Forterra Regulatory News (FORT)

24 January 2024

FORTERRA PLC

2023 Trading Update

Adjusted EBITDA expected to be slightly ahead of the Board's previous expectations

Forterra plc (the 'Group'), a leading UK manufacturer of essential clay and concrete building products, provides its trading update for the year ended 31 December 2023.

Trading

· Full year revenue totalled c.£345m (2022: £455m), a year-on-year reduction of c.24%, with the impact of falling sales volumes partially offset by pricing benefits.

· Despite weak demand, pricing across our range of products remains resilient with modest 2024 price increases recently communicated.

· Figures published by the Department of Business and Trade highlight that UK brick despatches in the three-month period to November were 33% lower than the equivalent period in 2022, taking the cumulative YTD reduction to approximately 30%. As highlighted previously, our own despatches fell by a greater percentage driven by our exposure to volume housebuilding which suffered the greatest impact from rising interest rates.

· Despite continued challenging market conditions we expect to report full year adjusted EBITDA slightly ahead of the Board's expectations.

Management Actions

· Strong management actions during the year will deliver annualised fixed costs savings in excess of £20m with around £6m realised in 2023 with the balance in 2024. One-off cash restructuring costs are expected to total £9m of which £4m will be paid in 2024.

· Faced with increasing inventory levels, we made further reductions to production during the second half of 2023 which, assuming 2024 demand remains consistent with 2023, will ensure output is aligned with sales.

· 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 temporary reductions will not impact our ability to respond quickly when our markets recover, with the new Desford brick factory also providing us with a significant capacity uplift.

Balance Sheet

· Reflecting our inventory build, capital expenditure and the management actions taken during 2023, year-end net debt before leases is expected to be c.£95m.

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.

· However, with the long term under supply of housing in the UK continuing to worsen, and UK brick despatches now running at levels last seen in 2009, the Board remains confident in the Group's ability to benefit as our key markets recover.

· Recent reductions in mortgage interest rates will improve the affordability of new homes, thus increasing demand for our products.

· The Group intends to announce its FY23 results on 26 March 2024.

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