Michelmersh Brick Holdings LON:MBH, the West Sussex brick and paver manufacturer published its final results to the end-December 2024 earlier this week.
Tony Morrison, Michelmersh’s chairman said: “The group has been able to deliver a resilient performance once again this year. This is despite the long trough in activity levels in the wider construction industry, measured by the impact on brick despatch volumes, which have declined by over 30% since the end of 2022. Michelmersh’s outperformance of this broader industry decline has been achieved by growing market share in 2023 and then maintaining those levels in 2024.”
Despite the new UK government’s mantra of ‘Build not Block’, the reality of the situation on the ground has been very different. In the three-months preceding the UK general election, construction output increased 1.2% year-on-year. However, post-election, the economic landscape worsened, and this hit the construction sector, which in the third quarter, saw construction output growth of only 0.6%, and with the economy slowing as the new government establishes itself and lays out its policies, the industry has been raising concerns of growth.
The UK government has since prioritised new building safety checks following the publication of the Grenfell Tower report, adding more red tape to a sector that was already dealing with significant bureaucratic and regulatory hurdles. This has already delayed the delivery of thousands of new housing units and created bottlenecks further down the chain, delaying the start of new developments and affecting the suppliers.
The government did commit £2bn new funding to affordable housing projects for FY2026-27, which would see 18,000 new units built. However, despite this being a big headline number, it is actually less than had been committed to affordable housing by the previous government in previous years.
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Michelmersh performance affected by sectoral woes
Michelmersh’s latest set of results has reflected the tail-end of this saga. The firm reported revenue of £70.1m for the year-ending December 2024, down 9.3% year-on-year. Although still in the black, operating profit fell one-third from £12.3m in 2023 to £8.2m last year. Profit before tax was down 36% to £8m and this negative trend affected EPS which fell from 10.44p to 6.59p y-o-y. However, management did decide to nudge up dividends from 4.5p/share to 4.6p/share.
It is worth noting that Michelmersh was aiming for a very high bar, given that 2023 was its record year across all financial metrics, and last year’s trading performance was reasonable across a wider time period, or par with the years prior to 2023.
Morrison explained the weaker set of results, saying: “We expect the fundamental resilience of our business model to support performance going forward, as we continue to trade in challenging market conditions. Against a backdrop of customer concerns about affordability and the elevated interest rate environment, the expected timeline for market recovery continues to face delays. However, with the strength of our balance sheet and the significant investments made in our facilities during the year, we are well positioned for 2025 and beyond.”
To be fair to Michelmersh, the economic backdrop isn’t perfect for what they do at the moment, and it’s been in decline since 2022. Historically high interest rates, and an unwillingness of the banks to lend has made it difficult for the firm’s clients, as CEO, Peter Sharp said: “The overall sentiment for consumers remains dampened by the relative affordability of borrowing costs given the higher level of prevailing interest rates acting as a significant drag on demand across our key markets.”
However, the management team feels that it has enough cash in the bank, £11m (down £5m in 2024) to ride out the storm and be in a good position for when the government’s high-level plans for revolutionising the UK housing market actually trickle-down to the point where foundations are being dug out and walls are going up.
Diversifying product range
The company has since it’s high point in 2022 been reviewing its business proposals and developing new products that can serve a wide range of client requirements and hopefully growing market share. A positive result of the Grenfell Report, which will be beneficial for Michelmersh, will be that across the country many residential tower blocks will need remedial work to bring themselves up to the new safety standards recommended by the Inquiry, which will stimulate new Care & Maintenance business, and the demand for new bricks and pavers.
Moreover, the company’s order intake in 2025 is outpacing production and despite a sectoral slowdown and short-term uncertainty as to when the construction sector will return to boom, Michelmersh remains independently in a good place, about 4p cheaper than it was a year ago and on our ‘One to Watch’ list.
