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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Forterra Plc | LSE:FORT | London | Ordinary Share | GB00BYYW3C20 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 2.60 | 1.63% | 162.60 | 162.00 | 162.60 | 163.60 | 160.00 | 160.00 | 99,124 | 16:02:49 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Concrete Block And Brick | 455.5M | 58.8M | 0.2849 | 5.70 | 335.19M |
From Apr 2019 to Apr 2024
TIDMFORT
RNS Number : 5454Y
Forterra plc
10 September 2020
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.
Hot Features
Premium
Six months ended Six months ended
30 June 30 June
2020 2019
GBPm GBPm
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 GBP10.4m
-- GBP55m 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 GBP27m-GBP32m
FINANCIAL HIGHLIGHTS
-- Revenue fell by 37% relative to the prior period due to the impact of COVID-19 -- EBITDA before exceptional items decreased by GBP34.3m to GBP8.2m
-- Result before tax and exceptional items decreased by GBP35.0m from a profit of GBP32.7m to a loss of GBP2.3m
-- Exceptional items of GBP21.0m include non-cash impairment charges of GBP16.2m, restructuring costs of GBP4.4m and debt-refinancing costs of GBP0.4m
-- Net debt at 30 June 2020 (stated prior to the receipt of the proceeds from the equity placing) was GBP68.6m before lease liabilities and GBP80.3m after including IFRS 16 lease liabilities of GBP11.7m.
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 GBP27m-GBP32m. 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 GBP10.4m. We believe this decisive action has positioned the business well to deal with any future uncertainty.
RESULTS FOR THE HALF YEAR
Revenue was GBP122.4m, a decrease of 37% against the comparative period for 2019 (2019: GBP193.6m). The loss before tax for the period before exceptional items of GBP2.3m was a fall of GBP35.0m against the comparative period (2019: profit of GBP32.7m).
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 GBP8.4m.
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 GBP10.4m 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 GBP4.4m has been recognised along with an exceptional non-cash impairment charge of GBP10.2m 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 GBP6.0m 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 GBP0.4m relating to the refinancing have been recognised in the period.
DIVID
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 GBP14.2m 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 GBP80.3m (2019: GBP49.6m). Excluding leases, net debt at 30 June 2020 was GBP68.6m (2019: GBP34.5m) This represents an increase of GBP25.4m on the 31 December 2019 figure of GBP43.2m 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 GBP4.2m compared to an inflow of GBP27.6m 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 GBP0.2m (2019: GBPnil) were incurred in the period and a charge of GBP0.5m (2019: GBPnil) 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 GBP150m 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 GBP20m to GBP170m 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.
A further GBP8.5m was spent on the project in the period taking total spend at 30 June 2020 to GBP20.7m. As at 30 June 2020 a further spend of GBP12.1m was contractually committed on the project.
Our current expectation for the timing of the cash outflows on the project is as follows: GBP26 million in 2020, GBP24 million in 2021, GBP28 million in 2022 and GBP5 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 GBP80m (excluding lease liabilities) having increased from a December 2019 position of GBP43.2m, primarily driven by seasonal working capital movements along with spend on the Desford factory. This afforded liquidity headroom of around GBP70m (plus an uncommitted overdraft of GBP10m) 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 GBP175 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 GBP70m 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 GBP50m 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 GBP55.0m 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 GBP52.6m. This equity issuance also facilitated a refinancing of the Group's debt facilities with the GBP150m RCF expiring in July 2022 being increased to GBP170m 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 GBP18.1m 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 GBP27m-GBP32m. 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
Six months ended ended
30 Jun 30 Jun
2020 2019
GBPm GBPm
Exceptional Before exceptional Change
Statutory items items Statutory %
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 GBP2.1m 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 GBP2.1m. 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
GBPm GBPm
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 GBP20 million to GBP170 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 GBP0.01 each in its share capital to raise GBP55.0m gross proceeds on 1 July 2020. The Group also has access to GBP175m 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
INDEPENT 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 YEARED 30 JUNE 2020 (UNAUDITED)
Six months ended Year ended
30 June 31 December
Note 2020 2019 2019
Unaudited Unaudited Audited
GBPm GBPm GBPm
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 As at
30 June 31 December
Note 2020 2019 2019
Unaudited Unaudited Audited
GBPm GBPm GBPm
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 YEARED 30 JUNE 2020 (UNAUDITED)
Share capital Reserve for own shares Retained earnings Total equity
GBPm GBPm GBPm GBPm
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 YEARED 30 JUNE 2020 (UNAUDITED)
Six months ended
30 June Year ended 31 December
2020 2019 2019
Unaudited Unaudited Audited
GBPm GBPm GBPm
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
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEARED 30 JUNE 2020 (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 10 September 2020.
The condensed consolidated financial statements for the six months ended 30 June 2020 and comparative period have not been audited. The auditor has carried out a review of the financial information and their report is set out on pages 13 to 14.
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 2019 were approved by the Board of Directors on 10 March 2020, delivered to the Registrar of Companies and include an explicit and unreserved statement of compliance with EU-adopted IFRS. 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 (iii) did not contain a statement under section 498 of the Companies Act 2006.
2. BASIS OF PREPARATION
The condensed consolidated financial statements for the half year ended 30 June 2020 have been prepared in accordance with the Disclosure and Transparency Rules of the UK Financial Conduct Authority (DTR), and the requirements of 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 Financial Statements for the year ended 31 December 2019 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
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 GBP20 million to GBP170 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 GBP0.01 each in its share capital to raise GBP55.0m gross proceeds on 1 July 2020. The Group also has access to GBP175m 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.
3. ACCOUNTING POLICIES
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated Financial Statements for the year ended 31 December 2019, except for the adoption of new standards effective as of 1 January 2020. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
In the period the Group participated in the Government's Coronavirus Job Retention Scheme (JRS) to mitigate cash outflows. Participation in this scheme allowed the Group to reclaim an element of employee pay from the Government, offsetting the gross cost. The Group takes advantage of an option under IAS 20 (Accounting for Government Grants and Disclosure of Government Assistance) to recognise the offset of the reclaimed amount under JRS against the associated expenditure. The total reclaimed and offset in the period amounted to GBP8.4m and GBP0.2m is recognised in Trade and other receivables on the Balance Sheet as due under JRS at 30 June 2020. There are no unfulfilled conditions attached to the Group's participation in JRS, staff payroll for June had been settled with employees before 30 June 2020.
4. 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 have changed since the consolidated financial statements of Forterra plc for the year ended 31 December 2019 were approved.
Restoration and decommissioning provisions
Estimates associated with long-term restoration and site decommissioning provisions have remained consistent despite some change in the discount rates as a result of COVID-19. Management take a long-term view of discount rates in this area and this maintains consistency with prior periods.
Inventory valuation and provisioning
Judgements associated with inventory valuation and provisioning remain consistent in 2020.
Impairment of intangible assets
The Group continues to evaluate tangible and intangible assets for indicators of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Judgements have remained consistent with prior periods, however, management have considered the COVID-19 pandemic a trigger event for undertaking an impairment assessment and have therefore reviewed all cash-generating-units to determine if recoverable amounts exceed carrying value. The recoverable amount is defined as the higher of fair value less costs to sell and value in use, which in turn is the present value of the future cash flows expected to be derived from the asset. The estimate of value in use, and hence the outcome of the impairment test, is sensitive to assumptions and changes in assumptions. Notable changes in assumed revenue growth and the WACC discount rate are sensitive when modelling cash flows across the short-medium term planning horizon. The absence of any forecast cash flows associated with hollowcore manufacture at Swadlincote results in an impairment of assets in the Bespoke products segment. An increase in the WACC discount rate of 2.5% from 31 December 2019 eliminates headroom at Formpave and results in an impairment of goodwill in the Bricks and Blocks segment.
Exceptional items
Exceptional items are disclosed separately in the financial statements where management believes it is necessary to do so to better understand the underlying financial performance of the Group. Management consider the nature, size and incidence of items when judging what should be disclosed separately. Management consider the restructuring and impairment charges in 2020 to be exceptional by nature, size and incidence.
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 impact of COVID-19 in spring 2020 is expected to alter the typical pattern in 2020 and could potentially also impact 2021.
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.
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 income statement arose from contracts with external customers within the UK.
Segment revenue and results:
Six months ended 30 June 2020
Bricks & Blocks Bespoke products Total
GBPm GBPm GBPm
Segment revenue 90.5 33.0 123.5
Intercompany eliminations - - (1.1)
--------
Revenue (122.4)
EBITDA before exceptional items 11.1 (2.9) 8.2
Depreciation and amortisation (7.5) (1.5) (9.0)
Operating profit/(loss) before exceptional items 3.6 (4.4) (0.8)
Allocated exceptional items (7.7) (12.5) (20.2)
Unallocated exceptional items (0.4)
--------
Operating loss (21.4)
Net finance expense (1.9)
--------
Loss before tax (23.3)
========
Segment assets:
As at 30 June 2020
Bricks & Blocks Bespoke products Total
GBPm GBPm GBPm
Property, plant and equipment 163.1 19.6 182.7
Intangible assets 10.5 0.8 11.3
Right-of-use assets 9.6 1.6 11.2
Inventories 39.0 5.2 44.2
Segment assets 222.2 27.2 249.4
Unallocated assets 121.8
------
Total assets 371.2
======
Other segment information:
As at 30 June 2020
Bricks & Blocks Bespoke products Total
GBPm GBPm GBPm
Property, plant and equipment additions 13.9 1.0 14.9
Intangible asset additions 0.6 0.1 0.7
Right-of-use asset additions 0.2 0.2 0.4
Segment revenue and results:
Six months ended 30 June 2019
Bricks & Blocks Bespoke products Total
GBPm GBPm GBPm
Segment revenue 143.9 50.9 194.8
Intercompany eliminations (1.2)
------
Revenue 193.6
------
EBITDA before exceptional items 41.6 0.9 42.5
Depreciation and amortisation (7.3) (1.3) (8.6)
---------------- ----------------- ------
Operating profit before exceptional items 34.3 (0.4) 33.9
Allocated exceptional items - - -
Unallocated exceptional items - - -
---------------- ----------------- ------
Operating profit 34.3 (0.4) 33.9
Net finance expense (1.2)
------
Profit before tax 32.7
======
Segment assets:
As at 30 June 2019
Bricks & Blocks Bespoke products Total
GBPm GBPm GBPm
Property, plant and equipment 138.9 33.1 172.0
Intangible assets 17.1 0.8 17.9
Right-of-use assets 13.3 1.5 14.8
Inventories 35.6 6.5 42.1
Segment assets 204.9 41.9 246.8
Unallocated assets 87.3
------
Total assets 334.1
======
Other segment information:
As at 30 June 2019
Bricks & Blocks Bespoke products Total
GBPm GBPm GBPm
Property, plant and equipment additions 8.0 2.1 10.1
Intangible asset additions 1.1 0.1 1.2
Right-of-use asset additions 2.8 0.6 3.4
Segment revenue and results:
Year ended 31 December 2019
Bricks & Blocks Bespoke products Total
GBPm GBPm GBPm
Segment revenue 279.1 103.5 382.6
Intercompany eliminations (2.6)
-------
Revenue 380.0
-------
EBITDA before exceptional items 80.4 2.3 82.7
Depreciation and amortisation (15.0) (2.7) (17.7)
Operating profit before exceptional items 65.4 (0.4) 65.0
Allocated exceptional items (3.3) (0.3) (3.6)
Unallocated exceptional items (0.7)
-------
Operating profit 60.7
Net finance expense (2.5)
-------
Profit before tax 58.2
=======
Segment assets:
As at 31 December 2019
Bricks & Blocks Bespoke products Total
GBPm GBPm GBPm
Property, plant and equipment 148.6 34.0 182.6
Intangible assets 16.6 1.6 18.2
Right-of-use assets 11.9 1.8 13.7
Inventories 41.5 6.3 47.8
---------------- ----------------- ------
Segment assets 218.6 43.7 262.3
Unallocated assets 67.0
------
Total assets 329.3
======
Other segment information:
As at 31 December 2019
Bricks & Blocks Bespoke products Total
GBPm GBPm GBPm
Property, plant and equipment additions 19.7 3.4 23.1
Intangible asset additions 1.5 0.2 1.7
Right-of-use asset additions 4.2 1.2 5.4
7. EXCEPTIONAL ITEMS
Six months ended Year ended
30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Exceptional operating costs:
Restructuring costs (4.4) - (3.6)
Aborted transaction costs - - (0.7)
Asset impairment charges (16.2) - -
-------------
(20.6) - (4.3)
========== ======= =============
Exceptional finance expense:
Debt refinancing costs (0.4) - -
(0.4) - -
========== ======= =============
Exceptional items (21.0) - (4.3)
========== ======= =============
The Group incurred exceptional expenses of GBP21.0m in 2020 (2019: nil). GBP4.4m of the cost relates to restructuring costs, where regrettably a total of around 225 jobs are expected to be lost across the business.
Following the COVID-19 pandemic management's immediate priorities were reassessed and a GBP16.2m impairment has been charged against assets in business areas with more challenging market conditions and weaker margins. These fully write-off the carrying value of goodwill within the business and write down assets associated with hollowcore production at the mothballed facility in Swadlincote. The Goodwill impairments (GBP6.8m) substantially relate to the historic acquisition of Hanson plc by HeidelbergCement AG in 2007, GBP6.0m. This is recognised within the Brick and Block segment as the Goodwill had been allocated to the Formpave business. The remaining GBP0.8m of goodwill relates to the acquisition of the Swadlincote facility in 2017 and is recognised within the Bespoke products segment, along with the remaining GBP9.4m impairment relating to idle assets at the Swadlincote facility following the decision to mothball this facility in response to the COVID-19 pandemic.
The impairment of goodwill results from an expected decrease in future cashflows across the planning period in conjunction with an increase in the WACC rate (weighted average cost of capital) used to discount these cashflows. Both the decreased cashflows and increased WACC rate have been triggered by COVID-19. Similarly, a decision to mothball the hollowcore production facility at Swadlincote results from a weaker outlook for this market since the onset of the COVID-19 pandemic. This decision to mothball triggers an impairment of assets as there are no expected cashflows from production of hollowcore at Swadlincote across the short-medium term planning horizon. Management remain confident in the long-term prospects of the Group and the business model as a whole.
Aborted transaction costs of GBP0.7m were incurred in the second half of 2019 in respect of an acquisition which was not completed.
On 7 July 2020 the Group refinanced its existing banking facilities. Costs of GBP0.4m associated with this refinancing had been incurred prior to 30 June 2020 and are recognised as an exceptional item.
Tax on exceptional items:
Restructuring and refinancing costs recognised have been treated as tax deductible. The aborted transaction costs and impairment charges on goodwill, property, plant and equipment and land and buildings are not tax deductible. The property, plant and equipment impairment give rise to a deferred tax credit such that they are not tax rate impacting, however the impairment of goodwill and non-qualifying land and buildings impact the effective tax rate.
8. NET FINANCE EXPENSE
Six months ended Year ended
30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Interest payable on external borrowings (1.3) (1.0) (2.0)
Interest payable on lease liabilities (0.2) (0.2) (0.4)
Other finance expense - - (0.1)
Exceptional finance expense (0.4) - -
-------------
(1.9) (1.2) (2.5)
========= ======== =============
The Group drew down on its revolving credit facility in its entirety from mid-March to the period end, securing cash in response to the COVID-19 pandemic, but resulting in higher interest charges.
On 7 July 2020 the Group refinanced its existing banking facilities. GBP0.4m of costs associated with this refinancing had been incurred prior to 30 June 2020 and are recognised as exceptional items.
9. TAXATION
The Group recorded a tax credit of GBP2.8m (2019: charge of GBP6.0m) on pre-tax losses of GBP23.3m (2019: profit of GBP32.7m). This results in an effective tax rate (ETR) of 12.0% (2019: 18.3%) including exceptional items, compared to the UK corporation tax rate of 19%. The main reason for the lower than expected tax credit is the impact of expenses incurred in the period that are not deductible for tax purposes, namely the impairment of goodwill and non-qualifying land and buildings.
Six months ended Year ended
30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Tax credit / (charge):
(Loss) / profit before taxation (23.3) 32.7 58.2
Expected tax credit / (charge) 4.4 (6.2) (11.1)
Expenses not deductible for tax purposes (2.1) (0.3) (0.3)
Reversal of uncertain tax provision 0.7 0.5 -
Impact of change in deferred tax rate (0.2) - -
---------- ------- -------------
Total tax credit / (charge) for the period 2.8 (6.0) (11.4)
========== ======= =============
Effective tax rate 12.0% 18.3% 19.6%
The tax credit for the interim period is an estimate based on the expected full year effective tax rate.
In the March 2020 Budget, the Chancellor of the Exchequer repealed the previously enacted reduction to the standard rate of corporation tax to 17% that was due to come into force from 1 April 2020. The standard rate of corporation tax has been maintained at 19%.
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.
Six months ended Year ended
30 June 31 December
2020 2019 2019
Basic Basic Basic
GBPm GBPm GBPm
Operating (loss)/profit for the period (21.4) 33.9 60.7
Net finance expense (1.9) (1.2) (2.5)
---------- -------- --------------
(Loss)/profit before taxation (23.3) 32.7 58.2
Tax credit/(charge) 2.8 (6.0) (11.4)
---------- -------- --------------
(Loss)/profit for the period (20.5) 26.7 46.8
========== ======== ==============
Weighted average number of ordinary shares in issue (millions) 199.7 196.8 196.8
Effect of share incentive awards and options (millions) 0.3 2.9 0.8
------- ------ ------
Diluted weighted average number of ordinary shares (millions) 200.0 199.7 197.6
======= ====== ======
(Loss)/earnings per share
Basic (in pence) (10.3) 13.6 23.8
Diluted (in pence) (10.3) 13.4 23.7
Basic earnings per share before exceptional items (in pence) - 13.6 25.6
Earnings per share (EPS) before exceptional items is presented as an additional performance measure and is calculated by excluding the exceptional charge of GBP21.0m (2019: nil) and the associated tax effect (the effective tax rate before the impact of exceptional items was 18.3% in both periods).
11. DIVIDS
A dividend of 7.2 pence per share was proposed in financial statements for the year ending 31 December 2019 before being cancelled, with the resolution being withdrawn and not presented for shareholder approval at the 2020 AGM. No liability was recognised for the dividend in those financial statements, as such there is no adjustment in the current period. The total dividend for 2019 was therefore 4.0 pence per share.
An interim dividend will not be proposed in 2020 (2019: 4.0 pence per share).
12. LOANS AND BORROWINGS
As at As at
30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Non-current loans and borrowings:
External bank loans - principal (150.0) (67.0) (70.0)
- unamortised debt issue costs 0.2 0.4 0.3
(149.8) (66.6) (69.7)
-------- ------- -------------
Current loans and borrowings:
- interest (0.7) (0.1) (0.1)
(0.7) (0.1) (0.1)
-------- ------- -------------
(150.5) (66.7) (69.8)
======== ======= =============
Since 26 July 2017 the Group has had access to a revolving credit facility of GBP150m with a group of leading banks. This facility was due to expire in July 2022, before a refinancing of the existing facility was secured, by way of amendment and restatement of the existing agreement and under which the placing of new shares after the balance sheet date on 1 July 2020 was a condition precedent. This amendment and restatement extends maturity to July 2024, increases the revolving credit facility by GBP20m to GBP170m and secures a relaxation of covenants until December 2021.
Interest was payable on amounts drawn down under the agreement at a rate of LIBOR plus a variable margin ranging from 1.25% to 2.25% during the period. Following the refinancing the variable margin ranges from 1.75% to 4%.
The facilities are secured by fixed charges over the shares of Forterra Building Products Limited and Forterra Holdings Limited.
The Group has also been confirmed as eligible for the joint HM Treasury and Bank of England CCFF programme with an issuer limit of GBP175 million.
13. NET DEBT
As at As at
30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Cash and cash equivalents 81.9 32.2 26.6
Loans and borrowings (150.5) (66.7) (69.8)
Lease liabilities (11.7) (15.1) (14.1)
---------- ------- -------------
Net debt (80.3) (49.6) (57.3)
========== ======= =============
Reconciliation of net cash flow to net debt
Six months ended Year ended
30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Operating cash flow before exceptional items (4.2) 27.6 64.9
Payments made in respect of exceptional items (0.6) - (1.1)
---------- ------- -------------
Operating cash flow after exceptional items (4.8) 27.6 63.8
Interest paid (0.7) (1.1) (2.4)
Tax paid (4.1) (3.1) (8.8)
Net cash flow from investing activities (12.2) (8.6) (24.3)
Dividends paid - - (22.0)
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
New lease liabilities (0.4) (3.4) (5.4)
Other movements (0.7) - -
Decrease in net debt (23.0) 3.8 (3.9)
Net debt at the start of the period (57.3) (53.4) (53.4)
---------- ------- -------------
Net debt at the end of the period (80.3) (49.6) (57.3)
========== ======= =============
14. SHARE-BASED PAYMENTS
No additional share awards have been granted in 2020 under the Performance Share Plan (PSP) or Deferred Annual Bonus Plan (DABP).
15. RELATED PARTY TRANSACTIONS
The Group has had no transactions with related parties in the periods ending 30 June 2019, 31 December 2019 and 30 June 2020.
16. POST BALANCE SHEET EVENTS
Immediately prior to the Balance sheet date the Group agreed a refinancing of its existing bank facilities. This refinancing was conditional on a placing of new ordinary shares, which completed after the balance sheet date on 1 July 2020.
Following this refinancing, by way of amendment and restatement of the Group's existing credit agreement, the Group has access to an additional GBP20m above the existing GBP150m revolving credit facility, has extended maturity from July 2022 to July 2024, secured a package of covenant relaxations and raised gross proceeds from the equity placing of GBP55.0m.
This refinancing package maintains the strong balance sheet of the Group whilst the strategic capital investment programme at Desford, Leicestershire is continued and positions the Group to benefit from an accelerated recovery in the housing market or to ensure a strong balance sheet in the event of a slower recovery.
APPIX 1
PRINCIPAL RISKS AND UNCERTAINTIES
As the pandemic emerged the Group deployed its business continuity plans to ensure that customer needs could continue to be met. Following this immediate response, the Group began crisis management efforts, using established risk management procedures to assess the likelihood, impact and proximity of the risks that were emerging and mitigating these without delay.
Management held daily crisis meetings for over a period of several weeks where emerging risks were identified and responses to risks were coordinated. A crisis management risk register was developed and used which focused exclusively on short-term risk and mitigation.
The table below summarises the main risks posed by COVID-19 and the effect of mitigating actions:
PRINCIPAL RISK GROSS KEY MITIGATION, NET RISK RISK RATIONALE FOR RATING
AND WHY IT IS RISK CHANGE AND SPONSOR / POST APPETITE
RELEVANT MITIGATION
RISK
1.COVID-19 Critical Action to protect Medium Very Safety first is
PANDEMIC the workforce in low enshrined in all
March 2020 was decisive. decision making
EMPLOYEE HEALTH, Facilities were and is never compromised.
SAFETY AND WELFARE immediately closed Actions taken in
and only work that 2020 evidence this
The risk that could be performed and management
employees may safely at the workplace are satisfied that
contract or or from home continued. risk mitigation
spread COVID-19 New safe working reduces risk sufficiently.
in the workplace practices have been
emerged as a developed, employees The residual net
critical risk are safe and a zero-harm risk is above the
early in 2020 workplace continues risk appetite as
and has remained to be management's management acknowledge
a business priority top priority. that the pandemic
since. has not reached
Executive sponsor: an end. As such,
Successfully Stephen Harrison this area will
mitigating this continue to be
risk ensures a daily focus area;
the Group can ensuring the net
continue operating risk continues
in accordance to reduce and any
with COVID-19 changes to guidance
regulations. and legislation
are identified
and responded to
promptly.
--------- -------------------------- ------------ ---------- ---------------------------
2.COVID-19 High Customer facing Low Low By continuously
PANDEMIC activities were engaging with our
maintained throughout long-standing loyal
MAINTAINING the pandemic; with customer base we
CUSTOMER SERVICE employees operating aim to offer industry
LEVELS from home and leading customer
communication service.
This risk emerged technology used
as a critical effectively. Despite Our objectives
risk resulting production being in this area have
from the COVID-19 halted at many facilities not changed as
pandemic and customer demand a result of the
mitigating this continued to be pandemic and we
risk has been met from existing have ensured that
a business priority stocks held on our customer demand
since. yards and deliveries is met throughout.
made safely. Reopening
Successfully facilities has allowed The residual/net
mitigating this availability to risk is in line
risk ensures improve. with the risk appetite.
the Group can
maintain existing Operations have
levels in the now substantially
short-term and resumed to allow
continue to the Group to replenish
demonstrate stock levels and
continuous improvement continue to meet
longer-term. customer demand.
The Group continued
to invest in IT
to ensure that staff
could work remotely
where necessary
and maintain customer
service levels.
Offices have now
reopened safely,
but the ability
to reinstate
working-from-home
procedures remains
if required.
Executive sponsor:
Adam Smith
--------- -------------------------- ------------ ---------- ---------------------------
PRINCIPAL RISK GROSS KEY MITIGATION, NET RISK RISK RATIONALE FOR RATING
AND WHY IT IS RISK CHANGE AND SPONSOR / POST APPETITE
RELEVANT MITIGATION
RISK
3.COVID-19 High The Group had cash Low Low The Group has sufficient
PANDEMIC deposits, undrawn liquidity to meet
facilities, good ongoing financing
MAINTAINING relationships with requirements for
LIQUIDITY customers/debtors the foreseeable
and good credit future.
This risk emerged lines from suppliers
as a critical when the pandemic The residual/net
risk resulting first began to impact risk is inline
from the COVID-19 customer demand with the risk appetite.
pandemic and and operations.
mitigating this
risk was a business By drawing undrawn
priority through facilities, managing
March, April, debtors, prioritising
May and June working capital
2020 management and cash
forecasting, deferring
Successfully tax payments and
mitigating this accessing the Government
risk ensures Jobs Retention Scheme
the Group can the Group was able
survive the to continue to meet
pandemic and commitments with
continue as suppliers and other
a going concern. contractual liabilities
in the period.
To ensure that liquidity
remains sufficient
to meet ongoing
requirements, maintain
covenant compliance
and support the
investment at Desford,
the Group refinanced
and raised equity
in July 2020.
Executive sponsor:
Ben Guyatt
------ -------------------------- ------------ ---------- -------------------------
As the Group recovers and resumes activities it has now reverted to its established risk registers and updated these to reflect the impact that COVID-19 has had on each principal risk. Each of the principal risks and uncertainties presented in the Annual Report and Accounts 2019 is represented below after updating to reflect the impact of COVID-19.
PRINCIPAL RISK GROSS KEY MITIGATION, CHANGE NET RISK RISK APPETITE RATIONALE
AND WHY IT IS RISK AND SPONSOR / POST FOR RATING
RELEVANT MITIGATION
RISK
+/- +/- FROM
FROM DEC-19
DEC-19
1.HEALTH AND Increased Safety remains the Group's No change Low Safety first
SAFETY top priority. The Group is enshrined
High targets an accident free Medium in all decision
Our key risks environment and has a making and
remain the same robust policy covering is never compromised.
as before the expected levels of Actions taken
emergence of performance, in 2020 evidence
COVID-19. We responsibilities, this.
continue to communications,
work to ensure controls, reporting, Reducing
the safety of monitoring and review. accidents
employees exposed and ill health
to risks such Management responded is critical
as the operation quickly to the emergence to strategic
of heavy machinery, of COVID-19, establishing success.
moving parts remote working procedures
and noise, dusts and systems that
and chemicals. facilitated
this as part of the
Our employees Group's
work in close business continuity
proximity to response
each other at before introducing safe
times and the working practices for
emergence of social-distancing in
COVID-19 has the workplace. Initially
seen proximity arrangements for
become an additional social-distancing
risk requiring in the workplace were
mitigation in made at manufacturing
both office facilities servicing
and manufacturing essential Government
environments. projects, these were
then replicated elsewhere
before production
restarted.
Supporting this restart
an Employee Code of
Conduct
was agreed that sets
clear expectations around
personal behaviours and
return to work inductions
were conducted to mitigate
additional COVID-19 risks.
Employees continue to
be reminded that existing
risks remain and controls
to mitigate these are
maintained and
consistently
operated.
Executive sponsor: Stephen
Harrison
---------- --------------------------- ------------ -------------- -----------------------
2. SUSTAINABILITY No change Whilst recognising the No change Low Our products
positive impact that are typically
The Group recognises Medium the Group's products Medium made from
the importance have on the built natural materials,
of sustainability environment are long-lasting,
and the positive across their lifespan, durable, high
and negative the Group is also quality, thermally
impacts that undertaking efficient
its products several initiatives to and maintenance
and processes assess the detrimental free. However,
have on the impact that its existing our manufacturing,
environment. business model has on transportation
the environment and and packaging
working processes
with stakeholders to present opportunities
revise its model and for improvement.
mitigate any detrimental
impacts. This initiative
has seen management
established
an ESG (Environmental,
Social and Corporate
Governance) working group
to make progress in this
area and appointed an
executive sponsor to
ensure that progress
is suitably prioritised.
Existing sustainability
targets run from 2010
through to 2020. As this
period comes to an end
the Group are taking
the opportunity to
reassess
the current sustainability
strategy and link
long-term
ambitions with the UN
Sustainable Development
Goals.
Executive sponsor: Stephen
Harrison
---------- --------------------------- ------------ -------------- -----------------------
PRINCIPAL RISK GROSS KEY MITIGATION, CHANGE NET RISK RISK APPETITE RATIONALE
AND WHY IT IS RISK AND SPONSOR / POST FOR RATING
RELEVANT MITIGATION
RISK
+/- +/- FROM
FROM DEC-19
DEC-19
3. ECONOMIC Increased Business performance, Increased Balanced Current levels
CONDITIONS the customer order book, of customer
Critical strong relationships High demand suggest
Demand for the with customers and across that a recovery
Group's products the building sector, is underway
is closely correlated and a range of internal but management
with residential and external lead will ensure
and commercial indicators that they
construction help to inform management are not complacent
activities. and ensure that the and suitably
The emergence business consider the
of COVID-19 has time to respond to risk of economic
saw customer changing market conditions
demand fall conditions. being unfavourable
in late March The Group has flexed for the longer-term
before slowly costs and capacity before seeking
rebuilding. effectively to operate
Whilst demand in 2020 and can continue at full capacity
has recovered to match production and indefinitely.
substantially customer demand in the
in some areas, near-term.
management remain
watchful of While the shape of the
both immediate recovery from COVID-19
and longer-term remains uncertain, there
changes in demand. is wide recognition that
the housing market will
recover over the medium
term. There remains a
shortage of housing in
the UK, with the market
supported by Help to
Buy, Government
initiatives
to release development
land, low interest rates
supporting mortgage
availability,
and favourable population
growth. The Group also
expects brick imports
to reduce more
significantly
than sales of domestically
manufactured bricks,
as they have in prior
cyclical downturns.
Forterra
is well positioned to
take advantage of
attractive
market fundamentals to
continue delivering
shareholder
value.
Executive sponsor: Stephen
Harrison
---------- --------------------------- ------------ -------------- ---------------------
4. GOVERNMENT No change The Group participates No change High The Group
ACTION AND POLICY in trade associations, continues
Medium attends industry events Medium to invest
The general and tracks any policy significantly
level and type changes associated with in growth
of residential housebuilding and the - in terms
and other construction construction sector more of both capacity
activity is broadly. and range.
partly dependent Where identified, the This investment
on the UK Government's Group factors any emerging is made despite
housebuilding issues into models of the uncertainty
initiatives, anticipated future demand presented
investment in to guide strategic by Brexit
public housing decision and COVID-19
and availability making. as the timescales
of finance. associated
Proximity to The Group worked to with adding
the end actively additional
of the current mitigate the short-term capacity are
phase of Help risks posed by Brexit significant
to Buy and temporarily through 2019 and will and long-term
reduced rates mitigate this risk in planning is
of Stamp Duty the same manner in H2 vital to achieving
Land Tax may 2020. the Group's
stimulate demand strategic
ahead of March Although the end of objectives.
2021 but may Government schemes
also see demand designed
for the Group's to support the housing
products fall sector near the risk
or change after level is considered to
this date. The remain static as the
Housing Infrastructure Government have
Fund could also demonstrated
have an impact. that they remain committed
Changes to Government to housebuilding and
policy or planning management consider the
regulations withdrawal of support
could adversely is unlikely where economic
affect Group uncertainty remains high.
performance.
Executive sponsor: Stephen
Harrison
---------- --------------------------- ------------ -------------- ---------------------
PRINCIPAL RISK GROSS KEY MITIGATION, CHANGE NET RISK RISK APPETITE RATIONALE
AND WHY IT IS RISK AND SPONSOR / POST FOR RATING
RELEVANT MITIGATION
RISK
+/- +/- FROM
FROM DEC-19
DEC-19
5. RESIDENTIAL Increased The Group closely follows Increased High Serving the
SECTOR ACTIVITY the demand it is seeing residential
LEVELS High from this sector, market High market lies
projections, sentiment, at the core
Residential mortgage affordability, of the Group's
development and credit availability strategy.
(both new build in order to identify Whilst the
construction and respond to Group will
and repair, opportunities seek opportunities
maintenance and risk. Group strategy to add to
and improvement) encourages initiatives its commercial
contribute a that strengthen the offer it will
significant Group's continue to
portion of Group position in this sector see residential
revenue. The whilst also seeking to markets as
weighting of strengthen our commercial core.
Group revenues offer.
towards this
sector means The impact of COVID-19
that any change has been significant
in activity in H1 2020. The recovery
levels in this from May onwards has
sector affect been promising, and
profitability although
and strategic management remain very
growth plans. confident in the long-term
recovery of activity
levels they are cautious
in the near term.
Executive sponsor: Stephen
Harrison
---------- --------------------------- ------------ -------------- --------------------
6. PRODUCT AVAILABILITY Increased In the short-term, the No change Balanced Managing capacity
Group remains well stocked sufficiently
Many of the High for current levels of Medium to prevent
Group's product demand. However, there tying-up excessive
ranges are manufactured is enhanced risk due amounts of
at single facilities to COVID-19 as illness working capital
and where there in the workforce could in stock but
are low buffer restrict manufacturing ensuring that
stock levels or despatch. Strong customer demand
and high capacity customer can continue
utilisation relationships and some to be met
a breakdown degree of product range are crucial
can cause product substitution can mitigate to the Group's
shortages and this risk, as do business success.
have a detrimental precautions that decrease
impact on the the rate of potential
Group's performance COVID-19 infection and
and reputation. allow distribution to
continue in most
circumstances.
However, despite this
heightened risk, the
risks that have previously
been identified relating
to plant running at full
capacity for prolonged
periods have reduced
and occurrence is less
likely in the short-term.
Executive sponsors:
George Stewart and Peter
Varnsverry
---------- --------------------------- ------------ -------------- --------------------
7. CUSTOMER Increased One of the Group's No change Low Excellent
RELATIONSHIPS strategic service is
AND REPUTATIONS Medium priorities is to be the Low a core value
supply chain partner and progress
Significant of choice for our against objectives
revenues are customers. in this area
generated from By delivering excellent is a priority
sales to a number customer service, for all employees
of key customers. enhancing .
Where a customer our brands and offering
relationship the right products the
deteriorates Group seeks to develop
there is a risk our long-standing
to revenue and relationships
cash flow. with major customers
and replicate these with
newer customers. Regular
and frequent review
meetings
focus on the Group's
effectiveness in this
area and external
expertise
has been engaged to
support
these appraisals.
Business continuity
plans were quickly and
smoothly implemented
as the pandemic gathered
pace allowing good
customer
service levels to
continue.
These were supported
by the external sales
team, the customer's
primary contact,
continuing
to work remotely
throughout
the lockdown period;
allowing customers to
obtain immediate answers
in the more dynamic
environment.
This service proposition
has been well received
by customers across all
channels and strengthened
relationships further.
Executive sponsor: Adam
Smith
---------- --------------------------- ------------ -------------- --------------------
PRINCIPAL RISK GROSS KEY MITIGATION, CHANGE NET RISK RISK APPETITE RATIONALE
AND WHY IT IS RISK AND SPONSOR / POST FOR RATING
RELEVANT MITIGATION
RISK
+/- +/- FROM
FROM DEC-19
DEC-19
8. COST AND Increased The Group continues to No change Balanced Sufficient
AVAILABILITY focus on ensuring it quantities
OF RAW MATERIAL High sees stable prices for Medium of raw materials
and continuity of supply received at
Availability for certain key raw the right
of raw materials materials. time and at
can vary at the right
times and where Although the Group owns price are
shortages exist much of the raw materials critical to
the Group is it uses to manufacture, Group operations.
susceptible management continue to The Group
to significant recognise a number of has prioritised
increases in long-term supply risks. risk mitigation
price and threats Focus on these risks to bring risk
to its ability has been maintained and risk appetite
to meet customer through in line.
expectations. the period to ensure
Managing these risks in these areas
risks in the are mitigated.
supply chain
have been a Executive sponsors:
priority during George Stewart and Peter
the COVID-19 Varnsverry
pandemic.
---------- --------------------------- ------------ -------------- ---------------------
9. PEOPLE TRAINING No change The Group understands No change Balanced The Group
AND DEVELOPMENT where key person has been
Medium dependencies Medium investing
The Group recognises and skills gaps exist in this area
that its greatest and continues to develop in recent
asset is its its succession, talent years and
workforce and acquisition, and retention will continue
a failure to plans. to mitigate
attract, retain risk in this
and develop During the COVID-19 fashion.
talent will epidemic the people
be detrimental strategy
to Group performance. has increasingly focused
on managing furlough
During the leave arrangements,
COVID-19 pandemic establishing
management have safe working practices
prioritised for return to work,
the health and employee
safety of the support and strong
workforce, clear communication/employee
and regular engagement. Staff have
communication remained well-informed
and overall and the Group has been
employee welfare. able to restart operations
effectively as a result.
'On-the-job' training
has now resumed and
apprentice
and graduate schemes
have continued throughout
2020. Staffing risks
continue to be mitigated
at all levels and this
supports management in
executing Group strategy.
Executive sponsor: Stephen
Harrison
---------- --------------------------- ------------ -------------- ---------------------
10. RESEARCH No change Strong relationships No change High Where the
AND DEVELOPMENT with customers and right opportunities
Low independently Low present themselves
Demand for the administered customer the Group
products that surveys ensure that the is willing
the Group manufactures Group understands current to invest
may decline and future demand. Close to grow. The
if the Group ties between the Strategy, Group has
fails to respond Operations and Commercial invested in
to market developments functions ensure that people so
and revenues the Group focuses on that the right
and margins the right areas of opportunities
may suffer. research can be identified
and development. and progressed.
New product development
and other development
initiatives have restarted
by the balance sheet
date where they had been
paused earlier in 2020.
Executive sponsor: Darren
Rix
---------- --------------------------- ------------ -------------- ---------------------
PRINCIPAL RISK GROSS KEY MITIGATION, CHANGE NET RISK RISK APPETITE RATIONALE
AND WHY IT IS RISK AND SPONSOR / POST FOR RATING
RELEVANT MITIGATION
RISK
+/- +/- FROM
FROM DEC-19
DEC-19
11. IT INFRASTRUCTURE Increased The Group has undertaken No change Low Investment
AND SYSTEMS a period of investment in IT has
High in consolidating, Low been a priority
Disruption or modernising in recent
interruption and extending the reach periods to
to IT systems of IT systems in recent mitigate risk.
could have a years and attainted The downside
material adverse Information to IT risks
impact on performance Security ISO accreditation significantly
and position. in 2019. outweigh any
potential
Increased risk as a upside and
consequence the Group's
of greater global risk appetite
instances reflects this.
of malicious attacks
following COVID-19 is
balanced by continued
investment in
infrastructure.
Executive sponsor: Matthew
Day
---------- --------------------------- ------------ -------------- ---------------------
12. BUSINESS Increased The Group made plans No change Low Risk has been
CONTINUITY to allow key centralised mitigated
Critical functions to continue Medium to ensure
Group performance to operate in the event production
is dependent of business interruption and despatches
on key centralised in prior years and was continue and
functions operating able to establish remote products are
continuously working capability available
and manufacturing effectively to meet customer
functions operating as the COVID-19 pandemic demand. Using
uninterrupted. developed. Plans at business continuity
Should the Group operational plans in response
experience significant facilities that focused to the pandemic
disruption there on continuity of despatch represents
is a risk that were also in place and a useful test,
products cannot effective and the Group rather than
be delivered moves forward with proven a desktop
to customers capability for mobilising exercise.
to meet demand people and procedures. This better
and all financial informs management
KPIs may suffer. The Group's Business on capability
Continuity policy allows and reduces
managers to apply clear residual/net
principles to develop risk.
plans quickly in other
areas, where a scenario
without a pre-prepared
plan is faced.
Executive sponsor: Ben
Guyatt
---------- --------------------------- ------------ -------------- ---------------------
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IR FFFVIAIIAIII
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