Last checked at 29 Sep 2008 07:00
29 September 2008
Michelmersh Brick Holdings plc
("Michelmersh", the "Company", or the "Group")
Interim results for the six months to 30 June 2008
Michelmersh Brick Holdings plc (AIM:MBH), the specialist land development, landfill, and brick company, today announces interim results for the six months to 30 June 2008.
Highlights of the results are as follows:
Group turnover increased 5.9% to £12.5 million (2007: £11.8 million)
Sales volume increased 1.6% year on year despite prevailing conditions in the construction industry
Operating profit fell to £59,000 for the period (2007: £739,000), as a direct result of increased energy costs
Loss before tax of £483,000 (2007: profit of £93,000)
Net assets increased to £44.1 million (2007: £38.7 million)
Review of production and distribution at all facilities underway to ensure production volumes match market conditions
Expect to see resilience from repair and maintenance market
Commenting on the results, Eric Gadsden, Chairman of Michelmersh, said: "The market place continues to change dramatically but there is an underlying demand for housing and consequently bricks. In the future there will be a change in the customer base and the distribution of the product will become more important. We are well placed to respond to these changes and the directors are therefore undertaking a comprehensive review of distribution arrangements and strategy along with a focus on high value products.
"The Board is also evaluating various opportunities to exploit Michelmersh's position in the UK brick manufacturing industry and thereby achieve full value from its landfill operations and property assets. The Board is considering the appropriate corporate structure for the Group, to allow it to be in a position to take advantage of opportunities that may arise as a result of these conditions."
| For further information: | |
| Martin Warner, Chief Executive, Michelmersh Brick Holdings, plc: | 01442 870 227 |
| Jeremy Carey/Paul Youens/Gemma Bradley, Tavistock Communications: | 020 7920 3150 |
| Russell Cook, Charles Stanley Securities, Nominated Adviser: | 020 7149 6000 |
Chairman's Statement
I report the Group's results for the six months ending 30 June 2008. Whilst these are satisfactory and we saw turnover increase by some 5.9% over the period, the economic climate is increasingly uncertain. The Board is keen to negate the impact of a declining economy and as such are reviewing the strategy across the Group, including output levels at all our plants.
Since the half-year, sales have continued to be satisfactory but the housing market is experiencing considerable difficulty, leading the Board to develop robust plans to manage cash reserves through the uncertain winter period. It must be considered that the withdrawal of credit insurance across the industry heightens trading uncertainty.
Progress on obtaining detailed planning consent on the initial 16 acres of land at Telford has been slower than anticipated but is now progressing to a conclusion broadly in line with our expectations. We believe consent will be obtained to coincide with the time that the land is ready for development and remain confident of a satisfactory result.
Financial Results
Group turnover increased by 5.9% to £12.5 million (2007: £11.8 million), and sales volumes increased by 1.6% year on year, yielding an operating profit of £59,000 (2007: £739,000). The reduction in operating profit is a direct result of the increased fuel prices throughout the period.
Administrative expenses reduced during the period to £2.6 million (2007: £2.8 million) as did interest costs: £542,000 (2007: £646,000).
The reduced operating profit has led to the Group reporting a loss before tax of £483,000 (2007: Profit of £93,000).
Operating profit before changes in working capital totalled £0.9 million (2007: £1.5million).
The Group's net assets increased to £44.1 million as at 30 June 2008.
The higher inventory levels of £9.6 million (2007: £8.4 million) reflect a continuous period of production and stock piles of clay extracted during 2007, which can be stored indefinitely, as we prepared the land at Telford for restoration.
In line with our established dividend policy, the Board is not recommending an interim dividend. Additionally the Directors believe that, in view of the uncertainty referred to above, it will be prudent to keep our dividend policy under review.
Operational Review
During the period the Company increased sales to 40 million units (2007: 39 million units) and production stayed constant at 41 million units. These are record figures for the six months and illustrate the underlying strength of the business.
We continue to progress sales and marketing for our Hydrosmart permeable paving system and in view of the new planning regulations, which require planning permission for non permeable surfaces including domestic installations, we are optimistic of continued success.
The brick making operations have a key market position and reputation for excellence within the UK and, in view of the substantial investment made over the last few years, the Board anticipates that there will be no need for further significant capital expenditure in the foreseeable future.
Landfill performed well with turnover increasing to £407,000 (2007: £373,000) on a tonnage reduced from 129,000 to 70,000 at a substantially increased rate per tonne. We are also progressing landfill plans for our sites at Charnwood and Dunton.
We have now implemented a review of planned future production at each of our facilities and we are currently in consultation with staff regarding reduced production levels to match anticipated market conditions.
The measures being reviewed include:
focusing production across all our sites on higher value products
reducing inefficient production at Duntons by producing only on our new gas kiln
reducing production at Blockleys by taking out one shift
focusing production at Michelmersh on higher value products
reviewing all administrative and sales costs
Regretfully we believe a level of redundancy is unavoidable for the business to remain competitive in the current climate. As such, we predict that savings of some £3.3 million will be achieved in the 2009 financial year.
Outlook
The market place continues to change dramatically but there is an underlying demand for housing and consequently bricks. A greater percentage of future development is likely to be more traditional housing - for which brick remains by far the most popular cladding material - rather than apartments.
Across the industry, we are now seeing substantial plant closures both permanent and temporary from the major manufacturers.
It is unclear what will trigger a recovery and subsequent increase in house building. We believe that the markets we are focused on, in particular; repair, maintenance and improvement, will be more resilient than other areas.
In the future there will be a dramatic change in the customer base and the distribution of the product will become more important. We are well placed to respond to these changes and the directors are therefore undertaking a comprehensive review of distribution arrangements and strategy along with a focus on high value products. The economics of the business, in light of current energy costs, have changed even since the period end and this will be taken account of in this review.
The Board is also evaluating various opportunities to exploit Michelmersh's position in the UK brick manufacturing industry and thereby achieve full value from its landfill operations and property assets. The Board is considering the appropriate corporate structure for the Group given the prevailing market conditions, and the requirement for the Board to be in a position to take advantage of opportunities that may arise as a result of these conditions.
As noted above, the immediate priority is to preserve the cash and assets of the Group and ensure that we match production to sales. This will enable us to continue to increase prices as necessary to recover the increased costs that we are facing. Our Bank remains supportive and due to the circumstances of the current climate, we are in the process of renegotiating our bank covenants.
The prospects for the brick business are dependent on passing on these higher costs and we are implementing a price increase on all products as of 1 October 2008. The Company will if necessary seek to introduce another price increase next spring.
CONSOLIDATED INCOME STATEMENT
| 6 months to | 6 months to | 12 months to | |
| 30 June 2008 | 30 June 2007 | 31 December 2007 | |
| £'000 | £'000 | £'000 | |
| Restated | |||
| Unaudited | Unaudited | Audited | |
| Revenue | 12,535 | 11,839 | 24,008 |
| Cost of sales | (9,910) | (8,341) | (18,401) |
| Gross profit | 2,625 | 3,498 | 5,607 |
| Administrative expenses | (2,620) | (2,788) | (6,180) |
| Other income | 54 | 29 | 77 |
| Profit on disposal of investments | - | - | 2,557 |
| Operating profit | 59 | 739 | 2,061 |
| Financial income | - | - | - |
| Financial expense | (542) | (646) | (1,807) |
| Profit/(loss) before taxation | (483) | 93 | 254 |
| Taxation | - | - | (425) |
| Profit/(loss) for the financial period | (483) | 93 | (171) |
| Earnings per share (note 5) | |||
| Earnings per share | (1.2)p | 0.2p | (0.4)p |
| Diluted earnings per share | (1.2)p | 0.2p | (0.4)p |
CONSOLIDATED BALANCE SHEET
| As at | As at | As at | |
| 30 June 2008 | 30 June 2007 | 31 December 2007 | |
| £'000 | £'000 | £'000 | |
| Restated | |||
| Unaudited | Unaudited | Audited | |
| Assets | |||
| Non-current assets | |||
| Intangible assets | 98 | 71 | 100 |
| Property, plant and equipment | 62,066 | 54,642 | 62,660 |
| Total non-current assets | 62,164 | 54,713 | 62,760 |
| Current assets | |||
| Inventories | 9,572 | 8,386 | 9,398 |
| Trade and other receivables | 4,900 | 5,281 | 4,245 |
| Available for sale financial assets | - | 23,583 | - |
| Cash and cash equivalents | 511 | 389 | 328 |
| Total current assets | 14,983 | 37,639 | 13,971 |
| Total assets | 77,147 | 92,352 | 76,731 |
| Liabilities | |||
| Current liabilities | |||
| Trade and other payables | 4,071 | 19,916 | 4,872 |
| Interest bearing borrowings | 8,313 | 9,245 | 6,457 |
| 12,384 | 29,161 | 11,329 | |
| Non-current liabilities | |||
| Deferred tax liabilities | 11,544 | 10,029 | 11,544 |
| Interest bearing borrowings | 9,100 | 14,461 | 9,286 |
| 20,644 | 24,490 | 20,830 | |
| Total liabilities | 33,028 | 53,651 | 32,159 |
| Net assets | 44,119 | 38,701 | 44,572 |
| Equity attributable to equity holders | |||
| Share capital | 8,083 | 7,604 | 8,073 |
| Share premium account | 5,691 | 3,432 | 5,671 |
| Reserves | 26,047 | 22,408 | 26,103 |
| Retained earnings | 4,298 | 5,257 | 4,725 |
| Total equity | 44,119 | 38,701 | 44,572 |
CONSOLIDATED CASH FLOW STATEMENT
| 6 months to | 6 months to | 12 months to | |
| 30 June 2008 | 30 June 2007 | 31 December 2007 | |
| £'000 | £'000 | £'000 | |
| Restated | |||
| Unaudited | Unaudited | Audited | |
| Cash flows from operating activities | |||
| (Loss)/Profit before taxation | (483) | 93 | 254 |
| Share based payment | - | 30 | 59 |
| Finance costs | 542 | 646 | 1,807 |
| Depreciation | 837 | 690 | 1,491 |
| Amortisation | 2 | - | 2 |
| Profit on sale of investment shares | - | - | (2,557) |
| Profit on sale of property plant & equipment | - | - | (8) |
| Operating profit before changes in | |||
| working capital | 898 | 1,459 | 1,048 |
| Increase in inventories | (174) | (215) | (205) |
| Increase in receivables | (655) | (1,678) | (642) |
| Increase in payables | 417 | 17,287 | 1,017 |
| Net cash generated by operations | 486 | 16,853 | 1,218 |
| Interest paid | (542) | (646) | (1,200) |
| Net cash (used in) generated from operating activities | (56) | 16,207 | 18 |
| Cash flows from investing activities | |||
| Purchase of intangible assets | - | (2) | (33) |
| Purchase of property, plant and equipment | (1,471) | (1,232) | (1,381) |
| Proceeds on disposal of property, plant and equipment | 10 | - | 34 |
| Purchase of investment shares | - | (20,536) | (20,546) |
| Proceeds on disposal of investment shares | - | - | 25,581 |
| Interest paid on borrowings for investments | - | - | (599) |
| Net cash used in investing activities | (1,461) | (21,770) | 3,056 |
| Cash flows from financing activities | |||
| Issue of share capital | 30 | 47 | 230 |
| Issue of loans | - | - | 20,247 |
| Repayment of loans | (279) | - | (21,265) |
| Repayment of finance lease obligations | (26) | - | (29) |
| Dividends paid to shareholders | - | - | (442) |
| Net cash generated from financing activities | (275) | 47 | (1,259) |
| Net increase/(decrease) in cash and cash equivalents | (1,792) | (5,516) | 1,815 |
| Cash and cash equivalents at beginning of period | (492) | (2,307) | (2,307) |
| Cash and cash equivalents at end of period | (2,284) | (7,823) | (492) |
GROUP STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS TO 30 JUNE 2008
| Share | Share | Share | Revaluation | Retained | Total | |
| Capital | Option | Premium | Reserve | Earnings | Equity | |
| Reserve | Account | |||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 1 January 2007 | 7,604 | 136 | 3,432 | 20,104 | 5,108 | 36,384 |
| Profit for the period | - | - | - | - | 93 | 93 |
| Transfer to retained earnings | - | - | - | (56) | 56 | - |
| Share based payment | - | 30 | - | - | - | 30 |
| Revaluation of available for | ||||||
| sale assets | - | - | - | 2,194 | - | 2,194 |
| As at 30 June 2007 | 7,604 | 166 | 3,432 | 22,42 | 5,257 | 38,701 |
| Loss for the period | - | - | - | - | (264) | (264) |
| Equity dividends paid | - | - | - | - | (442) | (442) |
| Revaluation in the period | - | - | - | 7,977 | - | 7,977 |
| Deferred tax on revaluation | - | - | - | (1,943) | - | (1,943) |
| Transfer to retained earnings | - | - | - | (174) | 174 | - |
| Realisation on disposal of | ||||||
| available for sale assets | - | - | - | (2,194) | - | (2,194) |
| Share based payment | - | 29 | - | - | - | 29 |
| Shares issued in the period | 469 | - | 2,239 | - | - | 2,708 |
| As at 31 December 2007 | 8,073 | 195 | 5,671 | 25,908 | 4,725 | 44,572 |
| Loss for the period | - | - | - | - | (483) | (483) |
| Transfer to retained earnings | - | - | - | (56) | 56 | - |
| Shares issued in the period | 10 | - | 20 | - | - | 30 |
| As at 30 June 2008 | 8,083 | 195 | 5,691 | 25,852 | 4,298 | 44,119 |
NOTES TO THE GROUP INTERIM REPORT
1. GENERAL INFORMATION
Michelmersh is a public limited company incorporated in the United Kingdom under the Companies Act 1985 (registration number 3462378). The Company is domiciled in the United Kingdom and its registered address is 121 High Street, Berkhamsted, Hertfordshire, HP4 2PJ. The Company's Ordinary Shares are traded on the AIM Market of the London Stock Exchange. Copies of the Interim Report and Annual Report and Accounts may be obtained from the address above, or at www.michelmersh.co.uk
2. BASIS OF PREPARATION
These interim financial statements have been prepared in accordance with IAS 34 ("Interim Financial Reporting").
The interim financial statements do not constitute statutory accounts as defined by Section 240 of the Companies Act 1985.
The financial information for the year ended 31 December 2007 has been extracted from the statutory accounts for the Group for that period. These published accounts were reported on by the auditors without qualification or an emphasis of matter reference and did not include a statement under Section 237(2) or (3) of the Companies Act 1985 and have been delivered to the Registrar of Companies.
The financial statements are presented in sterling and all values are rounded to the nearest thousand pounds (£000) except when otherwise indicated.
Restatement of comparative interim results
Adjustments have been reflected in the interim results for the six months ended 30 June 2007 in respect of prior period adjustments recorded in the statutory group accounts presented at 31 December 2007. These adjustments relate to depreciation of landfill void and share option charges under IFRS 2, and have resulted in a net reduction in profit for the period to 30 June 2007 of £86,000, and a net reduction in shareholders funds at this date of £221,000
3. ACCOUNTING POLICIES
The principal accounting policies used in preparing the interim results are those the company expects to apply in its financial statements for the year ended 31 December 2008 and are unchanged from those disclosed in the Annual Report for the year ended 31 December 2007.
4. DIVIDENDS PAID AND PROPOSED
| Unaudited | Unaudited | Audited | |
| Six months to 30 Jun 2008 £'000 | Six months to 30 Jun 2007 £'000 | Year Ended 31 Dec 2007 £'000 | |
| Declared and paid during the period | |||
| Final dividend for the year ended 31 December 2007 at 1.1p per share | - | - | (442) |
5. EARNINGS PER SHARE
The calculation of earnings per share is based on a loss of £483,000 (2007: profit of £93,000) and 40,409,703 (2007: 38,017,865) 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 six months ended 30 June 2008. The figures for the six months ended 30 June 2007 take into account the weighted average unexercised options in existence during the period. These amounted to 602,611 options under the Michelmersh Brick Holdings Plc Group share option scheme and 726,671 options under the Michelmersh Brick Holdings Plc SAYE scheme.