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

Good morning, and welcome to the Michelmersh Brick Holdings investor presentation. I'm joined today by Peter Sharp, CEO; and Ryan Mahoney, CFO from Michelmersh Brick Holdings. [Operator Instructions] I'd now like to hand over to Peter to begin the presentation. So Peter, over to you.

Thank you. Thank you, and good morning, everybody. My name is Peter, I'm CEO of the group, and I'm joined by Ryan. I'll run you through some sort of introductory slides, then we'll go through the financials and then the outlook and then the Q&A at the end. If we can move the slides forward to the -- keep going please to the -- that's -- that one, thank you. We are a specialist manufacturer of premium clay brick and prefabricated building components supplying the construction industry. We produce over 120 million clay bricks annually across a diverse range of around 180 premium-centric products. Our prefabricated component sites have the capacity to produce around 17 million brick slips annually. Our lifetime revenue cycle comprises of 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. Quarried areas are progressively restored and ultimately, these areas become surplus and can be sold for alternative use. Our operational footprint spans 8 sites across the North, Midlands and South of the U.K. as well as Floren in Belgium centered in the brick-centric Benelux region. Our quarries and operational freehold assets total around 480 acres as well as leasehold property and minerals. We have 7 premium market-leading brands in the brick-and-facade space. Our portfolio covers high-quality premium wirecut and soft mud bricks, mechanically fixed brick slips, bespoke architectural terra-cotta and prefabricated building components, such as soffits of arches and chimneys. Our premium products inspire architects, designers and developers to build outstanding award-winning buildings. In 2024, we have 29 nominations or the Brick Development Association Brick Awards with the group bringing a record 9 of 16 awards. The awards included category wins in areas such as sustainability, refurbishment, innovation, commercial, urban regeneration and housing including medium and large housing developments. We were also delighted to receive the Supreme Award winner. Moving to the next slide, please. Our commercial strategy drives and underpins the resilience in our business. We position ourselves at the premium end of the brick industry, targeting our high quality and desirable products in key areas of strong diverse end markets. Focusing on our core competencies, we manufacture and deliver the highest quality premium-centric brick, paver and prefabricated building components to our loyal customer base. We have deliberately developed a high-quality range and portfolio of 180 brick types to serve a broad range of end markets. Our brands are strong in RMI, housing, commercial and regeneration and specification sectors. Typically, our annual dispatch volumes fall into 3 categories with 1/3 nonresidential and specification, 1/3 in new build residential and around 1/3 in RMI. Our collaborative distribution model is underpinned by strong, longstanding relationships and delivers best-in-class customer service. We deal directly with a small number of customers but the majority of our products are sold through distribution through channels such as merchants, [ factories ] and stockists. Working with distribution whilst supporting the whole supply chain gives us clear visibility of our end markets as we target a broad and diverse order intake. Moving to the next slide. We use our premium market presence, diverse customer base and resilient performance to generate stable cash flow and earnings. As I detailed on the previous slide, our diverse end markets and broad customer base are expected to underpin our financial and operational resilience. We started 2025 with a high-quality order book due to positive order intake throughout 2024 at levels above our manufacturing capacity. This positive momentum has continued into Q1 this year, providing a high-quality on diverse order book for the current period. We continued to maintain selling price stability to support customers with their build programs and to support order intake while keeping a keen focus on input costs, managing risks, particularly with energy where we are currently 60% hedged this year within our budget parameters. We are focused on delivering further operational leverage through the expansion of our prefabricated manufacturing and brick slip capacity, utilizing free space within our existing freehold facilities. During 2024, we relocated our leased Stanley site to our Carlton sites and the expansion of our Charnwood site is still ongoing. And we are focused on maintaining a strong balance sheet, providing flexibility as we balance business investments and returns to shareholders in line with our capital allocation framework. We are committed to delivering stable and growing free cash flow, and these quality fundamentals provide greater resilience in most challenging sector dynamics. Moving over to the slides. We have 3 highlights slides that we intend to sort of move over in this presentation. This presentation is available on our website and all of the key highlights are picked up in the financial section. So I'd like now to hand over to Ryan for the financial review.

Thank you, Peter. If I can ask you to turn to the income statement, please, which is on Slide 12. Yes, and as Peter said, the content of those 3 slides within the highlights, we will -- I can assure you we'll cover those in the next 4 pages, but also when I return to Peter to just give you a bit of a sector update as well, and then I'll finish with the outlook. So the income statement, I think most importantly to start this slide, it's just sort of as a reminder, that FY '23, the middle column on the page here, was our record year in terms of our financial performance. And it's an important detail because during this week, as I'm sure you can imagine, we've been compared to other listed brickmakers. For other businesses day showed declines in '23 and '24. So for us, as I said, this is about comparison to our record year. If I start on the top line in terms of revenue, we're down 9.3%. There are 2 real elements to this number. Firstly is a price decline and secondly is a sort of modest dispatch decline if I take dispatches first. And if you've had a chance to read the RNS announcement and indeed, if you've seen the presentation on our website, you'll see that we've often referred back to 2022, at which point from the end of that year to now, so 24 months, brick dispatches, which is how we really measure construction activity, have dropped by 30%. For us, that number is around about 13% or 14%. So when you read about us talking about our performance, it's really that we haven't seen those sort of declines. And how we've done that is in 2023, we very much targeted growing our market share. And in 2024, it's about holding our market share. And as Peter mentioned, we've achieved that through appropriate pricing. But just to return to that dispatch point, we tried to ensure that through bringing forward our capital improvement programs, we put stock on the ground to ensure there's minimal disruption to our customers, to our dispatches and our -- expected call offs from those customers. And whilst we did well, over a sort of 2-month period, it's difficult to entirely predict what the customers would call off. So there's a little bit where we paused the manufacturing at Carlton, which has really explained that dispatch drop. So most importantly, about 8% of the 9.3%, as I said, is really referencing price. And there are 2 things within price. Firstly, product mix. Product mix is a big part of how we sell our portfolio. We offer a very, very simple mantra of trying to sell everything we make, which in normalized circumstances, 120 million there or thereabouts in to manufacturing capacity. Through our budget and our forecast expectations, we really do plan to sell that entire output. We do that, as Peter said, in really targeting our 3 end markets. So they're slightly broad-brush end markets, but we try to do those in an equal measure. Each of them attracts a slightly different price point. So for us to be able to get the average -- best average selling price for our products, we really do look to sell down to those channels in equal measure. So in very rough terms, 40 million going to the RMI space, 40 million towards new housing and then 40 million in that sort of catchall other bucket of commercial specifications, schools, housing -- sorry, hospitals, et cetera. Last year, we had a slightly quieter RMI space, and that sort of has a knock-on impact in terms of being able to achieve that best price. And the other element was that last year it was fiercely competitive in the marketplace. Peter will talk to a slide a bit later that shows that manufacturing ran ahead of dispatches for a little while in 2023 and then in 2024, that sort of cycle span back the other way with dispatches running ahead of manufacturing, but there was some inventory on the ground. The inventory on the ground meant that our peer group was very competitive in terms of trying to fill up their own order books. And so in order to ensure that we had a competitive order intake, we did give a little bit of price away. And then the third part of this is we've got 180 products, as Peter said, there is a decent spread in terms of the average selling price as you go through those products. And so quite naturally, some of our customers move down the value chain during sort of times where they've got to keep a keen focus on their own cost of development. Moving down then into gross profit. You can see this has moved slightly -- fallen slightly further than our revenue line at 16.6%. And really, that's a factor of really trying to very much focus on an appropriate pricing for our customers. All the while, we still do have quite strong inflationary pressures within our cost of production that really moved through '23 and '24. The 2 most significant elements of that are wages and salaries and utilities. If I take wage and salaries first, you all have seen that the cost-of-living allowances, the wage inflation has been running between sort of mid-single digit, up to low double digits. We try and look after our people. So within that number is roughly 5% that we put through at the start of 2024 for wage inflation. That slightly stabilizes as we look into 2025. But the other element of this is that the government have been increasing national minimum wage within this time frame. That's gone up about 20% over the last 2 years. And whilst we've always paid ahead of that number, what that does is it puts quite a lot of pressure on the natural hierarchy within our brick sites in terms of what that means for supervisory roles and those leadership roles on the site that have to move up to ensure that there's a strong motivation for our ambitious employees who are looking to build a career with us. The other element of that is then utilities. Those of you who know as well or know the utilities has been a significant increase within our cost base really since August 2021. And actually, since that point, our utilities costs have been largely stable during '22, '23, '24, albeit at a much higher level than it was in 2020 and 2021. And really, that's a function of our hedging strategy. The art of why we look to hedge is that we look to try and take away those peaks in the utilities pricing. And really then we hedge over a 3- to 4-year period, taking sites to the market, growing in that period. We start by looking at sort of 25% in sort of 3 and 4 years out. And then we look at moving 24 months out to 12 months out and topping up in what normally has been up to about 80% or 90%. And we had [indiscernible] coverage in both '24 and 23. We've actually entered 2025 at a little bit less than that, and that's really a function of Peter and I with our energy brokers, really thinking there's more opportunity for us now in the day-ahead market, slightly tweaking the way that we're risk managing that particular element of the cost base as we look to now target trying to sort of trim away, at reducing the cost of utilities within the business. I think it's a really important point to realize, though, as I'm sure you all do with your own domestic consumption, that our expectations are not that we'll get back to the pre-2021 levels of utilities and will broadly settle somewhere between probably 25% and 75% higher than that level. And that's really a factor of where the country is getting its gas from. It's got a higher cost of manufacture and therefore, a higher price that we all pay due to the fact it's being shipped from America, Qatar, Australia, Algeria, those sort of nations rather than there being piped through from Russia. Within the middle of the page, central costs, you can see that we've worked hard to ensure that we try to reduce our central costs and rationalize our central costs to ensure that the back office and administrative overheads move in line with reductions in the cost of production -- with regards to profitability and the cost of production, I should say. And again, you can see that as that moves down through other profit metrics through adjusted operating profit and adjusted profit before tax and EPS. Just as a small point, you can see there that the impact of the swing in net income to net expense on finance costs, that's really been the single factor that's moved EPS further on in terms of a negative move and that's really because, as I'll come on to in 2 slides' time, we've used that cash, we believe, sensibly to try and well position the business as we look out into what we hope is a stronger cycle. So turning to balance sheet on our next slide. Those of you who know us well will know the shape and form of our balance sheet stays in a relatively similar period on period. A couple of areas I'd like to talk to, to start with. Net working capital, so the third line there has increased, it increased in 2023 and has increased again in 2024. And that's largely a factor of inventory. Our inventory in 2023 built. And for those of you who we saw this time last year, will know that we took the decision to continue to invest in stock on the ground during 2023 and that was to give us more flexibility, which is what we have not had for many years. Often our best price is the price that we can give for near-term orders. So there are orders that we get request for stock and then we'll dispatch those in short order. We haven't been able to do that in the previous period because we're essentially running lead times in our order book because we had no stock on the ground. So in 2023, the decision was taken to use some of our cash to invest in inventory and give our commercial teams more flexibility. The narrative slightly turned in 2024 as we really planned around our capital improvement cycle, which we normally look at over a 48-month period. And within that cycle, given where the sector has been, we took the decision to really use the inventory to plan ahead with our production, plan ahead where we could close some of our assets for capital improvement work and really focusing on putting the right stock on the ground to ensure that our customers have minimal disruption. And as I said earlier, we didn't quite get it right, but for the most part, we did. And so that inventory is sitting there at the end of the year. And just as a reminder, in terms of the sort of calendarization of those shutdowns, Floren was closed in November and December into January this year. Carlton was also closed from November, December into January this year. And Michelmersh, we closed at the start of 2025 for 2 months. So you can see there's a lot of stock that we put in to manage, as I say, that minimal disruption to our customers. Just as a last point within that number is also a raw materials number. Generally, we do what we call a clay win, which is essentially digging the clay out of the ground that we expect to use at a 12-month cycle. For efficiency purposes, we -- and there's a sort of slight legacy of where we moved the road a few years ago, Blockleys. So our Blockleys site, we put 6 years of clay onto the ground there. So there's a sort of slightly bigger investment within raw materials within the number as well. Within the tangible fixed assets line, you can see that, that also has increased, that's a function of 2 things. Firstly, we have invested ahead of run rate into our plant and equipment, and that's within those numbers there, that's sort of GBP 5.6 million that we've invested in this year is being carried within that plant and equipment. And they are really significant investments into our asset base. And as I said, they are -- they're focused. If I pause and talk about Floren, our Belgian site, which we acquired in 2019. Ever since we acquired that site, we've been very, very busy. And so we've really been keeping that site going through plant maintenance, which is we take through our cost of production. But given where we were with the stock on the ground, we were able to actually pause production for 4 months in 2024. We did that in 2 tranches deliberately. Firstly, in February, March. And really that was really about improving the end-to-end efficiency of that site so really looking at improving all of the assets and the end-to-end life cycle, which we haven't done for a significant period of time. So -- and again, that is about capital improvement in the assets, improving longevity of the equipment there and also minimizing the risk of breakdown, which is -- clearly there's no guarantee, but it's an important investment. We then did that again in November and December, where we essentially put a new chimney in, it's called a scrubber. And that scrubber is really about cleaning the emissions for the manufacturing process. There were 2 reasons for this. Firstly, the Belgian government has changed its rules around what can be emitted from the manufacturing process. So that's about getting -- ensuring that we are fully compliant over the long term on that site. And then secondly, the larger scrubber allows us to clean and treat the manner in which we can put together raw materials on that site and use our clay assets and that bigger scrubber has allowed us to tweak what we've got in our clay reserves, and they're across what we call blue and yellow clay. We could use those 2 clays in different metrics and different measures, and that's allowed us to extend the expected useful life of our clay reserves by another 6 or 7 years. So very important for us to do that work this year. And as I say, with minimal disruption to our customers. Carlton was the other very significant investments. And as I said, that was -- 2 of those months were in 2024. And again, that was really about really improving the whole life cycle of the manufacturing process from the clay preparation all the way through to the dryers and the kilns, and really doing a wholesale capital improvement of those assets. That will, as I say, underpin the quality of that site, what we expect to be another 10 or 20 years. And actually, when we did the due diligence of that asset in 2017, when we bought it, we knew we needed to do that work at some point. And it's just been difficult planning around it given how busy the site has been and how busy the sector has been. So we're delighted to be able to bring that forward from when we originally planned to do that in 2025. And as I say, largely, we're able to plan around the dispatches to ensure that there's minimal disruptions to the business. And as Peter said, the last element has been around really focusing on moving FabSpeed out of our leasehold sites into our freehold sites. And again, we see that as the natural way for that business. Just there, you can see then cash has dropped from GBP 11 million to GBP 6 million and really largely that is a function of the working capital, and it fits investing in our asset base. But as you can see, all of that, that has increased the NAV per share down the bottom there at 104p. So now slightly trading at a discount to NAV given where share prices as of this morning. Turning to our cash flow statement. We're always very pleased and very proud of our legacy and the fundamentals of our sort of cash generating ability within the business. And actually, the key measure we look at is our conversion rate of EBITDA, so our profit into cash. And actually, year-on-year, that's stayed pretty steady in that low to mid-70%. And so in absolute terms, that net cash generated by operations is a function of reduction in EBITDA rather than the efficiency cycle in terms of how we do turn that profit into cash. And so you can see there the GBP 5.6 million, well ahead of run rate in the PPE on that fourth line there. And then you can see the impact of that GBP 5.6 million. The sixth line there, we did -- we spent GBP 1 million, aborted corporate transaction costs. We did talk about that at the half year. We can't talk or give any further details about that transaction. And equally there, you can see that we settled GBP 1 million for exercised legacy share option schemes. And again, that's really a function, as you can see over the last 3 years of continuing to ensure we don't dilute shareholders. And as I say, concerns to really focus on that weighted average shares in issue. And the dividend down there at the bottom, that was the interim and final dividend from 2023, GBP 4.2 million. We continue to recognize the importance of dividends. And you can see that the progressive nature of that and that has been progressing for the last decade. We're very proud of that legacy and know it's an important function of shareholder returns. So just turning over the page, just very, very briefly the capital allocation framework as a side that we put into the deck for the first time in September. And really, this has been designed to try and give shareholders and investors much more clarity around how we prioritize where we allocate capital. And previously, this has been a little bit like osmosis as sort of just been emerged over time. So this has been very helpful in terms of [indiscernible] debate for our investors in terms of how we do allocate our capital. So starting at the top, no secret, but we are very focused on organic CapEx, and that's really twofold, making sure that we are proactive in delivering innovation and sustainability. And secondly, that we are very focused on maintaining our premium product portfolio, being innovative within that portfolio and really focusing on delivering best-in-class service. And the byproduct of both of those 2 is clearly maintaining well invested, efficient and above all, safe manufacturing sites for our people. And just spinning down to the bottom then, maintenance of a strong balance sheet is very much part of Michelmersh and our proposition. What does that really mean in absolute terms? How we've exited 2024 with GBP 6 million of cash, that's probably a high point now for you to think about in terms of what we would hold in cash. We expect around about GBP 5 million, and GBP 5 million is a good number to think about in terms of maintaining a sort of normalized working capital cycle. We're about 40-60, 45-55 in terms of the H1, H2 weighting. And so we tend to sort of drop down in cash at the start of the year before we sort of build back again. But what we're really trying to do is don't expect us to get back to the GBP 11 million, GBP 12 million we were in 2022, 2023 because we'll use that cash in other ways. What are the other ways? Well, that is the middle rectangle on the screen there, which is really focusing on returns to shareholders. And that's twofold. We know dividends are important to a lot of our shareholders. So maintaining that dividend is clearly what we're really focused on. We have taken the word progressive off that, in case you missed that. So we won't necessarily make that a progressive dividend. And you can see there, we've talked about linking it to adjusted EPS. But as with this year, you can see that we're also not going to be just sticking to the 40%, 45% payout ratio. It's about looking at what we've got in cash and then being flexible about returning to our buyback program, which we operated between November and September 2023, so November '22 to September 2023. And clearly, we're now saying that we will return to that given the surplus cash and again, really focusing on returning that value to shareholders and being resolute in the -- our earnings metrics and dividends. So just turning over to the page, I'll just talk very briefly about the slide because this is a neat slide that encapsulates the last decade and allows me to talk about M&A activity. M&A activity, as you can see on the previous slide, it's now what we call noncore to our capital allocation priorities. What that does not mean is we turned our back on it. You can see the importance of it with those orange rectangles at the top of the page as being an engine of growth for us. But the timing of any acquisitions is difficult for us to control. And we still see those acquisitions as being European focused in terms of the assets we would like. But getting those assets, all generally within family-owned hands, is difficult for us to really try and control in terms of timing. So what we've really said is please think of the previous slide is steady state. And if acquisitions are on the table, we will keep ourselves in the right place in terms of balance sheet, in terms of our undrawn RCF of GBP 20 million and we're -- and above all, maintaining our reputation for looking after those assets, keeping the brands going, looking after the people and investing in those sites as Floren is at our best poster example of since our ownership over the last 5 years. So just before I hand back to Peter, we are, as we said in our opening tagline on the RNS, we are well positioned, and we really see that in regard of the strength of our balance sheet, undrawn RCF facility, cash on the balance sheet. And that's really about really supporting the fundamentals of the business, and really as we look out into what we hope is better trading in the future. So with that, I'll pass back to Peter to take you through some details around the sector.

Thank you. Thank you, Ryan. If we can just move over to the next slide, please. Okay. Thank you. The group benefits from an attractive market with supportive demand dynamics. The U.K. government's policy is focused on increasing housebuilding above historic norms, and bricks tend to be the RMI markets of choice, material of choice. There's a critical shortage of new residential and social housing from long-term underbuilding supporting demand and with expected population growth further supporting the demand for new homes. Mortgage availability is good. And with recent cuts, the peak in interest rates looks to have passed. Further cuts will improve customer confidence and ease affordability pressures. The inflation landscape is also looking more stable again feeding into confidence and affordability. The government is vocally committed to reversing the decades-long decline in housing formations with a target of 1.5 million homes over this parliament. This has been reduced only this week actually to 1.3 million, which sort of reflects the slow start to the parliament. The Secretary of State for Housing is focused on improvements to the overall planning process, reducing the red tape and barriers that can hold up planning approval process and the restated commitment to deliver more quality social housing schemes. There's a significant legacy of aging housing inventory that has been constructed with brick over many years in the U.K. The repair, maintenance and improvement of these properties, such as extensions and alterations underpin the demand for clay brick. Brick remains a favorable material of choice for high-rise cladding and remedial work including urban regeneration projects and re-cladding of buildings constructed in less desirable materials. And brick is prized for specification projects where architectural design and enhancing the built environment within the local vernacular are important factors. And there is stability in demand for infrastructure and communal housing projects such as schools, hospitals and student accommodation. Turning it over, the page. Thank you. Looking at the U.K. manufacturing current trends. So the graph on the left-hand side there, I would just -- explain the sort of basis of that. Since 2022, there's been a significant contraction in construction sector activity, leading to a reduction in brick dispatches of around 30%. This led to inventory increases peaking at a 5-year high in November 2023. And at this point, brick production was reduced to meet demand through factory shutdowns and mothballing. This resulted in brick industry stocks reducing during 2024 as production ran behind dispatches, stabilizing balances and reflecting the broad reduction in brick output. Industry stock levels in December 2024 were at 480 million. This is down around 15% from the 5-year high in November 2023 of 570 million. As we expected, imported brick volumes continued with a broadly consistent share of the U.K. market at circa 18% across the year, and this compared to roughly around 20% in 2023. U.K. brick manufacturing does have limited capacity to meet the expected demand for particularly premiums soft mud stock bricks. And therefore, it is expected that European imports will remain an important part of the U.K. brick consumption in the sort of medium to long term. Moving over to the next page. This slide has not really changed a lot in the last year or so. But you -- as you can see, U.K. brick manufacturing is highly concentrated, with around 97% of clay brick capacity in the hands of 4 listed businesses. In a normalized market, the plants detailed on the bottom of the page, total to around 45, 46 and that would produce about 1.9 billion to 2 billion bricks a year. As I said, currently, several factories are mothballed and some of these have been said to have been closed permanently. But there is, however, additional capacity coming on stream from the recent investments that have been announced by some of the larger manufacturers. U.K. brick consumption in 2024 was similar to 2023 at around 1.7 billion bricks. And this is down from a sort of a normalized market of 2.5 billion in 2022 and 2021. U.K. dispatches in this period were 1.4 billion with imports making up the difference. So imports are around 300 million. And our group portfolio is focused on the premium end of the market, as we've sort of been discussing through the presentation, and this tends to generate an average selling price above the market average, that sort of summarizes where we are, I think, with the market at this present time. I'll hand back to Ryan for the outlook section.

Thank you, Peter. Yes, if we get that -- super, thank you. Yes. So yes, this is really sort of the outlook for where we are as a business. And yes, Peter has just been talking about the industry. The fundamentals do remain supportive for us. And we are hugely supportive of the government in terms of the narrative that they're clearly seeing construction as a real engine for growth for the economy. And I think there's a lot of speculation around whether the government will get to their numbers, the 1.3 million. But I think the reality is what we must keep focused on is we -- if we can return to 2022 levels, which is around sort of 200,000, 210,000 housing formations. That is enough for our sector to be very, very busy. So that is what we're really focused on is charting a course that it gets us back to that level. And if we go beyond, I'm sure the sector will be delighted. But I think the main takeaway is we don't need to get there for our industry and for our business. For us, as Michelmersh, we've covered a lot of this content. I think the maybe takeaways I'd like to leave you with is that the nature of how we take orders in and the nature in which how we look after our order book is really very focused on those 3 end channels and really keeping our dispatch volumes serving all of those in equal measure that allows us to sell all of our products, but also to get our best, most blended average selling price. And that we started the year with a good order book, and we've carried through good momentum in orders, albeit we are still very, very watchful that our sector is still very sentiment driven. And you can see things like the Spring Statement have got capability to change that statement both positively and negatively. We are putting through our first price rise for 2 years, we started to talk to our customers in sort of Q4 2024. Whilst nobody celebrates a price rise, our customers always respect the fact from us that it's been about offsetting. We want to get the business back towards what we see as our normalized EBITDA margin in the sort of the 23% to 25% level. And beyond that, I think customers quite rightly start to question whether we're trying to start taking margin from them. So for us, it's about a balanced margin performance that allows us to look after our loyal customer base, but above all, as I said, really focusing on shareholder returns and earnings growth. I've talked about our energy prices. We see that there's more value in the day ahead. We're recognizing the risk we're taking with that. But equally, we were always honest and clear that there was risk being more fully hedged. So -- but we monitor that every day, and we'll act accordingly if we -- look like that price is increasing or if there are further shocks that we see coming through the system in the future. The strength of our balance sheet, as I covered earlier, remains central to us. It remains central to our proposition, it remains central to all that we do in terms of giving us the capacity to reinvest to innovate and to drive returns for shareholders. And you can see that through our commitment to our dividend policy that really underpins the Board's confidence and the outlook for our business. So look, I think I'd like to leave you with those 2 words that we see ourselves as well positioned. We brought forward our capital improvement program. We put stock on the ground. We are in, as we see, a very strong place to continue to serve the market well. And even if the market stays where it is at the 30% decline from 2022, I hope you can see that within that sphere, Michelmersh will remain resilient. But we are focused on really trying to take our product portfolio, continue to sell it down our end market channels. And we believe we're in the right place to continue to deliver our strategic priorities as we look forward. So that concludes -- I'm sorry, that's been a relatively long formal part of the presentation. I'd now like to pass back to Scott. I know we've got some sort of pre-written questions, but also if we've had any questions during the opening part of the presentation.

Ryan, thank you very much for the presentation. Peter as well. [Operator Instructions] And we've put a number of questions that have come in through -- during the presentation and some of them were submitted in advance. First question, additional National Insurance increases have increased your costs. How do you plan to offset these additional costs? And what is the outlook for inflation across other parts of the cost base?

Yes, a good question. Hopefully, you feel this has been answered with the mid-digit price increase that I sort of talked about. You can see the timing of that is very deliberate for us. It's very deliberate for the communications for our customers as well. It isn't just National Insurance. As I said earlier, the national minimum wage has also been a big impact in terms of really moving inflation increases through our wage and particularly at our brick sites, which, as I said, tend to be quite hierarchical in nature. So wage and salaries has really been the big element within our cost base that we see still that sort of legacy inflationary pressure. We still do have other areas within our raw materials, for example, where we are still seeing some increases. But actually, as I talked with utilities, I think what I'd say is things have stabilized. So in other areas, we are seeing a more stable outlook for our sort of naturalized cost base, albeit as we can see, we are still, as I believe, very susceptible to global shocks in terms of how those elements can change over time. So look, we watch it all very, very carefully.

Next question, you have some percent of the U.K. market share. How do you plan to increase this share in the U.K.?

Yes, it's a good question. I think the reality for us is -- you can see that, as Peter said, we know that there's somewhere between 500 million and 600 million of capacity that's mothballed. We don't know what's going to happen to that mothballed capacity. There -- big decisions to switch that back on again because most of those sites are north of 100 million in their naturalized output. So you can see that for people, for our peer groups to bring those back on, it's going to be is going to be a big decision. The reality is we've been operating at a sort of 10% to 15% below our normal levels. As I said, that is outperformance of the market. But equally, it's a mathematical example, our market share will fall if we go back to the 1.95 billion. But what I'd say is we would then really focus on price and really focus on top line revenue growth. So don't think too much about market share. I think we've really talked about that over the last 24 months because that's really allowed our outperformance. But I think it would drop as you'd expect, given the capacity that's still out of the market.

How does Michelmersh plan to navigate ongoing weakness in the new housing market whilst maintaining growth?

Yes, that's a good question. And I hope you can see through the presentation that that's really about focusing on insulating ourselves as best we can to the pure focus on new housing. We've always been really clear that our business model is about insulation. We don't want to be a pure play on the housing market. Otherwise, you potentially be investing in a house builder. What we've always wanted to do is try and differentiate ourselves from the market by saying, well, we're not just a new housing business. We're delighted to serve the RMI space. We're delighted to, as Peter said, be award-winning within the architectural specification space. So for us, it's about addressing through our 180 portfolio of bricks and our prefabricated portfolio, which we are ever focused on taking its own focus out of the new build space and across all of our end channels. So for us, it's about fully addressing the breadth of the market. And in that manner, we see ourselves as the most resilient we can be to try, and as I say, achieve our simple mantra of selling everything we make. So think of it as diversification. That is -- and equally, sorry, as Peter said earlier, think about distribution, working with our partners who are equally as invested as we are in addressing the full space rather than just being a new build play.

The next question that's come in is, how does the strategy to target sustainable long-term growth address the current market volatility and ongoing challenges in the construction sector?

Yes. So that's really about the same element really for us. I mean, parts of the construction sector have actually been doing okay. And I think we will see more from the government in terms of using its own balance sheet to support sustainable -- sorry, sustainable -- to support housing that it needs as well in terms of the council space. And so I think for us, our strategy remains the best one I see as addressing the full gamut of the marketplace. So for us, that's very much what we see as the best answer. And I think as well, you can see that within the capital allocation framework, we've got to do more within innovation. We've got to do more to ensure that our portfolio is not just in the right place for today, but we future-proof it for that 5, 10-year and beyond. And so for that, we really worked together collectively with our commercial teams, with our marketing teams, with our manufacturing teams to ensure that we believe we're making the right product for the future. And the last thing I'd say on this is the flexibility of our facilities is a real strength of the group. We can move up and down our 180-product portfolio. we can move that very, very swiftly in terms of what we think we can make that will address the best part of the market in any given annual cycle. So again, for the others who have got much, much bigger assets, who are relying on longer runs in their production cycles, that sort of [ chameleon-like ] flexibility within our own assets is a real strength for us as we look to sustain our own growth and our own outlook.

What unique technology capabilities and products and innovations does Michelmersh have that differentiates it from its competitors?

Yes. Again, that's -- I sort of really draw on the previous answer, so I won't repeat my myself, but it really is about the flexibility of our facilities. We can -- we really can turn production very, very quickly. We can take products out there of the market as well. And also when our competitors do mothball or permanently close, as Peter said, we had -- before the last financial crisis, there were 89 brick sites. That's a far, far bigger number if you go further back. So our ability to sort of really try and fill that market, that natural space, which tends to come through the RMI space most of all. That is how we continue to innovate our products. But as I said earlier, we are really looking at the recycled content. We're looking at reducing our own carbon inputs as well. So yes, really not turning our back on sustainability of our portfolio either. So -- but as I say, it's really about the efficiency of our plants in terms of being able to turn itself to address the fullest parts of the marketplace, that's our real strength, which we certainly believe our competitors can't much in the same way.

[Operator Instructions] Next question. I've read the opinion piece, which suggests that the number of bricklayers in the U.K. is low and that this could prove a limiting factor with regards to overall sales. Do you have a view on this?

Yes. I think it's right. And I think the statistics here are really borne out from post-Brexit as well in terms of -- and COVID. Let's wrap those 2 up together as they came sort of relatively close together in terms of calendarization. I think it's well known that we lost some skilled European operators from our construction space. And I think the onus is very much on us as a country to ensure that we can fill that sort of skills gap as quickly as we can. Equally, my own view is, I think workers tend to go where they're required. So I think we shouldn't be too down on the fact that -- I believe we will be able to replace that sort of recruitment either through training or through bringing the skills from outside of the country. But look, I think the opinion is the correct one. And I think that's across bricklayers, carpenters, plumbers, electricians. I think it's right the way across the end-to-end sort of construction cycle. And look, we recognize this, and that's for years why we've given away over 100,000 bricks a year to training tomorrow's bricklayers, and we're highly supportive of those NVQ qualifications and it's been a big part of what we do to support our sector. And -- but look, we are a dynamic country. We're a dynamic country, and I believe we will fill that skills gap as the sector starts to grow again.

[indiscernible] how effective do you think the government strategy to reinvigorate the new housebuilding is given additional implications given the budget?

Yes. So yes, this is probably a daily narrative of the newspapers and the column pieces and in all forms of media. And you can see that they're -- the government are feeling the pressure on this very bold statement, which I think not just us, but I think everybody in the construction sector who's involved in all shapes and forms has put a degree of caution around the 1.5 million over a 5-year period. And you can see now that they've replaced we will with we'll get close. So get close, define that with your own mathematical sort of percentages about what that means. We don't need it is what I would say, and I said this earlier, we are relying on 0.5 billion of imports at around that 200,000, 220,000 of new homes -- of new houses, I should say. And so yes, we can miss the targets by a significant number, and our sector will be extremely busy again. And so we don't need it, as I suppose my point. But we are very supportive of it. I think anything that smooths the planning cycle, anything that smooths the red tape, anything that smooths the impact of quangos, I think it will help our sector in terms of clarity, in terms of foreplanning. And in terms of the cost base that developers have to manage, all of that takes pressure off the gross development value of those sites. And all of that eases the sort of the burden on what has been a strongly impacted area of the market in terms of the all-in cost of construction. So all of that will help us. So we are hugely supportive, but I don't believe they'll be successful. I think where we'll get to is we'll get to close to a run rate of probably 250,000 homes. And as Peter has pointed out as we've gone through the week, homes doesn't necessarily mean a brick construction. It is really a dwelling that could well be even a fixed caravan as well, we believe falls within the definition. So downlines and statistics, but getting back there will help our sector, but getting back there above 200,000 is the right number to think about.

One about share price performance. So year-to-date it is down 4.8%. When will we see value coming back?

Yes. So that's a good question. It's a source of huge frustration to Peter and I that despite what we see as a really strong, compelling financial performance for our business, a strong track record, a resilient performance and outperformance of the sector, we continue to lag our peer group in terms of our valuation metrics. Look, the onus on us is to keep taking -- what we see as a straightforward message in which, look, give us our feedback today in terms of the straightforwardness of that message. But we think they're really focusing on shareholders, shareholder returns is the right message. And that resilience in terms of delivering those shareholder returns, we haven't trimmed the dividend. We're looking at buyback programs. All of that should illustrate that we believe in our strategic outlook. I also think that we've got to focus on the fact that aim has been an exchange that's been pressured by flights of capital, and we ourselves know that we've been mandated against in terms of some of the institutional investors. So a lot of that has impacted our share price. But we can stabilize in and around the sort of the GBP 1 mark. And look, we believe that given the consistency of our message, given the clarity around our investor proposition. We hope we can chart a path where we're not at such a discount to our peers, and that clearly will feed through to the share price. So -- but we'll continue to do all we can to keep the matter simple that we believe in the business and the outlook for our industry and our group.

Next question is, how quickly can you ramp up production should demand pick up?

I mean we're there now really. All of our sites are back open and operating. So you can see that in itself is illustrative that, that we believe that we are now in the right place to once again commit to our full manufacturing cycle. So our numbers will be lower this year. So you can clearly see we're utilizing some of our inventory. So we won't be, I suppose, at 120 million until you hit February 2026 in terms of that sort of 12-month sort of period. So I'd say we're there. And clearly, it shows that we believe in our order book, believe in the quality of our order intake as an indicator of where we are. And we hope that we'll have better years ahead of us in terms of simply doing all that we say, selling everything that we make.

And another question is what were the price rises this year?

Yes. I hope that's been answered in terms of that mid-single digit, the 5% that we'll put through is a good way to think about that, and that's being put through at the 1st of April. So again, expect that to be a 9-month benefit for the group.

Next question. In the video on your website, you talk a lot about sustainability, and it's very impressive the way you have regenerated the old quarry. What are the next steps for the business in ESG?

Yes, it's a really good question. And actually, the best answer will be next week when our annual report and accounts goes up, actually, it will go on to our website. It will be circulated to shareholders in hard copy form for those who requested it. Within that is our ESG sustainability report. So -- and again, we fully embed that within our annual report and accounts because we believe in that single document as being the best form of how you understand the business. So -- and the point I really want to make on this is ESG is very open to interpretation. So I think the most exciting thing that we've done this year is that we've actually externally verified the quality of our key performance indicators and the accuracy of them. So within that report, you will see that there is an assurance exercise that's been undertaken by a company called SGS as to the validity and the accuracy of our reporting. And look, I'm pleased to tell you that, that was very positive in our accuracy. So we're going to continue on our journey. We've got a clear road map and a clear plan, and we'll continue to execute that as we move forward.

Ryan, are you -- could you speak about brick imports? Are you seeing brick imports from lower-cost Asian countries or are imports from Benelux? Can you give any indication on the transport cost to import relative to the market's selling price?

Yes, it's a good question. I hope Peter has answered that fully earlier. Certainly, with regards to the importance of Benelux to the soft mud space, particularly. And we see that sort of 18% to 20% number as actually not going anywhere, it's a been a permanent part of the market, and we expect it to remain so. And indeed, foreign forms a part of that number. With regards to further afield, it is a small part. It's about 30 million of sort of non-EU imports. So as you can see, across even the 1.7 billion that we consumed over the last 2 years, it remains a small part. It remains a highly specialized part. Bricks are very, very heavy. They're very, very happy to put on boats, to put on other forms, lorries. And look, haulage for us, I can't comment on our peer group, but it's a big number. And in terms of the soft mud products, they tend to sell at a premium. And clearly, within that space, there is enough for customers to pay for haulage and that premium average selling price to justify the 20% imports had indeed for -- from India and Turkey albeit clearly their cost of production are lower. Look, I'm not going to comment on what it costs us to bring the moment from Floren, but equally, it is not dilutive to our business model. So hopefully, that answers that question.

For the company to grow, do you not need to be proactive on the acquisition front rather than just waiting for them to come to you?

Yes. I mean I hope you can see that in our narrative, we're not waiting for the phone to ring. We stay very close to the families and the businesses that we're interested in, in Europe, but we can't make them sell. So no, we're not waiting for them to make the decision. I think the other thing I put into the mix here is given the different strategies around utilities, given the different performance measures around continental demand and U.K. demand, it's very difficult to assess the normalized performance of European businesses at the moment. So -- and indeed, someone who asked the question earlier about our own valuation, family-owned assets tend to want to sell -- while they can only sell once, they tend to have a price in mind that price is often at a number which is at an EBITDA multiple higher than our own has been trading. And look, that does not mean that it'll be [ an end ] for us. But we're not sitting back and waiting for the phones to ring. We are proactive. But as I say, we can't make people sell. But what we can do is present ourselves as a responsible home rather than that as some of our peers do, they would buy and sell those assets -- or sorry, buy and close those assets and would not sell them. So for us, it's a sincere proposal that we would want to buy and run, prioritize, look after the brand, look after the people.

Next question is the level of competition that you were talking about sustainable?

Is the level of competition sustainable? Look, I'll take the question as will people, I suppose, not mothball more of their assets. I think for us, in terms of that competition, there's 2 elements really. Price is one. No, I don't believe people can continue to do what they did in 2024 because they've got debt for the most part to pay back, and they've got their own shareholders to look after and deliver whatever investor proposition they talk to their shareholders about. So no, I think pricing discipline needs to be maintained in the marketplace. I suppose the other element of that is in terms of volume of bricks in the marketplace, so price and volume, if I take those 2 in equal measure. We don't know, I suppose -- I'm not in control of their decision-making around their own decisions to reopen assets. So I don't know. They're not going to reopen them if don't get strong visibility around the volume house builders returning at meaningful levels for them. So take that in 2 parts, I suppose. So in terms of the competition on volume. But no, there must be more discipline from themselves simply because they're now listed businesses, whereas previously in the last downturn, they were not.

And next question. I understand facing bricks are used on 70% to 80% of British homes. Thinking out 5 to 10 years, do you see any alternative products taking share from clay bricks such as concrete bricks, render, et cetera?

Yes. You're quite right. In the last statistic we had was 82% actually used facing bricks. So -- and actually, that number stayed relatively stable, albeit it probably has reduced a few percent over the last few years. Yes, I think cement rectangular blocks that look in the same shape and form of a brick, we would say they are not they are not comparable in terms of aesthetics and quality, longevity. But there absolutely is a place in the market for them. Look, they're a good lower end of the market in terms of a substitute. So we think that they are a threat probably at the lower end, that can knock on to other parts of the business as well. Yes, I think render and painting, wood facades in some shape or form, all of them could potentially be an alternative to brick. And to be honest, they've been there for a little while. I suppose, what I'd say is my view is that the homeowner is getting more and more cautious about the all-in maintenance of their home. People are moving less. They're trying to skip rungs on the ladder. And equally, if they're borrowing money, banks tend to still want to have a non-flat roof. They tend to want to have a stone or a brick facade and exterior. And -- so a lot of those factors we believe are supportive of brick maintaining itself as the primary choice and the first choice for the facade material for both RMI and new build construction. So yes, I think we'll have other elements that look to continue, but I think the business and the market is broad enough, as you can see, for us to continue to fulfill and sell all of our products into it, albeit in a slightly better market.

Next question, is there plans to search for a new CEO? Or is there a plan for Ryan Mahoney to move into the position on a permanent basis?

Yes. So again, I think you've seen the RNS actually that announced Peter's retirement. So yes, I was very fortunate that the Board offered me the opportunity as designated CEO. So when Peter does retire, I will move across into the CEO role. And again, within the RNS, we are well underway with our search for a CFO, which is clearly the sort of the remaining most important part of that sort of change in role. And look, I think it's important to also say that Peter's experience is hugely valuable to the company, and we're delighted. But again, those that have seen the announcement that he'll be staying with us as our industry adviser, and I think for me as well, that's a huge a huge asset to not just myself, but for the Board as we evaluate some exciting strategic opportunities that we have ahead of us.

What is the range of selling prices of the houses you help to build? How affordable are they?

Yes, that's a very good question. So look, our bricks go into social schemes right the way up to what I know some of us know as, which is the sort of the lovely houses you see in and around the sort of the Southeast and the sort of the counties that border sort of London. So we address the full spectrum, and we're proud to do that. And look, if you've got some time, I know there was a wonderful slide show that you all had before you joined this call. If you look at our materials, please go to our website, there are an awful lot of excellent case studies that just show that we go all the way from social government-funded schemes, all the way up to addressing the sort of the very much more splendid houses that you can see in and around the Southeast and all parts of the country. So no, we're very proud of that. We address all parts of the market.

We've come to our final question [Operator Instructions]. Your commitment to sustainability is commendable, but how important do your customers see this?

Yes. That's another very good question. They do. Look, I think the reality of our customers at the moment over the last 2 or 3 years has been they are focused on price and -- first and foremost and quality they want to have. But when people make the decision about buying a home and the enjoyment of their home, a lot of that is about the aesthetics and your first impression, the curb appeal of your property. So getting the right product at the right price has been the primary consideration. But it oscillates really in terms of the importance of it. So we're agnostic to that oscillation, to be honest with you. We recognize the important of sustainability. I hope you can see that in all of our materials. We won't de-prioritize and re-prioritize depending on where the cycle is. We continue to focus on that as a key priority for us. So it's important to us that we continue to think about tomorrow's portfolio not just today's. So we'll stay focused on that pattern.

Thank you, Ryan, Peter. That's all the questions we have at the moment. Maybe Ryan, Peter I can hand back to you guys for any closing remarks.

No. Well, look, it's great. I haven't seen the final numbers and the fact that it's difficult as we're talking to a presentation at the moment. But I hope we've had a good turnout. We appreciate the support today. It's where Peter and I have always been a big believer in sort of reaching out to retail investors and giving them the same access as the institutions get. So I hope today has been useful to you. We very much appreciate your support. And look, please do feedback. We take your feedback incredibly sincerely, and it's very helpful to us. If there are aspects of the message which works well and lands well for you, please do let us know. And if there are other aspects within reason that are not going to be sensitive to us in terms of financial performance. Please do let us know as well. But look, thank you for your time today, and it means a lot to us.

Wonderful. Thank you. I'd just like to thank Peter and Ryan for the presentation today. That concludes the Michelmersh Brick Holdings Investor Presentation. And please if you could take a moment, as Ryan said, to complete the short survey that will follow this event, and I hope you've enjoyed the event today. Thank you very much.