Six months ended 30 June 2024

 Solid performance despite challenging trading conditions, better than expected H1 net debt position

Six months ended 30 June 2024

¹Adjusted results for the Group have been presented before exceptional items and adjusting items (2024: income of £3.7m, 2023: expense of £1.1m) relative to statutory profit as explained in Alternative Performance Measures (APM) within note 4. Presenting these measures allows a consistent comparison with prior periods.

²EBITDA, adjusted EBITDA and net debt before leases are APMs, as explained in note 4. They are presented above under the statutory heading, being calculated with reference to statutory results without adjustment.

H1 RESULTS

•     Group revenue for the period of £162.1m, represents a decrease of 11.5% relative to the prior period (2023: £183.2m)

•     H1 UK brick industry despatches estimated to have fallen approximately 9% relative to the prior period, with our own brick despatches in line with this

•     Despite the weaker than expected market conditions, effective cost management has delivered a result for the first half which is in line with our expectations

•     Adjusted EBITDA of £24.3m (2023: £31.1m) and adjusted PBT of £9.1m (2023: £19.2m)

•     Selling prices remain relatively stable with competitive market conditions restricting our ability to implement our announced price increases 

•     Cost environment remains stable with expected cost savings delivered, output reductions however limit the visibility of these savings

•     Disciplined working capital management and timing of capital spend contributed to a stronger than expected half year cash performance with net debt before leases of £101.2m (2023 year end: £93.2m) which equates to 2.3 x adjusted EBITDA on a last 12 months (LTM) banking covenant basis 

•     Interim 2024 dividend of 1.0 pence per share (2023: 2.4 pence) declared in line with temporary 40% pay-out ratio

OUTLOOK

•     With softer comparatives, the expected 9% reduction in UK brick despatches seen in H1 is expected to improve in H2; although overall, full year 2024 demand is expected to be lower than 2023

•     With H1 despatches generally below our previous expectations, we have acted decisively to adjust our production plans and reduce output accordingly, prioritising working capital over short-term operating efficiency

•     Whilst we have seen some modest signs of improving demand in recent months, disaggregating the effects of a catch up from an unusually wet winter, routine seasonality and any wider market recovery is difficult, with little evidence of a sustained recovery in the near-term

•     With expected reductions in interest rates now delayed into H2 and mortgage rates remaining high, the challenging trading conditions which have persisted in H1 are expected to continue in the near term and we therefore now expect FY 2024 adjusted EBITDA to be around £50m

•     Looking beyond the current financial year, the Board is encouraged by the new Government's commitment to increase housing supply and remains confident that the Group is well positioned to capitalise on a recovery of its key markets in due course

Neil Ash, Chief Executive Officer, commented:

"The Group delivered a solid performance in the first half of 2024, despite a continuing backdrop of challenging market conditions. 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. Our strategic investment in Desford and Wilnecote addresses previous capacity constraints and positions us 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."

A presentation for analysts will be held today, 30 July 2024, at 9.00am. A video webcast of the presentation will be available on the Investors section of our website (http://forterraplc.co.uk/).

ABOUT FORTERRA PLC

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. We are also the sole manufacturer of the iconic Fletton brick, sold under the London Brick brand, used in the original construction of nearly a quarter of England's housing stock and today used extensively by homeowners carrying out extension or improvement work. Within our concrete blocks business, we are one of the leading producers of aircrete and aggregate blocks, the former being sold under one of the sector's principal brands of Thermalite. Our precast concrete products are sold under the established Bison Precast brand, and are utilised in a wide spectrum of applications, from new build housing to commercial and infrastructure.

SUMMARY

The Group delivered a solid performance in the first half of 2024 against a continuing backdrop of challenging market conditions which were a little weaker than had been anticipated at the beginning of the year. Notwithstanding this, we have delivered an H1 result in line with our expectations. Revenue in the first half totalled £162.1m (2023: £183.2m) a fall of £21.1m or 11.5% relative to the corresponding prior year period. Market conditions limited our ability to implement our announced selling price increases leaving selling prices broadly stable in the period. Adjusted EBITDA for the period was £24.3m (2023: £31.1m) assisted by firm cost control with adjusted PBT of £9.1m (2023: £19.2m).

Our disciplined cash and working capital management, assisted by the timing of capital expenditure and other payments, allowed the Group to report a better than expected half year net debt and leverage position which remains comfortably within our original covenants. As at 30 June 2024 our net debt before leases was £101.2m (31 December 2023: £93.2m) with leverage calculated in accordance with our banking covenants of 2.3 times (31 December 2023: 1.9 times). We continue to expect 2024 year end net debt before leases to be at a similar level to the 31 December 2023 position. 

OUR MARKETS

Challenging trading conditions persisted throughout the period with weak demand experienced across our product range and end markets. Figures published by the Department for Business and Trade show that domestic brick despatches were 7% down relative to the prior year in the five months to May 2024, and with June being the strongest month of 2023, we expect this year on year deficit to widen to approximately 9% when the 2024 half year statistics are published. With the second half of 2023 providing a weaker comparative, it is likely that this deficit will improve in H2 although full year demand is likely to remain below 2023 levels. Our previous expectations for our 2024 full year performance were based upon an assumption of a broadly flat market.

Imports of bricks into the UK have continued to decline, with imports for the period to the end of May falling by 15% relative to the corresponding prior year period, currently satisfying approximately 20% of UK demand. Market conditions are believed to be similarly challenging in continental Europe, acting as a stimulant to continued imports, albeit at a modest level.

We were encouraged to see the housing crisis receive significant coverage during the general election campaign, and we now urge the new Government to deliver upon its commitment to significantly increase housing supply. Whilst we remain realistic as to what is achievable in the short-term, a change of government with a clear focus on increasing housing supply offers hope that, in the coming years, a modest level of housebuilding growth above 2022 levels is achievable even if the target of an average of 300,000 net new homes a year during the course of this parliament remains challenging in the near term. In addition to the promised planning reforms, the industry will also need to see labour supply constraints addressed along with significant incentives to ensure the private sector is rewarded for materially increasing build rates.  

Both the wider UK brick industry and our own business were capacity constrained in the last cycle with the country importing approximately 570m bricks in 2022 when only 208,000 new home completions were registered. With the addition of our new Desford brick factory along with the recommissioning of the Wilnecote factory, our brick production capacity will increase by 23% relative to 2022 and even if we ultimately choose not to reopen the presently mothballed factory at Howley Park, our capacity will still be 15% greater. This represents an uplift of approximately 115% and 100% on our expected 2024 brick production respectively.

RESULTS FOR THE PERIOD

Our revenues reflect the weaker market conditions with our own brick despatches in line with the wider market trend. Our concrete products have fared a little better with aircrete blocks despatches increasing year on year. Pricing remains relatively stable leading to total revenue of £162.1m representing a decrease of 11.5% on the prior period (2023: £183.2m). 

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) were £24.3m, a decrease of 21.9% relative to the prior year (2023: £31.1m). Group adjusted EBITDA margin of 15.0% compares to 17.0% in 2023. This decline in profitability is primarily driven by our aligning of production with current sales levels. The first half of 2023 saw reported EBITDA supported by a significant growth in inventory with fixed costs absorbed onto the balance sheet. This is demonstrated by our H1 adjusted operating cash inflow of £13.3m which compares to an outflow of £16.3m in the prior period, an improvement of £29.6m. During H1 we successfully aligned production to sales and accordingly, have seen our inventory stabilise. 

The effective rate of corporation tax before adjusting items in the period was 26.6% (2023: 23.7%) which is in line with our expectations and closely aligned to the 25% headline rate of corporation tax. Adjusted profit before tax of £9.1m compares with a 2023 profit of £19.2m. Statutory profit before tax of £12.8m compares with a 2023 profit of £18.1m.

OUTLOOK

UK brick industry despatches for the first half of 2024 are expected to be around 9% below the prior year. Whilst this deficit is expected to improve by the end of the year given softer comparatives in the second half, we expect full year demand will still fall below the prior year comparative.

With H1 despatches generally below our previous expectations, we have adjusted our production plans to reduce output accordingly, prioritising cash over short-term efficiency and this will have an impact on H2 earnings. Whilst we have seen modest signs of improving demand in recent months, disaggregating the impacts of a catch up from an unusually wet winter, routine seasonality and any wider market recovery is difficult, with little evidence of sustained recovery in the near-term.

With the expected reduction in interest rates now delayed into H2, and having considered recent commentary from our listed customers, we now expect the challenging trading conditions which have persisted in the first half of the year to continue in the near term and we therefore expect FY 2024 adjusted EBITDA to be around £50m. Looking beyond this financial year, the Board is encouraged by the new Government's commitment to increase housing output and remains confident that Group is well positioned to capitalise on a recovery of its key markets in due course.

WELL POSITIONED FOR MARKET RECOVERY

Whilst the new Government's published target of 300,000 new homes per annum is challenging in the near-term, we are encouraged by its commitment to planning reform and the priority being given to delivering a significant increase in housing supply in the coming years. The supply and demand characteristics of the UK brick market dictated that, in 2022 with only 208,000 new home completions, the industry was capacity constrained with over 570m bricks imported representing 23% of market demand. Our £140m programme of organic capacity investment  addresses our previous capacity constraints, leaving the Group well-positioned to benefit significantly from the market recovery as interest rates fall and housing demand increases.

Our capital investments at Desford and Wilnecote will provide us with an extra 23% brick manufacturing capacity and even without reopening the Howley Park facility, we will still have a 15% greater capacity in the next turn of the cycle. This represents an uplift of approximately 115% and 100% on our expected 2024 brick production respectively highlighting the operating leverage of our business. Assuming a return to market conditions seen in 2022, the investment in new capacity has created an enlarged Group capable of delivering EBITDA of approximately £120m in the mid-term, with Desford and Wilnecote contributing £25m and £7m respectively. (2022 adjusted EBITDA:  £89.2m).

ALTERNATIVE PERFORMANCE MEASURES

In order to provide the most transparent understanding of the Group's performance, the Group uses alternative performance measures (APMs) which are not defined or specified under IFRS and may not be comparable with similarly titled measures used by other companies. The Group believes that its APMs provide additional helpful information on how the trading performance of the business is reported externally and assessed internally by management and the Board.

Adjusted results for the Group have been presented before: i) exceptional items and ii) adjusting items.

EXCEPTIONAL ITEMS

Exceptional items in the period totalled £2.8m (2023: £3.0m) comprising professional fees associated with an aborted corporate transaction of £2.6m and restructuring costs of £0.2m. Exceptional items in 2023 primarily related to redundancy and termination costs associated with the restructuring of our operations in order to reduce output in response to the decline in demand for our products. These costs totalled £2.1m with a further £0.9m of non-cash impairment charges. 

ADJUSTING ITEMS

Realised and unrealised movements in forward energy purchases

In addition to exceptional items we have also identified further adjusting items, the separate disclosure of which presents our results in a manner that allows users of our financial statements to understand the underlying trading performance of the business, applying consistent treatments as used by management to monitor the performance of the Group.

In the period, the Group realised a £2.1m loss in respect of surplus energy sold back to the market, which has been presented as an adjusting item. Alongside this, the statutory results include a £6.9m benefit in the period, which is the result of the Group no longer being able to benefit from the own use exemption as detailed within IFRS 9 Financial Instruments. For internal reporting purposes, we continue to recognise the cost of energy consumed at the forward contracted rate in the period of consumption. In order to allow users of the accounts to understand this more operationally aligned method of reporting, the impact to the profit and loss of these fair value movements in the period to 30 June 2024, being £6.9m, has been presented as an adjusting item.

In the comparative period to 30 June 2023, all forward contracted energy purchases qualified for the own use exemption under IFRS 9 and no adjusting items for energy accounting were presented.

Accounting for carbon credits

The statutory results consider carbon credits as being utilised on a first in, first out basis. Under this method, the Group's free allocation of carbon credits is utilised before recognising any liability to purchase further credits, which has the effect of weighting the cost of compliance into the second half of the year rather than spreading the cost more evenly across the full year in line with production.

The Group's free allocation of carbon credits is based on expected emissions over the full compliance period, which is aligned to the Group's financial year. As such, we believe a more operationally aligned method for measurement, consistent with our management reporting, is to recognise the cost of carbon compliance over the full financial year using a weighted average basis, aligned proportionately with the production that drives our carbon emissions. Accordingly, this has been presented within the adjusted results for the period.

We believe this approach provides users of the interim accounts with a more representative presentation of underlying trading performance in the first half of the year. As at 30 June 2024, the impact of this is to decrease adjusted profit before tax by £1.7m (2023: £1.9m) relative to the statutory measure. This only affects the interim results and has no impact on the full year results. 

BRICKS AND BLOCKS

¹Restated to report Red Bank results within the Brick and Block segment as a result of internal restructure. Further details are contained within note 6.

²Revenue is stated before inter-segment eliminations.

³Both EBITDA and adjusted EBITDA are APMs, as explained within note 4. EBITDA is presented above under the statutory heading, being calculated with reference to statutory results without adjustment.

⁴Overhead allocations are costs centrally incurred on behalf of both segments, including general administrative expenses.

Bricks and Blocks revenues decreased by 11.1% with UK brick industry despatches estimated to have fallen approximately 9% relative to the prior year in the first half, with our own despatches in line with this.  Alongside this, we have seen a slightly stronger year on year performance in both aircrete and aggregate blocks.

Pricing remains relatively stable albeit with competitive market conditions restricting our ability to implement our announced selling price increases. Not unsurprisingly at this stage of the cycle, we have seen a continuation of short-term offers and incentives aimed at stimulating demand and, following 18 months of these challenging market conditions, brick pricing remains only modestly below the peak seen in late 2022 and early 2023.

Segmental adjusted EBITDA of £22.7m compares to £28.0m in 2023 with the 2024 H1 EBITDA margin of 17.4%, as stated after overhead allocations, falling short of the H1 2023 equivalent of 19.1%. The primary driver of this was the significant reduction in operating efficiency following the reductions made to output in H2 2023 with the H1 2023 result still benefiting from significant inventory growth.

Our cost base also remains broadly stable with inflation returning to more normal levels. Energy costs have stabilised from the peak experienced in 2023 but still remain significantly above historic norms. Our energy requirements for the remainder of the year are over 90% forward purchased which includes supply from our new solar farm which is now operational and supplying over 80% of our electricity demand. With our electricity requirements now substantially secured for the next 16 years and with forward gas purchases currently being layered out to 2027 we are able to make decisions with a high degree of certainty as to mid-term energy pricing. 

BESPOKE PRODUCTS

¹Restated to report Red Bank results within the Brick and Block segment as a result of internal restructure. Further details are contained within note 6.

²Revenue is stated before inter-segment eliminations.

³Both EBITDA and adjusted EBITDA are APMs, as explained within note 4. EBITDA is presented above under the statutory heading, being calculated with reference to statutory results without adjustment.

⁴Overhead allocations are costs centrally incurred on behalf of both segments, including general administrative expenses.

Our Bespoke Products business, the largest component of which is our precast concrete flooring business, has experienced the same challenging market conditions as the wider business. Revenues in the period totalled £33.7m, a decrease of £5.0m or 12.9% relative to 2023.

Pricing remains broadly stable and whilst the majority of the cost base also remains stable, we have seen some volatility in the cost of insulation, which is a significant input cost within this business, impacting margins. We have recently seen a modest upturn in orders for our floor beams and with the floor being the first part of the house to be constructed, this could signal an increase in build rates although the difficulties of differentiating between catch up from a wet winter, traditional seasonality and wider market recovery mean that we remain cautious in the near term. Sales of hollowcore flooring, used in multifamily or commercial construction, have been more muted in recent months with a number of projects impacted by delays and timetables for the installation of our products often slipping. 

Segmental adjusted EBITDA, after allocated Group overheads, totalled £1.6m: (2023: £3.1m). EBITDA margin prior to allocation of Group overheads was 11.6% compared to 14.0% in 2023. We have disclosed previously that the method of allocation of overheads places an additional burden on this segment than would be required if it was a stand-alone business. Before overhead allocation, the EBITDA contribution of £3.9m for the period represents an excellent result delivered against a challenging market backdrop and an attractive level of return on capital employed given the modest asset base of this segment. 

EARNINGS PER SHARE AND DIVIDEND

Adjusted earnings per share (EPS) in the period of 3.2 pence represents a decrease of 54.9% relative to the 2023 equivalent EPS of 7.1 pence. EPS is calculated based on the average number of shares in issue during the period, adjusted for the shares held by the Employee Benefit Trust.

The Board has elected to retain the Group's temporary dividend pay-out ratio of 40% of earnings which it expects to remain in place until leverage falls to a more sustainable level. In line with this policy and based upon its expectations of full year 2024 earnings, the Board has declared an interim dividend of 1.0 pence per share with the distribution approximating to 1/3 interim, 2/3 final. The interim dividend will be paid on 11 October 2024 to shareholders on the register at 20 September 2024.

CASH FLOW AND WORKING CAPITAL

Adjusted operating cash flow in the first half of the year was an inflow of £13.3m (2023: outflow of £16.3m) demonstrating disciplined working capital management with the inventory build seen in the prior year not repeated. At 30 June 2024 finished goods inventories totalled £82.6m, compared to £79.7m at the end of 2023.     

Capital expenditure in the period totalled £9.5m with £8.1m of this relating to our three ongoing strategic projects and the remainder being business as usual maintenance capex. During the period we spent £4.4m on the redevelopment of our Wilnecote factory and £3.6m on the brick slip facility at our Accrington plant, with the balance being attributable to Desford.  This expenditure takes the total spend on Desford to £91.1m, Wilnecote to £22.3m and £6.7m on  Accrington.  In addition, interest of £0.8m (2023: £nil) and £0.1m (2023: £nil) has been capitalised in the period in respect of the Wilnecote and Accrington projects with this amount excluded from the figures above.

We expect further capital expenditure totalling approximately £15m in the second half of the year with £11m attributable to the three strategic expansion projects. By the end of this year we expect each of the three projects to be substantially complete although some final payments will fall into 2025. We continue to expect a reduction in capital expenditure in 2025 which will support our goal of deleveraging.

BORROWINGS AND FACILITIES

Closing net debt (excluding lease liabilities) was £101.2m (31 December 2023: £93.2m) with the increase in borrowing attributable to both seasonality and also £9.5m of capital spend in the period.

Leverage as calculated in line with our banking covenants was 2.3 times EBITDA  (31 December 2023: 1.9 times). Borrowings and leverage were both significantly lower than previously expected at the half year with disciplined management of working capital having a positive impact. Alongside this, the temporary peak in net debt and leverage that we had forecast at the half year was mitigated by a delay in the capital expenditure at Wilnecote for reasons beyond our control and we also benefitted from delayed invoicing from a major supplier, resulting in our payments being delayed. These are matters of timing and therefore our expectations for year end net debt and leverage remain largely unchanged. Accordingly, we continue to expect 2024 year end net debt to be at a similar level to 2023 with full year leverage of around two times. Beyond this, significantly reduced capex spend will see leverage fall steadily with this accelerating when a market recovery gains traction. 

The Group's credit facility comprises a committed revolving credit facility (RCF) of £170m extending to January 2027. At the period-end a total of £113.0m was drawn on the facility (31 December 2023: £110.0m) leaving facility headroom of £57.0m. The previous carve out of the facility to provide letters of credit has expired with the whole facility now available to be borrowed if required.

As previously announced, in anticipation of a peak of debt and leverage at the half year, we secured prudent variations to our banking covenants to ensure we retained sufficient headroom. The facility is normally subject to covenant restrictions of net debt/EBITDA (as measured before leases) of less than three times and interest cover of greater than four times. The Group also benefits from an uncommitted overdraft facility of £10m. The business has traded within these covenants to date and expects to continue to do so.

However, given continued challenging trading conditions and the need to demonstrate headroom above covenant levels, amended covenants were agreed with the Group's lenders to provide the required additional headroom given the combination of the Group's reduced EBITDA, and increased net debt. The Group's leverage covenant has increased to 4 times in June 2024 and 3.75 times in December 2024 with interest cover decreasing to 3 times in December 2024. In addition, quarterly covenant testing has been introduced for the period of the covenant relaxation. As such, in September 2024, leverage is set at four times and interest cover three times and in March 2025 leverage is set at 3.75 times and interest cover at three times. The covenants return to normal levels from June 2025 with testing reverting to half yearly. The existing restriction prohibiting the declaration or payment of dividends should leverage exceed 3 times EBITDA has been amended to 4 times EBITDA in 2024 before returning to 3 times in 2025.

Finance expense for the period totalled £4.9m (2023: £2.5m). The margin grid that determines the rate of interest payable has also been adjusted such that the grid commences at SONIA plus 1.65% whilst leverage remains under 0.5 times EBITDA, increasing to a margin of 3.50% should leverage exceed 3.5 times. In the first half, with the 2023 year end leverage under 2.0 times a margin of 2.25% was payable with this increasing to a margin of 2.50% in the second half following the increase in our leverage measured at the half year to under 2.5 times.

The facility is linked to our sustainability targets with the opportunity to reduce the margin by 5 bps subject to achieving annual sustainability targets covering decarbonisation, plastic reduction and increasing the number of employees in earn and learn positions. Unfortunately in 2023 the achievement of these targets was hindered by the reduction in market demand meaning that we are not currently benefiting from this reduction in margin. 

STRATEGY AND CAPITAL ALLOCATION

Our strategy which is designed to deliver long-term earnings and cash flow growth is summarised as follows:

•     Strengthen the core: Investing in new capacity to deliver growth in sales volumes along with enhanced efficiency

•     Beyond the core: Expanding our product range beyond our traditional focus of mainstream residential construction focusing on new and evolving solutions such as brick slips

•     Sustainability: Making our business more sustainable in everything we do

•     Safety and engagement: Safety remains our number one priority and through prioritising employee engagement we will maximise the potential of our workforce

This, along with our capital allocation policy, which is centred on providing compelling returns for our shareholders, leaves the Group well placed to deliver long-term shareholder value.

The Group's capital allocation priorities are summarised as follows:

•     strategic organic capital investment to deliver attractive returns;

•     attractive ordinary dividend policy with a mid-term pay-out ratio of 55% of earnings, temporarily reduced to 40% until leverage has reduced to a more sustainable level;

•     bolt-on acquisitions as suitable opportunities arise in adjacent or complementary markets; and

•     supplementary shareholder returns as appropriate.

Our expectations were for leverage to peak in June 2024 although due to the circumstances highlighted above, that peak is less pronounced than previously expected. We continue to expect net debt at the end of 2024 to be broadly consistent with the 2023 figure (£93.2m before leases) Our present capital allocation priority is to reduce this level of leverage, and with our strategic capital projects nearing completion, we remain confident we will reduce our debt levels in 2025 even with only a modest market recovery. 

STRATEGIC ORGANIC CAPITAL INVESTMENT

During the period we spent a combined £8.1m on our three strategic expansion projects at Desford, Wilnecote and Accrington bringing total spend on these projects to £120.1m.

Our brick factory at Wilnecote is benefiting from a £30m reconstruction, effectively installing a brand new factory within the existing building, creating a highly flexible facility designed to produce a wide range of specialist bricks in a variety of colours, finishes and sizes which we expect to sell into the commercial and specification channel. We now expect to recommission that factory at the end of the year which represents a significant delay compared with our original plans. The delays are attributable to challenges faced by the Group's suppliers and are connected to wider global economic and supply chain challenges arising firstly from Covid and then subsequently the conflict in Ukraine.

Were the Desford project to commence today, management estimate the cost would rise to approximately £120m compared to the actual expected cost of £95m. Similarly, the cost of the Wilnecote factory would increase to well beyond its £30m budget, broadly within which the project is still expected to be delivered. Whilst we have benefited significantly from these fixed-price contracts, these contractual provisions have challenged our supply chain and the economic impacts they have faced have contributed to the Wilnecote project in particular facing delays.  

Our £12m brick slip facility at Accrington, which also benefits from a fixed price contract, continues to progress in line with expectations and we expect to commission this facility as anticipated in the second half of the year.

As we approach the end of our current £140m programme of capital investment, we continue to progress our pipeline of attractive organic investment opportunities although any decision to commit to these will be taken with both our balance sheet as well as market conditions in mind. Similarly, whilst we remain open to the possibility of bolt-on acquisitions, we will only progress such opportunities where there is a clear strategic rationale and where the acquisition would not put pressure on the balance sheet.

SUSTAINABILITY

We continue to prioritise our sustainability goals, although as we reported at the last year end, the current drop in demand for our products and the corresponding reductions in our output and corresponding loss of efficiency means that our sustainability progress is less evident in our published statistics.

Each of our organic investments provides a meaningful sustainability benefit with the new Desford and Wilnecote brick factories both reducing carbon emissions by approximately 25% per brick relative to their predecessor factories. Our innovative brick slip production facility at Accrington offers real sustainability benefits in manufacturing brick slips with around a 75% reduction in energy consumption, raw material usage and embodied carbon relative to traditional bricks.

We continue to progress a range of wider sustainability initiatives in addition to our strategic investments. We were delighted that our dedicated Forterra solar farm, funded through a 15 year PPA commitment entered into back in 2021, commenced generation at the end of April and is now providing over 70% of our electricity requirement. We will benefit from the full cost benefits of this arrangement from April 2025.

The recent announcement by the new Government that they will remove the prohibition on new onshore wind turbine developments also creates opportunity for our business and we will now reconsider the appropriateness and feasibility of future investment in this area.

We have continued to progress our efforts to reduce our use of plastic packaging in line with our target of a 50% reduction by 2025. This ambitious target has presented more challenges than initially envisaged, with safety our upmost priority, although we are confident we have now addressed many of these challenges allowing us to progress towards our goal.

We continue to investigate the opportunities presented by calcined clay as a cement substitute. As custodian of over 90m tonnes of clay reserves this presents an opportunity for us. We are most excited by the prospect of utilising our production waste from our unique London Brick manufacturing process where the calcination of the clay has already been undertaken during the brick firing process meaning a cement substitute can be created with a much reduced energy consumption. We are currently working with partners to establish the most economical way of bringing this product both to market and into our own concrete products. 

We are continuing our work to better understand how we can utilise alternative fuels including hydrogen, synthetic gas and biomass in both our current and future factories. Having previously undertaken trials to demonstrate the use of hydrogen for firing bricks, we are now in discussions with those who may be able to provide us with a hydrogen supply in the future, both individual providers and wider hydrogen supply clusters who aim to connect industrial users to large scale producers through regional networks.  

In addition, we continue to engage with suppliers of carbon capture use and storage technologies (CCUS) monitoring progress in this rapidly developing area and learning how these technologies could be deployed within our own business in a cost effective manner.

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties facing the business have been appended to this interim statement and include a summary of risks emerging and an update to each of the risks recently presented in the 2023 Annual Report and Accounts.

GOING CONCERN

At the balance sheet date, the cash balance stood at £11.4m, with £113.0m borrowed against £170.0m of committed bank facilities, leaving undrawn facilities of £57.0m. The Group also benefits from an uncommitted overdraft facility of £10m. The Group meets its working capital requirements through these cash reserves and borrowings, and closely manages working capital to ensure sufficient daily liquidity, preparing financial forecasts and stress tests to ensure sufficient liquidity over the medium-term. The Group has operated within its banking covenants throughout the period, with funding secured through an RCF facility extending until January 2027.

The facility is normally subject to covenant restrictions of net debt/EBITDA (as measured before leases) of less than three times and interest cover of greater than four times. However, given continued challenging trading conditions and the need to demonstrate headroom above covenant levels, amended covenants have been agreed with the Group's lenders to provide the required additional headroom given the combination of the Group's reduced EBITDA, and increased net debt resulting from inventory build, committed capital outflows and higher interest rates. Accordingly, the Group's leverage covenant has increased to 4 times in June 2024 and 3.75 times in December 2024 with interest cover decreasing to 3 times in December 2024. In addition, quarterly covenant testing has been introduced for the period of the covenant relaxation. As such, in September 2024, leverage is set at four times and interest cover three times and in March 2025 leverage is set at 3.75 times and interest cover at three times. The covenants return to normal levels from June 2025 with testing reverting to half yearly. The existing restriction prohibiting the declaration or payment of dividends should leverage exceed 3 times EBITDA has been amended to 4 times EBITDA in 2024 before returning to 3 times in 2025.

The Group continues to update internal forecasts, reflecting current economic conditions, incorporating management experience, future expectations and sensitivity analysis. As at 30 June 2024, management are confident that the Group will remain resilient under all reasonably likely scenarios, whilst supporting the funding of the ongoing capital projects outlined in more detail in this announcement, and will continue to have headroom in both its banking covenants and existing bank facilities. We have modelled a plausible downside scenario which sensitises volumes and within which there is headroom against our covenants and available liquidity. We have further modelled a breach scenario to assess the fall in EBITDA required to breach the covenants within the credit facility in the period to 31 December 2025, and we believe that considering the new Government's commitment to increasing housing supply, coupled with the reduction in Group EBITDA that would be required, and the fact that our £140m programme of strategic investment is close to completion, the probability of such a scenario is remote. Even if such a scenario was to occur, we have identified mitigations including reduced capital expenditure, dividend reductions and operational cost savings which we would implement.

Taking account of all reasonably possible changes in trading performance and the current financial position of the Group, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the going concern period to 31 December 2025. The Group therefore adopts the going concern basis in preparing these Condensed Consolidated 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 Financial Statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the UK;

•     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 Consolidated 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

29 July 2024

INDEPENDENT REVIEW REPORT TO FORTERRA PLC

CONCLUSION

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 2024 which comprises Condensed Consolidated Statement of Total Comprehensive Income, Condensed Consolidated Statement of Financial Position, Condensed Consolidated Statement of Changes in Equity, Condensed Consolidated Statement of Changes in Cash Flows and related notes 1 - 18. 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.

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 2024 is not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

BASIS FOR CONCLUSION

We conducted our review in accordance with International Standard on Review Engagements 2410 (UK) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" (ISRE) issued by the Financial Reporting Council. 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.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with UK adopted international accounting standards. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with UK adopted International Accounting Standard 34, "Interim Financial Reporting".

CONCLUSION RELATING TO GOING CONCERN

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for Conclusion section of this report, nothing has come to our attention to suggest that management have inappropriately adopted the going concern basis of accounting or that management have identified material uncertainties relating to going concern that are not appropriately disclosed.

This conclusion is based on the review procedures performed in accordance with this ISRE, however future events or conditions may cause the entity to cease to continue as a going concern.

RESPONSIBILITIES OF 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.

In preparing the half-yearly financial report, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

AUDITOR'S RESPONSIBILITIES FOR THE REVIEW OF THE FINANCIAL INFORMATION

In reviewing the half-yearly report, we are responsible for expressing to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report. Our conclusion, including our Conclusions Relating to Going Concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.

USE OF OUR REPORT

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. 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.

Ernst & Young LLP

Luton

29 July 2024

CONDENSED CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME FOR THE HALF YEAR ENDED 30 JUNE 2024 (UNAUDITED)

The notes on pages 22 to 37 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 2024 (UNAUDITED)

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE HALF YEAR ENDED 30 JUNE 2024 (UNAUDITED)

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN CASH FLOWS FOR THE HALF YEAR ENDED 30 JUNE 2024 (UNAUDITED)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 30 JUNE 2024 (UNAUDITED)

​

1   GENERAL INFORMATION

Forterra plc ('Forterra' or the 'Company') and its subsidiaries (together referred to as the 'Group') are domiciled in the UK. 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 '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.

The Condensed Consolidated Financial Statements were approved by the Board on 29 July 2024.

The Condensed Consolidated Financial Statements for the six months ended 30 June 2024 and the comparative period for the six months ended 30 June 2023 have not been audited. The auditor has carried out a review of the financial information and their report is set out on pages 15 and 16.

These Condensed Consolidated Financial Statements are unaudited and do not constitute statutory accounts of the Group within the meaning of Section 435 of the Companies Act 2006. The auditors have carried out a review of the financial information in accordance with the guidance contained in ISRE 2410 (UK and Ireland) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board. Financial Statements for the year ended 31 December 2023 were approved by the Board of Directors on 26 March 2024 and delivered to the Registrar of Companies. The Auditor's report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498 of the Companies Act 2006.

BASIS OF PREPARATION

The Condensed Consolidated Financial Statements for the half year ended 30 June 2024 have been prepared in accordance with the Disclosure and Transparency Rules of the UK Financial Conduct Authority (DTR), and the requirements of UK-adopted IAS 34 Interim Financial Reporting.

The Condensed Consolidated Financial Statements do not include all the information and disclosures required in annual financial statements and they should be read in conjunction with the Group's Consolidated Financial Statements for the year ended 31 December 2023 and any public announcements made by the Company during the interim period. The Condensed Consolidated Financial Statements are prepared on the historical cost basis.

GOING CONCERN BASIS

At the balance sheet date, the cash balance stood at £11.4m, with £113.0m borrowed against £170.0m of committed bank facilities, leaving undrawn facilities of £57.0m. The Group also benefits from an uncommitted overdraft facility of £10m. The Group meets its working capital requirements through these cash reserves and borrowings, and closely manages working capital to ensure sufficient daily liquidity, preparing financial forecasts and stress tests to ensure sufficient liquidity over the medium-term. The Group has operated within its banking covenants throughout the period, with funding secured through an RCF facility extending until January 2027.

The facility is normally subject to covenant restrictions of net debt/EBITDA (as measured before leases) of less than three times and interest cover of greater than four times. However, given continued challenging trading conditions and the need to demonstrate headroom above covenant levels, amended covenants have been agreed with the Group's lenders to provide the required additional headroom given the combination of the Group's reduced EBITDA, and increased net debt resulting from inventory build, committed capital outflows and higher interest rates. Accordingly, the Group's leverage covenant has increased to 4 times in June 2024 and 3.75 times in December 2024 with interest cover decreasing to 3 times in December 2024. In addition, quarterly covenant testing has been introduced for the period of the covenant relaxation. As such, in September 2024, leverage is set at four times and interest cover three times and in March 2025 leverage is set at 3.75 times and interest cover at three times. The covenants return to normal levels from June 2025 with testing reverting to half yearly. The existing restriction prohibiting the declaration or payment of dividends should leverage exceed 3 times EBITDA has been amended to 4 times EBITDA in 2024 before returning to 3 times in 2025.

The Group continues to update internal forecasts, reflecting current economic conditions, incorporating management experience, future expectations and sensitivity analysis. As at 30 June 2024, management are confident that the Group will remain resilient under all reasonably likely scenarios, whilst supporting the funding of the ongoing capital projects outlined in more detail in this announcement, and will continue to have headroom in both its banking covenants and existing bank facilities. We have modelled a plausible downside scenario which sensitises volumes and within which there is headroom against our covenants and available liquidity. We have further modelled a breach scenario to assess the fall in EBITDA required to breach the covenants within the credit facility in the period to 31 December 2025, and we believe that considering the new Government's commitment to increasing housing supply, coupled with the reduction in Group EBITDA that would be required, and the fact that our £140m programme of strategic investment is close to completion, the probability of such a scenario is remote. Even if such a scenario was to occur, we have identified mitigations including reduced capital expenditure, dividend reductions and operational cost savings which we would implement.

Taking account of all reasonably possible changes in trading performance and the current financial position of the Group, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the going concern period to 31 December 2025. The Group therefore adopts the going concern basis in preparing these Condensed Consolidated Financial Statements.

2   ACCOUNTING POLICIES

The accounting policies adopted in the preparation of the Condensed Consolidated Financial Statements are consistent with those followed in the preparation of the Group's Consolidated Financial Statements for the year ended 31 December 2023, with the exception of those outlined below. The accounting standards that became applicable in the period did not impact the Group's accounting policies and did not require retrospective adjustments.

Loans and borrowings

Borrowing costs incurred by the Group which are directly attributable to the construction of a qualifying asset are capitalised as part of the asset, until the point at which the qualifying asset is determined substantially complete. Strategic projects with an expected timeline to completion of greater than one year are considered qualifying assets by the Group.

Interest capitalised is determined either by way of interest incurred on specific borrowings entered in respect of qualifying assets, or through the determination of a capitalisation rate which is based the interest on general borrowings of the Group, being the Group's Revolving Credit Facility, which is then applied to expenditure on qualifying assets. In the current period to 30 June 2024 the Group capitalised interest of £0.9m in respect of qualifying assets.

3   JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of financial statements in conformity with adopted IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

In preparing these Condensed Consolidated Financial Statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Consolidated Financial Statements of Forterra plc for the year ended 31 December 2023.

4   ALTERNATIVE PERFORMANCE MEASURES

In order to provide the most transparent understanding of the Group's performance, the Group uses alternative performance measures (APMs) which are not defined or specified under IFRS and may not be comparable with similarly titled measures used by other companies. The Group believes that its APMs provide additional helpful information on how the trading performance of the business is reported externally and assessed internally by management and the Board.

Adjusted results for the Group have been presented before: i) exceptional items and ii) adjusting items.

•     Profit related APMs

Management and the Board use several profit related APMs in assessing Group performance and profitability. Those being EBITDA, EBITDA before exceptional items, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, adjusted operating profit (EBIT), adjusted profit before tax, adjusted earnings per share and adjusted operating cash flow. These are considered before the impact of exceptional and adjusting items as outlined below.

(I) Exceptional items

The Group presents as exceptional items on the face of the Consolidated Statement of Total Comprehensive Income, those material items of income and expense, which, because of the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better elements of financial performance in the period.

In the current year, management considers restructuring costs and costs incurred through an aborted corporate transaction to meet this definition. Exceptional items are further detailed in note 7.

(II) Adjusting items

Realised and unrealised movements in forward energy purchases

Adjusting items are disclosed separately in these Condensed Consolidated Financial Statements where management believes it is necessary to show an alternative measure of performance in presenting the financial results of the Group. The term adjusted is not defined under IFRS and may not be comparable with similarly titled measures used by other companies. In the current year, management has presented the below as adjusting items:

•     the realised loss of £2.1m, recognised within the Consolidated Statement of Total Comprehensive Income for the sale of excess energy volumes in 2024, where committed volume exceeded actual consumption by the Group;

and

•     the movement in fair value of forward energy contracts held where committed future volume is expected by management to exceed total consumption by the Group. For these contracts, the Group can no longer apply the own use exemption under IFRS 9 and instead, within statutory reporting, recognises these contracts as derivatives held at fair value on the balance sheet at 30 June 2024, in line with the accounting treatment previously applied at 31 December 2023. For the purposes of internal reporting to management and the Board, the Group continues to measure these contracts as if the own use exemption could still be applied, recognising energy purchased at the forward contracted rate in the period of consumption. In order to allow users of the accounts to review this more operationally aligned method of reporting, the impact to the profit and loss of these fair value movements in the period to 30 June 2024, being £6.9m, has been presented as an adjusting item.

Accounting for carbon credits

Under the UK Emissions Trading Scheme, the Group receives an annual allocation of free carbon credits, which are used to satisfy a portion of the Groups carbon emissions liability as incurred over the compliance period, which falls in line with the accounting period of the Group. These are recorded at nil value within the Consolidated Financial Statements. As this allocation is less than the total carbon compliance liability incurred by the Group over the compliance period, additional carbon credits are purchased to satisfy the shortfall.

The liability for the shortfall is measured, up to the level of credits purchased, at the cost of the purchased credits. Where the liability to surrender carbon credits exceeds the carbon allowances purchased, the shortfall is measured at the prevailing market price and remeasured at the reporting date.

The Group's free allocation of carbon credits is based on expected emissions over the full compliance period, which is in line with the Group's financial year. As such, management believes a more operationally aligned method for measurement recognises these free allowances over the full financial year using a weighted average basis, aligned proportionately with production which drives carbon emissions, in line with management reporting. Accordingly, this has been presented within the adjusted results for the period.

The results which are presented as statutory consider carbon credits as being utilised on a first in, first out basis. Under this method, the Group's free allocation of carbon credits is utilised before recognising any liability to purchase further credits, which has the effect of weighting the cost of compliance into the second half of the year rather than spreading the cost more evenly across the full year. As at 30 June 2024, the impact of this alternative performance measure is to reduce statutory profit before tax by £1.7m (2023: £1.9m). This only affects the interim results and will have no impact on the full year results for the Group.

Reconciliation of APMs to statutory results

EBITDA is calculated as operating profit before depreciation and amortisation. EBITDA before exceptional items is further presented before the impact of exceptional items.

For reporting purposes, 'adjusted results' are those presented before both adjusting and exceptional items. A full  reconciliation from adjusted results through to statutory results is shown as follows.

Although both EBITDA and adjusted EBITDA are APMs, EBITDA presented as below under the statutory heading is calculated with reference to statutory results without adjustment.

Group: Revenue, EBITDA, EBITDA margin, operating profit, profit before tax

Segmental: Revenue, EBITDA, EBITDA margin

Bricks & Blocks

¹Restated to report Red Bank results within the Brick and Block segment as a result of internal restructure. Further details are contained within note 6.

Bespoke Products

The Bespoke Products segment did not contain exceptional items in the period ended 30 June 2023. Further, it is not captured under UK ETS and is therefore not affected by accounting treatment for carbon credits. As such, there was no difference between Statutory and Adjusted results for this segment for the period ended 30 June 2023.

•     Other APMs

Net debt before leases: Net debt before leases is presented as the total of cash and cash equivalents and borrowings, inclusive of capitalised financing costs and excluding lease liabilities reported at the balance sheet date.

5   SEASONALITY OF OPERATIONS

The Group is typically subject to seasonality consistent with the general construction market, with stronger volumes witnessed across the spring and summer months when conditions are more favourable. The accounting policy adopted for the treatment of carbon credits also has a seasonal impact on the business with a higher compliance cost recognised in the second half of the year, as explained in note 4. Adjusted results have been presented as an alternative performance measure to remove this variation.

6   SEGMENTAL REPORTING

Management has determined the operating segments based on the management reports reviewed by the Executive Committee (comprising the executive team responsible for the day-to-day running of the business) 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 three 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 process, suppliers, customers and distribution methods.

In the second half of 2023, the Red Bank business was reclassified from the Bespoke Products segment to the Brick and Block segment after an internal restructure that combined the Cradley Special Brick and Red Bank operations. The segmental revenue and results, assets and other information that follows for the period ended 30 June 2023 has been restated to reflect this change comparatively across periods.

The Bespoke Products range includes precast concrete, 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.

The revenue recognised in the condensed consolidated income statement 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 complimentary building products. Substantially all revenue recognised in the Condensed Consolidated Financial Statements arose from contracts with external customers within the UK.

Intangible assets, property, plant and equipment, right-of-use assets and inventories are allocated to segments and considered when appraising segment performance. Trade and other receivables, income tax assets, cash and cash equivalents and derivative assets are centrally controlled and unallocated.

Movement in the net book value of intangible assets at the 30 June 2024 from the prior period comparative is predominantly due to the purchase and settlement of carbon credits over the period (purchases: £1.7m and settlement: £6.0m).

¹Restated to report Red Bank results within the Brick and Block segment as a result of internal restructure.

¹Restated to report Red Bank results within the Brick and Block segment as a result of internal restructure.

Intangible assets, property, plant and equipment, right-of-use assets and inventories are allocated to segments and considered when appraising segment performance. Trade and other receivables, income tax assets, cash and cash equivalents and derivative assets are centrally controlled and unallocated.

¹Restated to report Red Bank results within the Brick and Block segment as a result of internal restructure. 

Intangible assets, property, plant and equipment, right-of-use assets and inventories are allocated to segments and considered when appraising segment performance. Trade and other receivables, income tax assets, cash and cash equivalents and derivative assets are centrally controlled and unallocated.

7   EXCEPTIONAL ITEMS

Exceptional items 2024

During the period, the Group incurred exceptional expenses of £2.8m, of which £0.2m relates to restructuring costs and £2.6m relates to professional fees associated with an aborted corporate transaction.

Exceptional items 2023

During the period to 30 June 2023, the Group announced the mothballing of its Howley Park brick factory. Redundancy costs of £2.1m and an impairment charge of £0.9m relating to plant and machinery at this site was recognised at 30 June 2023 as a result of this. Further to this, in the period 31 December 2023, the Group announced a wider restructuring across the business, resulting in restructuring costs of £9.0m in relation to the full year. As part of this, the Group announced the mothballing of its Claughton brick factory and an additional impairment charge for the carrying value of plant and machinery at this site was recognised, resulting in a full year impairment charge for the Group of £5.0m.

8   FINANCE EXPENSE

Interest payable on loans and borrowings is presented net of borrowings costs which have been capitalised against qualifying assets. In the period to 30 June 2024, £0.9m of interest was capitalised at an average capitalisation rate of 6.4%.

9   TAXATION

The Group recorded a tax charge of £3.8m (2023: charge of £4.3m) on pre-tax profit of £12.8m (2023: profit of £18.1m) for the six months ended 30 June 2024. This results in an effective tax rate (ETR) of 29.6% (2023: 23.6%).

The UK main rate of corporation tax is 25%. The expected tax charge is calculated using the statutory tax rate of 25% (2023: 23.5%) for current tax. Deferred tax is calculated at 25% being the rate at which the provision is expected to reverse.

10   EARNINGS PER SHARE

Basic earnings per share (EPS) is calculated by dividing the profit for the period attributable to shareholders of the parent entity by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share additionally allows for the effect of the conversion of the dilutive options.

Adjusted earnings per share (EPS) is presented as an additional performance measure and is calculated by excluding exceptional cost of £2.8m (HY 2023: £3.0m, FY 2023: £14.0m) (note 7) and adjusting items representing a gain of £6.5m (HY 2023: £1.9m, FY 2023: £nil) (note 4) and the associated decrease in tax of £1.4m (HY 2023: increase of £0.3m, FY 2023: increase of £3.3m).

11   DIVIDENDS

A dividend of 2.0 pence per share that relates to the period ending 31 December 2023 was paid on 4 July 2024, making a total distribution of 4.4 pence per share for 2023.

An interim dividend of 1.0 pence per share (2023: 2.4 pence per share) has been declared by the Board and will be paid on 11 October 2024 to shareholders on the register as at 20 September 2024. This interim dividend has not been recognised as a liability as at 30 June 2024. It will be recognised in shareholders equity in the Consolidated Financial Statements for the year ended 31 December 2024.

12   LOANS AND BORROWINGS