Ibstock PLC

LSE:IBST

Earnings Call Transcript 2018-Q4

[Joseph Hudson, CEO & Director]

So good morning, and welcome to the 2018 full year results for Ibstock. You have Kevin and myself presenting today with no ties. This is the new Ibstock. Once we've given an overview of 2018, I'll give you an update on the strategy and then we'll turn it over to questions and answers.So all things considered, it was eventful busy year with Ibstock last year. I think it was a very positive all said. We had to make some tough decisions at the half year time to do our maintenance reset. This was the right thing to do for the long-term sustainability of our business and that's progressing well.So just in terms of highlights, we've delivered another year of revenue and EBITDA growth. We've successfully commissioned our GBP 100 million brick factory in Leicester, at a time when the market really needs the extra capacity. We simplified our group structure by divesting our U.S. business, and we've generated around GBP 10 million of profit from surplus property disposals. So the above 2 things have meant we are able to deleverage our balance sheet, and we've showed our commitment to shareholders by moving our dividend forward by 4% and paying off our first supplementary dividend last year.So I think we're very well positioned, but I believe we still have improvement opportunities to focus on and I'll give you more of an update when we talk about the strategic priorities later on. So over to Kevin.

[Kevin Sims, CFO & Executive Director]

Okay. Good morning, everyone. Thanks, Joe. So I'm going to take you through the key financial highlights for the year 2018. As Joe's already mentioned, during the year we disposed our U.S. brick operation. And so what we've done with the results here is that we're focusing on a continuing basis to illustrate the underlying performance of our U.K. operation.So looking at revenue of GBP 391 million, that was up just under 8% on the 2017 numbers and that produced an EBITDA of GBP 112.4 million, again up 4.1%. And I'll talk through some of the key points within those 2 numbers shortly.Our adjusted profit before tax was GBP 84.5 million, resulted in adjusted EPS of 18.8p per share, virtually the same level as we achieved in 2017. Part of the moving balance within that is our effective tax rate which increased the 2017 rate benefited from some one-off costs, which haven't been repeated in 2018.As Joe mentioned, we have exceptional profits of GBP 9.5 million. And we've spoken to you previously about this where we put a lot of effort into identifying surplus assets and then for the medium term converting that into meaningful cash, very often in for development with some of our end customers. The profit of GBP 9.5 million we outlined previously that we anticipate over about 2-year period, I believe, that should be double that amount and we're on course over the next 12 months or so to deliver the second part of those property disposals. From a cash perspective, that represented GBP 13 million.Our reported EPS 18.8p is actually 17.5% above the prior year number. The 2018, obviously, benefits from the property disposal. And in 2017, we had some exceptional interest costs, which again haven't repeated themselves in 2018.Joe said we've increased our dividend to 9.5p. That means that we were proposing a final dividend of 6.5p, which will be the equivalent to the final dividend in 2017, and I'll talk about dividends a little bit more later on.Our return on capital employed remains over 20%. It was flat on 2017 at 20.6%, still a very positive number. And as Joe said, we continue to reduce our net debt. And as a factor of our EBITDA, that's down to 0.4 from 1.1.So looking at some of these numbers in a little bit more detail, starting with our revenue. As I said, revenue rose from GBP 362 million to over GBP 391 million in the year. The majority of that growth has come from the brick business, where we had both volume and price increases. The year was a little bit strange. If you recall this time last year, we were talking about the poor weather. So sales in the first quarter of the year were substantially down, but from quarter 2 onwards sales increased and they had a very strong conclusion to the year, supported from the additional volumes from our Eclipse factory which was coming on stream as the year progressed.On the concrete side, the markets were slightly more difficult for us. We made good progress with our roof tiles from the new roof tile facility, both on the Supreme side of the business which is a lot more influenced by the RMI markets and also infrastructure markets. They were tougher markets for us and as such the sales there were relatively static during the year.Moving forward and looking at our EBITDA. As I said, that grew by 4% by GBP 4.5 million to GBP 112.4 million. That figure is, obviously, supported by the strong sales growth that we experienced within the brick business. However, some of those returns have been impacted from some costs headwinds that we experienced during the year. The biggest of those related to energy, where we had gas price increases through the year of over 20% and electricity increases of over 10%.You may recall that in August I said that we would be looking at our energy policy going forward. And as such, we have now forward both the majority of our energy for 2019, which we did at the back end of last year. And as you are aware, energy prices were rising throughout the year, so the 2019 average price will be in excess of 10% over the 2018 position. However, we anticipate the all-input costs will be covered by price increases that we've already negotiated with our customers.Additionally, in July, Joe mentioned that we were reviewing our overall maintenance program within our brick operations and indicated that we would spend an additional GBP 3 million in maintenance in the second half of 2018 and actually a further GBP 3 million in maintenance in the first half of 2019. We also, as a result of that, had lower production in the second half of the year and also that will replicate itself in the first half of this year and that would -- leads to a lost profit opportunity of GBP 6 million. So that's not included within the bridge because it's actually the lost opportunity for profits against our original forecasted number. And again, Joe will go through further detail of how that maintenance program has been progressing.As we mentioned before, one of the key strengths of the businesses is our cash generation and that remains the case as we speak today. The EBITDA of GBP 112 million for the year has reduced by our total CapEx spend, including major projects in 2018 of GBP 31 million. That's GBP 3 million down on the previous year. We have had an adverse networking capital movement and that's almost solely related to the increased sales in 2018 in the later part of the year over 2017. There was also a slight stock build as we brought the Eclipse factory on stream. So that leaves us with adjusted EBITDA after the CapEx, working capital and also adjusting for our share-based payments of GBP 76 million, just GBP 1 million behind the same position in 2017.We then got interest tax on post-employment benefits of GBP 21 million, more than half of that has been offset by our surplus property income of GBP 13 million, leaving our overall operating -- adjusted operating cash flow of GBP 65 million, that's 18% up on the prior year.Excluded from that number is the cash we've generated from the proceeds from Glen-Gery GBP 76 million, which obviously has brought our overall net debt down from GBP 117 million to GBP 48 million, in terms of our leverage 0.4x.Just briefly looking at our adjusted EPS and this is one of the few slides where I'm actually talking about the group initially as opposed to our underlying operations. So the main EPS number which is relatively flat for our underlying operation is 18.8p versus 18.9p and actually it's a couple of decimal places, it's even closer. In 2017, the U.S. operation which generated 2.5p from an EPS perspective, half of that came from the tax changes that were announced during 2017. And in the 2018 number, which is an 0.8p, there is also taking account the small loss on the disposal from Glen-Gery.Having said all of that, we still got very strong cash generation and that's allowed us to increase our final dividend -- total dividend to 9.5p. And then on top of that, as Joe mentioned before, we paid our first supplementary dividend of 6.5p. Those 2 together would lead to a 75% increase on the prior year dividend number.So the group has very strong underlying cash generation. This slide is basically just to confirm our approach to capital allocation and our approach hasn't changed. So as Joe will go on and discuss in the strategic review, we're always looking for organic growth opportunities and Joe will be identifying some of those that we're looking to do over the next year or 2. We've progressively increased our ordinary dividend. And with our cash flows that we believe have supported to do that. Going forward, we will be looking at M&A opportunities. Again, Joe will touch on that further on, but should our overall net debt-to-EBITDA ratio be at the lower end of our target which hasn't changed between 0.5 and 1.5, then we will be looking to pay supplementary dividends, so there is no change to the policy there. In terms of our debt summary, nothing really too much to talk about there other than we are very comfortably within our overall debt covenants.So finally from me, I just thought it'd be useful to look back on how the business has performed since IPO, some of the key elements to it before Joe then starts to talk about where we see ourselves going forward. So from a revenue, EBITDA and EPS perspective, we've had good growth. And actually, if we pull the 2015 number on a couple of months from post our IPO, the progression will be equally the same. So we've had mid to slightly more positive average CAGR over that 3-year period for all of those 3 metrics.We've also kept our financial discipline within our previously set out guidelines. So some of the key elements to that. We have the pension scheme which in 2016 on an accounting basis had the deficits of GBP 29 million. That has now risen to a surplus of just under GBP 81 million. Included within that number is a provision for the low GMP, but that's only actually GBP 1.5 million. It's also worth noting that in terms of pension scheme we have been making payments to -- into the scheme as part of an original deal with the trustees of GBP 7 million. That has now been renegotiated. And from February this year onwards, that payment will reduce from GBP 7 million to GBP 1.75 million, so a reduction of GBP 5.25 million, and most of that cash will be put towards further derisking opportunities within the scheme.Our CapEx has steadily been coming down as the major projects that we announced virtually on IPO have now reached the conclusion. And as a result, we've managed to significantly deleverage the business, whilst continually increasing our overall dividend payments. So the business is in very good shape. We've got great routes to market. We've got very strong customer base. We've got -- we've exercised good cash discipline and we have a strong balance sheet. So we're well positioned to move the business forward.And I'll hand over to Joe to talk a little bit more about that.

[Joseph Hudson, CEO & Director]

Thanks so much, Kevin. So it's not broken, so don't try to fix it too much. It's a good business with a history of delivering in a very good market. So when we're looking at the strategy, this is much more, as I said last time, about evolution not revolution. It's very strong.Like anyone coming in, obviously, what I would do is I've looked at the asset base of the whole company when I came in, I looked at the geographies and I looked at the market trends that we had in all of those markets. And it was very clear to me that there was an obvious question around the U.S. So the team had actually done quite a lot of work on the U.S. and looking at different options. So it was quite quick for us to understand that the returns we're going to get were not in line with our strategic, sort of, direction. So we did decided to divest that business. We got a good price and a good home for the business and it has simplified everything now and given us a much stronger balance sheet.So what do we have now? We have a simplified business which is a good platform for growth. We have 2 distinct divisions now in Ibstock, which is our brick division and our concrete division. Both have some opportunities for improvement, for sure, but I'd say they have really good leading market positions and good product portfolios and so we can leverage on that in this market.You also need the right teams to deliver on the strategy. So we have been focusing on things there. I've focused the Operations Director, who looked after all of the operations and commercial functions in Ibstock solely on manufacturing and engineering development, especially with our maintenance program, and we recruited recently a new Managing Director for the brick business, that's going to be Kate Tinsley who will join us from Buildbase. She's currently the CEO of Buildbase, part of the Grafton Group. She will be coming in, in May. And she'll, I think, drive a lot of commerciality into our business there.In concrete, we've actually now reorganized that business from 3 businesses into 1 division. We'll keep the 3 brands, but we want one Managing Director to ensure we maximize the best practice sharing and looking at the whole footprint, and I think that is much more effective structure going forward.The market in which we operate continues to be very supportive. There is a structural deficit in housing. As you know, there's plenty of political support on both sides of the spectrum to support future new build housing in this country. The help-to-buy scheme is being extended till 2023. And both employment interest rates and mortgage availabilities are all very, very supportive of a good medium-term market.The brick market, which is our largest business, remains very buoyant. It grew last year by just under 5%. So the market is around GBP 2.5 billion now. Demand continues to outstrip domestic supply, which is why we brought on our new factory and why we're talking about enhancement projects. All our dispatches increased slightly, really the thing that bridged the gap last year in the brick market was imports, and the imports have grown to about GBP 415 million now, which is about 17% of the total market. At the same time, inventory levels are very low. So probably for the last 10 years, they are as low as they've been. So there's a tension in the market, but we are bringing on more capacity to support that.So against the backdrop of that really positive market, Ibstock is right at the heart of that. We really want to see how we can grow our business and support the market. We have 2 focus areas: performance improvement, which includes operational excellence and market-led innovation and that's really around maintaining our leadership and our margins; and then the second part of the strategy is investing for growth and that's about organic investment and selective M&A for the right opportunities and that's because of our strong cash generation and our balance sheet helping us to do that.Operational excellence, just to give you, we have great operational expertise in our businesses, there's no doubt about that, but we do want to continue to learn from the outside and combine that with our expertise in the inside and bring in more world-class manufacturing techniques and systems and cultures into our business. The operational excellence and the maintenance program is a good example of that. I told you last year we're a business that had been running full tilt in the whole industry for the last 5 years really needs to think more around how they're maintaining their assets to make them more sustainable. And we've been bringing some good practices from the outside from cement and other sectors, where there's a much more proactive approach to maintaining assets and thinking about how we can focus on maintenance organization and shut down management in particular. So this is going to ensure that we've got the range and the quality and the reliability of supply going forward, and the program is working well at the moment. Our shut downs have gone very well and to plan. You can see a few examples of some of the projects there that we've been undertaking. It's not finished. We're still ongoing with that this year.Optimizing supply chain is another key area of operational excellence. I think I've spoken to you before about the -- there are a lot of inefficiencies in what is quite a traditional sector with sometimes 30% cancellation rates and movement rates. It's very hard to plan and it's very hard to service your customers when we have these sort of practices. So we want to bring in better systems, better technology to try and improve our efficiencies in supply chain. That will help us to manage our haulage costs with our partners and share value there. It will be helping us to improve stock turns and also improve ultimately build-out rates on sites, especially for the housing developers. We've had an example of a very large house builder in the U.K., a national house builder where we've reduced -- in just a few months we've reduced from around 30% cancellation and movements to low single figures. So it shows it can be done. And as the leader of the industry, we need to really move things forward and we're trying to do that.The industry is also evolving. We want to continue to promote traditional building methods. We believe that's very important for the U.K., but there are some changes and there are some dynamics and we need to be mindful of skill shortages and that sort of thing. So we want to be at the heart of the change in the industry. We've already got a lot of very innovative products, especially things like roofing, our SL8 and our Gemini, reduced time and labor costs, installation costs and so on.Our Kevington business has got some great components that also save time at the job site, chimneys, arches, cladding, special bricks and so on. We've also just introduced a product this year called MechSlip, which is a cladding system. Really important innovation for the commercial market, where the traditional look of brick facias is desired. So we like this, sort of, components side of the business because it saves time, it's innovative, but also it pulls through our core products and adds a lot of value to us. So it's an area that we're going to invest and grow.And we'll continue to support product development with our customers with a bit more technical capability. We've invested in that. We're just about to open this month a design center in London to work more closely with the designers and specifiers and as we look to develop new value propositions. So the things like the affordable, the social market and some of the commercial markets, you really need to be at the heart of design conversations to make sure your products get specified. So we're quite excited about that. This is a high-tech center as well, so we're looking at how we can leverage technology in that whole design process.In terms of -- finally, in terms of the operations, we really think that sustainability is very important, both now and going forward. Ibstock has had a focus on sustainability, in particular we've had some good progress with environmental improvements that we've made with our environmental footprints. We're recently awarded an award by the edie at the edie awards for energy efficiency. But we'll -- it's going to develop and we'll tell more about this at the half year a roadmap -- a long-term roadmap to develop our commitments around sustainability and that will also include our social footprint, the impact that we have on society, things like health and safety, skills, diversity, social and affordable housing participation, we'll be working on that. We're also going to be partnering with a national charity as part of our campaign to eradicate homelessness, which is a big issue in this country, and we hope that, that's also going to galvanize our employees around the whole topic of sustainability and action.Let's just talk a bit now about how we're thinking about growth. So in terms of organic growth, we have identified some smaller enhancement projects, which should be lower capital and faster return profiles than the major projects we've delivered in recent years. We're currently appraising several projects and once finalized will likely to be executed in 2019 and 2020, with financial benefits in excess of GBP 5 million of additional EBITDA as the projects complete, with the majority of those projects will be coming -- that money will be coming through in 2021. That's mainly around capacity increase for our brick business. There's some concrete enhancement projects, and we see about a GBP 40 million brick capacity increase with this initiative. That's about the size of a medium-sized brick factory.These are projects which we can renew or replace parts of existing factories to free up additional capacity and anticipate its spend will be about GBP 25 million in total across the 2 years. We'll share further details as some of these projects are -- we're still having discussions with some of those suppliers.On larger projects, Eclipse is now fully operational and contributing to volume growth. We still have some development work on our product range to do at that factory, but it really has been a great example of a well-executed project. There are not many options for delivering new large-scale brick factories in the U.K., and we're very lucky in Ibstock to have a great reserve portfolio and a couple of potential sites identified as suitable for our next major capacity increase projects. We'll continue to appraise these options and assess the market dynamics and we'll make further announcements if necessary, but we will not be announcing anything and we'll have no major CapEx spend in 2019.With regard to M&A, here's a few principles underlying how we see that. We remain focused on products supplied into the U.K. residential building envelope. Strategic fit is key for any potential acquisition and that means commonality with existing products, processes, capabilities and routes to market. We will look at both bolt-on and larger transformational M&A. However, a strong strategic fit and a leading product position are particularly important for any larger deals. So we're not going to do anything big to be a #4 player. We'll maintain a disciplined approach to capital allocation, particularly with M&A, focusing on returns on capital. And so how this area of strategy will develop in the coming years will depend on what assets are available that have a strategic fit with our core business and the pricing and the valuations that they're available at. But having a new Managing Director of a brick business and a Managing Director of our concrete division, we've simplified our structure and that gives me more time to work on some of this stuff with Mark, who's sat at the back there.Moving on to the outlook for the year. Currently, our trading is in line with expectations. There's a bit of political and economic uncertainty, fine. We expect CapEx for the group to be between GBP 28 million and GBP 32 million per annum for 2019 and 2020, and that reflects the previously guided maintenance CapEx going forward of about GBP 18 million the enhancement project spend that I've just elaborated on and other group level investments that we might choose such as upgrades to technology to support our operational and commercial initiatives. But by and large, we're very positive about the medium-term outlook. And as I discussed earlier, the fundamentals that we can measure and have visibility of remain very positive.So here's just a summary, an overview of the points and how I look at the business as it sits today and what we'll focus on in the coming years. The current U.K. business is spread across brick and concrete and has a very strong platform for growth. We've several areas for focus in the near term to improve our operational and commercial capabilities. And this will make our model more sustainable and drive greater efficiency. It will put us at the center of the narrative of the industry's evolution, and it will also maintain leadership in our margins and our returns for shareholders. In addition, we've got plans to grow the business in the next few years with both strong organic projects and M&A optionality as the right opportunities present themselves.So that's it. Thank you very much for your attention. We're going to handover to some questions-and-answer time now. But can I just remind you that when you do ask a question, can you use the microphone. There should be a microphone going around because people are listening in the ether.

[Joseph Hudson, CEO & Director]

So Emily?

[Emily Louise Biddulph, Research Analyst]

I'm Emily Biddulph from JPMorgan. I've got 2 questions, please. The first one is just on the, sort of, the net debt position. Obviously, you're slightly below that 0.5 to, sort of, 1.5x net debt to EBITDA. You've talked about that, that gives you some optionality on the M&A, but, sort of, inevitably these things can potentially take a while. So if you're below that level for a while, would you feel comfortable with that? Or sort of at what point do you, sort of, come back and review it? And then just secondly, you talked about, sort of, building components and that being an area for growth. Should we read that as a, sort of, product development area? Or is that, sort of, a focus for that potential M&A?

[Joseph Hudson, CEO & Director]

So do you want to take the debt and I'll take the...

[Kevin Sims, CFO & Executive Director]

Yes. So -- I mean, on the debt position, as I've alluded to before, I mean, nothing has changed in terms of absolute guided range. Clearly, the disposal of Glen-Gery had an impact on that, an immediate impact to take it actually below our target range. That was a strategic disposal. We're going to look at strategic opportunities. If there aren't -- if we're not able to deliver those in the, sort of, short-to-medium term, then, yes, we would be looking to return money to shareholders.

[Joseph Hudson, CEO & Director]

And then on the components question, it's a bit of both, Emily. You've got -- we got a strong business called Kevington at the moment, which has an ability to -- we continue to invest organically in that business, increasing capacity. But we've -- there are things out there as well that we could be interested in. And also, there are strategic partnerships that we've already done. So with both Nexus and MechSlip, we actually have some strategic partnerships with steel manufacturers to deliver those, sort of, expansions. So this is -- it's a really interesting area for us. It's not huge and it's much lower cost -- much lower CapEx, but it's a really interesting growth area. Gregor?

[Gregor Kuglitsch]

Gregor Kuglitsch from UBS. A few questions. Can you just confirm what's your utilization rate, sort of, if we take the whole brick business as a whole? Appreciate, there's a few moving parts with the Leicester factory and then the shut downs. But any color kind of some -- kind of percentage would be helpful? And then on Leicester, can you confirm how much it actually produced or sold which way you prefer to look at it? And the EBITDA contribution that we had last year maybe in rough terms? And then maybe a question more, sort of, longer term on returns. I think your operations to be over 20% pretax return on capital. I think today you're announcing something in the neighborhood of GBP 25 million additional spend for GBP 5 million additional profit, which again is about 20%. Is that kind of what you think as the business is the returns that you'd be aiming to maintain? Or do you think you can actually improve those returns if you take it as it is today clearly absent any major strategic acquisitions?

[Joseph Hudson, CEO & Director]

Kevin, can you take the first 2?

[Kevin Sims, CFO & Executive Director]

Yes. So on utilization, we've said before the kind of maximum utilization that you ever like to get and we're specifically talking specifically on the brick operation, which is probably where you're asking the question for will be the, sort of, 95-ish-type percent. You're never going to be running at 100%. With the maintenance program that we've -- Joe has already alluded to that, that has fallen towards the, sort of, 90% and a bit more. And obviously, once we go through that, we anticipate that we will be going back to what we've classed as maximum utilization, which should be in the mid to upper 90s. On the Eclipse facility, volume after that plant, this is sales, and our production was just over 35 million, that's volume. And rather than kind of looking back, I'm guessing your question is, so you can work out looking forward. What we're going to get for 2019? We would anticipate another sort of GBP 7 million to GBP 8 million coming out of that plant in EBITDA terms.

[Joseph Hudson, CEO & Director]

And then in terms of return on capital, we said -- we've actually said in excess of GBP 5 million. We're still working out some of the fine details on that. So we've used that as a barometer. Yes, I think, 20% return on capital is -- on an organic project, is what we would expect at the minimum and hopefully a bit more than that.

[Unknown Analyst]

My first question is on what your expectations are in terms of price cost dynamics in your U.K. clay business for 2019? And if you expect margins to improve? Then if you could give us a bit more detail on which activities would you like to consolidate going forward? And if you rule out any acquisition of a large U.K. concrete player? And lastly, you highlighted selective growth 3 broad areas as opportunity, do you expect these to contribute positively to the group profitability? And if so, when and if there are any one-off costs implied behind...

[Joseph Hudson, CEO & Director]

What was your first question, again?

[Unknown Analyst]

Sorry, price cost dynamics...

[Joseph Hudson, CEO & Director]

Right. Yes, price cost dynamics. So at the moment, as Kevin mentioned, we've had high energy input costs. We would expect to cover the costs, as he mentioned, inflation costs with price increases, but we wouldn't expect margin accretion from that price increases. And that's what we want to make sure we're managing at the moment to cover the costs. In terms of strategic options and things like that, we really don't comment about target. So anything that's all pretty confidential, so we won't comment about that. Do you want to take the last one? Can you remember what it was?

[Kevin Sims, CFO & Executive Director]

Do you remember what was the last one was?

[Unknown Analyst]

In terms of your profitability for 2019, now it's a selective growth strategic update and when and if there are any one-off [indiscernible] costs?

[Kevin Sims, CFO & Executive Director]

Well, so -- no, that's kind of built into the numbers that Joe is kind of alluding to. So the bulk of the returns, which, as Joe said, is we anticipate once we finalize it or will be in excess of GBP 5 million and, obviously, we'll give further guidance on that. The majority is going to come in 2021, so you can -- yes, 2021, so that's what -- as the projects come to completion. So -- and our 2019 profitability is, obviously, impacted by what we mentioned last year with our maintenance spend and reduced production output and the GBP 7 million to GBP 8 million from Eclipse which I mentioned to Gregor.

[Joseph Hudson, CEO & Director]

Okay. [indiscernible]

[Unknown Analyst]

It's [indiscernible] here from Jefferies. A couple of questions. So the first one is the organic CapEx project bringing an extra GBP 40 million capacity over sort of 2-year basis. That's still very small versus 17% of demand being satisfied by import. So what's the biggest obstacle to, sort of, announcing another Leicester? Is it finding the right, sort of, site is getting planning commission? Or you just waiting to see where demand goes after all the political uncertainties is over? And the second question is just, sort of, following up on the pricing benefits. I wondered if you could, sort of, give us what magnitude to the benefit that we could get to the top line. You said energy costs are going up by 10%. Does that mean brick prices are going up 10%? Or actually that's wage inflation which is there...

[Joseph Hudson, CEO & Director]

Certainly not.

[Unknown Analyst]

And the last thing is there's, obviously, a little bit more focus on M&A. Are you already in discussions with potential targets? Or is it more, sort of, this is where we intend to go over the next couple of years?

[Joseph Hudson, CEO & Director]

Okay. So I'll take the first one and maybe the last one. Kevin can take the middle one. So why we like these enhancement projects is because we have a wide quality and range of products to service the whole market and these projects are fast return. If you were to ramp up a new plant, it would take 3, 4 years. These will bring faster volumes to the market. And yes, it's not GBP 100 million, but it's a mid-sized factory, GBP 40 million, which will be really helpful, especially for the range of products that we have to satisfy our customers. We have optionality on the large projects, but as you can imagine we've just ramped up Leicester. This enhancement project is going to require a lot of focus from our project teams and with project management and so on. So we always -- we don't do things sequentially, we do things in parallel. But we -- and we are looking at that now, but we're just not going to announce anything about that today, and we don't expect any spend this year. M&A, as I said, it's about things that fit with our business and our portfolio to make us continue to drive our leadership in this market place. We've got a lot of existing knowledge and expertise and we know the sector well, but it's a case of the right thing for the right price that is the right fit, small stuff, big stuff, but we're cautious -- we tend to be cautious about things.

[Kevin Sims, CFO & Executive Director]

Just on the volume into the industry, we still got the second half of the Eclipse project which will come on stream during this year. So we pulled out with what -- Joe has announced actually probably equates to about 5% of the U.K.-manufactured capacity. So there's still a gap, which is probably positive from opportunities, but, of course, there have been other manufacturers in the U.K., who have also announced expansion projects. We're mindful of what's going on in the industry. In terms of top line growth, if you just take it overall for the business because concrete is a different dynamic in terms of, sort of, pricing, you're talking, sort of, 3% to 4% if you're looking for that top line numbers excluded any volume growth from the Eclipse project which needs to be on top of it.

[Gavin Jago, Analyst]

This is Gavin Jago from Peel Hunt. A few topics if I could, please. First one is just around your brick product suite. [indiscernible] have got their own concrete brick factory, but a few of the other have started doubling with them, should we say. Is there any appetite to add concrete bricks to your product suite? If not, for instance. That's the first one. The second one is around your example you gave in one of your major customers in the cancellation rate shifting that significantly. Can you point to all, sort of, benefits that has kind of brought to you either from an operational, financial point of view? And then thirdly just around kind of brick layers and skilled labor. Do you have any, kind of, significant concerns about that labor pool over the medium term and kind of the lack of training if that's the case in the U.K.?

[Joseph Hudson, CEO & Director]

Okay. So we won't comment on -- specifically on others and their product portfolios. In terms of concrete bricks, they've been around for a long time. We won't be making concrete bricks while I'm around anyway. I might shoot myself for that, but I think we have such a broad range and we believe that the clay is such an enduring product that lasts for a long time. We feel it has benefits and we don't need to do anything with concrete. Supply chain really is at the outset and it's more around maintaining or -- and containing our freight costs and working with our suppliers going forward. It's not about building more margin and it's about improving stock turns and really helping improve the efficiency of the supply chain for our customers to improve service levels. Skills is an issue. We do need more skills, but there is a big focus on that in the whole ecosystem. When I talk to the large bricklaying subcontractors, they're all focused on really where they're finding new skills from apprenticeships. There's a lot of focus and we're involved with that at the college level as well. So it is an area that we have to keep focusing on, but the whole components thing and making things easier and the whole supply chain efficiency will help that as well.

[David A. O'Brien, Investment Analyst]

David O'Brien from Goodbody. Just one for me maybe and I'm following up on the comments around concrete and one Managing Director now. What kind of changes can the external customer expect to see because of that move and what kind of changes internally are you putting in place as well?

[Joseph Hudson, CEO & Director]

Yes. So we had different types of commercial practices in our different businesses, and some really advanced in terms of their commerciality and service levels. So that's the first thing is really having a seamless approach to service and the whole back-office process for customers, that's really important. And also on the manufacturing footprint, how we're -- we buy a lot of materials. It's making sure that we're aligned around what materials we're buying, our footprint and the teams as well. So looking at how to optimize the teams, how they work together, how they share best practices. When you have 3 businesses and you're running them as 3 businesses, they tend to work in silos and this is all about bringing a common culture across that division.

[Kevin Sims, CFO & Executive Director]

Yes, I think they will be purchasing operational benefits more so than from the sales perspective because the routes to the market for the 2 businesses are -- there isn't too much crossover.

[Joseph Hudson, CEO & Director]

Okay. No one has one more last question? Very good. Thank you very much for your attention today.

[Kevin Sims, CFO & Executive Director]

Thank you.