Profits have halved at one of Britain’s biggest brick makers as rising interest rates hit demand for new homes. Forterra said it expects pre-tax profits of £18 million for the first half of this year – down from £37.3 million.
As a result the business – which recently opened Europe’s biggest brick factory in Desford, Leicestershire – said it had started consultations with staff working in “commercial and support” roles, which it said should save £3 million a year. As previously reported, it has also mothballed its Howley Park brick factory, in West Yorkshire.
The business said challenging market conditions had been compounded by the higher cost of borrowing which had hit the number of new homes being built. It warned that “further appropriate action” would be taken if demand didn’t improve.
It said signs of market improvement in May and June, had been “less pronounced than previously anticipated”, with only a modest improvement expected in the second half of the year. High interest rates will also impact the company’s own borrowing costs, it warned.
Shares in the Northampton-headquartered business were down around 4 per cent this morning at 156p after it expected sales for the last six months to be down 18 per cent year-on-year at £183 million. Net debt (before leases) was up from £5.9 million to £50 million, it said.
In a trading update management said: “In response to the challenging market conditions, and with our brick production capacity increasing with the opening of the new Desford factory, as previously announced, we have mothballed our Howley Park brick factory and implemented other production reductions which will reduce our fixed costs by around £10 million on an annualised basis.
“In addition, we are consulting with affected individuals on a restructuring of our commercial and support functions, aligning them to anticipated demand, which we expect to save approximately £3 million annually.
“The demand for our products in H2 will influence our production decisions. Having replenished our inventories in H1 we expect to limit our inventory growth in H2 and will continue to take appropriate action to ensure our output is aligned to demand.
“Our strategy remains to maximise the ramp-up of production at the new Desford factory, such that we can benefit from the market leading efficiencies it will offer once fully commissioned.”
The business said government figures suggested brick sales were down a third in the first five months of the year though had picked up a little bit.
Encouragingly, it said, imports of bricks were down a solid 44 per cent in the four months to April, compared to a year before – though still remained high as a proportion of overall demand.
It said: “Demand for our products for the rest of the year remains subject to significant uncertainty with rising interest rates widely expected to adversely impact the demand for new homes for the foreseeable future.
“The impacts of greater borrowing, inventory build, and rising interest rates are also expected to drive an increase in our financing costs.
“Notwithstanding a weaker market in the short-term, looking further ahead, the board remains confident that the group remains well positioned to benefit from attractive market fundamentals of a shortage of UK housing supply, a shortfall of domestic brick production capacity and cross-party political support for increasing housing supply."
