Chairman's Interim Statement

Trading conditions remained favourable throughout the half year to 31 March 2004. This resulted in further strong profit growth, in line with indications given in the AGM Statement of 10 February 2004.


Financial Review

On turnover up 11% at £24.70m (2003: £22.31m, restated for FRS 5: Application Note G issued in December 2003), operating profit increased by 62% to £3.20m (2003: £1.98m), representing an operating margin of 13.0% (2003: 8.9%). With net interest payable reducing to £0.03m (2003: £0.15m), pre-tax profit was 74% higher at £3.17m (2003: £1.82m). Earnings per share were 73% better at 5.41p (2003: 3.12p).

Greatly reduced closing net debt of £0.46m (2003: £5.83m), notwithstanding a normal first half cash outflow, represents gearing of 1% (2003: 11%). Period end shareholders' funds advanced by 11% to £58.74m (2003: £53.07m), equivalent to net asset value per share of 142p (2003: 129p).


Dividend

The Board has declared an interim dividend per share of 1.25p (2003: 1.0p), payable on 11 August 2004 to shareholders on the register at the close of business on 16 July 2004, with an ex-dividend date of 14 July 2004. The increase in the interim dividend is with a view to rebalancing the Company's dividend payments less heavily towards the final payment and should not be regarded as indicative of a corresponding increase in the final dividend.


Business Review

The manufacture of building materials, principally bricks and pavers, is our main activity. This is carried out at six locations - five in the West Midlands and one in West Sussex.

Both brick sales and production volumes were above those of last year, as were overall prices.

Our largest factory, at Waresley, near Kidderminster, benefited from being able to run at higher volumes in comparison to the first half of last year, when the factory underwent modification work to improve efficiencies.

The larger of our two production facilities at Kingsbury, near Tamworth, which makes extruded bricks and pavers, also saw a significant increase in its contribution. Disruption from the kiln modernisation programme at this factory was less severe than anticipated and sales volumes and prices were ahead of last year as demand in the repair, maintenance and improvement (RMI) market continued to be strong. As reported in the AGM Statement, the full commissioning of the kiln extension, necessitating a further short kiln closure, was deferred until the second half of the year. This has almost been completed. Initial indications are that this will result in the anticipated improvements in quality and it is likely that similar modifications will be made in due course to the second kiln at Kingsbury.

National brick stocks have continued to decline year on year; at the end of March 2004, they were 17% lower than a year before. The recovery in our margins has been helped by the continuing trend of national sales outstripping production, although it is apparent that this is not the same for all parts of the country. In common with our competitors, we are finding demand in the South-East sluggish, which, in particular, affects our Rudgwick factory.

Strong interest continues to be shown in our Corium brick cladding product, but, so far, this has yet to convert into significant volumes of orders.

As expected, Landsource revenues, from selling air space to waste management companies, remained modest in the half year, as our only active site is at Waresley, and will continue to be so until new agreements are in place for our other locations.


Board

At the AGM in February, John Gough retired, having served as a non-executive Director for 20 years. We all wish him a long and happy retirement and extend to him our profound thanks for the many years of distinguished service he gave the Company.

I was delighted to announce in March the appointment of Ian Fleming to the Board, as a non-executive Director. Ian, a Chartered Accountant, aged 50, has wide commercial experience and has held a number of senior appointments in industry, being the former Group Finance Director of Chesterton International plc and, formerly, Finance Director of Wimpey Homes Worldwide and Redland Bricks Holdings Limited. He will assume the role of Chairman of the Audit Committee with immediate effect.


Prospects

Housebuilders have continued to report strong demand and high reservation levels and, while the rate of progress achieved in the first half of this year is unlikely to be repeated in the second half, the Board currently anticipates that trading in the second half will give a satisfactory outcome for the year.

Further ahead, we, like the rest of the industry, are not immune from the current inflationary trends in energy prices. However, the recently published final report of Kate Barker on housing supply, commissioned by the Treasury, restates the need for an increase in housing supply and we believe this augurs well for the long term prospects of the industry.


Alexander Ward
Chairman
19 May 2004