TIDMFORT
RNS Number : 5160F
Forterra plc
10 March 2020
10 March 2020
2019 FULL YEAR RESULTS
Forterra plc, a leading UK producer of manufactured masonry
products, announces its results for the year ended 31 December
2019.
Before exceptional items and IFRS 16 Statutory
--------------------------------------- --------------
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
---------------------------- ------------------- ------------------ ------ ------
Revenue 380.0 367.5 380.0 367.5
EBITDA 76.4 78.8 78.4 78.8
Operating profit 64.6 67.1 60.7 67.1
Profit before tax 62.5 64.8 58.2 64.8
Earnings per share (pence) 25.6 26.5 23.8 26.5
Net debt 43.2 38.8 57.3 38.8
Net debt / EBITDA (times) 0.6 0.5 0.7 0.5
Total dividend (pence) 11.5 10.5
KEY POINTS
-- Revenue increased 3.4%, driven by growth in Bespoke Products
and specifically Bison Precast, where improvements in productivity
benefited sales volumes and revenue.
-- EBITDA before exceptional items of GBP82.7m (2018: GBP78.8m)
benefits from implementation of IFRS 16.
-- EBITDA before the impact of exceptional items and IFRS 16
decreased slightly (GBP2.4m), demonstrating the resilience of the
business in the face of weaker market conditions, particularly in
H2.
-- Strong balance sheet with net debt to EBITDA before the
impact of exceptional items and IFRS 16 of 0.6x (2018: 0.5x). The
increase of GBP4.4m to GBP43.2m reflected spend on the new Desford
brick manufacturing facility.
-- Final dividend proposed of 7.5 pence per share taking total
dividend to 11.5 pence per share, an increase of 9.5% over
2018.
Stephen Harrison, Chief Executive Officer, commented:
"The first half of the year saw strong demand for our products,
which slowed in the second half as the impact of political and
economic uncertainty weighed on consumer confidence. The general
election result in December should provide greater political
certainty in the future.
"Demand for our products is driven by housebuilding activity. As
enabling works such as access roads and drainage generally need to
be completed on new housing developments before our products are
required on site, we typically experience some lag in demand
following an increase in housebuilding activity. We remain
optimistic that demand will recover through the year although this
may take some time given an extremely wet winter.
"Therefore, as stated in January 2020, the Board continues to
expect the challenging market conditions experienced in the second
half of 2019 to gradually improve but anticipates that the Group's
performance in the first half of 2020 will be below that achieved
in the first half of 2019.
"Whilst the Board remains watchful of any further political and
economic uncertainty, our investment in the new Desford brick
manufacturing facility, which will be the largest brick factory in
Europe, reflects confidence in our ability to capitalise on the
attractive market fundamentals and to deliver sustainable
shareholder value over the medium term."
ENQUIRIES
Forterra plc +44 1604 707 600
Stephen Harrison, 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, 10 March 2020,
at 9.00am at the offices of FTI Consulting. An audio webcast of the
presentation will be available on the Investors section of our
website (http://forterraplc.co.uk/).
ABOUT FORTERRA PLC
Forterra is a UK leader in manufactured masonry products, with a
unique combination of strong market positions in clay bricks and
concrete blocks. We also have a leadership position in the precast
concrete products market operating under the well-known Bison
Precast brand.
Within our clay bricks business we focus upon the efficient
manufacture of high volume extruded and soft mud bricks, primarily
for the housing market. The business is also the sole manufacturer
of the iconic 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. Within our concrete blocks business, we are one
of the leading producers of both aircrete and aggregate blocks, the
former being sold under one of the country's principal aircrete
brands of Thermalite.
BUSINESS REVIEW
RESULTS FOR THE YEAR
Before exceptional items and
Statutory IFRS 16 Exceptional items IFRS 16 Statutory
-------------------- ------------------ ------------------------------- ----------
2019 2019 2019 2019 2018
GBPm GBPm GBPm GBPm GBPm
------------------------------- ---------- -------- ------------------ ------------------------------- ----------
Revenue 380.0 - - 380.0 367.5
EBITDA 78.4 (6.3) 4.3 76.4 78.8
Depreciation and amortisation (17.7) 5.9 - (11.8) (11.7)
---------- -------- ------------------ ------------------------------- ----------
EBIT 60.7 (0.4) 4.3 64.6 67.1
Finance expense (2.5) 0.4 - (2.1) (2.3)
---------- -------- ------------------ ------------------------------- ----------
Profit before tax 58.2 - 4.3 62.5 64.8
The table above is presented to allow like-for-like comparison
of the current and previous year's results. The statutory 2019
results are adjusted to remove the impacts of adopting IFRS 16 and
exceptional items providing a meaningful comparison with the prior
year. The prior year comparative figures have not been restated on
adoption of IFRS 16 and there were no exceptional items in
2018.
Group revenue for the year ended 31 December 2019 was GBP380.0m
(2018: GBP367.5m), an increase of 3.4%. Bricks and Blocks revenue
grew by 0.6% and Bespoke Products grew by 12.3%, specifically
attributable to the Bison Precast business.
This growth was achieved against a backdrop of slowing
construction activity. The prolonged political paralysis
surrounding Brexit and the December general election took its toll
on the economy, with all key indicators confirming a marked
deterioration in our key markets in the second half of the
year.
The primary drivers of demand for our products are new
housebuilding and residential repair, maintenance and improvement
(RM&I). National House Building Council (NHBC) figures show
that housing starts in 2019 declined 8% on the prior year. NHBC
also reports that the number of new building sites opened in 2019
fell 17% relative to 2018. In addition, data from the Office of
National Statistics (ONS) highlighted that the private residential
repair maintenance and improvement (RM&I) market also declined
approximately 2% in 2019 with this rate of decline increasing
towards the end of the year. This reduction in activity across our
key markets impacted sales volumes across the majority of our
products.
Earnings before interest, tax, depreciation and amortisation
(EBITDA) as stated before the impact of IFRS 16 and exceptional
items were GBP76.4m (2018: GBP78.8m), demonstrating the Group's
resilience in the face of the weaker market conditions.
As in previous years, the majority of our selling price
increases were agreed at the start of the year and were generally
sufficient to offset input cost inflation. Pricing was more
difficult in the Bison Precast business however with strong
competition in this market limiting achievable price increases.
Significant energy cost inflation was experienced during the year.
Raw material cost inflation was more benign, with the exception of
pulverised fuel ash (PFA), which we use for aircrete block
production. Due to shortages of supply, we purchased some imported
PFA at higher prices to ensure continuity of production.
The profit reported by our Bespoke Products segment, of which
the Bison Precast business is the primary constituent, again fell
short of our expectations. Notwithstanding the improvements in
manufacturing efficiency which we have steadily achieved, market
conditions in the precast concrete market have deteriorated since
we purchased the Swadlincote factory in 2017.
During the year the Group incurred exceptional costs totalling
GBP4.3m, primarily comprised of restructuring costs as we aligned
production to prevailing market conditions. Profit before tax as
stated on a statutory basis was GBP58.2m (2018: GBP64.8m)
reflecting the slight reduction in the trading result along with
the exceptional costs.
The EBITDA margin, as stated before exceptional items and IFRS
16, was 20.1% (2018: 21.4%). This decline is a function of the
strong revenue growth in Bespoke Products where margins are lower
than in Bricks and Blocks.
EARNINGS PER SHARE AND DIVID
Earnings per share (EPS), as stated before exceptional items,
was 25.6 pence (2018: 26.5 pence). Basic EPS after exceptional
items was 23.8 pence (2018: 26.5 pence), reflecting the lower
trading result, exceptional items and higher tax rate.
The Board is proposing a final dividend of 7.5 pence per share,
which together with the interim dividend, would make a total of
11.5 pence for the full year. This represents an increase of 9.5%
over the 2018 total dividend of 10.5 pence. The final dividend will
be paid on 9 July 2020 to shareholders on the register at 19 June
2020.
SUMMARY AND OUTLOOK
The first half of the year saw strong demand for our products,
which slowed in the second half as the impact of political and
economic uncertainty weighed on consumer confidence. The general
election result in December should provide greater political
certainty in the future.
Demand for our products is driven by housebuilding activity. As
enabling works such as access roads and drainage generally need to
be completed on new housing developments before our products are
required on site, we typically experience some lag in demand
following an increase in housebuilding activity. We remain
optimistic that demand will recover through the year although this
may take some time given an extremely wet winter.
Therefore, as stated in January 2020, the Board continues to
expect the challenging market conditions experienced in the second
half of 2019 to gradually improve but anticipates that the Group's
performance in the first half of 2020 will be below that achieved
in the first half of 2019.
Whilst the Board remains watchful of any further political and
economic uncertainty, our investment in the new Desford brick
manufacturing facility, which will be the largest brick factory in
Europe, reflects confidence in our ability to capitalise on the
attractive market fundamentals and to deliver sustainable
shareholder value over the medium term.
STRATEGY IMPLEMENTATION
The Group's objective remains to generate sustainable
shareholder value through delivering upon the following strategic
priorities:
-- drive for a flexible and efficient manufacturing base,
aligning capacity to market conditions;
-- maintain strong market positions in our core products; and
-- expand the range of products and services offered both
organically and through appropriate bolt-on acquisitions.
These priorities are underpinned by having high performing
people throughout the business and continuing to strengthen
customer relationships.
The Board believes the market headwinds experienced in the
second half of 2019 to be temporary and that the long-term
fundamentals that drive demand for our products remain strong. The
UK housing shortage is well documented and the Government continues
to pursue policies to stimulate housebuilding. Employment remains
high with interest rates at near record lows. UK brick
manufacturing capacity remains insufficient to meet current demand
with a reliance on imports to address the shortfall.
In April 2019 we received the necessary planning consents for
our new GBP95m production facility at Desford in Leicestershire and
shortly afterwards ground was broken and construction commenced.
Desford is the centrepiece of the Group's organic growth strategy
and will deliver production capacity of 180m clay bricks per annum,
an incremental increase of 95m bricks over the current Desford
facility, which will be decommissioned in due course. The new
facility will increase our brick manufacturing capacity by 16% and
produce a range of bricks already established and popular with
housebuilders, and discussions with customers regarding future
supply agreements have now commenced. The construction project is
progressing to plan, with the shell of the building now nearing
completion allowing fit out to commence ahead of the installation
of the manufacturing equipment later in the year.
We have continued to innovate and develop our product range, and
during the year our Bison Precast business won a major contract
from the Ministry of Justice for a new prison in Wellingborough.
This project showcases the continued development of Forterra's
capability and we are pleased to supply a range of precast concrete
walling products, including brick faced precast panels, to this
prominent project.
In 2019 we successfully delivered modifications to our aircrete
block facility in Newbury to allow the use of conditioned (wet)
pulverised fuel ash, which is a major step towards our goal of
decoupling aircrete production from its reliance on coal-fired
power generation.
CAPITAL ALLOCATION
During the year, the Board reviewed the Group's capital
allocation priorities and reaffirmed these as follows:
-- Organic Investment
The Desford project is a prime example of the attractive organic
investment opportunities available to the Group and the Board will
continue to prioritise these projects. Whilst construction has
commenced on the new facility, we continue to explore several other
potential renewal and expansion projects which will give the Group
optionality in years to come.
-- Dividends
Once fully operational, the new plant at Desford will deliver a
significant increase in earnings through the cycle by increasing
sales volumes and reducing the cash cost of production in
comparison to the facility that it will replace. In anticipation of
this increase in earnings, we previously announced an increase in
our dividend payout percentage to 45% of earnings for 2019, along
with restating our intention to maintain a progressive policy
thereafter. This policy reflects the long-term earnings and cash
flow generation potential of the Group whilst recognising that our
primary markets are cyclical in nature.
-- Acquisitions
We will continue to evaluate potential acquisitions which
strengthen our existing market positions, expand our product range
or enable us to address complementary markets. We will only pursue
those opportunities where the strategic rationale can be
demonstrated and where the financial hurdles set by the Board can
be met.
ENVIRONMENT SOCIAL AND GOVERNANCE
The profile of sustainability has grown significantly in recent
years and this is underlined by the Government's commitment to net
zero carbon by 2050. We understand both the contribution our
products can make to delivering a sustainable built environment and
the potential impact our production processes can have on the
environment if we don't manage them in a responsible manner. We set
a series of environmental targets to demonstrate continual
improvement to support our ISO14001 certification which run from
2010 through to 2020 and we will be defining new stretching targets
in the current year.
We are formulating our long-term sustainability strategy focused
on actions in areas where our business can make a difference. One
of the first steps on this journey was to use the UN Sustainable
Development Goals to underpin our long-term ambitions around three
areas of sustainability:
-- People: Our priorities are the safety, health and wellbeing
of our employees and the elimination of accidents, making sure that
anyone who works at or visits one of our sites goes home unharmed.
We want to ensure Forterra is a great place to work by providing
best-in-class training and opportunities for development,
inclusion, and progression within the business. We want to be an
asset to and support the local economy and communities where we
operate.
-- Planet: We want to be a leading responsible business ensuring
that we operate in the most resource efficient manner possible,
minimising waste and helping the UK achieve its target of net zero
carbon through the provision of building materials to provide
quality, energy-efficient homes.
-- Product: We provide essential building products which last
for generations. Where possible we will produce our products in a
resource-efficient manner through the use of recycled or
alternative materials and modern manufacturing techniques. We will
ensure that the correct advice is readily available so that our
products can be easily recycled at the end of life.
Plastic is a versatile material and is currently the principal
material used in the packaging of our products. We understand that
single use plastic is a global issue and we all need to take
responsibility for how we use, recycle and dispose of this
material. During 2020 we will carry out a full review of our
packaging needs whilst still meeting the basic requirements of
ensuring that our products are delivered in a safe manner to our
customers with no damage and ready for use. To guide this review we
have developed a five point plan within which we will ensure that
all packaging is recyclable and look at any potential obstacles to
its recycling. We will also eliminate unnecessary or problematic
packaging as well as identifying opportunities to increase the use
of recycled content and alternative packaging materials or
techniques.
PEOPLE
The significant contribution our employees make to Forterra
through their exceptional efforts and ongoing commitment is evident
for all to see. In 2019 the Board has spent time at many of the
Group's facilities and continue to be impressed by the engagement,
knowledge and enthusiasm displayed by our employees. We continue to
offer the employees the ability to participate in the Company's
success through the Sharesave plan and with the first three-year
plan maturing at the end of 2019 it was pleasing to see our
employees realise a substantial gain upon the amount saved given
the progression of our share price since the IPO in 2016.
BOARD CHANGES
Paul Lester retired as Chairman at the conclusion of the 2019
AGM and we wish to place on record our thanks for his efforts in
guiding the Company through a successful IPO and helping it to
become established as a listed company. As Justin Atkinson stepped
up to become the new Chairman, Katherine Innes Ker also stepped up
to the role of Senior Independent Non Executive Director. We were
pleased to welcome Vince Niblett who joined the Board on 8 February
2019 and whom subsequently succeeded Justin Atkinson as Chairman of
the Audit Committee. Vince brings extensive and complementary
experience to the Board having spent many years as a partner with
international professional services firm, Deloitte.
In addition, Shatish Dasani stood down from the business at the
end of 2019 following four years of service in which he played a
key role in the IPO and the subsequent success of the business. We
are very pleased to welcome Ben Guyatt to the Board as Chief
Financial Officer. Ben previously held the role of Director of
Finance and Company Secretary and has gained a wealth of experience
within the Group playing key roles in both the separation of the
business from HeidelbergCement and the subsequent IPO. We are
particularly pleased that we have been able to make an internal
appointment for this important role, demonstrating the success of
our succession planning.
CASH FLOW, BORROWINGS AND FACILITIES
The Group continues to be highly cash generative. Operating cash
flow, stated before the impact of IFRS 16 and exceptional items,
was GBP58.6m (2018: GBP79.8m) which represents a cash conversion of
71% (2018: 91%) (defined as operating cash flow less capex,
excluding spend on the Desford project, divided by operating
profit). We have removed the capital spend related to the Desford
project from this KPI as this is a long-term project which will
generate cash flows over a period in excess of 30 years.
Capital expenditure totalled GBP24.3m with GBP14.4m of this
related to strategic projects being the Desford expansion and the
project to upgrade the Newbury aircrete facility to utilise
conditioned ash.
Working capital increased by GBP 17.2m in the year, primarily as
a result of an inventory build of GBP10.4m Given that brick
inventories were previously close to historically low levels that
we consider unsustainable in the longer term, this increase in
inventory leaves the Group better placed to meet future demand
whilst retaining the high levels of service our customers expect.
We manage inventory carefully and optimise production such that
levels remain balanced to demand. In late 2019, we announced some
restructuring within our brick business, which during 2020, will
see a re-alignment of production to demand. Overall, this will not
have a significant impact on the Group's total output as the
production decline at one facility will be met by an increase at
another. The costs of this restructuring exercise have been
included as an exceptional item in the period. Cash collections
from customers remained strong. Debtor days were 40 compared with
41 in the prior year.
We continued to purchase shares for the Employee Benefit Trust
for the purpose of settling awards made under the Group's employee
share schemes. A large number of these shares were subsequently
utilised in settling the first vesting of the Group's Sharesave
scheme and proceeds of GBP4.9m were received, partially offsetting
this outlay.
Statutory IFRS 16 Before IRFS 16 Statutory
-------------------------------------------------------- ---------- -------- --------------- ----------
2019 2019 2019 2018
GBPm GBPm GBPm GBPm
-------------------------------------------------------- ---------- -------- --------------- ----------
Operating cash flow before exceptional items 64.9 (6.3) 58.6 79.8
Payments made in respect of exceptional items (1.1) - (1.1) -
---------- -------- --------------- ----------
Cash generated from operations after exceptional items 63.8 (6.3) 57.5 79.8
Interest paid (2.4) 0.4 (2.0) (2.2)
Tax paid (8.8) - (8.8) (11.8)
Capital expenditure
- maintenance (9.9) - (9.9) (8.5)
- expansion (14.4) - (14.4) (10.1)
Dividends paid (22.0) - (22.0) (19.3)
Purchase of shares by Employee Benefit Trust (EBT) (9.7) - (9.7) (6.1)
Proceeds from sale of shares by EBT 4.9 - 4.9 -
Lease liabilities on adoption of IFRS 16 (14.6) 14.6 - -
New lease liabilities (5.4) 5.4 - -
Other movements - - - 0.2
---------- -------- --------------- ----------
(Increase)/reduction in net debt (18.5) 14.1 (4.4) 22.0
Debtors days 40 41
Net debt to EBITDA, as stated excluding the impact of IFRS 16
and exceptional items, was 0.6 times (2018: 0.5 times).
The Group's debt facility comprises a committed revolving credit
facility (RCF) of GBP150m extending to July 2022 with a group of
major international banks. At 31 December 2019, GBP80m of the
facility was undrawn. There is also an accordion facility of GBP50m
on the same terms as the main facility. The Group continues to
operate comfortably within the covenants under this facility.
On adoption of IFRS 16 the Group recognised a liability of
GBP14.6m in respect of leases which had previously been classified
as operating leases. This adjustment primarily relates to leased
equipment and in particular, heavy goods vehicles where all of the
Group's brick and block delivery fleet are leased under a range of
different agreements, affording the Group the greatest level of
flexibility. The Group adopted IFRS 16 from 1 January 2019 and has
not restated the 2018 comparatives.
BRICKS AND BLOCKS
Statutory IFRS 16 Exceptional items Before exceptional items and IFRS 16 Statutory
---------- -------- ------------------ ------------------------------------- ---------------
2018
2019 2019 2019 2019 (restated(1))
GBPm GBPm GBPm GBPm GBPm
--------------- ---------- -------- ------------------ ------------------------------------- ---------------
Revenue 279.1 - - 279.1 277.5
EBITDA 77.1 (5.7) 3.3 74.7 75.8
--------------- ---------- -------- ------------------ ------------------------------------- ---------------
EBITDA margin 26.8% 27.3%
(1)In 2019, the Formpave business was reclassified from the
Bespoke Products to the Bricks and Blocks segment after a
management reorganisation. Overhead allocation was also changed to
reflect this. The 2018 results have been restated to reflect this
change consistently across periods.
We have a unique combination of strong market positions in both
clay brick and concrete blocks. We are also 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 nine brick manufacturing
facilities across the country with a total production capacity of
590 million bricks per annum. We are also a leader nationally in
the aircrete block market, operating from facilities at Newbury and
Hams Hall (Warwickshire). Our aggregate blocks product has a
leading position in the important South East and East of England
markets, with well-located manufacturing facilities at Milton
(Oxfordshire) and Whittlesey (Cambridgeshire).
This segment now includes the results of Formpave, the Group's
concrete block paving business. Formpave, based at our Coleford
site, manufactures a wide range of high-quality concrete block
paving to suit all projects from commercial to domestic
applications, and including the patented Aquaflow drainage system.
Following a management reorganisation under which the business now
reports to Bricks and Blocks management, the segmental revenue and
results for 2018 have been restated accordingly.
Revenue remained broadly stable, increasing by 0.6% compared to
2018. Selling price increases obtained in the year broadly offset
the impact of the decline in sales volumes. 2019 despatches of
domestically produced bricks as reported by the Department for
Business, Energy and Industrial Strategy fell by 3% relative to the
prior year and our own brick sales volumes followed a consistent
trend. Aircrete and aggregate block volumes fell by greater
percentages driven by a competitive market characterised by a
degree of under-utilised capacity and higher inventories, which are
not replicated in the brick industry.
During the year we saw an increase in energy costs of
approximately 9%. In addition, we supplemented our PFA supplies
with more expensive imported materials to ensure continuity of
production. With the equipment to utilise conditioned ash now
installed at both facilities, and supplies of conditioned ash
secured in the short to medium term, we expect to be able to
mitigate some of this cost going forward.
Formpave had a challenging year, primarily due to a number of
operational issues. Changes to management will enable the business
to respond better to these challenges and drive an improvement in
operational efficiency.
EBITDA as stated before the impact of IFRS 16 and exceptional
items of GBP74.7m, is a decrease of GBP1.1m compared with 2018
(GBP75.8m), with the EBITDA margin of 26.8% remaining broadly
consistent with the prior year (2018: 27.3%).
Brick production increased 4% compared with the prior year. Our
soft mud facility at Measham achieved record annual production of
more than 100 million bricks, reflecting our focus on continuous
improvement. We also increased production at our Wilnecote facility
with the addition of an extra shift, and, following the outage
associated with the kiln during 2018, production at Desford
increased in 2019, although operating this ageing factory alongside
the adjacent construction site remains a challenge. Repair and
maintenance costs were broadly in line with prior year and reflect
the ongoing maintenance programme designed to enable our facilities
to continue operating at near full capacity.
During the year GBP12.9m was invested in the construction of the
new Desford brick manufacturing facility, including the purchasing
of mineral rights which will secure the supply of clay to the plant
for a period in excess of 40 years. The total invested in the
project up to 31 December 2019 was GBP14.2m.
In the aircrete business, following the successfully-completed
project in 2018 to convert the Hams Hall facility to allow the use
of conditioned or wet PFA, a similar project was delivered at our
Newbury facility in the first half of the year at a cost of
GBP3.7m. This completed a GBP6.0m investment programme to decouple
production at both facilities from coal-fired power generation. Raw
material supply still remains a challenge with an element of dry
PFA still currently required to manufacture certain products. The
Group has secured supplies of conditioned PFA for the short to
medium term and negotiations are continuing to secure further
longer-term supplies. The value of this investment however cannot
be underestimated. In 2020, the first full year following the
conversion of both plants, we expect aro und 60% of the PFA we
consume to be conditioned. Work is also underway to assess the
feasibility of switching to a sand supply in the longer term.
We continued to develop our long-term relationships with
customers across different channels including housebuilders,
builders' merchants and other specialised distributors. Discussions
have already commenced with key customers with regard to their
purchase of product from the new Desford facility when it comes
on-line in the second half of 2021.
During the year new product development continued to progress
with the recent launch of our next generation brick slip system,
SureBrick, demonstrating our commitment to modernising and
improving building standards whilst gaining access to the growing
market for products which can be used offsite or with modern
methods of construction. Lighter than traditional masonry,
SureBrick is simple to install with no reliance on traditional
brick laying skills.
We also celebrated success at the Brick Development
Association's annual Brick Awards, where our projects won three
awards for The Interlock and were highly commended for York House.
The Interlock a newly-built, five-storey building in London's
Fitzrovia, which blends historic and contemporary aesthetics won
the Innovation, Small Housing Development and Architects Choice
awards. York House, a 1980s office building in Kings Cross which
has recently been transformed into a contemporary,
high-specification workspace, was highly commended in the
Innovation category.
Delivery of our bricks and blocks is fulfilled by our own fleet
of vehicles, supplemented by third party hauliers. During the year
we implemented a system which deploys the latest technology in the
planning and execution of our distribution operations. Whilst
allowing us to drive greater efficiency in distribution, this
system will also deliver a number of benefits to customers,
including sign-on-glass technology. Our commitment to customer
service was demonstrated by a further increase in our distribution
fleet, which takes our fleet to over 150 vehicles, all of which are
equipped with mechanical offload capabilities.
BESPOKE PRODUCTS
Statutory IFRS 16 Exceptional items Before exceptional items and IFRS 16 Statutory
---------- -------- ------------------ ------------------------------------- -------------------
2019 2019 2019 2019 2018 (restated(1))
GBPm GBPm GBPm GBPm GBPm
--------------- ---------- -------- ------------------ ------------------------------------- -------------------
Revenue 103.5 - - 103.5 92.2
EBITDA 2.0 (0.6) 0.3 1.7 3.0
--------------- ---------- -------- ------------------ ------------------------------------- -------------------
EBITDA margin 1.6% 3.3%
(1)In 2019, the Formpave business was reclassified from the
Bespoke Products to the Bricks and Blocks segment after a
management reorganisation. Overhead allocation was also changed to
reflect this. The 2018 results have been restated to reflect this
change consistently across periods.
The Bespoke Products segment focuses on specification-led,
made-to-order products comprising both precast concrete and chimney
and roofing solutions, much of which is customised to meet the
customer's specific needs. The Formpave business has been removed
from this segment and the comparatives restated accordingly.
Segmental revenue grew by 12.3% to GBP103.5m due to an increase
in revenue generated by the Bison Precast business. EBITDA before
the impact of IFRS 16 and exceptional items fell by GBP1.3m to
GBP1.7m (2018: GBP3.0m ). The EBITDA contributed by both the Bison
and Red Bank businesses was lower than the prior year with the
reduction in the segmental result being attributable to both
businesses.
Precast concrete products are designed, manufactured and shipped
nationwide under the Bison Precast brand from our Swadlincote,
Hoveringham and Somercotes facilities in the Midlands. Our products
include:
-- Hollowcore floors and associated staircases and landings
which are used for upper floors of multi-family and commercial
developments, with the majority of floors fitted by our in-house
installations team;
-- Beam and block flooring including Jetfloor, which was the
UK's first system to use expanded polystyrene blocks combined with
a structural concrete topping to provide high levels of thermal
insulation;
-- 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 facades, a new addition to our
range and available in a variety of finishes including brick
facings.
We are encouraged by the strategic progress made by the Bison
business during the year with revenue increasing by 13.8%, enabled
by improvements in productivity and the launch of new products.
Challenging and competitive market conditions however impacted
margins, with the pricing dynamic in this sector being particularly
competitive, limiting our ability to recover cost inflation.
During the year we conducted a comprehensive reappraisal of the
UK precast concrete market. Our research points to a decline in
industry margins over recent years, although we remain hopeful that
increased Government infrastructure spending, specifically on HS2,
along with continued growth in demand for fire safe products
suitable for offsite construction, will benefit margins going
forward.
We presently hold a leading position in the flooring segment of
the market and our strategy is to grow our offering in the higher
complexity façade systems segment of the market where margins are
higher. In the course of the last year, we made significant
progress on this front. Our Somercotes facility has been
transformed from a factory producing commoditised grey concrete
products, such as culverts and retaining walls, to a specialist
facility focusing on architectural and brick-faced walling
panels.
We are pleased to have secured two major contracts to supply our
new range of products. We were awarded a substantial contract to
supply almost five thousand precast components to the new prison
being built in Wellingborough for the Ministry of Justice.
Deliveries are ongoing to both the house blocks and the entry
building. The latter includes the first insulated brick-faced
sandwich panels manufactured by Bison Precast and feature the
Forterra Village Golden Thatch brick. In addition to the
Wellingborough project, Bison Precast is manufacturing brick-faced
components for a multi-storey car park in Nottingham. Both projects
mark the business's move into the precast façades market. We remain
on a learning curve in developing new products and taking them to
market. As we gain experience in façades, we expect our efficiency
to improve and the margins we can earn from these products to
increase.
Also included in our Bespoke Products segment is our Red Bank
business. Red Bank manufactures from a facility alongside our
Measham brick facility, producing a wide range of chimney, roofing
and flue systems.
Following strong results in recent years, Red Bank experienced a
more difficult year in 2019. Many of Red Bank's products are niche
in their nature and sold to builders' merchants for use in the
RM&I sector, often on older and listed buildings. As covered
earlier in the review, the RM&I market was more challenging
throughout 2019 and with Red Bank highly reliant on this sector,
its result suffered accordingly. Research and development continues
with a view to identifying new products which are relevant to the
construction industry of today and will capitalise on the skills,
experience and history offered by Red Bank.
OTHER FINANCIAL INFORMATION
EXCEPTIONAL ITEMS
We incurred exceptional expenses of GBP4.3m in 2019. GBP3.6m of
this relates to restructuring, of which the largest element relates
to our Fletton brick facility near Peterborough where we announced
plans to reduce the workforce by approximately 50 individuals. The
unique Fletton manufacturing process by its nature requires step
changes in manufacturing output with it being inefficient to make
small adjustments to output. Over the last few years London Brick
production has exceeded sales and this adjustment is now required
to ensure inventory and working capital remains tightly controlled
whilst retaining the flexibility to increase production in the
future. At the same time, we are making changes to increase
production at other brick facilities such that the overall change
to our brick production will be negligible.
In addition to restructuring costs, exceptional costs totalling
GBP0.7m were also incurred in respect of an acquisition which was
not completed.
FINANCE COSTS
Finance costs for 2019, as stated before the impact of IFRS 16,
were GBP2.1m (2018: GBP2.3m). Net debt excluding the impact of IFRS
16 remains comfortably below the one times EBITDA threshold meaning
that the interest charged on our RCF facility remains at the lowest
band of the grid under the credit agreement.
TAXATION
The effective tax rate (ETR) was 19.5% (ETR before exceptional
costs was 19.3%) compared with 18.5% in 2018. The ETR is higher
than the UK statutory rate of 19.0% (2018: 19.0%) due to permanent
adjustments for non-deductible items such as depreciation on
non-qualifying assets. The 2018 ETR was lower than the UK statutory
rate of corporation tax due to the release of an uncertain tax
provision.
PENSIONS
The Group has no defined benefit pension liabilities. There is a
defined contribution arrangement in place and pension costs for the
year amounted to GBP6.1m (2018: GBP5.8m).
PRINCIPAL RISKS AND UNCERTAINTIES
Effective risk management is critical to successfully meeting
the Group's strategic objectives and delivering long-term value to
shareholders. The Group's approach to risk management, the key
risks faced and mitigating activities are detailed later in this
document.
CORONAVIRUS (COVID-19)
The Group is closely monitoring the potential impact of COVID-19
and will continue to review the possible effects on the business
and refine its contingency plans accordingly. The Group does not
envisage any specific impacts to its business although it may be
affected by any general disruption should the virus adversely
affect wider economic activity in the UK.
GOING CONCERN & VIABILITY STATEMENT
The Directors have assessed the Group's current financial
position and the factors likely to affect performance in the coming
year in light of current and anticipated economic conditions. Based
on this assessment the Directors can have a reasonable expectation
that the Group has adequate resources to continue in operational
existence for a period of at least 12 months from the date of
approval of the financial statements. On this basis the going
concern concept has been adopted in the preparation of these
preliminary financial statements.
The Directors have conducted a review and assessed the prospects
and viability of the Group. They confirm that they have a
reasonable expectation that the Group will continue in operation,
meet liabilities as they fall due and will not breach covenants
over the three year period covered by the review.
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:
-- the Consolidated Financial Statements, which have been
prepared in accordance with IFRSs as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial
position and profit of the Group; and
-- 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.
Stephen Harrison Ben Guyatt
Chief Executive Officer Chief Financial Officer
10 March 2020
Consolidated Statement of Total Comprehensive Income
For the year ended 31 December 2019
2019 2018
Note GBPm GBPm
---------------------------------------------------------------------------- ---- ------- -------
Revenue 380.0 367.5
Cost of sales (243.8) (230.2)
---------------------------------------------------------------------------- ---- ------- -------
Gross profit 136.2 137.3
Distribution costs (54.4) (51.8)
Administrative expenses (21.8) (20.1)
Other operating income 0.7 1.7
---------------------------------------------------------------------------- ---- ------- -------
Operating profit 60.7 67.1
EBITDA before exceptional items 82.7 78.8
Exceptional items 4 (4.3) -
---------------------------------------------------------------------------- ---- ------- -------
EBITDA 78.4 78.8
Depreciation and amortisation (17.7) (11.7)
---------------------------------------------------------------------------- ---- ------- -------
Operating profit 60.7 67.1
---------------------------------------------------------------------------- ---- ------- -------
Finance expense 5 (2.5) (2.3)
Profit before tax 58.2 64.8
Income tax expense 6 (11.4) (12.0)
---------------------------------------------------------------------------- ---- ------- -------
Profit for the year attributable to equity shareholders 46.8 52.8
Total comprehensive income for the year attributable to equity shareholders 46.8 52.8
---------------------------------------------------------------------------- ---- ------- -------
Earnings per share Pence Pence
---------------------------------------------------------------------------- ---- ------- -------
Basic earnings per share 8 23.8 26.5
Diluted earnings per share 8 23.7 26.1
Consolidated Balance sheet
At 31 December 2019
2019 2018
Note GBPm GBPm
--------------------------------------------------------- ---- ------- -------
Assets
Non-current assets
Intangible assets 18.2 17.3
Property, plant and equipment 182.6 170.5
Right-of-use assets 13.7 -
--------------------------------------------------------- ---- ------- -------
214.5 187.8
--------------------------------------------------------- ---- ------- -------
Current assets
Inventories 47.8 37.4
Trade and other receivables 40.4 37.9
Cash and cash equivalents 26.6 26.0
--------------------------------------------------------- ---- ------- -------
114.8 101.3
--------------------------------------------------------- ---- ------- -------
Total assets 329.3 289.1
--------------------------------------------------------- ---- ------- -------
Current liabilities
Trade and other payables (71.5) (72.0)
Current tax liabilities (3.5) (3.9)
Loans and borrowings 9 (0.1) (0.3)
Lease liabilities (5.1) -
Provisions for other liabilities and charges (4.3) (4.2)
--------------------------------------------------------- ---- ------- -------
(84.5) (80.4)
--------------------------------------------------------- ---- ------- -------
Non-current liabilities
Loans and borrowings 9 (69.7) (64.5)
Lease liabilities (9.0) -
Provisions for other liabilities and charges (8.1) (8.4)
Deferred tax liabilities (1.8) (1.6)
--------------------------------------------------------- ---- ------- -------
(88.6) (74.5)
--------------------------------------------------------- ---- ------- -------
Total liabilities (173.1) (154.9)
--------------------------------------------------------- ---- ------- -------
Net assets 156.2 134.2
--------------------------------------------------------- ---- ------- -------
Capital and reserves attributable to equity shareholders
Ordinary shares 2.0 2.0
Retained earnings 157.8 138.0
Reserve for own shares (3.6) (5.8)
--------------------------------------------------------- ---- ------- -------
Total equity 156.2 134.2
--------------------------------------------------------- ---- ------- -------
Consolidated Statement of cash flows
For the year ended 31 December 2019
2019 2018
Note GBPm GBPm
--------------------------------------------------------- ---- ------ ------
Cash flows from operating activities
Operating profit before exceptional items 65.0 67.1
Adjustments for:
- Depreciation and amortisation 17.7 11.7
- Movement on provisions (0.3) (4.5)
- Share-based payments 1.3 2.1
- Other non-cash items (1.6) (1.3)
- Profit on sale of property, plant and equipment - (0.2)
Changes in working capital:
- Inventories (10.4) (1.1)
- Trade and other receivables (2.9) (4.9)
- Trade and other payables (3.9) 10.9
--------------------------------------------------------- ---- ------ ------
Operating cash flow before exceptional items 64.9 79.8
Cash flows relating to exceptional items (1.1) -
--------------------------------------------------------- ---- ------ ------
Cash generated from operations 63.8 79.8
Interest paid (2.4) (2.2)
Tax paid (8.8) (11.8)
--------------------------------------------------------- ---- ------ ------
Net cash generated from operating activities 52.6 65.8
--------------------------------------------------------- ---- ------ ------
Cash flows from investing activities
Purchase of property, plant and equipment (22.5) (16.5)
Purchase of intangible assets (1.8) (2.1)
Proceeds from sale of property, plant and equipment - 0.2
--------------------------------------------------------- ---- ------ ------
Net cash used in investing activities (24.3) (18.4)
--------------------------------------------------------- ---- ------ ------
Cash flows from financing activities
Dividends paid 7 (22.0) (19.3)
Drawdown of borrowings 17.0 -
Repayment of borrowings (12.0) (25.0)
Purchase of shares by Employee Benefit Trust (9.7) (6.1)
Proceeds from sale of shares by Employee Benefit Trust 4.9 -
Repayment of lease liability (5.9) -
--------------------------------------------------------- ---- ------ ------
Net cash used in financing activities (27.7) (50.4)
--------------------------------------------------------- ---- ------ ------
Net increase/(decrease) in cash and cash equivalents 0.6 (3.0)
Cash and cash equivalents at the beginning of the period 26.0 29.0
--------------------------------------------------------- ---- ------ ------
Cash and cash equivalents at the end of the period 26.6 26.0
--------------------------------------------------------- ---- ------ ------
Consolidated Statement of Changes In Equity
For the year ended 31 December 2019
Share Reserve for Retained Total
capital own shares earnings equity
Note GBPm GBPm GBPm GBPm
------------------------------------------------------- ---- -------- ----------- --------- -------
Balance at 1 January 2018 2.0 - 102.7 104.7
Total comprehensive income for the year - - 52.8 52.8
Dividends paid 7 - - (19.3) (19.3)
Own shares purchased by Employee Benefit Trust - (6.1) - (6.1)
Share-based payments charge - - 2.4 2.4
Share-based payments exercised - 0.3 (0.3) -
Tax on share-based payments - - (0.3) (0.3)
------------------------------------------------------- ---- -------- ----------- --------- -------
Balance at 31 December 2018 2.0 (5.8) 138.0 134.2
Adoption of IFRS 16 accounting standard - - (0.6) (0.6)
------------------------------------------------------- ---- -------- ----------- --------- -------
Restated balance at 1 January 2019 2.0 (5.8) 137.4 133.6
Total comprehensive income for the year - - 46.8 46.8
Dividends paid 7 - - (22.0) (22.0)
Purchase of shares by Employee Benefit Trust - (9.7) - (9.7)
Proceeds from sale of shares by Employee Benefit Trust - 4.9 - 4.9
Share-based payments charge - - 1.5 1.5
Share-based payments exercised - 7.0 (7.0) -
Tax on share-based payments - - 1.1 1.1
------------------------------------------------------- ---- -------- ----------- --------- -------
Balance at 31 December 2019 2.0 (3.6) 157.8 156.2
------------------------------------------------------- ---- -------- ----------- --------- -------
NOTES TO THE PRELIMINARY RESULTS
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,
England, 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 preliminary results for the year ended 31 December 2019 have
been extracted from the audited Consolidated Financial Statements,
which were approved by the Board of Directors on 10 March 2020. The
audited Consolidated Financial Statements have not yet been
delivered to the Registrar of Companies but are expected to be
published by the end of April 2020. 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.
This preliminary announcement has been prepared in accordance
with the accounting policies under IFRS as adopted by the EU.
Whilst the financial information included in this preliminary
announcement has been prepared in accordance with IFRS, this
announcement does not itself contain sufficient information to
comply with IFRS. This preliminary announcement constitutes a
dissemination announcement in accordance with Section 6.3 of the
Disclosures and Transparency Rules (DTR).
Copies of the Annual Report for the year ended 31 December 2019
will be mailed to those shareholders who have opted to receive them
by the end of April 2020 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 preliminary results are presented in pounds sterling and all
values are rounded to the nearest hundred thousand unless otherwise
indicated.
Going concern
The Group meets its day-to-day working capital requirements
through its cash reserves and borrowings. The Group's forecasts and
projections, taking account of reasonably possible changes in
trading performance, show that the Group should be able to operate
within the level of its current cash reserves and borrowings. After
making enquiries, the Directors have a reasonable expectation that
the Group has adequate resources to continue in operational
existence for at least one year from the date that the financial
statements are signed. The Group therefore adopts the going concern
basis in preparing its preliminary financial statements.
New standards, amendments and interpretations
The accounting policies adopted in the preparation of the
preliminary financial statements are consistent with those followed
in the preparation of the Consolidated Financial Statements for the
year ended 31 December 2018, except as disclosed below. The Group
has not early adopted any standard, interpretation or amendment
that has been issued but is not yet effective.
IFRS 16 - Leases (effective 1 January 2019)
The group has adopted IFRS 16 from 1 January 2019 but has not
restated comparatives for the 2018 reporting period, as permitted
under the specific transitional provisions in the standard. The
reclassifications and the adjustments arising from the new leasing
rules are therefore recognised in the opening balance sheet on 1
January 2019.
Adjustments recognised on adoption of IFRS 16
On adoption of IFRS 16, the Group recognised lease liabilities
in relation to leases which had previously been classified as
'operating leases' under the principles of IAS 17 Leases. These
liabilities were measured at the present value of the remaining
lease payments, discounted using the Group's incremental borrowing
rate as of 1 January 2019. The weighted average Group's incremental
borrowing rate applied to the lease liabilities on 1 January 2019
was 2.55%.
As at 1 January 2019 the Group did not hold any finance leases,
therefore no accounting adjustment for finance leases on transition
was necessary.
GBPm
----------------------------------------------------- ------
Operating lease commitments as at 31 December 2018 (22.6)
Less: adjustments on transition to IFRS 16 6.7
----------------------------------------------------- ------
(15.9)
Weighted average incremental borrowing rate as at 1
January 2019 2.55%
Lease liabilities under IFRS 16 as at 1 January 2019 (14.6)
Adjustments on transition to IFRS 16 includes non-lease
components, short-term and low-value leases, leases outside the
scope of IFRS 16 and additional leases identified through the
transition process.
The associated right-of-use assets for all leases were measured
on a retrospective basis as if the new rules had always been
applied. There were no onerous lease contracts that would have
required an adjustment to the right-of-use assets at the date of
initial application.
The effect of the adoption of IFRS 16 as at 1 January 2019 is as
follows:
Assets GBPm
--------------------------- ------
Right-of-use assets 14.2
Prepayments (0.4)
Deferred tax asset 0.2
--------------------------- ------
14.0
Liabilities
--------------------------- ------
Lease liabilities (14.6)
--------------------------- ------
(14.6)
Total adjustment on equity
--------------------------- ------
Retained earnings 0.6
--------------------------- ------
Impact on segment disclosures
EBITDA and segment assets for December 2019 increased as a
result of the change in accounting policy. Group liabilities are
not reported on a segment basis. The effect of the change in policy
at 31 December 2019 is as follows:
Bricks and Bespoke
Blocks Products Total
GBPm GBPm GBPm
-------------------- ---------- --------- -----
EBITDA 5.7 0.6 6.3
EBIT 0.4 - 0.4
Depreciation (5.3) (0.6) (5.9)
Right-of-use assets 11.9 1.8 13.7
-------------------- ---------- --------- -----
Practical expedients applied
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
-- the use of a single discount rate to a portfolio of leases
with reasonably similar characteristics;
-- reliance on previous assessments on whether leases are onerous;
-- the accounting for operating leases with a remaining lease
term of less than 12 months as at 1 January 2019 as short-term
leases;
-- the exclusion of initial direct costs for the measurement of
the right-of-use asset at the date of initial application; and
-- the use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
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
3 operating segments: Bricks, Blocks and Bespoke Products. The
principal activity of the operating segments are:
-- Bricks - Manufacture and sale of bricks to the construction sector
-- Blocks - Manufacture and sale of concrete blocks and
permeable block paving to the construction sector
-- Bespoke Products - Manufacture and sale of bespoke products to the construction sector
The Executive Committee considers that for reporting purposes,
the operating segments above can be aggregated into two reporting
segments: Bricks and Blocks and Bespoke Products. The aggregation
of Bricks and Blocks is due to these operating segments having
similar long-term average margins, production processes, suppliers,
customers and distribution methods.
In 2019, the Formpave business was reclassified from the Bespoke
Products to the Bricks and Blocks segment after management
reorganisation. The segment revenue, results, assets and other
information that follows have been restated to reflect this change
comparatively across periods.
The Bespoke Products range includes precast concrete, now
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 flooring products are complemented by the Group's full
design and nationwide installation services, while certain other
bespoke products, such as chimney flues, are complemented by the
Group's bespoke specification and design service.
Costs which are incurred on behalf of both segments are held at
the centre and these, together with general administrative
expenses, are allocated to the segments for reporting purposes
using a split of 80% Bricks and Blocks and 20% Bespoke Products.
Management considers that this is an appropriate basis for the
allocation. This allocation changed in 2019 to reflect the
reclassification detailed, and this is reflected in the
restatements below (previously the costs were allocated using a
split of 75% Bricks and Blocks and 25% Bespoke Products).
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.
Segment revenue and results:
2019
------------------------------------------ ----- -----------------------------
Bricks and Bespoke
Blocks Products Total
Notes GBPm GBPm GBPm
------------------------------------------ ----- ---------- --------- ------
Segment revenue 279.1 103.5 382.6
Intersegment eliminations (2.6)
------------------------------------------ ----- ---------- --------- ------
Revenue 380.0
------------------------------------------ ----- ---------- --------- ------
EBITDA before exceptional items 80.4 2.3 82.7
Depreciation and amortisation (15.0) (2.7) (17.7)
------------------------------------------ ----- ---------- --------- ------
Operating profit before exceptional items 65.4 (0.4) 65.0
Allocated exceptional items (3.3) (0.3) (3.6)
Unallocated exceptional items (0.7)
------------------------------------------ ----- ---------- --------- ------
Operating profit 60.7
Net finance expense 5 (2.5)
------------------------------------------ ----- ---------- --------- ------
Profit before tax 58.2
------------------------------------------ ----- ---------- --------- ------
Segment assets:
2019
------------------------------ ------ -------------------------
Bricks
and Bespoke
Blocks Products Total
Notes GBPm GBPm GBPm
------------------------------ ------ ------- --------- -----
Property, plant and equipment 148.6 34.0 182.6
Intangible assets 16.6 1.6 18.2
Right-of-use assets 11.9 1.8 13.7
Inventories 41.5 6.3 47.8
-------------------------------------- ------- --------- -----
Segment assets 218.6 43.7 262.3
Unallocated assets 67.0
-------------------------------------- ------- --------- -----
Total assets 329.3
-------------------------------------- ------- --------- -----
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
and cash and cash equivalents are centrally controlled and
unallocated.
Other segment information:
2019
---------------------------------------- ------ ----------------------------
Bricks and Bespoke
Blocks Products Total
Notes GBPm GBPm GBPm
---------------------------------------- ------ ---------- --------- -----
Property, plant and equipment additions 19.7 3.4 23.1
Intangible asset additions 1.5 0.2 1.7
Right-of-use asset additions 4.2 1.2 5.4
------------------------------------------------ ---------- --------- -----
Customers representing 10% or greater of revenues were as
follows:
2019
----------- ----------------------------
Bricks and Bespoke
Blocks Products Total
GBPm GBPm GBPm
----------- ---------- --------- -----
Customer A 40.3 1.9 42.2
Customer B 36.2 2.9 39.1
Segment revenue and results:
2018 (Restated)
------------------------------ ----- -----------------------------
Bricks and Bespoke
Blocks Products Total
Notes GBPm GBPm GBPm
------------------------------ ----- ---------- --------- ------
Segment revenue 277.5 92.2 369.7
Intersegment eliminations (2.2)
------------------------------ ----- ---------- --------- ------
Revenue 367.5
------------------------------ ----- ---------- --------- ------
EBITDA 75.8 3.0 78.8
Depreciation and amortisation (9.4) (2.3) (11.7)
------------------------------ ----- ---------- --------- ------
Operating profit 66.4 0.7 67.1
------------------------------ ----- ---------- --------- ------
Net finance expense 5 (2.3)
------------------------------ ----- ---------- --------- ------
Profit before tax 64.8
------------------------------ ----- ---------- --------- ------
Segment assets:
2018 (Restated)
------------------------------ ------ ----------------------------
Bricks and Bespoke
Blocks Products Total
Notes GBPm GBPm GBPm
------------------------------ ------ ---------- --------- -----
Property, plant and equipment 137.6 32.9 170.5
Intangible assets 15.4 1.9 17.3
Inventories 31.5 5.9 37.4
-------------------------------------- ---------- --------- -----
Segment assets 184.5 40.7 225.2
Unallocated assets 63.9
-------------------------------------- ---------- --------- -----
Total assets 289.1
-------------------------------------- ---------- --------- -----
Property, plant and equipment, intangible assets and inventories
are allocated to segments and considered when appraising segment
performance. Trade and other receivables and cash and cash
equivalents are centrally controlled and unallocated.
Other segment information:
2018 (Restated)
---------------------------------------- ------ ----------------------------
Bricks and Bespoke
Blocks Products Total
Notes GBPm GBPm GBPm
---------------------------------------- ------ ---------- --------- -----
Property, plant and equipment additions 15.3 1.3 16.6
Intangible asset additions 1.8 0.4 2.2
------------------------------------------------ ---------- --------- -----
Customers representing 10% or greater of revenues were as
follows:
2018 (Restated)
----------- ----------------------------
Bricks and Bespoke
Blocks Products Total
GBPm GBPm GBPm
----------- ---------- --------- -----
Customer A 46.6 2.1 48.7
Customer B 35.6 0.6 36.2
4 Exceptional items
2019 2018
GBPm GBPm
-------------------------- ----- -----
Restructuring costs (3.6) -
Aborted transaction costs (0.7) -
(4.3) -
-------------------------- ----- -----
The Group incurred exceptional expenses of GBP4.3m in 2019.
GBP3.6m of this relates to restructuring, of which the largest
element relates to the Group's Fletton brick facility near
Peterborough where plans were announced to reduce the workforce by
approximately 50 individuals.
In addition to the restructuring costs, exceptional costs
totalling GBP0.7m were also incurred in respect of an acquisition
which was not completed.
5 Net finance expense
2019 2018
GBPm GBPm
---------------------------------------- ----- -----
Interest payable on external borrowings (2.0) (2.2)
Interest payable on lease liabilities (0.4) -
Other finance expense (0.1) (0.1)
---------------------------------------- ----- -----
(2.5) (2.3)
---------------------------------------- ----- -----
6 Taxation
2019 2018
GBPm GBPm
-------------------------------------------------- ------ ------
Current tax
UK corporation tax on profit for the year (9.4) (11.7)
Prior year adjustment on UK corporation tax (0.5) 0.2
--------------------------------------------------- ------ ------
Total current tax (9.9) (11.5)
--------------------------------------------------- ------ ------
Origination and reversal of temporary differences (2.0) (0.7)
Effect of change in tax rates - 0.1
Effect of prior period adjustments 0.5 0.1
--------------------------------------------------- ------ ------
Total deferred tax (1.5) (0.5)
--------------------------------------------------- ------ ------
Income tax expense (11.4) (12.0)
--------------------------------------------------- ------ ------
2019 2018
GBPm GBPm
------------------------------------------------------------------------------------------------ ------ ------
Profit on ordinary activities before tax 58.2 64.8
Profit on ordinary activities multiplied by the rate of corporation tax in the UK of 19% (2018:
19%) (11.1) (12.3)
Effects of:
Change in tax rate - 0.1
Expenses not deductible for tax purposes (0.3) (0.1)
Prior period adjustments - 0.3
------------------------------------------------------------------------------------------------ ------ ------
Income tax expense (11.4) (12.0)
------------------------------------------------------------------------------------------------ ------ ------
The main rate of UK corporation tax for 2019 is 19.0%, which was
effective from 1 April 2017.
7 Dividends
2019 2018
GBPm GBPm
----------------------------------------------------------------------- ------ ------
Amounts recognised as distributions to equity holders in the year:
Interim dividend of 4.0p per share (2018: 3.3p) (7.8) (6.6)
Final dividend of 7.2p per share in respect of prior year (2018: 6.4p) (14.2) (12.7)
----------------------------------------------------------------------- ------ ------
(22.0) (19.3)
----------------------------------------------------------------------- ------ ------
The Directors are proposing a final dividend for 2019 of 7.5p
per share, making a total payment for the year of 11.5p (2018:
10.5p).
The proposed final dividend is subject to approval by the
shareholders at the AGM and has not been included as a liability in
the preliminary financial statements.
8 Earnings per share
2019 2018
Notes GBPm GBPm
-------------------------------------------------------------- ----- ------ ------
Operating profit for the year 60.7 67.1
Finance expense 5 (2.5) (2.3)
-------------------------------------------------------------- ----- ------ ------
Profit before taxation 58.2 64.8
Tax charge 6 (11.4) (12.0)
-------------------------------------------------------------- ----- ------ ------
Profit for the year 46.8 52.8
-------------------------------------------------------------- ----- ------ ------
Weighted average number of shares (millions) 196.6 199.2
Effect of share incentive awards and options (millions) 0.8 3.1
-------------------------------------------------------------- ----- ------ ------
Diluted weighted average number of ordinary shares (millions) 197.4 202.3
-------------------------------------------------------------- ----- ------ ------
Earnings per share:
Basic (in pence) 23.8 26.5
Diluted (in pence) 23.7 26.1
Basic earnings per share before exceptional items (in pence) 25.6 26.5
Earnings per share (EPS) before exceptional items is presented
as an additional performance measure and is calculated by excluding
the exceptional charge of GBP4.3m in 2019 and the associated tax
effect (the effective tax rate before the impact of exceptional
items was 19.3%).
9 Loans and borrowings
2019 2018
GBPm GBPm
------------------------------------------------------------ ----- -----
Non-current loans and borrowings
------------------------------------------------------------ ----- -----
External bank loans - Revolving Credit Facility 70.0 65.0
- unamortised debt issue costs (0.3) (0.5)
------------------------------------------------------------ ----- -----
69.7 64.5
------------------------------------------------------------ ----- -----
Current loans and borrowings
------------------------------------------------------------ ----- -----
External bank loans - interest 0.1 0.3
------------------------------------------------------------ ----- -----
0.1 0.3
------------------------------------------------------------ ----- -----
69.8 64.8
------------------------------------------------------------ ----- -----
Since 27 July 2017 the Group has had access to a five-year
revolving credit facility of GBP150m and an accordion facility of
GBP50m with a group of leading banks. This facility is in place
until July 2022.
Interest is payable on amounts drawn down under the agreement at
a rate of LIBOR plus a variable margin ranging from 1.25% to
2.25%.
The facility is subject to both financial and non-financial
covenants and is secured by fixed charges over the shares of
Forterra Building Products Limited and Forterra Holdings
Limited.
10 Net Debt
The analysis of net debt is as follows:
2019 2018
GBPm GBPm
-------------------------- ------ ------
Cash and cash equivalents 26.6 26.0
External bank loans (69.8) (64.8)
Lease liabilities (14.1) -
-------------------------- ------ ------
(57.3) (38.8)
-------------------------- ------ ------
11 Reconciliation of net cash flow to net debt
2019 2018
GBPm GBPm
----------------------------------------------------------------- ------ ------
Operating cash flow before exceptional items 64.9 79.8
Payments made in respect of exceptional items (1.1) -
----------------------------------------------------------------- ------ ------
Cash generated from operating activities after exceptional items 63.8 79.8
Interest paid (2.4) (2.2)
Tax paid (8.8) (11.8)
Net cash used in investing activities (24.3) (18.4)
Dividends paid (22.0) (19.3)
Purchase of shares by Employee Benefit Trust (9.7) (6.1)
Proceeds from sale of shares by Employee Benefit Trust 4.9 -
Lease liabilities recognised on adoption of IFRS 16 (14.6) -
New lease liabilities (5.4) -
----------------------------------------------------------------- ------ ------
(Increase)/decrease in net debt (18.5) 22.0
Net debt at the start of the period (38.8) (60.8)
----------------------------------------------------------------- ------ ------
Net debt at the end of the period (57.3) (38.8)
----------------------------------------------------------------- ------ ------
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
Executive Committee fall within this category.
2019 2018
GBPm GBPm
------------------------------------------- ----- -----
Emoluments including taxable benefits (2.4) (2.8)
Share-based payments (0.5) (0.7)
Pension and other post-employment benefits (0.2) (0.2)
------------------------------------------- ----- -----
(3.1) (3.7)
------------------------------------------- ----- -----
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 2020.
Risk management and key risks
Overview
Effective risk management is critical to us 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 continues to be a key priority. Our Risk
Management policy is critical to this and has been developed to
capture our risk management strategy, processes, reporting
measures, internal reporting lines and responsibilities. By
developing this we continue to increase awareness of risk
management, encourage further efforts to embed controls and ensure
a greater level of consistency across the Group. In summary, our
risk management objectives are to:
-- embed risk management into our management culture;
-- develop plans and make decisions that are supported by an
understanding of risk and opportunity; and
-- anticipate change and respond appropriately.
In the year Management made progress in formalising and better
documenting some of the procedures that have been put in place in
recent years and continuing to ensure that these documented
procedures reflect what is happening throughout the business.
Key risks
Key risks are determined by applying a standard methodology to
all risks which considers the potential impact and likelihood of a
risk event occurring before considering the mitigating actions in
place and the severity and likelihood of 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.
Brexit risk
The UK's decision to exit the European Union created significant
uncertainty for the Group and stakeholders. This uncertainty
existed throughout 2019 and continued to evolve and change; this
meant that significant time and resource had to be invested in
repeatedly mitigating this risk. The General election at the end of
2019 and signing of the withdrawal agreement in early 2020 gives
some greater clarity in the short-term, but with future
arrangements not fully finalised, the business will continue to
monitor risk closely and put procedures in place to mitigate risks
where possible.
The 'Brexit risk' is inherent within many of the key risks that
the Board regularly reviews. The main risk to the business arises
from a reduction in consumer confidence and its effect on the
markets which the Group serves. In these areas we cannot fully
control the risk through management actions, though we can mitigate
the impact. Our focus is therefore to stay close to our customers,
industry associations and advisors to ensure that we are up-to-date
with developments and equipped to respond.
At the balance sheet date, the Group was still holding higher
levels of raw material and critical spares, having built these
ahead of the departures dates that had been proposed in 2019.
Forward purchasing of this nature has been critical to mitigating
the Brexit risk on the supply chain. These measures ensured the
availability of materials, similar measures were taken to secure
prices, using forward purchase contracts for budgeted energy and
foreign currency requirements. Key mitigating activities in other
areas ensured cash flow was closely managed, access to sufficient
undrawn debt facilities was retained and market trends were being
continually tracked using leading and lagging indicators.
Risk appetite
The Group's risk appetite reflects that effective risk
management requires risk and reward to be suitably balanced.
Exposure to health and safety, financial and compliance risks are
mitigated as far as is reasonably practicable.
The Group is however prepared to take certain strategic,
commercial and operational risks in pursuit of its objectives;
where these risks and the potential benefits have been fully
understood and reasonable mitigating actions have been taken.
KEY RISK AND WHY IT IS RELEVANT YEAR-ON-YEAR CHANGE KEY MITIGATION, CHANGE AND SPONSOR
----------------------------------------------- ------------------- ------------------------------------------------
1. Health and safety Static Health and safety remains the Group's number one
Group employees work in manufacturing priority. The Group targets an accident free
environments where heavy machinery operates and environment and has a robust policy covering
moving expected levels of performance,
parts are present. Production can also expose responsibilities,
employees to noise, dusts and chemicals. As communications, controls, reporting, monitoring
a result there is a risk of serious injury or and review.
ill health. Lost Time Incident Frequency Rate 2019 saw the launch of 'The Golden Rules'. All
(LTIFR) is a critical KPI that is monitored at employees pledged to comply with these in
all levels in the business on an ongoing basis, pursuit
along with other leading and lagging of a zero-harm workplace. Further, significant
indicators. progress was made against a number of our other
high-profile objectives.
The safety, health and wellbeing of any party
involved in the Group's daily business
activities
is never compromised. Reducing accidents and ill
health is critical to strategic success.
Executive sponsor: Stephen Harrison
----------------------------------------------- ------------------- ------------------------------------------------
2. Sustainability Increased Whilst recognising the positive impact that the
The Group previously recognised environmental Group's products have on the built environment
risks in conjunction with Health & safety risks across their lifespan, the Group is also
(above). The mitigating actions were biased undertaking several initiatives to assess the
towards environmental compliance rather than detrimental
the impact that its existing business model has on
long-term sustainability of our business model, the environment and working with stakeholders
recognising the importance of all aspects to revise its model and mitigate any detrimental
of sustainability the risk has been separated impacts.
to ensure that sustainability receives Existing sustainability targets run from 2010
sufficient through to 2020. As this period comes to an
focus. end the Group are taking the opportunity to
reassess the current sustainability strategy and
link long-term ambitions with the UN Sustainable
Development Goals.
Executive sponsor: Stephen Harrison
----------------------------------------------- ------------------- ------------------------------------------------
3. Economic conditions Static Business performance, the customer order book
Demand for the Group's products is closely and external lead indicators are closely
correlated with residential and commercial monitored
construction to give the business time to respond to changing
activities. market conditions. The Group is confident
These markets decline if general economic that costs and capacity utilisation can be
conditions decline and the Group experienced effectively managed in challenging markets and
more the commissioning of the new Desford facility
challenging market conditions in 2019. The can be managed in a manner that reflects
outlook for 2020 has improved but uncertainty economic
remains conditions.
in the near-term. The range of products provided by the Group
through different distribution channels, to
different
end-markets and strong customer relationships
continue to provide some resilience.
Executive sponsor: Stephen Harrison
----------------------------------------------- ------------------- ------------------------------------------------
4. Government action and policy Static The Group participates in trade associations,
The general level and type of residential and attends industry events and tracks any policy
other construction activity is partly dependent changes associated with housebuilding and the
on the UK Government's housebuilding construction sector more broadly.
initiatives, investment in public housing and Where identified, the Group factors any emerging
availability issues into models of anticipated future
of finance. Proximity to the end of the current demand to guide strategic decision making.
phase of Help to Buy may stimulate demand The Group worked to actively mitigate the
ahead of March 2021 but may also see demand for short-term risks posed by Brexit through 2019.
the Group's products fall or change after The
this date. The Housing Infrastructure Fund focus was on the supply chain and production
could also have an impact. Changes to management.
Government Executive sponsor: Stephen Harrison
policy or planning regulations could adversely
affect Group performance.
----------------------------------------------- ------------------- ------------------------------------------------
5. Residential sector Activity levels Static The Group closely follows the demand it is
Residential development (both new build seeing from this sector, market projections,
construction and repair, maintenance and sentiment,
improvement) mortgage affordability, credit availability in
contribute a significant portion of Group order to identify and respond to opportunities
revenue. The weighting of Group revenues and risk. Group strategy encourages initiatives
towards that strengthen the Group's position in this
this sector means that any change in activity sector whilst also seeking to strengthen our
levels in this sector could affect our commercial offer.
strategic Executive sponsor: Stephen Harrison
growth plans.
----------------------------------------------- ------------------- ------------------------------------------------
6. Product availability Decreased In the short-term, the Group continues to
Some of the Group's product ranges are mitigate risk through its strong customer
manufactured at a single facility. Low buffer relationships,
stock efficiency initiatives, production planning and
levels and high capacity utilisation mean that managing shutdowns. However, capacity
a breakdown can cause product shortages and constraints
have a detrimental impact on the Group's and plant breakdowns can cause availability
performance and reputation. issues where the risk is not fully mitigated.
Further, whilst plans to add capacity at Desford
reduce the risk on some of our most popular
brick lines longer-term the project itself adds
risk i.e. the project does not run to plan
or hampers production at the existing facility
during the build phase.
Executive sponsors: George Stewart and Peter
Varnsverry
----------------------------------------------- ------------------- ------------------------------------------------
7. Customer relationships and reputation Decreased One of the Group's strategic priorities is to be
Significant revenues are generated from sales the supply chain partner of choice for our
to a number of key customers. Where a customer customers. By delivering excellent customer
relationship deteriorates there is a risk to service, enhancing our brands and offering the
revenue and cash flow. right products the Group seeks to develop our
long-standing relationships with major customers
and replicate these with newer customers.
Regular and frequent review meetings focus on
the
Group's effectiveness in this area and external
expertise has been engaged to support these
appraisals.
Some of the stock availability challenges seen
in 2018 have now receded, back-office finance
and sales system have been fully migrated for
Brick and Block and new fleet scheduling and
delivery tracking systems have been put in
place.
Executive sponsor: Adam Smith
----------------------------------------------- ------------------- ------------------------------------------------
8. Cost and availability of raw material Decreased The Group continues to focus on ensuring it sees
Availability of raw materials can vary at times stable prices for and continuity of supply
and where shortages exist, the Group is for certain key raw materials. The cost and
susceptible availability of pulverised fuel ash remains a
to significant increases in the price and risk for the business. Conversion of the
threats to its ability to meet customer facilities at Newbury and Hams Hall to accept
expectations. substitute
raw materials has been successful at minimising
the requirements for dry pulverised fuel ash,
but some requirement remains and the
availability and price of this remains variable.
Certain
other raw materials pose similar (though lesser)
risk, the Group continues to evaluate options
that mitigate these risks too. The Brexit threat
to its supply chain was managed through 2019,
firstly in preparation for a 'hard Brexit' in Q1
and then in Q4
Executive sponsors: George Stewart and Peter
Varnsverry
----------------------------------------------- ------------------- ------------------------------------------------
9. People training and development Decreased The Group understands where key person
The Group recognises that its greatest asset is dependencies and skills gaps exist and continues
its workforce and a failure to attract, retain to
and develop talent will be detrimental to Group develop its succession, talent acquisition, and
performance. retention plans. Local risks are being managed
through the local operational risk registers,
and apprentice and graduate schemes continue
to prove effective in mitigating staffing risks
and supporting strategic priorities at all
levels. On balance the risk has reduced,
however, progress implementing the Group's new
HR
and payroll systems has been slower than
envisaged and will be a key priority in 2020.
Executive sponsor: Edward Haslam
----------------------------------------------- ------------------- ------------------------------------------------
10. Research and development Increased Strong relationships with customers and
Demand for the products that the Group independently administered customer surveys
manufactures may decline if the Group fails to ensure
respond that the Group understands current and future
to market developments and revenues and margins demand. Close ties between the Strategy,
may suffer. Operations
and Commercial functions ensure that the Group
focuses on the right areas of research and
development.
The Group continues to develop manufacturing
processes and the product range and regularly
assesses how this supports the Group's progress
against its strategic priorities and in line
with its values. During the year particular
progress was made developing products for the
off-site construction markets and developing
this route to market is a priority for 2020.
Reducing the requirement for skilled labour
on-site is important to our customers; who are
also increasingly demanding more sustainable
supply chains and reinforcing the need for
investment
in this area.
Executive sponsor: Darren Rix
----------------------------------------------- ------------------- ------------------------------------------------
11. IT infrastructure and systems Decreased The Group has undertaken a period of investment
Disruption or interruption to IT systems could in consolidating, modernising and extending
have a material adverse impact on performance the reach of our IT systems. The implementation
and position. of an Information Security Management System
in the year has been recognised by ISO
accreditation.
In addition to ensuring that we maintain the
availability, integrity and confidentiality of
our systems, we must pursue further
opportunities to optimise our systems to ensure
further
benefits are realised and improve operational
effectiveness.
Executive sponsor: Matthew Day
----------------------------------------------- ------------------- ------------------------------------------------
12. Business continuity Static The Group has made plans that will allow key
Group performance is dependent on key centralised functions to operate in the event
centralised functions operating continuously of business interruption and audit activities
and manufacturing have been undertaken to assess the effectiveness
functions operating uninterrupted. Should the of these plans. The focus of continuity efforts
Group experience significant disruption there at operational facilities has been on system
is a risk that products cannot be delivered to availability, emergency response and disaster
customers to meet demand and all financial recovery. The Group has previously established
KPIs may suffer. a Business Continuity policy. By doing this
managers can apply clear principles to develop
plans quickly where a scenario without a
pre-prepared plan is faced, For instance,
following
these principles and using existing plans for
loss of resource and
loss of facilities, Management have been able to
plan how to mitigate the risks presented
where a pandemic (like COVID-19) results in a
restriction on the movement of people and
prolonged
periods of working from home.
Executive sponsor: Ben Guyatt
----------------------------------------------- ------------------- ------------------------------------------------
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END
FR FLFSAVIIAIII
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