Ibstock plc (2I5.F) Earnings Call Transcript & Summary

Good morning, and welcome to 2025 half year results presentation for Ibstock plc. With me, as usual, is our CFO, Chris McLeish. So turning to the agenda. After my initial overview, Chris will walk us through the financials and cover divisional performance. I'll then give an update on the market and talk about the strategic progress we've made over the last 6 months. Having covered the summary and outlook, Chris and I would be happy to answer your questions. So turning first to the overview. I'm pleased to say that we achieved a significant volume growth in the first half of 2025, with that growth coming mainly from new-build residential demand. We took steps during the first half to activate network capacity to meet recovering demand, although as previously communicated, we recognized higher-than-expected incremental costs in doing so. We also saw a more competitive market backdrop in some parts of the market, which meant that we achieved only modest price progression and a negative mix impact, primarily as a result of the relatively stronger growth in new-build residential markets. With both our core and diversified platforms now substantially in place and with a clear focus on driving margin improvement, the group is well placed to capitalize on the market recovery. Accordingly, we expect to achieve H2 EBITDA ahead of the comparative period and continue to expect the full year EBITDA to be in line of the range between GBP 77 million to GBP 82 million. We've continued to make good progress in our diversified growth strategy with capital deployment on target and an increasing financial contribution from Ibstock Futures, our business centered on growing modern methods of construction. And with that, let me hand over to Chris to take us through the financials.

Thanks, Joe, and good morning, everyone. Turning to cover the financial summary. Revenues of GBP 193 million represented growth of 9% on the comparative period, driven by strong volume growth, particularly in the Clay division. Adjusted EBITDA of around GBP 36 million was 6% below the prior year. Whilst performance benefited from the stronger volumes, we were impacted by higher-than-expected incremental costs related to the reactivation of network capacity as well as a more competitive backdrop in our core markets. EBITDA margin reduced by 280 basis points because of these 2 factors. Adjusted EBITDA excludes GBP 2.8 million of exceptional items in the current period, which relate to the previously announced restructuring programs. Amounts have been classified as exceptional in order to present a consistent view of underlying performance across financial periods. Leverage increased marginally from a year ago and was above the level at the beginning of the year. As we guided in March, this principally reflects the seasonal increase in working capital, which is expected to reverse in the second half. Return on capital employed at 7% remains well below our targeted level and reflects capital invested in both core and diversified platforms, combined with earnings that continue to be impacted by markets well below normalized levels. With recovery in market demand, combined with expected returns from our growth investments, we expect return on capital employed to revert to our targeted level of at least 20% over the medium term. Finally, the Board has approved an interim dividend of 1.5p, maintained in line with the prior year. Moving to revenue. We set out on this slide group revenues compared to the comparative figures in 2024. Clay revenues increased by 12% to GBP 133.5 million, driven by strong volume growth. In the 5 months to May 2025, overall U.K. brick market deliveries, including imports, increased by 13% with the group's performance ahead of this level. Volume growth was most significant in the wire cut product range into new-build residential markets. As well as a shift in the mix of products, we also saw regional market disparities with volume growth in most regions compared to a reduction in London and the Southeast. In the current period, Futures delivered revenues of GBP 5 million compared to around GBP 4 million in the prior period. Concrete revenues of GBP 60 million were 2% ahead of the comparative period, reflecting volume growth in the majority of residential product categories, offset by weaker infrastructure volumes. Turning now to cover divisional performance, starting with Clay. We have seen strong growth in new-build residential market demand, which has delivered significant top line growth. Pricing levels in the period reflected a more competitive market environment, particularly in the distribution channel, with modest pricing progress overall compared with the prior year period. The top line reflected the impact of adverse mix from the product and regional factors I referenced earlier. It was also impacted by the proportion of non-best sales volumes, which was above the historic average, reflecting lower operational yields at factories ramped up during the period. We expect this impact to reduce as the operational performance stabilizes over the remainder of the year. Adjusted EBITDA of around GBP 33 million was 4% below the comparative period. We took a decision to reactivate parts of the Clay factory network during the first half of 2025. And whilst this has led to higher-than-expected incremental costs in the period, we expect these costs to taper during the second half and do not expect them to recur next year. We expect adjusted EBITDA and the associated percentage margin to move forward in the second half as productivity and operational efficiency ramp up. The Ibstock Futures business made both top and bottom-line progress with broad-based growth across the portfolio. We expect Futures to move towards breakeven in the second half and for EBITDA to build from 2026 as our major investment in Nostell starts to deliver positive returns. Turning to cover Concrete. Revenues increased by 2% to GBP 60 million with stronger volume growth in many of the residential product categories, partly offset by lower infrastructure volumes. Roof tiles, flooring and walling stone all achieved meaningful volume growth with fencing volumes also ahead of the prior year period. Spending on the U.K. rail network reduced to historically low levels despite now being in year 2 of Control Period 7. We are taking steps to mitigate this impact, but this constitutes a high-margin part of the Concrete division, adversely impacting mix. Sales pricing in the residential categories was stable, mirroring the market dynamics seen in the clay brick division. Whilst EBITDA margins remain well below the historic levels achieved within our Concrete business, as markets recover, we believe the division is well positioned to benefit with strong growth in both volumes and margins over the medium term. I would like to spend a few moments discussing the actions taken in the period to reactivate Clay network capacity. You can see on this slide, we break out the total network into 3 components. Volumes manufactured in the period, further active capacity available, that is incremental volumes available through higher kiln car push rates or increased shifts; and finally, inactive capacity, that is capacity mothballed or idled. And we present this split for the full year 2022, half 1 '24 and half 1 '25. As you can see, the 2022 year reflected a year of good utilization with capacity operating in the low 90%, which represents the sweet spot for unit cost efficiencies. In the first half of 2024, having commissioned a net 5% capacity increase, we had around 35% of the network inactive. Actual production volumes represented just over 50% of total network capacity. Moving forward to half 1 this year, you can see that we have added around 20% of our overall capacity back into the active fleet, providing us with the ability to support further market growth without the need to structurally increase fixed costs. We produced volumes equivalent to around 2/3 of total network capacity in this period. With productivity and efficiency expected to improve through the second half and with capacity available to respond quickly to further market growth, we would therefore expect an attractive drop-through on volume progression as we move forward. Moving now to cover cash flow. Overall, cash conversion improved by 8 percentage points to 32%, principally reflecting a lower seasonal working capital build compared to the same period in 2024. Capital expenditure was in line with our expectations with GBP 12 million on growth projects and around GBP 9 million of sustaining spend. The working capital outflow of GBP 12 million reflects the typical seasonal receivables increase from year-end as well as the build of base inventory levels at Atlas to ensure we can deliver effective service to our customers over the months ahead. Moving to the balance sheet. Net debt increased by around GBP 23 million in the 6 months to June. Reported leverage increased slightly to 2.2x. As a reminder, the group has GBP 225 million of committed borrowing comprising GBP 100 million private placement and a GBP 125 million revolving credit facility. These borrowings contain leverage covenants of no greater than 3x tested semiannually. Based on the covenant definition, leverage at the 30th of June totaled 1.9x, and the group had GBP 80 million of available liquidity. As the seasonal working capital investment reverses and with earnings expected to move forward, we expect positive cash flows overall in the second half with net debt at December 2025 reducing from the level reported in June. Before I hand back to Joe, let me very briefly cover technical guidance. Overall, we anticipate year-on-year growth in sales volumes in the second half of the year, although we remain mindful of broader macroeconomic risks. And on energy, we have requirements well covered for the remainder of this year and over half of next year's requirements locked in. I will let you read the remainder of this slide at your leisure. And with that, let me pass back to Joe.

Thanks, Chris. So firstly, let me provide a bit of an update on our core markets. Overall, I'd say that our core markets are directionally positive, but that progress continues to be characterized by a sense of caution. The platform for recovery in housebuilding is taking shape with clear government support, improved approaches to planning and housebuilder supply chains starting to gear up. We applaud the government's commitment to invest GBP 39 billion into social housing with new towns expected to deliver a substantial proportion of affordable and rental homes. But demand for private housing remains subdued with homebuyer confidence remaining relatively fragile. Affordability at current levels of interest rates remains a challenge, particularly for the first-time buyer. But we have seen some recent increases in mortgage market competition and loan availability, which gives us some cause for optimism. The RMI market continues to be subdued with merchants reporting ongoing volume weakness. Recovery in this part of the market will only accelerate when we see an uptick in consumer confidence, which remains at lower levels given the macroeconomic backdrop. As you can see on this slide, the CPA anticipates progress in both housing starts and completions on a 2-year view. Activity levels in the early weeks of the second half continue to reflect improving demand conditions, and we anticipate year-on-year growth in our sales volumes in the second half of the 2025 year. Although, as Chris said, we remain mindful of those broader macroeconomic risks and the potential they can have on our markets. Turning to focus more specifically on the U.K. brick market. We often reference 2022 as a year of normalized demand when overall brick deliveries totaled 2.5 billion. And you can see on the left-hand side of this chart, excluding the COVID year, the U.K. brick market has operated at an average demand level of over 2.4 billion for the 5 years running up to 2022. With the structural undersupply of housing in this country and with the government's focus and commitments to accelerate housebuilding, we retain a conviction that the market will return to this level over the medium term. As you can see in the middle section of this slide, the total U.K. brick deliveries were up strongly by 13% in the first 5 months of 2025, although they remain around 30% below the comparator in 2022. Imports continue to reduce as a proportion of total market, falling back to just over 18% in the current period from 19% last year and down from over 23% in 2022. As Chris referenced earlier, we've seen some shifts in sales mix by product, channel and region. The actions we've taken to reactivate network capacity have responded to these mix shifts, but we expect alignment to historical demand patterns as the markets rebalance over the medium term. Brick inventories held by manufacturers have remained broadly in line with the position we entered the year in, demonstrating disciplined management of network capacities. Outside of our traditional markets, we see growing opportunities in diversified construction markets over the medium term. The government's 10-year infrastructure strategy promises a wave of investment across education, health and prisons, which all present potential for Ibstock's wide breadth of building products and systems. The mid- to high-rise facade sector has been held back by delays with the building safety regulator in progressing projects through Gateway 2. Notwithstanding this, we know there is a significant volume of remediation work required on existing buildings as well as new-build, particularly in the build-to-rent section of the market. We know that the public sector will become a much more significant driver of growth over the medium term with the announced GBP 39 billion of investment, including a commitment to build 300,000 social and affordable homes. The historical lack of funding has meant that local authorities have had to prioritize maintenance over existing stock rather than building new homes, and we've simply not built enough social housing for rent for over a generation. In summary, while we are focused very much on supporting the recovery in our traditional markets, we also expect to access opportunities in a much broader set of construction markets over the years ahead and see this as an increasingly significant source of value over the longer term. So moving to update you on our strategic progress, and I'll remind you first of our strategy. Our operational strategy remains anchored around the pillars of sustain, innovate and grow. As I set out back in March, in order to sharpen our focus on execution and align everyone across the Ibstock house with our strategic goals, we've defined a set of 5 focus areas under the banner of unifying North Star, and I'll provide an update on some of these in the coming slides. Firstly, on sector innovation. We're committed to driving innovation on our products and systems and continue to deliver new solutions to meet the U.K.'s critical building needs. In the Clay business, we introduced 6 new brick products targeting the specification market, building on our proposition focused on higher-end customer requirements. We also continued to innovate in our Concrete division, taking further steps to increase the use of recycled content, mixed designs and carbon reduction. And we've developed some very exciting new modular facade products in futures, which are now in commercial trials with a number of customers. Overall, the innovation pipeline continues to grow with revenues from new and more sustainable products continuing to run above the 20% average in the period. Our newly commissioned Atlas factory is a pathfinder investment, driving more efficient and sustainable practices, which can be rolled out across the business. Factory is making great strides operationally with production now scaling up and the range of products available expanding to serve an ever-broadening market. I'm also pleased to say that the Atlas factory, in conjunction with our strategic partners, has been shortlisted for the government's second round of hydrogen funding known as HAR2. The new factory has already reduced the level of carbon emissions by 50%. This project, which would involve the construction of a green hydrogen facility adjacent to our factory, presents the potential to reduce further to 75% of the actual carbon footprint compared to the original Atlas factory. I'm pleased to say that you will have the opportunity to visit the factory in the fourth quarter of this year, and we'll give you more information on that at the appropriate time. And the diversified growth, we continue to invest in. Our flagship investment in Ibstock Futures up at Nostell in Yorkshire is progressing well. The first phase, an automated state-of-the-art cutting line is fully commissioned, and production continues to ramp up as orders grow. We expect to continue to build more momentum here in the months ahead. The second investment, a larger scale cutting-edge ceramic facades factory will bring unrivaled flexibility and choice to the modern facades market in the U.K. when it commissions from the end of this year. The market response to the first investment has been positive and reinforces our belief that the facades market will be a highly attractive source of diversified growth for Ibstock over the years ahead. And moving to provide an update on calcined clay. I've spoken to you in the past about the potential we see to realize a new stream of value from our substantial clay reserves. And I'm pleased to say that we've made further strides over the last 6 months as we move towards commercialization of this opportunity. The logic for our investment in this area is compelling with cement and concrete contributing to 7% or 8% of global CO2 emissions, there's a huge pressure to decarbonize. Calcined clay is a scalable solution that can cut emissions by 40% and have real economic benefits over OPC cement, ordinary Portland cement, once the full carbon price is in place. With the demand for low-carbon materials surging and the supply of our traditional products such as slag and fly ash becoming more limited, we believe this is excellent timing for growth in calcined clay. While the technology to produce calcined clay is now firmly established elsewhere in the world, our clay footprint presents Ibstock with the potential to be the first industrial scale producer in the U.K. Extensive testing over recent years has confirmed that one of our owned fully consented quarries in the Midlands has an abundant source of high-quality raw material required to produce low-carbon calcined clay cement. Our financial modeling indicates that this is an attractive opportunity with strong partner synergies, and we're now actively engaged in discussions with potential partners to establish the optimal implementation roadmap with a commercial plan expected to be concluded at the end of that process. And I expect to be in a position to present the outcome of the discussions by the time of our full year results. But we're increasingly confident that this is something that can really move the dial in the years ahead. Turning to the summary and outlook. I'll cover our medium-term view, capital allocation and finally, our concluding comments. So firstly, the medium-term view. We set out several years ago the building blocks of revenue and earnings growth for the group. With both core and diversified asset platforms now substantially in place and with the market recovery progressing, we have increased confidence in delivering our committed revenue target of at least GBP 600 million, and we've taken a solid step towards that in the last 6 months. Our margin performance has been impacted by 2 factors this year, which are being addressed, but we retain a strong conviction in the attractive fundamentals of our business and believe that margins will recover over time through high levels of volume leverage as well as the return to historical levels of operational performance. We also expect an improvement in pricing and mix as our markets return to the normalized levels in the years ahead. Accordingly, we continue to target an EBITDA margin in the core Clay business of more than 35%, in line with historical levels and group margins of at least 28%. We also target a return on capital employed of at least 20%. In the service of this goal, we will continue to be disciplined in the way that we allocate capital in the business. As we set out at the beginning of the year, whilst our focus over the last 5 or 6 years has been on organic capital investment, looking forward with our major investment program now nearing completion, I anticipate that capital expenditure will fall back to long-run sustaining levels, which is expected to support an acceleration in free cash flow generation in the years ahead. We're actively realizing capital from our land estate and disposed of the first parcel of land up in the North West at Ravenhead in the period, generating proceeds of GBP 3 million. To remind you, conservatively, I'd expect us to generate over GBP 30 million from land sales in the next 3 to 5 years. In terms of allocating capital, after the sustaining investment and payment of an ordinary dividend, I see a much more even weighting of capital allocated across growth and incremental shareholder returns over the medium term. Okay. Turning finally to the summary and the outlook. We've had an encouraging start to the second half, and we anticipate continued growth in sales volumes over the balance of the year, although we do remain mindful of broader macroeconomic risks. We're keenly focused on driving operational efficiency alongside the tight management of indirect cost and expect profitability to improve in the second half. As Chris set out, we now have capacity to support significant further market growth without structurally increasing fixed cost. And with our asset platforms now built out, we've got increased confidence that revenues will grow to deliver on our medium-term ambition with margins expected to recover through operational gearing, improved levels of network performance and a recovery in our markets. Having concluded this program of investment, we expect free cash flow to build from 2026, providing a solid platform for growth and capital returns in the years ahead. And with that, Chris and I are going to be happy to take your questions. As normal for the record, I'd be grateful if you could state your name and institution when asking your questions. And please remember, there are microphones at the front of your seat.

Aynsley Lammin from Investec. Just 2 for me, please. On the start-up cost, if you could just maybe provide a bit more detail going back, what kind of caught you by surprise there? What did they exactly relate to? And where the kind of confidence is or where we can gain confidence that they're one-off and we won't see anything like that going forward? And then secondly, just on the new-build, obviously, volume is very strong. What gives you confidence that continues -- the momentum continues in H2? Is it inquiries? Are you seeing the housebuilders begin to open new sites, what the drivers are there? And I guess related to that, as we go forward, rebalancing the soft mud versus wire cut, would you not still expect wire cut to be a bigger proportion given the kind of push from government policy on new-build?

Good. Yes. Look, start-up costs, we did have some breakdowns. We have some old kit when you start up factories that have been shut down for a large period of time, you sometimes get some catastrophic failures. So we had a few things like gearboxes going and we had to send equipment from other factories and so on. So these things are -- they're not always anticipated. And when you've had an exceptional period like we've had and having to close factories down very quickly, you do get some of these things. But they're moving in a much better direction now. And 2 factories are performing quite smoothly and either 2 are continuing on with really good progress. I think in terms of confidence in volume going forward into H2, I mean, we've got order books. We talk to our customers. We've seen really strong growth, albeit against a very weak comp in the first half. I don't think the level of growth will be the same quantum of that, sort of market was up 13%. I think you'd probably be looking at something more like mid-single digits. So we're not talking about heroic sort of stats. And we're still at very historically low levels. But when we talk to our customers and look at the build programs for the second half at this stage, there's reasonable optimism. So I think that gives us -- that's why we can forecast that volume growth. I think the mix thing is very temporary. I think it's -- the market is dominated at the moment by new-build residential growth. We know that the RMI market is very weak, and that takes a lot of soft mud products. We also know that London and the South East are weak. London, largely by building safety and planning and South East by affordability. So I think over time, that mix will definitely come back.

[Indiscernible].

Chris I'll take the M&A, you take the Concrete.

Yes.

Yes. Look, the balance sheet is going to strengthen, and we've got an active pipeline of opportunities that we're looking at in M&A, and that pipeline has been developed over time. We'll always be very disciplined on whatever we do with M&A. We're not just going to grow for growth's sake. We want to make sure we've got a very valuable high-margin business. Whatever we do would be strategic and it would be synergistic to the business. And we'll look at that. At the moment, the balance sheet is probably not in the right place to do large things, but we will continue to look at smaller bolt-on investments. Of course, that's going to compete with other shareholder returns as well, and we'll evaluate both at the same time. But we've got a very active pipeline.

And Rob, just in terms of Concrete, I mean, you're right. If you look at the sort of mix in the first half, the rail and infrastructure segment within that is in normal steady state, heading for sort of GBP 20 million revenue contribution, but the margin on that is materially above the average within Concrete as a whole. The fact that, that's now sort of running at materially lower levels has impacted. We expect some of that to start to come back as things normalize. We're not banking on a huge level of recovery in the second half. But actually, as that starts to come back, it has a very, very accretive impact on EBITDA margins within Concrete. I think the other cause for optimism in Concrete is when you look at some of the sort of lead indicators of broader market recovery, our floor beams business was up in the North of 20%. The factory in the South was greater than 20% up in the first half. Good order forward visibility and expect that to continue to pull through strongly. Other categories within the Concrete business, walling stone is looking very, very strong. Fencing continues to be a source of strength. So I think as market comes back, we expect to be able to achieve pricing progress. We also expect to see some mix benefit. I think realistically, when you look at what concrete did last year, we're not going to get to those sorts of levels of absolute profitability this year. We're on a run rate that's going to be a little bit behind that. But actually, I think just delivering a little bit of progress into the second half with the view that then things will firm up further in 2026 is very much the view of our sort of near-term perspective in Concrete. I think, look, in terms of rail as a category, as we said in our preprepared comments, we're doing a lot of work to try and mitigate that, looking into other areas of infrastructure that are certainly giving us other volume opportunities. The reality is that they're going to be at lower levels of margin compared to where rail is. So we're doing what we need to, to make sure that we've got good capacity utilization in Concrete network as a whole. But I think we are, to some extent, at the mercy of the broader market around the pace of recovery within rail. And I think that's something that you see in the commentary that others have been giving over the last sort of few months. Ben?

Ben Varrow, RBC. Just coming back to the operational issues that you saw. Can you give us maybe a bit more color on why it's resolved at 2 and perhaps why it's still ongoing at the other 2? Next is on your soft mud mix. Can you remind us where that typically stands and where it was as of H1? And the last question is on drop-throughs. How should we think about volume drop-throughs in the clay brick business from here?

Yes. Look, so when you're starting a kiln and it's been shut down for a period of time, you have thermal shock issues when you close things down and you've got expansions when you start them up. You've got all sorts of mechanical issues associated with those factories. So 3 factories were really -- we had a lot of work to do on them. And there were some unforeseen things. And you've got big pieces of equipment, clay prep areas, large motors, large gearboxes and so on, and some of those, like, went wrong. But we fixed them. Its moving forward. Two are actually moving very smoothly now in terms of that. We've had a shutdown in 2 others, and we've done some further work, and they'll be ramping up soon, and we're pretty convinced that we've identified what the issues are. So operationally, I don't see any -- the same sort of costs at all in the second half, and I think those costs will be gone by the time we get into next year. So -- and operational performance should be fairly sustainable. I think soft mud, we've got, I think what were the stats around, I think, 53% wire cut and the balance in soft mud. And I think that's a very healthy range that we've got in a normalized market. And actually, I don't think there's any structural shifts. I think in a normalized market that's the sort of range that you want to have. And actually, some of our competitors have been looking to have more of a broader range, not just a wire cut range. So we've got -- we're blessed with great clay assets and great range of products in Ibstock and the U.K. market. And I think this is a temporary thing. I don't think soft mud is going to go away anytime soon. d

So I do the drop-throughs.

Yes.

So Ben, in terms of -- if I just focus on the kind of core Clay business really as the main frame of reference for that. So if you look at what we did in the first half, stripping out Futures from within Clay, essentially generated sort of EBITDA of GBP 34 million on a top line of about GBP 128 million. So you're talking about a 27% core Clay margin. If you move forwards from there, the expectation that those one-off costs that we've talked about go away, sort of move you to a sort of normalized number of GBP 37 million on top of GBP 128 million. The next, call it, 10% of growth as you build back from that, if you assume that that's worth something like GBP 15 million on the revenue line, we expect the incremental EBITDA to be somewhere in the region of 50% on that. So if you're taking sort of GBP 7 million or so, on top of that it moves the underlying margin from -- in the high 20s to somewhere in the region of 31%, 32%. So that's the sort of gravity of the impact that you get on that next 10%. As you then move up, that will put the clay business back up to somewhere in the region of 75% to 80% utilization. That last 10% to 15% is really then what we believe will move us from that sort of 31%, 32% margin all the way back up to 35%, which is what that business has been historically capable of doing when it's operating in normalized market conditions with levels of operational efficiency and productivity that we expect. So that's the sort of -- that's the path forward in terms of drop-through in clay.

Christen Hjorth from Deutsche Bank. Just a couple from me, too. First of all, could you just break down the revenue performance in the first half roughly between volume, price and mix, just so we got a bit of a sense on that? And then 2026 is a bit of a while away, but we've seen some of the housebuilders come out and outlets aren't opening as much as quickly as they had hoped. So just sort of any initial thoughts around how the brick market trends as we move into 2026.

Yes. So just if you look at -- again, referencing the Clay performance in the first half. So we talk about overall market, including imports being up around 13% in U.K. brick. We were a little bit ahead of that. So think of that as sort of mid-double digits, 15% or so on volume. Revenue in Clay, you can see was plus 12%. So therefore, you've got a bit of a delta there. Price essentially flat, flat to very modestly up 0 to 1%, which means you've got about 3% to 4% of drag that comes from mix. And really, that was -- we talked about it, but 3 things. The first one is move from soft mud to wire cut, and that's a couple of percentage points, as Joe talked about. The broad sort of split of those 2 within our business. Regional split. So again, there were pricing differentials across markets, and we saw London and the South East go backwards, other regions move forward, which has a little bit of a mix impact. And then the third thing we talked about was having experienced slightly lower operational yields, which is a function of how much best are you getting out of factories with those numbers being slightly lower and moving that into the market, that brings average selling prices down on a mix basis as well. So we expect the last one of those 3 to reverse very quickly as yields come back through the course of the second half. I think the other 2 factors, we're not banking on any significant change in those mix drivers in the second half. But clearly, as we look into 2026, we start to see benefit in our business as things normalize back to historic levels.

Look, I think 2026, there's still a lot of caution around it, but we're at historically low levels of housebuilding in the U.K. There's been some real improvements with things like planning and there's been -- there's a lot of focus from the government on social housing, and we all need to build houses in this country. I think the RMI market as well is very, very subdued. So consumer confidence, if that ticks up a little bit, if you get some interest rate cuts, I think we could be moving forward. I do think we'll see some growth in 2026. How quickly we're going to be able to get the allocation of funds into local authorities on that social housing will be critical. I'm hoping it's going to be sooner rather than later. And then this year, you've had an awful time with building safety and a lot of projects just held up. So I'm hoping that's going to provide some momentum as well. But there is this underlying -- I mean, you've seen all the people reporting in the last couple of weeks, there's an underlying air of caution about it. But that's where I think the market is at the moment. If we get a few interest rate cuts this year, could be really interesting. Marcus was next and then Clyde and then --

Marcus Cole from UBS. I've got 2 questions as well. So firstly, on pricing power, you're talking then if you get some incremental volumes back, utilization rates can get back to 75% to 80%. How should we think about pricing power in that market dynamic? And then the second one is just on calcined clay. I know it's early days and you're still -- you're going to give us an update at the full year, but how should we think about the potential economics, what this could be worth? How we think about a potential JV structure and any sort of financial structuring around that?

So pricing power, I think as the market starts to tighten and you start to get more volume growth, you'll naturally be able to move headline price forward, in my opinion, and that hopefully to cover the cost of your inflation. I think also for us, you'll start to see a rebalancing of mix, and that should help average prices. We've also shipped a lot of non-best product this year as some of these factories have ramped up, which has also been part of the cost drag. So I think ASP and headline pricing, I would -- but that is contingent on the market moving forward, and there has to be volume growth. Remember, we're still at a market -- at the moment, the brick market is sort of GBP 1.8 billion to GBP 1.9 billion, it's way below, and you've still got some imports in there as well, so we need it to move. As you start to get to sort of $2 billion plus, I think you start to see that tightening in that tension. On calcined clay, look, I can't really give you specifics on the economics because I'm not sure what the structure is going to be. We're talking to partners. Some partners have got existing assets that they could utilize to produce a product. It might be an SCM, it might be a cement. But if you think about -- we've got enough calcined clay to have a 300,000, 400,000 tonne a year line, and you've got -- you know what the sort of margins are in cement, so you can think of that sort of size of scale. But the specific structure, we're in conversations with overseas people, domestic partners and some others. And I think until we conclude that, I don't know what CapEx investment -- whether we're going to be able to use existing assets and even if we're going to go alone because if we don't get the right deal, we have that option. But it's quite exciting. And we've had about 20 people involved in these discussions, 20 different organizations. Then it was Clyde.

Clyde Lewis at Peel Hunt. I think I've still got 4. On the Clay reserves, you did talk about other products beyond calcined clay. Have you now parked those other ideas because you see the best opportunity in the calcined clay product lines? That was the first one. Second one, I think, Chris, you sort of put up the synergies, maybe it was Joe, sort of for out of the Atlas and Nostell. I'm just wondering if those synergy expectations have changed. And maybe if you can update us in terms of sort of timing for those synergies to come through. And the third one was around, I suppose, your decision on stock levels. Sort of as we go through the balance of this year and into next year on what really would be the moving parts on your decision to sort of up stock levels. And the third one was probably coming back to a point around cost pressures. What are you sort of seeing generally across the business in terms of sort of current levels of cost inflation?