Preliminary Results for the year to 31 March 2021

Brickability Group PLC  

LEI: 213800SK28MWXB3K3P26

5 August 2021

Brickability Group plc

("Brickability" or "the Group")

Preliminary results for the year ended 31 March 2021

Strong performance despite economic challenges

Brickability Group plc (AIM: BRCK), the leading construction materials distributor, is pleased to announce its preliminary results for the twelve-month period ended 31 March 2021.

Financial Highlights

· Strong recovery following initial COVID-19 lockdown

· Group revenue of £181.1 million (2020: £187.1 million)

· Decline of 13.2% in like-for-like revenue impacted by trading restrictions

· Adjusted EBITDA of £17.5 million (2020: £19.5 million)

· Improved gross margin to 21.0% (2020: 20.1%)

· Reduction in bank borrowings of £9.1 million, with £14.1 million facility headroom remaining as at 31 March 2021

· Continued, disciplined approach to cost management

· Final dividend declared of 1.0850p per share giving a total dividend for the year of 1.9528p

Operational Summary

· Two new acquisitions completed in the year

· Investment in new 63,000 sq. ft warehouse within Heating, Plumbing and Joinery division

· Launch of new ceramic tile business in January 2021

· Strong acquisition pipeline continues provide opportunities to add to the Group's distribution and product offering

· COVID-19 Health and Safety protocols successfully implemented

· Adapted well to new customs and import procedures post Brexit

Post Period and Outlook

· Acquisitions of Taylor Maxwell, in June 2021, and Leadcraft, as announced in August 2021

· Oversubscribed share placing, raising equity finance of £55 million

· Borrowing facility limit increased to £60 million following re-financing

· Further expansion of the Bricks and Building Materials division, with property purchased to facilitate a new branch opening within the U Plastics business

· Increased output in construction and housebuilding forecast for the remainder of 2021 and 2022

· Ongoing review and progression of acquisition opportunities

· Trading in first quarter of FY2022 encouraging

· Robust and improving construction market and the order book is strong

· Acquisition pipeline going forward looks promising

John Richards, Chairman, said:

"FY2021 has been another strong year for Brickability Group. In a challenging and uncertain year for the economy at-large Brickability showed its ability to adapt quickly and successfully as well as maintain focus - a real testament to the strength and diversity of the business, and the management team we have. This is underscored by the two strategic acquisitions we made during the year.

Post year end the acquisition of Taylor Maxwell further underpinned our strategic diversification, adding to the Group's product offering and its ability to provide timely customer service.

Against this backdrop we believe that the Group is well-positioned to take full advantage of a robust and improving construction market and the order book is strong. The pipeline going forward looks encouraging."

Chairman's Statement

The response of the Group and everybody working within it since the arrival of the COVID-19 pandemic in March 2020 has been outstanding. I am extremely pleased with what has been achieved and, considering the very significant challenges faced, the financial performance of the Group is one of which we can be very proud.

COVID-19

At the start of the COVID-19 pandemic, we immediately took actions to comply with government legislation and guidelines to protect the health and safety of our employees and customers. Strict new protocols were introduced and the vast majority of our employees worked from home. This in itself presented several technical challenges and I am pleased to note that those challenges were quickly overcome. April 2020 saw significant reductions in homebuilding and construction activity before rebounding in May 2020. In June, sales returned to 83% of June 2019 volumes and in the subsequent months of the year, performance was broadly at the levels of the previous year.

As government guidelines changed and our markets opened up, we adapted our COVID-19 protocols accordingly. As we stand today, we still have employees working from home on rota along with robust social distancing and hand sanitising procedures in place amongst other health and safety policies.

The Group has a flexible cost base which enabled us to cut overheads quickly as restrictions took hold and, as activity has become stronger, we have continued to focus robustly on our costs.

I am, therefore, pleased to confirm for the year to 31 March 2021 revenue of £181.1 million and an adjusted EBITDA of £17.5 million. Considering the nature of market conditions during the early months of this financial year, we are very satisfied with the Group's performance.

Stuart Overend

November proved to be a challenging month in a very unexpected way. The Group's Chief Financial Officer, Stuart Overend, passed away very suddenly at the age of 50. Stuart had made an extremely important contribution to the Group and working with him during our IPO and subsequent roadshows proved to be an absolute pleasure for Alan Simpson, our Chief Executive, and I. Stuart was a tremendous colleague and friend and we are all grateful to have had the opportunity to have known him and worked with him. Our thoughts continue to be with his wife, Jennifer, and his three children.

Following an extensive executive search, Mike Gant was appointed Chief Financial Officer in January 2021, initially on an interim basis, with his permanent appointment following in April 2021. Mike has made a very positive contribution to the Group since joining and we look forward to working with him in the years ahead.

Acquisitions

The Group's strategy of bolt-on acquisitions funded by cash generation has continued during the year. Details of these acquisitions and indeed our ceramic tile start-up business can be found in the Chief Executive's report, however, I would like to dwell briefly on the acquisition of our haulage business, McCann Logistics. This business specialises in the haulage of construction materials from Continental Europe to the UK. While such an acquisition is outside of our normal focus, we viewed Brexit as a potential problem for haulage and customs delays. The management believed the best way around this was to bring such a business in-house. This has proved to be a strong decision with the haulage delays experienced by some hardly affecting our Group. The business is performing at such a strong pace that additional trailers have had to be ordered.

I must also mention the acquisition of Taylor Maxwell which has taken place since the year end. This transformative deal significantly diversifies the Group's product offering and customer base. We now have a strong position in both timber and cladding distribution and have access to many new customers, particularly in the contractor arena. The brand, reputation and employees of Taylor Maxwell are very welcome and will no doubt add significantly to the performance of the Group. Taylor Maxwell's senior managers will be represented on the Group's Management Board.

The pipeline for further acquisitions continues to be strong.

Market

The construction market in general and the homebuilding market, in particular, were areas that recovered quickly in 2020. This recovery is forecast to continue into 2021 and beyond. The market is strongly supported by government initiatives including Help to Buy Version 2, the Affordable Homes Programme and the Housing Accelerator Fund. Forecasts are also positive for other parts of the construction market with the CPA Winter 2020/21 forecast showing:

· Construction output will rise 14.0% in 2021 and 4.9% in 2022;

· Private housing output will rise by 15.5% in 2021 and 6.0% in 2022;

· Public housing output will rise by 14.8% in 2021 and 10.0% in 2022;

· Private housing (RMI) will rise by 10.1% in 2021 and 3.0% in 2022;

· Public housing (RMI) will rise by 20.6% in 2021 and 2.0% in 2022; and

· Infrastructure output will rise by 32.1% in 2021 and 6.0% in 2022.

Shareholder Returns and Dividends

The Group paid an interim dividend of 0.8678p per share on 25 February 2021. This was possible due to the recovery from a difficult start to the year, the Group's rigorous cost control and our strong cash conversion.

Following the continued V-shaped recovery in our markets, the successful integration of acquisitions and the success of our Brexit preparations, our performance enables the Board to recommend the payment of a final dividend for the year ended 31 March 2021 of 1.0850p per share. Subject to shareholder approval at the Annual General Meeting, the final dividend will be payable on 23 September 2021, with a record date of 27 August 2021 and an ex-dividend date of 26 August 2021.

Board and Corporate Governance

The Board remains committed to the highest standards of Corporate Governance, not only at Board level but throughout out Group. The Group continues to comply in full with the Quoted Companies Alliance's Ten Principles of Corporate Governance. Further details of the activities of our Board and its Committees during the year can be found in later sections of the report.

2020 was unusual in all sorts of ways and the Group's Board and Committees had to quickly adapt to meeting online. This proved successful and, during the most demanding periods of lockdown and market changes, meetings were held on a fortnightly basis.

Sustainability

We take our obligations to protect the environment seriously and are pleased to include our Sustainability Report within this Annual Report.

We are in the process of finalising our ESG roadmap. This activity will increasingly be core to all that we do, not least in identifying those manufacturers with strong ESG credentials and indeed those potential acquisitions who would benefit from having them.

A group has been convened to drive our efforts in this area which will be chaired by me.

Our People

I have already referenced the remarkable performance, dedication and flexibility displayed by the Group's employees. They have embraced the robust and regularly changing health and safety protocols, while helping to drive the business to a speedy performance recovery. They and their Group are well placed to take advantage of the robust house building and construction market and its encouraging outlook.

Our staff have driven the setting up of the Brickability Group Foundation which will raise funds to support charities close to the Group's areas of operation. It will have 3 Trustees; Paul Hamilton and Andrew Wilson, 2 of our Divisional Managing Directors, and myself.

John Richards

Chairman

Chief Executive's Review

The COVID-19 pandemic, and the consequent lockdowns and restrictions, provided the Group with great challenges during the year ended 31 March 2021. Despite those challenges, we were still able to deliver revenues of £181.1 million and EBITDA of £17.5 million. Bearing in mind the virtual loss of 1.5 months of trading, we are encouraged with this result. We were also able to deliver against our strategy of bolt-on acquisitions with two businesses joining the Group, on which I will elaborate later in my review. Our strategy of supporting start-up businesses also continued with Forum Tiles joining Alfiam and Architectural Facades. These acquisitions and start-ups became possible due to our strong balance sheet and cash conversion, and we expect more to come.

Acquisition Strategy

Two further strategic acquisitions were made during the year. Bathroom Barn, a West Midlands based supplier of radiator valves, elements and traditional valves was acquired on 30 November 2020 and immediately began its integration into the Towelrads business. McCann Limited (now McCann Logistics) was acquired in early December 2020 as the Group sought to protect the significant levels of imported bricks and roof tiles from any potential delays following Brexit. Established in 1972, McCann specialises in transporting building materials from factories in Europe to the UK, with its acquisition giving the Group control in this critical area. McCann's ability to provide timely continuity of deliveries has been impressive to date.

As outlined in the Chairman's Statement, the Group has completed the significant acquisition of Taylor Maxwell since the year end. The Group has also subsequently acquired Leadcraft Limited, which will expand the Group's Roofing Services division. Leadcraft was founded in 1997 and provides a full range of roofing services including tiling, slate, zinc, copper, felt and lead works.

Our acquisition pipeline continues to be strong and we are currently processing or evaluating several opportunities. Our demanding criteria, as outlined in last year's Annual Report and Accounts, remains our guide and we have the financial headroom and cash conversion levels to press ahead with those that pass our stringent assessments.

Organic Development

Our cladding business, Architectural Facades, continues to make progress with the addition of a new showroom in the North West, additional sales staff and some very exciting and profitable contracts confirmed. Similarly, we are equally excited by the launch of our ceramic tile business, Forum Tiles. We have recruited an expert sales team, with significant experience in their industry, and have established working relationships with many high-quality suppliers from Italy, Spain, India and other geographies which look to be extremely beneficial.

Divisional Performance

Bricks and Building Materials

With a turnover of £144.2 million, the Brick division managed to exceed the full-year turnover of the year ended 31 March 2020 (£144.0 million). Considering the lost turnover in April, and the much-reduced turnover in May, this was a remarkable achievement. Our flexible cost base was demonstrated by a c.£2 million reduction in cost of sales, giving an EBITDA of £11.7 million versus £11.5 million in the previous year.

Heating, Plumbing and Joinery

Turnover was reduced in the year and stood at £24.5 million against the previous £26.1 million. EBITDA fell to £5.8 million from the previous £6.2 million, despite reductions in cost of sales. It was a relatively slow start to the year for Towelrads which then gathered more sales strength as the year progressed and indeed continues to do so. Towelrads operated from several warehouse facilities and, during the year, the Group purchased a 63,000 square foot warehouse in Southam, Warwickshire, which is ideally located for the business and provides the scale for future growth. We also added Bathroom Barn to the business in December to virtually double our scale of valves.

A number of window suppliers experienced production/financial issues during the year restricting our performance in that market. New suppliers have been identified and the right agreements to supply have been put in place.

Our Spanish door supplier gradually improved their delivery performance during the year, while our agreement to sell Deanta Doors fills our need to have a mid-range, high volume door supplier. This is already proving successful with the supplier holding excellent levels of inventory.

Roofing Services

With the roofing industry appearing to have been particularly hard hit by COVID-19 driven workplace regulations, roofing turnover fell from £17.1 million to £12.4 million. Despite lower cost of sales which reduced by c.£3.3 million, EBITDA was still reduced to £2.6 million, down from £3.7 million in the previous year. Notwithstanding subsequent improvements in the market, when the market finally began to improve, it was further impacted by supply problems from manufacturers who had lengthy shutdowns. This shortage of supply continues into the current year, however, the Group does have the advantage of its supply of European-made roof tiles.

Health and Safety

The health and safety of our staff, suppliers, contractors, customers and visitors is core to the values of our Group. Having worked with our external partner, Safety Forward, in the year to 31 March 2020 to re-evaluate all of our health and safety processes and procedures, along with the training required to embed them into the business, the arrival of COVID-19 meant a rapid re-evaluation and implementation of our health and safety operations and standards.

New office/yard/warehouse/showroom procedures were agreed as were risk assessments in line with government guidance at every location. As restrictions began to be lifted, we reacted accordingly, however, we maintain a high standard of health and safety discipline.

Our new warehouse in Southam, Warwickshire, is now fully operational. As it moves towards optimum operational capacity, a facility of that scale has demanded a thorough health and safety review and risk assessments. It is fully up to speed in its health and safety protocols and we intend it to be a standard-setter inside and outside of the Group.

Outlook

The outlook for construction including house building is very positive. Construction output is forecast to rise 14.0% in 2021 and 4.9% in 2022, while the RIBA Future Trends workload index for May put confidence at the highest level since 2009.

The fundamentals for house building remain strong in both the private and public arenas with both benefitting from government support.

Current demand is such that many building materials are on extended availabilities and while this presents the Group with challenges, the strength of our supplier relationships and supply chains enables us to continue to provide reliable product supply.

The Group's trading in the first quarter of the 2022 financial year was encouraging and we continue to review and progress a number of acquisition opportunities.

Alan Simpson

Chief Executive

Financial Review

The financial results for the year ended 31 March 2021 reflect the impact of COVID-19 on the business. This impact was mitigated by careful cost control and the utilisation of around £1.3 million of the Government's Coronavirus Job Retention Scheme (CJRS).

Revenue

Revenue totalled £181.1 million for the year ended 31 March 2021. This represented a decrease of 3.2% compared to the previous year (2020: £187.1 million).

Gross Profit

Gross profit for the year increased to £38.0 million from £37.7 million, with a slight improvement in gross margin of 0.8% to 21.0% (2020: 20.1%)

Adjusted profit and adjusted EBITDA

Statutory profit before tax of £11.2 million (2020: £12.2 million) includes other items of £3.8 million (2020: £4.8 million) which are not considered to be part of the Group's underlying operations. These are analysed as follows:

Further details regarding the above other items are disclosed in note 5 to the preliminary results.

Adjusted EBITDA is the adjusted profit before tax prior to the addition of finance income and deduction of depreciation, amortisation and finance expenses.

Adjusted EBITDA decreased by 10.1% to £17.5 million (2020: 19.5 million) for the year ended 31 March 2021. Detailed segmental analysis is per note 3 of the preliminary results. The COVID-19 pandemic has resulted in a decrease across all divisions on a like for like basis. However, as reported, the Bricks and Building Materials division adjusted EBITDA has increased from £11.5 million to £11.7 million, following acquisitions that were made during the current year and part way through the previous year.

Taxation

The charge for taxation was £1.5 million (2020: £2.9 million), an effective rate of taxation (Tax expense divided by Profit before tax) of 13.5% (2020: 23.7%). The effective rate for the year falls below the main rate of corporation tax (19%), due to research and development tax credits being claimed during the year in relation to prior years. The 2020 effective tax rate was higher than the main rate of tax following the remeasurement of deferred tax after the announcement of a change in tax rate from 17% to 19%.

Earnings per share

Basic EPS for the year was 4.19p (2020: 4.79p). The Group also reports an adjusted underlying EPS which adjusts for the impact of the other items analysed in the table above. Adjusted EPS has fallen from 7.27p to 5.56p per share.

Dividends

In light of the strength of the Group's trading performance since the easing of the initial COVID-19 related lockdown measures for the construction industry and also in recognition of the strength of the balance sheet at the year end, the Board is recommending a final dividend of 1.0850p per share.

Subject to approval by shareholders, the final dividend will be paid on 23 September 2021, with a record date of 27 August 2021 and an ex-dividend date of 26 August 2021.

Cash flow and net debt

Operating cash flows before movements in working capital decreased to £17.4 million from £21.0 million in 2020. Cash generated from operations decreased to £13.1 million from £20.9 million,

Inventories increased primarily as a result of the Group's preparations for Brexit. The initial COVID-19 lockdown hampered sales in the final month of the 2020 financial year whilst in comparison the Group was fully trading in March 2021, resulting in a higher receivables balance as at 31 March 2021. Creditor payments were also normalised following the staggered payments at 31 March 2020 during lockdown. Additional working capital requirements are also included for the new acquisitions, since their addition to the Group.

At 31 March 2021, net debt (borrowings less cash) was £7.3 million which compares to net cash of £2.3 million at the prior year end. This is after additional investment in property, plant and equipment of £5.7 million (2020: £0.9 million), tax paid of £2.4 million (2020: £4.7 million), the initial payments for two new subsidiaries of £2.5 million (2020: £11.4 million) and the payment of deferred consideration, in relation to prior year acquisitions, of £7.9 million (2020: £5.9 million). Dividends of £4.5 million (2020: £2 million) were also paid in the year. We continue to expect that the Brickability Group will remain a business that is cash generative.

Bank facilities

At the year end, the Group had debt facilities with HSBC, totalling £30 million. This consists of a £25 million revolving credit facility repayable in full in March 2023 (with the option of two one-year extensions) and a £5 million overdraft facility until March 2023.

Since the year end, the Group has re-financed into a £60 million revolving credit facility, on a club basis with HSBC and Barclays, that runs for 3 years (with the option of two one-year extensions). The Group also has access to an additional £25 million accordion.

Subsequent events

The Group completed the acquisition of Taylor Maxwell (2017) Limited in June 2021, for consideration of up to £63 million. Leadcraft Limited was also acquired in July 2021, for consideration initially expected to be up to £5.5 million. Further investment has also been made in opening a new branch, within the U Plastics business, with a new property purchased for £2.4 million. Full details of events occurring since the year end are disclosed in note 10 to the preliminary results.

Going Concern

The directors are confident, having made appropriate enquiries, that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

Mike Gant

Chief Financial Officer

Consolidated Statement of Profit or Loss and Other Comprehensive Income

For the year ended 31 March 2021

All results relate to continuing operations.

Consolidated Balance Sheet

As at 31 March 2021

Consolidated Statement of Changes in Equity

For the year ended 31 March 2021

Consolidated Statement of Cash Flows

For the year ended 31 March 2021

Notes to the Preliminary Results

Year ended 31 March 2021

Going concern

New standards, interpretations and amendments effective from 1 January 2020

The following new standards and amendments have been adopted by the Group for the first time in the annual financial statements for the year ended 31 March 2021:

§ Definition of material (amendments to IAS 1 and IAS 8);

§ Definition of a business (amendments to IFRS 3);

§ Interest rate benchmark reform (amendments to IFRS 9, IAS 39 and IFRS 7);

§ COVID-19 related rent concessions (amendments to IFRS 16); and

§ Revised conceptual framework for financial reporting.

i. The change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change;

ii. The reduction in lease payments affects only payments originally due on or before 30 June 2021; and

iii. There is no substantive change to other terms and conditions of the lease.

New standards, interpretations and amendments not yet effective

§ References to the Conceptual Framework (amendments to IFRS 3);

§ Proceeds before intended use (amendments to IAS 16);

§ Onerous contracts - cost of fulfilling a contract (amendments to IAS 37);

§ Annual improvements to IFRS standards 2018-2020 cycle (amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41); and

§ Classification of liabilities as current or non-current (amendments to IAS 1)

The above amendments are not expected to have a significant impact on the period of initial application or in subsequent reporting periods.

3. Segmental analysis

§ Bricks and Building Materials, which incorporates the sale of superior quality building materials to all sectors of the construction industry including national house builders, developers, contractors, general builders and retail to members of the public;

§ Roofing Services, which incorporates the supply of roofing construction services, primarily within the residential construction sector; and

§ Heating, Plumbing and Joinery, which incorporates the sale of high-performance joinery materials and the distribution of radiators and associated parts and accessories.

4. Profit before tax

Profit before tax is stated after charging/ (crediting):

During the year, the Group received government grants in response to the global COVID-19 pandemic. The Group has elected to deduct the grant income from the associated expenses. The grant income is included within administrative expenses, with £30,000 relating to business rates support, while the remainder relates to support in respect of payroll costs of the Group's employees. The Group does not have any unfulfilled obligations or other contingencies relating to the support schemes.

In order to assist with the understanding of the Group's performance, items that management consider to not be directly attributable to the Group's underlying trade are presented separately, on the face of the Consolidated Statement of Profit or Loss and Other Comprehensive Income. This presentation has been adopted for the first time in the current year and thus the prior year figures have been re-presented on a comparable basis. No changes have been made to the individual line item totals reported in the prior year.

Other items represent those costs that are considered non-operational in nature and are as follows:

The exceptional income in the prior year relates to a recovery under keyman insurance policies, following a medical diagnosis, in connection with a member of key management.