Michelmersh Brick Holdings plc ($MBH)

Good afternoon, and welcome to the Michelmersh Investor Presentation. Today, we are joined by Ryan Mahoney, Chief Executive Officer. [Operator Instructions] I will now hand over to Ryan to begin this presentation.

Many thanks. Good afternoon, everybody. Thank you for joining me this afternoon. I'm delighted to welcome you all to the retail presentation call, which I always think it's wonderful to have on the same day as the actual results have been released. If I -- I was just going to start with a bit of an overview. So I'm sure that there will be lots of you on the call who know the business very, very well indeed. So apologies if there's a little bit of repetition here before we get into sort of the main subjects of the call this afternoon. We are essentially Michelmersh Brick Holdings. We are a premium brick and prefabricated brick manufacturer. You can see on the right to the side there our area of operations, but we've got 5 brick sites, 4 in the U.K., 1 in Belgium. And then we've got 4 prefabricated operations, most of which do actually overlap with those brick sites. We've got ostensibly 4 lifetime sources of revenue. Clearly, manufacturing bricks, prefabricated bricks, landfill operations, which are all paused for the moment. But they tend to get active when we've got spare space in the quarries, which at the moment we don't. And then once we've consumed the minerals in the brick manufacturing process, we then convert the land to investment land and we look to sell that on and monetize the assets. We've got about 480 acres of land. All of that land or certainly all but 20 acres of that land is valued as brick manufacturing sites, so land is not carried separately. And across our portfolio, in normalized manufacturing claims, and you'll hear me using that phrase a few times during the call today, we've got capacity for about 120 million bricks and capacity to support off-site construction for about 3,000 houses, which is really focused around chimneys and arches that go above, windows and doors as well as brick specials. The portfolio is split about 60% wirecut and 40% soft mud. And again, there are 2 phrases you'll hear me talking about through the presentation. Turning over the slide now to our commercial strategy. And another word you will hear me talk about a lot this afternoon is the word resilience. Our commercial strategy is very much focused around our strong core markets. I think the way to think about the business is that we try and address the full spectrum of brick and prefabrication, which we see very much around RMI, so repairs, maintenance, improvements, new build activity, commercial, urban and specification. And then, again, in normalized conditions, we try to deliver our products, broadly speaking, roughly about 1/3, 1/3, 1/3 into each of those end channels. And that's really deliberate as we look to try and give ourselves the best resilience as some of those markets can have different peaks and troughs. We tend to really only sell through distribution. And again, that's a unique proposition in the marketplace. And as a result of that, we have very deep relationships with our own customers. And really that loyalty has been a really key factor over the last 3 years of quite undulated conditions in our end markets. Premium, very much the thing to think about us in our portfolio. Premium, both in actual product itself, but also as we like to talk about in terms of service as well. And we focus very much on our core assets of about 180 bricks, and we have about another 120 which we term as noncore. So we don't sell as much of those with regularly seeing sales of those. And again, that 180 bricks really does allow us to really address the fullest extent to the market as we possibly can. And the key elements for you all to think about and focus on is that we've developed the strategy to really focus on earnings progression and a really important part for all of you on the call, shareholder returns. And very much the strategy we look to deliver that on is premium product. We drive that premium product through all of those addressable end markets to support as good a demand as we possibly can, keeping full diversification. And then as I said, really focusing on distribution to minimize the commercial teams by using third parties as well to support the product sales. And on the right-hand side of the slide here, maintaining a strong balance sheet is really key because we then have 3 areas that we look to allocate our capital to, which I'll talk about on the next slide. But really, the thing to think about us is earnings progression and regular returns to shareholders. The next slide, the capital allocation framework. We really try to put a lot more clarity around this in the first time we did this and launched the slide was in September 2024. And that was really because our strategy prior to that have really sort of developed over time, and we wanted to really give a crystal-clear way to really think about our business. I talked about the strength of the balance sheet. And really, that's underpinned by then operational cash flow. And the way to think about that is when we talk about adjusted EBITDA, we look to convert about 90% of that plus or over 90% of that into operational cash flow. We then really use that cash flow to reinvest in our facilities to maintain well-invested and safe facilities for our people and that's really focused on sustainable operations, safe operations and efficient operations. And then clearly, very important that we are very, very aware of how important this is, is then regular returns to shareholders. And those regular returns are very focused around free cash flow. So what we sort of said is dividends is the most important. And you can see our track record of dividend returns even during these last 3 years when our end markets have been much more challenging. And then anything above that in terms of excess cash, we would look to run buyback programs and announce those separately. And again, I'll come on to talk about that when we get into the year that's just been in FY '25. So the really important point for today is to talk about what's happened during the year, and I'll come on to talk about the outlook looking into 2026 shortly. So the overall way to think about 2025 is it's a resilient performance, but that performance has been impacted by the broader market conditions, a focus on operational improvements, albeit that's come with a bit of destabilization through our financial returns, but also, as I say, most importantly really emphasizing this point, continuing to commit to our capital allocation strategy. Group revenue down about 1.7%. And again, the sort of under the skin of that is 3 areas we really want to focus on. Broader U.K. market conditions have seen a sort of improvements around about 5% or 6%. And actually, we broadly track those metrics in U.K. brick sales. So what sort of dragged that number back slightly is Floren for our Belgian operations. The Belgian markets have been particularly difficult. We track the Belgian market by planning approvals, and they've been about 40% below where they were in 2022. And the reason we use 2022 is in both Northern Europe and in the U.K., 2022 was the recent high point that everyone talks about within the construction industry. And then the other part of that is then our prefabricated operations under our FabSpeed brand. And what we've really done this year is really focusing on trying to drive those operations through our freehold sites. So we acquired some sites on the leasehold terms, one of which was Watlington and it's Watlington, which we closed during FY '25 and then relocated those operations north into our Charnwood facility, which is just by Loughborough. Thinking back to the map on the previous slides, and then south into Michelmersh, which is our site in Hampshire and that did create a little bit of destabilization in terms of training, bringing new employees into those sites and they're getting those operations up and running. Just moving then down into the second bullet points on the page then. So our adjusted operating profit of GBP 8.4 million, down 16.8% on the prior period. And the element here which I haven't talked about was the timing of our capital improvement works. We previously were an acquirer of assets. The last site we acquired was in Belgium in 2019. And then shortly before that, the other asset I want to talk to you about was a Carlton, so up by Barnsley in 2017. Those 2 sites were acquired really while we were running those facilities as much as we possibly could because demand was so high in our end markets. So in 2024, traversing into 2025 as well, we really had the first opportunity where we worked hard to put inventory on the ground, so we could manage minimum interruption for our end customers. We could really then look at improving those assets. What that meant was we opened the year with Michelmersh, Carlton and Floren, all paused for manufacturing operations, and that then had inevitable impact on normalized rhythm. And the important point, which you may not have had an opportunity to look at. But if you look at our half 1 results from September and then the half 2 results, if you split those 2, you'll see that, as we said in the interims in September, we expected, and of course, those of you who joined that call, we expect a normal cadence to then happen for the next 6 months, which we're very pleased to say today, we have seen. And therefore, we expect some of those margins to continue that normal cadence as we look into 2026. As a result, as you would expect, adjusted EBITDA 12.4% and our EBITDA margin have also been below those expectations from the prior year. Strength of the balance sheet. We are in a modest net debt position at GBP 0.7 million at the year-end date and we do have our GBP 20 million borrowing facility, which we just renewed in August. So when we talk about our strong balance sheet, it's really about continuing to see an ability to continue to deliver against our capital allocation strategy, which is importantly the next bullet, which I want to talk to you about. I said I'd mentioned this earlier. Any excess cash, which we did have during the year we said we would look to distribute back to shareholders through buybacks running alongside the dividend. The dividend is on cash flow financial statement later on in the deck, but GBP 4.4 million went out in cash during the year for the interim and the full year dividend, but also, we returned GBP 2 million through the form of buybacks. And if you look over the last 3 years, thinking about my phrase of earnings progression, that's about a 7% reduction and improvement in EPS dilution over the last 3 years. So again, really setting out and delivering against the capital allocation strategy, which we really provided that clarity on starting in 2024. And then really importantly, with what is really now a very attractive dividend yield, we are very pleased to propose a 3p per share final dividend for the year, taking it to 4.6p, which was in line with 2024. But again, if you think about where those markets have been challenged, that was a 4.5p dividend in 2024 -- sorry, 4.5p dividend in 2023 and 4.6p in 2024 and 4.6p again in 2025. So I really hope you can see there, that's demonstrating the Board's confidence in our strategic ability to really operate the business even during what are very challenging end market conditions. Turning the page and some of this I'll sort of scoot over the points that I've mentioned in the overall highlights. But just looking at the operational highlights, you can see that low single-digit increase I talked about earlier and that was in line with our expectations. And importantly, what that means is in the U.K., the market share that we grew in 2023, we've ostensibly held on to, and that's a really important part of the narrative of the note today. One of the huge elements that we look at in terms of a key performance indicator for us as a business is how orders are converting. And order intake is really how we monitor that. It's a big indicator of the attraction of our portfolio for our end customers. And again, pleased to say that, that did run even ahead of those normalized manufacturing volumes during the year. The slight caveat, which we put in the statement this morning, was there has been more inconsistency in the call-off rates. So while you've got an order in your order book, what you don't have an absolute, idealized view of is at what point that will get called off and what the call off essentially means is when the developer, when the buildup, when the merchant or stockist when they call in and say, we're ready to take that delivery, that's what we really referenced as a call off. That has become slightly more uncertain and really, that's about a consumer sentiment-driven, that caution that we're seeing coming through. Just talking about the overall sort of brick volumes as a U.K. capacity. There is a slide later in the deck, actually, which covers this in a bit more detail. There was a double-digit increase in U.K. brick production. It's running just -- about just under 10%, where production is running ahead of naturalized demand as we've seen it during the year. And that is something we're watching very, very closely, because what that does is indicate pricing pressure which, again, we have seen throughout 2025, and our expectation is that continues into 2026 without the manufacturers really responding in terms of manufacturing volumes. I talked about Belgium specifically. And our hope there is that we see a bit of improvement at the start of 2026, and we hope that continues, but that's an important market for us because Floren is such a flexible site, it's almost our most flexible site. It can manufacture U.K. sizes, continental sizes. It's also got differing widths and length of bricks and we really do use it as a real chameleon within our portfolio. So it's important for us that we really do get that back up and running in the sort of the volumes and performances we like it to. And as I say, early signs, not going back to where it was in 2022, but certainly, in Q1, an improvement on where we were in 2025. That stability in U.K. market conditions is again indicators and all indicators are important to us. That does tell us that our product is in demand from our end customers. And the question I'm sure a lot of you will have, given what we're sadly seeing in Iran, Middle East at the moment, management of input costs, the big 3 for us really are people, obviously, other raw materials other than clay because we largely dig that out of the ground very near to our facility doors but energy. And energy, we've got hedging in and around 75% for the year ahead. We've got 50% in for next year. And the way we really run energy is we look to have 75% in for any 12-month period. You always have to be very careful because if you go above sort of 80%, 90%, that does take away flexibility. And given our end markets remain fluctuating, we're always quite cautious at the moment, ensuring that we don't have too much hedging. But clearly, that has opened us up to a little bit of risk where last year, that's a little bit of opportunity. And with regards to the operational reorganization, I've talked to you about Watlington. But the real focus for us is, given our own markets, we're looking to really control our controllables. So we want to drive as much revenue and as much profit through our freehold sites. And therefore, that really is what drove our relocation of our prefabricated operations out of Watlington and into our own sites. But we're also very sadly, actually, because the Hathern Terra Cotta brand was a, it made a beautiful product. It was very niche in terms of what it contributed for the group, but we love having it in the portfolio. But sadly, its end markets became so challenged during the last 2 years really, we had to take a very difficult decision to close that operation. That closure, of course, did enable us to give us a bit more square footage at Charnwood to be able to relocate those prefabricated operations. And as I said, we did start the year with Carlton, Michelmersh and Floren. We did close Floren, again, in the summer. We always run a 3-year sort of outlook with our capital program. Maintenance is always ongoing at the site. So do see capital as an enhancement activity rather than maintenance activity. So we closed Floren, again, in the summer, and that sort of GBP 5.5 million to go with the GBP 5.6 million in 2024, really is ahead of run rate at GBP 3 million, GBP 3.5 million. And our expectations are having now done that work that we will really return to that GBP 3.5 million, GBP 3 million over the short and medium term. But again, we're delighted to have completed that work, given the timing of those assets in 2017 and 2019 when they were acquired. Sustainability, it fluctuates in the media. It fluctuates in the importance. It does not fluctuate with us. We know it's important. We know that we've got to continue our progress. We've got clear decarbonization objectives we must keep delivering against. And we continue to work very hard, and it's a real cornerstone of what we do as a business. We are innovative. We innovate through our prefabricated operations. We see whilst when we bought FabSpeed, that was almost the worst time to buy it, but almost the best time because we saw the strategic importance of having offsite fabricated operations. So we continue to innovate through our FabSpeed brand. But we've also constructed innovation lab down at our Hampshire site and really, that's to accelerate testing, research, development, decarbonization, raw material changes, recycled material changes to really keep us at the forefront of innovation through how we manufacture bricks. In the middle of the slide there, compliance. The compliance landscape for us, the business is ever changing. And the compliance that we've really got on the page here are compliance obligations, which have been delivered ahead, not behind. And that's a really important point again here. We don't want to be reactive with our compliance. We want to be compliant ahead of time and really the work we've done this year with it is there's an awful lot of acronyms, by the way, and the ESG while the ESG being one of them. But Double Materiality Assessment is really sort of an assessment of our own sustainability strategy and how it's delivering and how we're monitoring our own ESG key performance indicators. Likewise, Scope 1, 2 and 3 emissions, and again, getting the right visibility on that ahead of time is so important for us how we make decisions around how we allocate our capital. And one we're very pleased to get, albeit the circumstance of how it came through, clearly hugely challenging for the construction industry. The Code for Product Information was a new code really trying to give more clarity for consumers off the back of the Grenfell tragedy. So whilst we never like tragedies bringing change through our industry, we were very pleased to get that code so that we think it's so important to give simple guidance on our products to our customers. So again, that was another important milestone for us to deliver during the year. And then almost underpinning all of that with our sustainability sort of journey is measuring our own decarbonization progress. And we can do that against our 17 KPI targets, which will be published in the annual report and accounts, which I'm always delighted how tight that is to our prelim announcement, so that will be going out on the 2nd of April. So you as shareholders and investors don't have to wait long to see how important sustainability is to us as a group. I'm going to skip through the income statement, the balance sheet and the cash flow statement really because I think I've covered most of those elements. Probably the only one I sort of wanted to focus on is the net working capital and the operational cash flow, which is over the side, really looking at tightly controlling inventory, really tightly working with our customers in terms of our receivables book and then being very fair to our suppliers, all within sort of keeping a tight control of working capital cycle, really does underpin our ability to generate and operate free cash flow. So again, even during what would have been undulating and fluctuating end markets, very important for us that we have then been able to just over the side there, still turn just under 90% of our EBITDA into operational cash flows. And again, that really does underpin the importance of the capital allocation strategy for us. And you can see there actually on the slide there, I've talked about the GBP 5.5 million going into property, plant, but you can see as well the dividend on the page there as well as the purchase of our shares, which was the share buyback program. So you can see that operational cash flow has really been put to work during FY '25. The really important one then, turning to market outlook. I've mentioned this already, but you can see it very starkly on the graph here on the left, this -- what this graph is really saying to you is, looking at dispatches versus production, and then those big gray bars are the turn in inventory. And there is no surprise there that the lead up to the budget in the United Kingdom, that change in sentiment, and I really can't emphasize it enough, we are really in a sentiment-driven world in terms of the confidence of consumers to commit to projects, to think about projects. But you can see there the impact of production being brought on stream. My peer group have invested very heavily in what will be, I'm sure, very efficient facilities, but they are also very big facilities with very high levels of output. And given where we've oscillated around 1.4 billion, 1.5 billion against a normalized capacity of about 1.90 billion, 1.95 billion, bringing new assets to market has a big impact in terms of those inventory numbers. So you can see the historic 5-year sort of average at around sort of 500 million. And by the way, even when we're at absolute peaks of just-in-time delivery, that number was about 250 million. So in my view, thinking about inventory about sort of 300 million at the moment. So actually, you can see if the market does turn with a very sort of half-full positive glass, you can see that actually the supply, the sort of the available on-hand stock given we still want to bring capacity back even across all of us, you can see that there is real potential of that inventory being used up quite quickly. But at the moment, we're clearly watching that very cautiously. As you can see in that second bullet point there, as I mentioned earlier, production did run ahead of dispatches at about 7.5%. And the point I really emphasize and certainly Michelmersh has always emphasized, European imports are and have been an important part of the U.K. market. Whenever we as a business talk about the market, we always talk about it in terms of U.K. plus Benelux really that's Luxembourg don't really have a huge brick production. So think about that as a whole. And certainly, with the lower cost of utilities on the continent, which is very well being publicized, those exports, imports into the U.K. have really continued. And that's really a result of the U.K. continuing to favor wirecut and closing soft mud facilities. But again, as I said earlier, we as a business think it's important that we continue to address the full spectrum of the market through continuing to run our marquee soft mud sites alongside what we see as premium wirecut facilities as well. The actual market structure has not changed hugely aside from the point I mentioned earlier, where we really maintain that market share. It's been very difficult, really looking through the market. We've always talk about the sort of the older days of 2006, 2007 when there were 89 brick sites in the U.K. You can see on the page that's been dramatically reduced to sort of 45, 46. Over the last 3 years, there have been various oscillations between mothballed, developed, paused for manufacture, which has very much been our approach. So this is a bit of a sort of look through rather than an absolute state of the union, given that, you know, as in today. But all I can say is we're working very hard to try to look through the market to navigate this all, which has not been easy. Our flexibility of our operations has -- we've approached that quite differently in terms of pausing for manufacturing for 2 or 3 months, making sure we've got the inventory on the ground and then trying to reopen those assets, which we've done very successfully. But I think the key point there on the slide is just in that sort of middle orange box for the U.K. brick consumption, including 300 million of imports, 1.5 billion. You can see just how far we are below 2022 numbers. So that pickup has been quite slow over the last 3 years. And as you can see in the statement, I'm not expecting that to change certainly in FY '26. I can talk an awful long time about just how supportive my end market conditions are. All of you on the call will know and read, I'm sure every day, we're short of housing. There's a rise of single dwellers in their households. We've got a north-south move in terms of population movements. And the U.K. is still a highly attractive place for people to live, move to have families and try and build careers. And all of that has manifested itself in a critical chronic undersupply and underconstruction of housing over really what has been probably now approaching a 60-year time span. Underneath that, I use the word balanced here. It's a balanced mortgage availability. I think if you look back over a sort of 40-, 50-year period, rates of 3.75% to sort of 5% would not be out of the norm. And actually, if you look at sort of the last 4 or 5 years, house prices have sort of actually tracked below inflation. So we are seeing some steadying in there, albeit that's caveated against wage inflation. The interest rate outlook was looking like we're expecting a steady gentle decline. Clearly, we've got what we hope is a short-term shock with Iran and the Middle East conflict. So we watch that clearly very closely. I think what I would say is I still stand by the fact that sentiment is our biggest challenge, the lack of Help to Buy, caution within the U.K. households in terms of decision-making. There's been an awful lot of change, whether that's budget-driven through change in government policy, whether that is outside macro factors as well. So it really is. We would love to see just a moment of sustainability to underpin some of that sentiment and to allow U.K. households to make sensible decisions. Inflation does remain ahead of the Bank of England target, and it seems amazing actually, November seems a long time ago already where the budget was really very targeted at aiding inflation. But look, I think medium term, and I'm talking medium term here, I do think, clearly, there is an awful lot of emphasis for inflation to come within Bank of England targets. U.K. government itself, hugely supportive of house building, whether that manifests itself through to planning, whether that's purely an articulation enthusiasm to support house builders. A big narrative around social housing, but also social housing with quality external facades as well. And I think that's absolutely right because for too long, social housing has been poor quality. And actually, the best way, I think, over the long term is the price differential between a premium brick and a non-premium brick is very, very small and actually demonstrating over the long term a strong and attractive facade is the best way for an area to feel just simply better about itself and actually have a lower lifetime cost as well. So hugely supportive government narrative when they're talking about sort of higher quality social housing. And just to the bottom there, RMI. There's a huge volume of houses, which were built across the Georgian, Victorian and Edwardian era. They are aging. They require maintenance, but also in many circumstances, they can be extended or improved. And our portfolio, make no apology for it, has been focused on copying every town and city used to have and indeed village used to have their own brick sites. For a long time now, Michelmersh is targeted where sites have been closed, providing an excellent copy for products that no longer are in the marketplace. And really, that is hugely focused on this RMI space, which we've always seen as massively important to us as a business. I could wax lyrical about how good brick is. I sort of went slightly early on a call when I said brick is best, I'm not going to say that phrase again. It's best for lifetime cost. It's thermally efficient. It simply, in my view, looks the best if a good brick has been used or drive past something which has been there for 100 years, 200 years, 500 years in some of the wonderful castle examples and the minimal cost of looking after that facade is, I think, a huge asset to why brick is such a good building material of choice. And there are substitute products you could use. But in my view, because of many things, and I absolutely start at the top of that, which is cost for the homeowner, the brick is in my view, superior. Just pausing to really wrap up actually before I open up to questions. Just summing up the outlook, and I always try and do this in 2 ways. So returning to some of those key points around the industry. I know there are lots of short-term macro factors, but longer term, we have a critical shortage of housing. I don't really need to say any more than that. The government is supportive of really improving the volume of housebuilding. And I really always emphasize this point, the government had put a sort of 300,000 target. We don't need that. If I go back to 2022, our recent high point, that was 220,000 houses. So getting anywhere near 200,000 or above. And so the government can miss that target by sort of 30%, we would still be exceptionally busy. So do keep those sorts of statistics in mind. I've just talked about brick continues to be the facade material of choice. And whilst construction remains 20% below those recent highs, as I say, we know there is demand, and it's about trying to support the consumer in really sort of unlocking that decision making. We are watchful of broader U.K. production capacity, as I said, and we will respond accordingly ourselves in terms of where that capacity gets to. But just on the bottom, again, medium and long term, again, the capital intensiveness of our industry and the barriers to entry are enormous. There's been no new virgin sites since the '90s. Even my peer group who rebuilt their assets, they are on sites that already had clay reserves, and they are rebuilding those existing footprints. So there have been no new site for that long a period. So should we get back to the days of 2022, which I absolutely expect us to at some point and even going beyond that, if the government is successful against its targets, you can really see we as a brick business are not going to be able to address those needs. So there is huge opportunity for us over that longer term. For us as a business, just returning to some of the key things I opened with. Order intake volumes, we've got good momentum. But as I said, my caution against that is the predictability of the drawdown of that order book is not where it was. And I just want to be really transparent about that. And as a result of where we are as a sector with U.K. production, we are anticipating pricing remaining challenging, albeit we've delivered that stability because in our view giving prices and pricing certain to our customer base has really helped engender and support that long and deep relationship. And so our view and our target this year is to maintain stable pricing and continuing to work with customers in that regard. We always do watch our cost base, as you can see with some of the site closures that we've had to act on. It's not just about energy. It's about relooking at the operational cadence of our business, responding accordingly. But clearly, energy is the one and you can see that I've just reemphasized that point on the slide about the 75% point. But look, if this continues, in my view, the Ukraine situation, we had an absolute problem when Ukraine hit Europe and the U.K. in the Gazprom, which is the Russian arm of U.K. gas production, I'm sorry. Europe received 20% of its gas supplies through Gazprom coming through the fabled Nord Stream pipelines. We are in that situation now. About 2% of Russian gas is still coming into Europe, and that's really largely coming down into Hungary and some of the sort of the more supportive states of Russia. So most of our energy substitution has happened, and that's been supplanted by Norway, the U.S. and North Africa. Qatar has -- supplies some. But really, the Qatari sort of gas is going into Asia. So the problem we face really in regards to the spike in pricing is competition, not necessarily supply. Now clearly, LNG, the boats can turn and go to those areas. So we are hoping we do get swift resolution. But as I say, the supplies are there with regards to LNG, and more and more have come online over the last 3 years. But we ourselves are watching it very, very closely, as you'd imagine. And we will look to put our levers if that continues over the longer term. Always focused on the strong balance sheet, that resilient platform that we've so harshly tested over the last 3 years. And really, it's about operational cash flow, which as you can see, I've mentioned many, many times, we are very, very focused on ensuring we protect that. And just returning on those 2 bottom bullets on the slide there, our medium-term fundamentals are encouraging. And we are constantly working incredibly hard to make sure we are so well positioned. And I'm trying to position us well for these undulating conditions to continue. And so I think your takeaway from that point is, we are, therefore, very well positioned when the market does recover on that trajectory of getting back towards those levels that I've talked about in 2022. So whilst we have got headwinds and they're there with us now on a day-to-day basis, you can see with the proposal of our 3p dividend that we are confident as a Board, and I'm a representative of the Board today, that we see progress continuing within this group. And therefore, I'm delighted to pause there and open for questions.

Thank you, Ryan, for the presentation. We have had a number of questions pre-submitted and submitted live. [Operator Instructions] Our first question is margins are reducing. What's the main reason for this? Is it energy, labor or pricing power?

Yes. Good question. Look, it's really about the point that I talked about, certainly, if I compare year-on-year. We started the year and we were disappointed enough to get our facilities up and running as quickly as we'd hoped. That was a big impact in H1. So that's going back to the Carlton point, both Floren and Michelmersh also closed and we've also had all the reorganization coming through with our prefabricated operations. So I'd really put that front and center. And when we launched our capital allocation, we talked about EBITDA margin of plus 20%. And certainly, if you look at H2 versus H1, you'll see those numbers starting to come through. So I think it's really about us looking to make improvements, not getting the timing absolutely right, I've got to be honest and clear on that. And that's really the biggest part because certainly, in my view, trying to drive that pricing stability, looking longer term through the order book is something we are very, very focused on. So yes, so it's really been through the operational cadence more than anything else.

Our next question is, do you think temporary shutdowns are likely to be required in 2026?

Yes, potentially, sadly, and that's really about where we are literally today with what has been another macro uncertainty, which is -- which we're now facing. We did start the year with Michelmersh paused again. Michelmersh at this time has paused really focus on -- I talked about the innovation lab. We've also done some work on the drivers there. It is one of our smaller sites. And again, we had lots of inventory on hand. So we're not expecting destabilization at all in the manner I've just answered the previous question. I think flexibility has been our strength. And look, I think I've said this a few times during the presentation, we will respond if the market stays where it is, and clearly, we're faced with another major unsettling sort of global condition and we as a business must respond to those if they stay for longer term. Look, I'm not expecting anything at the moment. Again, I want to keep everything open, and our people have been brilliant actually over the last 2 years while we've -- and we do a lot of work ourselves by the way. I should have said that point earlier on. But I think flexibility and adaptability are the 2 words that I would always use with regards to answering that question.

Our next question is most competitors have increased prices early this year by 5% to 8%. Do we have any plans to increase prices?

That's a great question. The reason I'm smiling is if I'm going to answer, I'd say, they've announced price increases. I'm sorry to be so specific on the sort of the words there. Landing those price increases with customers is a very different proposition. Our view is, I would much rather have stability, to be clear around the stability with our customers rather than announcing and then looking to grow back on those price increases. Look, I wish them the best of luck. I am only 6% of the market, as you can see on one of the previous slides. I need the rest of the market to be responsible on pricing because it's been very, very competitive. I just -- I really do exercise caution over their ability to land those prices when they actually get to customer agreement.

Are you seeing any pickup from infrastructure or commercial projects to offset weaker residential demand?

Yes, another good question. I mean I think again earlier when I said that we try and look all the ways, actually, in terms of addressing the full spectrum of market is exactly for that question. Any opportunities we see, we try to move on. I think the big one for us where we've got most potential is London and the South East. The Gateway 2, Gateway 3 legislations, which again, was very sadly as a result of the Grenfell tragedy. We see that as a real opportunity for us because we've operated and really that's Freshfield Lane and Floren, by the way, just in terms of those 2 key sites, that look to address that sort of market particularly. If we can get that sort of up and running again, I think we'll be in a good condition. But I think there are pockets that we pick up in other areas. But I mean, London at the moment, there's an awful of scaffolding around. A lot of that is retrofit. It's glass. It's sort of they are commercial premises. The areas that we need unlocking, as I say, we should really be on hold are the sort of the high-rise, which you see if you leave the Paddington Basin, particularly, where you see a lot of that brick construct going in that sort of 80 meters plus. That's the area that we're excited about the potential. As I say, whilst there was a moment last year of what we hoped was a one-off delay with Gateway, we are now being impacted again by some of the uncertainty with regards to the Iran conflict. So we just need to try and get through some of these moments. But you can see that ability to address the full market has underpinned that sort of market share stability, but we've got to work very hard to continue it.

Our next question is, would you still do acquisitions in this market?

That's good. I like positive questions as we look to improving markets. I think at the moment, being really honest, you can see when I've talked about trying to expand our prefabricated operations, I would very much like to get those operations into Freshfield Lane. I'd be so excited to do that because as you can see, that's a brilliant launch. I used the word gateway earlier, gateway into London but it's poor use of words. But it's an excellent launch into London and the South East to have prefabricated operations on site there. If I could put a pin in a sort of timetable or sort of chronology, acquiring that asset in November 2022 probably would have been the worst time to have made that acquisition. Caveat that against my predecessors buying Carlton and Floren in great times. So no, I think we've got enough opportunity for us at the moment organically. But we stay close to the market. We stay close to, certainly what the Europeans are doing with regards to a lot of the family-owned businesses. We know them very well. But I think at the moment, given all of the uncertainty, we've got the right asset base for us at the moment that we can still improve.

Next, we have how underutilized are your factories right now?

Yes. Another very good question. There is no hard and fast look-through really because as you can sort of say reading in the statement and where I talked about where we paused operation at the various times in the year. If I do a general look-through, I'd probably say we're about 10% below our sort of some normalized cadence of operations. And that's really as a result of Carlton was paused for operations between November '24 and January '25. Floren was paused for Jan and Feb and then over the summer, both 2025 and Michelmersh paused in January, February. And now it's again paused for January and February in -- at the start of 2026. So wrapping all of that up, it's about 10%. But we've also got very strong stocks on the ground. And again, the theme if you joined me on previous presentations or read any of our previous materials we've released, we also do have very strong inventory on the ground. So if you take that 10% plus what is probably 20%, 25% of inventory on the ground, there is a lot there in terms of the tailwind that we could utilize. But at the moment, a strong balance sheet has allowed us to invest in those inventory stocks. And again, we've always thought that's the right thing to do albeit viewed in the lens of could we and should we pull forward that sort of 3-year rolling program with capital announcements that I've talked to you about.

Next, we have if demand rebounds, how quickly can you respond?

Yes, that's another good question, another excellent positive question. So thank you for asking it. Immediately is almost the shortest answer I can give you. Immediately because we've got stock on the ground, and stock on the ground gives my commercial teams absolute flexibility. If I can take you back to the heady days of 2022 and just up to the summer of '23, having no stock, you can't then take advantage of near-term orders because what you're essentially doing is running an order book and then using your sort of manufacturing cadence to fulfill that order book. And that can often mean you've got sort of 10-, 11-, 12-week lead times. With stock on the ground, you can then with a phone call that comes in and says, I need bricks tomorrow, you can say, of course, and deliver it. And that is our very, very best price. So I can dream of getting back to those days. But we're there, and we're absolutely ready to do that because the stock is on the ground, we invested in that stock and the facilities are in good condition, are in the right condition, given all that I've said. Carlton, we haven't been able to pause since '17. Floren, we haven't been able to pause since '19. We've tactically been looking at Freshfield Lane. I'll talk to you about Michelmersh as well. and Blockleys is almost our newest site with regards to its sort of -- its plants and equipment. So we've done all we can within our own sort of controllables. So yes, absolutely immediately. I could have answered that question shortly actually looking back on it, finishing on the word immediately.

Our next question is, where can you still take costs out and what are fixed?

Yes. Good question. So it really does depend on what you take as fixed. We -- if you think about what we're digging out of our ground, our biggest raw material is our clay. So the elements of the fixed cost within that is when we do what's called a clay win, which sounds quite strange because it sort of attaches a lottery to that number using the word win. It suggests you can lose clay as well, but that's not the case. So we -- depending on the site, we sort of do that every 6 months, sometimes further afield than that and for longer term. So for us cost would be raw material. We tend to do get our other raw materials to be used. You can imagine things like sand. They tend to be on a regular cadence. And then, of course, we have our people on sites as well as our energy and the energy points are really a key one. You've got to be careful in your fixing of those costs because you're then committed to buying that gas, whether you use it or not. I'm sorry, I should have said electricity as well within that regard. So they are our key fixed costs. And then, of course, we have our overheads as well that reside in those sorts of back-office functions. Where can we cut, I would say where can we look to drive efficiency. You can see we've looked at with -- as I said earlier, very sadly closing our Hathern operations. We've got one more lease site left, but it's a lot smaller lease site than our Watlington operation. It's in a part of the country which is good and it makes an excellent sort of niche product. So it'll be about things that I've talked about earlier. We would look at manufacturing cadence, maybe looking at slowdowns, those sorts of things would be the element we would look at, as I say, all within the confines of those elements of costs which should, to a degree, are fixed, and as I said, the key one there is really people and energy.

And how are you dealing with competition from abroad?

Yes. No, it's a good question. It's funny because I always -- when everyone asks this question, I always, cognizant of fact, we ourselves look to export into the U.K. with our Floren product. But that's really soft mud. So that is our Freshfield Lane and Michelmersh sites, which competes against excellent products actually come out of Europe. And London, a lot of London has been based and used that over many years actually. We compete by really go back to our core basics of premium products, premium service, and I can't really emphasize that premium point enough for you because that's the biggest demarcation, if you like, that we have as our gift is that we know our end customers. We stay very close to our own customers. We're reliable. We do what we say. We deliver what we say we'll deliver. We make a good product, quality product. And those are the sort of really key outlets. And we've also got to be proud of our product. It is different. The Freshfield Lane, the actual product itself, there's hardly anything left now that really looks like it and feels like it. Likewise, Michelmersh is very distinctive, absolutely gorgeous orange. If you look through the presentation, you'll see some pictures of it, very unique sort of appearance and facade. So very proudly taking those products out to the market, commercially fighting and we are fighting, but really being proud of that sort of customer service element. And as I say, that starts at the factory gate when the clay materials arrive and making a great quality product. But look it's hard work, they are being very aggressive on price, but we are delighted to take them on and we'll continue to take them on.

Our next question is, at what point would you reduce or cut the dividend?

Yes, that is a very good question. When you see where the yield is going to, we as a Board are clearly mindful of what shareholders are telling us given where our share price is. I think if we really got to the point where this was going towards fourth, fifth year, potentially, if we look into 2027 and operational cash flow despite all of that resilience over a really long period of time, I think we would have to have a hard look at the dividend at that point because operational cash flows could come under more pressure. But as I said, we had a unique window with regards to the 2 years of significant investment through our plant and equipment. We're not expecting that to return. And equally, the buyback is almost a flexible element of our shareholder returns, which we are committed to. But as I said, at that point when we're cash positive again. So we watch it very, very closely. And as I say, it's really about the strength of the operational cash flows. But you can see that window is there again with the proposal for our shareholders, which the AGM window is the right window for that to be voted on. We watch it carefully, but we do believe in the fundamentals of the business.

The next question is, what do you think is the most surprising thing that could happen to the company during 2026?

That's a good question. The surprising thing, I don't know. I could answer that hugely positively given everything that we wrote in the statement this morning. We get an absolute bold turn. We get Help to Buy from the government. We get stability on our macro markets. We have no more shocks. That would be my most surprising element because I think the demand is absolutely there. The consumers want to move house. They want to improve their homes. We know there's so much pent-up demand in terms of even government supporting social housing. We want to help build good quality housing. So I think sadly, my answer would be a very swift resolution to all of those sort of macro uncertainties and just steady state. I think that sadly, that will be my answer to that question. Just follow-upping up from that. I really want to emphasize the fact that we are operating this business in uncertainty, and we're operating this business with a resilient mindset. So -- and I'm really -- the way I sort of answered that question is really just reminding you our expectation as uncertainty continues.

Our next question is, given the Middle East uncertainties, what impact do you see on the Michelmersh business and how are plans changing?

Yes. I don't know when that question came through, but I hope that I've answered that, but I'll try and give a sort of a summary again. I think it's about time scales now for the conflict. I think we're watching this with a lens of short, medium and long term, and therefore, then have plans in place to adapt and adjust based on each of those elements that whatever comes to pass. So I think you'll all, I'm sure, watch news events and narratives unfolding as closely as I do. It is a hard navigation in terms of looking at the interpretation of political announcements with regards to planning through this. So as I said, my 2 words of adaptability and flexibility are really the ones, again, I would finish and reemphasize.

Next, we have what would be the normalized sales and profit levels for Michelmersh assuming a recovery in construction activity in the U.K. and Northern Europe?

This is a very good question. Yes, normalized, I suppose the best way of thinking about normalized is sort of almost looking back at history. We've talked about EBITDA margin. If I go back to what we used to be a sort of 24% EBITDA margin, we always talk quite openly about that being diluted off the back of our prefabricated operations, and therefore, that new number became plus 20%. So I think what I'd say at the moment is think about the world in that sort of plus 20% world. And then with regards to revenue, I hope I've been open and honest with regards to where we are in terms of our manufacturing cadence. And you can see that with regards to trying to match supply and demand as well with regards to, as I say, trying to sell what we're making. So I would sort of think about it in those sorts of terms with regards to plus 10%, 15%, 20% in terms of revenue and thinking about that in terms of those EBITDA margins. But as I say, that is a very sort of idealized view. What I'd really point you back to is those highs in 2022, look at what the business has tried to do in '23, '24 and '25 and even how I've talked to you about in terms of '26 in terms of looking to deliver growth in the statements in the prelim today. That is amongst a tremendously uncertain and changing world in those last 3 years. So what I'm really trying to point you to is, even in those circumstances, I think we've got a strong track record of financial performance. So I can't necessarily give you those heady days. What I can give you is, as I hope, us trying to deliver that capital allocation policy as we have done over the last 3 years, given all of that uncertainty.

Next, we have 3 questions in 1, so just bear with me for a moment. What was the level of housing starts or competitions in 2025, so starts or competitions in 2025. And then what needs to be done for the U.K. to reach the 200,000 newbuild level? And finally, what is the psychological interest rate level, which can warm up the market?

I love that. It's a great last bit of that question. So there's nothing quite like down lines of statistics with regards to houses or homes. So that's the one I always point you to see, first and foremost. Always look for houses and homes as 2 distinctions. Whenever I'm talking about this statistic, I want to talk about houses, homes, lots more get sort of put into that categorization. I think houses is at about 130,000 to 140,000 houses. By the way, the comparable number in Belgium, I think it's around about 40,000, 41,000, 42,000. Against what I've talked about in terms of '22, '23, that was about 220,000 houses. The 200,000, what we need to do to get back there? There's a myriad really. I think it starts with the consumer. It starts with consumer confidence. It starts with stable government policy. I think it starts with stable wage inflation and salary inflation. I think it starts with more stable macro, just a reduction in shocks in the end markets. And the one element I really look at is planning. That's the one that the government, I know are working very hard on really getting through. I've talked to you about Gateway 2, Gateway 3. Simplifying the planning process, simplifying some of the hurdles that planners and developers have to go through. Being fair and balanced on the portion of the side, which is -- which needs to be termed as affordable and certainly in London where we are today, is a big part of that. Interest rates is an interesting one in terms of the psychology. I think there's probably a slightly different answer for everybody, depending on where you are age-wise. I think I said this earlier, where we are at the moment 3.75% to 5% depending on where you are with LTVs and those sorts of impacting factors. I think if you look at the sort of the long-term interest rate environment, that is not unusual at those levels. I think if you bought a house in the last 5 to 10 years, I think something probably at a low 3%, maybe a number of that you are more used to. So I think there is no sort of one size fits all to that answer. But as I said, and I think I said this earlier, consumer confidence, the narrative, how we talk ourselves, about ourselves as a country, how we describe ourselves politically, all of us on the call as well have got a duty to try and think about talking more positive about the country because all of that underpins, all of you on the call and your enthusiasm to commit to RMI improvements or moving out or committing to a newbuild whatever stage in your housing evolution you're in. So I think it's a slightly nuanced answer there, but I hope that gives you a flare of how I'm feeling about that.

Next, we have over and above market recovery. What do you see as the growth opportunities for the business in the medium term?

Yes, it's a good question. I mean I think certainly short term, I talked about capacity, I've talked about inventory. Certainly, there's enough there to keep us busy over sort of a 1- to 3-year time line. Look, I think the off-site construction is an area that I think has got tremendous potential. As I said, it's been gummed up really by lots of the planning constraints. They tend to be -- it does get used in low-rise as well. Don't get me wrong, but it does get tends to use in high-rise. So it's been held up by a lot of the Gateway 2 and 3 legislations. But I am still maintaining the strategic sort of rationale behind that was a really good strategic investment. Over and above that, I think we're back into the world of potentially thinking about additional capacity again. But if I take that 1 to 3, given where we are now in 2026, that takes us out to 2029, and that's 7 years on. So I think we really do need to see what is steady state in the United Kingdom, what is steady state in Northern Europe because I just don't think we've got that view yet. And as I say, our own sort of U.K. production capacity has been so fluctuating, so undulating, we've all been doing so much to it. I think we've got to see what that looks like. But I think one thing that is clear, we do not have enough current capacity in the U.K. should demand get back to and over and above those levels we saw in 2022 that we will be absolutely relying on imports again. And clearly, that is an opportunity.

Are you seeing differing market dynamics across your different end markets, newbuild, MRI (sic) [ RMI ], commercial and specification?

Yes. Yes, we are. The RMI space actually has been okay for us. And I'm sorry if you forgive me if using those 2 letters together. But it's been okay for us at the start of the year. Developer-led is very susceptible to some of that uncertainty. But again, that's been okay. And actually, I'd say, there's sort of a regional split in terms of how that's looking. Likewise with regards to commercial specification. I think you can see that sort of market share dynamic. You can see that we've stayed competitive. So I think the only consistency we've had is that it is inconsistent. So yes, different behaviors, they change regionally. And it does change as well through wirecut and soft mud as well with regards to how our end customers are sort of behaving. But what I would say is we stay close to them and it's a very important part of how we operate the business.

Our next question is, what level of CapEx are you planning in 2026 after 2 years of investing above depreciation?

Good question. I like that link, actually. So we think we'll be back to sort of normalized levels, which we always term at about that GBP 3 million level. That's really the right way to think about us now that we've sort of looked to complete and bring forward. And again, how we obviously faced '24 and '25 is bringing forward to sit alongside planned capital announcement. So normalizing as we look out in the short to medium term.

Our next question is, given the valuation of the company as well under net assets, are you concerned that MBH could now be a takeover target from a peer or competitor? Or would you like to instigate some M&A with another company?

Good question. I think that we are a listed business. I hope some of you are shareholders on the call. But virtue of the fact that we are listed on the London Stock Exchange, my view is we are always for sale. My job is to be as clear as I can with investors, with shareholders about how I see the outlook for the business. And look, the volume of questions here, I take that as hugely encouraging that there's a great deal of interest in the business performance and the mechanics of how it operates. So look, my job is I'm here to maximize shareholder both returns and value. Should that be an opportunity for someone else that thinks has a great opportunity to buy the business, that means we're attractive. But in the absence of that, my job is to carry on running the business. And I've got a great team around me, a very good Board, a very good leadership team and talent throughout the organization. So we are here to run the business to the best of our ability and to be clear with how we see the business in the short, medium and long term.

The next question is, what is your NAV?

What is our NAV? Quite literally it's 102.6p per share. That gets derived from dividing the number of shareholders, excluding treasury shares, by the net asset values on the balance sheet. So that's how that mechanically works. So to the previous question, you can see where the shares are trading at the moment, we are at quite a significant discount to the net asset value of the business.

Our next question is, you appear to have taken on debt of around GBP 2 million, which is the same figure as your share buyback in the year. Is that a good use of debt facilities?

Yes, I can see the link. That's an absolute fair conclusion to draw. I think what I would say is that utilization of the RCF is really about just the significance and the conflation of sort of the year really. So I would say that's much more about the capital activities as well as, look, we were at near 90% conversion of adjusted EBITDA. But going back to the point that I sort of really said earlier, we wanted a better H1 and we expect a better H1. So I would say that's really more about the timing of the operational changes we made. We clearly had some one-off exceptional costs as well that we laid out in the business. And again, we had a pretty significant year in terms of pulling forward capital activity. So I can see the link in the round, I'm sure part of that was a reason for it. But as I said, I think there are other reasons that were more integral to the utilization of the RCF.

We are now moving on to our final question for today. [Operator Instructions] Sorry, I think another one has just been put through actually, 2 more. Wirecut demand seems to be running much stronger than soft mud demand recently? Could this be a structural shift?

No, I don't think so. I think what it screams to me is that we've got an inconsistent improvement, I'm deliberately using the word improvement rather than recovery. Any of you who follow sort of 10 or 11 major U.K. housebuilders will see that they've all ticked up where they are with regards to their own volumes. Looking through all of them, you're probably looking at sort of 5%, 6%, 7% in terms of volume improvement. And I think a lot of that, given they're listed, given their volume, tends to utilize wirecut products. So I think it's just an element of where that sort of better market conditions have been. The sort of the regional house builders, London markets, there is still a need to build that sort of matches the local sort of vernacular in the environment where those are houses and development opportunities are being constructed. So I think it's just time more than anything else because going back to my previous point, look, I believe that the U.K. population want to live in attractive properties. I still think there's a space for it. Whilst there actually is a space for wirecut facilities, and we've clearly got 3 of our own, I do think the market needs soft mud products as well just because of all those points I've mentioned just now.

Thank you. I can confirm the next question is our final question. Does the company have spare warehouse capacity for additional inventory if required?

Yes. I mean just to be very clear on that answer, actually, we don't tend to, the beauty about bricks is you can store them outside. Any time you drive past your local sort of Travis Perkins or Jewson's branch, you will see bricks outside. So the way to answer that question is do we have brick yard capacity? And look, across the group, yes, we do largely. Look, I think we're always monitoring it. And you can see with -- there are lots of inputs into decision-making around pausing or slowing down if we need to. And one of those factors is, of course, our own brick storage that we've got on site and some are tighter sites than others. But that comes back to my point, which is flexibility and adaptability. Operational cadence is very important for us as a business. And you can see when you do to stabilize that as hopefully you've been really clear about today, the repercussions come through all lines of your sort of earnings statement. But look, we watch, we are cautious and we respond accordingly. So yes, we've got some space, but we do absolutely take decisions that we think are the right decisions, and we watch all of those very, very carefully over the short, medium and long term.

Thank you. That's all the questions we have time for today. So I'll hand back over to you, Ryan, for any closing remarks.

Thank you very much indeed. And thank you for fielding what were an excellent array of questions. So mostly, thank you for listening to me for now a long -- a very long call. I think I'd really like to leave you with the fact that we as a business are doing all we can to focus inwardly, making improvements during difficult and unpredictable end markets. We have stayed resilient. We've stayed resilient through holding market share, working closely with our customers to hold price, making the right products, investing in inventory, taking the right decisions within that regard. And brick is -- as I said earlier, we absolutely believe that brick is best, we've got another short-term shock with Iran. But as I said, I think the right way to think about this is that our adaptability, our flexibility has been a strength, and we've proved that over the last 3, 4 years. So whilst we do have headwinds, I hope I'll be very clear about the challenges that we faced. We are very, very focused on earnings progression and very focused on continuing to look to return value to shareholders. And as I say, just finishing, thank you ever so much for your attention. I know it's not always easy listening to one voice for so long. So thank you so much for your time this afternoon.

Thank you to Ryan Mahoney for joining us today. That concludes the Michelmersh Investor Presentation. Please take a moment to complete a short survey following this event. The recording of this event will be made available on Engage Investor. I hope you enjoyed today's webinar.