Michelmersh warns of escalating costs as brick demand falls

Brick manufacturer Michelmersh has warned of the impact of escalating costs on the sector ahead of its AGM today.

Chairman Eric Gadsden said that despite the uncertainties in the UK construction market, turnover across the Michelmersh Group in the first six months of the year was 6.6% higher than in the same period in 2007.

However, he said: "These are unsettled times in the housing and financial markets. Energy costs are rising, as are other input costs, but demand for bricks across the sector, after a stable year in 2007, is reducing, reflecting the current fall-off in demand in the housing market.”

The company, which is the fourth largest brickmaker in the country behind CRH, Heidleberg and Wienerberger, which have a 90% share of the market between them, also said it expected its larger rivals to have to close further manufacturing units.

Gadsden said: “In our opinion this is a positive development for the longer-term fortunes of the industry but in the short term recovery of rising input costs remains a major issue for the industry and it is not clear how this will be resolved. The board believes that Michelmersh is the only potential consolidator but we must be cautious in the present marketplace.”

Michelmersh has benefited from cash flow from its landfill operations, including a 25-year programme at Blockleys. Gadsden said: “While brick production is certainly under pressure, we continue to generate strong cash flow from our landfill operations. Landfill rates have continued to climb, driven by regulatory pressures as well as wider economic factors. We see no sign of any slowdown in this area of our business”.