity within the supply chain, not only our own to significantly cope with a rise in new houses being built. And I think the only constraint further down the line of 2 constraints really. One will be labor if we trying to get to building anywhere near 300,000 homes a year, that is a constraint in terms of the trades available. And the second one is there is a disciplined supply chain. And when you get to building 300,000 new homes, that will put pressure on the supply of materials to support that. But generally, I support the ambition, and I think it will start to gain traction over the coming years.

Thank you, Matt. The next question is on share price performance. The share price performance year-to-date is down 14.01%. When will we see value coming back?

Justin, shall I let you answer that one?

Yes. I guess whilst share price is important, I think it's frustrating for all of us to see the share price dipping down. I mean it reflects a lot of wider factors going on in the U.K. markets at the moment. And it's difficult for us to really comment on fluctuations on a day-to-day and week-to-week basis. We're really focused on executing the transform and growth strategy. We're really focused on grasping the opportunity that we see in front of us and particularly focused on delivering on the performance improvement program within Landscaping. We believe that will drive improvements in profitability, and that will flow through into share price.

Thank you, Justin. The next question is, are there any parts of the group that might not be strategic on a long-term basis and could allow capital to be recycled into target areas for M&A?

So in terms of that, through the strategy review, we look very closely at all of the businesses that we've -- that are in the group and that we've acquired over the last 7 or 8 years. I think through the Transform & Grow, which we launched at the Capital Markets event in November, it's very clear that all the businesses we've got have got opportunities for growth, whether it's the 2 powerhouses in Marshalls Landscape and or Marley Roofing or the 3 growth engines of Viridian Solar, Marshalls Low concrete carbon bricks and Marshalls Water Management, the scale markets with significant headroom for growth. So all those parts are key to the strategy and getting the growth, and I don't see any need to look at divestment of those and even our regional -- more regional mortars and screeds business is doing a good job for us in creating good profits and cash. So no, I don't see businesses that we would look to divest to raise money to invest further in the business. And in fact, if you look at our Transform & Growth strategy, it really only requires a normalized level of capital expenditure to drive that growth, and we're talking about sort of GBP 20 million to GBP 30 million a year through the cycle. So it's not really the priority.

Great. The next question is on cash flow. Cash flow was very good in 2024. To what extent do you expect that to continue in 2025 with the exception on more growth coming, especially working capital movements?

Justin?

Yes. So yes, the cash flow performance, as we set out in the presentation, was very strong, and we were very pleased with that. Significant reduction in net debt during the period and very strong cash conversion. Actually, 2025, we don't expect to see any significant reduction in net debt for the year. And that's due to 3 factors. The first one of which, as was mentioned in the question, we'll look to invest a little bit in working capital. So we want to be able to support the growth of the business. We'll invest a little bit in inventories, and I expect to see our customer receivables increasing as well as the business grows. [indiscernible] The second area is that we will, as Matt touched on a little bit earlier, be looking at spending more on capital expenditure during 2025. And we'd expect to be towards the bottom end of the range that we set in place of GBP 20 million to GBP 30 million. Now that compares to capital expenditure in 2024 of about GBP 11 million. And even that was partially offset by the receipt of some proceeds from selling assets. So the total net capital expenditure in 2024 was GBP 7.2 million. So we expect to spend a little bit more there. And then we've got a final contingent consideration payment to make for Viridian Solar under the acquisition agreement there. And that's a payment of GBP 6.6 million in 2025. So you take all that together and that will mean that we don't really expect any significant change in net debt during the period. As we roll forward into 2026, we certainly expect that cash-generative nature of the business to kick back in and to be delivering reductions in net debt of working around GBP 20 million a year thereafter.

Thank you, Justin. The next question is good PBY figures, but the revenue is down. What impact will this have on dividend?

Justin?

Yes. So, I guess within our capital allocation policy, one of our key priorities is to maintain dividend cover at 2x adjusted earnings. That's been in place for some time now. It's a flexible policy. It means that the business isn't paying out dividends when they're not supported by earnings, and it allows profits to be retained by the business and reinvested where we see opportunities to grow the business. We do expect profitability to increase going forward, and that will result in an increase in dividends as the profitability increases, and we continue to apply that capital allocation policy.

The next question is, the portfolio simplification sounds quite dramatic in Landscaping with a 25% reduction in SKUs. Can you give some sense for the areas and quantity of the benefits you expect it will generate?

Simon, would you like to pick that one up?

Yes, I can pick that up Matt. Yes, 25%, it sounds a lot when you actually look at the portfolio itself, it has become extremely confused. There's a lot of cluster products that sit together, a lot of duplicates, and we've got products that are playing across various pricing and architectures that don't fit. So actually, the 25%, once we remove that, we still have an extremely comprehensive portfolio of products that play across the best -- sorry, good, best -- better and best ranges. So the 25%, we don't see as an issue and the reason we are doing this is because we've had feedback from customers that it's overly complicated and quite confusing. In terms of the benefits that it will bring, well, clearly, it will make the products far easier to sell from a colleague perspective and certainly from a customer's perspective, far easier to purchase. But as we conclude the portfolio analysis and indeed the pricing architecture alongside that, it will allow us to have a look at our network across our manufacturing facilities to look at whether there's any further optimization that we can do as a result of that. And we expect to get to that point in Q2 of this year.

Thank you, Simon. The next question is, do you think that you may sell the Landscaping business if it does not improve? And how long will you give it?

Look, I think as we set out, we've got the near-term improvement priorities that are starting to gain traction in our Landscaping business. It's a core part of our portfolio, a large part of our revenue. We believe that the actions we're taking in the medium-term strategy will return our operating margins to sort of 12% to 15% range on Landscaping that sits within our overall medium-term target of operating margins at 15% and absolutely believe and have every confidence that the actions we're taking will drive it back there. So it remains an absolutely fundamental part of the group.

Thank you. The next question is, how does this transform and grow strategy address the current market volatility and the ongoing challenges in the construction sector?

Yes. Look, from a transform and growth strategy, I think it's been building out from a while in terms of the diversification strategy that we've had in acquiring businesses from the core in Landscaping through into Bricks and Water management and then in laterally into Roofing and Solar. And that diversification is having the effect of having -- giving us a more balanced exposure to our key end markets across commercial infrastructure, new housing and housing RMI. And that really puts resilience back into the business so that construction is cyclical by nature. But having that breadth that we have now and with different businesses with strengths in different parts of that market will allow us to navigate the volatility and uncertainty and particularly through a downward cycle and Transform & Grow looks to do that. And I think particularly within landscaping, one of the things that we need to make sure is that, that business has more resilient earnings or more resilient earnings through the cycle. And that portfolio simplification and then network optimization is critical to ensure that we're not sitting on too much excess capacity through a downturn, but that we can respond to the up cycle in the right way, but we should be seeing margins that never really drop below double digit even in a downturn. So look, I think our portfolio and its exposure, more balanced exposure to end markets is what gives us a greater resilience as a group.

Thank you, Matt. The next question is, you have been a sector leader in sustainability for over 20 years. How do you plan to maintain or enhance your leadership position as ESG becomes an even more prominent factor in procurement decisions?

Justin, do you want to take that one?

Yes, sure. I'm happy to take that one. Yes. So yes, I'm pleased there's an awareness that we have been an ESG leader for such a long period of time. We were recently recognized by the FT as a sector leader in Europe, which is really pleasing. We were the first construction company to have a net zero target approved by the science-based target initiative. And we recently updated that target to include the acquisition in Marley in those numbers. And we've got a very long history of reporting our carbon footprint of our products and also to seek to improve conditions in our overseas supply chain. The carbon reduction and ESG is absolutely central to our Transform & Growth strategy. Carbon leadership itself is one of the 3 unique capabilities that the group has. And we agree that leadership in carbon will become increasingly important to our customers, and we'll seek to position ourselves to benefit from that. And indeed, more generally, the -- our leadership in ESG matters is a key underpin to the strategy. From a carbon content perspective, Simon touched on this to some degree, but we've got a real focus on materials innovation to reduce the amount of carbon that is included in our products. And we've had some significant success through a mix in our concrete block paving called TriBlend, which uses 60% less cement than a standard block paving. Our nationwide coverage gives us an absolute fundamental advantage within the industry because our products are inherently manufactured closer to the locations that they used on projects. And specifically in parts of the business, we've got products which have a very natural advantage to some of the competition. So for example, our low-carbon concrete bricks, which by way we have around about half the carbon that you'll find in a clay brick. But if we go beyond carbon into other parts of the business, we see significant advantage through the due diligence that we do on our supply chains. And a great example of that is the due diligence that we've done on our solar supply chains. Now most of the world's solar panels are manufactured in China. And we've had an extensive program of auditing our supply chain, and we've been back -- I think we're now back to either Tier 7 or Tier 8 within that supply chain, whereby we understand where the polysilicon is being mined that goes into the solar panels. And that sort of information is proving very valuable to customers and is feed into decision-making. Social value is also very important as well, particularly to local authorities and Tier 1 contractors. And again, we're able to demonstrate how we can add value back into our local communities, whether it's working with schools or colleges and providing free product or career advice, et cetera, to people in buildings colleges. So we see a continued benefit that we expect to drive and growing benefit that we expect to drive from ESG matters, and it's absolutely central to what we're trying to achieve.

Thank you, Justin. And we're running out of time, so we'll just take one final question. You mentioned that national insurance has increased and added to GBP 3 million to your costs. How do you plan to offset these additional costs? And what is the outlook for inflation across other parts of the cost base?

Justin, do you want to take that?

Yes, happy to take that. Yes, the increase in costs from national insurance and increase in the national minimum wage, about GBP 3 million. We are constantly looking at opportunities to offset increases in our cost base. And where possible, we will seek to recover those increases through higher selling prices to our customers. There are parts of the business that it's challenging to do that this year and particularly in Landscaping where our strategy is to rebuild share rather than increase prices, but we'll look to do it elsewhere. And as Simon touched on earlier, we're constantly looking at the network and opportunities to become more efficient in our manufacturing and more broadly in our operations. If we -- I guess, to move on now on to sort of inflationary pressures in the business. I think our raw materials and energy input costs are grow expected to be broadly flat in 2025. So some increases in pockets and some deflation in pockets. However, we do expect -- do expect there will be an increase in our labor costs of between 3.5% and 4%, which represents the further cost of living settlement for the period. That should be put in the context of there being no consolidated increase in wages and salaries in 2024. And that increase in cost feeds into the point I made earlier about seeking to either make efficiencies or recover the cost through -- increased costs through selling prices where possible.

Thank you, Justin. And I will hand back over to Matt now for any closing remarks.

Yes. Thank you. And just thank you to everyone for joining and listening in and for the questions as well. I think as a business, we're now trying to -- we're on a journey to build out a group of 3 more even component parts across Landscaping, Roofing and Building products. And I think we're driving more resilience in our earnings and our future growth prospects as a result. And I think that's starting to pay dividends through this year and the foundations are strong for as we move forward in this year and the future years to come. As a kind of outlook for this year, we are seeing some encouraging forward indicators, particularly in new housing with more activity in our Water business, which is strong within new housing and also in the order books across our Bricks business for the year as well. And the traction that we're getting with Landscaping with the near-term improvement actions, our order books across the commercial Landscaping, Residential Landscaping are looking much stronger at the start of this year than they did at the start of last. So I'm certainly feeling more positive about where we are. And as we said, we expect a recovery to start later this year and strengthen progressively, all things being true as they are today and some of that driven by the expected cuts in the Bank of England base rate. Maybe they dampened a little after yesterday, but I still think we can expect a couple more cuts through this year, which certainly starts to drive confidence across consumers and in business as well. So that's it really, and thank you very much for joining.

Thank you for joining us today and for all of your questions. That concludes the Marshalls investor presentation.