Post close half year trading update

Forterra plc

11 July 2023

 

11 July 2023

FORTERRA PLC

Post close half year trading update

In advance of the publication of our half year results on 27 July 2023 Forterra plc (the 'Group'), a leading UK manufacturer of essential clay and concrete building products, provides this trading update for the six-month period ending 30 June 2023 (the 'period').

Key points

·    Resilient H1 results broadly in line with our expectations, delivered against a backdrop of challenging trading conditions

·    We expect to report H1 revenues of approximately £183m, adjusted EBITDA of approximately £30m and adjusted PBT of approximately £18m

·    Progressive signs of market improvement seen through May and June, although this improvement has been less pronounced than previously anticipated

·    Considering the increasingly uncertain macroeconomic outlook we now expect to deliver full year 2023 EBITDA with a more balanced H1 / H2 split, reflecting only a modest improvement in trading conditions in H2

H1 results

·    Subject to review by our auditors, we expect to report revenues for the period of approximately £183m, a decrease of 18% relative to the prior year (2022: £222.8m)

·    We expect to report a resilient H1 result broadly in line with management expectations, with adjusted EBITDA of approximately £30m (2022: £46.1m) and adjusted PBT of approximately £18m (2022: £37.3m)

·    Whilst market conditions remain competitive, our selling prices have remained firm and our cost base stable

·    As planned, we have rebuilt our inventory, with stock levels increasing by approximately £30m in the period, leaving us well placed to deliver the service levels our customers expect

·    We have maintained a strong and flexible balance sheet and expect to report a period end net debt before leases of approximately £50m (2022 year end: £5.9m) which is below 1x adjusted EBITDA on a LTM basis  

Management actions

·    In response to the challenging market conditions, and with our brick production capacity increasing with the opening of the new Desford factory, as previously announced, we have mothballed our Howley Park brick factory and implemented other production reductions which will reduce our fixed costs by around £10m on an annualised basis

·    In addition, we are consulting with affected individuals on a restructuring of our commercial and support functions, aligning them to anticipated demand, which we expect to save approximately £3m annually

·    The demand for our products in H2 will influence our production decisions. Having replenished our inventories in H1 we expect to limit our inventory growth in H2 and will continue to take appropriate action to ensure our output is aligned to demand

·    Our strategy remains to maximise the ramp up of production at the new Desford factory, such that we can benefit from the market leading efficiencies it will offer once fully commissioned

Market backdrop and outlook

·    UK brick industry despatches, as published by the Department of Business and Trade, were 31% adverse to the prior year in the five months to May 2023, with the month of May showing signs of an improving trend which is further evidenced by our own despatches for June, albeit this improvement is less pronounced than previously anticipated  

·    Encouragingly, imports of bricks to the UK have fallen significantly, decreasing 44% relative to 2022 in the four months to April, although they still remain high as a proportion of overall demand

·    Although customer inventory reduction has been more prolonged than anticipated, we still expect this to ease in H2

·    Demand for our products for the rest of the year remains subject to significant uncertainty with rising interest rates widely expected to adversely impact the demand for new homes for the foreseeable future

·    Contrary to the wider macroeconomic backdrop, our precast flooring business, which can be regarded as a leading indicator for future brick and block demand is performing strongly, with despatches presently only 20% below prior year levels with current order intake running ahead of this

·    As set out at the start of the year, our expectations for 2023 were based upon an underlying fall in full year market demand of 20% relative to 2022, with a slow start to the year followed by a meaningful recovery strengthening into H2 

·    However, we are now assuming only a modest improvement in trading conditions, and therefore expect to deliver full year EBITDA with a more balanced H1 / H2 split

·    The impacts of greater borrowing, inventory build, and rising interest rates are also expected to drive an increase in our financing costs

·    Notwithstanding a weaker market in the short-term, looking further ahead, the Board remains confident that the Group remains well positioned to benefit from attractive market fundamentals of a shortage of UK housing supply, a shortfall of domestic brick production capacity and cross-party political support for increasing housing supply

This announcement contains inside information for the purposes of article 7 of the Market Abuse Regulation (EU) No 596/2014.

ENQUIRIES

Forterra plc [phone]

Neil Ash, Chief Executive Officer

Ben Guyatt, Chief Financial Officer

FTI Consulting [phone]

Richard Mountain / Nick Hasell

 

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