Forterra Prospectus
Forterra Prospectus
Forterra Prospectus
Prospectus
Forterra plc
5 Grange Park Court
Roman Way
Northampton
NN4 5EA
Tel: +44 (0)1604 707 600
forterraplc.co.uk
This document comprises a prospectus (the Prospectus) for the purposes of Article 3 of European Union
Directive 2003/71/EC, as amended and as implemented by European Union Prospectus Directive Regulation
2004/809/EC (the Prospectus Directive) relating to Forterra plc (the Company) prepared in accordance with
the Prospectus Rules of the Financial Conduct Authority (the FCA) made under section 73A of the Financial
Services and Markets Act 2000, as amended (FSMA). This Prospectus has been filed with and approved by the
FCA in accordance with section 87A of FSMA and has been made available to the public in the United Kingdom
in accordance with paragraph 3.2 of the Prospectus Rules.
Application has been made to the FCA in its capacity as the competent authority under FSMA for all the ordinary
shares of the Company (the Ordinary Shares), issued and to be issued in connection with the offer of certain of
the Ordinary Shares to certain institutional and professional investors (the Offer) to be admitted to listing on the
premium listing segment of the Official List of the FCA (the Official List) and to the London Stock Exchange
plc (the London Stock Exchange) for all of the Ordinary Shares to be admitted to trading on the London Stock
Exchanges main market for listed securities (together, Admission). Admission to trading on the London Stock
Exchanges main market for listed securities constitutes admission to trading on a regulated market. Conditional
dealings in the Ordinary Shares are expected to commence on the London Stock Exchange on 8.00 a.m. (London
time) on 21 April 2016. It is expected that Admission will become effective, and that unconditional dealings in the
Ordinary Shares will commence, at 8.00 a.m. (London time) on 26 April 2016. All dealings before the
commencement of unconditional dealings will be on a when issued basis and will be of no effect if
Admission does not take place and such dealings will be at the sole risk of the parties concerned. No
application has been made, or is currently intended to be made, for the Ordinary Shares to be admitted to
listing or trading on any other exchange.
The directors of the Company, whose names appear on page 43 of this Prospectus (the Directors), and the
Company accept responsibility for the information contained in this Prospectus. To the best of the knowledge of
the Directors and the Company (each of whom has taken all reasonable care to ensure that such is the case), the
information contained in this Prospectus is in accordance with the facts and contains no omission likely to affect
the import of such information.
Prospective investors should read this Prospectus in its entirety and, in particular, Part 1 (Risk Factors) of
this Prospectus for a discussion of certain risks and other factors that should be considered prior to any
investment in the Ordinary Shares. Prospective investors should be aware that an investment in the
Company involves a degree of risk and that, if certain of the risks described in this Prospectus occur,
investors may find their investment materially adversely affected. Accordingly, an investment in the
Ordinary Shares is only suitable for investors who are particularly knowledgeable in investment matters
and who are able to bear the loss of the whole or part of their investment.
FORTERRA PLC
(incorporated under the Companies Act 2006 and registered in England and Wales with registered number 9963666)
LSF9 Concrete UK Ltd (the Selling Shareholder) is offering 70,000,000 existing Ordinary Shares
(the Offer Shares) under the Offer. The Company is not issuing any new Ordinary Shares as part of
the Offer and consequently will not receive any proceeds in connection with the Offer, all of which
will be paid to the Selling Shareholder.
Reliance on this Prospectus
In making any investment decision, each prospective investor must rely on its own examination, analysis and
enquiry of the Company and the terms of the Offer, including the merits and associated risks. Prospective
investors should rely only on the information contained in this Prospectus. No person has been authorised to give
any information or make any representations other than those contained in this Prospectus and, if given or made,
such information or representation must not be relied on as having been authorised by the Company, the Selling
Shareholder or any of the Banks (as defined below). Without prejudice to any legal or regulatory obligation of
the Company to publish a supplementary prospectus pursuant to section 87G of FSMA and paragraph 3.4 of the
Prospectus Rules, neither the delivery of this Prospectus nor any purchase of Ordinary Shares made pursuant to it
will, under any circumstances, create any implication that there has been no change in the affairs of the Company
and the Group since the date of this Prospectus, or that the information contained herein is correct at any time
subsequent to its date.
None of the Company, the Selling Shareholder, any of the Banks or any of their respective representatives is
making any representation to any offeree or purchaser of the Ordinary Shares regarding the legality of an
investment in the Ordinary Shares by such offeree or purchaser under the laws applicable to such offeree or
purchaser.
The contents of this Prospectus are not to be construed as investment, legal, financial, business or tax advice.
Each prospective investor should consult its own investment, legal, business, financial or tax adviser for
investment, legal, business, financial or tax advice.
Advisers
Credit Suisse Securities (Europe) Limited and Citigroup Global Markets Limited are authorised by the Prudential
Regulation Authority (the PRA) and regulated by the FCA and the PRA in the United Kingdom. Deutsche
Bank AG is regulated by Germanys Federal Financial Supervisory Authority, BaFin, and is also authorised by
the PRA, but may only be subject to limited regulation by the FCA and the PRA and is acting through its London
branch. Each of Deutsche Bank AG, London Branch, Credit Suisse Securities (Europe) Limited and Citigroup
Global Markets Limited (together, the Banks) is acting exclusively for the Company and no one else in
connection with the Offer. None of the Banks will regard any other person (whether or not a recipient of this
Prospectus) as a client in relation to the Offer and will not be responsible to anyone other than the Company for
providing the protections afforded to their respective clients or for the giving of advice in relation to the Offer or
any transaction, matter or arrangement referred to in this Prospectus. Apart from the responsibilities and
liabilities, if any, which may be imposed on the Banks by FSMA or the regulatory regime established thereunder
or under the regulatory regime of any jurisdiction where exclusion of liability under the relevant regulatory
regime would be illegal, void or unenforceable, none of the Banks or any of their respective affiliates accept any
responsibility whatsoever for the contents of this Prospectus including its accuracy, completeness and
verification or for any other statement made or purported to be made by it, or on its behalf, in connection with the
Company, the Ordinary Shares or the Offer. Each of the Banks and each of their respective affiliates accordingly
disclaims, to the fullest extent permitted by applicable law, all and any liability whether arising in tort, contract
or otherwise (save as referred to above) which they might otherwise be found to have in respect of this
Prospectus or any such statement. No representation or warranty, express or implied, is made by any of the Banks
or any of their respective affiliates as to the accuracy, completeness, verification or sufficiency of the information
set out in this Prospectus, and nothing in this Prospectus will be relied upon as a promise or representation in this
respect, whether or not in the past or future.
In connection with the Offer, each of the Banks and each of their respective affiliates acting as an investor for its
or their own account(s) may purchase Ordinary Shares and, in that capacity, may retain, purchase, sell, offer to
sell or otherwise deal for its or their own account(s) in such securities, any other securities of the Company or
other related investments in connections with the Offer or otherwise. Accordingly, references in this Prospectus
to Ordinary Shares being offered, sold or otherwise dealt with should be read as including any offer to purchase
or dealing by the Banks or any of them or any of their respective affiliates acting as an investor for its or their
own account(s). In addition, certain of the Banks and their respective affiliates may in the ordinary course of their
business activities enter into financing arrangements with investors in connection with which such Banks (or
their affiliates) may from time to time acquire, hold or dispose of Ordinary Shares. None of the Banks intend to
disclose the extent of any such investment or transaction otherwise than in accordance with any legal or
regulatory obligation to do so.
i
Each of the Banks and their respective affiliates may have engaged in transactions with, and provided various
investment banking, financial advisory and other services for, the Company and/or the Selling Shareholder for
which they would have received customary fees. Each of the Banks and their respective affiliates may provide
such services to the Company and/or the Selling Shareholder and any of its affiliates in the future.
This Prospectus does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of
any offer to purchase, any securities other than the securities to which it relates or any offer or invitation to sell or
issue, or any solicitation of any offer to purchase, such securities by any person in any circumstances in which
such offer or solicitation is unlawful.
In the United States, this Prospectus is being furnished on a confidential basis solely for the purpose of enabling a
prospective investor to consider purchasing Ordinary Shares. The information contained in this Prospectus has
been provided by the Company and other sources identified herein. Distribution of this Prospectus to any person
other than the offeree specified by the Banks or their respective representatives, and those persons, if any,
retained to advise such offeree with respect thereto, is unauthorised, and any disclosure of its contents, without
the Companys prior written consent, is prohibited. Any reproduction or distribution of this Prospectus in the
United States, in whole or in part, and any disclosure of its contents to any person, other than as set out above, is
prohibited. This Prospectus is personal to each offeree and does not constitute an offer to any other person or to
the public generally to subscribe for, or otherwise acquire, the Ordinary Shares.
No actions have been taken to allow a public offering of the Ordinary Shares under the applicable securities laws
of any jurisdiction, including Australia, Canada, Japan or South Africa. Subject to certain exceptions, the
Ordinary Shares may not be offered or sold in any jurisdiction, or to or for the account or benefit of any national,
resident or citizen of any jurisdiction, including Australia, Canada, Japan or South Africa. This Prospectus does
not constitute an offer of, or the solicitation of an offer to purchase, any of the Ordinary Shares to any person in
any jurisdiction to whom it is unlawful to make such offer or solicitation in such jurisdiction.
The Ordinary Shares have not been and will not be registered or qualified for distribution by this Prospectus
under the applicable securities laws of Australia, Canada, Japan or South Africa. Subject to certain exceptions,
the Ordinary Shares may not be offered or sold in any jurisdiction, or to or for the account or benefit of any
national, resident or citizen in Australia, Canada, Japan or South Africa.
The distribution of this Prospectus and the offer and sale of the Ordinary Shares in certain jurisdictions may be
restricted by law. No action has been or will be taken by the Company, the Selling Shareholder or the Banks to
permit a public offering of the Ordinary Shares under the applicable securities laws of any jurisdiction. Other
than in the United Kingdom, no action has been taken or will be taken to permit the possession or distribution of
this Prospectus (or any other offering or publicity materials relating to the Ordinary Shares) in any jurisdiction
where action for that purpose may be required or where doing so is restricted by law. Accordingly, neither this
Prospectus, nor any advertisement, nor any other offering material may be distributed or published in any
jurisdiction except under circumstances that will result in compliance with any applicable laws and regulations.
Persons into whose possession this Prospectus comes should inform themselves about and observe any such
ii
restrictions. Any failure to comply with such restrictions may constitute a violation of the securities laws of any
such jurisdiction.
Available information
For so long as any of the Ordinary Shares are in issue and are restricted securities within the meaning of
Rule 144(a)(3) under the US Securities Act, the Company will, during any period in which it is not subject to
section 13 or 15(d) under the US Securities Exchange Act of 1934, as amended (the US Exchange Act), nor
exempt from reporting under the US Exchange Act pursuant to Rule 12g3-2(b) thereunder, make available to any
holder or beneficial owner of an Ordinary Share, or to any prospective purchaser of an Ordinary Share designated
by such holder or beneficial owner, in each case upon the request of such holder, beneficial owner or prospective
purchaser, the information required to be provided by Rule 144A(d)(4) under the US Securities Act.
Companys website
Information contained on the Companys or any other member of the Groups website or the contents of any
website accessible from hyperlinks on the Companys or any other member of the Groups website are not
incorporated into and do not form part of this Prospectus.
iii
CONTENTS
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PART 1 RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PART 2 PRESENTATION OF FINANCIAL AND OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 37
PART 3 DIRECTORS, SECRETARY, REGISTERED AND HEAD OFFICE AND ADVISERS . . . . . . . . 43
PART 4 EXPECTED TIMETABLE OF PRINCIPAL EVENTS AND OFFER STATISTICS . . . . . . . . . . . 44
PART 5 INDUSTRY OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
PART 6 BUSINESS OF THE GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
PART 7 DIRECTORS, SENIOR MANAGERS AND CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . 93
PART 8 SELECTED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
PART 9 OPERATING AND FINANCIAL REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
PART 10 CAPITALISATION AND INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
PART 11 HISTORICAL FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
PART 12 UNAUDITED PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
PART 13 DETAILS OF THE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
PART 14 ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
PART 15 DEFINITIONS AND GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234
iv
SUMMARY
Summaries are made up of disclosure requirements known as Elements. These Elements are numbered in
Sections A-E (A.1 E.7). This summary contains all the Elements required to be included in a summary for this
type of security and issuer. Because some Elements are not required to be addressed, there may be gaps in the
numbering sequence of the Elements.
Even though an Element may be required to be inserted in the summary because of the type of securities and
issuer, it is possible that no relevant information can be given regarding the Element. In this case a short
description of the Element is included in the summary with the mention of not applicable.
Section B Issuer
1
its key competitors. The Group is also the only manufacturer
of the iconic and original Fletton brick sold under the
London Brick brand. The Group operates nine brick
manufacturing facilities in the United Kingdom with a total
production capacity of 570 million bricks per annum.
Blocks: the Group is the second largest manufacturer of
aircrete blocks in Great Britain, with a market share of 35%
calculated by annual production capacity of the Group and
its key competitors. The Group also manufactures aggregate
blocks, where the Group enjoys strong sales in the South
East and East of England, with a market share in this region
of 34% calculated by annual production capacity of the
Group and its key competitors in that region. The Group
operates four block manufacturing facilities in the United
Kingdom, with a total annual production capacity of
825,000 m3 of aircrete blocks and 275,000 m3 of aggregate
blocks.
Bespoke Products: the Groups bespoke products range
comprises precast concrete, concrete block paving, chimney
and roofing solutions and structural external wall insulation,
each of which is primarily specified, made-to-measure or
customised to meet the customers specific needs. The
precast concrete flooring products are complemented by the
Groups full design and nationwide installation services,
while certain other bespoke products, including concrete
block paving and chimney flues, are complemented by the
Groups specification and design service. The bespoke
products business operates from five manufacturing facilities
in the United Kingdom.
B.4a Significant recent trends affecting The Group operates in the manufactured masonry and other
the Group and the industry in building products market in the United Kingdom. Significant
which it operates recent trends affecting the Group include:
as a result of the financial crisis, the level of housing
construction in Great Britain declined and the rate of
housing completions continue to be below the number
of household formations, which the Directors believe
has caused a structural undersupply of housing in the
United Kingdom. In response to the undersupply and
increased demand for housing in the United Kingdom,
the UK Government introduced a number of policies
and initiatives to seek to stimulate UK housing supply.
The Directors believe that since the start of the housing
recovery, with the assistance of UK Government
housing initiatives, brick manufacturers in Great Britain
have now brought most currently available production
capacity back into operation, leading to a current
production capacity of approximately 2 billion bricks
per annum. With the UK population expected to
increase by approximately 9.7 million over the next
25 years and the number of households in England
projected to grow to approximately 24.9 million by
2024, the Directors expect the structural undersupply of
housing in the United Kingdom to continue; and
housing supply and affordability has become a major
policy issue within the United Kingdom with cross-
party support for increased supply over recent years.
The UK Government has introduced a number of
policies and initiatives to seek to stimulate UK housing
2
supply, such as Help to Buy, which was introduced in
2013, the Starter Home initiative and the Right to Buy
scheme. More recently, in its November 2015 Spending
Review, the UK Government sought to further boost the
UK housing market. Along with enhancing the Help to
Buy programmes, the UK Government announced that
it would double the housing budget to over 2 billion
per annum from 2018 to 2019, it would aim to build at
least 400,000 affordable new homes by the end of 2020
and it would accelerate housing supply by reforming the
UK planning system in order to release public land
suitable for the construction of new homes more
quickly. Against the backdrop of a number of
favourable macroeconomic factors, including
improving GDP growth, an increase in mortgage
approvals and affordable interest rates, housing
construction volume has picked up.
B.5 Group structure and description The Company is a direct and wholly owned subsidiary of
LSF9 Concrete UK Ltd (the Selling Shareholder). As a
result of the Reorganisation, the Company is the holding
company of the Group. The Company holds, directly and
indirectly, 3 principal subsidiaries, including Forterra
Holdings, a holding company, and Forterra Building Products
and Structherm, each of which are operating companies.
B.6 Major shareholders In so far as is known to the Directors, the following are the
interests (within the meaning of Part VI of the 2006 Act)
(other than interests held by the Directors) which represent,
or will represent, directly or indirectly, 3% or more of the
issued share capital of the Company on 20 April 2016 (the
latest practicable date prior to publication of this Prospectus)
assuming no exercise of the Over-allotment Option:
Immediately prior to Immediately following
Admission(1) Admission(1)(2)(3)
Number of Percentage Number of Percentage
Ordinary of issued Ordinary of issued
Shareholder Shares share capital Shares share capital
Notes
(1) The interests of Ordinary Shares as at the date of this Prospectus have
been stated on the basis that the steps described in paragraph 3 of
Part 14 (Additional Information) of this Prospectus have been
completed in full.
(2) Assuming no exercise of the Over-allotment Option.
(3) Three additional investors are expected to acquire interests of more
than 5% of the Ordinary Shares available in the Offer (assuming the
Over-allotment Option is exercised in full).
(4) LSF9 Concrete UK Ltd is indirectly owned by Lone Star who therefore
has an indirect interest in the Ordinary Shares held by the Selling
Shareholder.
(5) If the Over-allotment Option is exercised in full, the Selling
Shareholder will have sold a further 10,500,000 Ordinary Shares,
representing 5.3% of the Companys issued share capital.
The Ordinary Shares owned by the Companys major
shareholders rank pari passu with other Ordinary Shares in
all respects.
On 21 April 2016, the Selling Shareholder and the Company
entered into the Relationship Agreement which will,
conditional upon Admission, regulate the ongoing
relationship between the Company and the Selling
Shareholder.
3
The principal purpose of the Relationship Agreement is to
ensure that: (i) all transactions and arrangements between the
Company or any other member of the Group and the Selling
Shareholder and/or any of its associates shall be conducted at
arms length and on normal commercial terms; (ii) neither
the Selling Shareholder nor any of its associates take any
action that would have the effect of preventing the Company
from complying with its obligations under the Listing Rules;
and (iii) neither the Selling Shareholder nor any of its
associates propose or procure the proposal of a shareholder
resolution which is intended or appears to be intended to
circumvent the proper application of the Listing Rules.
The Directors believe that the terms of the Relationship
Agreement will enable the Group to carry on an independent
business as its main activity.
Following Admission, the Articles allow the election of
independent Directors to be conducted in accordance with
any requirement of the Listing Rules.
In all other circumstances, the Companys major
shareholders have and will have the same voting rights
attached to the Ordinary Shares as all other Shareholders.
B.7 Key financial information and The selected financial information set out below has been
narrative description of significant extracted without material adjustment from the historical
changes to financial condition and financial information relating to the Group included in
operating results of the Group Section B of Part 11 (Historical Financial Information) of
during or subsequent to the period this Prospectus.
covered by the historical key
financial information
Combined and consolidated income statements
For the year ended 31 December
2013 2014 2015
000s 000s 000s
Revenue . . . . . . . . . . . . . . . . . 225,862 268,073 290,220
Cost of sales . . . . . . . . . . . . . . (162,666) (167,735) (167,669)
Gross profit . . . . . . . . . . . . . . 63,196 100,338 122,551
Distribution costs . . . . . . . . . . (39,818) (42,281) (45,296)
Administrative expenses . . . . . (22,977) (20,491) (28,225)
Other operating income . . . . . 1,481 1,110 505
Operating profit . . . . . . . . . . 1,882 38,676 49,535
EBITDA before exceptional
items . . . . . . . . . . . . . . . . . . 22,258 54,620 70,531
Less exceptional items . . . . . . (9,757) (6,543) (11,569)
Less depreciation and
amortisation . . . . . . . . . . . . (10,619) (9,401) (9,427)
Operating profit . . . . . . . . . . 1,882 38,676 49,535
Net finance expense . . . . . . . . (369) (5,261) (27,335)
Profit before tax . . . . . . . . . . 1,513 33,415 22,200
Income tax expense . . . . . . . . (3,062) (9,260) (4,155)
(Loss)/profit for the
financial period . . . . . . . . . (1,549) 24,155 18,045
Attributable to:
Owners of the parent . . . . . . . (1,549) 24,155 18,045
4
Combined and consolidated statements of financial
position
As at 31 December
2013 2014 2015
000s 000s 000s
Assets
Non-current assets
Intangible assets . . . . . . . . . . . . . . 16,587 16,597 13,285
Property, plant and equipment . . . 142,378 144,846 149,544
Deferred tax assets . . . . . . . . . . . . 1,914 753 1,794
160,879 162,196 164,623
Current assets
Inventories . . . . . . . . . . . . . . . . . . 28,363 30,620 40,924
Trade and other receivables . . . . . 23,514 20,904 28,558
Trade and other receivables with
related parties . . . . . . . . . . . . . . 41,289 8,960 23,015
Cash and cash equivalents . . . . . . 13,811 20,978 24,189
106,977 81,462 116,686
Total assets . . . . . . . . . . . . . . . . . 267,856 243,658 281,309
Capital and reserves
attributable to the equity
shareholders of the parent
Ordinary shares . . . . . . . . . . . . . . 90 90
Share premium . . . . . . . . . . . . . . . 46,536 46,536
HeidelbergCement AG invested
capital . . . . . . . . . . . . . . . . . . . . 214,628
Accumulated deficit . . . . . . . . . . . (275,216) (257,171)
Total equity . . . . . . . . . . . . . . . . . 214,628 (228,590) (210,545)
Non-current liabilities
Provisions for other liabilities and
charges . . . . . . . . . . . . . . . . . . . 10,551 11,812 11,656
10,551 11,812 11,656
Current liabilities
Trade and other payables . . . . . . . 39,190 40,925 55,610
Trade and other payables to
related parties . . . . . . . . . . . . . . 904 11,486 13,903
Income tax liabilities . . . . . . . . . . 1,890
Borrowings from related
parties . . . . . . . . . . . . . . . . . . . . 405,000 405,578
Provisions for other liabilities and
charges . . . . . . . . . . . . . . . . . . . 2,583 3,025 3,217
42,677 460,436 480,198
Total liabilities . . . . . . . . . . . . . . 53,228 472,248 491,854
Total equity and liabilities . . . . . 267,856 243,658 281,309
5
Combined and consolidated statements of cash flows
For the year ended 31 December
2013 2014 2015
000s 000s 000s
Cash flows from operating
activities
Profit before taxation . . . . . . . . . . 1,513 33,415 22,200
Adjustments for:
Depreciation . . . . . . . . . . . 10,018 9,101 9,118
Amortisation . . . . . . . . . . . 601 300 309
Impairment expense/
(credit) . . . . . . . . . . . . . . . 3,300 (5,511) 2,410
(Profit)/loss on disposal of
fixed assets . . . . . . . . . . . . (32) 474 (30)
Net finance expense . . . . . 369 5,261 27,335
Non-cash movement on
provisions . . . . . . . . . . . . . 1,820 1,721 1,074
Other non-cash items . . . . 690
Changes in working capital:
Inventories . . . . . . . . . . . . 8,524 (2,257) (10,304)
Trade and other
receivables . . . . . . . . . . . . 13,581 (4,655) (23,344)
Trade and other
payables . . . . . . . . . . . . . . 829 4,854 21,895
Cash movement on
provisions . . . . . . . . . . . . . (2,774) (1,495) (1,394)
Cash generated from
operations . . . . . . . . . . . . . . . . 37,749 41,208 49,959
Interest paid . . . . . . . . . . . . . . . . . (83) (4,138) (26,401)
Tax paid . . . . . . . . . . . . . . . . . . . . (3,306)
Net cash inflow from operating
activities . . . . . . . . . . . . . . . . . 37,666 37,070 20,252
Cash flows from investing
activities
Purchase of property, plant and
equipment . . . . . . . . . . . . . . . . . (2,814) (4,973) (12,421)
Purchase of intangible assets . . . . (672) (593)
Proceeds from sale of property,
plant and equipment . . . . . . . . . 66 228 58
Net cash outflow from investing
activities . . . . . . . . . . . . . . . . . (3,420) (5,338) (12,363)
Cash flows from financing
activities
Capital distribution to parent and
settlement of cash pooling
balance . . . . . . . . . . . . . . . . . . . (33,824) (24,565) (4,678)
Net cash used in financing
activities . . . . . . . . . . . . . . . . . (33,824) (24,565) (4,678)
Net increase in cash and cash
equivalents . . . . . . . . . . . . . . . 422 7,167 3,211
Cash and cash equivalents at
the beginning of the period . . . 13,389 13,811 20,978
Cash and cash equivalents at
the end of the period . . . . . . . 13,811 20,978 24,189
6
Certain significant changes to the Groups financial
condition and results of operations occurred during the years
ended 31 December 2013, 31 December 2014 and
31 December 2015. These changes are set out below.
The Groups revenue increased by 42.2 million, or 18.7%, to
268.1 million in 2014 from 225.9 million in 2013, while the
Groups revenue increased by 22.1 million, or 8.3% to
290.2 million in 2015 from 268.1 million in 2014. Price
increases of the Groups bricks and blocks were the largest
contributor to these increases, driven by strong demand, due to
a perception of limited availability of bricks in the United
Kingdom market. Price increases were partially offset by sales
of fewer bricks in 2015, which the Directors believe was due
primarily to the Groups customers overstocking with bricks
in 2014 and the start of 2015, particularly with imports from
continental Europe, due to a perceived shortage of supply of
bricks in the United Kingdom market during the same period.
The Group achieved a profit after tax of 24.2 million in 2014,
an increase of 25.7 million, from a loss of 1.5 million in
2013, while the Group achieved a profit before tax of
18.0 million in 2015, a decrease of 6.1 million, or 25.3%,
from 24.2 million in 2014. The increase between 2013 and
2014 was due primarily to higher prices charged for the
Groups products, particularly its bricks and blocks,
improvements in operating efficiencies and increased
production output across the Groups businesses to meet
increased demand. The decrease between 2014 and 2015 was
due primarily to higher finance costs and sales of fewer bricks,
for the reasons described above, partially offset by higher
prices charged for the Groups products.
Save for the Reorganisation, there has been no significant
change in the financial position or results of operations of
the Group since 31 December 2015, the date to which the
last audited combined and consolidated financial information
of the Group was prepared.
B.8 Key pro forma financial The unaudited pro forma statement of net assets set out
information below has been prepared to illustrate the impact of the
Reorganisation (including the drawdown of the New
Facilities) and the Offer on the net assets of the Group, had
the Reorganisation (including the drawdown of the New
Facilities) and the Offer taken place on 31 December 2015.
The unaudited pro forma information is based on the audited
consolidated net assets of the Group as at 31 December 2015
as shown in Section B of Part 11 (Historical Financial
Information) of this Prospectus and is compiled on a basis
consistent with the accounting policies of the Group.
This unaudited pro forma information has been prepared for
illustrative purposes only and, by its nature, addresses a
hypothetical situation and therefore does not represent the
Groups actual financial position or results, nor is it
indicative of results that may or may not be achieved in the
future. The unaudited pro forma statement of net assets has
been compiled on the basis set out in the notes below and in
accordance with the requirements of Annex II of the
Prospectus Directive Regulation.
7
Consolidated Unaudited
net assets of pro forma
the Group as Estimated net assets as
at 31 fees in at 31
December relation to Re- December
2015 the Offer organisation 2015
000s 000s 000s 000s
Note 1 Note 2 Note 3
Assets
Non-current assets
Intangible assets . . . . 13,285 13,285
Property, plant and
equipment . . . . . . . 149,544 149,544
Deferred tax assets . . . 1,794 1,794
164,623 164,623
Current assets
Inventories . . . . . . . . . 40,924 40,924
Trade and other
receivables . . . . . . . 28,558 28,558
Trade and other
receivables with
related parties . . . . 23,015 (23,015)
Cash and cash
equivalents . . . . . . . 24,189 (12,044) 16,398 28,543
116,686 (12,044) (6,617) 98,025
Total assets . . . . . . . . 281,309 (12,044) (6,617) 262,648
Liabilities
Non-current
liabilities
Borrowings . . . . . . . . 147,087 147,087
Provisions for other
liabilities and
charges . . . . . . . . . . 11,656 11,656
11,656 147,087 158,743
Current liabilities
Trade and other
payables . . . . . . . . . 55,610 (2,818) 52,792
Trade and other
payables to related
parties . . . . . . . . . . 13,903 (13,903)
Income tax
liabilities . . . . . . . . 1,890 1,890
Borrowings from
related parties . . . . 405,578 (405,578)
Borrowings . . . . . . . . 10,000 10,000
Provisions for other
liabilities and
charges . . . . . . . . . . 3,217 3,217
480,198 (2,818) (409,481) 67,899
Total liabilities . . . . . 491,854 (2,818) (262,394) 226,642
Net
(liabilities)/assets . (210,545) (9,226) 255,777 36,006
Notes
(1) The financial information has been extracted without material adjustment from
the combined and consolidated financial information of the Group as set out in
Section B of Part 11 (Historical Financial Information) of this Prospectus.
(2) The total estimated fees payable in connection with the Offer, exclusive of
capitalised debt arrangement fees, are 14,365,000. 2,320,000 of transaction
fees were paid prior to 31 December 2015, leaving 12,044,000 of fees to be
paid out on Admission, including 2,818,000 which was accrued at 31
December 2015.
(3) This column reflects the Reorganisation as set out in paragraph 3 of Part 14
(Additional Information) of this Prospectus as if the Reorganisation had taken
place on 31 December 2015. Had the Reorganisation occurred on 31
December 2015 it would have resulted in a repayment of the 405,578,000
borrowings from related parties and settlement of 13,903,000 trade and other
payables from related parties through drawdowns of 157,087,000 on the
New Facilities (160,000,000 net of 2,913,000 capitalised debt arrangement
fees for the New Facilities of which 10,000,000 is a current liability),
through settlement of trade and other receivables with related parties of
23,015,000 and the issue of 255,777,000 equity in the Company to the
Selling Shareholder. Additional interest payable on the borrowings from
related parties at the date of settlement will be 1,994,000, reflecting the
interest accruing in the period from 31 March 2016 to the date of repayment.
No adjustment has been made for this. Net amounts receivable from related
parties have reduced by 5,816,000 in the period from 31 December 2015 to
the date of the Reorganisation. No adjustment has been made for this.
8
B.9 Profit forecast Not applicable. There is no profit forecast or estimate.
B.10 Description of the nature of any Not applicable. There are no qualifications to the
qualifications in the audit report accountants report on the historical financial information.
on the historical financial
information
B.11 Insufficient working capital Not applicable. In the opinion of the Company, taking into
account the bank and other facilities available to the Group
(including the New Facilities), the Group has sufficient
working capital for its present requirements, that is for at least
the next 12 months following the date of this Prospectus.
Section C Securities
C.1 Type and class of securities The Offer comprises 70,000,000 Ordinary Shares with a
nominal value of 1 pence each which are to be sold by the
Selling Shareholder. In addition, a further 10,500,000
Ordinary Shares are being made available by the Selling
Shareholder (the Over-allotment Shares) pursuant to the
Over-allotment Option.
When admitted to trading, the Ordinary Shares will have an
International Security Identification Number of
GB00BYYW3C20 and Stock Exchange Daily Official List
number BYYW3C2. It is expected that the Ordinary Shares
will be traded on the London Stock Exchange under the
ticker symbol FORT. The Ordinary Shares comprise the
entire issued share capital of the Company.
C.2 Currency The Ordinary Shares are denominated in pounds sterling.
C.3 Number of securities to be issued On Admission, the issued share capital of the Company will be
2,240,725, comprising 200,000,000 Ordinary Shares of 0.01
each and one deferred share of 240,725, all of which will be
fully paid or credited as fully paid. The deferred share of the
Company will be cancelled after Admission. No new Ordinary
Shares are being issued by the Company in the Offer.
C.4 Description of the rights attaching The Ordinary Shares rank pari passu in all respects with
to the securities each other, including for voting purposes and in full for all
dividends and distributions on Ordinary Shares declared,
made or paid after their issue and for any distributions made
on a winding up of the Company.
Subject to the provisions of the 2006 Act, any equity
securities issued by the Company for cash must first be
offered to Shareholders in proportion to their holdings of
Ordinary Shares. The 2006 Act and the Listing Rules allow
for the disapplication of pre-emption rights which may be
waived by a special resolution of the Shareholders, either
generally or specifically, for a maximum period not
exceeding five years.
Except in relation to dividends which have been declared
and rights on liquidation of the Company, the Shareholders
have no rights to share in the profits of the Company.
The Ordinary Shares are not redeemable. However, the
Company may purchase or contract to purchase any of the
Ordinary Shares on- or off-market, subject to the 2006 Act
and the requirements of the Listing Rules.
C.5 Restrictions on the free Not applicable. There are no restrictions on the free
transferability of the securities transferability of the Ordinary Shares.
9
C.6 Admission Application has been made to the FCA for all of the
Ordinary Shares to be admitted to listing on the premium
listing segment of the Official List and to the London Stock
Exchange for such Ordinary Shares to be admitted to trading
on the London Stock Exchanges main market for listed
securities. It is expected that Admission will become
effective, and that unconditional dealings in the Ordinary
Shares will commence, at 8.00 a.m. (London time) on
26 April 2016.
C.7 Dividend policy The Directors intend to adopt a progressive dividend policy
while maintaining an appropriate level of dividend cover.
This dividend policy will reflect the long-term earnings and
cash-flow potential of the Group whilst also ensuring that
there is sufficient capital in the Group to fund continued
investment. There are no guarantees that the Company will
pay dividends or regarding the level of any such dividends.
Accordingly, prospective investors should not place any
reliance on these targets in deciding whether to invest in the
Ordinary Shares and should not assume that Forterra will
make any distributions at all.
Assuming that there are sufficient distributable reserves
available at the time, the Directors intend that the Company
will pay an interim dividend and a final dividend in respect
of each financial year in the approximate proportions of one-
third and two-thirds, respectively, of the total annual
dividend. The first dividend to be paid by the Company is
intended to be an interim dividend in respect of the year
ending on 31 December 2016, to be announced with the
Companys interim results in September 2016 and paid in
October 2016. The Directors intend to recommend a final
dividend in March 2017, which will be announced together
with the Companys annual results, in respect of the financial
year ending 31 December 2016, and which will be paid in
July 2017. For the current financial year ending 31
December 2016, the Directors intend that the Company
declare an aggregate dividend equivalent to approximately
40% of the Groups adjusted net income, to be paid as an
interim and a final dividend in the relevant proportions and
to be adjusted on a pro rata basis for the period from
Admission to 31 December 2016. Thereafter, Forterra
intends to follow a progressive dividend policy as outlined
above.
Forterra may revise its dividend policy from time to time.
Section D Risks
D.1 Key information on the key risks Demand for the Groups products is closely correlated with
specific to the issuer and its residential construction activities, comprising the new build
industry and RMI construction sectors, and commercial construction
activities in the United Kingdom. The level of new build and
RMI construction activity, and therefore demand for the
Groups products, is influenced by, and sensitive to, a
number of macroeconomic factors. Downturns in the
construction industry could have an adverse effect on
demand for the Groups products.
The Groups business, results of operations and financial
condition have in the past been, and may in the future be,
materially adversely affected by general economic and
10
global financial market conditions. These factors also impact
the business of the Groups customers and suppliers and the
industry in which the Group operates.
The Groups growth prospects depend, to a significant
extent, on the degree to which conditions in the residential
new build, residential RMI and commercial construction
markets in the United Kingdom develop in the future, which
may not be sustained. If the UK housebuilding industry does
not increase its production capacity, it may not grow as
forecasted or in line with longer term UK Government
ambitions, and demand for the Groups products could be
adversely affected.
If the United Kingdom votes to leave the European Union in
the June 2016 referendum, this could materially and
adversely affect the operational and regulatory regime to
which the Group is currently subject.
Competition from imported bricks could have a material
adverse effect on the Group. The Directors believe that
demand for bricks in the United Kingdom will continue to
exceed domestic production capacity over the next few years
and, as a result, UK customers may switch to or continue to
purchase imported brick products if alternative sources of
domestic supply are not available.
Reduced levels of mortgage lending or availability of
consumer credit could have a material adverse effect on the
Group.
Any change in, or failure of, certain of the UK Governments
housebuilding and home buying incentive schemes and
programmes, particularly the Help to Buy scheme, could
reduce residential construction activity in the United
Kingdom and therefore demand for the Groups products.
Any change to UK planning regulations could inhibit the
long-term growth potential of the brick market and therefore
the Groups products.
The markets in which the Group sells its products are highly
competitive. Any failure to successfully compete in those
markets could have a material adverse effect on the Group.
The Group uses significant amounts of energy in the
manufacture and sale of its products. Any increase in the
cost of energy could have a material adverse effect on the
Group.
The Group is also reliant on the availability of raw materials
at a reasonable cost. Increases in the cost or decreased
availability of raw materials, particularly pulverised fuel ash
used in the Groups aircrete blocks, could have a material
adverse effect on the Group. If the Group is unable to pass
on any cost increase of its raw materials and energy to its
customers through price increases, it may have a material
adverse effect on the Groups business, financial condition,
results of operations and prospects.
The Group may not have adequate clay reserves for its future
needs.
If the Group is unable to attract or retain senior management
or experiences a shortage of available skilled workers, it may
adversely affect its operations.
11
Any inability to successfully implement the Groups strategy
could have a material adverse effect on the Group.
The emergence of new construction techniques and
alternative building materials could decrease demand for the
Groups products and may have an adverse effect on the
Group.
The Directors expect demand for the Groups Fletton bricks
may decline in the future as this type of brick is primarily
used for RMI work in properties originally built with Fletton
bricks, but rarely used for residential new build or
commercial construction. The number of Fletton-clad
buildings requiring repairing, remodeling or extending is
expected to diminish over time. Any such decline may have
a material adverse effect on the Group.
A material disruption at one or more of the Groups
manufacturing facilities or quarries or in the Groups supply
chain could prevent the Group from meeting demand or
require the Group to incur unplanned capital expenditure and
could have a material adverse effect on the Group.
Fluctuations in the price of the Groups products or the
Groups ability to maintain its profit margins could have a
material adverse effect on the Group.
The Group is dependent on key customers with whom it does
not have long-term contracts. A loss of any of the Groups
key customers could have a material adverse effect on the
Group.
The Group is subject to a broad range of increasingly
stringent laws and regulations governing the protection of
the environment. Any failure to comply with these laws or
regulations or any increased costs related to future
environmental laws and regulations, which the Group is
unable to recover from its customers, could have a material
adverse effect on the Groups business, financial condition,
results of operations and prospects.
The Group is subject to health and safety laws and any
failure to comply with such current or future laws could have
a material adverse effect on the Group.
The terms of the Groups debt and any requirement to incur
further indebtedness or refinance the Groups indebtedness
in the future could have a material adverse effect on the
Group.
D.3 Key information on the key risks There is no existing market for the Ordinary Shares and an
specific to the securities active trading market for the Ordinary Shares may not
develop or be sustained. Moreover, even if a market
develops, the Ordinary Shares may be subject to market
price volatility and the market price of the Ordinary Shares
may decline disproportionately in response to developments
that are unrelated to the Groups operating performance, or
as a result of sales of substantial amounts of such Ordinary
Shares in the public markets, for example following the
expiry of the relevant lock-up period or the issuance of
additional Ordinary Shares in the future, and Shareholders
could earn a negative or no return on, or otherwise
experience a dilution of, their investment in the Company.
12
In addition, the Selling Shareholder will retain a significant
interest in, and will continue to exert substantial influence
over, the Group following Admission and its interests may
differ from or conflict with those of other Shareholders.
Finally, Shareholders in the United States and other
jurisdictions outside the United Kingdom may not be able to
participate in future equity offerings and consequently their
respective shareholding may be diluted.
Section E Offer
E.1 Net proceeds and costs of the offer The Company is not raising any proceeds from the Offer.
Net proceeds of approximately 121.6 million will be
received by the Selling Shareholder from the sale of the
Offer Shares (assuming no exercise of the Over-allotment
Option), net of underwriting commissions, VAT (if
applicable) and stamp duty or SDRT of approximately
4.4 million.
The aggregate expenses of, or incidental to, Admission and
the Offer incurred and to be borne by the Company are
estimated to be approximately 17.3 million (including VAT
to the extent it is a cost to the Company), which the
Company intends to pay out of existing cash resources (to
the extent they have not already been paid) and proceeds
made available under the New Facilities. No expenses will
be charged by the Company or the Selling Shareholder to
any investor who purchases Ordinary Shares pursuant to the
Offer.
E.2a Reasons for the offer and use of The Selling Shareholder is looking to realise part of its
proceeds investment in the Group by way of the Offer.
In addition, the Directors believe that the Offer and
Admission will:
(a) position the Group for the next stage of its strategic
growth, by providing it with an appropriate capital
structure to take advantage of the growing UK housing
market;
(b) provide the Group with access to a wider range of
capital raising options which may be of use in the
future;
(c) further improve the Groups ability to recruit, retain and
incentivise key management and employees; and
(d) create a liquid market in the Ordinary Shares for
existing and future Shareholders.
The Company will not receive any proceeds from the Offer.
No commissions, fees or expenses will be charged by the
Company or the Selling Shareholder to any purchaser of
Offer Shares.
E.3 Terms and conditions of the offer The Offer consists of an institutional offer only. In the Offer,
Ordinary Shares will be offered (i) to certain institutional
investors in the United Kingdom and elsewhere outside the
United States and (ii) in the United States only to QIBs in
reliance on an exemption from, or in a transaction not
subject to, the registration requirements of the US Securities
Act.
13
The Ordinary Shares allocated under the Offer have been
fully underwritten, subject to certain conditions, by the
Banks. Allocations under the Offer will be determined in the
sole discretion of the Selling Shareholder in consultation
with the Joint Global Co-ordinators. All Ordinary Shares
sold pursuant to the Offer will be sold, payable in full, at the
Offer Price.
It is expected that Admission will become effective, and that
unconditional dealings in the Ordinary Shares will
commence on the London Stock Exchange, at 8.00 a.m.
(London time) on 26 April 2016. Settlement of dealings from
that date will be on a three day rolling basis. Prior to
Admission, conditional dealings in the Ordinary Shares are
expected to commence on the London Stock Exchange at
8.00 a.m. (London time) on 21 April 2016. The earliest date
for such settlement of such dealings will be 26 April 2016.
E.4 Material interests The Company considers that the Selling Shareholder has
interests that are material to the Offer by virtue of the size of
its shareholding in the Company.
The Company does not consider that these are conflicting
interests, or that there are any other interests, including
conflicts of interest, that are material to the Offer.
E.5 Selling Shareholder and lock-up (a) Expected interests of the Selling Shareholder
immediately prior to and following Admission
70,000,000 Ordinary Shares will be sold by the Selling
Shareholder in the Offer (assuming no exercise of the Over-
allotment Option). A further 10,500,000 Ordinary Shares are
being made available by the Selling Shareholder pursuant to
the Over-allotment Option. The indicative interests in
Ordinary Shares of the Selling Shareholder immediately
prior to Admission, together with its interests in Ordinary
Shares immediately following Admission, are set out in the
table below.
Ordinary Shares to
Immediately be sold pursuant to Immediately following
prior to Admission the Offer Admission(1)
Percentage Percentage Percentage
Number of of issued Number of of issued Number of of issued
Ordinary share Ordinary share Ordinary share
Shareholder Shares capital Shares capital Shares capital
LSF9
Concrete
UK
Ltd(2) 200,000,000 100 70,000,000 35.0 130,000,000 65.0
Notes
(1) Assuming no exercise of the Over-allotment Option.
(2) LSF9 Concrete UK Ltd is indirectly owned by Lone Star which
therefore has an indirect interest in the Ordinary Shares held by the
Selling Shareholder.
14
Pursuant to the Underwriting Agreement, the Selling
Shareholder and the Directors have agreed that, subject to
certain exceptions, during the period of 180 days in respect
of the Selling Shareholder, and 365 days in respect of the
Directors, in each case from the date of Admission, they will
not, without the prior written consent of the Joint Global Co-
ordinators (such consent not to be unreasonably withheld or
delayed), offer, sell or contract to sell, or otherwise dispose
of, directly or indirectly, or announce an offer of any
Ordinary Shares (or any interest therein in respect thereof) or
enter into any transaction with the same economic effect as
any of the foregoing.
E.6 Dilution Not applicable. As no new Ordinary Shares are being issued
in the Offer, existing Shareholders will not experience
dilution from the Offer.
E.7 Expenses charged to the investor Not applicable. No expenses will be charged by the
Company or the Selling Shareholder to any investor who
purchases Ordinary Shares pursuant to the Offer.
15
PART 1
RISK FACTORS
An investment in the Ordinary Shares involves a number of risks. Accordingly, prior to making any decision to
invest in the Ordinary Shares, prospective investors should carefully consider the risks and uncertainties
associated with any investment in securities and, in particular, the Ordinary Shares, as well as the risks and
uncertainties associated with the Groups business and the industry in which the Group operates, in each case,
as described below, together with all other information contained in this Prospectus. The risk factors set out
below do not purport to be a complete list or explanation of all the risks and uncertainties involved in investing
in the Ordinary Shares or that may adversely affect the Groups business, financial condition, results of
operations and prospects. Other risks and uncertainties relating to an investment in the Ordinary Shares and to
the Groups business and the industry in which it operates that are not currently known to the Directors, or that
the Directors currently deem immaterial, may also have an adverse effect on the Groups business, financial
condition, results of operations and prospects. If the risks described herein or any such other risks occur, the
market price of the Ordinary Shares may decline and investors in the Ordinary Shares could lose all or part of
their investment. Prospective investors should consider carefully whether an investment in the Ordinary Shares is
suitable for them in light of the information in this Prospectus and their personal circumstances. If prospective
investors are in any doubt about any action they should take, they should consult a competent independent
professional adviser who specialises in advising on the acquisition of listed securities.
Prospective investors should note that the risks and uncertainties relating to the Groups business and industry
and the Ordinary Shares summarised in the section of this Prospectus entitled Summary are the risks that the
Directors believe to be the most essential to an assessment by a prospective investor considering an investment in
the Ordinary Shares. However, as the risks and uncertainties which the Group faces relate to events and depend
on circumstances that may or may not occur in the future, prospective investors should consider not only the
information on the key risks summarised in the section of this Prospectus entitled Summary, but also, among
other things, the additional risks and uncertainties described below.
This Prospectus also contains forward-looking statements that involve risks and uncertainties. The Groups
actual results could differ materially from those anticipated in such forward-looking statements as a result of
certain factors, including the risks faced by the Group described in this Part 1 (Risk Factors) of this Prospectus.
See the paragraph entitled Information regarding forward-looking statements contained in Part 2
(Presentation of Financial and Other Information) of this Prospectus for further information relating to forward-
looking statements. Subject to any obligations under applicable law, including the Prospectus Rules, the Listing
Rules and the Disclosure and Transparency Rules, the Company undertakes no obligation to release publicly any
revisions or updates to these forward-looking statements to reflect events, circumstances or unanticipated events
occurring after the date of this Prospectus.
The level of new build and RMI construction activity and therefore demand for construction materials and the
Groups products is influenced by, and sensitive to, a number of factors, resulting in a degree of cyclicality.
These factors include mortgage availability, the cost of financing (especially mortgage financing and mortgage
interest rates), interest rates, inflation, unemployment levels, household formation rates, domestic population
growth, gross domestic product, immigration rates, residential vacancy and foreclosure rates, demand for second
homes, existing house prices, rental costs, housing inventory levels, consumer confidence, seasonal weather
factors, government regulation, policy and incentives, including, for example, the UK Governments home
buying and housebuilding incentive schemes and programmes as further described in the paragraph entitled Any
change in, or failure of, certain of the UK Governments housebuilding and home buying incentive schemes and
programmes could materially affect the Group in this Part 1 (Risk Factors) of this Prospectus, planning and
16
environmental regulation, increases in tax and stamp duty rates and other general economic factors. Although
these factors may not impact the residential RMI construction sectors to the same extent as the residential new
build construction sector, the Directors believe that consumer confidence does affect residential RMI expenditure
and demand for the Groups products. Commercial construction activity is primarily driven by business
investment, availability of finance and interest rates, as well as the same economic fundamentals as for the
residential construction industry.
The Groups business may be adversely affected by general economic and global financial market conditions
The Groups business, financial condition, results of operations and prospects have in the past been, and may in
the future be, materially adversely affected by general economic and global financial market conditions. These
factors also impact the business of the Groups customers and suppliers and the construction industry in which
the Group operates. This is particularly true with respect to macroeconomic factors within the European Union.
As a result of the financial crisis, residential construction activity, in both the residential new build and RMI
sectors, and commercial construction activity in the United Kingdom dipped significantly, and growth since that
period has been relatively modest. As a result, demand for many of the Groups products decreased and the
Group and its competitors reduced both brick and block production capacity and brick and block stocks and, in
the case of the Group, production capacity and stocks of its bespoke products. Although demand for the Groups
products has stabilised and improved, it may not reach previous levels and growth may not be sustained. Since
2010, several European Union countries, including Greece, Ireland, Italy, Spain, and Portugal have faced, and
continue to face, budgetary issues, some of which may have negative long-term effects on the economies of those
countries and other members of the European Union, including the United Kingdom. There is continued concern
about national-level support for the euro and the accompanying coordination of fiscal and wage policy among
Member States.
While the macroeconomic environment in the United Kingdom has improved in recent years, current
macroeconomic trends may not continue and negative events may occur in the United Kingdom or elsewhere that
would have an adverse effect on macroeconomic conditions in the future. Moreover, short-term macroeconomic
conditions can produce short-term downturns, which can negatively impact demand for the Groups products for
a shorter period of time and make it difficult for the Group to forecast production needs. As a result of adverse
changes in the macroeconomic climate, including short-term downturns, the Group may consequently face
decreases in demand for its products, which may result in overcapacity, reduced sales volumes and declining
revenue and/or margins. Any deterioration in macroeconomic conditions or the housing market could require the
Group to reduce brick, block and bespoke products production capacity and stocks. Furthermore, any failure to
adequately utilise the Groups production capacities as a result of low levels of demand could adversely affect
the Groups profitability. These factors, if they materialise, or if difficult macroeconomic conditions occur, could
have a material adverse effect on the Groups business, financial condition, results of operations and prospects.
The Group is exposed to risks related to the UK Governments decision to hold a referendum on the United
Kingdoms continued membership of the European Union
The Group faces potential risks associated with the referendum on the United Kingdoms continued membership
of the European Union, which is scheduled to take place on 23 June 2016, and potential uncertainty preceding
and following the referendum. If the outcome of the referendum is a vote in favour of the United Kingdom
leaving the European Union, this could materially and adversely affect the operational and regulatory regime to
which the Group is currently subject, particularly in respect of taxation and environmental laws. Furthermore, the
current shortage of skilled workers experienced by the construction industry in the United Kingdom (as described
in the paragraph entitled Shortages in skilled workers in the construction industry in the United Kingdom may
have a material adverse effect on the Group in this Part 1 (Risk Factors) of this Prospectus) may increase if the
United Kingdom votes to leave the European Union, which could lead to fewer new homes being built over the
next few years and reduced demand for the Groups products, which would have a material adverse effect on the
Groups business, financial condition, results of operations and prospects.
An exit of the United Kingdom from the European Union could also have an even greater impact on the fiscal,
monetary and regulatory landscape in the United Kingdom and could have a material impact on its economy and
the future growth of its various industries, including those in which the Group and its customers and suppliers
operate. It could also result in prolonged uncertainty regarding aspects of the UK economy and damage
customers and investors confidence. Any of these events, as well as an exit or expulsion of a Member State
other than the United Kingdom from the European Union, could have a material adverse effect on the Groups
business, financial condition, results of operations and prospects.
17
The growth currently being experienced in the residential construction market in the United Kingdom may not
be sustained
The Groups growth prospects depend, to a significant extent, on continued growth in the residential new build
and/or residential RMI construction markets in the United Kingdom. New build construction rates are generally
measured by the number of housing starts and the number of housing completions, while RMI activity, on the
other hand, generally performs in line with economic output. The Construction Products Association (the
CPA) expects housing completions in Great Britain to continue to grow at a rate of 4% per annum for the
period from 2015 to 2018, whilst it expects economic output growth of approximately 2% per annum between
2015 and 2018, driven by a recovery in housing transaction volumes and consumer confidence. However, the
current growth in the residential construction market in Great Britain may not continue or the market may again
contract. If the housebuilding industry in the United Kingdom does not increase the number of housing
completions per annum, it may not grow as forecasted or in line with longer-term UK Government ambitions,
and demand for the Groups products could be adversely affected. Although currently the new build residential
market in the United Kingdom is largely dominated by house builds rather than apartment builds, with
approximately 69% of UK homes comprising non-flat housing compared to 52% in 2008 according to the
National House Building Council, any change to this market pattern could have a material adverse impact on
demand for the Groups bricks as, on average, a new build semi-detached house typically uses two to three times
more bricks per unit than a new apartment. If land prices increase in the future, demand for new apartments could
increase and the demand for new houses could decrease, reducing the overall demand for bricks or leading to a
reduction in building activity. Due to uncertainty regarding the timing and extent of the current growth and
resulting increased product demand levels, the Groups results of operations may vary materially in response to
conditions in the construction market and/or changes in the supply and demand for its products. Any failure in
the continued recovery of the construction markets in the United Kingdom, particularly the residential
construction market, or any future uncertainty or downturns in these markets, could have a material adverse
effect on the Groups business, financial condition, results of operations and prospects.
Competition from imported bricks could have a material adverse effect on the Group
In response to the financial crisis, the Directors estimate that UK industry participants reduced total UK brick
production capacity by 20% and reduced brick stocks. The housing market in the United Kingdom began to
recover in the first quarter of 2013, and by 2014 there was a short-term shortage of supply in the brick market in
the United Kingdom, leading a number of the Groups customers to overstock with bricks due to concerns over
brick supply, particularly with imports from continental Europe. The Directors believe that UK customers may
switch to, or continue to purchase, imported bricks if competitive sources of domestic supply are not available.
During periods of strong demand, lack of product availability or price increases could harm the Groups
relationships with its customers. As such, if the Groups production capacity does not increase to meet the higher
levels of demand during times of strong future demand or if brick imports are offered at more favourable pricing
terms, the Group may face increasing levels of competition from such imports, which may result in loss of
customers and loss of market share. Furthermore, imported bricks could be of differing quality or could employ
alternative designs and formulations to domestic bricks, causing consumers to favour them over domestic bricks.
Reduced levels of mortgage lending or other reductions in the availability of consumer credit could have a
material adverse effect on the Group
Most home purchases in the United Kingdom are financed through mortgages and a significant percentage of
RMI activities are financed either through mortgages or other available credit. The financial crisis affected the
financial position of consumers and led financial institutions to tighten their lending criteria, each of which
contributed to a reduction in credit available to consumers. The mortgage lending industry also experienced
significant instability because of, among other factors, a decline in residential property values and an increase in
mortgage delinquencies, defaults and foreclosures. These developments, among other factors, resulted in a
significant reduction of total new housing starts in Great Britain, which according to the CPA stood at
220,278 units in 2007 and decreased to a low of 107,218 units in 2009, and consequently a reduction in demand
for the Groups products. Similarly, the rate of interest payable on any mortgage or other form of credit will have
an impact on the cost of borrowing. While the base rate applied by the Bank of England is currently only 0.5%,
the base rate may rise over the next few years. Any increase in interest rates will increase the cost of borrowing
and may make the cost of purchasing a home less attractive. Any future tightening of mortgage lending or other
reductions in the availability of credit in the United Kingdom, as well as any increase in interest rates, could have
a material adverse effect on the Groups business, financial condition, results of operations and prospects.
18
Any change in, or failure of, certain of the UK Governments housebuilding and home buying incentive
schemes and programmes could materially affect the Group
The residential construction industry, and the general level of residential and other construction activity, depends
in part on the UK Governments housebuilding or home buying initiatives, as well as the UK Governments
investment in public housing, as further described in Part 5 (Industry Overview) of this Prospectus.
The UK Government has recognised that there are not enough homes to meet the needs of the United Kingdoms
growing and ageing population and has implemented a number of initiatives aimed at increasing the number of
new homes built in the United Kingdom, such as the Help to Buy programme, the Starter Home Initiative and the
Right to Buy programme. Further details of these and other initiatives are set out in paragraph 4 of Part 5
(Industry Overview) of this Prospectus. Any unexpected change in support for, or financing of, Help to Buy and
other incentive schemes or programmes could result in reduced residential construction activity in the United
Kingdom, which could, in turn, negatively affect the demand for the Groups products in the United Kingdom
and have a material adverse effect on the Groups business, financial condition, results of operations and
prospects.
The UK Governments current policies and initiatives may not be effective in the future. Changes to budgets,
regulation, the governing political party in the United Kingdom and the make-up of that party, the relationships
between local and national government or other external factors may impact the continuation of the Help to Buy
programme, the Starter Home Initiative or other similar schemes or programmes. Any change that discontinues,
eliminates, reduces or otherwise negatively impacts these types of spending initiatives, or the failure of any of
these initiatives or other subsidies to be fully utilised, could have a material adverse effect on the Groups
business, financial condition, results of operations and prospects.
Changes in the UK Government or local authority planning regulations could adversely affect the Groups
business
The brick market in the United Kingdom is also impacted by planning regulations and consents, which are
granted with conditions, often stipulating the use of particular materials, including brick, to maintain the
appearance of the local area. As brick is the leading material from which houses have historically been built in
the United Kingdom, planning guidelines currently encourage the continued use of brick for new house builds.
Changes to these planning guidelines could inhibit the long-term growth potential of the brick market by
reducing the demand for brick, which could have a material adverse effect on the Groups business, financial
condition, results of operations and prospects.
The UK Government has emphasised its commitment to streamlining the planning system and expanding the
scale of housing development in the United Kingdom. Planning permissions are granted by local authorities,
which have been known to be obstructive by not releasing brownfield land for development in order to protect
local communities. The planning process in the United Kingdom is also time-consuming. The Directors believe
that applications for housing development in the United Kingdom typically take between nine and 18 months to
be granted from the initial application. The Housing Bill that was announced by the UK Government in October
2015 reinforced the UK Governments commitment to shorten the planning process in order to build more new
homes, however, it has not been welcomed by the other major political parties. In its November 2015 Spending
Review the UK Government announced that it would accelerate homebuilding by reforming the planning system
in order to release public land suitable for the construction of new homes more quickly. If changes to the UK
planning system are not implemented in the near term, or if further powers are given to local authorities in the
planning process which, in turn, continue to be obstructive, the UK Government may fail to successfully
implement certain of its incentive schemes and programmes referred to above.
Any failure effectively to compete in the Groups markets could have a material adverse effect on the Group
The markets in which the Group sells its products are highly competitive and the Group may be unable to
maintain or increase its market share. The Group primarily competes with a small number of competitors, such as
Ibstock, Michelmersh and Wienerberger in the bricks sector, H+H and Tarmac in the aircrete blocks sector,
CEMEX, Lignacite and Tarmac in the aggregate blocks sector, and a range of specialised competitors, many of
which are well established in their markets. Competition among manufacturers is based on many factors,
including price, service, quality, range of products and product availability. Competition in certain of the Groups
product segments, such as the brick market in the United Kingdom, is also based, in part, on styles and trends,
which the Group may not accurately forecast or be able to influence. The Groups competitors may also foresee
market developments more accurately than the Group, provide superior service, sell preferable products, improve
19
the design and performance of their products, possess the ability to manufacture or supply similar products and
services at a lower cost and provide other efficiencies, develop a more comprehensive product portfolio, as well
as introduce new products with competitive prices and performance characteristics, establish stronger
relationships with customers and distributors, adapt more quickly to new technologies or evolving customer
requirements, manage customer relationships during product shortages more effectively, build a superior sales
and distribution network or obtain access to financing on more favourable terms than the Group may obtain.
Failure to develop strategies and products and to maintain the Groups competitive position in the face of such
competition could lead to loss of market share and/or compel the Group to reduce the price of its products, which
could result in reduced revenues and profit margins.
Additionally, some of the Groups competitors are larger companies and, therefore, have access to greater
financial and other resources than the Group. These resources may afford those competitors significant
advantages, including greater purchasing power, greater production efficiency, increased financial flexibility and
more capital resources for expansion and improvement. At times, domestic manufacturing output may be
insufficient to satisfy demand, in which case the Group may also be subject to competition from manufacturers in
Europe. The inability of the Group to compete with such other manufacturers could have a material adverse
effect on the Groups business, financial condition, results of operations and prospects.
Actions of the Groups competitors, including restoring mothballed facilities or developing additional
manufacturing capacity, competition from imported products or the entry of new competitors into the Groups
markets could drive the Group to lower prices in an effort to maintain its customer base and may result in lower
revenue. At times, the price for any one or more of the products the Group manufactures may fall below the
Groups manufacturing costs, requiring the Group to either incur losses on product sales or cease manufacture of
such product at one or more of its manufacturing facilities. Competitive pressures, including industry
overcapacity, could also lead to pricing pressures in the Groups markets. For example, competitors may choose
to pursue a volume policy in order to maintain utilisation of their factories to the detriment of upholding prices.
In addition, the pricing and production policies of the Groups competitors are unpredictable and could frustrate
the Groups efforts and impact profitability. There is a risk that the Group could establish or acquire additional
production capacities which cannot be appropriately used, for example, as a result of an inaccurate evaluation of
market developments. Furthermore, certain of the Groups products, including clay bricks and concrete blocks
for housing applications and concrete products for structural applications, are volume products that are available
from other manufacturers or distributors, with price and volume decisions frequently based on participants
perceptions of short-term supply and demand factors, such as the perceived capacity constraint in the brick
market that led a number of UK homebuilders to import bricks from continental Europe. Industry data for supply
chain and end user stock levels is not available. The supply chain and end users attitude to stock may change
from time to time and may impact short-term demand, which in turn may impact the Groups planned production
output in any period. As such, the Group may be unable to sufficiently manage or adjust its production output,
balance inventory stock in order to meet market demand or adjust pricing strategies to local market conditions. A
shortage of capacity or excess capacity in the industry can result in significant increases or declines in market
prices for these products, often within a short period of time. Low market prices for the Groups products over a
sustained period could have a material adverse effect on the Groups business, financial condition, results of
operations and prospects.
If the Group cannot compete effectively in its markets, its business, financial condition, results of operations and
prospects may be materially adversely affected.
Increased energy and related costs could have a material adverse effect on the Group
The Group uses significant amounts of energy, including natural gas and electricity, in the manufacture of its
products and energy costs are a significant component of the Groups costs, accounting for 12.5%, 12.4% and
11.2% of the Groups total costs of sales in 2013, 2014 and 2015, respectively. Natural gas is one of the principal
sources of energy the Group uses to fuel its brick manufacturing operations. The Group also uses a substantial
amount of electricity at its facilities. Energy prices have been volatile in recent years. The Group has benefited
from the relatively low cost of natural gas in 2015, however, such costs savings may not continue. Factors such
as international political and military instability, government policy, adverse weather conditions and force
majeure events may disrupt energy supplies and increase prices in the future. Although the Group has forward
purchased approximately 75% of the natural gas for use in its manufacturing operations during 2016 and may
hedge its energy positions in the future, the Group currently has no other such hedges in place and it remains
susceptible to energy price increases.
20
Additionally, because the Group often delivers products to its customers, the Group is further exposed to
increased fuel prices as a component of the Groups distribution costs. While the Group generally attempts to
pass increased costs, including higher fuel costs, on to its customers, pricing pressure from the Groups
competitors, the market power of the Groups customers or the other pricing factors discussed in this Part 1 (Risk
Factors) of this Prospectus may limit the Groups ability to do so and sustained increases in energy and fuel
prices could have a material adverse effect on the Groups business, financial condition, results of operations and
prospects.
Increases in the cost or decreased availability of raw materials could have a material adverse effect on the
Group
The Group is reliant on the availability of raw materials at a reasonable cost. Key raw materials for brick
products are clay and shale which are predominantly sourced from the Groups own reserves. Aircrete blocks are
manufactured using pulverised fuel ash (PFA), cement and lime, while the Groups aggregate blocks are
manufactured using cement and aggregates, such as sand, gravel, crushed limestone and recycled materials,
which are currently sourced from the HeidelbergCement Group and other third party suppliers. Other raw
materials used in specific product ranges, primarily within the bespoke products, include expanded polystyrene
and galvanised steel wiring, which are used in production of the Groups Jetfloor and structural external wall
insulation, respectively.
Historically, the raw materials the Group uses have been available from a number of sources and in sufficient
quantities. However, raw material prices, as well as availability, have been volatile in recent years. A large
number of raw material suppliers reduced their production capacity during the economic downturn. This reduced
capacity, together with strengthening global demand for certain raw materials, has at times caused, and may in
the future cause, tighter supply and significant price increases. Factors such as adverse weather conditions and
force majeure events, as well as political and other social instability, have disrupted, and may in the future
disrupt, raw material supplies and impact prices of the Groups principal sourced raw materials such as cement,
energy and fuel. Additionally, there may be substantial price increases or drastically limited availability in the
future for other unexpected reasons. Finally, the Group typically relies on one supplier for each commodity it
uses because the Group believes it is more efficient and cost-effective to work with a single supplier. If there is a
meaningful decrease in availability from the Groups preferred supplier or with respect to a specific raw material
generally, the Group may have difficulty establishing new supply relationships, particularly relationships in the
locality of the Groups facilities, or obtaining the raw material on acceptable terms.
PFA, which is used to manufacture the Groups aircrete blocks, is a by-product of the combustion of coal in coal-
fired power plants. Due to more stringent environmental regulations and the availability of alternative fuel
sources such as biomass, the number of coal-fired power plants in the United Kingdom is declining and is
expected to continue to decline over time, which could result in a significant decrease in the availability of PFA
and higher prices. The Group previously sourced PFA from Didcot power station, which was located close to the
Groups aircrete block facility at Newbury, Drax power station in Yorkshire, Ratcliffe power station in
Nottinghamshire and Rugeley power station in Staffordshire. Following the closure of Didcot power station, the
Group continued to secure supplies of PFA from Drax power station, Ratcliffe power station and Rugeley power
station. It has recently been announced that Rugeley power station will close in the summer of 2016. The coal
units at Drax power station and Ratcliffe power station are also expected to close at some stage in the future. If as
a result of such closures and any other closures the Group is unable to secure all or any of its PFA requirements
from coal-fired power stations in the United Kingdom, the Group would need to seek alternative sources such as
conditioned or reclaimed PFA or imported PFA or seek to use substitute materials such as silica sand. Such
alternative sources of and substitutes for PFA could be more costly, more difficult to obtain, less efficient and
more difficult to integrate into the Groups manufacturing processes. Importing PFA may prove more difficult
than the Directors expect and more expensive than the Groups current supplies of PFA. A shortage of PFA and
any inefficiency related to alternative sources or substitutes could have a material adverse effect on the Groups
business, financial condition, results of operations and prospects.
Cement is a significant component of the Groups variable costs. The Group has historically purchased a
substantial portion of its cement and aggregates from the HeidelbergCement Group and continues to purchase the
majority of its cement and aggregates from the HeidelbergCement Group pursuant to the terms of the Heidelberg
Cement Supply Agreement and the Heidelberg Aggregates Supply Agreement (as further described in paragraphs
12.14 and 12.13, respectively, of Part 14 (Additional Information) of this Prospectus). If the Group is required to
purchase larger quantities of cement or aggregates on the open market in the future, if the HeidelbergCement
Group increases the price of cement or aggregates above the fair market value or if the HeidelbergCement Group
fails or is unwilling to deliver cement or aggregates to the Group for any reason under the terms of the
21
Heidelberg Cement Supply Agreement and the Heidelberg Aggregates Supply Agreement, including as a result
of any dispute between the parties or any breach by either party of such agreements, the Group will be required to
source its cement and aggregates from other suppliers on short notice and would be subject to market conditions
prevailing at that time, which, if available at all, may be on less favourable terms to those contained in the
Heidelberg Cement Supply Agreement and the Heidelberg Aggregates Supply Agreement. Such events may
disrupt the Groups production operations, which could have a material adverse effect on the Groups business,
financial conditions, results of operations and prospects.
Although in many instances the Group has agreements with its suppliers of raw materials, these agreements are
generally terminable by either party on short notice. Furthermore, many of the Groups suppliers also offer
favourable terms based upon the volume of the Groups total purchases. If market conditions change, suppliers
may discontinue offering the Group the same favourable terms. If all or any of the Groups suppliers were unable
or unwilling to meet the Groups demand for raw materials on a timely basis or on acceptable commercial terms,
the Group would be forced to seek alternative raw materials which may be time consuming or otherwise not
commercially feasible. Any delay in obtaining, or failure to obtain, the necessary raw materials or other
component parts from suppliers on commercially acceptable terms could have a material adverse effect on the
Groups business, financial condition, results of operations and prospects.
The Group generally attempts to pass increased costs, including higher raw material prices, on to its customers,
but pricing pressure from the Groups competitors, the market power of the Groups customers or the other
pricing factors discussed above may limit the Groups ability to pass on such price increases. Any increase in the
cost of raw materials or shortages over a sustained period of time could have a material adverse effect on the
Groups business, financial condition, results of operations and prospects.
The Group may not have adequate clay reserves for its future needs
The Group excavates approximately 93% of the clay and shale used for the manufacture of its brick products
from quarries that it operates on land that it owns or leases under long-term leases in the vicinity of its brick
manufacturing facilities. The Directors estimate that the Group has in excess of 49 million tonnes of clay reserves
across 12 quarries in the United Kingdom, 10 of which are located within approximately one mile of the Groups
manufacturing facilities and potential future development sites, which the Directors estimate is equivalent to over
30 years of brick production based on the Groups existing brick production. In addition, the Directors estimate
that the Group has a further 36 million tonnes of clay resources that do not currently have planning permission
for extraction, which together with its planned clay reserves provides the Group with in excess of 85 million
tonnes of clay resources, which the Directors estimate is equivalent to over 55 years of brick production based on
the Groups existing brick production. If the Groups clay resources diminish, if the Directors have overestimated
the amount of the Groups clay reserves, if the quality of clay reserves deteriorates or if the Group opens a new
brick manufacturing facility without securing adequate or any clay reserves for the manufacturing of its brick
products at such facility, the Group may be required to source its clay from other clay suppliers, which may only
be available on less favourable terms, including cost, or may not be available at all. Upon securing land with
appropriate clay reserves, the Group would be required to obtain planning consents and environmental permits
for extraction of clay and the Group may not be able to secure all or any of such consents. The Directors estimate
that its quarry situated in close proximity to its Wilnecote facility has only two years of reserves remaining. The
Group is currently negotiating the extension of the quarry with the local landowner, which the Directors estimate
will provide the Group with a further 10 years of reserves. If the Group is not able to extend the quarry or secure
alternative reserves with appropriate permissions in close proximity to the Wilnecote facility, the Group will be
required to source its clay from alternative sources. Any of the foregoing difficulties could have a material
adverse effect on the Groups business, financial condition, results of operations and prospects.
Shortages in skilled workers in the construction industry in the United Kingdom may have a material adverse
effect on the Group
Since the financial crisis, which saw housing starts drop from 220,278 units in 2007 to 107,218 units in 2009
according to the CPA and saw a number of building firms either reduce output or restructure their operations, the
UK construction workforce has decreased from approximately 2.5 million in 2008 to 2.2 million in 2015, with
the number of bricklayers and masons working in the United Kingdom falling from approximately 100,000 in
2008 to 70,000 in 2015 according to the Office for National Statistics (ONS). The UK Commission for
Employment and Skills estimates that in order to replace UK construction workers expected to retire in the next
ten years, some 700,000 new recruits are needed. Furthermore, the number of first year trainees in the industry
fell by half between 2005 and 2013, to fewer than 20,000. As experienced construction workers in the
22
United Kingdom retire and the number of new trainees and the availability of skilled construction workers
declines, it may not be possible to recruit workers with sufficient skill and it may not be possible to pass on the
knowledge of those experienced retiring workers to other less experienced workers.
It is estimated that the proportion of UK construction workers born outside the United Kingdom in 2011 was
11% (as opposed to 5% in 2001), however, with official plans to reduce immigration and the possibility of the
United Kingdom voting to leave the European Union (as further described in the paragraph entitled The Groups
business may be adversely affected by general economic and global financial market conditions in this Part 1
(Risk Factors) of this Prospectus), the number of UK construction workers may further decline.
The UK Federation of Master Builders reported in 2015 that 66% of its 8,500 members had refused new business
because of a lack of resources, while almost half had been forced to outsource work. The Directors believe that
the skilled workforce deficit in the construction industry in the United Kingdom has increased labour costs and
therefore the cost of construction, making building new homes more expensive. Such shortages of sufficiently
skilled construction workers could lead to fewer new homes being built over the next few years than expected,
and therefore a slower growth in housing completions than that forecasted by the CPA, which would result in
reduced growth in the Groups revenue, which could have a material adverse effect on the Groups business,
financial condition, results of operations and prospects.
Any inability to attract and retain key management and technical personnel could have a material adverse
effect on the Group
The Groups success depends on its ability to attract and retain key management personnel and skilled
employees, particularly engineering and technical personnel. In particular, the Group is dependent on the
continued employment and performance of the Groups management team. If any of these individuals resigns or
becomes unable to continue in his or her present role and is not adequately replaced, the Groups business
operations and its ability to implement its growth strategies could be materially disrupted and the manufacturing
quality of the Groups products could suffer.
There is significant competition for qualified management and technical personnel in the United Kingdom and
replacing or finding new management team members and skilled employees can be difficult. The reduction in
demand for products in the Groups industry during the economic downturn also caused a portion of skilled
workers to leave the Groups industry permanently, further reducing the available labour pool with the necessary
technical capabilities. Failure to attract and retain key management and technical personnel and other employees
could have a material adverse effect on the Groups business, financial condition, results of operations and
prospects.
Furthermore, as the UK residential and commercial construction markets improve and demand for the Groups
products increases, the Group may be required to employ and retain a number of additional employees at its
manufacturing facilities. If the Group is unable to attract and retain a sufficient number of skilled workers (as
further described in the paragraph entitled Shortages in skilled workers in the construction industry in the
United Kingdom may have a material adverse effect on the Group in this Part 1 (Risk Factors) of this
Prospectus), its manufacturing facilities may not perform to their full capacity and the Group may not be able to
implement its growth strategy, which could have a material adverse effect on the Groups business, financial
condition, results of operations and prospects.
Any inability to successfully implement the Groups strategy could have a material adverse effect on the
Group
As further described in paragraph 4 of Part 6 (Business of the Group) of this Prospectus, the Groups short-term
strategy is to increase its production capacity by undertaking what the Directors consider as small and low risk
capital investment projects at certain of the Groups existing manufacturing facilities at Claughton, Desford and
Accrington. In the medium to longer term, the Group has the potential to increase its annual brick production
capacity by building a new manufacturing facility at its site at Swillington and redeveloping its site at
Clockhouse. The Group may also consider making strategic acquisitions at the appropriate time which are
complementary to the Groups product offerings or would allow the Group to leverage its existing relationships
or distribution channels, and to continue to focus on its core sustainability values. Through 2015 and early 2016,
the Group initiated investment of 7.1 million implementing efficiency initiatives at the Groups manufacturing
facilities at Measham, Hams Hall, Accrington and Hoveringham, as further described in paragraph 9 of Part 6
(Business of the Group) of this Prospectus, which is intended to provide the Group with increased brick and
23
aircrete block production capacity, as well as other cost savings. If any of the Groups expansion, redevelopment
or efficiency projects do not perform in line with the Groups expectations, in terms of expected production
capacities or efficiency targets, or if any of these projects exceed cost estimates or cannot be completed for any
reason, including an inability to obtain necessary planning permissions, this could have a material adverse effect
on the Groups business, financial condition, results of operations and prospects.
The Group has in the past grown through both acquisition and organic expansion. Due to the limited number of
established key players operating in the Groups markets, entry through acquisition may be limited. The Group
may not be able to identify suitable businesses or sites for acquisition and, if any such opportunities are
undertaken, there is no certainty that the transaction will be consummated on favourable terms. The Group is
subject to competition laws which may limit the Groups ability to acquire companies or businesses and its
ability to expand and grow in certain markets and/or its ability to continue its ongoing operations in such markets
at current levels. In particular, the Group may not be able to implement its strategy of making strategic
acquisitions of complementary businesses (as further described in paragraph 4 of Part 6 (Business of the Group)
of this Prospectus) if such acquisitions are deemed to contravene competition laws and regulations and, as a
result, such obligations could have a material adverse effect on the Groups business, financial condition, results
of operations and prospects. In addition, there is no guarantee that organic initiatives will be completed on time,
on budget or at all. For example, if the Directors decide to pursue the development opportunities at the Groups
sites at Swillington and Clockhouse (as further described in paragraph 4 of Part 6 (Business of the Group) of this
Prospectus), the Group may not be able to fully implement such projects (if at all) due to a number of issues,
including future funding constraints. Any expansion activity may not be completed on time and may not achieve
the intended benefits, including estimated production capacity, whether as a result of improper design, changing
circumstances or otherwise.
Whilst the Group intends to finance the development of its business with cash from its operations, the Directors
may also consider further debt finance, equity offerings or issuing consideration in the form of equity. A
significant change in the Groups business or the global or national economy, an unexpected decrease in the
Groups cash flows or the requirements imposed by the Groups debt providers may also limit the Groups ability
to obtain or raise the capital required to effect any such development, including any acquisition of another
business or the development of the Groups existing facilities or new facilities. Furthermore, additional debt or
equity financing may not be available on favourable terms or at all, as further described in the paragraphs entitled
The terms of the Groups debt and any requirement to incur further indebtedness or refinance the Groups
indebtedness in the future could have a material adverse effect on the Group and The Groups ability to raise
capital in the future may be limited and any future issuances of Ordinary Shares or other securities may dilute
the holdings of Shareholders and may depress the price of the Ordinary Shares in this Part 1 (Risk Factors) of
this Prospectus. Failure to identify suitable acquisition opportunities on appropriate terms or to efficiently and
effectively expand or construct facilities could have a material adverse effect on the Groups business, financial
condition, results of operations and prospects.
The Directors may not accurately assess the value, strengths, weaknesses, liabilities and potential profitability of
acquisition targets or of an expansion or construction project. Also, the Group may not be able to integrate the
operations of future acquired businesses within the Groups operations or transition the Groups existing
operations into the expanded or new facilities in an efficient and cost-effective manner or without significant
disruption to the Groups existing operations. The Group may also encounter difficulties related to integrating
personnel and other corporate cultures into the Groups business. The Group may also suffer the loss of key
employees, customers or suppliers, difficulties in integrating computer and accounting systems and exposure to
unforeseen pre-acquisition liabilities and management attention and resources may need to be diverted from
existing operations. The Group may also be required to incur additional debt in order to finance an acquisition,
expansion or construction project, which debt may be substantial and may limit the Groups flexibility to use its
cash flows from operations for other purposes. The Groups inability to successfully integrate acquired
companies or any failure to realise the intended benefits of an acquisition, expansion or construction project,
including the synergies, cost savings, or sales or growth opportunities that the Directors expect, could have a
material adverse effect on the Groups business, financial condition, results of operations and prospects.
The emergence of new construction techniques and alternative building materials may have an adverse effect
on the Group
The development of new construction techniques and materials could affect demand for the Groups products.
Demand for the Groups products is subject to competition from a number of alternatives. The Groups bricks
compete with other materials that can be used for the cladding of a house or commercial building such as vinyl,
fibre cement, wood, render, natural stone and glass. The Groups aircrete and aggregate blocks primarily compete
24
with wood as the structural element of residential homes. The UK Government has provided, and may continue
to provide, incentives to support alternative products which compete with the Groups products and which may
correspondingly reduce demand for the Groups products.
Furthermore, new construction techniques and building materials developed in the future may impact demand for
the Groups products. As technology, manufacturing processes and construction knowledge develop so do the
number of house construction methods available to homebuilders. New construction techniques that aim to offer
advantages over traditional methods are growing in popularity, namely due to the finished look, the green
credentials, the ease of manually handling the materials, the speed of construction, the reduction of labour, the
ability to source materials, and the availability of expertise and contractors. In particular, alternative methods of
construction reduce dependence on relatively scarce, specialist workers (as further described in the paragraph
entitled Shortages in skilled workers in the construction industry in the United Kingdom may have a material
adverse effect on the Group in this Part 1 (Risk Factors) of this Prospectus), with labour requirements for
buildings constructed using timber-frame products being approximately 25% lower than for conventional
housing construction. Prefabricated buildings and flat pack housing are the most well-known of such techniques,
but other techniques and materials include the precast flat panel system, 3D volumetric construction, tunnel form,
the use of flat slabs, hybrid concrete construction, thin joint masonry, insulating concrete formwork and precast
foundations. The Directors believe that, although there is no current trend in the UK construction industry to
move away from traditional construction methods and materials, particularly as a number of the new techniques
and materials are currently more expensive than traditional bricks and blocks, any future increase in the use of
such construction techniques and materials, as well as the development of further such techniques and materials,
may correspondingly reduce demand for the Groups products.
Any of the foregoing or other factors that reduce demand for the Groups products could have a material adverse
effect on the Groups business, financial condition, results of operations and prospects.
Demand for the Groups Fletton bricks may decline in the future
The Directors expect demand for the Fletton brick, of which the Group is the sole manufacturer, to decline
further in the long-term. In 2015, Fletton brick volumes accounted for approximately 25% of the Groups total
brick volumes. This type of brick is rarely used for residential new build or commercial construction due to its
relatively high cost of production. The brick is therefore used primarily for RMI work in properties originally
built with Fletton bricks and to construct matching additions and extensions for such buildings. The number of
Fletton-clad buildings that may require repairing, remodelling or extending is expected to diminish over time
and, as a result, the Groups revenue stream from the sale of its Fletton bricks will also diminish. In addition, the
Groups position as the sole manufacturer of the Fletton brick has been challenged in the past, and may be
challenged again in the future, by other manufacturers attempting to replicate the look of this product once built
into a wall. Any challenge to the Fletton brick in the future or a reduction in RMI construction activities in
Fletton-clad buildings could have a material adverse effect on the Groups business, financial condition, results
of operations and prospects.
A material disruption at one or more of the Groups manufacturing facilities or quarries or in the Groups
supply chain could have a material adverse effect on the Group
The Group owns and operates facilities of various ages and levels of automated control and relies on a number of
third parties as part of the Groups supply chain. Any disruption at the Groups manufacturing facilities or in the
Groups supply chain could prevent the Group from meeting demand or require the Group to incur unplanned
capital expenditure. Older facilities are generally less energy efficient, employ more manual manufacturing
processes and are at an increased risk of breakdown or equipment failure, resulting in unplanned downtime. The
equipment required to manufacture certain of the Groups products is specialised and if any of the equipment was
to fail, the time required for replacement of such equipment could be lengthy, which could result in extended
downtime in the affected facility. For example, the Measham facility is fully automated and includes specialist
machinery, whilst the Kings Dyke facility includes specialist machinery for the manufacture of the Groups
Fletton bricks, which is maintained at the Groups workshops and is no longer available to buy on the open
market. If any part of the machinery at the Groups manufacturing facilities was to fail, not only would the cost
of repairing or replacing such machinery (or part thereof) be costly but it could also take months to complete.
Moreover, any of the Groups manufacturing facilities could cease operations unexpectedly because of events
unrelated to the Group, including fires and other industrial accidents, floods, natural disasters, environmental
incidents or other catastrophes, utility and transportation infrastructure disruptions, shortages of raw materials,
prolonged maintenance activity and acts of war or terrorism or other unexpected events, or events over which the
Group has a degree of control, such as industrial action, including strikes and the withdrawal of permits or
licences.
25
The Groups suppliers and other components in the Groups supply chain are also subject to similar disruption
risks and, while the Group maintains a significant fleet of delivery vehicles, the reduced capacity in third party
haulage resulting from the recent economic downturn could limit the Groups ability to deliver products to the
Groups customers as demand increases. Union-organised work stoppages have occurred at some of the Groups
manufacturing facilities in the past and any future disruption, union related or otherwise, and whether at one of
the manufacturing facilities, those of the Groups suppliers or more generally in the Groups supply chain, could
have a material adverse effect on the Groups business, financial condition, results of operations and prospects.
Fluctuations in the price of the Groups products or the Groups ability to maintain its profit margins could
have a material adverse effect on the Group
The price of the Groups products are subject to fluctuations in response to changes in supply and demand.
Furthermore, as many of the Groups products are standardised, high volume manufactured products that are
widely available in similar forms to those of the Groups competitors, the Group may be required to decrease its
prices in order to effectively compete with its competitors. Actions of the Groups competitors, including
restoring dormant facilities or developing additional manufacturing capacity, competition from imported
products or the entry of new competitors into the Groups markets, could lead the Group to lower prices in an
effort to maintain the Groups customer base and market share and may result in lower revenue. There can be no
assurance that prices for the Groups products will not decline in the future and any such declines would result in
reducing the Groups profit margins and could have a material adverse effect on the Groups business, financial
condition, results of operations and prospects.
In addition, before the economic downturn, there was significant consolidation in the housebuilding industries in
the United Kingdom, with many smaller housebuilders ceasing to build or being acquired by larger housebuilders
who increased their market share. This consolidation continued to a lesser degree in the wake of the economic
downturn as well. Any future consolidation in the United Kingdom housebuilding industries could strengthen the
market and pricing power of the large housebuilders, which could cause the Group to experience pricing pressure
on sales of its products.
Changes in global, national, regional or local economic conditions, fluctuations in the cost of raw materials,
energy, labour, freight, as well as other production costs, will affect the cost of production of the Groups
products as further described in this Part 1 (Risk Factors) of this Prospectus. In the event of any such increase in
production costs, the Group may not be able to increase the price of its goods in order to retain its profit margin,
particularly if the Groups competitors maintain their pricing. A significant portion of the Groups costs of sales
are fixed costs, which do not, in the short-term, fluctuate with the Groups annual production output. For this
reason and because of the price fluctuations described above, at times, the price for any one or more of the
Groups products may fall below the Groups production costs, requiring it to either sell product at a loss or to
take cost-cutting measures, including reducing headcount and product and capacity rationalisation. This
occurred, for example, during the economic downturn, a period during which the Group reduced production
capacity significantly. However, cost-cutting measures such as starting and stopping production are inefficient
and can lead to other cost inefficiencies. Any inability to efficiently and effectively react to price fluctuations
could have a material adverse effect on the Groups business, financial condition, results of operations and
prospects.
The Groups dependence on key customers with whom it does not have long-term contracts could have a
material adverse effect
The Groups business is dependent on certain key customers. The Groups largest two customers together
accounted for 29.2% of the revenue generated by the Group in 2015. The Group does not have any long-term
contracts that commit customers to purchase the Groups products. As a result, the Groups customers could
choose to cease purchasing the Groups products, reduce their purchase levels or request reduced pricing
structures at any time. The Groups manufacturing, pricing and marketing strategies must therefore respond to
the demands of these major customers, who may seek lower prices or other concessions in return for their
continued or increased business. In addition, further consolidation among builders and construction merchants
would give the Groups customers increased purchasing power and would likely result in demands for best
available terms in customer contracts. If this occurs, the Group may not be able to successfully maintain its
pricing structure or negotiating position with national merchants. A loss of one or more significant customers or a
meaningful reduction in their purchases could have a material adverse effect on the Groups business, financial
condition, results of operations and prospects.
26
Seasonality and unexpected or prolonged periods of severe weather could have a material adverse effect on
the Group
Sales of the Groups products are seasonal in that sales are generally somewhat higher from spring to autumn
when construction activity is at its highest. Construction activity declines during the winter months due to
inclement weather and shorter daylight hours. Construction activity can also be affected in any seasonal period
by adverse weather conditions, natural disasters and similar events. Unexpected or prolonged periods of severe
weather can have a profound effect on construction projects which could reduce demand for the Groups
products or push back orders already received to later dates. Any significant or prolonged adverse weather
conditions could negatively affect the Groups primary markets during periods when it expects trading to be
strong, slow the growth of new construction activity generally and reduce demand for the Groups products. For
example, the Group normally expects construction activity, and therefore demand for its products, to slow during
the winter months. An extension of that period of lower activity could have a significant impact on the number
and progress of construction projects and the anticipated demand for the Groups products, which could affect the
Groups production cycle, its order, inventory and distribution management, and its cash flows.
In addition, to a certain extent, the Groups ability to deliver its products to its customers, either at distribution
centres or on building sites, can be significantly impeded by severe weather, leaving both equipment and
personnel underutilised and customers waiting longer than expected for their orders, which not only results in
additional costs for the Group but can have a material adverse effect on the Groups relationships with its
customers and on the Groups business, financial condition, results of operations and prospects.
Furthermore, severe weather conditions can also drive up energy prices and related costs, which could have a
material adverse effect on the Group, as further described in the paragraph entitled Increased energy and related
costs could have a material adverse effect on the Group in this Part 1 (Risk Factors) of this Prospectus.
Disruption to road transport systems or the availability and cost of haulage or fuel could have a material
adverse effect on the Group
The Groups products are delivered by road in the United Kingdom. The Group delivers approximately 60% of
its bricks, aircrete blocks and aggregate blocks to customers through its own fleet of 125 modern delivery
vehicles, with the remainder being delivered by third party hauliers. The Groups other products are all
transported by third party hauliers. Prolonged disruption to road transport systems or to the availability of vehicle
fuel may hinder the Groups ability to meet delivery schedules, which could create backlogs that could take time
and additional resources to clear. During the economic downturn, the Group encountered difficulties securing the
services of third party haulage providers due to fleet reduction and the Group may face similar challenges in the
future, in particular if the Groups own fleet of delivery vehicles is not sufficiently maintained or does not grow
at the same rate as the Groups order book. If the Group encounters any disruption to or failure in its fleet of
delivery vehicles or fleet scheduling system or it is unable to secure the services of reliable third party hauliers on
appropriate terms, the Group may not be able to deliver its products to its customers within appropriate
timeframes, if at all, which could potentially result in a loss of customers and/or the incurrence of additional costs
on replacement delivery services, including those of third party hauliers. These factors could have a material
adverse effect on the Groups business, financial condition, results of operations and prospects.
The Groups restoration obligations in respect of quarries could have a material adverse effect on the Group
The Group owns and operates quarries from which it excavates clay for the manufacture of its bricks. With these
operations, certain restoration obligations arise under UK laws and regulations, which may lead to cash outflows
upon complete or partial closure of a quarry. As at 31 December 2015, a provision of 5.6 million was held for
restoration of the Groups quarries and a further provision of 6.0 million for the associated teardown of
facilities. Although the Directors are aware of the Groups restoration obligations upon opening a quarry, the
estimated provisions resulting from the Groups restoration obligations may change, for example, if more
stringent requirements are imposed under UK law or regulation. In addition, provisions could increase if the
assumptions underlying the Groups estimates are inaccurate or the underlying facts or legal requirements
change. Any such results could increase the Groups restoration obligations and could have a material adverse
effect on the Groups business, financial condition, results of operations and prospects.
The Group is subject to environmental laws and regulations and any failure to comply with current or future
laws and regulations could have a material adverse effect on the Group
The Group is subject to a broad range of increasingly stringent laws and regulations governing the protection of
the environment, including those governing air emissions, wastewater discharges, and the use, storage, discharge,
handling, disposal, transport and clean-up of hazardous materials and wastes. The Group is also required to
27
obtain permits from governmental authorities for certain operations (as further described in paragraph 13 of
Part 6 (Business of the Group) of this Prospectus), and if the Group expands or modifies its manufacturing
facilities or if environmental laws change, the Group could be required to obtain new or modified permits. If the
Group fails to comply with these laws, regulations or permits, it could incur fines, penalties or other sanctions. In
addition, the Group could be held responsible for costs and damages arising from claims or liabilities under these
laws and regulations, including with respect to any exposure to hazardous materials or contamination at the
Groups manufacturing facilities or at third party waste disposal sites. These laws and regulations may also
require the Group to investigate and, in certain instances, remediate contamination. Costs related to compliance
by the Group with environmental laws concerning, and potential obligations with respect to, contaminated sites
may have a material adverse impact on the Groups operating results. These include obligations related to sites
currently or formerly owned or operated by the Group, in the event the Group has caused or knowingly permitted
any contamination there, or where the Group disposed of waste from its operations. The Group must also comply
with stringent waste management regulations, particularly in relation to hazardous waste. Failure to comply with
waste regulation could potentially result in regulatory action, fines and additional capital and/or operational costs.
In addition, claims or corrective action to abate nuisance caused by the Groups operations may result in
increased capital expenditure and liabilities.
The nature of the Groups operations means that it faces a risk of contaminating land with hazardous waste
resulting from its manufacturing processes and causing nuisance in certain circumstances. Additionally, many of
its sites are located on previous brownfield sites or have had neighbours that undertook operations which could
cause contamination on its sites. Some of the Groups sites have a history of industrial use and, while the Group
applies strict environmental operating standards and undertakes extensive environmental due diligence in relation
to the Groups manufacturing facilities and acquisitions, some soil and groundwater contamination has occurred
in the past at a limited number of sites, and the Group has been required to incur remediation costs in connection
with such contamination, as it may do in the future. Violations of environmental laws can also lead to
reputational harm. Any future costs or reputational damage that the Group may incur or suffer in respect of
environmental laws, regulations or permits could have a material adverse effect on the Groups business,
financial condition, results of operations and prospects.
Environmental laws and regulations, including those related to energy use, climate change and other pollutants to
air, land and water, have become more stringent over time, and the Group could incur material additional
expenses relating to compliance with future environmental laws and regulations. For instance, the Group is
required to purchase carbon dioxide allowances under the EUETS in order to discharge carbon dioxide into the
atmosphere. As the Groups production capacity increases or if the Group opens new manufacturing facilities, it
may be required to increase its carbon dioxide allowances at its manufacturing facilities (or trade for additional
allowances under the EUETS on the open market) and/or obtain new allowances for new sites. The market price
of these allowances is subject to volatility and could increase substantially in the future. If the price of carbon
allowances increases due to a change in laws or regulations, the availability of carbon allowances on the open
market will also be limited, which may hinder the Groups planned increases in production capacity and may also
increase the Groups costs of sales. A number of the Groups suppliers are also regulated by stringent
environmental laws and regulations, including those relating to carbon dioxide emissions. Any change in such
laws or regulations may increase the price paid by the Group for its raw materials, which would have a direct
effect on the Groups margins. In addition, future environmental laws and regulations may cause the Group to
modify how it manufactures and prices its products or require that it make significant capital investments to
comply. For example, the Groups manufacturing processes use a significant amount of energy and increased
regulation of energy use to address the possible emission of greenhouse gases could materially increase the
Groups manufacturing costs. The European Unions Ceramics Best Available Techniques reference document is
due for review in 2017 which may reduce the current emission limits for certain pollutants. Any amendment to
this reference document or any other new or increased legislation may require the Group to install emissions
control or other equipment at some or all of its manufacturing facilities. Any increased costs related to future
environmental laws and regulations, which the Group is unable to recover from its customers, could have a
material adverse effect on the Groups business, financial condition, results of operations and prospects.
The Group is subject to health and safety laws and any failure to comply with such current or future laws
could have a material adverse effect on the Group
Manufacturing sites are inherently dangerous workplaces. The Groups manufacturing facilities often place its
employees and others in close proximity with large pieces of mechanised equipment, moving vehicles,
manufacturing processes, regulated materials and other hazardous conditions. As a result, the Group is subject to
a variety of health and safety laws and regulations dealing with occupational health and safety. The Group has a
28
team of 21 operations managers responsible for occupational health and safety, who support the operational
employees in all aspects of health and safety management and leadership. However, there can be no assurances
that these measures will be successful in preventing accidents and injuries or violations of health and safety laws
and regulations, some of which may be beyond the Groups control. Unsafe work sites also have the potential to
increase employee turnover and raise the Groups operating costs. In 2015, 88 of the Groups employees were
injured at work, with 11 of those injuries resulting in lost working time. Additionally, the Groups safety record
can impact the Groups reputation. Any failure to maintain safe work sites could expose the Group to significant
financial losses as well as civil and criminal liabilities, any of which could have a material adverse effect on the
Groups business, financial condition, results of operations and prospects.
The Groups rebranding efforts could have a material adverse effect on the Group
Prior to the Lone Star Acquisition, the Group operated as a wholly owned business of the HeidelbergCement
Group and marketed the Groups products primarily using the Hanson brand name and logo. Following
completion of the Lone Star Acquisition, each member of the Group and the Forterra NA Group was required to
discontinue their use of Hanson and related names. On 5 October 2015, the Group announced that it was
rebranding the Groups business under the Forterra name and began using the Forterra name and logo, which
represented a change from the underlying brand under which the Group previously conducted business and sold
many of its products.
The rebranding may impact the Groups future operating results. The Group may lose customers if they do not
respond favourably to the new brand or fail to recognise the new brand as a continuation of the Groups prior
business. This is particularly the case in respect of the Groups customers who acquire the Groups products at
builders merchants and have no direct relationship with the Group. The Directors believe that the Groups
association with the Hanson name and with the HeidelbergCement Group at times provided it with preferred
status among the Groups customers, suppliers, other contracting parties and other persons due to its recognised
brand, perceived high quality products and services and strong capital base and financial strength. The Group
may therefore lose potential new customers who choose not to explore the Groups product offerings since the
Group is no longer branded with the more familiar Hanson name. The rebranding may also affect the Groups
ability to recruit qualified personnel.
The Group also shares the Forterra brand with the Forterra NA Group, a group which is currently wholly
owned by Lone Star and which operates in the United States and Canada. The Group has no control over the
Forterra NA Groups use of the Forterra name and any actions or negative publicity related to that group and/or
its products could also impact the Group.
Any unforeseen costs, lack of success or loss of current or potential new customers related to the Groups
rebranding or any negative actions or publicity by any member of the Forterra NA Group in connection with the
Forterra brand could have a material adverse effect on the Groups business, financial condition, results of
operations and prospects.
A failure to manage the Groups inventory and delays in construction projects could have a material adverse
effect on the Group
The Group maintains an inventory of products and seeks to forecast demand by product so that the levels of
inventory by product are appropriate. However, the Groups forecasts are not always accurate and unexpected
changes in demand for products whether because of a change in preferences or otherwise, can lead to increased
levels of inventory. Due to the relatively short-term nature of the Groups order book with its customers, it is
difficult to forecast demand and, hence, production. If the Group over-forecasts demand for its new or existing
products, this could result in excess inventory and materially and adversely affect the Groups results of
operations. Conversely, if the Group under-forecasts demand or otherwise does not have sufficient stock
available, it may not be able to meet customer requirements in the required timeframe and could lose customer
sales to a competitor.
Additionally, some of the Groups products, particularly those comprising its bespoke products operating
segment, are designed for a specific customer or use and are used in projects which may require a significant
amount of planning and preparation before construction commences, and it is not unusual for construction
projects of this nature to be delayed and rescheduled. Projects can be delayed and rescheduled for a number of
reasons, including unanticipated soil conditions or adverse weather, changes in project priorities, financing
issues, difficulties in complying with environmental and other government regulations or permits and the lead
time required to acquire rights-of-way or other property rights. Delays in construction projects may occur with
29
insufficient notice to allow the Group to replace those projects in the Groups manufacturing schedules or to
adjust the Groups production capacities accordingly, which can lead to cost inefficiencies at the Groups
manufacturing facilities and additional levels of obsolete inventory. Any inability to manage the Groups
inventory or delays in construction projects and in customers orders could have a material adverse effect on the
Groups business, financial condition, results of operations and prospects.
Credit and non-payment risks related to the Groups customers, especially during times of economic
uncertainty and tight credit markets, could have a material adverse effect on the Group
As is customary in the Groups industry, the majority of the Groups sales are to customers on an open credit
basis, with standard payment terms of 28 days following a month-end. The Group generally monitors the ability
of its customers to pay these open credit arrangements and limits the credit it extends to what it believes to be
reasonable based on an evaluation of each customers financial condition and payment history. While the Group
maintains an allowance for doubtful receivables for potential credit losses the Directors believe to be reasonable
based upon the Groups historical trends and other available information, there is a risk that the Groups
estimates may not be accurate, particularly in times of economic uncertainty and tight credit markets.
Furthermore, the Group supplies its bespoke products to subcontractors who generally are creditworthy and have
a good payment history, but do not make payment for such products until they have been paid by the building
contractor and therefore such payment is often delayed or may be unforthcoming. Any inability to collect
customer receivables or inadequate provisioning for bad receivables could have a material adverse effect on the
Groups business, financial condition, results of operations and prospects.
Warranty and related claims could have a material adverse effect on the Group
The Groups position as the UK leader in manufactured masonry products is dependent on the continued
performance of its installed products in the marketplace and it sometimes provides warranties on its products
against defects in materials. Some of the Groups products are used in applications where a product failure or
construction defect could result in significant project delay, property damage, personal injury or death or could
require significant remediation expenses. The Groups quality control procedures or those of its component
suppliers may fail to test for all possible conditions of use of, or to identify all defects in the design, engineering
or specifications of, the Groups products. The Groups products are often incorporated into the fabric of a
building or dwelling, or buried in the ground as part of an infrastructure system. In each case, it is difficult to
access, repair, recall or replace such products. Additionally, because the Groups products, including
discontinued products, are long lasting, claims can arise many years after their manufacturing and sale. Product
failures may also arise due to the quality of the raw materials the Group purchases from third party suppliers or
the quality of the work performed by the contractors installing the Groups products, over which it has little to no
control, but yet may still be held responsible. The supply of defective or inferior products that cause product
failure during use for any reason could cause damage to properties or homes giving rise to potentially extensive
claims for damage, as well as negatively impacting the Groups reputation and the perception of its product
quality and reliability in its principal markets. While the Group has established reserves for warranty claims that
the Directors believe to be adequate, such claims may exceed these reserves and could have a material adverse
effect on the Groups business, financial condition, results of operations and prospects.
Legal and regulatory claims and proceedings could have a material adverse effect on the Group
The Group is subject to claims, litigation and regulatory proceedings in the normal course of business and could
become subject to additional claims in the future, some of which could be material. For example, the Group has
been, and may in the future be, subject to claims for product liability, construction defects, project delay,
personal injury and property and other damages. Claims and proceedings, whether or not they have merit and
regardless of the outcome, are typically expensive and can divert the attention of management and other
personnel for significant periods of time. Additionally, claims and proceedings can impact customer confidence
and the general publics perception of the Group and its products, even if the underlying assertions are proven to
be false. While the Group has established provisions that the Directors believe to be adequate, the outcomes of
litigation and similar disputes are often difficult to reliably predict and may result in decisions or settlements that
are contrary to or in excess of the Groups expectations and losses may exceed the Groups provisions. In
addition, various factors and developments could lead the Group to make changes in current estimates of
liabilities and related insurance receivables or make new or modified estimates as a result of a judicial ruling or
judgement, a settlement, regulatory developments or changes in applicable law. Any claims or proceedings in
which the Group is unsuccessful or for which it did not establish adequate provisions could have a material
adverse effect on the Groups business, financial condition, results of operations and prospects.
30
Insufficient insurance coverage could have a material adverse effect on the Group
The Group maintains property, business interruption, counterparty and liability insurance coverage that the
Directors believe is consistent with industry practice. However, the Groups insurance programme may not cover
every potential risk associated with the Groups business and it may therefore experience accidents or other
events that are not covered in full or at all by insurance. In addition, market conditions or any significant claim or
a number of claims made by or against the Group could cause the Groups premiums and deductibles to increase
substantially and, in some instances, the Groups coverage may be reduced or become unavailable in its entirety.
In the future, the Group may not be able to obtain meaningful coverage at reasonable rates for a variety of risks,
including certain types of environmental hazards and ongoing regulatory compliance. If the Groups insurance
coverage is insufficient, or if it is not able to obtain sufficient coverage in the future, any resulting costs or
liabilities could have a material adverse effect on the Groups business, financial condition, results of operations
and prospects.
Collective bargaining agreements, industrial action and other employment matters could have a material
adverse effect on the Group
As at 31 December 2015, approximately 41% of the Groups employees, located across seven of the Groups
brick manufacturing facilities, were covered by national collective bargaining agreements which are currently in
place with GMB and Unite and are in effect until terminated on six months notice. Employees at three of the
Groups facilities, accounting for approximately 15% of the Groups employees as at 31 December 2015, have
local collective bargaining agreements in place which relate to any negotiations at the individual facility.
Employees at the remaining eight facilities have no such agreements in place. The collective agreements provide
for a broad range of protections for employees of the Group, including enhanced severance packages. Union-
organised work stoppages have occurred at some of the Groups manufacturing facilities in the past and, although
minor, such stoppages (whether minor or otherwise) may occur again in the future. The Directors believe that any
inability to negotiate acceptable new collective bargaining arrangements could cause future strikes or other work
stoppages and any new agreements could result in increased operating costs, affect the Groups production
output, hinder the Groups ability to fulfil customer orders and limit the Groups flexibility in dealing with
relevant operational matters. The Group may also experience cost increases or disruptions at the Groups non-
unionised manufacturing facilities. Any of these factors could have a material adverse effect on the Groups
business, financial condition, results of operations and prospects.
Delays or outages in the Groups information technology systems and computer networks could have a
material adverse effect on the Group
Prior to the Lone Star Acquisition, the Group had been dependent on the HeidelbergCement Group for a number
of corporate and shared services related to corporate functions, including its information technology systems and
services. Following the Lone Star Acquisition, the HeidelbergCement Group continued to provide the Group
with certain of its information technology systems and services under the terms of the Heidelberg TSA (as
further described in paragraph 12.12 of Part 14 (Additional Information) of this Prospectus). The majority of the
Groups information technology systems that were previously provided pursuant to the terms of the Heidelberg
TSA are now provided by a third party service provider. Such systems and services, however, may not be
comparable to those provided under the Heidelberg TSA, may be insufficient for the Groups needs and may
create new issues that the Group does not currently face. In particular, any issue or failure in the new systems or
services may prevent the Group from processing customer orders and/or delivering its products to its customers.
Any of these events could materially affect the Groups business, financial condition, results of operations and
prospects.
The operation of the Groups manufacturing facilities as well as the Groups sales and service activities depend
on the efficient and uninterrupted operation of complex and sophisticated computer, telecommunication and data
processing systems. The Group may be subject to information technology system failures and network
disruptions. These may be caused by delays or disruptions due to system updates, natural disasters, malicious
attacks, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses,
physical or electronic break-ins or similar events or disruptions. An interruption in the operations of computer or
data processing systems could adversely affect the Groups ability to efficiently maintain its production processes
and to ensure adequate controls. Disruptions to or interruptions in operations could lead to production downtime
which, in turn, could result in lost revenue. Any one or more of these risks, if they were to materialise, could
have a material adverse effect on the Groups business, financial condition, results of operations and prospects.
31
The Group may in the future replace and integrate any outdated systems, but these updates may not be
successful, they may create new issues that the Group does not currently face or they may significantly exceed
the Groups cost estimates. In addition, the Group could be subject to reputational harm or liability if confidential
customer information is misappropriated from the Groups information technology systems. Despite the Groups
security measures and business continuity plans, the Groups systems could be vulnerable to disruption, and any
such disruption and the resulting fall-out could have a material adverse effect on the Groups business, financial
condition, results of operations and prospects.
Any inability to protect the Groups intellectual property or claims that the Group infringes the intellectual
property rights of others could have a material adverse effect on the Group
The Group relies on a combination of patents, trademarks, trade names, product certificates, confidentiality and
non-disclosure clauses and agreements to define and protect the Groups rights to the Groups brand and the
intellectual property elements in certain of the Groups products. The Group also relies on product, industry,
manufacturing and market know-how that cannot be registered and may not be subject to any confidentiality
and non-disclosure clauses or agreements. The Group cannot guarantee that any of its know-how or registered or
unregistered intellectual property rights, or claims to such rights, will now or in the future successfully protect
what the Directors consider to be the intellectual property underlying the Groups products, or that the Groups
registered or unregistered rights will not subsequently be successfully opposed or otherwise challenged. To the
extent that the Groups innovations and products are not protected by relevant intellectual property rights, third
parties, including competitors, may be able to commercialise the Groups innovations or products or use the
Groups know-how. Additionally, the Group has, in the past, faced and may, in the future, face claims that it is
infringing the intellectual property rights of others. If any of the Groups products are found to infringe the
patents or other intellectual property rights of others, the Groups manufacture and sale of such products could be
significantly restricted or prohibited and it may be required to pay substantial damages. Any inability to protect
the Groups intellectual property rights and any misappropriation of the intellectual property of others could have
a material adverse effect on the Groups business, financial condition, results of operations and prospects.
The terms of the Groups debt and any requirement to incur further indebtedness or refinance the Groups
indebtedness in the future could have a material adverse effect on the Group
The Groups debt levels, debt service obligations and compliance with the related covenants under the New
Facilities Agreement, which are summarised in paragraph 13.3 of Part 14 (Additional Information) of this
Prospectus, could have important consequences for the Group following Admission, including the following:
the Groups financial and operational flexibility in planning for, or responding to, changes in its business
and industry could be limited;
a substantial portion of the cash flow from the Groups operations may be required to meet payments of
interest on its indebtedness, thereby reducing the funds available for other purposes, such as funding capital
expenditures and other corporate purposes and to generally grow the Groups business, as well as the ability
of the Group to make distributions to Shareholders;
the Groups ability to obtain additional financing in the longer term, including its ability to refinance its
bank borrowings on comparable terms, or at all, could be limited;
in the event of a downturn in revenue, the Groups leverage and interest payment obligations could have a
disproportionately negative effect on its profitability;
the Groups ability to implement its strategy, as further described in paragraph 4 of Part 6 (Business of the
Group) of this Prospectus, which includes investments in the Groups manufacturing facilities to increase
efficiency, other organic growth initiatives and strategic acquisitions, could be limited; and
following completion of the Reorganisation, all of the Groups indebtedness will bear interest at variable
rates and an increase in interest rates will therefore have a negative effect on the Groups profitability and
cash flow.
Any of the foregoing, alone or in combination, could have a material adverse effect on the Groups business,
financial condition, results of operations and prospects.
A breach of, or the inability to comply with, the financial and other covenants in the New Facilities Agreement
could result in an event of default, in which case the lenders will have the right to declare all borrowings to be
immediately due and payable. The restrictions imposed by the terms of the New Facilities Agreement and any
32
breach of the covenants or failure to comply with the terms of the New Facilities Agreement could have a
material adverse effect on the Groups business, financial condition, results of operations and prospects.
If the Group incurs additional indebtedness in connection with the implementation of its strategy, namely, the
investment in its manufacturing facilities, its organic growth initiatives and future strategic acquisitions, the
related risks that it currently faces could intensify. The terms of such additional indebtedness may contain
covenants restricting the Groups financial and operational flexibility to an equal or greater extent as those
imposed by the New Facilities Agreement, including on the operation of the Groups business and the payment
of dividends and other distributions to Shareholders. Additional indebtedness may also include cross-default
provisions such that, if the Group breaches a covenant with respect to any of its indebtedness, or an event of
default occurs, the Groups lenders may be entitled to accelerate all amounts owing in respect of that
indebtedness and in respect of all of the Groups other indebtedness. The terms of any additional indebtedness
and any failure to comply therewith could have a material adverse effect on the Groups business, financial
condition, results of operations and prospects.
In the future, the Group may need to refinance its indebtedness. However, additional financing may not be
available on favourable commercial terms to the Group or at all. If, at such time, market conditions are materially
different or the Groups credit profile has deteriorated, the cost of refinancing such debt may be significantly
higher than the Groups indebtedness existing at that time. Furthermore, the Group may not be able to procure
refinancing at all. Any failure to meet any future debt service obligations through use of cash flow, refinancing or
otherwise, could have a material adverse effect on the Groups business, financial condition, results of operations
and prospects.
Furthermore, the market price of an Ordinary Share may also be negatively affected by activities of securities or
industry analysts. The market price of an Ordinary Share could be negatively affected if analysts do not publish
research or reports about the Groups business, publish inaccurate or unfavourable research about the Groups
business or change their recommendations regarding the Ordinary Shares adversely. The Ordinary Share price
may also decline if the Group fails to meet analysts forecasts.
An active or liquid market for the Ordinary Shares may fail to develop
Prior to Admission, there has been no public market for the Ordinary Shares. The Offer and Admission should
not be taken as implying or otherwise guaranteeing that an active or liquid trading market will develop, or if
33
developed, will be sustained. Additionally, the Offer is being made to institutional and professional investors
only and the Company may not develop a wide shareholder base, further compounding these risks. If an active
trading market is not developed and maintained, the liquidity and trading price of the Ordinary Shares may be
adversely affected.
The Ordinary Share price and trading volume may be highly volatile
Whether or not an active trading market develops or is sustained, the market price of an Ordinary Share and the
trading volume thereof could be subject to significant fluctuations following the Offer. Such risks depend on the
markets perception of or reaction to various facts and events, including, but not limited to, variations in the
Groups operating results and/or prospects, developments regarding the Group or its competitors, market
appraisal of the Groups strategy and regulatory changes. Stock markets have from time to time, and particularly
in recent years, also experienced significant price and volume fluctuations that have affected the market prices of
securities and which may be unrelated to a companys operating performance or prospects. Prospective investors
should be aware that, following Admission, any such volatility could cause the value of an investment in the
Ordinary Shares to decrease abruptly.
Lone Star, through the Selling Shareholder, will retain a significant interest in the Company following
Admission and its interests may differ from, or conflict with, those of the other Shareholders
Immediately following Admission, Lone Star, through the Selling Shareholder, will be beneficially interested in
approximately 65.0% of the Groups issued share capital (assuming no exercise of the Over-allotment Option)
and 59.8% if the Over-allotment Option is exercised in full. While the Selling Shareholder remains a significant
shareholder of the Company it will continue to have the ability, through the votes attaching to its Ordinary
Shares, to affect or influence the Groups legal and capital structure, matters requiring shareholder approval,
including corporate transactions, as well as to elect and change the Companys directors and the Groups
management and to approve other changes to its operations. Furthermore, the interests of the Selling Shareholder
may not necessarily be aligned with those of other Shareholders. The Company has entered into a Relationship
Agreement which will regulate (in part) the degree of control the Selling Shareholder may exercise over the
management of the Group. Under the terms of the Relationship Agreement, the Selling Shareholder is entitled to
appoint up to two members to the Board but has no further rights in relation to the control it may exercise over
the management of the Group. Further details of the Relationship Agreement are set out in Part 7 (Directors,
Senior Managers and Corporate Governance) of this Prospectus. After Admission, if the Selling Shareholder
holds more than 50% of the voting rights in the Company, the Selling Shareholder will be able to increase its
aggregate holding in the Company without triggering the requirement to make a cash offer for the outstanding
shares in the Company.
This concentration of ownership may also have the effect of delaying, deferring or preventing a change in
control, merger, consolidation, takeover or other business combination or discouraging a potential acquirer from
making a tender offer or otherwise attempting to obtain control. Lone Stars ownership may therefore prevent
Shareholders from receiving a premium for their Ordinary Shares or more generally could have an adverse effect
on the trading price of the Ordinary Shares
Lone Star is in the business of making investments in companies and may from time to time acquire and hold
interests in businesses that compete directly or indirectly with the Group. For example, although the Group does
not complete in the same markets as the Forterra NA Group, Lone Star indirectly controls the Forterra NA
Group. Lone Star may also pursue acquisition opportunities on behalf of itself or its affiliates that may be
complementary to the Groups business, and as a result, those acquisition opportunities may not be available to
the Group.
Any of the factors discussed above could have a material adverse effect on the Groups business, financial
condition, results of operations or prospects.
Substantial sales of Ordinary Shares or the perception that such sales might occur, by Lone Star or other
Shareholders, could depress the market price of the Ordinary Shares
Following Admission, except as a result of the exercise of the Over-allotment Option or pursuant to certain other
customary exceptions, the Selling Shareholder and the Directors have agreed that during the period of 180 days
in respect of the Selling Shareholder, and 365 days in respect of the Directors, in each case from the date of
Admission they will not, without the prior written consent of the Joint Global Co-ordinators (such consent not to
be unreasonably withheld or delayed), offer, sell or contract to sell, or otherwise dispose of, directly or indirectly,
or announce an offer of any Ordinary Shares (or any interest therein in respect thereof) or enter into any
34
transaction with the same economic effect as any of the foregoing. The Directors are unable to predict whether,
following the termination of these lock-up restrictions, any of these persons will sell some of, a substantial
amount of, or all of, their respective Ordinary Shares in the open market or in one or more private transactions.
Any sale of substantial amounts of Ordinary Shares in the public market or otherwise by any such person, or the
perception that any such sale may occur, could cause the market price of the Ordinary Shares to decrease. This
uncertainty may make it more difficult for Shareholders to sell Ordinary Shares at a time and price that they
deem appropriate, and could also impede the Groups ability to issue equity securities in the future.
The Groups ability to raise capital in the future may be limited and any future issuances of Ordinary Shares
or other securities may dilute the holdings of Shareholders and may depress the price of the Ordinary Shares
Following Admission, the Company has agreed to refrain from issuing any new Ordinary Shares for a period of
180 days from the date of Admission. However, upon the expiry of the lock-up restrictions, the Group may need
to raise additional funds through the issuance of new equity securities, debt or a combination of both.
Additional financing may not be available on favourable terms to the Group, or at all. If the Company issues new
debt securities, the debt holders would have rights senior to those of Shareholders to make claims on the Groups
assets, and the terms of any debt could restrict the Groups operations, including the Groups ability to pay
dividends on the Ordinary Shares. If the Company issues additional equity securities, existing Shareholders will
experience dilution, and the new equity securities could have rights senior to those of the Ordinary Shares.
Shareholders will also experience dilution as a result of the equity the Company issues to management and
employees under the Groups employee share plans (as further described in paragraph 7 of Part 14 (Additional
Information) of this Prospectus).
The Company has no current plans for an offering of new Ordinary Shares. Any decision by the Company to
issue securities in any future offering will depend on market conditions and other factors beyond the Companys
control, and it cannot predict or estimate the amount, timing or nature of any future offerings and whether any
such offering would dilute the holdings of existing Shareholders. Shareholders therefore bear the risk of the
Groups future securities offerings adversely affecting the market price of the Ordinary Shares and diluting their
interest.
There is no guarantee that the Company will pay dividends in the future
Under English law, a company can only pay cash dividends to the extent that it has distributable reserves and
cash available for this purpose. As a holding company, the Companys ability to pay dividends (including any
special dividends) in the future is affected by a number of factors, principally the generation of distributable
profits by the Groups operating subsidiaries. The payment to the Company by the Groups subsidiaries is in turn
subject to restrictions, including certain regulatory requirements, the existence of sufficient distributable reserves
and cash in the Groups subsidiaries and other restrictions, including, but not limited to, applicable tax laws and
covenants in the New Facilities Agreement. Any change in the tax treatment of dividends or interest received by
any member of the Group, or any other inability on the part of the Groups subsidiaries to make payments to the
Company, may reduce the amounts available for dividends to the Company and, ultimately, to Shareholders. In
addition, the Company may not pay dividends if the Directors believe this would cause the Company to be
inadequately capitalised or if, for any other reason, the Directors conclude it would not be in the best interests of
the Company. Any dividend growth in the Ordinary Shares will depend on underlying growth in the Groups
business and, in particular, the dividend policy mentioned in paragraph 18 of Part 6 (Business of the Group) of
this Prospectus should not be construed as a dividend forecast.
35
Changes in taxation legislation or the interpretation of tax legislation could affect the Groups ability to
provide returns to Shareholders
Any change in taxation legislation or the interpretation of taxation legislation could affect the Groups ability to
provide returns to Shareholders. Statements in this Prospectus concerning the taxation of investors in the
Ordinary Shares are based on current tax law and practice in the United Kingdom and the United States, which
are subject to change. The taxation of an investment in the Company depends on the individual circumstances of
the relevant investor.
Shareholders may have difficulty in effecting service of process on the Group or the Directors in the United
States, in enforcing US judgements in the United Kingdom or in enforcing US securities laws in UK courts
The Company and each other member of the Group are incorporated outside the United States and the Groups
assets are located outside the United States. As a result, it may not be possible for Shareholders to effect service
of process within the United States upon such persons or the Company, or to obtain discovery of relevant
documents and/or the testimony of witnesses. Shareholders based in the United States may also have difficulty
enforcing in courts outside the United States judgements obtained in US courts against the Directors or the
Company (including actions under the civil liability provisions of the US securities laws). Shareholders may also
have difficulty enforcing liabilities under the US securities laws in legal actions originally brought in
jurisdictions located outside the United States.
Shareholders outside the United Kingdom may not be able to participate in future equity offerings
The 2006 Act provides for pre-emptive rights to be granted to Shareholders on future equity offerings, unless
such rights are disapplied by a shareholder resolution. However, securities laws of certain jurisdictions outside
the United Kingdom may restrict the Groups ability to allow participation in future equity offerings by
Shareholders located in such jurisdictions. In particular, Shareholders in the United States may not be entitled to
exercise their pre-emption rights unless such an offering is registered under the US Securities Act or made
pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US
Securities Act. The holdings of Shareholders located outside the United Kingdom who are not able to participate
in any future equity offerings could be diluted by any such offerings.
An investment in the Ordinary Shares by a holder whose home currency is not pounds sterling entails
significant risks
The Ordinary Shares are denominated in pounds sterling and all payments of dividends or other distributions
with respect to the Ordinary Shares will be made in pounds sterling. An investment in the Ordinary Shares by a
prospective investor whose home currency is not pounds sterling entails a risk of significant changes in rates of
exchange between the Shareholders home currency and pounds sterling. In the past, rates of exchange between
pounds sterling and certain currencies have been volatile, and each prospective investor should be aware that
volatility may occur in the future. Fluctuations in any particular exchange rate that have occurred in the past,
however, are not necessarily indicative of fluctuations in the rate that may occur in the future. Please refer to the
paragraph entitled US Federal Income Taxation of paragraph 15 of Part 14 (Additional Information) of this
Prospectus for certain US federal income tax consequences of the purchase, ownership and disposition of
Ordinary Shares being denominated in pounds sterling.
36
PART 2
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
General
Prospective investors should only rely on the information in this Prospectus (and any supplementary prospectus
required to be published by the Company pursuant to section 87G of FSMA and Rule 3.4 of the Prospectus
Rules). No person has been authorised to give any information or to make any representation in connection with
the Offer, other than those contained in this Prospectus and, if given or made, such information or representations
must not be relied upon as having been authorised by or on behalf of the Company, the Directors, the Selling
Shareholder or the Banks. No representation or warranty, express or implied, is made by any of the Selling
Shareholder, the Banks or any selling agent as to the accuracy or completeness of such information, and nothing
contained in this Prospectus is, or shall be relied upon as, a promise or representation by the Selling Shareholder,
any of the Banks or any selling agent as to the past, present or future. Without prejudice to any obligation of the
Company to publish a supplementary prospectus pursuant to section 87G of FSMA and Rule 3.4 of the
Prospectus Rules, neither the delivery of this Prospectus nor any sale of Ordinary Shares pursuant to the Offer
shall, under any circumstances, create any implication that there has been no change in the business or affairs of
the Company and the Group since the date of this Prospectus or that the information contained herein is correct
as of any time subsequent to its date.
The Company will update the information provided in this Prospectus by means of a supplement hereto if a
significant new factor that may affect the evaluation by prospective investors of the Offer occurs after the
publication of this Prospectus or if this Prospectus contains any substantial mistake or inaccuracy. This
Prospectus and any supplement thereto will be subject to approval by the FCA and will be made public in
accordance with the Prospectus Rules. If a supplement to this Prospectus is published prior to Admission,
investors shall have the right to withdraw their applications for Ordinary Shares made prior to the publication of
the supplement. Such withdrawal must be made within the time limits and in the manner set out in any such
supplement (which shall not be shorter than two clear Business Days after publication of the supplement).
The content of this Prospectus is not to be construed as legal, business or tax advice. Each prospective investor
should consult its, his or her own lawyer, financial adviser or tax adviser for legal, financial or tax advice in
relation to the purchase or proposed purchase of Ordinary Shares. Each prospective investor should consult with
such advisers as needed to make its, his or her investment decision and to determine whether it, he or she is
legally permitted to hold Ordinary Shares under applicable legal, investment or similar laws or regulations. In
making an investment decision, each prospective investor must rely on its, his or her own examination, analysis
and enquiry of the Group, the terms of the Offer and the terms of this Prospectus (and any supplementary
prospectus required to be published by the Company pursuant to section 87G of FSMA and Rule 3.4 of the
Prospectus Rules), including the merits and risks involved. Investors should be aware that they may be required
to bear the financial risks of this investment for an indefinite period of time. Any decision to purchase Ordinary
Shares should be based solely on this Prospectus (and any supplementary prospectus required to be published by
the Company pursuant to section 87G of FSMA and Rule 3.4 of the Prospectus Rules).
This Prospectus is not intended to provide the basis of any credit or other evaluation and should not be
considered as a recommendation by any of the Company, the Directors, the Selling Shareholder, any of the
Banks or any of their representatives that any recipient of this Prospectus should purchase Ordinary Shares.
Prior to making any decision as to whether to purchase Ordinary Shares, prospective investors should read this
Prospectus (and any supplementary prospectus required to be published by the Company pursuant to section 87G
of FSMA and Rule 3.4 of the Prospectus Rules) in its entirety and carefully and not just rely on key information
or information summarised within it.
Investors who purchase Ordinary Shares in the Offer will be deemed to have acknowledged that: (i) they have
not relied on any of the Selling Shareholder, the Banks or any person affiliated with any of them in connection
with any investigation of the accuracy of any information contained in this Prospectus or their investment
decision; and (ii) they have relied on the information contained in this Prospectus, and no person has been
authorised to give any information or to make any representation concerning the Group or the Ordinary Shares
(other than as contained in this Prospectus) and, if given or made, any such other information or representation
should not be relied upon as having been authorised by the Company, the Directors, the Selling Shareholder, any
of the Banks or their respective representatives.
37
None of the Company, the Directors, the Selling Shareholder, any of the Banks or any of their representatives is
making any representation to any offeree or purchaser of the Ordinary Shares regarding the legality of an
investment by such offeree or purchaser.
In connection with the Offer, the Banks and any of their respective affiliates, acting as investors for their own
accounts, may acquire Ordinary Shares and in that capacity may retain, purchase, sell, offer to sell or otherwise
deal for their own accounts in such Ordinary Shares and other securities of the Company or related investments
in connection with the Offer or otherwise. Accordingly, references in this Prospectus to Ordinary Shares being
offered, acquired, placed or otherwise dealt in should be read as including any offer, acquisition, dealing or
placing by the Banks and any of their affiliates acting as investors for their own accounts. None of the Banks
intend to disclose the extent of any such investment or transaction otherwise than in accordance with any legal or
regulatory obligation to do so.
The Banks are acting exclusively for the Company and no one else in connection with the Offer. They will not
regard any other person (whether or not a recipient of this Prospectus) as their respective customers in relation to
the Offer and will not be responsible to anyone other than the Company for providing the protections afforded to
their respective customers or for giving advice in relation to the Offer or any transaction or arrangement referred
to herein.
In connection with the Offer, the Stabilising Manager may, for stabilisation purposes, over-allot Ordinary Shares
up to a maximum of 15% of the total number of Ordinary Shares comprised in the Offer. For the purposes of
allowing the Stabilising Manager to cover short positions resulting from any such over-allotments and/or from
sales of Ordinary Shares effected by it during the Stabilising Period, it is expected that the Selling Shareholder
will grant the Stabilising Manager the Over-allotment Option, pursuant to which the Stabilising Manager may
purchase or procure purchasers for additional Ordinary Shares up to a maximum of 15% of the total number of
Ordinary Shares comprised in the Offer (the Over-allotment Shares) at the Offer Price. The Over-allotment
Option will be exercisable in whole or in part, upon notice by the Stabilising Manager, at any time on or before
the 30th calendar day after the commencement of conditional dealings of the Ordinary Shares on the London
Stock Exchange. Any Over-allotment Shares made available pursuant to the Over-allotment Option will rank
pari passu in all respects with the Ordinary Shares, including for all dividends and other distributions declared,
made or paid on the Ordinary Shares, will be purchased on the same terms and conditions as the Ordinary Shares
being issued or sold in the Offer and will form a single class for all purposes with the other Ordinary Shares.
International Financial Reporting Standards (IFRS) do not provide for the preparation of combined
information and, accordingly, in preparing the combined and consolidated financial information certain
accounting conventions commonly used for the preparation of historical financial information for inclusion in
investment circulars, as described in the Annexure to SIR 2000 (Investment Reporting Standard applicable to
38
public reporting engagements on historical financial information) issued by the UK Auditing Practices Board,
have been applied. The application of these conventions results in a material departure from IFRS. In other
respects IFRS has been applied.
Forterra Building Products was incorporated on 26 March 2014 by the HeidelbergCement Group and had no
trading activities until it acquired the entire issued share capital of Structherm and the trade and assets relating to
the Groups bricks and blocks and bespoke product businesses between 20 August 2014 and 1 September 2014,
in each case from other members of the HeidelbergCement Group. As a result, the historical financial
information of the Group, being Forterra Building Products and Structherm prior to the Reorganisation for the
years ended 31 December 2013, 31 December 2014 and 31 December 2015 has been prepared on a combined
and consolidated basis. For the period from 1 January 2013 to 1 September 2014, the financial information of the
Group has been prepared on a basis that combines the results, assets and liabilities of all entities within the
Group. For the period from 1 September 2014 to 31 December 2015, the historical financial information of the
Group has been prepared on a consolidated basis. Prior to 1 September 2014, the Group had not constituted a
separate legal group.
Forterra Building Products was acquired by the Selling Shareholder on 13 March 2015.
The Company was incorporated on 21 January 2016 in order to acquire 100% of the issued share capital of
Forterra Building Products and became the holding company of the Group immediately prior to Admission
pursuant to the terms of the Reorganisation (as further described in paragraph 3 of Part 14 (Additional
Information) of this Prospectus). As a result, there is no historical financial information relating to the Company.
The financial information included in Section B of Part 11 (Historical Financial Information) of this Prospectus
relates to Forterra Building Products and its subsidiary undertakings (being the Group prior to the
Reorganisation). Please refer to paragraph 3 of Part 14 (Additional Information) of this Prospectus for details of
the Reorganisation.
Set out in Section A of Part 12 (Unaudited Pro Forma Financial Information) of this Prospectus is an unaudited
pro forma statement of net assets of the Group as at 31 December 2015 which has been prepared to illustrate the
impact of the Offer and the Reorganisation on the net assets of the Group, had these taken place as at
31 December 2015. The unaudited pro forma statement of net assets is compiled from the combined and
consolidated balance sheet of the Group as at 31 December 2015 as set out in Section B of Part 11 (Historical
Financial Information). There is no financial information for the Company, which was incorporated on
21 January 2016; accordingly, the Company is excluded from the unaudited pro forma statement of net assets.
Financial information
The financial information included in Section B of Part 11 (Historical Financial Information) of this Prospectus
is covered by the accountants report included in Section A of that part, which was prepared in accordance with
the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom.
39
Currency presentations
Unless otherwise indicated, all references in this Prospectus to sterling, pounds sterling, GBP, or
pence are to the lawful currency of the United Kingdom. The Company prepares its financial statements in
pounds sterling.
Roundings
Certain data in this Prospectus, including financial, statistical, and operating information has been rounded. As a
result of the rounding, the totals of data presented in this Prospectus may vary slightly from the actual arithmetic
totals of such data. Percentages in tables have been rounded and accordingly may not add up to 100%.
In particular, the Directors estimates of the Groups approximate share and position within the brick, aircrete
block and aggregate block markets in Great Britain or the South East and East of England (as applicable) have
been calculated as follows:
Bricks: the Groups market share and market position in Great Britain are based on the Groups existing brick
production capacity compared to the Directors estimates of brick production capacity of the Groups key
competitors in Great Britain in 2015, being Ibstock, Michelmersh and Wienerberger. The calculation does not
account for other smaller competitors of the Group in Great Britain, which the Directors believe have a
significantly smaller production capacity. The Groups brick production capacity includes manufacturing of the
Groups Fletton bricks, extruded bricks (which include the Groups special shaped bricks) and soft mud bricks.
Ibstocks, Michelmershs and Wienerbergers brick production capacity in Great Britain includes the
manufacture of each companys extruded bricks (including special shaped bricks) and soft mud bricks.
Aircrete blocks: the Groups market share and market position in Great Britain are based on estimates of annual
production capacity of the Group and its key aircrete block competitors in Great Britain in 2015, being H+H,
Tarmac and Thomas Armstrong, prepared by BDS Marketing Research Ltd. The calculation does not account for
other smaller competitors of the Group in Great Britain, which the Directors believe have a significantly smaller
production capacity.
Aggregate blocks: the Groups market share and market position in the South East and East of England are
based on estimates of annual production capacity of the Group and its key aggregate block competitors in the
South East and East of England in 2015, being CEMEX, Lignacite and Tarmac, prepared by BDS Marketing
Research Ltd. The calculation does not account for other smaller competitors of the Group in the South East and
East of England, which the Directors believe have a significantly smaller production capacity.
The Groups products are supplied primarily to homebuilders, builders merchants, specialised brick merchants,
contractors and subcontractors. Certain of the Groups products are then sold by the Groups customers, such as
builders merchants and specialised brick merchants, to their customers. The Group is therefore unable to
calculate with certainty its exposure to its end markets. In this Prospectus, any reference to end markets in
which the Group operates is based on the Directors estimates of the end market in which its products are
supplied. These estimates are calculated based on the Directors knowledge and understanding of the industry in
which the Group operates, as well as industry publications, market research and other publicly available
information referred to above.
Industry publications and market research generally state that the information they contain has been obtained
from sources believed to be reliable but that the accuracy and completeness of such information is not guaranteed
and that the projections they contain are based on a number of significant assumptions.
40
In some cases there is no readily available external information (whether from trade and business organisations
and associations, government bodies or other organisations) to validate market related analyses and estimates,
requiring the Group to rely on internally developed estimates.
Although the Directors believe that the Groups internal estimates are reasonable, such estimates have not been
verified by any independent third parties and the Group cannot assure investors that a third party using different
methods to assemble, analyse or compute market data would obtain the same results. The Group does not intend,
and does not assume any obligation, to update industry or market data set forth in this Prospectus, except as
required by applicable law. Because market behaviour, preferences and trends are subject to change, prospective
investors should be aware that market and industry information in this Prospectus and estimates based on any
data therein may not be reliable indicators of future market performance or the Groups future results of
operations.
The Directors confirm that all such data contained in this Prospectus has been accurately reproduced and, so far
as the Company is aware and able to ascertain, no facts have been omitted that would render the reproduced
information inaccurate or misleading.
Where third party information has been used in this Prospectus, the source of such information has been
identified except as described below.
Brick: average annual brick production capacity of the Group and each of its key competitors, namely Ibstock,
Wienerberger and Michelmersh, is calculated as total annual brick production capacity of the relevant company
in Great Britain divided by the total number of brick manufacturing facilities of the relevant company in Great
Britain and is based on the Directors estimates of brick production capacities as set out above.
Aircrete blocks: average annual aircrete block production capacity of the Group and its key competitors, namely
H+H and Tarmac, is calculated as total annual aircrete block production capacity of the relevant company in
Great Britain (which is based on estimates prepared by BDS Marketing Research Ltd) divided by the total
number of aircrete block manufacturing facilities of the relevant company in Great Britain.
Aggregate blocks: average annual aggregate block production capacity of the Group and its key competitors in
the South East and East of England, namely Lignacite, Tarmac and CEMEX, is calculated as total annual
aggregate block production capacity of the relevant company in the South East and East of England (which is
based on estimates prepared by BDS Marketing Research Ltd) divided by the total number of aggregate block
manufacturing facilities of the relevant company in the South East and East of England.
Presentation of market shares, market positions, production capacities and utilisation rates
Any reference in this Prospectus to market share, market position, production capacity (past, present and
estimated future capacity) and utilisation rates of the Group and its competitors are provided on an approximate
basis. Any information that has been prepared based on such approximate data, such as percentages increases or
decreases, is therefore by its nature provided on an approximate basis.
41
Definitions and glossary
Certain terms used in this Prospectus, including all capitalised terms and certain technical and other items, are
defined and explained in Part 15 (Definitions and Glossary) of this Prospectus.
These forward-looking statements and other statements contained in this Prospectus regarding matters that are
not historical facts involve predictions. No assurance can be given that such future results will be achieved.
Actual events or results may differ materially as a result of risks and uncertainties facing the Group. Such risks
and uncertainties could cause actual results to vary materially from the future results indicated, expressed, or
implied in such forward-looking statements. Such forward-looking statements contained in this Prospectus speak
only as of the date of this Prospectus. The Company, the Directors, the Selling Shareholder and the Banks
expressly disclaim any obligation or undertaking to update these forward-looking statements contained in this
Prospectus to reflect any change in their expectations or any change in events, conditions, or circumstances on
which such statements are based unless required to do so by applicable law, the Prospectus Rules, the Listing
Rules, or the Disclosure and Transparency Rules.
42
PART 3
DIRECTORS, SECRETARY, REGISTERED AND HEAD OFFICE AND ADVISERS
Directors Paul Lester (Chairman and Independent Non-Executive
Director)
43
PART 4
EXPECTED TIMETABLE OF PRINCIPAL EVENTS AND OFFER STATISTICS
It should be noted that, if Admission does not occur, all conditional dealings will be of no effect and any
such dealings will be at the sole risk of the parties concerned. Temporary documents of title will not be
issued.
All times are London times. Each of the times and dates in the above timetable is subject to change without
further notice.
Offer statistics
44
PART 5
INDUSTRY OVERVIEW
1. OVERVIEW
Bricks, blocks and certain of the Groups bespoke products are core components to house building and other
construction activities. The Group sells its products under three operating segments: bricks, blocks and bespoke
products. The Group manufactures Fletton bricks, soft mud bricks and extruded bricks, aircrete blocks and
aggregate blocks. The Groups bespoke products segment manufactures and sells various other building products,
including precast concrete, concrete block paving, chimney and roofing solutions and structural external wall
insulation.
Chart 1: Great Britain market breakdown by end market Chart 2: Great Britain market breakdown by end use
Repair and
maintenance
Non- 36%
residential Residential
60% 40%
New works
64%
Source: CPA Report (Winter 2015) Source: CPA Report (Winter 2015)
The Directors estimate that in 2015 residential new build construction activities in the United Kingdom,
residential RMI activities in the United Kingdom and commercial construction activities in the United Kingdom
accounted for approximately 55%, 40% and 5%, respectively, of the Groups revenue.
The Group operates within the general UK building products market, which consists of a wide variety of
products used in construction activities. Products in this market include bricks, blocks, dry wall, prefabricated
concrete elements, roofing materials, timber frame and in-situ concrete. The UK building products market can be
further divided into a number of smaller market segments. Given that 75.1% of the Groups 2015 revenue was
generated by sales of the Groups bricks and blocks (before intersegment eliminations), the manufactured
masonry market, which is discussed in greater detail in paragraph 2 of this Part 5 (Industry Overview) of this
Prospectus, is the most relevant market segment for the Group. The Groups bespoke products are sold in a
number of smaller, discrete markets, as discussed in paragraph 2 of this Part 5 (Industry Overview) of this
Prospectus, and generated 25.4% of the Groups revenue in 2015 (before intersegment eliminations). Further
details of the Groups range of products are set out in paragraph 5 of Part 6 (Business of the Group) of this
Prospectus.
The Directors believe that the Group is the second largest producer of clay bricks and the second largest
manufacturer of aircrete blocks in Great Britain, and the leading manufacturer of aggregate blocks in the South
East and East of England. The Directors also believe that the Group has the broadest range of manufactured
masonry products on offer in the United Kingdom.
45
Within the UK building products market, the financial crisis gave rise to a significant decrease in UK
construction output which resulted in reduced demand for bricks. As a result, UK brick manufacturers, including
the Group, re-examined their capacities and cost structures, leading to the sale, closure or mothballing of many
older and inefficient facilities. To supply market demand, many UK brick manufacturers shifted to selling
products from stock, thereby reducing inventory levels. As the housing market recovered following the economic
downturn and as larger housebuilders shifted the housing mix of new build construction back towards single-
family dwellings, demand for bricks increased and manufacturers began to bring mothballed capacity back
online. The Directors estimate that industry brick production levels in Great Britain have been increasing year on
year since 2012.
At the same time, as the UK economy recovered from the economic downturn and demand for housing in Great
Britain increased, the rate of household formation was increasing at rates well above the level of increase in
housing completions, compounding the structural undersupply of homes in Great Britain. The UK Government
has also taken a number of steps to make home ownership more attainable, as further described in paragraph 4 of
this Part 5 (Industry Overview) of this Prospectus. These trends have further increased the demand for new
homes, and therefore, building products. However, even as UK manufacturers brought most of their mothballed
capacity back online and were operating closer to utilisation levels seen before the financial crisis, there
remained a structural imbalance between supply and demand for building products in the United Kingdom,
particularly in the market for bricks.
Given the structural imbalance between supply and demand, in the context of a recovering housing market, UK
housebuilders were concerned about the potential for a short-term undersupply of bricks. In order to ensure
availability of brick supplies, some housebuilders chose to build up inventories by sourcing more bricks from
imports from continental Europe. While imported bricks have historically represented approximately 5% to 7%
of total brick deliveries in Great Britain, demand has increased since the first half of 2014. While import levels
generally remained at a high level through 2015, the level of imports normalised towards the second half of 2015.
Overall, the Directors believe that high import levels are not sustainable due to the higher cost of imported bricks
and the increasing availability of domestic bricks as UK brick manufacturers have increased brick production and
brick inventories.
These market conditions in the United Kingdom, as well as the housing and commercial construction markets
more generally, are discussed in greater detail in paragraphs 4 and 5, respectively, of this Part 5 (Industry
Overview) of this Prospectus.
UK brick market
The market for bricks in the United Kingdom is, in part, regional, given the local attributes of different varieties
of clay and high transport costs. The Directors estimate that the brick industry in Great Britain currently produces
approximately 1.8 billion bricks per annum, while the industry has a maximum production capacity of up to
46
approximately 2 billion bricks per annum, implying an industry capacity utilisation of approximately 90%. The
brick market in Great Britain is highly consolidated, with the four largest players, namely Ibstock, the Group,
Wienerberger and Michelmersh, sharing production capacity estimated at 1.9 billion bricks per annum in 2015,
or 95% of Great Britains brick production capacity. Smaller-sized producers constitute the bulk of the remaining
share of production capacity.
There are significant barriers for any new market participant wishing to enter the UK brick market. Production
capacity at manufacturing facilities is not easily scalable over a short period of time. Where mineral reserves are
needed, gaining access to such reserves in the right geographic locations can be difficult. Additionally, once
rights to reserves are acquired, the Directors estimate that upon acquiring a greenfield site with sufficient quality
mineral reserves, a new entrant would require between four to seven years to secure the necessary planning and
environmental permits and two to three further years to build an operational brick facility. Also, the nature of the
business requires a significant amount of upfront capital investment to build the necessary manufacturing
facilities, and often with no net financial returns in the first few years of operation. To establish a large state-of-
the-art new brick facility, the Directors estimate that it would cost between 50 million and 100 million. The
business of selling brick products also involves a reasonably complex industrial supply chain that relies on
sophisticated manufacturing technology, specific technical know-how, availability of raw materials, an efficient
distribution network and sales relationships with housebuilders and distributors.
Due to their affordability, aesthetics, long life and sustainability features, as well as requiring little to no
maintenance during their life, clay bricks are often used as a primary building material for residential buildings.
Within the brick industry in Great Britain, the Directors estimate that 63% of domestic bricks delivered are
extruded bricks. The Directors estimate that soft mud bricks, while more popular in the South of England,
account for 30% of total domestic bricks delivered in Great Britain. The Directors estimate that the remaining 7%
of domestic bricks delivered in Great Britain are Fletton bricks, which are manufactured solely by the Group.
Fletton
7%
Soft mud
30%
Extruded
63%
Different housing types require different quantities of bricks, with single-family housing usually requiring two to
three times more bricks per unit than multi-family housing. The Directors estimate that bricks comprise
approximately 72% of materials used in the faade for residential construction in the United Kingdom.
Therefore, the supply of, and demand for, clay bricks largely mirrors the housing cycle and, to a lesser extent,
shifts as the concentration of residential constructions shifts between single-family and multi-family housing.
Due to these two factors, as illustrated in chart 4 below (which incorporates annual data for the period from 2000
to 2014), brick demand closely correlates with single-family housing completions.
3,500
GB annual domestic brick
3,000
deliveries (000s)
R = 0.9449
2,500
2,000
1,500
1,000
70 80 90 100 110 120 130 140
UK annual single-family housing completions (000s)
47
The Directors estimate that approximately 2.6 billion bricks were delivered annually in Great Britain before the
financial crisis, approximately 200 million of which were imports, with the remainder being sourced from within
Great Britain. However, as demonstrated by chart 5 below, the number of brick deliveries in Great Britain
decreased in the years following the financial crisis.
2,600
Brick deliveries
(million units)
2,200
1,800
1,400
1,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
The Directors believe that a longer term shift in the focus of construction activity towards the building of
apartments and maisonettes as opposed to new houses impacted the level of brick deliveries in Great Britain. In
2001, in an effort to accommodate a growing population and increase household formations, as discussed in
greater detail in paragraph 4 of this Part 5 (Industry Overview) of this Prospectus, the UK Government published
the Planning Policy Guidance 3 (PPG3) which favoured apartments and maisonettes over houses. As
illustrated by chart 6 below, the residential construction industry took PPG3 seriously and, according to the
National House Building Council, the percentage of non-apartment housing in the United Kingdom dropped from
75% in 2001 to 51% in 2008.
100%
25% 31%
80%
49%
17%
60% 17%
15%
40% 4% 20% 23%
2%
14%
20% 39%
2% 27%
15%
0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Non-flat 75% 70% 65% 59% 56% 54% 55% 51% 61% 63% 61% 68% 66% 67% 69%
housing %
Detached houses Bungalows Semi-detached houses Terraced houses Flats and maisonettes
Demand for bricks in the United Kingdom was further reduced during the economic downturn as construction
activity slowed, as discussed in greater detail in paragraph 4 of this Part 5 (Industry Overview) of this Prospectus.
According to the Department for Business, Innovation and Skills, brick deliveries in 2009 dropped by
approximately 40%, compared to deliveries before the financial crisis.
Since 2009, as a result of softened demand for bricks in Great Britain, the major UK brick manufacturers,
including the Group, adopted a disciplined approach to addressing decreasing demand. The Directors believe that
the industry overall was operating less efficiently before the financial crisis. As the substantial impact of the
financial crisis hit, in order to maintain a profitable and efficient operation, each manufacturer reassessed its
high-cost asset base and subsequently sold, closed or mothballed its inefficient and less profitable brick
manufacturing facilities. The Directors estimate that brick production capacity in Great Britain that was closed or
48
mothballed accounted for approximately 20% and 10%, respectively, of total brick production capacity in Great
Britain before the financial crisis. The Group had a particular focus during this period on streamlining its
manufacturing operations to increase efficiency and reduce costs. For instance, the Group consolidated three
aged, inefficient clay brick facilities into a new, fully automated, brick manufacturing facility at Measham (as
further described in Part 6 (Business of the Group) of this Prospectus). The Directors estimate that these capacity
rationalisation efforts have significantly decreased annual brick production capacity in Great Britain to
approximately 2.0 billion, compared to approximately 2.6 billion brick production capacity prior to the financial
crisis. With a streamlined asset base, UK manufacturers supported the market demand by utilising their existing
inventories. According to statistics from the Department of Business, Innovation and Skills, brick inventory
levels in Great Britain dropped from a peak of 1.1 billion in 2008 to 600 million in 2015. At the same time, the
Directors believe that UK brick manufacturers had also shifted their stocking strategy by reducing inventory
levels relative to sales from their peak of nine months stock during the early part of the financial crisis to current
levels of four months stock.
1,200
1,000
Brick inventories
(million units)
800
600
400
200
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
During the period from 2009 to 2014, the UK brick market benefited from the reversion of housing mix back
towards historical norms, as reflected in chart 6 above. The UK Government published Planning Policy
Statement 3 in 2011 updating PPG3, promoting a mix of different housing types. Thereafter, the trend of building
more multi-family dwellings than houses reversed, with the percentage of non-apartment construction increasing
from its 2008 level of 51% to 69% in 2015 according to the National House Building Council. At the same time,
UK brick manufacturers also rebuilt strategic inventories during late 2015 as previous stocks were too low to
maintain customer service levels.
As a result of this increased brick demand in the United Kingdom, the Directors believe that UK brick
manufacturers have brought most of their mothballed capacity back online, while at the same time increasing
production volumes, which the Directors estimate provided an industry capacity utilisation of 90% in 2015.
Despite UK brick manufacturers higher production levels and reopening most of their mothballed production
capacity, the Directors believe that many UK housebuilders feared that the supply of UK manufactured bricks
may not fulfil potential demand as the UK housing market rebounds. As a result of this perception, UK
housebuilders turned to imports in 2014 and early 2015, mainly from Belgium, the Netherlands and Germany,
and chose to pay a premium price for the security of brick supply. Over the last 10 years, importers have supplied
on average between 100 million to 150 million bricks per annum, or 5% to 7% of total brick deliveries in Great
Britain per annum, as illustrated by chart 8 below.
Chart 8: Total brick deliveries (domestic deliveries and imports) vs. imports in Great Britain
3,000 20%
Total brick deliveries
Import % of total
(million units)
2,500
15%
2,000
1,500 10%
1,000
5%
500
0 0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
49
Due to additional demand from UK housebuilders, the level of brick imports into Great Britain increased to 8%
in 2013 and 16% in 2014. Import volumes in 2014 reached over 330 million bricks. As a result of this increase,
many of the Groups customers purchased more bricks than their underlying demand, leading to substantial
stockpiling among many UK housebuilders.
While imported bricks played an effective role in mitigating the temporary shortage of bricks produced in the
United Kingdom, they are generally more expensive due to the higher transportation costs. Further, given
Benelux is the largest brick importer into the United Kingdom, the anticipated recovery in the housing market in
the Netherlands is expected to shift the focus of brick manufacturers in those countries back to meeting local
supply needs rather than incurring the added cost of exporting bricks to the United Kingdom.
Following the surge in imports starting in 2014, the Directors believe brick inventory levels at many UK
housebuilders were significantly higher. As a result, many UK housebuilders decided to strategically destock the
previously purchased imported bricks. Therefore, total domestic brick deliveries in Great Britain in 2015
declined, as illustrated in chart 8 above, to a level of approximately 1.7 billion.
While brick import levels in Great Britain remained high in 2015 at approximately 285 million bricks, or 14% of
total brick deliveries, the Directors believe such continued trend is only due to legacy contractual commitments
with importers. In fact, on quarterly trends, brick import levels were already in decline quarter over quarter
starting in the first quarter of 2015. The Directors expect that brick import volumes will normalise in the short-
term and stay at levels of approximately 8% to 10% of annual brick deliveries in Great Britain.
Given the anticipated lower level of brick imports into Great Britain and the continued growth in the housing
market in the United Kingdom, the Directors expect a growth in brick demand over the next few years.
Furthermore, given the potential for further growth in the housing market, the demand for bricks in the United
Kingdom may increase further, having already returned to a 90% capacity utilisation rate. The Directors estimate
that potential UK market demand for bricks may reach approximately 2.4 billion bricks per annum in the
medium-term, creating an annual supply-demand gap of approximately 400 million bricks, based on existing
market capacity in Great Britain. In order to address a shortfall in brick supply, as further described in Part 6
(Business of the Group) of this Prospectus, by making improvements to its facilities at Claughton, Desford and
Accrington, the Directors estimate that the Group can increase its annual production capacity in the short-term by
25 million bricks. Additionally, the Directors estimate that the Group has the option further to increase its annual
brick production capacity in the medium- to long-term by 145 million bricks, with the development of its sites at
Swillington and Clockhouse. Ibstock announced in October 2015 that it expected to increase its annual UK
production capacity by approximately 100 million bricks with its new facility in Leicestershire, which is
expected to begin production in 2017 to 2018.
Brick prices remained relatively stable during the economic downturn, which the Directors believe was primarily
due to the UK industrys capacity rationalisation efforts during this period. As illustrated in chart 9 below,
average brick prices remained relatively constant between 2008 and 2013, and increased meaningfully in 2014
and 2015.
20%
16.4% 15.9%
15%
YoY price inflation
10%
6.0% 6.7%
5.7%
5% 3.8%
2.0% 1.4%
0.3%
0%
(0.6)%
(5)% (3.3)%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
50
Since the financial crisis, brick prices have generally increased and shown more resilience relative to average UK
house prices as illustrated by chart 10 below. Furthermore, the Directors believe the cost of bricks typically
represents only a small percentage, often less than 1%, of the overall value of a new house, while at the same
time bricks play an important role in an overall housing project. Therefore, the Directors do not expect the price
increases in recent years to have any meaningful impact on demand.
2.0k
220k
1.5k
1.0k 180k
0.5k
0.0k 140k
Jan-08
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Average UK price of bricks (10k) UK house prices
The Group also manufactures the unique Fletton brick, which is used in the residential RMI market. Over
5 million homes in England were originally built using the Groups iconic Fletton brick, representing
approximately 23% of Englands existing housing stock. The Group is the only manufacturer of the Fletton brick,
which is targeted at the RMI market in England. Sales volumes of Fletton bricks remained resilient since the
onset of the financial crisis. As the product of choice for residential RMI customers undertaking RMI works on
Fletton-clad housing, the Fletton brick has also become a premium priced product and has experienced
significant price rises over time. The Directors estimate that the Groups Fletton brick commands a premium of
60% to 80% compared to the national average price for standard bricks.
The Directors believe that the demand for Fletton bricks closely follows private housing RMI activity, which is
in general more resilient than the residential new build market in the United Kingdom. The Groups offering of
Fletton bricks therefore reduces the Groups exposure to the cyclicality of the UK new build housing market.
Aircrete blocks
The market for aircrete blocks in Great Britain is highly consolidated. The three largest manufacturers, namely
H+H, the Group and Tarmac accounted for 96% of Great Britains aircrete block production capacity in 2015.
This market saw substantial change in 2015 as a result of several corporate transactions. Following the merger of
the global operations of Lafarge Tarmac and Holcim, a transaction that created LafargeHolcim, CRH plc
acquired the majority of the Lafarge Tarmac assets in Great Britain and now operates that business under the
Tarmac trading name. Aircrete blocks compete with aggregate blocks and wood frame construction.
Annual aircrete block production and delivery levels in Great Britain were at a peak of approximately
34 million m2 in 2003 according to the Department of Business, Innovation and Skills. However, market demand
decreased by approximately 20% between 2003 and 2007 as a result of the shift in housing mix discussed above
51
towards construction of flats and maisonettes. In 2008 and 2009, as aircrete block demand declined compared to
2007 levels, so did production capacity, as illustrated by chart 11 below. Three aircrete block manufacturers in
Great Britain closed manufacturing facilities between 2007 and 2009, reducing total production capacity in Great
Britain by over 25%.
Chart 11: Demand and supply development of aircrete blocks in Great Britain
40
30
Volume (million m2) (GB)
20
10
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2017E
2016E
2018E
Production Deliveries Stock Capacity
As reflected in chart 11 above, demand for aircrete blocks stabilised as the housing market in the United
Kingdom improved following the economic downturn, as further described in paragraph 4 of this Part 5 (Industry
Overview) of this Prospectus. In 2013, aircrete block manufacturer inventory levels in Great Britain decreased by
approximately 80%, as a result of the increase in housing construction without a comparable increase in
production.
The Directors believe that future increases in demand for aircrete blocks in Great Britain will be driven by further
recovery in the residential housing market, more stringent building codes and the ability to enhance the detailing
of aircrete blocks. The Directors also believe that the favourable sustainability characteristics of aircrete blocks
should also spur increased demand.
Aggregate blocks
Contrary to the market for aircrete blocks, the market for aggregate blocks in Great Britain is fragmented. The
Groups national competitors in aggregate blocks include major integrated building materials companies such as
CEMEX and Tarmac and block manufacturer Lignacite, as well as a number of smaller local manufacturers. In
the South East and East of England, the competitive landscape is more consolidated and the Group has a market
share in this region of 34% calculated by annual production capacity of the Group and its key competitors in that
region. The Directors believe that the primary means of competition are proximity to end markets and the quality
and availability of products. Aggregate block demand in Great Britain largely follows the same trends as those
driving demand for aircrete blocks and bricks.
Prior to the financial crisis, in 2001 to 2007, demand for aggregate blocks in Great Britain was approximately
60 million m2. However, demand for aggregate blocks dropped by approximately 40% during the economic
downturn.
The Directors estimate that since 2001, aggregate block manufacturers in Great Britain closed facilities
representing more than 25 million m2 of annual production capacity, predominantly during the economic
downturn. Specifically, as illustrated by chart 12 below, approximately 60% of the capacity-reducing actions
were taken between 2008 and 2010. During this period, the Group strategically repositioned itself to focus on the
economically prosperous South East and East of England, materially reducing its capacity by closing a total of
10 aggregate block facilities. The Directors believe that the repositioning enhanced the Groups profile, as the
South East and East of England generally demonstrated higher demand for aggregate blocks.
52
Chart 12: Demand and supply development of aggregate blocks in Great Britain
100
90
80
Volume (million m2) (GB)
70
60
50
40
30
20
10
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2011
2013
2015
2017E
2010
2012
2014
2016E
2018E
Production Deliveries Stock Capacity
Following the decline in demand for aggregate blocks in Great Britain in 2008, aggregate block delivery levels
have gradually increased. However, despite growing by approximately 3% per annum since 2009, as reflected in
chart 12 above, aggregate block deliveries in Great Britain are still approximately 30% below 2007 levels. The
Directors believe continued recovery of the residential construction market and further technical specifications
within commercial and architectural segments will be the primary drivers for future growth.
Several market players have implemented initiatives to add production capacity to support the expected growth
in the concrete block market. Over the last two years, CEMEX and Skene opened new manufacturing plants at
Soutra Mains in Lothian and Haughley in Suffolk, respectively. Thomas Armstrong installed a new block making
line at its Aintree facility, that is expected to double its manufacturing capacity, and began work in the summer
2015 on a new 12 million concrete block production unit at Cross Green, Leeds, which, upon completion, will
replace its existing facility at Garforth. The Group has also added some incremental capacity at its existing
facilities.
Distribution
Manufactured masonry is predominantly sold directly to housebuilders and contractors or through distributors.
Housebuilders can vary between large, national operations (for example, Barratt, Persimmon, Taylor Wimpey
and Bellway Homes) and smaller, local businesses. Distributors, or builders merchants, can be further divided
into different categories based on their size and market positioning: national distributors (e.g. Travis Perkins and
Jewson), merchant buying groups that procure bricks through buying consortiums (for example, Fortis, NBG and
CBA), large independent distributors with multiple branches (for example, MKM, Bradfords, Huws Gray) and
independent merchants (predominately family owned businesses).
National housebuilders often place their orders directly with manufactured masonry suppliers due to their
operating scale and order size. Regional and local housebuilders, on the other hand, often require smaller
volumes and may choose to source their materials via distributors to maximise their procurement efficiency. The
53
use of distributors is particularly common in such cases, especially for heavy building materials, because
distributors can purchase full loads and supply smaller quantities to their customers while offering an integrated
range of product solutions.
The Directors believe that distributors of bricks and blocks generally perform several functions, including
managing inventories and shipping products from their warehouses or directly from the manufacturers
warehouses to construction sites. They also provide display areas for building material products and provide
advice and technical assistance to their customers. All merchants generally stock and sell a similar range of core
heavy-side materials. Although some may specialise in certain sectors, the majority focus on servicing the RMI
market supplying small to medium builders, contractors and self-builders.
The Directors believe that product availability and pricing are often the key decision factors housebuilders and
distributors consider when making a purchase.
Precast concrete
The Group offers an extensive range of engineered structural flooring and stair solutions, as well as heavy precast
products, which are complemented by the Groups full design and nationwide installation services. Many of these
products are designed to be universal and work with all building types in all markets. These products are
typically manufactured offsite to the customers technical specification before being installed by the Group at the
project location, thereby providing builders and contractors with cost-effective solutions.
Beam and block flooring and hollowcore floors are two of the Groups key products within its precast concrete
product range. The Directors estimate that the market for beam and block flooring is approximately 170 million
per annum, with approximately 85% attributable to the UK housing end markets. Given the relative high
exposure to the UK residential market, the overall market development follows that of the UK housing cycle. The
Directors estimate that the Group currently has an 18% market share and is the second largest supplier of beam
and block flooring in the United Kingdom.
The hollowcore floors market, on the other hand, has a more diverse end market, with only approximately 50%
attributable to UK housing and the majority of the rest used in commercial applications. The Directors believe
that the market is currently valued at approximately 175 million per annum, and the market has demonstrated
more resilience during the economic downturn. The Directors estimate that it is the third largest supplier of
hollowcore floors in the United Kingdom.
54
suppliers for distribution to end customers. The Groups Red Bank products are used primarily in the
renovation of pitched roofs in low-to-mid-rise residential buildings; sales of the Groups chimney and roofing
solutions are therefore, predominantly driven by the UK residential RMI market.
4. UK HOUSING MARKET
The housing sector in the United Kingdom is comprised of private and public housing and includes activities
related to both new build and RMI. New build activity is generally measured by the number of housing starts and
the number of housing completions. Historically, new build activity has tracked broader economic cycles. RMI
activity, on the other hand, is more resilient. The CPA estimates that the size of the residential new build market
(measured by the value of housing completions) and the residential RMI market (measured by economic output)
in Great Britain in 2015 was approximately 29 billion and 24 billion, respectively.
Housing completions in Great Britain followed a similar trend, growing from 2001 to a high of 212,564 in 2007,
followed by a period of rapid decline. However, the financial crisis did not impact completions, which reached
their trough of 129,502 units in 2010, as quickly or as drastically as housing starts because of the pipeline of
housing projects started prior to the onset of the financial crisis that were still completed despite the financial
climate in 2008 and 2009. In 2014, aggregate housing completions in Great Britain totalled 139,694 units
according to the CPA. The CPA forecasted that total housing completions in 2015 in Great Britain would reach
152,186 units, a 9% increase from the previous year. The CPA expects British housing completions to continue
to grow at a rate of 4% per annum for the period to 2018.
55
Chart 13: Cyclicality of the housing sector in Great Britain
250
Units (000s)
200
150
100
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E
Completions Starts
Based on data from the Department for Communities and Local Government and the CPA, the rate of housing
completions in Great Britain was below the rate of household formations for many years prior to the financial
crisis. In March 2004, the Barker Review of Housing Supply, commissioned by the UK Government, reported
that the shortage of housing in the United Kingdom at that time was approximately 450,000 houses. As illustrated
in chart 14 below, the number of housing completions in Great Britain broadly tracked the level of household
formations from 2004 to 2007.
280
240
200
Units ('000s)
160
120
213
196
192
188
178
175
170
164
158
152
150
80
140
136
135
130
130
40
0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
Household completions Number of new households
Source: CPA Report (Winter 2015), Department for Communities and Local Government
Between 2008 and 2013, housing supply had declined to historical low levels without a similar reduction in the
number of household formations. Further, as the housing market began to recover in 2013 and 2014, household
formations began to grow as well. In March 2014, the Home Builders Federation estimated that unmet need and
demand for homes in the United Kingdom was over one million. With the housing completion rate expected to be
lower than that of household formation over the next few years according to the CPA and the Department for
Communities and Local Government, the Directors believe that there is a structural undersupply within the
housing market in the United Kingdom. As demonstrated by chart 15 below, housing supply dropped
significantly following the financial crisis. Despite the housing recovery over the last few years, housing supply
in the United Kingdom in 2015 was approximately 67,000 units below the peaks in 2007 and 2008.
56
Chart 15: UK housing completion level
400
350
300
250
Units (000s)
200
c67,000
150
100
50
0
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Private enterprise Housing association Local authorities
Forecasted population growth will likely compound the structural undersupply of UK housing. In October 2015,
the Office for National Statistics (ONS) projected that the UK population would increase by 9.7 million over
the next 25 years. Given the forecasted population growth, as well as the existing unmet demand for UK housing
and the inadequacy of existing UK housing stock, the Department for Communities and Local Government
estimated that UK household formation levels will reach 250,000 to 260,000 per annum in the short- to medium-
term, significantly above the housing completion rate forecasted.
UK Government housing initiatives
Further to the trends discussed above, the undersupply of UK housing has become a major socio-economic focus
within the United Kingdom, with cross party support for policies designed to increase the housing supply and
demand and increase ownership amongst first time buyers. The programmes implemented by the UK
Government in the past few years are described below. As illustrated by chart 16 below, the number of housing
approvals, starts and completions in England appear to have been directly affected by these initiatives.
Chart 16: UK Government initiatives
UK public support for housing Housing permits, starts and completions recovering in England
240
A Af f ordable Homes 2008 A B C D E F G H I J K L
B 220
New Homes Bonus 2011
K 2015
Review
Source: Home Builders Federation, Department for Communities and Local Government, press releases
57
Right to Buy: Right to Buy was first launched in 1980, giving council housing residents a discount on the
purchase of their council houses. In March 2013, the UK Government increased the maximum discount for
tenants in London. At the same time, the UK Government committed to building a new home for affordable rent
to replace each council residence sold to a council tenant. The Conservative Party committed to extend the Right
to Buy programme in its 2015 manifesto and reinforced this in the May 2015 budget, with up to 1.3 million
housing association tenants becoming eligible for discounts of up to 70% to buy their own homes.
Help to Buy: The Help to Buy programme was designed to encourage home ownership in the United Kingdom.
The Help to Buy equity loan programme provides an opportunity for first time buyers of new build properties to
put down a minimum 5% deposit on a home with the UK Government providing up to 20% of the purchase price
(on a shared equity basis), all subject to certain qualifying criteria and a maximum purchase price of 600,000.
Pursuant to the Help to Buy mortgage guarantee initiative, the UK Government provides a mortgage guarantee to
commercial lenders for up to 15% of a property value, requiring only a 5% deposit from buyers under the
programme. The scheme applies to both new and second hand properties with a maximum value of up to
600,000. In 2013, the UK Government committed 3.5 billion to the Help to Buy programme through to 2016.
The 2014 budget increased funding to the programme by 6 billion and extended the programme until 2020. The
UK Government introduced a Help to Buy ISA as part of the 2015 budget. In its November 2015 Spending
Review, the UK Government extended the Help to Buy equity loan programme to 2021 and announced the
introduction of the Help to Buy Shared Ownership programme which from April 2016 will lift the limits so that
anyone who has a household income of less than 80,000 outside London, and less than 90,000 inside London,
can buy a home through shared ownership.
London Help to Buy: The London Help to Buy programme was announced by the UK Government in its
November 2015 Spending Review, and provides that people living in London with a 5% deposit will be able to
get an interest-free loan worth up to 40% of the value of a newly-built home in order to acquire a property in
London.
Starter Home Initiative: At the beginning of 2015, the UK Government launched its Starter Home Initiative that
aims to help young first time buyers (below 40 years of age) purchase a home with a minimum 20% discount to
the market price. The initiative has been implemented through changes to planning policy, allowing developers
to use and develop commercial and industrial land that is either unusable or surplus to requirements.
In July 2015, the UK Government announced plans to accelerate the pace of house building growth between
2015 and 2020. The plans included steps to build discounted homes for first time buyers on all reasonable sized
developments, unlock public land for hundreds of thousands of new homes and back small builders with planning
changes. In October 2015, the UK Government introduced the New Housing and Planning Bill to Parliament.
Mr. Brandon Lewis, the UK Housing Minister, commented that the Housing Bill will allow [the UK
Government] to go even further by kick-starting a national crusade to get one million homes built by 2020. It
truly is an historic moment that will help deliver the homes hard-working people rightly deserve, transforming
generation rent into generation buy.
In its November 2015 Spending Review, the UK Government sought further to boost the UK housing market.
Along with updates to the Help to Buy programmes described above, the UK Government announced that it
would double the housing budget to over 2 billion per annum from 2018 to 2019 and that it would aim to build
at least 400,000 affordable new homes by the end of 2020 to 2021, half of which would be provided pursuant to
the Starter Home Imitative. The UK Government also announced that it would accelerate housing supply by
reforming the UK planning system in order to release public land suitable for the construction of new homes
more quickly. Other policy reforms were also introduced, such as extending loans for small builders and the
regeneration of run-down estates. Mr. George Osborne, the Chancellor of the Exchequer, commented that the UK
Governments initiatives were the biggest house building programme by any government since the 1970s.
In January 2016, the UK Government announced plans to directly commission the building of homes on five
sites in the United Kingdom. The Directors believe that this is one of the largest commissioning programmes
since the Docklands regeneration, with an emphasis on supporting smaller builders and new market entrants.
The plan also announced an additional 1.2 billion fund to be made available to build 30,000 affordable starter
homes on under used brownfield land in the next five years, demonstrating the UK Governments broader
commitment to developing brownfield land.
Along with supportive UK Government policies and initiatives, the Directors believe that several favourable
macroeconomic factors such as land availability, mortgage availability, and moderate house price inflation, as
reflected in chart 17 below, continued to underpin growth in the UK housing sector. The number of mortgage
58
approvals has continued to increase since 2008. House prices reported by Nationwide and Halifax have shown an
upward trend over the last two years. Additionally, as illustrated in chart 18 below, the seasonally adjusted value
of housing approvals has started to rise steadily since the depths of the financial crisis and has significant room to
grow before reaching pre-crisis levels.
20%
YoY % increase
UK house price
10%
0%
(10%)
(20%)
Q2 '05
Q4 '05
Q2 '06
Q4 '06
Q2 '07
Q4 '07
Q2 '08
Q4 '08
Q2 '09
Q4 '09
Q2 '10
Q4 '10
Q2 '11
Q4 '11
Q2 '12
Q4 '12
Q2 '13
Q4 '13
Q2 '14
Q4 '14
Q2 '15
Q4 '15
Nationwide Halifax
Chart 18: Seasonally adjusted number of total sterling mortgage approvals for house purchase to individuals
150
approvals (000s)
No. of mortgage
100
50
0
Apr-05 Dec-07 Aug-10 Apr-13 Dec-15
The residential RMI market has historically been more resilient than the residential new build market, as
reflected in chart 19 below.
30%
20%
YoY Growth
10%
0%
(10%)
(20%)
(30%)
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15E
RMI New build
The Directors believe that the level of residential RMI activity in Great Britain is driven primarily by property
transactions, house prices, savings (used as a source of finance for improvements) and credit availability. The
59
number of housing transactions in the United Kingdom has steadily increased since the financial crisis, as
illustrated by chart 20 below. However, seasonally adjusted monthly housing transaction levels as at
31 December 2015 were still approximately 40,500 lower compared to levels before the financial crisis.
Following the Chancellor of the Exchequers announcement of an increase in stamp duty land tax starting in
April 2016 on buy-to-let properties, the CPA expected there may be a spike in housing transactions in the first
quarter of 2016. Such increase in transactions may benefit overall RMI activities in 2016 and for a period of time
thereafter.
175
transactions (000s)
Seasonally adjusted
Monthly housing
125 c40,500
75
25
Apr-05 May-07 Jul-09 Aug-11 Oct-13 Dec-15
In addition, consumer confidence levels appear to have improved. As illustrated in chart 21 below, the consumer
confidence index is more positive than that prevailing during and after the financial crisis. The trend suggests that
UK consumers are now more confident about the overall economy and as a result are likely to be more willing to
spend, potentially stimulating investment in home improvements and thereby increasing residential RMI demand.
20
10
confidence index
0
Consumer
(10)
(20)
(30)
(40)
(50)
Jan-97 Oct-01 Jul-06 Apr-11 Dec-15
As demonstrated by chart 22 below, the CPA forecasts that private housing RMI output in Great Britain will rise
by 3% for the period 2016 to 2019, which the Directors believe represents the strength in the housing market, a
recovery in housing transaction volumes and consumer confidence.
24 25 25 26
24 23 23 23 24
22
7 7 7 7
7
Output (bn)
8 7 8 7
7
16 16 15 17 17 18 18 19
14 15
2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E
Private Public
60
5. COMMERCIAL MARKET
The CPA estimates that the commercial construction market in Great Britain was worth 24 billion in 2015. The
Directors believe this market is set for growth in the short-term, buoyed by increasing activity levels in key sub-
sectors of the commercial construction market, consisting primarily of offices, retail, entertainment, education
and health. According to the CPA, the commercial construction market in Great Britain is expected to grow by
4% between 2015 and 2018. The Directors believe that this forecasted growth represents an early recovery trend
in commercial construction, which has lagged behind residential construction growth following the economic
downturn. The CPA projects that construction in the office and education sectors is expected to grow more
rapidly, as reflected in chart 23 below. The Directors believe the growth in these areas will be driven by new
office construction activities in cities such as Birmingham and Manchester and higher capital expenditure from
privately-funded projects under private finance initiatives, respectively.
3.9%
GB commerical output ( bn)
28
4%
24 13% 5% 19%
20 22% 4%
20%
16 4% 18%
9% 16%
12 9% 17%
22% 21%
8
4 33% 38%
26%
0
2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E
Offices Retail Education Health Entertainment Others
61
PART 6
BUSINESS OF THE GROUP
Prospective investors should read this Part 6 (Business of the Group) of this Prospectus in conjunction with the
more detailed information contained in this Prospectus, including the financial and other information contained
in Part 9 (Operating and Financial Review) of this Prospectus. Unless otherwise stated, financial information in
this Part 6 (Business of the Group) of this Prospectus has been extracted from Section B of Part 11 (Historical
Financial Information) of this Prospectus.
1. OVERVIEW
Forterra is a UK leader in manufactured masonry products, with a unique combination of strong market positions
in clay bricks and concrete blocks. The Groups manufactured masonry products are standardised and usually
produced in high volumes. The Groups brick and block products are complemented by a well-rounded portfolio
of bespoke construction products, which are primarily specified made-to-measure or customised products. The
Group has industry recognised brands and its trusted range of clay and concrete products are used extensively
within the construction industry.
Bricks: the Group is the second largest manufacturer of bricks in Great Britain, with a market share of 29%
calculated by annual production capacity of the Group and its key competitors. The Group is also the only
manufacturer of the iconic and original Fletton brick sold under the London Brick brand. The Group operates
nine brick manufacturing facilities in the United Kingdom with a total production capacity of 570 million bricks
per annum.
Blocks: the Group is the second largest manufacturer of aircrete blocks in Great Britain, with a market share of
35% calculated by annual production capacity of the Group and its key competitors. The Group also
manufactures aggregate blocks, where the Group enjoys strong sales in the South East and East of England, with
a market share in this region of 34% calculated by annual production capacity of the Group and its key
competitors in that region. The Group operates four block manufacturing facilities in the United Kingdom, with a
total annual production capacity of 825,000 m3 of aircrete blocks and 275,000 m3 of aggregate blocks.
Bespoke Products: the Groups bespoke products range comprises precast concrete, concrete block paving,
chimney and roofing solutions and structural external wall insulation, each of which is primarily specified made-
to-measure or customised to meet the customers specific needs. The precast concrete flooring products are
complemented by the Groups full design and nationwide installation services, while certain other bespoke
products, including concrete block paving and chimney flues, are complemented by the Groups specification
and design service. The bespoke products business operates from five manufacturing facilities in the United
Kingdom.
In 2015, the Group generated revenue of 290.2 million, an increase of 8.3% from 2014, its adjusted EBITDA
was 70.5 million, an increase of 29.1% from 2014, and its adjusted EBITDA margin was 24.3%. The charts
below depict the Groups revenue in 2015 broken down by the Groups operating segments and the Directors
estimate of end markets:
Other bespoke
products
6% Commercial
c.5%
Flooring
19%
Bricks Residential Residential
46% RMI new build
c.40% c.55%
Blocks
29%
1 The Groups bespoke products operating segment has been divided between the Groups precast concrete flooring products and the
Groups other bespoke products to illustrate the revenue generated by the Groups precast concrete flooring in the bespoke product
operating segment.
62
2. KEY STRENGTHS
Leading UK manufactured masonry producer with strong positions across all core product categories
The Group is a UK leader in manufactured masonry products, being the only UK manufacturer with strong
market positions and industry recognised brands in both clay bricks and concrete blocks. The Group:
offers the broadest range of manufactured masonry products in the United Kingdom among its key
competitors;
is Great Britains second largest brick manufacturer by annual production capacity, with a market share of
29% calculated by annual production capacity of the Group and its key competitors;
is the sole manufacturer of the iconic and original Fletton brick sold under the London Brick brand which
commands a premium price and is used almost exclusively in the residential RMI market, particularly in the
South of England, having been used to construct approximately 23% of Englands existing housing stock;
is Great Britains second largest aircrete block manufacturer by annual production capacity with a market
share of 35% calculated by annual production capacity of the Group and its key competitors; and
is the leading manufacturer of aggregate blocks by annual production capacity in the economically
prosperous South East and East of England, with a market share of 34% calculated by annual production
capacity of the Group and its key competitors in that region.
The Directors believe that the Groups leading market positions in both clay bricks and concrete blocks place it
in a strong position to benefit from the attractive market fundamentals which the Directors expect to drive
demand for construction products.
Broadest range of complementary manufactured masonry products generates operational and commercial
benefits
As the only UK manufacturer with strong market positions in both clay bricks and concrete blocks and offering
the broadest range of manufactured masonry products among its key competitors, the Group has significant
opportunity to cross-sell its broad range of brick and block products and its well-rounded portfolio of bespoke
construction products to both existing and new customers.
The Groups main customers are homebuilders, builders merchants, specialised brick merchants, contractors and
subcontractors which provide exposure to the Groups end markets, being residential new build and RMI and
commercial construction, as illustrated by the diagram below. The Directors believe that there is significant
opportunity for the Group to cross-sell its complementary range of products to different end markets through its
customers, particularly through customers with which the Group has strong and long-standing relationships,
which act as distribution channels to its end markets.
63
End-market exposure
Key Channels / Residential
Products customers Residential RMI Newbuild Commercial
Aircrete blocks
House builders
Cross-selling
Blocks Builders
merchants
Aggregate blocks
Structural external
Precast (Flooring)
wall insulation
House builders
Builders
Bespoke merchants Concrete block paving
Products
Contractors
Subcontractors
Chimney and roofing
solutions
The Groups brick and block products are typically used in the construction of residential new build homes, with
bricks being used as the outer skin and blocks (usually aircrete) as the inner skin of cavity walls. Internal, load-
bearing walls are also made of blocks. The Groups range of bespoke products are also used in the construction
of a new home, with precast concrete beams and blocks being used to construct floors, chimney and roofing
solutions being used in the roof and chimney, and concrete block paving being used in the surrounding area.
As many of Englands builders merchants stock the Groups Fletton bricks, the Group is well positioned to
cross-sell its other products to those builders merchants and their end user customers. The Directors believe that
the Groups exposure to a diversified range of end markets helps to insulate the Group from a fall in demand in
any particular market segment.
The Directors believe that the Group derives significant synergies from its unique but complementary product
offerings, creating benefits across the Groups value chain. The Groups bricks and other clay products are
manufactured from clay and shale, the majority of which is sourced from the Groups own clay quarries. During
the excavation of these materials at certain of the Groups quarries, such as Kings Dyke, the Group also
excavates sand and gravel which the Group uses in the manufacture of its aggregate blocks. The Group recycles
brick manufacturing waste at its Kings Dyke facility and aircrete block manufacturing waste from its Hams Hall
and Newbury facilities for use in the manufacture of its aggregate blocks. The Groups block and other concrete
products are manufactured using cement and the Directors believe that the Group benefits from procurement
synergies by ordering large quantities at favourable prices. In its manufacturing operations, the Group also
benefits from synergies created by its combined overhead and support functions.
The Group also derives significant synergies through being a one stop shop solution, selling and delivering its
range of products to the same customers. Sales of the Groups bricks and blocks are handled by a single team and
bricks and blocks are delivered by the Groups fleet of delivery vehicles or third party hauliers. Furthermore, the
Groups fleet of delivery vehicles provides the Group with enhanced delivery flexibility, particularly during
periods of high demand, enabling it to maintain its standards of customer service excellence.
Strong and long-standing customer relationships driven by excellent quality and service
The Groups ethos is to deliver both manufacturing and customer service excellence. The Group has a reputation
among its customers for product quality and consistency and has industry recognisable brands and a trusted range
of products which are used extensively within the construction industry in the United Kingdom. The Group has a
number of significant long-term customers, a number of which have been customers for over 40 years.
64
The Group manufactures a wide range of brick and block products, which are available in a range of sizes and
colours, providing its customers with a choice of product to accommodate planning and other requirements and
which are critical elements to the construction of any residential new build home in the United Kingdom.
The Group considers the effective management of safety, health, environment, energy and quality to be of prime
importance to the sustained success of its business. The Group takes an integrated approach towards all its
business processes and has a single sustainability policy, which is regularly reviewed for continuing suitability
and appropriateness. The Group is committed to complying with the highest quality management standards and
certifications relevant to its products. Its independently certified quality management system ensures quality and
reliability, from procurement of raw materials through to the manufacture and delivery of product.
The Group seeks to continually improve performance and customer service. It recently consolidated its bricks
and blocks sales, customer service and distribution teams into a single service centre, allowing the Group to more
effectively and efficiently respond to customer needs. Due to the custom nature of the Groups bespoke products,
the Group maintains separate customer service teams and ordering facilities for this business segment. However,
the bespoke products sales team works closely with the bricks and blocks sales team to ensure continuity of
service. The Groups sales teams receive training and have in-depth knowledge of the Groups products. The
Group has a strong track record of introducing innovative online tools, guides and apps to assist customers with
the specification and selection of products. The Group has also recently increased its modern fleet of crane-
equipped delivery vehicles from 95 to 125, providing it with greater distribution flexibility to serve its national
customer base from its 13 brick and block manufacturing facilities.
The Directors believe the Groups customer relationships have been, and will continue to be, further strengthened
by the Groups continued focus on the quality and reliability of its products, as well as its commitment to deliver
excellent customer service.
More recently, from 2013, the Group invested in the installation of production monitoring equipment and
introduced other key efficiency principles at each of its significant manufacturing facilities. These initiatives
have made the Groups manufacturing facilities more efficient and allow the Group to measure performance
consistently across its significant facilities, allowing benchmarking and sharing of best practices, which the
Directors believe drives a culture of improvement in the business.
Through 2015 and early 2016, the Group initiated investment of 7.1 million in implementing efficiency
initiatives at the Groups manufacturing facilities at Measham, Hams Hall, Accrington and Hoveringham, as
further described in paragraph 9 of this Part 6 (Business of the Group) of this Prospectus. In addition to achieving
cost savings, these initiatives increased the Groups annual brick production capacity by 19 million, to
570 million bricks, and increased the Groups annual aircrete block production capacity by 33,000 m3, to 825,000
m3. The Directors believe that the increases to the Groups brick and block production capacities, together with
other operational cost savings of 0.6 million (assuming full output at the relevant facilities) which the Directors
expect to be achieved by these initiatives, will meaningfully contribute towards the Groups profitability in 2016
and beyond.
65
The Directors therefore believe that the Group is well positioned to take advantage of the strong market
fundamentals driving demand for brick and block construction products without the need to incur substantial
additional capital investment in its manufacturing facilities in the short- to medium-term. The Directors also
believe that the Group now has production scale advantages over its key competitors in the brick market.
Similarly, the Group is the second largest aircrete block producer in Great Britain, with an average annual
aircrete block production capacity per facility in 2015 of 3.6 million m2. The Group is also the largest aggregate
block producer in the South East and East of England, with an average annual aggregate block production
capacity per facility in 2015 of 1.4 million m2, which the Directors estimate is 7% higher than the Groups
nearest competitor.
In addition to restructuring its manufacturing facilities, the Group has also introduced other efficiency and cost-
saving initiatives. The Group streamlined its product offering by reducing the number of products in its range in
line with customer demand. This reduced production down time caused by switching production between
products, whilst the Group has retained the option to increase its product range should customer demand change.
Since 2013, the Group has also introduced production monitoring equipment at its significant manufacturing
facilities, among other manufacturing optimisation and efficiency programmes and technology, which has
reduced manufacturing downtime and increased utilisation capacity, operational productivity and product quality.
These and other efficiency initiatives have transformed the Group into a leaner, more efficient and more flexible
manufacturer with significant financial benefits. In 2015, the Groups adjusted EBITDA margin was 24%, having
increased from 10% in 2013.
In the short-term, the Group also has the potential to increase its annual extruded brick production capacity by an
estimated 25 million bricks by investing approximately 9.0 million in making improvements to the gas supply,
kilns or dryers at its facilities at Claughton, Desford and Accrington. The Directors believe that these small and
low risk capital investment projects would increase the Groups annual brick production capacity to 595 million,
an increase of 4% based on the Groups existing annual brick production capacity of 570 million. These projects
include:
replacing the dryer at the Groups Claughton facility, which the Directors estimate would cost
approximately 3.0 million, would require 14 weeks of facility downtime and would increase the Groups
annual brick production capacity by 5 million extruded bricks following an investment decision being made,
which the Directors expect in 2016;
66
upgrading the gas supply at the Groups Desford facility, which the Directors estimate would cost
approximately 3.5 million, would require eight weeks of facility downtime and would increase the Groups
annual brick production capacity by 10 million extruded bricks following an investment decision being
made, which the Directors expect in 2016 or 2017; and
extending the kiln buffer at the Groups Accrington facility, which the Directors estimate would cost
approximately 2.5 million, would require two weeks of facility downtime and would increase the Groups
annual brick production capacity by 10 million extruded bricks following an investment decision being
made, which the Directors expect in 2017.
With substantial capital investment, the Group could further increase its brick production capacity in the medium
to longer term by building or redeveloping its closed Swillington and Clockhouse sites into state-of-the-art
manufacturing facilities.
The Swillington site near Leeds was formerly one of the Groups brick manufacturing facilities and was closed in
2008 and demolished in 2015. The Group has the requisite planning permissions in place to build a state-of-the-
art, highly efficient and low cost extruded brick manufacturing facility at the Swillington site, as well as
approximately 26 years of clay reserves (based on estimated brick production at the site) with potential for
extension. The current estimated build cost at Swillington is 58 million and the facility would have an estimated
production capacity of 100 million extruded bricks per annum (18% of the Groups existing total annual brick
production capacity). In 2016, the Group intends to invest 0.5 million in preparatory design work at the site in
order to reduce the overall facility construction time to two years if and when an investment decision is made.
The Directors believe that the Group has production capacity and inventories sufficient to meet near term
forecast market growth, therefore a decision to proceed with the development of Swillington is unlikely to be
taken before the end of 2017 without a material and sustained increase in brick demand. The Directors believe
that the new Swillington facility, once complete, would have similar operational efficiencies as the Groups soft
mud brick facility at Measham, but would manufacture extruded bricks, and enable the Group to retain its
position as the lowest cost producer of extruded bricks in the United Kingdom.
In the longer term, the Directors believe that the Group has potential to further increase its production capacity
by redeveloping its former soft mud brick manufacturing facility at its site at Clockhouse in Surrey, which was
closed in 2009. The Group has the requisite planning permissions in place to operate the existing brickworks at
Clockhouse and, with appropriate permission variations, could redevelop the site into a modern, highly efficient
and low cost soft mud brick manufacturing facility. The Directors estimate that the Group also has over 30 years
of clay resources at Clockhouse, with planning permission for the extraction of approximately 18 years of clay
reserves (in each case, based on estimated brick production at the site). The current estimated redevelopment cost
at Clockhouse is 30 million and the facility would have an estimated production capacity of 45 million soft mud
bricks per annum (8% of the Groups existing total annual brick production capacity), with the possibility of
further extension. As at the Swillington site, the Group proposes to prepare the site for development and obtain
the necessary permits in order to reduce the overall redevelopment time to two years if and when an investment
decision is made. While this site represents a valuable strategic asset, an investment decision on the development
of this facility is unlikely before 2020. The Directors believe that the new Clockhouse facility, once complete,
would enable the Group to strengthen its offering in architectural clay bricks and provide it with the ability to
compete with high-end imported bricks.
The Group also owns a wharf in Southampton which the Directors believe could be redeveloped in the future to
enhance the Groups supply and distribution chain efficiencies.
67
industry. The Directors estimate that the Group has in excess of 49 million tonnes of clay reserves across
12 quarries in the United Kingdom, 10 of which are located within approximately one mile of the Groups
manufacturing facilities and potential future development sites, which the Directors estimate is equivalent to over
30 years of brick production based on the Groups existing brick production. In addition, the Directors estimate
that the Group has a further 36 million tonnes of clay resources that do not currently have planning permission
for extraction, which together with its planned clay reserves provides the Group with in excess of 85 million
tonnes of clay resources which the Directors estimate is equivalent to over 55 years of brick production based on
the Groups existing brick production. The Group also has access to the Fletton-specific Lower Oxford clay
reserves, which are required for the production of Fletton bricks.
In September 2007, Hanson was acquired by the HeidelbergCement Group and in March 2015 the
HeidelbergCement Group sold the Group and Hansons North American building products business to Lone Star.
In October 2015, the Group rebranded under the name Forterra.
4. GROUP STRATEGY
The overall strategy of the Group is to capitalise on the attractive market fundamentals in the UK construction
industry and to retain and grow market share in the short- to medium-term by utilising its existing, well-invested
manufacturing facilities, available production capacity and available inventories. Over the medium-term, the
Directors believe there are multiple levers to drive future growth. The Group intends to finance its strategy with
cash from its operations, however the Directors will also consider further debt finance, equity offerings or issuing
consideration in the form of equity.
In addition, the Group has two sizeable expansion opportunities at its sites at Swillington and Clockhouse. The
Directors believe that the Group has production capacity and inventories sufficient to meet near term forecast
68
market growth and maintains a disciplined approach to capital investment, therefore a decision to proceed with
the development of Swillington is unlikely to be taken before the end of 2017 without a material and sustained
increase in brick demand. A decision to develop the site at Clockhouse is unlikely before 2020.
Continue to focus on operational efficiency, health and safety and core sustainability values
The Group adopts a policy of continuous improvement in relation to key areas of operations, including product
design optimisation to reduce resource usage, energy efficiency, recycling, supply chain management and
enhanced procurement savings, and distribution and transportation optimisation.
The Directors believe there are multiple opportunities to further improve the Groups operational efficiency and
cost leadership.
The Group considers the effective management of safety, health, environment, energy and quality to be of prime
importance to the sustained success of its business and has rigorous health and safety, and sustainability policies.
The Group is committed to safety in the workplace and improving safety performance, thereby reducing and
eliminating accidents, injuries and other employee health concerns. The Directors believe that nothing should be
of greater concern to the Group than ensuring that all its employees go home safe and healthy at the end of the
day.
The Group will continue to set targets for the reduction of energy consumption and carbon emissions and will
aim to reduce use of fossil fuels by energy efficiency and by seeking alternative and renewable energy sources.
The Group will also strive for the prevention of pollution and the minimisation of environmental harm, using
resources appropriately and sustainably and, where appropriate, substitute primary resources with alternative
materials.
The Group is committed to the principles of environmental stewardship and seeks to apply these throughout its
operations and supply chain. It will continue to manage and restore sites to ensure land remains of value in its
local environment, protecting and enhancing biodiversity and safeguarding geodiversity where appropriate.
The Group will aim to continue to incorporate high standards of safety, health, environment, quality, energy
management and responsible sourcing in all of its business processes.
Recent product introductions include prefabricated walling, flood defence systems and the ThermaPave
renewable ground source energy system. Forterra is also exploring partnering with customers to investigate
further offsite and prefabricated masonry opportunities.
The Group continually looks to improve its customer service proposition. The Group operates a fleet of 125
delivery vehicles which optimises its ability to safely deliver products to customers when and where they are
needed. The Group also has one of the broadest manufactured masonry product ranges among its key
competitors, enabling the Group to cross-sell multiple manufactured masonry products and solutions to
individual customers, to the mutual benefit of everyone involved.
69
external, to further extend the Companys range of products. The Company will particularly look at products
addressing the residential new build or RMI construction markets, those which would allow the Group to
leverage its existing relationships or distribution channels, or which enable the Group to consolidate fragmented
product markets.
Bricks Engineered
Fletton Precast Flooring
Soft Mud Stairs & Landings
Extruded
Roofing and
Flue Systems
Red Bank
Bricks
Fletton Engineered
Soft Mud Precast Flooring
Extruded Hollowcore
Aircrete
Blocks
Thermalite
Permeable
Paving
Formpave
Aggregate
Blocks
Fletton bricks
The Group is the sole manufacturer of the iconic and original Fletton brick sold under the London Brick brand,
which is manufactured by press moulding high carbon content Lower Oxford clay. The Directors believe that due
to the unique characteristics and relatively high cost of production of the Fletton brick, these bricks command a
premium price of 60% to 80% over the national average standard brick. Sales of the Groups Fletton bricks
remained resilient throughout the economic downturn. The Fletton brick is instantly recognisable and although
the appearance of the brick once installed in a wall may be replicated, the overall appearance of the brick is not
easily copied. The Group owns the London Brick and Fletton trademarks and has access to the Fletton-specific
Lower Oxford clay reserves. It also has bespoke manufacturing equipment which is manufactured and
maintained at the Groups own workshops and has the unique technical knowledge and skilled workforce
required to manufacture these unique bricks.
70
The Fletton brick dates back over 130 years and was used to construct over
5 million homes in England, representing approximately 23% of Englands
existing housing stock and Fletton bricks today are predominantly used in the
residential RMI market in the United Kingdom. The manufacturing process
is very labour intensive and does not lend itself to modern brick handling and
firing technology. As a result, Fletton bricks have a relatively high cost of
production. Consequently, the Fletton brick is now rarely used for new build
residential construction, however, it is widely used for RMI work in
properties originally built with Fletton bricks and to construct matching
additions and extensions for such buildings. Homeowners are therefore
unlikely to use substitutes for such work and Fletton bricks are often
preferred by planners. The Directors estimate that approximately 2,700
Fletton bricks are required to build an average sized matching house
extension.
Fletton bricks are available in various sizes, textures and colours, from a
classic rustic brick, symbolic of the housing boom in the second half of the
20th century, through to yellows and buffs, such as saxon gold and honey
buff. Many English builders merchants hold inventory of Fletton bricks and,
as the sole producer of Fletton bricks, the Group is able to take advantage of
its relationship with those customers to cross-sell its other product ranges.
The Groups ecostock soft mud brick range is manufactured at the state-of-
the-art Measham facility. The ecostock brick range is the most
environmentally friendly soft mud brick range in the United Kingdom. The
Group uses the latest technology in sustainability and production efficiency
to produce stock bricks with the lowest embodied CO2.
Pressed Thrown
A smooth sandfaced finish, consistent and uniform in A slightly irregular shape with a creased texture,
character. replicating the appearance of hand-made bricks.
71
Extruded bricks
Extruded bricks are the most widely used brick type in residential new build construction. To make an extruded
brick, clay is continuously extruded to a required size and shape and then cut into individual bricks by means of a
wire. The manufacturing process is highly automated. Extruded bricks are used in all regions of the United
Kingdom. The Groups extruded brick manufacturing facilities (excluding the Cradley facility) have a combined
annual production capacity of 334 million extruded bricks. The Groups wirecut extruded bricks are available in
a range of colours and textures offering customers a brick to suit a range of styles, from classic to contemporary.
The Groups extruded bricks contribute to thermal mass and are resistant to frost and their sustainability
credentials are enhanced by their long life performance, low maintenance and high recycled content.
The Group also manufactures the following specialist types of extruded bricks:
Special shaped bricks: the Group produces one of the broadest ranges of British standard brick specials in the
United Kingdom which are sold under the Cradley brand, covering over 400 types, as well as an extensive
choice of bespoke special shaped bricks for specific applications such as restoration and renovation bricks, utility
and architectural bricks, air bricks and glazed bricks.
The Groups special shaped bricks are handmade at its Cradley facility,
where the Groups skilled craftsmen can reproduce bricks to various designs,
shapes and sizes, using original products, drawings or photographs, to create
unique brickwork features and detailing and allowing accurate reproduction
of historic brickwork.
A selection of the Groups British standard brick specials are set out below:
Copings Slips and Prefabricated Cut and Date and Cill and Large format Eco habitat
and spacing arches bond bricks name bricks scroll bricks pier caps for bats
cappings bricks and swifts
Modular bricks and blocks: the Groups Dimensions range of modular sized bricks and large format bricks
provides the opportunity to create contemporary facades using traditional building techniques. The products
provide a distinctive, aesthetic appeal and are characterised by the highest standards of uniformity, quality and
durability.
72
The bricks are available in a range of sizes and colours, with a range of
fittings and specials to complement the range, and offer a sustainable
construction solution for a diverse range of projects including educational,
healthcare, commercial and civic buildings. A selection of the Groups
modular bricks is set out below.
Restoration bricks: the Group produces a range of products suitable for renovation and restoration projects,
including special shaped bricks and a selection of imperial sized bricks, as illustrated above. These are often used
in the redevelopment of historic buildings and enable new build applications to complement their surroundings.
From traditional Victorian architecture, to conservation areas, the Group supplies high quality facing and special
shaped bricks supported by an expert design team.
Walling and cladding systems: the Group has developed a range of innovative walling systems that allow
homebuilders and developers to benefit from quicker build times and consistently high quality workmanship. The
Groups brick walling and cladding systems include:
Wonderwall, a lightweight cladding system that combines the advantages of modern construction
techniques with the appeal of traditional brickwork. Installation is quick and easy and high insulation values
can be achieved. Wonderwall can be used for cladding on masonry, dense concrete, modular units, timber or
metal frames, either on existing or new build structures;
LockClad, a ventilated rain screen and decorative external terracotta faade which is suitable for most types
of construction, including concrete, timber and steel framed buildings and can accommodate curves,
corners, angles, windows and door openings, allowing design flexibility. The system uses frost-proof
English clay and allows the insulation to be located on the outer face of the building, reducing the risk of
thermal bridging and condensation issues; and
prefabricated masonry walling systems using high performance bonding mortar to create innovative, factory
fabricated masonry panels. These can be manufactured as a single skin wall construction in clay brick,
aircrete blocks or aggregate blocks. The panels can be manufactured with openings for doors and windows
as required and use off-site construction techniques, which means they are quick and easy to install, saving
time and money on-site, as well as minimising disruption to the local environment.
Bricks Customers
In 2015, the Group generated revenue of 134.6 million from the sale of its bricks to the residential new build,
residential RMI and commercial construction markets in the United Kingdom, accounting for 46.4% of its total
revenue during the same period. The Groups main brick customers are homebuilders, builders merchants and
specialised brick merchants who provide exposure to the Groups end markets, being residential new build and
RMI and commercial construction.
73
Bricks Competitors
The market for bricks in the United Kingdom is highly consolidated and it is estimated that three manufacturers,
namely Forterra, Ibstock and Wienerberger, accounted for 90% of Great Britains brick production in 2015. In
2015, the Group had an estimated market share of 29% calculated by annual production capacity of the Group
and its key competitors (namely, Ibstock, Michelmersh and Wienerberger). The Group also competes to a lesser
extent with a number of smaller manufacturers and with imports from continental Europe. The Directors believe
that the primary means of competition are product quality, aesthetics and availability. The Groups bricks also
compete with other materials that can be used for the cladding of a house or commercial building such as wood,
render, natural stone and glass.
Blocks Products
Aircrete blocks
Aircrete blocks are a lightweight concrete product manufactured primarily from PFA, cement and lime, which
the Group sells under its Thermalite brand, one of the principal aircrete brands manufactured and sold in Great
Britain. Aircrete blocks simultaneously provide structure, insulation and resistance to fire and mould. Aircrete
blocks do not contain aggregates. Due to their structure, aircrete blocks can easily be cut on site using standard
tools.
The Groups aircrete blocks are a cost-effective solution for wall, floor and below-ground construction. They
contain up to 80% recycled content, offer high thermal and sound insulation, good compressive strength,
lightness of handling and are moisture resistant. Their inherent thermal mass makes U-value targets easier to
achieve and can also help reduce CO2 emissions during a buildings life.
The Group also produces trenchblocks which are a thermal building block for solid foundation walls which are
commonly used in high sulphate bearing soils. Thermalite Trenchblock is simple to lay, with interlocking
tongue and groove joints at each end, easy to transport and does not require mortar on the perp ends, saving
time and labour spent mixing, moving and applying mortar.
The Groups facilities at Newbury and Hams Hall have a combined estimated production capacity of 825,000 m3
of aircrete blocks per annum. The Groups aircrete blocks are primarily used in residential new build
construction and RMI work.
Aggregate blocks
The Group manufactures aggregate blocks at its Milton and Whittlesey facilities, with a combined estimated
annual production capacity of 275,000 m3. Aggregate blocks are manufactured from aggregates, cement, ground
granulated blast furnace slag and water.
Aggregate blocks are used for structural elements in residential and
commercial construction. They are often used in commercial construction
such as underground lift shafts, multi-storey car parks and basements,
due to the robust nature of the product or when high compressive
strengths are required due to loading. Aggregate blocks are also used to
construct schools and cinemas due to their acoustic requirements.
Aggregate blocks are often used in apartment blocks due to their relative
strength. Aggregate blocks are also used for retaining and separating
walls in residential construction. The Groups aggregate blocks are
available in a variety of densities, strengths, sizes and configurations to
suit a variety of applications.
74
All of the Groups aggregate blocks contain ground granulated blast furnace slag, a ground granulated blast
furnace slag, which is a by-product of the steel-making industry and is used as a cement replacement. The use of
Regen instead of cement reduces the embodied CO2 of the Groups aggregate blocks by up to 30%, adding to
their sustainability credentials.
Blocks Customers
In the year ended 31 December 2015, the Group generated revenue of 83.4 million from the sale of its blocks to
the residential new build, residential RMI and commercial construction markets in the United Kingdom,
accounting for 28.8% of its total revenue during the same period. The Groups main block customers are
builders merchants who provide exposure to the Groups end markets, being residential new build and RMI and
commercial construction.
Blocks Competitors
The Group is one of the largest manufacturers of aircrete blocks in Great Britain based on production capacity.
The market for aircrete blocks in Great Britain is highly consolidated, with three companies, namely Forterra,
H+H and Tarmac, accounting for 96% of annual aircrete block production capacity in Great Britain in 2015, with
the Group having an estimated market share of 35% calculated by annual production capacity of the Group and
its key competitors (namely, H+H, Tarmac and Thomas Armstrong). The Directors believe that the market for
aircrete blocks in Great Britain is currently running at an utilisation capacity of 95%. Aircrete blocks also
compete with aggregate blocks and timber-frame construction.
The aggregate block market is fragmented on a national level but consolidated in the South East and East of
England where the Group primarily competes with three other companies, namely CEMEX, Lignacite and
Tarmac. The Group, CEMEX, Lignacite and Tarmac accounted for 95% of annual aggregate block production
capacity in the South East and East of England in 2015. The Group was one of the largest manufacturers of
aggregate blocks in the South East and East of England in 2015 based on annual production capacity of the
Group and its key competitors (namely, CEMEX, Lignacite and Tarmac), with a market share in this region of
34%. The Directors believe that the market for aggregate blocks in the South East and East of England is
currently running at an utilisation capacity of 85%.The Directors believe that the primary means of competition
are proximity to end markets, price and quality and availability of products.
The Groups precast concrete products are manufactured at its Hoveringham and Somercotes facilities and
include:
hollowcore floors, which are used for upper floors of multi-family and commercial developments and
provide long-term, robust solutions for masonry, concrete or steel structures at all levels;
beam and block flooring, a traditional and cost effective suspended flooring system for ground floors in
domestic and commercial applications. The system is quick and easy to install and is made using pre-
stressed, inverted T beams infilled with standard building blocks;
Jetfloor, which is the United Kingdoms first system to use expanded
polystyrene blocks combined with a structural concrete topping to provide
high levels of thermal insulation. Jetfloor also incorporates the Groups
unique Psi Block, which reduces thermal linear bridging and improves the
Psi value at floor and wall junctions, helping to reduce the overall dwelling
heat emission rate. Jetfloor was voted Best Building Fabric at the
Housebuilder Product Awards 2015;
a range of retaining walls, culverts, bridge decks, barriers and other custom-made products. The Groups
engineers and designers are able to advise on all aspects of a project and are supported by technical
specialists to ensure an efficient and effective solution; and
75
standard and custom-made precast concrete staircases and landings which are suitable for both commercial
and domestic projects.
Hollowcore floors Jetfloor Beam and block Retaining walls, Standard and bespoke
flooring culverts, bridge decks precast concrete
and barriers staircases and landings
Aquaflow SuDS Permeable block paving Concrete block paving Kerbs, edging, step
systems and transitions
76
The Group manufactures one of the largest ranges of masonry chimney products suitable for all domestic fuels.
Building regulations in the United Kingdom require a reduction in carbon emissions and significant savings can
be achieved by installing a chimney and flue system that uses a renewable fuel such as wood or wood pellets.
The Groups range of concrete liners have been developed to meet the growing demand for flue products to suit
modern efficient wood-burning, multi-fuel and gas-fired appliances and more stringent environmental
requirements.
The Red Bank range of Rediflow precast concrete gas flue systems are manufactured with an innovative tongue
and groove design to help eliminate the possibility of escaping flue condensates and to ensure the safe discharge
of flue gases.
Ridge tiles Concrete flue liners Air bricks Clay chimney pot
The Group manufactures its chimney and roofing solutions at a separate factory at its site at Measham.
77
Precast concrete: the Group is one of the main players in the United Kingdom precast concrete market. The
Directors estimate that the Group is the second largest producer of beam and block flooring in the United
Kingdom, with a market share of 18% (by production capacity) and the third largest producer of hollowcore
flooring, with a market share of 9% (by production capacity). Its main competitors in beam and block flooring
are Rackman Housefloors, Longley, CEMEX and Litecast and its main competitors in hollowcore flooring are
Bison Manufacturing, Creagh Concrete Products, FP McCann and Milbank.
Concrete block paving: the Groups main competitors within the block paving market in the United Kingdom are
Marshalls plc, Aggregate Industries (part of LafargeHolcim) and Brett.
Chimney and roofing solutions: the Groups main competitors within the chimney and roofing market in the
United Kingdom are Braas Monier and Wienerberger, although the Group manufactures a broad range of
chimney and roofing solutions and therefore has a broad range of competitors.
6. CUSTOMERS
The Groups products have a broad customer base, comprising builders merchants, residential homebuilders,
specialist brick merchants, contractors and subcontractors. The Groups customers are not necessarily the end
users of the Groups products, and the Groups end market exposure can be divided between the residential new
build, residential RMI and commercial construction markets.
The sale of the Groups bricks and blocks generated 218.0 million of revenue in the 2015, accounting for 75.1%
of the Groups total revenue for the year (before intersegment eliminations). The sale of the Groups bespoke
products generated 73.7 million of revenue in 2015, accounting for 25.4% of the Groups revenue for the year
(before intersegment eliminations). The Directors estimate that in 2015 approximately 55% of the Groups
revenue was generated from the UK residential new build construction market, 40% was generated from the UK
residential RMI construction market (primarily driven by the sale of Fletton bricks) and 5% was generated from
the UK commercial construction market.
The Group has a loyal customer base with a number of long-term customers, some of which have been customers
of the Group for over 40 years. The Groups top two customers together accounted for 29.2% of the revenue
generated by the Group in 2015, both of which are builders merchants and so represent a distribution channel to
many other end customers. In particular, as the end customers product of choice in RMI projects of Fletton-clad
buildings, many builders merchants will typically stock the Groups Fletton brick to satisfy customer needs and
78
the Fletton brick has therefore become a premium priced product. As is typical in the industry, the Group does
not have long-term contractual commitments with its key customers and therefore the Group depends on its key
strengths and strong brand reputation for repeat orders. The Directors believe that the Groups strong customer
relationships and ability to service a diverse range of residential property developers and builders merchants are
key to its success. The Directors believe its customers value the Groups brands for the extensive end user
demand they command, as well as for the breadth and reliability of the Groups products. Consequently, the
Group is focused on acquiring new customers, either by pitching to prospective customers identified by the
Groups management team, through cross selling opportunities or otherwise, or to those introduced to the Group
through one of the Groups distributors, such as the large or specialist builders merchants.
Many of the Groups customers have individually negotiated rebate arrangements, which are typically agreed
annually. However, some rebate arrangements are made with groups of smaller customers who have formed
buying consortiums. Rebates are typically based on a range of revenue or volume thresholds. The applicable
percentage rebate applied to the customers turnover is based on the threshold that is met, such that once a certain
turnover figure is reached, the rebate is calculated based on the applicable percentage applied to total turnover in
that year. Rebates provided by the Group in respect of its aircrete blocks and chimney and roofing solutions are
typically higher than with respect to bricks, aggregate blocks, and other bespoke products reflecting market
practice, with the higher aircrete rebates only applying to direct to merchants yard sales. Typically, the list price
is higher for these products, which is then offset by a higher rebate. This approach enables builders merchants to
maintain margin when negotiating sale prices with end users. Some of the Groups customers do have non-
standard rebates which are essentially a form of discount, such as a contribution to the marketing spend of a
builders merchant to market the Groups products. The Group also has formal framework agreements in place
with most of its customers that underpin any rebate arrangements with the customer, but contain no binding
commitments to supply or purchase.
7. PRODUCT QUALITY
The Group ensures quality and reliability of product through its quality management system which covers the
Groups entire manufacturing and supply process, from the procurement of raw materials, to the manufacture of
its products, to the supply of its products to its customers. The quality management system is certified through
the ISO9001 certification scheme. The Groups products are manufactured to European Union standards under
the CPR and carry the CE mark or hold a BBA certificate (to the extent the CPR does not apply). With the UK
Governments increasing focus on sustainable development, many construction companies are recognising the
need to demonstrate that their buildings are built with sustainability, the environment and safety in mind. The
Groups products are inherently sustainable building materials as they are durable, require little or no
maintenance and the masonry can be recycled at the end of their use. The Groups brick and block products and
precast concrete products also contribute to thermal mass, resulting in buildings which need less energy for
heating and cooling. In particular, the Groups ecostock brick is the most environmentally friendly brick in the
United Kingdom, with the lowest embodied CO2 available. The Group holds BES6001 responsible sourcing
certification across its product range, with the exception of its structural external wall insulation products due to
the nature of the product, and was the first brick manufacturer in the United Kingdom to achieve such
certification across its range of brick products. The Groups energy management, environmental quality
management and occupational health and safety management systems are all credited through the ISO
certification schemes (as further described in paragraph 13 of this Part 6 (Business of the Group) of this
Prospectus).
The Group operates a dedicated sales and customer service centre for its bricks and blocks business allowing the
Group to more effectively and efficiently respond to customer needs. The bricks and blocks sales team comprises
of 70 sales professionals, including a 30 strong field based sales team who are geographically organised and
actively go out to market, and who are supported by 40 sales co-ordinators who deal with orders from the
Whittlesey facility. The sales team include national sales and account managers, product sales and support
managers, and area sales managers, who report to the Groups commercial director. The Groups top customers,
79
including large national homebuilders and national builders merchants, each have a dedicated national account
manager to manage their and their customers needs and, where necessary, provide a tailored service designed to
complement the housebuilding project. The Groups area sales managers cover local or smaller customers. Due
to the custom nature of the Groups bespoke products, the Group maintains separate customer service teams and
ordering facilities for this business. The bespoke products sales team reports to the relevant general or
commercial manager for the product group. The Groups bespoke products sales teams work closely with the
bricks and blocks sales team to ensure continuity of service. The Groups sales teams receive in-depth technical
training on the Groups products to provide them with the requisite knowledge when dealing with the Groups
customers.
The precast concrete flooring products are complemented by the Groups full design and nationwide installation
services, while certain other bespoke products, including concrete block paving and chimney flues, are
complemented by the Groups specification and design service.
The Groups marketing strategy is to connect all key decision makers in the purchasing process. The Group
targets national and regional builders, contractors, self-builders, national builders merchants, independent
merchants, architects and special distributors which provides exposure to each of the Groups end markets. The
Group uses both traditional and digital channels to market its products. The Group produces a comprehensive
suite of product literature, which includes brochures and technical guides relating to the specification and use of
the products, and which are available in hard copy or through its website to customers and end users, with the use
of hardcopies targeted at key customers and builders merchants to support sales. The Group has a
comprehensive website and offers apps for Apple and Android devices, to assist its customers with brick and
block selection. The Group also provides an online technical enquiry facility and market leading specification
tools, such as the U-value Calculator for wall construction U-values, the Flue System Estimator with full
components, illustrations, product quantities and list prices and the Brick Blending Visualiser for designing
contemporary brick blends and facades. The Groups website also provides regular news and building products
updates. In 2013, the Group launched its online training academy, which provides help and assistance for
customers and end users alike and which the Directors believe further enhances the Groups brand reputation and
customer relationships. Forterra is a member of RIBAs continuing professional development providers
network, and offers architects and other construction professionals six RIBA approved professional development
seminars on various topics. All training materials are rigorously assessed by RIBA within strict best practice
guidelines and RIBA ensures content is kept up-to-date and relevant. RIBA also carries out continual quality
checks to maintain high standards.
The employment of Building Information Modelling (BIM) as a process has gained momentum over the last
three years. All of the Groups brick and block products, as well as certain of its bespoke products, are in BIM
format, which ensures that details of the Groups products are kept up-to-date and are accessible in an integrated
digital environment, giving users, such as architects, engineers and housebuilders, a clear overall vision of their
projects, as well as the ability to make informed decisions faster. The UK Government guidelines state that BIM
must be used on all public projects by April 2016, and private sector clients are likely to follow. The Directors
believe that, in the long-term, customers will only use manufacturers who have adopted BIM.
The Groups products are delivered by road in the United Kingdom. In order to maximise efficiency, the Group
endeavours to use its own leased fleet of crane-equipped delivery vehicles to deliver its bricks, aircrete blocks
and aggregate blocks to its customers. Of the bricks, aircrete blocks and aggregate blocks that the Group delivers,
approximately 60% are delivered using the Groups delivery vehicles with the remainder carried by third party
hauliers. The Groups other products are all transported by third party hauliers. The Groups delivery vehicles
have modern engines that are both fuel efficient and meet current EU emissions standards. The Group uses an
optimisation tool that assists with the efficient scheduling of deliveries, provides visibility of vehicle activity and
is linked to the Groups sales order processing system, which enables the delivery team to adapt to changes in
customer requirements.
80
9. THE FACILITIES
The map below shows the geographic locations of the Groups manufacturing facilities, its head office and its
potential development sites at Swillington, Clockhouse and Southampton:
Claughton
Howley Park
Head office (1) Swillington
Accrington
Meltham
Bricks (9)
Kirton
Aircrete blocks (2) Somercotes
Hoveringham
Measham
Aggregate blocks (2)
Wilnecote Desford
Bespoke products (5) Hams Whittlesey
Cradley
Hall Kings Dyke
Potential development
sites (3)
Northampton
Coleford
Milton
Newbury
Clockhouse
Southampton
The Groups manufacturing facilities are both owned and leased sites, which incur a number of costs including
rent and service charges. Some of the facilities include parts which are owned by the Group and other parts
which are leased. Most of the Groups leased (or part leased) facilities are subject to long-term leases.
Production
capacity Percentage
Manufactured per annum of total Owned /
Facility Address products (million) capacity Leased
81
Production
capacity Percentage
Manufactured per annum of total Owned /
Facility Address products (million) capacity Leased
Aircrete blocks
Production
capacity Percentage
Manufactured per annum of total Owned /
Facility Address products (m3) capacity Leased
Aggregate blocks
Production
capacity Percentage
Manufactured per annum of total Owned /
Facility Address products (m3) capacity Leased
Bespoke Products
Production
Manufactured capacity per Owned /
Facility Address products annum Leased
During the economic downturn, the Group closed seven of its brick manufacturing facilities, one aircrete block
manufacturing facility, ten aggregate block manufacturing facilities and four bespoke products manufacturing
facilities. It also mothballed its facilities at Accrington and Claughton, which were brought back online in 2015
and 2014, respectively, and retained two of its closed sites at Swillington and Clockhouse and its wharf at
Southampton where an aggregate block facility was formerly located. The Groups retained aggregate block
manufacturing facilities are located in the South East and East of England, where the Directors believe the
aggregate block market is most active.
In 2009, the Group opened its state-of-the-art soft mud brick facility at Measham, which is the most advanced,
efficient and sustainable brick manufacturing facility in the United Kingdom. The Measham facility incorporates
a range of environmental features, such as low energy and low waste production processes to make soft mud
82
bricks with the lowest embodied CO2 available. The kiln is designed so that heat output is used in other areas of
the facility, reducing energy consumption by up to 50% compared to other brick facilities. Water used in the
manufacturing process is recycled and raw material wastage is less than 1%. Some of the latest computerised
technology, along with a fully automated production process, makes the facility highly efficient. Precise
batching, blending and mixing techniques coupled with greater temperature control ensures consistent colour,
dimensional accuracy and high product quality. The Groups ecostock bricks are manufactured at the Measham
facility from raw materials sourced from an adjoining clay quarry and are the most environmentally friendly and
sustainable stock brick range in the United Kingdom. The Measham facility has capacity to produce up to
105 million soft mud bricks per annum.
In 2008, the Group opened its new 9.1 million purpose-built aggregate block and concrete block paving facility
at Whittlesey, located in the East of England, where the Group enjoys strong sales, and adjacent to one of the
Groups clay quarries where it excavates sand and gravel for the manufacture of its aggregate blocks. The
Whittlesey facility has an annual production capacity of 175,000 m3 aggregate blocks and replaced the old and
inefficient facility at St Ives which had a production capacity of 60,000 m3 aggregate blocks per annum. The
state-of-the-art manufacturing equipment installed at the facility is designed to achieve rapid cycle times and
optimum product quality, with a fully automated mould changeover system which means that a product mould
change is carried out six times quicker than the old manual procedure. In line with the Groups commitment to
health and safety, the facilitys humidity controlled environment and specialised machinery allows for earlier
handle ability of the products and ensures noise and dust control.
Between 2013 and 2015, the Group installed an integrated measurement system to monitor its manufacturing
equipment performance and reliability across its significant manufacturing facilities. The sophisticated Intouch
production monitoring equipment records production performance measures and other data and highlights any
issues with a facilitys equipment or processes in real time, thus allowing the Group to make efficiencies and to
react to unforeseen events more quickly. The Intouch system also allows the Group to measure performance
consistently across its significant facilities, allowing benchmarking and sharing of best practice, which the
Directors believe drives a culture of improvement in the business. The Intouch system has reduced
manufacturing downtime and has also increased the Groups utilisation capacity, operational productivity and
product quality. In 2014 and 2015, the Group also rolled out key efficiency principles at selected facilities,
including a dedicated operations room and daily operations review. It also implemented short interval controls on
identified manufacturing bottlenecks.
More recently, through 2015 and early 2016, the Group initiated investment in the following projects:
expansion of the kiln at the Groups brick manufacturing facility at Measham and the introduction of
innovative steam technology to reduce the brick drying cycle at a cost of 4.0 million, increasing brick
production capacity at the facility by 22% (19 million bricks) per annum;
modernisation and expansion of the Groups aircrete block facility at Hams Hall at a cost of 2.1 million,
increasing aircrete block production capacity at the facility by 9% (33,000 m3) per annum, whilst also
addressing safety and automation issues;
installation of a new packing machine at the Groups Accrington facility at a cost of 0.6 million,
eliminating the use of wooden pallets and standardising packaging formats across all brick manufacturing
facilities, which the Directors believe is expected to reduce operational costs by 0.3 million per annum,
assuming full output at the facility; and
installation of a new concrete casting equipment at the Groups bespoke products facility at Hoveringham at
a cost of 0.4 million, reducing employee headcount and the amount of cement required, which the
Directors believe will reduce operational costs by 0.3 million per annum, assuming full output at the
facility.
10. PROCUREMENT
Key raw materials used in the manufacture of the Groups brick products are clay and shale, both of which are
predominantly sourced from the Groups own clay reserves. The primary material used in the manufacture of the
Groups aircrete blocks is PFA and the primary materials used in the manufacture of the Groups aggregate
blocks are aggregates and cement. The Groups cementious materials and aggregates are currently sourced
principally from the HeidelbergCement Group, to a lesser extent from other third party suppliers and from the
Groups own reserves. Steel is also a key raw material to certain of the Groups products.
83
Procurement of raw materials from third parties is managed centrally, with pricing typically negotiated annually.
The Groups larger suppliers are typically engaged through the Groups formal procurement and tendering
process, with some smaller suppliers agreed locally. The Group typically relies on one supplier for each
commodity. However, most of the Groups raw materials are widely available commodities and, other than in
relation to PFA, the Group has not experienced any significant raw material shortages.
The Group generally attempts to pass increased costs, including higher raw material prices, onto its customers.
The operation of quarries requires planning permission from government authorities. Permission is granted in
respect of a specific quarry design, providing a specific volume of material which may be extracted over a
specific period of time. Therefore, once the authorised amount of material has been extracted or the period of the
permission has expired, it is necessary to apply for a renewal or extension of the planning permission. The Group
holds planning permissions over portions of its clay deposits and categorises its clay deposits substantially on the
basis of whether or not it holds planning permission to extract the clay.
The Group has its own quarries for the extraction of clay and shale. Approximately 93% of the clay and shale
used in the manufacture of the Groups brick products is extracted by the Group or by third party contractors
from the Groups quarries on land that it owns or leases under long-term leases in the vicinity of its brick
manufacturing facilities. Save for the extraction of clay and shale at the Groups Kings Dyke and Kirton quarries,
which represents approximately 38% of the Groups current usage, extraction of clay and shale at the Groups
quarries is subcontracted. Where clay extraction is subcontracted by the Group, it is generally stripped and
extracted on a number of occasions during the year, mostly during periods of better weather. The Group
purchases the remaining portion of its clay and shale (primarily specialty clays that are used in limited quantities)
from various suppliers.
The Directors estimate that the Group has in excess of Geographic locations of the Groups clay reserves
49 million tonnes of clay reserves across 12 quarries in
the United Kingdom, 10 of which are located within
approximately one mile of the Groups manufacturing
facilities and potential future development sites, which
the Directors estimate is equivalent to over 30 years of
brick production based on the Groups existing brick
Claughton
production. In addition, the Directors estimate that the Swillington
Group has a further 36 million tonnes of clay resources
Accrington
that do not currently have planning permission for Howley Park
extraction, which together with its planned clay reserves Waingroves
Kirton
provides the Group with in excess of 85 million tonnes
Measham
of clay resources which the Directors estimate is Heather
Wilnecote
equivalent to over 55 years of brick production based on Desf ord Kings Dyke
the Groups existing brick production. The Group has a
quarry in close proximity to its Wilnecote facility, which
the Directors estimate has only two years of reserves
remaining. The Group is currently negotiating the Clockhouse
extension of the quarry with the local landowner, which
the Directors estimate will provide the Group with a
further ten years of reserves. In connection with this
extension, the Group will be required to seek an
8 active clay reserves with associated brickworks
extension to its existing planning permission for the 9
1 active standalone clay reserve active
Wilnecote site, which the Directors estimate is likely to
take 12 months to secure. The Group intends to acquire 2 f uture reserves suitable f or establishment of new brickworks
further clay and shale reserves in the future at the 1 mothballed standalone clay reserve
appropriate time and in line with its growth strategy.
Eight of the Groups nine active quarries are located in close proximity to its brick manufacturing facilities,
allowing easy access to raw materials for the manufacture of its bricks and other clay or shale based products.
84
The Groups Cradley facility is not integrated with a clay quarry in close proximity, but focuses on low volumes
of high margin specialised bricks and which uses minimal clay quantities.
During the excavation of clay and shale at its quarry at Kings Dyke, the Group also excavates sand and gravel
which the Group uses for the manufacture of its aggregate blocks.
Recycled materials
The Group recycles brick manufacturing waste at its Kings Dyke facility and aircrete block manufacturing waste
from its Hams Hall and Newbury facilities for use in the manufacture of its aggregate blocks.
Steel
Steel is used predominantly in the Groups flooring and other precast products. The Group purchases its steel on
a quarterly basis from a number of different suppliers through the Groups formal procurement and tendering
process.
Energy
The Group uses significant amounts of energy, including natural gas and electricity, in the manufacture of its
products and the related expense is a significant component of the Groups costs of sales, accounting for 12.5%,
12.4% and 11.2% of the Groups total expenses for 2013, 2014 and 2015, respectively.
85
Natural gas is one of the principal sources of energy the Group uses to operate its brick operations. The Group
also uses a substantial amount of electricity throughout the Groups manufacturing processes. The Group has
forward purchased approximately 75% of the natural gas for use in its operations during 2016 and may forward
purchase its energy in the future. The remainder of the natural gas used in the Groups brickworks is sourced at
current market prices from it contracted gas supplier.
The Group also uses a substantial amount of diesel to operate its delivery vehicles, mobile plant and other
vehicles.
11. EMPLOYEES
As at 31 December 2015, the Group had approximately 1,600 employees, all of which worked in the United
Kingdom. As at 31 December 2014 and 31 December 2013, the Group had approximately 1,400 employees.
There are currently two trade unions recognised by the Group, GMB and Unite. As at 31 December 2015,
approximately 41% of the Groups employees, located across seven of the Groups brick manufacturing
facilities, were covered by national collective bargaining agreements, which are currently in place with GMB and
Unite and are in effect until terminated on 6 months notice. Employees at three of the Groups facilities,
accounting for approximately 15% of the Groups employees as at 31 December 2015, have local collective
bargaining agreements in place which relate to any negotiations at the individual facility. Employees at the
remaining eight facilities have no such agreements in place. The collective agreements provide for a broad range
of protections for employees of the Group, including enhanced severance packages.
The Directors believe that industrial relations remain good across the Group, with an on-going productive
dialogue between staff and management.
The Directors believe that the Groups intellectual property rights are adequately protected and that any
expiration of patents and patent licenses would not have a material adverse effect upon the Groups business,
financial condition or results of operations.
On 5 October 2015, Forterra Building Products entered into the Trademark Agreement (as further described in
paragraph 12.15 of Part 14 (Additional Information) of this Prospectus) pursuant to which Forterra Building
Products, Stardust Holdings and certain members of the Forterra NA Group have agreed, subject to certain
exceptions, that each member of the Group and the Forterra NA Group shall have the exclusive right to use the
Forterra name in its relevant jurisdiction, shall not contest the use by the other members of the Group and the
Forterra NA Group of the Forterra name in their relevant jurisdiction, and shall bear its own costs for
maintaining the rights to the name in its territory without seeking reimbursement from any other party to the
agreement. Please refer to the paragraph entitled The Groups rebranding efforts could have a material adverse
effect on the Group of Part 1 (Risk Factors) of this Prospectus.
The Group is not aware of any material legal proceedings that have been brought against it for infringement of a
trademark or patent or of any challenges against any of its patents that could have a material adverse effect on the
Groups business.
86
13. ENVIRONMENTAL AND HEALTH AND SAFETY MATTERS
The Groups operations and properties are subject to UK environmental and occupational health and safety laws
and regulations, including those pertaining to air emissions, water discharge, water extraction, the use, storage,
discharge, handling, disposal, transport and clean-up of solid and hazardous materials and waste, the storage and
disposal of hazardous substances and waste, contaminated land, the health and safety of employees and the
protection of the environment and natural resources. As the Groups operations involve, and have involved, the
handling, transportation and distribution of materials that are, or could be classified as, toxic or hazardous, or
otherwise as pollutants, there is some risk of contamination and environmental damage inherent in its operations
and the products it handles, transports and distributes. Breaches of environmental laws, applicable authorisations
or permits can result in significant fines or civil or criminal sanctions. In addition, the discovery of contamination
at the Groups manufacturing facilities could require it to incur substantial clean-up costs.
As a manufacturer of clay bricks and concrete products in the European Union, the Group is subject to significant
legislation relating to industrial operators and their industrial and transport emissions, including the Industrial
Emissions Directive 2010/75/EU (IED). The IED is a recast of seven existing pieces of EU legislation relating
to industrial emissions (including, in particular, the Integrated Pollution Prevention and Control Directive
(2008/1/EC)). It lays down rules on integrated prevention and control of pollution arising from industrial
activities. It also provides rules designed to prevent or, where that is not practicable, to reduce emissions into air,
water and land and to prevent the generation of waste. The introduction of IED made little change to existing
operational permits, although introduced a number of changes including a new condition for periodic emissions
monitoring and a requirement for a detailed baseline report to be prepared in respect of sites that use, produce or
release relevant hazardous substances. The IED requires, among other things, installations within its scope to
operate under a permit. Member State regulators must set permit conditions for an operator so as to achieve a
high level of protection for the environment, based on the use of Best-Available Techniques (BAT). The IED
defines BAT as the most effective and advanced stage in the development of activities and their methods of
operation which indicates the practical suitability of particular techniques for providing the basis for emission
limit values and other permit conditions designed to prevent and, where that is not practicable, to reduce
emissions and the impact on the environment as a whole. BAT is determined for each activity and operation that
has an impact on the environment. The determination of BAT relies on sector specific BAT Reference documents
(BREF). The ceramics BREF was first published in 2007 and is due for review in 2017, with the process likely
to last for approximately two years. If any changes are required, operators will also likely have a further period of
time to make any necessary adjustments. When a facility is closed, the IED also requires the operator to return
the site to the condition described in the baseline report.
The Groups products are inherently sustainable building materials as they are durable, require little or no
maintenance and can be recycled at the end of their use. The Groups brick and blocks products and precast
concrete products also contribute to thermal mass, resulting in buildings which need less energy for heating and
cooling. In particular, the Groups ecostock brick is the most environmentally friendly brick in the United
Kingdom, with the lowest embodied CO2 available. The Group holds BES6001 responsible sourcing certification
across its product range, with the exception of its structural external wall insulation products due to the nature of
the product. The Groups energy management, environmental quality management and occupational health and
safety management systems are all certified through the independent and internationally recognised certification
schemes. All of the Groups manufacturing facilities comply with ISO14001 standards for environmental
management. The Groups manufacturing facilities and operations are also credited with ISO50001, the energy
management systems certification, and the Groups occupational health and safety management system is
credited through the BSOHSAS18001 certification across its product range.
The Group actively monitors its emissions, and has done so for well over a decade. Where necessary, the Groups
manufacturing facilities include pollution control devices (also known as scrubber systems) designed to reduce
pollutant levels. Please also refer to the paragraph entitled Energy efficiency in this paragraph 13 of this Part 6
(Business of the Group) of this Prospectus.
87
Water quality
The Water Framework Directive 2000/60/EC (the WFD) is the principal European Union legislation covering
water quality. The WFD works toward water resource sustainability by mandating Member State monitoring of
watercourses. In the United Kingdom, the Water Environment (Water Framework Directive) (England and
Wales) Regulations 2003 (SI 2003/3242) and similar legislation with respect to Scotland and Northern Ireland
implement the WFD. The Water Act 2003 addresses use and management of ground and surface water by,
inter alia, reinforcing pre-existing restrictions imposed by water use licensing against any contamination, such as
through the disposal of sewage or wastewater and the handling of potentially dangerous materials. Stricter
licencing and exemption discharge thresholds were implemented, remediation provisions established and the UK
Environment Agency or the Secretary of State was empowered to time-limit, alter or revoke permits and
administer fines or establish civil or criminal liability for non-compliance.
The Group regularly tests water discharges at its sites and is materially compliant with the water quality rules and
regulations applicable to it. The Groups manufacturing facilities have been mapped for underground drains and
discharge points are known and are monitored, with violations self-reported to relevant regulators. Water is
recycled and reused on site wherever practicable. As part of the Groups 2020 sustainability targets, it aims to
reduce its main water consumption by 25% between 2010 and 2020 and implement biodiversity action plans for
all its active quarries.
Waste management
The Groups operations produce hazardous and non-hazardous waste and the Group is required to comply with
the following waste management laws and regulations.
As with water management, waste management in the European Union is addressed by framework directive
2008/98/EC (the Waste Directive), which sets industrial recycling targets as part of an explicit waste
hierarchy, which emphasises prevention, re-use and recycling over disposal. The Waste Directive incorporates
the polluter pays principal and extended producer responsibility. It also incorporates provisions on hazardous
waste and waste oils from previous directives. The Waste Directive requires that Member States adopt waste
management plans and waste prevention programmes. In England and Wales, the Waste Directive was
implemented by the Waste (England and Wales) Regulations 2011 (as amended). These regulations make
amendments to hazardous waste controls and definitions and require businesses to take all such measures as are
reasonable in the circumstances to apply the waste hierarchy to prevent waste. A condition in new or revised
permits places a duty on the permit holder to apply the hierarchy. Businesses must also apply the waste
management hierarchy when transferring waste and include a declaration on their waste transfer note or
consignment note confirming they have complied with that duty. A permit condition will also be required for the
mixing of hazardous wastes. The Environmental Protection Act 1990 also imposes a general duty of care on all
parties (from producers through to those conducting final disposal or treatment) to take reasonable precautions to
ensure proper transfer and disposal/treatment of waste.
Over the past decade, the Group has significantly reduced its waste disposals by actively recycling much of its
solid wastes, including inert fired brick hardcore. The Group recycles brick manufacturing waste at its Kings
Dyke facility and aircrete block manufacturing waste from its Hams Hall and Newbury facilities for use in the
manufacture of its aggregate blocks. The Group has set corporate target to reduce waste to landfill from its
operations by 85% by between 2010 and 2020. Water used in the manufacturing process at the Measham facility
is recycled and raw material wastage is less than 1%. Each of the Groups manufacturing facilities has an action
plan in place to support this target and each divisions performance is reported to the management team on a
monthly basis. The Group continues to work with waste contractors who will recover materials and put these
back into beneficial use at waste transfer stations, with the ultimate long-term goal of 100% recovery of non-
hazardous materials taken off site. For example, at the Hoveringham facility the Directors estimate that
approximately 99% of waste or scrapped concrete material is crushed and recycled by third parties and at the
Somercotes facility the Directors estimate that approximately 99% of all waste and scrapped materials is recycled
by a neighbouring waste management business.
88
The Group is potentially exposed to such liabilities in a number of ways. In particular, the Group owns a number
of sites in the United Kingdom that are, or have been, used as landfills. One of those landfills is still operational
and is operated by a third party tenant that holds an environmental permit in respect of the site. The Group seeks
to manage its liability risk in relation to these sites primarily through a combination of on-going monitoring and
by seeking to ensure that it is not the owner but rather the landfill operator and licence holder who is responsible
for the site (such third party operators would typically be required, under the operating permit, to have adequate
financial provision in place to address any material environmental, closure and post-closure costs). Whilst the
Directors believe that no provision is currently required in respect of these landfill sites, the steps outlined above
may not fully mitigate the Groups risks in respect of the landfill sites and unexpected liabilities may arise in the
future.
In the United Kingdom, the excavation of raw materials is subject to special operating permits and occasionally
to mining rights. Such permits may be subject to stringent requirements to ensure an environmentally sound
excavation process in compliance with environmental laws. In the United Kingdom, the environmental impact of
mining activities are principally governed by planning law, the Quarries Regulations 1999 and in part by other
environmental legislation, such as the Environmental Permitting Regulations 2010 (as amended). Permits
typically require remediation, re-cultivation and renaturation of the mining areas after the excavation of raw
materials, and operators are obligated to bear any cost in connection with such restoration obligations. The Group
makes provisions for its restoration obligations in its financial statements. Non-compliance with the applicable
laws, regulations or other provisions may result in administrative fines or criminal liability.
The Group commissions regular environmental assessments of its brickworks, quarries and landfill sites from
third parties. It also conducts biodiversity studies on its sites to investigate and relocate protected wildlife. The
Groups operations are controlled and legislated by various regulatory bodies such as the Environment Agency
and the Planning Authorities, who in turn carry out regular checks to ensure appropriate compliance with relevant
enabling permissions, consents and conditions.
Energy efficiency
The European Unions Energy Efficiency Directive 2012/27/EU (the EED) establishes a set of binding
measures to help the EU reach its 20% energy efficiency target by 2020. Under the EED, all EU countries are
required to use energy more efficiently at all stages of the energy chain from its production to its final
consumption. The EED was implemented in England and Wales via a series of legislative measures in 2014. As
part of the initiative, the EED mandates energy audits by large companies and the active use of insulation and
other heating system improvements, and requires proportionate penalties to be imposed for non-compliance.
The Group places great importance on energy efficiency and the Group has obtained ISO14001 environmental
management certification across all of its manufacturing facilities. All of the Groups manufacturing facilities
have also achieved ISO50001 energy management systems certification. ISO50001 is specifically cited in
European Commission guidance on EED implementation. The Group also complies with the UK Energy Savings
Opportunity Scheme, which regulates the Groups operations. Over the past five years the Group has also made
significant capital investments in kiln and dryer technologies to reduce energy use and the vast majority of the
Groups carbon dioxide emissions are covered by the European Union Emissions Trading Scheme (EUETS) or
the United Kingdoms equivalent opt-out scheme. As the Groups production capacity increases or if the Group
opens new manufacturing facilities, it may be required to increase its carbon allowances at its manufacturing
facilities (or trade for additional allowances under the EUETS) and/or obtain new allowances for new sites.
The Group has set a corporate target to reduce carbon emissions by 10% and energy use by 5% between 2010
and 2020. The Measham facility, which the Group opened in 2009, has been designed to a BREEAM very good
standard and incorporates a range of environmental features, such as low energy and low waste production
processes to make soft mud bricks with the lowest embodied CO2 available. The kiln is designed so that heat is
recycled for use in other areas of the facility and reduces energy consumption by up to 50% compared to
conventional brick facilities of its type. The Group regularly monitors its energy consumption and the related
emissions by fuel type and operates under ISO50001. The energy management system is regularly third party
audited to ensure compliance.
89
Employee health and safety
As an employer in the EU, the Group must comply with the European Framework Directive on Safety and Health
at Work (Directive 89/391/EEC), which guarantees minimum safety and health requirements throughout Europe
as well as associated directives on specific topics, for example, Directive 89/656/EEC (personal protective
equipment), Directive 99/92/EC (risks from explosive atmospheres) and Directive 92/104/EEC (workers in
mineral-extracting industries), among others. The relevant directives have been incorporated into English law;
relevant legislation includes, but is not limited to: the Health and Safety at Work Act 1974, the Management of
Health and Safety at Work Regulations 1999, the Provision and Use of Work Equipment Regulations 1998,
Construction (Design and Management) Regulations 2015 and Quarries Regulations 1999. Under such laws and
regulations, employers typically must establish the conditions and the management of work in a manner that
effectively prevents dangers to employees. In particular, employers must observe certain medical and hygienic
standards and comply with certain occupational health and safety requirements, such as permissible maximum
levels of noise in the workplace, the use of protective clothing and requirements relating to maximum
temperatures and air ventilation.
Interpretation of the legislative requirements is further supported in the United Kingdom by Approved Codes of
Practice. These documents are used to help define the policies and procedures the Group has in place for all
employees to effectively manage health and safety. The Group has a team of 21 operations managers responsible
for occupational health and safety, who support the operational employees in all aspects of health and safety
management and leadership. The role of operations manager is usually undertaken by the plant manager at the
Groups manufacturing facilities and by the Groups transport manager, who holds the operators licence and is
responsible for the Groups distribution fleet. Operational managers either hold, or are working towards, the
National Examination Board in Occupational Safety and Healths national general certificate in occupational
health and safety, which is the most widely held health and safety qualification in the United Kingdom. It
provides a broad understanding of health and safety issues to ensure that health and safety risks are managed
effectively. Each operations manager is supported by the Groups head of health and safety who, along with two
additional specialist advisers, provide both advice and support to those managers as well as monitoring
compliance of the Groups health and safety policies.
The Group has training programmes in place to ensure all employees are competent and able to carry out their
duties. The Groups operations managers are also tasked with holding regular proactive safety conversations
with both employees and contractors at its manufacturing facilities and distribution centres to both highlight and
discuss safety concerns as well as praise good practice. The Groups personnel held a total of 9,817 and 13,179
proactive safety conversations with the Groups employees and contractors in 2014 and 2015, respectively, and
reduced the number of injuries from 94 in 2014 to 88 in 2015, with 11 of those injuries in 2015 resulting in lost
working time. The Group is aiming to reduce the number of injuries in 2016, with no lost time injuries having
occurred as at the date of this Prospectus. The Group also operates a forum called Building Safety Together.
This allows the Groups management, operations managers and employees to engage within a formal framework
that promotes the sharing of best practice across the business.
The Group prepares a detailed monthly report and set of health and safety key performance indicators. These
reports are provided to the Groups management, the head of health and safety and the operations managers to
ensure both full transparency of health and safety related issues and share good practice. The Group tracks and
reports lost time incidents, incidents requiring medical treatment and incidents that are categorised as a near miss
or dangerous occurrence, among others.
The Sentencing Councils Guidelines on Health and Safety, Corporate Manslaughter and Food Safety and
Hygiene offences (the Guidelines) came into effect on 1 February 2016 and apply to incidents regardless of
the date of the offence. The Guidelines establish a tougher sentencing environment for large companies that
commit serious breaches of health and safety laws (including the Health and Safety at Work Act 1974 and the
various health and safety regulations which sit under it, such as the Provision and Use of Work Equipment
Regulations 1998 and the Construction (Design and Management) Regulations 2015). Although it is expected
that, pursuant to the Guidelines, less serious offences and offences involving individuals and smaller
organisations will be sentenced in broadly the same manner as previously, offences committed by large
companies, such as the Group, involving a high degree of harm and culpability will be sentenced more
stringently than at present with higher fines or penalties.
Environmental authorisations or permits required for some of the Groups operations may be reviewed, modified
or revoked by the issuing authorities. The Directors believe that the Group is in material compliance with the
environmental and health and safety laws applicable to the Groups business. The Groups occupational health
90
and safety management system is credited through the IBSOHSAS18001 certification across its product range.
As at the date of this Prospectus, the Groups environmental and health and safety costs have not significantly
affected its business, results of operations or financial position.
The Directors recognise that the Groups operations may have an impact on the local community, and therefore
strive to be good neighbours. Many of the Groups larger sites operate liaison committees attended by
councillors, council officers and residents representatives.
The Group seeks to support national and local charities, including providing materials for their building projects
locally.
15. INSURANCE
The Group maintains insurance policies for property damage and business interruption, public and products
liability, employers liability, motor fleet liability, construction liability, general liability, business travel and
directors and officers liabilities. Other miscellaneous insurance policies are in effect covering the Groups
assets and operations for each of its businesses.
The Directors believe that the Groups insurance coverage is in accordance with industry custom, including the
terms of and the coverage provided by such insurance. The Groups policies are subject to standard deductions,
exclusions and other limitations and therefore insurance might not necessarily cover all losses incurred by the
Group. The Group cannot provide any assurance that it will not incur losses or suffer claims beyond the limits of,
or outside the relevant coverage of, the Groups insurance policies.
16. PENSIONS
The Directors and employees of the Group currently participate in the Forterra Group Personal Pension Plan
(FGPPP), which is a defined contribution pension arrangement under which the Groups obligations are
limited to payment of contributions at agreed rates.
Historically, and prior to the Lone Star Acquisition, employees of Forterra Building Products were members of
the Hanson Industrial Pension Scheme (the HIPS), an occupational pension scheme consisting of several
sections, some of which operated on a defined benefit basis. Following the Lone Star Acquisition, from 14 March
2015, the Group offered membership of the FGPPP. The Group has no ongoing funding obligations in relation to
the HIPS.
Assuming that there are sufficient distributable reserves available at the time, the Directors intend that the
Company will pay an interim dividend and a final dividend in respect of each financial year in the approximate
proportions of one-third and two-thirds, respectively, of the total annual dividend. The first dividend to be paid
by the Company is intended to be an interim dividend in respect of the year ending on 31 December 2016, to be
91
announced with the Companys interim results in September 2016 and paid in October 2016. The Directors
intend to recommend a final dividend in March 2017, which will be announced together with the Companys
annual results, in respect of the financial year ending 31 December 2016, and which will be paid in July 2017.
For the current financial year ending 31 December 2016, the Directors intend that the Company declare an
aggregate dividend equivalent to approximately 40% of the Groups adjusted net income, to be paid as an interim
and a final dividend in the relevant proportions and to be adjusted on a pro rata basis for the period from
Admission to 31 December 2016. Thereafter, Forterra intends to follow a progressive dividend policy as outlined
above.
92
PART 7
DIRECTORS, SENIOR MANAGERS AND CORPORATE GOVERNANCE
Directors
Name Age Position
The business address of each of the Directors is 5 Grange Park Court, Roman Way, Northampton, NN4 5EA,
United Kingdom.
93
businesses, including those in engineering and all types of construction, including residential and commercial
markets. He currently serves as a Senior Independent Non-Executive Director and member of the risk
management and audit committee, remuneration committee, safety, health and environment committee and
nomination committee of Kier Group plc and is a member of the audit committee of the National Trust. Between
1990 and 2015, Justin held various roles within the Keller Group plc, and became Chief Operating Officer in
2003 and Chief Executive Officer in 2004 until 2015. Previously, Justin was a Financial Manager at Reuters PLC
and trained as a Chartered Accountant at Deloitte Haskins & Sells (Scotland) (now part of PWC). Justin is a
qualified Chartered Accountant, holds a Bachelor degree in Accountancy from Glasgow University and an
advanced management qualification from INSEAD.
94
Senior Managers
The Companys current senior management team is as follows:
Name Position Age
Corporate governance
Corporate Governance Code
The Board is committed to the highest standards of corporate governance. As at the date of this Prospectus and
on, and following, Admission, the Board will comply with the UK Corporate Governance Code published in
September 2014 by the Financial Reporting Council (the Corporate Governance Code) except as set out
below. The Board will also take account of institutional shareholder governance rules and guidance on disclosure
and shareholder authorisation of corporate events.
The Corporate Governance Code recommends that a UK listed companys chairman be independent on
appointment. The Board considers that the Chairman of the Group was independent on appointment. The
Chairmans role is to ensure good corporate governance. His responsibilities will include leading the Board,
ensuring the effectiveness of the Board in all aspects of its role, ensuring effective communication with
Shareholders, setting the Boards agenda and ensuring that all Directors are encouraged to participate fully in the
activities and decision-making process of the Board.
The Corporate Governance Code recommends that at least half the board of directors of a UK listed company,
excluding the chairman, should comprise non-executive directors determined by the board to be independent in
character and judgement and free from relationships or circumstances which may affect, or could appear to
affect, the directors judgement.
95
The Board has concluded that Justin Atkinson and Divya Seshamani are independent non-executive directors for
the purposes of the Corporate Governance Code and that their appointments as independent Non-Executive
Directors are in the best interests of Shareholders. The Board considers its independent Non-Executive Directors
to bring strong judgement and considerable knowledge and experience to the Boards deliberations.
As the Board will consist of the Chairman, two Executive Directors, two independent Non-Executive Directors
and two Non-Executive Directors (who are not considered to be independent by virtue of their relationship with
the Selling Shareholder), the Company does not, at the date of this Prospectus and will not at Admission, comply
with the Corporate Governance Codes recommendation that at least half the Board, excluding the Chairman, are
independent. As the Board will have two experienced independent Non-Executive Directors as well as a Non-
Executive Chairman (who was independent on appointment), the Board is satisfied that no individual will
dominate the Boards decision-taking, no undue reliance will be placed on particular individuals and the Board
will be capable of operating effectively as at the date of this Prospectus and on and after Admission. However,
the Company intends to move towards compliance with the requirements of the Corporate Governance Code
within a reasonable period of time following Admission.
Paul Lester has been appointed as chair of the Remuneration Committee. Therefore, as at the date of this
Prospectus and on Admission, the Company will not comply with the recommendation of the Corporate
Governance Code which provides that the chairman, if considered independent on appointment, may be a
member, but not chair, of the Remuneration Committee. The Board considers Paul Lester to have the necessary
experience and skill to chair the Remuneration Committee following Admission, that will also have among its
members, two experienced independent Non-Executive Directors, and the Company intends to move towards
compliance with the requirements of the Corporate Governance Code within a reasonable period of time
following Admission.
Further, pursuant to the Relationship Agreement between the Selling Shareholder and the Company, it has been
agreed that following Admission: (a) if the Selling Shareholders shareholding in the Company falls below 20%,
a Lone Star Director will be removed from the Board; (b) if the Selling Shareholders shareholding in the
Company falls below 10%, a Lone Star Director will be removed from the Board. The Company and the Selling
Shareholder has agreed to use their reasonable endeavours to procure that within 18 months of Admission (or
such earlier date as may be required by a competent government or regulatory authority in the United Kingdom)
the Board has either (i) a majority of independent Non-Executive Directors or (ii) a chairman who is determined
by the Board to be independent pursuant to the Corporate Governance Code and independent Non-Executive
Directors, who together with the then existing independent Non-Executive Directors, form the majority of the
Board. As a result of these obligations, it is envisaged that the Board will become fully compliant with the
Corporate Governance Code.
The Corporate Governance Code also recommends that the Board should appoint one of the independent Non-
Executive Directors as the Senior Independent Non-Executive Director and Justin Atkinson has been appointed
to fulfil this role. The Senior Independent Non-Executive Director will be available to Shareholders if they have
concerns which the Chairman, the Chief Executive Officer or the Chief Financial Officer has failed to resolve
following contact through the normal channels or when contact with these individuals is inappropriate. It is the
Companys intention that each of the Directors will stand for re-election on an annual basis. The Board will
report to Shareholders on compliance with the Corporate Governance Code in accordance with the Listing Rules.
The Board intends to meet at least six times a year and may meet at other times as required or otherwise at the
request of one or more of the Directors. As envisaged by the Corporate Governance Code, the Board has
established an Audit Committee, a Nomination Committee, a Remuneration Committee and a Risk Committee. If
the need should arise, the Board may set up additional committees as appropriate.
Audit Committee
The Audit Committees role is to assist the Board with the discharge of its responsibilities in relation to financial
reporting, including reviewing the Groups annual and half-year financial statements and accounting policies,
internal and external audits and controls, reviewing and monitoring the scope of the annual audit and the extent
of the non-audit work undertaken by external auditors, advising on the appointment of external auditors and
reviewing the effectiveness of the internal audit, internal controls, whistleblowing and fraud systems in place
within the Group. The Audit Committee will normally meet not less than four times a year.
The Audit Committee is chaired by Justin Atkinson and its other members are Paul Lester and Divya Seshamani.
The Corporate Governance Code recommends that all members of the Audit Committee be non-executive
96
directors, independent in character and judgement and free from any relationship or circumstance which may,
could or would be likely to, or appear to, affect their judgement and that one such member has recent and
relevant financial experience. The Board considers that the Company complies with the requirements of the
Corporate Governance Code in this respect.
Nomination Committee
The Nomination Committee assists the Board in discharging its responsibilities relating to the composition of the
Board. The Nomination Committee is responsible for evaluating the balance of skills, knowledge and experience
on the Board, the size, structure and composition of the Board, retirements and appointments of additional and
replacement Directors (other than those appointed by the Selling Shareholder in accordance with the terms of the
Relationship Agreement) and will make appropriate recommendations to the Board on such matters.
The Nomination Committee is chaired by Paul Lester and its other members are Justin Atkinson and a Lone Star
Director. The Corporate Governance Code provides that a majority of the members of the Nomination
Committee should be independent Non-Executive Directors. As the Companys Nomination Committee will
consist of one independent Non-Executive Director as well as a Chairman (who was independent on
appointment), the Company will comply with the Corporate Governance Code recommendation that a majority
of the members of the Nomination Committee should be independent Non-Executive Directors. Only members of
the Nomination Committee have the right to attend committee meetings. However, other individuals such as the
Chief Executive Officer, the head of human resources and external advisers may be invited to attend for all or
part of any meeting, as and when appropriate and necessary.
The Nomination Committee will meet formally at least once a year and otherwise as required. It has
responsibility for considering the size, structure and composition of the Board and the retirement and
appointment of Directors and will make appropriate recommendations to the Board in relation to these matters.
Remuneration Committee
The Remuneration Committee assists the Board in determining its responsibilities in relation to remuneration,
including making recommendations to the Board on the Groups policy on executive remuneration, determining
the individual remuneration and benefits package of each of the Executive Directors and recommending and
monitoring the remuneration of senior management below Board level. The Remuneration Committee is chaired
by Paul Lester and its other members are Justin Atkinson and Divya Seshamani. The Corporate Governance
Code provides that the Remuneration Committee should comprise at least three independent non-executive
directors and provides that the Chairman may also be a member, but not the chair, of the committee if he was
considered independent on appointment as Chairman. As described above, as the Chairman will also chair the
97
Remuneration Committee, the Company will not comply with the Corporate Governance Code on Admission.
The Board considers Paul Lester to have the necessary experience and skill to chair the Remuneration Committee
following Admission, that will also have among its members, two experienced independent Non-Executive
Directors, and the Company intends to move towards compliance with the requirements of the Corporate
Governance Code within a reasonable period of time following Admission.
The Remuneration Committee will meet formally at least twice each year and otherwise as required. The
Remuneration Committee considers all material elements of remuneration policy, remuneration and incentives of
Executive Directors and senior management with reference to independent remuneration research and
professional advice in accordance with the Governance Code and makes recommendations to the Board on the
framework for executive remuneration and its cost. The Board is then responsible for implementing the
recommendations and agreeing the remuneration packages of individual Directors. The Remuneration Committee
is also responsible for making recommendations for the grants of awards under Share Plans (as described in
paragraph 7 of Part 14 (Additional Information) of this Prospectus). In accordance with the Remuneration
Committees terms of reference, no Director may participate in discussions relating to his own terms and
conditions of remuneration. Non-Executive Directors and the Chairmans fees will be determined by the full
Board.
Risk Committee
The Risk Committee assists the Board in ensuring that matters of all risks, including health, safety and security
are managed effectively and proactively throughout the Group. The Risk Committee will consist of the
Chairman, the Chief Executive Officer, the Chief Financial Officer and the Independent Non-Executive
Directors, with other executives of the Group, such as the head of the Groups Health and Safety and Risk
Management, to be invited by the other members of the Risk Committee as and when required. The Risk
Committee will be chaired by Divya Seshamani.
The Risk Committee will meet formally at least four times a year and otherwise as required. Duties of the Risk
Committee include reviewing the Groups risk register, risk and health and safety policy, reviewing compliance
with applicable health and safety directives and legislation, reviewing audit findings and reviewing the
effectiveness of the Groups risk management team (including the quality and numbers of directly involved
engineers and other staff).
The principal purpose of the Relationship Agreement is to ensure that the Company can carry on an independent
business as its main activity. The Relationship Agreement contains, among other things, undertakings from the
Selling Shareholder that:
(a) the Company and each other member of the Group shall operate on a basis that is independent from the
Selling Shareholder and its associates and neither the Selling Shareholder nor any of its associates shall
materially influence the day-to-day running of the Company or any other member of the Group at an
operational level;
(b) all transactions and arrangements between any member of the Group and Selling Shareholder or any of its
associates shall be conducted in accordance with the Listing Rules and will be conducted at arms length
and on normal commercial terms;
98
(c) neither the Selling Shareholder nor any of its associates will take any action that would have the effect of
preventing the Company from complying with its obligations under the Listing Rules;
(d) neither the Selling Shareholder nor any of its associates will propose or procure the proposal of a
shareholder resolution which is intended or appears to be intended to circumvent the proper application of
the Listing Rules;
(e) neither the Selling Shareholder nor any of its associates will take any action that would have the effect of
preventing the Company or any other member of the Group from complying with applicable provisions of
the Listing Rules, the Disclosure and Transparency Rules, FSMA and the Corporate Governance Code
(save, in the case of the Corporate Governance Code only, as disclosed in this Prospectus or as previously
agreed in writing by a majority of the independent Directors); and
(f) the Selling Shareholder shall, and shall use all reasonable endeavours to procure that its associates shall,
abstain from voting on any resolution required by paragraph 11.1.7R(4) of the Listing Rules to approve a
related party transaction involving the Selling Shareholder or any of its associates.
Pursuant to the Relationship Agreement, the Selling Shareholder is able to appoint (a) two Non-Executive
Directors to the Board for so long as it and its associates are entitled to exercise or to control the exercise of 20%
or more of the votes able to be cast on all or substantially all matters at general meetings of the Company; and
(b) one Non-Executive Director to the Board for so long as it and its associates are entitled to exercise or to
control the exercise of 10% or more of the votes able to be cast on all or substantially all matters at general
meetings of the Company. The first such appointees are Bradley Boggess and Richard Cammerer. For so long as
the Selling Shareholder and its associates are entitled to exercise, or control the exercise of, 10% or more of the
votes able to be cast on all or substantially all matters at general meetings of the Company, the Selling
Shareholder is also entitled to appoint one member of the Nomination Committee and appoint one Lone Star
Director as an observer to meetings of the Audit Committee, the Remuneration Committee and the Risk
Committee. Under the Relationship Agreement, the Selling Shareholder and its affiliates may engage or hold an
interest in investments, business ventures or other entities similar to, or that compete with, the business of any
member of the Group.
The Relationship Agreement will continue for so long as (a) the Ordinary Shares are listed on the premium
listing segment of the Official List and traded on the London Stock Exchanges main market for listed securities
and (b) the Selling Shareholder together with its associates are entitled to exercise or to control the exercise of
10% or more of the votes able to be cast on all or substantially all matters at general meetings of the Company.
The Directors believe that the terms of the Relationship Agreement will enable the Group to carry on its business
independently of the Selling Shareholder.
Following Admission, for so long as there is a controlling shareholder (as defined in the Listing Rules), the
Articles allow for the election or re-election of any independent Director to be approved by separate resolutions
of (a) the Shareholders and (b) the Shareholders excluding any controlling shareholder. If either of the
resolutions is defeated, the Company may propose a further resolution to elect or re-elect the proposed
independent Director, which (i) may be voted on within a period commencing 90 days and ending 120 days from
the original vote, and (ii) may be passed by a vote of the Shareholders voting as a single class. Furthermore, if the
Company wishes the FCA to cancel the listing of the Ordinary Shares on the premium listing segment of the
Official List or transfer the Ordinary Shares to the standard listing segment of the Official List, the Company
must obtain at a general meeting the prior approval of (y) a majority of not less than 75% of the votes attaching
to the Ordinary Shares voted on the resolution, and (z) a majority of the votes attaching to the Ordinary Shares
voted on the resolution excluding any Ordinary Shares voted by a controlling shareholder. In all other
circumstances, controlling shareholders have and will have the same voting rights attached to the Ordinary
Shares as all other Shareholders.
Conflicts of interest
Brad Boggess is Managing Director and Chief Administrative Officer of Hudson Advisors L.P., an affiliate of
Lone Star and Chip Cammerer is Managing Director of Hudson Americas, L.P., an affiliate of Lone Star. Lone
Star indirectly owns the Selling Shareholder, which will, immediately following Admission, control 65.0% of the
voting rights in the Company, assuming no exercise of the Over-allotment Option or 59.8% of the voting rights
in the Company, assuming the Over-allotment Option is exercised in full.
Save as set out in the paragraph above, there are no potential conflicts of interest between any duties owed by the
Directors or Senior Managers to the Company and their private interests or other duties.
99
PART 8
SELECTED FINANCIAL INFORMATION
The selected financial information set out below has been extracted without material amendment from Section B
of Part 11 (Historical Financial Information) of this Prospectus, where it is shown with important notes
describing some of the line items.
100
COMBINED AND CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at 31 December
2013 2014 2015
000s 000s 000s
Assets
Non-current assets
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,587 16,597 13,285
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142,378 144,846 149,544
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,914 753 1,794
160,879 162,196 164,623
Current assets
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,363 30,620 40,924
Trade and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,514 20,904 28,558
Trade and other receivables with related parties . . . . . . . . . . . . . . . . . . . . . . . . . . 41,289 8,960 23,015
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,811 20,978 24,189
106,977 81,462 116,686
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267,856 243,658 281,309
Capital and reserves attributable to the equity shareholders of the parent
Ordinary shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 90
Share premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,536 46,536
HeidelbergCement AG invested capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214,628
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (275,216) (257,171)
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214,628 (228,590) (210,545)
Non-current liabilities
Provisions for other liabilities and charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,551 11,812 11,656
10,551 11,812 11,656
Current liabilities
Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,190 40,925 55,610
Trade and other payables to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 904 11,486 13,903
Income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,890
Borrowings from related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405,000 405,578
Provisions for other liabilities and charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,583 3,025 3,217
42,677 460,436 480,198
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,228 472,248 491,854
Total equity and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267,856 243,658 281,309
101
COMBINED AND CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
102
COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
103
IFRS AND NON-IFRS FINANCIAL INFORMATION(1)
Notes
(1) The Group reports non-trading income or expenditure as exceptional when the size, nature or function of an item, or aggregation of
similar items, is such that separate presentation is relevant to an understanding of its financial position.
(2) EBITDA before exceptional items for the purposes of this historical financial information represents Earnings before Interest, Tax,
Depreciation and Amortisation adjusted to exclude the exceptional items as detailed below.
(3) The profit/loss on disposal of fixed assets relates to the profit/loss on sale of surplus plant and equipment.
(4) The pension deficit reduction payments are the allocated defined benefit pension costs for which the group is not liable for going
forward.
(5) The transaction costs in 2014 relate to the non-recurring professional fees related to legal, accounting and auditing services in connection
with the sale of this business by HeidelbergCement Group. The costs incurred in 2015 relate to the proposed initial public offering of the
Group.
(6) The separation costs relate to the separation from HeidelbergCement Group and include rebranding, new office fit out costs, set up of
standalone IT operations and staff recruitment.
(7) The restructuring expense relates to severance and other contract termination costs incurred in connection with the programmes to reduce
costs and improve operating effectiveness. These programs included the closing of plants and the termination of portions of the
workforce. The restructuring credit relates to a release of a provision in relation to a range of downsizing and restructuring initiatives
during the economic downturn.
(8) In 2013, the Group performed an impairment review which resulted in impairment charges of 3,300,000. An impairment reversal of
5,511,000 was recognised in 2014 whereby the impairment charges in relation to two sites were reversed as a result of re-opening a site
that was previously closed and changing the estimates used to determine the second sites recoverable amount. An impairment review
performed in 2015 resulted in an impairment charge of 2,410,000 whereby the goodwill balance in relation to Structherm was fully
impaired.
104
PART 9
OPERATING AND FINANCIAL REVIEW
This Part 9 (Operating and Financial Review) of this Prospectus should be read in conjunction with Part
2 (Presentation of Financial and Other Information), Part 5 (Industry Overview), Part 6 (Business of the Group)
and Part 11 (Historical Financial Information) of this Prospectus. Prospective investors should read the entire
Prospectus and prospective investors should not only rely on the summary set out below. The financial
information considered in this Part 9 (Operating and Financial Review) of this Prospectus is extracted from the
financial information set out in Section B of Part 11 (Historical Financial Information) of this Prospectus. The
consolidated financial statements referred to in this discussion have been prepared in accordance with (i) IFRS,
(ii) the requirements of the Prospectus Directive Regulation and (iii) the Listing Rules.
The following discussion of the Groups results of operations and financial conditions contains forward-looking
statements. The Groups actual results could differ materially from those that it discusses in these forward-
looking statements. Factors that could cause or contribute to such differences include those discussed below and
elsewhere in this Prospectus, particularly under Part 1 (Risk Factors) and Part 2 (Presentation of Financial and
Other Information) of this Prospectus. In addition, certain industry issues also affect the Companys results of
operations and are described in Part 5 (Industry Overview) of this Prospectus.
1. OVERVIEW
Forterra is a UK leader in manufactured masonry products, with a unique combination of strong market shares in
clay bricks and concrete blocks. The Groups manufactured masonry products are standardised and usually
produced in high volumes. The Groups brick and block products are complemented by a well-rounded portfolio
of bespoke construction products, which are primarily specified made-to-measure or customised products. The
Group has industry recognised brands and its trusted range of clay and concrete products are used extensively
within the construction industry. The Groups operating business segments comprise bricks, blocks and bespoke
products.
For financial reporting purposes the Group combines its operating segments into two reporting segments: bricks
and blocks and bespoke products.
The Group generated revenue of 290.2 million in 2015, 75.1%, or 218.0 million, attributed to the sale of bricks
and blocks, 25.4%, or 73.7 million, attributed to the sale of the Groups bespoke products and 1.5 million
relating to intersegment trading eliminated on consolidation.
The Directors believe that revenue growth in 2016 is expected to benefit from the positive outlook for UK
housing, the winding down of customer destocking and continuing reduction in imports which were a feature of
2014 and 2015 due to a perceived shortage of supply of bricks in the United Kingdom market. The Directors
believe that housing completions are expected to continue to grow steadily which, in turn, are expected to result
in growing demand for the Groups manufactured masonry products. In addition, with the return to production of
previously mothballed domestic production capacity, the Directors expect the volume of brick imports to decline
progressively from the unusually high levels of 2014 and 2015 and move towards long-term historic levels.
Incremental manufacturing capacity and efficiency projects were successfully delivered to plan in late 2015 and
early 2016 and the Directors believe that the Group is now competitively well-positioned in the market with
available brick manufacturing capacity and inventory on hand to meet customer requirements.
105
Trends in the UK construction industry and general macroeconomic conditions
The Group operates within the UK building products market and therefore demand for the Groups products is
directly related to the level of construction activities in the United Kingdom, comprising residential new build
construction, residential RMI construction and commercial construction activities. The level of residential new
build activity in the United Kingdom has historically performed in line with broader economic cycles, and has
been influenced by mortgage availability, interest rates, inflation, unemployment levels, household formation
rates, population growth, gross domestic product, UK Government policies and initiatives and other
macroeconomic factors. Although these factors may not impact the residential RMI construction sectors to the
same extent as the residential new build construction sector, the Directors believe that consumer confidence does
affect residential RMI expenditure and demand for the Groups products. Commercial construction activity is
primarily driven by business investment, availability of finance and interest rates, as well as the same economic
fundamentals as for the residential construction industry.
The Directors estimate that in 2015 approximately 55% of the Groups revenue was generated from residential
new build construction activities, 40% was generated from residential RMI activities, with the remaining 5%
generated from commercial construction activities.
The Group principally derives its revenue from the sale of its clay bricks and concrete blocks, which accounted
for 75.1% of the Groups revenue in 2015 (before intersegment eliminations), to the residential new build and
RMI construction markets in the United Kingdom. Activity in the residential new build market is generally
measured by the number of housing starts and housing completions. Following a dramatic decline in the number
of housing starts and housing completions in Great Britain as a result of the financial crisis, the rate of housing
completions continue to be below the number of household formations, as further described in Part 5 (Industry
Overview) of this Prospectus, which the Directors believe has caused a structural undersupply of housing in the
United Kingdom. In response to the undersupply and increase demand for housing in the United Kingdom, the
UK Government introduced a number of policies and initiatives to seek to stimulate UK housing supply, such as
Help to Buy, which was introduced in 2013, the Starter Home initiative and the Right to Buy scheme, as further
described in Part 5 (Industry Overview) of this Prospectus. More recently, in its November 2015 Spending
Review, the UK Government sought to further boost the UK housing market by the introduction of further
policies and initiatives. The ONS projects that the UK population will increase by 9,700,000 over the next 25
years and that England will require a further 290,000 homes per annum from 2011 to 2031 to meet future
demand and tackle existing unmet requirements. In 2014, aggregate housing completions in Great Britain totalled
139,698 units according to the CPA. The CPA forecasted that total housing completions in 2015 in Great Britain
would reach 152,201 units, a 9% increase from the previous year. The CPA expects British housing completions
to continue to grow at a rate of 4% per annum for the period to 2018. However, the projected rate of housing
completion still lies below the estimated level of UK household formations therefore the Directors believe that a
further increase in housing supply will be required in order to satisfy the projected rate of UK household
formation. For further information on the UK construction market, including the UK Governments
housebuilding and home buying policies and initiatives, please refer to Part 5 (Industry Overview) of this
Prospectus.
As a result of the above, the Groups operating results in 2013, 2014 and 2015 were impacted by volume
changes, the cost of increasing output and bringing mothballed facilities back online, as discussed below.
Pricing
The Group generally sets prices on an annual basis, taking into account anticipated market demand for its
products, the rates of inflation and the possibility that any price increase may result in its customers choosing to
be supplied by an alternative supplier or an alternative product altogether.
The Group made modest increases to prices across its brick and block products in 2013, whilst significant price
increases were made across its brick and block products in each of 2014 and 2015. This was partly in response to
a growing UK construction market, but also reflected a correction in the Groups brick prices following a period
of limited price increases over the preceding six years. Due to a perceived capacity constraint in the UK brick
market, price increases of the Groups brick products were the single biggest driver of increased revenues during
the period under review. The Groups brick price increases were similar to those of the UK brick industry as a
whole, which the Directors believe increased by an average of approximately 16% in both 2014 and 2015, driven
by strong demand and inflation. The Groups Fletton brick is a premium priced product with a captive RMI
market and which the Directors believe represents a premium of 60% to 80% compared to the price paid by
106
consumers for the national average standard brick. Prices of the Groups Fletton bricks remained resilient during
the period under review due to their premium positioning and strong demand for the product. Prices of the
Groups aircrete blocks increased in line with the Groups brick products during the period under review, whilst
prices of the Groups aggregate blocks increased to a lesser extent.
Marginal price increases were seen across the Groups bespoke product segment during the period under review,
primarily as the market is fragmented, with a number of smaller competitors and significant unutilised production
capacity. In 2014, the Group started manufacturing concrete beams at its Somercotes facility, which were
previously manufactured only at its Hoveringham facility, to meet increased demand for the Groups New
Jetfloor product. The increased sales of Jetfloor contributed to the increase in the Groups revenue in its bespoke
products reporting segment.
The Directors believe that the Groups future results of operations will be driven by increased sales volumes due
to the favourable housing market discussed in Part 5 (Industry Overview) of this Prospectus, rather than
significant price increases of its products, similar to those seen in the period under review.
As part of the same investment strategy, the Group invested significant sums in building new, larger and more
efficient facilities, such as its brick manufacturing facility at Measham and its aggregate block manufacturing
facility at Whittlesey. The Measham facility, which opened in 2009, is a state-of-the-art soft mud brick facility, is
fully automated and is the largest and most modern of its kind in the United Kingdom. The Measham facility has
capacity to produce up to 105 million bricks per annum2 and replaced three of the Groups obsolete and
inefficient facilities at Measham, Clockhouse and Tilmanstone, which had a combined aggregate annual
production capacity of 97 million bricks. In 2008, the Group opened its new purpose-built aggregate block and
concrete block paving facility at Whittlesey, strategically located in the South East and East of England, where
the Group enjoys strong sales, and adjacent to one of the Groups clay quarries where it excavates a proportion of
the required sand and gravel for the manufacture of its aggregate blocks. The Whittlesey facility has an annual
production capacity of 175,000 m3 aggregate blocks and replaced a number of old and inefficient block
manufacturing facilities which together had a production capacity of 60,000 m3 aggregate blocks per annum.
In addition to restructuring its manufacturing facilities, the Group has also introduced other efficiency and cost-
saving initiatives during the period under review. The Group streamlined its product offering by reducing the
number of products in its range in line with customer demand. This reduced production downtime caused by
switching production between products, whilst retaining optionality to increase the product range should
customer demand change.
2 In 2009 the Measham facility had an annual brick production capacity of approximately 86 million bricks, which was increased in
January 2016 to 105 million bricks, following the extension of the kiln, as described below.
107
During the period under review
In 2013, the Group recommissioned its mothballed extruded brick facility at Claughton, which came back on line
in 2014, and, in 2014, the Group recommissioned its mothballed extruded brick facility at Accrington, which
came back online in at the start of 2015. In 2014, the Group also installed new equipment at its Somercotes
facility for the manufacture of its precast concrete beam flooring products.
During the period under review, the Group also introduced the sophisticated Intouch production monitoring
equipment at its significant manufacturing facilities, which has reduced manufacturing downtime and increased
capacity utilisation, operational productivity and product quality.
As a result of closing smaller facilities and investing in larger, modern and more efficient facilities, as well as the
implementation of other efficiency initiatives, the Groups average annual brick production capacity per facility
increased between 2007 and 2015 from 53 million to 61 million, an increase of 15%, which the Directors
estimate is 41% and 17% higher than the respective average annual brick production capacity per facility of two
of the Groups key competitors.
In 2015, the Group incurred capital expenditure of 13.9 million, which included investment in its facilities at
Measham, Hams Hall, Accrington and Hoveringham. The Group extended the kiln and introduced new steam
technology to inject moisture into clay at its brick manufacturing facility at Measham, which was completed in
January 2016, modernised and expanded its aircrete block facility at Hams Hall, installed a new packing machine
at its Accrington facility and installed new concrete casting equipment at its precast concrete facility at
Hoveringham, each of which was completed in December 2015. These improvements increased the Groups
annual brick production capacity by 19 million, or 4% of the Groups then annual brick production capacity, and
increased the Groups aircrete block production capacity by 4% per annum (33,000 m3 per annum). The
Directors expect that the improvements implemented at the Groups Accrington and Hoveringham facilities to
reduce operational costs by approximately, in aggregate, 0.6 million per annum (assuming full output at the
relevant facilities).
In the short-term, the Group has identified three smaller de-bottlenecking projects which will provide the Group
with the opportunity to increase production at its extruded brick facilities at Claughton, Desford and Accrington
by making improvements to the gas supply, kilns or dryers. The Directors estimate that these improvements
would require only small amounts of capital investment of approximately 3.0 million, 3.5 million and
2.5 million, respectively, but together could provide the Group with additional annual production capacity of
25 million extruded bricks.
In the medium-term, the Group has the potential to increase its annual brick production capacity by 18% (based
on the Groups existing annual brick production capacity), or an estimated 100 million bricks, by building a new
manufacturing facility at its site at Swillington, near Leeds. The site has the requisite planning permissions in
place to build a new state-of-the-art, efficient and low cost extruded brick manufacturing facility to complement
the Groups soft mud brick facility at Measham, with the benefit of approximately 26 years of clay reserves. In
2016, the Group intends to invest 0.5 million in preparatory design work at the site in order to reduce the overall
facility construction time to two years if and when an investment decision is made. The Directors believe that the
Group has production capacity and inventories sufficient to meet near term forecast market growth, therefore a
decision to proceed with the development of Swillington is unlikely to be taken before the end of 2017 without a
material and sustained increase in brick demand. The Directors estimate that the facility would cost 58 million
to build.
In the longer term, the Group has the potential to develop its site at Clockhouse in Surrey. The Group has the
requisite planning permissions in place to operate the existing brickworks at Clockhouse and, with appropriate
permission variations, could redevelop the site into a modern, highly efficient and low cost soft mud brick
manufacturing facility. The Directors estimate that the Group also has over 30 years of clay resources at
Clockhouse, with planning permission for the extraction of approximately 18 years of clay reserves. Once fully
operational, the facility would provide the Group with an estimated annual soft mud brick production capacity of
108
45 million. The Directors estimate that the site would cost 30 million to develop over two years (with the
relevant preparatory work) once a final investment decision is taken, which the Directors expect is unlikely
before 2020.
The Directors believe the increase in the Groups capacity and efficiency as a result of the initiatives described
above, as well as other opportunities at its existing facilities and sites, positions the Group to take advantage of
increased demand for the Groups brick and block products. In addition to increased capacity, new and improved
facilities often generate other cost savings. Typically manufacturing costs go down because the newly installed
equipment is more energy efficient. If the facilities production line becomes partially or fully automated, labour
costs will usually decrease as well. Finally, as the equipment is newer, repair and maintenance costs tend to
decrease in the short-term.
The cost of raw materials and packaging constitutes a substantial proportion of the Groups manufacturing costs,
comprising 33.5%, 36.7% and 38.8% of the Groups total cost of sales in 2013, 2014 and 2015, respectively. The
Groups cost of raw materials and packaging therefore has a direct impact on the Groups results of operations.
Key raw materials for the manufacturing of the Groups brick products are clay and shale, approximately 93% of
which is excavated from the Groups quarries. Save for the extraction of clay and shale at the Groups Kings
Dyke and Kirton quarries, which represented approximately 38% of the Groups usage in 2015, extraction of clay
and shale at the Groups quarries is subcontracted. The Groups aircrete blocks are manufactured using cement
and PFA, while the Groups aggregate blocks are manufactured using cement and aggregates, such as sand,
gravel, crushed limestone and recycled materials. The Group currently sources the majority of its cement,
cementious products and aggregates from the HeidelbergCement Group pursuant to the terms of the Heidelberg
Aggregates Supply Agreement and the Heidelberg Cement Supply Agreement (as further described in
paragraphs 12.13 and 12.14 of Part 14 (Additional Information) of this Prospectus).
PFA, which is used to manufacture the Groups aircrete blocks, is a by-product of the combustion of coal in coal-
fired power plants which the Group currently primarily sources from three UK coal-fired power stations, Drax,
Rugeley and Ratcliffe. Due to more stringent environmental regulations and the availability of alternative fuel
sources such as biomass, the number of operational coal-fired plants in the United Kingdom has been declining
and the Directors expect this decline to continue over time. This is expected to result in reduced PFA production
in the United Kingdom and an increase in the cost of PFA. In response, the Group has, for some time, been
considering alternative strategies, including importing PFA, to ensure continuity of supply, whether of dry PFA,
conditioned or reclaimed PFA or other substitutes. It has recently been announced that Rugeley power station
will close in the summer of 2016 and the Directors believe that the coal burning units at Drax power station and
Ratcliffe power station may close in the medium to longer term. Since the announcement of the Rugeley closure,
the Group has made arrangements to secure a substantial proportion of its PFA requirements from other UK coal-
fired stations, including Drax, and has decided to incur capital expenditure of approximately 0.5 million at its
Hams Hall aircrete facility during a scheduled downtime in May 2016 to allow the Group to use a higher
proportion of conditioned PFA in the raw material mix when producing aircrete blocks at the facility.
Furthermore, the Directors estimate that in 2016 its costs of sales will increase as a result of an increase in the
cost of PFA and an increase in the cost of transporting PFA from an alternative supplier.
For additional information on the Groups clay reserves and the raw materials used in the manufacture of the
Groups products, please refer to paragraph 10 of Part 6 (Business of the Group) of this Prospectus.
Energy expenses
The Groups energy expenses amounted to 20.3 million, or 9% of revenue, in 2013, 20.8 million, or 7.8% of
revenue, in 2014 and 18.7 million, or 6.4% of revenue, in 2015.
The Group uses significant amounts of energy, including natural gas and electricity, in the manufacture of its
products and energy costs are a meaningful component of the Groups cost of sales, comprising 12.5%, 12.4%
and 11.2% of the Groups total cost of sales in 2013, 2014 and 2015, respectively. The price of energy declined
during the period under review, however, the Groups energy costs remained generally flat as a percentage of the
Groups cost of sales during 2013 and 2014, with a slight decline in 2015. The Groups energy usage increased
during the period under review due to the Groups increased production output at its facilities in order to build
109
stocks across the majority of its product ranges, particularly its brick and block products, to enable it to meet both
current demand and the expected increase in demand for bricks in the future and better serve its customers. The
Group was therefore able to capitalise on low energy prices during the period under review at a time of increased
production output at its facilities.
The HeidelbergCement Group secured the price of energy used by the Group in the period under review through
forward purchase contracts when prices were low to provide the Group with greater flexibility. The Group has
secured the price of approximately 75% of the natural gas for use in its operations during 2016 through forward
purchase contracts and may secure the price of energy for use by the Group in its operations in the future. The
Group hires advisers to consult on trends in the energy markets and related price fluctuations to help set the
Groups strategy for addressing energy costs.
Distribution costs
The Groups distribution costs amounted to 39.8 million, or 17.6% of revenue, in 2013, 42.3 million, or 15.8%
of revenue, in 2014 and 45.3 million, or 15.6% of revenue, in 2015. The Groups delivery expenses account for
a substantial amount of the Groups distribution costs, comprising 64.7%, 68.1% and 65.7% of the Groups total
distribution costs in 2013, 2014 and 2015, respectively. The Groups delivery expenses include the cost of
operating and maintaining its fleet of 125 delivery vehicles, the cost of employing vehicle drivers and the cost of
third party hauliers. The Group delivers approximately 60% of its bricks and blocks to its customers using its
fleet of crane-equipped delivery vehicles. The remainder of the Groups bricks and blocks are delivered
predominantly by subcontracted third party hauliers, with the remainder being collected by the Groups
customers at the Groups facilities. The Groups bespoke products are all transported by third party hauliers. The
Group leases all of the vehicles in its fleet. The Group is directly exposed to increases in fuel prices as a
component of the Groups distribution costs.
As further described in Part 2 (Presentation of Financial Information), prior to 1 September 2014, the Group had
no trading activities and therefore the historical financial information of the Group for the years ended
31 December 2013, 31 December 2014 and 31 December 2015 has been prepared on a combined and
consolidated basis. Prior to the Lone Star Acquisition, the HeidelbergCement Group provided the Group with
corporate and shared services, such as executive senior management, financial reporting, financial planning and
analysis, accounting, information technology, tax, risk management, treasury, legal, human resources, land
management and strategy and development, and charged 10.0 million in 2013, 10.6 million in 2014 and
1.8 million in the period from 1 January 2015 to 13 March 2015 for such services.
Following the Groups separation from the HeidelbergCement Group in March 2015, the corporate and shared
services described above were partly provided by the HeidelbergCement Group pursuant to the terms of the
Heidelberg TSA (as further described in paragraph 12.12 of Part 14 (Additional Information) of this Prospectus)
and the Group incurred costs of 2.9 million in 2015 in connection with such transitional services.
In 2015, as a result of the Lone Star Acquisition, the Groups labour costs increased by 1.3 million as the Group
was required to employ individuals to provide the services previously provided by the HeidelbergCement Group.
Furthermore, in 2015, the Group was required to lease new office space which had been previously provided by
the HeidelbergCement Group. In 2016, the Group appointed a third party service provider to provide information
technology systems to the Group that were previously provided pursuant to the terms of the Heidelberg TSA. The
Directors believe that the Group has replaced the majority of the functions previously provided by the
HeidelbergCement Group, but that further costs may be incurred in 2016 in respect of the replacement of such
shared services.
Revenue
The Group generates revenue from three operating segments: the manufacture and sale of its brick products, its
block products and its bespoke products, in each case, to the construction market in the United Kingdom. For
110
financial reporting purposes, however, the Group combines its operating segments into two reporting segments,
its bricks and blocks business and its bespoke products business. The combination of the Groups bricks and
blocks businesses is due to these operating segments having similar long-term average cost margins, production
processes, suppliers, customers and distribution methods. Revenue is generated from sales of the Groups
products to the Groups customers in the residential new build and RMI and commercial construction markets.
Revenues represent the Groups sales after accounting for any rebates.
Cost of sales
The Groups raw material and packaging costs and the Groups direct labour production costs generally comprise
more than half of its cost of sales. Other significant costs include change in inventories, energy expenses, repair
and maintenance costs, costs relating to the hire of equipment, rents and rates of the facilities, direct depreciation
and amortisation and the exceptional costs relating to the deficit reduction contributions that the Group paid to
the HeidelbergCement Groups defined benefit pension scheme.
Distribution costs
The Groups distribution costs include the delivery of the Groups products to its customers, either by the
Groups fleet of delivery vehicles or by third party hauliers. A significant amount of the Groups distribution
costs relate to the Groups delivery expenses, being the cost of delivery of its products by third party hauliers, the
direct cost of leasing, repairing and maintaining its fleet and the cost of fuel used its delivery vehicles, together
with the labour costs associated with the delivery vehicle driver. Distribution costs also include the costs of the
Groups sales, marketing and customer service functions which are primarily labour related.
Administrative expenses
The Groups administrative expenses include labour costs not directly tied to manufacturing or distribution,
including costs related to legal, accounting and finance services, human resources, treasury and other general
corporate services. Administrative expenses also include a number of exceptional costs, such as transaction costs
relating to the Lone Star Acquisition, the Offer and Admission, restructuring costs and impairment expenses.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be
available against which the temporary differences can be utilised.
111
Deferred income tax liabilities are provided on taxable temporary differences arising from investments in
subsidiaries, except for deferred income tax liability, where the timing of the reversal of the temporary difference
is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable
future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income
taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where
there is an intention to settle the balances on a net basis.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the
liability to pay the related dividend.
5. RESULTS OF OPERATIONS
The following table sets out financial information derived from the consolidated income statement of the Group
for the years ended on 31 December 2013, 31 December 2014 and 31 December 2015.
Price increases were partially offset by sales of fewer bricks in 2015, which the Directors believe was due
primarily to the Groups customers overstocking with bricks in 2014 and the start of 2015, particularly with
imports from continental Europe, due to a perceived shortage of supply of bricks in the UK market during the
same period. At the same time, UK manufacturers brought their mothballed capacity back on line, which can take
up to six months. The Directors believe that in the second half of 2015 the Groups customers reduced their brick
stocks as well as utilised previously committed brick purchases from continental Europe, leading to fewer brick
purchases from UK manufacturers. In 2014 and 2015, the Group, as well as other UK industry participants,
brought mothballed capacity back online, increased its brick stocks to better serve customers needs in the future.
112
Revenue by reporting segment
The table below sets out the Groups revenue by its two reporting segments: bricks and blocks and bespoke
products for 2014 and 2015.
For the year ended 31 December
2014 2015 2014 2015
% of % of
total total % increase/
000s revenue 000s revenue decrease
Bricks and Blocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201,055 75.0 218,018 75.1 8.4
Bespoke Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,388 25.5 73,739 25.4 7.8
Intersegment elimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,370) (0.5) (1,537) (0.5) 12.2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268,073 100.0 290,220 100.0 8.3
Sales of bricks and blocks in 2015 accounted for 61.7% and 38.3%, respectively, of total brick and block revenue,
and 63.2% and 36.8%, respectively, of total brick and block revenue in 2014 (before intersegment eliminations).
Bespoke Products
The Groups bespoke products generated 73.7 million of revenue in 2015, or 25.4% of the Groups total
revenue, compared to 68.4 million of revenue, or 25.5% of the Groups total revenue, in 2014, an increase of
5.4 million, or 7.8% (before intersegment eliminations). This increase in bespoke products revenue was
primarily the result of increased volume, especially in the Groups precast concrete products, and, to a lesser
extent, by price increases. The increased volume was due primarily to the introduction of new capacity at the
Groups Somercotes facility for the manufacture precast concrete beams and increased demand for the Groups
New Jetfloor product.
The sale of the Groups precast concrete products generated 74.9% of bespoke products revenue in 2015, whilst
the remaining 25.1% was attributed to the sale of the Groups concrete block paving products, chimney and
roofing solutions and structural external wall insulation products. In 2014, the sale of the Groups precast
concrete products generated 72.6% of bespoke products revenue, whilst the remaining 27.4% was attributed to
the sale of the Groups concrete block paving products, chimney and roofing solutions and structural external
wall insulation products.
Cost of sales
Cost of sales remained flat between 2014 and 2015, amounting to 167.7 million in both years.
For the year ended 31 December
2014 2015 2014 2015
% of total % of total
cost of cost of % increase/
000s sales 000s sales decrease
Cost of sales
Labour direct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,352 27.0 49,886 29.8 10.0
Raw materials and packaging costs . . . . . . . . . . . . . . . . . . . 61,540 36.7 65,085 38.8 5.8
Change in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,257) (1.3) (10,304) (6.1) 356.5
Energy expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,787 12.4 18,718 11.2 (10.0)
Repair and maintenance costs . . . . . . . . . . . . . . . . . . . . . . . 17,002 10.1 21,414 12.8 25.9
Hire of equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,875 3.5 6,306 3.8 7.3
Overheads exceptional items . . . . . . . . . . . . . . . . . . . . . . 2,854 1.7 0.0
Rents and rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 719 0.4 728 0.4 1.3
Other production costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,533 3.9 6,794 4.1 4.0
Total cost of sales before depreciation . . . . . . . . . . . . . . . . . 158,405 94.4 158,627 94.6 0.1
Depreciation and amortisation direct . . . . . . . . . . . . . . . . 9,330 5.6 9,042 5.4 (3.1)
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167,735 100.0 167,669 100.0 0.0
113
Labour costs of the Group increased by 10.0% in 2015, from 45.4 million in 2014 to 49.9 million in 2015. This
increase was primarily attributable to increased production in the Groups brick business, with the Accrington
facility coming back on line in January 2015, and the full year impact of increases in production at other facilities
during 2014.
The Groups raw materials and packaging costs increased by 5.8%, or 3.5 million, in 2015, from 61.5 million
in 2014 to 65.1 million in 2015. This increase was largely as a result of the increases in production discussed
above.
The Groups changes in inventories increased from a 2.3 million credit in 2014 to a 10.3 million credit in
2015, driven by an increase in inventories. This change was largely the result of the Group increasing brick
stocks in order to be able to respond to customer demand for bricks as the UK housing market continues to
recover. The Directors believe that as the Group increases its brick stocks, its customers will no longer feel
required to rely on brick imports from continental Europe. Furthermore, the Group has aimed to capitalise on
reduced energy prices and maximise utilisation of capacity at its facilities by building brick stocks to meet both
current demand and the expected increase in demand for bricks in the future. Although brick inventories
increased in both 2014 and 2015, the Groups brick inventories had reached an exceptionally low level by the end
of 2013 and therefore the recent increases were initiated in order to return the Groups brick inventories to more
normal levels.
The Groups energy costs decreased by 10.0% in 2015, from 20.8 million in 2014 to 18.7 million in 2015.
Although the Group benefited from lower energy prices in 2015, as noted above, the Group increased production
output at its facilities in order to build inventories and meet customer demand and, as such, the savings resulting
from lower energy costs were partially offset by increased energy usage.
The Groups repair and maintenance costs increased by 25.9%, or 4.4 million, in 2015, from 17.0 million in
2014 to 21.4 million in 2015. This increase was largely as a result of increases in production at the Groups
facilities, including the re-opening of the Groups Accrington facility, together with the full-year impact of
production increases in 2014 and an increase in preventative maintenance spend at the Groups facilities to
enable them to operate at high utilisation levels. In addition, maintenance work was carried out at the Measham
facility in conjunction with the capacity increase project and certain repair and maintenance work was
rescheduled in line with the planned facility upgrades at the Groups facilities at Measham, Hams Hall,
Accrington and Hoveringham.
Costs relating to the Groups equipment hire increased by 7.3%, or 0.4 million, in 2015, from 5.9 million in
2014 to 6.3 million in 2015. This increase was largely as a result of increased sales of the Groups hollowcore
flooring, which requires the Group to hire cranes for its installation.
In 2015, the Group incurred no exceptional costs of sales. In 2014, the Group incurred exceptional costs of sales
totalling 2.9 million in respect of deficit reduction contributions for a defined benefit pension scheme operated
by UK subsidiaries of the HeidelbergCement Group for which the Group has no ongoing funding obligations.
Please refer to paragraph 8 of Part 14 (Additional Information) of this Prospectus for further information relating
to the Groups pension obligations.
Cost of sales as a percentage of revenue decreased by 7.7% between 2014 and 2015, from 62.6% in 2014 to
57.8% in 2015.
Distribution costs
Distribution costs increased by 3.0 million, or 7.1%, to 45.3 million in 2015 from 42.3 million in 2014. This
increase was due primarily to increased sales activity across the Groups range of products, in conjunction with
which the Group increased the number of its delivery vehicles by 30, from 95 in 2014 to 125 in 2015, and
recruited a similar number of additional drivers.
Administrative expenses
Administrative expenses increased by 7.7 million, or 37.7%, to 28.2 million in 2015, from 20.5 million in
2014 due primarily to an 8.4 million increase in exceptional administrative expenses. Administrative expenses
excluding exceptional items reduced by 0.7 million from 17.3 million in 2014 to 16.6 million in 2015.
In 2015, the Group incurred exceptional administration expenses totalling 11.6 million. These exceptional
expenses included 5.1 million in professional fees related to legal, accounting and auditing services in
connection with the Offer and Admission, 4.0 million related to costs of separation from the HeidelbergCement
114
Group in connection with the Lone Star Acquisition, including rebranding costs, IT separation costs and
recruitment of staff for back office functions, and 2.4 million in impairment expenses relating to goodwill held
in respect of the business of Structherm.
In 2014, the Group incurred exceptional administration expenses totalling 3.2 million. These exceptional
expenses included 7.6 million in professional fees related to legal, accounting and auditing services in
connection with the Lone Star Acquisition and a 1.2 million charge in respect of deficit reduction contributions
for a defined benefit pension scheme operated by UK subsidiaries of the HeidelbergCement Group for which the
Group has no ongoing funding obligations. In 2014, the Group also benefited from a restructuring and
impairment credit totalling 5.5 million, which related to releases of previously recognised impairments
associated with the reopening of the Groups Accrington facility and also changes in estimates of the recoverable
amounts at other facilities.
115
Revenue by reporting segments
The table below sets out the Groups revenue by its two reporting segments: bricks and blocks and bespoke
products for 2013 and 2014.
For the year ended 31 December
2013 2014 2013 2014
% of total % of total % increase/
000s revenue 000s revenue decrease
Bricks and Blocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163,425 72.4 201,055 75.0 23.0
Bespoke Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,515 28.1 68,388 25.5 7.7
Intersegment elimination . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,078) (0.5) (1,370) (0.5) 27.1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225,862 100.0 268,073 100.0 18.7
Within the bricks and blocks segment, sales of bricks and blocks in 2014 accounted for 63.2% and 36.8%,
respectively, of total brick and block revenue and 63.4% and 36.6%, respectively, of total brick and block
revenue in 2013 (before intersegment eliminations).
Bespoke Products
The sale of the Groups bespoke products generated 68.4 million of revenue in 2014, or 25.5% of the Groups
total revenue, compared to 63.5 million of revenue, or 28.1% of the Groups total revenue, in 2013, an increase
of 4.9 million, or 7.7% (before intersegment eliminations). This increase in bespoke products revenue was the
result of increased volume, especially in the Groups precast concrete flooring, and, to a lesser extent, by price
increases and a change in mix towards higher priced products.
The sale of the Groups precast concrete products generated 72.6% of bespoke products revenue in 2014, whilst
the remaining 27.4% of bespoke products revenue was attributed to the sale of the Groups concrete block paving
products, chimney and roofing solutions and structural external wall insulation products. In 2013, the sale of the
Groups precast concrete products generated 69.7% of bespoke products revenue, whilst the remaining 30.3% of
revenue was attributed to the sale of the Groups concrete block paving products, chimney and roofing solutions
and structural external wall insulation products.
Cost of sales
Cost of sales increased by 5.1 million, or 3.1%, to 167.7 million in 2014, from 162.7 million in 2013. The
increase was due primarily to increased production output across the Groups businesses to meet increased
demand, partially offset by a favourable change in inventories.
For the year ended 31 December
2013 2014 2013 2014
% of total % of total
cost of cost of % increase/
000s sales 000s sales decrease
Cost of sales
Labour direct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,593 23.7 45,352 27.0 17.5
Raw materials and packaging costs . . . . . . . . . . . . . . . . . . . 54,510 33.5 61,540 36.7 12.9
Change in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,524 5.2 (2,257) (1.3) (126.5)
Energy expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,305 12.5 20,787 12.4 2.4
Repair and maintenance costs . . . . . . . . . . . . . . . . . . . . . . . 13,475 8.3 17,002 10.1 26.2
Hire of equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,460 3.4 5,875 3.5 7.6
Overheads exceptional items . . . . . . . . . . . . . . . . . . . . . . 4,425 2.7 2,854 1.7 (35.5)
Rent and rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,061 0.7 719 0.4 (32.2)
Other production costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,029 3.7 6,533 3.9 8.4
Total cost of sales before depreciation . . . . . . . . . . . . . . . . . 152,382 93.7 158,405 94.4 4.0
Depreciation and amortisation . . . . . . . . . . . . . . . . . . . . . . . 10,284 6.3 9,330 5.6 (9.3)
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162,666 100.0 167,735 100.0 3.1
116
Labour costs of the Group increased by 6.8 million, or 17.5%, in 2014, from 38.6 million in 2013 to
45.4 million in 2014. This increase was attributable to additional staff required in connection with increased
production in the Groups bricks business to meet increased demand, with the Accrington and Claughton
facilities coming back on line, along with additional shifts being added at other brick manufacturing facilities.
Also contributing to the increase was increased block production, with additional shifts being added to the Hams
Hall facility, and increased precast flooring production.
The Groups raw materials and packaging costs increased by 7.0 million, or 12.9%, in 2014, from 54.5 million
in 2013 to 61.5 million in 2014. This increase was largely as a result of the increased production noted above
and to a lesser extent increased polystyrene costs.
The Groups changes in inventories decreased from a charge of 8.5 million in 2013 to a 2.3 million credit in
2014. This change was largely the result of a period of significant destocking in the Groups brick operations in
2013 as sales significantly exceeded the volume of bricks produced. In 2014, production and sales volumes were
broadly matched across the Groups businesses.
The Groups energy expenses increased from 20.3 million in 2013 to 20.8 million in 2014. Although the
Group benefitted from lower energy prices in 2014, as noted above, the Group increased production output at its
facilities in order to build brick stocks across the majority of its product ranges, particularly its brick and block
products, to enable it to meet both current demand and the expected increase in demand for bricks in the future
and was therefore able to capitalise on low energy prices.
The Groups repair and maintenance costs increased by 3.5 million, or 26.2%, from 13.5 million in 2013 to
17.0 million in 2014. This increase was largely as a result of bringing the Claughton facility back on line in
2014 and restoring the mothballed facility at Accrington, which was brought back on line in 2015.
Costs relating to the Groups equipment hire increased by 7.6%, or 0.4 million, in 2014, from 5.5 million in
2013. This increase was largely as a result of managements determination to increase repair and maintenance
spending to improve site operating efficiencies and the quality of production capacity and increased sales of the
Groups hollowcore flooring which requires the Group to hire cranes for its installation.
The costs of rent and rates relating to the Groups production facilities and quarries decreased by 32.2%, or
0.3 million, in 2014, from 1.1 million in 2013 to 0.7 million in 2014. This decrease was largely as a result of
ratings reassessments at certain of the Groups facilities.
The Groups other production costs increased by 8.4%, or 0.5 million, in 2014, from 6.0 million in 2013 to
6.5 million in 2014. This increase was largely a result of the increased production described above.
In 2013 and 2014, the Group incurred exceptional costs of sales totalling 4.4 million and 2.9 million,
respectively, in respect of deficit reduction contributions for a defined benefit pension scheme operated by UK
subsidiaries of the HeidelbergCement Group for which the Group has no ongoing funding obligations.
Depreciation and amortisation decreased by 9.3%, or 1.0 million, in 2014, from 10.3 million in 2013 primarily
as a result of a number of fully written down assets on the balance sheet as of the end of 2013.
Cost of sales as a percentage of total revenue decreased by 13.1% between 2013 and 2014, from 72.0% in 2013
to 62.6% in 2014.
Distribution costs
Distribution costs increased by 2.5 million, or 6.2%, to 42.3 million, in 2014 from 39.8 million in 2013. This
increase was due to the increased sales volume noted above, partially offset by a decrease in sales and marketing
costs.
Administrative expenses
Administrative expenses decreased by 2.5 million, or 10.8%, to 20.5 million, in 2014 from 23.0 million in
2013. This decrease was largely due to a reduction in exceptional administrative expenses of 2.2 million.
In 2013, the Group incurred exceptional administration expenses totalling 5.4 million, 1.5 million of which
primarily related to charges in respect of a defined benefit pension scheme operated by UK subsidiaries of the
HeidelbergCement Group, for which the Group has no ongoing funding obligations, and a 3.3 million expense
relating to the impairment of plant and equipment and clay rights at one of the Groups brick facilities.
117
In 2014, the Group incurred exceptional administration expenses totalling 3.2 million, primarily related to the
defined benefit pension scheme cost of 1.2 million referred to above, and 7.6 million in professional fees
related to legal, accounting and auditing services in connection with the Lone Star Acquisition. In 2014, the
Group also benefitted from a restructuring and impairment credit totalling 5.5 million, which related to releases
of previously recognised impairments associated with the reopening of the Groups Accrington facility and also
changes in estimates of the recoverable amounts at other facilities.
As at 31 December 2015, the Group had total borrowings of 405.6 million, all of which was represented by the
Existing Loan Note. On 20 April 2016, the Company entered into the New Loan Note. Pursuant to the terms of
the Reorganisation (as further described in paragraph 3 of Part 14 (Additional Information) of this Prospectus),
immediately prior to Admission, the Group will be released from its obligations under the terms of the Existing
Credit Agreements and the Existing Security Documents and, following Admission, will use the proceeds made
available under the New Facilities to repay all or part of the principal amount outstanding (together with interest
accrued thereon) under the Existing Loan Note and the New Loan Note.
Following the completion of the Reorganisation and Admission, the Directors expect that the Groups principal
sources of funds will be cash flows generated by its operations and by proceeds made available under the
Revolving Credit Facility.
118
Further information concerning the impact of the Offer and the Reorganisation, including the drawdown of the
New Facilities, on the Groups financial position is set out in Section A of Part 12 (Unaudited Pro Forma
Financial Information) of this Prospectus.
Net cash inflow from the Groups operating activities decreased by 45.4%, or 16.8 million, to 20.3 million in
2015, from 37.1 million in 2014. This decrease in net cash inflow from operating activities was due primarily to
an increase of 22.3 million in interest paid in connection with the Existing Loan Note (as further described
under the heading Borrowings in this in paragraph 6 of this Part 9 (Operating and Financial Review) of this
Prospectus) and a 3.3 million increase in taxation paid by the Group as a result of the Lone Star Acquisition, as
it was no longer able to benefit from group relief as part of the HeidelbergCement Group. Before taking
119
account of these items, cash generated from operations increased to 50.0 million in 2015, from 41.2 million in
2014 with an increase in operating profit being partially offset by an increase in working capital.
Net cash inflow from the Groups operating activities decreased by 1.6%, or 0.6 million, to 37.1 million in
2014, from 37.7 million in 2013. Cash generated from operations increased to 41.2 million in 2014 from
37.7 million in 2013 with an increase in operating profit being partially offset by increased working capital.
There was an increase of 4.0 million in interest paid in connection with the HC Loan Note (as further described
under the heading Borrowings in this paragraph 6 of this Part 9 (Operating and Financial Review) of this
Prospectus).
Net cash outflow from the Groups investment activities in 2015 increased by 7.1 million, to 12.4 million,
from 5.3 million in 2014. This increase was primarily the result of increased capital expenditure, including a
total of 5.3 million relating to increasing production capacity at the Groups Measham and Hams Hall facilities.
Net cash outflow in the Groups investment activities in 2014 increased by 56.1%, to 5.3 million, from
3.4 million in 2013. This increase was primarily the result of bringing the Groups Claughton facility back on
line in 2014 and restoring the mothballed facility at Accrington, which was brought back on line in 2015.
Net cash used in the Groups financing activities in 2015 decreased to 4.7 million, from 24.6 million in 2014.
This decrease was due to the fact that Group was acquired by Lone Star on 13 March 2015 and, as such, from
this date surplus cash generated was no longer returned to the HeidelbergCement Group.
Net cash used in the Groups financing activities in 2014 decreased to 24.6 million, from 33.8 million in 2013.
This decrease was due to greater funds being held in the Groups own bank accounts at the period end rather than
being remitted to the HeidelbergCement Group.
Capital expenditure
The table below sets out the Groups historical capital expenditure for the periods indicated:
For the year ended
31 December
2013 2014 2015
000s 000s 000s
Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 679 1,460
Plants and machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,728 6,054 12,483
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,915 6,733 13,943
Until 13 March 2015, the Groups capital expenditure budget was set by the HeidelbergCement Group and
managed by the Group. Capital expenditure was primarily used to refurbish, expand or modernise the Groups
manufacturing facilities, as well as replace equipment. Each year, the Group also incurs expenses relating to the
repair and maintenance of its facilities which form part of the Groups costs of sales. In 2015, the Groups capital
expenditure of 13.9 million was higher than the two previous years, in part due to the Groups expansion and
modernisation activities at its facilities at Measham, Hams Hall, Accrington and Hoveringham (as further
described in paragraph 9 of Part 6 (Business of the Group) of this Prospectus), which amounted to 6.0 million.
Capital expenditure in 2014 and 2013 amounted to 6.7 million and 2.9 million, respectively, and related
primarily to recommissioning the Groups mothballed Claughton facility in 2013 and the Groups mothballed
facility at Accrington in 2014. In 2014, the Group also incurred 0.5 million installing new equipment at its
Somercotes facility for the production of precast concrete beams.
120
The Directors believe that the Group has the potential to increase its extruded brick annual production capacity
by an estimated 25 million bricks by investing approximately, in aggregate, 9.0 million to make improvements
to the kilns or dryers at its facilities at Claughton, Desford and Accrington. If an investment decision is taken in
respect of these projects, the Directors believe that approximately 2.5 million of investment will be made at
Claughton in 2016, approximately 3.5 million will be made in Desford in 2016 or 2017, and approximately a
further 2.5 million will be made at Accrington in 2017. Furthermore, in the medium to longer term, the
Directors believe that the Group has potential to increase its annual production capacity by a further estimated
145 million bricks by building new state-of-the-art manufacturing facilities at its closed Swillington and
Clockhouse sites. In 2016, the Group intends to invest 0.5 million in preparatory design work at the Swillington
site in order to reduce the overall facility construction time.
The Group expects to fund such capital expenditures from existing cash resources, from operating cash flows and
from proceeds available under the Revolving Credit Facility.
Borrowings
Forterra Building Products was incorporated on 26 March 2014 by the HeidelbergCement Group. In the period
between 20 August 2014 and 1 September 2014, Forterra Building Products acquired certain trade and assets
relating to the Groups bricks and blocks and bespoke product businesses and the entire issued share capital of
Structherm from, in each case, members of the HeidelbergCement Group. The total consideration was 451.3
million, which was satisfied in cash, the issue of consideration shares and the issue of the HC Loan Note to a
member of the HeidelbergCement Group, a related party at the time. The interest rate attributable to the HC Loan
Note was LIBOR plus 2.5%. The HC Loan was unsecured and repayable on demand. The balance outstanding as
at 31 December 2014 was 405.0 million. Prior to the creation and issue of the HC Loan Note, the Group was
financed through intercompany borrowings and equity at the HeidelbergCement Group level.
The HC Loan Note was repaid in 2015 in connection with the Lone Star Acquisition and replaced with the
Existing Loan Note in the same principal amount (as further described in paragraph 12.10 of Part 14 (Additional
Information) of this Prospectus). Interest payable on the HC Loan Note and the Existing Loan Note in 2015 was
27.5 million, an increase of 570.7% from 4.1 million in 2014. The increased interest related to notes being
outstanding for a full accounting year and an increase in the interest rate to a fixed rate of 8% per annum with
effect from 31 March 2015 in respect of the Existing Loan Note.
As at 31 December 2015, the Group had total borrowings of 405.6 million, all of which was represented by the
Existing Loan Note (405.0 million of principal and 0.6 million of accrued interest). In the period under the
review, the Group had no external borrowings and relied on existing cash resources and intercompany
borrowings for its operating activities.
Pursuant to the terms of the Reorganisation, part of the Exiting Loan Note will be repaid and the Company will
release Forterra Building Products from its obligations to repay the remainder of the amount outstanding under
the Existing Loan Note.
Pursuant to the terms of the Reorganisation, the New Loan Note will be repaid in full.
121
Existing Credit Agreements and Existing Security Agreements
In connection with the Lone Star Acquisition, on 13 March 2015, Forterra Building Products entered into the
Existing Credit Agreements and, on 20 April 2016, each of the Company and Forterra Holdings acceded to the
Existing Credit Agreement, in each case, as a loan party. Pursuant to the terms of the Existing Security
Documents, each of the Company, Forterra Holdings, Forterra Building Products and the Selling Shareholder
granted guarantees and security in respect of its and other members of the Forterra NA Groups obligations under
the Existing Credit Agreements. Further details of the Existing Credit Agreements and the Existing Security
Documents are set out in paragraphs 13.1 and 13.2 of Part 14 (Additional Information) of this Prospectus.
Pursuant to the terms of the Reorganisation, each of the Company, Forterra Holdings and Forterra Building
Products will, immediately prior to Admission, be released from its respective obligations under the terms of the
Existing Credit Agreements and the Existing Security Documents.
Please refer to paragraph 3 of Part 14 (Additional Information) of this Prospectus for further details relating to the
Reorganisation.
Pursuant to the terms of the New Facilities Agreement, a sterling term loan facility with a maximum aggregate
principal amount of 150,000,000 (the Term Facility) and a sterling revolving credit facility with a maximum
aggregate principal amount of 30,000,000 (the Revolving Credit Facility and, together with the Term
Facility, the New Facilities) will be made available to Forterra Building Products and certain other members of
the Group.
Under the New Facilities Agreement, the Term Facility may be utilised by way of loans for the purpose of
(i) financing transaction costs incurred in connection with the New Facilities and the Offer and (ii) refinancing
certain other financial indebtedness, including certain financial indebtedness of certain affiliates of the Company.
The Revolving Credit Facility may be utilised by way of loans, letters of credit and/or ancillary facilities for the
purpose of financing the general corporate purposes or working capital requirements of the Group. Up to
25,000,000 of the Revolving Credit Facility may be utilised for the purposes of acquiring companies, businesses
and undertakings, provided that for a consecutive period of five Business Days ending with the day which is the
first anniversary of the date of Admission, the outstanding aggregate amount of the Revolving Credit Facility (in
addition to the cash loans under any ancillary facility and/or letter of credit under the New Facilities and less any
cash or cash equivalent investments held by any wholly owned members of the Group) does not exceed zero.
Under the New Facilities Agreement, Forterra Building Products is required to repay the Term Facility in
instalments of 10,000,000 on each anniversary of the date of Admission and all outstanding amounts under the
Term Facility are required to be repaid on the date which falls 60 months after Admission. Each loan made under
the Revolving Credit Facility is repayable on the last day of its interest period. Forterra Building Products or the
Company may select an interest period of one, two, three or six months or any such period as agreed by the
Company, the Agent and each lender in relation to the relevant loan.
Interest is payable on amounts drawn by way of loans under the New Facilities Agreement at a rate of LIBOR
plus a variable margin. On Admission, the applicable margin is 2.25% per annum under the Term Facility and
2.25% per annum under the Revolving Credit Facility. Following delivery of a compliance certificate under the
New Facilities Agreement (provided no event of default has occurred and is continuing and a compliance
122
certificate for the period ending 31 December 2016 has been delivered), the applicable margin will be calculated
by reference to the ratio of total net debt to EBITDA (as defined in the New Facilities Agreement). The highest
applicable margin payable is 2.75% per annum and the lowest margin payable is 1.50% per annum.
Further details of the terms of the New Facilities Agreement are set out in paragraph 13.3 of Part 14 (Additional
Information) of this Prospectus.
The table below summarises the Groups contractual obligations as at 31 December 2015.
Between one
Within and After
one year five years five years
000s 000s 000s
Operating leases:
Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 764 2,402 4,210
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,967 19,746 2,007
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,731 22,148 6,217
Between November 2012 and February 2015, the Group participated in a programme to sell accounts receivable
to certain third party banking institutions on a largely non-recourse basis. In accordance with IFRS, these
receivables sold were removed from the balance sheet and any cash collected on sold receivables that was not
passed onto the banking institutions was shown as a liability on asset-backed securities. The net receipts were
reflected as cash from the operating activities in the Groups combined and consolidated statements of cash
flows.
Pension obligations
The Directors and employees of the Group currently participate in the Forterra Group Personal Pension Plan (the
FGPPP), which is a defined contribution pension arrangement under which the Groups obligations are limited
to payment of contributions at agreed rates.
Historically, and prior to the Lone Star Acquisition, employees of Forterra Building Products were members of
the Hanson Industrial Pension Scheme (the HIPS), an occupational pension scheme consisting of several
sections, some of which operate on a defined benefit basis. The Groups contributions to the HIPS were as
follows: 4.0 million in 2013, 4.6 million in 2014 and 0.9 million in the period to 13 March 2015. From
14 March 2015, the Group offered membership to the Hanson Building Products Personal Pension Plan (now the
FGPPP). The Groups contributions to the defined contribution pension scheme were 3.4 million in 2015. The
Group has no ongoing funding obligations in relation to the HIPS.
Further details of the Groups pension schemes are set out in paragraph 8 of Part 14 (Additional Information) of
this Prospectus.
Market risk
The Groups borrowings comprise the Existing Loan Note and the New Loan Note. The Company, Forterra
Holdings and Forterra Building Products are also parties to the Existing Credit Agreements pursuant to which
they have granted security over their assets in favour of the Existing Lenders. From Admission, the Groups
borrowings will comprise the proceeds made available under the New Facilities, as described above. The
Directors continue to monitor the Groups funding requirements and external debt markets to ensure that the
Groups borrowings are appropriate to its requirements in terms of quantum, rate and duration.
123
The Group uses significant amounts of energy, including natural gas and electricity, and fuel in the
manufacturing, distribution and sale of the Groups products and, as such, the Group is exposed to energy and
fuel price risks. The Groups risk strategy aims to provide protection against sudden and significant increases in
prices whilst ensuring that the Group is not competitively disadvantaged in the event of a substantial fall in the
price of energy or fuel. To meet these objectives the Group enters into energy forward purchase contracts from
time to time with approved counterparties and within approved limits. The Group did not enter into any energy
derivatives in 2013, 2014 and 2015. The following table demonstrates the sensitivity of a reasonably possible
change in fuel prices, with all other variables held constant:
The Group has purchased pursuant to forward purchase contracts approximately 75% of the natural gas for use in
its operations during 2016 and may utilise forward purchase contracts to secure a portion or all of its energy
requirements in the future.
Credit risk
Credit risk is the risk of financial loss if a customer or counterparty to a financial instrument fails to meet its
contractual obligations. This risk arises principally from the Groups receivables from customers and credit sales.
The Group has concentrations of credit risk as it receives a significant portion of its revenue from a limited
number of customers. For example, during 2015, the Groups top 20 customers accounted for 65.0% of the
Groups revenue. If any customer is unable to pay against its trade receivable accounts, the Group could suffer
from a decline in revenue and profitability. The Group has implemented policies to manage potential credit risk
before sales are made and to monitor customer trade receivable accounts thereafter, and the Directors do not
expect any significant losses of receivables for which they have not provided. Credit risk is managed on a Group
basis through credit approval limits and insurance where applicable, however, the Group does not have any such
insurance in place at present. Customer credit terms are regularly updated to reflect any identified and relevant
changes in customer circumstances or trading conditions. An internal assessment is made of the credit quality of
the customer, taking into account its financial position, past experience and other factors. There is no
concentration of credit risk with respect to trade receivables, as the Groups largest customers have the highest
credit rating. Although the Group has procedures to limit its exposure to credit risk from its customers, the Group
cannot guarantee that it will be able to limit its potential loss of revenue from customers who are unable to pay
against their trade receivable accounts. In particular, if global, regional or national economic conditions
significantly deteriorate, there is a risk that its customers and distributors in those markets may suffer from a
weakened financial condition and be unable to pay against their trade receivable accounts.
Liquidity risk
The Groups finance department regularly monitors rolling forecasts of the Groups liquidity requirements to
ensure it has sufficient cash to meet operational needs. Such forecasting takes into consideration the Groups debt
financing plans and covenant compliance. The Directors do not consider there to be a significant risk that the
outflow of cash could occur significantly earlier or for a significantly different amount.
In addition, the Group has participated in a programme to sell accounts receivable to certain third party banking
institutions on a largely non-recourse basis from November 2012 until February 2015 to manage both credit and
liquidity risk.
Capital management
The Groups objectives when managing capital are to safeguard the Groups ability to continue as a going
concern in order to provide returns for Shareholders and benefits for other stakeholders and to maintain an
optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the
Group may adjust the level of dividends paid to Shareholders, return capital to Shareholders, issue new Ordinary
Shares or sell assets to reduce debt.
124
8. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The Groups accounting policies and critical accounting judgements and estimates are more fully described in
notes 2 and 3 to its consolidated historical information in Section B of Part 11 (Historical Financial Information)
of this Prospectus. However, certain of the Groups accounting policies are particularly important to the
presentation of its results of operations and require the application of significant judgements and estimates by its
management. In applying these policies, management uses its judgement about future events to determine the
appropriate assumptions to be used in the determination of certain estimates used in the preparation of the
Groups results of operations. Future events and their effects cannot be determined with absolute certainty. These
estimates are based on previous experience, the terms of the Groups existing contracts, information provided by
customers, current and future expected economic conditions, information available from other outside sources,
and other factors, as appropriate.
The Directors believe that, among others, the following accounting policies that involve management judgements
and estimates are the most critical to understanding and evaluating the Groups reported financial results.
Assets not subject to amortisation, including goodwill, are tested annually for impairment.
The recoverable amount is defined as the higher of fair value less costs to sell and value in use, which in turn is
the present value of the future cash flows expected to be derived from the asset. The estimate of value in use, and
hence the outcome of the impairment test, is sensitive to the assumptions made about the revenue growth, the
long-term growth rate of the relevant market, and the discount rate considered appropriate to reflect the time
value of money and any risks specific to the asset that are not reflected in the cash flows.
125
PART 10
CAPITALISATION AND INDEBTEDNESS
The following tables do not reflect the impact of the Reorganisation on the Groups capitalisation and
indebtedness. Please refer to Part 12 (Unaudited Pro Forma Financial Information) of this Prospectus for
analysis of the impact of the Reorganisation on the consolidated net assets of the Group.
Capitalisation
The table below sets out the Groups capitalisation and indebtedness as at 31 December 2015. The capitalisation
information has been extracted without material adjustment from the Groups financial information included in
Section B of Part 11 (Historical Financial Information) of this Prospectus as at 31 December 2015.
As at
31 December
2015
000s
Total current debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405,578
Guaranteed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unguaranteed/unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405,578
Total non-current debt
Guaranteed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unguaranteed/unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,626
Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Share premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,536
Other reserves(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total capitalisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 452,204
(1) Other reserves does not include the profit and loss account reserve.
Save for the Reorganisation described in paragraph 3 of Part 14 (Additional Information) of this Prospectus, there
has been no material change in the Groups capitalisation since 31 December 2015.
Net indebtedness
The table below sets out the Groups net indebtedness as at 29 February 2016. This statement of indebtedness has
been extracted without material adjustment from the Groups unaudited accounting records.
As at
29 February
2016
000s
(Unaudited)
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,396
Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,396
Current bank debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financial debt(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,904
Current finance debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,904
Net current financial indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393,508
Non current bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non current loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non current financial indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net financial indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393,508
(1) Other financial debt includes the Existing Loan Note (including accrued interest), which is disclosed as borrowings from related parties
in the Groups financial information included in Section B of Part 11 (Historical Financial Information) of this Prospectus as at
31 December 2015. The balance outstanding under the Existing Loan Note (principal and accrued interest) will either be repaid or
released following Admission as part of the Reorganisation, as described in paragraph 3 of Part 14 (Additional Information) of this
Prospectus. The increase in Other financial debt from the balance at 31 December 2015 is due to accrued interest on the Existing Loan
Note.
126
PART 11
HISTORICAL FINANCIAL INFORMATION
SECTION A ACCOUNTANTS REPORT
The Directors
Forterra plc
5 Grange Park Court
Roman Way
Northampton NN4 5EA
United Kingdom
21 April 2016
Dear Sirs
Save for any responsibility arising under Prospectus Rule 5.5.3R (2)(f) to any person as and to the extent there
provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any
liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in
connection with, this report or our statement, required by, and given solely for the purposes of, complying with
item 23.1 of Annex I to Commission Regulation (EC) 809/2004, consenting to its inclusion in the Prospectus.
Responsibilities
The directors of the Company are responsible for preparing the financial information in accordance with the basis
of preparation set out in Note 2 of the Historical Financial Information.
It is our responsibility to form an opinion on the Historical Financial Information and to report our opinion to you.
Basis of opinion
We conducted our work in accordance with Standards for Investment Reporting issued by the Auditing Practices
Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and
disclosures in the Historical Financial Information. It also included an assessment of significant estimates and
judgments made by those responsible for the preparation of the financial information and whether the accounting
policies are appropriate to the entitys circumstances, consistently applied and adequately disclosed.
We planned and performed our work so as to obtain all the information and explanations which we considered
necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial
information is free from material misstatement whether caused by fraud or other irregularity or error.
Our work has not been carried out in accordance with auditing or other standards and practices generally
accepted in other jurisdictions and accordingly should not be relied upon as if it had been carried out in
accordance with those standards and practices.
Opinion
In our opinion, the Historical Financial Information gives, for the purposes of the Prospectus dated
21 April 2016, a true and fair view of the state of affairs of the Group as at the dates stated and of its profits, cash
flows and changes in equity for the periods then ended in accordance with the basis of preparation set out in Note
2 to the Historical Financial Information.
127
Declaration
For the purposes of Prospectus Rule 5.5.3R (2)(f) we are responsible for this report as part of the Prospectus and
declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of
our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is
included in the Prospectus in compliance with item 1.2 of Annex I of Commission Regulation (EC) 809/2004.
Yours faithfully
128
SECTION B COMBINED AND CONSOLIDATED FINANCIAL INFORMATION
Profit for the financial period is equivalent to total comprehensive income for the financial period and therefore
combined and consolidated statements of other comprehensive income have not been presented.
129
COMBINED AND CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at 31 December
Note 2013 2014 2015
000s 000s 000s
Assets
Non-current assets
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 16,587 16,597 13,285
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 142,378 144,846 149,544
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 1,914 753 1,794
160,879 162,196 164,623
Current assets
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 28,363 30,620 40,924
Trade and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 23,514 20,904 28,558
Trade and other receivables with related parties . . . . . . . . . . . . . . . . . . . . . 25 41,289 8,960 23,015
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 13,811 20,978 24,189
106,977 81,462 116,686
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267,856 243,658 281,309
Capital and reserves attributable to the equity shareholders of the
parent
Ordinary shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 90 90
Share premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 46,536 46,536
HeidelbergCement AG invested capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 214,628
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (275,216) (257,171)
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214,628 (228,590) (210,545)
Non-current liabilities
Provisions for other liabilities and charges . . . . . . . . . . . . . . . . . . . . . . . . . 20 10,551 11,812 11,656
10,551 11,812 11,656
Current liabilities
Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 39,190 40,925 55,610
Trade and other payables to related parties . . . . . . . . . . . . . . . . . . . . . . . . . 25 904 11,486 13,903
Income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1,890
Borrowings from related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 405,000 405,578
Provisions for other liabilities and charges . . . . . . . . . . . . . . . . . . . . . . . . . 20 2,583 3,025 3,217
42,677 460,436 480,198
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,228 472,248 491,854
Total equity and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267,856 243,658 281,309
130
COMBINED AND CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
The reorganisation that resulted in issuance of share capital is described in note 2(a).
131
COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
132
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
2. ACCOUNTING POLICIES
(a) Basis of preparation
In the period between 20 August 2014 and 1 September 2014, subsidiary undertakings of
HeidelbergCement AG (HC), the parent company of the Company at that date, transferred certain
trade and assets (relating to the manufacture and sale of bricks, both dense and lightweight blocks,
precast concrete, concrete block paving and other complimentary building products) and its investment
in Structherm Limited to the Company as part of a group reorganisation. The transaction was settled via
a consideration of 451.3 million generated from an issue of shares and intercompany loan notes
totalling 405,000,000.
On 23 December 2014, Lone Star (as defined in note 26), through its wholly owned subsidiary entered
into an agreement with HC to purchase the entire share capital of the Company. On 13 March 2015,
Lone Star completed the acquisition of the Company. On this date the immediate parent company
became LSF9 Concrete UK Limited, an entity incorporated in Jersey.
In order to reflect the effect of the restructuring, the historical financial information for the years ended
31 December 2013, 31 December 2014 and 31 December 2015 has been prepared on a basis that
combines the results, assets and liabilities of all entities within the Group for the period to 1 September
2014 and on a consolidated basis thereafter. Prior to 1 September 2014, the Group had not constituted a
separate legal group.
The combined and consolidated historical financial information has been prepared by applying the
principles underlying the consolidation procedures of IFRS 10 Consolidated Financial Statements
(IFRS 10) for each of the three years to 31 December 2013, 31 December 2014 and 31 December 2015
and as at these dates. On such basis, the combined and consolidated historical financial information sets
out the Groups financial position as at 31 December 2013, 31 December 2014 and 31 December 2015
and the results of operations and cash flows for the three years then ended.
The combined and consolidated financial information has been prepared in accordance with the
requirements of the Prospectus Directive Regulation and the UK Listing Rules and in accordance with
this basis of preparation. This basis of preparation describes how the financial information has been
prepared in accordance with IFRS except as described below.
IFRSs do not provide for the preparation of combined historical financial information. Accordingly in
preparing the combined financial information of the Group certain accounting conventions commonly
applied for the purposes of preparing historical information for inclusion in investment circulars as
described in the Annexure to SIR 2000 (Investment Reporting Standards applicable to public reporting
engagements on historical information) issued by the UK Auditing Practices Board have been applied.
The application of these conventions results in the material departures from IFRSs set out below. In all
other respects, IFRSs have been applied.
As explained above, the combined and consolidated historical financial information is prepared
on a combined basis for the period to 1 September 2014 and therefore does not comply with the
requirements of IFRS 10. However, the financial information has been prepared on a combined
basis applying the principles underlying the consolidation procedures of IFRS 1.
The combined financial information does not constitute a set of general purpose financial
statements under paragraph 2 of IAS 1 Presentation of Financial Statements and consequently
133
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
134
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
The Group meets its day-to-day working capital requirements through its cash reserves and borrowings.
The Groups forecasts and projections, taking account of reasonably possible changes in trading
performance, show that the Group should be able to operate within the level of its current cash reserves
and borrowings. After making enquiries, the directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the foreseeable future. The Group therefore
adopts the going concern basis in preparing its combined and consolidated financial information.
135
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
136
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
(iii) Goodwill
Goodwill arises on the acquisition of business and represents the excess of the consideration transferred,
the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any
previous equity interest in the acquiree over the fair value of the identifiable net assets acquired. If the
total consideration transferred, non-controlling interest recognised and previously held interest measured
at fair value is less than the fair value of the net assets of the subsidiary acquired, in the case of a bargain
purchase, the difference is recognised directly in the income statement.
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each
of the cash generating units (CGUs), or groups of CGUs, that are expected to benefit from the
synergies of the combination. Each unit or group of units to which the goodwill is allocated represents
the lowest level within the entity at which the goodwill is monitored for internal management purposes.
Goodwill is monitored at the CGU level.
Goodwill impairment reviews are undertaken annually or more frequently if events or changes in
circumstances indicate a potential impairment. The carrying value of the CGU containing the goodwill is
compared to the recoverable amount, which is the higher of fair value less costs to sell and value in use.
Any impairment is recognised immediately as an expense and is not subsequently reversed.
137
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
(i) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost includes the cost of direct
materials and labour plus attributable overheads based on a normal level of activity, excluding
borrowing costs. Net realisable value is based on estimated selling price less any further costs expected
to be incurred to completion and disposal. The Group apply an inventory provision for damaged,
obsolete, excess and slow-moving inventory.
138
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
(o) Provisions
Provisions are recognised in the balance sheet when the Group has a present legal or constructive
obligation as a result of a past event, and it is probable that an outflow of economic benefits will be
required to settle the obligation. If the effect is material, the provisions are determined by discounting
the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value
of money and the risks specific to the liability. The increase in the provisions due to passage of time is
recognised in net finance expense.
Provisions are not made for future operating losses.
Carbon emissions
Provisions for carbon emissions are recognised in order to reflect the anticipated usage of carbon
emission rights to meet the surrender obligations for the period. Provisions for the obligation to
surrender emission rights are recognised if the actual CO2 emissions up to the reporting date are not
covered by emission rights granted free of charge and, if applicable, emission rights acquired for
consideration.
(q) Revenue
Revenue is measured at the fair value of the consideration received or receivable, and represents
amounts receivable for goods supplied, stated net of rebates, discounts, returns and value added taxes.
The Group recognises revenue when the amount of revenue can be reliably measured; when it is
probable that future economic benefits will flow to the entity; and when the goods have been delivered
and the risks and rewards have passed to the purchaser. The Company provides volume based rebates to
certain customers normally on an annual basis. The estimated obligation at the year end is recorded as an
accrual.
139
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
Finance income
Finance income comprises interest receivable on funds invested and foreign exchange gains.
140
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
141
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
4. SEGMENTAL REPORTING
Management has determined the operating segments based on the operating reports reviewed by the
executive management committee that are used to assess both performance and strategic decisions.
Management has identified that the executive management committee is the chief operating decision
maker in accordance with the requirements of IFRS 8 Operating segments.
The Executive management committee considers the business to be split into 3 operating segments:
Bricks; Blocks; and Bespoke Products. The principal activity of the operating segments are:
Bricks Manufacture and sale of bricks to the building sector
Blocks Manufacture and sale of concrete blocks to the building sector
Bespoke products Manufacture of bespoke products to the building sector
The executive management committee considers that for reporting purposes, the operating segments
above can be aggregated into 2 reporting segments: Bricks & Blocks; and Bespoke products. The
executive management committee has chosen to organise the entity around differences in products and
services. The aggregation of Bricks and Blocks is due to these operating segments having similar: long-
term average margins; production process; suppliers; customers and distribution methods.
The Bespoke Products range includes precast concrete, permeable paving, chimney and roofing
solutions, walling and cladding systems and structural external wall insulation, each of which are
typically made-to-measure or customised to meet the customers specific needs. The precast concrete
flooring products are complemented by the Groups full design and nationwide installation services,
while certain other bespoke products, including permeable paving and chimney flues, are complemented
by the Groups bespoke specification and design service.
Costs which are incurred on behalf of both segments are held at the centre and these, together with
general administrative expenses, have been allocated to the segments for reporting purposes using
relative sales proportions. Management considers that this is an appropriate basis for the allocation.
Segment revenue and results:
Year ended 31 December 2013
Bricks & Bespoke
Note Blocks products Total
000s 000s 000s
Segment revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163,425 63,515 226,940
Intersegment eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,078)
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225,862
EBITDA before exceptional items . . . . . . . . . . . . . . . . . . . . . 20,689 1,569 22,258
Segment exceptional items . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (3,646) (150) (3,796)
Unallocated exceptional items . . . . . . . . . . . . . . . . . . . . . . . . . 5 (5,961)
Exceptional items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (9,757)
Segment EBITDA after exceptional items . . . . . . . . . . . . . . . . 17,043 1,419 18,462
Unallocated costs after exceptional items . . . . . . . . . . . . . . . . . (5,961)
EBITDA after exceptional items . . . . . . . . . . . . . . . . . . . . . . 12,501
Depreciation and amortisation . . . . . . . . . . . . . . . . . . . . . . . . . 12, 13 (9,551) (1,068) (10,619)
Net finance expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 (369)
Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,513
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 (3,062)
Loss for the financial year . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,549)
142
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
As at 31 December 2013
Bricks & Bespoke
Note Blocks products Total
000s 000s 000s
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 126,682 15,696 142,378
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 7,866 8,721 16,587
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 23,115 5,248 28,363
Unallocated assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,528
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267,856
143
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
As at 31 December 2014
Bricks & Bespoke
Note Blocks products Total
000s 000s 000s
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 129,841 15,005 144,846
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 7,939 8,658 16,597
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 25,948 4,672 30,620
Unallocated assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,595
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243,658
144
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
As at 31 December 2015
Bricks & Bespoke
Note Blocks products Total
000s 000s 000s
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 134,527 15,017 149,544
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 7,101 6,184 13,285
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 36,142 4,782 40,924
Unallocated assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,556
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281,309
5. EXCEPTIONAL ITEMS
Year ended 31 December
Note 2013 2014 2015
000s 000s 000s
Profit/(loss) on disposal of fixed assets . . . . . . . . . . . . . . . . . . . . . 8 32 (474) 30
Pension deficit reduction payments . . . . . . . . . . . . . . . . . . . . . . . . 6 (5,961) (4,064)
Transaction costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,550) (5,138)
Separation costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,042)
Restructuring (expense)/credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . (528) 34 (9)
Impairment (expense)/credit:
- Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 (1,103) (2,410)
- Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 (2,197) 5,511
Total exceptional items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,757) (6,543) (11,569)
The Group reports non-trading income or expenditure as exceptional when the size, nature or function of
an item, or aggregation of similar items, is such that separate presentation is relevant to an understanding
of its financial position.
EBITDA before exceptional items for the purposes of this historical financial information represents
Earnings before Interest, Tax, Depreciation and Amortisation adjusted to exclude the exceptional items
as detailed below.
The profit/loss on disposal of fixed assets relates to the profit/loss on sale of surplus plant and
equipment.
The pension deficit reduction payments are the allocated defined benefit pension costs for which the
group is not liable for going forward. See note 6 for further information.
145
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
Other long-term employee benefits relate to the Groups contribution to the defined contribution pension
scheme (refer to note 6(d)).
No Directors emoluments are disclosed in 2013, as the Forterra Building Products legal entity did not
exist in 2013.
146
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
There are no defined benefit schemes for key management. Pension costs under defined contribution
schemes are included in the benefits disclosed above.
147
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
148
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
149
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
The Group estimates the recoverable amount of a CGU using a value in use model by projecting pre-tax
cash flows for the next five years together with a terminal value using a growth rate. The key
assumptions underpinning the recoverable amount of the CGUs tested for impairment are forecast
revenue and capital expenditure.
The forecast revenues in the model are based on the overall growth rates for the UK blocks market, with
adjustments made for incremental growth relating to management actions. The five year plans used in
the impairment models are based on managements past experience and future expectations of
performance. The discount rate used in 2015 is pre-tax 10% (2014: 10.8%, 2013: 11%) derived from a
WACC calculation and benchmarked against similar organisations operating within the sector. The
terminal growth rate used in 2015 is 2% (2014: 2%, 2013: 1.99%). The short-term growth rate is 2% in
2015 (2014: 7%, 2013: 4%).
The total recoverable amount in respect of the indefinite life intangibles, as assessed by management
using the above assumptions, is greater than the carrying amount and therefore no impairment charge has
been booked in each period. Management consider that it is not reasonably possible for the assumptions
to change so significantly as to eliminate the excess. The accumulated impairment charge of 4,700,000
brought forward as at 1 January 2013 was recognised in relation to brand names in 2009.
150
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
Formpave Structherm
% %
31 December 2013:
Terminal growth rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2
Short-term growth rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4
Pre-tax discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 12.7
31 December 2014:
Terminal growth rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2
Short-term growth rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4
Pre-tax discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 12.7
31 December 2015:
Terminal growth rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2
Short-term growth rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 0 post 2016
Pre-tax discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10
For 2013 and 2014, a reasonably possible change in key assumptions would not eliminate the headroom
in either of the two CGUs. For 2015, a reasonably possible change in key assumptions would not
eliminate the headroom in the Formpave CGU.
The goodwill in relation to Structherm, a business that accounts for c.1% of total Group revenue, was
fully impaired in 2015. Structherms performance is linked to local authority spending on property
maintenance/improvement. Lower levels of local authority spending coupled with a loss of key
management at the end of 2015 led to a deterioration in business performance and the carrying value of
goodwill was reduced to reflect this.
The impairment expense is included within administrative expenses in the combined and consolidated
statements of comprehensive income.
151
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
The Group recorded the impairment charges of 3,729,000 in 2008-2012 and 2,197,000 in 2013 in
relation to the assets at the Wilnecote and Howley Park sites as the carrying values exceeded the amount
that could be yielded from use or sale of these facilities, and in relation to the assets at the Accrington
site as a result of its closure.
An impairment reversal of 5,511,000 was recognised in 2014. This was as a result of re-opening
Accrington and changing the estimates used to determine the Howley Park sites recoverable amount.
The impairment expense and reversals are included within administrative expenses in the combined and
consolidated statements of comprehensive income.
Substantially all of Forterra Building Products Limiteds assets are pledged as security. Refer to note 25
for further detail.
152
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
153
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
15. INVENTORIES
The cost of inventories recognised as an expense and included in costs of sales is 31 December 2013:
100,470,048, 31 December 2014: 103,539,580 and 31 December 2015: 103,088,821, of which
employment cost expense is 31 December 2013: 37,436,204, 31 December 2014: 44,257,023 and
31 December 2015: 48,749,094.
Write downs of inventories recognised as an expense were 31 December 2013: 334,000, 31 December
2014: 156,000 and 31 December 2015: 2,354,150.
Reversals of previous inventory write downs were 31 December 2013: 1,641,000, 31 December 2014:
561,000 and 31 December 2015: 243,000.
As at 31 December
2013 2014 2015
000s 000s 000s
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,931 5,446 5,277
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,183 22,954 32,892
Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,692 1,899 1,671
Other inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 557 321 1,084
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,363 30,620 40,924
Trade and other receivables are all current and any fair value difference is not material. Trade and
receivables are considered past due once they have passed their contracted due date. Provisions are made
when there is evidence of a risk of non-payment.
The carrying amounts of the Groups trade and other receivables are all denominated in pounds sterling.
154
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
The creation and release of provisions for impaired receivables has been included in administrative
expenses in the combined and consolidated income statements. Amounts charged to the allowance
account are generally written off, when there is no expectation of recovering additional cash.
The trade receivables that are neither past due nor impaired relate to customers of whom there is no
recent history of default. These amounts have not been impaired as there has not been significant change
in credit quality and the amounts are still considered recoverable.
The aging profile of trade receivables that are past due is:
As at 31 December
2013 2014 2015
000s 000s 000s
Days overdue
1 to 30 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,596 3,365 5,600
31 to 60 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,921 1,289 1,786
61 to 90 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238 425 612
Over 90 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,972 979 1,772
Total trade receivables past due (gross of provision for impairment of
trade receivables) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,727 6,058 9,770
Financing expenses related to asset backed securities were 31 December 2013: 168,000, 31 December
2014: 198,000 and 31 December 2015: 30,000, and are included within net finance expense in the
combined and consolidated income statements. Other expenses related to asset backed securities were
31 December 2013: 273,000, 31 December 2014: 332,000 and 31 December 2015: nil, and are
included in other operating income in the combined and consolidated income statements. The
outstanding balance of receivables sold and not yet collected was 31 December 2013: 5,224,000,
31 December 2014: 9,357,000 and 31 December 2015: nil.
Cash at bank and in hand is held in pounds sterling in 2013 and 2014. As at 31 December 2015,
357,000 was held in euro, the remaining 23,832,000 was held in pounds sterling.
Prior to the sale to Lone Star (as defined in note 26), treasury activities, including activities related to the
Group, were centralised by HC such that the net cash collections were automatically distributed to HC
and reflected as transactions with owners, recognised directly in equity prior to 1 September 2014 and as
related party transactions between September 2014 and February 2015 after which the cash pooling
arrangement ceased. At times, the Group had cash balances due to timing differences and this is what
cash at bank and in hand represents. Post the sale to Lone Star, cash and cash equivalents balance is
made up of cash at bank and in hand that is no longer linked to the HC distributions.
155
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
The fair value of financial liabilities approximates their carrying value due to short maturities. Financial
liabilities are denominated in pounds sterling.
20. PROVISIONS
As at 31 December 2013
Asset
retirement
obligation Other Total
000s 000s 000s
At 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,889 3,618 15,507
Charged/(credited) to the income statement
- Additional provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341 1,173 1,514
- Releases of provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,103) (296) (1,399)
- Utilised amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (960) (1,814) (2,774)
- Unwind of discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286 286
At 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,453 2,681 13,134
As at 31 December 2014
Asset
retirement
obligation Other Total
000s 000s 000s
At 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,453 2,681 13,134
Charged/(credited) to the income statement
- Additional provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613 2,246 2,859
- Releases of provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 746 (686) 60
- Utilised amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (279) (1,216) (1,495)
- Unwind of discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 279
At 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,812 3,025 14,837
156
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
(b) Other
Other provisions are made up of carbon emissions, dilapidation, defective materials, restructuring and
legal provisions.
Regarding carbon emissions, a provision is recognised for the obligation to deliver allowances equal to
the emissions that have been made. The provision is measured as an estimate of expenditure required to
settle the present obligation at the balance sheet date or at the carrying amount of the emission rights, to
the extent covered by the emission rights. The provision is expected to be utilised within the following
year.
All non-current provisions are discounted at a rate of 2.65% (2014: 2.41%, 2013: 3.57%).
157
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
23. DIVIDENDS
No dividends have been paid or declared in 2013, 2014 and 2015.
158
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
As at 31 December
2013 2014 2015
000s 000s 000s
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 942 850 2,275
(b) Period end balances arising from transactions with related parties
As at 31 December
2013 2014 2015
000s 000s 000s
Receivables from related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 7,325 23,015
Cash pooling balance receivable from HC . . . . . . . . . . . . . . . . . . . . . . . . . . 41,229 1,635
41,289 8,960 23,015
As at 31 December
2013 2014 2015
000s 000s 000s
Payables to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 904 5,173 13,903
Cash pooling balance payable to HC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,313
904 11,486 13,903
159
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
160
NOTES TO THE HISTORICAL FINANCIAL INFORMATION
As at 1 January
2013
000s
Assets
Non-current assets
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,042
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152,994
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,037
175,073
Current assets
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,887
Trade and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,603
Trade receivables with related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,075
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,389
92,954
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268,027
Capital and reserves attributable to the equity shareholders of the parent
HeidelbergCement AG invested capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,468
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,468
Non-current liabilities
Provisions for other liabilities and charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,987
11,987
Current liabilities
Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,222
Trade payables to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,830
Provisions for other liabilities and charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,520
44,572
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,559
Total equity and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268,027
161
PART 12
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma information has been prepared for illustrative purposes only and, by its nature,
addresses a hypothetical situation and does not, therefore, represent the Groups actual financial position or
results. Such information may not, therefore, give a true picture of the Groups financial position or results nor is
it indicative of the results that may or may not be expected to be achieved in the future. The unaudited pro forma
information is based on the audited consolidated net assets of the Group as at 31 December 2015 as shown in
Section B of Part 11 (Historical Financial Information) of this Prospectus and is compiled on a basis consistent
with the accounting policies of the Group. Other than the adjustments detailed below, no adjustments have been
made to take account of trading, expenditure or other movements subsequent to 31 December 2015, being the
date of the last published balance sheet of the Group.
There is no financial information for the Company, which was incorporated on 21 January 2016; accordingly, the
Company is excluded from the unaudited pro forma statement of net assets.
The unaudited pro forma information does not constitute financial statements within the meaning of section 434
of the 2006 Act. Investors should read the whole of this Prospectus and not rely solely on the summarised
financial information contained in this Part 12 (Unaudited Pro Forma Financial Information) of this Prospectus.
162
Consolidated
net assets of Unaudited
the Group as Estimated pro forma net
at fees in assets as at
31 December relation to the Re- 31 December
2015 Offer organisation 2015
000s 000s 000s 000s
Note 1 Note 2 Note 3
Assets
Non-current assets
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,285 13,285
Property, plant and equipment . . . . . . . . . . . . . . . . . . 149,544 149,544
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,794 1,794
164,623 164,623
Current assets
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,924 40,924
Trade and other receivables . . . . . . . . . . . . . . . . . . . . 28,558 28,558
Trade and other receivables with related parties . . . . 23,015 (23,015)
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . 24,189 (12,044) 16,398 28,543
116,686 (12,044) (6,617) 98,025
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281,309 (12,044) (6,617) 262,648
Liabilities
Non-current liabilities
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,087 147,087
Provisions for other liabilities and charges . . . . . . . . 11,656 11,656
11,656 147,087 158,743
Current liabilities
Trade and other payables . . . . . . . . . . . . . . . . . . . . . . 55,610 (2,818) 52,792
Trade and other payables to related parties . . . . . . . . 13,903 (13,903)
Income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 1,890 1,890
Borrowings from related parties . . . . . . . . . . . . . . . . 405,578 (405,578)
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 10,000
Provisions for other liabilities and charges . . . . . . . . 3,217 3,217
480,198 (2,818) (409,481) 67,899
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 491,854 (2,818) (262,394) 226,642
Net (liabilities)/assets . . . . . . . . . . . . . . . . . . . . . . . . (210,545) (9,226) 255,777 36,006
Notes
(1) The financial information has been extracted without material adjustment from the combined and consolidated financial information of
the Group as set out in Section B of Part 11 (Historical Financial Information) of this Prospectus.
(2) The total estimated fees payable in connection with the Offer, exclusive of capitalised debt arrangement fees, are 14,365,000.
2,320,000 of transaction fees were paid prior to 31 December 2015, leaving 12,044,000 of fees to be paid out on Admission, including
2,818,000 which was accrued at 31 December 2015.
(3) This column reflects the Reorganisation as set out in paragraph 3 of Part 14 (Additional Information) of this Prospectus as if the
Reorganisation had taken place on 31 December 2015. Had the Reorganisation occurred on 31 December 2015 it would have resulted in
a repayment of the 405,578,000 borrowings from related parties and settlement of 13,903,000 trade and other payables from related
parties through drawdowns of 157,087,000 on the New Facilities (160,000,000 net of 2,913,000 capitalised debt arrangement fees for
the New Facilities of which 10,000,000 is a current liability), through settlement of trade and other receivables with related parties of
23,015,000 and the issue of 255,777,000 equity in the Company to the Selling Shareholder. Additional interest payable on the
borrowings from related parties at the date of settlement will be 1,994,000, reflecting the interest accruing in the period from 31 March
2016 to the date of repayment. No adjustment has been made for this. Net amounts receivable from related parties have reduced by
5,816,000 in the period from 31 December 2015 to the date of the Reorganisation. No adjustment has been made for this.
163
Section B Accountants report on the unaudited pro forma statement of net assets
The Directors
Forterra plc
5 Grange Park Court
Roman Way
Northampton NN4 5EA
United Kingdom
21 April 2016
Dear Sirs
Forterra plc
We report on the pro forma financial information (the Pro Forma Financial Information) set out in Section A
of Part 12 of the prospectus prepared by Forterra plc (the Company) dated 21 April 2016 (the Prospectus),
which has been prepared on the basis described in Notes 2 and 3, for illustrative purposes only, to provide
information about how the fees in relation to the Offer and the Reorganisation might have affected the financial
information presented on the basis of the accounting policies adopted by the Company, being those adopted in
preparing the Forterra Building Products Limited historical financial information for the year ended 31 December
2015 included in section B of Part 11 of the Prospectus. This report is required by item 7 of Annex II of
Commission Regulation (EC) No 809/2004 and is given for the purpose of complying with that item and for no
other purpose.
Save for any responsibility arising under Prospectus Rule 5.5.3R (2)(f) to any person as and to the extent there
provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any
liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in
connection with, this report or our statement, required by and given solely for the purposes of complying with
item 23.1 of Annex I to Commission Regulation (EC) No 809/2004, consenting to its inclusion in the Prospectus.
Responsibilities
It is the responsibility of the directors of the Company to prepare the Pro Forma Financial Information in
accordance with items 1 to 6 of Annex II of Commission Regulation (EC) No 809/2004.
It is our responsibility to form an opinion, as required by item 7 of Annex II of the Commission Regulation (EC)
No 809/2004, as to the proper compilation of the Pro Forma Financial Information and to report that opinion to
you.
In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on any
financial information used in the compilation of the Pro Forma Financial Information, nor do we accept
responsibility for such reports or opinions beyond that owed to those to whom those reports or opinions were
addressed by us at the dates of their issue.
Basis of opinion
We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing
Practices Board in the United Kingdom. The work that we performed for the purpose of making this report,
which involved no independent examination of any of the underlying financial information, consisted primarily
of comparing the unadjusted financial information with the source documents, considering the evidence
supporting the adjustments and discussing the Pro Forma Financial Information with the directors of the
Company.
We planned and performed our work so as to obtain the information and explanations we considered necessary in
order to provide us with reasonable assurance that the Pro Forma Financial Information has been properly
compiled on the basis stated and that such basis is consistent with the accounting policies of the Company.
164
Our work has not been carried out in accordance with auditing or other standards and practices generally
accepted in other jurisdictions and accordingly should not be relied upon as if it had been carried out in
accordance with those standards and practices.
Opinion
In our opinion:
the Pro Forma Financial Information has been properly compiled on the basis stated; and
such basis is consistent with the accounting policies of the Company.
Declaration
For the purposes of Prospectus Rule 5.5.3R(2)(f) we are responsible for this report as part of the Prospectus and
declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best
of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This
declaration is included in the Prospectus in compliance with item 1.2 of Annex I of Commission Regulation (EC)
No 809/2004.
Yours faithfully
165
PART 13
DETAILS OF THE OFFER
1. BACKGROUND
Pursuant to the Offer, the Selling Shareholder intends to sell 70,000,000 Ordinary Shares (the Offer
Shares) for an aggregate amount of approximately 121.6 million, net of underwriting commissions,
VAT (if applicable) and stamp duty or SDRT of approximately 4.4 million. The Offer Shares will
represent approximately 35.0% of the issued ordinary share capital of the Company immediately
following Admission.
A further 10,500,000 Over-allotment Shares (representing 15% of the maximum number of Ordinary
Shares comprised in the Offer) are being made available by the Selling Shareholder pursuant to the
Over-allotment Option as described in paragraph 8 of this Part 13 (Details of the Offer) of this
Prospectus.
The Company will not receive any of the proceeds from the sale of the Offer Shares, all of which will be
paid to the Selling Shareholder. The Company will bear one-off fees and expenses of an amount of
approximately 17.3 million (including VAT to the extent it is a cost to the Company) in connection
with the Offer and Admission.
2. THE OFFER
In the Offer, Ordinary Shares will be offered: (i) to certain institutional investors in the United Kingdom
and elsewhere outside the United States in offshore transactions as defined, in, and pursuant to,
Regulation S; and (ii) in the United States, only to persons reasonably believed to be qualified
institutional buyers in reliance on Rule 144A or pursuant to another exemption from, or in a transaction
not subject to, the registration requirements of the US Securities Act.
Certain restrictions that apply to the distribution of this Prospectus and the Ordinary Shares being sold
under the Offer in jurisdictions outside the United Kingdom are described in paragraph 12 of this Part 13
(Details of the Offer) of this Prospectus.
When admitted to trading on the London Stock Exchanges main market for listed securities, the
Ordinary Shares will be registered with ISIN (International Security Identification Number)
GB00BYYW3C20 and SEDOL (Stock Exchange Daily Official List) number BYYW3C2 and trade
under the symbol FORT. The rights attaching to the Ordinary Shares will be uniform in all respects
and they will form a single class for all purposes.
Immediately following Admission, it is expected that 28.3% of the Companys issued ordinary share
capital will be held in public hands (within the meaning of paragraph 6.1.19 of the Listing Rules but
including for these purposes investors outside the EEA) assuming that no Over-allotment Shares are
acquired pursuant to the Over-allotment Option (increasing to 33.5% if the maximum number of Over-
allotment Shares are acquired pursuant to the Over-allotment Option).
166
The aggregate expenses of, or incidental to, Admission and the Offer incurred and to be borne by the
Company are estimated to be approximately 17.3 million (including VAT to the extent it is a cost to the
Company), which the Company intends to pay out of existing cash resources (to the extent they have not
already been paid) and proceeds made available under the New Facilities.
4. PRICING
Under the Offer, all the Offer Shares will be sold, payable in full at the Offer Price. The latest time and
date for indications of interest in acquiring Offer Shares is set out in Part 4 (Expected Timetable of
Principal Events and Offer Statistics) of this Prospectus but that time may be extended at the discretion
of the Company and the Selling Shareholder (with the agreement of the Joint Global Co-ordinators).
All Ordinary Shares sold pursuant to the Offer will be sold, payable in full, at the Offer Price. No
commissions, fees or expenses will be charged by the Company or the Selling Shareholder to any
purchasers of Offer Shares. Liability for UK stamp duty and SDRT is described in paragraph 14 of
Part 14 (Additional Information) of this Prospectus.
5. ALLOCATION
The rights attaching to the Ordinary Shares will be uniform in all respects and they will form a single
class for all purposes. The Ordinary Shares allocated under the Offer have been underwritten, subject to
certain conditions, by the Banks as described in the paragraph 8 of this Part 13 (Details of the Offer) of
this Prospectus and in paragraph 9.1 of Part 14 (Additional Information) of this Prospectus. Allocations
under the Offer will be determined in the sole discretion of the Selling Shareholder in consultation with
the Joint Global Co-ordinators.
Upon accepting any allocation, prospective investors will be contractually committed to acquire the
number of Offer Shares allocated to them at the Offer Price and, to the fullest extent permitted by law,
will be deemed to have agreed not to exercise any rights to rescind or terminate, or otherwise withdraw
from such commitment. Dealing may not begin before notification is made. A number of factors have
been considered in determining the Offer Price and basis of allocation, including the prevailing market
conditions, the level and nature of demand for the Offer Shares, the prices bid to acquire the Offer
Shares and the objective of establishing an orderly and liquid after-market in the Ordinary Shares. The
Offer Price and the number of Offer Shares have been established at a level determined in accordance
with these arrangements, taking into account indications of interest received from prospective investors.
6. DEALING ARRANGEMENTS
The Offer is subject to the satisfaction of certain conditions contained in the Underwriting Agreement,
which are typical for an agreement of this nature. Certain conditions are related to events which are
outside the control of the Company, the Directors and the Banks. Further details of the Underwriting
Agreement are described in paragraph 9.1 of Part 14 (Additional Information) of this Prospectus.
Application has been made to the FCA for all the Ordinary Shares to be admitted to listing on the
premium listing segment of the Official List and to the London Stock Exchange for all of the Ordinary
Shares to be admitted to trading on the London Stock Exchanges main market for listed securities. It is
expected that Admission will become effective, and that unconditional dealings in the Ordinary Shares
will commence on the London Stock Exchange at 8.00 a.m. (London time) on 26 April 2016. Settlement
of dealings from that date will be on a three-day rolling basis. Prior to Admission, conditional dealings
in the Ordinary Shares are expected to commence on the London Stock Exchange at 8.00 a.m. (London
time) on 21 April 2016. Dealings on the London Stock Exchange before Admission will only be settled
if Admission takes place. The earliest date for such settlement of such dealings will be 26 April 2016.
All dealings before the commencement of unconditional dealings will be of no effect if Admission
does not take place and such dealings will be at the sole risk of the parties concerned. These dates
and times may be changed without further notice.
Each investor will be required to undertake to pay the Offer Price for the Offer Shares sold to such
investor in such manner as shall be directed by the Underwriters. It is expected that Ordinary Shares
allocated to investors in the Offer will be delivered in uncertificated form and settlement will take place
through CREST on Admission. No temporary documents of title will be issued. Dealings in advance of
crediting of the relevant CREST stock account shall be at the risk of the person concerned.
167
7. WITHDRAWAL RIGHTS
If the Company is required to publish any supplementary prospectus, applicants who have applied for
Offer Shares under the Offer shall have at least two clear Business Days following the publication of the
relevant supplementary prospectus within which to withdraw their application to acquire Offer Shares in
its entirety. The right to withdraw an application to acquire Offer Shares in these circumstances will be
available to all investors under the Offer. If the application is not withdrawn within the stipulated period,
any application to apply for Offer Shares under the Offer will remain valid and binding.
Details of how to withdraw an application will be made available if a supplementary prospectus is
published. Any supplementary prospectus will be published in accordance with the Prospectus Rules
(and notification thereof will be made to a Regulatory Information Service) but will not be distributed to
investors individually. Any such supplementary prospectus will be published online at
www.forterraplc.co.uk and will be available in printed form free of charge at the registered office of the
Company until 14 days after Admission.
9. CREST
CREST is a paperless settlement system allowing securities to be transferred from one persons CREST
account to anothers without the need to use share certificates or written instruments of transfer. With
effect from Admission, the Articles will permit the holding of Ordinary Shares in the CREST system.
Application has been made for the Ordinary Shares to be admitted to CREST with effect from
Admission. Accordingly, settlement of transactions in the Ordinary Shares following Admission may
take place within the CREST system if any Shareholder so wishes. CREST is a voluntary system and
holders of Ordinary Shares who wish to receive and retain share certificates will be able to do so.
168
10. UNDERWRITING ARRANGEMENTS
The Banks have entered into commitments under the Underwriting Agreement pursuant to which they
have agreed, subject to certain conditions, to procure purchasers for the Offer Shares to be sold by the
Selling Shareholder in the Offer, or, failing which, for the Banks to purchase such Offer Shares at the
Offer Price.
The Underwriting Agreement contains provisions entitling the Banks to terminate the Offer (and the
arrangements associated with it) at any time prior to Admission in certain circumstances. If this right is
exercised, the Offer and these arrangements will lapse and any monies received in respect of the Offer
will be returned to applicants without interest. The Offer is conditional upon, inter alia, Admission
occurring not later than 8.00 a.m. (London time) on 26 April 2016 (or such later date and time as may be
agreed in accordance with the terms of the Underwriting Agreement) and the Underwriting Agreement
becoming unconditional in all respects and not having been terminated in accordance with its terms.
Certain conditions contained in the Underwriting Agreement are related to events which are outside the
control of the Company, the Directors, the Selling Shareholder and the Banks.
The Underwriting Agreement provides for the Banks to be paid commissions in respect of the Offer
Shares sold and any Over-allotment Shares sold following exercise of the Over-allotment Option. Any
commissions received by the Banks may be retained, and any Ordinary Share acquired by them may be
retained or dealt in, by them, for their own benefit.
Further details of the terms of the Underwriting Agreement are set out in paragraph 9.1 of Part 14
(Additional Information) of this Prospectus. Certain selling and transfer restrictions are set out below.
169
European Economic Area
In relation to each member state of the European Economic Area which has implemented the Prospectus
Directive (each, a Relevant Member State), no Ordinary Shares have been offered or will be offered
pursuant to the Offer to the public in that Relevant Member State prior to the publication of a prospectus
in relation to the Ordinary Shares which has been approved by the competent authority in that Relevant
Member State or, where appropriate, approved in another Relevant Member State and notified to the
competent authority in that Relevant Member State, all in accordance with the Prospectus Directive,
except that offers of Ordinary Shares may be made to the public in that Relevant Member State at any
time under the following exemptions under the Prospectus Directive, if they are implemented in that
Relevant Member State:
(a) to any legal entity which is a qualified investor as defined under the Prospectus Directive;
(b) to fewer than 100, or, if the Relevant Member State has implemented the relevant provision of
the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as
defined in the Prospectus Directive) subject to obtaining the prior consent of the Joint Global
Co-ordinators for any such offer; or
(c) in any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided that no such offer of Ordinary Shares shall result in a requirement for the publication of a
prospectus pursuant to Article 3 of the Prospectus Directive or any measure implementing the Prospectus
Directive in a Relevant Member State.
For the purposes of this provision, the expression an offer to the public in relation to any
Ordinary Shares in any Relevant Member State means the communication in any form and by any
means of sufficient information on the terms of the offer and any Ordinary Shares to be offered so
as to enable an investor to decide to purchase any Ordinary Shares, as the same may be varied in
that member state by any measure implementing the Prospectus Directive in that member state.
The expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto,
including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member
State), and includes any relevant implementing measure in each Relevant Member State and the
expression 2010 PD Amending Directive means Directive 2010/73/EU.
In the case of any Ordinary Shares being offered to a financial intermediary as that term is used in
Article 3(2) of the Prospectus Directive, such financial intermediary will also be deemed to have
represented, acknowledged and agreed that the Ordinary Shares acquired by it in the Offer have not been
acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer
or resale to persons in circumstances which may give rise to an offer of any Ordinary Shares to the
public other than their offer or resale in a Relevant Member State to qualified investors as so defined or
in circumstances in which the prior consent of the Joint Global Co-ordinators has been obtained to each
such proposed offer or resale. The Company, the Selling Shareholder, the Banks and their affiliates, and
others will rely upon the truth and accuracy of the foregoing representation, acknowledgement and
agreement. Notwithstanding the above, a person who is not a qualified investor and who has notified the
Banks of such fact in writing may, with the prior consent of the Joint Global Co-ordinators, be permitted
to acquire Ordinary Shares in the Offer.
United States
The Ordinary Shares have not been and will not be registered under the US Securities Act or under any
applicable securities laws or regulations of any state of the United States and, subject to certain
exceptions, may not be offered or sold within the United States except to persons reasonably believed to
be QIBs in reliance on Rule 144A or another exemption from, or in a transaction not subject to, the
registration requirements of the US Securities Act. The Ordinary Shares are being offered and sold
outside the United States in offshore transactions in reliance on Regulation S.
In addition, until 40 days after the commencement of the Offer of the Ordinary Shares an offer or sale of
Ordinary Shares within the United States by any dealer (whether or not participating in the Offer) may
violate the registration requirements of the US Securities Act if such offer or sale is made otherwise than
in accordance with Rule 144A or another exemption from, or transaction not subject to, the registration
requirements of the US Securities Act.
170
The Underwriting Agreement provides that the Banks may directly or through their respective
United States broker-dealer affiliates arrange for the offer and resale of Ordinary Shares within the
United States only to QIBs in reliance on Rule 144A or another exemption from, or transaction not
subject to, the registration requirements of the US Securities Act.
Each acquirer of Ordinary Shares within the United States, by accepting delivery of this Prospectus, will
be deemed to have represented, agreed and acknowledged that it has received a copy of this Prospectus
and such other information as it deems necessary to make an investment decision and that:
(a) it is: (i) a QIB within the meaning of Rule 144A; (ii) acquiring the Ordinary Shares for its own
account or for the account of one or more QIBs with respect to whom it has the authority to
make, and does make, the representations and warranties set forth herein; (iii) acquiring the
Ordinary Shares for investment purposes, and not with a view to further distribution of such
Ordinary Shares; and (iv) aware, and each beneficial owner of the Ordinary Shares has been
advised, that the sale of the Ordinary Shares to it is being made in reliance on Rule 144A or in
reliance on another exemption from, or in a transaction not subject to, the registration
requirements of the US Securities Act.
(b) it understands that the Ordinary Shares are being offered and sold in the United States only in a
transaction not involving any public offering within the meaning of the US Securities Act and
that the Ordinary Shares have not been and will not be registered under the US Securities Act or
with any securities regulatory authority of any state or other jurisdiction of the United States and
may not be offered, sold, pledged or otherwise transferred except: (i) to a person that it and any
person acting on its behalf reasonably believe is a QIB purchasing for its own account or for the
account of a QIB in a transaction meeting the requirements of Rule 144A, or another exemption
from, or in a transaction not subject to, the registration requirements of the US Securities Act;
(ii) in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S;
(iii) pursuant to an exemption from registration under the US Securities Act provided by
Rule 144 thereunder (if available); or (iv) pursuant to an effective registration statement under
the US Securities Act, in each case in accordance with any applicable securities laws of any
state of the United States. It further: (i) understands that the Ordinary Shares may not be
deposited into any unrestricted depositary receipt facility in respect of the Ordinary Shares
established or maintained by a depositary bank; (ii) acknowledges that the Ordinary Shares
(whether in physical certificated form or in uncertificated form held in CREST) are restricted
securities within the meaning of Rule 144(a)(3) under the US Securities Act and that no
representation is made as to the availability of the exemption provided by Rule 144 for resales
of the Ordinary Shares; and (iii) understands that the Company may not recognise any offer,
sale, resale, pledge or other transfer of the Ordinary Shares made other than in compliance with
the above-stated restrictions.
(c) it understands that the Ordinary Shares (to the extent they are in certificated form), unless
otherwise determined by the Company in accordance with applicable law, will bear a legend
substantially to the following effect:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE US SECURITIES ACT OF 1933, AS AMENDED (THE US
SECURITIES ACT) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF
ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT
BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) TO
A PERSON THAT THE SELLER AND ANY PERSON ACTING ON ITS BEHALF
REASONABLY BELIEVE IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A UNDER THE US SECURITIES ACT PURCHASING FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER, (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903
OR RULE 904 OF REGULATION S UNDER THE US SECURITIES ACT,
(3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE US
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR
(4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE US
SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. NO
REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE
EXEMPTION PROVIDED BY RULE 144 UNDER THE US SECURITIES ACT FOR
171
RESALES OF THE SHARES. NOTWITHSTANDING ANYTHING TO THE
CONTRARY IN THE FOREGOING, THE SHARES REPRESENTED HEREBY MAY
NOT BE DEPOSITED INTO ANY UNRESTRICTED DEPOSITARY RECEIPT
FACILITY IN RESPECT OF THE SHARES ESTABLISHED OR MAINTAINED BY A
DEPOSITARY BANK. EACH HOLDER, BY ITS ACCEPTANCE OF SHARES,
REPRESENTS THAT IT UNDERSTANDS AND AGREES TO THE FOREGOING
RESTRICTIONS; and
(d) it represents that if, in the future, it offers, resells, pledges or otherwise transfers such Ordinary
Shares while they remain restricted securities within the meaning of Rule 144, it shall notify
such subsequent transferee of the restrictions set out above.
The Company, the Selling Shareholder, the Banks and their affiliates and others will rely on the truth
and accuracy of the foregoing acknowledgements, representations and agreements.
Australia
This Prospectus: (a) does not constitute a prospectus or a product disclosure statement under the
Corporations Act 2001 of the Commonwealth of Australia (Corporations Act); (b) does not purport
to include the information required of a prospectus under Part 6 D.2 of the Corporations Act or a product
disclosure statement under Part 7.9 of the Corporations Act, has not been, nor will it be, lodged as a
disclosure document with the Australian Securities and Investments Commission (ASIC), the
Australian Securities Exchange operated by ASX Limited or any other regulatory body or agency in
Australia; and (c) may not be provided in Australia other than to select investors (Exempt Investors)
who are able to demonstrate that they: (i) fall within one or more of the categories of investors under
section 708 of the Corporations Act to whom an offer may be made without disclosure under Part 6 D.2
of the Corporations Act; and (ii) are wholesale clients for the purpose of section 761G of the
Corporations Act.
The Ordinary Shares may not be directly or indirectly purchased or sold, and no invitations to buy, the
Ordinary Shares may be issued, and no draft or definitive offering memorandum, advertisement or other
offering material relating to any Ordinary Shares may be distributed, received or published in Australia,
except where disclosure to investors is not required under Chapters 6D and 7 of the Corporations Act or is
otherwise in compliance with all applicable Australian laws and regulations. By submitting an application
for the Ordinary Shares, each purchaser of Ordinary Shares represents and warrants to the Company, the
Selling Shareholder, the Banks and their affiliates that such purchaser is an Exempt Investor.
As any offer of Ordinary Shares under this Prospectus, any supplement or the accompanying prospectus
or other document will be made without disclosure in Australia under Parts 6D.2 and 7.9 of the
Corporations Act, the offer of those Ordinary Shares for resale in Australia within 12 months may, under
the Corporations Act, require disclosure to investors if none of the exemptions in the Corporations Act
applies to that resale. By applying for the Ordinary Shares each purchaser of Ordinary Shares undertakes
to the Company, the Selling Shareholder, the Banks that such purchaser will not, for a period of
12 months from the date of issue or purchase of the Ordinary Shares, offer, transfer, assign or otherwise
alienate those Ordinary Shares to investors in Australia except in circumstances where disclosure to
investors is not required under the Corporations Act or where a compliant disclosure document is
prepared and lodged with ASIC.
Canada
The Ordinary Shares are being offered and sold in Canada only in the Provinces of Ontario, Qubec,
British Columbia and Alberta to those persons to whom they may be lawfully sold and only by persons
permitted to sell such securities. This Prospectus is not, and under no circumstances is to be construed
as, an advertisement or a public offering of the securities referred to herein in Canada. No securities
commission or similar authority in Canada has reviewed or in any way passed upon this Prospectus or
the merits of the securities described herein and any representation to the contrary is an offence.
The Ordinary Shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal
that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or
subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National
Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any
resale of the Ordinary Shares must be made in accordance with an exemption from, or in a transaction not
subject to, the prospectus requirements of applicable securities laws.
172
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies
for rescission or damages if this Prospectus (including any amendment thereto) contains a
misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser
within the time limit prescribed by the securities legislation of the purchasers province or territory. The
purchaser should refer to any applicable provisions of the securities legislation of the purchasers
province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-
Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts
(NI 33-105), the Banks are not required to comply with the disclosure requirements of NI 33-105
regarding underwriter conflicts of interest in connection with this offering.
DIFC
This Prospectus relates to an Exempt Offer in accordance with the Market Rules of the Dubai Financial
Services Authority (DFSA). This Prospectus is intended for distribution only to persons of a type
specified in the Market Rules of the DFSA. It must not be delivered to, or relied on by, any other person.
The DFSA has no responsibility for reviewing or verifying any document in connection with Exempt
Offers. The DFSA has not approved this Prospectus nor taken steps to verify the information set forth
herein and has no responsibility for this Prospectus. The Ordinary Shares may be illiquid and/or subject
to restrictions on their resale. Prospective purchasers of Ordinary Shares should conduct their own due
diligence on the Ordinary Shares. If you do not understand the contents of this Prospectus you should
consult an authorised financial adviser.
Hong Kong
This Prospectus has not been approved by or registered with the Securities and Futures Commission of
Hong Kong or the Registrar of Companies of Hong Kong. No person may offer or sell in Hong Kong, by
means of any document, any Ordinary Shares other than: (a) to professional investors as defined in the
Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or
(b) in other circumstances which do not result in the document being a prospectus as defined in the
Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong or which do
not constitute an offer to the public within the meaning of that Ordinance.
No person may issue or have in its possession for the purposes of issue, whether in Hong Kong or
elsewhere, any advertisement, invitation or document relating to the Ordinary Shares which is directed
at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if
permitted to do so under the securities laws of Hong Kong) other than with respect to Ordinary Shares
which are or are intended to be disposed of only to persons outside Hong Kong or only to professional
investors as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Japan
The Ordinary Shares have not been, and will not be, registered under the Financial Instruments and
Exchange Law of Japan (Law No. 25 of 1948 as amended, the FIEL) and disclosure under the FIEL
has not been, and will not be, made with respect to the Ordinary Shares. Neither the Ordinary Shares nor
any interest therein may be offered, sold, resold, or otherwise transferred, except pursuant to an
exemption from the registration requirements of, and otherwise in compliance with, the FIEL and all
other applicable laws, regulations and guidelines promulgated by the relevant Japanese governmental
and regulatory authorities. As used in this paragraph, a resident of Japan is any person that is resident in
Japan, including any corporation or other entity organised under the laws of Japan.
Kuwait
This Prospectus is not for general circulation to the public in Kuwait. The Ordinary Shares have not been
licensed for offering in Kuwait by the Kuwait Capital Markets Authority or any other relevant Kuwaiti
government agency. The offering of Ordinary Shares in Kuwait on the basis a private placement or
public offering is, therefore, restricted in accordance with Decree Law No. 31 of 1990 and the
implementing regulations thereto (as amended) and Law No. 7 of 2010 and the bylaws thereto (as
amended). No private or public offering of the Ordinary Shares is being made in Kuwait, and no
agreement relating to the sale of the Ordinary Shares will be concluded in Kuwait. No marketing or
solicitation or inducement activities are being used to offer or market the Ordinary Shares in Kuwait.
173
Qatar
The Ordinary Shares have not been and will not be offered, sold or delivered, at any time, directly or
indirectly in the State of Qatar in a manner that would constitute a public offering. No application has
been or will be made for the Ordinary Shares to be listed or traded on the Qatar Exchange or the QE
Venture Market. This Prospectus has not been, and will not be, reviewed or approved by or registered or
filed with the Qatar Central Bank, the Qatar Financial Markets Authority, Qatar Financial Centre
Regulatory Authority or any other relevant Qatar governmental body or securities exchange and may not
be publicly distributed. This Prospectus is intended for the original recipient only and must not be
provided to any other person. It is not for general circulation in the State of Qatar and may not be
reproduced or used for any other purpose.
Singapore
The Prospectus has not been registered as a prospectus with the Monetary Authority of Singapore under
the Securities and Futures Act, Cap. 289 of Singapore (the SFA) and, accordingly, the Ordinary Shares
may not be offered or sold, nor may the Ordinary Shares be the subject of an invitation for purchase, nor
may the Prospectus or any other document or material in connection with the offer or sale, or invitation
for purchase of the Ordinary Shares be circulated or distributed, whether directly or indirectly, to any
person in Singapore other than: (a) to an institutional investor under section 274 of the SFA; (b) to a
relevant person pursuant to section 275(1), or any person pursuant to section 275(1A), and in accordance
with the conditions specified in section 275, of the SFA; or (c) otherwise pursuant to, and in accordance
with the conditions of, any other applicable provision of the SFA.
Where the Ordinary Shares are acquired by persons who are relevant persons specified in section 276 of
the SFA, namely:
(a) a corporation (which is not an accredited investor (as defined in section 4A of the SFA)) the sole
business of which is to hold investments and the entire share capital of which is owned by one
or more individuals, each of whom is an accredited investor; or
(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold
investments and each beneficiary of the trust is an individual who is an accredited investor,
securities (as defined in section 239(1) of the SFA) of that corporation or the beneficiaries
rights and interest (howsoever described) in that trust shall not be transferred within six months
after that corporation or that trust has acquired the Ordinary Shares pursuant to an offer made
under section 275 of the SFA except:
(i) to an institutional investor or to a relevant person defined in section 275(2) of the SFA,
or to any person arising from an offer referred to in section 275(1A) or section
276(4)(i)(B) of the SFA;
(ii) where no consideration is or will be given for the transfer;
(iii) where the transfer is by operation of law;
(iv) as specified in section 276(7) of the SFA; or
(v) as specified in Regulation 32 of the Securities and Futures (Offer of Investments)
(Ordinary Shares and Debentures) Regulations 2005 of Singapore.
South Africa
This Prospectus does not constitute a solicitation for investments from members of the public in terms of
the South African Collective Investment Schemes Control Act, 45 of 2002 (as amended or re-enacted).
This Prospectus and/or the sale of the Ordinary Shares as envisaged in the terms of this Prospectus does
not constitute an offer to the public (as that term is defined in the South African Companies Act, 71 of
2008 (as amended or re-enacted) (the South African Companies Act)) in South Africa and this
Prospectus does not, nor is it intended to, constitute a registered prospectus (as that term is defined in
the South African Companies Act) prepared and registered under the South African Companies Act.
Accordingly, this Prospectus does not comply with the substance and form requirements for
prospectuses set out in the South African Companies Act and the South African Companies Regulations
of 2011 and has not been approved by, and/or registered with, the South African Companies and
Intellectual Property Commission, the JSE Limited or any other South African authority.
174
No South African resident may subscribe for, or purchase, any of the Ordinary Shares, or beneficially
own or hold any of the Ordinary Shares, unless such subscription, purchase, or beneficial holding or
ownership is otherwise permitted under the South African exchange control regulations or the rulings
promulgated thereunder or specific approval has been obtained from the Financial Surveillance
Department of the South African Reserve Bank, and any potential investor will be required to warrant
that such potential investor has the requisite exchange control approvals in place for making an
investment.
This Prospectus and any attachments thereto constitute factual, objective information and nothing
contained herein should be construed as constituting any form of investment advice or recommendation,
guidance or proposal of a financial nature. The drafters of this Prospectus are not financial services
providers licensed as such under the South African Financial Advisory and Intermediary Services Act,
37 of 2002 (as amended or re-enacted) in South Africa and nothing in this Prospectus should be
construed as constituting the canvassing for, or marketing or advertising of financial services in
South Africa.
Pursuant to the South African Banks Act, 94 of 1990 (as amended or re-enacted), no action has been
taken that will permit the issue or sale of Ordinary Shares to the general public in South Africa or that
will permit the solicitation or advertising for the subscription for, or purchase of, the Ordinary Shares by
investors in South Africa. Accordingly, this Prospectus does not constitute an invitation to investors in
South Africa to subscribe for, or purchase, the Ordinary Shares, or the solicitation of an offer for the
subscription for, or purchase of, the Ordinary Shares by investors in South Africa. The Ordinary Shares
will not be offered to prospective investors in South Africa for subscription or purchase, or allotted and
issued or sold to investors in South Africa other than on a reverse solicitation basis to a limited number
of institutional investors who fall within the exemptions set out in section 96(1)(a) of the South African
Companies Act and have the necessary exchange control approval to subscribe for, purchase, own or
hold the Ordinary Shares.
Switzerland
Notice to investors in Switzerland
The Ordinary Shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss
Exchange (SIX) or on any other stock exchange or regulated trading facility in Switzerland.
The Prospectus has been prepared without regard to the disclosure standards for issuance prospectuses
under article 652a or article 1156 of the Swiss Code of Obligations or the disclosure standards for listing
prospectuses under article 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange
or regulated trading facility in Switzerland. Neither the Prospectus nor any other offering or marketing
material relating to the Ordinary Shares or the Offer may be publicly distributed or otherwise made
publicly available in Switzerland.
Neither the Prospectus nor any other offering or marketing material relating to the Offer, the Company
or the Ordinary Shares has been or will be filed with, and the offer of the Ordinary Shares will not be
supervised by, the Swiss Finance Market Supervisory Authority FINMA, and the offer of the Ordinary
Shares has not been and will not be authorised under the Swiss Federal Act on collective investment
schemes (CISA). The investor protection afforded to acquirers of interests in collective investment
schemes under the CISA does not extend to acquirers of the Ordinary Shares.
175
broker, dealer or investment adviser under the laws applicable in the UAE, or that any of them advise
individuals resident in the UAE as to the appropriateness of investing in or purchasing or selling
securities or other financial products. The Ordinary Shares may not be offered or sold directly or
indirectly to the public in the UAE. This does not constitute a public offer of securities in the UAE in
accordance with the Commercial Companies Law, Federal Law No. 8 of 1984 (as amended) or
otherwise.
Other jurisdictions
Prospective investors in jurisdictions other than those listed above should consult their professional
advisers as to whether they require any governmental or other consent or need to observe their
formalities to enable them to purchase any Ordinary Shares under the Offer.
176
PART 14
ADDITIONAL INFORMATION
1. RESPONSIBILITY
The Company and the Directors (whose names and principal functions are set out in Part 7 (Directors,
Senior Managers and Corporate Governance) of this Prospectus) accept responsibility for the
information contained in this Prospectus. To the best of the knowledge of the Company and the Directors
(each of whom has taken all reasonable care to ensure that such is the case), the information contained in
this Prospectus is in accordance with the facts and contains no omission likely to affect the import of
such information.
177
2.5.3 the Directors are generally and unconditionally authorised for the purposes of section 551 of the 2006
Act to exercise all the powers of the Company to allot two ordinary shares of 25.00 each to the Selling
Shareholder in connection with the transactions contemplated by the Reorganisation and described in
paragraph 3.4(a)(ii) of this Part 14 (Additional Information) of this Prospectus, such authority to expire
on 31 December 2016;
2.5.4 conditional on the allotment and issue by the Company of the ordinary shares referred to in paragraphs
2.5.2 and 2.5.3 of this Part 14 (Additional Information) of this Prospectus, the share capital of the
Company be reorganised such that each of the then issued ordinary shares of 25.00 each in the capital
of the Company, shall be subdivided into 2,500 ordinary shares of 0.01 in the capital of the Company
with rights and being subject to the restrictions set out in the articles of association of the Company in
force from time to time;
2.5.5 the share capital of the Company be reorganised such that 24,072,500 of the issued ordinary shares of
0.01 each be and are hereby consolidated into and reclassified as one deferred share with a nominal
value of 240,725.00, such deferred share having the following rights:
(a) the deferred share shall afford the holder no entitlement to vote;
(b) the deferred share shall afford the holder no entitlement to a dividend or other distribution; and
(c) on a return of, or reduction in capital, the holder of the deferred share shall be entitled to be
repaid the amount from time to time fully paid on the deferred share;
2.5.6 conditional on and following Admission, the Directors are generally and unconditionally authorised for
the purposes of section 551 of the 2006 Act, to exercise all the powers of the Company to allot and to
grant rights to subscribe for, or to convert any securities into, shares in the Company, such authority
being limited to:
(a) the allotment of up to an aggregate nominal amount (within the meaning of sections 551(3) and
551(6) of the 2006 Act) equal to one third of the aggregate nominal value of the share capital of
the Company on Admission (such amount to be reduced by any allotment of shares or grant of
rights to subscribe for, or to convert any security into, shares in the Company made pursuant to
the resolution described in paragraph 2.5.6(b) of this Part 14 (Additional Information) of this
Prospectus); and
(b) the allotment of up to an aggregate nominal amount (within the meaning of sections 551(3) and
551(6) of the 2006 Act) equal to two thirds of the aggregate nominal value of the share capital
of the Company on Admission in connection with an offer by way of a rights issue in favour of
holders of Ordinary Shares in proportion (as nearly as may be practicable) to the respective
number of Ordinary Shares held by them on the record date for such allotment (and holders of
any other class of equity securities entitled to participate therein or if the Directors consider it
necessary, as permitted by the rights of those securities),
such authorities to expire at the conclusion of the first annual general meeting of the Company or, if
earlier, on 30 June 2017. Immediately following Admission, the authority described in this
paragraph 2.5.6 of this Part 14 (Additional Information) of this Prospectus shall be in substitution for,
and replace, any existing authority pursuant to section 551 of the 2006 Act to the extent not utilised at
the time this paragraph 2.5.6 of this Part 14 (Additional Information) of this Prospectus of the resolution
becomes effective;
2.5.7 conditional on and following Admission, the Directors are empowered pursuant to sections 570(1) and
573 of the 2006 Act to:
(a) allot equity securities (as defined in section 560 of the 2006 Act) of the Company for cash
pursuant to the authority described in paragraph 2.5.6 of this Part 14 (Additional Information) of
this Prospectus; and
(b) sell ordinary shares (as defined in section 560(1) of the 2006 Act) held by the Company as
treasury shares for cash,
as if section 561 of the 2006 Act did not apply to any such allotment or sale, provided that such
power shall be limited to the allotment of equity securities for cash and the sale of treasury
shares:
(i) in connection with or pursuant to an offer of or invitation to acquire equity securities
(but in the case of the authorisation granted under the authority described in paragraph
2.5.6(b) of this Part 14 (Additional Information) of this Prospectus, by way of a rights
178
issue only) in favour of holders of ordinary shares in proportion (as nearly as
practicable) to the respective number of ordinary shares held by them on the record date
for such allotment or sale, but subject to such exclusions or other arrangements as the
Directors may consider necessary or appropriate to deal with fractional entitlements,
treasury shares, record dates or legal regulatory or practical difficulties which may arise
under the laws of or the requirements of any regulatory body or stock exchange in any
territory or any other matter whatsoever; and
(ii) in the case of the authorisation described in paragraph 2.5.6(a) of this Part 14
(Additional Information) of this Prospectus (or in the case of any transfer of treasury
shares), and otherwise than pursuant to paragraph 2.5.7(i) of this Part 14 (Additional
Information) of this Prospectus, up to an aggregate nominal amount equal to 5% of the
aggregate nominal amount of the share capital of the Company on Admission,
such authorisations to expire at the conclusion of the first annual general meeting of the Company or, if
earlier, on 30 June 2017. Immediately following Admission, the authority described in this paragraph
2.5.7 of this Part 14 (Additional Information) of this Prospectus shall be in substitution for and shall
replace any existing authority pursuant to sections 570(1) and 573 of the 2006 Act to the extent not
utilised at the time and date this paragraph 2.5.7 of this Part 14 (Additional Information) of this
Prospectus of the resolution becomes effective;
2.5.8 conditional on and following Admission, the Company is generally and unconditionally authorised for
the purposes of section 701 of the 2006 Act to make market purchases (within the meaning of section
693(4) of the 2006 Act) of its Ordinary Shares on such terms as its Directors may from time to time
determine, and where such shares are held in treasury, the Company may use them for the purposes of its
employee share plans, such power to be limited:
(a) to a maximum number of 20,000,000 Ordinary Shares;
(b) by the condition that the minimum price which may be paid for each Ordinary Share is in the
nominal value of such share which amount shall be exclusive of expenses (if any);
(c) the maximum price (exclusive of expenses) that may be paid for each Ordinary Share is an
amount equal to the higher of: (i) 105% of the average of the middle market quotations for the
Ordinary Shares as derived from the Daily Official List of the London Stock Exchange for the
five Business Days immediately preceding the day on which such share is contracted to be
purchased; and (ii) the higher of the price of the last independent trade and the highest current
independent bid on the trading venues where the purchase is carried out, as stipulated by article
5(1) of the EU Buyback and Stabilisation Regulation 2003 (No. 2273/2003);
(d) unless previously renewed, revoked or varied, such authority shall expire at the conclusion of
the first annual general meeting of the Company or on 30 June 2017, whichever is the earlier;
and
(e) the Company may, before the authority described in this paragraph 2.5.8 of this Part 14
(Additional Information) of this Prospectus expires, make a contract to purchase Ordinary
Shares that would or might be executed wholly or partly after the expiry of this authority, and
may make purchases of Ordinary Shares pursuant to it as if this authority had not expired;
2.5.9 conditional on and following Admission, in accordance with sections 366 and 367 of the 2006 Act, each
member of the Group is authorised, in aggregate, to:
(a) make political donations to political parties or to independent election candidates not exceeding
100,000 in total;
(b) make political donations to political organisations (other than political parties) not exceeding
100,000 in total; and
(c) incur any political expenditure not exceeding 100,000 in total,
during the period beginning with Admission and ending on 30 June 2017 or, if earlier, the conclusion of
the first annual general meeting of the Company. The Company notes that it is not its policy to make
political donations and that it has no intention of using the authority for that purpose. For the purposes of
this authority the terms political donation, political parties, independent election candidates,
political organisation and political expenditure have the meanings given by sections 363 to 365 of
the 2006 Act;
179
2.5.10 conditional upon Admission and the approval of the High Court of Justice of England and Wales (the
Court), the entire amount standing to the credit of the share premium account and capital redemption
reserve of the Company and the share capital of the Company in respect of the deferred share referred to
at paragraph 2.5.5 of this Part 14 (Additional Information) of this Prospectus in each case as at 5.00 p.m.
on the day immediately preceding the day on which the Court makes an order confirming the reduction
of capital described in this paragraph 2.5.10 of this Part 14 (Additional Information) of this Prospectus,
is cancelled;
2.5.11 the Company was authorised in accordance with the Companys articles of association and the Articles,
until the Companys next annual general meeting, to call general meetings on 14 clear days notice; and
2.5.12 the Articles will be adopted as the articles of association of the Company with effect from Admission in
substitution for, and to the exclusion of, the then existing articles of association.
2.6 Immediately prior to the publication of this Prospectus the issued share capital of the Company was
2,240,675, comprising 89,627 ordinary shares of 25.00 each (all of which were fully paid or credited
as fully paid). On Admission, the issued share capital of the Company will be 2,240,725, comprising
200,000,000 Ordinary Shares of 0.01 each and one deferred share of 240,725.00 (all of which will be
fully paid or credited as fully paid). Following Admission, the deferred share of the Company will be
cancelled.
2.7 Save as disclosed in this paragraph 2 and paragraphs 3, 5, 7 and 9 of this Part 14 (Additional
Information) of this Prospectus:
2.7.1 no share or loan capital of the Company has, within three years of the date of this Prospectus, been
issued or agreed to be issued, or is now proposed to be issued (other than pursuant to the Offer), fully or
partly paid, either for cash or for a consideration other than cash, to any person;
2.7.2 no commissions, discounts, brokerages or other special terms have been granted by the Company in
connection with the issue or sale of any share or loan capital of any such company; and
2.7.3 no share or loan capital of the Company is under option or agreed conditionally or unconditionally to be
put under option.
2.8 The Company will be subject to the continuing obligations of the FCA with regard to the issue of shares for
cash. The provisions of section 561(1) of the 2006 Act (which confer on Shareholders rights of pre-emption
in respect of the allotment of equity securities which are, or are to be, paid up in cash other than by way of
allotment to employees under an employees share scheme as defined in section 1166 of the 2006 Act)
apply to the issue of shares in the capital of the Company except to the extent such provisions have been
disapplied as referred to in paragraph 2.5 of this Part 14 (Additional Information) of this Prospectus.
2.9 The Company has not traded since incorporation and lacks distributable reserves. This could restrict the
Companys ability to pay future dividends. Therefore, the Company intends to undertake a court-
approved capital reduction following Admission in accordance with the 2006 Act and the Companies
(Reduction of Share Capital) Order 2008 in order to provide it with the distributable reserves required to
support the dividend policy described at paragraph 18 of Part 6 (Business of the Group) of this
Prospectus. The proposed capital reduction will reduce the share premium arising on the issue of
ordinary shares by the Company pursuant to the terms of the Reorganisation and cancel the share capital
on the deferred share issued in connection with the Reorganisation. The capital reduction has been
approved (conditional on Admission) by a special resolution of the existing shareholder of the Company
and will require court approval after Admission.
3. THE REORGANISATION
3.1 Pursuant to the terms of the Reorganisation Documents, the Company and other members of the Group,
among others, have agreed to undertake a reorganisation and will, immediately prior to and following
Admission, undertake a refinancing in connection with the Offer (the Reorganisation).
3.2 On 20 April 2016, the Selling Shareholder and the Company entered into a sale and purchase agreement
(the Forterra SPA). Pursuant to the terms of the Forterra SPA, the Selling Shareholder agreed to sell,
and the Company agreed to purchase, the entire issued share capital of Forterra Building Products and
the Existing Loan Note in consideration for the issue and allotment by the Company to the Selling
Shareholder of 87,627 fully paid ordinary shares of 25.00 each in the capital of the Company and the
New Loan Note. Pursuant to the terms of the Forterra SPA, the Company became the holding company
of the Group. The Forterra SPA is governed by English law.
180
3.3 On 20 April 2016, the Company and Forterra Holdings entered into a share purchase agreement (the
Holdings SPA). Pursuant to the terms of the Holdings SPA, following completion of the transactions
contemplated in paragraph 3.2 of this Part 14 (Additional Information) of this Prospectus, the Company
agreed to sell, and Forterra Holdings agreed to purchase, the entire issued share capital of Forterra
Building Products in consideration for the issue and allotment by Forterra Holdings to the Company of
119,999,999 fully paid ordinary shares of 1.00 each in the capital of Forterra Holdings. Pursuant to the
terms of the Holdings SPA, Forterra Holdings became the immediate holding company of Forterra
Building Products. The Holdings SPA is governed by English law.
3.4 On 21 April 2016, the Company, Forterra Holdings, Forterra Building Products, the Selling Shareholder,
LS Concrete Midco and Stardust Finance, among others, entered into a reorganisation deed (the
Reorganisation Agreement) to govern certain terms of the Reorganisation.
(a) Pursuant to the Reorganisation Agreement the parties have undertaken, or have agreed to
undertake, the following steps prior to Admission:
(i) the Company and the Selling Shareholder have agreed to set off certain intercompany
balances;
(ii) the Company has agreed to issue and allot two fully paid ordinary shares of 25.00 each
in the capital of the Company to the Selling Shareholder in order to capitalise
255.8 million of the New Loan Note;
(iii) the Company has passed the resolution set out in paragraph 2.5 of this Part 14
(Additional Information) of this Prospectus, including adopting the Articles;
(iv) the Company has resolved to reorganise its share capital into 200,000,000 Ordinary Shares
of 0.01 each and one deferred share of 240,725.00;
(v) immediately prior to Admission, to procure that each of the Company, Forterra
Holdings and Forterra Building Products is released from its respective obligations
under the terms of the Existing Credit Agreements and the Existing Security
Documents; and
(vi) immediately prior to Admission, to procure that each member of the Group will enter
into the New Facilities Agreement.
(b) Conditional upon Admission, pursuant to the terms of the Reorganisation Agreement, the parties
have agreed to undertake the following steps:
(i) Forterra Building Products will use proceeds made available under the New Facilities to
repay part of the principal amount outstanding (together with any interest accrued
thereon) to the Company under the Existing Loan Note;
(ii) the Company will use the amounts received from Forterra Building Products pursuant
to paragraph 3.4(b)(i) of this Part 14 (Additional Information) of this Prospectus to
repay all of the principal amount outstanding (together with any interest accrued
thereon) to the Selling Shareholder under the New Loan Note;
(iii) each of the Company and Forterra Holdings will undertake a reduction of its share
capital and cancellation of any share premium by way of, in the case of the Company, a
court approved process, and, in the case of Forterra Holdings, a solvency statement, and
the Company will cancel its deferred share in existence at Admission; and
(iv) the Company will release Forterra Building Products from its obligations under the
Existing Loan Note.
(c) Pursuant to the terms of the Reorganisation Agreement, each party has agreed to take (or to
procure the taking of) certain other steps in connection with the Reorganisation, the Offer and
Admission.
(d) The Reorganisation Agreement is governed by English law.
181
4. ARTICLES OF ASSOCIATION
The articles of association of the Company (the Articles), which are available for inspection at the
address specified in paragraph 24 of this Part 14 (Additional Information) of this Prospectus, contain
provisions, inter alia, to the following effect:
182
On a liquidation, the liquidator may, subject to the 2006 Act, with the sanction of a special resolution of the
Company divide among the members in specie or in kind the whole or any part of the assets of the Company
(whether they shall consist of property of the same kind or not) and may, for such purpose, set such value as it
deems fair upon any property to be divided and may determine how such division shall be carried out.
183
Notwithstanding any other provision of the Articles to the contrary, unless otherwise determined by the
Directors, any shares in the Company may be held in uncertificated form and title to shares may be
transferred by means of a relevant system (in each case as defined in the Regulations) such as CREST.
4.10 Directors
Unless and until the Company in general meeting shall otherwise determine, the number of Directors
shall be not fewer than two. A Director shall not be required to hold any shares in the capital of the
Company. A Director who is not a member shall nevertheless be entitled to receive notice of and attend
and speak at all general meetings of the Company and all separate general meetings of the holders of any
class of shares in the capital of the Company.
No Director shall be disqualified by his office from entering into or being otherwise interested in any
contract, arrangement or transaction with the Company or in which the Company has an (direct or
indirect) interest. Subject to the provisions of the 2006 Act and save as therein provided, no such
contract, arrangement, transaction or proposal entered into by or on behalf of the Company in which any
Director or person connected with him is in any way interested, whether directly or indirectly, shall be
liable to be avoided, nor shall any Director who enters into any such contract, arrangement or transaction
or who is so interested be liable to account to the Company for any remuneration or other benefit
realised by any such contract, arrangement, transaction or interest by reason of such Director holding
that office or of the fiduciary relationship thereby established, but such Director shall declare the nature
of his interest in accordance with the 2006 Act.
184
A Director shall (in the absence of some other material interest than is indicated below) be entitled to
vote (and be counted in the quorum) in respect of any resolution concerning any of the following
matters, namely:
(a) the giving of any guarantee, security or indemnity in respect of money lent or obligations
incurred by him or by any other person at the request of or for the benefit of the Company or
any of its subsidiary undertakings;
(b) the giving of any guarantee, security or indemnity in respect of a debt or obligation of the
Company or any of its subsidiary undertakings for which he himself has assumed responsibility
in whole or in part under a guarantee or indemnity or by the giving of security;
(c) any proposal concerning an offer of securities of or by the Company or any of its subsidiary
undertakings in which offer he is, or may be entitled to, participate as a holder of securities or in
the underwriting or sub-underwriting of which he is to participate;
(d) any contract, arrangement or transaction concerning any other body corporate in which he is
interested, directly or indirectly and whether as an officer or shareholder or otherwise
howsoever, provided that he or any person connected with him do not to his knowledge hold an
interest (within the meaning of sections 820 to 825 of the 2006 Act) in 1% or more of any class
of the equity share capital of such body corporate or of the voting rights available to members of
the relevant body corporate;
(e) any contract, arrangement or transaction for the benefit of employees of the Company or any of
its subsidiary undertakings which does not accord him any privilege or advantage not generally
accorded to the employees to whom the scheme relates;
(f) any contract, arrangement or transaction concerning any insurance which the Company is to
purchase and/or maintain for the benefit of Directors or for the benefit of persons who include
Directors;
(g) the giving of an indemnity pursuant to the Articles; and
(h) the provision of funds to any Director to meet, or the doing of anything to enable a Director to
avoid incurring expenditure of the nature described in section 205(1) or 206 of the 2006 Act.
If any question shall arise at any meeting as to an interest or as to the entitlement of any Director to vote
and such question is not resolved by his voluntarily agreeing to abstain from voting, such question shall
be referred to the chairman of the meeting and his ruling in relation to any other Director other than
himself shall be final and conclusive except in a case where the nature or extent of the interests of the
Director concerned have not been fairly disclosed.
The Board may, subject to the provisions of the Articles, authorise any matter which would otherwise
involve a Director breaching his or her duty under the 2006 Act to avoid conflicts of interest.
Save as provided in the Articles, a Director shall not vote or be counted in the quorum present on any
motion in respect of any contract, arrangement or transaction in which he has an interest which is to his
knowledge a material interest otherwise than by virtue of his interests in shares or debentures or other
securities of, or otherwise in or through the Company. A Director shall not be counted in the quorum at a
meeting in relation to any resolution on which he is debarred from voting.
Each of the Directors shall be paid a fee at such rate as may from time to time be determined by the
Directors, but the aggregate of all such fees so paid to the Directors shall not exceed (excluding amounts
payable under any other provision of the Articles) 1 million per annum or such larger amount as may
from time to time be decided by ordinary resolution of the Company. Any Director who is appointed to
any executive office or who serves on any committee or who devotes special attention to the business of
the Company, or who otherwise performs services which in the opinion of the Directors are outside the
scope of the ordinary duties of a Director, may be paid such extra remuneration (whether by way of
salary, percentage of profits or otherwise) as the Directors may determine. Each Director may be paid his
reasonable travelling, hotel and other expenses properly incurred in attending and returning from
meetings of the Directors, or any committee of the Directors or general meeting of the Company or of
the holders of any class of shares or debentures of the Company or otherwise in connection with the
business of the Company. The Articles do not permit a Director to vote on, or be counted in the quorum
in relation to, any resolution of the board concerning his own appointment.
There shall be no age limit for Directors.
185
Each Director shall have the power at any time to appoint as an alternate Director either (i) another
Director or (ii) any other person approved for that purpose by a resolution of the Directors, and, at any
time, to terminate such appointment.
Each Director shall be subject to re-election at each annual general meeting of the Company.
The Directors may exercise all the powers of the Company to give or award pensions, annuities,
gratuities or other retirement, superannuation, death or disability allowances or benefits to, inter alia, any
Directors or ex-directors of the Company or of any subsidiary undertaking or parent undertaking of the
Company or to the spouses, civil partners, former spouses, former civil partners, children and other
relations and dependants of any such person and may establish, maintain, support, subscribe to and
contribute to all kinds of schemes, trusts and funds for the benefit of any such persons.
186
5. DIRECTORS AND SENIOR MANAGERS INTERESTS
5.1 The interests in Ordinary Shares of the Directors and Senior Managers (all of which, unless otherwise
stated, are beneficial or are interests of a person connected with a Director or a Senior Manager) as at
20 April 2016 (being the latest practicable date prior to publication of this Prospectus) were as follows:
5.2 In addition to the interests in Ordinary Shares described above, it is expected that the Executive
Directors and the Senior Managers will, following Admission, be interested in options or awards to
acquire Ordinary Shares as set out below:
Number of
Number of Number of Ordinary
Ordinary Ordinary Shares granted
Shares granted Shares granted under the
Director / Senior Manager(1)(2) under the PSP(3) under the DABP(4) SIP(5)
5.3 In so far as is known to the Directors, the following are the interests (within the meaning of Part VI of
the 2006 Act) (other than interests held by the Directors) which represent, or will represent, directly or
indirectly, 3% or more of the issued share capital of the Company on 20 April 2016 (the latest
practicable date prior to publication of this Prospectus) assuming no exercise of the Over-allotment
Option:
187
Immediately prior to Immediately following
Admission(1) Admission(1)(2)(3)
Number of Percentage Number of Percentage
Ordinary of issued Ordinary of issued
Shareholder Shares share capital Shares share capital
Save as disclosed in this paragraph 5.3 of this Part 14 (Additional Information) of this Prospectus, in so
far as is known to the Directors, there is no other person who is or will be immediately following
Admission, directly or indirectly, interested in 3% or more of the issued share capital of the Company, or
of any other person who can, will or could, directly or indirectly, jointly or severally, exercise control
over the Company. The Directors have no knowledge of any arrangement the operation of which may at
a subsequent date result in a change of control of the Company. None of the Companys major
shareholders have or will have different voting rights attached to the shares they hold in the Company.
5.4 No Director has or has had any interest in any transactions which are or were unusual in their nature or
conditions or are or were significant to the business of the Group or any of its subsidiary undertakings
and which were effected by the Company or any other member of the Group during the current or
immediately preceding financial year or during an earlier financial year and which remain in any respect
outstanding or unperformed.
5.5 There are no outstanding loans or guarantees granted or provided by any member of the Group to or for
the benefit of any of the Directors.
5.6 The following table sets out the interests of the Selling Shareholder (all of which, unless otherwise
stated, are beneficial or are interests of a person connected with the Selling Shareholder), prior to the
Offer and the number of Ordinary Shares such Selling Shareholder is selling in the Offer.
188
6.2 Executive Directors
6.2.1 On and from the date of Admission, Stephen Harrison will be appointed as Chief Executive Officer and
will receive a salary of 400,000 per annum and Shatish Dasani will be appointed as Chief Financial
Officer and will receive a salary of 300,000 per annum. Such appointments and salaries will be
reviewed annually by the Remuneration Committee. The Company is under no obligation to increase the
Executive Directors salary following a salary review. Each Executive Director is expected to work such
hours as are necessary for the proper and efficient performance of his duties.
6.2.2 Each of Stephen Harrison and Shatish Dasani is entitled to receive an amount equal to 10% of his base
salary as a retirement allowance, which they may direct is paid as a contribution to a personal pension
scheme and shall each receive a company car or car allowance, private medical and permanent health
insurance, and business travel insurance. Shatish Dasani is entitled to life assurance in accordance with
the Companys death in service insurance cover. The Company has agreed to a death in service benefit
of four times salary and 30% spouse or civil partner pension for Stephen Harrison in respect of which it
has taken out insurance.
6.2.3 Subject to earlier termination for summary dismissal, each Executive Directors service agreement will
continue until terminated on 12 months notice given by either party. Each Executive Director may be
put on gardening leave during any notice period.
6.2.4 The Company is entitled to terminate an Executive Directors employment by payment of a cash sum in
lieu of notice, equal to (a) the basic salary that would have been payable, and (b) the cost that would
have been incurred in providing the Executive Director with contractual benefits for any unexpired
portion of the notice period, or alternatively the Company can choose to continue providing the
contractual benefits under item (b) until the date on which notice, had it been served, would have expired
instead of paying a cash sum representing their cost, or by paying the Executive Director compensation
in respect of any of those benefits equivalent to the cost to the Company of providing the benefit over
the relevant period (the Payment in Lieu). The Payment in Lieu may be paid as one lump sum or in
instalments in arrears over the period until the expiry, if it had been served, of the notice period. If the
Company chooses to pay in instalments the Executive Director is obliged to seek alternative income over
the relevant period and the payment of each monthly instalment is conditional upon the Executive
Director first disclosing to the Company the gross amount of any income received or receivable in
respect of the month to which the instalment relates. The instalment payments will be reduced by the
amount of such income.
6.2.5 Save as set out above, the Executive Directors are not entitled to a severance payment in the event of a
termination of their employment by the Company.
6.2.6 Each Executive Director will be eligible to be considered to receive an annual discretionary bonus which
shall be a maximum of 100% of annual salary. Any bonus is subject to the achievement of a combination
of financial, operational and personal performance measures established by the Remuneration
Committee. If an Executive Directors employment is terminated for any reason, or the Executive
Director is under notice of termination (whether given by the Executive or the Company) at or before the
date when a bonus might otherwise be payable, the Executive Director will not be entitled to receive any
bonus payments in respect of any period. The Remuneration Committee may determine to defer any part
of the Executive Directors discretionary bonus in accordance with DABP. Participation by the
Executive Directors and terms of the discretionary bonus shall be determined by the Remuneration
Committee. The Remuneration Committee may attach such recovery and withholding provisions to any
discretionary bonus as it deems necessary or appropriate.
6.2.7 The Remuneration Committee intends to grant share awards pursuant to the PSP to the Executive
Directors prior to, but conditional upon, Admission or within six weeks thereafter. It is intended that
Stephen Harrisons and Shatish Dasanis awards will be granted over Ordinary Shares with a value
(measured at the Offer Price) equal to 500,000 and 300,000 respectively. Further details of the terms
of the PSP are set out in paragraph 7.2 of this Part 14 (Additional Information) of this Prospectus.
6.2.8 The Company has agreed that on, or immediately following, Admission the Executive Directors and
other senior executives shall be awarded a one-off bonus in recognition of the work undertaken in
connection with the Offer and Admission (the IPO Bonus). Stephen Harrison and Shatish Dasani will
each be entitled to an IPO Bonus worth 400,000 and 300,000, respectively, to be paid in cash (less any
deductions required by law) within 30 days of Admission.
6.2.9 From Admission, Stephen Harrison and Shatish Dasani will also be eligible to participate in the Groups
other employee share plans (for further details, please refer to paragraphs 7.1 to 7.6 of this Part 14
(Additional Information) of this Prospectus).
189
6.2.10 Pursuant to sections 439 and 439A of the 2006 Act, the Companys remuneration policy in respect of the
Executive Directors remuneration will be subject to Shareholder approval as described in paragraph
7.8.5 of this Part 14 (Additional Information) of this Prospectus.
6.2.11 Stephen Harrison and Shatish Dasani will be entitled to 27 working days paid holiday per annum, in
each case, in addition to UK bank and public holidays in accordance with standard Company policy for
senior executives.
6.2.12 Each of the Executive Directors is subject to confidentiality provisions without limitation in time and
other post-termination restrictions. These include six month restrictions on competition with the Group
and solicitation of employees, suppliers or customers of the Group, and refraining from holding
themselves out as connected with the Group at any time following termination.
190
6.3.11 Save as set out in paragraphs 6.2 and 6.3 of this Part 14 (Additional Information) of this Prospectus,
there are no existing or proposed service agreements or letters of appointment between the Directors and
any member of the Group.
Total Other
remuneration(1) benefits Date of joining
Name Position () () the Group
6.5 There is no arrangement under which any Director has waived or agreed to waive future emoluments nor
has there been any waiver of emoluments during the financial year immediately preceding the date of
this Prospectus.
6.6 Directors and Senior Managers current and past directorships and partnerships
Set out below are the directorships and partnerships held by the Directors and Senior Managers (other
than, where applicable, directorships held in the Company and/or any other member of the Group), in the
five years prior to the date of this Prospectus:
191
Name Current directorships / partnerships Past directorships / partnerships
192
Name Current directorships / partnerships Past directorships / partnerships
193
Name Current directorships / partnerships Past directorships / partnerships
194
Name Current directorships / partnerships Past directorships / partnerships
195
Name Current directorships / partnerships Past directorships / partnerships
196
Name Current directorships / partnerships Past directorships / partnerships
197
Name Current directorships / partnerships Past directorships / partnerships
198
Name Current directorships / partnerships Past directorships / partnerships
199
Name Current directorships / partnerships Past directorships / partnerships
200
Name Current directorships / partnerships Past directorships / partnerships
201
Name Current directorships / partnerships Past directorships / partnerships
202
7. EMPLOYEE SHARE PLANS AND REMUNERATION POLICY
7.1 Overview of the Share Plans
Following Admission, the Company intends to operate the following employee share plans: the Forterra
Performance Share Plan (the PSP), the Forterra Deferred Annual Bonus Plan (the DABP), the
Forterra Share Incentive Plan (the SIP) and the Forterra Sharesave Plan (the Sharesave Plan
together with the PSP, the DABP and the SIP, the Share Plans), all of which were approved and
adopted by the Company prior to Admission.
The PSP and the DABP (together, the Executive Share Plans) will cater for discretionary share based
incentive awards to selected employees within the Group, whereas the SIP and Sharesave Plan will
provide the flexibility for a broad based all-employee share incentive policy.
The following paragraphs first describe the unique features of each of the Share Plans and thereafter the
common features of the Share Plans and finally the terms of the Companys employees benefit trust,
which will primarily be used to satisfy awards granted under the Executive Share Plans.
203
Company ending on 31 December 2016 (the 2016 Financial Year), the Initial PSP Awards shall be
granted during the financial year starting on 1 January 2017 (the 2017 Financial Year) and such
Initial PSP Awards shall not count towards the individual award limits described above as they apply to
the 2017 Financial Year.
In the case of the Initial PSP Awards to Stephen Harrison and Shatish Dasani it is intended that such
awards will be over Ordinary Shares having a market value (on grant) of no more than 125% and 100%,
respectively, of their annual base salary. This equates to an Initial PSP Award to Stephen Harrison and
Shatish Dasani over shares worth (on grant) 500,000 and 300,000 respectively.
For the purposes of calculating the number of Ordinary Shares over which an award is granted under the
PSP, the market value of a share shall normally be based on the market value of Ordinary Shares on the
dealing day immediately preceding the grant of an award (or an average market value calculated by
reference to a short averaging period of no more than five consecutive dealing days) except that in the
case of the Initial PSP Awards the market value of a share shall be treated as being equal to the Offer
Price.
204
The Remuneration Committee may, in its discretion, grant an award to an eligible employee who is not
also an Executive Director at the time of grant, on terms that it will normally vest on a date earlier than
the third anniversary of grant.
205
7.2.10 Dividend equivalents
The Remuneration Committee may decide that participants will receive a payment (in cash and/or
Ordinary Shares) on or shortly following the vesting of their awards of an amount equivalent to the
dividends that would have been paid on those Ordinary Shares between the time when the awards were
granted and the time when they vest (or where an award is structured as an option and subject to a
holding period, the date of expiry of the holding period or if earlier the exercise of such award). This
amount may assume the reinvestment of dividends. Alternatively, participants may have their awards
increased as if dividends were paid on the Ordinary Shares subject to their award and then reinvested in
further Ordinary Shares.
7.3.2 Overview
The general purpose of the DABP is to facilitate the deferral of part of an Executive Directors annual
bonus into Ordinary Shares at the discretion of the Remuneration Committee.
The DABP will also be used to defer some or all of the bonuses due to selected employees (excluding
the Executive Directors) on Admission (the IPO Bonus). No part of the cash bonuses due to each of
Stephen Harrison and Shatish Dasani of 400,000 and 300,000, respectively, on Admission shall be
deferred under the DABP.
The decision (if any) to require such bonus deferral in any year, and the portion of any bonus which will
be deferred, will be determined by the Remuneration Committee.
It is currently intended that the Remuneration Committee will require up to 50% of the total value of any
annual bonus receivable by an Executive Director in respect of performance over the 2016 Financial
206
Year to be deferred under the DABP. The amount of an IPO Bonus to be deferred under the DABP will
be determined by the Remuneration Committee, in its discretion, before Admission. Annual bonuses for
2015 will not be deferred under the DABP.
207
months of the date of Admission or following their resignation unless the Remuneration Committee
determines otherwise. If a participant ceases to be an employee or director of the Group for any other
reason their award will normally vest in full on the date of cessation or, if the Remuneration Committee
determines otherwise, the date it would have vested had he not ceased office or employment.
As a general rule, all other awards (excluding the IPO Bonus awards) will lapse upon a participant
ceasing to hold employment or ceasing to be a director within the Group.
If, however, the participant ceases to be an employee or a director within the Group because of his death,
injury, disability, retirement, redundancy, his employing company or the business for which he works
being sold out of the Group or in other circumstances at the discretion of the Remuneration Committee,
then his award will vest in full on the date of cessation or, if the Remuneration Committee determines
otherwise, the date it would have vested had he not ceased office or employment.
208
Committee may also adjust the number of Ordinary Shares that count towards the Companys share plan
dilution limits (for further details, please refer to paragraph 7.6.3 of this Part 14 (Additional Information)
of this Prospectus).
7.4.2 Eligibility
Employees of the Company and any designated participating subsidiary who are UK resident taxpayers
are eligible to participate. The Board may allow non-UK tax resident taxpayers to participate. The Board
may require employees to have completed a qualifying period of employment of up to 18 months in
order to be eligible to participate. All eligible employees must be invited to participate.
209
forfeited if, within three years of the award date, the participant ceases to be in relevant employment
unless the participant leaves by reason of death, injury, disability, redundancy, retirement or the
employing company or business ceasing to be part of the Group. In addition, the default position
includes that Free Shares and Matching Shares will be forfeited if the participant attempts to withdraw
such Ordinary Shares or (in the case of Matching Shares only) the corresponding Partnership Shares as
relevant from the SIP trust within the first three years. The Board may amend or remove the forfeiture
provisions applying to a particular award but the same provisions must apply to all Ordinary Shares
under the same award.
If a participant ceases to be employed by the Group at any time he or she will be required to withdraw
his or her Ordinary Shares from the SIP trust (if they are not forfeited).
7.5.2 Eligibility
Employees and full-time directors of the Company and any designated participating subsidiary who are
UK resident tax payers are eligible to participate. The Board may require employees to have completed a
qualifying period of employment of up to five years before the grant of options. The Board may also
allow other employees to participate.
210
7.5.4 Individual participation
Monthly savings by an employee under all savings contracts linked to options granted under any
sharesave scheme may not exceed the statutory maximum from time to time (currently 500). The Board
may set a lower limit in relation to any particular grant.
211
No payment is required for the grant of an award save in the case of the purchase of Partnership Shares
under the SIP.
Awards are not transferable, except on death. Awards are not pensionable.
7.6.4 Alterations
The Remuneration Committee (or the Board in respect of the SIP and the Sharesave) may, at any time,
amend the Share Plans in any respect, provided that the prior approval of the Shareholders is obtained
for any amendments made on or after Admission that are to the material advantage of participants in
respect of the rules governing eligibility, limits on participation, the overall limits on the issue of
Ordinary Shares or the transfer of treasury shares, the basis for determining a participants entitlement
to, and the terms of, the Ordinary Shares or cash to be acquired and the adjustment of awards.
The requirement to obtain the prior approval of Shareholders will not, however, apply to any amendment
made prior to Admission or to any minor alteration made to benefit the administration of the Share
Plans, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control
or regulatory treatment for participants or for any company in the Group. Shareholder approval will also
not be required for any amendments to any performance condition applying to an award amended in line
with its terms.
212
as a means for hedging and satisfying share awards when they vest or are exercised. The EBT may also
be used to satisfy options and awards under the Sharesave Plan or any other employee incentive scheme
or arrangement that may be operated by the Company in the future (excluding the SIP which must
operate alongside a special SIP trust which complies with Schedule 2 to ITEPA). The trustee of the EBT
will have power to subscribe for new Ordinary Shares (at a price determined by the Board, provided it is
not less than the nominal value of a share) or acquire Ordinary Shares in the market or from treasury, but
will not be permitted to hold more than 5% of the Companys issued ordinary share capital (excluding
any Ordinary Share it holds as nominee for employees) at any one time without the prior approval of
Shareholders in a general meeting.
The class of beneficiaries of the EBT includes the employees and former employees of the Group, any
holding company of the Company or any subsidiary undertakings of that holding company, and certain
classes of their family and dependents. The Company is excluded from the class of beneficiaries.
The trustee of the EBT will have wide powers of investment and shall be permitted to borrow monies.
However, it is intended that, in practice, the EBT will be funded by loans and/or gifts from the Company
or any of its subsidiaries to invest in Ordinary Shares for use in relation with the Groups employees
share plans or otherwise for allocation to beneficiaries.
The trustee of the EBT will be independent of the Company. It is intended that the initial trustee of the
EBT will be based offshore. The Company will have the power to appoint new or additional trustees and
remove any trustee. A professional trustee may charge fees in the normal course of business for acting as
a trustee of the EBT.
213
8. PENSIONS
8.1 The Directors and employees of the Group currently participate only in defined contribution pension
arrangements, under which the Groups obligations are limited to payment of contributions at agreed
rates.
8.2 Historically, employees of Forterra Building Products were members of the Hanson Industrial Pension
Scheme (the HIPS), an occupational pension scheme consisting of several sections, some of which
operate on a defined benefit basis. While Forterra Building Products had only participated in the defined
contributions section of the HIPS, some of its employees did retain a link to their final salary for their
accrued benefits in the defined benefit sections (the final salary link). Under the rules of the HIPS the
final salary link terminated when Forterra Building Products ceased to be an employer for that plan
following the completion of the Lone Star Acquisition, and there was legal uncertainty as to whether a
debt might be due from Forterra Building Products to the HIPS under sections 75 and 75A of the
Pensions Act 1995 as a result of this. To resolve this issue a flexible apportionment arrangement
pursuant to Regulation 6E of the Occupational Pension Schemes (Employer Debt) Regulations 2005 was
entered into between the trustees of the HIPS, Forterra Building Products and certain members of the
HeidelbergCement Group. The effect of this arrangement was that Forterra Building Products will not
have any further liability to the HIPS for any employer debt under sections 75 and 75A of the Pensions
Act 1995.
8.3 Certain members of the HeidelbergCement Group have indemnified each of the Selling Shareholder and
its affiliates, including Forterra Building Products and Structherm, for and against any liability incurred
by them in connection with the HIPS, which would include any claim for compensation made by any of
the affected employees for the loss of the final salary link, or if the Pensions Regulator sought to
exercise its contribution notice powers under the Pensions Act 2004.
9. UNDERWRITING ARRANGEMENTS
9.1 Underwriting Agreement
On 21 April 2016 the Company, the Selling Shareholder, the Directors and the Banks entered into the
Underwriting Agreement. Pursuant to the Underwriting Agreement:
9.1.1 the Selling Shareholder has agreed, subject to certain conditions, to sell the Offer Shares to be sold by it
in the Offer at the Offer Price;
9.1.2 the Banks have severally (and not jointly or jointly and severally) agreed, subject to certain conditions,
to use their reasonable endeavours to procure purchasers for or, failing which, themselves to purchase
the Ordinary Shares to be sold pursuant to the Offer at the Offer Price;
9.1.3 the Banks will deduct from the proceeds of the Offer to the Selling Shareholder a commission of 2% of
the product of the Offer Price and the number of Ordinary Shares sold in the Offer (including following
any exercise of the Over-allotment Option);
9.1.4 in addition, the Selling Shareholder may, in its sole and absolute discretion, pay an additional
commission of up to 1% of the product of the Offer Price and the number of Ordinary Shares sold by it
in the Offer (including following any exercise of the Over-allotment Option);
9.1.5 the several (and not joint or joint and several) obligations of the Banks to use their reasonable
endeavours to procure purchasers for or, failing which, themselves to purchase Ordinary Shares on the
terms of the Underwriting Agreement are subject to certain conditions. These conditions include, among
other things, the absence of any breach of representation or warranty under the Underwriting Agreement
and Admission occurring no later than 26 April 2016. In addition, the Global Co-ordinators have the
right to terminate the Underwriting Agreement, exercisable in certain circumstances, prior to Admission;
9.1.6 Deutsche Bank, as Stabilising Manager, has been granted the Over-allotment Option by the Selling
Shareholder pursuant to which it may purchase or procure purchasers for up to 10,500,000 Over-
allotment Shares at the Offer Price for the purposes of covering short positions arising from over-
allocations, if any, in connection with the Offer and/or from sales of Ordinary Shares, if any, effected
during the stabilising period. Except as required by law or regulation, neither the Stabilising Manager,
nor any of its agents, intends to disclose the extent of any over-allotments and/or stabilising transactions
conducted in relation to the Offer. The number of Over-allotment Shares to be transferred pursuant to the
Over-allotment Option, if any, will be determined not later than 21 May 2016. Settlement of any
purchase of Over-allotment Shares will take place shortly after such determination (or if acquired on
Admission, at
214
Admission). If any Over-allotment Shares are acquired pursuant to the Over-allotment Option, Deutsche
Bank will be committed to pay to the Selling Shareholder, or procure that payment is made to it of an
amount equal to the Offer Price multiplied by the number of Over-allotment Shares purchased from the
Selling Shareholder, less commissions and expenses;
9.1.7 the Selling Shareholder has agreed to pay any UK stamp duty and/or stamp duty reserve tax arising on
the sale of Ordinary Shares;
9.1.8 the Company has agreed to pay certain of the costs, charges, fees and expenses of the Offer (together
with any related value added tax);
9.1.9 each of the Company, the Selling Shareholder and the Directors has given certain representations,
warranties and undertakings, subject to certain limits, to the Banks;
9.1.10 the Company has given an indemnity to the Banks in a form which is typical for an agreement of this
nature and the Selling Shareholder has also given a limited indemnity to the Banks;
9.1.11 the parties to the Underwriting Agreement have given certain covenants to each other regarding
compliance with laws and regulations affecting the making of the Offer in relevant jurisdictions;
9.1.12 the Company has agreed that from the date of Admission until the date falling 180 days after the date of
Admission, it will not, without the prior written consent of the Global Co-ordinators, directly or
indirectly, offer, issue, allot, lend, mortgage, assign, charge, pledge, sell or contract to sell or issue, issue
options in respect of, or otherwise dispose of, directly or indirectly, or announce an offering or issue of,
any Ordinary Share (or any interest therein or in respect thereof) or any other securities exchangeable for
or convertible into, or substantially similar to, Ordinary Shares or enter into any transaction with the
same economic effect as, or agree to do, any of the foregoing, save that the above restrictions shall not
apply in respect of: (a) the issue of Ordinary Shares pursuant to the Offer or to the Reorganisation
Arrangements; or (b) the issue of Ordinary Shares pursuant to the grant or exercise of options under
employee share plans in existence on the date of Admission and described in paragraph 7 of Part 14
(Additional Information) of this Prospectus;
9.1.13 each of the Directors has agreed, subject to certain customary exceptions, that from the date of
Admission until the date falling 365 days after the date of Admission he or she will not, without the prior
written consent of the Global Co-ordinators (such consent not to be unreasonably withheld or delayed),
directly or indirectly, offer, issue, lend, mortgage, assign, charge, pledge, sell or contract to sell, issue
options in respect of, or otherwise dispose of, directly or indirectly, or announce an offering or issue of,
any Ordinary Share (or any interest therein or in respect thereof) or any other securities exchangeable for
or convertible into, or substantially similar to, Ordinary Shares or enter into any transaction with the
same economic effect as, or agree to do, any of the foregoing; and
9.1.14 the Selling Shareholder has agreed, subject to certain customary exceptions, that from the date of
Admission until the date falling 180 days after the date of Admission it will not, without the prior written
consent of the Global Co-ordinators (such consent not to be unreasonably withheld or delayed), directly
or indirectly, offer, issue, lend, mortgage, assign, charge, pledge, sell or contract to sell, issue options in
respect of, or otherwise dispose of, directly or indirectly, or announce an offering or issue of, any
Ordinary Share (or any interest therein or in respect thereof) or any other securities exchangeable for or
convertible into, or substantially similar to, Ordinary Shares or enter into any transaction with the same
economic effect as, or agree to do, any of the foregoing.
215
10. SUBSIDIARIES, INVESTMENTS AND PRINCIPAL ESTABLISHMENTS
The Company is the principal holding company of the Group. The principal subsidiaries and subsidiary
undertakings of the Company are as follows:
Country of
incorporation Percentage of
and ownership
registered Class of interest and
Name office shares held voting power Field of activity
216
Ernst & Young LLP has provided the accountants report on the financial information of the Group for
the years ended 31 December 2013, 31 December 2014 and 31 December 2015 (set out in Section A of
Part 11 (Historical Financial Information) of this Prospectus). The financial information contained in
this Prospectus does not constitute full statutory accounts as referred to in section 434(3) of the
2006 Act.
217
12.10 Existing Loan Note
On 13 March 2015, Forterra Building Products issued an intercompany loan note in the principal amount
of 405.0 million to its parent, the Selling Shareholder, which was later amended on 1 May 2015
pursuant to an amendment deed (the Existing Loan Note). On 20 April 2016, pursuant to the terms of
the Forterra SPA, the Company acquired the Existing Loan Note from the Selling Shareholder.
The Existing Loan Note bears interest on the principal, and default payments, at the fixed rate of 8% per
annum. The Existing Loan Note principal and any unpaid or accrued interest (together, the
Outstanding Note Amounts) are repayable on 31 March 2022 (the Payment Date). Before the
Payment Date: (a) Forterra Building Products may repay the Outstanding Note Amounts (or parts
thereof) on one months prior written notice, or less by mutual agreement, to the Company; (b) the
Company may demand repayment of the Outstanding Note Amounts (or parts thereof) on one months
prior written notice, or less by mutual agreement, to Forterra Building Products; and (c) interest falls due
in arrears on 30 September, 31 December, 31 March and 30 June (unless such day is not a Business Day,
in which case, payment will be due on the next Business Day, or if such day is in the next calendar
month, on the immediate preceding Business Day).
Unless there has been a notice of repayment, the Existing Loan Note is transferrable by the Company by
an instrument of transfer in amounts or integral multiples of 1,000.
The Existing Loan Note is governed by English law.
218
12.13 Heidelberg Aggregates Supply Agreement
On 13 March 2015, Forterra Building Products entered into an aggregates supply agreement (the
Heidelberg Aggregates Supply Agreement) with Hanson Quarry Products Europe Limited
(Hanson Quarry) requiring Forterra Building Products to purchase, and Hanson Quarry to supply,
during a five year period commencing on the date of the Heidelberg Aggregates Supply Agreement, at
least 80% of the annual prescribed aggregates used at the following manufacturing facilities of Forterra
Building Products: the Milton facility, the Whittlesey facility, the Somercotes facility and the
Hoveringham facility. Under the Heidelberg Aggregates Supply Agreement, Hanson Quarry warrants its
title to all of the aggregates sold to Forterra Building Products, and represents and warrants that at the
time of delivery, the aggregates supplied will meet the specifications set out in the Heidelberg
Aggregates Supply Agreement.
Subject to certain exceptions, the price per aggregate for 2014 and 2015 is as set out in the Heidelberg
Aggregates Supply Agreement and differs according to the type of aggregate product supplied and the
facility supplied. For subsequent years, the price per aggregate is the then prevailing market rate for
similar qualities and quantities of aggregates. From 1 January 2016, Forterra Building Products can
object to the price charged by Hanson Quarry for aggregates if it believes such price is not the available
fair market value, compared to the total price of aggregates supplied on a bona fide, arms-length
commercial basis by certain third party suppliers. Hanson Quarry would have the right (following an
independent audit, if requested) to supply at such fair market value, or decline to supply at such fair
market value (in which case, the obligation to supply such aggregates would generally be terminated for
that specific product and facility, and future sales of the relevant product to that facility by Hanson
Quarry would be subject to new agreements and pricing).
Hanson Quarry has the right to audit Forterra Building Products records to ensure Forterra Building
Products has purchased the minimum annual contract amount of aggregates. If such audit reveals a
shortfall in a contract year, Forterra Building Products can: (a) in addition to the minimum contract
quantity in the following year, elect to purchase the deficiency in the next contract year (there are default
payments plus interest for failure to so purchase); or (b) pay Hanson Quarry (as applicable) 20% of the
price of aggregates as of the end of the contract year in which the shortfall occurred, multiplied by the
number of tonnes of the relevant shortfall. Additionally, if the audit reveals a shortfall of more than 10%,
Forterra Building Products would be liable to pay for the cost of the audit (subject to a 20,000 annual
cap).
After 1 January 2017, subject to certain exceptions, Hanson Quarry has the right to, on 180 days prior
written notice, elect to cease supply to the Groups manufacturing facilities, or to elect to supply less
than the minimum contract requirement. Additionally, if during the term of the Heidelberg Aggregates
Supply Agreement a plant is reopened at which Hanson Quarry previously supplied aggregates, Hanson
Quarry will have the right to re-supply aggregates to such plant at the then prevailing fair market price.
The Heidelberg Aggregates Supply Agreement can be terminated by: (a) a party if the other party is
materially impaired due to a force majeure event from performing its obligations under the Heidelberg
Aggregates Supply Agreement; or (b) by Forterra Building Products on written notice in certain
circumstances, if certain members of the HeidelbergCement Group, become involved in a competing
business in the United Kingdom at any time during the period commencing on 13 March 2015 and
ending on 12 March 2020.
Hanson Quarrys liability is generally limited under the Heidelberg Aggregates Supply Agreement. For
example, if any aggregates supplied by Hanson Quarry do not meet certain prescribed specifications,
Forterra Building Products may only request a refund or replacement (plus certain limited removal
costs), unless non-conforming aggregates have been supplied for a prescribed period in material
quantities, in which case, Forterra Building Products can terminate the supply of the aggregates to its
relevant facilities. In other cases, the liability of Hanson Quarry is generally limited to three times the
cost of the aggregates that are the subject of the breach or dispute (there are other limited circumstances
where removal costs can be claimed, subject to a specified cap).
The Heidelberg Aggregates Supply Agreement is governed by English law.
219
HeidelbergCement Group, (Hanson Cement) requiring Forterra Building Products to purchase, and
Hanson Cement to supply, during a five year period commencing on the date of the Heidelberg Cement
Supply Agreement: (a) 100% of the annual prescribed cement and cementitious products used at Forterra
Building Products two aircrete block facilities at Hams Hall and Newbury; and (b) at least 80% of the
annual prescribed cement and cementitious products used at the following facilities of the Group: the
Milton facility, the Whittlesey facility, the Somercotes facility, the Hoveringham facility, the Coleford
facility and the Measham facility. Under the Heidelberg Cement Supply Agreement, Hanson Cement
warrants its title to all of the cement and cementitious products sold to Forterra Building Products, and
represents and warrants that at the time of delivery, that the cement supplied will meet the specifications
set out in the Heidelberg Cement Supply Agreement.
Subject to certain exceptions, the price per tonne of cement for 2014, 2015 and 2016 is as set out in the
Heidelberg Cement Supply Agreement (plus a 3% annual incremental increase in 2015 and 2016) and
differs depending on, among other things, the cementitious source site, product type and whether the
product is provided bulk or packed. For subsequent years, the price per tonne of cement is the then
prevailing market rate for similar qualities and quantities of cement. After the expiration of 2016,
Forterra Building Products is, save in certain circumstances, permitted to object to the price charged for
cement if it believes such price is not the available fair market value, compared to the total price of
cement supplied on a bona fide, arms length commercial basis by certain third party suppliers. In such
circumstances, Hanson Cement has the right, following an independent audit (if requested), to supply at
such fair market value, or decline to supply at such fair market value (in which case, the obligation to
supply such cement would be temporarily suspended).
Hanson Cement has the right to audit Forterra Building Products records to ensure Forterra Building
Products has purchased the minimum annual contract amount of cement pursuant to the terms of the
Heidelberg Cement Supply Agreement. If such audit reveals a shortfall in a contract year, Forterra
Building Products can: (a) in addition to the minimum contract quantity in the following year, elect to
purchase the deficiency in the next contract year (there are default payments plus interest for failure to so
purchase), or (b) pay Hanson Cement (as applicable) 20% of the price of cement as of the end of the
contract year in which the shortfall occurred, multiplied by the number of tonnes of the relevant
shortfall. Additionally, if the audit reveals a shortfall of more than 10%, Forterra Building Products
would be liable to pay for the cost of the audit (subject to a 20,000 annual cap).
After 1 January 2017, subject to certain exceptions, Hanson Cement has the right to, on 180 days prior
written notice, elect to cease supply to the Groups manufacturing facilities, or to elect to supply less
than the minimum contract requirement. Additionally, if during the term of the Heidelberg Cement
Supply Agreement a facility is reopened at which Hanson Cement previously supplied cement, Hanson
Cement will have the right to re-supply cement to such plant at the then prevailing fair market price.
The Heidelberg Cement Supply Agreement can be terminated by (i) a party if the other party is
materially impaired due to a force majeure event from performing its obligations under the Heidelberg
Cement Supply Agreement, or (ii) by Forterra Building Products on written notice in certain
circumstances, if certain members of the HeidelbergCement Group become involved in a competing
business in the United Kingdom at any time during the period commencing on 13 March 2015 and
ending on 12 March 2020.
Hanson Cements liability is generally limited under the Heidelberg Cement Supply Agreement. For
example, if any supplied cement does not meet certain prescribed specifications, Forterra Building
Products may only request a refund or replacement (plus certain limited removal costs), unless non-
conforming cement has been supplied for a prescribed period in material quantities, in which case,
Forterra Building Products can terminate the supply of the cement to its relevant plant(s). In other cases,
the liability of Hanson Cement is generally limited to three times the cost of the cement that are the
subject of the breach or dispute (there are other limited circumstances where removal costs can be
claimed, subject to a specified cap).
The Heidelberg Cement Supply Agreement is governed by English law.
220
conducts such business, being Canada for Forterra P&P Canada and its subsidiaries and affiliates, the
United States for Stardust Holdings and its subsidiaries and the United Kingdom and the European
Union for the Company and its subsidiaries (each such jurisdiction being, an Applicable
Jurisdiction). Forterra P&P US was required to submit applications for the protection of the New
Brand in each of the Applicable Jurisdictions on behalf of each of Stardust Holdings, Forterra Building
Products and Forterra P&P Canada (each a Relevant Party) and their respective subsidiaries and
affiliates, with the intention that ownership of the New Brand in each Applicable Jurisdiction would be
held by the Relevant Party that conducts its principal business in that jurisdiction. Forterra P&P US
therefore agreed to assign and transfer, to each Relevant Party, any and all of Forterra P&P USs right,
title and interest in the relevant applications.
The Trademark Agreement provides that each Relevant Party (i) has the exclusive right to use the New
Brand, and file any subsequent applications to register the New Brand, in its respective Applicable
Jurisdiction, (ii) will not contest the use by the other Relevant Parties of the New Brand in their
respective Applicable Jurisdictions (including on any transfer of the New Brand on a change of control
of any such Relevant Party or its subsidiaries and affiliates, which will include, without limitation, the
sale of assets or stock of such entity, or any equity issuance, business combination or entry into any joint
venture by any such entity), (iii) will bear its own costs for maintaining any applications and
registrations relating to the New Brand and associated trademarks and trade names, and the costs for
protecting and enforcing the same, (iv) agrees to reimburse Forterra P&P US for all out-of-pocket costs
incurred by Forterra P&P US in connection with filing the application to register the New Brand in its
respective Applicable Jurisdiction, and (v) may export or import products into the respective Applicable
Jurisdiction of each other Relevant Party without limitation.
The Trademark Agreement further provides that Stardust Holdings has the exclusive right to file any
subsequent applications to register the New Brand and associated trademarks and trade names in all
other jurisdictions other than the Applicable Jurisdictions (the Other Jurisdictions), and the Company
and Forterra P&P Canada agree not to file any applications in the Other Jurisdictions without the prior
written consent of Stardust Holdings. The Trademark Agreement does not contain any termination
provisions and will therefore continue indefinitely, unless the parties agree otherwise in writing.
The Trademark Agreement is governed by the laws of the State of Delaware.
221
Agreement and a guarantor and security provider (as described below) of the obligations of the borrower
and each guarantor under the Senior Lien Credit Agreement.
The obligations of the borrower and each guarantor under the Senior Lien Credit Agreement to the
finance parties are guaranteed pursuant to a lien guarantee and collateral agreement, a debenture and an
intellectual property security agreement (as described in paragraph 13.2 of this Part 14 (Additional
Information) of this Prospectus).
The Senior Lien Credit Agreement is governed by the laws of the State of New York.
222
Each guarantee and collateral agreement is governed by the laws of the State of New York.
13.2.2 Debentures
In connection with the Existing Credit Agreements, on 13 March 2015, the Selling Shareholder and
Forterra Building Products (each as a chargor) and Credit Suisse AG as administrative agent or Bank of
America, N.A. as administrative agent and collateral agent entered into a debenture in respect of each of
the Existing Credit Agreements. On 20 April 2016, the Company and Forterra Holdings acceded to each
of the debentures. Under the debentures, the Selling Shareholder has secured its rights, title and interest
in the shares of Forterra Building Products and the Company, Forterra Holdings and Forterra Building
Products have each secured substantially all of their assets in favour of the finance parties under the
relevant Existing Credit Agreements.
Each debenture is governed by English law.
223
period of five Business Days ending with the day which is the first anniversary of the date of Admission,
the outstanding aggregate amount of the Revolving Credit Facility (in addition to the cash loans under
any ancillary facility and/or letter of credit under the New Facilities and less any cash or cash equivalent
investments held by any wholly owned members of the Group) does not exceed zero.
Under the New Facilities Agreement, Forterra Building Products is required to repay the Term Facility
in instalments of 10,000,000 on each anniversary of the date of Admission and all outstanding amounts
under the Term Facility are required to be repaid on the date which falls 60 months after Admission.
Each loan made under the Revolving Credit Facility is repayable on the last day of its interest period.
Forterra Building Products or the Company may select an interest period of one, two, three or six months
or any such period as agreed by the Company, the Agent and each lender in relation to the relevant loan.
Interest is payable on amounts drawn by way of loans under the New Facilities Agreement at a rate of
LIBOR plus a variable margin. On Admission, the applicable margin is 2.25% per annum under the
Term Facility and 2.25% per annum under the Revolving Credit Facility. Following delivery of a
compliance certificate under the New Facilities Agreement (provided no event of default has occurred
and is continuing and a compliance certificate for the period ending 31 December 2016 has been
delivered), the applicable margin will be calculated by reference to the ratio of total net debt to EBITDA
(as defined in the New Facilities Agreement). The highest applicable margin payable is 2.75% per
annum and the lowest margin payable is 1.50% per annum.
A commitment fee is payable on unutilised amounts under the Revolving Credit Facility at a rate of 35%
of the applicable margin. An arrangement fee is payable on each original lenders aggregate
commitments as set out in further detail in the Commitment Letter and customary fees are also payable
to the Agent and the Security Agent.
The obligations of the borrower under the New Facilities Agreement are guaranteed by the Original
Guarantors. The rights of the New Lenders under the New Facilities Agreement will, subject to agreed
security principles, be secured by security over the shares held by each Original Guarantor.
The New Facilities Agreement also contains customary prepayment, cancellation and default provisions
and customary representations and warranties (subject to certain exceptions and qualifications) and
financial covenants, including:
(a) if required by a lender, mandatory prepayment of all utilisations provided by that lender upon a
change of control or sale of all or substantially all of the assets of the Group in a single
transaction or series of related transactions;
(b) financial covenants which require that (i) the ratio of EBITDA (as defined in the New Facilities
Agreement) to net finance charges should exceed 4.00:1 and (ii) the ratio of total net debt to
EBITDA (as defined in the New Facilities Agreement) does not exceed a specified level (the
maximum threshold being 3.50:1);
(c) covenants that impose restrictions on the Groups ability to enter into mergers, make a
substantial change to the general nature of the business of the Group, make acquisitions, grant
security, make disposals or incur additional financial indebtedness (in each case subject to
certain exceptions);
(d) voluntary prepayment of loans or letters of credit (subject to minimum amounts and prior
notice);
(e) events of default including non-payment, failure to comply with financial covenants, breach of
representation, insolvency, cross-default, unlawfulness and invalidity, repudiation and rescission
of the finance documents and material adverse effect (in each case, subject to customary grace
periods and thresholds); and
(f) certain ongoing financial information provisions.
The New Facilities Agreement is governed by English law.
224
Chargor has granted security over all of its rights, title and interest in the shares of its respective
subsidiary in favour of the Security Agent on behalf of the secured parties, as continuing security for the
payment and discharge of all liabilities and obligations owing by the Chargors to the secured parties.
The New Security Document is governed by English law.
14. UK TAXATION
The following statements are intended only as a general guide to certain UK tax considerations and do
not purport to be a complete analysis of all potential UK tax consequences of acquiring, holding or
disposing of Ordinary Shares. The Chancellor of the Exchequer presented the 2016 Budget to the House
of Commons on 16 March 2016, and a Finance Bill giving effect to his announcement was published on
24 March 2016. The following statements are based on current UK tax law as applied in England and
Wales, the Finance Bill 2016 in the form as published on 24 March 2016 (which it is assumed will be
enacted without amendment), and the current published practice of HMRC (which may not be binding
on HMRC) as at the date of this Prospectus. These may change, possibly with retrospective effect. They
apply only to Shareholders who are resident and, in the case of individuals domiciled, for tax purposes in
(and only in) the United Kingdom (except insofar as express reference is made to the treatment of non-
UK residents), who hold their Ordinary Shares as an investment (other than in an individual savings
account) and who are the absolute beneficial owner of both the Ordinary Shares and any dividends paid
on them. The tax position of certain categories of Shareholders who are subject to special rules (such as
persons acquiring their Ordinary Shares in connection with employment, dealers in securities, insurance
companies, persons connected with the Company, collective investment schemes and persons subject to
other specific tax regimes or benefiting from certain reliefs or exemptions) is not considered. The
statements summarise the position as described above and are intended as a general guide only.
Prospective investors who are in any doubt as to their tax position or who may be subject to tax in
a jurisdiction other than the United Kingdom should consult their own professional advisers.
225
less and who receives or becomes entitled to dividends from the Company during that period of
temporary non-residence may, if the Company is treated as a close company for UK tax purposes and
certain other conditions are met, be liable for income tax on those dividends on his or her return to the
United Kingdom.
226
Shares where the amount or value of the consideration is 1,000 or less, and it is certificated on the
instrument that the transaction effected by the instrument does not form part of a larger transaction or
series of transactions for which the aggregate consideration exceeds 1,000.
14.3.4 Ordinary Shares held through clearance systems or depositary receipt arrangements
Special rules apply where Ordinary Shares are issued or transferred to, or to a nominee or agent for,
either a person whose business is or includes issuing depositary receipts within Section 67 or Section 93
of the Finance Act 1986 or a person providing a clearance service within Section 70 or Section 96 of the
Finance Act 1986, under which SDRT or stamp duty may be charged at a rate of 1.5%. Following
litigation HMRC has confirmed that they will no longer seek to apply the 1.5% SDRT charge on an issue
of shares into a clearance service or depositary receipt arrangement on the basis that the charge is not
compatible with EU law. HMRCs view is that the 1.5% SDRT or stamp duty charge will continue to
apply to transfers of shares into a clearance service or depositary receipt arrangement unless they are an
integral part of an issue of share capital. This view is currently being challenged in further litigation.
Accordingly, specific professional advice should be sought before incurring a 1.5% stamp duty or
SDRT charge in any circumstances.
Except in relation to clearance services that have made an election under section 97A(1) of the
Finance Act 1986 (to which the special rules outlined below apply), no stamp duty or SDRT is
payable in respect of transfers within clearance services or depositary receipt systems.
There is an exception from the 1.5% charge on the transfer to, or to a nominee or agent for, a
clearance service where the clearance service has made and maintained an election under section
97A(1) of the Finance Act 1986, which has been approved by HMRC. In these circumstances,
SDRT at the rate of 0.5% of the amount or value of the consideration payable for the transfer will
arise on any transfer of shares in the Company into such an account and on subsequent
agreements to transfer such shares within such account.
Any liability for stamp duty or SDRT in respect of a transfer into a clearance service or depositary
receipt system, or in respect of a transfer within such a service, which does arise will strictly be
accountable by the clearance service or depositary receipt system operator or their nominee, as the
case may be, but will, in practice, be payable by the participants in the clearance service or
depositary receipt system.
The statements in this paragraph 14.3 of this Part 14 (Additional Information) of this Prospectus
apply to any holders of Ordinary Shares irrespective of their residence, summarise the current
227
position and are intended as a general guide only. Special rules apply to agreements made by,
among others, intermediaries.
228
15.1 Dividends
Distributions on the Ordinary Shares paid by the Company out of current or accumulated earnings and
profits (as determined for US federal income tax purposes) generally will be includable in a US Holders
gross income as ordinary dividend income from foreign sources upon receipt. Distributions in excess of
current and accumulated earnings and profits will be treated as a non-taxable return of capital to the
extent of the US Holders basis in the Ordinary Shares, and thereafter, as capital gain. However, the
Company does not maintain calculations of its earnings and profits in accordance with US federal
income tax accounting principles. US Holders should therefore assume that any distribution by the
Company on the Ordinary Shares will be reported as ordinary dividend income. US Holders should
consult their own tax advisers with respect to the appropriate US federal income tax treatment of any
distribution received from the Company.
Dividends will not be eligible for the dividends-received deduction generally available to US
corporations. If the Company qualifies for benefits under the United States-United Kingdom tax treaty
(the Treaty) and is not a PFIC in the year of distribution or in the preceding year, dividends on the
Ordinary Shares will qualify for the reduced rates applicable to qualified dividend income of certain
eligible non-corporate US Holders that satisfy a minimum holding period and other generally applicable
requirements. The Company believes it will qualify for benefits under the Treaty.
Dividends paid in a currency other than US dollars will be includable in income in a US dollar amount
based on the exchange rate in effect on the date of receipt whether or not the currency is converted into
US dollars or otherwise disposed of at that time. A US Holders tax basis in the non-US currency will
equal the US dollar amount included in income. Any gain or loss realised on a subsequent disposition or
conversion of the non-US currency for a different US dollar amount generally will be US source
ordinary income or loss.
15.2 Dispositions
A US Holder generally will recognise capital gain or loss on the sale or other disposition of Ordinary
Shares in an amount equal to the difference between the US Holders adjusted tax basis in the Ordinary
Shares and the US dollar value of the amount realised from the sale or other disposition.
A US Holders adjusted tax basis in the Ordinary Shares generally will be the US dollar value of the
purchase price paid in the Offer at the spot rate on the date of purchase (or, in the case of cash basis and
electing accrual basis US Holders, the settlement date). Any gain or loss generally will be treated as
arising from US sources and will be long-term capital gain or loss if the US Holders holding period
exceeds one year. Deductions for capital loss are subject to limitations. A loss may nonetheless be a
long-term capital loss regardless of a US Holders actual holding period to the extent the US Holder has
received qualified dividends eligible for reduced rates of tax prior to a sale or other disposition of its
Ordinary Shares that exceeded 10% of such US Holders basis in the Ordinary Shares.
A US Holder that receives a currency other than US dollars on the sale or other disposition of Ordinary
Shares will realise an amount equal to the US dollar value of the currency received at the spot rate on the
date of sale or other disposition (or, in the case of cash basis and electing accrual basis US Holders, the
settlement date). An accrual basis US Holder that does not elect to determine the amount realised using
the spot rate on the settlement date will recognise foreign currency gain or loss equal to the difference
between the US dollar value of the amount received based on the spot exchange rates in effect on the
date of sale or other disposition and the settlement date. A US Holder will have a tax basis in the
currency received equal to the US dollar value of the currency received at the spot rate on the settlement
date. Any gain or loss realised on a subsequent disposition or conversion of the non-US currency for a
different US dollar amount generally will be US source ordinary income or loss.
229
assets held during the taxable year consists of assets that produce, or are held for the production of,
passive income. For this purpose, cash is considered a passive asset and passive income generally
includes dividends, interest, royalties, rents and gains from commodities and securities transactions.
Whether the Company is classified as a PFIC for any taxable year is a factual determination made
annually at the close of each taxable year, and the Companys status could change depending upon,
among other things, changes in the composition and relative value of its gross receipts and assets, which
may be dependent on the market value of the Ordinary Shares, and the manner in which the Company
otherwise conducts its business. Accordingly, no assurance can be given that the Company will not be a
PFIC in the current or any future taxable year.
If the Company were a PFIC for any taxable year during which a US Holder owns Ordinary Shares,
whether or not the Company continued to be classified as a PFIC, (a) gain recognised by such US Holder
on a sale or other taxable disposition of the Ordinary Shares and certain distributions generally would be
allocated rateably over the US Holders holding period for the Ordinary Shares, (b) the amounts
allocated to the taxable year of the sale or other taxable disposition and to any year before the Company
became a PFIC would be taxed at ordinary income (rather than capital gains) rates and the amounts
allocated to each other taxable year would be subject to tax at the highest marginal tax rate in effect for
ordinary income for such year, and (c) an interest charge would be imposed in respect of the deferred
payment of the tax attributable to each such year. Additionally, dividends paid by the Company would
not be eligible for the reduced rate of tax described under Dividends and US holders may be required
to file annual reports with the US Internal Revenue Service (IRS) containing such information as may
be required.
Certain elections may be available (including a mark-to-market election) to US holders that could
mitigate some of the adverse tax consequences described above. US Holders should consult their own
tax advisers concerning the Companys PFIC status and the consequences to them if the Company were
to be a PFIC for any taxable year, including whether any elections are available and advisable in their
particular circumstances.
230
16. ENFORCEMENT AND CIVIL LIABILITIES UNDER US FEDERAL SECURITIES LAWS
The Company is a public limited company incorporated under English law. Certain of the Directors are
citizens of the United Kingdom (or other non-US jurisdictions), and a portion of the Companys assets
are located outside the United States. As a result, it may not be possible for investors to effect service of
process within the United States upon the Directors or to enforce against them in the US courts
judgements obtained in US courts predicated upon the civil liability provisions of the US federal
securities laws. There is doubt as to the enforceability in England, in original actions or in actions for
enforcement of judgements of the US courts, of civil liabilities predicated upon US federal securities
laws.
17. LITIGATION
There are no governmental, legal or arbitration proceedings (including such proceedings which are
pending or threatened of which the Company is aware) during the 12 months preceding the date of this
Prospectus, which may have, or have had, a significant effect on the Companys and/or the Groups
financial position or profitability.
231
that person (and possibly each of the principal members of a group of persons acting in concert with
him) is normally required to extend offers in cash, or accompanied by a cash alternative, at the highest
price paid by him (or any persons acting in concert with him) for shares of that company within the
preceding 12 months, to the holders of any class of equity share capital whether voting or non-voting and
also to the holders of any other class of transferable securities carrying voting rights.
If any person, together with persons acting in concert with him, is interested in shares which in the
aggregate carry more than 50% of the voting rights of a company, such person, or any person acting in
concert with him, may acquire further interests in shares of that company without incurring any
obligation under Rule 9 of the City Code to extend any offers. The Selling Shareholder and Lone Star are
presumed by the Takeover Panel to be acting in concert for the purposes of the City Code. Immediately
following Admission, it is expected that the Selling Shareholder will hold approximately 65.0% of the
voting rights attached to the Ordinary Shares, assuming no exercise of the Over-allotment Option, and
the Selling Shareholder, will hold approximately 59.8% of the voting rights attached to the Ordinary
Shares, assuming the Over-allotment Option is exercised in full.
21.2 Squeeze-out
Under the 2006 Act, if a takeover offer (as defined in section 974 of the 2006 Act) is made for the
Ordinary Shares and the offeror were to acquire, or unconditionally contract to acquire, not less than
90% in value of the Ordinary Shares to which the takeover offer relates (the Takeover Offer Shares)
and not less than 90% of the voting rights attached to the Takeover Offer Shares within three months of
the last day on which its offer can be accepted, it could acquire compulsorily the remaining 10%. It
would do so by sending a notice to outstanding Shareholders telling them that it will acquire
compulsorily their Takeover Offer Shares and then, six weeks later, it would execute a transfer of the
outstanding Takeover Offer Shares in its favour and pay the consideration to the Company, which would
hold the consideration on trust for outstanding Shareholders. The consideration offered to the
Shareholders whose Takeover Offer Shares are acquired compulsorily under the 2006 Act must, in
general, be the same as the consideration that was available under the takeover offer.
21.3 Sell-out
The 2006 Act also gives minority Shareholders a right to be bought out in certain circumstances by an
offeror who has made a takeover offer. If a takeover offer related to all the Ordinary Shares and at any
time before the end of the period within which the offer could be accepted the offeror held or had agreed
to acquire not less than 90% of the Ordinary Shares to which the offer relates, any holder of Ordinary
Shares to which the offer related who had not accepted the offer could by a written communication to the
offeror require it to acquire those Ordinary Shares. The offeror is required to give any Shareholder notice
of their right to be bought out within one month of that right arising. The offeror may impose a time
limit on the rights of the minority Shareholders to be bought out, but that period cannot end less than
three months after the end of the acceptance period. If a Shareholder exercises his or her rights, the
offeror is bound to acquire those Ordinary Shares on the terms of the offer or on such other terms as may
be agreed.
22. CONSENTS
Ernest & Young LLP has given and has not withdrawn its written consent to the inclusion of the reports
in Section A of Part 11 (Historical Financial Information) of this Prospectus and Section B of Part 12
(Unaudited Pro Forma Financial Information) of this Prospectus, in the form and context in which they
appear and has authorised the contents of those parts of this Prospectus which comprise its reports for
the purposes of Rule 5.5.3R(2)(f) of the Prospectus Rules.
A written consent under the Prospectus Rules is different from a consent filed with the US Securities and
Exchange Commission under section 7 of the US Securities Act. As the Ordinary Shares have not been
paid and will not be registered under the US Securities Act, Ernst & Young LLP has not filed a consent
under section 7 of the US Securities Act.
23. GENERAL
23.1 The fees and expenses to be borne by the Company in connection with Admission including the FCAs
fees, professional fees and expenses are estimated to amount to 17.3 million (including VAT to the
232
extent it is a cost to the Company). In addition, the Selling Shareholder has agreed to pay underwriting
commissions, VAT (if applicable) and stamp duty or SDRT in connection with the Offer of
approximately 4.4 million (assuming that no Over-allotment Shares are acquired pursuant to the Over-
allotment Option).
23.2 The financial information contained in this Prospectus does not amount to statutory accounts within the
meaning of section 434(3) of the 2006 Act. Full audited accounts have been delivered to the Registrar of
Companies for the Group for the relevant periods.
233
PART 15
DEFINITIONS AND GLOSSARY
Definitions
The following definitions apply throughout this Prospectus unless the context requires otherwise:
ABL Credit Agreement the ABL credit agreement dated 13 March 2015 entered into between,
among others, Stardust Finance, as borrower, certain of its group
undertakings, including Forterra Building Products, as guarantors, the
several banks and other financial institutions party thereto as lenders
and Bank of America, N.A., as administrative agent and collateral
agent, as further described in paragraph 13.1.3 of Part 14 (Additional
Information) of this Prospectus
Admission the admission of the Ordinary Shares to the premium listing segment
of the Official List and to trading on the London Stock Exchanges
main market for listed securities becoming effective in accordance
with the Listing Rules and the LSE Admission Standards, as the
context may require
Assignment Agreement the assignment agreement dated 21 April 2016 entered into between
Forterra Building Products and LS Concrete, as further described in
paragraph 12.16 of Part 14 (Additional Information) of this
Prospectus
Business Day a day (not being a Saturday or a Sunday) on which Banks are
generally open for business in London, United Kingdom
Commitment Letter the commitment letter dated 23 March 2016 acknowledged by the
Company, Forterra, Holdings, Forterra Buildings Products and
Structherm provided by the New Lenders, as further described in
paragraph 13.3 of Part 14 (Additional Information) of this Prospectus
Company or Forterra Forterra plc, a public limited company incorporated in England and
Wales with registered number 9963666
Corporate Governance Code the UK Corporate Governance Code published by the Financial
Reporting Council, as amended from time to time
234
CREST the computerised settlement system operated by Euroclear UK &
Ireland Limited to facilitate the transfer of title to shares in
uncertificated form
Disclosure and Transparency the disclosure rules and the transparency rules of the FCA made under
Rules Part VI of FSMA
euro or the currency introduced at the start of the third stage of the European
economic and monetary union pursuant to the Treaty establishing the
European Community, as amended
Executive Directors the executive directors of the Company as at the date of this
Prospectus and whose names are set out in Part 7 (Directors, Senior
Managers and Corporate Governance) of this Prospectus under the
heading Directors
Existing Credit Agreements the Senior Lien Credit Agreement, the Junior Lien Credit Agreement
and the ABL Credit Agreement
Existing Loan Note the 405 million intercompany loan note dated 13 March 2015, as
amended on 1 May 2015, issued by Forterra Building Products in
favour of the Selling Shareholder, as further described in paragraph
12.10 of Part 14 (Additional Information) of this Prospectus
Existing Security Documents the security documents described in paragraph 13.2 of Part 14
(Additional Information) of this Prospectus
FCA the Financial Conduct Authority of the United Kingdom (or its
successor bodies)
Forterra Building Products Forterra Building Products Limited, a limited liability company in
incorporated in England and Wales with registered number 08960430
Forterra NA Group Forterra Brick Ltd., Forterra Brick America, Inc., Forterra P&P
Canada and Forterra P&P US, together with their respective
subsidiary undertakings from time to time
235
Forterra P&P Canada Forterra Pipe & Precast, Ltd., an Ontario corporation
Forterra P&P US Forterra Pipe & Precast LLC, a Delaware limited liability company
Forterra SPA the share purchase agreement dated 20 April 2016 entered into
between the Selling Shareholder and the Company, as further
described in paragraph 3.2 of this Part 14 (Additional Information) of
this Prospectus
HC Loan Note the 405 million intercompany loan note dated 1 September 2014
issued by Forterra Building Products in favour of a member of the
HeidelbergCement Group
Heidelberg Aggregates Supply the aggregates supply agreement dated 13 March 2015 entered into
Agreement between Hanson Quarry Products Europe Limited and Forterra
Building Products, as further described in paragraph 12.13 of Part 14
(Additional Information) of this Prospectus
Heidelberg Cement Supply the cement supply agreement dated 13 March 2015 entered into
Agreement between Castle Cement Limited and Forterra Building Products, as
further described in paragraph 12.14 of Part 14 (Additional
Information) of this Prospectus
Heidelberg TSA the transitional services agreement dated 13 March 2015 entered into
between a member of the HeidelbergCement Group and LS Concrete,
as further described in paragraph 12.12 of Part 14 (Additional
Information) of this Prospectus
Holdings SPA the share purchase agreement dated 20 April 2016 entered into
between the Company and Forterra Holdings, as further described in
paragraph 3.3 of Part 14 (Additional Information) of this Prospectus
Junior Lien Credit Agreement the junior lien credit agreement dated 13 March 2015 entered into
between, among others, Stardust Finance, as borrower, certain of its
group undertakings, including Forterra Building Products, as
guarantors, the several banks and other financial institutions party
thereto as lenders and Credit Suisse AG as agent, as further described in
paragraph 13.1.2 of Part 14 (Additional Information) of this Prospectus
236
LIBOR the London Interbank Offered Rate
Listing Rules the listing rules of the FCA made under Part VI of FSMA
Lone Star Lone Star Fund IX (U.S.), L.P. and its affiliates
Lone Star Acquisition the acquisition by the Selling Shareholder of the Group and the
acquisition by Lone Star of the Forterra NA Group on 13 March 2015
Lone Star Directors Bradley Boggess and Richard Cammerer, the Non-Executive
Directors appointed by the Selling Shareholder pursuant to the terms
of the Relationship Agreement
LSE Admission Standards the admission and disclosure standards issued by the London Stock
Exchange in relation to the admission to trading of, and continuing
requirements for, securities admitted to the Official List
New Facilities the Term Facility and the Revolving Credit Facility
New Facilities Agreement the senior facilities agreement to be entered into between Forterra
Building Products, as borrower and guarantor, the Company, Forterra
Holdings and Structherm, as original guarantors, the New Lenders as
lenders and The Royal Bank of Scotland plc as agent and security
agent, as further described in paragraph 13.3 of Part 14 (Additional
Information) of this Prospectus
New Lenders AIB Group (UK) p.l.c., Credit Suisse AG, London Branch, Deutsche
Bank AG, London Branch; HSBC Bank plc, ICICI BANK UK PLC,
Lloyds Bank plc, National Westminster Bank Plc, Raiffeisen Bank
International AG and Santander UK plc
New Loan Note the 404,969,433 intercompany loan note dated 20 April 2016 issued
by the Company in favour of the Selling Shareholder, as further
described in paragraph 12.11 of Part 14 (Additional Information) of
this Prospectus
New Security Document the security over shares agreement to be entered into between the
Company, Forterra Holdings and Forterra Building Products as
chargors and The Royal Bank of Scotland plc as trustee for each of
the secured parties, as described in paragraph 13.4 of Part 14
(Additional Information) of this Prospectus
Offer Price the price at which each Ordinary Share is to be sold pursuant to the
Offer
237
Offer Shares the 70,000,000 Ordinary Shares to be sold by the Selling Shareholder
pursuant to the terms of the Offer
Ordinary Shares the ordinary shares in the capital of the Company with a nominal
value of 1 pence each, having the rights set out in the Articles
Over-allotment Option the option granted by the Selling Shareholder to the Stabilising
Manager to purchase, or procure purchasers for, up to 10,500,000
additional Ordinary Shares, as further described in Part 13 (Details of
the Offer) of this Prospectus
Over-allotment Shares the Ordinary Shares the subject of the Over-allotment Option
Prospectus Rules the prospectus rules of the United Kingdom made under section 73A
of FSMA
Qualified Investors persons who are qualified investors within the meaning of
Article 2(1)(e) of the Prospectus Directive
Regulatory Information Service one of the regulatory information services authorised by the FCA to
receive, process and disseminate regulated information from listed
companies
Relationship Agreement the relationship deed dated 21 April 2016 entered into between the
Company and the Selling Shareholder, as further described in Part 7
(Directors, Senior Managers and Corporate Governance) of this
Prospectus
Relevant Member State each member state of the European Economic Area which has
implemented the Prospectus Directive
Reorganisation the reorganisation of the Group in preparation for the Offer and the
refinancing of the Group in accordance with the terms of the
Reorganisation Documents, as further described in paragraph 3 of
Part 14 (Additional Information) of this Prospectus
238
Reorganisation Agreement the reorganisation deed dated 21 April 2016 entered into between
Stardust Finance, LS Concrete Midco, the Selling Shareholder, the
Company, Forterra Holdings and Forterra Building Products relating
to the Reorganisation, as further described in paragraph 3.4 of Part 14
(Additional Information) of this Prospectus
Reorganisation Documents the Forterra SPA, the Holdings SPA and the Reorganisation
Agreement, as further described in paragraph 3 of Part 14 (Additional
Information) of this Prospectus
Revolving Credit Facility the 30,000,000 to be made available to the Group pursuant to the
terms of the New Facilities Agreement
Senior Lien Credit Agreement the senior lien term loan credit agreement dated 13 March 2015
entered into between, among others, Stardust Finance, as borrower,
LS Concrete and certain of its other subsidiaries, including Forterra
Building Products, as guarantors, the several banks and other
financial institutions party thereto as lenders, and Credit Suisse AG,
as administrative agent and collateral agent, as further described in
paragraph 13.1.1 of Part 14 (Additional Information) of this
Prospectus
Senior Managers the persons named in Part 7 (Directors, Senior Managers and
Corporate Governance) under the heading Senior Managers, and
each being a Senior Manager
Share Plans the PSP, the DABP, the Forterra Share Incentive Plan and the Forterra
Sharesave Plan, as described in paragraphs 7.1 to 7.6 of Part 14
(Additional Information) of this Prospectus
Stardust Holdings Stardust Holdings (USA), LLC, a Delaware limited liability company,
the parent company of Forterra Brick America, Inc. and Forterra P&P
US
239
Structherm Structherm Limited, a limited liability company incorporated in
England and Wales with registered number 01635024
Term Facility the 150,000,000 to be made available to the Group pursuant to the
terms of the New Facilities Agreement
Trademark Agreement the trademark ownership agreement dated 5 October 2015 entered
into between the Company, Stardust Holdings, Forterra P&P US and
Forterra P&P Canada, as further described in paragraph 12.15 of Part
14 (Additional Information) of this Prospectus
UK or United Kingdom the United Kingdom of Great Britain and Northern Ireland
Underwriting Agreement the underwriting agreement dated 21 April 2016 entered into between
the Company, the Directors, the Selling Shareholder and the Banks,
as further described in paragraph 9.1 of Part 14 (Additional
Information) of this Prospectus
United States or US the United States of America, its territories and possessions, any state
of the United States of America and the District of Columbia
US Exchange Act the United States Securities Exchange Act of 1934, as amended
240
Glossary
The following terms have the meanings provided below unless the context required otherwise:
aging population occurs when the median age of a country or region rises due to rising
life expectancy and/or declining fertility rates
beam and block flooring traditional flooring system for ground and upper floors in domestic
and commercial applications; the system is made up of pre-stressed,
inverted T beams infilled with standard building blocks
cement a powdery substance made by calcining lime and clay, mixed with
water to form mortar or mixed with aggregates to form concrete
economic downturn the economic downturn that resulted from the financial crisis
extruded bricks a process in which a clay mixture is forced through a die to create a
long column which is then cut into bricks (see also wirecut extruded
bricks)
facing bricks bricks with aesthetic characteristics that allow them to be used and
exposed on the outside of a wall
241
flue system a pipe, tube, or channel for conveying hot air, gas, steam, or smoke
from a furnace or fireplace to a chimney
greenfield undeveloped land in a city or rural area either used for agriculture,
landscape design, or left to evolve naturally
housing starts the economic indicator that reflects the number of residential
buildings (units) on which construction has been started in a given
period
infill block a block for use with floor beams in ground floor application
m2 metre square
m3 metre cube
Psi value the thermal weakness at the intersection of building elements such as
walls and floors
pulverised fuel ash or PFA the residues generated by coal combustion, and is composed of the
fine particles that are driven out of the boiler with the flue gases
shale the raw material used for the fabrication of bricks, which has the
characteristic of burning red
242
thin bricks a thin facing applied over an insulant to provide a traditional brick
wall finish; thin bricks can either be manufactured by extrusion or cut
from real bricks
U-value the measure of heat loss expressed in W/m2k, measuring the amount
of heat lost in watts (W) per square metre of material (for example
wall, roof, floor, etc.) when the temperature (k) outside is at least one
degree lower; the lower the U-value, the better the insulation provided
by the material
wirecut extruded bricks a brick cut from clay shaped by extrusion before being fired in the
kiln; the long column of extruded clay is cut into bricks by a set of
wires
243
Printed by RR Donnelley, 159033
plc
Forterra plc
5 Grange Park Court
Roman Way
Northampton
NN4 5EA
Tel: +44 (0)1604 707 600
forterraplc.co.uk
Forterra plc Prospectus