REG - Forterra plc - Six months ended 30 June 2024
30/07/2024 07:00
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RNS Number : 2865Y Forterra plc 30 July 2024
Solid performance despite challenging trading conditions, better than
expected H1 net debt position
Six months ended 30 June 2024
Adjusted (1) Statutory
2024 2023 2024 2023
Change Change
£m £m £m £m
Revenue 162.1 183.2 (11.5) % 162.1 183.2 (11.5) %
EBITDA(2) 24.3 31.1 (21.9) % 28.0 30.0 (6.7) %
EBITDA margin(2) 15.0% 17.0% (200) bps 17.3% 16.4% 90 bps
Operating profit (EBIT) 14.0 21.7 (35.5) % 17.7 20.6 (14.1) %
Profit before tax (PBT) 9.1 19.2 (52.6) % 12.8 18.1 (29.3) %
Earnings per share (pence) 3.2 7.1 (54.9) % 4.3 6.7 (35.8) %
Operating cash flow 13.3 (16.3) n/a 4.9 (18.3) n/a
Net debt before leases(2) (101.2) (50.1) 102.0 %
Interim dividend (pence) 1.0 2.4 (58.3) %
(1)Adjusted results for the Group have been presented before exceptional items
and adjusting items (2024: income of £3.7m, 2023: expense of £1.1m) relative
to statutory profit as explained in Alternative Performance Measures (APM)
within note 4. Presenting these measures allows a consistent comparison with
prior periods.
(2)EBITDA, adjusted EBITDA and net debt before leases are APMs, as explained
in note 4. They are presented above under the statutory heading, being
calculated with reference to statutory results without adjustment.
H1 RESULTS
• Group revenue for the period of £162.1m, represents a decrease of
11.5% relative to the prior period (2023: £183.2m)
• H1 UK brick industry despatches estimated to have fallen
approximately 9% relative to the prior period, with our own brick despatches
in line with this
• Despite the weaker than expected market conditions, effective cost
management has delivered a result for the first half which is in line with our
expectations
• Adjusted EBITDA of £24.3m (2023: £31.1m) and adjusted PBT of
£9.1m (2023: £19.2m)
• Selling prices remain relatively stable with competitive market
conditions restricting our ability to implement our announced price
increases
• Cost environment remains stable with expected cost savings
delivered, output reductions however limit the visibility of these savings
• Disciplined working capital management and timing of capital spend
contributed to a stronger than expected half year cash performance with net
debt before leases of £101.2m (2023 year end: £93.2m) which equates to 2.3 x
adjusted EBITDA on a last 12 months (LTM) banking covenant basis
• Interim 2024 dividend of 1.0 pence per share (2023: 2.4 pence)
declared in line with temporary 40% pay-out ratio
OUTLOOK
• With softer comparatives, the expected 9% reduction in UK brick
despatches seen in H1 is expected to improve in H2; although overall, full
year 2024 demand is expected to be lower than 2023
• With H1 despatches generally below our previous expectations, we
have acted decisively to adjust our production plans and reduce output
accordingly, prioritising working capital over short-term operating efficiency
• Whilst we have seen some modest signs of improving demand in
recent months, disaggregating the effects of a catch up from an unusually wet
winter, routine seasonality and any wider market recovery is difficult, with
little evidence of a sustained recovery in the near-term
• With expected reductions in interest rates now delayed into H2 and
mortgage rates remaining high, the challenging trading conditions which have
persisted in H1 are expected to continue in the near term and we therefore now
expect FY 2024 adjusted EBITDA to be around £50m
• Looking beyond the current financial year, the Board is encouraged
by the new Government's commitment to increase housing supply and remains
confident that the Group is well positioned to capitalise on a recovery of its
key markets in due course
Neil Ash, Chief Executive Officer, commented:
"The Group delivered a solid performance in the first half of 2024, despite a
continuing backdrop of challenging market conditions. Decisive management
actions assisted in producing a result in line with our expectations and a
better than expected net debt position at the period end.
"We are encouraged by the new Government's focus on significantly increasing
housing supply which will clearly provide medium to long-term structural
benefits for Forterra. Our strategic investment in Desford and Wilnecote
addresses previous capacity constraints and positions us well to satisfy
increased demand for our products.
"While the short-term outlook remains challenging, as we look further ahead
the Group is well positioned to capitalise on the recovery of our key markets
as it occurs."
ENQUIRIES +44 1604 707 600
Forterra plc
Neil Ash, Chief Executive Officer
Ben Guyatt, Chief Financial Officer
FTI Consulting +44 203 727 1340
Richard Mountain / Nick Hasell
A presentation for analysts will be held today, 30 July 2024, at 9.00am. A
video webcast of the presentation will be available on the Investors section
of our website (http://forterraplc.co.uk/ (http://forterraplc.co.uk/) ).
ABOUT FORTERRA PLC
Forterra is a leading UK manufacturer of essential clay and concrete building
products, with a unique combination of strong market positions in clay bricks,
concrete blocks and precast concrete flooring. Our heritage dates back many
decades and the durability, longevity and inherent sustainability of our
products is evident in the construction of buildings that last for
generations; wherever you are in Britain, you won't be far from a building
with a Forterra product within its fabric.
Our clay brick business combines our extensive secure mineral reserves with
modern and efficient high-volume manufacturing processes to produce large
quantities of extruded and soft mud bricks, primarily for the new build
housing market. We are also the sole manufacturer of the iconic Fletton brick,
sold under the London Brick brand, used in the original construction of nearly
a quarter of England's housing stock and today used extensively by homeowners
carrying out extension or improvement work. Within our concrete blocks
business, we are one of the leading producers of aircrete and aggregate
blocks, the former being sold under one of the sector's principal brands of
Thermalite. Our precast concrete products are sold under the established Bison
Precast brand, and are utilised in a wide spectrum of applications, from new
build housing to commercial and infrastructure.
SUMMARY
The Group delivered a solid performance in the first half of 2024 against a
continuing backdrop of challenging market conditions which were a little
weaker than had been anticipated at the beginning of the year. Notwithstanding
this, we have delivered an H1 result in line with our expectations. Revenue in
the first half totalled £162.1m (2023: £183.2m) a fall of £21.1m or 11.5%
relative to the corresponding prior year period. Market conditions limited our
ability to implement our announced selling price increases leaving selling
prices broadly stable in the period. Adjusted EBITDA for the period was
£24.3m (2023: £31.1m) assisted by firm cost control with adjusted PBT of
£9.1m (2023: £19.2m).
Our disciplined cash and working capital management, assisted by the timing of
capital expenditure and other payments, allowed the Group to report a better
than expected half year net debt and leverage position which remains
comfortably within our original covenants. As at 30 June 2024 our net debt
before leases was £101.2m (31 December 2023: £93.2m) with leverage
calculated in accordance with our banking covenants of 2.3 times (31 December
2023: 1.9 times). We continue to expect 2024 year end net debt before leases
to be at a similar level to the 31 December 2023 position.
OUR MARKETS
Challenging trading conditions persisted throughout the period with weak
demand experienced across our product range and end markets. Figures published
by the Department for Business and Trade show that domestic brick despatches
were 7% down relative to the prior year in the five months to May 2024, and
with June being the strongest month of 2023, we expect this year on year
deficit to widen to approximately 9% when the 2024 half year statistics are
published. With the second half of 2023 providing a weaker comparative, it is
likely that this deficit will improve in H2 although full year demand is
likely to remain below 2023 levels. Our previous expectations for our 2024
full year performance were based upon an assumption of a broadly flat market.
Imports of bricks into the UK have continued to decline, with imports for the
period to the end of May falling by 15% relative to the corresponding prior
year period, currently satisfying approximately 20% of UK demand. Market
conditions are believed to be similarly challenging in continental Europe,
acting as a stimulant to continued imports, albeit at a modest level.
We were encouraged to see the housing crisis receive significant coverage
during the general election campaign, and we now urge the new Government to
deliver upon its commitment to significantly increase housing supply. Whilst
we remain realistic as to what is achievable in the short-term, a change of
government with a clear focus on increasing housing supply offers hope that,
in the coming years, a modest level of housebuilding growth above 2022 levels
is achievable even if the target of an average of 300,000 net new homes a year
during the course of this parliament remains challenging in the near term. In
addition to the promised planning reforms, the industry will also need to see
labour supply constraints addressed along with significant incentives to
ensure the private sector is rewarded for materially increasing build
rates.
Both the wider UK brick industry and our own business were capacity
constrained in the last cycle with the country importing approximately 570m
bricks in 2022 when only 208,000 new home completions were registered. With
the addition of our new Desford brick factory along with the recommissioning
of the Wilnecote factory, our brick production capacity will increase by 23%
relative to 2022 and even if we ultimately choose not to reopen the presently
mothballed factory at Howley Park, our capacity will still be 15% greater.
This represents an uplift of approximately 115% and 100% on our expected 2024
brick production respectively.
RESULTS FOR THE PERIOD
Our revenues reflect the weaker market conditions with our own brick
despatches in line with the wider market trend. Our concrete products have
fared a little better with aircrete blocks despatches increasing year on year.
Pricing remains relatively stable leading to total revenue of £162.1m
representing a decrease of 11.5% on the prior period (2023: £183.2m).
Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA)
were £24.3m, a decrease of 21.9% relative to the prior year (2023: £31.1m).
Group adjusted EBITDA margin of 15.0% compares to 17.0% in 2023. This decline
in profitability is primarily driven by our aligning of production with
current sales levels. The first half of 2023 saw reported EBITDA supported by
a significant growth in inventory with fixed costs absorbed onto the balance
sheet. This is demonstrated by our H1 adjusted operating cash inflow of
£13.3m which compares to an outflow of £16.3m in the prior period, an
improvement of £29.6m. During H1 we successfully aligned production to sales
and accordingly, have seen our inventory stabilise.
The effective rate of corporation tax before adjusting items in the period was
26.6% (2023: 23.7%) which is in line with our expectations and closely aligned
to the 25% headline rate of corporation tax. Adjusted profit before tax of
£9.1m compares with a 2023 profit of £19.2m. Statutory profit before tax of
£12.8m compares with a 2023 profit of £18.1m.
OUTLOOK
UK brick industry despatches for the first half of 2024 are expected to be
around 9% below the prior year. Whilst this deficit is expected to improve by
the end of the year given softer comparatives in the second half, we expect
full year demand will still fall below the prior year comparative.
With H1 despatches generally below our previous expectations, we have adjusted
our production plans to reduce output accordingly, prioritising cash over
short-term efficiency and this will have an impact on H2 earnings. Whilst we
have seen modest signs of improving demand in recent months, disaggregating
the impacts of a catch up from an unusually wet winter, routine seasonality
and any wider market recovery is difficult, with little evidence of sustained
recovery in the near-term.
With the expected reduction in interest rates now delayed into H2, and having
considered recent commentary from our listed customers, we now expect the
challenging trading conditions which have persisted in the first half of the
year to continue in the near term and we therefore expect FY 2024 adjusted
EBITDA to be around £50m. Looking beyond this financial year, the Board is
encouraged by the new Government's commitment to increase housing output and
remains confident that Group is well positioned to capitalise on a recovery of
its key markets in due course.
WELL POSITIONED FOR MARKET RECOVERY
Whilst the new Government's published target of 300,000 new homes per annum is
challenging in the near-term, we are encouraged by its commitment to planning
reform and the priority being given to delivering a significant increase in
housing supply in the coming years. The supply and demand characteristics of
the UK brick market dictated that, in 2022 with only 208,000 new home
completions, the industry was capacity constrained with over 570m bricks
imported representing 23% of market demand. Our £140m programme of organic
capacity investment addresses our previous capacity constraints, leaving the
Group well-positioned to benefit significantly from the market recovery as
interest rates fall and housing demand increases.
Our capital investments at Desford and Wilnecote will provide us with an extra
23% brick manufacturing capacity and even without reopening the Howley Park
facility, we will still have a 15% greater capacity in the next turn of the
cycle. This represents an uplift of approximately 115% and 100% on our
expected 2024 brick production respectively highlighting the operating
leverage of our business. Assuming a return to market conditions seen in 2022,
the investment in new capacity has created an enlarged Group capable of
delivering EBITDA of approximately £120m in the mid-term, with Desford and
Wilnecote contributing £25m and £7m respectively. (2022 adjusted EBITDA:
£89.2m).
ALTERNATIVE PERFORMANCE MEASURES
In order to provide the most transparent understanding of the Group's
performance, the Group uses alternative performance measures (APMs) which are
not defined or specified under IFRS and may not be comparable with similarly
titled measures used by other companies. The Group believes that its APMs
provide additional helpful information on how the trading performance of the
business is reported externally and assessed internally by management and the
Board.
Adjusted results for the Group have been presented before: i) exceptional
items and ii) adjusting items.
2024 2023
£m £m
Adjusted PBT 9.1 19.2
Exceptional costs
Restructuring costs (0.2) (2.1)
Impairment of plant and machinery - (0.9)
Aborted corporate transaction (2.6) -
Adjusting items
Realised loss on the sale of surplus energy (2.1) -
Fair value movement on energy derivatives 6.9 -
Accounting for carbon credits 1.7 1.9
Statutory PBT 12.8 18.1
EXCEPTIONAL ITEMS
Exceptional items in the period totalled £2.8m (2023: £3.0m) comprising
professional fees associated with an aborted corporate transaction of £2.6m
and restructuring costs of £0.2m. Exceptional items in 2023 primarily related
to redundancy and termination costs associated with the restructuring of our
operations in order to reduce output in response to the decline in demand for
our products. These costs totalled £2.1m with a further £0.9m of non-cash
impairment charges.
ADJUSTING ITEMS
Realised and unrealised movements in forward energy purchases
In addition to exceptional items we have also identified further adjusting
items, the separate disclosure of which presents our results in a manner that
allows users of our financial statements to understand the underlying trading
performance of the business, applying consistent treatments as used by
management to monitor the performance of the Group.
In the period, the Group realised a £2.1m loss in respect of surplus energy
sold back to the market, which has been presented as an adjusting item.
Alongside this, the statutory results include a £6.9m benefit in the period,
which is the result of the Group no longer being able to benefit from the own
use exemption as detailed within IFRS 9 Financial Instruments. For internal
reporting purposes, we continue to recognise the cost of energy consumed at
the forward contracted rate in the period of consumption. In order to allow
users of the accounts to understand this more operationally aligned method of
reporting, the impact to the profit and loss of these fair value movements in
the period to 30 June 2024, being £6.9m, has been presented as an adjusting
item.
In the comparative period to 30 June 2023, all forward contracted energy
purchases qualified for the own use exemption under IFRS 9 and no adjusting
items for energy accounting were presented.
Accounting for carbon credits
The statutory results consider carbon credits as being utilised on a first in,
first out basis. Under this method, the Group's free allocation of carbon
credits is utilised before recognising any liability to purchase further
credits, which has the effect of weighting the cost of compliance into the
second half of the year rather than spreading the cost more evenly across the
full year in line with production.
The Group's free allocation of carbon credits is based on expected emissions
over the full compliance period, which is aligned to the Group's financial
year. As such, we believe a more operationally aligned method for measurement,
consistent with our management reporting, is to recognise the cost of carbon
compliance over the full financial year using a weighted average basis,
aligned proportionately with the production that drives our carbon emissions.
Accordingly, this has been presented within the adjusted results for the
period.
We believe this approach provides users of the interim accounts with a more
representative presentation of underlying trading performance in the first
half of the year. As at 30 June 2024, the impact of this is to decrease
adjusted profit before tax by £1.7m (2023: £1.9m) relative to the statutory
measure. This only affects the interim results and has no impact on the full
year results.
BRICKS AND BLOCKS
Adjusted Statutory
Restated(1) Restated(1)
2024 2023 2024 2023
£m £m £m £m
Revenue(2) 130.2 146.5 130.2 146.5
EBITDA(3) before overhead allocations 31.8 37.3 38.2 36.2
Overhead allocations(4) (9.1) (9.3) (9.1) (9.3)
EBITDA(3) after overhead allocations 22.7 28.0 29.1 26.9
EBITDA(3) margin before overhead allocations 24.4% 25.4% 29.3% 24.7%
EBITDA(3) margin after overhead allocations 17.4% 19.1% 22.4% 18.4%
(1)Restated to report Red Bank results within the Brick and Block segment as a
result of internal restructure. Further details are contained within note 6.
(2)Revenue is stated before inter-segment eliminations.
(3)Both EBITDA and adjusted EBITDA are APMs, as explained within note 4.
EBITDA is presented above under the statutory heading, being calculated with
reference to statutory results without adjustment.
(4)Overhead allocations are costs centrally incurred on behalf of both
segments, including general administrative expenses.
( )
Bricks and Blocks revenues decreased by 11.1% with UK brick industry
despatches estimated to have fallen approximately 9% relative to the prior
year in the first half, with our own despatches in line with this. Alongside
this, we have seen a slightly stronger year on year performance in both
aircrete and aggregate blocks.
( )
Pricing remains relatively stable albeit with competitive market conditions
restricting our ability to implement our announced selling price increases.
Not unsurprisingly at this stage of the cycle, we have seen a continuation of
short-term offers and incentives aimed at stimulating demand and, following 18
months of these challenging market conditions, brick pricing remains only
modestly below the peak seen in late 2022 and early 2023.
( )
Segmental adjusted EBITDA of £22.7m compares to £28.0m in 2023 with the 2024
H1 EBITDA margin of 17.4%, as stated after overhead allocations, falling short
of the H1 2023 equivalent of 19.1%. The primary driver of this was the
significant reduction in operating efficiency following the reductions made to
output in H2 2023 with the H1 2023 result still benefiting from significant
inventory growth.
Our cost base also remains broadly stable with inflation returning to more
normal levels. Energy costs have stabilised from the peak experienced in 2023
but still remain significantly above historic norms. Our energy requirements
for the remainder of the year are over 90% forward purchased which includes
supply from our new solar farm which is now operational and supplying over 80%
of our electricity demand. With our electricity requirements now substantially
secured for the next 16 years and with forward gas purchases currently being
layered out to 2027 we are able to make decisions with a high degree of
certainty as to mid-term energy pricing.
( )
BESPOKE PRODUCTS
Adjusted Statutory
Restated(1) Restated(1)
2024 2023 2024 2023
£m £m £m £m
Revenue(2) 33.7 38.7 33.7 38.7
EBITDA(3) before overhead allocations 3.9 5.4 3.8 5.4
Overhead allocations(4) (2.3) (2.3) (2.3) (2.3)
EBITDA(3) after overhead allocations 1.6 3.1 1.5 3.1
EBITDA(3) margin before overhead allocations 11.6% 14.0% 11.3% 14.0%
EBITDA(3) margin after overhead allocations 4.7% 8.0% 4.5% 8.0%
(1)Restated to report Red Bank results within the Brick and Block segment as a
result of internal restructure. Further details are contained within note 6.
(2)Revenue is stated before inter-segment eliminations.
(3)Both EBITDA and adjusted EBITDA are APMs, as explained within note 4.
EBITDA is presented above under the statutory heading, being calculated with
reference to statutory results without adjustment.
(4)Overhead allocations are costs centrally incurred on behalf of both
segments, including general administrative expenses.
( )
Our Bespoke Products business, the largest component of which is our precast
concrete flooring business, has experienced the same challenging market
conditions as the wider business. Revenues in the period totalled £33.7m, a
decrease of £5.0m or 12.9% relative to 2023.
( )
Pricing remains broadly stable and whilst the majority of the cost base also
remains stable, we have seen some volatility in the cost of insulation, which
is a significant input cost within this business, impacting margins. We have
recently seen a modest upturn in orders for our floor beams and with the floor
being the first part of the house to be constructed, this could signal an
increase in build rates although the difficulties of differentiating between
catch up from a wet winter, traditional seasonality and wider market recovery
mean that we remain cautious in the near term. Sales of hollowcore flooring,
used in multifamily or commercial construction, have been more muted in recent
months with a number of projects impacted by delays and timetables for the
installation of our products often slipping.
( )
Segmental adjusted EBITDA, after allocated Group overheads, totalled £1.6m:
(2023: £3.1m). EBITDA margin prior to allocation of Group overheads was 11.6%
compared to 14.0% in 2023. We have disclosed previously that the method of
allocation of overheads places an additional burden on this segment than would
be required if it was a stand-alone business. Before overhead allocation, the
EBITDA contribution of £3.9m for the period represents an excellent result
delivered against a challenging market backdrop and an attractive level of
return on capital employed given the modest asset base of this segment.
EARNINGS PER SHARE AND DIVIDEND
( )
Adjusted earnings per share (EPS) in the period of 3.2 pence represents a
decrease of 54.9% relative to the 2023 equivalent EPS of 7.1 pence. EPS is
calculated based on the average number of shares in issue during the period,
adjusted for the shares held by the Employee Benefit Trust.
( )
The Board has elected to retain the Group's temporary dividend pay-out ratio
of 40% of earnings which it expects to remain in place until leverage falls to
a more sustainable level. In line with this policy and based upon its
expectations of full year 2024 earnings, the Board has declared an interim
dividend of 1.0 pence per share with the distribution approximating to 1/3
interim, 2/3 final. The interim dividend will be paid on 11 October 2024 to
shareholders on the register at 20 September 2024.
( )
CASH FLOW AND WORKING CAPITAL
2024 2023
£m £m
Adjusted EBITDA 24.3 31.1
Purchase and settlement of carbon credits 6.0 4.8
Other cash flow items (7.4) (4.4)
Changes in working capital
- Inventories (1.3) (29.6)
- Trade and other receivables (20.2) (16.8)
- Trade and other payables 11.9 (1.4)
Adjusted operating cash flow 13.3 (16.3)
Payments made in respect of adjusting items (8.4) (2.0)
Operating cash flow after adjusting items 4.9 (18.3)
Interest paid (5.2) (2.1)
Tax paid 0.4 (3.6)
Capital expenditure
- Maintenance (1.4) (6.1)
- Strategic (8.1) (9.2)
Net cash flow from sale and purchase of shares by Employee Benefit Trust 5.1 (1.8)
Repayment of lease liabilities (3.2) (2.9)
Other movements (0.5) (0.2)
Increase in net debt before leases (8.0) (44.2)
( )
( )
Adjusted operating cash flow in the first half of the year was an inflow of
£13.3m (2023: outflow of £16.3m) demonstrating disciplined working capital
management with the inventory build seen in the prior year not repeated. At 30
June 2024 finished goods inventories totalled £82.6m, compared to £79.7m at
the end of 2023.
( )
Capital expenditure in the period totalled £9.5m with £8.1m of this relating
to our three ongoing strategic projects and the remainder being business as
usual maintenance capex. During the period we spent £4.4m on the
redevelopment of our Wilnecote factory and £3.6m on the brick slip facility
at our Accrington plant, with the balance being attributable to Desford.
This expenditure takes the total spend on Desford to £91.1m, Wilnecote to
£22.3m and £6.7m on Accrington. In addition, interest of £0.8m (2023:
£nil) and £0.1m (2023: £nil) has been capitalised in the period in respect
of the Wilnecote and Accrington projects with this amount excluded from the
figures above.
We expect further capital expenditure totalling approximately £15m in the
second half of the year with £11m attributable to the three strategic
expansion projects. By the end of this year we expect each of the three
projects to be substantially complete although some final payments will fall
into 2025. We continue to expect a reduction in capital expenditure in 2025
which will support our goal of deleveraging.
BORROWINGS AND FACILITIES
( )
Closing net debt (excluding lease liabilities) was £101.2m (31 December 2023:
£93.2m) with the increase in borrowing attributable to both seasonality and
also £9.5m of capital spend in the period.
( )
Leverage as calculated in line with our banking covenants was 2.3 times
EBITDA (31 December 2023: 1.9 times). Borrowings and leverage were both
significantly lower than previously expected at the half year with disciplined
management of working capital having a positive impact. Alongside this, the
temporary peak in net debt and leverage that we had forecast at the half year
was mitigated by a delay in the capital expenditure at Wilnecote for reasons
beyond our control and we also benefitted from delayed invoicing from a major
supplier, resulting in our payments being delayed. These are matters of timing
and therefore our expectations for year end net debt and leverage remain
largely unchanged. Accordingly, we continue to expect 2024 year end net debt
to be at a similar level to 2023 with full year leverage of around two times.
Beyond this, significantly reduced capex spend will see leverage fall steadily
with this accelerating when a market recovery gains traction.
( )
The Group's credit facility comprises a committed revolving credit facility
(RCF) of £170m extending to January 2027. At the period-end a total of
£113.0m was drawn on the facility (31 December 2023: £110.0m) leaving
facility headroom of £57.0m. The previous carve out of the facility to
provide letters of credit has expired with the whole facility now available to
be borrowed if required.
( )
As previously announced, in anticipation of a peak of debt and leverage at the
half year, we secured prudent variations to our banking covenants to ensure we
retained sufficient headroom. The facility is normally subject to covenant
restrictions of net debt/EBITDA (as measured before leases) of less than three
times and interest cover of greater than four times. The Group also benefits
from an uncommitted overdraft facility of £10m. The business has traded
within these covenants to date and expects to continue to do so.
( )
However, given continued challenging trading conditions and the need to
demonstrate headroom above covenant levels, amended covenants were agreed with
the Group's lenders to provide the required additional headroom given the
combination of the Group's reduced EBITDA, and increased net debt. The Group's
leverage covenant has increased to 4 times in June 2024 and 3.75 times in
December 2024 with interest cover decreasing to 3 times in December 2024. In
addition, quarterly covenant testing has been introduced for the period of the
covenant relaxation. As such, in September 2024, leverage is set at four times
and interest cover three times and in March 2025 leverage is set at 3.75 times
and interest cover at three times. The covenants return to normal levels from
June 2025 with testing reverting to half yearly. The existing restriction
prohibiting the declaration or payment of dividends should leverage exceed 3
times EBITDA has been amended to 4 times EBITDA in 2024 before returning to 3
times in 2025.
( )
Finance expense for the period totalled £4.9m (2023: £2.5m). The margin grid
that determines the rate of interest payable has also been adjusted such that
the grid commences at SONIA plus 1.65% whilst leverage remains under 0.5 times
EBITDA, increasing to a margin of 3.50% should leverage exceed 3.5 times. In
the first half, with the 2023 year end leverage under 2.0 times a margin of
2.25% was payable with this increasing to a margin of 2.50% in the second half
following the increase in our leverage measured at the half year to under 2.5
times.
The facility is linked to our sustainability targets with the opportunity to
reduce the margin by 5 bps subject to achieving annual sustainability targets
covering decarbonisation, plastic reduction and increasing the number of
employees in earn and learn positions. Unfortunately in 2023 the achievement
of these targets was hindered by the reduction in market demand meaning that
we are not currently benefiting from this reduction in margin.
STRATEGY AND CAPITAL ALLOCATION
( )
Our strategy which is designed to deliver long-term earnings and cash flow
growth is summarised as follows:
( )
• Strengthen the core: Investing in new capacity to deliver growth
in sales volumes along with enhanced efficiency
• Beyond the core: Expanding our product range beyond our
traditional focus of mainstream residential construction focusing on new and
evolving solutions such as brick slips
• Sustainability: Making our business more sustainable in everything
we do
• Safety and engagement: Safety remains our number one priority and
through prioritising employee engagement we will maximise the potential of our
workforce
( )
This, along with our capital allocation policy, which is centred on providing
compelling returns for our shareholders, leaves the Group well placed to
deliver long-term shareholder value.
( )
The Group's capital allocation priorities are summarised as follows:
( )
• strategic organic capital investment to deliver attractive
returns;
• attractive ordinary dividend policy with a mid-term pay-out ratio
of 55% of earnings, temporarily reduced to 40% until leverage has reduced to a
more sustainable level;
• bolt-on acquisitions as suitable opportunities arise in adjacent
or complementary markets; and
• supplementary shareholder returns as appropriate.
( )
Our expectations were for leverage to peak in June 2024 although due to the
circumstances highlighted above, that peak is less pronounced than previously
expected. We continue to expect net debt at the end of 2024 to be broadly
consistent with the 2023 figure (£93.2m before leases) Our present capital
allocation priority is to reduce this level of leverage, and with our
strategic capital projects nearing completion, we remain confident we will
reduce our debt levels in 2025 even with only a modest market recovery.
( )
STRATEGIC ORGANIC CAPITAL INVESTMENT
( )
During the period we spent a combined £8.1m on our three strategic expansion
projects at Desford, Wilnecote and Accrington bringing total spend on these
projects to £120.1m.
( )
Our brick factory at Wilnecote is benefiting from a £30m reconstruction,
effectively installing a brand new factory within the existing building,
creating a highly flexible facility designed to produce a wide range of
specialist bricks in a variety of colours, finishes and sizes which we expect
to sell into the commercial and specification channel. We now expect to
recommission that factory at the end of the year which represents a
significant delay compared with our original plans. The delays are
attributable to challenges faced by the Group's suppliers and are connected to
wider global economic and supply chain challenges arising firstly from Covid
and then subsequently the conflict in Ukraine.
( )
Were the Desford project to commence today, management estimate the cost would
rise to approximately £120m compared to the actual expected cost of £95m.
Similarly, the cost of the Wilnecote factory would increase to well beyond its
£30m budget, broadly within which the project is still expected to be
delivered. Whilst we have benefited significantly from these fixed-price
contracts, these contractual provisions have challenged our supply chain and
the economic impacts they have faced have contributed to the Wilnecote project
in particular facing delays.
( )
Our £12m brick slip facility at Accrington, which also benefits from a fixed
price contract, continues to progress in line with expectations and we expect
to commission this facility as anticipated in the second half of the year.
As we approach the end of our current £140m programme of capital investment,
we continue to progress our pipeline of attractive organic investment
opportunities although any decision to commit to these will be taken with both
our balance sheet as well as market conditions in mind. Similarly, whilst we
remain open to the possibility of bolt-on acquisitions, we will only progress
such opportunities where there is a clear strategic rationale and where the
acquisition would not put pressure on the balance sheet.
( )
SUSTAINABILITY
( )
We continue to prioritise our sustainability goals, although as we reported at
the last year end, the current drop in demand for our products and the
corresponding reductions in our output and corresponding loss of efficiency
means that our sustainability progress is less evident in our published
statistics.
( )
Each of our organic investments provides a meaningful sustainability benefit
with the new Desford and Wilnecote brick factories both reducing carbon
emissions by approximately 25% per brick relative to their predecessor
factories. Our innovative brick slip production facility at Accrington offers
real sustainability benefits in manufacturing brick slips with around a 75%
reduction in energy consumption, raw material usage and embodied carbon
relative to traditional bricks.
( )
We continue to progress a range of wider sustainability initiatives in
addition to our strategic investments. We were delighted that our dedicated
Forterra solar farm, funded through a 15 year PPA commitment entered into back
in 2021, commenced generation at the end of April and is now providing over
70% of our electricity requirement. We will benefit from the full cost
benefits of this arrangement from April 2025.
( )
The recent announcement by the new Government that they will remove the
prohibition on new onshore wind turbine developments also creates opportunity
for our business and we will now reconsider the appropriateness and
feasibility of future investment in this area.
( )
We have continued to progress our efforts to reduce our use of plastic
packaging in line with our target of a 50% reduction by 2025. This ambitious
target has presented more challenges than initially envisaged, with safety our
upmost priority, although we are confident we have now addressed many of these
challenges allowing us to progress towards our goal.
( )
We continue to investigate the opportunities presented by calcined clay as a
cement substitute. As custodian of over 90m tonnes of clay reserves this
presents an opportunity for us. We are most excited by the prospect of
utilising our production waste from our unique London Brick manufacturing
process where the calcination of the clay has already been undertaken during
the brick firing process meaning a cement substitute can be created with a
much reduced energy consumption. We are currently working with partners to
establish the most economical way of bringing this product both to market and
into our own concrete products.
We are continuing our work to better understand how we can utilise alternative
fuels including hydrogen, synthetic gas and biomass in both our current and
future factories. Having previously undertaken trials to demonstrate the use
of hydrogen for firing bricks, we are now in discussions with those who may be
able to provide us with a hydrogen supply in the future, both individual
providers and wider hydrogen supply clusters who aim to connect industrial
users to large scale producers through regional networks.
( )
In addition, we continue to engage with suppliers of carbon capture use and
storage technologies (CCUS) monitoring progress in this rapidly developing
area and learning how these technologies could be deployed within our own
business in a cost effective manner.
( )
PRINCIPAL RISKS AND UNCERTAINTIES
( )
The principal risks and uncertainties facing the business have been appended
to this interim statement and include a summary of risks emerging and an
update to each of the risks recently presented in the 2023 Annual Report and
Accounts.
( )
GOING CONCERN
( )
At the balance sheet date, the cash balance stood at £11.4m, with £113.0m
borrowed against £170.0m of committed bank facilities, leaving undrawn
facilities of £57.0m. The Group also benefits from an uncommitted overdraft
facility of £10m. The Group meets its working capital requirements through
these cash reserves and borrowings, and closely manages working capital to
ensure sufficient daily liquidity, preparing financial forecasts and stress
tests to ensure sufficient liquidity over the medium-term. The Group has
operated within its banking covenants throughout the period, with funding
secured through an RCF facility extending until January 2027.
( )
The facility is normally subject to covenant restrictions of net debt/EBITDA
(as measured before leases) of less than three times and interest cover of
greater than four times. However, given continued challenging trading
conditions and the need to demonstrate headroom above covenant levels, amended
covenants have been agreed with the Group's lenders to provide the required
additional headroom given the combination of the Group's reduced EBITDA, and
increased net debt resulting from inventory build, committed capital outflows
and higher interest rates. Accordingly, the Group's leverage covenant has
increased to 4 times in June 2024 and 3.75 times in December 2024 with
interest cover decreasing to 3 times in December 2024. In addition, quarterly
covenant testing has been introduced for the period of the covenant
relaxation. As such, in September 2024, leverage is set at four times and
interest cover three times and in March 2025 leverage is set at 3.75 times and
interest cover at three times. The covenants return to normal levels from June
2025 with testing reverting to half yearly. The existing restriction
prohibiting the declaration or payment of dividends should leverage exceed 3
times EBITDA has been amended to 4 times EBITDA in 2024 before returning to 3
times in 2025.
The Group continues to update internal forecasts, reflecting current economic
conditions, incorporating management experience, future expectations and
sensitivity analysis. As at 30 June 2024, management are confident that the
Group will remain resilient under all reasonably likely scenarios, whilst
supporting the funding of the ongoing capital projects outlined in more detail
in this announcement, and will continue to have headroom in both its banking
covenants and existing bank facilities. We have modelled a plausible downside
scenario which sensitises volumes and within which there is headroom against
our covenants and available liquidity. We have further modelled a breach
scenario to assess the fall in EBITDA required to breach the covenants within
the credit facility in the period to 31 December 2025, and we believe that
considering the new Government's commitment to increasing housing supply,
coupled with the reduction in Group EBITDA that would be required, and the
fact that our £140m programme of strategic investment is close to completion,
the probability of such a scenario is remote. Even if such a scenario was to
occur, we have identified mitigations including reduced capital expenditure,
dividend reductions and operational cost savings which we would implement.
( )
Taking account of all reasonably possible changes in trading performance and
the current financial position of the Group, the Directors have a reasonable
expectation that the Group has adequate resources to continue in operational
existence for the going concern period to 31 December 2025. The Group
therefore adopts the going concern basis in preparing these Condensed
Consolidated Financial Statements.
( )
FORWARD-LOOKING STATEMENTS
( )
Certain statements in this half-yearly report are forward-looking. Although
the Group believes that the expectations reflected in these forward-looking
statements are reasonable, we can give no assurance that these expectations
will prove to be correct. Because these statements contain risks and
uncertainties, actual results may differ materially from those expressed or
implied by these forward-looking statements.
( )
We undertake no obligation to update any forward-looking statements, whether
as a result of new information, future events or otherwise.
( )
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE INTERIM REPORT
( )
We confirm to the best of our knowledge:
( )
• the Condensed Consolidated Financial Statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by the UK;
( )
• the interim management report includes a fair review of the
information required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the Condensed Consolidated Financial
Statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being material
related party transactions that have taken place in the first six months of
the current financial year and any material changes in the related party
transactions described in the annual report.
( )
( )
By order of the Board
( )
( )
( )
Neil Ash Ben Guyatt
Chief Executive Officer Chief Financial Officer
29 July 2024
INDEPENDENT REVIEW REPORT TO FORTERRA PLC
CONCLUSION
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2024 which comprises Condensed Consolidated Statement of Total
Comprehensive Income, Condensed Consolidated Statement of Financial Position,
Condensed Consolidated Statement of Changes in Equity, Condensed Consolidated
Statement of Changes in Cash Flows and related notes 1 - 18. We have read the
other information contained in the half yearly financial report and considered
whether it contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2024 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
BASIS FOR CONCLUSION
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" (ISRE) issued by the Financial
Reporting Council. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
CONCLUSION RELATING TO GOING CONCERN
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
RESPONSIBILITIES OF THE DIRECTORS
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
AUDITOR'S RESPONSIBILITIES FOR THE REVIEW OF THE FINANCIAL INFORMATION
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
USE OF OUR REPORT
This report is made solely to the company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
Luton
29 July 2024
CONDENSED CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME FOR THE HALF
YEAR ENDED 30 JUNE 2024 (UNAUDITED)
Six months ended Year ended
30 June 31 December
2024 2023 2023
Unaudited Unaudited Audited
Note £m £m £m
Revenue 6 162.1 183.2 346.4
Cost of sales (106.1) (123.1) (245.7)
Gross profit 56.0 60.1 100.7
Distribution costs (21.5) (24.9) (48.6)
Administrative expenses (16.9) (14.8) (28.5)
Other operating income 0.1 0.2 0.5
Operating profit 17.7 20.6 24.1
EBITDA before exceptional items 30.8 33.0 58.1
Exceptional items 7 (2.8) (3.0) (14.0)
EBITDA 28.0 30.0 44.1
Depreciation and amortisation (10.3) (9.4) (20.0)
Operating profit 17.7 20.6 24.1
Finance expense 8 (4.9) (2.5) (7.0)
Profit before tax 12.8 18.1 17.1
Income tax expense 9 (3.8) (4.3) (4.3)
Profit for the financial period attributable to equity shareholders 9.0 13.8 12.8
Other comprehensive loss
Effective portion of changes of cash flow hedges (net of tax impact) (0.2) (0.8) (0.7)
Total comprehensive income for the period attributable to equity shareholders 8.8 13.0 12.1
Earnings per share: Pence Pence Pence
Basic (in pence) 10 4.3 6.7 6.2
Diluted (in pence) 10 4.3 6.6 6.2
The notes on pages 22 to 37 are an integral part of these Condensed
Consolidated Financial Statements.
All results relate to continuing operations.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2024
(UNAUDITED)
As at 30 June As at 31 December
2024 2023 2023
Unaudited Unaudited Audited
Note £m £m £m
Non-current assets
Intangible assets 12.2 18.2 19.2
Property, plant and equipment 252.5 245.1 249.7
Right-of-use assets 22.4 21.4 24.1
Derivative financial asset 15 3.7 - 5.0
290.8 284.7 298.0
Current assets
Inventories 97.1 72.6 95.8
Trade and other receivables 51.2 61.1 31.0
Income tax asset 0.7 0.6 2.3
Cash and cash equivalents 11.4 16.7 16.0
Derivative financial asset 15 4.0 - 1.6
164.4 151.0 146.7
Total assets 455.2 435.7 444.7
Current liabilities
Trade and other payables (81.6) (112.3) (66.3)
Loans and borrowings 12 (0.5) (0.3) (0.4)
Lease liabilities (5.5) (5.2) (5.7)
Provisions for other liabilities and charges (3.9) (7.7) (15.7)
Derivative financial liabilities (0.1) (0.2) (5.8)
(91.6) (125.7) (93.9)
Non-current liabilities
Loans and borrowings 12 (112.1) (66.5) (108.8)
Lease liabilities (17.1) (16.1) (18.5)
Provisions for other liabilities and charges (7.9) (10.0) (9.4)
Deferred tax liabilities (8.8) (5.9) (6.3)
(145.9) (98.5) (143.0)
Total liabilities (237.5) (224.2) (236.9)
Net assets 217.7 211.5 207.8
Capital and reserves attributable to equity shareholders
Ordinary shares 2.1 2.1 2.1
Capital redemption reserve 0.2 0.2 0.2
Retained earnings 221.4 226.4 219.8
Cash flow hedge reserve (0.3) (0.2) (0.1)
Reserve for own shares (5.7) (17.0) (14.2)
Total equity 217.7 211.5 207.8
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE HALF YEAR ENDED
30 JUNE 2024 (UNAUDITED)
Ordinary shares Capital redemption reserve Reserve for own shares Cash flow hedge reserve Retained earnings Total equity
£m £m £m £m £m £m
Current half year:
Balance at 1 January 2024 2.1 0.2 (14.2) (0.1) 219.8 207.8
Profit for the financial period - - - - 9.0 9.0
Other comprehensive income - - - (0.2) - (0.2)
Total comprehensive income for the period - - - (0.2) 9.0 8.8
Dividend payable - - - - (4.2) (4.2)
Proceeds from sale of shares by Employee Benefit Trust - - 5.1 - - 5.1
Share-based payments charge - - - - 0.6 0.6
Share-based payments exercised - - 3.4 - (3.4) -
Tax on share-based payments - - - - (0.4) (0.4)
Balance at 30 June 2024 2.1 0.2 (5.7) (0.3) 221.4 217.7
Ordinary shares Capital redemption reserve Reserve for own shares Cash flow hedge reserve Retained earnings Total equity
£m £m £m £m £m £m
Prior half year:
Balance at 1 January 2023 2.1 0.2 (15.8) 0.6 233.4 220.5
Profit for the financial period - - - - 13.8 13.8
Other comprehensive loss - - - (0.8) - (0.8)
Total comprehensive (loss)/income for the period - - - (0.8) 13.8 13.0
Dividend payable - - - - (20.9) (20.9)
Purchase of shares by Employee Benefit Trust - - (1.8) - - (1.8)
Share-based payments charge - - - - 1.3 1.3
Share-based payments exercised - - 0.6 - (0.6) -
Tax on share-based payments - - - - (0.6) (0.6)
Balance at 30 June 2023 2.1 0.2 (17.0) (0.2) 226.4 211.5
Ordinary shares Capital redemption reserve Reserve for own shares Cash flow hedge reserve Retained earnings Total equity
£m £m £m £m £m £m
Prior year:
Balance at 1 January 2023 2.1 0.2 (15.8) 0.6 233.4 220.5
Profit for the financial year - - - - 12.8 12.8
Other comprehensive loss - - - (0.7) - (0.7)
Total comprehensive (loss)/income for the year - - - (0.7) 12.8 12.1
Dividend paid - - - - (25.7) (25.7)
Purchase of shares by Employee Benefit Trust - - (2.1) - - (2.1)
Proceeds from sale of shares by Employee Benefit Trust - - 1.1 - - 1.1
Share-based payments charge - - - - 1.7 1.7
Share-based payments exercised - - 2.6 - (2.6) -
Tax on share-based payments - - - - 0.2 0.2
Balance at 31 December 2023 2.1 0.2 (14.2) (0.1) 219.8 207.8
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN CASH FLOWS FOR THE HALF YEAR
ENDED 30 JUNE 2024 (UNAUDITED)
Six months ended 30 June Year ended 31 December
2024 2023 2023
Unaudited Unaudited Audited
Note £m £m £m
Cash generated from/(used in) operations 13 4.9 (18.3) (11.2)
Interest paid (5.2) (2.1) (6.1)
Tax credit/(paid) 0.4 (3.6) (2.7)
Net cash inflow/(outflow) from operating activities 0.1 (24.0) (20.0)
Cash flows from investing activities
Purchase of property, plant and equipment (9.4) (14.9) (33.0)
Purchase of intangible assets (0.1) (0.4) (1.1)
Proceeds from sale of property, plant and equipment - - 0.3
Net cash used in investing activities (9.5) (15.3) (33.8)
Cash flows from financing activities
Repayment of lease liabilities (3.2) (2.9) (5.9)
Dividends paid - - (25.7)
Drawdown of borrowings 48.0 77.0 137.0
Repayment of borrowings (45.0) (49.0) (67.0)
Purchase of shares by Employee Benefit Trust - (1.8) (2.1)
Proceeds from sales of shares by Employee Benefit Trust 5.1 - 1.1
Financing fees (0.1) (1.6) (1.9)
Net cash generated from financing activities 4.8 21.7 35.5
Net decrease in cash and cash equivalents (4.6) (17.6) (18.3)
Cash and cash equivalents at the beginning of the period 16.0 34.3 34.3
Cash and cash equivalents at the end of the period 11.4 16.7 16.0
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR
ENDED 30 JUNE 2024 (UNAUDITED)
1 GENERAL INFORMATION
Forterra plc ('Forterra' or the 'Company') and its subsidiaries (together
referred to as the 'Group') are domiciled in the UK. The address of the
registered office of the Company and its subsidiaries is 5 Grange Park Court,
Roman Way, Northampton, England, NN4 5EA. The Company is the parent of
Forterra Holdings Limited and Forterra Building Products Limited, which
together comprise the group (the 'Group'). The principal activity of the Group
is the manufacture and sale of bricks, dense and lightweight blocks, precast
concrete, concrete block paving and other complementary building products.
The Condensed Consolidated Financial Statements were approved by the Board on
29 July 2024.
The Condensed Consolidated Financial Statements for the six months ended 30
June 2024 and the comparative period for the six months ended 30 June 2023
have not been audited. The auditor has carried out a review of the financial
information and their report is set out on pages 15 and 16.
These Condensed Consolidated Financial Statements are unaudited and do not
constitute statutory accounts of the Group within the meaning of Section 435
of the Companies Act 2006. The auditors have carried out a review of the
financial information in accordance with the guidance contained in ISRE 2410
(UK and Ireland) 'Review of Interim Financial Information Performed by the
Independent Auditor of the Entity' issued by the Auditing Practices Board.
Financial Statements for the year ended 31 December 2023 were approved by the
Board of Directors on 26 March 2024 and delivered to the Registrar of
Companies. The Auditor's report was (i) unqualified, (ii) did not include a
reference to any matters to which the Auditor drew attention by way of
emphasis without qualifying their report and did not contain a statement under
section 498 of the Companies Act 2006.
BASIS OF PREPARATION
The Condensed Consolidated Financial Statements for the half year ended 30
June 2024 have been prepared in accordance with the Disclosure and
Transparency Rules of the UK Financial Conduct Authority (DTR), and the
requirements of UK-adopted IAS 34 Interim Financial Reporting.
The Condensed Consolidated Financial Statements do not include all the
information and disclosures required in annual financial statements and they
should be read in conjunction with the Group's Consolidated Financial
Statements for the year ended 31 December 2023 and any public announcements
made by the Company during the interim period. The Condensed Consolidated
Financial Statements are prepared on the historical cost basis.
GOING CONCERN BASIS
At the balance sheet date, the cash balance stood at £11.4m, with £113.0m
borrowed against £170.0m of committed bank facilities, leaving undrawn
facilities of £57.0m. The Group also benefits from an uncommitted overdraft
facility of £10m. The Group meets its working capital requirements through
these cash reserves and borrowings, and closely manages working capital to
ensure sufficient daily liquidity, preparing financial forecasts and stress
tests to ensure sufficient liquidity over the medium-term. The Group has
operated within its banking covenants throughout the period, with funding
secured through an RCF facility extending until January 2027.
The facility is normally subject to covenant restrictions of net debt/EBITDA
(as measured before leases) of less than three times and interest cover of
greater than four times. However, given continued challenging trading
conditions and the need to demonstrate headroom above covenant levels, amended
covenants have been agreed with the Group's lenders to provide the required
additional headroom given the combination of the Group's reduced EBITDA, and
increased net debt resulting from inventory build, committed capital outflows
and higher interest rates. Accordingly, the Group's leverage covenant has
increased to 4 times in June 2024 and 3.75 times in December 2024 with
interest cover decreasing to 3 times in December 2024. In addition, quarterly
covenant testing has been introduced for the period of the covenant
relaxation. As such, in September 2024, leverage is set at four times and
interest cover three times and in March 2025 leverage is set at 3.75 times and
interest cover at three times. The covenants return to normal levels from June
2025 with testing reverting to half yearly. The existing restriction
prohibiting the declaration or payment of dividends should leverage exceed 3
times EBITDA has been amended to 4 times EBITDA in 2024 before returning to 3
times in 2025.
The Group continues to update internal forecasts, reflecting current economic
conditions, incorporating management experience, future expectations and
sensitivity analysis. As at 30 June 2024, management are confident that the
Group will remain resilient under all reasonably likely scenarios, whilst
supporting the funding of the ongoing capital projects outlined in more detail
in this announcement, and will continue to have headroom in both its banking
covenants and existing bank facilities. We have modelled a plausible downside
scenario which sensitises volumes and within which there is headroom against
our covenants and available liquidity. We have further modelled a breach
scenario to assess the fall in EBITDA required to breach the covenants within
the credit facility in the period to 31 December 2025, and we believe that
considering the new Government's commitment to increasing housing supply,
coupled with the reduction in Group EBITDA that would be required, and the
fact that our £140m programme of strategic investment is close to completion,
the probability of such a scenario is remote. Even if such a scenario was to
occur, we have identified mitigations including reduced capital expenditure,
dividend reductions and operational cost savings which we would implement.
Taking account of all reasonably possible changes in trading performance and
the current financial position of the Group, the Directors have a reasonable
expectation that the Group has adequate resources to continue in operational
existence for the going concern period to 31 December 2025. The Group
therefore adopts the going concern basis in preparing these Condensed
Consolidated Financial Statements.
2 ACCOUNTING POLICIES
The accounting policies adopted in the preparation of the Condensed
Consolidated Financial Statements are consistent with those followed in the
preparation of the Group's Consolidated Financial Statements for the year
ended 31 December 2023, with the exception of those outlined below. The
accounting standards that became applicable in the period did not impact the
Group's accounting policies and did not require retrospective adjustments.
Loans and borrowings
Borrowing costs incurred by the Group which are directly attributable to the
construction of a qualifying asset are capitalised as part of the asset, until
the point at which the qualifying asset is determined substantially complete.
Strategic projects with an expected timeline to completion of greater than one
year are considered qualifying assets by the Group.
Interest capitalised is determined either by way of interest incurred on
specific borrowings entered in respect of qualifying assets, or through the
determination of a capitalisation rate which is based the interest on general
borrowings of the Group, being the Group's Revolving Credit Facility, which is
then applied to expenditure on qualifying assets. In the current period to 30
June 2024 the Group capitalised interest of £0.9m in respect of qualifying
assets.
3 JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with adopted IFRSs
requires management to make judgements, estimates and assumptions that affect
the application of policies and reported amounts of assets and liabilities,
income and expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of
making the judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates.
In preparing these Condensed Consolidated Financial Statements, the
significant judgements made by management in applying the Group's accounting
policies and the key sources of estimation uncertainty were the same as those
that applied to the Consolidated Financial Statements of Forterra plc for the
year ended 31 December 2023.
4 ALTERNATIVE PERFORMANCE MEASURES
In order to provide the most transparent understanding of the Group's
performance, the Group uses alternative performance measures (APMs) which are
not defined or specified under IFRS and may not be comparable with similarly
titled measures used by other companies. The Group believes that its APMs
provide additional helpful information on how the trading performance of the
business is reported externally and assessed internally by management and the
Board.
Adjusted results for the Group have been presented before: i) exceptional
items and ii) adjusting items.
• Profit related APMs
Management and the Board use several profit related APMs in assessing Group
performance and profitability. Those being EBITDA, EBITDA before exceptional
items, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, adjusted
operating profit (EBIT), adjusted profit before tax, adjusted earnings per
share and adjusted operating cash flow. These are considered before the impact
of exceptional and adjusting items as outlined below.
(I) Exceptional items
The Group presents as exceptional items on the face of the Consolidated
Statement of Total Comprehensive Income, those material items of income and
expense, which, because of the nature and expected infrequency of the events
giving rise to them, merit separate presentation to allow shareholders to
understand better elements of financial performance in the period.
In the current year, management considers restructuring costs and costs
incurred through an aborted corporate transaction to meet this definition.
Exceptional items are further detailed in note 7.
(II) Adjusting items
Realised and unrealised movements in forward energy purchases
Adjusting items are disclosed separately in these Condensed Consolidated
Financial Statements where management believes it is necessary to show an
alternative measure of performance in presenting the financial results of the
Group. The term adjusted is not defined under IFRS and may not be comparable
with similarly titled measures used by other companies. In the current year,
management has presented the below as adjusting items:
• the realised loss of £2.1m, recognised within the Consolidated
Statement of Total Comprehensive Income for the sale of excess energy volumes
in 2024, where committed volume exceeded actual consumption by the Group;
and
• the movement in fair value of forward energy contracts held where
committed future volume is expected by management to exceed total consumption
by the Group. For these contracts, the Group can no longer apply the own use
exemption under IFRS 9 and instead, within statutory reporting, recognises
these contracts as derivatives held at fair value on the balance sheet at 30
June 2024, in line with the accounting treatment previously applied at 31
December 2023. For the purposes of internal reporting to management and the
Board, the Group continues to measure these contracts as if the own use
exemption could still be applied, recognising energy purchased at the forward
contracted rate in the period of consumption. In order to allow users of the
accounts to review this more operationally aligned method of reporting, the
impact to the profit and loss of these fair value movements in the period to
30 June 2024, being £6.9m, has been presented as an adjusting item.
Accounting for carbon credits
Under the UK Emissions Trading Scheme, the Group receives an annual allocation
of free carbon credits, which are used to satisfy a portion of the Groups
carbon emissions liability as incurred over the compliance period, which falls
in line with the accounting period of the Group. These are recorded at nil
value within the Consolidated Financial Statements. As this allocation is less
than the total carbon compliance liability incurred by the Group over the
compliance period, additional carbon credits are purchased to satisfy the
shortfall.
The liability for the shortfall is measured, up to the level of credits
purchased, at the cost of the purchased credits. Where the liability to
surrender carbon credits exceeds the carbon allowances purchased, the
shortfall is measured at the prevailing market price and remeasured at the
reporting date.
The Group's free allocation of carbon credits is based on expected emissions
over the full compliance period, which is in line with the Group's financial
year. As such, management believes a more operationally aligned method for
measurement recognises these free allowances over the full financial year
using a weighted average basis, aligned proportionately with production which
drives carbon emissions, in line with management reporting. Accordingly, this
has been presented within the adjusted results for the period.
The results which are presented as statutory consider carbon credits as being
utilised on a first in, first out basis. Under this method, the Group's free
allocation of carbon credits is utilised before recognising any liability to
purchase further credits, which has the effect of weighting the cost of
compliance into the second half of the year rather than spreading the cost
more evenly across the full year. As at 30 June 2024, the impact of this
alternative performance measure is to reduce statutory profit before tax by
£1.7m (2023: £1.9m). This only affects the interim results and will have no
impact on the full year results for the Group.
Reconciliation of APMs to statutory results
EBITDA is calculated as operating profit before depreciation and amortisation.
EBITDA before exceptional items is further presented before the impact of
exceptional items.
For reporting purposes, 'adjusted results' are those presented before both
adjusting and exceptional items. A full reconciliation from adjusted results
through to statutory results is shown as follows.
Although both EBITDA and adjusted EBITDA are APMs, EBITDA presented as below
under the statutory heading is calculated with reference to statutory results
without adjustment.
2024 2023
Note £m £m
Restructuring costs (0.2) (2.1)
Aborted corporate transaction (2.6) -
Impairment of plant and equipment - (0.9)
Total exceptional items 7 (2.8) (3.0)
Realised loss on the sale of surplus energy (2.1) -
Fair value movement on energy derivatives 6.9 -
Accounting for carbon credits 1.7 1.9
Total adjusting items 6.5 1.9
Group: Revenue, EBITDA, EBITDA margin, operating profit, profit before tax
Six months ended 30 June 2024 Adjusted results Exceptional items Adjusting items Statutory results
£m £m £m £m
Revenue 162.1 - - 162.1
EBITDA 24.3 (2.8) 6.5 28.0
EBITDA margin 15.0% 17.3%
Operating profit (EBIT) 14.0 (2.8) 6.5 17.7
Profit before tax 9.1 (2.8) 6.5 12.8
Six months ended 30 June 2023 Adjusted results Exceptional items Adjusting items Statutory results
£m £m £m £m
Revenue 183.2 - - 183.2
EBITDA 31.1 (3.0) 1.9 30.0
EBITDA margin 17.0% 16.4%
Operating profit (EBIT) 21.7 (3.0) 1.9 20.6
Profit before tax 19.2 (3.0) 1.9 18.1
Segmental: Revenue, EBITDA, EBITDA margin
Bricks & Blocks
Six months ended 30 June 2024 Adjusted results Exceptional items Adjusting items Statutory results
£m £m £m £m
Revenue 130.2 - - 130.2
EBITDA 22.7 (0.1) 6.5 29.1
EBITDA margin 17.4% 22.4%
Restated(1)
Six months ended 30 June 2023 Adjusted results Exceptional items Adjusting items Statutory results
£m £m £m £m
Revenue 146.5 - - 146.5
EBITDA 28.0 (3.0) 1.9 26.9
EBITDA margin 19.1% 18.4%
(1)Restated to report Red Bank results within the Brick and Block segment as a
result of internal restructure. Further details are contained within note 6.
( )
Bespoke Products
Six months ended 30 June 2024 Adjusted results Exceptional items Adjusting items Statutory results
£m £m £m £m
Revenue 33.7 - - 33.7
EBITDA 1.6 (0.1) - 1.5
EBITDA margin 4.7% 4.5%
The Bespoke Products segment did not contain exceptional items in the period
ended 30 June 2023. Further, it is not captured under UK ETS and is therefore
not affected by accounting treatment for carbon credits. As such, there was no
difference between Statutory and Adjusted results for this segment for the
period ended 30 June 2023.
• Other APMs
Net debt before leases: Net debt before leases is presented as the total of
cash and cash equivalents and borrowings, inclusive of capitalised financing
costs and excluding lease liabilities reported at the balance sheet date.
5 SEASONALITY OF OPERATIONS
The Group is typically subject to seasonality consistent with the general
construction market, with stronger volumes witnessed across the spring and
summer months when conditions are more favourable. The accounting policy
adopted for the treatment of carbon credits also has a seasonal impact on the
business with a higher compliance cost recognised in the second half of the
year, as explained in note 4. Adjusted results have been presented as an
alternative performance measure to remove this variation.
6 SEGMENTAL REPORTING
Management has determined the operating segments based on the management
reports reviewed by the Executive Committee (comprising the executive team
responsible for the day-to-day running of the business) that are used to
assess both performance and strategic decisions. Management has identified
that the Executive Committee is the chief operating decision maker in
accordance with the requirements of IFRS 8 'Operating segments'.
The Executive Committee considers the business to be split into three
operating segments: Bricks, Blocks and Bespoke Products.
The principal activity of the operating segments are:
• Bricks - Manufacture and sale of bricks to the construction sector
• Blocks - Manufacture and sale of concrete blocks and permeable
block paving to the construction sector
• Bespoke Products - Manufacture and sale of bespoke products to the
construction sector
The Executive Committee considers that, for reporting purposes, the operating
segments above can be aggregated into two reporting segments: Bricks and
Blocks and Bespoke Products. The aggregation of Bricks and Blocks is due to
these operating segments having similar long-term average margins, production
process, suppliers, customers and distribution methods.
In the second half of 2023, the Red Bank business was reclassified from the
Bespoke Products segment to the Brick and Block segment after an internal
restructure that combined the Cradley Special Brick and Red Bank operations.
The segmental revenue and results, assets and other information that follows
for the period ended 30 June 2023 has been restated to reflect this change
comparatively across periods.
The Bespoke Products range includes precast concrete, chimney and roofing
solutions, each of which are typically made-to-measure or customised to meet
the customer's specific needs. The precast concrete flooring products are
complemented by the Group's full design and nationwide installation services,
while certain other bespoke products, such as chimney flues, are complemented
by the Group's bespoke specification and design service.
Costs which are incurred on behalf of both segments are held at the centre and
these, together with general administrative expenses, are allocated to the
segments for reporting purposes using a split of 80% Bricks and Blocks and 20%
Bespoke Products. Management considers that this is an appropriate basis for
the allocation.
The revenue recognised in the condensed consolidated income statement is all
attributable to the principal activity of the manufacture and sale of bricks,
both dense and lightweight blocks, precast concrete, concrete paving and other
complimentary building products. Substantially all revenue recognised in the
Condensed Consolidated Financial Statements arose from contracts with external
customers within the UK.
SEGMENTAL REVENUE AND RESULTS: Six months ended 30 June 2024
Bricks & Blocks Bespoke Products Total
£m £m £m
Segment revenue 130.2 33.7 163.9
Inter-segment eliminations (1.8)
Revenue 162.1
EBITDA before exceptional items 29.2 1.6 30.8
Depreciation and amortisation (9.4) (0.9) (10.3)
Operating profit before exceptional items 19.8 0.7 20.5
Allocated exceptional items (0.1) (0.1) (0.2)
Unallocated exceptional items - - (2.6)
Operating profit 19.7 0.6 17.7
Net finance expense (4.9)
Profit before tax 12.8
SEGMENTAL ASSETS: As at 30 June 2024
Bricks & Blocks Bespoke Products Total
£m £m £m
Intangible assets 10.1 2.1 12.2
Property, plant and equipment 243.8 8.7 252.5
Right-of-use assets 21.3 1.1 22.4
Inventories 93.7 3.4 97.1
Segment assets 368.9 15.3 384.2
Unallocated assets 71.0
Total assets 455.2
Intangible assets, property, plant and equipment, right-of-use assets and
inventories are allocated to segments and considered when appraising segment
performance. Trade and other receivables, income tax assets, cash and cash
equivalents and derivative assets are centrally controlled and unallocated.
Movement in the net book value of intangible assets at the 30 June 2024 from
the prior period comparative is predominantly due to the purchase and
settlement of carbon credits over the period (purchases: £1.7m and
settlement: £6.0m).
OTHER SEGMENTAL INFORMATION: Six months ended 30 June 2024
Bricks & Blocks Bespoke Products Total
£m £m £m
Intangible asset additions - - -
Property, plant and equipment additions 9.6 0.1 9.7
Right-of-use asset additions 1.5 0.1 1.6
SEGMENTAL REVENUE AND RESULTS: Six months ended 30 June 2023
Restated(1)
Bricks & Blocks Bespoke Products Total
£m £m £m
Segment revenue 146.5 38.7 185.2
Inter-segment eliminations (2.0)
Revenue 183.2
EBITDA before exceptional items 29.9 3.1 33.0
Depreciation and amortisation (8.7) (0.7) (9.4)
Operating profit before exceptional item 21.2 2.4 23.6
Exceptional items (3.0) - (3.0)
Operating profit 18.2 2.4 20.6
Net finance expense (2.5)
Profit before tax 18.1
(1)Restated to report Red Bank results within the Brick and Block segment as a
result of internal restructure.
SEGMENTAL ASSETS: As at 30 June 2023
Restated(1)
Bricks & Blocks Bespoke Products Total
£m £m £m
Intangible assets 15.9 2.3 18.2
Property, plant and equipment 236.0 9.1 245.1
Right-of-use assets 21.0 0.4 21.4
Inventories 69.0 3.6 72.6
Segment assets 341.9 15.4 357.3
Unallocated assets 78.4
Total assets 435.7
(1)Restated to report Red Bank results within the Brick and Block segment as a
result of internal restructure.
Intangible assets, property, plant and equipment, right-of-use assets and
inventories are allocated to segments and considered when appraising segment
performance. Trade and other receivables, income tax assets, cash and cash
equivalents and derivative assets are centrally controlled and unallocated.
OTHER SEGMENTAL INFORMATION: Six months ended 30 June 2023
Restated(1)
Bricks & Blocks Bespoke Products Total
£m £m £m
Intangible asset additions 3.5 0.4 3.9
Property, plant and equipment additions 17.1 0.8 17.9
Right-of-use asset additions 6.1 0.1 6.2
(1)Restated to report Red Bank results within the Brick and Block segment as a
result of internal restructure.
SEGMENTAL REVENUE AND RESULTS: Year ended 31 December 2023
Bricks & Blocks Bespoke Products Total
£m £m £m
Segment revenue 277.4 72.7 350.1
Inter-segment eliminations (3.7)
Revenue 346.4
EBITDA before exceptional items 52.1 6.0 58.1
Depreciation and amortisation (18.6) (1.4) (20.0)
Operating profit before exceptional items 33.5 4.6 38.1
Exceptional items (13.7) (0.3) (14.0)
Operating profit 19.8 4.3 24.1
Net finance expense (7.0)
Profit before tax 17.1
SEGMENTAL ASSETS: As at 31 December 2023
Bricks & Blocks Bespoke Products Total
£m £m £m
Intangible assets 16.8 2.4 19.2
Property, plant and equipment 240.8 8.9 249.7
Right-of-use assets 22.9 1.2 24.1
Inventories 92.1 3.7 95.8
Segment assets 372.6 16.2 388.8
Unallocated assets 55.9
Total assets 444.7
Intangible assets, property, plant and equipment, right-of-use assets and
inventories are allocated to segments and considered when appraising segment
performance. Trade and other receivables, income tax assets, cash and cash
equivalents and derivative assets are centrally controlled and unallocated.
OTHER SEGMENTAL INFORMATION: Year ended 31 December 2023
Bricks & Blocks Bespoke Products Total
£m £m £m
Intangible asset additions 5.3 0.8 6.1
Property, plant and equipment additions 32.6 0.9 33.5
Right-of-use asset additions 11.2 1.1 12.3
7 EXCEPTIONAL ITEMS
Six months ended 30 June Year ended
31 December
2024 2023 2023
£m £m £m
Restructuring costs (0.2) (2.1) (9.0)
Aborted corporate transaction (2.6) - -
Impairment of plant and equipment - (0.9) (5.0)
(2.8) (3.0) (14.0)
Exceptional items 2024
During the period, the Group incurred exceptional expenses of £2.8m, of which
£0.2m relates to restructuring costs and £2.6m relates to professional fees
associated with an aborted corporate transaction.
Exceptional items 2023
During the period to 30 June 2023, the Group announced the mothballing of its
Howley Park brick factory. Redundancy costs of £2.1m and an impairment charge
of £0.9m relating to plant and machinery at this site was recognised at 30
June 2023 as a result of this. Further to this, in the period 31 December
2023, the Group announced a wider restructuring across the business, resulting
in restructuring costs of £9.0m in relation to the full year. As part of
this, the Group announced the mothballing of its Claughton brick factory and
an additional impairment charge for the carrying value of plant and machinery
at this site was recognised, resulting in a full year impairment charge for
the Group of £5.0m.
8 FINANCE EXPENSE
Six months ended 30 June Year ended
31 December
2024 2023 2023
£m £m £m
Interest payable on loans and borrowings 3.9 1.9 5.7
Interest payable on lease liabilities 0.5 0.3 0.7
Other finance expense 0.2 - -
Amortisation of capitalised financing costs 0.3 0.3 0.6
4.9 2.5 7.0
Interest payable on loans and borrowings is presented net of borrowings costs
which have been capitalised against qualifying assets. In the period to 30
June 2024, £0.9m of interest was capitalised at an average capitalisation
rate of 6.4%.
9 TAXATION
The Group recorded a tax charge of £3.8m (2023: charge of £4.3m) on pre-tax
profit of £12.8m (2023: profit of £18.1m) for the six months ended 30 June
2024. This results in an effective tax rate (ETR) of 29.6% (2023: 23.6%).
Six months ended 30 June Year ended
31 December
2024 2023 2023
£m £m £m
Profit before taxation 12.8 18.1 17.1
Expected tax charge 3.2 4.3 4.0
Expenses not deductible for tax purposes 0.6 - 0.4
Effect of prior period adjustments - - (0.1)
Income tax expense 3.8 4.3 4.3
The UK main rate of corporation tax is 25%. The expected tax charge is
calculated using the statutory tax rate of 25% (2023: 23.5%) for current tax.
Deferred tax is calculated at 25% being the rate at which the provision is
expected to reverse.
10 EARNINGS PER SHARE
Basic earnings per share (EPS) is calculated by dividing the profit for the
period attributable to shareholders of the parent entity by the weighted
average number of ordinary shares outstanding during the period. Diluted
earnings per share additionally allows for the effect of the conversion of the
dilutive options.
Six months ended 30 June Year ended 31 December
2024 2023 2023
£m £m £m
Operating profit for the year 17.7 20.6 24.1
Finance expense (4.9) (2.5) (7.0)
Profit before taxation 12.8 18.1 17.1
Income tax expense (3.8) (4.3) (4.3)
Profit for the year 9.0 13.8 12.8
Weighted average number of shares (millions) 210.1 206.4 206.6
Effect of share incentive awards and options (millions) 0.4 2.0 1.4
Diluted weighted average number of shares (millions) 210.5 208.4 208.0
Earnings per share: Pence Pence Pence
Basic (in pence) 4.3 6.7 6.2
Diluted (in pence) 4.3 6.6 6.2
Adjusted basic earnings per share (in pence) 3.2 7.1 11.4
Adjusted earnings per share (EPS) is presented as an additional performance
measure and is calculated by excluding exceptional cost of £2.8m (HY 2023:
£3.0m, FY 2023: £14.0m) (note 7) and adjusting items representing a gain of
£6.5m (HY 2023: £1.9m, FY 2023: £nil) (note 4) and the associated decrease
in tax of £1.4m (HY 2023: increase of £0.3m, FY 2023: increase of £3.3m).
11 DIVIDENDS
A dividend of 2.0 pence per share that relates to the period ending 31
December 2023 was paid on 4 July 2024, making a total distribution of 4.4
pence per share for 2023.
An interim dividend of 1.0 pence per share (2023: 2.4 pence per share) has
been declared by the Board and will be paid on 11 October 2024 to shareholders
on the register as at 20 September 2024. This interim dividend has not been
recognised as a liability as at 30 June 2024. It will be recognised in
shareholders equity in the Consolidated Financial Statements for the year
ended 31 December 2024.
12 LOANS AND BORROWINGS
As at 30 June As at
31 December
2024 2023 2023
£m £m £m
Current loans and borrowings:
- Interest 0.5 0.3 0.4
Non-current loans and borrowings:
- Unamortised debt issue costs (0.9) (1.5) (1.2)
- Revolving credit facility 113.0 68.0 110.0
112.6 66.8 109.2
The Group operates under a Revolving Credit Facility of £170m which is place
until January 2027, with an extension option, subject to bank approval,
extending the facility to June 2028. The interest rate under this facility is
calculated using SONIA plus a margin, with the margin grid ranging from 1.65%
at a leverage of less than 0.5 times to 3.5% where leverage is between 3.5
times and 4 times (in line with the covenant relaxations outlined below).
The facility is normally subject to covenant restrictions of net debt/EBITDA
(as measured before leases) of less than three times and interest cover of
greater than four times. The Group also benefits from an uncommitted overdraft
facility of £10m. The business has traded comfortably within these covenants
throughout 2023 and whilst the Group expects to remain within these covenants
during 2024, amended covenants have been agreed with the Group's lenders to
provide additional headroom, given the combination of the Group's reduced
EBITDA, increased net debt driven by inventory build, capital outflows and
higher interest rates. Accordingly, the Group's leverage covenant has
increased to 4 times in June 2024 and 3.75 times in December 2024 with
interest cover decreasing to 3 times in December 2024. In addition, quarterly
covenant testing has been introduced for the period of the covenant
relaxation. As such, in September 2024, leverage is set at four times and
interest cover three times and in March 2025 leverage is set at 3.75 times and
interest cover at three times. The covenants return to normal levels from June
2025 with testing reverting to half yearly. The existing restriction
prohibiting the declaration or payment of dividends should leverage exceed 3
times EBITDA has been amended to 4 times EBITDA in 2024 before returning to 3
times in 2025.
In addition to the above, the loan facility is sustainability-linked and
subject to a margin adjustment of 5 bps if the annual sustainability targets
are met.
Debt issue costs incurred in relation to the refinancing were capitalised at
the date of refinancing and are being amortised over the period of the
facility.
The facility is secured by fixed charges over the shares of Forterra Building
Products Limited and Forterra Holdings Limited.
13 NOTES TO THE STATEMENT OF CASH FLOW
As at 30 June Year ended
31 December
2024 2023 2023
£m £m £m
Cash flows from operating activities
Profit before tax 12.8 18.1 17.1
Finance expense 4.9 2.5 7.0
Exceptional items 2.8 3.0 14.0
Operating profit before exceptional items 20.5 23.6 38.1
Adjustments for:
Depreciation and amortisation 10.3 9.4 20.0
Loss on disposal of property, plant and equipment and leases 0.1 0.2 0.2
Movement in provisions (15.1) (6.8) (3.7)
Purchase of carbon credits - (3.5) (5.2)
Settlement of carbon credits 6.0 8.3 8.3
Share-based payments 0.6 1.3 0.9
Other non-cash items (1.6) (1.0) (2.3)
Changes in working capital:
Inventories (1.3) (29.6) (52.8)
Trade and other receivables (20.2) (16.8) 13.3
Trade and other payables 11.9 (1.4) (22.9)
Cash generated from/(used in) operations before exceptional items 11.2 (16.3) (6.1)
Cash flows relating to operating exceptional items (6.3) (2.0) (5.1)
Cash generated from/(used in) operations 4.9 (18.3) (11.2)
14 NET DEBT
As at 30 June As at
31 December
2024 2023 2023
£m £m £m
Cash and cash equivalents 11.4 16.7 16.0
Loans and borrowings (112.6) (66.8) (109.2)
Lease liabilities (22.6) (21.3) (24.2)
Net debt (123.8) (71.4) (117.4)
RECONCILIATION OF NET DEBT
As at 30 June Year ended
31 December
2024 2023 2023
£m £m £m
Operating cash flow before exceptional items 11.2 (16.3) (6.1)
Payments made in respect of exceptional items (6.3) (2.0) (5.1)
Operating cash flow 4.9 (18.3) (11.2)
Interest paid (5.2) (2.1) (6.1)
Tax credit/(paid) 0.4 (3.6) (2.7)
Net cash outflow from investing activities (9.5) (15.3) (33.8)
Dividends paid - - (25.7)
Purchase of shares by Employee Benefit Trust - (1.8) (2.1)
Proceeds from sale of shares by Employee Benefit Trust 5.1 - 1.1
New lease liabilities (1.6) (6.2) (12.3)
Other movements (0.5) (0.2) (0.7)
Increase in net debt (6.4) (47.5) (93.5)
Net debt at the start of the period (117.4) (23.9) (23.9)
Net debt at the end of the period (123.8) (71.4) (117.4)
Capital expenditure commitments for which no provision has been made were
£16.8m as at 30 June 2024 (30 June 2023: £42.6m).
15 FINANCIAL INSTRUMENTS
Forward purchased energy contracts
The substantial energy requirements of the Group are closely managed to ensure
that the impact of fluctuating energy costs can be removed as far as possible;
allowing management to have some certainty over likely energy costs and
providing a reasonable basis on which to budget. Contracts with energy
suppliers are entered into allowing prices to be fixed, by month, for volumes
the Group expects to use. Under normal circumstances, the Group takes delivery
of and consumes, all of the gas and electricity under each contract, and in
doing so satisfies the requirements under IFRS 9 to follow the own use
exemption in accounting for these. As such, the costs associated with the
purchase of gas and electricity are accounted for in the Statement of Total
Comprehensive Income at the point of consumption, and contracts are not held
at fair value.
Declining market conditions during 2023, and resulting reductions made to
production across the Group, left open contracts where the purchased volume of
gas will exceed budgeted total consumption for the Group. In these instances,
the quantities which have been 'over purchased' will be sold back to the
market, crystallising a realised gain or loss at this point. As was the case
at 31 December 2023, any open contracts where this is expected to be the case
at 30 June 2024 fail the own use exemption, and in accordance with IFRS 9, are
accounted for as derivatives at the balance sheet date. As at 30 June 2024,
the Group has recognised a current asset of £4.0m, and a non-current asset of
£3.7m in relation to these contracts. These values are calculated with
reference to all forward purchased contracts within which a sale back to the
market is expected to occur, and reflect not only the portion of such
contracts expected to be sold, but also the fair value of the remaining
quantity which is expected to be consumed by the Group in the normal course of
business.
For the purposes of internal reporting to management and the Board, the Group
continues to measure these contracts as if the own use exemption could still
be applied, recognising energy costs at the contracted rate in the period of
consumption. In order to allow users of the accounts to review this
operationally aligned reporting, the movement due to the fair value treatment
of energy derivatives since 31 December 2023, being £6.9m, has been presented
as adjusting items in these Condensed Consolidated Financial Statements for
the period ended 30 June 2024 (the term adjusted is not defined under IFRS and
may not be comparable with similarly titled measures used by other companies).
The Group has not historically, and has no future plans to intentionally
purchase gas or electricity to sell and these current circumstances are solely
the result of market conditions.
16 SHARE-BASED PAYMENTS
On 1 May 2024, 1,407,772 share awards were granted under the Performance Share
Plan (PSP) to the Executive Directors, other members of the Executive
Committee and designated senior management which vest three years after the
date of grant at an exercise price of 1 pence per share. The total number of
shares vesting is dependent upon both service conditions being met and the
performance of the Group over the three-year period. Performance is subject to
both TSR and EPS conditions, each weighted 40%, with the remaining 20%
determined by sustainability-based targets of decarbonisation and a reduction
in the use of plastic packaging.
17 RELATED PARTY TRANSACTIONS
The Group has had no transactions with related parties in the periods ending
30 June 2024, 31 December 2023 and 30 June 2023.
18 POST BALANCE SHEET EVENTS
No events have occurred since the balance sheet date that would merit separate
disclosure.
PRINCIPAL RISKS AND UNCERTAINITIES
Overview
Effective risk management is critical to successfully meeting our strategic
objectives and delivering long-term value to our shareholders. Instilling a
risk management culture at the core of everything we do is a key priority. Our
risk management policy, strategy, processes, reporting measures, internal
reporting lines and responsibilities are well established.
We continue to monitor developments in the macroeconomic environment due to
its impact on our end markets and the core demand for our products, alongside
numerous other rapidly evolving business risks; implementing mitigating
controls and actions as appropriate. Details of our principal key risks are
shown further in the table below.
Our risk management objectives remain to:
• embed risk management into our management culture
and cascade this down through the business;
• develop plans and make decisions that are supported
by an understanding of risk and opportunity; and
• anticipate change and respond appropriately.
The Board's Audit and Risk Committee continue to provide oversight and
governance over the most significant risks the business faces in the short,
medium and long-term.
Sustainability
Sustainability continues to be a core focus within our business with the
increasing need to make Forterra more resilient against the potential effects
of climate change, and evolving sustainability driven risks are highlighted
within the extensive disclosure in our most recent annual report. These
reflect both the impact of our operations on the environment but also the
challenging targets we have set to reduce this, targeting Net Zero by 2050 in
line with the Race to Zero.
The Board is committed to compliance with the requirements of the Task Force
on Climate Related Financial Disclosure (TCFD) and comprehensive disclosure on
both short and long-term climate risks are included in our Sustainability
Report. Since January 2024, the Board's now standalone Sustainability
Committee, has provided oversight and governance over all matters
sustainability and climate, including the risks and opportunities this
presents over the short, medium and long-term.
Key risks
Key risks are determined by applying a standard methodology to all risks,
considering the potential impact and likelihood of a risk event occurring
before then, considering the mitigating actions in place, their effectiveness,
their potential to be breached and the severity and likelihood of the risk
that remains. This is a robust but straightforward system for identifying,
assessing and managing key risks.
Management of key risks is an ongoing process. Many of the key risks that are
identified and monitored evolve and new risks regularly emerge.
The foundations of the internal control system are the first line controls in
place across all our operations. This first line of control is evidenced
through monthly Responsible Manager self-assessments and review controls are
scheduled to recur frequently and regularly. Policies, procedures and
frameworks in areas such as health and safety, compliance, quality, IT, risk
management and security represent the second line of controls and internal
audit activities represent the third.
Management continue to monitor risk closely and put procedures in place to
mitigate risks promptly wherever possible. Where the risks cannot be
mitigated, Management focus on monitoring the risks and ensuring the Group
maximises its resilience to the risks, should they fully emerge.
Risk appetite
The Group's risk appetite reflects that effective risk management requires
risk and reward to be suitably balanced. Exposure to health and safety,
financial and compliance risks are mitigated as far as is reasonably
practicable.
The Group is however prepared to take certain strategic, commercial and
operational risks in pursuit of its objectives; where these risks and the
potential benefits have been fully understood and reasonable mitigating
actions have been taken.
RISK MANAGEMENT AND KEY RISKS
1. HEALTH AND SAFETY
Principal risk and why Key mitigation, change and sponsor Change from Dec 23 Rationale for rating
it is relevant
We continue to work to ensure the safety of employees exposed to risks such as Safety remains our number one priority. We target an accident-free environment Gross change Safety first is embedded in all decision making and is never compromised.
the operation of heavy machinery, moving parts, noise, dusts and chemicals. and have robust policies in place covering expected levels of performance,
responsibilities, communications, controls, reporting, monitoring and review. No change Reducing accidents and ill-health is critical to strategic success.
2024 sees the final year of our Zero Harm strategy and is focused on Visible
Felt Leadership, where our senior managers have been trained to undertake Net change
safety observations throughout the business. These pro-active discussions with
colleagues are designed so our leaders can understand the work they perform No change
and be able to praise safe behaviours or provide assistance in identifying
safer ways of completing a task. We continue to promote our Golden Rules as
part of this process and drive our safety engagement aligned with our new
company values.
The next stage of our Health and Safety strategy, covering phases 2025-2027
and 2028-2030, is currently in development and will allow sites to progress
within the strategy as they hit certain milestones, tailoring pace to
individual site requirements.
2. SUSTAINABILITY / CLIMATE CHANGE
Principal risk and why Key mitigation, change and sponsor Change from Dec 23 Rationale for rating
it is relevant
We recognise the importance of sustainability and climate change and both the We recognise the positive impact that our products have on the built Gross change Focus from all stakeholders has been maintained in 2024 so far and
positive and negative impacts our products and processes have on the environment across their lifespan and are keen for the durability, longevity
sustainability remains a high priority for management in the short, medium and
environment. and lower lifecycle carbon footprint of our products to be championed and No change long-term.
better understood.
Short-term transitional sustainability risks include increasing regulatory
burden or cost, an inability to adapt our business model to keep pace with new Net change
regulation or customer preferences changing more quickly than anticipated or
too quickly for our R&D to keep pace. No change
Several longer-term physical risks could have a material impact on the
business. These risks include more severe weather impacts, such as flooding,
and potentially changes to the design of buildings in order to adapt to
different climatic conditions.
A comprehensive sustainability report is included within our last Annual
Report and is also available as a separate document, providing detailed
disclosure of the sustainability related risks faced by our business.
Our desire to reduce our impact upon the environment sits hand-in-hand
with maximising the financial performance of our business; by investing
in modernising our production facilities not only do we reduce energy
consumption and our CO(2) emissions, but we also benefit financially from
reducing the amount of energy and carbon credits we need to purchase.
Acknowledging the continued importance of the subject matter, from January
2024, all sustainability risks have been governed by the standalone
Sustainability Committee.
3. ECONOMIC CONDITIONS
Principal risk and why Key mitigation, change and sponsor Change from Dec 23 Rationale for rating
it is relevant
Demand for our products is closely correlated with residential and commercial Understanding business performance in real-time, through our customer order Gross change Weaker macro-economic conditions in recent years have caused demand for our
construction activity. Changes in the wider macro-economic environment can book, strong relationships across the building sector, and a range of internal
products to fall.
have significant impact in this respect and we monitor these closely as a and external leading indicators, help to inform management and ensure that the No change
result. business has time to respond to changing market conditions.
However, with UK brick despatches having fallen to levels not seen since 2009,
we expect this to be the bottom of the cycle. Having adapted our business to
The cyclical downturn in the UK housing market is ongoing, driven by
align production to sales we reduced this risk accordingly at December 2023,
Government economic policy which resulted in significant increases in and it remains unchanged in 2024.
borrowing costs and accordingly mortgage affordability; impacting demand for
housing in the short-term. However, we recognise that ultimately there remains Net change
a shortage of housing in the UK, financing is accessible (though now more
expensive) and the population continues to grow and as such we remain No change
confident in the medium to long-term outlook.
In a weaker demand environment in 2024 we have displayed our ability to flex
output and slow production, ensuring that production is matched to sales in
the period. This has been effective in the past and we believe the changes
made to our operational footprint in recent periods leave us well positioned
to take advantage of attractive market fundamentals in the medium to
long-term.
Beyond the UK economy, we additionally remain watchful of the wider
geopolitical landscape, accepting the impact that changes in this respect can
have on our business.
4. GOVERNMENT ACTION AND POLICY
Principal risk and why Key mitigation, change and sponsor Change from Dec 23 Rationale for rating
it is relevant
The general level and type of residential and other construction activity is We participate in trade associations, attend industry events and track policy Gross change We continue to invest significantly in growth - in terms of both capacity and
partly dependent on the UK Government's housebuilding policy, investment in changes which could potentially impact housebuilding and the construction
range. This investment is made despite the uncertainty presented by changes in
public housing and availability of finance. sector. Such policy changes can be very broad, covering macro-economic policy Decreased Government policy. With the newly elected UK Government giving renewed focus
and including taxation, interest rates, mortgage availability and incentives
and prioritisation to housebuilding, we have reduced this risk accordingly.
Changes in Government support towards housebuilding could lead to a reduction aimed at stimulating the housing market. Through our participation in these However, we remain watchful in the short to medium term as the substance of
in demand for our products. trade and industry associations we ensure our views are communicated to
these supportive policies are developed and implemented.
Government and our Executive team often meet with both ministers and MPs. Net change
Changes to Government policy or planning regulations could therefore adversely
affect Group performance. Where identified, we factor any emerging issues into models of anticipated Decreased
future demand to guide strategic decision-making.
Whilst the new Labour Government is still in its infancy, the need for more
quality housing has featured significantly across both the election campaign
and within the political narrative since taking power. It is clear that the
government's aim is to incentivise construction of new homes, even if
different political ideologies may demand different models of home ownership.
Changes in monetary policy and the rapid associated increase to interest rates
has had a significant impact on mortgage affordability, an additional
challenge in a period that has also seen the end of the Help to Buy scheme.
We therefore consider a lack of broader support in the longer term unlikely
should it risk a reduction in the supply of new high-quality homes where a
significant shortfall still exists.
Government policy around planning reform, an area of policy that the new
Government has already been particularly vocal around, also has the potential
to influence demand for our products and we remain watchful as to any further
potential changes in this area and their impact on the construction of new
homes.
5. RESIDENTIAL SECTOR ACTIVITY LEVELS
Principal risk and why Key mitigation, change and sponsor Change from Dec 23 Rationale for rating
it is relevant
Residential development (both new build and repair, maintenance and Government action and policy as laid out above continues to be a key Gross change Serving the residential construction market lies at the heart of our strategy.
improvement) contributes the majority of Group revenue. The dependence of determinant of demand for housing.
Group revenues on this sector means that any change in activity levels in this
No change Whilst we will seek opportunities to broaden our offering, we continue to see
sector will affect profitability and in the longer term, strategic growth We closely follow the demand we are seeing from our key markets, along with
residential markets as core.
plans. market forecasts, end user sentiment, mortgage affordability and credit
availability in order to identify and respond to opportunities and risk. Group
With demand levels reduced to those seen in the global financial crisis, the
strategy focuses upon our strength in this sector whilst also continuing to Net change risk of further reductions in residential construction was deemed reduced at
strengthen our commercial offer.
December 2023 and remains at this level.
No change
The impact of higher interest rates and the wider macroeconomy on this sector
had a notable impact on demand levels across 2023. Whilst we remain watchful
in 2024, having reduced this risk at December 2023 it remains static at June.
The investment in the redevelopment of the Wilnecote brick factory which
will supply the commercial and specification market will provide a degree
of diversification away from residential construction, further insulating the
Group from the impact of future demand cycles.
6. INVENTORY MANAGEMENT
Principal risk and why Key mitigation, change and sponsor Change from Dec 23 Rationale for rating
it is relevant
Ensuring sufficient inventories of our products is critical to meeting our After a long period of historically low stock levels, a softening in demand in Gross change Managing capacity sufficiently to prevent tying up excessive amounts of
customers' needs, though this should not be at the expense of excessive cash the last 18 months has allowed these stocks to be replenished.
working capital in stock, but ensuring that customer demand can continue to be
tied up in working capital. Whilst the ability to serve our customers is key,
No change met are crucial to our success. Due to reduced demand and the time necessary
where excessive inventory starts to be built, management must ensure that Strong customer relationships and some degree of product range substitution
to efficiently adjust production we invested over £50m in building
production is aligned to forecast demand. have historically mitigated the risk of inventory levels being too low, and inventories in the prior year. It is important we do not build further
now that levels are growing these relationships remain key, ensuring that
inventory and as such have taken management actions to reduce production and
Cash tied to surplus working capital increases financing costs and could visibility of our customers' needs and demand levels can accurately be matched Net change realise fixed cost savings. Having increased this risk at December 2024 to
ultimately impact the Group's liquidity, restricting the amount of cash to our production levels.
reflect this, it remains static at June.
available for other purposes.
No change
Acknowledging the current weaker demand environment it is crucial to
effectively manage working capital levels, and in 2024 we have ensured that
production levels are matched to sales, ensuring sufficient stock levels are
held to support the requirements of our customers whilst reducing our cost
base and ensuring excessive cash is not tied up in inventory.
7. CUSTOMER RELATIONSHIPS AND REPUTATION
Principal risk and why Key mitigation, change and sponsor Change from Dec 23 Rationale for rating
it is relevant
Significant revenues are generated from sales to a number of key customers. One of our strategic priorities is to be the supply chain partner of choice Gross change Customer focus is a key priority for all employees. Having increased across
Where a customer relationship deteriorates there is a risk to revenue and cash for our customers. By delivering excellent customer service, enhancing our
recent periods of strong demand, in a softening market this risk remains
flow. brands and offering the right products, we seek to develop our long-standing No change equally heightened.
relationships with our customers. Regular and frequent review meetings focus
on our effectiveness in this area.
In a softer demand environment, an inability to maintain these relationships Net change
could manifest itself in loss of market share, and if not managed correctly,
be detrimental in the longer term in periods of stronger demand. No change
To mitigate these risks we remain in constant communication with our customers
ensuring they are well informed of the challenges faced by our business. We
remain particularly conscious of potential impacts on our customer service and
selling prices as we aim to retain our margins in a time where our customers
are also facing challenging conditions.
8. ATTRACTING, RETAINING AND DEVELOPING EMPLOYEES
Principal risk and why Key mitigation, change and sponsor Change from Dec 23 Rationale for rating
it is relevant
We recognise that our greatest asset is our workforce and a failure to We understand where key person dependencies and skills gaps exist and continue Gross change Our people have always been pivotal to our business and we must remain
attract, retain and develop talent will be detrimental to Group performance. to develop succession, talent acquisition, and retention plans.
cautious of the previously increased risk associated with ensuring we attract,
No change retain and develop our employees.
We continue to focus on safe working practices, employee support and strong
communication/employee engagement.
Notwithstanding a softer demand environment, challenges associated with labour Net change
availability remain across the business in key skilled areas and it is crucial
that this continues to be addressed to ensure the continued success of the No change
Group which is dependent on our people.
9. INNOVATION
Principal risk and why Key mitigation, change and sponsor Change from Dec 23 Rationale for rating
it is relevant
Failure to respond to market developments could lead to a fall in demand for Strong relationships with customers as well as independently administered Gross change The Group is willing to invest in order to grow where the right opportunities
the products that we manufacture. This could in turn cause revenues and customer surveys ensure that we understand current and future demand. Close
present themselves. We have invested in the appropriate skills so that
margins to suffer. ties between the Strategy, Operations and Commercial functions ensure that the No change opportunities can be identified and progressed, and we are committed to
Group focuses on the right areas of research and development.
deploying R&D to reduce the environmental footprint of our operations.
In a period of softer demand for our products, providing innovative products
for both our core markets and the wider construction market is of increased Net change
importance and we strive to ensure that we are in a position to do so.
No change
New product development and related initiatives therefore continue and we
continue to commit to further investment in research and development with
clear links between investment in R&D and the work undertaken in relation
to sustainability.
10. IT INFRASTRUCTURE AND SYSTEMS
Principal risk and why Key mitigation, change and sponsor Change from Dec 23 Rationale for rating
it is relevant
Disruption or interruption to IT systems could have a material adverse impact We have undertaken a period of investment in consolidating, modernising and Gross change The downside to IT risks significantly outweigh any upside and our risk
on performance and position. extending the reach of our IT systems in recent years, maintaining ISO 27001
appetite reflects this. Our assessment of the risk in this area remains
Information Security accreditation. This investment has ensured our ability to No change unchanged.
maintain the level of customer service that our customers expect.
We continue to increase our resilience in this area, ensuring that our people
understand their role in any attempt to compromise our cyber security and Net change
regular training and tests are carried out as such.
No change
11. BUSINESS CONTINUITY
Principal risk and why Key mitigation, change and sponsor Change from Dec 23 Rationale for rating
it is relevant
Performance is dependent on key centralised functions operating continuously Having made plans to allow key centralised functions to continue to operate in Gross change Using business continuity plans in response to the pandemic provides real life
and manufacturing functions operating uninterrupted. Should we experience the event of business interruption, remote working capabilities have been
evidence as opposed to a desktop exercise. In 2024, this risk remains
significant disruption there is a risk that products cannot be delivered to maintained and continually strengthened in recent years, ensuring the business No change unchanged.
customers to meet demand and all financial KPIs may suffer. is able to continue operating with minimal disruption.
Where a scenario without a pre-envisaged plan is faced, our business
continuity policy allows managers to apply clear principles to develop plans Net change
quickly in response to emerging events.
No change
We consider climate related risks when developing business continuity plans
and have learnt lessons from weather related events in recent years which
inform these plans.
Loss of one of our operating facilities through fire or other catastrophe
would impact upon production and our ability to meet customer demand. Working
with our insurers and risk advisors we undertake regular factory risk
assessments, addressing recommendations as appropriate. We accept it is not
possible to mitigate all the risks we face in this area and as such we have a
comprehensive package of insurance cover including both property damage and
business interruption policies.
12. PROJECT DELIVERY
Principal risk and why Key mitigation, change and sponsor Change from Dec 23 Rationale for rating
it is relevant
We have an extensive program of capital investment ongoing within our business The commissioning of our Desford brick factory in 2023 represented the largest Gross change Management and the Board are closely monitoring the ongoing expansion projects
over the next decade which will see a number of large projects to add capital investment that we have ever made. Despite the virtually complete
at Wilnecote and Accrington. Risk rating maintained recognising the strategic
production capacity. Desford project, our vigilance in managing project delivery across the No change imperative of both projects to the future success of the Group.
business has not diminished and the focus of this risk has in turn shifted to
Ensuring these projects are delivered as intended is essential to the future ongoing projects at both Wilnecote and Accrington.
success of the business.
Management closely monitor all current strategic projects for potential Net change
challenges, cost over-runs and delays and act promptly to ensure that risks
are mitigated. No change
Recommissioning of the new Wilnecote factory is now not expected until the end
of the year, a delay attributable to challenges faced by the Group's suppliers
and connected to wider global economic and supply chain challenges. Despite
the delay, Wilnecote (as with Desford previously), has been procured under a
fixed price supply contract ensuring that the price we paid was certain at the
outset. Given the unusually high levels of inflation and supply chain
challenges in recent years, the Group has benefited significantly from these
contract terms.
Management recognise the additional risks posed by running concurrent major
projects, and to mitigate, separate project management structures are in place
for each respective project and where common suppliers are involved procedures
are in place to ensure they retain sufficient capacity to deliver on both
projects without significant risk.
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