Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ibstock PLC (FRA:2I5, Financial) delivered a solid first half performance with adjusted EBITDA in line with expectations.
- The company completed significant investments, including the Aldridge factory upgrade and the advanced commissioning of the Pathfinder factory at Atlas.
- Ibstock PLC (FRA:2I5) maintained a robust balance sheet and anticipates business de-leveraging as the current organic investment cycle concludes.
- The company has made progress in its diversified growth strategy, including the commissioning of a new automated brick slips cutting line.
- Ibstock PLC (FRA:2I5) has a strong platform for growth with significant investments in sustainable and efficient manufacturing capacity.
Negative Points
- Revenues decreased by 20% compared to the prior year period, reflecting lower market demand and disciplined pricing.
- Adjusted EBITDA was 14% below the comparative period due to lower volumes and additional fixed costs at inactive sites.
- Adjusted earnings per share dropped to 3.5p from 9p in the comparative period, impacted by lower pretax profit and a higher effective tax rate.
- Net debt increased by around GBP37 million due to continued investment in organic growth projects and seasonal working capital increases.
- The company remains cautious about the timing of market recovery, with full-year 2024 market volumes expected to be slightly down year-on-year.
Q & A Highlights
Q: Could you provide more color around the revenue fall in Clay, particularly regarding volumes and pricing? Also, what does your full-year guidance imply for your own volumes and pricing in the second half?
A: Roughly two-thirds of the 26% reduction in core clay revenue was due to volume, and one-third was due to average price. We took a disciplined approach to pricing, and the price reduction was more a function of mix. For the full year, we now expect market volumes to be modestly down compared to 2023. We anticipate our volumes to reflect this, with a modest sequential improvement in the second half. Pricing and mix are expected to remain consistent from H1 to H2.
Q: Could you elaborate on the performance and outlook for the Concrete division, particularly regarding rail and infrastructure markets?
A: Rail and infrastructure revenues in the first half were around GBP6 million, down from GBP9-10 million in the comparative period. This segment includes products like cable troughing and platform copackers. The transition to control period seven for Network Rail has caused a temporary pause, but we expect spending to ramp up again. Our position in rail is strong, with lighter, reduced-carbon products.
Q: Can you provide an update on the facades business and its growth potential?
A: We are excited about facades, particularly in the mid to high-rise market. This segment has been affected by economic factors and regulatory issues. Our brick slips investment is coming online, which will significantly boost revenue. We expect the facades business to grow, although it is still a nascent part of our operations.
Q: What are your expectations for volume recovery in the housing market, given recent government reforms?
A: Government reforms are positive, focusing on planning, local plans, and resourcing. However, it will take time for these changes to impact supply chains and planning backlogs. We expect a 10% improvement in housing completions next year, aligning with industry forecasts. The direction is positive, but the pace of recovery remains uncertain.
Q: What is the outlook for growth CapEx heading into 2025, and are there any new projects planned?
A: Our guidance for total CapEx this year remains at GBP50 million. For 2025, the only significant CapEx will be the completion of the automated slip systems factory, costing around GBP10-15 million. Sustaining CapEx is expected to be around GBP20 million, leading to a total CapEx of GBP30-35 million for 2025. This marks the conclusion of our current organic growth program.
Q: What are your views on customer inventory levels and the potential for a restocking cycle?
A: Inventory levels are currently balanced, with more inventory on manufacturing sites and less in the channels. Builders merchants and housebuilders have been managing their cash carefully. We expect inventory levels to increase steadily over time, depending on demand and market momentum.
Q: How do you see Atlas ramping up and its impact on displacing imports?
A: Atlas will ramp up proportionately, and we can double our capacity. Imports have always been part of the market, but our customers prefer local products for guaranteed supply and sustainability reasons. We expect to displace some imports as we ramp up production.
Q: Can you provide an update on the savings from your restructuring program and the outlook for fixed costs in 2025?
A: We achieved significant savings over and above the annualized run rate of GBP20 million. These savings were achieved through various measures, including flexing down shifts and managing discretionary costs. For 2025, we expect some fixed costs to come back as we ramp up production, but we will maintain a focus on operational efficiency.
Q: What is the outlook for the futures business, particularly regarding R&D costs and breakeven timelines?
A: We expect the futures business to reach breakeven next year. We have invested in R&D, particularly in energy-related decarbonization initiatives. We aim to achieve GBP100 million in revenue from the futures business within three to four years, driven by investments in brick slips and other growth initiatives.
Q: How should we think about pricing in the context of industry inventory levels and housebuilding industry consolidation?
A: We maintain a disciplined approach to pricing, focusing on input costs and inflation. Inventory levels are healthy, and we do not see a direct correlation between inventory and pricing. Housebuilding industry consolidation could lead to more strategic partnerships, allowing us to cross-sell our products and maintain pricing discipline.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
