26 November 2024

                                                                     Brickability Group PLC

("Brickability" or the "Group")

Interim Results for the six months ended 30 September 2024

 

Brickability Group PLC (AIM: BRCK), leading distributor and provider of specialist products and services to the UK construction industry, today announces its unaudited interim results for the six months ended 30 September 2024 ("H1 FY25").

 

H1 FY25 Financial Summary

	H1 FY25	H1 FY24	% Change
	£m	£m
Revenue	330.9	324.8	1.9
Adjusted results (1) (2) (3)
Gross profit	63.0	55.0	14.5
Gross profit margin	19.0%	16.9%	210bps
Adjusted EBITDA	27.9	25.6	9.0
Adjusted EBITDA margin	8.4%	7.9%	50bps
Adjusted profit before tax	21.9	21.8	0.5
Adjusted EPS	5.03p	5.30p	(5.1)
Net debt (4)	56.3	30.9	82.2
Interim dividend - declared	1.12p	1.07p	4.7
Statutory results (5)
Profit before tax	7.0	16.0	(56.3)
EPS	1.33p	3.78p	(64.8)

 

Half year highlights

·	Resilient, in line performance despite sustained macroeconomic conditions, with revenue growth of 1.9% or a like-for-like (LFL)(6) reduction of 7.4%
·	Improvement in Adjusted EBITDA margin of 50 bps validating the benefits of the recent strategic and structurally higher margin acquisitions
·	Strong revenue performance in the Contracting and Distribution divisions, driven by a doubling of sales of solar PV in Upowa, highlighting the benefit of the Group's diversification strategy
·	FY24 full-service specialist cladding installation and remediation contracting acquisitions of Topek and TSL are performing well and trading in line with the pre-acquisition investment case
·	Streamlined senior leadership team, focused on growth and operational outperformance
·	Investment underway in IT systems upgrades and process efficiencies
·	Increase in the interim dividend reflects the performance in the first half and the Board's confidence in the longer-term outlook for the Group

 

Outlook

·	Trading for the first six weeks of the second half is in line with the Board's expectations
·	New build housing market remains soft heading into the new calendar year
·	Medium-term housing market fundamentals are strong, with a structural housing deficit and the new Government's commitment to 1.5 million new homes during this parliament
·	Recent increased order intake is encouraging, particularly within the Bricks and Building Materials division
·	Profitability is expected to be first half weighted due to phasing of project work in the Contracting division, and the Board is confident in achieving market expectations for the full year(7)

 

Frank Hanna, Chief Executive Officer, commented:

 

"This has been a positive half for the business, and I view the future with cautious optimism. Enquiry levels are picking up, the order intake is encouraging, and importantly, well represented across each of our four divisions. We remain confident in a recovery of the new build housing market, and Brickability is well positioned to significantly benefit when it happens.

 

"Having now been in the business for six months I've been able to take a detailed look at the Group. My initial impressions remain intact, this is a great business with a strategy of diversification, providing high quality specialist products and services for our customers. The Group has significantly evolved from predominantly being a brick distributor, and is now a diversified group of scale with strong foundations. My focus has been on improving the fundamentals of the business, ensuring through cycle resilience whilst retaining the entrepreneurialism spirit at our core, and I look forward to the future with confidence in our ability to deliver excellent results when market growth returns."

 

(1)	Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation and other items (See Financial Review and note 5).
(2)	Adjusted profit before tax is statutory profit before tax excluding other items.
(3)	Adjusted EPS is adjusted profit after tax (statutory profit after tax before other items) divided by the weighted average number of shares in the year.
(4)	Bank borrowings, excluding arrangement fees, less cash.
(5)	Statutory measures derived from accounting under IFRS.
(6)	Like-for-like ("LFL") revenue is a measure of growth in sales, adjusted for the impact of acquisitions.
(7)	The Company considers market expectations for FY25 to be revenue of £630m and Adjusted EBITDA of £47m.

 

Enquiries:
Brickability Group PLC                                                                               John Richards, Chairman Frank Hanna, Chief Executive Officer                             Mike Gant, Chief Financial Officer	via Montfort Communications
Peel Hunt LLP (Nominated Adviser and Broker) Ed Allsopp Tom Graham Charlotte Sutcliffe	+44 (0) 20 7418 8900
Montfort Communications James Olley Alex Everett	+44 (0) 203 514 0897 [email protected]

 

About Brickability 

 

Brickability Group PLC is a leading distributor and provider of specialist products and services to the UK construction industry. The business comprises four divisions: Bricks and Building Materials, Importing, Distribution and Contracting. With an agile, de-centralised, capital-light business model, supported by a strong balance sheet, Brickability leverages the skills of its people company-wide to effectively service the complex and evolving needs of the construction industry.

 

Founded in 1985, the Group has grown organically through product diversification and geographic expansion, as well as through the acquisition of specialist businesses that support its long-term strategy for growth. Today, the Group encompasses a diverse portfolio of market-leading brands and a dedicated team of over 800 skilled and experienced personnel, led by a management team with deep-rooted knowledge and experience in the UK and European construction industries.

 

The Group is committed to building better communities throughout the supply chain and supporting the delivery of sustainable developments that enhance the built environment for future generations, while delivering continuous value for shareholders.

Interim Report for the six months ended 30 September 2024

 

Chairman's Statement

 

Overview

 

I am pleased to report our financial results for the six months ended 30 September 2024. These results continue to validate our strategy of diversification, which is focused on creating a resilient, broad based and added-value speciality products distribution and services business with multiple growth opportunities. As a result of strong operational execution, we have been able to deliver an increase in H1 FY25 in revenue, gross margin and Adjusted EBITDA.

 

Of particular note in the first half within the Distribution division, we have seen a doubling of sales at Upowa, our renewable energy business, which provides products and services including solar panels, battery storage and renewable heating. Specialist solar PV systems for new build homes are the major contributor to Upowa's sales growth, driven by revisions to Part L of the Building Regulations, which cover mandatory energy efficiency requirements. Part L is now applicable to all new housing starts, underlining the UK's structural shift to sustainable development.

 

Within the Contracting division, we have also enjoyed a strong first half at our specialist cladding and fire remediation business where revenue on a LFL basis has increased by approximately 9%. The momentum in this business, which comprises our recent Topek and TSL acquisitions, is a result of the urgent requirement for remediation of unsafe cladding, a significant market where demand for our services will persist for many years.

 

The growth drivers behind these higher margin revenue streams are distinct from our traditional brick import and distribution activities, the performance of which is closely correlated to new housing starts.

 

Our financial results for H1 FY25 were resilient, through a period in which the new build housing and residential and commercial RMI markets remained subdued, and underlines the valuable contribution from our diversified revenue streams.  Group revenues grew to £330.9 million (H1 FY24: £324.8 million) and Adjusted EBITDA increased to £27.9 million (H1 FY24: £25.6 million). Group revenues on a LFL basis were 7.4% lower, which demonstrates the important contribution from recent acquisitions.

 

Whilst the new build housing, residential and commercial RMI markets remain challenging, we are seeing early indications of recovery, for example, in brick order intakes, roofing orders and other product enquiries. As the market improves, we continue to view the Group's brick sourcing and distribution activities as exciting, owing to our differentiated position in the UK brick market. Our network of premium European manufacturers ensures we are able to offer a market leading breadth of brick types including clay bricks, which are favoured by planners, developers and homeowners in parts of the UK such as the Southeast.

 

There is structural demand in the UK for imported clay stock bricks as current UK production is mainly focused on wire-cut manufactured bricks. Additionally, UK wire-cut brick manufacture has finite capacity increasing the requirement for imports. Once new build housing is in recovery, and UK brick demand exceeds manufacturing capacity, the brick market will become more reliant on imported bricks once again, particularly whilst UK manufacturing capacity remains below historic norms. We are ideally positioned to satisfy that demand owing to the strength of our established relationships with brickmakers across Europe.

    

The mid to long-term fundamentals of the UK housing market remain robust, with the historical under supply of housing evidenced through the Government's commitment to 1.5 million homes under its parliament, presenting a significant potential for growth within the housebuilding supply chain. We are encouraged by the improving interest rate environment, a slowing inflation trend, and by initiatives from the Government to support both private sector and social housing.

 

Acquisitions

 

The Board's acquisition strategy complements the Group's organic growth initiatives and remains focused on diversifying product offering, services and geographic reach. Our most recent acquisitions were TSL in January 2024 and Topek in October 2023. Both of these acquisitions, in the complementary high growth verticals of cladding remediation, are trading well and in line with the pre-acquisition investment case.  Both businesses have contributed meaningfully in the period, and represent a conscious effort to drive the Group's blended margin.

 

Whilst the current focus is on de-gearing the balance sheet, the Group continues to evaluate potential acquisition opportunities with a particular emphasis on focused growth in our existing four divisions.

 

Since the IPO in August 2019, our acquisition strategy has brought together a family of specialist businesses focused on providing a range of services to our customers, and on scaling the Group. We are currently progressing a systems and data project aimed at standardising business processes to improve efficiency and analytics, and to create a platform for the integration of future acquisitions. We look forward to providing further updates on this project in due course, which we believe will deliver multiple benefits for Brickability going forward.

 

Board and Environmental, Social and Governance

 

Frank Hanna joined the Group as Chief Executive Officer on 15 April 2024, bringing considerable industry and management expertise to help lead Brickability on the next stage of its growth journey. I would like to record my thanks to Frank for his valuable input to date. I would also like to thank all colleagues within Brickability for their commitment and hard work throughout the first half.

  

Our environmental, social and governance strategy is at the heart of our business and we are committed to making continued progress across all three areas. During the first half we have laid out plans to deepen our Scope 3 reporting, initiate energy-saving trials and conduct a materiality assessment with customers to keep our ESG strategy aligned with the evolving market. It is also gratifying that as a business we have supported over 80 youth sports clubs nationwide over the last few months through our Charitable Foundation.

 

Dividend

The Board is pleased to declare an increase in the interim dividend to 1.12 pence per share (H1 FY24: 1.07 pence), in line with the Group's progressive dividend policy, which reflects the performance of the business in the half year and the Board's confidence in the future.

 

Outlook

The third quarter of FY25 has started positively for the Group, and whilst wider sector headwinds prevail, we are benefiting from diversification and remain confident of meeting market expectations for the current financial year. Enquiries and order intake are gaining momentum, and together with a well-balanced forward order book, favourable operational gearing within the business and an improving macroeconomic outlook, the Board is increasingly positive about the near, medium- and long-term prospects for the Group. 

 

 

John Richards

Chairman

26 November 2024

 

 

Chief Executive's Review

 

Introduction

Since joining Brickability as CEO in April this year, I have been hugely impressed by the unique nature of the Group within the wider specialist construction materials sector and by our potential to grow organically, through cyclical recovery and through targeted strategic acquisitions.

We are differentiated by our ability to source and supply added-value building products for the total building envelope, and are set apart by the specialism in everything we do. We have a pivotal role, sitting between building product manufacturers and brand owners, and the construction industry customers whom we provide with sourcing, procurement and advisory expertise leading to strong and long standing relationships.

What is clear is that Brickability adds value to our customers through our specialised support and procurement in a construction industry with increasingly complex and demanding regulatory, planning and sustainability requirements.

My initial review of the Group has enabled me to focus on two vital aspects of the business: people and processes. We now have a streamlined Senior Leadership Team to drive the Group forward. We are investing in, and enhancing our IT, through improving systems and processes to create a robust platform for future growth.  This will help identify and allow us to deliver on organic growth opportunities, and will provide a stronger platform from which to quickly integrate and generate value from future acquisitions.

A strong commercial and customer-focused culture is at the heart of our business, which has been a significant characteristic of the businesses acquired since IPO. It is important to retain this culture throughout the organisation, however, we are taking the opportunity to consolidate some of the back office systems to improve the efficiency of the Group and enhance the quality of management information alongside our internal Health & Safety and sustainability infrastructure.

Brickability is a cash generative, margin-focused, capital-light business and we are benefiting from a strategy of diversification, with bricks currently representing less than half of Group sales. In particular, our recently acquired specialist fire remediation and cladding business and our Upowa renewable energy business are both high-margin businesses operating in end markets of structural growth, resulting in a more resilient through cycle Group.

It is well documented that house builders, which represent approximately half of our customer base, are at trough output, but we are encouraged by the momentum in our order book, the improving interest rate environment and by the Government's target of constructing 1.5 million homes over the parliament.

Not only are we well placed for a recovery in end markets, but the specific role that the Group plays in moving construction towards a more sustainable future will be a significant driver of future growth. We are a business with strong ESG credentials. Environmental sustainability and social value are hallmarks of our portfolio of products and services, underlining our corporate commitment to Building Better Communities.

Group financial results

It is pleasing to report that Brickability's strategy to diversify revenues across four divisions, with a focus on margin growth has been reflected in the first half results. Against a backdrop of wider market challenges, with UK housebuilding largely on hold, whilst interest rates have been elevated for a significant period of time, the Group has performed in line with the Board's expectations during the first half of the year.

Revenue increased, on a reported basis, by 1.9% (H1 FY24: -7.9%), reflecting the impact of the strategic acquisitions made in FY24 and the growth in our Distribution division. On a LFL basis, revenues were down 7.4%, a much lower rate of contraction versus the prior year comparative (H1 FY24: -14.4%). 

Gross profit of £63.0m (H1 FY24: £55.0m) has grown by £8.0m, or 14.5% over the period. Gross Profit margin at 19.0% (H1 FY24: 16.9%) has increased by 210 basis points, reflecting the impact of the specialist cladding and fire remediation acquisitions. These in turn have also positively impacted Group Adjusted EBITDA margin which, compared with the prior period, has grown by 50 basis points to 8.4%.

 

Divisional Update

 

Bricks and Building Materials Division

 

This division 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. From the beginning of the financial year, the E. T. Clay business unit moved into the division from Importing which better reflects the nature of the business.

 

In line with our expectations and reflecting the anticipated softness in the housing market, revenues decreased 9.4% to £219.9m (H1 FY24: £242.6m), during the period. The Adjusted EBITDA margins across products fell 80 basis points, which was largely a result of exposure to bricks, with the average selling price 8% lower than last year.

 

The market for UK brick despatches was at a similar level to the comparative period last year. Divisional volumes were down around 5% reflecting the challenging trading conditions, particularly in businesses with higher exposure to premium brick sales, such as the private housebuilding and the merchant sector. Trading with social housing-led developers has been more resilient.

 

Primarily as a result of the softness in bricks, the first half saw a greater proportion of revenues generated from the cladding supply and timber businesses. The performance of our cladding supply business was resilient although trading has to some extent been impacted by project delays, in part due to the Building Safety Act ('BSA'). Timber revenue was broadly flat when compared to the comparative period, with volume growth from our UK stock sites broadly outweighing the average selling price reductions of 4%.

 

To support growth of our timber and cladding supply businesses, our new central London showroom in Clerkenwell continues to progress well with an official launch expected before the end of the financial year in March. This is a further investment in the specification sector with the new facility over three times the size of the previous one and it will showcase all the products in the Taylor Maxwell and SBS portfolios.

 

Importing Division

 

This division is primarily responsible for strategic importing of building products, the majority of which are on an exclusive basis to the UK market, to complement traditional and contemporary architecture.

 

As anticipated, the division's revenue was impacted by the lower levels of activity in the UK market for imported bricks and roof tiles, falling by 10.6% to £35.6m (H1 FY24: £39.8m) during the period. Imported brick volumes fell by around 7% whilst the average selling price was 11% lower than last year, impacting Adjusted EBITDA margin, which fell 270 basis points.

 

Trading conditions remain challenging with high exposure to the merchant sector as well as private housebuilding but it remains our expectation that the performance and profitability of the division will improve as the overall brick market gathers pace alongside the capacity constraints of domestic manufacture.

 

Distribution Division

 

This division focuses on the sale and distribution of a wide range of products, including windows, doors, radiators and associated parts and accessories.

 

 

Revenue in the first half grew by 1.5% to £33.7m (H1 FY24: £33.2m) driven by a doubling of revenue from our solar business, Upowa. However, the weaker activity in the housing market has significantly impacted sales in almost all of the other businesses in the division. This impact has driven an adverse variance in business unit profit mix together with negative operational leverage leading to a fall of 320 basis points in Adjusted EBITDA margin.

 

In addition to the significant growth in solar panel installations, the division continues to expand its sales of other energy efficient solutions such as electric radiators, hot water heat pump cylinders, and underfloor heating.

 

Contracting Division

 

This division provides cladding, fire remediation, flooring and roofing installation services within the residential construction sector and commercial sector.

 

Revenue in the first half grew by 128.3% to £53.5m but was down 4.7% on a LFL basis during the period. Revenue growth was driven by the inclusion of Topek and TSL, the specialist cladding and fire remediation acquisitions within the division. As expected, the softness in the housing market seen over the last two years is now being reflected in the results of the roofing businesses in the division.

 

Overall, the inclusion of Topek and TSL, structurally higher margin business has significantly increased the divisional Adjusted EBITDA margin, up 880 basis points to 24.6% from 15.8% in the prior period.

 

Continental Tile Joint Venture

 

As noted in September's AGM statement, the Board has decided against issuing a further loan to its German tile manufacturing joint venture, allowing the Group to focus on other investment opportunities and capital allocation priorities, which are expected to generate better returns for shareholders. The factory is expected to cease operations in the coming weeks. Whilst various options for the sale of the business and its assets are being evaluated, the Group has recognised the full impairment of the loans to the joint venture of £5.3m, which has been treated as a non-cash one-off exceptional item.

 

Summary

 

There has been positive progress in H1 FY25 as we use current markets as an opportunity to enhance the fitness of the business ahead of a market recovery. It is our belief that greater attention to process will help drive efficiencies and facilitate profitable future growth and this will be an important area of focus for the Group as we move forward. We already operate a capital-light model, and with the operational leverage of the Group, an improvement in end markets will benefit near-term profitability and deliver strong returns for shareholders.

 

Whilst interest rates may take time to come down sufficiently to boost the housing market, and we remain cautious, inorganic growth will continue to be a driver of Brickability's expansion and the Group continues to evaluate its M&A pipeline where there are a number of earnings enhancing opportunities. 

 

Against a softer market backdrop, the results show the benefits of product diversification with revenue and Adjusted EBITDA growth. The business remains committed to growing in a sustainable manner, the Board's outlook for the 2025 full year remain unchanged, and is consistent with market expectations.

 

We look to the future with cautious optimism and are cognisant of the Government's commitment to new housing starts in the UK, the requirement for more energy efficient and low carbon home, as well the recent Budget stating that up to £22.4bn would be spent to rectify dangerous cladding, all of which are significant tailwinds for Brickability.

 

Frank Hanna

Chief Executive

26 November 2024

Financial Review

 

Revenue

 

The Group delivered revenue of £330.9 million in the first 6 months of FY25 (H1 FY24: £324.8 million, an increase of 1.9% or £6.1 million. Group LFL revenue decrease was 7.4% when compared to H1 FY24.

 

Revenue by division is analysed as follows:

 

	H1 FY25 £'000	H1 FY24 £'000	% Change	LFL % Change
Bricks and Building Materials	219,936	242,632	(9.4)%	(9.4)%
Importing	35,560	39,782	(10.6)%	(10.6)%
Distribution	33,717	33,227	1.5%	1.5%
Contracting	53,470	23,421	128.3%	(4.7)%
Group eliminations	(11,754)	(14,222)	(17.4)%	(17.4)%
Total	330,929	324,840	1.9%	(7.4)%

 

Gross Profit

 

Gross profit for the first 6 months of FY25 increased to £63.0 million (H1 FY24: £55.0 million). Gross profit margin has increased by 210 basis points to 19.0% (H1 FY24: 16.9%) driven by the impact of the two acquisitions in the second half of FY24.

 

Adjusted EBITDA

 

Adjusted EBITDA for the first 6 months of FY25 increased by 9.2% to £27.9 million (H1 FY24: £25.6 million). Adjusted EBITDA as a percentage of revenue has increased to 8.4% (H1 FY24: 7.9%), due to the acquisitions completed in FY24 as noted above.

 

Adjusted EBITDA by division is analysed as follows:

 

	H1 FY25 £'000	H1 FY25 EBITDA as % Revenue	H1 FY24 £'000	H1 FY24 EBITDA as % Revenue
Bricks and Building Materials	11,228	5.1%	14,321	5.9%
Importing	2,784	7.8%	4,188	10.5%
Distribution	4,198	12.5%	5,229	15.7%
Contracting	13,178	24.6%	3,690	15.8%
Central	(3,473)	-	(1,861)	-
Total	27,915	8.4%	25,567	7.9%

 

 

 

 

Statutory And Adjusted Profit

 

Statutory profit before tax of £7.0 million (H1 FY24: £16.0 million) includes other items of £15.0 million (H1 FY24: £5.8 million), which are not considered to be part of the Group's underlying trading operations. These are analysed as follows:

	H1 FY25 £'000	H1 FY24 £'000
Statutory profit before tax	6,951	15,970
Acquisition costs	-	23
IT transformation costs	103	-
Earn-out consideration classified as remuneration under IFRS 3	310	2,695
Share-based payment expense	536	830
Amortisation of acquired intangible assets	6,720	4,315
Impairment of loan to joint venture	5,318	-
Unwinding of discount on contingent consideration	1,861	832
Share of post-tax profit of equity accounted associates	(15)	(97)
Fair value losses/(gains) on contingent consideration	130	(2,815)
Total other items before tax	14,963	5,783
Adjusted profit before tax	21,914	21,753
Depreciation and amortisation	3,216	2,606
Finance income	(249)	(208)
Finance expense	3,034	1,416
Adjusted EBITDA	27,915	25,567

 

During the period, the Group recognised an impairment of £5.3 million (H1 FY24: £nil) of the loan to its joint venture, following the joint venture company appointing administrators. Further details are outlined in note 10. The impairment is considered to be one-off in nature and over and above the Group's typical level of impairment recognised from its ongoing operations. Accordingly, the impairment has been included within other items and excluded from Adjusted profit before tax.

 

Earnings per share

 

Basic EPS was 0.92 pence per share (H1 FY24: 3.78 pence), while adjusted basic EPS was 5.03 pence per share (H1 FY24: 5.30 pence). Adjusted EPS is an underlying EPS, based on the adjusted profit as noted above.

 

Dividends

 

The Board has declared an interim dividend of 1.12 pence per share (H1 FY24: 1.07 pence) to shareholders on the register as at 24 January 2025. The ex-dividend date and payment date for the dividend will be 23 January 2025 and 20 February 2025 respectively.

 

Cash flow and net debt

 

In the first six months of FY25, the Group generated operating cash flows before movements in working capital of £26.3 million (H1 FY24: £22.6 million). The increase of £3.7 million is predominately driven by increases in Group revenue and profit margins as noted above. Cash generated from operations increased to £19.3 million (H1 FY24: £3.4 million). The working capital outflow of £7.1 million (H1 FY24: £19.3 million) has decreased largely due to reduced activity in the Bricks and Building Materials division in the first 6 months of FY25 as compared to the first 6 months of FY24.

 

At 30 September 2024, the net debt position was £56.3 million compared to £30.9 million at 30 September 2023, and has decreased from £56.5 million at 31 March 2024. The main components of the movement in net debt for the first 6 months of FY25 are: movements in working capital of £7.1 million ((H1 FY24: £19.3 million), corporation tax paid of £5.5 million (H1 FY24: £5.0 million), property, plant and equipment sale proceeds of £2.9 million (H1 FY24: £0.0 million), interest paid of £3.5 million (H1 FY24: £1.8 million), payment of deferred consideration, in relation to previous acquisitions, of £3.1 million (H1 FY24: £4.7 million) and dividends paid of £7.3m (H1 FY24: £6.5m). The Group is expected to remain cash generative into the future.

 

Bank facilities

 

The Group refinanced in October 2023 to a £100 million RCF on a club basis with HSBC and Barclays for an initial term of 3 years, with an option to extend for another year and then another option to extend for a further year. The level of the facility reduces over the term of the facility to £80m. At H1 FY25, the RCF facility had reduced to £96m and the Group had utilised £59.5 million of the facility.

 

 

Mike Gant

Chief Financial Officer

26 November 2024