Specialist brick maker Michelmersh Brick (MBH) is taking full advantage of a significant increase in demand, and pushed through average price increases of 12.8 per cent in the first half, the first increase for six years. Sales in the first half of last year were badly affected by the weather, but operating profits still rose impressively from £100,000 to £1.4m.
Significantly, energy costs, which account for around 30 per cent of the total, were little changed, helping to boost gross margins from 8 per cent to 33 per cent. And the company has managed to agree fixed terms on the bulk of its energy needs - principally gas - for the next two years.
Output was slightly lower at 34m bricks, but a £2.2m project is under way to boost output at its Freshfield Lane site by 20 per cent, or 6m bricks, by early next year. Revenue in the second half will also be boosted by £1.5m following the sale of excess land at the Telford site to housebuilder Bovis Homes (BVS); a further £1.5m is due next year.
Analysts at Cenkos have upgraded their forecasts for the full year from pre-tax profits of £1.8m to £2.3m, and EPS from 1.9p to 2.2p.
The cheapest way to get into the brick-making arena is to buy an existing brick-maker, according to Michelmersh chairman Eric Gadsden. It takes years to build a new plant, and this is without securing the appropriate clay reserves, a process that planning constraints would stretch the timescale even further. Michelmersh, however, has additional land allocated that will provide clay supplies for the next 20 years.
There are mothballed facilities that are coming back into play from the three multi-national brick makers (Ibstock, Hanson and Weineberger) that could boost output by 100m bricks a year, but Michelmersh remains the leading UK independent manufacturer, with around 5 per cent of the market. It's also worth noting that much of the output is of a specialised nature; bricks with an instant 'aged look', for example (as at Nottingham railway station). And even with standard bricks, the average cost for a typical house is around £3,000; so builders are less sensitive to price increases and more concerned with securing supply. An idle worksite constrained by deliveries is a very expensive business.
There have been some imports to meet demand, notably from a depressed Netherlands building sector, but transport costs make this a very expensive and largely unsustainable business. It's also worth noting that output is recovering from a very low base, with demand at the trough of the latest economic downturn less than half what it was in 1980. And supply constraints are set to continue, with the 83 brick works operating in the UK in 2007 now down to 49. The previous brick mountain of around 1.1bn has now fallen to less than 400m, and on an industry-wide basis, every brick made in the UK this year has been sold, as demand now exceeds supply for the first time in five years.
