REG - Forterra plc - Full Year Results
26/03/2024 07:15
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RNS Number : 2433I Forterra plc 26 March 2024
26(th) March 2024
Resilient performance in 2023; well-positioned for market recovery
Adjusted(1) Statutory
2023 2022 Change (%) 2023 2022 Change (%)
£m £m £m £m
Revenue 346.4 455.5 (24.0) % 346.4 455.5 (24.0) %
EBITDA(2) 58.1 89.2 (34.9) % 44.1 91.5 (51.8) %
EBITDA margin(2) 16.8% 19.6% (280) bps 12.7% 20.1% (740) bps
Operating profit (EBIT) 38.1 72.7 (47.6) % 24.1 75.0 (67.9) %
Profit before tax 31.1 70.6 (55.9) % 17.1 72.9 (76.5) %
Earnings per share (pence) 11.4 26.4 (56.8) % 6.2 27.2 (77.2) %
Cash flow from operations (5.3) 89.0 n/a (11.2) 89.0 n/a
Net debt before leases (93.2) (5.9) n/a
Total dividend (pence) 4.4 14.7 (70.1) %
1. Adjusted results for the Group have been presented before exceptional and
adjusting items (2023: expense of £14.0m, 2022: income of £2.3m) relative to
statutory profit as explained in Alternative Performance Measures within Note
2. Presenting these measures allows a consistent comparison with prior
periods.
2. Both EBITDA and adjusted EBITDA are APMs, with EBITDA presented as above
under statutory being calculated with reference to statutory results without
adjustment.
OPERATIONAL AND TRADING HEADLINES
• Full year revenue of £346.4m (2022: £455.5m), a year-on-year
reduction of 24.0%, with the impact of falling sales volumes partially offset
by pricing benefits.
• Despite weak demand, pricing across our range of products remained
resilient with further modest price increases expected in 2024.
• Figures published by the Department of Business and Trade (DBT)
highlight that UK brick despatches in the three-month period to December 2023
were 29% lower than the equivalent period in 2022, with the cumulative full
year reduction also at this level, leaving industry despatches at a similar
level to that seen in the Global Financial Crisis. As previously highlighted,
our own despatches fell by a greater percentage due to our exposure to volume
housebuilding which suffered the greatest impact from rising interest rates.
MANAGEMENT ACTIONS
• Production has been reduced through the mothballing of factories,
shift reductions and production breaks. In addition, we have delivered further
savings through restructuring commercial and back-office functions.
• These actions will deliver annualised fixed costs savings in
excess of £20m, with around £6m realised in 2023 and the balance being
realised in 2024. One-off cash restructuring costs totalled £9.0m with £5.1m
paid in 2023, leaving a further £3.9m to be paid in 2024.
• Assuming demand in 2024 remains consistent with 2023, our
management actions will ensure output is broadly matched with sales, limiting
future inventory build.
• These temporary reductions will not impact our ability to respond
quickly when our markets recover, with the new Desford brick factory also
providing a significant capacity uplift.
ORGANIC INVESTMENT
• The £95m investment in New Desford, the largest and most
efficient brick factory in Europe is largely complete with the factory
operational.
• Our £30m redeveloped Wilnecote factory, designed to service the
commercial and specification market, is expected to recommission in H2 2024.
• The £12m investment in innovative brick slip manufacture at our
Accrington plant is progressing according to plan with production also
expected to commence in H2 2024.
• Our current programme of organic capacity investments totalling
almost £140m will come to an end in H2 with the majority of the 2024 spend
falling in H1.
BALANCE SHEET
• Reflecting our inventory build, capital expenditure and the
management actions taken during 2023, year-end net debt before leases is
£93.2m (2022: £5.9m).
• The Board reiterates its long-term leverage target of 1.5 times or
below and is confident that with the benefit of the management actions
outlined above and with the current strategic capital investments close to
completion, there is a clear pathway to achieve this even with only a modest
recovery of demand.
• We expect to end 2024 with a similar net debt position to 2023
with a peak around the middle of the year due to the phasing of the expected
result and timing of capital spend.
• With leverage expected to peak at the half year, in part due to
our £140m capital investment programme, which is nearing completion, the
Board has temporarily adjusted the 2023 dividend payout ratio to 40% of
adjusted earnings, and is accordingly recommending a final dividend of 2.0p
per share (2022: 10.1p). This, in addition to the interim dividend of 2.4p per
share paid in October 2023 (2022: 4.6p), will bring the total dividend to 4.4p
per share (2022: 14.7p).
CURRENT TRADING AND OUTLOOK
• The outlook for our industry remains subject to considerable
uncertainty and, with a general election expected in 2024, demand is
anticipated to remain subdued in the near term.
• Trading conditions at the beginning of 2024 continued to be
challenging with Department for Business and Trade figures suggesting January
domestic brick despatches were 5% behind the 2023 comparative. Our own
despatches in February were slightly ahead of the prior year comparative.
• We take some encouragement from recent trading updates from our
housebuilding customers reporting greater levels of customer activity in
recent months with a downward trend in mortgage interest rates through 2024
expected to improve the affordability of new homes, hopefully increasing
demand for our products.
• With the long-term under-supply of housing in the UK continuing to
worsen, and with our previous capacity constraints now addressed, the Board
remains confident in the Group's ability to benefit significantly as our
markets recover and our strategic investments generate returns.
• We continue to expect demand through 2024 to be broadly aligned to
that seen in 2023 although exceptionally wet weather in the first two months
of the year makes underlying demand more difficult to gauge.
• The Board's expectations for 2024 remain unchanged with the
Group's performance expected to be H2 weighted with this being driven by cost
base and efficiency rather than demand.
Neil Ash, Chief Executive Officer, commented:
"Forterra produced a resilient performance in 2023, in what turned out to be a
very challenging year for our industry. Demand for new housing in the UK fell
substantially, driven by increasing interest rates adversely impacting
affordability and therefore demand for new homes.
In light of this lower demand management took decisive action on our cost
base. Assuming 2024 demand remains consistent with 2023, our management
actions will ensure output is broadly matched with sales, thus limiting future
inventory build.
Importantly, however, these temporary reductions will not impact our ability
to respond quickly when our markets recover. Indeed, one bright spot during
2023 was the commissioning of the new Desford brick factory, which gradually
ramped up production throughout the year, and which will provide a significant
capacity uplift in improved markets.
With the long-term under-supply of housing in the UK continuing to worsen, and
with our previous capacity constraints now addressed, the Board remains
confident in the Group's ability to benefit as our key markets recover."
ENQUIRIES
Forterra plc +44 1604 707 600
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, 26 March 2024, at 10.30am. 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.
INTRODUCTION
2023 has been a very challenging year for our industry. Economic turbulence
has suppressed demand for new housing resulting in a marked reduction in
demand for our products. Despite UK brick industry despatches falling to
levels last seen in the Global Financial Crisis (GFC), we were still able to
deliver a resilient financial result. Notwithstanding these challenging market
conditions, we have made continued progress against our strategic objectives.
After a construction period of more than three years, 2023 saw the
commissioning of our new Desford brick factory. With a production capacity of
180m bricks per annum, we believe it to be the largest brick factory in Europe
and once fully commissioned, the most efficient.
OUR MARKETS
Demand for new housing in the UK fell substantially in 2023 driven by
increasing interest rates adversely impacting affordability and therefore
demand for new homes.
This decline in housing demand is evidenced by a 19% fall in housing starts
and a 15% fall in housing completions. The relationship between these
statistics and the demand for the building products we manufacture is a
complex one, with housebuilder order books, work in progress, and the
inventory they hold of our products all having an impact.
Government statistics demonstrate that this fall in housing output has driven
a significant decline in demand for building products with total UK brick
consumption (including imports) falling from 2.5bn bricks in 2022 to a figure
of 1.7bn in 2023, a fall of 32%. Our own brick despatches in the year fell by
a greater percentage as a result of our exposure to mainstream housebuilding,
the sector of the market most impacted by increasing mortgage rates. Demand
for our other products also fell by approximately 30%.
Imports of bricks into the UK totalled 329m bricks in 2023, a fall of 42% from
the 2022 figure of 570m bricks. Imports as a percentage of total UK brick
demand fell from 23% in 2022 to 19% in 2023, although it is likely that
imports of architecturally differentiated bricks, where demand is less
susceptible to the increases in interest rates will have been most resilient,
meaning that the fall in imports of bricks which are directly competing with
our own products is likely to be greater than suggested by these figures.
Despite current and announced capacity investments, the UK brick industry
still lacks the capacity required to meet underlying demand. Current domestic
production capacity of approximately 2.2 billion clay bricks per annum remains
lower than the pre-financial crisis figure of 2.6 billion.
RESULTS FOR THE YEAR
REVENUE
Sales volumes varied somewhat by product although overall our despatches in
the year were a little over 30% down on 2022. Total revenue of £346.4m
represents a decrease of 24.0% on the prior year (2022: £455.5m). The impact
of declining sales volumes on revenue was partially offset by a positive
pricing benefit. After significant price increases, which for some products
totalled almost 50% during the prior year, pricing was more stable in 2023. We
implemented low single digit price increases at the beginning of 2023 and
although there was a slight erosion in some of our prices over the course of
the year, pricing remained resilient in the face of a significant drop in
demand which has seen UK brick industry despatches at levels last seen around
the time of the Global Financial Crisis. Overall, the year-on-year pricing
comparison benefits from the full year effect of the multiple in-year price
increases implemented during 2022. Bespoke Products and in particular Bison
Flooring delivered a particularly resilient performance with the combined
tonnage of the products despatched falling only 23.3% relative to 2022 with a
growth in hollowcore despatches partially offsetting the fall in floor beam
despatches.
ADJUSTED EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND AMORTISATION (EBITDA)
Adjusted EBITDA was £58.1m (2022: £89.2m) with profitability impacted by the
significant reduction in demand for our products leading to a sizeable
year-on-year decrease in our sales volumes as outlined above.
Our business is managed as two segments and we allocate our central overheads
to each segment based on a historic revenue-driven allocation mechanism, with
central overheads allocated to Bricks and Blocks and Bespoke Products in the
ratio 80%:20% respectively. In practice, the allocation of overheads to
Bespoke Products exceeds the level of overheads that are directly applicable
to this segment, such that if this segment was to be discontinued or divested
then the saving of overheads, would in reality, be modest. Accordingly, we
also disclose the allocation of central overheads to give greater visibility
of the underlying profitability of our segments, in particular Bespoke
Products.
Bricks and Blocks segmental adjusted EBITDA was £52.1m (2022: £85.6m) and
Bespoke Products contributed an adjusted EBITDA of £6.0m (2022: £3.6m). For
the second year running, we are very pleased with the performance delivered by
the Bespoke Products segment. Prior to a £4.5m (2022: £6.0m) allocation of
Group overhead, this segment delivered an adjusted EBITDA of £10.5m (2022:
£9.6m).
ADJUSTED PROFIT BEFORE TAX
Adjusted profit before tax was £31.1m (2022: £70.6m) driven primarily by the
fall in EBITDA as highlighted above. Further factors included an increase in
depreciation in respect of the new Desford factory and an increase in
borrowing costs resulting from a combination of a significant increase in
borrowings and rising interest rates.
STATUTORY PROFIT BEFORE TAX
On a statutory basis Profit before tax (PBT) was £17.1m (2022: £72.9m). This
is stated after charging adjusting and exceptional items as set out under the
sections for exceptional and adjusting items.
MANAGEMENT ACTIONS
Our factories faced a number of challenges during 2023. We began the year with
record low levels of inventory with production in recent years restricted by
our capacity constraint. We began the commissioning of the new Desford brick
factory at the start of 2023 and gradually ramped up production throughout the
year, with a well-attended opening event taking place in May. The
commissioning of any new factory is a complex process and new Desford has had
its challenges in this respect. We did however make good progress in the
second half, increasing our rate of production and also expanding the range of
products that the factory can produce.
Faced with difficult market conditions and with inventories replenished by the
end of the first quarter, we took action to limit our inventory to appropriate
levels. Decisions regarding output are taken with many factors in mind,
although retaining manufacturing efficiency is a key priority. Brick factories
especially are high-fixed-cost operations and as such can be inefficient to
run at lower levels of output and we have taken decisions at factory level to
maximise efficiency whilst reducing output. These decisions are not easy, the
mothballing of factories and the making of redundancies have a lasting impact
on the lives of affected colleagues and for the Company leads to significant
one-off costs which are detailed further in the exceptional items section of
this report.
Making decisions to reduce output are challenging, especially where market
demand in the near-term is uncertain. With our markets showing signs of
recovery in the late spring 2023, we held back in taking some actions. In
addition, we faced the complexity of adding new capacity in the form of the
new Desford factory, knowing we would ultimately need to reduce output
elsewhere but not until we were comfortable Desford was capable of meeting
customer demand.
Ultimately, we implemented three separate rounds of restructuring which
together will lead to annualised fixed cost savings totalling over £20m with
a reduction in our workforce of almost 300 people. These savings have been
achieved through the mothballing of two brick factories as well as
implementing shift reductions and production breaks at a number of other
facilities. In addition, we undertook a restructuring of our sales and back
office functions.
OPERATING COSTS
Following the unprecedented increases in our cost base seen in 2022, our cost
environment was more stable through 2023 although we did still see further
cost increases including labour and energy.
As a result of our forward purchasing, we had good forward visibility with
regards to energy costs in 2023 and had expected them to increase relative to
2022, which they did. Whilst spot prices fell through the year, our forward
purchasing did not allow us to benefit from these lower prices. In addition,
following our reductions in production output, towards the end of the year we
had purchased more energy than we were able to consume, with this surplus
energy being sold back to the market. Losses realised in respect of this
surplus energy have been disclosed as adjusting items.
Our combined gas and electricity spend in the year was approximately £57m, in
line with the prior year, with reduced usage in 2023 being offset by higher
unit costs. We take a risk-based approach to energy procurement, layering
forward purchase positions where we see value ahead of planned usage and
providing cost certainty. The Group generally purchases up to 80% of expected
energy usage in this manner. Under normal circumstances the Group takes
delivery of and consumes all the gas and electricity under each contract, and
in doing so the costs associated with the purchase of gas and electricity are
accounted for in the profit and loss at the point of consumption. However,
following our substantial reductions in output, based on our current
expectations of production, we have over-purchased energy and as such, any
surplus will be sold back to the market, crystallising a gain or loss at that
point. Contracts where this is the case are accounted for as derivative assets
or liabilities at the balance sheet date with any associated fair value gains
or losses recognised in the profit and loss and presented as adjusting items.
Looking ahead, we have forward purchased around 90% of our energy requirement
in 2024 providing a high degree of price certainty. We will begin to receive
electricity from the Forterra solar farm in April 2024, with the full
financial benefits accruing from April 2025 when the 15-year Power Purchased
Agreement (PPA) begins.
BRICKS AND BLOCKS
We possess a unique combination of strong market positions in both clay brick
and concrete blocks. We are the only manufacturer of the iconic and original
Fletton brick sold under the London Brick brand. Fletton bricks were used in
the original construction of nearly a quarter of England's existing housing
stock and are today used to match existing brickwork by homeowners carrying
out extension or improvement work. We operate eight brick manufacturing
facilities across the country with a total installed production capacity of
approximately 675 million bricks per annum.
We are also a leader nationally in the aircrete block market, operating two
Thermalite block facilities in the Midlands and South of England. In addition,
our aggregate block business has a leading position in the important Southeast
and East of England markets with two well-located manufacturing facilities in
this geography. This segment also includes Formpave, the Group's concrete
block paving business and following the combination of our Cradley Special
Brick with our Red Bank chimney and roofing components business on a single
site, this segment now includes the results of the Red Bank business with the
prior year comparatives being restated to reflect this.
Our clay reserves are the foundation that our brick business is built upon and
are the primary raw material used in manufacturing our bricks. Each of our
brick factories is located adjacent to a quarry supplying locally sourced clay
directly into the manufacturing process. Sourcing material locally is
sustainable and therefore preferable wherever possible as it avoids the costs
and carbon emissions associated with transportation. Our mineral reserves also
provide a natural barrier reducing the threat of new entrants entering the
market as the planning process to secure consent for a 'green-field' quarry
and associated brick factory could take as long as 10 years. Each of the new
brick factories built in the UK over the last two decades have been
redevelopments of existing facilities utilising established quarries. We have
access to over 90 million tonnes of minerals, on average, these reserves are
sufficient to sustain manufacturing operations for 50 years. The majority of
our minerals are owned, although a small amount are secured by way of lease
with a royalty payable at the point of extraction.
TRADING AND RESULTS
The performance of the Bricks and Blocks segment was principally driven by the
fall in demand highlighted above. Bricks and Blocks sales revenues were
£277.4m, a decrease of 26.2% on the prior year (2022: restated £376.1m). The
decline in sales volumes was partially offset by a pricing benefit, primarily
driven by the significant mid-year price increases implemented in 2022.
Segmental adjusted EBITDA totalled £52.1m (2022: restated £85.6m), a
decrease of 39.1%. Adjusted EBITDA margin was 18.8% (2022: restated 22.8%).
BRICK AND BLOCK Restated(2)
2023 2022
£m £m
Adjusted Statutory Adjusted Statutory
Revenue(1) 277.4 277.4 376.1 376.1
EBITDA(3) before overhead allocations 70.0 56.3 109.6 111.9
Overhead allocations (17.9) (17.9) (24.0) (24.0)
EBITDA(3) after overhead allocations 52.1 38.4 85.6 87.9
EBITDA(3) margin before overhead allocations 25.2% 20.3% 29.1% 29.8%
EBITDA(3) margin after overhead allocations 18.8% 13.8% 22.8% 23.4%
1. Revenue is stated before inter-segment eliminations
2. Restated to report Red Bank results within the Bricks and Blocks segment as
a result of internal restructure. Further details are disclosed below under
restatement of prior year comparative
3. Both EBITDA and adjusted EBITDA are APMs, with EBITDA presented as above
under statutory being calculated with reference to statutory results without
adjustment.
PRICING AND COSTS
Following a period of extreme inflation during 2022, our cost base did
stabilise somewhat in 2023, although we continued to see cost inflation,
particularly at the beginning of the year. Our energy costs increased
year-on-year in line with expectations, with our strategy of forward
purchasing energy in order to achieve price certainty limiting our ability to
capitalise on falling energy prices in the second half of the year.
Our pricing remained resilient during the year despite the marked reduction in
despatches. We implemented modest price increases at the beginning of 2023 and
whilst there was a slight erosion of pricing in a very competitive market
through the year, pricing remained firm overall, with the exceptional
increases of up to 50% implemented during 2022 remaining intact.
Whilst more in line with normalised levels of inflation, we do still see
inflation in our cost base as we enter 2024, with business rates seeing a
particularly large increase. Accordingly, we have recently announced a modest
increase in pricing to take effect from April 2024.
OPERATIONS
Faced with a material decline in demand for our products at the same time when
we were also commissioning the new brick factory at Desford, we needed to act
swiftly to limit inventory growth.
We have highlighted previously that with a high fixed cost base, it is more
difficult to efficiently flex production output in the brick business than
elsewhere. Accordingly, alongside the closure of the old Desford factory which
was always planned, we mothballed both our Howley Park and Claughton brick
factories in the year, and have implemented further cuts to production across
our network of factories through a combination of shift reductions and
extended maintenance shutdowns.
We must not, however, allow the depressed demand backdrop to overshadow a key
highlight of the year which was the opening of the new Desford brick factory.
The factory, which, when fully commissioned and running at full output, will
be the largest and most efficient brick factory in Europe, capable of
producing 180m bricks per annum with a carbon footprint per brick 25% less
than the old factory it replaces. Unfortunately, market demand presently
dictates that we are not able to utilise the full production capacity of the
new factory but we are confident that having now addressed the capacity
constraint that has impeded us for many years, we are well placed to benefit
significantly as market demand recovers.
Commissioning a new brick factory is never a simple process and we have faced
challenges during the year. It is however pleasing to see the progress made
during the second half of the year, with the output of the factory steadily
increasing and with the initial product range fully commissioned. We are
currently expanding the product offering. Alongside our investment at Desford,
the complete redevelopment of our smaller Wilnecote brick factory at a cost of
approximately £30m continues to progress, albeit the project has been subject
to some supplier driven delays, with recommissioning now expected in the
second half of 2024.
This investment will strengthen our position in the architect-led commercial
and specification market which includes residential, commercial, school and
hospital developments in a sizeable market of around 400 million bricks per
annum in a normalised market (approximately 16% of the UK brick demand). This
investment will expand the product range manufactured at the factory,
providing a degree of diversification, reducing our reliance on mainstream
housebuilding whilst also increasing our total brick production capacity by
around 1%.
Our third strategic investment is an innovative brick slip (or 'thin bricks'
as they are also known) production line within our Accrington brick factory.
The investment of approximately £12m will facilitate the manufacture of up to
48 million brick slips per annum, minimising our investment through utilising
an existing kiln with only a small reduction in the number of traditional
bricks that will continue to be manufactured alongside the new slips. The UK
market for brick slips is currently estimated at around 120 million units
annually with significant growth expected to be driven through growth of the
modular construction market along with growing demand for firesafe façade
solutions suitable for use in high-rise construction.
Brick slips also offer sustainability benefits, reducing raw material and
energy usage relative to the manufacture of traditional bricks with many slips
currently being cut from traditional bricks with a high degree of wastage.
BESPOKE PRODUCTS
Following the restructuring that combined our Red Bank chimney and roofing
solutions business with the Cradley Special Brick business, the Bespoke
Products segment now solely consists of our precast concrete operations.
Precast concrete products are designed, manufactured and shipped nationwide
under the Bison Precast brand from two facilities situated in the Midlands.
Our products include beam and block flooring including Jetfloor, which was the
UK's first suspended ground floor system to use expanded polystyrene blocks
combined with a structural concrete topping to provide high levels of thermal
insulation; hollowcore floors alongside accompanying staircases and landings
are used for upper floors of multi-family and commercial developments,
structural precast components including precast concrete walls used in
applications such as hotels and prisons, and concrete beams used in the
construction of building frames as well as stadia components; architectural
precast concrete façades, in a variety of finishes including brick facings.
TRADING AND RESULTS
Precast concrete flooring solutions represent by far the largest component of
this segment by revenue and profitability. Despite a weak demand backdrop
across our entire range of products, the Bison flooring business demonstrated
a high degree of resilience with the delivery of a result ahead of the prior
year comparative.
Segmental turnover in the year was £72.7m (2022: restated £84.2m). Floor
beam sales volumes decreased in line with the rest of our product range
although we were able to shift production to increase our output of hollowcore
flooring. Again pricing has remained stable with the input cost inflation seen
in the prior year easing. Alongside this, we have efficiently flexed our cost
base with falling demand, something which is easier to achieve in this
business than in our brick operations.
Segmental adjusted EBITDA stated before allocation of Group overheads was
£10.5m (2022: restated £9.6m), meaning the segment delivered a result ahead
of the prior year which, given market conditions, is a fantastic result of
which we are extremely proud. After an allocation of Group overheads totalling
£4.5m (2022 restated: £6.0m) the segment reports an adjusted EBITDA of
£6.0m (2022: restated £3.6m).
Restated(2)
2023 2022
£m £m
Adjusted Statutory Adjusted Statutory
Revenue(1) 72.7 72.7 84.2 84.2
EBITDA(3) before overhead allocations 10.5 10.2 9.6 9.6
Overhead allocations (4.5) (4.5) (6.0) (6.0)
EBITDA(3) after overhead allocations 6.0 5.7 3.6 3.6
EBITDA(3) margin before overhead allocations 14.4% 14.0% 11.4% 11.4%
EBITDA(3) margin after overhead allocations 8.3% 7.8% 4.3% 4.3%
1. Revenue is stated before inter-segment eliminations
2. Restated to report Red Bank results within the Bricks and Blocks segment as
a result of internal restructure. Further details are disclosed below under
restatement of prior year comparative
3. Both EBITDA and adjusted EBITDA are APMs, with EBITDA presented as above
under statutory being calculated with reference to statutory results without
adjustment.
ALTERNATIVE PERFORMANCE MEASURES
In order to provide the most transparent understanding of the Group's
performance, we use alternative performance measures (APMs) which are not
defined or specified under IFRS. The Group believes that these APMs provide
additional helpful information on how the trading performance of the business
is reported and reviewed internally by management and the Board, allowing
non-trading items which are less likely to recur to be assessed separately.
Management and the Board use several profit related APMs in assessing Group
performance and profitability. These are considered before the impact of
exceptional and adjusting items. Exceptional and adjusting items are detailed
below and a full reconciliation between adjusted and statutory results is
presented within note 2 to the consolidated financial information.
EXCEPTIONAL ITEMS
Exceptional items in 2023 primarily relate 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. Redundancy and
termination costs totalled £8.8m of which £5.1m was paid in 2023 with the
balance to be paid in early 2024. In addition, non-cash impairment losses of
£5.0m have been recognised in respect of the carrying value of the Howley
Park and Claughton brick factories which were mothballed in the year.
The exceptional item in the prior year related to the sale of surplus land for
gross proceeds of £2.5m, realising an exceptional profit of £2.3m.
ADJUSTING ITEMS
In addition to exceptional items we have also identified further adjusting
items, the separate disclosure of which allows us to present our results in a
manner that will allow 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.
Adjusting items in the current year relate to both realised and open energy
positions where committed energy purchased by the Group has or is expected to
exceed consumption. This is a direct result of reductions to production made
in the year. In 2023, the Group realised a £0.8m loss in respect of surplus
energy sold back to the market in the year, alongside a £0.8m gain, being the
fair value of open positions at the balance sheet date. For these, the Group
expects to sell a portion of the committed volume back to the market and as a
result is no longer able to benefit from the own use exemption detailed within
IFRS 9 Financial Instruments.
2023 2022
£m £m
Adjusted EBITDA(1) 58.1 89.2
Exceptional costs:
Restructuring costs (9.0) -
Impairment of plant and equipment (5.0) -
Profit on sale of surplus land - 2.3
Other adjusting items:
Realised loss on the sale of surplus energy (0.8) -
Derivative gain on future energy contracts 0.8 -
EBITDA(1) 44.1 91.5
1. Both EBITDA and adjusted EBITDA are APMs, with EBITDA presented as above
under statutory being calculated with reference to statutory results without
adjustment.
RESTATEMENT OF PRIOR YEAR COMPARATIVES
During 2023 we were required to implement multiple actions to align our
production with reduced market demand. One of these actions was the
combination of our Cradley Special Brick business with our Red Bank terracotta
operation. Historically, Red Bank was included within Bespoke Products, with
Cradley consolidated into Bricks and Blocks. Management have determined that
the restructured combined 'Cradley Red Bank' business will operate from the
Red Bank site at Measham, and be included within the Bricks and Blocks
reporting segment. The full year 2023 results of both operations have been
included within the Bricks and Blocks segment and the prior year comparative
has been restated accordingly, with 2022 Bricks and Blocks revenues increasing
by £5.9m and adjusted EBITDA by £0.1m, with the opposite adjustment in
Bespoke Products.
FINANCE COSTS
Finance costs totalled £7.0m (2022: £2.1m). The significant increase in our
finance costs in the period was the result of a growth in borrowings driven by
lower earnings, a significant investment in inventory, and continued strategic
capital spend, coupled with an increase in borrowing costs driven by SONIA
which increased from 3.43% to 5.19% over the course of 2023. Under the terms
of the credit agreement, interest is payable according to a margin grid
dependent on leverage starting with a margin of SONIA plus 1.65% applicable
whilst leverage (net debt/adjusted EBITDA, pre IFRS 16) is less than 0.5
times, rising to a margin of 3.5% if leverage is greater than 3.5 times. A
commitment fee of 35% of the margin was payable on the undrawn credit
facility.
TAXATION
The effective tax rate (ETR) including adjusted items was 25.0% (2022: 19.3%)
and 24.5% excluding adjusted items (2022: 19.3%). The increase in the ETR is
mainly driven by the increase in the UK statutory rate of corporation tax to
23.5% (2022: 19.0%). The ETR is higher than the UK main rate of corporation
tax due to the permanent impact of non-deductible items such as depreciation
on non-qualifying assets. Profit before tax in 2023 was lower than that in
2022, therefore the impact of permanent non-deductible as a percentage of
profit is higher and has increased the ETR. The 2022 ETR was also more in line
with the statutory rate of corporation tax due to the permanent benefit of the
UK tax super deduction on qualifying plant and machinery expenditure as
announced in the 2021 Budget which ceased in March 2023.
EARNINGS PER SHARE (EPS)
Adjusted basic EPS was 11.4p (2022: 26.4p). Statutory basic EPS was 6.2p
(2022: 27.2p). EPS is calculated as the weighted average number of shares in
issue during the year (excluding those held by the Employee Benefit Trust
(EBT)) which in 2023 was 206.6m shares (2022: 216.2m).
CASH FLOW
Adjusted operating cash outflow totalled £5.3m compared to a cash inflow of
£89.0m in the prior year, with the decline due predominantly to a £31.1m
decrease in adjusted EBITDA and a significant working capital outflow driven
by an increase in inventory. Inventories increased by a total of £52.8m
primarily as a result of increases in the quantity of inventory on hand but
also due to an increase in valuation driven in part by the full year impact of
the cost inflation which impacted the cost of production through 2022. The
cash flows driven by movements in receivables and payables are primarily a
function of a reduction in activity, with lower sales and purchases reduced
with falling production. The new lease liabilities primarily relate to new
distribution vehicles as we regularly renew our fleet with efficient and
cleaner delivery vehicles.
Net payments to the Employee Benefit Trust (EBT) in the year totalled £1.0m
(2022: £11.8m). With the EBT well positioned to satisfy vesting awards under
the Group's employee benefit schemes, the number of shares purchased in 2023
fell significantly relative to 2022 and further shares are not currently being
purchased. As at the year end, the EBT held 5.5m shares with a market value of
£9.7m, with 3.3m of these shares likely to be used to satisfy vesting
Sharesave awards in the first half of 2024.
CASH FLOW
2023 2022
£m £m
Adjusted EBITDA 58.1 89.2
Purchase and settlement of carbon credits 3.1 (5.6)
Other cash flow items (4.1) 6.3
Changes in working capital
- Inventories (52.8) (10.2)
- Trade and other receivables 13.3 (5.2)
- Trade and other payables (22.9) 14.5
Adjusted operating cash flow (5.3) 89.0
Payments made in respect of adjusting items (5.9) -
Operating cash flow after adjusting items (11.2) 89.0
Interest paid (6.1) (2.4)
Tax paid (2.7) (11.0)
Capital expenditure
- Maintenance (14.8) (10.5)
- Strategic (19.3) (33.6)
Dividends paid (25.7) (24.2)
Net cash flow from sale and purchase of shares by Employee Benefit Trust (1.0) (11.8)
Payments made to acquire own shares - (40.3)
New lease liabilities (12.3) (6.8)
Other movements (0.7) 0.4
Proceeds from sale of property, plant and equipment 0.3 2.9
Increase in net debt (93.5) (48.3)
Debtor days 33 36
CAPITAL EXPENDITURE
Capital expenditure in the year totalled £34.1m (2022: £44.1m) with
strategic capital expenditure totalling £19.3m (2022: £33.6m) and
maintenance capital expenditure totalling £14.8m (2022: £10.5m).
Spend on the new Desford brick factory totalled £5.2m, bringing the total
cumulative project spend to £91.0m. There is a small amount of spend still to
incur in 2024 and we expect to complete the factory within the original £95m
budget. In addition, our 2023 maintenance capital spend includes £2.0m for
the installation of roof mounted solar panels which will generate around 16%
of the factory's electricity requirement going forward, providing cost
effective, transmission cost free, on-site renewable energy.
As Desford nears completion, the ongoing strategic projects comprising the
redevelopment of the Wilnecote brick factory and the construction of the slips
facility at Accrington will become the largest contributors to capital spend
in 2024. Although the project is running a little behind schedule as a result
of supplier delays, spend on Wilnecote during 2023 totalled £10.9m (2022:
£5.3m) bringing the total spend to £17.9m. The factory is due to recommence
production in the second half of 2024 and is expected to be delivered at a
total cost of £30m.
Spend to date on the slips facility at Accrington now totals £3.2m with the
facility expected to be completed within the £12m original budget and with
the first slips expected to be produced in Q3 2024.
Our capex spend in 2024 is expected to be £27m, with £21m of this related to
the completion of the strategic projects and £6m of maintenance capex which
is sufficient for current needs given the currently mothballed factories and
one off items in the 2023 comparative. We expect this capital outflow to be
weighted toward H1 as the strategic projects approach completion.
Maintenance capital spend totalled £14.8m (2022: £10.5m) and included
significant one-off items of £4.0m on renewing our HGV fleet and also £2.0m
in respect of the solar panels at Desford.
BORROWINGS AND FACILITIES
At 31 December 2023 net debt (before leases) was £93.2m (2022: £5.9m). Net
debt after adding lease liabilities of £24.2m (2022: £18.0m) was £117.4m
(2022: £23.9m). These leases primarily relate to plant and equipment, in
particular the fleet of heavy goods vehicles used to deliver our products to
our customers.
The Group's credit facility comprises a committed revolving credit facility
(RCF) of £170m extending to January 2027 with an option for an extension to
July 2028 subject to lender consent. At the year-end a total of £110m was
drawn on the facility. In addition, £9.5m of the facility was carved out to
provide a letter of credit related to the construction project at Accrington
leaving facility headroom of £50.5m. Of the £9.5m carved out of the
facility, the balance outstanding on the letter of credit at the year end was
approximately £6.5m. The obligations subject to the letter of credit are
expected to be discharged through 2024 allowing the element of the facility
required for letters of credit to be reduced if necessary.
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.
The facility is linked to our sustainability targets with the opportunity to
adjust 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, primarily as a
consequence of our response to market conditions and the subsequent changes to
our manufacturing footprint these targets were not achieved in 2023. Further
information is included in our Sustainability Report.
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;
• bolt-on acquisitions as suitable opportunities arise in adjacent
or complementary markets; and
• supplementary shareholder returns as appropriate.
During 2023 we returned cash in the form of dividends totalling £25.7m (2022:
£24.2m) to shareholders whilst spending total capital expenditure of £34.1m,
(2022: £44.1m) which includes spend of £19.3m (2022: £33.6m) on our
strategic projects at Desford, Wilnecote and Accrington.
This strategic investment, together with an investment of £52.8m in inventory
has driven an increase in our net debt before leases to £93.2m at the year
end. Our present capital allocation priority is to reduce this level of
leverage, and with our strategic capital projects nearing completion, we are
confident we will reduce our debt levels in 2025 even with only a modest
market recovery. In the meantime, we expect net debt at the end of 2024 to
be broadly in line with the 2023 figure although we do expect an increase in
net debt at the 2024 mid-year driven by the phasing of trading results and the
timing of capital payments.
Beyond the current strategic capital investment projects, we continue to work
on 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.
DIVIDEND
Our established dividend policy has been to distribute 55% of our adjusted
earnings. In light of current trading conditions and the Group's presently
elevated levels of indebtedness, the Board have considered the Group's
dividend policy and have elected to temporarily reduce the level of dividend
distribution. The Board is proposing to distribute 40% of adjusted earnings
for 2023 and accordingly is recommending a final dividend of 2.0p per share
(2022: 10.1p) which, in addition to the interim dividend of 2.4p per share
paid in October (2022: 4.6p), will bring the total dividend to 4.4p per share
(2022: 14.7p). Subject to approval by shareholders, the final dividend will be
paid on 5 July 2024 to shareholders on the register as at 14 June 2024.
The Board remain confident in the long-term prospects of the Group and in its
ability to benefit from the recent capacity investments as the market recovers
although retains a degree of caution in the short-term with borrowings
expected to peak in mid 2024 before reducing steadily thereafter. The Board
intends to keep its dividend policy under review and will look to return the
level of distribution to the previous 55% as soon as the market conditions
permit.
SUSTAINABILITY
Our carbon reduction journey should be seen as a marathon not a sprint
facilitated by investments in new, more efficient manufacturing capacity
coupled with ongoing research into emerging technologies.
We have clear targets including a 32% reduction in our carbon emissions
intensity (from a 2019 baseline) by the end of the decade. 2023 saw a
significant reduction in our absolute carbon emissions relative to the prior
year although this was primarily driven by a reduction in production and the
mothballing of factories, highlighting exactly why we focus on the output
adjusted measure of carbon emission intensity.
Whilst our total carbon emissions fell by 13% relative to the prior year as a
result of our reduced output, our carbon emission intensity did increase
marginally during 2023, partially as a consequence of our decision not to
"green" our grid supplied electricity as explained below, along with a
variation in product mix following the reductions in production but these
short-term fluctuations should not distract from our longer-term carbon
reduction targets.
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% 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 and raw material usage and embodied carbon relative to
traditional bricks.
2023 saw the commissioning of roof mounted solar panels at our new Desford
factory. At a cost of £2.5m they will generate around 16% of the factory's
electricity requirement at full production going forward. Our investment in
renewable energy extends beyond on-site solar panels. The 150-acre Forterra
solar farm, the construction of which was enabled by our 15-year Power
Purchase Agreement, will supply almost 70% of our Group electricity demand
assuming our business is operating at full production output and an even
higher percentage at current levels of output, and will begin supplying us in
the coming weeks.
The majority of our year-on-year increase in our carbon emission intensity is
driven by our decision not to "green" our grid supplied electricity by
purchasing Renewable Energy Guarantee of Origin (REGO) certificates. When we
first adopted this policy in 2020, the cost of these certificates was less
than £20,000, whereas in 2023 this cost would have increased to approximately
£1m. With the forthcoming commissioning of our solar farm and the recent
installation of our on-site solar generation at Desford, we determined that in
the current economic environment this additional spend would not have
represented the most appropriate use of capital. Going forward, our own
renewable energy generation, will substantially negate our need to purchase
REGOs and a decision will be taken as to whether to purchase any shortfall in
due course.
As we strive for a lower carbon future, we are committing more time and
resources to researching the innovative technologies that will ultimately help
us reach our goal of becoming a net zero business by 2050. Although we firmly
believe that through innovation, exploration and investment, we will take a
sector-leading approach to decarbonisation, we also recognise that there are
many challenges to overcome, and that not every initiative we pursue will
ultimately be successful. During 2023 we have continued to explore and
undertake trials with a range of alternative fuels including hydrogen,
synthetic gas and biomass. Alongside alternative fuels, we also expect carbon
capture technology to be crucial in our industry's pathway to a net-zero
future and we continue to partner with organisations who seek to develop these
technologies. We have also made progress with our initiative to create a
cement substitute from the calcined clay found in brick production waste and
we expect this to begin delivering cost and sustainability benefits in 2024.
HEALTH, SAFETY AND WELLBEING
The continuous improvement of our health and safety performance remains our
number one priority, working towards our goal of zero harm. We recognise that
our workforce is our greatest asset, and we aim to provide a working
environment that is free of accidents and ill health.
Our Lost Time Incident Frequency Rate (LTIFR) in 2023 showed an improvement,
running at 3.24 incidents for every million man hours worked, compared to 3.79
in 2022. Of the 29 separate business areas monitored, 20 were Lost Time
Incident (LTI) free during 2023, 7 have been LTI free for over five years and
three for over 10 years.
2024 is the final year of planned zero harm strategy that we set out in 2020,
our focus in this final year will be on visible felt leadership.
BOARD CHANGES
As previously reported, after 10 years in role and a total of 21 years with
the Company, Stephen Harrison stepped down as Chief Executive Officer in April
2023. Having led the carve out from our former parent, steered the Company on
to the public market and embarked on a strategy of organic investment with
Desford at its heart, Stephen has left a positive legacy.
The Board were delighted to appoint Neil Ash as Chief Executive Officer after
a short handover period. Neil has almost three decades' experience in the
building materials sector and brings an impressive track record of improving
performance and delivering growth at Etex, the Belgian lightweight building
materials manufacturer. Neil's extensive building materials sector knowledge
gained throughout previous economic cycles equips him to lead the Group
through the current challenging times and into the recovery phase as he joins
a business well placed to benefit from recent investments. He has certainly
hit the ground running.
We also welcomed Gina Jardine to the Board in April as an Independent
Non-Executive Director. Gina is an HR professional with extensive experience
gained within global building materials and mining companies.
Through her experience and significant knowledge, obtained in some of the
largest global corporates, Gina complements and adds to the existing skillset
of our Board, and has already offered valuable insight as we redefined our
values and continue upon our employee engagement journey. The Board is
committed to furthering diversity at all levels. Financial Conduct Authority
guidance is that at least 40% of the Board within FTSE 350 companies should be
female. Although not currently within the FTSE 350, our Board composition is
presently 38% female. In addition, the Senior Independent Director is female
and one member of the Board is from a non-white ethnic minority background.
Notwithstanding the foregoing, I believe that the skills, knowledge,
experience, educational background and upbringing of the individual members of
this Board bring a diverse contribution to the debate and discussion around
the Board table.
CORPORATE CULTURE
The Board is aware of its responsibility to foster a corporate culture based
upon strong leadership and transparency, ensuring we do business responsibly,
adhering to the highest ethical standards, whilst minimising the impact our
business has on the environment.
As noted earlier, we have recently revised and relaunched our corporate values
being the principles of behaviour that will allow us to achieve our strategic
goals. These are defined as follows and have been rolled out to all employees
in early 2024:
• Innovate to lead: We're empowered to continuously improve
• Pride in excellence: We relish achievement and success
• Collaborate and care: We work in partnership and look after each
other
Our purpose is to manufacture and supply building products used to construct
homes and other structures, helping to create lasting legacies in the form of
communities that will exist for centuries to come.
Health and safety remains our number one priority and the Board is determined
to lead by example in ensuring that everyone in our business is under no doubt
as to our commitment to zero harm. To this end, the Board continued to ensure
it remains highly visible in the business, with each Director completing two
factory health and safety walks in addition to full Board visits to four of
our factories during the year.
OUTLOOK
The outlook for our industry remains subject to considerable uncertainty and,
with a general election expected in 2024, demand is anticipated to remain
subdued in the near term. Trading conditions at the beginning of 2024
continued to be challenging with DBT figures suggesting that UK industry brick
despatches in January were 5% behind of the 2023 comparative with our own
despatches in February slightly ahead of the prior year comparative.
We continue to expect demand through 2024 to be broadly aligned to that seen
in 2023 although unusually wet weather in the first two months of the year
makes underlying demand more difficult to gauge.
We take some encouragement from recent trading updates from our housebuilding
customers reporting greater levels of customer activity in recent months with
a downward trend in mortgage interest rates through 2024 expected to improve
the affordability of new homes, hopefully increasing demand for our products.
With the long-term under-supply of housing in the UK continuing to worsen, and
with our previous capacity constraints now addressed, the Board remains
confident in the Group's ability to benefit significantly as our key markets
recover. The Board's expectations for 2024 remain unchanged with the Group's
performance expected to be H2 weighted with this being driven by cost base and
efficiency rather than demand.
GOING CONCERN
The Group's debt facility comprises a committed revolving credit facility
(RCF) of £170m extending to January 2027 with an option for an extension to
July 2028 subject to lender consent. At the balance sheet date, the cash
balance stood at £16.0m and after allowing for £9.5m of the facility which
is currently carved out to be used for the provision of letters of credit, an
undrawn balance of £50.5m was available against the Group's facility, with
reported net debt before leases of £93.2m (2022: £5.9m) (net debt is
presented inclusive of capitalised arrangement fees).
The Group meets its working capital requirements through these cash reserves
and facilities and closely manages working capital to ensure sufficient daily
liquidity and prepares financial forecasts under various scenarios to ensure
sufficient liquidity over the medium-term.
The facility is normally subject to covenant restrictions of leverage (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 Group has traded comfortably within these covenants throughout 2023 and
whilst it anticipates remaining within these covenants during 2024, given the
combination of the Group's reduced EBITDA and increased net debt, driven by
inventory build, capital outflows and higher interest rates, amended covenants
have been agreed with the Group's lenders to provide additional headroom in
the short-term. Accordingly, the Group's leverage covenant has increased to
four times at June 2024 and 3.75 times at December 2024 with interest cover
decreasing to three times at December 2024. In addition, quarterly covenant
testing has been introduced for the period of the covenant relaxation. As
such, for 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 3 times. The covenants return to normal levels from June 2025 with testing
reverting to half yearly.
Management has modelled three financial scenarios for the period to 30 June
2025, comprising a base case and two plausible downside scenarios, reflecting
both macroeconomic and industry-specific projections. In addition to this, a
reverse stress test has also been modelled.
Assumptions underpinning these scenarios are outlined as follows:
· The base case scenario is aligned to our current demand
expectations with short-term market conditions remaining challenging and
demand in 2024 being broadly consistent with that seen in 2023;
· 2023 was characterised by a large growth in inventory and the
management actions taken in 2023 will address this such that in 2024
production will be more closely aligned to sales;
· Capex outflows on the Group's three strategic investments will be
almost complete during 2024, with capital spend significantly reduced
thereafter until a recovery in market conditions facilitates a reduction in
the Group's net debt; and
· The Group's plausible downside scenarios take into account the
current levels of market demand which are already approximately 30% below the
levels last seen in 2022, meaning current industry demand is presently in line
with levels last seen in the global financial crisis. As such, it is not
considered plausible that demand could fall further than within the
assumptions within the scenarios laid out below.
Scenario Sales volume assumptions Management mitigations
Base Volumes reducing by 24-36% in 2024 relative to 2022, recovering in 2025 but None necessary
remaining 20-27% below 2022
Plausible downside Volumes reducing by 29-40% in 2024 relative to 2022, recovering in 2025 but None necessary
remaining 25-37% below 2022
Plausible downside with management mitigations Volumes reducing by 29-43% in 2024 relative to 2022, recovering in 2025 but A number of controllable management mitigations assumed
remaining 24-37% below 2022
Under each of the above scenarios, there is no breach in covenants throughout
2024 and in the period up to June 2025. In addition to this, the Group has
prepared a reverse stress test to determine the level of market decline that
could potentially breach covenants, before further mitigating actions are
taken. The reverse stress test indicated, that should volumes fall by between
36% and 46% (product line dependent) versus those seen in 2022, the Group
would be at risk of breaching its covenants. This is viewed by the Board to be
a highly unlikely scenario, taking into consideration encouraging recent
trading updates from housebuilding customers which report greater levels of
customer activity in recent months, with a downward trend in mortgage interest
rates throughout 2024 expected to increase affordability of new homes.
Alongside this, the continuing under-supply of housing in the UK continues to
worsen, and the Board are confident in the Group's ability to benefit
significantly as markets recover and strategic investments generate returns.
Additionally, in the event of the volumes falling in line with those modelled
in the reverse stress test, the Group would seek to enact further mitigating
actions including additional cost savings, production reductions, curtailment
in the quantum of dividend distribution and the sale of land and buildings.
Taking the above into consideration, alongside trading performance for the
first two months of 2024 which has seen subdued levels in line with 2023
volumes, the Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the going concern
period to 30 June 2025. The Group therefore adopts the going concern basis in
preparing this consolidated financial information.
FORWARD LOOKING STATEMENTS
Certain statements in this announcement 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 have been 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.
DIRECTORS' RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
1. the Consolidated Financial Statements of the Group, which have been
prepared in accordance with UK-adopted international accounting standards in
conformity with the requirements of the Companies Act 2006 give a true and
fair view of the assets, liabilities, financial position and profit of the
Group; and
2. the announcement includes a fair review of the development and
performance of the business and the position of the Group, together with a
description of the principal risks and uncertainties that it faces.
Neil Ash Ben Guyatt
Chief Executive Officer Chief Financial Officer
25 March 2024
CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2023
Note 2023 2022
£m £m
Revenue 346.4 455.5
Cost of sales (245.7) (292.9)
Gross profit 100.7 162.6
Distribution costs (48.6) (57.7)
Administrative expenses (28.5) (33.6)
Other operating income 0.5 3.7
Operating profit 24.1 75.0
EBITDA before exceptional items 58.1 89.2
Exceptional items 4 (14.0) 2.3
EBITDA 44.1 91.5
Depreciation and amortisation (20.0) (16.5)
Operating profit 24.1 75.0
Finance expense 5 (7.0) (2.1)
Profit before tax 17.1 72.9
Income tax expense 6 (4.3) (14.1)
Profit for the financial period attributable to equity shareholders 12.8 58.8
Other comprehensive (loss)/income
Effective portion of changes of cash flow hedges (net of tax impact) (0.7) 0.8
Total comprehensive income for the period attributable to equity shareholders 12.1 59.6
Earnings per share Pence Pence
Basic (in pence) 8 6.2 27.2
Diluted (in pence) 8 6.2 26.8
FORTERRA PLC CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2023
Note 2023 2022
£m £m
Non-current assets
Intangible assets 19.2 23.6
Property, plant and equipment 249.7 233.7
Right-of-use assets 24.1 18.1
Derivative financial assets 5.0 -
298.0 275.4
Current assets
Inventories 95.8 43.0
Trade and other receivables 31.0 44.3
Income tax asset 2.3 -
Cash and cash equivalents 16.0 34.3
Derivative financial assets 1.6 0.6
146.7 122.2
Total assets 444.7 397.6
Current liabilities
Trade and other payables (66.3) (89.6)
Loans and borrowings 9 (0.4) (0.2)
Lease liabilities (5.7) (4.7)
Provisions for other liabilities and charges (15.7) (14.3)
Derivative financial liabilities (5.8) -
(93.9) (108.8)
Non-current liabilities
Loans and borrowings 9 (108.8) (40.0)
Lease liabilities (18.5) (13.3)
Provisions for other liabilities and charges (9.4) (10.0)
Deferred tax liabilities (6.3) (5.0)
(143.0) (68.3)
Total liabilities (236.9) (177.1)
Net assets 207.8 220.5
Capital and reserves attributable to equity shareholders
Ordinary shares 2.1 2.1
Retained earnings 219.8 233.4
Cash flow hedge reserve (0.1) 0.6
Reserve for own shares (14.2) (15.8)
Capital redemption reserve 0.2 0.2
Total equity 207.8 220.5
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2023
Note 2023 2022
£m £m
Cash (used in)/generated from operations 10 (11.2) 89.0
Interest paid (6.1) (2.4)
Tax paid (2.7) (11.0)
Net cash (outflow)/inflow from operating activities (20.0) 75.6
Cash flows from investing activities
Purchase of property, plant and equipment (33.0) (42.1)
Purchase of intangible assets (1.1) (2.0)
Proceeds from sale of property, plant and equipment 0.3 0.4
Exceptional proceeds from sale of property, plant and equipment - 2.5
Net cash used in investing activities (33.8) (41.2)
Cash flows from financing activities
Repayment of lease liabilities (5.9) (5.3)
Dividends paid 7 (25.7) (24.2)
Drawdown of borrowings 137.0 40.0
Repayment of borrowings (67.0) -
Purchase of shares by Employee Benefit Trust (2.1) (12.2)
Proceeds from sales of shares by Employee Benefit Trust 1.1 0.4
Payments made to acquire own shares - (40.3)
Financing fees (1.9) -
Net cash generated from/(used in) financing activities 35.5 (41.6)
Net decrease in cash and cash equivalents (18.3) (7.2)
Cash and cash equivalents at the beginning of the period 34.3 41.5
Cash and cash equivalents at the end of the period 16.0 34.3
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2023
Note Ordinary shares Capital redemption reserve Reserve for own shares Cash flow hedge reserve Other reserve Retained earnings Total
£m £m £m £m £m £m equity
£m
Balance at 1 January 2022 2.3 - (4.6) (0.2) 23.9 213.4 234.8
Profit for the year - - - - - 58.8 58.8
Other comprehensive income - - - 0.8 - - 0.8
Total comprehensive income for the year - - - 0.8 - 58.8 59.6
Dividends paid 7 - - - - - (24.2) (24.2)
Movement in other reserves - - - - (23.9) 23.9 -
Purchase of shares by Employee Benefit Trust - - (12.2) - - - (12.2)
Proceeds from sale of shares by Employee Benefit Trust - - 0.4 - - - 0.4
Payments made to acquire own shares (0.2) 0.2 - - - (40.3) (40.3)
Share-based payments charge - - - - - 3.4 3.4
Share-based payments exercised - - 0.6 - - (0.6) -
Tax on share-based payments - - - - - (1.0) (1.0)
Balance at 31 December 2022 2.1 0.2 (15.8) 0.6 - 233.4 220.5
Note Ordinary shares Capital redemption reserve Reserve for own shares Cash flow hedge reserve Other reserve Retained earnings Total equity
£m
£m
£m
£m
£m
£m
£m
Balance at 1 January 2023 2.1 0.2 (15.8) 0.6 - 233.4 220.5
Profit for the 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 7 - - - - - (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
1. General information
Forterra plc (Forterra or the Company) and its subsidiaries (together referred
to as the Group) are domiciled in the United Kingdom. The address of the
registered office of the Company and its subsidiaries is 5 Grange Park Court,
Roman Way, Northampton, NN4 5EA. The Company is the parent of Forterra
Holdings Limited and Forterra Building Products Limited, which together
comprise 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.
Forterra plc was incorporated on 21 January 2016 for the purpose of listing
the Group on the London Stock Exchange. Forterra plc acquired the shares of
Forterra Building Products Limited on 20 April 2016, which to that date held
the Group's trade and assets, before admission to the main market of the
London Stock Exchange.
2. Basis of preparation
The consolidated financial information for the year ended 31 December 2023 has
been extracted from the audited consolidated financial statements, which were
approved by the Board of Directors on 25 March 2024. The audited consolidated
financial statements have not yet been delivered to the Registrar of Companies
but are expected to be published in April 2024. The auditors have reported on
those accounts; their report was unqualified and did not contain statements
under s498(2) or (3) of the Companies Act 2006.
The consolidated financial information has been prepared in accordance with
UK-adopted international accounting standards. Whilst the financial
information included in this announcement has been prepared in accordance with
IFRS, this announcement does not itself contain sufficient information to
comply with IFRS. This consolidated financial information constitutes a
dissemination announcement in accordance with Section 6.3 of the Disclosures
and Transparency Rules (DTR).
The financial information set out in this announcement does not constitute the
statutory accounts for the Group within the meaning of Sections 434 to 436 of
the Companies Act 2006 and is an abridged version of the consolidated
financial statements for the year ending 31 December 2023. Copies of the
Annual Report for the year ended 31 December 2023 will be mailed to those
shareholders who have opted to receive them by the end of April 2024 and will
be available from the Company's registered office at Forterra plc, 5 Grange
Park Court, Northampton and the Company's website (http://forterraplc.co.uk/)
after that date.
The consolidated financial information is presented in pounds sterling and all
values are rounded to the nearest hundred thousand unless otherwise indicated.
Going concern
The Group's debt facility comprises a committed revolving credit facility
(RCF) of £170m extending to January 2027 with an option for an extension to
July 2028 subject to lender consent. At the balance sheet date, the cash
balance stood at £16.0m and after allowing for £9.5m of the facility which
is currently carved out to be used for the provision of letters of credit, an
undrawn balance of £50.5m was available against the Group's facility, with
reported net debt before leases of £93.2m (2022: £5.9m) (net debt is
presented inclusive of capitalised arrangement fees).
The Group meets its working capital requirements through these cash reserves
and facilities and closely manages working capital to ensure sufficient daily
liquidity and prepares financial forecasts under various scenarios to ensure
sufficient liquidity over the medium-term.
The facility is normally subject to covenant restrictions of leverage (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 Group has traded comfortably within these covenants throughout 2023 and
whilst it anticipates remaining within these covenants during 2024, given the
combination of the Group's reduced EBITDA and increased net debt, driven by
inventory build, capital outflows and higher interest rates, amended covenants
have been agreed with the Group's lenders to provide additional headroom in
the short-term. Accordingly, the Group's leverage covenant has increased to
four times at June 2024 and 3.75 times at December 2024 with interest cover
decreasing to three times at December 2024. In addition, quarterly covenant
testing has been introduced for the period of the covenant relaxation. As
such, for 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 3 times. The covenants return to normal levels from June 2025 with testing
reverting to half yearly.
Management has modelled three financial scenarios for the period to 30 June
2025, comprising a base case and two plausible downside scenarios, reflecting
both macroeconomic and industry-specific projections. In addition to this, a
reverse stress test has also been modelled.
Assumptions underpinning these scenarios are outlined as follows:
· The base case scenario is aligned to our current demand
expectations with short-term market conditions remaining challenging and
demand in 2024 being broadly consistent with that seen in 2023;
· 2023 was characterised by a large growth in inventory and the
management actions taken in 2023 will address this such that in 2024
production will be more closely aligned to sales;
· Capex outflows on the Group's three strategic investments will be
almost complete during 2024, with capital spend significantly reduced
thereafter until a recovery in market conditions facilitates a reduction in
the Group's net debt; and
· The Group's plausible downside scenarios take into account the
current levels of market demand which are already approximately 30% below the
normalised levels last seen in 2022, meaning current industry demand is
presently in line with levels last seen in the global financial crisis. As
such, it is not considered plausible that demand could fall further than
within the assumptions within the scenarios laid out below.
Scenario Sales volume assumptions Management mitigations
Base Volumes reducing by 24-36% in 2024 relative to 2022, recovering in 2025 but None necessary
remaining 20-27% below 2022
Plausible downside Volumes reducing by 29-40% in 2024 relative to 2022, recovering in 2025 but None necessary
remaining 25-37% below 2022
Plausible downside with management mitigations Volumes reducing by 29-43% in 2024 relative to 2022, recovering in 2025 but A number of controllable management mitigations assumed
remaining 24-37% below 2022
Under each of the above scenarios, there is no breach in covenants throughout
2024 and in the period up to June 2025. In addition to this, the Group has
prepared a reverse stress test to determine the level of market decline that
could potentially breach covenants, before further mitigating actions are
taken. The reverse stress test indicated, that should volumes fall by between
36% and 46% (product line dependent) versus those seen in 2022, the Group
would be at risk of breaching its covenants. This is viewed by the Board to be
a highly unlikely scenario, taking into consideration encouraging recent
trading updates from housebuilding customers which report greater levels of
customer activity in recent months, with a downward trend in mortgage interest
rates throughout 2024 expected to increase affordability of new homes.
Alongside this, the continuing under-supply of housing in the UK continues to
worsen, and the Board are confident in the Group's ability to benefit
significantly as markets recover and strategic investments generate returns.
Additionally, in the event of the volumes falling in line with those modelled
in the reverse stress test, the Group would seek to enact further mitigating
actions including additional cost savings, production reductions, curtailment
in the quantum of dividend distribution and the sale of land and buildings.
Taking the above into consideration, alongside trading performance for the
first two months of 2024 which has seen subdued levels in line with 2023
volumes, the Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the going concern
period to 30 June 2025. The Group therefore adopts the going concern basis in
preparing this consolidated financial information.
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 and internally assessed by management and the Board.
· Profit related APM's
Management and the Board use several profit related APMs in assessing Group
performance and profitability. Those being adjusted EBITDA, 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 incurred as a
result of market decline to meet this definition. Exceptional items are
further detailed in note 4.
(II) Adjusting items
Adjusting items are disclosed separately in the Annual Report and Accounts
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 recognised within the Statement of Total
Comprehensive Income for the sale of excess energy volumes in 2023, where
committed volume exceeded actual consumption by the Group £(0.8)m; and
· the fair value of forward energy contracts held where committed
future volume is expected by management, as at 31 December 2023, to exceed
total consumption by the Group. For these future contracts, the Group can no
longer apply the own use exemption under IFRS 9 and instead recognise these as
derivatives held at fair value on the balance sheet at 31 December 2023. The
fair value gain of £0.8m, recognised in the Statement of Total Comprehensive
Income, has been presented as an adjusting item for the year ended 31 December
2023.
For reporting purposes, 'adjusted results' are those presented before both
adjusting and exceptional items. A full reconciliation 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.
Group: Revenue, EBITDA, EBITDA margin, operating profit, profit before tax
Adjusted Exceptional items Adjusting items Adjusting items Statutory
£m £m £m £m £m
2023 Restructuring and impairment costs Realised loss on sale of surplus energy Fair value of energy contract derivatives
Revenue 346.4 - - - 346.4
EBITDA 58.1 (14.0) (0.8) 0.8 44.1
EBITDA margin % 16.8% - - - 12.7%
Operating profit (EBIT) 38.1 (14.0) (0.8) 0.8 24.1
Profit before tax 31.1 (14.0) (0.8) 0.8 17.1
Adjusted Exceptional items Statutory
£m £m £m
2022 Sale of disused land
Revenue 455.5 - 455.5
EBITDA 89.2 2.3 91.5
EBITDA margin % 19.6% - 20.1%
Operating profit (EBIT) 72.7 2.3 75.0
Profit before tax 70.6 2.3 72.9
Segmental: Revenue, EBITDA, EBITDA margin
Bricks and Blocks
Adjusted Exceptional items Adjusting items Adjusting items Statutory
£m £m £m £m £m
2023 Restructuring and impairment costs Realised loss on sale of surplus energy Fair value of energy contract derivatives
Revenue 277.4 - - - 277.4
EBITDA 52.1 (13.7) (0.8) 0.8 38.4
EBITDA margin % 18.8% - - - 13.8%
Restated(1)
Adjusted Exceptional items Statutory
£m £m £m
2022 Sale of disused land
Revenue 376.1 - 376.1
EBITDA 85.6 2.3 87.9
EBITDA margin % 22.8% - 23.4%
1.Restated to report Red Bank results within the Bricks and Blocks segment as
a result of internal restructure. Further details are contained within note 3.
Bespoke Products
Adjusted Exceptional items Adjusting items Adjusting Items Statutory
£m £m £m £m £m
2023 Restructuring and impairment costs Realised loss on sale of surplus energy Fair value of energy contract derivatives
Revenue 72.7 - - - 72.7
EBITDA 6.0 (0.3) - - 5.7
EBITDA margin % 8.3% - - - 7.8%
The Bespoke Products segment did not contain exceptional or adjusting items in
2022.
Reconciliation of adjusted operating cash flow to statutory operating cash
flow:
Adjusted Adjusting items Before exceptional items Exceptional items Statutory
£m £m £m £m £m
EBITDA 58.1 - 58.1 (14.0) 44.1
Impairment of property, plant and equipment - - - 5.0 5.0
Purchase and settlement of carbon credits 3.1 - 3.1 - 3.1
Other cash flow items(1) (4.1) (0.8) (4.9) 3.9 (1.0)
Changes in working capital
- Inventories (52.8) - (52.8) - (52.8)
- Trade and other receivables 13.3 - 13.3 - 13.3
- Trade and other payables (22.9) - (22.9) - (22.9)
Operating cash flow (5.3) (0.8) (6.1) (5.1) (11.2)
1. For reconciliation purposes, 'Other cash flow items' is reported as the sum
of: loss/(profit) on disposal of property, plant and equipment and leases,
movement on provisions, share-based payments and other cash items as are
detailed within note 10.
Other APM's
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.
Operating cash conversion: Operating cash conversion is calculated as
operating cash flow before exceptional items, less capital expenditure
(excluding spend on strategic projects), divided by adjusted operating profit.
3. Segmental reporting
Management has determined the operating segments based on the management
reports reviewed by the Executive Committee 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; and
· 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
processes, suppliers, customers and distribution methods.
In 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 have been
restated to reflect this change comparatively across periods.
The Bespoke Products range includes precast concrete (marketed under the
'Bison Precast' brand), chimney and roofing solutions, each of which are
typically made-to-measure or customised to meet the customer's specific needs.
The precast concrete products are complemented by the Group's full design and
nationwide installation services.
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 Consolidated Statement of Total Comprehensive
Income 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 complementary building products.
Substantially all revenue recognised in the Consolidated Statement of Total
Comprehensive Income arose within the UK.
Segmental revenue and results
Restated(1)
2023 2022
Note Bricks and Blocks Bespoke Products Total Bricks and Blocks Bespoke Products Total
£m £m £m £m £m £m
Segment revenue 277.4 72.7 350.1 376.1 84.2 460.3
Inter-segment eliminations (3.7) (4.8)
Revenue 346.4 455.5
EBITDA before exceptional items 52.1 6.0 58.1 85.6 3.6 89.2
Depreciation and amortisation (18.6) (1.4) (20.0) (15.1) (1.4) (16.5)
Operating profit before exceptional items 33.5 4.6 38.1 70.5 2.2 72.7
Exceptional items 4 (13.7) (0.3) (14.0) 2.3 - 2.3
Operating profit 19.8 4.3 24.1 72.8 2.2 75.0
Finance expense 5 (7.0) (2.1)
Profit before tax 17.1 72.9
1. Restated to report Red Bank results within the Bricks and Blocks segment as
a result of internal restructure. Further details are contained within note 3.
Segmental assets
Restated(1)
2023 2022
Bricks and Blocks Bespoke Products Total Bricks and Blocks Bespoke Products Total
£m £m £m £m £m £m
Intangible assets 16.8 2.4 19.2 21.7 1.9 23.6
Property, plant and equipment 240.8 8.9 249.7 224.7 9.0 233.7
Right-of-use assets 22.9 1.2 24.1 17.6 0.5 18.1
Inventories 92.1 3.7 95.8 37.6 5.4 43
Segment assets 372.6 16.2 388.8 301.6 16.8 318.4
Unallocated assets 55.9 79.2
Total assets 444.7 397.6
1. Restated to report Red Bank results within the Bricks and Blocks segment as
a result of internal restructure. Further details are contained within note 3.
Property, plant and equipment, intangible assets, 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
Restated(1)
2023 2022
Bricks and Blocks Bespoke Products Total Bricks and Blocks Bespoke Products Total
£m £m £m £m £m £m
Intangible asset additions 5.3 0.8 6.1 11.4 1.1 12.5
Property, plant and equipment additions 32.6 0.9 33.5 40.3 1.1 41.4
Right-of-use asset additions 11.2 1.1 12.3 6.6 0.2 6.8
1. Restated to report Red Bank results within the Bricks and Blocks segment as
a result of internal restructure. Further details are contained within note 3.
Customers representing 10% or greater of revenues
Restated(1)
2023 2022
Bricks and Blocks Bespoke Products Total Bricks and Blocks Bespoke Products Total
£m £m £m £m £m £m
Customer A 40.1 0.2 40.3 50.0 1.5 51.5
Customer B - - - 43.8 1.0 44.8
1. Restated to report Red Bank results within the Bricks and Blocks segment as
a result of internal restructure. Further details are contained within note 3.
4. Exceptional items
2023 2022
£m
£m
Sale of disused land - 2.3
Restructuring costs (9.0) -
Impairment of plant and equipment (5.0) -
(14.0) 2.3
2023 Exceptional items
Exceptional items in 2023 relate to costs associated with the restructuring of
our operations. Restructuring activities were undertaken to reduce output in
response to the decline in demand for our products. Cash restructuring costs
totalled £9.0m, of which £8.8m related to redundancies and terminations made
across the Group. In addition to this, non-cash impairment losses of £5.0m
have been recognised in respect of the carrying value of plant and equipment
at the Howley Park and Claughton brick factories which were mothballed in the
year.
Impairment of tangible assets
Any impairment of tangible assets is determined in line with Group accounting
policies. In the current year, following restructuring actions taken by the
Group and the mothballing of both sites, plant and machinery associated with
the Howley Park Brick factory CGU and the Claughton brick factory CGU, which
both sit within the Bricks and Blocks reportable segment, has been impaired.
The plant and machinery at both sites has been fully written down as it is not
expected to generate cash flows in the medium-term or have a material and
readily realisable market value. In total £0.9m was impaired at Howley Park
and £4.1m at Claughton. Following the decision to mothball the factories, the
associated land and buildings are not being utilised in generating cash flows
and management have estimated, supported by management experts and through
undertaking 'Red Book' assessments, fair value less costs to sell for both
sites. The fair value less costs to sell are estimated to be above the
carrying values held at 31 December 2023 and the Group has therefore not
recognised any impairment of land and buildings in the year. At 31 December
2023 the property, plant and equipment of these mothballed factories held
carrying values of £4.5m in relation to Howley Park and £0.5m in relation to
Claughton.
2022 Exceptional items
In March 2022 the Group completed the sale of an area of disused land for
total proceeds of £2.5m. Taking into account asset net book values and
associated costs of sale, profit on disposal totalled £2.3m.
Presentation of exceptional items
Cost of sales Distribution costs Administrative expenses Other operating income Total
£m £m £m £m £m
2023
Restructuring costs (7.0) (1.6) (0.4) - (9.0)
Impairment of plant and equipment (5.0) - - - (5.0)
(12.0) (1.6) (0.4) - (14.0)
2022
Sale of disused land - - - 2.3 2.3
Tax on exceptional items
The restructuring costs incurred in the year including redundancies, legal
costs and onerous leases were tax deductible. The asset impairment of plant
and machinery is not deductible against corporation tax however it reduces the
deferred tax liability on qualifying plant and machinery.
5. Finance expense
2023 2022
£m
£m
Interest payable on loans and borrowings 5.7 1.6
Interest payable on lease liabilities 0.7 0.4
Other finance expense - 0.1
Amortisation of capitalised financing costs 0.6 -
7.0 2.1
6. Taxation
2023 2022
£m
£m
Current tax
UK corporation tax on profit for the year 3.5 12.3
Prior year adjustment on UK corporation tax (0.7) 0.5
Total current tax 2.8 12.8
Deferred tax
Origination and reversal of temporary differences 0.9 1.3
Effect of change in tax rates 0.1 0.3
Effect of prior period adjustments 0.5 (0.3)
Total deferred tax 1.5 1.3
Income tax expense 4.3 14.1
2023 2022
£m
£m
Current tax
Profit before taxation 17.1 72.9
Expected tax charge 4.0 13.9
Expenses not deductible for tax purposes 0.4 (0.3)
Effect of prior period adjustments (0.1) 0.2
Effect of change on deferred tax rate - 0.3
Income tax expense 4.3 14.1
The expected tax charge is calculated using the statutory tax rate of 23.5%
(2022: 19%) for current tax. Deferred tax is calculated at the rate at which
the provision is expected to reverse. The UK main rate of corporation tax
increased to 25% on 1 April 2023. There has been no change in the Finance
Bill 2023.
7. Dividends
2023 2022
£m
£m
Amounts recognised as distributions to equity holders in the year
Interim dividend of 2.4p per share (2022: 4.6p) 4.9 9.6
Final dividend of 10.1p per share in respect of prior year (2022: 6.7p) 20.8 14.6
25.7 24.2
The Directors are proposing a final dividend for 2023 of 2.0p per share,
making a total payment for the year of 4.4p (2022: 14.7p). This is subject to
approval by the shareholders at the AGM and has not been included as a
liability in this consolidated financial information.
8. Earnings per share
The calculation of earnings per Ordinary Share is based on profit or loss
after tax and the weighted average number of Ordinary Shares in issue during
the year. Adjusted earnings per share is presented as an alternative
performance measure to provide an additional year-on-year comparison. A
reconciliation between adjusted and statutory results is presented within note
2.
For diluted earnings per share, the weighted average number of Ordinary Shares
in issue is adjusted to assume conversion of all dilutive potential Ordinary
Shares. The Group has four types of dilutive potential Ordinary Shares: those
share options granted to employees under the Sharesave scheme; unvested shares
granted under the Deferred Annual Bonus Plan; unvested shares granted under
the Share Incentive Plan; and unvested shares within the Performance Share
Plan that have met the relevant performance conditions at the end of the
reporting period. If, for any of the above schemes, the average share price
for the year is greater than the option price, these shares become
anti-dilutive and are excluded from the calculation.
Adjusted Statutory
Note 2023 2022 2023 2022
£m £m £m £m
Operating profit for the year 38.1 72.7 24.1 75.0
Finance expense 5 (7.0) (2.1) (7.0) (2.1)
Profit before taxation 31.1 70.6 17.1 72.9
Income tax expense 6 (7.6) (13.6) (4.3) (14.1)
23.5 57.0 12.8 58.8
Weighted average number of shares (millions) 206.6 216.2 206.6 216.2
Effect of share incentive awards and options (millions) 1.4 3.2 1.4 3.2
Diluted weighted average number of shares (millions) 208.0 219.4 208.0 219.4
Earnings per share Pence Pence Pence Pence
Basic (in pence) 11.4 26.4 6.2 27.2
Diluted (in pence) 11.3 26.0 6.2 26.8
Adjusted earnings per share is presented as an APM and is calculated by
excluding both exceptional and adjusting items as detailed within note 2 to
this consolidated financial information. The associated adjusted tax charge is
calculated using the rate excluding these exceptional and adjusting items of
24.5% (2022: 19.3%).
9. Loans and borrowings
2023 2022
£m
£m
Current loans and borrowings:
Interest 0.4 0.2
Non-current loans and borrowings:
Capitalised financing costs (1.2) -
Revolving credit facility 110.0 40.0
109.2 40.2
In the prior period and until January 2023, the Group operated under a £170m
revolving credit facility which was committed until 1 July 2025. The interest
rate under this facility was calculated based on SONIA plus a margin with a
credit spread adjustment.
In January 2023 the Group completed a refinancing of these existing banking
facilities. The facility remains at £170m until January 2027 with an
extension option, subject to bank approval, extending the facility to June
2028. The interest rate 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. There has also been a change to the lenders with Santander being
replaced by Sabadell and Virgin Money (Clydesdale Bank plc).
Debt issue costs incurred in relation to the refinancing, being £1.8m in
total, were capitalised at the date of refinancing and are being amortised
over the period of the facility.
The facility remains secured by fixed charges over the shares of Forterra
Building Products Limited and Forterra Holdings Limited.
10. Notes to the Consolidated Statement of Cash Flows
Note 2023 2022
£m £m
Cash flows from operating activities
Profit before tax 17.1 72.9
Finance expense 5 7.0 2.1
Exceptional items 4 14.0 (2.3)
Operating profit before exceptional items 38.1 72.7
Adjustments for:
Depreciation and amortisation 20.0 16.5
Loss/(profit) on disposal of property, plant and equipment and leases 0.2 (0.4)
Movement in provisions (3.7) 4.1
Purchase of carbon credits (5.2) (10.3)
Settlement of carbon credits 8.3 4.7
Share-based payments 0.9 3.4
Other non-cash items (2.3) (0.8)
Changes in working capital:
Inventories (52.8) (10.2)
Trade and other receivables 13.3 (5.2)
Trade and other payables (22.9) 14.5
Cash (used in)/generated from operations before exceptional items (6.1) 89.0
Cash flows relating to operating exceptional items (5.1) -
Cash (used in)/generated from operations (11.2) 89.0
11. Net debt
2023 2022
£m £m
Cash and cash equivalents 16.0 34.3
Loans and borrowings (109.2) (40.2)
Lease liabilities (24.2) (18.0)
Net debt (117.4) (23.9)
Reconciliation of net cash flow to net debt
Note 2023 2022
£m £m
Cash flow (used in) / generated from operations before exceptional items (6.1) 89.0
Payments made in respect of exceptional items (5.1) -
Cash flow (used in) / generated from operations after exceptional items (11.2) 89.0
Interest paid (6.1) (2.4)
Tax paid (2.7) (11.0)
Net cash outflow from investing activities (33.8) (41.2)
Dividends paid 7 (25.7) (24.2)
Purchase of shares by Employee Benefit Trust (2.1) (12.2)
Proceeds from sale of shares by Employee Benefit Trust 1.1 0.4
New lease liabilities (12.3) (6.8)
Payments made to acquire own shares - (40.3)
Other financing movement (0.7) 0.4
Increase in net debt (93.5) (48.3)
Net debt at the start of the period (23.9) 24.4
Net debt at the end of the period (117.4) (23.9)
12. Related party transactions
Transactions with key management personnel
Key management personnel are those persons having authority and responsibility
for planning, directing and controlling the activities of the Group. The
Directors of the Company and the Directors of the Group's subsidiary companies
fall within this category.
2023 2022
£m £m
Emoluments including taxable benefits 2.8 3.4
Share-based payments 0.4 1.4
Pension and other post-employment benefits 0.2 0.2
3.4 5.0
Information relating to Directors' emoluments, pension entitlements, share
options and long-term incentive plans appear in the Annual Report on
Remuneration within the Annual Report and Accounts to be published in April
2024.
13. Post balance sheet events
With the exception of the covenant relaxations outlined within note 9, there
are no events which have occurred since the balance sheet date that would
merit separate disclosure.
RISK MANAGEMENT AND KEY RISKS
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.
In a year where we have experienced a macro-economic shock, impacting demand
with high inflation and the associated increases to interest rates, we remain
watchful of further impacts to our core markets and how demand for our
products continues to develop.
We continue to monitor this 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.
Sustainability
Sustainability continues to be a key 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 extensive disclosure in our 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. Throughout 2023, the Board's Risk and Sustainability Committee
provided oversight and governance over the most significant risks the business
faces in the short, medium and long-term, and recognising the importance of
the subject matter, from January 2024 this will be governed by a standalone
Sustainability Committee.
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 in a consistent and appropriate manner.
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 in place procedures 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.
The Group's risk appetite reflects the fact 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.
KEY RISKS AND UNCERTAINTIES
1. HEALTH AND SAFETY Gross change: Static Net change: Static
Principal Risk and why it is relevant Key mitigation, change and sponsor
We continue to work to ensure the safety of employees exposed to risks such Safety remains our number one priority. We target an accident-free environment
as the operation of heavy machinery, moving parts and noise, dusts and and have robust policies in place covering expected levels of performance,
chemicals. responsibilities, communications, controls, reporting, monitoring and
review.
Our safety focus in 2023 continued to be around effective employee engagement
and communication focused on our Golden Rules and Zero Harm. In the period we
have delivered a further programme of behavioural safety awareness training
emphasising the importance of our safety related golden rules.
Executive sponsor: Neil Ash
2. SUSTAINABILITY / CLIMATE CHANGE Gross change: Static Net change: Static
Principal Risk and why it is relevant Key mitigation, change and sponsor
We recognise the importance of sustainability and climate change and both the We recognise the positive impact that our products have on the built
positive and negative impacts our products and processes have on environment across their lifespan and are keen for the durability, longevity
the environment. and lower lifecycle carbon footprint of our products to be championed and
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 regulation or customer preferences changing more quickly than anticipated
or too quickly for our R&D to keep pace.
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 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 CO2 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 will be governed by the newly formed standalone
Sustainability Committee.
Executive sponsor: Neil Ash and George Stewart
3. ECONOMIC CONDITIONS Gross change: Decrease Net change: Decrease
Principal Risk and why it is relevant Key mitigation, change and sponsor
Demand for our products is closely correlated with residential and commercial Understanding business performance in real-time, through our customer order
construction activity. book, strong relationships across the building sector, and a range of internal
and external leading indicators, help to inform management and ensure that the
Changes in the wider macro-economic environment can have significant impact in business has time to respond to changing market conditions.
this respect and we monitor these closely as a result.
2023 saw the continuation of the cyclical downturn in the UK housing market,
driven by Government economic policy which resulted in significant increases
in borrowing costs and accordingly mortgage affordability; impacting demand
for housing in the short-term. However, we recognise that ultimately there
remains 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
confident in the medium to long-term outlook and have decreased this risk
accordingly. We additionally remain watchful of the wider geopolitical
landscape, accepting the impact that changes in this respect can have on our
business.
Across 2023 we displayed our ability to flex output and slow production when
customer demand requires this. This has been effective in the past and we
believe the changes made to our operational footprint during the year leave us
well positioned to take advantage of attractive market fundamentals in the
medium to long-term.
Executive sponsor: Neil Ash
4. GOVERNMENT ACTION AND POLICY Gross change: Decrease Net change: Decrease
Principal Risk and why it is relevant Key mitigation, change and sponsor
The general level and type of residential and other construction activity is We participate in trade associations, attend industry events and track policy
partly dependent on the UK Government's housebuilding policy, investment in changes which could potentially impact housebuilding and the construction
public housing and availability of finance. sector. Such policy changes can be very broad, covering macro-economic policy
and including taxation, interest rates, mortgage availability and incentives
Changes in Government support towards housebuilding could lead to a reduction aimed at stimulating the housing market. Through our participation in these
in demand for our products. trade and industry associations we ensure our views are communicated to
Government and our Executive team often meet with both ministers and MPs.
Changes to Government policy or planning regulations could therefore adversely
affect Group performance. Where identified, we factor any emerging issues into models of anticipated
future demand to guide strategic decision-making.
As we head into an election year in the UK, lack of quality housing remains
a key political issue and as such we anticipate current and future
governments will continue to incentivise construction of new homes, even if
different political ideologies demand different models of home ownership.
Changes in monetary policy and the rapid associated increase to interest rates
have 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 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.
Executive sponsor: Neil Ash
5. RESIDENTIAL SECTOR ACTIVITY LEVELS Gross change: Decrease Net change: Decrease
Principal risk and why it is relevant Key mitigation, change and sponsor
Residential development (both new build and repair, maintenance and We closely follow the demand we are seeing from our key markets, along with
improvement) contributes the majority of Group revenue. The dependence of market forecasts, end user sentiment, mortgage affordability and credit
Group revenues on this sector means that any change in activity levels in this availability in order to identify and respond to opportunities and risk. Group
sector will affect profitability and in the longer-term, strategic growth strategy focuses upon our strength in this sector whilst also continuing to
plans. strengthen our commercial and specification offer.
The impact of increasing interest rates and the wider macroeconomy on this
sector had a notable impact on demand levels across 2023. Whilst we remain
watchful entering 2024, we are seeing evidence from our customers that this
decline has plateaued and have reduced this risk accordingly.
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.
Executive sponsor: Neil Ash
6. INVENTORY/WORKING CAPITAL MANAGEMENT Gross change: Increase Net change: Increase
Principal risk and why it is relevant Key mitigation, change and sponsor
Ensuring sufficient inventories of our products is critical to meeting our After a long period of historically low stock levels, the recent softening in
customers' needs, though this should not be at the expense of excessive cash demand has allowed these stocks to be replenished.
tied up in working capital. Whilst the ability to serve our customers is key,
where excessive inventory starts to be built, management must ensure that Strong customer relationships and some degree of product range substitution
production is aligned to forecast demand. have historically mitigated the risk of inventory levels being too low, and
now that levels are growing these relationships remain key, ensuring that
Cash tied to surplus working capital increases financing costs and could visibility of our customers' needs and demand levels can accurately be matched
ultimately impact the Group's liquidity, restricting the amount of cash to our production levels.
available for other purposes.
Where demand does fall, it is crucial to manage working capital levels
carefully and ensure excessive cash is not tied up in inventory. We have
historically demonstrated our ability to flex capacity effectively, allowing
optimum efficiency and utilisation of our operational footprint. This has been
further exemplified in the period with the mothballing of our Howley Park and
Claughton brick production facilities, reducing our fixed cost base whilst
ensuring our customers' needs can still be met.
Executive sponsor: Adam Smith, Darren Rix and Steve Jeynes
7. CUSTOMER RELATIONSHIPS AND REPUTATION Gross change: Static Net change: Static
Principal risk and why it is relevant Key mitigation, change and sponsor
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
Where a customer relationship deteriorates there is a risk to revenue and for our customers. By delivering excellent customer service, enhancing our
cash flow. brands and offering the right products, we seek to develop our long-standing
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
could manifest itself in loss of market share, and if not managed correctly,
be detrimental in the longer term in periods of stronger demand.
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.
Executive sponsor: Adam Smith and Darren Rix
8. ATTRACTION, RETAINING AND DEVELOPING EMPLOYEES Gross change: Static Net change: Static
Principal risk and why it is relevant Key mitigation, change and sponsor
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
attract, retain and develop talent will be detrimental to Group performance. to develop succession, talent acquisition, and retention plans.
We continue to focus on safe working practices, employee support and strong
communication/employee engagement.
Notwithstanding a softer demand environment, challenges associated with labour
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
Group which is dependant on our people.
Executive sponsor: Neil Ash
9. INNOVATION Gross change: Static Net change: Static
Principal risk and why it is relevant Key mitigation, change and sponsor
Failure to respond to market developments could lead to a fall in demand for Strong relationships with customers as well as independently administered
the products that we manufacture. This in turn could cause revenue and margins customer surveys ensure that we understand current and future demand. Close
to suffer. ties between the Strategy, Operations and Commercial functions ensure that the
Group focuses on the right areas of research and development.
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
importance and we strive to ensure that we are in a position to do so.
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.
Executive sponsor: Neil Ash
10. IT INFRASTRUCTURE AND SYSTEMS Gross change: Static Net change: Static
Principal risk and why it is relevant Key mitigation, change and sponsor
Disruption or interruption to IT systems could have a material adverse impact We have undertaken a period of investment in consolidating, modernising and
on performance and position. extending the reach of our IT systems in recent years, maintaining ISO 27001
Information Security accreditation. This investment has ensured our ability to
maintain the level of customer service that our customers expect, one of our
core business values.
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
regular training and tests are carried out as such.
Executive sponsor: Ben Guyatt
11. BUSINESS CONTINUITY Gross change: Static Net change: Static
Principal risk and why it is relevant Key mitigation, change and sponsor
Performance is dependent on key centralised functions operating continuously Having made plans to allow key centralised functions to continue to operate in
and manufacturing functions operating uninterrupted. Should we experience the event of business interruption, remote working capabilities have been
significant disruption there is a risk that products cannot be delivered to maintained and continually strengthened in recent years, ensuring the business
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
quickly in response to emerging events.
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.
Executive sponsor: Neil Ash and Ben Guyatt
12. PROJECT DELIVERY Gross change: Static Net change: Static
Principal risk and why it is relevant Key mitigation, change and sponsor
We have an extensive program of capital investment ongoing within our business The 2023 commissioning of our Desford brick factory represents the largest
which will see three large projects to add production capacity. capital investment that we have ever made. Despite the virtually complete
Desford project, our vigilance in managing project delivery across the
Ensuring these projects are delivered as intended is essential to the future business has not diminished and the focus of this risk has in turn shifted to
success of the business. ongoing projects at both Wilnecote and Accrington.
Management closely monitor all current strategic projects for potential
challenges, cost over-runs and delays and act promptly to ensure that risks
are mitigated.
Unexpected supplier delays have delayed the recommissioning of the new
Wilnecote factory into H2 of 2024 with management actively liaising with
suppliers to ensure delays are mitigated wherever possible.
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.
Executive sponsor: George Stewart
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