Forterra to Expand Brick Manufacturing Capacity at its Site in Desford
Forterra’s Desford facility currently has an annual production capacity of 85 million brick, and the expansion project will lead to a new factory capable of producing up to 180 million brick per year in total at an expected capital cost of £90-95 million (approximately $120-126.5 million).
Having completed the evaluation of options for increasing brick capacity, the board of Forterra plc recently announced that a planning application for redeveloping its site at Desford in Leicestershire is being finalized. The facility currently has an annual production capacity of 85 million brick, and the expansion project will lead to a new factory capable of producing up to 180 million brick per year in total at an expected capital cost of £90-95 million (approximately $120-126.5 million). The existing plant will remain operational until the new facility built alongside is completed.
Subject to planning consent being received, it is anticipated that the new plant will be commissioned in late 2021 and that the capital expenditure will be spent over 2019-2022. Enabling and preparation costs of £1.5 million (~ $2 million) relating to the project have already been committed and included in the capital budget for the current year. The expenditure will be funded from the free cash flow generated by the business, as well as the group’s existing debt facility. The Desford expansion project is anticipated to deliver an internal rate of return (IRR) over 20 years in excess of 15% after tax.
“The high level of capacity utilization in the UK brick industry, together with the attractive long-term fundamentals on housebuilding supported by government policies, provides a sound basis for this major investment,” said Stephen Harrison, CEO. “We have chosen redevelopment of the Desford site as the favored option of those considered as it enables us to replace the existing plant with a larger modern facility, providing both additional capacity and the benefit of a lower production cost. This will give us the flexibility to continue to serve our customers and meet their requirements as the market grows. The project is a key part of our strategy to grow our core business and pursue manufacturing excellence, driven by our strong customer relationships as well as our people. It will enable us to continue delivering sustainable shareholder value.”
In common with the rest of the sector, Forterra recently reported that its trading in first four months of 2018 was affected by severe weather. This led to lost production and delays in construction activity that impacted demand for the company’s products, particularly in March. In recent weeks, Forterra has seen activity levels resume and, while there may be some lag from certain product sectors, the company anticipates that overall the shortfall will be made up through the rest of the year. As reported previously, price increases for the year have been agreed with most customers in order to cover the increase in the cost base. Group revenue for the four months was 12% ahead of the prior year, including the benefit of the Bison business acquired in September 2017.
The group reportedly continues to generate good levels of operating cashflow, with an expected increase in trade receivables during the spring selling season. The outlook for the group remains positive, and the board’s expectations for the full year remain unchanged.
Additional details are available at www.forterraplc.co.uk.