Michelmersh Brick Holdings plc (MBH) Earnings Call Transcript & Summary

All right. Good morning, everyone. Thank you for joining this morning's results presentation with Michelmersh. We've got both Peter Sharp, the CEO; and Ryan Mahoney, CFO, to take you through the slides and the performance of 2023. As usual, the format would be slides first and then questions at the end. [Operator Instructions] We have also had some pre-submitted questions which we will go through during the Q&A as well. But -- I'll pass over to Peter to start the presentation.

Okay, thank you, Charles. And also, thank you, everyone, for joining and good morning. We're going to run through the slides for you this morning. And I'll sort of go through who we are, the highlights for the year, and then Ryan will take over and just do the financial presentation. And then I'll do a bit of a sector review and outlook, and then we've got some questions at the end that have already been sent through and then hopefully there's some time after that to take some more questions from the floor. So if we can move to Slide 4 please, Ryan. Okay. So we we're a specialist brick manufacturer and we also make prefabricated building components, which supply the construction industry. We produce over 120 clay bricks annually across a diverse range of around 180 premium product types. Our prefabricated brick components sites have a capacity to produce around 17 million brick annual -- brick slips annually. We have 4 lifetime revenue sources, bricks, prefabricated brick components, landfill and investment land. Brick making starts with the extraction of minerals and we have quarries located at all of our brick factories. Quarries are progressively restored and ultimately these become surplus and can be sold for alternative use. We have deliberately developed a high quality premium product portfolio with a broad range of end markets. Our brands are strong in RMI, housing, commercial, regeneration and specification markets. We have developed a robust distribution policy, and although we do deal direct with a small number of customers, the majority of our products are sold through distribution channels such as merchants, factors and stockists. Working with distribution and supporting these relationships allows us to deliver the very best customer service, as well as gaining greater visibility of our diverse end markets. Our leading BIM Bricks brand, used by architects and designers further supports our commercial and specification customers. Our strategy is earnings focused not market share as we look to operate at full capacity and sell everything we make in the premium end of the market. Our operational footprint spans 8 sites across the north, midlands and south in the U.K., as well as Floren in Belgium, which is centered in the bricks centric Benelux region. Our freehold land assets amount to nearly 500 acres as well as leasehold property and minerals. We were again a multiple award winner in 2023 with a total of 10 awards. 5 of these were RIBA awards and 5 at the Brick Awards. Notable buildings included The International Rugby Experience in Limerick, and the Black Country Living Museum, West Midlands. Moving on to the next slide, please. This slide details the key pillars that guide our sustainable long term growth. We use our premium market presence, diverse customer base and resilient performance to generate stable cash flow and earnings. Our diverse end markets and broad customer base is expected to underpin our financial and operational resilience. We have a high quality opening order book for 2024 with supportive order intake. We are maintaining selling price stability from the start of January to support our customers and to support order intake. We have a keen focus on input costs, managing risk, particularly with energy hedging. We are focused on delivering further operating leverage through the expansion of our prefabricated manufacturing capacity, utilizing existing free space within our facilities. A strong balance sheet provides flexibility to pursue a flexible capital allocation strategy, targeting operational improvements, shareholder returns and M&A. We are committed to delivering stable and growing free cash flow. And these quality fundamentals provide greater resilience against more challenging sector dynamics. Moving on to our 2023 highlights. A positive financial performance in 2023 with earnings for the year ahead of market expectations. Revenue was GBP 77.3 million, up 13% from GBP 68.4 million in 2022. And gross profit was GBP 30.1 million, up 11.9% from GBP 26.9 million in 2022. A strong organic performance with revenue up 1.3% and adjusted operating profits 7.1% on a like-for-like basis, despite a challenging sector. Adjusted EBITDA of GBP 17.8 million with an EBITDA margin of 23% ahead of expectations. Group cash ended the year at GBP 11 million, slightly up from GBP 10.6 million in 2022. And our undrawn borrowing facilities of GBP 20 million underpinned strong financial resources and strategic optionality. We continue to focus on collaboration with customers to deliver pricing stability from the start of 2024. Our final dividend of 3p, resulting in a full dividend of 4.5p, up 5.9% on 2022, demonstrates our commitment to a progressive dividend policy and shows confidence in the resilient outlook. We remain focused on maintaining a well-balanced forward order book and targeting resilient order intake across our diverse end markets and customer base for 2024. Moving on to operational highlights. Our diverse end markets continue to underpin performance in the year, benefiting from a broad customer base of new housing, commercial, architectural specification and RMI markets. Collaboration with distribution partners to deliver pricing stability. Full production capacity was maintained throughout the year alongside focused cost management, supporting a strong profit performance. Careful management of input costs on a risk-based approach, with energy costs continuing to be hedged in uncertain markets. Resilient operational cash generation supported capital investments in solar at plants -- sorry, I'll just carry on. Resilient operational cash generation supported capital investment in solar at plants to supplement long-term energy requirements. And Frank Hanna left the company as joint CEO to take up the position of CEO of Brickability, with myself now being sole CEO. Moving on to some sustainability highlights, we have positive incremental progress against our 2021 Sustainability report, which is monitored and measured by our Sustainability Group. During the year, we reached a 24.2% reduction in carbon intensity from our 2016 baseline, well ahead of target, and the target has now increased from 5% to 25% by 2030, representing significant progress. We launched sustainablebrick.com, a new website that highlights the benefits of clay brick to our broad customer base. We completed the doubling of solar capacity at Floren, with circa 50% of electricity requirements now met by solar, with the addition of an additional 541 panels. We received G99 connection notice from the National Grid to add solar to our Blockleys factory in the first half, and we installed around 1,500 solar panels in the second half. And we continued our program of rolling out electrification of our forklift fleet, and this focused on Michelmersh during the first half. I'll now hand over to Ryan to run through the financial review.

Thank you, Peter. Good morning, everybody. You'll recognize this slide. I'll talk to all these numbers as we go through the primary financial statements. But look, I think the point that Peter made earlier is really just to emphasize that despite different challenges in the marketplace, we've managed to still, again, outperform on our earnings metrics, what was a record 2022. And then we've added this slide this year because, again, given if you look back to COVID in 2020, 2021 was the start of the sort of the utility shock in August, which then carried all the way through 2022. And then we moved from that point into a construction industry contraction, which saw activity decline by around 30%. And despite all of those challenges, we've managed to take -- grow EBITDA by 30%, and taken our NAV per share from sort of 82p to over the GBP 1 mark, which is the first time we've done that. So across both cash balance sheet and then clearly earnings, yes, we're very proud of that track record, given all the macro headwinds. Moving on to the detail now of our financial statements and our 2023 performance. This [ slide ] will probably be the last time we actually break out FabSpeed separately. And I'll come on to talk about that in a moment. But just to remind you, we completed our FabSpeed acquisition in November 2022. So we've got 6 weeks in that second column there, the adjusted 2022, and then a full year contributing in 2023. So if I return to the organic like-for-like comparison, starting at the top line there, revenue. Revenue is GBP 77.3 million, up 1.3%. The story underneath that really goes back to 2022. And certainly, Peter, and I have been talking very openly about to investors that these financial results this year have really been 24 months in the making, and longer, to be honest, because, we've really prioritized deep and enduring relationships with our end customers. And that's really benefited our ability as we've seen it to really buck the trend of the broader markets. Just to remind you and I know I spoke to you about this, this time last year. In 2022, brick prices went up for our peer group, 41%, 45% and 46%. For us, we put through 18%, and we were very clear with our customer base that -- that was because we were deliberately sharing offsetting of costs with them, prepared to take a bit of margin erosion, whilst protecting earnings for our shareholders. And we believe that sort of collaborative and shared approach allowed us and facilitated then the price increase we put through on the 1st of January 2023, which was that blended 10% to 15%. We went through the year very nicely, landing that price increase. And then we -- Q4 was then a challenging end quarter to the year for us, with dispatchers dropping that about 10% across the year on an annualized basis. Those -- lots of you who followed the business for a long time and won't be surprised that there is natural seasonality within the construction industry. We see that coupled with what has been really challenging weather. And we didn't put that in the RNS for obvious reasons, but it has been very, very wet. And we saw some quite sort of short notice delays, really, in terms of canceling some of our scheduled deliveries. I think the important point, I wanted to make at this really early stage is that, whilst January was a little bit quieter, we are seeing order intake running ahead of both dispatchers and our manufacturing capacity and that for us, our business, the 2 really key indicators for us as we look out to FY '24 are the strength of our order book and the strength of our order intake. And whilst we entered with a very, very strong order book at the start of 2023, we start 2024 with what we see as a normalized order book looking back into 2021 and '20. So, look, given what happened in Q4 in '23, we're pleased with certainly how we're looking as we move through 2024. Moving further down the income statement, gross profit and central costs, negative number because that was a reduction. Yes, really illustrating Peter's point that, whilst we are very pleased with our revenue, we've also really kept a very tight control of our cost base. And really central to that is a balanced return to our employees, but also a really resolute focus on our approach to managing utilities, which has been a very volatile, certainly outward in terms of the day-ahead pricing. And our strategy of hedging over a 3- to 5-year period really allows us to smooth our exposure to utilities. And just to remind you, our risk managed approach of utilities is designed to smooth those shocks out for us. But that comes at a cost of then the minute those prices drop, which we've seen really since the start of the year. We won't immediately see the benefit of those. But if you read the statement, you'll see that we have started the year. That's sort of plus 70%, whereas the last 2 years we've spoken to you, that was a plus 90%, which we always term as fully hedged. And that's really because Peter and I see a bit of an opportunity for us to start to take what we see is the likelihood is that that day-ahead price will deliver some benefit to us through FY '24. But whilst we see opportunity in that 3- to 5-year time line, we'll gradually move back down that that cost ladder in terms of that utilities exposure. And I think the narrative now with American LNG, the Qatar LNG, the Australians also, and clearly the U.K. have said outwardly that we will look to build more gas stations, as will Europe. And really, I think there's a greater awareness that whilst we remain committed to 2050, we can't do that at risk of blackouts and these energy spikes. So I think there's finally quite a mature sort of thought process. So we think that somewhere between 60p and 80p for gas is a sensible view as we look out into our sort of 3- and 5-year plans. Moving down the page, the benefits of that has really illustrated the fact that our adjusted EBITDA and adjusted operating profit are running ahead of revenue growth and then the benefits of both our buyback program and also taking the opportunity to cancel some LTIPs and not have new issued shares. And really, this has been the theme that we've been running with the last 24 months, which is not diluting our basic shares in issue and really only doing that in the event of something more specific and event driven like we did for our Carlton and Floren acquisitions which required us asking for shareholders for money given those opportunities. So, again, we were on for that 105 million of basic shares an issue, you can see that we were at 92.5% at the end of the year, and we'll really work hard to continue to make sure that we don't dilute and you can see the benefits there being illustrated with that double-digit earnings per share. Just then moving back to FabSpeed in that change column, we remain very pleased with FabSpeed. I think it's fair to say that when we acquired that business, as you know, it was more focused on the new build activity. And that has impacted FabSpeed's performance certainly through slight pressures on headline pricing, which has really impacted its margin and then its profit contribution, but also we really wanted to illustrate the point that we have been very quick integrating the back office and the operational health and safety aspects of that, but also our expansion plans moving into Charnwood and also committing through Q4 in the preparation at Carlton ready for the first quarter of 2024. So, both expansion, both back office and operational integration, but also not hiding from the fact that that sort of focus on the new build clearly exposed FabSpeed more. And I think a lot of the efforts now that 2023 has allowed us to do is -- our focus for FabSpeed is to be very much looking to address the broadest and widest spectrum of our end customers trying to do, as Michelmersh has done historically, that broad spread of 1/3, 1/3 and 1/3 looking at new build, RMI and then there's architectural specification commercial opportunities. That spread has allowed us to deliver this outperforming FY 2023. So it's really on us to make sure that we do the same for FabSpeed and we're making good progress on that, which Peter will come back to later. Moving on to our balance sheets. You know our balance sheet well, the shape and form of this doesn't change hugely over time. Just to remind you, we do fair value our assets. We test those fair values for under accounting standards as highest and best use. And across our suite of assets, the highest and best use, excuse me, you'll be pleased to know is as brick manufacturing sites. But the number I really want to pause on here is that, third line down that net working capital. You can see that that's grown from the end of 2022 to the end of 2023 to GBP 11.4 million. And that's broadly as a result of the drop-off in dispatches in the last quarter. But also, as Peter said, we remain committed to fully run all of our facilities at their maximum capacity and that's an important distinction for us. During 2023 and certainly from the back end of the summer, around about 400 million to 500 million of capacity was either mothballed or taken out of the U.K. market. We have remained committed to running all of our facilities for twofold benefits. That's really one, it allows us to deliver our normalized margin performance. So it allows that operational leverage to be felt through our earnings. But also because of our ability to look at those indicators around order intake and order book, it allows Peter and I to sit there and say, look, we don't believe our inventory is going to get to an uncomfortable position based on our ability to look at that order book. So we committed to about 8 to 10 weeks, which is really what's sitting on that number there. We also did put in a bit more in raw materials as well, again, facilitating our 2024 expectations of running at a full capacity. The last item I really want to highlight there, you'll have heard Frank previously on these calls bemoaning the fact that he can't take advantage or couldn't take advantage of those near-term orders, which is actually often our best average selling price. And now Peter's team, the commercial team, are really finally equipped. And this is the first time in probably over 5 years to really balance our ability to meet those near-term orders, as well as most importantly, start to take out the lead times of our delivery cycles, which, as you know, has often been anything between 3 and 10 months, which, again, we just feel is another piece of armory for our commercial teams just to equip them to continue to win and try and grow our market share in these markets. And certainly our narrative on the ground is that each of those steps that we're talking about here is contributing to us sort of growing our market share, which Peter will come to return to later in his market outlook slides. And the end, the final point there, NAV per share, combination of growing net assets values, but also the benefits of buying back those shares and stopping that dilution has taken us back over the GBP 1 mark for our NAV per share. Moving on to our cash flow. Our cash flow, the fundamentals in our cash generating ability don't change. We always target that 90% of adjusted EBITDA or better on an annualized basis. 2022 was an exceptionally strong year as we highlighted last year, and this year, slightly lower at 76.4%, and really you're seeing the impact of our investment in our inventory stocks there. Further down the page, we continue to invest in significant capital programs that sit outside of our plant maintenance, which as you know, we take through the income statement. So these are our initiatives which either deliver sustainability benefits, either deliver those incremental growth benefits on output or efficiency on our sites. And, certainly through this year, as Peter said earlier, we focused on solar capacity at Floren and Blockleys, and we finished construction of a new facility at Floren, just to be able to give us another opportunity to do something interesting on our stock, and, on our output at Floren. And that really gives us some automated robot pallet mixing capability, which again, we feel is an interesting opportunity for us. In the middle of the page there, you can see that the twin benefits of the purchasing of our own shares and settling some share option schemes. And that GBP 4 million as I say is another element where we are committing to make sure we don't dilute that shareholder base. And then finally, the fundamentals of our cash generation allows us to continue that progressive dividend commitment. That GBP 4 million is the interim for 2023 and the final payment in January from FY '22. And maintaining that progressive dividend policy we see is an important part of our -- of our investor messaging. So despite all of that, we still managed to grow our cash by GBP 400,000. And moving on to our next slide, that remains fundamental to maintaining the strong balance sheet position. And really, we're saying very simply to shareholders that this is a fact we make no apology for that making bricks requires huge operational leverage. It's a costly exercise. And, in these uncertain times, and if you followed our peer group, you can easily move into debt positions. You can easily start to then incur interest costs. And I think our viewpoint is having that cash position allows us to work through the timing of our cash flows and our inflows. And, as well, we are slightly second half focused because of the nature of the timing of some of those front-end costs within our business. So it's an important part of, again, our armory of just having that resilient balance sheet. But most importantly, when you look at the other opportunities ahead of us, you can see on the page that when we see acquisitions that are complementary, both commercially and financially, the balance sheet and the undrawn RCF of GBP 20 million, which we can utilize in both sterling and euros, really does give us the ability to move swiftly. And we see that's an important part of our -- of our business because the timing of those European operations and those opportunities is uncertain. They remain certainly in our brick space what we'd be most attracted to look to acquire. They are family-owned businesses. So the timing of those dropping is uncertain. And so being able to move swiftly is an important part of -- of our characteristics of the business. And then set alongside that, it allows us to maintain well-invested facilities. It allows us to move on sustainability initiatives in short order when we see them. And finally, it really does underpin the Board's confidence in our resilient outlook to maintain that commitment to our progressive dividend policy. So with that, I'd like to pass back over to Peter to take you through the sector. You're on mute, Peter.

Yes, sorry. After all these years. Yes, just knock on to the next slide. Thank you, Ryan. Yes. So why are we well positioned? Sort of 3 basic points there, really, as I think I've touched on earlier. We make premium -- premium products. We focus our product range onto that. So we have an extensive product portfolio that we've deliberately targeted on the sort of premium end of the diverse markets. And then the third point is to maintain these strong industry relationships. So that's it in a nutshell really. We just move on to the next piece, which is the housing dynamics, which we think all these sort of fundamentals are supportive. There is a shortage of supply of housing from long-term under building. We're now seeing good mortgage availability and we're seeing sort of inflation landscape improving. All the sort of comments coming out of government are supporting housing and infrastructure projects. So we're seeing that as positive. And on the RMI and improvement side with the sort of legacy of all the brick facades that have been built in this country, all the housing, there's lots of RMI demands coming through on that. And we are seeing stability for, as I say, for these infrastructure projects, the sort of schools and hospitals and student accommodation, those sorts of things. If we move on to the next one, the next slide on current trends. So the graph on the -- on the left there shows you the stock build in the industry over last year, which really started from the beginning of the year. It peaked at around sort of October at around 570 million bricks. And then around that time, at the middle of October, the major manufacturers started to reduce capacity. They started to mothball plants. And then we start -- we're starting to see that fall. I think the latest stats we have for January and stock is at 520 million, I believe. Construction activity during the year fell by 30%, as sort of evidenced by that stock build. And in terms of imports, these have largely remained sort of stable over many years. The imports have been around sort of 19%, 20% of the market. They peaked in 2022 at 23% of the market. But they're always going to remain an important part of the U.K. brick sort of consumption because primarily the sort of base load of around 300 million a year are premium soft mud bricks, which sort of fill a gap in the U.K. manufacturing. Moving on to market structure. So the doughnut there in the center of the screen sort of shows you the makeup of the U.K. capacity. And sort of 97% of the market share is made up of 4 listed businesses now. And on the bottom there with the -- the bars shows you the number of factories. And we believe there's sort of 45, 46 factories. And in a normalized market, that will produce about 1.9 billion, 2 billion bricks, something like that. In 2022, when the market was going sort of really well, the U.K. consumed 2.5 billion bricks. So that was around 1.9 billion U.K., the rest being imports. What we saw last year was the reduction of around 30%, so last year's figures were 1.7 billion, of which the U.K. was around 1.35 billion of those with imports making up the balance. Yes, moving on -- moving on to outlook, Ryan, thank you. So for the -- for the industry, the outlook is this critical shortage of sort of houses and building. And brick is one of the preferred sort of materials of choice to sort of clad high-rise buildings using in sort of residential. Construction is subdued. But brick making is capital intensive. There's high barriers to entry. A typical new factory, depending on its output, could be sort of GBP 80 million to GBP 100 million of sort of capital investment. You would need considerable land and mineral reserves and planning permission. You'd need probably 6 million tonnes of clay over a 20-year period. So, we don't see any new entrants coming into the market. In terms of the outlook for ourselves, our diverse end markets and broad customer base are expected to underpin our resilience. We entered 2024 with a high quality and diverse order book. And during Q1 this year, we've added to that with a broad sort of range of new orders. Dispatches in Q1 are slightly behind our prior year, and we believe this is due to greater seasonality. But positively, our order intake to date, I think, as Ryan said earlier, it's ahead of our dispatches, but importantly, it's ahead of our capacity as well. So we are adding to our order book, our quality sort of diverse order book. We're focusing on pricing stability for our customers as we sort of prioritize forward demand and that order intake. We have energy pricing hedging in place for around 75% of our requirements, and that's within budget parameters. Our open positions, which are more -- we tend to run on either the day-ahead price or we fix 1 or 2 months ahead are sort of giving us an advantage. We have a strong balance sheet that provides considerable financial resilience and gives us capital allocation optionality and our commitment to a progressive dividend policy gives us confidence in the outlook. The broad breadth of our end markets and our loyal customers' relationships makes us agile against the backdrop of macroeconomic uncertainty. We believe these quality fundamentals in the business will provide -- continue to provide resilience as we sort of move through the year. So that's really the end of the sort of formal side of the presentation. So I'll hand back over to Charles, who I think has some of the presenting questions.

Indeed, Peter. Ryan, thank you. Ladies and gents, in the meantime, feel free to raise your hand or type some additional questions in, but we'll go through some good questions that have been submitted. First one up is just in relation to potential sales of surplus land and development there. Could you give an update on what shareholders may expect to see in the future?

Yes. So I mean, Ryan could maybe comment on how we sort of value sort of land and buildings. But in terms of surplus land, as I mentioned at the beginning, we do generate surplus land from time-to-time as our sort of quarries as we sort of develop the quarries and restore the quarries. And we did sell a parcel of land last year at our Telford site that became available. We extended -- to extend the existing quarry, we have to move a road. And some of you will know from previous sort of talks in previous years, we spent quite a lot of CapEx on moving and replacing this road, and that has sort of freed up around 15 to 18 years additional mineral. But what it has done is sort of released a parcel of land of, I think it was around 15 acres. That sort of went off for development last year. The only remaining part of the land we have at the moment that is now surplus land is the Charnwood Quarry. As you probably know, we closed down brick making at Charnwood at the back end of '22. And the site there now at Charnwood where Hathern Terra Cotta and one of our FabSpeed facilities do not use the clay in the quarry. So it's become surplus. So we are in the process of looking to turn that over to development. It already has an housing allocation in the local authority draft local plan, I think it is at the moment. And we're just working on that. And in terms of sort of time horizon, we're probably looking at a sort of 2- to 3-year period. Hopefully, that answers the question.

Okay. Thanks, Peter. And touching again on acquisitions and organic growth. Would you expect to finance any of the future acquisitions and growth from the core brick-making business entirely from cash flow generated whilst at the same time being able to continue to pay the progressive dividend?

Yes, good question. I mean look, I think we talk very openly about the flexibility of our capital allocation strategy. And I think as a Board, we look at likely opportunities and take decisions around those. And you can see last year, whilst we were committed to spending some money expanding FabSpeed and also looking at those sort of sustainability initiatives, which I've talked about, we did also look at the landscape of acquisitions and committed to a buyback program as an alternative. So I think the other thing to say is that FabSpeed, as an example, was paid out of residual cash rather than any borrowings or asking shareholders or issuing new shares. And also, importantly, we maintain the progressive dividend policy. And the progressive dividend policy has been a cornerstone of one of our sort of the strategic focuses for us since 2015. And we're very proud of that growing track record. I think the reality of buying a brick business would be that it's likely to be ahead of our residual cash. So my own view would be if one of those opportunities presented itself, it would be likely that we would utilize the RCF. We would utilize portions of cash. But certainly sitting here now would not change our view on the importance of our progressive dividend policy.

Okay. Very good. And given the average age of U.K. housing stock, in general, do you see an increased percentage of revenue coming through RMI versus new build? Would you expect the split to remain the same?

Yes, good question. I mean, our usual sort of rule of thumb is we're 1/3, 1/3, 1/3. So we're sort of 1/3 in RMI, 1/3 in new housing and 1/3 in sort of commercial and specification type work. And that does tend to move around depending on what's happening in the market and also depending on what -- where we want to target our portfolio based on the strategy at the time. As I said earlier, there is an underlying need for RMI. And I think we would expect this to sort of increase. I mean, it's subdued at the moment. So we would expect it to increase as the sort of consumer confidence increases as the sort of inflation and interest rate landscape sort of improves. We saw back in '22 lots of -- lots of households sort of extending, putting in new drives, all those sorts of things, there's skips on lots of driveways. That is not so much the case at the moment, and I would expect that to sort of get back to somewhere where it was and could well improve as well.

Touch upon energy here. Obviously, the surge in energy in the last 2 -- across the last 2 years, albeit a significant reduction since, what steps have you taken to reduce your exposure to such big increases if they occur in the future?

Well, I think as Ryan mentioned, we -- our strategy is to hedge in advance where we see value. So we try and smooth out those -- the energy market, what tends to happen with the energy market is you -- you get the day-ahead price and the nearer-term contract. So you can -- you can just use gas today and you pay for it tomorrow at what today's price was or you can hedge ahead, if you have those sorts of contracts for 1 or 2 months ahead or 6 months ahead or whatever. And if there is an incident that happens, like what happened with the sort of -- it started with maintenance and then the invasion of Ukraine, normally, those sorts of things happen in the near-term. And in the longer term, there is more smoothing. So we always look out onto the horizons of about sort of between 2 and 5 years. And when you get out to 5 years, there is not always a lot of liquidity out there. And certainly, quite often the further you get out, the more risk premium you get. So what we do is we just look at the market ahead. I mean, I look at it every morning and see what the contracts are trading at. And if we see -- we have long-term flexible contracts in place. So if we see an interesting price in, let's say, 18 months' time or in 24 months' time, we will hedge a small amount. We won't hedge a lot. We will hedge 5% or 10% of what our consumption is. And then over a period of time, by watching the market, watching it go down, taking little slices when it looks interesting. And then when the market moves up again, we just leave it because -- and because we're hedging in advance, these short-term events don't makes so much difference. So that's what we've done for a long time. I've been buying gas for many, many years, and that's served us really well. And it served us well over the recent peaks because we -- prices went from sort of 50p to GBP 8 a [ thermal ] at some point. And we were insulated from a lot of that. Don't get me wrong. We've been paying higher prices, but we were insulated from a lot of that because we did some hedging 2 years previously when it was 50p. So we would not -- all of our gas consumption was at GBP 8. So that's what we do. We smooth out the risk. We just watch it all the time. But as Ryan says, as we sit here today, forward prices are lower than they have been, but we have done some hedges in the past that means it will take some time for us to see benefit from the lower prices.

Please give an update on the current U.K. brick stocks, whether they're still at a 5-year high?

Well, I think I covered that. The 5-year high was 5.7 million, and that was up from a baseline of about 250 million. I mean even in '22 when all of the brick, everybody was on sort of 6 months' delivery at least 6 months' lead time, the stocks never went below 250 million. So I think you can assume that's very slow moving stock that may or may not be fit for purpose. So the stock build was the sort of went from 250 million to sort of 550 million. That is starting to move back now as the capacity has been taken out. Since October production has been running lower than dispatches even in the sort of seasonality that we've seen. So -- and as I said, I think where we are today is we were about 520 million as of the end of January. The new RNS stats come out in a couple of weeks' time. I would expect to see that fall further. And at some point, we will see some of the mothballed factories coming back online, I would think.

Do you see more opportunities in Europe or if [indiscernible] in terms of transport, are there any good buy-and-build opportunities?

I assume that's an acquisition question. Yes, there are opportunities in Europe. But I think, as Ryan said, they don't come around every day. The market -- and we're talking here at Belgium and Holland, we're talking the Benelux region. That is the main brick-producing area and the main brick consumption over there. And unlike in the U.K., where the market is consolidated, as I said, into sort of 4 manufacturers, 97% of the market. Over there, although there are a couple of players, one of them is Wienerberger, the world's biggest brick maker, but there's also a company called Vandersanden that has acquired a few factories over the years. But other than those 2, there is -- there are still quite a lot of independent brick factories producing significant quantities of bricks, sort of 100 million, 150 million, 200 million bricks, and then they may have 1 or 2 facilities. But these are all family-owned businesses, often multigenerational, sort of 4-, 5-year generations. And they tend to only come around when there isn't really succession within the family. So that sort of the latest generation do not really want to take that over. And -- with them being sort of valued family businesses, they're sort of like the family crown jewels. So you can only sell them once and that's when they come around. And I think, as Ryan said, what's important for us is to have a strong balance sheet with optionality. So when opportunities do present themselves because they're not within our control and our timing that we can look at those and sort of participate in those if they look interesting. Yes. Hope that answers that one.

Okay. And if the company directors have confidence in the performance and outlook, why not purchase shares? Obviously, it's underpinned.

Yes. So it's a good question. I mean, hopefully, it's coming across today that we do have confidence in the outlook. And look, I think one of the things that you've got to look at here is the manner in which Peter and I are incentivized and a big part of our incentive program is attached to the long-term incentive plans, which are, as you can see, and you'll see the annual report and accounts when it comes out the week after next. But they are attached to a basket of measures that rely on us growing the business, whether that's total shareholder return, which as you all know is a combination of share price and dividend performance. Earnings per share and our commitment to delivering on our sustainability road map through the addition of the ESG road map. Well over 1/3 of our revenue -- of our remuneration, I should say, I'm sorry, is attached to those schemes. And certainly from -- I won't speak for Peter, but from my perspective, that I think demonstrates a really significant commitment because it's -- certainly for me, personally, it's a meaningful share option. And that view and certainly the remuneration committee's view of that is the important part that I think reflects our view and our commitment to the long-term growth potential of this business. That being said, a lots of the directors, lots of the Board members do already have existing shares, and I think that's an important point to highlight as well. So the fundamental for us is, I hope you can see, certainly, since Peter took the helm as JCEO and our sole CEO, the business has been on a really nice growth trajectory from 2015 and we are committed to continuing that for the benefits of all shareholders. And I think all the commitments we're doing to grow earnings per share, I think, really demonstrates that commitment.

Yes. One here on valuation, [ which I just ] pointed out, it is a discount to EV to EBITDA and sort of comparing to the sector or peer average.

Yes.

And so the share would be more below 5-year ratio -- sorry, multiple of 6.5x. So what's driving this gap in your view?

Yes, it's a very good question. Firstly, may I say Peter and I are incredibly frustrated about where we are with our share price. Look, I think let's take the elephant in the room to start with. We're comparing slightly apples and pears because the other 2 brickies are on the main market. They are attached to tracker funds. I think everyone who and you're clearly all very thoughtful investors, those tracker funds have often got index link trackers who are obliged to invest in those -- in those shares. So we've really got to draw that distinction. There has also been a flight of capital away from AIM and small cap businesses on the stock market in the U.K. And certainly, there's been an awful lot of media coverage around that sort of subject. So, yes, you've got to take those 2 first and foremost. We have also, unfortunately, over the last 18 months had some meaningful holders who have, as part of their fund mandates, taken out AIM and small cap as part of their mandated investment criteria. That's put a lot of downward pressure on our share price. And look, from what it's worth, I think our brokers, but also not just our brokers, believe that we do have the potential to now grow this year with our share price, particularly given what we hope to be the absence and having sold down on those funds and those investors who have now mandated away from investing in AIM opportunities. So there's a little bit of structural. There's a little bit of simply flight of capital. And the big 7 in the U.S., as everybody knows, has been hoovering up lots and lots of capital globally. And I look, please give us feedback, because certainly Peter and I think we've got a good, compelling message, which is differentiated to the market. But if you think some of those messages don't land yet, do please tell us. But certainly the investors we see, and I think certainly through 2023, but also through the COVID year, that different strategy of how we sell the breadth of our marketplace, the opportunities that we have ahead of us, our history of strong acquisitions that are value adding, we see that as unique in our brick space and we'll continue to sell that message. But I think, we need certain structures in the marketplace to change to help us as well in that regard.

Okay. Thank you. Some good questions there, a broad range of topics. Any more questions from the floor? Feel free to raise your hand or drop a message in. Okay. I think that's it. I think we've probably covered most of the points there. So if no more questions, then I'll ask Peter and Ryan to sign off and hopefully see you all again at the interims.

Yes. Great. Well, thank you for everybody for coming on the call. I hope you found it useful. And we hope to see you all again -- again next time. Thank you very much for attending.

Yes. Many thanks.

Thank you.

Thanks, guys. Thank you.