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Brampton Brick Reports Results for the Second Quarter Ended June 30, 2017

/EINPresswire.com/ -- BRAMPTON, ONTARIO--(Marketwired - Aug 1, 2017) -

(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 $4,679, or $0.43 per share, compared to net income of $5,272, or $0.48 per share, for the corresponding quarter in 2016. The aggregate weighted average number of Class A Subordinate Voting shares and Class B Multiple Voting shares outstanding for the second quarter of 2017 and 2016 were 10,972,787 and 10,947,254, respectively.

DISCUSSION OF OPERATIONS

Three months ended June 30, 2017

Revenues increased by 9% to $47,814 in the second quarter of 2017 from $43,818 for the same quarter of 2016 due to higher shipments, in both the Masonry Products and Landscape Products business segments. The continued strength in housing demand and a catch-up in housing construction backlog from the end of 2016 combined with an expanded product portfolio supported the increase in shipment volumes through the second quarter of 2017, in spite of unusually wet spring weather experienced during the quarter.

Cost of sales for the second quarter ended June 30, 2017 increased to $34,577 from $31,039 for the corresponding quarter in 2016, primarily due to an increase in shipments. In addition, higher trucking and yard and shipping expenses and higher repairs and maintenance expenses incurred at the Brampton and Markham plants during the current quarter offset the favourable effect of higher production volumes on per unit fixed manufacturing costs. During the second quarter of 2016, higher costs were incurred at the Farmersburg, Indiana clay brick plant and at the Boisbriand, Quebec plant for process improvements. Higher production levels were achieved through the current quarter at the Farmersburg, Indiana plant and at the Boisbriand, Quebec facility with a continued focus on lowering costs.

Selling expenses for the second quarter of 2017 increased to $3,163 from $2,832 for the corresponding quarter of 2016. Marketing of the Company's products through multiple social media platforms and associated costs to develop social networking tools were incurred during the quarter. In addition, increases in advertising literature costs to include comprehensive, multi-product exterior design solutions and increases in personnel costs related to higher shipments were also reflected in the higher expense level.

General and administrative expenses increased to $2,990 for the second quarter ended June 30, 2017, from $2,110 for the corresponding period in 2016. This increase was primarily due to the cash settlement of certain employee stock options during the three months ended June 30, 2017. Compensation costs amounting to $771 were recognized for the increase in fair market value ("FMV") of the stock options on settlement, over the FMV at grant date which had been previously expensed over the vesting period.

In addition, during the second quarter of 2017, compensation cost on share appreciation rights that were granted on March 31, 2017 were recognized totaling $298. This amount represents the FMV of share appreciation rights for the three months ended June 30, 2017. Share appreciation rights are recognized over the specified term of service, on completion of which they vest with the participant.

For accounting purposes, share appreciation rights are measured at FMV using the Black-Scholes option pricing model. Compensation expense is recorded for the increase in the FMV of the share appreciation rights over the base price as specified in the Share Appreciation Rights Grant Agreement until settlement or expiration. The offsetting liability is recognized as Current and Non-Current based on the estimated timing of settlement. Compensation expense is recognized for share appreciation rights over the vesting period. Each vesting period represents a tranche, which is treated as a separate grant. Forfeitures are estimated in the determination of vested rights.

On March 21, 2017, the Board of Directors approved the Brampton Brick Limited Share Appreciation Rights Plan (the "SARs Plan"). Under the SARs Plan, the Company may grant share appreciation rights to the officers, full-time employees and directors of the Company and its subsidiaries. The base price of each share appreciation right is determined by the Board of Directors and cannot be less than the volume weighted average trading price ("VWAP") of the Company's Class A Subordinate Voting shares for the five trading days immediately preceding the effective date of the grant, and the maximum exercise term of a share appreciation right is ten years. Upon exercise of the share appreciation right, the excess of the FMV, being the five-day VWAP, as of the day preceding the date of exercise, over the base price will be payable to the participant.

Other expense increased to $88 for the quarter ended June 30, 2017 compared to $49 for the corresponding prior period due to comparatively higher fluctuations in the U.S. dollar currency exchange rates impacting operations during the second quarter of 2017. 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.

Because of the factors noted above, operating income decreased to $7,036 for the quarter ended June 30, 2017, from $7,788 for the same quarter in 2016.

Finance expense for the three months ended June 30, 2017 was $118, compared to $578 for the corresponding quarter in 2016. Excluding the change in the fair value of the interest rate swap which amounted to an unrealized gain of $227 (2016 - unrealized loss of $129), net interest expense for the current quarter decreased to $345 compared to $449 in the second quarter of 2016 due to lower debt balances. The decrease in outstanding debt balances was the result of scheduled repayments amounting to $2,500 made in the second half of 2016.

Provision for income taxes totaled $2,239 for the second quarter of 2017 compared to $1,938 for the same quarter of 2016. 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.

Six months ended June 30, 2017

For the six months ended June 30, 2017, the Company recorded net income of $1,778, or $0.16 per share, compared to a net income of $1,534, or $0.14 per share, for the same period in 2016. The aggregate weighted average number of Class A Subordinate Voting shares and Class B Multiple Voting shares outstanding for the periods ended June 30, 2017 and June 30, 2016 was 10,964,530 and 10,947,254, respectively.

Revenues for the six months ended June 30, 2017 grew to $69,483, an 11% increase from $62,476 for the same period in 2016. The increase in shipments in both the Masonry Products and Landscape Products business segments was due to the sustained strength in residential construction in the Canadian market. In addition, during the first half of 2017, the momentum in construction remained steady in spite of unusually wet spring weather conditions. The implementation of marketing programs to support customer demand for a wider range of products within the Masonry Products and Landscape Products business segments also contributed to an increase in overall revenues.

Cost of sales for the six months ended June 30, 2017 increased to $54,301 from $48,940 for the corresponding period in 2016, primarily due to an increase in shipments and higher repairs and maintenance expenses incurred and was partially offset by a decrease in per unit costs on increased production. During the corresponding first half of the prior year, additional costs were incurred during the temporary shutdown of the Farmersburg, Indiana clay brick facility for maintenance and the installation of new process manufacturing equipment. Production resumed in the month of April 2016 at lower levels due to continued refinements to the new equipment which resulted in increased costs during the period.

Selling expenses for the six-month period ended June 30, 2017 were $5,979, compared to $5,507 for the corresponding period in 2016. The increase for the first six months of 2017 was largely due to the reasons described above for the three months ended June 30, 2017. In addition, a relative increase in license fees for customer relationship management tools and an increase in personnel costs related to higher shipments were incurred.

General and administrative expenses increased to $4,876 for the first six months of 2017, compared to $3,714 for the same period of 2016, due to the same reasons noted above under the discussion for the three months ended June 30, 2017.

Other expense of $128 for the six-month period ended June 30, 2017 compared to $262 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.

Operating income for the six months ended June 30, 2017 increased to $4,275, compared to $4,053 for the same period in 2016.

Finance expense for the six-month period ended June 30, 2017 totaled $578, compared to $1,351 for the same period of 2016. Excluding the unrealized gain on the interest rate swap of $85 (2016 - unrealized loss of $524), finance expense for the first six months of 2017 decreased to $663 from $827 for the corresponding period in 2016. This decrease in finance expense was due to lower bank operating advances and lower debt balances.

A provision for income taxes totaling $1,919 was recorded for the first six months of 2017 compared to $1,168 for the same period in 2016. The income tax provisions for the first half of 2017 and 2016 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.

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

MASONRY PRODUCTS

Revenues of the Masonry Products business segment increased by 9% to $31,487 for the quarter ended June 30, 2017, compared to $28,943 for the corresponding quarter of 2016. The momentum in the pace of residential construction in Ontario continued through the second quarter of 2017, contributing to the increase in shipments. Cost of sales increased due to higher shipments but were partially offset by the favourable effects of increased production volumes. During the second quarter of 2016, cost of sales included process improvement costs incurred at the Farmersburg, Indiana clay brick facility which reduced the level of production activity during that period. The increase in selling and general and administrative expenses relating to this business segment during the second quarter of 2017 is described under the caption, 'Discussion of Operations' for the three months ended June 30, 2017. As a result, operating income for the second quarter of 2017 decreased to $3,248, compared to $4,382 for the same quarter in 2016.

For the six months ended June 30, 2017, revenues of the Masonry Products business segment increased 12% to $51,453 from $45,798 in the corresponding period of 2016. Increases in the shipments of masonry products were primarily due to the increasing demand for residential real estate in Ontario and a continuing focus to grow customer demand by integrating product lines within this business segment.

Cost of sales for the first six months of 2017 increased to $41,326 as compared to $36,497 for the corresponding period in 2016. The increase in costs of sales due to higher shipments of masonry products and higher repair and maintenance expenses was partially offset by the positive impact of higher production volumes on per unit costs. As noted earlier, costs at the Farmersburg, Indiana clay brick facility were higher in the first half of 2016 due to a temporary shutdown for maintenance and the installation of new process manufacturing equipment during the period.

In addition, selling and general and administrative expenses related to this business segment increased during the current period as is described in more detail under the caption, 'Discussion of Operations' for the three months ended June 30, 2017.

Operating income for the six months ended June 30, 2017 was $2,303 compared to $2,655 for the comparative period of 2016.

LANDSCAPE PRODUCTS

Revenues of the Landscape Products business segment for the three months ended June 30, 2017 increased to $16,327, from $14,875 for the corresponding quarter of 2016. The increase in revenues was supported by higher shipments during the current quarter. Cost of sales for the quarter ended June 30, 2017 increased to $10,425 from $9,737 for the corresponding quarter of 2016, primarily due to the increase in shipments.

As a result, operating income for the second quarter of 2017 increased to $3,788 compared to $3,406 for the same quarter in 2016.

For the six months ended June 30, 2017, revenues of the Landscape Products business segment increased to $18,030 from $16,678 for the corresponding period of 2016 due to an increase in shipments. During the first half of 2017, favourable market conditions for new home sales and repair and remodeling activity contributed to the demand for landscaping and curb appeal upgrades. Cost of sales for the six months ended June 30, 2017 increased to $12,975 from $12,442 for the corresponding period in 2016, due to higher shipments.

Both selling and general and administrative expenses were higher for the reasons described above under the caption 'Discussion of Operations' for the three months ended June 30, 2017.

As a result, operating income of the Landscape Products business segment for the first six months of 2017 increased to $1,972 from $1,398 for the same period for 2016.

CASH FLOWS

Cash used for operating activities increased to $6,366 for the six months ended June 30, 2017, compared to $2,514 for the corresponding period in 2016. Higher inventories, higher trade receivable balances due to higher revenues and higher income tax payments during the first six months of 2017 were partially offset by a decrease in accounts payable disbursements.

Cash utilized for purchases of property, plant and equipment totaled $3,446 in the first six months of 2017. This amount includes additions during the period of $2,575 and net amounts paid relating to capital additions made in the prior period. These capital expenditures included $1,010 for mobile equipment, of which $323 were capital leases and $1,127 for production process equipment primarily at the Brampton and Wixom concrete products plants. During the corresponding prior period, cash utilized for purchases of property, plant and equipment was $8,378, and comprised primarily of the purchase of certain assets in Boisbriand, Quebec and equipment upgrades at both U.S. facilities and at certain Canadian plants.

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, 2017, the bank operating advances outstanding total was $593, with no outstanding balance as at December 31, 2016.

Trade payables totaled $18,266 at June 30, 2017 compared to $15,956 at December 31, 2016.

The ratio of total liabilities to shareholders' equity was 0.56:1 at June 30, 2017 compared to 0.55:1 at December 31, 2016. An increase in trade payables due to a timing difference in disbursements, the increase in other liabilities outstanding due to sales and other taxes payable on higher revenues and the decrease in accumulated other comprehensive income due to the foreign currency translation loss on the strengthening of the Canadian dollar during the first six months ended June 30, 2017, were primary contributors to the increase in the ratio. This increase was partially offset by the decrease in income tax payable as at the reporting date.

As at June 30, 2017, the Company's current ratio was 2.52:1, representing working capital of $40,740, compared to 2.43:1 and $36,382, respectively, as at December 31, 2016. The increase in working capital was due to an increase in trade and other receivables, inventories, taxes recoverable and other assets. This increase was offset, in part, by comparatively lower cash and cash equivalents, an increase in bank operating advances and higher trade payables and other liabilities. Cash and cash equivalents totaled $838 at June 30, 2017, compared to $10,923 at December 31, 2016 and $673 at June 30, 2016.

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. It is a demand facility secured by a general security agreement over all assets. The agreement also contains certain financial covenants.

As at June 30, 2017, the borrowing limit based on the margin formulae was $22,000, of which $960 was utilized and comprised of bank operating advances totaling $593 and $367 in outstanding letters of credit.

The Company was in compliance with all financial covenants under its term financing agreement and operating credit facility as at June 30, 2017 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 2016 annual MD&A included in the Company's 2016 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, 2016), 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 and distributed from facilities 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)
June 30 December 31
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS 2017 2016
ASSETS
Current assets
Cash and cash equivalents $ 838 $ 10,923
Trade and other receivables 32,914 21,108
Inventories 32,153 29,031
Taxes recoverable 227 -
Other assets 1,310 756
Loan receivable 92 89
67,534 61,907
Non-current assets
Loans receivable 4,371 4,408
Property, plant and equipment 166,099 170,072
170,470 174,480
Total assets $ 238,004 $ 236,387
LIABILITIES
Current liabilities
Bank operating advances $ 593 $ -
Trade payables 18,266 15,956
Income tax payable - 2,822
Current portion of debt 2,232 2,638
Current derivative financial instrument 167 155
Current provision on share appreciation rights 244 -
Decommissioning provisions 30 30
Other liabilities 5,262 3,924
26,794 25,525
Non-current liabilities
Non-current portion of debt $ 36,075 $ 35,910
Non-current derivative financial instrument 107 204
Non-current provision on share appreciation rights 53 -
Decommissioning provisions 6,467 6,429
Deferred tax liabilities 15,650 15,889
58,352 58,432
Total liabilities $ 85,146 $ 83,957
EQUITY
Share capital $ 33,915 $ 33,755
Contributed surplus 3,051 3,101
Accumulated other comprehensive income 9,369 10,829
Retained earnings 106,523 104,745
152,858 152,430
Total liabilities and equity $ 238,004 $ 236,387
Selected Financial Information
(unaudited)(in thousands of Canadian dollars, except per share amounts)
Three months
ended June 30
Six months
ended June 30
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
2017 2016 2017 2016
Revenues $ 47,814 $ 43,818 $ 69,483 $ 62,476
Cost of sales 34,577 31,039 54,301 48,940
Selling expenses 3,163 2,832 5,979 5,507
General and administrative expenses 2,990 2,110 4,876 3,714
Gain on disposal of property, plant and equipment (40 ) - (76 ) -
Other expense 88 49 128 262
40,778 36,030 65,208 58,423
Operating income 7,036 7,788 4,275 4,053
Finance expense (118 ) (578 ) (578 ) (1,351 )
Income before income taxes 6,918 7,210 3,697 2,702
(Provision for) recovery of income taxes
Current (2,308 ) (1,902 ) (2,156 ) (1,226 )
Deferred 69 (36 ) 237 58
(2,239 ) (1,938 ) (1,919 ) (1,168 )
Net income for the period $ 4,679 $ 5,272 $ 1,778 $ 1,534
Other comprehensive (loss) income
Items that will be reclassified subsequently to profit orloss when specific conditions are met:
Foreign currency translation loss $ (1,096 ) $ (183 ) $ (1,460 ) $ (3,069 )
Total comprehensive income (loss) for the period $ 3,583 $ 5,089 $ 318 $ (1,535 )
Net income per Class A Subordinate Voting shareand Class B Multiple Voting share
$

0.43

$

0.48

$

0.16

$

0.14
Weighted average Class A Subordinate Voting shares andClass B Multiple Voting shares Outstanding (000's)
10,973

10,947

10,965

10,947
Selected Financial Information
(unaudited)(in thousands of Canadian dollars)
CONDENSED INTERIM CONSOLIDATED STATEMENTS Six months ended June 30
OF CASH FLOWS 2017 2016
Cash provided by (used for)
Operating activities
Net income for the period $ 1,778 $ 1,534
Items not affecting cash and cash equivalents
Depreciation 5,098 4,797
Current taxes provision 2,156 1,226
Deferred taxes recovery (237 ) (58 )
Gain on disposal of property, plant and equipment (76 ) -
Unrealized foreign currency exchange loss 128 180
Net interest expense 663 827
Derivative financial instrument (gain) loss (85 ) 524
Other 439 278
9,864 9,308
Changes in non-cash items
Trade and other receivables (11,916 ) (9,881 )
Inventories (3,421 ) 512
Other assets (563 ) (759 )
Trade payables 3,487 (778 )
Other liabilities 1,388 1,615
(11,025 ) (9,291 )
Income tax payments (5,205 ) (2,531 )
Cash used for operating activities (6,366 ) (2,514 )
Investing activities
Purchase of property, plant and equipment (3,446 ) (8,378 )
Proceeds from repayments of loans receivable 34 32
Proceeds from disposal of property, plant and equipment 246 -
Cash used for investment activities (3,166 ) (8,346 )
Financing activities
Increase in bank operating advances 593 5,544
Increase in committed term loans - 3,405
Payment of term loans (5 ) (156 )
Interest paid (677 ) (737 )
Payments on obligations under finance leases (552 ) (471 )
Proceeds from exercise of stock options 135 -
Payment of dividends by subsidiary to non-controlling interests - (35 )
Cash (used for) provided by financing activities (506 ) 7,550
Foreign exchange on cash held in foreign currency (47 ) (38 )
Decrease in cash and cash equivalents (10,085 ) (3,348 )
Cash and cash equivalents at the beginning of the period 10,923 4,021
Cash and cash equivalents at the end of the period $ 838 $ 673
Selected Financial Information
(unaudited)(in thousands of Canadian dollars)
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Attributable to shareholders of Brampton Brick Limited
Accumulated
Other Non-
Share Contributed Comprehensive Retained controlling Total
Capital Surplus Income (Loss) Earnings Total interest Equity
Balance - January 1, 2016 $ 33,755 $ 2,641 $ 12,176 $ 97,270 $145,842 $ 37 $145,879
Net income for the period - - - 1,534 1,534 - 1,534
Other comprehensive loss (net of taxes, $nil)
-

-

(3,069
)
-

(3,069
)
-

(3,069
)
Total comprehensive (loss)income for the period
-

-

(3,069
)
1,534

(1,535
)
-

(1,535
)
Share-based compensation - 278 - - 278 - 278
Dividends paid to non-controlling interests (35 ) (35 )
Balance - June 30, 2016 $ 33,755 $ 2,919 $ 9,107 $ 98,804 $144,585 $ 2 $144,587
Balance - January 1, 2017 $ 33,755 $ 3,101 $ 10,829 $104,745 $152,430 $ - $152,430
Net income for the period - - - 1,778 1,778 - 1,778
Other comprehensive loss (net of taxes, $nil) - - (1,460 ) - (1,460 ) - (1,460 )
Total comprehensive (loss)income for the period - - (1,460 ) 1,778 318 - 318
Cash-settled, share-based compensation - (167 ) - - (167 ) - (167 )
Stock options exercised 160 (25 ) - - 135 - 135
Share-based compensation - 142 - - 142 - 142
Balance - June 30, 2017 $ 33,915 $ 3,051 $ 9,369 $106,523 $152,858 $ - $152,858

Brampton Brick Limited
Jeffrey G. Kerbel
President and Chief Executive Officer
905-840-1011
905-840-1535
Brampton Brick Limited
Trevor M. Sandler
Vice-President, Finance and Chief Financial Officer
905-840-1011
905-840-1535
investor.relations@bramptonbrick.com

Distribution channels: Real Estate & Property Management