Forterra slashes dividend after challenging first half

Forterra reported a challenging first half on Tuesday, with revenue falling 11.5% year-on-year to £162.1m as the UK brick industry saw a 9% decline in despatches, and its own despatches in line with that trend.

The London-listed firm said adjusted EBITDA for the six months ended 30 June was £24.3m, down 21.9% from £31.1m in the first half of 2023, while the EBITDA margin dropped by 200 basis points to 15%.

Operating profit fell 35.5% to £14m, and profit before tax decreased 52.6% to £9.1m.

Earnings per share totalled 3.2p, a decline of 54.9%.

Despite the declines, the company said it managed a strong operating cash flow of £13.3m, compared to an outflow of £16.3m in the first six months of 2023.

Forterra's net debt before leases expanded 102% to £101.2m, equating to 2.3 times adjusted EBITDA on a last-12-months banking covenant basis.

The interim dividend was set at 1p per share, down from 2.4p in the prior year, reflecting a temporary 40% payout ratio.

Forterra attributed its performance to effective cost management and disciplined working capital management, which helped mitigate the impact of weaker market conditions.

Selling prices remained stable, though competitive market conditions restricted its ability to implement announced price increases.

Forterra also achieved expected cost savings, although output reductions limited the visibility of those.

Looking ahead, Forterra said it expected the 9% reduction in UK brick despatches seen in the first half to improve in the second, although overall demand for 2024 was expected to be lower than in 2023.

The company said it had adjusted production plans to prioritise working capital over short-term operating efficiency.

While there had been modest signs of improving demand, the firm said the market remained uncertain with high mortgage rates and delayed reductions in interest rates.

Forterra now anticipated 2024 adjusted EBITDA to be around £50m.

Despite current challenges, the board was optimistic about the future, encouraged by the new government's commitment to increasing housing supply.

“The group delivered a solid performance in the first half of 2024, despite a continuing backdrop of challenging market conditions,” said chief executive officer Neil Ash.

“Decisive management actions assisted in producing a result in line with our expectations and a better than expected net debt position at the period end.

“We are encouraged by the new government's focus on significantly increasing housing supply which will clearly provide medium to long-term structural benefits for Forterra.”

Ash said the firm’s strategic investment in Desford and Wilnecote addressed previous capacity constraints, and positioned it well to satisfy increased demand for our products.

“While the short-term outlook remains challenging, as we look further ahead, the group is well positioned to capitalise on the recovery of our key markets as it occurs.”

At 1153 BST, shares in Forterra were down 5.29% at 172.56p.

Reporting by Josh White for Sharecast.com.