FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 ### FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 ## OUR PURPOSE IS CLEAR. ## KEEPING BRITAIN BUILDING. ## WHETHER IT BE SUPPLYING ## THE BRICKS AND BLOCKS ## ESSENTIAL FOR THE HOUSING ## INDUSTRY, DESIGNING ## BESPOKE SOLUTIONS FOR ## OUR DIVERSE RANGE OF ## CUSTOMERS, OR CREATING ## JOBS THAT HELP OUR ## COMMUNITIES PROSPER, ## WE ARE KEEPING ## BRITAIN BUILDING. ## In this report | Strategic report | Governance | | Financial statements | | | --- | --- | --- | --- | --- | | 02 Forterra at a Glance | 88 Board of Directors | | 152 Independent Auditor’s Report | | | 04 Investment Case | 91 Executive Committee | | 160 Consolidated Statement | | | 06 Chairman’s Statement | 92 Corporate Governance | | | of Total Comprehensive Income | | 10 Chief Executive Officer’s Statement | | Statement | 161 Consolidated Balance Sheet | | | 18 What We Do and Our Impacts | 105 Nomination Committee Report | | 162 Consolidated Statement | | | 20 Our Business Model | 108 Audit Committee Report | | | of Cash Flows | | 22 Market Overview | 115 Risk and Sustainability | | 164 Consolidated Statement | | | 24 Section 172 Statement | | Committee Report | | of Changes in Equity | | 26 Our Strategy | 118 Remuneration Committee Report | | 165 Notes to the Financial | | | 34 Key Performance Indicators | 147 Directors’ Report | | | Statements | | 36 Chief Financial Officer’s Review | 150 Statement of Directors’ | | 193 Company Balance Sheet | | | 42 Sustainability Report | | Responsibilities | 194 Company Statement | | | 76 Risk Management and Key Risks | | | | of Changes in Equity | 195 Notes to the Company Financial Statements 199 Group Five-Year Summary FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 Profit before tax (statutory) ## 32% ## £72.9m targeted reduction of our carbon emissions by 2021: £56.8m the end of the decade EPS before exceptional items ## 26.4p 20 21: 17. 5p Net (debt)/cash before leases ## £ ( 5.9 ) m 2021: £40.9m ## 22% increase in effective Group brick production capacity from new Desford brick factory Revenue (£m) ## 2022 455.5 £30m 2021 370.4 Wilnecote brick factory redevelopment proceeding 2020 291.9 according to plan 2019 380.0 Profit before tax before exceptional items (£m) | 2022 | | | | 70.6 | | --- | --- | --- | --- | --- | | 2021 | | 50.7 | | | | 2020 | 17.4 | | | | | 2019 | | | 62.5 | | ## FINANCIAL HIGHLIGHTS OPERATIONAL HIGHLIGHTS 01 01 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## FORTERRA AT A GLANCE ## We are Keeping ## Britain Building From our 17 manufacturing facilities our 1,800 employees create the bricks, blocks, precast concrete, paving and many other vital products that are Keeping Britain Building, enabling the development of thriving communities and infrastructure. Our expertise lies in building products made from clay and concrete, and our portfolio contains some of the most recognised and respected names in the construction industry. Some of them, such as London Brick and Butterley, date back to the 19th century while others, such as Ecostock and Thermalite, are far more recent; but whether historic or modern, traditional or cutting edge, they all have the needs of the 21st century at their core. ## OUR LOCATIONS Map key Head office Bricks (9) Aircrete Blocks (2) Bespoke Products (3) Aggregate Blocks/ Concrete Pavers (3) ## 1,800 17 Employees Manufacturing facilities 02 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## OUR MARKETS ## RESIDENTIAL ## RM&I ## Revenue COMMERCIAL & ## 66% INFRASTRUCTURE Revenue ## 31% ## RESIDENTIAL Revenue ## 3% ## NEW BUILD Residential is at our core and the new The repair, maintenance and The commercial and specification build sector of this market is a significant improvement (RM&I) market forms an market focuses on architecturally driven portion of our business. There remains additional segment of the residential projects such as schools, hospitals, a long-term shortage of housing in market, through sales to distributors, stadia, offices, universities and other the UK and through our bricks, blocks and we offer a range of RM&I products public buildings. We supply a wide range and flooring product lines we provide in support of this area, most notably our of products into this sector through essential products to the majority of London Brick range used in extensions our Bison Precast business, and the the country’s housebuilders, builders’ across the country, reduces our reliance redevelopment of our Wilnecote brick merchants and distributors; Keeping on new build construction. factory will see an enhanced range of Britain Building. bricks also supplying this market. ## OUR PRODUCTS Bricks Blocks Bespoke Products Our clay brick range includes the iconic Our inner leaf walling products include Bison Precast spearheads our bespoke London Brick, and is complemented Thermalite, a leading lightweight, products offering, providing a range by a comprehensive range of wire-cut, thermally efficient block used within of offsite manufactured concrete pressed, thrown and special shaped residential construction, and the Conbloc walling, flooring and ancillary products. products to satisfy a variety of end-use range of dense and lightweight aggregate Jetfloor, our insulated ground floor markets. blocks. Landscaping solutions are system leads our offering in the new provided by our Formpave concrete build residential market. block paving range. 03 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## INVESTMENT CASE ## DELIVERING LONG-TERM SHAREHOLDER VALUE Longstanding shortage Secure long-term of quality housing mineral reserves Structural undersupply of Efficient well-invested manufacturing domestically produced bricks base with large factory size offsets historical cyclicality Established market position and Structurally attractive customer relationships market structure Resilience provided through exposure to RM&I market Synergy driven by complementary products Established and recognisable brands Strong and experienced leadership team ### MARKET COMPANY Established leading market positions Long-term structural demand in core products and supply factors underpins market growth • Broad, complementary product range • Market demand driven by structural, comprising clay bricks, aircrete and through-cycle new housing shortage aggregate blocks, flooring products and resilient RM&I markets and more • Undersupply of domestically produced • Unique, trusted and respected bricks and other key building products heritage brands including London Brick provides opportunity for growth and Thermalite and insulate from short-term market cyclicality • High barriers to entry supported by secure long-term mineral reserves • Resilience through exposure to RM&I market • Well-invested, efficient and profitable asset base • Consolidated brick and block market structures • Strong customer relationships enhancing order-book visibility • Industry leading cost of brick production ## WELL-POSITIONED TO DELIVER PROFITABLE GROWTH 04 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ### KEY PERFORMANCE INDICATORS Longstanding shortage Secure long-term Large scale investment Revenue EBITDA Margin Total Shareholder Return (TSR) of quality housing mineral reserves in new capacity Structural undersupply of Efficient well-invested manufacturing > Strengthen the core domestically produced bricks base with large factory size offsets historical cyclicality Established market position and Structurally attractive customer relationships > Range expansion market structure Resilience provided through > Product innovation exposure to RM&I market and development Synergy driven by Sustainability at the heart complementary products of everything we do Established and Opportunistic bolt-on M&A recognisable brands in complementary markets Strong and experienced leadership team Short-term earnings Sustained earnings growth growth supports greater investment enabling greater still ### MARKET COMPANY STRATEGY AND Strong free cash flow conversion earnings growth ### INVESTMENT Attractive dividend Shareholder returns ### LONG-TERM SHAREHOLDER VALUE Investment pipeline to deliver Commitment to Strong profitable growth, capacity growth, efficiency and sustainability leadership cash generation and disciplined decarbonisation capital allocation • Three large scale projects • Inherently sustainable and • Strong cash conversion supports commissioning in the next two years durable products organic investment model will start to progressively deliver • Ambitious ESG targets to 2030 and • Attractive dividend policy with significant profit and cash returns beyond under the ‘Planet Product pay-out ratio of 55% of earnings from 2023 People’ framework • Balance sheet strength allows • £200m pipeline of attractive projects • 22% reduction in carbon emissions selective bolt-on acquisitions even to leverage asset base being invested between 2010 and 2019 with pipeline of investment projects over the next decade • Commitment to commercially robust • Leverage expected to remain at or • Proven delivery of innovation, ESG agenda, including a further below 1x EBITDA manufacturing excellence and 32% carbon emissions reduction • Supplementary returns to shareholders productivity improvement underpins target between 2019 and 2030 as appropriate. £40m share buyback profit growth completed in 2022 05 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## CHAIRMAN’S STATEMENT A CLEAR STRATEGY FOR GROWTH ## ❝ ## We were very pleased to ## announce that Neil Ash will ## join Forterra as our next CEO ## at the beginning of April.” In 2022 we delivered a strong financial result notwithstanding headwinds of growing economic uncertainty and rapidly rising costs. We maintained strict cost control and where necessary have successfully passed on cost inflation to our customers allowing us to deliver a result that is ahead of our 2019 pre-pandemic performance. We have made continued progress against our strategic goals with the new Desford brick factory now operational. Delivering this transformational project in line with expectations and within the original £95m budget, against a backdrop of considerable supply chain disruption and inflationary pressure, is a credit to everyone involved in the project. Our People As always, it is important to recognise that our success is driven by the ongoing commitment and enthusiasm of our colleagues, underpinned by the strength of both our supplier and customer relationships. The result we have delivered this year has only been possible due to the hard work and devotion of our employees across the business whether in our factories or in our sales and back-office functions. With all of the recent macro events it is beginning to feel as if there are no longer any routine years and the Board have been impressed by how our workforce are able to continually adapt to the ever- changing challenges that they are required to face. We appreciate the impact that the current cost of living crisis is having on our employees and that this impact disproportionately falls on the lowest paid. We continue to be a Living Wage Employer and alongside this we have taken a number of steps to assist our employees through these challenging ## JUSTIN ATKINSON times. We paid the majority of our workforce a one-off cost of living payment of £500 which was received just before Christmas and we also provided our entire workforce with a grocery voucher during the year. 06 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 STRATEGIC REPORT # Results Group revenue for the year increased by 23.0% from the prior year to £455.5m (2021: £375.4m) driven primarily by necessary selling price increases with volumes in line with the prior year. Profit before tax (stated before exceptional items) increased by almost 40% from £50.7m to £70.6m. After exceptional items profit before tax increased to £72.9m (2021: £56.6m). Earnings per share (EPS), again stated before exceptional items, increased by over 50% to 26.4p (2021: 17.5p). Basic EPS after exceptional items was 27.2p (2021: 19.9p). The results for the year again highlight the strength of our cash generation having delivered an operating cash flow before exceptional items of £69.0m (2021: £81.2m). The Group ended the year with a strong balance sheet with net debt (stated before leases) of £5.9m (2021: net cash of £40.9m). # Board changes Following the announcement made ahead of our 2022 AGM of Stephen Harrison's decision to stand down as Chief Executive Officer after 10 years in the role, the Board's Nomination Committee commenced a comprehensive selection process to identify a replacement. We were therefore very pleased last November to announce Neil Ash as our next CEO who will join the Company as Chief Executive Officer Designate at the beginning of April. Neil has almost three decades' experience in the building materials sector and an impressive track record of improving performance and delivering growth at Etex, the Belgian lightweight building materials manufacturer, where he led the €2bn revenue Building Performance division. Neil's business leadership and extensive building materials sector knowledge will be invaluable in the next stages of our development and the Board looks forward to working alongside him. The Board and I are grateful to Stephen Harrison for the significant contribution he has made to the business during his tenure as CEO and wish him all the best for the future after he leaves Forterra. We have today announced that Gina Jardine will be appointed to the Board on 3 April 2023 as an Independent Non-Executive Director. Gina is an experienced HR professional with an extensive career within global building materials and mining companies. Most recently Gina held the position of Chief Human Resources Officer at FTSE 100 building materials business CRH plc, prior to this she was Chief Human Resources Officer at Canadian listed Kinross Gold Corporation and held a number of senior HR roles at FTSE 100 listed mining group, Rio Tinto plc. Through her experience and significant knowledge, obtained in some of the largest global corporates, Gina will complement the existing skillsets of our Board. Her addition will also help with succession planning for the Non-Executive Directors, given that several are expected to step down in 2025-26. The Board is committed to furthering diversity at all levels and it acknowledges the recommendations of the Hampton-Alexander Review which recommends that 33% of the Board should be female. In addition, the Financial Conduct Authority guidance is that at least 40% of the Board be female. As a company currently outside the FTSE 250, these recommendations do not directly apply to Forterra although we retain our consistently held aspiration to adhere to best practice governance requirements as if the Company were a member of the FTSE 250. Following Gina's appointment our Board composition will be 38% female. In addition, one of the senior Board members is a female and one of the Board is from a non-white ethnic minority background. In totality I believe that the skills, knowledge, experience, educational background and upbringing of individual Board members bring a diverse contribution to the debate and discussion around the Board table. # Strategy We have a strategy for growth which together with our clear capital allocation priorities positions the Group to deliver long-term shareholder value. Our strategy, outlined further on pages 26 and 27, is to capitalise on the United Kingdom's long-term shortage of housing supply, along with a structural shortfall in the supply of the domestically manufactured building products necessary to address the housing shortage, leveraging our extensive mineral reserves and strong market positions. Investing for future growth we will: - strengthen our core business, investing in new capacity to deliver growth in sales volumes along with enhanced efficiency and sustainability; - expand our product range beyond our traditional focus of mainstream residential construction; and - expand our product innovation and development activities. These three pillars for growth are each supported by a current investment project. Firstly, the new Desford brick factory which is now operational, strengthens our core, ultimately increasing our effective brick production capacity by 22% whilst also delivering market-leading levels of efficiency and sustainability. We are proud to be delivering the factory not only in line with our planned timescales but also the original £95m budget. Revenue £455.5m 2021: £375.4m Profit before tax before exceptional items £70.6m 2021: £50.7m Net (debt)/cash before leases £(5.9)m 2021: £40.9m EPS before exceptional items 26.4p 2021: 17.5p 07 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 STRATEGIC REPORT # CHAIRMAN'S STATEMENT ## CONTINUED Our £30m investment in the redevelopment of our Winecote brick factory will afford us greater access to the attractive commercial and specification market providing a degree of diversification, with the factory re-commissioning in the final quarter of 2023. Finally, an investment of approximately £12m in brick slip manufacture at our Accrington factory will allow us to capitalise on the growing opportunities presented by the high-rise and modular construction markets, with the manufacture of slips expected to commence in the first half of 2024. In addition, we continue to progress a pipeline of, as yet unannounced, projects that will allow us to continue investing for growth after the completion of the current projects. ### Capital allocation Our capital allocation policies are clearly stated and designed to maximise shareholder value: - strategic organic capital investment to deliver attractive returns; - attractive ordinary dividend with a pay-out ratio of 55% of earnings; - bolt-on acquisitions as suitable opportunities arise in adjacent or complementary markets; and - supplementary shareholder returns as appropriate. We expect to invest in excess of £200m over the next decade in attractive organic investment projects, offering compelling returns alongside providing enhanced shareholder returns through the distribution of 55% of our earnings. The balance of capital will be available for either acquisitions or supplementary returns to shareholders as appropriate. During 2022 we completed a £40m share buyback, returning capital that we did not immediately have a use for to our shareholders. Having done this, alongside having spent £44.1m on capital expenditure in the year we finished the year with net debt (before leases) of just £3.9m, leaving us with a strong balance sheet as we enter a period of heightened economic uncertainty. ### Dividends In line with the capital allocation policy laid out previously, the Board are proposing a final 2022 dividend of 10.3p per share to be paid on 7 July 2023 to shareholders on our register at 16 June 2023. This will take the total dividend for 2022, including the interim dividend of 4.6p paid on 14 October 2022, to 14.7p (2021: 9.9p) representing 55% of earnings before exceptional items (2021: 55%). ### Sustainability We have made continued progress towards our sustainability goals during the year. We have clear targets including a reduction in our carbon emissions of 32% (from a 2019 baseline) by the end of the decade. In the longer term we are committed to reaching net zero and having identified the measures required to meet our medium-term targets, we have also developed an implementation roadmap to ensure that we deliver on our commitments – The Forterra Carbon Management Plan. Central to this Plan and the achievement of these reductions is our investment in new production capacity and technologies, even if our carbon emission intensity per tonne of output did increase marginally in 2022, relative to the prior year, as a result of changes in the mix of products we produced. Our new Desford brick factory will emit 25% less carbon per brick than the old factory it replaces, and we have recently commenced the installation of roof mounted solar panels at an additional cost of around £2.5m which will provide approximately 16% of the factory's electricity requirement going forward. During the year we also entered into a wider electricity Power Purchase Agreement that will see us secure around 70% of our electricity from a dedicated solar farm at competitive prices from 2025. It is pleasing that construction of this facility is now underway and we subsequently exercised an option to take power from this facility from April 2024. As we strive for a lower carbon future, we are committing more time and resources to researching the innovative technologies that will ultimately help us reach our goal of becoming a net zero business by 2050. It is important to appreciate that at this stage, our decarbonisation plans beyond 2030 are not yet clearly defined and that not every initiative we pursue will ultimately be successful. Although we recognise that only through innovation, exploration and investment, will we be able to take a sector-leading approach to decarbonisation. During the year we partnered with a company offering innovative carbon capture technology and are already exploring the deployment of this technology at one of our brick factories. We are also progressing the trials of hydrogen and biomass as 08 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 STRATEGIC REPORT alternative fuels for use in our kilns. Our hydrogen trials were delayed by shortages of hydrogen in the UK but have now commenced and we believe these are some of the first trials in the UK brick industry under industrial rather than laboratory conditions. As part of our commitment to reducing our consumption of plastic packaging by 50% by 2025 we are also now rolling out new packaging equipment across our brick factories to reduce the average amount of plastic packaging used on each pack of bricks by almost 50%. # Corporate governance The Board remains committed to the highest standards of Corporate Governance, not only at Board level but throughout the Group. The Group continues to comply in full with the requirements of the UK Corporate Governance Code as if it were a constituent of the FTSE 250. The Corporate Governance section of this Annual Report outlines the Board's approach to corporate governance arrangements and includes reports from each of the Committee Chairs, providing details on key matters addressed by each of the Committees during the year. With the exception of Stephen Harrison who intends to retire before the AGM, all of the Directors will be standing for re-election at the forthcoming AGM. Our s172(1) statement as required by the Companies Act is included in the Strategic Report on page 24, and further referenced in the Corporate Governance Statement on pages 100 and 101. During the year we undertook an internal evaluation of the Board and its Committees following the external evaluation undertaken last year, the summarised results of which can be found in the Governance section on page 102. The Board also requested that the Group's co-sourced Internal Audit provider, carry out a review of the effectiveness of the Group's risk management and internal control processes to provide the Board with additional confidence in making the required declarations that the Company continues to comply with relevant provisions of the UK Corporate Governance Code 2018. # Corporate culture The Board is aware of its responsibility to foster a corporate culture based upon strong leadership and transparency, ensuring we do business responsibly, adhering to the highest ethical standards, whilst minimising the impact our business has on the environment. Our purpose is to manufacture and supply the building products required to Keep Britain Building. Our culture is underpinned by our values which are laid out on page 21. Adherence to these values is fundamental to the success of the business. Health and safety remains our number one priority and the Board is determined to lead by example in ensuring that everyone in our business is under no doubt as to our commitment to zero harm. To this end, the Board continued to ensure it remains highly visible in the business, with each Director completing two factory health and safety walks alongside full Board visits to four of our factories during the year. # Summary and outlook The short-term outlook for the UK housing market remains uncertain. We saw signs of softening demand towards the end of 2022, and this has continued into early 2023, partly driven by customer inventory reduction. Whilst we are currently planning for underlying demand for our products to fall by 20% in 2023 relative to 2022, we are encouraged by falling mortgage rates and recent reports of improving reservation rates. We wait to see how our customers' spring new house selling season develops with the outcome of this likely to be a key determinant of demand for our products in the current year. Against the continuing inflationary environment, we have been able to implement further selling price increases at the beginning of 2023 and we have also secured at least 80% of this year's energy requirement. We remain confident that Forterra is well positioned to face these uncertain times. With our new Desford brick factory now operational, we also expect to benefit from the industry-leading efficiency this will offer, manufacturing a range of products ideally suited to displace imported bricks. We begin the year with minimal inventory, and are well practised in managing our capacity utilisation and cost base. Alongside this, we retain a strong balance sheet with minimal debt and have recently extended our credit facility. Based on our assumption of an underlying 20% fall in demand relative to 2022 the Board's expectations for the Group's 2023 performance remain unchanged. Customer inventory reduction is expected to disproportionately impact performance in the first half, resulting in full year revenue and earnings being second half weighted. In the medium-term we continue to expect to benefit from the attractive UK market fundamentals of population growth, housing undersupply, lack of domestic brick production capacity and an increasing focus on the quality of housing stock. Justin Atkinson Non-Executive Chairman 9 March 2023 09 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## CHIEF EXECUTIVE’S STATEMENT ## A YEAR OF STRATEGIC PROGRESS ## ❝ ## We delivered a strong result ## in 2022 and are proud to have ## constructed what we believe ## to be the largest and most ## efficient brick factory in Europe.” In 2022 we delivered tangible progress towards our strategic and sustainability goals alongside a strong financial result in the face of severe cost inflation and increasing economic uncertainty. The new Desford brick factory is now operational, with the first despatches to customers expected shortly. We are delighted to be delivering this state of the art factory, providing an increase in production capacity and market leading efficiency, within our stated timescales and inside the original £95m budget. This is particularly commendable given the level of cost inflation since we first announced the project in 2018. Turning to sustainability, aside from the obvious sustainability benefits provided by the new Desford factory, we have also made further progress toward our wider sustainability goals. During 2022 we entered into a 15-year Power Purchase Agreement (PPA) which will see us receive, from 2024, approximately 70% of our electricity from a dedicated solar farm. The large-scale 150 acre solar farm that this commitment will facilitate, is now under construction, helping decarbonise the UK’s electricity supply. Alongside this, in accordance with our energy strategy, we have also invested in our own on-site solar generation capability. Approximately 16% of the electricity required by the new Desford factory will be provided by cost-effective roof mounted solar. ## STEPHEN HARRISON 10 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 STRATEGIC REPORT We are pleased with our financial performance in 2022 which has been delivered against a headwind of continuous cost inflation. Whilst we have maintained strict cost discipline, including an effective energy procurement strategy, we have been steadfast in raising our selling prices to recover what felt like constantly increasing input costs. We do need to be mindful however, that our margins remain below 2019 pre-pandemic levels, highlighting the importance of continuing to raise prices in the face of a rising cost base. I should also mention the performance of our Bison Roofing business, which comprises the majority of our Bespoke Products segment. This business has had arguably its best ever year, delivering a contribution to EBITDA of approximately £10m before overhead allocations, rewarding the hard work and dedication of that team. It would be remiss of me at this stage not to acknowledge that this is my final Chief Executive's Statement at Forterra. Having been Chief Executive for the last 10 years, leading the business through a carve-out from our former parent, through private equity ownership, and an IPO to become an established listed company, personally I now feel it is time for a change, and I will step down ahead of the AGM in May. I would like to take this opportunity to personally thank everyone across the business for their constant hard work and dedication, our success is only possible due to the efforts of our employees and I am most grateful for all the support I have received during my time as Chief Executive. I firmly believe that I leave the business in a strong position with a clear strategy and well-placed to face any future challenges. Following a thorough recruitment and selection process led by the Nomination Committee, the Bizard have appointed Neil Ash as my successor and I have no doubt that, alongside a strong Executive Committee, he has the personality, skills and experience required to lead the Group to further success. # 2022 results Revenue for the year ended 31 December 2022 was £455.5m (2021: £370.4m) an increase of 23.0%. Earnings before interest, tax, depreciation and amortisation (EBITDA) as stated before exceptional items were £89.2m (2021: £70.4m). Profit before tax before exceptional items increased to £70.6m (2021: £50.7m), an increase of 39.3%. Earnings per share (EPS) as stated before exceptional items were 26.4p (2021: 17.5p). Basic EPS after exceptional items was 27.2p (2021: 19.9p). ![img-0.jpeg](img-0.jpeg) # 2022 Business review # Bricks and Blocks We have a unique combination of strong market positions in both clay brick and concrete blocks. We are also the only manufacturer of the iconic and original Fletton brick sold under the London Brick brand. Fletton bricks were used in the original construction of nearly a quarter of England's existing housing stock and are today used to match existing brickwork by homeowners carrying out extension or improvement work. We operate nine brick manufacturing facilities across the country with a total installed production capacity which will increase to approximately 675 million bricks per annum once the new Oestord brick factory reaches full output. We are also a leader nationally in the aircrete block market, operating two Thermalite block facilities in the Midlands and South of England. In addition, our aggregate block business has a leading position in the important Southeast and East of England markets with two well located manufacturing facilities in this geography. This segment also includes Formpave, the Group's concrete block paving business. # £30m Investment in redeshoping our Wilrescale brick factory # c.70% of our electricity needs to be sourced from a solar farm in central England from 2024 11 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## CHIEF EXECUTIVE’S STATEMENT ## CONTINUED Trading and results spring although, by the summer, a further increase The performance of the Bricks and Blocks segment in energy costs triggered another run of input cost is characterised by resilient demand, meaning inflation, necessitating an additional 15% increase that our sales were generally limited by production in the majority of our brick selling prices, which was capacity, whilst rapidly increasing costs required delivered at the beginning of October. Cumulatively, us to adopt a dynamic approach to pricing we increased our brick prices by over 50% in the our products. year, although 2022 revenue does not reflect the full benefit of this. This was delivered alongside Bricks and Blocks sales revenues were £370.2m, significant price increases on our other products an increase of 24.2% on the prior year comparative during the year. (2021: £298.1m). Sales volumes were generally in line with 2021, limited by production capacity Towards the end of 2022, we again entered into and low inventories as opposed to market demand. pricing discussions with our customers as we sought to recover a further increase in energy costs Segmental EBITDA stated before exceptional items, that will feed through in 2023, with our forward totalled £85.5m (2021: £70.5m), an increase of 21.3%. purchasing strategy successfully deferring a degree EBITDA margin was 23.1% (2021: 23.6%) with selling of energy cost inflation from 2022 into 2023. price increases generally following cost increases Additionally, in common with many other companies, and production challenges at the old Desford we anticipate further staff cost inflation in 2023. brick factory and the aircrete block business also weighing on margins. Bespoke Products Our Bespoke Products segment focuses on Bricks and Blocks specification-led, made-to-order products comprising both precast concrete and chimney | | 2022 | 2021 | | | --- | --- | --- | --- | | Before exceptional items | £m | £m | and roofing solutions, much of which is customised | | Revenue 370.2 298.1 | | | to meet the customer’s specific needs. | | EBITDA before overhead allocations 109.5 90.5 | | | Precast concrete products are designed, | | Overhead allocations (24.0) (20.0) | | | manufactured and shipped nationwide under the | Bison Precast brand from two facilities situated in EBITDA 85.5 70.5 the Midlands. Our Red Bank range of terracotta and EBITDA margin before overhead allocations 29.6% 30.4% concrete chimney and roofing products are made EBITDA margin after overhead allocations 23.1% 23.6% at a single facility in the Midlands. Our products include: beam and block flooring including Jetfloor, Pricing which was the UK’s first suspended ground floor Whilst the elevated levels of cost inflation experienced system to use expanded polystyrene blocks through 2022 have been unwelcome, we have combined with a structural concrete topping to demonstrated our ability to raise our own selling provide high levels of thermal insulation; hollowcore prices in response. floors alongside associated staircases and landings which are used for upper floors of multi-family At the end of 2021 we informed our customers that and commercial developments, structural precast we would no longer be able to offer annual pricing components including precast concrete walls used agreements and instead we would take a dynamic in applications such as hotels and prisons, and approach to pricing, we also amended our trading concrete beams used in the construction of building terms to require a single month’s notice of price frames as well as stadia components; architectural increases as opposed to the previous three. precast concrete façades, in a variety of finishes including brick facings; and Red Bank chimney pots, We increased our brick prices on three occasions flue systems, ridge tiles and air bricks. in 2022. We started the year with a brick price increase of c.16% effective 1 January 2022 but it was soon clear that this would be insufficient and we announced a further c.12% price increase effective 1 April. Cost inflation abated somewhat during the 12 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 STRATEGIC REPORT # Trading and results Precast concrete flooring products represent by far the largest component of this segment by revenue and profitability. Demand for these products remained strong for most of the year although there was a noticeable softening towards the end of the year. Segmental turnover in the year was £90.1m (2021: £76.1m). The strong segmental result was driven by the performance of the Bison flooring business, operating from the Hoveringham factory in Nottinghamshire, with this factory delivering what we believe is a record result. Floor beam sales volumes increased 9% relative to 2021 as we maximised output from the single flooring factory. We implemented a dynamic pricing model, regularly adjusting selling prices on account of rising input costs. Segmental EBITDA stated before allocation of Group overheads was £9.7m (2021: £4.8m). After an allocation of Group overheads totalling £5.0m (2021: £4.9m) the segment reports an EBITDA of £3.7m (2021: loss of £0.1m) before exceptional items. # Our markets Our markets remained resilient throughout 2022 in the face of growing economic pessimism, although we did see signs of a softening in market conditions at the end of the year, particularly in demand for our precast concrete floor beams. Total UK brick consumption in 2022 is estimated at 2.5bn bricks of which a record 570m (representing 23% of total market demand) were satisfied by imports due to a continuing shortfall in domestic production capacity. UK housebuilding continues to fall short of Government targets with 204,061 new build homes estimated to have been completed in Great Britain during 2022, a slight increase on the 2021 total of 201,281 compared to the recently reiterated Government target of 300,000 new homes annually across the UK. Baspoke Products | Before exceptional items | 2022 £m | 2021 £m | | --- | --- | --- | | Revenue | 90.1 | 76.1 | | EBITDA before overhead allocations | 9.7 | 4.8 | | Overhead allocations | (6.0) | (4.9) | | EBITDA | 3.7 | (0.1) | | EBITDA margin before overhead allocations | 10.9% | 6.3% | | EBITDA margin after overhead allocations | 4.1% | - | STRATEGY MODEL ![img-1.jpeg](img-1.jpeg) 13 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 STRATEGIC REPORT # CHIEF EXECUTIVE'S STATEMENT ## CONTINUED Despite current and announced capacity investments, the UK brick industry still lacks the capacity required to meet demand. Current domestic production capacity of c.2.1 billion-day bricks per annum, remains lower than the pre-financial crisis figure of 2.6 billion, supporting the increase in brick imports seen in the year, with the number of imported bricks increasing by 35% relative to 2021. We know that our customers would rather buy British wherever possible because we can ensure provenance and quality supplied directly from stock, for prompt delivery with lower transportation costs. These market dynamics leave us ideally placed to substitute imports with production from our new brick factory at Desford. Whilst it is likely that deteriorating economic conditions will reduce demand for our products in the near term, the ability to displace imported bricks will insulate ourselves and other UK brick manufacturers from some of the fall in demand as our customers switch from imports to domestically manufactured products which are expected to become more freely available. Many analysts and commentators following the housebuilding sector expect demand for new housing to fall in 2023. As such, we are planning and resourcing our business accordingly, for a 20% fall in underlying demand relative to 2022. This decrease is mitigated to some extent by substitution of imported bricks although, in the shorter-term, the effects of customer inventory reduction will further exacerbate the fall in demand for our products. The outlook beyond 2023 is uncertain, although with customer inventory reduction primarily impacting the first half of 2023, mortgage rates now reducing and the major housebuilders reporting a steady recovery in reservation rates, we are optimistic that demand for our products will increase through 2025 and into 2024. In the medium-term, we believe that our markets will continue to benefit from attractive market fundamentals driven not only by a longstanding compounding shortage of housing in the UK but also continued population growth and increasing concern about the poor quality of much of the UK's housing stock. The recent increases in energy costs also increase the desirability of new energy efficient homes. — READ MORE ON PAGES 20 AND 21 ### Strategy and capital allocation Our strategy is laid out in more detail on pages 26 and 27 and is easily articulated as three pillars designed to provide sustained earnings and cash flow growth through: - expansion of capacity, enhanced efficiency and sustainability; - range expansion; and - new product innovation. This, along with our capital allocation policy, which is centred on delivering compelling returns to shareholders, leaves the Group well-placed to deliver long-term shareholder value. The Group's capital allocation priorities are summarised as follows: - strategic organic capital investment to deliver attractive returns; - attractive ordinary dividend policy with pay-out ratio of 55% of earnings; - bolt-on acquisitions as suitable opportunities arise in adjacent or complementary markets; and - supplementary shareholder returns as appropriate. In addition to dividends of £24.2m, during 2022 we returned a further £40.0m of surplus capital to our shareholders through a share buyback programme. This was delivered alongside total capital expenditure of £44.1m, which includes spend of £35.6m on our strategic projects at Desford and Winnecote, and an investment in further clay reserves at our strategic site at Swillington, where in due course we expect to construct a new brick factory. Despite these cash outflows we ended 2022 with a net debt (before leases) of only £5.0m (2021: net cash (before leases) £40.9m), demonstrating the ongoing strength of our operating cash generation. 14 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## NEIL ## ASH This balance sheet strength provides us with Our new Chief Executive assurance that we are well positioned to weather Following the announcement on 24 May 2022 any deterioration in economic conditions that that Stephen Harrison was to step down as we may face in the near future, whilst also giving Chief Executive, the Nomination Committee led us confidence that we can continue with our the search on behalf of the Board to identify programme of capital investment. We have indicated and recruit a replacement. Details of this process our intention to invest over £200m (in addition can be found on page 106. to Desford) in organic growth projects offering attractive returns on invested capital over the next Neil Ash will join the Company on 3 April 2023 decade, taking advantage of unsatisfied demand as Chief Executive Officer Designate. Neil will for our products whilst at the same time increasing be formally appointed to the Board ahead of the our efficiency and reducing greenhouse gas AGM in May with Stephen Harrison standing emissions. We also retain the balance sheet flexibility down at the same time. Stephen will remain an to add bolt-on acquisitions should appropriate employee until 24 May 2023. Neil joins Forterra opportunities arise and we continue to monitor from Etex, the Belgian headquartered international potential opportunities. We will pursue acquisitions lightweight building materials manufacturer where only where there is a clear strategic rationale and he most recently led the €2bn revenue Building where the value aspirations of sellers are realistic. Performance division. Neil has almost three decades of experience in the building materials sector where The Board continues to keep returns of capital prior to Etex he spent 15 years with Lafarge. to shareholders under review. Near-term trading performance, driven by market demand, committed capital expenditure on strategic projects, working capital impact of inventory build and the timing of future strategic capital projects to support growth ## ❝ are all key to this decision-making. ## Forterra is an exciting ## and successful business ## with opportunities for ## further growth.” Neil Ash Chief Executive Officer Designate ## OUR NEW CHIEF EXECUTIVE 15 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## CHIEF EXECUTIVE’S STATEMENT ## CONTINUED Organic capital investment This investment will expand the product range Construction of the new Desford brick factory is now manufactured at the factory providing a degree of virtually complete with bricks being manufactured diversification reducing our reliance on mainstream and the first despatches to customers expected housebuilding whilst increasing our total brick in the near future. We are extremely proud to be production capacity by around 1%. The factory delivering what we believe is the largest, most closed at the end of September 2022 and will begin efficient brick factory in Europe and expect to recommissioning in the final quarter of 2023. complete the factory within its original £95m During 2022 we also announced an innovative budget during a period of significant supply chain investment in the manufacture of brick slips, disruption and cost inflation. We would like to take or ‘thin bricks’ as they are sometimes known. this opportunity to pass on our thanks to everyone An investment of approximately £12m at our who has worked tirelessly over the last four years Accrington brick factory will facilitate the to deliver this project in the face of a variety of manufacture of up to 48 million brick slips per challenges, not least a global pandemic and the annum, minimising our investment through failure of the initially selected equipment supplier. utilising an existing kiln with only a small reduction This factory will be a fantastic asset to the business in the number of bricks that will continue to be going forward providing attractive returns for many manufactured alongside the new slips. The UK years to come. market for brick slips is currently estimated at The new factory will increase our effective brick around 120 million units annually with significant | production capacity by 22% and, with supportive | growth expected to be driven through growth | | --- | --- | | market conditions, is expected to increase our | of the modular construction market along with | | EBITDA by £25m in 2025. With greater market | growing demand for firesafe façade solutions | | uncertainty for the next few years, it is harder to | suitable for use in high-rise construction. | predict the exact increase in EBITDA that the factory Brick slips also offer several sustainability benefits, will deliver in the shorter-term. Should demand for reducing raw material and energy usage relative to our products decline for a period of time we will look the manufacture of traditional bricks, and with many to rationalise our production such that we maximise slips currently being cut from traditional bricks, the efficiency benefits associated with the new they can significantly reduce wastage. We recently factory and its lower cost of production. With its signed contracts with the equipment supplier and industry-leading efficiency, we still expect the factory we expect to be manufacturing brick slips in the first to materially benefit our results in the coming year half of 2024, although the ramp up to full production and in the medium-term we remain confident that could take a number of years as we increase our the strong fundamentals of the UK housing market, share of a growing market. coupled with the undersupply of domestically manufactured bricks, will enable the factory to Health, safety and wellbeing at least deliver the previously communicated The continuous improvement of our health and expected returns. safety performance remains our number one priority, working towards our goal of zero harm. We recognise Alongside our investment at Desford, we have that our workforce is our greatest asset, and we commenced the complete redevelopment of aim to provide a working environment that is free our smaller Wilnecote brick factory at a cost of accidents and ill health. We are committed to a of approximately £30m, which has increased four-year zero harm strategy with our 2022 focus from our previous estimate of £27m. This on health and safety behaviours and safety culture. investment will strengthen our position in the In 2023 our attention and messaging will continue architect-led commercial and specification to focus on our Golden Rules and zero harm, with market which includes residential, commercial, key topics being the responsibilities of supervisors school and hospital developments in a sizeable and emphasising the importance of colleagues market of around 400 million bricks per annum taking time to stop and think, not rushing and (approximately 18% of the UK brick demand). cutting corners. 16 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 STRATEGIC REPORT # Sustainability Sustainability has always been important for us, however, in recent years it is become embedded at the heart of everything we do. Today, sustainability sits at the core of every investment decision we make. We are focused on achieving challenging 2030 carbon-reduction targets whilst increasing our focus on the game-changing technologies which will allow our business to become net zero by 2050. During 2022 we have made demonstrable progress towards our sustainability goals. Firstly, the new Destond brick factory brings a significant sustainability improvement in comparison to the old factory it replaces, with the new factory having a 25% lower carbon footprint per brick. We have also further added to the new factory's sustainability credentials by spending approximately £2.5m to equip the new factory with roof mounted solar panels, that will supply around 16% of the factory's electricity demand, whilst also saving on the costs of transmission associated with grid supplied electricity. Each of our major investments going forward will enhance our sustainability credentials meaning that our strategy for growth sits hand-in-hand with sustainability, with every capital project assessed against sustainability criteria to ensure we maximise opportunities to enhance sustainability each time we deploy capital in our business. It is important to recognise that our products are inherently sustainable, they last for well over a century and require no maintenance throughout their lifetime. The bricks used to build an average family home have the same carbon footprint as a single passenger ticket flying from London to Singapore, however unlike this 13 hour flight, will last for around 150 years and provide family housing for generations to come. During 2022 we entered into a 15-year Power Purchase Agreement (PPA) with Lightsource bp, a leading international developer of large-scale solar projects which will see us receive around 70% of our electricity from 2025 from a dedicated solar farm. This represents a c £30m commitment to renewable energy over the period of the agreement which will also provide us with price security and stability, with construction of this facility now underway. Subsequent to this, we exercised an option to receive power from this facility a year earlier than initially contracted such that we now expect to be benefiting from this green electricity from 2028. For us to reach our net zero commitment we need to identify alternative fuels to fire our kilns and we remain committed to a programme of hydrogen trials. Supply chain challenges resulting in delays to the equipment needed to safely control the supply of hydrogen to the kiln, alongside shortages of the hydrogen itself, meant these trials weren't able to start as intended in 2022, however these have since commenced at the beginning of 2023. We have made faster progress with our trials of biomass as an alternative fuel. Our Kings Dyke London Brick factory and its Hoffman kilns were originally fired by coal, switching to gas in the 1990s, and we have identified the opportunity to replace a percentage of our gas usage with biomass whilst also reducing wastage through improving product quality by having a more evenly distributed heat throughout the kiln. We recognise that there is unlikely to be a single solution to decarbonising our business so alongside alternative fuels, we are also actively pursuing carbon capture solutions. This technology remains in its infancy and therefore focused on high concentrations of carbon dioxide, as such the emissions from many of our brick factories are actually insufficient for many carbon capture technologies in their current form. We have, however, partnered with a company with access to innovative carbon capture technology developed in the US and are working on a proposal to equip one of our factories with this technology. We are realistic as to the challenges of deploying carbon capture and it's usage on an industrial scale and will continue to engage with a variety of partners. — READ MORE ON PAGES 52 TO 57 Stephen Harrison Chief Executive Officer 9 March 2023 Research MP returns to see the new Destond brick factory redevelopment progress. Dr Luke Evans on site with Chief Executive, Stephen Harrison and Strategic Projects Director, George Stewart ![img-2.jpeg](img-2.jpeg) 17 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## WHAT WE DO AND OUR IMPACTS ## WHAT WE DO Security from the ground and we employ a highly skilled team to oversee Our brick business is built upon our clay reserves. their continued management and development. We have access to over 90m tonnes of clay which We are investing to ensure we have the clay on average will sustain our manufacturing operations reserves to sustain and grow our business into the for 50 years. Our mainstream brick factories are future. During 2022 we spent £1.8m securing 2.5m each adjacent to a quarry ensuring the raw material tonnes of reserves which we expect to support travels the shortest possible distance to the factory. development of a new brick factory at our Swillington site. In recent years, alongside the construction of Our mineral reserves also act as a barrier to entry, our new brick factory at Desford we spent £2.6m with there being extensive hurdles to any new on 5.7m tonnes of clay reserves ensuring the new entrant gaining the necessary permissions to extract factory has a reserve life beyond 30 years. mineral. Our mineral reserves represent our future Efficiency and scale We are also committed to a large-scale capital Our manufacturing facilities are the heart of our investment programme and expect to invest in business, providing both scale and efficiency of excess of £200m on new production capacity over output to support our leading market positions. the next decade. The £95m investment in our new Our factories are well invested and we plan to brick factory at Desford underlines our commitment spend c.£14m each year (on average) to ensure to Keeping Britain Building, adding an additional this remains the case, and that we continue to 22% to Group brick production capacity. modernise and update our manufacturing footprint. ## MANUFACTURING OUR RESOURCES Dedicated support End-to-end service Distribution of our products on a national scale is With many of our products, we offer further service enabled through our own fleet of c.180 specialist enhancements in the form of design, specification delivery vehicles. Operating our own vehicle fleet and installation services, especially where products differentiates us from our competition and gives are of a more bespoke nature, including our offsite full end-to-end control of our distribution and manufactured range of precast concrete products. customer service function. Our field-based This comprehensive, end-to-end service ensures commercial teams provide account management we remain easy to do business with and are a ## DISTRIBUTION AND SERVICE to customers, supported by a centralised support trusted delivery partner. function and technical service team equipped to advise on appropriate applications of our products. Residential at our core to supply on a national basis sets us apart from Our products service a wide range of markets, many other manufacturers. We enjoy strong, however, the majority of our output is directed longstanding relationships with our customers, towards the residential new build, and residential including major housebuilders, distributors and repair, maintenance and improvement (RM&I) builders’ merchants. Being agile to our customers’ ## BUILDING markets. Our complementary range of flooring needs and the demands of the market are key ## SUSTAINABLE COMMUNITIES and walling products coupled with the scale contributors to our success. Sustainability is embedded at the heart of our Our sustainability framework guides our approach business. Our goal is to Keep Britain Building to sustainability with three pillars: Planet, Product and our strategy focuses on doing so in a and People. sustainable manner. ## APPROACH ## A SUSTAINABLE 18 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## OUR IMPACTS • Quarrying has a lasting impact on the landscape. all benefit biodiversity along with, in some instances, ## All of our quarries are carefully managed in accordance a return to agricultural use. 90m with our operating permits. • By extracting clay from quarries next to the factories tonnes of clay • We are only able to quarry clay and other minerals where it is turned into bricks we minimise the impact reserves once the appropriate planning consents are obtained, of transporting our raw material. a process that can take many years. Our planning • We are committed to biodiversity and will increase constraints define restoration plans for our quarries, ## our tree planting utilising surplus space around our 50 defining how we must leave the site when our extraction quarries and factories. obligations have ceased. Restoration schemes may years of include bodies of water, wetlands, and woodland which production • Our factories and especially our kilns do emit greenhouse • We are making large reductions in our use of ## gases. We are investing in our business to enhance plastic packaging. £200m efficiency and reduce these emissions. Our strategy • We purchase raw materials from suppliers, supporting Investment over the focuses on efficient manufacturing, allowing us to reduce jobs in our supply chain. The vast majority of our raw next decade our energy usage making our business more sustainable. materials are either obtained from our adjacent quarries • We limit our mains water usage through rainwater or are purchased from UK suppliers. ## harvesting and recycling systems. 25% • We aim to invest further in electric powered mobile • Almost all of our manufacturing process waste is recycled plant where current technology allows. reduction in carbon back into our products. per brick from the new Desford factory • We are constantly investing in delivery vehicles and cars • We use state-of-the-art vehicle optimisation and scheduling ## with the latest emission-reducing engine technology. software to ensure we maximise the efficiency of our 90% Currently 90% of our fleet is the latest Euro VI compliant delivery fleet reducing unladen mileage as far as we can. Euro VI compliant and we expect the fleet to achieve full compliance in early delivery fleet 2024. Our latest vehicles also have significantly reduced fuel consumption relative to their older equivalents. • We continued to explore the use of biodiesel and other alternative fuels where cost and availability allow. • Our products help build high-quality energy-efficient • We provide employment for approximately 1,800 people, homes that last for generations. often in rural areas with few employers, playing an integral role in our local communities. • With a shortage of domestically manufactured bricks in the UK, our products are essential in building the houses the country needs. • We have set stretching decarbonisation and plastic • At the end of their life our products are recyclable. reduction targets with these now embedded in our We are committed to training and developing both our long-term incentive plan as well as our credit facility current workforce and our workforce of tomorrow. which is now sustainability linked. • We seek to limit waste, recycling wherever possible and • 100% of our electricity came from renewable sources are now effectively a zero waste to landfill business. in 2022. We are investing in adding our own dedicated renewable generation capacity to the grid. 19 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## OUR BUSINESS MODEL ## INPUTS/STRENGTHS WHAT WE DO ## OUR PEOPLE R R E S O U R N U F A C T U R Their commitment, expertise and U C E A I N O S M G diversity are key to our success ## OUR RESERVES In 2022 over 90% of the clay we used in our manufacturing processes was sourced from A B L E A A I N P P S T R O our own reserves U A S C A H ## OUR FINANCIAL ## STRENGTH We have a strong balance sheet and are focused on growing ourcash flow over the long-term ## OUR PARTNERS We have longstanding relationships with our supply chain partners and our customers D E I I C B L E S V U I B T R R ## OUR BRANDS L D A I B S E I N A I N U T N D G S U S T I O N A C O I E S Our strong portfolio of brands M M U N I T isa key asset — READ MORE ABOUT WHAT WE DO AND OUR IMPACTS ON PAGES 18 AND 19 20 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## VALUE CREATION ### OUR VALUES SHAREHOLDERS An attractive dividend policy, supported Safety first bystrong cash generation and a robust Safety is our number one priority, and our ambition balance sheet. is a zero-harm workplace where everyone feels safe. We are each responsible for our own safety, health, and wellbeing, and for creating an environment where ### everyone feels confident to challenge unsafe practices. EMPLOYEES People matter Through equity ownership, and committed We treat everyone fairly, involve them in decision-making investment in career and personal and have open communication channels. Our commitment development we ensure our people prosper. to inclusion and equality ensures the business has a diverse workforce. Supported by our training and development programmes this creates an engaging workplace that attracts and retains successful people. ### SUPPLIERS Customer focus Our business values depend on our customers. We work collaboratively with our supply We work hard to develop strong, mutually beneficial partners to ensure value is delivered relationships that ensure we are always a preferred throughout our supply chain. supplier. We are focused on supporting our customers by improving the sustainability of our products. Trusted to deliver ### COMMUNITIES Working to the highest standards of compliance and environmental management – and mindful of our responsibility as a good neighbour – we manufacture We supply the materials to build sustainable and supply industry-leading products, delivering them communities, creating local employment and when and where our customers need them. ensuring we do business in a sustainable way. Driving improvement We embrace change and are open to new initiatives ### that bring better ways of working which benefit the CUSTOMERS environment. Whether through developing new products, reducing our use of plastics and cutting carbon emissions, we endeavour to continually improve all aspects of our By continuously engaging with our business and performance. longstanding, loyal customer base, we offer industry-leading customer service. 21 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 UK housing market The residential construction sector in the UK ## MARKET OVERVIEW consists of private and public (social) housing and includes both new build and RM&I of existing properties. New build activity is generally measured by the number of housing starts and the number of housing completions, which remained relatively flat in 2022 with a 1% increase in completions year on year according to CPA estimates. ## Robust longer-term market After a positive first half, the housing market softened in the second half of 2022 although ## fundamentals remain, driven demand for our products remained resilient with ## by structural undersupply customers continuing to purchase products that were, until recently in short supply. ## of new homes in the UK. Following the September mini-budget and | Despite the wider economic uncertainty that | subsequent sharp increases to mortgage rates, | | --- | --- | | became increasingly prevalent towards the end | the demand for new housing dropped rapidly | | of 2022, with increasing interest rates and the | with the large-scale housebuilders reporting | | corresponding reduction in mortgage affordability | a significant fall in their reservation rates. | affecting short-term demand for new homes, In 2023 however, whilst demand for our products we remain confident that in the medium-term, ## 25% has in the short-term reduced as our customer demand for housing in the UK will continue to base seek to reduce both their work in progress New build segment of benefit from not only the compounding shortage and inventories of construction products, there are UK construction market in supply, but also from a growing focus on the green shoots emerging as the major housebuilders energy efficiency that new homes provide. report robust customer interest and recovering Our markets reservation rates as we head into the spring. The Our products are used almost exclusively in economic environment remains challenging, but construction within the UK. Demand for these is notably different from the 2008 global financial products is therefore directly related to levels crisis. Under the CPA’s most recent January 2023 of UK construction activity. Levels of, and forecast, housing starts are forecast to fall by 13% growth in, construction activity are influenced in 2023; in 2008 and 2009 the relative fall was 39% by macroeconomic factors, including general and 21% respectively. Unlike in 2008, unemployment economic prosperity, consumer confidence, remains very low and mortgages are freely available ## 37% Government policy, house prices, interest rates with rates dropping significantly since the sudden RM&I segment of and mortgage availability. The UK construction increases in the autumn of 2022. UK construction market market can be segmented between new build Many analysts and commentators following and repair, maintenance & improvement (RM&I), the housebuilding sector expect demand to fall as well as residential or non-residential; with our further than the CPA have forecast. As such, products predominantly being used within the we are planning for, and resourcing our business residential construction sector. In 2022, approximately 97% of the Group’s revenue was derived from sales to residential construction UK demand vs. domestic capacity (million) applications, of this we believe c.66% of our revenue was driven by new build residential construction 3,000 with c.31% directed to RM&I. In addition to large- ## 38% scale housebuilders, the Group’s customers also 2,500 include builders’ merchants and distributors who Commercial & Specification segment sell our products to a broad range of end-users, 2,000 of UK construction so a degree of estimation is inherent within these market end-use figures. 1,500 Million bricks On this basis, the performance of the UK housing 1,000 market is of key importance to the prosperity of our business, however the range of RM&I products that 500 the business offers, most notably our London Brick range widely used in home extensions across the 0 2007 2014 2022 South of England and Midlands, assists in mitigating UK production Total demandImports exposure to housing market cycles. Source: BEIS, HMRC 22 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 STRATEGIC REPORT accordingly, for a 20% fall in underlying demand relative to 2022, with this decrease being mitigated to some extent by substitution of imported bricks although in the shorter-term, the effects of customer inventory reduction will further exacerbate the fall in demand for our products. The outlook beyond 2023 is uncertain, although with customer inventory reduction working through in the first half of 2023 and with mortgage rates now reducing and the major housebuilders reporting a steady recovery in reservation rates, we are optimistic that demand for our products will increase in 2024. The c.204,000 new homes completed in 2022 remains well short of the recently reiterated Government target of 300,000 new homes annually across the UK. This continues to underline the compounding supply shortage of housing in the UK. Longer-term demand is further intensified by continued population growth and a growing concern about the poor quality and energy efficiency of much of the UK's housing stock. These attractive market fundamentals remain relevant as we enter 2023 and leave us confident in the medium-term future of the new build housing market in the UK. ### UK demand versus domestic capacity Due to the weight of our products, transport costs are high and penetration of imported bricks into the UK is driven by shortage of domestic supply, and reached 23% of total consumption in 2022. Imported bricks fall into two categories: a core element of specialist, often architecturally driven products not available in the UK, and additional imports that serve demand that cannot be met due to capacity constraints of the UK brick manufacturing industry, where domestic production capacity remains, despite ongoing investment, below the pre-financial crisis levels of c.2.6 billion bricks per annum. This second category fluctuates depending on availability of domestically produced bricks and as such, in line with the supply chain challenges seen across the wider construction industry since the pandemic, increased further in 2022. This dynamic supports the opening of our new Deaford brick factory, as despite the present slowdown in our end markets, our customers value the ensured provenance and quality of a domestically produced brick, supplied directly from stock, for prompt delivery with lower transportation costs. ### Commercial market The commercial and specification segment of the UK brick market accounts for an estimated 400 million bricks per annum, compared to a total clay brick market of c.2.5 billion. This sector focuses on architecturally driven projects such as hospitals, schools, offices, universities, and other public buildings; and is an area of the market in which Forterra are historically under-represented. Our redeveloped Wilnecote brick factory, scheduled to be recommissioned in 2023, will allow further penetration into this market that currently utilizes a significant level of imports, broadening our offering and diversifying the end-use markets that we serve. ### Sustainable buildings Whilst it is important to recognise that our products are inherently sustainable, lasting for well over a century and requiring no maintenance throughout their lifetime, we can always do more. Facilitating the move to sustainable buildings through support of offsite, and modern methods of construction is key to our strategy, enabling improved construction efficiency and less wastage. These products can facilitate ambitious accelerated build targets for UK construction, whilst also recognising the role of our products in supporting the transition to a lower carbon economy. Our TCFD disclosure shown on pages 68 to 75 details the perceived opportunities as well as risks relevant to this transition, and what offsite construction may demand fewer traditional products such as bricks and blocks, we continue to innovate and develop new products to serve this growing market and have further increased our resource in this area. Our £12m investment at our Accrington factory to enable the manufacture of brick slips is a prime example of seizing these opportunities, with the significant sustainability benefits that this project brings relative to current brick slip production which often involves cutting the face from a traditional brick and discarding the rest of the brick. Housing completions vs. Government target ![img-3.jpeg](img-3.jpeg) ![img-4.jpeg](img-4.jpeg) 23 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 | | PEOPLE CUSTOMERS SUPPLIERS COMMUNITY AND | | | | SHAREHOLDERS | | --- | --- | --- | --- | --- | --- | | SECTION 172 STATEMENT | | | | ENVIRONMENT | | | | We aim to create an | Our customers are essential | Working collaboratively with | We believe in putting | The core of our strategy | ## ENGAGING WITH OUR STAKEHOLDERS engaging workplace, to our business, and evolving our supply partners to ensure communities at the heart is to create sustainable attracting and retaining to meet their changing needs value is delivered throughout of everything we set out shareholder value talented people is core to our success our supply chain to achieve We are committed to Our values Aligning with our values Aligning with our values Aligning with our values Aligning with our values Aligning with our values ## engaging with all of our ## stakeholders, ensuring that Business engagement Business engagement Business engagement Business engagement Business engagement Safety first • Provision of regular employee • Our commercial team continually • Direct engagement with suppliers • Supported numerous local clubs, • Results presentations were ## strong relationships are updates across a number engaged directly with customers through the procurement team organisations and charities with delivered on release of full People matter of channels including social and our sales office form the first • Increased forecasting of donations through the Forterra year and interim results ## built and maintained. These media, featuring regular point of customer contact requirements and management Community Fund • Meetings were held between podcasts from the CEO • Regular, often weekly, structured of bottlenecks • We engaged in regular dialogue management and both current ## relationships are essential Customer focus and other members of the meetings with customer with local communities across and potential shareholders • Working with supply partners Executive Committee procurement teams to review our manufacturing locations ## to our ongoing success. to minimise inflationary impacts • The investor relations Trusted to deliver • CEO, Stephen Harrison forward orders, availability and • Charity funding match available section on our website • The Executive Committee undertook an annual tour any service issues to employees, aiding fundraising has facilitated easy access maintains relationships with Our key stakeholders are at the core of everything of the business conducting • Clear communication of our input efforts to announcements, key dates directors of the Group’s key we do. The Board remain fully appreciative of the Driving improvement face to face ‘town hall talks’ cost inflation pressures facilitated and publications suppliers with discussions impact of our strategy and business model across at each location constructive discussions around covering health, safety and • Our management regularly our stakeholder group and recognise that different • Our Employee Forum gives necessary selling price increases wellbeing and longer-term engaged with the analyst employees the opportunity sustainability goals alongside community who then stakeholders may have opposing views. | | to engage directly with senior | day-to-day trading | disseminated research to | | --- | --- | --- | --- | | More information about our strategy can be found on pages 26 | leadership, including members | | both current and potential | | and 27, and the business model can be found on pages 20 and 21. | of the Board | | | shareholders The following details engagement across our stakeholder group, • Monthly ‘town hall talk’ both throughout the business and at Board level. management briefings equip local management to disseminate information to the wider workforce on a face-to-face basis • ‘HearMe’ employee engagement survey conducted | | | | | | | | Board engagement | Board engagement | Board engagement | Board engagement | Board engagement | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | H | S 1 7 | 2 ( 1 | ) O | | | | | | | | | I | T | | | F | T | | | | | | | | W | | | | | H | E | • Board members undertake | • Executive Directors regularly | • Sustainability is a key priority | • Board actively involved in | • Our AGM enabled shareholders | E | | | | C | C | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | N | | | O | | | regular health and safety walks | meet with customers | for the Board and the Risk and | sustainability strategy and | direct access to the Board | | | | A | | | M | | | | | | | | | | D | | | | | P | | | | | | | | | R | | | | | A | | at factory sites presenting the | • Corporate event held where | Sustainability Committee | regularly updated regarding | • Our Chairman continued to offer | | O | | | | | | N | | | | | | | | C | | | | | | | I E | opportunity for 1-1 engagement | Non-Executive Directors meet | • Risks to the supply chain including | progress in this area | and hold meetings with major | | C | | | | | | | S | | | | | | | A | | | | | | | | • Martin Sutherland (Non- | with key customers gaining | energy procurement are regularly | • Risk and Sustainability Committee | shareholders | A | | | I N | | | C | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | Executive Director) attends | insight into their perspectives | discussed at both Board and | actively engaged in consideration | • The Remuneration Committee | | | S | | | | T | | | | | | | | | E | | | | | 2 | the Employee Forum held | | Risk and Sustainability Committee | of both transitional and physical | Chairman was available to meet | | | I | | The Board consider, both individually and | | | 0 | | | | | | | | I T | | | | | 0 | up to four times per year | | meetings | climate risks | with shareholders to discuss | | L | | | collectively, that they have acted in good | | | 6 | | | | | | | I | | | | | | | • Defining culture and leading from | | | | remuneration matters, conducting | | B | | | | faith to promote the success of the | | | | | | | | | I | | | | | | | the top is a key Board priority | | | | a shareholder consultation ahead | S N Company for the benefit of the Company’s of proposing revisions to our O members as a whole in their decision- Remuneration Policy P S making throughout 2022. Outcomes Outcomes Outcomes Outcomes Outcomes E | R | | • The Employee Forum met on | • Ability to supply our customers | • Managing supply chain pressures | • Donated over £100,000, a | • Shareholders are kept informed | | --- | --- | --- | --- | --- | --- | --- | | ’ | In making a declaration that they have | | | | | | | S | | a quarterly basis, discussing | with the product they need is core | through secondary and multiple | significant increase over the prior | of Group performance | fulfilled their responsibilities in this matter R a range of topics including health to our new Desford brick factory sources of supply year, to charitable causes in 2022 • Sustainability metrics of | O | the Board have considered the matters | | | | | | | --- | --- | --- | --- | --- | --- | --- | | T | | and wellbeing, pay, inflation and | which is now operational | • Securing additional transport | • Forterra Carbon Management Plan | decarbonisation and plastic | | C | detailed in s172(1) paras (a-f). The table | cost of living challenges along | | capacity | formalised, detailing our roadmap | reduction now incorporated | • Necessary selling price increases E R opposite highlights examples of how the with charitable giving were delivered on multiple to meeting our challenging into our long-term incentive I | D | Directors have satisfied their duty under | | • To support our workforce with | occasions throughout the year | decarbonisation targets | Performance Share Plan | | --- | --- | --- | --- | --- | --- | --- | | | | s172 during the year. | the cost of living challenges | | | • Enhanced engagement with ESG | | | | | a £50 supermarket voucher | | | ratings agencies including CDP, | | | | | was given to all employees | | | MSCI and Sustainalytics | followed by a one-off £500 • Fully compliant TCFD disclosure cost of living award for those continues to develop, ensuring employees not paying the stakeholders are informed of the higher rate of income tax climate risks facing our business 24 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ### PEOPLE CUSTOMERS SUPPLIERS COMMUNITY AND SHAREHOLDERS ### ENVIRONMENT We aim to create an Our customers are essential Working collaboratively with We believe in putting The core of our strategy engaging workplace, to our business, and evolving our supply partners to ensure communities at the heart is to create sustainable attracting and retaining to meet their changing needs value is delivered throughout of everything we set out shareholder value talented people is core to our success our supply chain to achieve Our values Aligning with our values Aligning with our values Aligning with our values Aligning with our values Aligning with our values Business engagement Business engagement Business engagement Business engagement Business engagement Safety first • Provision of regular employee • Our commercial team continually • Direct engagement with suppliers • Supported numerous local clubs, • Results presentations were updates across a number engaged directly with customers through the procurement team organisations and charities with delivered on release of full People matter of channels including social and our sales office form the first • Increased forecasting of donations through the Forterra year and interim results media, featuring regular point of customer contact requirements and management Community Fund • Meetings were held between podcasts from the CEO • Regular, often weekly, structured of bottlenecks • We engaged in regular dialogue management and both current Customer focus and other members of the meetings with customer with local communities across and potential shareholders • Working with supply partners Executive Committee procurement teams to review our manufacturing locations to minimise inflationary impacts • The investor relations Trusted to deliver • CEO, Stephen Harrison forward orders, availability and • Charity funding match available section on our website • The Executive Committee undertook an annual tour any service issues to employees, aiding fundraising has facilitated easy access maintains relationships with of the business conducting • Clear communication of our input efforts to announcements, key dates directors of the Group’s key Driving improvement face to face ‘town hall talks’ cost inflation pressures facilitated and publications suppliers with discussions at each location constructive discussions around covering health, safety and • Our management regularly • Our Employee Forum gives necessary selling price increases wellbeing and longer-term engaged with the analyst employees the opportunity sustainability goals alongside community who then to engage directly with senior day-to-day trading disseminated research to leadership, including members both current and potential of the Board shareholders • Monthly ‘town hall talk’ management briefings equip local management to disseminate information to the wider workforce on a face-to-face basis • ‘HearMe’ employee engagement survey conducted | Board engagement | Board engagement | Board engagement | Board engagement | Board engagement | | --- | --- | --- | --- | --- | | • Board members undertake | • Executive Directors regularly | • Sustainability is a key priority | • Board actively involved in | • Our AGM enabled shareholders | | regular health and safety walks | meet with customers | for the Board and the Risk and | sustainability strategy and | direct access to the Board | | at factory sites presenting the | • Corporate event held where | Sustainability Committee | regularly updated regarding | • Our Chairman continued to offer | | opportunity for 1-1 engagement | Non-Executive Directors meet | • Risks to the supply chain including | progress in this area | and hold meetings with major | | • Martin Sutherland (Non- | with key customers gaining | energy procurement are regularly | • Risk and Sustainability Committee | shareholders | | Executive Director) attends | insight into their perspectives | discussed at both Board and | actively engaged in consideration | • The Remuneration Committee | | the Employee Forum held | | Risk and Sustainability Committee | of both transitional and physical | Chairman was available to meet | | up to four times per year | | meetings | climate risks | with shareholders to discuss | | • Defining culture and leading from | | | | remuneration matters, conducting | | the top is a key Board priority | | | | a shareholder consultation ahead | of proposing revisions to our Remuneration Policy | Outcomes | Outcomes | Outcomes | Outcomes | Outcomes | | --- | --- | --- | --- | --- | | • The Employee Forum met on | • Ability to supply our customers | • Managing supply chain pressures | • Donated over £100,000, a | • Shareholders are kept informed | | a quarterly basis, discussing | with the product they need is core | through secondary and multiple | significant increase over the prior | of Group performance | | a range of topics including health | to our new Desford brick factory | sources of supply | year, to charitable causes in 2022 | • Sustainability metrics of | | and wellbeing, pay, inflation and | which is now operational | • Securing additional transport | • Forterra Carbon Management Plan | decarbonisation and plastic | | cost of living challenges along | • Necessary selling price increases | capacity | formalised, detailing our roadmap | reduction now incorporated | | with charitable giving | were delivered on multiple | | to meeting our challenging | into our long-term incentive | | • To support our workforce with | occasions throughout the year | | decarbonisation targets | Performance Share Plan | | the cost of living challenges | | | | • Enhanced engagement with ESG | | a £50 supermarket voucher | | | | ratings agencies including CDP, | | was given to all employees | | | | MSCI and Sustainalytics | followed by a one-off £500 • Fully compliant TCFD disclosure cost of living award for those continues to develop, ensuring employees not paying the stakeholders are informed of the higher rate of income tax climate risks facing our business 25 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## OUR STRATEGY TO ## KEEP BRITAIN BUILDING ## Our strategy for growth allows ## us to deliver on our purpose, ## Keeping Britain Building, enabling ## the development of thriving ## communities and infrastructure. ## OUR PURPOSE ## KEEPING ## BRITAIN ## BUILDING 26 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 Our strategy is focused upon organic investment Sustainability at the heart of our strategy across three interconnected pillars, allowing us We mean it when we say sustainability is at the heart to take advantage of favourable long-term market of everything we do. We recognise that our products dynamics driven by a persistent undersupply of have a significant carbon footprint, but it is important housing, alongside shortfalls of the domestically to remember that this is currently the case with all manufactured building products needed to deliver heavy building materials. Our products will provide ## £200m the quality new housing the country requires. quality homes lasting over 150 years and as such are 10-year strategic inherently sustainable. We are committed to reducing A strategy enabled by our cash-generation investment pipeline our carbon emissions by 32% by the end of the in addition to Desford and balance sheet strength decade and then to net zero by 2050. Our strategic capital investment projects form part of a 10-year investment pipeline totalling over Our sustainability strategy is completely aligned £200m, in addition to Desford, across both our clay with our wider strategy. By investing in our factories and concrete businesses. Whereas our strategy is to make them more efficient, we reduce our energy focused upon organic growth, should opportunities costs, our emissions and therefore our carbon arise we will selectively look at acquisitions, whilst compliance costs. Our strategy to develop new also recognising that the consolidated nature of products also has sustainability at its core. You can ## 32% our industry is likely to limit opportunities within our find out more about our commitment to sustainability core product groups. in our Sustainability Report on pages 42 to 75. reduction in our carbon emissions by the end of the decade (vs. 2019) ## DELIVERED THROUGH OUR STRATEGIC PRIORITIES ## GROWING DEVELOPING CREATING STRENGTHEN THE CORE RANGE EXPANSION PRODUCT INNOVATION AND DEVELOPMENT Grow capacity, improve cost efficiency Access new higher margin and sustainability. market segments with an Develop and launch new products. expanded product offering. Innovation is at the core of our strategy Growing sustainably and key to our continued success. | Exemplified by the new Desford brick | | Developing sustainably | | | | | --- | --- | --- | --- | --- | --- | | factory, which is now operational. | | Our redeveloped Wilnecote factory, | | Creating sustainably | | | | | due to be recommissioned in 2023 | | Our new brick slips production line at | | | — | READ MORE ON PAGES 28 AND 29 | | | | | | | | will offer further expansion into the | | Accrington will not only allow a cost- | | | | | commercial and specification market | | effective entry into a new market but also | | | | | as well as a wide breadth of efficiency | | offer significantly improved sustainability | | | | | and sustainability benefits. | | credentials versus cutting bricks. | | | | | — | READ MORE ON PAGES 30 AND 31 | — | READ MORE ON PAGES 32 AND 33 | 27 | FORTERRA PLC | STRATEGIC REPORT STRATEGIC REPORT | FORTERRA PLC | | --- | --- | --- | | ANNUAL REPORT AND ACCOUNTS | | ANNUAL REPORT AND ACCOUNTS | | 2022 | | 2022 | ## GROWING ## Grow capacity, +200% Old New ## improve cost Production 60m Production ## 180m capacity at old capacity at new bricks ### Desford facility bricks Desford facility ## efficiency and ## sustainability. The strength of our business lies in its core and we are committed to the protection and expansion of this core. By investing in expanding and renewing our New Desford timing asset base and through delivering manufacturing excellence we will increase production output, improve cost efficiency and become more sustainable, improving returns for shareholders. | 2022 | 2023 | 2024 | 2025 | | --- | --- | --- | --- | | Commissioned | Second kiln | Full production | Full financial | | | commissioned | runrate achieved | contribution | 28 29 | FORTERRA PLC | STRATEGIC REPORT STRATEGIC REPORT | FORTERRA PLC | | --- | --- | --- | | ANNUAL REPORT AND ACCOUNTS | | ANNUAL REPORT AND ACCOUNTS | | 2022 | | 2022 | ## SUSTAINABLY ## New Desford – ## The largest and ## most efficient brick ## 25% less carbon footprint ## per brick than old factory in Europe. Desford brick factory With construction now almost complete and manufacturing having commenced, this market- leading new factory will produce bricks with acarbon footprint approximately 25% lower thanthose from the old factory it replaces. With a total investment of c.£95m, we expect the new factory to be manufacturing 180 million bricks per annum once at full capacity, enough to construct25,000 new homes and provide our customers withan additional 120 million domestically produced bricks, increasing our brickproduction capacity byc.22%. 28 29 | FORTERRA PLC | STRATEGIC REPORT STRATEGIC REPORT | FORTERRA PLC | | --- | --- | --- | | ANNUAL REPORT AND ACCOUNTS | | ANNUAL REPORT AND ACCOUNTS | | 2022 | | 2022 | ## DEVELOPING ## Expanding ## the range. Our business has traditionally been focused towards the mainstream residential construction and associated repair, maintenance and improvement market. We currently have a lesser presence in the architect-led commercial and specification market. Our strategy is to broaden our range of bricks to grow our presence in this market where customers demand the highest levels of quality, but where selling prices and margins are higher. 30 31 | FORTERRA PLC | STRATEGIC REPORT STRATEGIC REPORT | FORTERRA PLC | | --- | --- | --- | | ANNUAL REPORT AND ACCOUNTS | | ANNUAL REPORT AND ACCOUNTS | | 2022 | | 2022 | ## SUSTAINABLY ## Redeveloping our ## Wilnecote brick ## £30m ## factory to grow our investment in redevelopment at our ## Wilnecote brick factory share in the attractive ## commercial and ## specification market. The redevelopment of our Wilnecote brick manufacturing site has commenced, and is due for completion later in 2023. This investment will expand the product range manufactured at the factory providing diversification and strengthening our position in the architect- led commercial and specification market which includes residential, commercial, school and hospital developments. 30 31 | FORTERRA PLC | STRATEGIC REPORT STRATEGIC REPORT | FORTERRA PLC | | --- | --- | --- | | ANNUAL REPORT AND ACCOUNTS | | ANNUAL REPORT AND ACCOUNTS | | 2022 | | 2022 | ## CREATING ## Develop and launch ## new and sustainable ## products. ## 10% of revenue targeted from Our core products have not changed for many new and sustainable years and whilst they remain the preferred choice products by 2025 for traditional residential construction, there are opportunities to capture new markets by offering both existing and new customers products suitable for differing and modern methods of construction. We are committed to the development of new product ranges with a focus on providing innovative solutions for the rapidly growing offsite and modular construction markets. In addition, our ambition is to develop solutions that will allow the beautiful, durable and firesafe clay brick to again become a cladding ofchoice for high-rise buildings. 32 33 | FORTERRA PLC | STRATEGIC REPORT STRATEGIC REPORT | FORTERRA PLC | | --- | --- | --- | | ANNUAL REPORT AND ACCOUNTS | | ANNUAL REPORT AND ACCOUNTS | | 2022 | | 2022 | ## SUSTAINABLY ## Developing our own ## slip manufacturing ## facility at Accrington. ## 75% less raw material and Brick slips offer a solution enabling structures, from energy vs. cutting traditional bricks modular to high-rise, that would not normally be finished in brick, to benefit from a real brick finish. Our £12m investment in our Accrington facility to manufacture our own brick slips is an important step in our sustainability journey, using up to 75% less raw material and energy in their production compared to traditional bricks. This new production line is expected to commence operation in the first half of 2024 offering an installed capacity of 48 million slips per annum. 32 33 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## KEY PERFORMANCE INDICATORS Strategy links Revenue (£m) Operating cash conversion (%) 2022 455.5 2022 108 Strengthen the core 2021 370.4 2021 137 Range 2020 291.9 2020 233 expansion 2019 380.0 2019 80 Product 2018 367.5 2018 91 innovation and development Definition Definition Revenue represents the sale of our products, Operating cash conversion is calculated as net of rebates, discounts and value added taxes. operating cash flow before exceptional items less capital expenditure (excluding spend on the Performance strategic projects) divided by operating profit Remuneration Revenue increased by 23.0% compared with before exceptional items. We have removed the 2021. Price increases were delivered on multiple links capital expenditure related to strategic projects occasions throughout the year. In response to from this KPI as these are long-term projects that severe cost inflation we increased the majority will generate cash flows over a period in excess of our brick-selling prices by a cumulative 50% Remuneration of 30 years. during the year with the selling prices of other products increasing between 16% and 22%. Performance The Group continues to be highly cash-generative, carefully managing its working capital and cash outflows. Inventory build in the current year, driven by value rather than quantity, combined with Links strategic spend, has lowered operating cash conversion slightly. However 108% remains a strong result for the Group. Lost time incident frequency rate (million man-hours worked) Links 2022 3.79 2021 3.98 Profit before tax before 2020 2.52 exceptional items (£m) | 2019 | | 7.10 | | | | | --- | --- | --- | --- | --- | --- | | | | | 2022 2022 | | 70.6 | | 2018 | 3.40 | | | | | | | | | 2021 2021 | 50.7 | | Definition Our lost time incident frequency rate (LTIFR) is 2020 2020 17.4 calculated using contracted working hours and 2019 2019 62.5 is stated as the number of lost time incidents suffered per million man-hours worked. 2018 2018 64.8 Performance Our LTIFR was 3.79 incidents for every million Definition man-hours worked in 2022, representing a slight Profit before tax adjusted for exceptional items. | decrease on 2021. Of the 29 separate business | Performance | | --- | --- | | areas monitored, 20 were Lost Time Incident | Profit before tax before exceptional items | | (LTI) free during 2022, seven have been LTI free | increased by 39.3% to £70.6m. This was driven | | for over five years and three for over 10 years. | by consistently strong demand throughout 2022, | alongside significant price increases achieved during the year. Links Links 34 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 | EPS before exceptional items (pence) | | | | Clay carbon intensity ratio | | | | --- | --- | --- | --- | --- | --- | --- | | | | | | (CO | 2 e per tonne) | | | 2022 | | | 26.4 | | | | | | | | | 2022 | | 244.9 | | 2021 | | 17.5 | | | | | | | | | | 2021 | | 238.0 | | 2020 | 6.6 | | | | | | | | | | | 2020 | | 237.1 | | 2019 | | | 25.5 | | | | | | | | | 2019 | | 255.7 | | 2018 | | | 26.5 | | | | | | | | | 2018 | | 258.5 | Definition Basic earnings per share (EPS) adjusted for exceptional items. Performance Concrete carbon intensity ratio EPS before exceptional items was 26.4p compared with 17.5p in 2021, this is driven by (CO 2 e per tonne) the increase in profit in the period, combined 2022 20.7 the share buyback which reduced weighted average shares across 2022. | 2021 | 19.9 | | | --- | --- | --- | | 2020 | | 21.4 | | 2019 | 20.9 | | | 2018 | | 21.8 | Definition Links It is important to recognise that the amount of carbon we emit is directly related to the volume of product we manufacture. Intensity ratio, defined as CO 2 e per tonne of manufactured product, allows this. We believe the most Net (debt)/cash before leases (£m) transparent way of reporting our carbon footprint is to separately report our greenhouse gas | 2022 | (5.9) | | | | | --- | --- | --- | --- | --- | | | | | intensity ratio (CO | 2 e) for our clay and concrete | | 2021 | | 40.9 | products and that this will provide the most | | meaningful information from which to measure 2020 16.0 our carbon emissions over time. 2019 (43.2) Performance Carbon intensity targets were first set in 2010, 2018 (38.8) and between 2010 and 2019 decreased by 22%. Since setting new challenging targets in 2020 Definition (against a 2019 benchmark), a variation in the Net (debt)/cash comprises cash and cash mix of products that we have produced, means equivalents less the balance of short and that whilst we delivered reductions in the carbon long-term borrowings, excluding lease liabilities. emission intensity of both our clay (4.2%) and Performance concrete (0.8%) products (versus 2019) there The Group ended the year with minimal net debt, has been a marginal increase in overall emissions after returning a total of £64.2m to shareholders intensity at Group level. through the £40m share buyback and dividends in 2022, reinforcing the strength of our cash generation and the quality ofearnings. Links Links 35 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 STRATEGIC REPORT # CHIEF FINANCIAL OFFICER'S REVIEW ## LOOKING FORWARD FROM A POSITION OF STRENGTH ![img-5.jpeg](img-5.jpeg) We delivered an excellent financial result in 2022 and are well positioned to weather any short-term reduction in demand for our products." Our financial performance in 2022 is a function of stable volumes and continued cost inflation mitigated by substantial selling price increases which allowed us to demonstrate progression delivering a strong result in the year which was ahead of our pre-Covid 2019 comparative. 2022 Results Revenue With sales volumes stable year-on-year, our revenues benefitted from the essential price increases delivered on multiple occasions throughout the year. Total revenue of £456.5m represents an increase of £88.1m (23.0%) on the prior year (£370.4m). We increased the majority of our brick prices by a cumulative 50% during the year with the selling prices of other products increasing between 16% and 22%. Bricks and Blocks revenues of £370.2m, represent an increase of 24.2% on the prior year comparative (£298.1m) driven by selling price increases with our despatches constrained by production capacity and inventories. Despoke Products delivered an excellent performance in 2022 with a record result delivered from the rationalised precast flooring footprint. Floor beam sales revenue increased by 34.1% relative to 2021 and prices were increased regularly during the year to keep pace with rising costs. # BEN GUYATT 36 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 Earnings before interest, tax, depreciation and amortisation (EBITDA) EBITDA as stated before exceptional items was £89.2m (2021: £70.4m). This level of profitability is ahead of the 2019 result of £82.7m albeit at a lower EBITDA margin. Our business is managed as two divisions and we allocate our central overheads to each division based on an historic revenue driven allocation mechanism, with central overheads allocated to Bricks and Blocks and Bespoke Products in the ratio 80%:20% respectively. In practice, the allocation of overheads to Bespoke Products exceeds the level of overheads that are directly applicable to this segment, such that if this segment was to be discontinued or divested then the saving of overheads, would in reality, be modest. Accordingly, we also disclose the allocation of central overheads Initial production at our new Desford brick factory. to give greater visibility of the underlying profitability of our segments, in particular Bespoke Products. Despite the significant increase in selling prices within Bricks and Blocks our operating margins have fallen short of 2019 levels demonstrating the need to continue passing on cost increases to our customers. Bricks and Blocks EBITDA before exceptional items was £85.5m (2021: £70.5m) and EBITDA before exceptional items Net (debt)/cash before leases Bespoke Products contributed an EBITDA before exceptional items of £3.7m (2021: loss of £0.1m). ### 26.7% ## Profit before tax as stated before exceptional items £89.2m £(5.9)m was £70.6m (2021: £50.7m). 2021: £70.4m 2021: £40.9m We are very pleased with the performance delivered by the Bespoke Products segment in the year Revenue with an EBITDA before exceptional items and ### overhead allocations of £9.7m, over double the 23.0% ## £455.5m 2021 result (£4.8m). This strong performance from 2021: £370.4m our rationalised asset base follows the closure and disposal of the Swadlincote facility in recent years. EBITDA margin before exceptional items Relative to 2021 we increased our sales volumes of floor beams by 9% but most importantly ### 60bps ## implemented a dynamic pricing model which 19.6% allowed us to recover the rapidly rising cost base. 2021: 19.0% Results for the year Revenue EBITDA | | | | | | | | Before | | | | | | | Before | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | Exceptional | | exceptional | | | | | Exceptional | | exceptional | | | | | | Statutory | | | items | | items | | Statutory | | | items | | items | | | 2022 | 2021 | | 2022 | | 2022 | | | 2022 | | 2021 | | 2021 | | 2021 | | | £m | £m | | £m | | £m | | | £m | | £m | | £m | | | £m | Bricks and Blocks 370.2 298.1 87.8 2.3 85.5 70.5 – 70.5 Bespoke Products 90.1 76.1 3.7 – 3.7 6.0 6.1 (0.1) Intersegment elimination (4.8) (3.8) Group total 455.5 370.4 91.5 2.3 89.2 76.5 6.1 70.4 37 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## CHIEF FINANCIAL OFFICER’S REVIEW ## CONTINUED Operations Bricks and Blocks Our factories generally operated at close to capacity | during 2022 although the Wilnecote brick factory | | Before | | | | | Before | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | exceptional | | | | | exceptional | | | | | closed for redevelopment at the end of September, | | items | | Statutory | | | items | Statutory | | | and we continued to face reliability issues with the | | | 2022 | | 2022 | | 2021 | | 2021 | | | | | £m | | £m | | £m | | £m | old Desford brick factory which is expected to close Revenue 370.2 370.2 298.1 298.1 within the next month. In addition, we have had some plant reliability and production challenges EBITDA before overhead allocations 109.5 111.8 90.5 90.5 within our Aircrete block business which adversely impacted production and accordingly sales. Overhead allocations (24.0) (24.0) (20.0) (20.0) EBITDA 85.5 87.8 70.5 70.5 Our inventory levels ended the year at record low EBITDA margin before levels. Following the strong recovery from the overhead allocations 29.6% 30.2% 30.4% 30.4% pandemic in the second half of 2020, until now EBITDA margin after there has not been an opportunity to replenish our overhead allocations 23.1% 23.7% 23.6% 23.6% inventory levels. Inventory valuation at the end of 2022 stood at £43.0m compared to £32.8m at the end of 2021. However, when the increases in input costs and the costs of production are taken into Bespoke Products account, physical inventory quantities were lower | | | Before | | | | | Before | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | than at the end 2021. Any slowdown in demand for | exceptional | | | | | exceptional | | | | | our products in 2023 will facilitate a replenishment | | items | | Statutory | | | items | Statutory | | | | | | 2022 | | 2022 | | 2021 | | 2021 | | of inventories which will be necessary in order to | | | £m | | £m | | £m | | £m | deliver the levels of efficiency and customer service Revenue 90.1 9 0.1 76.1 76.1 we demand of ourselves. EBITDA before overhead allocations 9.7 9.7 4.8 10.9 Operating costs Overhead allocations (6.0) (6.0) (4.9) (4.9) Large increases in our selling prices were | necessitated by unrelenting increases in our cost | EBITDA 3.7 3.7 (0.1) 6.0 | | --- | --- | | base including the increasing cost of energy. The | EBITDA margin before | | cost of energy first increased in the second half of | overhead allocations 10.8% 10.8% 6.3% 14.3% | | 2021 with further rises during 2022 driven by the war | EBITDA margin after | | in Ukraine. We have experienced unprecedented | overhead allocations 4.1% 4.1% – 7.9% | levels of direct energy cost inflation, being the price we need to pay for our gas and electricity, as well with some insulation from soaring costs although as experiencing indirect energy cost inflation as we have still seen our energy spend increase by over the rising cost of energy impacts many of our input 100% since 2019. categories, from cement and aggregates to steel, insulation and packaging. Whilst our forward positions allowed us to partially mitigate the cost increase in 2022, we do expect a The average market day ahead commodity rate further increase in our energy costs in 2023 as lower for a therm of gas in the UK during 2022 was £2.10, cost forward purchases which benefited 2022 are which compares to a figure of £1.16 in 2021 and replaced with higher cost commitments for 2023. £0.35 in 2019. This highlights the level of energy cost | inflation seen generally with the cost of gas having | We are well positioned with regard to energy | | --- | --- | | increased sixfold. We have continued to use forward | procurement for 2023 with at least 80% of our | | purchasing to manage our exposure and to provide | energy needs now secured by forward contract, | | a degree of certainty as to our cost base. | although this percentage will depend on our | actual production levels. In 2022 our combined gas and electricity spend was approximately £57m compared to £32m in 2021 and We expect our energy costs to peak in 2023 and £26m in 2019. Our forward purchasing provided us from 2024 expect to benefit from forward purchases that have been secured at lower rates. In addition, 38 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 STRATEGIC REPORT we will also see the first benefits of the Forterra solar farm where we have exercised an option to receive power from this facility (albeit at a higher cost) in 2024, prior to the inception of the competitively priced 15-year Power Purchase Agreement in 2025. Due to the success of our energy procurement strategy, we did not benefit from the Government's Energy Bill Relief Scheme in 2022 and expect to receive little if any benefit in the first quarter of 2023. Beyond this, even as an energy intensive user, we expect to receive minimal, if any, benefit from the Energy Bills Discount Scheme which becomes effective in April 2023. As well as rising gas and electricity costs, we also saw the cost of diesel fuel rise to record levels in 2022, significantly increasing the cost of operating our distribution fleet of around 160 specially equipped heavy goods vehicles and increasing the rates we pay our subcontract haulage contractors. In addition, we experienced a further increase in our fuel costs following the Government's decision to restrict the usage of red diesel and rebated biofuels, meaning that from 1 April 2022 we and our contractors were required to pay the full rate of fuel duty for fuel used in mobile plant and equipment at our factories, including the winning of clay and the handling of both raw materials and finished goods. It is important to re-emphasise that the increases in our cost base extend well beyond the direct cost of energy. Many of our other inputs have increased significantly with the cost of cement for example, increasing by approximately 75% since the beginning of 2021. During the year we also provided our workforce with what we believe was a generous sector leading pay award, along with additional targeted support to help the lowest paid, and it is our intention to continue to provide support to our employees by offering competitive remuneration going forward. ### Exceptional items Exceptional items in 2022 related to the sale of surplus land for gross proceeds of £2.5m realising an exceptional profit of £2.3m. Exceptional items in the prior period totalled a profit of £6.1m and related solely to the closure and subsequent disposal of the Swadlincote precast concrete facility. The sale of the facility and associated equipment realised gross sales proceeds of £14.7m, received in cash, generating a profit on disposal of £5.7m. Associated redundancy and termination costs totaling £3.6m were also recognised within the exceptional item, reducing the profit to £6.1m. ### Finance costs Finance costs totalled £2.1m (2021: £3.3m). Under the terms of the credit agreement, which was in place throughout 2022, interest was payable according to a margin grid dependent on leverage with a margin of SONIA plus 1.75% applicable whilst leverage (Net debt/EBITDA, pre IFRS 16) is less than one times. A commitment fee of 35% of the margin was payable on the unborrowed credit facility. ### Taxation The effective tax rate (ETR) both including and excluding exceptional items was 19.3% (2021: 19.8% including and 21.3% excluding exceptional items). The ETR is slightly higher than the UK statutory rate of 19.0% (2021: 19.0%) due to the permanent impact of non-deductible items such as depreciation on non-qualifying assets, however this is reduced by the permanent benefit of the UK tax super deduction on qualifying plant and machinery expenditure as announced in the 2021 Budget. The 2021 ETR was above the statutory rate of corporation tax at 21.3% as this reflected the impact on the deferred tax liability of the rate change announcement in the 2021 Budget from 19.0% to 25.0% from April 2023. ### Earnings per share (EPS) EPS as stated before exceptional items were 26.4p (2021: 17.5p). Basic EPS after exceptional items were 27.2p (2021: 19.9p). EPS is calculated on the average number of shares in issue during the year (excluding those held by the Employee Benefit Trust (EBT)) which in 2022 was 216.2m shares (2021: 226.1m), the decrease being driven by the impact of the £40m share buyback which saw 15.8m shares purchased and subsequently cancelled. ### Cash flow Operating cash flow before exceptional items totalled £89.0m compared to £81.2m in the prior year, a repeated demonstration of the Group's ability to generate consistently strong cash flow and highlighting the quality of earnings in the year. The movements seen in working capital are a function of the rapid cost inflation experienced in the year as our trade receivables reflect the increase in our selling prices and the working capital tied up within inventories increases due to the rising costs of production, but inventory volumes remain at record low levels. The new lease liabilities primarily relate to new distribution vehicles as we regularly renew our fleet with efficient and cleaner delivery vehicles. Net payments to the Employee Benefit Trust (EBT) in the year totalled £11.8m (2021: £3.6m) leaving the EBT in a strong position to meet any forthcoming demand for shares in order to satisfy vesting awards under the Group's employee benefit schemes. It remains our policy to provide shares for settlement of our share-based employee reward schemes through open market purchases of shares as opposed to the issue of new share capital which would be dilutive and counter to the benefits of the share buyback. 39 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## CHIEF FINANCIAL OFFICER’S REVIEW ## CONTINUED Capital expenditure Cash flow – highlights Capital expenditure in the year totalled £44.1m (2021: £34.6m) with strategic capital expenditure 2022 2021 £m £m totalling £33.6m (2021: £28.9m) and maintenance EBITDA before exceptional items 89.2 70.4 capital expenditure totalling £10.5m (2021: £5.7m). Purchase and settlement of carbon credits (5.6) (6.4) Spend on the new Desford brick factory totalled Other non-cash items 6.3 7.4 £26.5m bringing the total cumulative project spend Changes in working capital: to £86.1m with the project still on course to be | completed within the original £95m budget. We | – Inventories (10.2) 0.2 | | --- | --- | | expect the remaining cash outflow in 2023. | – Trade and other receivables (5.2) (3.4) | | We have also committed to spending approximately | – Trade and other payables 14.5 13.0 | | £2.5m installing solar panels on the new Desford | Operating cash flow before exceptional items 89.0 81.2 | brick factory roof which will generate around 16% Payments made in respect of exceptional operating items – (0.6) of the factory’s electricity requirement going forward, Operating cash flow after exceptional providing cost effective, transmission cost free, operating items 89.0 80.6 on-site renewable energy. Interest paid (2.4) (2.8) In addition to the spend on the Desford project, Tax paid (11.0) (9.6) £5.3m (2021: £1.7m) was spent on the Wilnecote Capital expenditure: factory redevelopment project. Spend on this project – Maintenance (10.5) (5.7) in 2023 is expected to be approximately £20m with the total cost expected to be around £30m. – Strategic (33.6) (28.9) Dividends paid (24.2) (13.7) Borrowings and facilities Net cash flow from sale and purchase of shares At 31 December 2022 net debt (before leases) was by Employee Benefit Trust (11.8) (3.8) £5.9m (2021: net cash of £40.9m). Net debt after Payments made to acquire own shares (40.3) – deducting lease liabilities of £18.0m (2021: £16.5m) New lease liabilities (6.8) (12.4) was £23.9m (2021: net cash of £24.4m). These | leases primarily relate to plant and equipment, | Other movements 0.8 (0.3) | | --- | --- | | in particular the fleet of heavy goods vehicles used | Exceptional proceeds from sale of property, | | to deliver our products to our customers. | plant and equipment 2.5 14.7 | Exceptional costs incurred in sale of property, At the end of 2022, the Group’s debt facility comprised plant and equipment – (0.3) a committed revolving credit facility (RCF) of £170m Decrease in net funds (48.3) 17.8 extending to July 2025. At the year-end a total Debtor days 36 37 of £40m was drawn on the facility leaving facility headroom of £130m. The Group also benefits from an uncommitted overdraft facility of £10m. At the beginning of 2023 we refinanced our banking The facility is subject to covenant restrictions of net facilities retaining the £170m revolving credit facility debt/EBITDA (as measured before leases) of less but extending the maturity date to January 2027 with than three times and interest cover of greater than an option for a further 18-month extension subject four times. The business has traded comfortably to lender consent. The margin grid has also been within these covenants throughout 2022. The facility adjusted such that the grid commences at SONIA also includes a restriction prohibiting the declaration plus 1.65% whilst leverage remains under 0.5 times or payment of dividends should leverage exceed EBITDA, increasing to a margin of 2.75% should three times EBITDA. leverage exceed 2.5 times. 40 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 STRATEGIC REPORT The amended facility is now linked to our sustainability targets with the opportunity to adjust the margin by 5 bps subject to achieving annual sustainability targets covering decarbonisation, plastic reduction and increasing the number of employees in earn and team positions. The Board are pleased to have gained the certainty of an extended tenure of facility with a margin reduction at the bottom end of the grid leaving the Company well positioned at this time of economic uncertainty. # Dividend Our dividend policy is to distribute 55% of our earnings. This policy is supported by the Group's consistent cash generating ability coupled with a strong balance sheet. The Board is proposing a final dividend of 10.1p per share (2021: 6.3p) which, in addition to the interim dividend of 4.6p per share paid in October (2021: 3.2p), will bring the total dividend to 14.7p per share (2021: 9.9p). Subject to approval by shareholders, the final dividend will be paid on 7 July 2023 to shareholders on the register as at 16 June 2023. # Return of capital to shareholders In January 2022 it was announced that the Group would commence a share buyback programme to repurchase Ordinary Shares and return £40m to shareholders during the course of 2022. This buyback was facilitated by the levels of cash held by the Group relative to the committed spend on the Destord and Wilnecote capital projects. The £40m buy back was completed in October 2022 and resulted in the repurchase and cancellation of 15.8m shares at an average cost of £2.52. The Board continues to keep returns of capital to shareholders under review. Near-term trading performance, driven by market demand, committed capital expenditure on strategic projects, working capital impact of inventory build and the timing of future strategic capital projects to support growth are all key to this decision-making. # Pensions The Group has no defined benefit pension liabilities. There is a defined contribution arrangement in place and pension costs for the year amounted to £6.9m (2021: £5.8m). # Forward-looking statements Certain statements in this Annual Report are forward looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Because these statements contain risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Ben Caputi Chief Financial Officer 9 March 2023 ![img-6.jpeg](img-6.jpeg) 41 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## SUSTAINABILITY REPORT ## LETTER TO STAKEHOLDERS ## ❝ ## Sustainability is embedded ## at the heart of our business. ## Our goal is to Keep Britain ## Building and our strategy ## focuses around doing so ## in a sustainable manner.” We set ourselves challenging sustainability targets at the beginning of 2021, with 2022 being a year of tangible progress towards meeting these. At the core of our ability to achieve our ambitions is the sustainability framework that we developed alongside these targets. Formed of three pillars: Planet, Product and People, which guide our future decision-making, ensuring we are successful in our overall objective of being a good neighbour and responsible employer, for generations to come. Two years into the ten year time horizon defined in our targets, we are focusing on delivering investments that will drive a tangible reduction in emissions in the near-term whilst continuing to expand the time and resources we devote to the research and development of new and innovative technologies that will help us reach net zero in the longer-term. A variation in the mix of products that we have manufactured in 2022, means that whilst we delivered reductions in the carbon emissions intensity of both our clay (4.2%) and concrete (0.8%) products there has been a marginal increase in overall emissions intensity at Group level. We do not expect this to impact the achievement of our 2030 target to reduce carbon emission intensity by 32%. ## DIVYA SESHAMANI 42 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 Since 2019 we have already reduced emissions The 2021 transition of the Board’s Risk Committee at absolute level by 7.5%, and in this Sustainability becoming the Risk and Sustainability Committee, Report we are pleased to publish our Carbon has continued to be successful in elevating the Management Plan, laying out our medium-term importance of sustainability throughout the business, roadmap as to how we expect to meet our 2030 with the Committee devoting a significant portion decarbonisation targets. The plan recognises that of its time to the Group’s sustainability strategy and our decarbonisation journey will not be linear, and governance thereof. The Board takes all areas of 2022 is a prime example of a great deal of positive governance seriously and we are happy to report full achievement not being immediately reflected in compliance with the requirements of the Task Force immediate absolute reductions; we are however on Climate-Related Financial Disclosure (TCFD) confident that through making the right investments which are now mandatory. we will successfully deliver on our targets in the The importance attached to sustainability both years to come. within our own business and to our stakeholders Core to this plan is making our business more is evidenced by the Group’s banking facility now efficient, and therefore more sustainable, with including a sustainability linkage with the Group the now operational new Desford brick factory able to secure a reduction in its borrowing costs demonstrating this, offering industry-leading levels through achieving annual targets covering of efficiency. Beyond Desford, we are also delivering decarbonisation, reduction in the use of plastic two further investment projects both with strong packaging and employee development. Following sustainability credentials. The redevelopment of shareholder feedback, the Remuneration Committee our Wilnecote brick factory will reduce the carbon is to incorporate the decarbonisation and plastic footprint of each brick manufactured, and the reduction targets into the 2023 grants under the construction of a brick slip manufacturing facility long-term incentive Performance Share Plan. at our Accrington facility will allow us to bring a new Included within this report is an overview of our key sustainable product to market. sustainability initiatives and credentials highlighting Sustainable energy is also key to our plan and we the progress made in the year, along with providing are delighted to have entered into an agreement everything necessary to understand our sustainability with our partner, Lightsource bp, to construct a journey. As always, we welcome feedback regarding dedicated solar farm that will provide around 70% our approach to sustainability and the appropriateness of our annual electricity requirement for a 15-year and transparency of our disclosures. period commencing in 2025. Construction on this solar installation is already underway and we Divya Seshamani have exercised an option to benefit from its green Chairman of the Risk and electricity from 2024. In addition, we are making Sustainability Committee tangible progress towards our target to generate at least 10% of our electricity requirement through on-site renewables with the installation of a £2.5m solar installation underway at the new Desford brick factory. 43 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## SUSTAINABILITY REPORT ## OUR APPROACH TO SUSTAINABILITY Sustainability governance The Group’s Head of Sustainability leads the day- Sustainability sits at the heart of everything we to-day sustainability activity and reports to the do as a business, and as such is at the core of Strategic Projects Director, who holds accountability our strategy. Delivery on this strategy, as well as for delivery of the key investments that will facilitate governance and oversight responsibility around the achievement of our sustainability targets, climate-related risks and opportunities ultimately sits including reduction of greenhouse gas emissions with the Board. The Board’s Risk and Sustainability and reducing our use of plastic packaging. During Committee discharges this responsibility on behalf 2021, the Group also formed a Sustainability of the Board. Steering Group, comprising the Chief Executive Officer and Chief Financial Officer as well as a The Risk and Sustainability Committee receives number of senior managers representing other twice yearly progress updates as to the execution functions of the business including strategy, finance, of the Group’s sustainability strategy, reviewing marketing and investor relations. The steering group ongoing compliance with TCFD requirements and meets monthly and is tasked with ensuring that the progress against targets. As well as receiving feedback Company’s sustainability ambitions and targets from the Executive Directors, and members of the are on track, and that all climate-related risks are Executive Committee, the Head of Sustainability reported to the Risk and Sustainability Committee. regularly attends Committee meetings. ## SUSTAINABILITY GOVERNANCE STRUCTURE Robust and transparent governance is essential to delivering our sustainability ambitions Board of Directors Ultimate responsibility for sustainability related matters through the Risk and Sustainability Committee Executive Committee Review and approve climate strategy, scrutinise performance, review progress on climate strategy and targets Sustainability Steering Group Cross Functional Working Groups Tasked with ensuring that the Task-specific working groups focusing Company’s Sustainability ambitions on specific climate-related challenges and targets are on track, and that all e.g. Plastic Reduction Steering Group climate-related risks are reported to the Risk and Sustainability Committee 44 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ### Our sustainability ### framework guides all ### aspects of our approach ### to sustainability. Our ## framework identifies PLANET PRODUCT ### the key areas of focus ### to ensure we operate Forterra sustainability framework ### our business with ### sustainability at its core; ### and these are highlighted ### as material topics. ## PEOPLE Details of our materiality assessment can be found later in this Report, however, the material topics are grouped to allow a balanced approach through three sustainability pillars. ## PLANET PRODUCT PEOPLE The Planet pillar frames our wider The Product pillar focuses upon The People pillar highlights our environmental responsibilities, some more specific industry and social responsibility objectives, with a particular focus upon company-level topics, including including our utmost priority greenhouse gas emissions. new product development, and of ensuring health, safety and Material topics include: the wider supply chain. Material wellbeing across our business. topics include: Material topics include: • Climate change adaption • Product lifecycle: environmental • Equality, diversity and inclusion • Greenhouse gas emissions impacts • Employee experience • Water management • Plastic packaging • Succession and skills • Air quality • Ethical and sustainable development • Waste management procurement • Community and charity • Energy management • Product innovation engagement • Biodiversity • Pricing integrity and • Data protection and privacy transparency • Health, safety and wellbeing • Human and labour rights ## SUSTAINABILITY FRAMEWORK 45 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## SUSTAINABILITY REPORT ## MATERIALITY ASSESSMENT Materiality assessment process We are constantly engaging with stakeholders and In defining our materiality assessment, we worked these material topics evolve as such. The views from alongside external consultants with the intention our regular conversations with shareholders, and the of providing an overview of our priority sustainability opinions of our employees having conducted our topics, in turn enabling our focus and resources annual engagement survey, are all taken into account to be appropriately deployed in these areas. The when management have reviewed the output of the viewpoints of key stakeholder groups were critical below process to ensure it remains representative. to the creation of this assessment, and we sought feedback and insight from multiple perspectives, including those of shareholders, local communities, employees and customers. | | Identifying issues | | Broadening and refining the scope | | --- | --- | --- | --- | | STEP 1 | We created a long list of potentially material | STEP 2 | Our external consultants provided a broader | | | topics through the review of sustainability | | perspective of macro sustainability topics, | | | reporting publications, internal policies and | | assessing their relevance and application | | | management insight. This was supplemented | | to our business, such as the United Nations | | | by an evaluation of relevant sustainability | | Sustainable Development Goals (SDGs). | | | frameworks including the Sustainable | | Specific feedback from shareholder | | | Accounting Standards Board (SASB) and | | meetings was also included, as well as | | | the Global Reporting Initiative (GRI). It was | | research from relevant industry bodies. | important at this stage to ensure we had covered social, and governance factors alongside purely environmental impacts. | | Assessment and scoring | | Prioritisation and validation | | --- | --- | --- | --- | | STEP 3 | We assessed our material topics and | STEP 4 | An assessment of the ability of the business | | | provided a scoring criterion based upon | | to influence each topic provided further | | | two factors. Firstly, the importance of | | perspective to the prioritisation process and | | | the topic to stakeholders, and secondly, | | was a key further dimension brought into | | | the impact of the topic upon future | | our analysis. The outcome of the materiality | | | business performance. Our external | | assessment was reviewed at Board level | | | consultants assisted us in this process, | | to ensure appropriate challenge, validation | | | providing a consistent framework for | | and alignment to the Group strategy. | the basis of assessment. 46 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ### MATERIALITY MATRIX | Our materiality matrix below summarises | PLANET | PEOPLE | | | --- | --- | --- | --- | | the outcomes of the materiality assessment, | 1 Climate change adaption | 13 Health, safety and wellbeing | | | providing a visual overview of our key topics. | 2 Greenhouse gas emissions | 14 Equality, diversity and inclusion | | | We recognise that the matrix contains an | 3 Air quality | 15 Succession and skills | | | | 4 Energy management | | development | element of subjectivity; impact can be defined in 5 Water management 16 Employee experience various ways including risk of non-compliance, 6 Waste management 17 Local community engagement impact to reputation or financial implications. 7 Biodiversity impacts 18 Human and labour rights Equally, importance may vary between different 19 Data protection and privacy stakeholder groups. The matrix should therefore be viewed in this context, as an indicative PRODUCT overview and insight to management’s Key 8 Product innovation perspective on the subject. Our materiality 9 Pricing integrity and transparency assessment was first undertaken in 2021 Very high Our ability to 10 Product lifecycle environmental influence is and was subject to a review in early 2023 impacts High dictated by where no significant changes were identified. 11 Ethical procurement Medium bubble size 12 Packaging Low 2 13 18 12 9 3 8 4 1 14 11 7 19 6 17 10 5 16 Importance rating 15 0.00 1.00 2.00 3.00 4.00 5.00 6.00 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 5.50 Impact rating 47 6.00 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## SUSTAINABILITY REPORT ## UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALS (SDGs) Collectively, our three pillars guide our future Our ambitions and targets decision-making, ensuring we are successful in The ability to track our progress is essential to our overall objective of being a good neighbour realising our sustainability goals and we have and responsible employer, for generations to come. considered the most appropriate metrics and targets necessary for users to understand the impacts of We continue to investigate additional opportunities our business. In addition to disclosing our absolute to contribute to sustainable development and have greenhouse gas (GHG) emissions, we also provide linked our framework to the United Nations SDGs additional disclosure showing the GHG intensity that most closely align to each pillar. ratio (level of emissions per tonne of output) for both our clay and concrete products, recognising that absolute emissions vary with the level of our Ensure access to affordable, Take urgent action to combat reliable, sustainable, and climate change and its modern energy for all impacts ## PLANET Ensure sustainable consumption and production patterns Build resilient infrastructure, Protect, restore and promote promote inclusive and sustainable use of terrestrial sustainable industrialisation ecosystems ## PRODUCT Make cities and human settlements inclusive, safe, resilient and sustainable End poverty in all its forms Achieve gender equality and everywhere empower all women and girls ## PEOPLE Ensure healthy lives and Promote sustained, inclusive promote wellbeing for all and sustainable economic at all ages growth Ensure inclusive and equitable Reduce inequality within and quality education and promote among countries life-long learning for all 48 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 production according to market demand, and Standards Board (SASB) standard on construction as such are not necessarily a meaningful measure materials and have sought to comply with the of our progress against our targets. disclosure requirements of this standard in as far as we believe the information provided will be useful Our metrics and targets were set in 2021 and and meaningful to our stakeholders. informed by the outcome of our materiality | assessment which identifies the subject areas | The below table details our key ambitions and targets, | | --- | --- | | deemed most relevant to our stakeholders. | how they map from our framework and to the | | In identifying further measures and targets | United Nations SDGs, as well as our status and | | for publication we have also considered the | progress against each to 2022. | requirements of the Sustainable Accounting SLL target* PSP target** Pillar Material topic SDGs Target Target year Progress Status Narrative | PLANET Greenhouse | | Climate action/ | 27.5% Group CO | 2 | 2030 -7.5% | Absolute emissions 7.5% | | --- | --- | --- | --- | --- | --- | --- | | | gas emissions | Responsible | emissions reduction vs. | | | below 2019 benchmark | | | | consumption | 2019 baseline (tonnes) | | | | and production | PLANET Greenhouse | | Climate action/ | 32% Group emissions | | 2030 0.9% | Short-term increase in | | --- | --- | --- | --- | --- | --- | --- | | | gas emissions | Responsible | intensity reduction vs. 2019 | | | intensity driven by expected | | | | consumption | baseline (kg CO | 2 /tonne) | | change in clay vs. concrete | | | | and production | | | | production mix | | PLANET Greenhouse | | Climate action/ | 33% Clay products | | 2030 -4.2% | Progress is on track with | | | gas emissions | Responsible | intensity reduction vs. 2019 | | | near-term reductions | | | | consumption | baseline (kg CO | 2 /tonne) | | linked to commissioning | | | | and production | | | | of new Desford | | PLANET Greenhouse | | Climate action/ | 80% Concrete products | | 2030 -0.8% | Progress against target | | | gas emissions | Responsible | intensity reduction vs. 2019 | | | is as expected | | | | consumption | baseline (kg CO | 2 /tonne) | | | and production PLANET Energy Affordable and 10% Group power usage 2025 – Solar installation management clean energy from onsite renewables (%) commenced at new Desford (4% of target) PLANET Waste Responsible Zero process waste to n/a 0.01 Waste to landfill figure of 0.01 management consumption Landfill (kg/tonne) in 2022 – effectively zero and production | PRODUCT Product | | Industry, | 10% Group revenue from | 2025 3.7% | Currently on track to achieve | | --- | --- | --- | --- | --- | --- | | | innovation | innovation | new and sustainable | | – 2022 increase driven by | | | | and infrastructure | products (%) | | cement replacement (CEM II) | based concrete products | PRODUCT Plastic | | Sustainable cities | 50% reduction in plastic | 2025 -9.3% | New packaging solution | | --- | --- | --- | --- | --- | --- | | | packaging | and communities | packaging vs. 2019 | | (belly banding) installed at | | | | | baseline (tonnes) | | Accrington factory with | further sites to follow in 2023 | PEOPLE Health, safety | | Good health | Zero harm ambition | n/a 3.79 | Improvement over 2021 – | | --- | --- | --- | --- | --- | --- | | | and wellbeing | and wellbeing | No. of accidents per | | Golden Rules are being | | | | | million-man hours worked | | embedded within the | business PEOPLE Succession and Quality education 5% of employees in earn 2025 3.6% Static vs. 2021. Plans to skills development & learn positions (%) increase being implemented * Three of our targets have been incorporated into the Sustainability Linked Loan (SLL) following the refinancing completed in January 2023. ** Two of our targets will be applied to the 2023 Performance Share Plan (PSP) award. 49 FORTEBRIA PLC INDUSTRY & TECHNOLOGY STRATEGIC REPORT # SUSTAINABILITY REPORT ## PLANET ### OUR 2030 CARBON REDUCTION TARGETS Target Progress 01 215% Group CO₂ emissions reduction vs. 2019 baseline (tonnes) 02 32% Group emissions intensity reduction vs. 2019 baseline (kg CO₂/tonne) 03 33% Clay products intensity reduction vs. 2019 baseline (kg CO₂/tonne) 04 66% Concrete products intensity reduction vs. 2019 baseline (kg CO₂/tonne) ### Next zero, a new album not a spoon # Scope 1 Direct emissions from our operations # Scope 2 Indirect emissions generated by our energy suppliers # Scope 3 All other indirect emissions created by our supply chain Our priority is to deliver a significant reduction in our emissions over the next decade. By 2030 we have committed to reducing our carbon intensity by 32% relative to 2019. Beyond this we have signed up to the Race to Zero, formalising our ambition to reach net zero by 2050. A key component of our decarbonisation strategy is our programme of capital investment with over £200m of investment in more efficient and greener manufacturing capacity expected over the next decade. This investment alongside a number of other initiatives, including fuel switching, will deliver a meaningful reduction in emissions. We are also committed to researching breakthrough technologies including carbon capture and storage and hydrogen fuel which will likely provide the longer-term pathway to net zero. The Commission on Climate Change (CCQ) sets out a recommended strategy for the UK to reach net zero by 2050. In this report they state that "most sectors will need to reduce emissions to close to zero without the use of offsetting." Reliance on offsetting does not reduce the burning of fossil fuels which is the primary contributor to climate change. Our strategy focuses on maximising the investment in our own business to deliver a tangible and transparent reduction in carbon emissions. We will continue to evaluate the benefits carbon offsetting can provide and whilst it is possible that in the future there will be a need to use these in some form in order to reach net zero, we feel that at present we can have the greatest impact through investing to reduce our own emissions. Using the latest technology as we are doing within our new Destord, Wilnecote and Accrington projects, rather than purchasing offsets and allocating them to the emissions from a particular factory, is the most transparent and effective way of meeting our challenging carbon reduction targets and in the longer-term moving towards net zero by 2050. We often refer to our pipeline of organic investment projects beyond those currently in progress and we are active in progressing designs and technology for what we aspire to be a zero emissions brick factory using alternative fuels and carbon capture. ### Greenhouse gas emissions We manufacture two broad categories of products – those made from clay and those made from concrete. These products are supplied hand-in-hand to our customers and are used together in building high-quality homes and buildings. However, the manufacturing processes are very different and their carbon footprints, whilst similar overall, are built up in different ways. ### Clay products Clay is the primary raw material used to make bricks. The clay is typically sourced locally from our own quarries, limiting the environmental impacts of transportation to factories. The clay is freely ground and then formed into a brick shape using a variety of methods. The grinding and forming process uses electrical energy. At this stage bricks contain significant amounts of moisture which must be removed before they can be fired. This drying process utilises recycled heat from our kilns. 60 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 The next stage is the firing of the brick which Scope 1 transforms the relatively weak dried clay into When reporting our emissions and setting targets to strong durable bricks that will last for generations. reduce these emissions it is necessary to consider During the firing process, the bricks are heated to our product mix. To ensure full transparency looking temperatures of over 1,000°C, triggering chemical forward, and when reviewing our past progress, reactions in the clay. Our kilns are fired by burning we provide emissions figures for both our clay and ## 32% natural gas, whilst the clay itself also emits carbon concrete businesses. The scope 3 emissions committed reduction dioxide as a result of a chemical reaction; we refer to associated with our concrete manufacture (and to of our carbon intensity this as process emissions. Once cooled, the bricks a lesser extent clay) are currently estimated, therefore by 2030 relative are packaged ready for despatch to our customers. direct comparison between our total clay and concrete to 2019 reported emissions is not possible. More detail As a result of the emissions created by the burning on our plans to calculate and disclose our scope 3 of gas, as well as the embodied carbon released emissions can be found later in this Report. from the clay during the firing process, the majority of emissions from our clay brick manufacture fall into Any change in product mix in our output between scope 1. clay brick and concrete products could materially distort the comparability of our total reported scope 1 Concrete products emissions year on year. Accordingly, we disclose We make a range of concrete products, from the carbon emissions for our clay and concrete ## aerated concrete blocks to precast concrete floor £200m businesses separately providing much greater beams, using a number of different manufacturing of investment in more transparency on our carbon reduction progress. techniques. Traditional concrete is made by mixing efficient and greener It is important to recognise the amount of carbon manufacturing aggregates, cement, and water. It is then left to capacity over the undergo a chemical reaction known as curing we emit is directly related to the volume of product next decade which can be accelerated by adding additional heat. we manufacture. Our Thermalite lightweight aerated concrete blocks Our key markets have historically exhibited a trend use pulverised fuel ash (PFA), a waste product from of cyclicality and as such it would not be meaningful coal fired power stations; with power generation to measure our performance solely on absolute from coal drastically diminishing in recent years we emissions. We believe the most transparent way of now recycle previously landfilled ash in a process reporting our carbon footprint is to separately report very similar to quarrying. Water, cement and other our greenhouse gas intensity ratio CO 2 e (the carbon materials are mixed with the PFA. The cake, as it’s emitted per tonne of production output) for our clay known, undergoes a chemical reaction and begins and concrete products and that this will provide the to cure such that it can be removed from the mould most meaningful information from which to measure and be wire-cut into blocks. The blocks are then the reduction in our carbon emissions over time. cooked in a high-pressure steam oven known as We recognise that carbon dioxide emissions are an autoclave, which, like our brick kilns, is heated an inherent result of our manufacturing processes. by burning natural gas. The blocks are removed from The majority of our emissions are covered by the UK the autoclave, separated, packaged and once they Emissions Trading Scheme (UKETS). The increasing have passed a strength test are ready to be supplied cost of UKETS credits or a reduction in the number to our customers. of freely allocated credits will increase our operating We purchase all of these raw materials, with cement costs and by reducing our emissions we can deliver having by far the largest carbon footprint. As such, a reduction in these compliance costs. the majority of the emissions from manufacturing In developing our sustainability framework and concrete fall into scope 3. setting ambitious targets, we additionally identified It is important to emphasise that both our clay and what measures would be needed to achieve these; concrete products contain similar levels of overall and have since been developing our implementation carbon dioxide emissions per tonne of product. roadmap to ensure that we do – The Forterra However, the way in which these emissions are Carbon Management Plan. reported within the Greenhouse Gas Protocol scopes is very different. Scope 1 and 2 Scope 3* The majority of the emissions associated with the manufacture of clay bricks are direct emissions under our control and are therefore disclosed in scope 1. The majority of the emissions associated ### with the manufacture of our concrete products 268,953 26,418 Clay Concrete are indirect emissions under the control of our suppliers and included in scope 3, and therefore ### 7,727 216,928 not disclosed in our figures. We currently report estimated scope 3 emissions and in 2023 we will undertake an exercise to measure and subsequently * Estimate not included within our reporting. disclose scope 3 emissions. 51 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## SUSTAINABILITY REPORT ## PLANET CONTINUED ## 01 ## FORTERRA ## Efficient new factories The capital replacement plan that is key to our ## CARBON decarbonisation efforts starts with our now operational new facility at Desford. Commissioned at the end of 2022, the state-of-the-art facility will produce up to 180 million bricks per annum with market leading efficiency and be 25% more carbon efficient than the factory it replaces. ## MANAGEMENT Additional efficiency projects will follow and we arecommitted to delivering two further investment projects, both with strong sustainability credentials. The redevelopment of our Wilnecote brick factory is ongoing and will reduce the carbon footprint of each ## PLAN brick manufactured, and the construction of a brick slip manufacturing facility at our Accrington factory It is encouraging that there is already a global ‘must will allow us to bring a new, more sustainable product do’ attitude to carbon reduction and, as a result, some to market. Both projects form part of a 10-year of the technologies we hoped would be technically investment pipeline totalling over £200m across feasible by 2030 are being implemented in other boththe clay and concrete businesses. sectors even sooner. For example, carbon capture atscale has started to be implemented in the cement sector and with widespread adoption the cost of these systems should ultimately be more affordable and available sooner. Our plan focus areas ## 27.5% ABSOLUTE REDUCTION 0.5% | Energy efficiency TARGET BY 2030 2.5% | Process change Process change | 4.0% | | \| Green electricity | | | | | --- | --- | --- | --- | --- | --- | | | 4.5% | | \| Fuel switching | | | | | | | | 8.0% | \| Efficient new factories | | | | | | 8.0% | \| Emerging technologies | 52 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## 02 ## Green power In 2020 we switched to purchasing 100% renewable electricity. Whilst this positive step reduced our scope 2 emissions tozero we always wanted to do more. For the UK to reach its net zero ambitions the electricity grid, which still relies upon significant gasand coal fired generation, needs to be decarbonised. Working with Lightsource bp, a global leader in the management and development of solar energy projects, we have committed to purchasing around 70% of our electricity requirement from a dedicated solar farm, exceeding 150 acres in size tobe situated in Nottinghamshire. This commitment approximating to £50m over 15 years from 2025 willfacilitate the delivery of 60 GWh of additional solar generation capacity to the UK, enough to power 17,000 average homes. This arrangement ## 03 willprovide us with secure renewable energy with price certainty for a 15-year period commencing in2025. Construction of the solar farm is underway and we have agreed an option to take power from 2024, a year early. Alongside this, we are investing in on-site renewable ## Energy efficiency projects electricity generation at a number of our factories in order to generate 10% of our electricity requirement We are always striving to make our factories more from 2025. Again, this adds incremental renewable efficient through our company-wide ‘SQCDP’ energy generation capacity whilst also providing (Safety, Quality, Cost, Delivery and People) ## a low-cost electricity supply avoiding the sizeable 5% programme, with many operational improvements transmission charges associated with having power | | helping us to become more energy efficient. | potential gas | | --- | --- | --- | | delivered through the grid. Further progress was | | consumption savings | | made in 2022 as we commenced installation of | A project exemplifying this approach was in | in our kilns through | | a rooftop solar array at our new Desford factory | partnership with QIO, trialling kiln burner optimisation | AI based on trials at | our Measham factory which will contribute a further 4% towards our target with artificial intelligence at our Measham factory, to be generating 10% of our own power by 2025. where, after a successful trial, the process is being implemented at our Kirton factory, with potential 5% gas consumption savings. During 2022 a dedicated energy manager role was created with a focus given to efficiency of energy consumption in the business, acknowledging that even a 1% efficiency saving can have a material benefit in both the profitability and sustainability of the Group. The Forterra Solar Farm Construction is underway at the site of the Forterra Solar Farm in Tiln, Nottinghamshire. 53 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 STRATEGIC REPORT # SUSTAINABILITY REPORT ## PLANET CONTINUED ![img-7.jpeg](img-7.jpeg) Process change "As much from less" – the goal of our quality department's project to ensure that we use as little raw material as possible whilst maintaining our high standards of quality. To ensure that each brick is fired properly our bricks either have perforations or a 'frog' to reduce the mass and make it easier for the gases which evolve during the firing process to escape from the 'body' of the brick. The size of the perforations varies from factory to factory and can become smaller as manufacturing equipment wears over time. Our quality team have identified that at some sites the perforation size can be increased by as much as 6% – an average of 3% across the business would have contributed a c.4,000 tonne saving during 2022. ![img-8.jpeg](img-8.jpeg) Fuel switching Switching away from fossil fuels is crucial to our carbon reduction ambitions and we have started to achieve this in two areas: Fleet fuel – transportation, including our heavy goods vehicles and other company vehicles including cars, are a contributor to our overall carbon emissions totalling 13,338 tonnes in 2022 representing 4.5% of our scope 1 emissions. Our transport fleet has increased in size as we prepare to increase our despatches from the new Desford brick factory, as well as addressing limitations in the availability of sub-contract haulage driven by a shortage of drivers throughout the industry. Increasing our fleet size does marginally increase our scope 1 emissions although this increase would be offset by a reduction in our scope 3 emissions. We are continuing to invest in the latest, cleanest and most efficient vehicles. Of our fleet of distribution vehicles, 161 are the cleanest Euro VI vehicles and we would expect 100% of our fleet to achieve this standard by 2024, with the current supply chain pressures and associated long lead times for new vehicles the primary constraint to achieving this sooner. We continue to invest in electric and low emission vehicles, with all of our new company cars restricted to CO₂ emissions under 73 CO₂/km, ensuring we are promoting the use of the cleanest low emission vehicles. During the year we have continued our roll-out of electric vehicle charging infrastructure across our facilities. We now have a total of 80 zero and ultra-low emission vehicles (ULEVs) in our car fleet representing 46.8% of the fleet, and of the new cars joining the fleet in 2022 all were either electric or hybrid. Biomass at Kings Dyke – the manufacturing process at our Kings Dyke factory is unique in the UK due to both the Lower Oxford clay that the brick is produced from, and the Hoffman Kiln used to dry and fire it. Now fired using natural gas the Hoffman Kiln was designed to be fired using solid fuel, primarily coal, and consists of a number of interconnected chambers which are static and the fire then moves around the kiln. With this in mind we, have looked to sustainable biomass as an alternative fuel as it is a net zero carbon fuel and just as importantly it behaves in a similar manner to coal. Results of the initial trials are promising and continue to develop into 2023 with a view to converting the entire factory to biomass if successful. Based on current production, if biomass replaces the use of natural gas across the site, this could deliver up to a 10,000 tonne saving in carbon emissions which is the equivalent of driving around the world over 100 times. 54 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## Emerging ## technologies ## 06 ### Grid hydrogen Hydrogen was initially identified as an emerging ## (future) technology in our carbon management plan Emerging Emerging and has as such been an important research focus. ## technologies technologies ## 07 07 A project to understand how hydrogen performs ### when used as a fuel source in a brick kiln is a key Carbon capture Carbon capture first step in our utilisation of any future grid-based hydrogen and we have commenced trials on this basis. Initially we are looking at a 20% blend with the intention to move to 100% hydrogen trials in Another emerging technology where development the future. is moving at pace is carbon capture and storage, where we are engaging with a number of potential Differences in combustion, lower heat density, more partners who are developing technologies; and moisture and heat transfer from the flame are all like our hydrogen trials, we are willing to commit areas where firing with hydrogen will differ to natural funding towards exploring technologies that could ## gas. These differences could have dramatic impacts 15,000 help us towards our target of reaching net zero by on both our processes as well as the final product 2050. We should caution that at this stage many tonne saving in carbon produced; and extensive trials will be required to emissions with of the technologies remain at their formative stage, fully conclude on all of these areas. We believe biomass at Kings Dyke with mainstream deployment of carbon capture our trials to be some of the first to take place in likely at least several years away. We accept that we production rather than laboratory conditions. need to devote time and resources to a number of Following a successful conclusion of the trial technologies before finding one that will ultimately wewillhave confidence that we can replicate our be both effective and economical. current range of products from both an aesthetic The capture and storage of certain pollutants and technical point of view and will have identified within the exhaust stream of our brick factories is any upgrades or significant changes that are nothing new as we have been capturing and storing required toour kilns. ## hydrogen fluoride for over 20 years in abatement 20% factories, often referred to as scrubbers inserted hydrogen blend trials between our kiln and the exhaust stack. We are with intention to move currently reviewing the options for installing similar to 100% equipment that will capture carbon dioxide so that we can either put it to some beneficial use such ascarbon curing of concrete or sending it for long-term storage. Our biggest challenge is the make-up of our exhaust gases as we have a relatively low carbon content in the exhaust stream, which means that utilising current techniques would be costly both in capital and operational terms. Weare, however, confident that with the technological leaps made in a short period since setting our ambitions, a viable solution is close. 55 55 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## SUSTAINABILITY REPORT ## PLANET CONTINUED Streamlined energy and carbon reporting (SECR) later in this Report gives further details around our We have used the operational control approach to innovations in cement reduction and replacement. determine our organisational boundary for emissions Looking ahead, sustainability will form an even greater purposes and calculated these emissions based element of our supplier selection and accreditation on the UK Government’s Environmental Reporting process and in 2023 we have plans in place to fully Guidelines (2019) and emission factors from the analyse and subsequently disclose our scope 3 DEFRA 2022 Green House Gas (GHG) Conversion emissions. This will give both visibility and a benchmark Factors for Company Reporting. Scope 2 emissions on which to base future reduction strategies. have been reported using both the location-based method of calculation and, to account for our use Engagement of renewable electricity through the purchase of We are proud of our progress and are keen to place REGOs, the market-based method for calculation. our sustainability information in the public domain Our underlying energy use figure has been reported ensuring the highest levels of transparency as we in GWh and includes fuel used in mobile plant, engage with our stakeholders. on-site generators, and company vehicles. All our We are committed to actively engaging with a number facilities are covered by the scope of our ISO 50001 of sustainability disclosure bodies and rating agencies certification which we have held since 2015. This including the Carbon Disclosure Project (CDP), is a third party audited and certified scheme and MSCI and Sustainalytics. Sustainability reporting has continual improvement at its core. We adopt a and disclosure is still in its infancy and we are number of approaches to maximise energy efficiency; keen to engage with relevant agencies to ensure from LED lighting and the installation of variable our sustainability strategy is clearly understood. speed drives on motors, through to the recycling We are also seeking to improve the awareness of waste process heat from our kilns to power other of sustainability within our own business at an areas of the plant. operational level and we recently ran our first Institute of Environmental Management and Assessment 2022 2021 2020 2019 (IEMA) training course aimed at managers to improve Scope 1 emissions (tonnes) (market-based) 295,371 280,381 198,921 299,679 their awareness of the many areas of sustainability. Scope 2 emissions (tonnes) (market-based) – – – 19,617 CO e intensity per tonne 124.5 117.5 115.3 123.4 Organisation Rating 2 Scope 1 emissions (tonnes) (location-based) 295,371 280,381 198,921 299,679 CDP C Scope 2 emissions (tonnes) (location-based) 14,144 15,576 13,263 19,617 MSCI AAA CO e intensity per tonne 130.5 124.1 122.9 123.4 2 Total energy used GWh 973.3 952.8 698.7 956.3 Sustainalytics 18.9 – Low Risk Our approach to scope 3 emissions Contribution to ceramics Much of our reporting focuses on our scope 1 decarbonisation award emissions, the direct emissions from our business In November 2022, the inaugural British Ceramic or activities that are under our control. The bulk Confederation ‘Delivering Net Zero’ conference (over 95%) of our scope 3 emissions are generated was held. The conference included recognition by inputs to our concrete products businesses with of Forterra’s Head of Sustainability, David Manley, cement being by far the largest contributor to this. with a special recognition award for his contribution | It is estimated that the scope 3 emissions embodied | to ceramics decarbonisation. This recognition | | --- | --- | | within our cement purchases represent around 50% | highlights both David’s tireless work in this | | of our total scope 3 emissions. | area over many years as well as our long-term | commitment to the decarbonisation of the sector. As well as working with our cement suppliers (major global and UK-listed cement manufacturers including HeidelbergCement AG and Breedon plc) to reduce carbon in this respect, our ‘Product’ section 56 ### FORTERRA PLC I N G STRATEGIC REPORT ### T ### N ### ANNUAL REPORT AND ACCOUNTS A ### L ### P 2022 ### E ### E ### R ### T ### Y ### P ### O As part of the Queen’s Green Canopy ### N ### A (QGC) earlier this year, Forterra ### C established ‘Jubilee Wood’ with 150 trees planted on surplus land close to ### N ### E our Kirton Brickworks. This was followed Air quality ### E with additional plantings to mark National ### We strive to minimise emissions of air pollutants created R Tree Week, with the help of students ### through our manufacturing and distribution operations, G from Kneesall Primary’s ECO group and ### complying with legislation as a minimum standard. All S local councillor Tim Wildgust. ### ’ ### our operations are subject to Environmental Permitting N ### E The ecological benefits of the woodland ### Regulations and must operate in accordance with E will be significant in a number of ways. ### a permit issued by either the Environment Agency U Tree planting is a simple but highly ### Q effective way to reduce air pollution, at or the local authority. Each permit has at least the same time creating havens for wildlife one section focusing on emissions to air, with the and improving the respiratory health of regulating authority carrying out inspections to the people living nearby. ensure compliance. In addition, the majority of our brick manufacturing facilities are required to carry out annual monitoring on the exhaust from the kiln to demonstrate compliance with any emission limits set out in the permit. Our larger sites submit a return under the UK Pollutant Release and Transfer Register. a raw material for the neighbouring aggregate block Our brick manufacturing facilities utilise modern plant, and our entire aircrete block waste is recycled technologies to capture and ‘scrub’ emissions in other products in the business. before their release into the atmosphere. As a responsible operator we comply with all waste Our Kings Dyke brick factory is located in an air management legislation and apply the waste hierarchy quality management area, and as a requirement of using segregation of wastes to ensure that the most our permit we have invested in, and operate, two appropriate disposal routes are utilised. Following ## 150 ambient air quality monitoring stations. Since their recent amendments to our recycling partnership trees planted on installation in 2008 we have operated in accordance contract, we now divert all non-process waste surplus land with our permits with no breaches of air quality limits. from landfill, an achievement we look forward to continuing to honour in the future. Water management Water is key to the manufacture of our products, Biodiversity whether to achieve the correct plasticity of a Fragile habitats and associated biodiversity are at clay brick, or to hydrate cement to produce our risk from climate change and deforestation across range of concrete products. As water becomes the globe. Within the UK, the Government has an increasingly scarce resource, we must ensure recognised our diverse range of natural landscapes that we are using it as efficiently as possible, and and habitats, setting out a 25-year environmental therefore we closely monitor our usage. plan focused on their protection and enhancement. Since 2010 we have reduced our water consumption We are responsible for almost 2,000 acres of per tonne of output by 20% through investments mineral bearing land and are therefore aware of our at our highest consuming sites, implementing important role in supporting these national ambitions water recycling systems as part of their production through the ongoing management, treatment, and processes. A good example of this is in rainwater final restoration of this land after these minerals harvesting schemes such as at our flagship Measham have been exhausted. Our quarrying operations brick facility, resulting in a 91% reduction in mains are covered by planning consents which include water usage since 2011. We will continue to report conditions for site restoration in accordance with on our mains water usage per tonne of production. the local mineral planning authority and taking into consideration local and wider environmental needs. A number of our sites benefit from ground water abstraction licences which further reduces our Depending on future use proposals, the quarry reliance on mains water. Our water management development will often lead to an improvement programme extends to the discharge of both surface in the biodiversity value of the land involved, and process water from our sites, carried out under both during operation and when it moves into its consent from either the Environment Agency or water restoration phase. The Kings Dyke nature reserve authority as well as the dewatering of our quarries. near Peterborough is an excellent example of how exceeding the requirements of the restoration plan Waste management has provided a local community asset and enabled As a business we recognise the value of our raw a diverse range of habitats to thrive. material resources. Our waste quantities are low (87,000 tonnes) relative to our production output We have identified a number of indicators to provide (3.6%), with large volumes of process waste streams a framework for consideration of land use and diverted and recycled for use in other products. For environmental change as a result of our quarrying example, brick waste created at our Kings Dyke activities, and we support the Council for Sustainable London Brick factory is crushed on-site and becomes Business Biodiversity commitment. 57 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## SUSTAINABILITY REPORT ## PRODUCT Both façade systems are reliant on using a brick slip ### OUR PRODUCT TARGETS or thin brick, solution, which provides the aesthetic finish, however, historically the aesthetic portion is cut from a whole brick to provide slips, leading Target Progress to high levels of waste. Our investment in a slip manufacturing facility at our Accrington factory will allow manufacture of brick slips without the waste element, saving up to 75% of raw material and 10% Group revenue from new and energy usage, vastly enhancing the sustainability sustainable products (%) credentials. As we continue to develop systems ## 01 and solutions for this emerging area, we are looking 50% reduction in plastic to continually optimise our products and designs to packaging vs. 2019 use less raw material and energy, providing a more baseline (tonnes) ## 02 effective solution for our customer. We are undertaking a number of initiatives with the goal of reducing the material content of our products. Developing lower mass traditional Product innovation products not only makes them easier to handle and use on site, but will also lead to reduced Our product innovation, and research and vehicle journeys and the associated emissions development programmes are centred on two key themes: meeting the changing needs of our customers in how they build, and supporting the UK’s ambition to transition to a lower carbon economy. Product development is a key pillar in our carbon reduction initiatives and crucial to our efforts. ## 75% With an increasing attention on improvements in build efficiency and waste reduction, our primary focus has been around continuing research and development of masonry façade solutions alongside supporting the need to provide an increasing number of high-quality new homes. Our key objectives are to open new applications for our core product offer; clay facing bricks, where developments in construction technologies may have ### -vs- led to some changes in the structure of the market. Adapting our offer to take advantage of emerging trends has meant development of façade solutions such as structural brick faced precast systems, designed for high-speed on-site assembly that retain the aesthetic of brick and forms the structural element of a build, to Surebrick, a lightweight Our investment in mechanically retained brick system, which meets purpose-made brick slips all regulatory requirements for high-rise use. will reduce raw material usage and energy by These solutions have been developed specifically up to 75% vs. cutting a traditional brick to meet the changing needs of construction and provide a brick aesthetic finish in an alternative manner where construction methodology has moved away from the traditional carbon ## intensive approach. BRICK VERSUS SLIP 58 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 through increasing the amount able to be carried on each lorry. Changes in building regulation also The clay brick: inherently sustainable brings opportunity. The revision to ‘Part-L’ of the building regulation in 2022 has resulted in increased The history of the clay brick can be traced back for requirements for energy efficiency in new homes. centuries, its versatility and longevity proven through Our reduced section T-Beams for our Jetfloor countless historic buildings that are centuries old. insulated floor system, not only reduces the amount Development of new technologies and improvements of concrete in the floor but provides an improved in efficiency have significantly reduced the energy insulation performance, helping our customers meet intensity required during manufacture. the more stringent requirements of Part-L. Typical buildings constructed from clay brick have Many of our products are manufactured using lifetimes exceeding 150 years, the streets of the UK concrete and more specifically cement as a binder. are lined with homes constructed in Victorian times. Globally, the production of cement is a key These robustly built homes are now highly sought contributor to climate change, is the largest after due to their well-proportioned interiors, and contributor to our scope 3 carbon emissions and typically larger than average outside spaces. The is a key contributor to our overall carbon footprint. clay brick construction alongside the availability of Our first step in reducing the carbon impact of our outside space has allowed extension and structural cement use has been to migrate as many of our adaption of these buildings to modify and modernise products as possible to a CEMII cement product, them as needs have changed. The timeless beauty a blend of cement and limestone which has 16% and longevity of these buildings is a continuous lower embodied CO per tonne. Taking a more advert for clay brick construction, however times 2 active approach and looking for alternative methods do change and on occasion brick buildings reach to reduce our impact, our material scientists the end of their useful life and are demolished. The are working as part of a consortium of industry bricks themselves can be reclaimed and reused if participants, trade bodies and academic researchers in good condition, or alternatively be crushed and to understand the viability of waste bricks as an fed back into construction activity as an alternative alternative cementitious binder. Our development raw material. work has shown very promising results and there Our latest factories are significantly less carbon are opportunities to substitute cement for finely intensive than previous generation facilities, however, ground brick production waste products using this the carbon intensity of clay brick manufacture new technology.Additionally, we are undertaking remains significant, due to kilns that are fired by a wide ranging assessment of our clay reserves natural gas and the carbon released from the clay and technologies to assess the best possible during the firing process. solution to meet wider demand for calcined clay as a cement substitute. When considering the longevity of a clay brick building, the full lifecycle impact of the embodied We continue to seek out opportunities to deliver carbon is incredibly low, alongside this, brick innovation to the market and are targeting 10% structures require little to no maintenance through of our revenues to be delivered from new and their lives, whilst other comparable materials may sustainable products by 2025. We continue to focus require additional applications of protective coatings on offsite solutions and raw material developments or surface treatments to enhance their lifetime. as our key strategic direction, both being areas where we can clearly demonstrate significant positive impacts upon our carbon footprint. Investment in product development and innovation is critical to our future success and we have previously communicated our intention to increase spend in this area, a process we have started to implement, as we suitably resource our business to dedicate additional time to our future state without having to compromise our current operational performance and customer service levels. 59 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## SUSTAINABILITY REPORT ## PRODUCT CONTINUED As our climate changes, with more extremes of It is apparent that clay brick is inherently sustainable temperature, clay brick is well placed to construct when its longevity is considered against that of ## buildings suitable for such a changing environment. alternative solutions. Our challenge is to refine 976 The thermal mass properties of clay bricks naturally and develop this versatile building product, further ## tonnes absorb heat, creating a heat buffer and helping reducing the embodied carbon. With this focused prevent the inside of buildings overheating during the effort, we are confident that the clay brick will targeted annual saving of plastic summer. During the colder months, bricks store heat continue to be the sustainable building material per annum by 2025 through sunny days and slowly release this back as of choice long into the future. the temperature falls, helping to warm the building. Plastic packaging The reduction of plastic packaging supplied with our products provides a huge opportunity to support ## the wider global environmental goal of the reduction = of single use plastics, and the associated harmful impact upon natural habitats when these materials are not disposed of appropriately. Our current packaging provides numerous -vs- benefits including ease of product identification, stability during transportation, and ensures our ## 195 m products are clean, dry, and fit for installation upon plastic carrier construction sites. bags We already minimise plastic packaging on many of our product ranges, including our aggregate blocks ## 1x 10 x and specific brick ranges, and have also significantly Pizza Clay bricks increased the recycled content of essential plastic strapping to ensure stability. However, as a business we have generally experienced overall increases Carbon footprint in plastic packaging in the last 20 years, consistent with the wider trends in society across other everyday products. ## 4.53kg 3.75kg Our targets in meeting this challenge are ambitious, with a commitment to reduce our total volume of plastic packaging by at least 50% by 2025, whilst Lifespan also ensuring that the safety and quality credentials provided by our current packaging methods are ## 1 day 150 years not compromised. At present, at the majority of our brick factories, it is not possible to simply remove the plastic wrapping as the wrapping provides the pack of bricks with its integrity when transported. Carbon generated per day of product’s life Alternative packaging equipment has been installed ## 4.53kg 0.005g at our Accrington facility during the year following Single brick successful trials. This ‘belly banding’ solution reduces plastic per pack by 38% and we will look to utilise a similar approach across the business. ## 55g All bricks in average house (8,000) ## 10 BRICKS VERSUS 1 TAKEAWAY PIZZA 60 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 STRATEGIC REPORT Both the new factories at Desford and Wilmecote will be equipped with packaging solutions that will allow bricks to be despatched without conventional plastic wrapping, whilst still giving the option to do so where customers request this for safety reasons. To ensure consistency in customers' supply chains, we recognise that this is a topic requiring full industry engagement and collaboration, and we are engaging with customers across all our key markets to ensure our solutions meet their needs. This is not without its challenges; generally our customers are supportive of our initiative, although significant behaviour change is needed in the construction industry as changes will be required in the way our products are stored and handled, with safety being of critical importance that cannot be compromised. # Pricing integrity and transparency We recognise that in many of our product categories our markets are characterised by a small number of large businesses, operating nationally, and enjoying large market share positions. In order to ensure the highest standards of integrity we enforce a zero-tolerance approach to any anti-competitive activity. All relevant managers and commercial employees are required to undertake annual online compliance training on both competition law and anti-bribery, with controls in place to record correspondence and communications with competitors. The fines that can be levied on companies which are found to have breached competition law can reach 10% of annual turnover and companies can face damages claims from those wronged by anti-competitive actions. The risk of such fines, even if senior management were unaware of such behaviours, mean that compliance and monitoring obligations are taken extremely seriously. # Ethical and sustainable procurement The procurement of third-party materials and services are critical to our value chain. In 2022 this expenditure totalled over £200m, including materials such as steel, insulation, cement, aggregates, pulverised fuel ash (PFA) and products used in our flooring solutions. Our environmental footprint is minimised through a focus on local sourcing. In 2022, over 85% of our materials procurement (excluding capital items) was UK sourced, minimising environmental impacts of cross border transport logistics. Our procurement management system is audited as part of our ISO 14001 and ISO 9001 accreditations. Compliance plays a key role within the system, covering over 1,400 suppliers' strict adherence with a range of governance topics including anti-slavery, bribery, competition law, data protection, and equal opportunities. We adopt the Ethical Trading Initiative code of practice to ensure that worker rights are protected as part of the supplier onboarding process, and this is continuously reviewed. Larger suppliers are required to meet relevant ISO standards including ISO 9001, ISO 14001 and ISO 43001, or equivalent, for example, all timber procurement is through FSC-accredited suppliers. Our health and safety team assists and develops suppliers' standards to help them improve their own safety procedures where necessary. # Sustainable sourcing Local sourcing of raw materials isn't always possible and where we do need to transport materials longer distances, we seek to do this in the most sustainable way possible. We utilise the rail network to transport pulverised fuel ash (a key raw material which is a waste product used in manufacturing our Thermalite aircrete blocks) to our factory. Since 2015 we have transported over half a million tonnes of material by rail, removing over 5 million heavy goods vehicle miles from the UK road network whilst also reducing carbon emissions. # 5.5k+ Hours of face-to-face health and safety training time in 2022 # 5 million heavy goods vehicle miles removed since 2015 with rail transport ![img-9.jpeg](img-9.jpeg) 61 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## SUSTAINABILITY REPORT ## PEOPLE This work was cemented as part of the second ### OUR PEOPLE TARGETS phase of training and will continue to be a focus going forward. Our 2023 health and safety messaging will continue Target Progress to focus heavily on our Golden Rules and Zero Harm, with the key topics being supervisory management of health and safety standards Zero harm (No.) and colleagues taking time to stop, not rush and cut corners. ## 01 Safety 5% of employees in earn We maintained our certification to ISO 45001 & learn positions (%) occupational health and safety management ## 02 system standard. All our facilities were internally audited to this standard and seven facilities plus central systems were externally audited. We placed a clear focus on action management to improve our demonstrable compliance resulting in reduced overdue compliance actions by 75% in the year. Health, Safety and Wellbeing Our Lost Time Incident Frequency Rate (LTIFR) in 2022 showed a slight improvement, running at The continuous improvement of our health and 3.79 incidents for every million man-hour worked, safety performance remains our number one compared to 3.98 in 2021. Of the 29 separate priority, working towards our goal of zero harm. business areas monitored, 20 were Lost Time We recognise that our workforce is our greatest Incident (LTI) free during 2022, seven have been LTI asset, and we aim to provide a working environment free for over five years and three for over 10 years. that is free of accidents and ill health. Our four-year Our lost time incident severity rate (number of days zero harm strategy is designed to take us on a lost per lost time incident) also showed a small journey to an ‘interdependent’ safety culture where all decrease compared to 2021 (76 versus 93) and has colleagues’ mantra is ‘I don’t want anyone to get hurt’. run at a consistently low level for the last two years. Culture We continued to provide a range of health and In 2022 we continued this work with the core focus safety related training, with key highlights within the on health and safety behaviours and culture. We year being: partnered with external training provider Juice • Two phases of behavioural health and safety Learning to deliver bespoke training for every training conducted, the equivalent of over 5,500 colleague, delivered in two phases focused around hours of face-to-face training time; the meaning of our Golden Rules to the individual and the choices we all make when performing work • Running two in-house National Examining Board and their implications to health, safety and wellbeing for Occupational Safety and Health (NEBOSH) for both individuals and those working with them. Certificate courses with nine managers gaining the qualification bringing the total number qualified To ensure that leaders of people were fully aware of in our business to 75; their roles in relation to health and safety, we reviewed • Two Institute of Occupational Safety and Health and issued a specific accountabilities document Managing Safely courses run; and to the business and ensured that all leaders were provided with a briefing on its importance to them • Our colleagues continued to be provided with and the business for maintaining health and safety training, specifically the Institute of Occupational standards. It also set out the link between legislation Safety and Health (IOSH) working safely course we must all follow, our Golden Rules and Safety alongside the traditional risk assessment and Matrix and the job descriptions we all sign up to. standard operating procedure training. 62 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 STRATEGIC REPORT ![img-10.jpeg](img-10.jpeg) # Health and wellbeing The business undertook a major review of its occupational health support services in 2022 to ensure that we had a fit for purpose offering for colleagues and managers alike. One of the outputs from this was a partnership with FitBack Physiotherapy Services, who provide proactive support to deal with musculo-skeletal issues before they result in significant pain or absence from the workplace. We have three factories where clinics are held at the premises on a weekly basis for colleagues to refer into, with remaining sites utilising a network of clinics. We hope this will help reduce ill-health and absence across the business. Following the significant effort of 2021 in training 57 colleagues to be mental health first aiders, we continued our promotion on the importance of looking after our mental health. We updated our policies on health and wellbeing and introduced a mental health and wellbeing risk assessment for the Group that sets out the risks and control measures we have in place to protect the mental health of all colleagues. A number of colleagues also took their learning around mental health to the next level, completing the TQUK Level 2 Certificate in Mental Health Awareness. One output of our improved focus on mental health and better communication of resources available to support colleagues has been an increase in utilisation of our employee assistance programme. In 2018 utilisation was at 2.5% of the workforce and has been steadily improving, reaching 10.5% in 2022. This means more colleagues have reached for proactive support than ever before. # British Ceramic Confederation (BCC) Pledge health and safety awards As in previous years, Forterra submitted best practice entries into the BCC Pledge awards. In 2022 we received two individual recognition awards, one emerging talent award, five open-category awards and two awards in conjunction with contractors. The combined entries were reviewed and we received the BCC Pledge award of excellence for 2022, in recognition of our impressive efforts on health and safety across the Group, which is the highest award from the event. ![img-11.jpeg](img-11.jpeg) Recognition at the British Ceramic Confederation Pledge health and safety awards # Equality, diversity and inclusion Our commitment to developing a more diverse, equal and inclusive culture remained a key focus during the year, as we continue to recognise the benefits a diverse workforce brings to our business. Further information about diversity at Board level can be found in the Chairman's Statement on page 7. Whilst our industry continues to be male dominated, attracting female candidates into the sector remained a challenge but we were successful in appointing a number of females to key roles, these included our Marketing Director, a Factory Manager, Production Shift Manager, and various other operational roles. As part of our 2022 graduate programme, 67% of the graduates recruited were female, helping us to increase the talent pipeline. To ensure talent management remains high on the people agenda, in 2022 we launched our Forterra Talent Board. Coupled with this we did a deeper dive into our succession planning process and launched a new automated performance appraisal system aimed at all employees ('PDP for all') to identify training needs, generate career conversations and to drive high performing teams across the business. In 2022 we also kick-started a welfare improvement project to upgrade welfare and rest facilities across the business, making them more gender inclusive. The ongoing improvements will continue throughout 2023 into 2024. The charts overleaf show our headline gender diversity statistics. Currently, 11% of our total workforce were female, with 18% of management positions (defined as direct reports to Executive Committee members) filled by females. Gender Pay reporting is detailed within the Annual Report on Remuneration on page 144. 63 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## SUSTAINABILITY REPORT ## PEOPLE CONTINUED Human and labour rights ### We understand our responsibility to help eliminate slavery and GENDER DIVERSITY human trafficking, both in our business and wider supply chain. We undertake our responsibilities under the Modern Slavery and Human Rights acts, including clear Company policies and 12% relevant declarations. Our anti-slavery policy specifically covers the role of suppliers in meeting the same standards which we 29% set ourselves. DIRECTORS OF EXECUTIVE The Board values and appreciates the contribution made by THE COMPANY COMMITTEE all employees at every level and is committed to protecting and 71% respecting human rights. Each employee is treated fairly and equally and the Company has measures in place to ensure that 88% the Group is free from discrimination. Throughout the Group there is a zero-tolerance approach to any form of harassment Male Male or bullying, forced or involuntary labour, and child labour in any Female Female form. The Board is invested in the development of employees and has put in place measures to protect both their physical and mental wellbeing. The Group embeds its commitments to the protection of human rights through its Anti-Slavery and Human Trafficking Policy. 18% 18% We are proud to be an accredited member of the Living Wage COMBINED DIRECT Foundation, with a firm belief that a hard day’s work deserves EXECUTIVE REPORTS OF a fair day’s pay. COMMITTEE EXECUTIVE AND DIRECT COMMITTEE Our commitment to pay the real living wage to all employees REPORTS is unwavering and being a recognised Living Wage employer, 82% 82% will help us attract and retain employees. Data protection and privacy Male Male The public is more aware than ever of the role businesses Female Female play in their lives through targeted use of our personal data, and all businesses are expected to act in accordance with a higher standard of transparency. The protection and privacy of our employees’, customers’ 11% and suppliers’ data is of paramount importance and we fully recognise the increased risk to businesses across the world ### TOTAL from cyber attacks using ever sophisticated means. As part ### EMPLOYEES of our ongoing commitment to information security, we have ### OF THE ### successfully obtained ISO 27001 accreditation via independent GROUP external audit. A key component of maintaining this international 89% standard is the demonstration of continuous improvement and we have continued to invest in this area throughout 2022. This respect for others’ data extends to using this information Male only for reasons of which they explicitly agree, as laid out within Female the General Data Protection Regulations (GDPR). 64 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS ### 2022 E E L S ’ ### H S C ### W ### O H ### T E ### M ### S E ### K ### R ### O ### W ### ‘ ### A ### R Following the shortage of qualified, ### R skilled HGV drivers in the external ### E labour market during 2021, we ### T successfully launched our internal ### R ‘Works to Wheels’ campaign. Aimed at | O | | | 7 | | --- | --- | --- | --- | | F | our existing employees we have trained | | | | | | seven additional drivers. In addition | additional HGV | | | | we have a ‘waiting pool’ of up to | drivers trained | | | 14 drivers which will allow us to meet | | to meet changing | | | the changing needs of our customers, | | needs of our | | | as well as reacting quickly to changes | | customers | in the labour market in the future. Employee experience In 2022 we streamlined our onboarding process to provide a smooth transition for new recruits into the Forterra family. As well as providing a structured induction programme over several weeks, we launched our welcome pack which all new recruits receive within a couple weeks of joining. The Employee Forum continued to run during the year. Attending the Employee Forum meetings were CEO; Stephen Harrison, HR Director; Shahbaz Idriss, and Non-Executive Director; Martin Sutherland who provided feedback to the Board. Our employee engagement survey was run in September 2022 with improved participation rates versus 2021. Similar themes arose compared to the previous year, relating to employee recognition and employee development and we continue to strive for improvement in these areas. A key example is our 2022 focus on leadership development, designed to equip our leaders with the skills to have better and more meaningful conversations within their teams and further facilitate employee recognition and development as a result. Responses to questions centred around health and People development safety remained positive for a second consecutive year, reaffirming that employees understand our During the year we launched three Forterra Golden Rules, feel safe at work and that Forterra Leadership Development Programmes. Over 3,200 lives by the core value of ‘Safety First’. training hours have been dedicated to these so far. To further support our corporate charity Mind, Level 1 Leadership Development Programme a £1 donation was made on behalf of Forterra for Level 2 Essential Leadership Development each employee who participated in the survey. Programme Local community and charity engagement Level 3 Advanced Leadership Development While our products help to shape the built Programme environment, we are also aware that we shape the The programmes focus on experiential learning communities close to our factories – the towns giving leaders practical tools to be more engaging, and villages where many of our employees live. and inclusive leaders as well as driving change and creating high performing teams. 65 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## SUSTAINABILITY REPORT ## PEOPLE CONTINUED Herlington Pre-School Fruit and Vegetable Garden Located close to our Kings Dyke factory in Whittlesey, Herlington Primary has benefited from a donation of £1,000 towards creating fruit and vegetable planters where children can plant and tend a range of fruit and vegetables before harvesting them for snacks and for donation to members of the local community in need. Families First Free Play Facility The Forterra Community Fund has donated £1,000 to Families First, a Peterborough Community Interest It’s important to us that these communities are able Company that facilitates free play services for local to thrive, and it is with this objective in mind that children and families. The donation funded the we established the Forterra Community Fund at running costs of 10 sessions, providing activities the beginning of 2022. The fund provides a clear and a hot meal for children aged five to 12. structure and application process that enables us to support local charities, clubs and organisations Nene Valley Rotary Club The Forterra Family from within these communities, and beyond. Each A donation of £1,000 was made to Nene Valley Fun Day held at our month, the Community Fund panel meets to assess Rotary Club for its Lone Parents Holiday Scheme, Kirton site. applications and apportion donations. which enables children and lone parents to enjoy a fun day out. Also in 2022, we selected the mental health charity Mind as our corporate charity following Our donation helped to fund a trip to Hamerton a poll of employees. In addition to the Company Zoological Garden, near Huntingdon, for 37 children and employees organising and participating in and eight support staff from Blackthorne Growing a range of fundraising activities for Mind, this Together Community Nursery in Northampton. partnership helps to raise awareness and promote Measham Community First Aid Responders understanding of mental health in the workplace, The Forterra Community Fund provided a donation thereby providing a mutual benefit to both parties. to the Measham Community First Aid Responders Fundraising events (MCFR) so they could buy a new kit bag to carry life- We have a calendar of events that we share with saving equipment. Founded in 2009 by a group that employees to encourage participation in fundraising includes two long-serving Red Bank employees, the activities, ranging from a raffle to win a day’s holiday MFCR is a team of trained volunteers who provide a to sweepstakes for the football world cup. vital emergency service to their local community. In July, we held a Family Fun Day at our Kirton site. Our community work extends to supporting the Almost 500 employees and their families attended next generation of workers. By getting behind the the event to participate in a variety of activities, from Government’s careers strategy, we are working a circus workshop and face-painting for children to to plug the skills gaps by forging links between | an ‘It’s a Knockout’ competition for the adults, plus | education and industry and helping young people | | --- | --- | | stalls, bouncy castles, raffles and more. In total, the | to make their first step onto the construction | | event raised over £3,000 for Mind. | industry ladder. | | Forterra community fund donations | In 2022, we appointed seven further education | | Since launching the Community Fund, we have | colleges as Forterra Construction Hubs. The | | supported numerous local clubs, organisations | colleges will benefit from a wide range of support | | and charities with donations. Here are just a | over the two years of their Construction Hub status, | | few examples: | including donations of bricks, tutor resources, and | enrichment workshops, focusing on mental health and wellbeing. 66 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## SUSTAINABILITY REPORT ## OUR REPORTING DETAIL Group sustainability reporting The following table covers our wider sustainability metrics, which are aligned where possible to the SASB disclosure for construction materials. We will continue to review this data suite on an ongoing basis for future reporting periods. Targets Pillar Topic Metric 2022 2021 2020 2019 Planet Group CO e emissions Tonnes 295,371 280,381 198,921 319,296 2 | Planet Group CO | e emissions Kg CO | | | e/tonne 124.5 117.5 115.3 123.4 | | --- | --- | --- | --- | --- | | | 2 | | | 2 | | Planet Clay products CO | | e emissions Kg CO | | e/tonne 244.9 237.3 237.0 256.0 | | | | 2 | | 2 | | Planet Concrete products CO | | | e emissions Kg CO | e/tonne 20.7 19.9 21.4 20.9 | | | | | 2 | 2 | Planet Electricity sourced from on-site renewables % – – – – Planet Electricity from renewable sources % 100 100 100 – Planet Waste to landfill Kg/tonne 0.01 0.02 0.03 0.16 Product New product index (revenue from new products) % of revenue 3.7 1.1 1.2 0.6 Product Plastic packaging consumed Tonnes 1,588 1,606 1,216 1,751 Product Plastic packaging per tonne of product Kg/tonne 0.74 0.74 0.82 0.79 People Health and safety – Lost time incident No. of accidents per frequency rate (LTIFR) million-man hours worked 3.79 3.98 2.52 7.35 People Percentage of employees in ‘earn & learn’ positions % 3.6 3.74 3.50 3.20 Additional disclosure Pillar Topic Metric 2022 2021 2020 2019 Planet Carbon emissions (scope 1 and 2) Tonnes 295,371 280,381 198,921 319,296 Planet Carbon emissions (scope 1) Tonnes 295,371 280,381 198,921 299,679 Planet Ultra-low emission vehicles (cars) % of fleet 47 31 17 n/a Planet Delivery fleet efficiency Mpg 8.04 7.98 7.62 7.51 3 Planet Mains water (absolute) m 264,200 309,216 265,508 287,101 Planet Mains water (litres/tonne) Litres/tonne 111 130 154 111 Planet Air quality – SO 2 emissions Tonnes 5,877 3,720 3,273 5,783 Planet Waste generated Tonnes 86,755 100,611 77,897 107,609 Planet Waste recycled % 99.97 99.96 99.20 99.10 Planet Energy consumption (absolute) MWh 973,315 952,788 698,655 956,266 Planet Energy consumption (kWh/tonne) kWh/tonne 410 399 405 369 Planet Percentage from grid electricity % 100 100 100 100 Planet Hazardous waste generated Tonnes 265 630 65 88 Product Output clay products Tonnes 1,092,508 1,071,303 751,188 1,129,173 Product Output concrete products Tonnes 1,273,729 1,314,083 974,713 1,459,242 People Apprentices No. 27 48 26 31 People Graduates No. 7 8 6 7 People Charitable contributions £ 140,985 25,592 48,040 41,370 67 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## SUSTAINABILITY REPORT ## CLIMATE-RELATED RISKS AND GOVERNANCE Task Force on Climate-Related Financial Disclosures Governance Climate-Related Financial Disclosures Governance and oversight responsibility around climate-related The Task Force on Climate-Related Financial Disclosures risks and opportunities ultimately sits with the Board. The (TCFD) has developed a suite of consistent climate-related Board’s Risk and Sustainability Committee is responsible for financial disclosures that are useful to investors, lenders and oversight of the Group’s sustainability approach and includes other stakeholders in understanding material climate-related the following within its terms of reference: risks facing businesses. TCFD compliance is mandatory a. Defining the level of the Group’s ambitions with regard for UK premium listed companies, including Forterra, and to reducing its environmental impact and addressing we are pleased to be disclosing in line with this, including climate risk; scenario analysis highlighting how different increases in global b. Overseeing the development of the Group’s sustainability temperatures could impact on our business. policies, covering both environmental and wider social The Task Force recommends that these climate-related financial (people) matters; disclosures are provided in public annual filings and as such we c. Setting challenging environmental targets in order to meet have provided a comprehensive Sustainability Report covering the Group’s goals and monitoring progress against these; the topics specified by TCFD along with others across the wider d. Monitor the Group’s reporting under TCFD, Sustainable environment, social and governance (ESG) field. Accounting Standards Board (SASB) and other protocols The Task Force structured its recommendations around as appropriate; and four thematic areas that represent core elements of how e. Ensuring that sustainability policy still satisfies its desired organisations like ours operate: outcomes and evaluating management’s performance • Governance; in implementing policy and achievement against the targets set. • Strategy; • Risk management; and Strategy We have a clear strategy to grow our business and create • Metrics and targets. shareholder value whilst at the same time reducing our impact The Group can state that in accordance with the Listing on the environment. Our strategy recognises that sustainability Rule 9.8.6 R, these Annual Report and Accounts include is critical in ensuring our longevity as a business. Our long-held climate-related financial disclosures consistent with the strategic priorities sit hand-in-hand with our goal of reducing our TCFD recommendations. impact on the environment. Increased use of modern methods of manufacturing improve efficiency, reducing both energy use and waste, reducing not only our costs but the impact we have on the environment. We have embedded challenging sustainability targets within our strategy (for more information please see our targets on page 49). We have described in detail on pages 69 to 75 the key climate- related risks that may impact upon our business in the future. We also highlight the climate-related opportunities that may present themselves and where, if we are able to adapt quickly enough, we may be able to gain competitive advantage. 68 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## SUSTAINABILITY REPORT ## SCENARIO ANALYSIS Methodology identified in the qualitative phase were then transferred to We have undertaken a scenario analysis exercise to better the quantitative modelling in order to assess the scale of their understand the possible range of risks and opportunities our potential impact. business could face under different future climate forecasts. The quantitative modelling was undertaken with support The approach consisted of two stages, the first being a from a specialist corporate climate modelling consultancy, qualitative analysis to identify and assess the likely risks, and and interrogated the warming pathways, modelling impacts the second including quantitative modelling. In line with TCFD across four categories: Operations, Supply Chain, Demand, recommendations, we examined three scenarios (+1.5ºC, and Physical Effects. The outputs of this quantitative process +2.0ºC,+4.0ºC above pre-industrialised levels by 2100) in order allow us to better understand the relative impacts and to capture the widest range of plausible impacts on our business. opportunities arising from climate change, and a shift to Both qualitative and quantitative analyses included a thorough a lower carbon macroeconomic model. assessment of transition and physical risks, and were modelled around the widely recognised Representative Concentration A note on warming pathways Pathways (RCPs) and Shared Socio-economic Pathways (SSPs). We have used the Representative Concentration Pathways (RCPs) as our framework for modelling different emissions During the qualitative phase, granular assumptions about the pathways and their associated impact on the climate. To explore policy (Government), built environment, technological, and the associated market and customer trends underpinning our physical changes associated with each warming pathway were commercial resilience, we have also included a view of different examined by a working group comprised of the respective socioeconomic futures (known as the Shared Socioeconomic heads of relevant business functions (Strategy, Operations, Pathways, SSPs). Finance, Sustainability, Marketing). The risks and opportunities Middle of the road ~ 2°C warming The 2°C warming scenario is considered the most likely scenario, and assumes the UK remains on its current path to decarbonisation, broadly meeting its stated policy goals, with a range of adherence to targets by other nations. In specific terms, this means the UK achieves net zero by 2050 and meets its other environmental industrial strategy aims. The scenario assumes some demand-led growth in low carbon masonry products, driven by carbon prices inflating the cost of emissions-heavy products. Policy: The UK integrates product carbon labelling Technology: The carbon intensity of the electricity grid across sectors in the near-term, although these labels do is assumed to hit current targets, and is modelled on a not become mandatory until the medium-term. The UK linear basis to 2050. Within the building products sector, phases out coal usage completely by the mid 2020s and it landfilled pulverised fuel ash (PFA) is being utilised as establishes its first net zero industrial cluster by 2040. Building coal plants begin to shut down and in the long-term, the regulations stipulate that public buildings and infrastructure UK’s Government support package directs funds towards must meet both embodied and whole life carbon targets. carbon capture, utilisation and storage (CCUS) technology, CCUS-enabled ‘blue’ hydrogen, and electrolytic ‘green’ Built environment: Building designs become more energy hydrogen. Carbon-cured concrete and lighter bricks efficient, helping to drive down emissions and heating costs. become increasingly common. Demand for high thermal mass products such as bricks and blocks continues to grow accordingly. Renovation and Physical: Physical impacts of climate change appear retrofitting increase in importance as growth drivers in the gradually over the period, though effects on the UK are medium-term, especially as a response to green building relatively minor to 2050. These effects include having eight regulations and rising electricity prices. As buildings become days per month above 25°C in summer months. Damage more thermally efficient, the component of embodied to UK non-residential property is expected to increase by emissions from materials in the whole-life carbon footprint 26% and flooding damage to facilities in UK coastal regions of buildings increases. This helps to drive steady demand is expected to increase by 48%. for low carbon products and sustainable alternatives, with potential pricing premiums for the lowest emissions products. 69 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## SUSTAINABILITY REPORT ## SCENARIO ANALYSIS CONTINUED Factors SSP1 – Steady path to sustainability SSP2 – Middle of the road SSP5 – Fossil-fuelled global growth RCP 2.6 3.4 8.5 SSP 1 2 5 Temperature rise 1.5ºC 2-2.4ºC 4ºC Likelihood Low High Medium Societal response Proactive, Orderly Proactive, Disorderly Reactive | Carbon price 2030: £150/tCO | | e | 2030: £100/tCO | e | 2030: £70/tCO | e | | --- | --- | --- | --- | --- | --- | --- | | | | 2 | | 2 | | 2 | | | 2050: £400/tCO | e | 2050: £300/tCO | e | 2050: £80/tCO | e | | | | 2 | | 2 | | 2 | Share of free UK ETS allowances 2030: 15%, 2050: 0% 2030: 20%, 2050: 0% 2030: 35%, 2050: 10% Grid intensity/ Directed away from fossil fuels, Some investment in renewables but Directed towards fossil fuels; Energy mix towards efficiency and renewables continued reliance on fossil fuels alternative sources not actively pursued Steady path to sustainability ~ 1.5°C warming • Products with strong thermal characteristics are likely to The 1.5ºC pathway assumes significant proactive public and gain popularity as rising energy costs increase the drive for policy support for climate action, and a broadly unified global better insulation response. It assumes a wide range of factors including stronger • Production facilities that are close to CCUS cluster zones, regulatory interventions; enabling and disrupting technologies or that have hydrogen as part of their decarbonisation plans emerging sooner; and demand-led effects being more material. will likely benefit from lower costs as carbon prices increase Rather than a predictive exercise in modelling, the scenario allows Resilience of our strategy us to examine the various impacts of a faster shift towards addressing climate change. The scenario analysis we have undertaken has assisted in better understanding the risks and opportunities across a broad Fossil-fuelled global growth ~ 4°C warming range of climate scenarios. The 4ºC warming scenario assumes that the global growth We would likely be subject to transition risks in a 1.5°C and continues to be driven by fossil fuels, with limited changes to 2°C warming scenario, which, if left unmitigated, would likely current economic models. Regulatory interventions are delayed lead to potentially higher operational costs and lower revenues. or absent, with a broad range of achievement of national This is especially true if demand for low carbon products rises, decarbonisation targets. Towards 2050, the effects of climate a government penalty is implemented on high-carbon products, change become readily apparent to electorates, and rapid competitors are better able to access low carbon sources of reactive change is effected late in the period. The pathway has energy and carbon costs rise. These financial impacts would limited impact on Forterra’s near and medium-term operations, be higher in a 1.5°C compared to a 2°C scenario as public with significant impact in the long-term. and policy support for climate mitigation is assumed to be Implications for products (under 2°C – exaggerated stronger. In order to avoid these risks, our strategy includes under 1.5°C and delayed under 4°C) reducing the carbon intensity of our products and factories, • Bricks and blocks that are manufactured at a lower carbon as demonstrated by our targets (on page 49), and actively intensity are likely to gain popularity pursuing the opportunities outlined within this TCFD statement. • Environmental product declarations (EPDs) and lifecycle We would assume more physical risks in a 4°C warming assessments are likely to become the norm as product scenario, resulting in increased cost from operational disruption. labels become mandatory However, the majority of our factories are at low risks of extreme • Products that are geared toward refurbishment are likely weather events such as flooding and so the overall financial to gain popularity impact of these risks is considered manageable. Our strategy will continue to respond to evolving climate risk projections, with established procedures in place to identify and escalate climate-related risk as described on pages 44 and 68. 70 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## SUSTAINABILITY REPORT ## RISK MANAGEMENT Risk Management Our wider risk management protocols are explained in detail within the risk section of this Annual Report and Key can be found in the Risk Management section starting on page 76. Short: 2021 – 2024 Climate-related risks are captured within our existing risk management process. As part of the work originally Mid: 2025 – 2034 undertaken in 2021, we have amended our risk scanning horizon to allow the capture of longer-term climate- Long: 2035 – 2050 related risks which may not have an immediately measurable financial impact. In identifying climate-related risks, in accordance with the recommendations of TCFD, we have identified both the transitional risks R Risk associated with adapting our business to a lower carbon economy, along with both the longer-term acute O Opportunity risks associated with increasing severe weather events and the physical risks of long-term climate change such as sea level rise. Our scenario based analysis considers both risks and opportunities as well as the different time horizons over which they may impact. Scenarios Risk Potential impact Possible mitigation/action 1.5°C 2°C 4°C Transitional Risk Policy and legal We recognise a number of policy and legal risks that may stem from changes to existing requirements or additional requirements being imposed on our business. Each of the policy and legal risks could lead to an increase in our operating costs but can also be mitigated by continuing to operate above levels demanded by our regulators and continuing to pre-empt potential changes and seek to make reductions in our emissions. Enhanced or changing Increased costs due to changes Continue to operate above the Short Mid Long R reporting obligations in scope and detail required as levels demanded by regulators third parties verify our emissions and ensure third party verification and compliance New or changing Loss of market share if we fail Continue to pre-empt potential Short Mid Long R legislation that may impact to keep pace with changes, changes and make reductions in our existing products; movements in architectural our emissions. Invest in improving potential for mandatory trends and difficulty in selling carbon efficiency of production, embodied carbon limits higher carbon products to enter partnerships for carbon customers with regulatory capture and storage, and use of constraints; early closure of renewable energy. Communicate existing plants due to changes actions clearly to stakeholders. in legislation Undertake lifecycle assessments to provide evidence of longevity and reusability reducing embodied carbon over time Exposure to litigation Financial and reputation damage Continue to operate above the Long Long Long R in relation to our past to the business levels demanded by regulators activities Increased prices of carbon Rising operational costs; reduced Invest in improving carbon efficiency Short Mid Long R credits or reductions in the competitiveness against lower of production, partnerships for amount of ‘free’ allowances carbon products carbon capture and storage, and use of renewable energy Limitations on availability Inability to source sufficient lower Seeking to reduce our reliance n/a Short Mid R of suitable fuels emission fuels to continue our on fossil fuels by procuring green manufacturing processes electricity through long-term supply contracts and also reducing our gas usage by improving efficiency and utilising hydrogen Limitations on availability Increasing costs of materials such Establish alternative PFA supply Short Short Short R of suitable raw materials as PFA; increasing cost of alternative chains; source PFA alternatives raw materials where demand and innovate product recipes increases 71 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## SUSTAINABILITY REPORT ## RISK MANAGEMENT CONTINUED Scenarios Risk Potential impact Possible mitigation/action 1.5°C 2°C 4°C Transitional Risk (continued) Market As society continues to recognise the importance of sustainability and the risks that climate change presents, there is an expectation of a trend towards greener processes and products. The risk of failing to make changes at the expected rate can be mitigated by effectively making a case for the sustainability credentials of our existing products, whilst at the same time investing to reduce the environmental footprint of our products and supply chains, and adding further greener products to our range through innovation. Customers substitute Reduced demand for our existing Focus on effective emissions Mid Mid Long R our products with product range and a consequential reduction taking advantage of new greener alternatives, closure of existing facilities market opportunities driven by should they exist demand for lower carbon products We are ineffective Excessive capital expenditure may Ensuring that our efforts to mitigate Short Mid Long R when investing in new be required where our investment is climate-related risks are well technology; either in terms not right first time resourced; especially in respect of achieving the desired of providing the highest level of outputs or overspending management support in the process Broader technology Forterra unable to reach long-term Maintain and extend approach n/a Mid Mid R innovation such as carbon emission reduction targets; loss of to piloting transformational O capture, utilisation and carbon-competitiveness to other technologies in the manufacture storage (CCUS) and building products of building products Hydrogen usage do not progress swiftly enough Industrial cluster zones Forterra sites excluded from cluster Source clay resources near clusters Short Long Long R (net zero industrial hubs zones; rising costs; reduced or other low carbon heat sources; whereby all industries competitiveness invest in decarbonising current in a region collectively products or alternative products reduce their carbon) Thermal mass (the ability Architectural trends; increased Ensure thermal properties of Short Mid Mid O of a material to absorb, demand for products; increased masonry products are well store and release heat) popularity with customers needing communicated; clearly recognition to reduce operational carbon demonstrate energy cost emissions of buildings savings for standard homes CCUS research Potential for increased carbon- Establish partnerships and pilot Mid Mid Long O competitiveness; increased access schemes to capital; increased ability to react to demand for low carbon product 72 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 Scenarios Risk Potential impact Possible mitigation/action 1.5°C 2°C 4°C Transitional Risk (continued) Technology As greener technologies emerge or existing technologies evolve we want to ensure we are in a position where we can use the latest technologies to reduce climate-related risks and make these changes effectively, something we can mitigate by continuing to engage with technology innovators and how they can help our business in its sustainability goals. Changing customer Reduced demand for some or all of Continue selling products until Short Mid Long R behaviour and additional our products if new products cause demand decreases; invest in scrutiny of higher carbon the desirability of masonry homes sustainable technologies, energy products to decrease or alternative product ranges Changes in our supply Operational costs increase as Effectively engage with all Mid Mid Mid R chain a result of scarce raw materials, stakeholders, specifically within the increased energy costs or supply chain, continuing to invest increased taxation; increasing the where new and innovative raw attractiveness of alternatives material solutions can be utilised Uncertainty in our markets Changes in our revenue mix could Effectively making a case for the Mid Mid Long R and fears of economic impact profitability; our reserves sustainability credentials of our uncertainty damaging the of raw materials, our plant and existing products whilst ensuring housing market machinery or facilities could become we innovate in line with changing less valuable market trends and expectations Prioritisation of energy Core product offering becomes Focus on thermal property of Mid Long Long R efficiency over additional more difficult to sell; new products products should energy efficiency O space in home focusing on thermal properties are gain more popularity/regulatory improvement market required to meet demand emphasis Increased ESG weighting Potentially reduced access to capital Ensure Forterra’s ESG disclosures Short Mid Long R from investors and decarbonisation plan are well O communicated to investors Emergence of eco-brick Increased demand for eco products; Invest in improving carbon Mid n/a n/a R market pricing premiums for low carbon efficiency of production, O products; new revenue streams partnerships for carbon capture from new markets and carbon curing, and use of renewable energy 73 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## SUSTAINABILITY REPORT ## RISK MANAGEMENT CONTINUED Scenarios Risk Potential impact Possible mitigation/action 1.5°C 2°C 4°C Transitional Risk (continued) Reputation We have developed the Forterra brand in recent years and possess a collection of product specific brands that are long established and well regarded. There is an opportunity to further strengthen these brands with a sustainability focus however if we fail to do so the reputational cost could be significant. This can be achieved through effective action on climate-related matters and the increased education of the sustainability attributes of our products. Shifts in consumer Reduced demand for our products Focus on reducing carbon intensity Mid Mid Long R preferences due to change in customer of clay bricks, whilst also building perception. Architectural trend out a more sustainable alternative changes; greater difficulty in selling product range our products compared to alternatives Negative perceptions Have greater difficulty in obtaining Fully engaging with our stakeholders Mid Mid Long R | of our business/sector; | planning permissions for new | and increasing the education around | | --- | --- | --- | | restrictions in access | capacity and struggle to attract | the sustainability credentials of | | to debt and capital | employees. Increasing cost of | our products with a >100-year | | | equity and debt as investors | life if homes built from brick, our | | | and lenders switch to perceived | products are inherently sustainable | greener investments Competitors engage Difficulty in selling products Communicate widely on industry n/a Mid Long R in ‘greenwash’ to environmentally conscious challenges; establish industry O communication customers; reduced access to standards for ‘eco-bricks’; provide (communication that capital with ESG-driven investors detailed decarbonisation plans to misleads people as to ensure credibility the green credentials of certain products) Alternative building Potential for new revenue streams; Invest in low carbon material Mid n/a n/a R materials Increased access to capital; alternatives and increase O Increased ability to react to demand communications spend to promote for low carbon products use of innovative sustainable materials Population increase Increased demand for products Opportunity to build more homes, n/a Long Long O through migration ensuring materials are able to meet increasingly stringent sustainability focused building regulations 74 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 Scenarios Risk Potential impact Possible mitigation/action 1.5°C 2°C 4°C Physical Risk Acute We have seen a number of weather-related events (such as flooding) in recent years and recognise that these risks have the potential to increase in likelihood and have a greater impact in the coming years. We recognise that we cannot stop these events from occurring alone. However, we can ensure that we are better prepared for them or can mitigate their impact through suitable planning. Site flood risk Increased insurance premiums; both Suitable planning, capital n/a n/a Long R short-term and prolonged inability to expenditure and preventative operate facilities potentially causing maintenance damage that could be expensive to repair and leading to lost sales Increased operating Increased operational costs for Suitable planning, capital n/a n/a Long R temperatures heating and cooling and/or lack of expenditure and preventative mains water maintenance Chronic We also recognise that the impact of rising sea levels over time triggered by increasing temperatures, may lead to some low-lying areas of the country becoming unsuitable for housing. Variability in weather Loss of working days; Loss of Increase production during winter; n/a n/a Long R patterns productive days; stock shortages new supplier partnerships in lower O risk zones Rising sea levels Low-lying areas of the country Ensure ability to supply at level n/a n/a Long R becoming unsuitable for housing the market demands whilst also O and driving demand for use of continuing to manufacture the our product elsewhere products we do that sacrificially address flooding issues 75 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## RISK MANAGEMENT AND KEY RISKS ## RISK MANAGEMENT FRAMEWORK Overview Our risk management objectives remain to: Effective risk management is critical to successfully • embed risk management into our management meeting our strategic objectives and delivering culture and cascade this down through long-term value to our shareholders. Instilling a the business; risk management culture at the core of everything • develop plans and make decisions that are we do is a key priority. Our risk management supported by an understanding of risk and policy, strategy, processes, reporting measures, opportunity; and internal reporting lines and responsibilities are • anticipate change and respond appropriately. well established. Sustainability 2022 has brought a number of challenges and as a business we are faced with a broad spectrum Sustainability continues to be a core focus within of existing and new risks, of which both the our business with the increasing need to make deterioration of the macro-economic climate, Forterra more resilient against the potential effects and continued energy price volatility since of climate change, and evolving sustainability driven the Russia-Ukraine conflict started in February, risks are highlighted within extensive disclosure are particularly noteworthy. in this Annual Report. These reflect both the impact of our operations on the environment but also We continue to monitor these risks along with a host the challenging targets we have set to reduce this, of other rapidly evolving business risks; introducing targeting net zero by 2050 in line with the Race mitigating controls as appropriate, as they develop. to Zero. • New build residential sector activity levels: The Board is committed to compliance with the As a result of the increased macro-economic requirements of the Task Force on Climate-Related uncertainty, driven by political instability in the third Financial Disclosure (TCFD) and comprehensive quarter and the swift and significant interest rate disclosure on both short and long-term climate changes that followed, we have seen demand risks are included in our Sustainability Report. in the new build housing market start to slow as The Board’s Risk and Sustainability Committee 2022 has come to an end. We are well versed continue to provide oversight and governance over in operating in a downturn as shown during the the most significant risks the business faces in the global financial crisis and more recently in response short, medium and long-term. to the initial Covid-19 pandemic, and will ensure our operations are managed accordingly. Present Key risks economic uncertainty aside, we continue to Key risks are determined by applying a standard operate in a market characterised by structural methodology to all risks, considering the potential undersupply of housing with historical low impact and likelihood of a risk event occurring, inventory levels and record brick imports entering before then, considering the mitigating actions the country. in place, their effectiveness, their potential to be • Cost inflation and volatility: Cost inflation has been breached and the severity and likelihood of the risk a key challenge throughout the last 12-18 months, that remains. This is a robust but straightforward impacting our business across a wide range of system for identifying, assessing and managing spend categories. We have increased selling key risks in a consistent and appropriate manner. prices to recover this cost inflation, however, we Management of key risks is an ongoing process. remain watchful of volatility in key areas such as Many of the key risks that are identified and energy. Although we benefit from having secured monitored evolve and new risks regularly emerge. at least 80% of our energy requirement for the year ahead, we continue to monitor the longer- term risk and the associated geopolitical drivers. 76 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 The foundations of the internal control system are the first line controls in place across all our operations. This first line of control is evidenced BOARD OF DIRECTORS through monthly responsible manager self- assessments and review controls are scheduled to The Board (through the Risk and Sustainability Committee Top downBottom up recur frequently and regularly. Policies, procedures and Audit Committee) have: and frameworks in areas such as health and safety, • Received updates from management on specific key risks compliance, quality, IT, risk management and • Continued to review progress against risk management security represent the second line of controls and actions and internal control priorities internal audit activities represent the third. • Considered the effectiveness of the risk management and Management continue to monitor risk closely and internal control environment put in place procedures to mitigate risks promptly • Regularly reviewed all principal risks, heat maps and wherever possible. Where the risks cannot be emerging risks mitigated, management focus on monitoring the risks and ensuring the Group maximises its • Engaged with management on internal project risks regularly resilience to the risks, should they fully emerge. Risk appetite EXECUTIVE COMMITTEE The Group’s risk appetite reflects the fact that The Executive Committee and the Risk Steering Group have: effective risk management requires risk and reward to be suitably balanced. Exposure to health and • Met frequently to discuss the risk environment, Group risk safety, financial and compliance risks are mitigated management activity, identify risks and gaps, and appraise as far as is reasonably practicable. likelihood, impact and risk mitigation • Identified risk priority areas and focused on the key risks in The Group is however prepared to take certain these areas strategic, commercial and operational risks in pursuit of its objectives; where these risks and the potential • Accepted risk exposure in other areas to ensure appropriate benefits have been fully understood and reasonable prioritisation of key risks mitigating actions have been taken. RISK AND INTERNAL AUDIT Risk and Internal Audit have: • Followed a risk-based internal audit plan • Supported appointed risk owners throughout the year • Continued to track responses of monthly control self- assessments from operational control owners and closure of internal control improvement actions OPERATIONAL MANAGEMENT Operational managers have: • Taken ownership of key local risks • Completed internal control self-assessments monthly to evidence operational controls are in place • Escalated risks as appropriate 77 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## RISK MANAGEMENT AND KEY RISKS Link to strategy Risk appetite Change Changes noted are since December 2021. Strengthen the core Low appetite Increased * Where Stephen Harrison is listed as Executive Sponsor, this will transition to Range expansion Balanced appetite Decreased CEO Designate, Neil Ash, in due course. Product innovation and development High appetite No change 1. Health and safety | Principal risk and | Key mitigation, change and sponsor Rationale | | | | --- | --- | --- | --- | | why it is relevant | | | for appetite | | We continue to work | Safety remains our number one priority. We target an accident- | Link to strategy | Safety first is | | to ensure the safety | free environment and have robust policies in place covering | | embedded in all | | of employees exposed | expected levels of performance, responsibilities, communications, | | decision-making and is | | to risks such as the | controls, reporting, monitoring and review. | Appetite | never compromised. | | operation of heavy | Our safety focus in 2022 was effective employee engagement | | Reducing accidents | | machinery, moving | and communication focused on our ‘Road Map to Zero Harm’ | | and ill-health is critical | | parts and noise, dusts | | Gross change | | | | and in the period we have delivered a programme of behavioural | | to strategic success. | | and chemicals. | safety awareness training emphasising the importance of our | | | safety Golden Rules. Our 2023 health and safety messaging will Net change continue to focus heavily on our Golden Rules and Zero Harm, with the key topics being supervisory management of health and safety standards and colleagues taking time to stop, not rush and cut corners. Executive sponsor: Stephen Harrison* 2. Sustainability/climate change | Principal risk and | Key mitigation, change and sponsor Rationale | | | | --- | --- | --- | --- | | why it is relevant | | | for appetite | | We recognise the | We recognise the positive impact that our products have on | Link to strategy | Focus from all | | importance of | the built environment across their lifespan and are keen for the | | stakeholders has been | | sustainability and | durability, longevity and lower lifecycle carbon footprint of our | | maintained in 2022 | | climate change | products to be championed and better understood. | Appetite | and sustainability | | and both the positive | Short-term transitional sustainability risks include increasing | | remains a high priority | | and negative impacts | regulatory burden or cost, an inability to adapt our business | | for management both | | our products and | | Gross change | in the short, medium | model to keep pace with new regulation or customer preferences processes have on changing more quickly than anticipated or too quickly for our and long-term. the environment. R&D to keep pace. Net change Several longer-term physical risks could have a material impact on the business. These risks include more severe weather impacts, such as flooding, and potentially changes to the design of buildings in order to adapt to different climatic conditions. A comprehensive sustainability report is included within this Annual Report and is also available as a separate document, providing detailed disclosure of the sustainability related risks faced by our business. Our desire to reduce our impact upon the environment sits hand-in-hand with maximising the financial performance of our business; by investing in modernising our production facilities not only do we reduce energy consumption and our CO 2 emissions, but we also benefit financially from reducing the amount of energy and carbon credits we need to purchase, both of which having ## RISK MANAGEMENT AND KEY RISKS increased in cost significantly this year. 78 Executive sponsor: Stephen Harrison* and George Stewart FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 3. Economic conditions Principal risk and Key mitigation, change and sponsor Rationale why it is relevant for appetite Demand for our Understanding business performance in real-time, through our customer order Link to strategy Historically, cyclicality in products is closely book, strong relationships across the building sector, and a range of internal the construction sector correlated with and external leading indicators, help to inform management and ensure that means that in order to residential and the business has time to respond to changing market conditions. Appetite be able to benefit from commercial The housing market has slowed in the second half of the year; driven by periods of strong construction activity. Government economic policy which resulted in significant increases in demand, there will also Since housing demand Gross change be periods of weaker borrowing costs and accordingly affordability. This impact on affordability has slowed across the and consumer confidence has impacted short-term demand for housing and demand where the second half of 2022 as such management have increased the risk that demand for our products Group’s assets may Net change we remain watchful may fall as a result. There does however remain a shortage of housing in not be fully utilised. of further deterioration the UK, financing remains available (though now more expensive) and the in the wider macro- population continues to grow. economic environment. Our ability to flex output and slow production when customer demand weakens has been effective in the past; and where market demand may fall we would expect brick imports to reduce ahead of sales of domestically manufactured bricks providing some degree of insulation to the effects of a market slowdown. Executive sponsor: Stephen Harrison* 4. Government action and policy Principal risk and Key mitigation, change and sponsor Rationale why it is relevant for appetite The general level We participate in trade associations, attend industry events and track policy Link to strategy We continue to invest and type of residential changes which could potentially impact housebuilding and the construction significantly in growth and other construction sector. Such policy changes can be very broad, covering macro-economic – in terms of both activity is partly policy and including taxation, interest rates, mortgage availability and Appetite capacity and range. dependent on the incentives aimed at stimulating the housing market. This investment is UK Government’s Where identified, we factor any emerging issues into models of anticipated made despite housebuilding policy, Gross change the uncertainty future demand to guide strategic decision-making. investment in public presented by changes Through our participation in these trade and industry associations we ensure housing and availability in Government policy our views are communicated to Government and our Executive team often Net change of finance. as the timescales meet with both ministers and MPs. Changes in associated with adding The September 2022 mini budget demonstrated how quickly the financial Government support additional capacity markets can react to changes in government policy and how this can towards housebuilding are significant and correspondingly impact the housing market. could lead to a long-term planning is Lack of quality housing remains a key political issue and as such we anticipate reduction in demand vital to achieving our current and future governments will continue to incentivise construction for our products. strategic objectives. of new homes, even if different political ideologies demand different models Changes to of home ownership. Government policy or Higher levels of home ownership support a reduced reliance on the state in planning regulations old age, the Government remains committed to supporting increased home could therefore ownership through the Mortgage Guarantee Scheme and we expect broader adversely affect support to continue should its withdrawal risk a reduction in the supply of Group performance. new high-quality homes where a significant shortfall still exists. Executive sponsor: Stephen Harrison* 79 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## RISK MANAGEMENT AND KEY RISKS ## CONTINUED 5. Residential sector activity levels Principal risk and Key mitigation, change and sponsor Rationale why it is relevant for appetite Residential development We closely follow the demand we are seeing from our key markets, along Link to strategy Serving the residential (both new build and with market forecasts, end user sentiment, mortgage affordability and credit construction market repair, maintenance availability in order to identify and respond to opportunities and risk. Group lies at the core of and improvement) strategy focuses upon our strength in this sector whilst also continuing to Appetite our strategy. | contributes the majority | strengthen our commercial offer. | | Whilst we will seek | | --- | --- | --- | --- | | of Group revenue. The | All the major housebuilders have highlighted a slowdown in activity in the | | opportunities to | | dependence of Group | | Gross change | | | | sector across the second half of 2022, driven primarily by a weakening | | broaden our offering, | | revenues on this sector | economy and fiscal policy triggering steep rises in interest rates. | | we continue to see | | means that any change | | | residential markets | The investment in the redevelopment of the Wilnecote brick factory which Net change in activity levels in as core. will focus upon the commercial and specification market will provide a degree this sector will affect of diversification away from residential construction. profitability and in the Executive sponsor: Stephen Harrison* and Adam Smith longer-term, strategic growth plans. 6. Ability to meet customer demand Principal risk and Key mitigation, change and sponsor Rationale why it is relevant for appetite Having sufficient Stock levels continued to be at record lows across our business throughout Link to strategy Managing capacity inventories of our 2022. We saw a significant destocking as we emerged from the pandemic, sufficiently to prevent products is critical to which due to continued strong demand thereafter, we have been unable to tying up excessive meeting our customers’ address, presenting a short-term risk in meeting our customers’ expectations. Appetite amounts of working needs. Many of our With an expected reduction in demand in 2023 we anticipate that we will be capital in stock but product ranges are able to replenish our inventories, reducing the risk in this area. ensuring that customer manufactured at single Gross change demand can continue A combination of the commissioning of the new Desford brick factory and facilities where there are to be met are crucial the additional production capacity this will provide, as well as the recent low buffer stock levels to our success. deterioration in the economic environment, will most likely reduce this pressure Net change and high-capacity on our ability to service our customers effectively and therefore lead to a utilisation. A breakdown reduction in this risk. can cause product Executive sponsor: Adam Smith, Darren Rix and Steve Jeynes shortages and have a detrimental impact on performance and reputation. Maximising efficiency through utilising longer production runs necessitates higher levels of inventory to maintain customer service. If these inventories are not present, shorter and less efficient production runs will be required to maintain levels of service. 80 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 7. Customer relationship and reputation Principal risk and Key mitigation, change and sponsor Rationale why it is relevant for appetite Significant revenues One of our strategic priorities is to be the supply chain partner of choice for Link to strategy Our customer base is are generated from our customers. By delivering excellent customer service, enhancing our fairly consolidated and sales to a number of brands and offering the right products, we seek to develop our longstanding we supply a relatively key customers. Where relationships with our customers. Regular and frequent review meetings focus Appetite small number of major a customer relationship on our effectiveness in this area. customers such that deteriorates there is The high inflation market we are presently operating in could manifest itself customer relationships a risk to revenue and Gross change are key to our success. in damaged relationships with customers if low inventories, shortages of cash flow. raw materials impacting our production or the need to pass on significant Customer focus is a cost increases to our customers in order to protect our own margins are not core value and delivery Net change managed correctly. against this is a priority for all employees. This risk was increased in 2021 and remains at that heightened level. To mitigate these risks we remain in constant communication with our customers ensuring they are well informed of the challenges faced by our business and the impacts it may have on our customer service and selling prices. Executive sponsor: Adam Smith and Darren Rix 8. Supply chain: availability of raw materials and energy Principal risk and Key mitigation, change and sponsor Rationale why it is relevant for appetite Whilst availability of During the current period we have seen shortages of raw materials marginally Link to strategy Sufficient energy supply raw materials can vary ease whilst remaining an area of significant risk. and quantities of raw at times, shortages The exception to this easing is the energy market, which has been continually materials received at across both our Appetite the right time and at volatile since the Russian invasion of Ukraine in February 2022. Shortages of industry and the wider gas and electricity have driven prices higher leading to concerns that should the right price are critical economy have become these pressures persist, particularly in winter months, whilst unlikely, supplies to Group operations. more commonplace, Gross change We have prioritised could be interrupted. threatening our ability risk mitigation to bring Where materials are in short supply we seek to limit our risk by utilising more to manufacture and risk exposure and risk than one supplier and by developing new sources of supply. Where possible Net change ultimately to meet appetite in line. we stockpile additional materials as we did in some cases ahead of Brexit customer expectations. though many of our key materials are needed in such large quantities this Our production isn’t possible. processes depend on We regularly review our production processes to reduce reliance on materials energy and fuel and that are in short supply and in the longer-term we may seek to adjust our should supplies of production processes to utilise materials which have a lesser impact on the these be interrupted environment. production would be In the longer-term our focus on sustainability will see investment in factories impacted. to reduce energy consumption, and we have recently entered into a Power In the longer-term Purchase Agreement which will secure c.70% of our electricity needs for the these risks may be next 15 years through the construction of a dedicated solar farm, reducing exacerbated with our reliance on grid capacity (though still supplied through the grid) as well climate-related matters as providing price certainty. impacting availability of Changes in industrial processes required to address climate risks have materials, management impacted the availability and price of certain raw materials and we have of which has been a taken action to mitigate these; sourcing from alternate suppliers or making priority for a number adjustments that allow us to work with alternative raw materials. of years. We continue to focus on ensuring supply risks are understood, forecast and where possible mitigated. 81 Executive sponsor: Ben Guyatt, Steve Jeynes and Darren Rix FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## RISK MANAGEMENT AND KEY RISKS ## CONTINUED 9. Cost inflation Principal risk and Key mitigation, change and sponsor Change/ Rationale why it is relevant Appetite for appetite We utilise a wide We seek to manage our costs by putting in place annual pricing agreements Link to strategy Managing cost within range of inputs in with our suppliers, although in recent times we have seen many suppliers our supply chain is our business from being unable to offer this certainty. core to maintaining raw materials to energy Appetite profitability and We aim to maintain a group of suppliers such that we avoid becoming and labour. dependent on any single supplier although like our own markets, parts of providing optimum Increases to the cost our supply chain are highly consolidated and as such alternative suppliers value to shareholders. Gross change The unprecedented of our inputs will have may be scarce. an adverse effect upon inflationary environment, We also seek to manage our energy cost exposure by forward purchasing our margins if we are particularly with respect an element of our energy requirement providing price certainty. However, Net change unable to pass these to energy, across this as happened in 2020, if our requirement for energy is lower than expected cost increases on to year has driven a we are exposed to commodity risk and having to sell pre-purchased surplus our customers. change to our risk energy back to the market, potentially at a loss. appetite in this area. Sudden fluctuations in In 2022 we have seen unprecedented increases in energy costs, and whilst our cost base makes our forward purchasing has provided partial mitigation, the prices that we budgeting difficult and currently see for energy have shifted our appetite for risk in this area and it exposes us to risk as is likely we will seek greater forward coverage of our positions in future as cost increases are the markets allow. unable to be passed on Executive sponsor: Ben Guyatt to customers without some time delay. 10. Attracting, retaining and developing employees Principal risk and Key mitigation, change and sponsor Change/ Rationale why it is relevant Appetite for appetite We recognise that our We understand where key person dependencies and skills gaps exist and Link to strategy Our people have always greatest asset is our continue to develop succession, talent acquisition, and retention plans. been pivotal to our workforce and a failure Challenges associated with labour shortages are presently faced across the business and we must to attract, retain and Appetite remain cautious of the business in particular around the availability of engineers. develop talent will be previously increased A wider shortage of labour in the construction industry may have the impact detrimental to Group risk associated with of curtailing demand for our products as customers’ build programmes are performance. Gross change ensuring we attract, slowed by labour shortages. A national shortage of retain and develop Employee support, strong communication and employee engagement remain labour has manifested our employees. focus areas and we continue to invest in HR and payroll systems, with Net change following the pandemic significant resource now in place to see this investment through to delivery. on top of a market that Executive sponsor: Shahbaz Idriss was already adjusting to the impact of the Brexit transition period. 82 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 11. Innovation Principal risk and Key mitigation, change and sponsor Change/ Rationale why it is relevant Appetite for appetite Failure to respond to Strong relationships with customers as well as independently administered Link to strategy The Group is willing market developments customer surveys and market research ensures that we understand current to invest in order to could lead to a fall and future demand. Close ties between the Strategy, Operations and grow where the right in demand for the Commercial functions ensure that the Group focuses on the right areas Appetite opportunities present products that we of research and development (R&D). themselves. We have manufacture. This New product development and related initiatives therefore continue and invested in the in turn could cause Gross change appropriate skills we are committed to investing in research and development with clear links revenues and margins between this area and the work undertaken in relation to sustainability. so that opportunities to suf fer. can be identified and Executive sponsor: Stephen Harrison* Net change progressed, and we are committed to deploying R&D to reduce the environmental footprint of our operations. The high-risk appetite in this respect reflects our willingness to deploy resources to R&D without any certainty they will bear fruit. 12. IT infrastructure and systems | Principal risk and | Key mitigation, change and sponsor Change/ | | Rationale | | --- | --- | --- | --- | | why it is relevant | | Appetite | for appetite | | Disruption or | We have undertaken a period of investment in consolidating, modernising | Link to strategy | Investment in IT has | | interruption to IT | and extending the reach of our IT systems in recent years. | | been a priority in recent | | systems could have | The cyber security event experienced by the business in 2021, which resulted | | periods to mitigate risk. | | a material adverse | | Appetite | The downside to IT risks | in some data loss but no interruption to trading, was an example of the impact on performance increase in cyber risk that has driven our continued investment and training significantly outweigh and position. around cyber security and the risk remains at this heightened level. any upside and our risk Gross change appetite reflects this. Executive sponsor: Matthew Day Net change 83 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 ## RISK MANAGEMENT AND KEY RISKS ## CONTINUED 13. Business continuity Principal risk and Key mitigation, change and sponsor Change/ Rationale why it is relevant Appetite for appetite Performance is We have established remote working capabilities that enable the business to Link to strategy The ability for our dependent on key continue operating with minimal disruption. business to continue functions operating Where a scenario without a pre-envisaged plan is faced, managers are able to should any operational continuously and Appetite disruption occur is key, apply clear principles to develop plans quickly in response to emerging events. uninterrupted. Should and this is reflected in We consider climate-related risks when developing business continuity plans we experience our approach to risk and have learnt lessons from weather-related events in recent years which significant disruption Gross change appetite in this area. inform these plans. there is a risk that Loss of one of our operating facilities through fire or other catastrophe products cannot be would impact upon production and our ability to meet customer demand. Net change delivered to customers Working with our insurers and risk advisors we undertake regular factory to meet demand risk assessments addressing recommendations as appropriate. We accept and the business it is not possible to mitigate all the risks we face in this area and as such we may suffer financially. have a comprehensive package of insurance cover including both property damage and business interruption policies. Executive sponsor: Stephen Harrison* and Ben Guyatt 14. Project delivery Principal risk and Key mitigation, change and sponsor Change/ Rationale why it is relevant Appetite for appetite This risk was originally The new Desford brick factory represents the largest capital investment that Link to strategy Management and recognised in light we have ever made and the project has continued to progress to schedule the Board are closely of the scale and with the factory now operational, with the first despatches to customers monitoring expansion complexity of the expected shortly. Appetite projects at Desford, Desford construction Beyond this, we have a pipeline of further investment, including the Wilnecote Wilnecote and project, however we brick factory redevelopment, and management closely monitor all major Accrington. External have since announced Gross change project management expansion projects for potential challenges, cost over-runs and delays and an extensive act promptly to ensure that risks are mitigated. expertise has been programme of capital engaged on Desford As further projects are announced, management recognise the additional Net change investment within our from the outset risks posed by running concurrent major projects. To mitigate, separate business over the next recognising learning project management structures are in place for respective projects and decade, which will see from previous major where common suppliers are involved procedures are in place to ensure they a number of large projects. retain sufficient capacity to deliver on both projects without significant risk. projects adding to We recognise the need to support multiple major expansion projects with production capacity. dedicated resource, and have a designated Strategic Projects Director role in place sitting on our Executive Committee. Executive sponsor: George Stewart 84 FORTERRA PLC STRATEGIC REPORT ANNUAL REPORT AND ACCOUNTS 2022 | Risk heat map reflecting evolving | KEY RISKS | | | | --- | --- | --- | --- | | nature of certain risks | 1 Health and safety | 8 Availability of raw | | | | 2 Sustainability/climate | | materials and energy | Recognising that impact and likelihood are change 9 Cost inflation equally important when assessing risk, the 3 Economic conditions 10 Attracting, retaining chart below demonstrates both of these 4 Government action and developing characteristics. Net impact is a financial employees and policy | measure of severity and net likelihood reflects | 5 Residential sector | | 11 Innovation | | | --- | --- | --- | --- | --- | | the chance of the risk occurring within the next | | activity levels | 12 IT infrastructure and | | | three years. Given the risk environment that we | 6 Product availability | | | systems | | | 7 Customer | | 13 Business continuity | | are currently operating in, we have additionally relationships and 14 Project delivery highlighted those risks deemed to be evolving. reputation Evolving risk HighLow 3 5 4 8 14 9 13 7 6 12 2 Impact rating 10 1 11 Likelihood rating HighLow ## RISK HEAT MAP 85 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 STRATEGIC REPORT # RISK MANAGEMENT AND KEY RISKS CONTINUED # VIABILITY STATEMENT In accordance with the provisions of The UK Corporate Governance Code 2018 the Board have assessed the prospects of the Company in order to develop a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due. The Board have reviewed the Company's position and principal risks over a period of four years commencing from the balance-sheet date in order to form this expectation. The Board believe that this is an appropriate timeframe to consider as it aligns with its strategic and financial planning horizon, and the maturity of the Group's credit facilities, which are committed until January 2027. In making this statement, the Board have considered the principal risks facing the Group, as detailed within the Risk Management and Key Risks section of the Annual Report on pages 76 to 84, as well as the climate-related risks as detailed on pages 71 to 75 of the Sustainability Report. The Board have reviewed the Group's financial forecasts and any consequential future funding requirements against committed external borrowing facilities regularly to confirm ongoing viability. The scenarios modelled include a base case and a severe but plausible downside scenario, which has been modelled using management's experience of the business, including the impact of the 2008 global financial crisis on the Group and more recently, the impact of the pandemic. Assumptions underpinning these scenarios include: - Should the plausible downside scenario occur, the Group would adjust its short-term strategy and take further mitigating measures in order to preserve cash, including cost reduction, reducing or delaying capital expenditure and a reduction or curtailments in the quantum of dividend distributions; - That the Group will be able to, as detailed within both the Risk Management and Key Risks section (pages 76 to 84) and the Sustainability Report (pages 42 to 75), effectively mitigate risks using existing or available measures; - The new Desford brick factory will complete in line with timelines, moving to a full financial contribution, subject to market conditions, in 2025; - The Wilnecote brick factory redevelopment will complete within the planned timelines, moving to full financial contribution in 2027; and - The Group will to take advantage of the option in place to extend its current facility, or refinance on similar terms before the facility expires in January 2027. The Group's plausible downside scenario models a downturn, whereby underlying market demand falls by c.30% relative to 2022, with a reduction in our assumption on import substitution, along with customer destocking. This drives a reduction in brick sales volumes of 27% versus 2022 and a sales prices reduction of 5% versus the 2023 base model. Following this volumes increase marginally in 2024, with steady recovery thereafter, leading to volumes and EBITDA in 2026 which are still behind 2022. Within this model, certain cost reduction mitigations are considered. This scenario allows for the consideration of several of the Group's key risks occurring, with potential contributing factors that include Government policy, economic downturn, a change in residential sector activity levels or new product development in the sector. Management are comfortable confirming that the Group remains viable even in this severe but plausible scenario. Additionally there remains the option to further flex the cost base where downside scenarios are faced, as previously proven through the mothballing of factories, along with measures taken during Covid-19. The Directors can confirm that they have a reasonable expectation that the Group will continue in operation and meet its liabilities as they fall due over the period of assessment. In addition, the reverse stress test scenario also described in the going concern section of this Annual Report on page 149 is considered remote. 66 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## GOVERNANCE ## In this section 88 Board of Directors 91 Executive Committee 92 Corporate Governance Statement 105 Nomination Committee Report 108 Audit Committee Report 115 Risk and Sustainability Committee Report 118 Remuneration Committee Report 147 Directors’ Report 150 Statement of Directors’ Responsibilities 87 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## BOARD OF DIRECTORS | 01 | Justin Atkinson | | Not yet appointed to the Board | | | --- | --- | --- | --- | --- | | | Non-Executive Chairman | | at the date of this Annual Report | | | 02 | Stephen Harrison | | | | | | | 09 | | Neil Ash | Chief Executive Officer Chief Executive Officer Designate 03 Ben Guyatt 10 Gina Jardine Chief Financial Officer Independent Non-Executive Director | 04 | Katherine Innes Ker | | | --- | --- | --- | | | Senior Independent Non-Executive Director | 04 | | 05 | Vince Niblett | | Independent Non-Executive Director 06 Martin Sutherland Independent Non-Executive Director ## 03 07 Divya Seshamani Independent Non-Executive Director 08 Ashley Thompson Company Secretary ## 02 ## 08 ## 01 ## 07 ## 06 ## 10 ## 05 ## 09 88 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 | | JUSTIN ATKINSON | | BEN GUYATT | | | --- | --- | --- | --- | --- | | 01 | Non-Executive Chairman | 03 | Chief Financial Officer | COMMITTEE | | | A RS R N | | A RS R N | MEMBERSHIP | | Appointment | | Appointment | | | Audit A Justin Atkinson joined the Board on 11 April 2016 and Ben Guyatt was appointed to the Board on 1 January Committee was appointed as Chairman in May 2019. 2020 and prior to this, served as Director of Finance and Company Secretary. Skills, experience and qualifications Risk and RS Skills, experience and qualifications Sustainability Justin has a proven track record of driving performance with over 30 years of experience at senior management Prior to his appointment as CFO, Ben held the role of Committee or director level of businesses, across a range of Director of Finance and Company Secretary, playing disciplines, including engineering and construction. a key role in the separation of the business from Remuneration R Justin provides the Board with strong leadership skills HeidelbergCement and the subsequent listing on the Committee having spent 11 years as CEO of Keller Group plc, the London Stock Exchange. Drawing upon his extensive international ground engineering contractor, where prior experience with the business and financial acumen, Nomination N to this he served as CFO and Chief Operating Officer. Ben keeps the Board updated enabling informed Committee More recently, Justin has also gained a wealth of decision-making. Ben joined Hanson plc in 2006 and Non-Executive Director experience in a variety of held a variety of senior finance and strategy roles within Denotes industries. Justin is a Chartered Accountant and holds Hanson and HeidelbergCement. Previously, Ben held Committee a Bachelor’s degree in Accountancy from Glasgow financial management roles at insurance broker, Heath Chairman University and the advanced management programme Lambert. Ben is a Chartered Accountant and holds qualification from INSEAD. a Bachelor of Arts degree with honours in Accounting and Finance from the University of the West of England. Other Directorships Senior Non-Executive Director of Kier Group plc, ### KATHERINE INNES KER Non-Executive Director of James Fisher and Sons plc. | | | 04 | Senior Independent Non-Executive Director | | --- | --- | --- | --- | | | STEPHEN HARRISON | | A RS R N | | 02 | Chief Executive Officer | | | Appointment A RS R N Katherine Innes Ker was appointed to the Board on 1 September 2017 as an Independent Non-Executive Appointment Director and was appointed as Senior Independent Stephen Harrison was appointed Chief Executive Officer Non-Executive Director in May 2019. of Forterra plc in April 2016 and will retire ahead of the 2023 AGM. Skills, experience and qualifications Katherine has gained extensive executive and non- Skills, experience and qualifications executive experience across a range of sectors in Stephen successfully steered the business through a career spanning over 30 years. Katherine began her the divestment process from former owner business career as a city financial analyst and has since HeidelbergCement into private equity ownership held many non-executive directorships with a particular in 2015, subsequently leading the Group’s IPO to wealth of experience in the housebuilding sector. the London Stock Exchange 2016. Katherine was a Non-Executive Director of Taylor Woodrow/Taylor Wimpey for 10 years and subsequently Stephen brings strong leadership skills coupled with of St Modwen Properties. She is currently a Non- extensive sector experience to the Board. Before Executive Director of Vistry Group plc. This experience his current role, Stephen held a variety of senior allows Katherine to provide valuable insight into our management roles within the construction products markets from a customer perspective. Katherine has industry for more than a decade, supplying the over 20 years’ experience as a Chair of Remuneration infrastructure, commercial and residential construction Committees, and as a Senior Independent Director. markets. Stephen was appointed as Managing Director Katherine is a Graduate of Oxford University, holding of Hanson Building Products, the predecessor to a Masters degree in Chemistry and a Doctorate in Forterra in 2012, having joined Hanson plc in 2002. Molecular Biophysics. Stephen studied Economics at Kingston University Other Directorships in London and holds an MBA from Cranfield School of Management. He has served as a Non-Executive Non-Executive Chairman of Mortgage Advice Bureau plc, Director of several key construction sector trade Non-Executive Director at Vistry Group plc and Non- associations. Executive Director at Ground Rents Income Fund plc. Other Directorships Non-Executive Director at Epwin Group plc. 89 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## BOARD OF DIRECTORS ## CONTINUED ### VINCE NIBLETT DIVYA SESHAMANI ## 05 Independent Non-Executive Director 07 Independent Non-Executive Director A RS R N A RS R N Appointment Appointment Vince Niblett was appointed to the Board on 8 February Divya Seshamani was appointed to the Board as an 2019 as an Independent Non-Executive Director. Independent Non-Executive Director on 11 April 2016. Skills, experience and qualifications Skills, experience and qualifications Vince was previously a Partner at Deloitte where he held Divya has over 20 years of experience at partner, a number of senior roles including membership of the senior management or director level in sustainable UK Board of Directors and Global Managing Director, infrastructure, energy and manufacturing, with Audit & Enterprise Risk Services before retiring in 2015. organisations like Singapore’s sovereign wealth fund (GIC) and TPG (the global Private Equity firm), where During his career at Deloitte, he served some of the she was Partner. She is currently Managing Partner firm’s most significant public company clients, working of Greensphere Capital LLP, a sustainable investment with them on commercial and strategic issues as well private equity firm. as providing audit services. Vince uses his significant financial experience to both guide and challenge the Divya has a particular strength in environment and Board on important decisions as well as offering advice sustainability and has been appointed by the Secretary on governance and compliance matters. Vince is a of State to Her Majesty’s Government Council of Chartered Accountant and holds a Bachelor of Arts Sustainable Business where she leads the Net-Zero degree in Economics from Reading University. Carbon Initiative. Divya holds a Bachelor of Arts degree in Politics, Philosophy and Economics from Oxford Other Directorships University and a Master of Business Administration Non-Executive Director at Big Yellow Group plc and degree from Harvard University. Non-Executive Director at Target Healthcare REIT plc. Other Directorships ### MARTIN SUTHERLAND Non-Executive Director at Airspan Network Holdings Inc. ## 06 Independent Non-Executive Director ### ASHLEY THOMPSON A RS R N ## 08 Company Secretary Appointment Appointment Martin Sutherland was appointed to the Board on Ashley Thompson was appointed to the position of 23 May 2017 as an Independent Non-Executive Director. Company Secretary on 1 January 2020. Skills, experience and qualifications Martin has over 20 years of international experience at Skills, experience and qualifications senior management or director level in technology and Ashley qualified as a solicitor in the corporate team of manufacturing businesses, focused on the government Freshfields Bruckhaus Deringer and then moved in-house and commercial sectors. Martin was previously CEO before joining Forterra as the Company Solicitor in 2015. of IT security business Reliance acsn and is now a Before becoming a solicitor, Ashley previously worked Non-Executive Director on their Board. Prior to this in the petrochemical industry as an engineer, within Martin held the position of CEO at De La Rue plc and manufacturing at Triumph Motorcycles and as a Detective various roles at Detica plc, Andersen Consulting and Constable. Ashley holds a Bachelor of Engineering British Telecom. Martin brings his experience as a CEO degree and a Masters in Law. in both public and private companies to Board discussions on operational and strategic matters, as well as providing practical advice based on his expertise in the application of technology. As the Non-Executive Director responsible for employee engagement he attends and feeds back from the Employee Forum. Martin holds a Masters degree in Physics from Oxford University, and a Masters degree in Remote Sensing from University College and Imperial College London. Other Directorships 90 Non-Executive Director at Alliance Pharma plc. PORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 GOVERNANCE 09 # NEIL ASH Chief Executive Officer Designate # Appointment Neil Ash will become Chief Executive Officer Designate on 3 April 2023 and will be appointed to the Board ahead of the 2023 AGM. # Skills, experience and qualifications Neil has almost three decades' experience in the building materials sector and an impressive track record of improving performance and delivering growth. Previously at Etex, the Belgian lightweight building materials manufacture, he led the €2.4bn revenue Building Performance division. During his time at Etex Neil oversaw major capex projects, significant acquisitions, and developed its sales approach which delivered strong top line growth. His experience includes 15 years at Lafarge, where he undertook many roles, including the role of Vice President International Business Development and Sales and Commercial Director UK & Ireland of Lafarge Plasterboard. Neil has attended executive education programmes at INSEAD (France) and IMD (Switzerland). - On appointment to the Board Neil will become a member of the Risk and Sustainability Committee. 10 # GINA JARDINE Independent Non-Executive Director # Appointment Gina Jardine will be appointed as a Non-Executive Director on 3 April 2023. # Skills, experience and qualifications Gina has over 25 years of experience in senior human resources roles in both Australia, Canada, and the UK. She has worked in publicly listed and private organisations across multiple sectors, from building products to mining, logistics, automotive and telecoms. Previously Gina held the position of Chief Human Resources Officer at global materials business CRH plc, and before that held roles at Kinross Gold Corp, Rio Tinto Group, Limbx Logistics, Semis Pty Ltd and Honda Motor Co Ltd. Her global experience will bring insight and help the Board guide decisions in the areas of Culture, Talent, Organisation and Safety. Gina holds a BA in Social Sciences from Monash University and an MBA from Melbourne Business School. - On appointment to the Board Gina will become a member of the Audit, Remuneration, Nomination and Risk and Sustainability Committees. # STEPHEN HARRISON — Chief Executive Officer See Stephen Harrison's biography on page 89. # BEN GUYATT — Chief Financial Officer See Ben Guyatt's biography on page 89. # NEIL ASH — Chief Executive Officer Designate See Neil Ash's biography to the left. # DARREN RIX — Managing Director (Bison Precast) Darren previously held the role of Strategy and Development Director and prior to this was Group Controller. Darren joined Hanson plc in 2007 and held a number of senior finance roles, including Financial Controller for Building Products, the business which is now Forterra. Darren is a Chartered Management Accountant and holds a Bachelor of Arts Degree with honours in Economics from the University of Leicester. # ADAM SMITH — Commercial Director Adam joined the Group in 2016 as Commercial Director. Prior to this, Adam was National Sales Director at Jewison, Sales and Marketing Director at Tata Steel and held the role of Managing Director, as well as various other senior management positions at Corus Colorateels. Adam holds a Master of Business Administration degree from Warwick Business School and a Bachelor of Science with honours degree in Physics from Manchester University. # MATTHEW DAY — IT Director Matthew joined Hanson plc in 2005 as IT manager for Hanson Building Products, the predecessor to Forterra. Matthew then held a number of IT leadership roles within Heidelberg Cement and was appointed Forterra's IT Director on the separation from Heidelberg Cement in 2015. Matthew has over 20 years of experience in senior IT roles with responsibility for overseeing major transformation and change programmes in sectors including manufacturing, construction and retail. # GEORGE STEWART — Strategic Projects Director George joined Forterra in 2018 as Operations Director. Prior to this, George was UK Industrial Director for Monier Redland UK Limited, and held a number of senior operations roles, including with Nestle UK, Smith and Nephew Medical and Motorola UK. George holds a Bachelor of Science with honours degree in Chemical and Process Engineering from the Heriot-Watt University, Edinburgh. # SHAHBAZ IDRISS — HR Director Shahbaz joined Forterra in 2020. She was previously Global Senior Vice President Human Resources at GKN Driveline. Before joining GKN, she also held senior roles at Federal Miquel Corporation. Shahbaz has over 25 years' HR experience, gained primarily within the automotive, manufacturing and engineering industries. Shahbaz holds a Bachelor of Arts Degree with honours from Wolverhampton University, a Masters degree from Coventry University and is a member of the Chartered Institute of Personnel & Development. # STEVE JEYNES — Production Director Steve joined Forterra in 2014, initially as Factory Manager at our Kings Duke London Brick factory. After the he held the position of Senior Operations Manager for bricks for five years before being promoted to Production Director and joining the Executive Committee. Before joining Forterra, Steve was Head of Operations at Hargreaves Services and prior to this he held manufacturing and engineering roles in the UK and internationally with Nippon Electric Glass and BP Exploration. Steve holds a Bachelor of Science with honours degree from the Open University and a Bachelor of Psychology from UNFAR International University in Malaysia. EXECUTIVE COMMITTEE 91 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## CORPORATE GOVERNANCE STATEMENT ## CHAIRMAN’S INTRODUCTION ## ❝ ## Effective corporate governance ## has underpinned our progress ## during 2022 and is essential ## to our long-term success ## and the safeguarding of ## our stakeholders’ interests. ## This statement sets out ## how the Board discharges ## its corporate governance ## responsibilities along with ## the principal activities of the ## Board and its Committees ## for the year ended ## 31 December 2022.” Justin Atkinson Non-Executive Chairman ## JUSTIN ATKINSON 92 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 GOVERNANCE # Introduction from the Chairman The Board operates in accordance with the UK Corporate Governance Code 2018 (the Code) which was issued by the Financial Reporting Council and which is available on their website: www.frc.org.uk The Board has embedded best practice governance throughout the business and is committed to delivering long-term sustainable value to our stakeholders whilst complying with the requirements of the Code. This Corporate Governance Statement, together with the reports of the Nomination, Audit, Risk and Sustainability and Remuneration Committees on pages 105 to 146 sets out in detail how the principles and provisions of the Code have been fulfilled and how the Board and its Committees have discharged their responsibilities for ensuring robust governance practices operate across the Group. # 2022 Board highlights The Board and its Committees have played a key role in guiding the Group through a challenging year, both supporting management and, where appropriate, holding them to account. The following summarises the areas of specific Board focus during the year and is not intended to reflect the wide-ranging recurring responsibilities of the Board. # CEO succession On receipt of Stephen Harrison's decision to retire as CEO in the first half of 2023 the Board initiated a thorough and robust recruitment and selection process led by the Nomination Committee, which resulted in the appointment of Neil Ash, who will join the Company on 3 April 2023. Neil has extensive experience in the building products sector with an impressive track record of improving performance and delivering growth. # Non-Executive recruitment and succession The Board recognises the need to maintain an effective succession plan for both Board and senior management positions. With a number of Non-Executive Directors expected to retire in 2025 or 2026, the Board determined that in order to provide sufficient continuity an additional Non-Executive Director would be recruited, with Gina Jardine to be appointed as an Independent Non-Executive Director effective from 3 April 2023. Gina is an experienced Human Resources professional, a skilled not currently represented on the Board, with experience gained in some of the world's largest building materials and mining companies. # Capital allocation Throughout 2021 and 2022 the Board spent considerable time on the definition and subsequent communication of the Group's strategy and capital allocation priorities. In early 2022 the Board approved a £40m share buyback programme that was completed in October 2022 following the repurchase and cancellation of 15.8 million shares. Prior to approving the buyback the Board carefully considered the Group's long-term financial forecasts including the plans to invest over £200m on organic capacity expansion over the next decade. The buyback was approved only when the Board was comfortable that the Group would not require the capital and that forecasts were sufficiently prudent. # Strategic investment Our new Desford brick factory, which is now operational, is believed to be the largest, most efficient brick factory in Europe, increasing our effective brick production capacity by 22%. Timely delivery of this project to the agreed specification is critical to the Group's strategy. The complexity of this project and the levels of governance required to monitor progress and manage associated risks cannot be underestimated, and the Board regularly received project updates and critically reviewed the progress of the project. Alongside the Executive Directors, Strategic Projects Director George Stewart attended multiple Board meetings to provide project updates to the Board and individual Directors made regular visits to the construction site. The Board also provided similar oversight to the ongoing strategic projects at Winecote and Accrington, the latter being where the £10m investment in brick slip manufacture was approved in the year. # Energy procurement The significant increase in energy costs during 2022 has placed a greater emphasis on energy procurement with highly volatile costs making procurement decisions more challenging. Energy procurement and risk management was the subject of an internal audit at the end of 2021, the results of which were reported to the Board in early 2022. In response to recommendations within this report, the Board oversaw the formalisation of the Group's energy procurement strategy, progress against which is subject to regular Board review with input from external advisors. The Board continue to support Executive Management, acting as a sounding board assisting with complex procurement decisions. During the year the Board approved entering in to the 15-year corporate Power Purchase Agreement (PPA) and also the investment of approximately £2.5m in solar panels at the new Desford brick factory. # Board priorities for 2023 In 2023 the Board expects to focus upon the following non-recurring priorities. # New Board members With Neil Ash to be appointed as Chief Executive Officer ahead of the 2023 AGM, a key Board priority in 2023 will be supporting his induction, ensuring he is offered every assistance as he steps into his new role. Similarly, the Board will be equally supportive of Gina Jardine as she adapts to her first Non-Executive Director appointment. # Capital investment programme The Board will continue to focus on organic growth through capital investment and will ensure that new the Desford brick factory can deliver to its full potential. The Board also recognises the importance of both the Winecote and Accrington projects in their contribution to Group strategy and ensuring that they are delivered to time and budget with the appropriate governance oversight. 95 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## CORPORATE GOVERNANCE STATEMENT ## CHAIRMAN’S INTRODUCTION CONTINUED Corporate governance Culture The Board have ensured that, through the work of the Audit The Board sets the culture of the business and leads by Committee, they have continued to be fully appraised of example. These behaviours are filtered down through to the developments in UK corporate governance arising from Executive Committee and their direct reports to become the Government’s ‘Restoring Trust in Audit and Corporate embedded within the business as evidenced, for example, Governance’ consultation. In response to this consultation in our Safety First approach, ‘Golden Rules’ and core values. the Board have acted to strengthen the Group’s governance To monitor our culture within the business, and to ensure and control systems, and with clarity as to the exact regulatory compliance with the Code, Martin Sutherland has continued reforms that will be implemented hopefully being received as the designated Non-Executive Director responsible for during 2023, the Board expects to act accordingly to ensure employee engagement attending meetings of the Employee the Group is able to meet any new requirements in good time. Forum and reporting back to the Board following each Sustainability meeting. The Forum meets quarterly at different locations Sustainability is critical in ensuring our longevity as a business across the business to discuss subject matters raised by our underpinning all elements of our strategy and we recognise colleagues to their forum constituency representatives including the increasing importance placed on sustainability by all of the Company’s culture, operational and health and safety our stakeholders. Alongside investing in more sustainable issues as well as topics including the selection of the annual and efficient manufacturing capacity, our governance around corporate charity for the business to support, and mental sustainability matters is managed through the Risk and health awareness. Sustainability Committee. Diversity Sustainability progress during the year is laid out in our The Board remains committed to furthering all aspects of comprehensive Sustainability Report included on pages diversity throughout the organisation and further information 42 to75. This Report includes the scenario-based climate is included within this Corporate Governance Statement modelling required by the Task Force on Climate Related on page 103. Financial Disclosure (TCFD) which, whilst subjective in its nature, helps to identify how rising temperatures could possibly impact Justin Atkinson our business in the future, along with identifying opportunities Non-Executive Chairman resulting from a changing climate. 9 March 2023 Board effectiveness We monitor Board effectiveness in accordance with the requirements of the Code and conducted an internally facilitated Board effectiveness review in 2022. This review concluded that the Board is cohesive and continues to operate effectively. Further details of this review and its findings are explained within this Report on pages 102 and 103. 94 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 There is a clear division of responsibilities ### The Code focuses on the between the leadership of the Board and the ### application of principles executive leadership of the business, and ### and supporting provisions the Non-Executive Directors have sufficient time to meet their Board responsibilities. ### that emphasise the value of ### good corporate governance to 3 Composition, succession and evaluation The Board and its Committees have a ### long-term sustainable success. combination of skills, experience, and ### The relationship between knowledge to discharge their duties, and undergo ### companies, shareholders and an annual evaluation as to their effectiveness. ### stakeholders are critical to this, Succession planning remains high on the ### as is a focus on culture through agenda for the Nomination Committee whilst acknowledging the increased focus to ### alignment of purpose, strategy, promote diversity of gender, social and ethnic ### integrity and diversity. backgrounds and how effectively members work together to achieve objectives. Certain provisions of the Code do not apply to smaller companies defined as those, like 4 Audit, risk and internal controls Forterra plc, outside of the FTSE 250. The The Board has a structured oversight of the Board is, however, committed to sustaining the internal and external audit function through the higher standards of corporate governance and establishment of the Audit Committee whose the application of these principles, provisions work is covered in more detail on pages 108 and outcomes achieved are disclosed in the to 114. Annual Report as required for companies with | a UK premium listing. The Board confirms that | | The Board also has a separate Risk and | | | --- | --- | --- | --- | | throughout the year ended 31 December 2022, | | Sustainability Committee which monitors | | | and as at the date of this report, Forterra plc | | the Company’s risk register with a focus on | | | has complied with all relevant provisions set out | | emerging risks. The Committee’s work is | | | in the Code. | | covered in more detail on pages 115 to 117. | | | The key components of the Code are: | | 5 | Remuneration | | 1 | Board leadership and purpose | The Remuneration Committee aligns executive | | remuneration to the Company’s purpose Led by an experienced Chair, supported by and values by setting clear objectives, which a decisive and diverse Board with a broad are linked with the successful delivery of the range of experience setting the values, culture Company’s long-term strategy, including and purpose which are embedded across environmental, social and governance factors. the business. This is covered in more detail on pages | Engagement with shareholders and stakeholders | 118 to 146. The Committee also has the | | --- | --- | | enables the Board to understand their views and | discretion to override formulaic outcomes | | promote the long-term sustainable success of | to remuneration calculations. | the Company, generating value for shareholders The Remuneration Committee has retained and contributing to wider society, particularly remuneration advisors, Willis Towers Watson regarding sustainability and our road map to who are independent of both the Company and net zero. the individual Directors, to assist the Committee 2 Division of responsibilities in making informed remuneration decisions. The Board has an appropriate mix of Executive and Non-Executive Directors for balanced decision-making, with clear lines of communication to receive accurate and timely information to make informed decisions. ## COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE 2018 95 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## CORPORATE GOVERNANCE STATEMENT ## DIVISION OF RESPONSIBILITIES THE BOARD Risk and Nomination Audit Remuneration Sustainability Committee Committee Committee Committee Oversees the Oversees the Ensures that all risks, Responsibility for composition Group’s corporate including health and recommending overall of the Board and financial reporting, safety, sustainability, remuneration policy Committees, the internal control operational and and the setting of considering succession system, financial risk commercial are executive and senior planning, balance management and the managed effectively management of skills and experience relationship with the and proactively remuneration. and diversity in making external auditor. throughout the Group. recommendations to the Board. — SEE PAGE 105 — SEE PAGE 108 — SEE PAGE 115 — SEE PAGE 118 EXECUTIVE COMMITTEE 96 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 Board Committees The Board operates four Committees | to which it delegates responsibility: | Chairman | | | --- | --- | --- | | the Audit Committee, Nomination | The Chairman, Justin Atkinson, leads | | | Committee, Remuneration Committee | the Board and is responsible for its | CEO | | and Risk and Sustainability Committee. | overall effectiveness. The Chairman | The CEO, currently Stephen Harrison | | Each of these Committees provides | sets the Board’s agenda, encourages | and from 3 April 2023, Neil Ash, | | a Report within the Governance | the Directors to contribute openly to | isresponsible for the day-to-day | | section of this Annual Report, | debate and ensures the Directors | management of the Group, including | | detailing information as to their | receive accurate, timely and clear | embedding the purpose, values and | | responsibilities, activities in the past | information via the Company | strategic objectives established by | | year and future priorities. | Secretary to stimulate this debate. | theBoard. | CFO Executive Committee Senior Independent Our CFO, Ben Guyatt is responsible Non-Executive Director The Executive Committee has been | for the Group’s financial matters | established to support the CEO in his | In the Senior Independent Non- | | --- | --- | --- | | andalso supports the CEO in the | management of the business and in | Executive Director role, Katherine | | achievement of the Group’s strategic | exercising the authorities delegated | Innes Ker provides a sounding board | | objectives and also manages the | to him by the Board. Membership of | for the Chairman, serves as an | | relationships with investors, lenders | the Executive Committee is laid out | intermediary for the other Directors | | and research analysts. | on page 91. | and meets the other Independent | Non-Executive Directors without theChairman present to appraise theChairman’s performance. The Senior Independent Non- Executive Director is available to shareholders if they wish to meet todiscuss any matters related to theGroup. Company Secretary Independent Ashley Thompson, the Company Non-Executive Directors Secretary works closely with and Independent Non-Executive Directors supports the Chairman, and the are not involved in the day-to-day Chairs of the Board Committees running of the business and as insetting agendas and planning such are able to provide an external meetings, ensuring efficient perspective alongside sound judgement distribution of the complete, accurate and objectivity. Non-Executive Directors and timely information necessary receive a fixed level of remuneration tofacilitate Board and Committee for their services and do not benefit discussion. He also advises the from variable remuneration based on Boardand management on all matters Group performance. relating to corporate governance and Given the size of the Group and its is responsible for the management Board, it is thought appropriate and ofthe AGM. beneficial that each Non-Executive Director sits on each Committee. This better allows the Non-Executive Directors to effectively fulfil their responsibilities in providing constructive challenge, strategic guidance, specialist advice and holding Executive Directors to account for both the Group’s and their own personal performance. All Non-Executive Directors have the required time to devote to Forterra with the Chairman regularly keeping this under review. 97 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## CORPORATE GOVERNANCE STATEMENT ## DIVISION OF RESPONSIBILITIES CONTINUED Independence of the Board • approval of the Remuneration Policy and remuneration The Company recognises the importance of its Non-Executive arrangements for the Executive Directors and Directors remaining independent throughout their appointment, senior management. as it enables them to provide objective advice and guidance To assist in discharging its responsibilities the Board is to the Executive Directors and senior management. supported by specialist Committees. The Board has In considering the independence of each Non-Executive established four such Committees: the Nomination Committee, Director, the Board has taken into consideration the guidance the Audit Committee, the Risk and Sustainability Committee, provided by the Code, and as such, considers all Non-Executive and the Remuneration Committee. The terms of reference of Directors to be independent in accordance with Provision 10 each of these Committees are each reviewed on an annual of such Code, as they each: basis. The Board believes each of the Committees has the necessary skills and resources to fulfil its brief and each of the i. have not been employed by the Company or Group; Committees has access to appropriate legal and professional ii. have no material business relationship with the Company advice where necessary. or Group; The Nomination Committee Report on pages 105 and 107 iii. do not participate in the Company’s employee share plans outlines the Board’s approach to succession planning. The or pension scheme; Audit Committee Report on pages 108 to 114 outlines how the iv. have not received additional remuneration beyond the Board has applied the Code in respect of financial reporting Director’s fee reported in this Annual Report; and internal controls. The Risk and Sustainability Committee v. have no close family ties with any of the Company’s Report on pages 115 to 117 explains how the Board has applied Directors, Executive Management, or advisers; the Code in respect of risk management. The Remuneration vi. have no significant links with other Directors through Committee Report on pages 118 to 146 provides details of the involvement in other companies; Directors’ remuneration received in the year. vii. do not represent a significant shareholder; and Day-to-day management and implementation of strategies approved by the Board is delegated to the Executive Committee viii. have not served on the Board for more than nine years which comprises eight senior managers including the two from the date of their first appointment. Executive Directors. Membership of the Executive Committee Summary of matters reserved for the Board along with biographies is detailed on page 91. The Board has a formal schedule of matters reserved for Conflicts of interest its decision which is reviewed annually to ensure it remains Directors have a statutory duty to avoid situations in which they appropriate and which is summarised below: may have interests which conflict with those of the Company. • approval of the Group’s long-term objectives and strategy; The Board has adopted procedures as provided for in the • approval of the Group’s business plans, operating and Company’s Articles of Association for considering and if capital budgets; appropriate, authorising any potential conflicts of interest and • approval of the Group’s sustainability targets and reporting; for the consideration of, and if appropriate, authorisation of new situations which may arise. • approval of the annual and interim accounts; • changes in the Group’s capital or financing structure; The Company maintains a conflict register which is reviewed at every Board meeting. Currently the only situations authorised • approval of significant transactions including acquisitions and listed on the register are the Directors holding directorships and disposals; and other similar appointments in companies or organisations • approval of the dividend policy and any changes thereto; not connected with the Company where no conflict of interest • ensuring the maintenance of a sound system of internal has been identified. control and risk management; • Board appointments; • succession planning and setting terms of reference for Board Committees; and 98 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 Board meetings There were four meetings of the Audit Committee, four of It is the intention of the Board to meet on at least eight occasions the Risk and Sustainability Committee, three meetings of a year. In 2022 the Board met on eight scheduled occasions. the Remuneration Committee and three of the Nomination Committee during the year under review. The Directors regularly communicate and exchange information regardless of the timing of meetings and should the need arise, The table below only includes attendance where each a meeting of the Directors can be convened at short notice. Director attended as a member. The Chairman, CEO and In addition to the scheduled meetings the Board also held CFO also attended certain Committee meetings, or parts a number of updates and briefings by telephone and/or video thereof, as invitees. conference during the year. Risk and Audit Sustainability Remuneration Nomination Attendance Board Committee Committee Committee Committee Justin Atkinson 8/8 n/a 4/4 3/3 3/3 Stephen Harrison 8/8 n/a 4/4 n/a n/a Ben Guyatt 8/8 n/a 4/4 n/a n/a Katherine Innes Ker 8/8 4/4 4/4 3/3 3/3 Vince Niblett 8/8 4/4 4/4 3/3 2/3 Divya Seshamani 8/8 4/4 4/4 3/3 3/3 Martin Sutherland 8/8 4/4 4/4 2/3 3/3 Note: The Company Secretary was secretary to each Committee and attended every meeting in this capacity. 99 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## CORPORATE GOVERNANCE STATEMENT ## BOARD LEADERSHIP AND COMPANY PURPOSE Promoting long-term sustainable success As part of the Group’s investor relations programme, meetings The Board is responsible for successfully leading the Group with major shareholders are scheduled to discuss the Group’s in delivering long-term sustainable value to shareholders and interim and full year results. The Brokers obtain feedback from for making a positive contribution to wider society. The Board these meetings and this is considered by the Board allowing establishes the Company’s purpose, values and strategic all Board members to gain a better appreciation of shareholder objectives and ensures that sufficient financial and human views and expectations. resources are in place for the Group to meet its objectives. The Chairman wrote to major shareholders in the year The Board ensures that a framework of effective controls are offering to meet them and held a number of meetings covering in place to enable risk to be assessed and managed. topics including corporate governance, capital allocation Monitoring culture and sustainability. The Chairman and Senior Independent Non-Executive Director are always available to meet major The Board ensures that the Group’s culture aligns with the shareholders on request. In addition, the Senior Independent Company’s purpose, values and strategy and that Directors Non-Executive Director wrote to major shareholders in her lead by example in promoting the right culture. The Board capacity as Chair of the Remuneration Committee seeking monitors culture through feedback from the Employee Forum, shareholder feedback on proposed amendments to the discussions with employees during site visits and evaluation Company’s Remuneration Policy. of employee survey results. Factory tours are provided for major institutional shareholders Stakeholder engagement who express an interest in visiting our facilities and we look Board members engage with stakeholders directly to ensure forward to inviting major shareholders to the official opening that the Group is meeting its responsibilities towards them. This of our new Desford brick factory later in the year. engagement with stakeholders allows any matters of concern to be raised and addressed by the Board. Stakeholders not Engaging with employees only include shareholders but our workforce (many of whom Engagement with our employees is an area which we have are also shareholders), lenders, suppliers, customers and the continued to develop throughout the year, enabled directly communities in which we operate. via the Employee Forum which met four times in 2022. Martin Sutherland is the Non-Executive Director designated with In performing their duties under S172(1) of the Companies Act responsibility for understanding the views of the workforce, 2006, the Directors give careful consideration to any concerns he attends meetings of the Employee Forum in this capacity which the Group’s key stakeholders may have, and how these and has built a rapport with the forum over his tenure. The CEO matters are factored into decisions and proposals requiring and other members of the management team have continued Board approval. to present regular podcasts to keep employees updated on the Shareholder engagement Group’s progress. The CEO and CFO meet regularly with major shareholders and In partnership with Gallup, we again conducted our HearMe work together with our joint brokers to ensure there is effective employee engagement survey in 2022, with improved communication with shareholders on matters including business participation rates versus 2021. Similar themes arose performance, strategy, and sustainability. compared to the previous year, relating to employee recognition and employee development and we continue to strive for improvement in these areas. 100 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 Details of how the Group engages with all of its stakeholders is shown on pages 24 and 25 alongside the Directors’ statement in relation to their statutory duty in accordance with S172 (1) of the Companies Act, however engagement specifically at Board level is detailed in the below table: Attendance Board Board engagement Employees Health, safety, Board members undertake regular health and safety walks, including Board site visits across and wellbeing the business. Culture, equality, Non-Executive Director Martin Sutherland attends the Employee Forum meeting up to four and diversity times per year. Talent development Defining culture and leading from the top is core to the Board’s activities. The Board considers the results of employee engagement surveys. The Board meets with senior managers at Board Meetings and working dinners including an annual dinner with high potential employees. Customers Customer service and The Executive Directors regularly meet with customers. satisfaction A corporate event is held where Non-Executive Directors meet with key customers. New product development Suppliers Sustainable and ethical Sustainability is a key focus for the Board and delivering against the challenging targets set sourcing in 2020 remains a priority. Scope 3 emissions are becoming an area of increased focus which will prompt additional supplier engagement. Maintaining supply chain security The Executive Directors regularly meet with key suppliers with a focus on health, safety and wellbeing and on occasion, it may be appropriate for other Board members to meet with key suppliers. Community Being a good Delivering against the sustainability targets approved by the Board which will improve the neighbour environment we live in. Shareholders Group performance Executive Directors, along with the Chairman and Senior Independent Director regularly meet and lenders with large shareholders and lenders. ESG matters Our full Sustainability Report is included within this Annual Report on pages 42 to 75. Strategy Following engagement with our lenders, the Group’s credit facility has recently been refinanced as a sustainability linked loan (SLL). 101 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## CORPORATE GOVERNANCE STATEMENT ## BOARD COMPOSITION, SUCCESSION AND EVALUATION Board evaluation Following the externally facilitated Board effectiveness review undertaken in 2021, we conducted an internal Board evaluation in 2022. In addition, those areas identified for development 29% in the external review were incorporated as a standing Board agenda item so that progress against these could be monitored BOARD throughout the year. DIVERSITY 71% This year’s review reinforced the previous conclusion that the Board continues to operate effectively, collegiately and with strong relationships between Directors. The review also identified that the level of Board visibility in the business was high, with Board meetings held across the business Male and incorporating site visits being a positive aspect of the Female Board’s work. Upon the appointment of Gina Jardine on 3 April 2023 as Independent The evaluation identified specific areas for development, Non-Executive Director, the composition of the Board will be 38% female and 62% male. including the following recommendations: • Following the nine-year anniversary of the Company’s listing, a number of Non-Executive Directors are expected to step down in 2025 or 2026. This follows provision 10 of the Code, which suggests that after nine years Non-Executive Directors may no longer be deemed to be independent. As such, BOARD 40% theneed to step up and formalise succession planning TENURE was identified; ( NON-EXECUTIVE DIRECTORS ) 60% • The Board is to increase its customer focus, with members gaining a better understanding of customers’ needs and perspectives; and • The Board are to consider initiatives to further strengthen 3-6 years and help embed a unified and consistent corporate culture 6-9 years across the Group. The Board is able to conclude that it continues to understand its strengths and weaknesses and will address the actions arising from the internal evaluation. Notwithstanding these actions, 14% the Board can conclude that its composition and that of its 29% Committees is appropriate, procedures in place are effective, responsibilities are clearly divided, and that the Directors have BOARD the skills, experience, independence and knowledge to allow INDEPENDENCE the Board and its Committees to successfully and effectively discharge their duties. 57% Chairman Independent Non-Executive Directors (excluding Chairman) Executive Directors 102 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 During the year the Senior Independent Non-Executive Board diversity Director met the other Non-Executive Directors without the The Board is committed to furthering diversity at all levels. Chairman being present; and the Chairman met at least once The Board acknowledges the recommendations of the with each Director on a one-to-one basis. These meetings Hampton-Alexander Review which recommends that at least allowed a full discussion of each Board member’s contribution, 33% of the Board should be female. In addition, the Board any feedback from the Board evaluation process and a focus recognises that the Financial Conduct Authority has introduced on personal development. new Listing Rules with targets for at least 40% of the Board to be female, at least one senior member of the Board to be Appointment and re-election of Directors a woman and at least one member of the Board to be from a The Company’s Articles of Association contain certain powers non-white ethnic minority background. As a Company currently of removal, appointment, election and re-election of Directors outside the FTSE 250, these requirements do not directly apply and provide that each Director should retire at the Annual to Forterra although we do have an aspiration to adhere to General Meeting if they had been a Director at each of the two governance requirements as if the Company were a member preceding Annual General Meetings and are not re-appointed of the FTSE 250. by the Company in the general meeting or since such meeting. A retiring Director shall be eligible for re-appointment. In practice At present 29% of the Board are female, however this will it is intended that all Executive and Non-Executive Directors increase to 38% on the appointment of Gina Jardine as will retire and put themselves forward for re-election annually Non-Executive Director. One of the senior Board members at each Annual General Meeting and as such all Directors is a woman and one member of the Board is from a non- will stand for re-election at the 2023 Annual General Meeting white ethnic minority background. Diversity covers many with the exception of Stephen Harrison who will retire as CEO facets other than gender and race. The Board has a strong beforehand and be replaced by Neil Ash. balance of diverse skills, knowledge, experience, upbringing and education. On appointment, Board members disclose their other commitments and agree to allocate sufficient time as necessary The Hampton-Alexander Review also recommends that at least to the Company in order to discharge their duties effectively. 33% of senior managers (defined as Executive Committee and The current disclosable external commitments of the Board their direct reports) should be female. Within Forterra this figure are shown on pages 89 and 90. Any conflicts of interest are currently stands at 18%. dealt with in accordance with the Board’s conflict procedures, Gender diversity is a wider issue within our industry. Presently however this situation has not arisen this year. only 11% of our employees are female with many of our roles, Induction especially those which are factory based, traditionally being A structured induction programme is in place to ensure new less popular with women and we remain committed to further Directors are quickly integrated into the Board and given the improvement of our diversity statistics. necessary insight and information to allow them to quickly The Company does not presently track statistics of ethnicity. become effective. The induction programme includes: • meetings with the Directors, Company Secretary, members of the Executive Committee and other members of management; • guided visits to the Group’s manufacturing facilities; • meetings with external advisers including corporate brokers, auditors, and remuneration consultants as appropriate; and • being given access to historic Board papers and minutes. There were no changes to the Board during 2022 and therefore no inductions were required during this period, however Neil Ash and Gina Jardine will both be joining the Board in April 2023 and will each undergo a full induction programme, with Neil’s programme having already commenced at the date of this report. 103 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## CORPORATE GOVERNANCE STATEMENT ## RISK MANAGEMENT Internal controls and risk management Directors’ and Officers’ insurance The Board acknowledges its responsibility under Principle The Company maintains Directors’ and Officers’ liability O of the Code for establishing procedures to manage risk, insurance policies to cover against legal proceedings taken oversee the internal control framework and determine the against its Directors and Officers acting in their capacity nature and extent of the principal risks it is willing to take to as such. The Company has also granted indemnities to its achieve its long-term strategic objectives. Directors to the extent permitted by the law in respect of liabilities incurred as a result of their office. Neither the insurance In order to allow the Board to discharge its obligations with cover or the indemnities would provide any coverage in the regard to Principle O of the revised Code the Board requested event that a Director is proven to have acted fraudulently that the co-sourced Internal Audit provider carry out a review or dishonestly. of the effectiveness of the Group’s entity level controls. This was presented alongside an internally prepared paper on risk and Share dealing code internal control systems, which management prepare on an The Company has adopted a code of securities dealings in annual basis. relation to the Ordinary Shares which is based on, and is at least as rigorous as, the Model Code as previously published The Board confirms that: in the Listing Rules. The Code adopted applies to the Directors • there is an ongoing process for identifying, evaluating, and other relevant employees of the Group. and managing the principal risks faced by the Group; Approved by the Board and signed on its behalf: • the systems have been in place for the year under review and up to the date of the approval of the Annual Report and Accounts; Justin Atkinson Chairman • they are regularly reviewed by the Board along with the 9 March 2023 Risk and the Audit Committees where appropriate; and • the systems accord with the Financial Reporting Council (FRC) guidance on risk management, internal control, and related financial business reporting. The key risks faced by the Group together with their potential impact and mitigating actions are laid out in the Risk Management section of the Strategic Report on pages 76 to 86. 104 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## NOMINATION COMMITTEE REPORT ## ❝ ## The primary focus in the last ## year has been the process ## to identify and recruit a new ## Chief Executive Officer along ## with commencing the search ## for a further Independent ## Non-Executive Director.” Justin Atkinson Non-Executive Chairman Membership The members of the Committee are appointed by the Board. At 31 December 2022 the members of the Committee were as follows: Justin Atkinson (Chairman) Katherine Innes Ker Divya Seshamani Martin Sutherland Vince Niblett ## JUSTIN ATKINSON 105 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## NOMINATION COMMITTEE REPORT ## CONTINUED Dear Shareholder Activities during the year I am pleased to present the report of the Nomination The Committee normally meets on two occasions during the Committee (the Committee) for 2022. The content below year. Following Stephen Harrison’s decision to step down as describes the main responsibilities of the Committee. Chief Executive an additional meeting was held in 2022. I chair Nomination Committee meetings but would not Recruitment of new Chief Executive Officer participate in a meeting when the Committee is dealing Firstly, the Board undertook a selection process to appoint the with my own position as Chairman. executive search and selection practice to assist with identifying and subsequently recruiting a new CEO, which resulted in the appointment of Lygon Group. Lygon Group does not have any other connection with the Company or individual Directors. Responsibilities Following a consultation with both the Executive Directors and the Executive Committee, the Nomination Committee, The principal responsibilities of the Committee are supported by Lygon Group, prepared a brief detailing the as follows: desired skillsets and attributes including, but not limited to, an experienced business leader with previous responsibility of leading a large business; relevant manufacturing experience with • to regularly review the structure, size, and composition full P&L responsibility; experience of the building products or (including the skills, knowledge, experience, and wider construction industry; a track record of delivering growth; diversity) of the Board and to make recommendations excellent leadership skills; experience of delivering large scale to the Board with regard to any changes; capital projects; and experience of leading innovation. • to plan for succession for both Executive and Non- Once a longlist of candidates had been prepared by Lygon, Executive Board roles along with senior management the Committee shortlisted those candidates further before the positions; to identify and recommend to the Board Chairman and Senior Independent Non-Executive Director for approval candidates to fill Board and senior undertook first round interviews, reducing the shortlist to three management vacancies as they arise; and candidates. Subsequent to this, each Board member then • to make recommendations to the Board in respect of interviewed the candidates, allowing the Committee to make the performance of Directors standing for election or a decision as to the most suitable. At this stage Neil Ash met re-election in advance of the Annual General Meeting. with outgoing CEO, Stephen Harrison, visiting several of the Group’s facilities together. In addition, Neil was provided with The full responsibilities of the Committee are set out the opportunity to meet with the Company’s joint Corporate in its Terms of Reference which are available on the Brokers and External Auditor. Psychometric testing was Company’s website. undertaken, along with the taking of references, before the The Terms of Reference of the Nomination Committee Committee made its recommendation that the Board should are approved by the Board and are reviewed annually to offer the role to Neil Ash. ensure they remain appropriate. 106 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 Recruitment of a further Non-Executive Director Executive skills and succession planning The Committee considered each Board member’s tenure and A key role of the Committee is ensuring the effectiveness of the impact this has on succession planning, with provision 10 the Board and its ability to deliver long-term success for the of the Corporate Governance Code detailing that nine years business. Included in this is the continual review of the skills, is the period of service after which a non-executive director’s experience, independence and knowledge required to ensure independence may be impaired, meaning that it was likely the right individuals are in place to support the Company’s that the Chairman and four of the five current Non-Executive continued progression and effective implementation of the Directors would retire in an 18-month period in 2025 or 2026, Group’s strategy. As described above, the executive succession following the ninth anniversary of the Group’s listing. The plan is monitored by the Committee, alongside the development Committee also considered the recent changes to the Listing initiatives to identify and nurture future leaders for the business. Rules regarding diversity, with the expectation that 40% of the Diversity and equality Board should be female, alongside feedback received from our The Group has an Equality and Diversity Policy and is committed shareholders on the present level of gender diversity on the to encouraging diversity across the business at all levels and Board. Further, the Committee reviewed the composition of to being inclusive. At the end of the year, the Board contained the Board to ensure that it remained appropriate and relevant two female Directors, representing 29% of the Board although to the Group in both structure and size, including having the this will increase to three, representing 38% of the Board, on skills and knowledge to deliver the agreed strategy. As a result the appointment of Gina Jardine. In addition, one of our senior of this exercise, the Committee concluded that the Board Board members is a woman and one of the Board members could be strengthened by the addition of a further Independent is from a non-white ethnic minority background. Non-Executive Director and prepared a list of desired skills and experiences that would complement the skills and experiences of the existing Board members. Desirable skills included; Justin Atkinson experience in the field of human resources; exposure to the Chairman building products or other manufacturing sectors; and a track 9 March 2023 record in innovation and bringing new products to market. It was accepted that it would be unlikely that a single candidate would possess all of the skills and experiences identified but it was agreed it was important to have a broad range of target skills so as to sufficiently widen the search and create a diverse pool of potential candidates. Lygon Group were again appointed to lead the search and selection process. Once a longlist had been identified the Chairman then interviewed a number of candidates, preparing a shortlist of three candidates who were all interviewed by each Board member. Following this process, and on receipt of suitable references, in early 2023 the Board selected Gina Jardine. Gina is an experienced HR professional with experience gained in some of the world’s largest construction and mining companies. Priorities for 2023 A key priority for the Committee in 2023 is to ensure that both Neil Ash and Gina Jardine are effectively inducted into their new roles and to make sure they are provided with the necessary support. As identified in the 2022 Board effectiveness review laid out within the Chairman’s Governance Statement, Board succession planning will be a continued focus area for the Committee to ensure that, with the majority of the present Board expected to retire in 2025 or 2026, there is a structured process put in place to ensure that succession plans developed for key Board roles and that the process for recruiting additional Directors commences in good time. 107 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## AUDIT COMMITTEE REPORT ## ❝ ## The Committee continues ## to closely monitor the UK ## Government’s response to ## the ‘Restoring Trust in Audit ## and Corporate Governance’ ## consultation so as to ## determine the potential future ## impact upon the Group. ## In anticipation of this, ## under the guidance of the ## Committee, management ## initiated a project to strengthen ## its internal control processes ## through the preparation of ## a formalised Group internal ## control framework.” Vince Niblett Chairman Membership The members of the Committee as at 31 December 2022 were as follows: Vince Niblett (Chairman) Katherine Innes Ker Divya Seshamani Martin Sutherland ## VINCE NIBLETT 108 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 Dear Shareholder Meetings I am pleased to present my Audit Committee Report, which During 2022 the Committee formally met on four occasions. sets out how the Audit Committee (the Committee) has In addition to the members of the Committee, other members discharged its responsibilities during the year and provides of the Board and senior management, including the CEO, an understanding of work done to provide assurance over the CFO, the Head of Internal Audit and Financial Accounting, integrity of the Annual Report and Accounts for the year ended representatives from co-sourced internal audit provider PwC, 31 December 2022. and the external auditor Ernst & Young joined the Committee meetings by invitation. The external auditor was invited to and attended each meeting of the Committee in 2022. The Company Secretary provided secretarial services to Responsibilities the Committee and attended meetings in this capacity. In addition to the scheduled meetings, the Committee chair meets regularly with the CFO, Head of Internal Audit and The principal responsibilities of the Committee are Financial Accounting, external auditor and co-sourced internal as follows: audit provider, providing additional opportunity for open dialogue and feedback. Financial reporting Key activities and highlights during the financial • Monitor the integrity of the Financial Statements, reporting cycle interim report, and any other announcements relating During the year under review and to the date of this to the Group’s financial performance or position. Annual Report the agenda items and principal activities of the Committee are outlined below. • Review significant estimates and judgements disclosed within the Financial Statements and how Financial reporting each was addressed. • Review of the Group’s annual and interim Financial • Review and challenge where necessary the Statements and preliminary results’ announcements, consistency of and any changes to significant including accounting policies and compliance with accounting policies. accounting standards. • Review the Annual Report and Accounts and provide • Review of significant financial reporting issues and matters assurance to the Board that they present a fair, of judgement within the Financial Statements (further details balanced and understandable assessment of the of these can be found on pages 111 and 112). Group’s position and prospects. • Review of trading updates issued during the year. External audit • Review and approval of the viability statement, including • Review the effectiveness and independence of the the scenarios modelled and assumptions made within. external auditors, negotiate, and agree their remuneration • Review and approval of the going concern statement for the and make recommendations to the Board in respect Group, and recommendation to the Board that the Directors of their appointment. can justifiably state that they have a reasonable expectation that the Group will be able to continue in operation and meet Internal audit its liabilities for at least the next 12 months. • Review and approve the Group’s internal audit plan and monitor progress against it. Evaluate the effectiveness • Review and approval of the Group’s tax strategy. of the Group’s internal audit function. • Review of the Annual Report and Accounts and advice to the Board on whether, taken as a whole, these are fair, balanced Internal control and understandable and provide the information necessary • Keep under review the adequacy and effectiveness for shareholders to assess the Group’s financial position and of the Group’s internal financial control and risk performance, business model and strategy. management systems. • Monitor the effectiveness of the Group’s procedures on whistleblowing, anti-bribery, corruption and anti-money laundering. • Review modelling and analysis used to support the going concern assessment and long-term viability of the Group. The full responsibilities of the Committee are set out in its Terms of Reference which are available on the Company’s website. The terms of reference of the Audit Committee are approved by the Board and are reviewed annually to ensure they remain appropriate. 109 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## AUDIT COMMITTEE REPORT ## CONTINUED External audit Internal control • Consideration of the external auditor’s 2022 audit plan • Approved and critically assessed a review performed by including the scope of audit work and the agreement of the co-sourced internal audit provider on the effectiveness the 2022 audit fee. of the Group’s entity level controls. • Consideration of the annual letter to those charged with • Approved the initial design, scope and timeline of a project governance and other reports prepared by the external auditor. to strengthen control documentation through a dedicated financial control framework, in line with expected regulatory • Following the FRC audit quality team’s review of Ernst & developments in this area. Young’s audit of the Group’s Consolidated Financial Statements for the year ended 31 December 2021, the FRC wrote to • Received regular updates from management on the progress the Chairman of the Audit Committee setting out the scope of the project to strengthen the Group’s control framework. of its review, its principal findings and areas of good practice Other identified. Overall the Audit Committee noted the review • Received compliance updates from the Company Secretary did not raise any findings to consider and accordingly, in relation to whistleblowing. the Committee is satisfied it was a high quality audit. • Reviewed an update of the Committee’s Terms of Reference, • Received updates from the external auditors on the UK ensuring they remain in line with best practice. Government’s response to the ‘Restoring Trust in Audit and Corporate Governance’ consultation and understanding of the implications this may have on the Group and Committee going forward. Internal audit • Monitoring of progress against the 2022 internal audit programme, following consideration of the risks facing the Group. • Setting of the 2023 internal audit programme. • Monitor and review the performance of the co-sourced internal audit function confirming that its operating charter remains appropriate. • Review of the audit reports prepared by the internal audit function with subsequent oversight of the implementation of recommended improvements. • Received updates from the internal audit function on the UK Government’s response to the ‘Restoring Trust in Audit and Corporate Governance’ consultation and understanding of the implications this may have on the Group and Committee going forward. 110 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 Significant financial reporting risks and judgement ensure the restoration and decommissioning provision is areas considered appropriately stated in the Financial Statements. The Committee, in carrying out its responsibilities, is required Inventory valuation and provisioning to assess whether suitable accounting policies have been Inventory carrying value in the Financial Statements is stated adopted and consistently applied in the preparation of the after recognising inventory provisions, with particular reference Financial Statements. to the judgemental nature of the obsolescence provision, The Committee consider the following to be the most significant referred to as the capping provision. The capping provision financial reporting matters based on their potential effect on the uses past sales data, with manual adjustments for new Group’s Financial Statements. During the year and to the date products to calculate the provision. This requires a degree of of this report, the Committee have reviewed and challenged commercial judgement when determining saleability and price papers prepared by management, confirming these remain of certain finished goods. appropriate for the Group and relevant in the approval of the Committee action Financial Statements for the year ended 31 December 2022. The Committee has been presented with a summary of work Revenue recognition performed by management, outlining the Group’s valuation The Group recognises revenue on a point in time basis when of its finished goods inventory, including the level of provisions performance obligations are met, which is usually on delivery recognised against potential obsolescence. Provisions were to the customer, but may vary by product and under different discussed by the Committee, with consideration to the current agreements. In addition to this, a number of contracts also economic uncertainties and their impact on stock held by contain volume driven rebate mechanisms. the Group. Committee action In addition, the work of the external auditor was considered, The Committee reviewed and understood the Group policy including the procedures carried out in relation to the carrying covering the recognition of revenue and the recording of value of the Group’s inventory. This included attending stock rebate obligations. This review was supported by presentation counts, assessing reasonableness of adjustments and by management of the systems and controls surrounding sample testing. revenue recognition, as identified through work on the financial Taking this into consideration, the Committee was able control framework. to concur with management’s assessment that there Additionally, the Committee received and reviewed the results are appropriate policies, systems and controls in place of an audit performed in 2022 by the internal audit function to ensure the carrying value of the Group’s inventories is over rebate processes and controls, which was concluded appropriately stated. as satisfactory. Impairment Following discussion, and further considering the summarised The Group holds significant assets in the form of brands, land result of substantive testing and data analysis performed by and buildings and plant and machinery. At the interim and the external auditor, the Committee is satisfied that, under year-end balance sheet dates, these assets were considered for all arrangements, the point at which control passes to the indicators of impairment. At 31 December 2022, management customer has been suitably considered and reflected and performed an assessment of indicators of impairment, followed there are appropriate systems and controls in place to ensure by full assessments for certain cash-generating units within the revenue is recognised appropriately. Group as required, and determined that no impairment existed at the year-end. Restoration and decommissioning provisions Committee action The Group makes provisions for liabilities in respect of restoration and decommissioning based upon both third-party advice The Committee has critically reviewed the processes adopted and management’s judgement of the appropriate level of liability by management in assessing whether, in their judgement, likely to arise in the future. any indicators of impairment existed and whether any detailed impairment testing should be undertaken, with consideration to Committee action the current economic uncertainties and their impact on market The Committee considered the work performed by management conditions. The Committee have carefully considered these and the steps taken to ensure accuracy of provision, including reviews and the associated impairment assessments as well use of third-party experts and comparisons of estimate to as the assumptions and sensitivities applied by management actual costs incurred. This was presented alongside reporting in undertaking the impairment testing. from the external auditor, which detailed work performed over the appropriateness of the discount rates applied by Following this review, the Committee concurred with management, useful lives attached to sites, management input management’s conclusion that no impairments should be data and the work of independent experts engaged. recognised due to continued profitable trading. After reviewing management reports and consulting where necessary with the This allowed the Committee the ability to critically review external auditor, the Committee is satisfied that the estimates and challenge the basis and amounts of provisions as at adopted, and the accounting treatments applied in the 31 December 2022, understand Group policy and be satisfied preparation of the Financial Statements are appropriate. that there are appropriate systems and controls in place to 111 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## AUDIT COMMITTEE REPORT ## CONTINUED Alternative performance measures: exceptional items Committee action Exceptional items are disclosed separately in the Financial The Committee received an update from management and Statements where management believes it is necessary the external auditor on the appropriateness of the Group to show an alternative measure of performance (APM) in accounting policy for the treatment of carbon credits, presenting the financial results of the Group. Management including the measurement basis at both interim and assesses the nature, size and incidence of items when judging year-end reporting dates. The Committee reviewed and what should be disclosed separately. understood the relevant accounting standards underpinning the policy and discussed with both the external auditor and Committee action management the appropriateness of disclosing measurement The Committee assessed the categories of items proposed on a weighted average basis as an APM within the interim for inclusion as exceptional items and considered their Financial Statements. appropriateness in line with regulatory guidance. In doing so the Committee sought views from the external auditor as to The Committee concluded that its presentation provided the appropriateness of items categorised by management as additional clarity on performance and that sufficient exceptional. Upon conclusion of this review, the Committee reconciliations and disclosures were provided by management concurred with management’s analysis of proposed exceptional with sufficient prominence. items and their disclosure as an APM. Risk management and internal controls Alternative performance measure: accounting for The Committee is focused upon financial risks and controls. carbon credits Operational risk management is contained within the Terms of Under the UK Emissions Trading Scheme, the Group receives Reference of the Risk and Sustainability Committee. The Audit an annual allocation of free carbon credits, which are used to Committee and the Risk and Sustainability Committee work satisfy a portion of the Groups carbon emissions liability as closely together, and members of the Audit Committee also incurred over the compliance period, which falls in line with the serve on the Risk and Sustainability Committee. In addition, accounting period of the Group. These are recorded at nil value key members of the Internal Audit function may, by invitation, within the Financial Statements. As this allocation is less than also attend meetings of the Risk and Sustainability Committee. the total carbon compliance liability incurred by the Group over Details regarding the activities of the Risk and Sustainability the compliance period, additional carbon credits are purchased Committee can be found on pages 115 to 117. to satisfy the shortfall. Restoring Trust in Audit and Corporate The liability for the shortfall is measured, up to the level of Governance consultation credits purchased, at the cost of the purchased credits. The Committee continues to closely monitor the UK Where the liability to surrender carbon credits exceeds the Government’s response to the ‘Restoring Trust in Audit and carbon allowances purchased, the shortfall is measured at Corporate Governance’ consultation so as to determine the the prevailing market price and remeasured at the reporting potential future impact upon the Group and any additional date. The Group’s free allocation of carbon credits is based obligations this may place on the Board and Committee. on expected emissions over the full compliance period, which In anticipation of this, management initiated a project to is in line with the Group’s financial year. As such, management strengthen its financial controls through the preparation of believes the operationally aligned method for measurement a formalised control framework. The Committee recognise that recognises these free allowances over the full financial year this project will strengthen and continue to embed a strong using a weighted average basis, aligned proportionately with control environment across the Group and received updates the production which drives carbon emissions, in line with on progress, control findings and actions during the year. management reporting. This weighted average basis was Risk management and internal control systems presented as an APM in the interim financial statements. In order to allow the Board to discharge its obligations with The interim statutory results showed carbon credits as being regard to Principle O of the revised Code the Board requested utilised on a first in, first out basis, fully utilising the Group’s free that the co-sourced Internal Audit provider carry out a review allocation of carbon credits before recognising any liability to of the effectiveness of the Group’s entity level controls. This was purchase further credits. The above differing treatments only presented to the Committee alongside an internally prepared affect the interim results for the Group and had no impact on paper on risk and internal control systems, which management the full year Financial Statements. 112 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 prepare on an annual basis. The Audit Committee assessed the Committee experience and competence findings of this review and is able to confirm to the Board that: Provision 24 of the revised Code requires that the Board should • there is an ongoing process for identifying, evaluating, satisfy itself that at least one member of the Audit Committee and managing the principal risks faced by the Group; has recent and relevant financial experience. The Committee as a whole shall have competence relevant to the sector in • the systems have been in place for the year under review which it operates. and up to the date of the approval of the Annual Report and Accounts; The Board have concluded that Vince Niblett meets the recent • they are regularly reviewed by the Board along with the and relevant financial experience requirement. Vince Niblett Risk and Sustainability and the Audit Committees where was previously a Partner at international professional services appropriate; and firm Deloitte, where he held a number of senior roles including membership of the UK Board of Directors and Global Managing • the systems accord with the Financial Reporting Council Director, Audit & Enterprise Risk Services before retiring in 2015. (FRC) guidance on risk management, internal control, and Vince is a Chartered Accountant and also a Non-Executive related financial business reporting. Director and Chairman of the Audit Committee at Big Yellow Internal audit Group plc and Target Healthcare REIT plc. The internal audit function exists to provide the Board and The Board also considers the wider Committee to have the management with independent assurance that internal controls required competence, skills, and experience and that it is and risk management processes are both appropriate and operating effectively and is providing robust challenge to the operating effectively. Executive Directors and the wider business. A co-sourced internal audit function is in place, this is headed Fair, balanced and understandable by an in-house Head of Internal Audit and supplemented by At the request of the Board, the Audit Committee has auditing resource and expertise from PwC as required. The considered whether the 2022 Annual Report is fair, balanced Committee continues to believe that this operating model is and understandable and whether it provides the necessary the most suitable for the Group as it combines strong internal information for the Group’s shareholders to assess the Group’s business knowledge and understanding with a wide pool of position, performance, business model and strategy. external experience and specialist skillsets to deliver the most effective and responsive solution. As part of its review the Committee considered: The internal audit function operates to an agreed 12-month • the messaging and balance of key disclosures in the audit programme which is set by the Committee after strategic report; considering recommendations from the internal audit function • presentation of APMs, including the balance between as well as Executive Management. Internal audit programmes statutory and non-statutory measures; are designed following an assessment of risk and materiality. • advice from external professional advisers on complex The internal audit function also retains the ability to bring in matters where appropriate; independent specialists to assist with audit work where more • reviews performed by senior management over the Annual specialist knowledge and understanding is required. Report and Accounts; During 2022 the function performed work covering areas, • disclosures related to the Group’s sustainability objectives, including: payroll processes; query management controls as well as climate risk and opportunities; and following new software implementation and a review of • consistency of reporting within the Annual Report and controls around rebate processes. Further, a review of entity Accounts, including disclosure of judgements and estimates. level controls, focusing on evaluating the effectiveness of risk management and internal control systems as outlined by the The Committee has concluded that the disclosures, and FRC, was requested by the Committee. the process and controls underlying their production, were appropriate to enable it to determine that the 2022 Annual The outcomes of these were presented to the Audit Committee Report and Accounts is fair, balanced and understandable. ahead of approval of the Financial Statements for the year ended 31 December 2022. These set out any control Viability statement and going concern weaknesses identified as well as management’s actions to Ahead of the publication of the full year financial results address control recommendations. for 2022, the Committee undertook a detailed review of The Chairman of the Audit Committee regularly meets with the prospects of the Group to ensure ongoing viability. the Head of Internal Audit and the co-sourced provider. Other A viability statement was prepared which carefully considered members of the Committee and the Board will also meet with possible adverse scenarios resulting from current economic the Head of Internal Audit on a periodic basis. The Head of uncertainties, against a budgeted base case. This was used to Internal Audit and the co-sourced provider have regular and support a recommendation to the Board that the Directors can confidential access to the Chairman of the Committee. justifiably state that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities to the end of 2026. The viability statement is included in the risk management and key risks section of the Strategic Report. 113 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## AUDIT COMMITTEE REPORT ## CONTINUED The Committee also reviewed and challenged the going concern Whistleblowing, fraud and the Bribery Act statement included in the Directors’ Report along with the The Board has reviewed and approved the Group’s policies and underlying assessment prepared to support this statement. procedures covering whistleblowing, anti-bribery and corruption including the controls in place to detect fraud and to ensure External audit, auditor independence and objectivity compliance with both competition and anti-bribery legislation. The Committee is responsible for making recommendations The Group maintains a zero-tolerance approach to breaches to the Board regarding the appointment, re-appointment, and of this legislation and certain employees in commercial roles, removal of the external auditor. It keeps under review the scope selected using a risk-based approach, are provided with of the audit, the audit findings, its cost effectiveness and the dedicated training and guidance appropriate to their roles. independence and objectivity of the auditor. The Group operates a MySafeWorkplace anonymous incident The Company has complied with the Competition and Markets reporting system, allowing employees to report any wrongdoing Authority final order on mandatory tendering and the requirements or concerns with confidentiality assured. There were no of the Audit Directive (2014/56/EU). It is the Company’s intention concerns notified to the Group that required the attention of the to put the audit out to tender at least once every 10 years. Committee during the year and up to the date of this report. Ernst & Young have held the appointment as Auditor since the Company was incorporated in 2016. The Report of the Audit Committee has been approved by the Board and signed on its behalf by: The Group’s policy is to rotate the lead audit partner every five years. Anup Sodhi was appointed as audit partner in 2021. Vince Niblett The Committee receives the formal letter addressed to those Chairman of the Audit Committee charged with governance provided by the external auditors 9 March 2023 on completion of the annual external audit which summarises the key findings and observations arising from the audit along with how management have responded to these findings. In addition, the external auditors provide confidential feedback to the Committee as to how members of the management team have conducted themselves during the audit process. In addition, the Chairman of the Committee regularly meets with the external audit partner outside of the formal committee meetings. Non-audit services policy The Group’s non-audit services policy restricts the external auditor from performing certain non-audit services in accordance with the Revised Ethical Standard 2016 issued by the Financial Reporting Council. The Revised Ethical Standard 2019 introduced further restrictions on services not closely linked to the audit, law or regulation and the Group is operating in compliance with these regulations. The amounts paid to Ernst & Young for non-audit services during the year are disclosed in note 5 of the Financial Statements. The only non-audit service provided in the year was in respect of the review of the interim financial statements and results announcement. Ernst & Young also has its own policies and procedures in place to ensure it maintains its independence and objectivity and regularly reports to the Committee on its independence. 114 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## RISK AND SUSTAINABILITY ## COMMITTEE REPORT ## ❝ ## In 2022 the Committee ## focused on emerging risks ## and cost inflation, in particular ## energy procurement, whilst ## at the same time ensuring that ## sustainability and the complex ## risks it presents receive ## sufficient Board attention.” Divya Seshamani Chairman Membership The members of the Committee are appointed by the Board. At 31 December 2022 the members of the Committee were as follows: Divya Seshamani (Chairman) Justin Atkinson Stephen Harrison Ben Guyatt Katherine Innes Ker Vince Niblett Martin Sutherland ## DIVYA SESHAMANI 115 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## RISK AND SUSTAINABILITY ## COMMITTEE REPORT CONTINUED Dear Shareholder Activities during the year I am pleased to present the report of the Risk and Sustainability The Committee met on four occasions during the year, Committee (the Committee) for 2022. The purpose of the alternating in focus between health and safety risk Committee is to assist the Board in ensuring that all key and sustainability-related risks, alongside wider risk business risks, including health and safety, sustainability, management topics. operational and commercial are identified in a timely manner In addition to the Committee members, other members of the and, where possible, mitigated effectively and proactively management team with responsibilities covering health and throughout the Group. safety, sustainability, commercial, operations and internal audit regularly attended and actively contributed to the meetings. Responsibilities Working in conjunction with the Audit Committee, the the implementation of its sustainability policy and role of the Committee is to assist the Board in fulfilling monitoring of those targets. Responsibilities of the its oversight responsibilities ensuring the Group properly Committee are summarised as below: identifies and manages the key risks it faces, alongside Risk management Sustainability • Define and continually review the Group’s appetite for risk. • Oversee the Group’s sustainability policies. • Review the effectiveness of risk management processes • Define the level of the Group’s ambitions with regards in determining whether all risks are being identified, to reducing environmental impact and addressing evaluated, monitored, and managed appropriately. climate-related risk. • Review of the Group risk register and consider its • Set challenging environmental targets and monitor appropriateness and completeness along with the progress against these. appropriateness of the mitigating actions being taken. • Monitor the Group’s compliance with the requirements • Consider emerging risks which have the potential to of TCFD and other reporting protocols as appropriate. impact the business. • Ensure that the Group’s sustainability policy satisfies • Review the effectiveness of the Group’s risk management its desired outcomes and monitor achievement against function, ensuring that sufficient resources are devoted to the targets set. this area and that these resources are appropriately skilled. The Committee’s full Terms of Reference are available Health and safety on the Company’s website. • Review of the health and safety policy, considering The Terms of Reference of the Risk and Sustainability whether it complies with legislation and best practice, Committee are approved by the Board and are reviewed and recommend improvements as appropriate. annually to ensure they remain appropriate. • Implement changes in the health and safety policy as necessary. 116 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 Risk management • reviewed the outcomes of the safety walks undertaken Throughout the year and to the date of this Annual Report, by members of the Board during the year; and the risk register for the Group has been reviewed and updated • evaluated the effectiveness of the Group’s health and by management, considering completeness, likelihood, safety function. and impact of risks, along with controls and actions in place Sustainability to mitigate risks. Emerging and principal risks for the Group (as described in the Strategic Report on pages 76 to 86) are Sustainability was the focus of two of the four Committee reviewed regularly and the full risk register is presented to meetings held during the year, with these meetings also the Board at least annually. being attended by the Group’s Head of Sustainability and other members of management as appropriate. During 2022, Committee attention has been directed towards a number of evolving risks, including, but not limited to: supply The Committee has undertaken the following sustainability- chain issues and cost inflation, in particular increasing energy related tasks during the year: costs. The Committee considered the likely implications and • review and monitor of the Group’s performance against potential mitigations of each risk, along with the Group’s appetite its sustainability targets; for such risk. As a result of the sudden and unprecedented • consideration of and review of the Group’s long-term increases in energy prices, the Group’s energy procurement energy supply strategy and evaluation of the risks and policy was reviewed and approved by the Committee, and the benefits of investing in renewable energy generation; Committee received periodic updates throughout the year on • approval of the solar Power Purchase Agreement (PPA) energy prices, strategy and current position. which will supply approximately 70% of the Group’s electricity In reviewing emerging risks and management response to the requirement from 2024 along with an investment of around changing risk environment, the Committee considered how well £2.5m in roof mounted solar at the new Desford brick factory; risk management was embedded throughout the business, and • receipt of updates regarding the Group’s progress on how increasing focus on risk management is better equipping sustainability initiatives including reduction of plastic the business to identify and respond to the rapidly emerging packaging and the adoption of emerging technologies. threats posed by the fast-evolving market and supply chain The latter including the use of hydrogen and biomass as conditions. The Committee continue to review emerging risks replacement fuels for natural gas along with carbon capture alongside the Group’s principal risks to provide assurance and storage; and that all risks continue to be afforded proper attention. Further, • review of the Group’s sustainability and climate reporting the Group’s approach to risk management was reviewed by and disclosure including the scenario-based modelling the Group’s co-sourced internal audit function at the request required by TCFD. of the Audit Committee in 2022. Further details of this review can be found on page 112 of the Audit Committee Report. Health and safety walks The recommendations identified during the review, have been Throughout 2022 the Board continued to engage in visible felt implemented and management have developed action plans leadership with the workforce, something that is seen as critical to ensure further improvement. in positively influencing culture from the top. Further information regarding the risks faced by the Group is Each Board member is expected to undertake at least two included in the risk management section of the Strategic Report safety focused site visits, ‘safety walks’, at the Group’s operating on pages 76 to 86. facilities. During these visits the Directors take the opportunity to engage directly and informally with employees on matters Health and safety relating to health and safety. The Committee considers the Health and safety remains our number one priority and feedback from each of these safety walks and regularly reviews accordingly continued to be an area of significant focus for progress against identified actions. the Committee during the year. The Committee considered and provided input into the Group’s health and safety strategy, These safety walks are well received by our employees and which in the year saw a greater focus on safety behaviours and demonstrate the Board’s commitment towards visible felt culture, with external behavioural training delivered across the leadership. In addition, consistent with the objective of fostering whole business, following our Road Map to Zero Harm and a greater awareness of, and responsibility for risk management at Golden Rules. an operating site level, the visits also consider wider site-specific risks and mitigations without diminishing the importance placed During the year, the health and safety team continued to make on health and safety. In 2022 the Committee members were progress in delivering the Road Map to Zero Harm, assisted by also invited to attend the Group’s externally presented behavioural Steve Jeynes, Production Director. safety programme, which was rolled out across the business The Committee carried out the following health and safety during the year. related duties in the year: • considered health and safety policy and practices against Divya Seshamani developments in best practice; Chairman of the Risk and Sustainability Committee • reviewed health and safety incidents along with management’s 9 March 2023 response to these incidents, identifying key learnings and further improvements that can be made to existing practices; 117 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## REMUNERATION COMMITTEE REPORT ## ❝ ### On behalf of the Board, ### I am pleased to present our ### Directors’ Remuneration Report ### for the financial year ended ### 31 December 2022, which sets ### out our role, along with the revised ### Remuneration Policy to be put ### to a binding vote at the forthcoming ### AGM. This Report provides details ### on the link between remuneration ### and the Group’s long-term strategic ### goals, and how it aligns to the ### interests of the Executive Directors, ### senior management, employees ### and our shareholders.” Structure of the report • Remuneration Committee Report, pages 118 to 146 • Remuneration at a Glance, page 123 • Summary of Remuneration Policy, pages 124 to 134 • Annual Report on Remuneration, pages 135 to 146 Membership The members of the Committee as at 31 December 2022 were as follows: Katherine Innes Ker (Chairman) Justin Atkinson Martin Sutherland Divya Seshamani Vince Niblett ## KATHERINE INNES KER 118 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 GOVERNANCE # Dear Shareholder I am pleased to present, on behalf of the Board, the 2022 Directors' Remuneration Report. This contains the Annual Remuneration Report, explaining how the current Remuneration Policy (the 'Policy') has been implemented during 2022, and also the new Directors' Remuneration Policy, which will be put forward for a binding shareholder vote at the 2023 Annual General Meeting (AGM). The Group aims to attract and retain talented people to deliver sustainably high levels of performance ensuring the ongoing success of the Group. Our Remuneration Policy aligns the Group's strategic goals with the pay and incentives of Executive Directors, senior management, employees, and with the long-term interests of our shareholders. Alongside this, the Policy is designed to create an environment of achievement and delivery, with appropriate reward for good performance and for behaviours which support the culture promoted throughout the Group, without incentivising the taking of unnecessary risks, and is designed to be both transparent and understandable. The Committee is comfortable that the Policy has operated as intended during the year and that no major changes are required. The Committee has reviewed the contents of the Policy, and the changes to the revised Policy highlighted within this report are minor in their nature and are necessary in ensuring Policy remains aligned to best practice. # 2022 overview # Remuneration in context In making decisions in relation to the Executive Directors' remuneration outcomes for 2022, the Committee has taken into account key measures of the Group's performance, as well as the experience of wider stakeholders as outlined below. # Strategic progress The following highlights the key achievements against our strategic objectives in 2022: - Commissioning of the new Desford brick factory within both stated timescales and the original £95m budget. - Commencement of the redevelopment of the Wilnecote brick factory with recommissioning expected in quarter four of 2023. - Signed contracts for the construction of our first brick slip production facility at our Accrington factory. - Entry into a 15-year Power Purchase Agreement (PPA), which will see us receive around 70% of our electricity from a dedicated solar farm, commencing in 2024. # Financial performance - Strong financial performance in 2022 delivering a result ahead of the pre-pandemic comparator. - Successfully delivering multiple price increases to recover ongoing cost inflation. - Significantly improved performance for our Bison Flooring business. # Employees We are committed to the provision of an inclusive working environment and ensuring the fair reward of all employees, regardless of seniority across the business. In addition to the Executive Directors and senior management, the Committee considers wider workforce remuneration and conditions. The Committee also continued its commitment to encouraging employee share ownership by approving the offer and subsequent grant of share options under the Forterra Sharesave Plan. There was continued uptake of this offer from employees with over half of our workforce continuing to save in this way. In line with established protocols, wages and salaries were reviewed at the beginning of 2022 with an increase of 3% awarded to salaried employees. In response to rapidly rising inflation, this was supplemented by an additional 2.4% cost of living increase effective 1 April, giving a total increase of 5.4%. Following pay negotiations with the shop floor workforce, an increase for all non-salaried employees also of 5.4% was agreed in March 2022 and backdated to January 2022. To further support our workforce with the cost of living challenges a £30 supermarket voucher was given to all employees in August 2022. This was followed by an additional one-off £900 award for those employees on earnings (base salary and shift allowance combined) of less than £50,270 per annum (the income at which higher rate income tax becomes payable) which was paid in December 2022. During the year the Company met with representatives from the Employee Forum on a quarterly basis, with discussion topics including pay, inflation and cost of living challenges. # Shareholders We remain in close contact with major shareholders with the Executive Directors regularly meeting shareholders to discuss business performance, strategy, capital allocation, sustainability and other matters. During 2022 we focused on ensuring our strategy was well communicated and understood and we received positive feedback from shareholders on this front. The Chairman of the Board is always available to discuss matters with major shareholders and held a number of meetings during the year. Ahead of proposing the amendments to our Remuneration Policy, in my position as Senior Independent Non-Executive Director and Chair of the Remuneration Committee, I wrote to major shareholders seeking feedback on proposed amendments to the Policy and we have acted upon the feedback received, which included a desire for environmental targets to be incorporated into future Performance Share Plan awards. # 2022 salary and fees The base salaries of the Chief Executive Officer, Stephen Harrison; the Chief Financial Officer, Ben Guyatt; the Chairman's fee; and the Non-Executive Directors' base fee were increased by 3% in January 2022. The additional cost of living increases provided to the workforce were not awarded to either the Executive or the Non-Executive Directors. 119 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 GOVERNANCE # REMUNERATION COMMITTEE REPORT ### 2022 annual bonus Reflecting the Company's strong financial performance during the year and fulfilment of personal objectives, the 2022 annual bonus will be paid in March 2023. The profit before tax (PBT) as stated before exceptional items of £76.6m exceeded the maximum target of £95.2m and the Executive Directors will receive 100% of the maximum profit-related element of their bonus. When added to the achievement against personal objectives, Stephen Harrison, Chief Executive Officer (CEO) earned 89% of his maximum potential annual bonus for 2022 and Ben Guyatt, Chief Financial Officer (CFO) earned 91% of his maximum potential annual bonus for 2022. No adjustments or discretion has been applied to the formulaic outcome for the 2022 annual bonus as the Committee believed that this was appropriate in light of the strong performance achieved during the year. Under the Deferred Annual Bonus Plan, an amount equal to 10% of salary plus 50% of any further bonus earned will be paid in cash, with the balance paid in shares, with vesting deferred for three years. ### Performance Share Plan (PSP) awards vesting in 2022 The 2019 PSP award was due to vest in March 2022. This award was granted with half of the award subject to an earnings per share (EPS) performance condition and half subject to a total shareholder return (TSR) performance condition, both measured over three financial years from grant. Neither the EPS nor the TSR performance conditions were met and therefore the 2019 PSP awards did not vest. ### Performance Share Plan (PSP) awards granted during the year 2022 The 2022 grant of awards under the PSP was made in accordance with the Policy at 150% of salary for the CEO, Stephen Harrison, and 125% of salary for the CFO, Ben Guyatt. The performance targets applicable to this award are disclosed within this Report. The awards are structured in the same way as the 2021 awards with half of the awards granted subject to an EPS performance condition and the other half subject to a TSR performance condition. ### 2023 overview ### 2023 Remuneration Policy and implementation The current Remuneration Policy was approved by shareholders at the 2020 AGM and received 56.68% of the votes cast, in favour. This Policy is now due for renewal and will be put to shareholders at the 2023 AGM in May. The Remuneration Committee has conducted a thorough review of the current Remuneration Policy to ensure it remains appropriate to support the business and meets the latest standards of best practice, together with all regulatory developments. We have concluded that the Policy remains fit for purpose, and have made some minor changes which are detailed opposite. A shareholder consultation has been conducted with our top 20 shareholders who together represent approximately 76% of the share register. These responses and views have been considered by the Committee, and where concerns were expressed, these have been taken into account. Whilst not considered a change in the Policy, the consultation stated that the Committee intended to incorporate sustainability metrics aligned with the Company's sustainability strategy into the PSP over the course of the next Policy cycle. There was a clear preference expressed by shareholders that these should be included in the next awards. In response, we will be including both decarbonisation and plastic reduction as two additional metrics in the 2023 PSP awards, each accounting for 10% of the award. 120 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 GOVERNANCE # Changes to Remuneration Policy | Element | Proposed Changes | | --- | --- | | Base salary | No changes proposed to Policy | | Benefits | No changes proposed to Policy | | Pension | No changes proposed to Policy | | Annual bonus | No changes proposed to Policy | | Long-term incentives | No changes proposed to Policy | | Malus and clawback | No changes proposed to Policy | | Shareholding requirements – in employment and post-employment | The post-employment shareholding requirement is increased to 200% for two years with cliff vesting, to align with best practice | | Recruitment/promotion | No changes proposed to Policy | | Service contracts | No changes proposed to Policy | This revised Remuneration Policy can be found on pages 101 to 106 and will be put in a binding shareholder vote at the 2023 AGM on 20 May 2023. The Committee believes that the revised Policy meets the objectives to attract, retain, evaluate and develop the best talent, and to align the interests of the Executive Directors, senior management, and employees with the strategic goals of the Group and with the long-term interests of our shareholders. # Chief Executive Officer succession In May 2022 Chief Executive Officer Stephen Harrison, informed the Board of his intention to retire after 10 years in the role, and will remain with the Company until stepping down ahead of the 2023 AGM. Neil Ash has been appointed as his successor and will join the Company as Chief Executive Officer Designate in April 2023. Details of the terms of Stephen Harrison's retirement and the terms of Neil Ash's appointment as Chief Executive Officer can be found on page 121, 122 and 140. # 2023 salary and fees In line with the Policy, the Committee considered the base salaries of the Executive Directors, Stephen Harrison (CEO) and Ben Guyatt (CFO) and awarded a 5% increase effective 1 January 2023. This was in line with the increases awarded to the salaried employees of the Group. The Executive Directors determined that the base fee payable to the Non-Executive Directors should be increased by the same amount. The additional fees payable for chairing a committee and for the Senior Independent Director remained unchanged. In line with the increases awarded to the salaried employees of the Group, the Committee recommended that the fee payable to Chairman was increased by 5% effective 1 January 2023. In 2023 the Executive and Non-Executive Directors received annual increases in common with the salaried workforce. This is in contrast to 2022, where the Directors did not receive the 2.4% additional cost of living award provided to the wider workforce hence only receiving an increase of 3%. In addition to the 5% increase awarded to salaried employees in January 2023, those employees whose earnings (defined as base salary and shift allowance where applicable) were less than £35,000 per annum, received an additional £1,000 (pro-rated for part-time employees) on their base salary. This resulted in the lowest paid employees receiving an annual increase of up to 9%. At the time of writing the 2023 collective bargaining negotiations with shop floor workers were ongoing, with the negotiated award expected to be backdated to 1 January 2023. # 2023 annual bonus The Committee reviewed the operation of the Annual Bonus Plan during the year. The objective is to achieve a balance between financial performance and, through a clear link with objectives and reward, ensure that the right behaviours are being driven. It was agreed that financial performance and personal business objectives continue to form the basis of the 2023 annual bonus. The following metrics and weighting will apply for the 2023 annual bonus: - 75% of maximum opportunity: profit before tax; and - 25% of maximum opportunity: non-financial/strategic objectives. With a softening of market conditions and demand for our products expected to decline in 2023 and with this reflected in the analysts' expectations of 2023 performance, thresholds will be set accordingly with a significant stretch to the maximum opportunity. These targets will be reported retrospectively following the end of the performance period, as they are considered to be commercially sensitive. These targets reflect the continued strength of the Group's key markets and current trading conditions. Stephen Harrison (CEO) will continue to be eligible to participate in the 2023 annual bonus plan and any payment will be calculated on a pro-rated basis for time served up to the termination date. This payment will be made in 2024. # 2023 Performance Share Plan (PSP) awards Grant levels for the 2023 PSP will be in line with the prior year at 125% of salary for Ben Guyatt (CFO). Stephen Harrison, CEO will not participate in the 2023 PSP award. An award of 150% of base salary will be made to Neil Ash, the Chief Executive Officer Designate. The performance targets to be applied to the 2023 PSP awards are disclosed within this Remuneration Committee Report. The Committee have added two sustainability metrics focused on decarbonisation and reduction in the use of plastic packaging which will total 20% of the award with EPS now accounting for 40% and TSR 40%. 121 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2023 GOVERNANCE # REMUNERATION COMMITTEE REPORT ## CONTINUED In respect of the portion of the award subject to a TSR performance condition the index comprises the unweighted FTSE 250 participants (excluding investment trusts). This is unchanged from 2021. Payments for loss of office It was announced on 24 May 2022 that Stephen Harrison was to step down as Chief Executive Officer. It has since been confirmed that he will retire as a Director ahead of the 2023 AGM which is to be held on 23 May 2023, although he will remain as an employee until 24 May 2023. Details of the remuneration payments to be made to Stephen Harrison are set out below: Salary and benefits Stephen Harrison will continue to receive his salary and contractual benefits up to 24 May 2023. No compensation for loss of office will be payable. 2023 bonus The Remuneration Committee has determined that Stephen will be treated as a good leaver. As a part financial year will have been worked, Stephen will be eligible to participate in the 2023 annual bonus scheme as detailed on page 121, with entitlement pro-rated for his period of service. Share-based incentives The following will apply to existing share-based incentive arrangements, in line with the Company's Remuneration Policy: - Deferred Annual Bonus Plan (DABP) Share options granted under the 2022 and 2023 DABP will vest at the date of cessation of employment. - Performance Share Plan (PSP) In line with the scheme rules applicable to good leavers, awards granted in 2020, 2021 and 2022 will vest at normal vesting date, pro-rated for time served and tested for performance. Stephen Harrison will not be granted any awards in respect of 2023. Payments to new Director It was announced on 22 November 2022 that Neil Ash will be appointed as Chief Executive Officer. Neil will join the business as Chief Executive Designate on 3 April 2023 and will become Chief Executive Officer ahead of the 2023 AGM. Details of the remuneration payments to be made to Neil Ash are set out as follows. Salary and benefits Neil Ash's annual base salary from 3 April 2023 will be £477,750. 2023 bonus Neil will participate in the 2023 annual bonus scheme, pro-rated from 3 April and subject to performance criteria being achieved as detailed on page 121. In addition, the Remuneration Committee has agreed to fully compensate Neil in cash for the loss of any 2022 bonus earned with his previous employer, Etex. This amount is expected to be determined in April and will be disclosed in the 2023 Annual Report and Accounts. Share-based incentive Neil will participate in share-based incentive arrangements, in line with the Company's Remuneration Policy from 2023. In addition, the Remuneration Committee will make an award of Forterra shares to the value of Neil's Etex LTIP due to vest in April 2023. This award will go towards building up the minimum shareholding requirement. The number of shares is expected to be determined in April 2023 and will be disclosed in the 2023 Annual Report and Accounts. Neil will also participate in the 2023 PSP award. Shareholder engagement We take a keen interest in our shareholders' views on executive remuneration and welcome any feedback on the Remuneration Committee Report. As described previously, in connection with the review of the Remuneration Policy, we carried out an engagement exercise with our top shareholders, who were generally supportive of the proposed approach. We responded immediately to the views expressed through the inclusion of sustainability metrics in the 2023 PSP award. This Remuneration Committee Report will be subject to an advisory vote and the revised Remuneration Policy subject to a binding vote at the 2023 AGM. Our goal has been to be clear and transparent in the presentation of this report and I look forward to your support on these resolutions. Katharine Innes Kip Chair of the Remuneration Committee 9 March 2023 Note: This report has been prepared in accordance with Schedule 8 to the Large and Medium Level Companies and Groups Accounts and Reports Regulation 2008 as amended in 2013, the provisions of the UK Corporate Governance Code and the Listing Rules. 122 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 Single total figure of remuneration £667,530 Pension/retirement Salary and fees Taxable benefits Annual bonus allowance Annual bonus Profit before tax Strategic/non-financial objectives Total outcome + = Ben Guyatt Profit before tax Profit before tax 100% 100% Total outcome: T Strategic objectives Strategic objectives 58% 65% Performance Share Plan (PSP) Directors’ shareholdings Share ownership plays a key role in aligning the interests of our Executive Directors with the interests of shareholders. Our Executive Directors are expected to build up and maintain a TSR for 2019 200% of salary shareholding in Forterra. Performance 0% Share Plan Chief Executive Target Chief Financial 200% Officer (CEO) Officer (CFO) The long-term incentives reported against 2022 comprises the total amount vested under the TSR condition of the 2019 Stephen Harrison Ben Guyatt grant (£nil). | Current shareholding | Current shareholding | | --- | --- | | (% salary) | (% salary) | | 164% | 20% | Chief Executive Officer (CEO) £930,206 Stephen Harrison ## REMUNERATION AT A GLANCE Chief Executive Officer (CEO) Chief Financial Officer (CFO) Chief Financial Officer (CFO) Stephen Harrison 123 Ben Guyatt otal outcome: ## 89% 91% FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## REMUNERATION COMMITTEE REPORT ## SUMMARY OF REMUNERATION POLICY Introduction Policy overview As described in the Chairman’s introduction, our revised The Committee has responsibility for determining the Remuneration Policy will be put forward to a binding remuneration of the Chairman, Executives and Non-Executive shareholder vote at the 2023 AGM. Subject to shareholder Directors and other senior management. The Committee’s approval, it is intended that the new Policy will apply until terms of reference are available on the Company’s website. the 2026 AGM. The proposed Policy as set out opposite The Company’s Remuneration Policy has been designed based describes the pay structures that the Company will operate on the following key principles: and summarises the approach that the Committee will adopt in certain circumstances such as the recruitment of new • to promote the long-term success of the Group, with Directors and/or the making of any payments for loss of office. stretching performance targets which are rigorously applied; The Remuneration Committee carefully considered the current • to provide appropriate alignment between the Group’s Policy and concluded that it remains broadly appropriate to strategic goals, shareholder returns and executive reward; support the needs of the business. The revised Policy therefore and incorporates only minor changes to align with evolving market • to have a competitive mix of base salary and short and best practice. long-term incentives, with an appropriate proportion of the package determined by stretching targets linked to the Group’s performance. The remuneration arrangements have been structured with due consideration of the UK Corporate Governance Code and both best practice and market practice for UK listed companies. 124 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 Factor How our remuneration policy aligns Clarity Martin Sutherland remains the designated Non-Executive Director to represent the views of Remuneration arrangements should be employees to the Board, and when appropriate this will include decisions on remuneration across transparent and promote effective engagement the business. This is facilitated through the Employee Forum. with shareholders and the workforce. We proactively consult our shareholders on any changes to the Remuneration Policy and seek their views. Simplicity The Remuneration Policy includes a single annual bonus plan and a single long-term incentive Remuneration structures should avoid plan (the Performance Share Plan) which are clearly communicated. complexity and their rationale and operation The rationale for each element of the policy is clearly explained in the Remuneration Policy tables. should be easy to understand. Risk The Committee has discretion to override formulaic out-turn of performance incentives and scale Remuneration arrangements should ensure back if it considers it appropriate to do so. reputational and other risks from excessive Awards made under long-term incentive plans are subject to malus and clawback provisions. rewards, and behavioural risks that can arise from target-based incentive plans, are Post-vesting holding periods and shareholding requirements align the interests of management identified and mitigated. and shareholders and promote a long-term approach to performance and risk management. Performance metrics are aligned with the Company’s strategy, incentivising delivery of sustained performance over the long-term. Defined limits are set on the maximum awards which can be earned. Predictability The Remuneration Policy sets out potential levels of vesting available for varying degrees of The range of possible values of rewards to performance. individual directors and any other limits or The Remuneration Report illustrates the total remuneration opportunity for Executive Directors discretions should be identified and explained under various performance scenarios. at the time of approving the policy. There is full and transparent retrospective disclosure of targets within the Remuneration Report and the degree to which long-term incentive awards were achieved. Proportionality The use of long-term incentive plans and post-vesting holding periods ensure focus on sustained The link between individual awards, the performance over the long-term. delivery of strategy and the long-term The Committee has discretion to override formulaic out-turn of performance incentives and scale performance of the Company should be clear. back if it considers it appropriate to do so to ensure poor performance is not rewarded. Outcomes should not reward poor performance. Alignment to culture The Remuneration Policy places a focus on share ownership through shareholding requirements Incentive schemes should drive behaviours and incentive plans, incentivising delivery of sustained, long-term performance in the Company. consistent with Company purpose, values and strategy. 125 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## REMUNERATION COMMITTEE REPORT ## SUMMARY OF REMUNERATION POLICY CONTINUED The Remuneration Policy for Directors Subject to shareholder approval at the May 2023 AGM, arrangements for Executive and Non-Executive Directors will be in line with the revised Remuneration Policy in 2023. Framework used to | Element Purpose and link to strategy Operation Maximum opportunity | | | | assess performance | | --- | --- | --- | --- | --- | | Salary | Salary is a fixed payment | Salaries are paid monthly and are | It is anticipated that salaries | Individual and Group | | | that reflects an | normally reviewed annually with | will generally be increased in | performance is taken into | | | individual’s experience | changes effective from 1 January | line with increases awarded | account when determining | 2023 Policy and role and may be but by exception may be reviewed to salaried employees. the annual increase. change increased to reflect more frequently if the Committee However, in certain situations The rationale for any such No change. capability and determines this is appropriate. such as where there has increase will be disclosed in performance. In reviewing salaries, the Committee been an increase in the the Annual Report on To recruit and retain considers: scope, responsibility or Remuneration. executives. complexity of the role or there • remuneration practices within the has been a significant change Group; in the size, value or • market benchmarks based on complexity of the Group, companies of broadly comparable increases may be higher to size and/or operating in similar remain market competitive. sectors; • role, competence and performance; and • the general increase awarded to salaried employees. Higher increases may be awarded to new Executive Directors who were hired at below market rates but with the intention to move to a market competitive rate over time, subject to individual performance. Benefits The Company’s aim is to A range of benefits are provided to The cost of providing market No performance metrics offer competitive and Executive Directors that may include competitive benefits may vary apply. cost-effective benefits a company car (or car allowance), from year-to-year depending 2023 Policy valued by participants private medical and permanent health on the cost to the Company change and to help recruit and insurance, business travel insurance from third party providers. No change. retain executives. and life assurance/death in service The Committee will continue cover. Relocation (or other related to monitor the cost of benefits expenses) and tax equalisation to ensure that the overall arrangements may be offered as benefit costs do not increase appropriate to ensure Directors are by more than the Committee no worse or better off in a case of considers appropriate in the relocation. circumstances. Any reasonable business-related expenses (including tax thereon) may be reimbursed if determined to be a taxable benefit. Executive Directors are eligible for other benefits which are introduced for the wider workforce on broadly similar terms. 126 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 The Remuneration Policy for Directors continued Framework used to | Element Purpose and link to strategy Operation Maximum opportunity | | | | assess performance | | --- | --- | --- | --- | --- | | Pension | To provide a market- | Executive Directors receive a | The Company contribution to | No performance metrics | | | competitive cost- | contribution towards their retirement | retirement allowances is up to | apply. | | | effective contribution | provision which may be paid as a | 10% of salary, which is | | 2023 Policy towards post-retirement contribution to a personal pension aligned to that offered to all change | | benefits. | scheme or a cash allowance in lieu of | employees. | | | --- | --- | --- | --- | --- | | No change. | | pension or a mix of both. | | | | Annual bonus | The Annual Bonus Plan | Bonus payments are determined by | The maximum opportunity | The bonus may be based on | | | is to incentivise Executive | the Committee after the year-end, | under the annual bonus | the achievement of an | | | Directors to achieve | based on performance against the | scheme is 100% of salary. | appropriate mix of challenging | 2023 Policy | | annual financial and/or | targets set around the start of the year. | | financial, operational or | | --- | --- | --- | --- | --- | | change | | | Bonus starts to be earned at | | | | strategic targets. | | | strategic measures. | | | | The Committee aims to set out in the | the threshold level (up to 25% | | No change. Bonus deferral provides Annual Report on Remuneration the of the maximum depending Typically, financial measures a retention mechanism nature of the targets and their on the performance metric). will account for the majority of and provides further weighting for the forthcoming financial the bonus opportunity and alignment with year and details of the performance may include measures such shareholders’ interests. conditions, the weightings and targets as profit or cash flow. Other applied and the level of achievement financial measures that against these targets for the financial support the key short-term year being reported on. priorities of the business may be used. The targets applying The first 10% of salary is payable in to financial metrics will take cash. Up to half of any remainder of into account the internal plan the bonus may then be deferred into and external expectations of shares as either conditional awards or the business at the time they nominal cost options under the are set. Deferred Annual Bonus Plan (DABP). Such awards vest after a period of If operational, individual or three years subject to continued strategic measures are employment. No further performance included, where possible a conditions apply. performance range will be set although this will depend on In line with good practice, recovery the measure chosen. and withholding provisions apply (see note 1). The measures, targets and weightings may be varied by An additional payment (in the form of the Committee year-on-year cash or shares) may be made in based on the Company’s respect of shares that vest to reflect strategic priorities at the time the value of dividends that would have (see note 2). been paid on those shares during the vesting period. The payment of any bonus is at the absolute discretion of the Committee which may scale-back the formulaic out-turn of the bonus if it considers it appropriate to do so. 127 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## REMUNERATION COMMITTEE REPORT ## SUMMARY OF REMUNERATION POLICY CONTINUED The Remuneration Policy for Directors continued Framework used to | Element Purpose and link to strategy Operation Maximum opportunity | | | | assess performance | | --- | --- | --- | --- | --- | | Long-term | The Performance Share | Awards are granted annually in the | The maximum annual award | Vesting is based on the | | incentives | Plan (PSP) incentivises | form of nominal or nil cost options | under the PSP that may be | achievement of one or more | | | Executive Directors and | under the PSP and vest after no less | granted to an individual in any | challenging performance | | | selected senior | than three years. | financial year is 200% of | targets set by the | 2023 Policy | | management to deliver | | salary in normal | Remuneration Committee | | --- | --- | --- | --- | --- | | change | | Stretching performance conditions | | | | | sustained performance | | circumstances (250% of | at the time of grant and | measured over a period of three years No change. over the long-term. salary in exceptional measured over a three-year determine the extent to which awards circumstances). period. The Plan also acts as a vest. method of retaining key The Committee expects to Measures may include EPS A holding period may apply to vested management over the retain the current grant levels growth (or another financial PSP awards under which Executive medium-term. of 150% of salary for the CEO metric) or TSR. TSR will apply Directors will be required to retain the | | | and 125% of salary for the | for at least part of each award | | --- | --- | --- | --- | | Aligns the interests of the | net of tax number of vested awards for | | | | | | CFO and these will be kept | under the life of this policy. | | Executive Directors and | at least two years from the date of | | | under review over the life of shareholders and assists vesting. In exceptional circumstances, The Committee intend to add the policy. | Executive Directors in | the Committee may, at its discretion, | | sustainability-driven targets of | | --- | --- | --- | --- | | building up a substantial | allow participants to sell or dispose of | For each measure, up to 25% | decarbonisation and plastic | | shareholding. | some or all of these vested shares | of the relevant part of the | reduction to the 2023 awards. | | | before the end of the holding period. | award would vest for | | In determining the target achieving the threshold level Details of performance conditions for range for any financial of performance, normally grants made in the year will be set out measures that may apply, increasing on a straight-line in the Annual Report on Remuneration. the Committee ensures they basis to 100% for achieving are challenging by taking Award levels are reviewed annually maximum performance. into account current and (subject to the PSP individual limits) anticipated trading taking into account matters such as conditions, the long-term market practice, overall remuneration, business plan and external the performance of the Company and expectations. the Executive Director being made the award. The Committee retains the flexibility to vary the mix In line with good practice, recovery of metrics for each year’s and withholding provisions may apply award in light of the business (see note 1). priorities at the time or to Dividends may accrue based on introduce new measures the value of dividends paid during the to support the long-term three-year vesting period and two-year business strategy (see note 3). holding period (if applicable). All-employee To increase alignment All-employee share schemes may be Consistent with prevailing No performance metrics share plans between employees and operated. HMRC limits. apply. shareholders in a tax Current schemes include: efficient manner. 2023 Policy • Sharesave Plan (SAYE); change • Share Incentive Plan (SIP); and No change. • Other HMRC approved all-employee schemes may be introduced at the Committee’s discretion. 128 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 The Remuneration Policy for Directors continued Framework used to | Element Purpose and link to strategy Operation Maximum opportunity | | | | assess performance | | --- | --- | --- | --- | --- | | Share | To align interests of | In-post | Not applicable. No performance metrics | | | ownership | management and | Executive Directors are required to | | apply. | | policy | shareholders and | build up a shareholding in the | | | | | promote a long-term | Company equal to 200% of salary. Half | | | | | approach to | of the net of tax number of vested PSP | | | 2023 Policy performance and and DABP awards are expected to be change risk management. retained until the guideline is met. The post- The value of vested but unexercised employment awards subject to a two-year holding shareholding period will count towards the guideline requirement is on a net of tax basis. increased to | 200% for two | Post-cessation | | --- | --- | | years with cliff | Leavers will be required to hold the | | vesting, to align | lower of 200% of their in-post share | | with best | ownership requirement or their actual | | practice. | holding on departure two years | post-cessation. Shares acquired by or granted to an Executive Director prior to 1 January 2020 will not be counted towards the requirement. Shares purchased by an Executive Director, along with shares granted or acquired prior to appointment to the Board will also not be counted towards the requirement. Non- To attract and retain The fees of the Non-Executive Details of current fees are set No performance metrics Executive high-quality and Directors are set by the Board and the out in the Annual Report on apply. Directors’ experienced Non- Chairman’s fee is set by the Remuneration. fees Executive Directors. Committee (the Chairman does not As set out in the Company’s take part in any discussion regarding Articles of Association, his own fees). Fees are reviewed 2023 Policy the total fees paid to Non- periodically. change Executive Directors must Non-Executive Directors receive a fee not exceed £1m a year or No change. for carrying out their duties. Additional any higher amount agreed fees may be payable in relation by ordinary resolution at to extra responsibilities undertaken a general meeting. such as chairing a Board Committee and/or a Senior Independent Director or other designated Non-Executive Director role. The Chairman and Non-Executive Directors are entitled to reimbursement of reasonable business-related expenses (including any tax thereon). They do not participate in any incentive arrangements and they do not receive a pension contribution. The level of fees reflects the time commitment and responsibility of their respective roles. Note 1: Recovery and withholding provisions. Recovery and withholding provisions apply to the Annual Bonus Plan, the DABP and the PSP. If, within three years of the payment of a bonus, grant of a deferred bonus award and/or vesting of a PSP award, it transpires that payment or vesting should not have occurred as a result of a material misstatement, error in calculation, gross misconduct has been discovered, corporate failure, material damage to the Company’s reputation, failure of risk management, or any other circumstances that the Board considers to have a similar nature or effect the payment or vesting can be recovered or withheld, in part or in full, as appropriate. Note 2: Annual bonus performance metrics. The annual bonus measures are reviewed annually and reflect key financial, strategic and operational priorities of the Group. Stretching financial targets are set by the Committee by taking account of the Company’s business plan and external expectations. For 2023, it is intended that these will be based on profit and non-financial/strategic objectives reflecting the short-term priorities of the Group. Note 3: PSP metrics. For 2023 awards the performance condition will be relative TSR and EPS with newly added sustainability-driven targets of decarbonisation and reduction in plastic packaging. The use of relative TSR provides a measure of the long-term success of the Company relative to appropriate peer or index comparators. EPS growth is a measure of the overall profitability of the business for investors over the longer-term and therefore helps align the interests of management with shareholders. The sustainability targets are aligned to the Group’s previously stated sustainability targets and are also consistent with those recently incorporated into the Group’s sustainability-linked credit facility. 129 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## REMUNERATION COMMITTEE REPORT ## SUMMARY OF REMUNERATION POLICY CONTINUED Recovery and withholding provisions Remuneration policy for other employees Recovery and withholding provisions apply to the Annual Bonus The Policy described above applies specifically to the Plan, including the DABP, and the PSP. If, within three years of Company’s Executive and Non-Executive Directors and is the payment of a bonus, grant of a deferred bonus award and/ designed with regard to the policy for employees across or vesting of a PSP award, it transpires that payment or vesting the Group as a whole. The Company aims to apply similar should not have occurred as a result of a material misstatement, principles to the design of the remuneration arrangements for error in calculation, gross misconduct has been discovered, all employees. Executive Directors are entitled to receive a corporate failure, material damage to the Company’s reputation, similar package of benefits and participate in the pension plan failure of risk management, or any other circumstances that the at the same level as other employees. However, differences Board considers to have a similar nature or effect the payment do exist between the Company’s policy for the remuneration or vesting can be recovered or withheld, in part or in full, of the Executive Directors and its approach to the payment of as appropriate. employees generally, reflecting market practice and different levels of seniority: Incentive plan discretions • there are differences in salary levels and in the levels of The Committee will operate the Annual Bonus Plan, including potential reward depending on seniority and responsibility, the DABP, and the PSP according to their respective rules although a key reference point for executive salary increases and summarised in the policy set out on previous pages. is the average increase across the general workforce; The Committee, consistent with market practice, retains discretion over a number of areas relating to the operation • a lower level of maximum annual bonus opportunity andadministration of these plans. These include, but are not (or zero bonus opportunity) may apply to employees; limited to, the following: • performance metrics attached to the annual bonus may • who participates in the plan; differ to reflect the precise roles and responsibilities of the employee; and • the timing of grant and/or payment; • participation in the PSP is limited to the Executive Directors • the size of an award and/or payment; and certain selected senior employees. • the choice of performance measures and targets for each incentive plan in accordance with the policy set out on In general, these differences arise from the development of previous pages and the rules of each plan; remuneration arrangements that are market competitive for the various categories of employee. They also reflect that, in the • the ability to vary any performance conditions if circumstances case of the Executive Directors and selected senior employees, occur which cause the Remuneration Committee to determine a greater emphasis is placed on performance-related pay that the original conditions have ceased to be appropriate reflecting their influence over the Company’s performance. provided that any change is fair and reasonable and in the Committee’s opinion, not materially less difficult to satisfy How the views of employees and shareholders than the original condition; are taken into account • discretion to override formulaic outcomes and scale-back In setting the remuneration for the Executive Directors, the outcomes under the annual bonus and PSP; Committee takes note of the overall approach to reward for employees in the Group, and salary increases will ordinarily • discretion relating to the measurement of performance in the be (in percentage of salary terms) in line with those of the event of a change of control or reconstruction; and wider workforce. The Committee does not formally consult • determination of a good leaver (in addition to any specified directly with employees on executive pay but does receive categories) for incentive plan purposes based on the rules of periodic updates on employee remuneration within the Group each plan and the appropriate treatment under the plan rules. as necessary. In line with the UK Corporate Governance Code, Any use of the above discretions would, where relevant, be Martin Sutherland remains the designated Non-Executive Director explained in the Annual Report on Remuneration and may, to represent the views of employees to the Board, and when as appropriate, be the subject of consultation with the Company’s appropriate this will include decisions on remuneration across major shareholders. the business. This is facilitated through the Employee Forum. During the year the management met with representatives from the Employee Forum on a quarterly basis. At each meeting a business performance update was provided, together with general topics impacting the Company including inflation, energy prices and the current cost of living challenges. 130 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 The Committee takes keen interest in shareholders’ views At the discretion of the Committee, a contribution to reasonable on executive remuneration and welcomes any feedback outplacement costs in the event of termination of employment on the approach taken. In connection with the review of due to redundancy may also be made. The Committee also the Remuneration Policy, the Committee carried out an retains the ability to reimburse reasonable legal costs incurred engagement exercise with our top 20 shareholders, together in connection with a termination of employment and may representing approximately 75% of the shares in issue, who make a payment for any statutory entitlements or to settle were generally supportive of the proposed approach. A specific or compromise claims in connection with a termination of theme of the feedback was for the quicker incorporation of employment of any existing or future Executive Director as sustainability-driven metrics into long-term incentive plans necessary. Relevant details will be provided in the Annual and this has been addressed with decarbonisation and plastic Report on Remuneration should such circumstances apply. reduction to be incorporated into the PSP from 2023. The table overleaf sets out, for variable pay elements, the Service contracts and letters of appointment Company’s policy on payment for loss of office in respect of Service contracts and letters of appointment are available for Executive Directors. In general, treatment will depend on the inspection at the Company’s registered office. circumstances of departure and in particular whether a leaver is a ‘good leaver’. Good leaver reasons include: Service contracts • death; The service contracts for the Executive Directors are terminable • injury; by either the Company or the Executive on 12 months’ notice. The Company can terminate either Executive Director’s service • retirement; contract by payment of a cash sum in lieu of notice equivalent • disability; to the base salary and the cost that would have been incurred • redundancy; in providing the Executive Director with contractual benefits for any unexpired portion of the notice period (or alternatively the • the employing company being sold outside the Group; or Company can choose to continue providing the contractual • other circumstances at the discretion of the Committee. benefits). The payment in lieu may be paid as one lump sum In any other circumstance, the leaver will be treated as a or in monthly equal instalments over the notice period. If the ‘bad le aver’. Company chooses to pay in instalments the Executive Directors are obliged to seek alternative income over the relevant period and the payment of each monthly instalment will be reduced by the amount of such income earned. There are no enhanced provisions on a change of control. Board site visit to our new Desford brick factory. 131 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## REMUNERATION COMMITTEE REPORT ## SUMMARY OF REMUNERATION POLICY CONTINUED ### ILLUSTRATIONS OF APPLICATION OF THE REMUNERATION POLICY £2,093 2,000 £1,735 51% 1,500 £1,371 41% £1,15 8 £1,137 47% | 1,000 | | 32% | | | | 37% | | | --- | --- | --- | --- | --- | --- | --- | --- | | Remuneration (£’000s) | | | | | £773 | | | | | | | 28% | 23% | | | | | | | 21% | | | 28% | | | | | £540 | | | | | 30% | 25% | | 500 | | | | | 22% | | | £388 100% 47% 31% 26% 100% 50% 33% 28% | 0 Minimum Target | | | Maximum Maximum +50% | | Minimum Target Maximum Maximum +50% | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | growth | | | growth | | | Chief Executive Officer | | | | | Chief Financial Officer | | | Fixed pay Annual Bonus | | PSP | | | | | | Notes: • Minimum is equivalent to fixed pay which comprises salary levels applying for 2023, the value of benefits in 2022 and a 10% retirement allowance. • Target comprises fixed pay plus the value of the on-target bonus at 50% of the maximum bonus opportunity (100% of salary) plus the value of the on-target level of vesting under the PSP which is taken to be 50% of the expected 2023 grant level. • Maximum comprises fixed pay plus maximum bonus plus the maximum value of the PSP (equal to 100% of the face value of the award at grant using the 2023 grant policy of 150% of salary for the CEO and 125% of salary for the CFO). • Maximum + 50% share price growth comprising fixed pay plus maximum bonus plus the maximum value of the PSP at a 50% higher share price than when the PSP award was granted. ## TOTAL REMUNERATION OPPORTUNITY 132 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 Policy on payment for loss of office The following table summarises the key aspects of the Company’s Remuneration Policy for Executive and Non-Executive Directors. Element Treatment Annual Bonus Plan No automatic or contractual right to bonus payment. Remuneration arrangements should be Good leavers: a pro-rata bonus may become payable at the normal payment date for the period transparent and promote effective engagement of employment and based on full-year performance. With rationale set out in the Annual Report with shareholders and the workforce. on Remuneration. Bad leavers: no bonus is payable for the year of cessation. Discretions: to determine whether to pro-rate the bonus for time. It is the Committee’s normal policy to pro-rate for time, however, there may be circumstances where this is not appropriate. Where this is the case it will be fully disclosed to shareholders. Deferred Annual Bonus Plan The use of post-vesting holding periods and long-term incentive plans ensure focus on sustained performance over the long-term. Good leavers: all deferred shares vest at the date of cessation. Bad leavers: awards lapse. Discretions: to vest deferred shares at the end of the original deferral period or to defer vesting in connection with a potential clawback event. Performance Share Plan Good leavers: awards vest at normal vesting date and pro-rated for time and tested for performance in respect of each subsisting PSP award. Bad leavers: awards lapse. Discretions: to vest and measure performance over the original performance period or vest and measure performance at the date of cessation or to defer vesting in connection with a potential clawback event. To determine whether to pro-rate the maximum number of shares for the time from the date of grant to the date of cessation (the Committee may need to round up to the nearest whole year). Normal policy is to pro-rate for time, however there may be circumstances where this is not appropriate. Where this is the case it will be fully disclosed to shareholders. Shareholding requirements All leavers will be required to hold the lower of 200% of their in-post share ownership requirement or their actual holding on departure for two years post-cessation. Shares acquired by or granted to an Executive Director prior to 1 January 2020 will not be counted towards the requirement. Shares purchased by an Executive Director along with any shares granted or acquired prior to appointment to the Board, will also not be counted towards the requirement. Change of control The Committee’s policy on the vesting of incentives on a change of control is summarised below: Element Treatment Annual Bonus Plan Pro-rated for time and performance to the date of the change of control. Deferred Annual Bonus Plan Subsisting DABP awards will vest on a change of control. Performance Share Plan The number of shares subject to existing PSP awards will vest on a change of control pro-rated for time and performance to the date of the change of control. Discretions: to determine whether to pro-rate the maximum number of shares from the time from the date of grant to the date of the change of control (the Committee may round-up to the nearest whole year). Normal policy is to pro-rate for time, however there may be circumstances where this is not appropriate. 133 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 ## REMUNERATION COMMITTEE REPORT ## SUMMARY OF REMUNERATION POLICY CONTINUED Letters of appointment For an internal appointment, any variable pay element The Chairman and Non-Executive Directors have letters of awarded in respect of their prior role should be allowed appointment and are subject to annual re-election at the to pay-out according to its outstanding terms. Any other AGM. The appointment letters for the Non-Executive Directors ongoing remuneration obligations existing prior to appointment provide that no compensation is payable on termination. The may continue, provided that, if they are outside the approved appointments are terminable by the Company on not less than policy, they are put to shareholders for approval at the 30 days’ notice or immediately in the event that the appointment earliest opportunity. is terminated by the shareholders (or where shareholder For all appointments, the Committee may agree that the approval is required but not forthcoming). Company will meet appropriate relocation costs. Approach to recruitment and promotions For the appointment of a new Chairman or Non-Executive The recruitment package for a new Executive Director would be Director, the fee arrangement would be set in accordance set in accordance with the terms of the Company’s approved with the approved Remuneration Policy in force at that time. Remuneration Policy. Currently, this would facilitate a maximum annual bonus payment of no more than 100% of salary and Policy on external appointments PSP award of up to 200% of salary (other than in exceptional Subject to Board approval, Executive Directors are permitted circumstances (including recruitment), where up to 250% of to take on a single paid non-executive position with an salary may be made). unconnected company and to retain their fees in respect of such position. Where appropriate, details of outside On recruitment, salary may (but need not necessarily) be set directorships held by the Executive Directors and any fees below the normal market rate, with phased increases as the that they received are provided in the Annual Report on Executive Director gains experience. The rate of salary should Remuneration. Stephen Harrison holds outside appointments be set so as to reflect the individual’s experience and skills. in the capacity of representing the Group on trade associations The pension offered to new Executive Directors will be set in and similar bodies and receives no remuneration in respect line with the current policy and in alignment with the majority of of these. In 2022 he was also appointed Independent Non- employees in the Group. Executive Director of Epwin Group Plc. In addition, on recruitment the Company may compensate Legacy arrangements for amounts foregone from a previous employer (using the For the avoidance of doubt, any remuneration or loss of office exemption to the requirement for prior shareholder approval payments that are not in line with this Policy may be made under Listing Rule LR 9.4.2R if necessary) taking into account if the terms were agreed before the approval of this Policy, the quantum foregone and, as far as reasonably practicable, including those disclosed in the Prospectus. In addition, the extent to which performance conditions apply, the form of authority is given to the Company to honour any commitments award and time to vesting date. entered into at a time when the relevant employee was not a Director of the Company. 134 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 GOVERNANCE # REMUNERATION COMMITTEE REPORT ## ANNUAL REPORT ON REMUNERATION Single total figure of remuneration (audited) Executive Directors | Executive Directors | Fixed | | | | Variable | | Total | Total fixed remuneration | Total variable remuneration | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Period | Salary and fees | Taxable benefits | Retirement allowance | Annual bonus | Long-term incentives | | | | | Stephen Harrison | 2022 | £458,923 | £14,654 | £45,893 | £410,736 | - | £930,206 | £519,470 | £410,736 | | | 2021 | £443,373 | £15,555 | £44,397 | £435,803 | - | £939,074 | £503,265 | £435,803 | | Ben Guyatt | 2022 | £325,690 | £12,079 | £32,569 | £297,192 | - | £667,530 | £370,338 | £297,192 | | | 2021 | £314,650 | £11,857 | £31,485 | £307,505 | - | £665,577 | £358,072 | £307,505 | 1. Taxable benefits in the year comprised a company car allowance and private medical insurance. 2. Details of the bonus targets and the level of satisfaction and resulting bonus earned are set out below. 3. The long-term incentives reported against 2023 comprises the total amount vested under the TSR condition of the 2019 FSP grant which vested on 29 March 2022 (at £16). The 2022 FSP is measured on TSR only and will vest on the 31 September 2023 and therefore the value of the award is not included in the table above. Base salary (audited) The base salaries of the Chief Executive Officer, Stephen Harrison; the Chief Financial Officer, Ben Guyatt; the Chairman's fee; and the Non-Executive Directors' base fee were increased by 3% in January 2022. No additional cost of living increases received by the wider workforce were awarded to either the Executive or the Non-Executive Directors. Pension and benefits (audited) The Group operates a defined contribution personal pension plan. Both Executive Directors receive a 10% retirement allowance which they may use to make contributions into the Group personal pension scheme should they wish. The Group does not operate a defined benefit pension scheme. A range of benefits are provided to the Executive Directors including a company car (or car allowance), private medical, permanent health insurance and life assurance/death in service cover. Annual bonus (audited) The 2022 bonus awards payable to the Executive Directors were agreed by the Committee having considered the Company's results. Details of the targets used to determine bonus entitlements and to the extent that they have been satisfied are shown below. These figures are shown in the single figure table at the top of this page. The Committee considered the formulaic outcomes based on achievement of the financial and strategic objectives and concluded that these were appropriate given holistic performance achieved and so did not apply any discretion to adjust these outcomes. | | Weighting | Threshold performance required | Maximum performance required | Actual performance achieved | Percentage of maximum value achieved | | Bonus achieved | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | Stephen Harrison | Ben Guyatt | Stephen Harrison | Ben Guyatt | | PBT (before exceptional items) | 75% | £53.0m | £88.2m | £70.6m | 100% | 100% | £344,192 | £344,267 | | Strategic objectives | 25% | | | | 58% | 65% | £86,544 | £52,925 | | Total (% of maximum) | 100% | | | | 89% | 91% | | | | **Total** | | | | | | | **£410,736** | **£297,192** | 136 FORTERRA PLC ANNUAL REPORT AND ACCOUNTS 2022 GOVERNANCE # REMUNERATION COMMITTEE REPORT ## ANNUAL REPORT ON REMUNERATION CONTINUED Strategic objectives | 2023 strategic objectives | Objectives | Assessment of achievement | % Bonus payable | | --- | --- | --- | --- | | Stephen Harrison | Objectives linked to: Delivery of long-term strategy including completion of the new Desford brick factory to timetable and within budget (greatest weighting); progression of other major capital investment projects included within the £250m investment pipeline; improvements to strategic communications, enhancing awareness of Group strategy within the investor community; progress the Group's sustainability strategy through partnering with technology providers. | The new Desford brick factory has been commissioned in accordance with expectations and within the original £95m budget at a time of exceptional inflationary pressures. Our strategic and capital allocation priorities were clearly articulated through 2022 with positive shareholder feedback received. Progress was made in progressing so yet unannounced investment projects including the identification of potential raw material supplies. Demonstrable progress was made against the Group's sustainability strategy with partnerships formed covering both alternative fuels and carbon capture. | 58% | | Ben Guyatt | Objectives linked to: Delivery of long-term strategy including completion of the new Desford brick factory to timetable and within budget (greatest weighting); improvements to strategic communications, enhancing awareness of Group strategy within the investor community; progress the Group's sustainability strategy through delivery of an electricity Power Purchase Agreement (PPA), ensuring compliance with The Taskforce on Climate-Related Financial Disclosures (TCFD) and engagement with sustainability ratings agencies; progression towards delivery of a full internal financial control framework in preparation for potential regulatory changes arising out of the Government's 'Reeloring Trust in Audit and Corporate Governance' consultation. | The new Desford brick factory has been commissioned in accordance with expectations and within the original £95m budget at a time of exceptional inflationary pressures. Our strategic and capital allocation priorities were clearly articulated through 2022 with positive shareholder feedback received. The PPA was signed in 2022 providing green energy with 15-year pricing certainty at extremely competitive rates relative to the current market with construction now underway and an option also exercised to receive power from this facility a year early in 2024. The Group has complied in full with the requirements of TCFD and has engaged with a number of sustainability ratings agencies. Demonstrable progress was delivered in preparing the Group's internal financial control framework documentation. | 65% | A full breakdown of the bonus and payments and share award deferral is set out below: | | Bonus total | Paid-in cash | Paid-in shares | | --- | --- | --- | --- | | Stephen Harrison | £410,738 | £228,314 | £182,422 | | Ben Guyatt | £397,192 | £164,880 | £132,312 | 136 FORTERRA PLC GOVERNANCE ANNUAL REPORT AND ACCOUNTS 2022 Long-term incentives (audited) 2019 Performance Share Plan The 2019 PSP awards vested on 29 March 2022. The total shareholder return (TSR) element of this award is included in this year’s single figure table, however this vested at nil. The earnings per share (EPS) condition for this award was measurable over a three- year performance period to 31 December 2021 and was previously reported in the 2021 Annual Report and Accounts. Date of | | | | end of | | Share | Total | Value of | | --- | --- | --- | --- | --- | --- | --- | --- | | 2019 PSP | % vesting | performance | | Date of | price on | shares | vesting | | Performance condition Weighting | (max. 100%) | | period | vesting | vesting | vesting | shares | Stephen Harrison EPS growth 50% 0.00% 31-Dec-21 29-Mar-22 £2.40 – – Dividend equivalent on EPS – – TSR 50% 0.00% 29-Mar-22 29-Mar-22 £2.40 – – Dividend equivalent on TSR – – Total 0.00% – – Ben Guyatt EPS growth 50% 0.00% 31-Dec-21 29-Mar-22 £2.40 – – Dividend equivalent on EPS – – TSR 50% 0.00% 29-Mar-22 29-Mar-22 £2.40 – – Dividend equivalent on TSR – – Total 0.00% – – | | | % of award | | | | | % of PSP award | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Performance condition | subject to condition Growth | | | | | | which will vest | | | Annual growth in basic EPS before exceptional items | | | 50% <5% per annum | | | | | 0% | | over a pro forma 2018 EPS of 26.5p | | | | | | 5% per annum | | 25% | | | | | | | 11% per annum or above | | | 100% | | Company’s total TSR against Index TSR 50%