Half Yearly Report

RNS Number : 4705T

Michelmersh Brick Holdings PLC

29 September 2010

 



29 September 2010

Michelmersh Brick Holdings plc

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

Half Year results for the six months to 30 June 2010

Michelmersh Brick Holdings plc (AIM:MBH), the specialist land development, landfill, and brick company, today announces half year results for the six months to 30 June 2010.

Financial Highlights

·      Group turnover increased by 18% to £10.7 million (H1 2009: £9.1 million)

·      Gross profit margins at 26.6% (H1 2009: 28.2%)

·      Operating profit of £137,000 (H1 2009: loss £141,000)

o  £530,000 before redundancy and transaction costs

·      Reduced loss before taxation of £345,000 (H1 2009: loss of £457,000)

Operational Highlights

·      Acquisition of Freshfield Lane Brickworks Limited (FLB) for £9.6 million

o  Raised £3 million through a Placing of 10 million shares

o  Secured £2.6 million of additional bank facilities for the acquisition of FLB

o  Proceeds from the sale of surplus assets totalled £2 million

·      Handmade brick line added at FLB with capacity increasing to 1 million bricks per annum (2009: 400,000)

·      Planning permission granted for the construction of 170 houses on 16 acres at Telford site

o  In advanced discussions on disposal to Persimmon. The agreement will provide an initial cash payment and a profit share of the eventual scheme.

·      A 23% increase in the volume of bricks sold to 32 million (2009:26 million)

·      Landfill contributed turnover £185,000 (HY 2009: £251,000) on a tonnage of 49,000

Commenting on the results, Eric Gadsden, Chairman of Michelmersh, said: "The past six months has seen significant progress for the Group. We have broadened our operations, achieved efficiencies and moved the business forward despite the difficult market place.

"As a result, we are well placed as a business overall, to achieve growth, improve margins and take advantage of any changes within the industry as they occur," he added.

For further information:
Martin Warner, Chief Executive, Michelmersh Brick Holdings, plc:	01442 870 227
Jeremy Carey, Tavistock Communications:	020 7920 3150
Russell Cook, Charles Stanley Securities, Nominated Adviser:	020 7149 6000

Chairman's Statement

I am pleased to report the Group's results for the six months ended 30 June 2010. Turnover has increased to £10.7million, and we have achieved a profit before exceptional transaction and restructuring costs and finance costs of £530,000 (2009 - loss £141,000)

The period has been one of significant progress for the Group. Strategic actions have concentrated on broadening the Group's operations and improving efficiencies. Through the acquisition of Freshfield Lane Brickworks ("FLB") on 31 March 2010, we have acquired a key manufacturing base in the South of England, the key market in our chosen sector. The acquisition has also been the catalyst for a review and implementation of an integration of group sales and production functions of the enlarged business.

Elsewhere, Hathern Terra Cotta has been established as a profitable business at Charnwood. Agreement  has been reached to establish a brick distribution base in the North East where we have historically been weak.

We are now also in advanced discussions with Persimmon on the disposal of our land at Telford with an expectation of agreeing an extended comprehensive long term deal. The agreement will provide an initial cash payment and a profit share of the eventual enlarged scheme, including further surplus land at Telford, which will provide a site for a total of around 1,200 homes.

Surplus assets acquired with FLB have been sold with proceeds totalling £2million. Further disposals have been agreed as the Group reduces the net cash cost of the acquisition and enhances working capital.

These are all important steps achieved in a difficult market place.

Financial Results

Group turnover in the period increased by 18% to £10.7million compared to £9.1million in the same period in 2009.  Comparisons for the half year are confused as this year's sales include three months of FLB operations, while 2009 includes sales from the site at Blockleys that has since been mothballed.  Although reported administrative costs were stable for the period against last year, they included costs from the acquired business of FLB.

Exceptional costs of £393,000 included redundancy costs of £273,000 at Blockleys and £120k professional fees incurred in the acquisition of FLB. 

During the period FLB was purchased for £9.6 million following a successful Placing of ordinary shares raising £3million.  FLB is historically profitable although loss making over the last two years due to market conditions, has returned to profitability in 2010 and is contributing positively to Group results.

At the year end there will be a review of values to reflect the maturing development assets of the business.

Additional bank facilities of £2.6 million have been negotiated in association with the acquisition of FLB and we are working with our banks to improve our working capital management and available facilities.

Dividend

Whilst, as of practice, we do not pay an interim dividend, our current policy is to retain cash in the business and reconsider our progressive dividend policy only when market conditions improve.

Operational Review

During the period Group sales volumes increased to 32million (2009 - 26million) bricks manufactured.

Average selling prices reduced slightly but this was due to the impact of FLB sales on product mix.  The focus of the business continues be on high end products where the market still appears stronger.  At Blockleys we are focusing on paviors where our brand is second to none, and high quality wire cuts for the specification market.

We have worked hard to rationalise our sales and production activities and these actions have resulted in reorganisation costs in the period.  Further restructuring is under way in the second half of the year as we seek efficiencies and a reduction in administrative costs going forward. Since the period end have made the decision to centralise our administrative and accounting functions at FLB.

In the short time since acquisition, we have utilised surplus plant from elsewhere in the Group and installed a hand-made brickline at FLB. Capacity has increased from 400,000 to 1 million hand-made bricks per annum which provides an opportunity to target larger scale projects at higher margins. We have also developed a new brick range at Dunton which is aimed at fulfilling the demand from our strong 'repair, maintenance and improvements' customer base. This again will increase margins and average selling prices and complement the range across the group.

We will also shortly be introducing a new corporate identity that will build on the reputations of our individual brands and unify them under the banner, "Britain's Brick Specialists". This will be incorporated in a new website which will also make our products and services easily accessible electronically.

Landfill had a slow start to the year but volumes and inquiries have improved as the year has progressed contributing £185,000 (2009: £251,000) to turnover on a tonnage of 49,000 (2009 - 35,000). Market conditions however mean that net income has fallen, with rates at an average of £3.80 per tonne (2009 - £7.20 per tonne).

We are progressing a number of longer term initiatives including our strategic land at Charnwood, restoration of the quarry at FLB and considering industry opportunities both in the UK and elsewhere in Europe.

Board Changes

I welcome to the Michelmersh Board, Alan Hardy and Frank Hanna formerly executive directors of FLB. Both have a strong reputation in the brick business and their influence is already felt in the re-organisation of production and marketing.

Now that the integration plans for the business have been completed Alan Hardy has decided to step down as an executive director becoming a non executive director of the board and at the same time Eric Gadsden will become non executive Chairman, both with immediate effect.

Craig Robinson left his post as Finance Director in August to pursue other interests. On behalf of the Board I would like to thank him for his services over the past eight years, and especially through the difficult restructuring process. He has been replaced by Steve Morgan who has been appointed as Interim Chief Financial Officer and Company Secretary.

Outlook

We have taken further positive steps over the past few months and moved the business forwards despite the difficult market place.

Whilst there has been some upturn in the brick market with stocks having reduced, there must be caution as a result of the economic outlook, lack of availability of finance for house purchases and uncertainty surrounding the planning strategy of the new Coalition Government, despite undoubted demand for housing.  The Group however is benefiting from being heavily focused on the high end of the market with a strong presence in the repairs maintenance and improvement sector.

The marketplace continues to consolidate and volumes are likely to remain at current levels for the foreseeable future. Brick stocks have decreased over the past six months leading to shortages of some products. 

As we have noted previously three large manufacturers now control over 90% of the market and stocks are therefore being controlled.  It is acknowledged within the industry that there are likely to be significant changes within the ownership structure within the next eighteen months. We believe that we are very well placed to take advantage of those changes as they occur.

As well as the defensive strengths of the business we have also moved forward our development assets and acquired further opportunity to add value with the FLB acquisition and these moves will stand us in good stead.

Eric Gadsden

Chairman

28 September 2010

Consolidated Income Statement

 

	6 months	6 months	12 months
	to 30 June 2010	to 30 June 2009	to 31 December 2009
	£'000	£'000	£'000
	Unaudited	Unaudited	Audited
Revenue	10,674	9,065	17,850
Cost of sales	(7,840)	(6,512)	(13,232)
	________	________	________
Gross profit	2,834	2,553	4,618
Administrative expenses	(2,769)	(2,761)	(5,156)
Other income	465	67	164
	________	________	________
	530	(141)	(374)
Restructuring and acquisition costs	(393)	-	-
	________	________	________
Operating profit/(loss)	137	(141)	(374)
Finance costs	(482)	(316)	(622)
	________	________	________
Loss before taxation	(345)	(457)	(996)
Taxation	-	-	202
	________	________	________
Loss for the financial period	(345)	(457)	(794)
	________	________	________
Earnings per share (note 4)
Earnings per share	(0.7)p	(1.1)p	(1.96)p
Diluted earnings per share	(0.7)p	(1.1)p	(1.96)p

Consolidated Statement of Comprehensive Income

 

	6 months	6 months	12 months
	to 30 June 2010	to 30 June 2009	to 31 December 2009
	£'000	£'000	£'000
	Unaudited	Unaudited	Audited
Loss for the financial period	(345)	(457)	(794)
	________	________	________
Other comprehensive income
Revaluation of property, plant & equipment	-	-	182
Deferred tax on revaluation	-	-	(51)
	________	________	________
Net income/(expense) recognised directly in equity	-	-	131
Total comprehensive expense for
the financial period	(345)	(457)	(663)
	________	________	________

Consolidated Statement of Financial Position

		As at	As at	As at
		30 June 2010	30 June 2009	31 December 2009
		£'000	£'000	£'000
	Note	Unaudited	Unaudited	Audited
Assets
Non-current assets
Intangible assets		1,772	67	65
Property, plant and equipment		51,325	47,675	46,922
		________	________	________
Total non-current assets		53,097	47,742	46,987
		________	________	________
Current assets
Inventories		10,375	9,095	9,601
Trade and other receivables		6,206	3,995	3,226
Cash and cash equivalents		272	4	505
		________	________	________
Total current assets		16,853	13,094	13,332
		________	________	________
Total assets		69,950	60,836	60,319
		________	________	________
Liabilities
Current liabilities
Trade and other payables		3,985	4,231	3,947
Interest bearing borrowings	5	7,279	5,432	5,191
		________	________	________
		11,264	9,663	9,138
		________	________	________
Non-current liabilities
Deferred tax liabilities		7,602	7,592	7,441
Interest bearing borrowings	5	15,767	13,000	13,365
		________	________	________
		23,369	20,592	20,806
		________	________	________
Total liabilities		34,633	30,255	29,944
		________	________	________
Net assets		35,317	30,581	30,375
		________	________	________
Equity attributable to equity holders
Share capital		11,621	8,083	8,083
Share premium account		7,452	5,703	5,703
Reserves		15,054	15,086	15,138
Retained earnings		1,190	1,709	1,451
		________	________	________
Total equity		35,317	30,581	30,375
		________	________	________

Consolidated Statement of Changes in Equity

	Share	Share	Share	Revaluation	Retained	Total
	Capital	Option	Premium	Reserve	Earnings	Equity
		Reserve	Account
	£'000	£'000	£'000	£'000	£'000	£'000
As at 1 January 2009	8,083	183	5,703	15,021	2,048	31,038
Loss for the period	-	-	-	-	(457)	(457)
Total comprehensive expense for the period	-	-	-	-	(457)	(457)
Transfer to retained earnings	-	-	-	(118)	118	-
As at 30 June 2009	8,083	183	5,703	14,903	1,709	30,581
Loss for the period	-	-	-	-	(337)	(337)
Revaluation of PP&E	-	-	-	182	-	182
Deferred tax on revaluation	-	-	-	(51)	-	(51)
Total comprehensive income for the period	-	-	-	131	(337)	(206)
Transfer to retained earnings	-	-	-	(79)	79	-
As at 31 December 2009	8,083	183	5,703	14,955	1,451	30,375
Loss for the period	-	-	-	-	(345)	(345)
Total comprehensive expense for the period	-	-	-	-	(345)	(345)
Shares issued in the period	2,000	-	769	-	-	2,769
Acquisition of subsidiary undertaking	1,538	-	980	-	-	2,518
Transfer to retained earnings	-	-	-	(84)	84	-
As at 30 June 2010	11,621	183	7,452	14,871	1,190	35,317

Consolidated Statement of Cash Flows

	6 months	6 months	12 months
	to 30 June 2010	to 30 June 2009	to 31 December 2009
	£'000	£'000	£'000
	Unaudited	Unaudited	Audited
Net cash used in operating activities	(954)	(1,247)	(851)
	_______	_______	_______
Cash flows from investing activities
Purchase of property, plant and equipment	(58)	(338)	(387)
Proceeds on disposal of property, plant and equipment	1,643	-	-
Acquisition of subsidiary (note 6)	(5,141)	-	-
Overdraft acquired on acquisition of
subsidiary (note 6)	(354)	-	-
	_______	_______	_______
Net cash used in investing activities	(3,910)	(338)	(387)
	_______	_______	_______
Cash flows from financing activities
Issue of share capital	2,769	-	-
Repayment of loans	(70)	(259)	(377)
Repayment of finance lease obligations	(26)	(26)	(69)
Directors loan received	2,000	-	-
	_______	_______	_______
Net cash generated from/(used)
in financing activities	4,673	(285)	(446)
	_______	_______	_______
Net decrease in cash and cash equivalents	(191)	(1,870)	(1,684)
Cash and cash equivalents at beginning of period	(4,242)	(2,558)	(2,558)
	_______	_______	_______
Cash and cash equivalents at end of period	(4,433)	(4,428)	(4,242)
	_______	_______	_______
Cash and cash equivalents comprise:
Cash at bank and in hand	272	4	505
Bank overdraft	(4,705)	(4,432)	(4,747)
	_______	_______	_______
	(4,433)	(4,428)	(4,242)
	_______	_______	_______

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 121 High Street, Berkhamsted, Hertfordshire, HP4 2PJ.  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.michelmersh.co.uk.

2.         BASIS OF PREPARATION

            The financial information for the year ended 31 December 2009 set out in this interim report does not constitute the Group's statutory financial statements for that period. Those accounts have been reported on by the company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006

The interim financial information for the 6 month periods ended 30 June 2009 and 30 June 2010 has not been audited.

            The financial statements are presented in sterling and all values are rounded to the nearest thousand pounds (£000) except when otherwise indicated.

3.         ACCOUNTING POLICIES

The principal accounting policies used in preparing the interim results are those the company expects to apply in its financial statement for the year ended 31 December 2010 which are consistent with IFRS as adopted by the European Union, and are unchanged from those disclosed in the Annual Report for the year ended 31 December 2009 except as described below.

During the year, the Group adopted IFRS 3 Business Combinations (revised).  IFRS 3 (revised) have been applied to the purchase of Freshfield Lane Brickworks (see note 6).  This is the first business combination to which the revised standard has been applied.

4.         EARNINGS PER SHARE

The calculation of earnings per share is based on a loss of £345,000 (6 months to 30 June 2009 - £457,000; 12 months to 31 December 2009 - £794,000) and 49,256,000 (6 months to 30 June 2009 - 40,409,846; 12 months to 31 December 2009 - 40,409,779) being the weighted average number of ordinary shares.

            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 2010 and 2009 and for the 12 months to 31 December 2009. At 30 June 2010 there were a total of 669,538 share options held by employees which are not considered dilutive (30 June 2009 - 762,975; 31 December 2009 - 669,538).

5.         INTEREST BEARING BORROWINGS

Since 31 December 2009, the Group has increased its interest bearing liabilities as follows:

·     Issue of £2 million Loan Notes on acquisition of Freshfield Lane Brickworks Limited repayable in April 2012 (see note 6)

·     Issue of Director's Loan of £2 million repayable in February 2011.

·     Additional overdraft facilities of £2.6 million secured on receivables and inventories have been agreed, although these facilities are not fully drawn at 30 June 2010.

6          ACQUISITION OF SUBSIDIARY UNDERTAKING

On 31 March, the Group acquired 100 per cent of the issued share capital of Freshfield Lane Brickworks Limited for a total consideration of £9.538 million. Freshfield Lane Brickworks Limited is a manufacturer of high quality clamp fired bricks based in Danehill in Sussex. This transaction has been accounted for by the acquisition method of accounting in accordance with IFRS 3 (revised).

Net assets acquired	Fair Value
	£000
Property, plant and equipment	6,392
Inventories	1,808
Trade and other receivables	1,598
Cash and cash equivalents	1
Trade and other payables	(823)
Interest bearing borrowings	(984)
Deferred tax liabilities	(162)
Net Assets	7,830
Goodwill	1,708
Total Consideration	9,538
Satisfied by:
Cash	5,000
Loan notes	2,000
Ordinary shares	2,538
	9,538
Net cash outflow arising on acquisition:
Cash consideration	5,000
Transaction costs	141
Overdraft acquired	354
	5,495

The value attributable to goodwill is provisional as the directors seek to consider whether any separately identifiable intangible assets can be recognised.

If the acquisition of Freshfield Lane Brickworks Limited had been completed on the first day of the financial year, Group revenues for the 6 months to 30 June 2010 would have been £12.4 million and the Group's loss attributable to equity holders of the parent would have been £96,000.

Freshfield Lane Brickworks Limited contributed £2.2 million to the Group's revenue and £523,000 to the Group's profit before tax for the period from the date of acquisition to 30 June 2010.

 

END

 

 

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