Hello, and welcome to the Marshalls' update call. For information, this conference is being recorded. During the presentation, your lines will be in a listed-only mode. However, you will have the opportunity to ask questions towards the end of the presentation. This can be done by pressing star one on your telephone keypad to register your question. I'd like to turn the call over to our host today, who is Matt Pullen, CEO. Please go ahead, sir.
Thank you. Thank you for joining this morning's call. Hopefully, you've all had a chance to read the trading update that was issued this morning. I'm joined on the call by Justin Lockwood, CFO, and Simon Bourne, our Chief Commercial Officer. I also wanted to let you know that I will need to drop off the call just before 9:00 a.m. this morning as one of my daughters graduates this morning. However, Justin and Simon can take questions if we've not finished by then. I wanted to put a bit more context around the group's reduced full-year profit expectations for the year and what's changed since our last trading update on the 14th of May before we open up for questions. Revenues in the four- months to April were relatively encouraging, and we were seeing continued positive trends across all parts of the business.
However, since the back- end of May, activity levels have slowed. Against this backdrop, the group delivered 4% revenue growth year-on-year in the first half of 2025, with volume growth being partially offset by some weaker pricing and product mix. Now, Roofing Products and Building Products revenue were up 11% and 5% respectively. Viridian Solar continued its exceptional growth, and Marley Roofing delivered modest gains, reinforcing its number one position. Water Management continues to perform really strongly, strengthening its position in new housing and securing incremental infrastructure business. Our ready-to-use mortars business has benefited from moderate improvement in build rates in housing developments, favoring our ready-to-use mortars. Landscaping Products was down only 1% at the half-year, which is a significant improvement on the 11% decline in the second half of 2024.
That reflects a lot of the good work being done to strengthen the customer relationships and regain share through targeted price investment with some of our key customers. At the start of 2025, our outlook assumed we would see a recovery in our end markets that would strengthen progressively as the year progressed. As we sit here today, whilst medium- to- long-term structural drivers remain favorable, we now expect near-term demand to remain subdued given the backdrop of macroeconomic uncertainty. We currently do not see any immediate catalysts for improvement in market activity levels through the remainder of this year.
Now, two of our businesses are impacted more by this market outlook: Bricks and Masonry, where we are anticipating a modest reduction in our profit expectations as we maintain our pricing disciplines to protect margins rather than chase volume at lower prices in the new- house- build market, which is showing no real signs of improvement, which is reflected in many of the house builders' own commentary. However, the more significant impact is in landscaping, where we no longer expect to see the step up in activity levels that had been originally anticipated through half two . This has led to a reduction in profitability expectation that's driven by a combination of factors. Firstly, weak end markets combined with structural overcapacity is exerting downward pressure on pricing. We'd originally planned to modestly increase prices in the second- half of the year.
However, this would undermine our strategy of rebuilding market share given the lower activity levels and the pressure on pricing. Additionally, cumulative inflation in building materials has led to specified increasingly value- engineering projects, shifting demand toward commodity products over higher- margin value-added solutions. This has accelerated through the second quarter and is expected to continue through the remainder of this year. This shift has a material negative effect on our overall margins. With lower demand levels expected through the second half, we have rightly decided to reduce manufacturing volumes in order to effectively manage our working capital. This will reduce manufacturing efficiency in our factories, which again has an adverse impact on profitability. The key question is what are the plans to improve the profitability of the landscaping business? In broad terms, our landscaping performance improvement plan remains unchanged.
As a reminder, there are four- key- parts to that plan: strengthening the leadership and realigning our organization, portfolio simplification and operational efficiency, strategic partnerships, and driving commercial and operations excellence. We're on with executing every part of that plan and are necessarily accelerating our self-help measures related to network optimization, which is aligning capacity to current market demand, reducing our cost base, and driving operational efficiency. Now, we've already partially closed the site in our landscaping manufacturing network, which will deliver an annualized saving of around GBP 3 million. In addition, in the context of weakening end markets and reduced activity levels, we are taking steps to further reduce the cost base and improve efficiency by around GBP 6 million. Taken together, this results in a GBP 9 million annualized benefit and we will provide further detail on this alongside our half-year announcement and presentation on the 11th of August.
We've also seen changes to supply chain factors in part of our landscaping business that has resulted in a product range becoming unprofitable. We are taking action in the second half to either return it to profitability or discontinue this product range and take further associated costs out of the business. This is expected to deliver an uplift in profit of around GBP 2.5 million in 2026. Alongside these self-help measures, we'll continue with our plans, working closely with our customers to drive value back into the market for both, leading the shift back towards higher margin value-add solutions through the work on portfolio simplification and architecture and greater price realization. We're confident that all the actions taken together will improve landscaping profitability materially in 2026.
Outside of landscaping, we remain absolutely focused on executing our transform and growth strategy across all our business units, continuing to vest for growth, which will position the group strongly for improving activity levels when our key end markets do recover. At that point, I'll stop and open up for questions.
Thank you very much, Mr. Pullen. Ladies and gentlemen, as a reminder, if you have any questions, please press star one. Just make sure that your line is open so that you're seeing the reach of their equipment. Our very first question today is going to be coming from Anthony Lemon, calling in from Investec. Please go ahead. Your line is open.
Thanks, morning. Just a couple from me. I wondered if I could start just on the profit warning. I think you just said that your expectations for Building Products and those profits are lower. Obviously, Landscaping has taken the bigger hit in terms of the reduction in guidance. Just to clarify, the Building Products expectations, is that where you did you mean that profits are expected to be lower than the GBP 14.1 million that you delivered in 2024 or just lower than what you were previously guided? Landscaping this year, underlying EBIT, is it kind of around break- even? Is that, you know, underlying the kind of cut to PBT? Just a bit more color there. Secondly, just on Landscaping, as you said, you're expecting to increase pricing in H2 and just interested in a bit more color around the pricing. Where are you seeing the competition? Is it imports?
Is it domestic suppliers? How much have you cut prices by? Would you expect that to, you know, more discipline, rational behavior in your market? How you expect that all to play out would be helpful. Thanks.
Okay, Justin, I'll let you answer the first question around Building Products, and then I'll go to Simon to talk around Landscaping.
Yeah.
[crosstalk] Yeah. A slight reduction in expectations of profitability in Building Products, but from a group perspective, that's largely offset by a slight increment in expectations from Roofing driven by a continued strong performance by Viridian. In answer to your question, the reduction is versus our expectations, not versus prior year.
Okay. That would imply a kind of break- even-ish for landscaping for the four years up there.
I'm sorry.
Reasonable expectations.
I'm sorry. Yeah. I think that's a reasonable working assumption angle. If you, I guess, just to give you a little bit more color on that, Matt talked about three different factors, one of which feeds into the second question that you've asked. It's probably just going to be worth giving you a little bit of context around the revenue growth numbers as well. As Matt said earlier, we reported revenue contraction as of 1% year-on-year. Underlying that was actually positive volume growth, sort of mid-single-digit positive movement there. That was offset by a couple of percentage points or so of price investment, and the balance is driven through a bit of deterioration in mix from value- add to commodity products that Matt touched on. Those factors also feed into that reduction in profitability expectations.
In broad terms, around about half of the reduction for the full-year expectations is driven through a combination of not seeing the volume uplift that we were previously expecting and the mix effect. The remaining half is split broadly 50/50 between the price impact and the manufacturing efficiency impact that we've touched on. Does that answer your question?
Yeah, that's helpful. Thank you very much.
Thank you very much, sir. Next question.
Simon, did you want to add anything?
Yeah, I was just going to add a couple of bits that I think just we can cover off some of what I was going to say, Ainsley. I think the point to make around pricing, there has been little and no pricing in the market certainly from the competition. The investment in pricing from us has been quite selective with key customers. You talked there about, you know, where do we see the quite mix actually? We're seeing competition from concrete and imported stone. It's more about the held price in the market rather than a shift from concrete to imported stone. What we are seeing is just things alluded to as a shift from value-add products into commodity products as, as you know, kind of customers trade down. Okay.
Thanks, Simon.
Thank you. Our next question is coming from Christopher Millington of Deutsche Bank. Please go ahead. Your line is open.
Thanks very much. Morning, everyone. I just want to explore this price point a little bit further and explore where the premium was perhaps in the first half of 2024 and where you see it now. I suppose as a supplementary to that, do you think the pricing is at the right place now or do you need to become a little bit more competitive to the peer group just to help those volumes move? That's the first one. The next one is just to talk around cost inflation. I appreciate you making some cost- cuts, but perhaps just talk around the underlying level of inflation feeding through the business.
Okay. If I give a little bit around the pricing and portfolio and then hand over to Simon just to talk around that in more specific terms. Then I'll hand over to Justin to talk about cost- input inflation. I think in your question, Chris, you know, the work that we've been doing to reset pricing, if you like. If you remember back at the CMD and again in March earlier this year, we talked about the fact that our price premium in landscaping has gone too far versus the competition. As a result, we've seen that erosion in market share and volumes. The work that we've done, both strengthening our customer relationships and that targeted investment and price, has helped us to reset that kind of pricing- premium in the right place.
It's also coupled with the work that we're doing on portfolio simplification to put that architecture, if you like, of good, the best in the right place for the market as it is today. The portfolio simplification work, we talked around about a 25% reduction in SKUs, where actually it will be about 28% by the time that work's finished. It's progressing, it's well. Simon, I don't know whether you want to add more to that.
Thanks, Matt. I think you've covered the main points. The only thing I would add and just reiterate is that when we've been bringing prices back in line with the pack, that has been quite selective with some key customers. We do see their price in the market moving forward, and again, we will be very selective in terms of who we partner with as we move forward. Other than that, I don't have anything more to add, Matt.
I think just to reiterate the point that I made at the outset, and I think Justin Lockwood raised it again, is this shift that we've seen in the marketplace, in a weak marketplace where specifiers are value- engineering projects. That is what's shifting the mix towards commodity and away from value-add solutions. That's the challenge that we've got to take on, to put value- back into the market through the right portfolio at the right price points with our customers. To be honest, everyone needs to see more value going back into this sector so that they can all improve their returns from landscaping. We have to lead the way in doing that.
Okay. Justin, do you want to talk about, sorry, [audio distortion] Matt. Sorry. What do you think the right price premium is for Marshalls? I appreciate you know you have better service, better distribution capabilities. What do you think the right number is there for premium?
I think as we said previously, we found ourselves in a position where our price premium in some parts of our portfolio was well in excess of 20%. That's not sustainable. I think with a brand, with the type of full-service offering that we have on the national network, in parts of our portfolio, that should probably be somewhere around 15%. That's usually sustainable, and that's where we're aiming to be in the work we're doing on resetting pricing. Simon, do you want to add anything to that?
Please, Matt. I think, as Matt said, we brought ourselves back in line with the pack, but still hold that premium between 10% and 15%. I just wanted to make the point we're certainly not going to get into a race to the bottom with our competition. We absolutely see the value in our service proposition that we offer, and we will hold that premium moving forward.
Okay. Thanks, Simon.
Thank you. Thank you.
Justin.
Moving on to cost inflation then, the key components of it are salary inflation we've seen this year. That's around a 4% mark. The national insurance contributions, national minimum wage, etc., has put GBP 3 million onto our cost- base for the year. That was in our previous expectations. Across the rest of our input cost inflation, there's some pockets of deflation, some pockets of inflation, but there's nothing, there's no material net impact that we're seeing this year.
Got you. Very clear. Thanks, Justin.
Thank you very much, sir. Ladies and gentlemen, as a reminder, if you have any questions or follow-up questions, please press star one at this time. I will move to Robert Chantry, colleague from Berenberg. Please go ahead.
Hi, guys. Thanks for the call. Yes, there's two questions. Firstly, I know you talked about kind of landscaping being at roughly break- even this year, and the other's kind of two divisions offsetting. Can you just talk about where you see the kind of evolution into H1 2026 and effectively full year 2026 based on what you see at the moment? Secondly, in terms of capacity in landscaping, you talked about kind of overcapacity in the market, and you've also seen variable levels of manufacturing for your own facilities. Can you just put that into context? What percentage do you think there's overcapacity? How many sites do you have running? What percentage are they running at? Thirdly, in terms of the balance sheet, you talked about the kind of numbers today in the statement. Is there any more color around that? Is that where you thought it would be?
Is there any other dynamics to think about there in terms of working- capital outflows, etc.? In the second half, given what's been going on with volumes in landscaping. Thanks.
Okay. Can you just repeat the first question, Rob, because the line cut out on me slightly?
Sorry. Basically, you've got it in line. Sorry. You've got it break- even landscaping 2025. Can you talk about H1 and H2 2026 with the information that you know at the moment? Thanks. Sorry for the line.
Okay. Justin, do you want to talk around H1 2026 in terms of what that is? I think particularly it is about the total business, but I think particularly around that rebuilding landscaping as we travel. We'll pick up the next two.
In Matt's intro, he talked about a number of cost reduction exercises that either have been completed or will be completed in the second half of the year. It was GBP 3 million from a site closure and then GBP 6 million from further actions that were taken. If we think about when those two will start to benefit the P&L account, the GBP 3 million saving from the first half of the year, we'll get half of that in 2025. We're getting the benefits of that as we speak today. We'd expect to get around a quarter of the benefit of the GBP 6 million.
There are lots of GBP 6 millions and GBP 3 millions here, but if you take the half of the GBP 3 million and the quarter of the GBP 6 million, that gives you a GBP 3 million benefit this year and therefore a GBP 6 million uplift in 2026 from the cost reduction exercises. We'd expect those to be kicking in from the start of the year. That starts into next year. Matt also talked about an unprofitable product range. That's another self-help factor that falls within our control. Our product range will either be profitable next year or it won't be in the portfolio, and that's a further profit movement. There are those GBP 6 million worth of annualized benefits flowing through next year from the cost reduction program and around GBP 2.5 million from the product range that Matt touched on.
I guess you're at about GBP 8.5 million before there is any impact of market recovery, which we're not trying to predict. The other factors which we think will drive some profitability improvement next year are that we expect to start seeing more of the benefits of the commercial part of the landscaping performance improvement plan to flow through into the numbers. Outside landscaping, we expect to make further progress in Water Management, particularly from the second half of the year where we think we will start to see volumes of unpaid business starting to flow based on the work that we're doing with tier-one contractors today. We expect to make further progress in Viridian. The market will do what the market does.
Okay. Thanks, Justin. In terms of the overcapacity and the structural- overcapacity that I talked about earlier, I think in terms of where we are, and I think we've highlighted this both at the CMD and again in March, around the level of spare capacity sitting in our own network, which is in excess of 35% in some parts of our network. As the market- leader with the biggest share in the market, that's where a lot of that structural overcapacity exists, but it will also exist in other parts of the competition as well in a weak market. I think what's really important for us is how we address that. Simon, do you want to talk a little bit more about the network optimization? Because whilst we can bring down capacity, what we also want to maintain is the ability to respond effectively when the market does recover.
Simon, do you want to give a little bit more flavor on that?
Yeah, thanks, Matt. What we're doing in this space, Rob, is we were mindful of any market pickup in the future, and therefore, we've taken a long, hard look at the network. We pride ourselves on national coverage, and we want to retain that and be able to switch assets on when we see a pickup. What we're doing at the moment is looking at the overall geographical demand- profile and where that actually sits. We are cutting our cloth accordingly. What we're looking at doing is moving products around the network to access better utilization, not only from our assets, so that we're fully utilizing those factories that we're pushing products towards, but also our haulage. We have calculated that there are significant benefits if we move stuff around. We are seeing a shift from a geographical- footprint perspective, from a demand perspective, and we're addressing that accordingly.
That's part of the program that we're underway with.
I think ultimately, Rob, what we found with our network over time is that we're producing our products, but we're not necessarily being produced in the right range of products close to our customers and close to the right profit pools. That is what we're doing around optimizing the network and moving products onto plants that are improving our production- efficiency as well. What it doesn't do is close full assets. What it does do is bring down capacity to meet the current market demand in a really effective way. The benefits also flow through from not having to move so much of our product from one side of the country to the other. That is driving significant efficiencies and benefits into the plan.
As the biggest in the market, we have a responsibility to ensure we get that capacity matched with the current market demand, but make sure we have the flexibility and the adaptability to respond to the market as and when it does recover. Third question, I think, was on working capital, Justin. Do you want to pick up on that?
I think, Rob, your question was about net debt evolution, I think.
Yeah.
Combining the working capital.
Yeah. Yeah. Let me run through the components. If we go back to the year-end, I was guiding to basically saying I don't expect any change in net debt for the full year. We closed last year at GBP 134 million. Part of the reason for that we highlighted at the time was that there were a couple of factors which had given us an unexpected benefit of around about GBP 6 million, sorry, about GBP 9 million, sorry, that also impacted on working- capital and a bit was on CapEx. That's now unwound as we expected. I don't think my expectations for net- debt haven't changed for the year as a whole. Whilst there's a downgrade in the expectations for EBITDA generation, that'll be offset through lower- tax payments. CapEx won't be quite as high as we anticipated. As Matt referred to earlier, we're taking action to manage working- capital.
Therefore, I'd expect to close the year with inventories at a lower level, which is reflective of what we're seeing from a demand perspective. You take all that lot together and you pretty much end up where you started from a net- debt perspective.
Thanks, guys. Thanks for the answers.
Thank you very much.
Thanks, Rob.
Thank you.
Thank you very much, sir. We'll now move to Clyde Lewis of Peel Hunt. Please go ahead.
Morning all. I think I've got two, maybe three, actually. Just going back to the mix point. I'm just wondering, is it both commercial and domestic that you're seeing the shift downwards in mix? If so, why do you think it's happening now? I mean, the case for value has been around for a while. What's been the trigger point this year, I suppose, on that front? The second, or third one really, was the inquiry levels around commercial and the domestic- installer order book. What are you seeing from those data points that you collect?
Thanks, Clyde. Simon, I think you're probably best placed to answer that or a mix. I think both of these questions are around landscaping.
Yeah, no, that's fine. Morning, Clyde. Yeah, it's affected both, Clyde, to be fair. We've seen a kind of value- engineering in both domestic and commercial products. Huge demand for key- block in the commercial- space down in the south, which is why we're now looking at moving more capacity into the southeast. It has affected both. In terms of what's driving that, I think it's continued pressure in the marketplace for more for all sorts of reasons. I get the point that it's been there, but it is continued. When we've done the analysis, we have seen a shift in mix over a lengthy- period of time. It's not happened just since May. It has been shifting, but it has continued to the point where we've got a tipping point there. In terms of the order book, though, it's very strong. It's very strong in both domestic and commercial.
We are, in fact, winning specification in commercial and displacing the competition. That side is very, very healthy. Does that answer your question?
Yes, I think so. Thanks, Alan.
Okay.
Thank you very much. Ladies and gentlemen, as a final reminder, if you have any questions or follow-up questions, do press star one at this time. We now go to Ben Pfannes- Varro of RBC. Please go ahead, sir.
Yeah, hi. Morning all. Just the first one on, I might have missed this, but just on the sort of, can you talk a bit about the exit rates and your like-for-like expectations for the full year? The second one, coming back to Landscaping Products, I appreciate this is probably the last thing you're thinking about today. Has what you've seen or what's been going on the last couple of months changed your thinking of where Landscaping Products can get to in the midterms, sort of from a top- line and margin perspective? Thanks.
Justin, do you want to pick up on the like-for-like in terms of full-year expectations?
Revenue growth numbers.
Okay.
Was that the question? I didn't hear it properly.
Yeah, exactly. Exactly. Revenue growth.
Yeah. Similar to the first half of the year on a composite- level. A bit of slowing in roofing because the comps in Viridian start to get a little bit tougher, but broadly speaking, similar levels to where we were at the half year.
Okay. I think your other question was around, you know, do we see landscaping returning to some better- returns, if you like? Yeah, I absolutely believe that this business can be back to a far more profitable position. At CMD back in November, we said we were targeting this business to deliver a return on sales of at least 12%. We currently don't see any reason why we would change that. The landscaping performance improvement plan that is in place is predicated on that network- optimization and the benefits that flow through from that and the improved operational- leverage that we'll get through increased volumes. Let's just remember, we are winning volume and market share in the marketplace today. As and when markets recover, that operational leverage will still play through.
At the same time, you know, we'll be ensuring that we're recovering our input- cost- inflation and realizing greater price through the business. As a more normalized supply- and- demand dynamics recover, there's no reason why this business should not be achieving those medium-term goals that we set out for landscaping. I think that the change we've seen in 2025 is that the anticipated recovery in the second half of the year is not going to materialize, and that's what's holding back progress through the second half of this year.
Okay, thanks. The same applies to the top line. Despite the capacity or structural- overcapacity in the market, you still think there's, you know, from a top- line perspective, that still holds from what you mentioned at the CMD.
In terms of overcapacity in the marketplace, yeah, it still exists. That's a lot of the work on our own network- optimization to ensure we get the right capacity to meet the market demand today, but that we've got that flexibility to bring on that capacity as and when the markets recover.
Rob, if you're referring to our medium-term revenue outperformance target, yes, the 1% to 3% stands. Yeah, the numbers that we're guiding today are not numbers that anybody on this call wants to see, but we are delivering volume growth. We are outperforming the market. We've delivered volume growth of mid-single digits, so we will take market- share back in this marketplace. That recovery in profitability, as Matt said, is dependent upon some improvements in market demand levels. We need to get out there and win our fair share of them at the appropriate margins. That's exactly what we're planning to do.
Thank you.
Thank you very much, sir. As we have no further questions at this time, I'll return the call back over to you, Mr. Pullen, for any additional or closing remarks. Thank you.
Thank you for making the call at short notice. As Justin Lockwood said, it's not a place that we really want to be, but we understand the reasons and we're doing all the right things in order to improve that profitability. Just as a sum up, as we get to the end of the first half, what we have seen is the group returning to revenue growth in that first half, and that's 4% revenue growth versus the prior year. Our Roofing- Products and Building- Products segments are performing well, and we've got some very strong performances in there from Viridian Solar and Water Management. Despite the profitability on landscaping, we delivered that improving- trend on revenue, and we are regaining market share. That's what we set out to do in 2025.
We are confident that the plans that we've got to rebuild the profitability and turn around the landscaping business will ensure a material step- up in that profitability in 2026. The challenge that we face is our expectations for the second half of the year. The market is weaker than we'd anticipated. I think that's the challenge that we have to take on. We'll provide more details in the half-year results on August 11, and I'm sure you get a chance to ask more questions then, but really appreciate you joining the call this morning.
Thank you very much, sir. Ladies and gentlemen, that concludes today's topics. Thanks so much for your attendance. We'll have this next. Have a good day and goodbye.