Brickability Group Regulatory News (BRCK)

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED TO CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATION (EU NO. 596/2014) WHICH IS PART OF UK LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018. UPON THE PUBLICATION OF THIS ANNOUNCEMENT, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

28 November 2023

Brickability Group PLC

("Brickability" or "the Group")

Interim Results for the six months ended 30 September 2023

Brickability Group PLC (AIM: BRCK), the leading construction materials distributor, today announces its unaudited interim results for the six months ended 30 September 2023 ("H1 FY24").

H1 FY24 Financial Highlights

Operational Highlights

Post Period and Outlook

John Richards, Chairman, commented:

"It is pleasing to report H1 FY24 performance, and maintained profitability, in line with Board expectations despite challenging trading conditions. Whilst we have previously communicated that the second half of the year is anticipated to see industry wide volume reductions, which the Group is not immune, the Board continues to believe that Brickability's diversified, multi-business, approach positions the Group to continue to perform well in the current market backdrop and in the future.

"The acquisition of Topek is the Group's second largest(7) to date and, with the acquisition of Taylor Maxwell having delivered a significant increase in exposure for the Group to public and commercial end markets, the addition of Topek further increases our presence in these markets.

"Market conditions will continue to be uncertain in the near term but, having built a robust and increasingly diverse business and with a disciplined approach to costs, we remain confident in the Group's ability to continue to deliver on its strategy. The Board is pleased to recommend an interim dividend of 1.07p per share, reflecting the performance of the business in the half year and the Board's confidence in the longer-term outlook for the Group."

This announcement contains inside information.

About Brickability 

Brickability is a leading construction materials distributor, serving customers across the UK and Europe for over 37 years through its national and local networks. The Group operates from more than 70 locations across the country with over 700 employees.

Brickability Group PLC

Interim Report for the six months ended 30 September 2023

Chairman's Statement

Overview

I am pleased to report a resilient set of results for the six months to 30 September 2023 with the Group delivering a good financial performance trading in line with expectations, achieving an adjusted EBITDA of £25.6 million (H1 FY23: £25.5 million).

As has been well documented, the private housebuilding sector has encountered a number of headwinds. Against this macro backdrop, it is pleasing to see the Group's strategic focus on diversification yielding substantial benefits, with public housebuilding and contracting proving to be robust in comparison. Our Taylor Maxwell bricks and cladding businesses, which form integral parts of the Group's diversified portfolio, have demonstrated resilience and are notably less exposed to private housebuilding. Our Distribution and Contracting businesses have also performed well.

Despite the short-term headwinds, the mid- to long-term fundamentals of the private housebuilding sector are robust. Population growth provides a solid foundation for sustained demand, while changing demographics and societal trends continue to drive an increase in household formation. The historical and persistent gap between demand and supply in the housing market indicates significant potential for growth and expansion. We also continue to operate within a supportive political environment. Finally, the strength and financial stability of major housebuilders provide confidence in the sector's ability to weather short-term challenges and capitalise on long-term opportunities.

A pivotal aspect of our strategy is robust cost control, including in relation to recruitment, aligning our workforce with the evolving market conditions. We are also steadfast in our commitment to developing and nurturing talent within the organisation. Despite cost control measures, we are pressing forward with our management development programmes and business apprenticeship scheme. These initiatives empower us to cultivate a robust management talent pool, ensuring our ability to thrive in the future.

Against the current macro backdrop, Brickability's diversified, multi-business approach and long-term mindset continues to enable the Group to perform well and position the Group in good stead for the future.

Acquisitions

We continue to look for opportunities to grow the business organically and to capitalise on the synergies created within the Group. The acquisition pipeline continues to be exciting, and targeted growth against our robust acquisition criteria will continue.

In June 2023, we completed the acquisition of Precision Facades Systems Limited for an initial consideration of £0.6 million with its patented framing system for cladding. Post period, we announced the strategic acquisition of Topek in October 2023. Topek offers a range of services which will complement the Group's existing cladding portfolio, including Taylor Maxwell Cladding, SBS Cladding and Architectural Facades, meaning that the Group now has a full range of cladding capabilities including design, fabrication, supply and installation. The acquisition of Topek will also significantly increase the Group's presence in the cladding remediation market and further enhances our diversification.

Board and Environmental, Social and Governance

As the Group continues to expand in scale and customer base, we are acutely aware of the role and responsibility we have in tackling environmental, social and governance priorities. We remain committed to developing our ESG strategy and ensuring continued progress is made in that regard.

In May 2023 we announced that Alan Simpson, Chief Executive Officer ("CEO") and founder of many of the Group's businesses, will be stepping down from the role of CEO and as a Director of the Company. Alan has been instrumental in building the Brickability Group into the successful business it is today, overseeing the Group's IPO in 2019 and multiple transformative acquisitions since. Alan remains a major shareholder of the Group and will continue to work with the Group in a non-board role post his stepping down. On behalf of the Board, I thank Alan for his invaluable years of service and congratulate him for his immense achievements.

The Board is pleased that Alan will be succeeded as CEO by Frank Hanna, who will take up the role in April 2024. Frank is a prominent figure in the UK brick industry and, with the wealth of experience he brings, will help lead the Group through its next stages of growth.

Interim Dividend

The Board is pleased to recommend an interim dividend of 1.07p per share (H1 FY23: 1.01p), payable on 22 February 2024, reflecting the performance of the business in the half year and the Board's confidence in the longer-term outlook for the Group. The ex-dividend date is 25 January 2024 with an associated record date of 26 January 2024.

John Richards

Chairman

28 November 2023

Chief Executive's Review

The Group has performed in line with the board's expectations during the first half of the year, against an uncertain economic environment. Whilst revenue fell compared to last year, gross profit remained comparable with the prior period reflecting improved margins across all the divisions.

Group adjusted EBITDA margin has grown by 0.7% compared to the prior period, driven by price inflation and business mix.

We continue to develop our IT systems to enhance the quality and pace of our management information, along with making progress in upgrading our corporate website.

Bricks and Building Materials Division

The Group's largest division, representing c70% of total sales, saw revenues fall 15.2%, 15.2% on a LFL basis, during the period. Following a period of significant growth in the division, the fall is a reflection of the weaker economic conditions affecting the housing market, especially the newbuild sector. Adjusted EBITDA margins however have been maintained, supported by price increases as well as reflecting the mix of the companies in the division.

Brick volumes have declined in line with the market movement for UK despatches whilst manufacturer price increases flowing from H2 FY23 have helped to soften the impact on revenue. Whilst Timber volumes are substantially flat over the period, market pricing has been in decline following the significant increases experienced recent years. The performance in our public and commercial sectors together with the growth of our higher-margin cladding supply businesses has been strong and has helped to mitigate some of the impact of the headwinds in the private housing sector.

Importing Division

The Importing Division's revenue decreased by 1.6% in the first half of the year. Adjusting for the impact of the acquisitions of Modular Clay Products, which was acquired on 31 May 2022, along with E.T. Clay and Heritage Clay Tiles, which were acquired on 30 September 2022, revenue fell 34.1%, on a LFL basis. The fall in revenue reflects the weaker economic environment with lower demand for bricks in the UK market and an increased availability of domestic bricks.

During the period of high market demand last year, our flexible supply chain meant we were able to source bricks for our customers when the domestic market experienced shortages. The current financial year sees a reduction in this activity as the availability of bricks manufactured in the UK has improved, however, there still remains a demand for imported brick types not available from UK sources. It is our expectation that when market conditions and brick demand normalise, the demand for imported bricks will increase again due to the capacity constraints of domestic manufacture.

Distribution Division

Revenue in the first half grew by 7.0% in the Distribution Division, 7.0% on a LFL basis, with growth in all businesses in the division. Towelrads continues to grow, driven by customer and product diversification. FSN Doors and Forum Tiles saw strong revenue growth as a result of some recent high-value orders. HBS NE Ltd (Upowa) continues to grow, and we expect the growth rate to accelerate throughout the second half of the year, despite the headwinds in the private housing sector, following the introduction of Part L legislation.

Contracting Division

Revenue in the first half grew by 17.8%, 17.8% on a LFL basis, driven by the continued recovery of material price inflation and the resilience of housebuilding in the mid to higher end of the market in the Sout East. The recovery of the significant material price increases experienced in FY23 has also seen margins improve during the period.

Continental Tile Joint Venture

Production trials for new clay tiles from our joint venture in Germany have progressed to an advanced stage in the period, with an expected launch in Q1 FY25. Whilst market demand remains suppressed, we have invested in new sales infrastructure in the UK to maximise the success of this opportunity.

Summary

In a challenging market, Brickability has demonstrated its resilience and its ability to deliver upon its strategic objectives and remains committed to growing the business in a sustainable manner.

We continue to prepare for Frank Hanna's arrival, and I look forward to handing over the CEO role to Frank and working with him, in a non-board role, to further grow and develop the Group.

Alan J Simpson

Chief Executive

28 November 2023

Financial Review

Revenue and Gross Profit

The Group delivered revenue of £324.8 million in the first six months of H1 FY24 (H1 FY23: £352.7 million), a decrease of 7.9% (£27.9 million) compared to the prior period. When the impact of acquisitions is adjusted, like for like revenue decreased by 14.4% when compared to H1 FY23.

The decrease in LFL revenue largely reflects the general challenges being faced in the construction industry, with the weaker economic environment affecting product demand in the housebuilding sector. The Distribution division is also continuing to grow through the diversification of customers and products. The Contracting division has seen an increase in revenue compared to H1 FY23, with growth primarily from major housebuilders and developers operating in the mid to higher end of the market.

Revenue by division was:

Gross profit for the 6 months increased by 0.2% to £55.0 million (H1 FY23: £54.9 million) whilst the Group's gross margin percentage increased to 16.9% (H1 FY23: 15.6%), reflecting the change in product mix across the group.

Adjusted Profit and Adjusted EBITDA

Statutory profit before tax of £16.0 million (H1 FY23: £14.7 million(3)) includes a net charge of £5.8 million (H1 FY23: £7.6 million), in respect of 'other items' which are largely acquisition related and not considered reflective of the Group's underlying trading operations. These are analysed below the Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income.

The Group's Adjusted EBITDA at £25.6 million for the first six months of FY24 was comparable with the same period last year. Adjusted EBITDA as a percentage of revenue has increased to 7.9% (H1 FY23: 7.2%, FY 2023: 7.6%) due mainly to the change in sales mix across the group as noted above.

Adjusted EBITDA by division was:

Statutory Profit before tax

Statutory Profit before tax for the period was £16.0 million (H1 FY23: £14.7 million). Comparative results to 30 September 2022 have been restated, following the completion of the fair value assessment relating to acquisitions acquired shortly before the prior year interim financial statements were published. The restatement relates to the consideration and net assets acquired.

The decrease of £0.6 million in the H1 FY23 statutory profit before tax, compared to the £15.3 million originally reported, primarily relates to a charge of £0.5 million in connection with earn-out consideration payable for the acquisition of Modular Clay Products. Contingent consideration of £2.4 million was initially recognised within goodwill and deferred consideration payable. However, after review and based on interpretation guidance under IFRS 3, the earn-out consideration payable treatment has been amended and is now recognised as remuneration costs as an expense in profit or loss over the earn-out performance period.

Further details of the prior period restatement are included in note 8 to the interim financial statements.

Earnings per share

Basic EPS was 3.78 pence per share (H1 FY23: 3.74 pence restated), while adjusted basic EPS was 5.30 pence per share (H1 FY23: 6.00 pence restated). Adjusted EPS is an underlying EPS, based on the adjusted profit as noted above.

Dividend

The Board is recommending an interim dividend of 1.07p per share (H1 FY23: 1.01p) to shareholders on the register at 26 January 2024. The ex-dividend date and payment date for the dividend will be 25 January 2024 and 22 February 2024 respectively.

Cash flow and net debt

The Group generated operating cash flows before movements in working capital of £22.6 million in the first six months of the year compared to £23.2 million in the same period in FY23. Cash generated from operations was £3.4 million (H1 FY23: £6.3 million).

The net working capital outflow of £19.3 million is comprised of a £3.5 million outflow in respect of inventories, trade receivables and trade payables and £15.8 million of accrual movements and payments, primarily in respect of supplier rebates, employee bonuses and contingent earn-outs, which are timing related and mostly expected to unwind by the financial year end.

The net debt position (cash less bank borrowings) at 30 September 2023 was £30.9 million compared to £27.4 million at 30 September 2022, and is an increase of £22.9 million since the net debt position at 31 March 2023.

The increase in net debt during the period includes an outflow of working capital requirements of £19.3 million (H1 FY23: £16.9 million) in line with the expected working capital cycle of the Group. Much of this is expected to unwind during the second half of the year. Other notable cash outflows were; the further investment in property plant and equipment and intangible assets of £4.5 million (H1 FY23: £5.8 million), tax paid of £5.0 million (H1 FY23: £5.0 million), dividends paid of £6.5 million (H1 FY23: £6.1 million), the initial payment for the acquisition of Precision Facades Systems of £0.6 million (H1 FY23: £15.4 million) and payment of deferred consideration, in relation to previous acquisitions, of £4.7 million (H1 FY23: £2.0 million).

Bank facilities

At the reporting date, the group had a total bank debt of £30.9 million, with a further £29.1 million of undrawn committed facilities available. In October 2023 and following the acquisition of Topek, the Group entered into a new revolving credit facility with an initial limit of £100 million, on a club basis with HSBC and Barclays. The £100m limit reduces to £80m over the term of the loan which is 3 years (with the option of two one-year extensions).

Defined benefit pension scheme

In June 2021, the Group acquired a defined benefit pension scheme as part of the net assets of Taylor Maxwell (2017) Limited. Shortly afterwards, it entered into a buy-out process to transfer the risk associated with the scheme to an insurer. This process was completed during the period and the pension scheme is expected to be wound up by the end of the financial year.

Subsequent events

In October 2023, the Group acquired the entire share capital and 100% of the voting rights in Group Topek Holdings Limited for consideration initially expected to be up to £52.8 million, with up to £17.7 million of this payable over the three years following acquisition depending on performance. The £52.8 million is higher than the £45 million disclosed in the RNS as it includes working capital adjustments to acquire the business on a cash-free, debt-free basis. Further details are outlined in note 13. At the same time, the Group refinanced its banking facilities as noted above.

There are no other material post-balance sheet events.

Mike Gant

Chief Financial Officer

28 November 2023

Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income

Adjusted profit

Adjusted profit excludes those items that are not considered to be directly attributable to the Group's underlying trading operations or for which separate disclosure would assist in understanding the Group's performance in the period. It can be reconciled to statutory profit after tax as follows:

Adjusted EBITDA reflects earnings before interest, tax, depreciation, amortisation and other non-underlying items. A reconciliation between adjusted EBITDA and statutory profit before tax is included in note 5.

Condensed Consolidated Balance Sheet

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 September 2023 (unaudited)

Condensed Consolidated Statement of Cash Flows

For the six months ended 30 September 2023 (unaudited)

Notes to the Condensed Consolidated Interim Financial Statements

For the six months ended 30 September 2023 (unaudited)