Interim Results

Interim Results
7 August 2024

LEI: 2138003QHTNX34CN9V93

Ibstock Plc

Interim results for the six months ended 30 June 2024

Continued strategic progress; well-placed for the market recovery

Ibstock Plc ("Ibstock" or the "Group"), a leading UK manufacturer of a diverse range of building products and solutions, announces results for the six months ended 30 June 2024.

Solid financial performance

Continued strong cost focus, while preserving capability

Further strategic progress as we continue to invest in our future growth

Current trading and outlook

Joe Hudson, Chief Executive Officer, commented:

"Market conditions remained challenging in the first half, as expected, with sales volumes below those reported in the comparative period. We delivered a solid profit performance for the period which reflected our ongoing focus on the active management of cost and margin.

"Lead indicators point to an improving sector picture, and although we are taking a cautious view of the extent to which this will translate into a demand improvement in the balance of the year, we expect adjusted EBITDA for the second half of the 2024 year to be broadly in line with the comparative period in 2023.

"The new government's commitment to increasing the supply of new homes creates a more positive backdrop for medium term demand, and the Group remains well-positioned for market recovery.  Our investments over the last few years have added high quality, lower cost, efficient and more sustainable capacity to our network and developed new capabilities for the group in diversified construction markets, while also creating a leaner, more customer-focused business. We believe this will be a powerful combination as market conditions improve.

"The fundamental drivers underpinning demand in our markets are firmly in place and our prospects remain strong, underpinned by our robust balance sheet."

Results presentation

Ibstock is holding a presentation at 10.30 BST today at UBS, 5 Broadgate, London EC2M 2QS.

Please contact [email protected] to register your in-person attendance.

A live webcast of the presentation and Q&A is also available. Please register here for the live webcast.

The presentation can also be heard via a conference call, where there will be the opportunity to ask questions.

An archived version of today's webcast analyst presentation will be available on www.ibstock.co.uk later today.

About Ibstock Plc

Ibstock Plc is a leading UK manufacturer of a diverse range of building products and solutions. The Group concentrates on eight core product categories, each backed up by design and technical services capabilities:

The Group comprises two core business divisions, Ibstock Clay and Ibstock Concrete. The Ibstock Futures business was established in 2021 to accelerate growth in new, fast developing segments of the UK construction market and, while it remains in its initial growth phase, forms part of the Clay division.

Ibstock Clay: The leading manufacturer by volume of clay bricks sold in the United Kingdom. With 14 manufacturing sites, Ibstock Clay has the largest brick production capacity in the UK. It operates a network of 14 active quarries located close to its manufacturing plants. Ibstock Kevington provides masonry and prefabricated component building solutions, operating from 4 sites.

Ibstock Concrete: A leading manufacturer of concrete roofing, walling, flooring and fencing products, along with lintels and rail & infrastructure products. The concrete division operates from 13 manufacturing sites across the UK.

Ibstock Futures: Complements the core business divisions by accelerating diversified growth opportunities which address key construction trends, including sustainability and the shift towards Modern Methods of Construction (MMC). Operating from an innovation hub in the West Midlands, and the Nostell redevelopment in West Yorkshire.

Ibstock is headquartered in the village of Ibstock, Leicestershire, with 33 active manufacturing sites across the UK.

As a leading building products manufacturer, the Group is committed to the highest levels of corporate responsibility. The Group's ESG 2030 Strategy sets out a clear path to address climate change, improve lives and manufacture materials for life, with an ambitious commitment to reduce carbon emissions by 40% by 2030 and become a net zero operation by 2040.

Further information can be found at www.ibstock.co.uk

Forward-looking statements

This announcement contains "forward-looking statements". These forward-looking statements include all matters that are not historical facts and include statements regarding the intentions, beliefs or current expectations of the directors. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are difficult to predict and outside of the Group's ability to control. Forward-looking statements are not guarantees of future performance and the actual results of the Group's operations. Forward-looking statements speak only as of the date of such statements and, except as required by applicable law, the Group undertakes no obligation to update or revise publicly any forward-looking statements.

¹Alternative performance measures are described in Note 3 to the interim financial statements.

²The Group reported Adjusted EBITDA of £44 million for the 6 months ended 31 December 2023

Chief Executive's Review

Introduction

The Group delivered a solid adjusted EBITDA¹ performance for the first half, in what remained a challenging market. In the face of a more competitive environment in some areas of the market, the Group retained a disciplined approach to pricing in the service of protecting margins. We continue to believe that, as market conditions normalise, this approach will allow the Group to achieve targeted levels of market volumes, whilst supporting our margin and returns targets.

Despite these difficult market conditions, adjusted EBITDA¹ was in line with our expectations, reflecting continued active management of costs and strong commercial execution.

The Group's restructuring programme undertaken during latter part of the 2023 year resulted in the permanent closure of two clay brick factories at Ravenhead and South Holmwood. The programme also identified temporary actions, whereby certain other brick factories were expected to be inactive for a meaningful proportion of the 2024 year.

With overall market demand during the first half of 2024 having been around 10% below the prior year period, we now anticipate a modest reduction in full year 2024 market volumes compared to the prior year. In light of the weaker volume backdrop, the Group has taken additional temporary action to flex down the output at other factories, delivering further cost savings relative to the levels anticipated at the beginning of the 2024 year.

While taking these measures to protect in-year performance, we have been focused on preserving key skills and knowledge to ensure that the Group retains the ability to build back quickly when markets recover.

As we continued to manage costs tightly, taking action where necessary to respond to market conditions, we also continued to make good progress with the investment projects that will underpin our future growth. Our investments in new low cost, efficient and more sustainable brick manufacturing capacity at our Atlas facility, and the first phase of a significant capacity expansion in the fast-growing brick slips market at our Nostell site, are both now substantially complete. Production at both factories will ramp up over the course of the second half, with volumes managed according to prevailing market conditions.  This new capacity will support our medium-term growth objectives as markets recover.

I am also pleased to report that we maintained momentum with the strategic initiatives that will create a leaner, more customer-focused and sustainable business for the future. Notable progress in the period included the integration of a centralised commercial and innovation team, further steps towards our ambitious 2030 ESG targets and our continuing cultural transformation.

The Group retains a robust balance sheet, providing both resilience and optionality in respect of future growth investments.

The Board has recommended an interim dividend of 1.5p per share (2023: 3.4p). The interim dividend has been set with reference to our capital allocation policy, which targets full year cover of approximately two times through the cycle.

Financial Performance

Revenue was 20% lower at £178 million (2023: £223 million) (or 22% lower on a LFL basis, adjusting for the acquisition of Coltman in late 2023), principally reflecting lower sales volumes across the core business. Sales volumes reflected lower market demand and our disciplined approach to pricing, compounded by the impact of exceptionally wet weather in the first quarter.

A modest reduction in selling prices in the period was offset by reduced variable manufacturing costs, both from procurement savings and a reduction in unit energy costs.

In light of weaker market demand, the Group also continued to manage fixed costs proactively in the period to protect in-year performance, achieving a run-rate fixed cost reduction benefit during the first half in excess of the £20 million per annum target announced in March 2024. These incremental actions (which included flexing production, hiring freezes and further discretionary cost reductions/deferrals) will not compromise our ability to build back quickly as markets recover, with the Group continuing to carry an element of fixed cost at inactive sites during the period to preserve productive capacity for the recovery.

Adjusted EBITDA¹ was £38 million (2023: £63 million) reflecting the lower sales volumes and the impact of additional fixed cost carried during the period at inactive sites to preserve productive capacity for the market recovery. The prior year period saw a £10 million benefit from the absorption of fixed costs into finished goods inventories.

The Adjusted EBITDA margin¹ reduced to 21.2% (2023: 28.2%). Adjusted earnings per share of 3.5 pence (2023: 9.0 pence) reflected lower operating profit and a modest increase in the underlying effective tax rate, which was in line with the guidance on taxation given at the start of the year.

Profit before tax of £12 million (2023: £30 million), reflected a lower trading performance and an exceptional cost¹ of £3 million (2023: cost of £11 million) relating to site closure activities.

The Group's balance sheet remains robust, with closing net debt¹ of £138 million at 30 June 2024 (2023: £89 million) representing leverage of 2.0x adjusted EBITDA¹ (2023: 0.7x). The period end position was in line with our expectations, and reflected a strong focus on cash management, with tight control of capital expenditure, costs and working capital across the period. The increase in net debt during the period reflected the anticipated seasonal working capital build along with the Group's continued investment in organic growth projects, which are now nearing completion.

Second half cash flow is expected to be positive, with reported leverage reducing by year end towards the top end of our target range (0.5 to 1.5 times). Given the inherently cash generative nature of our business, we would expect leverage to revert to within our target range thereafter.

Divisional Review

Ibstock Clay

The Clay Division delivered a solid performance, despite a material reduction in sales volumes, as it benefited from strong cost management and robust commercial discipline, as well as agile operational performance.

Revenues in the Clay Division reduced by 26% to £119 million (2023: £162 million) driven principally by a reduction in  volumes, as the Group took a disciplined approach to pricing in the service of protecting adjusted EBITDA margins¹. Overall, average selling prices reduced modestly compared to the comparative period, partly reflecting changes in channel and product mix.

Overall, we believe the UK brick market reduced by around 10% during the first half of the 2024 year compared to the comparative period in 2023. Volumes of clay bricks imported into the UK market were down by around 15% compared to the comparative period, as they continued to reduce at a faster rate than domestic shipments.

Adjusted EBITDA¹ reduced by 40% to £34 million (2023: £57 million), reflecting the significant reduction in sales volumes, partly mitigated through unit variable cost reductions and continued decisive action to reduce fixed costs.

Adjusted EBITDA margin¹ in the clay segment remained robust at 28.6% (2023: 35.5%) despite the material reduction in sales volumes and a benefit of £8 million in the prior year period from the absorption of fixed costs into inventory.

Ibstock Futures

We continued to make solid progress in building our Ibstock Futures business, although activity across the key product lines was below the prior year, reflecting the trend observed more broadly across construction markets. We continued to build a strong platform for future growth, with our organic investments in brick slip capacity at Nostell, West Yorkshire, progressing to plan.

Futures delivered a profit performance modestly below the comparative period, with revenues, which are reported in the Clay segment, totalling £4 million (2023: £6 million), and an overall net cost (including research and development expenditure) of £3 million (2023: £2 million).

During the period we appointed a new Managing Director of Futures, who brings experience of the sector and strong MMC market knowledge into the business.

We continue to see a strong pipeline of opportunities to grow Futures, both organically and by acquisition, as we expand and diversify our product offering over the medium term to support the growth of MMC in the UK.

Ibstock Concrete

While the breadth of the Concrete Division's end-market exposure helped to mitigate the impact of the subdued trading conditions, its results for the period reflected weaker residential and rail market volumes. Revenue reduced by 4% year-on-year to £59 million (2023: £61 million), or 12% on a LFL basis, excluding the impact of Coltman Precast which was acquired during the final quarter of 2023.

The division experienced a reduction in residential new build sales volumes in line with the wider market, although RMI performance was stronger, supported by firmer fencing volumes. Infrastructure sales volumes were materially lower, with rail activity subdued as Network Rail transitioned to Control Period 7, the next five year period of its network delivery plan, during the first half of 2024.

The integration of Coltman, the precast flooring business, has progressed well, and in line with our expectations. Coltman contributed revenues of £5 million in the first half, with an adjusted EBITDA margin¹ of around 5%, after certain one-off integration costs which are not expected to recur in 2025.

Adjusted EBITDA¹ for the Concrete Division was £8 million, down 31% year on year (2023: £11 million).

Overall, the division achieved adjusted EBITDA margins¹ of 12.7% (2023: 17.9%) as more resilient RMI volumes and strong cost management were more than offset by the impact of lower new build residential and rail volumes. The division also benefited from the absorption of around £2 million of fixed costs into inventory in the comparative period.

Major projects

The fundamental drivers underpinning medium-term demand in our markets remain firmly in place. In 2021 the Group commenced two major growth investment projects to capitalise on the attractive fundamentals, across both its core and new, diversified markets. These capital investments are now close to completion, with high quality, lower-cost capacity in place which will allow the Group to benefit from market recovery.

Core clay investments in capacity at Atlas and Aldridge

Commissioning of our new Atlas factory in the West Midlands is now well advanced. Atlas will produce the UK's first externally verified carbon neutral brick and, when operating at full capacity, will increase annual network capacity by over 100 million bricks to support the Group's long-term growth objectives. The market launch of the UK's first carbon-neutral brick is an exciting development for the Clay Division and we look forward to shipping the first volumes of this innovative new product during the second half of the 2024 year.

Work to upgrade the dryers and packaging equipment in the adjacent Aldridge factory was completed during the second half of 2023 and we are already seeing significant improvements in efficiency and reductions in energy use at the site.

Production at both factories will ramp up over the course of the second half, with volumes managed according to prevailing market conditions.

Diversified growth investments in brick slip capacity at Nostell, Yorkshire

Commissioning of the new automated brick slips cutting line at Nostell, West Yorkshire is now almost complete and customer deliveries will commence shortly. The new line provides a significant domestic supply of brick slips to the UK market for the first time and will deliver up to 17 million slips per annum when operating at full capacity. Customer reaction to this new high-quality source of domestic supply has been very positive, and this investment represents our first step towards building a scale leadership position in this fast-growing product category.

Phase two of the Nostell redevelopment, the construction of a larger brick slip systems factory with an initial capacity of a further 30 million slips per annum, is progressing in line with our expectations. This project is on track to commission by the end of the 2025 year.

Strategic update

Our operational strategy is centred on three strategic pillars of Sustain, Innovate and Grow, with our ambitious ESG commitments embedded across all three. An update on progress is set out below.

Sustain

As a scale industrial business, sustainable high performance is at the heart of what we do, with activity focused on three priority areas: health, safety and wellbeing; operational excellence; and environmental performance.

Health, safety and wellbeing

The Group remains committed to driving a step change in health, safety and wellbeing for all colleagues, with a significant improvement in performance being driven by a refreshed "leadership in action" programme and annual total incident frequency rate (TIFR) targets. For 2024, we are targeting a 20% reduction in TIFR and our performance in the year to date is on track to meet this objective, following the introduction of a programme of daily risk reduction measures across the Group's operations.

Operational excellence

We have invested significant capital over the last five years in enhancing the reliability and performance of our factory networks. Despite a reduction in production volumes during the period, the optimised factory footprint continued to benefit from this asset enhancement programme which has delivered both operational efficiencies and an improved environmental performance. Specific factory improvement projects such as the major kiln rebuild at the Parkhouse brick factory and the automation of our walling stone factory at Anstone, near Sheffield, have strengthened our ability to build back capacity quickly as demand recovers.

Environmental performance

Having established our high level carbon transition plan to 2030, including the impact of key investment projects and a continued operational enhancement programme across the factory estate, we remain on track to deliver our 2030 target. A five year Carbon Transition Plan is under development through detailed planning at factory level, which will be fully costed and integrated into operational plans in the months ahead.

Following successful trials on alternative fuel usage (synthetic gas & hydrogen), we continued to complete further research and progress conversations with potential commercial partners during the period.

Innovate

Product Innovation

As market leader in clay and concrete products, we have the broadest range of building products and solutions available in the UK, and we continue to invest to enhance our customer offer. In 2023 the Group created a single centralised Product, Innovation and Quality function to strengthen and accelerate its innovation, research and new product development pipeline. We began to see some early benefits from this new approach during the first half, with strong progress made on the development of new thin brick products, and lower carbon rail and fencing products.

With the commissioning of our new Atlas factory, during the second half of the year we are also launching an exciting range of new bricks, including the UK's first carbon neutral bricks.

Customer Experience

The unified "One Ibstock" brand identity and new commercial team structure launched in 2023 continued to embed across the Group during the first half, resulting in a broader range of products being offered to customers and an increase in solution selling opportunities. We firmly believe the unrivalled diversity of our building products offering will increasingly provide us with a source of competitive advantage as we actively focus on a deeper understanding of customer needs to build long term strategic partnerships.

Digital Transformation

The digitisation of our business is a key strategic enabler as we begin to drive an increasing proportion of our sales activities through digital channels. During the period we initiated an investment in an enhanced data platform, to improve the speed and quality of performance and market insights. We expect to deliver this enhanced platform over the next 12 months.

Grow

Grow the core business

With work to upgrade production equipment at our Aldridge factory completed towards the end of 2023, there has been both improvement in production yield and reduction in carbon emissions at the site during the first half.

Our redeveloped Atlas 'pathfinder' factory is at advanced commissioning stage and on track to ramp up production during the second half. Atlas will produce our lowest embodied carbon bricks, with around 50% lower carbon than the previous factory. The factory will also produce our first ever Carbon Neutral® certified bricks as part of its range and we are excited about making our first deliveries of this innovative new product later this year, as we support our customers on their own emission reduction journeys.

Grow through diversification

Ibstock Futures made good operational and strategic progress during the year as it continued to build its capabilities in new, fast-growth areas of the UK construction market.

Phase one of the Nostell brick slips factory investment is nearing completion, with commissioning of the new automated brick slips cutting line now almost complete. The new line uses some first of its kind technology in the UK to drive automation and enable the supply of domestically manufactured brick slips at pace and scale. This represents a first significant step towards building a significant leadership position in this fast-growing product category. Phase two of the project - the construction of a larger brick slip systems factory - is progressing to plan, as discussed above.

Discussions with potential partners on the commercialisation of our owned clay reserves for the manufacture of calcined clay continued to progress well.

Culture and capability

We are passionate about establishing culture as a key point of difference across our organisation and, notwithstanding the current challenging market conditions and the imperative of strong cost management, the Group continued to focus on developing its culture and preserving productive capability during the period. Notable achievements in the period included the continued growth of our early careers and skills agenda, which drove big increases in the breadth of our apprentice roles and the diversity of hires, along with the second phase of a successful talent development programme.

Conviction in the Group's medium-term prospects

The Group's confidence in its medium-term prospects is underpinned by an expectation of a return to normalised conditions within its core markets combined with the incremental returns generated from our significant capital investment programme.

Total UK brick market volumes for the 12 months to June 2024 totalled 1.6 billion, down by over 35% from the level of 2.5 billion achieved in the 2022 calendar year. Against this backdrop, we have taken decisive action to manage capacity and cost, to ensure that performance is protected, and factory output managed according to market demand. However, given the structural undersupply of new build housing, and the stated political intention to substantially increase levels of residential construction, we have a strong conviction in the full recovery of our markets over the years ahead.

Having made significant investment over recent years, we now have a lower cost, efficient and more sustainable network available to serve the market as conditions improve. Once at full capacity, our upgraded clay factory network will be capable of operating at roughly double the levels of brick output produced over the last 12 months.

Whilst we are taking a cautious view around the extent of market recovery in the balance of the 2024 year, given the strength and scale of our business, and our conviction in the fundamentals of our markets, we remain confident in achieving our stated medium-term financial targets.

Outlook for 2024

Whilst we are encouraged by signs of an improving trend in sector lead indicators, we remain cautious about the extent to which this will translate to improvements in market demand during the latter part of the year.

With overall market demand during the first half of 2024 having been around 10% below the prior year period, we now anticipate a modest reduction in full year 2024 market volumes compared to the prior year and expect adjusted EBITDA for the second half of the 2024 year to be broadly in line with the comparative period in 2023.

The Group remains focused on taking action to respond to prevailing market conditions and we will continue to manage our cost position carefully, balancing stock levels with further investments in cost and capacity to match market demand.

The new government's focus on accelerating the delivery of new housing and infrastructure is expected to form a more positive backdrop for housing industry supply chains and effective demand over the medium term.

The Group continues to build a significant position in diversified construction markets through Ibstock Futures and will bring to market the first brick slips from our Nostell factory during the second half of this year, with the larger automated slip systems factory scheduled to commission by the end of 2025.

Ibstock's prospects remain strong, underpinned by our robust balance sheet and well invested manufacturing network. With low cost, efficient and more sustainable capacity in place in the core business, and with inventory levels rebuilt, the Group is well positioned to serve customers and respond to an increase in activity as market conditions improve.

¹Alternative performance measures are described in Note 3 to the interim financial statements.

Chief Financial Officer's report

Introduction

The Group delivered a solid financial performance in the first half of 2024, against a market backdrop which continued to be challenging. The effective management of plant capacity, combined with active management of cost and strong commercial execution, ensured that adjusted EBITDA¹ was in line with our expectations. 

With continued strong progress against our strategic investment plans, we deployed around £24 million of capital investment (2023: £33 million) to drive future growth in both core and diversified construction markets. Having managed our balance sheet effectively through the recent market weakness, the cash generation profile of the business is expected to provide additional scope for investment in opportunities to accelerate performance as conditions improve.

Climate Change & TCFD

As a long-term business, a commitment to environmental sustainability and social progress is central to our purpose. We have invested significant capital over the last decade, with investment projects across the Group's plant network contributing to a material reduction in the carbon intensity of our manufacturing processes. Our ESG strategy and targets announced in 2021 provide a pathway to reduce carbon emissions by 40% by 2030, from a 2019 baseline, and be net zero carbon by 2040. We continue to actively monitor the transitional and physical risks and opportunities of climate change through our risk management process and ESG governance framework.

Alternative performance measures

This results statement contains alternative performance measures ("APMs") to aid comparability and further understanding of the financial performance of the Group between periods. A description of each APM is included in Note 3 to the financial statements. The APMs represent measures used by management and the Board to monitor performance against budget, and certain APMs are used in the remuneration of management and Executive Directors. It is not believed that APMs are a substitute for, or superior to, statutory measures.

Group results

The table below sets out segmental revenue, profit/(loss) before tax and adjusted EBITDA¹ for the period

¹ Alternative Performance Measures are described in Note 3 to the results announcement

² Clay segment incorporates Futures business performance, and excludes exceptional cost¹ of £3.1 million (2023: £10.7 million)

Due to rounding, numbers presented may not add up precisely to the totals provided and percentages may not precisely align to the reported figures

Revenue

Group revenue for the six months ended 30 June 2024 decreased by 20% to £178.2 million (2023: £222.7 million) driven by a significant reduction in market demand and our disciplined approach to pricing, compounded by exceptionally wet weather early in the period. In the face of a more competitive pricing environment in certain parts of the market, we retained a disciplined approach to pricing, in the service of protecting margins.

In our Clay division, revenues of £119.4 million represented a decrease of 26% on the prior year period (2023: £161.7 million), resulting from materially lower market demand and our disciplined approach to pricing. Average prices in the clay division reduced modestly, in part reflecting the impact of changes in channel and product mix. Our Futures business contributed around £3.9 million of revenue (2023: £5.8 million).

In our Concrete division, reported revenue decreased by 4% year-on-year to £58.8 million (2023: £61.1 million), or 12% on a like for like basis, with our new acquisition, Coltman Precast, contributing £5.1 million of revenue in the period (2023: £nil). On a like-for-like basis, the reduction in revenue reflected reduced market demand in our new build residential product categories and lower rail volumes. These impacts were partly mitigated by stronger RMI landscaping volumes, particularly within fencing.

Adjusted EBITDA¹

Management measures the Group's operating performance using adjusted EBITDA¹. Adjusted EBITDA¹ decreased by 40% year on year to £37.7 million in 2023 (2023: £62.9 million). Performance reflected the impact of lower sales volumes and additional fixed cost carried during the period at inactive sites to preserve productive capacity for the market recovery. The prior year period saw a £10 million benefit from the absorption of fixed costs into finished goods inventories.

In light of weaker market demand, the Group continued to manage costs effectively, achieving a run rate cost reduction benefit during the first half in excess of the £20 million per annum announced in March 2024.

Within the Clay division, adjusted EBITDA¹ totalled £34.2 million (2023: £57.4 million), representing an adjusted EBITDA margin¹ of 28.6% (2022: 35.5%). In the core clay business, a reduction in average selling prices was offset by lower unit variable costs, meaning that the contribution margin percentage remained in line with the comparative period. Good fixed cost management also enabled the division to exceed its targeted savings following the Group's restructuring programme undertaken in the second half of the 2023 year.

The clay division recognised a net cost of £3.3 million (2023: cost of £2.0 million) in respect of Ibstock Futures, reflecting the trend observed more broadly across construction markets. This cost continued to include a significant level of expenditure in research and development as we invest ahead of revenue in green energy solutions, calcined clay and other diversified growth opportunities.

Within our Concrete division, adjusted EBITDA¹ decreased to £7.5 million (2023: £10.9 million), as the division was impacted by materially lower sales volumes in our new build residential and rail product categories. The division benefited from the absorption of around £2 million of fixed costs into inventory in the comparative period. The adjusted EBITDA margin¹ of 12.7% in concrete was below the 2023 level of 17.9%, as strong cost management partly mitigated the impact of lower volumes and the effect of weaker mix (as rail and infrastructure volumes reduced as a percentage of total divisional activity).

Central costs decreased to £4.0 million (2023: £5.5 million) principally reflecting reduced employment and variable remuneration costs.

Looking forwards, the Group remains focused on tightly managing cost to mitigate the impact of the current softer market backdrop.

Adjusted EBIT¹

In order to focus on a more comprehensive measure of operating performance, and in line with a key remuneration measure for senior management, the Group has also started to measure and report the Group's performance using adjusted EBIT¹. Adjusted EBIT¹ is defined as adjusted EBITDA¹ less underlying depreciation and amortisation.

For the six months to 30 June 2024, adjusted EBIT¹ reduced to £23.1 million (2023: £48.9 million) reflecting reduced trading profits and a modest increase in underlying depreciation and amortisation to £14.6 million (2023: £14.0 million) as the Group started to depreciate its Aldridge and Parkhouse investments and recognised a full period of the Futures innovation hub lease cost.

Exceptional items¹

Based on the application of our accounting policy for exceptional items¹, certain income and expense items have been excluded in arriving at adjusted EBITDA¹ to aid shareholders' understanding of the Group's underlying financial performance.

The amounts classified as exceptional¹ in the period totalled a net cost of £3.2 million (2023: £10.7 million cost), associated with the Group's restructuring programme announced in the prior year. The charge in the current period related to decommissioning activities and other costs associated with closed sites. The Group continues to expect to recognise exceptional costs of around £5 million in this regard in the 2024 year as a whole.

Further details of exceptional items¹ are set out in Note 5 of the financial statements.

Finance costs

Net finance costs of £2.7 million were above the level of the prior year (2023: £2.2 million). This reflected an increased interest cost on our bank borrowings as the average borrowing on our £125 million Revolving Credit Facility (RCF) increased over the comparative period.

Profit before taxation

Group statutory profit before taxation was £11.8 million (2023: £29.9 million), reflecting the lower trading performance, as well as an exceptional cost¹ of £3.2 million (2023: cost of £10.7 million) relating to site closure and decommissioning activities, as detailed above.

Taxation

The Group recorded a taxation charge of £3.2 million (2022: £7.5 million) on Group pre-tax profits of £11.8 million (2023: £29.9 million), resulting in an effective tax rate ("ETR") of 27.1% (2023: 25.0%) compared with the standard rate of UK corporation tax of 25.0% (2023: 23.5%).

The adjusted ETR¹ (excluding the impact of the deferred tax rate change and exceptional items) was 26.2% (2023: 24.3%).

The increase in ETR and adjusted ETR¹ from the prior year was due primarily to the full year impact of the change in the standard rate of UK corporation tax to 25% enacted in the 2023/24 tax year.

We continue to expect the adjusted ETR¹ for the 2024 year to be around 26%, in line with the rate reported in the first half.

Earnings per share

Group statutory basic earnings per share (EPS) decreased to 2.2 pence in the six months to 30 June 2023 (2023: 5.7 pence) primarily as a result of reduced trading performance in the period and an increase in the effective tax rate.

Group adjusted basic EPS¹ of 3.5 pence per share decreased from 9.0 pence last year, reflecting reduced adjusted EBIT¹ and an increase in the adjusted effective tax rate following an increase in the headline UK tax rate. In line with prior years, our adjusted EPS¹ metric removes the impact of exceptional items¹, the fair value uplifts resulting from our acquisition accounting and non-cash interest impacts, net of the related taxation charges/credits. Adjusted EPS¹ has been included to provide a clearer guide as to the underlying earnings performance of the Group. A full reconciliation of our adjusted EPS¹ measure is included in Note 7.

Table 1: Earnings per share

Cash flow and net debt¹

Adjusted operating cash flow decreased by £2 million to £9.0 million (2023: £11.0 million), reflecting a decrease in adjusted EBITDA¹, mitigated by a lower working capital increase of £19.4 million (2023: increase of £39.5 million).

The working capital increase in the period reflected the typical seasonal build in the level of trade receivables. Inventories reduced modestly during the period as we tightly managed operational activity across the factory network, driving a significant favourable variance to the comparative period, as we built significant levels of finished goods inventories during the first six months of 2023.

Adjusted net interest paid in the six months to 30 June 2024 increased to £4.2 million (2023: £2.4 million), in line with our expectations. The increase compared to the comparative period reflected both an increase in average borrowings and a modest increase in interest rates on our floating rate debt.

Tax payments totalled £0.5 million (2023: £3.4 million) as we continued to benefit from the accelerated write down on qualifying capital expenditure.

Other cash outflows of £4.4 million (2023: £6.2 million outflow) principally comprised lease payments. The Group purchased no carbon emission credits in the period (2023: £1.3 million).

With Adjusted Operating Cash Flows¹ in the period decreasing marginally from the prior period, the cash conversion¹ percentage increased to 24% (from 18% in 2023), reflecting a reduced investment in working capital versus the prior period.

Adjusted free cash flow¹ in the period totalled an outflow of £15.5 million (2023: £21.6 million outflow). Capital expenditure of £24.4 million decreased by £8.3 million compared to the comparative period (2023: £32.7 million), as major project expenditure reduced, as anticipated, and sustaining capital continued to be tightly managed.

Capital expenditure comprised around £10 million of sustaining expenditure, £3 million on the Atlas and Aldridge redevelopments, £1 million at Anstone Concrete and around £10 million on the Slips programme.

For the full year, we continue to expect total capital expenditure of around £50 million with sustaining capital expenditure of around £20 million, and growth capital expenditure of £30 million.

Table 2: Cash flow (non-statutory)

¹ Alternative Performance Measures are described in Note 3 to the consolidated financial statements.

² Other includes operating lease payments and emission allowance purchases in all years.

The table above excludes cash outflows relating to exceptional items¹ of £7.7 million in 2024 (2023: £ nil million) relating to the settlement of severance and certain decommissioning activities arising from our 2023 restructuring programme.

Net debt¹ (borrowings less cash) at 30 June 2024 totalled £137.8 million (31 December 2023: £100.6 million; 30 June 2023: £89.1 million). The movement during the period reflected the seasonal increase in working capital combined with £24.4 million of capital expenditure as the Group continued to invest in its growth projects.

We expect cash flows in the second half to be positive, with leverage on a reported basis (i.e. excluding the impact of IFRS 16) reducing by year end from 2.0 times closer to the top end of the target range (being 0.5 times to 1.5 times).

The Group's borrowings contain leverage covenants of no greater than 3.0x. Based on the covenant definition, leverage at 30 June 2024 totalled 1.7 times, comfortably below the covenant limit. At the balance sheet date, the Group had £80 million of undrawn committed facilities.

Adjusted return on capital employed¹

Adjusted return on capital employed¹ (adjusted ROCE) decreased to 8.0% (2023: 19.6%) driven by reduced adjusted EBIT¹ on a higher level of capital employed. The increase in capital employed compared to the comparative period principally reflected the incremental investment in organic growth projects.

Capital allocation

The Group's capital allocation framework remains consistent with that laid out in 2020, with the Group committed to allocating capital in a disciplined and dynamic way.

Our capital allocation framework is set out below:

Our framework remains underpinned by our commitment to maintaining a strong balance sheet, and we will look to maintain leverage at between 0.5 and 1.5 times net debt¹ to adjusted EBITDA¹ excluding the impact of IFRS 16, through the cycle.

Dividend

The Group has declared an interim dividend of 1.5p per share (2022: 3.4p), for payment on 13 September 2024 to shareholders on the register on 23 August 2024. The interim dividend has been set with reference to our capital allocation policy, which targets full year cover of approximately two times underlying earnings through the cycle.

Pensions

At 30 June 2024, the defined benefit pension scheme ("the scheme") was in an actuarial accounting surplus position of £8.8 million (31 December 2023: surplus of £9.8 million; 30 June 2023: surplus of £10.5 million). Applying the valuation principles set out in IAS19, at the half year end the scheme had asset levels of £341.4 million (31 December 2023: £373.7 million; 30 June 2023: £348.2 million) against scheme liabilities of £332.6 million (31 December 2023: £363.9 million; 30 June 2023: £337.7 million).

On 20 December 2022, the Scheme completed a full buy-in transaction with a specialist third-party provider. Together with the partial buy-in transaction completed with the same counterparty in 2020, this transaction insured the significant majority of the Group's defined benefit liabilities.

Related party transactions

Related party transactions are disclosed in Note 15 to the consolidated financial statements. During the current and prior year, there have been no material related party transactions.

Subsequent events

Except for the proposed interim ordinary dividend, no further subsequent events requiring either disclosure or adjustment to these financial statements have arisen since the balance sheet date.

Going concern

The Directors are required to assess whether it is reasonable to adopt the going concern basis in preparing the financial statements.

In arriving at their conclusion, the Directors have given due consideration to whether the funding and liquidity resources are sufficient to accommodate the principal risks and uncertainties faced by the Group.

Having considered the outputs from this work, the Directors have concluded that it is reasonable to adopt a going concern basis in preparing the financial statements. This is based on an expectation that the Company and the Group will have adequate resources to continue in operational existence for at least twelve months from the date of signing these accounts.

Further information is provided in note 2 of the financial statements.

Principal Risks and Uncertainties

This section should be read in conjunction with the rest of this Half Year Statement as this provides further information concerning those important events that have occurred during the first six months of the financial year.

The Group's activities mean it is exposed to a variety of risks and uncertainties which could, either separately or in combination, have a material impact on the Group's performance and shareholder returns. These risks and uncertainties relate to: business continuity, regulatory and compliance, people and talent management, cyber and information security, health, safety and environment (HSE), economic conditions, financial risk management, maintaining customer relationships and market reputation, climate change, anticipating product demand and innovation and major project delivery.

The Board assesses and monitors the key risks impacting the business and an explanation of the Group's approach to risk management is set out in Ibstock Plc's Annual Report 2023, a copy of which is available on the Group's corporate website, www.ibstock.co.uk.

The Group continues to be exposed to unfavourable macro-economic conditions and a prolonged slow-down in UK residential construction markets. These areas impact a number of the Group's principal risks including economic conditions, anticipating product demand and innovation, maintaining customer relationships, people and talent management and financial risk management.

Having undertaken a comprehensive review during the first half of the 2024 year, the Board has concluded that the Group's existing principal risks and uncertainties remain unchanged from those set out in its 2023 Annual Report, and that there continue to be clear actions in place to appropriately mitigate these risks.

A full report on the Group's principal risks will be included with the FY 2024 annual report and accounts. The Board will continue to monitor the Group's principal risks during the remaining six months of the year, with a focus on economic conditions, anticipating product demand and innovation, maintaining customer relationships, people and talent management and financial risk management, alongside cyber security, major project delivery and HSE.

¹Alternative performance measures are described in Note 3 to the interim financial statements.

Statement of directors' responsibilities in relation to the half-yearly financial report

The directors confirm that to the best of their knowledge:

By order of the Board:

^*Alternative performance measures are described in Note 3 to the interim financial statements.

1. AUTHORISATION OF FINANCIAL STATEMENTS

Ibstock Plc ("Ibstock" or "the Group") is a manufacturer of clay bricks and concrete products with operations in the United Kingdom. Ibstock Plc is a public company limited by shares, which is incorporated and registered in England. The registered office is Leicester Road, Ibstock, Leicestershire, LE67 6HS and the company registration number is 09760850.

The interim condensed consolidated financial statements of Ibstock Plc for the six months ended 30 June 2024 were authorised for issue in accordance with a resolution of the Directors on 6 August 2024. All disclosed documents relating to these results are available on the Group's website at www.ibstock.co.uk.

Publication of non-statutory accounts

The financial information contained in the interim statement does not constitute the Group's statutory accounts as defined in section 434 of the Companies Act 2006. The comparative figures for the financial year ended 31 December 2023, which have been extracted from the statutory accounts for that year, are not the Company's statutory accounts for that financial year. Statutory accounts for the year ended 31 December 2023 were approved by the Board of Directors on 5 March 2024. Those accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies. The report of the auditor was (i) not qualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis of matter without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

2. BASIS OF PREPARATION

The interim condensed consolidated financial statements for the six months ended 30 June 2024 have been prepared in accordance with UK-adopted International Accounting Standard 34 'Interim Financial Reporting' as contained in UK-adopted IFRS.

They do not include all of the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's Annual Report and Accounts as at 31 December 2023, which have been prepared in accordance with UK-adopted International Accounting Standards (IAS).

The condensed consolidated financial statements are presented in Sterling and all values are rounded to the nearest thousand, except where otherwise indicated.

All accounting policies applied by the Group within the interim condensed consolidated financial statements are consistent with those applied by the Group in its consolidated financial statements for the year ended 31 December 2023, except in respect of taxation, which is based on the expected effective tax rate that would be applicable to expected annual earnings.

The following new and amended standards and interpretations have been adopted in the preparation of the condensed consolidated financial statements:

The adoption of the standards and interpretations listed above has not led to any changes to the Group's accounting policies or had any other material impact on the financial position or performance of the Group.

In preparing the interim condensed consolidated financial statements the Group has assessed the critical accounting estimates and judgements applied in the preparation of the consolidated financial statements for the year ended 31 December 2023. The areas of critical judgement relating to exceptional items (see Note 5), significant source of estimation uncertainty regarding the Group's pension scheme liability valuation assumptions surrounding future changes in discount rates, inflation, the rate of increase in pensions in payment and life expectancy (see Note 12) and the Group's future cash flows expected to arise from Cash Generating Units (CGUs) assumptions related to long-term industry demand (see Note 9) are still considered critical to the preparation of the interim financial statements for the period ended 30 June 2024.

Going concern

Despite the macroeconomic downturn, there are initial positive external market indicators with inflation continuing to fall, mortgage rates stabilising, and proposed housing and planning policy changes which could increase consumer confidence looking forward. The Group does not believe that the going concern basis of preparation represents a significant judgement.

The Group's financial planning and forecasting process consists of a budget for the next year followed by a medium-term projection. The Directors have reviewed and robustly challenged the assumptions about future trading performance, operational and capital expenditure and debt requirements within these forecasts including the Group's liquidity and covenant forecasts, and stress testing within their going concern assessment.

In arriving at their conclusion on going concern, the Directors have given due consideration to whether the funding and liquidity resources above are sufficient to accommodate the principal risks and uncertainties faced by the Group, particularly those relating to economic conditions and operational disruption. The strategic report sets out in more detail the Group's approach and risk management framework.

Group forecasts have been prepared which reflect both actual conditions and estimates of the future reflecting macroeconomic and industry-wide projections, as well as matters specific to the Group.

The Group has financing arrangements comprising: £100 million of private placement notes issued in November 2021 with maturities of between 7 and 12 years and a £125 million Revolving Credit Facility (RCF) for an initial four year tender, with an enacted one year extension option arranged in 2022. At 30 June 2024, £45 million under RCF had been drawn.

Covenants under the Group's RCF and private placement notes require leverage of no more than 3 times net debt to adjusted EBITDA¹, and interest cover of no less than 4 times, tested bi-annually at each reporting date with reference to the previous 12 months. At 30 June 2024 covenant requirements were met with significant headroom.

The key uncertainty faced by the Group is the industry demand for its products in light of macroeconomic factors. Accordingly, the Group has modelled financial scenarios which see reduction in the industry demands for its products thereby stress testing the Group's resilience. For each scenario, cash flow and covenant compliance forecasts have been prepared. In the most severe but plausible scenario industry demand for Clay products is modelled to be around 40% lower than 2022¹ in the 2024 year, which is materially worse than the sales reduction seen in 2023, recovering to around 35% lower than 2022 in 2025. Concrete products are modelled to be around 35% lower than 2022 in the 2024 year, recovering to around 30% lower than 2022 in 2025

In the severe but plausible scenario, the Group has sufficient liquidity and headroom against its covenants, with covenant headroom expressed as a percentage of annual adjusted EBITDA¹ being in excess of 30% in relation to the period under review.

In addition, the Group has prepared a reverse stress test to evaluate the industry demand reduction at which it would be likely to breach the debt covenants, before any further mitigating actions are taken. This test indicates that, at a reduction of 49% in sales volumes versus 2022 in both H2 2024, and 2025, the Group would be at risk of breaching its covenants.

The Directors consider this to be a highly unlikely scenario, and in the event of an anticipated covenant breach, the Group would seek to take further steps to mitigate, including the disposal of valuable land and building assets and additional restructuring steps to reduce the fixed cost base of the Group.

Having taken account of the various scenarios modelled, and in light of the mitigations available to the Group, the Directors are satisfied that the Group has sufficient resources to continue in operation for a period of not less than 12 months from the date of this report. Accordingly, the consolidated financial information has been prepared on a going concern basis.

^{1. Representing normalised levels of industry demand}

3. ALTERNATIVE PERFORMANCE MEASURES

Alternative Performance Measures ("APMs") are used within the management report where management believes it is necessary to do so in order to provide further understanding of the financial performance of the Group. Management uses APMs in its own assessment of the Group's performance and in order to plan the allocation of capital and other resources. Certain APMs are also used in the remuneration of management and Executive Directors.

APMs serve as supplementary information for users of the financial statements and it is not intended that they are a substitute for, or superior to, statutory measures. None of the APMs are outlined within IFRS and they may not be comparable with similarly titled APMs used by other companies.

Exceptional items

The Group presents as exceptional at the foot of the Group's Condensed consolidated income statement those items of income and expense which, because of their materiality, nature and/or expected infrequency of the events giving rise to them, merit separate presentation to allow users of the financial statements to understand further elements of financial performance in the year. This facilitates comparison with future periods and the assessment of trends in financial performance over time.

Details of all exceptional items are disclosed in Note 5.

Adjusted EBIT, Adjusted EBITDA and Adjusted EBITDA margin

In the current year, the Directors have introduced Adjusted EBIT as a new APM, in light of the Group's move to focus investors on this performance measure and its use as a key remuneration measure for senior management. It represents earnings before interest, taxation and adjusted for exceptional items and incremental depreciation and amortisation following fair value uplift.

Adjusted EBITDA is the earnings before interest, taxation, depreciation and amortisation adjusted for exceptional items. Adjusted EBITDA margin is Adjusted EBITDA expressed as a proportion of revenue.

The Directors regularly use Adjusted EBIT, Adjusted EBITDA and Adjusted EBITDA margin as key performance measures in assessing the Group's profitability. The measures are considered useful to users of the financial statements as they represent common APMs used by investors in assessing a company's operating performance, when comparing its performance across periods as well as being used in the determination of Directors' variable remuneration.

A full reconciliation of Adjusted EBIT and Adjusted EBITDA are included at the foot of the Group's Condensed consolidated income statement within the consolidated financial statements. Adjusted EBITDA margin is included within Note 4.

Adjusted EPS

Adjusted EPS is the basic earnings per share adjusted for exceptional items, fair value adjustments being the amortisation and depreciation on fair value uplifted assets and non-cash interest, net of associated taxation on the adjusting items.

The Directors have presented Adjusted EPS as they believe the APM represents useful information to the user of the financial statements in assessing the performance of the Group, when comparing its performance across periods, as well as being used in the determination of Directors' variable remuneration. Additionally, the APM is considered by management when determining the proposed level of ordinary dividend. A full reconciliation is provided in Note 7.

Net debt and Net debt to Adjusted EBITDA ("leverage") ratio

Net debt is defined as the sum of cash and cash equivalents less total borrowings at the balance sheet date. This does not include lease liabilities arising upon application of IFRS 16.

The Net debt to Adjusted EBITDA ratio definition removes the operating lease expense benefit generated from IFRS16 compared to IAS 17 within Adjusted EBITDA.

The Directors disclose these APMs to provide information as a useful measure for assessing the Group's overall level of financial indebtedness and when comparing its performance and position across periods.

A full reconciliation of the net debt to Adjusted EBITDA ratio (also referred to as 'leverage') is set out below:

Adjusted Return on Capital Employed (Adjusted ROCE)

Adjusted Return on Capital Employed ("Adjusted ROCE") is defined as Adjusted earnings before interest and taxation as a proportion of the average capital employed (defined as net debt plus equity excluding the pension surplus). The average is calculated using the period end balance and corresponding preceding reported period end balance (year end or interim).

The Directors disclose the Adjusted ROCE APM in order to provide users of the financial statements with an indication of the relative efficiency of capital use by the Group over the period, assessing performance between periods as well as being used within the determination of executives' variable remuneration.

The calculation of Adjusted ROCE is set out below:

Average capital employed figures are derived using the following closing balance sheet values:

Adjusted effective tax rate

The Group presents an adjusted effective tax rate ("Adjusted ETR") within its Financial Review. This is disclosed in order to provide users of the financial statements with a view of the rate of taxation borne by the Group adjusted for exceptional items (defined above), fair value adjustments being the amortisation and depreciation on fair value uplifted assets, non-cash interest and changes in taxation rate on deferred taxation.

A reconciliation of the adjusted ETR to the statutory rate of taxation in the UK is set out below.

Cash flow related APMs

The Group presents an adjusted cash flow statement within its Financial Review. This is disclosed in order to provide users of the financial statements with a view of the Group's operating cash generation before the impact of cash flows associated with exceptional items (as set out in Note 5) and with the inclusion of interest, lease payment and non-exceptional property disposal related cash flows.

The Directors use this APM table to allow shareholders to further understand the Group's cash flow performance in the period, to facilitate comparison with future years and to assess trends in financial performance. This table contains a number of APMs, as described below and reconciled in the following table:

Adjusted change in working capital

Adjusted change in working capital represents the statutory change in working capital less cash flows associated with exceptional items arising in the period of £4.2 million (30 June 2023: less cash flows of £1.5 million; 31 December 2023: less cash flows of £5.4 million).

Adjusted operating cash flow

Adjusted operating cash flows are the cash flows arising from operating activities adjusted to exclude cash flows relating to exceptional items of £7.7 million (30 June 2023: £nil; 31 December 2023: £4.6 million) and inclusion of cash flows associated with interest income, proceeds from the sale of property, plant and equipment, purchase of intangibles and lease payments reclassified from investing or financing activities of £4.7 million (30 June 2023: £5.2 million; 31 December 2023: £12.8 million).

Cash conversion

Cash conversion is the ratio of Adjusted operating cash flow (defined above) to Adjusted EBITDA (defined above). The Directors believe this APM provides a useful measure of the Group's efficiency of cash management during the period.

Adjusted free cash flow

Adjusted free cash flow represents Adjusted operating cash flow (defined above) less total capital expenditure. The Directors use the measure of Adjusted free cash flow as a measure of the funds available to the Group for the payment of distributions to shareholders, for use within mergers and acquisitions (M&A) activity and other investing and financing activities.