Ibstock expects full-year revenue to fall by 21% to around £405mn as market conditions remained subdued in the final quarter.
Underlying cash profit (EBITDA) is expected to be in line with previous group expectations, which market forecasts suggest means a decline of around 23% to £107mn. Net debt rose from £46mn to £101mn at year-end.
Ibstock expects residential construction markets to remain subdued in the near term. As a result, one of its brick factories has been permanently closed, reducing the total group headcount.
The shares fell 4.1% following the announcement.
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Our view
It's no real surprise to see Ibstock wrestling against the struggles of a housing market slowdown. Residential volumes have dropped significantly in 2023, and the group expects business to remain subdued over the near term.
To combat the weak market backdrop, one of its brick factories has been closed permanently as the group looks to reign back production and carefully match supply with demand in the near term to avoid a build-up of inventory.
Closing this factory should bring with it a cost saving of around £20mn, spread over the current and prior years. While demand remains weak, cost-cutting measures remain the key route to preserving margins. And for 2023 at least, they look to have been enough to keep full-year profit guidance on track.
Looking ahead, the pace of cost inflation has eased from previous highs. This provides a little bit of breathing room for margins, but make no mistake, the issue remains one to grapple with throughout the year.
Despite the recent site closure, Ibstock still has the largest brick-making capacity in the UK. And recently completed upgrades to other sites should help lower production costs while also giving room to increase output when needed. That means the group's arguably better placed to benefit from higher demand when it eventually arises.
There's also a push to become a leader in more sustainable housebuilding with the advent of a new division - Ibstock Futures. The first order of business for this new arm is brick slips, a type of lightweight brick facade. The group's invested heavily to build the UK's first brick slip factory, which should help fuel growth prospects when the market turns. But how long before that happens is uncertain, and in the meantime, it's putting a strain on Ibstock's cash flows.
There are some very early signs that residential volumes have bottomed out now. The fact that lenders are becoming more competitive on mortgage rates is a major positive for homebuyers, which should ultimately feed through to increased demand for Ibstock's products. But should that picture change and a more significant slowdown materialise, we could see Ibstock's volumes fall further, leaving little scope for price rises to help soften the blow.
All in, Ibstock still has attractive long-term growth prospects, especially in the brick slips segment. But we expect demand to remain relatively weak into 2025, meaning there's plenty of room for negative shocks. Investors should expect a bumpy ride.
Ibstock key facts
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