Forterra plc ($FORT)

Good morning, and thank you for joining us, and welcome to Forterra's 2025 Full Year Results Presentation. I'm Neil Ash, and I'm the CEO of Forterra, and I'm joined by Ben Guyatt, who's our CFO. Despite a challenging market backdrop, I'm pleased to report that we've delivered a strong set of results. And I'd like to thank the entire Forterra team for their hard work in achieving this. Revenue grew by more than 12%, outperforming the wider market, and we converted that growth into improved profitability with adjusted EBITDA increasing by over 18% -- we've maintained a disciplined approach to the balance sheet, reducing net debt to under GBP 65 million and bringing leverage down to around 1x EBITDA, leaving us in a strong financial position. Alongside this, we've made good strategic progress this year with ongoing recommissioning of the Wilnecote brick factory and first sales of the extruded brick slip system from Accrington, both important milestones as we strengthen the business for the future. The 2025 dividend will more than double. And with our GBP 140 million investment program largely complete, we are today announcing a GBP 20 million share buyback as part of our disciplined approach to capital allocation. With that, I'll hand over to Ben to take you through the financials.

Thanks, Neil. Good morning, everyone. It's good to see you all again. Whilst there's a lot going on in the world right now, I'm pleased to be here this morning reporting a positive set of 2025 results with each one of the key metrics that we report showing progression. Market conditions do remain challenging. And despite a strong start to 2025, demand softened in the second half. Having said that, our high exposure to new build housing and the weighting of our brick production footprint towards extruded brick allowed us to outperform the wider market and with our brick market share returned to historical levels. As a result, revenue increased by 12.1% to GBP 386 million, with this primarily attributable to volume growth. Demonstrating our operating leverage, this leads to an adjusted EBITDA of GBP 61.6 million, an increase of 18.5% over the prior year, with the EBITDA margin increasing by 90 basis points. With both depreciation and finance expense reducing, this leads to a 66% increase in EPS at 12.6p per share. Our recent capital allocation priority has been the reduction of our borrowings to sustainable levels. I'm pleased to say that driven by our sustained operating cash flow performance alongside a significant reduction in capital expenditure, we've now achieved this. Net debt has reduced to GBP 55.7 million with year-end leverage fractionally above 1x adjusted EBITDA on a banking covenant basis. We're recommending a final dividend of 4.3p per share, taking our full year dividend to a total of 6.2p per share, representing a payout ratio of approximately 50% and as mentioned by Neil, more than doubling our 2024 dividend. So looking at our Bricks and Blocks segment in more detail. The revenue growth of 11.2% is driven by improved brick dispatches. Domestic brick dispatches, as reported by the Department for Business and Trade increased by 6% year-on-year, demonstrating our outperformance against the wider market with our market share returned to historical levels. 2025 started strongly. In the first half of the year, the domestic brick market demand actually increased by 15%, although this softened in the second half with dispatches 4% lower than the first half and 3% below the second half of 2024. Block demand was more muted. In aircrete, the year also started well, but again slowed in the second half. In 2024, we had benefited from the supply disruption faced by others, leaving us with tough comparatives for 2025. Aggregate block demand also remained muted as a result of slower demand backdrop in our primary Southeast market, along with delays on multifamily housing projects attributed to issues with the building safety regulator. Pricing remained broadly stable during the year. We attempted to deliver price increases at the beginning of the year, although unfortunately, these failed to hold. For 2026, we have again announced essential price increases, and we are currently more confident that these will be landed covering the cost inflation that we face. Operationally, we've made good progress. Strong demand for extruded brick has allowed us to run both kilns concurrently at Desford for the first time, enabling us to access significant efficiency benefits with the potential to double output with only around 25 additional heads. Whilst Desford will provide us with an operating leverage benefit in 2026, we're having to carefully manage production and inventory across our estate with weaker demand for both soft mud bricks and our unique RMI-focused London brick. This has led to production reductions in early 2026, which in the short term, we expect to broadly offset the operational leverage benefits we see at Desford. Overall, we are reporting a 16% increase in adjusted EBITDA at segmental adjusted EBITDA at a margin of 18.5%, which has improved by 80 basis points over the prior year. During the year, we did exit the noncore [ forma block paving ] business, which was subscale, operating in a very difficult market and in need of significant capital investment. In 2024, this business reported full year revenues of approximately GBP 6 million with a breakeven performance. So this exit will not have a material impact on the segmental performance looking forward. So looking at our other segment, Bespoke products. During the year, we also closed the Bison Bespoke precast operation. Whilst this did not have a significant impact on the segmental result in 2025, in 2026, all things being equal, this will reduce segmental revenues by around GBP 10 million with little impact on profitability, thereby improving margins. Following this exit, this segment solely comprises our Bison flooring business, a leading supplier of beam and block insulated ground floor flooring used in single-family homes and hollowcore flooring generally used in the construction of upper floors in multifamily or commercial construction applications. During the year, we again saw very strong revenue growth in the first half, driven by demand for both beam and block and hollowcore products, although consistent with the wider business, this moderated in the second half. Pricing was broadly flat, although with some moderation of the cost base, which in part was driven by efficiency savings from our value engineering of our products. We've been able to increase margins by 330 basis points before the allocation of central costs, allowing us to deliver a strong performance that was actually ahead of the 2022 levels, albeit in a far less buoyant market. So moving on to the balance sheet and working capital. We've continued our disciplined management of working capital with an GBP 8 million reduction over the course of the year. We have seen market conditions where demand for some products, namely our extruded bricks has been strong, placing pressure on our inventories and requiring us to increase production at Desford to meet demand. Against this, however, we have seen increases in inventories at other locations with a number of modest production reductions implemented in early 2026 to ensure that we continue to align production with sales, ensuring inventories remain well managed following a GBP 3 million reduction in 2025. Lower activity levels towards the end of the year as well as the exit from the 2 noncore businesses also provide a slight benefit to working capital. So moving on and looking at our cash flow and our balance sheet again. So our cash flow performance once again highlights the cash-generating credentials of this business. Our adjusted operating cash flow increased by 14% to nearly GBP 69 million. Interest payable has reduced to GBP 8 million due to both lower borrowing levels and interest rates. Our tax paid was only GBP 1.1 million as we benefited from a prior year corporation tax refund of GBP 2.3 million. Total CapEx was GBP 14.5 million, which included GBP 8 million on the completion of the strategic projects. After paying dividends of GBP 8.2 million to our shareholders, this allowed us to reduce our net debt before leases by GBP 29.2 million in the year. Following this GBP 29.2 million reduction in our net debt, we ended the year with a net debt before leases of GBP 55.7 million, reduced from GBP 85 million at the prior year-end. Our borrowings stood at GBP 61.8 million, which is GBP 38 million lower than December 2024, leaving facility headroom of GBP 85 million against our GBP 170 million RCF. Supported by our lending banks, we exercised a 17-month extension option during the year, taking our committed banking facilities to the end of June 2028. Closing leverage, as stated on a pre-IFRS 16 banking basis was fractionally above 1x, down from 1.9x at the end of the previous year. Within our capital allocation priorities, which Neil will explain in due course, our intention is to retain leverage below 1.5x adjusted EBITDA. So looking at capital expenditure. We have a total spend of GBP 14.5 million. 2025 saw our lowest level of capital spend since 2017. Our updated capital allocation priorities envisage annual maintenance spend of up to GBP 15 million in the medium term, although this will be lower in the near term. As in 2025, we expect our 2026 capital spend to total around GBP 15 million, including the strategic spend associated with finishing the major projects, alongside a modest GBP 1.5 million investment in brick slip cutting to complement our investment in extruded slips. Going forward, our aim is to mitigate the cash outflows associated with future strategic investment by realizing value from property assets where appropriate. So moving on with some technical guidance. So this is a new slide that I have added to summarize the more technical aspects of our guidance all in one place. Importantly, given the current macroeconomic uncertainty around the situation in the Middle East and the associated volatility in energy prices, we are around 80% fixed for the rest of this year with our gas exposure being 100% secured for March. We've got good forward coverage beyond this with around 70% covered for 2027, gradually reducing through to 2030. Reassuringly, our solar farm provides us with electricity price certainty for the next 14 years out to 2040. When we previously announced the closure of the Bison Bespoke precast facility, we did say that it was located on a relatively valuable piece of land. We expect to generate around GBP 7 million of property disposal proceeds in 2026, although this is obviously transaction dependent. The P&L impacts of this disposal will be excluded from our adjusted result. After the GBP 20 million share buyback, which we're announcing this morning, we intend to -- which we're announcing this morning and which we intend to commence in the coming weeks and spread relatively evenly over the remainder of the year, we expect our closing 2026 net debt before leases to be at a similar level to the 2025 figure. I'm not going to read out the rest of the content on this slide, and I'll allow you to digest these technical details in your own time. I'll now hand you back to Neil, who will discuss market development and our strategic progress, along with capital allocation.

Thank you, Ben. If we now take a look at the market, we saw an increase in housing registrations in 2025 with much of that growth coming in the first half of the year. Before the market lost momentum with a late budget that created uncertainty and a lack of consumer confidence. The RMI market also remains subdued, and this has had an impact on our London brick range, which is almost exclusively used in the extensions market. While we remain confident in the long-term fundamentals of the market, both RMI and new housing, the CPA winter forecast growth rate of 9% in private housing starts looks ambitious, especially when you consider the weather-impacted start to 2026. Currently, our market assumptions are without any government incentives, which would, of course, be welcomed, especially as affordability remains a key challenge, especially for first-time buyers. We continue to make great progress on our 2 strategic priorities. First, strengthening the core. This is all about making the business the best business it can possibly be. Sustainable operational excellence is becoming embedded across our plants with best practice sharing and continuous improvement continually driving an improvement in efficiency. Alongside this to better reflect the customer needs while maintaining price discipline and margin resilience. Operationally, Desford has increased its output and since September has been firing on both kilns to meet the strong demand for extruded bricks. We have also made excellent progress in our Beyond the Core initiatives, including calcined clay and the launch of our Omnia Brick system, which I will come back to in the coming slides. We believe we have a significant competitive advantage through the synergies across our product portfolio. As Ben mentioned earlier, we made the decision to exit Formpave and Bison Bespoke activities. These businesses were not strategic. They had limited profitability and operated largely as stand-alone entities, adding complexity without delivering sufficient value. What remains is a focused portfolio built around our core product categories, which I will talk you through in the coming slides. Bricks represent around 50% of our total group revenue. 2025 first half brick volumes were 15% of the prior period, although this moderated to around 6% growth for the full year as momentum softened in Q4. Imported brick volumes remained broadly stable at around 20% of the total market, and we estimate over half of these imports relate to architecturally specified products for one-off buildings. And remember, one of the other U.K. manufacturers also optimizes its European footprint rather than supplying exclusively from U.K. plants. Today, we are using around 60% of our brick capacity with Desford on a ramp-up curve to full capacity over time and [ Clarfton currently remain in mothboard ]. Overall, domestic brick production is estimated at just over 2 billion bricks. That remains well below the levels seen in 2022 and significantly below the implied levels required to reach the government's housing targets, shown by the red line on the chart on the right-hand side of the slide. Our business is poised for market recovery with 15% additional market brick capacity available to us in the next turn of the cycle, we are very well positioned to benefit when the market recovers. Extruded bricks is currently growing faster than the overall market with around 9% growth in 2025. In comparison, soft mud sales actually declined by around 1%. This shift is partially driven by regional mix, but it's also driven by housebuilders focusing on build cost as soft mud bricks are roughly 25% more expensive than extruded. We believe this change will become a competitive advantage as our non-Fletton capacity has an 80% weighting to extruded versus 65% for the remainder of the market. In addition, Wilnecote represents a GBP 30 million investment and will enable us to broaden our range of specification bricks, an area where we see opportunities for market share growth. If we look at brick slips now, Omnia marks Forterra moving forward beyond product supply and into facade solutions. We estimate the brick rain screen cladding market at around GBP 150 million in 2025, and it continues to grow with penetration increasing roughly by 5% per year. The key segments are multi-residential, student accommodation and other commercial buildings, where architects want the appearance of brick while adopting modern methods of construction. For these projects, particularly high-rise buildings, customers require fully tested and accredited systems. And Omnia now has that external certification in place for both our slips and our own rail system. It's also interesting that many of the leading brick suppliers -- sorry, it's also interesting that many of the leading suppliers in this market are actually metal profiling businesses who provide most of the facade system and simply use the brick as the external finish. As part of our Beyond the Core strategy, we are considering how much of the value chain we want to capture here, and this could provide a platform for future M&A to accelerate our position in brick slips. Our GBP 12 million investment in Accrington gives us the capability to produce around about 50 million slips per year with a full range of main slips and corners. While I mentioned rail-mounted facade systems on the previous slide, we can also produce slightly thinner slips for the adhesive applied market. This represents a significant future opportunity, particularly as markets and particularly as much of the housing stock requires improved energy performance through external wall insulation. Given their strong -- given our strong value proposition for extruded slips, that will be our main focus. However, we are also investing GBP 1.5 million in an in-house brick custom facility alongside our SF mud factory at Measham, allowing us to produce slips from traditional bricks where architects require that soft mud aesthetic. Turning to blocks, which represent around 30% of our revenue. We are the proud owners of the market-leading Thermalite brand in Aircrete. There are strong commercial synergies with our bricks business, and this allows us to use the same commercial organization to bring this product to market. While timber frame is gaining some traction for inner leaf applications, it's important to remember that around 30% of aircrete in housing is used below ground, where it remains an essential product. We have a need in time to replace the older of our 2 aircrete facilities, which would allow us to protect our market-leading position while considerably improving our operational efficiency. Finally, our aggregate blocks business across 2 locations is best located to serve the Southeast market. And although sales have been depressed since 2022, it remains a highly cash-generative business with strong returns in a normal market. The final part of our product portfolio is Bison, our concrete flooring business, which represents around 20% of group turnover. Bison supplies more than 30,000 homes per year with their floors. As mentioned by Ben, this business delivered its best year in 2025, exceeding the results achieved in 2022. As the volumes are still below those levels, this improved performance has been driven by continued product innovation alongside a strong focus on operational excellence. Both flooring systems, hollowcore and Beam and Block, again, have strong synergies with our core housebuilder markets. And we have recently integrated the Bison commercial function into the main Forterra commercial team, creating a more joined-up go-to-market approach. We look at sustainability with innovation in mind. Examples of this can be seen in our work to develop a thinner 65ml brick system. And in a similar vein, we are also looking at how we can remove clay by optimizing brick perforations. In our concrete business, we have launched optimized beam shapes which have allowed us not only to reduce concrete but still reinforcement as well, while importantly, still reaching the expected levels of performance. We are utilizing internally sourced calcined clay for some of our concrete products, and we continue to work with a number of potential partners to produce calcined clay from surplus virgin clay reserves. At the same time, we are also preparing for the future. We've built a strong understanding of how hydrogen can be used in the brick firing process, and we are ready to adopt it as an energy source when it becomes available at scale. And we're also working with various carbon capture providers so that we are well positioned as this technology develops. Our capital allocation priorities will allow us to deliver our strategy, maximize shareholder returns and retain leverage under 1.5x adjusted EBITDA. First, when required, we invest in our business. Spend will reduce considerably from the recent peaks with targeted investment continuing where it supports competitiveness and market position. Second, we maintain an attractive dividend with cover of around 2x earnings. Thirdly, with the major CapEx program now largely complete, and we are returning surplus capital to shareholders, starting initially with the GBP 20 million buyback program to be completed during 2026. The intention is that this program will continue beyond the end of this year, and the Board will keep this, of course, under review. Finally, we remain open to bolt-on acquisitions. However, as our core markets are highly consolidated, opportunities are more likely to come from the beyond the core area of our strategy. If we move to the outlook now. We expect our 2026 performance to be slightly ahead of 2025. The market softened towards the end of the last year and the wet start to '26 has made it difficult to assess actual demand, but the underlying drivers for housing market remain in place. At this stage, we expect the year's demand to be broadly in line with 2025, with activity weighted towards the second half of the year. Our announced price increases are expected to recover cost inflation and to support margins. And as mentioned -- as already mentioned, our share buyback program reflects the strength of our balance sheet and our confidence in the business going forward. And this is demonstrated by our midterm target of GBP 120 million of EBITDA. In 2022, the U.K. built around 208,000 homes and Forterra delivered GBP 88 million of EBITDA. If you add the strategic projects of Desford and Wilnecote, which would be saturated at 2022 historical build rates, that brings a further GBP 32 million of EBITDA. But we don't rest there. We believe there is still further value in our operational and commercial excellence programs and our Beyond the Core strategy of Brick slips and calcined clay will provide further returns, which we will communicate more on in the coming year. And because of this, we believe our business is well positioned to deliver attractive returns as the market recovers. Thank you very much. We'll now move to Q&A. And when asking your questions, please remember to state your name and your institution for the purpose of the recording. Thank you. Aynsley, I think first.

Aynsley Lammin from Investec. Just 2, please. First of all, thinking about the kind of CapEx, obviously, tails off a lot now. You've got the share buyback. But I think you'd mentioned what you mentioned today, the investment in the block plant. Just update on your thoughts there in terms of timing, how much that's likely to expect it to cost? And then second question, just interested to hear your view of where inventories are in the industry and maybe even in the kind of the merchant space and what the merchants are thinking and any signs you're getting from how they're reading the market this year?

Okay. You want to do the time, the cost.

Yes. So I mean, look, the aircrete one, something we've talked about a little bit before. We're still evaluating the possibility of building a new aircrete factory. We're probably still a year or so away from a kind of a binding decision on that. We've obviously got to go through a planning process and have it. The actual cost of the factory is probably in the region of GBP 55 million, GBP 60 million. But against that, we can significantly mitigate it by realizing land assets. So for example, we got the aircrete factory at the moment sits on a very valuable piece of land. We would replace that factory with a new factory relocated on one of our other sites and then freeing up the land value. So you're probably looking at a net investment in the region of GBP 35 million, which would likely be spread over a 3-year period anyway, not starting for another year. So it's very much in line with our capital allocation priorities that a net kind of outflow of sort of GBP 10 million or GBP 12 million a year for 3 years is kind of very manageable alongside the other things that we've announced this morning.

Yes. I mean maybe just to come back on the timing side of your question as well, Aynsley. No decisions have been made on this, but we're working on it from a strategic point of view. Ben mentioned one possible scenario. There are others, and we plan to work through that and probably look to go forward with a decision somewhere around the middle part of the year. These options, of course, come with planning constraints and those types of things. So we need to be mindful of that. But it's something which we believe will create additional returns. So why would you delay? And that could be market-driven and also complexity of the site itself. So we're going to come back to you when we're ready to make a bit more of an announcement on that. On the merchant space -- sorry, the stock levels are, I would say, very well managed from the merchant point of view. Cash has been a big driver for many of those businesses. So stocks remain well balanced. And I would say they all have the knowledge that they can order pretty much for next day or 48-hour delivery. So they know our stock levels are well balanced for merchant deliveries. Housebuilders is roughly the same. I don't believe any of them are really carrying stock. Maybe just if I may add a bit more kind of color to your question, it's kind of the -- we spoke about the start of the year being very impacted by the weather, and that was very much the case in January and February. However, March has started kind of more in line with our expectations for the year. The question is actually whether or not the slow start can be caught up during the course of the year, which is something we're discussing with some of our housebuilder customers and merchant customers. Thanks, Aynsley. Next question.

Lewis Roxburgh from Goodbody. First is just on capacity. Just if you're comfortable where you are at the moment, whether we might see any closures or costs related to that? And then just remind us of the utilization rate at the moment and I guess, what level of operational leverage starts to make an impact there? And then the second question is just on affordable housing. Obviously, an area that's performed really well this year, a great pipeline opportunity over the next 10 years. So I guess I'm just trying to figure out if there's a difference in the product that you sell to that market. Is there a scope to grow share there?

Okay. Maybe....

Yes. So that's the first one. I mean, we're not expecting any more closures or anything like that. But as I said in the presentation, we do have to manage our kind of output in our capacity. So whereas we're benefiting from operational leverage with increasing output at Desford. At the beginning of 2026, we have announced some modest production reductions both at soft mud brick, London Brick and aircrete, but we manage these kind of quite regularly. So the redundancy numbers, whilst kind of, unfortunately, are relatively modest. So we'll keep monitoring that, making sure we keep production aligned to sales. So the utilization rate was about 60% last year. It might increase slightly this year with Desford running and also Wilnecote back up and running. But I don't say until we can kind of get all of the business running and get the kind of demand back for the soft mud and London products as well as extruded I don't think we'll see a massive benefit from operating leverage.

Yes. Thanks, Ben. And on the affordable housing side, build cost, I think as I explained in the presentation, we're seeing this growth in extruded brick. And I think that's driven by kind of a desire to kind of make the build cost as efficient as possible, and you can still create a very, very nice aesthetically pleasing home with extruded bricks. So why pay a premium unless your end user or consumer is going to pay for that. So I think the social housing swing is where that creates that opportunity for us to really saturate our extruded capacity. And I guess you then also need to step back and say, why does the market use soft mud bricks going forward? Is it because all of the extruded product is at capacity? Or is it because they actually want soft mud bricks? And I think if that's the case, that 25% premium that a soft mud brick has. Maybe that's right, but maybe the cost of the soft mud bricks is in the right place, but maybe we need to improve the price of extruded to bring it closer to what the customer wants, which is actually a brick, which is fit for purpose rather than it being soft mud or extruded. So there's a few things we need to unpack there in our strategy going forward. I think Priyal was next.

Priyal Woolf from Jefferies. Just had a couple of follow-ups on the facade systems that you were talking about. So you mentioned that a lot of the players there are metals players at the moment. Do they externally buy the brick slips in currently? And then you suggested that it might be an area that you look to do some M&A in. What's the sort of market structure like at the moment? Is it very fragmented? Or are there are a couple of big players? And just to double check on that chart that you showed on where the value comes from, would you go all the way back into the steel frame in terms of the products that you potentially look to buy or just stick to the rain screen facade?

Yes. Thanks, Priyal. Good questions amongst that. So the facade system kind of rail producers provide a tremendous amount of technical know-how in how the facade of the building is actually designed. And obviously, the weight impact and the wind loading of the building once it's been clouded with brick slips is where they bring value to their customer base. And what we see quite often is -- and then there are follow-up is and you can have the brick slips from whoever you want. And from my point of view, when I look at kind of our history of our business, we've very much been a product supplier. And I think when you look at the value and some of the margins that are on the table from having the full system, you start to say, well, what part of that value do I actually want to take and consider. And I think there are players out there of size and scale. But a lot of these businesses have taken a lot of time to build kind of in an entrepreneurial way, their system and solution. They've invested incredibly actually in terms of the testing and certification and what they could provide as a springboard possibly for us to allow to accelerate into that more of a system market whilst also using that kind of as a springboard where the growth potential of their businesses may be subdued because of their size and scale. How far you actually go and do you go all the way into 3 wall? We're not ready to decide on that yet. We're thinking about that and reflecting that on our strategy with the Board.

Christen Hjorth from Deutsche Bank. Two questions for me. Just the first one on the buyback and the ongoing buyback. I mean, how should we think about it? Should it be sort of future years potential free cash flow ex dividends and any M&A gets returned? Or if you get more confident, let's say, in a recovery next year, would you sort of be happy to move leverage up to 1.5x and pay a more meaningful -- or buy back a more meaningful amount of shares? That's just the first one. The second one, just on U.K. energy costs and just how that potentially impacts competitiveness versus some of the import brick imports coming through.

Okay. Maybe I'll take the first part, Ben, first question, you do the energy and then maybe you can contribute anything I missed on the first part. Look, we call it a buyback program because we actually believe we've got the ability to do this over multiple years. But as we've already said this morning, there's a lot going on in the world. So we will look at how the market evolves and how our results evolve. And we give ourselves this kind of 1.5x level to make sure we stay within those boundaries, if that makes sense. But it's certainly something which after the kind of considerable investment and faith that our shareholders have seen in us to invest in the business, there is the capacity to give attractive returns back to shareholders. There's the ability to still invest and do some of the things we want to do to grow our core business. And there does remain some firepower, which would be allowing us to do some modest acquisitions along the way. But with of course, with an acquisition, we expect some revenue and some profit to come with it. Ben, I don't know if you wanted to add anything around that.

No, other than the intention is very clearly that this is kind of an ongoing program of buybacks. We've announced GBP 20 million for this year. In terms of what amount it may or may not be next year, I think we have to kind of see where we are at the end of the year, where leverage is, where we've got to with the M&A, what the market looks like. So we'll take all of those things into consideration before determining kind of the exact quantification in future years. But yes, as Neil said, the allocation priorities that we've laid out give us some flexibility, but it would be wrong to kind of speculate on what next year might be kind of this early on. And on the energy costs, in terms of -- does the current spike of energy costs kind of really have an impact on the competitors of U.K. products? No, because kind of European brick manufacturers use gas as much as we do and their costs have gone up by the same as us. So that's not going to have a material impact. Similarly, I mean, arguably, at the moment, it's not just gas prices that everybody is looking at, it's diesel prices and kind of cost of distribution. Obviously, the further you're taking those products, the kind of the bigger the impact and increase of distribution costs will have. So I guess, kind of growing kind of fuel costs, whether it be for lorries or ships or whatever will make it more expensive to import bricks from Continental Europe.

Clyde?

Clyde Lewis with Peel Hunt. I think I've got 3, if I may. It'd be useful to get an idea as to where import prices for bricks sit versus domestic, whether it's soft mud or extruded. And I think, Neil, you referred to obviously a big chunk of that import market being very much for specified product. Are you starting to see that demand for specified product change as housebuilders are obviously shifting from soft mud to extruded to save cost? Is the specified market changing, I suppose, in that way as well? And the third question I had was really around your best guess as to the sort of current size of the brick slips market and how that might grow over the medium term?

Okay. I think most of those fall at my door, but feel free to chip in, Ben if there's anything you feel I miss. Imported prices, I think the imported prices are kind of, I would say, very competitive from a soft mud point of view. Everyone's faced a similar challenge in market and that's sort of the case in kind of Belgium and the Netherlands where a lot of these imports are coming in from. It's mainly soft mud product that comes in because that's mainly the factories that are producing in Belgium and the Netherlands. So they've kind of been a bit painful in some of the merchant areas, but we need to be very, very careful that a one-off price for a few houses doesn't set the overall market price for the entire soft mud market. So we've been kind of quite measured and balanced in our view there from that point of view. The specified product side of things, the way we see Wilnecote is we don't punch our weight in the specification market. And when you look at those imports coming in for the kind of one-off architecturally significant buildings, I think they've had a slower year last year than probably what we saw in housing because those commercial buildings take longer to stop. And then also because of the Building Safety Act, they're taking a little bit more time to get going. So from our point of view, we see that as an opportunity to get more into specified bricks through Wilnecote and almost be in the market that we don't really have that much exposure to today. So I don't really see much of the Wilnecote range ending up volume housebuilders. I really see it going into that kind of specification market, one-off buildings. And hopefully, we can take a little bit of such share of imports coming in. But with an extruded product at the right price point rather than a soft mud product. So -- that's what I see around there. And then the slips market, this is a -- there's no real data on this. I expect to some kind of leading distributors on this, and I've spoken to and try to kind of understand in other players in the market. We think today, the brick slips market is around about 30,000 slips for a mechanically fixed system. We don't actually have a number on the glued slips for one-off aesthetic walls in houses and for the insulated vendor market. So -- the 50 million potential of slips in Accrington, we've got a lot of capacity in the U.K. to go at. But it is growing quickly as modern methods of construction become more and more prevalent, our skills and resources of the right labor to be available to build certain types of buildings. We see, first of all, the penetration happening in multiresidential for those types of products. And then in time, I think the housebuilders will find their place on the cost base. And when labor availability and skills resources get to that point, they may move across to a slip solution. But I think I get from them from talking to them their best price point today is actually to build traditional, and they say traditional, traditional with aircrete blockers and inner leaf and blockers as an outer one. So yes, it's an exciting market, which is in its infancy and will evolve over time. Alastair?

Alastair Stewart, I am from Progressive. A couple of questions, please. Could you talk us through the weakness presumably temporary in London brick. Traditionally, the RM&I demand has been less volatile than new build. Is this just consumer sentiment, cost of living pressures, et cetera? And then secondly, you mentioned affordable housing earlier. What sort of feedback have you been getting from the larger housing associations and also build-to-rent developers as well?

Benj, do you want to do London Brick?

Yes. So yes, London Brick is obviously entirely RM&I focused. We have seen a fall in demand, although we do get kind of data from the build as merchants, we're able to look at our market share of London Brick and its copy products, and we're not losing any market share. If you look at the data for kind of housing extension permissions being granted planning permissions and building regulations, there's a pretty significant drop off of those over the last 4 or 5 years, and the demand for the London Brick generally correlates with that. We're always -- we say we often say this, but we have to be careful because RMI is such a broad church from cans of paint to heavy building products that we need and the products that we're selling, so the London brick you're generally not DIY-ing, you kind of -- you need an extension, you need a builder and you probably need to borrow money and take equity out of the mortgage. And at the moment, demand for that is pretty depressed. And I say it correlates well with the reduction in the planning application statistics that we see.

Thanks, Ben. And on the Housing Association things, look, we do see that as a continual opportunity to kind of grow and develop as there will be more of those types of homes available. And when we talk to them, what they really want is longevity and kind of robustness of the home that they provide to a renter. And I think that's where Brick really has a sweet spot. When you look at some of the other methods of construction or finishing, be it render or whatever it may be, when you talk to them about what's important, it's not just the upfront build cost, it's the ownership cost for the entire life cycle. And I think that's where Brick has that sweet spot because it's relatively maintenance-free compared to other products and solutions. So we see that as the opportunity. And again, with that kind of strong capacity exposure to extruded brick that more than meets their needs and requirements for the type of homes they plan to build. So yes, we think that's an attractive and interesting way to develop the business.

It's Charlie Campbell at Stifel. Two questions, please, from me. Just first of all, on Gateway 2 in London, just wondering kind of if that's a material opportunity if that frees up as maybe we're hearing it might do. And secondly, in terms of price discussions, clearly, housebuilders want to fix prices as far forward as they can. And in this environment, I can imagine you'd be a bit reluctant to do that. So just wondering if maybe the contracts change and you have kind of energy clauses in or how do you square their demand for fixing forward with your desire to maybe be more flexible in this environment?

Look, Gateway 2 London and when all kind of debottlenecks and everything. If you really think through the opportunity, yes, there are opportunities there for us, but that would mainly come from things like aggregate block for core parts of the building, it could be potential for brick slips. But let's not lose track of what that's all about. That's about building safety and a clear understanding of the specification of the product that you're going to use, which doesn't get changed. So being honest with you, if we're not specified on those buildings right now, in theory, we shouldn't be because it shouldn't be value engineered anymore. It shouldn't be changed. And that's what's really important when we look at our beyond the core strategy for slips is we've got to make sure that we get specified, and we're not the wallpaper on the outside of the building, which is not really that hard to change. So that's something we're thinking about in our overall strategy. But we will get some -- our Southeast block sales have been quite depressed because of all that Gateway 2 type stuff. And when that kind of releases, we should see some growth there. For price discussions, we're always having price discussions with our customers, whatever segment we're talking about. And I think we're trying to give an understanding to our customers of our price for the year, and we had an annual price increase, which reflected our needs, and we've driven that through. And we're largely landed in that across all of our customer base, which is quite different to what happened in the last year. When it comes to gas, it's -- we need to be very, very careful not to seem to be profiting from a situation that's happened because if we put too much cost into our house builders, they're going to have a problem with affordability, and it's not going to be giving us growth we need. But at the same time, we can't absorb costs in our business that we haven't assumed. So we will have to find a mechanism of passing those increases to the market if they do actually manifest themselves. But as Ben mentioned, we are well hedged from that point of view. If oil prices go the way they do on fuel prices, maybe we could have a levy for deliveries. If we turn around and looked at gas, you could have temporary actions. But I feel that they become very, very confusing when you already consider the hedge position you have. And before long, you find yourself with open books with housebuilders, which is not our intention at all. So we want to be balanced and fair with customers. And if we have costs coming through in our business that, of course, ask us to demonstrate them, which we'll do, and we'll have to drive the cost increase through. So it's one of those VUCA world situations that we've got, unfortunately.

Just one question from me. I'm Harry Dow from Rothschild & Co. Just on imports, maybe just for the brick slips, is other manufacturers on the continent also make brick slips, is there an import market for that? And if there isn't at the moment, I mean, is that a further kind of protection, I suppose, is brick slips gain share from over traditional bricks and there's no sort of import threat, if you want to call it that in the future?

Yes. There is an import market for slips because of the their size, they do have the ability to travel a bit further. At the same time, there's also an export market, which needs to be considered and thought through because that is possible with slips when you look at the applications they go into in Europe. So I think that's why it's important to own the system because once you've got the system specified and it's in place and it's in the golden thread, I think, as I described it in the Building Safety Act, it makes it very, very difficult to change out. And I think that's the change in approach we got out from a strategic point of view. We've got to differentiate ourselves not through cost and not through the price that someone pays, but from the value we bring in the system and the reassurance of the system, its performance, ability to not react to fire and its ability to have the robustness for the duration of the building. And those are the ways that we can differentiate. But you're right to say that the market is more European for slips and we can also play a part in that if you wanted to. Thank you. Any other...

Okay. We do actually have a couple of questions online. So first, we have from Flor O'Donoghue at Davy. He's talking about energy prices. So in our previous 2022 results, we indicated that in our Clay business around 24% of the costs were energy and fuel would this percentage still be fair. And I think it's kind of -- it's fair to say that energy costs have moderated since 2022. So that percentage of 24% would be lower now. Some of this is also through our own actions. So we've got our solar farm that we kind of a 15-year power purchase agreement with our solar farm which we kind of entered into back in 2022, but we only started benefiting from last year. So that obviously reduces our electricity cost and gives us long-term price certainty. So yes, energy costs putting aside some kind of recent spikes, but kind of what we've seen over the last couple of years, obviously a more moderate energy cost than what we saw in 2022. And then the second question is from Sam Bevan at Edinburgh University and he's talking about drop-through. So on a medium-term view, assuming volumes improve, should I expect the drop-through margin to be consistent as your capacity utilization increases? Or will it be different for, say, the improvement from 60% to 70% versus the improvement to 70% to 80%? So yes, this is something we probably discussed before. As I said, it's not linear. It really kind of depend on what's going on in trajectory. So if you increase output at Desford we continue to ramp up kind of a Desford towards the 180 million bricks, then that's obviously quite a high drop-through when you immediately bring a factory back from mothballs, there's kind of the launch costs or setup costs, it's a longer lead time, but the drop through won't be as significant. And as I touched on earlier, we're sort of in this situation at the moment where we've got differing demands by product. So we're benefiting from our leverage and we're benefiting from an efficiency drop through at Desford, at the same time, we're kind of losing it where we're having to cut production for other products to maintain steady inventory levels. So yes, when the market does recover. I think we've talked about it a lot. There is a significant drop through. We're a high operationally geared business. But unfortunately, I can't give kind of a linear number. It really kind of depends on exactly what we're doing with each factory.

Maybe just refresh it and make sure there's no more -- good.

Yes, we're good. No more questions.

Thank you very much for all your questions. Thank you.

Thanks, everyone.