Brampton Brick Reports Results for the Third Quarter Ended September 30, 2020

(All amounts are stated in thousands of Canadian dollars, except per share amounts.)
BRAMPTON, Ontario, Nov. 11, 2020 (GLOBE NEWSWIRE) — Brampton Brick Limited (TSX:BBL.A) today reported net income of $7,087, or $0.64 per share for the three months ended September 30, 2020 compared to net income of $3,276, or $0.30 per share for the corresponding quarter in 2019. The aggregate weighted average number of Class A Subordinate Voting shares and Class B Multiple Voting shares outstanding for the third quarter of 2020 and 2019 were 11,009,054 and 10,997,054, respectively.DISCUSSION OF OPERATIONSThree months ended September 30, 2020Revenues for the third quarter of 2020 increased to $52,073, from $46,750 for the same quarter of 2019. Higher shipments from both the Masonry Products and Landscape Products business segments were supported by strong customer demand. With the re-opening of the economy since the beginning of the third quarter, both residential and commercial construction activity have recovered. Importantly, a vibrant surge in consumer activity from pent-up demand associated with the post-lockdown period favourably impacted revenues for the third quarter of 2020. During the corresponding quarter of 2019, the comparative decrease in revenues due to fiscal measures introduced to contain price appreciation in the Ontario housing market was partially offset by an increase in revenues from commercial and other construction activity.Cost of sales for the third quarter ended September 30, 2020 was $37,388, compared to $37,493 for the same quarter of 2019, primarily due to lower per unit costs of production, which offset the increase in costs of sales from higher shipments. Production volumes increased during the third quarter of 2020 at the Company’s manufacturing plants due to: a catch-up in residential and commercial construction activity; increased consumer activity to renovate residential and commercial exterior landscapes in the post-lockdown period; and the replenishment of inventory volumes to more appropriate levels. In addition, a prior year non-recurring insurance claim received totaling $345 was recognized in income during the period. In the corresponding quarter of 2019, additional production costs incurred at the concrete block plant acquired in early 2019 and higher costs on low production volumes increased costs of sales.Selling expenses for the third quarter of 2020 decreased to $2,881, from $3,144 for the same quarter of 2019, primarily due to lower marketing expenses for promotional activities.General and administrative expenses for the quarter ended September 30, 2020 increased to $1,801 from $1,487 for the corresponding quarter of 2019. The increase was due to a higher provision for share appreciation rights in the third quarter of 2020. In addition, lower reserves for potential bad debt expense were recognized in the same quarter of 2019, which were partially offset by higher legal expenses relating to the acquisition of a concrete block manufacturing plant in 2019.Other expense for the three-month period ended September 30, 2020 was $64, compared to other income of $128 for the corresponding quarter of 2019. This expense primarily relates 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 operating income for the quarter ended September 30, 2020 was $9,962, compared to $4,769 for the comparative quarter of 2019, for the reasons noted above.Finance expense for the three months ended September 30, 2020 was $234, compared to $252 for the same quarter of 2019. Excluding the change in the fair value of the interest rate swap, which amounted to an unrealized gain of $67 (2019 – $51 unrealized gain), the net interest expense for the third quarter of 2020 was $301, compared to $303 for the same period of 2019.
The provision of income taxes totaled $2,641 for the third quarter of 2020, compared to a provision of income taxes of $1,241 for the comparative quarter of 2019. The increase in the provision of income taxes was due to a comparative increase in the pre-tax income of the Company’s Canadian operations as described above. 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 in the current or any prior period.Nine months ended September 30, 2020The Company recorded net income of $4,549, or $0.41 per share for the nine months ended September 30, 2020 compared to net income of $4,067, or $0.37 per share for the corresponding period of 2019. The aggregate weighted average number of Class A Subordinate Voting shares and Class B Multiple Voting shares outstanding for the first nine months of 2020 and 2019 were 11,008,014 and 10,989,320, respectively.Revenues for the nine months ended September 30, 2020 increased to $109,799 from $108,710 for the same period of 2019 on higher shipments from the Landscape Products business segment and a favourable recovery in the Masonry Products business segment. With the reopening of the economy in phases since mid-May 2020, revenues increased significantly during the post-lockdown period making up for the reduced revenue that occurred during the lockdown period of mid-March 2020 to mid-May 2020. Residential and commercial construction activity rebounded to relatively high seasonal levels and was supported by a surge in demand from landscaping activities during the summer months, which resulted in an increase in revenues for the nine-month period of 2020. Revenues during the pre-COVID-19 months of January and February 2020 were favourably impacted by a noticeable increase in the Company’s Canadian masonry markets, signaling a possible bounce from softer market conditions that existed from mid-2018, the carry-forward of residential construction from 2019 for masonry products and higher shipments under the winter booking program for landscape products.Cost of sales for the nine-month period ended September 30, 2020 increased to $87,308, from $85,648 for the same period of 2019 due to higher shipments partially offset by lower per unit costs on higher production volumes during the post-lockdown period. In addition, the increase in costs of sales was impacted by higher per unit manufacturing costs on lower production volumes, during the COVID-19 shutdown period in the first half of 2020. Under the Canada Emergency Wage Subsidy (“CEWS”) program, the Company recovered a total of $2,255 of personnel costs incurred during the shutdown period, of which $1,630 was credited to cost of sales. Excluding this amount, cost of sales for the period in 2020 increased to $88,938 compared to the same period of 2019.Selling expenses for the first nine months of 2020 decreased to $8,320 from $9,778 for the same period of 2019. As noted above, excluding the credit of $344 recognized under the CEWS program, selling expenses were $8,664 during the current period. The decrease in selling expenses was due to lower personnel, travel and marketing expenses.General and administrative expenses for the nine months ended September 30, 2020 were $5,492, compared to $5,886 for the corresponding period of 2019. As noted above, excluding the credit of $281 recognized under the CEWS program, general and administrative expenses decreased to $5,773 in line with the corresponding prior period. Higher consultancy fees related to the Company’s ERP systems and operations’ optimization projects were offset by lower personnel costs incurred in the current period compared to the corresponding period of 2019. Additionally, in 2019 lower provisions recognized for potential bad debt were offset by higher legal fees incurred on the acquisition of a manufacturing plant in that period.Other income for the nine-month period ended September 30, 2020 was $97, compared to other expense of $152 for the corresponding period of 2019. This income primarily relates to the gain 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 nine months ended September 30, 2020 was $8,799, compared to an operating income of $6,935 for the corresponding period of 2019, for the reasons noted above.Finance expense for the nine months ended September 30, 2020 was $1,327, compared to $1,154 for the corresponding period of 2019. Excluding the change in the fair value of the interest rate swap, which amounted to an unrealized loss of $405 (2019 – $240 unrealized loss), net interest expense for the first nine months of 2020 increased to $922, compared to $914 for the corresponding period of 2019.The provision of income taxes totaled $2,923 for the first nine months of 2020 compared to a provision of income taxes of $1,714 for the comparative period of 2019. The increase in the provision of income taxes was due to a comparative increase in 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 in the current or any prior period.The following paragraphs explain each operating business segment in more detail.MASONRY PRODUCTSRevenues of the Masonry Products business segment increased to $29,632 for the third quarter of 2020, from $28,473 for the corresponding quarter of 2019. During the third quarter of 2020, with the substantial reopening of the economy in Ontario and Quebec, shipments to residential construction sites increased significantly and the recovery continued in certain commercial and other development activity which collectively supported the increase in revenues during the period. This increase was partially offset by a marginal decrease in revenues from the Company’s primary U.S. market regions.Cost of sales for the third quarter of 2020 decreased to $21,602, compared to $24,090 for the corresponding quarter in 2019. Costs of sales from higher shipments were offset by lower per unit costs due to higher production volumes on increased demand, as well as from cost efficiencies in the Company’s plant network. In addition, during the third quarter of 2019, costs of sales were unfavourably impacted by scheduled production decreases and additional production costs incurred at the concrete block plant acquired in 2019.Selling expenses decreased during the third quarter of 2020 to $1,789, compared to $1,934 for the same quarter of 2019. This decrease in selling expenses was due to a decrease in expense incurred for promotional activities.Operating income for the third quarter of 2020 increased to $5,327, compared to $1,629 for the corresponding quarter of 2019 for the reasons noted above.Revenues of the Masonry Products business segment were $70,644 for the nine months of 2020, compared to $73,508 for the corresponding period of 2019. During the third quarter of 2020, as noted above, residential construction activity demonstrated a strong rebound and was aided by the recovery in commercial construction activity to pre-pandemic levels, which supported the increase in shipments during the third quarter of 2020. Shipments during the pre-pandemic months of January and February 2020 were comparatively higher due to a carry-forward of residential construction activity from 2019, however the shutdown period from mid-March to mid-May impacted this positive momentum.Cost of sales for the first nine months of 2020 was $57,464, compared to $60,015 for the corresponding period in 2019. Excluding the $1,287 credited to cost of sales under the CEWS program, cost of sales for the nine-month period of 2020 was $58,751. Costs of sales decreased compared to the same period of 2019 due to comparatively lower shipments, and lower per unit costs on higher production volumes and greater efficiencies achieved in production.Selling expenses decreased during the nine-month period of 2020 to $5,573 compared to $6,259 for the same period of 2019. Excluding the $247 credited to selling expenses under the CEWS program, selling expenses were $5,820. This decrease in selling expenses was due to a decrease in expenses normally incurred for travel and promotional activities.Gain on disposal of property, plant and equipment was $14 for the nine months of 2020 compared to a loss of $896 for the corresponding period of 2019, relating to disposed equipment at the Boisbriand, Quebec, concrete products plant.Operating income for the nine-month period ended September 30, 2020 was $4,058, compared to an operating income of $2,356 for the corresponding nine months of 2019 for the reasons noted above.LANDSCAPE PRODUCTS
Revenues of the Landscape Products business segment for the three months ended September 30, 2020 increased to $22,377 from $18,231 for the same quarter of 2019. Shipments increased significantly on a surge in consumer activity due to pent-up customer demand following the pandemic shutdown period and high seasonal demand for exterior renovations during the summer months.Cost of sales for the quarter ended September 30, 2020 was $14,076, compared to $13,195 for the corresponding quarter of 2019. The increase in cost of sales was due to higher shipments partially offset by lower per unit costs on higher production to replenish inventory volumes to appropriate levels.Operating income for the third quarter of 2020 increased to $6,295, compared to $3,437 for the same quarter in 2019 for the reasons noted above.Revenues of the Landscape Products business segment for the nine months ended September 30, 2020 increased to $38,959, from $35,086 for the same period of 2019. As noted above, increased consumer demand for exterior home improvements and upgrades during the third quarter of 2020 favourably impacted revenues, offsetting decreases in shipments experienced during the shutdown period in the first half of 2020. During the pre-pandemic months of January and February 2020, shipments were comparatively higher due to a late start to the 2019-2020 dealer winter booking program and a comparatively milder winter during that period.Cost of sales for the period ended September 30, 2020 was $27,217, compared to $25,092 for the corresponding period of 2019. Excluding the $343 credited to cost of sales under the CEWS program, cost of sales for the nine-month period in 2020 was $27,560. The increase in cost of sales was for the same reasons discussed above for the three-month period. Higher per unit costs on low production volumes during the shutdown period increased cost of sales during the period.Operating income for the nine months of 2020 increased to $7,173 compared to $5,134 for the same period of 2019.CASH FLOWSCash provided by operating activities increased to $15,109 for the nine months ended September 30, 2020, compared to $3,597 for the corresponding period in 2019, primarily due to comparatively lower inventories held, lower income tax instalments and lower disbursements of trade payables and other liabilities. This increase was partially offset by lower collections of trade and other receivables due to a shift in timing of shipments following the COVID-19 shutdown period.For the nine months of 2020, cash utilized for purchases of property, plant and equipment totaled $3,847. This amount includes amounts paid in the current period relating to prior period additions. For the same period of 2019, $5,479 was utilized for purchases of property, plant and equipment, which included an initial cash payment of $2,083 towards the business acquisition of the concrete block manufacturing plant located in Cambridge, Ontario, for a total price consideration of $6,250, excluding inventory.Capital expenditures for machinery and equipment totaled $2,914 for the nine-month period of 2020, compared to $4,026 for the same period in 2019. There were no significant expenditures for land improvements and buildings in 2020, compared to $4,774 incurred for land and land improvements, and $506 incurred for buildings in 2019, which primarily related to the business acquisition in February 2019 noted above.FINANCIAL CONDITIONThe Company’s Masonry Products and Landscape Products business segments are seasonal in nature. The Landscape Products business segment 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.Accounting impact related to COVID-19Following the spread of the COVID-19 outbreak into a global pandemic and the initial shutdown of businesses, deemed to be non-essential, as well as certain community services during the first quarter of 2020, the phased reopening of the economy in the second quarter continued at a steady pace throughout the third quarter of 2020. Accordingly, all the Company’s plant operations during the current quarter were supported by strong customer demand. However, with the resurgence in COVID-19 cases in certain regions of Ontario in early-October, the provincial government announced new capacity restrictions for certain businesses and community services. While these recent developments are not expected to have a material effect on the Company’s Ontario operations, the broader economic impact on the Company from federal and provincial government measures to address future pandemic-related challenges remains uncertain. The Company continues to actively monitor this evolving situation.To ensure the continued health and safety of its employees, suppliers and customers, the Company implemented ongoing monitoring and review procedures to ensure protocols remain valid and meet local health regulations and industry best practices.All of the Company’s operating facilities have resumed operations under strict COVID-19 protocols since mid-May 2020. In March 2020, the Company’s Ontario operations were deemed essential businesses and accordingly were not substantially affected, although new residential construction had been halted until mid-May 2020. The Company’s revenues from shipments to commercial developments were also affected during this period, as most infrastructure developments were deemed non-essential businesses during the first stage of the economic shutdown. As a result, production levels in the Company’s production facilities were impacted from mid-March until mid-May. The Company’s production operations have since returned to pre-pandemic levels and are working to rebuild low inventory levels resulting from increased construction activity and pent-up customer demand.In March 2020, the Company’s operations at its Farmersburg, Indiana facility were deemed to be an essential business by government officials and continued operations throughout the shutdown period. The operations of the Company’s U.S. landscape products manufacturing plant located in Wixom, Michigan were included in the state-wide shutdown of non-essential public spaces and shipments to construction sites. Since early May 2020, residential and commercial construction businesses reopened in the state. Operations at the Wixom, Michigan production plant have since resumed and contributed to the strong recovery in the third quarter.As a result of these developments, management has reviewed the significant judgments, estimates and impact on liquidity and financial position affecting the Company’s business.Significant judgments, estimates and liquidity and financial position:a) Expected credit losses:As at September 30, 2020, trade and other receivables totaled $27,328 (December 31, 2019 – $16,520). Customer accounts totaling $129 (December 31, 2019 – $108) were considered to be impaired and were recorded as an allowance for doubtful accounts and charged to general and administrative expenses in the condensed interim consolidated statements of comprehensive income (loss). Allowance for doubtful accounts are recognized under the simplified approach for expected lifetime credit losses.During the third quarter of 2020, with the steady progress in the phased re-opening of the Canadian and U.S. economies, residential and commercial construction businesses gained traction returning to full operations, subject to COVID-19 protocols. Accordingly, an evaluation of customer credit risk did not indicate any significant potential payment deferrals or delinquencies due to the pandemic-related business restrictions experienced during the first half of 2020. As at September 30, 2020, no additional allowance for doubtful accounts was recognized as a result of COVID-19 restrictions. The Company will continue to monitor changes to credit risk as the situation evolves.b) Impairment of non-financial assets:As at September 30, 2020, property, plant and equipment totaled $156,394. Due to the impact of COVID-19, management has completed a preliminary assessment of the external and internal indicators of impairment, as per IAS 36, Impairment of Assets and is actively evaluating the current changing business conditions. Based on the momentum in the re-opening of the economy in Ontario and Quebec, Canada, as well as in Indiana and Michigan, U.S., the business outlook of the Company’s operations for the 2020 fiscal year is expected to remain stable, in spite of the pandemic-related restrictions experienced in the first half of 2020. Accordingly, no additional impairment charge or reversal was recognized as at September 30, 2020.An impairment charge totaling $9,094 was recognized as at December 31, 2019 on the Farmersburg, Indiana clay brick plant as a result of a slower than expected recovery in the Company’s U.S. residential and commercial markets.
c) Liquidity and financial position:As at September 30, 2020, cash and cash equivalents totaled $43,236. The Company’s operating credit facility provides for borrowings up to a maximum of $22,000 (December 31, 2019 – $22,000), of which $377 (December 31, 2019 – $368) was utilized and comprised of letters of credit. Operations during the third quarter of 2020 were positively impacted by strong pent-up customer demand significantly improving the Company’s financial liquidity and flexibility and enabled the Company to repay the operating advance of $20,000 which was drawn down during the first quarter of 2020 under its operating credit facility. In addition, under the banking credit agreement, $3,250 was utilized (December 31, 2019 – Nil) under the committed capital expenditure credit facility which provides up to a maximum amount of $5,000 as at September 30, 2020.The Company’s credit facility is subject to certain financial covenants. On June 23, 2020, the Company secured a waiver of its Fixed Charge Coverage ratio for the fiscal quarters ended June 30, 2020 and September 30, 2020. This financial covenant was replaced with a liquidity requirement for each of the two fiscal quarters. Under the liquidity requirement, the cash and cash equivalents held in bank accounts with the lender plus the Company’s borrowing base of the credit facility, which is based on a margin formulae for trade receivables and inventories less priority claims, less the amount outstanding on the credit facility must not be less than $20,000 at any time. As at September 30, 2020 and September 30, 2019, the Company was in compliance with all the financial covenants under its term financing agreement and operating credit facility and anticipates that it will maintain compliance throughout 2020.As at September 30, 2020, the Company recognized $2,255 under the Canada Emergency Wage Subsidy (“CEWS”) program, of which $1,630 was credited to Cost of sales, $344 was credited to Selling expenses and $281 was credited to General and administrative expenses. In addition, under the U.S. Paycheck Protection Program (“PPP”), a term loan of USD $892 was recognized as non-current debt. The Company’s U.S. operations have utilized this amount in accordance with the terms of the loan and anticipate that the loans received under the PPP loan program will be forgiven. This amount was not taken to income during the period ended September 30, 2020 pending the filing and approval of the loan forgiveness application.Consequently, 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 financial obligations as they become due.As noted above, bank operating advances outstanding as of September 30, 2020 was Nil (December 31, 2019 – Nil).
Trade payables totaled $18,360 at September 30, 2020, compared to $16,350 at December 31, 2019. The ratio of total liabilities to shareholders’ equity was 0.52:1 at September 30, 2020, compared to 0.48:1 at December 31, 2019. This increase in the ratio was primarily due to the drawdown on the capital expenditure debt facility, the U.S. PPP loan, higher income taxes payable and higher trade payables and other liabilities on higher shipments and related accruals for sales tax remittances. This increase was partially offset by the improvement in operating results and an increase in accumulated other comprehensive income due to an increase in the value of the exchange rate of the U.S. dollar at the end of September 30, 2020, from the year-end exchange rate as at December 31, 2019.As at September 30, 2020, the Company’s current ratio was 3.23:1, representing working capital of $69,053, compared to 3.57:1 and $59,900, respectively, as at December 31, 2019. The decrease in the ratio was due to an increase in income taxes payable, higher trade payables and other liabilities, as well as a decrease in inventories. This decrease was partially offset by an increase in cash and cash equivalents and higher trade and other receivables. Cash and cash equivalents totaled $43,236 at September 30, 2020, compared to $30,953 at December 31, 2019.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..
FORWARD-LOOKING STATEMENTSCertain 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 impact of the COVID-19 pandemic on the Company’s operations, the Company’s plans in response to COVID-19, the future development plans for the Universal property, 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 2019 annual MD&A, included in the Company’s 2019 Annual Report, and in the MD&A for the three and nine months ended September 30, 2020, as well as those identified and reported in the Company’s other public filings (including the Annual Information Form for the year ended December 31, 2019), 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, Cambridge 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 Oaks™ and Boehmers™ trade names. 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)

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

SELECTED FINANCIAL INFORMATION(unaudited)(in thousands of Canadian dollars)

SELECTED FINANCIAL INFORMATION(unaudited)(in thousands of Canadian dollars) For more information please contact:Jeffrey G. Kerbel, President and Chief Executive Officer
or
Trevor M. Sandler, Vice-President, Finance and Chief Financial Officer
Brampton Brick Limited
Tel: (905) 840-1011
Fax: (905) 840-1535
e-mail: [email protected]


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