Ibstock plc (LON:IBST), a leading manufacturer of clay bricks and concrete products in the United Kingdom, today issued a trading update for the five months ended 31 May 2020.
Trading performance
Sales volumes during the first 10 weeks of the year were, as anticipated, modestly below the comparative period as we entered 2020 against the backdrop of more subdued market conditions. The Group saw a sharp decline in sales volumes from late March as the Government measures to control the Covid-19 pandemic began to take effect and our construction and housebuilding customers closed sites. During April, volumes in our Clay division fell by around 90% year on year, whilst exposure to infrastructure and RMI markets meant that volumes in our Concrete division remained relatively more resilient during that period.
As the construction and housebuilding sectors have begun to return to work over recent weeks, trading conditions have started to improve. We have seen a modest recovery in clay brick sales although volumes currently remain around 70% below the comparative period. Concrete volumes are now at around 50% of those from the same period in 2019.
Overall, Group revenues for the three months to 31 March 2020 were down by approximately 10% compared to the comparative period, with a decline of around 75% in the two months to 31 May 2020.
Operations
As announced on 15 May 2020, the Group has developed new working practices and protocols which reflect the latest guidance from the Government and public health authorities. This has allowed the recommencement of production at approximately one third of our manufacturing sites in response to customer demand. The Group will keep demand levels under close review and is able to restart production at further manufacturing sites over the coming months as required.
The Group has taken significant action to address the challenges presented by Covid-19. These measures have included utilising the Government’s Coronavirus Job Retention Scheme for a significant portion of colleagues during the shutdown period, reducing discretionary spend wherever possible and implementing a temporary salary reduction for the Board and the executive leadership team.
In addition, in order to ensure that the business remains well-positioned as it emerges from the current crisis, we are conducting a review of all operations. This review is expected to lead to a material reduction in the Group’s fixed cost base, through selective site closures, changes in operating patterns and changes to the size and structure of support functions. We have entered into consultations with employees across the Group as part of a series of restructuring proposals, with up to 375 positions, representing around 15 per cent of the Group’s total workforce, potentially impacted as a result of these actions.
Whilst the changes anticipated will ensure our business is adapted to the near-term industry demand outlook, we retain the flexibility to scale production back up, as and when demand recovers.
Financial position
In addition to actions taken to reduce costs, the Group is continuing to prioritise liquidity and the preservation of cash to enhance its financial resilience and flexibility in response to Covid-19. In particular, this has included close management of working capital and deferral of non-essential capital expenditure and tax payments as allowed by Government schemes. As a result, net debt at 31 May 2020 was approximately £105 million, primarily reflecting seasonal working capital movements early in the year, and the Group continues to have significant liquidity headroom within its £215 million revolving credit facility, which expires in March 2022.
To maintain financial flexibility, the Group has secured agreement from its lending banks for a number of amendments to covenant tests under the Group’s RCF1. The Group is also pleased to announce that it has been confirmed as eligible in principle to access funding under the Covid Corporate Financing Facility, subject to the Bank of England approving relevant documentation.
Outlook
With the health and safety of our colleagues remaining Ibstock’s top priority, the phased return to production is underway, to support our customers and help the UK construction sector get building again.
Current trading conditions remain difficult but the combination of the cost reductions, restructuring measures and improved liquidity have strengthened the Group’s ability to meet current challenges and benefit from the eventual recovery in its core markets.
As a result of current unprecedented levels of uncertainty, it is not possible to provide an accurate assessment of the trading outlook for the current year, and accordingly, guidance remains withdrawn.
1 Existing covenants under the Group’s RCF facility require: leverage of no more than 3 times net debt to EBITDA; and interest cover of no less than 4 times, tested bi-annually at each reporting date.
The leverage test as at December 2020 will be replaced by a liquidity test requiring the Group to have Minimum Liquidity of £60 million. Liquidity defined as: (Cash and Equivalents) + (Available Existing RCF Commitments) – (Any Outstanding Drawings under the CCFF).
The interest cover test as at December 2020 will be amended to no less than 1.25 times.
The leverage test as at 30 June 2021 will be amended to no more than 3.75 times net debt to EBITDA.
