Brickworks, Soul Patts Hang Tough On Dividends Despite Headwinds

Higher interim dividends from linked companies, Brickworks and Washington H Soul Pattinson (Soul Patts) yesterday, despite the surge in concern about the impact of COVID-19 on their future performance of the economy and companies large and small.

While uncertainty about the virus has seen Brickworks join the long list of companies dropping 2019 – 2020 earnings and revenue guidance interim payout was boosted.

The one cent a share increase in the interims from both companies is in contrast to the way Qantas has deferred its payout till later in the year, the likes of Lovisa and Super Retail Group have deferred or dropped their payouts, and others who are not paying.

Lovisa has postponed its 15 cents a share dividend until September (like Qantas), and Super Retail Group has ditched its 21.5 cent dividend altogether.

Brickworks and Soul Patts are not alone, Solomon Lew’s Premier Investments last Friday lifted its interim dividend by a cent a share to 34 cents and pushed the payout date out to September, three months longer than in 2019, to lessen the outflow of cash and drain of working capital.

Brickworks decision to lift its dividend came despite the closure of some of its operations in the US and Europe because of COVID-19 after the January 31 balance date and a sharp fall in profit for the half and the prospect of worse to come this half.

The company said underlying after profit net tax (NPAT) from continuing operations of $100 million was down 37% from the prior corresponding period. The statutory after-tax net profit fell 49% to $58 million, after including discontinued operations and the impact of some small significant items.

Brickworks Chair Robert Millner said: “Despite the decline in earnings compared to the record underlying profit achieved in the prior period, significant progress was made during the first half on a number of key strategic initiatives. Our expansion into the United States provides the Group with additional diversification and prospects for growth over the long term.”

“Meanwhile, Property delivered yet another great result, with our prime industrial facilities continuing to increase in value,” he said.

“Clearly, economic conditions have deteriorated significantly over the past few weeks, following the rapid escalation of the Coronavirus pandemic. However, Brickworks confronts these challenges in a strong position. Our diversified portfolio of attractive assets and our robust balance sheet provides us with the resilience to overcome the anticipated downturn in the months ahead,” he said.

“Increasing rental income from the Property Trust and the reliable dividends from WHSP gives Directors the confidence to increase dividends and support our shareholders, many of who rely on this income stream, particularly during these difficult times,” he added.

A full franked interim dividend of 20 cents a share will be paid up a cent, or 5% on the prior corresponding period. Revenue rose 1% in half to $449 million.

Despite that confidence, CEO, Lindsay Partridge said: “given the level of uncertainty as to the extent and duration of the Coronavirus pandemic, Brickworks is withdrawing any previous outlook statements and is unable to provide any earnings guidance at this stage.”

“The Coronavirus pandemic has resulted in significant uncertainty for Brickworks and the broader economy. This public health crisis, the like of which we have not seen for around 100 years, continues to evolve with far-reaching consequences that are difficult to predict.

“Brickworks continues to monitor the situation closely, and our primary focus is on ensuring the safety and well-being of all employees and customers.

“As such we have put in place a range of procedures, including working from home where it is practical to do so, and daily temperature checks for all those employees and visitors who do enter our production plants or office locations.”

“Building Products North America has been significantly impacted.”

The shares rose sharply early on to peak at $16.46 before a long slide in the afternoon took them to a fall of 1.2% to end the day on $15.05.

Washington H. Soul Pattinson and Company (WHSP) lifted its interim dividend by a cent to 25 cents a share, despite a 33% fall in net after-tax profit to $124.7 million.

The company sits at the apex of the group controlled by Sydney’s Milner family (it has stakes in Brickworks which has a similar stake in Soul Patts) as well as a shareholding in New Hope, TPG, API (The chemist’s group) and several other companies in mining, exploration and rural activities and stock market investment.

Statutory group profit after tax was $51.0 million, down 71.5% in the first half of 2018-19. The shares edged up 2.5% to $19.73.

Soul Patts again defended its business model, saying it “does not consider its earnings to be the key indicator of the Company’s performance. As with any investment portfolio, the key drivers of success are growth in the capital value of the portfolio and growing dividends.”

The company said it “declares its dividends from the cash it receives from its portfolio (rather than accounting earnings). The regular cash received by WHSP from its investments for the full year FY20 is expected to be in line with the previous year and will support our ability to pay a growing interim and final dividend.

“Our biggest investment, TPG, is a consumer staple business and should see increased demand for its products and services as people are increasingly working remotely. We believe the value-focused products that will be offered by the merged TPG and Vodafone will become increasingly attractive.”

“Since January, Thermal coal prices and demand have been resilient, particularly in Australian dollar terms, which will assist New Hope to maintain profitability.”

“Brickworks has the benefit of exposure to TPG and New Hope through its investment in WHSP and also a sizeable industrial property portfolio with long leases which should benefit from lower bond rates.”

“The businesses in our pharmaceutical portfolio are also performing quite well. Apex and API have both seen an increase in demand for their products since the outbreak of COVID-19,” chairman Robert Milner said in the ASX release yesterday.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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