Brampton Brick Limited
TSX : BBL.A

Brampton Brick Limited

November 03, 2015 17:24 ET

Brampton Brick Reports Results for the Third Quarter Ended September 30, 2015

BRAMPTON, ONTARIO--(Marketwired - Nov. 3, 2015) -

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

Brampton Brick Limited (TSX:BBL.A) today reported net income of $4,324, or $0.39 per Class A Subordinate Voting share and Class B Multiple Voting share, outstanding for the three month period ended September 30, 2015 compared to net income of $3,354 or $0.31 per share, for the same period in 2014. The aggregate weighted average number of Class A Subordinate Voting shares and Class B Multiple Voting shares outstanding for the third quarter of each of 2015 and 2014 was 10,947,254 and 10,940,354, respectively.

DISCUSSION OF OPERATIONS

Three months ended September 30, 2015

Revenues increased by 8% to $40,465 for the quarter ended September 30, 2015 from $37,451 for the same period in 2014 due to higher shipments in the Company's Canadian markets in both the Masonry Products and Landscape Products business segments. Although shipments declined slightly in the Company's U.S. markets, the decrease was largely offset by the strength in the U.S. dollar in relation to the Canadian dollar during the third quarter of 2015.

Cost of sales amounted to $28,788 for the third quarter of 2015, compared to $28,232 for the same period in 2014. The increase in costs, attributable to the increase in shipments during the quarter, were partially offset by higher production volumes in both the Masonry Products and Landscape Products business segments which decreased the fixed costs per unit sold and contributed to lower operating costs and therefore higher margins. Cost of sales recorded for the same quarter of 2014 included non-recurring costs associated with the commissioning and retrofit work for the two concrete products manufacturing plants located in Hillsdale and Brockville, Ontario that were acquired in early 2014.

Selling expenses for the third quarter of 2015 were $2,776, compared to $2,183 for the corresponding period in 2014, due to increases in sales commissions, severance and other personnel costs related to the increase in revenues.

General and administrative expenses were $1,849 during the third quarter ended September 30, 2015, compared to $1,764 incurred in the corresponding quarter of 2014.

Other expense of $379 incurred during the third quarter of 2015 compared to $95 for the same period in 2014 includes the net gains and losses on the translation of foreign currency transactions, translated into the functional currency using exchange rates prevailing at the dates of the transactions.

Operating income for the quarter ended September 30, 2015 increased to $6,687 from $5,176 in the same quarter of 2014.

Finance expense for the three month period ended September 30, 2015 increased to $785 from $593 for the corresponding period in 2014. Finance expense during the current quarter includes an unrealized loss on the change in fair value of the interest rate swap in the amount of $346, which is a non-cash expense. Interest expense for the three month period ending September 30, 2015 decreased compared to the same period in 2014 due to lower bank operating advances during the period and lower debt balances outstanding as a result of scheduled repayments made in the third quarter of 2015.

Provision for income taxes totaled $1,578 for the third quarter of 2015, compared to $1,229 for the same period in 2014. The increase was due to an improvement in operating results of the Canadian operations. The income tax provision in both periods relates to the pre-tax income of the Company's Canadian operations. The Company has not recorded a deferred tax asset with respect to the potential deferred tax benefit pertaining to losses incurred by its U.S. operations.

Nine Months Ended September 30, 2015

For the nine months ended September 30, 2015, the Company recorded net income of $5,354, or $0.47 per share, compared to a net loss of $3,729, or $0.34 per share, for the same period in 2014. The aggregate weighted average number of Class A Subordinate Voting shares and Class B Multiple Voting shares outstanding for the nine months ended September 30, of each of 2015 and 2014 was 10,943,058 and 10,940,354, respectively.

Revenues for the nine months ended September 30, 2015 increased 14% to $94,666, from $83,129 for the same period in 2014. The momentum in residential construction during the first half of 2015 continued, but at a more modest pace through the third quarter, contributing to the increase in revenues in both the Canadian and the U.S. markets of the Masonry Products and Landscape Products business segments. The increase in revenues from the U.S. markets was supported by the positive impact of the strength in the U.S. dollar on lower shipments.

Cost of sales for the nine months ended September 30, 2015 increased by 5% from the corresponding period in 2014 compared to a 14% increase in revenues for the same period. The period-over-period improvement in gross margin was due to increased production volumes of both masonry and landscape products during the nine month period ended September 30, 2015. The increase in production volumes had a comparatively positive impact on per unit manufacturing costs and margins during the current period. In addition, property tax credits amounting to $623 on assessments relating to prior periods were recognized in 2015.

Additionally, in the corresponding period of 2014, cost of sales included start-up costs related to the commissioning of the two concrete manufacturing plants located in Hillsdale and Brockville, Ontario. This resulted in lower capacity utilization due to the initial trial production runs and consequently, higher fixed costs per unit sold.

Selling expenses for the nine month period ended September 30, 2015 were $7,344 compared to $6,670 for the corresponding period in 2014. The reason for this increase is discussed above under the caption, 'Three Months Ended September 30, 2015'.

General and administrative expenses decreased to $4,530 for the nine month period in 2015 compared to $5,106 for the same period of 2014. Collections of customer accounts receivable previously provided for in the allowance for doubtful accounts and other provision reversals during the period in 2015 contributed to the improvement.

Gain on disposal of property, plant and equipment amounted to $6 for the year-to-date period of 2015 compared to a loss of $1,595 in the corresponding prior period of 2014. During the second quarter of 2014, a write-off of certain production equipment at the Milton plant amounting to $1,600 was recognized. The decommissioning and shutdown of the Milton plant in the fourth quarter of 2014 was a key element of the Company's strategy to reallocate production volumes throughout its concrete plant network and improve capacity utilization levels at each plant.

Other expense of $764 for the nine month period ended September 30, 2015 relates primarily to the loss on translation of foreign currency transactions as a result of the strengthening of the U.S. dollar during the period compared to income of $6 for the corresponding prior period.

Operating income for the nine month period ended September 30, 2015 increased to $9,407 compared to $907 for the same period in 2014 primarily due to an increase in revenues and comparatively lower per unit fixed costs on higher production volumes during the year-to-date period in 2015. Manufacturing costs in 2014 were also higher due to non-recurring costs related to the newly commissioned plants and the equipment write-off at the former Milton plant.

Finance expense for the year-to-date period of 2015 totaled $1,855 compared to $5,233 for the nine month period of 2014. The decrease in finance expense in the first nine months of 2015 compared to the same period in 2014 was primarily due to a payment in January 2014 of future interest of $3,305, plus the unamortized transaction costs in the amount of $200, on the early repayment of the Company's then existing term loan of $22,500.

On January 30, 2015, the Company entered into a floating-to-fixed interest rate swap with a notional value of $26,000, to minimize its exposure to fluctuations in cash flows from changes in interest rates on the committed revolving reducing term loan ("Committed term loan") of the same amount. The swap notional value will decrease proportionately with the outstanding balance of the underlying Committed term loan as scheduled repayments are made over its duration. As a result of this transaction, the Company's interest rate for the Committed term loan is fixed at 3.69%. The Company has not applied hedge accounting in relation to this transaction. For the nine month period ended September 30, 2015, the unrealized loss on the interest rate swap totaled $478.

Excluding the unrealized loss on the interest rate swap, finance expense for the nine months of 2015 decreased to $1,377 compared to $1,728, excluding the non-recurring expense of $3,505, for the corresponding period in 2014. This decrease in finance expense was due to lower bank operating advances during the period and the decrease in debt balances outstanding as a result of scheduled repayments made over the third quarter of 2015 totaling $1,400.

A provision for income taxes totaling $2,198 was recorded for the nine month period of 2015 compared to a recovery of income taxes of $597 for the same period in 2014. The income tax provision and recovery for the period in 2015 and 2014 respectively, relate to the Company's Canadian operations. The Company has not recorded a deferred tax asset with respect to the potential deferred tax benefit pertaining to losses incurred by its U.S. operations.

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

MASONRY PRODUCTS

Revenues of the Masonry Products business segment increased to $26,290 compared to $25,303 for the quarter ended September 30, 2015 due primarily to an increase in shipments from the new facilities located in Hillsdale and Brockville, Ontario. Operating income increased to $3,572 for the third quarter of 2015 compared to $3,148 for the corresponding quarter of 2014. The improvement in operating income during the quarter ended September 30, 2015 was positively impacted by lower fixed costs per unit on higher production volumes of masonry products. In addition, costs for commissioning of production equipment at the Hillsdale and Brockville, Ontario plants were incurred in the third quarter of 2014.

For the nine month period ended September 30, 2015, revenues of the Masonry Products business segment increased by 12% to $66,231 from revenues in the corresponding period of 2014. Improved residential construction activity was the primary driver of the increase in revenue in the first half of the current fiscal year. Additionally, an increase in shipments from the Hillsdale and Brockville plants had a positive impact.

Operating income increased to $4,692 for the nine month period ended September 30, 2015 from $230 for the corresponding period in 2014. The improvement in operating results was due to the same reasons described above for the three and nine month periods, respectively.

LANDSCAPE PRODUCTS

Revenues of the Landscape Products business segment for the three month period ended September 30, 2015 increased to $14,175 from $12,148 for the corresponding period in 2014 due to an increase in shipments from the Hillsdale and Brockville plants and an expanded product portfolio. Operating income for the third quarter of 2015 increased to $3,116 compared to $2,036 for the corresponding prior period. The operating results in 2014 were negatively impacted by commissioning costs of the Hillsdale and Brockville, Ontario plants acquired early in 2014.

For the nine month period ended September 30, 2015, revenues of the Landscape Products business segment increased to $28,435 from $23,817 for the corresponding period of 2014. The increase in revenues on a year-to-date basis generated from the aforementioned new plants was the result of additional products, further geographic market expansion and continued improvements in marketing and customer service initiatives.

Operating income increased to $4,718 for the nine month period ended September 30, 2015 from $685 for the corresponding period in 2014. The improvement in operating results compared to the period in 2014 was due to an increase in revenues in the current period. In addition, commissioning costs of the new plants at Hillsdale and Brockville, which increased the average per unit cost of production, as well as a non-recurring loss on disposal of property, plant and equipment at the former Milton plant, were recorded in the corresponding period of 2014.

CASH FLOWS

Cash provided by operating activities increased to $6,611 for the nine month period ended September 30, 2015, compared to $2,080 for the same period in 2014. The improvement in operating results and collections from trade receivables was offset, in part, by increases in inventories and disbursements of trade payables.

Cash utilized for purchases of property, plant and equipment totaled $3,413 for the nine month period of 2015, compared to $10,521 for the corresponding period in 2014. On January 7, 2014, the Company acquired substantially all of the property, plant and equipment of Atlas Block, for an aggregate purchase price of $11,366, including $2,494 by way of finance leases.

During the third quarter of 2015, an amount of $500 was received from Universal Resource Recovery Inc. ('Universal'), and applied to the loan receivable outstanding balance. As at September 30, 2015, the loan receivable from Universal totaled $4,700 (December 31, 2014 - $5,200).

On January 3, 2014, the Company drew down an amount of $36,595 on a new $40,000 demand revolving reducing term loan facility, as further discussed in Note 7 to the Condensed Interim Consolidated Financial Statements.

During the second quarter ended June 30, 2015, dividends amounting to $140 were paid to non-controlling shareholders of a subsidiary company (2014 - Nil).

FINANCIAL CONDITION

The Company's Masonry Products and Landscape Products business segments are seasonal in nature. The Landscape Products business is affected 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 September 30, 2015, bank operating advances were $1,548 compared to $1,610 as at December 31, 2014.

Trade payables totaled $17,779 as at September 30, 2015 compared to $17,805 as at December 31, 2014.

The ratio of total liabilities to shareholders' equity was 0.60:1 at September 30, 2015 compared to 0.63:1 at December 31, 2014. The decrease in this ratio from December 31, 2014 to September 30, 2015 was primarily due to the improvement in operating results and an increase in the foreign exchange translation gain in 'Accumulated other comprehensive income' due to the strengthening of the U.S. dollar against the Canadian dollar during the year-to-date period in 2015.

As at September 30, 2015, the Company's current ratio is 1.43:1, representing working capital of $17,660, compared to 1.23:1, and $8,878, respectively, as at December 31, 2014. The increase in working capital, typical for the third quarter compared to the fiscal year end, was due to an increase in trade and other receivables and inventories. Cash and cash equivalents totaled $954 at September 30, 2015 compared to $1,419 at December 31, 2014.

The Company's demand operating facility provides for borrowings of up to $22,000 based on margin formulae for trade receivables, certain other qualified receivables and inventories, less priority claims and the mark-to-market exposure on swap contracts. It is a demand facility secured by a general security agreement over all assets. The agreement also contains certain financial covenants. As at September 30, 2015, the utilization was $1,879 and comprised of a current account balance of $1,548 and outstanding letters of credit of $331.

The Company was in compliance with all financial covenants under its term financing agreement and operating credit facility as at September 30, 2015 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 as they become due.

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 loans receivable from Universal and others and the expected self-sufficiency on a cash basis of 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 under "Risks and Uncertainties" in the 2014 annual MD&A included in the Company's 2014 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, 2014), 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 Limited 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 Farmersburg, 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, Hillsdale, Brockville and Brampton, Ontario and in Wixom, Michigan and sold to markets in Ontario, Quebec, Michigan, New York, Pennsylvania, Ohio, Kentucky, Illinois and Indiana under the Oaks™ trade name. The Company's products are used for residential construction and for industrial, commercial, and institutional building projects.

SELECTED FINANCIAL INFORMATION

(unaudited) (in thousands of Canadian dollars)


CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
September 30
2015
December 31
2014
ASSETS
Current assets
Cash and cash equivalents $ 954 $ 1,419
Trade and other receivables 22,969 16,663
Inventories 33,265 28,548
Taxes recoverable - 68
Other assets 1,011 546
Loan receivable 84 -
58,283 47,244
Non-current assets
Loans receivable 4,974 5,200
Property, plant and equipment 167,823 165,236
172,797 170,436
Total assets $ 231,080 $ 217,680
LIABILITIES
Current liabilities
Bank operating advances $ 1,548 $ 1,610
Trade payables 17,779 17,805
Income tax payable 1,664 -
Current portion of debt 16,266 16,416
Current derivative financial instrument 263 -
Decommissioning provisions 30 30
Other liabilities 3,073 2,505
40,623 38,366
Non-current liabilities
Non-current portion of debt 24,787 26,064
Non-current derivative financial instrument 215 -
Decommissioning provisions 5,516 5,213
Deferred tax liabilities 15,283 14,833
45,801 46,110
Total liabilities $ 86,424 $ 84,476
EQUITY
Equity attributable to shareholders of Brampton Brick Limited
Share capital $ 33,755 $ 33,711
Contributed surplus 2,568 2,293
Accumulated other comprehensive income 10,492 4,573
Retained earnings 97,794 92,600
$ 144,609 $ 133,177
Non-controlling interests 47 27
Total equity $ 144,656 $ 133,204
Total liabilities and equity $ 231,080 $ 217,680

SELECTED FINANCIAL INFORMATION

(unaudited) (in thousands of Canadian dollars, except per share amounts)

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Three months ended
September 30
Nine months ended
September 30
2015 2014 2015 2014
Revenues $ 40,465 $ 37,451 $ 94,666 $ 83,129
Cost of sales 28,788 28,232 72,627 68,857
Selling expenses 2,776 2,183 7,344 6,670
General and administrative expenses 1,849 1,764 4,530 5,106
(Gain) loss on disposal of property, plant and equipment (14 ) 1 (6 ) 1,595
Other expense (income) 379 95 764 (6 )
33,778 32,275 85,259 82,222
Operating income 6,687 5,176 9,407 907
Finance expense (785 ) (593 ) (1,855 ) (5,233 )
Income (loss) before income taxes 5,902 4,583 7,552 (4,326 )
(Provision for) recovery of income taxes
Current (1,291 ) (1,082 ) (1,753 ) (387 )
Deferred (287 ) (147 ) (445 ) 984
(1,578 ) (1,229 ) (2,198 ) 597
Net income (loss) for the period $ 4,324 $ 3,354 $ 5,354 $ (3,729 )
Net income (loss) attributable to:
Shareholders of Brampton Brick Limited $ 4,324 $ 3,355 $ 5,194 $ (3,728 )
Non-controlling interests - (1 ) 160 (1 )
Net income (loss) for the period $ 4,324 $ 3,354 $ 5,354 $ (3,729 )
Other comprehensive income (loss)
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation income $ 2,945 $ 2,382 $ 5,919 $ 2,479
Total comprehensive income (loss) for the period $ 7,269 $ 5,736 $ 11,273 $ (1,250 )
Total comprehensive income (loss) attributable to:
Shareholders of Brampton Brick Limited $ 7,269 $ 5,737 $ 11,113 $ (1,249 )
Non-controlling interests - (1 ) 160 (1 )
Total comprehensive income (loss) for the period $ 7,269 $ 5,736 $ 11,273 $ (1,250 )
Net income (loss) per Class A Subordinate Voting share and Class B Multiple Voting share attributable to shareholders of Brampton Brick Limited $

0.39
$

0.31
$

0.47
$

(0.34
)
Weighted average Class A Subordinate Voting shares and Class B Multiple Voting shares outstanding (000's)
10,947

10,940

10,943

10,940

SELECTED FINANCIAL INFORMATION

(unaudited) (in thousands of Canadian dollars)

Nine months ended September 30
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS 2015 2014
Cash provided by (used for)
Operating activities
Net income (loss) for the period $ 5,354 $ (3,729 )
Items not affecting cash and cash equivalents
Depreciation 6,813 6,117
Current tax provision 1,753 387
Deferred tax provision (recovery) 445 (984 )
(Gain) loss on disposal of property, plant and equipment (6 ) 1,595
Unrealized foreign currency exchange (gain) loss (494 ) 15
Net interest expense 1,377 5,233
Derivative financial instrument loss 478 -
Other 283 172
16,003 8,806
Changes in non-cash items
Trade and other receivables (6,021 ) (10,977 )
Inventories (3,403 ) (920 )
Other assets (425 ) 1,554
Trade payables 63 2,438
Other liabilities 414 1,033
(9,372 ) (6,872 )
Income tax (payments) refunds (20 ) 146
Cash provided by operating activities 6,611 2,080
Investing activities
Purchase of property, plant and equipment (3,413 ) (10,521 )
Loan advances (400 ) -
Proceeds from repayments of loan receivable 542 -
Proceeds from disposal of property, plant and equipment 184 57
Cash used for investment activities (3,087 ) (10,464 )
Financing activities
(Decrease) increase in bank operating advances (62 ) 411
Proceeds from issuance of the demand revolving reducing term loan - 36,595
Payment of term loans (1,613 ) (22,702 )
Interest paid (1,286 ) (4,912 )
Payments on obligations under finance leases (1,005 ) (779 )
Proceeds from exercise of stock options 36 -
Payment of dividends by subsidiary to non-controlling interests (140 ) -
Cash (used for) provided by financing activities (4,070 ) 8,613
Foreign exchange on cash held in foreign currency 81 (176 )
(Decrease) increase in cash and cash equivalents (465 ) 53
Cash and cash equivalents at the beginning of the period 1,419 1,200
Cash and cash equivalents at the end of the period $ 954 $ 1,253

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
Retained
Earnings
Total Non-
controlling
interest
Total
Equity
Balance - January 1, 2014 $ 33,711 $ 2,078 $ 373 $ 106,559 $ 142,721 $ 29 $ 142,750
Net loss for the period - - - (3,728 ) (3,728 ) (1 ) (3,729 )
Other comprehensive income (net of taxes, $nil) - - 2,479 - 2,479 - 2,479
Comprehensive income (loss) for the period - - 2,479 (3,728 ) (1,249 ) (1 ) (1,250 )
Share-based compensation - 172 - - 172 - 172
Balance - September 30, 2014 $ 33,711 $ 2,250 $ 2,852 $ 102,831 $ 141,644 $ 28 $ 141,672
Balance - January 1, 2015 $ 33,711 $ 2,293 $ 4,573 $ 92,600 $ 133,177 $ 27 $ 133,204
Net income for the period - - - 5,194 5,194 160 5,354
Other comprehensive income (net of taxes, $nil) - - 5,919 - 5,919 - 5,919
Comprehensive income for the period - - 5,919 5,194 11,113 160 11,273
Stock options exercised 44 (8 ) - - 36 - 36
Share-based compensation - 283 - - 283 - 283
Dividends paid to non-controlling interests - - - - - (140 ) (140 )
Balance - September 30, 2015 $ 33,755 $ 2,568 $ 10,492 $ 97,794 $ 144,609 $ 47 $ 144,656

Contact Information

  • Brampton Brick Limited
    Jeffrey G. Kerbel
    President and Chief Executive Officer
    905-840-1011
    905-840-1535 (FAX)

    Brampton Brick Limited
    Trevor M. Sandler
    Vice-President, Finance and Chief Financial Officer
    905-840-1011
    905-840-1535 (FAX)
    investor.relations@bramptonbrick.com