Brampton Brick Limited
TSX : BBL.A

Brampton Brick Limited

August 06, 2013 17:26 ET

Brampton Brick Reports Results for the Second Quarter Ended June 30, 2013

BRAMPTON, ONTARIO--(Marketwired - Aug. 6, 2013) -

(All amounts are stated in thousands of Canadian dollars, except per share amounts.)

Brampton Brick Limited (TSX:BBL.A) today reported a net income of $2,102, or $0.19 per Class A Subordinate Voting share ("Class A share") and Class B Multiple Voting Share ("Class B share"), for the second quarter ended June 30, 2013 compared to net income of $3,771, or $0.35 per share, for the second quarter of 2012. The aggregate weighted average number of Class A shares and Class B shares outstanding for the second quarter of 2013 was 10,940,354 and 10,936,554 for the same period in 2012.

DISCUSSION OF OPERATIONS

Three months ended June 30, 2013

Revenues for the second quarter of 2013 were $29,910 compared to $31,054 in 2012. Lower shipments in the Landscape Products business segment due to comparatively unfavourable weather conditions more than offset favourable masonry products revenues and resulted in the revenue reduction for the quarter.

Cost of sales for the current quarter increased to $22,129 from $21,287 for the same period in 2012. Due to the relatively high fixed cost nature of the Company's manufacturing facilities, large fluctuations in production levels have a material impact on per unit manufacturing costs and gross margins. The Company scheduled lower production volumes during the second quarter of 2013 compared to the corresponding period in 2012 which resulted in the increase in cost of sales. Lower yard and delivery expenses during the current quarter compared to last year partially offset the increase in the cost of sales.

Selling expenses increased to $1,996 for the second quarter from $1,667 in the same quarter of 2012 due to higher personnel costs and an increase in advertising expenses.

General and administrative expenses were $1,646 for the three months ended June 30, 2013, compared to $1,584 for the corresponding quarter in 2012.

During the second quarter of 2013, a loss on the disposal of certain plant equipment amounted to $354. The improvement in process efficiencies expected from the changes in equipment is expected to positively impact operating margins going forward.

The decrease in revenues and the increase in manufacturing costs associated with the lower production volumes during the second quarter ended June 30, 2013, reduced operating income to $3,799 from $6,114 in the comparable period of 2012.

Finance costs of $717 declined for the second quarter of 2013 compared to $981 for the same period in 2012. The decrease in interest expense was due to the repayment of the Company's subordinated secured debentures, which bore an effective interest rate of 11.89%. The redemption of these debentures was funded from the Company's operating credit facility. In addition, lower long term debt balances outstanding during the second quarter of 2013 contributed to the decline in interest expense. Scheduled principal payments totaling $2,500 on the long term debt were made in the second half of 2012. This debt bears an effective interest rate of 8.40%.

The provision for income taxes of $981 for the second quarter of 2013 is lower compared to $1,364 in 2012 and corresponds with the decline in pre-tax income from the Canadian operations. The Company has not recorded a deferred tax asset with respect to the potential future income tax benefit pertaining to the losses incurred by its U.S. operations.

Six months ended June 30, 2013

For the six months ended June 30, 2013, the Company recorded a net loss of $472, or ($0.04) per share, compared to net income of $978, or $0.09 per share, for the corresponding period in 2012. The aggregate weighted average number of Class A shares and Class B shares outstanding for the six months ended June 30, 2013 was 10,940,354 and 10,936,554 for the corresponding period in 2012.

Revenues for the six month period in 2013 were $42,799 compared to $47,049 in 2012. This decrease in revenues resulted from lower shipments in both the Masonry Products and Landscape Products business segments due largely to the negative impact of unfavourable weather conditions in the first four months of 2013.

Cost of sales for the six months ended June 30, 2013, decreased to $33,903, compared to $36,130 in 2012. The decrease in cost of sales was due to lower sales volumes and lower yard and delivery expenses as described under the caption 'Discussion of Operations' for the three months ended June 30, 2013 and was partially offset by higher unit production costs resulting from lower production volumes.

Selling expenses increased to $3,781 for the six month period in 2013 from $3,528 for the same period in 2012. This increase is primarily due to the Company's ongoing investment in upgrading its information systems and enhancing its customer support capabilities.

General and administrative expenses were $3,204 for the six month period in 2013 compared to $3,158 for the same period in 2012.

For the six months ended June 30, 2013, an impairment loss of $158 relating to the loan receivable from Universal Resource Recovery Inc. ("Universal"), the Company's 50/50 joint venture, was recognized compared to $362 for the same period in 2012. There was no impairment charge incurred for the second quarter of 2013.

For the six months ended June 30, 2013, operating income decreased to $1,415 from $3,827 in 2012.

Finance costs for the first six months of 2013, at $1,383, were $510 lower than the comparable period of 2012 for the same reasons noted above under the caption 'Discussion of Operations' for the three months ended June 30, 2013.

As noted under 'Discussion of Operations' for the three months ended June 30, 2013, the Company recorded a tax provision for income taxes only with respect to its Canadian operations.

A more detailed discussion with respect to each operating business segment follows:

MASONRY PRODUCTS

For the three month period ended June 30, 2013, the Masonry Products business segment reported operating income of $2,146 on revenues of $21,123 compared to $4,292 on revenues of $20,635 for the same period in 2012.

For the six month period ended June 30, 2013, this business segment recorded an operating income of $2,152 compared to operating income of $3,893 in 2012. Revenues for the six month period decreased to $33,435 from $35,428 in 2012.

The decrease in revenues in the Masonry Products business segment was due to unfavourable weather conditions in the first quarter of 2013 compared to milder conditions in the first quarter of 2012. For the second quarter of 2013, revenues in this business segment increased from 2012 levels because of the continued growth in sales of concrete masonry products.

During the six months ended June 30, 2013, clay brick production levels were lower than the comparable period of 2012. The resulting increase in production costs negatively impacted this business segment's gross margin.

LANDSCAPE PRODUCTS

For the three month period ended June 30, 2013, the Landscape Products business segment reported operating income of $1,653 on revenues of $8,787 compared to $2,184 on revenues of $10,419 for the same period in 2012.

For the six month period ended June 30, 2013, this business segment recorded an operating loss of $579 compared to operating income of $296 in 2012. Revenues for the six month period were $9,364 compared to $11,621 in 2012. As noted earlier, unfavourable weather conditions in the first six months of 2013 led to the decline in revenues and operating results.

CASH FLOWS

Cash flow used for operating activities totaled $3,097 for the six month period ended June 30, 2013 compared to cash flow provided by operating activities of $1,629 for the same period in the prior year. Lower operating results combined with higher inventory levels due to lower shipments and higher income tax payments contributed to the increase in cash used for operating activities in 2013.

Cash utilized for purchases of property, plant and equipment totaled $1,646 for the six month period in 2013, compared to $1,881 in 2012.

Short term loans advanced to Universal totaled $1,375 during the six month period in 2013 compared to $1,340 in the comparative prior period.

During the second quarter of 2013, equipment sales proceeds were $44. In the second quarter of 2012, the sale of certain obsolete production equipment resulted in proceeds of $461.

FINANCIAL CONDITION

The Company's Masonry Products and Landscape Products business segments are seasonal in nature. The Landscape Products business is affected by seasonality to a greater degree than the Masonry Products business. As a result of this seasonality, operating results are impacted accordingly and cash requirements are generally expected to increase through the first half of the year and decline through the second half of the year.

As at June 30, 2013, bank operating advances were $17,733. This represented an increase of $7,298 from the amount outstanding at December 31, 2012. The increase in bank operating advances was utilized to meet working capital requirements, capital expenditures and repayments of finance lease obligations in the first six months of 2013. Trade payables totaled $12,790 at June 30, 2013 compared to $11,675 at December 31, 2012. Trade and other receivables and inventories totaled $16,832 and $25,392, respectively, at June 30, 2013 compared to $10,832 and $22,287, respectively, at December 31, 2012.

The ratio of total liabilities to shareholders' equity was 0.55:1 at June 30, 2013 compared to 0.50:1 at December 31, 2012. The increase in this ratio from December 2012 to June 2013 was primarily due to the increase in bank operating advances, as noted above and lower retained earnings resulting from lower operating income earned for the six month period ended June 30, 2013. Partially offsetting these factors was a favourable increase in the foreign currency translation amount for the six month period over the corresponding period in 2012. This amount is reported in Accumulated other comprehensive income (loss) in the condensed interim consolidated financial statements and arose due to the weakening of the Canadian dollar in relation to the U.S. dollar in the first six months of 2013 compared to the same period in 2012.

As at June 30, 2013, working capital was $6,883, representing a working capital ratio of 1.18:1. Comparable figures for working capital and the working capital ratio at December 31, 2012 were $7,325 and 1.25:1, respectively. The decline from December 31, 2012 is primarily due to the increase in bank operating advances as at June 30, 2013. Cash and cash equivalents totaled $1,107 at June 30, 2013 compared to $1,412 at December 31, 2012.

The Company's credit facility provides for borrowings up to $22,000 based on margin formulae for trade receivables and inventories, less priority claims and the mark-to-market exposure on swap contracts, if applicable. It is a demand facility secured primarily by trade receivables and inventories of the Company's Masonry Products and Landscape Products business segments in Canada and the U.S. The agreement also contains certain financial covenants. As at June 30, 2013, the Company is in compliance with all of its financial covenants and anticipates that it will maintain compliance throughout the year.

The Company expects that future cash flows from operations, cash and cash equivalents on hand and the unutilized balance of its operating credit facility will be sufficient to satisfy its obligations.

The Company was in compliance with all financial covenants under its debt agreement as at June 30, 2013 and anticipates that it will maintain compliance throughout the year.

FORWARD-LOOKING STATEMENTS

Certain statements contained herein constitute "forward-looking statements". All statements that are not historical facts are forward-looking statements, including, among others, statements regarding the expected repayment of the short-term loan receivable from Universal, forecasts of sufficient cash flows from operations and other sources of financing, anticipated compliance with financial covenants under debt agreements, anticipated sales of masonry and landscape products, and other statements regarding future plans, objectives, results, business outlook and financial performance. There can be no assurance that such forward-looking statements will prove to be accurate.

Such forward-looking statements are based on information currently available to management, and are based on assumptions and analyses made by management in light of its experience and its perception of historical trends, current conditions and expected future developments, including, among others, assumptions regarding pricing, weather and seasonal expectations, production efficiency, and there being no significant disruptions affecting operations or other material adverse changes.

Such forward-looking statements also involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward- looking statements. Such risks and uncertainties include, among others: changes in economic conditions, including the demand for the Company's primary products and the level of new home, commercial and other construction; large fluctuations in production levels; fluctuations in energy prices and other production costs; changes in transportation costs; foreign currency exchange and interest rate fluctuations; legislative and regulatory developments; as well as those assumptions, risks, uncertainties and other factors identified and discussed above under "Risks and Uncertainties" in the 2012 annual MD&A included in the Company's 2012 Annual Report and those identified and reported in the Company's other public filings (including the Annual Information Form for the year ended December 31, 2012), which may be accessed at www.sedar.com.

The forward-looking information contained herein is made as of the date hereof. Other than as specifically required by law, the Company undertakes no obligation to update or revise any forward- looking information, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on forward-looking statements.

Brampton Brick is Canada's second largest manufacturer of clay brick, serving markets in Ontario, Quebec and the Northeast and Midwestern United States from its brick manufacturing plants located in Brampton, Ontario and near Terre Haute, Indiana. To complement the clay brick product line, the Company also manufactures a range of concrete masonry products, including concrete brick and block as well as stone veneer products. Concrete interlocking paving stones, retaining walls, garden walls and enviro products are manufactured in Markham, Milton and Brampton, Ontario and Wixom, Michigan. These products are sold to markets in Ontario, Quebec, Michigan, New York, Pennsylvania, Ohio, Kentucky, Illinois and Indiana under the Oakstrade name. Products are used for residential construction and for industrial, commercial, and institutional building projects.

Selected Financial Information
(unaudited) (in thousands of Canadian dollars)
June 30 December 31
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS 2013 2012
ASSETS
Current assets
Cash and cash equivalents $ 1,107 $ 1,412
Trade and other receivables 16,832 10,832
Inventories 25,392 22,287
Loan receivable - 1,392
Other assets 791 575
44,122 36,498
Non-current assets
Loan receivable 2,609 -
Property, plant and equipment 169,805 168,848
Total assets $ 216,536 $ 205,346
LIABILITIES
Current liabilities
Bank operating advances $ 17,733 $ 10,435
Trade payables 12,790 11,675
Income taxes payable 826 2,110
Current portion of debt 3,103 2,928
Decommissioning provisions 50 50
Other liabilities 2,737 1,975
37,239 29,173
Non-current liabilities
Non-current portion of debt 23,760 23,554
Decommissioning provisions 2,271 2,219
Deferred tax liabilities 13,981 13,427
Total liabilities $ 77,251 $ 68,373
EQUITY
Equity attributable to shareholders of Brampton Brick Limited
Share capital $ 33,711 $ 33,711
Contributed surplus 2,005 1,895
Accumulated other comprehensive income (loss) 19 (2,655 )
Retained earnings 103,537 104,010
$ 139,272 $ 136,961
Non-controlling interests 13 12
Total equity $ 139,285 $ 136,973
Total liabilities and equity $ 216,536 $ 205,346
Selected Financial Information
(unaudited) (in thousands of Canadian dollars, except per share amounts)
condensed interim CONSOLIDATED STATEMENTS OF Three months ended June 30 Six months ended June 30
COMPREHENSIVE INCOME (LOSS) 2013 2012 2013 2012
Revenues $ 29,910 $ 31,054 $ 42,799 $ 47,049
Cost of sales 22,129 21,287 33,903 36,130
Selling expenses 1,996 1,667 3,781 3,528
General and administrative expenses 1,646 1,584 3,204 3,158
Loss on sale of property, plant and equipment 354 55 349 55
Other income (14 ) (15 ) (11 ) (11 )
Impairment loss on loan receivable - 362 158 362
26,111 24,940 41,384 43,222
Operating income 3,799 6,114 1,415 3,827
Finance (expense) income
Finance costs (717 ) (981 ) (1,383 ) (1,893 )
Finance income 1 2 3 4
(716 ) (979 ) (1,380 ) (1,889 )
Income before income taxes 3,083 5,135 35 1,938
(Provision for) recovery of income taxes
Current (313 ) (658 ) 45 (658 )
Deferred (668 ) (706 ) (552 ) (302 )
(981 ) (1,364 ) (507 ) (960 )
Net income (loss) for the period $ 2,102 $ 3,771 $ (472 ) $ 978
Net income (loss) attributable to:
Shareholders of Brampton Brick Limited $ 2,101 $ 3,771 $ (473 ) $ 977
Non-controlling interests 1 - 1 1
Net income (loss) for the period $ 2,102 $ 3,771 $ (472 ) $ 978
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation $ 1,695 $ 980 $ 2,674 $ 42
Total comprehensive income for the period $ 3,797 $ 4,751 $ 2,202 $ 1,020
Total comprehensive income attributable to:
Shareholders of Brampton Brick Limited $ 3,796 $ 4,751 $ 2,201 $ 1,019
Non-controlling interests 1 - 1 1
Total comprehensive income for the period $ 3,797 $ 4,751 $ 2,202 $ 1,020
Net income (loss) per Class A and Class B share $ 0.19 $ 0.35 $ (0.04 ) $ 0.09
Weighted average Class A and Class B
shares outstanding (000's) 10,940 10,937 10,940 10,937
Selected Financial Information
(unaudited) (in thousands of Canadian dollars)
CONDENSED INTERIM CONSOLIDATED STATEMENTS Six months ended June 30
OF CASH FLOWS 2013 2012
Cash provided by (used for)
Operating activities
Net (loss) income for the period $ (472 ) $ 978
Items not affecting cash and cash equivalents
Depreciation 3,611 3,489
Current taxes (45 ) 658
Deferred taxes 552 302
Loss on disposal of property, plant and equipment 349 55
Unrealized foreign currency exchange gain (96 ) (16 )
Impairment loss on loan receivable 158 362
Net interest expense 1,380 1,888
Other 110 70
5,547 7,786
Changes in non-cash items
Trade and other receivables (5,896 ) (7,167 )
Inventories (2,754 ) 218
Other assets (203 ) (67 )
Trade payables 756 445
Income tax credits applied - (4 )
Other liabilities 692 460
(7,405 ) (6,115 )
Income tax payments (1,239 ) (3 )
Payments for decommissioning of assets - (39 )
Cash (used for) provided by operating activities (3,097 ) 1,629
Investing activities
Purchase of property, plant and equipment (1,646 ) (1,881 )
Loan advances to Universal Resource Recovery Inc. (1,375 ) (1,340 )
Proceeds from disposal of property, plant and equipment 44 461
Cash used for investment activities (2,977 ) (2,760 )
Financing activities
Increase in bank operating advances 7,298 3,280
Payment of term loans (41 ) (152 )
Interest paid (1,282 ) (1,719 )
Payments on obligations under finance leases (248 ) (309 )
Payment of dividends by subsidiary to non-controlling interests - (75 )
Cash provided by financing activities 5,727 1,025
Foreign exchange on cash held in foreign currency 42 1
Decrease in cash and cash equivalents (305 ) (105 )
Cash and cash equivalents at the beginning of the period 1,412 1,180
Cash and cash equivalents at the end of the period $ 1,107 $ 1,075
Selected Financial Information
(unaudited) (in thousands of Canadian dollars)
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Attributable to shareholders of Brampton Brick Limited
Share Capital Contributed Surplus Accumulated Other Comprehensive Income (Loss ) Retained Earnings Total Non-controlling interest Total Equity
Balance - January 1, 2012 $ 33,689 $ 1,801 $ (1,540 ) $ 102,527 $ 136,477 $ 10 $ 136,487
Net income for the period - - - 977 977 1 978
Other comprehensive income(net of taxes, $nil)
-

-

42

-

42

-

42
Comprehensive income for the period
-

-

42

977

1,019

1

1,020
Share-based compensation - 70 - - 70 - 70
Balance - June 30, 2012 $ 33,689 $ 1,871 $ (1,498 ) $ 103,504 $ 137,566 $ 11 $ 137,577
Balance - January 1, 2013 $ 33,711 $ 1,895 $ (2,655 ) $ 104,010 $ 136,961 $ 12 $ 136,973
Net (loss) income for the period - - - (473 ) (473 ) 1 (472 )
Other comprehensive income(net of taxes, $nil)
-

-

2,674

-

2,674

-

2,674
Comprehensive income (loss) for the period
-

-

2,674

(473
)
2,201

1

2,202
Share-based compensation - 110 - - 110 - 110
Balance - June 30, 2013 $ 33,711 $ 2,005 $ 19 $ 103,537 $ 139,272 $ 13 $ 139,285

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