Half Yearly Report

RNS Number : 9201M

Michelmersh Brick Holdings PLC

02 September 2013

 



2 September 2013

Michelmersh Brick Holdings Plc

("MBH", the "Company", or the "Group")

Half Year results for the six months to 30 June 2013

Michelmersh Brick Holdings Plc (AIM:MBH), the specialist brick manufacturer and landfill company, today announces its unaudited half year results for the six months to 30 June 2013.

Financial Highlights

•	Group turnover increased 10% to £13.1 million (H1 2012: £11.9 million)
•	Exceptional restructuring costs of £2.2 million incurred mainly in relation to closure of Dunton brickworks; £1.7 million uplift in land value as cessation of brick manufacturing at Dunton releases landfill potential at the site
•	Operating profit from continuing activities* (excluding restructuring costs) of £376,000 (H1 2012: £493,000)
•	Loss before tax of £2.4 million after restructuring costs of £2.2 million (H1 2012: loss of £84,000)
•	Continuation of debt reduction process over 12 months of £1.5 million
•	Loss per share (after restructuring costs) of 3.15p (H1 2012: loss of 0.14p)
•	Net asset value of 60.2p per share (H1 2012: 59.5p)

Operational Highlights

•	Volume of bricks sold 36 million (H1 2012: 33 million)
•	Strong manufacturing performance during the period with 34.2 million units produced (H1 2012: 35.1 million)
•	Maintained brick selling price of ongoing business* at £347 per thousand (H1 2012: £346 per thousand)
•	Further rationalisation of the sales administration function
•	Contracts exchanged for the sale of the 15 acre former factory site at Telford for a total consideration of £4.6 million
•	Prestige orders won include: Lend Lease's new Elephant and Castle regeneration scheme; Liverpool University student accommodation; Ercall Wood Technology College in Telford; and the Seaburn and Roker re-development.

* all references in this announcement to continuing activities, ongoing business or continuing business excludes Dunton

Commenting on the results, Eric Gadsden, Chairman of Michelmersh Brick Holdings, said:"Sales revenue in the brick manufacturing market as a whole has been flat in the first six months of the year, exacerbated by the very harsh weather conditions in the early part of the year. While there are some signs of a potential improvement in selling prices, it is difficult to predict precisely when this will occur. However, MBH continues to outperform the brick manufacturing market.

"Based on the trends apparent in the first half, and continuing since, the Board expects that the Group's revenues for the year ending 31 December 2013 will meet market expectations due to higher activity levels, but at lower than expected selling prices. While there are early signs of price recovery, due to the difficult early months and continued input cost inflation, the Board now considers that this recovery will not be achieved in time to affect the Group's results for this year, and accordingly the Group will now break even for the full year, before losses from the discontinued business of Dunton, the exceptional restructuring costs and profit on disposal of land assets."

For further information:
Martin Warner, Chief Executive, Michelmersh Brick Holdings Plc	01442 870 227
Tom Griffiths, Westhouse Securities	020 7601 6100
Jeremy Carey, Tavistock Communications	020 7920 3150

Chairman's Statement

I am pleased to report the Group's results for the six months to 30 June 2013 which have seen brick sales increase by 10% over the previous year, despite being significantly affected by poor weather in the first three months of the year. We have increased volumes by three million units and largely maintained selling prices. The level of activity is especially noteworthy as one of our brick plants, Dunton, was closed during the period and contributed less volume than in the corresponding six months last year.

The Group has reported an operating loss of £2.4 million after providing £2.2 million for the exceptional costs of the closure of Dunton and restructuring of the Telford site. Operating profit generated by the continuing business (which excludes results relating to Dunton) was £376,000 (H1 2012: £493,000), as input cost increases continue to put pressure on margins.

Landfill income for the six months was at the same level as in the first half of 2012, albeit at slightly improved rates.

During the six months, we have also exchanged contracts for the sale of the 15 acre former factory site in Telford for a total consideration of £4.6 million in cash. The sale is set to complete this autumn.

Financial Results

The results for the six months to 30 June 2013 have been significantly affected by the exceptional charges in respect of the closure of the Dunton site and restructuring at Telford following the sale of the 15 acre site adjacent to the brickworks. The underlying figures however, demonstrate that MBH is trading at a higher level of activity than in 2012, in contrast to the brick industry as a whole, but with little evidence of the sale price increases that are overdue. Central costs continue to be controlled, but main input costs continued to rise, mainly through energy led inflation and, as a result, costs of production increased by 6% in the period compared to the equivalent period in 2012.

In respect of the continuing business, the six month period produced an operating profit before exceptional costs of £376,000 (H1 2012: £493,000).

Exceptional restructuring costs

The closure of the Dunton plant incurred redundancy costs and write down of plant and inventory to realisable value. We have also made a provision for some ongoing costs of the plant until income is generated through alternative use of the site, which is likely to be landfill. Since the land value of the brickworks pre-closure was based upon the value in use, it had been revalued downwards to a relatively modest value in previous periods. On cessation of brick making however, the land has been revalued again by the Directors, on the basis of its future use as a landfill site, resulting in an upward revaluation of £1.7 million which has been credited to reserves. The effect of exceptional charges in the income statement and the revaluation surplus on net assets is largely neutral.

The sale of the former factory land at Telford entails a reconfiguration of services, access ways and storage yards at the adjacent Blockleys brick works. A significant project is under way to restructure the continuing brickworks site and release land for the sale. This has also triggered a number of operational changes and engineering improvements within the brick manufacturing operation. Some of the costs associated with the project are to be expensed and those costs incurred in the first six months have been treated as exceptional restructuring costs.

In conjunction with both the closure of Dunton and the Telford reorganisation, the central sales organisation has undergone an overhaul, with the implementation of new roles and functions. This has led to a small number of redundancies which have been provided for in the first half. The structure going forward is leaner and offers a more efficient Group-wide central sales function.

The lower operating profit, less total exceptional restructuring costs of £2,158,000, means that the Group reported a loss before taxation of £2,389,000 (H1 2012 £84,000).

Net borrowings have increased in the six months in line with our trading cycle, but have reduced by £1,491,000 over the twelve months since 30 June 2012, as the balances of the Barclays term loan, vendor and shareholder loans have all been reduced. The Group has a balanced debt structure with borrowings set to fall with the proceeds of any future land sales and trading cash flow. 

Dividend

The Board is not proposing the payment of an interim dividend. Profits anticipated from any future land sales will return the Group to positive revenue reserves in due course, and enable the resumption of dividend payments when trading cash flow permits.

Assets

As noted above, we expect to complete the sale of the former factory land at Telford in the autumn, having met the conditions of the contract. Most of the proceeds of the initial payment of £1.6 million will be retained by the Company to cover the costs of the site reconfiguration at Telford and to meet the tax liability on the sale. The balance of the £3.0 million consideration is payable in equal instalments on the first and second anniversary of completion.

More favourable planning conditions, and the recent signs of recovery in the UK housing sector, lead the Board to consider that further plots of land at Telford can be profitably developed for disposal under the Company's option agreement with Persimmon. This is in addition to the land already consented where we are in discussions to renegotiate affordable housing and S106 obligations.

We continue to evaluate and progress opportunities at all of our sites, both to secure future brick making, but also to realise any surplus assets to provide funds to reduce borrowings further and also to invest in brick manufacturing capacity and efficiency.

Operational Review

During the period, the Group sold 36 million bricks (H1 2012: 33 million), at an average selling price of £352 per thousand (H1 2012: £355), maintaining the Group's premium over industry prices which currently stand at an average of £229 per thousand. If Dunton products are excluded, the Group increased volumes on a like-for-like basis by 13%, and marginally increased average selling prices. Industry volumes increased by 5% in the same period, at a marginally reduced selling price. The Group's production performance has been strong during the period with 33 million units produced at below our budgeted unit manufacturing cost as we continue to seek operational efficiencies to counter cost inflation.

The first six months of 2013 have been very positive in terms of new orders, with orders received of 44.5 million units (2012 H2 39.1 million). Despite the poor weather in the first quarter, the strong order intake translated into robust deliveries of 36.3 million units during the first six months, 1.5 million units ahead of budget. Deliveries from our Blockleys premium wirecut plant were significantly ahead for the period, beating budget by 13.2% and contributing significantly to our reduction in stock.

The majority of our work has been focused in London and the South East, with another strong showing in the RMI sector. The national picture has improved over 2012 and we have noticed a significant upturn in our business in Scotland. Again, MBH has been proud to be suppliers to award winning projects such as The 400 Hall Theatre at Repton School and Lime Grove Mews in London, and orders won include Lend Lease's new Elephant and Castle regeneration scheme; Liverpool University student accommodation; Ercall Wood Technology College in Telford; and, the Seaburn and Roker regeneration in Sunderland.

Hathern Terra Cotta has also had a strong start to the year and is forecast to meet its full year targets. Forward enquiries are strong, and we continued to manufacture bespoke pieces for buildings such as the Strand Palace Hotel, London and Nottingham Railway Station.

All of our operating plants are running at full capacity to meet the strong forward order book for the second half of 2013.

Outlook

Barriers to entry remain high in our industry, our business is well invested and we continue to progress a number of relatively small projects which yield immediate efficiencies.

Over the past five years, the industry has slowly been adapting to changed market conditions. Stock levels, which were at over 1 billion bricks in 2008, are now reduced to below 500 million, with production levels below sales over each of the last four years. Many marginal works have been closed. During this period, average selling prices have though remained static, despite significant cost pressures to the detriment of industry margins. This suggests that overproduction in the industry has ceased, and surplus stocks eradicated. In conjunction with increased activity in the housing market, it is logical to expect that average selling prices will start to increase. In due course, prices should recover some of the cost increases experienced in our industry over the past five years. When this happens, a normalised return on capital will be achieved and brick manufacturing will benefit.

With positive leadership there is now the opportunity, for the first time in many years, for the industry to enjoy a position whereby it can serve its customers in a long term sustainable manner and make returns such that it can again reinvest in the business. The brick making industry is a vital one, in particular to service the increasing house building needs of the UK.

Sales revenue in the brick manufacturing market as a whole has been flat in the first six months of the year, exacerbated by the very harsh weather conditions in the early part of the year. While there are some signs of a potential improvement in selling prices, it is difficult to predict precisely when this will occur. However, MBH continues to outperform the brick manufacturing market.

Based on the trends apparent in the first six months of 2013, the Board expects that the Group's revenues for the year ending 31 December 2013 will be close to market expectations, achieved by higher activity levels, but at lower than expected selling prices. While there are early signs of price recovery, due to the difficult early months and continued input cost inflation, the Board now considers that this recovery will not be achieved in time to affect the Group's results for this year, and accordingly the Group will now break even for the full year, before losses from the discontinued business of Dunton, the exceptional restructuring costs and profit on disposal of land assets.

We continue to watch closely developments in our industry and believe that however they play out, we will benefit in a market place which is stable or shows some modest element of growth.

Eric Gadsden

Chairman

2 September 2013

Consolidated Income Statement

 

			Unaudited				Audited
	Continuing	Discontinued		Continuing	Discontinued
	6 months	6 months	6 months	6 months	6 months	6 months	12 months
	to 30 June	to 30 June	to 30 June	to 30 June	to 30 June	to 30 June	to 31 Dec
	2013	2013	2013	2012	2012	2012	2012
	£000	£000	£000	£000	£000	£000	£000
Revenue	12,555	580	13,135	11,091	807	11,898	24,510
Cost of sales	(9,424)	(636)	(10,060)	(7,815)	(771)	(8,586)	(18,148)
Restructuring costs	-	(1,507)	(1,507)	-	-	-	-
Gross profit	3,131	(1,563)	1,568	3,276	36	3,312	6,362
Administration expenses	(2,786)	(118)	(2,904)	(2,810)	(123)	(2,933)	(5,728)
Restructuring costs	(262)	(389)	(651)	-	-	-	-
Other income	31	21	52	27	-	27	403
Operating profit/(loss)	114	(2,049)	(1,935)	493	(87)	406	1,037
Finance costs	(454)	-	(454)	(490)	-	(490)	(986)
(Loss)/profit before taxation	(340)	(2,049)	(2,389)	3	(87)	(84)	51
Taxation	117	436	553	-	-	-	(42)
(Loss)/profit for the period	(223)	(1,613)	(1,836)	3	(87)	(84)	9
Basic (loss)/earnings per share			(3.15 p)			(0.14 p)	0.02 p
Diluted (loss)/earnings per share			(3.15 p)			(0.14 p)	0.02 p

Consolidated Statement of Comprehensive Income

 

	6 months	6 months	12 months
	to 30 June 2013	to 30 June 2012	to 31 December 2012
	£'000	£'000	£'000
	Unaudited	Unaudited	Audited
(Loss)/profit for the financial period	(1,836)	(84)	9
Other comprehensive income Items that will not be reclassified subsequently to profit or loss
Revaluation of property, plant & equipment	1,700	-	-
Deferred tax on revaluation	(357)	-	764
Net income recognised directly in equity	1,343	-	764
Total comprehensive (expense)/income for
the financial period	(493)	(84)	773

Consolidated Statement of Financial Position

		As at	As at	As at
		30 June 2013	30 June 2012	31 December 2012
		£'000	£'000	£'000
		Unaudited	Unaudited	Audited
Assets
Non-current assets
Intangible assets		2,466	2,338	2,468
Property, plant and equipment		42,096	45,171	41,538
		44,562	47,509	44,006
Long term financial asset		126	178	165
Total non-current assets		44,688	47,687	44,171
Current assets
Assets held for resale		3,350	-	3,350
Inventories		7,531	9,857	9,132
Trade and other receivables		6,615	6,115	4,743
Investments		74	74	74
Cash and cash equivalents		22	47	70
Total current assets		17,592	16,093	17,369
Total assets		62,280	63,780	61,540
Liabilities
Current liabilities
Trade and other payables		3,754	3,178	2,572
Interest bearing borrowings		9,572	8,613	7,461
Corporation tax payable		-	-	47
		13,326	11,791	10,080
Non-current liabilities
Deferred tax liabilities		4,750	5,704	4,935
Interest bearing borrowings		9,163	11,638	10,991
		13,913	17,342	15,926
Total liabilities		27,239	29,133	26,006
Net assets		35,041	34,647	35,534
Equity attributable to equity holders
Share capital		11,645	11,645	11,645
Share premium account		6,440	6,440	6,440
Reserves		20,391	18,388	19,103
Retained earnings		(3,435)	(1,826)	(1,654)
Total equity		35,041	34,647	35,534

Consolidated Statement of Changes in Equity

	Share	Share	Merger	Share	Revaluation	Retained	Total
	Capital	Option	Reserve	Premium	Reserve	Earnings	Equity
		Reserve
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
As at 1 January 2012	11,645	186	979	6,440	17,278	(1,797)	34,731
Loss for the period	-	-	-	-	-	(84)	(84)
Total comprehensive expense for the period	-	-	-	-	-	(84)	(84)
Transfer to retained earnings	-	-	-	-	(55)	55	-
As at 30 June 2012	11,645	186	979	6,440	17,223	(1,826)	34,647
Profit for the period	-	-	-	-	-	93	93
Revaluation in the period	-	-	-	-	-	-	-
Deferred tax on revaluation	-	-	-	-	764	-	764
Total comprehensive /income for the period	-	-	-	-	764	93	857
Share based payment	-	30	-	-	-	-	30
Transfer to retained earnings	-	-	-	-	(79)	79	-
As at 31 December 2012	11,645	216	979	6,440	17,908	(1,654)	35,534
Loss for the period	-	-	-	-	-	(1,836)	(1,836)
Revaluation surplus	-	-	-	-	1,700	-	1,700
Deferred taxation on revaluation	-	-	-	-	(357)	-	(357)
Total comprehensive income/(expense) for the period	-	-	-	-	1,343	(1,836)	(493)
Transfer to retained earnings	-	-	-	-	(55)	55	-
As at 30 June 2013	11,645	216	979	6,440	19,196	(3,435)	35,041

Consolidated Statement of Cash Flows

	6 months	6 months	12 months
	to 30 June 2013	to 30 June 2012	to 31 December 2012
	£'000	£'000	£'000
	Unaudited	Unaudited	Audited
Net cash (used in)/generated by operating activities	(222)	(464)	1,586
Cash flows from investing activities
Purchase of property, plant and equipment	(170)	(13)	(248)
Proceeds on disposal of property, plant and equipment	37	-	11
Net cash used in investing activities	(133)	(13)	(237)
Cash flows from financing activities
Repayment of interest bearing borrowings	(748)	(2,275)	(3,198)
Proceeds of interest bearing borrowings	-	2,000	2,000
Repayment of finance lease obligations	(5)	(14)	(23)
Net cash used in
financing activities	(753)	(289)	(1,221)
Net (decrease)/increase in cash and cash equivalents	(1,108)	(766)	128
Cash and cash equivalents at beginning of period	(2,769)	(2,897)	(2,897)
Cash and cash equivalents at end of period	(3, 877)	(3,663)	(2, 769)
Cash and cash equivalents comprise:
Cash at bank and in hand	22	47	70
Bank overdraft	(3,899)	(3,710)	(2,839)
	(3,877)	(3,663)	(2,769)

NOTES TO THE GROUP INTERIM REPORT

1.     GENERAL INFORMATION

Michelmersh Brick Holdings Plc ("the Company") is a public limited company incorporated in the United Kingdom under the Companies Act 2006 (registration number 3462378). The Company is domiciled in the United Kingdom and its registered address is Freshfield Lane, Danehill, Haywards Heath, West Sussex, RH17 7HH. The Company's Ordinary Shares are traded on the AIM Market of the London Stock Exchange plc. Copies of the Interim Report and Annual Report and Accounts may be obtained from the address above, or at www.mbhplc.co.uk.

2.     ACCOUNTING POLICIES

Basis of preparation

The interim financial information in this report has been prepared using accounting policies consistent with IFRS as adopted by the European Union. IFRS is subject to amendment and interpretation by the International

Accounting Standards Board (IASB) and the IFRS Interpretations Committee and there is an ongoing process of review and endorsement by the European Commission. The financial information has been prepared on the basis of IFRS that the Directors expect to be adopted by the European Union and applicable as at 31 December 2013.

The accounting policies applied by the Group in this interim report are the same as those applied by the Group in the consolidated financial statements for the year ended 31 December 2012 except that IFRS 13 has been adopted with effect from 1 January 2013. IFRS 13 has placed additional requirements on the consideration of the fair value of certain assets of the group but has had no material effect on the valuations included in the Consolidated Statement of Financial Position. Additional disclosures in respect of assets held at fair value will be given in the next annual report.

Statutory accounts.

Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 ("the Act"). The statutory accounts for the year ended 31 December 2012 have been filed with the Registrar of Companies. The report of the auditors on those statutory accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Act.

The financial information for the six months ended 30 June 2013 and 30 June 2012 is unaudited.

3.     EARNINGS PER SHARE

The calculation of earnings per share is based on a loss of £1,836,000 (six months to 30 June 2012 - loss of £84,000; 12 months to 31 December 2012 - profit of £9,000) and 58,227,154 being the weighted average number of ordinary shares in issue in all periods.

Diluted

The diluted figure is based on the same figures as above since the options in place during the periods are anti-dilutive for the six months to 30 June 2013 and 2012 and for the 12 months to 31 December 2012. At 30 June 2013 there were a total of 187,000 share options held by employees which are not considered dilutive (30 June 2012 - 227,201; 31 December 2012 - 187,000).

 

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