Thanks to the still high levels of new home and apartment building, Brickworks (BKW) says it’s heading towards the best market conditions it has faced in more than a decade, as the building products group reported a 20.7% jump in full-year net profit to $102.8 million.
The company, which is part of the wider group linked to Washington H Soul Pattinson (SOL), and controlled by the Milner family and allies, told the ASX yesterday the expected solid rise in 2013-14 profit was down to its building products business, which is concentrated in brick making and masonry products.
And the same division will continue to power the company’s revenue and earnings growth in the new financial year, at least in the first half.
The company is the country’s biggest brick maker and reported a 10.5% rise in revenue for the year ended July 31 to $670.3 million, driven by strong volume increases in the Austral Bricks and Austral Masonry businesses.
“The first half of financial year 2015 is likely to be the strongest market for more than a decade for our Building Products Group, with many customers reporting order banks that extend for up to a year,” CEO Lindsay Partridge said in an outlook commentary
The news hardly set the market on fire, Brickwork shares rising 0.3% yesterday to $13.55.
BKW 2Y – Brickworks rides housing recovery
"These conditions are being driven by the long awaited upturn in detached housing activity (particularly in New South Wales), combined with record levels of apartment construction.
"The latest detached housing approvals data remains strong and is still showing signs of growth in most states," Mr Partridge said in yesterday’s statement.
"The strong market conditions are continuing to drive sales growth momentum, with year to date sales in all divisions currently exceeding the prior corresponding period, despite the impact of poor weather in New South Wales. Tempering this optimistic outlook is the very competitive nature of some markets where some competitors appear intent on increasing market share, as opposed to increasing profit.
“Despite the removal of the carbon tax, Brickworks continues to face pressure from increasing gas prices, up by more than 100% over the past 6 years. With energy prices representing almost 20% of the cost of bricks, this impact has contributed to a reduction in Building Products margins to unacceptable levels. This is despite Brickworks’ significant capital investment in a range of energy reduction and alternative fuels projects to minimise the impact.
"Property earnings are expected to be lower, with continued growth in net Property Trust income being offset by a reduced contribution from land sales. Investment earnings are expected to remain stable over the long term,” Mr Partridge said yesterday.
The company said profit margins remain inadequate given high input costs, especially the rising price of gas.
Brickworks and Washington H Soul Pattinson each own around 43% of each other.
Revenue for the year ended 31 July 2014 was up 12% to a record $636.9 million, compared to $568.7 million for the prior year. "Pleasingly, this level of growth outpaced the increase in building activity during the year," directors commented.
Building products earnings before interest and tax (EBIT) jumped 37% to $45.1 million. "Improved earnings were achieved on the back of strong growth in sales volume in the second half, increased pricing in some divisions, a range of operational efficiency measures and implementation of new business initiatives,” the company said.
Land and Development EBIT was up 25.8% to $62.4 million, driven primarily by the sale of Rochedale North, the completion of two major Property Trust developments and a compression in capitalisation rates in the second half, the company said.
The improved result was primarily due to growth in the industrial Property Trust, generating an EBIT of $43.4 million, up 78.8% from $24.3 million in the prior year. Net property income distributed from the Trust was $13 million for the year, up from $10 million in the year ended 31 July 2013.
Investment EBIT, primarily from Washington H Soul Pattinson (WHSP) fell 25.6% to $44.6 million. The normalised profit from this investment was $44.4 million for the year, down from $59.5 million in the year ended 31 July 2013.
The market value of Brickworks 42.72% shareholding in WHSP was $1.530 billion at July 31, up 10.9% on the value at 31 July 2013. Cash dividends of $48.1 million were received during the year.
Directors increased the final dividend by one cent a share to 28c fully franked. This follows a half a cent increase in the interim dividend and takes the full year dividend to 42c fully franked.
