Written on the 23 March 2017 by Ben Hall

AUSTRALIA'S residential property boom has helped drive a sharp rise in first half earnings for Brickworks (ASX: BKW), which booked a record net profit after tax of $104.1 million up 35 per cent on the prior corresponding period.

The country's largest maker of bricks and tiles posted its best ever first half revenue of $428.9 million (+19 per cent) on the back of robust residential building activity in the "hot" markets of Sydney, Melbourne and southeast Queensland, including Brisbane.

Underlying net profit surged 48 percent to $111.2 million.

"Elevated levels of construction activity across the east coast continue to drive strong demand for our products, resulting in higher earnings for east coast operations," says managing director Lindsay Partridge.

"With order intake outstripping sales for the period, it is clear that the housing industry is operating at natural capacity on the east coast, limited by trade shortages and supply of titled land," he said.

"Fortunately, our extensive manufacturing network has allowed us to meet all customer requirements although increased levels of interstate transfers have been required."

The company's key building products division also recorded its best ever revenue figure of $370.2 million, and its pre-tax earnings rose 2.1 per cent to $33.3 million.

Lindsay said the short-term outlook remained positive but warned that energy costs would be one of the biggest issues facing the company.

"Although we have secured gas supply until the start of 2020, recent gas contract negotiations have resulted in a 76 per cent increase across our east coast operations," Partridge said.

"When combined with electricity price rises this will result in a $20 million per annum cost increase within two years.

"We are urgently working to mitigate this impact through investments in new fuel efficient kilns, use of alternative fuels, increasing imports and investigating offshore manufacturing in order to minimise price increases to customers."

Along with energy costs, the other drag on company performance has been caused by the downturn in residential property in Western Australia.

The downturn has affected sales, and Brickworks revealed it was restructuring its operations in the West.

"The restructuring initiatives taken in Western Australia during the first half will benefit operational performance," Partridge said.

"With Austral bricks, the high cost Malaga plant has now been closed and commissioning of the upgraded Cardup plant is underway," he said.

"Similarly, we have consolidated Auswest Timbers in Western Australia by rationalising our four operations onto one site at Greenbushes."

Brickworks lifted its interim dividend to a fully-franked 17 cents a share, up from 16 cents.

Brickworks shares were down just under one percent at 11.30am AEST to $13.65.
Author: Ben Hall





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