Ibstock building momentum in UK bricks but US softens

Brick-maker Ibstock grew revenue 8% and underlying pre-tax profits 14% in the first half of the year as it invested in extra UK capacity to meet housing demand but reported a slowdown in its smaller US business.

Turnover in the first six months of the year of £228.3m was up 8.7% year on year, with the UK businesses, which account for 81% of group revenue, increasing revenue 8% and the US business generating an 11% increase, but falling slightly if a £5m exchange rate benefit is ignored.

Reported profit before tax was up 2.7% to £38.9m, or 14.4% higher to £43.3m if excluding exceptional pension costs from last year and costs connected to the sale by former private equity owners Bain this year.

There were also one-off finance costs as the group refinanced its debt arrangements and entered into a new £250m revolving credit facility, with net debt standing at just under £160m at the period end, down from £161m a year before.

Statutory earnings per share increased almost 3% to 7.6p and adjusted EPS rose 16% to 9.5p.

The interim dividend was lifted 8% to 2.6p per share, as per the policy of paying one-third of the prior year's full year dividend.

Looking to the second half, a new 100m-brick-per-year soft mud brick factory at Ibstock in Leicestershire is scheduled to begin producing in the fourth quarter of this year, with management anticipating getting up to 50% capacity during 2018, weighted to the second half of next year as production volumes are ramped up progressively across the year. When it hits full capacity it will add 13% to Ibstock’s UK capacity and will increase total national domestic brick production by 5%.

A new blue brick kiln to increase capacity at the Staffordshire plant is also scheduled to come on line in the same quarter, which is expected add incremental EBITDA of around £1m during its first full year of operation.

The UK concrete business has seen good demand, with the Forticrete business benefiting from growing sales from a new roof tile line and has seen a new til design well-received by housing developers.

The US business endured a mid single-digit volume decline for the first half as a whole, following a strong start to 2017.

Ibstock said the softer performance "reflects a market slowdown in both multi-family and non-residential projects across the North-East and Mid-West regions of the US which commenced in the spring".

Chief executive Wayne Sheppard said UK brick volumes were well ahead year-on-year, driven by good activity levels in the UK new build housing sector and he felt longer term fundamentals underpinning the new-build housing market in the UK, namely government support, good mortgage availability and an undersupply of new homes, "remain in place, although we continue to be alert to any changes in customer confidence stemming from political uncertainty after the recent general election result and the on-going Brexit negotiations".

"The group remains strongly cash generative, we are investing for further growth, and our expectations for another year of progress are maintained."

Broker Shore Capital said management also plans to grow by acquisition, with net debt now "providing some headspace for debt financed deals" and given the dominant circa-60% market share in the UK "we think any deal would be stateside, congruous to US business Glen Geary".