Forterra Aktie

Good morning, and thank you for joining us, and welcome to Forterra's 2025 Full Year Results Presentation. I'm Neil Ash, and I'm the CEO of Forterra, and I'm joined by Ben Guyatt, who's our CFO. Despite a challenging market backdrop, I'm pleased to report that we've delivered a strong set of results. And I'd like to thank the entire Forterra team for their hard work in achieving this.

Revenue grew by more than 12%, outperforming the wider market, and we converted that growth into improved profitability with adjusted EBITDA increasing by over 18% -- we've maintained a disciplined approach to the balance sheet, reducing net debt to under GBP 65 million and bringing leverage down to around 1x EBITDA, leaving us in a strong financial position.

Alongside this, we've made good strategic progress this year with ongoing recommissioning of the Wilnecote brick factory and first sales of the extruded brick slip system from Accrington, both important milestones as we strengthen the business for the future. The 2025 dividend will more than double. And with our GBP 140 million investment program largely complete, we are today announcing a GBP 20 million share buyback as part of our disciplined approach to capital allocation.

With that, I'll hand over to Ben to take you through the financials.

Thanks, Neil. Good morning, everyone. It's good to see you all again. Whilst there's a lot going on in the world right now, I'm pleased to be here this morning reporting a positive set of 2025 results with each one of the key metrics that we report showing progression. Market conditions do remain challenging.

And despite a strong start to 2025, demand softened in the second half. Having said that, our high exposure to new build housing and the weighting of our brick production footprint towards extruded brick allowed us to outperform the wider market and with our brick market share returned to historical levels. As a result, revenue increased by 12.1% to GBP 386 million, with this primarily attributable to volume growth.

Demonstrating our operating leverage, this leads to an adjusted EBITDA of GBP 61.6 million, an increase of 18.5% over the prior year, with the EBITDA margin increasing by 90 basis points. With both depreciation and finance expense reducing, this leads to a 66% increase in EPS at 12.6p per share. Our recent capital allocation priority has been the reduction of our borrowings to sustainable levels.

I'm pleased to say that driven by our sustained operating cash flow performance alongside a significant reduction in capital expenditure, we've now achieved this. Net debt has reduced to GBP 55.7 million with year-end leverage fractionally above 1x adjusted EBITDA on a banking covenant basis. We're recommending a final dividend of 4.3p per share, taking our full year dividend to a total of 6.2p per share, representing a payout ratio of approximately 50% and as mentioned by Neil, more than doubling our 2024 dividend.

So looking at our Bricks and Blocks segment in more detail. The revenue growth of 11.2% is driven by improved brick dispatches. Domestic brick dispatches, as reported by the Department for Business and Trade increased by 6% year-on-year, demonstrating our outperformance against the wider market with our market share returned to historical levels.

2025 started strongly. In the first half of the year, the domestic brick market demand actually increased by 15%, although this softened in the second half with dispatches 4% lower than the first half and 3% below the second half of 2024. Block demand was more muted. In aircrete, the year also started well, but again slowed in the second half. In 2024, we had benefited from the supply disruption faced by others, leaving us with tough comparatives for 2025.

Aggregate block demand also remained muted as a result of slower demand backdrop in our primary Southeast market, along with delays on multifamily housing projects attributed to issues with the building safety regulator. Pricing remained broadly stable during the year. We attempted to deliver price increases at the beginning of the year, although unfortunately, these failed to hold.

For 2026, we have again announced essential price increases, and we are currently more confident that these will be landed covering the cost inflation that we face. Operationally, we've made good progress. Strong demand for extruded brick has allowed us to run both kilns concurrently at Desford for the first time, enabling us to access significant efficiency benefits with the potential to double output with only around 25 additional heads.

Whilst Desford will provide us with an operating leverage benefit in 2026, we're having to carefully manage production and inventory across our estate with weaker demand for both soft mud bricks and our unique RMI-focused London brick. This has led to production reductions in early 2026, which in the short term, we expect to broadly offset the operational leverage benefits we see at Desford.

Overall, we are reporting a 16% increase in adjusted EBITDA at segmental adjusted EBITDA at a margin of 18.5%, which has improved by 80 basis points over the prior year. During the year, we did exit the noncore [ forma block paving ] business, which was subscale, operating in a very difficult market and in need of significant capital investment. In 2024, this business reported full year revenues of approximately GBP 6 million with a breakeven performance.

So this exit will not have a material impact on the segmental performance looking forward. So looking at our other segment, Bespoke products. During the year, we also closed the Bison Bespoke precast operation. Whilst this did not have a significant impact on the segmental result in 2025, in 2026, all things being equal, this will reduce segmental revenues by around GBP 10 million with little impact on profitability, thereby improving margins.

Following this exit, this segment solely comprises our Bison flooring business, a leading supplier of beam and block insulated ground floor flooring used in single-family homes and hollowcore flooring generally used in the construction of upper floors in multifamily or commercial construction applications.

During the year, we again saw very strong revenue growth in the first half, driven by demand for both beam and block and hollowcore products, although consistent with the wider business, this moderated in the second half. Pricing was broadly flat, although with some moderation of the cost base, which in part was driven by efficiency savings from our value engineering of our products.

We've been able to increase margins by 330 basis points before the allocation of central costs, allowing us to deliver a strong performance that was actually ahead of the 2022 levels, albeit in a far less buoyant market. So moving on to the balance sheet and working capital. We've continued our disciplined management of working capital with an GBP 8 million reduction over the course of the year.

We have seen market conditions where demand for some products, namely our extruded bricks has been strong, placing pressure on our inventories and requiring us to increase production at Desford to meet demand. Against this, however, we have seen increases in inventories at other locations with a number of modest production reductions implemented in early 2026 to ensure that we continue to align production with sales, ensuring inventories remain well managed following a GBP 3 million reduction in 2025.

Lower activity levels towards the end of the year as well as the exit from the 2 noncore businesses also provide a slight benefit to working capital. So moving on and looking at our cash flow and our balance sheet again. So our cash flow performance once again highlights the cash-generating credentials of this business. Our adjusted operating cash flow increased by 14% to nearly GBP 69 million.

Interest payable has reduced to GBP 8 million due to both lower borrowing levels and interest rates. Our tax paid was only GBP 1.1 million as we benefited from a prior year corporation tax refund of GBP 2.3 million. Total CapEx was GBP 14.5 million, which included GBP 8 million on the completion of the strategic projects.

After paying dividends of GBP 8.2 million to our shareholders, this allowed us to reduce our net debt before leases by GBP 29.2 million in the year. Following this GBP 29.2 million reduction in our net debt, we ended the year with a net debt before leases of GBP 55.7 million, reduced from GBP 85 million at the prior year-end. Our borrowings stood at GBP 61.8 million, which is GBP 38 million lower than December 2024, leaving facility headroom of GBP 85 million against our GBP 170 million RCF.

Supported by our lending banks, we exercised a 17-month extension option during the year, taking our committed banking facilities to the end of June 2028. Closing leverage, as stated on a pre-IFRS 16 banking basis was fractionally above 1x, down from 1.9x at the end of the previous year. Within our capital allocation priorities, which Neil will explain in due course, our intention is to retain leverage below 1.5x adjusted EBITDA.

So looking at capital expenditure. We have a total spend of GBP 14.5 million. 2025 saw our lowest level of capital spend since 2017. Our updated capital allocation priorities envisage annual maintenance spend of up to GBP 15 million in the medium term, although this will be lower in the near term. As in 2025, we expect our 2026 capital spend to total around GBP 15 million, including the strategic spend associated with finishing the major projects, alongside a modest GBP 1.5 million investment in brick slip cutting to complement our investment in extruded slips.

Going forward, our aim is to mitigate the cash outflows associated with future strategic investment by realizing value from property assets where appropriate. So moving on with some technical guidance. So this is a new slide that I have added to summarize the more technical aspects of our guidance all in one place.

Importantly, given the current macroeconomic uncertainty around the situation in the Middle East and the associated volatility in energy prices, we are around 80% fixed for the rest of this year with our gas exposure being 100% secured for March. We've got good forward coverage beyond this with around 70% covered for 2027, gradually reducing through to 2030. Reassuringly, our solar farm provides us with electricity price certainty for the next 14 years out to 2040.

When we previously announced the closure of the Bison Bespoke precast facility, we did say that it was located on a relatively valuable piece of land. We expect to generate around GBP 7 million of property disposal proceeds in 2026, although this is obviously transaction dependent. The P&L impacts of this disposal will be excluded from our adjusted result.

After the GBP 20 million share buyback, which we're announcing this morning, we intend to -- which we're announcing this morning and which we intend to commence in the coming weeks and spread relatively evenly over the remainder of the year, we expect our closing 2026 net debt before leases to be at a similar level to the 2025 figure. I'm not going to read out the rest of the content on this slide, and I'll allow you to digest these technical details in your own time.

I'll now hand you back to Neil, who will discuss market development and our strategic progress, along with capital allocation.

Thank you, Ben. If we now take a look at the market, we saw an increase in housing registrations in 2025 with much of that growth coming in the first half of the year. Before the market lost momentum with a late budget that created uncertainty and a lack of consumer confidence. The RMI market also remains subdued, and this has had an impact on our London brick range, which is almost exclusively used in the extensions market.

While we remain confident in the long-term fundamentals of the market, both RMI and new housing, the CPA winter forecast growth rate of 9% in private housing starts looks ambitious, especially when you consider the weather-impacted start to 2026. Currently, our market assumptions are without any government incentives, which would, of course, be welcomed, especially as affordability remains a key challenge, especially for first-time buyers.

We continue to make great progress on our 2 strategic priorities. First, strengthening the core. This is all about making the business the best business it can possibly be. Sustainable operational excellence is becoming embedded across our plants with best practice sharing and continuous improvement continually driving an improvement in efficiency. Alongside this to better reflect the customer needs while maintaining price discipline and margin resilience.

Operationally, Desford has increased its output and since September has been firing on both kilns to meet the strong demand for extruded bricks. We have also made excellent progress in our Beyond the Core initiatives, including calcined clay and the launch of our Omnia Brick system, which I will come back to in the coming slides. We believe we have a significant competitive advantage through the synergies across our product portfolio.

As Ben mentioned earlier, we made the decision to exit Formpave and Bison Bespoke activities. These businesses were not strategic. They had limited profitability and operated largely as stand-alone entities, adding complexity without delivering sufficient value. What remains is a focused portfolio built around our core product categories, which I will talk you through in the coming slides.

Bricks represent around 50% of our total group revenue. 2025 first half brick volumes were 15% of the prior period, although this moderated to around 6% growth for the full year as momentum softened in Q4. Imported brick volumes remained broadly stable at around 20% of the total market, and we estimate over half of these imports relate to architecturally specified products for one-off buildings.

And remember, one of the other U.K. manufacturers also optimizes its European footprint rather than supplying exclusively from U.K. plants. Today, we are using around 60% of our brick capacity with Desford on a ramp-up curve to full capacity over time and [ Clarfton currently remain in mothboard ]. Overall, domestic brick production is estimated at just over 2 billion bricks.

That remains well below the levels seen in 2022 and significantly below the implied levels required to reach the government's housing targets, shown by the red line on the chart on the right-hand side of the slide. Our business is poised for market recovery with 15% additional market brick capacity available to us in the next turn of the cycle, we are very well positioned to benefit when the market recovers.

Extruded bricks is currently growing faster than the overall market with around 9% growth in 2025. In comparison, soft mud sales actually declined by around 1%. This shift is partially driven by regional mix, but it's also driven by housebuilders focusing on build cost as soft mud bricks are roughly 25% more expensive than extruded. We believe this change will become a competitive advantage as our non-Fletton capacity has an 80% weighting to extruded versus 65% for the remainder of the market.

In addition, Wilnecote represents a GBP 30 million investment and will enable us to broaden our range of specification bricks, an area where we see opportunities for market share growth. If we look at brick slips now, Omnia marks Forterra moving forward beyond product supply and into facade solutions. We estimate the brick rain screen cladding market at around GBP 150 million in 2025, and it continues to grow with penetration increasing roughly by 5% per year.

The key segments are multi-residential, student accommodation and other commercial buildings, where architects want the appearance of brick while adopting modern methods of construction. For these projects, particularly high-rise buildings, customers require fully tested and accredited systems. And Omnia now has that external certification in place for both our slips and our own rail system.

It's also interesting that many of the leading brick suppliers -- sorry, it's also interesting that many of the leading suppliers in this market are actually metal profiling businesses who provide most of the facade system and simply use the brick as the external finish. As part of our Beyond the Core strategy, we are considering how much of the value chain we want to capture here, and this could provide a platform for future M&A to accelerate our position in brick slips.

Our GBP 12 million investment in Accrington gives us the capability to produce around about 50 million slips per year with a full range of main slips and corners. While I mentioned rail-mounted facade systems on the previous slide, we can also produce slightly thinner slips for the adhesive applied market. This represents a significant future opportunity, particularly as markets and particularly as much of the housing stock requires improved energy performance through external wall insulation.

Given their strong -- given our strong value proposition for extruded slips, that will be our main focus. However, we are also investing GBP 1.5 million in an in-house brick custom facility alongside our SF mud factory at Measham, allowing us to produce slips from traditional bricks where architects require that soft mud aesthetic. Turning to blocks, which represent around 30% of our revenue. We are the proud owners of the market-leading Thermalite brand in Aircrete.

There are strong commercial synergies with our bricks business, and this allows us to use the same commercial organization to bring this product to market. While timber frame is gaining some traction for inner leaf applications, it's important to remember that around 30% of aircrete in housing is used below ground, where it remains an essential product. We have a need in time to replace the older of our 2 aircrete facilities, which would allow us to protect our market-leading position while considerably improving our operational efficiency.

Finally, our aggregate blocks business across 2 locations is best located to serve the Southeast market. And although sales have been depressed since 2022, it remains a highly cash-generative business with strong returns in a normal market. The final part of our product portfolio is Bison, our concrete flooring business, which represents around 20% of group turnover. Bison supplies more than 30,000 homes per year with their floors.

As mentioned by Ben, this business delivered its best year in 2025, exceeding the results achieved in 2022. As the volumes are still below those levels, this improved performance has been driven by continued product innovation alongside a strong focus on operational excellence. Both flooring systems, hollowcore and Beam and Block, again, have strong synergies with our core housebuilder markets.

And we have recently integrated the Bison commercial function into the main Forterra commercial team, creating a more joined-up go-to-market approach. We look at sustainability with innovation in mind. Examples of this can be seen in our work to develop a thinner 65ml brick system. And in a similar vein, we are also looking at how we can remove clay by optimizing brick perforations.

In our concrete business, we have launched optimized beam shapes which have allowed us not only to reduce concrete but still reinforcement as well, while importantly, still reaching the expected levels of performance. We are utilizing internally sourced calcined clay for some of our concrete products, and we continue to work with a number of potential partners to produce calcined clay from surplus virgin clay reserves.

At the same time, we are also preparing for the future. We've built a strong understanding of how hydrogen can be used in the brick firing process, and we are ready to adopt it as an energy source when it becomes available at scale. And we're also working with various carbon capture providers so that we are well positioned as this technology develops. Our capital allocation priorities will allow us to deliver our strategy, maximize shareholder returns and retain leverage under 1.5x adjusted EBITDA.

First, when required, we invest in our business. Spend will reduce considerably from the recent peaks with targeted investment continuing where it supports competitiveness and market position. Second, we maintain an attractive dividend with cover of around 2x earnings. Thirdly, with the major CapEx program now largely complete, and we are returning surplus capital to shareholders, starting initially with the GBP 20 million buyback program to be completed during 2026.

The intention is that this program will continue beyond the end of this year, and the Board will keep this, of course, under review. Finally, we remain open to bolt-on acquisitions. However, as our core markets are highly consolidated, opportunities are more likely to come from the beyond the core area of our strategy. If we move to the outlook now. We expect our 2026 performance to be slightly ahead of 2025.

The market softened towards the end of the last year and the wet start to '26 has made it difficult to assess actual demand, but the underlying drivers for housing market remain in place. At this stage, we expect the year's demand to be broadly in line with 2025, with activity weighted towards the second half of the year. Our announced price increases are expected to recover cost inflation and to support margins.

And as mentioned -- as already mentioned, our share buyback program reflects the strength of our balance sheet and our confidence in the business going forward. And this is demonstrated by our midterm target of GBP 120 million of EBITDA. In 2022, the U.K. built around 208,000 homes and Forterra delivered GBP 88 million of EBITDA. If you add the strategic projects of Desford and Wilnecote, which would be saturated at 2022 historical build rates, that brings a further GBP 32 million of EBITDA.

But we don't rest there. We believe there is still further value in our operational and commercial excellence programs and our Beyond the Core strategy of Brick slips and calcined clay will provide further returns, which we will communicate more on in the coming year. And because of this, we believe our business is well positioned to deliver attractive returns as the market recovers.

Thank you very much. We'll now move to Q&A. And when asking your questions, please remember to state your name and your institution for the purpose of the recording. Thank you. Aynsley, I think first.

Aynsley Lammin from Investec. Just 2, please. First of all, thinking about the kind of CapEx, obviously, tails off a lot now. You've got the share buyback. But I think you'd mentioned what you mentioned today, the investment in the block plant. Just update on your thoughts there in terms of timing, how much that's likely to expect it to cost?

And then second question, just interested to hear your view of where inventories are in the industry and maybe even in the kind of the merchant space and what the merchants are thinking and any signs you're getting from how they're reading the market this year?

Okay. You want to do the time, the cost.

Yes. So I mean, look, the aircrete one, something we've talked about a little bit before. We're still evaluating the possibility of building a new aircrete factory. We're probably still a year or so away from a kind of a binding decision on that. We've obviously got to go through a planning process and have it.

The actual cost of the factory is probably in the region of GBP 55 million, GBP 60 million. But against that, we can significantly mitigate it by realizing land assets. So for example, we got the aircrete factory at the moment sits on a very valuable piece of land. We would replace that factory with a new factory relocated on one of our other sites and then freeing up the land value.

So you're probably looking at a net investment in the region of GBP 35 million, which would likely be spread over a 3-year period anyway, not starting for another year. So it's very much in line with our capital allocation priorities that a net kind of outflow of sort of GBP 10 million or GBP 12 million a year for 3 years is kind of very manageable alongside the other things that we've announced this morning.

Yes. I mean maybe just to come back on the timing side of your question as well, Aynsley. No decisions have been made on this, but we're working on it from a strategic point of view. Ben mentioned one possible scenario. There are others, and we plan to work through that and probably look to go forward with a decision somewhere around the middle part of the year.

These options, of course, come with planning constraints and those types of things. So we need to be mindful of that. But it's something which we believe will create additional returns. So why would you delay? And that could be market-driven and also complexity of the site itself. So we're going to come back to you when we're ready to make a bit more of an announcement on that. On the merchant space -- sorry, the stock levels are, I would say, very well managed from the merchant point of view.

Cash has been a big driver for many of those businesses. So stocks remain well balanced. And I would say they all have the knowledge that they can order pretty much for next day or 48-hour delivery. So they know our stock levels are well balanced for merchant deliveries. Housebuilders is roughly the same. I don't believe any of them are really carrying stock.

Maybe just if I may add a bit more kind of color to your question, it's kind of the -- we spoke about the start of the year being very impacted by the weather, and that was very much the case in January and February. However, March has started kind of more in line with our expectations for the year. The question is actually whether or not the slow start can be caught up during the course of the year, which is something we're discussing with some of our housebuilder customers and merchant customers.

Thanks, Aynsley. Next question.

Lewis Roxburgh from Goodbody. First is just on capacity. Just if you're comfortable where you are at the moment, whether we might see any closures or costs related to that? And then just remind us of the utilization rate at the moment and I guess, what level of operational leverage starts to make an impact there?

And then the second question is just on affordable housing. Obviously, an area that's performed really well this year, a great pipeline opportunity over the next 10 years. So I guess I'm just trying to figure out if there's a difference in the product that you sell to that market. Is there a scope to grow share there?

Okay. Maybe....

Yes. So that's the first one. I mean, we're not expecting any more closures or anything like that. But as I said in the presentation, we do have to manage our kind of output in our capacity. So whereas we're benefiting from operational leverage with increasing output at Desford.

At the beginning of 2026, we have announced some modest production reductions both at soft mud brick, London Brick and aircrete, but we manage these kind of quite regularly. So the redundancy numbers, whilst kind of, unfortunately, are relatively modest. So we'll keep monitoring that, making sure we keep production aligned to sales.

So the utilization rate was about 60% last year. It might increase slightly this year with Desford running and also Wilnecote back up and running. But I don't say until we can kind of get all of the business running and get the kind of demand back for the soft mud and London products as well as extruded I don't think we'll see a massive benefit from operating leverage.

Yes. Thanks, Ben. And on the affordable housing side, build cost, I think as I explained in the presentation, we're seeing this growth in extruded brick. And I think that's driven by kind of a desire to kind of make the build cost as efficient as possible, and you can still create a very, very nice aesthetically pleasing home with extruded bricks. So why pay a premium unless your end user or consumer is going to pay for that.

So I think the social housing swing is where that creates that opportunity for us to really saturate our extruded capacity. And I guess you then also need to step back and say, why does the market use soft mud bricks going forward? Is it because all of the extruded product is at capacity? Or is it because they actually want soft mud bricks? And I think if that's the case, that 25% premium that a soft mud brick has.

Maybe that's right, but maybe the cost of the soft mud bricks is in the right place, but maybe we need to improve the price of extruded to bring it closer to what the customer wants, which is actually a brick, which is fit for purpose rather than it being soft mud or extruded. So there's a few things we need to unpack there in our strategy going forward. I think Priyal was next.

Priyal Woolf from Jefferies. Just had a couple of follow-ups on the facade systems that you were talking about. So you mentioned that a lot of the players there are metals players at the moment. Do they externally buy the brick slips in currently? And then you suggested that it might be an area that you look to do some M&A in. What's the sort of market structure like at the moment?

Is it very fragmented? Or are there are a couple of big players? And just to double check on that chart that you showed on where the value comes from, would you go all the way back into the steel frame in terms of the products that you potentially look to buy or just stick to the rain screen facade?

Yes. Thanks, Priyal. Good questions amongst that. So the facade system kind of rail producers provide a tremendous amount of technical know-how in how the facade of the building is actually designed. And obviously, the weight impact and the wind loading of the building once it's been clouded with brick slips is where they bring value to their customer base. And what we see quite often is -- and then there are follow-up is and you can have the brick slips from whoever you want.

And from my point of view, when I look at kind of our history of our business, we've very much been a product supplier. And I think when you look at the value and some of the margins that are on the table from having the full system, you start to say, well, what part of that value do I actually want to take and consider. And I think there are players out there of size and scale. But a lot of these businesses have taken a lot of time to build kind of in an entrepreneurial way, their system and solution.

They've invested incredibly actually in terms of the testing and certification and what they could provide as a springboard possibly for us to allow to accelerate into that more of a system market whilst also using that kind of as a springboard where the growth potential of their businesses may be subdued because of their size and scale. How far you actually go and do you go all the way into 3 wall? We're not ready to decide on that yet. We're thinking about that and reflecting that on our strategy with the Board.

Christen Hjorth from Deutsche Bank. Two questions for me. Just the first one on the buyback and the ongoing buyback. I mean, how should we think about it? Should it be sort of future years potential free cash flow ex dividends and any M&A gets returned?

Or if you get more confident, let's say, in a recovery next year, would you sort of be happy to move leverage up to 1.5x and pay a more meaningful -- or buy back a more meaningful amount of shares? That's just the first one. The second one, just on U.K. energy costs and just how that potentially impacts competitiveness versus some of the import brick imports coming through.

Okay. Maybe I'll take the first part, Ben, first question, you do the energy and then maybe you can contribute anything I missed on the first part. Look, we call it a buyback program because we actually believe we've got the ability to do this over multiple years. But as we've already said this morning, there's a lot going on in the world. So we will look at how the market evolves and how our results evolve.

And we give ourselves this kind of 1.5x level to make sure we stay within those boundaries, if that makes sense. But it's certainly something which after the kind of considerable investment and faith that our shareholders have seen in us to invest in the business, there is the capacity to give attractive returns back to shareholders. There's the ability to still invest and do some of the things we want to do to grow our core business.

And there does remain some firepower, which would be allowing us to do some modest acquisitions along the way. But with of course, with an acquisition, we expect some revenue and some profit to come with it. Ben, I don't know if you wanted to add anything around that.

No, other than the intention is very clearly that this is kind of an ongoing program of buybacks. We've announced GBP 20 million for this year. In terms of what amount it may or may not be next year, I think we have to kind of see where we are at the end of the year, where leverage is, where we've got to with the M&A, what the market looks like. So we'll take all of those things into consideration before determining kind of the exact quantification in future years.

But yes, as Neil said, the allocation priorities that we've laid out give us some flexibility, but it would be wrong to kind of speculate on what next year might be kind of this early on. And on the energy costs, in terms of -- does the current spike of energy costs kind of really have an impact on the competitors of U.K. products? No, because kind of European brick manufacturers use gas as much as we do and their costs have gone up by the same as us. So that's not going to have a material impact.

Similarly, I mean, arguably, at the moment, it's not just gas prices that everybody is looking at, it's diesel prices and kind of cost of distribution. Obviously, the further you're taking those products, the kind of the bigger the impact and increase of distribution costs will have. So I guess, kind of growing kind of fuel costs, whether it be for lorries or ships or whatever will make it more expensive to import bricks from Continental Europe.

Clyde?

Clyde Lewis with Peel Hunt. I think I've got 3, if I may. It'd be useful to get an idea as to where import prices for bricks sit versus domestic, whether it's soft mud or extruded. And I think, Neil, you referred to obviously a big chunk of that import market being very much for specified product. Are you starting to see that demand for specified product change as housebuilders are obviously shifting from soft mud to extruded to save cost?

Is the specified market changing, I suppose, in that way as well? And the third question I had was really around your best guess as to the sort of current size of the brick slips market and how that might grow over the medium term?

Okay. I think most of those fall at my door, but feel free to chip in, Ben if there's anything you feel I miss. Imported prices, I think the imported prices are kind of, I would say, very competitive from a soft mud point of view. Everyone's faced a similar challenge in market and that's sort of the case in kind of Belgium and the Netherlands where a lot of these imports are coming in from.

It's mainly soft mud product that comes in because that's mainly the factories that are producing in Belgium and the Netherlands. So they've kind of been a bit painful in some of the merchant areas, but we need to be very, very careful that a one-off price for a few houses doesn't set the overall market price for the entire soft mud market. So we've been kind of quite measured and balanced in our view there from that point of view.

The specified product side of things, the way we see Wilnecote is we don't punch our weight in the specification market. And when you look at those imports coming in for the kind of one-off architecturally significant buildings, I think they've had a slower year last year than probably what we saw in housing because those commercial buildings take longer to stop. And then also because of the Building Safety Act, they're taking a little bit more time to get going.

So from our point of view, we see that as an opportunity to get more into specified bricks through Wilnecote and almost be in the market that we don't really have that much exposure to today. So I don't really see much of the Wilnecote range ending up volume housebuilders. I really see it going into that kind of specification market, one-off buildings. And hopefully, we can take a little bit of such share of imports coming in. But with an extruded product at the right price point rather than a soft mud product. So -- that's what I see around there.

And then the slips market, this is a -- there's no real data on this. I expect to some kind of leading distributors on this, and I've spoken to and try to kind of understand in other players in the market. We think today, the brick slips market is around about 30,000 slips for a mechanically fixed system. We don't actually have a number on the glued slips for one-off aesthetic walls in houses and for the insulated vendor market. So -- the 50 million potential of slips in Accrington, we've got a lot of capacity in the U.K. to go at.

But it is growing quickly as modern methods of construction become more and more prevalent, our skills and resources of the right labor to be available to build certain types of buildings. We see, first of all, the penetration happening in multiresidential for those types of products. And then in time, I think the housebuilders will find their place on the cost base.

And when labor availability and skills resources get to that point, they may move across to a slip solution. But I think I get from them from talking to them their best price point today is actually to build traditional, and they say traditional, traditional with aircrete blockers and inner leaf and blockers as an outer one. So yes, it's an exciting market, which is in its infancy and will evolve over time. Alastair?

Alastair Stewart, I am from Progressive. A couple of questions, please. Could you talk us through the weakness presumably temporary in London brick. Traditionally, the RM&I demand has been less volatile than new build. Is this just consumer sentiment, cost of living pressures, et cetera? And then secondly, you mentioned affordable housing earlier. What sort of feedback have you been getting from the larger housing associations and also build-to-rent developers as well?

Benj, do you want to do London Brick?

Yes. So yes, London Brick is obviously entirely RM&I focused. We have seen a fall in demand, although we do get kind of data from the build as merchants, we're able to look at our market share of London Brick and its copy products, and we're not losing any market share.

If you look at the data for kind of housing extension permissions being granted planning permissions and building regulations, there's a pretty significant drop off of those over the last 4 or 5 years, and the demand for the London Brick generally correlates with that.

We're always -- we say we often say this, but we have to be careful because RMI is such a broad church from cans of paint to heavy building products that we need and the products that we're selling, so the London brick you're generally not DIY-ing, you kind of -- you need an extension, you need a builder and you probably need to borrow money and take equity out of the mortgage. And at the moment, demand for that is pretty depressed. And I say it correlates well with the reduction in the planning application statistics that we see.

Thanks, Ben. And on the Housing Association things, look, we do see that as a continual opportunity to kind of grow and develop as there will be more of those types of homes available. And when we talk to them, what they really want is longevity and kind of robustness of the home that they provide to a renter. And I think that's where Brick really has a sweet spot.

When you look at some of the other methods of construction or finishing, be it render or whatever it may be, when you talk to them about what's important, it's not just the upfront build cost, it's the ownership cost for the entire life cycle. And I think that's where Brick has that sweet spot because it's relatively maintenance-free compared to other products and solutions. So we see that as the opportunity.

And again, with that kind of strong capacity exposure to extruded brick that more than meets their needs and requirements for the type of homes they plan to build. So yes, we think that's an attractive and interesting way to develop the business.

It's Charlie Campbell at Stifel. Two questions, please, from me. Just first of all, on Gateway 2 in London, just wondering kind of if that's a material opportunity if that frees up as maybe we're hearing it might do. And secondly, in terms of price discussions, clearly, housebuilders want to fix prices as far forward as they can.

And in this environment, I can imagine you'd be a bit reluctant to do that. So just wondering if maybe the contracts change and you have kind of energy clauses in or how do you square their demand for fixing forward with your desire to maybe be more flexible in this environment?

Look, Gateway 2 London and when all kind of debottlenecks and everything. If you really think through the opportunity, yes, there are opportunities there for us, but that would mainly come from things like aggregate block for core parts of the building, it could be potential for brick slips. But let's not lose track of what that's all about. That's about building safety and a clear understanding of the specification of the product that you're going to use, which doesn't get changed.

So being honest with you, if we're not specified on those buildings right now, in theory, we shouldn't be because it shouldn't be value engineered anymore. It shouldn't be changed. And that's what's really important when we look at our beyond the core strategy for slips is we've got to make sure that we get specified, and we're not the wallpaper on the outside of the building, which is not really that hard to change.

So that's something we're thinking about in our overall strategy. But we will get some -- our Southeast block sales have been quite depressed because of all that Gateway 2 type stuff. And when that kind of releases, we should see some growth there. For price discussions, we're always having price discussions with our customers, whatever segment we're talking about. And I think we're trying to give an understanding to our customers of our price for the year, and we had an annual price increase, which reflected our needs, and we've driven that through.

And we're largely landed in that across all of our customer base, which is quite different to what happened in the last year. When it comes to gas, it's -- we need to be very, very careful not to seem to be profiting from a situation that's happened because if we put too much cost into our house builders, they're going to have a problem with affordability, and it's not going to be giving us growth we need. But at the same time, we can't absorb costs in our business that we haven't assumed.

So we will have to find a mechanism of passing those increases to the market if they do actually manifest themselves. But as Ben mentioned, we are well hedged from that point of view. If oil prices go the way they do on fuel prices, maybe we could have a levy for deliveries. If we turn around and looked at gas, you could have temporary actions. But I feel that they become very, very confusing when you already consider the hedge position you have. And before long, you find yourself with open books with housebuilders, which is not our intention at all.

So we want to be balanced and fair with customers. And if we have costs coming through in our business that, of course, ask us to demonstrate them, which we'll do, and we'll have to drive the cost increase through. So it's one of those VUCA world situations that we've got, unfortunately.

Just one question from me. I'm Harry Dow from Rothschild & Co. Just on imports, maybe just for the brick slips, is other manufacturers on the continent also make brick slips, is there an import market for that? And if there isn't at the moment, I mean, is that a further kind of protection, I suppose, is brick slips gain share from over traditional bricks and there's no sort of import threat, if you want to call it that in the future?

Yes. There is an import market for slips because of the their size, they do have the ability to travel a bit further. At the same time, there's also an export market, which needs to be considered and thought through because that is possible with slips when you look at the applications they go into in Europe.

So I think that's why it's important to own the system because once you've got the system specified and it's in place and it's in the golden thread, I think, as I described it in the Building Safety Act, it makes it very, very difficult to change out. And I think that's the change in approach we got out from a strategic point of view.

We've got to differentiate ourselves not through cost and not through the price that someone pays, but from the value we bring in the system and the reassurance of the system, its performance, ability to not react to fire and its ability to have the robustness for the duration of the building. And those are the ways that we can differentiate. But you're right to say that the market is more European for slips and we can also play a part in that if you wanted to. Thank you. Any other...

Okay. We do actually have a couple of questions online. So first, we have from Flor O'Donoghue at Davy. He's talking about energy prices. So in our previous 2022 results, we indicated that in our Clay business around 24% of the costs were energy and fuel would this percentage still be fair.

And I think it's kind of -- it's fair to say that energy costs have moderated since 2022. So that percentage of 24% would be lower now. Some of this is also through our own actions. So we've got our solar farm that we kind of a 15-year power purchase agreement with our solar farm which we kind of entered into back in 2022, but we only started benefiting from last year.

So that obviously reduces our electricity cost and gives us long-term price certainty. So yes, energy costs putting aside some kind of recent spikes, but kind of what we've seen over the last couple of years, obviously a more moderate energy cost than what we saw in 2022.

And then the second question is from Sam Bevan at Edinburgh University and he's talking about drop-through. So on a medium-term view, assuming volumes improve, should I expect the drop-through margin to be consistent as your capacity utilization increases? Or will it be different for, say, the improvement from 60% to 70% versus the improvement to 70% to 80%?

So yes, this is something we probably discussed before. As I said, it's not linear. It really kind of depend on what's going on in trajectory. So if you increase output at Desford we continue to ramp up kind of a Desford towards the 180 million bricks, then that's obviously quite a high drop-through when you immediately bring a factory back from mothballs, there's kind of the launch costs or setup costs, it's a longer lead time, but the drop through won't be as significant.

And as I touched on earlier, we're sort of in this situation at the moment where we've got differing demands by product. So we're benefiting from our leverage and we're benefiting from an efficiency drop through at Desford, at the same time, we're kind of losing it where we're having to cut production for other products to maintain steady inventory levels.

So yes, when the market does recover. I think we've talked about it a lot. There is a significant drop through. We're a high operationally geared business. But unfortunately, I can't give kind of a linear number. It really kind of depends on exactly what we're doing with each factory.

Maybe just refresh it and make sure there's no more -- good.

Yes, we're good. No more questions.

Thank you very much for all your questions. Thank you.

Thanks, everyone.

Good morning, and thank you for joining us, and welcome to Forterra's 2025 Half Year Results. My name is Neil Ash, and I'm the CEO of Forterra, and I'm joined today by Ben Guyatt, who is our CFO.

2025 has started well, and I'm pleased to announce a strong set of H1 results that give us the confidence to increase our full year expectations. I'd like to take a brief moment to thank our employees whose hard work underpins these strong results. Our revenue increased by just over 20%, driven by volume growth and modest selling price progression.

The U.K. brick market grew by 14% year-to-date to the end of May. And the recovery in the market demand has primarily come from house building with RM&I activity remaining subdued. Our exposure to volume housebuilder has led to market share recovery, though our share remains below 2022 levels.

Profitability was strong with EBITDA growth outpacing revenue and reaching just under GBP 30 million. Operating cash flow exceeded expectations, supported -- supporting better-than-expected debt reduction. Net debt before leases reduced to GBP 69.4 million, equivalent to 1.4x adjusted EBITDA.

Our interim dividend will increase to 1.9p per share, reflecting both improved trading and the strong reduction in debt. I will now hand over to Ben, who will present the financial review.

Thanks, Neil. Good morning, everyone. It's good to see you all here again. I'm delighted to be here for our first time actually at Investec, delivering a strong set of H1 results that reflect the benefit of improved demand for our products, particularly from the housebuilding sector.

Firstly, as always, just to clarify that unless otherwise stated, I'm talking about adjusted financials. So these adjustments are made to give the fairest and most comparable assessment of our underlying trading performance. There's a slide in the deck while I'll explain the adjustments to the statutory numbers.

So turning on to the performance. So we have seen improved demand across our product range and are reporting a 20% increase in revenue in the period. We're reporting a 23% increase in H1 adjusted EBITDA at GBP 29.9 million with a 30 bps improvement in our EBITDA margin.

We have a broadly fixed depreciation charge and falling borrowing costs. This drops through to an adjusted profit before tax of GBP 16.6 million, a healthy 82% increase on the prior period, with our EPS also showing a similar level of increase. We've delivered a strong adjusted operating cash flow of GBP 30 million in the period, with this driven not only by our strong trading performance, but also continued disciplined management of working capital.

Encouragingly, we have reported a further meaningful reduction in our net debt before leases with this falling to GBP 69.4 million from the year-end figure of GBP 84.9 million, countering the normal H1 seasonal trend. This performance, along with our expectations for the remainder of the year allows us to declare an interim dividend of 1.9p per share, which is an increase of 90%.

So moving on to the P&L. As always, this slide gives me the opportunity to provide a clarification on a few of the more technical aspects of our numbers. Depreciation will increase a little in H2 as we begin depreciating the new assets at Wilnecote and Accrington, with an expected full year charge of GBP 21 million. Finance expense of GBP 3.4 million has fallen from GBP 4.9 million in the prior period due to reduction in both the level of borrowing and the rate of interest paid.

Our finance expense is stated after capitalizing borrowing costs of GBP 1.4 million attributed to our projects at Wilnecote and Accrington. Whilst the capitalization of borrowing costs will cease in H2 '25 as the 2 factories are fully commissioned, reduced debt levels, a lower margin payable on our facility as the leverage reduces and expected future reductions in interest rates are all expected to lead to an H2 borrowing cost, which is close to or slightly above the H1 figure.

Our effective rate of corporation tax was 26.1%, which, as expected and in line with our normal trends, is slightly above the statutory rate of corporation tax of 25%.

So moving on to the adjustments to statutory results. This slide clarifies these adjustments in getting to the adjusted financials that we're presenting today. As you can see, the net upward adjustment to the statutory result in the period is GBP 6.7 million, with the adjusted result being higher by this amount. We've added back GBP 4 million of exceptional costs associated with our cash and margin accretive proposals to close the loss-making noncore businesses of Bison Bespoke Precast and Formpave, which manufactures block paving. Together, these businesses contribute less than 5% of group revenue, and neither has been profitable in recent years.

Closing Formpave removes the requirement to invest over GBP 2 million of capital expenditure with no certainty of return and the exit from Bison Bespoke Precast creates the opportunity to realize material land value. In addition to the mainly noncash closure costs recognized to date, we expect to recognize cash redundancy payments of approximately GBP 1.7 million in the second half. As previously discussed, the energy adjustments removed the volatility of fair valuing energy derivatives where reduced output dictated that we had contracted for more energy than we subsequently needed. So in essence, that's simply a timing adjustment.

As always, at the half year, we have an adjustment to spread the benefit of our free carbon allowances across the full year, in line with our production, whereas the statutory results account for all of the free carbon allowances in H1, creating a somewhat false imbalance in our result.

So now looking at our operating segments. So if we look in more detail at the trading performance, where, as always, bricks and blocks is the primary driver of the group's performance. We've seen a significant improvement in trading during the period with demand for all of our core products increasing relative to the prior year. As we said earlier, the improved demand is driven by housebuilding with RM&I remaining subdued.

U.K. brick industry dispatches to the end of May increased by 14% relative to the prior year, although they still remain 27% behind '22 levels. Mechanically, through our greater exposure to housebuilding, Forterra has outperformed the wider brick market in the period, reversing the pattern seen in 2023 although our market share remains below 2022 levels as we maintain our pricing discipline.

Despite continued competitive market conditions, we've implemented necessary price increases across our product range to broadly offset cost inflation. Price increases have, to some extent, vary by product with aircrete block where supply and demand dynamics are most favorable seeing the greatest level of increase.

Whereas we often talk most about brick, it is worth highlighting the strength of the aircrete performance in the period. Brick pricing in the period is subject to a customer and product mix effect, with increased demand for cheaper extruded bricks favored by our large housebuilding customers. With extruded or wirecut bricks as they're also known, representing around 2/3 of our production capacity and with government support for increased housebuilding, focusing on the affordable end of the market, we are well positioned to meet future demand.

Our cost base remains consistent with our previous expectations with underlying low single-digit cost inflation, coupled with the increase in employer's national insurance contributions. Energy prices remain stable, with the group now accessing the full financial benefits of the 15-year solar power purchase agreement from the 1st of April '25.

Energy markets have generally stabilized, and we have taken advantage of this in securing good coverage of our gas requirements for the next 3 years, and we have recently extended our contractual arrangements, providing us with the optionality to secure gas out to 2030 as market opportunities allow. We increased the production of aircrete blocks in the period, and with brick output to increase in H2.

Our H1 results show the early benefits of our operating leverage, but our cost base does include a degree of inefficiency in ramping up production, including the training of new members of staff. In addition to this, we do have some additional cost in 2025 as we postponed some non-time-critical spend in 2023 and '24. With current demand varying significantly by market sector, until demand improves across our entire product range, including our RM&I-focused London brick range, our ability to fully benefit from operating -- from our operating leverage will remain partially constrained.

So we move on to Bespoke products. So our precast flooring business comprises the bulk of this segment, and that business sells almost exclusively into new build housing. So therefore, has also seen a significant uplift in demand during the period. Floor beam sales benefit from the strongest volume recovery in our whole product range with the improvement in demand for hollow core flooring also. Floor beams are not generally stockpiled. So this provides some comfort that the brick demand we see is supported by construction rather than just a restocking of housebuilder inventories.

Again, we have implemented modest selling price increases on a customer-by-customer basis during the period and like bricks and blocks, the cost base in this segment has remained broadly stable. In response to improved demand in the period, we have increased our production output, allowing us to do increased dispatches as we move into H2.

Bison Bespoke Precast revenue in the period was GBP 6.2 million and despite increasing revenue by 18%, the business remained loss-making. The proposed exit of this business will add around 2% to the segmental EBITDA margin before overhead allocations.

So moving on to working capital. As I said previously, we maintained our disciplined management of our working capital during the period. Improved demand for our products has allowed us to reduce our brick stocks in particular, driving a reduction in total inventories in the period of GBP 5.9 million. This helped us offset the normal seasonal pattern of increasing working capital in H1, leaving us with a broadly static working capital position relative to the previous year-end.

Moving on to CapEx. So investing through the cycle and addressing our brick capacity constraint, we have spent around GBP 140 million of capital on strategic projects since 2019. With these projects now being completed, we are seeing a marked reduction in our current levels of capital spend. We spent a total of GBP 7.3 million of CapEx in the first half, and of this spend, GBP 5 million related to our strategic projects.

Our maintenance CapEx remains carefully controlled with GBP 2.3 million spent in the period with a greater spend of around GBP 5 million expected in H2, driven by the timing of factory shutdowns. We envisage spending a total of approximately GBP 17 million of CapEx in 2025, leaving just over GBP 9 million to spend in the second half. We expect around GBP 9.5 million of our total 2025 CapEx spend to be directed to the completion of our 3 strategic projects at Desford, Wilnecote and Accrington, although there remains some uncertainty regarding the timing of these final payments.

In future, we expect our maintenance capital spend to be a maximum of GBP 14 million per annum, although this will vary significantly year-on-year. At this stage, we've not committed to further strategic spend, although organic investment remains a key lever in our strategy. By virtue of the timing of projects, we expect future capital spend to be lumpy in its nature. However, we do not anticipate the same level of elevated capital spend that we have seen in recent years.

So we look at our cash flow performance and the strength of our first half performance is further emphasized by our cash flow. Adjusted operating cash flow increased to GBP 30 million, an increase of 126% on the prior period, demonstrating 100% conversion to adjusted EBITDA in the period.

We see a net cash inflow from adjusting items being the sale of surplus energy. In the second half, we expect the cash outflow of around GBP 1.7 million in respect of the proposals to exit the noncore businesses. Ultimately, both exits will be cash positive, either through freeing up land for potential disposal or through avoidance of CapEx.

Interest paid relative to the prior period is adversely influenced by the timing of payments, although it does benefit from lower borrowings, lower margins driven by reduced leverage and also falling interest rates. Whilst we only paid a net GBP 600,000 of corporation tax in the first half, this is due to the receipt of a GBP 2.3 million prior year tax refund. We expect a tax outflow of around GBP 4 million in the second half, bringing the full year net outflow to just around GBP 6 million. This adds up to a GBP 15.5 million decrease in net debt before leases in the period at a time when recent seasonal patterns would have suggested a smaller reduction.

Looking at the balance sheet. So as we said previously, we ended the period with net debt before leases of GBP 69.4 million, and that's reduced from GBP 84.9 million at the last year-end. Our borrowing stood at GBP 85 million, which is GBP 15 million lower than December 2024. Exactly half of our facility drawn at the period end, this lease facility headroom of GBP 85 million against our GBP 170 million RCF. Supported by our lending banks, we exercised a 17-month extension option in the period taking our committed facility to the end of June 2028.

Closing leverage, as stated on a pre-IFRS 16 banking basis was 1.4x, down from 1.9x at the last year-end. We expect to continue our deleveraging in the second half with leverage expected to fall to just above 1x adjusted EBITDA on a banking basis by the end of the year.

So this now concludes the financial section of this presentation, and I'll hand you back to Neil as he takes you for our markets, our continued strategic delivery and then the outlook for the rest of the year.

Thank you, Ben. So moving on to our markets. Now we all know that the U.K. needs to build more homes. And based on the CPA forecast, housing starts are expected to increase continually over the years to come. It's encouraging to see the year-to-date increase in activity, which is mainly coming from medium and large housebuilders.

According to NHBC data, June year-to-date housing starts are up 12% versus the same period last year. And if you exclude flats and apartments and look at homes with their own front door, so to speak, they are up 26% compared to the same period last year. As I mentioned, brick volumes are up 14% year-on-year with extruded brick seeing even stronger growth.

The table on the right shows that imported brick volumes have remained stable as a percentage of the total market on an MAT level. However, if you compare May year-to-date 2025 with the same period in 2024, imports have only risen by 9%, which is lower than the 14% growth in domestic brick sales. So pleasingly, imports have lost their share in the last 5 months.

Right. Taking a look at brick capacity now. If I first draw your attention to the chart on the left, you can see how domestic brick capacity has evolved since 2007. U.K. installed capacity reached a low of 2 billion bricks before a round of investments that has seen in installed capacity increased to 2.2 billion bricks. You can see on this chart, 2 dotted lines. The blue line shows the demand in 2022, which is when we built just over 200,000 homes, and the black line shows the estimated number of bricks if we were to build a target of, let's say, 300,000 homes per year. So it's clear domestic capacity will be more than saturated by the time we get back to 2022 levels.

Now if we move to the other chart, we have Forterra's capacity evolution since 2021. Due to the slowdown, we currently have 66% active capacity. And as the market continues to recover, the first step will be to run our active capacity at 100%, which includes saturating Desford before bringing back Claughton, our mothballed brickworks. The other important message on this slide is as a result of the Desford and Wilnecote investments, we have increased our installed capacity by 15%. No other U.K. brick manufacturer comes close to this level of additional capacity, and this puts us in pole position for when the market recovers.

If we take a look at strategic imperatives now, so our strategic imperatives are twofold. And the first one is all around strengthening the core. We have a fantastic business, but all businesses can be even better. We've made key capital investments to strengthen the core. We've also looked at different parts of our business and decided to consider closing [ Coleford ] and [Indiscernible]. But it doesn't stop there. We're also making progress in our commercial excellence and operational excellence programs.

The second driver of growth is beyond the core. Here, we're trying to think of the products and solutions for the buildings of tomorrow. To achieve our growth plans, we also have what we call strategic enablers. And I'm pleased to say our safety and engagement results continue to improve. And we're also making good progress on sustainability, and we will update you on that during the full year results presentation.

So as already announced, we are preparing to increase the output of Desford by running both kilns at the same time. This is expected to start from September this year, and having already run both kilns individually, we're confident in achieving this next important milestone. This will be a key step in Desford's ramp-up on its way to produce 180 million bricks. But to be clear, due to market demand in 2025 and '26, we will not need all of that capacity just yet.

At Wilnecote, I'm delighted to say we've let the kiln and started commissioning the extruded side of the factory, and we expect to be producing salable product in Q4 of this year. At Accrington, the slip line commissioning went incredibly well. Activity is currently focused on range design with the initial launch of 14 slips expected in the second half of this year. We will also be launching Omnia, our new brick rail system which will complete its external testing certification in the coming weeks.

Omnia offers improved speed of installation versus our previous SureBrick product. If we take a look at capital allocation now, with an improving balance sheet, capital will be allocated to the following priorities: strategic organic capital investments that deliver compelling returns, and I would point out that our brick business is now very well invested. However, our current pipeline of projects includes a potential aircrete factory, and we are continuing to explore opportunities in calcined clay. We'll talk more about our dividend policy at full year results, and we remain fully committed to ensure it stays attractive for investors. We will also consider bolt-on acquisitions where suitable opportunities arise in adjacent or complementary markets and supplementary shareholder returns as appropriate.

So looking ahead, we're encouraged by the group's year-to-date performance and pleased to see the demand of all products ahead of most -- almost all products ahead of both the prior year and previous expectations.

We expect H2 adjusted EBITDA will be modestly ahead of the H1 figure. And therefore, full year 2025 adjusted EBITDA to be exceeding our previous expectations. This will translate to adjusted PBT being significantly ahead of the previous expectations due to the broadly flat depreciation and amortization and reducing financial costs.

While we currently anticipate the present demand pattern to continue in the coming months, we remain cautious as to the fragility of the U.K. economy and the impact it may have on the new housing market. Looking beyond the current financial year, the Board remains confident that our recent investments in new production capacity leave the group in an excellent position to benefit from the market recovery in the key markets we operate in.

We'd now like to move questions and answers.

[Operator Instructions]

Lewis Roxburgh, Goodbody. Just on your expectations of H2 being ahead of H1. I was just wondering what the key drivers of that? Is it a further volume acceleration in new build or is an improvement in the efficiency capacity ramp-up?

And then just a second part to that and needing out those sort of operational efficiencies, just kind of see what's your thoughts on what an optimum margin can look like given normalized level of demand.

And secondly, just you note more volume growth being helped by the volume housebuilders. So I just wondered if you've noticed the kind of shift in your customer mix and what that kind of feeds through to in terms of pricing.

So I'll take the one around kind of the cash capacity half and assumptions and maybe you cover off the margin, and I'll come back to customer mix, Ben. So look, the market has started very, very well and we are very exposed to the large- and medium-sized housebuilders and our strong position is in extruded brick. And as I mentioned earlier, that is ahead more than the overall brick market.

And we expect that to continue for the rest of the year. We don't expect further increases, okay, but we expect the current levels to carry forward for the remainder of the year.

Not everything is absolutely perfect. As we mentioned, the RM&I market, where we have our iconic London Brick is still quite depressed. And overall, from a pricing point of view, although we've increased prices of products to cover price over cost, we haven't achieved our overall price because of the change in mix of the profitability of products. So that kind of touches on your third question a little bit. I'll pass it over to Ben who maybe wants to talk about operational margin and drop-through.

Yes, of course. So look, what we're seeing so far is just the start of our operational leverage. So most of the extra volume we've sold this year was a product that was made previously at higher cost of production. So we've started ramping up production. So in the period, we ramped up aircrete in 2 stages. We also increased production of concrete floor beams right at the end of the period.

And then the brick business, we get the big uplift at Desford in September. So this is going to take a while for this operational leverage to come through. So in terms of optimal margins, I'd sort of refer you back to 2022 levels and then add a little bit for Desford on top of that. But we're a long way away from that. But yes, you will see further kind of operational leverage through this year and into next year as we increase production and gain efficiency.

And just on customer mix, I kind of touched on it earlier, we don't have the kind of the highly profitable high-priced London Brick sales that we would like because of the depressed market. And also soft mud isn't performing in the same way as extruded brick. So as we're quite strong in extruded brick, we do have a soft mud business as well, and that's where pricing has been a little bit more challenging because the type of housebuilders who are building more homes at the moment are generally looking at cost, and they're choosing to use an extruded brick rather than a soft mud is a bit of a pattern we're starting to see.

Which is to our advantage, because 2/3 of our production capacity is extruded. So if you look going forward, obviously, the government want to build more houses, where they apply support it's going to be at the affordable end of the market. So I think kind of we're well placed to meet that demand with our extruded footprint going forward.

Aynsley, I think you are next and then we'll go to...

Aynsley Lammin from Investec. Just 2 for me. Just on the import spin displays. Is that just kind of the economics, they're not particularly favorable or imports more soft mud? Any color on the kind of dynamic there? And then I think you previously spoken about Desford at an incremental GBP 25 million of EBITDA. Is that still what you would expect as the kind of recovery comes through and matures?

Okay. I'll take the imports. Then you take the Desford question. So yes, the imports, a lot of the imports coming in are soft mud. As I mentioned, just now that's been quite a competitive part of the market. And it's not where the volume growth has really been coming from. So we're seeing that growth, like I said, in extruded brick. And that's where imports probably from a price point, probably struggle to get to. And that's not because it's a low price. It's just a domestically produced product in a cost-effective way.

So yes, we're putting that down to it. Also, as we move through the cycle, a lot of the imported products were going into not only housing high end but also some commercial buildings. And the commercial side of things is probably a little bit behind the housing in terms of a recovery as well. But we're not that massively exposed to that market from a brick point of view. So I think that's all the noise within the imports.

And ultimately, our volume customers don't want the complexity of dealing with imports. They want assurancy of supply. They want a reliable supplier who can give them the volume they need as their business grows and develops. And that's absolutely what our business can do because of its round of capital investment that it's made.

Yes. And just to add to that. Yes, just to add to what Neil was saying as well. So we previously talked about where kind of major housebuilders generally don't want that extra complication of imports. It was the merchanting sector who were maybe willing to kind of invest in imports and buy bricks kind of more speculatively. But we've talked about through this presentation, it's the merchanting sector that's really struggling at the moment, so that's probably weighing on that as well.

And yes, to your second question of the GBP 25 million at Desford. So yes, Desford our target is that basically, we think Desford will add an incremental GBP 25 million to our business. Obviously, the timing of that has been delayed since we've kind of opened the factory driven by the market. But notwithstanding the fact that we have had a few teething problems and challenges, we did a detailed kind of exercise sort of earlier this year. And we still maintain all of the challenges and complications we've seen. We're working through them and none of them changed that the actual kind of end goal will be that we still believe that factory will add GBP 25 million to EBITDA.

The unknown bit is when because we need the supportive market to warrant that level of production. And as Neil said, we're going to increase production. We're going to run 2 kilns simultaneously for the first time, but we still won't need 180 million bricks a year. So there'll still be some latent inefficiency in operating, but it's a good step in the right direction.

I want to go to Ami next to Aynsley just to pass it.

Ami Galla from Citi. A few from me. The first one was just as we think about the sort of medium-term recovery, at least back to 2022 levels of brick demand for the industry, I wonder if you could give us some sort of color in terms of how much potentially is the risk of say, mainstream bricks being dislodged because housebuilders will use more timber frame? Is that at all a risk that we need to consider?

And also, as we think about the current consumption, how much inroads has concrete bricks made in the market to date? My second question was just on energy costs. Now that we've got the visibility. Can you give us some guideline or color to how should we think about the energy cost line over the next 2 to 3 years?

And the last one was on brick slips and the new product that you've been launching in the system, the system side of it. How is the actual process of specification or marketing that product? Is there a separate channel that you're pursuing to kind of get that specified more intensively as you think about the market ahead?

Right. So I'll talk about 1 and 2, and then do you want to take 3, and I'll come back to me for 4. So look, the midterm recovery 2022 we don't really see any kind of change around what people are using to build homes. You're absolutely right to say timber frame is increasing its penetration. And that gives us a slight challenge for aircrete, but we should consider a lot of aircrete is used below ground and timber frame buildings or homes still have aircrete in the foundations below ground.

We spent a lot of time talking to the housebuilders and trying to get involved with their innovation plans and what they're looking to try and see how they build the homes of tomorrow. It's part of our Beyond the core strategy. And we're comfortable today that we don't see a massive swing or change away from traditional brick. You could say what would drive a change. It could be cost, it could be labor. But many of the housebuilders are very convinced that we can get back to the 2022 levels without having to address too much the labor challenge.

People have moved away from the industry and they'll move back in. Concrete bricks. They found a little bit of a place in the market. There are some housebuilders who believe in them. We've done some in-depth studies from our side that see the complexity required in terms of building with concrete bricks, is not impossible, but it's more challenging than clay bricks, expansion, joints, all those types of things.

There are some questions about ongoing longevity of the facade, the color and all those types of things. And I think what we see is many customers actually sticking with traditional clay brick, even with Marshall's recent announcements, they touched on that a little bit. And we've also had one housebuilder switch away from concrete brick to go back to a clay brick product because they want to go back that pleasing aesthetic. And we really believe in the merits and the value of concrete bricks from that point of view.

Ben, do you want to pick up the third one?

Yes. So as we said in the sort of my script, so energy prices have broadly stabilized. So we see kind of -- we don't see a return in the short term to the spikes that we've seen over the last few years, and we've got good energy coverage looking forward.

So on the electricity side, effectively, the solar farm derisks that for the next 15 years. So we've got good certainty on our electricity. And on gas, we've got the sort of the forward contract. So we've forward purchased. We're pretty much fully covered for this year. We're about 75% covered for next year and then about 60% covered for the year after.

And then that takes us into 2028. And as I said, we've literally just extended our contract, and we're looking at the opportunity to buy gas for '28 and '29 now because you can buy it at pretty competitive prices, which, if you strip out the inflation element kind of take you back to kind of pre-COVID prices. So yes, where we've always benefited from kind of forward purchasing, where we've been able to forward purchase a long way in advance, we've generally done pretty well and you can eliminate a lot of risk.

Where we got caught along with a lot of other people was the kind of post-COVID into Ukraine, where we didn't have the forward coverage. So yes, we kind of see energy being relatively stable as long as you manage it well and forward purchase, then we don't see a repeat of the challenges we've had over the last couple of years.

So just to comment on the last question around brick slips and how we take them to market. So our first range will be relatively narrow, 12 or 14 slips. And predominantly, we'll sell those to the EWI providers, so the external wall insulation type companies. So think of K Rend who were recently bought by Saint-Gobain Weber, which is a Saint-Gobain company, those types of businesses where they're relevant in the outside of the existing buildings to improve the thermal performance and they're stuck on. So we will sell directly to those EWI providers.

But we will also specify and try and get slips into probably new build rather than renovation, multi-residential high-rise buildings. And you're absolutely right, we will need to develop and build a specification muscle because today, we push bricks to a customer base who are very, very used to buying bricks and know and understand how to install them and how to specify them. So we've already recruited a team of specification people. They've been in the business for the last 6 months building the pipeline, and starting to generate sales from a specification point of view.

But that's where we'll need Omnia, which is the rail system. So the high-rise buildings because of certain fire requirements, you can't use stuck on bricks generally. So you have to use a rail system. And that's where that system performance and testing is very, very important. So we'll have accreditation for that in the next couple of weeks, and then we can really push forward with driving the specification side. And specification slips will be extruded from Accrington or there may also be in some occasions, cut slips, which we will also have the ability to supply from our range.

Alastair Stewart from Progressive. Only 1 question. What was the drag on RM&I during the period? Was it mainly interest rates or wider economic uncertainty? And what do you think could be the -- what could kickstart a revived demand there, particularly for your higher-margin London Brick products?

Yes. Maybe I'll take that 1 together, Ben and you can contribute to anything you feel I miss. I think the thing which is holding back the RM&I side of things for us is we're mainly in the extension market, which is quite an expensive investment for homeowners. And I think consumer confidence has been a challenge around there, all the uncertainty we hear when we turn on the news and also very often those extensions are funded by maybe taking a little bit of equity out of your home to increase your mortgage and interest rates have been a little bit higher of late.

So people are probably watching and stepping back and saying, do I want to invest in that right now? And I think those are the things which somehow will have to start to change for us to see a pickup in our side of RM&I. Ben, I don't know if you want to add anything to that or...

No.

Okay. Good stuff. Christen at the front.

Christen Hjorth from Deutsche Bank. 3 questions for me. First of all, just on sort of housebuilding, getting mixed messages, new outlets seem to be a bit of a challenge, but brick sales are up significantly. What are your housebuilder customers saying to you in terms of volumes as you look forward? And are you slightly worried about an air pocket at some stage with lack of new outlets opening?

The second one, just quickly just touch on current trading, which would be quite helpful given the guidance. And then finally, just on the aircrete markets, just a bit more detail in terms of what's going on there and perhaps moving into -- you touched on a bit of a negative for aircrete from timber frame, but you also touched on new capacity. So just squaring that circle as well would be super helpful.

Okay. Do you want to -- I'll take 1 and 2, Ben, and then you're coming up at the back of the 2 and 3, So yes, mixed messages from housebuilders. I would say when we -- when we talk to the housebuilders away from the city in terms of the pipeline and volume in terms of their build programs. We've got a very, very strong pipeline of volume coming through. So from that point of view, we're quite confident that as long as their build program sticks for the remainder of the year, and they don't start having cancellations, et cetera, we're confident about where we're going there.

We're already booking volume for next year. So people are starting to realize that they need to use more bricks and buy more bricks. I think the other thing which is coming through is we're seeing this real change into the sweet spot of our products and our business and where our share is. And as we mentioned already, we're not massively exposed to housing in London and the Southeast, and that's the most depressed part of the market from the housebuilding or the HPC starts point of view.

We're very exposed to the extruded bricks. So we see in the enjoyment from that point of view. And we've got overall confidence that the market will continue. Now if suddenly, there's a change, we know that the housebuilders can stop very, very quickly. So we're measured and guarded around that. But yes, we're not looking at a further uptick. We're just looking at a continued demand that we've seen repeated in the second half of the year.

Current trading, Ben, do you want to pick up on current trading? I mean month to date in terms of volumes we're doing very, very well. We have a revised forecast, and we're on target to hit our revised forecast for the month. But anything else on current trading, Ben?

Yes. I mean I was just going to say just on the housebuilding kind of is there a void. I mean the other thing as I sort of mentioned that our sales of floor beams are particularly strong and that floor beams are built by ground workers. They don't have the cash resources on anything to start hording floor beams. So unlike in the past where people stockpiled bricks, there's no real concept of stockpiling a floor beam. So that's a kind of reassuring point as well.

And the other thing is just to look at the data, you got to remember that housing kind of -- housing starts fell by a lot more than housing completions through '23 and '24, and brick dispatches fell by even more than housing starts. So as it starts to recover, it's not illogical that you kind of do get a bit more of an uptick in brick demand than you do in housing starts and the housing starts increases again by more than completions.

So yes, I mean, in terms of current trading on top of that, so we're still seeing kind of a continuation of the trading conditions we've seen through the last 3 months. So if you look at brick, I think relative to the prior year comparator, I think June was the second strongest month in the first half of the year. July looks equally strong in terms of the volumes that we're seeing, we're only a couple of days away from the end of the month.

So as we sort of said, our outlook for the rest of the year is based on a continuation of these trading conditions up to sort of November. Obviously you always get a tail off into December. But yes, we're just expecting to see what we've currently got to continue for the rest of the year.

Yes. Maybe before we go to aircrete just on that. The other thing which is quite interesting, which gives us the confidence, I mean, Ben mentioned about the Bison flooring side of the business. But although we endeavor to get all our products on time in full within the customer expectations, if we happen to be late, customers start screaming where are my bricks.

So it's not that they're taking these bricks and kind of put them in the field for the future. They're actually genuinely wanting them. They've got people waiting to start laying them. So that also gives us some reassurance that this is actual demand rather than a bit of stock building. Aircrete, Ben, do want to kick things off and I'll follow up?

Yes. I mean, as I think Neil has already talked about that, we're seeing strong performance in aircrete, we've already invested GBP 140 million in our brick business. So we've got a very well invested brick business. The aircrete business in the U.K. is not -- there's a lot of old factories, and we've got one that could ideally need replacing and the efficiency benefits of actually replacing that old factory are really significant.

Yes, you have to look at the market. And as we said, kind of, yes, there is a threat from timber frame. But on the counter to that, the latest building regulations in terms of Part L of the building code mean that actually you need more aircrete underground to get the necessary thermal performance. So although you lose a bit on the timber frame, you gain a bit on the new energy kind of the building regulations and coupled with significant efficiency benefit in terms of replacing an old and tired factory, we do see a significant opportunity there.

But unlike bricks, where we've previously talked about, we've got another ready site at a place called Swillington. where we could start building a brick factory this afternoon if we want it. Aircrete is a little more challenging because we have to make sure we secure the raw materials. Currently, we make all our aircrete with PFA. So kind of [ powder ] ash from power stations. Obviously, there are no coal-fired power stations in the U.K. anymore. So we're currently excavating kind of historically stockpiled ash.

I think if we build a new factory going forward, whereas it may still use ash, we'll also want a secure supply of sand. So sand is another way of making aircrete. And obviously, we think that's the future. So we've got a lot more moving parts before we can kind of commit to an aircrete factory, but it's certainly something we're very interested in.

I think the only thing I would add to that is we've looked and mapped the dynamics of what the housebuilders have invested in timber frame capacity. So we've got a pretty clear understanding of where they will be and where they will saturate and also the type of homes that lend themselves to being built from timber frame. Last time, I wasn't in the business, but the technical team informed me that in the past, there wasn't enough aircrete to go around in 2022. So people were using aggregate block and they could do that because regulations haven't changed.

Fast forward today, the regulations have changed. They can't use aggregate block in the same way as they were using below ground. So there will be growth, okay, in the market, but it won't grow to the same extent as the total number of new homes built because there will be a growth for timber frame. But we modeled that through. And yes, we're not ready to commit yet, but we're starting to build a compelling case that the investment makes sense.

Stephen?

Stephen Rawlinson from Applied Value. Just 1 question from me. You built up inventory in the first half of last year, GBP 97 million. It's come down quite considerably. And obviously, in terms of inventories to sales ratio, it's quite low compared with where we were last year. And we know the reasons -- some of the reasons behind that.

What do to consider would be the optimum inventory level, as I say, a percentage of revenue? And that's a broad brush figure. But during the second half, you'll probably be building up stocks as Desford goes on, the second kiln comes on capacity, Accrington comes on. So we're building that up.

And I'm looking partly in the inventory level, but partly also at year-end net debt and the impact of more inventory that might be coming through. And the danger that you've outlined as well, the market is a bit fragile. So just talk us through your thinking on that, if you can, just in case that there is an inadvertent increase in inventory again in the second half. I hope not, but you never know.

Yes. Ben, do you want to pick that one up?

Yes. I mean in terms of what's an optimal level of inventory, it depends on what part of the business you're looking at. So in brick, we'd normally say 3 months of inventory. So I guess that's 25% of sales if you're looking on a full year basis. At the moment, the strong demand for extruded brick means we've got significantly less than 3 months already.

If you look at, for example, our London Brick, we've got more than 3 months. So at the moment, our inventories are balanced. In terms of Desford, I mean, at the moment, the intention is bringing Desford back on is not to build inventory. It's if we don't bring it back on, we will be letting customers down because there's a really strong demand for extruded bricks.

So yes, we're certainly not intending to build significant industry inventory in the second half. We have some flexibility in that. So for example, we have factories that are still not running for the full 12 months a year. So that's very easy to flex in terms of if you want to run a factory in extra 2 months or so or not. And even with Desford we're not -- as I say, we're not bringing it back, and we're not going to run it at 180 million bricks a year. So there is some ability to flex that.

Yes, there is a bit of cost inefficiency, the less you make. But look, we've worked really hard to manage our working capital to get our inventory down, to get our debt down, we're not talking about doing anything that would kind of see us back in 2020 free levels of kind of inventory build or anything. So I think it's -- at the moment, if we don't increase production, we'll be actually losing sales.

And then on the concrete side of the business, generally, inventories are lower anyway, kind of 1 to 2 months inventory is generally what we'd carry on the concrete side of the business.

Stephen?

Sam Cullen from Peel Hunt. I have got a couple. Just a follow-up to Neil on your point around the mix shift that you're seeing in terms of extruded? Just to clarify what you're saying. Are you saying is this purely a reflection of geographical demand and product demand in terms of tenure? Or are you seeing housebuilders where they can, subject to planning value engineering and moving away from soft mud towards extruded brick as a cheaper product to try and take cost out of the build process. That's the first one.

And then Ben, I think you mentioned a land value in terms of the Bison Precast site. Can you put a number on that? Does it seem significant?

Okay. So this mix shift in demand and mainly around the soft mud side of things and discussion with housebuilders. So soft mud as a percentage of the market isn't dropping away massively. But with the discussions we're having with housebuilders, we've been going in because actually, the one thing we're not selling enough of at the moment is soft mud product. Our mission factory isn't running all year flat out.

So when we have discussions to try and improve our mix, the response of the housebuilder is very, very often when we're looking forward, we're looking to see if we can use less soft mud and more extruded products. So we're not seeing an actual sales yet, but that's a discussion that's coming through from our discussions with the customers.

In terms of land value, I'm not going to give you an exact number because it's commercially sensitive and the people we might want to sell the land to might be listening. But yes, certainly, it's worth north of GBP 5 million, maybe significantly north of GBP 5 million.

Clyde Lewis at Peel Hunt. A couple of questions as well, if I may. The businesses you're shutting, I think you gave the first half number for Bison. How much bigger is or smaller is Formpave? I'm trying to get a total when we're sort of looking at models for next year in terms of the change.

In terms of the strategic investment as you flagged,, you haven't got any major plans on the books at the moment. And obviously, it sounds very much like aircrete may be the first one out of the blocks. Can you maybe give us an idea as to what would be the catalyst to make you press the go button on that? And what sort of scale and timing are we looking out there?

Do you want to do the...

Yes. So Formpave is smaller than the Bison Bespoke business. So full year Formpave would generate about GBP 5 million or GBP 6 million of revenue. So on a half year basis, it's kind of -- it's GBP 2 million, GBP 2.5 million of revenue, and it's really not that large at all. And I say Neva business was profit-making. They both made small losses. So profitability-wise, fairly inconsequential for your model.

But over the full year, you're probably losing GBP 17 million of revenue across the 2 businesses, which is still less than 5% of the group number.

And from the aircrete investment point of view, if you -- if I kind of break your question down to the what's the trigger? When do we go with it? I think it's very much around raw material supply and location of the factory rather than the dynamics of the market and how it will develop and grow. We've done a lot of work on that.

We've done a deep dive study last year, in fact, on timber frame and the evolution of it. So it's just around where do we put it, what's the right location for delivered costs. We plan to use an existing site that we have is our intention today. So no land purchase from that point of view and the raw material and it kind of lends itself to another part of our capital allocation and strategic projects around calcined clay. What we discovered from the calcined clay side of things is as an SCM, ash would become more and more in demand because the cement players will also want to use it. So we're really considering at this stage whether it's time to switch away from ash in the new factory and go with sand. So those are the kind of the things we're trying to work through, Clyde, from that point of view.

Just to add to the point, so in terms of capital investment for a new aircrete factory may be GBP 50 million, GBP 55 million. But it's worth adding that the current old aircrete factory that we've got, which we would close if we did this, is sat on a pretty valuable piece of land. So actually, the net spend would be a lot lower than that.

So you might be looking at a net spend in the region of GBP 30 million over a period of a few years. So I think the point we're making is kind of don't assume there will be 0 strategic spend going forward. It won't be anything like the GBP 140 million that we've done over the last 5 years, but we've still got the balance sheet, the kind of the cash generation of the business easily allows us to kind of make that sort of GBP 30 million or so investment recovering the cost of the old factory land, reducing the net outlay. So it's kind of easily affordable for us.

Harry Dow from Rothschild & Co. Redburn. Just on the volume comment for June and July, should we read that as a similar year-on-year growth rate or kind of the activity stayed at a similar level? Because I know the comparison base, I think maybe toughens as we go through the year. So just a clarification on that. And then how that sort of intertwines with H2 at the kind of EBITDA level, maybe only being modestly better than the first half. So if the kind of operating leverage is maybe improving as well in the second half and the volumes are still pretty strong.

And then if -- I think you maybe mentioned that the operating leverage is being kind of pulled down by some products, maybe predominantly the RM&I-focused ones as well. Should we, therefore, maybe expect in 2026 for example, if we hope maybe we get a bit of an RM&I recovery that operational leverage could be higher than usual given that maybe in the first half. And I think the implication for this year, the operational leverage is may be lower than maybe we would have expected.

And there's a lot of numbers behind this. Do you want to do the...

I mean in terms of the volumes we're seeing at the moment, we've seen a consistent run rate from the last 3 or 4 months. As I said, I think June was the second best month of the year so far, year-on-year. You do make the good point that comparatives do improve in the second half of the year. So the year-on-year delta will narrow.

That's kind of -- that's pretty certain. But yes, at the moment, what we're saying is we've based our expectations on this current level of trading that we're seeing continuing as we run up towards the end of the year, yes, in the second half of November and into December, it will slow down. But until then, we're kind of expecting a similar run rate to what we're seeing today.

In terms of operating leverage, yes, you picked up on a couple of points there. Look, we won't get -- operating leverage takes time. So for example, we've got the cost of inefficiency. So at the moment, we're employing people with Desford to run this extra kiln. Kiln is not going to start running until September, but we're paying some of them now because they've got to be trained, they've got to be kind of -- they've got to basically get the skills very important from a health and safety point of view that everyone is obviously fully trained.

So you carry that inefficiency. Similarly, we did the same in the first half of the year when we ramped up the aircrete factory in 2 stages. You've always got cost beforehand before you get the efficiency. So we factored that into our numbers, and that's obviously one drag on why you get a drop through that might be lower than you anticipate.

The other one is that actually this business was in a fairly tight space kind of 15 months ago. We were worried about covenants. We had to get covenant relaxations. We managed our spend accordingly. So we did have some nonurgent spend that we didn't spend in '23 and '24 that we're now more confident in spending again. So this is just stuff that's kind of -- it wasn't critical. But in terms of keeping the business well invested and assets repaired over the longer term, we're now catching up a bit on that.

So there's a bit of extra spend in 2025 because of that, which again will weigh on the kind of the perceived drop through that comes through. And then in terms of kind of -- yes, as we put a statement in the announcement or sentence in the announcement in terms of we will only get the full benefit of operating leverage as all of our markets recover. So for example, at the moment, we're in a slightly unique position whereby we're increasing production at Desford so we've got a shortage of extruded bricks. So if we don't increase production, we'll run out of extruded bricks.

But frankly, we've still got too many London Bricks, and we might have to -- if the RM&I market doesn't improve soon, we might even have to make further adjustments at the London Brick Factory, which incur additional efficiency. So it might end up being that, yes, we get more efficiency next year from the kind of the housing focus side of the business. But until the RM&I and the London Brick catches up, we might have some inefficiency that offsets it. So there's a number of moving parts, and we've got obviously the whole business and all of our markets recover until we get the full benefit of our operating leverage.

Any other questions? No, it looks like we're done for. So thanks for coming along. For those of you who haven't had summer holidays, enjoy your summer, and we'll see you when we next update. Thank you very much.

Thanks, everyone.