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Fri April 03 2020

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Precast competition dampens Forterra’s margins

10 Mar Forterra, the brick and block producer, saw its profits soften in 2019 after demand slowed in the second half of the year and competition increased.

Overall, Forterra’s turnover for the 2019 was up 3.4% to £380m (2019: £367.5m) but profit before tax was down 10% to £58.2m (2018: £64.8m). This includes exceptional costs of £4.3m, mostly due to restructuring production to match market conditions.

A shortage of domestic pulverised fuel ash (PFA) added to costs for Forterra during the year. It had to resort to importing more expensive PFA from overseas to keep its aircrete block production running.

The Bison Precast business, acquired for £20m in 2017, suffered in the face of competition and struggled to raise its prices to match input cost inflation. Other parts of the business secured selling price increases at the start of the year and these were generally enough to offset input cost inflation.

But competition in the precast business made it hard for Bison to raise its prices to match rising energy costs at the factory in Swadlincote, Derbyshire. Bison Precast did grow its revenues in 2019, by nearly 14%, due to improvements in productivity and the launch of new products, but margins suffered.

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In general, it sounds like Bison has been a bit of a challenge for Forterra. “Notwithstanding the improvements in manufacturing efficiency which we have steadily achieved, market conditions in the precast concrete market have deteriorated since we purchased the Swadlincote factory in 2017,” the company said.

A boost for Bison Precast business was winning a contract to supply 5,000 precast components to the new prison under construction in Wellingborough. It is also manufacturing brick-faced components for a multi-storey car park in Nottingham. These two projects mark the business's move into the precast façades market.

Chief executive Stephen Harrison said: "The first half of the year saw strong demand for our products, which slowed in the second half as the impact of political and economic uncertainty weighed on consumer confidence. The general election result in December should provide greater political certainty in the future.

"Demand for our products is driven by house-building activity. As enabling works such as access roads and drainage generally need to be completed on new housing developments before our products are required on site, we typically experience some lag in demand following an increase in house-building activity. We remain optimistic that demand will recover through the year, although this may take some time given an extremely wet winter.”

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