Good afternoon and welcome to the Michelmersh Brick Holdings PLC Investor Presentation. Today we are joined by Ryan Mahoney, CEO, and Rachel Warren, CFO. Questions are encouraged throughout this webinar and can be submitted via the Q&A box situated on the panel on the right-hand side of your screen. I'll now hand over to Ryan to begin the webinar.
Thank you, Harry. Good afternoon, everybody. Thank you all for taking the time to join us today to run through the presentation. As Harry said, today is my first morning as CEO, and today is really about an introduction to Rachel, who joined us also this morning as CFO, replacing my role. I've been in the business since 2021, so there's still a good deal of continuity on the board. Rachel, please.
Morning, sorry, afternoon, everybody. Nice to join Ryan and the team. I'm really excited about the new role and really happy to be here supporting. My background is I was at IAG for about 20 years, so International Airlines Group, so a background in sort of that industry. Most recently, I was the Group Finance Director at Wincanton. Great to have joined and great to be supporting.
Thank you, Rachel. It probably goes without saying that given Rachel's very short tenure, you will, I'm afraid, have me for all of the presentation, and I'll also take any Q&A that we have at the end. In terms of the running order of the presentation, I'm just going to start on page three of the deck, which is just a run-through of who we are. I'll then run through our strategy and then touch on the capital allocation framework, which is important at the moment. I'll then run through all the highlights, by which stage I probably would have covered most of the financial statements, and then I'll turn to the sector updates and then, importantly, the outlook. Lots of you will know us well, but we are Michelmersh Brick Holdings PLC.
We are a premium brick and building products manufacturer, and we operate throughout the U.K ., and Belgium, as you can see on the right-hand side of the page in front of you. We are very much focused on four lifetime revenue sources: bricks, which make up about 90% of our revenue streams; prefabricated bricks, so cutting brick operations; and we've got a dormant landfill operation. At the bottom there on the left-hand side, we will also sell any surplus land. We really deem surplus land to be land that is not being used for quarrying for brick manufacturing purposes. Capacity-wise, 120 million, give or take, normalized. 105 in the U.K., and 415 in Florence. Our prefabricated brick operations give us the capacity to cut about 17.5 million brick slips.
We very much prioritize being well-invested manufacturing facilities, and we've got 480 acres of land, which gives us very strong clay reserves across our brick-making sites. As I said, once we consume those, we tend to spin those off as land sale assets. You can see on the left there, about 60% of our portfolio is what we would call premium wirecuts, and then around 40% is soft mud. At the very bottom there, you can see, and those of you who know us well will recognize, we've got a very long track record of being recognized by the industries you can see on the page there. We are really recognized in the quality departments we work with and through those awards. I can just now turn to our overall commercial strategy on the next page.
Very fundamentally, we've got a very broad portfolio of products, roughly about 180 in our core range and another sort of 120+ , which we deem to be non-core. That breadth is really aimed squarely at targeting the full market. For us, we talk about that being RMI, housing, commercial, urban region, and specification. We try and ordinarily, in very broad terms, look to sell 40 million units, 40 million bricks, into each of those sections of the marketplace. That's because we get different pricing, different average selling prices across each of those end markets. Very simply, what we target traditionally as a business is to sell everything we manufacture. Uniquely in our sector, we very much focus on a distribution model. We sell almost exclusively through distributors.
That is brick factors like Brickability and Taylor Maxwell, EH Smith, but then also the national merchants and regionals and local in terms of family-owned as well. We see that as being the best model for us in terms of being able to reach that sort of full market coverage. That model allows us also to really look at our key performance indicator, which is order intake. That order intake through that distribution model allows us to really take some short, medium, and long-term decisions around the direction of the business. As talked about earlier, the extensive premium product portfolio is really focusing on high-quality bricks and premium-centric products, but also underpinned by what we see as our best-in-class service levels.
Finally, albeit as I'll come to talk about because pricing has been very, very competitive certainly in the first six months and actually in the last financial year as well, we still do see ourselves at a premium to the market. What that really means is our average selling prices, due to the nature of our portfolio and where it's aimed, we try and keep it as a premium to the broader market. Just turning the page, we do target long-term sustainable growth. We've got these sort of the eight pillars just in front of you on the page that we really utilize to target that. I've talked about our diverse end markets and the broad customer base. We talk about our order book and our opening proposition at both the interims and the full year.
It's that quality, the breadth of that book, which underpins what we're talking about as our guidance at each of our announcement cycles. You'll have seen, if you've had a chance to read the R&S this morning, we talk a lot about appropriate pricing to support customers on order intake. What we're saying there, in a very competitive market environment, is we look to do what we can to help our customers. We do what we can to help our customers as well in terms of protecting that order intake and that cadence of the order intake, which allows us to have that broad order book. This allows us to then give us the visibility over the short to medium term in terms of the likelihood of the call-off and the dispatch volumes and how that then converts to revenue.
Below the top line in terms of our cost management, we always have been and will continue to focus on the risk management approach to our input costs. Those of you who follow us very closely will know that the biggest number for that, certainly since 2022, has been our utilities proposition. We have got 70% hedging in for this financial year, and we've got positions in for next year. If you join the call in March, you'll know that we deliberately targeted a slightly lower profile as we saw some more opportunity in that day ahead pricing, which has been coming through so far this year. We stay very, very close to that, as you can imagine, in terms of the utilities position.
Actually, this is one of the things we're seeing as a little bit of an opportunity because, broadly speaking, FY23-24 and our expectation on 2025 are that actually, because of the nature and how we hedge, we've managed to insulate ourselves from the real upper end of that risk profile, certainly in the sort of 2022 started in February. That's been a successful approach. We're finally starting to see a little bit of stability potentially in the market with pricing settling at a new norm based on a sort of stable production coming in from the U.S. and the shale gas industry, as well as some of our partners in Africa and Qatar.
Ordinarily, I will come and talk about this, operational leverage in terms of ensuring we focus on our normalized cadence of manufacturing output to deliver the 120 million bricks is of chief importance to us, and that remains so. Alongside, you'll have seen that we focused again on further integration of our prefabricated fast feed business. Really generating more from our own sites is very much a singular part of the strategy. All of that, and a lot of that decision-making, gets underpinned by the strength of our balance sheet. That provides us with the flexibility to pursue the capital allocation framework, which is on the next slide, which we first launched in September. We really did enhance our commitment to that in March. That strength of the balance sheet is really underpinned by delivering stable cash flows.
Overall, look, we fundamentally believe we do have quality fundamentals in our business, which has been severely tested by a macro market, which remains 25% below its peak. This strategy is being very heavily tested by a broad 25% decline in brick dispatches since the end of 2022. Having talked about and referenced the capital allocation framework, if I now take that as the next slide to talk to you about. Very, very sort of top of the page, you can see the capital investments to deliver our strategy is hugely important. That really does start with maintaining well-invested and efficient manufacturing sites. For 2024, and certainly we're expecting to do the same in 2025, we will be ahead of the run rate. That ordinary run rate we look to deliver is broadly in line with our depreciation cadence, which is about £4 million of reinvestment through our sites.
Please do remember as well, we have a significant cost which we take through the P&L, which is the repairs and maintenance. We only ever talk about these items when they are capitally enhancing, either improving efficiency, sustainability, and or output. The singular aim, as I said earlier, is having the right facilities to maintain a premium product. As I say, that has to go hand in hand with a premium service. Middle of the page, we've really simplified the narrative that we talk to our shareholders, and we absolutely recognize the importance of regular returns. You'll have seen this morning with a declaration of a 1.6p interim dividend. It was in line with last year.
We have taken the word progressive off our dividend, but that's because we want to recognize also that some of our shareholders are also highly supportive of the buyback program, which we first launched in November 2022, and we ran through to September 2023. We were very pleased to relaunch that in April, following the feedback that we had from our shareholders, some of whom gave feedback on this very call back in March. Underpinning all of that, again, is that maintenance of the strong balance sheet. The key points to take away here are that we're using the focus on the working capital cycle, not really to build up cash to the same levels we did in 2023 and 2022, but to utilize that either through enhancements of our facilities, but also to support those regular returns to shareholders.
Turning to the main part of the call, which is coverage of this morning's R&S, in terms of the interim highlights, we've talked about this as being a resilient performance. I can see from the headline numbers, on the surface, it may not appear as such, but it really is, and I'm repeating myself here, but you can see in that second bullet on the page that being 25% below our peaks in terms of brick dispatches is a significant change. We've now been there approaching our third year because I don't see that gap closing hugely by the end of this financial year based on the R&S statistics that we receive. That's why we talk about resilience. It's really about continuing to focus on our strategic initiatives alongside manufacturing high-quality products, looking after our customers, but also being very mindful of those returns to shareholders.
Within the numbers, 1.1% increase in revenue was really underpinned by a 3% increase in U.K., dispatch volumes. Offsetting that number is what remains a challenging market in Europe. For our European operations for Florence, what we normally look to deliver is half of that product that's manufactured would ordinarily go to the U.K., market, and half of that product would go to our continental market. Two things really here.
The architectural specification space, really thinking about the high-rise in London and the Southeast, has been greatly impacted by what we're absolutely not disputing, the rationale behind bringing in the new regulatory environment, but the sort of Gateway 2, Gateway 3, if you've heard about them, they are the new compliance regulations that move forward the onus on specifiers, architects, to do a lot more work ahead of construction in terms of really going to much greater detail about what they're using within their expected build profile. What that's done is essentially it's gummed up London and the Southeast. We are seeing a little bit of that unlocking as we look out into Q4 and into FY 2026, but that's been a significant impact for Florence. Florence itself has declined again in terms of planning approvals. We watch that space very, very carefully as we move forward.
Our ability to sort of outperform that market, and what do we mean by outperformance? If you joined in March, you would have heard me talk about dispatches being sort of 12% below their peak. Those dispatches are now sort of 8%, 7% below their peak. You can see we are holding that market share and continuing to sort of try and steadily improve our own position within what remained very difficult markets. That is really where that narrative around outperformance comes. Plus, if you pass down into our gross profits, you can see that those metrics have declined below that sort of modest uptick in revenue. What I want to be very clear about here is that's as a result of an extended shutdown at our Carlton facility. Just to remind you, we started the year with Florence, Michelmers, and Carlton all closed for planned capital enhancement works.
The challenge for Carlton was we had a two-week extension beyond our expectations. Unfortunately, that did knock our ability to manufacture and then dispatch those products, and also then delayed that recommissioning phase, which absolutely is part of the course for such significant improvement works. We talked about when we released our AGM trading statements, and our expectations then as well were that we'd be able to claw that back. We haven't been able to get the outperformance that we were targeting. Really looking into H2, our expectations and our guidance have very much been built around normalized cadence returning really largely across the group, apart from Florence, which I'll come to talk on in due course. As you'd expect, that has gone down into our EBITDA metrics as well. EBITDA are £ 5.9 million below the last half-year comparison of £ 7.2 million. We do expect those margins to strengthen.
As I said, we very much see some of those impacts as one-off in the first half. Despite these challenging markets, we are still in a net cash position of £1.5 million. I'm delighted to announce this morning that HSBC have once again renewed their revolving credit facility with us for a further three years with two one-year extensions. Their support is hugely appreciated. It is clearly a testament to the fact that they remain hugely supportive of the business. Most importantly, that financial capacity and reach continues to underpin our financial resilience and decision-making as we look to deliver against our capital allocation policy. I've talked already about the highly competitive pricing environment. I'll come on to talk about that in the context of what that means for production volumes.
It is competitive, and our job is to continue to respond to that, making sure that we do also very closely monitor that premium market position, which is very important to us. At the bottom of the page, delighted to declare a £1.60 interim dividend. I really hope this does demonstrate the board's confidence in the outlook of the business. Reiterating that real importance, the returns to shareholders are of singular importance to us. Turning the page to operational highlights. Just that top bullet there, when we talk about sort of normalized manufacturing volumes and order intake running ahead of that, what we're sort of saying is if you take that £120 million of normalized manufacturing, anything above that number, we would talk to order intake being ahead of that. Ordinarily, we would expect to get 10% degradation in that order book. We pulled that in.
What this is saying to me is that there is opportunity there. People are keen, but there are lots of other reasons why there are some of these delays in the market, some of the conversions, some of the delays in call-offs. It is an important metric for us that says, look, there are green shoots in the market, but we are still exposed to some of the sentiments, which I'll come to talk to in a bit more detail later. I've already talked to that second bullet there in terms of the mid-single digit increase in U.K., dispatch volumes. That was within our expectations given the visibility we had in our order book. That stability in our market share really does demonstrate the quality of our cultural relationships and really how our products compete in the marketplace.
The Carlton works, if we think of when we acquired the site in 2017, whilst we had done capital improvements works, nothing like the extent to which we ended up doing at Carlton. If you were dialed in for the full year, you'll remember me talking about the fact that we pulled this forward from 2026 because we had an opportunity with where the market was, with some of our inventory on the ground, to try and get this done in a nice moment of time that could work very well for the business. It is just disappointing we did have this delay that has unfortunately dragged on H1 profits. I've talked about the active management input costs and those other elements within the fundamentals of our cash flow really supporting those manufacturing investments.
Just at the bottom of the page, to reiterate, we absolutely recognize there have been some changes to leadership in the organization. Peter Sharp has stepped down from the board this morning. Peter's been a huge supporter of mine. He's been a great support to the board. He was joint CEO from 2016. The most important element that I see in the announcement this morning with regards to Peter is that given his 40 years of clay industry and clay experience, we're very pleased that he's staying on with us as an industry advisor to the board. You'll know about my own change stepping across from CFO to CEO. Clearly, we've had the opportunity to welcome Rachel today on her first day, which is a great opportunity for her to meet shareholders and will continue to do so with the coming days of the roadshow.
Moving on to our sustainability highlights. We don't get as many questions on our ESG metrics at the moment, but I'm here to tell you that we still see these as hugely important. We continue to very actively monitor our 17 non-financial KPIs, which those of you who read our annual report and accounts will know and will know well. We are very conscientious about delivering them and delivering against our net zero 2050 goals. We once again really focused on that incremental process in the first six months this year. A lot of that has been now gearing up and supporting our internal talent with critical third-party external consultants who can challenge the business, but also to add critical independent thinking with regards to some of the major decarbonization projects that we're looking to prioritize over the next decade.
We will have much more to talk about with that Brian, we move forward to the annual report and accounts in March 2026. The very first bit of the project that we're focusing on is really optimizing the data that we are getting from some of the capital improvement programs that I mentioned earlier. It isn't just about thinking about the throughput of raw materials and making bricks more efficient. It's also about information we're getting from the kilns as well to work as smartly as we can and really work on efficiencies through our cost base as well. At the bottom, you'll know that we installed solar panels at Blockleys. We installed solar panels at Florence and quite naturally Freshfield Lane on the south coast, lots of lovely sun.
We are also now going through the planning process and we expect to hopefully get that all over the line within our next financial year. We continue to see renewables as an important part of our decarbonization strategy. I was really now proposing, having given quite a lot of time to the specifics of the financials, I'm sure we'll have some more questions on those. In the interest of trying to make sure I give plenty of time for questions, I was just going to sort of sweep through to slide 18. If you're following separately on the screen, this is the set starting with the slide that talks about our U.K, housing dynamics. You'll all read a lot of the narrative and you'll hear a lot of the thought leadership that's in this space. The fundamentals of our business and our sector do remain highly supportive.
I really must include Belgium in this. Whilst everyone knows about the 300,000 new home targets in the U.K., Belgium has its own 70,000 new home targets in its own country as well. In both of our domestic markets, we are somewhere in the region of half to 60% of those targets. That is a huge growth area for us to move into in terms of really helping and being in the right place with the right sort of manufacturing cadence with our facilities optimally positioned. When that does really start to turn, we're in a good position to do that. Mortgage availability remains good. We would have wanted interest rates to reduce more quickly, but mortgages are available. Inflation is remaining ahead of Bank of England targets. We are all watching some of those key indicators.
The inflationary dashboard is looking amber again in terms of potentially, certainly in some sectors, potentially going out 6% again. I'm thinking there about food prices. Of course, all of that feeds into cost of living and some of the decision-making that some of our end customers will be making. Sat against that, again, if you look longer term, you know, if you think about the south to north, and I'm really talking about this globally, immigration, the rise of single dwellers in homes, the population aging, it does all point to the fact that we must and need to build houses. Underpinning all of that, as you would hope, is the U.K., government and Belgian government, which are committed to reversing those declines. There are not many days that the government are not really verbalizing their focus on this.
I think this is very keenly felt through trying to improve the planning process, which from our perspective, we see as a big part of this. A lot of the delays at the moment are certainly in London and the Southeast, as I mentioned earlier, that we are just gummed up and we've got to get through this phase of the change in regulation before we can start seeing some of those developments which are keen to move forward with those projects to start to get those happening. That also is in many housing developments up and around the country where there are a lot of special interest groups who are able to slow and cajole. I think the government are very focused on ensuring the challenge when it's appropriate is afforded, but also looking at trying to smooth some of those processes.
The other interesting bit that we really are following quite closely is there's an awful lot of talk around really focusing on the quality as well and the facade and the feel of the built environments. A lot of that we see ourselves with our premium offering. I really am focusing the premium now on aesthetics, really playing very well with a lot of the narrative. You think about a lot of the new towns that are being mooted. We're watching that with interest as a great opportunity. Just to the bottom there, RMI remains a very important space for us. Brick is still a hugely favorable material of choice for high-rise cladding, remedial work, specification projects. It also works very well for our built environment. You look back to Georgians, the Victorians, then the Edwardians.
We've got 200 years of brick representing a hugely important part of our built environment. We very much see the importance of that continued. Turning over the page, current trends, and this is where we remain watchful. Those of you who've seen the presentation will really know the importance of supply and demand. Those top two lines of the light blue, I know they're sort of quite difficult to see in the orange. The light blue has just moved ahead again of the orange, which suggests that production has indeed moved beyond dispatches. What that really does is you can see on the top right there, inventory volumes on the ground at or around 500 million. At the moment, we've seen that sort of 10 million increasing each month. We've got to be really watchful there.
That's why I'm trying to be very clear and transparent with you that headline pricing is where I see our focus and really staying very close to that as the competitive position stays very active in amongst our peer group who are equally trying to keep their own order book in good shape. We are and can't hide that construction activities remain below the 2022 levels. As expected, and as we've always been really clear, European imports are again staying at that 20% level. As we've always said, the U.K., market is still keen to bring in those soft mud products from the European Union. They remain a competitor for us, certainly from our south coast facilities. Longer term, as I've just said on the previous slides, the fundamental market drivers really are encouraging for us.
Turning over the page and still very conscious of time and trying to leave good space for questions. We haven't updated this because we try and update this annually when we've got a clear picture. Otherwise, I'm extrapolating on sort of half data at a half-year point. If I do extrapolate, we are looking at a modest pickup to that 1.4 billion of dispatches in the U.K.. You can see some of that coming through within our own first half improvements. I think it remains a competitive market. You know, whilst there are some green shoots, the market is just quite unpredictable and quite undulating. I can point to some positive elements and some more challenging elements. Again, really, that is a London Southeast focus for us. Brickworks-wise, we're in a period again where some of our peer group are bringing capacity back into the market.
We don't have total clarity around all of those, but as you'd expect, we've stayed very close to them in terms of some of them are impactful to us than others. That picture is the same in Europe. We know factories have been closed, factories have been off board. We are going to be in another period of time before we get real clarity about what that new steady state looks like in terms of U.K., and Benelux, both manufacturing and then normalized dispatch volumes. We'll move on from that slide given that context. Just finishing on the outlook, starting the summary really from our industry perspective, it remains very, very competitive. The market remains challenging. We remain 25% below our recent highs of 2022. We remain very watchful of consumer sentiment and caution. We are critically short of housing here and on the continent.
Sat alongside that, brick continues to be that facade material of choice. With my brick making side and my brick making hat on, there are very significant capital intensive and complex barriers to entry. Our dashboard is mixed, but I'll come on to now talk about Michelmersh. For us as a group, it's about diversity. It's about diversity of end markets, about diversity of our product base. That really continues to underpin our expected performance. We really are very focused on maintaining a well-balanced forward order book. As I said earlier, we are taking difficult decisions around pricing in a very competitive market to support that intake. We are seeing resilient momentum in order intake, and as I said, we are seeing that still running ahead of our manufacturing volumes. Trying to de-risk some of the major cost-based elements, which I've talked about with utilities.
That strength of the balance sheet is singularly important to us as it does, as you can see, continue to underpin our investments in our facilities and as well that planned cycle of returns to shareholders through the interim dividend announcement this morning for January next year, but also the share buyback program, which continues to run at the moment. We have taken that decision given where Europe is to temporarily close manufacturing foreign in Q3. We very much hope that and expect that will open in Q4. As ever, we have imagery on the ground and plan for very, very minimal disruption for our customer base in terms of the timing of those call-offs. In terms of those closing points, the absolute point of inflection for our macro market, I can't give you that certainty and that point today. As I say, those medium-term fundamentals are positive.
For us, it's really been about making sure we are again using the last six months really well positioned such that we can be in the right place to respond well. That's with imagery on the ground, with all capital improvements completed, with our operational cadence within our expectations, with fast feed further integrated into our business, and with a real focus to commercially integrate that as well so that we start to take that away from that new build focus across our traditional end markets from the brick side. With all of that and with some of the half one challenges, and notably really around focusing on Carlton within that, clearly the board has focused around guidance being in line with FY24. We have said today we are then looking to return to growth for FY26. Thank you so much for your patience.
I know it's a long time just to listen to one voice. I'd like to very much open up to questions, which I know we've had some through already, which have been pre-submitted.
Thank you. We've had a number of questions pre-submitted and submitted live. The first one being, is the dividend safe and do you plan to increase it?
Is the dividend safe? Yes, I mean, we absolutely know that dividends are hugely important, which is why we have once again announced the £1.60 cents. It will be the last thing that we would want to compromise on. As you can see, we are also putting our resources to the share buyback program, which we equally know is an important dynamic of the shareholder returns. I think what we did was the capital allocation framework. What we did is we took the word progressive off dividends because we wanted to give both of those options to shareholders. Where we can do both, as you can see, we absolutely will. Whilst we don't want to reduce that dividend at all, it may well be that it's in a steady state while we look at buybacks.
Equally, the board stays very, very closely attuned to our shareholder base, and all feedback is always very much appreciated, which is very much why we deliberately targeted September as a sort of softer launch and then March to really critically commit as a group to that strategy. We absolutely know it's hugely important to our shareholder base. As I say, we are very pleased again to commit to January's dividend with the interim declaration this morning.
Thank you. Has there been any change in customer payment behavior given the wider economic backdrop, and is bad debt risk increasing?
It's a good question. I mean, look, first and foremost, going along the lines of what I said about really monitoring the risk base, we do credit insurance. That's a really important point. Please don't take that comment as bad debt risk is rising. We have always credit insured even during what we can talk about as very good years for brick dispatch volumes. We are very, very fortunate that we stay very, very close to our distributors, many of whom have got strong balance sheets themselves in the manner in which they run their own operations. No, I mean, I'd never be flippant to say that we're absolutely agnostic of the risk to bad debts. All I can say at the moment is the experience and the narrative and the terms in which our customers are paying us, there has been no change in behavior.
That deep and loyal relationship is hugely important to us. It goes right from us delivering and doing what we say, right the way then to our customers paying in line with the terms that we've agreed with them.
Thank you. Are rising energy and labor costs hurting profits?
They're two very different questions, actually. I understand that the overlap really with cost of production. Utilities, our experience cost within our sort of cost of production through 2023, 2024, 2025 has actually been quite static because if you think about the way that we layer our sort of strategy to de-risk utilities pricing, what we do is we tend to look out over four years and then we layer in forward positions against our expected demand curve. What that does is it de-risks the outer limits, but it also then removes, particularly when we're at very high levels of hedging because we had to be because the market was just so volatile.
What I was saying earlier about the utilities, where there is quite rightly a lot of narrative around the thought leaders who are guiding towards the consumer pricing, what we're seeing as a business because of that forward demand, we're actually seeing a bit more opportunity. If you remember when I talked to you in March, we deliberately kept open some of the day ahead pricing because we saw a bit of an opportunity there. Actually, some of that opportunity has come through across the first sort of eight months of fading this year. We've got what we see as steady state pricing in for next year and the year after. We're seeing that as a bit of an opportunity. On the other side of it with labor, I think the cost of living allowances are something we've been very focused on.
You'll know that we put through two mid-single digit increases for our people. You'll know that the national minimum wage has been really running ahead of those numbers for really quite a few years now. It goes without saying, we absolutely do pay everybody above that level. What that does is it puts pressure further up the wage and salary structure. We stay very, very close to it, which is why we as a business are focused on other areas that we can deliver cost savings, hence the focus on rapidly trying to integrate elements like fast speed, reducing some of those external overheads through lease structures, through some of the efficiencies you lose with standalone sites, through leveraging off our high-quality leadership structures that we have in parts of the business. They come with difficult decisions for people who aren't able to relocate with us.
We're very aware of that. The cost of living allowance increases is something we're very focused on. Utilities, we're seeing a little bit of opportunity.
Thank you. Are your factories running at full capacity, or do you have spare room for growth?
Good question. Hopefully, you can see I've done my absolute best to answer quite a lot of that. If I look back into 2024, we've got a 12-month program of very significant investment, which will be probably £3 million to £4 million ahead of normal run rates. If you think about that, £3 million- £4 million that we're known for in terms of the annual investment cycle. Florence last year was closed for three months, Carlton two months, and this year we started with Carlton then closed for another month. There's the recommissioning period, which I've talked about at the beginning of the call. Florence again was closed in January, and as I talked about Q3 with the expectation of reopening for manufacturing in Q4, and then Michelmersh was closed for January and February again for very much planned improvement activities.
We haven't been at the £120 million really since looking back into 2023. Yes, we have got growth against that really because we're targeting getting back to that normal cadence. What I would say is that strength of the balance sheet has allowed us to invest in inventory. That inventory also gives us that opportunity to take advantage of some of that near-term opportunity as we see it. We still see that as the right investment to have those bricks on the ground. The other side of it is that then helps nice long runs for our production facilities to minimize some of the changeover because 180 products, there's quite a lot of changeover if you're doing that over a short period of time. Having nice long runs, well-planned production runs all helps the efficiency of our operations.
Yes, there's opportunity, and we are very much targeting that steady state as we look forward.
Thank you. How has stock management evolved given softer markets, and is there a risk of excess inventory building up?
Yeah, I think this is where the points I was making. When we planned for having stock on the ground, it was very much because we wanted to minimize the interruption for our customer base. Look, largely, and I've been very open and transparent around Carlton, largely we were quite successful with that. Certainly at Florence, at Michelmersh, they were very successful. We do have the sort of the recovery in the market has been more skewed towards wirecuts, actually, which is probably the first time that's been the case.
Our wirecut stocks are actually quite low, and that probably helps to explain some of that ability and challenge for us to meet some of those opportunities, certainly in, and actually in Q4, if you look back on our half-year and our full-year materials, I'm sorry, last year, but also in Q1 this year, where we've had a bit of a missed opportunity because we didn't quite have the stock on the ground as we hoped to. Planning over a three-month period is very, very difficult. At the moment, we've got more stock in Florence and Freshfield Lane. Again, I'm going to cite the sort of the impacts of the planning through London and the Southeast. As I say, we monitor it, we monitor it very closely.
It is something we take very, very seriously, but we think still it's the right thing to do to have that product on hand because we know that if that does loosen up and free up, there is demand there to want that sort of almost next-day delivery. I've always said, and I've already been very, very clear, the best price we get as a business is on those short-term order fulfillments because they tend to be more relaxed around pricing structures. Yeah, we stay very, very close to it. It's been a challenge managing around it. We are very aware of the risk. As I say, at the moment, we still think it's the right thing to do to continue to invest in those specific plants where we do have a bit more stock on the ground.
Thank you. You've mentioned challenging market conditions in Europe. Could you expand on whether that refers to volume, pricing, or macroeconomic pressures, and where you could see traction or recovery?
Yeah, I'm afraid it's all of the above, actually. The Belgian market is a different market because they don't have the same national volume house builders that we do in this country. They are all listed, so they're all on that six-month cycle, and more often if they're doing trading statement updates. You as active investors who monitor the market, you'll be very alive to the dynamics there. Within our Belgian space, they tend to be smaller, architecturally specified, lower volumes, more individualistic. Our ability to look through the market there is more challenging. As I say, for Florence, please do bear in mind that we do target exporting that product into the U.K., as well to try and drive that best price for our foreign portfolio. It's a very desirable portfolio for our U.K., customers. We've done well to build, in ordinary circumstances, a good customer following for it.
Yes, I'm afraid it is macro. They themselves talk to, as I think I said earlier, 65,000 to 70,000 homes newly constructed. Latest planning statistics give them a run rate of just below 38,000. You could see that they are also macro-challenged. The same read across in terms of immigration, new homes, aging population, south to north, all of that applies to Belgium as well.
Thank you. Following the share buyback activity, specifically the purchase of 30,000 shares at £1.01, does the company expect to accelerate buybacks or retain flexibility?
Yeah, very good question. We'll retain sort of flexibility. If you are able to turn back and look on the website, the presentation materials, we've always said that where the board see opportunity, and of course, that we've got the availability of surplus cash to do so. They are still important ratchets. We monitor it all very closely. Also, please worth bearing in mind that we are hands-off. You'll see in the RNS announcement that went out in April, we do hand over responsibility to Canaccord to run the share buyback program on our behalf. They are capped at daily volumes. A day like today with much higher volumes, you think about the normal cadence for us as a group, we'll see anywhere between 50,000 and 200,000 on an ordinary volume day. When you see 30,000 going through, often the case is we may have reached our daily capacity.
It's really dependent on a number of factors. Please do bear in mind, I'm not the one controlling that. The board are the ones who have said we are happy to go up to £2 million if investors are looking to sell. It's a route to exit the market for them. Do try and put all of those factors together when you see those daily announcements.
Thank you. How exposed is Michelmersh to new build housing compared with repair, maintenance, and improvement activity, and which segment is showing more resilience?
Yeah, so those two buckets are the ones we talk about most readily. Really, a little bit different, I'll come on to the RMI space because it's an interesting one, but we try and do a third and a third. We do have a lot of new homes that we do and sort of regional house builders who we work with, as well as the merchant market and the developer space through the brick factors. They remain hugely important to us. RMI has been okay, and with 3% dispatch increases, I hope you won't mind me using okay.
It's okay, and it's sort of held up all right across the country, but we're just still really close to it, still really very careful to monitor it because it's the one area which can get turned off again as quickly as it can get turned on again in terms of a lot of that customer sentiment. The new build market, again, I'll separate London and the Southeast because more of the activity has been in the other regions. Being totally transparent, if you follow some of the other announcements, some of the sustainable housing, which we do do some work with, and those of you who follow us closely will know that, and also some of the volume house builders have been the parts of the market who have seen a bit more activity.
While we, as I say, talked about our performance, and I'm really measuring that in terms of brick dispatches, our end markets have been okay in support of that outperformance. It's really around some of the foreign markets, some of the developer space in and around London and the Southeast. Other parts of the market we've managed to continue to be resilient through.
Thank you. Management notes that order intake is ahead of normalized manufacturing volumes. Can they quantify how much the order book exceeds typical volumes, and whether that implies H2 revenue will exceed H1 levels?
Hopefully, you can see on the guidance that was released this morning that I hope we've been very clear around our expectations for the end of this year, and you can see what we've done in the first half. I'm not going to address the revenue question ever more directly than that sort of mechanical process. I think, again, there's a commercial value to us being too open with regards to where our order book and order intake are, which is why it's not guarded, but I hope you can see with the clarity in which I talked about the business and around the £105 million of manufacturing cadence and the £15 million in Europe, that's how we're measuring that metric.
See it as ahead, but as I say, we are in a critically competitive market space at the moment, so we don't really talk about it any more than saying ahead or behind.
Thank you. The gross margin contracted from 36.2%- 33.6%. What were the main cost pressures contributing to gross margin decrease?
Yeah, so again, this is really around top line pricing. Think about Florence and the impacts there. It is still 10% of the group Florence. I know we've had some questions through the day about how important Florence is. It is very important in terms of being able to move some of those numbers. If you look at it in terms of the gross margin, it's £800,000 that explains some of that margin drop-off. The element here is really around some of that shortfall in Carlton and carrying some of those additional costs. We've also got some of those other elements which we talked about there with regards to cost of living allowance increases and also some of the specific one-offs around national insurance contributions, which again, we try to cover when we're coming through.
Really, where we try to put through that price rise, we didn't do that portfolio-wise at the start of April. Some of that has gone through and our customers have been very understanding, but there are other elements that looking at that sort of appropriate pricing, we've had to take some decisions on. It's really a factor of quite a few outcomes, which I hope you can see I've really tried to address through the presentation.
Thank you. Given revenue edged up only 1.1% year on year to £35.8 million, while adjusted EBITDA fell 18.1% to £5.9 million, what specific market dynamics in Europe versus the U.K. drove this divergence between top line growth and margin compression?
Yeah, I hope I've addressed that point. I've sort of further 20% decline in our bowling activities. That's a very decent number for us to manage around. As I say, we are still trading in very competitive sort of top line targets. Please do see the impact of some of those one-offs in the first half. I do expect margins to strengthen across H2. As I say, our attempt this morning with the RNS has really been to try to explain where Carlton, which I hope again, and I will emphasize again, has been the most material impact for us. Also, the fact that Florence, a 20% drop-off is meaning for us on that if you look and read across that 10% revenue and profitability across the group.
Thank you. Have you fixed energy costs to avoid price spikes?
Yeah, again, I hope you all agree that I've covered this in a lot of detail. That fourth bullet on the sort of Michelmersh outlook on the page there, as I say, it's about trying to take the opportunities for the day ahead and again, taking opportunities where we see them in the forwards market and that we really try and stay and continue to stay very close to that. Hopefully you feel that's been well answered.
Thank you. Are customers asking for more eco-friendly bricks, and can you charge more for them?
Yeah, it's our own hybrid project, which was very successful in terms of proof of concept and of full substitution for gas in the market and utilizing hydrogen. That was an excellently successful case study. If you've been to the Science Museum and hopefully sat on the bench there, you'll see that it's there as a very successful example of what we're capable of as a group and, to be honest with you, as an industry as well. Yes, we do get questions around that, but equally at the moment, the market is very focused on price. That is really what is driving a lot of the narrative with our, certainly with our end customers. As I've said on my sustainability slide, I'm not going to turn my back on us really focusing on our carbon or decarbonization initiatives, I should say.
Yes, we expect those questions to become more full again once some of those fundamentals that we've talked about at length really do start to come through to fruition. For us now, it's about making sure that that sort of hydrogen project and proof of concept is sat alongside other initiatives that really help us to take forward meeting some of those niche, but they are there and I'm sure we'll be growing customer queries.
Thank you. Could government housing plans boost demand for your products?
I could answer that with one word and just say yes, but I won't be that flippant. We would like to see a help to buy. We see there's an awful lot of consumer enthusiasm to get on the housing ladder. I think help to buy is the right use. It often has had a bad connotation with some executive incentive schemes. Look, it's really very helpful because there are an awful lot of responsible first-time buyers who will approach taking on their first mortgage with a really high degree of responsibility. We think there's a lot of value there for them. In the absence of that, it is all about trying to improve the stability of the planning environment.
Our sector needs just that consistency, and I think that's really where the government can help us by having a stable regulatory environment, which we can all work to, but also the planners can work to. I have no doubt that we are going to be in the right place to step up to help them, which is all we want to do.
Thank you. Are you actively looking at acquisitions to grow the group further?
As part of the capital allocation strategy, we were very open and said that M&A was non-core for the group because we were prioritizing those shareholder returns. Just to play back the sentiment that we said there, I don't think that's a turning our back on. It is very much about if the board sees opportunities, the board will act. As I say, we can see that there's a lot of opportunity for us to continue with those shareholder returns and prioritizing those alongside what we see is still an exciting growth story for our prefabricated business. We acquired that with a renewable focus, and we want that to be a business that can really address the full spectrum of the market. We see a lot of our sort of organic opportunities. Just finishing, the board would of course act if it sees something that's interesting to move on.
Thank you. The next question is, congratulations on the CEO appointment. What are your priorities now?
Thank you very much. Yeah, I mean, look, I'm a huge supporter of the business. I was delighted when I was asked to take the role. Obviously, delighted that Rachel's now joining and taking over from me as CFO. I think I hope it's coming through very, very clearly that we've been very busy in terms of leadership, in terms of really looking to deliver some of those capital improvement programs, focusing on integration. We have actually, which we haven't talked about hugely, really been focused on leadership throughout the group as well. For me, at the moment, my steady state is getting us to that steady state to deliver some of the fundamentals, which you can see, and hopefully you can think that I'd be very open about in this presentation.
We want to get that steady state to give our people the right opportunities because growth in FY26 only gets delivered by us doing the basics well. Alongside that, we then focus on the commercial opportunities, really taking further steps with fast speed, and really delivering those cash flow fundamentals to really then prioritize some of those shareholder returns. The capital allocation framework is really one that the board is very comfortable. Me as CEO today, standing behind, and look, we are, as you can see, committed to delivery against that.
Thank you. That's all the time we have for questions. I would like to hand back to the management team for any closing remarks.
No, thank you. Thank you so much. I appreciate it's always very difficult to talk to a presentation without seeing any faces. Thank you for your time today. We were really very keen that we did prioritize this opportunity to speak to retail holders, non-holders, people who are interested in the story. For us, you know, the market has been difficult for quite some time, and the resilience of our business model is and continues to be severely tested. We have very much focused on doing the right things to put ourselves in the right position to not just continue to be resilient, but to be in the right place to take advantage when the markets do improve as well. Strategically, you know, we focused on doing the right things. We have focused on really making some of those decisions that can improve our cost position.
I'm very proud of our commercial teams who continue to really work very, very hard to deliver on that dispatch-up performance. I just want to finish by saying thank you for your time. It means an awful lot to me and to Rachel. Yeah, and we hope to see you again in March.
Thank you for joining us today. That concludes the Michelmersh Investor Presentation. Please take a moment to complete a short survey following this event. The recording of this presentation will be made available on Engage Investor. I hope you enjoyed today's webinar.