Ibstock H1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 6, 2025

Key Takeaways

  • Positive Sentiment: We achieved 9% revenue growth to £193 m in H1 2025 with significant volume gains driven by new build residential demand.
  • Negative Sentiment: Reactivating network capacity incurred higher incremental costs, contributing to a 6% drop in adjusted EBITDA to £36 m and a 280 bp margin decline.
  • Positive Sentiment: Our outlook remains strong with H2 EBITDA expected to exceed last year and full-year EBITDA guided to £77 m–£82 m amid improving market conditions.
  • Positive Sentiment: Diversified growth gained traction as Ipstock futures revenue rose by 25%, targeting breakeven in H2 and future EBITDA contributions from the Nostal investment from 2026.
  • Positive Sentiment: Strategic sustainability advances include the new Atlas factory cutting carbon emissions by 50%, pursuing green hydrogen funding, and progressing calcined clay commercialization by year end.
AI Generated. May Contain Errors.
Earnings Conference Call
Ibstock H1 2025
00:00 / 00:00

There are 10 speakers on the call.

Operator

So good morning and welcome to twenty twenty five Half Year Results Presentation for Ipstock plc. With me, as usual, is our CFO, Chris McLeish. So turning to the agenda, after my initial overview, Chris will walk us through the financials and cover divisional performance.

Operator

I'll then give an update on the market and talk about the strategic progress we've made over the last six months. Having covered the summary and outlook, Chris and I would be happy to answer your questions. So turning first to the overview, I'm pleased to say that we achieved a significant volume growth in the 2025, with that growth coming mainly from new build residential demand. We took steps during the first half to activate network capacity to meet recovering demand, although as previously communicated, we recognized higher than expected incremental costs in doing so. We also saw a more competitive market backdrop in some parts of the market, which meant that we achieved only modest price progression and a negative mix impact, primarily as a result of the relatively stronger growth in new build residential markets.

Operator

With both our core and diversified platforms now substantially in place, and with a clear focus on driving margin improvement, the Group is well placed to capitalize on the market recovery. Accordingly, we expect to achieve H2 EBITDA ahead of the comparative period and continue to expect the full year EBITDA to be in line of the range between GBP77 million to GBP82 million. We've continued to make good progress in our diversified growth strategy with capital deployment on target and an increasing financial contribution from Ipstock futures, our business centered on growing modern methods of construction. With that, let me hand over to Chris to take us through the financials.

Speaker 1

Thanks, Joe, and good morning, everyone. Turning to cover the financial summary. Revenues of £193,000,000 represented growth of 9% on the comparative period, driven by strong volume growth, particularly in the clay division. Adjusted EBITDA of around £36,000,000 was 6% below the prior year. Whilst performance benefited from the stronger volumes, we were impacted by higher than expected incremental costs related to the reactivation of network capacity as well as a more competitive backdrop in our core markets.

Speaker 1

EBITDA margin reduced by two eighty basis points because of these two factors. Adjusted EBITDA excludes £2,800,000 of exceptional items in the current period which relate to the previously announced restructuring programs. Amounts have been classified as exceptional in order to present a consistent view of underlying performance across financial periods. Leverage increased marginally from a year ago and was above the level at the beginning of the year. As we guided in March, this principally reflects the seasonal increase in working capital, which is expected to reverse in the second half.

Speaker 1

Return on capital employed at 7% remains well below our targeted level and reflects capital invested in both core and diversified platforms, combined with earnings that continue to be impacted by markets well below normalised levels. With recovery in market demand, combined with expected returns from our growth investments, we expect return on capital employed to revert to our targeted level of at least 20% over the medium term. Finally, the Board has approved an interim dividend of 1.5p, maintained in line with the prior year. Moving to revenue, we set out on this slide group revenues compared to the comparative figures in 2024. Clay revenues increased by 12% to £133,500,000 driven by strong volume growth.

Speaker 1

In the five months to May 2025, overall UK brick market deliveries, including imports, increased by 13%, with the group's performance ahead of this level. Volume growth was most significant in the wire cut product range into new build residential markets. As well as a shift in the mix of products, we also saw regional market disparities with volume growth in most regions compared to a reduction in London and the South East. In the current period, futures delivered revenues of £5,000,000 compared to around £4,000,000 in the prior period. Concrete revenues of £60,000,000 were 2% ahead of the comparative period, reflecting volume growth in the majority of residential product categories, offset by weaker infrastructure volumes.

Speaker 1

Turning now to cover divisional performance, starting with clay. We have seen strong growth in new build residential market demand, which has delivered significant top line growth. Pricing levels in the period reflected a more competitive market environment, particularly in the distribution channel, with modest pricing progress overall compared with the prior year period. The top line reflected the impact of adverse mix from the product and regional factors I referenced earlier. It was also impacted by the proportion of non best sales volumes, which was above the historic average, reflecting lower operational yields at factories ramped up during the period.

Speaker 1

We expect this impact to reduce as the operational performance stabilizes over the remainder of the year. Adjusted EBITDA of around £33,000,000 was 4% below the comparative period. We took a decision to reactivate parts of the clay factory network during the 2025 and whilst this has led to higher than expected incremental costs in the period, we expect these costs to taper during the second half and do not expect them to occur next year. We expect adjusted EBITDA and the associated percentage margin to move forwards in the second half as productivity and operational efficiency ramp up. The Ipstock futures business made both top and bottom line progress with broad based growth across the portfolio.

Speaker 1

We expect futures to move towards breakeven in the second half and for EBITDA to build from 2026 as our major investment in Nostal starts to deliver positive returns. Turning to Cover Concrete. Revenues increased by 2% to £60,000,000 with stronger volume growth in many of the residential product categories, partly offset by lower infrastructure volumes. Roof tiles, flooring and walling stone all achieved meaningful volume growth, with fencing volumes also ahead of the prior year period. Spending on The UK rail network reduced to historically low levels despite now being in year two of control period seven.

Speaker 1

We are taking steps to mitigate this impact, but this constitutes a high margin part of the Concrete division adversely impacting mix. Sales pricing in the residential categories was stable, mirroring the market dynamics seen in the Clay Brick division. Whilst EBITDA margins remain well below the historic levels achieved within our concrete business, as markets recover, we believe the division is well positioned to benefit with strong growth in both volumes and margins over the medium term. I would like to spend a few moments discussing the actions taken in the period to reactivate clay network capacity. You can see on this slide we break out the total network into three components: Volumes manufactured in the period Further active capacity available, that is incremental volumes available through higher kiln car push rates or increased shifts finally inactive capacity, that is capacity mothballed or idled.

Speaker 1

We present this split for the full year 2022, half one hundred twenty four and half one hundred twenty five. As you can see, the 2022 year reflected a year of good utilization with capacity operating in the low 90% which represents the sweet spot for unit cost efficiencies. The 2024, having commissioned a net 5% capacity increase, we had around 35% of the network inactive. Actual production volumes represented just over 50% of total network capacity. Moving forward to half one this year, you can see that we have added around 20% of our overall capacity back into the active fleet, providing us with the ability to support further market growth without the need to structurally increase fixed costs.

Speaker 1

We produced volumes equivalent to around two thirds of total network capacity in this period. With productivity and efficiency expected to improve through the second half and with capacity available to respond quickly to further market growth, we would therefore expect an attractive drop through on volume progression as we move forward. Moving now to cover cash flow. Overall, cash conversion improved by eight percentage points to 32%, principally reflecting a lower seasonal working capital build compared to the same period in 2024. Capital expenditure was in line with our expectations, with £12,000,000 on growth projects and around £9,000,000 of sustaining spend.

Speaker 1

The working capital outflow of £12,000,000 reflects the typical seasonal receivables increase from year end, as well as the build of base inventory levels at Atlas to ensure we can deliver effective service to our customers over the months ahead. Moving to the balance sheet. Net debt increased by around £23,000,000 in the six months to June. Reported leverage increased slightly to 2.2 times. As a reminder, the Group has £225,000,000 of committed borrowing comprising a £100,000,000 private placement and a £125,000,000 revolving credit facility.

Speaker 1

These borrowings contain leverage covenants of no greater than three times tested semi annually. Based on the covenant definition, leverage at the June 30 totalled 1.9 times and the group had £80,000,000 of available liquidity. As the seasonal working capital investment reverses and with earnings expected to move forwards, we expect positive cash flows overall in the second half, with net debt at December 2025 reducing from the level reported in June. Before I hand back to Joe, let me very briefly cover technical guidance. Overall, we anticipate year on year growth in sales volumes in the second half of the year, although we remain mindful of broader macroeconomic risks.

Speaker 1

And on energy, we have requirements well covered for the remainder of this year and over half of next year's requirements locked in. I will let you read the remainder of this slide at your leisure. Let me pass back to Joe.

Operator

Thanks, Chris. So firstly, let me provide a bit of an update on our core markets. Overall, I'd say that our core markets are directionally positive, but that progress continues to be characterized by a sense of caution. The platform for recovery in housebuilding is taking shape with clear government support, improved approaches to planning and house builder supply chains starting to gear up. We applaud the government's commitment to invest £39,000,000,000 into social housing, with new towns expected to deliver a substantial proportion of affordable and rental homes.

Operator

But demand for private housing remains subdued, with home buyer confidence remaining relatively fragile. Affordability at current levels of interest rates remains a challenge, particularly for the first time buyer. But we have seen some recent increases in mortgage market competition and loan availability, which gives us some cause for optimism. The RMI market continues to be subdued with merchants reporting ongoing volume weakness. Recovery in this part of the market will only accelerate when we see an uptick in consumer confidence, which remains at lower levels given the macroeconomic backdrop.

Operator

As you can see on this slide, the CPA anticipates progress in both housing starts and completions on a two year view. Activity levels in the early weeks of the second half continue to reflect improving demand conditions, and we anticipate year on year growth in our sales volumes in the second half of the 2025 year. Although, as Chris said, we remain mindful of those broader macroeconomic risks and the potential they can have on our markets. Turning to focus more specifically on The UK brick market. We often reference 2022 as a year of normalized demand when overall brick deliveries totaled 2,500,000,000.

Operator

And you can see on the left hand side of this chart, excluding the COVID year, The UK brick market is operated at an average demand level of over 2,400,000,000 for the five years running up to 2022. With the structural undersupply of housing in this country and with the government's focus and commitments to accelerate house building, we retain a conviction that the market will return to this level over the medium term. As you can see in the middle section of this slide, the total UK brick deliveries were up strongly by 13% in the first five months of 2025, although they remain around 30% below the comparator in 2022. Imports continue to reduce as a proportion of total market, falling back to just over 18% in the current period from 19% last year and down from over 23% in 2022. As Chris referenced earlier, we have seen some shifts in sales mix by product, channel and region.

Operator

The actions we have taken to reactivate network capacity have responded to these mix shifts, but we expect alignment to historical demand patterns as the markets rebalance over the medium term. Brick inventories held by manufacturers have remained broadly in line with the position we entered the year in, demonstrating disciplined management of network capacities. Outside of our traditional markets, we see growing opportunities in diversified construction markets over the medium term. The government's ten year infrastructure strategy promises a wave of investment across education, health and prisons, which all present potential for Ipstock's wide breadth of building products and systems. The mid to high rise facade sector has been held back by delays with the building safety regulator in progressing projects through Gateway 2.

Operator

Notwithstanding this, we know there is a significant volume of remediation work required on existing buildings, as well as new build, particularly in the build to rent section of the market. We know that the public sector will become a much more significant driver of growth over the medium term with the announced $39,000,000,000 investment, including a commitment to build 300,000 social and affordable homes. The historical lack of funding has meant that local authorities have had to prioritize maintenance over existing stock rather than building new homes, and we have simply not built enough social housing for rent for over a generation. In summary, while we are focused very much on supporting the recovery in our traditional markets, we also expect to access opportunities in a much broader set of construction markets over the years ahead and see this as an increasingly significant source of value over the longer term. So moving to update you on our strategic progress, and I'll remind you first of our strategy.

Operator

Our operational strategy remains anchored around the pillars of sustain, innovate and grow. As I set out back in March, in order to sharpen our focus on execution and align everyone across the Ipstock house with our strategic goals, we've defined a set of five focus areas under the banner of a unifying North Star, and I'll provide an update on some of these in the coming slides. Firstly, on sector innovation. We're committed to driving innovation on our products and systems and continue to deliver new solutions to meet The UK's critical building needs. In the clay business, we introduced six new brick products targeting the specification market, building on our proposition focused on higher end customer requirements.

Operator

We also continued to innovate in our Concrete division, taking further steps to increase the use of recycled content, mix designs and carbon reduction. And we've developed some very exciting new modular facade products in futures, which are now in commercial trials with a number of customers. Overall, the innovation pipeline continues to grow with revenues from new and more sustainable products continuing to run above the 20% average in the period. Our newly commissioned Atlas factory is a Pathfinder investment driving more efficient and sustainable practices, which can be rolled out across the business. Factory is making great strides operationally with production now scaling up and the range of products available expanding to serve an ever broadening market.

Operator

I'm also pleased to say that the Atlas factory, in conjunction with our strategic partners, has been shortlisted for the government's second round of hydrogen funding known as HAR2. The new factory has already reduced the level of carbon emissions by 50%. This project, which would involve the construction of a green hydrogen facility adjacent to our factory, presents the potential to reduce further to 75% of the actual carbon footprint compared to the original Atlas factory. I'm pleased to say that you will have the opportunity to visit the factory in the fourth quarter of this year, and we'll give you more information on that at the appropriate time. And the diversified growth we continue to invest in.

Operator

Our flagship investment in Ipstock futures up at Nostal in Yorkshire is progressing well. The first phase in automated state of the art cutting line is fully commissioned and production continues to ramp up as orders grow. We expect to continue to build more momentum here in the months ahead. The second investment, a larger scale, cutting edge ceramic facades factory will bring unrivaled flexibility and choice to the modern facades market in The UK when it commissions from the end of this year. The market response to the first investment has been positive and reinforces our belief that the facades market will be a highly attractive source of diversified growth for Ipstock over the years ahead.

Operator

And moving to provide an update on calcined clay. I've spoken to you in the past about the potential we see to realize a new stream of value from our substantial clay reserves. And I'm pleased to say that we've made further strides over the last six months as we move towards commercialization of this opportunity. The logic for our investment in this area is compelling. With cement and concrete contributing to 7% or 8% of global CO2 emissions, there's a huge pressure to decarbonize.

Operator

Calcite clay is a scalable solution that can cut emissions by 40% and have real economic benefits over OPC cement, ordinary Portland cement, once that's once the full carbon price is in place. With the demand for low carbon materials surging and the supply of our traditional products such as slag and fly ash becoming more limited, we believe this is excellent timing for growth in calcined clay. While the technology to produce calcined clay is now firmly established elsewhere in the world, our clay footprint presents Ipstock with the potential to be the first industrial scale producer in The UK. Extensive testing over recent years has confirmed that one of our owned fully consented quarries in the Midlands has an abundant source of high quality raw material required to produce low carbon calcined clay cement. Our financial modeling indicates that this is an attractive opportunity with strong partner synergies, and we're now actively engaged in discussions with potential partners to establish the optimal implementation roadmap with a commercial plan expected to be concluded at the end of that process.

Operator

And I expect to be in a position to present the outcome of the discussions by the time of our full year results. But we're increasingly confident that this is something that can really move the dial in the years ahead. Turning to the summary and outlook, I'll cover our medium term view, capital allocation and finally our concluding comments. So firstly, the medium term view. We set out several years ago the building blocks of revenue and earnings growth for the Group.

Operator

With both core and diversified asset platforms now substantially in place, and with the market recovery progressing, we have increased confidence in delivering our committed revenue target of at least £600,000,000 and we've taken a solid step towards that in the last six months. Our margin performance has been impacted by two factors this year, which are being addressed, but we retain a strong conviction in the attractive fundamentals of our business and believe that margins will recover over time through high levels of volume leverage, as well as the return to historical levels of operational performance. We also expect an improvement in pricing and mix as our markets return to the normalized levels in the years ahead. Accordingly, we continue to target an EBITDA margin in the core clay business of more than 35%, in line with historical levels and group margins of at least 28%. We also target a return on capital employed of at least 20%.

Operator

In the service of this goal, we will be we will continue to be disciplined in the way that we allocate capital in the business. As we said out at the beginning of the year, whilst our focus over the last five or six years has been on organic capital investment, looking forwards with our major investment program now nearing completion, I anticipate that capital expenditure will fall back to long run sustaining levels, which is expected to support an acceleration in free cash flow generation in the years ahead. We're actively realizing capital from our land estate and disposed of the first parcel of land up in the Northwest at Ravenhead in the period generating proceeds of £3,000,000 To remind you, conservatively, I'd expect us to generate over £30,000,000 from land sales in the next three to five years. In terms of allocating capital, after the sustaining investment and payment of an ordinary dividend, I see a much more even weighting of capital allocated across growth and incremental shareholder returns over the medium term. Okay, turning finally to the summary and the outlook.

Operator

We've had an encouraging start to the second half and we anticipate continued growth in sales volumes over the balance of year, although we do remain mindful of broader macroeconomic risks. We're keenly focused on driving operational efficiency alongside the tight management of indirect cost and expect profitability to improve in the second half. As Chris set out, we now have capacity to support significant further market growth without structurally increasing fixed cost. And with our asset platforms now built out, we have an increased confidence that revenues will grow to deliver on our medium term ambition, with margins expected to recover through operational gearing, improved levels of network performance and a recovery in our markets. Having concluded this program of investment, we expect free cash flow to build from 2026, providing a solid platform for growth and capital returns in the years ahead.

Operator

And with that, Chris and I are going to be happy to take your questions. As normal for the record, I'd be grateful if you could state your name and institution when asking your questions. And please remember, there are microphones at the front of your seat.

Speaker 2

Ainsley Lammin from InvestDay. Just two for me, please. On the start up cost, if you could just maybe provide a bit more detail going back, what kind of caught you by surprise there? What did that exactly relate to? And where the kind of confidences of where we can gain confidence that they're one off and we won't see anything like that going forward?

Speaker 2

And then secondly, just on the new build, obviously, volume is very strong. What gives you confidence that continues, the momentum continues in H2? Is it inquiries? You see in the house builders begin to open new sites? What the drivers are there?

Speaker 2

And I guess related to that, as we go forward, rebalancing the soft mud versus wire cut, would you not still expect wire cut to be a bigger proportion given the kind of push from government policy on new build? Good.

Operator

Yes, look, start up costs, we did have some breakdowns. We have some old kit when you start up factories that have been shut down for a large period of time, you sometimes get some catastrophic failures. So we had a few things like gearboxes going and we had to send equipment from other factories and so on. So these things are they're not always anticipated. And when you've had an exceptional period like we've had and having to close factories down very quickly, you do get some of these things.

Operator

But they're moving in a much better direction now and two factories are performing quite smoothly and either two are continuing with really good progress. I think in terms of confidence in volume going forward into H2, I mean, we've got order books, we talk to our customers. We've seen really strong growth albeit against a very weak comp in the first half. I don't think the level of growth will be the same quantum of that sort of market was up 13. I think you'd probably be looking at something more like mid single digits.

Operator

So we're not talking about heroic sort of stats. And we're still at very historically low levels, but when we talk to our customers and look at the build programs for the second half at this stage, there's reasonable optimism. So I think that gives us that's why we can forecast that volume growth. I think the mix thing is very temporary. I think it's the market is dominated at the moment by new build residential growth.

Operator

We know that the RMI market is very weak and that takes a lot of soft mud products. We also know that London and the Southeast are weak, London largely by building safety and planning and Southeast by affordability. So I think over time that mix will definitely come back. Good. I'll take the M and A, you take the concrete ones.

Operator

Yes. Look, the balance sheet is going to strengthen and we've got an active pipeline of opportunities that we're looking at in M and A and that pipeline has been developed over time. We'll always be very disciplined on whatever we do with M and A. We're not just going to grow for growth sake. We want to make sure we've got a very valuable high margin business.

Operator

Whatever we do would be strategic and it would be synergistic to the business. And we'll look at that. At the moment, the balance sheet is probably not in the right place to do large things, but we will continue to look at smaller bolt on investments. Of course, that's going to compete with other shareholder returns as well and we'll evaluate both at the same time. So we've got a very active pipeline.

Speaker 1

Rob, just in terms of concrete, mean you're right. If you look at the sort of mix in the first half, the rail and infrastructure segment within that is in normal steady state heading for sort of £20,000,000 revenue contribution, but the margin on that is materially above the average within concrete as a whole. The fact that that's now sort of running at materially lower levels has impacted We expect some of that to start to come back as things normalize. We're not banking on a huge level of recovery in the second half, but actually as that starts to come back, it has a very, very accretive impact on EBITDA margins within Concrete. I think the other cause for optimism in Concrete is when you look at some of the sort of lead indicators of broader market recovery, our floor beams business was up north of 20%, the factory in the South was greater than 20% up in the first half, good order forward visibility and expect that to continue to pull through strongly.

Speaker 1

Other categories within the concrete business, walling stone is looking very, very strong. Fencing continues to be a source of strength. So I think as market comes back, we expect to be able to achieve pricing progress. We also expect to see some mix benefit. I think realistically when you look at what Concrete did last year, we're not going to get to those sorts of levels of absolute profitability this year.

Speaker 1

On a run rate that's going to be a little bit behind that, but actually I think just delivering a little bit of progress into the second half with the view that then things will firm up further in 2026 is very much the view of our sort of near term perspective in concrete. I think, look, in terms of rail as a category, as we said in our pre prepared comments, we're doing a lot of work to try and mitigate that looking into other areas of infrastructure that are certainly giving us other volume opportunities. The reality is that they're going be at lower levels of margin compared to where rail is. So we're doing what we need to make sure that we've got good capacity utilization in concrete network as a whole, but I think we are to some extent at the mercy of the broader market around the pace of recovery within rail and I think that's something that you see in the commentary that others have been giving over the last sort of few months.

Operator

Ben?

Speaker 3

Ben Varro, RBC. Just coming back to the operational issues that saw, can you give us maybe a bit more color on why it's resolved at two and perhaps why it's still ongoing at the other two? Next is on your soft mud mix. Can you remind us where that typically stands and where it was as of H1? And the last question is on drop throughs.

Speaker 3

How should we think about volume drop throughs in the clay brick business from here?

Operator

Yes. Look, so when you're starting a kiln and it's been shut down for a period of time, You have thermal shock issues when you close things down and you've got expansions when you start them up, you've got all sorts of mechanical issues associated with those factories. So three factories were really we had a lot of work to do on them. And there were some unforeseen things and you've got big pieces of equipment, clay prep areas, large motors, large gear boxes and so on. And some of those like went wrong, but we fixed them.

Operator

It's moving forward. Two are actually moving very smoothly now in terms of that. We've had a shutdown and two others and we've done some further work and they'll be ramping up soon and we're pretty convinced that we've identified what the issues are. Operationally, don't see any the same sort of costs at all in the second half. And I think those costs will be gone by the time we get into next year.

Operator

So and operational performance should be fairly sustainable. I think soft mud, we've got, I think what the stats around, I think 53% wire cut and the balance in soft mud. And I think that's a very healthy range that we've got in a normalized market. And actually I don't think there's any structural shifts. I think in a normalized market that's the sort of range that you want to have.

Operator

And actually some of our competitors have been looking to have more of a broader range, not just a wire cut range. So we've got we're blessed with great clay assets and great range of products in Ipstock in The UK market. And I think this is a temporary thing. I don't think soft mud is going to go away anytime soon.

Speaker 1

So I did the drop through. So Ben, in terms of if I just focus on the kind of core clay business really is the frame of reference for that. So if you

Speaker 4

look at what

Speaker 1

we did in the first half, stripping out futures from within clay essentially generated sort of EBITDA of 34% on a top line of about 128%. So you're talking about a 27% core clay margin. If you move forwards from there, the expectation that those one off costs that we've talked about go away sort of move you to a sort of normalized number of 37,000,000 on top of 128,000,000 The next call it 10% of growth as you build back from that, if you assume that that's worth something like £15,000,000 on the revenue line, we expect the incremental EBITDA to be somewhere in the region of 50% on that. So if you're taking sort of £7,000,000 or so on top of that, it moves the underlying margin from in the high 20s to somewhere in the region of 31%, 32%. So that's the sort of gravity of impact that you get on that next 10%.

Speaker 1

As you then move up, that will put the clay business back up to somewhere in the region of 75% to 80% utilization. That last 10% to 15% is really then what we believe will move us from that sort of 31%, 32% margin all the way back up to 35, which is what that business has been historically capable of doing when it's operating in normalized market conditions with levels of operational efficiency and productivity that we expect. So that's the sort of path forward in terms of drop through in clay.

Speaker 5

You. Christian York from Deutsche Bank. Just a couple from me too. First of all, could you just break down the revenue performance in the first half roughly between volume, price and mix, just so we've got a bit of a sense on that? And then 2026 is a bit of a while away, but we've seen some of the house builders come out and outlets are opening as much or as quickly as they had hoped.

Speaker 5

So just sort of any initial thoughts around how the brick market trends as we move into 2026? Thank you.

Speaker 1

Yes, so just if you look at again referencing the clay performance in the first half, so we talk about overall market including imports being up around 13% in UK brick. We were a little bit ahead of that, so you know think of that as sort of mid double digits, 15% or so on volume. Revenue in clay you can see was plus 12%, so therefore you've got a bit of a delta there. Price essentially flat, you know flat to very modestly up, zero to 1%, which means you've got about 3% to 4% of drag that comes from mix and really that was we've talked about it but three things, you know the first one is move from soft mud to wire cut and that's a couple of percentage points as Joe talked about the broad sort of split of those two within our business. Regional split, so again there were pricing differentials across markets and we saw London and the Southeast go backwards, other regions move forwards which has a little bit of a mix impact and then the third thing we talked about was you know, having experienced slightly lower operational yields, which is a function of you know how much best are you getting out of factories with those numbers being slightly lower and moving that into the market, that brings average selling prices down on a mixed basis as well.

Speaker 1

So we expect the last one of those three to reverse very quickly as yields come back through the course of the second half. I think the other two factors, we're not banking on any significant change in those mix drivers in the second half, but clearly as we look into 2026 we start to see benefit in our business as things normalize back to historic levels.

Operator

Look, think 2026 there's still a lot of caution around it, but we're at historically low levels of house building in The UK. There's been some real improvements with things like planning and there's been there's a lot of focus from the government on social housing and we all need to build houses in country. I think the RMI market as well is very subdued. So consumer confidence, if that ticks up a little bit, if you get some interest rate cuts, I think we could be moving forward. I do think we'll see some growth in 2026.

Operator

How quickly we're going to be able to get the allocation of funds into local authorities on that social housing will be critical. I'm hoping it's going to be sooner rather than later. And then this year, you've had an awful time with building safety and a lot of projects just held up. So I'm hoping that's going to provide some momentum as well. But there is this underlying, I mean, you've seen all the people reporting in the last couple of weeks.

Operator

There's an underlying air of caution about it. But that's where I think the market is at the moment. If we get a few interest rate cuts this year, it could be really interesting. Marcus was next and then Clyde.

Speaker 6

Hi, Marcus Cole from UBS. I've got two questions as well. So firstly, on pricing power, you're talking then if you get some incremental volumes back, utilization rates can get back to 75% to 80%. How should we think about pricing power in that market dynamic? And then the second one is just on calcined clay.

Speaker 6

Know it's early days and you're still you're going to give us an update at the full year, but how should we think about potential economics, what this could be worth? How we think about a potential JV structure and any sort of financial structuring around that? Thanks.

Operator

So pricing power, I think as the market starts to tighten and you start to get more volume growth, you'll naturally be able to move headline price forward in my opinion and that hopefully to cover the cost of inflation. I think also for us, you'll start to see a rebalancing of mix and that should help average prices. We've also shipped a lot of non best product this year as some of these factories have ramped up, has also been part of the cost drag. So I think ASP and headline pricing, I would but that is contingent on the market moving forward. And there has to be volume growth.

Operator

Remember, we're still at a market at the moment, the brick market is sort of 1,800,000,000.0 to 1,900,000,000.0, it's way below and you've still got some imports in there as well. So we needed to move as you start to get to sort of 2,000,000,000 plus, I think you start to see that tightening in that tension. On calcined clay, look, I can't really give you specifics on the economics because I'm not sure what the structure is going to be. We're talking to partners. Some partners have got existing assets that they could utilize to produce a product.

Operator

It might be an SCM, it might be a cement. But if you think about, we've got enough calcined clay to have a three hundred four hundred thousand ton a year line and you've got, you know what the sort of margins are in cement. So you think of that sort of size of scale. But the specific structure, we're in conversations with overseas people, domestic partners and some others. And I think until we conclude that, I don't know what CapEx investment, whether we're going be able to use existing assets and even if we're going to go alone, because if we don't get the right deal, we have that option.

Operator

But it's quite exciting. And we've had about 20 people involved in these discussions, 20 different organizations. Then it was Clyde.

Speaker 4

Clyde Lewis at Peel Hunt. Apologies, I think I've still got four. On the clay reserves, you did talk about other products beyond calcined clay. Have you now parked those other ideas because you see the best opportunity in the calcined clay product lines? That was the first one.

Speaker 4

Second one, I think Chris, you sort of put up the synergies, John, maybe it was Joe, sort of out of the Atlas and Nostal. I'm just wondering if those synergy expectations have changed and maybe if you can update us in terms of sort of timing for those synergies to come through. Third one was around, I suppose, your decision on stock levels. So that as we go through the balance of this year and into next year on what really would be the moving parts on your decision to sort of up stock levels? And the third one was probably coming back to a point around cost pressures.

Speaker 4

What are you sort of seeing generally across the business in terms of sort of current levels of cost inflation?

Operator

Okay. I'll do one and three and you do two and

Speaker 1

four. I

Operator

mean, I definitely think we've got different types of clay, Clyde. We've got a huge amount of clay in The UK. We've got probably the best reserves. And we've got clay that you can be we've got some clay that we'll probably never use. The Redhurst clay is really exciting and that is really appropriate for calcined clay, but it can also be used for brick making.

Operator

And there are synergies with that because when you take the layer of clay that you're going to use for brick making, you then expose the layer that you need for calcined clay. We've got other R and D projects that we're thinking about. But in terms of clay, really the broad things that we're looking at is brick making and calcined clay. Those are the two focus areas. Some of the other R and D projects that you might be thinking about are more around recycling, the whole recycling of different materials and energy, but that's not really to do with clay.

Operator

I'll talk about stock levels. I mean, we've got a production plan for the rest of this year. We've obviously moved ahead of the market a little bit, but as Chris showed on that capacity, we've got some flex. We can flex up further if we need to. And we haven't got all of our assets, some of them are still mothballed.

Operator

I think we've got the right balance now between being able to play into the market if it gets a bit bigger and also being managing it to where it is now. So I think stock levels are healthy, but we want to see the market moving ahead. Part of the problem when you are also is when you're managing a downturn like we've experienced is having the right stock in the right place for the right customers. And that was part of the reason to move forward with some of our factory capacities back this year, because you have to support the customers and they need some of those products as well.

Speaker 1

And so, Clyde, two and four, so synergy expectations Atlas and Nostal, I think the Atlas investment was predicated on bringing an extra net five percent into the fleet. That 5% clearly is not required in an environment that we're operating in at the moment, but I think it's important to remember that actually a lot of the value case in commissioning Atlas was that it was an absolute gross level of investment of 15% within the fleet and retiring some of the oldest and most capital hungry and least efficient from a cost perspective capacity elsewhere in the Y cut fleet. So having done that, it's got very significant cost arbitrage benefits, which is a significant component of business case in Atlas, but we'll only access the full value once we get that sort of volume being drawn into the network. But we are very confident that as that market comes back and as that sort of additional 5% is required, the £18,000,000 of incremental EBITDA that we've always talked about in Atlas will be achievable. But at the moment, I think we've got the cost arbitrage or we'll achieve that this year, but the volume will come as market recovers.

Speaker 1

In terms of Nostal, different investment ultimately the capital cost of that is still expected to be around £45,000,000 and we expect an incremental £12,000,000 of EBITDA. It's making really good progress. The first investment, less expensive from a capital perspective, is already commissioned and the order book is building there. We're generating good revenues and I think the prospects for continued growth in that first line are very positive. Really the big step up comes from the second wave of investment, which will be a state of the art ceramic facades facility across those two together we expect that to generate that

Speaker 1

So those are a couple of really important building blocks of medium term expectation for us that build on what we delivered in 2022, which is essentially is a proxy for what the business should be capable of achieving before those two investments. In terms of cost pressures, yes, look when we stood up in March, we said look fixed costs given the sort of increment of National Insurance and the wage award was likely to be somewhere in the sort of 5% inflation territory, variable costs a little bit less than that and we did come into the year with a little bit of our energy cover for '25 still open. I think we've done a decent job of taking that cover at sort of near term prices that has probably improved that position slightly. But again, it's a sort of 2% to 3% level of cost inflation within variable stack. When you put those two together, we're still seeing cost inflation in 2025 relative to 2024 somewhere in the region of 3% to 4%.

Speaker 1

And really that was when we talk about the under recovery of that cost inflation with the pricing that we've been able to achieve this year, that's an element of the updated guidance that we gave in June, which talks about on a cost base of £200,000,000 roughly within clay, that sort of gives you a sense of the level of absolute cost inflation that the P and L will be bearing this year relative to 2024.

Operator

Good. Alastair?

Speaker 7

Yes, Alastair Stewart from Progressive Equities Research. One and a half questions for me. Clay managed to get half of my question on stocks. First of all, looked at the just before you started the meeting, new BRIC statistics came out. There was accelerating growth year on year growth in BRIC deliveries and stocks were continuing to fall despite the new industry capacity.

Speaker 7

How quickly do you your capacity utilization is pretty high already, Gim. How quickly could you effectively end up struggling to deliver on your demand? And maybe a bit more the second question was on stocks. How much are you putting into broadening your range rather than just dealing with immediate sort of short term demand?

Speaker 1

So I think in

Speaker 4

terms of

Speaker 1

updated stats, you're absolutely right. June was a pretty strong month for industry shipments. We've seen the domestic data, we haven't seen imports. On an absolute basis, June was sort of plus 17%, which is it's fantastic to see that. It's reflective of our performance and it does speak to the level of momentum that I think is generally present in the industry.

Speaker 1

I think the point that we made in the pre prepared comments is important. What we've done this year is actually brought back about 20% of capacity. So in a way, if you think about the volume progression that we've achieved, we've actually brought back capacity ahead of that. We've carried the fixed cost and indeed we've had some incremental fixed cost which are disappointing, but I think that sets us now in a position where we're going to be able to readily serve that next 10% to 15% of growth and as it comes, we'll see a very attractive drop through. So that's the way we think about it.

Speaker 1

I think we're primed and ready to serve that recovered market and we've got capacity in the right place. The actions that Joe talked about, clearly we've taken actions to reactivate network capacity to put capacity in the right places in terms of why it cuts off mud, but also geographically. So I think we feel very well set to serve the recovery as it comes.

Operator

Yes, I mean, think your second question, you've almost answered, haven't you? We've but I think the ramp up of Atlas is going to be key and we've ramped that up really well now. When you're ramping a factory up on a year like this year, you have to do lots of commissioning, you have to do performance testing, and then you have to develop all the different products and test them all. And then you have to build enough stock, because you don't want to start a job site with a customer and then there's a problem. So that's kind of the pain of the first year of ramp up.

Operator

I'm really excited that that's nearly over now and we're moving into a much different phase of Atlas. And then we've brought some other wire cut on, but we've also brought some soft mud on. So I think we're in great shape, and I think we can flex out. I've seen this market move very fast. And it's not just it doesn't move fast just with activity.

Operator

It's also the builders merchant starts stocking up. So mean, we don't want to be stocking out customers. We want to be looking after our customers. But I'm looking forward to the days when we can get a bit more tension in the system, which has not been there.

Speaker 8

Thank you. Harry Dow from Rothschild and Co, Redburn. I think we've got a few probably still left actually. But just firstly on the first half, I think there was maybe some property profits maybe in the bridge. Should we expect that to repeat in the second half?

Speaker 8

And I suppose maybe guidance as we kind of go forward for the kind of profit gains, I think the number maybe you gave is maybe more cash realized, but maybe a definitional difference there. And then I suppose generally on the color of sort of the bridge in the first half, the impact of volumes, price mix, just and the versus cost, a bit more there. And maybe if you could put a number on, I suppose, the fixed cost, the kind of absorption that you took in the first half that, I suppose, won't repeat maybe in the kind of the second half. And then I think also in some of the import data from a market volume perspective started to creep back up again in terms of, I suppose, the domestic deliveries is also going up. I suppose I'm intrigued on your view on that around why maybe given there's quite a lot of capacity in the system that imports are maybe starting to edge up just little bit.

Speaker 8

And then just finally on, again, on market volumes. I wonder if you had a view on how much you think is housebuilder inventory rebuilding maybe relative to actual activity, because I think there's probably not a lot of housebuilders that would say they're building double digit more homes in the first half, so maybe how much is inventory rebuild and therefore how we should think that phases I suppose in the second half as well? Thanks.

Speaker 1

I've made that five. I'm happy to have got one, two and three, and maybe you do four and five So if that's thanks for those Harry. In terms of property profits, you're right, we referenced in the statement this morning that we disposed of the sort of first parcel of land at one of the sites that was closed in the 2023 up in the Northwest Of England. Proceeds around £3,000,000 profit about 1,500,000.0 or so. So that's in there, that is something we talked in March about the shape of the realization of those proceeds and what we said was actually look, what you don't want to do is go and sort of sell under value quickly, you've got to let those things come through and you know we expect a pipeline, Joe talked about £30,000,000 conservatively on a three to five year view that's still maintain that we maintain that as our sort of expectation.

Speaker 1

So not necessarily in the second half, but again it's something that you would expect to see a stream of continuing proceeds as we go forwards over time. In terms of the sort of volume price mix and drop through there, if you look at the sort of bridge within half one, again I'll sort of talk to Clay first of all and then come to Concrete. So that sort of top line, you assume that there was a sort of 15% volume growth dropping through that would give you somewhere in the region of sort of high 30s to 40% drop through. So you can do the work on a sort of an £18,000,000 volume impact in that regard. Over and above that, we took a planned decision to put a little bit of fixed cost in, so that would dampen the drop through on that piece of growth such that the drop through would probably move back down towards the low 30s.

Speaker 1

The incremental piece, so this is the unplanned or unforeseen incremental costs in aggregate accounted for about £4,000,000 Most of that was really just the remediation effort that had to go into the factories to resolve the issues, but some of that was also the drag on mix that came from higher levels of non best sales into the market. So that was the sort of quantum of that. And then when you look at sort of under recovered costs, talked about that Clive's question talked about level of inflation. So if you think 3% to 4% under recovered in that regard, gives you a drag on a top line annually of some in the region of sort of GBP 8,000,000. So we had about half of that in first half as well.

Speaker 1

So those really are the moving parts on the drop through.

Operator

Yes, imports, I mean, ticked up a little bit one month, but they've actually been declining a little bit. I think part of the reason why they've been still a bit more sticky is some of our competitors are big importers and they've turned off some other capacity and they're continuing to flow those through. Some imported bricks will probably be going on a job that is ongoing. And so you have that continuity. But I think economically over the time, it's better to have a certainty of local supply, because you know if the market picks up in Europe, you're still going to get products.

Operator

So I think that there'll be a continuing alignment with local products. I think housebuilder inventories, we don't see a lot of stock up on the site. So I don't think there's a massive imbalance between activity levels and housing starts. I think they've ticked up by about 10% in the first half on average. And I think bricks are a little bit higher than that, but I think there's probably a little bit of merchant stock and that sort of stuff.

Operator

So I don't think it's major concern.

Speaker 1

Priya?

Speaker 4

You're on.

Operator

We can hear you.

Speaker 9

Yeah. Mine's not working.

Operator

Oh, is

Speaker 1

it up?

Speaker 9

No. You can't hear me. It's just

Speaker 8

Yeah.

Speaker 6

It's working.

Speaker 9

I think it's working anyway now. Sorry, the red light is not working. It's Praia Wolff here from Jefferies. I've just got two questions on futures. The first one is just on the midterm target.

Speaker 9

You've obviously previously talked about revenues from futures contributing over 40% of group sales. I just wondered in the context of saying that M and A is likely to be focused on smaller acquisitions, we've obviously got a weaker market. What's thinking in terms of time line of getting there? And then the second question, I guess, read across from what we saw with regards to some of the pricing competition in H1. It seems like that was particularly acute through the sort of brick factors.

Speaker 9

Can you just give us a little bit more clarity on the channels which are bricks slips, which will be sold through and if we could potentially see similar issues going forward there as well?

Speaker 1

So thanks, Priyal, for those two. In terms of futures, the expectation in the medium term targets was actually sort of 40% outside of core clay, so including concrete. So I think, you know, the focus was on really getting diversification away from the traditional mainstay of the business, which was clay. I think in terms of the contribution of futures towards that, the capital that we've now got in the ground or we will have by the end of the year will essentially support full delivery of the slips business case and there is quite a bit of other systems activity now that's essentially within the base business. We believe based on the capital that we'll have in the ground, we will be able to achieve revenues within futures of £50,000,000 but ultimately it's going to require capital to be put in over and above that to move that up further.

Speaker 1

So I think we feel really that the business is heading positive direction. I think not just in terms of strategic progress, but the team that we've now got in futures is keenly focused on operational execution alongside that and we're starting to therefore see levels of profitability come through which are going to be important. And in some of that activity remember there's still about £2,000,000 of sort of research and development that sits within futures pre revenue as that starts to move into activities that actually generate top line, we're going to start to see EBITDA margin percentage move forward as a function of that shift as well. So I think we feel very good about it. It's coming off a low base, we acknowledge that and we need to be able to demonstrate security of supply into those markets in order to give customers the confidence to actually start to grow volumes.

Speaker 1

But as some of those bottlenecks that Joe talked about start to alleviate and as this comes through as a sort of reliable source of domestic supply, we really see that market moving forward.

Operator

Yeah, And look, I think that these ceramic facade products that you're getting on rain screens and wall systems, they're designed and built. So you will have distribution partners on the front end, you will have installers and you'll have relationships with developers. So it's a whole supply chain approach. I think I'm not saying it's price agnostic, because price is sensitive and as you think about build costs. But I think what's really important there is things like the labor saving, the time saving and where you're going to find enough additionality to go to from where we are as a sort of a 220,000 market with a labor supply chain that can do things and above that you're going to need these sort of products.

Operator

And I think that's where we've got the focus and we're developing systems for that. We're sensitive around pricing, but we expect to be able to get the margins that Chris has just described there at least 20% margins. So if there's no other questions online, thanks for coming. Look, we've invested ahead. We've got some good volume growth this year and it's encouraging.

Operator

We've invested ahead to make sure we've got the right capacity. Ipstock is in great shape in terms of the assets that we've got when this market recovers. And I think with the market getting back to normal, the mix impact, the margin expansion, the volume return, I think we're going to be in great shape. So thanks very much for coming. And we'll have a little chat now afterwards with a cup of coffee.

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