Ibstock plc (IBST) Earnings Call Transcript & Summary

And welcome to the 2023 Half Year Results Presentation for Ibstock plc. As you've just seen, we've taken the bold step to unify our business under a single powerful one Ibstock brand, and I'm really excited about the potential that this provides, and I'll say more about it later in the presentation. To those of you joining in today, again, in the I-Studio, thank you for joining. And for those of you dialing in, welcome and thank you. With me today, as normal is our CFO, Chris McLeish. Turning to the agenda. After initial overview, Chris will walk us through the financials and cover divisional performance, and then I'll provide a market update and talk about the progress we've made operationally and strategically as a business over the last 6 months. Having covered the outlook, Chris and I will be very happy to take your questions. So turning first to the overview. I'm pleased to report a resilient performance for the period despite a more subdued market backdrop. Overall, performance was marginally ahead of our expectations at the beginning of the year with the adjusted EBITDA of GBP 63 million, reflecting a disciplined approach to pricing and intense focus on cost and capacity and the benefit from the absorption of fixed cost as we built inventories back to more comfortable levels. Delivering this level of performance in the challenging market conditions we experienced a testament to the skill and dedication of everyone across our business, and I'd like to pay tribute to the teams who have delivered performance whilst continuing to drive our strategic agenda. Considering this performance and given our confidence in the prospect effect of the business. We've declared an interim dividend of 3.4p, a 3% increase on the prior year. And after spending around GBP 24 million on growth investments in the 6-month period, and investing in finished good inventory as we built back from historically low levels, our balance sheet remains strong with leverage at about 0.7x. During the first half, we took a series of steps to reduce costs across the business, including the difficult but necessary decision to propose the closure of our Ravenhead brick factory. Looking forward, the group is committed to the actions necessary to balance capacity to demand. Our major growth investments all remain on track, with the majority of capital now in invested in the core clay redevelopment of our Atlas and Aldridge factories. As we look forward, recent macroeconomic events have introduced greater certainty into the outlook. However, I'm pleased to say that our expectations for full year remain unchanged and that we retain a strong conviction in the medium-term outlook. And with that, let me hand over to Chris to take us through the financials.

Thanks, Joe, and good morning. Turning to cover the financial summary. Revenues of GBP 223 million represented a reduction of 14% on last year, driven by a significant reduction in sales volumes. U.K. domestic brick delivered in the 5 months to May reduced by 31% compared to the prior year and our volume performance in the residential product categories reflected a similar trend. Adjusted EBITDA reduced by around 11% to GBP 63 million. I will provide more detail on the divisional margin drivers later in the presentation, but overall group margin by 90 basis points to 28.2%. Performance in the current period included the benefit from property disposals of around GBP 1.5 million in the clay division. Adjusted earnings per share of 9p were around 20% below the level of 11.3p reported in the prior year period. With a continuing focus on cash management, our balance sheet remains strong with leverage at 0.7x. And our capital employed, our return on capital employed remained broadly in line with the prior year at 19.6%. Moving to revenue. We set out on this slide the progression of group revenue compared to the comparative period in 2022. Clay revenues reduced by around 13% and included around GBP 6 million from futures. This performance reflected materially lower sales volumes in line with trends experienced across the broader domestic market. Despite the more subdued market environment, selling prices remain firm, meaning that the division achieved a pricing benefit relative to the comparative period. In Concrete, revenues reduced by 17% with a similar volume impact within the residential product categories. Our infrastructure business was more resilient with volumes remaining broadly in line with the comparative period. Firm prices also provided a benefit to the concrete division. Turning now to cover divisional financial performance, starting with clay. The clay division delivered robust performance, driven by good operational execution. With market demand being more subdued, we took the opportunity to build inventories back from the historically low levels of recent years. We also initiated a number of steps to reduce cost, which combined with the benefit of fixed cost absorption, delivered a very good unit cost performance. And Joe will talk more about this later in the presentation. The clay division experienced meaningful cost inflation compared to the equivalent period in 2022 in both the fixed and variable cost categories. Unit variable costs increased, including the impact of energy hedges entered into in the prior year, although softer stock prices in half one helped to limit the scale of this increase. As I mentioned earlier, the division benefited from a small property gain, which contributed to the EBITDA margins, which increased by just under 100 basis points. We also report the activities of the futures business within this segment and the adjusted EBITDA of GBP 57 million included GBP 2 million of operating costs relating to research, innovation and commercial capability within futures. The trading businesses of futures performed in line with our expectations. The proposal to close our Ravenhead brick factory led to the recognition of an exceptional charge of GBP 10.7 million in the first half. The cash element of this, GBP 1.5 million is expected to be settled over the next 9 months or so. Turning to cover concrete. The concrete division also performed well with the breadth of end market exposures supporting good performance and an increased EBITDA margin percentage, which grew from just over 15% to almost 18%. Infrastructure, which represented over 15% of the division's revenue this period, with rail products, in particular, being a source of growth in both sales volume and value terms. Our concrete factory network performed well, delivering a fixed cost absorption benefit as inventories were built. As with Clay, we took a number of actions to reduce fixed costs across the division. Turning to cover working capital. We continue to focus on working capital efficiency. And as you can see on this slide, made further progress in reducing receivables with DSO now down to 52 days compared to 67 days a year ago. We took the opportunity to strengthen our inventory position, increasing in finished goods inventories from around 2 months normalized forward sales to around 3 months. By the end of the first half, I would expect finished goods inventories to stabilize during the second half of year. Moving to cash flow. During the period, the business invested around GBP 40 million in working capital, around half of this amount was the typical seasonal build, reflecting higher midyear activity levels, which I would expect to reverse during the second half. The other half was an increase in inventory levels, which will support service levels as and the continued displacement of imported product moving forward. We also continue to invest in fixed capital with around GBP 33 million deployed void in the period. sustaining expenditure amounted to around GBP 9 million, with the balance of GBP 24 million relating to the redevelopment of the Atlas, Aldridge factories, investment in brick slips and several other smaller growth projects. Having completed our pensions buy-in at the end of 2022 year, we stopped making cash contributions to the group pension plan this year. Cash tax payments of GBP 3 million were marginally above the comparative period, but below the level I guided to at the start of the year as the Chancellor's announcement of continued accelerated write-downs on qualifying capital expenditure meaning for the majority of our CapEx this year. Moving to the balance sheet. With the stronger trading performance, timing of capital expenditure weighted slightly towards the second half and lower cash tax payments, closing net debt at the end of June was better than our expectations at GBP 89 million. At 0.7x, leverage remains at the lower end of our target range. This position continues to afford us real strategic optionality as we think about both investment and shareholder returns. Turning to focus on our debt financing. As a reminder, we took actions in 2021 to lock in interest rates on our core debt in the form of GBP 100 million of private placement notes at a fixed coupon averaging 2.19% for periods up to 2033. Whilst I expect us to draw some amounts under the GBP 125 million revolving credit facility, which sits on top of this private placement, the core debt provides good insulation against the current prevailing interest rate in Vibaman, which enabled us to hold cash interest costs broadly in line with the prior year period. Before I hand back to Joe, I would like to briefly update the moving parts of technical guidance for the 2023 year. We expect to manage capacity tightly in the second half to ensure production is aligned with market conditions. I therefore, expect inventory levels to stabilize and accordingly, I expect the moderation in EBITDA margins in both clay and concrete as the benefit from fixed cost absorption recognized in half one does not recur. On energy, we have locked in the vast majority of gas and power for half 2 with cover at around 85%. For the FY '24 year, we have around 1/3 covered with this cover weighted towards the early part of the year. As we set out in March, we expect to recognize futures and other research operating costs of GBP 5 million, in line with 2022. Underlying depreciation is expected to be around GBP 30 million, as I guided back in March. Underlying interest expense for the full year is expected to remain broadly in line with 2022. And the underlying effective tax rate is expected to be around 24%, reflecting the increased U.K. corporation tax rate and a reduction in the P&L benefit from the U.K. tax super deduction. On cash, our guidance on capital expenditure remains in line with the view that I've set out in March, GBP 20 million of sustaining spend and GBP 55 million of growth, principally on Atlas, Aldridge and slips. Cash tax is now expected to be lower than our initial expectations as the Chancellor announced the continuation of the accelerated tax write-downs in the spring budget. With that, let me pass back to Joe.

Thanks, Chris. So turning first to an update on our market. The recent moves in interest rates and the consequent impact on mortgage lending have clearly caused greater levels of caution across the construction sector with activity levels likely to remain subdued in the near term. Based on the most recent CPA data, we now expect private housing starts to be 25% down in the year. RMI has also subdued at about 11% down. But at a granular level, the picture is more nuanced with higher levels of resilience in some parts of the market and the positive development of increased plots in the ground during the second quarter, presenting at least the potential for more rapid recovery when the market improves. Our larger housebuilding customers have well-capitalized balance sheets, and they continue to work through their forward order books. So whilst we navigate this more subdued market environment, our business is well positioned and primed for recovery. As expected, brick imports have been displaced by domestic stocks with the year-on-year production reduction imports of over 40% in the first months of the year. We've now built back inventory levels to ensure that we can support customer service, and we continue to benefit from our lower cost efficient network of assets. And our revenue base continues to diversify, including growth outside of residential markets, providing some countercyclical protection, particularly mid-high rise and infrastructure markets. Overall, I'm confident in our ability to respond to market conditions as we navigate the months ahead. Against this market backdrop, I'd like to briefly cover the actions we've taken during the last 6 months to manage capacity and cost. As a market leader and long-term business, our stewardship decisions focus on the need to create long-term value for our stakeholders. And this requires us to balance the need to take urgent and decisive action in periods of lower activity with the need to ensure we're well positioned to respond as activity levels recover. As we did in the pandemic in 2020, we took a number of actions to reduce fixed costs in the first half, which was central to delivering our performance. As well as investing in inventory, as Chris outlined earlier, we instituted discretionary cost freezes, redeployed labor to third-party sustaining and maintenance activities, implemented factory shut down with mandatory holiday periods and took action to reduce head count across both factory and overhead areas of the business. Towards the end of the half, we also took the decision to propose the closure of our Ravenhead brick factory in the northwest of England, which is one of our higher cost sites. Subject to consultation, this will reduce network capacity by around 40 million bricks. We remain vigilant on costs, and we'll take any further necessary to ensure that our capacity is aligned with market demand. So looking through the current subdued backdrop, our conviction in the medium-term fundamentals remain firmly intact. The structural undersupply of new housing in the U.K. continues to be an acute challenge with cross-party political commitment to addressing this. Whilst consumer sentiment is clearly more cautious unemployment levels in the U.K. remained low, a key difference to previous cycles. Recent developments in inflation data are positive and support the views of some commentators, we expect the interest rates and mortgage rates to come down over the next 12 months. And crucially, we believe that the trends causing a shift in U.K. Construction markets will accelerate over the next 1 to 2 years with customers needing more urgent solutions to address regulatory change such as environmental targets. We're also focused on building a more diversified business, able to benefit from further opportunities available in underrepresented markets such as the mid- to high rise and retrofit sectors. So even in a more challenging with or challenging market conditions. You can see Ibstock has unique qualities that enable us to deliver strong returns and set a foundation for more growth. The strength of the Ibstock brand and market leadership across a number of categories in the building envelope has driven deep customer relationships for generations. Within that, the diverse range of products provides a premium to support industry-leading margins. And our operational footprint of 40 facilities and unrivaled clay reserves give us proximity to markets and the optionality to manage capacity in a flexible and agile way. I'm proud that we're emerging as a leader in ESG. And as I mentioned back in March, integrating sustainability across our organization supports our cost base and value for our customers for more sustainable products. And I'll say a little bit more about ESG later. Our cash generation provides a great platform for growth, diversification and shareholder returns. Over the last 5 years, despite the continued uncertainty and macroeconomic challenges, our business has built strength and resilience. We've invested in operational efficiencies, asset enhancement and automation. And it's down to our operational strategy and greater capability in our teams over this period that's enabled the performance we've shared with you today. Overall, I believe this strong platform for growth will continue to set us apart in the years ahead. With that, I'll now step through some of the progress we've made against our sustain, innovate and grow pillars as we continue to push forward on our operational strategy. We continue to make strong progress on our ESG 2030 ambitions and you can see the detail in our latest sustainability report, which has just been published this week. This highlights performance in all 3 strategic areas from addressing climate change, progressing reductions in carbon and water, manufacturing materials for life, which is focused on construction waste and the sustainable content of our products; and finally, improving life which is related to the social impact of our business. And I'm particularly pleased with the development of our health, safety and well-being culture, which we've more than halved our accident frequency rates over recent years. Factory network performance has continued to progress with predictive maintenance and a broader focus on asset reliability key to delivering the efficient and low-cost production I've mentioned . Across our enterprise, we have a powerful offer of products and services but this is not always been visible to our customers. As you saw at the start of this presentation, in the first half of the year, we took an important step by launching a stronger unified one Ibstock brand, along with supporting digital tools, making it easier than ever for our customers to access the full building product range and solutions that we have. And this is enabling us to capture commercial synergies and align our commercial teams much more closely. We've continued also to target selective M&A to accelerate our growth. And during the first half, we made a small but strategic acquisition in our rail business, purchasing a company engaged in the manufacturer of innovative railway platform solutions. And this provides us -- now provides the lowest carbon product in the market today. We also continue to make progress on all of our organic growth projects, and I'm delighted to say that we're close to commissioning our new wire-cobrick capacity at Atlas and Aldridge in the West Midlands. Atlas will produce the U.K.'s first externally verified carbon neutral brick and will increase our annual network capacity by over 100 million bricks to support our long-term growth. The project is a pathfinder for more sustainable manufacturing processes to be scaled across the group wide state on our journey to net 0. And we're making good progress on operational and strategic side with Ibstock features. The new innovation HobarPowerPark, near Warsaw is fully operational. And with the capacity to grow, this creates a scalable platform for the diversification I've mentioned. Our brick-slips investments at Noster West Yorkshire are also progressing well. The automated cutting line generating capacity for up to 17 million slips per year is on track to commission from the end of this year, whilst the larger slip system factory producing up to 30 million bricks slips a year, will be from the end of 2024 is now well underway. So you may recall that we were revised and upgraded the factory design to incorporate more advanced and efficient technology. And having concluded contracts with our OEM partners, we're confident that this will give us a real advantage in this fast-growing product category. And moving on, we've made further progress over the last 6 months to unlock value from our unrivaled clay reserves. We're now running industrial trials over the next 6 months to manufacture lightweight aggregates from expanded claim, and we've concluded favorably the material testing of our relevant clay reserves for calcining. And having done this, we'll be running trials with experts to produce calcined clay. During the first half, we also completed a pilot project to fire bricks using synthetic gas derived from waste and are now in advanced discussions with our strategic partner to commission these assets at one of our brick factories. Our continued investment in people is key to our growth plans as well. Our employee engagement initiative, the Ibstock story is a powerful cultural catalyst ensuring that everyone feels valued and clear on the contributions they can make to our business success. And as you can see, we continue to place considerable focus on driving strategy, and I'm proud of the way that our team -- teams of people are driving this together with the operational delivery. By way of reminder, you can also see here that our medium-term targets, which we set out in March. And we believe that our growth strategy will translate into significant earnings delivering attractive returns for our shareholders into the future. I'm not going to go through these targets in detail, but I would make the point that we delivered margin and return performance in the first half, substantially in line with our ambitions even though market activity levels were materially lower that those back in 2021 when we set out these targets. Through the ongoing execution of our operational strategy and with the incremental benefit of the capital investment program, we remain confident in the medium-term outlook and remain committed to our medium-term financial targets. Before I conclude this section of the update, I'd like to just briefly cover the balance sheet and provide some perspectives on what we think about capital allocation over the medium term. So with the majority of the capital related to our organic investment programs now on the ground, with inventory levels built back to more comfortable levels and with leverage remaining at the lower end of our stated range, we have significant capacity to put to work in the service of growth and further value creation for shareholders. We're well positioned to accelerate our strategic progress through the growing investment pipeline and have the capacity to take advantage of any of the opportunities created by the current market backdrop, within the firm framework of our disciplined and dynamic capital allocation policy. So to summarize, we've delivered a resilient performance for the period with margins ahead of the prior year period by a material reduction in sales volumes. We remain very focused on managing costs, and we're committed to taking the actions required to managing capacity and aligning it with market conditions. Our capital investment programs remain firmly on track with our new low-cost, efficient and sustainable capacity at Atlas and Aldridge online from the end of the year. And our balance sheet continues to afford us significant strategic optionality to accelerate growth and give additional capital return to shareholders. We remain confident in our medium-term financial targets and while the economic developments have created increased uncertainty and the outlook, we remain confident in our ability to respond to the conditions in the balance of the year. And the Board's expectations, as we've said, for the full year, are therefore unchanged. So with that, Chris and I will 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 question.

This is Luis Roxboro from Investec. Three questions from me. Just firstly, curious just as to your visibility on consumer destocking and whether you see any headwinds come through into the next year as that piece evolves. Secondly, imports, how do you see the competitive landscape at the moment under these market conditions? And thirdly, you just touched on building back inventory levels as this piece been fully completed? And do you have a particular target that you're aiming for?

Great. So I'll take the first 2. And Chris, if you take the last one, please. Yes. I mean what we're seeing now with inventory levels, it's kind of moved from the customer sites back into the manufacturing yards. We think that most of the destocking has probably been done now. I think house builders and merchants are very focused on their inventory levels. So they know that lead times are shorter, and therefore, they can order and not have to have excess stock. So that's definitely the balance there now. I mean, remember that historically, brick inventory levels were at an all-time low. So we're getting somewhere back to where normalized levels, but we're not back to certainly anywhere near the highs and we're in much more comfortable levels. I think imports, certainly, you've seen about a 45% decline in imports this year-to-date. This is about a 30% down on the market. So clearly, the customers, not only the economics of imports, but also the fact that customers want local product which is more guaranteed, certain and it has its own sustainability benefits for Scope 3 and travel distances and so on is playing out. And we'd expect that to continue to unwind. Inventory?

Yes. Just in terms of our own inventory levels, we typically look to manage inventory levels to be in line with the historic average, sort of, call it, 3 to 3.5 months of forward sales on a normalized basis. We're at that level now. We feel comfortable with where inventory levels are. And certainly, during the course of the second half, we'd expect to manage capacity in order to match demand. So therefore, we expect inventory levels to stabilize and that would be the sort of go-forward expectation more broadly as we advance.

Christen Hjorth from Numis. Two for me. First of all, the guidance implies quite a significant decline in EBITDA in the second half. Could you just help the bridge on that? I assume that sort of volume year-on-year is less bad because the customer destocking eases the drop-through to profit from that volume is higher because of the manufacturing inefficiencies, not repeating. And then sort of net price would we expect that to be positive to absolute EBIT in H2. So just add anything else. So just that bridge. And then the second one, obviously, you sort of point to potential shareholder or incremental shareholder returns, what would you need to see to action that? And is there sort of any sort of timing around that we should think about?

So let me take the first one, Joe, and I'll let you deal with the second. So in terms of the shape of this year, you're right. I mean we anticipate a result which will be skewed towards the first half. So the principal driver of that is the supply-side factor, which is about the way that we've built inventory. So if you think about actions to run the factory very, very hard, you get very good levels of variable cost performance and you also get high levels of fixed cost absorption. So typically, if you build back a month's worth of inventory in the course of a 6-month period, you're deferring a significant proportion of the fixed cost in that period into the balance sheet. In clay, that was worth around GBP 8 million in the first half. We don't expect that to reverse, but neither do we expect it to occur as we expect inventories to be flat. So that's predominantly the driver of that shape. In terms of market, we're not banking on and we don't anticipate a meaningful recovery from a demand perspective in the second half. So therefore, assuming in absolute terms, volumes to be pretty flat. As you rightly say, given that we'll be annualizing a slightly softer second half from last year, that will show a positive trend in terms of the comp but actually from an absolute volume perspective, not banking on meaningful recovery. And I think the other -- the sort of third leg of this, Christen, which is just worth noting is that as you are running the factories at slightly lower levels of throughput, your variable cost efficiency comes down a little bit as well. you can't turn the kilns off of 10% or 20% of the time. And therefore, things like energy efficiency are relatively lower, which also has a modest detrimental impact on margins. So I think those are the sort of 3 moving parts. As Joe said, we're confident that the business can respond to the market conditions that it finds in the second half of the year. And we're clear that we're standing behind the guidance that we've put in the market already.

Christen, the cash generation of Ibstock and the balance sheet, notwithstanding the slightly more cautious market that we've got, you know we do have optionality. A lot of our capital is in the ground now on the organic projects. And while we do have a focus on some M&A to diverse -- continue to diversify and invest into our futures and other parts of our business. I think you've seen in the past that the capital allocation sort of framework that we've got affords us to the ability to give returns back to shareholders through buybacks or through special dividends. And we've done that since I've been here, we've done quite a lot of that. I think we managed that in a dynamic way. So if there isn't something right around the corner in M&A, for example, then that's when we look to give cash back to shareholders -- undervalued share price, I'd say, a very, very good opportunity. I think Priyal was next, and we go to Gregor.

Priyal Woolf from Jefferies. I think I've got 3. So the first one is just on Raven head. So here, it feels like most of the benefits will probably come -- will become more apparent in 2024, given you're still going through the consultation process, et cetera. which means you must have a fairly strong view on a base case assumption for demand in 2024 if you've decided to take this decision. I just wondered if you could give us any insights into those demand assumptions for 2024, which drove that decision? Second question is just to do with, I suppose, the higher -- well, you've mentioned it's a higher cost facility. Is this potentially just a pull forward of mothballing that you would have done anyway at some point to do some sort of efficiency improvements whilst it's down and then the last question is to do with the synthetic gas point. Does this bring any cost benefits? Or actually, is it just about surety of supply and less volatility in those energy costs?

I'll take those one then. Yes, I mean, in terms of -- as Chris said, we're not banking on any demand in the second half year improving. CPA has got market demand improving by mid-single digits next year, and we think that's probably the central thesis that we're working on. So not necessarily a big rush back although I've been in this job 6 years now, and I have seen things be quite dynamic. So hopefully, we will get a faster return. But at this stage, we're looking at not a significant but more of a modest increase. The issue is also that we've got inventory that we are building. We can't keep building inventory, and we have Atlas coming on stream. So that's part of the other thesis of any major investment. And the approach often when you're running portfolio reviews like this with assets as you look to invest in new projects in the downturns and they come back through, and then you have to look at how you consolidate older assets and sometimes use those assets and redeploy them in other ways. So that's normally our approach, and it's what we've been doing over the last sort of 10 years or so. Synthetic gas is really exciting. Gasification gives a lot of opportunities, not only on security of supply, but also on potentially on cost, but it depends where the gas price is. So we've got some assumptions based on a moderated gas price. And we've also got optionality because if you think about the amount of waste in the U.K., the amount of plastic blue bean waste that can be processed, for example, that waste commands a gate fee, and that's also potentially a revenue source coming in. So we think this is a very exciting proposition. We're not going to go flying with it yet because we need to test it in full operational pilot. But gasification of waste through pirolysis has been done for many years and we just found a way of doing it with the bricks now. So we're very excited about it. We're not just focusing on that as our only bet. We've also been working as others have been working on hydrogen. We've done 2 successful hydrogen trials. And there's a lot of work going on in the government are -- there's a lot of funding available for hydrogen at the moment on trial. So we're kind of keeping a parallel process going there.

Gregor Kuglitsch from UBS. A few questions then. So just on pricing. Obviously, it's been resilient. I think maybe at least one of your competitors is very higher gas price. The other one probably lower. I guess I wonder kind of as things normalize into next year, everybody is going to buy at the same price. What do you think pricing will do? Do you think it will hold? Or do you think you'll have to give some back is the first question. Second question is just on your volume capacity. If you could just remind us if we think about this year as a whole and then thinking about the plant shutdown and then the ramp-up of Atlas, what's kind of the volume recovery potential, I guess, right, from -- as the network nowadays stands, just theoretically, I guess. And then I suppose sort of coming back to '24, the sort of building blocks, I mean it sounds like I guess you'll have the headwind from the fixed cost absorption you just booked in half GBP 1 to 8 million-ish. But then there's the interplay between the shutdown and the ramp-up. So if you could just tell us what you think that could be the sort of just one-for-one cash cost saving that you get from ramping up the new plant and whether it's going to be enough, I guess, to offset that fixed cost point that you're going to be, I suppose, lapping next year?

Chris, should I take pricing and you take capacity and cost? So we've -- I think the backdrop is our customers understand that our costs have increased in year-on-year even from this year -- from last year, we've had both fixed and variable costs with gas price increases. Gas prices are up sort of certainly into the mid -- the double digits. So we still haven't got the gas prices fully bought out for next year, so we're going to have to see how that manages. But I think for me, one thing I'll mention is we will remain very firm on pricing. I think the -- it's not just around variable and fixed cost. It's also about the capital that we've invested into this business to have a much better supplied industry for our customers. And I think they appreciate that and we're going to be very firm on pricing, I wouldn't expect pricing to erode. So that's -- so I can't really comment on competitors, but -- and then capacity costs.

Yes. So capacity, Gregor, I mean in terms of in 2022, the network was operating at very high levels of utilization. So that essentially kind of constitutes the baseline, if you want to think of it like that. Sales volumes down 30% in the first half. They'll moderate a little bit because of the nature of the half 1, half 2 skew in the comparatives. But it's pretty clear that we'll have meaningful levels of unutilized capacity, all other things being equal. The 2 things that will come on during the course of this year, first one we've talked about Ravenhead. We're going through that consultation at the moment, but that would account for around 5% of capacity. And then the other actions that we talked about and this is shift structures, this is looking at headcount, this is redeploying labor, factory shutdowns, all of that amounts to around about another 5%. So put those 2 things together, and that's starting to bring the factory network back into reasonably high levels of utilization. . As we go forward, you rightly say we've got Atlas coming on. That will be ramping up through the course of next year, so you don't get 100 million bricks there, but that will bring extra capacity on. And I think the challenge that is in front of us is how do we manage the fixed cost load of the business as we navigate through the next 12 months. And to some extent, that will be a function of the market activity that we see. So we'll continue to do the right things at the right times. We've managed through this before and I think taking actions to make sure that we continue to operate the network in an efficient way towards the top end of utilization will be critical. In terms of the fixed cost absorption piece and the mitigation of that, as you rightly say, that GBP 8 million that I referenced in clay doesn't recur in the second half and on the assumption that we keep inventories relatively flat, won't occur next year. Atlas, you'll remember that we talked about an incremental EBITDA once we're operating at full capacity of around GBP 18 million. And we talked about around 1/3 of that being available to access in the 2024 year. Now that comprised 2 elements. The first piece was incremental volume that's afforded by Atlas. And the second piece is beneficial cost arbitrage by bringing capacity on at the bottom of the cost curve. So of that GBP 6 million that I referenced as being available to access next year, probably around half of that would accrue to us by virtue of the cost point that Atlas will give. So it won't be sufficient to offset the nonrecurrence of that fixed cost absorption, but there will be other actions that will take, if necessary, to manage the fixed cost load of the business as we go forward.

I think there was a question here, and then we'll go to Sam after that.

Harry from Redburn. I think 3 or possibly 4 questions, if possible. Firstly, just on sort of the top line. I think the data out this morning from the government, I think our delivery is only down 15% in June year-on-year, which obviously is quite an improvement from the first sort of 5 months. Is that a, I guess, an example of the trend we've gone through June and maybe whether you've seen that yourselves and I guess, a comment on possible that's continued into July. So sort of more current trading. Is that a structural thing? Or is it more around the fact -- I know this is Part L in the housebuilding side of things that's pent there's maybe been a bit more sort of building on the ground to get ahead of the regulations. But anything you can sort of tell us there. Secondly, just on the cost inflation side, again, I think you said you've got 1/3 hedged for next year. just remind us, is that a normal sort of level of hedging at this time in the year for the sort of next year or whether you're leaving the door open a bit more for sort of spot prices and what you think around there? And I know it's only 1/3, but maybe directionally, what that third is sort of on this year? And then two, just more technical questions. The contribution from that small acquisition you did and maybe just the rollover impact of any from last year, I don't know what that was possibly at the sort of the top line of EBITDA and then also what production levels did year-on-year in the first half as well.

I mean, you take the last 3, Chris. Top line trading, we have seen modest improvements for the first 2 months [ the year ] we're pretty grim, and we have seen improvements and June was relatively strong. I think people talk about starts and plots in the ground and technical starts to beat part, but we've definitely seen some of that in Q2, but that doesn't necessarily manifest itself into completions, into completions where a lot of bricks go in. So the flooring business has been all right in those 2 quarters, but it hasn't really given a lot of extra benefit to the completion. So I think there were more -- there were a lot of plots in the ground ready to go, definitely. I think current trading has improved, but then you had this second bit of caution that was injected into the market with the interest rates and the surprise around inflation. So I think that's causing people to be cautious at the moment, and we'll see how get through August and see how things look into September. I mean, you've seen some of the commentary from Jennie Daly, Taylor Wimpey were out this morning and a little bit quieter in July, which is normal. But actually, sales reservation rates were fairly strong for the first part of the year ramping up.

So I'll take the other 3, Harry, thanks for those. In terms of energy cover, you're right, around 1/3 covered for next year. That is lower than we have taken historically. The approach that we've taken has been really to focus on to what extent we believe there is a risk premium -- a forward risk premium in the forward curve that doesn't justify the fundamentals that we see. And we took a view last year. And at this point, we were around sort of 50% covered for the '23 year, we ramped that up as we went through. But ultimately, what we saw was as we got to the delivery month, we saw that risk drop out. So that's -- there is a central thesis that we hold that again, when you look at the forward curve into '24 now, you actually see summer '24 being more expensive than Jan, Feb, March which really -- when you think about the conditions that normally drive fundamental demand for gas, that doesn't support that forward price. So we continue to monitor it very closely. We are somewhat shorter than we would otherwise be. But I think the approach that we've taken is to be very clear around the logic for that and to continually report to our shareholders where we are in terms of a cover percentage. When you look at the shape of that cover, it is front-end loaded, as I said. So whilst we talk about being a third covered, we're in that sort of 75% to 80% cover for the first quarter, which really is the winter is where the greatest potential variability comes. So we feel good about the level of cover as we look forward on a sort of 9- to 12-month forward view. You talked about the small acquisition. So within the infrastructure space, this is a great small business. I mean it was GBP 1 million to GBP 2 million consideration. So it's not a huge acquisition, and it was funded out of the CapEx number that we've quoted. So in terms of its incremental impact to EBITDA, it will register next year, but it won't be transformational. So you shouldn't expect a huge bump, but it's just -- it's symptomatic of our belief that the infrastructure business is a great business with some of those countercyclical characteristics that Joe alluded to. And it's a part of the business that is -- that lends itself to high levels of innovation and working with customers to reduce carbon to deliver a differentiated product. And it's an attractive part of the concrete portfolio. And as we said in the presentation, it has had a modest accretive impact on margins within concrete because of the growth that we've been able to deliver from it. I think your final point was around utilization of the network in the first half. So you can back solve essentially knowing that volumes -- sales volume is down sort of in line with market. Market was down 30%. We built a month's worth of inventory. So therefore, the factory network was running somewhere around 10% below where it would have been in the equivalent period in 2022.

Okay. I think we may have some questions, Sam.

I've got 2, kind of [ intra ] actually. On Ravenhead, you said it is your least efficient plant. Can you give us an idea kind of how less efficient it is relative to the median plant? And what does the second least efficient plant assuming revenue does get closed, look like? And then on the distribution of capacity across the business in terms of the concentration of your sites and what percentage you bricks are manufactured by your bigger factories and the flexibility you have. And particularly, what does that mean for your ability to kind of scale down and ramp up volumes if things recover, say, in the next 6 to 9 months and the brick industry sees a faster recovery than it otherwise would because of the slabs in the ground post-Partl. How quickly can you guys kind of continue to refill the inventory hope that you've built?

Okay. So actually, I didn't say it was our least efficient factory. And I think when you look at these decisions, we have to be a bit sensitive because we're still in consultation, but we look at a whole host of different factors costs. So it really is more complex than just if there's geographical, there's quarry reserves, there's what you can do with land. There's a whole raft of different things. And yes, it's difficult. I mean one of the things about this marketplace that makes me feel a little bit sad is that we still got in the U.K. under capacity potentially and so we have to manage these spiky times like this where I much prefer to keep things going. So we do have further optionality. We've got optionality. I think the way we look at that, as Chris probably alluded to, in COVID, for example, you look at mothballing, you look at shift patterns that you can take out. You look at maintenance periods where we've done a lot of investment in the downturn which is paying back dividends now. So that's how we look at it. But it's much more complicated than just looking at a certain cost and Ibstock is probably a bit more blessed with a wider footprint and more optionality than perhaps others. We've got 20 brick sites with a range of very bespoke, small handmade factories -- very old bespoke factories to the most modern factories. So we are quite blessed with that. So we have that optionality. Okay. So we don't have any questions from the webcam. So I think if there's no other questions, and given the fact that it's getting warmer and warmer in here, we'll call it a day. Thanks very much for coming. I mean, as I said, it is a challenging market backdrop. No doubt about that. But I think we're really -- you've seen that we're quite resilient, and we've got a lot of exciting optionality in the future. So thanks very much for coming today, and see you soon.