Good morning, everybody. Many thanks for joining us today. For those of you who haven't had a chance to meet, my name's Neil Ash, and I'm the CEO of Forterra. I'm joined today by Ben Guyatt, who's Forterra's CFO. In terms of the agenda for today's session, I'll run you through the trading headlines before passing to Ben, who will cover the financial review, and then it's back to me for a Market A review, strategic update, sustainability, and outlook, and concluding, of course, with the usual Q&A session. If we move on to our operational trading headlines, despite an incredibly challenging year where brick industry dispatches fell by around 30%, we delivered an EBITDA of GBP 58.1 million. The challenge in market meant we had to take decisive actions to reduce costs, resulting in savings in excess of GBP 20 million.
Importantly, this has been done in a considered way to ensure mothballed sites can be brought back to the market when the time is right. We also made excellent progress in our GBP 140 million Capex program, with Desford coming on stream early in 2023 and excellent progress being made in Wilnecote and Accrington. I'll explain a little bit more about those projects later in the presentation. Both of those projects expect to start in 2024. At this stage, I'd just like to take a moment to thank all of the Forterra employees for their valued commitment during this challenging year. It's people that make this business, and we can be proud of what we've achieved. Now it's over to Ben for the financials.
Morning, everyone. It's good to see so many of you here today as we approach Easter, and for me, this is a new venue as well, so always good to have a change of scenery. Before I get into the numbers in detail, I should clarify, throughout this presentation, we're predominantly talking about adjusted numbers. These adjustments relate to the exceptional costs of restructuring our business in response to the drop in market demand and include redundancy costs as well as non-cash impairment losses on mothballed factories. Our total charge for exceptional items is GBP 14 million, as I'll explain in more detail later on.
We have reported a 24% reduction in revenue relative to the prior year, driven by an overall volume drop of a little over 30%, partially offset by a positive pricing benefit in the region of 10%, with this pricing benefit primarily resulting from the full-year benefit of the mid-year price increases we delivered in 2022. This drives a resilient EBITDA performance of GBP 58 million, with a margin of only 280 basis points behind the prior period, despite the March reduction in sales volumes. Adjusted profit before tax was GBP 31 million, with this falling by a greater percentage than EBITDA, driven by depreciation, which doesn't flex and which has also increased due to the opening of new Desford, along with rising finance costs. We have reported an adjusted cash outflow from operations of GBP 5 million, reflecting the reduction in EBITDA in the period, along with our increase in inventories.
We ended the year with a net debt of GBP 93 million, which on an LTM banking covenant basis remains below two times leverage. In light of the current market conditions, with a reduction in earnings and the Capex required to complete our strategic projects, leading to temporarily elevated net debt, and with backward-looking leverage based on trough earnings expected to peak at close to three times at the half-year, our proposed 2023 final dividend is based on a prudent payout ratio of 40% of adjusted earnings rather than the established 55% ratio. Accordingly, we are now recommending a final dividend of GBP 0.02 per share, bringing a total distribution to the year to GBP 0.044.
Notwithstanding the current uncertainty, the board remains confident in the prospects of the group and, in particular, its ability to benefit from a market recovery now unencumbered by the brick capacity constraint that has hindered us for many years. We expect leverage to have returned to around 2x by the end of 2024, and the board intends to return the payout ratio to 55% of earnings as soon as market circumstances and our balance sheet circumstances permit. Moving on to this slide, I won't spend too long here because we've already talked about most of these numbers, but I will take this opportunity to provide clarification on a few of the more technical aspects of our numbers. Our finance expenses increase as a result of both increased borrowings and rising interest rates, and as a reminder, the group was in a net cash position for most of 2022.
Our effective tax rate has increased from 19.3% last year to 24.5% in 2023, with the principal driver of this being the 6% increase in the headline rate of corporation tax, which took effect in April 2023. So this will have a weighted 4.5% impact on the 2023 effective rate. On this basis, assuming nothing further changes, we would expect a further 1.5% to be added to the effective rate in 2025, leaving our effective rate very close to the headline rate of corporation tax. So with the market falling by just over 30% at a time when we're opening new Desford and with an inventory build of about GBP 50 million, it was imperative that we took decisive action to prevent these inventories growing further.
As discussed before, brick factories are high-fixed cost operations, and as such, flexing production efficiently is less easy than in a concrete plant where variable costs are much higher. Before I give greater insight into our management actions, I first just wanted to explain some of the considerations that informed our decision-making which started around a year ago. So as we entered 2023, we had record low inventories, so first of all, these needed to be replenished. Looking back, the first half of 2023 was characterized by an uncertain demand outlook with continued expectations of forthcoming recovery that ultimately never arrived. We also had to manage with the added complexity of commissioning the new Desford brick factory at a time of great uncertainty and with expectations of a swifter market recovery, not wishing to mothball alternative capacity ahead of ensuring Desford was operating reliably.
It's also important to appreciate that mothballing capacity too soon can be a costly mistake should these decisions ultimately prove to be premature. So taking all of the above into account, we acted decisively to align production with current levels of demand, ensuring that any inventory build in 2024 will be limited. So we have done this. We've reduced our production in a cost-efficient manner through the following actions. So firstly, we've mothballed two brick factories at Howley Park and Claughton. We've implemented shift reductions at other factories. We've taken production breaks and taken extended maintenance shutdowns. In addition, we are rigorously controlling costs across the business and have also restructured our commercial and back-office functions accordingly. Regrettably, these actions have seen around 300 of our colleagues leave the business.
These actions will deliver annualized fixed cost savings of over GBP 20 million per annum, with around GBP 6 million delivered in 2023 and with the balance being delivered in 2024. One-off cash costs associated with this restructuring are expected to total GBP 9 million, with a further non-cash impairment totaling GBP 5 million. I guess the most important point I actually want to make on this slide, though, is that none of these actions diminish our ability to rebound strongly as our markets recover. In fact, we have now removed the capacity constraint that has hindered us for much of the last decade, and Neil will elaborate on this further later in the presentation. So let's look at the results by segment in a little bit more detail. So as always, the primary driver of operating performance is the brick-and-block segment, and again, driven by the overall market.
The market conditions driven here, we're reporting a 26% fall in segmental revenue. Domestic industry brick dispatches, as reported by the Department for Business and Trade, fell by approximately 30% during 2023. Our own brick dispatches are down a little more than this due to what we believe is customer mix and our exposure to volume housebuilding. While this has added to our challenges during the year, again, this leaves us well-positioned to benefit as the cyclical housing market recovers. Year-over-year, we've seen a pricing benefit of approximately 10% driven by price increases in 2022 and early 2023, which partially offset the volume decline. Despite current competitive market conditions, our selling prices remain firm, with only a small degree of price erosion seen following the exceptional increases that we delivered in 2022.
Responding to inflation in our own cost base, we have announced modest price increases in early 2024, and despite challenging negotiations, expect to deliver low single-digit increases overall. These numbers on the slide, this reflects the commissioning of the new Desford factory, which wasn't without its challenges, although good progress was made in half two, and this continues into 2024. Depressed market demand, however, is influencing how hard we can push the factory, meaning we can't access the economies of scale that will ultimately drive the industry-leading efficiency that the factory will offer when it is able to be run at full output. Our energy costs were in line with the prior year, with reduced usage, offset by higher prices.
With the reduction in production in half two, we had overpurchased energy towards the end of the year and did realize a small loss exiting these positions, which we have treated as an adjusting item. This loss, however, was cancelled out by a small derivative gain where we expect to be able to exit future excess purchases at a profit. Hence, you don't see this in the summarized numbers. We've got good visibility of our energy position for 2024 and have a high level of our positions fixed ahead. We are also layering future positions at competitive prices out to 2027. We will also gain 15-year price certainty from electricity price certainty from our solar farm, which will begin supplying over 70% of our electricity needs next week, although we don't get the full pricing benefit for another year.
This all contributes to a resilient segmental EBITDA of GBP 52 million at a margin of 18.8%, which is 4% lower than the previous year. So moving on to look at bespoke products, and I'm very pleased to say that we're reporting another really strong performance in this segment. Revenue in the period was only 14% behind the prior year comparative, again with pricing gains partially offsetting the volume drop. Flooring beam sales fell in line with the market generally, although our hollow core sales added resilience and were actually up year-on-year. This segment has, notwithstanding the difficult market conditions, delivered an excellent performance, providing a contribution before overhead allocations to group EBITDA of GBP 10.5 million at a margin of 300 basis points ahead of the prior year comparative.
So we move on now to look a little more at the cash flow and the balance sheet side of things. So this first slide breaks out the reasons behind our operating cash outflow, which as a business like ourselves, is generally highly cash generative, is highly unusual and something that we don't expect to be repeated. Operating cash flow in 2022 was GBP 89 million, and that fell to an outflow of GBP 5 million in 2023. This is explained by a fall in EBITDA of GBP 31 million and recognizing that these working capital movements that you see on the slide are effectively movements upon movements, inventory accounted for a further GBP 43 million. Other working capital movements, being the net of payables and receivables, account for the remaining GBP 20 million or so.
This net GBP 20 million reduction in payables is driven by reductions in the VAT creditor and customer rebates, both of which are driven by the reduction in sales, along with lower bonus accruals as a result of lower earnings. Of this operating cash outflow, it's worth highlighting that in half one 2023, we reported an outflow of GBP 16 million, meaning that for half two, we're actually reporting an inflow of GBP 11 million, demonstrating that the actions we began taking in Q2 2023 have already had a demonstrable impact. If we achieve our expectations for 2024, we would generate an operating cash flow of approximately GBP 55 million for the full year. So this next slide, having just looked at the cash flow, this slide just looks at the working capital position from the balance sheet side of things, looking at absolute year-end numbers rather than movements upon movements.
This is what we were comparing in the previous slide. Our net working capital at the year-end has increased by GBP 63 million from a marginally negative balance last year to a positive GBP 62 million balance in 2023, with GBP 53 million of this increase being driven by inventory build. We do expect our net working capital to remain broadly static in 2024. Pulling all these bits together and looking at the overall cash flow, I'll just pick up on the other key points on the key numbers on this slide. Overall, we have seen a GBP 87 million increase in net debt before leases in the period. Our capital spend, as we're obviously still spending money on our strategic projects, so our capital spend totaled just over GBP 34 million, with this explained in more detail later on.
Tax paid obviously reduces with lower profitability, and also, as mentioned earlier, higher borrowings and increased interest rates obviously drive an increase in our borrowing costs. With the final dividend payable in 2023, based on our record 2022 earnings, we also returned almost GBP 26 million to shareholders. So just looking a little bit more in CapEx. So as I said, we spent GBP 34 million of CapEx in the year. Of this spend, GBP 19 million related to our strategic projects, where we've continued to invest through the cycle, addressing our brick capacity constraint and leaving us well-placed to benefit from the future recovery. We also saw higher-than-usual maintenance capital spend in 2023, with one-off items including GBP 4 million of HGV fleet renewal and GBP 2 million on solar panels at Desford, which you can see in the photo on the screen, bringing the total spend on those panels to GBP 2.5 million.
Both of these items were committed to back in 2022. Looking ahead, we expect to spend a further GBP 27 million on the strategic capital projects in 2024 as we complete Desford and also kind of bring Wilnecote through to commissioning alongside Accrington. We do expect this kind of capital spend to be half-one weighted. We do expect a reduced level of maintenance CapEx in both 2024 and 2025, partly driven by lower output with factories mothballed. While we continue to progress our pipeline of further attractive organic growth projects, we wouldn't expect to be committing to these in the short term until we've reduced our leverage and also that the market outlook is clearer. Moving on to what's my last slide, just to have a look at our balance sheet and cash position.
So we ended the year, as I said previously, with a net debt of GBP 93.2 million before leases. At the end of the year, our borrowing stood at GBP 110 million, which after deducting letters of credit relating to the Accrington construction project, leaves an available headroom of approximately GBP 50 million against our GBP 170 million RCF facility. Leverage is stated on a pre-IFRS 16 banking basis at the 31st of December 2023, was just under 1.9 times. We do see leverage peaking at close to three times in June 2024, driven by the backward-looking H1 weighting of our 2023 result, along with an expected H2 weighting of our 2024 result. This, along with the capital outflows on strategic projects, which, as explained previously, we also expect to be H1 weighted.
Accordingly, to ensure we have sufficient covenant headroom, our supportive banking syndicate has agreed to covenant relaxations during 2024, with the leverage covenant increasing from 3x to 4x in June and to 3.75x in December. Interest cover also reduces from 4x to 3x in December. By the end of 2024, we expect our net debt to be back to a similar level as at the end of 2023, which, if we perform in line with management's current expectations, would retain year-end leverage at around 2x. Beyond 2024, we do expect a steady reduction in leverage, even absent a meaningful market recovery driven in part by reduced CapEx. Assuming our markets begin to recover as most commentators anticipate, we will benefit from converting inventory into cash.
We will not immediately need to bring brick production back online, so the mothballed factories will not come back online in the short term, and that meaning that we can basically destock as the market recovers, and that the inventory build we have seen in 2023 will start reversing, allowing cash flow to recover ahead of earnings. I'll now hand you back to Neil, who will provide more insight into our markets, strategy, sustainability, and outlook.
Thank you, Ben. So if we take a moment to look at the long-term fundamentals, and after a year like 2023, it's important to remember that the future and the demand for our products will be strong for years to come. Simply put, 172,000 homes per year on average for the last 20 years means that the housing crisis is only getting worse and worse.
We should remember that also, in addition to this, the U.K. housing stock is some of the oldest in Europe. That means that it will need to be renovated to bring it up to more carbon-neutral type homes to make them more sustainable. That should also give an extra side of growth for us, as the facade is an obvious way to improve that thermal efficiency. Where that renovation isn't possible, it may be that it's more cost-effective to demolish the home. As a result, that would only lead to further demand for our products and solutions. I think we really need to focus on the fact that the future is bright for our business. If we look at the housing market data now, based on CPA, starts and completions are broadly flat in 2024.
The drop in 2023 is slightly misleading, as there were a number of technical starts as some house builders tried to beat changes in building regulations in the course of the year. The slowdown in actions of Forterra and other U.K. brick manufacturers has meant that imports have lost share during the year. The market slowdown has allowed manufacturers to increase their inventory levels to allow customers to come back to more normal ordering levels and ordering timing. Basically put, long-term orders are a little bit of a thing of the past, and customers are pretty much understanding they can order next day. So that future pipeline is a little bit changed in terms of its timing.
If we move on to capacity now, if you look at the chart on the left, you can see that domestic capacity has dropped from around about 2.6 billion bricks in 2017 to an estimate going forward in 2025 of 2.2 billion. Now, when you look at the blue line, you can see that's what we call normalized demand. And as you can see, that's well below that of the capacity available in the UK market, meaning that there's no risk of overcapacity when we get to a level of around about 200,000-220,000 homes. Now, if you look on the chart on the right, you can see how that investment programme is really adding value and getting us into an even better position for the future.
Our overall capacity on a 100% basis will increase by 23% by the normalised part of the market and the future state of capacity, meaning that when the market comes back, we will be in an even better position to capture the growth. Looking at the strategic update now, now it's almost a year since I've joined the business, and in the last months, we've been taking some time to really sharpen our strategy. And we should think of this as more of an evolution rather than a revolution. I'm proud to say that we've done some work to really focus on our purpose, and our purpose is helping create lasting legacies. We do this for our customers. We do this in the homes we create, and we do this for the communities we all live in. There are two big areas of focus in our strategy.
One is around strengthening the core, and that's all about being brilliant at what we do today. Let's be sure every business can do better, and that's really about what strengthening the core is. The second area is about beyond the core. Here, we're trying to develop the products and solutions of the buildings of tomorrow. To achieve this, we're going to need an engaged workforce who can feel safe in the business they work in on a journey to world-class safety performance. Finally, we need to make sure we make the right progress on sustainability. This will be key for both strengthening and expanding beyond the core areas of our business. If we look at the strategic imperatives, what do they really mean?
For strengthening the core, we'll focus on commercial excellence, where we will be innovative, not just with products, but also solutions which we provide to customers. We will think about the digital aspect of innovation and also how we innovate from a service point of view. We'll optimize our route-to-market model, with customer and product mix being key drivers to unlock additional business profitability. If we move to manufacturing excellence, here is where we will drive cost and weight out of our business by working on things like energy reduction and material consumption, plant output, and most importantly, cost control. We will also look to continue to invest and expand the business when the market requires. A great example of one of the big projects within strengthening the core is the Wilnecote factory.
This will allow us to provide a wider range of specified bricks to compete with imports and to increase our market share in commercial buildings. Beyond the core is where we set ourselves the ambitious target to build a leadership position in Brick Slips. We believe this will require more than just the product, but also we will look to become a solution provider for multi-residential and commercial buildings where modern methods of construction are already being used. A big step forward in our beyond-the-core strategy is the Accrington investment. This will be a highly efficient process to produce Brick Slips using current factory and spare kiln capacity. If we move to sustainability now, we remain committed to our net-zero targets. We have reduced our emissions by 13% since 2022. However, this is largely due to making less product due to the market slowdown.
Our emissions intensity has increased in 2022, especially in concrete, as we decided not to purchase renewable energy guarantees of origins or REGOs, as the price went from GBP 20,000 in 2020 to GBP 1 million in 2023. Instead, we felt a better use of group capital would be to invest in genuine reduction initiatives, and one such example will be our solar farm that comes on stream next month. We do remain committed to achieve our 2030 targets to reduce carbon emission intensity by 32% versus the 2019 baseline. Now, here are some exciting things that we're working on to actually drive sustainability forward in our business. The first one is around calcined clay. We have a brick facility in Kings Dyke that, due to the inherent nature of its manufacturing process, has quite a low yield of bricks, which means we have quite a lot of waste product.
What we've discovered is we can grind that waste product, and the carbon is already included in the brick production, to create something called calcined clay. That calcined clay can be used as a cement substitute. I'm pleased to say that this is more than just a concept for us. In fact, we've done full internal trials and strength testing, and I'm pleased to say in the second half of the year, we will actually start to sell products in the market which contain calcined clay. In terms of material usage, here we're trying to be creative and cleverer at the way a brick is shaped and formed. It pretty much hasn't changed for many, many years, hundreds of thousands of years probably. The reality is bricks have holes or voids, so holes in them, and they also have frogs, indents in the surface.
By optimizing the shape of these frogs and holes, we can look to reduce the amount of clay required to produce a brick. This means ultimately a lighter brick, still as durable as the one you know today, but obviously, that will help us reduce the carbon from both the firing process and the clay itself. We're also looking at why does a brick have to be made 100% from clay? Perhaps there's some inert fillers we can use in the manufacturing process to reduce the amount of clay which wouldn't have carbon within them. And finally, if we look at energy, we've made great progress on this area. Our solar farm, as I mentioned already, will go live next month. That will enable us to produce 70% of our electricity when we're at a normal saturated capacity level.
So obviously, when we're below those levels of saturation, the percentage is much higher. We've proven that we can fire bricks with hydrogen-gas blend. Therefore, we're ready for hydrogen if and when it becomes available in the network. And finally, we've trialed biomass in our Kings Dyke facility, and that has the potential to deliver an annual carbon saving of GBP 11,000 per year. Now, finally, to close on the outlook, we're pretty much to the end of the results roadshow, and I would say what we are saying about the future going forward is pretty much consistent with others. There's considerable uncertainty with regards to demand, and the start of 2024 has been challenging, with Department for Business and Trade numbers stating that brick dispatches were 5% lower than January last year. We read positively the recent updates.
It was also good to see some of the words from Bellway this morning in their interims, where they spoke about reservation rates and the purchase of new land, all giving us confidence that the future of the market will start to come back. The long-term undersupply of housing and our strong investment program of GBP 140 million, which, by the way, was done during the trough of the cycle, means we're in a great place when the market recovers. We expect demand to remain broadly in line with 2023, although weather has made it very tricky to really get the pulse or the feeling of where the market actually is in the first few months of 2024. Our expectations remain unchanged for 2024. However, the performance will be slightly half-two weighted due to cost efficiency rather than demand. Thank you very much for your attention.
We'll now pass to the Q&A session. If you could state your name and the organization you're from, that will be super useful for the recording. Thank you. Aynsley.
Thanks. Morning, Aynsley from Investec. Just three questions, please. First of all, on the dividend payout ratio, come down to 40%. Given that leverage will be back at 2x by the end of the year, I mean, temporary, does that reasonably assume it kind of reverts back to 55%, I guess, for FY 2025? And then second question, on the kind of potential to deliver into a recovering market, you mentioned the stock levels you can supply from, higher stock levels you've got now, but also that 40% reversible capacity. How quickly can that be brought back on if the recovery comes through more quicker than we expect?
And then secondly, just thirdly, interested here, a bit more color on RM&I market, the kind of level of stock in the supply chain and what you're seeing there. Thanks.
Sure. Ben, do you want to take the dividend one, and I'll follow up with two and three?
Okay. Yeah, so look, the dividend, we've made the decision, obviously, the board has made its dividend policy decision based on the sort of the peak of leverage we see at the half-year. We obviously want to bring it back to the 55% as quickly as we can. It's probably not appropriate to kind of commit to that here right now. I think after today, our next kind of dividend decision point is the interim, where we'll be announcing that in July. I think in July, it's probably likely we'll continue to take a cautious approach. And then, yeah, as you say, in a year's time, if the leverage is back at 2x and with the market kind of looking like it's moving forward in a positive manner, then I certainly think there is the possibility of returning it back to the 55%. But I think to commit to a specific dividend payout in a year's time is probably a little bit much at this stage.
I'll take the part around the stock levels and the recovery, Aynsley, and how we bring capacity back on. Look, what we've done in terms of the way we've mothballed these facilities is we haven't got rid of everyone within those factories and plants. Of course, we've reduced as much as we can, but we've kept some real key core skills within the business because we've mothballed, we've not closed, and we decide to carry those costs to ensure that we've got the ability to bring the capacity back to the market. One of the things which was truly striking to me when we were in Claughton, I went personally to see the people there. I did a roadshow and explained the situation and the challenge that we were facing. And one of the individuals said to me, "Don't worry, Neil. We've been here before.
But don't worry, Forterra is a great business. So when you're ready to reemploy, we'd be more than willing to come back." So I think the longer we leave that, the more likely people will get on with their lives. But the reality is people enjoy working for Forterra, and if we can get them back, they will be willing to come. So I think the longer we leave that, the more that will be challenging. But we've basically got in mind that we'll have a way of bringing back mothball capacity with a light crew and then more resources brought in. Ben, do you want to just add something?
Yeah, I mean, just to add to that, I mean, look, we could bring it all back 6 months-8 months if we really wanted to, but we don't want to, and we won't. I mean, the first thing we got is basically we're not running the new Desford factory at full efficiency. So obviously, Desford will be the largest brick factory in Europe. It can make 180 million bricks a year. We don't want it to make 180 million bricks a year. So as the market recovers, the first place we'll be ramping up production is Desford, and then we'll look to bring the other factories back on in due course. But I don't think we're going to be bringing all the capacity back on in the next couple of years, but we're certainly maintaining it in a way that it can be brought on as and when necessary.
Then finally, your question around RMI. It's always very challenging to get kind of precise numbers around RMI. We're seeing similar levels of decline in RMI in our products as we do in the overall business. Interestingly, I was talking to customers only a couple of weeks ago, one specific customer who was telling me that they really feel they've destocked too heavily during 2023, and now they're looking at their overall portfolio and saying, "We need to make sure we've got the right stock on the ground to be able to deliver customers." I think there has been that big destocking. There has been that similar drop in volumes to the rest of the market. What we're seeing now is merchants are probably becoming a little bit more reflective of stock levels and making sure they can service their customers going forward. So that's where I don't know if you want to add anything on RMI.
No. I think you covered it.
Thank you, Aynsley.
Sure?
Yeah, good morning. Jon Bell at Deutsche Numis. Just wondering if you could flesh out your comments on imported bricks a little for us. How have the importers been behaving on price? Has that been causing any disruption in the wider market? And is there any evidence of them perhaps more permanently exiting the market? It sounds like you're sharpening up your offer in terms of product range. You've obviously got a lot of inventory available. Just any comments there would be very much appreciated. Thank you.
Thank you, Jon . Shall I take that one, Ben, and then maybe you add anything you want to end at the end? So imports have probably they've always been a part of the market. Those kind of architecturally significant bricks will have been and will remain a part of the market. I think when the market slowed down, they or sorry, when the market was at capacity and going gangbusters, they started to bring in a range of products which were more the traditional types of products which would normally be made in the U.K.. And since the market slowed, we've seen that they've pivoted their business, and they've gone more and more into the soft mud area, going more and more into the builders-merchants side of things. They've always been there. They've built good relationships, and they've just demonstrated that they're a reliable provider for merchants.
However, we can for merchants provide a full range. We can provide London Brick and all those types of things. So what we've been doing is we've been focusing on how can we displace imports by making sure we add one or two products back to our range to have the right offering for merchant customers. They have been a little bit disruptive here and there with house builders. They will go with prices which will be quite eye-catching. But when you turn around and discuss the availability to supply on a nationwide basis and how much volume's actually available, then the discussion starts to change slightly. We've not really had to react to that because we are quite assured at the position we can build with house builders. But in the merchant side of things, we've been focusing on making sure we've got the right portfolio, basically, Jon.
Sam Cullen from Peel Hunt. I've got three also. The first one is just a bit more color on energy and the quantum of kind of excess gas, I guess, you've got to sell back into the market. Then just for my benefit as well, what the numbers are on the solar benefit that should come through in 2025. I think you've said it before, but I've clearly forgotten. Then on the calcined clay point, interesting development. Do you have any idea in terms of the volume or kind of capacity that you might have at Kings Dyke for selling that back into the market?
Then the last one is on, I guess, on the cost curve, I guess, as things come back and on a pro forma basis, what is the margin of the brick business relative to where it was two or three years ago, given your mix of factories has clearly improved and now that margin will evolve if you bring on Desford before other parts of the business?
Neil, well, do you want one and three and you do the calcined clay and the deal? That's fine. So energy, look, I mean, I think first of all, the quantum of energy sold was minor. I mean, we kind of generally hedge up to sort of 80% of our usage. Obviously, usage fell by a little bit more than 20% at the end of the year as we had more factories mothballed. So we had some relatively small sales. So we lost about GBP 1 million on selling kind of energy in the final quarter of the year. But then we gained about GBP 1 million on kind of forward-looking kind of derivative gains on energy that we don't expect to use. So it all cancelled out.
So yeah, we will have occasional overpurchases over the next year or so, generally just at the kind of the back ends of the year where we've got a little bit too much energy purchased. The solar farm gives the full benefit in 2025. It is probably in the current environment. I'm sure some of my competitors would really love to know all about my cost base. So I'm not going to go into too much detail about the cost of the solar farm. And the solar farm will give us competitively priced electricity for 15 years, but we don't get that full benefit for another year yet. Energy prices kind of this year are pretty stable. They're only fractionally lower than last year, but not materially slow. And then obviously, look, you've seen the forward price. There is some prospect of further energy reductions going forward.
But look, we deliberately hedge our energy to provide price certainty. We forward-bought energy. We got some kind of energy prices when Vladimir Putin was invading Ukraine. We did some forward energy purchasing that kind of shielded us from the big shock. At the moment, we've been paying more than the current depressed spot price. I guess you can't win them all. So look, we're comfortable with our energy position, and I say it will kind of come down slowly over time, but we're not going to get kind of sudden benefits. And in terms of the cost curve, I mean, in terms of, look, fundamentally, the business hasn't changed since kind of 2022 in terms of the underlying business. We're then adding Desford to that with basically better efficiency. We're adding Wilnecote.
So in theory, we should be kind of when the market recovers and we've got everything running, we should have margins that are above 2022 levels. Obviously, there's lots of moving parts. Initially, the benefit will be primarily on the cash basis. So we've got a lot of inventory. We don't need to ramp up production. We kind of suffered the pain last year because we turned cash into inventory. That can reverse out almost as quickly as it happened as the market recovers. I mean, we started off with kind of record low level of inventories. We've now got above normalized level of inventory. So we're not going to build any more inventory, but it's slightly higher than we want it to be. So we can take another, on the brick side, probably a couple of months of inventory out before we have to then restart kind of factories.
So that will give us a cash benefit. But overall, look, with Desford coming online, Wilnecote recommissioning kind of the second half of this year, pricing pretty resilient kind of in terms of where we were after the big increases in 2022, as soon as the market comes back, we should be having a better margin. But obviously, we've got to wait for that market to come back. Because as we've said, we've talked about it before, brick factories are high-fixed cost operations. And what we've effectively done this year is we've stopped building inventory. That was the most critical piece. We couldn't carry on building inventory. So we basically kind of have restructured the business, but we have lost a load of efficiency. So in kind of doing that, kind of it's obviously impacting current margins.
Once we get enough volume demand back in the market to be able to run the factories at the proper, efficient levels of output, then you obviously get a margin benefit as well. But it's all predicated on the market, and I can't tell you when that will be because it's dependent on the market that none of us know when it will recover.
Just to finish off on the calcined clay question. Now, obviously, it's a bit strange, isn't it? You take a waste product from a manufacturing process which is normally crushed up and used as an aggregate, and you turn it into cement. Now, obviously, the first thing you want to do is improve the yield in Kings Dyke so we have less waste. But having said that, even with the ambitions we've got to improve just to do the inherent nature of that manufacturing process, we'll have more than enough availability of calcined clay to add to the levels of our product portfolio at the percentages that are acceptable, if that makes sense. Obviously, you can't replace it fully. You can only go to a certain percentage. And we'd rather not go into those levels of details right now. In fact, we'll have some spare capacity.
What we're doing is the external third party that we're working with on the grinding process. We're looking at how we take that excess calcined clay to market and how we basically get the best financial benefit from selling that to the market.
I think financially, look, it'll be a modest financial benefit. We might be able to add GBP 1 million or GBP 2 million kind of over the next few years to the bottom line. But it's got a massive sustainability benefit as well. We're basically using waste bricks that we've already incurred all the energy firing, crushing it, grinding it down really finely, and using it as a cement and therefore reducing our Scope 3 emissions from cement. So it's got a marginal financial benefit. It's an attractive thing to do, but it's also got a positive sustainability benefit, which is the key driver.
Ami Galla from Citi. Just two questions from me. One was on your current market exposure. Could you give us some update as to how much do you do with, say, commercial sector, social housing in addition to volume house builders? In terms of product range, incrementally, are you considering more initiatives to kind of diversify that exposure ahead? And the second one, I think you touched upon routes to market and opportunities there. What are you doing differently to kind of broaden the sort of current framework of how you do business? And this is more a two or three-year view. Where should things turn to once the housing market and the broader construction sector recovers in the U.K.? And more in terms of the broader framework, are your competitors doing anything differently that you are seeing as a potential area of opportunity that you should consider?
Shall I take those? And you maybe add anything you think's relevant, Ben. In terms of product range and portfolio, I think where we're in a position at the moment is we're really reflecting on our offering. We've, as a business, built an excellent and really strong position with national house builders with a very narrow range of products to meet their needs and expectations. And we've been aware that that's been a gap. And the Wilnecote facility will allow us to kind of widen our product range. And that will also allow us to kind of move away or keep that strong position we've got with house builders, but build another stronger position with the specification side of construction. So here, we're looking at more individual buildings, hospitals, schools, and those types of things.
When we look at route to market, what we really mean there is we've taken some time to really reflect on what is the best and most profitable mix of product we have. If we go and aggressively take share in the market, we will generally create a lot of price disruption, which I don't think will be good for anyone's business, especially ours. What we're trying to do is we're trying to think about what is the best and most profitable mix of customers to have. More and more, that is to maintain that strong position with house builders. That's also to build an equally strong position with some of the regional house builders working with merchants. That's also working with the brick distributors for more specification projects. It's just about thinking about that overall capacity that we have.
How do we best maximize that from a profitability point of view? I think the other thing I would add is we talk about brick slips and our ambition to grow and develop in that particular area of the business. Sometimes, we need to be careful that we don't contradict ourselves and say, "Are you going to turn the existing brick market into brick slips?" That's not our intention at all. We still believe that the best way to build a traditional home is with the traditional products of bricks and blocks that we provide. That's also been confirmed by many of our customers. But looking forward, if we're going to achieve the level of housing that we drive for in the U.K., it may be the case that not everyone has their own front door. There may be more flats and apartments.
There may be more multi-residential type buildings. And that market is already starting to move towards Brick slips and Modern Methods of Construction. And that's where we really want to start to focus. I think you need to be more than just the slips provider. You need to also think about the substrate that that's provided to and how it goes into the building. And that's the journey which we're just going on to really develop our business there. So I hope that answers your question.
Just while we're waiting for the next question, there's no questions yet on the webcast. So if anyone is viewing online through the webcast and wants to ask a question, there is a Q&A feature on there. So if you do ask that question, that question will come to me. So obviously, we're almost done. So if you want to ask a question on the webcast, kind of now's your last chance. Sorry, Stephen.
Sorry. We're almost done. Can I ask some questions about the inventory and a few other things? But just on the inventory, because obviously, it's gone up massively, you mentioned the norm level. What would you regard as the norm level? However you want to express that. Because quite clearly, the current level isn't at the norm. And could you just give us an insight into the makeup of the current levels of stock with regard to what we might expect to be fast movers, what we might expect to be stock that you built up because you're mothballing some plants and needed those particular varieties of brick to sustain consumer demand? And the other element of the inventory levels, presumably, and there's a complex equation, I guess, is in and around the carrying costs of those.
Obviously, you've got additional carrying costs, but those bricks might be in the inventory at lower than current production pricing. Could you just sort of give us a feel for how that will move during the course of you've said it will move down? I get that. But I mean, it's about the rates of progress. It's about the constituent elements of it. And primarily, what is the norm? Because it's something you've mentioned, and it's something, obviously, that's in our minds as to what might contribute to lower debt during the course of the year. I've got a few others as well, but let's deal with that one first if you don't mind.
Ben, did you want to take the inventory question?
Yeah, of course. I think there's a few things there, Stephen. So first of all, we're saying kind of we expect inventories to stay broadly flat this year. So obviously, they'll come down as the market recovers. But in 2024, we're expecting to produce broadly what we sell. So inventory will stay kind of relatively flat. So in terms of what's normal inventory, that depends by product. So on bricks, we generally work to three months' worth of inventory. If you go look at brick factories and looking at sort of the high-fixed costs, you don't want to be changing production over very kind of regularly. So a standard brick factory may have sort of 12-16 brick types. If you want to run them for kind of a week at a time without changeovers, then you kind of end up needing about three to four months' inventory.
So bricks, somewhere around 3 months, we consider normal. We'd run it down to kind of 1 month in 2022 to the point that we could barely service customers. It was pretty chaotic. On the concrete products, so the aircrete, the blocks, and the flooring, we have narrower product ranges. You don't have so many different SKUs. You don't have different colors and kind of finishes on kind of blocks in the way you do in bricks. So you have a lower level of inventory. So concrete products may be kind of 1 month-2 months. In terms of what of the range of inventory as different products in terms of sort of fast movers, look, I think we've got a balance across all the inventory. Yes, we did build some inventory at a couple of the mothballed factories.
A key part of the mothballing of the factories was that we haven't lost any of our product range. So for example, all of the bricks that were made at Howley Park can now be made at our Accrington facility. The bricks that could be made at Claughton can either be made at our Accrington or Kirton facilities. So we haven't diminished the product range. That was a key kind of requirement of our actions. Because when this business took out a lot of capacity in 2009, it did lose its product range. And that's sort of one of the things that Neil touched on is that we're very kind of our kind of operating model was a smaller product range targeted at the major house builders. We're actually looking to extend that product range at the moment and broaden our offering just because of the tight market conditions.
In terms of the carrying costs, so we effectively value all of our inventory at current production cost. So if something's kind of inventory, we've got broadly six months' inventory on brick at the moment. So we have basically all of it's effectively assumed to have been made within the last year, even if a bit of it kind of wasn't. But look, most of it turns over in a year anyway. It's not sensible to leave some inventory hanging around for years as the packaging goes green and all kinds of things. So basically, our current inventory valuation is representative of current cost. So yeah, I think that covers all of it. But if there's anything missing, do shout.
No, no, that's helpful, particularly with regard to what the norm level might be and what you expect to happen during the course of this year, dispatches versus inventory. Can I ask a question two more very briefly? Because I do recognize I'm standing between everybody and another cup of coffee. Could you just tell me your thought processes about the cost of calcined versus cement? You mentioned a slightly lower cost, but obviously, just giving some proportions around that would be helpful. And secondly, on slips, 120 million, was that included in the capacity projections that you put forward before?
Secondly, related to what you said about setting up capacity also to make your own components, whatever they may be, sort of chimney breasts or alcoves or bay windows or whatever it is that you've got in your mind, is there a cost there that we should be thinking about and how might that progress? Because obviously, it was a long time ago, two or three years ago, but it's getting pretty close now. There's quite a lot of slip capacity coming on the market. To be able to make the substrates themselves might be seen as a competitive advantage.
Ben, do you want to cover the calcined clay cost and maybe do the question?
Yeah. I mean, look, cement is an expensive commodity. So without giving away any commercial secrets, I mean, I think the market price of cement is somewhere in the region of GBP 150 a tonne of that ballpark. So if we can replace that with waste bricks so the waste bricks are already there, all we do is then have to have them ground and finely ground. So we have to send them away, finely grind them, and kind of bring them back again. But they can be used as a substitute. So you can't replace cement completely. But for example, if you're making a concrete block, you might be able to put 15% of the cement you might be able to take out and replace with calcined clay.
Look, we're not going to get into the specifics of how much it costs to grind calcined clay because that's commercially sensitive. But let's just say it is cheaper than buying cement at GBP 150 a tonne to take waste bricks and have them ground down. There is a cost saving there.
Thanks, Ben. So on the capacity questions of the brick slips, so are viewed as separate. To answer your question around where are we with the other things, the chimneys and that side of things, first of all, the investment plan for Accrington is very much built around selling brick slips as a component to the market. We'll be able to do that in an incredibly efficient way, as I mentioned in the presentation. We have what is and can be viewed as kind of spare capacity within the kiln. We'll extrude bricks kind of four at a time, fire them, and then separate them after the process. So incredibly efficient and much more efficient than taking a traditional bricking and cutting the face off of it and throwing the rest away.
So we're really focusing on kind of that range and portfolio, which will be quite narrow but quite focused for the volume side of the market to start selling slips there. And then it's a question of where do we go? And we can kind of fall into a bit of a trap, I think, with slips, which is we try and be everywhere. We try and do chimneys. And we try and do everything else. Or maybe we should focus on where we really think the biggest opportunity will be. And I see that growth in multi-residential type buildings as being the sweet spot. And today, we're involved with a number of companies where we provide brick slips, which then get assembled onto panels. The bricks travel halfway across Europe and then come back to the U.K. And you look at the efficiency of all that process.
Yeah, that's where we need to get to to try and capture some of that value but also deliver a better customer experience and more reliability in build. That becomes a very different sell to what we're used to. That's a more complex sell. That's a more specification sell. And we've got to build those competencies and understanding in our business. They exist in the market. Let's not be afraid of that. These types of companies do exist. But we've got to build that. And we're on that journey of creating that organization now. We've dedicated a senior manager in our business to be responsible for that. And now, it's really about making that progress for the next step. But the first step of Accrington is really selling slips into the market that already exists in a very efficient way. Okay. Any questions online?
No. Someone is having trouble, but I haven't got the question at the moment, so I can't answer it.
Sorry to that person who's having trouble.
Okay. Well, if there are no further questions, thank you very much for your time and attention and your support. And yeah, thank you very much.
Yeah. Thank you very much.