Forterra plc (FORT) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to our interim results presentation. First and foremost, introductions. My name is Neil Ash. I'm the CEO of Forterra, and I'm joined today by Ben Guyatt our CFO. Good morning, all. In terms of agenda for today's session, I'm going to walk you through the results headlines, and then it's over to Ben, who will explain the detailed finances for H1. And then it's back to me for a review of the market, strategic and sustainability updates and then the outlook. So our headline results for H1 saw group revenue at GBP 162 million, which represents a market-driven drop of 11.5% versus the prior year. H1 industry brick volumes have dropped by around 9%, and our own brick volumes are in line with this. Despite the softer-than-expected market, our focus on excellence projects and effective cost control, I mean the first half results are in line with our expectations. Prices in 2024 have remained relatively stable. However, the competitive market conditions have restricted our ability to pass our announced 2024 price increase. The adjusted EBITDA for H1 was GBP 24.3 million with a PBT of GBP 9.1 million. Before passing to Ben, I'd just like to take a moment to thank the entire Forterra team for their contribution to the business. Now over to Ben, who will walk you through the details of H1.

Thanks, Neil. Good morning, everyone. Glad to see at least a few of you have resisted the temptation of going to the beach for the day, but glad to see you all in London. So firstly, just to clarify, as we walk through these numbers, I'm generally talking about adjusted financials. These adjustments are made to give the fairest and most comparable assessment of our trading performance. We do have a single slide later on, where I lay out the nature of these adjustments. So we've reported an 11.5% reduction in H1 revenue relative to the prior period. Based on May figures from the Department of Business and Trade, we estimate U.K. brick dispatches fell by 9% in the first half, with our own brick volumes in line with this. Despite continued challenging market conditions, we've weaker demand than expected. And as a reminder, our expectations for this year were based upon a flat market. However, supported by disciplined cost control, we have delivered a solid H1 result in line with our expectations. The fall in our EBITDA of just over 20% is a function of our reduced efficiency, with our prior-year comparative underpinned by a large inventory build. This is evidenced by a significant improvement in our cash flow performance. Our operating cash inflow of GBP 13.3 million compares to an outflow of GBP 16.3 million in the prior period. So that's a GBP [ 30 ] million year-on-year improvement. We're really pleased with this performance as it highlights the cash generating ability of the group once production and sales are aligned, even in this challenging market. We closed the period with a better-than-expected net debt position with net debt before leases of GBP 101.2 million. Our leverage, calculated in line with our banking covenants, is 2.3x EBITDA at the end of June, comfortably within our original covenants. With depreciation being a fixed cost and with a significant increase in our borrowing costs due to the increase in debt through the prior year, along with rising interest rates, we've seen a fall in PBT of approximately 50%. In line with our previous guidance, we're declaring an interim dividend today based on a 40% payout ratio. Our Board reiterates its intention to return our distribution to 55% of earnings as soon as both the balance sheet and our confidence in a sustained market recovery permit. Accordingly, we're now declaring an interim dividend today of 1p per share. So move on to the next slide. I won't dwell on this slide for too long. I just want to take this opportunity to just run through a couple of the more technical aspects of our numbers. So the increase in our depreciation is primarily a function of the new Desford factory coming online at the end of Q1 2023. And then just looking at our tax rate, so our effective tax rate has increased up to 26.6%. For comparison, the 2023 full-year rate was 24.5% (sic) [ 23.7% ]. This increase is due to the 6% increase in the headline rate of corporation tax implemented by the government from April 2023. Of this 2.1% year-on-year increase in effective rate, approximately 1.5% of this can be attributed to the increase in the underlying headline rate. This is my one slide where I kind of -- I'm not talking just about adjusted numbers, but we'll talk about the [ adjustments ] themselves. I think it's important to just clarify the nature and rationale for these adjustments. So everyone understands exactly what we've done. So this slide lays out the adjustments we've made to statutory EBITDA in presenting our adjusted numbers. First of all, there are GBP 200,000 in respect of restructuring costs, with a [ further ] round of cost reductions and limited redundancies taking place in H1. We have a GBP 2.6 million charge associated with professional fees in respect of the aborted acquisition. This was closely aligned to our strategy. If it had not proceeded, it would have been a paper transaction, but I'm sure you'll understand we're not really able to elaborate any further on this today. Alongside this, we have also excluded the treatment of the -- or excluded the impacts of derivative accounting associated with excess energy commitments resulting from our 2023 reductions in production output. So we realized a loss in the period of selling a lot of -- GBP 2.1 million in the period from selling surplus energy. That was energy where we previously committed to but didn't need to use in our business because of a lower output. But against this, we also removed a GBP 6.9 million benefit resulting from the unwinding of derivative accounting, where reduced energy usage means that we can no longer use the own-use exemption for our forward energy contracts. That's all really complicated, but the simplest thing to remember is just our adjusted P&L for the period reflects the amount of energy we've actually used in our business at the actual price we have paid. So that's why we show it as an adjusted number. In addition to this, we now routinely adjust -- something we routinely adjust for at the half year is our carbon accounting treatment. The statutory results are prepared on the basis that all of our freely allocated carbon credits are utilized in the first half of the year. This creates a mismatch between the H1 and H2 carbon compliance cost, which distorts our underlying performance. Hence, we strip this out and we spread the benefit of the freely allocated carbon credits over the full-year compliance period. And then just for clarity, this has no impact on the full-year results, it's just a half-year issue. So moving back into the trading performance of the business, looking at it in more detail at the performance of our 2 operating segments, where, as always, the Brick and Blocks segment is the primary driver of the group result. Driven by the market conditions, we're reporting an 11% drop in segmental revenue. Industry domestic brick [ dispatches ], as reported by the [ DBT ], fell by approximately 7% to the end of May. With June 2023 being, by some distance, the strongest month of last year, we expect the year-on-year deficit to increase to approximately 9% when the half-year statistics are published. Whilst our own brick dispatches were aligned to the market, we did see a better performance on both our aggregate block and aircrete products. With softer comparatives in H2, we do expect the year-on-year brick volume shortfall to improve. Although on balance, we still expect the full-year volumes will fall short of 2023 levels. Pricing remains relatively stable, although challenging market conditions have restricted our ability to implement our previously announced price increase. Not unsurprisingly, at this stage of the cycle, we have seen a continuation of what we refer to as trading around the edges, with offers and incentives aimed at stimulating short-term demand. However, it is really reassuring that after 18 months of these challenging trading conditions, brick pricing remains only modestly below the peak seen in late 2022 and early 2023. Against this, our cost base remains broadly stable. Energy costs have stabilized but remain significantly ahead of historic norms. Our cost-saving actions were implemented last year and are on track to deliver the promised savings of at least GBP 20 million per annum, although these are achieved through lower output, so aren't directly visible in the P&L, when we have also benefit from our ongoing manufacturing excellence projects. Brick production in the period was approximately 25% lower than the first half of the prior year. This loss of operating efficiency has contributed to a reduction in the EBITDA margin, with the prior-year result supported by a significant inventory build. So moving on to Bespoke Products. This segment has experienced the same challenging market conditions as the wider business. Revenue in the period was around 13% behind that prior-period comparative. And we have recently seen some signs of improving demand for our floor beams. These are used in single-family homes. But conversely, we continue to see a number of delays impacting larger multifamily developments that use our hollow-core flooring. Pricing remains broadly stable, with much of the cost base also stable. However, we have seen some volatility in the cost of insulation, which is a significant cost within this business, and that's adversely impacted margins. Overall, segmental adjusted EBITDA after allocations of central overheads totaled GBP 1.6 million compared to GBP 3.1 million in the prior period. So moving on to look at our cash flow. So I'm pleased to show that notwithstanding a reduction in EBITDA, we have seen a significant improvement in our operating cash flow relative to the comparative period. In the first half of 2023, we recorded an operating cash outflow of GBP 16 million, with this driven by an inventory build of around GBP 30 million. In half one, 2024, we have matched production to sales and have virtually eliminated this inventory build. We have diligently managed our working capital, although we did benefit from a timing benefit as a result of a major suppliers invoicing issues. This has allowed us to deliver an operating cash inflow for the period of GBP 13.3 million, which represents a year-on-year improvement of almost GBP [ 30 ] million. Having looked at the operating cash flow movement, this working capital slide highlights the balance sheet side of things, looking at absolute period-end numbers rather than movements in movements, so to speak. Our net working capital at the half year has increased by GBP 9 million since the year-end. Our working capital is always seasonal, with the lowest sales in December. And as such, we would normally see an increase in working capital at the midyear. As mentioned on the previous slide, we have benefited from the timing of payments resulting from a supplier invoicing issue, with this visible in the accrued and other payables movement. This helps mitigate the seasonal sales impact. Most importantly, as I say, inventories remained flat, with production now matched to sales. We expect working capital overall to remain broadly flat for the full year, although in response to lower-than-expected demand in H1, having planned for further reductions to output in half 2, we do expect to see a modest reduction of inventories commencing in the second half. Looking at the full year, overall, we expect our net working capital to remain broadly static, with the year-end balances similar to the 2023 position. So moving on to have a look at CapEx. So we spent a total of GBP 9.5 million on CapEx in the first half. Of this, just over GBP 8 million related to our strategic projects, where we have continued to invest through the cycle, addressing our brick capacity constraint along with providing greater diversification, increasing exposure to the commercial and specification market, as well as manufacturing our own brick slips, with this all leaving us well positioned to benefit from a market recovery. Our H1 capital spend was lower than previously guided, partly due to conscious management of our balance sheet at the end of June, although much of this delay is due to slippage in the Wilnecote capital project. Whilst this Wilnecote project has seen a number of supply chain-related delays, it's really important to emphasize that the procurement of both Desford and Wilnecote as well as the slips line at Accrington have been undertaken under fixed-price contracts, where the price we pay is fixed in advance. We have seen exceptional levels of inflation over the past 4 years to the point that the Desford factory, which will be completed within its original GBP 95 million budget, would cost at least GBP 120 million if commenced today. Whilst we have benefited significantly from this fixed price certainty, our supply chain has undoubtedly suffered. And this is one of the main reasons why we've seen delays in the Wilnecote project. Likewise, the Wilnecote project would also cost significantly more than its GBP 30 million budget if initiated today. Despite these delays, we now hope to have the Wilnecote factory producing first bricks by the end of the year. We expect a further GBP 15 million or so of CapEx in the second half of the year, with our full-year guidance reduced very slightly to GBP 25 million. We expect that our GBP 140 million program of capital investment, comprising Desford, Wilnecote and Accrington; will be substantially completed at the end of the year, although some completion payments will likely stretch into 2025. We expect to reduce level of maintenance capital spend in '24 and '25, partly driven by lower output with factories mothballed. Our maintenance CapEx was reduced in H1, although we still expect to come close to our full-year estimate of GBP 6.5 million -- GBP 6 million for the full year, with an element of this spend aligned with summer shutdowns, which are already underway. We still expect a significant decrease in capital spend in 2025 as we complete the major projects, with total spend currently estimated at GBP 13 million. We continue to progress our pipeline of attractive organic growth projects, although any decisions to progress with these will consider both our balance sheet position and the visibility and certainty of a sustained market recovery. So just to wrap up on cash flow, so having discussed most of the components of our cash flow in the previous slides, this is a slide that brings it all together. So payments in respect of adjusting items include around 4 million of restructuring costs, primarily redundancies that were provided in the prior year, along with the cash impact of the current year adjusting items that we've recently discussed. Tax payable obviously reduces with lower profits, and we also have the benefit of a prior-year tax refund. We have a large share-save offer maturing at the end of 2023. We have received a net GBP 5 million inflow from our Employee Benefit Trust, with employees using their accumulated savings to buy Forterra shares previously held by the EBT at discount to market price. The EBT also sold some surplus shares in the period. We continue to use market purchase shares for settling our share-based payments. And to date, we have never issued any new equity for this purpose. Overall, we have seen an increase in net debt before leases in the period of GBP 8 million, which is consistent with seasonal trends and most importantly, significantly below the level projected earlier in the year. So just to sort of summarize the balance sheet position, so we ended the period with net debt before leases of GBP 101.2 million. At the end of June, our borrowing stood at GBP 113 million, which is only GBP 3 million higher than the GBP 110 million at the end of December 2023. This leaves facility headroom of GBP 57 million against our GBP 170 million RCF, which is committed until the end of January 2027. As I said previously, leverage, as stated on a pre-IFRS 16 banking basis at 30th of June 2024, was 2.3x. Having softened and expected peak of leverage at the end of the first year, our guidance for full-year net debt remains broadly unchanged at similar levels of 2023. Year-end leverage is expected to be in the region of 2x, reflecting continued working capital management, along with a slight reduction in our expected EBITDA. Looking further ahead, we continue to expect to deleverage in 2025 and beyond, with a market recovery accelerating this. Absent any further major capital investment or acquisition and with a recovery of our markets, it's entirely possible that the business could be back to a net cash position by the end of 2026. I'll now hand you back to Neil, who will provide more insight into our markets, strategy, sustainability and both the short-term and longer-term outlooks.

Thank you, Ben. Moving on to the market now and the attractive long-term fundamentals. We all know the U.K. needs more homes. And the Labor government's target of 1.5 million homes over the next parliament can only be good news as more homes undoubtedly mean more bricks, blocks and concrete products. In addition, we shouldn't forget that the U.K. has some of the oldest housing stock in Europe, which will also present the opportunity for the recladding of buildings as thermal improvements will often have to be done from the outside of the building. If we now take a look at domestic capacity, the chart on the left shows how the U.K. brick capacity has evolved since 2007. As you can see, the domestic capacity has moved from around about 2.6 billion bricks to an expected 2.2 billion bricks in 2025. The two interesting points on this slide are the dotted lines. The blue one shows what the 2022 market demand was, and the red dotted line shows an estimated demand if we were to build 300,000 homes. So clearly, it would be great to see the U.K. on a path to build 300,000 homes. However, domestic brick capacity is more than saturated if we simply return to the '22 levels of demand. If you look to the chart on the right, you can see how our capacity has evolved since 2021. And if you look at the current situation, we are utilizing around about 57% of our installed capacity. We're often asked, how easy will it be to reinstate production volume as the market recovers? The first step will be to run our existing open facilities at full speed. This would see us almost back to the 2021 levels, with Desford having a big impact. Wilnecote, when onstream and up to speed, will add an additional 7%. We then bring back Claughton, which is currently mothballed, and we will have 115% of our 2021 capacity. The final piece of the puzzle is if and when we bring back Howley Park. Remember Howley Park is our oldest, least-efficient factory. And therefore, we have a question around bringing it back or pushing ahead with the construction of a new factory at Swillington, which is an oven-ready project with planning permission in place and clay reserve secured. The good news now is that we seem to have a supportive government ready to address some of the issues which have held back the building of homes. By having mandatory targets, reform planning, a review of the green belt, acceleration of sold sites and a mortgage scheme that supports first-time buyers, we believe the U.K. can embark on a journey towards building 300,000 homes per year. On to the strategic update now. So we are a business with a fantastic purpose. What we do is we sell more than bricks, blocks and concrete products. At Forterra, we help create lasting legacies. Our strategy remains unchanged and has 4 key areas of focus: Strengthening the core, how do we make the existing business better; beyond the core, how will our products be used in the buildings of tomorrow. We have a focus on sustainability, where we're driven to improve the performance of our products that we supply. And this is all driven by a motivated and engaged workforce because it's people that make things happen. And of course, we're on a journey to zero harm from a safety point of view. Two of the most obvious examples of how we've been focusing on strengthening the core is the Desford facility, which you can now see is complete with solar installed on the roof and the new stockyard in place. We are also making progress on Wilnecote, which will allow us to grow in the specification market. Both these plants will mean additional market share in the next turn of the cycle. In addition, we've been focusing on commercial excellence. We've been segmenting customers to establish who will be the best partners to work with in the long term as well as focusing on innovation and improving our product range. Overall, we are a great business with great levels of customer experience, but we believe that can be even better. So that's also been a key focus for the business. If we look at manufacturing excellence now, this is where we've been reducing cost by optimization of maintenance planning, reducing energy and raw material consumption and also increasing plant efficiency. Our beyond-the-core strategy is also gaining traction. We are currently supplying a large number of projects with our SureBrick slip system. One example is seen here on the right, which is an off-site [ panelized ] solution made from a [ Measham ] cut brick. The Accrington brick slip facility will be commissioned in Q3 of this year. This will allow us to produce an extruded brick slip in a more sustainable and cost-effective way versus traditional strips -- versus traditional slips. We should remember that traditional slip are just made by cutting the face off of a traditional brick, with probably 2/3 of the brick being thrown away. As the Labor government will focus not only on individual housing, but the conversion of existing buildings and multi-residential buildings will play a key part, we expect growth in this market to be fast-paced, and we believe we will capture market share with our sustainable and efficient system solution. Turning to sustainability now. Despite the loss of efficiency due to market slowdown, we're still making great progress on our sustainability road map. Our organic investments at Desford and Wilnecote mean that these factories are making or are due to make bricks with 25% less carbon when compared to the old factory. Our solar farm that came onstream earlier this year will supply around 80% of our electricity demand this year. As owners of over 90 million tonnes of clay reserves, we are starting to capture the value of calcined clay as a cement substitute. And we're incredibly excited by the prospect of using London Brick waste, where the calcination process has already taken place. We're working hard to confirm the use of alternative fuels like hydrogen, synthetic gas and biomass. And we're trying to find the right supplier to partner with for the process of carbon capture. And finally, we're currently testing a new packaging specification, which will see a 50% reduction in plastic packaging for our aircrete product. Looking at the outlook now. We expect 2024 U.K. brick dispatches to be lower than 2023. However, the year-to-date gap will narrow as the year progresses. Although there is plenty of positivity with the plans of the new Labor government, we do not expect any significant short-term impact. With mortgage rates still remaining relatively high and the challenging trading conditions set to continue, our full-year 2024 adjusted EBITDA will be around GBP 50 million. We will, of course, continue to manage our production output, keeping a strong focus on working capital. We are in a fantastic position for the market recovery. The government's target of 1.5 million new homes is great news. Remember, we don't need 300,000 homes. Domestic capacity was more than saturated in 2022 when there were around about 208,000 homes completed. We have a clear plan on where and how to bring back capacity, and we will be in an even better place thanks to the GBP 140 million investment program. As the domestic capacity becomes saturated, the market dynamics are expected to improve, and mid-high rise construction will have a key part to play in the government's housing targets. And the Accrington brick slip investment puts Forterra in an excellent position. In conclusion and looking forward, Forterra is in great shape. Of course, 2024 has been impacted by the weaker-than-expected demand. If we assume that the market returns to its 2022 levels of profitability, we would be at around GBP 89 million of EBITDA. Then if we add the benefit of Desford at GBP 25 million and Wilnecote at GBP 7 million, we're at GBP 120 million. However, our ambition doesn't stop there. Brick slips and our focus on manufacturing and commercial excellence will allow us to go even further in the coming years. Clearly, exciting times ahead. Now, Ben and I will be happy to take questions from the room and online. Please remember to state your name and the institution you represent.

Ami Galla from Citi. Just a few questions from me. The first one was on the destocking factor within the merchanting channel. Can you give us some color as to what's happening there? And is there sort of an element of restocking that is likely to happen in the coming quarters? The second one was on pricing, and you've commented on the market conditions being adverse to really drive pricing ahead. Is there specific customer categories or customer groups where these challenges are more acute? Is the competitive dynamics coming more from imports? And the last one just on energy cost. Can you give us some color as to how is that trending over the last 2 years and to this year? And how should we expect that element to move forward?

Okay. Maybe I'll take the first two, Ben and you pick on the last one. So destocking, yes, clearly, the entire supply chain is destocked and are holding much less product than they were once doing. What we hear in a lot of discussions with customers now is everyone knows a recovery is going to come. So they're asking questions about, what's availability looking like? When do we need to start putting orders on for next year? So we're seeing stocks at low levels. However, the discussion is starting to take place of making sure there's enough stock for each customer going forward. So they're very, very aware that the recovery is coming in through. On pricing, you asked about if there are any specific areas around pricing. What we've seen is probably most of the price erosion has been in the soft mud product, where we have, versus our competition, a relatively small market share. And the pressure has been driven by importers bringing in products. And as the kind of the market has declined, they've been bringing in less substitution products, the importers, and more of the soft mud type. So they are starting to put pressure on that particular product category. The other areas have seen some trading around the edges. But as Ben has mentioned already, that's largely under control.

And just looking at energy costs, I mean, we've always said that we expected energy cost to peak in 2023, and that was the case. We do have a small drop in energy cost this year, and we probably do see that continuing into next year. Although these kind of drops are relatively modest, so energy prices are still significantly above the kind of long-term position. And at the moment, the forward curve doesn't show them getting back to their long-term position. But obviously, they're lower than they were. But we don't go into absolute details of our energy costs. That's relatively commercially sensitive at the moment.

Aynsley Lammin from Investec. Three questions, please. Firstly, just interested to hear a bit more color maybe on the RM&I market from London Brick. Obviously, bricks volumes down 9%. How much of that is new build versus RM&I, do you think? And then secondly, on your chart up there to get to the GBP 120 million, does that assume you need to bring back Howley Park? How does that tie into the 115 versus the 123% capacity increase? And thirdly, you mentioned potentially a new plant at some point, Swillington. I mean just interested to hear what the capacity of that plant would be. How long it would take to bring on if you did go ahead? And what would you need to see to kind of go ahead with that?

Okay. Maybe I'll take the first and the third, and you pick up the second one Ben. So the RM&I market, yes, it's been impacted in a very similar way as a national house building and the rest of the business. The kind of consumer confidence of putting extensions on the side of buildings has kind of dropped as that was often financed by additional mortgage borrowing, which we all know where the interest rates stand on that. So it's down to a similar extent as the rest of the brick business. The Howley question, Ben?

So in terms of the GBP 120 million, I mean, Howley Park, as Neil said earlier, is our oldest and least efficient factory. So it doesn't make enormous amount of money, even when it is operating. So it's in the roundings in terms of getting to that number. I think we could achieve that number without Howley Park with a supportive market. The cost of production at Howley Park is significantly higher than some of the other factories. Therefore, its margins are lower. So yes, it's probably in the weeds, but we could achieve it without Howley Park.

And then the Swillington investment, so we estimate that to be around about GBP 80 million with the ability to produce around about 100 million bricks. We're also trying to see on the pathway of how much progress is made on carbon capture, which we would look to put in that factory if it was cost effective, and that would obviously add to the GBP 80 million investment. In terms of time frame, probably 3 to 4 years to get that one completed. And in terms of timing of actually deciding whether to do that or not, I think we need to see the pathway that the Labor government are setting ahead in terms of the number of homes which were being built. So as we see and get some confidence around that, we'll be looking to make that decision at the right time.

Just at this stage, we'll take an online question. So just I know there are a number of you listening with holiday requirements and things online. So the online facility does work, you can ask questions, and we will answer them. So we have a question from Jon Bell, Deutsche, who unfortunately due to a dose of COVID, can't be with us this morning. But Jon's question is, could you elaborate on some of the steps you've been able to take over the summer months at Desford? And what the longer-term benefits of doing this will be? So this is a reference to -- we said in the announcement that we will cut production requirements accordingly because of the lower volumes in the first half. One of the ways we're doing this is we're taking an extended shutdown of an extra 6 weeks at the new Desford factory over the summer. The reason for this being that we somewhat rushed that factory into service because the old factory had closed and we had customer demand to meet. With any new factory, I think I've said many times before, this is not like going to Currys, buying a telly and plugging it in. There's a lot of installation work and configuration work that needs to happen. So what we found over the 15 months or so of running this factory as there are a number of snagging issues, a number of areas whereby we've identified improvements. As we've also talked about, we're only running one of the kilns at the moment because of the reduced output, so we need to commission the second kiln. So because we want to keep sales and production aligned, that creates us this opportunity in the summer to actually hand the factory back to the manufacturer for a period of 6 weeks and allow them to do all of the outstanding work, which will leave us with a better, more efficient factory that we're ready to run at full output in [ anger ] as soon as the market requires. It's better to take a bit of short-term pain and do these things now rather than waiting for the market to get busy and then realize that we should have done it sooner.

I'm Bella from Deutsche Bank. So just following up on Slide 18, where do you expect brick capacity to head over in the 2 to 3 years? And what do you estimate is the current level of utilization for the industry at large?

I mean, right now, I mean, I'll start and Neil can then answer. I mean, in terms of -- as a -- we go back to the slide, so in terms of the capacity movements over the next few years, I mean, we've got we know about on this slide. So we've got Desford coming online if stock of just on -- we're just finishing their [ Atlas ] factory. At the moment, there is no further substantial capacity kind of announced by the U.K. brick industry. And what's really pleasing is that having been doing these presentations for some years now and having coming through an IPO 8 years ago, one of the first questions we always used to get from investors and potential shareholders was trying to understand this capacity dynamic in terms of are we going to go to a position with too much capacity. And hopefully, that we've seen after 8 years as that hasn't happened, basically ourselves and our competitors rationale when we bring on new capacity, so Neil has just talked about like we may bring on a new factory at Swillington in the future, we would take off Howley Park, if [ stock ] have done exactly the same thing. They've built new, more efficient factories, but they've also taken off older, less efficient factories. So I don't see capacity growing materially in the short term. If you look at building a new brick factory, from start to finish, you're probably looking at somewhere in the region of 4 years. So assuming everybody else is thinking the same as us in terms of if we are going to get a real step-change in house building, we probably need to see that happening for a few years and then as lead time to build the factory. So I don't see any change to disciplined capacity management in the coming years. And I think that will that will continue. So yes, I think anyone -- we don't get that question much anymore, but I don't think people are really worried about overcapacity anymore.

Ben Varrow from RBC. Three for me, please. Just on the guidance, how conservative would you say that is now? And is there any flex room if volumes continue to fall from this point? Second question is on your base case for housing completions getting back to that '22 level. And the third one is taking that new CapEx into consideration, how do you see total CapEx tracking over the next [ few ] years post the GBP 140 million that you've put in?

I guess, first of all, on volumes, look, we said that year-to-date, brick volumes are 9% down. I don't think anyone is saying they're going to fall further. I think if you look at the comparative in the second half, I think it's likely that, that 9% delta will reduce. But I still think it's reasonably likely we'll end up behind year-on-year. Look, obviously, we've put some guidance out there that's based on what we see in the market. If volumes are better, then the result will be better. And if something entirely unexpected happens and volumes are even lower, then obviously that will be affected. But I think our guidance is kind of -- there is upside and downside. At the moment, everyone is waiting to see the recovery. I think, hopefully, kind of with the change of government, the trajectory is on the upward, but it's a case of at what time frame. In terms of our base case, in terms of housing starts, I think that's quite difficult. I've spoken to several forecasters and economists over the last few days, one of which just sat in front of me. And basically, we've all got slightly different views on what's going to happen with the market. Certainly, some of the economist side there are waiting for more detail from the government in terms of how -- what exactly they're going to kind of do and how they'd actually put that in a model. But yes, we see a recovery, but I don't think it's enormously helpful to me to predict where we're back at 2022 levels in '26, '27, '28. I don't know, is the answer. And in terms of total CapEx that we are guiding in the short term, our priority in the short term is to deleverage and get our balance sheet back to a healthy position. Obviously, we want to see the recovery and our profits increase and our EBITDA increase. As I said, we've got a pipeline of projects that we're looking at. Neil has mentioned one of them at the brick factory at Swillington. We're also looking at other investment elsewhere in our business. But as I said, like we're not in a position to make commitments to those projects today. I think most of the people listening today would expect us to make sure that we've got visibility of a recovery and then got our net debt under control before we get kind of aspirations of building further capital projects. So that remains under review. But just rest assured that we are still working on things, we have still got an attractive pipeline, and we'll be ready to go as soon as the market and our balance sheet allows.

Alastair Stewart from Progressive. The statement said that you can really disaggregate the sequence of demand during the year due to wet weather. But can you at least give us sort of sequence of how demand has been going up or down? What sort of effect did the weather actually have, how long was that for? Is there still an overhang of what I call false starts from the first half of '23? What kind of -- what's the position just now from the house builders? And finally, and related to all of that, have you seen different -- are you getting different signals from your large housebuilding customers to the smaller guys, possibly from merchants?

Yes. So maybe I'll take the first -- both of those. Ben, and then you maybe contribute where you feel like there are gaps. The weather undoubtedly impacted the beginning of the year, it was absolutely horrendous. And today, we look at the window, and it's sunny. So tomorrow, it will be sunny as well, right? It's very, very hard to understand what impact that actually had. Some house builders said it was a few percent, some house builders said it was as much as 10% in terms of what affected their overall demand. They do think they've got the ability in their current structure to catch that up, okay? How much of that we've seen already is very, very difficult to see, Alastair, very, very difficult. The false starts that you mentioned makes the whole thing even more complex. It's very, very hard to get a picture of what actually happened because there were starts going into the ground. However, when we keep a close eye weekly on the NHBC housing starts data, we can see there's not much pickup in housing starts going through. And that's what's led us to take our view for the rest of this year. The difference between house builders, the larger and the smaller ones, it's very much a mixed bag. Some house builders, which are smaller, have got kind of a niche market, who we're selling to parts of the market less affected by interest rates are more optimistic. That [ national ] house builders, I would say, remain quite guarded in terms of what they say they will build in the foreseeable future, apart for the ones who have obviously announced from a listed point of view. But we've seen Barratts and others coming out with [ tailwind period ] as well with predictions, which aren't exactly set in the world on fire.

Yes. I mean I sort of go back to the first point in terms of demand, obviously, demand, there is a degree of seasonality in this business in a normal year anyway. So if demand isn't better in June than it is in January, you've probably got a problem before you start. So we saw very difficult first quarter, was rain affected. It did have steadily got better. Maybe it's flat line slightly in the last month or so. But the challenge we've got is you cannot separate sort of when you start seeing recovery in April, is that catch-up from a wet January to March? Or is that certainly more sustained. It is really difficult. But yes, I think it's kind of -- it's got a little bit better, but you would expect that in the summer anyway.

Sam Cullen from Peel Hunt, I got two. First one, on Swillington, did you say GBP 80 million for 100 million bricks? Is that correct? Or is it the other way around?

Yes, it's about right, GBP 80 million for 100 million bricks.

It seems quite good value in the context of what you spent on Desford, given the inflation.

Well, we said today, Desford would be 120 million for 180 million bricks. So you obviously get a -- Desford is a bigger factory. You kind of double the size of the factory, you don't double size -- the cost. So but yes, kind of about GBP 80 million for 100 million brick is the current estimate.

And then the second one, given no one has yet to give it a go. The reported M&A cost, can you give us any color on would it be within the core or beyond the core?

Yes. Maybe I'll take that one. So our state of strategy is we would look at bolt-on acquisitions when suitable opportunities arise. One such was, it was within our core business. But unfortunately, we were quite a long way on the path of the acquisition, but it didn't materialize for a couple of reasons. So that's all we can really say about that. It wouldn't be appropriate to go any further because we're governed by NDAs. Although the transaction has stopped, we are still banned by the NDA in the usual ways.

We all done? Any more questions? Last [ shout ] for anyone online.

Doubt they can take that quickly anyway.

Thank you very much. Thanks, everyone.

Thank you.