Forterra H1 Earnings Call Highlights

Key Points

• First-half performance weakened: Like-for-like revenue fell 9% to £169 million and adjusted profit before tax declined 12.7% to £14.5 million amid lower construction demand. However, the adjusted EBITDA margin improved to 16% through cost reductions, pricing actions and the closure of non-core operations.
• Cash flow and debt came under pressure: Working capital increased by £20 million, driving adjusted operating cash flow down to £8.5 million and net debt up to £74.5 million. Forterra expects stronger second-half cash generation and maintained its outlook for full-year results in line with market consensus.
• Shareholder returns and investment plans continue: Forterra plans to complete its £20 million share buyback and paid a £0.017 interim dividend, while evaluating a potential £60–£65 million replacement Aircrete facility. CFO Ben Guyatt will depart in October and Lisa Oxenham is expected to become his successor by January.

Forterra LON: FORT reported lower first-half revenue and profit amid weak construction-market demand, but said margin improvement, cost reductions and pricing actions helped it deliver what management described as a resilient performance.

Like-for-like revenue fell 9% year over year to £169 million, primarily reflecting lower sales volumes. Adjusted EBITDA declined to £27 million from £29.9 million, while adjusted EBITDA margin increased 70 basis points to 16%. Adjusted profit before tax fell 12.7% to £14.5 million and adjusted earnings per share declined 12.1% to £0.051.

Chief Financial Officer Ben Guyatt said the higher margin reflected the closure of non-core operations that had weighed on profitability. The company also removed approximately £2 million of annualized back-office and commercial costs through a restructuring of central and management functions, although Guyatt said Forterra was already a lean business and did not expect significant further headcount-related savings.

Bricks and blocks outperform broader market

In Forterra’s bricks and blocks segment, like-for-like revenue declined 8%, while segmental adjusted EBITDA slipped to £25.7 million from £27.5 million. The company said it outperformed the wider brick market because of its capacity weighting toward extruded brick.

Domestic brick dispatches reported by the Department for Business and Trade fell 8% during the first five months of the year. Forterra said bricks were its most resilient product category, while block dispatches declined more sharply.

The company implemented a low-single-digit price increase for bricks, recovering underlying cost inflation after several years in which it had been unable to secure meaningful price increases. It also introduced additional brick price increases and surcharges in concrete products to address higher fuel and transport costs.

Guyatt said Forterra began the year with more than 80% of its full-year gas requirement fixed at competitive prices, helping shield it from energy-price volatility associated with the Middle East conflict. The company has also secured around 80% of its expected 2027 gas usage at pre-conflict prices, with layered positions extending to 2030.

Management reduced production modestly at its London Brick and Aircrete operations to align output with demand and limit working-capital pressure. Forterra said it is operating at roughly 60% of installed capacity overall, while its Desford site has continued to ramp production with both kilns operating since September of the previous year. Its Claughton facility remains mothballed.

Bespoke products and cash flow

The bespoke products segment, which now consists solely of the Bison Precast concrete flooring business following the prior-year closure of Bison Bespoke, recorded a 14% decline in like-for-like revenue to £31 million. EBITDAR before central-cost allocations fell to £4 million from £5.4 million.

Management characterized Bison Flooring as a strategic part of Forterra’s offering, alongside brick and Aircrete products, because it serves similar housebuilding customers. The company said it has consolidated commercial activity to improve efficiency and offer more integrated solutions.

Working capital increased by £20 million in the first half to £66 million. Forterra attributed £4.5 million of the increase to an accounting-standard change affecting recognition of electronic banking receipts, while weak demand contributed to £3 million of inventory growth after a further £3 million increase in the second half of the prior year.

Adjusted operating cash flow fell to £8.5 million from £30 million in the prior-year period. Guyatt said the comparative period had benefited from an inventory reduction associated with strong first-half sales, and that Forterra expects stronger operating cash flow in the second half as working-capital seasonality reverses.

Net debt before leases rose to £74.5 million, up £19 million from year-end, and leverage remained just under 1.5 times on a pre-IFRS 16 banking-covenant basis. The company expects year-end net debt and leverage to remain broadly similar to June levels.

Forterra extended its £170 million revolving credit facility to July 2030, with a potential one-year extension subject to lender consent. The renewed facility has the same lender group, a lower interest rate and is now unsecured. The company also retains a £10 million overdraft facility.

Capital allocation and growth projects

Capital expenditure was £4.1 million in the first half, with full-year capital outflows expected to total about £10 million. Forterra expects about £7 million of property-disposal proceeds in the second half from land associated with the closed Bison Bespoke facility, subject to completion of a transaction.

The company returned £8.5 million to shareholders through its share buyback during the first half and said it remains committed to completing the full £20 million program in the second half. It declared an interim dividend of £0.017 per share, compared with £0.019 a year earlier, consistent with its policy of targeting approximately two times dividend coverage.

Forterra is also assessing a potential Aircrete investment. Management said a replacement facility for its aging Hams Hall plant could cost roughly £60 million to £65 million, potentially offset by about £25 million from selling the existing site. No final decision has been made, no planning application has been submitted, and the board is expected to provide further detail at full-year results.

Elsewhere, the company said its Omnia brick-slip system has begun supplying initial projects and is building a pipeline of opportunities. Forterra has invested £2 million in a brick-slip cutting facility near its Measham soft-mud factory to expand its range. It is also progressing discussions with a preferred partner over a potential joint venture involving calcined clay, a cement-substitute material.

Outlook and leadership transition

Forterra expects second-half market demand to be broadly consistent with the first half and continues to expect full-year performance to be in line with market consensus. Management cited weak consumer confidence, reduced mortgage availability and lower housing starts as continuing constraints on construction demand.

The company said its long-term position could benefit from a recovery in housebuilding and from policy support for affordable and council housing, where it believes its extruded brick, Aircrete, aggregate block and flooring products are well suited.

Guyatt will leave Forterra at the end of October. The company has appointed Lisa Oxenham as its next chief financial officer, with her start date expected to be no later than January.

About Forterra (LON:FORT)

Forterra is a leading UK manufacturer of essential clay and concrete building products, with a unique combination of strong market positions in clay bricks, concrete blocks and precast concrete flooring. Our heritage dates back many decades and the durability, longevity and inherent sustainability of our products is evident in the construction of buildings that last for generations; wherever you are in Britain, you won't be far from a building with a Forterra product within its fabric. Our clay brick business combines our extensive secure mineral reserves with modern and efficient high-volume manufacturing processes to produce large quantities of extruded and soft mud bricks, primarily for the new build housing market.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.