2020 HALF YEAR RESULTS

 

 

10 September 2020      

FORTERRA PLC

2020 HALF YEAR RESULTS

Forterra plc, a leading UK producer of manufactured masonry products, announces half year results for the six months ended 30 June 2020.

	Six months ended			Six months ended
	30 June			30 June
	2020			2019
	£m			£m
	Statutory	Exceptional items	Before exceptional items	Statutory*
Revenue	122.4	-	122.4	193.6
EBITDA	(12.4)	20.6	8.2	42.5
Operating (loss)/profit	(21.4)	20.6	(0.8)	33.9
(Loss)/Profit before tax	(23.3)	21.0	(2.3)	32.7
EPS (pence)	(10.3)	10.3	-	13.6
Net debt	80.3	-	80.3	49.6
Interim dividend (pence)	-	-	-	4.0

* There were no exceptional items in H1 2019 so these comparatives are directly comparable with the 2020 result before exceptional items

CURRENT TRADING AND RECENT DEVELOPMENTS

·  Trading since emerging from lockdown through to the end of August has exceeded management expectations although uncertainties remain

·   Production has now resumed at all factories operating in line with Government guidance to protect employees

·     Swift management action to right-size cost base completed, reducing fixed costs by £10.4m

·     £55m equity placing and refinancing completed at beginning of July secures bank facilities out to 2024 and strengthens balance sheet

·      Desford brick factory project funding secured with construction progressing 

·     July and August sales revenues highlight encouraging recovery at 89% and 82% of prior year respectively, with Brick and Block revenues exceeding 90% of prior year comparative in both months

·   Subject to a continuation of current trading conditions and there being no further COVID-19 driven disruption, the Board expect full year EBITDA, stated before exceptional items, to be in the range of £27m-£32m

FINANCIAL HIGHLIGHTS

·      Revenue fell by 37% relative to the prior period due to the impact of COVID-19

·      EBITDA before exceptional items decreased by £34.3m to £8.2m

·      Result before tax and exceptional items decreased by £35.0m from a profit of £32.7m to a loss of £2.3m

·     Exceptional items of £21.0m include non-cash impairment charges of £16.2m, restructuring costs of £4.4m and debt-refinancing costs of £0.4m

·      Net debt at 30 June 2020 (stated prior to the receipt of the proceeds from the equity placing) was £68.6m before lease liabilities and £80.3m after including IFRS 16 lease liabilities of £11.7m.

Stephen Harrison, Chief Executive Officer, commented:

"The Group faced unprecedented challenges during the first half and I would like to thank all our employees and other stakeholders for their collaborative approach in overcoming the challenges we faced through this period.

"Inevitably, our results were heavily impacted by COVID-19 and the associated lockdown. We took swift action to ensure the wellbeing of our employees as demand for our products fell dramatically and we ceased production at the majority of our facilities. We also acted decisively to manage our cost base and ensure sales and production remained balanced. We have now substantially completed a range of restructuring actions and production has now resumed at all our factories.

"I am pleased to report that trading since emerging from lockdown has exceeded management's expectations and we remain very confident in the long-term recovery of our markets.

"Subject to a continuation of current trading conditions and there being no further COVID-19 driven disruption, the Board expects full year EBITDA, stated before exceptional items, to be in the range of £27m-£32m. The Board will continue to monitor our key markets and the economy more generally and believes that the Group's strong balance sheet, reinforced by the recent equity placing and refinancing, provides both the resilience and agility required in these unprecedented times."

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 September 2020, 10.00am. The presentation can be accessed via the link below:

https://kvgo.com/IJLO/2020_Half_Year_Results_Announcement 

A recording of this webcast will be available later in the day on the Investors section of our website (http://www.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. The Group also has a leadership position in the precast concrete products market operating under the well-known Bison precast brand.

Within our clay bricks business, Forterra focuses on 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, Forterra is 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

SUMMARY

The results for the first half of 2020 were heavily impacted by the COVID-19 pandemic and the associated lockdown. The period started normally with the business trading broadly in line with expectations in January and February. The impact of COVID-19 was felt suddenly in March with swift action taken to ensure the wellbeing of our employees. Demand for our products fell dramatically and we ceased production at the majority of our facilities.

We are extremely grateful to all of our employees who have in different ways helped us overcome the unprecedented challenges faced during the period.  Some of them continued to work through lockdown allowing manufacturing to continue for critical projects, others delivered our products when our customers needed them. Many of our office staff overcame a number of challenges to work flexibly from home and finally we are mindful of the sacrifices made by the large proportion of our workforce who were furloughed. We also wish to acknowledge the collaborative approach taken by many of our customers, suppliers and peers within the construction sector as we looked to overcome the challenges by working together.  

Activity levels started to improve in May and continued to recover strongly allowing production to recommence at most of our facilities prior to the period end. This recovery has continued through the summer with trading exceeding management expectations. At the date of this report, production has recommenced at all of our facilities. However, whilst the current buoyancy in the housing market provides cause for optimism the future remains subject to uncertainty. In order to manage our cost base and ensure sales and production remain balanced, we have substantially completed a range of restructuring actions which include around 225 job losses, primarily in the Bespoke Products division. While this is regrettable, this has served to reduce our annual fixed costs by £10.4m. We believe this decisive action has positioned the business well to deal with any future uncertainty. 

RESULTS FOR THE HALF YEAR

Revenue was £122.4m, a decrease of 37% against the comparative period for 2019 (2019: £193.6m).  The loss before tax for the period before exceptional items of £2.3m was a fall of £35.0m against the comparative period (2019: profit of £32.7m). 

Trading during the first two months of the year was broadly in line with expectations despite the particularly wet weather acting as a headwind. The business was first impacted by the pandemic in mid-March. The health, safety and wellbeing of our employees was our primary concern and we took prompt action to allow our colleagues to work from home wherever possible and eliminated all unnecessary travel. As the crisis deepened and lockdown was announced, a decision was taken to cease production at the majority of our manufacturing operations shutting down facilities in a controlled and safe manner. 

During late March demand for our products fell suddenly and steeply. Revenue in March was 74% of the 2019 comparative with much of the shortfall occurring in the last week of the month. Whilst the decision to suspend production was initially made on safety grounds, it soon became clear that any early resumption of production would have led to a significant and unwanted inventory build.  

Production remained suspended at most of our operations throughout April. Manufacturing did continue throughout this period in accordance with public health guidance at three of our facilities in order to service key Government backed infrastructure projects. We were also able to continue despatching bricks and blocks to our customers who still required them using our own delivery vehicles, again following all applicable safety guidance.

In addition to ensuring the safety of our colleagues, Management's focus turned to cash preservation.   The Coronavirus Job Retention Scheme (JRS) allowed for the mitigation of cash outflows whilst allowing our employees to continue to receive an income. During the peak of the pandemic in April approximately 75% of the Group's workforce were furloughed. As at 30 June 2020, 30% of the workforce remained on furlough and by the end of August the vast majority of our employees had returned from furlough.  In the period to 30 June 2020 the total claim under the JRS totalled £8.4m.

In recognition of the sacrifices made by the large proportion of the workforce whom were placed on furlough, the Board and Executive Committee took a voluntary 20% pay cut which lasted for three months commencing in April and in addition bonus entitlements for 2019 performance which would have been payable in April were cancelled.

Revenue in April 2020 was 14% of the 2019 comparative. At the end of the month, following Government guidance encouraging construction sites to reopen and in response to many builders' merchants themselves reopening and having undertaken the necessary risk assessments, the first kiln at one of our brick factories was relit. Production of hollowcore precast concrete flooring also recommenced in order to service customer requirements.

Trading recovered through May with revenue for the month being 38% of the 2019 comparative. Further facilities recommenced production although the strategy remained very much one of cash preservation with the aim being to sell from inventory wherever possible, actively managing inventory levels downwards and only recommencing production where necessary to meet customer requirements. The recovery in May was driven predominantly by the builders' merchants where strong sales were underpinned by a recovering Repair Maintenance and Improvement (RM&I) market along with demand from smaller housebuilders. The larger housebuilders appeared at this stage to be focused on finishing existing work in progress and as such their demand for our products remained muted.

The recovery continued to gain pace throughout June with revenues recovering to 74% of the prior year allowing production to restart to some degree at the majority of our facilities such that by the beginning of July, 16 of our 18 facilities had manufactured product since the pandemic struck. Demand across our product range varied somewhat although it was noteworthy that sales of the London Brick, sold exclusively into the repair maintenance and improvement channel, were ahead of our pre COVID-19 expectations  again demonstrating the strength of this channel in leading the recovery at this time.  

RESTRUCTURING AND EXCEPTIONAL COSTS

The Board firmly believes that the ultimate recovery of the Group's key markets is not in doubt. However, with significant uncertainty as to the levels of future demand there is an increased need for the business to be agile in the near term and it is important that the Group's cost base is adjusted accordingly to enable this.  We have therefore taken steps to restructure the Group's operations removing £10.4m of fixed costs.

The steps implemented include both changes to shift patterns and adjustments to the size and structure of support functions. We have consolidated the manufacture of all precast concrete flooring products at our Hoveringham facility in Nottinghamshire. This necessitated the mothballing of our hollowcore flooring manufacturing facility at Swadlincote in Derbyshire.  In total, these changes regrettably lead to the loss of approximately 225 jobs, primarily from our Bespoke Products division.

As a result of the restructuring an exceptional charge for redundancy and severance costs of £4.4m has been recognised along with an exceptional non-cash impairment charge of £10.2m in respect of an impairment in the carrying value of the Swadlincote hollowcore facility and associated goodwill following the decision to mothball this facility.  A further impairment charge of £6.0m is recognised in respect of the historic goodwill balance relating to the Formpave business; which was created on HeidelbergCement's acquisition of Hanson in 2007. This impairment followed a reassessment of the future discounted future cashflows expected to be generated by this business.   

Whilst the refinancing and equity raise was completed after the period end and as such is not reflected in these financial statements, exceptional professional costs of £0.4m relating to the refinancing have been recognised in the period. 

 

DIVIDEND

The 2019 final dividend was cancelled upon the onset of the pandemic with the resolution which had previously been proposed being withdrawn ahead of the AGM preserving £14.2m of cash reserves. The Board does not anticipate declaring a dividend for the financial year 2020 with our current strategy focussed on maintaining a strong balance sheet whilst continuing with the construction of our new Desford brick factory. This strategy will ensure that the Group is able to benefit from the anticipated recovery of its key markets but also ensure a strong balance sheet is retained even if the recovery is slower than anticipated. The Board is fully aware of the importance of dividend payments to our shareholders and will endeavour to resume distributions as soon as the current levels of uncertainty subside and results allow. 

CASH FLOW, BORROWINGS AND FACILITIES

Net debt as at 30 June 2020 was £80.3m (2019: £49.6m). Excluding leases, net debt at 30 June 2020 was £68.6m (2019: £34.5m) This represents an increase of £25.4m on the 31 December 2019 figure of £43.2m with this increase being driven by seasonal working capital trends, and capital spend on the Desford project along with the impact of the pandemic.

Operating cashflow was significantly impacted by the effects of the pandemic with a net cash outflow from operations of £4.2m compared to an inflow of £27.6m in 2019. During the lockdown the Group was able to protect its cash reserves and despite initial fears, was able to collect the overwhelming majority of customer receivables with only minor delays.  Bad debts of £0.2m (2019: £nil) were incurred in the period and a charge of £0.5m (2019: £nil) was recognised as the bad debt provision was increased to address an increased risk of customer default following the pandemic.  

Net debt to EBITDA (calculated with reference to the last twelve months of earnings before exceptionals and excluding the effect of IFRS 16 and capitalised finance costs in accordance with the Facility Agreement) was 1.6 times at 30 June 2020 compared with 0.6 times at 31 December 2019.

As at 30 June 2020, the Group's debt facility comprises a committed Revolving Credit Facility (RCF) of £150m extending to July 2022 with a group of major international banks. At 30 June 2020, the facility was fully drawn. On 7 July 2020 following the equity placing which occurred on 1 July 2020 an amendment to the RCF came into effect, increasing the facility size by £20m to £170m and extending maturity to July 2024.  

DESFORD FACTORY CONSTRUCTION

Construction of the new Desford brick manufacturing facility in Leicestershire continued through lockdown albeit not without some delays which now mean that the facility is likely to be completed approximately six months later than originally anticipated with commissioning now expected to commence towards the end of 2022.  

Our current expectation for the timing of the cash outflows on the project is as follows: £26 million in 2020, £24 million in 2021, £28 million in 2022 and £5 million in 2023.

The equity placing and refinancing which was completed after the balance sheet date and which is explained in more detail below provides certainty in that even if the recovery from the pandemic is slower than anticipated, the Group will have the resources to complete the factory whilst still retaining a strong balance sheet. The Desford factory which will be the largest brick manufacturing facility in Europe will be transformational to the business. With the current factory approaching the end of its useful life, the new facility will increase Group brick manufacturing capacity by 16% as well as delivering leading levels of efficiency and profitability.  

 

EQUITY PLACING AND REFINANCING

The Group entered the crisis in mid-March with net debt of approximately £80m (excluding lease liabilities) having increased from a December 2019 position of £43.2m, primarily driven by seasonal working capital movements along with spend on the Desford factory. This afforded liquidity headroom of around £70m (plus an uncommitted overdraft of £10m) giving the Group a strong liquidity buffer especially after the Government had launched the JRS which helped sufficiently mitigate the rate of cash burn during lockdown.  

The Company applied for and was confirmed as eligible for the joint HM Treasury and Bank of England COVID Corporate Financing Facility (CCFF) with an issuer limit of £175 million. The Board does not have any present intention to draw upon this facility, which provides the Group with additional emergency liquidity should it be required.

With the spend on the Desford project approximately one third committed, the COVID-19 crisis presented the Board with an additional challenge. The £70m liquidity buffer described above was felt to be sufficient to allow the business to withstand any likely lockdown scenario although the funding of the new Desford factory needed to be considered alongside this. With around £50m of purchase contracts in respect of the manufacturing equipment due to be awarded in the second half of 2020 and with the Group's banking facilities expiring in June 2022 and requiring refinancing in the first half of 2021 at the latest, the Board determined that it would be necessary to strengthen the Group's balance sheet to ensure the Desford project could be funded without jeopardising the financial security of the Group. 

On 1 July 2020, the Company completed a £55.0m equity raise by way of issuing 28,205,128 ordinary shares of 1p (14.1% of issued share capital) in a non pre-emptive placing. After fees, the Company received net proceeds of £52.6m. This equity issuance also facilitated a refinancing of the Group's debt facilities with the £150m RCF expiring in July 2022 being increased to £170m with expiry extended to July 2024. The refinancing also provides a package of covenant relaxations covering the next fifteen months with covenants returning to normal in December 2021. Normal covenants are net debt: EBITDA of < 3 times and interest cover of > 4 times. 

These proceeds along with the extended tenure and increased quantum of credit facilities will ensure the Group can support its continued investment programme, including the completion of the new brick manufacturing facility at Desford in Leicestershire, which is expected to generate attractive returns over the medium term and position the Group to benefit from the long-term growth in the housing market whilst ensuring the balance sheet remains strong.

Both the equity placing and refinancing took place after the end of the period and are not reflected in these financial statements. As at 31 August 2020 net debt (excluding leases) was £18.1m highlighting the strength of our balance sheet following the placing and refinancing.  

CURRENT TRADING AND OUTLOOK

We remain very confident in the long-term recovery of our markets. Trading since emerging from lockdown has exceeded management's expectations. The current recovery in the housing market supported by Government intervention in the form of the SDLT holiday is encouraging although it is unclear how the market will respond post 31 March 2021 when the SDLT holiday ends along with the tapering of the Help to Buy scheme.

The recovery of our key markets and revenues seen in May and June continued through July and August. Revenues in July were 89% of 2019 and 82% in August with the Brick and Block segment exceeding 90% in both months highlighting the continued encouraging recovery. Initially the recovery was driven by our distributors which will have included an element of catch up that we now see stabilising. Demand from our housebuilding customers was slightly slower to recover although sales to this channel increased in July and August. Sales of our precast concrete floor beams, which we view as a leading indicator of housing starts, have been slower to recover than many of our other products although in September we are now seeing a further recovery in the order book for these floor beams suggesting that new housing starts are continuing to recover. 

We have restarted production at all of our manufacturing facilities and by the end of August the vast majority of our employees had returned from furlough.   

Construction work continues on the new Desford brick factory in line with expectations following the recent equity placing and refinancing which secured the funding to complete this project. The Board remains confident that the new factory and the extra capacity and industry leading efficiency that it will deliver will allow the Group to capitalise on the recovery of our core markets.

Clearly the possibility of further COVID-19 related disruption to our business remains although we take comfort from the fact that our industry and the wider construction market has made great steps in learning to operate in an environment where COVID-19 is present and we are confident that our safe operating procedures will allow us to keep our employees safe and limit disruption should infection rates increase again.  Our customers have adapted their ways of working which should mean demand for our products will show greater resilience in future.   

Subject to a continuation of current trading conditions and there being no further COVID-19 driven disruption, the Board expects full year EBITDA, stated before exceptional items, to be in the range of £27m-£32m. The Board will continue to monitor our key markets and the economy more generally and believes that the Group's strong balance sheet, reinforced by the recent equity placing and refinancing, provides both the resilience and agility required in these unprecedented times.  

 

BRICKS AND BLOCKS

	Six months ended			Six months ended
	30 Jun			30 Jun
	2020			2019
	£m			£m
	Statutory	Exceptional items	Before exceptional items	Statutory		Change %
Revenue	90.5	-	90.5	143.9		-37.1%
EBITDA	3.4	7.7	11.1	41.6
EBITDA margin	3.8%		12.3%	28.9%

 

 

Revenue in the first half decreased by 37.1% compared with the same period last year. At the beginning of the period price increases were applied across the brick product range to offset the effect of input cost inflation. Pricing was more challenging in aircrete blocks with greater levels of inventory in the supply chain limiting scope for increases.  

Trading started the year broadly in line with expectations. Following a slower end to 2019 driven by uncertainty around Brexit and the General Election, expectations were that 2020 would start relatively slowly but demand would gain momentum in the spring as the housebuilders increased output and opened new sites. Exceptionally wet weather did nothing to enhance demand in January and February and then in March the effects of the COVID-19 crisis became apparent followed by a swift progression into lockdown.

Segment revenues were around 70% of 2019 in March, 16% in April, 42% in May and 74% in June as a steady recovery continued. The recovery in demand in May and June was driven by the merchanting sector feeding off strong RM&I demand along with that from smaller housebuilders. Demand from the larger housebuilders remained constrained as they focused on completing existing work in progress although this has improved significantly post period end.  

Production at our factories was severely disrupted though April and May. As a result, a cost of £2.1m in respect of onerous energy contracts was incurred. The business makes use of forward contracts to fix the price of its electricity and gas purchases. The COVID-19 pandemic resulted in an unprecedented and sudden decline in manufacturing activity levels and accordingly our consumption of energy was significantly reduced.  Where activity levels did not require the levels of energy which had been forward purchased, we were able to sell the unused commodity back to the market at the prevailing market rate realising a loss of £2.1m. It is currently anticipated that the energy forward purchased for the second half of the year will be utilised and the cost of energy will be charged to the Income Statement at the contracted rates in the second half. 

 

BESPOKE PRODUCTS

	Six months ended			Six months ended
	30 Jun			30 Jun
	2020			2019
	£m			£m
	Statutory	Exceptional items	Before exceptional items	Statutory		Change %
Revenue	33.0	-	33.0	50.9		-35.2%
EBITDA	(15.4)	12.5	(2.9)	0.9
EBITDA margin	-46.7%		-8.8%	1.8%

 

 

Overall revenue for Bespoke Products decreased by 35.2% as a result of the impact of the pandemic.

Demand for our precast concrete flooring products fell to almost nothing in April and only partly recovered in May. Volumes recovered further in June although the recovery, especially in floor beam products, lagged behind the recovery seen in bricks and blocks highlighting a slower recovery in new housing starts relative to the RM&I market.  

The majority of the headcount reductions have been made from the Bespoke Products segment and in particular Bison Precast with the mothballing of the hollowcore facility at Swadlincote and the consolidation of precast concrete flooring manufacture at the more flexible Hoveringham facility. 

As reported previously, trading conditions in the hollowcore flooring market have been deteriorating for the last few years with margins declining through this period. A probable outcome of the COVID-19 crisis in the medium term is that there is likely to be a reduction in demand for both apartments and offices, building types that utilise hollowcore flooring in their construction. The recovery in the residential construction sector is expected to be driven by single family housing with home buyers keen to secure more space at the expense of being further from city centres.  In addition, the growth in home working driven by necessity through lockdown is likely to lead to a reduction in demand for new urban office space. Considering this likely fall in demand coupled with the low margins associated with the hollowcore product prior to the crisis, management are confident that this consolidation of production and the significant cost rationalisation it provides will help to mitigate the impact of declining demand.

Non-housing products however have proved to be more resilient. Working in accordance with public health guidelines, manufacturing continued throughout lockdown on key government infrastructure projects including the new prison at Wellingborough where we recently supplied the last of almost 5,000 bespoke precast concrete components.  In addition, products continued to be manufactured and supplied into the Hinkley Point nuclear power station project along with a flood defence scheme in Leeds.

Looking forward, following on from the successful Wellingborough prison project we are now pleased to have been awarded a large order working with Lendlease on the construction of the Ministry of Justice's next new prison construction project at Glen Parva in Leicestershire.

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties facing the business have changed as a result of the COVID-19 pandemic. As such the Group has appended to this interim statement a summary of risks emerging as a result of COVID-19 and an update to each of the risks recently presented in the 2019 Annual Report and Accounts.

 

GOING CONCERN

The Group meets its working capital requirements through its cash reserves and borrowings. The Group closely manages working capital to ensure sufficient daily liquidity and prepares financial forecasts and stress tests to ensure sufficient liquidity over the medium-term. Responding to potential short to medium term liquidity needs identified in the financial forecasts and stress tests the Group has secured a refinancing of its existing bank facilities by way of amendment and restatement of existing documentation on 7 July 2020. The amended and restated facility provides (i) an extended maturity by two years to July 2024; (ii) an increase in the facility of £20 million to £170 million; and (iii) a package of covenant relaxations. Further, and in order to support this refinancing, Forterra plc has also carried out a placing of new ordinary shares of £0.01 each in its share capital to raise £55.0m gross proceeds on 1 July 2020. The Group also has access to £175m through the joint HM Treasury and Bank of England COVID Corporate Financing Facility (CCFF) which could be drawn down if required; subject to continuing to meet the lender's criteria. Refer to note 12 which details current funding arrangements.

The Group has modelled financial scenarios that reflect the impact of the COVID-19 pandemic on the rate of recovery in both the Brick and Block and Bespoke Products divisions. These financial scenarios also stress-test the Group's resilience. The two main scenarios link to the most recent forecasts for the residential construction market published by the Construction Products Association, one following the forecasts and one representing downside risks. These have been termed the "Accelerated Recovery Scenario" and "Slower Recovery Scenario" and show the Group recovering to pre-pandemic levels in 2022 under the accelerated scenario and 2023 under the slower scenario. The Group have taken steps under both scenarios to manage costs and other controllable expenditure, such as CAPEX. Under both scenarios the Group can meet its current funding needs through available funds and is able to meet the relaxed covenants agreed on refinancing in July 2020. COVID-19 safe working practices are now firmly in place, the Group's customers and suppliers have made similar alterations to their procedures and the Government have made clear that the industry should continue where these safe working practices are in place. As such, Management do not anticipate that there will be a need to concurrently close all operations once more and believe the likelihood of a deterioration in financial performance to the levels seen in March, April and May 2020 is remote.

Taking account of all reasonably possible changes in trading performance, the current financial position of the Group and with the post balance sheet refinancing and equity placing successfully completed, 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 the interim financial statements.

FORWARD LOOKING STATEMENTS

 

Certain statements in this half yearly report are forward looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to be correct. Because these statements contain risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE INTERIM REPORT

We confirm to the best of our knowledge:

·      the condensed consolidated set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

·      the interim management report includes a fair review of the information required by:

a)   DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b)   DTR 4.2.8R of the Disclosure and Transparency Rules, being material related party transactions that have taken place in the first six months of the current financial year and any material changes in the related party transactions described in the annual report.

 

By order of the Board

 

 

 

Stephen Harrison                                                                                 Ben Guyatt      

Chief Executive Officer                                                                          Chief Financial Officer

 

10 September 2020      

 

 

INDEPENDENT REVIEW REPORT TO FORTERRA PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 which comprises Condensed Consolidated Income Statement, Condensed Consolidated Statement of Financial Position, Condensed Consolidated Statement of Changes in Equity, Condensed Consolidated Statement of Cash Flows and related notes 1 - 16. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with lFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

Ernst & Young LLP

London

10 September 2020

 

CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE HALF YEAR ENDED 30 JUNE 2020 (UNAUDITED)

 

				Six months ended   30 June			Year ended 31 December
		Note		2020		2019		2019
				Unaudited		Unaudited		Audited
				£m		£m		£m
	Revenue	6		122.4		193.6		380.0
	Cost of sales			(112.5)		(121.4)		(243.8)
	Gross profit			9.9		72.2		136.2
	Distribution costs			(17.5)		(27.6)		(54.4)
	Administrative expenses			(13.9)		(11.3)		(21.8)
	Other operating income			0.1		0.6		0.7
	Operating (loss)/profit			(21.4)		33.9		60.7
	EBITDA before exceptional items			8.2		42.5		82.7
	Exceptional items	7		(20.6)		-		(4.3)
	EBITDA			(12.4)		42.5		78.4
	Depreciation and amortisation			(9.0)		(8.6)		(17.7)
	Operating (loss)/profit			(21.4)		33.9		60.7
	Finance expense before exceptional items			(1.5)		(1.2)		(2.5)
	Exceptional finance expense	7		(0.4)		-		-
	Finance expense	8		(1.9)		(1.2)		(2.5)
	(Loss)/profit before tax			(23.3)		32.7		58.2
	Income tax credit/(expense)	9		2.8		(6.0)		(11.4)
	(Loss)/profit for the financial period attributable to equity shareholders			(20.5)		26.7		46.8
	Total comprehensive (loss)/income for the period attributable to equity shareholders			(20.5)		26.7		46.8
	(Loss)/earnings per share:
	Basic (in pence per share)	10		(10.3)		13.6		23.8
	Diluted (in pence per share)	10		(10.3)		13.4		23.7

 

The notes on pages 19 to 30 are an integral part of these condensed consolidated financial statements.

All results relate to continuing operations.

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2020 (UNAUDITED)

 

		As at   30 June			As at 31 December
Note		2020		2019		2019
		Unaudited		Unaudited		Audited
		£m		£m		£m
Assets
Non-current assets
Intangible assets		11.3		17.9		18.2
Property, plant and equipment		182.7		172.0		182.6
Right-of-use assets		11.2		14.8		13.7
		205.2		204.7		214.5
Current assets
Inventories		44.2		42.1		47.8
Trade and other receivables		38.5		55.1		40.4
Cash and cash equivalents		81.9		32.2		26.6
Income tax receivable		2.9		-		-
		167.5		129.4		114.8
Total assets		372.7		334.1		329.3
Current liabilities
Trade and other payables		(60.8)		(93.0)		(71.5)
Income tax liabilities		-		(5.9)		(3.5)
Loans and borrowings	12	(0.7)		(0.1)		(0.1)
Lease liabilities		(4.4)		(5.4)		(5.1)
Provisions for other liabilities and charges		(4.2)		(3.7)		(4.3)
		(70.1)		(108.1)		(84.5)
Non-current liabilities
Loans and borrowings	12	(149.8)		(66.6)		(69.7)
Lease liabilities		(7.3)		(9.7)		(9.0)
Provisions for other liabilities and charges		(8.1)		(8.4)		(8.1)
Deferred tax liabilities		(1.9)		(1.8)		(1.8)
		(167.1)		(86.5)		(88.6)
Total liabilities		(237.2)		(194.6)		(173.1)
Net assets		135.5		139.5		156.2
Capital and reserves attributable to equity shareholders
Ordinary shares		2.0		2.0		2.0
Retained earnings		136.3		149.6		157.8
Reserve for own shares		(2.8)		(12.1)		(3.6)
Total equity		135.5		139.5		156.2

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE HALF YEAR ENDED 30 JUNE 2020 (UNAUDITED)

 

	Share capital		Reserve for own shares		Retained earnings		Total equity
	£m		£m		£m		£m
Current half year:
Balance at 1 January 2020	2.0		(3.6)		157.8		156.2
Total comprehensive loss for the financial period	-		-		(20.5)		(20.5)
Dividend payable	-		-		-		-
Purchase of shares by Employee Benefit Trust	-		(0.8)		-		(0.8)
Proceeds from sale of shares by Employee Benefit Trust	-		0.7		-		0.7
Share-based payments charge	-		-		0.5		0.5
Share-based payments exercised	-		0.9		(0.9)		-
Tax on share-based payments	-		-		(0.6)		(0.6)
Balance at 30 June 2020	2.0		(2.8)		136.3		135.5
Prior half year:
Balance at 1 January 2019	2.0		(5.8)		137.4		133.6
Total comprehensive income for the financial period	-		-		26.7		26.7
Dividend payable	-		-		(14.2)		(14.2)
Purchase of shares by Employee Benefit Trust	-		(7.6)		-		(7.6)
Share-based payments charge	-		-		1.0		1.0
Share-based payments exercised	-		1.3		(1.3)		-
Balance at 30 June 2019	2.0		(12.1)		149.6		139.5
Prior year:
Balance at 1 January 2019	2.0		(5.8)		137.4		133.6
Total comprehensive income for the year	-		-		46.8		46.8
Dividend paid	-		-		(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

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE HALF YEAR ENDED 30 JUNE 2020 (UNAUDITED)

 

	Six months ended 30 June			Year ended 31 December
	2020		2019		2019
	Unaudited		Unaudited		Audited
	£m		£m		£m
Cash flows from operating activities
Operating (loss)/profit before exceptional items	(0.8)		33.9		65.0
Adjustments for:
Depreciation and amortisation	9.0		8.6		17.7
Movement on provisions	(0.1)		(0.5)		(0.3)
Share-based payments	0.5		0.8		1.3
Other non-cash items	0.1		(0.5)		(1.6)
Changes in working capital:
Inventories	3.6		(4.7)		(10.4)
Trade and other receivables	1.9		(17.6)		(2.9)
Trade and other payables	(18.4)		7.6		(3.9)
Cash (outflow)/generated from operations before exceptional items	(4.2)		27.6		64.9
Cash flows relating to exceptional items	(0.6)		-		(1.1)
Cash (outflow)/generated from operations	(4.8)		27.6		63.8
Interest paid	(0.7)		(1.1)		(2.4)
Tax paid	(4.1)		(3.1)		(8.8)
Net cash (outflow) / inflow from operating activities	(9.6)		23.4		52.6
Cash flows from investing activities
Purchase of property, plant and equipment	(11.9)		(7.6)		(22.5)
Purchase of intangible assets	(0.3)		(1.0)		(1.8)
Net cash used in investing activities	(12.2)		(8.6)		(24.3)
Cash flows from financing activities
Reduction in lease liabilities	(2.8)		(3.0)		(5.9)
Dividends paid	-		-		(22.0)
Drawdown of borrowings	80.0		7.0		17.0
Repayment of borrowings	-		(5.0)		(12.0)
Purchase of shares by Employee Benefit Trust	(0.8)		(7.6)		(9.7)
Proceeds from sale of shares by Employee Benefit Trust	0.7		-		4.9
Net cash generated from/(used in) financing activities	77.1		(8.6)		(27.7)
Net increase in cash and cash equivalents	55.3		6.2		0.6
Cash and cash equivalents at beginning of the period	26.6		26.0		26.0
Cash and cash equivalents at the end of the period	81.9		32.2		26.6