Ibstock plc (IBST) Earnings Call Transcript & Summary

Good morning, everyone. Nice to see everybody. Great. So good morning, and welcome to Ibstock's 2025 Full Year Results Presentation. Joining me today is Simon Bedford, our interim CFO. So turning to the agenda. After I provide an overview and market context, Simon will walk us through the financials and cover divisional performance. I'll then focus on how we're thinking about shareholder value creation, specifically through the lens of five strategic drivers. Having covered the summary and outlook, Simon and I will then be very happy to answer your questions. So turning first to the overview. As you'll know, 2025 was a tough year. We started well with strong volume growth in the first half coming mainly from new build residential demand. Market uncertainty in the second half resulted in progressively tougher conditions. Revenues for the group increased by 2% to GBP 372 million with EBITDA at GBP 71 million, in line with the guidance issued in Q4 '25, but a reduction of around 10% versus '24. Despite the challenges in the market, this is a business that does not stand still, and I'm proud of the progress our teams have made at our major investment projects at Atlas and Nostell, both of which are now coming to their conclusion. At the same time, we've taken decisive action on costs and flex capacity where needed. We've also remained disciplined in how we allocate capital. In Q4, we made the decision to dispose of our Forticrete roofing sites and we now completed a number of land disposals releasing about GBP 30 million of capital. With major CapEx program largely complete, volume recovery and continued opportunities to release capital from our land bank will lead to an acceleration in free cash flow, and this will provide optionality on growth opportunities and shareholder returns as we move forward. Before handing over to Simon and to provide a bit more context on our financial results, I'd like to recap on how our markets developed in 2025. As we entered 2025 with market momentum continuing from Q3 in '24, we took steps to reactivate network capacity to meet the recovering demand. It was promising double-digit growth volume in the first 2 quarters, followed by a deceleration to 4% growth in quarter 3 and as you can see from the chart, the final 3 months were challenging with brick volumes actually falling to 2% year-on-year. Ultimately, with the initial momentum proving a false dawn, our capacity moved ahead of demand and looking back, I acknowledge that we went too early on this. Given the progressively tougher market demand dynamics in the third quarter, we readjusted capacity and acted on costs, which will position us better for the near term. Overall, in 2025, the total brick market grew 6% to 1.83 billion. And encouragingly, our market share was ahead of the market and ahead of the prior year. And with that context, let me now hand you over to Simon to go through the financials.

Thanks, Joe, and good morning. Turning to cover the financial summary with Joe having already covered detail on our revenue and adjusted EBITDA performance. I will focus on three key metrics. Looking first at our EBITDA margin, this is reduced by 260 basis points to 19.1% as a result of inflationary pressure and increased cost as capacity is reactivated in clay. In addition, we experienced adverse product mix with lower volumes in higher-margin concrete categories of rail and infrastructure. EBITDA margin improved in H2 to around 20% as incremental costs from bringing capacity back tapered and also decisive cost management starts to kick in. Now considering the balance sheet strength, although leverage has increased marginally from a year ago to 2x, net debt of GBP 120 million has reduced both marginally from last year and significantly from the June position despite the trading environment. This is a result of our disciplined approach on to capital allocation and a focus on priority markets, generating around GBP 30 million of proceeds through the disposal of noncore assets. Return on capital employed at 5.8% remains well below our targeted level and reflects recent capital invested in both core and diversified platforms combined with earnings that continue to be impacted by markets well below normalized levels. With the recovery in market demand, combined with anticipated 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 recommended a final dividend of 1.5p, bringing the total dividend to 3p, which is a payout ratio of 53%, in line with the prior year. We set out on this slide, group revenues compared to the comparative figures in 2024. Group revenue for the year was up 2% to GBP 372.1 million. Within this context, clay revenues increased by 5% to GBP 260 million, driven by strong new build growth in H1 with H2 flat year-on-year. However, these numbers mask the contrast between the quarters as the year progressed, which I won't go through again. However, we also saw regional variation with growth more concentrated in Midlands and the North with the London and Southeast markets more subdued. Futures delivered revenues of GBP 9 million compared to GBP 10 million in the prior period as a result of our glass reinforced concrete business being closed in Q1 2025. Concrete revenue of GBP 117 million was 5% below the comparative period, largely as a result of the weakness in the U.K. rail infrastructure market. Turning to cover the divisional financial performance in more detail, starting with the clay division. As already seen, the clay division delivered a resilient performance against a tough market backdrop. We saw growth in wire cut bricks, which are favored in new build housing markets whilst demand for soft mud bricks, which are more exposed to RMI and specification markets and more concentrated in the Southeast and London regions was more muted. A more competitive environment constrained pricing, which, together with a negative shift in sales mix led to average pricing slightly below the comparative period. We took the 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 saw these costs taper in the second half. This, combined with the cost actions taken, meant margins improved in H2. The facade product categories within Ibstock Futures move forward with broad-based growth across the portfolio. We expect EBITDA to build from 2027 after a year of ramp-up in 2026 as our major investment in Nostell start to deliver positive returns. Turning to cover concrete. Here, revenues decreased by 5% to GBP 112 million. Overall, residential new build sales volumes were tempered by lower growth in the RMI market and falling infrastructure sales volumes, as the U.K. rail infrastructure markets continue to be impacted by control period spending constraints. Similar to clay, we saw strong volume growth in many of the residential product categories in H1, partly offset by lower infrastructure volumes. In H2, market uncertainty resulted in progressively tougher conditions with flooring and infrastructure categories particularly affected. Sales pricing in the residential categories mirrored the market dynamics seen in the clay brick division. It is important to note that spending in the U.K. rail network has reduced to historically low levels. We have seen some pickup recently, but this constitutes a high-margin part of the concrete division, adversely impacting both mix and profitability. Whilst EBITDA margins remain well below 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 margin over the medium term. Moving now to cover cash flow performance. Inventory levels grew as demand weakened in the second half of the year, resulting in a net working capital outflow of around GBP 14 million. Capital expenditure was in line with last year with GBP 21 million our growth projects and around GBP 24 million of sustaining spend, with major capital expenditure programs largely complete, we expect total CapEx to fall to around GBP 25 million to GBP 30 million in 2026. It is important to note that the noncore disposals of around GBP 30 million proceeds are treated as exceptional and are therefore not included in the adjusted free cash flow. Moving to the balance sheet. Net debt reduced marginally to GBP 120 million by year-end, resulting in a leverage of 2x up on the prior year. The group has GBP 225 million of committed borrowings comprising the GBP 100 million private placement loan notes and GBP 125 million revolving credit facility, which we successfully refinanced in Q4 at improved terms. These borrowings contain leverage covenants of no more than greater than 3x tested semiannually. Based on the covenant definition, leverage at the 31st of December 2025 totaled 1.7x and the group had over GBP 100 million of available liquidity. I will now outline the refinements we've made to our capital allocation framework to better reflect our choices for excess cash after considering balance sheet strength, organic investment considerations and dividends. This shows the balance choice between inorganic investment and shareholder returns in accordance with our strategic and financial investment criteria and they are, of course, not mutually exclusive. With our major capital expenditure program is now largely complete, a high cash drop-through on incremental volumes and strategic options, which Joe will discuss later, this will provide significant optionality with respect to excess cash and capital allocation. For those looking for the technical guidance for 2026, this is now included in the appendix, with Joe covering how we will see 2026 developing in the summary and outlook section. And with that, Joe, I'll hand back to you.

Thanks, Simon. So turning now to our market drivers and strategic progress. As set out on the screen, we see continuing shareholder value creation being built around these five clear strategic levers. You can see here that our leadership in our core markets remains key and has significant bearing on our financial performance. However, crucially, the remaining four levers are more within our control and are already driving progress through new market sectors, product innovation, operational efficiencies and the strategic value embedded in our land and clay reserves. . This unique balance gives us resilience today and will be important to underpinning our midterm targets. I'll now walk through each in turn. With a 200-year heritage, we enjoy a leadership position in our core markets, and over recent years, we've been -- we've deliberately brought our brands, people and capabilities together under a single unified Ibstock. That wasn't a branding exercise. It was about how we show up for our customers. Today, that leadership position allows us to support customers across clay, concrete and specialist building products alongside our design and technical services supporting national and regional housebuilders, the RM&I market and increasingly infrastructure and nonresidential applications. I've talked in the past about engaging with customers across multiple categories, and that shift has picked up momentum in the last 18 months as both national and regional customers have seen the breadth of our offer and our technical capabilities. Looking ahead, we also see a clear opportunities to grow in the 10% infrastructure and other sectors where our capabilities, assets and relationships position us well. That sector represents a significant share of the overall construction market where we are underrepresented today. And it's a space that lends itself to innovation and new products and new solutions. I'll give more details on this later. Before I come on to the other areas, let's look at those core markets and what we're seeing on the ground. At a structural level, the long-term fundamentals that underpin demand in these housing and RMI markets remain firmly intact. The U.K. continues to face a significant housing shortage, household formations have been outstripping housebuilding for years, and we have an aging housing stock that requires ongoing investment and renewal. Demand for social and affordable housing remains strong, supported by promising new funding allocations. Against that backdrop, we're starting to see some more supportive signals emerging. Inflation is easing from its peak and expected mortgage rates cuts should over time, help improve confidence. Government reforms and planning initiatives are also welcome steps. However, the pace of delivery and affordability, especially for the first-time buyer on major issues. We're set to have a third year below 150,000 housing starts way off the run rate of getting to 1.5 million homes. Even where starts are improving, build-out rates remain firmly controlled, housebuilders are prioritizing cash and aligning build programs to sales rates. As a result, we continue to take a cautious view in the near term with industry forecasts, including those from the CPA pointing to a continued subdued market conditions over the short term, and that remains consistent with what we're seeing. However, the market will turn at some point. And importantly, we don't need to get to 300,000 housing starts to see a material improvement for our business. As a reminder, the U.K. brick fully installed capacity is around 2.1 billion. So even when we get close to this range, which equates to around 107,000 housing starts, we'll see a big improvement in industry utilization levels. This slide shows why we're well placed to capture volume recovery by looking at our clay capacity evolution. As you can see on the slide, we break out the total network into three components: volumes manufactured in the period, further active capacity available, that's incremental volumes available through higher push rates or increasing shift patterns. And finally, an active capacity where capacity is mothballed or idled. As we've outlined, the progressively tougher market conditions we saw in 2025 meant we build inventory and therefore, in 2026, we'll be actively managing production and inventory. This will give a margin headwind, but benefits overall cash flow generation. We've done that by adjusting soft mud capacity at our Leicester sites, which have much more operational flexibility. However, our active clay network gives us the ability to ramp up by more than 20% with very low cost additions and therefore, compelling drop-through to the bottom line. With this network and stock levels, we're very well positioned to capture the upside as the market conditions improve. Outside of our core market exposure, there's significant medium-term opportunity in other construction market sectors. If stock is increasingly aligning with three growth market sectors, infrastructure, social and affordable housing and mid- to high-rise buildings that require cladding remediation. We're doing this by developing tailored sector solutions, broadening both our existing and new product ranges and working directly with the contractors delivering these major projects. The challenge is well understood the U.K. is under-invested in recent years in schools, hospitals and public sector buildings. And that's why the government's 10-year infrastructure strategy includes an identified GBP 725 billion pipeline, covering work in departments such as the MOD, Department of Education and Ministry of Justice. Now that's not just theoretical opportunity for us. Over the last 12 months, we've undertaken additional product testing and assurance to enable delivery into these programs. That includes testing new products for the MOD's GBP 3 billion a year work program as well as other key public sector customers including the GBP 15 billion schools capital investment program. Around half of the GBP 39 billion in social housing is expected to be delivered through Homes England. Housing associations are partnering with developers to unlock wider scheme, and we're already seeing this translate into activity. For example, we've received initial orders on our regeneration project in Birmingham a GBP 1 billion long-term master plan that will ultimately deliver about 3,500 homes. In addition, challenges around the cladding remediation and the Building Safety Act requirements are creating new opportunities where Ibstock is exceptionally well positioned. Our high-quality, high-performing products in both our established ranges as well as the new innovations coming through at Nostell directly support safe, compliant and even more sustainable construction. With that context, let me move on to our new product development pipeline and investment and how that positions us for future growth. You can see on the screen that over the last 8 years, an increasing proportion of our revenue now comes from new and sustainable products. This creates real value for our customers and helps sustain our margins. By working closely with our key customers, it's important to understand their strategic priorities, whether it's speed of build, low carbon, design flexibility or efficiency, and we focus our innovation on helping them to deliver against those aims. Alongside our major strategic projects, we continue to strengthen and modernize our core clay and concrete product ranges through continuous product development and performance improvements. Today, I'll just focus on the Nostell redevelopment and on FastWall, which you'll have seen in the opening video. FastWall has been designed to support both existing and new markets. For existing customers, particularly housebuilders investing in panelized construction and timber frame, it delivers higher productivity and reduced weight, both critical drivers for customers adopting modern methods of construction. Alongside FastWall, our new ceramic facade facility at Nostell is creating a further wave of innovation, delivering new facade solutions with a greatly expanded architectural range and almost unlimited design flexibility. It's the first facility of its kind to bring all of these things together in one place and initial customer interest has been really positive. We see these solutions as complementary, not competing with our core products. If there are skill gaps to meet the challenges of growing construction targets, this will be part of the answer. To fully appreciate it, you have to really see it in operation, and we look forward to hosting another factory event similar to the one we did in Atlas last year, and we'll share more details about that soon. Moving now to focus on our factory estate. Over the last 8 years, as already alluded to, we have invested more than GBP 325 million across our clay and concrete manufacturing network, creating a safer, more automated, more efficient and lower-cost estate. The Atlas factory is the latest of these investments, and we'll add 105 million bricks per year at full capacity, strengthening reliability, reducing cost and delivering the same high-quality, high-performing but more sustainable products, the way that we manufacture today. In addition, we've -- having done two capital investments projects in our Concrete division recently, we see further options to invest in process automation to reduce cost. These projects are relatively capital light with quick payback. Our new multiyear operational excellence program is also well underway at our pilot factory at Aldridge and will drive further competitive advantage, improving operational performance and strengthen our ability to service our customers. More efficient, modernized asset base positions us for higher margins, stronger cash generation and greater operating leverage as the market recovers. You'll see me reference this later as the network efficiencies are a key underpin for our midterm targets. Moving on now to look at our fifth strategy lever, which delivers further optionality in centers on our land and clay reserves. To give some context, we manage over 2,700 acres of land across the U.K., spanning our factory estate, clay quarries and significant natural estate. From an Ibstock perspective, a large part of this asset base is not fully utilized. We then have options to drive value through three complementary routes. Firstly, Calcined clay commercialization. This is now a proven low carbon cementitious replacement capable of materially reducing embodied carbon when used in blended cements and in concrete. And you'll know we've been exploring the commercialization of Calcined clay at scale turning an existing asset into a strategic growth option. I'm pleased to confirm that commercial discussions with a preferred partner to get to an agreement is well advanced, and we expect to share a further update on this at the half year. Secondly, as noted before, our disciplined land disposal program will ensure capital is released where land is no longer supports long-term strategic or operational priorities. To that end, we expect to generate GBP 20 million to GBP 30 million in the next 3 to 5 years. And thirdly, the expansion of our existing land-based income streams. Our land already generates material long-term revenue alongside core manufacturing with land-based income from quarry restoration through landfill delivering approximately GBP 2 million to GBP 3 million per year. This demonstrates the commercial value of well-managed nonoperational land. Taken together, these three routes create a diversified platform for value creation. So to conclude, these five leaders together define our value creation strategy. And while market conditions will continue to influence near-term performance, the actions were taken across these levers are firmly within our control. In 2026, we are focused on the execution of our customer experience work, expanding into new market segments, progressing operational excellence, including pilot at our Aldridge site, fully commissioning Nostell and finalizing our Calcined clay project. So bringing that all together, as you can see on this slide, we have the potential for significant earnings growth over the coming years. As I've said, to a large extent, this will be driven by market recovery, but it will also be supported by our market independent initiatives, including the points we've made today. We remain confident that our revenue target of GBP 600 million when markets recover to historic levels is achievable. This should drive margins up from 19% today to 28% in the future. The dynamics -- these dynamics should ensure a strong earnings growth in the years ahead. And as Simon has said earlier, the improved cash flow from improved earnings, the strategic land disposal program and lower capital investment will provide more optionality for value creation for shareholders. So finally, looking at the -- taking a look at the outlook. After a weather-impacted start to 2026, near-term demand remains challenging. We expect modest year-on-year volume growth in H2 2026, with volume recovery in new build and RMI markets dependent on activity gaining momentum in the spring. Price increases implemented in February 2026 should enable us to offset anticipated cost inflation for the year. Although the timing of the market recovery is uncertain, we're confident that the long-term market fundamentals are intact. Therefore, with a well-invested, lower cost, more efficient and sustainable network, we expect to benefit from meaningful operational leverage and cash generation across the business. And with that said, Simon and I will be happy to take your questions. If you could state your name and institution before asking the questions.

Aynsley Lammin from Investec. Just two for me, please. On the production and kind of management and stock level management for this year, maybe if you could elaborate on that a bit more where stock levels are, where you'd like them to be? And would you be kind of thinking of mothball in any plants? Or is it just stopping production and therefore, that's why you get the kind of margin headwind? And then secondly, I guess just on the energy side, I think it's sort of 80% hedged. When does that become a concern if [indiscernible] continue and natural gas prices remain elevated, you have to be pretty confident for the next 6 to 8 months of time.

Yes. Yes. Look, we will be managing stock this year quite carefully. We're not anticipating to mothball any other sites at this stage. We've got -- part of the reason for the, the sort of headwind on the margins is the overhead recovery. We've got more shutdowns, so you just don't get the leverage, but we produced around 40 million to 50 million bricks more than we needed at the end of last year. So we're going to manage that carefully this year. Obviously, we've got stockyards, they are limited as well. So -- we've done this. Obviously, we've had a bit of a partner of this in the last few years, so we sort of know how to do things, and I think we're well positioned. The main thing is if the market comes back faster, we can respond very, very quickly. Energy, do you want to take energy Simon?

Yes. So in terms of energy, we've said in the statement, we're about 80% hedged. That is actually more front-end loaded. So the first 3 quarters were hedged higher than that. So really, we're more exposed in Q4. We don't see at the moment, an issue with that, and we have other options when we actually get to Q4.

Priyal Woolf here from Jefferies. I've just got two questions. Firstly, you talked about price increases, I think, from February. I think one of the issues we've had in previous years is different players going at different times and sort of having to reverse on that. Do you have any color on whether the magnitude and the timing across the market has been fairly consistent so far this year? And then the second question is just the whole shift from soft mud to wire cut last year. Do you think that's done? Or is there sort of more to go as an incremental headwind?

Good. Yes. I think we're a better place this year for sure, on pricing. Last year it was difficult. People went at different times. And frankly, it didn't stick. This year most of the industry went in February, 1. And we think that there's been a lot more discipline in that approach. So we're confident that we can cover inflation this year with our price increases around sort of 3%-ish margins. And then soft wood, wire cut dynamics. I mean, obviously, as you had greater new build residential growth last year and more subdued RMI, it was a mix shift. So we're probably about -- the industry is about 70% wire cut, 30% soft mud. We're obviously have a greater weighting towards soft mud ourselves. I don't think that's a long-term structural change. I think it's largely because of the fact that the RMI market subdued and the southeastern London are very, very weak. So I think -- as I said earlier on, you've got an industry that only -- can only -- when it's -- when all the mothballed capacity is back on, you can only produce 2.1 billion bricks anyway. So all of the brick capacity will be used soft mud and wire cut in the U.K.

Clyde Lewis with Peel Hunt. I think I've got four. So apologies. I'll do them one at a time. Could you update us as to where you think sort of merchant levels are in terms of sort of brick stocks? Second one, again, it can useful to get an update on imports as to what you're seeing on that front? Third was on, I suppose, stock futures and slips within that as to how you're seeing the market develop for those products, and particularly the slips, how much activity is going on there with architects and designers in particular? And then the last one was on rail. Obviously, a tough year last year. How does the rail outlook look for 2026?

I'll let you take the rail one. So merchant stocks at the moment, I think, are quite healthy. Merchants -- most merchants that we talk to are managing their balance sheet carefully, and they know they can call on stocks from the manufacturers when needed. So I'd say they're not overstocked. There's a normalized stock level at the moment, but certainly not stocking up at this stage. Imports last year were about 350 million. So they actually -- if our markets, we went ahead by about 8%. The imports went ahead by a little bit more than that. But actually, if you look at import brick levels, they're quite consistent. They're about 19%. I think they went to about 22% in 2022, but they've been about 18% to 19% consistently. We do need imported bricks when the market comes back. And I think a lot of importers including a major player here has a mothballed bit of capacity and has got a pan-European strategy. So we're bringing a bit more of the bricks in still. And obviously, they're still quite sticky. They want to maintain our position. And there's not much going on in Europe. So they've been a little bit more competitive last year. I think we're excited about the growth in slip systems, ceramic facade systems. It's still coming from a low base. So it's still -- but it's -- the CAGR is very good. The growth is very good. Whether it's mechanical rain screen buildings, high-rise going up, whether it's panelized construction volumetrics with bricks going on the outside or whether it's some of the stuff like FastWall, we alluded to there on, there's a lot more change in that. We see our own -- this year, we expect about a 40% uplift in our volumes. And in 2 to 3 years' time, we expect that to triple. I think the -- this year at Nostell, obviously, we're commissioning the factory. There's a longer lead time for these products because they're specified in their systems. So they have to be tested and there's a specification period from the time it's signed up by the developer and the architect to when actually the project gets delivered. It's not like a brick just going off the yard. So there's a bit of a lead time there, which is probably about, I'd say, 8 to 12 months, but we're excited about it. That's why we invested in it. We think it's not going to like cannibalize our core business. We think this is the -- these products are going to be what brings additionality to get you to the higher build rates that we need to do given the skill shortages. So we think there's room for both the cavity wall and traditional building as well as some of these new systems, but we're very excited. And the infrastructure sector as well, is very excited by them. They're very open to -- they're more open to sort of faster change. So we're working with a lot of the big contractors infrastructure people. Rail?

Yes. And if I just pick up rail, so we've suffered with rail volumes over the last few years, we reached the historical low level in 2025. We have seen recent data points which suggest that is actually turning, and therefore, we would expect some growth in 2026. It's off a low base, but it is also a high-margin business for the concrete business.

Rob Chantry, Berenberg. Just three questions from me. I guess, firstly, on the concrete business. Could you just give us an update on the weighting towards the different subdivisions within that and that the margin profile, i.e., kind of what are we actually taking a view on the next 2 to 3 years around what's going to drive the recovery there? And secondly, affordable housing. I know a lot of the contracts have talked about building up big mixed-use development pipelines looking at affordable housing as a huge driver in the next few years and some of the contractors this week, last week saying it -- it's been quite slow, but it's starting to pick up. Just what's your kind of on the ground experience of affordable housing build rate dynamics. And then thirdly, obviously, the Southeast London market has been exceptionally weak in terms of new starts and volume, a lot of discussion around gateway, other planning type of regulation. Can you -- again, can you give us some on the ground insight around quite the bottleneck there from your point of view and if that is looking to be released at any point?

Good. I mean our concrete business has got quite diversified. As you know, we divested the roofing business. That was a relatively small part and lower market share. But we have leading positions in most of our other categories. So we have walling stone, which is a reconstituted sort of natural stone that goes into a lot of areas, reasonably good margins there, double-digit margins. We've got leading fencing and building business, landscaping business with very, very good margins. We've got the rail business, which obviously has rail and infrastructure business, which has suffered, but again, it's very high margins with leading positions. What else have we got, Simon?

I think that covers it.

That's the main focus of it. We think that -- and we've got a large flooring business. Flooring is -- we've got about 25% market share of the flooring business. So we think that when you put the concrete business with some of the brick business, we're seeing a lot more uptake from especially contractors and people interested in these big infrastructure projects, schools, prisons, hospitals because we can do hollowcore floors, we can do the walls. We can do lots of retaining walls, applications like that. So it's quite complementary as well, our concrete business. Affordable housing, I mean, everyone is talking about this GBP 39 billion and it being back-end loaded. There was some news at the beginning of this year around funding allocations of about GBP 2 billion. That's promising. We're doing a lot of work with housing associations themselves and getting quite close to them. It is going to take time, but we will see some -- I mean, if you look at the stats this year, public housing has got a sort of a slightly higher growth rate than the private house building. So we're seeing some momentum there already. But it's -- again, how much, how quick, it's not going to go crazy this year. But I will -- I do think that the sustained improvement in social housing in the U.K. is much needed and is going to create a much flatter sort of less oscillation in cyclicality for us. The Southeast in London, I think there are a lot of things that are causing issues around the Southeast in London. The main one is affordability and building safety. I think the building safety regulator has got a much more proactive approach. They're releasing projects much faster now, and I think that will start to unwind much faster this year. But affordability is a big issue. If you think about buying a house in London and the Southeast compared to other parts of the country, there's a real issue there. And I think that's where we need some support. I think it will get a little bit better this year, but I don't think it's going to improve until we see some support for the first-time buyer.

Ben Varrow from RBC. I'll do three as well, please. First on guidance, in terms of volumes. I understand that's H2 weighted, I guess, what gives you confidence in that at the moment and the sort of spring selling season picking up? Second is on Forticrete the disposal there. Can you give a bit more color on if there's anything else in the portfolio that could go the same way, infrastructure, just so I understand correctly. Is that mainly then focused on the concrete side of the business? And do you need any investment there? And how big could that be for the group?

Good. Do you want to do the guidance one?

Yes. So just talk about volumes. So with the weather impacted first couple of months, we're sort of seeing the first half of the year to be more in line with the H2 2025 volumes. So that would mean slightly down on the comparative period, H1 '25. And then more growth in H2 2026. And based on the spring selling season, the elements, which give us confidence is affordability metrics are looking better. Inflation is stabilizing, and we could look at further interest rate cuts. And that gives us confidence that the macro look better. And then some of the housebuilders are giving more positive updates on what the site visits are, how that's looking. So we have confidence based on the sort of demand dynamics in quarter 2 the spring period, getting better, and therefore, growth will be realized in the second half of the year.

Yes. And I think if you look at last year, I mean, we had this wonderful consumer confidence crisis with what's going to happen to tax, what's going to happen to the budget. The budget was pushed out I think that the budget was a bit of a clearing event, and I think you'll see more clarity going forward unless we get further noise from that side. So I think there'll be more confidence and people will be building a bit more this year. But it will take some time because the second half of last year affects the first half of this year, in particular, but I think you'll start to see improving build rates. Let's see what the spring selling season does. Look, we do -- we always look at capital allocation and what a business needs in terms of capital going forward. Our Forticrete business was a very good business, but we've had some performance challenges that I gave them some time to look at. And on low volumes where it was at the moment, we felt that with someone else who could be a better custodian of that business, it's relatively low market share, and we want to have positions where we have high market share, leading #1 or #2 positions. So we felt it was the right thing to do. And there's not really anything else that we're thinking about right now at the moment other than land disposals, as I've mentioned. And then on the infrastructure stuff, it's not just concrete. Actually, when you look at it's concrete, it's the facades and it's bricks. So when we're going to talk to contractors, they're looking at the whole package now, and that's what's quite exciting about it. So it's not just that. The construction infrastructure market is about GBP 35 billion, GBP 40 billion in this country. So it's something that we really need to be more aggressive. And I'd like to see that donor 10% going to 20% very soon. Alastair?

Alastair Stewart, from Progressive. A couple of related questions. First of all, you displayed refreshing candor, if I might say so, for a CEO and personally acknowledging you moved too quickly last year. In terms of this year, irrespective of -- you're saying you're able to ramp up capacity. Is there a psychological -- once bitten twice shy feeling. You're going to have to wait longer to see positives from the house builder before moving today. So that's question one. And question two, related to that, on Slide 17, the production volumes and active capacity available, how quickly would it take to turn that gray into blue should the market pick up more convincingly?

Good. Thanks, Alastair. I thought all CEOs were very candid.

No, no. Some of them [indiscernible]

Okay. Look, I think you have to -- you have to be honest, and we're dealing with a very tough market situations. And I think we've got a lot of trust from shareholders in this community, and you've got to be open about things. I think look, you saw the graphs here. So you saw the movements. And then you saw -- so I would have done it change my mind. I think we made the decision we felt was right at the time. And of course, I'll be very cautious about bringing new capacity back and new cost back, especially with this market. But the good thing is that gray area, we can convert that very quickly. Even the blue area on that graph, which is 65% utilization, that's got shutdowns in it, yes. We can -- if the market comes back, we can produce a lot more, and also, we've got plenty of stock on the ground. So the industry levels at the moment, there are about 550 million bricks, which is not massive, but it's healthy, and we've got a healthy share of that. So we can deploy that stock very quickly, which will be great for free cash flow generation. So we'll eat into the stock first, then we'll reduce shutdowns and then we'll bring on a bit more capacity.

Max from [indiscernible] Asset Management. Just a regional outlook. So you see London and the South is potentially being weaker in 2026 than the rest of the country. Is that correct?

London and the Southeast have been weaker from a residential housing point of view for some time. I think, as I mentioned earlier on, there are some reasons for that. Some of them are building safety, but the main one is affordability. I think it will get better. But I think until we saw at the affordability issue. That's both for buying and for costs for builders to build with land and things like Section 106, it will stay behind other areas in terms of growth. But I think it will improve a little bit this year.

So the outlook for RMI then is slightly weaker than residential construction. Is that also correct? Because I'm looking at your U.K. well, at the market U.K. construction forecast.

Yes. I mean we go on what the BNS say, we go on what the CPA says. So at this stage, it looks like it's a bit of a decline this year of about 1% on RMI markets.

What do you think is causing that on the RMI side? Is it the interest rate?

RMI is really around consumer confidence. So let's go to Stephen.

Stephen Rawlinson from Applied Value. Two for me if you don't mind. Firstly, with regard to reach market, could you just talk us through the way in which the channels to size are altering and how that might play through in the next few years to particular reference to our margins, i.e., what's going through merchants, what's actually going direct to site and the implications for margin that might have happened over the last few years and are present in these numbers, but may potentially how they may progress in the future. And the second question is with regard to brick slips, off-site construction. Do you anticipate that you'll be doing that yourselves and is an industry emerging, you believe can absorb the capacity that you're creating for the slips production such that actually there will be -- you'll be able to satisfy that demand. How is that going to play out? Is that something that's going to be at your cost on your sites? Or is there an industry merging the satisfactory from your point of view to actually absorb the capacity you've created?

Yes, good. So our routes to market. Look, I think with infrastructure, there's definitely people are coming to talk to us because they want looking at the whole package. So I think you might see a little bit of a shift in more direct relationships with contractors than we have in the past. But the merchant industry, for example, creates a great sort of service for the U.K. because it stocks and it takes credit risk and it redistributes breaks book. So we think there's a real value in that route to market in that supply chain. We've got great partnerships with merchants. We've got great margin with brick specialists, and we've got direct relationships with housebuilders. There's no doubt more people want to talk to us directly because they're seeing now as we've been marketing all of our product capabilities, not just bricks, oh, well, we'd like to have all of this as a package, please. And that's where we see probably more direct relationships going forward. But we have to think about cost to serve as well. So we're not going to have a myriad of millions of relationships we've got and got to think about that. And then the whole ceramic facades there's a whole ecosystem there where you've got installers, you've got contractors, subcontractors. We won't be doing that in store ourselves. We want to provide the product and the solutions that go into -- with the installers, the developers and the contractors. We're not going to start installing ourselves. That's not our core business. It's not something I'd get into. We don't know enough about the risk factors and all outside of the market. But they are waiting to see -- this Nostell factory, they're waiting to see it because they've never seen it before. So that's why it's going to pick up momentum, and we've got the capability to really make a big Change, I think, in MMC in the U.K. with our factory.

Christen Hjorth from Deutsche Bank. Two, hopefully, pretty quick ones. Just on net debt, you normally see that the increase as you move to the half 1 stage with working capital investment, but it sounds like you're quite well invested in inventory. So just a sense of what we should expect in terms of net debt as we move through H1? And then second, I was following up on the volume phasing piece. What's your current thinking around the EBITDA phasing H1, H2 because there's a few moving parts in terms of capacity and things like that. So those are the two for me, please.

Okay. So in terms of net debt, we would see a normal seasonal working capital build, but less so in inventory. It will be more debtors related as we have more sales in those periods versus like in November, December last year. So we see that. And then in terms of EBITDA, yes, I think we're going to be more weighted to the second half. We've got production shutdowns and producing less inventory in the first half of the year, which gives us that margin headwind. So we're thinking about our weighting probably being between 40% and 45% in the first half of the year.

Harry Dow from Rothschild & Co. I think just two questions, if possible. So first on the concrete business, how should we think about the operating leverage as that kind of volumes recover maybe for railway comes back. I think the drop-through this year is quite high in terms of , I think we lost GBP 5 million of revenue and then GBP 5 million EBITDA. So maybe also just what happened in 2025 for such a high drop-through maybe. And then just also just a comment on other operating costs, so sort of expected wages inflation or distribution costs, things like that?

Yes. I think operating leverage in the rail business has quite a big bearing on our margins and that moving forward will really help margin improvement this year. Concrete is a little bit different to clay. Clay, you've got high fixed costs, and the deal concretes more of a batch. You've got more flexibility with it. So really, it's around volumes and it's around margin in specific categories, and that's why we believe there's reasonable momentum in concrete this year. Other costs, Simon, do you want to talk about that?

Yes. So our major cost really is around labor. So we'd expect a low single-digit sort of impact around that, which is in line with the industry and the wider positions. And then in terms of variable costs, we'd expect a similar number. We'll wait to see how things like oil pans out, how is that working? How that feeds through to say haulage costs, but I think we've got a little while to see how that's actually going to pan through.

Charlie Campbell, with Stifel. Just one. You haven't really mentioned planning as a potential opportunity this year. Clearly, there is hope that after 2 years, we -- the planning system has started to free up a bit. Just wondering what your view on that is and whether you've noticed any change in the rate of site openings maybe in the last few months or projections in the next few months?

Yes. Planning is still not great, if I'm honest. I think what is promising is that there's a focus on it. And what I think where we have seen improvements is if there's a decision on a large site, the decision -- there are people coming from above saying, let's do it. But we still have a long -- too long a time gap from planning permission to build out rates. It's really taking too long. So I think it's an opportunity. It's an opportunity. There's definitely proactivity from the government getting involved to make decisions about it, but it's not going to -- we haven't seen any major changes in terms of site openings in the last few months. . Okay. Do we have any questions from the Ita? No?

No. I think all the questions have been covered in the room. So Joe, I'll hand back to you for any closing remarks. .

Good. So thanks, everyone. Look, it's very -- it's a crazy time in the world. It's a difficult market that we're navigating carefully. But this is a real high-quality business, 200 years old, and we will get some recoveries soon, and when it comes, we're really well positioned, and I'm excited about that, and I'm looking forward to it greatly. But really good to see you, and we can have a chat afterwards. But thanks very much for coming today.