News Column

UPDATE: Michelmersh Brick Heralds Better Margins As Prices Rebound

July 21, 2014

Hana Stewart-Smith

LONDON (Alliance News) - Michelmersh Brick Holdings PLC said Monday it will exceed current market expectations for pretax profit in 2014 if maintains its current performance, after it swung to profit in the half year to end-June on improved price and profit margins.

The brick, land development and landfill company posted a pretax profit of GBP1.3 million, swinging from a loss of GBP340,000, as revenue rose to GBP13.6 million from GBP12.6 million. In the previous year the company also posted restructuring costs of GBP262,000, which didn't reoccur.

Gross profit margin rose to 33% from 25%.

"Its all about margin improvements, and we've matched the industry prices," Chief Executive Martin Warner said in a telephone interview. "We are starting to see margin come through into the business, and we think those dynamics will continue later this year and into next year."

Michelmersh manufactured 33.7 million bricks during the half year, up from 33.4 million, and despatched 34.0 million bricks, down from 35.2 million. Average selling prices were up 13%, it said.

The company said that the brick industry was benefiting from recovering demand in UK construction and is seeing the first signs of increasing prices for bricks since 2008.

"We should be producing 20% more bricks next year with our Freshfield site in operation. Historically we've always been in a position where there are more bricks than demand. That dynamic is really starting to move the other way which could benefit us as time moves forward," Warner said.

Michelmersh said that the national construction output landscape has improved. In the first half of the year, focus was on London and the South East, and the company said that whilst this remained an important long-term market, it has seen a spread of new work and sector improvements at a national level. It has continued to get new orders in Scotland and is continuing to grow its market position there.

"There are more houses being built across the country, I guess since last May when Help to Buy started kicking in," Warner said. "There isn't house inflation from what I can see outside of the South East, but there is a lot of housebuilding and a lot of houses being bought. People having the confidence to buy is really helping us. From the demand side there is a better spread across the country."

Warner added: "We are going to make some more bricks, but for us it's not about making more its about margin. So getting a profitable return on the business that we do have. Our focus is keeping our margin at some sort of sensible level going forward."

Michelmersh's landfill strategy has developed through 2014, it said, as income from the segment started the year strongly but overall fell marginally behind the first half of 2013. It said volumes declined after rates were increased to almost double what it achieve in the segment in the first half of 2013. As a result, contribution from the division of GBP109,000 was 22% greater than that in the first half of 2013.

The company said it has opted not to pay an interim dividend. However, Warner said the company will target a payment next year that its cash reserves are not used for profit-generating investments instead.

The company said that its project to increase capacity at its Freshfield lane site by 20% is well underway, and the installation programme is half complete. Increased production will come on stream in late 2014, it said, which will deliver additional capacity of six million units for sale in 2015.

Michelmersh completed the restructuring of its Telford site, and the plant is now operating from a more compact facility, it said. It is continuing to evaluate the site in light of improved brick market conditions, and said there was a "number of options" open to it.

The company said it has received consent for a low-level restoration scheme at its Charnwood Quarry site, and has now started a consultation process to bring forward a scheme for around 200 houses.

Earlier this year, Michelmersh said it planned to target rival companies for acquisition to expand its business. Warner said talks are not currently ongoing but the company continues to monitor players in the market.

"The tectonic plates of the building materials world are beginning to move. Larfage, Holcim, there is a lot of movement and activity. HeidelbergCement have publicly said they are trying to sell off Hanson Building Products, so they are preparing for that, and we are keeping an eye on it," he said. "CRH [PLC] are still looking at their portfolio. We've got no news on that, but I think they are still looking. Nothing is closed off lets put it like that."

Looking ahead, the company said it is well positioned to "prosper from improved industry dynamics, particularly as our additional production comes on stream and we progress our various asset opportunities."

Shares in Michelmersh were trading up 0.8% at 73.35 pence Monday morning.

additional reporting by Anthony Tshibangu;

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Source: Alliance News

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