27th Mar 2007 07:03
Michelmersh Brick Holdings PLC27 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 handmadespecification bricks and clay paviors, announces preliminary results for theyear ended 31 December 2006. The results are in line with market expectationsand 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 inwhich the Company had to overcome the dual challenges of high energy prices anda reduction in the demand for bricks. The capital investment we made to ensurethe efficient running of our plants combined with our decision to haltproduction during the winter months, when energy prices were at extraordinarilyhigh levels, have seen us through this period. "Energy prices are now at far more comfortable levels and I am pleased to saythat our renewed confidence is underlined by the fact that all our plants areagain running at full capacity and by our decision to recommend a finaldividend. "The shape of our industry is poised for change and we will be keeping a keeneye on the Competition Commission's forthcoming decision on the acquisition ofBaggeridge by Austrian brick giant Wienerberger. We believe that if this goesthrough it will have a positive effect on the industry in that brick prices willinevitably go up as a result of reduced competition. Whatever the outcome, webelieve further opportunities will be presented for the Group." For further information:Martin Warner, Michelmersh Brick Holdings plc: 01442 870 227Richard Sunderland/Rachel Drysdale, Tavistock Communications: 020 7920 3150Russell 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 thedual challenges of both a continuation in the reduction in demand for brickswhich we have seen over the past two years, coupled with a substantial increasein energy costs. Fortunately, these issues coincided with the completion of ourmajor investment programme which has provided Michelmersh with improvedefficiency, more effective cost management and increased flexibility to dealwith issues as they have arisen. This, combined with some of the otherinitiatives we have put in place, provided a useful counter measure to some ofthe problems affecting the industry. At the end of 2006 and early 2007 the cost of energy reduced back to morecomfortable levels, where, more importantly, it is expected to stay. As aresult, we believe we are now in a position to benefit from both the investmentmade in the business and our unique position at the top of the high quality endof the brick market. Additionally, we continue to have considerable success in many of our keycommercial markets, as evidenced by the 2006 Brick Awards where we won six ofthe fourteen categories including Best Private Housing Development, InnovativeUse of Clay and Bricks and a Special Award for contemporary brickwork in a newUniversity Building in Oslo. We were also delighted to receive the supremewinner prize for the refurbishment of St Pancras Station, which the judges notedas 'the finest evocation of brickwork that they had ever seen'. Financial resultsThe results for the year to 31 December are in line with market expectations.Group turnover for the year, which compares favourably to the 13 monthaccounting period reported on last year, was £21.1 million (2005: £21.1million). However, our decision to reduce output as a reaction to high energycosts, as detailed at the time of our interim statement, did result in lostrevenues of over £1 million and impacted on the gross margin for the periodwhich totalled £5.6 million (2005: £6.1 million). Administrative expenditure forthe 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 expenditureprojects have now been completed. The balance sheet also benefited from the newlong-term banking facilities, which replaced a £9 million overdraft facility,and provide a more appropriate and transparent funding structure on improvedterms. Cash flow from operating activities improved to £1.6 million (2005:£0.6 million) as we achieved our objective of managing cash during thefinancial year. Current tradingTrading in this financial year has improved and is at present in line withcurrent market expectations. DividendThe 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 5October 2007. PeopleWe have strengthened the sales team this year and made a number of keyappointments to our Operating Board. Paul Freeman has been appointed TechnicalDirector and Peter Sharp, Production Director, overseeing the Charnwood, Duntonsand Michelmersh works. Mark Wall was also appointed as Southern Sales Director. We propose introducing a Long Term Incentive Plan to reward key employees and itwill be voted on at the forthcoming Annual General Meeting. This will bring usinto line with most other Listed Companies. We have again had the pleasure of recognising a number of long serving membersof our team. At Blockleys, three employees reached 40 years service and, atMichelmersh, one over 50 years, another over 40 years, three over 35 years andthree over 25 years. The hard work of each person in the business has been vital to our success and Ithank each one for their commitment and hard work over the last year. OutlookWhilst energy costs have reduced and stabilised the main challenge facing theindustry is matching supply and demand. Volumes of brick sales are dependent toa large extent on house building. The limited numbers being produced and thehigher proportion of apartments rather than houses have expressed themselves inthe 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 investmentin the UK in the face of the need to increase efficiency, meet environmentallegislation and competition from abroad. At the same time there is continuedconsolidation in an industry with increasingly high entry costs. However, the landscape will almost certainly change dramatically over the nextfew months. The Competition Commission is due to report at the end of May on theproposed acquisition of Baggeridge by the Austrian brick giant Wienerberger. Ifthis transaction proceeds the industry will be reduced to three volumemanufacturers who account for more than 90% of the market. Michelmersh, specialising in high quality bricks, will be the next largest followed by a smallnumber of single works serving local markets. We believe that, purely from the point of view of a brick manufacturer, themerger will have a positive effect on the UK brick industry as reducedcompetition will most likely lead to an increase in the price of bricks. Inaddition, we believe that many of our industry's core customers would ratherdeal with an independent UK manufacturer rather than a multi national and wehave already witnessed an increase in sales for that very reason. Whatever the outcome, the situation presents the Group with a number ofpotential opportunities which we are well placed to exploit to strengthen ourposition in the market place. We will continue to review all potentialopportunities, as and when they arise. A further benefit is that as the industry continues to consolidate we have beenable to strengthen our own sales and production teams with able people attractedto the long term opportunities in this business. They bring with them new skillsand, more importantly new customers across the UK. The prospects for the business are more encouraging than twelve months ago andwith our efficient works, product offering, sales team and geographical spreadwe are well placed to grow the business again and produce the returns thatreward the efforts of the past few years. I therefore look forwards withconfidence. CHIEF EXECUTIVES OPERATIONAL REVIEW National brick volumes continued to decline during the period and are now at 2.4billion, the lowest level for over 50 years. However, by focusing on the higherquality end of the market and by producing niche products we have made progressin cementing our position as the leading producer of hand made bricks, claypaviors and roof tiles. This has allowed us to both maintain sales volumes and increase prices by some6%. Whilst these price increases did not fully recover the higher productioncosts, arising principally from the cost of energy, when combined with ourdecision to reduce capacity and the benefits arising from our recently completedcapital expenditure programme, we were able to conserve cash. We have paid equalattention to our stock level and will be able to build turnover as demand picksup. Sales and productsWhilst demand for bricks, particularly the volume production type brick made byour competitors, has slowed, there is a growing demand for new and innovativeproducts, especially those that are able to both blend with the landscape andare sustainable. During the year we developed a number of ranges successfully atCharnwood and Blockleys and these are now selling well. Of particular note, was our new Hydrosmart System of permeable paviors which arebeginning to find favour in the marketplace and were selected for landscaping atthe Eden Project in Cornwall. This continued the trend of Michelmersh productsbeing used for high profile products which we expect to follow through in salesenquiries. Whilst it takes time for these new products to gain a strong commercial footholdand for the increased productive capacity to be taken up, we do expect thebenefits of these long term investment decisions to now start becoming apparent. Additionally, on an international level, Blockleys despatched its largest exportorder to Japan in May 2006, supplying 1.4 million facing bricks to the new KobeUniversity Campus. The order was won against fierce competition from other UKand Australian brick manufacturers and our products were selected not only fortheir appearance but because their high technical properties made them suitablefor the exposed location of the University, adjacent to the seaway to KobeHarbour. We are delighted that our products continue to receive international recognitionand will continue to look for further overseas sales opportunities. AssetsAfter a number of years of significant investment in the business, this year wefocused on smaller capital expenditure projects to improve productivity. Themain item was the development of a new kiln to improve flexibility and increaseefficiency at Duntons. At Telford, a residential planning application is being prepared by Persimmonfor the whole of the developable 60 acres it has under option. This is beingcarried out in consultation with all interested parties and we anticipate theapplication being made within the next three months. Some costs of preparationof this land are reflected in these results and will also impact in 2007. It isstill anticipated that the Group will receive significant cash income from theproject in the 2008 and 2009 financial years. A planning application has now been submitted on eight acres of land at ourMichelmersh plant. This is within an area designated as the preferred area forfuture clay extraction in the County Mineral Plan and will secure the claynecessary for production for the foreseeable future. LandfillNew Acres, our landfill operation at Telford is performing well and has had astrong start in 2007. We are also reviewing options for the void at Duntons inthe light of strengthened demand. OutlookI would also like to take this opportunity to reiterate the Chairman's commentsthat the outlook for the business is much more promising than it was this timelast year. This year we are running our plants at full output reflecting ourconfidence in our strategy. The situation at Baggeridge is an interesting andpotentially positive one for the Group and we will be sure to act on anyresultant opportunities as and when they arise. I am pleased to be able to lookto the future with confidence. Martin WarnerChief Executive26 March 2007 CONSOLIDATED PROFIT AND LOSS Year to Period to 31ACCOUNT 31 December December 2006 2005 (as restated) Note £000 £000 TURNOVER 21,097 21,094Cost 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 ASSETSIntangible assets 4 69 69Tangible assets 5 54,265 53,985 ------- ------- 54,334 54,054 CURRENT ASSETSStock 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 duewithin 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 dueafter 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 RESERVESCalled-up share capital 7,604 7,604Share premium account 3,432 3,432Revaluation reserve 27,636 27,776Share option reserve 41 26Profit 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 26March 2007 and are signed on their behalf by: E J S Gadsden M R WarnerDirector 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) wereacquired via new hire purchase agreements. These asset acquisitions resulted inno cash outflow to the Group. NOTES TO THE ACCOUNTS 1. The financial information set out above does not constitute the Company'sstatutory accounts for the 13 months ended 30 November 2005 and 12 months ended31 December 2006 but is derived from those accounts. Statutory accounts for 2005have been delivered to the Registrar of Companies and those for 2006 will bedelivered following the Company's annual general meeting on 3 May 2006. The auditors have reported on those accounts, their reports were unqualified anddid not contain statements under section 237 (2) or (3) of the Companies Act1985. 2. ACCOUNTING POLICIES The accounts have been prepared under the historical cost convention, modifiedto include the revaluation of certain fixed assets, and in accordance withapplicable 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 - 195Bank 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 TotalCOST £000 £000 £000 £000At 1 January 2006 70 254 (4,717) (4,393)Additions 2 - - - --------- --------- --------- --------At 31 December 2006 72 254 (4,717) (4,391) ========= ========= ========= ========AMORTISATIONAt 1 January 2006 (1) (254) 4,717 4,462Charge for the period (2) - - (2) --------- --------- --------- --------At 31 December 2006 (3) (254) 4,717 4,460 ========= ========= ========= ========NET BOOK VALUEAt 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 £000At 1 January 2006 35,150 80 115 31,346 751 206 67,648Additions 53 155 18 1,372 112 36 1,746Disposals - - - - - - -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 13,663Charge for the period 183 3 4 1,209 59 8 1,466Disposals - - - - - - - ------- ------- ------- ------- ------- ------- -------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. Thedepreciation charged to the accounts in the period in respect of such assetsamounted 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 adepreciated replacement cost basis for brickwork properties, and an existing usevalue for land used for mineral extraction or waste disposal. Other property hasbeen valued at open market value. These valuations incorporate certainassumptions in relation to the future use of the properties and the estimateduseful economic life relating to clay extraction and landfill facilities. TheGroup's freehold property was valued at £35,150,000, resulting in an increase inthe revaluation reserve of £12,577,000. In respect of the freehold property stated at a valuation, the comparablehistorical cost and depreciation values are as follows: Group Company Group Company 31 December 31 December 31 December 31 December 2006 2006 2005 2005Historical cost: £000 £000 £000 £000At 1 January 2006 7,374 5,681 6,983 5,382Additions 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 £000Trade debtors 3,346 - 3,377 -Amounts owed by Groupundertakings - 10,236 - 4,383Other debtors 63 153 521 521Prepayments 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 2,454Trade creditors 1,752 19 1,441 139Amounts owed to Group undertakings - - - -Other taxation and socialsecurity 599 11 660 -Hire purchase agreements 531 - 674 -Other creditors - - 68 39Corporation 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 abalance of £nil (2005 - nil) relating to pension contributions not paid acrossto 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 4,906Hire 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 thefollowing 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 accountthe weighted average unexercised share options in existence during the period.These amounted to 616,479 options under the Michelmersh Brick Holdings shareoption scheme (2005 - 681,269) and 560,315 options under the Michelmersh BrickHoldings PLC SAYE scheme. (2005 - 465,141). This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Michelmersh Brick Holdings