Final Results

21st Apr 2009 07:00



21 April 2009

Michelmersh Brick Holdings plc

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

Final results for the year ended 31 December 2008 

Michelmersh Brick Holdings plc (AIM: MBH), the specialist brick, land development and landfill company, today announces final results for the year ended 31 December 2008. 

Highlights

Revenue increased marginally to £24.2 million (2007: £24.0 million)

Operating loss, excluding non-recurring costs, of £1.1 million (2007: profit £2.1 million)

Loss before tax of £2,870,000 (2007 profit: £254,000)

The Directors do not intend to propose the payment of a final dividend for the year. (2007: 1.1p per share)

Brick volumes maintained compared to the previous year

Landfill division performed strongly in the period, achieving revenue of £652,000 (2007: £734,000)

Restoration of initial 16 acres of land at Telford now completed

Net assets of £31.0 million (2007: £44.6 million)

Impairment charge of £10.5 million net of deferred tax, applied in relation to the £44.6 million carrying value of the Group's freehold land and buildings (Assets valued at December 2007 by Gerald Eve at £48.9 million )

Full review of all areas of operations and restructuring completed

Further strengthening of Operating Board

Overall, taking account of seasonal trends, sales have been satisfactory for period to date

Commenting on the results, Eric Gadsden, Chairman, said: "Our market and asset position is strong and we have an experienced management team in place. Even in the present economic circumstances we believe we are well placed and ambitious to take advantage of opportunities to grow the business.

"In the present conditions there will be unprecedented opportunity to apply our integrated business model to expand. We continue to consider an appropriate structure to enable this to happen. Conditions will continue to be challenging until the credit markets stabilise but those companies that can maintain their position will prosper in the future."

For further information:

Michelmersh Brick Holdings plc:
Martin Warner, Chief Executive
Craig Robinson, Finance Director	01952 265 365
Charles Stanley Securities, Nominated Adviser:
Russell Cook	020 7149 6000
Tavistock Communications:
Jeremy Carey/Gemma Bradley	020 7920 3150

Chairman's Statement

I am pleased to report our results for 2008, a very challenging year for the Michelmersh Group but a year in which, despite such challenges, revenue has been maintained and the Group has repositioned itself in order to best align itself with its niche markets.

Despite the turbulent economic conditions, the Group achieved higher revenues in 2008, up 1% on the previous 12 months, although revenues in the second half fell by 4.0% compared with the same period for 2007. In addition, gross margins continued to decline in the second half, down from 20.9% in the first six months to 11.0% in the six months to December 2008, primarily as a result of the volatile and generally higher energy costs. The Group has implemented a comprehensive review of production levels and costs across each of our plants in light of these changing market conditions. Brick production at these plants has been reduced, our product range reviewed and, regretfully, manning reduced to match these levels.

At the same time we have seen increases in rates and profitability of our landfill activities, although overall land fill volumes have declined through 2008.

Whilst progress on obtaining detailed planning approval on the initial 16 acres of our land at Telford has taken longer than anticipated, due to negotiations with the local authority over S106 obligations to reflect current market conditions, we continue to be confident of a satisfactory outcome, and anticipate that a further announcement will be made shortly. 

Financial Highlights

Turnover for the year amounted to £24.2 million (2007: £24.0 million) and operating losses for the year totalled £1.8 million compared to the loss in 2007 of £0.5 million, excluding the profit on the sale of Baggeridge Brick shares. The operating loss for 2008 includes the impact of temporarily ceasing production for three weeks from early December at three production units which has enabled the Group to manage stock levels against demand, and also mitigate the impact of increased fuel costs particularly during the winter months. Production at each of these plants resumed in January. Sales have remained satisfactory and stock levels are at around normal levels.

Administrative expenses, including redundancy costs of £142,000 and bad debts of £563,000, totalled £5.9 million (2007 £6.2 million). The operating loss, excluding non-recurring costs, was £1.1 million (2007: loss £0.5 million).

Bad debts arose from certain long standing customers, as a result of trading problems and the adverse impact of the withdrawal of credit insurance. We have now reviewed our already tight credit procedures and look through our distributors to their ultimate customers when assessing risk. 

The Group retains a strong balance sheet with net assets at 31 December 2008 of £31.0 million (2007: £44.6 million). The decline reflects an impairment charge of £10.5 million, net of deferred tax, in relation to the carrying value of the Group's freehold land and buildings.

Dividend

In light of the current uncertain economic conditions it is the Board's view that all cash generated should be retained within the business and therefore the Board is not recommending payment of a final dividend for the year (2007: 1.1p per share). However, the Board intends to return to a policy of progressive dividend payments as soon as market conditions permit.

People

We have strengthened our management team in the period with the appointment of Mike Thomas, announced in October 2008. Mike is a manufacturing expert with considerable experience in creating and executing profitable change in a diverse range of international operations. He is driving the review of our product range, manufacturing costs and sales effort and we are already seeing positive results from this process.

The period has been a difficult one for us and I would therefore like to thank all of our employees for their hard work and support during this period of reorganisation. I should note that all pay levels have been and remain frozen, and following the reorganisation of shift patterns and maintenance work, overtime has virtually been eliminated.

Outlook

The continued turbulence in the credit market leads us to take a cautious view of the business in the current year, especially as the market place continues to change. However, there is strong underlying demand for housing and building materials and although it is doubtful whether activity will recover to the high levels experienced in 2004, in the near future, we remain confident that our fully integrated business model is resilient and we are confident of the Group's ability to deliver long term shareholder value. We are pleased to report that we have achieved a double digit percentage increase in selling prices during the year and that these are being maintained.

With over 90% of brick production now in the hands of only three internationally owned companies we believe that many works mothballed over the winter months by our competitors will not reopen and the long needed adjustment of supply to demand will now accelerate. Furthermore, the increasing demand for materials for the repair, maintenance and improvement market, and the inevitable shift from flats to houses, all favour our business. 

Over the period, Michelmersh has been fortunate to have the full support of its bankers, highlighting the confidence in the long term ability of the business and as such, the Group's bank covenants have been successfully renegotiated.

Our market and asset position is strong and we have an experienced management team in place. Even in the present economic circumstances we believe we are well placed and ambitious to take advantage of opportunities to grow the business.

The current year to date, despite poor weather in February, has been encouraging despite the lower level of production and sales which will affect profitability. Overall, taking account of seasonal trends, sales have been satisfactory.

In the present conditions there will be unprecedented opportunity to apply our integrated business model to expand. We continue to consider an appropriate structure to enable this to happen. Conditions will continue to be challenging until the credit markets stabilise but those companies that can maintain their position will prosper in the future.

Eric Gadsden

Chairman

20 April 2009

Chief Executive's Review

As noted in the Chairman's Statement we have reviewed all areas of our operations over the past six months.

Clay Products

All the measures announced in September have now been implemented. 

These include:

focusing production on higher value products

reducing capacity at Blockleys by taking off one shift

adjusting production at the other three works to match manufacturing to demand

These difficult decisions have enabled us to make substantial month on month savings thus reducing the risk in the business. At the same time we have achieved increased selling prices of 13% over all of the Group's products, in the year to date. Our headcount has reduced from 340 to 288, with an annualised overhead saving of £1.4 million.

Whereas 72 million products were produced and 79 million products sold, in 2008, these figures compare with budgeted production and predicted sales for 2009 of 58 million units. Stock levels at all plants are being well managed, with three months of stock at the end of 2007 compared to two months as at 31 December 2008 at the new budgeted sales levels.

Our policy is to maintain production at all our units. Whilst this is challenging in the light of the high levels of brick stocks nationally, it is important for us to ensure security of supply for our customers and this strategy is giving us significant benefits in the current market place.

We have implemented a more flexible strategy for purchasing energy supplies which will remove an element of risk from manufacturing costs. These measures, with the cost savings implemented, will provide greater productivity and position us well for any upturn.

In view of the substantial investment in the business over the past few years there will be no need for any significant capital expenditure in the foreseeable future.

We continue to win good specialist business and are continuing to develop in the areas where we already have strong representation. In particular, we announced in March this year that we have won the contract to supply over 230,000 bricks for the redevelopment of St Pancras Chambers, the building fronting St Pancras Station. Michelmersh has been involved throughout the three year restoration of the Grade 1 listed Station. The Company has already supplied over 500,000 bricks for the refurbishment of the award winning project.

We are placing a strong emphasis on the marketing of our permeable paving system which we believe will be in increasing demand as the new planning regulations relating to Sustainable Drainage Systems begin to bite. It was pleasing to see these pavings displayed by Anglian at the Ideal Homes Exhibition recently and we are forming new alliances to effect sales of these products.

Landfill

Our landfill division performed strongly in the period achieving a turnover of £652,000 (2007: £734,000) but on substantially reduced tipping levels of 111,000 tonnes (2007: 225,000) equating to an 81% increase in tipping rates from £3.26 per tonne in 2007 to £5.90 per tonne in 2008. We continue to review options for our licensed sites at Charnwood and Dunton where we have valuable consented airspace.

Development Land

The restoration of the initial 16 acres of land at Telford, which is under option to Persimmon Plc, is now completed and the land will soon be ready for development. Negotiations are being finalised with the local authority in relation to S106 requirements, and in particular affordable housing levels to produce a viable outcome for all parties in the current market. These negotiations are progressing well and the Board anticipates that a further announcement will be made shortly.

At Charnwood, we have put forward our 28.7 acre site to be included in the Local Development Framework and current indications are that this is likely to be accepted. If accepted this would add a further 250 residential plots to the 1,000 we already have at Telford.

Assets

In view of the market conditions prevailing at the year end, the Directors, having carried out an impairment review of the Group's assets, have felt it appropriate to incorporate an impairment charge, net of deferred taxation, of £10.5 million in relation to the £44.6 million carrying value of the Group's freehold land and buildings. The value of all cash generating units were tested for impairment and consequently the value of the property at the operational sites located at Telford and Michelmersh have been written down by £11.7 million and £2.5 million respectively with a corresponding reduction in the revaluation reserve.

It is important to note that the value attributed to the residential land reflects the current market place which can only be a snapshot of this long term project. In the medium term this has the potential to be a strong driver of growth in our asset value.

Outlook

In what is a very difficult market we are in a stable position. Progress with property assets always takes time particularly in an unsettled market but I am confident we have the assets to add shareholder value.

We are selling the bricks we are making, albeit at the present time on a reduced output and as conditions strengthen, and excess capacity is removed, we are well placed to profit and progress accordingly. Our land fill activities remain resilient and we anticipate that further substantive progress will made regarding the sale of restored land during 2009.

Martin Warner

Chief Executive

20 April 2009

Consolidated Income Statement

Consolidated Income Statement	Notes		2008		2007
for the year ended 31 December 2008			£'000		£'000
Revenue			24,245		24,008
Cost of sales			(20,329)		(18,401)
Gross Profit			3,916		5,607
Administrative expenses			(5,909)		(6,180)
Other income			176		77
Profit on disposal of investments			-		2,557
Operating (loss)/profit			(1,817)		2,061
Finance costs			(1,053)		(1,807)
(Loss)/profit before taxation			(2,870)		254
Taxation			286		(425)
Loss for the financial year			(2,584)		(171)
Earnings per share	4		(6.40)p		(0.44)p
Diluted earnings per share	4		(6.40)p		(0.44)p

Consolidated Statement of Recognised Income and Expense

Consolidated Statement of Recognised Income and Expense	Notes		2008		2007
for the year ended 31 December 2008			£'000		£'000
(Loss)/gain on revaluation of property, plant and equipment	5		(14,202)		7,977
Deferred tax on revaluation movement			3,666		(1,943)
Net (expense)/income recognised directly in equity			(10,536)		6,034
Loss for the financial year			(2,584)		(171)
Total recognised income and expense for the year			(13,120)		5,863

Consolidated Balance Sheet

Consolidated Balance Sheet	Notes		2008		2007
as at 31 December 2008			£'000		£'000
Assets
Non-current assets
Intangible assets			67		100
Property, plant and equipment	5		48,121		62,660
Total non-current assets			48,188		62,760
Current assets
Inventories			8,235		9,398
Trade and other receivables			3,377		4,245
Cash and cash equivalents			225		328
Total current assets			11,837		13,971
Total assets			60,025		76,731
Liabilities
Current liabilities
Trade and other payables			4,327		4,872
Interest bearing borrowings			16,290		6,457
Total current liabilities			20,617		11,329
Non-current liabilities
Deferred tax liabilities			7,592		11,544
Interest bearing borrowings			778		9,286
			8,370		20,830
Total liabilities			28,987		32,159
Net assets			31,038		44,572
Equity attributable to equity holders
Share capital	6		8,083		8,073
Share premium account	6		5,703		5,671
Reserves	6		15,204		26,103
Retained earnings	6		2,048		4,725
Total equity	6		31, 038		44,572

Consolidated Cash Flow Statement

Consolidated Cash Flow Statement			2008		2007
for the year ended 31 December 2008			£'000		£'000
Cash flows from operating activities
(Loss)/profit before taxation			(2,870)		254
Share based payment			-		59
Finance costs			1,053		1,807
Depreciation			1,677		1,491
Amortisation			632		2
Loss/(profit) on sale of property, plant and equipment			4		(8)
Grant of carbon emissions allowance			(695)		-
Loss on sale of intangible assets			18		-
Profit on sale of investment shares			-		(2,557)
Operating (loss)/profit before changes in working capital			(181)		1,048
Decrease/(increase) in inventories			1,207		(205)
Decrease/(increase) in receivables			868		(642)
(Decrease)/increase in payables			(1,293)		1,017
Net cash generated by operations			601		1,218
Interest paid			(1,056)		(1,200)
Net cash (used in)/generated from operating activities			(495)		18
Cash flows from investing activities
Purchase of intangible assets			-		(33)
Proceeds on disposal of intangible assets			520		-
Purchase of property, plant and equipment			(1,388)		(1,381)
Proceeds on disposal of property, plant and equipment			-		34
Purchase of investment shares			-		(20,546)
Proceeds on disposal of investment shares			-		25,581
Interest paid on borrowings for investment purposes			-		(599)
Net cash (used in)/generated from investing activities			(868)		3,056
Cash flows from financing activities
Issue of share capital			30		230
Issue of new interest bearings borrowings			-		20,247
Repayment of interest bearing borrowings			(597)		(21,265)
Repayment of hire purchase and finance lease obligations			(41)		(29)
Dividends paid to shareholders			(135)		(442)
Net cash used in financing activities			(743)		(1,259)
Net (decrease)/increase in cash and cash equivalents			(2,066)		1,815
Cash and cash equivalents at beginning of year			(492)		(2,307)
Cash and cash equivalents at end of year			(2,558)		(492)
Cash and cash equivalents comprise;
Cash at bank and in hand			225		328
Bank overdrafts			(2,783)		(820)
			(2,558)		(492)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

1. ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations and with those parts of the Companies Act 1985 applicable to companies reporting under accounting standards as adopted for use in the EU. There have been no changes to the accounting policies adopted since the last consolidated financial statements were published. The consolidated financial statements for the financial years ended 31 December 2008 and 31 December 2007 have been prepared under the historical cost convention, as modified by the revaluation of certain items, as stated in the accounting policies.

2. FINANCIAL INFORMATION 

The financial information set out in this Preliminary Announcement does not constitute the Group's statutory financial statements for the years ended 31 December 2008 or 2007. The audit report on the Group's statutory financial statements for the year ended 31 December 2008 has not yet been signed. These financial statements will be finalised on the basis of the financial information presented by the Directors in this Preliminary Announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

The financial information for the year ended 31 December 2007 has been derived from the Group's statutory financial statements for 2007 and have been delivered to the Registrar of Companies. The auditors have reported on the Group's statutory financial statements for the year ended 31 December 2007; their report was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under Section 237(2) or (3) of the Companies Act 1985.

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

3. DIVIDENDS

The following dividends have been paid and proposed in respect of the year.

	2008		2007
	£'000		£'000
Final dividends for the year ended 31 December 2007 at 1.1p per share (2006: 1.1p)	444		442
Proposed for approval at AGM (not recognised as a liability at 31 December 2008)
Final dividend for 2008 at £nil per share (2007: 1.1p)	-		444

4. EARNINGS PER SHARE

Basic

The calculation of earnings per share is based on the loss for the year of £2,584,000 (2007: loss of £171,000) and 40,397,377 (2007: 39,060,116) 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 year are anti-dilutive for the years ended 31 December 2008 and 2007.

5. PROPERTY, PLANT AND EQUIPMENT 

		Freehold land and buildings	Site develop-ment	Motor vehicles	Plant and machin-ery	Equip-ment	Fixtures and fittings	Total
		£'000	£'000	£'000	£'000	£'000	£'000	£'000
Cost or valuation
At 1 January 2007		35,102	235	133	32,718	861	242	69,291
Additions		1,722	-	7	1,343	34	16	3,122
Disposals		-	-	-	(183)	(2)	-	(185)
Transfers		354	(1)	31	(387)	3	-	-
Revaluation		7,563	-	-	-	-	-	7,563
Transfers to inventories		(1,022)	-	-	-	-	-	(1,022)
At 31 December 2007		43,719	234	171	33,491	896	258	78,769
Additions		916	-	-	452	20	-	1,388
Disposals		-	-	-	(4)	-	-	(4)
Transfers to inventories		(44)	-	-	-	-	-	(44)
Impairment		(14,202)	-	-	-	-	-	(14,202)
At 31 December 2008		30,389	234	171	33,939	916	258	65,907
Depreciation
At 1 January 2007		247	36	119	14,002	603	184	15,191
Charge for the year		167	3	9	1,246	52	14	1,491
Transfers		-	-	22	(22)	-	-	-
Disposals		-	-	-	(158)	(1)	-	(159)
Revaluation		(414)	-	-	-	-	-	(414)
At 31 December 2007		-	39	150	15,068	654	198	16,109
Charge for the year		287	3	7	1,335	32	13	1,677
At 31 December 2008		287	42	157	16,403	686	211	17,786
Net book value
At 31 December 2008		30,102	192	14	17,536	230	47	48,121
At 31 December 2007		43,719	195	21	18,423	242	60	62,660

Impairment of property, plant and equipment

During the year there have been indications of impairment to the cash generating units (CGUs) following the downturn in the UK economy. Accordingly the value in use of all CGUs have been tested for impairment and the value of the property at operational sites located at Telford and Michelmersh have been written down by £11,675,000 and £2,527,000 respectively with a corresponding reduction in the revaluation reserve related to each site. The impairments were caused by significant changes in the market, which have diminished the revenue earning potential of those CGUs. The recoverable amounts for each CGU are determined from value in use calculations using a discount rate of 7.94%. There are no goodwill or intangible assets with an indefinite useful life allocated to any CGU. This impairment has led to a corresponding reduction in the related deferred tax liability of £3,666,000.

Revaluation of property, plant and equipment

The Group's freehold land and buildings were revalued by the Directors on 31 December 2007, based on a valuation carried out by Gerald Eve, Chartered Surveyors, on a depreciated replacement cost basis for brickwork properties, and an existing use value for the land used for mineral extraction or waste disposal. Other property has been valued at open market value. These valuations incorporated 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 Directors updated these valuations in respect of the land used for mineral extraction and waste disposal where appropriate to do so. The Group's freehold land and buildings were valued at £43,719,000 at 31 December 2007, resulting in an increase in the revaluation reserve of £7,977,000 at that date. Deferred tax liabilities were increased by £1,943,000 and have been debited to the revaluation reserve.

In respect of the freehold property stated at a valuation, the comparable historical cost and depreciation values are as follows:

	2008		2007
	£'000		£'000
Historical cost
At 1 January 2008	9,135		7,427
Additions	916		2,076
Transfer to inventories	-		(339)
Transfer from historical cost depreciation	-		(29)
At 31 December 2008	10,051		9,135

Historical cost depreciation
At 1 January 2008	23		43
Charge for the year	9		9
Transfer to historical cost	-		(29)
At 31 December 2008	32		23

All other property, plant and equipment are stated at historical cost.

6. EQUITY ATTRIBUTABLE TO EQUITY HOLDERS

	Share capital	Share option reserve	Share premium	Revaluation reserve	Retained earnings	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000
As at 1 January 2007	7,604	136	3,432	20,104	5,108	36,384
Loss for the year as restated	-	-	-	-	(171)	(171)
Equity dividends paid	-	-	-	-	(442)	(442)
Revaluation in the year	-	-	-	7,977	-	7,977
Deferred tax on revaluation	-	-	-	(1,943)	-	(1,943)
Transfer to retained earnings	-	-	-	(230)	230	-
Share based payment	-	59	-	-	-	59
Shares issued in the year	469	-	2,239	-	-	2,708
As at 31 December 2007	8,073	195	5,671	25,908	4,725	44,572
Loss for the year	-	-	-	-	(2,584)	(2,584)
Equity dividends paid	-	-	-	-	(444)	(444)
Impairment in the year	-	-	-	(14,202)	-	(14,202)
Deferred tax on impairment	-	-	-	3,666	-	3,666
Transfer to retained earnings	-	-	-	(351)	351	-
Shares issued in the year	10	(12)	32	-	-	30
As at 31 December 2008	8,083	183	5,703	15,021	2,048	31,038

7. REPORT AND ACCOUNTS

Copies of the Annual Report will be available on the Group's website http://www.michelmersh.com and from the Company's registered office at 121 High Street, Berkhamsted, Hertfordshire, HP4 2PJ.

ENDFR IMMRTMMATBJL

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Related Shares:

Michelmersh Brick Holdings