Brampton Brick Limited Concerned Shareholder Voting Intentions For May 22, 2019 Meeting

TORONTO, May 21, 2019 /CNW/ - Concerned Shareholder of Brampton Brick Limited, George Christopoulos, with control/ direction of 133,600 Class A shares (113,600 record date), announces reasons and intention to:

• "WITHHOLD" on all nominated Directors except Christopher Bratty and Adam Peterson,
  and
• vote "FOR" all Five Shareholder Proposals (the "Proposals").

Notably, Glass Lewis recommends voting "FOR" Proposals One and Five, and also identified certain governance issues.

This press release contains only the personal views of the Concerned Shareholder, based on facts as understood.

In the Concerned Shareholder's view, Brampton Brick requires improvements to both overall long term management and governance. While adoption of the Proposals should help shareholders, inadequate shareholder returns might only be addressed by selling Brampton Brick Limited, thus realizing the value of all real estate holdings, especially 89 acre Brampton plant site and the additional 86 acres in northwest Brampton.

Brampton Brick's share price is about $1 below 1986 IPO level, nearly 33 years ago. Average ROE has been 2.06% (5yr), negative .54% (10yr) and 1.36% (15 yr). Shares trade for about 45% of book value.

The board`s responses to the 5 Proposals do not address some fundamental issues. The responses appear somewhat boilerplate, disdainful and are unacceptable given failure to create shareholder value.

The Concerned Shareholder has several concerns.

Dual Class Share Structure May Be Impeding Renewal 

The dual class structure may be an impediment to full accountability and healthy, periodic renewal of both the board and management. ROE spiked to 30.6% in 1995 and to 24.3% in 2002. Subsequently however, it appears that large investments were made in a less than timely manner, leading to large losses.

Significant Write-downs & Losses

A partial list of investments, which then led to write-downs and losses, totals about $122m/ $11.10 per share:

• $62m for Oaks Concrete (2002, 2004 and 2006);
• $50m (approximately) Indiana plant announced late 2006 (late in US housing cycle), and
• about $10m for Universal Resource.

The price for the initial 63% of Oaks reflected a goodwill premium of about 78%. The final 30% of Oaks was acquired in 2006 for $15m from a consortium in which 2 directors were involved (indirectly). The December 7, 2006 release stated Oaks' operations were "...virtually break even in 2003. Losses were incurred for 2004, 2005 and to date in 2006."

A partial list of subsequent write-offs/ losses totals about $60m/ $5.40 per share:

• Oaks write-downs of $11.1m, $13.5m and $6.7m (2005, 2007 and 2008).
• Indiana write-downs of $11.6m and $6.3m (2014 and 2017).
• Universal Resource – write-down/ loss to 2012 was about $10m.

It appears the US competitive environment and outlook could have been better estimated prior to expansion.

Board and Management Decisions May Have Left Brampton Brick Vulnerable

• Loan covenants were breached as at March 31, 2009, leading to a $30m 8% debenture financing in June 2009.
• An additional $9m (10% plus 2% fee) debenture financing, in which a director indirectly participated, followed in February 2010.
• There were a series, of perhaps necessary, asset sales from 2007 to 2009, a period of price weakness.
• Finance concerns, following years of plenty, have not been isolated. Share price about time of 1986 IPO was about $7.50 (during residential construction boom), yet 3m Class A shares were issued via private placement in 1991 netting $2.80/share, diluting shareholders.

Recent disclosures indicate intention to invest further in masonry and landscape business at the 65 acre Universal Resource site in Welland. Careful reflection on timing and success of past investments is urged.

Sale of Brampton Site to Create Shareholder Value

What may help long-time shareholders is the value of 89 acre Brampton plant site. If worth say, $1.5m per acre, this single asset represents over $12/share. Shareholder value might be maximized by selling Brampton Brick Limited in its entirety to realize the market value of the 89 acres, the many other real estate assets, and the business' intrinsic value.

It seems, after 33 years, that management and board appear to have been unable to create sufficient value for shareholders. Asked in May 2018 about selling the Brampton plant site, the CEO's response was "It would be more expensive to move". The Concerned Shareholder feels otherwise. Brampton Brick has moved before and owns many other properties, including 86 acres in northwest Brampton.

The Concerned Shareholder does not expect significant improvement without significant changes to the board's approach.

Management & Board Appear Over-Compensated

Given revenues, assets and results, at over $1m annual compensation, the CEO may be overpaid. The CEO does not seem to have voicemail at Brampton head office, which is troubling.

Directors' fees for 2018 of $653,250 (including $33,750 director fees to CEO) seem double what they might be, and appear inappropriate given the long-term performance:

• Many similar size companies' board fees are about 50% lower.
• Director fees were fully disclosed beginning with the April 2009 Circular at $349,600, including $27,000 director's fees paid to CEO.
• CEO and director compensation have nearly doubled since 2008, especially concerning given the investment decisions to 2008 and long term results.
• For 2013 to 2017, there was an average of 4.6 board meetings, yet attendance by one director was only 39% (9 of 23 meetings).

Tone at the Top

The 2015 and 2016 President's letters are almost identical. The May 24, 2018 AGM Circular was posted to SEDAR on May 9, 2018, only 15 days prior. Are the board and management fully engaged with shareholders?

Tone at the top can become problematic for any organization. The design and execution of the strategic plan by the board and the CEO have not created visible, long term shareholder value. Perhaps management has not been critically evaluated by the board. CEO compensation and director fees have nearly doubled.

There appears to be failure to adapt and learn from the past. The 2018 annual report notes the intention to build Welland facility (for $25m, per CEO's May 2018 verbal comments). But the timeliness and results of past large expenditures have not been fortunate. Similar to Oaks Concrete and Indiana decisions, the Welland intention does not appear well timed, and may not recognize that ROE has been in decline or that previous investments have produced very significant losses.

For just 4 particular projects from 2000 to 2012, approximately $157m/ $14.30 per share was invested ($35m Brampton plant expansion, $62m Oaks acquisitions, $50m Indiana and $10m Universal Resource). The last 3 projects, which closely followed the expensive Brampton expansion, were made even though the CEO and board experienced, first hand, real estate collapses of both 1981-1982 and 1989-1993. The comment in the 2012 annual report, which followed the 2007-2009 recession, seems surprising: "…we recognize that to a large extent, Brampton Brick is subject to the fluctuations in new home construction."

The Oaks, Indiana and Universal Resource investments, which resulted in write-offs of about $60m/ $5.40 per share, appear to have drained and stretched resources to the point where loan covenants were eventually breached. The June 2009 $30m 8% debenture financing was followed in February 2010 by a further $9m debenture, in which one director indirectly participated, at 10% plus an upfront 2% fee.

The fact that such a high rate of return on Brampton Brick's debt was required highlights what the board and management have been unable to deliver: adequate returns for shareholders.

Average ROE of 2.06% (5 yr), negative .54% (10yr) and 1.36% (15 yr). Shares trade for about 45% of book value.

Shareholders of Brampton Brick need better.

This press release only contains personal opinions based on facts as understood, and is not a solicitation of proxies.

SOURCE George Christopoulos

George Christopoulos, 647 291 0354