Marshalls plc ($MSLH)

Good morning, everybody, and welcome to Marshalls' 2025 Full Year Results Presentation. Thank you to everybody in the room for joining us and of course, to those online, too. I'm joined this morning for the presentation by Justin Lockwood, our Chief Financial Officer. So just a quick rundown of the agenda. Before I get into the presentation itself, I will outline my thoughts as a new CEO to Marshalls. I'm then going to give a brief overview of the full year performance before handing over to Justin, who will take us through the group's full year results in more detail. I'll then return and share an update on the progress we are making with our Transform and Growth strategy. And then I'll wrap up with a view on the outlook before opening the floor to questions. Just a quick reminder for our online participants. You can submit your questions at any time via the chat, and we'll read them out in the room before responding. So as a reminder, I've been in the business for over 10 years. And during that time, I have held a number of roles, including that of Chief Operating Officer and more recently, Chief Commercial Officer. I've also been a member of the Board since 2022. Both myself and Justin are integral in the development of our transform and growth strategy. And as you will see from today's presentation, we firmly believe that it remains the right strategy for Marshalls. So if we're not changing strategic direction, what are we doing? Well, the message today is one of strategic continuity, but with much sharper execution that will ensure that we deliver on the commitments and the medium-term targets that we set out in November 2024. So looking at the left-hand side of the slide, where are we now? Well, Marshalls is a great business with a diversified portfolio, and that does give us a good degree of resilience in subdued markets. The proposition that we have is genuinely differentiated with unique capabilities that our competition cannot easily replicate. We still have great products, and those hold enviable #1 or #2 positions in the market. And our national network gives us the service and carbon leadership advantages over our competition. And underpinning all of this, we have really talented colleagues with both the capability and the desire to deliver outstanding outcomes. And this certainly shows through with the unrivaled technical and design expertise that we bring to every project. Now these are advantages, real advantages, and these are advantages that our competitors cannot easily replicate. So what are we doing differently? And looking at the right-hand side of the slide, we've already tightened our focus with fewer higher-value activities, both operationally and strategically. We've intensified the pace in which we operate, and we are improving the commercial performance culture up and down our business. And I'm now going to take you through each of these in detail on the next slide. So we're absolutely committed to the medium-term targets, and we believe in the strategy, but we must sharpen up our execution. And as a result, we've been tightening our focus. We're being much more selective about the activities that we undertake. Strategic investments have now been prioritized, and these are guided by customer insight, financial performance and structural and regulatory tailwinds. The people-related activities in 2026 will be directly linked to value creation in the P&L. And we are now more proactive in the management of our product portfolios and new product development to make sure that we keep things simple. We've intensified the pace by building an organization that is focused on delivery. So we've got a flatter structure that will improve accountability throughout the organization and clearer frames of reference for trading will enable agile, more confident decision-making at every level in the business. And this will mean that we can compete more effectively with our regional competitors. We've already seen examples where we are becoming a seamless extension of our customers' businesses, and we're making it easier to deliver value, drive collaboration and reinforce the long-term partnerships that underpin sustainable growth. And finally, we are embedding a performance culture into the business, strengthening our commercial excellence. We now have far better visibility of the commercial levers that drive financial performance, such as pricing architecture, customer and channel profitability and cost to serve management. We've redesigned our incentive schemes to focus on margin performance, and we're ensuring that our cost base remains aligned to our market opportunities. And all of this has been underpinned by a reinvigorated sales and product awareness training. So as we look into 2026, our focus is simple. It's one of delivery, delivery that is evidenced by improved profitability, not just plans, not just intentions, but results that demonstrate progress. So before I hand over to Justin, I'm just going to run through a very brief summary of our performance for 2025 and the progress that we're making against the Transform and Grow strategy. So despite challenging market conditions, the group delivered revenue growth and landscape has shown a clear improving trend throughout the year. In terms of profitability, we've seen growth in roofing products and a solid performance from Building Products. Landscaping profitability was in line with our expectations and against our plan. And finally, our disciplined approach to working capital throughout the year has delivered a very robust balance sheet. So overall, these results demonstrate early but clear progress with regards to our Transform and Grow strategy. We're stabilizing the group, we're rebuilding growth and we're improving our financial resilience. And this is all whilst investing in the capabilities that will strengthen our market positions for the long term. This is a solid foundation to build on, and I'm confident that as we continue to execute the strategy with increased pace and greater discipline, we will unlock further value across the group. And with that, I'm going to hand over to Justin, who will take you through the financial detail.

Thank you, Simon, and good morning, everybody. So I'm going to take you through the key financial highlights for the period. I'll then run through the detail of the results at both group level and by our reported segments and also our cash flow performance. I'll then give you an update on the strength of our balance sheet before closing with a recap on our capital allocation policy. So this first slide sets out the key financial highlights for the period. We're pleased to be able to report a return to revenue growth of 2% to GBP 632 million, and that's after a couple of years of declining revenues. However, operating profit contracted by 15% to GBP 56.4 million, and that was due to a weaker performance by landscaping. Profit before tax and EPS both declined by 16% year-on-year to GBP 43.7 million and 13.4p per share, respectively. And our proposed full year dividend reduced by the same percentage to 6.7p per share, reflecting the application of our dividend policy. And finally, we continued our disciplined approach to cash management. But despite that, we had a modest increase in net debt due to some normalization of working capital and the payment of adjusting items. So I'll now go on to revenue and operating profit at group level. And the chart on the left-hand side of this slide sets out a year-on-year revenue bridge, showing the component parts of the 2% increase in revenue to GBP 632 million. And you can see from the chart that both Building Products and Roofing products delivered growth in the period, and they both increased by 4%. However, landscaping products contracted by 1%. The slide on the right shows a similar bridge for operating profit. And it's clear from that bridge that the main driver of the reduction in profitability was Landscaping Products with relatively small movements across the other reporting segments. Now as usual, the operating profit numbers are stated after adding back adjusting items. And adjusting items in the year totaled GBP 24.4 million. And they comprise the amortization of intangible assets arising on acquisitions, that's GBP 10.3 million, and that's a recurring feature of our P&L account. But in 2025, we also had restructuring costs of GBP 14.1 million. And they were split broadly 50-50 between cash costs and asset impairments. More details on those are set out in the appendix of the deck if you have interest in that. So I'll now move on to the performance of each of our reporting segments, starting with Landscaping. So as mentioned on the last slide, landscaping revenues contracted by 1% and that's against a challenging market backdrop where sector-wide volumes are still running below historic norms. And against that backdrop, we are pleased to deliver an increase in volume growth of 4%, and that was delivered through improved customer relationships and new trading agreements. However, the benefit of that volume growth was offset by deliberate and targeted price reductions, which reduced revenues by 1% and a shift in product mix, which had a 4% impact on revenues. And the impact of those 3 factors all moderated in the second half of the year. Operating profit contracted by GBP 10.1 million. And as a result, the reported segment was broadly breakeven in 2025. The reduction in profitability was driven through the price investment that I've talked about and the shift in product mix towards lower-margin categories. In addition, we saw cost pressures in the business with pay awards and higher national insurance contributions, and those weren't offset by customer price increases during the period. In addition to that, we saw a significant deterioration in the financial performance of our natural stone processing business, and that resulted in the closure decision in the second half of the year. Those factors, though were partially offset by the benefit of improved volumes and the early benefits of our restructuring programs. So we responded decisively to that deterioration in profitability in this business and identified GBP 11 million worth of cost savings, which we expect to be fully delivered by the end of 2026. And indeed, GBP 3 million of those was delivered in 2025. And a little later in the presentation, Simon is going to take you through the component parts of how we expect to rebuild margins in this business. And we believe that the decisions that we've taken in 2025 will result in a more flexible and agile business that will underpin a significant improvement in profitability in 2026. So now moving on to Building Products, where we delivered revenue growth of 4% and that reflects good growth in both Water Management and our mortars business units, partially offset by lower revenues in Bricks. In our Water Management business, the growth was driven through both our core residential market and the wider infrastructure markets, supported by improved stock availability and good customer service levels. Our mortars business benefited from its strong service proposition and relatively modest build rates across housing developments that favors our ready-to-use product. However, in Bricks, we chose to focus on pricing rather than volumes. And therefore, we saw a reduction in revenues during the period. And we did that in order to protect our gross margins. And in the second half of the year, we saw increased competitive intensity as the rate of housebuilding slowed. Operating profit was 8% lower year-on-year at GBP 13 million, and that reflects improved profitability in our water management business from higher volumes and an improved product mix. But that was offset by lower profitability in Bricks with lower volumes and reduced manufacturing efficiency. In addition, the reporting segment benefited from lower levels of property income compared to recent years, and that reduced profits by about GBP 800,000. So now turning to Roofing Products, which delivered revenue growth of 4% and that growth was driven through Viridian Solar, where revenues increased by about 1/3 as house builders continued to select its products as part of their response to change in building regulations, which require increased energy efficiency. The rate of growth of Viridian moderated in the second half of the year as we expected, and that's as the comparatives became tougher. However, we were pleased to see sequential growth in 2025 with higher revenues in the second half of the year than the first half. Revenue in Marley Roofing, though declined, and that was due to the tough market backdrop and increased competitive intensity as we saw increased market capacity come on stream during the period, which reduced our sales of concrete roof tiles. Operating profit in this segment increased by 2% to GBP 50.2 million, and that reflects improved profitability in Viridian from higher volumes and its disciplined pricing strategy, but that was partially offset by lower profits in Marley due to lower volumes and weaker manufacturing efficiency, which in itself led to product availability issues for certain product profiles. We've integrated a targeted program of capital expenditure aimed at improving the resilience and efficiency of Marley's concrete roof tile lines, and that will remain a key area of focus in 2026. So now moving on. This slide sets out the profit and loss account from operating profit through to earnings. And as mentioned earlier, operating profit reduced by 15% to GBP 56.4 million. Finance costs were GBP 1.8 million lower year-on-year due to lower base rates and the benefit of a pensions credit. So as a result of that, profit before tax contracted by 16% to GBP 43.7 million. Our effective tax rate was 22%, and that's unchanged year-on-year, and it's lower than the headline rate of corporation tax in the U.K. because of the patent box arrangement we have in place. So taking all that together, earnings per share reduced by 16% to 13.4p due to the weaker operational performance. Turning now to cash flow and net debt. And the chart on the right-hand side of this slide sets out the component parts of our movement in net debt during the period and starting from the left-hand side with EBITDA at GBP 85 million. We've continued our disciplined approach to working capital management and delivered cash conversion of 88%. However, despite that, we still had a working capital cash outflow of GBP 12.5 million. We consumed around GBP 25 million of cash in interest payments and taxation, and that was higher year-on-year due to normalization of the timing of interest payments and arrangement fees associated with the new syndicated bank facility that was put in place in November 2025. Capital expenditure of GBP 15.7 million remains targeted and tightly controlled, but it did increase year-on-year by about GBP 8.5 million. And that reflects increased CapEx on Marley's concrete tile lines, investment in Viridian's office space and warehousing facility, increased investment to increase capacity in water management, and we also benefited from lower levels of proceeds from site disposals than last year. Adjusting items paid was GBP 10.9 million, and the most significant item of that was the final Viridian Solar contingent consideration payment of GBP 6.6 million, and the balance was restructuring cash costs. So overall, net debt increased by GBP 4 million to GBP 137.9 million. So I'll now move on to focus on the balance sheet and our capital discipline. And this slide sets out a range of metrics, which look at working capital management, returns and balance sheet strength. And you can see from the table on the right-hand side that debtor days and creditor days both improved year-on-year by day and the average inventory turn was unchanged at 2.8x. Return on capital employed reduced to 7%, and that reflects the weaker operational performance. However, we continue to target to rebuild that to 15% on the back of delivering our Transform and Grow strategy and seen a normalization of market volumes. Our balance sheet continues to be robust, although leverage increased a touch to 1.8x. And we've got a lot of headroom against our new syndicated bank facility. And at the year-end, that was GBP 125 million. And that bank facility, along with the cash-generative nature of our business provides the capital that we need in order to execute our growth plan. And finally, moving on to our capital allocation policy, which remains unchanged. Our strategic plan requires us to invest between GBP 20 million and GBP 30 million a year. And in 2026, we expect capital expenditure to be at the lower end of that range. And a couple of slides ago, I talked about the slight increase in net debt during the period, but we do expect in 2026 and beyond to return to annual reductions in net debt, reflecting the cash-generative nature of our business. And we continue to target leverage to be in the range of 0.5 to 1.5x EBITDA. And with that, I'll hand back to Simon.

Thank you, Justin. So it is very clear against that tough market backdrop that we've delivered a performance that demonstrates the strength of our broad product portfolio. So we're now going to turn to the Transform and Grow strategy, where I'm going to give you a brief update on the progress in each of the business units. So as a brief reminder, and many of you will recognize this slide, our Transform and Grow strategy is built around our customers and a common set of capabilities that we absolutely know they value. Our medium-term goals along the bottom are clearly defined and they are built on delivering market outperformance across the business and leveraging the financial strength of the group to deliver sustainable growth. I'm now going to take you through each of the business units in turn. I'll give you a brief overview of the market, the strategic priorities for each and the progress that we are making against those. So first of all, let's have a look at landscaping and a brief market update. In the second half of 2025, we did see a softening in the market. However, overall activities year-on-year were broadly flat. Across the industry, there were no significant changes in overall capacity, although a number of our competitors did scale back their output throughout the year. And just directing you to the top right of the slide and as a reminder of our near-term improvement plan. We've been busy strengthening the leadership team, growing our strategic relationships with customers and simplifying our offer. We've also made significant progress in embedding a commercial excellence program across the business. And looking at how we're doing against the plan, the team is now rebuilt, and I'm absolutely confident we have that Premier League winning side in place. Multiyear trading agreements are secured and pricing is agreed for 2026. Our customer engagement scores are improving, and they're up by 15 percentage points, and our share of wallet in yard is growing. And in some cases, that is now beyond 85% -- and overall, we gained just over 4% of overall market share during the year. And this progress with our customers has been recognized through multiple supplier awards, most notably Supplier of the Year from 2 of our major partners. The product portfolio has been simplified and our pricing architecture is now aligned to that. And most importantly, we now have a very clear new product development pipeline with launches planned for quarter 2 of this year. And these new products are going to rebalance the good, better and best ranges, and that will help us to defend against the competition where customers have previously been migrating. And all of this is underpinned by an improved commercial capability, driving greater value, and this has certainly been evidenced with an improvement in gross margin in H2 of 2025. And let's not forget, we will deliver GBP 11 million worth of cost savings in 2026, and this will underpin and improve our profitability through '26. So these results demonstrate clear progress and they certainly strengthen our competitive position. And alongside our nationwide network, we firmly believe that we're in a great position to capture value as the demand recovers. So I'm now going to talk you through the building blocks for margin recovery in the Landscape Products business. So I'm absolutely confident we will rebuild the Landscape business and deliver operating margins of at least 12%. We've achieved this before, and the foundations are now in place. So I firmly believe we can do it again. Starting on the bottom left of the slide, 2025 has very much been a reset year, one where we focused on rebuilding the foundations needed for sustainable, profitable growth. And the key to this was having that Premier League winning team in place to allow us to reinvigorate our relationships with customers. We've reset the cost base and already unlocked around GBP 11 million worth of cost reduction, and that's been done through network optimization and overhead removal. And this has given us a much simplified footprint and lower complexity to improve our efficiency and control. Our commercial excellence is now starting to show, and we've introduced clear product and pricing architecture, and this is supported by a robust pipeline of new product development. And all of this is going to enable us to improve our margins through specification-led sales. And service and availability has also improved, and that's helping us to protect mix and retain our customer base. And finally, as demand normalizes, we can deliver incremental volume with our existing footprint. And we've seen this historically, and it does result in significant operational leverage. So in summary, we've rebuilt the foundation. We've reset the cost base, and we have strengthened our commercial capabilities. The plan is very clear. The actions are in motion and the impact is beginning to come through. Now turning to Marley Roofing. In terms of a brief market update, underlying demand has remained broadly stable. However, the competitive dynamic in concrete roof tiles has seen a shift. New capacity was introduced across the market in 2024 and 2025. However, some older assets will be retired this year. So we do expect competitor intensity to persist in 2026. So against this backdrop, we've assessed our strategic priorities that we already have in place, and we're confident that we have the right plan. We will, of course, continue to monitor market dynamics very closely. And as a reminder, and directing you to the top right of the slide, repairs, maintenance and improvement in both social and private markets remains a priority for us as does leveraging our full roof system offer to drive share in private new build housing. And of course, we will continue to focus on boosting availability in categories where supply has held the market back. And if we look at the progress and response against those actions, we're absolutely protecting our margins by continuing to invest in the Marley brand and in our specification and full roof system capability. And from this, we've seen specification-led growth. We've secured pilot deals with small to medium house builders for full system offers, and this includes solar. To support in that, we've invested in new software to strengthen lead generation and maximize our margin per tile. And to further support, we've got dedicated capital expenditure plans to improve operational efficiency and quality. And this investment will be dedicated specifically towards those concrete tile lines that are subject to increasing competition. Therefore, our plan is very clear. We will continue to strengthen our heartlands through targeted investment, and we will continue to drive share in adjacent markets. So moving now to Viridian Solar. 2025, industry demand increased significantly, and that was due to the Part L regulations. Alongside this, there were no changes in competitor dynamics, and we maintained our market share throughout the year. The demand for our ArcBox Fire Protection product continued to grow strongly and the introduction of the future home standard remains a long-term growth driver for us. In terms of our strategic priorities on the top right, they remain unchanged. We will continue to leverage regulatory tailwinds that drive solar into new build housing. And alongside that, we will continue with new product development and innovation. We'll continue to increase the attachment rate of our ancillary products, and we're going to accelerate the growth of ArcBox in European markets. So we look at the progress against the plan. We in 2025, we delivered an outstanding performance and protected our market share, and this is reflected through very, very strong customer service metrics. New product development has been a continued focus for us, and this has resulted in the launch of our most powerful panel to date. We've strengthened our supply chain due diligence, and this is increasingly becoming a deciding factor with regard to contract award. And finally, we've expanded our international sales team with a specific focus on the potential for ArcBox across several European markets. This product has seen significant volume growth over the year and has resulted in over GBP 2 million worth of revenue in 2025. So this year, we will continue to innovate. We're going to launch the Viridian Solar mobile app, and this will give our customers greater control across the installation journey and will further enhance the ease of doing business with Marshalls. So whilst growth in 2026 is expected to moderate, the future remains highly attractive in this area. Regulatory tailwinds will provide leverage and new product development will accelerate growth. So now let's look at Water Management. In 2025, again, demand remained broadly flat, and there was limited growth revenue in regards to AMP8. However, design activity in this area is increasing, and I'll come to that shortly. Finally, we did not see any significant change in competitor dynamics. The priorities on the top right of the slide are unchanged. We will continue to strengthen our position in new build housing, and we will look to access new markets in commercial and infrastructure. And to underpin this, we're going to invest in new capability and capacity. So how are we doing against this? Well, our actions in 2025 delivered really strong results. We scaled up our production on existing assets, and that improved our stock position and indeed our responsiveness. And the result of that was 15% revenue growth, and that was in new housebuilding, and we improved our customer service scores despite overall market flatness. In readiness for major commercial infrastructure growth across water, energy and transport, we've strengthened our engineering and design capability. Now this is going to ensure that we can engage earlier with customers. We can shape project specifications and secure higher value work. And it's already paying off. We've seen design activity in this space increase by around 25%. And finally, to further support, we're evaluating capital investment options at the moment that would enable us to scale up our existing network. The aim is to finalize the business case and indeed the capital expenditure case in the first half of 2026. And this investment will be within the existing capital expenditure numbers that Justin reported on earlier. So in summary, we'll continue to compete in new build housing and surface water markets, and we will reposition to access growth in commercial and infrastructure. And so finally, let's look at our Bricks business. In terms of the market update, 2025 industry demand again remained broadly flat with no recovery in new build housing. At the same time, several of our clay brick manufacturing competitors brought back capacity online, and this was in anticipation of a market upturn that did not materialize. And what this did do was create oversupply in the market and indeed put pressure on pricing. So although activity in this business unit remains subdued, our strategic priorities remain unchanged. That said, our responses in a subdued market have been very selective. We prioritize value over volume, and we focused on price realization, protecting our unit margins rather than cutting prices to chase volume. Now this approach has cost us a little bit of market share, but it has limited the negative impact on the P&L. We reduced marketing activity, and we slowed down new product development to avoid incremental pressure, and we reallocated those resources to areas of the group with stronger near-term returns. We've also paused capital expenditure programs that were allocated to converting lines to brick manufacturer. We will restart those programs once volumes recover to a level that will support the investment case. Now pausing these activities shows real focus on the P&L and cash performances. So in summary, we'll continue to drive market share in new regions and accelerate concrete adoption. New product development will be accelerated as the market picks up and not before. And we will still have the opportunity to increase our capacities to meet demand in the future. So I'm now going to turn to the outlook before opening up for Q&A. So demand has remained consistent with that of quarter 4 of 2025, and the weather is certainly not helping us. And although we don't know the full impact of the Middle East conflict, we are mindful there could be an effect in the future on energy prices in the wider economy. But all of that supports my view that we need sharper execution of our strategy. And as I've outlined before, that means tightening focus, intensifying the pace and improving our performance. And with that, therefore, the outlook for this year has not changed. The fundamentals of the business are solid. Our proposition is unique, and this certainly gives us a competitive advantage. And because of this, we also remain confident in delivering a material uplift in profitability and returns over the medium term. We now have the foundations in place, and we are committed to unlocking the full value and potential in this business. This year will be a year of delivery.

Thank you for the presentation. We have had a number of questions pre-submitted and submitted live. [Operator Instructions] Our first question is, are you seeing any real recovery in demand for house builders yet? Or is it still early days?

Thank you. I'll take that one. It's Simon here. It is still early days. I think that we haven't seen any significant uptick. And clearly, we're not seeing any reports from any of the full year results that say there's going to be a significant improvement anytime soon. That said, you often get pockets of regional performance, but it is too soon to say.

And a follow-up question on that. What leading indicators do you watch internally that give you confidence that demand is turning?

Yes. I mean the first thing that we look at or a good indicator for us is our mortars business when it's in relation to housebuilding. We have a ready-to-use mortar business. If we are going to see a pickup in house build, what we find is that the house builders will move to silo-based mortar, and therefore, we would see ready-to-use mortar business ease a little bit. So that will be the first indicator that we would see. In other areas of the business, landscape, for example, we can see our customers' sales out data, which would also give us a good indicator. And from a commercial infrastructure perspective, it's all about the specification pipeline and the health of that and how that is flowing through. So there's a number of different things that we look against across all of the different business units.

Thank you, Simon. And our next question is, the results look good, but why should we believe this is sustainable rather than short-term bounce?

Justin, would you like to take that one?

Yes, sure, Simon. It's Justin Lockwood here, CFO, and good morning, everybody. Look, we were really pleased to return to revenue growth during the period. And we delivered growth across both Roofing and Building Products and a materially better performance in landscaping. We do believe that's sustainable. In landscaping, we've done a lot of hard work, and we were particularly pleased to deliver an increase in volume growth during the year. So volumes are up in landscaping by 4%. And that's just winning back market share. It just reflects all the hard work that Simon set out in the presentation and those enhanced customer relationships in that business will help to underpin future growth there, both from taking market share and also benefiting from any market rebound when it comes, although in our assumptions for 2026, but we're just not -- we're not trying to factor any of that at this stage. We think we've got some fantastic regulatory drivers, which sit behind our revenue numbers, particularly in areas such as solar and water management, and we're really focused on how we execute against those. So look, we are dependent on what happens to our end markets. But really, what we are focused on is winning in the markets that are in front of us and ensuring we've got the right strategies and actions in place to enable us to deliver that.

Thank you, Justin. And are your growth areas like roofing strong enough to make up for weaker parts of the business?

Yes, I'll start that in terms of response, [indiscernible]. Well, look, I think the answer to that is, yes, they have been doing. If you look at over the last couple of years, certainly, the Roofing division has propped up the poor performance in landscape. So the short answer is yes. Clearly, we don't want to rely on that moving forward. We're very confident in the plan for roofing. So that will continue, albeit we've seen some shift in competitor dynamic in traditional roof tiles. But we're very confident in the recovery in landscape and the plan that we've got there. And going back to some of those early indicators, certainly regaining market share, share of wallet increasing beyond 85% in landscape and strong customer service metrics and improving gross margins in H2 tell us that, that recovery plan is working. So yes, Roofing can support. But no, we don't want that to be the case in 2026 and moving forward.

Thanks, Simon. I'll ask the next 2 questions together. So we've got, is the road map to low carbon production still a priority? And what are the commercial benefits versus economic cost to the business? And also, are customers really choosing you because you're greener? Or is it still about price?

I think it does ebb and flow. Sorry, it's Simon again. It does ebb and flow. I still think it is a criteria that customers look at. And when I look at the economic kind of backdrop, some of the carbon drivers for us are actually around carbon miles. So there is a benefit to what we do. So what I mean by carbon miles is making sure that we've got products that are in close proximity to customers and therefore, reducing the logistics distances that we're traveling. So there's not only a carbon benefit, there is also an economic benefit. So they go hand in hand. Price has certainly become more prominent over the last couple of years. We've got to acknowledge that. But carbon credentials still remain one of our fundamental and competitive advantages. So we're still focusing on that. And there are some economic benefits of doing it as well.

Just to add to that. So the -- one example of an economic benefit is an exercise that we've done to change the mix design of a lot of our -- well, our concrete block paving products. And this is all focused on reducing the amount of cement that goes into the mix and adding other materials, which are less carbon intensive and indeed less expensive. So this is a product which we've called Tri-Blend. And we've invested a little bit in silos in some of our factories to enable us to use this different mix, but it's had some very, very strong economic and carbon benefits. I think -- so I completely agree with Simon that it is a purchase criteria that is applied by customers and probably more so on public sector schemes than private sector schemes. But there are other aspects of the business, which are -- whilst not carbon related, are ESG related where decisions are being taken on the basis of credentials. And a really great example of that is in our solar business, of Viridian Solar. And that business has got a very, very clear picture of its supply chain. And its supply chain is in -- it's principally in China. And we've been able to track back through 8 tiers of supply for the production of solar panels. So where that starts is in quarries in China, where the silica is mined right through the production process. And being able to give customers and particularly major house builders confidence around the provenance of those products and comfort around there being no human rights concerns within that supply chain is definitely an important discriminating factor when we're choosing what products to select and certainly has helped us win business.

Our next question is, how do you decide where to allocate capital when end markets are moving at different speeds?

Yes, I'll take this one again and feel free to add, Justin. I think it's clear to us, we've got a couple of areas of our business that have got very, very clear structural and regulatory tailwinds, and they are certainly areas that are attracting investment. at the moment and a kind of bigger and broader opportunity. So if I take water management would be one of those. It's regulatory driven. We've got an AMP8 cycle coming. We feel there's a great opportunity for us to kind of broaden our scale in the commercial infrastructure market and get on the kind of right on the coattails of AMP8, and we will be doing that. So that's a very clear investment opportunity for us, and we'll be building the case out to be signed off by the end of H1. So that would be the best example of that. But we monitor what's going on across all of the business units, the capital investment that we've got allocated at the moment will be inside the numbers that Justin reported on Monday. And if we believe that, that can be scaled up even further, we'll make a separate business case for it. But yes, regulatory and structural drivers will be areas we're looking at immediately. Justin, I don't know if you want to add anything?

Yes, just a few other thoughts on that. So if you look across our portfolio of businesses, then I think it's probably fair to say the most well invested part of the portfolio is landscaping. And we've got significant capacity within that business to recover volumes and certainly to comfortably cover the volumes required to get that business back up to a margin of 12%. So that part of the business should not be capital hungry. But other parts where we see the opportunity and Water Management is a great one that Simon has just talked through is where we would look to deploy capital. The other area that we are actively deploying the capital in -- we started this in the second half of '25, and we are continuing into '26. And it's -- it's really extended maintenance capital going into our concrete roof tile lines in Marley, where we're seeking to improve the efficiency and the resilience of those lines as part of our response to shifts in competitive dynamics within the traditional roofing business. But really, our capital allocation and our CapEx is really driven by where we think we can generate the best possible returns for shareholders.

Thank you. Our next question is, what's the right balance between reinvestments, deleveraging and returning cash at this stage of the cycle?

So I give that one Simon again.

You can do. But what I will say just from the outset, we've got a very, very clear capital allocation policy that we adhere to. If you want to get into a little bit more detail, Justin, then yes, feel free.

Yes. So first priority amongst -- within that is to invest in organic growth opportunities. And we have -- our CapEx, I'd split simplistically between maintenance type CapEx, which is maintaining our existing capital base and CapEx, which is going to give us a demonstrable return. We keep the former very, very tightly controlled. The latter, if we have the cases to invest and we can make a good return on our shareholders' money, we will certainly do that. At the core of our capital allocation policy is our dividend policy, and there are no plans to change this. In very simple terms, we pay half of our earnings to shareholders. And that, I think, has served the business well. I know that some shareholders won't like that because it does result in dividends reducing when the performance dips a little bit. But our view is that we don't want to start the business of capital. We want to be able to deploy that capital in a way that generates returns, but we also want to reward our shareholders. And just in terms of the deleveraging point, look, this cash -- this business is really cash generative. Typically, if you look on a long-term average, we're converting around about 90% of EBITDA into operating cash flow. And if on that basis, you're maintaining your dividend policy at 2x cover and you're keeping a tight control on working capital as we do, then the business will throw off cash. So in 2025, we had a modest uptick in net debt, and there are a couple of specific reasons that are set out on the presentation as to why that was the case. But for 2026 and beyond, we expect net debt to be reducing. A combination of lower net debt and our view that we will deliver more EBITDA in 2026 means that leverage will start to fall, and we'd expect to be, give or take, within our target range of 0.5 to 1.5x EBITDA. So in terms of capital returns beyond that, we've got no plans at this stage. We want to maintain flexibility. We want to reduce that leverage to, I guess, give us incremental balance sheet optionality around targeted M&A if we think that's the right way to deploy our shareholders' money. But no plans to do any share buyback, special dividends at this point in time. We would only consider that if we couldn't deploy the capital in the business, and we were dipping below that target range of 0.5 to 1.5x EBITDA.

Thank you, Justin. You mentioned realigned incentive schemes. Could you expand on the impact from a management team perspective?

Yes, I'll pick that up. So it's Simon here again. So we changed the incentive schemes at the beginning of the year for our commercial colleagues, and we're reviewing what we do operationally as well. But this is alongside making sure that the guys out in the field have got very clear frameworks commercially to operate in. The change in scheme is to make sure they're focused on driving value into the business. So they are incentivized on margin performance. But they've got a very, very clear framework and got the right tools to do the job in the field. So we've given them a very clear product portfolio, pricing architecture to be able to trade customers up and down the product ladder to drive margin performance, and that is how they will be incentivized. What we're looking at operationally is to make sure that we're all over our cost base and our efficiencies internally to support our commercial colleagues -- and again, those changes will be implemented this year, but they're not quite finalized.

Thanks, Simon. And at what point would buybacks be considered a good use of capital?

Yes, I've probably covered this on my last response. I think at the moment, our priority is to reduce net debt to get back into that range and deploy capital into the business to generate a return for shareholders. And I think we consider buybacks if EBITDA drop below that 0.5x.

Thank you. Our next question is, what impact do you expect from the Middle East issues? And is this reflected within your projected numbers?

Yes, I'll start this one, and then I'll hand over to Justin. Well, clearly, we see this in first order and second order impacts. First order will clearly be around energy, oil price. We're most affected from an oil perspective, translating into diesel and the impact of that, and that's all about moving our products from A to B and indeed moving products around our facilities. We're pretty well hedged on energy. I'll let Justin touch on that in a second. So that would be first order. And then second order would be what is the impact to the consumer and consumer confidence. And we just don't know how that's going to play out at the moment. It's probably a bit early to say how we will be impacted. We've run some models and some numbers. It all depends on how long this goes on, how kind of the duration and how that then impacts the oil price and then translates into diesel. Justin, in terms of hedging?

Yes. So gas and electricity for the rest of the year, we're hedged at a little over 80%. So yes, we've got some exposure there, but it's not enormous. As Simon said, the bigger deal for us is oil prices and how that feeds into diesel, where we don't have a hedging in place. And to give an indication of the scale of this for every -- so our central planning assumption at the time we did the budget was an oil price of just under $80 a barrel. for every $10 a barrel over that, then the cost to us is about GBP 120,000 to GBP 130,000 a month. So that gives you a scale of the potential impact. Now we reserve the right to implement a fuel surcharge on our dispatches. But we haven't done that at this stage, but we're monitoring it. And the longer this goes on for the more chance has actually taken some action to do that. But as I said, no action at this point. I think the second order impacts are more troubling from my perspective and the more they're just [indiscernible]. And it's the impact that the increase in oil prices has on the inflation trajectory, and we saw from yesterday that -- the Bank of England held rates, which I think everybody expected. But 3 weeks ago, everybody was expecting a 25 bps reduction in rates with probably 1 or maybe 2 more to come this year. I think all bets are off on that now. And the next move may be down, it may also may be up. And it's the impact that, that has on our end markets, which is probably more of a concern, but it's -- at this stage, it's unknowable. Our response is that we'll keep a very tight control on costs, and we'll keep our commitment short, and we'll be focused on navigating our way through whatever is.

Thank you. Our next question is, could you give us your view on FP McCann and the impact of their entry to the market?

Yes. Again, I'll kick off with this one. FP McCann, look, they're a good business, privately owned, family-owned, probably around GBP 400 million business. They're clearly a major player in commercial infrastructure and concrete pipes, and they've got a really kind of solid business and operating in that channel. They've obviously moved into the concrete roof tile market and put new capacity in. And they also purchased the Ibstock roof tile business at the back end of last year. So look, they probably took a look at the roofing market a couple of years ago, seeing that the margins and the kind of business in that space is healthy. They've entered that market as it's come off a little bit, and therefore, it's created a little bit of excess capacity. But look, they're a solid business. They're a good business. They're credible. As they come into the roofing market, they're not doing anything silly with regards to pricing and they are looking to move volumes towards new house builders at the moment, which is not putting directly up against our heartland, which is social and private RMI. But what we are seeing is a little bit of jocking along where they are putting up against other competitors and those other competitors are starting to move into our space. And therefore, we did see a little bit of market share loss. But yes, solid business, very credible. Yes, nothing more to say on that. Justin, anything to add?

And I would just say that I completely agree and great business FP McCann. We've got a lot of respect for that business. They're taking their commercial decisions to deploy their capital and where they think they'll deliver a return. What we need to focus on is our business and how we respond, and that's what we're getting on...

We are now moving on to our final question for today. If you have any further questions, please e-mail the team, who will respond to any questions that weren't covered this morning. The question is, what does success look like for Marshalls in 3 years' time in measurable terms?

Great question. Clearly, improving revenues, improving profits in line with our expectations and if not beyond. We've got a very, very clear plan. I'm happy with the foundations of that. We've just got to get that springboard from here on in. The numbers are out in the public domain for '26, '27 and moving into '28. And it's about hitting that plan and outperforming it. We made it very clear back in November 2024 in terms of what our medium-term targets are, and we're sticking to that. And it is all about market outperformance and getting to that 15% returns from an operating margin perspective. And within that, I would say, landscape in terms of recovery is the main part of that, and we want to see that return to a 12% business. So that would be my criteria for success, Justin.

I think that's probably enough, Simon. Absolutely. I completely agree with that.

Thank you. That's all the questions that we have time for today. So I'll hand back over to the management team for any closing remarks.

Okay. So yes, Simon here again. I think for me, it's been a challenging couple of years as we come into 2026, change in approach, but not a change in strategy, sharper execution, tighter focus. I am really happy with the team that we've now got in place. There's been a complete rebuilding landscape. I'm happy with the executive team that I've got around me. And I feel we've got a really strong foundation as we move into this year. And I absolutely believe that we're poised for accelerated strategic delivery and delivering the numbers. So yes, really happy with the plan. No change to outlook for 2026, no change to medium-term targets as we go beyond that.

Thank you to the management team for joining us today. That concludes the Marshalls investor presentation. Please take a moment to complete a short survey following this event. The recording of this presentation will be made available on Engage Investor. I hope you enjoyed today's webinar.