Pre-AGM trading update

Forterra plc

16 May 2023

 

16 May 2023

FORTERRA PLC

Pre-AGM trading update

YTD result in line with expectations despite challenging trading conditions

Ahead of a capital markets event coinciding with the formal opening of the new Desford brick factory tomorrow and in advance of our AGM on 23 May, Forterra plc (the 'Group'), a leading UK manufacturer of essential clay and concrete building products, provides this trading update for the four-month period ending 30 April 2023 (the 'period').

Results

·    Profit before tax in the period was in line with management's expectations with revenue for the period of £109m a decrease of 24% on the prior year (2022: £143m)

·    Cost base stabilising, however inflation persists in certain categories in line with expectations

·    Approximately 80% of YTE energy requirements secured, albeit at higher rates than 2022 due to the expiry of historic forward purchases made at advantageous rates

Market backdrop and outlook

·    Our expectations for the year remain unchanged based upon an underlying fall in full year market demand of 20% relative to 2022

·    Whilst industry brick despatches fell 32% relative to the prior year in the three months to the end of March, we continue to expect market conditions to improve as the year progresses

·    We believe the levels of inventory reduction within our customer base have been a major factor in our YTD performance and expect this to ease going forward

·    Brick imports have begun to fall sharply, reducing by 45% relative to 2022 in the three months to the end of March

·    Improving housebuilder reservation rates provide cause for optimism and an improving outlook for H2 2023 and into 2024

·    The result for the full year will be weighted towards H2 reflecting the anticipated improvement in market conditions

Capacity Management

·    Production at the new Desford brick factory continues to ramp up and the old factory ceased production as planned at the end of March

·    With the new factory becoming operational at a time of subdued demand, disciplined capacity management is key to our ongoing success and we are presently consulting on measures to temporarily reduce our production, including the mothballing of our Howley Park brick factory. These measures are expected to deliver an annualised fixed cost reduction of approximately £10m. Beyond this, we will continue to ensure our cost base, including Group overhead, is aligned to market conditions

Dividend

·    As previously announced, subject to approval at next week's AGM, we expect to pay a final 2022 dividend of 10.1 pence per share on 7 July to shareholders on the register as at 16 June 2023

Formal opening of Desford

·    We are hosting the formal opening of the Desford brick factory on Wednesday 17 May 2023

·    No new information will be provided on current trading further to today's update. The presentation materials from the event will be made available on the Group's website

Neil Ash, Chief Executive of Forterra plc, commented:

"Trading conditions in the period have been challenging and we are therefore pleased to deliver a result in line with our expectations.

"Our expectations for the year are based upon an underlying fall in market demand of 20% relative to 2022. With the inventory reduction within our customer base still ongoing, the decline in demand we have seen in the period is greater than 20%. However, we do expect demand will improve as the year progresses, noting the improving conditions cited by the housebuilders over recent weeks.

"We have already taken proactive steps to manage our production capacity and cost base, as we seek to maximise the benefits of the new Desford factory and the industry leading efficiencies it will provide.

"Our other growth investments at Wilnecote and Accrington are both progressing well.

"We believe the Group is well placed to meet the short-term challenges we face and remain confident in the medium to long-term fundamentals of our markets. This confidence is underpinned by a longstanding shortage of housing supply, the strong cross-party political support for housebuilding and a long-term deficit of domestic brick production capacity.

"Subject to market conditions improving in line with our projections we continue to anticipate delivering a full year result in line with our expectations with the result weighted towards H2."

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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