Brampton Brick Limited
TSX : BBL.A

Brampton Brick Limited

November 09, 2016 18:55 ET

Brampton Brick Reports Results for the Third Quarter Ended September 30, 2016

BRAMPTON, ONTARIO--(Marketwired - Nov. 9, 2016) -

(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 $4,636, or $0.42 per Class A Subordinate Voting share and Class B Multiple Voting share, outstanding for the three month period ended September 30, 2016 compared to a net income of $4,324 or $0.39 per share, for the same period in 2015. The aggregate weighted average number of Class A Subordinate Voting shares and Class B Multiple Voting shares outstanding was 10,947,254 for the third quarter of each of 2016 and 2015, respectively.

DISCUSSION OF OPERATIONS

Three months ended September 30, 2016

Revenues increased to $43,811 in the third quarter of 2016 from $40,465 for the corresponding quarter of 2015 due to higher shipments in both the Masonry Products and Landscape Products business segments. The pace of residential construction and the strength in the housing market during the first half of the year continued through the third quarter of 2016 and supported the growth in shipments of both the Masonry Products and Landscape Products business segments over the corresponding quarter in 2015.

Cost of sales for the third quarter ended September 30, 2016 increased to $31,683, from $28,788 for the corresponding period in 2015, primarily due to an increase in the volume of shipments. However, lower production volumes during the current quarter and the direct impact on per unit fixed manufacturing costs, as well as the timing of equipment modifications at the Farmersburg clay brick plant, increased cost of sales incurred during the quarter ended September 30, 2016 compared to the corresponding period in 2015.

Selling expenses for the third quarter of 2016 of $2,837 were consistent with expenses of $2,776, for the corresponding quarter of 2015.

General and administrative expenses increased to $2,142 for the third quarter ended September 30, 2016, from $1,849 for the corresponding period in 2015 due to a general increase in personnel-related expenses.

The loss on disposal of property, plant and equipment of $147 for the third quarter of 2016 relates to miscellaneous plant equipment replaced, primarily at the Brampton clay brick plant, in order to increase long-term operational efficiencies and reduce production costs. This compares to a gain on sale of assets of $14 in 2015.

Other expense decreased to $18 compared to $379 for the corresponding prior period due to comparatively lower fluctuations in the U.S. dollar currency exchange rates impacting operations during the third quarter of 2016. Other expense includes the net gains and losses on the translation of foreign currency transactions, converted into the functional currency using exchange rates prevailing at the dates of the transactions.

Operating income increased to $6,984 for the quarter ended September 30, 2016, from $6,687 for the same quarter of 2015.

Finance expense for the three months ended September 30, 2016 was $346, compared to $785 for the corresponding quarter in 2015. Excluding the change in the fair value of the interest rate swap which amounted to an unrealized gain of $50 (2015 - unrealized loss of $346), net interest expense for the current quarter decreased to $396 compared to $439 in the third quarter of 2015 on lower debt balances. The decrease in outstanding debt balances was due to scheduled repayments amounting to $2,500 and $1,500 made in the second half of 2015 and in the current quarter of 2016, respectively.

Provision for income taxes totaled $2,002 for the third quarter of 2016 compared to $1,578 for the same period in 2015. The increase was due to the improvement in operating results from the Canadian operations in the third quarter of 2016 compared to the same period in 2015. 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, 2016

For the nine months ended September 30, 2016, the Company recorded net income of $6,170, or $0.56 per share, compared to a net income of $5,354, or $0.47 per share, for the same period in 2015. The aggregate weighted average number of Class A Subordinate Voting shares and Class B Multiple Voting shares outstanding for the periods ended September 30, 2016 and September 30, 2015 were 10,947,254 and 10,943,058, respectively.

Revenues for the nine months ended September 30, 2016 grew by 12% to $106,287, from $94,666 for the same period in 2015, primarily due to growth in shipments in both the Masonry Products and Landscape Products business segments. The combined effects of weather conditions favourable for construction, a strong housing market in Canada and an expanded product portfolio positively impacted operations for the year-to-date period of 2016.

Cost of sales for the nine months ended September 30, 2016 increased to $80,623 from $72,627 for the corresponding period in 2015. This increase was primarily due to:

  1. higher shipments which were partially offset by the favourable impact of higher production volumes on per unit costs;
  2. plant costs incurred at the Farmersburg, Indiana clay brick facility totaling approximately $4.1 million and charged directly to operations as a result of:
    1. a temporary plant shutdown for maintenance during the first four months of 2016; and
    2. the lost production volume as a result of the installation, commissioning and production trial runs of new and more efficient, process equipment; and
  3. costs charged to operations, in excess of $700, due to lost production volume, as a consequence of equipment commissioning, retrofitting and product testing related to the concrete products manufacturing plant, located in Boisbriand, Quebec. This plant's assets were acquired in April 2016 and commercial production commenced during the current quarter of 2016.

The improvement in gross margin for the period ended September 30, 2016 was primarily due to the positive impact of lower per unit costs on higher production volumes in both the Masonry Products and Landscape Products business segments. Partially offsetting the improved gross margin was a decrease in property tax assessment refunds of only $68 in the quarter ended September 30, 2016 compared to $623 in the corresponding quarter in 2015.

Selling expenses for the nine-month period ended September 30, 2016 were $8,344, compared to $7,344 for the corresponding period in 2015. Greater sales promotion and personnel costs related to the increase in volumes. Additionally, higher expenses related to incremental product offerings and to upgrades and associated maintenance costs of new marketing platforms and customer service tools added to the unfavourable variance.

General and administrative expenses increased to $5,856 for the nine months of 2016, compared to $4,530 for the same period in 2015. A large part of this year-over-year variance relates to a reversal of provisions totaling $900 in 2015. In addition, general increases in personnel-related expenses were recognized during the year-to-date period of 2016.

Other expense of $280 for the nine-month period ended September 30, 2016 compared to $764 for the corresponding prior period relates primarily to the loss on translation of foreign currency transactions as a result of currency exchange fluctuations attributed to the U.S. dollar during the period. The decrease in the foreign currency exchange loss is due to the impact of comparatively smaller movements in the U.S. dollar currency exchange rate on operations compared to the corresponding period of 2015.

Operating income for the nine months ended September 30, 2016 was $11,037, compared to $9,407 for the same period in 2015.

Finance expense for the year-to-date period of 2016 totaled $1,697, compared to $1,855 for the nine-month period of 2015. Excluding the unrealized loss on the interest rate swap of $474 (2015 - $478), finance expense for the nine months of 2016 decreased to $1,223 compared to $1,377 for the corresponding period in 2015. This decrease in finance expense was due to lower debt balances, as described above under the discussion for the three month period ended September 30, 2016.

A provision for income taxes totaling $3,170 was recorded for the nine months of 2016 compared to $2,198 for the same period in 2015. The income tax provisions for the year-to-date periods of 2016 and 2015 relate only 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.

The following paragraphs explain each operating business segment in more detail.

MASONRY PRODUCTS

Revenues of the Masonry Products business segment increased by 9% to $28,758 for the quarter ended September 30, 2016, compared to $26,290 for the same quarter in 2015. The momentum in residential construction during the current quarter continued to positively impact shipments in the Canadian markets for this business segment. Operating income for the current quarter increased to $3,834, compared to $3,572 for the same quarter in 2015. The increase in cost of sales as noted above was attributable to higher shipments and process improvement costs incurred at the Farmersburg, Indiana clay brick facility, which reduced the overall level of production activity during the third quarter of 2016.

For the nine months ended September 30, 2016, revenues of the Masonry Products business segment increased 13% to $74,556 from $66,231 in the corresponding period of 2015. Continuing strength in the housing market and mild weather conditions supported the increase in shipments during the year-to-date period of 2016.

Cost of sales for the nine months of 2016 increased by 11% to $58,037 from $52,162 for the corresponding period in 2015. The increase in costs of sales was due to higher masonry products' shipments which were largely offset by the impact of lower per unit costs on comparatively higher production volumes. Costs incurred at the Farmersburg, Indiana clay brick facility were significantly higher during the year-to-date period of 2016 as compared to the same period of 2015, for the same reasons noted above.

In addition, a lower foreign currency exchange loss of $263 for the year-to-date period of 2016 compared to $958 in the corresponding prior year comparative and property tax assessment credits on prior period assessments amounting to $539 were recognized in 2015.

The operating income for the nine months ended September 30, 2016 was $6,489 compared to $4,692 for the comparative period of 2015.

LANDSCAPE PRODUCTS

Revenues of the Landscape Products' business segment for the three months ended September 30, 2016 increased to $15,053, from $14,175 for the same period in 2015. Favourable weather conditions, enhanced customer service initiatives and a wider product range supported the growth in revenues during the quarter. Cost of sales for the quarter ended September 30, 2016 increased to $10,144 from $9,605, primarily due to an increase in product shipments.

As a result, the operating income for the third quarter of 2016 increased to $3,150 compared to $3,116 for the same period in 2015.

For the nine months ended September 30, 2016, revenues of the Landscape Products business segment increased to $31,731 from $28,435 for the corresponding period in 2015. Higher shipments, favourable weather conditions and increasing demand for recently launched new products contributed to the increase in revenues for the first nine months of 2016.

Cost of sales for the nine months ended September 30, 2016 increased to $22,586 from $20,466 for the corresponding period in 2015, due to higher shipment volumes and related costs.

During the nine months of 2016, both selling and general and administrative expenses were higher during the period primarily due to continued improvements to customer service management systems and an increase in other general and administrative expenses as noted above.

As a result, operating income of the Landscape Products business segment, for the year-to-date period of 2016, decreased marginally to $4,548 from $4,718 for the same period for 2015.

CASH FLOWS

Cash provided by operating activities increased to $12,510 for the nine months ended September 30, 2016, compared to $6,611 for the same period in 2015. An improvement in operating results and a comparative decrease in inventories held were partially offset by an increase in trade receivables due to higher shipment levels and the timing of collections, and higher income tax payments.

Cash utilized for purchases of property, plant and equipment totaled $10,296 in the year-to-date period of 2016, compared to $3,413 for the corresponding period in 2015. These purchases included equipment upgrades, at both U.S. facilities and at certain Canadian plants.

In addition, on April 9, 2016, the Company completed the acquisition of certain assets from Eurobloq Inc., a concrete products manufacturing company located in the Province of Quebec. The assets acquired included land and buildings and concrete products manufacturing equipment, all located in Boisbriand, Quebec. The purchase price for the assets of $5,000 and other related acquisition costs were financed from the Company's committed revolving term loan and its demand operating credit facility. On April 1, 2016, an amount of $3,405 was drawn on the committed revolving term loan.

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 is 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.

There were no bank operating advances outstanding as at September 30, 2016, and as at December 31, 2015, respectively.

Trade payables totaled $17,880 at September 30, 2016 compared to $17,655 at December 31, 2015.

The ratio of total liabilities to shareholders' equity was 0.57:1 at both September 30, 2016 and December 31, 2015 because the relative increase in total liabilities was offset by an increase in shareholders' equity. The increase in total liabilities was due to an increase in other liabilities, owing to the timing of consumption tax payments which increased due to higher revenues. The relative increase in retained earnings from net income for the period ended September 30, 2016 was partially offset by a decrease in the foreign exchange translation gain included in 'Accumulated other comprehensive income' due to the relative strengthening of the Canadian dollar against the U.S. dollar during the year-to-date period of 2016.

As at September 30, 2016, the Company's current ratio was 2.08:1, representing working capital of $32,813 compared to 1.94:1 and $27,125, respectively, as at December 31, 2015. The increase in working capital was due to comparatively higher cash and cash equivalents and trade receivables which increased due to higher third quarter revenues and was offset by an increase in other liabilities and a decrease in inventories held. Cash and cash equivalents totaled $5,759 at September 30, 2016, compared to $4,021 at December 31, 2015.

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 of the Company's assets excluding the Company's 225 Wanless Drive, Brampton, Ontario property. The agreement also contains certain financial covenants.

As at September 30, 2016, the borrowing limit based on the margin formulae was $22,000, of which $325 in outstanding letters of credit were utilized.

The Company was in compliance with all financial covenants under its term financing agreement and operating credit facility as at September 30, 2016 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 loan receivable from Universal 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, production levels, costs, productivity, 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 2015 annual MD&A included in the Company's 2015 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, 2015), 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, in Boisbriand, Quebec and in Wixom, Michigan and sold to markets in Ontario, Quebec, Michigan, New York, Pennsylvania, Ohio, Kentucky, Illinois and Indiana under the OaksTM 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)

September 30 December 31
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS 2016 2015
ASSETS
Current assets
Cash and cash equivalents $ 5,759 $ 4,021
Trade and other receivables 26,665 18,711
Inventories 29,067 32,163
Other assets 1,635 1,111
Loan receivable 88 85
63,214 56,091
Non-current assets
Loans receivable 4,436 4,947
Property, plant and equipment 168,618 168,091
173,054 173,038
Total assets $ 236,268 $ 229,129
LIABILITIES
Current liabilities
Trade payables $ 17,880 $ 17,655
Income tax payable 2,041 1,729
Current portion of debt 5,482 6,380
Current derivative financial instrument 209 248
Decommissioning provisions 27 30
Other liabilities 4,762 2,924
30,401 28,966
Non-current liabilities
Non-current portion of debt 33,987 32,970
Non-current derivative financial instrument 769 256
Decommissioning provisions 5,397 5,377
Deferred tax liabilities 15,691 15,681
55,844 54,284
Total liabilities $ 86,245 $ 83,250
EQUITY
Equity attributable to shareholders of Brampton Brick Limited
Share capital $ 33,755 $ 33,755
Contributed surplus 3,014 2,641
Accumulated other comprehensive income 9,812 12,176
Retained earnings 103,440 97,270
$ 150,021 $ 145,842
Non-controlling interests 2 37
Total equity $ 150,023 $ 145,879
Total liabilities and equity $ 236,268 $ 229,129

SELECTED FINANCIAL INFORMATION

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

Three months ended Nine months ended
CONDENSED INTERIM CONSOLIDATED September 30 September 30
STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 2016 2015 2016 2015
Revenues $ 43,811 $ 40,465 $ 106,287 $ 94,666
Cost of sales 31,683 28,788 80,623 72,627
Selling expenses 2,837 2,776 8,344 7,344
General and administrative expenses 2,142 1,849 5,856 4,530
Loss (gain) on disposal of property, plant and equipment 147 (14 ) 147 (6 )
Other expense 18 379 280 764
36,827 33,778 95,250 85,259
Operating income 6,984 6,687 11,037 9,407
Finance expense (346 ) (785 ) (1,697 ) (1,855 )
Income before income taxes 6,638 5,902 9,340 7,552
Provision for income taxes
Current (1,933 ) (1,291 ) (3,159 ) (1,753 )
Deferred (69 ) (287 ) (11 ) (445 )
(2,002 ) (1,578 ) (3,170 ) (2,198 )
Net income for the period $ 4,636 $ 4,324 $ 6,170 $ 5,354
Net income attributable to:
Shareholders of Brampton Brick Limited $ 4,636 $ 4,324 $ 6,170 $ 5,194
Non-controlling interests - - - 160
Net income for the period $ 4,636 $ 4,324 $ 6,170 $ 5,354
Other comprehensive income (loss)
Items that will be reclassified subsequently to profit or loss when specific conditions are met:
Foreign currency translation income (loss) $ 705 $ 2,945 $ (2,364 ) $ 5,919
Total comprehensive income for the period $ 5,341 $ 7,269 $ 3,806 $ 11,273
Total comprehensive income attributable to:
Shareholders of Brampton Brick Limited $ 5,341 $ 7,269 $ 3,806 $ 11,113
Non-controlling interests - - - 160
Total comprehensive income for the period $ 5,341 $ 7,269 $ 3,806 $ 11,273
Net income per Class A Subordinate Voting share and Class B Multiple Voting share attributable to shareholders of Brampton Brick Limited $ 0.42 $ 0.39 $ 0.56 $ 0.47
Weighted average Class A Subordinate Voting shares and Class B Multiple Voting shares outstanding (000's) 10,947 10,947 10,947 10,943

SELECTED FINANCIAL INFORMATION

(unaudited)(in thousands of Canadian dollars)

CONDENSED INTERIM CONSOLIDATED STATEMENTS Nine months ended September 30
OF CASH FLOWS 2016 2015
Cash provided by (used for)
Operating activities
Net income for the period $ 6,170 $ 5,354
Items not affecting cash and cash equivalents
Depreciation 7,267 6,813
Current taxes provision 3,159 1,753
Deferred taxes provision 11 445
Loss (gain) on disposal of property, plant and equipment 147 (6 )
Unrealized foreign currency exchange loss (gain) 185 (494 )
Net interest expense 1,223 1,377
Derivative financial instrument loss 474 478
Other 373 283
19,009 16,003
Changes in non-cash items
Trade and other receivables (7,981 ) (6,021 )
Inventories 2,560 (3,403 )
Other assets (552 ) (425 )
Trade payables 564 63
Other liabilities 1,761 414
(3,648 ) (9,372 )
Income tax payments (2,848 ) (20 )
Payments for decommissioning of assets (3 ) --
Cash provided by operating activities 12,510 6,611
Investing activities
Purchase of property, plant and equipment (10,296 ) (3,413 )
Loan advances - (400 )
Proceeds from repayments of loans receivable 508 542
Proceeds from disposal of property, plant and equipment 17 184
Cash used for investment activities (9,771 ) (3,087 )
Financing activities
Decrease in bank operating advances - (62 )
Increase in Committed Revolving Term loan 3,405 --
Payment of term loans (2,298 ) (1,613 )
Interest paid (1,077 ) (1,286 )
Payments on obligations under finance leases (968 ) (1,005 )
Proceeds from exercise of stock options - 36
Payment of dividends by subsidiary to non-controlling interests (35 ) (140 )
Cash used for financing activities (973 ) (4,070 )
Foreign exchange on cash held in foreign currency (28 ) 81
Increase (decrease) in cash and cash equivalents 1,738 (465 )
Cash and cash equivalents at the beginning of the period 4,021 1,419
Cash and cash equivalents at the end of the period $ 5,759 $ 954

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, 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
Total 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
Balance - January 1, 2016 $ 33,755 $ 2,641 $ 12,176 $ 97,270 $ 145,842 $ 37 $ 145,879
Net income for the period - - - 6,170 6,170 - 6,170
Other comprehensive loss (net of taxes, $nil) - - (2,364 ) - (2,364 ) - (2,364 )
Total comprehensive (loss) income for the period - - (2,364 ) 6,170 3,806 - 3,806
Share-based compensation - 373 - - 373 - 373
Dividends paid to non-controlling interests - - - - - (35 ) (35 )
Balance - September 30, 2016 $ 33,755 $ 3,014 $ 9,812 $ 103,440 $ 150,021 $ 2 $ 150,023

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