Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Forterra PLC (FRA:F0T, Financial) reported a solid H1 result in line with expectations despite challenging market conditions.
- The company achieved a significant improvement in cash flow performance, with an operating cash inflow of GBP13.3 million compared to an outflow of GBP16.3 million in the prior period.
- Forterra PLC (FRA:F0T) closed the period with a better-than-expected net debt position, with net debt before leases of GBP101.2 million.
- The company is declaring an interim dividend based on a 40% payout ratio, with plans to return to a 55% payout ratio when market conditions improve.
- Forterra PLC (FRA:F0T) has made progress on strategic projects, including the completion of the Desford factory and ongoing work on the Wilnecote factory, positioning the company well for future market recovery.
Negative Points
- Group revenue for H1 dropped by 11.5% compared to the prior year, driven by a 9% decline in industry brick volumes.
- The competitive market conditions have restricted Forterra PLC (FRA:F0T)'s ability to pass on the announced 2024 price increase.
- Adjusted EBITDA for H1 fell by over 20%, reflecting reduced efficiency and lower production output.
- The company experienced a significant increase in borrowing costs due to higher debt levels and rising interest rates, resulting in a 50% fall in PBT.
- Forterra PLC (FRA:F0T) faced challenges in the Bespoke Products segment, with revenue down 13% and margins adversely impacted by volatility in installation costs.
Q & A Highlights
Q: Can you give us some color as to what's happening with the destocking factor within the merchanting channel? Is there an element of restocking likely to happen in the coming quarters?
A: The entire supply chain is holding much less product than before. Discussions with customers indicate they are aware of the upcoming recovery and are starting to plan for future stock needs.
Q: Can you comment on the market conditions being adverse to driving pricing ahead? Are there specific customer categories or groups where these challenges are more acute?
A: Most price erosion has been in the soft mud product category, driven by importers bringing in substitution products. Other areas have seen some trading around the edges but are largely under control.
Q: How have energy costs trended over the last two years, and what should we expect moving forward?
A: Energy costs peaked in 2023 and have slightly decreased this year. We expect this trend to continue into next year, although prices remain significantly above long-term norms.
Q: Can you provide more color on the RM&I market for London brick? How much of the 9% volume drop is new build versus RM&I?
A: The RM&I market has been impacted similarly to the rest of the business, with consumer confidence in extensions dropping due to higher interest rates.
Q: Does the GBP120 million target assume bringing back Howley Park? How does this tie into the 115% versus 123% capacity increase?
A: Howley Park is our oldest and least efficient factory. We could achieve the GBP120 million target without it, given a supportive market, as its cost of production is significantly higher.
Q: What would be the capacity and timeline for the potential new plant at Swillington?
A: The Swillington plant would cost around GBP80 million and produce approximately 100 million bricks. It would take three to four years to complete, and the decision to proceed depends on the market recovery and government housing targets.
Q: How conservative is your guidance, and is there any flexibility if volumes continue to fall?
A: Our guidance has upside and downside potential. If volumes are better, our results will improve. If volumes fall unexpectedly, results will be affected. We see a recovery but cannot predict the exact timeline.
Q: How do you see total CapEx tracking over the next two years, considering the new investments?
A: Our priority is to deleverage and get our balance sheet healthy. We have a pipeline of attractive projects but will only proceed when the market and our balance sheet allow.
Q: Can you give us some sequences on how demand has been trending over time, and what effect did the weather have?
A: The weather impacted the beginning of the year significantly. Demand has steadily improved but has flatlined recently. It's challenging to separate recovery from catch-up due to weather impacts.
Q: Are you getting different signals from large housebuilding customers compared to smaller ones?
A: Smaller housebuilders in niche markets are more optimistic, while national housebuilders remain guarded in their forecasts.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
