Forterra plc Posts Steady H1 2026 Results Despite Market Challenges; Confirms FY2026 Adjusted EBITDA Guidance

First Half Market Environment and Trading Results

Forterra encountered a challenging operating environment during H1 2026, with like-for-like revenue falling 9.3% to a3168.8 million from a3186.1 million in H1 2025. This decline was attributed to adverse weather conditions early in the year and the Middle East conflict’s impact on energy costs and mortgage rates. UK brick industry despatches for the five months to May 2026 decreased 8% year-on-year and were approximately 33% below 2022 levels, underscoring structural sector challenges. Despite this, Forterra’s brick despatches contracted less than the wider market, evidencing market share gains during downturns.

Product performance varied, with brick proving most resilient. Despatches of aircrete blocks, aggregate blocks, and precast concrete flooring declined between 10% and 25% year-on-year, a sharper drop than brick. Market preferences favored extruded brick over soft mud, as housebuilders opted for cost-effective extruded options to offset inflation. Activity remained strongest outside the South East, where soft mud brick demand is traditionally higher. Approximately two-thirds of Forterra’s production capacity is dedicated to extruded (wire-cut) brick, positioning the company advantageously if government housebuilding support targets affordable housing segments favoring extruded products.

Operational Efficiency Drives Margin Improvement Amid Revenue Decline

Despite lower revenue, Forterra demonstrated pricing strength and operational discipline. Adjusted EBITDA margin increased 70 basis points to 16.0% (2025: 15.3%), aided by the 2025 exit of unprofitable non-core operations such as Formpave and Bison Bespoke Precast. The Bricks and Blocks segment, accounting for most group revenue at a3139.0 million (down 8.2% like-for-like), achieved an adjusted EBITDA margin of 18.5% after overhead allocations, up from 17.8% in the prior year. Adjusted profit before tax decreased 12.7% to a314.5 million (2025: a316.6 million), reflecting reduced EBITDA and higher financing costs linked to capital allocation.

Management implemented low single-digit brick price increases in Q1 2026 to offset cost inflation, marking a significant milestone after years without meaningful price hikes. Following energy cost inflation from the Middle East conflict, supplementary charges were applied to block products from April, with further low single-digit brick price increases planned to address ongoing cost pressures. Forterra’s forward energy purchasing strategy mitigated risk, securing about 80% of FY2026 gas and 90% of electricity at pre-conflict prices.

Capital Structure, Debt Position, and Shareholder Returns

Forterra preserved a strong balance sheet despite market pressures. Net debt excluding leases was a374.5 million, just under 1.5 times adjusted EBITDA on a covenant basis, providing comfortable headroom. The company progressed its a320 million share buyback programme, repurchasing a38.5 million of shares by mid-2026, reflecting confidence in outlook and capital strength. The interim dividend was maintained at 1.7 pence per share, down 10.5% year-on-year in line with dividend policy targeting twice adjusted earnings cover.

Post-period, Forterra extended its a3170 million revolving credit facility to 2030 with an option for a further one-year extension, enhancing medium-term financial flexibility for capital investments and working capital management. Adjusted operating cash flow declined to a38.5 million from a330.0 million in H1 2025, due to inventory build versus prior period reductions. Management expects seasonal working capital improvements in H2 2026 to restore cash flow momentum. The company did not disclose absolute cash balances or undrawn credit lines.

Strategic Capacity Investments and New Product Market Expansion

Forterra continues advancing its capital investment programme despite near-term market softness. Production ramp-up at Desford is progressing well, enhancing efficiency and lowering unit costs. Commissioning of the new Wilnecote brick factory is underway, targeting the commercial and specification market segment to diversify beyond cyclical new build housing and the weak repair, maintenance, and improvement (RM&I) sector. Both sites are expected to reduce carbon emissions by approximately 25% per brick compared to predecessor facilities, supporting sustainability goals.

The company is pursuing growth in brick slips and facades, a promising and expanding market. The Accrington facility has started producing extruded brick slips, already supplying initial projects. To complement this, Forterra is investing about a32 million in a brick slip cutting facility at Measham, expected operational by early 2027. Brick slips offer significant sustainability advantages, reducing energy use, raw materials, and embodied carbon by approximately 75% relative to traditional bricks. Management views this as a key strategic growth area beyond core products.

Production Adjustments and Cost Reduction Initiatives

To align output with demand, Forterra reduced London Brick production due to weak RM&I market conditions and reversed prior increases in Aircrete block production as market dynamics normalized. Aggregate block production was tightly managed to control inventory. The Desford extruded brick ramp-up continued unaffected, with low inventories maintained. These adjustments lowered fixed costs but temporarily reduced output and efficiency, impacting near-term profitability.

Additionally, management initiated restructuring of management and central support functions to align costs with current market realities, targeting a32 million in annual savings, half expected in H2 2026. A unified sales organisation now serves both Bricks and Blocks and Bespoke segments to enhance customer engagement and product synergies. The Sustainable Operational Excellence (SOE) programme remains central, fostering continuous improvement and cost savings across operations.

Outlook and Board Guidance Amid Uncertainty

The Board has maintained full-year guidance despite ongoing market challenges. Management expects H2 2026 demand to mirror H1 levels, supporting a full-year adjusted EBITDA outcome consistent with analyst consensus of a355.6 million (range: a353.1 million to a357.6 million). The Board highlighted forecasting difficulties due to geopolitical uncertainties, including the unresolved Middle East conflict and recent UK Government leadership changes that may affect construction policy and mortgage availability.

Looking ahead, the Board expressed confidence that recent capacity investments position Forterra to benefit from structural growth and market recovery. The CEO emphasized that while markets remain challenging, recovery is expected, and the company is well placed to capitalize through capacity expansions and focus on higher-margin specialty products such as brick slips and commercial specification bricks.

Effective Energy Cost Management Through Forward Purchasing

Forterra’s forward purchasing policy shielded it from energy price volatility in H1 2026. Approximately 80% of gas and 90% of electricity needs for 2026 were secured at pre-conflict prices. When spot gas prices surged roughly 60% after the Middle East hostilities began, the company’s March gas demand was fully covered. With about 20% of gas needs unsecured in April, Forterra strategically deferred some brick production to H2, slightly impacting H1 results but avoiding exposure to elevated spot prices.

At mid-year, spot energy prices remained high and volatile, near conflict onset levels. Forterra maintains over 80% forward coverage for 2026 and has secured around 80% of expected 2027 gas usage at competitive prices, with tapering coverage through 2030. A recent gas supply contract extension enables purchases through early 2031. Additionally, a 15-year solar power purchase agreement with 14 years remaining provides stable, attractive electricity pricing, reducing future cost volatility.

Bespoke Products Segment Faces Demand Challenges

The Bespoke Products segment, including precast concrete flooring and specialty products, experienced sharper demand declines. Like-for-like revenue fell 14.4% to a330.8 million from a336.0 million in 2025. Adjusted EBITDA before overhead allocations dropped 25.9% to a34.0 million (2025: a35.4 million), with adjusted EBITDA after a32.7 million overhead allocations at a31.3 million. The segment’s weakness reflects reduced precast flooring despatches amid broader non-residential construction and specialist build contractions.

Management previously closed the Formpave block paving and Bison Bespoke Precast businesses in H2 2025 due to unprofitability. The remaining bespoke portfolio continues but faces headwinds from construction activity softness and a weak RM&I market. The strategic focus appears to prioritize the more resilient brick business and growth in brick slips rather than expanding traditional precast flooring.

Commitment to Sustainability and Carbon Reduction

Sustainability remains integral to Forterra’s innovation strategy. The company now tracks carbon emissions per square meter alongside weight-based metrics, reflecting housebuilder customer priorities on embodied carbon per home. Forterra is developing lighter, more efficient products that reduce raw material use, energy consumption, and distribution emissions, demonstrating carbon footprint reductions despite operational inefficiencies from weak demand.

Recent investments at Desford and Wilnecote cut carbon emissions by about 25% per brick versus predecessor plants. The Accrington brick slip production offers even greater sustainability gains, reducing energy use, raw materials, and embodied carbon by approximately 75% compared to traditional bricks.

Forterra is pursuing circular economy initiatives, including commercializing London Brick waste as a calcined clay cement substitute and exploring larger-scale clay reserve calcination. The company is also investigating alternative fuels, notably hydrogen, and supports a balanced Government decarbonization strategy that avoids disadvantaging UK businesses relative to international competitors.

Potential Aircrete Capital Investment and Decision Timeline

Beyond committed brick and brick slip investments, Forterra is evaluating a potential capital investment in its aircrete business to maintain market position and competitiveness. Details on scale or scope were not disclosed. The company aims to offset capital expenditure by maximizing existing property asset value, possibly through disposals or sale-leasebacks. A final investment decision, contingent on planning approvals, is expected in 2027, allowing time to assess market recovery and investment returns.

This cautious approach reflects management’s prioritization of capital discipline amid uncertainty. With a net debt to EBITDA ratio near 1.5 times and ongoing share buybacks, financial flexibility exists to pursue the aircrete project if justified. However, deferring the decision until 2027 indicates a focus on visibility of recovery and execution of current investments before committing to a lower-margin product category.