Final Results

Michelmersh Brick Holdings PLC 27 March 2007 Under embargo until 0700, 27 March 2007 MICHELMERSH BRICK HOLDINGS PLC ('Michelmersh' or 'the Company') PRELIMINARY RESULTS Michelmersh Brick Holdings plc (AIM: MBH), the UK's largest producer of handmade specification bricks and clay paviors, announces preliminary results for the year ended 31 December 2006. The results are in line with market expectations and are compared with a 13 month period to 31 December 2005. Highlights: * turnover of £21.1 million (2005 : £21.1 million) * gross margin £5.6 million (2005: £6.1 million) * net assets of £43.9 million (2005: £44.2 million) * proposed dividend of 1.1p (2005: 1.1p) * prudent management of production and cash flow resulted in a cashflow improvement to £1.6 million (2005: £0.6 million) * investment programme has resulted in improved efficiencies * sales volumes maintained and prices increased by 6% * won six out of fourteen categories at the 2006 Brick Awards including the supreme winner prize for the refurbishment of St Pancras Station * growing demand for niche products * recently introduced product lines gaining momentum * export business performed well including Blockley's largest ever export order of £1.4 million facing bricks to the new Kobe University Campus in Japan * residential planning application being prepared by Persimmon for the whole of the developable 60 acres it has under option and it is still anticipated that the Group will receive significant cash income from the project in the 2008 and 2009 financial years. * planning application submitted for clay extraction on eight acres at Michelmersh plant * energy prices back to comfortable levels in 2007, where they are expected to stay * all plants running at full capacity, underlining the Company's renewed confidence in the market * 2007 performance currently in line with market expectations. Commenting on the results, Eric Gadsden, Chairman, said: '2006 was a year in which the Company had to overcome the dual challenges of high energy prices and a reduction in the demand for bricks. The capital investment we made to ensure the efficient running of our plants combined with our decision to halt production during the winter months, when energy prices were at extraordinarily high levels, have seen us through this period. 'Energy prices are now at far more comfortable levels and I am pleased to say that our renewed confidence is underlined by the fact that all our plants are again running at full capacity and by our decision to recommend a final dividend. 'The shape of our industry is poised for change and we will be keeping a keen eye on the Competition Commission's forthcoming decision on the acquisition of Baggeridge by Austrian brick giant Wienerberger. We believe that if this goes through it will have a positive effect on the industry in that brick prices will inevitably go up as a result of reduced competition. Whatever the outcome, we believe further opportunities will be presented for the Group.' For further information: Martin Warner, Michelmersh Brick Holdings plc: 01442 870 227 Richard Sunderland/Rachel Drysdale, Tavistock Communications: 020 7920 3150 Russell Cook/Mark Taylor, Charles Stanley Securities Limited: 020 7149 6000 CHAIRMAN'S STATEMENT I am pleased to report our results for 2006, a year in which the Group faced the dual challenges of both a continuation in the reduction in demand for bricks which we have seen over the past two years, coupled with a substantial increase in energy costs. Fortunately, these issues coincided with the completion of our major investment programme which has provided Michelmersh with improved efficiency, more effective cost management and increased flexibility to deal with issues as they have arisen. This, combined with some of the other initiatives we have put in place, provided a useful counter measure to some of the problems affecting the industry. At the end of 2006 and early 2007 the cost of energy reduced back to more comfortable levels, where, more importantly, it is expected to stay. As a result, we believe we are now in a position to benefit from both the investment made in the business and our unique position at the top of the high quality end of the brick market. Additionally, we continue to have considerable success in many of our key commercial markets, as evidenced by the 2006 Brick Awards where we won six of the fourteen categories including Best Private Housing Development, Innovative Use of Clay and Bricks and a Special Award for contemporary brickwork in a new University Building in Oslo. We were also delighted to receive the supreme winner prize for the refurbishment of St Pancras Station, which the judges noted as 'the finest evocation of brickwork that they had ever seen'. Financial results The results for the year to 31 December are in line with market expectations. Group turnover for the year, which compares favourably to the 13 month accounting period reported on last year, was £21.1 million (2005: £21.1 million). However, our decision to reduce output as a reaction to high energy costs, as detailed at the time of our interim statement, did result in lost revenues of over £1 million and impacted on the gross margin for the period which totalled £5.6 million (2005: £6.1 million). Administrative expenditure for the period reduced to £4.9 million (2005: £5.0 million). Profit before interest and charges for the period totalled £1.1 million (2005: £1.5 million). Our balance sheet remained extremely healthy with net assets of £43.9 million (2005: £44.2million), reflecting the fact that all the larger capital expenditure projects have now been completed. The balance sheet also benefited from the new long-term banking facilities, which replaced a £9 million overdraft facility, and provide a more appropriate and transparent funding structure on improved terms. Cash flow from operating activities improved to £1.6 million (2005: £0.6 million) as we achieved our objective of managing cash during the financial year. Current trading Trading in this financial year has improved and is at present in line with current market expectations. Dividend The Board is again recommending a dividend for the period of 1.1p per share, which will be paid on 31 October 2007 to shareholders on the register as at 5 October 2007. People We have strengthened the sales team this year and made a number of key appointments to our Operating Board. Paul Freeman has been appointed Technical Director and Peter Sharp, Production Director, overseeing the Charnwood, Duntons and Michelmersh works. Mark Wall was also appointed as Southern Sales Director. We propose introducing a Long Term Incentive Plan to reward key employees and it will be voted on at the forthcoming Annual General Meeting. This will bring us into line with most other Listed Companies. We have again had the pleasure of recognising a number of long serving members of our team. At Blockleys, three employees reached 40 years service and, at Michelmersh, one over 50 years, another over 40 years, three over 35 years and three over 25 years. The hard work of each person in the business has been vital to our success and I thank each one for their commitment and hard work over the last year. Outlook Whilst energy costs have reduced and stabilised the main challenge facing the industry is matching supply and demand. Volumes of brick sales are dependent to a large extent on house building. The limited numbers being produced and the higher proportion of apartments rather than houses have expressed themselves in the national brick sales figures, which are at a record low. At the same time, stocks of bricks are at a record high in relation to sales. Uneconomic works continue to be closed and there is a requirement for investment in the UK in the face of the need to increase efficiency, meet environmental legislation and competition from abroad. At the same time there is continued consolidation in an industry with increasingly high entry costs. However, the landscape will almost certainly change dramatically over the next few months. The Competition Commission is due to report at the end of May on the proposed acquisition of Baggeridge by the Austrian brick giant Wienerberger. If this transaction proceeds the industry will be reduced to three volume manufacturers who account for more than 90% of the market. Michelmersh, special ising in high quality bricks, will be the next largest followed by a small number of single works serving local markets. We believe that, purely from the point of view of a brick manufacturer, the merger will have a positive effect on the UK brick industry as reduced competition will most likely lead to an increase in the price of bricks. In addition, we believe that many of our industry's core customers would rather deal with an independent UK manufacturer rather than a multi national and we have already witnessed an increase in sales for that very reason. Whatever the outcome, the situation presents the Group with a number of potential opportunities which we are well placed to exploit to strengthen our position in the market place. We will continue to review all potential opportunities, as and when they arise. A further benefit is that as the industry continues to consolidate we have been able to strengthen our own sales and production teams with able people attracted to the long term opportunities in this business. They bring with them new skills and, more importantly new customers across the UK. The prospects for the business are more encouraging than twelve months ago and with our efficient works, product offering, sales team and geographical spread we are well placed to grow the business again and produce the returns that reward the efforts of the past few years. I therefore look forwards with confidence. CHIEF EXECUTIVES OPERATIONAL REVIEW National brick volumes continued to decline during the period and are now at 2.4 billion, the lowest level for over 50 years. However, by focusing on the higher quality end of the market and by producing niche products we have made progress in cementing our position as the leading producer of hand made bricks, clay paviors and roof tiles. This has allowed us to both maintain sales volumes and increase prices by some 6%. Whilst these price increases did not fully recover the higher production costs, arising principally from the cost of energy, when combined with our decision to reduce capacity and the benefits arising from our recently completed capital expenditure programme, we were able to conserve cash. We have paid equal attention to our stock level and will be able to build turnover as demand picks up. Sales and products Whilst demand for bricks, particularly the volume production type brick made by our competitors, has slowed, there is a growing demand for new and innovative products, especially those that are able to both blend with the landscape and are sustainable. During the year we developed a number of ranges successfully at Charnwood and Blockleys and these are now selling well. Of particular note, was our new Hydrosmart System of permeable paviors which are beginning to find favour in the marketplace and were selected for landscaping at the Eden Project in Cornwall. This continued the trend of Michelmersh products being used for high profile products which we expect to follow through in sales enquiries. Whilst it takes time for these new products to gain a strong commercial foothold and for the increased productive capacity to be taken up, we do expect the benefits of these long term investment decisions to now start becoming apparent. Additionally, on an international level, Blockleys despatched its largest export order to Japan in May 2006, supplying 1.4 million facing bricks to the new Kobe University Campus. The order was won against fierce competition from other UK and Australian brick manufacturers and our products were selected not only for their appearance but because their high technical properties made them suitable for the exposed location of the University, adjacent to the seaway to Kobe Harbour. We are delighted that our products continue to receive international recognition and will continue to look for further overseas sales opportunities. Assets After a number of years of significant investment in the business, this year we focused on smaller capital expenditure projects to improve productivity. The main item was the development of a new kiln to improve flexibility and increase efficiency at Duntons. At Telford, a residential planning application is being prepared by Persimmon for the whole of the developable 60 acres it has under option. This is being carried out in consultation with all interested parties and we anticipate the application being made within the next three months. Some costs of preparation of this land are reflected in these results and will also impact in 2007. It is still anticipated that the Group will receive significant cash income from the project in the 2008 and 2009 financial years. A planning application has now been submitted on eight acres of land at our Michelmersh plant. This is within an area designated as the preferred area for future clay extraction in the County Mineral Plan and will secure the clay necessary for production for the foreseeable future. Landfill New Acres, our landfill operation at Telford is performing well and has had a strong start in 2007. We are also reviewing options for the void at Duntons in the light of strengthened demand. Outlook I would also like to take this opportunity to reiterate the Chairman's comments that the outlook for the business is much more promising than it was this time last year. This year we are running our plants at full output reflecting our confidence in our strategy. The situation at Baggeridge is an interesting and potentially positive one for the Group and we will be sure to act on any resultant opportunities as and when they arise. I am pleased to be able to look to the future with confidence. Martin Warner Chief Executive 26 March 2007 CONSOLIDATED PROFIT AND LOSS Year to Period to 31 ACCOUNT 31 December December 2006 2005 (as restated) Note £000 £000 TURNOVER 21,097 21,094 Cost of sales (15,497) (15,042) --------- --------- GROSS PROFIT 5,600 6,052 Administrative expenses (4,850) (5,048) Other operating income 309 491 --------- --------- OPERATING PROFIT 1,059 1,495 Interest payable and similar charges (1,001) (993) --------- --------- PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 58 502 Tax on profit on ordinary activities 15 (135) --------- --------- PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 73 367 ========== ========= EARNINGS PER SHARE 10 Basic 0.2p 1.0p Diluted 0.2p 1.0p All of the activities of the Group are classed as continuing. CONSOLIDATED BALANCE SHEET As at As at 31 December 2006 31 December 2005 (as restated) Note £000 £000 £000 £000 FIXED ASSETS Intangible assets 4 69 69 Tangible assets 5 54,265 53,985 ------- ------- 54,334 54,054 CURRENT ASSETS Stock 8,171 7,269 Debtors 6 3,603 4,226 Cash at bank and in hand 195 42 ------- ------- 11,969 11,537 CREDITORS: Amounts falling due within one year 7 (6,162) (13,155) ------- ------- NET CURRENT LIABILITIES 5,807 (1,618) ------- ------- TOTAL ASSETS LESS CURRENT LIABILITIES 60,141 52,436 CREDITORS: Amounts falling due after more than one year 8 (14,416) (6,366) PROVISIONS FOR LIABILITIES AND CHARGES Deferred taxation (1,809) (1,824) ------- ------- NET ASSETS 43,916 44,246 ======== ======== CAPITAL AND RESERVES Called-up share capital 7,604 7,604 Share premium account 3,432 3,432 Revaluation reserve 27,636 27,776 Share option reserve 41 26 Profit and loss account 5,203 5,408 ------- ------- EQUITY SHAREHOLDERS' FUNDS 43,916 44,246 ======== ======== These accounts were approved by the directors and authorised for issue on 26 March 2007 and are signed on their behalf by: E J S Gadsden M R Warner Director Director CONSOLIDATED CASHFLOW STATEMENT Year to Period to 31 December 2006 31 December 2006 Note £000 £000 £000 £000 Net cash inflow from operating activities 1,578 591 Returns on investments and servicing of finance Interest paid (885) (751) Hire purchase interest paid (114) (138) ------- ------- Net cash outflow from returns on investments and servicing of finance (999) (889) Taxation paid - - Capital expenditure Purchase of intangible fixed assets (2) (70) Purchase of tangible fixed assets (1,501) (3,096) Sale of tangible fixed assets - 1 ------- ------- Net cash outflow from capital expenditure (1,503) (3,165) Equity dividends paid (418) (418) ------- ------- Net cash outflow before financing (1,342) (3,881) Financing Issue of new loan 13,500 3,250 Capital element of hire purchase payments (430) (686) Repayment of other loans (5,282) (430) ------- ------- Net cash inflow from financing 7,788 2,134 ------- ------- Increase/(Decrease) in cash in the year 6,446 (1,747) ======== ======== SIGNIFICANT NON-CASH TRANSACTIONS During the period fixed asset additions of £243,000 (2005 - £19,000) were acquired via new hire purchase agreements. These asset acquisitions resulted in no cash outflow to the Group. NOTES TO THE ACCOUNTS 1. The financial information set out above does not constitute the Company's statutory accounts for the 13 months ended 30 November 2005 and 12 months ended 31 December 2006 but is derived from those accounts. Statutory accounts for 2005 have been delivered to the Registrar of Companies and those for 2006 will be delivered following the Company's annual general meeting on 3 May 2006. The auditors have reported on those accounts, their reports were unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985. 2. ACCOUNTING POLICIES The accounts have been prepared under the historical cost convention, modified to include the revaluation of certain fixed assets, and in accordance with applicable accounting standards. 3. ANALYSIS OF NET DEBT At At 31 1 January Cash Non December 2006 Flow Cash 2006 £000 £000 £000 £000 Cash at bank 42 153 - 195 Bank overdraft (8,795) 6,293 - (2,502) --------- --------- --------- -------- (8,753) 6,446 - 2,307 ========= ========= ========= ======== Debt less than one year (376) 376 Debt more than one year (4,906) (8,594) (13,500) Hire purchase liabilities (2,134) 430 (243) (1,947) --------- --------- --------- -------- (7,416) (7,788) (243) (15,447) ========= ========= ========= ======== Net Debt (16,169) (1,342) (243) (17,754) ========= ========= ========= ======== 4. INTANGIBLE FIXED ASSETS - GROUP PPC Positive Negative Licence goodwill goodwill Total COST £000 £000 £000 £000 At 1 January 2006 70 254 (4,717) (4,393) Additions 2 - - - --------- --------- --------- -------- At 31 December 2006 72 254 (4,717) (4,391) ========= ========= ========= ======== AMORTISATION At 1 January 2006 (1) (254) 4,717 4,462 Charge for the period (2) - - (2) --------- --------- --------- -------- At 31 December 2006 (3) (254) 4,717 4,460 ========= ========= ========= ======== NET BOOK VALUE At 31 December 2006 69 - - 69 ========= ========= ========= ======== At 31 December 2005 69 - - 69 ========= ========= ========= ======== 5. TANGIBLE FIXED ASSETS - GROUP Freehold Site Motor Plant & Equipment Fixtures Total land & development vehicles machinery & buildings fittings COST OR VALUATION £000 £000 £000 £000 £000 £000 £000 At 1 January 2006 35,150 80 115 31,346 751 206 67,648 Additions 53 155 18 1,372 112 36 1,746 Disposals - - - - - - - Revaluation - - - - - - - ------- ------- ------- ------- ------- ------- ------- At 31 December 2006 35,203 235 133 32,718 863 242 69,394 ======= ======= ======= ======= ======= ======= ======= DEPRECIATION At 1 January 2006 - 33 115 12,793 546 176 13,663 Charge for the period 183 3 4 1,209 59 8 1,466 Disposals - - - - - - - ------- ------- ------- ------- ------- ------- ------- At 31 December 2006 183 36 119 14,002 605 184 15,129 ======= ======= ======= ======= ======= ======= ======= NET BOOK VALUE At 31 December 2006 35,020 199 14 18,716 258 58 54,265 ======= ======= ======= ======= ======= ======= ======= At 31 December 2005 35,150 47 - 18,553 205 30 53,985 ======= ======= ======= ======= ======= ======= ======= Hire purchase agreements Included within the net book value of £54,265,000 is £2,920,000 (2005 - £3,014,000) relating to assets held under hire purchase agreements. The depreciation charged to the accounts in the period in respect of such assets amounted to £168,000 (2005 - £185,000). Capital commitments 31 December 31 December 2006 2005 £000 £000 Contracted but not provided for in the accounts 430 62 ========= ========= Revaluation of fixed assets The Group's freehold property was revalued by the directors on 31 December 2005, based on a valuation carried out by Carter Jonas LLP, Chartered Surveyors, on a depreciated replacement cost basis for brickwork properties, and an existing use value for land used for mineral extraction or waste disposal. Other property has been valued at open market value. These valuations incorporate certain assumptions in relation to the future use of the properties and the estimated useful economic life relating to clay extraction and landfill facilities. The Group's freehold property was valued at £35,150,000, resulting in an increase in the revaluation reserve of £12,577,000. In respect of the freehold property stated at a valuation, the comparable historical cost and depreciation values are as follows: Group Company Group Company 31 December 31 December 31 December 31 December 2006 2006 2005 2005 Historical cost: £000 £000 £000 £000 At 1 January 2006 7,374 5,681 6,983 5,382 Additions 53 - 391 299 ------- ------- ------- ------- At 31 December 2006 7,427 5,681 7,374 5,681 ======= ======= ======= ======= No depreciation has been charged in respect of the above assets. All other tangible assets are stated at historical cost. 6. DEBTORS Debtors - amounts falling due within one year Group Company Group Company 31 December 31 December 31 December 31 December 2006 2006 2005 2005 £000 £000 £000 £000 Trade debtors 3,346 - 3,377 - Amounts owed by Group undertakings - 10,236 - 4,383 Other debtors 63 153 521 521 Prepayments and accrued income 194 43 328 139 ------- ------- ------- ------- 3,603 10,432 4,226 5,043 ======= ======= ======= ======= Debtors - amounts falling due after one year Company Company 31 December 31 December 2006 2005 £000 £000 Amounts owed by Group undertakings 7,705 7,724 ======= ======= 7. CREDITORS: Amounts falling due within one year Group Company Group Company 31 December 31 December 31 December 31 December 2006 2006 2005 2005 £000 £000 £000 £000 Bank loans and overdrafts 3,002 1,529 9,171 2,454 Trade creditors 1,752 19 1,441 139 Amounts owed to Group undertakings - - - - Other taxation and social security 599 11 660 - Hire purchase agreements 531 - 674 - Other creditors - - 68 39 Corporation tax - - - - Proposed dividend - - - Accruals and deferred income 278 17 1,141 60 -------- ------- ------- ------- 6,162 1,576 13,155 2,713 ======== ======= ======= ======= Included within other taxation and social security owed by the Group is a balance of £nil (2005 - nil) relating to pension contributions not paid across to the scheme at the period end. 8. CREDITORS: Amounts falling due after more than one year Group Company Group Company 31 December 31 December 31 December 31 December 2006 2006 2005 2005 £000 £000 £000 £000 Bank loans 13,500 13,500 4,906 4,906 Hire purchase agreements 1,416 - 1,460 - agreements ------- ------- ------- ------- 14,416 13,000 6,366 4,906 ======= ======= ======= ======= 9. SHARE CAPITAL Authorised share capital: 31 December 31 December 2006 2005 £000 £000 60,000,000 ordinary shares of 20p each 12,072 12,000 ------- ------- 12,072 12,000 ======= ======= Allotted, called up and fully paid: 31 December 31 December 2006 2005 £000 £000 Ordinary shares 7,604 7,604 ------- ------- 7,604 7,604 ======= ======= In 2004 681,269 options over ordinary shares of 20p each were issued with the following conditions: Date of grant Number of shares Period of exercise Exercise price 2004 639,016 3/8/07 - 2/8/14 70p 2004 42,253 30/9/07 - 29/9/14 71p No options have been exercised in the period. 10. EARNINGS PER SHARE Basic The calculation of earnings per share is based on earnings of £73,000 (2005 - £367,000) and 38,017,856 (2005 - 38,017,856) ordinary shares. Diluted The diluted figure is based on the same figures as above but takes into account the weighted average unexercised share options in existence during the period. These amounted to 616,479 options under the Michelmersh Brick Holdings share option scheme (2005 - 681,269) and 560,315 options under the Michelmersh Brick Holdings PLC SAYE scheme. (2005 - 465,141). This information is provided by RNS The company news service from the London Stock Exchange
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