Brick giant raises £55m to combat downturn
SHARE PLACING FUNDS WILL SUPPORT INVESTMENT IN FORTERRA’S DESFORD FACTORY
BRITAIN’S second biggest brick maker has raised £55 million through a new share placing to help it through the coronavirus downturn.
Forterra said without the extra money it would have trouble meeting its financing obligations.
The business, which has around a third of the UK brick and aerated concrete block market, said the net proceeds of the money raised will be used to support an investment programme which includes its new £95 million brick manufacturing facility at Desford in Leicestershire.
Despite the current difficulties, it said the new plant was expected to generate “attractive” returns over the medium term and would help the group benefit from the long-term growth in the housing market.
The money will also help the business benefit from either a potential “accelerated” recovery in the housing market or a range of downside scenarios as a consequence of the pandemic.
It will also help the business extend its existing bank facilities by £20 million to £170 million.
In a trading update, the business warned its best case forecast for the next couple of years could see brick and block volumes down 35 per cent this year – a drop of around £130 million – then down 20 per cent in 2021, and then back to normal in 2022.
Estimated restructuring costs would be £10 million in 2020 and dividend payments would restart next year.
It said a “more prudent” scenario could see brick and block volumes 40 per cent below 2019 levels this year – down around £150 million – then 30 per cent down in 2021, and only getting back to normal in 2023.
Under that scenario, restructuring costs could be £15 million in 2020, with further restructuring likely in 2021 and beyond. Dividends would resume in 2022.
Forterra has nine brick factories, making around 590 million bricks a year, and is in the process of building Europe’s biggest brick factory in Desford, which is due to reach full capacity in 2023, six months behind schedule.
Last month, the £380 million turnover business announced restructuring plans that could lead to the loss of around 225 jobs, primarily from its concrete products facilities, particularly Swadlincote.
Some 75 per cent of its national workforce was furloughed during the height of the lockdown, which has since been reduced to 35 per cent.
Other mitigating actions have included the board and executive committee taking a 20 per cent pay cut over the last three months and forgoing 2019 bonuses, and a package of tax deferments being agreed with HMRC.
Overall sales were down 86 per cent in April and 62 per cent in May.
In the market update, the business, based in Northampton, said: “While the shape of the recovery from Covid19 remains uncertain, there 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.
“For the five months ended May 31 revenue was 39 per cent lower than the corresponding period in 2019, driven by a year-on-year decline of 86 per cent in April and 62 per cent in May.
“Daily despatches of brick and block products have now recovered to approximately 65 per cent of corresponding 2019 levels in June monthto-date, with run-rates improving through the month.”