Brickability Group plc - Interim Results

01 December 2021

Brickability Group plc

("the Group")

Interim Results for the six months ended 30 September 2021

Brickability Group plc (AIM: BRCK), the leading construction materials distributor, today announces its unaudited interim results for the six months ended 30 September 2021.

Financial Highlights:

Operational Highlights:

Post period end and outlook:

*Adjusted EBITDA is defined as earnings before interest, tax, depreciation and amortisation, share option expense, acquisition costs and exceptional items.

**like-for-like sales is a measure of growth in sales, adjusted for the impact of acquisitions

John Richards, Chairman, said:

"We are pleased to have delivered another strong performance across all our divisions during the period.

"As the housebuilding and construction market has continued to improve, all our divisions have benefitted from the increased demand which has resulted in a strong order book.

"Our strategy of bolt on acquisitions has enabled us to significantly expand our product offering, through the acquisition of Taylor Maxwell and Leadcraft, as well as, seeing the Group enter the renewable energy product space with the acquisition of HBS New Energies and UPOWA, a strategically significant sector for the Group moving forward, post period.

"We believe Brickability is well positioned for the future, and that the scale and diversity of the business, will enable the Group to capitalise on opportunities in the market and further strengthen our positioning."

ENDS

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About Brickability 

Brickability is a leading construction materials distributor, serving customers across the UK and Europe for over 36 years through its national and local networks. The Group supplies over 500m bricks annually and has 41 locations across the country with over 500 employees.

Across its 3 divisions the Group supplies bricks, roofing, timber, cladding, heating, flooring, doors and windows to meet demand from both housebuilders and contractors.

Interim Report for the six months ended 30 September 2021

Chairman's Statement

Brickability has made a strong start to 2021, delivering a robust financial performance, with an adjusted EBITDA of £17.6m in the first half of the year (2020: £8.0m).

Our businesses have performed well, in line with the recovery in the construction and housebuilding sector, and we have seen strong order intake momentum across all divisions, which has continued as we move into the second half of the year.

The fundamentals of the UK housebuilding market remain strong and the industry is forecast to continue to grow substantially as we move into 2022, driven by increased demand in the private sector and Government investment into affordable housing starting to come through. We firmly believe that Brickability remains well placed to capitalise on this demand, strengthening its position within the market as a leading construction materials distributor.

The acquisition of Taylor Maxwell completed in June 2021 brings significant scale and diversity to our offering and customer base, alongside the acquisition of Leadcraft Ltd. We are pleased to report that both businesses are already contributing significantly to the overall performance of the Group. Our pipeline of acquisitions is very encouraging, and we remain focused on identifying bolt on acquisitions which will further diversify our proposition.

To this end, we were pleased to announce the acquisition of HBS New Energies and UPOWA in November 2021. HBS New Energies marks Brickability's first acquisition in the renewables energy products sector and the 13th strategic acquisition for the Group in the last three years. The acquisition comes as Brickability seeks to broaden its offering for customers and, also importantly, focus on its own sustainability commitments across its divisions.

Decarbonisation of the built environment is driving significant new opportunity across the industry, with companies needing to commit to their own emission reductions while supporting the transition to net-zero of buildings and the broader supply chain. Cost efficient energy solutions are set to play a key role in supporting the built environment and housebuilding industry in meeting the changing Building Regulations landscape, as well as the UK Government's recently announced deadline for UK listed companies to publish their pathway to net-zero by 2030, in line with the UK Government's 2050 net-zero target.

This has been another successful period of growth for the Group and the results today are a testament to the adaptability, strength and diversity of the businesses we operate and our continued focus on identifying significant strategic opportunities, whilst operating a lean approach. Overall we maintain an optimistic market outlook and the Board remains confident of the Group delivering performance at least in line with market expectations for the full year. However, the Group remains vigilant of the pressures which continue to impact our sector and the wider UK economy.

The Board are pleased to announce an interim dividend of 0.96p per share (H1 2020: 0.8678p), payable on 24 February 2022 reflecting the performance of the business in the half, and the Board's confidence in the longer-term outlook for the Group.

I would like to take this opportunity to thank all employees for their hard work and commitment throughout this period. Brickability is well positioned for the future with a clear strategy and high-quality, diversified business and we remain confident of the Group's future success as we move forward.

John Richards

Chairman

30 November 2021

Chief Executive's Review

Our businesses have performed well, delivering a strong set of results which has enabled the Group to continue to focus on investing for future growth across the divisions. The results achieved, reflect not only the healthy housebuilding market conditions, following a strong post pandemic recovery, but also the strength of Brickability's positioning within the market.

The Group continues to deliver against its strategic objectives and aim of building a diversified construction materials distribution business. Our expertise in procurement from both the UK and overseas have allowed us to manage industry supply chain pressures including a shortage of HGV drivers and increases in materials prices. Whilst we expected margins to be impacted slightly by industry difficulties, our margin levels remain resilient as our diverse product offering has helped to mitigate the industry wide inflationary price pressures. Our roofing division has not been able to fully recover the significantly increased raw materials costs in the first six months of the year whilst our newly acquired Taylor Maxwell Timber business has delivered record margins.

Group margins are lower than prior years as the Taylor Maxwell business operates on lower margins than the Brickability Group was operating on prior to the acquisition, as noted at the time. The Taylor Maxwell overall margins for the three months since acquisition were exceptionally high due mainly to the unprecedented timber price inflation during this period which has since been reducing from this peak. Consequently, overall Group margins are expected to reduce slightly in the second half of the year back to normalised levels.

Bricks and Building Materials

The Group's footprint and product offering in the bricks and building materials division continued to grow over the period. Brick sales were robust, and demand remains strong from housebuilders, in particular for imported products. Whilst the first half of the year has presented industry wide challenges particularly, product availability and logistics, performance across the bricks division has been very positive and is expected to continue to provide good results as we move into the second half.

In June 2021, we announced the transformational acquisition of Taylor Maxwell. The acquisition has added significant scale and expanded the range of solutions we are able to deliver to our growing client base. We are pleased to announce that the integration of Taylor Maxwell within the wider Group is proceeding successfully. To date, we have focused on leveraging the Finance and IT functions and will shortly commence the adoption of Taylor Maxwell's operational and scheduling systems across the Group which will improve efficiencies by assisting in sales scheduling and forecasting. Since completion, the business has continued to perform strongly and ahead of expectations.

Whilst we continue to focus on identifying potential acquisition opportunities across all our business divisions, organic development remains a priority. During the period, U Plastics, our specialist merchant for facia, soffits and guttering, external cladding and ancillary products opened two new branches in Maidenhead and Enfield expanding its capacity and enabling it to respond to growing demand. Furthermore, following the appointment of a new sales team with significant industry experience and online sales expertise, The Matching Brick Company has more than doubled its sales in H1 compared to the previous year. We were pleased to also see the Group's start-up business Alfiam Building Supplies, following the impact of COVID-19, return to trading in line with expectations and delivering good margins.

Crest Brick, Slate and Tile has performed strongly, and McCann Logistics has continued to run at full capacity and we expect to see its performance improve further in the second half.

Heating, Plumbing and Joinery

Our businesses within the heating, plumbing & joinery division also performed well. Towelrad's range has grown significantly along with sales, driven by increased new housing being built and its ability to meet this demand thanks to strong stock availability. DSH Flooring and FSN Doors also benefitted from the increased demand and FSN Doors, in particular, has won a number a of new orders due to its ability to offer customers faster delivery times by sourcing product from Europe. The HPJ division also includes our ceramic tile business, Forum Tiles. This start-up, launched in January 2021 is currently growing its order book although with investment ahead of sales during H1, this has impacted the divisional margin when compared to the prior year.

Roofing Services

The roofing division has been the most impacted by the current market conditions surrounding the availability and pricing of materials with revenue and margins both down on pre-covid levels. This is expected to continue into the second half with a gradual recovery during the last quarter of our current financial year and into the new financial year as input costs stabilise and sales price increases become effective. Encouragingly, the order books are at an all-time high and we were pleased to announce in August 2021 the acquisition of Leadcraft Ltd which has enabled us to further expand our roofing materials business bringing copper and zinc metal roofing and heritage leadwork capability into the Group.

Post Period

As outlined in the Chairman's Statement, the Group has completed the acquisition of HBS New Energies, since the period end. Founded in 2008, HBS New Energies is a market-leading renewable energy expert, specialising in the design, supply, installation and maintenance of solar PV, battery storage and electric vehicle charging technologies. With extensive cross-sector installation experience and technical expertise, HBS New Energies has built an unrivalled track record in the housebuilding, construction, commercial and industrial and public sectors, offering cost-effective, easy to install, energy saving and scalable technologies that simplify the construction of sustainable, zero-carbon homes. As a market leader with a proven track record, we believe the acquisition of HBS New Energies will further strengthen our strategic positioning within the wider market and enable us to expand into a new product segment.

Management Changes

The Group is pleased to announce that Paul Hamilton, currently Managing Director of the Heating, Plumbing and Joinery Division, has been appointed into the newly created role of Chief Operating Officer ("COO") with immediate effect. The role of COO is not a Board position.

Paul Hamilton has over 15 years' experience in the heating and building supplier market. He joined the Towelrads business in 2004 and became a shareholder and Director in 2008. Paul has overseen the growth of the Towelrads business from sales of less than £1 million to over £22 million a year. He led a management buyout of the Towelrads business in 2016 and was a founder of DSH Flooring. Paul is currently Managing Director of the Group's Heating, Plumbing and Joinery Division including Towelrads, DSH Flooring, Frazer Simpson and FSN Doors.

As COO Paul will be responsible for the Group's day-to-day operations, reporting to myself.

Outlook 

Across the Group, our priority remains securing strong order intakes with clear and sustainable margins.

Our acquisition pipeline remains strong, and we continue to look at potential new businesses that will enhance and broaden Brickability's operations.

As the industry continues to face challenges, we remain cautiously optimistic and believe that our diversified multi business strategy places us in a good position to mitigate any pressures and take advantage of current and anticipated demand. We have entered the second half of the year in a strong position and the Board expects performance to be at least in line with market expectations for the full year.

Alan J Simpson

Chief Executive

30 November 2021

Financial Review

Revenue and gross margin

The Group delivered revenue of £223.5 million in the first six months of H1 2021 (H1 2020: £75.3 million), representing a total increase of 197.0% (£148.2 million). When the impact of acquisitions is excluded from revenue, like for like ("LFL") revenue increased by 53.6% when compared to H1 2020 and 30.4% on a two year LFL versus H1 2019.

The increase in LFL revenue reflects of the recovery that the Group has made following the initial COVID-19 lockdowns in April and May 2020. The significant acquisition of Taylor Maxwell, within the Bricks and Building Materials segment, and the addition of Leadcraft, within the Roofing Services segment, have also contributed to the overall increase compared to H1 2020.

Revenue by division was:

Gross profit for the 6 months increased by 147% to £39.0 million (H1 2020: £15.8 million) whilst the Group's gross margin percentage decreased to 17.4% (H1 2020: 21.0%) driven primarily by the Taylor Maxwell business as it operates on lower margins than the existing Brickability Group as noted in the Chief Executive's Review.

Adjusted profit and adjusted EBITDA

Statutory profit before tax of £11.9 million (H1 2020: £5.4 million) includes other items of £3.9 million (H1 2020: £1.5 million) which are not considered to be part of the Group's underlying operations. These are analysed below the Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income.

The Group's adjusted EBITDA increased by 120% to £17.6 million for the first six months of 2021, compared to £8.0 million in the same period last year, reflecting the impact of the lockdown. EBITDA as a percentage of turnover has fallen to 7.9% (H1 2020: 10.6%) due mainly to the impact of the of the Taylor Maxwell business as noted above.

Adjusted EBITDA by division was:

Earnings per share

Basic EPS was 3.01p per share (H1 2020: 1.89p), while adjusted basic EPS was 4.79p (H1 2020: 2.39p). Adjusted EPS is an underlying EPS, based on the adjusted profit as noted above.

Dividend

The Board is recommending an interim dividend of 0.96p per share (H1 2020: 0.8678p) to shareholders on the register at 28 January 2022. The ex-date and payment date for the dividend will be 27 January 2022 and 24 February 2022 respectively.

Cash flow and net debt

The Group generated operating cash flows before movements in working capital of £17.5 million in the first six months of the year compared to £8.1 million in the same period in 2020. Cash generated from operations was £7.0 million (H1 2020: £3.6 million).

The net cash position (cash less bank borrowings) as at 30 September 2021 was £2.8 million compared to a net debt position as at 30 September 2020 of £2.7m, and is an increase of £10.1 million since the net debt position at 31 March 2021.

During the period, the Group raised £55 million through the issue of new shares to fund the acquisition of Taylor Maxwell and future bolt-on acquisitions. Initial payments made to acquire these subsidiaries amounted to £39.5 million during the period.

Bank facilities

In June 2021, the Group re-financed into a £60 million revolving credit facility with an additional £25 million accordion, on a club basis with HSBC and Barclays, that runs for 3 years (with the option of two one-year extensions). Total bank debt as at 30 September 2021 was £15.6 million with a further £44.4 million of undrawn committed facilities available.

Defined benefit pension scheme

The Group acquired a defined benefit pension scheme during the period when it acquired Taylor Maxwell (2017) Limited. However, it has commenced a buy-out process to transfer the risk associated with the scheme. A buy-in contract was incepted on 7 July 2021 and the process is expected to reach the full buy-out stage within the next 9 months.

Subsequent events

In October 2021, and as previously announced, the Group issued 280,254 new ordinary shares following the vesting and exercising of share options under the Company's Long Term Incentive Plan and Company Share Option Plan. The Group also granted 2,394,286 options under its LTIP and CSOP schemes to its employees.

In November 2021, the Group acquired the entire share capital and 100% of the voting rights in HBS NE Limited, a company specialising in the installation of solar panels and provision of renewable energy services.

There are no other material post balance sheet events.

Mike Gant

Chief Financial Officer

30 November 2021

Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income

For the six months ended 30 September 2021 (unaudited)

Adjusted profit                                                        

Adjusted profit excludes those items that are not considered to be directly attributable to the Group's underlying trade. It can be reconciled to statutory profit after tax as follows:

Adjusted EBITDA reflects earnings before interest, tax, depreciation, amortisation and other items considered non-operational in nature. 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 2021 (unaudited)

Condensed Consolidated Statement of Cash Flows

For the six months ended 30 September 2021 (unaudited)

Notes to the Condensed Consolidated Interim Financial Statements

For the six months ended 30 September 2021 (unaudited)

1.     General Information

Brickability Group plc (the 'Company' or the 'Group') is a public company limited by shares, incorporated in the United Kingdom under the Companies Act 2006 (registration number 11123804) and registered in England and Wales. The registered office address is c/o Brickability Limited, South Road, Bridgend Industrial Estate, Bridgend, United Kingdom, CF31 3XG.

Copies of this Interim Report may be obtained from the registered address or from the Investors section of the Company's website at www.brickabilitygroupplc.com.

2.     Basis of Preparation

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and should be read in conjunction with the Group's last annual consolidated financial statements as at and for the year ended 31 March 2021. They do not include all of the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to understanding changes in the Group's financial position and performance since the last annual financial statements.

The Annual Report and Accounts for the year ended 31 March 2021 was audited and has been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Accounts for the year ended 31 March 2021 was not qualified and did not contain statements under s498(2) or (3) of the Companies Act 2006.

The financial information for the six months ended 30 September 2021 and 30 September 2020 is unaudited and has not been reviewed by the Company's auditors.

The interim financial statements are presented in pounds sterling, which is the functional currency of the Group. Amounts are rounded to the nearest thousand, unless otherwise stated.

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and thus continue to adopt the going concern basis in preparing these interim financial statements.

3.     Significant Accounting Policies

The Group has applied the same accounting policies in these interim financial statements as in its 2021 annual financial statements. There have been no significant amendments or new standards introduced during the period that would have a material impact on the amounts reported.

4.     Use of judgements and estimates

        The significant judgements made by management in applying the Group's accounting policies and key sources of estimation uncertainty for the interim financial statements are the same as those described in the 2021 annual financial statements.

5.     Segmental analysis

The Group generates revenue through three main activities and thus has three reportable segments, as follows:

§  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.

Inter-segment sales are eliminated from the results reported to the chief operating decision maker (CODM) and from the consolidated interim financial statements.

6.     Government grants

Included within administrative expenses, in the six months to September, is an amount of £nil (2020: £1,358,000 and year ended 31 March 2021: £1,360,000) in respect of government grants received in response to the global COVID-19 pandemic. In the prior periods, £30,000 related to business rates support, while the remainder relates to supporting the payroll costs of the Group's employees. The Group has elected to deduct the grant income from the associated expenses. The Group does not have any unfulfilled obligations relating to the support schemes.

7.     Dividends

The Directors recommend that an interim dividend of 0.96p per ordinary share be paid for the year ended 31 March 2022. This dividend has not been included as a liability in these interim financial statements.

8.     Earnings per share

Earnings per share (EPS) is calculated by dividing the profit for the year, attributable to ordinary equity holders of the parent, by the weighted average number of ordinary shares outstanding during the year.

Diluted EPS is calculated by dividing the profit for the year, attributable to ordinary equity holders, by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

The calculation of basic and diluted earnings per share is based on the following data:

Adjusted earnings per share and adjusted diluted earnings per share, based on the adjusted profit attributable to the equity holders of the parent (adjusted profit for the period add non-controlling interest share of loss), is based on the following data:

9.     Business combinations

The Group acquired the entire share capital and 100% of the voting rights in the following companies during the period:

The book value of the assets acquired and liabilities assumed on acquisition are as follows:

Due to the timing of the acquisitions, a detailed assessment of the fair value of all identifiable net assets, and the value of any uncollectable contractual cash flows, has not yet been completed at the date of these interim financial statements. The goodwill figure is therefore expected to change. Residual goodwill will primarily comprise the value of the assembled workforce and expected synergies arising from the acquisition. None of the goodwill is expected to be deductible for tax purposes.

Included within the assets acquired for Taylor Maxwell (2017) Limited is £2,178,000 in respect of a surplus on a defined benefit pension scheme. The Group has commenced a buy-out process to transfer the risk associated with the scheme. A buy-in contract was incepted on 7 July 2021 and the process is expected to reach the full buy-out stage within the next 9 months.

The above consideration is subject to post completion adjustments and the deferred and contingent consideration is undiscounted. The share consideration resulted in 9,900,990 new ordinary shares being issued during the period.

The acquisitions were carried out in order to expand the Group's customer base and position in the UK market, increase its product offering and enhance its provision of environmentally sustainable and efficient roofing products and services.

Included in the consolidated financial statements are the following amounts of revenue and profit in respect of the subsidiaries acquired:

Had the current year business combinations taken place at the beginning of the financial period, the Group's revenue for the period would have been £309,475,000 and Group profit would have been £11,628,000.

Total acquisition related costs amounted to £999,000. Acquisition related costs in connection with the above companies, included in administrative expenses, amounted to £991,000 as shown below, the difference being aborted acquisition costs.

Contingent consideration

The Group has entered into contingent consideration arrangements during the purchase of several subsidiaries. Final amounts payable under these agreements are all subject to future performance and the acquired business achieving pre-determined EBITDA targets, over the three years following acquisition.

The fair value of all contingent consideration is based on a discounting cash flow model, applying a discount rate of between 1.7% and 4.9% to the expected future cash flows.

Summarised below are the fair values of the contingent consideration at both acquisition and reporting date, the potential undiscounted amount payable and the discount rates applied within the discounting cash flow models, for each acquisition where contingent consideration arrangements remain in place.

As noted above, the amounts included in respect of Taylor Maxwell (2017) Limited and Leadcraft Limited are undiscounted, pending completion of a detailed fair value assessment.

The total potential undiscounted amount payable in respect of U Plastics ranges from £246,000 to £2,400,000 (2020: £nil to £2,400,000). The total potential undiscounted amount payable in respect of Taylor Maxwell (2017) Limited ranges from £nil to £13,000,000 and the undiscounted amount payable in respect of Leadcraft Limited ranges from £nil to £880,000. It is not possible to determine a range of outcomes for the other companies acquired as the arrangements do not contain a maximum payable.

A sensitivity in respect of the inputs into the discounted cash flow model, determining the contingent consideration, is outlined in note 10.

10. Financial instruments

Fair values

The significant unobservable inputs used in the fair value measurements categorised within level 3 of the fair value hierarchy, together with a quantitative sensitivity analysis at 30 September 2021 and 31 March 2021 are shown below:

Reconciliation of level 3 fair value measurements of financial instruments

11. Loans and borrowings

*Other movements relate to interest accrued, arrangement fees incurred and the amortisation of those fees.

The Directors consider that the carrying amount of loans and borrowings approximates to their fair value.

12.   Related party transactions

Transactions and balances between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Transactions with directors

Included within receivables are the following balances due from a director and former director:

The amounts advanced were for the purpose of paying up the subscription price for ordinary D shares of £0.01 each. The loans were unsecured and interest free and repayable on the sale of any of the shares held in the Company by the director and former director. The balances were repaid in full during the period.

Key management personnel

A finance expense was recognised, in the period, of £nil (2020: £12,000 and year to 31 March 2021: £16,000), in respect of the unwinding of the discount applied to deferred consideration due to key management.

During the interim period, the Group made sales amounting to £7,000 (2020: £5,000 and year to 31 March 2021: £13,000) to members of key management. A balance of £nil (2020: £1,000 and 31 March 2021: £7,000) was included within trade receivables at the reporting date, in respect of these sales.

Other related parties

Included within trade receivables/ payables are the following amounts due from/ to other related parties, at the reporting date:

Transactions undertaken between the Group and its related parties during the year were as follows:

Other related parties comprise of entities owned by directors and key management. Purchases relate to rent and administrative expenses.

A finance expense of £nil (2020: £16,000 and year to 31 March 2021: £21,000) was recognised during the interim period in respect of the unwinding of the discount applied to deferred consideration due to close relatives of key management.

13.   Post balance sheet events

On 14 October 2021, the Group issued 280,254 new ordinary shares following the vesting and exercising of share options under the Company's Long Term Incentive Plan and Company Share Option Plan. Following this issue, the total number of shares in issue is 298,534,802.

On 21 October 2021, the Group granted 2,394,286 options under its LTIP and CSOP schemes to its employees. The options were granted on the same terms as previous awards and are subject to a performance period from 1 April 2021 to 31 March 2024.

On 23 November 2021, the Group completed the acquisition of the entire share capital and 100% of the voting rights in HBS NE Limited, a company specialising in the installation of solar panels and provision of renewable energy services.

The acquisition broadens our offering to customers whilst also supporting the Group's own sustainability commitments.

The book value of the separable assets acquired and liabilities assumed are estimated as follows:

Due to the timing of the acquisition, a detailed assessment of the fair value of the identifiable net assets, and value of any uncollectable contractual cash flows, has not yet been completed at the date of approving these interim financial statements.

The total consideration expected to be payable is:

The above consideration is subject to post completion adjustments.

The contingent consideration is subject to future performance of the acquired business, measured against agreed adjusted EBITDA targets, over the five years following acquisition. Due to the timing of the acquisition, the above value represents an initial undiscounted estimate of contingent consideration payable. It is not possible to determine a range of outcomes for the contingent consideration payable as the arrangement does not contain a maximum payable.

It is expected that goodwill will arise on the acquisition and this will primarily comprise the value of expected synergies arising from the acquisition and value of the assembled workforce. This goodwill is not expected to be deductible for tax purposes.