Forterra plc (FORT) Earnings Call Transcript & Summary

Well, good morning, and welcome to Forterra's 2021 Annual Results Presentation. I'm Stephen Harrison, Chief Executive of Forterra.

And I'm Ben Guyatt, Chief Financial Officer.

So let's move straight on to the financial highlights that we're going to present this morning. We're pleased to deliver a strong performance last year. Volumes are now back to pre-pandemic levels. Margins reduced slightly towards the end of the year as we had cost inflation come through. But we've made our pricing more agile, and we delivered a double-digit price increase at the end of 2021, and we have a further price increase being double-digit price increase coming through on the 1st of April this year. Our dividend policy is in line with our published intention to pay out 55% of our profits. And we announced a share buyback in January that is ongoing. Moving on to our strategic highlights. We're very excited this morning to be announcing 3 major new steps forward. Firstly at Desford new brick factory. When we announced this project in 2018, we said it would deliver an incremental profit of GBP 15 million a year. That's GBP 15 million of additional EBITDA from 2025. We're pleased today to be announcing that, that will now be GBP 25 million additional EBITDA from 2025. We're also announcing this morning an investment in our Accrington factory to allow us to enter the brick slips market in a highly efficient, cost-effective way. And also, we're very, very pleased to be announcing this morning that we've commissioned a solar farm, a dedicated Forterra solar farm that will deliver 70% of our electricity from 2025. Handing over -- with a picture of Crematorium, handing over to Ben.

Morning, everyone. I'm pleased to be here this morning reporting on a strong set of numbers. For simplicity, we have primarily reported against 2020 in this presentation, although I will make reference to key 2019 comparators. We have also included additional slides comparing against 2019 in the appendix. The story this year is one of strong trading, although our result has been muted by the effects of cost inflation. Having said that, we have still delivered a creditable result in the face of unprecedented cost volatility. Our cash generation was also exceptionally strong, with a reported cash flow from operations of over GBP 80 million, highlighting the quality of our earnings. This feeds through to our balance sheet. We've reported net funds before leases of GBP 41 million, with the strength of the balance sheet allowing us to commence the GBP 40 million share buyback in January. In accordance with our policy of distributing 55% of our earnings, we are recommending a final dividend of 6.7p, which when added to the 3.2p paid back in October gives us a full year dividend of 9.9p. We move on to the profit and loss. I won't dwell too much on this slide because we've already touched on the numbers previously, but I will highlight that our revenue has increased by 27% relative to 2020. And this drops through to our profit before tax figure, which has almost tripled relative to the prior year. I guess it's worth taking the time on this slide to explain our effective tax rate. Excluding the impact of exceptional items, our effective tax rate was 21.3%. Our tax affairs are fairly simple, and we would generally expect that our effective tax rate to be around 1% ahead of the U.K. headline rate which is currently 19%. Although in 2021, with the announced 6% increase in the headline rate from 19% to 25%, which takes effect in 2023, this rate change drives a deferred tax charge, which increases our effective tax rate in 2021. The other thing just to point out on this slide is that the percentage increase in our EPS relative to 2020 is lower than the corresponding PBT increase, and that's due to the effect of the equity raise that we did midway through 2020. So just looking at the numbers versus 2019. Sales volumes, as Stephen said, were close to or in line with 2019, with brick sales volumes actually 1% ahead. Cost inflation has had a significant impact on the 2021 result, with there being GBP 9.8 million of additional cost relative to 2019, which went unrecovered. We got to remember that 2019 actually fell short of expectations with a relatively difficult second half. Hence, our staff population didn't receive a bonus. In 2021, our staff will receive a bonus so you have the additional cost. We have regularly stated that the old Desford factory has not been able to reach the desired level of efficiency as it reaches the end of its useful life. This impacts the way we absorbed the fixed cost. So we basically made the factory less efficient. So you see inefficiency coming through there. We also realized a profit of GBP 1.5 million in 2021 from the sale of a disused quarry. Whilst the proceeds of GBP 100,000 were modest, this relieved us of our restoration obligation, realizing a profit of GBP 1.5 million. Therefore, if you strip out the effects of the unrecovered cost inflation in the short term, which, going forward, we are confident of recovery, there is no impediment to the business getting back to and then exceeding 2019 profitability. So if we then look at the individual segments. So first of all, in Brick and Block. Brick and Block segment has seen a strong recovery in sales volumes with brick volumes slightly ahead of 2019, as we said a minute ago, but also with a similar positive story seen in blocks. Product availability was the primary driver to doing even better. We further depleted our inventory levels during the year with industry brick stocks now at less than 2 months sales. All of our brick factories produced at close to their installed capacity during the year, except for the old factory at Desford and also in London Brick where demand has been a limiting factor over capacity for many years. Having said that, having reduced production of London Bricks in early 2020, we are now increasing production again to satisfy demand, having reduced inventory levels through the pandemic. The segment EBITDA margin of 23.6% compares to a 2019 figure of 28.8%, primarily as a result of the unrecovered cost inflation with a sudden increase in energy costs seen in the final quarter almost exclusively impacting this segment. As Stephen already said, we've now delivered significant selling price increases with double-digit increases of 16.5% delivered on or before the 1st of January '22. We also reduced the notice period required for price rises from 3 months down to 1, allowing us to recently announce further double-digit selling price increases taking effect from the 1st of April 2022. Whereas margins have been adversely impacted in the short term, supportive market conditions with a continuation of rising house prices supporting our ability to cover cost inflation means we are confident of benefiting margins going forward. Following the Russian invasion of Ukraine, current energy prices are particularly volatile with current prices way above any historical comparator. Overall, we have secured around 70% of our energy requirement for 2022, with the figure for half 1 standing at 80%, reducing the risk associated with the current volatility. So we then jump on to Bespoke Products. So the revenue in Bespoke Products is a function of the closure of the Swadlincote hollowcore factory in 2020 and then the closure of the adjacent bespoke precast facility in late 2021. Our strategy in Bespoke Products is to maximize margin by shifting our product mix towards value-added differentiated products over commoditized gray concrete. The results on this slide do not include the exceptional profit of GBP 6.1 million that has been realized following the disposal of the Swadlincote factory in the period for gross proceeds of almost GBP 15 million. However, this profit does need to be viewed alongside the GBP 10.2 million exceptional impairment loss recognized in respect of Swadlincote last year. Overall, we have recovered around 75% of the GBP 20 million invested back in 2017. We are now also being more transparent with our overhead allocations and how they impact the reported performance of our segments and, in particular, Bespoke Products. Our central overhead cost in 2021 totaled around GBP 25 million, which is traditionally apportioned based on a revenue-driven 80-20 ratio between Brick and Block and Bespoke products. We have followed this allocation approach since we first listed, although we recognize that this allocates a larger overhead to Bespoke Products that would actually be required if the segments were ever to be separated. As such, we will now disclose the segmental results both before and after this allocated overhead. Cost inflation was actually first felt in this segment with insulation and steel price increases seen in Q1 of 2021. And given the level of brought-in materials within this segment, we have needed to regularly increase our sales prices throughout the year in order to protect margins. Looking at EBITDA before overhead allocations. There is a significant improvement in the result in margin with this segment contributing GBP 5 million of EBITDA to the group result before the allocation of overheads and a margin of 6.3%. Looking ahead, we still aspire to return this margin to double digits through a focus on profitability ahead of revenue. The Bison Flooring business, which was restructured and consolidated back in 2020, is very much on track and already delivering a strong performance. We always recognize that the restructuring of the facades business, alongside the delivery of our product innovation strategy, would take longer to reach these objectives. So we move on and look at the cash position and the cash flow. So operating cash generation has always been a strength of our business, and this has been demonstrated again this year with an operating cash flow of over GBP 80 million. We have benefited from an increase in payables at the year-end driven by increasing costs, particularly energy. Although with the brick price increases not taking effect until 1st of January 2022, with a further increase in April, we expect to see a reversal of this working capital gain in 2022. Capital expenditure in the year totaled just under GBP 35 million, with Desford accounting for GBP 27 million of this. This is a smaller amount than previously anticipated, although this is just a result of the timing of payments rather than any form of delay with the project. Maintenance CapEx totaled GBP 5.7 million in the year, lower than the guided GBP 12 million, which should be seen as a long-term average with some annual variation on this. Whereas supply chain limitations have not impacted the Desford project to date, we have seen some delays elsewhere, which contributed to a lower capital spend in the year. The increase in the lease liabilities on the previous slide, sorry, that relates to the purchase of a new distribution fleet when we replaced our delivery vehicles with new and more efficient vehicles. So if we look at the CapEx guidance, so this slide summarizes our guidance for 2022. We wouldn't normally give guidance for 2023, but this is sensible given that we have 3 strategic projects that will each be completed over the next 2 years. We expect to spend around GBP 31 million on Desford this year, including an element of capitalized commissioning costs. The project is still expected to be completed within the GBP 95 million budget, with the final GBP 5 million due to be paid in 2023. Aligned to my comment earlier, we expect to spend GBP 12 million per annum on maintenance CapEx over the long term. The actual 2022 spend will be driven to some extent by supply chain lead times. So we just have a quick look at working capital. We've already covered much of this, so I won't spend too long on this slide. Driven by an increase in payables, there is a favorable working capital movement of GBP 10 million in the year, although we would expect an offsetting movement in receivables in 2022 following the delivery of selling price increases. Whilst the inventory balance remains consistent with last year, this is driven by an increased valuation. The quantity on hand fell further in the year. Inventories are now at record lows, and accordingly, we will be only able to sell what we manufacture in 2022. As long as the markets remain strong, we don't see any opportunity to meaningfully rebuild inventories in the near future. The final slide for me, just to look at our balance sheet position on the cash. So we closed the year with a very strong cash position with cash and cash equivalents of GBP 41.5 million. Our GBP 170 million revolving credit facility was unused at the year-end, with GBP 0.6 million on the slide relating to accrued commitment fees. From the 1st of January 2022, our banking facilities have returned to normal with the increased interest rates that were levied in return for the covenant variations we received during the pandemic now at an end. Interest is now charged based on a margin grid where interest is levied at SONIA plus 1.75%, assuming that our leverage remains below 1x EBITDA. Finally, we exercised a plus 1 option during the year, such that our credit agreement now extends to July 2025. And I'll now hand you back to Stephen.

Okay. Thanks, Ben. Let's take a look at the markets in which we operate. So start with, let's look at the housing market. So the housing market remains strong here in the U.K. with the Construction Products Association forecasting growth in both 2022 and further growth in 2023. House price inflation means that we're able to pass on the increased cost of our components to our customers through price increases. And we've all seen the upbeat market reports from the housebuilders over the last few weeks, not only looking at last year, but also looking at future growth. So we believe our markets are set fair and in a good position. Moving on to look at the U.K. brick market. So demand for bricks is strong. The U.K. manufacturers are capacity constrained and selling everything they can make. Inventories are at record lows, as well as that imports were at record highs. So we're seeing our customers choosing to use imported bricks rather than alternate products, which really does say that brick remained the most cost-effective way of building a great-looking, durable, long-lasting, sustainable facade to modern house, new homes. The brick industry, moving on to look in a little bit more detail at the capacities of the market. During the global financial crisis, we -- as an industry, we removed 20% of the industry's production capacity. That was the old, tired, inefficient capacity. What we're now seeing is the industry replacing that with much more sustainable, greener, much more efficient production capacity. And as we bring our Desford factory on and start selling bricks in 2023, we believe we're very well placed to fulfill the demand and displace imported bricks from the U.K. market with sustainably produced domestic bricks. So moving on to our strategic update. Our strategy is quite clear. We are deploying capital to add capacity, improve efficiency and decarbonize our business. And we laid that strategy out clearly last summer when we presented our half year results. There are 3 pillars to this strategy: strengthening and improving our core business; expanding our range of products; and then product development and innovation. And I'll go through these and some of the projects of these on the later slides. But just moving forward to talk about our continued strong cash generation. Our business is very cash generative by nature, and that allows us both to reinvest for the future and to make good returns to shareholders. We set out our priorities last year, which we'll remind you of now: so firstly, strategic organic capital investment aimed at delivering long-term shareholder returns; secondly, a progressive ordinary dividend with a payout ratio of 55%; thirdly, bolt-ons as M&A opportunities arise; and then finally, supplementary returns to shareholders as we have cash available to return. So let's go and look at some of these strategic pillars and move on to the strengthening of the core of our business, and really focused on the Desford factory here. So we gave guidance when we announced this in 2018 of GBP 15 million incremental EBITDA, which we're now increasing to incremental EBITDA of GBP 25 million from the Desford factory. That's from 2025 when the factory will be working at full capacity. Now why are we able to increase that guidance? Firstly, since 2018 when we launched the project, the existing old Desford factory has become less efficient and is no longer working at its installed production capacity. Therefore, we have an even greater brick production uplift than we originally estimated. Secondly, we've got the benefit of price increases that we've applied since 2018, and together, that allows us to increase our guidance for the profitability from the new factory. And to remind you of the timetable, that factory will be commissioned towards the end of next -- of this year, start selling bricks next year, be operating at full speed in 2024, and we'll see full contribution in our numbers from full year 2025. Moving on to the Wilnecote factory development, which is part of our range expansion. So we talked about increasing our product range, diversifying slightly. Here, we're spending GBP 27 million, completely upgrading a factory to allow us to make a much broader range of products. They're higher specification products that will be sold into the architecturally specified market at a higher price point. This will deliver, again, long-term shareholder value through the expansion of our range. What we should remind you here is that this factory will shut for around 9 months at the middle of this year. And during the period that the factory is shut, we'll see a loss of EBITDA of between GBP 2 million and GBP 3 million. And then finally, let's talk about innovation. So as I said earlier, we're announcing today a GBP 12 million investment to make up to 48 million brick slips a year and enter the brick slip market. Now our existing factory at Accrington is a big site with lots of space. So what we're doing here is building a new brick slip production line within the existing building, but we'll fire the brick slips through in the existing kilns. So for every 3 brick slips we fire, we'll lose 1 brick of production. But we see this as a very, very cost-effective and highly efficient way to enter the brick slips market, adding very little fixed cost, operating cost -- fixed operating cost to our business. We're very confident that the market for brick slips will go as a lightweight cladding solution for medium- and high-rise buildings and more importantly, the new modular housing market. So our pipeline of projects. We've got 3 current strategic projects running that will each deliver significant growth to the business and shareholder value. We've got a further pipeline of projects to follow. And as we said last year, in addition to our Desford project, we expect to spend in excess of GBP 200 million to grow our business over the coming decade. That leads us quite neatly on to our share buyback program. So despite the 3 major projects that we have running at the moment, our balance sheet is such that we have surplus cash. And as we said in our capital allocation priorities, if we have surplus cash, we would return it to shareholders. So we announced back in January a buyback program to buy back GBP 40 million worth of shares in 2022, of which we've currently returned GBP 5.5 million. So let's now talk about sustainability. So we made significant progress in the decade 2010 to 2020. For example, in those 10 years, we reduced our carbon emissions per tonne of product by 27%. But that's not enough. As we all know, we've got to make -- we've got to go far further. So last summer, we announced challenging new targets for the current decade to further improve our sustainability. And we announced these in 3 areas, looking at people, planet and product. And those core sustainability pillars is what drives our activity and to further improve our business and make us more sustainable going forward. So our progress this year, we believe, has been good. We're really pleased today to be announcing the solar farm. So this is an agreement to build a dedicated Forterra solar farm. This is new capacity, green electricity being added to the U.K. energy market that will be dedicated to our business and supply 70% of our electricity from 2025. Not only does that provide us with long-term green energy, but it also gives us cost certainty over the -- from the electricity that we buy. And in the current environment with very volatile electricity prices, that's very, very welcome. We've also made significant progress this year with our employees, with an increased number of employees in earn and learn positions. We've further reduced our carbon emissions, and we're making good headway removing plastic packaging from our products. So let's look forward to our outlook. 2022 has started well. Our trading in the first 2 months of the year has been strong and looks -- and our order book is strong, and we believe that it will continue this way. The market conditions remain highly supportive, but we have to remember there are some wider macro uncertainties. So we are a very domestic U.K. business, but we still recognize the horrors going on in the Ukraine at the moment may well have an impact on the wider market that have a secondary effect on us, and we remain watchful and mindful of that. Our order books are strong. Our customers are positive. There's an ongoing housing shortage. Our selling prices leave us well placed to recover the cost inflation and benefit our margins. We have, as Ben said, approximately 70% of our 2022 energy forward purchased with the greater coverage in the months where prices generally are more volatile. So we expect to continue progress through this year. And perhaps I can finish with a reminder as to why Forterra is well placed to deliver long-term shareholder value. We have established positions, leading positions in our core markets. The long-term demand for the products, the components we manufacture going into and the structural undersupply within our own sector gives us -- underpins our future growth. We have an investment pipeline to deliver capacity, efficiency and decarbonization. We have a commitment to sustainability leadership and are demonstrating that with the announcements we made this morning. And finally, we have a strongly cash-generative business and disciplined capital allocation. And on that note, we'll open for questions.

[Operator Instructions] And our first question comes through from the line of Ami Galla calling from Citigroup.

Just 2 questions from me. The first one was on outlook. If you could give us incremental color on what sort of message are you getting on the renovation market at the start of this year. And the second question is on the brick slips market. The overall market size, can you give us some color in terms of what proportion of that is currently imported into the U.K.? And how does that split between the residential and the commercial market? Again, is that primarily new build, or there is an element of renovation within the brick slips market as well?

We struggled slightly to hear that. Ami, can you clarify the first point? It was about the outlook in the market, but can you just clarify what the first point was?

Yes. I was wondering if you could give us some color in terms of the order books or the sort of incremental trends that you're seeing on the renovation side of the market at the start of 2022.

Okay. So I'm taking that as the renovation market, Ami. I hope -- the line is not great, but -- so talk about the repair and maintenance market. Yes, positive. The demand has been as good there as from the new build housing market. So our London Brick product goes exclusively into the repair, maintenance, improvement market through builders merchants. And sales are great, actually. They're back to 2019 levels, and we depleted inventory in 2021 when the -- in 2020, sorry, when the plants were shut during the early stages of the pandemic. And actually, as a result of the depleted inventory and the strong market, we've actually slightly increased production in that area of the business. And then the second question, I think, was around brick slips and how the market is currently satisfied. So there's 2 -- we believe the brick slip market is around 120 million brick slips a year. And there are some brick slips imported, so high-end brick slips get imported from particularly Northern Europe, so Germany, Belgium, et cetera. But also, an enormous amount of brick slips today are made by cutting the face off a brick, which is very unsustainable by its very nature. So rather than firing clay and wasting a chunk of it, we believe the much more sustainable solution is to actually fire a brick slip in the first place. So we see this as partly displacing imports, but more importantly, providing a more sustainable solution to brick slips.

Just whilst we're on the subject of brick slips, I've got a question from George at BNP come through from the webcast. And I'll say that we'll pick this up now because it fits with the slips discussion. But question is, can you give an indication of the incremental EBITDA from the brick slips investment? So that's a good question. So we're not quoting an incremental EBITDA on the brick slips investment in the same way that we are for Desford, for example. And the reason for that is, is that Desford is an established product in an established market. And we know as soon as that factory is up and running, we can sell those bricks to our existing customers. Brick slips is more of an innovation. The market -- there is a market that Stephen's just talked about, but it's still kind of forming, and there's still kind of likely to be significant growth in that market. So whilst we bring on our facility and build a market position, it's very difficult to project exactly how quickly we'll do that in terms of gaining market share. And therefore, we're being a bit cautious in not committing to specific EBITDA on an annual basis at this point in time. What we will say is we're very confident that we've been a couple of years from this project starting manufacturing, which is at the end of next year. We expect to be recovering our cost of capital. And then beyond that, there's significant upside. But I think it's too difficult to accurately clarify exactly when the EBITDA will be delivered.

Yes. And then as a follow-up, I'm sorry if my line is not too clear, but can you give us some color in terms of, is this entirely going into the sort of residential end markets? Or do you expect a step-up in your commercial exposure as well?

Yes. So we see a bit of both, Ami, and we think the commercial market or the medium- and high-rise building market where, over time, bricks have probably slightly lost some share. We see this as a very effective way of cladding those buildings with a lightweight brick structure and recovering share back in those markets. We also see it in the modular housing market as a way of cladding those buildings. We do not see brick slips replacing bricks in traditional 2, 3-story housing.

The next question comes in from the line of Christen Hjorth calling from Numis.

Three questions from me, if that's okay. The first question, looking at the Bricks and Blocks division, once all these expansion projects come through looking at sort of, I don't know, 2025, 2027, what should we think about in terms of sort of target EBITDA margin for that division? The second one, just on London Brick, and I know you've sort of touched on outlook, but just in terms of the cost backdrop, is it easier or harder to pass on those higher costs in that business? And then just thirdly, you do point to opportunistic M&A. I was just wondering if you could provide a bit of an update on how you're thinking about M&A pipeline, et cetera.

Okay. Let me talk first of all about the margins in Brick and Block. I mean when I presented the bridge slide to 2019 earlier, we say that effectively, cost inflation really was the only reason we were significantly behind 2019 with the 2021 results. And we're very confident of recovering that cost inflation going forward. So before you look at the new factories, then there's no reason why we can't get back to 2019 margins. Then you look at the beneficial impact of the new factory. So both Desford and Wilnecote be margin accretive. Desford is going to be the largest, most efficient brick factory in Europe, so that will obviously generate cost efficiencies. And Wilnecote, that investment is less about efficiency but more in producing a high-quality product that will achieve a higher selling price and lead to margin accretion that way. So look, by the time you get to 2027, just by looking at the footprint we've got in place today and adding in the new factories, then yes, you would expect some upside in margins.

If I talk about London Bricks. London Brick is a batch process manufacturing process rather than a continuous process. So the rest of our brick plants are a continuous process. Interestingly, London Brick is less energy intensive, although it is more labor-intensive than the other products. We're as confident that we can pass on the cost increases on London brick as we are the rest of our brick products. And then finally, Christen, if I pick up on M&A. Look, we are always -- have our eyes open for potential M&A opportunities. But at the moment, M&A opportunities in our consolidated sector appear expensive, and the returns that we can get for our shareholders from organic capital investment look to far outweigh any M&A opportunities. So they are -- by no means is M&A off the table, but we're running 3 large strategic organic investment projects with a further pipeline, and we see those as the real way to add long-term shareholder value to our business.

We currently have no questions coming through. [Operator Instructions]

To give you all time to get your questions in, I've got a couple of questions from the web chat that we can pick up on. So we have another one from George at BNP. How much of the 2022 and 2023 CapEx is committed? What kind of flexibility do you have if energy cost inflation continues? So I think there's always 2 questions in here. There's the -- what CapEx is committed? So at the moment, our committed CapEx relates to the Desford project and the Wilnecote project. At the moment, Accrington at this stage in time isn't committed, and also, much of our maintenance capital would also not be committed. But it's worth just picking up on energy prices at this stage as well. So in terms of -- obviously, there's been a significant spike in energy costs in the last couple of weeks. And I guess, we're just kind of mindful of keeping an eye on these. Those are a panic to the current invasion. The forward prices that we're seeing quoted for the rest of this year, they have such a large risk premium in them. So the cost of kind of gas that you get quoted for August at the moment is higher than you pay for gas today. So we're not sure that is a real forward cost. And we would expect that to fall down in the coming months. I think if you've got gas at GBP 5 a therm when it's usually 40p or 50p a therm, there are much, much bigger problems than a global economy than the cost of making bricks. So I think we're just sort of -- we're mindful of the cost inflation. Our price increases that we put through this year in April will already cover some of that. But I'll say we kind of just need to just calm down a bit on the gas at the moment and just kind of wait and see what happens because I don't think the current prices are sustainable. And then we have another project question on the web chat whilst I'm here. So I'm probably going to read it out and then ask Stephen to answer it. But from Stephen Rawlinson, and it says that a product from Accrington's clay was quite specific. Can you tell us something about the raw materials for that factory to be used for slips and its geographic proximity to modular factories? Do you also intend to use the site to make semi-finished brick-based components for buildings such as facade panels?

Okay. Good question, Stephen. So the clay there will be used for some of the brick slips, but we also have the opportunity to bring in clays from our other factories and make a broader range of brick slips. But we'll also be putting the ability to glaze to an extent, it's called engobing, so it's effectively staining the brick slips to give them different colors and put different textures on them, et cetera. So we will have a wide range of products coming out of the Accrington factory. The -- not exclusively, but a lot of the brick slip -- sorry, the modular house builders are based in the North of England, but actually, that's not the reason why we are manufacturing brick slips at Accrington. The reason we've chosen the Accrington factory is that we have the space there to do this in a very cost-effective way. So building an entirely new factory would probably cost 4x the investment that we're making, the GBP 12 million investment that we're making at Accrington, but it would also add a whole lot of fixed cost to the business having another factory operation. So we see this using Accrington even though we might have to transport the old brick slips here and there as a very cost-effective and highly efficient way of entering the market. Did I cover the whole question?

I think so.

Thanks, Stephen.

I have some more questions on the web chat, if there's no one waiting on the phone. So I'll pick those up now. So we have Flor O'Donoghue at Davy. Can you remind us of the rough range of the annual energy bill? And what is happening in relation to carbon credits? So I'll pick that one up and to say I'm not going to try and kind of give you what our annual energy bill as of today based on forward prices because it's constantly moving. But when I did the budget back at the end of last year, we were budgeting for around GBP 12 million of electricity this year and around GBP 28 million of gas, so a total of about GBP 40 million. That gas bill as we sit here today will obviously be higher than that. I think -- and also what's happening to carbon credits. So carbon credits is an interesting one actually. So the price of carbon credits rose consistently through last year and rose again strongly at the end of last year and into this year. Actually, one benefit of the current economic uncertainty and that we've seen with the spike of energy cost is that the price of carbon credits has actually fallen back. So we've been in the market in the last week actually buying carbon credits for sort of 15% less than they were a couple of weeks before that. So the carbon credit price at the moment, I think at the auction yesterday, we bought some credits for GBP 62, whereas a couple of weeks ago, they were up at well over GBP 80. So we are kind of, again, a bit like our energy approach. We're responsive with our carbon purchasing, and as we see a bit of value or opportunity in the market, we take advantage and we say we won some credits in yesterday's auction. Another question we have here is sort of touches on the -- we've talked about on gas, but it's from Jon Bell at Deutsche. What assumption do you make about gas prices in your GBP 25 million EBITDA expectation in 2025 for Desford? So what we did when we did that is we look at the forward curve. So this was -- that kind of was validated a couple of weeks ago. And those prices -- the forward curve when you get to 2025 returns to near normal levels. So we've not got enormous amounts of energy purchased for 2023 because the market isn't supported at the moment, and the quoted prices are very high. But when you go out to '24 or '25 and '26, actually, there's some good value or at least there was a month or so ago in the energy market. So we've already made some forward purchases in those years. And then the assumptions we've made for the EBITDA assumption from Desford are aligned to where we saw those forward prices and where we've been buying electricity in the full -- sorry, rather gas in the forward market. So I don't have anything else on the webcast. So I guess it's over to the operator if we have anyone else on the phone.

We do have one other question coming through. The next question comes from the line of Sam Cullen calling from Peel Hunt.

Just one from me, actually. Obviously, it's incredibly difficult to call at the moment, but if things normalize in Ukraine over the next 4 or 6 weeks, for example, and the gas price normalizes again, what's the risk that pricing has to move back across the market in that scenario and you see some price deflation in the back half of this year into 2023?

Yes. We don't see that as a massive risk. There is -- for the reasons I talked about earlier, an undersupply, and we had 400 million bricks imported into the U.K. last year, and that's a premium price or a premium cost to our customer if they use imported bricks. So I think the brick industry has demonstrated previously its ability to hold on to pricing, and we're pretty good at that. And in the global financial crisis, actually, we held on to pricing. We didn't get many price increases, but we did hold on to pricing. And we believe that even if the gas price, and let's hope it does for many reasons, does fall back and things normalize in the Ukraine, as you say, we believe that we will hold on to our pricing and we'll still be competitive relative to imported bricks coming through.

We do have another question on the web chat, so I'll pick this up now. So this is from Shane at Goodbody. Can you give us some color in terms of what your percentage energy requirements are secured for 2023 at this stage? As I touched on a minute ago, actually, our coverage for 2023 is not particularly high at the moment. We're at about 15% covered, although that is a pretty high coverage in the first quarter. So we've kind of got the first quarter covered, but then in a year's time, then at the moment, we have open positions. And then the second question was, can you remind us what the EBITDA impact will be from the 9-month closure at Wilnecote to help us better bridge out 2022 EBITDA? So the impact in 2022 of that closure, so the 6 months from kind of the July to December, is a reduction in EBITDA relative to last year of about GBP 2.5 million. What you then get in 2023 is you get a hit at the beginning of the year, but then that's offset by the incremental profit of the factory coming on in the second half of the year. So really, it's a hit of GBP 2.5 million to GBP 3 million in 2022 is the main kind of reconciling item.

We currently have no questions coming through on the line. So unless there's any other webcast questions, I'll hand it across to yourselves for any concluding remarks.

Great. Well, look, thank you very much for dialing in and listening. We -- I'd say we're pleased with the numbers. We're pleased with the way this year started. There are some uncertainties, and we sincerely hope that things in the Ukraine calm down, not just for our business, but for everyone else. And thank you very much for listening.

Thanks very much, everybody.