By Rhiannon Hoyle
Australia-based brick manufacturer Brickworks intends to focus on maintenance at some of its existing operations and getting new ones running smoothly during what could be a challenging year ahead as building-products demand slows, Managing Director Lindsay Partridge said in an interview.
Calling his approach to the year ahead “pretty conservative,” he also highlighted concerns about the potential impact of high electricity and fuel prices. But he said the company will focus on readying itself for the next upswing in demand and has no plans to cut payouts to shareholders in the meantime.
“The year ahead is going to be difficult because we just don’t know the extent of the slowdown in the second half,” Partridge said Thursday after the company reported a fall in annual earnings.
Brickworks will use the opportunity to take some plants offline for maintenance after not having done so for several years. “In a downturn, you want to strategically take plants off to do that work so that we’re ready to run in the ensuing boom that’s going to come” over the next five to 10 years, he said.
The company will also finish commissioning some new facilities and complete a recent rationalization program in North America, which reduced operating brick plants to seven from 16. There are no plans to reduce plant numbers there further, he said.
Brickworks will seek to protect margins by further raising product prices where necessary, adding to double-digit percentage increases in fiscal 2023, he said.
While “there’s no doubt there will be a downturn sometime next year,” Partridge said he has been surprised by the recent resilience of the building-products markets in Australia and the U.S.
And although pockets of tightness in labor markets remain in both places, “it is much better than it was,” he said. Labor is one of the company’s biggest costs.
Partridge highlighted the cost of electricity and fuel as possible headwinds ahead. U.S. crude oil futures on Wednesday extended their monthslong rally, bringing them to their highest level of the year.
“That would be the two biggest concerns on the horizon,” Partridge said. “We’re fortunate enough with our gas contracts, but we are to a certain extent exposed on the cost of electricity and we are also clearly exposed on the cost of diesel to run all of our mobile plant.”
Partridge reiterated the company’s intention to keep its dividend steady or rising, even through any market downturn. Brickworks–which has investments beyond its building-products business, including in industrial property–declared a final dividend of 42 Australian cents (US$0.27) a share, a 10th consecutive increase. It paid 41 cents a year ago.
“Generally, we look at the income we receive from the property trust, plus the income we receive from our investments, [and that] gives us an indication for what we’re going to pay out as a dividend,” he said. “We don’t need to make any earnings out of our building products to pay the dividend.”
The company will instead opt for less capital works or acquisitions in periods of weak earnings from its building-products business, he said. It has been 47 years since the company cut its dividend.
Brickworks on Thursday reported a 32% fall in annual underlying profit to roughly A$508 million and a 54% decline in net profit to about A$395 million, after a record result in the previous fiscal year.
The stock fell as much as 12% during morning trading in Sydney. By early afternoon, it was down by roughly 7%.
Partridge said he thinks investors “are missing the point.”
“This is our second-best-ever result,” he said, highlighting a more than A$1.1 billion increase in assets from its property trusts and a 26% stake in Australia-listed investment firm Washington H. Soul Pattinson, or WHSP. “It’s a gross overreaction by the share market.”
Brickworks recorded a surge in profit the prior fiscal year, helped by WHSP’s takeover of Australian investment company Milton. “That was a record, all-time incredible result last year, which could never be repeated in the short term,” Partridge said.
Write to Rhiannon Hoyle at [email protected]
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