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Good morning, everyone. Welcome to today's call. I'm here with Chris McLeish, our CFO. And since we announced our AGM statement and the investment today, we thought it might be helpful just to have a short call to update you and answer any questions. So I'll just give a quick overview, and then we'll open up lines for your questions.So beginning with trading, I'm pleased to say we've made a good start to the year with trading modestly ahead of our expectations in the first quarter against the backdrop of robust demand from both the new build and the RMI end markets. We're encouraged by this performance, and we remain confident in the outlook for the year ahead. So as said, a good start.With the market outlook now clearer, we're refocusing on the growth investments which will create the platform for our sustainable, profitable growth over the coming years. So today, we're announcing a GBP 60 million investment to upgrade the Atlas site in Warsaw in the West Midlands, replacing the existing facility with a state-of-the-art wire cut clay brick factory. You'll remember we first announced this project in early 2020 but put it on ice almost immediately following the COVID outbreak.The project's been revised and expanded significantly since then, with capacity increased further and a major enhancement of its environmental performance. As part of our commitment to leading the industry on environmental matters, Atlas will be the first net-zero brick manufacturing facility in the U.K. And you can find out a bit more background on that on the FAQs we've posted on the website. It's worth noting that the project now includes investment to upgrade and expand the capacity at the adjacent Aldridge brick factory, which is very close to Atlas. In total, the investment will deliver a 115 million new brick capacity, increasing our network capacity by a net 75 million bricks. And both the new projects are expected to begin commissioning in the second half of 2023. At full output from late 2024, the project will deliver an incremental EBITDA of at least GBP 12 million per annum and provide a return on capital employed in line with our group average. The Atlas project will establish a strong platform for growth in our clay business over the coming years, and we're excited about its potential and are very much looking forward to pressing ahead.And with that, Chris and I will be very happy to take your questions. And Cecilia will give you some instructions on that.
[Operator Instructions] We will now take our first question from George Speak from Exane.
A couple, if I may. So just on the outlook side. I think previously, your assumption was in line with CPA, that we'd be 15% below 2019 levels. So in the context of the strong start to the year, does that still stand? Or are there any sort of other considerations there? So that's my first question. And the other one was on Atlas. I was just wondering if you could give a bit more color on how you're going to achieve the carbon neutrality. Just a bit more context on what technology is going to be employed and how that's going to work.
Great. I'll take the second question, and I'll let Chris take the first question.
It's Chris here. So in terms of outlook and the way that we look at volume for the year, it's been a good start, and we've been tracking marginally ahead of where we expected to. We set out, as you rightly say, an expectation on the clay side that we'd be around 85% of 2019 levels. We've done a little bit better than that in Q1, a couple of percentage points above where we would have expected to be. It fundamentally doesn't change our view of the balance of year. And at this stage, we wouldn't extrapolate that be across the rest of the year. So we still have that as our central scenario. We've got the capacity within the network to respond if things play out to an upside view. But at this stage, we're holding our view for the balance of year where we were.
Great. And George, on the net-zero, it's not -- this is a net-zero project, so what we've been able to do with the improved thermal efficiency, the reduced process emissions and material optimization and the unique clay types that this factory has and also the other things around renewable electricity. We've managed to take 50% of the carbon intensity out of this product. This is for Scope 1 & 2 emissions. So this is around everything to do with the manufacturing process, excluding Scope 3 emissions, which is transportation and downstream activities. So at this stage, it's Scope 1 & 2. We've reduced the carbon intensity by 50%. And the remaining balance, we will look at high-quality offsetting projects. So this is all around our ambition and commitment to really push forward with carbon reduction across both the industry and our business.It is part of a journey. We've been on this journey for some time. As you know, we've invested in our Throckley, or Chesterton, Lodge Lane and then, more recently, Eclipse. And we've made great strides in reducing carbon intensity. But this Atlas project will be unique. It'll be a pathfinder project, and we want to learn and push the envelope and make that commitment to the net-zero agenda.
We will now take our next question from Aynsley Lammin from Canaccord.
Just 2 questions for me. Could you just confirm where you are with planning? I think you had already kind of obtained planning originally for the Atlas parts. So where you are with the new, revised structure. And also to confirm that the 75 million -- or the 150 million extra capacity, that is actually additional kind of production. Because the plant being mothballed and then, obviously, you just -- kind of the opportunity, anything from that? And then the second question, just on the kind of zero carbon, I mean, environmental push for the new plant, does that cost anything when you compare kind of the cash cost versus maybe the Eclipse plant? Are you giving up a bit more on cost in order to be a bit more environmentally friendly because people are willing to pay for that? Just interested in that dynamic.
So let me deal with the capacity question, Joe, on planning and the comparability on ESG. So in terms of capacity, the capital that we're deploying here will generate a 115 million brick output. Atlas at the moment is mothballed, but it has a 40 million capacity. And therefore, the net would be 75 million. You're right in saying that at the moment, Atlas is not operating. It is part of the network. The actions that we took in the middle part of 2020, which will premise on managing the fixed cost base and taking up to GBP 20 million of costs out, included the mothballing of Atlas. We have the ability to bring that back, but what we're doing here is redeveloping it. So it's a net 75 million additional capacity that will be brought into the network as a result of this investment.
And on the planning, we're advanced in the planning. We're still in the planning approval process at the moment, and we've got -- we're working very closely with the local authority and the planning department. So there's a little bit more to do there. And in terms of the whole investment proposition, when you invest in technology, I mean, you've seen the cost of the capacity that we're putting down. But actually, the costs and the efficiencies that you get more than pay for it. And any of the offsetting costs have also been factored into the returns that I described, at least GBP 12 million, from this project. So it's a good business to invest in improving your thermal efficiencies and your -- reducing your emissions. And it's -- it behooves us as well to reduce our carbon and offset that, but that's all been factored into the equation.
We will now take our next question from Christen from Numis.
I've got 3, actually, if that's okay. I think you just mentioned that you're hoping to get the full output in 2024. I was wondering how confident you are with -- I think, if Eclipse maybe took a little bit longer than expected. Is there something specific about this in terms of if it's a redevelopment, that you're more confident in getting full output quicker? The second one is just clearly a big focus on carbon emission, which is absolutely right. I was just wondering, how important is that at the moment to your customers when you're speaking to them around things like price increases and just generally winning business? How important is that carbon emission dynamic? And then just thirdly, you -- I think in the statement this morning, you said at the end that there were potentially other organic projects which you'll update the market in due course. I was just wondering if you could provide a little bit more broad color on that at the moment.
Great. Thanks, Christen. So yes, the beauty of this project, it was a fast-return project because obviously, we've got -- the site is mothballed at the moment. We have a building, so it is a relatively fast project to turn around. I think the beauty of this one also it's a wire cut project, so it is less -- it has less complexity than the soft mud Eclipse factory which had lots of complex presses and so on. So yes, commissioning second half of 2023. We'll ramp it up in 2024. So by the end of 2024, it should be running at full tilt.Carbon is very, very important. And increasingly, the last, I'd say, 2 years have been very, very important to our customers. So some of the major house builders are talking to us about this a lot, that it's a big part of their agenda. It's part of our shareholders' agenda, it's part of the government agenda and it's part of just doing good business. But the customers are very, very keen on this, and I think they'll be very excited about our ambition on this project.And yes, we've got -- I've mentioned in the past we've got -- the great thing about Ibstock is we've got great cash flow generation, firepower to continue to invest, and there are other projects that we're evaluating. I'm really keen on making sure that we continue to diversify our business. We have a strong, concrete and modular business, and that diversification is also very important to us. So the clay business is key, and the diversification of our other businesses is also key. And we'll talk more about that later in the year.
[Operator Instructions] We will now take the next question from Gregor Kuglitsch from UBS.
[Audio Gap] the sort of comments and answers so far, so I got a couple more, please. The first one is actually give us a sense what the margin, I don't know, in terms of percentage of EBITDA margin on a facility like this is. I mean if you break your brick businesses, I think currently, correct me if I'm wrong, doing kind of 30s, I think. What would this facility produce? And perhaps you can help us out with the tax benefit of doing this now, both sort this year, next year, and how that kind of factors in. And perhaps it would be helpful if you then, I guess, in summary give us sort of the rough calc to get to the 20% ROCE that I think you were kind of referring to in the statement.
Well, thanks for those. It's Chris here. So I'll take the 3 in turn. In terms of margin, you're right, we said as we came into the current year, the clay division has got back up to low 30% margins, and that's our expectation for this year. Historically, this business has commanded a sort of 35% EBITDA margin. And as we've said in the past, our long-term expectation is that, that remains very much the case. Clearly, when you're bringing something like the Atlas factory, the redeveloped Atlas factory, into the group with the cost structure that it will have, you'd expect it to be modestly higher than that. So we would expect EBITDA margins to be a little bit above the divisional average, above that sort of 35%. So that's the way to think about it.In terms of the tax benefit, you're right. So the accelerated write-down of 130% will benefit qualifying spend. And that's both on large capital investments like this one and qualifying spend within the sort of normal sustaining CapEx load of the business. So the way to think about that really is in 2 parts. You get a sort of 30% permanent benefit with a deduction against your tax charge. The 100% is really an acceleration of the capital allowances that you would otherwise have got over a very long period of time, which we accelerated into year 1. So for us, if you look at that as a sort of marginal rate at 19%, the qualifying spend will get you relief that is likely to lead to cash tax benefit in the year in which it's incurred. And for us in '22, given that, that would be the main year of expenditure, you'd be looking at something in the sort of mid- to high single-digit million, something of that order of magnitude, across the entire capital base. So if you're thinking about modeling cash tax for the group as a whole, that's the way to think about the scale of that benefit. A little bit will drop into '23. But of course, this super deduction expires during the course of '23. So some of it will fall outside of that time frame.The third question on ROCE, I mean, what we've said is, yes, we expect this to deliver a return in line with the group average. We always appraise these types of projects on both a growth and a consolidation basis because as we look forward, we need to make sure that the returns are attractive regardless of the progression in market size. And therefore, in instances where you've got consolidation, you would see potentially capital returns elsewhere that would sit against that GBP 60 million of gross capital cost for the investment. So on that basis, the denominator would be a little bit smaller, and the numerator in that calculation would be exactly as we've said. It would be at least GBP 12 million. On a pure growth basis, we're comfortable it'll also be GBP 12 million of EBITDA. The depreciation to get to an operating profit, something in the region of GBP 3 million a year on this type of thing because the majority of that capital will have been depreciated over a 20-year life. So think of it as sort of GBP 9 million of operating profit. But on a -- on both a, as I say, a consolidation and a growth basis, you get to a return on capital which is expected to be around 20%.
[Operator Instructions] We will now take our next question from Jon Bell.
When you were reaching your final decision on Atlas, what were the alternatives within the business? What came close? And then a second one really is a slight change of tack. On your cost base as we move through this year in what looks like a more inflationary environment, has that changed your view on what your cost base might do through the year?
Thanks, Jon. I mean the good thing about our business is we've got a lot of optionality in terms of our organic clay investments. But I think our focus here was on our wire cut capacity, to make sure we optimize that wire cut capacity, which we were all but doing. What this -- this investment really finishes that wire cut capacity off. We've invested significantly in the last few years, and we have a sort of a 10- to 15-year view around replenishment of assets. So this was really -- we've obviously got other options on soft mud in other parts of the country, but we wanted to complete our wire cuts because we think that's where the market needs it and all sorts of other things around competitive choices that we needed to make. So we think that we're going to have a really strong, broad range of products in our wire cut and soft mud offering for the market, and our wire cut capacity is going to be very competitive. I'll hand over to Chris for the cost.
Yes. Yes. And in terms of input costs, the 2 divisions are in slightly different places. You know that in clay, we own a majority of the raw materials that go into that production process. And in clay, the most significant element of the input cost base is employment cost or labor. We've seen on concrete a little bit more input cost inflation. We're buying cement, other aggregates, steel, et cetera. We've seen a little bit of cost inflation there. As we said coming into the year, we're comfortable with the outcomes of our pricing discussions. We continue to monitor that, and we'll take action if we need to. But at this stage, I think we see a path forward where we're comfortable we can price through the cost inflation that we've seen. So nothing really that changes our view relative to where we were a month ago on that.
As there are no further questions in the queue at this time, I would like to turn the call back to your speakers for any additional or closing remarks.
Thanks very much, Cecilia. So thank you all. Thanks for your participation this morning, and thanks for your questions. Just a few closing remarks. So again, just to reinforce, it's -- 2021 has started very well, and we remain confident for the year ahead. We have a strong balance sheet and confidence in the long-term fundamentals of our market, and we're pleased to be pressing ahead with the investments that we've talked about, which lay the foundations for growth over the coming years. We're ambitious, and we're very committed to a sustainable agenda. And we're excited about the prospects for our business. And we look forward to talking to you more at the midyear. So with that, thank you very much and goodbye.