Britain’s second biggest brick maker has raised £55 million through a new share placing to help it through the coronavirus downturn.
The business, which has around a third of the 海角视频 brick and aerated concrete block market, said the net proceeds will be used to support an investment programme which includes its new £95 million brick manufacturing facility at Desford in Leicestershire.
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 Covid-19.
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It will also help the business extend its bank facilities by £20 million to £170 million.
Forterra sales were down 86 per cent in April and 62 per cent in May.
Despite the current difficulties, the new plant, it said, 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.
However, in a trading update, the business warned one 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 back to normal in 2022.
Under that scenario, estimated restructuring costs would be £10 million in 2020. Dividend payments would restart next year.
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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 of £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, west Leicestershire, which is due to reach full capacity in 2023, six months behind schedule.
In June the £380 million turnover business announced plans to cut 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.
In the market update the business, based in Northampton, said: “While the shape of the recovery from COVID-19 remains uncertain, there is wide recognition that the housing market will recover over the medium term.
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“There remains a shortage of housing in the 海角视频, 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.
“Since the announcement of June 4, 2020, the group has continued to see momentum in the business as customers have reopened their operations.
“For the 5 months ended May 31 revenue was 39% 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 month-to-date, with run-rates improving through the month.
“The group is currently manufacturing at 14 of its 18 facilities.”
The business said some £30 million had already gone into the new Leicestershire factory, which the group believes could generate earnings before costs of around £17 million once fully operational rising to around £20 million by 2025.
The business said: “Completing the Desford project, which is already substantially progressed, is vital to the prospects of the group as it replaces the existing factory which is nearing end-of-life, enhances efficiencies and returns, and provides medium-term capacity expansion.
“With the financing arrangements announced today, Forterra is securing the future of projects like the Desford expansion which maximise long-term shareholder value.”