20th Mar 2006 07:02
Michelmersh Brick Holdings PLC20 March 2006 20 March 2006 MICHELMERSH BRICK HOLDINGS PLC PRELIMINARY RESULTS SHOW SOLID PERFORMANCE IN A CHALLENGING MARKET Michelmersh Brick Holdings plc ("Michelmersh" or "the Company") (AIM: MBH), theUK's largest producer of handmade specification bricks and clay paviors,announces preliminary results for the 13 months ended 31 December 2005. Theresults show good progress and initial benefits from the recently completedinvestment programme. Highlights include: • profit before tax of £518,000 (2004: £1.265 million), due to a one-off negative of £535,000 resulting from a change of year end • turnover rose 15% to £21.1 million (2004: £18.4 million) • gross margin up 6.06% to £6.1 million (2004: £5.7 million) • net assets increased 39.9% to £43.8 million (2004: £31.3 million) primarily resulting from an option agreement signed with Persimmon on 60 acres of land at Telford site • proposed dividend of 1.1p (2004: 1.1p) • price increases of 8.5% against a rise in unit cost of production of 7.3% • completion of £15 million investment programme to improve efficiencies • growing demand for products, including recently introduced lines • prudent management of production and cash flow • bricks supplied for high profile projects, including the British Library extension Commenting on the results, Eric Gadsden, Chairman, said: "Bearing in mind theunprecedented rise in energy prices over the period, we are pleased to be ableto announce this solid set of results. The improved efficiencies gained by ournow completed investment programme, combined with the option agreement we signedwith Persimmon give me the confidence that we can see out the current marketdifficulties and exploit any opportunities it may throw up." 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 & Co. Limited: 020 7953 2429 Chairman's Statement I am pleased to report a period of further progress for the Group against thebackground of more challenging conditions. As the UK's largest producer ofhand-made bricks, paviors, and tiles, we have seen growing demand for ourproducts and have supplied a number of high profile projects, which have helpedincrease awareness of our products. These have included the St. Pancras Stationreconstruction, which is being exclusively supplied with Charnwood facings, anda new extension to the British Library. This period marked the completion of amajor investment programme across the group, totalling £15 million over the pastfive years, which has improved efficiencies and strengthened our position assupplier of choice for specification projects. A further significant step hasbeen to exploit certain of our land assets by developing a profitable programmethat will release value to the benefit of shareholders. Financial Results As advised at the time of our interim statement, for administrative purposes wehave moved our year end to the 31 December. Turnover for the 13 months to 31December 2005 was £21.1 million compared to £18.4 million for the 12 months to30 November 2004. In the period the Group made a profit before tax of £518,000(2004: £1.28 million). As also indicated in our interim statement, this resultwas affected by the inclusion of December 2005 into the financial year, as it isa short production and sales month. The negative effect of including December'strading amount to a one-off loss of £535,000. Gross margin for the period totalled £6.05 million (2004: £5.71 million) andoperating profit totalled £1.51 million (2004: £1.82 million). However, profit before interest charges increased from £1.8 million to £1.9 million for the twelve month period to November 2005. This is a highly satisfactory result bearing in mind market conditions andreflects efficiencies gained from the investments made primarily in 2004, sincewhen gas prices have trebled. Net assets increased to £44.8 million (2004: £31.3 million), reflecting theinclusion on the balance sheet for the first time of the initial tranche of landdesignated for residential development at Telford. Dividends Again, the Board is recommending a dividend for the period of 1.1p per sharewhich will be paid on 7th July 2006 to shareholders on the register as at 9thJune 2006. Operational Review Despite a national decline in volumes of brick sales over the period, we havemaintained sales numbers across the Group and increased prices by 8.5%, althoughthese increases did not fully cover the increased cost of energy. The result washelped by strong sales of the niche products from Charnwood, Duntons andMichelmersh, where the benefits of the efficient plant installed translated intoincreased production and sales volumes. At Blockleys, sales were held back bystock shortages at the commencement of the period, but as a result of improvedproduction facilities stocks are now at the correct level. Due to the volatility of gas prices, production was managed carefully during thelater part of the year to prioritise the management of cash. An important transaction was concluded in December, when an option agreement wassigned with Persimmon Homes for the residential development of 60 acres of landat the Telford site. Persimmon is now preparing a planning application for aninitial phase of this land and it is anticipated that Michelmersh will receivesignificant income for this phase in the 2008 and 2009 financial years. At our Michelmersh plant we continue to progress planning for clay extraction onland under option, which will secure clay supplies for the foreseeable future. Outlook We are benefiting from the investments made in the business, which have not onlyimproved operational efficiencies, but also enabled new products to bedeveloped. These will take time to find their place in the market but initialprogress is promising. However, the national market place remains challenging, with sales reduced overthe year by some 10% whilst production was maintained. The highly volatile gasprices experienced towards the end of last year have continued, and the futureis still hard to read. We have taken the necessary steps to contain costs and,as a priority, intend to manage the business appropriately whilst theseconditions persist, or until we see prices increase in the industry, whichadequately reflect the cost levels now being experienced. It is somewhat disappointing that these efforts to achieve significantimprovements in efficiency through new plant have not translated into theimproved margins anticipated because of the significant increase in energyprices which have clearly shown the lack of strategic national investment andthe absence of a level playing field within the EU on energy matters. Now our major investment programme is complete, we can progress the release ofcash from our land assets and are well placed to benefit from improvements inthe market, whether by increased national demand or price recovery. We are alsoin a position to exploit any opportunities arising from the current environmentwhich will allow us to consolidate our position in the market. After over 150years of making bricks, we are extremely confident that, whilst current marketsmay be tough, our quality and service levels will ensure our continued place inthe future of this industry. Eric Gadsden, Chairman17 March 2006 CHIEF EXECUTIVE'S REVIEW Despite challenging trading conditions over the period, the Group madeconsiderable progress. Pressures came partly from a decline in UK brick salesnationally but more especially from increased input prices, with particularlyvolatile gas prices in the final part of the period. However, our focus over the past few years has been on ensuring that each of ourplants is in the best competitive position. The result of this significantinvestment programme means that we have the flexibility to meet demand for theniche products that we specialise in. SALES As a result of our unique ability to provide specific types of high qualityproducts our factories have been contracted to supply a number of high profileprojects. Notable examples include a major paving scheme at Jersey airport,where Blockleys permeable paviors were specified an extension to the BritishLibrary using Charnwood bricks and several major schemes for OctagonDevelopments using bricks from our Michelmersh plant. At Dunton we enjoyed gooddemand underpinned by strong support from the local market place for repair andmaintenance work. We supported the production of the Brick Note, as part of Chilterns BuildingDesign Guide, published by the Chiltern's Conservation Board. This emphasisesthe importance of the product in the landscape of the Chilterns and willincrease awareness of both Duntons' and other bricks made locally. We alsoexpect that this will strengthen demand from specifiers and, in due course, beadopted as guidance by planning authorities. As a result of the investments made, we have been able not only to meet demand,but also to introduce new products. Major sales growth has come from the smallerworks where we have experienced strong demand, particularly in the importantrepair maintenance and improvement market, which still accounts for around 50%of all brick sales in the UK. We have continued to strengthen our sales team with a particular focus onpaviors and, now that we have additional production capacity, have identifiedkey areas to expand our sales market. PRODUCTION Over the period, we have been able to increase profit before interest charges,despite the current market conditions. This has been possible as a direct resultof the major investment programme. Some further improvements were made duringthe current period and, in the light of the benefits already experienced, we areconsidering a number of other small projects, which we believe make economicsense given current energy prices. With the main investment programme complete, our focus is on developing addedvalue products and we are hopeful that the brick developed for the St PancrasStation redevelopment will lead to further work. In addition to permeablepaviors, a number of new products have been developed at Blockleys, with the newrange of 73mm bricks establishing itself in the market. New ranges of hand madeproducts from our Michelmersh plant have also found early success. Each of the investments made, whilst costly, has been essential in maintainingour competitive advantage. Despite the improvements made, the volatile gasprices experienced in the later part of the period caused us to reduceproduction towards the end of the year and beginning of 2006. This allowed us tomanage these additional costs more effectively and prioritise cash management.We will continue to maintain a flexible approach as we monitor how the industryresponds to these pressures and manages demand, production and price recovery. ASSETS Very significant progress was made during the period with regard to increasingthe value of our assets. In December, Persimmon entered into an option topurchase 60 acres of land at Telford upon grant of planning consent on a phasedbasis. Persimmon is now progressing detailed planning for an initial phase ofland and, under the terms of the agreement, will develop a master plan with thePlanning Authority for a phased development of the remaining land, which will bereleased as clay is worked, and restoration completed. The site is now being prepared, the costs of which will be reflected in theGroup's results for the 2006 and 2007 financial years. It is anticipated thatthe income from the initial sale of this land will be received in the 2008 and2009 financial years. Michelmersh receives an additional upside from thistransaction as, under the terms of the agreement, Persimmon will purchase thebricks it requires for the development from the Group. At our Michelmersh plant, an option has been signed on eight acres of landadjoining our existing holdings that, together with our existing land, willsecure clay supplies for the foreseeable future. A planning application to workthe material on this land is being finalised, which is designated as a preferredarea for clay extraction in the County Mineral Plan. PEOPLE As well as strengthening the sales team, we have made a number of key productionappointments during the year. The industry, and in particular the Group, ischaracterised by the enthusiasm and loyalty of long serving employees. It gavegreat pleasure during the year to recognise two employees who reached 50 yearsservice, two 40 years and two 25 years. We are sad to announce that Rog Rogers, who acted as an architectural salesconsultant to the company for many years died peacefully recently. He was over90 years old and attended his last sales meeting in October. The success of the business is built on the hard work and commitment of eachperson and I extend thanks to each of them for the achievements of the period. PROSPECTS We face a number of uncertainties in the forthcoming period. We believe that gasprices will remain high and although investment is being made to increasestorage and the capacity of the inter connector with mainland Europe, as the UKbecomes more reliant on imported gas the key factor is the distortion in themarket as identified by the preliminary findings of the EU CompetitionCommission published in February. Currently the UK is paying substantially morefor its gas than the rest of the EU and, as a result, remains vulnerable toincreased import penetration. In addition, the supply of land for new housing continues to cause concern.Whilst the Barker report commissioned by the ODPM identified the inefficienciesin the planning process, there are no signs at present that there is anysolution to this problem, indeed housebuilders are reporting that the planningsystem is ever more challenging. We therefore expect continued pressure on the industry over the next twelvemonths and, in particular, on those other brick manufacturers that are solelyreliant on the volume house building sector. There has been furtherconsolidation and rationalisation over the last twelve months and this is likelyto continue as productivity of manufacturing units are measured against currentinput prices and the need to invest to maintain competitiveness. The barriers to entry to the brick market remain high and it is still uneconomicto build new plant. We continue to review the market place and to activelyconsider any opportunity that would strengthen the Group. Our strengths are our efficient plants, strong product offering in the premiummarket and sales team, as well as our asset base. Whilst conditions will bechallenging, these unique aspects of our business will enable us to continue tostrengthen our position in the future. Martin WarnerChief Executive Officer17 March 2006 CONSOLIDATED PROFIT AND LOSS ACCOUNT 13 months to Year ended 31 December 30 November 2005 2004 £000 £000 TURNOVER 21,094 18,419Cost of sales (15,042) (12,713) -----------------------GROSS PROFIT 6,052 5,706 Administrative expenses (5,032) (3,985)Other operating income 491 98 ----------------------- OPERATING PROFIT 1,511 1,819 Interest payable and similar charges (993) (554) ----------------------- PROFIT ON ORDINARY ACTIVITIESBEFORE TAXATION 518 1,265 Tax on profit on ordinary activities (135) (480) ----------------------- PROFIT ON ORDINARY ACTIVITIESAFTER TAXATION 383 785 Equity dividends (418) (418) ----------------------- RETAINED PROFIT FOR THE PERIOD/YEAR (35) 367 ======================= EARNINGS PER SHARE Basic 1.0p 2.4pDiluted 1.0p 2.4p All of the activities of the Group are classed as continuing. CONSOLIDATED STATEMENT OF TOTALRECOGNISED GAINS AND LOSSES 13 months to Year ended 31 December 30 November 2005 2004 £000 £000 Profit for the financial period attributable to the shareholders 383 785 Unrealised profit on revaluation of freeholdproperty 12,577 - ----------------------- Total gains and losses recognised since the last annual report 12,960 785 ======================= CONSOLIDATED BALANCE SHEET As at As at 31 December 2005 30 November 2004 £000 £000 £000 £000 FIXED ASSETSIntangible assets - positive goodwill - 44Intangible assets - other 69 -Tangible assets 53,985 39,597 ------ ------ 54,054 39,641 CURRENT ASSETSStock 7,269 5,168Debtors 4,226 3,918Cash at bank and in hand 42 5 ------ ------ 11,537 9,091 CREDITORS: Amounts falling duewithin one year (13,573) (11,505) ------ ------NET CURRENT LIABILITIES (2,036) (2,414) ------ ------ TOTAL ASSETS LESS CURRENTLIABILITIES 52,018 37,227 CREDITORS: Amounts falling dueafter more than one year (6,366) (4,252) PROVISIONS FOR LIABILITIESAND CHARGESDeferred taxation (1,824) (1,689) ------ ------NET ASSETS 43,828 31,286 ====== ====== CAPITAL AND RESERVESCalled-up share capital 7,604 7,604Share premium account 3,432 3,432Revaluation reserve 27,776 15,199Profit and loss account 5,016 5,051 ------ ------EQUITY SHAREHOLDERS' FUNDS 43,828 31,286 ====== ====== CONSOLIDATED CASH FLOW STATEMENT 13 months to Year ended 31 December 2005 30 November 2004 £000 £000 £000 £000 Net cash inflow fromoperating activities 591 2,171 Returns on investments andservicing of financeInterest paid (751) (592)Hire purchase interest paid (138) - ------ ------ Net cash outflow fromreturns on investments andservicing of finance (889) (592) Taxation paid - - Capital expenditurePurchase of intangible fixed assets (70) - Purchase of tangible fixed assets (3,096) (2,360) Sale of tangible fixed assets 1 - ------ ------ Net cash outflow fromcapital expenditure (3,165) (2,360) Equity dividends paid (418) - ------ ------Net cash outflow before financing (3,881) (781) FinancingIssue of new shares - 1,850Premium on issue of new shares - 2,796Issue of new bridging loan 3,250 -Capital element of hirepurchase payments (686) (471)Repayment of director's longterm loan - (3,725)Repayment of other loans (430) (446) ------ ------Net cash inflow from financing 2,134 4 ------ ------ Decrease in cash in the year (1,747) (777) ------ ------ SIGNIFICANT NON-CASH TRANSACTIONS During the period fixed asset additions of £19,000 (2004: £3,254,000) 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 12 months ended 30 November 2004 and 13 months ended31 December 2005 but is derived from those accounts. Statutory accounts for 2004have been delivered to the Registrar of Companies and those for 2005 will bedelivered following the Company's annual general meeting on 26 April 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 December Cash Non December 2004 Flow Cash 2005 £000 £000 £000 £000Cash at bank 5 37 - 42Bank overdraft (7,011) (1,784) - (8,795) ------- ------- ------- ------- (7,006) (1,747) - (8,753) ======= ======= ======= =======Debt less than one year (376) - - (376)Debt more than one year (2,086) (2,820) - (4,906)Hire purchase liabilities (2,801) 686 (19) (2,134) ------- ------- ------- ------- (5,263) (2,134) (19) (7,416) ======= ======= ======= =======Net Debt (12,269) (3,881) (19) (16,169) ======= ======= ======= ======= 4. TANGIBLE FIXED ASSETS - GROUP Freehold Fixtures land & Site Motor Plant & & buildings development vehicles machinery Equipment fittings TotalCOST OR VALUATION £000 £000 £000 £000 £000 £000 £000At 1 December 2004 22,182 63 115 28,848 577 194 51,979Additions 391 17 - 2,521 174 12 3,115Disposals - - - (23) - - (23)Revaluation 12,577 - - - - - 12,577 ------ ------ ------ ------ ------ ------ ------ At 31 December 2005 35,150 80 115 31,346 751 206 67,648 ------ ------ ------ ------ ------ ------ ------ DEPRECIATION At 1 December 2004 - 29 114 11,591 487 161 12,382Charge for the period - 4 1 1,225 59 15 1,304Disposals - - - (23) - - (23) ------ ------ ------ ------ ------ ------ ------At 31 December 2005 - 33 115 12,793 546 176 13,663 ------ ------ ------ ------ ------ ------ ------ NET BOOK VALUEAt 31 December 2005 35,150 47 - 18,553 205 30 53,985 ------ ------ ------ ------ ------ ------ ------At 30 November 2004 22,182 34 1 17,257 90 33 39,597 ------- ------ ------ ------ ------ ------ ------ Hire purchase agreements Included within the net book value of £53,985,000 is £3,014,000 (2004:£3,261,000) relating to assets held under hire purchase agreements. Thedepreciation charged to the accounts in the period in respect of such assetsamounted to £185,000 (2004: £17,000). Capital commitments 31 December 30 November 2005 2004 £000 £000 Contracted but not provided for in the accounts 62 147 ------ ------ 5. TANGIBLE FIXED ASSETS - COMPANY Freehold Office Property Equipment Total £000 £000 £000COST OR VALUATIONAt 1 December 2004 14,428 9 14,437Additions 299 157 456Revaluation 11,373 - 11,373 ------ ------ ------At 31 December 2005 26,100 166 26,266 ====== ====== ====== DEPRECIATIONAt 1 December 2004 - - -Charge for the period - 19 19 ------ ------ ------At 31 December 2005 - 19 19 ====== ====== ====== NET BOOK VALUEAt 31 December 2005 26,100 147 26,247 ====== ====== ======At 30 November 2004 14,428 9 14,437 ====== ====== ====== 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 30 November 30 November 2005 2005 2004 2004Historical cost: £000 £000 £000 £000At 1 December 2004 6,983 5,382 6,671 5,114Additions 391 299 312 268 ------- ------- ------- -------At 31 December 2005 7,374 5,681 6,983 5,382 ======= ======= ======= ======= 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 30 November 30 November 2005 2005 2004 2004 £000 £000 £000 £000Trade debtors 3,377 - 3,547 -Amounts owed by Group undertakings - 4,383 - 2,979Other debtors 521 521 37 37Prepayments and accrued income 328 139 334 70 ------- ------- ------- ------- 4,226 5,043 3,918 3,086 ======= ======= ======= ======= Debtors - amounts falling due after one year Company Company 31 December 30 November 2005 2004 £000 £000 Amounts owed by Group undertakings 7,724 7,705 -------- -------- 7. CREDITORS: Amounts falling due within one year Group Company Group Company 31 December 31 December 30 November 30 November 2005 2005 2004 2004 £000 £000 £000 £000 Bank loans and overdrafts 9,171 2,454 7,387 2,921Trade creditors 1,441 139 1,810 83Amounts owed to Group undertakings - - - 67Other taxation and social security 660 21 581 10Hire purchase agreements 674 - 635 -Other creditors 68 39 13 13Corporation tax - - - -Proposed dividend 418 418 418 418Accruals and deferred income 1,141 60 661 30 ------ ------ ------ ------ 13,573 3,131 11,505 3,542 ======= ====== ====== ====== Included within other taxation and social security owed by the Group is abalance of £nil (2004: £15,980) relating to pension contributions not paidacross 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 30 November 30 November 2005 2005 2004 2004 £000 £000 £000 £000 Bank loans 4,906 4,906 2,086 2,086Hire purchase agreements 1,460 - 2,166 - ------- ------ ------ ------ 6,366 4,906 4,252 2,086 ======= ====== ====== ====== 9. SHARE CAPITAL Authorised share capital: 31 December 30 November 2005 2004 £000 £000 60,000,000 ordinary shares of 20p each 12,000 12,000 ------ ------ 12,000 12,000 ====== ====== Allotted, called up and fully paid: 31 December 30 November 2005 2004 £000 £000 Ordinary shares 7,604 7,604 ----- ----- 7,604 7,604 ----- ----- 10. EARNINGS PER SHARE Basic The calculation of earnings per share is based on earnings of £518,000 (2004:£785,000) and 38,017,856 (2004: 32,968,005) ordinary shares. The 2004 figurewas calculated using a weighted average figure following the issue of shares inthe prior period. 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 681,269 shares. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Michelmersh Brick Holdings