Michelmersh: brick shortage is over

The Great British brick shortage is over. So says Martin Warner, the chief executive of the largest British owned brick maker, Michelmersh.

"The panic is over," Warner declared. "Building during the financial crisis slowed dramatically, but this is changing now and we're getting to a point now where there is steady demand and steady supply and years of growth projected."

This is in stark contrast to this time in 2014, when the Royal Institution of Chartered Surveyors warned shortages were stymying a recovery in building and construction sector.

The shortage was linked to the financial crisis, when construction ground to a halt and brickworks were left with an oversupply. To get through the crisis, brickworks around the country closed their kilns. But a revival in construction, linked in part to increased house building, saw demand increase and supply struggle to keep up.

Warner said: "The shortage is over because we're making more and importing the difference."

Michelmersh

Warner's firm is churning out 70 million bricks per year, making it the fourth largest brick maker in the UK.

The company is injecting £2.5m (€3.5m, $3.9m) in capital expenditure each year to make plant improvements and increase efficiency to keep up with demand at its four brick plants.

The change in fortunes of the construction sector has had a knock-on effect on Michelmersh's bottom line. Earlier in 2015, annual pre-tax profit rose 500% to £2.6m.

"Everybody wants a brick home," Warner said. "Britain requires 2.2 billion bricks a year and the country is at full capacity making two billion, the rest made up by imports."

Private equity

Coinciding with the end of the brick shortage and the equilibrium of supply and demand was the acquisition of two brickworks by private equity in December 2014.

Ibstock, which makes 900 million bricks per year, fell into the hands of US private equity juggernaut Bain. And Maidenhead-based Hanson was snapped up by Lone Star, another US private equity giant. Hanson employs 1,500 across 18 production sites in the UK.

According to the latest ONS figures, construction output is rising sharply, increasing by 9.5% over 2014.

Sensing the sector is on course for steady growth, it would appear private equity is lumping on.

How might it affect the sector?

If you want to build, you need bricks. There is no getting around this and Britain wants to build houses. Experts believe one repercussion of the latest acquisitions could be a rise in brick prices.

One industry source said: "The logical step they to take would be to ramp up prices, but it's early days still. They've just got their feet under the table and they're still mulling over their next move."

With a government that has promised to tackle house building, an expanding construction sector and a benign economic environment, it is no surprise private equity firms are looking to build strong foundations before they cash in.